SECURITIES PURCHASE AGREEMENT
This
SECURITIES PURCHASE AGREEMENT (this “Agreement”),
dated as of May 1, 2017, is entered into by and between
Vet Online Supply, Inc., a Florida corporation (the “Company”), and EMA
Financial, LLC, a Delaware limited liability company (the “Purchaser”).
a) |
Purchase
of Note. On the Closing Date (as defined below), the Company
shall issue and sell to the Purchaser, and the Purchaser agrees to
purchase from the Company, the Note for an aggregate purchase price of
$42,700.00 (“Purchase Price”). |
b) |
Form
of Payment. On the Closing Date (i) the Purchaser shall pay the
Purchase Price by wire transfer of immediately available funds to the
Company, in accordance with the Company’s written wiring
instructions, simultaneously with delivery of the Note,
and |
(ii) |
the
Company shall deliver such Note duly executed on behalf of the Company to
the Purchaser, simultaneously with delivery of such Purchase
Price. |
c) |
Closing
Date. Subject to the satisfaction (or written waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the closing
of the transactions contemplated by this Agreement (the “Closing”) shall
occur on the first business day following the date hereof or such other
mutually agreed upon time (the “Closing Date”) at the offices of
Purchaser’s counsel. |
2. |
Purchaser’s
Representations and Warranties. The Purchaser represents and
warrants to the Company that: |
a) |
Investment
Purpose. Purchaser is acquiring the Securities for its own
account and not with a view towards, or for resale in connection with, the
public sale or distribution thereof in violation of applicable securities
laws; provided, however, by making the representations herein, Purchaser
does not agree, or make any representation or warranty, to hold any of the
Securities for any minimum or other specific term and reserves the right
to dispose of the Securities at any time in accordance
with or pursuant to a registration
statement |
1
or
an exemption under the 1933 Act. The Purchaser is acquiring the Securities
hereunder in the ordinary course of its business. The Purchaser does not
presently have any agreement or understanding, directly or indirectly, with any
person to distribute any of the Securities in violation of applicable securities
laws.
b) |
Accredited
Investor Status. The Purchaser is an “accredited investor” as
that term is defined in Rule 501(a) of Regulation D (an “Accredited
Investor”). |
c) |
Reliance
on Exemptions. The Purchaser understands that the Securities
are being offered and sold to it in reliance upon specific exemptions from
the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and
accuracy of, and the Purchaser’s compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the
Purchaser set forth herein in order to determine the availability of such
exemptions and the eligibility of the Purchaser to acquire the
Securities. |
d) |
Information.
The Purchaser and its advisors, if any, have been, and for so long as the
Securities remain outstanding will continue to be, furnished with all
materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Securities which have
been reasonably requested by the Purchaser or its advisors, provided that
the Purchaser has not been furnished with, and the Company shall not in
the future deliver to the Purchaser without its consent, any material
non-public information concerning the Company. The Purchaser and its
advisors, if any, have been, and for so long as the Securities remain
outstanding will continue to be, afforded the opportunity to ask questions
of the Company. Neither such inquiries nor any other due diligence
investigation conducted by Purchaser or any of its advisors or
representatives shall modify, amend or affect Purchaser’s right to rely on
the Company’s representations and warranties contained in Section
3 below. The Purchaser understands that its investment in the
Securities involves a significant degree of
risk. |
e) |
Governmental
Review. The Purchaser understands that no United States federal
or state agency or any other government or governmental agency has passed
upon or made any recommendation or endorsement of the
Securities. |
f) |
Transfer
or Re-sale. The Purchaser understands that (i) the sale or
re-sale of the Securities has not been and is not being registered
under the 1933 Act or any applicable state securities laws, and the
Securities may not be transferred unless (a) the Securities are sold
pursuant to an effective registration statement under the 1933 Act, (b)
the Purchaser shall have delivered to the Company an opinion of counsel
that shall be in form, substance and scope customary for opinions of
counsel in comparable transactions to the effect that the securities to be
sold or transferred may be sold or transferred pursuant to an exemption
from such registration, which opinion shall be reasonably acceptable to
the Company, (c) the Securities are sold or transferred to an “affiliate”
(as defined in Rule 144 promulgated under the 1933 Act (or a
successor rule) (“Rule 144”) of the Purchaser who agrees to sell or
otherwise transfer the Securities only in accordance with this Section
2(f) and who is an Accredited Investor, (d) the Securities are sold
pursuant to Rule 144, or (e) the Securities are sold pursuant to
Regulation S under the 1933 Act (or a successor rule) (“Regulation S”) and
the Purchaser shall have delivered |
2
to
the Company an opinion of counsel reasonably acceptable to the Company relating
to such Regulation S; (ii) any sale of such Securities made in reliance on Rule
144 may be made only in accordance with the terms of such Rule and further, if
such Rule is not applicable, any re-sale of such Securities under circumstances
in which the seller (or the person through whom the sale is made) may be deemed
to be an underwriter (as that term is defined in the 0000 Xxx) may require
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder (in each case). Notwithstanding the foregoing or
anything else contained herein to the contrary, the Securities may be pledged as
collateral in connection with a bona fide margin account or other lending
arrangement.
g) |
Legends.
The Purchaser understands that the Securities have been issued (or will be
issued in the case of the Conversion Shares) pursuant to an exemption from
registration or qualification under the 1933 Act and applicable state
securities laws, and except as set forth below, the Securities shall bear
any legend as required by the “blue sky” laws of any state and a
restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock
certificates): |
“NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN][THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A)
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER (IF
REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO
BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING
THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.”
The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion
3
of
counsel at the Company’s expense, in the form, substance and scope
customary for opinions of counsel in comparable transactions, to the effect that
a public sale or transfer of such Security may be made without registration
under the 1933 Act, which opinion shall be reasonably accepted by the
Company so that the sale or transfer is effected. The Purchaser agrees to sell
all Securities, including those represented by a certificate(s) from which the
legend has been removed, in compliance with applicable prospectus delivery
requirements, if any.
h) |
Authorization;
Enforcement. This Agreement has been duly and validly
authorized. This Agreement has been duly executed and delivered on behalf
of the Purchaser, and this Agreement constitutes a valid and binding
agreement of the Purchaser enforceable in accordance with its
terms. |
3. |
Representations
and Warranties of the Company. The Company represents and
warrants to the Purchaser, as of the date hereof and the Closing Date,
that: |
a) |
Organization
and Qualification. The Company and each of its Subsidiaries (as
defined below), if any, is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction in which it is
incorporated, with full power and authority (corporate and other) to own,
lease, use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted. Schedule 3(a) sets
forth a list of all of the Subsidiaries of the Company and the
jurisdiction in which each is incorporated. The Company and each of its
Subsidiaries is duly qualified as a foreign corporation to do business and
is in good standing in every jurisdiction in which its ownership or use of
property or the nature of the business conducted by it makes such
qualification necessary except where the failure to be so qualified or in
good standing would not have a Material Adverse Effect. “Material Adverse
Effect” means any material adverse effect on the business, operations,
assets, financial condition or prospects of the Company or its
Subsidiaries, if any, taken as a whole, or on the transactions
contemplated hereby or by the agreements or instruments to be entered into
in connection herewith. “Subsidiaries” means any corporation or other
organization, whether incorporated or unincorporated, in which the Company
owns, directly or indirectly, any equity or other ownership
interest. |
b) |
Authorization;
Enforcement. (i) The Company has all requisite corporate power
and authority to enter into and perform this Agreement and the Note and to
consummate the transactions contemplated hereby and thereby and to issue
the Securities, in accordance with the terms hereof and thereof, (ii) the
execution and delivery of this Agreement and the Note by the Company and
the consummation by it of the transactions contemplated hereby and thereby
(including without limitation, the issuance of the Note and the issuance
and reservation for issuance of the Conversion Shares issuable upon
conversion and exercise thereof) have been duly authorized by the
Company’s Board of Directors and no further consent or authorization of
the Company, its Board of Directors, or its shareholders is required,
(iii) this Agreement has been duly executed and delivered by the Company
by its authorized representative, and such authorized representative is
the true and official representative with authority to sign this Agreement
and the other documents executed in connection herewith and bind the
Company accordingly, and (iv) this Agreement constitutes, and upon
execution and delivery by the Company of the Note and each of such
instruments will constitute, a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its
terms. |
4
c) |
Capitalization.
As of the date hereof, the authorized capital stock of the Company, and
number of shares issued and outstanding, is as set forth in the Company’s
most recent periodic report filed with the SEC. Except as disclosed on
Schedule 3(c) hereof, no shares are reserved for issuance pursuant
to the Company’s stock option plans. Except as disclosed in the SEC
Documents no shares are reserved for issuance pursuant to securities
exercisable for, or convertible into or exchangeable for shares of Common
Stock. All of such outstanding shares of capital stock are, or upon
issuance will be, duly authorized, validly issued, fully paid and
non-assessable. No shares of capital stock of the Company are subject to
preemptive rights or any other similar rights of the shareholders of the
Company or any liens or encumbrances imposed through the actions or
failure to act of the Company. As of the effective date of this Agreement,
and except as disclosed in the SEC Documents, (i) there are no outstanding
options, warrants, scrip, rights to subscribe for, puts, calls, rights of
first refusal, agreements, understandings, claims or other commitments or
rights of any character whatsoever relating to, or securities, notes or
rights convertible into or exchangeable for any shares of capital
stock of the Company or any of its Subsidiaries, or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its
Subsidiaries, (ii) there are no agreements or arrangements under
which the Company or any of its Subsidiaries is obligated to register the
sale of any of its or their securities under the 1933 Act and (iii) there
are no anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing rights to
security holders) that will be triggered by the issuance of any of the
Securities. The Company has furnished to the Purchaser true and correct
copies of the Company’s Certificate of Incorporation as in effect on the
date hereof (“Certificate of Incorporation”), the Company’s By-laws, as in
effect on the date hereof (the “By-laws”), and the terms of all securities
convertible into or exercisable for Common Stock of the Company and the
material rights of the holders thereof in respect
thereto. |
d) |
Issuance
of Shares. The Conversion Shares are duly authorized and
reserved for issuance and, upon conversion of the Note, as the case may
be, in accordance with their respective terms, will be validly issued,
fully paid and non-assessable, and free from all taxes, liens, claims and
encumbrances with respect to the issue thereof and shall not be subject to
preemptive rights or other similar rights of shareholders of the Company
and will not impose personal liability upon the holder
thereof. |
e) |
Acknowledgment
of Dilution. The Company’s executive officers and directors
understand the nature of the Securities being sold hereby and recognize
that the issuance of the Securities will have a potential dilutive effect
on the equity holdings of other holders of the Company’s equity or rights
to receive equity of the Company. The board of directors of the Company
has concluded, in its good faith business judgment that the issuance of
the Securities is in the best interests of the Company. The Company
specifically acknowledges that its obligation to issue the Conversion
Shares upon conversion of the Notes is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the
ownership interests of other stockholders of the Company or parties
entitled to receive equity of the Company. |
f) |
No
Conflicts. The execution, delivery and performance of this
Agreement, the Note by the Company
and the consummation by
the Company of the
transactions |
5
contemplated
hereby and thereby (including, without limitation, the issuance and reservation
for issuance of the Conversion Shares) will not (i) conflict with or result in a
violation of any provision of the Certificate of Incorporation or By-laws, or
(ii) violate or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which with notice or lapse of time or both
could become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company or any of its Subsidiaries is
a part y and that is not filed as an SEC Document or other document filed with
the SEC, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and regulations of any self-regulatory organizations to which the Company or its
securities are subject) applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its Subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Neither the
Company nor any of its Subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has occurred which with
notice or lapse of time or both could put the Company or any of its Subsidiaries
in default) under, and neither the Company nor any of its Subsidiaries has taken
any action or failed to take any action that would give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party or by which any property or assets of the Company or any
of its Subsidiaries is bound or affected, except for possible defaults as would
not, individually or in the aggregate, have a Material Adverse Effect. The
businesses of the Company and its Subsidiaries, if any, are not being
conducted, and shall not be conducted so long as the Purchaser owns any of
the Securities, in violation of any law, ordinance or regulation of any
governmental entity. Except as specifically contemplated by this Agreement and
as required under the 1933 Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency, regulatory
agency, self regulatory organization or stock market or any third party in order
for it to execute, deliver or perform any of its obligations under this
Agreement and the Note in accordance with the terms hereof or thereof or to
issue and sell the Securities in accordance with the terms hereof and thereof
and to issue the Conversion Shares. All consents, authorizations, orders,
filings and registrations which the Company is required to obtain pursuant to
the preceding sentence have been obtained or effected on or prior to the date
hereof. The Company is not in violation of the listing requirements of the
Over-the-Counter Bulletin Board (the “OTCBB”), or OTCQB, or OTC Pink and does
not reasonably anticipate that the Common Stock will be delisted by the OTCBB,
or OTCQB, or OTC Pink in the foreseeable future. The Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing.
g) |
SEC
Documents; Financial Statements. The Company has filed all
reports, schedules, forms, statements and other documents required to be
filed by it with the SEC (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and
schedules thereto and documents (other than exhibits to such documents)
incorporated by reference therein, being hereinafter referred to herein as
the “SEC Documents”). Upon written request the Company will deliver
to the Purchaser true and complete copies of the SEC Documents,
except for such exhibits and incorporated
documents. |
6
As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the Securities Exchange Act of 1934, as amended (“1934
Act” or “Exchange Act”), and none of the SEC Documents, at the time they were
filed with the SEC, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. None of the statements made in any such SEC
Documents is, or has been, required to be amended or updated under
applicable law (except for such statements as have been amended or updated
in subsequent filings prior the date hereof). As of their respective dates, the
financial statements of the Company included in the SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with United States generally
accepted accounting principles, consistently applied, during the periods
involved and fairly present in all material respects the consolidated financial
position of the Company and its consolidated Subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in the financial
statements of the Company included in the SEC Documents, the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business, and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in such financial
statements, which, individually or in the aggregate, are not material to the
financial condition or operating results of the Company. The Company is subject
to the reporting requirements of the 1934 Act.
h) |
Absence
of Certain Changes. Since April 17, 2017, there has been no
material adverse change and no material adverse development in the assets,
liabilities, business, properties, operations, financial condition,
results of operations, prospects or 1934 Act reporting status of the
Company or any of its Subsidiaries. |
i) |
Absence
of Litigation. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries, or their officers or
directors in their capacity as such, that could have a Material Adverse
Effect. Schedule 3(i) contains a complete list and summary description of
any pending or, to the knowledge of the Company, threatened proceeding
against or affecting the Company or any of its Subsidiaries, without
regard to whether it would have a Material Adverse Effect. The Company and
its Subsidiaries are unaware of any facts or circumstances which might
give rise to any of the foregoing. |
j) |
Patents,
Copyrights, etc. The Company and each of its Subsidiaries owns
or possesses the requisite licenses or rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets,
trademarks, trademark applications, service marks, service names, trade
names and copyrights (“Intellectual Property”) necessary to enable it to
conduct its business as now operated (and, as presently contemplated to be
operated in the future); there is no claim or action by any person
pertaining to, or proceeding pending, or to the Company’s knowledge
threatened, which challenges the right of
the Company or of a Subsidiary
with |
7
respect
to any Intellectual Property necessary to enable it to conduct its business
as now operated (and, as presently contemplated to be operated in the
future); to the best of the Company’s knowledge, the Company’s or its
Subsidiaries’ current and intended products, services and processes do not
infringe on any Intellectual Property or other rights held by any person and/or
entity; and the Company is unaware of any facts or circumstances which might
give rise to any of the foregoing. The Company and each of its Subsidiaries have
taken reasonable security measures to protect the secrecy, confidentiality and
value of their Intellectual Property.
k) |
No
Materially Adverse Contracts, Etc. Neither the Company nor any
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in
the judgment of the Company’s officers has or is expected in the future to
have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is a party to any contract or agreement which in the judgment
of the Company’s officers has or is expected to have a Material Adverse
Effect. |
l) |
Tax
Status. The Company and each of its Subsidiaries has made or
filed all federal, state and foreign income and all other tax
returns, reports and declarations required by any jurisdiction to which it
is subject (unless and only to the extent that the Company and each of its
Subsidiaries has set aside on its books provisions reasonably adequate
for the payment of all unpaid and unreported taxes) and has paid all
taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside
on its books provisions reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction, and the
officers of the Company know of no basis for any such claim. The Company
has not executed a waiver with respect to the statute of limitations
relating to the assessment or collection of any foreign, federal, state or
local tax. None of the Company’s tax returns is presently being audited by
any taxing authority. |
m) |
Certain
Transactions. Except for arm’s length transactions pursuant to
which the Company or any of its Subsidiaries makes payments in the
ordinary course of business upon terms no less favorable than the
Company or any of its Subsidiaries could obtain from third parties and
other than the grant of any stock options disclosed on Schedule 3(c), none
of the officers, directors, or employees of the Company is presently a
party to any transaction with the Company or any of its Subsidiaries
(other than for services as employees, officers and directors), including
any contract, agreement or other arrangement providing for the furnishing
of services to or by, providing for rental of real or personal property to
or from, or otherwise requiring payments to or from any officer, director
or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer,
director, trustee or partner. |
n) |
Disclosure.
All information relating to or concerning the Company or any of its
Subsidiaries set forth in this Agreement and provided to the Purchaser
pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material
respects and the Company has not omitted to state any material
fact |
8
necessary
in order to make the statements made herein or therein, in light of the
circumstances under which they were made, not misleading. No event or
circumstance has occurred or exists with respect to the Company or any of its
Subsidiaries or its or their business, properties, prospects, operations or
financial conditions, which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed.
o) |
Acknowledgment
Regarding Purchaser’ Purchase of Securities. The Company
acknowledges and agrees that the Purchaser is acting solely in the
capacity of arm’s length purchaser with respect to this Agreement and the
transactions contemplated hereby. 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 this Agreement and
the transactions contemplated hereby and any statement made by the
Purchaser or any of its respective representatives or agents in connection
with this Agreement and the transactions contemplated hereby is not advice
or a recommendation and is merely incidental to the Purchaser’s purchase
of the Securities. |
p) |
No
Integrated Offering. 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 in any security or solicited any
offers to buy any security under circumstances that would require
registration under the 1933 Act of the issuance of the Securities to the
Purchaser. The issuance of the Securities to the Purchaser will not be
integrated with any other issuance of the Company’s securities (past,
current or future) for purposes of any shareholder approval provisions
applicable to the Company or its
securities. |
q) |
Brokers.
The Company hereby represents and warrants that it has not hired,
retained or dealt with any broker, finder, consultant, person, firm or
corporation in connection with the negotiation, execution or delivery of
this Agreement or the transactions contemplated hereunder. The Company
covenants and agrees that should any claim be made against Purchaser for
any commission or other compensation by any broker, finder, person, firm
or corporation, including without limitation, the Broker, based upon the
Company’s engagement of such person in connection with this transaction,
the Company shall indemnify, defend and hold Purchaser harmless from and
against any and all damages, expenses (including attorneys’ fees and
disbursements) and liability arising from such claim. The Company shall
pay the commission of the Broker, to the attention of the Broker, pursuant
to their separate agreement(s) between the Company and the
Broker. |
r) |
Permits;
Compliance. The Company and each of its Subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and
orders necessary to own, lease and operate its properties and to carry on
its business as it is now being conducted (collectively, the “Company
Permits”), and there is no action pending or, to the knowledge of the
Company, threatened regarding suspension or cancellation of any of the
Company Permits. Neither the Company nor any of its Subsidiaries is in
conflict with, or in default or violation of, any of the Company Permits,
except for any such conflicts, defaults or violations which, individually
or in the aggregate, would not reasonably be expected
to have a Material Adverse Effect.
Since April 17, 2017, neither the Company nor any of its Subsidiaries has
received any notification |
9
with
respect to possible conflicts, defaults or violations of applicable laws, except
for notices relating to possible conflicts, defaults or violations, which
conflicts, defaults or violations would not have a Material Adverse
Effect.
s) |
Environmental
Matters. |
i. |
There
are, to the Company’s knowledge, with respect to the Company or any of its
Subsidiaries or any predecessor of the Company, no past or present
violations of Environmental Laws (as defined below), releases of any
material into the environment, actions, activities, circumstances,
conditions, events, incidents, or contractual obligations which may give
rise to any common law environmental liability or any liability under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 or similar federal, state, local or foreign laws and neither the
Company nor any of its Subsidiaries has received any notice with respect
to any of the foregoing, nor is any action pending or, to the Company’s
knowledge, threatened in connection with any of the foregoing. The term
“Environmental Laws” means all federal, state, local or foreign laws
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater,
land surface or subsurface strata), including, without limitation, laws
relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants contaminants, or toxic or hazardous substances or
wastes (collectively, “Hazardous Materials”) into the environment, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous
Materials, as well as all authorizations, codes, decrees, demands or
demand letters, injunctions, judgments, licenses, notices or notice
letters, orders, permits, plans or regulations issued, entered,
promulgated or approved thereunder. |
ii. |
Other
than those that are or were stored, used or disposed of in compliance with
applicable law, no Hazardous Materials are contained on or about any real
property currently owned, leased or used by the Company or any of its
Subsidiaries, and no Hazardous Materials were released on or about any
real property previously owned, leased or used by the Company or any of
its Subsidiaries during the period the property was owned, leased or used
by the Company or any of its Subsidiaries, except in the normal course of
the Company’s or any of its Subsidiaries’
business. |
iii. |
There
are no underground storage tanks on or under any real property owned,
leased or used by the Company or any of its Subsidiaries that are not in
compliance with applicable law. |
t) |
Title
to Property. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is material
to the business of the Company and its Subsidiaries, in each case
free and clear of all liens, encumbrances and defects except such as are
described in Schedule 3(t) or such as would not have a Material Adverse
Effect. Any real property and facilities held under lease by the Company
and its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as would not have a Material
Adverse Effect. |
10
u) |
Insurance.
The Company and its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such
coverage amounts as are prudent and customary in the businesses in which
the Company is engaged, including, but not limited to, directors and
officers insurance coverage with coverage amounts that are at least equal
to the aggregate Purchase Price. Neither the Company nor any Subsidiary
has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business without a significant increase in
cost. |
v) |
Internal
Accounting Controls. Except as disclosed in the SEC Documents,
the Company and each of its Subsidiaries maintain a system of internal
accounting controls sufficient, in the judgment of the Company’s board of
directors, to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles 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. |
w) |
Foreign
Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any Subsidiary has, in the course of
his actions for, or on behalf of, the Company, used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; made any direct or indirect
unlawful payment to any foreign or domestic government official or
employee from corporate funds; violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended, or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee. |
x) |
Solvency.
Except as disclosed in the SEC Documents, the Company (after giving effect
to the transactions contemplated by this Agreement) is solvent (i.e.,
its assets have a fair market value in excess of the amount required to
pay its probable liabilities on its existing debts as they become absolute
and matured) and currently the Company has no information that would lead
it to reasonably conclude that the Company would not, after giving
effect to the transaction contemplated by this Agreement, have the ability
to, nor does it intend to take any action that would impair its
ability to, pay its debts from time to time incurred in connection
therewith as such debts mature. |
y) |
No
Investment Company. The Company is not, and upon the issuance
and sale of the Securities as contemplated by this Agreement will not be,
an “investment company” required to be registered under the Investment
Company Act of 1940 (an “Investment Company”). The Company is not
controlled by an Investment Company. |
z) |
No
“Shell”. As of the date of this Agreement, either (i) the
Company is not or has never been a “shell issuer” as defined in Rule 144
or (ii) at least 12 months have passed since the Company filed Form 10
Type information indicating it is not a “shell
issuer”. |
11
aa)
Bad
Actor. No officer or director of the Company would
be disqualified under Rule 506(d) of the Securities Act as amended on the
basis of being a “bad actor” as that term is established in the in the September
19, 2013 Small Entity Compliance Guide published by the Securities and
Exchange Commission.
4. |
a) |
Best
Efforts. The parties shall use their best efforts to satisfy
timely each of the conditions described in Section 6 and 7 of this
Agreement. |
b) |
Form
D; Blue Sky Laws. 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 to the Purchaser promptly after such filing. The
Company shall, on or before the Closing Date, take such action as the
Company shall reasonably determine is necessary to qualify the Securities
for sale to the Purchaser at the applicable closing pursuant to this
Agreement under applicable securities or “blue sky” laws of the states of
the United States (or to obtain an exemption from such qualification), and
shall provide evidence of any such action so taken to the Purchaser on or
prior to the Closing Date. |
c) |
Use
of Proceeds. The Company shall use the proceeds from the sale
of the Securities for general corporate purposes, marketing and sales,
product development, key personnel recruiting and business development
purposes. |
d) |
Financial
Information. Upon written request of the Purchaser, the Company
agrees to send or make available the following reports to the Purchaser
until the Purchaser transfers, assigns, or sells all of the Securities:
(i) within ten (10) days after the filing (or the applicable
deadline to so file) with the SEC or OTC Markets Group, a copy of its
Annual Report and its Quarterly Reports and any Supplemental Reports; (ii)
within one (1) day after release, copies of all press releases issued by
the Company or any of its Subsidiaries; and (iii) contemporaneously with
the making available or giving to the shareholders of the Company, copies
of any notices or other information the Company makes available or
gives to such shareholders. Notwithstanding the foregoing, the Company
shall not disclose any material nonpublic information to the Purchaser
without its consent unless such information is disclosed to the public
prior to or promptly following such disclosure to the
Purchaser. |
e) |
Listing.
The Company will obtain and, so long as the Purchaser owns any of the
Securities, maintain the listing and trading of its Common Stock on the
OTCBB, and OTCQB, or OTC Pink or any equivalent replacement exchange, the
NASDAQ Stock Market (“NASDAQ”), the New York Stock Exchange (“NYSE”), or
the NYSE MKT, f/k/a American Stock Exchange (“AMEX”), and will comply in
all respects with the Company’s reporting, filing and other obligations
under the bylaws or rules of the Financial Industry Regulatory Authority
(“FINRA”) and such exchanges, as applicable. The Company shall promptly
provide to the Purchaser copies of any notices it receives from the SEC,
OTC Markets Group and any other exchanges or
quotation systems on which the Common Stock is
then listed |
12
regarding
the continued eligibility of the Common Stock for listing on such exchanges and
quotation systems, provided that it shall not provide any notices constituting
material nonpublic information.
f) |
Corporate
Existence. So long as the Purchaser beneficially owns any
Securities, the Company shall maintain its corporate existence and shall
not sell all or substantially all of the Company’s assets, except in the
event of a merger or consolidation or sale of all or substantially all of
the Company’s assets, where the surviving or successor entity in such
transaction (i) assumes the Company’s obligations hereunder and under
the agreements and instruments entered into in connection herewith
and (ii) is a publicly traded corporation whose Common Stock is listed for
trading on NASDAQ, NYSE or AMEX. |
g) |
No
Integration. The Company shall not make any offers or sales of
any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder
under the 1933 Act or cause the offering of the Securities to be
integrated with any other offering of securities by the Company for the
purpose of any stockholder approval provision applicable to the Company or
its securities. |
h) |
Securities
Laws Disclosure; Publicity. The Company shall comply with
applicable securities laws by filing a Current Report on Form 8-K, within
four (4) Trading Days following the date hereof, disclosing all the
material terms of the transactions contemplated hereby, if the Company
deems the transactions contemplated hereby to constitute material non-
public information. The Company and Purchaser shall consult with each
other in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor Purchaser shall issue any
such press release or otherwise make any such public statement without the
prior consent of the Company, with respect to any press release of any
Purchaser, or without the prior consent of Purchaser, with respect to any
press release of the Company, except if such disclosure is required by
law, in which case the disclosing part y shall promptly provide the other
party with prior notice of such public statement or
communication. |
i) |
Non-Public
Information. Except with respect to the material terms and
conditions of the transactions contemplated by this Agreement, the Company
covenants and agrees that neither it nor any other person acting on its
behalf will provide the Purchaser or its agents or counsel with any
information that the Company believes constitutes material non- public
information, unless prior thereto the Purchaser shall have executed a
written agreement 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. |
j) |
Subsidiaries.
So long as the Note remains outstanding, the Company shall not transfer
any assets or rights to any of its subsidiaries or permit any of its
subsidiaries to engage in any significant business or operations, whether
such subsidiaries are currently existing or hereafter
created. |
k) |
Insurance.
So long as the Note remains outstanding, the Company and its Subsidiaries
shall maintain in full force and effect insurance reasonably believed by
the Company to be adequate coverage
(a) on all assets and activities, covering
property loss or |
13
damage
and loss of income by fire or other hazards or casualty, and (b) against all
liabilities, claims and risks for which it is customary for companies similarly
situated to the Company to insure, including without limitation applicable
product liability insurance, required workmen’s compensation insurance, and
other insurance covering injury or damage to persons or property, but excluding
directors and officers insurance coverage. The Company shall promptly furnish or
cause to be furnished evidence of such insurance to the Purchaser, in form and
substance reasonably satisfactory to the Purchaser.
l) |
Par
Value. If the closing bid price at any time the Note is outstanding falls below $0.005,
the Company shall cause the par value of its Common Stock to be reduced to $0.0001 or less. |
m) |
[Intentionally Omitted]. |
n) |
Future
Financings: From the date hereof until such time as the
Purchaser no longer holds any of the Securities, in the event the Company
issues or sells any shares of Common Stock or securities directly or
indirectly convertible into or exercisable for Common Stock (“Common Stock
Equivalents”) or amends the transaction documents relating to any sale or
issuance of Common Stock or Common Stock Equivalents, if the Purchaser
reasonably believes that the terms and conditions thereunder are more
favorable to such investors as the terms and conditions granted under the
Transaction Documents, upon notice to the Company by such Purchaser, the
Transaction Documents shall be deemed automatically amended so as to give
the Purchasers the benefit of such more favorable terms or conditions.
Promptly following a request to the Company the Company shall provide
Purchaser with all executed transaction documents relating to any such
sale or issue of Common Stock or Common Stock Equivalents. Company shall
deliver acknowledgment of such automatic amendment to the Transaction
Documents to Purchaser in form and substance reasonably satisfactory to
the Purchaser ( the “Acknowledgment”) within three (3) business days of
Company’s receipt of request from Purchaser (the “Deadline”), provided
that Company’s failure to timely provide the Acknowledgement shall not
affect the automatic amendments contemplated hereby. If the
Acknowledgement is not delivered by
the Deadline, Company shall pay to the
Purchaser $1000.00
per day in cash, for each day beyond the Deadline that the Company fails to
deliver such Acknowledgement. |
5. |
Transfer
Agent Instructions. Upon receipt of a duly executed Notice of
Conversion, the Company shall issue irrevocable instructions to its
transfer agent to issue certificates, registered in the name of the
Purchaser or its nominee, for the Conversion Shares in such amounts as
specified from time to time by the Purchaser to the Company upon
conversion of the Note, or any part thereof, in accordance with the terms
thereof (the “Irrevocable Transfer Agent Instructions”). In the event that
the Company proposes to replace its transfer agent, the Company shall
provide, prior to the effective date of such replacement, a fully executed
Irrevocable Transfer Agent Instructions in a form as initially delivered
pursuant to this Agreement and the Securities (including but not limited
to the provision to irrevocably reserve shares of Common Stock in the
Reserved Amount (as defined in the Note)) signed by the successor transfer
agent to Company and the Company. Prior to registration of the Conversion
Shares under the 1933 Act or the date on which the Conversion Shares may
be |
14
sold
pursuant to Rule 144 without any restriction as to the number of Securities as
of a particular date that can then be immediately sold, all such certificates
shall bear the restrictive legend specified in Section 2(g) of this Agreement.
The Company warrants that: (i) no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 5, and stop transfer
instructions to give effect to Section 2(f) hereof (in the case of the
Conversion Shares, prior to registration of the Conversion Shares under the 1933
Act or the date on which the Conversion Shares may be sold pursuant to Rule 144
without any restriction as to the number of Securities as of a particular date
that can then be immediately sold), will be given by the Company to its
transfer agent and that the Securities shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement and the Note; (ii) it will not direct its transfer agent not to
transfer or delay, impair, and/or hinder its transfer agent in transferring (or
issuing)(electronically or in certificated form) any certificate for Conversion
Shares to be issued to the Purchaser upon conversion of or otherwise pursuant to
the Note as and when required by the Note and this Agreement; and
(iii) |
it
will not fail to remove (or direct its transfer agent not to remove or
impair, delay, and/or hinder its transfer agent from removing) any
restrictive legend (or to withdraw any stop transfer instructions in
respect thereof) on any certificate for any Conversion Shares issued to
the Purchaser upon conversion of or otherwise pursuant to the Note as and
when required by the Note and this Agreement. Nothing in this Section
shall affect in any way the Purchaser’s obligations and agreement set
forth in Section 2(g) hereof to comply with all applicable prospectus
delivery requirements, if any, upon re-sale of the Securities. If the
Purchaser provides the Company with (i) an opinion of counsel in form,
substance and scope customary for opinions in comparable transactions, to
the effect that a public sale or transfer of such Securities may be made
without registration under the 1933 Act and such sale or transfer is
effected or (ii) the Purchaser provides reasonable assurances that the
Securities can be sold pursuant to Rule 144, the Company shall permit the
transfer, and, in the case of the Conversion Shares, promptly
instruct its transfer agent to issue one or more certificates, free from
restrictive legend, in such name and in such denominations as specified
by the Purchaser. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Purchaser, by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach
of its obligations under this Section 5 may be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the
provisions of this Section, that the Purchaser shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach and requiring immediate transfer, without the necessity of showing
economic loss and without any bond or other security being
required. |
6. |
Injunction
Posting of Bond. In the event the Purchaser shall elect to
convert the Note or any parts thereof, the Company may not refuse
conversion or exercise based on any claim that Purchaser or anyone
associated or affiliated with Purchaser has been engaged in any
violation of law, or for any other reason. In connection with any
injunction sought or attempted by the Company, the Company shall be
required to post a bond at least equal to the greater of either: (i) the
outstanding principal amount of the Note; and (ii) the market value of the
Conversion Shares sought to be converted, exercised or issued, based on
the sale price per share of Common Stock on the principal market on which
it is traded. |
15
a) |
Within
three (3) business days (such third business day being the “Unlegended
Shares Delivery Date”) after the business day on which the Company
has received (i) a notice that Conversion Shares, or any other Common
Stock held by the Purchaser has been sold pursuant to a registration
statement or Rule 144 under the 1933 Act, |
(x) |
a
representation that the prospectus delivery requirements, or the
requirements of Rule 144, as applicable and if required, have been
satisfied, (iii) the original share certificates representing the shares
of Common Stock that have been sold, and (iv) in the case of sales under
Rule 144, customary representation letters of the Purchaser and, if
required, Purchaser’s broker regarding compliance with the requirements of
Rule 144, the Company at its
expense, |
(y) |
shall
deliver, and shall cause legal counsel selected by the Company to deliver
to its transfer agent (with copies to Purchaser) an appropriate
instruction and opinion of such counsel, directing the delivery of shares
of Common Stock without any legends including the legend set forth in
Section 4(h) above (the “Unlegended
Shares”); and (z) cause the transmission of the certificates
representing the Unlegended Shares together with a legended certificate
representing the balance of the submitted Common Stock certificate, if
any, to the Purchaser at the address specified in the notice of sale, via
express courier, by electronic transfer or otherwise on or before the
Unlegended Shares Delivery Date. |
b) |
The
Company understands that a delay in the delivery of the Unlegended Shares
later than the Unlegended Shares Delivery Date could result in economic
loss to the Purchaser. As compensation to Purchaser for such loss, the
Company agrees to pay late payment fees (as liquidated damages and not as
a penalty) to the Purchaser for late delivery of Unlegended Shares in the
amount of $1,000.00 per business day after the Unlegended Shares Delivery
Date. If during any three hundred and sixty (360) day period, the Company
fails to deliver Unlegended Shares as required by this Section for an
aggregate of thirty (30) days, then Purchaser or assignee holding
Securities subject to such default may, at its option, require
the Company to redeem all or any portion of the shares subject to such
default at a price per share equal to the greater of (i) 200% of the most
recent closing price of the Common Stock or (ii) a fraction in which
the numerator is the highest closing price of the Common Stock during the
aforedescribed thirty (30) day period and the denominator of which is the
lowest conversion price during such thirty (30) day period, multiplied by
the conversion price or exercise price, as the case may be (“Unlegended
Redemption Amount”). The Company shall pay any payments incurred
under this Section in immediately available funds upon
demand. |
8. |
Conditions
to the Company’s Obligation to Sell. The obligation of the
Company hereunder to issue and sell the Note to the Purchaser at the
Closing is subject to the satisfaction, at or before the Closing Date of
each of the following conditions thereto, provided that these
conditions are for the Company’s sole benefit and may be waived by the
Company at any time in its sole
discretion: |
a) |
The
Purchaser shall have executed this Agreement and delivered the same to the
Company. |
b) |
The
Purchaser shall have delivered the Purchase Price to the
Company. |
16
c) |
The
representations and warranties of the Purchaser shall be true and correct
in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the Purchaser shall have
performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Purchaser at or prior to the
Closing Date. |
d) |
No
litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or
in any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this
Agreement. |
9. |
Conditions
to The Purchaser’s Obligation to Purchase. The obligation of
the Purchaser hereunder to purchase the Note at the Closing is subject to
the satisfaction, at or before the Closing Date of each of the following
conditions, provided that these conditions are for the Purchaser’s sole
benefit and may be waived by the Purchaser at any time in its sole
discretion: |
a) |
The
Company shall have executed this Agreement and delivered the same to the
Purchaser. |
b) |
The
Company shall have delivered to the Purchaser the duly executed Note
(in such denominations as the Purchaser shall request) in accordance with
Section 1 above. |
c) |
The
Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to the Purchaser, shall have been delivered to and
acknowledged in writing by the Company’s Transfer Agent (a copy of which
written acknowledgment shall be provided to Purchaser simultaneously with
Closing). |
d) |
The
representations and warranties of the Company shall be true and correct in
all material respects as of the date when made and as of the Closing Date
as though made at such time (except for representations and warranties
that speak as of a specific date) and the Company shall have performed,
satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Closing Date.
The Purchaser shall have received a certificate or certificates,
executed by the chief executive officer of the Company, dated as of the
Closing Date, to the foregoing effect and as to such other matters as may
be reasonably requested by the Purchaser including, but not limited to
certificates with respect to the Company’s Certificate of Incorporation,
By-laws, incumbency, and Board of Directors’ resolutions relating to the
transactions contemplated hereby. |
e) |
No
litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or
in any court or governmental authority of competent
jurisdiction or any self-regulatory organization
having |
17
authority
over the matters contemplated hereby which prohibits the consummation of any of
the transactions contemplated by this Agreement.
f) |
No
event shall have occurred which could reasonably be expected to have a
Material Adverse Effect on the Company including but not limited to a
change in the 1934 Act reporting status of the Company or the failure of
the Company to be timely in its 1934 Act reporting
obligations. |
g) |
The
Conversion Shares shall have been authorized for quotation on the OTCBB,
OTCQB, and OTC Pink and trading of the Common Stock on the OTCBB, OTCQB,
and OTC Pink shall not have been suspended by the SEC or the OTC Markets
Group. |
a) |
Governing
Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to
principles of conflicts of laws thereof or any other State. Any action
brought by any party against any other party hereto concerning the
transactions contemplated by this Agreement shall be brought only in the
state courts of New York or in the federal courts located in the state and
county of New York. The parties to this Agreement hereby irrevocably waive
any objection to jurisdiction and venue of any action instituted
hereunder and shall not assert any defense based on lack of jurisdiction
or venue or based upon forum
non conveniens. The
parties executing this Agreement and other agreements referred to herein
or delivered in connection herewith on behalf of the Company agree to
submit to the in personam jurisdiction of such courts and hereby
irrevocably waive trial by jury. The prevailing party shall
be entitled to recover from the other party its reasonable
attorney’s fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is
invalid or unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or
enforceability of any other provision of any agreement. Each party hereto
hereby irrevocably waives personal service of process and consents to
process being served in any suit, action or proceeding in connection with
this Agreement or any other transaction document contemplated hereby 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. |
b) |
Removal
of Restrictive Legends. In the event that Purchaser has
any shares of the Company’s Common Stock bearing any restrictive legends,
and Purchaser, through its counsel or other representatives, submits to
the Transfer Agent any such shares for the removal of the restrictive
legends thereon in connection with a sale of such shares
pursuant to any exemption to the registration requirements under the
Securities Act, and the Company and or its counsel refuses or fails for
any reason (except to the extent that such refusal or failure
is based solely on applicable law that would
prevent the removal of such |
18
restrictive
legends) to render an opinion of counsel or any other documents or certificates
required for the removal of the restrictive legends, then the Company hereby
agrees and acknowledges that the Purchaser is hereby irrevocably and expressly
authorized to have counsel to the Purchaser render any and all opinions and
other certificates or instruments which may be required for purposes of removing
such restrictive legends, and the Company hereby irrevocably authorizes and
directs the Transfer Agent to, without any further confirmation or instructions
from the Company, issue any such shares without restrictive legends as
instructed by the Purchaser, and surrender to a common carrier for overnight
delivery to the address as specified by the Purchaser, certificates, registered
in the name of the Purchaser or its designees, representing the shares of Common
Stock to which the Purchaser is entitled, without any restrictive
legends and otherwise freely transferable on the books and records of the
Company.
c) |
Filing
Requirements. From the date of this Agreement until the Notes
are no longer outstanding, the Company will timely and voluntarily comply
with all reporting requirements that are applicable to an issuer with a
class of shares registered pursuant to Section 12(g) of the 1934 Act,
whether or not the Company is then subject to such reporting requirements,
and comply with all requirements related to any registration statement
filed pursuant to this Agreement. The Company will use reasonable
efforts not to take any action or file any document (whether or not
permitted by the 1933 Act or the 1934 Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said acts until the Notes are no
longer outstanding. The Company will maintain the quotation or listing of
its Common Stock on the OTCBB, OTCQB, and OTC Pink, NYSE, or NASDAQ Stock
Market (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock (the “Principal
Market”), and will comply in all respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of the
Principal Market, as applicable. The Company will provide Purchaser with
copies of all notices it receives notifying the Company of the threatened
and actual delisting of the Common Stock from any Principal Market. As of
the date of this Agreement and the Closing Date, the OTC Pink, is the
Principal Market. Until the Note is no longer outstanding, the Company
will continue the listing or quotation of the Common Stock on a Principal
Market and will comply in all respects with the Company’s reporting,
filing and other obligations under the bylaws or rules of the Principal
Market. |
d) |
144
Default. In the event commencing twelve (12) months after
the Closing Date and ending twenty-four (24) months thereafter, the
Purchaser is not permitted to resell any of the Conversion Shares without
any restrictive legend or if such sales are permitted but subject to
volume limitations or further restrictions on resale as a result of the
unavailability to Subscriber of Rule 144(b)(1)(i) under the 1933 Act or
any successor rule (a “144
Default”), for any reason except for Purchasers’ status as an
Affiliate or “control person” of the Company, or as a result
of a change in current applicable securities laws, then the Company shall
pay such Purchaser as liquidated damages and not as a penalty an amount
equal to two percent (2%) of the value of Conversion Shares (based on the
closing sale of the Common Stock) subject to such 144 Default during the
pendency of the 144 Default of each thirty day period thereafter (or
portion thereof). |
19
e) |
Fees
and Expenses. On or prior to the Closing, the Company shall pay
or reimburse to Purchaser a non-refundable, non-accountable sum equal to
$2,700.00 as and for the fees, costs and expenses (including without
limitation legal fees and disbursements and due diligence and
administrative expenses) incurred by the Purchaser in connection with the
Purchaser’s due diligence and negotiation, preparation and execution of
the Transaction Documents and consummation of the Transactions. The
Purchaser may withhold and offset the balance of such amount from the
payment of its Purchase Price otherwise payable hereunder at Closing,
which offset shall constitute partial payment of such Purchase Price
in an amount equal to such offset. Except as expressly set forth in this
Agreement or the Note 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, stamp taxes and other taxes and
duties levied in connection with the delivery of any Securities to the
Purchaser. |
f) |
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 the
Note. Notwithstanding any provision to the contrary contained in herein or
under the Note, it is expressly agreed and provided that the total
liability of the Company under the Note 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 Note or herein exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Note 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 Note from the effective date 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 Note, 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. |
g) |
Headings.
The headings of this Agreement are for convenience of reference only and
shall not form part of, or affect the interpretation of, this
Agreement. |
h) |
Severability.
In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other
provision hereof. |
20
i) |
Entire
Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with
respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the
Purchaser makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be
waived or amended other than by an instrument in writing signed by the
Purchaser. |
j) |
Notices.
All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt
requested, postage prepaid, (iii) delivered by reputable air courier
service with charges prepaid, or (iv) transmitted by hand delivery,
telegram, email or facsimile, addressed as set forth below or to such
other address as such party shall have specified most recently by written
notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or
delivery by facsimile or email, with accurate confirmation generated by
the transmitting facsimile machine or computer, at the address, email or
number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business
day following such delivery (if delivered other than on a business day
during normal business hours where such notice is to be received) or (b)
on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: |
Purchaser: EMA
Financial, LLC
00 Xxxx Xxxxxx, Xxxxx 0000 Xxx Xxxx, XX 00000 Attn: Xxxxxxx Xxxxxxx
xxxxx@xxxxxx.xxx
Company:
Vet
Online Supply, Inc.
0000 Xxxxxx Xxxxxx, PMD 000 Xxx Xxxxx, XX 00000
Attn: Xxxxxx X. Xxxxx, President, CEO Email:
Fax:
Each
party shall provide notice to the other party of any change in address.
k) |
Successors
and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and assigns. Neither the
Company nor the Purchaser shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), the Purchaser may
assign its rights hereunder to any person that purchases Securities in a
private transaction from the Purchaser or to any of its “affiliates,” as
that term is defined under the 1934 Act, without the consent of the
Company. |
21
l) |
Third
Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person. |
m) |
Survival.
The representations and warranties of the Company and the agreements and
covenants set forth in this Agreement shall survive the closing hereunder
notwithstanding any due diligence investigation conducted by or on behalf
of the Purchaser. The Company agrees to indemnify and hold harmless the
Purchaser and all their officers, directors, employees and agents for loss
or damage arising as a result of or related to any breach or alleged
breach by the Company of any of its representations, warranties and
covenants set forth in this Agreement or any of its covenants and
obligations under this Agreement, including advancement of expenses as
they are incurred. |
n) |
Further
Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out
the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated
hereby. |
o) |
No
Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any
party. |
p) |
Remedies.
The Company acknowledges that a breach by it of its obligations hereunder
will cause irreparable harm to the Purchaser by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under
this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement, that
the Purchaser shall be entitled, in addition to all other available
remedies at law or in equity, and in addition to the penalties assessable
herein, to an injunction or injunctions restraining, preventing or curing
any breach of this Agreement and to enforce specifically the terms and
provisions hereof, without the necessity of showing economic loss and
without any bond or other security being
required. |
q) |
Counterparts.
This Agreement may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed to be an original and
all of which together shall be deemed to be one and the same
agreement. |
r) |
Signatures.
Any signature transmitted by facsimile, e-mail, or other electronic means
shall be deemed to be an original
signature. |
(Remainder
of page intentionally left blank)
22
VET
ONLINE SUPPLY, INC.
By:
/s/ Xxxxxx Xxxxx |
Name:
Xxxxxx X. Xxxxx |
Title:
President, CEO |
EMA
FINANCIAL, LLC
By:
/s/Xxxxx Xxxxxxx |
|
Name:
Xxxxx Xxxxxxx |
|
Title:Authorized
Signer |
23
NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE
SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE
144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
Principal
Amount: $45,000.00
Issue Date: May 1, 2017
8%
CONVERTIBLE NOTE
FOR
VALUE RECEIVED, VET
ONLINE SUPPLY, INC., a Florida corporation (“Borrower” or “Company”),
hereby promises to pay to the order of EMA
FINANCIAL, LLC, a Delaware limited liability company, or its
registered assigns (the “Holder”), on May 1, 2018, (subject to extension as set
forth below, the “Maturity Date”), the sum of $45,000.00 as set forth herein,
together with interest on the unpaid principal balance hereof at the rate of
eight (8%) per annum (the “Interest Rate”) from the date of issuance hereof
until this Note plus any and all amounts due hereunder are paid in full, and any
additional amounts set forth herein, including without limitation any Additional
Principal (as defined herein). Interest shall be computed on the basis of a
365-day year and the actual number of days elapsed. Any amount of principal or
interest on this Note which is not paid when due shall bear interest at the rate
of twenty-four (24%) per annum from the due date thereof until the same is paid
(“Default Interest”). All payments due hereunder shall be made in lawful
money of the United States of America. All payments shall be made at such
address as the Holder shall hereafter give to the Borrower by written notice
made in accordance with the provisions of this Note. Whenever any amount
expressed to be due by the terms of this Note is due on any day which is not a
business day, the same shall instead be due on the next succeeding day which is
a business day and, in the case of any interest payment date which is not the
date on which this Note is paid in full, the extension o f the due date thereof
shall not be taken into account for purposes of determining the amount of
interest due on such date. As used in this Note, the term “business day” shall
mean any day other than a Saturday, Sunday or a day on which commercial banks in
the city of New York, New York are authorized or required by law or executive
order to remain closed. Each capitalized term used herein, and not otherwise
defined, shall have the meaning ascribed thereto in that certain Securities
Purchase Agreement entered into by and between the Company and Holder dated on
or about the date hereof, pursuant to which this Note was originally issued (the
“Purchase Agreement”). The Holder may, by written notice to the Borrower at
least five (5) days before the Maturity Date (as may have been previously
extended), extend the Maturity Date to up to one (1) year following the date of
the original Maturity Date hereunder.
24
This
Note is free from all taxes, liens, claims and encumbrances with respect to the
issue thereof and shall not be subject to preemptive rights or other similar
rights of shareholders of the Borrower and will not impose personal liability
upon the holder thereof.
The
following terms shall apply to this Note:
1.1.
Conversion
Right. The Holder shall have the right, in its sole and absolute
discretion, at any time from time to time, to convert all or any part of the
outstanding amount due under this Note into fully paid and non-assessable shares
of Common Stock, as such Common Stock exists on the Issue Date, or any shares of
capital stock or other securities of the Borrower into which such Common Stock
shall hereafter be changed or reclassified at the conversion price (the
“Conversion Price”) determined as provided herein (a “Conversion”); provided,
however,
that in no event shall the Holder be entitled to convert any portion of this
Note in excess of that portion of this Note upon conversion of which the sum of
(1) the number of shares of Common Stock beneficially owned by the Holder and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
Notes or the unexercised or unconverted portion of any other security of the
Borrower subject to a limitation on conversion or exercise analogous to the
limitations contained herein) and (2) the number of shares of Common Stock
issuable upon the conversion of the portion of this Note with respect to which
the determination of this proviso is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 4.9% of the outstanding
shares of Common Stock. For purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
and Regulation 13D-G thereunder, except as otherwise provided in clause (1) of
such proviso, provided,
further,
however,
that the limitations on conversion may be waived by the Holder upon, at the
election of the Holder, not less than 61 days’ prior notice to the Borrower, and
the provisions of the conversion limitation shall continue to apply until such
61st day (or such later date, as determined by the Holder, as may be specified
in such notice of waiver). The number of shares of Common Stock to be issued
upon each Conversion of this Note (“Conversion Shares”) shall be determined by
dividing the Conversion Amount (as defined below) by the applicable Conversion
Price then in effect on the date specified in the notice of conversion, in the
form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the
Borrower by the Holder in accordance with Section 1.4 below; provided that the
Notice of Conversion is submitted by facsimile or e-mail (or by other means
resulting in, or reasonably expected to result in, notice) to the Borrower
before 11:59 p.m., New York, New York time on such conversion date (the
“Conversion Date”). The term “Conversion Amount” means, with respect to any
Conversion of this Note, the sum of (1) the principal amount of this Note to be
converted in such Conversion, plus
(2) accrued and unpaid interest, if any, on such principal amount being
converted at the interest rates provided in this Note to the Conversion Date,
plus
(3) at the Holder’s option, Default Interest, if any, on the amounts referred to
in the immediately preceding clauses (1) and/or (2), plus (4)
any Additional Principal for such Conversion, plus
(5) at the Holder’s option, any amounts owed to the Holder pursuant to Sections
1.2(c) and 1.4(g) hereof.
25
1.2. Conversion
Price.
a)
Calculation
of Conversion Price. The conversion price hereunder (the “Conversion
Price”) shall equal the lower of: (i) the closing sale price of the Common Stock
on the Principal Market on the Trading Day immediately preceding the Closing
Date, and (ii) 58% of either the lowest sale price for the Common Stock on the
Principal Market during the twenty (20) consecutive Trading Days immediately
preceding the Conversion Date or the closing bid price, whichever is lower,
provided,
however, if the Company’s share price at any time loses the bid
(ex:
0.0001
on the ask with zero market makers on the bid on level 2), then the Conversion
Price may, in the Holder’s sole and absolute discretion, be reduced to a fixed
conversion price of 0.00001 (if lower than the conversion price otherwise),
and
provided, that if on the date of delivery of the Conversion Shares to the
Holder, or any date thereafter while Conversion Shares are held by the Holder,
the closing bid price per share of Common Stock on the Principal Market on the
Trading Day on which the Common Shares are traded is less than the sale price
per share of Common Stock on the Principal Market on the Trading Day used to
calculate the Conversion Price hereunder, then such Conversion Price shall be
automatically reduced such that the Conversion Price shall be recalculated using
the new low closing bid price (“Adjusted Conversion Price”) and shall replace
the Conversion Price above, and Holder shall be issued a number of additional
shares such that the aggregate number of shares Holder receives is based upon
the Adjusted Conversion Price, and provided,
further, that the Conversion Price shall be subject to Section 1.2(b)
below. For the purpose of clarity, any shares required to be issued as a
result of an Adjusted Conversion Price shall be deemed to be “Conversion Shares”
under this Note. If an Event of Default under Section 3.9 of the Note has
occurred, Holder, in its sole discretion, may elect to use a Conversion Price
which shall equal the lower of: (i) the closing sale price of the Common Stock
on the Principal Market on the Trading Day immediately preceding the Closing
Date; (ii) 58% of either the lowest sale price or the closing bid price,
whichever is lower for the Common Stock on the Principal Market during any
Trading Day in which the Event of Default has not been cured. If such Common
Stock is not traded on the OTCBB, OTCQB, OTC Pink, NASDAQ or NYSE, then such
sale price shall be the sale price of such security on the principal securities
exchange or trading market where such security is listed or traded or, if no
sale price of such security is available in any of the foregoing manners, the
average of the closing bid prices of any market makers for such security that
are listed in the “pink sheets” by the National Quotation Bureau, Inc. If such
sale price cannot be calculated for such security on such date in the manner
provided above, such price shall be the fair market value as mutually determined
by the Borrower and the Holder. If the Borrower’s Common stock is chilled for
deposit at DTC, becomes chilled at any point while this Note remains outstanding
or deposit or other additional fees are payable due to a Yield Sign, Stop Sign
or other trading restrictions, or if the closing sale price at any time falls
below $0.0375 (as appropriately and equitably adjusted for stock splits, stock
dividends, stock contributions and similar events), then such 58% figure
specified in clause 1.2(a)(ii) above shall be reduced to 43%. In the event that
the shares of the Borrower’s Common Stock are not deliverable via DWAC following
the conversion of any amount hereunder, an additional 5% discount will be
attributed to the Conversion Price. Additionally, the Borrower acknowledges that
it will take all reasonable steps necessary or appropriate, including providing
a board of directors resolution authorizing the issuance of common stock to
Holder . So long as the requested sale may be made pursuant to Rule 144, the
Company agrees to accept an opinion of counsel to the Holder confirming the
rights of the Holder to sell shares of Common Stock issuable or issued to Holder
on conversion of this Note pursuant to Rule 144 as promulgated by the SEC (“Rule
144”), as such Rule 144 may be in effect from time to time, which opinion will
be issued at the Company’s expense and the conversion dollar amount will be
reduced by $750.00 to cover the
26
cost
of such legal opinion. “Trading Day” shall mean any day on which the
Common Stock is tradable for any period on the OTC Pink, or on the principal
securities exchange or other securities market on which the Common Stock is then
being traded. Additionally, if the Company ceases to be a reporting company
pursuant to the 1934 Act or if the Note cannot be converted into free trading
shares after 181 days from the issuance date, an additional 15% discount will be
attributed to the Conversion Price for any and all Conversions submitted
thereafter.
b)
If at any time the Conversion Price as determined hereunder
for any Conversion would be less than the par value of the Common Stock, then
the Conversion Price hereunder shall equal such par value for such Conversion
and the Conversion Amount for such Conversion shall be increased to include
Additional Principal, where “Additional Principal” means such additional amount
to be added to the Conversion Amount to the extent necessary to cause the number
of Conversion Shares issuable upon such Conversion to equal the same number of
Conversion Shares as would have been issued had the Conversion Price not been
subject to the minimum price set forth in this Section 1.2(b).
c)
Without in any way limiting the Holder’s right to pursue
other remedies, including actual damages and/or equitable relief, the parties
agree that if delivery of the Common Stock issuable upon conversion of this Note
is not delivered by the Deadline (as defined below) the Borrower shall pay to
the Holder $1,000.00 per day in cash, for each day beyond the Deadline that the
Borrower fails to deliver such Common Stock. Such cash amount shall be paid to
Holder by the fifth day of the month following the month in which it has accrued
or, at the option of the Holder, shall be added to the principal amount of this
Note, in which event interest shall accrue thereon in accordance with the terms
of this Note and such additional principal amount shall be convertible into
Common Stock in accordance with the terms of this Note. The Borrower agrees that
the right to convert this Note is a valuable right to the Holder. The damages
resulting from a failure, attempt to frustrate, or interference with such
conversion right are difficult if not impossible to quantify. Accordingly the
parties acknowledge that the liquidated damages provision contained in this
Section are justified.
1.3.
Authorized
Shares. The Borrower covenants that the Borrower will at all times
while this Note is outstanding reserve from its authorized and unissued Common
Stock a sufficient number of shares, free from preemptive rights, to provide for
the issuance of Common Stock upon the full conversion or adjustment of this
Note. The Borrower is required at all times to have authorized and reserved
eight (8) times the number of shares that is actually issuable upon full
conversion or adjustment of this Note (based on the Conversion Price of the
Notes in effect from time to time)(the “Reserved Amount”). Initially, the
Company will instruct the Transfer Agent to reserve fourteen million six hundred
and five thousand (14,605,000) shares of common stock in the name of the Holder
for issuance upon conversion hereof. The Borrower represents that upon
issuance, such shares will be duly and validly issued, fully paid and no
n-assessable. In addition, if the Borrower shall issue any securities or make
any change to its capital structure which would change the number of shares of
Common Stock into which this Note shall be convertible at the then current
Conversion Price, the Borrower shall at the same time make proper provision so
that thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of this
Note in full. The Borrower (i) acknowledges that it has irrevocably instructed
its transfer agent to issue certificates for the Common Stock issuable upon
conversion of this Note, and (ii) agrees that its issuance of this Note shall
constitute full authority to its officers and agents who are charged with the
duty of executing stock certificates to
27
execute
and issue the necessary certificates for shares of Common Stock in accordance
with the terms and conditions of this Note.
If,
at any time the Borrower does not maintain the Reserved Amount it will be
considered an Event of Default under Section 3.2 of the Note.
1.4. Method
of Conversion.
a)
Mechanics
of Conversion. Subject to Section 1.1, this Note may be converted by
the Holder in whole or in part at any time and from time to time after the Issue
Date, by submitting to the Borrower a Notice of Conversion (by facsimile, e-mail
or other reasonable means of communication dispatched on the Conversion Date
prior to 11:59 p.m., New York, New York time).
b)
Book
Entry upon Conversion. Notwithstanding anything to the contrary set
forth herein, upon conversion of this Note in accordance with the terms hereof,
the Holder shall not be required to physically surrender this Note to the
Borrower unless the entire unpaid principal amount of this Note is so converted.
The Holder and the Borrower shall maintain records showing the principal amount
so converted and the dates of such conversions or shall use such other method,
reasonably satisfactory to the Holder and the Borrower, so as not to require
physical surrender of this Note upon each such conversion. In the event of any
dispute or discrepancy, such records of the Borrower shall, prima
facie, be controlling and determinative in the absence of manifest error.
Notwithstanding the foregoing, if any portion of this Note is converted as
aforesaid, the Holder may not transfer this Note unless the Holder first
physically surrenders this Note to the Borrower, whereupon the Borrower will
forthwith issue and deliver upon the order of the Holder a new Note of like
tenor, registered as the Holder (upon payment by the Holder of any applicable
transfer taxes) may request, representing in the aggregate the remaining unpaid
principal amount of this Note. The Holder and any assignee, by acceptance of
this Note, acknowledge and agree that, by reason of the provisions of this
paragraph, following conversion of a portion of this Note, the unpaid and
unconverted principal amount of this Note represented by this Note may be less
than the amount stated on the face hereof.
c)
Payment
of Taxes. The Borrower shall not be required to pay any tax which may
be payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock or other securities or property on conversion of this
Note in a name other than that of the Holder (or in street name), and the
Borrower shall not be required to issue or deliver any such shares or other
securities or property unless and until the person or persons (other than the
Holder or the custodian in whose street name such shares are to be held for the
Holder’s account) requesting the issuance thereof shall have paid to the
Borrower the amount of any such tax or shall have established to the
satisfaction of the Borrower that such tax has been paid.
d)
Delivery
of Common Stock upon Conversion. Upon receipt by the Borrower from
the Holder of a facsimile transmission or e-mail (or other reasonable means of
communication) of a Notice of Conversion meeting the requirements for conversion
as provided in this Section 1.4 or upon an event triggering the calculat ion of
an Adjusted Conversion Price, the Borrower shall issue and deliver or cause to
be issued and delivered to or upon the order of the Holder certificates for the
Common Stock issuable upon such conversion within three (3) business days after
such receipt or such an event (the “Deadline”) (and, solely in the case of
conversion of
28
the
entire unpaid principal amount hereof, surrender of this Note) in accordance
with the terms hereof and the Purchase Agreement.
e)
Obligation
of Borrower to Deliver Common Stock. Upon receipt by the Borrower of
a duly and properly executed Notice of Conversion or upon an event triggering
the calculation of an Adjusted Conversion Price, the Holder shall be deemed to
be the holder of record of the Common Stock issuable upon such conversion or as
a result of an Adjusted Conversion Price, the outstanding principal amount and
the amount of accrued and unpaid interest on this Note shall be reduced to
reflect such conversion or adjustment, and, unless the Borrower defaults on its
obligations under this Article I, all rights with respect to the portion of this
Note being so converted shall forthwith terminate except the right to receive
the Common Stock or other securities, cash or other assets, as herein provided,
on such conversion. If the Holder shall have given a Notice of Conversion as
provided herein or upon an event triggering the calculation of an Adjusted
Conversion Price, the Borrower’s obligation to issue and deliver the
certificates for Common Stock shall be absolute and unconditional, irrespective
of the absence of any action by the Holder to enforce the same, any waiver or
consent with respect to any provision thereof, the recovery of any judgment
against any person or any action to enforce the same, any failure or delay in
the enforcement of any other obligation of the Borrower to the holder of record,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder of any obligation to the Borrower,
and irrespective of any other circumstance which might otherwise limit
such obligation of the Borrower to the Holder in connection with such
conversion. The Conversion Date specified in the Notice of Conversion shall be
the Conversion Date so long as the Notice of Conversion is received by the
Borrower before 11:59 p.m., New York, New York time, on such date.
f)
Delivery
of Common Stock by Electronic Transfer. In lieu of delivering
physical certificates representing the Common Stock issuable upon conversion,
provided the Borrower is participating in the Depository Trust Company (“DTC”)
Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder
and its compliance with the provisions contained in Section 1.1 and in this
Section 1.4, the Borrower shall use its best effort s to cause its transfer
agent to electronically transmit the Common Stock issuable upon conversion or
upon an event triggering the calculation of an Adjusted Conversion Price to the
Holder by crediting the account of Holder’s Prime Broker with DTC through its
Deposit Withdrawal Agent Commission (“DWAC”) system.
g)
Failure
to Deliver Common Stock Prior to Deadline. Without in any way
limiting the Holder’s right to pursue other remedies, including actual damages
and/or equitable relief, the parties agree that if delivery of the Common
Stock issuable upon conversion or adjustment of this Note is not delivered by
the Deadline, the Borrower shall pay to the Holder $1,000.00
per day in cash, for each day beyond the Deadline that the Borrower fails to
deliver such Common Stock to the Holder. Such cash amount shall be paid to
Holder by the fifth day of the month following the month in which it has accrued
or, at the option of t he Holder, shall be added to the principal amount of this
Note, in which event interest shall accrue thereon in accordance with the terms
of this Note and such additional principal amount shall be convertible into
Common Stock in accordance with the terms of this Note. The Borrower agrees that
the right to convert and/or receive shares in the event of an adjustment is a
valuable right to the Holder. The damages resulting from a failure, attempt to
frustrate, or interference with such conversion or adjustment right are
29
difficult
if not impossible to qualify. Accordingly the parties acknowledge that the
liquidated damages provision contained in this Section 1.4(g) are
justified.
h)
The Borrower acknowledges that it will take all reasonable steps
necessary or appropriate, including accepting an opinion of counsel to Holder
confirming the rights of Holder to sell shares of Common Stock issued to Holder
on conversion or adjustment of the Note pursuant to Rule 144 as promulgated by
the SEC (“Rule 144”), as such Rule may be in effect from time to time. So long
as the requested sale may be made pursuant to Rule 144 the Borrower agrees to
accept an opinion of counsel to the Holder which opinion will be issued at the
Borrower’s expense.
i)
Charges
and Expenses. Issuance of Common Stock to Holder, or any of its
assignees, upon the conversion of this Note shall be made without charge to the
Holder for any issuance fee, transfer tax, legal opinion and related charges,
postage/mailing charge or any other expense with respect to the issuance of such
Common Stock. Company shall pay all Transfer Agent fees incurred from the
issuance of the Common Stock to Holder, as well as any and all other fees and
charges required by the Transfer Agent as a condition to effectuate such
issuance. Any such fees or charges as noted in this Section that are paid by the
Holder (whether from the Company’s delays, outright refusal to pay, or
otherwise), will be automatically added to the Principal Amount of the Note and
tack back to the Issue Date herein for purposes of Rule 144.
1.5.
Restricted Securities.
The shares of Common Stock issuable upon conversion or adjustment of this Note may not be sold or transferred unless (i) such
shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent
shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144
under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate”
(as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this
Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Any legend set forth on any stock
certificate evidencing any Conversion Shares shall be removed and the Borrower shall issue to the Holder a new certificate
therefore free of any transfer legend if (i) the Borrower or its tr ansfer agent shall have received an opinion of
counsel form, substance and scope customary for opinions of counsel in comparable transactions, to the effect
that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be
reasonably acceptable to the Company, or (ii) in the case of the Common Stock issued or issuable upon conversion of this
Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or
otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date
that can then be immediately sold.
1.6. Effect
of Certain Events.
a)
Effect of Merger,
Consolidation, Etc. At the option of the Holder, the sale, conveyance or disposition of all or substantially all
of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which
more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other
30
business
combination of the Borrower with or into any other Person (as defined below) or
Persons when the Borrower is not the survivor shall either: (i) be deemed to be
an Event of Default (as defined in Article III) pursuant to which the Borrower
shall be required to pay to the Holder upon the consummation of and as a
condition to such transaction an amount equal to the Default Amount (as defined
in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof. “Person”
shall mean any individual, corporation, limited liability company, partnership,
association, trust or other entity or organization.
b)
Adjustment
Due to Merger, Consolidation, Etc. If, at any time when this Note is
issued and outstanding and prior to conversion of all of the Notes, there shall
be any merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which shares of Common
Stock of the Borrower shall be changed into the same or a different number of
shares of another class or classes of stock or securities of the Borrower or
another entity, or in case of any sale or conveyance of all or substantially all
of the assets of the Borrower other than in connection with a plan of complete
liquidation of the Borrower, then the Holder of this Note shall thereafter have
the right to receive upon conversion of this Note, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common Sto ck
immediately theretofore issuable upon conversion, such stock, securities or
assets which the Holder would have been entitled to receive in such transaction
had this Note been converted in full immediately prior to such transaction
(without regard to any limitations on conversion set forth herein), and in any
such case appropriate provisions shall be made with respect to the rights and
interests of the Holder of this Note to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Conversion
Price and of the number of shares issuable upon conversion of the Note) shall
thereafter be applicable, as nearly as may be practicable in relation to any
securities or assets thereafter deliverable upon the conversion hereof. The
Borrower shall not affect any transaction described in this Section 1.6(b)
unless (a) it first gives, to the extent practicable, thirty (30) days prior
written notice (but in any event at least fifteen (15) days prior written
notice) of the record date of the special meeting of shareholders to approve, or
if there is no such record date, the consummation of, such merger,
consolidation, exchange of shares, recapitalization, reorganization or other
similar event or sale of assets (during which time, for clarification, the
Holder shall be entitled to convert this Note) and (b) the resulting successor
or acquiring entity assumes by written instrument the obligations of this
Section 1.6(b). The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers or share exchanges.
c)
Adjustment
Due to Distribution. If the Borrower shall declare or make any
distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a dividend, stock repurchase, by way of return of capital or
otherwise (including any dividend or distribution to the Borrower’s shareholders
in cash or shares (or rights to acquire shares) of capital stock of a subsidiary
(i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be
entitled, upon any conversion of this Note after the date of record for
determining shareholders entitled to such Distribution, to receive the amount of
such assets which would have been payable to the Holder with respect to the
shares of Common Stock issuable upon such conversion had such Holder been the
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such Distribution. Such assets shall be held
in escrow by the Company pending any such conversion
31
d)
Purchase
Rights. If, at any time when any Notes are issued and outstanding,
the Borrower issues any convertible securities or rights to purchase stock,
warrants, securities or other property (the “Purchase Rights”) pro rata to the
record holders of a ny class of Common Stock, then the Holder of this Note will
be entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such Holder could have acquired if such Holder
had held the number of shares of Commo n Stock acquirable upon complete
conversion of this Note (without regard to any limitations on conversion
contained herein) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
e)
Stock
Dividends and Stock Splits. If the Company, at any time while this
Note is outstanding: (A) pays a stock dividend or otherwise makes a distribution
or distributions payable in shares of Common Stock on shares of Common Stock or
any securities convertible into or exercisable for Common Stock; (B) subdivides
outstanding shares of Common Stock into a larger number of shares; (C) combines
(including by way of a reverse stock split) outstanding shares of Common Stock
into a smaller number of shares; or (D) issues, in the event of a
reclassification of shares of the Common Stock, any shares of capital stock of
the Company, then the Conversion Price (and each sale or bid price used in
determining the Conversion Price) shall be multiplied by a fraction, of which
the numerator shall be the number of shares of Common Stock outstanding
immediately before such event and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such event. Any
adjustment made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.
f)
Notice
of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price as a result of the events described in this
Section 1.6, the Borrower, at its expense, shall promptly compute such
adjustment or readjustment and prepare and furnish to the Holder a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Borrower shall, upon
the written request at any time of the Holder, furnish to such Holder a like
certificate setting forth (i) such adjustment or readjustment, (ii) the
Conversion Price at the time in effect and (iii) the number of shares of Common
Stock and the amount, if any, of other securities or property which at the time
would be received upon conversion of the Note.
1.7.
Revocation.
If any Conversion Shares are not received by the Deadline, the Holder may revoke
the applicable Conversion pursuant to which such Conversion Shares were
issuable. This Note shall remain convertible after the Maturity Date hereof
until this Note is repaid or converted in full.
1.8.
Prepayment.
Notwithstanding anything to the contrary contained in this Note, subject to the
terms of this Section, at any time during the period beginning on the Issue Date
and ending on the date which is six (6) months following the Issue Date
(“Prepayment Terminat ion Date”), Borrower shall have the right, exercisable on
not less than five (5) Trading Days prior written notice to the Holder of this
Note, to prepay the outstanding balance on this Note (principal and accrued
interest), in full, in accordance with this Section. Any notice of prepayment
hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of
the Note at its registered
32
addresses
and shall state: (1) that the Borrower is exercising its right to prepay the
Note, and (2) the date of prepayment which shall be not more than ten (10)
Trading Days from the date of the Optional Prepayment Notice. On the date fixed
for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment
of the Optional Prepayment Amount (as defined below) to or upon the order of the
Holder as specified by the Holder in writing to the Borrower at least one (1)
business day prior to the Optional Prepayment Date. If the Borrower exercises
its right to prepay the Note, the Borrower shall make payment to the Holder of
an amount in cash (the “Optional Prepayment Amount”) equal to the Prepayment
Factor (as defined below), multiplied by the sum of: (w) the then outstanding
principal amount of this Note plus
(x) accrued and unpaid interest on the unpaid principal amount of this Note to
the Optional Prepayment Date plus
(y) Default Interest, if any, on the amounts referred to in clauses (w) and (x)
plus
(z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.
If the Borrower delivers an Optional Prepayment Notice and fails to pay the
Optional Prepayment Amount due to the Holder of the Note within two (2) business
days following the Optional Prepayment Date, the Borrower shall forever forfeit
its right to prepay the Note pursuant to this Section. After the Prepayment
Termination Date, the Borrower shall have no right to prepay this Note. For
purposes hereof, the “Prepayment Factor” shall equal one hundred and forty-five
percent (145%), provided that such Prepayment factor shall equal one hundred and
thirty percent (130%) if the Optional Prepayment Date occurs on or before the
date which is ninety (90) days following the Issue Date hereof.
2.1.
Distributions
on Capital Stock. So long as the Borrower shall have any
obligation under this Note, the Borrower shall not without the Holder’s written
consent (a) pay, declare or set apart for such payment, any dividend or other
distribution (whether in cash, property or other securities) on shares of
capital stock other than dividends on shares of Common Stock solely in the form
of additional shares of Common Stock or (b) directly or indirectly or through
any subsidiary make any other payment or distribution in respect of its capital
stock except for distributions pursuant to any shareholders’ rights plan which
is approved by a majority of the Borrower’s disinterested directors.
2.2.
Restriction
on Stock Repurchases. So long as the Borrower shall have any
obligation under this Note, the Borrower shall not without the Holder’s written
consent redeem, repurchase or otherwise acquire (whether for cash or in exchange
for property or other securities or otherwise) in any one transaction or series
of related transactions any shares of capital stock of the Borrower or any
warrants, rights or options to purchase or acquire any such shares.
2.3.
Borrowings;
Liens. Notwithstanding section
4(m) of the Purchase Agreement, so long as
the Borrower shall have any obligation under this Note, the Borrower shall not
(i) create, incur, assume guarantee, endorse, contingently agree to purchase or
otherwise become liable upon the obligation of any person, firm, partnership,
joint vent ure or corporation, except by the endorsement of negotiable
instruments for deposit or collection, or suffer to exist any liability for
borrowed money, except (a) borrowings in existence or committed on the date
hereof and of which the Borrower has informed Holder in writing prior to the
date hereof, or (b) indebtedness to trade creditors or financial institutions
incurred in the ordinary course of business, or (ii) enter into, create or incur
any liens, claims or encumbrances of any kind, on or with respect to any of
its
33
property
or assets now owned or hereafter acquired or any interest therein or any income
or profits therefrom, securing any indebtedness occurring after the date
hereof.
2.4.
Sale
of Assets. So long as the Borrower shall have any obligation under
this Note, the Borrower shall not, without the Holder’s written consent, sell,
lease or otherwise dispose of any significant portion of its assets outside the
ordinary course of business. Any consent to the disposition of any assets may be
conditioned on a specified use of the proceeds of disposition.
2.5.
Advances
and Loans. So long as the Borrower shall have any obligation
under this Note, the Borrower shall not, without the Holder’s written consent,
lend money, give credit or make advances to any person, firm, joint venture or
corporation, including, without limitation, officers, directors, employees,
subsidiaries and affiliates of the Borrower, except loans, credits or advances
in existence or committed on the date hereof and which the Borrower has informed
Holder in writing prior to the date hereof.
2.6.
Charter.
So long as the Borrower shall have any obligations under this Note, the Borrower
shall not amend its charter documents, including without limitation its
certificate of incorporation and bylaws, in any manner that materially and
adversely affects any rights of the Holder.
2.7.
Transfer
Agent. The Borrower shall not change its transfer agent without the
prior written consent of the Holder. Any resignation by the transfer agent
without a replacement transfer agent consented to by the Holder prior to such
replacement taking effect shall constitute an Event of Default hereunder.
Any
one or more of the following events which shall occur and/or be continuing shall
constitute an event of default (each, an “Event of Default”):
3.1.
Failure
to Pay Principal or Interest. The Borrower fails to pay the principal
hereof or interest thereon when due on this Note, whether at maturity, upon
acceleration or otherwise.
3.2.
Conversion
and the Shares. The Borrower fails to issue shares of Common Stock to
the Holder (or announces or threatens in writing that it will not honor its
obligation to do so at any time following the execution hereof or) upon exercise
by the Holder of the conversion rights of the Holder in accordance with the
terms of this Note, fails to transfer or cause its transfer agent to transfer
(issue) (electronically or in certificated form) any certificate for shares of
Common Stock issued to the Holder upon conversion of or otherwise pursuant to
this Note as and when required by this Note, the Borrower directs its transfer
agent not to transfer or delays, impairs, and/or hinders its transfer agent in
transferring (or issuing) (electronically or in certificated form) any
certificate for shares of Common Stock to be issued to the Holder upon
conversion of or otherwise pursuant to this Note as and when required by this
Note, or fails to remove (or directs its transfer agent not to remove or
impairs, delays, and/or hinders its transfer agent from removing) any
restrictive legend (or to withdraw any stop transfer instructions in respect
thereof) on any certificate for any shares of Common Stock issued to the Holder
upon conversion of or otherwise pursuant to this Note as and when required by
this Note (or makes any written announcement, statement or threat that it does
not intend to honor the obligations described in this paragraph) and any such
failure shall continue
34
uncured
(or any written announcement, statement or threat not to honor its obligations
shall not be rescinded in writing) for five (5) business days after the Holder
shall have delivered a Notice of Conversion. It is an obligation of the Borrower
to remain current in its obligations to its transfer agent. It shall be an event
of default of this Note, if a conversion of this Note is delayed, hindered or
frustrated due to a balance owed by the Borrower to its transfer agent. If at
the option of the Holder, the Holder advances any funds to the Borrower’s
transfer agent in order to process a conversion, such advanced funds shall be
paid by the Borrower to the Holder within forty eight (48) hours of a demand
from the Holder.
3.3.
Breach
of Covenants. The Borrower breaches any material covenant or other
material term or condition contained in this Note and any collateral documents
including but not limited to the Purchase Agreement and such breach continues
for a period of seven (7) days after written notice thereof to the Borrower from
the Holder.
3.4.
Breach
of Representations and Warranties. Any representation or warranty of
the Borrower made herein or in any agreement, statement or certificate given in
writing pursuant hereto or in connection herewith (including, without
limitation, the Purchase Agreement), shall be false or misleading in any
material respect when made and the breach of which has (or with the passage of
time will have) a material adverse effect on the rights of the Holder with
respect to this Note or the Purchase Agreement.
3.5.
Receiver
or Trustee. The Borrower or any subsidiary of the Borrower shall make
an assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business, or such a receiver or trustee shall otherwise be
appointed.
3.6.
Judgments.
Any money judgment, writ or similar process shall be entered or filed against
the Borrower or any subsidiary of the Borrower or any of its property or other
assets for more than $50,000.00, and shall remain unvacated, unbonded or
unstayed for a period of twenty (20) days unless otherwise consented to by the
Holder, which consent will not be unreasonably withheld.
3.7.
Bankruptcy.
Bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings, voluntary or involuntary, for relief under any bankruptcy law or
any law for the relief of debtors shall be instituted by or against the Borrower
or any subsidiary of the Borrower.
3.8.
Delisting
of Common Stock. The Borrower shall fail to maintain the listing of
the Common Stock on at least one of the OTCBB, or OTCQB, OTC Pink or an
equivalent replacement exchange, NASDAQ, the NYSE or AMEX.
3.9.
Failure
to Comply with the Exchange Act. The Borrower shall fail to comply in
any material respect with the reporting requirements of the Exchange Act; and/or
the Borrower shall cease to be subject to the reporting requirements of the
Exchange Act.
3.10.
Liquidation.
Any dissolution, liquidation, or winding up of Borrower or any substantial
portion of its business.
3.11.
Cessation
of Operations. Any cessation of operations by Borrower or Borrower
admits it is otherwise generally unable to pay its debts as such debts
become due, provided, however, that any disclosure of the Borrower’s ability to
continue as a “going concern” shall not be an admission that the Borrower cannot
pay its debts as they become due.
35
3.12.
Maintenance
of Assets. The failure by Borrower, during the term of this Note, to
maintain any material intellectual property rights, personal, real property or
other assets which are necessary to conduct its business (whether now or in the
future).
3.13.
Financial
Statement Restatement. The restatement of any financial statements
filed by the Borrower with the SEC for any date or period fro m two years prior
to the Issue Date of this Note and until this Note is no longer outstanding, if
the result of such restatement would, by comparison to the unrestated financial
statement, have constituted a material adverse effect on the rights of the
Holder with respect to this Note or the Purchase Agreement.
3.14.
Reverse
Splits. The Borrower effectuates a reverse split of its Common Stock
without twenty (20) days prior written notice to the Holder.
3.15.
Replacement
of Transfer Agent. In the event that the Borrower proposes to replace
its transfer agent, the Borrower fails to provide, prior to the effective date
of such replacement, a fully executed Irrevocable Transfer Agent Instructions in
a form as initially delivered pursuant to the Purchase Agreement
(including but not limited to the provision to irrevocably reserve shares of
Common Stock in the Reserved Amount) signed by the successor transfer agent to
Borrower and the Borrower.
3.16.
Cross-Default.
Notwithstanding anything to the contrary contained in this Note or the
other related or companion documents, a breach or default by the Borrower of any
covenant or other term or condition contained in any of the Other Agreements,
after the passage of all applicable notice and cure or grace periods, shall, at
the option of the Holder, be considered a default under this Note and the Other
Agreements, in which event the Holder shall be entitled (but in no event
required) to apply all rights and remedies of the Holder under the terms of this
Note and the Other Agreements by reason of a default under said Other Agreement
or hereunder. “Other Agreements” means, collectively, all agreements and
instruments between, among or by: (1) the Borrower, and, or for the benefit of,
(2) the Holder and any affiliate of the Holder, including, without limitation,
promissory notes; provided, however, the term “Other Agreements” shall not
include the related or companion documents to this Note. Each of the loan
transactions will be cross-defaulted with each other loan transaction and with
all other existing and future debt of Borrower to the Holder.
Upon
the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to
failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become
immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an
amount equal to the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT
SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL
SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO
(2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect
to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event
pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, 3.17, 3.18 and/or 3. 15
exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon
the occurrence of an Event of Default specified in the remaining sections of Articles III (other than failure to pay the
principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note
36
shall
become immediately due and payable and the Borrower shall pay to the Holder, in
full satisfaction of its obligations hereunder, an amount equal to the greater
of (i) 150% times
the sum
of (w) the then outstanding principal amount of this Note plus
(x) accrued and unpaid interest on the unpaid principal amount of this Note to
the date of payment (the “Mandatory Prepayment Date”) plus
(y) Default Interest, if any, on the amounts referred to in clauses (w) and/or
(x) plus
(z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof
(the then outstanding principal amount of this Note to the date of payment plus
the amounts referred to in clauses (x), (y) and (z) shall collectively be known
as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be
prepaid, where parity value means (a) the highest number of shares of Common
Stock issuable upon conversion of or otherwise pursuant to such Default Sum in
accordance with Article I, treating the Trading Day immediately preceding the
Mandatory Prepayment Date as the “Conversion Date” for purposes of determining
the lowest applicable Conversion Price, unless the Default Event arises as a
result of a breach in respect of a specific Conversion Date in which case such
Conversion Date shall be the Conversion Date), multiplied
by (b) the highest Closing Price for the Common Stock during the
period beginning on the date of first occurrence of the Event of Default and
ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and
all other amounts payable hereunder shall immediately become due and payable,
all without demand, presentment or notice, all of which hereby are expressly
waived, together with all costs, including, without limitation, legal fees and
expenses, of collection, and the Holder shall be entitled to exercise all other
rights and remedies available at law or in equity.
If
the Borrower fails to pay the Default Amount within five (5) business days of
written notice that such amount is due and payable, then the Holder shall have
the right at any time, so long as the Borrower remains in default (and so long
and to the extent that there are sufficient authorized shares), to require the
Borrower, upon written notice, to immediately issue, in lieu of the Default
Amount, the number of shares of Common Stock of the Borrower equal to the
Default Amount divided by the Conversion Price then in effect. The Holder may
still convert any amounts due hereunder, including without limitation the
Default Sum, until such time as this Note has been repaid in full.
3.17.
Inside
Information. The Borrower or its officers, directors, and/or
affiliates attempt to transmit, convey, disclose, or any actual transmittal,
conveyance, or disclosure by the Borrower or its officers, directors, and/or
affiliates of, material non-public information concerning the Borrower, to the
Holder or its successors and assigns, which is not immediately cured by
Borrower’s filing of a Form 8-K pursuant to Regulation FD on that same
date.
3.18
Bid
Price. The Borrower shall lose the “bid” price for
its Common Stock ($0.0001 on the “Ask” with zero market makers on the “Bid” per
Level 2) and/or a market (including the OTC Pink, OTCQB or an equivalent
replacement exchange).
4.1.
Failure
or Indulgence Not Waiver. No failure or delay on the part of the
Holder in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any
other right, power or privileges. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
37
4.2.
Notices.
All notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, email or facsimile, addressed as set
forth below or to such other address as such party shall have specified most
recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile or email, with accurate confirmation generated by the
transmitting facsimile machine or computer, at the address, email or number
designated in the Purchase Agreement (if delivered on a business day during
normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day
during normal business hours where such notice is to be received) or (b) on the
second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur.
4.3.
Amendments.
This Note and any provision hereof may only be amended by an instrument in
writing signed by the Borrower and the Holder. The term “Note” and all reference
thereto, as used throughout this instrument, shall mean this instrument (and the
other Notes issued pursuant to the Purchase Agreement) as originally executed,
or if later amended or supplemented, then as so amended or supplemented.
4.4.
Assignability. This
Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and
its successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule
501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement.
4.5. Cost
of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of
collection, including reasonable attorneys’ fees.
4.6.
Governing
Law. This Note shall be governed by and construed in accordance with
the laws of the State of New York without regard to conflicts of laws principles
that would result in the application of the substantive laws of another
jurisdiction. Any action brought by either party against the other concerning
the transactions contemplated by this Agreement must be brought only in the
civil or state courts of New York or in the federal courts located in the State
and county of New York. Both parties and the individual signing this Agreement
on behalf of the Borrower agree to submit to the jurisdiction of such courts.
The prevailing party shall be entitled to recover from the other party its
reasonable attorney’s fees and costs. In the event that any provision of this
Note is invalid or unenforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or unenforceability of any other provision
of this Note. Nothing contained herein shall be deemed or operate to preclude
the Holder from bringing suit or taking other legal action against the Borrower
in any other jurisdiction to collect on the Borrower’s obligations to Holder, to
realize on any collateral or any other security for such obligations, or to
enforce a judgment or other decision in favor of the Holder. This
Note shall be deemed an unconditional obligation of Borrower for the payment of
money and, without limitation to any other remedies of Holder, may be enforced
against Borrower by summary proceeding pursuant to New York Civil Procedure Law
and Rules Section 3213 or any similar rule or statute in the jurisdiction where
enforcement is sought. For purposes of such rule or statute, any other document
or agreement to which Holder and Borrower are parties or which Borrower
delivered to Holder, which may be convenient or necessary to determine Holder’s
rights hereunder or Borrower’s obligations to Holder are deemed a part of this
Note, whether or not such other document or agreement was delivered together
herewith or was executed apart from this Note.
38
4.7.
Certain
Amounts. Whenever pursuant to this Note the Borrower is required to
pay an amount in excess of the outstanding principal amount (or the portion
thereof required to be paid at that time) plus accrued and unpaid interest plus
Default Interest on such interest, the Borrower and the Holder agree that the
actual damages to the Holder from the receipt of cash payment on this Note may
be difficult to determine and the amount to be so paid by the Borrower
represents stipulated damages and not a penalty and is intended to compensate
the Holder in part for loss of the opportunity to convert this Note and to earn
a return from the sale of shares of Common Stock acquired upon conversion of
this Note at a price in excess of the price paid for such shares pursuant to
this Note. The Borrower and the Holder hereby agree that such amount of
stipulated damages is not plainly disproportionate to the possible loss to the
Holder from the receipt of a cash payment without the opportunity to convert
this Note into shares of Common Stock.
4.8.
Disclosure.
Upon receipt or delivery by the Company of any notice in accordance with the
terms of this Note, unless the Company has in good faith determined that the
matters relating to such notice do not constitute material, non-public
information relating to the Company or any of its Subsidiaries, the Company
shall within one (1) Trading Day after any such receipt or delivery, publicly
disclose such material, non-public information on a Current Report on Form 8-K
or otherwise. In the event that the Company believes that a notice contains
material, non- public information relating to the Company or any of its
Subsidiaries, the Company so shall indicate to such Holder contemporaneously
with delivery of such notice, and in the absence of any such indication, the
Holder shall be allowed to presume that all matters relating to such notice do
not constitute material, non-public information relating to the Company or its
Subsidiaries.
4.9.
Notice
of Corporate Events. Except as otherwise provided below, the Holder
of this Note shall have no rights as a Holder of Common Stock unless and only to
the extent that it converts this Note into Common Stock. The Borrower shall
provide the Holder with prior notification of any meeting of the Borrower’s
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Borrower of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation,
reclassification or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Borrower or any proposed liquidation, dissolution or winding up of the
Borrower, the Borrower shall mail a notice to t he Holder, at least twenty (20)
days prior to the record date specified therein (or thirty (30) days prior to
the consummation of the transaction or event, whichever is earlier), of the date
on which any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time. The Borrower shall make a public announcement of any event
requiring notification to the
39
Holder
hereunder substantially simultaneously with the notification to the Holder in
accordance with the terms of this Section 4.9.
4.10.
Remedies.
The Borrower acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Holder, by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Borrower acknowledges that the
remedy at law for a breach of its obligations under this Note will be inadequate
and agrees, in the event of a breach or threatened breach by the Borrower of the
provisions of this Note, that the Holder shall be entitled, in addition to all
other available remedies at law or in equity, and in addition to the
penalties assessable herein, to an injunction or injunctions restraining,
preventing or curing any breach of this Note and to enforce
specifically the terms and provisions thereof, without the
necessity of showing economic loss and without any bond or other security being
required.
4.11.
Usury.
This Note shall be subject to the anti-usury limitations contained in the
Purchase Agreement.
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of Page intentionally left blank)
40
VET ONLINE SUPPLY, INC.
By:/s/Xxxxxx Xxxxx
Name:
Xxxxxx X. Xxxxx
Title:
President, CEO
41
EXHIBIT
A NOTICE OF CONVERSION
The
undersigned hereby elects to convert principal under the 8% Convertible Note of
Vet Online Supply, Inc., a Florida corporation (the Company”),
into shares of common stock (the “Common
Stock”), of the Company according to the conditions hereof, as of the
date written below. If shares of Common Stock are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates and
opinions as reasonably requested by the Company in accordance therewith. No fee
will be charged to the holder for any conversion, except for such transfer
taxes, if any.
By
the delivery of this Notice of Conversion the undersigned represents
and warrants to the Company that its ownership of the Common Stock does
not exceed the amounts specified under Section 1.1 of this Note, as determined
in accordance with Section 13(d) of the Exchange Act.
The
undersigned agrees to comply with the prospectus delivery requirements under the
applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock pursuant to any prospectus.
Conversion calculations:
Issue
Date of Note:
Date to Effect Conversion:
Conversion
Price:
Principal
Amount of Note to be Converted:
Less applicable fees under the
Note:
Amount of Note to be Converted:
Interest
Accrued on Account
of
Conversion at Issue:
Additional
Principal on Account of Conversion
Pursuant
to Section 1.2(b) of the Note:
Number of
shares of Common Stock to be issued:
Remaining
Balance of Note*:
Signature:
Name:
Address
for Delivery of Common Stock Certificates:
Or
DWAC
Instructions:
Broker
No: Account
No:
*Sum
provided does not include accrued interest and/or additional fees
42