NOTE PURCHASE AGREEMENT

dated as of July 20, 2015

by and between

[ _______________ ] (LENDER)

and

BLUE CALYPSO, INC. (BORROWER)

BLUE CALYPSO HOLDINGS, INC. (EXISTING SUBSIDIARY)

BLUE CALYPSO, LLC. (EXISTING SUBSIDIARY)

BLUE CALYPSO, LATIN AMERICA, S.A. (EXISTING SUBSIDIARY)

 

 

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NOTE PURCHASE AGREEMENT

THIS NOTE PURCHASE AGREEMENT (the “Agreement”) is made as of July 20, 2015, by
and between [ _______________ ] (the “Lender”), BLUE CALYSO, INC., a Delaware
corporation (together with all of its successors and current and future, direct
and/or indirect Subsidiaries, collectively, the “Borrower”), BLUE CALYPSO
HOLDINGS, INC., a Texas corporation (“Holdings”), BLUE CALYPSO, LLC, a Texas
limited liability company (“LLC”), BLUE CALYPSO LATIN AMERICA, S.A., a Costa
Rican corporation (“ Blue Latin ”, and together with Holdings, LLC and each of
such persons successors current and future, direct or indirect, wholly owned or
partially owned Subsidiaries, collectively, (the “Existing Subsidiaries”). 

THE PARTIES HERETO agree as follows:

ARTICLE 1.

DEFINITIONS

 

Section 1.01.

Defined Terms.  In addition to terms defined elsewhere in this Agreement or any
Supplement or Exhibit hereto, when used herein, the following terms shall have
the following meanings:

“1933 Act” shall mean the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

“1934 Act” shall mean the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

“Affiliate” shall mean any Person which, directly or indirectly, owns or
controls, on an aggregate basis, a ten (10%) percent or greater interest in any
other Person, or which is controlled by or is under common control with any
other Person.

“Business Day” shall mean any day other than a Saturday or Sunday or any other
day on which the Federal Reserve Bank of New York is not open for business.

“Closing” shall mean the time of issuance and sale by the Borrower of the
$550,000 aggregate principal amount Note to the Lender for the $500,000 Purchase
Price on the Closing Date.

“Closing Date” shall mean the date the $550,000 aggregate principal amount Note
is purchased by the Lender from the Borrower for the $500,000 Purchase Price
pursuant to this Agreement.

“Contingent Obligation” shall mean as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.

 

“Common Stock” shall mean (i) the Borrower’s common stock, $0.0001 par value per
share, and (ii) any capital stock into which such common stock shall have been
changed or any share capital resulting from a reclassification of such common
stock.

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“Common Stock Equivalents” shall mean any capital stock or other security of the
Borrower that is at any time and under any circumstances directly or indirectly
convertible into, exercisable or exchangeable for, and/or which otherwise
entitles the holder thereof to acquire, any capital stock or other security of
the Borrower (including, without limitation, Common Stock).

“Conversion Shares” shall mean all shares of Common Stock issuable upon
conversion of any portion of the Note and/or other Liabilities owed by the
Borrower to Lender pursuant to the Note, this Agreement and/or any other
Document, including, but not limited to, shares of Common Stock, Common Stock
Equivalents and shares of Common Stock and/or other securities of the Borrower
issuable upon exercise, exchange and/or conversion of such Common Stock
Equivalents.

“Copyrights” means all domestic and foreign copyrights, whether registered or
not, including, without limitation, all copyright rights throughout the universe
(whether now or hereafter arising) in any and all media (whether now or
hereafter developed), in and to all original works of authorship fixed in any
tangible medium of expression, acquired or used by the Borrower and/or any of
the Subsidiaries, all applications, registrations and recordings thereof
(including, without limitation, applications, registrations and recordings in
the United States Copyright Office or in any similar office or agency of the
United States or any other country or any political subdivision thereof), and
all reissues, divisions, continuations, continuations in part and extensions or
renewals thereof.

 

“Copyright Licenses” means all licenses, contracts or other agreements, whether
written or oral, providing for the grant of any right to use or sell any works
covered by any Copyright (including, without limitation, all Copyright
Licenses).

 

“Documents” or “Transaction Documents” shall mean collectively, this Agreement,
the Note, the Irrevocable Transfer Agent Instructions Letter from the Borrower
to Action Stock Transfer Corporation, the Borrower’s transfer agent (or any
other transfer agent of the Borrower that replaces Action Stock Transfer
Corporation, the “Transfer Agent”), dated the date hereof related to the
issuance of Conversion Shares in the form annexed hereto as Exhibit A (the “TA
Letter”) and all other instruments, certificates, supplements, amendments,
exhibits, annexes, all closing documents and exhibits and schedules thereto
and/or any schedules required and/or attached pursuant to this Agreement and/or
any of the above documents, and/or any other document and/or instrument related
to the above documents and the transactions hereunder and/or thereunder and/or
any other documents or instruments required or contemplated hereunder or
thereunder, whether now existing or at any time hereafter arising and/or
reasonably requested by the Lender and/or its counsel.

“Dollar(s)” and “$” means lawful money of the United States.

“Environmental Laws” shall mean any and all laws, rules, orders, regulations,
statutes, ordinances, guidelines, codes, decrees, or other legally enforceable
requirements (including, without limitation, common law) of any international
authority, foreign government, the United States, or any state, local, municipal
or other governmental authority, regulating, relating to or imposing liability
or standards of conduct concerning protection of the environment or of human
health, or employee health and safety, as has been, is now, or may at any time
hereafter be, in effect.

“Event of Default” shall have the meaning set forth in the Note.

“GAAP” shall mean generally accepted accounting principles in the United States
of America as in effect from time to time.

“Indebtedness” has the meaning set forth in the Note.

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“Intellectual Property” means all Copyrights, Trademarks and Patents of the
Borrower and/or all of its Subsidiaries.

 

“Liens” or “liens” shall mean a lien, mortgage, charge pledge, security
interest, encumbrance, right of first refusal, preemptive right or other
restriction, clouds on title and/or encumbrances.

“Liabilities” shall mean all direct and/or indirect liabilities, Indebtedness
and obligations of any kind of Borrower and/or any of the Existing Subsidiaries
to the Lender, howsoever created, arising or evidenced, whether now existing or
hereafter arising (including those acquired by assignment), absolute or
contingent, due or to become due, primary or secondary, joint or several,
whether existing or arising through discount, overdraft, purchase, direct loan,
participation, operation of law, or otherwise, all liabilities, Indebtedness and
obligations of Borrower to the Lender pursuant to the Note, this Agreement
and/or any of the other Documents (including, but not limited to, the $550,000
aggregate principal amount of the Note, all other Principal (as defined in the
Note and/or any of the other ), all accrued but unpaid interest (including, but
not limited to, Guaranteed Interest and Default Interest on the Note), and all
premium payments, liquidated damages and Late Charges (as defined in the Note),
any letter of credit, any standby letter of credit, and/or outside attorneys’
and paralegals’ fees or charges relating to the preparation of the Documents and
the enforcement of Lender’s rights, remedies and powers under this Agreement,
the Note and/or the other Documents, including, but not limited to, the drafting
of any documents and the preparation and enforcement of this Agreement and the
other Documents.

“Loan” shall mean the $550,000 aggregate principal amount of the Note.

“Maturity Date” shall have the meaning set forth in the Note.

“Material Adverse Effect” shall mean a material adverse effect on (a) the
business, assets, property, prospects, operations, or condition (financial or
otherwise) of Borrower and its Subsidiaries taken as a whole, (b) the validity
or enforceability of this Agreement or any of the other Documents or (c) the
rights or remedies of the Lender hereunder or thereunder.

“Note” shall mean the Senior Convertible Note of the Borrower in the aggregate
principal amount of $550,000, dated as of the Closing Date, which the Lender,
subject to the terms and conditions set forth in this Agreement, shall purchase
from the Borrower for the $500,000 Purchase Price, which form of Note is annexed
hereto as Exhibit B.  The term “Note” also shall mean any and all similar
Note(s) issued in exchange, transfer or replacement of the $550,000 aggregate
principal amount of Note (including any Note representing a portion of the
aggregate principal amount of the Note).

“OFAC” shall mean the United States Department of the Treasury’s Office of
Foreign Assets Control.

“OFAC Regulations” shall mean the regulations promulgated by OFAC, as amended
from time to time.

“Patents” means all domestic and foreign letters patent, design patents, utility
patents, industrial designs, inventions, trade secrets, ideas, concepts,
methods, techniques, processes, proprietary information, technology, know-how,
formulae, rights of publicity and other general intangibles of like nature, of
the Borrower and/or any of its Subsidiaries, now existing or hereafter acquired,
all applications, registrations and recordings thereof (including, without
limitation, applications, registrations and recordings in the United States
Patent and Trademark Office, or in any similar office or agency of the United
States or any other country or any political subdivision thereof), and all
reissues, divisions, continuations, continuations in part and extensions or
renewals thereof.

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“Patent Licenses” means all licenses, contracts or other agreements, whether
written or oral, providing for the grant of any right to manufacture, use or
sell any invention covered by any Patent.

“Permitted Indebtedness” has the meaning set forth in the Note.

“Permitted Liens” has the meaning set forth in the Note.

“Person” shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, entity, party or government (whether national, federal, state,
county, city, municipal or otherwise including, without limitation, any
instrumentality, division, agency, body or department thereof).

“Principal Market” shall mean the market or exchange on which the Common Stock
is listed or quoted for trading on the date in question.

“Purchase Price” means the $500,000 aggregate purchase price to be paid by the
Lender to purchase the $550,000 aggregate principal amount Note.

“Qualified Public Offering” means the sale by the Borrower and/or any of its
Subsidiaries, of their respective of shares of common stock, Stock Equivalents
and/or any other securities pursuant to a registration statement that has been
declared effective by the SEC and the gross proceeds therefrom are no less than
$5,000,000 including, but not limited to, the proposed public offering of units
of the Borrower consisting of shares of Common Stock and warrants to purchase
Common Stock to be purchased and sold by Maxim Group LLC, Meriman Capital, Inc.
and/or any other underwriter and/or selected dealer pursuant to the Company’s
registration statement on Form, S-1 (Registration No. 333-204442).

“SEC” or “Commission” means the United States Securities and Exchange
Commission.

“Securities” shall mean the Note, all Conversion Shares and any securities of
the Borrower issued in replacement, substitution and/or in connection with any
exchange, conversion and/or any other transaction pursuant to which all and/or
any of such Securities of the Borrower to the Lender.

“Solvent” shall mean, with respect to any Person, as of any date of
determination, (i) the amount of the “present fair saleable value” of the assets
of such Person will, as of such date, exceed the amount of all “liabilities of
such Person, contingent or otherwise”, as of such date, as such quoted terms are
determined in accordance with applicable federal and state laws governing
determinations of the insolvency of debtors, (ii) the present fair saleable
value of the assets of such Person will, as of such date, be greater than the
amount that will be required to pay the liability of such Person on its debts as
such debts become absolute and matured, (iii) such Person will not have, as of
such date, an unreasonably small amount of capital with which to conduct its
business, and (iv) such Person will be able to pay its debts as they mature. 
For purposes of this definition, (i) “debt” means liability on a “claim”, and
(ii) “claim” means any (a) right to payment, whether or not such a right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured or
(b) right to an equitable remedy for breach of performance if such breach gives
rise to a right to payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured or unmatured, disputed,
undisputed, secured or unsecured.

“Subsidiary” shall mean, with respect to any Person, a corporation, partnership,
limited liability company or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock or such other
ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other managers of
such corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person.

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“Trademark Licenses” means all licenses, contracts or other agreements, whether
written or oral, naming the Borrower and/or any of its Subsidiaries as licensor
or licensee and providing for the grant of any right concerning any Trademark,
together with any goodwill connected with and symbolized by any such trademark
licenses, contracts or agreements and the right to prepare for sale or lease and
sell or lease any and all Inventory now or hereafter owned by the Borrower
and/or any of its Subsidiaries and now or hereafter covered by such licenses.

  

“Trademarks” means all domestic and foreign trademarks, service marks,
collective marks, certification marks, trade names, business names, d/b/a’s,
Internet domain names, trade styles, designs, logos and other source or business
identifiers and all general intangibles of like nature, now or hereafter owned,
adopted, acquired or used by the Borrower and/or any of its Subsidiaries, all
applications, registrations and recordings thereof (including, without
limitation, applications, registrations and recordings in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any state thereof or any other country or any political subdivision
thereof), and all reissues, extensions or renewals thereof, together with all
goodwill of the business symbolized by such marks and all customer lists,
formulae and other Records of the Borrower and/or any of its Subsidiaries
relating to the distribution of products and services in connection with which
any of such marks are used.

 

“Trading Day” means any day on which the Common Stock is traded on the Trading
Market, provided that “Trading Day” shall not include any day on which the
Common Stock is scheduled to trade on the Trading Market for less than 4.5 hours
or any day that the Common Stock is suspended from trading during the final hour
of trading on the Trading Market (or if the Trading Market does not designate in
advance the closing time of trading on the Trading Market, then during the hour
ending at 4:00:00 p.m., New York City time) unless such day is otherwise
designated as a Trading Day in writing by the Lender.

“Trading Market” shall mean any of the following markets or exchanges on which
the Common Stock (or any other common stock of any other Person that references
the Trading Market for its common stock) is listed or quoted for trading on the
date in question: the OTC Bulletin Board, The NASDAQ Global Market, The NASDAQ
Global Select Market, The NASDAQ Capital Market, the New York Stock Exchange,
NYSE Arca, the NYSE MKT, or the OTCQX Marketplace, the OTCQB Marketplace, the
OTCPink Marketplace or any other tier operated by OTC Markets Group Inc. (or any
successor to any of the foregoing).

“Variable Rate Transaction” shall have the meaning set forth in Section 4.02(n)
of this Agreement.

Section 1.02.

Other Definitional Provisions. 

(a)

Use of Defined Terms.  Unless otherwise specified therein, all terms defined in
this Agreement shall have the defined meanings when used in the other Documents
or any certificate or other document made or delivered pursuant hereto or
thereto.

(b)

Accounting Terms.  As used herein and in the other Documents, and any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms relating to Borrower not defined in Section 1.01 and accounting
terms partly defined in Section 1.01, to the extent not defined, shall have the
respective meanings given to them under GAAP (provided  that all terms of an
accounting or financial nature used herein shall be construed, and all
computations of amounts referred to herein shall be made without giving effect
to (i) any election under Accounting Standards Codification 825-10-25
(previously referred to as Statement of Financial Accounting Standards 159) (or
any other Accounting Standards Codification or Financial Accounting Standard
having a similar result or effect) to value any Indebtedness or other
liabilities of Borrower at “fair value”, as defined therein, and (ii) any
treatment of Indebtedness in respect of convertible debt instruments under
Accounting Standards Codification 470-20 (or any other Accounting Standards
Codification or Financial Accounting Standard having a similar result or effect)
to value any such Indebtedness in a reduced or bifurcated manner as described
therein, and such Indebtedness shall at all times be valued at the full stated
principal amount thereof).

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(c)

Construction.  The words “hereof”, “herein” and “hereunder” and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.  The
meanings given to terms defined herein shall be equally applicable to both the
singular and plural forms of such terms.

(d)

UCC Terms.  Terms used in this Agreement which are defined in the UCC shall,
unless the context indicates otherwise or are otherwise defined in this
Agreement, have the meanings provided for by the UCC.

ARTICLE 2.

PURCHASE AND SALE OF THE NOTE

 

Section 2.1.

Closing  The Closing shall occur at 10:00 am (EST) on the Closing Date at the
offices of Gusrae Kaplan Nusbaum PLLC, 120 Wall Street, 25th Floor, New York,
New York 10005, on the first (1st) Trading Day on which the conditions to
Closing set forth in Section 5 hereof are satisfied and/or waived in writing as
provided elsewhere herein, or on such other date and/or time as agreed to by the
Borrower and Lender.

Section 2.2.

Conditions to the Purchase of the Note by the Lender from the Borrower.  Subject
to the terms and conditions of this Agreement, the Lender will on the Closing
Date make the Loan to the Borrower by purchasing the $550,000 aggregate
principal amount Note from the Borrower for the $500,000 Purchase Price,
provided  that (i) no Event of Default or event that with the passage of time or
the giving of notice, or both, would become an Event of Default shall have
occurred or would result therefrom; and (ii) the conditions in Section 5.01 have
been satisfied. 

Section 2.3.

Note.  The Loan shall be evidenced by the $550,000 aggregate principal amount
Note.

Section 2.4.

Purchase Price and Payment of the Purchase Price for the Notes.  The Purchase
Price for the $550,000 aggregate principal amount Note shall be $500,000 in the
aggregate, representing an original issue discount of $50,000.  On the Closing
Date, the Lender shall pay the Borrower the $500,000 Purchase Price (less (i)
all of the Lender’s Expenses (as defined below), and (ii) the Maxim Placement
Fee (as defined below), for the $550,000 aggregate principal amount Note by wire
transfer of immediately available funds to the Borrower in accordance with the
Borrower’s written wiring instructions, against delivery of the duly executed
$550,000 aggregate principal amount Note. 

Section 2.5.

Lender’s Cost and Expenses.  On the Closing Date, all direct and indirect
reasonable out-of-pocket costs and expenses of the Lender related to the
negotiation, due diligence, preparation, closing, and all other items regarding
and/or related to the Documents and all of the transactions contemplated herein
and therein, including, but not limited to, $27,500, which shall be payable to
the Lender’s legal counsel plus such legal counsel’s documented expenses
(collectively, the “Lender’s Expenses”), shall be due and payable from the
Borrower to the Lender (less $10,000 previously paid); and the Lender shall
subtract from the $500,000 Purchase Price to be paid to the Borrower for the
$550,000 aggregate principal amount of the Note, all of Lender’s Expenses and
the Lender shall pay on the Closing Date to the Lender’s counsel the fees and
expenses set forth above in immediately available funds by wiring such funds to
Lender’s counsel pursuant to wiring instructions provided to the Lender by its
legal counsel.  Notwithstanding anything to the contrary, without the consent of
Borrower, neither the Lender nor its counsel shall incur any expenses that the
Borrower is liable for, except lien, judgment, tax and related searches which
were approved by the Borrower, and which such other expenses shall not exceed in
the aggregate $1,500.  Although the Lender’s Expenses in an amount not to
exceed, without the consent of the Borrower, $29,000 (which includes the actual
costs of the lien, judgment and tax searches) are being subtracted by the Lender
from the Purchase Price actually delivered to the Borrower, such Lender’s
Expenses shall constitute part of the Purchase Price and shall not directly
and/or indirectly reduce and or result in any set-off the aggregate principal
amount of the Note or result in a set-off and/or reduction of any other funds
owed by the Borrower to the Lender.

 

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Section 2.6.

Brokerage Fee.  The Borrower shall pay to Maxim Group, LLC (“Maxim”), a
placement agent fee of $38,500 (the “Maxim Placement Fee”). 

 

ARTICLE 3.

REPRESENTATIONS AND WARRANTIES; OTHER ITEMS

 

Section 3.1.

Representation and Warranties.  Borrower represents and warrants to Lender that
on the Closing Date and on the Security Start Date:

(a)

Organization, Etc.  Borrower is duly organized, validly existing and in good
standing under the laws of the state of their respective organization and are
duly qualified and in good standing or has applied for qualification as a
foreign corporation authorized to do business in each jurisdiction where,
because of the nature of its activities or properties, such qualification is
required except where the failure to be so qualified would not reasonably be
expected to have a Material Adverse Effect.  All of the direct and indirect
subsidiaries of the Company are set forth on Schedule 3.1(a) hereto.

(b)

Authorization: No Conflict.  The execution, delivery and performance of the
Documents  and the transactions contemplated thereby by the Borrower, including,
but not limited to, the sale and issuance of the Note for the Purchase Price,
the reservation for issuance of the shares of Common Stock required to be
reserved pursuant to the terms of the Note, and of the conversion and issuance
of the Conversion Shares into which the Note is convertible into (i) are within
Borrower’s corporate powers and have been duly executed by the Borrower, (ii)
have been duly authorized by all necessary action by or on behalf of Borrower
(and/or its shareholders to the extent required by law), (iii) the Borrower has
received all necessary and/or required governmental, regulatory and other
approvals and consents (if any shall be required), (iv) do not and shall not
contravene or conflict with any provision of, or require any consents under (1)
any law, rule, regulation or ordinance, (2) Borrower’s organizational documents;
and/or (3) any agreement binding upon Borrower or any of Borrower’s properties
except as would not reasonably be expected to have a Material Adverse Effect,
and (v) do not result in, or require, the creation or imposition of any Lien
and/or encumbrance on any of Borrower’s properties or revenues pursuant to any
law, rule, regulation or ordinance or otherwise.  The Borrower has initially
reserved from its duly authorized capital stock 404,506 shares of Common Stock
solely for issuance upon any conversions by the Lender of the Note without
taking into account any limitations on the issuance thereof pursuant to the
terms of the Note, which number of shares of Common Stock reserved for the
Holder shall be continuously increased by the Borrower including, but not
limited to, upon each request by the Lender, to ensure that the Required
Reserved Amount (as defined below) is in reserve with the Transfer Agent at all
times solely for issuances of Conversion Shares to the Lender upon all
conversions by the Lender of the Note.  The Note and all Conversion Shares shall
sometimes be collectively referred to as the “Securities.” 

 

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(c)

Validity and Binding Nature.  The Documents to which Borrower is a party are the
legal, valid and binding obligations of Borrower, enforceable against Borrower
in accordance with their respective terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization and other similar laws of
general application affecting the rights and remedies of creditors and by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law).

(d)

Title to Assets.  Borrower has good and marketable title to all assets owned by
Borrower.

(e)

No Violations of Laws.  Borrower is not in violation of any law, ordinance,
rule, regulation, judgment, decree or order of any federal, state or local
governmental body or court and/or regulatory or self-regulatory body, except in
each case as could not have or reasonably be expected to have a Material Adverse
Effect.

(f)

Burdensome Obligations.  Borrower is not a party to any indenture, agreement,
lease, contract, deed or other instrument, or subject to any partnership
restrictions or has any knowledge of anything which could have a Material
Adverse Effect.

(g)

Taxes

.  All federal, and material state and local tax returns required to be filed by
Borrower have been filed with the appropriate governmental agencies and all
taxes due and payable by Borrower have been timely paid. 

(h)

Employee Benefit Plans.  The term “Plan” shall mean an “employee pension benefit
plan” (as defined in Section 3 of Employee Retirement Income Security Act of
1974, as amended from time to time (“ERISA”)) which is or has been established
or maintained, or to which contributions are or have been made, by Borrower or
by any member of the Controlled Group.  Each plan and/or employee benefit plan,
if any, (as defined in Section 3(3) of ERISA) maintained by Borrower complies in
all material respects with all applicable requirements of law and regulations
and all payments and contributions required to be made with respect to such
plans have been timely made.

(i)

Federal Laws and Regulations. Borrower is not (i) an “investment company” or a
company “controlled”, whether directly or indirectly, by an “investment
company”, within the meaning of the Investment Company Act of 1940, as amended;
or (ii) engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System).

(j)

Fiscal Year.  The fiscal year of Borrower ends on December 31 of each year.

(k)

Subsidiaries; Etc.  All Subsidiaries of the Borrower and the locations thereof
on the Closing Date are set forth in the Public Reports (as defined in Section
3.1(cc) below).  The Public Reports set forth as of the Closing Date, Borrower’s
jurisdiction of organization and the location of Borrower’s executive offices
and other places of business.  

(l)

Officers and Ownership.  As of the date hereof, the Persons set forth in the
Public Reports holds the respective office or offices, position or positions
(including director positions if a director), in Borrower and (ii) own the
percentage of each and every class of issued and outstanding capital stock,
other ownership interests and/or securities of Borrower and the voting power
over said capital stock, other ownership interests and/or securities of
Borrower.

 

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(m)

Rule 506(d) Bad Actor Disqualification Representations and Covenants.

(i)

No Disqualification Events

.  Neither the Borrower, nor any of its predecessors, affiliates, any manager,
executive officer, other officer of the Borrower participating in the offering,
any beneficial owner (as that term is defined in Rule 13d-3 under the Exchange
Act) of 20% or more of the Borrower’s outstanding voting equity securities,
calculated on the basis of voting power, nor any promoter (as that term is
defined in Rule 405 under the 1933 Act) connected with the Borrower in any
capacity as of the date of this Agreement and on the Closing Date (each, a
“Borrower Covered Person” and, together, “Borrower Covered Persons”) is subject
to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to
(viii) under the 1933 Act (a “Disqualification Event”), except for a
Disqualification Event covered by Rule 506(d)(2) or (d)(3).  The Borrower has
exercised reasonable care to determine (i) the identity of each person that is a
Borrower Covered Person; and (ii) whether any Borrower Covered Person is subject
to a Disqualification Event. The Borrower will comply with its disclosure
obligations under Rule 506(e).

(ii)

Other Covered Persons. The Borrower is not aware of any person (other than any
Borrower Covered Person) that has been or will be paid (directly or indirectly)
remuneration in connection with the Loan or the Note that is subject to a
Disqualification Event (each an “Other Covered Person”). 

(iii)

Reasonable Notification Procedures. With respect to each Borrower Covered
Person, the Borrower has established procedures reasonably designed to ensure
that the Borrower receives notice from each such Borrower Covered Person of (i)
any Disqualification Event relating to that Borrower Covered Person, and (ii)
any event that would, with the passage of time, become a Disqualification Event
relating to that Borrower Covered Person; in each case occurring up to and
including the Closing Date.

(iv)

Notice of Disqualification Events. The Borrower will notify the Lender
immediately in writing upon becoming aware of (i) any Disqualification Event
relating to any Borrower Covered Person and (ii) any event that would, with the
passage of time, become a Disqualification Event relating to any Borrower
Covered Person and/or Other Covered Person.

(n)

Accuracy of Information, etc.  No statement or information contained in this
Agreement, the Public Reports, any other Document or any other document,
certificate or statement furnished to the Lender by or on behalf of Borrower in
writing for use in connection with the transactions contemplated by this
Agreement and/or the other Documents, contained as of the date such statement or
filing of such Public Report, information, document or certificate was made or
furnished, as the case may be, any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements contained
herein or therein, taken as a whole, not materially misleading.  There is no
fact known to Borrower that could have a Material Adverse Effect that has not
been expressly disclosed herein, in the Public Reports, in the other Documents,
or in any other documents, certificates and statements furnished to the Lender
for use in connection with the transactions contemplated hereby and by the other
Documents.

(o)

Solvency.  Borrower shall be Solvent immediately prior to, and immediately
following the Closing, after giving effect to the incurrence of all Indebtedness
and all other obligations being incurred by the Borrower pursuant hereto and the
other Documents including, but not limited to, all Liabilities and pursuant to
the other Documents and the use of the $500,000 Purchase Price as provided
elsewhere herein.

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(p)

Affiliate Transactions.  Other than as disclosed in the Public Reports, Borrower
has not purchased, acquired or leased any property from, or sold, transferred or
leased any property to, or entered into any other transaction with (i) any
Affiliate, (ii) any officer, director, manager, shareholder or member of
Borrower or any Affiliate of any thereof, or (iii) any member of the immediate
family of any of the foregoing, except on terms comparable to the terms which
would prevail in an arms-length transaction between unaffiliated third parties
and have been disclosed to Lender in writing.

(q)

Deposit Accounts.  All deposit accounts, checking accounts, securities accounts
and investment accounts of Borrower are set forth on Schedule 3.01(q).   

(r)

Intellectual Property.  The Borrower and each of its Subsidiaries has, or has
rights to use, all of their respective Intellectual Property including, but not
limited to, all Patents, Patent Licenses, Copyrights, Copyright Licenses,
Trademarks, Trademark Licenses, service marks, trade names, trade secrets,
inventions, licenses and other intellectual property rights and similar rights
as described in the Public Reports as necessary or required for use in
connection with their respective and combined business and businesses and which
the failure to so could have a Material Adverse Effect.  None of the Borrower
and/or any of its Subsidiaries has received a notice (written or otherwise) that
any of, their respective Intellectual Property has expired, terminated or been
abandoned, or is expected to expire or terminate or be abandoned.  Neither the
Borrower and/or any of its Subsidiaries has received, since the date of the
latest audited financial statements included within the Public Reports, a
written notice of a claim or otherwise has any knowledge that any of their
respective Intellectual Property violates or infringes upon the rights of any
Person, except as could not have or reasonably be expected to not have a
Material Adverse Effect.  To the knowledge of the Borrower and each of its
Subsidiaries, all such Intellectual Property is enforceable.  The Borrower and
each of its Subsidiaries has taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their Intellectual Property, except
where failure to do so could not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect. All Intellectual Property of the
Borrower and each of its Subsidiaries are set forth in the Public Reports.

(s)

Variable Rate Securities. Except as provided in the Note, the Borrower has not
directly and/or indirectly entered into, nor has any agreement, intention and/or
obligation to enter into any Variable Rate Transaction.

(t)

USA Patriot Act.  Borrower is in compliance, in all material respects, with (a)
the Trading with the Enemy Act, as amended, and each of the foreign assets
control regulations of the United States Treasury Department (31 C.F.R.,
Subtitle B, Chapter V, as amended) and any other enabling legislation or
executive order relating thereto, and (b) the USA Patriot Act (Title III of Pub.
L. 107-56, signed into law October 26, 2001) (the “Act”).  No part of the
proceeds of the Loan will be used, directly or indirectly, for any payments to
any governmental official or employee, political party, official of a political
party, candidate for political office, or anyone else acting in an official
capacity, in order to obtain, retain or direct business or obtain any improper
advantage, in violation of the United States Foreign Corrupt Practices Act of
1977, as amended.

(u)

Foreign Asset Control Laws.  Borrower is not a Person named on a list published
by OFAC or a Person with whom dealings are prohibited under any OFAC
Regulations. 

(v)

[Reserved].  

(w)

Indebtedness; Liens, Etc.  Except for Permitted Indebtedness and Permitted
Liens, the Borrower has no Indebtedness nor any Liens.

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(x)

[Reserved]. 

(y)

[Reserved]    

(z)

Offering. The offer and sale of the Securities as contemplated by this
Agreement, the Note (as the case may be), are, and will be, upon issuance, as
the case may be) exempt from the registration requirements of the 1933 Act, and
the qualification or registration requirements of state securities laws or other
applicable blue sky laws. Neither the Borrower nor any authorized agent acting
on its behalf will take any action hereafter that would cause the loss of such
exemptions.

(aa)

Intentionally left blank 

(bb)

Public Reports.  The Borrower is subject to the reporting requirements of
Section 13 or 15(d) of the 1934 Act and the Borrower is current in its filing
obligations under the 1934 Act, including, without limitation, as to its filings
of Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K (collectively, the “Public Reports”).  The Public Reports,
at the time filed with the SEC, did not contain any untrue statement of a
material fact or omit to state any fact necessary to make any statement therein
not misleading.  All financial statements included in the Public Reports (the
“Financial Statements”) have been prepared in accordance GAAP applied on a
consistent basis throughout the periods indicated and with each other, except
that unaudited Financial Statements may not contain all footnotes required by
generally accepted accounting principles.  The Financial Statements fairly
present, in all material respects, the financial condition and operating results
of the Borrower as of the dates, and for the periods, indicated therein, subject
in the case of unaudited Financial Statements to normal year-end audit
adjustments.

(cc)

Sarbanes-Oxley Act. The Borrower is in compliance with any and all applicable
requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date
hereof, and any and all applicable rules and regulations promulgated by the SEC
thereunder that are effective as of the date hereof.

(dd)

Arbitration, Absence of Litigation.  Except as disclosed in the Public Reports,
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower, the Common Stock or any of the Borrower’s officers or directors
or, to the knowledge of the Borrower, 5% or greater shareholders in their
capacities as such.

(ee)

Material Changes; Undisclosed Events, Liabilities or Developments.  Since the
date of the latest audited Financial Statements included in the Public Reports,
except as specifically disclosed in a subsequent Public Report filed with the
SEC prior to the date hereof: (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Borrower has not incurred any Indebtedness
and/or other liabilities (contingent or otherwise) other than (A) trade payables
and accrued expenses incurred in the ordinary course of business consistent with
past practice, (B) liabilities not required to be reflected in the Borrower’s
Financial Statements pursuant to GAAP or disclosed in Public Reports pursuant to
SEC rules and/or regulations, (iii) the Borrower has not altered its method of
accounting, (iv) the Borrower has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Borrower has not issued any equity securities to any officer,
director or affiliate, except pursuant to existing Borrower stock option plans.
The Borrower does not have pending before the Commission any request for
confidential treatment of information.  Except for the issuance of the
Securities contemplated by this Agreement, no event, liability, fact,
circumstance, occurrence or development has occurred or exists or is reasonably
expected to occur or exist with respect to the Borrower or its business,
properties, operations, assets or financial condition, that would be required to
be disclosed by the Borrower under applicable securities laws at the time this
representation is made or deemed made that has not been publicly disclosed at
least one Trading Day prior to the date that this representation is made.

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(ff)

Disclosure

.  Except with respect to the material terms and conditions of the transactions
contemplated by the Documents, the Borrower confirms that neither it nor any
other Person acting on its behalf has provided the Lender or its agents or
counsel with any information that constitutes material, non-public information.
The Borrower understands and confirms that the Lender will rely on the
Documents, the information included therein including, but not limited to, the
foregoing representation and the Public Reports in effecting the Loan.  All of
the disclosure furnished by or on behalf of the Borrower to the Lender in the
Documents and/or in the Public Reports regarding, among other matters relating
to the Borrower, its business and the transactions contemplated in the
Documents, are true and correct in all material respects as of the date made and
do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.  The Borrower
acknowledges and agrees that the Lender does not make nor has it made any
representations or warranties with respect to the transactions contemplated in
the Documents other than those specifically set forth in Section 7 hereof.

(gg)

No Integrated Offering. Assuming the accuracy of the Lender’s representations
and warranties set forth in Section 7, neither the Borrower, nor any of its
affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause the issuance and/or sale
of the Securities to be integrated with prior offerings of securities by the
Borrower for purposes of (i) the 1933 Act which would require the registration
of any such Securities and/or securities of the Borrower under the 1933 Act, or
(ii) any shareholder approval provisions of any Trading Market on which any of
the securities of the Borrower are listed, eligible for quotation and/or
designated.

(hh)

Bankruptcy Status; Indebtedness.  The Borrower has no current intention or
expectation to file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the applicable
representation date.  All outstanding secured and unsecured Indebtedness (as
defined below) of the Borrower, or for which the Borrower has commitments, is
set forth in the Public Reports.

(ii)

Regulation M Compliance.  The Borrower has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Borrower to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay
to any Person any compensation for soliciting another to purchase any other
securities of the Borrower.

(jj)

No Consents, Etc.  No direct and/or indirect consent, approval, authorization
and/or similar item is required to be obtained by the Borrower to enter into
this Agreement, the Note and/or the other documents and/or to perform and/or
undertake any of the transactions contemplated pursuant to this Agreement, the
Note and/or any of the other Documents.

(kk)

[Reserved].  

(ll)

Listing of Securities. All Conversion Shares and Interest Shares have been
approved for listing or quotation on the Trading Market, subject only to notice
of issuance.

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(mm)

Dilutive Effect.  The Borrower understands and acknowledges that the number of
Conversion Shares issuable pursuant to terms of the Notes may increase in
certain circumstances.  The Borrower further acknowledges that its obligation to
issue Conversion Shares pursuant to the terms of the Note in accordance with
this Agreement and the Note is, in each case, absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Borrower.

(nn)

Application of Takeover Protections; Rights Agreement.  The Borrower and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Borrower’s Certificate of Incorporation or the
laws of the jurisdiction of its formation which is or could become applicable to
the Lender as a result of the transactions contemplated by this Agreement and/or
the other Documents, including, without limitation, the Borrower’s issuance of
the Securities and Lender’s ownership of the Securities.  The Borrower has not
adopted a stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control of
the Borrower.

(oo)

Manipulation of Price.  The Borrower has not, and to its knowledge no one acting
on its behalf has, (i) taken, directly or indirectly, any action designed to
cause or to result, or that could reasonably be expected to cause or result, in
the stabilization or manipulation of the price of any security of the Borrower
to facilitate the sale or resale of any of the Securities, (ii) other than
Maxim, sold, bid for, purchased, or paid any compensation for soliciting
purchases of, any of the Securities, or (iii) other than Maxim, paid or agreed
to pay to any person any compensation for soliciting another to purchase any
other securities of the Borrower.

(pp)

DTC Eligible. The Common Stock is DTC eligible and DTC has not placed a “freeze”
or a “chill” on the Common Stock and the Borrower has no reason to believe that
DTC has any intention to make the Common Stock not DTC eligible, or place a
“freeze” or “chill” on the Common Stock.

(qq)

No Delisting from Trading Market. The Common Stock is eligible for quotation on
the Principal Market and the Borrower has no reason to believe that the
Principal Market has any intention of delisting the Common Stock from the
Principal Market.

(rr)

No General Solicitation.  Neither the Borrower, nor any of its affiliates, nor
any Person acting on its behalf, has engaged in any form of general solicitation
or general advertising (within the meaning of Regulation D) in connection with
the offer or sale of the Securities.  The Borrower acknowledges that it has
engaged Maxim in connection with the sale of the Securities.  Other than Maxim,
the Borrower has not engaged any placement agent or other agent in connection
with the sale of the Securities.

(ss)

Acknowledgment Regarding Lender’s Purchase of Securities.  The Borrower
acknowledges and agrees that the Lender is acting solely in the capacity of an
arm’s length purchaser with respect to the other Documents and the transactions
contemplated hereby and thereby and that the Lender is not (i) an officer or
director of the Borrower, (ii) an Affiliate of the Borrower or (iii) to the
knowledge of the Borrower, a “beneficial owner” of more than 10% of the shares
of Common Stock (as defined for purposes of Rule 13d-3 of the 1934 Act.  The
Borrower further acknowledges that the Lender is not acting as a financial
advisor or fiduciary of the Borrower (or in any similar capacity) with respect
to the Documents and the transactions contemplated hereby and thereby, and any
advice given by a Lender or any of its representatives or agents in connection
with the Documents and the transactions contemplated hereby and thereby is
merely incidental to such Lender’s purchase of the Securities.  The Borrower
further represents the Lender that the Borrower’s decision to enter into the
other Documents has been based solely on the independent evaluation by the
Borrower and its representatives.

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(tt)

Off Balance Sheet Arrangements.  There is no transaction, arrangement, or other
relationship between the Borrower and an unconsolidated or other off balance
sheet entity that is required to be disclosed by the Borrower in its 1934 Act
filings and is not so disclosed or that otherwise would be reasonably likely to
have a Material Adverse Effect.

(uu)

Subsidiary Rights.  The Borrower has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its Subsidiaries as owned by the
Borrower or any Subsidiary.

(vv)

Internal Accounting and Disclosure Controls.  Except as disclosed in the Public
Reports, the Borrower maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management’s
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference.  Except as disclosed in the Public Reports, the Borrower maintains
disclosure controls and procedures (as such term is defined in Rule 13a-15 under
the 1934 Act) that are effective in ensuring that information required to be
disclosed by the Borrower in the reports that it files or submits under the 1934
Act is recorded, processed, summarized and reported, within the time periods
specified in the rules and forms of the SEC, including, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by the Borrower in the reports that it files or submits under the 1934
Act is accumulated and communicated to the Borrower’s management, including its
principal executive officer or officers and its principal financial officer or
officers, as appropriate, to allow timely decisions regarding required
disclosure.  Except as disclosed in the Public Reports, during the twelve months
prior to the date hereof the Borrower has not received any notice or
correspondence from any accountant relating to any material weakness in any part
of the system of internal accounting controls of the Borrower.

(ww)

Foreign Corrupt Practices. Neither the Borrower, nor any director, officer,
agent, employee or other Person acting on behalf of the Borrower has, in the
course of its actions for, or on behalf of, the Borrower (i) used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; (ii) made any direct or indirect
unlawful payment to any foreign or domestic government official or employee from
corporate funds; (iii) violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee.

(xx)

Sarbanes-Oxley Act. The Borrower is in compliance with any and all applicable
requirements of the Sarbanes-Oxley Act of 2002, as amended, that are effective
as of the date hereof, and any and all applicable rules and regulations
promulgated by the SEC thereunder that are effective as of the date hereof.

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(yy)

Equity Capitalization. As of the date hereof, the authorized capital stock of
the Borrower consists of 680,000,000 shares of Common Stock, of which as of the
date hereof, 5,013,333  shares are issued and outstanding, 700,000  shares are
reserved for issuance pursuant to the Borrower’s stock option and purchase plans
and 220,913 shares are reserved for issuance pursuant to securities (other than
the aforementioned Stock Option of purchase plans and the Note) exercisable or
exchangeable for, or convertible into, Common Stock. The Borrower also has
authorized 5,000,000 shares of preferred stock of which 1,700,000 have been
designated as “Series A Convertible Preferred Stock” of which 0 are issued and
outstanding as of the date hereof (the “A Shares”), the terms, rights and
conditions of which are set forth in the Borrower’s Certificate of Designation
of Series A Convertible Preferred Stock (the “A Certificate”).  All of such
outstanding shares have been, or upon issuance will be, validly issued and are
fully paid and nonassessable. Except as set forth in Schedule 3.1(xx): (i) none
of the Borrower’s capital stock is subject to preemptive rights or any other
similar rights or any liens or encumbrances suffered or permitted by the
Borrower; (ii) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
shares of capital stock of the Borrower or any of its Subsidiaries, or
contracts, commitments, understandings or arrangements by which the Borrower is
or may become bound to issue additional shares or capital stock of the Borrower
or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into, or exercisable or exchangeable for, any shares of
capital stock of the Borrower; (iii) there are no outstanding debt securities,
notes, credit agreements, credit facilities or other agreements, documents or
instruments evidencing Indebtedness of the Borrower or any of its Subsidiaries
or by which the Borrower or any of its Subsidiaries is or may become bound; (iv)
there are no financing statements securing obligations in any material amounts,
either singly or in the aggregate, filed in connection with the Borrower; (v)
there are no agreements or arrangements under which the Borrower is obligated to
register the sale of any of their securities under the 1933 Act; (vi) there are
no outstanding securities or instruments of the Borrower which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Borrower is or may become bound to
redeem a security of the Borrower; (vii) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities; (viii) the Borrower does not have any stock
appreciation rights or “phantom stock” plans or agreements or any similar plan
or agreement; and (ix) the Borrower has no liabilities or obligations required
to be disclosed in the Public Reports but not so disclosed in the Public
Documents, other than those incurred in the ordinary course of the Borrower’s or
any of its Subsidiary’s’ respective businesses and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect.

(zz)

Shell Company Status. The Borrower was formerly an issuer identified in Rule
144(i)(1) of the 1933 Act. The Borrower field current “Form 10” information with
the SEC reflecting that it is no longer a shell company in excess of 12 months
ago.

(aaa)

Stock Option Plans. Except as set forth in Schedule 3.1(zz), each stock option
granted by the Borrower was granted (i) in accordance with the terms of the
applicable stock option plan of the Borrower and (ii) with an exercise price at
least equal to the fair market value of the Common Stock on the date such stock
option would be considered granted under GAAP and applicable law. No stock
option granted under the Borrower’s stock option plan has been backdated. The
Borrower has not knowingly granted, and there is no and has been no policy or
practice of the Borrower to knowingly grant, stock options prior to, or
otherwise knowingly coordinate the grant of stock options with, the release or
other public announcement of material information regarding the Borrower or
their financial results or prospects.

(bbb)

No Disagreements with Accountants and Lawyers. There are no material
disagreements of any kind presently existing, or reasonably anticipated by the
Borrower to arise, between the Borrower and the accountants and lawyers formerly
or presently employed by the Borrower and the Borrower is current with respect
to any fees owed to its accountants and lawyers which could affect the
Borrower’s ability to perform any of its obligations under any of the Documents.
In addition, on or prior to the date hereof, the Borrower had discussions with
its accountants about its financial statements previously filed with the SEC.
Based on those discussions, the Borrower has no reason to believe that it will
need to restate any such financial statements or any part thereof.

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(ccc)

Ranking of Note, and Other Obligations.  The Note and all Indebtedness and other
obligations of the Borrower and/or any of its Subsidiaries to the Lender shall
in all respects rank senior to all other Indebtedness, Liabilities and/or other
obligations of the Borrower and/or any of its Subsidiaries; and no Indebtedness
and/or any other obligations of the Borrower and/or any of its Subsidiaries is,
or at any time following the Closing Date will be and/or rank, in any respects
and for any reason, senior to or pari passu with any of the Borrowers’ and/or
its Subsidiaries’ Indebtedness, Liabilities and/or other obligations to the
Lender under the Note and/or any of the other Documents including, but to
limited to, in right of payment, whether in respect of payment of redemptions,
principal, premiums, liquidation damages, interest, damages or upon liquidation
or dissolution of the Borrower and/or any of its Subsidiaries or otherwise.

(ddd)

Transfer Taxes. On the Closing Date, all stock transfer or other taxes (other
than income or similar taxes) which are required to be paid in connection with
the sale and transfer of the Notes to be sold to the Lender hereunder will be,
or will have been, fully paid or provided for by the Borrower, and all laws
imposing such taxes will be or will have been complied with.

(eee)

Acknowledgement Regarding Trading Activity. The Borrower acknowledges and agrees
that the Lender (i) none of the Lenders has not been asked to agree, nor has
Lender agreed, to desist from purchasing or selling, long and/or short,
securities of the Borrower, or “derivative” securities based on securities
issued by the Borrower or to hold the Securities for any specified term; (ii)
Lender, and counter-parties in “derivative” transactions to which Lender is a
party, directly or indirectly, presently may have a “short” position in the
Common Stock, and (iii) shall not be deemed to have any affiliation with or
control over any arm’s length counter-party in any “derivative” transaction. The
Borrower further understands and acknowledges that Lenders may engage in hedging
and/or trading activities at various times during the period that the Securities
are outstanding, including, without limitation, during the periods that the
value of the Conversion Shares and are being determined and (b) such hedging
and/or trading activities, if any, can reduce the value of the existing
stockholders’ equity interest in the Borrower both at and after the time the
hedging and/or trading activities are being conducted. The Borrower acknowledges
that such aforementioned hedging and/or trading activities do not constitute a
breach of this Agreement, the Notes, or any other documents.

ARTICLE 4.

COVENANTS

 

Section 4.1.

Affirmative Covenants.  Commencing on the Closing Date and until all the
Liabilities are paid in full and this Agreement, Borrower covenants and agrees
that:

(a)

Financial Statements and Certificates.  While any amounts are owed to the Lender
from the Borrower (including, but not limited to, any Liability), Borrower will
furnish the following to the Lender, all in form and scope acceptable to the
Lender, unless such information is included in the Borrower’s most recent Public
Reports:

(i)

within 105 days after the close of each fiscal year of Borrower, a copy of the
annual report of Borrower consisting of a balance sheet, statement of operating
results and retained earnings, statement of cash flows and notes to financial
statements, profit and loss statement and statement of changes in financial
position of Borrower, prepared in conformity with GAAP, duly prepared by
certified public accountants of recognized standing selected by Borrower and
reasonably approved by the Lender;

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(ii)

within 45 days after the end of each fiscal quarter, (a) a copy of an unaudited
financial statement of Borrower prepared in the same manner as the report
referred to in paragraph (i) above, signed by the chief financial officer of
Borrower and consisting of a balance sheet as at the close of such fiscal
quarter and statements of earnings, cash flow, income and source and application
of funds for such fiscal quarter and for the period from the beginning of such
fiscal year to the close of such fiscal quarter, and (b) a duly completed
compliance certificate, dated the date of such financial statements and
certified as true and correct by the chief executive officer or chief financial
officer of Borrower, stating that Borrower has not become aware of any Event of
Default that has occurred and is continuing or, if there is any such Event of
Default describing it and the steps, if any, being taken to cure it;

(iii)

a duly completed compliance certificate, dated the date of such financial
statements and certified as true and correct by the chief executive officer and
chief financial officer of Borrower, stating that Borrower has not become aware
of any Event of Default that has occurred and is continuing or, if there is any
such Event of Default describing it and the steps, if any, being taken to cure
it;

(iv)

copies of any and all reports, examinations, notices, warnings and citations
issued by any governmental or quasi-governmental (whether federal, state or
local), unit, agency, body or entity with respect to Borrower that could have a
Material Adverse Effect; and

(v)

such other information as the Lender from time to time reasonably requests.

(b)

Books, Records and Inspections.  Borrower shall (i) maintain complete and
accurate books and records; (ii) permit access by the Lender and its agents
and/or representatives to such books and records as they relate to this
Agreement, the Securities, and/or the other Documents; and (iii) permit such
persons, upon two (2) days prior written notice, to inspect the properties,
whether real or personal, and operations of Borrower.

(c)

Insurance.  Borrower shall maintain such insurance as may be required by law and
such other insurance to the extent and against such hazards and liabilities as
is customarily maintained by companies similarly situated.  All property
insurance policies shall, within 30 days following the Security Start Date,
contain lender loss payable clauses in form and substance reasonably
satisfactory to the Lender, naming the Lender as a lender loss payee, mortgagee
and/or additional insured, as its interest may appear, and providing that such
policies and lender loss payable clauses may not be canceled, amended or
terminated unless at least thirty (30) days (or ten (10) days in the case of
non-payment of premiums) prior written notice thereof has been given to the
Lender.  All insurance proceeds received by the Lender may be retained by the
Lender, in its sole discretion, for application to the payment of the
Liabilities as the Lender may determine. 

(d)

Taxes and Liabilities.  Borrower shall pay when due all material taxes,
assessments and other liabilities except as contested in good faith and by
appropriate proceedings and for which adequate reserves in conformity with GAAP
have been established.

(e)

Maintenance of Business; Borrower Names.  Borrower shall (i) keep all property
and systems useful and necessary in its business in good working order and
condition, (ii) preserve its existence, rights and privileges in the
jurisdiction of its organization or formation, as set forth on the Public
Reports an become or remain, and cause each of its Subsidiaries to become or
remain, duly qualified and in good standing in each jurisdiction in which the
character of the properties owned or leased by it or in which the transaction of
its business makes such qualification necessary (iii) not operate in any
business other than a business substantially the same as the business as in
effect on the date of this Agreement; provided, however, that it may change its
jurisdiction of organization or formation establishment upon thirty (30) days
prior written notice to the Lender.  Borrower shall give Lender thirty (30)
days’ prior written notice before Borrower changes its name or does business
under any other name.

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(f)

Employee Benefit Plans, Etc.  Borrower shall (i) maintain each plan and/or each
employee benefit plan as to which it may have any liability in substantial
compliance with all applicable requirements of law and regulations; (ii) make
all payments and contributions required to be made pursuant to such Plans and/or
plans in a timely manner; and (iii) neither establish any new Plan and/or
employee benefit plan, agree or contribute to any Plan and/or multi-employer
plan nor amend any existing Plan and/or employee pension benefit plan in a
manner which would increase its obligation to contribute to such Plan and/or
plan.

(g)

Good Title.  Borrower shall at all times maintain good and marketable title to
all of its assets necessary for the operation of its business.

(h)

Maintenance of Intellectual Property Rights. The Borrower will take all
reasonable action necessary or advisable to maintain all of the Intellectual
Property Rights of the Borrower that are necessary or material to the conduct of
its business in full force and effect.

(i)

Locations.  Borrower shall give the Lender thirty (30) days prior written notice
of a change in (i) its jurisdiction of organization or the location of its
principal executive office or sole place of business or principal residence or
(ii) its name.

(j)

Securities Law Disclosure; Publicity.  The Borrower shall on or before, but in
no event later than, 8:30 a.m. (NYC Time), on the first (1st) Business Day
following the Closing Date file with the SEC a Current Report on Form 8-K (the
“Current Report”) disclosing the material terms of the transactions contemplated
hereby, and including the Documents required to be included in such Current
Report as exhibits thereto.  From and after the date of filing with the SEC of
the Current Report, the Borrower represents to the Lender that the Borrower
shall have publicly disclosed all material, non-public information delivered to
the Lender as of such time by the Borrower, or any of its respective officers,
directors, employees or agents in connection with the transactions contemplated
by the Documents.  The Borrower shall afford the Lender and its counsel with a
reasonable opportunity to review and comment upon, shall consult with the Lender
and its counsel on the form and substance of, and shall give due consideration
to all such comments from the Lender and its counsel on, any press release, SEC
filing or any other public disclosure made by or on behalf of the Borrower
relating to the Lender, the Documents and/or the transactions contemplated by
any Document, prior to the issuance, filing or public disclosure thereof, and
the Borrower shall not issue, file or publicly disclose any such information to
which the Lender shall reasonably object, unless required by law. For the
avoidance of doubt, the Borrower shall not be required to submit for review any
such disclosure contained in periodic reports filed with the SEC under the 1934
Act if it shall have previously provided the same disclosure for review in
connection with a previous filing.

(k)

Notices.  Borrower shall, after receipt of knowledge thereof, give prompt
written notice to the Lender of:

(i)

the occurrence of any Event of Default or any event which with the passage of
time or the giving of notice or both would become an Event of Default;

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(ii)

any litigation, investigation or proceeding which may exist at any time between
Borrower and any governmental authority, that in either case, if not cured or if
adversely determined, as the case may be, could have a Material Adverse Effect;

(iii)

any litigation or proceeding  affecting Borrower (1) in which the amount
involved is $50,000 or more, (2) in which injunctive and/or other equitable
relief is sought and/or (3) which relates to the Lender, any Document and/or any
of the transactions contemplated by any Document;

(iv)

any Lien (other than security interests created hereby or Permitted Liens)
and/or any Indebtedness other than Indebtedness related to the Documents or
Permitted Indebtedness; and

(v)

Any matter, development and/or event that has resulted or could reasonably be
expected to result in a Material Adverse Effect, including any such matter
arising from: any breach or non-performance of, or any default, terms of default
or event of default under the Documents, and/or any other material agreements
that the Borrower is a party to and/or any of its property is bound by;

Each notice pursuant to this Section 4.01(k) shall be accompanied by a statement
of Borrower setting forth details of the occurrence referred to therein and
stating what action Borrower proposes to take with respect thereto.

(l)

Environmental Laws.  Borrower shall (i) comply in all material respects with,
and endeavor to ensure compliance in all material respects by all tenants and
subtenants, if any, with, all applicable Environmental Laws, and obtain and
comply in all material respects with and maintain, and endeavor to ensure that
all tenants and subtenants obtain and comply in all material respects with and
maintain, any and all licenses, approvals, notifications, registrations or
permits required by applicable Environmental Laws, and (ii) conduct and complete
all investigations, studies, sampling and testing, and all remedial, removal and
other actions required under Environmental Laws and promptly comply in all
material respects with all lawful orders and directives of all governmental
authorities regarding Environmental Laws.

(m)

Further Assurances.  Borrower shall, from time to time execute and deliver, or
cause to be executed and delivered, such additional instruments, certificates or
documents, and take such actions, as the Lender may reasonably request for the
purposes of implementing or effectuating the provisions of this Agreement, the
Note and the other Documents.  Upon the exercise by the Lender of any power,
right, privilege or remedy pursuant to this Agreement or the other Documents
which requires any consent, approval, recording, qualification or authorization
of any governmental authority, Borrower will execute and deliver, or will cause
the execution and delivery of, all applications, certifications, instruments and
other documents and papers that the Lender may be required to obtain from
Borrower for such governmental consent, approval, recording, qualification or
authorization.

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(n)

Reservation of Shares.  At all times and as long as the Lender owns any
Securities, the Borrower shall take all action necessary (and/or reasonably
requested by the Lender) to at all times have authorized, and reserved out of
its authorized but unissued shares of Common Stock for the purpose of issuance
to the Holder upon conversions the Note by the Holder, no less than four hundred
(400%) percent of the sum of the maximum number of Conversion Shares issuable
(without taking into account any limitations on the issuance thereof pursuant to
the terms of the Notes) (the “Required Reserved Amount”).  If at any time the
number of shares of Common Stock authorized and reserved for issuance is not
sufficient to meet the Required Reserved Amount, the Borrower will promptly take
all corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, calling a special meeting of stockholders
to authorize additional shares to meet the Borrower’s obligations under
Documents, in the case of an insufficient number of authorized shares, obtain
stockholder approval of an increase in such authorized number of shares, and
voting the management shares of the Borrower in favor of an increase in the
authorized shares of the Borrower to ensure that the number of authorized shares
is sufficient to meet the Required Reserved Amount.  The Borrower shall
initially reserve Four Hundred and Four Thousand Five Hundred and Six (404,506)
shares of Common Stock on its own books and records (the “Reserve”) for the
issuance of Conversion Shares Shares and any other shares of Common Stock
required to be issued by the Borrower to the Lender pursuant to the Documents,
which initial reservation shall be authorized by the unanimous written consent
of the Borrower’s Board of Directors delivered at Closing.  From and after the
date of this Agreement through and including the date all of the Borrowers and
each of its Subsidiaries’ Indebtedness and all other obligations owed to the
Lender pursuant to the Documents, including, but not limited to, the Note is
paid and performed in full, confirmation of which must be obtained by in writing
from the Lender, the Borrower shall (a) issue or cause its Transfer Agent to
issue the Conversion Shares and all other shares of Common Stock required to be
issued to the Holder or its broker only (subject to the immediately following
clause (b)), (b) issue or cause its Transfer Agent to issue shares of Common
Stock to the Lender or its broker under the Note from sources other than the
Reserve, unless the Lender delivers to the Borrower written pre-approval of such
issuance from the Reserve, and (c) not reduce the Reserve under any
circumstances, unless the Lender delivers to the Borrower written pre-approval
of such reduction.  The Borrower shall immediately add shares of Common Stock to
the Reserve to ensure that the greater of (i) 509,000 shares of Common Stock and
(ii) Required Reserve Amount (the greater of (i) and (ii) being the “Reserve
Minimum”) are in the Reserve at all times.  The Borrower shall increase the
amount of shares of Common Stock in the Reserve upon receipt of written notice,
which may be in email form, by the Lender (and/or its assigns) in order to
ensure that the Reserve contains the Reserve Minimum and/or at any time the
number of shares in the Reserve is less than the Reserve Minimum. 
Notwithstanding to the contrary provided herein or elsewhere, if at any time the
number of shares of Common Stock in the Reserve, is less than the Required
Reserved Amount, the Lender may send written notice to the Borrower’s then
Transfer Agent to increase out of the Borrower’s authorized but unissued shares
of Common Stock such number of additional shares of Common Stock so the Reserve
consists of at least the Required Reserve Amount, provided, that the number of
shares of Common Stock in the Reserve shall never be decreased or used for any
other purposes other than for issue to the Holder upon each conversion by the
Holder of the Note into Conversion Shares.  As a condition to Closing, all
actions required by the Borrower in this Section 4.01(n) shall be approved by
the unanimous written consent of the Borrower’s Board of Directors which shall
be delivered to the Lender at Closing.

(o)

Reporting Status.  Until the date on which the Holder shall have sold all of the
Interest Shares and Conversion Shares and none of the Notes are outstanding (the
“Reporting Period”), the Borrower shall timely file all reports required to be
filed by the Borrower with the SEC pursuant to the 1934 Act within the time
periods required by the SEC including all applicable extension periods, and the
Borrower shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would no longer require or otherwise permit such termination.

(p)

The Documents.  The Borrower and each of its Subsidiaries shall comply with all
of their respective obligations under any of the Documents following the Closing
Date.  

Section 4.02.

Negative Covenants.  Until all the Liabilities are paid in full, Borrower
covenants and agrees that:

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(a)

Restricted Payments. The Borrower shall not directly or indirectly, redeem,
defease, repurchase, repay or make any payments in respect of, by the payment of
cash or cash equivalents (in whole or in part, whether by way of open market
purchases, tender offers, private transactions or otherwise), all or any portion
of any Indebtedness, whether by way of payment in respect of principal of (or
premium, if any) or interest on, such Indebtedness, except for Permitted
Indebtedness; provided, however, that notwithstanding anything to the contrary
provided herein or elsewhere (including the definition of Permitted
Indebtedness), in no event shall the Borrower directly and/or indirectly make
any payment to any officer, director, or 5% or greater beneficial holder of the
Borrower’s voting stock or Common Stock or an affiliate of the Borrower and/or
any affiliate of any such person representing the direct and/or indirect
repayment of Indebtedness, premiums and/or interest on Indebtedness, unpaid
salaries, consulting fees, expenses, accrued but unpaid interest and/or
otherwise; provided, that the Borrower may reimburse officers of Borrower for
their reasonable out-of-pocket expenses incurred by such persons in connection
with their employment with the Borrower in the ordinary course of business.

(b)

Restricted Issuances.  The Borrower shall not, directly or indirectly, (i) issue
any Securities and/or Indebtedness (other than as contemplated by this
Agreement) or (ii) issue any other securities that would cause a breach or
default and/or an Event of Default under the Note and/or any other Document. 

(c)

Restriction on Redemption and Dividends.  The Borrower shall not, directly or
indirectly, redeem, repurchase or declare or pay any dividend or distribution on
any of its capital stock whether in cash, stock rights and/or property.

(d)

Restriction on Transfer of Assets. Neither the Borrower nor any of its
Subsidiaries shall, directly or indirectly, sell, assign, transfer, spin-off,
split-off, close, convey or otherwise dispose of any assets or rights of the
Borrower owned or hereafter acquired whether in a single transaction or a series
of related transactions  (an “IP Transaction”).  For purposes of clarity, an IP
Transaction shall not include proceeds from licensing or settling any suits of
infringement or any other proceeds derived from the normal course of business
which do not include the sale or transfer of the IP assets.  Notwithstanding
anything to the contrary provided herein or elsewhere, in the event of an IP
Transaction, the Borrower and each of its Subsidiaries shall after the payment
of the legal fees and expenses owed to Fish & Richardson (“IP Counsel”) pursuant
to the Letter Agreement by and between the Borrower and/or any of its
Subsidiaries and IP Counsel executed by the Borrower on September 2, 2011 and by
its IP Counsel on September 1, 2011 (the “F&R Letter”), pay to the Lender within
five (5) Business Days of the date Borrower or any of its Subsidiaries shall
receive proceeds from any IP Transaction, all sums owed to the Lender by the
Borrower and/or any of its Subsidiaries pursuant to the Note and/or the other
Documents; provided, further, that (i) the F&R Letter cannot be directly or
indirectly modified, restated, terminated and another agreement entered into,
supplemented amended and/or otherwise changed if the result thereof could result
in IP Counsel directly and/or indirectly receiving more fees than those set
forth in the originally executed F&R Letter, (ii) IP Counsel shall not be paid,
directly and/or indirectly any sums in excess of those stated in the originally
executed F&R Letter and/or (iii) neither the Borrower nor any Subsidiary shall
take any action that could directly or indirectly adversely affect the right of
the Lender to receive any IP Transaction proceeds for the payment of all
obligations owed to the Lender by the Borrower and/or any of its Subsidiaries
under and pursuant to the Note and the other Documents. All amounts owed to the
Lender by the Borrower and/or any of its Subsidiaries shall be paid to the
Lender in immediately available funds by wire transfer pursuant to wiring
instructions provided to the Borrower from the Lender, and (iv) neither the
Borrower, any of its Subsidiaries and/or any other person other than F&R (and
then only in the amounts set forth the originally executed F&R Letter), shall be
entitled to keep and/or use for any purpose (directly and/or indirectly), any IP
Transaction proceeds until all Indebtedness and other obligations owed by the
Borrower and/or any of its Subsidiaries to the Lender are paid in full.  The
Borrower shall give the Lender 15 day prior written notice of any such IP
Transaction which notice shall include a description of the IP Transaction, the
Closing Date of the IP Transaction, the terms of the IP Transaction including
all funds to be received by the Borrower and/or its Subsidiaries and a detailed
account of the payments owed and to be paid to IP Counsel and to the Lender
together with all IP Transaction documents, which IP Transaction documents shall
include as a condition precedent to the closing of any IP Transaction, the
payment of all funds owed to the Lender under this Agreement, the Note and the
other Documents.

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(e)

Change in Nature of Business. The Borrower shall not, directly or indirectly,
engage in any business substantially different from the business conducted by
the Borrower on the Closing Date or any business substantially related or
incidental thereto.  The Borrower shall not, directly or indirectly, modify its
or their corporate structure for any purpose.

(f)

Indebtedness.  Borrower shall not incur or permit to exist any Indebtedness,
except for Permitted Indebtedness.

(g)

Liens.  Borrower shall not create or permit to exist any mortgage, pledge, title
retention lien, or other lien, encumbrance or security interest with respect to
any assets whether now owned or hereafter acquired and owned, except for
Permitted Liens.

(h)

Guaranties, Loans or Advances.  Borrower shall not become or be a guarantor or
surety of, or otherwise become or be responsible in any manner with respect to
any undertaking of any other Person, or make or permit to exist any loans or
advances to or investments in any other Person, except for the endorsement, in
the ordinary course of collection, of instruments payable to it or to its order.

(i)

Violation of Law.  Borrower shall not violate any law, statute, ordinance, rule,
regulation, judgment, decree, order, writ or injunction of any federal, state or
local authority, court, agency, bureau, board, commission, department or
governmental body, if any such violation could have a Material Adverse Effect.

(j)

Unconditional Purchase Obligations.  Borrower shall not enter into or be a party
to any contract for the purchase of materials, supplies or other property or
services if such contract requires that payment be made by it regardless of
whether or not delivery is ever made of such materials, supplies or other
property or services.

(k)

Use of Proceeds.  Borrower shall not permit any proceeds of the Loan to be used
either directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of “purchasing or carrying any margin stock” within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System, as amended
from time to time.

(l)

Hedge Agreements.  Borrower shall not enter into any hedge agreement other than
hedge agreements entered into in the ordinary course of business, and not for
speculative purposes, to protect against changes in interest rates or foreign
exchange rates.

(m)

ERISA.  Borrower shall not create or become obligated under any Plan.

(n)

No Variable Rate Transactions, Etc.  As long as any Principal, accrued but
unpaid interest, Late Charges on the Note and/or in the other Documents is,
outstanding, the Borrower shall not directly and/or indirectly (i)(I) consummate
any exchange of any Indebtedness and/or securities of the Borrower for any other
securities and/or Indebtedness of the Borrower, (II) cooperate with any person
to effect any exchange of securities and/or Indebtedness of the Borrower in
connection with a proposed sale of such securities from an existing holder of
such securities to a third party), and/or (III) reduce and/or otherwise change
the exercise price, conversion price and/or exchange price of any Common Stock
Equivalent of the Borrower and/or amend any non-convertible Indebtedness of the
Borrower to make it convertible into securities of the Borrower, (ii) issue or
sell any of its securities either (I) at a conversion, exercise or exchange rate
or price that is based upon and/or varies with the trading prices of, or
quotations for, the shares of Common Stock, and/or (II) with a conversion,
exercise or exchange rate and/or price that is subject to being reset on one or
more occasions either (x) at some future date after the initial issuance of such
securities or (y) upon the occurrence of specified or contingent events directly
or indirectly related to the business of the Borrower or the market for the
Common Stock, and/or (iii) enter into any agreement (including, without
limitation, an “equity line of credit” or an “at-the-market offering”) whereby
the Borrower may sell securities at a future determined price.  Any transaction
contemplated in by Section 4.02(n), shall be referred to as a “Variable Rate
Transaction.” The Lender shall be entitled to obtain injunctive relief against
the Borrower to preclude any Variable Rate Transaction (without the need for the
posting of any bond or similar item, which the Borrower hereby expressly and
irrevocably waives the requirement for), which remedy shall be in addition to
any right of the Lender to collect damages.

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(o)

Transactions with Affiliates.  Except for such transactions described in the
Public Reports, including any renewals or extensions thereof, the Borrower shall
not directly and/or indirectly enter into, renew, extend or be a party to, any
transaction or series of related transactions (including, without limitation,
lending funds to an Affiliate and/or borrowing funds from any Affiliate, the
purchase, sale, lease, transfer or exchange of property, securities or assets of
any kind or the rendering of services of any kind) with any officer, director,
Affiliate and/or any Affiliate of such person.

ARTICLE 5.

CLOSING CONDITIONS

 

Section 5.1.

Closing Conditions of the Lender.  The Lender’s obligation to enter into the
Documents and purchase the Note is subject to the fulfillment of each and every
one of the following conditions prior to or contemporaneously with the Lender
entering into the Documents and purchasing the Note (unless waived by Lender in
their sole and absolute discretion):

(a)

Delivery of Documents.  The Lender shall have received from the Borrower each of
the following, in form and substance reasonably satisfactory to the Lender and
its counsel, and where applicable, duly executed and recorded:

(i)

certificates of the Chief Executive Officer and Secretary of Borrower and
certifying as to (a) copies of the Certificate of Incorporation and by-laws of
the Borrower, as restated or amended as of the date of this Agreement; (b) all
actions taken and consents made by the Borrower and its Board of Directors and
shareholders, as applicable to authorize the transactions provided for or
contemplated under this Agreement and the other Documents and the execution,
delivery and performance of the Documents; (c) the names of the directors and
officers of the Borrower authorized to sign the Documents, together with a
sample of the true signature of each such Person; (d) all Closing Conditions set
forth in Section 5.01 have been met by the Borrower of each Subsidiary, and (e)
no event has occurred and/or that the Borrower anticipates occurring that
(without regard for any action required to be taken by the Lender, (including,
but not limited to, declaring an Event of Default and/or providing any notices)
has resulted in an Event of Default or with the passage of time would result in
an Event of Default.

(ii)

this Agreement;

(iii)

the Note;

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(iv)

certificates of good standing for Borrower  in the jurisdiction of Borrower’s
incorporation or formation, in the principal places in which Borrower conducts
business and in places in which Borrower owns real estate; 

(v)

the fully executed TA Letter; and

(vi)

Such other documents, certificates, opinions, instruments and/or other items
reasonable requested by the Lender and/or its legal counsel.

(b)

Approvals.  The receipt by the Lender of all governmental and third party
approvals necessary in connection with the continuing operations of Borrower,
the execution and performance of the Documents and the transactions contemplated
thereby, all of which consents/approvals shall be in full force and effect.

(c)

Additional Conditions.  The fulfillment of each and every one of the following
conditions prior to or contemporaneously with the making of the Loan.

(i)

Representations and Warranties.  Each of the representations and warranties made
by Borrower in or pursuant to the Documents and all Schedules and/or Exhibits to
this Agreement and/or any of the other Documents shall be true and correct in
all material respects on and as of the Closing Date as if made (or given) on and
as of such date (except where such representation and warranty speaks of a
specific date in which case such representation and warranty shall be true and
correct as of such date).

(ii)

No Events of Default.  No Event of Default or event which with the passage of
time or the giving of notice or both would become an Event of Default shall have
occurred or would result from the making of the Loan.

(iii)

Fees, Etc.  The Lender’s Expenses and the Maxim Placement Fee shall have been
received by the Lender’s counsel and Maxim, respectively, unless waived.

(iv)

Compliance with Laws.  The Borrower shall have complied with all applicable
federal, state and local governmental laws, rules, regulations and ordinances in
connection with the execution, delivery and performance of this Agreement and
the other Documents to which it is a party and the consummation of the
transactions contemplated hereby and thereby, including, without limitation, the
Borrower shall have obtained all permits and qualifications required by any
applicable state securities or “Blue Sky” laws for the offer and sale of the
Securities by the Borrower to the Lender). 

(v)

No Injunction.  No statute, regulation, order, decree, writ, ruling or
injunction shall have been enacted, entered, promulgated, threatened in writing
or endorsed by any court or governmental authority of competent jurisdiction
which prohibits the consummation of or which would materially modify or delay
the execution and performance of the Documents and/or any of the transactions
contemplated by the Documents.

(vi)

No Proceedings or Litigation.  No action, suit or proceeding before any
arbitrator or any court or governmental authority shall have been commenced or
threatened in writing, and no inquiry or investigation by any governmental
authority shall have been commenced or threatened in writing, against the
Borrower, or any of the officers, directors or affiliates of the Borrower,
seeking to restrain, prevent or change the Documents and/or any of the
transactions contemplated by the Documents, or seeking material damages in
connection with such Documents and/or transactions.

 

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(vii)

Listing of Securities.  All of the Conversion Shares and Interest Shares shall
have been approved for listing or quotation on the Trading Market as of the
Closing Date, in each case, and as required, without regard to any limitations
on conversion of the Note.

(viii)

No Material Adverse Effect. No condition, occurrence, state of facts or event
constituting a Material Adverse Effect shall have occurred and be continuing.

(ix)

Current Public Information. All reports, schedules, registrations, forms,
statements, information and other documents required to have been filed by the
Borrower with the SEC since January 1, 2014, pursuant to the reporting
requirements of the 1934 Act, including all material required to have been filed
pursuant to Section 13(a) or 15(d) of the 1934 Act, shall have been filed with
the SEC under the 1934 Act.

(x)

No Suspension of Trading in or Notice of Delisting of Common Stock.  Trading in
the Common Stock shall not have been suspended and/or halted by the SEC, the
Principal Trading Market or FINRA. The Borrower shall not have received any
final and non-appealable notice that the listing or quotation of the Common
Stock on the Principal Trading Market shall be terminated on a date certain
(unless, prior to such date certain, the Common Stock is listed or quoted on any
other Principal Trading Market), trading in securities generally as reported on
the Principal Trading Market shall not have been suspended or limited, nor shall
a banking moratorium have been declared either by the U.S. or New York State
authorities, there shall not have been imposed any suspension of electronic
trading or settlement services by the Depository Trust Company (“DTC”) with
respect to the Common Stock that is continuing, the Borrower shall not have
received any notice from DTC to the effect that a suspension of electronic
trading or settlement services by DTC with respect to the Common Stock is being
imposed or is contemplated (unless, prior to such suspension, DTC shall have
notified the Borrower in writing that DTC has determined not to impose any such
suspension), nor shall there have occurred any material outbreak or escalation
of hostilities or other national or international calamity or crisis that has
had or would reasonably be expected to have a material adverse change in any
U.S. financial, credit or securities market that is continuing.

(xi)

Completion of Due Diligence.  Lender shall have completed its legal, business
and financial due diligence of the Borrower to its full satisfaction and is
fully satisfied with the results thereof.  

(xii)

Completion of Due Diligence.  Lender shall have completed its legal, business
and financial due diligence of the Borrower to its full satisfaction and is
fully satisfied with the results thereof

Section 5.2.

Closing Conditions of Borrower.  The obligation of the Borrower to sell and
issue the Note to the Lender at the Closing is subject to the fulfillment, to
the Borrower’s reasonable satisfaction, prior to or contemporary at the Closing,
of each of the following conditions (unless waived by the Borrower):

(a)

Representations and Warranties.  Each of the representations and warranties made
by Lender in or pursuant to the Documents and all Schedules and/or Exhibits to
this Agreement and/or any of the other Documents shall be true and correct in
all material respects on and as of the Closing Date as if made (or given) on and
as of such date (except where such representation and warranty speaks of a
specific date in which case such representation and warranty shall be true and
correct as of such date).

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(b)

No Injunction. No statute, regulation, order, decree, writ, ruling or injunction
shall have been enacted, entered, promulgated, threatened in writing or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of or which would materially modify or delay any of the
transactions contemplated by the Documents.

(c)

Receipt of the $500,000 Purchase Price. The Borrower shall receive at the
Closing, the $500,000 Purchase Price less the (i) Lender’s Expenses, and (ii)
the Maxim Placement Fee, all of which funds set forth in (i) and (ii) of this
Section 5.02(c), while constituting part of the $500,000 Purchase Price shall be
paid directly to the Lender, the Lender’s legal counsel and Maxim by the Lender
without resulting in any set-off and/or reduction in the $550,000 aggregate
principal amount of the Note and/or any set-off or reduction in any other
Liabilities or amounts owed by the Borrower to the Lender.

ARTICLE 6.

MISCELLANEOUS

 

Section 6.1.

No Waiver; Modifications In Writing.  No failure or delay on the part of Lender
in exercising any right, power or remedy pursuant to the Documents shall operate
as a waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof, or the exercise
of any other right, power or remedy.  No amendment, modification, supplement,
termination or waiver of any provision of the Documents, nor any consent by the
Lender to any departure by Borrower therefrom, shall be effective unless the
same shall be in writing and signed by the Lender.  Any waiver of any provision
of the Documents and any consent by the Lender to any departure by Borrower from
the terms of any provision of the Documents shall be effective only in the
specific instance and for the specific purpose for which given.  No notice to or
demand on Borrower in any case shall entitle Borrower to any other or further
notice or demand in similar or other circumstances.

Section 6.2.

Set-Off.  The Lender shall have the right to set-off, appropriate and apply
toward payment of any of the Liabilities, in such order of application as the
Lender may from time to time and at any time elect, any cash, credit, deposits,
accounts, securities and any other property of Borrower which is in transit to
or in the possession, custody or control of Lender, or any agent, bailee, or
Affiliate of the Lender. Borrower hereby grants to Lender a security interest in
all such property.

Section 6.3.

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 telex, facsimile or e-mail if sent during
normal business hours of the recipient; if not, then on the next Trading Day,
(c) five (5) days after having been sent by registered or certified mail, return
receipt requested, postage prepaid, or (d) one (1) day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt:

 

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If to Borrower:

 

BLUE CALYPSO, INC.

101 W. Renner Rd., Suite 280

Richardson, TX 75082

Attention:  Andrew Levi

Telephone: (800) 378-2297

Fax No.:  (     ) ___-____

Email:  alevi@bluecalypso.com

 

With copies to

(which shall not constitute notice):     

 

Fox Rothschild LLP

Princeton Pike Corporate Center

997 Lenox Drive, Building 3

Lawrenceville, NJ 08648

Attention:  Sean F. Reid, Esq.

Phone:  (609) 895-6719

Fax No.:  (609) 896-1469

Email: sreid@foxrothschild.com

 

If to the Lender:          

[ _______________ ]

[ _______________ ]

[ _______________ ]

[ _______________ ]

[ _______________ ]

[ _______________ ]

[ _______________ ]

[ _______________ ]

 

With copies to

(which shall not constitute notice):     

 

Gusrae Kaplan Nusbaum PLLC

120 Wall Street

New York, New York 10005

Attention:  Lawrence G. Nusbaum, Esq.

Phone:  (212) 269-1400

Fax No.:  (212) 809-5449

Email: LNusbaum@gusraekaplan.com

 

 

Any party hereto may from time to time change its address for notices by giving
written notice of such changed address to the other party hereto.

 

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Section 6.4.

Costs, Expenses and Taxes.  Notwithstanding anything to the contrary provided
herein or elsewhere, Borrower agrees to pay (A) on the Closing Date all of the
Lender’s Expenses; and (B) following the Closing Date, all fees and expenses
incurred by the Lender (including, but not limited to, outside counsel to the
Lender) in connection with the administration and enforcement of the Documents
and/or and the Loan.  In addition, Borrower shall pay any and all stamp,
transfer and other similar taxes payable or determined to be payable in
connection with the execution and delivery of the Documents agrees to hold the
Lender harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes.  If any suit
or proceeding arising from any of the foregoing is brought against the Lender,
Borrower, to the extent and in the manner directed by Lender, will resist and
defend such suit or proceeding or cause the same to be resisted and defended by
counsel approved by Lender.  If Borrower shall fail to do any act or thing which
each has covenanted and/or agreed to do under this Agreement and/or any other
Document or any representation or warranty on the part of Borrower contained in
this Agreement and/or any other Document shall be breached, the Lender may, in
its sole and absolute discretion, do the same or cause it to be done or remedy
any such breach, and may expend its funds for such purpose; and any and all
amounts so expended by the Lender shall be repayable to the Lender by Borrower
immediately upon the Lender’s demand therefor, with interest at a rate equal to
ten (10%) percent during the period from and including the date funds are so
expended by the Lender to the date of repayment in full, and any such amounts
due and owing to the Lender shall be deemed to be part of the Liabilities
secured hereunder and under the other Documents. The obligations of Borrower
under this Section 6.4shall survive the termination of this Agreement and the
discharge of the other obligations of Borrower under the Documents.

Section 6.5.

Indemnity, Etc.  In addition to the payment of expenses pursuant to Section 6.4,
whether or not all and/or any of the transactions contemplated hereby shall be
consummated, Borrower agrees to indemnify, pay and hold Lender, and each of such
Lender’s assignees and affiliates and their respective officers, directors,
employees, agents, consultants, auditors, and attorneys of any of them
(collectively called the “Indemnities”) harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature whatsoever
(including the reasonable fees and disbursements of counsel for such Indemnitees
in connection with any investigative, administrative or judicial proceeding
commenced or threatened, whether or not such Indemnitee shall be designated a
party thereto) that may be imposed on, incurred by, or asserted against that
Indemnitee, in any manner relating to or arising out of the SEC Reports, this
Agreement and/or the other Documents, the consummation of the transactions
contemplated by this Agreement and the other Documents, the statements contained
in any term sheet delivered by the Lender, the Lender’s agreement to make the
Loan, the use or intended use of the proceeds of the Loan or the exercise of any
right or remedy hereunder or under the other Documents (the “Indemnified
Liabilities”); provided  that Borrower shall have no obligation to an Indemnitee
hereunder with respect to Indemnified Liabilities directly resulting from the
gross negligence or willful misconduct of that Indemnitee, as determined by a
court of competent jurisdiction by a final and nonappealable judgment.  In no
event shall any Lender and/or any of their respective employees, agents,
partners, affiliates, members, equity and/or debt holders, managers, officers,
directors and/or other related or similar type of Person, have any liability to
the Borrower and/or any of its officers, directors, employees, agent, attorneys,
affiliates, consultants, equity and/or debt holders except for any actions or
lack of actions of such persons that are found by a court of competent
jurisdiction after the time for all appeals has passed to have resulted directly
from Lender’s intentional misconduct or gross negligence.

Section 6.6.

Counterparts; Signatures.  This Agreement may be executed in any number of
counterparts, each of which counterparts, once they are executed and delivered,
shall be deemed to be an original and all of which counterparts, taken together,
shall constitute but one and the same agreement.  This Agreement and the
Documents may be executed by any party to this Agreement or any of the Documents
by original signature, facsimile and/or electronic signature.

Section 6.7.

Binding Effects; Assignment.  This Agreement shall be binding upon, and inure to
the benefit of, the Lender, Borrower and their respective successors, assigns,
representatives and heirs. Borrower shall not assign any of its rights nor
delegate any of its obligations under Documents without the prior written
consent of Lender.  Lender may delegate any of its obligations under the
Documents without the prior written consent of Borrower, except to make the
$550,000 Loan. Lender may assign any of its rights, hereunder, and/or in any of
the other Documents, subject only to compliance with the federal securities
laws.

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Section 6.8.

Headings.  Captions contained in this Agreement are inserted only as a matter of
convenience and in no way define, limit or extend the scope or intent of this
Agreement or any provision of this Agreement and shall not affect the
construction of this Agreement.

Section 6.9.

Entire Agreement.  This Agreement, together with the other Documents, contains
the entire agreement between the parties hereto with respect to the transactions
contemplated herein and therein and supersedes all prior representations,
agreements, covenants and understandings, whether oral or written, related to
the subject matter of this Agreement and the other Documents including, but not
limited to, the Term Sheet executed by the Borrower on June 26, 2015.  Except as
specifically set forth in this Agreement, the Lender makes no covenants to
Borrower, including, but not limited to, any commitments to provide any
additional financing to Borrower. 

Section 6.10.

GOVERNING LAW.  THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
EXCLUSIVELY IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO ANY CONFLICT OF LAWS.

Section 6.11.

Severability Of Provisions.  Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.

Section 6.12.

Conflict.  In the event of any conflict between this Agreement and any of the
other Documents, the terms and provisions of the Documents so chosen by the
Lender shall govern and control.

Section 6.13.

Customer Identification - USA Patriot Act Notice; OFAC and Bank Secrecy Act. 
Lender hereby notifies Borrower that pursuant to the requirements of the Act and
such Lender’s policies and practices, Lender is required to obtain, verify and
record certain information and documentation that identifies Borrower, which
information includes the name and addresses of Borrower and such other
information that will allow the Lender to identify Borrower in accordance with
the Act.  In addition, Borrower shall (a) ensure that no person who owns a
controlling interest in or otherwise controls Borrower is or shall be listed on
the Specially Designated Nationals and Blocked Person List or other similar
lists maintained by OFAC, the Department of the Treasury or included in any
Executive Orders, (b) not use or permit the use of the proceeds of the Loan to
violate any of the foreign asset control regulations of OFAC or any enabling
statute or Executive Order relating thereto, and (c) comply, and cause any of
its Subsidiaries to comply, with all applicable Bank Secrecy Act (“BSA”) laws
and regulations, as amended.

Section 6.14.

JURISDICTION; WAIVER.  BORROWER ACKNOWLEDGES THAT THIS AGREEMENT IS BEING SIGNED
BY THE LENDER IN PARTIAL CONSIDERATION OF THE LENDER’S RIGHT TO ENFORCE IN THE
JURISDICTION STATED BELOW THE TERMS AND PROVISION OF THIS AGREEMENT AND THE
DOCUMENTS.  BORROWER IRREVOCABLY CONSENTS TO THE EXCLUSIVE AND SOLE JURISDICTION
IN NEW YORK, NEW YORK AND VENUE IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW
YORK FOR SUCH PURPOSES AND WAIVES ANY AND ALL RIGHTS TO CONTEST SAID
JURISDICTION AND VENUE AND ANY OBJECTION THAT NEW YORK, NEW YORK IS NOT
CONVENIENT.  BORROWER WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST THE
LENDER IN ANY JURISDICTION EXCEPT NEW YORK, NEW YORK.  THE LENDER AND BORROWER
HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY
WITH RESPECT TO ANY MATTER WHATSOEVER RELATING TO, ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THE LOAN, THE DOCUMENTS AND/OR THE TRANSACTIONS WHICH ARE THE
SUBJECT OF THE DOCUMENTS.

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Section 6.15.

SERVICE OF PROCESS.  BORROWER AGREES THAT SERVICE OF PROCESS IN ANY ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY CERTIFIED MAIL (OR ANY
SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, RETURN RECEIPT REQUESTED,
TO BORROWER AT THE ADDRESS SET FORTH IN SECTION 6.3 OR AT SUCH OTHER ADDRESS OF
WHICH THE LENDER SHALL HAVE BEEN NOTIFIED PURSUANT THERETO.  BORROWER AGREES
THAT SUCH SERVICE, TO THE FULLEST EXTENT PERMITTED BY LAW (i) SHALL BE DEEMED IN
EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON BORROWER IN ANY SUIT, ACTION OR
PROCEEDING, AND (ii) SHALL BE TAKEN AND HELD TO BE VALID PERSONAL SERVICE UPON
AND PERSONAL DELIVERY TO BORROWER.  SOLELY TO THE EXTENT PROVIDED BY APPLICABLE
LAW, SHOULD BORROWER, AFTER BEING SERVED, FAIL TO APPEAR OR ANSWER TO ANY
SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS
PRESCRIBED BY LAW AFTER THE DELIVERY OR MAILING THEREOF, BORROWER SHALL BE
DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED BY THE COURT
AGAINST BORROWER AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS
OR PAPERS.  NOTHING HEREIN SHALL AFFECT THE LENDER’S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW.

Section 6.16.

Survival.  The representations, and warranties of Borrower herein and/or in the
other Documents shall survive the execution and delivery hereof and the Closing
Date; the obligations, Liabilities, agreements and covenants of the Borrower set
forth herein and/or in the other Documents shall survive the execution and
delivery hereof and the Closing Date, as shall all rights and remedies of the
Lender set forth in this Agreement and/or in any of the other Documents. 

Section 6.17.

No Integration.  Neither the Borrower, nor any of its affiliates, nor any person
acting on behalf of the Borrower or such affiliate, will sell, offer for sale,
or solicit offers to buy or otherwise negotiate with respect to any security (as
defined in the 1933 Act) which will be integrated with the sale and/or issuance
of any of the Securities in a manner which would require the registration of the
Securities under the 1933 Act, or require stockholder approval, under the rules
and regulations of the Trading Market for the Common Stock. The Borrower will
take all action that is appropriate or necessary to assure that its offerings of
other securities will not be integrated for purposes of the 1933 Act or the
rules and regulations of the Trading Market, with the issuance of Securities
contemplated herein.

Section 6.18.

No Frustration.  From and after the date hereof and so long as the Note is
outstanding, the Borrower, nor any of its respective officers, employees,
directors, agents or other representatives, will, without the prior written
consent of the Lender (which consent may be withheld, delayed or conditioned in
the Lender’s sole discretion), effect, enter into, announce or recommend to its
stockholders any agreement, plan, arrangement or transaction (or issue, amend or
waive any security) that would or would reasonably be expected to restrict,
delay, conflict with or impair the ability or right of the Borrower to timely
perform its obligations under the Documents.

Section 6.19.

Finders’ Fees. Except for the Maxim Placement Fee owed by the Borrower to Maxim,
each of the parties represents that it neither is nor will be obligated for any
finders’ fee or commission in connection with this transaction.  The Borrower
and each of its Subsidiaries agree to jointly and severally indemnify and hold
harmless the Lender from any liability for any commission or compensation in the
nature of a finders’ fee (and the costs and expenses of defending against such
liability or asserted liability) for which the Borrower, any of its Subsidiaries
or any such persons, respective officers, employees or representatives is
responsible including, but not limited to, the Maxim Placement Fee.

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Section 6.20.

Rule 144 Availability; Public Information. At all times from the date hereof
through and including the date none of the Conversion Shares are outstanding
(the “Required Period”) Borrower shall ensure Lender can sell the pursuant to
and in accordance with Rule 144 under the 1933 Act.  If, (i) at any time during
the Required Period, the Borrower shall fail for any reason to satisfy the
current public information requirement under Rule 144(c) under the 1933 Act (a
“Public Information Failure”), or (ii) the Borrower shall fail to take such
action as is reasonably requested by the Lender to enable the Lender to sell any
of the Conversion Shares pursuant to Rule 144 under the 1933 Act (including,
without limitation, delivering all such legal opinions, consents, certificates,
resolutions and instructions to the Borrower’s transfer agent as may be
reasonably requested from time to time by the Lender and otherwise fully
cooperate with Lender and Lender’s broker to effect such sale of the Conversion
Shares pursuant to Rule 144 under the 1933 Act) (a “Process Failure”)  then, in
either case, in addition to the Lender’s other available remedies, the Borrower
shall pay to Lender, as liquidated damages and not as a penalty, by reason of
any such delay in or reduction of its ability to sell the Conversion Shares, an
amount in cash equal to one (1.0%) percent of the $550,000 aggregate principal
amount of the Note on the day of a Public Information Failure or Process
Failure, as applicable, and on every thirtieth (30th) day (pro rated for periods
totaling less than thirty (30) days), thereafter, until (a) in the case of a
Process Failure, the date such Process Failure is cured, or (b) in the case of a
Public Information Failure, the date such Public Information Failure is cured. 
Notwithstanding anything to the contrary provided herein, liquidated damages for
each Process Failure or Public Information Failure shall not (i) commence to
accrue for a period of 5 days from the date of any such Process Failure and/or
Public Information Failure, and (ii) shall not exceed ten (10%) percent of
$550,000 in the aggregate for all such Process Failures or Public Information
Failures.  The payments to which the Lender shall be entitled pursuant to this
Section 6.20 are referred to herein as “Rule 144 Failure Payments”. Rule 144
Failure Payments shall be paid on the earlier of (i) the last day of the
calendar month during which such Rule 144 Failure Payments are incurred and (ii)
the third (3rd) Trading Day after the event or failure giving rise to the Rule
144 Failure Payments is cured.

ARTICLE 7.

REPRESENTATIONS AND WARRANTIES OF THE LENDER

 

Section 7.1.

Authorization.  The Lender has full power and authority to enter into this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby and has taken all action necessary to authorize
the execution and delivery of this Agreement, the performance of its obligations
hereunder and thereunder and the consummation of the transactions contemplated
hereby and thereby.

 

Section 7.2.

Accredited Investor Status; Investment Experience. The Lender is an “accredited
investor” as that term is defined in Rule 501(a) of Regulation D.

 

Section 7.3.

Reliance on Exemptions.  The Lender understands that the Note is being offered
and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Borrower is relying in part upon the truth and accuracy of, and the Lender’s
compliance with, the representations and warranties of the Lender set forth
herein in order to determine the availability of such exemptions and the
eligibility of the Lender to acquire the Note.

 

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Section 7.4.

Transfer or Resale.  Lender understands that: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless
(A) subsequently registered thereunder, (B) the Lender shall have delivered to
the Borrower an opinion of counsel, in a form reasonably acceptable to the
Borrower, to the effect that such Securities to be sold, assigned or transferred
may be sold, assigned or transferred pursuant to an exemption from such
registration, or (C) the Lender provides the Borrower with reasonable assurance
that such Securities can be sold, assigned or transferred pursuant to Rule 144
or Rule 144A promulgated under the 1933 Act, as amended, (or a successor
rule thereto) (collectively, “Rule 144”); (ii) any sale of the Securities made
in reliance on Rule 144 may be made only in accordance with the terms of
Rule 144 and further, if Rule 144 is not applicable, any resale of the
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 1933 Act) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (iii) except as
otherwise provided in the Documents, neither the Borrower nor any other Person
is under any obligation to register the Securities under the 1933 Act or any
state securities laws or to comply with the terms and conditions of any
exemption thereunder.  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 and such pledge of Securities shall not be
deemed to be a transfer, sale or assignment of the Securities hereunder, and the
Lender in effecting a pledge of Securities shall not be required to provide the
Borrower with any notice thereof or otherwise make any delivery to the Borrower
pursuant to this Agreement or any other Document, including, without limitation,
this Section 7.11. 

 

Section 7.5.

Legends.  Lender understands that the certificates or other instruments
representing the Notes and, until such time as the resale of the Conversion
Shares, have been registered under the 1933 Act, the stock certificates
representing the Conversion Shares, except as set forth below, 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 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, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, 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.

 

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The legend set forth above shall be removed and the Borrower shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped or issue to such holder by electronic delivery at the applicable balance
account at DTC, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale, assignment or other transfer, such holder provides the Borrower with an
opinion of counsel, in a form reasonably acceptable to the Borrower, to the
effect that such sale, assignment or transfer of the Securities may be made
without registration under the applicable requirements of the 1933 Act, or
(iii) the Securities can be sold, assigned or transferred pursuant to Rule 144
and without the requirement to be in compliance with Rule 144(c)(1) or
Rule 144A.  The Borrower shall be responsible for the fees of its transfer agent
and all DTC fees associated with such issuance.

 

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first above written.

 

LENDER:

[ _______________ ]

 

By:                           
Name:
Title:

 

BORROWER:

BLUE CALYPSO, INC.

 

 

By:                           
Name: Andrew Levi

Title: Chief Executive Officer

 

 

EXISTING SUBSIDIARIES:

BLUE CALYPSO HOLDINGS, INC.

By:                           
Name: Andrew Levi
Title: Chief Executive Officer

 

BLUE CALYPSO, LLC.

 

By:                           
Name: Andrew Levi
Title: Chief Executive Officer

 

BLUE CALYPSO LATIN AMERICA S.A.

 

By:                           
Name: Andrew Levi
Title: Chief Executive Officer

 

 

 

SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT

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EXHIBIT A

Form of TA Letter

 

 

 

 

 

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EXHIBIT B

 

Form of Note