Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT, dated as of October 3, 2012 (this
“Agreement”), by and among Stratus Media Group, Inc., a Nevada corporation with
headquarters located at 1800 Century Park East, 6th Floor, Los Angeles,
California 90067 (the “Company”), and each investor identified on the signature
pages hereto (individually, an “Investor” and, collectively, the “Investors”).

 

BACKGROUND

 

A. The Company and each Investor are executing and delivering this Agreement in
reliance upon the exemption from registration afforded by Section 4(2) of the
Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of
Regulation D (“Regulation D”) as promulgated by the United States Securities and
Exchange Commission (the “SEC”) under the Securities Act.

 

B. The Company has authorized a series of convertible preferred shares of the
Company designated as Series E Convertible Preferred Stock, par value $0.001 per
share, the terms of which are set forth in the certificate of designations for
such series of preferred shares (the “Certificate of Designations”) in the form
attached hereto as Exhibit A (together with any convertible preferred shares
issued in replacement thereof in accordance with the terms thereof, the
“Preferred Shares”), which Preferred Shares shall be convertible under certain
conditions into shares of the Company’s common stock, $0.001 par value per share
(the “Common Stock”), in accordance with the terms of the Certificate of
Designations. The shares of Common Stock issued upon conversion of the Preferred
Shares are referred to herein, collectively, as the “Conversion Shares.” It is
understood that the Certificate of Designation will be amended to increase the
authorized shares to be issued thereunder and reduce the Conversion Price from
$0.40 to $0.30 (the “Certificate Amendment”).

 

C. Each Investor, severally and not jointly, wishes to purchase, and the Company
wishes to sell, upon the terms and conditions stated in this Agreement, (i) that
aggregate number of Preferred Shares set forth on such Investor’s signature page
to this Agreement, (which aggregate amount for all Investors together shall be
Preferred Shares, (ii) warrants, in substantially the form attached hereto as
Exhibit B (the “A Warrants”) to acquire up to one (1) additional share of Common
Stock for each share of Common Stock issuable upon conversion of the Preferred
Shares, as set forth on such Investor’s signature page hereto, and (iii)
warrants, in substantially the form attached hereto as Exhibit C (the “B
Warrants”, and, together with the A Warrants, the “Warrants”) to acquire up to
0.50 additional shares of Common Stock for each share of Common Stock issuable
upon conversion of the Preferred Shares, as set forth on such Investor’s
signature page to this Agreement (the shares of Common Stock issuable upon
exercise of or otherwise pursuant to the Warrants issued to the Investors,
collectively, the “Warrant Shares”).

 

D. The Preferred Shares, the Conversion Shares, the Warrants and the Warrant
Shares issued or issuable pursuant to this Agreement are collectively are
referred to herein as the “Securities.”

 

 

 

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and each of the Investors
(severally) agree as follows:

 

ARTICLE I
DEFINITIONS

 

1.1 Definitions. In addition to the terms defined elsewhere in this Agreement,
the following terms have the meanings indicated:

 

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144 under the
Securities Act.

 

“Agent” has the meaning set forth in Section 3.1(l).

 

“Agreement” has the meaning set forth in the Preamble.

 

“A Warrants” has the meaning set forth in the Preamble.

 

“Best Efforts” means the efforts that a prudent person desirous of achieving a
result would use in similar circumstances to ensure that such result is achieved
as expeditiously as practical; provided, however, that an obligation to use Best
Efforts under this Agreement does not require the Company to dispose of or make
any change to its business, expend any material funds or incur any other
material burden.

 

“Business Day” means any day other than Saturday, Sunday, any day which shall be
a federal legal holiday in the United States or any day on which banking
institutions in The State of New York are authorized or required by law or other
governmental action to close.

 

“B Warrants” has the meaning set forth in the Preamble.

 

“Certificate of Designations” has the meaning set forth in the Preamble.

 

“Closing” means the closing of the purchase and sale of the Securities pursuant
to Article II.

 

“Closing Date” means the date and time of the Closing and shall be on such date
and time as is mutually agreed to by the Company and each Investor.

 

“Collateral” has the meaning ascribed to it in the Security Agreement.

 

“Common Stock” has the meaning set forth in the Preamble.

 

“Company” has the meaning set forth in the Preamble.

 

“Company Counsel” means TroyGould PC, counsel to the Company.

 

“Common Stock” has the meaning set forth in the Preamble.

 

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“Contingent Obligation” has the meaning set forth in Section 3.1(z).

 

“Conversion Shares” has the meaning set forth in the Preamble.

 

“Convertible Securities” means any stock or securities (other than Options)
convertible into or exercisable or exchangeable for Common Stock.

 

“Disclosure Materials” has the meaning set forth in Section 3.1(g).

 

“Effective Date” means the date that the Registration Statement is first
declared effective by the SEC.

 

“Effectiveness Period” has the meaning set forth in Section 6.1(b).

 

“8-K Filing” has the meaning set forth in Section 4.5.

 

“Eligible Market” means any of the New York Stock Exchange, the American Stock
Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ
Capital Market or OTC Bulletin Board.

 

“Environmental Laws” has the meaning set forth in Section 3.1(cc).

 

“Event” has the meaning set forth in Section 6.1(d).

 

“Event Payments” has the meaning set forth in Section 6.1(d).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Excluded Events” has the meaning set forth in Section 6.1(d)(ii).

 

“Excluded Securities” means shares of Common Stock (i) reserved for issuance to
employees, officers, directors, consultants or advisers pursuant to an equity
incentive plan approved by the Board of Directors of the Company; (ii) subject
to Options and Convertible Securities outstanding as of the date hereof; (iii)
issued or deemed issued upon issuance of the Preferred Shares or upon conversion
of the Preferred Shares, (iv) issued or deemed to be issued upon the payment of
any dividend in respect of any Convertible Securities of the Company, and (iv)
issued in connection with mergers, acquisitions, and other similar transactions,
other than any transaction with a principal purpose of providing financing to
the Company.

 

“Filing Date” means the date that is ninety (90) days after the Closing Date or,
if such date is not a Business Day, the next date that is a Business Day.

 

“GAAP” has the meaning set forth in Section 3.1(g).

 

“Grantor” has the meaning ascribed to it in the Security Agreement.

 

“Hazardous Materials” has the meaning set forth in Section 3.1(cc).

 

“Indebtedness” has the meaning set forth in Section 3.1(z).

 

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“Indemnified Party” has the meaning set forth in Section 6.4(c).

 

“Indemnifying Party” has the meaning set forth in Section 6.4(c).

 

“Insolvent” has the meaning set forth in Section 3.1(h).

 

“Intellectual Property Rights” has the meaning set forth in Section 3.1(s).

 

“Investor” has the meaning set forth in the Preamble.

 

“Lien” means any lien, charge, claim, security interest, encumbrance or, with
respect to any security, any purchase option, call or similar right.

 

“Losses” means any and all losses, claims, damages, liabilities, settlement
costs and expenses, including, without limitation, reasonable attorneys’ fees.

 

“Material Adverse Effect” means (i) a material adverse effect on the operations,
results of operations, assets, business, properties or financial condition of
the Company and its Subsidiaries, taken as a whole on a consolidated basis, or
(ii) material and adverse impairment of the Company’s ability to perform its
obligations under any of the Transaction Documents, provided, that none of the
following alone shall be deemed, in and of itself, to constitute a Material
Adverse Effect: (i) a change in the market price or trading volume of the Common
Stock or (ii) changes in general economic conditions or changes affecting the
industry in which the Company operates generally (as opposed to Company-specific
changes) so long as such changes do not have a disproportionate effect on the
Company and its Subsidiaries taken as a whole.

 

“Material Permits” has the meaning set forth in Section 3.1(u).

 

“Offered Securities” has the meaning set forth in Section 4.7.

 

“Options” means any outstanding rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.

 

“Person” has the meaning set forth in Section 3.1(z).

 

“Preemptive Offer” has the meaning set forth in Section 4.7.

 

“Preemptive Offer Acceptance Notice” has the meaning set forth in Section 4.7.

 

“Preemptive Offer Period” has the meaning set forth in Section 4.7.

 

“Preferred Shares” has the meaning set forth in the Preamble.

 

“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, a partial proceeding, such as a deposition),
whether commenced or threatened in writing.

 

“Pro Rata Allotment” has the meaning set forth in Section 4.7.

 

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“Prospectus” means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by the
Registration Statement, and all other amendments and supplements to the
Prospectus including post-effective amendments, and all material incorporated by
reference or deemed to be incorporated by reference in such Prospectus.

 

“Qualified Public Offering” means a bona fide underwritten public offering of
Common Stock or Convertible Securities by the Company.

 

“Qualifying Investor” has the meaning set forth in Section 4.7.

 

“Registrable Securities” means (i) the Conversion Shares issued or issuable upon
conversion of the Preferred Shares, (ii) the Warrant Shares issued or issuable
upon exercise of the Warrants, and (iii) any share capital of the Company issued
or issuable, with respect to the Conversion Shares, the Preferred Shares, the
Warrant Shares or the Warrants as a result of any share split, share dividend,
recapitalization, exchange or similar event or otherwise, without regard to any
limitations on conversions of the Preferred Shares or exercises of the Warrants.

 

“Registration Statement” means each registration statement required to be filed
under Article VI, including (in each case) the Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference in such registration
statement.

 

“Regulation D” has the meaning set forth in the Preamble.

 

“Required Effectiveness Date” means (i) if the Registration Statement does not
become subject to review by the SEC, the date which is the earlier of (a) ninety
(90) days after the Closing Date or (b) five (5) Trading Days after the Company
receives notification from the SEC that the Registration Statement will not
become subject to review, or (ii) if the Registration Statement becomes subject
to review by the SEC, the date which is the earliest of (a) one-hundred fifty
(150) days after the Closing Date or (b) five (5) Trading Days after the Company
receives notification from the SEC that the SEC has no further comment to the
Registration Statement.

 

“Rule 144,” “Rule 415,” and “Rule 424” means Rule 144, Rule 415 and Rule 424,
respectively, promulgated by the SEC pursuant to the Securities Act, as such
Rules may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC having substantially the same effect as such Rule.

 

“SEC” has the meaning set forth in the Preamble.

 

“SEC Reports” has the meaning set forth in Section 3.1(g).

 

“Secured Obligation” has the meaning ascribed to it in the Security Agreement.

 

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“Securities” has the meaning set forth in the Preamble.

 

“Securities Act” has the meaning set forth in the Preamble.

 

“Security Agreement” means that certain Security Agreement, dated as of the date
hereof, among the grantors signatory thereto and Isaac Blech, in his capacity as
Collateral Agent.

 

“Short Sales” has the meaning set forth in Section 3.2(h).

 

“Subsidiary” means any direct or indirect subsidiary of the Company that is a
“significant subsidiary” as defined in Rule 1-07(w) of Regulation S-X
promulgated by the SEC.

 

“Trading Day” means (i) a day on which the Common Stock is traded on a Trading
Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is not
listed or quoted on a Trading Market (other than the OTC Bulletin Board), a day
on which the Common Stock is traded in the over-the-counter market, as reported
by the OTC Bulletin Board, or (iii) if the Common Stock is not listed or quoted
on any Trading Market, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the Pink Sheets LLC (or any similar
organization or agency succeeding to its functions of reporting prices);
provided, that in the event that the Common Stock is not listed or quoted as set
forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

 

“Trading Market” means whichever of the New York Stock Exchange, the American
Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the
NASDAQ Capital Market or OTC Bulletin Board on which the Common Stock is listed
or quoted for trading on the date in question.

 

“Transaction” has the meaning set forth in Section 3.2(h).

 

“Transaction Documents” means this Agreement, the schedules and exhibits
attached hereto, the Warrants, the Certificate of Designations, the Security
Agreement and the Transfer Agent Instructions.

 

“Transfer Agent” means Stalt Inc., or any successor transfer agent for the
Company.

 

“Transfer Agent Instructions” means, with respect to the Company, the
irrevocable Transfer Agent Instructions, in the form of Exhibit G, executed by
the Company and delivered to and acknowledged in writing by the Transfer Agent.

 

“Warrants” has the meaning set forth in the Preamble.

 

“Warrant Shares” has the meaning set forth in the Preamble.

 

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ARTICLE II
PURCHASE AND SALE

 

2.1 Closing. Subject to the terms and conditions set forth in this Agreement, at
the Closing the Company shall issue and sell to each Investor, and each Investor
shall, severally and not jointly, purchase from the Company, such number of
Preferred Shares and Warrants for the price set forth on such Investor’s
signature page to this Agreement. The date and time of the Closing and shall be
10:00 a.m., Los Angeles Time, on the Closing Date. The Closing shall take place
at the offices of the Company’s Counsel.

 

2.2 Closing Deliveries.

 

(a) At the Closing, the Company shall deliver or cause to be delivered to each
Investor the following:

 

(i) a copy of the Company’s Transfer Agent Instructions;

 

(ii) the Warrants, issued in the name of such Investor, pursuant to which such
Investor shall have the right to acquire such number of Warrant Shares set forth
on such Investor’s signature page to this Agreement, registered in the name of
such Investor;

 

(iii) a counterpart signature page to the Security Agreement, in the form of
Exhibit D, executed and delivered by the Company to the Investors;

 

(iv) a certificate of the Secretary of the Company, dated as of the Closing
Date, (a) certifying the resolutions adopted by the Board of Directors of the
Company approving the transactions contemplated by this Agreement and the other
Transaction Documents and the issuance of the Securities, (b) certifying the
current versions of the articles of incorporation, as amended, and by-laws of
the Company and (c) certifying as to the signatures and authority of persons
signing the Transaction Documents and related documents on behalf of the
Company;

 

(v) a certificate of the Chief Executive Officer or Chief Financial Officer of
the Company, dated as of the Closing Date, certifying to the fulfillment of the
conditions specified in Section 5.1(a) and (b);

 

(vi) financing statements on Form UCC-1 for the States of California, Nevada and
Delaware covering the Collateral and setting forth the Investors as secured
parties with respect to such Collateral, executed and delivered by the Company
to the Investors; and

 

(vii) the Certificate Amendment.

 

(b) At the Closing, each Investor shall deliver or cause to be delivered to the
Company the purchase price set forth on such Investor’s signature page to this
Agreement in United States dollars and in immediately available funds, by wire
transfer to an account designated in writing to such Investor by the Company for
such purpose.

 

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ARTICLE III

REPRESENTATIONS AND WARRANTIES

 

3.1 Representations and Warranties of the Company. The Company hereby represents
and warrants to each of the Investors as follows (which representations and
warranties shall be deemed to apply, where appropriate, to each Subsidiary of
the Company):

 

(a) Subsidiaries. Except as set forth on Schedule 3.1(a), the Company owns or
controls, directly or indirectly, all of the capital stock or comparable equity
interests of each Subsidiary free and clear of any Lien, and all issued and
outstanding shares of capital stock or comparable equity interest of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights; and the Company owns or controls, directly or
indirectly, only the corporations, partnerships, limited liability partnerships,
limited liability companies, associations or other entities set forth on
Schedule 3.1(a) hereto (each, a “Subsidiary”).

 

(b) Organization and Qualification. Except as set forth on Schedule 3.1(b), the
Company and each Subsidiary is an entity duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, with the
requisite legal authority to own and use its properties and assets and to carry
on its business as currently conducted. Neither the Company nor any Subsidiary
is in violation of any of the provisions of its respective certificate or
articles of incorporation, bylaws Certificate of Designations or other
organizational or charter documents. The Company and each Subsidiary is duly
qualified to do business and is in good standing as a foreign corporation or
other entity in each jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, would not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect.

 

(c) Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
each of the Transaction Documents to which it is a party and otherwise to carry
out its obligations hereunder and thereunder. The execution and delivery of each
of the Transaction Documents to which it is a party by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of the Company and
no further consent or action is required by the Company, its Board of Directors
or its stockholders. Each of the Transaction Documents to which it is a party
has been (or upon delivery will be) duly executed by the Company and is, or when
delivered in accordance with the terms hereof, will constitute, the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, receivership, fraudulent
conveyance or transfer, preferential transfer, moratorium and other laws of
general application affecting enforcement of creditors’ rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies, regardless of whether such
enforcement is considered in a proceeding in equity or at law, and (iii) insofar
as indemnification and contribution provisions may be limited by applicable law.

 

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(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents to which the Company is a party by the Company and the consummation by
the Company of the transactions contemplated hereby and thereby (including,
without limitation, the issuance of the Preferred Shares and the Warrants, and
the reservation for issuance of the Conversion Shares and Warrant Shares) do
not, and will not, (i) conflict with or violate any provision of the Company’s
or any Subsidiary’s certificate or articles of incorporation, bylaws or other
organizational or charter documents, (ii) conflict with, or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any agreement,
credit facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) or other understanding to which the Company or any Subsidiary
is a party or by which any property or asset of the Company or any Subsidiary is
bound, or affected, except to the extent that such conflict, default,
termination, amendment, acceleration or cancellation right would not reasonably
be expected to have a Material Adverse Effect, or (iii) result in a violation of
any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or any
Subsidiary is subject (including, assuming the accuracy of the representations
and warranties of the Investors set forth in Section 3.2 hereof, federal and
state securities laws and regulations and the rules and regulations of any
self-regulatory organization to which the Company or its securities are subject,
including all applicable Trading Markets), or by which any property or asset of
the Company or any Subsidiary are bound or affected, except to the extent that
such violation would not reasonably be expected to have a Material Adverse
Effect.

 

(e) The Securities. The Securities are duly authorized and, when issued and paid
for in accordance with the applicable Transaction Documents, will be duly and
validly issued, fully paid and nonassessable, free and clear of all taxes, Liens
and charges with respect to the issue thereof and will not be subject to
preemptive or similar rights of stockholders (other than those imposed by the
Investors), and the Preferred Shares shall be entitled to the rights and
preferences set forth in the Certificate of Designations. The Company has
reserved from its duly authorized capital stock the maximum number of shares of
Common Stock issuable upon exercise of the Warrants and the conversion of the
Preferred Shares.

 

(f) Capitalization. The aggregate number of shares and type of all authorized,
issued and outstanding classes of capital stock, options and other securities of
the Company (whether or not presently convertible into or exercisable or
exchangeable for shares of capital stock of the Company) as of the date hereof
is set forth in Schedule 3.1(f)(i) hereto. All outstanding shares of capital
stock are duly authorized, validly issued, fully paid and nonassessable and have
been issued in compliance in all material respects with all applicable
securities laws. Except as disclosed in Schedule 3.1(f)(ii) hereto, the Company
did not have outstanding at September 30, 2012 any other Options, script rights
to subscribe to, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or exercisable or
exchangeable for, or entered into any agreement giving any Person any right to
subscribe for or acquire, any Preferred Shares or shares of Common Stock, or
securities or rights convertible, exercisable or exchangeable into shares of
Common Stock (other than the Preferred Shares and Warrants). Except as set forth
on Schedule 3.1(f)(iii) hereto, and except for customary adjustments as a result
of stock dividends, stock splits, combinations of shares, reorganizations,
recapitalizations, reclassifications or other similar events, there are no
anti-dilution or price adjustment provisions contained in any security issued by
the Company (or in any agreement providing rights to security holders) and the
issuance and sale of the Securities will not obligate the Company to issue
Preferred Shares or shares of Common Stock or other securities to any Person
(other than the Investors) and will not result in a right of any holder of
securities to adjust the exercise, conversion, exchange or reset price under
such securities. To the knowledge of the Company, except as disclosed in the SEC
Reports and any Schedules 13D or 13G filed with the SEC pursuant to Rule 13d-1
of the Exchange Act by reporting persons or in Schedule 3.1(f)(iv) hereto, no
Person or group of related Persons beneficially owns (as determined pursuant to
Rule 13d-3 under the Exchange Act), or has the right to acquire, by agreement
with or by obligation binding upon the Company, beneficial ownership of in
excess of 5% of the outstanding Common Stock.

 

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(g) SEC Reports; Financial Statements. Except as set forth on Schedule 3.1(g)
hereto, the Company has filed all reports required to be filed by it under the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the
twelve (12) months preceding the date hereof on a timely basis or has received a
valid extension of such time of filing and has filed any such SEC Reports prior
to the expiration of any such extension and has filed all reports required to be
filed by it under the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof, for the two years preceding the date hereof. Such reports required to
be filed by the Company under the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, together with any materials filed or furnished
by the Company under the Exchange Act, whether or not any such reports were
required being collectively referred to herein as the “SEC Reports” and,
together with this Agreement and the Schedules to this Agreement, the
“Disclosure Materials.” As of their respective dates (or, if amended or
superseded by a filing prior to the Closing Date, then on the date of such
filing), the SEC Reports filed by the Company complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the SEC promulgated thereunder, and none of the SEC Reports,
when filed (or, if amended or superseded by a filing prior to the Closing Date,
then on the date of such filing) by the Company, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and regulations
of the SEC with respect thereto as in effect at the time of filing (or, if
amended or superseded by a filing prior to the Closing Date, then on the date of
such filing). Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis during the periods involved (“GAAP”), except as may be otherwise specified
in such financial statements, the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP or may be
condensed or summary statements, and fairly present in all material respects the
consolidated financial position of the Company and its consolidated Subsidiaries
as of and for the dates thereof and the results of operations and cash flows for
the periods then ended, subject, in the case of unaudited statements, to normal,
year-end audit adjustments. All material agreements to which the Company or any
Subsidiary is a party or to which the property or assets of the Company or any
Subsidiary are subject are included as part of or identified in the SEC Reports,
to the extent such agreements are required to be included or identified pursuant
to the rules and regulations of the SEC.

 

(h) Material Changes; Undisclosed Events, Liabilities or Developments; Solvency.
Since the date of the latest audited financial statements included within the
SEC Reports, except as disclosed in the SEC Reports or in Schedule 3.1(h)
hereto, (i) there has been no event, occurrence or development that,
individually or in the aggregate, has had or that would result in a Material
Adverse Effect, (ii) the Company has not incurred any material liabilities other
than (A) trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required to be
reflected in the Company’s financial statements pursuant to GAAP or required to
be disclosed in filings made with the SEC, (iii) the Company has not altered its
method of accounting or changed its auditors, except as disclosed in its SEC
Reports, (iv) the Company has not declared or made any dividend or distribution
of cash or other property to its stockholders, in their capacities as such, or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock, and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Company
stock-based plans or pursuant to authorization from the board of directors. The
Company has not taken any steps to seek protection pursuant to any bankruptcy
law nor does the Company have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings or any actual
knowledge of any fact which would reasonably lead a creditor to do so.

 

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(i) Absence of Litigation. Except as disclosed in the SEC Reports or in Schedule
3.1(i) hereto, there is no action, suit, claim, or Proceeding, or, to the
Company’s knowledge, inquiry or investigation, before or by any court, public
board, government agency, self-regulatory organization or body pending or, to
the knowledge of the Company, threatened against or affecting the Company or any
Subsidiary that could, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.

 

(j) Compliance. Except as would not, individually or in the aggregate,
reasonably be expected to have or result in a Material Adverse Effect or as
disclosed in Schedule 3.1(j) hereto, (i) neither the Company nor any Subsidiary
is in default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received written notice of a claim that it is in default under or
that it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been waived),
(ii) neither the Company nor any Subsidiary is in violation of any order of any
court, arbitrator or governmental body, or (iii) neither the Company nor any
Subsidiary is or has been in violation of any statute, rule or regulation of any
governmental authority.

 

(k) Title to Assets. Schedule 3.1(k)(i) hereto lists all real property owned by
the Company or any Subsidiary. The Company and each Subsidiary has good and
marketable title in all real and personal property owned by them that is
material to the business of the Company and each Subsidiary, in each case free
and clear of all Liens, except for Liens that do not, individually or in the
aggregate, have or result in a Material Adverse Effect or Liens described on
Schedule 3.1(k)(ii). Any real property and facilities held under lease by the
Company or any Subsidiary is held by it under valid, subsisting and enforceable
leases of which the Company and each Subsidiary is in material compliance.

 

(l) No General Solicitation; Placement Agent’s Fees. Neither the Company, nor
any of its Affiliates, nor any Person acting on its or their 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
Company shall be responsible for the payment of any placement agent’s fees,
financial advisory fees, or brokers’ commission (other than for persons engaged
by any Investor or its investment advisor) relating to or arising out of the
issuance of the Securities pursuant to this Agreement. The Company shall pay,
and hold each Investor harmless against, any liability, loss or expense
(including, without limitation, reasonable attorney’s fees and out-of-pocket
expenses) arising in connection with any such claim for fees arising out of the
issuance of the Securities pursuant to this Agreement.

 

11

 

 

(m) Private Placement; Investment Company; U.S. Real Property Holding
Corporation. Neither the Company nor any of its Affiliates nor, any Person
acting on the Company’s behalf has, directly or indirectly, at any time within
the past six months, made any offer or sale of any security or solicitation of
any offer to buy any security under circumstances that would (i) eliminate the
availability of the exemption from registration under Regulation D under the
Securities Act in connection with the offer and sale by the Company of the
Securities as contemplated hereby or (ii) cause the offering of the Securities
pursuant to the Transaction Documents to be integrated with prior offerings by
the Company for purposes of any applicable law, regulation or stockholder
approval provisions, including, without limitation, under the rules and
regulations of any Trading Market. Assuming the accuracy of the representations
and warranties of the Investors set forth in Section 3.2, no registration under
the Securities Act is required for the offer and sale of the Securities by the
Company to the Investors as contemplated hereby. The sale and issuance of the
Securities hereunder does not contravene the rules and regulations of any
Trading Market on which the Common Stock is listed or quoted. The Company is not
required to be registered as, and is not an Affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.
The Company is not required to be registered as a United States real property
holding corporation within the meaning of the Foreign Investment in Real
Property Tax Act of 1980.

 

(n) Listing and Maintenance Requirements. The Company has not, in the twelve
months preceding the date hereof, received notice (written or oral) from any
Trading Market on which the Common Stock is or has been listed or quoted to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such listing and maintenance requirements.

 

(o) Registration Rights. Except as described in Schedule 3.1(o), the Company has
not granted or agreed to grant to any Person any rights (including “piggy-back”
registration rights) to have any securities of the Company registered with the
SEC or any other governmental authority that have not expired or been satisfied
or waived.

 

(p) Application of Takeover Protections. The Company and its Board of Directors
have taken all necessary action, if any, to render inapplicable any control
share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the
Company’s charter documents or the laws of its state of incorporation that is or
could become applicable to any of the Investors as a result of the Investors and
the Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including, without limitation, as a result of the
Company’s issuance of the Securities and the Investors’ ownership of the
Securities.

 

12

 

 

(q) Disclosure. The Company confirms that neither it nor any officers, directors
or Affiliates, has provided any of the Investors (other than those certain
Investors who signed a confidentiality agreement with the Company) or their
agents or counsel with any information that constitutes or might constitute
material, nonpublic information (other than the existence and terms of the
issuance of Securities, as contemplated by this Agreement). The Company
understands and confirms that each of the Investors (other than those certain
investors who signed a confidentiality agreement with the Company) will rely on
the foregoing representations in effecting transactions in securities of the
Company. All disclosure provided by the Company to the Investors regarding the
Company, its business and the transactions contemplated hereby, including the
Schedules to this Agreement furnished by or on behalf of the Company, are true
and correct in all material respects 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 the light of the circumstances under which they
were made, not misleading. To the Company’s knowledge, except for the
transactions contemplated by this Agreement, no event or circumstance has
occurred or information exists with respect to the Company or any Subsidiary or
their businesses, properties, operations or financial condition, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed. The
Company acknowledges and agrees that no Investor makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those set forth in the Transaction Documents.

 

(r) Acknowledgment Regarding Investors’ Purchase of Securities. Based upon the
assumption that the transactions contemplated by this Agreement are consummated
in all material respects in conformity with the Transaction Documents, the
Company acknowledges and agrees that each of the Investors is acting solely in
the capacity of an arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby and thereby. The Company
further acknowledges that no Investor is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any advice given by any
Investor or any of their respective representatives or agents in connection with
the Transaction Documents and the transactions contemplated hereby and thereby
is merely incidental to the Investors’ purchase of the Securities. The Company
further represents to each Investor that the Company’s decision to enter into
this Agreement has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its advisors and
representatives.

 

(s) Patents and Trademarks. The Company and each Subsidiary owns, or possesses
adequate rights or licenses to use, all trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets and
other intellectual property rights (“Intellectual Property Rights”) necessary to
conduct their respective businesses as now conducted. None of the Company’s or
any Subsidiary’s Intellectual Property Rights have expired or terminated, or are
expected to expire or terminate within three years from the date of this
Agreement, which expiration or termination would be reasonably likely to have a
Material Adverse Effect. The Company does not have any knowledge of any
infringement by the Company or any Subsidiary of Intellectual Property Rights of
others. Except as disclosed in the SEC Reports or on Schedule 3.1(s) hereto,
there is no claim, action or proceeding being made or brought, or to the
knowledge of the Company, being threatened, against the Company or any
Subsidiary regarding its Intellectual Property Rights.

 

13

 

 

(t) Insurance. The Company and each Subsidiary is insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses and locations in which
the Company and each Subsidiary is engaged.

 

(u) Regulatory Permits. The Company and each Subsidiary possesses all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as presently conducted and described in the SEC Reports
(“Material Permits”), except where the failure to possess such permits does not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, and neither the Company nor any Subsidiary has received
any written notice of proceedings relating to the revocation or modification of
any Material Permit.

 

(v) Transactions With Affiliates and Employees. Except as set forth or
incorporated by reference in the Company’s SEC Reports or described in Schedule
3.1(v) hereto, none of the officers, directors or employees of the Company is
presently a party to any transaction with the Company that would be required to
be reported on Form 10-K by Item 12 thereof (other than for ordinary course
services as employees, officers or directors), including any contract, agreement
or other arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any such officer, director or employee or, to the
Company’s knowledge, any corporation, partnership, trust or other entity in
which any such officer, director, or employee has a substantial interest or is
an officer, director, trustee or partner.

 

(w) Internal Accounting Controls. The Company and each Subsidiary 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 accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

 

(x) Sarbanes-Oxley Act. The Company is in compliance in all material respects
with applicable requirements of the Sarbanes-Oxley Act of 2002 and applicable
rules and regulations promulgated by the SEC thereunder, except where such
noncompliance would not have, individually or in the aggregate, a Material
Adverse Effect.

 

(y) Foreign Corrupt Practices. Neither the Company nor any Subsidiary nor, to
the knowledge of the Company, any director, officer, agent, employee or other
Person acting on behalf of the Company or any Subsidiary has, in the course of
its actions for, or on behalf of, the Company (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 or to any
foreign or domestic political parties or campaigns from corporate funds; (iii)
violated or is in violation in any material respect 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.

 

14

 

 

(z) Indebtedness. Except as disclosed in the SEC Reports or on Schedule 3.1(z)
hereto, neither the Company nor any Subsidiary (i) has any outstanding
Indebtedness (as defined below), (ii) is in violation of any term of or is in
default under any contract, agreement or instrument relating to any
Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (iii) is a
party to any contract, agreement or instrument relating to any Indebtedness, the
performance of which, in the judgment of the Company’s officers, has or is
expected to have a Material Adverse Effect. For purposes of this Agreement: (x)
“Indebtedness” of any Person means, without duplication (A) all indebtedness for
borrowed money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (other than trade payables
entered into in the ordinary course of business), (C) all reimbursement or
payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above; (y) “Contingent Obligation” means, 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; and (z)
“Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization, a
government or any department or agency thereof and any other legal entity.

 

(aa) Employee Relations. Neither the Company nor any Subsidiary is a party to
any collective bargaining agreement or employs any member of a union. The
Company believes that its relations with its employees are as disclosed in the
SEC Reports. Except as disclosed in the SEC Reports, during the period covered
by the SEC Reports, no executive officer of the Company or any Subsidiary has
notified the Company or any Subsidiary that such officer intends to leave the
Company or a Subsidiary, as applicable, or otherwise terminate such officer’s
employment with the Company or a Subsidiary, as applicable, if such event is
reasonably likely to have Material Adverse Effect. To the knowledge of the
Company or any Subsidiary, no executive officer of the Company or any Subsidiary
is in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any Subsidiary to any liability with respect to any of
the foregoing matters.

 

15

 

 

(bb) Labor Matters. The Company and each Subsidiary is in compliance in all
material respects with all federal, state, local and foreign laws and
regulations respecting labor, employment and employment practices and benefits,
terms and conditions of employment and wages and hours, except where failure to
be in compliance would not, either individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect.

 

(cc) Environmental Laws. The Company and each Subsidiary (i) is in compliance in
all material respects with any and all Environmental Laws (as hereinafter
defined), (ii) has received all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective businesses
and (iii) is in compliance in all material respects with all terms and
conditions of any such permit, license or approval where, in each of the
foregoing clauses (i), (ii) and (iii), the failure to so comply would be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect. The term “Environmental Laws” means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, “Hazardous Materials”) into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.

 

(dd) Subsidiary Rights. The Company, directly or through one of its
Subsidiaries, 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.

 

(ee) Tax Status. The Company and each Subsidiary (i) has made or filed all
foreign, federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject, (ii) has paid
all taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and (iii) has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.

 

16

 

 

3.2 Representations and Warranties of the Investors. Each Investor hereby, as to
itself only and for no other Investor, severally and not jointly represents and
warrants to the Company as follows:

 

(a) Organization; Authority. Such Investor is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate, partnership or other power and
authority to enter into and to consummate the transactions contemplated by the
Transaction Documents and otherwise to carry out its obligations hereunder and
thereunder. The purchase by such Investor of the Securities hereunder has been
duly authorized by all necessary corporate, partnership or other action on the
part of such Investor. This Agreement has been duly executed and delivered by
such Investor and constitutes the valid and binding obligation of such Investor,
enforceable against it in accordance with its terms, except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.

 

(b) No Public Sale or Distribution. Such Investor is (i) acquiring the Preferred
Shares and the Warrants, (ii) upon conversion of the Preferred Shares will
acquire the Conversion Shares, and (iii) upon exercise of the Warrants will
acquire the Warrant Shares issuable upon exercise thereof, in each case in the
ordinary course of business for its own account and not with a view towards, or
for resale in connection with, the public sale or distribution thereof, except
pursuant to sales registered under the Securities Act or under an exemption from
such registration and in compliance with applicable federal and state securities
laws, and such Investor does not have a present arrangement to effect any
distribution of the Securities to or through any person or entity; provided,
however, that by making the representations herein, such Investor does not agree
to hold any of the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
or pursuant to a registration statement or an exemption under the Securities
Act.

 

(c) Investor Status. At the time such Investor was offered the Securities, it
was, at the date hereof it is, on the date which it exercises any Warrants and
on the date which it converts any Preferred Shares it will be, an “accredited
investor” as defined in Rule 501(a) under the Securities Act or a “qualified
institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such
Investor is not a registered broker dealer registered under Section 15(a) of the
Exchange Act, or a member of FINRA, Inc. or an entity engaged in the business of
being a broker dealer. Except as otherwise disclosed in writing to the Company
on Exhibit E-2 (attached hereto) on or prior to the date of this Agreement, such
Investor is not affiliated with any broker dealer registered under Section 15(a)
of the Exchange Act, or a member of FINRA, Inc. or an entity engaged in the
business of being a broker dealer.

 

17

 

 

(d) General Solicitation. Such Investor is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media, broadcast
over television or radio, disseminated over the Internet or presented at any
seminar or any other general solicitation or general advertisement.

 

(e) Experience of Such Investor. Such Investor, either alone or together with
its representatives has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment. Such Investor understands that it must bear
the economic risk of this investment in the Securities indefinitely, and is able
to bear such risk and is able to afford a complete loss of such investment.

 

(f) No Governmental Review. Such Investor understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

 

(g) No Conflicts. The execution, delivery and performance by such Investor of
this Agreement and the consummation by such Investor of the transactions
contemplated hereby will not (i) result in a violation of the organizational
documents of such Investor or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which such Investor
is a party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws) applicable to
such Investor, except in the case of clauses (ii) and (iii) above, for such
violations, conflicts and defaults that are not material and do not otherwise
affect the ability of such Investor to consummate the transactions contemplated
hereby.

 

(h) Prohibited Transactions; Confidentiality. Neither such Investor, directly or
indirectly, nor Person acting on behalf of or pursuant to any understanding with
such Investor, has engaged in any purchases or sales (including, without
limitation, any Short Sales involving any of the Company’s securities) in the
securities, including derivatives, of the Company (a “Transaction”) since the
time that such Investor was first contacted by the Company, the Placement Agent
or any other Person regarding an investment in the Company. Such Investor
covenants that neither it nor any Person acting on its behalf or pursuant to any
understanding with such Investor will engage, directly or indirectly, in any
Transactions in the securities of the Company (including Short Sales) prior to
the time the transactions contemplated by this Agreement are publicly disclosed.
“Short Sales” include, without limitation, all “short sales” as defined in Rule
200 promulgated under Regulation SHO under the Exchange Act and all types of
direct and indirect stock pledges, forward sale contracts, options, puts, calls,
short sales, swaps, derivatives and similar arrangements (including on a total
return basis), and sales and other transactions through non-U.S. broker-dealers
or foreign regulated brokers.

 

18

 

 

(i) Restricted Securities; Reliance on Exemptions. Such Investor understands
that the Securities are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and, thus, are characterized as “restricted securities” under
the U.S. federal securities laws inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and that under such
laws and applicable regulations such securities may be resold without
registration under the Securities Act only in certain limited circumstances.
Such Investor further understands that the Company is relying in part upon the
truth and accuracy of, and each Investor’s compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the such Investor
set forth herein in order to determine the availability of such exemptions and
the eligibility of such Investor to acquire the Securities.

 

(j) Legends. It is understood that, except as provided in Section 4.1(b) of this
Agreement, certificates evidencing such Securities may bear the legend set forth
in Section 4.1(b).

 

(k) No Legal, Tax or Investment Advice. Such Investor understands that nothing
in this Agreement or any other materials presented by or on behalf of the
Company to the Investor in connection with the purchase of the Securities
constitutes legal, tax or investment advice. Such Investor has consulted such
legal, tax and investment advisors as it, in its sole discretion, has deemed
necessary or appropriate in connection with its purchase of the Securities. Such
Investor understands that the Placement Agent has acted solely as the agent of
the Company in this placement of the Securities, and that the Placement Agent
makes no representation or warranty with regard to the merits of this
transaction or as to the accuracy of any information such Investor may have
received in connection therewith. Such Investor acknowledges that he has not
relied on any information or advice furnished by or on behalf of the Placement
Agent.

 

ARTICLE IV

OTHER AGREEMENTS OF THE PARTIES

 

4.1 Transfer Restrictions.

 

(a) The Investors covenant that the Securities will only be disposed of pursuant
to an effective registration statement under, and in compliance with the
requirements of, the Securities Act or pursuant to an available exemption from
the registration requirements of the Securities Act, and in compliance with any
applicable state securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or to the Company, or
pursuant to Rule 144, the Company may require the transferor to provide to the
Company an opinion of counsel selected by the transferor, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration under the Securities Act.
Notwithstanding the foregoing, the Company hereby consents to and agrees to
register on the books of the Company and with its Transfer Agent, without any
such legal opinion, except to the extent that the transfer agent requests such
legal opinion, any transfer of Securities by an Investor to an Affiliate of such
Investor, provided that the transferee certifies to the Company that it is an
“accredited investor” as defined in Rule 501(a) under the Securities Act and
provided that such Affiliate does not request any removal of any existing
legends on any certificate evidencing the Securities.

 

19

 

 

(b) The Investors agree to the imprinting, until no longer required by this
Section 4.1(b), of the following legend on any certificate evidencing any of the
Securities:

 

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS. THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A
REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN
“ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR
OTHER LOAN SECURED BY SUCH SECURITIES.

 

Certificates evidencing the Preferred Shares and the Warrant Shares shall not be
required to contain such legend or any other legend (i) while a registration
statement (including the Registration Statement) covering the resale of the
Preferred Shares and the Warrant Shares is effective under the Securities Act,
(ii) following any sale of such Securities pursuant to Rule 144 if the holder
provides the Company with a legal opinion reasonably acceptable to the Company
to the effect that the Securities can be sold under Rule 144, (iii) if the
Securities are eligible for sale without any volume limitation under Rule 144,
or (iv) if the holder provides the Company with a legal opinion reasonably
acceptable to the Company to the effect that the legend is not required under
applicable requirements of the Securities Act (including controlling judicial
interpretations and pronouncements issued by the Staff of the SEC). The Company
shall cause its counsel to issue the legal opinion included in the Transfer
Agent Instructions to the Transfer Agent on the Effective Date. Following the
Effective Date and provided the registration statement referred to in clause (i)
above is then in effect, or at such earlier time as a legend is no longer
required for certain Securities, the Company will, no later than three Trading
Days following the delivery by an Investor to the Company or the Transfer Agent
(if delivery is made to the Transfer Agent a copy shall be contemporaneously
delivered to the Company) of (i) a legended certificate representing such
Securities (and, in the case of a requested transfer, endorsed or with stock
powers attached, signatures guaranteed, and otherwise in form necessary to
affect transfer), and (ii) an opinion of counsel to the extent required by
Section 4.1(a), deliver or cause to be delivered to such Investor a certificate
representing such Securities that is free from all restrictive and other
legends. The Company may not make any notation on its records or give
instructions to the Transfer Agent that enlarge the restrictions on transfer set
forth in this Section.

 

20

 

 

If, within three Trading Days after receipt by the Company or its Transfer Agent
of a legended certificate and the other documents as specified in Clauses (i)
and (ii) of the paragraph immediately above, the Company shall fail to cause to
be issued and delivered to such Investor a certificate representing such
Securities that is free from all restrictive and other legends, and if on or
after such Trading Day the Investor purchases (in an open market transaction or
otherwise) such Securities to deliver in satisfaction of a sale by the Investor
of such Securities that the Investor anticipated receiving from the Company
without any restrictive legend (the “Covering Shares”), then the Company shall,
within three Trading Days after the Investor’s request, pay cash to the Investor
in an amount equal to the excess (if any) of the Investor’s total purchase price
(including brokerage commissions, if any) for the Covering Shares, over the
product of (A) the number of Covering Shares, times (B) the closing bid price on
the date of delivery of such certificate and the other documents as specified in
Clauses (i) and (ii) of the paragraph immediately above.

 

(c) The Company will not object to and shall permit (except as prohibited by
law) an Investor to pledge or grant a security interest in some or all of the
Securities in connection with a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities to a
financial institution that is an “accredited investor” as defined in Rule 501(a)
under the Securities Act and who agrees to be bound by the provisions of this
Agreement, and if required under the terms of such arrangement, the Company will
not object to and shall permit (except as prohibited by law) such Investor to
transfer pledged or secured Securities to the pledgees or secured parties.
Except as required by law, such a pledge or transfer would not be subject to
approval of the Company, no legal opinion of the pledgee, secured party or
pledgor shall be required in connection therewith (but such legal opinion shall
be required in connection with a subsequent transfer or foreclosure following
default by the Purchaser transferee of the pledge), and no notice shall be
required of such pledge. Each Investor acknowledges that the Company shall not
be responsible for any pledges relating to, or the grant of any security
interest in, any of the Securities or for any agreement, understanding or
arrangement between any Investor and its pledgee or secured party. At the
appropriate Investor’s expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the Securities,
including the preparation and filing of any required prospectus supplement under
Rule 424(b)(3) of the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of Selling Stockholders
thereunder. Provided that the Company is in compliance with the terms of this
Section 4.1(c), the Company’s indemnification obligations pursuant to
Section 6.4 shall not extend to any Proceeding or Losses arising out of or
related to this Section 4.1(c).

 

4.2 Furnishing of Information. Until the date that each Investor no longer owns
any Preferred Shares or Warrant Shares, the Company covenants to use its
commercially reasonable efforts to timely file (or obtain extensions in respect
thereof and file within the applicable grace period) all reports required to be
filed by the Company pursuant to the Exchange Act.

 

4.3 Integration. The Company and its Subsidiaries shall not, and shall use their
commercially reasonable efforts to ensure that no Affiliate thereof shall, sell,
offer for sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in Section 2 of the Securities Act) that would be
integrated with the offer or sale of the Securities in a manner that would
require the registration under the Securities Act of the sale of the Securities
to the Investors or that would be integrated with the offer or sale of the
Securities for purposes of the rules and regulations of any Trading Market.

 

21

 

 

4.4 Reservation of Securities. The Company shall maintain a reserve from its
duly authorized capital stock for issuance pursuant to the Transaction Documents
in such amount as may be required to fulfill its obligations to issue such
Securities under the Transaction Documents. In the event that at any time the
then authorized shares of Common Stock are insufficient for the Company to
satisfy its obligations to issue such Securities under the Transaction
Documents, the Company shall promptly take such actions as may be required to
increase the number of authorized shares.

 

4.5 Securities Laws Disclosure; Publicity. The Company shall, at or before 9:00
a.m., New York time, by the fourth business day following execution of the
Closing, issue a press release disclosing all material terms of the transactions
contemplated hereby and shall file a Current Report on Form 8-K with the SEC
(the “8-K Filing”) describing the terms of the transactions contemplated by the
Transaction Documents and including as exhibits to such Current Report on Form 8
K the Transaction Documents (including the schedules and the names, and
addresses of the Investors and the amount(s) of Securities respectively
purchased) and the forms of Warrants, in the form required by the Exchange Act.
Thereafter, the Company shall timely file any filings and notices required by
the SEC or applicable law with respect to the transactions contemplated hereby
and provide copies thereof to the Investors promptly after filing. Except as
herein provided, neither the Company nor any Subsidiary shall publicly disclose
the name of any Investor, or include the name of any Investor in any press
release without the prior written consent of such Investor (which consent shall
not be unreasonably withheld or delayed), unless otherwise required by law,
regulatory authority or Trading Market. Neither the Company nor any Subsidiary
shall, nor shall any of their respective officers, directors, employees and
agents, provide any Investor with any material nonpublic information regarding
the Company or any Subsidiary from and after the issuance of the above
referenced press release without the express written consent of such Investor.

 

4.6 Use of Proceeds. The Company intends to use the net proceeds from the sale
of the Securities for working capital and general corporate purposes. Pending
these uses, the Company intends to invest the net proceeds from this offering in
short-term, interest-bearing, investment-grade securities, or as otherwise
pursuant to the Company’s customary investment policies.

 

4.7 Right of Participation. For so long as an Investor holds at least 1,000
Preferred Shares purchased hereunder, or such number of Conversion Shares into
which 1,000 Preferred Shares have been converted (a “Qualifying Investor”), at
any time that the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock such Qualifying Investor shall have a right to purchase up to that portion
of such offering (“Offered Securities”) equal to the proportion that the Common
Stock issued and held by, or issuable to (directly or indirectly upon conversion
of the Preferred Shares and cash exercise of the Warrants then held by such
Qualifying Investor) such Qualifying Investor bears to the total Common Stock of
the Company then outstanding (as determined on a fully-diluted basis) (such
Qualifying Investor’s “Pro Rata Allotment”); provided, however, that such
Qualifying Investor shall have no such right to purchase (i) any Excluded
Securities or (ii) any other securities issued in connection with a bank
financing or in a Qualified Public Offering. In order to effect such right, the
Company shall deliver to each Qualifying Investor a written notice (which notice
shall state the number or amount of the Offered Securities proposed to be
issued, the purchase price therefor and any other terms or conditions of the
proposed issuance (the “Preemptive Offer”)) of such issuance 20 days prior to
the date of the proposed issuance (the “Preemptive Offer Period”).

 

22

 

 

Each Qualifying Investor shall have the option, exercisable at any time during
the Preemptive Offer Period by delivering written notice to the Company (a
“Preemptive Offer Acceptance Notice”), to subscribe for the number of such
Offered Securities up to its Pro Rata Allotment.

 

If Preemptive Offer Acceptance Notices are not given by the Qualifying Investors
for all of the Offered Securities, then the Company may issue to the proposed
purchaser(s) all or any part of such Offered Securities as to which Preemptive
Offer Acceptances Notices have not been given by the Investors within ninety
(90) days after expiration of the Preemptive Offer Period in accordance with the
terms set forth in the Preemptive Offer. Upon the closing of the sale to the
proposed purchaser(s) of all or part of the Offered Securities as to which
Preemptive Offer Acceptances Notices have not been timely given by the
Qualifying Investors, the Qualifying Investors shall purchase from the Company,
and the Company shall sell to Qualifying Investors, the Offered Securities with
respect to which Preemptive Offer Acceptance Notices were delivered by the
Qualifying Investors, on the terms specified in the Preemptive Offer.

 

ARTICLE V
CONDITIONS

 

5.1 Conditions Precedent to the Obligations of the Investors. The obligation of
each Investor to acquire Securities at the Closing is subject to the
satisfaction or waiver by such Investor, at or before the Closing, of each of
the following conditions:

 

(a) Representations and Warranties. The representations and warranties of the
Company contained herein shall be true and correct in all material respects
(except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in all
respects) as of the date when made and as of the Closing as though made on and
as of such date; and

 

(b) Performance. The Company and each other Investor shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by the Transaction Documents to be performed, satisfied
or complied with by it at or prior to the Closing.

 

(c) No Suspensions of Trading in Common Stock; Listing. Trading in the Common
Stock shall not have been suspended by the SEC or any Trading Market (except for
any suspensions of trading of not more than one Trading Day solely to permit
dissemination of material information regarding the Company) at any time since
the date of execution of this Agreement, and the Common Stock shall have been at
all times since such date listed for trading on a Trading Market.

 

23

 

 

(d) Absence of Litigation. No action, suit or proceeding by or before any court
or any governmental body or authority, against the Company or any Subsidiary or
pertaining to the transactions contemplated by this Agreement or their
consummation, shall have been instituted after the date hereof and on or before
the Closing Date, which action, suit or proceeding is reasonably likely to have
a Material Adverse Effect.

 

(e) Certificate of Designations. The Certificate of Designations shall have been
duly adopted, executed and filed with the Secretary of State of the State of
Nevada. The Company shall not have adopted or filed any other documents
designating terms, relative rights or preferences of the Preferred Shares. The
Certificate Amendment shall be in full force and effect as of the Closing under
the laws of the State of Nevada and shall not have been amended or modified, and
a copy of the Certificate Amendment certified by the Secretary of State of
Nevada shall have been delivered to such Investor

 

5.2 Conditions Precedent to the Obligations of the Company. The obligation of
the Company to sell the Securities at the Closing is subject to the satisfaction
or waiver by the Company, at or before the Closing, of each of the following
conditions:

 

(a) Representations and Warranties. The representations and warranties of the
Investors contained herein shall be true and correct in all material respects as
of the date when made and as of the Closing Date as though made on and as of
such date; and

 

(b) Performance. The Investors shall have performed, satisfied and complied in
all material respects with all covenants, agreements and conditions required by
the Transaction Documents to be performed, satisfied or complied with by the
Investors at or prior to the Closing.

 

ARTICLE VI
REGISTRATION RIGHTS

 

6.1 Registration Statement.

 

(a) As promptly as possible, and in any event on or prior to the Filing Date,
the Company shall prepare and file with the SEC a Registration Statement
covering the resale of all Registrable Securities for an offering to be made on
a continuous basis pursuant to Rule 415. The Registration Statement shall be on
Form S-3 (except if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3, in which case such registration shall be on
another appropriate form in accordance with the Securities Act and the Exchange
Act) and shall contain (except if otherwise directed by the Investors or
requested by the SEC) the “Plan of Distribution” in substantially the form
attached hereto as Exhibit F.

 

24

 

 

(b) The Company shall use its reasonable best efforts to cause the Registration
Statement to be declared effective by the SEC as promptly as possible after the
filing thereof, but in any event prior to the Required Effectiveness Date, and
shall use its commercially reasonable efforts to keep the Registration Statement
continuously effective under the Securities Act until the earlier of the date
that all Registrable Securities covered by such Registration Statement have been
sold or can be sold publicly without any volume limitation under Rule 144 (the
“Effectiveness Period”); provided that, upon notification by the SEC that a
Registration Statement will not be reviewed or is no longer subject to further
review and comments, the Company shall request acceleration of such Registration
Statement within five (5) Trading Days after receipt of such notice and request
that it become effective at 4:00 p.m. New York City time on the Effective Date
and file a prospectus supplement for any Registration Statement, whether or not
required under Rule 424 (or otherwise), by 9:00 a.m. New York City time the day
after the Effective Date.

 

(c) The Company shall notify the Investors in writing promptly (and in any event
within two Trading Days) after receiving notification from the SEC that the
Registration Statement has been declared effective.

 

(d) Should an Event (as defined below) occur, then upon the occurrence of such
Event, and on every monthly anniversary thereof until the applicable Event is
cured, the Company shall pay to each Investor an amount in cash, as liquidated
damages and not as a penalty, equal to one percent (1.0%) of (i) the number of
Preferred Shares, Warrant Shares and Conversion Shares, as the case may be, held
by such Investor as of the date of such Event, multiplied by (ii) the purchase
price paid by such Investor for such Preferred Shares, Warrant Shares and
Conversion Shares, as the case may be, then held; provided, however, that the
total amount of payments made pursuant to this Section 6.1(d) shall not exceed,
when aggregated with all such payments paid to all Investors, ten percent (10%)
of the aggregate purchase price of the Securities purchased pursuant to this
Agreement; provided, further, that if, in the judgment of the holders of a
majority of the outstanding Preferred Shares, the Company is in good faith
pursuing and maintaining the effectiveness of a Registration Statement, the
total amount of the payments made pursuant to this Section 6.1(d) may be reduced
in such holders’ sole discretion or waived entirely. The payments to which an
Investor shall be entitled pursuant to this Section 6.1(d) are referred to
herein as “Event Payments.” Any Event Payments payable pursuant to the terms
hereof shall apply on a pro rated basis for any portion of a month prior to the
cure of an Event. In the event the Company fails to make Event Payments in a
timely manner, such Event Payments shall bear interest at the rate of one
percent (1.0%) per month (prorated for partial months) until paid in full. All
pro rated calculations made pursuant to this paragraph shall be based upon the
actual number of days in such pro rated month. Notwithstanding the foregoing,
the maximum payment to an Investor associated with all Events in the aggregate
shall not exceed (i) in any 30-day period, an aggregate of 1.0% of the purchase
price paid by such Investor for its Preferred Shares, Warrant Shares and
Conversion Shares then held (plus interest accrued thereon, if applicable) and
(ii) 10.0% of the purchase paid by such Investor for its Preferred Shares,
Warrant Shares and Conversion Shares then held.

 

For such purposes, each of the following shall constitute an “Event” (provided
that an Event described in (iii) or (v) below shall only be an Event with
respect to the Investor or Investors affected adversely thereby):

 

25

 

 

(i) the Registration Statement is not filed on or prior to the Filing Date;

 

(ii) the Registration Statement is not declared effective on or prior to the
Required Effectiveness Date;

 

(iii) with respect to an Investor, except as provided in Section 6.1(e) (the
“Excluded Events”), after the Effective Date and during the Effectiveness
Period, the Investor is not permitted to sell Registrable Securities under the
Registration Statement (or a subsequent Registration Statement filed in
replacement thereof) for any reason (other than the fault of such Investor) for
five (5) or more Trading Days (whether or not consecutive);

 

(iv) except as a result of the Excluded Events, the Common Stock is not listed
or quoted, or is suspended from trading, on an Eligible Market for a period of
three Trading Days (which need not be consecutive Trading Days) during the
Effectiveness Period;

 

(v) with respect to an Investor, the Company fails for any reason to deliver a
certificate evidencing any Securities to such Investor within five Trading Days
after delivery of such certificate is required pursuant to any Transaction
Document or the exercise rights of the Investors pursuant to the Warrants are
otherwise suspended for any reason; or

 

(vi) during the Effectiveness Period, except as a result of the Excluded Events,
the Company fails to have any shares of Common Stock listed or quoted on an
Eligible Market.

 

(e) Notwithstanding anything in this Agreement to the contrary, after sixty (60)
consecutive Trading Days of continuous effectiveness of the initial Registration
Statement filed and declared effective pursuant to this Agreement, the Company
may, by written notice to the Investors, suspend sales under a Registration
Statement after the Effective Date thereof and/or require that the Investors
immediately cease the sale of shares of Common Stock pursuant thereto and/or
defer the filing of any subsequent Registration Statement if the Company’s Board
of Directors determines in good faith, by appropriate resolutions, that, as a
result of such activity, (A) it would be materially detrimental to the Company
(other than as relating solely to the price of the Common Stock) to maintain a
Registration Statement at such time or (B) it is in the best interests of the
Company to suspend sales under such registration at such time. Upon receipt of
such notice, each Investor shall immediately discontinue any sales of
Registrable Securities pursuant to such registration until such Investor is
advised in writing by the Company that the current Prospectus or amended
Prospectus, as applicable, may be used. In no event, however, shall this right
be exercised to suspend sales beyond the period during which (in the good faith
determination of the Company’s Board of Directors) the failure to require such
suspension would be materially detrimental to the Company. The Company’s rights
under this Section 6(e) may be exercised for a period of no more than 20 Trading
Days at a time and not more than three times in any twelve-month period, without
such suspension being considered as part of an Event Payment determination.
Immediately after the end of any suspension period under this Section 6(e), the
Company shall take all necessary actions (including filing any required
supplemental prospectus) to restore the effectiveness of the applicable
Registration Statement and the ability of the Investors to publicly resell their
Registrable Securities pursuant to such effective Registration Statement.

 

26

 

 

(f) The Company shall not, from the date hereof until the Effective Date of the
Registration Statement, prepare and file with the SEC a registration statement
relating to an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than any registration
statement or post-effective amendment to a registration statement (or supplement
thereto) relating to the Company’s employee benefit plans registered on Form
S-8.

 

6.2 Registration Procedures. In connection with the Company’s registration
obligations hereunder, the Company shall:

 

(a) Not less than three Trading Days prior to the filing of a Registration
Statement or any related Prospectus or any amendment or supplement thereto,
furnish via email to those Investors who have supplied the Company with email
addresses copies of all such documents proposed to be filed, which documents
(other than any document that is incorporated or deemed to be incorporated by
reference therein) will be subject to the review of such Investors. The Company
shall reflect in each such document when so filed with the SEC such comments
regarding the Investors and the plan of distribution as the Investors may
reasonably and promptly propose no later than two Trading Days after the
Investors have been so furnished with copies of such documents as aforesaid.

 

(b) (i) Subject to Section 6.1(e), prepare and file with the SEC such
amendments, including post-effective amendments, to each Registration Statement
and the Prospectus used in connection therewith as may be necessary to keep the
Registration Statement continuously effective, as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the SEC such
additional Registration Statements in order to register for resale under the
Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424; (iii)
respond as promptly as reasonably possible, and in any event within 12 Trading
Days (except to the extent that the Company reasonably requires additional time
to respond to accounting comments), to any comments received from the SEC with
respect to the Registration Statement or any amendment thereto; and (iv) comply
in all material respects with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all Registrable Securities
covered by the Registration Statement during the applicable period in accordance
with the intended methods of disposition by the Investors thereof set forth in
the Registration Statement as so amended or in such Prospectus as so
supplemented.

 

(c) Notify the Investors as promptly as reasonably possible, and (if requested
by the Investors confirm such notice in writing no later than two Trading Days
thereafter, of any of the following events: (i) the SEC notifies the Company
whether there will be a “review” of any Registration Statement; (ii) the SEC
comments in writing on any Registration Statement; (iii) any Registration
Statement or any post-effective amendment is declared effective; (iv) the SEC or
any other Federal or state governmental authority requests any amendment or
supplement to any Registration Statement or Prospectus or requests additional
information related thereto; (v) the SEC issues any stop order suspending the
effectiveness of any Registration Statement or initiates any Proceedings for
that purpose; (vi) the Company receives notice of any suspension of the
qualification or exemption from qualification of any Registrable Securities for
sale in any jurisdiction, or the initiation or threat of any Proceeding for such
purpose; or (vii) the financial statements included in any Registration
Statement become ineligible for inclusion therein or any Registration Statement
or Prospectus or other document contains any untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.

 

27

 

 

(d) Use its commercially reasonable efforts to avoid the issuance of or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness of
any Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, as soon as possible.

 

(e) If requested by an Investor, provide such Investor without charge, at least
one conformed copy of each Registration Statement and each amendment thereto,
including financial statements and schedules, and all exhibits to the extent
requested by such Person (including those previously furnished or incorporated
by reference) promptly after the filing of such documents with the SEC.

 

(f) Promptly deliver to each Investor, without charge, as many copies of the
Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Persons may reasonably request. The
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Investors in connection with the
offering and sale of the Registrable Securities covered by such Prospectus and
any amendment or supplement thereto to the extent permitted by federal and state
securities laws and regulations.

 

(g) (i) In the time and manner required by each Trading Market, prepare and file
with such Trading Market an additional shares listing application covering all
of the Registrable Securities; (ii) take all steps necessary to cause such
Registrable Securities to be approved for listing on each Trading Market as soon
as possible thereafter; (iii) provide to each Investor evidence of such listing;
and (iv) except as a result of the Excluded Events, during the Effectiveness
Period, maintain the listing of such Registrable Securities on each such Trading
Market or another Eligible Market.

 

(h) Prior to any public offering of Registrable Securities, use its Best Efforts
to register or qualify or cooperate with the selling Investors in connection
with the registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Investor requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective for so long as required, but
not to exceed the duration of the Effectiveness Period, and to do any and all
other acts or things reasonably necessary or advisable to enable the disposition
in such jurisdictions of the Registrable Securities covered by a Registration
Statement; provided, however, that the Company shall not be obligated to file
any general consent to service of process or to qualify as a foreign corporation
or as a dealer in securities in any jurisdiction in which it is not so qualified
or to subject itself to taxation in respect of doing business in any
jurisdiction in which it is not otherwise so subject.

 

28

 

 

(i) Cooperate with the Investors to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be delivered to
a transferee pursuant to a Registration Statement, which certificates shall be
free, to the extent permitted by this Agreement and under law, of all
restrictive legends, and to enable such certificates to be in such denominations
and registered in such names as any such Investors may reasonably request.

 

(j) Upon the occurrence of any event described in Section 6.2(c)(vii), as
promptly as reasonably possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.

 

(k) Cooperate with any reasonable due diligence investigation undertaken by the
Investors in connection with the sale of Registrable Securities, including,
without limitation, by making available documents and information; provided that
the Company will not deliver or make available to any Investor material,
nonpublic information unless such Investor requests in advance in writing to
receive material, nonpublic information and agrees to keep such information
confidential.

 

(l) Comply with all rules and regulations of the SEC applicable to the
registration of the Securities.

 

(m) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of any particular Investor or to make any Event Payments
set forth in Section 6.1(c) to such Investor that such Investor furnish to the
Company the information specified in Exhibits E-1, E-2 and E-3 hereto and such
other information regarding itself, the Registrable Securities and other shares
of Common Stock held by it and the intended method of disposition of the
Registrable Securities held by it (if different from the Plan of Distribution
set forth on Exhibit F hereto) as shall be reasonably required to effect the
registration of such Registrable Securities and shall complete and execute such
documents in connection with such registration as the Company may reasonably
request.

 

(n) The Company shall comply with all applicable rules and regulations of the
SEC under the Securities Act and the Exchange Act, including, without
limitation, Rule 172 under the Securities Act, file any final Prospectus,
including any supplement or amendment thereof, with the SEC pursuant to Rule 424
under the Securities Act, promptly inform the Investors in writing if, at any
time during the Effectiveness Period, the Company does not satisfy the
conditions specified in Rule 172 and, as a result thereof, the Investors are
required to make available a Prospectus in connection with any disposition of
Registrable Securities and take such other actions as may be reasonably
necessary to facilitate the registration of the Registrable Securities
hereunder.

 

29

 

 

6.3 Registration Expenses. The Company shall pay all fees and expenses incident
to the performance of or compliance with Article VI of this Agreement by the
Company, including without limitation (a) all registration and filing fees and
expenses, including without limitation those related to filings with the SEC,
any Trading Market and in connection with applicable state securities or Blue
Sky laws, (b) printing expenses (including without limitation expenses of
printing certificates for Registrable Securities), (c) messenger, telephone and
delivery expenses, (d) fees and disbursements of counsel for the Company, (e)
fees and expenses of all other Persons retained by the Company in connection
with the consummation of the transactions contemplated by this Agreement, and
(f) all listing fees to be paid by the Company to the Trading Market.

 

6.4 Indemnification

 

(a) Indemnification by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Investor, the
officers, directors, partners, members, agents and employees of each of them,
each Person who controls any such Investor (within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, partners, members, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all Losses, as incurred, arising out of or relating to (i) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (ii) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(iii) any cause of action, suit or claim brought or made against such
Indemnified Party (as defined in Section 6.4(c) below) by a third party
(including for these purposes a derivative action brought on behalf of the
Company), arising out of or resulting from (x) the execution, delivery,
performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby or (y) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities or (iv) any
untrue or alleged untrue statement of a material fact contained in the
Registration Statement, any Prospectus or any form of Company prospectus or in
any amendment or supplement thereto or in any Company preliminary prospectus, or
arising out of or relating to any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
(in the case of any Prospectus or form of prospectus or supplement thereto, in
the light of the circumstances under which they were made) not misleading,
except to the extent, but only to the extent, that (A) such untrue statements,
alleged untrue statements, omissions or alleged omissions are based solely upon
information regarding such Investor furnished in writing to the Company by such
Investor for use therein, or to the extent that such information relates to such
Investor or such Investor’s proposed method of distribution of Registrable
Securities and was reviewed and expressly approved by such Investor in writing
expressly for use in the Registration Statement, or (B) with respect to any
prospectus, if the untrue statement or omission of material fact contained in
such prospectus was corrected on a timely basis in the prospectus, as then
amended or supplemented, if such corrected prospectus was timely made available
by the Company to the Investor, and the Investor seeking indemnity hereunder was
advised in writing not to use the incorrect prospectus prior to the use giving
rise to Losses.

 

30

 

 

(b) Indemnification by Investors. Each Investor shall, severally and not
jointly, indemnify and hold harmless the Company and its directors, officers,
agents and employees to the fullest extent permitted by applicable law, from and
against all Losses (as determined by a court of competent jurisdiction in a
final judgment not subject to appeal or review) arising solely out of any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising out of or relating to any omission of a material fact
required to be stated therein or necessary to make the statements therein (in
the case of any Prospectus or form of prospectus or supplement thereto, in the
light of the circumstances under which they were made) not misleading, but only
to the extent that such untrue statements or omissions occur in reliance upon
and conformity with, and are based solely upon information regarding such
Investor furnished to the Company by such Investor in writing expressly for use
therein, or to the extent that such information relates to such Investor or such
Investor’s proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Investor expressly for use in
the Registration Statement (it being understood that the information provided by
the Investor to the Company in Exhibits E-1, E-2 and E-3 and the Plan of
Distribution set forth on Exhibit F, as the same may be modified by such
Investor and other information provided by the Investor to the Company in or
pursuant to the Transaction Documents constitutes information reviewed and
expressly approved by such Investor in writing expressly for use in the
Registration Statement), such Prospectus or such form of prospectus or in any
amendment or supplement thereto. In no event shall the liability of any selling
Investor hereunder be greater in amount than the dollar amount of the net
proceeds actually received by such Investor upon the sale of the Registrable
Securities giving rise to such indemnification obligation.

 

(c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought
or asserted against any Person entitled to indemnity hereunder (an “Indemnified
Party”), such Indemnified Party shall promptly notify the Person from whom
indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying
Party shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to the Indemnified Party and the payment of all fees and
expenses incurred in connection with defense thereof; provided, that the failure
of any Indemnified Party to give such notice shall not relieve the Indemnifying
Party of its obligations or liabilities pursuant to this Agreement, except (and
only) to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have proximately and materially adversely prejudiced the
Indemnifying Party.

 

An Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (i) the Indemnifying Party has agreed in writing to pay such fees and
expenses; or (ii) the Indemnifying Party shall have failed promptly to assume
the defense of such Proceeding and to employ counsel reasonably satisfactory to
such Indemnified Party in any such Proceeding; or (iii) the named parties to any
such Proceeding (including any impleaded parties) include both such Indemnified
Party and the Indemnifying Party, and such Indemnified Party shall have been
advised by counsel that a conflict of interest is likely to exist if the same
counsel were to represent such Indemnified Party and the Indemnifying Party (in
which case, if such Indemnified Party notifies the Indemnifying Party in writing
that it elects to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to assume the defense
thereof and the reasonable fees and expenses of separate counsel shall be at the
expense of the Indemnifying Party). It shall be understood, however, that the
Indemnifying Party shall not, in connection with any one such Proceeding
(including separate Proceedings that have been or will be consolidated before a
single judge) be liable for the fees and expenses of more than one separate firm
of attorneys at any time for all Indemnified Parties, which firm shall be
appointed by a majority of the Indemnified Parties. The Indemnifying Party shall
not be liable for any settlement of any such Proceeding effected without its
written consent, which consent shall not be unreasonably withheld. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that are the
subject matter of such Proceeding.

 

31

 

 

All reasonable fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within 20 Trading
Days of written notice thereof to the Indemnifying Party (regardless of whether
it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).

 

(d) Contribution. If a claim for indemnification under Section 6.4(a) or (b) is
unavailable to an Indemnified Party (by reason of public policy or otherwise),
then each Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions, statements or omissions that resulted in such Losses as well
as any other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of a
material fact, has been taken or made by, or relates to information supplied by,
such Indemnifying Party or Indemnified Party, and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in Section 6.4(c), any reasonable attorneys’ or other reasonable fees or
expenses incurred by such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.

 

The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 6.4(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 6.4(d), no Investor shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the net proceeds actually received by such Investor from the sale of the
Registrable Securities subject to the Proceeding exceed the amount of any
damages that such Investor has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.

 

The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.

 

32

 

 

6.5 Dispositions. Each Investor agrees that it will comply with the prospectus
delivery requirements of the Securities Act as applicable to it in connection
with sales of Registrable Securities pursuant to the Registration Statement and
shall sell its Registrable Securities in accordance with the Plan of
Distribution set forth in the Prospectus. Each Investor further agrees that,
upon receipt of a notice from the Company of the occurrence of any event of the
kind described in Sections 6.2(c)(v), (vi) or (vii), such Investor will
discontinue disposition of such Registrable Securities under the Registration
Statement until such Investor is advised in writing by the Company that the use
of the Prospectus, or amended Prospectus, as applicable, may be resumed. The
Company may provide appropriate stop orders to enforce the provisions of this
paragraph. Each Investor, severally and not jointly with the other Investors,
agrees that the removal of the restrictive legend from certificates representing
Securities as set forth in this Section 4.1 is predicated upon the Company’s
reliance that the Investor will comply with the provisions of this subsection.
Both the Company and the Transfer Agent, and their respective directors,
officers, employees and agents, may rely on this subsection.

 

6.6 No Piggyback on Registrations. Neither the Company nor any of its security
holders (other than the Investors in such capacity pursuant hereto) may include
securities of the Company in the Registration Statement other than the
Registrable Securities.

 

6.7 Piggy-Back Registrations. (a) If at any time during the Effectiveness Period
there is not an effective Registration Statement covering all of the Registrable
Securities and the Company shall determine to prepare and file with the SEC a
registration statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities,
other than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or their then equivalents relating to equity securities to be issued solely
in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit
plans, then the Company shall send to each Investor not then eligible to sell
all of their Registrable Securities under Rule 144 in a three-month period,
written notice of such determination and if, within ten (10) days after receipt
of such notice, any such Investor shall so request in writing, the Company shall
include in such registration statement all or any part of such Registrable
Securities such Investor requests to be registered.

 

(a) If the registration statement about which the Company gives notice under
this Section 6.7 is for an underwritten offering, the Company shall so advise
the Investors. In that event, the right of any Investor to be included in a
registration pursuant to this Section 6.7 shall be conditioned upon the
Investor’s participation in the underwriting and the inclusion of the Investor’s
Registrable Securities in the underwriting to the extent provided herein. All
Investors proposing to distribute their Registrable Securities through the
underwriting shall enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for the underwriting by the Company.
Notwithstanding any other provision of this Agreement, if the underwriter
determines in good faith that marketing factors require a limitation of the
number of Common Shares to be underwritten, the number of Common Shares that may
be included in the underwriting shall be allocated first to the Company; second,
to all Investors who are entitled to participate and who have elected to
participate in the offering pursuant to the terms of this Agreement, on a pro
rata basis based upon the total number of shares held by each participating
Investor that are subject to registration rights pursuant hereto; and third, to
any other stockholder of the Company on a pro rata basis.

 

33

 

 

ARTICLE VII
INTENTIONALLY OMITTED

 

ARTICLE VIII
MISCELLANEOUS

 

8.1 Termination. This Agreement may be terminated by any Investor, by written
notice to the other parties, if the Closing has not been consummated by the
third Trading Day following the date of this Agreement; provided that no such
termination will affect the right of any party to sue for any breach by the
other party (or parties).

 

8.2 Fees and Expenses. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all Transfer
Agent fees, stamp taxes and other taxes and duties levied in connection with the
sale and issuance of the applicable Securities.

 

8.3 Entire Agreement. The Transaction Documents, together with the Exhibits and
Schedules thereto, contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules. At or
after the Closing, and without further consideration, the Company will execute
and deliver to the Investors such further documents as may be reasonably
requested in order to give practical effect to the intention of the parties
under the Transaction Documents.

 

8.4 Notices. Any and all notices or other communications or deliveries required
or permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest of (a) the date of transmission, if such
notice or communication is delivered via facsimile or email at the facsimile
number or email address specified in this Section prior to 6:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile or
email at the facsimile number or email address specified in this Section on a
day that is not a Trading Day or later than 6:30 p.m. (New York City time) on
any Trading Day, (c) the Trading Day following the date of deposit with a
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The addresses, facsimile
numbers and email addresses for such notices and communications are those set
forth on the signature pages hereof, or such other address or facsimile number
as may be designated in writing hereafter, in the same manner, by any such
Person.

 

34

 

 

8.5 Amendments; Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed, in the case of an amendment, by the
Company and each of the Investors or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of any party to exercise any right hereunder in any
manner impair the exercise of any such right. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Investors under Article VI may be
given by Investors holding at least a majority of the Registrable Securities to
which such waiver or consent relates.

 

8.6 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

 

8.7 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Investors holding a majority of the
outstanding Preferred Shares. Any Investor may assign its rights under this
Agreement to any Person to whom such Investor assigns or transfers any
Securities, provided (i) such transferor agrees in writing with the transferee
or assignee to assign such rights, and a copy of such agreement is furnished to
the Company after such assignment, (ii) the Company is furnished with written
notice of (x) the name and address of such transferee or assignee and (y) the
Registrable Securities with respect to which such registration rights are being
transferred or assigned, (iii) following such transfer or assignment, the
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act and applicable state securities laws, (iv)
such transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions hereof that apply to the “Investors” and (v) such
transfer shall have been made in accordance with the applicable requirements of
this Agreement and with all laws applicable thereto.

 

8.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except that (i) each Indemnified Party is an intended third party
beneficiary of Section 6.4 and (in each case) may enforce the provisions of such
Section directly against the parties with obligations thereunder and (ii) the
Placement Agent is an intended third party beneficiary entitled to the benefits
of the representations and warranties of the Company and each of the Investors
in Article III.

 

35

 

 

8.9 Governing Law; Venue; Waiver of Jury Trial. THE CORPORATE LAWS OF THE STATE
OF NEVADA SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY
AND ITS STOCKHOLDERS. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY,
ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE COMPANY AND
INVESTORS HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE
STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN
FOR THE ADJUDICATION OF ANY DISPUTE BROUGHT BY THE COMPANY OR ANY INVESTOR
HEREUNDER, IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR
DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE
TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVE, AND AGREE NOT TO ASSERT IN
ANY SUIT, ACTION OR PROCEEDING BROUGHT BY THE COMPANY OR ANY INVESTOR, ANY CLAIM
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, OR THAT
SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY
WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY
SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR
CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY
AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT
SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT
TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE COMPANY AND INVESTORS
HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.

 

8.10 Survival. The representations and warranties, agreements and covenants
contained herein shall survive the Closing.

 

8.11 Execution. This Agreement may be executed in two or more counterparts, all
of which when taken together shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission or email attachment, such signature shall create a valid
and binding obligation of the party executing (or on whose behalf such signature
is executed) with the same force and effect as if such facsimile or
email-attached signature page were an original thereof.

 

8.12 Severability. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be affected or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

 

36

 

 

8.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever any Investor exercises a right, election, demand or option
owed to such Investor by the Company under a Transaction Document and the
Company does not timely perform its related obligations within the periods
therein provided, then, prior to the performance by the Company of the Company’s
related obligation, such Investor may rescind or withdraw, in its sole
discretion from time to time upon written notice to the Company, any relevant
notice, demand or election in whole or in part without prejudice to its future
actions and rights.

 

8.14 Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and the execution by the holder
thereof of a customary lost certificate affidavit of that fact and an agreement
to indemnify and hold harmless the Company for any losses in connection
therewith. The applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs associated with
the issuance of such replacement Securities.

 

8.15 Remedies. In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of the Investors
and the Company will be entitled to seek specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agree to waive in any
action for specific performance of any such obligation (other than in connection
with any action for a temporary restraining order) the defense that a remedy at
law would be adequate.

 

8.16 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Investor hereunder or any Investor enforces or exercises its
rights hereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company
by a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.

 

8.17 Adjustments in Share Numbers and Prices. In the event of any stock split,
subdivision, dividend or distribution payable in shares of Common Stock (or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly shares of Common Stock), combination or other
similar recapitalization or event occurring after the date hereof, each
reference in any Transaction Document to a number of shares or a price per share
shall be amended to appropriately account for such event.

 

37

 

 

8.18 Independent Nature of Investors’ Obligations and Rights. The obligations of
each Investor under any Transaction Document are several and not joint with the
obligations of any other Investor, and no Investor shall be responsible in any
way for the performance of the obligations of any other Investor under any
Transaction Documents. The decision of each Investor to purchase Securities
pursuant to this Agreement has been made by such Investor independently of any
other Investor and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other Investor
or by any agent or employee of any other Investor, and no Investor or any of its
agents or employees shall have any liability to any other Investor (or any other
person) relating to or arising from any such information, materials, statements
or opinions. Nothing contained herein or in any Transaction Document, and no
action taken by any Investor pursuant thereto, shall be deemed to constitute the
Investors as a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Investors are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Document. Each Investor acknowledges that no
other Investor has acted as agent for such Investor in connection with making
its investment hereunder and that no other Investor will be acting as agent of
such Investor in connection with monitoring its investment hereunder. Each
Investor shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Investor to be joined as an additional party in any Proceeding for such purpose.

 

[SIGNATURE PAGES TO FOLLOW]

 

 

 

 

 

 

 

38

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

 

  STRATUS MEDIA GROUP, INC.           By: /s/ Jerold Rubinstein       Name:
Jerold Rubinstein        Title:   Chief Executive Officer          

  

 

Address for Notice:

 

Stratus Media Group, Inc.

1800 Century Park East, 6th Floor

Los Angeles, CA 90067

Tel: (310) 526-8700, selection 3

Fax: (213) 995-6337

Attn: Tim Boris

 

 

 

With a copy to:

 

TroyGould PC

1801 Century Park East, Suite 1600

Tel: (310) 553-4441

Fax: (310) 201-4746

Attn: David L. Ficksman, Esq.

 

 

 

 

 

COMPANY SIGNATURE PAGE

 

 

 

39

 

Investor Signature Page

 

By its execution and delivery of this signature page, the undersigned Investor
hereby joins in and agrees to be bound by the terms and conditions of the
Securities Purchase Agreement dated as of October 3, 2012 (the “Purchase
Agreement”) by and among Stratus Media Group, Inc. and the Investors (as defined
therein), as to the number of Preferred Shares and Warrants set forth below, and
authorizes this signature page to be attached to the Purchase Agreement or
counterparts thereof.

 

 

Name of Investor:

 

 

  /s/ Sol Barer

 

 

 

  Address:          

  Telephone No.:     Facsimile No.:     Email Address:  

  Number of Preferred Shares: 1,000   Number of A Warrants: 3,333,333   Number
of B Warrants: 1,666,666   Aggregate Purchase Price: $1,000,000

 

Delivery Instructions (if different than above): 

 

c/o:     Address:        

Telephone No.:     Facsimile No.:    

Other Special Instructions:          

 

40

 

 

Exhibits:

 

A Form of Certificate of Designations B Form of A Warrant C Form of B Warrant D
Form of Security Agreement E Instruction Sheet for Investors E-1 Stock
Certificate Questionnaire E-2 Registration Statement Questionnaire E-3 Investor
Certificate F Plan of Distribution G Company Transfer Agent Instructions

 

 

 

 

 

 

 

41

 

Exhibit A
FORM OF AMENDED AND RESTATED CERTIFICATE OF DESIGNATIONS

 

(See attached)

 

 

 

 

 

 

 

 

 

 

 

 

 

42

 

 

STRATUS MEDIA GROUP, INC. 

_______________

 

AMENDED AND RESTATED

 

CERTIFICATE OF DESIGNATIONS
OF
SERIES E CONVERTIBLE PREFERRED STOCK

 

(Pursuant to Section 78.195 of the General Corporation Law of the State of
Nevada)

 

_______________

 

Stratus Media Group, Inc., a Nevada corporation (the “Corporation”), in
accordance with the provisions of the Nevada General Corporation Law (the
“NGCL”) does hereby certify that, in accordance with Section 78.1955 of the
NGCL, the following resolution was duly adopted by the Board of Directors of the
Corporation as of October 3, 2012:

 

RESOLVED, that the Corporation has previously filed a Certificate of Designation
of Series E Preferred Stock (the “Certificate”);

 

FURTHER RESOLVED, that the Board of Directors hereby authorizes the filing of an
amendment to the Certificate and hereby fixes the designation, number of shares,
powers, preferences, rights, qualifications, limitations and restrictions
thereof (in addition to any provisions set forth in the Articles of
Incorporation of the Corporation, as amended, which are applicable to the
Preferred Stock of all classes and series) as follows:

 

SERIES E CONVERTIBLE PREFERRED STOCK

 

1. Designation, Amount and Par Value. The following series of preferred stock
shall be designated as the Corporation’s Series E Convertible Preferred Stock
(the “Series E Preferred Stock”), and the number of shares so designated shall
be fifteen thousand (15,000). Each share of Series E Preferred Stock shall have
a par value of $0.001 per share. The “Stated Value” for each share of Series E
Preferred Stock shall equal $1,000.

 

2. Definitions. In addition to the terms defined elsewhere in this Certificate
of Designations the following terms have the meanings indicated:

 

“Additional Shares” has the meaning set forth in Section 9(a).

 

“Alternate Consideration” has the meaning set forth in Section 9(d).

 

“Applicable Price” has the meaning set forth in Section 9(a).

 

“Approved Share Plan” means any employee benefit or equity incentive plan which
has been approved by the Board of Directors of the Corporation, pursuant to
which the Corporation’s securities may be issued to any employee, officer,
consultant or director for services provided to the Corporation.

 

43

 

 

“Bankruptcy Event” means any of the following events: (a) the Corporation or a
Subsidiary of the Corporation commences a case or other proceeding under any
bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
relating to the Corporation or any Subsidiary thereof; (b) there is commenced
against the Corporation or any Subsidiary any such case or proceeding that is
not dismissed within sixty (60) days after commencement; (c) the Corporation or
any Subsidiary is adjudicated insolvent or bankrupt or any order of relief or
other order approving any such case or proceeding is entered; (d) the
Corporation or any Subsidiary suffers any appointment of any custodian or the
like for it or any substantial part of its property that is not discharged or
stayed within sixty (60) days; (e) the Corporation or any Subsidiary makes a
general assignment for the benefit of creditors; (f) the Corporation or any
Subsidiary fails to pay, or states that it is unable to pay or is unable to pay,
its debts generally as they become due; (g) the Corporation or any Subsidiary
calls a meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or (h) the Corporation or any
Subsidiary, by any act or failure to act, expressly indicates its consent to,
approval of or acquiescence in any of the foregoing or takes any corporate or
other action for the purpose of effecting any of the foregoing.

 

“Bloomberg” means Bloomberg Financial Markets.

 

“Business Day” means any day other than Saturday, Sunday, any day which shall be
a federal legal holiday in the United States or any day on which banking
institutions in The State of New York are authorized or required by law or other
governmental action to close.

 

“Calendar Quarter” means each of the following periods: the period beginning on
and including January 1 and ending on and including March 31; the period
beginning on and including April 1 and ending on and including June 30; the
period beginning on and including July 1 and ending on and including September
30; and the period beginning on and including October 1 and ending on and
including December 31.

 

“Common Share” means one share of the Common Stock.

 

“Common Stock” means the common stock of the Corporation, par value $0.001 per
share, and any securities into which such common stock may hereafter be
reclassified.

 

“Conversion Notice” has the meaning set forth in Section 7(a).

 

“Conversion Price” means $0.30 per share, as adjusted herein.

 

“Conversion Rate” means, for each share of Series E Preferred Stock, the
quotient of (i) the Stated Value, plus the amount of any accrued but unpaid
Dividends, divided by (ii) the Conversion Price.

 

“Convertible Securities” means any stock or securities (other than the Options,
the Warrants, the Series A Preferred Stock. the Series B Preferred Stock, the
Series C Preferred Stock and the Series D Preferred Stock) convertible into or
exercisable or exchangeable for Common Stock.

 

“Dilutive Issuance” has the meaning set forth in Section 9(a).

 

“Distributed Property” has the meaning set forth in Section 9(c).

 

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“Dividends” has the meaning set forth in Section 3.

 

“Dividend Date” has the meaning set forth in Section 3.

 

“Dividend Rate” has the meaning set forth in Section 3.

 

“Dividend Shares” has the meaning set forth in Section 3.

 

“Equity Conditions” means, with respect to a specified issuance of Common Stock,
that each of the following conditions is satisfied: (i) the number of authorized
but unissued and otherwise unreserved shares of Common Stock is sufficient for
such issuance; (ii) the Common Stock is listed or quoted (and is not suspended
from trading) on the Trading Market and such shares of Common Stock are approved
for listing upon issuance; (iii) no Bankruptcy Event has occurred; (iv) the
conversion of the Series E Preferred Stock is permitted by the Trading Market
and all other applicable laws, rules and regulations; and (v) the Corporation is
not in default with respect to any material obligation hereunder or under any
other Transaction Document.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Excluded Securities” means Common Shares issued or deemed to be issued by the
Corporation: (A) in connection with an Approved Share Plan; (B) in connection
with a bank financing or strategic partnership or investment; (C) in a Qualified
Public Offering; (D) upon issuance of the shares of Series E Preferred Stock or
Dividend Shares or upon conversion of the shares of Series E Preferred Stock or
upon exercise of any Warrants that were outstanding on the Original Issue Date;
(E) upon exercise of Options or Convertible Securities; (F) upon issuance or
conversion of any shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock or Series D Preferred Stock; (G) upon the payment of
any dividend in respect of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock; and (H) in
connection with any share split, share dividend, recapitalization or similar
transaction by the Corporation for which adjustment is made pursuant to
Section 9(b).

 

“Fundamental Transaction” means the occurrence of any of the following in one or
a series of related transactions: (i) an acquisition after the date of the
Purchase Agreement by an individual or legal entity or “group” (as described in
Rule 13d-5(b)(1) under the Exchange Act) of more than fifty percent (50%) of the
voting rights or voting equity interests in the Corporation; (ii) the first day
on which more than one half of the members of the Corporation’s Board of
Directors; (iii) a merger or consolidation of the Corporation or any Subsidiary
or a sale of all or substantially all of the assets of the Corporation in one or
a series of related transactions, unless following such transaction or series of
transactions, the holders of the Corporation’s securities prior to the first
such transaction continue to hold at least half of the voting rights or voting
equity interests in of the surviving entity or acquirer of such assets; (iv) a
recapitalization, reorganization or other transaction involving the Corporation
or any Subsidiary that constitutes or results in a transfer of more than one
half of the voting rights or voting equity interests in the Corporation; (v)
consummation of a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the
Exchange Act with respect to the Corporation; (vi) any tender offer or exchange
offer (whether by the Corporation or another Person) is completed pursuant to
which holders of more than fifty percent (50%) of the outstanding Common Stock
tender or exchange their shares for other securities, cash or property; or (vii)
the Corporation effects any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property.

 

45

 

 

“Holder” means any holder of Series E Preferred Stock.

 

“Junior Securities” means the Common Stock and all other equity or equity
equivalent securities of the Corporation (other than the Series E Preferred
Stock), including, without limitation, the Series A Preferred Stock, the Series
B Preferred Stock, the Series C Preferred Stock and the Series D Preferred
Stock.

 

“Liquidation Event” means any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary.

 

“Mandatory Conversion” has the meaning set forth in Section 7(b).

 

“Mandatory Conversion Date” has the meaning set forth in Section 7(b).

 

“Mandatory Conversion Eligibility Date” has the meaning set forth in
Section 7(b).

 

“Mandatory Conversion Measuring Period” has the meaning set forth in
Section 7(b).

 

“Mandatory Conversion Notice” has the meaning set forth in Section 7(b).

 

“Mandatory Conversion Notice Date” has the meaning set forth in Section 7(b).

 

“New Issuance Price” has the meaning set forth in Section 9(a).

 

“Optional Conversion” has the meaning set forth in Section 7(a).

 

“Options” means any rights, warrants or options to subscribe for or purchase
Common Stock or Convertible Securities.

 

“Original Issue Date” means the date of the first issuance of any shares of the
Series E Preferred Stock, regardless of the number of transfers of any
particular shares of Series E Preferred Stock and regardless of the number of
certificates that may be issued to evidence shares of Series E Preferred Stock.

 

“Person” means any individual or corporation, partnership, trust, incorporated
or unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.

 

46

 

 

“PIK Dividend” has the meaning set forth in Section 3.

 

“PIK Dividend Average Price” has the meaning set forth in Section 3.

 

“Purchase Agreement” means the Securities Purchase Agreement, dated as of May
24, 2011, among the Corporation and the Holders, as amended from time to time.

 

“Qualified Public Offering” means a bona fide underwritten public offering of
Common Stock or Convertible Securities by the Corporation.

 

“Registration Rights” means the Registration Rights set forth in Article VI of
the Purchase Agreement among the Corporation and the Holders.

 

“Required Holders” means the Holders of shares of Series E Preferred Stock
representing at least a majority of the aggregate shares of Series E Preferred
Stock then outstanding.

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Securities and Exchange Commission
having substantially the same effect as such Rule.

 

“Series A Preferred Stock” means the Preferred Stock designated by the Board of
Directors of the Corporation as Series A Convertible Preferred Stock pursuant to
a Certificate of Designations filed with the Secretary of State of the State of
Nevada on September 14, 1999.

 

“Series B Preferred Stock” means the Preferred Stock designated by the Board of
Directors of the Corporation as Series B Convertible Preferred Stock pursuant to
a Certificate of Designations filed with the Secretary of State of the State of
Nevada on March 1, 2000.

 

“Series C Preferred Stock” means the Preferred Stock designated by the Board of
Directors of the Corporation as Series C 10% Convertible Preferred Shares
pursuant to a Certificate of Designations filed with the Secretary of State of
the State of Nevada on April 20, 2010.

 

“Series D Preferred Stock” the Preferred Stock designated by the Board of
Directors of the Corporation as Series D 10% Convertible Preferred Shares
pursuant to a Certificate of Designations filed with the Secretary of State of
the State of Nevada on May 13, 2011.

 

“Series E Preferred Stock” has the meaning set forth in Section 1.

 

“Series E Preferred Stock Liquidation Preference” has the meaning set forth in
Section 6.

 

“Series E Preferred Stock Register” has the meaning set forth in Section 4.

 

“Securities” means, collectively, the Series E Preferred Stock and the
Underlying Shares issued or issuable pursuant to the Purchase Agreement.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

47

 

 

“Stock Dividend Amount” means, for any Dividend Date, the quotient of (i) the
Stated Value divided by (ii) the Weighted Average Price for the 20 Trading Days
immediately prior to the record date applicable to such Dividend Date.

 

“Subsidiary” means any “significant subsidiary” of the Corporation as defined in
Rule 1-02(w) of Regulation S-X promulgated by the Commission.

 

“Trading Day” means (i) a day on which the Common Stock is traded on a Trading
Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is not
listed or quoted on a Trading Market (other than the OTC Bulletin Board), a day
on which the Common Stock is traded in the over-the-counter market, as reported
by the OTC Bulletin Board, or (iii) if the Common Stock is not listed or quoted
on any Trading Market, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the Pink Sheets LLC (or any similar
organization or agency succeeding to its functions of reporting prices);
provided, that in the event that the Common Stock is not listed or quoted as set
forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

 

“Trading Market” means whichever of the New York Stock Exchange, the American
Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the
NASDAQ Capital Market or OTC Bulletin Board on which the Common Stock is listed
or quoted for trading on the date in question.

 

“Transaction Documents” means the Purchase Agreement, the schedules and exhibits
attached thereto, the Warrants, this Certificate of Designations and the
Transfer Agent Instructions and any other documents or agreements executed or
delivered in connection with the transactions contemplated under the Purchase
Agreement and thereunder.

 

“Underlying Shares” means the shares of Common Stock issuable upon conversion of
the shares of Series E Preferred Stock and in satisfaction of any other
obligation of the Corporation to issue shares of Common Stock pursuant to the
Transaction Documents.

 

“Valuation Event” has the meaning set forth in Section 9(a)(viii)(D).

 

“Warrants” means the warrants issued to the Holders pursuant to the Purchase
Agreement.

 

“Weighted Average Price” means, for any security as of any date, the dollar
volume-weighted average price for such security on the Principal Market during
the period beginning at 9:30:01 a.m., New York City Time, and ending at 4:00:00
p.m., New York City Time, as reported by Bloomberg through its “Volume at Price”
function or, if the foregoing does not apply, the dollar volume-weighted average
price of such security in the over-the-counter market on the electronic bulletin
board for such security during the period beginning at 9:30:01 a.m., New York
City Time, and ending at 4:00:00 p.m., New York City Time, as reported by
Bloomberg, or, if no dollar volume-weighted average price is reported for such
security by Bloomberg for such hours, the average of the highest closing bid
price and the lowest closing ask price of any of the market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). If the Weighted Average Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Weighted Average Price of such security on such date shall be the fair market
value as mutually determined by the Corporation and the Required Holders. All
such determinations shall be appropriately adjusted for any share dividend,
share split or other similar transaction during such period.

 

48

 

 

3. Dividends. The Holders of the shares of Series E Preferred Stock shall be
entitled to receive dividends (“Dividends”) payable on the Stated Value of each
share of Series E Preferred Stock at the rate of five percent (5%) per annum
(the “Dividend Rate”). Dividends on the shares of Series E Preferred Stock shall
commence accruing on the Original Issue Date and shall be computed on the basis
of a 360-day year consisting of twelve 30-day months and shall be payable in
arrears for each Calendar Quarter on the first day of the succeeding Calendar
Quarter during the period beginning on the Original Issue Date (each, a
“Dividend Date”) with the first Dividend Date being July 1, 2011. Prior to the
payment of Dividends on a Dividend Date, Dividends on the shares of Series E
Preferred Stock shall accrue at the Dividend Rate. If a Dividend Date is not a
Business Day (as defined below), then the Dividend shall be due and payable on
the Business Day immediately following such Dividend Date. Dividends shall be
payable in cash on each Dividend Date. In lieu of cash, at the option of the
Company, Dividends shall be payable in fully paid and non-assessable shares of
Common Stock (“Dividend Shares”), provided that the resale of such Dividend
Shares is registered pursuant to an effective registration statement under the
Securities Act (a “PIK Dividend”). With respect to the payment of any PIK
Dividend, the number of Dividend Shares to be issued in payment of such PIK
Dividend with respect to each outstanding share of Series E Preferred Stock
shall be determined by dividing (i) the amount of the PIK Dividend (were it paid
in cash) by (ii) the arithmetic average of the Weighted Average Price of the
Common Stock for each of the ten (10) consecutive Trading Days preceding the
Dividend Date corresponding to such PIK Dividend (the “PIK Dividend Average
Price”). To the extent that any PIK Dividend would result in the issuance of a
fractional share of Common Stock to any Holder, then the amount of such fraction
multiplied by the PIK Dividend Average Price shall be paid in cash (unless there
are no legally available funds with which to make such cash payment, in which
event the number of shares of Common Stock to be issued to each such Holder
shall be rounded up to the nearest whole share).

 

4. Registration of Issuance and Ownership of Series E Preferred Stock. The
Corporation shall register the issuance and ownership of shares of the Series E
Preferred Stock, upon records to be maintained by the Corporation or its
Transfer Agent (as defined in the Purchase Agreement) for that purpose (the
“Series E Preferred Stock Register”), in the name of the record Holders thereof
from time to time. The Corporation may deem and treat the registered Holder of
shares of Series E Preferred Stock as the absolute owner thereof for the purpose
of any conversion hereof or any distribution to such Holder, and for all other
purposes, absent actual notice to the contrary.

 

5. Registration of Transfers. The Corporation shall register the transfer of any
shares of Series E Preferred Stock in the Series E Preferred Stock Register,
upon surrender of certificates evidencing such Shares to the Corporation at its
address specified herein. Upon any such registration or transfer, a new
certificate evidencing the shares of Series E Preferred Stock so transferred
shall be issued to the transferee and a new certificate evidencing the remaining
portion of the shares not so transferred, if any, shall be issued to the
transferring Holder.

 

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6. Liquidation.

 

(a) In the event of any Liquidation Event, the Holders of Series E Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of any of the assets or surplus funds of the Corporation to the holders of
Junior Securities by reason of their ownership thereof, an amount per share in
cash equal to the greater of (i) the Stated Value for each share of Series E
Preferred Stock then held by them (as adjusted pursuant to Section 9), plus all
accrued but unpaid dividends on such Series E Preferred Stock as of the date of
such event, and (ii) the amount per share that would be payable to a Holder had
all shares of Series E Preferred Stock been converted to Underlying Shares
immediately prior to such Liquidation Event (the “Series E Preferred Stock
Liquidation Preference”). If, upon the occurrence of a Liquidation Event, the
assets and funds thus distributed among the Holders shall be insufficient to
permit the payment to such Holders of the full Series E Preferred Stock
Liquidation Preference, then the Holders shall share ratably in any such
distribution of the assets and funds of the Corporation in proportion to the
aggregate Series E Preferred Stock Liquidation Preference that would otherwise
be payable to each of such Holders.

 

(b) After the Holders have been paid the full Series E Preferred Stock
Liquidation Preference to which they are entitled, the Holders will have no
right or claim to any of the assets or funds of the Corporation.

 

(c) The Corporation shall provide written notice of any Liquidation Event or
Fundamental Transaction to each record Holder not less than forty-five (45) days
prior to the payment date or effective date thereof, provided that such
information shall be made known to the public prior to or in connection with
such notice being provided to the Holders. At the request of any Holder, which
must be delivered prior to the effective date of a Fundamental Transaction (or,
if later, within five (5) Trading Days after such Holder receives notice of such
Fundamental Transaction from the Corporation), such Fundamental Transaction will
be treated as a Liquidation Event with respect to such Holder for the purposes
of this Section 6.

 

(d) In the event that, immediately prior to the closing of a Liquidation Event
the cash distributions required by Section 6(a) have not been made, the
Corporation shall forthwith either: (i) cause such closing to be postponed until
such time as such cash distributions have been made, or (ii) cancel such
transaction, in which event the rights, preferences and privileges of the
holders of the Series E Preferred Stock shall revert to and be the same as such
rights, preferences and privileges existing immediately prior to the date of the
first notice by the Corporation delivered pursuant to Section 6(c).

 

7. Conversion.

 

(a) Conversion at Option of Holder. At the option of any Holder, any shares of
Series E Preferred Stock held by such Holder may be converted into shares of
Common Stock at the Conversion Rate. A Holder may convert shares of Series E
Preferred Stock into Common Stock pursuant to this paragraph at any time and
from time to time after the Original Issue Date, by delivering to the
Corporation a conversion notice (the “Conversion Notice”), in the form attached
hereto as Exhibit A, appropriately completed and duly signed, and the date any
such Conversion Notice is delivered to the Corporation (as determined in
accordance with the notice provisions hereof) is a “Conversion Date.”

 

50

 

 

(b) Mandatory Conversion. If, at any time from and after the Effective Date (as
defined in the Purchase Agreement) (the “Mandatory Conversion Eligibility
Date”), (i) the Weighted Average Price of the Common Stock equals or exceeds
$2.50 per share for each of any twenty (20) consecutive Trading Days following
the Mandatory Conversion Eligibility Date (the “Mandatory Conversion Measuring
Period”) and (ii) the average daily trading volume over the Mandatory Conversion
Measuring Period is at least $250,000, then the Corporation shall have the right
to require the Holders to convert any or all of their shares of Series E
Preferred Stock Price into fully paid and non-assessable shares of Common Stock
at the Conversion Rate (a “Mandatory Conversion”). The Corporation may exercise
its right to require conversion under this Section 7(b) on one occasion by
delivering within not more than five (5) Trading Days following the end of such
Mandatory Conversion Measuring Period a written notice thereof by facsimile and
overnight courier to all Holders of shares of Series E Preferred Stock and the
Transfer Agent (the “Mandatory Conversion Notice,” and the date all the Holders
received such notice by facsimile is referred to as the “Mandatory Conversion
Notice Date”). The Mandatory Conversion Notice shall be irrevocable. The
Mandatory Conversion Notice shall state (i) the Trading Day selected for the
Mandatory Conversion in accordance with Section 7(a), which Trading Day shall be
at least twenty (20) Business Days but not more than sixty (60) Business Days
following the Mandatory Conversion Notice Date (the “Mandatory Conversion
Date”), (ii) the number of shares of Series E Preferred Stock of such Holder
subject to the Mandatory Conversion (iii) the aggregate number of shares of
Series E Preferred Stock subject to Mandatory Conversion from all of the Holders
pursuant to this Section 7 and (iv) the number of shares of Common Stock to be
issued to such Holder on the Mandatory Conversion Date.

 

8. Mechanics of Conversion.

 

(a) The number of Underlying Shares issuable upon any conversion of shares of
Series E Preferred Stock hereunder shall equal the number of shares of Series E
Preferred Stock to be converted multiplied by the Conversion Rate.

 

(b) Upon conversion of any shares of Series E Preferred Stock, the Corporation
shall promptly (but in no event later than three (3) Trading Days after the
Conversion Date) issue or cause to be issued and cause to be delivered to or
upon the written order of the Holder and in such name or names as the Holder may
designate a certificate for the Underlying Shares issuable upon such conversion.
The Holder agrees to the imprinting of a restrictive legend on any such
certificate evidencing any of the Underlying Shares, until such time as the
Underlying Shares are no longer required to contain such legend or any other
legend. Certificates evidencing the Underlying Shares shall not be required to
contain such legend or any other legend (i) while a registration statement
covering the resale of the Underlying Shares is effective under the Securities
Act, (ii) following any sale of such Underlying Shares pursuant to Rule 144 if
the Holder provides the Corporation with a legal opinion reasonably acceptable
to the Corporation to the effect that the Underlying Shares can be sold under
Rule 144, (iii) if the Underlying Shares are eligible for sale under Rule 144
without any volume limitation, or (iv) if the Holder provides the Corporation
with a legal opinion reasonably acceptable to the Corporation to the effect that
the legend is not required under applicable requirements of the Securities Act
(including controlling judicial interpretations and pronouncements issued by the
Staff of the SEC). The Holder, or any Person so designated by the Holder to
receive Underlying Shares, shall be deemed to have become holder of record of
such Underlying Shares as of the Conversion Date. If the shares are then not
required to bear a restrictive legend, the Corporation shall, upon request of
the Holder, deliver Underlying Shares hereunder electronically through DTC or
another established clearing corporation performing similar functions, and shall
credit the number of shares of Common Stock to which the Holder shall be
entitled to the Holder’s or its designee’s balance account with DTC through its
Deposit Withdrawal Agent Commission System.

 

51

 

 

(c) A Holder shall deliver the original certificate(s) evidencing the Series E
Preferred Stock being converted in connection with the conversion of such Series
E Preferred Stock. Upon surrender of a certificate following one or more partial
conversions, the Corporation shall promptly deliver to the Holder a new
certificate representing the remaining shares of Series E Preferred Stock.

 

(d) The Corporation’s obligations to issue and deliver Underlying Shares upon
conversion of Series E Preferred Stock in accordance with the terms hereof are
absolute and unconditional, irrespective of any action or inaction by any Holder
to enforce the same, any waiver or consent with respect to any provision hereof,
the recovery of any judgment against any Person or any action to enforce the
same, or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by any Holder or any other Person of any obligation to
the Corporation or any violation or alleged violation of law by any Holder or
any other Person, and irrespective of any other circumstance which might
otherwise limit such obligation of the Corporation to any Holder in connection
with the issuance of such Underlying Shares.

 

9. Certain Adjustments. The Conversion Price is subject to adjustment from time
to time as set forth in this Section 9.

 

(a) Adjustment of Conversion Price upon Issuance of Common Shares. If and
whenever on or after the Original Issue Date, the Corporation issues or sells,
or in accordance with this Section 9(a) is deemed to have issued or sold, any
Common Shares other than Excluded Securities (“Additional Shares”) for a
consideration per share (the “New Issuance Price”) less than a price (the
“Applicable Price”) equal to the Conversion Price in effect immediately prior to
such time (a “Dilutive Issuance”), then immediately after such issue or sale,
the Conversion Price then in effect shall be reduced to an amount equal to the
New Issuance Price. For purposes of determining the adjusted Conversion Price
under this Section 9(a), the following shall be applicable:

 

 

 

 

 

 

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(i) Issuance of Options. If the Corporation in any manner grants or sells any
Options and the lowest price per share for which one Common Share is issuable
upon the exercise of any such Option or upon conversion, exchange or exercise of
any Convertible Securities issuable upon exercise of such Option is less than
the Applicable Price, then such Common Share shall be deemed to be outstanding
and to have been issued and sold by the Corporation at the time of the granting
or sale of such Option for such price per share. For purposes of this
Section 9(a)(i), the “lowest price per share for which one Common Share is
issuable upon the exercise of any such Option or upon conversion, exchange or
exercise of any Convertible Securities issuable upon exercise of such Option”
shall be equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Corporation with respect to any one Common Share
upon granting or sale of the Option, upon exercise of the Option and upon
conversion, exchange or exercise of any Convertible Security issuable upon
exercise of such Option. No further adjustment of the Conversion Price shall be
made upon the actual issuance of such Common Shares or of such Convertible
Securities upon the exercise of such Options or upon the actual issuance of such
Common Shares upon conversion, exchange or exercise of such Convertible
Securities.

 

(ii) Issuance of Convertible Securities. If the Corporation in any manner issues
or sells any Convertible Securities and the lowest price per share for which one
Common Share is issuable upon such conversion, exchange or exercise thereof is
less than the Applicable Price, then such Common Share shall be deemed to be
outstanding and to have been issued and sold by the Corporation at the time of
the issuance of sale of such Convertible Securities for such price per share.
For the purposes of this Section 9(a)(ii), the “lowest price per share for which
one Common Share is issuable upon such conversion, exchange or exercise” shall
be equal to the sum of the lowest amounts of consideration (if any) received or
receivable by the Corporation with respect to any one Common Share upon the
issuance or sale of the Convertible Security and upon the conversion, exchange
or exercise of such Convertible Security. No further adjustment of the
Conversion Price shall be made upon the actual issuance of such Common Shares
upon conversion, exchange or exercise of such Convertible Securities, and if any
such issue or sale of such Convertible Securities is made upon exercise of any
Options for which adjustment of the Conversion Price had been or are to be made
pursuant to other provisions of this Section 9(a)(ii), no further adjustment of
the Conversion Price shall be made by reason of such issue or sale.

 

(iii) Change in Option Price or Rate of Conversion. If the purchase or exercise
price provided for in any Options, the additional consideration, if any, payable
upon the issue, conversion, exchange or exercise of any Convertible Securities,
or the rate at which any Convertible Securities are convertible into or
exchangeable or exercisable for Common Shares changes at any time, the
Conversion Price in effect at the time of such change shall be adjusted to the
Conversion Price which would have been in effect at such time had such Options
or Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section 9(a)(iii), if
the terms of any Option or Convertible Security that was outstanding as of the
date of issuance of the shares of Series E Preferred Stock are changed in the
manner described in the immediately preceding sentence, then such Option or
Convertible Security and the Common Shares deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of the
date of such change. No adjustment shall be made if such adjustment would result
in an increase of the Conversion Price then in effect.

 

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(iv) Calculation of Consideration Received. In case any Option is issued in
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $0.001. If any Common
Shares, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the gross amount received by the Corporation therefor. If any Common
Shares, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Corporation will be the fair value of such consideration, except where such
consideration consists of marketable securities, in which case the amount of
consideration received by the Corporation will be the arithmetic average of the
Weighted Average Price of such securities during the ten (10) consecutive
Trading Days ending on the date of receipt of such securities. The fair value of
any consideration other than cash or securities will be determined jointly by
the Corporation and the Required Holders. If such parties are unable to reach
agreement within ten (10) days after the occurrence of an event requiring
valuation (the “Valuation Event”), the fair value of such consideration will be
determined within five (5) Business Days after the tenth (10th) day following
the Valuation Event by an independent, reputable appraiser selected by the
Corporation and the Required Holders. The determination of such appraiser shall
be deemed binding upon all parties absent manifest error and the fees and
expenses of such appraiser shall be borne by the Corporation.

 

(v) Record Date. If the Corporation takes a record of the holders of Common
Shares for the purpose of entitling them (x) to receive a dividend or other
distribution payable in Common Shares, Options or Convertible Securities or (y)
to subscribe for or purchase Common Shares, Options or Convertible Securities,
then such record date will be deemed to be the date of the issue or sale of the
Common Shares deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the granting of
such right of subscription or purchase, as the case may be.

 

(b) Stock Dividends and Splits. If the Corporation, at any time while Series E
Preferred Stock is outstanding, (i) pays a stock dividend on its Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in
shares of Common Stock (other than dividends paid in respect of the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock or the Series E Preferred Stock); (ii) subdivides
outstanding shares of Common Stock into a larger number of shares, or (iii)
combines outstanding shares of Common Stock into a smaller number of shares,
then in each such case the applicable Conversion Price for Series E Preferred
Stock shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding immediately before such event and
of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event. Any adjustment made pursuant to clause
(i) of this paragraph shall become effective immediately after the record date
for the determination of stockholders entitled to receive such dividend or
distribution, and any adjustment pursuant to clause (ii) or (iii) of this
paragraph shall become effective immediately after the effective date of such
subdivision or combination.

 

(c) Pro Rata Distributions. If the Corporation, at any time while Series E
Preferred Stock is outstanding, distributes or pays as a dividend to holders of
Common Stock (i) evidences of its indebtedness, (ii) any security (other than a
distribution of Common Stock covered by the preceding paragraph), (iii) rights
or warrants to subscribe for or purchase any security, or (iv) any other asset
(including, without limitation, cash) (in each case, “Distributed Property”),
then in each such case the Corporation shall simultaneously deliver to each
Holder the Distributed Property that each such Holder would have been entitled
to receive in respect the number of Underlying Shares then issuable pursuant to
Section 7(a) above had the Holder been the record holder of such Underlying
Shares immediately prior to the applicable record or payment date.

 

54

 

 

(d) Fundamental Transactions. If the Corporation, at any time while Series E
Preferred Stock is outstanding, effects any Fundamental Transaction, then upon
any subsequent conversion of Series E Preferred Stock, each Holder shall have
the right to receive, for each Underlying Share that would have been issuable
upon such conversion absent such Fundamental Transaction, the same kind and
amount of securities, cash or property as it could have been entitled to receive
upon the occurrence of such Fundamental Transaction if it had been, immediately
prior to such Fundamental Transaction, the holder of one share of Common Stock
(the “Alternate Consideration”). For purposes of any such conversion, the
determination of the applicable Conversion Price for the Series E Preferred
Stock shall be appropriately adjusted to apply to such Alternate Consideration
based on the amount of Alternate Consideration issuable in respect of one share
of Common Stock in such Fundamental Transaction, and the Corporation shall
apportion the Conversion Price among the Alternate Consideration in a reasonable
manner reflecting the relative value of any different components of the
Alternate Consideration. If holders of Common Stock are given any choice as to
the securities, cash or property to be received in a Fundamental Transaction,
then each Holder shall be given the same choice as to the Alternate
Consideration it receives upon any conversion of Series E Preferred Stock
following such Fundamental Transaction. To the extent necessary to effectuate
the foregoing provisions, any successor to the Corporation or surviving entity
in such Fundamental Transaction shall issue to the Holder a new series of
preferred stock consistent with the foregoing provisions and evidencing the
Holders’ right to convert such preferred stock into Alternate Consideration. The
terms of any agreement pursuant to which a Fundamental Transaction is effected
shall include terms requiring any such successor or surviving entity to comply
with the provisions of this paragraph (c) and ensuring that the Series E
Preferred Stock (or any such replacement security) will be similarly adjusted
upon any subsequent transaction analogous to a Fundamental Transaction.

 

(e) Calculations. All calculations under this Section 9 shall be made to the
nearest cent or the nearest 1/100th of a share, as applicable. The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Corporation, and the disposition of
any such shares shall be considered an issue or sale of Common Stock.

 

(f) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to
this Section 9, the Corporation at its expense will promptly compute such
adjustment in accordance with the terms hereof and prepare a certificate
describing in reasonable detail such adjustment and the transactions giving rise
thereto, including all facts upon which such adjustment is based. Upon written
request, the Corporation will promptly deliver a copy of each such certificate
to each Holder and to the Corporation’s Transfer Agent.

 

55

 

 

(g) Notice of Corporation Events. If the Corporation (i) declares a dividend or
any other distribution of cash, securities or other property in respect of its
Common Stock, including without limitation any granting of rights or warrants to
subscribe for or purchase any capital stock of the Corporation or any
Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating
or solicits stockholder approval for any Fundamental Transaction or (iii)
authorizes the voluntary dissolution, liquidation or winding up of the affairs
of the Corporation, then the Corporation shall deliver to each Holder a notice
describing the material terms and conditions of such transaction, at least
twenty (20) calendar days prior to the applicable record or effective date on
which a Person would need to hold Common Stock in order to participate in or
vote with respect to such transaction.

 

10. Voting Rights.

 

(a) General. Except as otherwise provided herein or as required by applicable
law, the Holders of the Series E Preferred Stock shall be entitled to vote on
all matters on which holders of Common Stock are entitled to vote, including,
without limitation, the election of directors. For such purposes, each Holder
shall be entitled to a number of votes in respect of the Underlying Shares owned
by it equal to the number of shares of Common Stock into which such shares of
Series E Preferred Stock are convertible as of the record date for the
determination of stockholders entitled to vote on such matter, or if no record
date is established, at the date such vote is taken or any written consent of
stockholders is solicited.

 

(b) Protective Provisions. Notwithstanding anything to the contrary in
Section 10(a), so long as the Holders, in the aggregate, hold at least thirty
percent (30%) of the shares of Series E Preferred Stock issued pursuant to the
Purchase Agreement, the Corporation shall not, without the affirmative vote of
the Holders of a majority of the shares of Series E Preferred Stock then
outstanding, (a) alter or change adversely the powers, preferences or rights
given to the Series E Preferred Stock or alter or amend this Certificate of
Designation (whether by merger, reorganization, consolidation or otherwise), (b)
authorize or create any class of stock ranking as to dividends, redemption or
distribution of assets upon a Liquidation Event or Fundamental Transaction
senior to or pari passu with the Series E Preferred Stock, (c) amend its
articles of incorporation or other charter documents so as to affect adversely
any rights of the Holders (whether by merger, reorganization, consolidation or
otherwise), (d) increase the authorized number of shares of Series E Preferred
Stock, (e) pay or declare any dividend or make any distribution on any Junior
Securities, except pro rata stock dividends on the Common Stock payable in
additional shares of Common Stock, (f) incur any indebtedness for money
borrowed, individually or in the aggregate, in excess of $1 million, or (g)
enter into any agreement with respect to the foregoing.

 

56

 

 

(c) Board of Directors. The holders of the outstanding shares of Series E
Preferred Stock, voting as a separate class, shall be entitled to elect two (2)
directors of the Corporation so long as such holders remain the holders of, in
the aggregate, at least 50% of the total number of shares of Series E Preferred
Stock purchased pursuant to the Purchase Agreement; provided, however, that in
the event that such holders hold, in the aggregate, less than 50%, but at least
25%, of the total number of shares of Series E Preferred Stock purchased
pursuant to the Purchase Agreement, such holders, voting as a separate class,
shall be entitled to elect one (1) director of the Corporation; provided,
further, that upon the occurrence of (and during the continued existence of) a
Default (as defined in Section 16 below), such holders, voting as a separate
class, shall be entitled to elect a majority of the directors of the
Corporation, each to serve during the continued existence of such Default. In
the event that the holders of the outstanding shares of Series E Preferred Stock
hold, in the aggregate, less than 25% of the total number of shares of Series E
Preferred Stock purchased pursuant to the Purchase Agreement, such holders shall
forfeit their right to nominate directors of the Corporation as a separate
voting class other than upon the occurrence of (and during the continued
existence of) a Default. At any meeting held for the purpose of electing a
director, the presence in person or by proxy of the holders of a majority of the
outstanding shares of the class or series entitled to elect such director shall
constitute a quorum for the purpose of electing such director. In the case of
any vacancy in the office of a director elected by the holders of a particular
class or classes of stock, a successor shall be elected to hold office for the
unexpired term of such director by the affirmative vote of the holders of a
majority of the shares of that class or classes, as applicable, given at a
special meeting of such shareholders duly called or by an action by written
consent for that purpose or, in the absence of action by such holders, by action
of the remaining directors elected by the holders of that class or classes, as
applicable. Any director who shall have been elected by the holders of a
particular class or classes of stock may be removed from the Board of Directors
during such director’s term of office, either for or without cause by, and only
by, the affirmative vote of the holders of a majority of the shares of such
class or classes, as applicable, given at a special meeting of the shareholders
duly called or by an action by written consent for that purpose.

 

11. Priority. The Series E Preferred Stock, whether now or hereafter issued,
shall, with respect to dividend rights (other than the right to receive
additional shares of Series E Preferred Stock pursuant to Section 14) and rights
on liquidation, winding up or dissolution, whether voluntary or involuntary,
rank senior to the Common Stock of the Corporation and to any other series of
Preferred Stock established hereafter by the Board of Directors the terms of
which shall specifically provide that such series shall rank junior to the
Series E Preferred Stock with respect to dividend rights and rights on
liquidation, winding up or dissolution. The Corporation shall not, without the
prior approval of Holders of at least 66-2/3% of the shares of Series E
Preferred Stock then outstanding, voting as a separate class, issue any
additional shares of the Series E Preferred Stock, or create any other class or
series of capital stock that ranks senior to or on a parity with the Series E
Preferred Stock.

 

12. Charges, Taxes and Expenses. Issuance of certificates for shares of Series E
Preferred Stock and for Underlying Shares issued on conversion of (or otherwise
in respect of) the Series E Preferred Stock shall be made without charge to the
Holders for any issue or transfer tax, withholding tax, transfer agent fee or
other incidental tax or expense in respect of the issuance of such certificates,
all of which taxes and expenses shall be paid by the Corporation. The Holder
shall be responsible for all other tax liability that may arise as a result of
holding or transferring the Series E Preferred Stock or receiving Underlying
Shares in respect of the Series E Preferred Stock.

 

57

 

 

13. Replacement Certificates. If any certificate evidencing Series E Preferred
Stock or Underlying Shares is mutilated, lost, stolen or destroyed, or a Holder
fails to deliver such certificate as may otherwise be provided herein, the
Corporation shall issue or cause to be issued in exchange and substitution for
and upon cancellation thereof, or in lieu of and substitution for such
certificate, a new certificate, but only upon receipt of evidence reasonably
satisfactory to the Corporation of such loss, theft or destruction (in such
case) and, in each case, customary and reasonable indemnity, if requested.
Applicants for a new certificate under such circumstances shall also comply with
such other reasonable regulations and procedures and pay such other reasonable
third-party costs as the Corporation may prescribe.

 

14. Reservation of Underlying Shares. The Corporation covenants that it shall at
all times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Underlying Shares as required hereunder, the number of
Underlying Shares which are then issuable and deliverable upon the conversion of
(and otherwise in respect of) all outstanding Series E Preferred Stock (taking
into account the adjustments of Section 9), free from preemptive rights or any
other contingent purchase rights of persons other than the Holder. The
Corporation covenants that all Underlying Shares so issuable and deliverable
shall, upon issuance in accordance with the terms hereof, be duly and validly
authorized, issued and fully paid and nonassessable. The Corporation covenants
that it shall use its best efforts to satisfy each of the Equity Conditions. The
Corporation has reserved from its duly authorized capital stock the maximum
number of shares of Common Stock issuable upon conversion of the Series E
Preferred Stock.

 

15. Fractional Shares. The Corporation shall not be required to issue or cause
to be issued fractional Common Shares on conversion of Series E Preferred Stock
or in payment of any Dividend. If any fraction of a Common Share would, except
for the provisions of this Section, be issuable upon conversion of Series E
Preferred Stock or in payment of any Dividend, the number of Common Shares to be
issued will be rounded up to the nearest whole share.

 

16. Mandatory Redemption.

 

(a) The Corporation shall redeem, from any source of funds legally available
therefor, all remaining outstanding shares of the Series E Preferred Stock on
the fifth anniversary of the Original Issue Date (the “Redemption Date”). The
Corporation shall effect such redemption by paying in cash in exchange for the
shares of Series E Preferred Stock to be redeemed a sum equal to the Stated
Value of each share of Series E Preferred Stock plus all declared or accumulated
but unpaid dividends on such shares (the “Redemption Price”). In the event the
Corporation is lawfully able to redeem only part of the Series E Preferred Stock
outstanding, then the holders of shares of Series E Preferred Stock shall be
entitled to have their shares redeemed ratably, in proportion to the number of
such shares owned by each such holder (rounded to the nearest share), and the
Corporation shall redeem the remaining shares of Series E Preferred Stock on the
first day it may lawfully do so.

 

58

 

 

(b) Ten (10) days prior to the Redemption Date, the Corporation shall deposit
the aggregate Redemption Price for all outstanding shares of Series E Preferred
Stock designated for redemption on such Redemption Date and not yet redeemed or
converted, with a bank or trust company having aggregate capital and surplus in
excess of $1,000,000,000 as a trust fund for the benefit of the respective
holders of the shares designated for redemption and not yet redeemed.
Simultaneously, the Corporation shall deposit irrevocable instructions and
authority with such bank or trust company to pay, on and after the Redemption
Date, the Redemption Price of the shares of Series E Preferred Stock so
designated for redemption to the holders thereof upon surrender of their
certificates or a reasonably acceptable affidavit of loss. The balance of any
monies deposited by the Corporation pursuant to this paragraph remaining
unclaimed at the expiration of six (6) months following the Redemption Date
shall thereafter be returned to the Corporation, provided that the stockholder
to whom such monies would be payable hereunder shall be entitled to receive such
monies upon proof of ownership of the Series E Preferred Stock, which payment
shall be made without interest. Dividends with respect to shares of Series E
Preferred Stock shall cease to accrue after the Redemption Date and all rights
with respect to such shares shall forthwith after the Redemption Date terminate,
except the right to receive the Redemption Price pursuant to the terms of this
Section 16; provided, that in the event of a Default (as defined below), the
holders of shares of Series E Preferred Stock shall have all of the rights,
preferences and privileges provided for herein, including, without limitation,
pursuant to Section 16(c) below.

 

(c) If the Corporation fails to pay the full Redemption Price for all shares of
Series E Preferred Stock payable as of such Redemption Date (a “Default”) then,
notwithstanding anything else to the contrary contained herein or in the
Articles of Incorporation of the Corporation, as amended, the holders of the
outstanding shares of Series E Preferred Stock, voting as a separate class,
shall be entitled to elect a majority of the directors of the Corporation, each
to serve until such time as such Redemption Price has been paid in full. At the
request of the holders of a majority of the shares of Series E Preferred Stock,
the Corporation shall use its best efforts to secure the necessary corporate
approvals and effect (i) a sale of the debt or equity securities of the
Corporation and/or any of its subsidiaries, (ii) a sale or transfer of all or a
portion of the assets of the Corporation and/or any of its subsidiaries, (iii) a
merger, consolidation or other business combination of the Corporation and/or
any of its subsidiaries or (iv) any other transaction (including the
liquidation, dissolution or winding up of the Corporation and/or any of its
subsidiaries) which could reasonably be expected to enable the Corporation to
pay and discharge any outstanding portion of such Redemption Price.

 

17. Notices. Any and all notices or other communications or deliveries hereunder
(including without limitation any Conversion Notice) shall be in writing and
shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section prior to 4:30 p.m. (New York City
time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day or
later than 4:30 p.m. (New York City time) on any Trading Day, (iii) the Trading
Day following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be: (i) if to
the Corporation, to 3 E. De La Guerra Street, Santa Barbara, California 93101,
Attention: Chief Executive Officer, or (ii) if to a Holder, to the address or
facsimile number appearing on the Corporation’s stockholder records or such
other address or facsimile number as such Holder may provide to the Corporation
in accordance with this Section.

 

59

 

 

18. Miscellaneous.

 

(a) The headings herein are for convenience only, do not constitute a part of
this Certificate of Designations and shall not be deemed to limit or affect any
of the provisions hereof.

 

(b) No provision of this Certificate of Designations may be amended, except in a
written instrument signed by the Corporation and Holders of at least a majority
of the shares of Series E Preferred Stock then outstanding. Any of the rights of
the Holders of Series E Preferred Stock set forth herein, including any Equity
Conditions or any other similar conditions for the Holders’ benefit, may be
waived by the affirmative vote of Holders of at least a majority of the shares
of Series E Preferred Stock then outstanding. No waiver of any default with
respect to any provision, condition or requirement of this Certificate of
Designations shall be deemed to be a continuing waiver in the future or a waiver
of any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.

 

[Signature page follows.]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

60

 

 

IN WITNESS WHEREOF, Stratus Media Group, Inc. has caused this Amended and
Restated Certificate of Designations to be duly executed as of this 3rd day of
October, 2012.

 

  STRATUS MEDIA GROUP, INC.

            By:         Name          Title                     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

61

 

EXHIBIT A

 

FORM OF CONVERSION NOTICE

 

(To be executed by the registered Holder in order to convert shares of Series E
Preferred Stock) The undersigned hereby elects to convert the number of shares
of Series E Convertible Preferred Stock indicated below into shares of common
stock, par value $0.001 per share (the “Common Stock”), of Stratus Media Group,
Inc., a Nevada corporation (the “Corporation”), according to the conditions
hereof, as of the date written below.

 

       

Date to Effect Conversion

 

 

   

Number of shares of Series E Preferred Stock owned prior to Conversion

 

 

   

 

Number of shares of Series E Preferred Stock to be Converted

 

 

   

 

Stated Value of shares of Series E Preferred Stock to be Converted

 

 

   

 

Number of shares of Common Stock to be Issued

 

 

   

 

Applicable Conversion Price

 

 

   

 

Number of shares of Series E Preferred Stock subsequent to Conversion

 

 

   

 

Name of Holder

 

 

 

 

  By:       Name:       Title:    

 

62

 

 

Exhibit B

FORM OF A WARRANT

 

(See attached)

 

 

 

 

 

 

 

 

 

 

 

 

 

63

 

 

STRATUS MEDIA GROUP, INC.

 

WARRANT TO PURCHASE COMMON STOCK

 

To Purchase 3,333,333 Shares of Common Stock

 

Date of Issuance: October [___], 2012

 

THIS CERTIFIES THAT, for value received, [__________] or its permitted
registered assigns (the “Holder”), is entitled to subscribe for and purchase at
the Exercise Price (defined below) from Stratus Media Group, Inc., a Nevada
corporation (the “Company”), up to 3,333,333 shares of the common stock of the
Company, par value $0.001 per share (the “Common Stock”). This warrant is one of
a series of warrants issued by the Company as of the date hereof (individually a
“Warrant” and collectively the “Warrants”) pursuant to that certain Securities
Purchase Agreement, dated as of October 3, 2012, among the Company and the
Investors (as defined therein) (the “Purchase Agreement”).

 

1. Definitions. Capitalized terms used but not defined herein shall have their
respective meanings as set forth in the Purchase Agreement. As used herein, the
following terms have the following respective meanings:

 

(A) “Eligible Market” means any of the New York Stock Exchange, the American
Stock Exchange, The NASDAQ Global Market, The NASDAQ Global Select Market or The
NASDAQ Capital Market.

 

(B) “Exercise Period” means the period commencing on the date hereof and ending
on the fifth (5th) anniversary of the effective date of a registration statement
registering the Exercise Shares for resale, unless sooner terminated as provided
below.

 

(C) “Exercise Price” means $0.30, subject to adjustment pursuant to Section 3
below.

 

(D) “Exercise Shares” means the shares of Common Stock issuable upon exercise of
this Warrant.

 

(E) “Exempt Issuance” means the issuance of (a) shares of Common Stock or
options (i) to employees, officers or directors of the Company pursuant to any
stock or option plan duly adopted and in effect as of the date hereof or (ii)
duly adopted after the date hereof by a majority of the non-employee members of
the Board of Directors or a majority of the members of a committee of
non-employee directors established for such purpose, (b) shares of Common Stock
upon the exercise or exchange of or conversion of the Warrants and/or other
securities exercisable or exchangeable for or convertible into shares of Common
Stock issued and outstanding on the date of this Warrant, and (c) securities
issued pursuant to acquisitions or strategic transactions approved by a majority
of the disinterested directors of the Company, provided that any such issuance
shall only be to a Person (or to the equityholders of a Person) which is, itself
or through its subsidiaries, an operating company or an asset in a business
related to the business of the Company and shall provide to the Company
additional benefits in addition to the investment of funds, but shall not
include a transaction in which the Company is issuing securities primarily for
the purpose of raising capital or to an entity whose primary business is
investing in securities.

 

64

 

 

(F) “Fundamental Transaction” means that the Company shall, directly or
indirectly, in one or more related transactions, (i) consolidate or merge with
or into (whether or not the Company is the surviving corporation) another
Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person,
or (iii) allow another Person to make a purchase, tender or exchange offer that
is accepted by the holders of more than the 50% of the outstanding shares of
Common Stock (not including any shares of Common Stock held by the Person or
Persons making or party to, or associated or affiliated with the Persons making
or party to, such purchase, tender or exchange offer), or (iv) consummate a
stock purchase agreement or other business combination (including, without
limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires more than
the 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
purchase agreement or other business combination), or (v) reorganize,
recapitalize or reclassify its Common Stock.

 

(G) “Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization, any other
entity and a government or any department or agency thereof.

 

(H) “Trading Day” means (a) any day on which the Common Stock is listed or
quoted and traded on its primary Trading Market, (b) if the Common Stock is not
then listed or quoted and traded on any Eligible Market, then a day on which
trading occurs on the OTC Bulletin Board (or any successor thereto), or (c) if
trading does not occur on the OTC Bulletin Board (or any successor thereto), any
business day.

 

(I) “Trading Market” means any Eligible Market, or any national securities
exchange, market or trading or quotation facility on which the Common Stock is
then listed or quoted.

 

2. Exercise of Warrant. The rights represented by this Warrant may be exercised
in whole or in part at any time during the Exercise Period, by delivery of the
following to the Company at its address set forth on the signature page hereto
(or at such other address as it may designate by notice in writing to the
Holder):

 

(A) an executed Notice of Exercise in the form attached hereto; and

 

(B) payment of the Exercise Price either (i) in cash or by wire transfer of
immediately available funds or (ii) pursuant to Section 2.1 below.

 

Execution and delivery of the Notice of Exercise shall have the same effect as
cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Exercise Shares, if any.

 

 

 

65

 

 

Certificates for shares purchased hereunder shall be transmitted by the transfer
agent of the Company to the Holder by crediting the account of the Holder’s
prime broker with the Depository Trust Company through its Deposit Withdrawal
Agent Commission system if the Company is a participant in such system, and
otherwise by physical delivery to the address specified by the Holder in the
Notice of Exercise, within three business days from the delivery to the Company
of the Notice of Exercise and payment of the aggregate Exercise Price as set
forth above. This Warrant shall be deemed to have been exercised on the date the
Exercise Price is received by the Company.

 

The person in whose name any certificate or certificates for Exercise Shares are
to be issued upon exercise of this Warrant shall be deemed to have become the
holder of record of such shares on the date on which payment of the Exercise
Price was made, irrespective of the date of delivery of such certificate or
certificates, except that, if the date of such payment is a date when the stock
transfer books of the Company are closed, such person shall be deemed to have
become the holder of such shares at the open of business on the next succeeding
date on which the stock transfer books are open.

 

Subject to the final sentence of this paragraph and to the extent permitted by
law, the Company’s obligations to issue and deliver Exercise Shares in
accordance with the terms hereof are absolute and unconditional, irrespective of
any action or inaction by the Holder to enforce the same, any waiver or consent
with respect to any provision hereof, the recovery of any judgment against any
person or entity or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the
Holder or any other person or entity of any obligation to the Company or any
violation or alleged violation of law by the Holder or any other person or
entity, and irrespective of any other circumstance which might otherwise limit
such obligation of the Company to the Holder in connection with the issuance of
Exercise Shares. The Holder shall, subject to the following proviso, have the
right to pursue any remedies available to it hereunder, at law or in equity,
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
Exercise Shares upon exercise of this Warrant as required pursuant to the terms
hereof.

 

2.1 Net Share Exercise. If during the Exercise Period (i) the Fair Market Value
(as defined below) of one share of the Common Stock is greater than the Exercise
Price (at the date of calculation as set forth below), and (ii) the Exercise
Shares are not registered for resale pursuant to an effective registration
statement, in lieu of exercising this Warrant by payment of cash or by wire
transfer of immediately available funds, the Company may, in its sole
discretion, permit the Holder to effect a “net share exercise” of this Warrant,
in which event, if so effected, the Holder shall receive Exercise Shares equal
to the value (as determined below) of this Warrant (or the portion thereof being
canceled) by delivering the properly endorsed Notice of Exercise to the
principal office of the Company in which event the Company shall issue to the
Holder a number of shares of Common Stock computed using the following formula:

 

X = Y(A-B)
A

 

 

 

  

66

 

 

Where X = the number of Exercise Shares to be issued to the Holder

 

Y = the number of Exercise Shares with respect to which this Warrant is being
exercised

 

A = the Fair Market Value (as defined below) of one share of the Company’s
Common Stock (at the date of such calculation)

 

B = the Exercise Price (as adjusted to the date of such calculation)

 

For purposes of this Warrant, the “Fair Market Value” of one share of Common
Stock means (i) the average of the closing sales prices for the shares of Common
Stock on an Eligible Market where the Common Stock is listed or traded as
reported by Bloomberg Financial Markets (or a comparable reporting service of
national reputation selected by the Company and reasonably acceptable to the
Holder if Bloomberg Financial Markets is not then reporting sales prices of such
security) (collectively, “Bloomberg”) for the ten consecutive trading days
immediately before the Exercise Date, or (ii) if an Eligible Market is not the
principal Trading Market for the shares of Common Stock, the average of the
reported sales prices reported by Bloomberg on the principal Trading Market for
the Common Stock during the same period, or, if there is no sales price for such
period, the last sales price reported by Bloomberg for such period, or (iii) if
neither of the foregoing applies, the last sales price of such security in the
over-the-counter market on the pink sheets or bulletin board for such security
as reported by Bloomberg, or if no sales price is so reported for such security,
the last bid price of such security as reported by Bloomberg, or (iv) if “Fair
Market Value” cannot be calculated as of such date on any of the foregoing
bases, the “Fair Market Value” shall be as mutually determined by the Board of
Directors of the Company and the Holder in the exercise of their respective good
faith judgment.

 

2.2 Issuance of New Warrants. Upon any partial exercise of this Warrant, the
Company, at its expense, will forthwith and, in any event within five business
days, issue and deliver to the Holder a new warrant or warrants of like tenor,
registered in the name of the Holder, exercisable, in the aggregate, for the
balance of the number of shares of Common Stock remaining available for purchase
under this Warrant.

 

2.3 Payment of Taxes and Expenses. The Company shall pay any recording, filing,
stamp or similar tax which may be payable in respect of any transfer involved in
the issuance of, and the preparation and delivery of certificates (if
applicable) representing, (i) any Exercise Shares purchased upon exercise of
this Warrant and/or (ii) new or replacement warrants in the Holder’s name or the
name of any transferee of all or any portion of this Warrant; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance, delivery or registration of
any certificates for Exercise Shares or Warrants in a name other than that of
the Holder. The Holder shall be responsible for all other tax liability that may
arise as a result of holding or transferring this Warrant or receiving Exercise
Shares upon exercise hereof.

 

3. Adjustment of Exercise Price and Shares. The Exercise Price and number of
Exercise Shares issuable upon exercise of this Warrant shall be adjusted from
time to time as follows:

 

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3.1 Adjustment upon Issuance of Shares of Common Stock. If and whenever on or
after the date hereof, the Company issues or sells, or in accordance with this
Section 3 is deemed to have issued or sold, any shares of Common Stock for a
consideration per share (the “New Issuance Price”) less than a price equal to
the Exercise Price in effect immediately before such issue or sale or deemed
issuance or sale (such lesser price being referred to as the “Applicable Price”)
(the foregoing a “Dilutive Issuance”), then immediately after such Dilutive
Issuance, the Exercise Price then in effect shall be reduced to the Applicable
Price, and the number of Exercise Shares issuable hereunder shall be increased
such that the aggregate Exercise Price payable hereunder, after taking into
account the decrease in the Exercise Price, shall be equal to the aggregate
Exercise Price prior to such adjustment. Notwithstanding the foregoing, no
adjustments shall be made, paid or issued under this Section 3.1 in respect of
an Exempt Issuance. For purposes of determining the adjusted Exercise Price
under this Section 3.1, the following shall be applicable:

 

3.1.1 Issuance of Options. If the Company in any manner grants any options and
the lowest price per share for which one share of Common Stock is issuable upon
the exercise of any such option or upon conversion, exercise or exchange of any
convertible securities issuable upon exercise of any such option is less than
the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such option for such price per share. For purposes of this
Section 3.1.1, the “lowest price per share for which one share of Common Stock
is issuable upon exercise of such options or upon conversion, exercise or
exchange of such convertible securities issuable upon exercise of any such
option” shall be equal to the sum of the lowest amounts of consideration, if
any, received or receivable by the Company with respect to any one share of
Common Stock upon the granting or sale of the option, upon exercise of the
option and upon conversion, exercise or exchange of any convertible security
issuable upon exercise of such option. No further adjustment of the Exercise
Price shall be made upon the actual issuance of such shares of Common Stock or
of such convertible securities upon the exercise of such options or upon the
actual issuance of such shares of Common Stock upon conversion, exercise or
exchange of such convertible securities.

 

3.1.2 Issuance of Convertible Securities. If the Company in any manner issues or
sells any convertible securities and the lowest price per share for which one
share of Common Stock is issuable upon the conversion, exercise or exchange
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such convertible securities for such price
per share. For the purposes of this Section 3.1.2, the “lowest price per share
for which one share of Common Stock is issuable upon the conversion, exercise or
exchange thereof” shall be equal to the sum of the lowest amounts of
consideration, if any, received or receivable by the Company with respect to one
share of Common Stock upon the issuance or sale of the convertible security and
upon conversion, exercise or exchange of such convertible security. No further
adjustment of the Exercise Price shall be made upon the actual issuance of such
shares of Common Stock upon conversion, exercise or exchange of such convertible
securities, and if any such issue or sale of such convertible securities is made
upon exercise of any options for which adjustment of this Warrant has been or is
to be made pursuant to other provisions of this Section 3.1 no further
adjustment of the Exercise Price shall be made by reason of such issue or sale.

 

 

 

 

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3.1.3 Change in Option Price or Rate of Conversion. If the purchase price
provided for in any options, the additional consideration, if any, payable upon
the issue, conversion, exercise or exchange of any convertible securities, or
the rate at which any convertible securities are convertible into or exercisable
or exchangeable for shares of Common Stock increases or decreases at any time,
then the Exercise Price and the number of Exercise Shares in effect at the time
of such increase or decrease shall be adjusted to the Exercise Price and the
number of Exercise Shares which would have been in effect at such time had such
options or convertible securities provided for such increased or decreased
purchase price, additional consideration or increased or decreased conversion
rate, as the case may be, at the time initially granted, issued or sold. For
purposes of this Section 3.1.3, if the terms of any option or convertible
security that was outstanding as of the date of issuance of this Warrant are
increased or decreased in the manner described in the immediately preceding
sentence, then such option or convertible security and the shares of Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 3.1 shall be made if such adjustment would
result in an increase of the Exercise Price then in effect or a decrease in the
number of Exercise Shares.

 

3.1.4 Calculation of Consideration Received. In case any option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction, (x) the options will be deemed to have
been issued for a value determined by use of the Black Scholes Option Pricing
Model (the “Option Value”) and (y) the other securities issued or sold in such
integrated transaction shall be deemed to have been issued for the difference of
(I) the aggregate consideration received by the Company, less (II) the Option
Value. If any shares of Common Stock, options or convertible securities are
issued or sold or deemed to have been issued or sold for cash, the consideration
received therefor will be deemed to be the net amount received by the Company
therefor. If any shares of Common Stock, options or convertible securities are
issued or sold for a consideration other than cash, the amount of such
consideration received by the Company will be the fair value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Company will be the weighted
average price of such security on the date of receipt. If any shares of Common
Stock, options or convertible securities are issued to the owners of the
non-surviving entity in connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of the non-surviving
entity as is attributable to such shares of Common Stock, options or convertible
securities, as the case may be. The fair value of any consideration other than
cash or securities will be determined in good faith by the Board of Directors of
the Company. In the event that the Holders of Warrants exercisable for a
majority of the aggregate Exercise Shares (the “Majority Holders”) object in
writing to a valuation within ten days after the occurrence of an event
requiring valuation (the “Valuation Event”), then the fair value of such
consideration will be determined within five business days after the tenth day
following the Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Majority Holders. The determination of such
appraiser shall be final and binding upon all parties absent manifest error, and
the fees and expenses of such appraiser shall be borne equally by the Company
and the Holders.

 

 

 

 

69

 

 

3.1.5 Record Date. If the Company takes a record of the holders of shares of
Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in shares of Common Stock, options or in convertible
securities or (B) to subscribe for or purchase shares of Common Stock, options
or convertible securities, then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.

 

3.1.6 Voluntary Adjustment by the Company. The Company may at any time during
the term of this Warrant reduce the then current Exercise Price to any amount
and for any period of time deemed appropriate by the Board of Directors of the
Company.

 

3.2 Adjustment upon Subdivision or Combination of Common Stock. If the Company
at any time on or after the date hereof subdivides (by any stock split, stock
dividend, recapitalization, reorganization, scheme, arrangement or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately before such
subdivision will be proportionately reduced and the number of Exercise Shares
will be proportionately increased. If the Company at any time on or after the
date hereof combines (by any stock split, stock dividend, recapitalization,
reorganization, scheme, arrangement or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately before such combination will be proportionately
increased and the number of Exercise Shares will be proportionately decreased.
Any adjustment under this Section 3.2 shall become effective at the close of
business on the date the subdivision or combination becomes effective.

 

3.3 Other Events. If any event occurs of the type contemplated by the provisions
of Section 3.1 or 3.2 but is not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company’s
Board of Directors will make an appropriate adjustment in the Exercise Price and
the number of Exercise Shares so as to protect the rights of the Holder;
provided that no such adjustment pursuant to this Section 3.3 will increase the
Exercise Price or decrease the number of Exercise Shares as otherwise determined
pursuant to this Section 3.

 

4. Rights Upon Distribution of Assets. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets)
to holders of shares of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a “Distribution”), at any time after the issuance of this
Warrant, then, in each such case:

 

 

 

 

70

 

 

(A) any Exercise Price in effect immediately before the close of business on the
record date fixed for the determination of holders of shares of Common Stock
entitled to receive the Distribution shall be reduced, effective as of the close
of business on such record date, to a price determined by multiplying such
Exercise Price by a fraction of which (i) the numerator shall be the closing bid
price of the shares of Common Stock on the Trading Day immediately preceding
such record date minus the value of the Distribution (as determined in good
faith by the Company’s Board of Directors) applicable to one share of Common
Stock, and (ii) the denominator shall be the closing bid price of the shares of
Common Stock on the Trading Day immediately preceding such record date; and

 

(B) the number of Exercise Shares shall be increased to a number of shares equal
to the number of shares of Common Stock obtainable immediately before the close
of business on the record date fixed for the determination of holders of shares
of Common Stock entitled to receive the Distribution multiplied by the
reciprocal of the fraction set forth in the immediately preceding paragraph (A);
provided that in the event that the Distribution is of shares of Common Stock
(or common stock) (“Other Shares of Common Stock”) of a company whose common
shares are traded on a national securities exchange or a national automated
quotation system, then the Holder may elect to receive a warrant to purchase
Other Shares of Common Stock in lieu of an adjustment in the number of Exercise
Shares, the terms of which shall be identical to those of this Warrant, except
that such warrant shall be exercisable into the number of shares of Other Shares
of Common Stock that would have been payable to the Holder pursuant to the
Distribution had the Holder exercised this Warrant immediately before such
record date and with an aggregate exercise price equal to the product of the
amount by which the exercise price of this Warrant was decreased with respect to
the Distribution pursuant to the terms of the immediately preceding paragraph
(A) and the number of Exercise Shares calculated in accordance with the first
part of this paragraph (B).

 

5. Purchase Rights; Fundamental Transactions.

 

5.1 Purchase Rights. In addition to any adjustments pursuant to Section 3 above,
if at any time the Company grants, issues or sells any options, convertible
securities or rights to purchase stock, warrants, securities or other property
pro rata to the record holders of any class of shares of Common Stock (the
“Purchase Rights”), then the Holder will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which the
Holder could have acquired if the Holder had held the number of shares of Common
Stock acquirable upon complete exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.

 

 

 

 

71

 

 

5.2 Fundamental Transactions. The Company shall not enter into or be party to a
Fundamental Transaction unless the successor entity assumes this Warrant in
accordance with the provisions of this Section 5.2, including agreements to
deliver to each holder of Warrants in exchange for such Warrants a security of
the successor entity evidenced by a written instrument substantially similar in
form and substance to this Warrant, including, without limitation, an adjusted
exercise price equal to the value for the shares of Common Stock reflected by
the terms of such Fundamental Transaction, and exercisable for a corresponding
number of shares of capital stock equivalent to the shares of Common Stock
acquirable and receivable upon exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) before such Fundamental
Transaction. Upon the occurrence of any Fundamental Transaction, the successor
entity shall succeed to, and be substituted for (so that from and after the date
of such Fundamental Transaction, the provisions of this Warrant referring to the
“Company” shall refer instead to the successor entity), and may exercise every
right and power of the Company and shall assume all of the obligations of the
Company under this Warrant with the same effect as if such successor entity had
been named as the Company herein. In addition to and not in substitution for any
other rights hereunder, before the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a “Corporate Event”), the Company shall make appropriate provision to
insure that the Holder will thereafter have the right to receive upon an
exercise of this Warrant at any time after the consummation of the Fundamental
Transaction but before the end of the Exercise Period, in lieu of the shares of
the Common Stock (or other securities, cash, assets or other property)
purchasable upon the exercise of the Warrant before such Fundamental
Transaction, such shares of stock, securities, cash, assets or any other
property whatsoever (including warrants or other purchase or subscription
rights) which the Holder would have been entitled to receive upon the happening
of such Fundamental Transaction had the Warrant been exercised immediately
before such Fundamental Transaction. If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the
consideration it receives upon any exercise of this Warrant following such
Fundamental Transaction. The provisions of this Section 5.2 shall apply
similarly and equally to successive Fundamental Transactions and Corporate
Events and shall be applied without regard to any limitations on the exercise of
this Warrant. Notwithstanding the foregoing, in the event of a Fundamental
Transaction, at the request of the Holder delivered before the 15th day after
consummation of such Fundamental Transaction, the Company (or the successor
entity) shall purchase this Warrant from the Holder by paying to the Holder,
within five business days after such request (or, if later, within two business
days after the effective date of the Fundamental Transaction), cash in an amount
equal to the Black Scholes Value of the remaining unexercised portion of this
Warrant on the date of such Fundamental Transaction.

 

6. Noncircumvention. The Company hereby covenants and agrees that the Company
will not, by amendment of its Articles of Incorporation, Bylaws or through any
reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all the
provisions of this Warrant. Without limiting the generality of the foregoing,
the Company (i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as this Warrant is outstanding, take all action necessary
to reserve and keep available out of its authorized and unissued shares of
Common Stock, solely for the purpose of effecting the exercise of this Warrant,
100% of the number of shares of Common Stock issuable upon exercise of this
Warrant then outstanding (without regard to any limitations on exercise).

 

 

 

 

 

72

 

 

7. Fractional Shares. No fractional shares shall be issued upon the exercise of
this Warrant as a consequence of any adjustment pursuant hereto. All Exercise
Shares (including fractions) issuable upon exercise of this Warrant may be
aggregated for purposes of determining whether the exercise would result in the
issuance of any fractional share. If, after aggregation, the exercise would
result in the issuance of a fractional share, the number of Exercise Shares to
be issued will be rounded down to the nearest whole share.

 

8. No Stockholder Rights. Other than as provided herein, this Warrant in and of
itself shall not entitle the Holder to any voting rights or other rights as a
stockholder of the Company.

 

9. Transfer of Warrant. Subject to applicable laws, this Warrant and all rights
hereunder are transferable, by the Holder in person or by duly authorized
attorney, upon delivery of this Warrant and the form of assignment attached
hereto to any transferee designated by Holder. The transferee shall sign an
investment letter in form and substance reasonably satisfactory to the Company
and its counsel. Any purported transfer of all or any portion of this Warrant in
violation of the provisions of this Warrant shall be null and void.

 

10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost,
stolen, mutilated or destroyed, the Company may, on such terms as to indemnity
or otherwise as it may reasonably impose (which shall, in the case of a
mutilated Warrant, include the surrender thereof), issue a new Warrant of like
denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.
Any such new Warrant shall constitute an original contractual obligation of the
Company, whether or not the allegedly lost, stolen, mutilated or destroyed
Warrant shall be at any time enforceable by anyone.

 

11. Notices, etc. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed facsimile to the facsimile
number specified in writing by the recipient if sent during normal business
hours of the recipient on a Trading Day, if not, then on the next Trading Day,
(c) the next Trading Day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of receipt, and
(d) when sent by electronic mail to the electronic mail address specified in
writing by the recipient if sent during normal business hours of the recipient
on a Trading Day, if not, then on the next Trading Day. All communications shall
be sent to the Company at the address (or electronic mail address) listed on the
signature page hereto and to Holder at the applicable address (or electronic
mail address) set forth on the applicable signature page to the Purchase
Agreement or at such other address (or electronic mail address) as the Company
or Holder may designate by ten days advance written notice to the other parties
hereto.

 

12. Acceptance. Receipt of this Warrant by the Holder shall constitute
acceptance of and agreement to all of the terms and conditions contained herein.

 

 

 

 

73

 

 

13. Governing Law. This Warrant and all rights, obligations and liabilities
hereunder shall be governed by, and construed in accordance with, the internal
laws of the State of New York, without giving effect to the principles of
conflicts of law that would require the application of the laws of any other
jurisdiction.

 

14. Amendment or Waiver. Any term of this Warrant may be amended or waived
(either generally or in a particular instance and either retroactively or
prospectively) with the written consent of the Company and the holders of
Warrants representing at least two-thirds of the number of shares of Common
Stock then subject to outstanding Warrants. Notwithstanding the foregoing, (a)
this Warrant may be amended and the observance of any term hereunder may be
waived without the written consent of the Holder only in a manner which applies
to all Warrants in the same fashion and (b) the number of Exercise Shares
subject to this Warrant and the Exercise Price of this Warrant may not be
amended, and the right to exercise this Warrant may not be waived, without the
written consent of the Holder. The Company shall give prompt written notice to
the Holder of any amendment hereof or waiver hereunder that was effected without
the Holder’s written consent. No waivers of any term, condition or provision of
this Warrant, in any one or more instances, shall be deemed to be, or construed
as, a further or continuing waiver of any such term, condition or provision.

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
duly authorized officer as of October ___, 2012.

 

  STRATUS MEDIA GROUP, INC.           By:         Name:         Title:          
 

1800 Century Park East, 6th Floor

Los Angeles, CA 90067

 

 

 

 

 

 

 

 

 

 

 

 

 

 

75

 

 

NOTICE OF EXERCISE

 

TO: STRATUS MEDIA GROUP, INC.

 

  (1)   £      The undersigned hereby elects to purchase [_____] shares of the
common stock, par value $0.001 (the “Common Stock”), of Stratus Media Group,
Inc., a Nevada corporation (the “Company”), pursuant to the terms of the
attached Warrant, and tenders herewith payment of the exercise price in full,
together with all applicable transfer taxes, if any.               £      The
undersigned hereby elects to purchase [_____] shares of Common Stock of the
Company pursuant to the terms of the net share exercise provisions set forth in
Section 2.1 of the attached Warrant, and shall tender payment of all applicable
transfer taxes, if any.           (2)   Please issue the certificate for shares
of Common Stock in the name of:                       (Print or Type Name)      
                (Social Security or other Identifying Number)                  
    (Street Address)                       (City, State, Zip Code)           (3)
  If such number of shares shall not be all the shares purchasable upon the
exercise of the Warrants evidenced by this Warrant, a new warrant certificate
for the balance of such warrants remaining unexercised shall be registered in
the name of and delivered to:

 

  Please insert social security or other identifying number:  

 

 

 

(Please print name and address)

 

 

 

 

Dated:                                           (Signature)                
(Print Name)  

 

76

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute this form and supply the required
information.

 

Do not use this form to purchase shares.)

 

 

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are
hereby assigned to:

 

  Name:         (Please Print)             Address:         (Please Print)      
                      Dated:               Holder’s Signature:              
Holder’s Address:         (Please Print)          

 

 

NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever. Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Warrant.

 

 

 

 

 

  

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Exhibit C

FORM OF B WARRANT

 

(See attached)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

78

 

Series B Warrant

 

STRATUS MEDIA GROUP, INC.

 

WARRANT TO PURCHASE COMMON STOCK

 

To Purchase 1,666,666 Shares of Series B Common Stock

 

Date of Issuance: October [___], 2012

 

THIS CERTIFIES THAT, for value received, [__________] or its permitted
registered assigns (the “Holder”), is entitled to subscribe for and purchase at
the Exercise Price (defined below) from Stratus Media Group, Inc., a Nevada
corporation (the “Company”), up to 1,666,666 shares of the Series B common stock
of the Company, par value $0.001 per share (the “Common Stock”). This warrant is
one of a series of warrants issued by the Company as of the date hereof
(individually a “Warrant” and collectively the “Warrants”) pursuant to that
certain Securities Purchase Agreement, dated as of October 3, 2012, among the
Company and the Investors (as defined therein) (the “Purchase Agreement”).

 

1. Definitions. Capitalized terms used but not defined herein shall have their
respective meanings as set forth in the Purchase Agreement. As used herein, the
following terms have the following respective meanings:

 

(A) “Eligible Market” means any of the New York Stock Exchange, the American
Stock Exchange, The NASDAQ Global Market, The NASDAQ Global Select Market or The
NASDAQ Capital Market.

 

(B) “Exercise Period” means the period commencing on the date hereof and ending
on the fifth (5th) anniversary of the effective date of a registration statement
registering the Exercise Shares for resale, unless sooner terminated as provided
below.

 

(C) “Exercise Price” means $0.30, subject to adjustment pursuant to Section 3
below.

 

(D) “Exercise Shares” means the shares of Common Stock issuable upon exercise of
this Warrant.

 

(E) “Exempt Issuance” means the issuance of (a) shares of Common Stock or
options (i) to employees, officers or directors of the Company pursuant to any
stock or option plan duly adopted and in effect as of the date hereof or (ii)
duly adopted after the date hereof by a majority of the non-employee members of
the Board of Directors or a majority of the members of a committee of
non-employee directors established for such purpose, (b) shares of Common Stock
upon the exercise or exchange of or conversion of the Warrants and/or other
securities exercisable or exchangeable for or convertible into shares of Common
Stock issued and outstanding on the date of this Warrant, and (c) securities
issued pursuant to acquisitions or strategic transactions approved by a majority
of the disinterested directors of the Company, provided that any such issuance
shall only be to a Person (or to the equityholders of a Person) which is, itself
or through its subsidiaries, an operating company or an asset in a business
related to the business of the Company and shall provide to the Company
additional benefits in addition to the investment of funds, but shall not
include a transaction in which the Company is issuing securities primarily for
the purpose of raising capital or to an entity whose primary business is
investing in securities.

 

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(F) “Fundamental Transaction” means that the Company shall, directly or
indirectly, in one or more related transactions, (i) consolidate or merge with
or into (whether or not the Company is the surviving corporation) another
Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person,
or (iii) allow another Person to make a purchase, tender or exchange offer that
is accepted by the holders of more than the 50% of the outstanding shares of
Common Stock (not including any shares of Common Stock held by the Person or
Persons making or party to, or associated or affiliated with the Persons making
or party to, such purchase, tender or exchange offer), or (iv) consummate a
stock purchase agreement or other business combination (including, without
limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires more than
the 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
purchase agreement or other business combination), or (v) reorganize,
recapitalize or reclassify its Common Stock.

 

(G) “Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization, any other
entity and a government or any department or agency thereof.

 

(H) “Trading Day” means (a) any day on which the Common Stock is listed or
quoted and traded on its primary Trading Market, (b) if the Common Stock is not
then listed or quoted and traded on any Eligible Market, then a day on which
trading occurs on the OTC Bulletin Board (or any successor thereto), or (c) if
trading does not occur on the OTC Bulletin Board (or any successor thereto), any
business day.

 

(I) “Trading Market” means any Eligible Market, or any national securities
exchange, market or trading or quotation facility on which the Common Stock is
then listed or quoted.

 

2. Exercise of Warrant. The rights represented by this Warrant may be exercised
in whole or in part at any time during the Exercise Period, by delivery of the
following to the Company at its address set forth on the signature page hereto
(or at such other address as it may designate by notice in writing to the
Holder):

 

(A) an executed Notice of Exercise in the form attached hereto; and

 

(B) payment of the Exercise Price either (i) in cash or by wire transfer of
immediately available funds or (ii) pursuant to Section 2.1 below.

 

Execution and delivery of the Notice of Exercise shall have the same effect as
cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Exercise Shares, if any.

 

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Certificates for shares purchased hereunder shall be transmitted by the transfer
agent of the Company to the Holder by crediting the account of the Holder’s
prime broker with the Depository Trust Company through its Deposit Withdrawal
Agent Commission system if the Company is a participant in such system, and
otherwise by physical delivery to the address specified by the Holder in the
Notice of Exercise, within three business days from the delivery to the Company
of the Notice of Exercise and payment of the aggregate Exercise Price as set
forth above. This Warrant shall be deemed to have been exercised on the date the
Exercise Price is received by the Company.

 

The person in whose name any certificate or certificates for Exercise Shares are
to be issued upon exercise of this Warrant shall be deemed to have become the
holder of record of such shares on the date on which payment of the Exercise
Price was made, irrespective of the date of delivery of such certificate or
certificates, except that, if the date of such payment is a date when the stock
transfer books of the Company are closed, such person shall be deemed to have
become the holder of such shares at the open of business on the next succeeding
date on which the stock transfer books are open.

 

Subject to the final sentence of this paragraph and to the extent permitted by
law, the Company’s obligations to issue and deliver Exercise Shares in
accordance with the terms hereof are absolute and unconditional, irrespective of
any action or inaction by the Holder to enforce the same, any waiver or consent
with respect to any provision hereof, the recovery of any judgment against any
person or entity or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the
Holder or any other person or entity of any obligation to the Company or any
violation or alleged violation of law by the Holder or any other person or
entity, and irrespective of any other circumstance which might otherwise limit
such obligation of the Company to the Holder in connection with the issuance of
Exercise Shares. The Holder shall, subject to the following proviso, have the
right to pursue any remedies available to it hereunder, at law or in equity,
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
Exercise Shares upon exercise of this Warrant as required pursuant to the terms
hereof.

 

2.1 Net Share Exercise. If during the Exercise Period (i) the Fair Market Value
(as defined below) of one share of the Common Stock is greater than the Exercise
Price (at the date of calculation as set forth below), and (ii) the Exercise
Shares are not registered for resale pursuant to an effective registration
statement, in lieu of exercising this Warrant by payment of cash or by wire
transfer of immediately available funds, the Company may, in its sole
discretion, permit the Holder to effect a “net share exercise” of this Warrant,
in which event, if so effected, the Holder shall receive Exercise Shares equal
to the value (as determined below) of this Warrant (or the portion thereof being
canceled) by delivering the properly endorsed Notice of Exercise to the
principal office of the Company in which event the Company shall issue to the
Holder a number of shares of Common Stock computed using the following formula:

 

X = Y(A-B)
A

 

 

 

 

 

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Where X = the number of Exercise Shares to be issued to the Holder

 

Y = the number of Exercise Shares with respect to which this Warrant is being
exercised

 

A = the Fair Market Value (as defined below) of one share of the Company’s
Common Stock (at the date of such calculation)

 

B = the Exercise Price (as adjusted to the date of such calculation)

 

For purposes of this Warrant, the “Fair Market Value” of one share of Common
Stock means (i) the average of the closing sales prices for the shares of Common
Stock on an Eligible Market where the Common Stock is listed or traded as
reported by Bloomberg Financial Markets (or a comparable reporting service of
national reputation selected by the Company and reasonably acceptable to the
Holder if Bloomberg Financial Markets is not then reporting sales prices of such
security) (collectively, “Bloomberg”) for the ten consecutive trading days
immediately before the Exercise Date, or (ii) if an Eligible Market is not the
principal Trading Market for the shares of Common Stock, the average of the
reported sales prices reported by Bloomberg on the principal Trading Market for
the Common Stock during the same period, or, if there is no sales price for such
period, the last sales price reported by Bloomberg for such period, or (iii) if
neither of the foregoing applies, the last sales price of such security in the
over-the-counter market on the pink sheets or bulletin board for such security
as reported by Bloomberg, or if no sales price is so reported for such security,
the last bid price of such security as reported by Bloomberg, or (iv) if “Fair
Market Value” cannot be calculated as of such date on any of the foregoing
bases, the “Fair Market Value” shall be as mutually determined by the Board of
Directors of the Company and the Holder in the exercise of their respective good
faith judgment.

 

2.2 Issuance of New Warrants. Upon any partial exercise of this Warrant, the
Company, at its expense, will forthwith and, in any event within five business
days, issue and deliver to the Holder a new warrant or warrants of like tenor,
registered in the name of the Holder, exercisable, in the aggregate, for the
balance of the number of shares of Common Stock remaining available for purchase
under this Warrant.

 

2.3 Payment of Taxes and Expenses. The Company shall pay any recording, filing,
stamp or similar tax which may be payable in respect of any transfer involved in
the issuance of, and the preparation and delivery of certificates (if
applicable) representing, (i) any Exercise Shares purchased upon exercise of
this Warrant and/or (ii) new or replacement warrants in the Holder’s name or the
name of any transferee of all or any portion of this Warrant; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance, delivery or registration of
any certificates for Exercise Shares or Warrants in a name other than that of
the Holder. The Holder shall be responsible for all other tax liability that may
arise as a result of holding or transferring this Warrant or receiving Exercise
Shares upon exercise hereof.

 

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3. Adjustment of Exercise Price and Shares. The Exercise Price and number of
Exercise Shares issuable upon exercise of this Warrant shall be adjusted from
time to time as follows:

 

3.1 Adjustment upon Issuance of Shares of Common Stock. If and whenever on or
after the date hereof, the Company issues or sells, or in accordance with this
Section 3 is deemed to have issued or sold, any shares of Common Stock for a
consideration per share (the “New Issuance Price”) less than a price equal to
the Exercise Price in effect immediately before such issue or sale or deemed
issuance or sale (such lesser price being referred to as the “Applicable Price”)
(the foregoing a “Dilutive Issuance”), then immediately after such Dilutive
Issuance, the Exercise Price then in effect shall be reduced to the Applicable
Price, and the number of Exercise Shares issuable hereunder shall be increased
such that the aggregate Exercise Price payable hereunder, after taking into
account the decrease in the Exercise Price, shall be equal to the aggregate
Exercise Price prior to such adjustment. Notwithstanding the foregoing, no
adjustments shall be made, paid or issued under this Section 3.1 in respect of
an Exempt Issuance. For purposes of determining the adjusted Exercise Price
under this Section 3.1, the following shall be applicable:

 

3.1.1 Issuance of Options. If the Company in any manner grants any options and
the lowest price per share for which one share of Common Stock is issuable upon
the exercise of any such option or upon conversion, exercise or exchange of any
convertible securities issuable upon exercise of any such option is less than
the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such option for such price per share. For purposes of this
Section 3.1.1, the “lowest price per share for which one share of Common Stock
is issuable upon exercise of such options or upon conversion, exercise or
exchange of such convertible securities issuable upon exercise of any such
option” shall be equal to the sum of the lowest amounts of consideration, if
any, received or receivable by the Company with respect to any one share of
Common Stock upon the granting or sale of the option, upon exercise of the
option and upon conversion, exercise or exchange of any convertible security
issuable upon exercise of such option. No further adjustment of the Exercise
Price shall be made upon the actual issuance of such shares of Common Stock or
of such convertible securities upon the exercise of such options or upon the
actual issuance of such shares of Common Stock upon conversion, exercise or
exchange of such convertible securities.

 

3.1.2 Issuance of Convertible Securities. If the Company in any manner issues or
sells any convertible securities and the lowest price per share for which one
share of Common Stock is issuable upon the conversion, exercise or exchange
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such convertible securities for such price
per share. For the purposes of this Section 3.1.2, the “lowest price per share
for which one share of Common Stock is issuable upon the conversion, exercise or
exchange thereof” shall be equal to the sum of the lowest amounts of
consideration, if any, received or receivable by the Company with respect to one
share of Common Stock upon the issuance or sale of the convertible security and
upon conversion, exercise or exchange of such convertible security. No further
adjustment of the Exercise Price shall be made upon the actual issuance of such
shares of Common Stock upon conversion, exercise or exchange of such convertible
securities, and if any such issue or sale of such convertible securities is made
upon exercise of any options for which adjustment of this Warrant has been or is
to be made pursuant to other provisions of this Section 3.1 no further
adjustment of the Exercise Price shall be made by reason of such issue or sale.

 

 

 

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3.1.3 Change in Option Price or Rate of Conversion. If the purchase price
provided for in any options, the additional consideration, if any, payable upon
the issue, conversion, exercise or exchange of any convertible securities, or
the rate at which any convertible securities are convertible into or exercisable
or exchangeable for shares of Common Stock increases or decreases at any time,
then the Exercise Price and the number of Exercise Shares in effect at the time
of such increase or decrease shall be adjusted to the Exercise Price and the
number of Exercise Shares which would have been in effect at such time had such
options or convertible securities provided for such increased or decreased
purchase price, additional consideration or increased or decreased conversion
rate, as the case may be, at the time initially granted, issued or sold. For
purposes of this Section 3.1.3, if the terms of any option or convertible
security that was outstanding as of the date of issuance of this Warrant are
increased or decreased in the manner described in the immediately preceding
sentence, then such option or convertible security and the shares of Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 3.1 shall be made if such adjustment would
result in an increase of the Exercise Price then in effect or a decrease in the
number of Exercise Shares.

 

3.1.4 Calculation of Consideration Received. In case any option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction, (x) the options will be deemed to have
been issued for a value determined by use of the Black Scholes Option Pricing
Model (the “Option Value”) and (y) the other securities issued or sold in such
integrated transaction shall be deemed to have been issued for the difference of
(I) the aggregate consideration received by the Company, less (II) the Option
Value. If any shares of Common Stock, options or convertible securities are
issued or sold or deemed to have been issued or sold for cash, the consideration
received therefor will be deemed to be the net amount received by the Company
therefor. If any shares of Common Stock, options or convertible securities are
issued or sold for a consideration other than cash, the amount of such
consideration received by the Company will be the fair value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Company will be the weighted
average price of such security on the date of receipt. If any shares of Common
Stock, options or convertible securities are issued to the owners of the
non-surviving entity in connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of the non-surviving
entity as is attributable to such shares of Common Stock, options or convertible
securities, as the case may be. The fair value of any consideration other than
cash or securities will be determined in good faith by the Board of Directors of
the Company. In the event that the Holders of Warrants exercisable for a
majority of the aggregate Exercise Shares (the “Majority Holders”) object in
writing to a valuation within ten days after the occurrence of an event
requiring valuation (the “Valuation Event”), then the fair value of such
consideration will be determined within five business days after the tenth day
following the Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Majority Holders. The determination of such
appraiser shall be final and binding upon all parties absent manifest error, and
the fees and expenses of such appraiser shall be borne equally by the Company
and the Holders.

 

 

 

 

 

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3.1.5 Record Date. If the Company takes a record of the holders of shares of
Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in shares of Common Stock, options or in convertible
securities or (B) to subscribe for or purchase shares of Common Stock, options
or convertible securities, then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.

 

3.1.6 Voluntary Adjustment by the Company. The Company may at any time during
the term of this Warrant reduce the then current Exercise Price to any amount
and for any period of time deemed appropriate by the Board of Directors of the
Company.

 

3.2 Adjustment upon Subdivision or Combination of Common Stock. If the Company
at any time on or after the date hereof subdivides (by any stock split, stock
dividend, recapitalization, reorganization, scheme, arrangement or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately before such
subdivision will be proportionately reduced and the number of Exercise Shares
will be proportionately increased. If the Company at any time on or after the
date hereof combines (by any stock split, stock dividend, recapitalization,
reorganization, scheme, arrangement or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately before such combination will be proportionately
increased and the number of Exercise Shares will be proportionately decreased.
Any adjustment under this Section 3.2 shall become effective at the close of
business on the date the subdivision or combination becomes effective.

 

3.3 Other Events. If any event occurs of the type contemplated by the provisions
of Section 3.1 or 3.2 but is not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company’s
Board of Directors will make an appropriate adjustment in the Exercise Price and
the number of Exercise Shares so as to protect the rights of the Holder;
provided that no such adjustment pursuant to this Section 3.3 will increase the
Exercise Price or decrease the number of Exercise Shares as otherwise determined
pursuant to this Section 3.

 

4. Rights Upon Distribution of Assets. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets)
to holders of shares of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a “Distribution”), at any time after the issuance of this
Warrant, then, in each such case:

 

 

 

85

 

 

(A) any Exercise Price in effect immediately before the close of business on the
record date fixed for the determination of holders of shares of Common Stock
entitled to receive the Distribution shall be reduced, effective as of the close
of business on such record date, to a price determined by multiplying such
Exercise Price by a fraction of which (i) the numerator shall be the closing bid
price of the shares of Common Stock on the Trading Day immediately preceding
such record date minus the value of the Distribution (as determined in good
faith by the Company’s Board of Directors) applicable to one share of Common
Stock, and (ii) the denominator shall be the closing bid price of the shares of
Common Stock on the Trading Day immediately preceding such record date; and

 

(B) the number of Exercise Shares shall be increased to a number of shares equal
to the number of shares of Common Stock obtainable immediately before the close
of business on the record date fixed for the determination of holders of shares
of Common Stock entitled to receive the Distribution multiplied by the
reciprocal of the fraction set forth in the immediately preceding paragraph (A);
provided that in the event that the Distribution is of shares of Common Stock
(or common stock) (“Other Shares of Common Stock”) of a company whose common
shares are traded on a national securities exchange or a national automated
quotation system, then the Holder may elect to receive a warrant to purchase
Other Shares of Common Stock in lieu of an adjustment in the number of Exercise
Shares, the terms of which shall be identical to those of this Warrant, except
that such warrant shall be exercisable into the number of shares of Other Shares
of Common Stock that would have been payable to the Holder pursuant to the
Distribution had the Holder exercised this Warrant immediately before such
record date and with an aggregate exercise price equal to the product of the
amount by which the exercise price of this Warrant was decreased with respect to
the Distribution pursuant to the terms of the immediately preceding paragraph
(A) and the number of Exercise Shares calculated in accordance with the first
part of this paragraph (B).

 

5. Purchase Rights; Fundamental Transactions.

 

5.1 Purchase Rights. In addition to any adjustments pursuant to Section 3 above,
if at any time the Company grants, issues or sells any options, convertible
securities or rights to purchase stock, warrants, securities or other property
pro rata to the record holders of any class of shares of Common Stock (the
“Purchase Rights”), then the Holder will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which the
Holder could have acquired if the Holder had held the number of shares of Common
Stock acquirable upon complete exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.

 

 

 

 

 

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5.2 Fundamental Transactions. The Company shall not enter into or be party to a
Fundamental Transaction unless the successor entity assumes this Warrant in
accordance with the provisions of this Section 5.2, including agreements to
deliver to each holder of Warrants in exchange for such Warrants a security of
the successor entity evidenced by a written instrument substantially similar in
form and substance to this Warrant, including, without limitation, an adjusted
exercise price equal to the value for the shares of Common Stock reflected by
the terms of such Fundamental Transaction, and exercisable for a corresponding
number of shares of capital stock equivalent to the shares of Common Stock
acquirable and receivable upon exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) before such Fundamental
Transaction. Upon the occurrence of any Fundamental Transaction, the successor
entity shall succeed to, and be substituted for (so that from and after the date
of such Fundamental Transaction, the provisions of this Warrant referring to the
“Company” shall refer instead to the successor entity), and may exercise every
right and power of the Company and shall assume all of the obligations of the
Company under this Warrant with the same effect as if such successor entity had
been named as the Company herein. In addition to and not in substitution for any
other rights hereunder, before the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a “Corporate Event”), the Company shall make appropriate provision to
insure that the Holder will thereafter have the right to receive upon an
exercise of this Warrant at any time after the consummation of the Fundamental
Transaction but before the end of the Exercise Period, in lieu of the shares of
the Common Stock (or other securities, cash, assets or other property)
purchasable upon the exercise of the Warrant before such Fundamental
Transaction, such shares of stock, securities, cash, assets or any other
property whatsoever (including warrants or other purchase or subscription
rights) which the Holder would have been entitled to receive upon the happening
of such Fundamental Transaction had the Warrant been exercised immediately
before such Fundamental Transaction. If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the
consideration it receives upon any exercise of this Warrant following such
Fundamental Transaction. The provisions of this Section 5.2 shall apply
similarly and equally to successive Fundamental Transactions and Corporate
Events and shall be applied without regard to any limitations on the exercise of
this Warrant. Notwithstanding the foregoing, in the event of a Fundamental
Transaction, at the request of the Holder delivered before the 15th day after
consummation of such Fundamental Transaction, the Company (or the successor
entity) shall purchase this Warrant from the Holder by paying to the Holder,
within five business days after such request (or, if later, within two business
days after the effective date of the Fundamental Transaction), cash in an amount
equal to the Black Scholes Value of the remaining unexercised portion of this
Warrant on the date of such Fundamental Transaction.

 

6. Noncircumvention. The Company hereby covenants and agrees that the Company
will not, by amendment of its Articles of Incorporation, Bylaws or through any
reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all the
provisions of this Warrant. Without limiting the generality of the foregoing,
the Company (i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as this Warrant is outstanding, take all action necessary
to reserve and keep available out of its authorized and unissued shares of
Common Stock, solely for the purpose of effecting the exercise of this Warrant,
100% of the number of shares of Common Stock issuable upon exercise of this
Warrant then outstanding (without regard to any limitations on exercise).

 

 

 

 

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7. Fractional Shares. No fractional shares shall be issued upon the exercise of
this Warrant as a consequence of any adjustment pursuant hereto. All Exercise
Shares (including fractions) issuable upon exercise of this Warrant may be
aggregated for purposes of determining whether the exercise would result in the
issuance of any fractional share. If, after aggregation, the exercise would
result in the issuance of a fractional share, the number of Exercise Shares to
be issued will be rounded down to the nearest whole share.

 

8. No Stockholder Rights. Other than as provided herein, this Warrant in and of
itself shall not entitle the Holder to any voting rights or other rights as a
stockholder of the Company.

 

9. Transfer of Warrant. Subject to applicable laws, this Warrant and all rights
hereunder are transferable, by the Holder in person or by duly authorized
attorney, upon delivery of this Warrant and the form of assignment attached
hereto to any transferee designated by Holder. The transferee shall sign an
investment letter in form and substance reasonably satisfactory to the Company
and its counsel. Any purported transfer of all or any portion of this Warrant in
violation of the provisions of this Warrant shall be null and void.

 

10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost,
stolen, mutilated or destroyed, the Company may, on such terms as to indemnity
or otherwise as it may reasonably impose (which shall, in the case of a
mutilated Warrant, include the surrender thereof), issue a new Warrant of like
denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.
Any such new Warrant shall constitute an original contractual obligation of the
Company, whether or not the allegedly lost, stolen, mutilated or destroyed
Warrant shall be at any time enforceable by anyone.

 

11. Notices, etc. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed facsimile to the facsimile
number specified in writing by the recipient if sent during normal business
hours of the recipient on a Trading Day, if not, then on the next Trading Day,
(c) the next Trading Day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of receipt, and
(d) when sent by electronic mail to the electronic mail address specified in
writing by the recipient if sent during normal business hours of the recipient
on a Trading Day, if not, then on the next Trading Day. All communications shall
be sent to the Company at the address (or electronic mail address) listed on the
signature page hereto and to Holder at the applicable address (or electronic
mail address) set forth on the applicable signature page to the Purchase
Agreement or at such other address (or electronic mail address) as the Company
or Holder may designate by ten days advance written notice to the other parties
hereto.

 

12. Acceptance. Receipt of this Warrant by the Holder shall constitute
acceptance of and agreement to all of the terms and conditions contained herein.

 

 

 

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13. Governing Law. This Warrant and all rights, obligations and liabilities
hereunder shall be governed by, and construed in accordance with, the internal
laws of the State of New York, without giving effect to the principles of
conflicts of law that would require the application of the laws of any other
jurisdiction.

 

14. Amendment or Waiver. Any term of this Warrant may be amended or waived
(either generally or in a particular instance and either retroactively or
prospectively) with the written consent of the Company and the holders of
Warrants representing at least two-thirds of the number of shares of Common
Stock then subject to outstanding Warrants. Notwithstanding the foregoing, (a)
this Warrant may be amended and the observance of any term hereunder may be
waived without the written consent of the Holder only in a manner which applies
to all Warrants in the same fashion and (b) the number of Exercise Shares
subject to this Warrant and the Exercise Price of this Warrant may not be
amended, and the right to exercise this Warrant may not be waived, without the
written consent of the Holder. The Company shall give prompt written notice to
the Holder of any amendment hereof or waiver hereunder that was effected without
the Holder’s written consent. No waivers of any term, condition or provision of
this Warrant, in any one or more instances, shall be deemed to be, or construed
as, a further or continuing waiver of any such term, condition or provision.

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
duly authorized officer as of October ___, 2012.

 

 

STRATUS MEDIA GROUP, INC.

 

            By:         Name          Title     

 

1800 Century Park East, 6th Floor
Los Angeles, CA 90067

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

90

 

NOTICE OF EXERCISE

 

TO: STRATUS MEDIA GROUP, INC.

 

 

  (1)   £      The undersigned hereby elects to purchase [_____] shares of the
common stock, par value $0.001 (the “Common Stock”), of Stratus Media Group,
Inc., a Nevada corporation (the “Company”), pursuant to the terms of the
attached Warrant, and tenders herewith payment of the exercise price in full,
together with all applicable transfer taxes, if any.               £      The
undersigned hereby elects to purchase [_____] shares of Common Stock of the
Company pursuant to the terms of the net share exercise provisions set forth in
Section 2.1 of the attached Warrant, and shall tender payment of all applicable
transfer taxes, if any.           (2)   Please issue the certificate for shares
of Common Stock in the name of:                       (Print or Type Name)      
                (Social Security or other Identifying Number)                  
    (Street Address)                       (City, State, Zip Code)           (3)
  If such number of shares shall not be all the shares purchasable upon the
exercise of the Warrants evidenced by this Warrant, a new warrant certificate
for the balance of such warrants remaining unexercised shall be registered in
the name of and delivered to:

 

  Please insert social security or other identifying number:  

 

 

 

(Please print name and address)

 

 

 

 

Dated:                                           (Signature)                
(Print Name)  

 

 

91

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute this form and supply the required
information.

 

Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are
hereby assigned to:

 

  Name:         (Please Print)             Address:         (Please Print)      
                      Dated:               Holder’s Signature:              
Holder’s Address:         (Please Print)          

 

 

NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever. Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Warrant.

 

 

 

 

 

92

 

Exhibit D
FORM OF SECURITY AGREEMENT

 

(See attached)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

93

 

SECURITY AGREEMENT

 

SECURITY AGREEMENT, dated as of October ___, 2012 (together with all amendments,
if any, from time to time hereto, this “Security Agreement”), among the grantors
signatory hereto (together with their respective successors and assigns, each a
“Grantor”), and the Investors (as defined below).

 

W I T N E S S E T H:

 

WHEREAS, pursuant to that certain Securities Purchase Agreement (as the same may
be amended from time to time, the “Purchase Agreement”) dated as of the date
hereof by and among Stratus Media Group, Inc. a Nevada corporation (the
“Corporation”), and each investor identified on the signature pages thereto
(together with their respective successors and assigns, collectively, the
“Investors”), the Investors purchased Preferred Shares (as defined herein);

 

WHEREAS, pursuant to that certain Amended and Restated Certificate of
Designations of Series E Convertible Preferred Stock (the “Certificate of
Designations”), as filed with the Secretary of State of Delaware on October ___,
2012, the Corporation authorized the issuance shares of Series E Convertible
Preferred Stock (the “Preferred Shares”) and provided that the Corporation shall
redeem any and all outstanding Preferred Shares on the fifth anniversary of the
Original Issue Date (as defined in the Certificate of Designations) for a sum
equal to the Stated Value (as defined in the Certificate of Designations) of
each Preferred Share plus all declared or accumulated but unpaid dividends on
such shares;

 

WHEREAS, in order to induce the Investors to enter into the Purchase Agreement,
each Grantor has agreed to grant a continuing perfected Security Interest in (as
hereinafter defined) and Lien (as hereinafter defined) on the Collateral (as
hereinafter defined) to secure the all of the Secured Obligations (as
hereinafter defined);

 

NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

 

1. DEFINED TERMS. All terms not specifically defined herein which are defined in
the Code (as defined herein) shall have the meanings as defined in the Code. In
addition, as used herein:

 

(a) “Accounts” means all “accounts,” as such term is defined in the Code, now
owned or hereafter acquired by any Grantor, including (i) all accounts
receivable, other receivables, book debts and other forms of obligations (other
than forms of obligations evidenced by Chattel Paper, or Instruments),
(including any such obligations that may be characterized as an account or
contract right under the Code), (ii) all rights in, to and under all purchase
orders or receipts for goods or services, (iii) all rights to any goods
represented by any of the foregoing (including unpaid sellers’ rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods), (iv) all rights to payment due to any
Grantor for property sold, leased, licensed, assigned or otherwise disposed of,
for a policy of insurance issued or to be issued, for a secondary obligation
incurred or to be incurred, for energy provided or to be provided, for the use
or hire of a vessel under a charter or other contract, arising out of the use of
a credit card or charge card, or for services rendered or to be rendered by such
Grantor or in connection with any other transaction (whether or not yet earned
by performance on the part of such Grantor), (v) all health care insurance
receivables and (vi) all collateral security of any kind, given by any Account
Debtor or any other Person with respect to any of the foregoing.

 

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(b) “Account Debtor” means any Person who may become obligated to any Grantor
under, with respect to, or on account of, an Account, Chattel Paper or General
Intangibles (including a payment intangible).

 

(c) “Business” means the business from time to time, now or hereafter, conducted
by the Corporation and any Subsidiary (as defined herein).

 

(d) “Chattel Paper” means any “chattel paper,” as such term is defined in the
Code, including electronic chattel paper, now owned or hereafter acquired by any
Grantor.

 

(e) “Code” means the Uniform Commercial Code as the same may, from time to time,
be enacted and in effect in the State of New York; provided, that to the extent
that the Code is used to define any term herein and such term is defined
differently in different Articles or Divisions of the Code, the definition of
such term contained in Article or Division 9 shall govern; provided further,
that in the event that, by reason of mandatory provisions of law, any or all of
the attachment, perfection or priority of, or remedies with respect to, any
Investor’s Security Interest on any Collateral is governed by the Uniform
Commercial Code as enacted and in effect from time to time in a jurisdiction
other than the State of New York, the term “Code” shall mean the Uniform
Commercial Code as enacted and in effect in such other jurisdiction solely for
purposes of the provisions thereof relating to such attachment, perfection,
priority or remedies and for purposes of definitions related to such provisions.

 

(f) “Collateral” has the meaning ascribed thereto in Section 2(a) hereof.

 

(g) Intentionally deleted.

 

(h) “Contracts” means all contracts and agreements to which any Grantor is a
party, as the same may be amended, supplemented or otherwise modified from time
to time, including without limitation, (i) all rights of any Grantor to receive
moneys due and to become due to it thereunder or in connection therewith, (ii)
all rights of any Grantor to damages arising thereunder and (iii) all rights of
any Grantor to perform and to exercise all remedies thereunder.

 

(i) “Copyright Licenses” means any and all rights now owned or hereafter
acquired by any Grantor under any written agreement granting any right to use
any Copyright (as defined below) or Copyright registration.

 

(j) “Copyrights” means all of the following now owned or hereafter adopted or
acquired by any Grantor: (i) all copyrights and General Intangibles of like
nature (whether registered or unregistered), all registrations and recordings
thereof, and all applications in connection therewith, including all
registrations, recordings and applications in the United States Copyright Office
or in any similar office or agency of the United States, any state or territory
thereof, or any other country or any political subdivision thereof, and (ii) all
reissues, extensions or renewals thereof.

 

 

 

 

95

 

 

(k) “Default” shall have the meaning ascribed thereto in Section 16(c) of the
Certificate of Designations.

 

(l) “Deposit Accounts” means all “deposit accounts” as such term is defined in
the Code, now or hereafter held in the name of any Grantor.

 

(m) “Documents” means all “documents”, as such term is defined in the Code, now
owned or hereafter acquired by any Grantor, wherever located.

 

(n) “Equipment” means all “equipment,” as such term is defined in the Code, now
owned or hereafter acquired by any Grantor, wherever located and, in any event,
including all such Grantor’s machinery and equipment, including processing
equipment, conveyors, machine tools, data processing and computer equipment,
including embedded software and peripheral equipment and all engineering,
processing and manufacturing equipment, office machinery, furniture, materials
handling equipment, tools, attachments, accessories, automotive equipment,
trailers, trucks, forklifts, molds, dies, stamps, motor vehicles, rolling stock
and other equipment of every kind and nature, trade fixtures and fixtures not
forming a part of real property, together with all additions and accessions
thereto, replacements therefor, all parts therefor, all substitutes for any of
the foregoing, fuel therefor, and all manuals, drawings, instructions,
warranties and rights with respect thereto, and all products and proceeds
thereof and condemnation awards and insurance proceeds with respect thereto.

 

(o) “Fixtures” means all “fixtures” as such term is defined in the Code, now
owned or hereafter acquired by any Grantor.

 

(p) “General Intangibles” means all “general intangibles,” as such term is
defined in the Code, now owned or hereafter acquired by any Grantor, including
all right, title and interest that such Grantor may now or hereafter have in or
under any Contract, all payment intangibles, customer lists, Licenses,
Copyrights, Trademarks, Patents, and all applications therefor and reissues,
extensions or renewals thereof, rights in Intellectual Property, interests in
partnerships, joint ventures and other business associations, licenses, permits,
copyrights, trade secrets, proprietary or confidential information, inventions
(whether or not patented or patentable), technical information, procedures,
designs, knowledge, know how, software, data bases, data, skill, expertise,
experience, processes, models, drawings, materials and records, goodwill
(including the goodwill associated with any Trademark or Trademark License), all
rights and claims in or under insurance policies (including insurance for fire,
damage, loss and casualty, whether covering personal property, real property,
tangible rights or intangible rights, all liability, life, key man and business
interruption insurance, and all unearned premiums), uncertificated securities,
choses in action, deposit, checking and other bank accounts, rights to receive
tax refunds and other payments, rights to receive dividends, distributions,
cash, Instruments and other property in respect of or in exchange for pledged
stock and Investment Property, rights of indemnification, all books and records,
correspondence, credit files, invoices and other papers, including without
limitation all tapes, cards, computer runs and other papers and documents in the
possession or under the control of such Grantor or any computer bureau or
service company from time to time acting for such Grantor.

 

96

 

 

(q) “Goods” means all “goods” as defined in the Code, now owned or hereafter
acquired by any Grantor, wherever located, including embedded software to the
extent included in “goods” as defined in the Code.

 

(r) “Instruments” means all “instruments,” as such term is defined in the Code,
now owned or hereafter acquired by any Grantor, wherever located, and, in any
event, including all certificated securities, all certificates of deposit, and
all promissory notes and other evidences of indebtedness, other than instruments
that constitute, or are a part of a group of writings that constitute, Chattel
Paper.

 

(s) “Intellectual Property” means any and all Licenses, Patents, Copyrights,
Trademarks, service marks, trade dress, trade names, domain names, brand names
and certification marks presently owned by any Grantor or (pursuant to license,
sublicense, agreement or permission) used by any Grantor in connection with such
Grantor’s Business.

 

(t) “Inventory” means all “inventory” as such term is defined in the Code, now
owned or hereafter acquired by any Grantor, wherever located, and in any event
including inventory, merchandise, goods and other personal property that are
held by or on behalf of any Grantor for sale or lease or are furnished or are to
be furnished under a contract of service, or that constitute raw materials, work
in process, finished goods returned goods, or materials or supplies of any kind,
nature or description used or consumed or to be used or consumed in the Business
or in the processing, production, packaging, promotion, delivery or shipping of
the same, including other supplies and embedded software.

 

(u) “Investment Property” means all “investment property” as such term is
defined in the Code now owned or hereafter acquired by any Grantor, wherever
located including (i) all securities, whether certificated or uncertificated,
including stocks, bonds, interests in limited liability companies, partnership
interests, treasuries, certificates of deposit, and mutual fund shares; (ii) all
securities entitlements of any Grantor, including the rights of any Grantor to
any securities account and the financial assets held by a securities
intermediary in such securities account and any free credit balance or other
money owing by any securities intermediary with respect to that account, (iii)
all securities accounts of any Grantor; (iv) all commodity contracts of any
Grantor and (v) all commodity accounts held by any Grantor.

 

(v) “Letter of Credit Rights” means letter of credit rights as such term is
defined in the Code, now owned or hereafter acquired by any Grantor, including
rights to payment or performance under a letter of credit, whether or not such
Grantor, as beneficiary, has demanded or is entitled to demand payment or
performance.

 

(w) “Licenses” means any Copyright License, Patent License, Trademark License or
other license of rights or interests now held or hereafter acquired by any
Grantor.

 

(x) “Lien” means any mortgage, pledge, security interest, lien, claim,
encumbrance or other similar restrictions, of any kind or nature whatsoever.

 

(y) “Patent Licenses” means rights under any written agreement now owned or
hereafter acquired by any Grantor granting any right with respect to any
invention on which a Patent (as defined below) is in existence.

 

97

 

 

(z) “Patents” means all of the following in which any Grantor now holds or
hereafter acquires any interest: (i) all letters patent of the United States or
of any other country, all registrations and recordings thereof, and all
applications for letters patent of the United States or of any other country,
including registrations, recordings and applications in the United States Patent
and Trademark Office or in any similar office or agency of the United States,
any State or any other country, and (ii) all reissues, continuations,
continuations-in-part or extensions thereof.

 

(aa) “Permitted Liens” means (i) all currently outstanding Liens on the assets
of the Grantor, to the extent, but only to the extent, such Liens are fully and
properly perfected and in existence prior to the date hereof, (ii) Liens for
taxes not yet payable as of the date hereof, and (iii) Liens of materialmen,
mechanics, warehousemen, carriers, or other similar liens arising in the
ordinary course of business and securing obligations which are not delinquent;
and (iv) liens issued in connection with the Series E Preferred Stock financing
in May, 2011.

 

(bb) “Person” means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, a governmental entity or any
department, agency or political subdivision thereof and any other entity.

 

(cc) “Proceeds” means “proceeds,” as such term is defined in the Code, including
(i) any and all proceeds of any insurance, indemnity, warranty or guaranty
payable to any Grantor from time to time with respect to any of the Collateral,
(ii) any and all payments (in any form whatsoever) made or due and payable to
any Grantor from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by any
governmental authority (or any Person acting under color of governmental
authority), (iii) any claim of any Grantor against third parties (A) for past,
present or future infringement of any Patent or Patent License, or (B) for past,
present or future infringement or dilution of any Copyright, Copyright License,
Trademark or Trademark License, or for injury to the goodwill associated with
any Trademark or Trademark License, (iv) any recoveries by any Grantor against
third parties with respect to any litigation or dispute concerning any of the
Collateral including claims arising out of the loss or nonconformity of,
interference with the use of, defects in, or infringement of rights in, or
damage to, Collateral, (v) all amounts collected on, or distributed on account
of, other Collateral, including dividends, interest, distributions and
Instruments with respect to Investment Property and pledged stock, and (vi) any
and all other amounts, rights to payment or other property acquired upon the
sale, lease, license, exchange or other disposition of Collateral and all rights
arising out of Collateral.

 

(dd) “Secured Obligations” shall mean the Corporation’s obligation to redeem the
outstanding shares of the Preferred Shares on the Redemption Date (as defined in
the Certificate of Designations) pursuant to Section 16 of the Certificate of
Designations.

 

(ee) “Security Interests” means the Liens in and the charges (fixed or floating,
as the case may be) over the Collateral granted hereunder securing the Secured
Obligations.

 

(ff) “Software” means all “software” as such term is defined in the Code, now
owned or hereafter acquired by any Grantor, other than software embedded in any
category of goods, including all computer programs and all supporting
information provided in connection with a transaction related to any program.

 

98

 

 

(gg) “Subsidiary” means any corporation, partnership, limited liability company,
joint venture, association or other business entity at least 50% of the
outstanding voting stock or voting interests of which is at the time owned or
controlled, directly or indirectly, by any Grantor.

 

(hh) “Supporting Obligations” means all supporting obligations as such term is
defined in the Code, including letters of credit and guaranties issued in
support of Accounts, Chattel Paper, Documents, General Intangibles, Instruments,
or Investment Property.

 

(ii) “Termination Date” means the date on which all Secured Obligations are
indefeasibly repaid in full, in cash to all Investors.

 

(jj) “Trademark License” means rights under any written agreement now owned or
hereafter acquired by any Grantor granting any right to use any Trademark (as
defined below).

 

(kk) “Trademarks” means all of the following now owned or hereafter existing or
adopted or acquired by any Grantor: (i) all trademarks, trade names, corporate
names, business names, trade styles, service marks, logos, other source or
business identifiers, prints and labels on which any of the foregoing have
appeared or appear, designs and general intangibles of like nature (whether
registered or unregistered), all registrations and recordings thereof, and all
applications in connection therewith, including registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any state or territory thereof, or any
other country or any political subdivision thereof; (ii) all reissues,
extensions or renewals thereof; and (iii) all goodwill associated with or
symbolized by any of the foregoing.

 

(ll) “Transaction Documents” shall mean the Purchase Agreement, the Security
Agreement and all other related documents.

 

(mm) “Uniform Commercial Code Jurisdiction” means any jurisdiction that has
adopted all or substantially all of Article 9 as contained in the 2000 Official
Text of the Uniform Commercial Code, as recommended by the National Conference
of Commissioners on Uniform State Laws and the American Law Institute, together
with any subsequent amendments or modifications to the Official Text.

 

2. GRANT OF LIEN.

 

(a) To secure the prompt and complete payment, performance and observance of all
of the Secured Obligations, each Grantor hereby grants, assigns, conveys,
mortgages, pledges, hypothecates and transfers to the Investors, a continuing
Security Interest and Lien upon all of its right, title and interest in, to and
under all personal property and other assets, whether now owned by or owing to,
or hereafter acquired by or arising in favor of such Grantor (including under
any trade names, styles or derivations thereof), and whether owned or consigned
by or to, or leased from or to, such Grantor, and regardless of where located
(all of which being hereinafter collectively referred to as the “Collateral”),
including:

 

99

 

 

(i) all Accounts;

 

(ii) all Chattel Paper;

 

(iii) all Contracts;

 

(iv) all Documents;

 

(v) all General Intangibles (including payment intangibles and Software);

 

(vi) all Goods (including Inventory, Equipment and Fixtures);

 

(vii) all Instruments;

 

(viii) all Investment Property;

 

(ix) all Deposit Accounts, of any Grantor, including all deposit and other bank
accounts and all deposits therein;

 

(x) all money, cash or cash equivalents of any Grantor;

 

(xi) all Supporting Obligations and Letter of Credit Rights of any Grantor;

 

(xii) to the extent not otherwise included, all Proceeds, tort claims, insurance
claims and other rights to payments not otherwise included in the foregoing and
products of the foregoing and all accessions to, substitutions and replacements
for, and rents and profits of, each of the foregoing.

 

(b) The aforementioned Security Interests are granted as security only and shall
not subject Investors, or any of Investors’ successors or assigns to, or
transfer or in any way affect or modify, any obligation of any Grantor with
respect to any of the Collateral or any transaction connected therewith.

 

(c) To secure the prompt and complete payment, performance and observance of the
Secured Obligations and in order to induce Investors and Investors as aforesaid,
each Grantor hereby grants to Investors, for itself and the benefit of
Investors, a right of setoff against the property of such Grantor held by
Investors, consisting of property described above in Section 2(a) now or
hereafter in the possession or custody of or in transit to Investors, for any
purpose, including safekeeping, collection or pledge, for the account of such
Grantor, or as to which such Grantor may have any right or power.

 

 

 

 

100

 

 

3. INVESTORS’ RIGHTS: LIMITATIONS ON INVESTORS’ OBLIGATIONS.

 

(a) It is expressly agreed by each Grantor that, anything herein to the contrary
notwithstanding, each Grantor shall remain liable under each of its Contracts
and each of its Licenses to observe and perform all the conditions and
obligations to be observed and performed by it thereunder. No Investor shall
have any obligation or liability under any Contract or License by reason of or
arising out of this Security Agreement or the granting herein of a Security
Interest thereon or the receipt by any Investor of any payment relating to any
Contract or License pursuant hereto. No Investor shall be required or obligated
in any manner to perform or fulfill any of the obligations of any Grantor under
or pursuant to any Contract or License, or to make any payment, or to make any
inquiry as to the nature or the sufficiency of any payment received by it or the
sufficiency of any performance by any party under any Contract or License, or to
present or file any claims, or to take any action to collect or enforce any
performance or the payment of any amounts which may have been assigned to it or
to which it may be entitled at any time or times.

 

(b) Investors may at any time after a Default has occurred, without prior notice
to any Grantor, notify Account Debtors and other Persons obligated on the
Collateral that Investors have a security interest therein, and that payments
shall be made directly to Investors. Upon the request of Investors after the
occurrence of a Default, each Grantor shall so notify Account Debtors and other
Persons obligated on Collateral. Once any such notice has been given to any
Account Debtor or other Person obligated on the Collateral, the affected Grantor
shall not give any contrary instructions to such Account Debtor or other Person
without Investors’ prior written consent.

 

(c) Investors may, upon two (2) days prior written notice to Corporation, in
Investors’ own names, in the name of a nominee of Investors or in the name of
any Grantor communicate (by mail, telephone, facsimile or otherwise) with
Account Debtors, parties to Contracts, obligors in respect of Instruments and
obligors in respect of Chattel Paper and/or payment intangibles to verify with
such Persons, to Investors’ satisfaction, the existence, amount terms of, and
any other matter relating to, any such Accounts, Contracts, Instruments or
Chattel Paper and/or payment intangibles.

 

4. REPRESENTATIONS AND WARRANTIES. Each Grantor represents and warrants that:

 

(a) Each Grantor has rights in and the power to transfer each item of the
Collateral upon which it purports to grant a Security Interest hereunder free
and clear of any and all Security Interests other than Permitted Liens.

 

(b) No effective financing statement or Lien instrument or continuation
statement covering all or any part of the Collateral is on file or of record in
any public office, except such as may have been filed (i) by any Grantor in
favor of Investors pursuant to this Security Agreement and (ii) in connection
with any Permitted Liens.

 

 

 

101

 

 

(c) This Security Agreement is effective to create a valid and continuing
Security Interest on and, upon the filing of the appropriate financing
statements listed on Schedule I hereto, a perfected Security Interest in favor
of the Investors, on the Collateral with respect to which a Security Interest
may be perfected by filing pursuant to the Code. Such Security Interest is prior
to all other Security Interests, except Permitted Liens that would be prior to
Security Interests in favor of Investors as a matter of law, and is enforceable
as such as against any and all creditors of and purchasers from any Grantor
(other than purchasers and lessees of Inventory in the ordinary course of
business). All action by any Grantor necessary or desirable to protect and
perfect such Security Interest on each item of the Collateral has been duly
taken.

 

(d) Schedule II hereto lists all Instruments, Letter of Credit Rights and
Chattel Paper of each Grantor. All actions by any Grantor necessary or desirable
to protect and perfect the Security Interest of Investors on each item set forth
on Schedule II (including the delivery of all originals thereof to Investors and
the legending of all Chattel Paper as required by Section 5(b) hereof) has been
duly taken. The Security Interest of Investors, on the Collateral listed on
Schedule II hereto is prior to all other Security Interests, except Permitted
Liens that would be prior to the Security Interests in favor of Investors as a
matter of law, and is enforceable as such against any and all creditors of and
purchasers from any Grantor.

 

(e) Each Grantor’s name as it appears in official filings in the state of its
incorporation or other organization, the type of entity of each Grantor
(including corporation, partnership, limited partnership or limited liability
company), organizational identification number issued by each Grantor’s state of
incorporation or organization or a statement that no such number has been
issued, each Grantor’s state of organization or incorporation, the location of
each Grantor’s chief executive office, principal place of business, offices, all
warehouses and premises where Collateral is stored or located, and the locations
of its books and records concerning the Collateral are set forth on Schedule III
hereto. Each Grantor has only one state of incorporation or organization.

 

(f) With respect to each Grantor’s Accounts (i) such Accounts represent bona
fide sales of Inventory or rendering of services to Account Debtors in the
ordinary course of each Grantor’s business and are not evidenced by a judgment,
Instrument or Chattel Paper; (ii) there are no setoffs, claims or disputes
existing or asserted with respect thereto and no Grantor has made any agreement
with any Account Debtor for any extension of time for the payment thereof, any
compromise or settlement for less than the full amount thereof, any release of
any Account Debtor from liability therefor, or any deduction therefrom except a
discount or allowance allowed by such Grantor in the ordinary course of its
business for prompt payment and disclosed to Investors; (iii) to each Grantor’s
knowledge, there are no facts, events or occurrences which in any way impair the
validity or enforceability thereof or could reasonably be expected to reduce the
amount payable thereunder as shown on any Grantor’s books and records and any
invoices or statements; (iv) no Grantor has received any notice of proceedings
or actions which are threatened or pending against any Account Debtor which
might result in any adverse change in such Account Debtor’s financial condition;
and (v) no Grantor has knowledge that any Account Debtor is unable generally to
pay its debts as they become due. Further, with respect to the Accounts (x) the
amounts shown on all invoices and statements, which may be delivered to
Investors with respect thereto, are not in any way contingent and are to the
respective Grantor’s knowledge actually and absolutely owing to such Grantor as
indicated thereon; (y) no payments have been or shall be made thereon; and (z)
to each Grantor’s knowledge, all Account Debtors have the capacity to contract.

 

 

 

102

 

 

(g) With respect to any of the Grantor’s Inventory (i) such Inventory is located
at one of the applicable Grantor’s locations set forth on Schedule III hereto,
(ii) no Inventory is now, or shall at any time or times hereafter be stored at
any other location without Investors’ prior consent, and if Investors gives such
consent, each applicable Grantor will concurrently therewith obtain, to the
extent required by the Purchase Agreement, bailee, landlord and mortgagee
agreements, (iii) the applicable Grantor has good, indefeasible and merchantable
title to such Inventory and such Inventory is not subject to any Lien or
Security Interest or document whatsoever except for the Security Interest
granted to Investors, for the benefit of Investors and Investors, and except for
Permitted Liens, (iv) except as specifically disclosed in the most recent
Collateral Report delivered to Investors, such Inventory is of good and
merchantable quality, free from any defects, other than such defects as are
inherent in Inventory of like grade and quality, (v) such Inventory is not
subject to any licensing, patent, royalty, trademark, trade name or copyright
agreements with any third parties which would require any consent of any third
party upon sale or disposition of that Inventory or the payment of any monies to
any third party as a precondition of such sale or other disposition, and (vi)
the completion of manufacture, sale or other disposition of such Inventory by
Investors following a Default shall not require the consent of any Person and
shall not constitute a breach or default under any contract or agreement to
which any Grantor is a party or to which such property is subject.

 

(h) No Grantor has any interest in, or title to, any Patent, Trademark or
Copyright except as set forth in Schedule IV hereto. This Security Agreement is
effective to create a valid and continuing Security Interest on and, upon filing
of the Intellectual Property Security Agreement with the United States Copyright
Office and filing of the Intellectual Property Security Agreement with the
United States Patent and Trademark Office, perfected Security Interests in favor
of Investors on each Grantor’s Patents, Trademarks and Copyrights within the
United States and such perfected Security Interests are enforceable as such as
against any and all creditors of and purchasers from any Grantor. Upon filing of
the Intellectual Property Security Agreement with the United States Copyright
Office and filing of the Intellectual Property Security Agreement with the
United State Patent and Trademark Office and the filing of appropriate financing
statements listed on Schedule I hereto, all action necessary or desirable to
protect and perfect Investors’ Security Interest within the United States on
each Grantor’s Patents, Trademarks or Copyrights under applicable law shall have
been duly taken.

 

5. COVENANTS. Each Grantor covenants and agrees with Investors, for the benefit
of Investors, that from and after the date of this Security Agreement and until
the Termination Date:

 

(a) Further Assurances: Pledge of Instruments; Chattel Paper.

 

(i) At any time and from time to time, upon the written request of Investors and
at the sole expense of Grantors, each Grantor shall promptly and duly execute
and deliver any and all such further instruments and documents and take such
further actions as Investors may in good faith deem reasonable and appropriate
to obtain the full benefits of this Security Agreement and of the rights and
powers herein granted, including (A) using its commercially reasonable efforts
to secure all consents and approvals necessary or appropriate for the assignment
to or for the benefit of Investors of any License or Contract held by such
Grantor and to enforce the Security Interests granted hereunder; and (B) filing
any financing or continuation statements under the Code with respect to the
Security Interests granted hereunder as to those jurisdictions that are not
Uniform Commercial Code Jurisdictions.

 

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(ii) Unless Investors shall otherwise consent in writing (which consent may be
revoked), each Grantor shall deliver to Investors all Collateral consisting of
negotiable Documents, certificated securities, Chattel Paper and Instruments (in
each case, accompanied by stock powers, allonges or other instruments of
transfer executed in blank) promptly after such Grantor receives the same.

 

(iii) Each Grantor shall use its commercially reasonable efforts to obtain
waivers or subordinations of Security Interests from landlords and mortgagees.

 

(iv) Each Grantor that is or becomes the beneficiary of a letter of credit shall
promptly, and in any event within two (2) Business Days after becoming a
beneficiary, notify Investors thereof and enter into a tri party agreement with
Investors and the issuer and/or confirmation bank with respect to Letter of
Credit Rights assigning such Letter of Credit Rights to Investors and directing
all payments thereunder to the Collection Account, all in form and substance
reasonably satisfactory to Investors.

 

(v) Each Grantor shall take all steps necessary to grant the Investors control
of all electronic chattel paper in accordance with the Code and all
“transferable records” as defined in each of the Uniform Electronic Transactions
Act and the Electronic Signatures in Global and National Commerce Act.

 

(vi) Each Grantor hereby irrevocably authorizes the Investors at any time and
from time to time to file in any filing office in any Uniform Commercial Code
Jurisdiction any initial financing statements and amendments thereto that (A)
indicate that the Collateral (x) constitutes all assets of such Grantor or words
of similar effect, regardless of whether any particular asset comprised in the
Collateral falls within the scope of Article 9 of the Code of such jurisdiction,
or (y) as being of an equal or lesser scope or with greater detail, and (B)
contain any other information required by part 5 of Article 9 of the Code for
the sufficiency or filing office acceptance of any financing statement or
amendment, including (xx) whether such Grantor is an organization, the type of
organization and any organization identification number issued to such Grantor,
and (yy) in the case of a financing statement filed as a fixture filing or
indicating Collateral as as-extracted collateral or timber to be cut, a
sufficient description of real property to which the Collateral relates. Each
Grantor agrees to furnish any such information to the Investors promptly upon
request. Each Grantor also ratifies its authorization for the Investors to have
filed in any Uniform Commercial Code Jurisdiction any initial financing
statements or amendments thereto if filed prior to the date hereof.

 

(vii) Each Grantor shall promptly, and in any event within ten (10) Business
Days after the same is acquired by it, notify Investors of any commercial tort
claim (as defined in the Code) acquired by it and unless otherwise consented by
Investors, such Grantor shall enter into a supplement to this Security
Agreement, granting to Investors a Security Interest in such commercial tort
claim.

 

 

 

 

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(b) Maintenance of Records. Each Grantor shall keep and maintain, at their own
cost and expense, satisfactory and complete records of the Collateral, including
a record of any and all payments received and any and all credits granted with
respect to the Collateral and all other dealings with the Collateral. Each
Grantor shall mark their books and records pertaining to the Collateral to
evidence this Security Agreement and the Security Interests granted hereby.

 

(c) Covenants Regarding Patent, Trademark and Copyright Collateral.

 

(i) Each Grantor shall notify Investors immediately if they know or have reason
to know that any application or registration relating to any Patent, Trademark
or Copyright (now or hereafter existing) may become abandoned or dedicated, or
of any materially adverse determination or development (including the
institution of, or any such determination or development in, any proceeding in
the United States Patent and Trademark Office, the United States Copyright
Office or any court) regarding any Grantor’s ownership of any Patent, Trademark
or Copyright, its right to register the same, or to keep and maintain the same.

 

(ii) If any Grantor, either by itself or through any agent, employee, licensee
or designee, files an application for the registration of any Patent, Trademark
or Copyright with the United States Patent and Trademark Office, the United
States Copyright Office or any similar office or agency, Grantor shall provide
Investors with written notice thereof within a reasonable time thereafter, but
in any event within ten (10) Business Days from the date of filing, and, upon
request of Investors, Grantor shall execute and deliver an amendment to the
Intellectual Property Security Agreement as Investors may request to evidence
Investors’ Security Interest on such Patent, Trademark or Copyright, and the
General Intangibles of such Grantor relating thereto or represented thereby.

 

(iii) Each Grantor shall take all commercially reasonable actions necessary or
requested by Investors to maintain and pursue each application, to obtain the
relevant registration and to maintain the registration of each of the Patents,
Trademarks and Copyrights (now or hereafter existing), including the filing of
applications for renewal, affidavits of use, affidavits of noncontestability and
opposition and interference and cancellation proceedings.

 

(iv) In the event that any of the Patent, Trademark or Copyright Collateral is
infringed upon, or misappropriated or diluted by a third party, such Grantor
shall comply with Section 5(a)(vii) of this Security Agreement. Such Grantor
shall, unless such Grantor shall reasonably determine that such Patent,
Trademark or Copyright Collateral is in no way material to the conduct of its
business or operations, promptly sue for infringement, misappropriation or
dilution and to recover any and all damages for such infringement,
misappropriation or dilution, and shall take such other actions as are
reasonable and appropriate under the circumstances to protect such Patent,
Trademark or Copyright Collateral.

 

 

 

 

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(d) Indemnification.

 

(i) Each Grantor shall, jointly and not severally, indemnify Investors from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, costs of settlement, suits, costs, expenses or disbursements
of any kind whatsoever (including, without limitation, reasonable fees and
disbursements of counsel to the Investors) (collectively, “Losses”), which may
at any time (including, without limitation, at any time following the payment of
the Secured Obligations) be imposed on, incurred by, asserted against or due and
owing to the Investors in any way relating to or arising out of actions taken or
omitted to be taken by the Investors all of which Losses shall periodically be
reimbursed as incurred; provided that no Grantor shall be liable for the payment
of any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, costs of settlement, suits, costs, expenses or disbursements
directly resulting from the gross negligence or willful misconduct of the
Investors as finally determined by a court of competent jurisdiction.

 

(ii) In any suit, proceeding or action brought by Investors relating to any
Collateral for any sum owing with respect thereto or to enforce any rights or
claims with respect thereto, each Grantor will save, indemnify and keep
Investors harmless from and against all Losses suffered by reason of any
defense, setoff, counterclaim, recoupment or reduction of liability whatsoever
of the Account Debtor or other Person obligated on the Collateral, arising out
of a breach by any Grantor of any obligation thereunder or arising out of any
other agreement, indebtedness or liability at any time owing to, or in favor of,
such obligor or its successors from such Grantor, except in the case of
Investors, to the extent such expense, loss, or damage is attributable solely to
the gross negligence or willful misconduct of Investors (in its capacity as
such) as finally determined by a court of competent jurisdiction. All such
obligations of any Grantor shall be and remain enforceable against and only
against such Grantor(s) and shall not be enforceable against Investors.

 

(iii) The agreements in this Section 5(d) shall survive (x) the payment of the
Secured Obligations and all other amounts payable under the Transaction
Documents and the termination of the Transaction Documents.

 

(iv) Each Grantor shall have the right, but not the obligation, to conduct the
defense of any action or claim and all negotiations for the settlement or
compromise thereof; provided that (i) any settlement negotiated by any Grantor
involves no cost or liability to Investors and includes an unconditional release
of Investors from all liability with respect to such claim or action, (ii)
Investors shall have the right to retain their own counsel, with the fees and
expenses to be paid by Grantors, if in Investors’ reasonable judgment there
exists any actual or potential conflict of interest between Investors and any
Grantor and (iii) if no such conflict exists, Investors shall have the right at
any time to participate in and join the defense of any action or claim at
Investors’ expense.

 

(e) Compliance with Terms of Accounts, etc. In all material respects, each
Grantor will perform and comply with all obligations in respect of the
Collateral and all other agreements to which it is a party or by which it is
bound relating to the Collateral.

 

 

 

 

106

 

 

(f) Limitation on Liens on Collateral. No Grantor will create, permit or suffer
to exist, and each Grantor will defend the Collateral against, and take such
other action as is necessary to remove, any Liens or Security Interests on the
Collateral except Permitted Liens, and will defend the right, title and interest
of Investors in and to any of such Grantor’s rights under the Collateral against
the claims and demands of all Persons whomsoever.

 

(g) Limitations on Disposition. No Grantor will sell, license, lease, transfer
or otherwise dispose of any of the Collateral or any interest therein, or
attempt or contract to do so, except as done in the ordinary course of such
Grantor’s business.

 

(h) Further Identification of Collateral. Each Grantor will, if so requested by
Investors, furnish to Investors, as often as Investors reasonably request,
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Investors may reasonably
request, all in such detail as Investors may specify.

 

(i) Notices. Each Grantor will advise Investors promptly, in reasonable detail,
(i) of any Security Interest or claim made or asserted against any of the
Collateral, and (ii) of the occurrence of any other event which would have a
material adverse effect on the aggregate value of the Collateral or on the
Security Interest created hereunder.

 

(j) Terminations; Amendments Not Authorized. Each Grantor acknowledges that it
is not authorized to file any financing statement or amendment or termination
statement with respect to any financing statement without the prior written
consent of Investors and agrees that it will not do so without the prior written
consent of Investors, subject to such Grantor’s rights under Section 9-509(d)(2)
of the Code.

 

6. INVESTORS APPOINTMENT AS ATTORNEY-IN-FACT.

 

Each Grantor shall execute and deliver to Investors a power of attorney (the
“Power of Attorney”) substantially in the form attached hereto as Exhibit A. The
power of attorney granted pursuant to the Power of Attorney is a power coupled
with an interest and shall be irrevocable until the Termination Date. The powers
conferred on Investors, for the benefit of Investors and Investors, under the
Power of Attorney are solely to protect Investors’ interests (for the benefit of
Investors and Investors) in the Collateral and shall not impose any duty upon
Investors to exercise any such powers. Investors agrees that (a) except for the
powers granted in clause (h) of the Power of Attorney, it shall not exercise any
power or authority granted under the Power of Attorney unless a Default has
occurred and is continuing, and (b) Investors shall account for any moneys
received by Investors in respect of any foreclosure on or disposition of
Collateral pursuant to the Power of Attorney provided that Investors shall not
have any duty as to any Collateral, and Investors shall be accountable only for
amounts that they actually receive as a result of the exercise of such powers.
INVESTORS, THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS
OR REPRESENTATIVES SHALL NOT BE RESPONSIBLE TO ANY GRANTOR FOR ANY ACT OR
FAILURE TO ACT UNDER ANY POWER OF ATTORNEY OR OTHERWISE, EXCEPT IN RESPECT OF
DAMAGES ATTRIBUTABLE SOLELY TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT
AS FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION, NOR FOR ANY
PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.

 

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7. REMEDIES: RIGHTS UPON DEFAULT.

 

(a) In addition to all other rights and remedies authorized or granted to it
under this Security Agreement, the Purchase Agreement, the Notes and under any
other instrument or agreement securing, evidencing or relating to any of the
Secured Obligations, if any Default shall have occurred and be continuing,
Investors may exercise all rights and remedies of a secured party under the Code
(whether or not in effect in the jurisdiction where such rights are exercised).
Without limiting the generality of the foregoing, each Grantor expressly agrees
that in any such event Investors, without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of time
and place of public or private sale) to or upon such Grantor or any other Person
(all and each of which demands, advertisements and notices are hereby expressly
waived to the maximum extent permitted by the Code and other applicable law),
may forthwith enter upon the premises of such Grantor where any Collateral is
located through self-help, without judicial process, without first obtaining a
final judgment or giving such Grantor or any other Person notice and opportunity
for a hearing on Investors’ claim or action and may collect, receive, assemble,
process, appropriate and realize upon the Collateral, or any part thereof, and,
following the delivery of notice to Grantor may forthwith sell, lease, license,
assign, give an option or options to purchase, or sell or otherwise dispose of
and deliver said Collateral (or contract to do so), or any part thereof, in one
or more parcels at a public or private sale or sales, at any exchange at such
prices as it may deem acceptable, for cash or on credit or for future delivery
without assumption of any credit risk. Investors shall have the right upon any
such public sale or sales and, to the extent permitted by law, upon any such
private sale or sales, to purchase for the benefit of Investors, the whole or
any part of said Collateral so sold, free of any right or equity of redemption,
which equity of redemption each Grantor hereby releases. Such sales may be
adjourned and continued from time to time with or without notice. Investors
shall have the right to conduct such sales on any Grantor’s premises or
elsewhere and shall have the right to use any Grantor’s premises without charge
for such time or times as Investors deems necessary or advisable.

 

If any Default shall have occurred and be continued, each Grantor further
agrees, at Investors’ request, to assemble the Collateral and make it available
to Investors at a place or places designated by Investors which are reasonably
convenient to Investors and such Grantor, whether at such Grantor’s premises or
elsewhere. Until Investors are able to effect a sale, lease, or other
disposition of Collateral, Investors shall have the right to hold or use
Collateral, or any part thereof, to the extent that it deems appropriate for the
purpose of preserving Collateral or its value or for any other purpose deemed
appropriate by Investors. Investors shall have no obligation to any Grantor to
maintain or preserve the rights of such Grantor as against third parties with
respect to Collateral while Collateral is in the possession of Investors.
Investors may, if they so elect, seek the appointment of a receiver or keeper to
take possession of Collateral and to enforce any of Investors’ remedies (for the
benefit of Investors and Investors), with respect to such appointment without
prior notice or hearing as to such appointment. Investors shall apply the net
proceeds of any such collection, recovery, receipt, appropriation, realization
or sale to the Secured Obligations as provided in the Purchase Agreement, and
only after so paying over such net proceeds, and after the payment by Investors
of any other amount required by any provision of law, need Investors account for
the surplus, if any, to any Grantor. To the maximum extent permitted by
applicable law, each Grantor waives all claims, damages, and demands against
Investors or any Investor arising out of the repossession, retention or sale of
the Collateral except such as arise solely out of the gross negligence or
willful misconduct of Investors or such Investor as finally determined by a
court of competent jurisdiction. Each Grantor agrees that ten (10) days prior
notice by Investors of the time and place of any public sale or of the time
after which a private sale may take place is reasonable notification of such
matters. Each Grantor shall remain liable for any deficiency if the proceeds of
any sale or disposition of the Collateral are insufficient to pay all Secured
Obligations, including any reasonable attorneys’ fees and other expenses
incurred by Investors or any Investor to collect such deficiency.

 

 

 

 

 

108

 

 

(b) Except as otherwise specifically provided herein, each Grantor hereby waives
presentment, demand, protest or any notice (to the maximum extent permitted by
applicable law) of any kind in connection with this Security Agreement or any
Collateral.

 

(c) To the extent that applicable law imposes duties on the Investors to
exercise remedies in a commercially reasonable manner, each Grantor acknowledges
and agrees that it is not commercially unreasonable for the Investors (i) to
fail to incur expenses reasonably deemed significant by the Investors to prepare
Collateral for disposition or otherwise to complete raw material or work in
process into finished goods or other finished products for disposition, (ii) to
fail to obtain third party consents for access to Collateral to be disposed of,
or to obtain or, if not required by other law, to fail to obtain governmental or
third party consents for the collection or disposition of Collateral to be
collected or disposed of, (iii) to fail to exercise collection remedies against
Account Debtors or other Persons obligated on Collateral or to remove Security
Interests on or any adverse claims against Collateral, (iv) to exercise
collection remedies against Account Debtors and other Persons obligated on
Collateral directly or through the use of collection agencies and other
collection specialists, (v) to advertise dispositions of Collateral through
publications or media of general circulation, whether or not the Collateral is
of a specialized nature, (vi) to contact other Persons, whether or not in the
same business as the Grantor, for expressions of interest in acquiring all or
any portion of such Collateral, (vii) to hire one or more professional
auctioneers to assist in the disposition of Collateral, whether or not the
Collateral is of a specialized nature, (viii) to dispose of Collateral by
utilizing internet sites that provide for the auction of assets of the types
included in the Collateral or that have the reasonable capacity of doing so, or
that match buyers and sellers of assets, (ix) to dispose of assets in wholesale
rather than retail markets, (x) to disclaim disposition warranties, such as
title, possession or quiet enjoyment, (xi) to purchase insurance or credit
enhancements to insure the Investors against risks of loss, collection or
disposition of Collateral or to provide to the Investors a guaranteed return
from the collection or disposition of Collateral, or (xii) to the extent deemed
appropriate by the Investors, to obtain the services of other brokers,
investment bankers, consultants and other professionals to assist the Investors
in the collection or disposition of any of the Collateral. Each Grantor
acknowledges that the purpose of this Section 7(c) is to provide non-exhaustive
indications of what actions or omissions by the Investors would not be
commercially unreasonable in the Investors’ exercise of remedies against the
Collateral and that other actions or omissions by the Investors shall not be
deemed commercially unreasonable solely on account of not being indicated in
this Section 7(c). Without limitation upon the foregoing, nothing contained in
this Section 7(c) shall be construed to grant any rights to any Grantor or to
impose any duties on Investors that would not have been granted or imposed by
this Security Agreement or by applicable law in the absence of this
Section 7(c).

 

 

 

 

 

109

 

 

(d) The Investors shall not be required to make any demand upon, or pursue or
exhaust any of their rights or remedies against, any Grantor, any other obligor,
guarantor, pledgor or any other Person with respect to the payment of the
Secured Obligations or to pursue or exhaust any of their rights or remedies with
respect to any Collateral therefor or any direct or indirect guarantee thereof.
The Investors shall not be required to marshal the Collateral or any guarantee
of the Secured Obligations or to resort to the Collateral or any such guarantee
in any particular order, and all of its and their rights hereunder shall be
cumulative. To the extent it may lawfully do so, each Grantor absolutely and
irrevocably waives and relinquishes the benefit and advantage of, and covenants
not to assert against the Investors or any Investor, any valuation, stay,
appraisement, extension, redemption or similar laws and any and all rights or
defenses it may have as a surety now or hereafter existing which, but for this
provision, might be applicable to the sale of any Collateral made under the
judgment, order or decree of any court, or privately under the power of sale
conferred by this Security Agreement, or otherwise.

 

8. GRANT OF LICENSE TO USE INTELLECTUAL PROPERTY COLLATERAL. For the purpose of
enabling Investors to exercise rights and remedies under Section 7 hereof
(including, without limiting the terms of Section 7 hereof, in order to take
possession of, hold, preserve, process, assemble, prepare for sale, market for
sale, sell or otherwise dispose of Collateral) at such time as Investors shall
be lawfully entitled to exercise such rights and remedies, each Grantor hereby
grants to Investors, to the extent that it may lawfully do so, for the benefit
of Investors, an irrevocable, nonexclusive license (exercisable without payment
of royalty or other compensation to such Grantor) to use, license or sublicense
any Intellectual Property now owned or hereafter acquired by such Grantor, and
wherever the same may be located, and including in such license access to all
media in which any of the licensed items may be recorded or stored and to all
computer software and programs used for the compilation or printout thereof.

 

9. LIMITATION ON INVESTORS’S AND INVESTORS’ DUTY IN RESPECT OF COLLATERAL. Each
Investor shall use reasonable care with respect to the Collateral in its
possession or under its control. No Investor shall have any other duty as to any
Collateral in its possession or control or in the possession or control of any
agent or nominee of Investors or such Investor, or any income thereon or as to
the preservation of rights against prior parties or any other rights pertaining
thereto.

 

10. REINSTATEMENT. This Security Agreement shall remain in full force and effect
and continue to be effective should any petition be filed by or against any
Grantor for liquidation or reorganization, should any Grantor become insolvent
or make an assignment for the benefit of any creditor or creditors or should a
receiver or trustee be appointed for all or any significant part of any
Grantor’s assets, and shall continue to be effective or be reinstated, as the
case may be, if at any time payment and performance of the Secured Obligations,
or any part thereof, is, pursuant to applicable law, rescinded or reduced in
amount, or must otherwise be restored or returned by any obligee of the Secured
Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Secured Obligations shall be reinstated and deemed reduced only by
such amount paid and not so rescinded, reduced, restored or returned.

 

 

110

 

 

11. NOTICES. Except as otherwise provided herein, whenever it is provided herein
that any notice, demand, request, consent, approval, declaration or other
communication shall or may be given to or served upon any of the parties by any
other party, or whenever any of the parties desires to give and serve upon any
other party any communication with respect to this Security Agreement, each such
notice, demand, request, consent, approval, declaration or other communication
shall be in writing and shall be given in the manner, and deemed received, as
provided for in the Notes.

 

12. EXPENSES. Each Grantor hereby agrees to pay all reasonable fees and expenses
of Investors in connection with the performance of their duties under the
Purchase Agreement or this Security Agreement.

 

13. SEVERABILITY. Whenever possible, each provision of this Security Agreement
shall be interpreted in a manner as to be effective and valid under applicable
law, but if any provision of this Security Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Security Agreement. This Security
Agreement is to be read, construed and applied together with the Purchase
Agreement and the Notes which, taken together, set forth the complete
understanding and agreement of Investors and each Grantor with respect to the
matters referred to herein and therein.

 

14. NO WAIVER; CUMULATIVE REMEDIES. Investors shall not by any act, delay,
omission or otherwise be deemed to have waived any of its rights or remedies
hereunder, and no waiver shall be valid unless in writing, signed by Investors
and then only to the extent therein set forth. A waiver by Investors of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which Investors would otherwise have had on any future
occasion. Neither failure to exercise nor any delay in exercising on the part of
Investors, any right, power or privilege hereunder, shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or future exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
hereunder provided are cumulative and may be exercised singly or concurrently,
and are not exclusive of any rights and remedies provided by law. None of the
terms or provisions of this Security Agreement may be waived, altered, modified
or amended except by an instrument in writing, duly executed by Investors and
each Grantor.

 

15. LIMITATION BY LAW. All rights, remedies and powers provided in this Security
Agreement may be exercised only to the extent that the exercise thereof does not
violate any applicable provision of law, and all the provisions of this Security
Agreement are intended to be subject to all applicable mandatory provisions of
law that may be controlling and to be limited to the extent necessary so that
they shall not render this Security Agreement invalid, unenforceable, in whole
or in part, or not entitled to be recorded, registered or filed under the
provisions of any applicable law.

 

16. TERMINATION OF THIS SECURITY AGREEMENT. Subject to Section 10 hereof, this
Security Agreement shall terminate upon the Termination Date.

 

 

 

 

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17. SUCCESSORS AND ASSIGNS. This Security Agreement and all obligations of each
Grantor hereunder shall be binding upon the successors and assigns of each
Grantor (including any debtor-in-possession on behalf of such Grantor) and
shall, together with the rights and remedies of Investors, for the benefit of
Investors, hereunder, inure to the benefit of Investors, all future holders of
any instrument evidencing any of the Secured Obligations and their respective
successors and assigns. No sales of participations, other sales, assignments,
transfers or other dispositions of any agreement governing or instrument
evidencing the Secured Obligations or any portion thereof or interest therein
shall in any manner affect the Security Interest granted to Investors, for the
benefit of Investors hereunder. No Grantor may assign, sell, hypothecate or
otherwise transfer any interest in or obligation under this Security Agreement.

 

18. COUNTERPARTS. This Security Agreement may be executed in any number of
separate counterparts, each of which shall collectively and separately
constitute one agreement.

 

19. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THE NOTES, IN ALL
RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS
SECURITY AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE, AND ANY APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. EACH GRANTOR HEREBY CONSENTS AND AGREES
THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK COUNTY, CITY OF NEW YORK,
NEW YORK, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN ANY GRANTOR AND INVESTORS PERTAINING TO THIS SECURITY AGREEMENT
OR ANY OF THE OTHER TRANSACTION DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR
RELATING TO THIS SECURITY AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS,
PROVIDED, THAT INVESTORS AND EACH GRANTOR ACKNOWLEDGE THAT ANY APPEALS FROM
THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK COUNTY,
AND, PROVIDED, FURTHER, NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
PRECLUDE INVESTORS FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE SECURED
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF
INVESTORS. EACH GRANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH GRANTOR
HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE
GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH
COURT. EACH GRANTOR HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO SUCH GRANTOR AT THE ADDRESS SET FORTH IN THE PURCHASE
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.

 

 

 

112

 

 

20. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX
FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT DISPUTES
ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG INVESTORS, AND ANY
GRANTOR ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED IN CONNECTION WITH, THIS SECURITY AGREEMENT OR ANY OF
THE OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO.

 

21. SECTION TITLES. The Section titles contained in this Security Agreement are
and shall be without substantive meaning or content of any kind whatsoever and
are not a part of the agreement between the parties hereto.

 

22. NO STRICT CONSTRUCTION. The parties hereto have participated jointly in the
negotiation and drafting of this Security Agreement. In the event an ambiguity
or question of intent or interpretation arises, this Security Agreement shall be
construed as if drafted jointly by the parties hereto and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Security Agreement.

 

23. ADVICE OF COUNSEL. Each of the parties represents to each other party hereto
that it has discussed this Security Agreement and, specifically, the provisions
of Section 19 and Section 20, with its counsel.

 

24. BENEFIT OF SUCCESSORS. All Security Interests granted or contemplated hereby
shall be for the benefit of Investors and Investors’ successors and assigns, and
all proceeds or payments realized from Collateral in accordance herewith shall
be applied to the Secured Obligations in accordance with the terms of the Notes.

 

[END OF TEXT. SIGNATURE PAGE FOLLOWS.]

 

 

 

 

 

 

 

113

 

IN WITNESS WHEREOF, each of the parties hereto has caused this Security
Agreement to be executed and delivered by its duly authorized officer as of the
date first set forth above.

 

 

  STRATUS MEDIA GROUP, INC.             By: /s/        Name:       Title:      
     

 

 

PRO SPORTS & ENTERTAINMENT, INC.

            By: /s/        Name:       Title:            

 

  STRATUS REWARDS, LLC             By: /s/        Name:       Title:            

 

  PROELITE, INC.             By: /s/        Name:       Title:            

 

  INVESTORS            Name: Sol Barer:        

 

 

114

 

 

 

 

SCHEDULE I

 

to

 

SECURITY AGREEMENT

 

FILING JURISDICTIONS

 

 

 

Delaware Secretary of State

 

Nevada Secretary of State

 

California Secretary of State

 

United States Patent and Trademark Office

 

United States

 

 

 

 

 

 

 

 

115

 

 

 

 

SCHEDULE II

 

to

 

SECURITY AGREEMENT

 

 

 

INSTRUMENTS
CHATTEL PAPER
AND
LETTER OF CREDIT RIGHTS

 

 

 

 

 

None.

 

 

 

 

 

 

 

 

 

116

 

SCHEDULE III

 

to

 

SECURITY AGREEMENT

 

 

SCHEDULE OF OFFICES, LOCATIONS OF COLLATERAL

AND RECORDS CONCERNING COLLATERAL

 

I.Each Grantor’s official name:

 

1.Stratus Media Group, Inc.

 

2.Pro Sports & Entertainment, Inc.

 

3.Stratus Rewards, LLC

 

4.ProElite, Inc.

 

II.Type of entity (e.g. corporation, partnership, business trust, limited
partnership, limited liability company):

 

1.corporation

 

2.corporation

 

3.limited liability company

 

4.corporation

 

III.Organizational identification number issued by Grantor’s state of
incorporation or organization or a statement that no such number has been
issued:

 

1.Entity Number: C144-1995

 

2.Entity Number: C2096886

 

3.File Number: 3675419

 

4.File Number: 0100511217

 

IV.State of Incorporation or Organization:

 

1.Nevada

 

2.California

 

3.Delaware

 

4.New Jersey

 

117

 

 

V.Chief Executive Office and principal place of business:

 

1.1800 Century Park East, 6th Floor, Los Angeles, CA 90067

 

2.1800 Century Park East, 6th Floor, Los Angeles, CA 90067

 

3.1800 Century Park East, 6th Floor, Los Angeles, CA 90067

 

VI.Corporate Offices:

 

1.1800 Century Park East, 6th Floor, Los Angeles, CA 90067

 

2.1800 Century Park East, 6th Floor, Los Angeles, CA 90067

 

3.1800 Century Park East, 6th Floor, Los Angeles, CA 90067

 

4.1800 Century Park East, 6th Floor, Los Angeles, CA 90067

 

VII.Warehouses:

 

1.None

 

2.None

 

3.None

 

4.None

 

VIII.Other Premises at which Collateral is Stored or Located:

 

1.None

 

2.None

 

3.None

 

4.None

 

IX.Locations of Records Concerning Collateral: 1800 Century Park East, 6th
Floor, Los Angeles, CA 90067

 

1.1800 Century Park East, 6th Floor, Los Angeles, CA 90067

 

2.1800 Century Park East, 6th Floor, Los Angeles, CA 90067

 

3.1800 Century Park East, 6th Floor, Los Angeles, CA 90067

 

4.1800 Century Park East, 6th Floor, Los Angeles, CA 90067

 

118

 

SCHEDULE IV

to

SECURITY AGREEMENT

 

PATENTS, TRADEMARKS AND COPYRIGHTS

 

Trademark Registration No. Serial No. Status/Prosecution Classes of
Goods/Services Action STRATUS REWARDS 3,225,387 76523353 Registered 10/16/2007
International Class 35 - Business/Advertising  - (words only) for “providing
incentive award program to airline passengers in which purchase points may be
redeemed for merchandise LIVE: Declarations of Continued Use and of
Incontestability to be filed by 04/07/2013. Must also assign ownership from
Avacus to Pro Sports. CLUB 360° 3,534,409 76/582093 Registered 11/18/2008
International Classes 39/ (words only) for “air transportation services
featuring a bonus incentive program” LIVE: Declarations of Continued Use and of
Incontestability to be filed by 11/18/2013. Must also assign ownership from
Avacus to Pro Sports. CLUB 360° 3,177,435 76/582092 Registered 11/28/2006
International Class 35   - Business/Advertising  - (words only) for “incentive
awards programs, whereby purchase points may be redeemed for merchandise” LIVE:
Declarations of Continued Use and of Incontestability to be filed by 11/18/2012.
Must also assign ownership from Avacus to Pro Sports. LIVING AT ALTITUDE
3,197,284 78375767 Registered 01/09/07 International Class 35 -
Business/Advertising  - (words only) for “providing incentive award program to
airline passengers in which purchase points may be redeemed for merchandise
LIVE: Declarations of Continued Use and of Incontestability to be filed by
1/09/2013. Must also assign ownership from Avacus to Pro Sports. LIVING AT
ALTITUDE 3,477,898 78362183 Registered 07/29/08 International Class 41 -
Education/Enternmenty  - (words only) for “providing incentive award program to
airline passengers in which purchase points may be redeemed for merchandise
LIVE: Declarations of Continued Use and of Incontestability to be filed by
7/29/2014. Must also assign ownership from Avacus to Pro Sports.

 

 

 

 

 

119

 

EXHIBIT A

 

POWER OF ATTORNEY

 

This Power of Attorney is executed and delivered by Stratus Media Group, Inc., a
Nevada corporation, Pro Sports & Entertainment, Inc., a California corporation,
and Stratus Rewards, LLC, a Delaware limited liability company (“Grantors”), to
_______________ and __________________ (hereinafter referred to as “Attorney”),
under the Purchase Agreement and the Security Agreement, all dated as of October
3, 2012, and other related documents (the “Transaction Documents”). No person to
whom this Power of Attorney is presented, as authority for Attorney to take any
action or actions contemplated hereby, shall be required (including in respect
of clauses (d) and (e) in the next succeeding paragraph) to inquire into or seek
confirmation from Grantors as to the authority of Attorney to take any action
described below, or as to the existence of or fulfillment of any condition to
this Power of Attorney, which is intended to grant to Attorney unconditionally
the authority to take and perform the actions contemplated herein, and Grantors
irrevocable waive any right to commence any suit or action, in law or equity,
against any person or entity which acts in reliance upon or acknowledges the
authority granted under this Power of Attorney. The power of attorney granted
hereby is coupled with an interest, and may not be revoked or canceled by
Grantors without Attorney’s written consent.

 

Each Grantor hereby irrevocably constitutes and appoints Attorney (and all
officers, employees or agents designated by Attorney), with full power of
substitution, as such Grantor’s true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of such Grantor and in
the name of such Grantor or in its own name, from time to time in Attorney’s
discretion, to take any and all appropriate action and to execute and deliver
any and all documents and instruments which may be necessary or desirable to
accomplish the purposes of the Transaction Documents and, without limiting the
generality of the foregoing, such Grantor hereby grants to Attorney the power
and right, on behalf of such Grantor, without notice to or assent by such
Grantor, (other than in connection with a change of address as specified in
clause (a), as to which Attorney shall use commercially reasonable efforts to
give such Grantor concurrent notice thereof provided that failure to do so will
not affect Attorney’s rights hereunder, and at any time, to do the following:
(a) change the mailing address of such Grantor, open a post office box on behalf
of such Grantor, open mail for such Grantor, and ask, demand, collect, give
acquittances and receipts for, take possession of, endorse any invoices, freight
or express bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, and notices in connection with any property
of such Grantor; (b) effect any repairs to any asset of such Grantor, or
continue or obtain any insurance and pay all or any part of the premiums
therefor and costs thereof, and make, settle and adjust all claims under such
policies of insurance, and make all determinations and decisions with respect to
such policies; (c) pay or discharge any taxes, liens, security interests, or
other encumbrances levied or placed on or threatened against such Grantor or its
property; (d) defend any suit, action or proceeding brought against such Grantor
if such Grantor does not defend such suit, action or proceeding or if Attorney
believes that such Grantor is not pursuing such defense in a manner that will
maximize the recovery to Attorney, and settle, compromise or adjust any suit,
action, or proceeding described above and, in connection therewith, give such
discharges or releases as Attorney may deem appropriate, provided that in
connection with the foregoing Attorney shall act in a manner consistent with the
terms of the Notes to the extent explicitly covered thereby; (e) file or
prosecute any claim, litigation, suit or proceeding in any court of competent
jurisdiction or before any arbitrator, or take any other action otherwise deemed
appropriate by Attorney for the purpose of collecting any and all such moneys
due to such Grantor whenever payable and to enforce any other right in respect
of such Grantor’s property provided, in the case of any such claim, litigation,
suit or proceeding relating to product liability insurance Attorney shall act in
a manner consistent with the terms of the Notes to the extent explicitly covered
thereby; (f) cause the certified public accountants then engaged by such Grantor
to prepare and deliver to Attorney at any time and from time to time, promptly
upon Attorney’s request, the following reports: (1) a reconciliation of all
accounts, (2) an aging of all accounts, (3) trial balances, (4) test
verifications of such accounts as Attorney may request, and (5) the results of
each physical verification of inventory; (g) communicate in its own name with
any party to any Contract with regard to the assignment of the right, title and
interest of such Grantor in and under the Contracts and other matters relating
thereto; (h) to file such financing statements with respect to the Security
Agreement, with or without such Grantor’s signature, or to file a photocopy of
the Security Agreement in substitution for a financing statement, as the
Collateral Agent may deem appropriate and to execute in such Grantor’s name such
financing statements and amendments thereto and continuation statements which
may require such Grantor’s signature; and (i) execute, in connection with any
sale provided for in any Transaction Document, any endorsements, assignments or
other instruments of conveyance or transfer with respect to the Collateral and
to otherwise direct such sale or resale, all as though Attorney were the
absolute owner of the property of such Grantor for all purposes, and to do, at
Attorney’s option and such Grantor’s expense, at any time or from time to time,
all acts and other things that Attorney reasonably deems necessary to perfect,
preserve, or realize upon such Grantor’s property or assets and Attorney’s Liens
thereon, all as fully and effectively as such Grantor might do. Each Grantor
hereby ratifies, to the extent permitted by law, all that said Attorney shall
lawfully do or cause to be done by virtue hereof.

 

120

 

 

IN WITNESS WHEREOF, this Power of Attorney is executed by Grantors, and Grantors
have caused their respective seals to be affixed pursuant to the authority of
their respective board of directors or manager, as the case may be, this ____
day of October 2012.

  

 

 

GRANTORS

 

Stratus Media Group, Inc.

            By:           Name          Title             

 

  Pro Sports & Entertainment, Inc.             By:           Name         
Title             

 

  Stratus Rewards, LLC             By:           Name          Title           
         

 

 

 

 

 

121

 

Exhibit E

INSTRUCTION SHEET FOR INVESTOR

 

(to be read in conjunction with the entire Securities Purchase Agreement)

 

A.Complete the following items in the Securities Purchase Agreement:

 

1.Complete and execute the Investor Signature Page. The Agreement must be
executed by an individual authorized to bind the Investor.

 

2.Exhibit E-1 - Stock Certificate Questionnaire:

 

Provide the information requested by the Stock Certificate Questionnaire;

 

3.Exhibit E-2 - Registration Statement Questionnaire:

 

Provide the information requested by the Registration Statement Questionnaire.

 

4.Exhibit E-3 - Investor Certificate:

 

Provide the information requested by the Investor Certificate.

 

5.Return, via facsimile, the signed Securities Purchase Agreement including the
properly completed Exhibits E-1 through E-3, to:

 

Facsimile: (213) 995-6337

Telephone: (310) 526-8700, selection 3

Attn: Tim Boris

 

6.After completing instruction number five (5) above, deliver the original
signed Securities Purchase Agreement including the properly completed Exhibits
E-1 through E-3 to:

 

Address:

 

TroyGould PC

c/o Stratus Media Group, Inc.

1800 Century Park East, 6th Floor

Los Angeles, CA 90067

 

B.Instructions regarding the wire transfer of funds for the purchase of the
Securities will be telecopied to the Investor by the Company at a later date.

  

122

 

Exhibit E-1

 

Stratus Media Group, Inc.

 

STOCK CERTIFICATE QUESTIONNAIRE

 

Please provide us with the following information:

 

1. The exact name that the Securities are to be registered in (this is the name
that will appear on the stock [and warrant] certificate(s)). You may use a
nominee name if appropriate:         2. The relationship between the Investor of
the Securities and the Registered Holder listed in response to item 1 above:    
    3. The mailing address, telephone and telecopy number and email address of
the Registered Holder listed in response to item 1 above:        
                        4. The Tax Identification Number of the Registered
Holder listed in response to item 1 above:        

 

 

 

 

 

 

123

 

Exhibit E-2

 

Stratus Media Group, Inc.

 

REGISTRATION STATEMENT QUESTIONNAIRE

 

In connection with the Registration Statement, please provide us with the
following information regarding the Investor.

 

1. Please state your organization’s name exactly as it should appear in the
Registration Statement:

 

   

 

 

Except as set forth below, your organization does not hold any equity securities
of the Company on behalf of another person or entity.

 

State any exceptions here:

 

   

 

 

If the Investor is not a natural person, please identify the natural person or
persons who will have voting and investment control over the Securities owned by
the Investor:

 

   

 

 

2. Address of your organization:

 

   

 

   

 

  Telephone:                Fax:                Contact Person:     

 

124

 

 

3. Have you or your organization had any position, office or other material
relationship within the past three years with the Company or its affiliates?
(Include any relationships involving you or any of your affiliates, officers,
directors, or principal equity holders (5% or more) that has held any position
or office or has had any other material relationship with the Company (or its
predecessors or affiliates) during the past three years.)

 

_______ Yes _______ No

 

If yes, please indicate the nature of any such relationship below:

 

 

 

4. Are you the beneficial owner of any other securities of the Company? (Include
any equity securities that you beneficially own or have a right to acquire
within 60 days after the date hereof, and as to which you have sole voting
power, shared voting power, sole investment power or shared investment power.)

 

_______ Yes _______ No

 

If yes, please describe the nature and amount of such ownership as of a recent
date.

 

 

 

 

 

5. Except as set forth below, you wish that all the shares of the Company’s
common stock beneficially owned by you or that you have the right to acquire
from the Company be offered for your account in the Registration Statement.

 

State any exceptions here:

 

 

 

 

 

6. Have you made or are you aware of any arrangements relating to the
distribution of the shares of the Company pursuant to the Registration
Statement?

 

_______ Yes _______ No

 

If yes, please describe the nature and amount of such arrangements.

 

 

 

 

 

125

 

 

7. FINRA Matters

 

(a) State below whether (i) you or any associate or affiliate of yours are a
member of FINRA, a controlling shareholder of a FINRA member, a person
associated with a member, a direct or indirect affiliate of a member, or an
underwriter or related person with respect to the proposed offering; (ii) you or
any associate or affiliate of yours owns any stock or other securities of any
FINRA member not purchased in the open market; or (iii) you or any associate or
affiliate of yours has made any outstanding subordinated loans to any FINRA
member. If you are a general or limited partnership, a no answer asserts that no
such relationship exists for you as well as for each of your general or limited
partners.

 

Yes: __________ No: __________

 

 

 

If “yes,” please identify the FINRA member and describe your relationship,
including, in the case of a general or limited partner, the name of the partner:

 

 

 

 

 

If you answer “no” to Question 7(a), you need not respond to Question 7(b).

 

 

 

(b) State below whether you or any associate or affiliate of yours has been an
underwriter, or a controlling person or member of any investment banking or
brokerage firm which has been or might be an underwriter for securities of the
Corporation or any affiliate thereof including, but not limited to, the common
stock now being registered.

 

Yes: __________ No: __________

 

If “yes,” please identify the FINRA member and describe your relationship,
including, in the case of a general or limited partner, the name of the partner.

 

 

 

 

 

 

 

 

126

 

ACKNOWLEDGEMENT

 

The undersigned hereby agrees to notify the Company promptly of any changes in
the foregoing information which should be made as a result of any developments,
including the passage of time. The undersigned also agrees to provide the
Company and the Company’s counsel any and all such further information regarding
the undersigned promptly upon request in connection with the preparation,
filing, amending, and supplementing of the Registration Statement (or any
prospectus contained therein). The undersigned hereby consents to the use of all
such information in the Registration Statement.

 

The undersigned understands and acknowledges that the Company will rely on the
information set forth herein for purposes of the preparation and filing of the
Registration Statement.

 

The undersigned understands that the undersigned may be subject to serious civil
and criminal liabilities if the Registration Statement, when it becomes
effective, either contains an untrue statement of a material fact or omits to
state a material fact required to be stated in the Registration Statement or
necessary to make the statements in the Registration Statement not misleading.
The undersigned represents and warrants that all information it provides to the
Company and its counsel is currently accurate and complete and will be accurate
and complete at the time the Registration Statement becomes effective and at all
times subsequent thereto, and agrees during the Effectiveness Period and any
additional period in which the undersigned is making sales of Securities under
and pursuant to the Registration Statement, and agrees during such periods to
notify the Company immediately of any misstatement of a material fact in the
Registration Statement, and of the omission of any material fact necessary to
make the statements contained therein not misleading.

 

Dated:     Name:          

Signature

 

     

Name and Title of Signatory

 

 

 

 

127

 

Exhibit E-3

 

Stratus Media Group, Inc.

 

CERTIFICATE FOR CORPORATE, PARTNERSHIP, LIMITED LIABILITY COMPANY, TRUST,
FOUNDATION AND JOINT INVESTORS

 

If the Investor is a corporation, partnership, limited liability company, trust,
pension plan, foundation, joint Investor (other than a married couple) or other
entity, an authorized officer, partner, or trustee must complete, date and sign
this Certificate.

 

CERTIFICATE

 

The undersigned certifies that the representations and responses below are true
and accurate:

 

(a) The Investor has been duly formed and is validly existing and has full power
and authority to invest in the Company. The person signing on behalf of the
undersigned has the authority to execute and deliver the Securities Purchase
Agreement on behalf of the Investor and to take other actions with respect
thereto.

 

(b) Indicate the form of entity of the undersigned:

 

____ Limited Partnership

 

____ General Partnership

 

____ Limited Liability Company

 

____ Corporation

 

____ Revocable Trust (identify each grantor and indicate under what
circumstances the trust is revocable by the grantor):

 

 

 

(Continue on a separate piece of paper, if necessary.)

 

____ Other type of Trust (indicate type of trust and, for trusts other than
pension trusts, name the grantors and beneficiaries): 

 

 

 

(ontinue on a separate piece of paper, if necessary.)

 

____ Other form of organization (indicate form of organization.)

 

 

 

 

(c) Indicate the approximate date the undersigned entity was formed:
                                             .

 

128

 

 

(d) In order for the Company to offer and sell the Securities in conformance
with state and federal securities laws, the following information must be
obtained regarding your investor status. Please initial each category applicable
to you as an investor in the Company.

 

___1.     A bank as defined in Section 3(a)(2) of the Securities Act, or any
savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary
capacity;

 

___2.     A broker or dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934;

 

___3.     An insurance company as defined in Section 2(13) of the Securities
Act;

 

___4.     An investment company registered under the Investment Company Act of
1940 or a business development company as defined in Section 2(a)(48) of that
Act;

 

___5.     A Small Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958;

 

___6.     A plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such plan has total assets in
excess of $5,000,000;

 

___7.     An employee benefit plan within the meaning of the Employee Retirement
Income Security Act of 1974, if the investment decision is made by a plan
fiduciary, as defined in Section 3(21) of such Act, which is either a bank,
savings and loan association, insurance company, or registered investment
advisor, or if the employee benefit plan has total assets in excess of
$5,000,000 or, if a self-directed plan, with investment decisions made solely by
persons that are accredited investors;

 

___8.     A private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;

 

___9.     Any partnership or corporation or any organization described in
Section 501(c)(3) of the Internal Revenue Code or similar business trust, not
formed for the specific purpose of acquiring the Shares, with total assets in
excess of $5,000,000;

 

___10.   A trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the Shares, whose purchase is directed by a
sophisticated person as described in Rule 506(b)(2)(ii) of the Exchange Act;

 

129

 

 

___11.     An entity in which all of the equity owners qualify under any of the
above subparagraphs. If the undersigned belongs to this investor category only,
list the equity owners of the undersigned, and the investor category which each
such equity owner satisfies:  

          (Continue on a separate piece of paper, if necessary.)

 

Please set forth in the space provided below the (i) states, if any, in the U.S.
in which you maintained your principal office during the past two years and the
dates during which you maintained your office in each state, (ii) state(s), if
any, in which you are incorporated or otherwise organized and (iii) state(s), if
any, in which you pay income taxes.

 

                   

 

 

Dated:                                           , 20[__]

 

 

 

Print Name of Investor

 

 

 

Name:

Title:

(Signature and title of authorized officer, partner or trustee)

 

 

 

 

 

130

 

Exhibit F

PLAN OF DISTRIBUTION

 

We are registering the shares of Common Stock issuable upon conversion of the
convertible preferred shares and upon exercise of the warrants to permit the
resale of these shares of Common Stock by the holders of the convertible
preferred shares and warrants from time to time after the date of this
prospectus. We will not receive any of the proceeds from the sale by the selling
shareholders of the shares of Common Stock. We will bear all fees and expenses
incident to our obligation to register the shares of Common Stock.

 

The selling shareholders may sell all or a portion of the shares of Common Stock
beneficially owned by them and offered hereby from time to time directly or
through one or more underwriters, broker-dealers or agents. If the shares of
Common Stock are sold through underwriters or broker-dealers, the selling
shareholders will be responsible for underwriting discounts or commissions or
agent’s commissions. The shares of Common Stock may be sold in one or more
transactions at fixed prices, at prevailing market prices at the time of the
sale, at varying prices determined at the time of sale, or at negotiated prices.
These sales may be effected in transactions, which may involve crosses or block
transactions,

 

·on any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of sale;

 

·in the over-the-counter market;

 

·in transactions otherwise than on these exchanges or systems or in the
over-the-counter market;

 

·through the writing of options, whether such options are listed on an options
exchange or otherwise;

 

·ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;

 

·block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;

 

·purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;

 

·an exchange distribution in accordance with the rules of the applicable
exchange;

 

·privately negotiated transactions;

 

·short sales;

 

·sales pursuant to Rule 144;

 

131

 

 

·broker-dealers may agree with the selling securityholders to sell a specified
number of such shares at a stipulated price per share;

 

·a combination of any such methods of sale; and

 

·any other method permitted pursuant to applicable law.

 

If the selling shareholders effect such transactions by selling shares of Common
Stock to or through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling shareholders or commissions from
purchasers of the shares of Common Stock for whom they may act as agent or to
whom they may sell as principal (which discounts, concessions or commissions as
to particular underwriters, broker-dealers or agents may be in excess of those
customary in the types of transactions involved). In connection with sales of
the shares of Common Stock or otherwise, the selling shareholders may enter into
hedging transactions with broker-dealers, which may in turn engage in short
sales of the shares of Common Stock in the course of hedging in positions they
assume. The selling shareholders may also sell shares of Common Stock short and
deliver shares of Common Stock covered by this prospectus to close out short
positions and to return borrowed shares in connection with such short sales. The
selling shareholders may also loan or pledge shares of Common Stock to
broker-dealers that in turn may sell such shares.

 

The selling shareholders may pledge or grant a security interest in some or all
of the convertible preferred shares or warrants or shares of Common Stock owned
by them and, if they default in the performance of their secured obligations,
the pledgees or secured parties may offer and sell the shares of Common Stock
from time to time pursuant to this prospectus or any amendment to this
prospectus under Rule 424(b)(3) or other applicable provision of the Securities
Act of 1933, as amended, amending, if necessary, the list of selling
shareholders to include the pledgee, transferee or other successors in interest
as selling shareholders under this prospectus. The selling shareholders also may
transfer and donate the shares of Common Stock in other circumstances in which
case the transferees, donees, pledgees or other successors in interest will be
the selling beneficial owners for purposes of this prospectus.

 

The selling shareholders and any broker-dealer participating in the distribution
of the shares of Common Stock may be deemed to be “underwriters” within the
meaning of the Securities Act, and any commission paid, or any discounts or
concessions allowed to, any such broker-dealer may be deemed to be underwriting
commissions or discounts under the Securities Act. At the time a particular
offering of the shares of Common Stock is made, a prospectus supplement, if
required, will be distributed which will set forth the aggregate amount of
shares of Common Stock being offered and the terms of the offering, including
the name or names of any broker-dealers or agents, any discounts, commissions
and other terms constituting compensation from the selling shareholders and any
discounts, commissions or concessions allowed or reallowed or paid to
broker-dealers.

 

Under the securities laws of some states, the shares of Common Stock may be sold
in such states only through registered or licensed brokers or dealers. In
addition, in some states the shares of Common Stock may not be sold unless such
shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.

 

132

 

 

There can be no assurance that any selling shareholder will sell any or all of
the shares of Common Stock registered pursuant to the shelf registration
statement, of which this prospectus forms a part.

 

The selling shareholders and any other person participating in such distribution
will be subject to applicable provisions of the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder, including, without
limitation, Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the shares of Common Stock by the selling
shareholders and any other participating person. Regulation M may also restrict
the ability of any person engaged in the distribution of the shares of Common
Stock to engage in market-making activities with respect to the shares of Common
Stock. All of the foregoing may affect the marketability of the shares of Common
Stock and the ability of any person or entity to engage in market-making
activities with respect to the shares of Common Stock.

 

We will pay all expenses of the registration of the shares of Common Stock
pursuant to the registration rights agreement, estimated to be $[ ] in total,
including, without limitation, Securities and Exchange Commission filing fees
and expenses of compliance with state securities or “blue sky” laws; provided,
however, that a selling shareholder will pay all underwriting discounts and
selling commissions, if any. We will indemnify the selling shareholders against
liabilities, including some liabilities under the Securities Act, in accordance
with the registration rights agreements, or the selling shareholders will be
entitled to contribution. We may be indemnified by the selling shareholders
against civil liabilities, including liabilities under the Securities Act, that
may arise from any written information furnished to us by the selling
shareholder specifically for use in this prospectus, in accordance with the
related registration rights agreements, or we may be entitled to contribution.

 

Once sold under the shelf registration statement, of which this prospectus forms
a part, the shares of Common Stock will be freely tradable in the hands of
persons other than our affiliates.

 

 

 

 

 

133

 

 

Exhibit G

COMPANY TRANSFER AGENT INSTRUCTIONS

 

Stalt Inc.
671 Oak Grove Avenue, Suite C
Menlo Park, CA 94025
Attention: William Senner Jr. (info@stalt.com)

 

Ladies and Gentlemen:

 

Reference is made to that certain Securities Purchase Agreement, dated as of May
24, 2011 (the “Agreement”), by and among Stratus Media Group, Inc., a Nevada
corporation (the “Company”), and the investors named on the Schedule of
Investors attached thereto (collectively, the “Holders”), pursuant to which the
Company is issuing to the (i) Holders shares of its Series E Convertible
Preferred Stock, par value $0.001 per share, the terms of which are set forth in
the certificate of designations for such series of preferred shares (the
“Certificate of Designations”) (together with any convertible preferred shares
issued in replacement thereof in accordance with the terms thereof, the
“Preferred Shares”), which Preferred Shares shall be convertible into the
Company’s common stock, $0.001 par value per share (the “Common Stock”), in
accordance with the terms of the Certificate of Designations, and Warrants (the
“Warrants”), which are exercisable for shares of Common Stock, and (ii)
Placement Agent warrants (the “Placement Agent Warrants”), which are exercisable
for shares of Common Stock.

 

In connection with the consummation of the transactions contemplated by the
Agreement, this letter shall serve as our irrevocable authorization and
direction to you:

 

(i) to issue an aggregate of 2,000 shares of our Preferred Shares in the names
and denominations set forth on Annex I attached hereto. The certificates should
bear the legend set forth on Annex II attached hereto and “stop transfer”
instructions should be placed against their subsequent transfer. Kindly deliver
the certificates to the respective delivery addresses set forth on Annex I via
hand delivery or overnight courier. We confirm that these shares will be validly
issued, fully paid and non-assessable upon issuance.

 

(ii) to issue (provided that you are the transfer agent of the Company at such
time) certificates for Preferred Shares upon transfer or resale of the Preferred
Shares and receipt by you of certificate(s) for the Preferred Shares so
transferred or sold (duly endorsed or accompanied by stock powers duly endorsed,
in each case with signatures guaranteed and otherwise in form eligible for
transfer);

 

(iii) to issue shares of Common Stock (provided that you are the Transfer Agent
of the Company at such time) upon the exercise of the Warrants (the “Warrant
Shares”) upon the order of the Company from time to time upon delivery to you of
a properly completed and duly executed Exercise Notice, in the form attached
hereto as Annex III, which has been acknowledged by the Company as indicated by
the signature of a duly authorized officer of the Company thereon; and

 

134

 

 

(iv) to issue shares of Common Stock (provided that you are the Transfer Agent
of the Company at such time) upon the exercise of the Placement Agent Warrants
(the “Placement Agent Warrant Shares”) upon the order of the Company from time
to time upon delivery to you of a properly completed and duly executed notice of
exercise, which has been acknowledged by the Company as indicated by the
signature of a duly authorized officer of the Company thereon.

 

You acknowledge and agree that so long as you have previously received (a)
written confirmation from the Company’s legal counsel that either (i) a
registration statement covering resales of the Preferred Shares, the Warrant
Shares and the Placement Agent Warrant Shares has been declared effective by the
Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933,
as amended (the “Securities Act”), or (ii) the Preferred Shares, the Warrant
Shares and the Placement Agent Warrant Shares are eligible for sale without any
volume limitation in conformity with Rule 144 under the Securities Act (“Rule
144”) and (b) if applicable, a copy of such registration statement, then, unless
otherwise required by law, within three (3) business days of your receipt of
certificates representing the Preferred Shares, the Warrant Shares and the
Placement Agent Warrant Shares, you shall issue the certificates representing
the Preferred Shares, the Warrant Shares and the Placement Agent Warrant Shares
to the Holders or the Placement Agent, as applicable, or their transferees, as
the case may be, registered in the names of such Holders or Placement Agent, as
applicable, or transferees, as the case may be, and such certificates shall not
bear any legend restricting transfer of the Preferred Shares, the Warrant Shares
and the Placement Agent Warrant Shares thereby and should not be subject to any
stop-transfer restriction. Any certificates tendered for transfer shall be
endorsed or with stock powers attached, signatures guaranteed, and otherwise in
form necessary to affect transfer.

 

The Company’s Board of Directors has authorized and approved these instructions
and the form of Annex I-IV attached to these instructions.

 

A form of written confirmation from the Company’s outside legal counsel that a
registration statement covering resales of the Preferred Shares, the Warrant
Shares and the Placement Agent Warrant Shares has been declared effective by the
SEC under the Securities Act is attached hereto as Annex IV.

 

Please execute this letter in the space indicated to acknowledge your agreement
to act in accordance with these instructions. Should you have any questions
concerning this matter, please contact our counsel, David L. Ficksman, Esq., at
(310) 789-1290.

 

[Signature page follows]

 

 

 

 

 

 

 

 

 

135

 

 

 

Very truly yours,

 

STRATUS MEDIA GROUP, INC.

            By: /s/        Name          Title                     

 

THE FOREGOING INSTRUCTIONS ARE
ACKNOWLEDGED AND AGREED TO
this [___] day of October, 2012

 

STALT INC

 

        By: /s/      Name        Title     

 

Enclosures

 

 

 

 

 

136

 

 

 

 

ANNEX I

 

SCHEDULE OF INVESTORS

 

 

Investor Name and Address Preferred Shares to be Issued A Warrants to be Issued
B Warrants to be Issued Sol Barer 1,000 3,333,333 1,666,666

 

 

 

 

 

 

 

 

 

 

137

 

 

ANNEX II

 

STOCK CERTIFICATE RESTRICTIVE LEGEND

 

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS. THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A
REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN
“ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR
OTHER LOAN SECURED BY SUCH SECURITIES.

 

 

 

 

 

 

 

 

 

 

138

 

ANNEX III

 

FORM OF EXERCISE NOTICE

 

(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)

 

To Stratus Media Group, Inc.:

 

The undersigned is the Holder of Warrant No. _______ (the “Warrant”) issued by
Stratus Media Group, Inc., a Nevada corporation (the “Company”). Capitalized
terms used herein and not otherwise defined have the respective meanings set
forth in the Warrant.

 

1.The Warrant is currently exercisable to purchase a total of ______________
Warrant Shares.

 

2.The undersigned Holder hereby exercises its right to purchase
_________________ Warrant Shares pursuant to the Warrant.

 

3.The holder shall pay the sum of $____________ to the Company in accordance
with the terms of the Warrant.

 

4.Pursuant to this exercise, the Company shall deliver to the holder
_______________ Warrant Shares in accordance with the terms of the Warrant.

 

5.Following this exercise, the Warrant shall be exercisable to purchase a total
of ______________ Warrant Shares.

 

Dated:                                Name of Holder:             (Print)      
        By:         Name          Title                (Signature must conform
in all respects to name of holder as specified on the face of the Warrant)  

 

   

 

ACKNOWLEDGED AND AGREED TO this
___ day of ___________, 20__

 

Stratus Media Group, Inc.

       

 

By:     Name      Title     

 

139

 

ANNEX IV

 

FORM OF NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT

 

Stalt Inc.
[________________]
[________________]
Attention: [________________] Representative

 

Re: Stratus Media Group, Inc.

 

Ladies and Gentlemen:

 

We are counsel to Stratus Media Group, Inc., a Nevada corporation (the
“Company”), and have represented the Company in connection with that certain
Securities Purchase Agreement, dated as of October 3, 2012 (the “Securities
Purchase Agreement”), entered into by and among the Company and the buyers named
therein (collectively, the “Purchasers”) pursuant to which the Company issued to
(i) the Purchasers Series E Convertible Preferred Stock, par value $0.001 per
share, the terms of which are set forth in the certificate of designations for
such series of preferred shares (the “Certificate of Designations,” which is
attached to the Agreement) (together with any convertible preferred shares
issued in replacement thereof in accordance with the terms thereof, the
“Preferred Shares”), which Preferred Shares shall be convertible into shares of
the Company’s common stock, $0.001 par value per share (the “Common Stock”), in
accordance with the terms of the Certificate of Designations (as converted,
collectively, the “Conversion Shares”), and Warrants (the “Warrants”), which are
exercisable for shares of Common Stock (the “Warrant Shares”), and (ii) Maxim
Group LLC (the “Placement Agent”) warrants (the “Placement Agent Warrants”),
which are exercisable for shares of Common Stock (the “Placement Agent Warrant
Shares”). Pursuant to the Securities Purchase Agreement, the Company agreed to
register the resale of the Conversion Shares, the Warrant Shares and the
Placement Agent Warrant Shares (collectively, the “Registrable Securities”)
under the Securities Act of 1933, as amended (the “Securities Act”). In
connection with the Company’s obligations under the Securities Purchase
Agreement, on [_______], 20[__], the Company filed a Registration Statement on
Form S-1 (File No. 333-[________________] ) (the “Registration Statement”) with
the Securities and Exchange Commission (the “Commission”) relating to the
Registrable Securities which names each of the Purchasers and the Placement
Agent as a selling shareholder thereunder.

 

In connection with the foregoing, we advise you that a member of the SEC’s staff
has advised us by telephone that the SEC has entered an order declaring the
Registration Statement effective under the Securities Act at [_______]
[a.m.][p.m.] on [_______], 20[__], and we have no knowledge, after telephonic
inquiry of a member of the staff, that any stop order suspending its
effectiveness has been issued or that any proceedings for that purpose are
pending before, or threatened by, the Commission and the Registrable Securities
are available for resale under the Securities Act pursuant to the Registration
Statement.

 

This letter shall serve as our standing notice to you that the Conversion
Shares, the Warrant Shares and the Placement Agent Warrant Shares may be freely
transferred by the Purchasers pursuant to the Registration Statement so long as
the Purchasers and the Placement Agent, as applicable, certify they will comply
with the plan of distribution description in connection with sales or transfers
of the Conversion Shares, the Warrant Shares and the Placement Agent Warrant
Shares, as applicable, set forth in the Registration Statement and with the
prospectus delivery requirements of the Securities Act, to the extent such
delivery requirement are applicable. You need not require further letters from
us to effect any future legend-free issuance or reissuance of the Conversion
Shares and the Warrant Shares to the Purchasers or the transferees of the
Purchasers, and the Placement Agent Warrant Shares to the Placement Agent or the
transferees of the Placement Agent, as the case may be, as contemplated by the
Company’s Irrevocable Transfer Agent Instructions dated , 20[__].

 

 

 

140

 

 

 

 

Schedule 3.1(a)

 

SUBSIDIARIES

 

Pro Sports & Entertainment, Inc., a California corporation

 

Stratus Rewards, LLC, a Delaware limited liability company

 

The Company owns approximately 95% of the voting power of ProElite, Inc., a New
Jersey corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

141

 

 

 

 

Schedule 3.1(b)

 

GOOD STANDING

 

ProElite, Inc., a New Jersey corporation, is not in good standing as a foreign
corporation in California.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

142

 

 

 

 

Schedule 3.1(f)

 

CAPITALIZATION

 

(i):

 

Series C 10% Preferred Stock, $30 par value

1,000,000 authorized

0 issued and outstanding

Convertible into 0 shares of common stock

Warrants to purchase 300,967 shares of common stock

 

Series D 10% Preferred Stock, $30 par value

500,000 authorized

18,999 issued and outstanding

Convertible into 1,139,930 shares of common stock

Warrants to purchase 1,519,935 shares of common stock

 

Series E 5% Preferred Stock

10,000 authorized

8,450 issued and outstanding at September 30, 2012

 

Common Stock, $0.001 par value

200,000,000 authorized

90,313,894 issued and outstanding at September 30, 2012

 

Stock Options

7,046,565 options outstanding at September 30, 2012

 

Warrants

109,767,135 warrants outstanding at September 30, 2012

 

(ii):

 

None.

 

(iii):

 

None.

 

(iv):

 

None.

 

 

143

 

 

 

 

Schedule 3.1(g)

 

SEC REPORTS

 

The Company filed with the SEC its Form 10-K for the annual period ended
December 31, 2011 on May 21, 2012.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

144

 

 

 

 

Schedule 3.1(h)

 

MATERIAL CHANGES

 

None.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

145

 

 

 

 

Schedule 3.1(i)

 

ABSENCE OF LITIGATION

 

None.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

146

 

 

 

 

Schedule 3.1(j)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

147

 

 

 

 

Schedule 3.1(k)

 

TITLE TO ASSETS

 

(i):All Assets, fixed and intangible, are disclosed in the footnotes to the
audited financial statements set forth in the Annual Report on Form 10-K filed
with the Securities and Exchange Commission. The Company has title to all
assets.

 

(ii):None.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

148

 

 

 

 

Schedule 3.1(o)

 

REGISTRATION RIGHTS

 

The Company has granted piggyback registration rights to the investors in the
Series C and Series D Preferred Stock financing with respect to shares of the
Company’s Common Stock issuable pursuant to the conversion of the Preferred
Stock and the exercise of the warrants issued in such financing.

 

The Company has filed a registration statement to the Investors in the prior
Series E Preferred financing with respect to shares of the Company’s Common
Stock issuable pursuant to the conversion of the Preferred Stock and the
exercise of the warrants issued in such financing.

 

 

 

 

 

 

 

 

 

 

 

 

 

149

 

 

 

 

Schedule 3.1(s)

 

PATENTS AND TRADEMARKS

 

Trademark Registration No. Serial No. Status/
Prosecution Classes of Goods/Services Action STRATUS REWARDS 3,225,387 76523353
Registered 10/16/2007 International Class 35 - Business/Advertising  - (words
only) for “providing incentive award program to airline passengers in which
purchase points may be redeemed for merchandise LIVE: Declarations of Continued
Use and of Incontestability to be filed by 04/07/2013. Must also assign
ownership from Avacus to Pro Sports. CLUB 360° 3,534,409 76/582093 Registered
11/18/2008 International Classes 39/ (words only) for “air transportation
services featuring a bonus incentive program” LIVE: Declarations of Continued
Use and of Incontestability to be filed by 11/18/2013. Must also assign
ownership from Avacus to Pro Sports. CLUB 360° 3,177,435 76/582092 Registered
11/28/2006 International Class 35   - Business/Advertising  - (words only) for
“incentive awards programs, whereby purchase points may be redeemed for
merchandise” LIVE: Declarations of Continued Use and of Incontestability to be
filed by 11/18/2012. Must also assign ownership from Avacus to Pro Sports.
LIVING AT ALTITUDE 3,197,284 78375767 Registered 01/09/07 International Class 35
- Business/Advertising  - (words only) for “providing incentive award program to
airline passengers in which purchase points may be redeemed for merchandise
LIVE: Declarations of Continued Use and of Incontestability to be filed by
1/09/2013. Must also assign ownership from Avacus to Pro Sports. LIVING AT
ALTITUDE 3,477,898 78362183 Registered 07/29/08 International Class 41 -
Education/Enternmenty  - (words only) for “providing incentive award program to
airline passengers in which purchase points may be redeemed for merchandise
LIVE: Declarations of Continued Use and of Incontestability to be filed by
7/29/2014. Must also assign ownership from Avacus to Pro Sports.

 

150

 

 

 

 

Schedule 3.1(v)

 

TRANSACTIONS WITH AFFILIATES AND EMPLOYEES

 

None.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

151

 

 

 

 

Schedule 3.1(z)

 

INDEBTEDNESS

 

None.

 

 

 

 

 

 

 

 

 

 

 

 

 

152