SECURITIES PURCHASE AGREEMENT
Exhibit 10.1
This SECURITIES
PURCHASE AGREEMENT (this “Agreement”)
is dated as of
November 27, 2019, between Exactus, Inc., a Nevada corporation (the
“Company”),
and the purchasers identified on the signature pages hereto
(including each successors and assigns, the
“Purchaser”
or in the aggregate, the “Purchasers”).
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/or Rule
506 promulgated thereunder, the Company desires to issue and sell
to the Purchasers, and the Purchasers, desire 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 each 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 Transaction Documents (as
defined herein), and (b) the following terms have the meanings set
forth in this Section 1.1:
“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.
“BHCA”
shall have the meaning ascribed to such term in Section
3.1(ii).
“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 the Federal
Reserve Bank of New York is not open for business.
“Closing”
means, as applicable, the closing that occurs on the Initial
Closing Date, Second Closing Date and Third Closing Date of the
purchase and sale of the Securities pursuant to Section
2.2.
“Closing
Date” means the
Trading Day on which all of the Transaction Documents have been
executed and delivered by the applicable parties thereto in
connection with the applicable Closing (i.e.,
the Initial Closing, Second Closing or Third Closing), and all
conditions precedent to (i) each Purchaser’s obligation to
pay the Subscription Amount as to the applicable Closing and (ii)
the Company’s obligations to deliver the Securities as to the
applicable Closing have been satisfied or
waived.
“Commission”
means the United States Securities and Exchange
Commission.
“Common
Stock” means the
common stock 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.
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“Common
Stock Equivalents” means any
securities of the Company or any Subsidiary which would entitle the
holder thereof to acquire at any time Common Stock, including,
without limitation, any debt, preferred stock, right, option,
warrant, unit 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.
“Conversion
Shares” shall have the
meaning ascribed to such term in the Notes.
“Covered Person” shall have the meaning ascribed to
such term in Section 3.1(qq).
“Disclosure
Schedules” shall have the
meaning ascribed to such term in Section 3.1.
“Disqualification Events” shall have the meaning
ascribed to such term in Section 3.1(qq).
“Evaluation
Date” shall have the
meaning ascribed to such term in Section
3.1(q).
“Exchange
Act” means the
Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.
“Exempt
Issuance” means
the issuance of (i) Common Stock by the Company pursuant to the
terms and conditions of this Agreement, (ii) the issuance of (a)
Conversion Shares upon conversion of the Notes or any other Notes
issued under this Agreement in accordance with the terms of such
Notes, which for the avoidance of doubt, includes any adjustment to
the conversion price prior to conversion hereof or thereof, and (b)
Warrant Shares upon exercise of the Warrants in accordance with the
terms of the Warrants, which for the avoidance of doubt, includes
any adjustment to the Exercise Price prior to exercise thereof,
(iii) the issue of shares of Common Stock or options to employees,
officers, directors, consultants, advisors or contractors of the
Company pursuant to any stock or option plan duly adopted for any
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, provided, in no event shall the
aggregate amount of such issuances to employees, officers,
directors, consultants, advisors or contractors of the Company
during the period commencing on the Closing Date and ending on the
date no Notes are outstanding, exceed five percent (5%) of the
outstanding shares of Common Stock
(as adjusted for stock splits, stock dividends, stock combinations,
recapitalizations or other similar transactions following the
Closing Date), (iv) issuance of securities in connection with
strategic license agreements, mergers, acquisitions, purchases or
leases of assets and other partnering arrangements so long as such
issuances are not primarily for the purpose of raising capital and
(v) the issuance of Common Stock upon the exercise or exchange of
or conversion of any Common Stock Equivalents issued and
outstanding on the date of this Agreement pursuant to terms and
conditions applicable to such Common Stock Equivalents in effect as
of the date of this Agreement and disclosed in filings of the
Company with the Commission prior to the date of this Agreement,
provided that such
Common Stock Equivalents have not been amended since the date of
this Agreement to increase the number of such Common Stock
Equivalents or shares of Common Stock issuable upon the exercise or
exchange of or conversion of such Common Stock Equivalents, or to
decrease the Exercise Price, exchange price or conversion price of
such Common Stock Equivalents (other than Common Stock Equivalents
issued and outstanding on the date of this Agreement, subject to
exchange prices or conversion prices adjustable pursuant to
anti-dilution protection or in connection with stock splits or
combinations) or to extend the term of such Common Stock
Equivalents.
“Exercise
Price” shall have the
meaning ascribed to such term in the Warrants.
“FCPA”
means the Foreign Corrupt Practices Act of 1977, as
amended.
“Federal
Reserve” shall have the
meaning ascribed to such term in Section
3.1(ii).
“Fixed
Conversion Price” shall have the
meaning ascribed to such term in the Notes.
“GAAP”
shall have the meaning ascribed to such term in Section
3.1(h).
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“Indebtedness”
means (x) any liabilities for borrowed money or amounts owed in
excess of $250,000 (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
Company’s 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 $500,000 due under leases required to be capitalized
in accordance with GAAP.
“Initial
Closing” shall mean the
date of execution of this Agreement.
“Initial
Closing Date” shall mean the
date of the Initial Closing.
“Initial
Notes” shall have the
meaning ascribed to such term in Section
2.1(a).
“Initial
Subscription Amount” shall have the
meaning ascribed to such term in Section
2.1(a).
“Initial
Warrants” shall have the
meaning ascribed to such term in Section
2.1(a).
“Intellectual
Property Rights” shall have the
meaning ascribed to such term in Section
3.1(o).
“Intellectual
Property Security Agreement” means that
certain Intellectual Property
Security Agreement required to be delivered pursuant to
Section
2.3 of this Agreement, in the
form attached hereto as Exhibit
C-1.
“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
Permit” 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.
“Money
Laundering Laws” shall have the
meaning ascribed to such term in Section
3.1(nn).
“Notes”
means the 8% Senior Secured Convertible Notes due, subject to the
terms therein, Twelve (12) months from the date of issuance, issued
by the Company to the Purchaser hereunder, in the form of
Exhibit A attached hereto, and
shall include the Initial Notes, Second Notes and the Third
Notes.
“Perfection
Certificate” means
the Perfection Certificate , in the form of Exhibit
F attached
hereto.
“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.
“Principal
Amount” means, as to
the Purchaser, the amount set forth below the Purchaser’s
signature block on the signature pages hereto next to the heading
“Principal Amount,” in United States Dollars, which
shall equal the Purchaser’s Subscription
Amount.
“Proceeding”
means an action, claim, suit, investigation or proceeding
(including, without limitation, an informal investigation or
partial proceeding, such as a deposition), whether commenced or
threatened.
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“Prohibited
Short Sales” shall have the
meaning ascribed to such term in Section 4.12.
“Public
Information Failure” shall have the
meaning ascribed to such term in Section
4.3(b).
“Public
Information Failure Payments” shall have the
meaning ascribed to such term in Section
4.3(b).
“Purchaser
Party” shall have the
meaning ascribed to such term in Section 4.9.
“Registration
Rights Agreement” means
the Registration Rights Agreement , in the form of Exhibit
B attached
hereto.
“Required
Approvals” shall have the
meaning ascribed to such term in Section
3.1(e).
“Required
Minimum” means, as of
any date, (i) 300% of the maximum aggregate number of shares of
Common Stock (including all Conversion Shares) then issued or
potentially issuable in the future. upon conversion in full
of the Notes, and (ii) 100% of the maximum aggregate number of
shares of Common Stock (including all Warrant Shares), then issued
or potentially issuable upon exercise in full of the Warrants or
otherwise in any Transaction Document, ignoring any conversion or
exercise limits set forth in the Notes and the Warrants, and
assuming (a) no conversions or redemptions of any principal amount
of and/or any other payments due under the Notes from the Original
Issue Date (as defined in the Notes) through the Trading Day
immediately preceding the Maturity Date (as defined in the Notes),
(b) no exercise of the Warrants until the Trading Day immediately
preceding the Termination Date (as defined in the Warrants), (c) on
the Maturity Date and Termination Date, the Notes are fully
converted and the Warrants are fully exercised, respectively, and
(d) (A) the Notes convert into Common Stock at the Amortization
Conversion Rate (as defined in the Notes) as of a determination
date, and (B) the Warrants exercise into Warrant Shares at the
Exercise Price (as defined in the Warrants) as of any determination
date.
“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.
“Second
Closing” means the third
Business Day after the date of the filing of a registration
statement on Form S-1 (or another appropriate form in accordance
with the Registration Rights Agreement) in accordance with the
terms of the Registration Rights Agreement.
“Second
Closing Date” shall mean the
date of the Second Closing.
“Second
Notes” shall have the
meaning ascribed to such term in Section
2.1(b).
“Second
Subscription Amount” shall have the
meaning ascribed to such term in Section
2.1(b).
“Second
Warrants” shall have the
meaning ascribed to such term in Section
2.1(b).
“SEC Reports” shall have the
meaning ascribed to such term in Section
3.1(h).
“Securities”
means the Notes, the Warrants, the Conversion Shares, and the
Warrant Shares.
“Securities
Act” means the
Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
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“Security Agreement” means
the Security Agreement dated on or about the date hereof by and
among the Company, the direct and indirect Subsidiaries of the
Company , and the Purchaser as hereinafter amended and/or
supplemented altogether with all exhibits, schedules and annexes to
such Security Agreement, pursuant to which all Liabilities and
Indebtedness of the Company to the Purchaser under the Transaction
Documents are secured by the Collateral which security interest in
the Collateral shall be perfected by the Lenders UCC-1, filed with
the Secretary of State of the State of Nevada, to the extent
perfectable by the filing of a UCC-1 Financing Statement, or if
applicable, a UCC-3 Financing Statement Amendment and such other
documents and instruments related thereto, which Security Agreement
is annexed hereto as Exhibit C.
“Shell
Company” means an entity
that fits within the definition of “shell company”
under Section 12b-2 of the Exchange Act and Rule
144.
“Short
Sales” means all
“short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act.
“Solicitor”
shall have the meaning ascribed to such term in Section
3.1(qq).
“Subscription
Amount” means, as to
the Purchaser, the aggregate amount to be paid for the Notes
purchased hereunder as specified below the Purchaser’s name
on the signature page of this Agreement and next to the heading
“Subscription Amount,” in United States dollars and in
immediately available funds, and shall include the Initial
Subscription Amount, the Second Subscription Amount and the Third
Subscription Amount.
“Subsidiary”
means any subsidiary of the Company as set forth on
Schedule 3.1(a) and shall, where
applicable, also include any direct or indirect subsidiary of the
Company formed or acquired after the date
hereof.
“Subsidiary
Guarantee” means that
certain Subsidiary Guarantee required to be delivered pursuant to
Section
2.3 of this Agreement, in the
form attached hereto as Exhibit
C-2.
“Third
Closing” means the date
on which the date the
registration statement on Form S-1 (or another appropriate form in
accordance with the Registration Rights Agreement) filed in
accordance with the terms of the Registration Rights Agreement is
declared effective.
“Third
Closing Date” shall mean the
date of the Third Closing.
“Third
Notes” shall have the
meaning ascribed to such term in Section
2.1(c).
“Third
Subscription Amount” shall have the
meaning ascribed to such term in Section
2.1(c).
“Third
Warrants” shall have the
meaning ascribed to such term in Section
2.1(c).
“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
American; the Nasdaq Capital Market; the Nasdaq Global Market; the
Nasdaq Global Select Market; the New York Stock Exchange; OTCQX and
OTCQB.
“Transaction
Documents” means this
Agreement, the Notes, the Warrants, the Security Agreement, the
Intellectual Property Security Agreement, the Registration Rights
Agreement, the Subsidiary Guarantees, the Perfection Certificate,
the Transfer Agent Instruction Letter, all other security
related instruments, agreements, documents and filings and all exhibits and
schedules thereto and hereto and any other documents or agreements
executed in connection with the transactions contemplated
hereunder.
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“Transfer
Agent” means, V Stock
Transfer, the current transfer agent of the Company, with a mailing
address of 00 Xxxxxxxxx Xxxxx, Xxxxxxxx, Xxx Xxxx 00000 and a phone
number of _(000) 000-0000, attention: Xxxx Xxxxxxxxx, and any
successor transfer agent of the Company.
“Transfer
Agent Instruction Letter” means the
letter from the Company to the Transfer Agent which instructs the
Transfer Agent to issue the Conversion Shares and the Warrant
Shares pursuant to the Transaction Documents, in the form of
Exhibit D attached
hereto.
“Variable
Rate Transaction” shall have the meaning ascribed to
such term in Section 4.11(a).
“Warrants”
means the warrants to purchase 275,612 shares of Common
Stock in the form attached as
Exhibit
E to this Agreement, and shall
include the Initial Warrants, Second Warrants and Third
Warrants.
“Warrant
Shares” shall have the
meaning ascribed to such term in the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Purchase.
(a) On the Initial Closing Date, subject to Section 2.2 and upon
the terms and subject to the conditions set forth herein,
substantially concurrent with the execution and delivery of this
Agreement by the applicable parties hereto, the Purchasers for such
amount set forth opposite each such Purchaser’s name in
column (3) of the Initial Closing Date Schedule of Purchasers will
purchase, severally and not jointly, an aggregate of Seven Hundred
Fifty Thousand Dollars ($750,000) in Subscription Amount (the
“Initial
Subscription Amount”) corresponding
to an aggregate of Eight Hundred and Thirty Three Thousand Three
Hundred Thirty Three and 33/100 Dollars ($833,333.33) in Principal
Amount of Notes (the “Initial
Notes”) and Warrants
to purchase 275,612 Warrant Shares (the “Initial
Warrants”).
(b) On
the Second Closing Date, subject to Section 2.2 and upon the terms
and subject to the conditions set forth herein and provided that no
Event of Defaults under any Note exists, the Purchasers for such
amount set forth opposite each such Purchaser’s name in
column (3) of the Second Closing Date Schedule of Purchasers will
purchase, severally and not jointly, an aggregate of Two Hundred
Fifty Thousand Dollars ($250,000.00) in Subscription Amount (the
“Second
Subscription Amount”) corresponding
to an aggregate of Two Hundred and Seventy Seven Thousand Seven
Hundred Seventy Seven and 77/100 Dollars ($277,777.77) in Principal
Amount of Notes (the “Second
Notes”) and Warrants
to purchase 91,871 Warrant Shares (the “Second
Warrants”).
(c) On
the Third Closing Date, subject to Section 2.2 and upon the terms
and subject to the conditions set forth herein and provided that no
Event of Defaults under any Note exists, the Purchasers for such
amount set forth opposite each such Purchaser’s name in
column (3) of the Third Closing Date Schedule of Purchasers will
purchase, severally and not jointly, an aggregate of Seven Hundred
Fifty Thousand Dollars ($750,000) in Subscription Amount (the
“Third
Subscription Amount”) corresponding
to an aggregate of Eight Hundred and Thirty Three Thousand Three
Hundred Thirty Three and 33/100 Dollars ($833,333.33) in Principal
Amount of Notes (the “Third
Notes”) and Warrants
to purchase 275,612 Warrant Shares (the “Third
Warrants”).
2.2 Closing.
On each Closing Date, upon the terms and subject to the conditions
set forth herein, substantially concurrent with the execution and
delivery of this Agreement by the applicable parties hereto, the
Company agrees to sell, and each Purchaser, agrees to purchase,
such Purchaser’s Closing Subscription Amount as set forth on
the signature page hereto executed by such Purchaser. At the
closing (i) on the Initial Closing Date, each such Purchaser shall
deliver to the Company, via wire transfer to an account designated
by the Company, immediately available funds equal to such
Purchaser’s Initial Subscription Amount as set forth on the
signature page hereto executed by such Purchaser, and the Company
shall deliver to such Purchaser the Initial Notes and Initial
Warrants, as determined pursuant to Section 2.3(a), and the Company
and such Purchaser shall deliver the other items set forth in
Section 2.3 deliverable at the Closing; (ii) on the Second Closing
Date, each such Purchaser shall deliver to the Company, via wire
transfer to an account designated by the Company, immediately
available funds equal to such Purchaser’s Second Subscription
Amount as set forth on the signature page hereto executed by such
Purchaser, and the Company shall deliver to such Purchaser the
Second Notes and Second Warrants, as determined pursuant to Section
2.3(a), and the Company and such Purchaser shall deliver the other
items set forth in Section 2.3 deliverable at the Closing; and
(iii) on the Third Closing Date, each such Purchaser shall deliver
to the Company, via wire transfer to an account designated by the
Company, immediately available funds equal to such
Purchaser’s Third Subscription Amount as set forth on the
signature page hereto executed by such Purchaser, and the Company
shall deliver to such Purchaser the Third Notes and Third Warrants,
as determined pursuant to Section 2.3(a), and the Company and such
Purchaser shall deliver the other items set forth in Section 2.3
deliverable at the Closing . Upon satisfaction of the covenants and
conditions set forth in Sections 2.3 and 2.4 for the Closing, the
Closing may by agreement be undertaken remotely by electronic
exchange of Closing documentation.
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2.3 Deliveries.
(a) On
or prior to each Closing Date (except as noted), the Company shall
deliver or cause to be delivered to each Purchaser the
following(items (i),(ii) and (vi)(vii)(viii)and (x) to be delivered
only with respect to the closing on the Initial Closing
Date):
(i) this
Agreement duly executed by the Company;
(ii) the
Registration Rights Agreement duly executed by the
Company;
(iii)
a Note (the Initial
Note on the Initial Closing Date, the Second Note on the Second
Closing Date and the Third Note on the Third Closing Date) with the
applicable Principal Amount equal to the respective amounts
set forth opposite such Purchaser’s name in column (2) on the
Schedule of Purchasers, registered in the
name of the Purchaser;
(iv)
such aggregate number of Warrants
(the
Initial Warrants on the Initial Closing Date, the Second Warrants
on the Second Closing Date and the Third Warrants on the Third
Closing Date) as is set forth
across from such Purchaser’s name in column (4) of the
Schedule of Purchasers being purchased by such Purchaser at the
Closing pursuant to this Agreement.
(v)
a form of opinion from Company counsel in form and substance
satisfactory to Purchaser;
(vi)
the Security
Agreement, duly executed by the Company and UCC-1s;
(vii)
the Intellectual Property Security Agreement and Subsidiary
Guarantee, each duly executed by the Company and each Subsidiary of
the Company, as applicable;
(viii)
if and as applicable, UCC-3 filings terminating all UCC-1 financing
statements other than the UCC financing statement that references
the Purchaser as the secured parties;
(ix)
perfection certificate
executed by the Company, which has been previously provided
to Purchaser;
(x)
the Subsidiary
Guarantee executed by each Subsidiary and Intellectual Property
Security Agreement, each duly executed by the Purchaser and each
Subsidiary; and
(xi)
an officer’s
certificate in form and substance satisfactory to the
Purchaser;
(xii)
a secretary’s
certificate in form and substance satisfactory to the Purchaser,
including a Certified copy of the Certificate of Incorporation,
Certificate of Designation all as certified by the Secretary of
State of the State of Nevada; and
(xiii)
the Transfer Agent Instruction Letter duly executed by the Company
and the Transfer Agent.
(b) On
or prior to each Closing Date unless otherwise indicated, the
Purchaser shall deliver or cause to be delivered to the Company, as
applicable, the following (items (i), (iii) and (iv) to be
delivered only with respect to the Initial
Closing):
(i)
this Agreement duly executed by the Purchaser;
(ii)
the Purchaser’s Subscription Amount as to the Closing by wire
transfer to the account specified in writing by the
Company;
(iii)
the Security
Agreement, duly executed by the Purchaser; and
(iv)
the Registration Rights Agreement duly
executed by the Purchaser .
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2.4 Closing
Conditions.
(a) The
obligations of the Company hereunder in connection with each
Closing are subject to the following conditions being
met:
(i)
the accuracy in all material respects as at each 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 each Closing Date shall have been
performed; and
(iii)
the delivery by the Purchaser of the items set forth in Section
2.3(b) of this Agreement.
(b) The
respective obligations of each Purchaser hereunder in connection
with each the Closing are subject to the following conditions being
met:
(i)
the accuracy in all material respects when made as to each 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 Closing Date shall have been
performed;
(iii)
the delivery by the Company of the items set forth in Section
2.3(a) of this Agreement;
(iv)
there is no existing Event of Default (as defined in the Notes) and
no existing event which, with the passage of time or the giving of
notice, would constitute an Event of Default;
(v)
there is no breach of an obligations, covenants and agreements
under the Transaction Documents and no existing event which, with
the passage of time or the giving of notice, would constitute a
breach under the Transaction Documents;
(vi)
there shall have been no Material Adverse Effect with respect to
the Company since the date hereof;
(vii)
from the date hereof to the Closing Date, trading in the Common
Stock shall not have been suspended by the Commission or the
Company’s principal Trading Market and, at any time prior to
the Closing Date, trading in securities generally as reported by
Bloomberg L.P. shall not have been suspended or limited, or minimum
prices shall not have been established on securities whose trades
are reported by such service, or on any Trading Market, nor shall a
banking moratorium have been declared either by the United States
or New York State authorities nor shall there have occurred any
material outbreak or escalation of hostilities or other national or
international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each
case, in the reasonable judgment of the Purchaser, and without
regard to any factors unique to the Purchaser, makes it
impracticable or inadvisable to purchase the Securities at the
Closing;
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(viii)
the
Company meets the current public information requirements under
Rule 144 in respect of the Conversion Shares or Warrant Shares and
any other shares of Common Stock issuable under the Notes or the
Warrants;
(ix)
the Company has
filed with the Commission any required reports under Section 13 or
15(d) of the Exchange Act such that it is in compliance with Rule
144(c)(1) (or Rule 144(i)(2), if applicable), including, without
limitation, any reports that the Commission requires the Company to
amend and/or re-submit; and
(x)
the Company has satisfied any other material conditions contained
herein or the other Transaction Documents, including, without
limitation those set forth in Section 2.3 herein.
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 (which for purposes of this Section means the
Company and all of its Subsidiaries) hereby makes the
following representations and warranties to the Purchaser as of
each Closing Date:
(a) Subsidiaries.
All of the direct and indirect subsidiaries of the Company are set
forth on
Schedule 3.1(a). The Company owns,
directly or indirectly, all or a majority 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.
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(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 Company’s 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.
(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 Company’s
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.
The Notes and Warrants are
duly authorized and their issuance has been authorized , 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 and the security interest
provided for in the Transaction Documents. The Conversion Shares
and Warrant 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.
(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,
except as set forth on
Schedule 3.1(d): (i) conflict with or
violate any provision of the Company’s or any
Subsidiary’s 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 (except Liens in favor of the Purchaser) 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) 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.
-10-
(e) Filings,
Consents and Approvals. 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
Sections 4.3 and 4.14 of this Agreement; and (ii) the filing of
Form D with the Commission and such filings as are required to be
made under applicable state securities laws (the
“Required
Approvals”).
(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 Conversion Shares and the
Warrant 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 Conversion Shares and Warrant Shares at least equal to 100% of
the Required Minimum on the date hereof.
(g) Capitalization.
The capitalization of the Company is as set forth on
Schedule 3.1(g), which
Schedule 3.1(g) shall also include the
number of shares of Common Stock owned beneficially, and of record,
by Affiliates of the Company as of the date hereof. The Company has
not issued capital stock since its most recently filed periodic
report under the Exchange Act except as set forth on
Schedule 3.1(g), except the issuance
of shares of Common Stock to employees pursuant to the
Company’s incentive plans and except pursuant to the
conversion and/or exercise of Common Stock Equivalents outstanding
as of the date of the most recently filed periodic report under the
Exchange Act 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 as set forth on
Schedule 3.1(g). 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
except as set forth on
Schedule 3.1(g). 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 except as set forth on
Schedule 3.1(g). 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
Company’s capital stock to which the Company is a party or,
to the knowledge of the Company, between or among any of the
Company’s stockholders. None of the Company’s or
any Subsidiary’s capital stock is subject to preemptive
rights or any other similar rights or any Liens suffered or
permitted by the Company or any Subsidiary. There are no (i)
outstanding debt securities, notes, credit agreements, credit
facilities or other agreements, documents or instruments evidencing
material Indebtedness of the Company or any of its Subsidiaries or
by which the Company or any of its Subsidiaries is or may become
bound; (ii) financing statements securing obligations in any
amounts filed in connection with the Company or any of its
Subsidiaries; (iii) 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 Securities Act (except
pursuant to this Agreement); (iv) outstanding securities or
instruments of the Company or any of its Subsidiaries which contain
any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or
any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries; (v) securities or
instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Securities. Neither the
Company nor any Subsidiary has any stock appreciation rights or
“phantom stock” plans or agreements or any similar plan
or agreement; and neither the Company nor any of its Subsidiaries
have any liabilities or obligations required to be disclosed in the
SEC Reports which are not so disclosed in the SEC Reports, other
than those incurred in the ordinary course of the Company’s
or its Subsidiaries’ respective businesses and which,
individually or in the aggregate, do not or could not have a
Material Adverse Effect. The Company has furnished to the
Purchasers true, correct and complete copies of the Company’s
Certificate of Incorporation, as amended and as in effect on the
date hereof, and the Company’s bylaws, as amended and as in
effect on the date hereof.
-11-
(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)
thereof in a timely manner, for the two (2) 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”). 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,
year-end audit adjustments.
(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 and except as set forth
in
Schedule 3.1(i): (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
Company’s 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, 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 federal
securities laws at the time this representation is made or deemed
made that has not been publicly disclosed at least (1) 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 except as set forth in
Schedule 3.1(j), or against or
affecting the Company’s current or former officers or
directors in their capacity as such, 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, and 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 that is likely to lead to action that can reasonably
be expected to result in a Material Adverse Effect. 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.
-12-
(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 Company’s or its Subsidiaries’ employees is a
member of a union that relates to such employee’s
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 material
compliance with all U.S. federal, state, local and foreign laws and
regulations known to it 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, except as set forth
on
Schedule 3.1(l): (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
Permit”), and neither
the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any
Material Permit. Neither the Company nor any of its
Subsidiaries is in violation of any term of or in default under its
Certificate of Incorporation, any certificate of designation,
preferences or rights of any other outstanding series of preferred
stock of the Company or any of its Subsidiaries or Bylaws or their
organizational charter, certificate of formation or certificate of
incorporation or bylaws, respectively. Neither the Company nor any
of its Subsidiaries is in violation of any judgment, decree or
order or any statute, ordinance, rule or regulation applicable to
the Company or any of its Subsidiaries, and neither the Company nor
any of its Subsidiaries will conduct its business in violation of
any of the foregoing, except in all cases for possible violations
which could not, individually or in the aggregate, have a Material
Adverse Effect. Without limiting the generality of the foregoing,
the Company is not in violation of any of the rules, regulations or
requirements of the Trading Market and has no knowledge of any
facts or circumstances that could reasonably lead to delisting or
suspension of the Common Stock by the Trading Market in the
foreseeable future. Since 2013, (i) the Common Stock has been
listed or designated for quotation on the Trading Market, (ii)
trading in the Common Stock has not been suspended by the
Commission or the Trading Market, and (iii) the Company has
received no communication, written or oral, from the Commission or
the Trading Market regarding the suspension or delisting of the
Common Stock from the Trading Market. The Company and each of its
Subsidiaries possess all certificates, authorizations and permits
issued by the appropriate regulatory authorities necessary to
conduct their respective businesses, except where the failure to
possess such certificates, authorizations or permits would not
have, individually or in the aggregate, a Material Adverse Effect,
and neither the Company nor any such Subsidiary has received any
notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
-13-
(n) Title
to Assets. 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 as set forth in
Schedule 3.1(n) and 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 necessary
or required for use in connection with their respective businesses
as presently conducted and which the failure to so have could have
a Material Adverse Effect (collectively, the
“Intellectual
Property Rights”). As used
herein, the businesses of the Company and Subsidiaries as presently
conducted means the business of hemp and hemp derived CBD. 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 except as disclosed in
Schedule 3.1(o). 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) Transactions
with Affiliates and Employees. Except as set forth
on
Schedule 3.1(p), 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.
(q) Xxxxxxxx-Xxxxx;
Internal Accounting Controls. The Company and the
Subsidiaries are in compliance with any and all applicable
requirements of the Xxxxxxxx-Xxxxx 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
management’s general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain asset
accountability; (iii) access to assets is permitted only in
accordance with management’s general or specific
authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. The
Company and 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
Commission’s rules and forms. The Company’s 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”) and determined
that such controls and procedures were ineffective. 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.
-14-
(r) Certain
Fees. Other than as set
forth on
Schedule 3.1(r), no brokerage or
finder’s 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.
(s) Private
Placement. Assuming the accuracy
of each Purchaser’s 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.
(t) 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.
(u) Registration
Rights. Other than pursuant
to this Agreement, 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.
(v) Listing
and Maintenance Requirements. The Common Stock is
registered pursuant to 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. Other than as set forth on
Schedule 3.1(v), the Company has not,
in the twelve (12) months preceding the date hereof, received
notice from any Trading Market on which the Common Stock is or has
been listed or quoted to the effect that the Company is not in
compliance with the listing or maintenance requirements of such
Trading Market. 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.
(w) 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 Company’s Articles 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 Company’s issuance of
the Securities and the Purchaser’s ownership of the
Securities.
(x) 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 in all material respects 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 press releases disseminated by the
Company during the twelve months preceding the date of this
Agreement taken as a whole do not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made
and when made, not misleading. The Company
acknowledges and agrees that no Purchaser makes or 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-
(y) No
Integrated Offering. Assuming the accuracy
of the Purchaser’s 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.
(z) 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.
(aa) 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.
(bb) Accountants.
The Company’s accounting firm is set forth on
Schedule 3.1(bb) of the Disclosure
Schedules. To the knowledge and belief of the Company, such
accounting firm is a registered public accounting firm as required
by the Exchange Act.
(cc) 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 Company’s
ability to perform any of its obligations under any of the
Transaction Documents.
(dd) Acknowledgment
Regarding Purchaser’s Purchase of
Securities. The Company
acknowledges and agrees that the Purchaser is acting solely in the
capacity of an arm’s 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 their respective representatives or agents in
connection with the Transaction Documents and the transactions
contemplated thereby is merely incidental to the Purchaser’s
purchase of the Securities. The Company further represents to the
Purchaser that the Company’s 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.
(ee) 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 Company’s placement agent in connection with the
placement of the Securities.
(ff) Stock
Option Plans. The Company has not
knowingly granted, and there is no and has been no Company policy
or practice to knowingly grant, stock options prior to, or
otherwise knowingly coordinate the grant of stock options with, the
release or other public announcement of material information
regarding the Company or its Subsidiaries or their financial
results or prospects.
(gg) 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”).
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(hh) 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, and the Company shall so certify upon Purchaser’s
request.
(ii) 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.
(jj) Conduct
of Business. The Company has all requisite corporate power and
authority, and has all necessary authorizations, approvals, orders,
licenses, certificates and permits of and from all governmental
regulatory officials and bodies that it needs as of the date hereof
to conduct its business purpose as described in its SEC Reports,
except for the absence of which would not reasonably be expected to
result in a Material Adverse Effect. The Company believes that the
transaction of its business, including sales of its hemp-derived
products are in compliance with all applicable regulations since
all of its products that contain hemp, contain less than 0.3% THC
content and are sold only in states in the United States that have
not prohibited the sale of hemp products. No regulatory authority
has indicated that it will prohibit the trading of the
Company’s securities based upon its sale of CBD products nor
will the Purchaser be prohibited from depositing, clearing or
settling the Conversion Shares or Warrant Shares, including through
DTC or otherwise, on account of the Company’s sale of CBD
products or transaction of its business.
(kk) Tax
Status. Except for matters that would not, individually or
in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company (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 know of no basis for
any such claim.
(ll) Indebtedness.
The Company on the date hereof, has no Indebtedness other than as
set forth in Schedule
3.1(n). As of the Closing Date, except for the senior
Indebtedness as set forth and identified in Schedule 3.1(n), no
Indebtedness or other claim against the Company is senior to or
pari passu with the Notes
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). Neither the Company nor any of its (i) is a party to any
contract, agreement or instrument, the violation of which, or
default under which, by the other party(ies) to such contract,
agreement or instrument could reasonably be expected to result in a
Material Adverse Effect, (ii) is in violation of any term of, or in
default under, any contract, agreement or instrument relating to
any Indebtedness, except where such violations and defaults would
not result, individually or in the aggregate, in a Material Adverse
Effect, or (iii) is a party to any contract, agreement or
instrument relating to any Indebtedness, the performance of which,
in the judgment of the Company’s officers, has or is expected
to have a Material Adverse Effect. For purposes of this
Agreement.
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(mm) Acknowledgment
Regarding Purchaser’s Purchase of Securities. The
Company acknowledges and agrees that each Purchaser is acting
solely in the capacity of an arm’s length purchaser with
respect to the Transaction Documents and the transactions
contemplated hereby and thereby. and that no Purchaser is (i) an
officer or director of the Company or any of its Subsidiaries, (ii)
to its knowledge, an Affiliate of the Company or any of its
Subsidiaries, or (iii) to its knowledge, a “beneficial
owner” of more than 10% of the shares of Common Stock (as
defined for purposes of Rule 13d-3 of the Exchange Act. The Company
further acknowledges that no Purchaser is acting as a financial
advisor or fiduciary of the Company or any of its Subsidiaries (or
in any similar capacity) with respect to the Transaction Documents
and the transactions contemplated hereby and thereby, and any
advice given by a Purchaser or any of its representatives or agents
in connection with the Transaction Documents and the transactions
contemplated hereby and thereby is merely incidental to such
Purchaser’s purchase of the Securities. The Company further
represents to each Purchaser that the Company’s decision to
enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its
representatives.
(nn) 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.
(oo) Subsidiary
Rights. The Company has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive
dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or any
Subsidiary.
(pp) Shell
Company Status. The Company is not
presently and has not been an issuer identified as a
“Shell
Company” except as set
forth in
Schedule 3.1(pp).
(qq) No
“Bad Actor” Disqualification. The Company has
exercised reasonable care, in accordance with Commission rules and
guidance, and has conducted a factual inquiry, the nature and scope
of which reflect reasonable care under the relevant facts and
circumstances, to determine whether any Covered Person (as defined
below) is subject to any of the “bad actor”
disqualifications described in Rule 506(d)(1)(i) to (viii) under
the Securities Act (“Disqualification
Events”). To the
Company’s knowledge, after conducting such sufficiently
diligent factual inquiries, no Covered Person is subject to a
Disqualification Event, except for a Disqualification Event covered
by Rule 506(d)(2) or (d)(3) under the Securities Act. The Company
has complied, to the extent applicable, with any disclosure
obligations under Rule 506(e) under the Securities Act.
“Covered Persons” are those persons specified in Rule
506(d)(1) under the Securities Act, including the Company; any
predecessor or affiliate of the Company; any director, executive
officer, other officer participating in the offering, general
partner or managing member of the Company; any beneficial owner of
10% or more of the Company’s outstanding voting equity
securities, calculated on the basis of voting power; any promoter
(as defined in Rule 405 under the Securities Act) connected with
the Company in any capacity at the time of the sale of the
Securities; and any person that has been or will be paid (directly
or indirectly) remuneration for solicitation of purchasers in
connection with the sale of the Securities (a
“Solicitor”), any general partner or managing member of
any Solicitor, and any director, executive officer or other officer
participating in the offering of any Solicitor or general partner
or managing member of any Solicitor.
(rr) Full
Disclosure. No representation
or warranty by the Company in this Agreement and no statement
contained in the Disclosure Schedules to this Agreement or any
certificate or other document furnished or to be furnished to the
Purchasers pursuant to this Agreement contains any untrue statement
of a material fact, or omits to state a material fact necessary to
make the statements contained therein, in light of the
circumstances in which they are made, not
misleading.
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3.2 Representations
and Warranties of the Purchaser. Each Purchaser,
individually for itself and for no other Purchaser, hereby
represents and warrants as of the date hereof and as of each
Closing Date to the Company as follows (unless as of a specific
date therein in which case they shall be accurate as of such
date):
(a) Organization;
Authority. The Purchaser is
either an individual or 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. 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.
(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 Purchaser’s
right to sell the Securities in compliance with applicable federal
and state securities laws). Purchaser understands that any transfer
of the Securities will be made only in compliance with the
Securities Act and applicable 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 the Notes or
exercise the Warrants it will be an “accredited
investor” as defined in Rule 501(a)(1), (a)(2), (a)(3),
(a)(7) or (a)(8) 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
acknowledges that it must bear the economic risk of an investment
in the Securities for an indefinite period of time because, among
other things, the Securities have not been registered under the
Securities Act, and, therefore, cannot be sold, transferred,
pledged, or otherwise disposed of unless they are subsequently
registered under the Securities Act and the applicable state
securities laws or the Purchaser delivers an opinion of counsel to
the Company (in reasonably acceptable form and substance to the
Company) that an exemption from such registration is
available).
(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.
-19-
(f) Access
to Information. In order to
adequately evaluate the merits and risks of an investment in the
Company, the Purchaser has had an opportunity to (i) ask questions
and receive answers from the Company and its representatives
concerning the Company and the Purchaser’s investment
therein, and (ii) obtain any additional information which the
Purchaser has requested with respect to the Company and the
Purchaser’s investment therein.
(g) No
Government Approval. The Purchaser
understands that no federal or state governmental agency has passed
upon or will pass upon the Securities or has made or will make any
finding or determination as to the fairness of investment in the
Securities.
(h) Agreement.
The Purchaser has been furnished and has read, understands and is
fully familiar with, this Agreement and the Transaction Documents,
which will govern the Securities.
(i) 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 purchases or sales, 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. Notwithstanding
the foregoing, in the case of a Purchaser that is a multi-managed
investment vehicle whereby separate portfolio managers manage
separate portions of the Purchaser’s assets and the portfolio
managers have no direct knowledge of the investment decisions made
by the portfolio managers managing other portions of the
Purchaser’s assets, the representation set forth above shall
only apply with respect to the portion of assets managed by the
portfolio manager that made the investment decision to purchase the
Securities covered by this Agreement. 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
Purchaser’s right to rely on the Company’s
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.
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
Securities other than pursuant to an effective registration
statement or Rule 144, to the Company or to an Affiliate of a
Purchaser or in connection with a pledge as contemplated in Section
4.1(b), 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, at the Company’s sole
expense in the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred
Securities under the Securities Act. As a condition of transfer,
any such transferee shall agree in writing to be bound by the terms
of this Agreement and shall have the rights and obligations of a
Purchaser under this 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 substantially
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.
-20-
The Company acknowledges and agrees that the Purchaser may from
time to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or
all of the Securities to a financial institution that is an
“accredited investor” as defined in Rule 501(a) under
the Securities Act and who agrees to be bound by the provisions of
this Agreement and, if required under the terms of such
arrangement, the Purchaser may transfer pledged or secured
Securities to the pledgees or secured parties. Such a pledge or
transfer would not be subject to approval of the Company and no
legal opinion of legal counsel of the pledgee, secured party or
pledgor shall be required in connection therewith. Further, no
notice shall be required of such pledge. At the Company’s
expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the
Securities.
(c) Certificates
evidencing the Conversion Shares or the Warrant Shares shall not
contain any legend (including the legend set forth in Section
4.1(b) hereof): (i) while a registration statement covering the
resale of such security is effective under the Securities Act; (ii)
following any sale of such Conversion Shares or Warrant Shares
pursuant to Rule 144; (iii) if such Conversion Shares or the
Warrant Shares are eligible for sale under Rule 144; or (iv) 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). The
Company shall upon request of a Purchaser and at the
Company’s sole expense cause its counsel (or at the
Purchaser’s option, counsel selected by the Purchaser) to
issue a legal opinion to the Transfer Agent promptly after any of
the events described in (i)-(iv) in the preceding sentence if
required by the Transfer Agent to effect the removal of the legend
hereunder (with a copy to the applicable Purchaser and its broker).
If all or
any portion of any Note or Warrant is converted or exercise,
respectively, at a time when there is an effective registration
statement to cover the resale of the Conversion Shares or Warrant
Shares, respectively, or if such Conversion Shares or Warrant
Shares may be sold under Rule 144 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) then such Conversion Shares or
Warrant Shares shall be issued free of all legends. The Company
agrees that following such time as such legend is no longer
required under this Section 4.1(c), it will, no later than two (2)
Trading Days following the delivery by a Purchaser to the Company
or the Transfer Agent of a certificate representing Conversion
Shares or the Warrant Shares, as applicable, issued with a
restrictive legend (such third (3rd)
Trading Day, the “Legend
Removal Date”), instruct the
Transfer Agent to issue and 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 the Conversion Shares or the Warrant Shares
subject to legend removal hereunder shall be transmitted by the
Transfer Agent to the Purchaser by crediting the account of the
Purchaser’s prime broker with the Depository Trust Company
System as directed by the Purchaser.
(d) In
addition to the Purchaser’s other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated
damages and not as a penalty, $1,000 per Trading Day for each
Trading Day after the Legend Removal Date until such certificate is
issued without a legend. Nothing herein shall limit the
Purchaser’s right to pursue actual damages for the
Company’s 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.
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 Conversion Shares or Warrant 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.
-21-
4.3 Furnishing
of Information; Public Information.
(a) 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.
(b) At
any time during the period commencing from the six (6)-month
anniversary of the date hereof and ending at such time that all of
the Securities may be sold without the requirement for the Company
to be in compliance with Rule 144(c)(1) and otherwise without
restriction or limitation pursuant to Rule 144, if the Company
shall fail for any reason to satisfy the current public information
requirement under Rule 144(c) (a “Public
Information Failure”) then, in
addition to the Purchaser’s other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated
damages and not as a penalty, by reason of any such delay in or
reduction of its ability to sell the Securities, an amount in cash
equal to two (2%) percent of the aggregate Subscription Amount of
the Purchaser’s Securities that continue to be held by such
Purchaser on the day of a Public Information Failure and on every
thirtieth (30th)
day (pro-rated for periods totaling less than thirty days)
thereafter until the earlier of (a) the date such Public
Information Failure is cured and (b) such time that such public
information is no longer required for the Purchaser to transfer the
Conversion Shares or Warrant Shares pursuant to Rule 144. The
payments to which a Purchaser shall be entitled pursuant to this
Section 4.3(b) are referred to herein as “Public
Information Failure Payments.” Public
Information Failure Payments shall be paid on the earlier of (i)
the last day of the calendar month during which such Public
Information Failure Payments are incurred and (ii) the third
(3rd)
Business Day after the event or failure giving rise to the Public
Information Failure Payments is cured. Nothing herein shall limit
the Purchaser’s right to pursue actual damages for the Public
Information Failure, 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.
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 or Notice of Exercise included in any Note or Warrant,
respectively, sets forth the totality of the procedures required of
the Purchaser in order to convert such Note or exercise such
Warrant. Without limiting the preceding sentences, no ink-original
Notice of Conversion or Notice of Exercise 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 Notes or exercise the Warrants, respectively. No
additional legal opinion, other information or Notice of Exercise
instructions shall be required of the Purchaser to convert such
Note or exercise such Warrant, respectively. The Company shall
honor conversions of any Note or exercise of any Warrant, and shall
deliver Conversion Shares or Warrant Shares, respectively, in
accordance with the terms, conditions and time periods set forth in
the Transaction Documents.
4.6 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.
-22-
4.7 Material
Non-Public Information. Except with respect
to the material terms and conditions of the transactions
contemplated by the Transaction Documents, the Company covenants
and agrees that neither it, nor any of its subsidiaries, 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 such information is disclosed to the public, or
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.
4.8 Use
of Proceeds. The Company shall use
the net proceeds as set forth in
Schedule 4.8.
4.9 Indemnification
of Purchaser. Subject to the
provisions of this Section 4.9, the Company will indemnify and hold
the Purchaser and its directors, officers, managers, 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, managers, 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
any breach of any of the representations, warranties, covenants or
agreements made by the Company in this Agreement or in the other
Transaction Documents. 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 (x) for any settlement by a Purchaser Party
effected without the Company’s prior written consent, which
shall not be unreasonably withheld or delayed; or (y) to the
extent, but only to the extent that a loss, claim, damage or
liability is attributable to any Purchaser Party’s 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
4.9 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 indemnification 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.
4.10 Reservation
and Listing of Securities and SEC Filings.
(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.
(b) If,
on any date, the number of authorized but unissued (and otherwise
unreserved) shares of Common Stock is less than 100% of the
Required Minimum on such date, then the Board of Directors shall
use commercially reasonable efforts to amend the Company’s
Articles of Incorporation to increase the number of authorized but
unissued shares of Common Stock to at 100% of the Required Minimum
at such time, as soon as possible and in any event not later than
the 75th
day after
such date.
(c) 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 at least equal to Required Minimum on the
date of such application; (ii) take all steps necessary to cause
such shares of Common Stock to be approved for listing or quotation
on such Trading Market as soon as possible thereafter; (iii)
provide to the Purchaser evidence of such listing or quotation; and
(iv) maintain the listing or quotation of such Common Stock on any
date at least equal to the Required Minimum on such date on such
Trading Market or another Trading Market.
-23-
4.11 Subsequent
Equity Sales.
(a) For so long as any
of the Notes remain outstanding, the Company shall be prohibited
from effecting or entering into an agreement to effect any issuance
by the Company or any of its Subsidiaries of Common Stock or Common
Stock Equivalents (or a combination of units thereof) involving a
Variable Rate Transaction. “Variable Rate
Transaction” means a transaction in which the Company
(i) issues or sells any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the
right to receive, additional shares of Common Stock either (A) at a
conversion price, Exercise Price or exchange rate or other price
that varies with, the trading prices of or quotations for the
shares of Common Stock at any time after the initial issuance of
such debt or equity securities or (B) with a conversion, exercise
or exchange price that is subject to being reset at some future
date after the initial issuance of such debt or equity security or
upon the occurrence of specified or contingent events directly or
indirectly related to the trading price or quotations for the
Common Stock or (ii) enters into any agreement, including, but not
limited to, an equity line of credit, whereby the Company may be
subject to a “put” wherein a third party may require
the Company to issue securities at a future determined
price.
(b) The Purchaser shall
be entitled to obtain injunctive relief against the Company to
preclude any such issuance, which remedy shall be in addition to
any right to collect damages. Notwithstanding the foregoing, this
Section 4.11 shall not apply in respect of an Exempt Issuance,
except that no Variable Rate Transaction shall be an Exempt
Issuance.
4.12 Certain
Transactions and Certain Acknowledgements and Obligations of the
Company. Each Purchaser,
severally and not jointly, covenants and agrees, so long as such
Purchaser holds any Notes, that neither it, nor any Affiliate
acting on its behalf or pursuant to any understanding with it will
execute any Short Sales (as such term is
defined in Rule 200 of Regulation SHO of the Exchange Act) of the
Common Stock or (ii) hedging transaction, which establishes a net
short position with respect to the Company’s Common
Stock) during the period
commencing with the execution of this Agreement and ending on the
earlier Maturity Date (as defined in the Notes) of the Notes or the
full repayment or conversion of the Notes of such Purchaser;
provided that this provision shall not prohibit any sales made
where a corresponding Notice of Conversion or Notice of Exercise,
as applicable, is tendered to the Company and the shares received
upon such conversion or exercise are used to close out such sale (a
“Prohibited
Short Sale”).
Notwithstanding the foregoing, solely with respect to any Purchaser
that has acquired securities from the Company pursuant to a prior
securities purchase agreement (collectively, the “Prior
Securities”), such Purchaser shall not be deemed to have
consummated any Prohibited Short Sales at any given time of
determination. So long as any of the Securities covered by the
Transaction Documents shall remain outstanding:
(a)
the Company
shall 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 and the Company shall meet the current public information
requirements of Rule 144(c) under the Securities Act as of the end
of the period in question, (b) the Company shares of common stock
must be DWAC Eligible and not subject to a “DTC chill”,
(c) the Conversion Shares or Warrant Shares, as applicable, shall
be deemed “freely tradeable” shares (for the purposes
of this sub-section, “freely tradeable” shares shall
mean that such shares are eligible for resale pursuant to
Rule 144 (provided the Company is compliant with its current public
information requirements) promulgated by the Commission pursuant to
the Securities Act or such shares are the subject of a then
effective registration statement) after the applicable holding
period for purpose of Rule 144 or effectiveness of a registration
statement under the Securities Act, and (d) the Common
Stock is trading on any Trading Market (subject to any volume
restrictions set forth in the Note) and all of the shares issuable
pursuant to the Transaction Documents are listed or quoted for
trading on any Trading Market (and the Company believes, in good
faith, that trading of the Common Stock on any Trading Market will
continue uninterrupted for the foreseeable future), (e) there has
been no public announcement of a pending or proposed Fundamental
Transaction or Change of Control Transaction that has not been
consummated, and (f) the applicable Holder is not in possession of
any information provided by the Company, any of its Subsidiaries,
or any of their officers, directors, employees, agents or
Affiliates, that constitutes, or may constitute, material
non-public information..
-24-
4.13 Securities
Laws Disclosure; Publicity. The Company shall (a) by 9:30
a.m. (New York City time) on the Trading Day immediately following
the Initial Closing Date and execution by the Company and
Purchasers of this Agreement, 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 any of 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. In addition, effective
upon the filing of the press release, the Company acknowledges and
agrees that any and all confidentiality or similar obligations
under any agreement, whether written or oral, between the Company,
any of its Subsidiaries or any of their respective officers,
directors, affiliates, employees or agents, on the one hand, and
any of the Purchasers or any of their affiliates, on the other
hand, shall terminate. The Company and the Purchaser shall consult
with each other in issuing any other press releases with respect to
the transactions contemplated hereby, and neither the Company nor
the Purchaser shall issue any such press release nor otherwise make
any such public statement without the prior consent of the Company,
with respect to any press release of the Purchaser, or without the
prior consent of the Purchaser, with respect to any press release
of the Company, which consent shall not unreasonably be withheld or
delayed, except if such disclosure is required by law, in which
case the disclosing party shall promptly provide the other party
with prior notice of such public statement or communication.
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 any registration statement contemplated by this
Agreement 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). Notwithstanding anything in any
Transaction Document to the contrary, to the extent that the
Company delivers any material, non-public information to a
Purchaser without such Purchaser's consent, the Company hereby
covenants and agrees that such Purchaser shall not have any duty of
confidentiality with respect to, or a duty not to trade on the
basis of, such material, non-public information except as otherwise
provided under Applicable Law.
4.15 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
Initial 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.
ARTICLE V
MISCELLANEOUS
5.1 Termination.
This Agreement may be terminated by the Purchaser, as to the
Purchaser’s obligations hereunder only and without any effect
whatsoever on the obligations between the Company and the other
Purchaser, by written notice to the other parties, if the Closing
has not been consummated on or before December 1, 2019;
provided,
however, that such termination
will not affect the right of any party to xxx for any breach by any
other party (or parties).
5.2 Fees
and Expenses. Except as
expressly set forth in the Transaction Documents to the contrary,
each party shall pay the fees and expenses of its advisers,
counsel, 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.
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 Notice of
Conversion or Notice of Exercise delivered by the Purchaser), stamp
taxes and other taxes and duties levied in connection with the
delivery of the Conversion Shares or Warrant Shares to the
Purchaser. Notwithstanding the foregoing, the firm of Gracin &
Xxxxxx, LLP, counsel to the Purchasers shall be entitled to receive
out of the proceeds distributed at the Closing its actual
attorneys’ fees and the Purchasers shall be entitled to
withheld from the proceeds distributed at the Closing their due
diligence fees, minus the $15,000 deposit (or such lesser amount)
it received from the Company.
-25-
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: (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 at or prior to 12:00 p.m. (New York City time) on a
Trading Day; (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
12:00 p.m. (New York City time) on any Trading Day; (iii) the
second (2nd)
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. 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 the
Company and Purchasers holding at least 50.1% in interest of the
Notes then outstanding or, in the case of a waiver, by the party
against whom enforcement of any such waived provision is sought,
provided that if any amendment, modification or waiver
disproportionately and adversely impacts a Purchaser (or group of
Purchasers), the consent of such disproportionately impacted
Purchaser (or group of Purchasers) shall also be required. 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. Any
proposed amendment or waiver that disproportionately, materially
and adversely affects the rights and obligations of any Purchaser
relative to the comparable rights and obligations of the other
Purchasers shall require the prior written consent of such
adversely affected Purchaser. Any amendment effected in accordance
with accordance with this Section 5.5 shall be binding upon each
Purchaser and holder of Securities and the Company. No
consideration (other than reimbursement of legal fees) shall be
offered or paid to any Person to amend or consent to a waiver or
modification of any provision of any of the Transaction Documents
unless the same consideration also is offered to all of the parties
to the Transaction Documents, all holders of the Notes or all
holders of the Warrants (as the case may be). From the date hereof
and while any Notes or Warrants are outstanding, the Company shall
not be permitted to receive any consideration from a Purchaser or a
holder of Notes or Warrants that is not otherwise contemplated by
the Transaction Documents in order to, directly or indirectly,
induce the Company or any Subsidiary (i) to treat such Purchaser or
holder of Notes or Warrants in a manner that is more favorable than
to other similarly situated Purchasers or holders of Notes or
Warrants, as applicable, or (ii) to treat any Purchaser(s) or
holder(s) of Notes or Warrants in a manner that is less favorable
than the Purchaser or holder of Notes or Warrants that is paying
such consideration; provided, however, that the determination of
whether a Purchaser has been treated more or less favorably than
another Purchaser shall disregard any other securities of the
Company purchased or sold by any Purchaser. The Company has not,
directly or indirectly, made any agreements with any Purchaser
relating to the terms or conditions of the transactions
contemplated by the Transaction Documents except as set forth in
the Transaction Documents.
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 the Purchaser (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”.
-26-
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 4.9.
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 4.9, 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.
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 or exercise of any Note
or Warrant, respectively, the Purchaser shall be required to return
any shares of Common Stock subject to any such rescinded conversion
notice concurrently with the return to the Purchaser of the
aggregate Exercise Price paid to the Company for such
shares.
-27-
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, 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 a 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.
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 Purchaser’s
election.
5.18 Liquidated
Damages. The Company’s
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.
[Signature Pages Follow]
-28-
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.
|
Address for Notice:
00 XX
0xx Xxxxxx, Xxxxx 00 Xxxxxx Xxxxx, XX 00000
|
|
|
By: /s/ Xxxxxxxx
Xxxx
Name: Xxxxxxxx Xxxx
Title: President & CEO
|
Fax: _____________
|
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
-29-
[PURCHASER SIGNATURE PAGES TO EXACTUS, INC. SECURITIES PURCHASE
AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated
above.
Name of Purchaser: 3i, LP
Signature of Authorized
Signatory of Purchaser:
/s/ Xxxxx Xxxxxx
Name of Authorized
Signatory:
/s/ Xxxxx Xxxxxx
Title of Authorized
Signatory:
Authorized
Xxxxxx
Email Address of
Authorized Signatory:
____________________________________
Facsimile Number of
Authorized Signatory:
____________________________________
Address for Notice to Purchaser:
#####
#####
#####
Closing Principal
Amount:
$833,333.33
Closing
Subscription
Amount:
$750,000.00
EIN Number: #####
-30-
SCHEDULE 3.1(j)
LEGAL MATTERS
Krassen Matter:
In July
2018 Exactus received notice of the expiration and termination of a
license agreement dated January 19, 2016 acquired through the Share
Exchange by our subsidiary Exactus BioSolutions, Inc that the
Company recognized as an intangible asset from Digital Diagnostics,
Inc. (“Digital Diagnostics”) related to our FibriLyzer
and MatriLyzer technologies. In addition, on December 14,
2018 we received a letter from KD Innovation, Ltd.
(“KDI”) and Xx. Xxxxxxx Xxxxxxxx, our former director
seeking payment for alleged past due consulting fees from June 2017
through November 2018 pursuant to a Consulting Agreement dated
January 20, 2016. On January 23, 2019, Digital Diagnostics,
made a demand for compensation against the Company in connection
with an alleged breach of a License Agreement. Under the terms of
these agreements, the parties are required to arbitrate
claims. Although we dispute the material allegations made by
Digital Diagnostics and KDI, if such actions were successful
damages could be awarded against us.
On
December 14, 2018, the Company received a termination and demand
notice from KD Innovation, Ltd, an entity 100% owned by a former
Board member, in connection with a consulting agreement KDI entered
into with the Company’s subsidiary, Exactus Biosolutions,
Inc., on or about January 20, 2016. No lawsuit has been filed;
however, in the event a lawsuit is filed, the Company intends to
vigorously contest the matter.
Xxxxxxx Matter:
Xxxxxxxx X. Xxxxxxx v. Exactus Inc.: On September 25, 2019,
Xxxxxxxx Xxxxxxx served a Complaint on the Company in the courts of
Nassau County, New York. The Company promptly filed a Notice of
Removal based on jurisdictional claims for lack of personal
jurisdiction and diversity. Xx. Xxxxxxx is a former director of the
Company and is seeking relief based upon the alleged issuance of
certain Stock Options granted to him. The Company denies the Stock
Option Agreement was properly authorized, and if authorized the
Stock Options were not vested and were forfeited by the terms of
the Stock Option Award Agreement and the 2019 Equity Incentive Plan
of the Company. The Company intends to vigorously defend the
allegations as it believes the claims of Xx. Xxxxxxx are completely
without merit.
-31-
SCHEDULE OF PURCHASERS
Initial Closing Date Schedule of Purchasers [to
be provided]
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(1)
|
(2)
|
(3)
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(4)
|
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Purchaser
|
Principal Amount of
Initial Notes
|
Initial Subscription Amount
|
Initial Warrants
|
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|
|
3i,
LP
|
$833,333,33
|
$750,000
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-32-
Second Closing Date Schedule of Purchasers [to
be provided]
|
(1)
|
(2)
|
(3)
|
(4)
|
|
Purchaser
|
Principal Amount of
Second Notes
|
Second Subscription Amount
|
Second Warrants
|
|
|
|
|
|
|
3i,
LP
|
$277,777.77
|
$250,000
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-00-
Xxxxx Xxxxxxx Date Schedule of Purchasers [to
be provided]
|
(1)
|
(2)
|
(3)
|
(4)
|
|
Purchaser
|
Principal Amount of
Third Notes
|
Third Subscription Amount
|
Third Warrants
|
|
|
|
|
|
|
3i,
LP
|
$833,333.33
|
$750,000
|
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-34-
EXHIBIT A
Form of Senior Secured Convertible Note
EXHIBIT B
Registration Rights Agreement
EXHIBIT C
Form of Security Agreement
EXHIBIT C-1
Intellectual Property Security Agreement
EXHIBIT C-2
Form of Subsidiary Guarantee
EXHIBIT D
Form of Transfer Agent Instruction Letter
EXHIBIT E
Form of Warrant
EXHIBIT F
Perfection Certificate
DISCLOSURE SCHEDULES
The
following are the Disclosure Schedules (the “Disclosure Schedules”)
referred to in that certain Securities Purchase Agreement, dated as
of November 27, 2019 (the “Agreement”), by and
between Exactus, Inc., a Nevada corporation (the
“Company”),
and the purchaser identified on the signature pages
