GULFSLOPE ENERGY, INC. - 8-K [gspe-8k_061119.htm] 

 

Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of June 21,
2019, is between GULFSLOPE ENERGY, INC., a company incorporated under the laws
of the State of Delaware, with headquarters located at 1331 Lamar Street, Suite
1665, Houston, Texas 77010 (the “Company”), and each of the investors listed on
the Schedule of Buyers attached hereto (individually, a “Buyer” and collectively
the “Buyers”).

 

WITNESSETH

 

WHEREAS, the Company and each Buyer desire to enter into this transaction for
the Company to sell and the Buyers to purchase the Convertible Debentures (as
defined below) pursuant to an exemption from registration pursuant to Section
4(2) and/or Rule 506 of Regulation D (“Regulation D”) as promulgated by the U.S.
Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933,
as amended (the “Securities Act”);

 

WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to the Buyer(s), as provided
herein, and the Buyer(s) shall purchase up to $3,000,000 of convertible
debentures in the form attached hereto as “Exhibit A” (the “Convertible
Debentures”), which shall be convertible into shares of the Company’s common
stock, par value $0.001 (the “Common Stock”) (as converted, the “Conversion
Shares”), of which $2,100,000 shall be purchased upon the signing this Agreement
(the “First Closing”), $400,000 shall be purchased upon the filing of a
Registration Statement with the U.S. Securities and Exchange Commission
registering the resale of the Conversion Shares by the Buyers (the “Second
Closing”), and $500,000 shall be purchased on or about the date the Registration
Statement has first been declared effective by the SEC (the “Third Closing”)
(individually referred to as a “Closing” collectively referred to as the
“Closings”), for a total purchase price of up to $3,000,000 (the “Purchase
Price”) in the respective amounts set forth opposite each Buyer(s) name on
Schedule I (the “Subscription Amount”);

 

WHEREAS, at the First Closing, the Company will issue to the Buyer warrants (the
“Warrants”) to purchase an aggregate of 50.0 million shares (the “Warrant
Shares”) of the Company’s Common Stock at an exercise price of $0.06 per share.
Such Warrants will expire on the fifth (5th) anniversary after issuance;

 

WHEREAS, contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
(the “Registration Rights Agreement”) pursuant to which the Company has agreed
to provide certain registration rights under the Securities Act and the rules
and regulations promulgated there under, and applicable state securities laws;

 

WHEREAS, the Convertible Debentures, the Conversion Shares, the Warrants and the
Warrant Shares are collectively referred to herein as the “Securities.”

 

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AGREEMENT

 

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

 

1.PURCHASE AND SALE OF CONVERTIBLE DEBENTURES AND WARRANTS.

 

(a)       Purchase of Convertible Debentures. Subject to the satisfaction (or
waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall
issue and sell to each Buyer, and each Buyer severally, but not jointly, agrees
to purchase from the Company at each Closing Convertible Debentures in amounts
corresponding with the Subscription Amount set forth opposite each Buyer’s name
on Schedule of Buyers attached as Schedule I hereto. Solely with respect to the
Third Closing, in the event that the number of Conversion Shares registered for
resale by a Buyer on the Registration Statement multiplied by the average volume
weighted average price of the Common Stock on the Principal Market during the
five (5) consecutive Trading Days immediately prior to the effective date of the
Registration Statement is less than three (3.0) times the sum of the aggregate
face value of Convertible Debentures purchased by the Buyer at the First Closing
which remains outstanding, and the aggregate face value of the Convertible
Debentures to be issued to the Buyer at the Third Closing (such event shall be
referred to as a “Coverage Failure”), then the amount of Convertible Debentures
to be issued and sold at the Third Closing to such Buyer shall automatically be
reduced to the lowest amount which would not result in a Coverage Failure. For
the avoidance of doubt, no adjustment shall be made to any Convertible
Debentures previously issued at the First Closing and the Second Closing as a
result in a Coverage Failure.

 

(b)       Purchase of Warrants. At the First Closing, the Company shall issue
the Warrants to the Buyer.

 

(c)       Closing Dates. Each Closing of the purchase of Convertible Debentures
by the Buyers shall occur at the offices Yorkville Advisors Global, LP, 1012
Springfield Avenue, Mountainside, NJ 07092. The date and time of each Closing
shall be as follows: (i) the First Closing shall be 10:00 a.m., New York time,
by the fifth (5th) Business Day on which the conditions to the Closing set forth
in Sections 6 and 7 below are satisfied or waived (or such other date as is
mutually agreed to by the Company and each Buyer) (the “First Closing Date”),
(ii) the Second Closing shall be 10:00 a.m., New York time, by the fifth (5th)
Business Day after the date on which the Registration Statement is filed by the
Company with the SEC, provided the conditions to the Closing set forth in
Sections 6 and 7 below are satisfied or waived (or such other date as is
mutually agreed to by the Company and each Buyer) (the “Second Closing Date”),
and (iii) the Third Closing shall be 10:00 a.m., New York time, by the fifth
(5th) Business Day after the Registration Statement is first declared effective
by the SEC, provided the conditions to the Closing set forth in Sections 6 and 7
below are satisfied or waived (or such other date as is mutually agreed to by
the Company and each Buyer) (the “Third Closing Date” and collectively referred
to as the “Closing Dates”). Notwithstanding anything herein to the contrary, the
purchase and sale of Convertible Debentures at the Third Closing shall be at the
option of the Company. As used herein “Business Day” means any day other than a
Saturday, Sunday or other day on which commercial banks in New York, New York
are authorized or required by law to remain closed.

 

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(d)       Form of Payment; Deliveries. Subject to the satisfaction of the terms
and conditions of this Agreement, on each Closing Date, (i) the Buyers shall
deliver in cash to the Company such aggregate proceeds for the Convertible
Debentures to be issued and sold to such Buyer at such Closing, minus the fees
to be paid directly from the proceeds of such Closing as set forth herein, and
(ii) the Company shall deliver to each Buyer, Convertible Debentures which such
Buyer is purchasing at such Closing in amounts indicated opposite such Buyer’s
name on Schedule I, duly executed on behalf of the Company.

 

2.BUYER’S REPRESENTATIONS AND WARRANTIES.

 

Each Buyer, severally and not jointly, represents and warrants to the Company
with respect to only itself that, as of the date hereof and as of each Closing
Date:

 

(a)       Investment Purpose. The Buyer is acquiring the Securities for its own
account for investment only and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the Securities Act; provided, however, that
by making the representations herein, such Buyer reserves the right to dispose
of the Securities at any time in accordance with or pursuant to an effective
registration statement covering such Securities or an available exemption under
the Securities Act. Such Buyer does not presently have any agreement or
understanding, directly or indirectly, with any Person to distribute any of the
Securities.

 

(b)       Accredited Investor Status. The Buyer is an “Accredited Investor” as
that term is defined in Rule 501(a)(3) of Regulation D.

 

(c)       Reliance on Exemptions. The Buyer 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
that the Company is relying in part upon the truth and accuracy of, and such
Buyer’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.

 

(d)       Information. The Buyer and its advisors (and his or, its counsel), if
any, have been furnished with all materials relating to the business, finances
and operations of the Company and information he deemed material to making an
informed investment decision regarding his purchase of the Securities, which
have been requested by such Buyer. The Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company and its management.
Neither such inquiries nor any other due diligence investigations conducted by
such Buyer or its advisors, if any, or its representatives shall modify, amend
or affect such Buyer’s right to rely on the Company’s representations and
warranties contained in Section 3 below. The Buyer understands that its
investment in the Securities involves a high degree of risk. The Buyer has
sought such accounting, legal and tax advice, as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Securities.

 

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(e)       Transfer or Resale. The Buyer understands that: (i) the Securities
have not been registered under the Securities Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration requirements, or
(C) such Buyer provides the Company with reasonable assurances (in the form of
seller and broker representation letters) that such Securities can be sold,
assigned or transferred pursuant to Rule 144 promulgated under the Securities
Act, as amended (or a successor rule thereto) (collectively, “Rule 144”), in
each case following the applicable holding period set forth therein; and (ii)
any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the Securities Act) may require compliance with some
other exemption under the Securities Act or the rules and regulations of the SEC
thereunder.

 

(f)       Legends. The Buyer agrees to the imprinting, so long as its required
by this Section 2(f), of a restrictive legend on the Securities in substantially
the following form:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE [AND THOSE SECURITIES INTO WHICH
THEY ARE CONVERTIBLE] HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES [AND THOSE
SECURITIES INTO WHICH THEY ARE CONVERTIBLE] HAVE BEEN ACQUIRED SOLELY FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS.

 

Certificates evidencing the Conversion Shares and Warrant Shares shall not
contain any legend (including the legend set forth above), (i) following any
sale of such Conversion Shares and Warrant Shares pursuant to an effective
registration statement under the Securities Act or pursuant to Rule 144, or (ii)
if such legend is not required under applicable requirements of the Securities
Act (including judicial interpretations and pronouncements issued by the staff
of the SEC). The Buyer agrees that the removal of restrictive legend from
certificates representing Securities as set forth in this Section 3(f) is
predicated upon the Company’s reliance that the buyer will sell any Securities
pursuant to either the registration requirements of the Securities Act,
including any applicable prospectus delivery requirements, or an exemption
therefrom, and that if Securities are sold pursuant to a registration statement,
they will be sold in compliance with the plan of distribution set forth therein.

 

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(g)       Organization; Authority. Such Buyer is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents (as
defined below) to which it is a party and otherwise to carry out its obligations
hereunder and thereunder.

 

(h)       Authorization, Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of such Buyer and shall constitute
the legal, valid and binding obligations of such Buyer enforceable against such
Buyer in accordance with its terms, except as such enforceability may be limited
by general principles of equity or to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.

 

(i)       No Conflicts. The execution, delivery and performance by such Buyer of
this Agreement and the consummation by such Buyer of the transactions
contemplated hereby will not (i) result in a violation of the organizational
documents of such Buyer, (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 Buyer 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 Buyer, except, in the case of clauses (ii) and (iii) above, for such
conflicts, defaults, rights or violations which could not, individually or in
the aggregate, reasonably be expected to have a material adverse effect on the
ability of such Buyer to perform its obligations hereunder.

 

(j)       Certain Trading Activities. The Buyer has not directly or indirectly,
nor has any Person acting on behalf of or pursuant to any understanding with the
Buyer, engaged in any transactions in the securities of the Company (including,
without limitation, any Short Sales (as defined below) involving the Company’s
securities) during the period commencing as of the time that the Buyer first
contacted the Company or the Company’s agents regarding the specific investment
in the Company contemplated by this Agreement and ending immediately prior to
the execution of this Agreement by such Buyer.

 

(k)       Trading Information. Upon the Company’s request, the Buyer agrees to
provide the Company with trading reports setting forth the number and average
sales prices of Conversion Shares and Warrant Shares sold the Buyer during the
prior trading week.

 

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3.REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

Except as set forth under the corresponding section of the Disclosure Schedules
which Disclosure Schedules shall be deemed a part hereof and to qualify any
representation or warranty otherwise made herein to the extent of such
disclosure, the Company hereby makes the representations and warranties set
forth below to The Buyer:

 

(a)       Organization and Qualification. The Company and each of its
Subsidiaries are entities duly formed, validly existing and in good standing
under the laws of the jurisdiction in which they are formed, and have the
requisite power and authority to own their properties and to carry on their
business as now being conducted and as presently proposed to be conducted. The
Company and each of its Subsidiaries is duly qualified as a foreign entity to do
business and is in good standing in every jurisdiction in which its ownership of
property or the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not reasonably be expected to have a Material Adverse Effect
(as defined below). As used in this Agreement, “Material Adverse Effect” means
any material adverse effect on (i) the business, properties, assets,
liabilities, operations (including results thereof) or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole, (ii) the
transactions contemplated hereby or in any of the other Transaction Documents or
any other agreements or instruments to be entered into by the Company in
connection herewith or therewith or (iii) the authority or ability of the
Company to perform any of its obligations under any of the Transaction Documents
(as defined below). “Subsidiaries” means any Person in which the Company,
directly or indirectly, owns a majority of the outstanding capital stock having
voting power or holds a majority of the equity or similar interest of such
Person, and each of the foregoing, is individually referred to herein as a
“Subsidiary”.

 

(b)       Authorization; Enforcement; Validity. The Company has the requisite
power and authority to enter into and perform its obligations under this
Agreement and the other Transaction Documents and to issue the Securities in
accordance with the terms hereof and thereof. The execution and delivery of this
Agreement and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Convertible Debentures and
the Warrants, the reservation for issuance and issuance of the Conversion Shares
issuable upon conversion of the Convertible Debentures and the Warrant Shares
issuable upon the exercise of the Warrants), have been duly authorized by the
Company’s board of directors and no further filing, consent or authorization is
required by the Company, its board of directors or its stockholders or other
governmental body (except such governmental filings and authorizations as are
contemplated under the Registration Rights Agreement). This Agreement has been,
and the other Transaction Documents to which the Company is a party will be
prior to the Closing, duly executed and delivered by the Company, and each
constitutes the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with its respective terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of applicable creditors’
rights and remedies and except as rights to indemnification and to contribution
may be limited by federal or state securities law. “Transaction Documents”
means, collectively, this Agreement, the Registration Rights Agreement, the
Convertible Debentures, and each of the other agreements and instruments entered
into by the Company or delivered by the Company in connection with the
transactions contemplated hereby and thereby, as may be amended from time to
time.

 

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(c)       Issuance of Securities. The issuance of the Convertible Debentures,
the Warrants, Conversion Shares and the Warrant Shares are duly authorized and,
upon issuance and payment in accordance with the terms of the Transaction
Documents, the Convertible Debentures, the Warrants, Conversion Shares and the
Warrant Shares, when issued in accordance with the terms hereof and thereof
shall be validly issued, fully paid and non-assessable and free from all
preemptive or similar rights, and all mortgages, defects, claims, liens,
pledges, charges, taxes, rights of first refusal, encumbrances, security
interests and other encumbrances arising by or through the Company (collectively
“Liens”) with respect to the issuance thereof. As of the First Closing, the
Company shall have reserved from its duly authorized capital stock (i) the
Warrant Shares and (ii) not less than 300% of the maximum number of shares of
Common Stock issuable upon conversion of all Convertible Debentures to be issued
hereunder (assuming for purposes hereof that (x) such Convertible Debentures are
convertible at the Conversion Price (as defined therein) as of the date of
determination, and (y) any such conversion shall not take into account any
limitations on the conversion of the Convertible Debentures set forth therein).
Upon issuance or conversion in accordance with the Convertible Debentures and
the Warrants, the holders of Conversion Shares and Warrant Shares shall be
entitled to all rights accorded to a holder of Common Stock.

 

(d)        No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Convertible Debentures, the Warrants, Conversion Shares and the
Warrant Shares, and the reservation for issuance of the Conversion Shares and
the Warrant Shares) will not (i) result in a violation of the Articles of
Incorporation (as defined below), Bylaws (as defined below), certificate of
formation, memorandum of association, articles of association, bylaws or other
organizational documents of the Company or any of its Subsidiaries, or any
capital stock or other securities of the Company or any of its Subsidiaries,
(ii) except to the extent waived, conflict with, or constitute a default under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party, or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including, without limitation, U.S.
federal and state securities laws and regulations, the securities laws of the
jurisdictions of the Company’s incorporation or in which it or its subsidiaries
operate and the rules and regulations of the OTC QB (the “Principal Market”) and
including all applicable laws, rules and regulations of the State of Delaware)
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected, except in
the case of (ii) and (iii) for any conflict, default, right or violation that
would not reasonably be expected to result in a Material Adverse Effect.

 

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(e)       Consents. The Company is not required to obtain any material consent
from, authorization or order of, or make any filing or registration with (other
than any filings as may be required by any federal or state securities agencies
and any filings as may be required by the Principal Market), any Governmental
Entity (as defined below) or any regulatory or self-regulatory agency or any
other Person in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents, in each case, in
accordance with the terms hereof or thereof. All consents, authorizations,
orders, filings and registrations which the Company or any Subsidiary is
required to obtain pursuant to the preceding sentence have been or will be
obtained or effected on or prior to each Closing Date, and neither the Company
nor any of its Subsidiaries are aware of any facts or circumstances which might
prevent the Company or any of its Subsidiaries from obtaining or effecting any
of the registration, application or filings contemplated by the Transaction
Documents. The Company is not in violation of the requirements of the Principal
Market and has no knowledge of any facts or circumstances which could reasonably
lead to delisting or suspension of the Common Stock in the foreseeable future.
The Company has notified the Principal Market of the issuance of all of the
Securities hereunder, which does not require obtaining the approval of the
stockholders of the Company or any other Person or Governmental Entity, and the
Principal Market has completed its review of the related Listing of Additional
Share form. “Governmental Entity” means any nation, state, county, city, town,
village, district, or other political jurisdiction of any nature, federal,
state, local, municipal, foreign, or other government, governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal),
multi-national organization or body; or body exercising, or entitled to
exercise, any administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature or instrumentality of any
of the foregoing, including any entity or enterprise owned or controlled by a
government or a public international organization or any of the foregoing.

 

(f)       Acknowledgment Regarding Buyer’s Purchase of Securities. The Company
acknowledges and agrees that each Buyer is acting solely in the capacity of an
arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company or any of its Subsidiaries, (ii) to its knowledge, an
“affiliate” (as defined in Rule 144 promulgated under the 1933 Act (or a
successor rule thereto) (collectively, “Rule 144”)) of the Company or any of its
Subsidiaries or (iii) to its knowledge, a “beneficial owner” of more than 10% of
the shares of Common Stock (as defined for purposes of Rule 13d-3 of the 1934
Act). The Company further acknowledges that no Buyer is acting as a financial
advisor or fiduciary of the Company or any of its Subsidiaries (or in any
similar capacity) with respect to the Transaction Documents and the transactions
contemplated hereby and thereby, and any advice given by a Buyer or any of its
representatives or agents in connection with the Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to such
Buyer’s purchase of the Securities. The Company further represents to each Buyer
that the Company’s decision to enter into the Transaction Documents to which it
is a party has been based solely on the independent evaluation by the Company
and its representatives.

 

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(g)       No Integrated Offering. None of the Company, its Subsidiaries or any
of their affiliates, nor any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Securities to require approval of stockholders of the Company under any
applicable stockholder approval provisions, including, without limitation, under
the rules and regulations of any exchange or automated quotation system on which
any of the securities of the Company are listed or designated for quotation.
None of the Company, its Subsidiaries, their affiliates nor any Person acting on
their behalf will take any action or steps that would cause the offering of any
of the Securities to be integrated with other offerings of securities of the
Company.

 

(h)       Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares will increase in certain circumstances. The Company
further acknowledges its obligation to issue the Conversion Shares upon
conversion of the Convertible Debentures and Warrant Shares upon exercise of the
Warrants in accordance with this Agreement, the Convertible Debentures and the
Warrants is, absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders of the
Company.

 

(i)       Application of Takeover Protections; Rights Agreement. The Company and
its board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, interested stockholder,
business combination, poison pill (including, without limitation, any
distribution under a rights agreement), stockholder rights plan or other similar
anti-takeover provision under the Articles of Incorporation, Bylaws or other
organizational documents or the laws of the jurisdiction of its incorporation or
otherwise which is or could become applicable to any Buyer as a result of the
transactions contemplated by this Agreement, including, without limitation, the
Company’s issuance of the Securities and any Buyer’s ownership of the
Securities.

 

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(j)        SEC Documents; Financial Statements. During the two (2) years prior
to the date hereof, the Company has timely filed all reports, schedules, forms,
proxy statements, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities Exchange Act of
1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date
hereof and all exhibits and appendices included therein and financial
statements, notes and schedules thereto and documents incorporated by reference
therein being hereinafter referred to as the “SEC Documents”). The Company has
delivered or has made available to the Buyers or their respective
representatives true, correct and complete copies of each of the SEC Documents
not available on the EDGAR system. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. As of their respective dates, the financial
statements of the Company included in the SEC Documents complied in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto as in effect as of the time of
filing. Such financial statements have been prepared in accordance with
generally accepted accounting principles (“GAAP”), consistently applied, during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments which will not be
material, either individually or in the aggregate). The Company is not currently
contemplating amending or restating any of the financial statements (including,
without limitation, any notes or any letter of the independent accountants of
the Company with respect thereto) included in the SEC Documents (the “Financial
Statements”), nor has the Company been informed by its independent accountants
that they recommend that the Company amend or restate any of the Financial
Statements. The Company has engaged BDO US, LLP to audit the consolidated
financial results for the Company and its subsidiaries.

 

(k)       Absence of Certain Changes. Since the date of the Company’s most
recent audited financial statements contained in a Form 10-K, there has been no
Material Adverse Effect, nor any event or occurrence specifically affecting the
Company or its Subsidiaries that would be reasonably expected to result in a
Material Adverse Effect. Since the date of the Company’s most recent audited
financial statements contained in a Form 10-K, neither the Company nor any of
its Subsidiaries has (i) declared or paid any dividends, (ii) sold any material
assets, individually or in the aggregate, outside of the ordinary course of
business or (iii) made any material capital expenditures, individually or in the
aggregate, outside of the ordinary course of business. Neither the Company nor
any of its Subsidiaries has taken any steps to seek protection pursuant to any
law or statute relating to bankruptcy, insolvency, reorganization, receivership,
liquidation or winding up, nor does the Company or any Subsidiary have any
knowledge that any of their respective creditors intend to initiate involuntary
bankruptcy proceedings.

 

(l)       [Reserved].

 

10 

 

 

(m)       Conduct of Business; Regulatory Permits. Neither the Company nor any
of its Subsidiaries is in violation of any term under its Articles of
Incorporation, any certificate of designation, preferences or rights of any
other outstanding series of preferred stock of the Company or any of its
Subsidiaries or Bylaws or their organizational charter, certificate of
formation, memorandum of association, articles of association, Articles of
Incorporation or certificate of incorporation or bylaws, respectively. Neither
the Company nor any of its Subsidiaries is in violation of any judgment, decree
or order or any statute, ordinance, rule or regulation applicable to the Company
or any of its Subsidiaries, and neither the Company nor any of its Subsidiaries
will conduct its business in violation of any of the foregoing, except in all
cases for violations which would not reasonably be expected to have a Material
Adverse Effect. Without limiting the generality of the foregoing, the Company is
not in violation of any of the rules, regulations or requirements of the
Principal Market and has no knowledge of any facts or circumstances that could
reasonably lead to delisting or suspension of the Common Stock by the Principal
Market in the foreseeable future. During the one year prior to the date hereof,
(i) the Common Stock has been listed or designated for quotation on the
Principal Market, (ii) trading in the Common Stock has not been suspended by the
SEC or the Principal Market and (iii) the Company has received no communication,
written or oral, from the SEC or the Principal Market regarding the suspension
or delisting of the Common Stock from the Principal Market, which has not been
publicly disclosed. The Company and each of its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate regulatory
authorities necessary to conduct their respective businesses, except where the
failure to possess such certificates, authorizations or permits would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, and neither the Company nor any of its Subsidiaries has received
any notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit. There is no agreement, commitment,
judgment, injunction, order or decree binding upon the Company or any of its
Subsidiaries or to which the Company or any of its Subsidiaries is a party which
has or would reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of the Company or any of its
Subsidiaries, any acquisition of property by the Company or any of its
Subsidiaries or the conduct of business by the Company or any of its
Subsidiaries as currently conducted other than such effects, individually or in
the aggregate, which have not had and would not reasonably be expected to have a
Material Adverse Effect on the Company or any of its Subsidiaries.

 

(n)       Foreign Corrupt Practices. Neither the Company nor any of its
Subsidiaries nor any director, officer, agent, employee, nor any other person
acting for or on behalf of the Company or any of its Subsidiaries (individually
and collectively, a “Company Affiliate”) have violated the U.S. Foreign Corrupt
Practices Act (the “FCPA) or any other applicable anti-bribery or
anti-corruption laws, nor has any Company Affiliate offered, paid, promised to
pay, or authorized the payment of any money, or offered, given, promised to
give, or authorized the giving of anything of value, to any officer, employee or
any other person acting in an official capacity for any Governmental Entity to
any political party or official thereof or to any candidate for political office
(individually and collectively, a “Government Official”) or to any person under
circumstances where such Company Affiliate knew or was aware of a high
probability that all or a portion of such money or thing of value would be
offered, given or promised, directly or indirectly, to any Government Official,
for the purpose, in violation of applicable law, of: (i) (A) influencing any act
or decision of such Government Official in his/her official capacity, (B)
inducing such Government Official to do or omit to do any act in violation of
his/her lawful duty, (C) securing any improper advantage, or (D) inducing such
Government Official to influence or affect any act or decision of any
Governmental Entity, or (ii) assisting the Company or its Subsidiaries in
obtaining or retaining business for or with, or directing business to, the
Company or its Subsidiaries.

 

11 

 

 

(o)       Equity Capitalization.

 

(i)       Definitions:

 

(A)       “Common Stock” means (x) the Company’s shares of common stock, par
value $0.001 per share, and (y) any capital stock into which such common stock
shall have been changed or any share capital resulting from a reclassification
of such common stock.

 

(ii)       Authorized and Outstanding Capital Stock. As of the date hereof, the
authorized capital stock of the Company consists of (A) 1,500,000,000 shares of
Common Stock, of which 1,090,266,844 are issued and outstanding (of which issued
and outstanding 2,750,000 are reserved for issuance) and (B) 50,000,000 shares
of preferred stock, of which none are outstanding.

 

(iii)       Valid Issuance; Available Shares. All of such outstanding shares are
duly authorized and have been validly issued and are fully paid and
nonassessable.

 

(iv)       Existing Securities; Obligations. Except as disclosed in the SEC
Documents or as set forth on a schedule hereto: (A) none of the Company’s or any
Subsidiary’s shares, interests or capital stock is subject to preemptive rights
or any other similar rights or Liens arising by or through the Company or any
Subsidiary; (B) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
shares, interests or capital stock of the Company or any of its Subsidiaries, or
contracts, commitments, understandings or arrangements by which the Company or
any of its Subsidiaries is or may become bound to issue additional shares,
interests or capital stock of the Company or any of its Subsidiaries or options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or exercisable
or exchangeable for, any shares, interests or capital stock of the Company or
any of its Subsidiaries; (C) there are no agreements or arrangements under which
the Company or any of its Subsidiaries is obligated to register the sale of any
of their securities under the 1933 Act (except pursuant to this Agreement); (D)
there are no outstanding securities or instruments of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries; (E) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities; and (G) neither the Company nor any Subsidiary has
any stock appreciation rights or “phantom stock” plans or agreements or any
similar plan or agreement.

 

(v)       Organizational Documents. The Company has furnished to the Buyers or
filed on EDGAR true, correct and complete copies of the Company’s Articles of
Incorporation, as amended and as in effect on the date hereof (the “Articles of
Incorporation”), and the Company’s bylaws, as amended and as in effect on the
date hereof (the “Bylaws”), and the terms of all convertible securities and the
material rights of the holders thereof in respect thereto.

 

12 

 

 

(p)       Litigation. Except as disclosed in the SEC Documents, there is no
action, suit, arbitration, proceeding, inquiry or investigation before or by the
Principal Market, any court, public board, other Governmental Entity,
self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries,
the Common Stock or any of the Company’s or its Subsidiaries’ officers or
directors, whether of a civil or criminal nature or otherwise, in their
capacities as such, which would reasonably be expected to result in a Material
Adverse Effect. Without limitation of the foregoing, there has not been, and to
the knowledge of the Company, there is not pending or contemplated, any
investigation by the SEC involving the Company, any of its Subsidiaries or any
current or former director or officer of the Company or any of its Subsidiaries.
Neither the Company nor any of its Subsidiaries is the subject of any order,
writ, judgment, injunction, decree, determination or award of any Governmental
Entity that would reasonably be expected to result in a Material Adverse Effect.

 

(q)       Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for, and neither the Company nor any such
Subsidiary has any reason to believe that it will be unable to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.

 

(r)       Manipulation of Price. Neither the Company nor any of its Subsidiaries
has, and, to the knowledge of the Company, no Person acting on their behalf has,
directly or indirectly, taken any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the Company or any
of its Subsidiaries to facilitate the sale or resale of any of the Securities.

 

(s)       Registration Eligibility. The Company is eligible to register the
resale of the Conversion Shares and the Warrant Shares by the Buyers using Form
S-1 promulgated under the 1933 Act.

 

(t)       [Reserved].

 

(u)       Money Laundering. The Company and its Subsidiaries are in compliance
with, and have not previously violated, the USA Patriot Act of 2001 and all
other applicable U.S. and non-U.S. anti-money laundering laws and regulations,
including, but not limited to, the laws, regulations and Executive Orders and
sanctions programs (“Sanctions Programs”) administered by the U.S. Office of
Foreign Assets Control (“OFAC”), including, without limitation, (i) Executive
Order 13224 of September 23, 2001 entitled, “Blocking Property and Prohibiting
Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism”
(66 Fed. Reg. 49079 (2001)); and any regulations contained in 31 CFR, Subtitle
B, Chapter V.

 

13 

 

 

(v)       Disclosure. The Company confirms that neither it nor any other Person
acting on its behalf has provided any of the Buyers or their agents or counsel
with any information that constitutes or could reasonably be expected to
constitute material, non-public information concerning the Company or any of its
Subsidiaries, other than the existence of the transactions contemplated by this
Agreement and the other Transaction Documents. The Company understands and
confirms that each of the Buyers will rely on the foregoing representations in
effecting transactions in securities of the Company. All disclosure provided or
made available to the Buyers regarding the Company and its Subsidiaries, their
businesses and the transactions contemplated hereby, including the schedules to
this Agreement, furnished by or on behalf of the Company or any of its
Subsidiaries, taken as a whole, is true and correct and does not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. The Company acknowledges and agrees
that no Buyer makes or has made any representations or warranties with respect
to the transactions contemplated hereby other than those specifically set forth
in Section 2.

 

(w)       No General Solicitation. 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 under the Securities Act) in connection with the offer or sale of
the Securities.

 

(x)       Private Placement. Assuming the accuracy of the Buyers’
representations and warranties set forth in Section 2, no registration under the
Securities Act is required for the offer and sale of the Securities by the
Company to the Buyers as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of the
Primary Market.

 

4.COVENANTS.

 

(a)       Reporting Status. For the period beginning on the date hereof, and
ending sixty days after the date on which all the Debentures and Warrants are no
longer outstanding (the “Reporting Period”), the Company shall use its best
efforts to file on a timely basis all reports required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934 Act or the
rules and regulations thereunder would no longer require or otherwise permit
such termination.

 

(b)       Use of Proceeds. Neither the Company nor any Subsidiary will, directly
or indirectly, use the proceeds of the transactions contemplated herein to repay
any loans to any executives or employees of the Company. Neither the Company nor
any Subsidiary will, directly or indirectly, use the proceeds of the
transactions contemplated herein, or lend, contribute, facilitate or otherwise
make available such proceeds to any Person (i) to fund, either directly or
indirectly, any activities or business of or with any Person that is identified
on the list of Specially Designated Nationals and Blocker Persons maintained by
OFAC, or in any country or territory, that, at the time of such funding, is, or
whose government is, the subject of Sanctions Programs, or (ii) in any other
manner that will result in a violation of Sanctions Programs.

 

14 

 

 

(c)       Listing. To the extent applicable, the Company shall promptly secure
the listing or designation for quotation (as the case may be) of all of the
Underlying Securities (as defined below) upon each national securities exchange
and automated quotation system, if any, upon which the Common Stock is then
listed or designated for quotation (as the case may be, each an “Eligible
Market”), subject to official notice of issuance, and shall use reasonable
efforts to maintain such listing or designation for quotation (as the case may
be) of all Underlying Securities from time to time issuable under the terms of
the Transaction Documents on such Eligible Market for the Reporting Period.
Neither the Company nor any of its Subsidiaries shall take any action which
could be reasonably expected to result in the delisting or suspension of the
Common Stock on an Eligible Market during the Reporting Period. The Company
shall pay all fees and expenses in connection with satisfying its obligations
under this Section 4(c). “Underlying Securities” means the (i) the Conversion
Shares and the Warrant Shares, and (ii) any common stock of the Company issued
or issuable with respect to the Conversion Shares or the Warrant Shares,
including, without limitation, (1) as a result of any stock split, stock
dividend, recapitalization, exchange or similar event or otherwise and (2)
shares of capital stock of the Company into which the shares of Common Stock are
converted or exchanged without regard to any limitations on conversion of the
Convertible Debentures or the exercise of the Warrants.

 

(d)       Fees. The Company shall pay to YA Global II SPV, LLC, an affiliate of
the lead Buyer (the “Subsidiary Fund”), a commitment fee (the “Commitment Fee”)
equal to 5% of the Purchase Price of each Closing and a one-time due diligence
and structuring fee of $10,000, of which $2,000 was previously received. Each
Commitment Fee due and payable at each Closing shall be deducted from the gross
proceeds of each Closing. The unpaid balance of due diligence and structuring
fee shall be deducted from the gross proceeds of the First Closing. The Company
authorizes each Buyer to deduct any fees due hereunder from the gross process of
the purchase of any Convertible Debentures.

 

(e)       Pledge of Securities. Notwithstanding anything to the contrary
contained in this Agreement, the Company acknowledges and agrees that, subject
to compliance with applicable federal and state securities laws, the Securities
may be pledged by an Investor in connection with a bona fide margin agreement or
other loan or financing arrangement that is secured by the Securities. The
Company hereby agrees to execute and deliver such documentation as a pledgee of
the Securities may reasonably request in connection with a pledge of the
Securities to such pledgee by a Buyer.

 

15 

 

 

(f)       Disclosure of Transactions and Other Material Information. On or
before 9:30 a.m., New York time, on the fourth (4th) Business Day after the date
of this Agreement, the Company shall file a Current Report on Form 8-K
describing all the material terms of the transactions contemplated by the
Transaction Documents in the form required by the 1934 Act and attaching all the
material Transaction Documents (including, without limitation, this Agreement
(including all attachments, the “8-K Filing”). From and after the filing of the
8-K Filing, the Company shall have disclosed all material, non-public
information (if any) provided to any of the Buyers by the Company or any of its
Subsidiaries or any of their respective officers, directors, employees or agents
in connection with the transactions contemplated by the Transaction Documents.
In addition, effective upon the filing of the 8-K Filing, the Company
acknowledges and agrees that any and all confidentiality or similar obligations
with respect to the transactions contemplated by the Transaction Documents under
any agreement, whether written or oral, between the Company, any of its
Subsidiaries or any of their respective officers, directors, affiliates,
employees or agents, on the one hand, and any of the Buyers or any of their
affiliates, on the other hand, shall terminate. The Company shall not, and the
Company shall cause each of its Subsidiaries and each of its and their
respective officers, directors, employees and agents not to, provide any Buyer
with any material, non-public information regarding the Company or any of its
Subsidiaries from and after the date hereof except pursuant a specific request
by such Buyer.

 

(g)       Reservation of Shares. So long as any of the Convertible Debentures
remain outstanding, the Company shall take all action necessary to at all times
have authorized, and reserved for the purpose of issuance, no less than 300% of
the maximum number of shares of Common Stock issuable upon conversion of all the
Convertible Debentures then outstanding (assuming for purposes hereof that (x)
the Convertible Debentures are convertible at the Conversion Price then in
effect, and (y) any such conversion shall not take into account any limitations
on the conversion of the Convertible Debentures) (the “Required Reserve
Amount”); provided that at no time shall the number of shares of Common Stock
reserved pursuant to this Section 4(g) be reduced other than proportionally in
connection with any conversion and/or redemption, or reverse stock split. If at
any time the number of shares of Common Stock authorized and reserved for
issuance is not sufficient to meet the Required Reserved Amount, the Company
will promptly take all corporate action necessary to authorize and reserve a
sufficient number of shares, including, without limitation, calling a special
meeting of stockholders to authorize additional shares to meet the Company’s
obligations pursuant to the Transaction Documents, in the case of an
insufficient number of authorized shares, and recommending that stockholders
vote in favor of an increase in such authorized number of shares sufficient to
meet the Required Reserved Amount.

 

(h)       Conduct of Business. The business of the Company and its Subsidiaries
shall not be conducted in violation of any law, ordinance or regulation of any
Governmental Entity, except where such violations would not reasonably be
expected to result, either individually or in the aggregate, in a Material
Adverse Effect.

 

(i)       No Short Sales. The Buyer hereby agrees that it shall not directly or
indirectly, engage in any Short Sales involving the Company’s securities during
the period commencing on the date hereof and ending when no Convertible
Debentures remain outstanding. “Short Sales” means all “short sales” as defined
in Rule 200 promulgated under Regulation SHO under the 1934 Act (as defined
below), whether or not against the box, and forward sale contracts, options,
puts, calls, “put equivalent positions” (as defined in Rule 16a-1(h) under the
1934 Act) and similar arrangements, and sales and other transactions through
non-U.S. broker dealers or foreign regulated brokers.

 

16 

 

 

(j)       No Repayment of Loans. The Company and its Subsidiaries shall not
repay any outstanding loans to John Seitz for so long as any Debentures remain
outstanding.

 

5.REGISTER; TRANSFER AGENT INSTRUCTIONS; LEGEND.

 

(a)       Register. The Company shall maintain at its principal executive
offices or with the Transfer Agent (or at such other office or agency of the
Company as it may designate by notice to each holder of Securities), a register
for the Convertible Debentures in which the Company shall record the name and
address of the Person in whose name the Convertible Debentures have been issued
(including the name and address of each transferee), the amount of Convertible
Debentures and Warrants held by such Person, and the number of Conversion Shares
issuable upon conversion of the Convertible Debentures and Warrant Shares
issuable upon exercise of the Warrants held by such Person. The Company shall
keep the register open and available at all times during business hours for
inspection of any Buyer or its legal representatives.

 

(b)       Transfer Restrictions. The Securities may only be disposed of in
compliance with state and federal securities laws. In connection with any
transfer of Securities other than pursuant to an effective registration
statement or Rule 144, to the Company or to an Affiliate of a Buyer or in
connection with a pledge as contemplated herein, the Company may require the
transferor thereof to provide to the Company an opinion of counsel selected by
the transferor and reasonably acceptable to the Company, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Securities
under the Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall have the
rights and obligations of a Buyer under this Agreement.

 

6.CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

 

The obligation of the Company hereunder to issue and sell the Convertible
Debentures to each Buyer at each Closing is subject to the satisfaction, at or
before each Closing Date, of each of the following conditions, provided that
these conditions are for the Company’s sole benefit and may be waived by the
Company at any time in its sole discretion by providing each Buyer with prior
written notice thereof:

 

(a)       Such Buyer shall have executed each of the Transaction Documents to
which it is a party and delivered the same to the Company.

 

(b)       Such Buyer shall have received the opinion of counsel to the Company
dated as of the First Closing Date, in an agreed upon form.

 

17 

 

 

(c)       Such Buyer and each other Buyer shall have delivered to the Company
the Purchase Price (less, in the case of any Buyer, the amounts withheld
pursuant to Section 4(d)) for the Convertible Debentures being purchased by such
Buyer at the Closing by wire transfer of immediately available funds in
accordance with the Closing Statement.

 

(d)       The representations and warranties of such Buyer shall be true and
correct in all material respects as of the date when made and as of each Closing
Date as though originally made at that time (except for representations and
warranties that speak as of a specific date, which shall be true and correct as
of such specific date), and such Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by such
Buyer at or prior to such Closing Date.

 

7.CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.

 

The obligation of each Buyer hereunder to purchase its Convertible Debentures at
each Closing is subject to the satisfaction, at or before each Closing Date, of
each of the following conditions, provided that these conditions are for each
Buyer’s sole benefit and may be waived by such Buyer at any time in its sole
discretion by providing the Company with prior written notice thereof:

 

(a)       The Company shall have duly executed and delivered to such Buyer each
of the Transaction Documents to which it is a party and the Company shall have
duly executed and delivered to such Buyer such aggregate amount of Convertible
Debentures as is set forth opposite such Buyer’s name in column (b) of the
Schedule of Buyers for each Closing.

 

(b)       [Reserved].

 

(c)       The Company shall have delivered to each Buyer copies of its and each
Subsidiaries certified copies of its charter, as well as any shareholder or
operating agreements by or among the shareholders or members of any of the
Company’s Subsidiaries.

 

(d)       Each and every representation and warranty of the Company shall be
true and correct in all material respects (other than representations and
warranties qualified by materiality, which shall be true and correct in all
respects) as of the date when made and as of each Closing Date as though
originally made at that time (except for representations and warranties that
speak as of a specific date, which shall be true and correct as of such specific
date) and the Company shall have performed, satisfied and complied in all
respects with the covenants, agreements and conditions required to be performed,
satisfied or complied with by the Company at or prior to each Closing Date, as
set forth in section 3 and 4.

 

(e)       [Reserved].

 

(f)       The Common Stock, to the extent applicable (A) shall be designated for
quotation or listed (as applicable) on the Principal Market and (B) shall not
have been suspended, as of each Closing Date, by the SEC or the Principal Market
from trading on the Principal Market nor shall suspension by the SEC or the
Principal Market have been threatened, as of each Closing Date, either (I) in
writing by the SEC or the Principal Market or (II) by falling below the minimum
maintenance requirements of the Principal Market.

 

18 

 

 

(g)       The Company shall have obtained all governmental, regulatory or third
party consents and approvals, if any, necessary for the sale of the Securities,
including without limitation, those required by the Principal Market, if any.

 

(h)       No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or Governmental Entity of competent jurisdiction that prohibits the
consummation of any of the transactions contemplated by the Transaction
Documents.

 

(i)       Since the date of execution of this Agreement, no event or series of
events shall have occurred that has resulted in or would reasonably be expected
to result in a Material Adverse Effect.

 

(j)       [Reserved].

 

(k)       Such Buyer shall have received a letter, duly executed by an officer
of the Company, setting forth the wire amounts of each Buyer and the wire
transfer instructions of the Company (the “Closing Statement”).

 

(l)       From the date hereof to the applicable Closing Date, (i) trading in
the Common Stock shall not have been suspended by the SEC or the Principal
Market (except for any suspension of trading of limited duration agreed to by
the Company, which suspension shall be terminated prior to the Closing), (ii)
the closing price of the Common Stock on each such day shall have been above the
Floor Price (as defined in the Convertible Debentures), and (iii) at any time
prior to the Closing Date, trading in securities generally as reported by
Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported by such
service, or on the Principal Market, nor shall a banking moratorium have been
declared either by the United States or New York State authorities nor shall
there have occurred any material outbreak or escalation of hostilities or other
national or international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each case, in the
reasonable judgment of each Buyer, makes it impracticable or inadvisable to
purchase the Securities at the Closing.

 

(m)       [Reserved].

 

(n)       The Company and its Subsidiaries shall have delivered to such Buyer
such other documents, instruments or certificates relating to the transactions
contemplated by this Agreement as such Buyer or its counsel may reasonably
request.

 

(o)       Solely with respect to the Second Closing, the Company shall have
filed the Registration Statement with the SEC.

 

(p)       Solely with respect to the Third Closing, the Registration Statement
shall be effective.

 

19 

 

 

(q)       Solely with respect to the Third Closing, the issuance and sale of the
Convertible Debentures to the Buyer shall not cause a Coverage Failure, and if
the Third Closing shall cause a Coverage Failure then the amount of the
Convertible Debentures to be issued and sold at the Third Closing to such Buyer
shall automatically be reduced to the lowest amount of Convertible Debentures
which would not result in a Coverage Failure.

 

8.TERMINATION.

 

In the event that the First Closing shall not have occurred with respect to a
Buyer within five (5) days of the date hereof, then such Buyer shall have the
right to terminate its obligations under this Agreement with respect to itself
at any time on or after the close of business on such date without liability of
such Buyer to any other party; provided, however, (i) the right to terminate
this Agreement under this Section 8 shall not be available to such Buyer if the
failure of the transactions contemplated by this Agreement to have been
consummated by such date is the result of such Buyer’s breach of this Agreement
and (ii) the abandonment of the sale and purchase of the Convertible Debentures
shall be applicable only to such Buyer providing such written notice, provided
further that no such termination shall affect any obligation of the Company
under this Agreement to reimburse such Buyer for the expenses described herein.
Nothing contained in this Section 8 shall be deemed to release any party from
any liability for any breach by such party of the terms and provisions of this
Agreement or the other Transaction Documents or to impair the right of any party
to compel specific performance by any other party of its obligations under this
Agreement or the other Transaction Documents.

 

9.MISCELLANEOUS.

 

(a)       Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New Jersey, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New Jersey or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of New Jersey. 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 to
such party at the address for such 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. Nothing contained herein
shall be deemed or operate to preclude any Buyer from bringing suit or taking
other legal action against the Company in any other jurisdiction to collect on
the Company’s obligations to such Buyer or to enforce a judgment or other court
ruling in favor of such Buyer. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT
MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR UNDER ANY OTHER TRANSACTION DOCUMENT OR IN CONNECTION WITH
OR ARISING OUT OF THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY OR THEREBY.

 

20 

 

 

(b)       Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which 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. In the event that any signature is delivered by
facsimile transmission or by an e-mail which contains a portable document format
(.pdf) file of an executed signature page, such signature page 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 signature page
were an original thereof.

 

(c)       Headings; Gender. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement. Unless the context clearly indicates otherwise, each pronoun herein
shall be deemed to include the masculine, feminine, neuter, singular and plural
forms thereof. The terms “including,” “includes,” “include” and words of like
import shall be construed broadly as if followed by the words “without
limitation.” The terms “herein,” “hereunder,” “hereof” and words of like import
refer to this entire Agreement instead of just the provision in which they are
found.

 

(d)       Entire Agreement, Amendments. This Agreement supersedes all other
prior oral or written agreements between the Buyer, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the party to be charged with enforcement.

 

21 

 

 

(e)       Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing by letter and e-mail and will be deemed to have been delivered: upon the
later of (A) either (i) receipt, when delivered personally or (ii) one (1)
Business Day after deposit with an overnight courier service with next day
delivery specified, in each case, properly addressed to the party to receive the
same and (B) receipt, when sent by electronic mail. The addresses and e-mail
addresses for such communications shall be:

 

If to the Company, to: GulfSlope Energy, Inc.  

1331 Lamar St., Suite 1665

Houston, Texas 77010

Telephone: (281) 918-4103
Attention: John Malanga
E-Mail: john.malanga@gulfslope.com

 

With Copy to:

Mayer Brown LLP

700 Louisiana St., Suite 3400

Houston, Texas 77002

Telephone: (713) 238-2684
Attention: William T. Heller IV
E-Mail: wheller@mayerbrown.com

    If to a Buyer, to its address, e-mail address and facsimile number set forth
on the Schedule of Buyers, with copies to such Buyer’s representatives as set
forth on the Schedule of Buyers,     With copy to:

Troy J. Rillo, Esq.

c/o Yorkville Advisors Global, LP

1012 Springfield Avenue

Mountainside, NJ 07092

Email: legal@yorkvilleadvisors.com

   

or to such other address, e-mail address and/or facsimile number and/or to the
attention of such other Person as the recipient party has specified by written
notice given to each other party five (5) days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender’s facsimile machine or e-mail containing
the time, date, recipient facsimile number and, with respect to each facsimile
transmission, an image of the first page of such transmission or (C) provided by
an overnight courier service shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from an overnight courier service in accordance
with clause (i), (ii) or (iii) above, respectively.

 

(f)       Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns.
Neither party may assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other party hereto.

 

22 

 

 

(g)       Indemnification.

 

(i)       In consideration of each Buyer’s execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to
all of the Company’s other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless each Buyer and each
of their stockholders, partners, members, officers, directors, employees and any
of the foregoing Persons’ agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the “Indemnitees”) from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys’ fees and disbursements
(the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or
arising out of, or relating to (i) any misrepresentation or breach of any
representation or warranty made by the Company in any of the Transaction
Documents, (ii) any breach of any covenant, agreement or obligation of the
Company or any Subsidiary contained in any of the Transaction Documents or (iii)
any cause of action, suit, proceeding or claim brought or made against such
Indemnitee by a third party (including for these purposes a derivative action
brought on behalf of the Company or any Subsidiary) or which otherwise involves
such Indemnitee, in each instance that arises out of or results from (A) the
execution, delivery, performance or enforcement of any of the Transaction
Documents, (B) 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
(C) any disclosure properly made by such Buyer pursuant to Section 4(f). To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.

 

(ii)       Promptly after receipt by an Indemnitee under this Section 9(g) of
notice of the commencement of any action or proceeding (including any
governmental action or proceeding) involving an Indemnified Liability, such
Indemnitee shall, if a claim in respect thereof is to be made against the
Company under this Section 9(g), deliver to the Company a written notice of the
commencement thereof, and the Company shall have the right to participate in,
and, to the extent the Company so desires, to assume control of the defense
thereof with counsel mutually reasonably satisfactory to the Company and the
Indemnitee; provided, however, that an Indemnitee shall have the right to retain
its own counsel with the fees and expenses of such counsel to be paid by the
Company if: (A) the Company has agreed in writing to pay such fees and expenses;
(B) the Company shall have failed promptly to assume the defense of such
Indemnified Liability and to employ counsel reasonably satisfactory to such
Indemnitee in any such Indemnified Liability; or (C) the named parties to any
such Indemnified Liability (including any impleaded parties) include both such
Indemnitee and the Company, and such Indemnitee shall have been advised by
counsel that a conflict of interest is likely to exist if the same counsel were
to represent such Indemnitee and the Company (in which case, if such Indemnitee
notifies the Company in writing that it elects to employ separate counsel at the
expense of the Company, then the Company shall not have the right to assume the
defense thereof and such counsel shall be at the expense of the Company),
provided further, that in the case of clause (C) above the Company shall not be
responsible for the reasonable fees and expenses of more than one (1) separate
legal counsel for the Indemnitees. The Indemnitee shall reasonably cooperate
with the Company in connection with any negotiation or defense of any such
action or Indemnified Liability by the Company and shall furnish to the Company
all information reasonably available to the Indemnitee which relates to such
action or Indemnified Liability. The Company shall keep the Indemnitee
reasonably apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. The Company shall not be liable
for any settlement of any action, claim or proceeding effected without its prior
written consent, provided, however, that the Company shall not unreasonably
withhold, delay or condition its consent. The Company shall not, without the
prior written consent of the Indemnitee, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnitee of a release from all liability in respect to such Indemnified
Liability or litigation, and such settlement shall not include any admission as
to fault on the part of the Indemnitee. Following indemnification as provided
for hereunder, the Company shall be subrogated to all rights of the Indemnitee
with respect to all third parties, firms or corporations relating to the matter
for which indemnification has been made. The failure to deliver written notice
to the Company within a reasonable time of the commencement of any such action
shall not relieve the Company of any liability to the Indemnitee under this
Section 9(g), except to the extent that the Company is materially and adversely
prejudiced in its ability to defend such action.

 

23 

 

 

(iii)       The indemnification required by this Section 9(g) shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, within ten (10) days after bills supporting the Indemnified
Liabilities are received by the Company.

 

(iv)       The indemnity agreement contained herein shall be in addition to (A)
any cause of action or similar right of the Indemnitee against the Company or
others, and (B) any liabilities the Company may be subject to pursuant to the
law.

 

(h)       No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.

 

[REMAINDER PAGE INTENTIONALLY LEFT BLANK]

 

24 

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

 

COMPANY:

      GULFSLOPE ENERGY, INC.       By: [ex101004.jpg]   Name:

John N. Seitz

  Title:

Chief Executive Officer

 

[Signature Page to Securities Purchase Agreement]

 

25 

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

 

BUYER:

      YA II PN, LTD.       By: Yorkville Advisors Global, LP   Its: Investment
Manager       By: Yorkville Advisors Global II, LLC   Its: General Partner      
By: [ex101005.jpg]   Name:

Matt Beckman

  Title:

Manager

 

26 

 

 

EXHIBIT A

 

FORM OF CONVERTIBLE DEBENTURES

 

27 

 

 

SCHEDULE OF BUYERS

 

(a)   (b) (c) Buyer   Principal Amount
of Convertible
Debentures Purchase Price
(100% of Face
Value)         YA II PN, Ltd.       1012 Springfield Avenue First Closing:
$2,100,000.00 $2,100,000.00 Mountainside, NJ 07092 Second Closing $400,000.00
$400,000.00 Email: Legal@yorkvilleadvisors.com Third Closing $500,000.00
$500,000.00         Aggregate: $3,000,000.00 $3,000,000.00               Legal
Representative’s Address and E-Mail Address   Troy Rillo, Esq.       1012
Springfield Avenue       Mountainside, NJ 07092       Email:
Legal@yorkvilleadvisors.com    

 

28