EXHIBIT 10.5

 

SECURITIES EXCHANGE AND SERIES A PREFERRED STOCK

PURCHASE AGREEMENT

 

This Securities Exchange and Series A Preferred Stock Purchase Agreement (this
“Agreement”) is made and entered into effective as of the 25th day of July, 2017
(the “Effective Date”) by and between Freeze Tag, Inc., a Delaware corporation
(the “Company”), and Accredited Investor #3, a Nevada limited liability company
(the “Holder”). The Company and Holder shall each be referred to as a “Party”
and collectively as the “Parties.”

 

RECITALS

 

WHEREAS, on February 1, 2016 the Parties entered into a Game Marketing
Investment Agreement (the “Marketing Agreement”), under which the Holder agreed
to invest funds in the Company in exchange for fifty percent (50%) of the net
proceeds from the Company’s KITTY PAWP game (the “Game”);

 

WHEREAS, as of June 9, 2016, the Holder had invested a total of $58,096.13 in
the Company under the Marketing Agreement, and had received $7,002.13 as its
portion of the net proceeds from the Game;

 

WHEREAS, on June 9, 2016, the Parties orally agreed to modify the Marketing
Agreement, such that the amounts invested by the Holder in the Company would be
a loan to the Company, and the Company would no longer pay the Holder out of the
net proceeds of the Game;

 

WHEREAS, the Company currently owes the Holder the remaining $51,094 as
principal under the reconstituted loan arrangement;

 

WHEREAS, the Holder desires to tender the loan amount for cancellation,
including having the (i) Principal owed to Holder by the Company exchanged for
shares of the Company’s Series A Convertible Preferred Stock, (ii) any interest
on the Principal waived and deemed fully satisfied, (iii) to formally terminate
and cancel the Marketing Agreement pursuant to the terms of this Agreement;

 

WHEREAS, the Company desires to issue the Holder shares of the Company’s Series
A Convertible Preferred Stock and formally terminate and cancel the Marketing
Agreement in exchange for the Holder tendering the Principal and the Marketing
Agreement for cancellation;

 

WHEREAS, the Common Stock, or common stock, as referenced in this Agreement
shall mean the common stock, $0.00001 par value per share, of the Company after
giving effect to a 1-for-100 reverse stock split scheduled to be effective on or
around September 1, 2017; and

 

NOW, THEREFORE, the Parties hereby agree as follows:

 

 

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AGREEMENT

 

1. EXCHANGE OF SECURITIES:

 

a) Prior to the Closing, the Company hereby agrees to create a new series of
convertible preferred stock entitled “Series A Convertible Preferred Stock,”
with One Million Five Hundred Thousand (1,500,000) shares authorized and the
following rights: (i) dividend rights equal to the Company’s common stock; (ii)
no liquidation preference over the Company’s common stock; (iii) conversion
rights into common stock at a ratio of 10 shares of common stock (post-reverse
stock split) for each share of Series A Convertible Preferred Stock; (iv) no
redemption rights; (v) no call rights by the Company; and (vi) no voting rights.
Certificate of Designation for the Series A Convertible Preferred Stock, a copy
of which is attached hereto as Exhibit B (the “Certificate of Designation”).

 

b) On the Closing Date (as hereinafter defined), subject to the terms and
conditions set forth in this Agreement, the Company hereby agrees to issue Fifty
One Thousand Ninety Four (51,094) shares of the Company’s Series A Convertible
Preferred Stock (the “Shares”) at a per-share purchase price of $1.00 per share,
in exchange for the Holder agreeing to cancel the Principal and the Marketing
Agreement, including the Principal and any interest being considered fully
satisfied. The Purchase Price will be paid by the Holder to the Company through
a Notice of Debt Satisfaction in the form attached hereto as Exhibit A,
evidencing the satisfaction of the Principal in exchange for the Shares and
stating that the Holder is forever waiving the right to any interest on the
Principal Amount or any rights under the Marketing Agreement.

 

c) As set forth in the Certificate of Designation for the Company’s Series A
Convertible Preferred Stock, each Share of Series A Convertible Preferred Stock
is convertible into fifty (50) shares of the Company’s common stock at any time
as set forth in the Certificate of Designation. The conversion is subject to
certain limitations as set forth in the Certificate of Designation for the
Company’s Series A Convertible Preferred Stock.

 

d) Unless specifically requested by the Holder to be issued physical
certificates for the Shares, the Company, itself or through its transfer agent,
shall issue the Shares in book-entry form, or in other electronic format. The
Company or its transfer agent shall issue to Holder a statement reflecting his
holding of the Shares, and shall deliver an updated statement to Holder upon
request.

 

2. CLOSING AND DELIVERY:

 

a) Upon the terms and subject to the conditions set forth herein, the
consummation of the exchange of the Principal under the Marketing Agreement for
the Shares (the “Closing”) shall occur automatically upon the Company completing
a 1-for-100 reverse stock split of the Company’s common stock (the “Closing
Date”).

 

 

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b) In advance of the Closing:

 

(i) The Company and the Holder shall execute this Agreement. Subsequent to the
Closing, at a time chosen by the Company in its sole discretion and if requested
by the Holder and/or required by the Company’s transfer agent, the Company will
issue a stock certificate to the Holder to evidence the Shares.

 

(ii) The Holder shall deliver to the Company the signed Notice of Debt
Satisfaction.

 

(iii) The Certificate of Designation shall have been filed with the State of
Delaware creating the Series A Convertible Preferred class of stock.

 

(iv) The exchange of the Shares for the cancellation of the Notes will be
effective automatically upon the effectiveness of the above-referenced reverse
stock split.

 

3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS BY HOLDER: The Holder hereby
represents, warrants and agrees as follows:

 

a) Purchase for Own Account. The Holder hereby represents that it is purchasing
the Series A Convertible Preferred Stock for the its own account for investment
and not with a view toward the resale or distribution to others; provided, that
Holder may syndicate participations in the Series A Convertible Preferred Stock
among a limited number of participants who all meet the suitability standards of
an “accredited investor” as defined in Rule 501(a) of Regulation D of the
Securities Act and will share among themselves and the Lender an economic
interest in the Series A Convertible Preferred Stock on a pari passu, pass
through basis with investment intent, such that the availability of the private
placement exemption for the issuance of the Note under Rule 506 of Regulation D
of the Securities Act is preserved

 

b) Ability to Bear Economic Risk. Holder acknowledges that an investment in the
Shares involves a high degree of risk, and represents that he is able, without
materially impairing his financial condition, to hold the Shares for an
indefinite period of time and to suffer a complete loss of his investment.

 

c) Access to Information. The Holder acknowledges that the Holder has been
furnished with such financial and other information concerning the Company, the
directors and officers of the Company, and the business and proposed business of
the Company as the Holder considers necessary in connection with the Holder’s
investment in the Shares. As a result, the Holder is thoroughly familiar with
the proposed business, operations, properties and financial condition of the
Company and has discussed with officers of the Company any questions the Holder
may have had with respect thereto. The Holder understands:

 

 

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(i) The risks involved in this investment, including the speculative nature of
the investment;

 

(ii) The financial hazards involved in this investment, including the risk of
losing the Holder’s entire investment;

 

(iii) The lack of liquidity and restrictions on transfers of the Shares; and

 

(iv) The tax consequences of this investment.

 

The Holder has consulted with the Holder’s own legal, accounting, tax,
investment and other advisers with respect to the tax treatment of an investment
by the Holder in the Shares and the merits and risks of an investment in the
Shares.

 

d) Shares Part of Private Placement. The Holder has been advised that the Shares
have not been registered under the Securities Act of 1933, as amended (the
“Act”), or qualified under the securities law of any state, on the ground, among
others, that no distribution or public offering of the Shares is to be effected
and the Shares will be issued by the Company in connection with a transaction
that does not involve any public offering within the meaning of section 4(a)(2)
of the Act and/or Regulation D as promulgated by the Securities and Exchange
Commission under the Act, and under any applicable state blue sky authority. The
Holder understands that the Company is relying in part on the Holder’s
representations as set forth herein for purposes of claiming such exemptions and
that the basis for such exemptions may not be present if, notwithstanding the
Holder’s representations, the Holder has in mind merely acquiring the Shares for
resale on the occurrence or nonoccurrence of some predetermined event. The
Holder has no such intention.

 

e) Further Limitations on Disposition. Holder further acknowledges that the
Shares, and the shares of the Company’s common stock issuable upon conversion of
the Shares, are restricted securities under Rule 144 of the Act, and, therefore,
if the Company, in its sole discretion, chooses to issue any certificates
reflecting the ownership interest in the Shares, those certificates will contain
a restrictive legend substantially similar to the following:

 

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “ACT”). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED.

 

 

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Without in any way limiting the representations set forth above, Holder further
agrees not to make any disposition of all or any portion of the Shares, or the
shares of the Company’s common stock underlying the conversion of the Shares,
unless and until:

 

(i) There is then in effect a Registration Statement under the Act covering such
proposed disposition and such disposition is made in accordance with such
Registration Statement; or

 

(ii) Holder shall have obtained the consent of the Company and notified the
Company of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and if reasonably requested by the Company, Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration under the Act or any applicable
state securities laws.

 

Notwithstanding the provisions of subparagraphs (i) and (ii) above, no such
registration statement or opinion of counsel shall be necessary for a transfer
by such Holder to a partner (or retired partner) of Holder, or transfers by
gift, will or intestate succession to any spouse or lineal descendants or
ancestors, if all transferees agree in writing to be subject to the terms hereof
to the same extent as if they were Holders hereunder as long as the consent of
the Company is obtained.

 

f) Accredited Investor Status. The Holder is an accredited investor.

 

g) Holder Authorization. The Holder, if not an individual, is empowered and duly
authorized to enter into this Agreement under any governing document,
partnership agreement, trust instrument, pension plan, charter, certificate of
incorporation, bylaw provision or the like; this Agreement constitutes a valid
and binding agreement of the Holder enforceable against the Holder in accordance
with its terms; and the person signing this Agreement on behalf of the Holder is
empowered and duly authorized to do so by the governing document or trust
instrument, pension plan, charter, certificate of incorporation, bylaw
provision, board of directors or stockholder resolution, or the like.

 

h) No Backup Withholding. The Social Security Number or taxpayer identification
shown in this Agreement is correct, and the Holder is not subject to backup
withholding because (i) the Holder has not been notified that he or she is
subject to backup withholding as a result of a failure to report all interest
and dividends or (ii) the Internal Revenue Service has notified the Holder that
he or she is no longer subject to backup withholding.

 

i) Certificate of Designation. Holder has been provided with a copy of the
Certificate of Designation for the Series A Convertible Preferred Stock, a copy
of which is attached hereto as Exhibit B (the “Certificate of Designation”),
which sets forth all of the rights, privileges, and preferences with respect to
the Series A Convertible Preferred Stock. Holder has had an opportunity to
discuss any questions or concerns regarding the Certificate of Designation and
the rights and preferences of the Series A Convertible Preferred Stock with the
Company’s management team and has received answers to all outstanding questions
and had any issues addressed to the satisfaction of Holder.

 

 

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4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS BY COMPANY: The Company hereby
represents, warrants and agrees as follows:

 

a) Authority of Company. The Company has all requisite authority to execute and
deliver this Agreement and to carry out and perform its obligations under the
terms of this Agreement.

 

b) Authorization. All actions on the part of the Company necessary for the
authorization, execution, delivery and performance of this Agreement by the
Company and the performance of the Company’s obligations hereunder has been
taken or will be taken prior to the issuance of the Shares. This Agreement, when
executed and delivered by the Company, shall constitute valid and binding
obligations of the Company enforceable in accordance with their terms, subject
to laws of general application relating to bankruptcy, insolvency, the relief of
debtors and, with respect to rights to indemnity, subject to federal and state
securities laws. The issuance of the Shares will be validly issued, fully paid
and nonassessable, will not violate any preemptive rights, rights of first
refusal, or any other rights granted by the Company, and will be issued in
compliance with all applicable federal and state securities laws, and will be
free of any liens or encumbrances, other than any liens or encumbrances created
by or imposed upon the Holder through no action of the Company; provided,
however, that the Shares may be subject to restrictions on transfer under state
and/or federal securities laws as set forth herein or as otherwise required by
such laws at the time the transfer is proposed.

 

c) Governmental Consents. All consents, approvals, orders, or authorizations of,
or registrations, qualifications, designations, declarations, or filings with,
any governmental authority required on the part of the Company in connection
with the valid execution and delivery of this Agreement, the offer, sale or
issuance of the Shares, or the consummation of any other transaction
contemplated hereby shall have been obtained, except for notices required or
permitted to be filed with certain state and federal securities commissions,
which notices will be filed on a timely basis.

 

5. INDEMNIFICATION: The Holder hereby agrees to indemnify and defend the Company
and its officers and directors and hold them harmless from and against any and
all liability, damage, cost or expense incurred on account of or arising out of:

 

(a) Any breach of or inaccuracy in the Holder’s representations, warranties or
agreements herein;

 

(b) Any disposition of any Shares contrary to any of the Holder’s
representations, warranties or agreements herein;

 

 

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(c) Any action, suit or proceeding based on (i) a claim that any of said
representations, warranties or agreements were inaccurate or misleading or
otherwise cause for obtaining damages or redress from the Company or any
director or officer of the Company under the Act, or (ii) any disposition of any
Shares.

 

6. MISCELLANEOUS:

 

a) Binding Agreement. The terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the respective successors and assigns of the
Parties. Nothing in this Agreement, expressed or implied, is intended to confer
upon any third party any rights, remedies, obligations, or liabilities under or
by reason of this Agreement, except as expressly provided in this Agreement.

 

b) Governing Law; Venue. This Agreement shall be governed by and construed under
the laws of the State of California as applied to agreements among California
residents, made and to be performed entirely within the State of California. The
Parties agree that any action brought to enforce the terms of this Agreement
will be brought in the appropriate federal or state court having jurisdiction
over Orange County, California, United States of America.

 

c) Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.

 

d) Titles and Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.

 

e) Notices. All notices required or permitted hereunder shall be in writing and
shall be deemed effectively given: (a) upon personal delivery to the Party to be
notified, (b) when sent by confirmed facsimile if sent during normal business
hours of the recipient, if not, then on the next business day, or (c) one (1)
day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All communications
shall be sent as follows:

 

If to the Company:

Freeze Tag, Inc.

18062 Irvine Blvd., Suite 103

Tustin, CA 92780

Attn. President

Facsimile (___)

 

with a copy to:

Law Offices of Craig V. Butler

300 Spectrum Center Drive, Suite 300

Irvine, CA 92618

Attn: Craig V. Butler, Esq.

Facsimile (949) 209-2545

 

If to Holder:

Accredited Investor #3

[______________________]

[______________________]

Facsimile (___) ___________

 

or at such other address as the Company or Holder may designate by ten (10) days
advance written notice to the other Party hereto.

 

 

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f) Modification; Waiver. No modification or waiver of any provision of this
Agreement or consent to departure therefrom shall be effective unless in writing
and approved by the Company and the Holder.

 

g) Entire Agreement; Successors. This Agreement and the Exhibits hereto
constitute the full and entire understanding and agreement between the Parties
with regard to the subjects hereof and no Party shall be liable or bound to the
other Party in any manner by any representations, warranties, covenants and
agreements except as specifically set forth herein. The representations,
warranties and agreements contained in this Agreement shall be binding on the
Holder’s successors, assigns, heirs and legal representatives and shall inure to
the benefit of the respective successors and assigns of the Company and its
directors and officers.

 

h) Expenses. Each Party shall pay their own expenses in connection with this
Agreement. In addition, should either Party commence any action, suit or
proceeding to enforce this Agreement or any term or provision hereof, then in
addition to any other damages or awards that may be granted to the prevailing
Party, the prevailing Party shall be entitled to have and recover from the other
Party such prevailing Party’s reasonable attorneys’ fees and costs incurred in
connection therewith.

 

i) Currency. All currency is expressed in U.S. dollars.

 

j) Public Disclosure. The Parties agree not to issue any public statement with
respect to the Holder’s investment or proposed investment in the Company or the
terms of any agreement or covenant without the other party’s prior written
consent, except such disclosures as may be required under applicable law or
under any applicable order, rule or regulation. The Company agrees to reference
Purchaser only as “an accredited investor” and attach only a form copy this
Agreement in any of the Company’s filings with the Securities and Exchange
Commission or any other public filings, except such full disclosures as may be
required under applicable law or under any applicable order, rule or regulation.

 

 

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IN WITNESS WHEREOF, the Parties have executed this Debt Conversion and Series A
Preferred Stock Purchase Agreement as of the date first written above.

 

“Company”

“Holder”

 

 

 

Freeze Tag, Inc.,

Accredited Investor #3,

a Delaware corporation

a Nevada limited liability company

 

 

 

By:

Craig Holland

By:

 

 

Its:

President and CEO

Its:

 

 

 

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Exhibit A

 

Notice of Debt Satisfaction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit A

   

 

Notice of Debt Satisfaction

 

Pursuant to the terms of that certain Securities Exchange and Series A Preferred
Stock Purchase Agreement (the “Agreement”) by and between Accredited Investor #3
(the “Holder”) and Freeze Tag, Inc., a Delaware corporation (the “Company”)
dated July [__], 2017, the Holder is irrevocably canceling and forfeiting
Principal (as defined in the Agreement), terminating and cancelling the
Marketing Agreement, and exchanging $51,094, which is the Principal, into 51,094
shares of Series A Convertible Preferred Stock of the Company (the “Shares”)
according to the conditions set forth in the Agreement and the Series A
Convertible Preferred Stock Certificate of Designation. By signing below, the
undersigned agrees to forever waive any interest due on the Principal or any
rights under the Marketing Agreement.

 

If shares are to be issued in the name of a person other than the Holder, the
Holder will pay all transfer and other taxes and charges payable with respect
thereto.

 

The Holder acknowledges and agrees that upon receipt of the Shares the total
Principal, and any all interest, will no longer be due and owing to the
undersigned under the Marketing Agreement, as amended.

 

Date of Conversion: July 25,
2017                                                                              
 

 

Applicable Conversion Price:
$[1.00]/share                                                                

 

[Holder Name]: Accredited Investor #3

 

Signature:
By                                                                                                                  
 

[Print Name of Holder and Title of Signer]

 

Address: _____________________________________________________

 

  _____________________________________________________

 

SSN or EIN: ___________________________________________________

 

Shares are to be registered in the following name:

 

Name: Accredited Investor
#3                                                                  

Address: ____________________________________________

Tel: ________________________________________________

Fax: ________________________________________________

SSN or EIN: __________________________________________

 

 

Exhibit A

   

 

Exhibit B

 

Series A Convertible Preferred Stock Certificate of Designation

 

 

 

 

 

 

 

       

Exhibit B