Document:

CDW-2013.9.30-10Q-EX10.3

CDW 
AMENDED AND RESTATED RESTRICTED DEBT UNIT PLAN

 

        

TABLE OF CONTENTS
PAGE

Section 1...................................................................................................................1
Establishment and Purpose...........................................................................1
Section 2...................................................................................................................1
Definitions....................................................................................................1
		
	2.1
	Beneficiary    ........................................................................2

		
	2.2
	Board    .................................................................................2

		
	2.3
	Company    ............................................................................2

		
	2.4
	Compensation Committee    .................................................2

		
	2.5
	Debt Pool   ............................................................................2

		
	2.6
	Disability    ............................................................................2

		
	2.7
	Effective Date   .....................................................................3

		
	2.8
	Fair Market Value   ...............................................................3

		
	2.9
	First Retention Payment Date    ..............................................3

		
	2.10
	First Retention Pool..............................................................3

		
	2.11
	Interest Payment Date    ..........................................................3

		
	2.12
	IPO    .....................................................................................4

		
	2.13
	Maximum Amount    .............................................................4

		
	2.14
	Participant    ..........................................................................4

		
	2.15
	Payment Event    ...................................................................4

		
	2.16
	Plan    ....................................................................................4

		
	2.17
	RDU    ...................................................................................4

		
	2.18
	Replacement Assets    ...........................................................4

		
	2.19
	Reserve Pool    ......................................................................4

		
	2.20
	Sale of the Company    ..........................................................4

		
	2.21
	Second Retention Payment Date    ........................................5

		
	2.22
	Second Retention Pool    ........................................................5

		
	2.23
	Section 409A    ......................................................................5

		
	2.24
	Senior Subordinated Debt    ...................................................5

		
	2.25
	Taxes     .................................................................................5

		
	2.26
	Third Retention Pool    ...........................................................5

Section 3   .................................................................................................................6
Participation   ...............................................................................................6
Section 4   .................................................................................................................6
Principal Component   ..................................................................................6
		
	4.1
	Description of Principal Component   ..................................6

		
	4.2
	Payment Events   ..................................................................6

		
	4.3
	Payment Form   ....................................................................7

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TABLE OF CONTENTS
(continued)
PAGE

Section 5...................................................................................................................7
Interest Component    ...................................................................................7
		
	5.1
	Description of Interest Component.......................................7

		
	5.2
	Payment Timing   .................................................................7

		
	5.3 
	Payment Eligibility...............................................................8

		
	5.4
	Payment Form......................................................................9

Section 6...................................................................................................................9
Vesting..........................................................................................................9
Section 7...................................................................................................................9
Impact of Restructuring, Recapitalization, Refinancing and Prepayment......9
Section 8.................................................................................................................10
Retention Payments....................................................................................10
		
	8.1
	First Retention Pool............................................................10

		
	8.2
	Second Retention Pool........................................................10

		
	8.3
	Third Retention Pool...........................................................11

Section 9.................................................................................................................11
Forfeiture and Recoupment.............................................................11
Section 10...............................................................................................................11
Other Terms and Conditions........................................................................11
		
	10.1
	Administration    ................................................................11

		
	10.2
	Amendment and Termination of the Plan.............................11

		
	10.3
	Payments to Beneficiaries...................................................12

		
	10.4
	Withholding   .....................................................................12

		
	10.5
	Funding   ............................................................................12

		
	10.6
	Expenses    .........................................................................13

		
	10.7
	No Obligation.....................................................................13

		
	10.8
	No Assignment; Resolution of Disputes.............................13

		
	10.9
	Severability    .....................................................................13

		
	10.10
	Legal Document.................................................................14

		
	10.11
	Section 409A......................................................................14

		
	10.12
	Governing Law, Venue, Waiver of Jury Trial.......................14

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CDW 
AMENDED AND RESTATED RESTRICTED DEBT UNIT PLAN

WHEREAS, CDW LLC, an Illinois limited liability company (the “Company”), previously established the CDW Restricted Debt Unit Plan (the “Plan”) effective as of March 10, 2010;
WHEREAS, the Plan was established to provide benefits to key senior leaders of the Company and its subsidiaries that generally track the Fair Market Value (as defined in Section 2.8) of, and the associated interest earned with respect to, $28.5 million principal amount of Senior Subordinated Debt (as defined in Section 2.24);
WHEREAS, the Company’s parent, CDW Corporation, a Delaware corporation, has filed an S-1 registration statement in contemplation of an IPO registered public offering of its common stock (the “IPO”);
WHEREAS, a portion of the proceeds from the contemplated IPO will be used to redeem a portion of the Senior Subordinated Debt; and
WHEREAS, as a result of the anticipated redemption of a portion of the Senior Subordinated Debt, the Compensation Committee (as defined in Section 2.4), in consultation with the Company’s Chief Executive Officer and other members of senior management, has determined to amend the Plan in certain respects.
NOW, THEREFORE, the Company hereby amends and restates the Plan in its entirety as follows, which amendment and restatement shall take effect immediately prior to, and subject to, the consummation of the IPO: 

SECTION 1
Establishment and Purpose
The Plan has been established to provide benefits to key senior leaders of the Company and its subsidiaries as part of an overall compensation package.
SECTION 2
Definitions
The following words and phrases as used in this Plan have the following meanings:

    

2.1    Beneficiary
Subject to such rules and procedures as may be adopted by the Company with respect to designating Beneficiaries, the term “Beneficiaries” means, in the following order of priority, (1) the Participant’s surviving spouse, (2) in the event the Participant is not married at the time of his or her death, the Participant’s surviving lineal descendants (on a pro rata basis), and (3) in the event the Participant is not survived by any lineal descendants, the Participant’s estate.
2.2    Board
The term “Board” means the Board of Directors of CDW Corporation.
2.3    Company
The term “Company” means CDW LLC, an Illinois limited liability company.
2.4    Compensation Committee
The term “Compensation Committee” means the Compensation Committee of the Board.
2.5    Debt Pool
The term “Debt Pool” means a hypothetical pool consisting of $28.5 million principal amount of the Senior Subordinated Debt, or Replacement Assets in accordance in Section 7.
2.6    Disability
The term “Disability” shall have the meaning assigned to such term in any written employment agreement with the Company, CDW Corporation or any of their respective subsidiaries or, in the absence of any such written employment agreement, shall mean the Participant's inability, due to illness, accident, injury, physical or mental incapacity or other disability, to carry out effectively the Participant's duties and obligations to the Company, CDW Corporation or any of their respective subsidiaries or, if applicable based on the Participant's position, to participate effectively and actively in the management of the Company, CDW Corporation or any of their respective subsidiaries for a period of at least 90 consecutive days or for shorter periods aggregating at least 120 days (whether or not consecutive) during any twelve month period, as determined in the reasonable judgment of the Board. A Disability shall be deemed to have occurred on the date that either the Participant or the Participant's personal representative or legal guardian, on the one hand, or the Company, on the other hand, provides notice to the other party of the satisfaction of each of the requirements to constitute a Disability set forth above or on such other date as the parties shall mutually agree.

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2.7    Effective Date
The term “Effective Date” means March 10, 2010.
2.8    Fair Market Value
The "Fair Market Value" of any asset constituting cash or cash equivalents shall be equal to the amount of such cash or cash equivalents.  The Fair Market Value of any asset constituting marketable securities shall be the average, over a period of 21 days consisting of the date of valuation and the 20 consecutive business days prior to that date, of the average of the closing prices of the sales of such securities on the primary securities exchange on which such securities may at that time be listed, or, if there have been no sales on such exchange on any day, the average of the highest bid and lowest asked prices on such exchange at the end of such day, or, if on any day such securities are not so listed, the average of the representative bid and asked prices quoted in the Nasdaq System as of 4:00 P.M., New York time, or, if on any day such securities are not quoted in the Nasdaq System, the average of the highest bid and lowest asked prices on such day in the domestic over the counter market as reported by the National Quotation Bureau Incorporated, or any similar successor organization.  The Fair Market Value of any assets other than cash, cash equivalents or marketable securities shall be the fair value of such assets, as determined in good faith by the Board, which determination shall take into account all relevant factors determinative of value (but without regard to any discounts for the lack of liquidity of such securities and minority discounts), including, without limitation, the application of the priority of distributions described in the Company’s Amended and Restated Limited Liability Agreement, any appraisal or other valuation of such assets by the Company or any party related to the Company.  Upon written request of Participants holding at least a majority of the outstanding RDUs (i.e., excluding the Reserve Pool) within fifteen (15) days after receipt of the Board’s determination of Fair Market Value, the Board shall retain a qualified independent appraiser, mutually selected by the Company and the Participant holding the largest number of RDUs, to determine the Fair Market Value of any assets other than cash, cash equivalents or marketable securities.  The determination of the appraiser shall be a final and binding determination of Fair Market Value.
2.9    First Retention Payment Date
The term “First Retention Payment Date” means the first date on or after the closing of the IPO on which any portion of the Senior Subordinated Debt is prepaid.
2.10    First Retention Pool
The term “First Retention Pool” means an amount equal to $7,500,000.

2.11    Interest Payment Date
The term “Interest Payment Date” means each April 15th and October 15th between January 2012 and the date of a Payment Event.

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2.12    IPO
The term “IPO” means the initial public offering of CDW Corporation or the Company registered on Form S-1 (or any successor form under the Securities Act of 1933, as amended).
2.13    Maximum Amount
The term “Maximum Amount” means the maximum of 28,500 RDUs that may be issued under the Plan.
2.14    Participant
The term “Participant” means an officer who is participating in the Plan in accordance with Section 3.
2.15    Payment Event
The term “Payment Event” has the meaning ascribed to it in Section 4.2.
2.16    Plan
The term “Plan” means the CDW Restricted Debt Unit Plan as set forth herein and as it may be amended from time to time.
2.17    RDU
The term “RDU” means restricted debt unit, which represents the right to receive payments as provided in the Plan.  The RDUs shall consist of a principal component and an interest component.  
2.18    Replacement Assets
The term “Replacement Assets” has the meaning ascribed to it in Section 7.
2.19    Reserve Pool
The term “Reserve Pool” means those RDUs that, as of any particular date of determination, are not assigned or granted to any Participant, including previously granted RDUs that have been forfeited due to a Participant’s termination of employment or otherwise.

2.20    Sale of the Company
Subject to Section 10.11, the term “Sale of the Company” means any transaction or series of transactions pursuant to which any person(s) or a group of related persons (other than the Institutional Investors and their Affiliates) in the aggregate acquire(s) (1) at least 

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51% of the equity securities of CDW Corporation entitled to vote (other than voting rights accruing only in the event of a default, breach, event of noncompliance or other contingency) to elect members of the Board of Directors of CDW Corporation (whether by merger, consolidation, reorganization, combination, sale or transfer of CDW Corporation’s equity securities, unitholder or voting agreement, proxy power of attorney or otherwise) or (2) all or substantially all of CDW Corporation’s assets determined on a consolidated basis; provided, however, that an IPO shall not constitute a Sale of the Company.  The terms Affiliates, Institutional Investors, and IPO shall have the same definition as in the CDW Holdings LLC Amended and Restated Limited Liability Company Agreement dated as of March 10, 2010.
2.21    Second Retention Payment Date
The term “Second Retention Payment Date” means the first payroll date for the Company following January 1, 2016, but in no event later than March 15, 2016.
2.22    Second Retention Pool
The term “Second Retention Pool” means an amount equal to $7,500,000, reduced by the sum of (i) the aggregate interest payments that accrued pursuant to Section 5.1(a) of the Plan after the First Retention Payment Date and prior to the Second Retention Payment Date and (ii) the present value, as determined by the Company in good faith, of the interest payments projected to be accrued through October 12, 2017 pursuant to Section 5.1(a) of the Plan with respect to any portion of the Senior Subordinated Debt that remains outstanding as of the date of the Second Retention Payment Date.
2.23    Section 409A
The term “Section 409A” means Section 409A of the Internal Revenue Code, as amended.
2.24    Senior Subordinated Debt
The term “Senior Subordinated Debt” shall mean loans issued under and exchange notes issued in accordance with the terms of the Senior Subordinated Bridge Loan Agreement dated as of October 12, 2007, as amended and restated as of March 12, 2008 and as amended as of April 2, 2008 (as further amended, restated, supplemented or otherwise modified).
2.25    Taxes
The term “Taxes” shall have the meaning ascribed to it in Section 10.4.
2.26    Third Retention Pool
To the extent any portion of the Senior Subordinated Debt is prepaid on or after the Second Retention Payment Date and prior to a Payment Event, a “Third Retention Pool” 

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shall be established in an amount equal to the interest that would have been paid with respect to such prepaid Senior Subordinated Debt, pursuant to Section 5, during the period beginning on the date of such prepayment and ending on October 12, 2017, if such portion of the Senior Subordinated Debt had not been prepaid.
SECTION 3
Participation
The Compensation Committee shall designate those officers who shall be Participants hereunder and the number of RDUs to be granted to each Participant.  The number of RDUs available for issuance under the Plan shall not exceed the Maximum Amount.  The Compensation Committee may make grants of RDUs only to the extent the total number of RDUs outstanding does not exceed the Maximum Amount.
SECTION 4
Principal Component
4.1    Description of Principal Component
		
	(a)
	General.  

The principal component of a Participant’s RDUs will represent a fractional interest in the Fair Market Value of the Debt Pool.  Each Participant’s fractional interest shall be determined by dividing such Participant’s number of RDUs by 28,500.  Participants shall vest in the principal component of their RDUs according to the vesting rules set forth in Section 6.
		
	(b)
	Treatment of Unissued RDUs (Reserve Pool). 

Immediately prior to December 31, 2014 or an earlier Payment Event, all RDUs in the Reserve Pool shall be allocated to Participants who are then employed with the Company, CDW Corporation or their respective subsidiaries pro rata according to each Participant’s number of RDUs at such time.  All such allocated RDUs shall be fully vested immediately but the principal component of such RDUs shall be paid as provided in Section 4.2.
4.2    Payment Events
Payment of the principal component of a Participant’s vested RDUs shall be made upon the earlier of the following (the “Payment Events”):
		
	(a)
	October 12, 2017; or

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	(b)
	A Sale of the Company that also is a change in control event for purposes of Section 409A; provided, however, that payments due upon a Sale of the Company shall be made no later than 20 calendar days following the Sale of the Company.

4.3    Payment Form
As determined by the Compensation Committee in good faith, payments under this Section 4 with respect to each Participant shall be made in cash in an amount equal to, or in unrestricted marketable securities that have been registered with the Securities and Exchange Commission and that have a Fair Market Value equal to, the Fair Market Value of each such Participant’s fractional interest in the principal component of the Debt Pool (calculated pursuant to Section 4.1).  
SECTION 5
Interest Component
5.1    Description of Interest Component
		
	(a)
	General.

The interest component of a Participant’s RDUs shall consist of semi-annual cash payments equal to a pro rata share (based on number of RDUs held by a Participant) of the interest payable on the Debt Pool (which shall be the interest payable on the Senior Subordinated Debt, or, if Section 7 applies, the interest, dividend or other equivalent periodic payment on the Replacement Assets).  Interest shall begin accruing on March 10, 2010, but shall be paid in accordance with Section 5.2 below.
		
	(b)
	Reserve Pool.

Interest attributable to RDUs held in the Reserve Pool shall be accumulated in the Reserve Pool. To the extent the Compensation Committee, in its sole discretion, has not allocated interest accumulated in the Reserve Pool in conjunction with an RDU grant, immediately prior to December 31, 2014 or an earlier Payment Event, such interest shall be allocated in the same manner as RDUs are allocated on that date pursuant to Section 4.1; provided, however, that if no RDUs remain in the Reserve Pool on that date, the unallocated previously accumulated interest attributable to earlier periods shall be allocated to Participants who are then employed with the Company, CDW Corporation or their respective subsidiaries pro rata according to each Participant’s number of RDUs held at such time.  
5.2    Payment Timing
		
	(a)
	General.

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Unless and until a Payment Event occurs, eligible Participants (as defined in Section 5.3) shall be paid their share of the interest component semi-annually in the payroll periods that include the Interest Payment Dates; provided, however, that any and all interest payments payable through December 2011 shall accrue and be paid to eligible Participants in January 2012, subject to Section 5.3 herein.  If a Payment Event occurs between Interest Payment Dates, Participants shall receive a pro rata interest payment for the period ending on the Payment Event date. 
		
	(b)
	Reserve Pool.

Notwithstanding the foregoing, accumulated interest allocated to Participants pursuant to Section 5.1(b) shall be paid on the Payment Event.
5.3     Payment Eligibility
A Participant who is, on an Interest Payment Date, and has been continuously (except for any absences for vacation, leave, etc. in accordance with the policies of the Company, CDW Corporation or any of their respective subsidiaries) (a) employed by the Company, CDW Corporation or any of their respective subsidiaries or (b) serving as a member of the Board of Directors or Board of Managers of the Company, CDW Corporation or any of their respective subsidiaries (“Director”), through such Interest Payment Date, shall be eligible to receive payment of the interest component due on that date with respect to the vested and unvested RDUs that have been granted to that Participant.  Subject to Section 9 and unless otherwise provided in a Participant’s RDU award agreement, if a Participant’s employment or service as a Director terminates for any reason, then (1) the Participant shall continue to receive interest component payments with respect to vested RDUs, and (2) the Participant’s right to receive interest component payments with respect to unvested RDUs shall terminate.  Subject to Section 9 and unless otherwise provided in a Participant’s RDU award agreement, if a Participant’s employment or service as a Director terminates for any reason between Interest Payment Dates, that Participant shall receive a pro rata interest payment with regard to unvested RDUs for the period ending on the date of that Participant’s termination from employment.
Subject to Section 9 and unless otherwise provided in a Participant’s RDU award agreement: (1) a Participant who is, on December 31, 2011,  and has been continuously (except for any absences for vacation, leave, etc. in accordance with the Company’s or any of its subsidiaries’ policies) (a) employed by the Company or any of its subsidiaries, or (b) serving as a Director), through December 31, 2011, shall be eligible to receive payment of the interest that has accrued on that Participant’s vested and unvested RDUs pursuant to Section 5.2(a); and (2) if a Participant’s employment or service as a Director terminates for any reason on or before December 31, 2011, that Participant shall forfeit the right to any interest that has accrued pursuant to Section 5.2(a).

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5.4    Payment Form
Payment of the interest component shall be in cash or such other form of periodic payments or distributions (if any) associated with Replacement Assets as provided in Section 7.  

SECTION 6
Vesting
A Participant becomes vested in his or her RDUs according to the vesting schedule in the Participant’s RDU award agreement.  Unless otherwise provided in the Participant’s RDU award agreement, immediately following a Participant’s termination of employment or service as a Director, any unvested RDUs (and any interest payments associated with those RDUs pursuant to Section 5 following the date of termination) shall be forfeited and all forfeited RDUs shall be returned to the Reserve Pool. 
SECTION 7
Impact of Restructuring, Recapitalization, Refinancing and Prepayment 
If a restructuring, recapitalization or refinancing with regard to the entire tranche of Senior Subordinated Debt (or with regard to only a portion of the Senior Subordinated Debt but on a pro rata basis across the entire tranche of Senior Subordinated Debt) occurs in a manner that does not trigger a Payment Event, the Debt Pool (or the equivalent pro rata portion of the Debt Pool if such transaction is with regard to less than the entire tranche), shall be deemed to be replaced with a hypothetical pool of assets equivalent to the assets that would be received by the holders of $28.5 million principal amount of Senior Subordinated Debt (the “Replacement Assets”), and Participants shall be eligible to receive (i) periodic payments with respect to such pool equivalent to the interest, dividends or other periodic payments associated with the Replacement Assets, which amounts shall be payable at the time specified in Section 5.2, and (ii) upon a Payment Event, an amount equal to the Fair Market Value of such Replacement Assets as of the date of such Payment Event.
If the Company’s Senior Subordinated Debt (or the Replacement Assets) is prepaid (i.e., the Senior Subordinated Debt is paid off using available cash and not replaced with alternative indebtedness or equity) in full or prepaid in part on a pro rata basis across the entire tranche of Senior Subordinated Debt, the Debt Pool or Replacement Assets, as the case may be, shall be deemed to be replaced (in whole or, in the case of a partial pro rata prepayment, on an equivalent pro rata basis) with cash equal to the amount of such prepayment: provided that any prepayment premium that would be associated with the $28.5 million principal amount of Senior Subordinated Debt (or the Replacement Assets) shall be treated as principal hereunder and shall be allocated pro rata according to each Participant’s number of RDUs and paid on a Payment Event. 

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For the avoidance of doubt, in the event of any transaction constituting a prepayment, or an exchange or similar transaction, in each case with regard to only a portion of the Senior Subordinated Debt and that is on a non-pro rata basis, there shall be no change to the Debt Pool.
If at any time the holders of the Company’s Senior Subordinated Debt (or the Replacement Assets) shall have the right, but not the obligation, to cause such Senior Subordinated Debt (or Replacement Assets) to be redeemed or sold in a transaction with an unrelated party, the Compensation Committee shall determine, in good faith, whether and to what extent it shall be in the best interests of the Participants to have the hypothetical assets in the Debt Pool or the Replacement Assets be deemed to have been sold or redeemed in such transaction, with any such deemed proceeds being paid to the Participants or reinvested on the Participants’ behalf in accordance with clauses (a) and (b) above.  Any such Compensation Committee determination shall be made simultaneously with the actual consummation of the relevant transaction.
With respect to the portion of the Company’s Senior Subordinated Debt that is prepaid after the IPO, the interest component of each Participant’s RDUs that accrued prior to the date of such prepayment shall be paid on the first Interest Payment Date to occur after the date of such prepayment.  Pursuant to the discretion reserved by the Compensation Committee, no additional interest shall accrue on the cash amount that is allocated to Participants pursuant to this Section 7 upon the prepayment of the Company’s Senior Subordinated Debt, whether such prepayment occurs in connection with the IPO or thereafter.

SECTION 8
Retention Payments
 8.1    First Retention Pool
As of the First Retention Payment Date, the First Retention Pool shall be allocated to Participants who are then employed by the Company, CDW Corporation or their respective subsidiaries pro rata according to the number of RDUs held by each Participant who is eligible to receive an allocation under this Section 8.1, and the amount so allocated to each such Participant shall be paid in a lump sum cash payment not later than 30 days after the First Retention Payment Date.
8.2    Second Retention Pool
As of December 31, 2015, the Second Retention Pool shall be allocated to Participants who are then employed by the Company,  CDW Corporation or their respective subsidiaries pro rata according to the number of RDUs held by each Participant who is eligible to receive an allocation under this Section 8.2, and the amount so allocated to each 

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such Participant shall be paid in a lump sum cash payment on the Second Retention Payment Date.
8.3    Third Retention Pool
If any portion of the Company’s Senior Subordinated Debt is prepaid on or after the Second Retention Payment Date and prior to a Payment Event, a Third Retention Pool shall be established and shall be allocated to all Participants pro rata according to the number of RDUs that were held by each Participant as of the Second Retention Payment Date, and the amount so allocated to each such Participant shall be paid during the 2017 calendar year; provided that upon a Sale of the Company, any unpaid installments shall be paid in a lump such cash payment within 30 days after such Sale of the Company.
SECTION 9
Forfeiture and Recoupment
In the event of Wrongful Conduct (as defined in the Participant’s RDU award agreement), (1) all RDUs held by a Participant (whether or not vested, and including any interest payments not yet paid pursuant to Section 5.2) shall automatically be cancelled without any consideration paid therefor and without further action on the part of the Company; and (2) the Participant shall repay to the Company any amounts paid to the Participant with respect to the RDUs (including without limitation payments pursuant to the interest component described in Section 5) at any time during the 24-month period prior to the Participant’s termination of employment and at any time after the Participant’s termination of employment.  A Participant may only accept an RDU grant if the Participant consents to and authorizes the Company, CDW Corporation and their respective subsidiaries to deduct from any amounts payable to the Participant by the Company, CDW Corporation or their respective subsidiaries, any amounts the Participant owes under this Section (subject to any restrictions set forth in Section 409A).
SECTION 10
Other Terms and Conditions
10.1    Administration
The general administration of the Plan and the responsibility for carrying out the provisions of the Plan shall be placed in the Compensation Committee.  The Compensation Committee shall have the powers set forth in the Plan and the complete discretionary power to interpret its provisions.  Any decisions of the Compensation Committee shall be final and binding on all persons with regard to the Plan.
10.2    Amendment and Termination of the Plan
The Board or the Compensation Committee may amend, modify or terminate the Plan at any time for any reason, with or without advance notice; provided, however, that a 

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Participant’s RDU award agreement shall not be amended, modified or terminated without the written consent of the Participant; provided, further, that the Plan shall not be amended, modified or terminated in any manner adverse to the Participants as a group without the written consent of Participants (1) holding more than two-thirds of the outstanding RDUs (i.e., excluding the Reserve Pool) and (2) representing at least a majority of the Participants under the Plan, provided, however, that no consideration was provided in connection with the consent or in replacement or partial replacement of the benefits under the Plan unless provided to all Participants ratably; and provided, further, that the Plan shall not be amended, modified or terminated in any manner adverse to a Participant that is discriminatory as compared to the other Participants without the written consent of such Participant.  For purposes of the foregoing, if a Participant is deceased, his or her Beneficiaries shall collectively vote in place of the deceased Participant.  No amendment or termination of the Plan may accelerate a scheduled payment unless permitted by Treasury regulations section 1.409A-3(j)(4), nor may any amendment permit a subsequent deferral unless such amendment complies with the requirements of Treasury regulations section 1.409A-2(b).
10.3    Payments to Beneficiaries
In the event of the death of a Participant prior to the date of payment in full of any portion of a principal or interest component due to the Participant hereunder, any amounts payable in connection with this Plan shall thereafter be made to the Participant’s Beneficiaries.  
10.4    Withholding
The Company, CDW Corporation or their respective subsidiaries may withhold from any and all amounts payable under this Plan or otherwise such federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation (“Taxes”).  In the event that any RDU or interest payment is settled or paid in property other than cash, as a condition to the receipt of such payment the Participant shall be required to pay in cash, or to make other arrangements satisfactory to the Company (including, without limitation, authorizing withholding from payroll and any other amounts payable to the Participant), an amount sufficient to satisfy any Taxes; provided, however, that payments under Section 4.3 that are made in marketable securities shall be eligible for net settlement to satisfy any Taxes with respect to such payments.
10.5    Funding
The Company’s promise to pay benefits hereunder shall at all times remain unfunded as to the Participant.  The Company shall not be required to fund or otherwise segregate assets to be used for payment of benefits under the Plan.  

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10.6    Expenses
The Company shall bear all expenses incurred by it in administering the Plan but shall not be responsible for taxes or other expenses incurred by Participants related to the Plan.
10.7    No Obligation
Neither the Plan nor any RDU granted hereunder shall create any obligation on the part of the Company to continue any other award plans or policies or to establish or continue any other programs, plans or policies of any kind.  Neither the Plan nor any RDU grant made pursuant to the Plan shall give any Participant or other employee any right with respect to continuation of employment by the Company or by any subsidiary or affiliate, nor shall there be a limitation in any way on the right of the Company or any subsidiary or affiliate by which a Participant is employed to terminate such Participant’s employment at any time for any reason whatsoever, nor shall the Plan nor any RDU grant made hereunder create a contract of employment.
10.8    No Assignment; Resolution of Disputes
No right or interest in any RDU granted under the Plan shall be assignable or transferable, except to Beneficiaries as permitted under the Plan, and no right or interest of any Participant in any RDU granted hereunder shall be subject to any lien, claim, encumbrance, obligation or liability of such Participant.  The foregoing shall also apply to the creation, assignment or recognition of a right to any benefit payable pursuant to a domestic relations order, unless such order meets the requirements of Section 414(p)(1)(B) of the Internal Revenue Code as determined by the Compensation Committee.  Any payments required under the Plan during a Participant’s lifetime shall be made only to the Participant.  In the event any conflicting demands are made upon the Company with respect to any payments due as a result of the Plan, provided that the Company shall not have received prior written notice that said conflicting demands have been finally settled by court adjudication, arbitration, joint order or otherwise, the Company shall pay to the Participant or Beneficiaries any and all amounts it determines to be due hereunder and thereupon the Company shall stand fully relieved and discharged of any further duties or liabilities under the Plan.
10.9    Severability 
In the event that any provisions of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

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10.10    Legal Document  
This Plan constitutes a legal document which governs all matters involved with its interpretation and administration and supersedes any writing, presentation or representation, whether written or oral, inconsistent with its terms.
10.11    Section 409A
Payments under the Plan shall be treated as exempt from or compliant with Section 409A to the maximum extent possible.  To the extent payments under the Plan are subject to the provisions of Section 409A, the Plan shall at all times be interpreted and administered so that it is consistent with Section 409A notwithstanding any provision of the Plan to the contrary.  To the extent that any provision in the Plan is ambiguous as to its compliance with Section 409A, the provision shall be read in such a manner so that all payments under the Plan shall not incur any additional tax within the meaning of Section 409A(a)(1)(B).  The amendment and restatement of this Plan is not intended to change the timing of any payment that is subject to Section 409A, and the Plan shall be construed in accordance with such intent.  Accordingly, and notwithstanding any provision of the Plan to the contrary, if the Plan would fail to comply with Section 409A, then the Compensation Committee shall be empowered to take in good faith any actions necessary so as to administer the Plan in good faith compliance with Section 409A.  In no event shall the Company or any of its subsidiaries or affiliates be liable for any additional tax, interest or penalty that may be imposed in the Participant by Section 409A or damages for failing to comply with Section 409A.
10.12    Governing Law, Venue, Waiver of Jury Trial 
The Plan and all actions taken in connection herewith shall be governed and construed in accordance with the substantive laws of the State of Illinois (regardless of the law that might otherwise govern under any state’s conflict of laws principles).  Any legal action involving benefits claimed or legal obligations relating to or arising under this Plan may be filed only in state or Federal District Court in the city of Chicago, Illinois.   NO PARTICIPANT SHALL BE ENTITLED TO THE RIGHT TO TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATING TO OR ARISING IN ANY WAY FROM THIS PLAN OR THE MATTERS CONTEMPLATED HEREBY.

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EXHIBIT 10.1

 

SUBSCRIPTION AGREEMENT

 

This Subscription Agreement (this “Agreement”) is being delivered to the purchaser identified on the signature page to this Agreement (the “Subscriber”) of Spherix Incorporated, a Delaware corporation (the “Company”).  The Company is conducting a private placement (the “Offering”) of shares (the ‘Shares”) of common stock $0.0001 par value per share (the “Common Stock”) (or, at the election of any purchaser who would, as a result of purchase of Shares become a beneficial owner of five (5%) percent or greater of the outstanding Common Stock of the Company, one share of the Company’s Series F Preferred Stock, par value $0.0001 per share, which is convertible into one (1) share of Common Stock, with such rights and designations as set forth in the form of Certificate of Designation, attached hereto as Exhibit A, (the “Preferred Shares”)) at a purchase price of $[__] per Share (the “Purchase Price”). Certain subscribers have the option of purchasing Preferred Shares by electing such option on page 13 of this Agreement.  For purposes of this Agreement, the term “Securities” shall refer to the Shares, the Preferred Shares and the Common Stock into which the Preferred Shares are convertible.

 

IMPORTANT INVESTOR NOTICES

 

NO OFFERING LITERATURE OR ADVERTISEMENT IN ANY FORM MAY BE RELIED UPON IN THE OFFERING OF THESE SECURITIES EXCEPT FOR THIS AGREEMENT AND ANY SUPPLEMENTS HERETO, AND NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATIONS EXCEPT THOSE CONTAINED HEREIN.

 

THIS AGREEMENT IS CONFIDENTIAL AND THE CONTENTS HEREOF MAY NOT BE REPRODUCED, DISTRIBUTED OR DIVULGED BY OR TO ANY PERSONS OTHER THAN THE RECIPIENT OR ITS REPRESENTATIVE, ACCOUNTANT OR LEGAL COUNSEL, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY.  EACH PERSON WHO ACCEPTS DELIVERY OF THIS AGREEMENT, ACKNOWLEDGES AND AGREES TO THE FOREGOING RESTRICTIONS.

 

THIS AGREEMENT DOES NOT PURPORT TO BE ALL-INCLUSIVE OR TO CONTAIN ALL OF THE INFORMATION THAT YOU MAY DESIRE IN EVALUATING THE COMPANY, OR AN INVESTMENT IN THE OFFERING. THIS AGREEMENT DOES NOT CONTAIN ALL OF THE INFORMATION THAT WOULD NORMALLY APPEAR IN A PROSPECTUS FOR AN OFFERING REGISTERED UNDER THE SECURITIES ACTF 1933, AS AMENDED (THE “SECURITIES ACT”).  YOU MUST CONDUCT AND RELY ON YOUR OWN EVALUATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED, IN DECIDING WHETHER TO INVEST IN THE OFFERING.

 

THIS AGREEMENT CONTAINS A SUMMARY OF CERTAIN PROVISIONS OF VARIOUS DOCUMENTS RELATING TO THE OPERATIONS OF THE COMPANY.  THESE SUMMARIES DO NOT PURPORT TO BE COMPLETE AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE TEXTS OF THE ORIGINAL DOCUMENTS.

 

THIS AGREEMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION OF AN OFFER TO ANY PERSON OR IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION IS UNLAWFUL OR NOT AUTHORIZED.  EACH PERSON WHO ACCEPTS DELIVERY OF THIS AGREEMENT AGREES TO RETURN IT AND ALL RELATED DOCUMENTS IF SUCH PERSON DOES NOT PURCHASE ANY OF THE SECURITIES DESCRIBED HEREIN.

  

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NEITHER THE DELIVERY OF THIS AGREEMENT AT ANY TIME NOR ANY SALE OF SECURITIES HEREUNDER SHALL IMPLY THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.  THE COMPANY WILL EXTEND TO EACH PROSPECTIVE INVESTOR (AND TO ITS REPRESENTATIVE, ACCOUNTANT OR LEGAL COUNSEL, IF ANY) THE OPPORTUNITY, PRIOR TO ITS PURCHASE OF SECURITIES, TO ASK QUESTIONS OF AND RECEIVE ANSWERS FROM THE COMPANY CONCERNING THE OFFERING AND TO OBTAIN ADDITIONAL INFORMATION, TO THE EXTENT THE COMPANY  POSSESSES THE SAME OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE, IN ORDER TO VERIFY THE ACCURACY OF THE INFORMATION SET FORTH HEREIN.  ALL SUCH ADDITIONAL INFORMATION SHALL ONLY BE PROVIDED IN WRITING AND IDENTIFIED AS SUCH BY THE COMPANY THROUGH ITS DULY AUTHORIZED OFFICERS AND/OR DIRECTORS ALONE; NO ORAL INFORMATION OR INFORMATION PROVIDED BY ANY BROKER OR THIRD PARTY MAY BE RELIED UPON.

 

NO REPRESENTATIONS, WARRANTIES OR ASSURANCES OF ANY KIND ARE MADE OR SHOULD BE INFERRED WITH RESPECT TO THE ECONOMIC RETURN, IF ANY, THAT MAY ACCRUE TO AN INVESTOR IN THE COMPANY.

 

THIS AGREEMENT CONTAINS FORWARD-LOOKING STATEMENTS REGARDING THE COMPANY’S PERFORMANCE, STRATEGY, PLANS, OBJECTIVES, EXPECTATIONS, BELIEFS AND INTENTIONS.  THE OUTCOME OF THE EVENTS DESCRIBED IN THESE FORWARD-LOOKING STATEMENTS IS SUBJECT TO SUBSTANTIAL RISKS, AND ACTUAL RESULTS COULD DIFFER MATERIALLY.  THE SECTIONS ENTITLED “EXECUTIVE SUMMARY,” “RISK FACTORS,” AND “DESCRIPTION OF BUSINESS,” IN ANY SECURITIES AND EXCHANGE COMMISSION (“SEC”) FILING OR REPORT, AS WELL AS THIS AGREEMENT GENERALLY, CONTAINS DISCUSSIONS OF SOME OF THE FACTORS THAT COULD CONTRIBUTE TO THESE DIFFERENCES.

 

THE OFFERING PRICE OF THE SECURITIES HAS BEEN DETERMINED ARBITRARILY.  THE PRICE OF THE SECURITIES DOES NOT NECESSARILY BEAR ANY RELATIONSHIP TO THE ASSETS, EARNINGS OR BOOK VALUE OF THE COMPANY, OR TO POTENTIAL ASSETS, EARNINGS, OR BOOK VALUE OF THE COMPANY.  THERE IS NO ACTIVE TRADING MARKET IN THE COMPANY’S COMMON STOCK AND THERE CAN BE NO ASSURANCE THAT AN ACTIVE TRADING MARKET IN ANY OF THE COMPANY’S SECURITIES WILL DEVELOP OR BE MAINTAINED.  A LIMITED NUMBER OF SHARES OF COMMON STOCK MAY BE ELIGIBLE FOR TRADING PRIOR TO REGISTRATION OF THE SECURITIES SOLD IN THE OFFERING, AND SUCH REGISTRATION MAY BE DELAYED IN CERTAIN CIRCUMSTANCES.  THE PRICE OF SHARES TRADED ON ANY EXCHANGE MAY BE IMPACTED BY A LACK OF LIQUIDITY OR AVAILABILITY OF SHARES FOR PUBLIC SALE AND ALSO WILL NOT NECESSARILY BEAR ANY RELATIONSHIP TO THE ASSETS, EARNINGS, BOOK VALUE OR POTENTIAL PROSPECTS OF THE COMPANY OR APPLICABLE QUOTED OR TRADING PRICES THAT MAY EXIST FOLLOWING REGISTRATION OR THE LAPSE OF RESTRICTIONS ON THE SECURITIES SOLD PURSUANT TO THE OFFERING OR OTHER RESTRICTIONS. SUCH PRICES SHOULD NOT BE CONSIDERED ACCURATE INDICATORS OF FUTURE QUOTED OR TRADING PRICES THAT MAY SUBSEQUENTLY EXIST FOLLOWING.

 

THE COMPANY RESERVES THE RIGHT, IN ITS SOLE DISCRETION, TO REJECT ANY SUBSCRIPTION IN WHOLE OR IN PART FOR ANY REASON OR FOR NO REASON. THE COMPANY IS NOT OBLIGATED TO NOTIFY RECIPIENTS OF THIS AGREEMENT WHETHER ALL OF THE SECURITIES OFFERED HEREBY HAVE BEEN SOLD.

 

  

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SUBSCRIBERS MAY BE DEEMED TO BE IN POSSESSION OF MATERIAL NON-PUBLIC INFORMATION WITHIN THE MEANING OF THE UNITED STATES SECURITIES LAWS AND REGULATIONS REGARDING A PUBLIC COMPANY. THIS AGREEMENT CONTAINS CONFIDENTIAL INFORMATION CONCERNING THE COMPANY, AND HAS BEEN PREPARED SOLELY FOR USE IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN. ANY USE OF THIS INFORMATION FOR ANY PURPOSE OTHER THAN IN CONNECTION WITH THE CONSIDERATION OF AN INVESTMENT IN THE SECURITIES OF THE COMPANY THROUGH THE OFFERING DESCRIBED HEREIN MAY SUBJECT THE USER TO CIVIL AND/OR CRIMINAL LIABILITY. THE RECIPIENT, BY ACCEPTING THIS AGREEMENT, AGREES NOT TO: (I) DISTRIBUTE OR REPRODUCE THIS AGREEMENT, IN WHOLE OR IN PART, AT ANY TIME, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY; (II) TO KEEP CONFIDENTIAL THE EXISTENCE OF THIS DOCUMENT AND THE INFORMATION CONTAINED HEREIN OR MADE AVAILABLE IN CONNECTION WITH ANY FURTHER INVESTIGATION OF THE COMPANY; AND (III) REFRAIN FROM TRADING IN THE PUBLICLY-TRADED SECURITIES OF THE COMPANY OR ANY OTHER RELEVANT COMPANY FOR SO LONG AS SUCH RECIPIENT IS IN POSSESSION OF THE MATERIAL NON-PUBLIC INFORMATION CONTAINED HEREIN. SUBSCRIBERS ARE ADVISED THAT THEY SHOULD SEEK THEIR OWN LEGAL COUNSEL PRIOR TO EFFECTUATING ANY TRANSACTIONS IN THE PUBLICLY TRADED COMPANY’S SECURITIES.

 

FOR RESIDENTS OF ALL STATES

 

THIS OFFERING IS BEING MADE SOLELY TO “ACCREDITED INVESTORS,” AS SUCH TERM IS DEFINED IN RULE 501 OF REGULATION D UNDER THE SECURITIES ACT.  THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE AND WILL BE OFFERED AND SOLD IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION AFFORDED BY SECTION 4(2) THEREUNDER AND REGULATION D (RULE 506) OF THE SECURITIES ACT AND CORRESPONDING PROVISIONS OF STATE SECURITIES LAWS.

 

THE SECURITIES OFFERED HEREBY ARE SUBJECT TO RESTRICTION ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.  INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

 

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THIS AGREEMENT.  ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

 

PROSPECTIVE INVESTORS SHOULD NOT CONSTRUE THE CONTENTS OF THIS AGREEMENT AS INVESTMENT, LEGAL, BUSINESS, OR TAX ADVICE.  EACH INVESTOR SHOULD CONTACT HIS, HER OR ITS OWN ADVISORS REGARDING THE APPROPRIATENESS OF THIS INVESTMENT AND THE TAX CONSEQUENCES THEREOF, WHICH MAY DIFFER DEPENDING ON AN INVESTOR’S PARTICULAR FINANCIAL SITUATION.  IN NO EVENT SHOULD THIS AGREEMENT BE DEEMED OR CONSIDERED TO BE TAX ADVICE PROVIDED BY THE COMPANY.

 

  

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FOR FLORIDA RESIDENTS ONLY

 

THE SECURITIES REFERRED TO HEREIN WILL BE SOLD TO, AND ACQUIRED BY, THE HOLDER IN A TRANSACTION EXEMPT UNDER § 517.061 OF THE FLORIDA SECURITIES ACT.  THE SECURITIES HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE STATE OF FLORIDA.  IN ADDITION, ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE OF VOIDING THE PURCHASE WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY SUCH PURCHASER TO THE COMPANY, AN AGENT OF THE COMPANY, OR AN ESCROW AGENT OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH PURCHASER, WHICHEVER OCCURS LATER

 

1.           SUBSCRIPTION AND PURCHASE PRICE

 

(a)           Subscription.  Subject to the conditions set forth in Section 2 hereof, the Subscriber hereby subscribes for and agrees to purchase the number of Shares or Preferred Shares indicated on page 13 hereof on the terms and conditions described herein.

 

(b)           Purchase of Shares.  The Subscriber understands and acknowledges that the purchase price to be remitted to the Company in exchange for the Shares (or Preferred Shares, as the case may be)  shall be set at $[__] per Share, for an aggregate purchase price as set forth on page 13 hereof (the “Aggregate Purchase Price”). The Subscriber’s delivery of this Agreement to the Company shall be accompanied by payment for the Shares (or Preferred Shares, as the case may be) subscribed for hereunder, payable in United States Dollars, by wire transfer of immediately available funds delivered contemporaneously with the Subscriber’s delivery of this Agreement to the Company in accordance with the wire instructions provided on Exhibit B. The Subscriber understands and agrees that, subject to Section 2 and applicable laws, by executing this Agreement, it is entering into a binding agreement.

 

2.           ACCEPTANCE, OFFERING TERM AND CLOSING PROCEDURES

 

(a)           Acceptance or Rejection. Subject to full, faithful and punctual performance and discharge by the Company of all of its duties, obligations and responsibilities as set forth in this Agreement and any other agreement entered into between the Subscriber and the Company relating to this subscription (collectively, the "Transaction Documents"), the Subscriber shall be legally bound to purchase the Shares (or Preferred Shares, as the case may be)  pursuant to the terms and conditions set forth in this Agreement.  For the avoidance of doubt, upon the occurrence of the failure by the Company to fully, faithfully and punctually perform and discharge any of its duties, obligations and responsibilities as set forth in any of the Transaction Documents, which shall have been performed or otherwise discharged prior to the Closing (as defined below), the Subscriber may, on or prior to the Closing, at its sole and absolute discretion, elect not to purchase the Shares (or Preferred Shares)  and provide instructions to the Company to receive the full and immediate refund of the Aggregate Purchase Price. The Subscriber understands and agrees that the Company reserves the right to reject this subscription for Shares (or Preferred Shares)  in whole or part in any order at any time prior to the Closing for any reason, notwithstanding the Subscriber’s prior receipt of notice of acceptance of the Subscriber’s subscription.  In the event the Closing does not take place because of (i) the rejection of subscription for Shares (or Preferred Shares) by the Company; or (ii) the election not to purchase the Shares (or Preferred Shares)  by the Subscriber; or (iii) failure to effectuate the Initial Closing (as defined below) on or prior to December 31, 2013 (unless extended in the discretion of the Board of Directors) for any reason or no reason, this Agreement and any other Transaction Documents shall thereafter be terminated and have no force or effect, and the parties shall take all steps, including the execution of instructions to the Company, to ensure that the Aggregate Purchase Price shall promptly be returned or caused to be returned to the Subscriber without interest thereon or deduction therefrom.

 

  

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(b)           Closing.  The closing of the purchase and sale of the Shares and Preferred Shares hereunder (the “Closing”) shall take place at such time and place as determined by the Company and may take place in one of more closings.  Closings shall take place on a Business Day promptly following the satisfaction of the conditions set forth in Section 7 below, as determined by the Company (the “Closing Date”). “Business Day” shall mean from the hours of 9:00 a.m. (Eastern Time) through 5:00 p.m. (Eastern Time) of a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required to be closed. The Shares or Preferred Shares purchased by the Subscriber will be delivered by the Company promptly following the Final Closing Date (as defined in Section 5(h) below) of the Offering.

(c)           Following Acceptance or Rejection.  The Subscriber acknowledges and agrees that this Agreement and any other documents delivered in connection herewith will be held by the Company. In the event that this Agreement is not accepted by the Company for whatever reason, which the Company expressly reserves the right to do, this Agreement, the Aggregate Purchase Price received (without interest thereon) and any other documents delivered in connection herewith will be returned to the Subscriber at the address of the Subscriber as set forth in this Agreement. If this Agreement is accepted by the Company, the Company is entitled to treat the Aggregate Purchase Price received as an interest free loan to the Company until such time as the Subscription is accepted.

 

(d)           Intentionally Omitted.

(e)           Extraordinary Events Regarding Common Stock.  In the event that the Company shall (a) issue additional shares of Common Stock as a dividend or other distribution on outstanding Common Stock, (b) subdivide its outstanding shares of Common Stock, or (c) combine its outstanding shares of the Common Stock into a smaller number of shares of Common Stock, then, in each such event, the Purchase Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Purchase Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Purchase Price then in effect. The Purchase Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein. The number of Shares or Preferred Shares, as the case may be, that the Subscriber shall thereafter be entitled to receive shall be adjusted to a number determined by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this Section) be issuable on such exercise by a fraction of which (a) the numerator is the Purchase Price that would otherwise (but for the provisions of this Section) be in effect, and (b) the denominator is the Purchase Price then in effect.

(f)           Certificate as to Adjustments.  In each case of any adjustment or readjustment in the Shares or Preferred Shares issuable hereunder, the Company, at its expense, will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms hereof and of the Series F Preferred Stock Certificate of Designation, and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company will forthwith mail a copy of each such certificate to the Subscriber.

 

3.           THE SUBSCRIBER’S REPRESENTATIONS, WARRANTIES AND COVENANTS

 

The Subscriber hereby acknowledges, agrees with and represents, warrants and covenants to the Company, as follows:

 

(a)           The Subscriber has full power and authority to enter into this Agreement, the execution and delivery of which has been duly authorized, if applicable, and this Agreement constitutes a valid and legally binding obligation of the Subscriber, except as may be limited by bankruptcy, reorganization, insolvency, moratorium and similar laws of general application relating to or affecting the enforcement of rights of creditors, and except as enforceability of the obligations hereunder are subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or law).

 

  

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(b)           The Subscriber acknowledges its understanding that the Offering and sale of the Securities is intended to be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), by virtue of Section 4(2) of the Securities Act and the provisions of Regulation D promulgated thereunder (“Regulation D”).  In furtherance thereof, the Subscriber represents and warrants to the Company and its affiliates as follows:

 

(i)           The Subscriber realizes that the basis for the exemption from registration may not be available if, notwithstanding the Subscriber’s representations contained herein, the Subscriber is merely acquiring the Securities for a fixed or determinable period in the future, or for a market rise, or for sale if the market does not rise. The Subscriber does not have any such intention.

 

(ii)           The Subscriber realizes that the basis for exemption would not be available if the Offering is part of a plan or scheme to evade registration provisions of the Securities Act or any applicable state or federal securities laws.

 

(iii)           The Subscriber is acquiring the Securities solely for the Subscriber’s own beneficial account, for investment purposes, and not with a view towards, or resale in connection with, any distribution of the Securities.

 

(iv)           The Subscriber has the financial ability to bear the economic risk of the Subscriber’s investment, has adequate means for providing for its current needs and contingencies, and has no need for liquidity with respect to an investment in the Company.

 

(v)           The Subscriber and the Subscriber’s attorney, accountant, purchaser representative and/or tax advisor, if any (collectively, the “Advisors”) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of a prospective investment in the Securities. If other than an individual, the Subscriber also represents it has not been organized solely for the purpose of acquiring the Securities.

 

(vi)           The Subscriber (together with its Advisors, if any) has received all documents requested by the Subscriber, if any, has carefully reviewed them and understands the information contained therein, prior to the execution of this Agreement.

 

(c)           The Subscriber is not relying on the Company or any of its employees, agents, sub-agents or advisors with respect to the legal, tax, economic and related considerations involved in this investment. The Subscriber has relied on the advice of, or has consulted with, only its Advisors. Each Advisor, if any, has disclosed to the Subscriber in writing (a copy of which is annexed to this Agreement) the specific details of any and all past, present or future relationships, actual or contemplated, between the Advisor and the Company or any affiliate or sub-agent thereof.

 

(d)           The Subscriber has carefully considered the potential risks relating to the Company and a purchase of the Securities, and fully understands that the Securities are a speculative investment that involves a high degree of risk of loss of the Subscriber’s entire investment. Among other things, the Subscriber has carefully considered each of the risks described under the heading “Risk Factors” in the Company’s filings with the SEC and any additional disclosures in the nature of Risk Factors described herein.

 

  

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 (e)           The Subscriber will not sell or otherwise transfer any Securities without registration under the Securities Act or an exemption therefrom, and fully understands and agrees that the Subscriber must bear the economic risk of its purchase because, among other reasons, the Securities have not been registered under the Securities Act or under the securities laws of any state and, therefore, cannot be resold, pledged, assigned or otherwise disposed of unless they are subsequently registered under the Securities Act and under the applicable securities laws of such states, or an exemption from such registration is available.  In particular, the Subscriber is aware that the Securities are “restricted securities,” as such term is defined in Rule 144 promulgated under the Securities Act (“Rule 144”), and they may not be sold pursuant to Rule 144 unless all of the conditions of Rule 144 are met. The Subscriber also understands that the Company is under no obligation to register the Securities on behalf of the Subscriber or to assist the Subscriber in complying with any exemption from registration under the Securities Act or applicable state securities laws. The Subscriber understands that any sales or transfers of the Securities are further restricted by state securities laws and the provisions of this Agreement.

 

(f)           No oral or written representations or warranties have been made, or information furnished, to the Subscriber or its Advisors, if any, by the Company or any of its officers, employees, agents, sub-agents, affiliates, advisors or subsidiaries in connection with the Offering, other than any representations of the Company contained herein, and in subscribing for the Securities the Subscriber is not relying upon any representations other than those contained herein.

 

(g)           The Subscriber’s overall commitment to investments that are not readily marketable is not disproportionate to the Subscriber’s net worth, and an investment in the Securities will not cause such overall commitment to become excessive.

 

(h)           The Subscriber understands and agrees that the certificates for the Securities shall bear substantially the following legend until (i) such Securities shall have been registered under the Securities Act and effectively disposed of in accordance with a registration statement that has been declared effective or (ii) in the opinion of counsel for the Company, such Securities may be sold without registration under the Securities Act, as well as any applicable “blue sky” or state securities laws:

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE 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”), 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 ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.”

 

(i)           Neither the SEC nor any state securities commission has approved the Securities or passed upon or endorsed the merits of the Offering. There is no government or other insurance covering any of the Securities.

 

(j)           The Subscriber and its Advisors, if any, have had a reasonable opportunity to ask questions of and receive answers from a person or persons acting on behalf of the Company concerning the Offering and the business, financial condition, results of operations and prospects of the Company, and all such questions have been answered to the full satisfaction of the Subscriber and its Advisors, if any.

 

  

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(k)           (i)           In making the decision to invest in the Securities the Subscriber has relied solely upon the information provided by the Company in the Transaction Documents.  To the extent necessary, the Subscriber has retained, at its own expense, and relied upon appropriate professional advice regarding the investment, tax and legal merits and consequences of this Agreement and the purchase of the Securities hereunder.  The Subscriber disclaims reliance on any statements made or information provided by any person or entity in the course of Subscriber’s consideration of an investment in the Securities other than the Transaction Documents.

 

(ii)           The Subscriber represents and warrants that: (i) the Subscriber was contacted regarding the sale of the Securities by the Company (or an authorized agent or representative thereof) with whom the Subscriber had a prior substantial pre-existing relationship  and (ii) no Securities were offered or sold to it by means of any form of general solicitation or general advertising, and in connection therewith, the Subscriber did not (A) receive or review any advertisement, article, notice or other communication published in a newspaper or magazine or similar media or broadcast over television or radio, whether closed circuit, or generally available; or (B) attend any seminar meeting or industry investor conference whose attendees were invited by any general solicitation or general advertising; or (C) observe any website or filing of the Company with the SEC in which any offering of securities by the Company was described and as a result learned of any offering of securities by the Company.

 

(l)           The Subscriber has taken no action that would give rise to any claim by any person for brokerage commissions, finders’ fees or the like relating to this Agreement or the transactions contemplated hereby.

 

(m)           The Subscriber is not relying on the Company or any of its employees, agents, or advisors with respect to the legal, tax, economic and related considerations of an investment in the Securities, and the Subscriber has relied on the advice of, or has consulted with, only its own Advisors.

 

(n)           The Subscriber acknowledges that any estimates or forward-looking statements or projections furnished by the Company to the Subscriber were prepared by the management of the Company in good faith, but that the attainment of any such projections, estimates or forward-looking statements cannot be guaranteed by the Company or its management and should not be relied upon.

 

(o)           No oral or written representations have been made, or oral or written information furnished, to the Subscriber or its Advisors, if any, in connection with the Offering that are in any way inconsistent with the information contained herein.

 

(p)           (For ERISA plans only) The fiduciary of the ERISA plan (the “Plan”) represents that such fiduciary has been informed of and understands the Company’s investment objectives, policies and strategies, and that the decision to invest “plan assets” (as such term is defined in ERISA) in the Company is consistent with the provisions of ERISA that require diversification of plan assets and impose other fiduciary responsibilities. The Subscriber or Plan fiduciary (i) is responsible for the decision to invest in the Company; (ii) is independent of the Company and any of its affiliates; (iii) is qualified to make such investment decision; and (iv) in making such decision, the Subscriber or Plan fiduciary has not relied primarily on any advice or recommendation of the Company or any of its affiliates.

 

(q)           This Agreement is not enforceable by the Subscriber unless it has been accepted by the Company, and the Subscriber acknowledges and agrees that the Company reserves the right to reject any subscription for any reason.

 

(r)           Intentionally Omitted.

 

(s)           The Subscriber is an “Accredited Investor” as defined in Rule 501(a) under the Securities Act. In general, an “Accredited Investor” is deemed to be an institution with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 (excluding such person’s residence) or annual income exceeding $200,000 or $300,000 jointly with his or her spouse.

  

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(t)           The Subscriber, 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 Offering, and has so evaluated the merits and risks of such investment. The Subscriber has not authorized any person or entity to act as its Purchaser Representative (as that term is defined in Regulation D of the General Rules and Regulations under the Securities Act) in connection with the Offering. The Subscriber is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

 

4.           THE COMPANY’S REPRESENTATIONS, WARRANTIES AND COVENANTS

 

The Company hereby acknowledges, agrees with and represents, warrants and covenants to the Subscriber, as follows:

 

(a)           Organization and Qualification.  The Company is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation.  The Company is duly qualified to do business, and is in good standing in the states required due to (a) the ownership or lease of real or personal property for use in the operation of the Company's business or (b) the nature of the business conducted by the Company.  The Company has all requisite power, right and authority to own, operate and lease its properties and assets, to carry on its business as now conducted, to execute, deliver and perform its obligations under this Agreement and the other Transaction Documents to which it is a party, and to carry out the transactions contemplated hereby and thereby.  All actions on the part of the Company and its officers and directors necessary for the authorization, execution, delivery and performance of this Agreement and the other Transaction Documents, the consummation of the transactions contemplated hereby and thereby, and the performance of all of the Company's obligations under this Agreement and the other Transaction Documents have been taken or will be taken prior to the Closing.  This Agreement has been, and the other Transaction Documents to which the Company is a party on the Closing will be, duly executed and delivered by the Company, and this Agreement is, and each of the other Transaction Documents to which it is a party on the Closing will be, a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms.

 

(b)           Issuance of Securities.  The Securities to be issued to the Subscriber pursuant to this Agreement, when issued and delivered in accordance with the terms of this Agreement, will be duly and validly issued and will be fully paid and non-assessable.

 

(c)           Authorization; Enforcement.  The execution, delivery and performance of this Agreement and the other Transaction Documents by the Company, and the consummation of the transactions contemplated hereby and thereby, will not (a) constitute a violation (with or without the giving of notice or lapse of time, or both) of any provision of any law or any judgment, decree, order, regulation or rule of any court, agency or other governmental authority applicable to the Company, (b) require any consent, approval or authorization of, or declaration, filing or registration with, any person, (c) result in a default (with or without the giving of notice or lapse of time, or both) under, acceleration or termination of, or the creation in any party of the right to accelerate, terminate, modify or cancel, any agreement, lease, note or other restriction, encumbrance, obligation or liability to which the Company is a party or by which it is bound or to which any assets of the Company are subject, (d) result in the creation of any lien or encumbrance upon the assets of the Company, or upon any shares of Common Stock or other securities of the Company, (e) conflict with or result in a breach of or constitute a default under any provision of the certificate of incorporation or bylaws of the Company, or (f) invalidate or adversely affect any permit, license, authorization or status used in the conduct of the business of the Company.

 

(d)           SEC Filings. The Company is subject to, and in full compliance with, the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company has made available to each Subscriber through the EDGAR system true and complete copies of each of the Company’s Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and Current Reports on Form 8-K.

 

  

-9-

  

(e)           No Financial Advisor. The Company acknowledges and agrees that the Subscriber is acting solely in the capacity of an arm’s length purchaser with respect to the Securities and the transactions contemplated hereby. The Company further acknowledges that the Subscriber is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by the Subscriber or any of its representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to the Subscriber’s purchase of the Securities. The Company further represents to the Subscriber 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 representatives.

 

(f)           Indemnification.  The Company will indemnify and hold harmless the Subscriber and, where applicable, its directors, officers, employees, agents, advisors and shareholders, from and against any and all Loss arising out of or based upon any representation or warranty of the Company contained herein or in any document furnished by the Company to the Subscriber in connection herewith being untrue in any material respect or any breach or failure by the Company to comply with any covenant or agreement made by the Company to the Subscriber in connection therewith; provided, however, that the Company’s liability shall not exceed the Subscriber’s Aggregate Purchase Price tendered hereunder.

 

(g)           Capitalization and Additional Issuances.  The authorized and outstanding capital stock of the Company on a fully diluted basis as of the date of this Agreement and the Closing Date (not including the Securities) are set forth in the Company’s filings with the SEC.  Except as set forth in the Company’s filings with the SEC, there are no options, warrants, or rights to subscribe to, securities, rights, understandings or obligations convertible into or exchangeable for or giving any right to subscribe for any shares of capital stock or other equity interest of the Company or any of its subsidiaries.  The only officer, director, employee and consultant stock option or stock incentive plan or similar plan currently in effect or contemplated by the Company are described in the Company’s filings with the SEC.  There are no outstanding agreements or preemptive or similar rights affecting the Company's Common Stock.

 

 

(h)           Private Placements.  Assuming the accuracy of the Subscriber’s representations and warranties set forth in Section 3, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Subscribers as contemplated hereby.

(j)           Investment Company.  The Company is not, and is not an affiliate of, and immediately after receipt of payment for the Shares will not be or be an affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.  The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act.

 

5.           OTHER AGREEMENTS OF THE PARTIES

 

(a)           Furnishing of Information.  As long as any Subscriber owns Securities, the Company covenants 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 after the date hereof pursuant to the Exchange Act.  As long as any Subscriber owns Securities, if the Company is not required to file reports pursuant to the Exchange Act, the Company shall prepare and furnish to the Subscribers and make publicly available in accordance with Rule 144(c) under the Securities Act such information as is required for the Subscribers to sell the Securities under Rule 144.  The Company further covenants that it shall take such further action as any holder of Securities may reasonably request, all to the extent required from time to time to enable such person to sell such Securities without registration under the Securities Act within the limitation of the exemptions proved by Rule 144 under the Securities Act.

 

  

-10-

  

(b)           Shareholder Rights Plan.  No claim will be made or enforced by the Company or, to the knowledge of the Company, any other person that any Subscriber is an “Acquiring Person” under any shareholder rights plan or similar plan or arrangement in effect or hereafter adopted by the Company, or that any Subscriber could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Subscribers.

 

(c)           Securities Laws Disclosure; Publicity.  The Company and each Subscriber shall consult with each other in issuing any press releases with respect to the transactions contemplated hereby, and no Subscriber shall issue any such press release or otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Subscriber, which consent shall not unreasonably be withheld.  Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Subscriber, or include the name of any Subscriber in any filing with the SEC or any regulatory agency, without the prior written consent of such Subscriber, except (i) as required by federal securities law in connection with the registration statement contemplated by the Registration Rights Agreement and (ii) to the extent such disclosure is required by law.

 

(d)           Integration.  The Company shall not, and shall use its best efforts to ensure that no affiliate of the Company shall, after the date hereof, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security 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 Subscribers.

 

(e)           Reservation of Securities.  The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may be required to fulfill its obligations in full 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 in full under the Transaction Documents, the Company shall promptly take such actions as may be required to increase the number of authorized shares.  The Subscribers acknowledge that certain Subscribers shall be entitled to subscribe for the Preferred Shares.  The Preferred Shares shall be equivalent in all respects to the Shares, and shall be convertible into Shares, other than a liquidation preference of $0.0001 per share upon a liquidation or dissolution of the Company.

 

(f)           Reimbursement.  If any Subscriber or any of its affiliates or any officer, director, partner, controlling person, employee or agent of a Subscriber or any of its affiliates (a “Related Person”) becomes involved in any capacity in any proceeding brought by or against any person in connection with or as a result of any misrepresentation, breach or inaccuracy of any representation, warranty, covenant or agreement made by the Company in any Transaction Documents, the Company will indemnify and hold harmless such Subscriber or Related Person for its reasonable legal and other expenses (including the costs of any investigation, preparation and travel) and for any losses incurred in connection therewith, as such expenses or losses are incurred, excluding only losses that result directly from such Subscribers’ or Related Person’s gross negligence or willful misconduct.  The indemnification obligations of the Company under this paragraph shall be in addition to any liability that the Company may otherwise have and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Subscribers and any such Related Persons.  If the Company breaches its obligations under any Transaction Document, then, in addition to any other liabilities the Company may have under any Transaction Document or applicable law, the Company shall pay or reimburse the Subscribers on demand for all costs for collection and enforcement (including reasonable attorneys’ fees and expenses).  Without limiting the generality of the foregoing, the Company specifically agrees to reimburse the Subscribers on demand for all costs of enforcing the indemnification obligations in this paragraph.  Notwithstanding anything in this Section 5(f) to the contrary, the Company’s liability to the Subscriber hereunder shall not exceed the Subscriber’s Aggregate Purchase Price.

 

(g)           Use of Proceeds.  The Company anticipates using the gross proceeds from the Offering for general working capital purposes.

  

-11-

  

(h)           Closings.  The initial closing shall be referred to as the ‘Initial Closing” and may be held upon receipt and acceptance of subscriptions prior to December 31, 2013. The date of the Initial Closing is sometimes referred to as the “Initial Closing Date.”  Subsequent closings (each a “Subsequent Closing”) will be held until the earlier to occur of: (i) the date on which the entire Offering has been subscribed for and accepted by the Company, and (ii) December 31, 2013.  The Offering may be extended up to January 31, 2014 (the “Final Closing” and such date of the Final Closing, the “Final Closing Date”), without additional notice to Subscribers.  Officers, directors and affiliates of the Company and the placement agent, if any, may purchase securities in the Offering.

 

6. REGISTRATION RIGHTS

 

The Company shall file a “resale” registration statement with the SEC covering all Shares sold in the Offering and shares of Common Stock underlying any Preferred Shares, so that the shares of Common Stock will be registered under the Securities Act. The Company will maintain the effectiveness of the “resale” registration statement from the effective date of the registration statement until all Registrable Securities (as defined in the Registration Rights Agreement) covered by such registration statement have been sold, or may be sold without the requirement to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, as determined by the counsel to the Company.  The Company will use its reasonable best efforts to have such “resale” registration statement filed within Ninety Days (90) days after the Final Closing Date (the “Filing Date”) and declared effective by the SEC as soon as possible and, in any event, within One Hundred and Eighty (180) days after the Final Closing Date (the “Effectiveness Deadline”), unless extended by the Company and Subscribers holding at least a majority of the Registrable Securities.

 

The Company is obligated to pay to the Subscribers a fee of 1% per month of the Subscriber’s investment, payable in cash, up to a maximum of 6%, for each month in excess of the Filing Date that the Company has not filed the registration statement and for each month in excess of the Effectiveness Deadline that the registration statement has not been declared effective; provided, however, that the Company shall not be obligated to pay any such liquidated damages if the Company is unable to fulfill its registration obligations as a result of rules, regulations, positions or releases issued or actions taken by the SEC pursuant to its authority with respect to “Rule 415”, provided the Company registers at such time the maximum number of shares of Common Stock permissible upon consultation with the staff of the SEC; provided, further, that the Company shall not be obligated to pay any liquidated damages if the shares of Common Stock the Company is obligated to register pursuant to the Registration Rights Agreement may be sold without the requirement to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144 under the Securities Act.

 

The description of registration rights is qualified in its entirety by reference to Registration Rights Agreement annexed hereto as Exhibit C.

 

7.           CONDITIONS TO ACCEPTANCE OF SUBSCRIPTION

 

The Company’s right to accept the subscription of the Subscriber is conditioned upon satisfaction of the following conditions precedent on or before the date the Company accepts such subscription:

 

(a)           As of the Closing, no legal action, suit or proceeding shall be pending that seeks to restrain or prohibit the transactions contemplated by this Agreement.

 

(b)           The representations and warranties of the Company contained in this Agreement shall have been true and correct in all material respects on the date of this Agreement and shall be true and correct as of the Closing as if made on the Closing Date.

 

	
8.

	
MISCELLANEOUS PROVISIONS

 

(a)           All parties hereto have been represented by counsel, and no inference shall be drawn in favor of or against any party by virtue of the fact that such party’s counsel was or was not the principal draftsman of this Agreement.

 

(b)           Each of the parties hereto shall be responsible to pay the costs and expenses of its own legal counsel in connection with the preparation and review of this Agreement and related documentation.

 

  

-12-

  

(c)           Neither this Agreement, nor any provisions hereof, shall be waived, modified, discharged or terminated except by an instrument in writing signed by the party against whom any waiver, modification, discharge or termination is sought.

 

(d)           The representations, warranties and agreement of the Subscriber and the Company made in this Agreement shall survive the execution and delivery of this Agreement and the delivery of the Securities.

 

(e)           Any party may send any notice, request, demand, claim or other communication hereunder to the Subscriber at the address set forth on the signature page of this Agreement or to the Company at its primary office (including personal delivery, expedited courier, messenger service, fax, ordinary mail or electronic mail), but no such notice, request, demand, claim or other communication will be deemed to have been duly given unless and until it actually is received by the intended recipient. Any party may change the address to which notices, requests, demands, claims and other communications hereunder are to be delivered by giving the other parties written notice in the manner herein set forth.

 

(f)           Except as otherwise provided herein, this Agreement shall be binding upon, and inure to the benefit of, the parties to this Agreement and their heirs, executors, administrators, successors, legal representatives and assigns.  If the Subscriber is more than one person or entity, the obligation of the Subscriber shall be joint and several and the agreements, representations, warranties and acknowledgments contained herein shall be deemed to be made by, and be binding upon, each such person or entity and its heirs, executors, administrators, successors, legal representatives and assigns. This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of any and every nature among them.

 

(g)           This Agreement is not transferable or assignable by the Subscriber.

 

(h)           This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to conflicts of law principles.

 

(i)           The Company and the Subscriber hereby agree that any dispute that may arise between them arising out of or in connection with this Agreement shall be adjudicated before a court located in the City of New York, Borough of Manhattan, and they hereby submit to the exclusive jurisdiction of the federal and state courts of the State of New York located in the City of New York, Borough of Manhattan with respect to any action or legal proceeding commenced by any party, and irrevocably waive any objection they now or hereafter may have respecting the venue of any such action or proceeding brought in such a court or respecting the fact that such court is an inconvenient forum, relating to or arising out of this Agreement or any acts or omissions relating to the sale of the securities hereunder, and consent to the service of process in any such action or legal proceeding by means of registered or certified mail, return receipt requested, postage prepaid, in care of the address set forth herein or such other address as either party shall furnish in writing to the other.

 

(j)           WAIVER OF JURY TRIAL.  IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

 

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

 

[Signature Pages Follow]

  

-13-

  

ALL SUBSCRIBERS MUST COMPLETE THIS PAGE

IN WITNESS WHEREOF, the Subscriber has executed this Agreement on the ____ day of _____, 2013.

 

	  	
x  $[__]  for per Share      =

	  
	
Shares subscribed for

	  	
      Aggregate Purchase Price

The undersigned Subscriber hereby elects to purchase Securities in the form of:

 

 ̈ Common Stock

 

 ̈ Series F Preferred Stock (by 5% or greater holders only)

 

Manner in which Title is to be held (Please Check One):

 

	
1.

	
___

	
Individual

	
7.

	
___

	
Trust/Estate/Pension or Profit sharing Plan

Date Opened:______________

	
2.

	
___

	
Joint Tenants with Right of Survivorship

	
8.

	
___

	
As a Custodian for

________________________________

Under the Uniform Gift to Minors Act of the State of

________________________________

	
3.

	
___

	
Community Property

	
9.

	
___

	
Married with Separate Property

	
4.

	
___

	
Tenants in Common

	
10.

	
___

	
Keogh

	
5.

	
___

	
Corporation/Partnership/ Limited Liability Company

	
11.

	
___

	
Tenants by the Entirety

	
6.

	
___

	
IRA

	  	  	  

ALTERNATIVE DISTRIBUTION INFORMATION

 

To direct distribution to a party other than the registered owner, complete the information below. YOU MUST COMPLETE THIS SECTION IF THIS IS AN IRA INVESTMENT.

 

Name of Firm (Bank, Brokerage, Custodian):

 

Account Name:

 

Account Number:

 

Representative Name:

 

Representative Phone Number:

 

Address:

 

City, State, Zip:

 

  

-14-

  

IF MORE THAN ONE SUBSCRIBER, EACH SUBSCRIBER MUST SIGN.

 

INDIVIDUAL SUBSCRIBERS MUST COMPLETE THIS PAGE 14.

 

SUBSCRIBERS WHICH ARE ENTITIES MUST COMPLETE PAGE 15.

 

EXECUTION BY NATURAL PERSONS

 

	
_____________________________________________________________________________

Exact Name in Which Title is to be Held

 

	
_________________________________

Name (Please Print)

	  	
_________________________________

Name of Additional Purchaser

	
_________________________________

Residence: Number and Street

	  	
_________________________________

Address of Additional Purchaser

	
_________________________________

City, State and Zip Code

	  	
_________________________________

City, State and Zip Code

	
_________________________________

Social Security Number

	  	
_________________________________

Social Security Number

	
_________________________________

Telephone Number

	  	
_________________________________

Telephone Number

	
_________________________________

Fax Number (if available)

	  	
________________________________

Fax Number (if available)

	
_________________________________

E-Mail (if available)

	  	
________________________________

E-Mail (if available)

	
__________________________________

(Signature)

 

 

	  	
________________________________

(Signature of Additional Purchaser)

	
ACCEPTED this ___ day of _________ 2013, on behalf of the Company.

	  	
 

By:_________________________________

Name:

Title:

	  	  

 

[SIGNATURE PAGE FOR SUBSCRIPTION AGREEMENT]

  

-15-

  

EXECUTION BY SUBSCRIBER WHICH IS AN ENTITY

(Corporation, Partnership, LLC, Trust, Etc.)

 

	
_____________________________________________________________________________

Name of Entity (Please Print)

	
Date of Incorporation or Organization:

	
State of Principal Office:

	
Federal Taxpayer Identification Number:

____________________________________________

Office Address

 

____________________________________________

City, State and Zip Code

 

____________________________________________

Telephone Number

 

____________________________________________

Fax Number (if available)

 

____________________________________________

E-Mail (if available)

 

	  	
By: _________________________________

Name:

Title:

	
[seal]

Attest: _________________________________

(If Entity is a Corporation)

	
_________________________________

_________________________________

Address

	  	  
	
ACCEPTED this ____ day of __________ 2013, on behalf of the Company.

	  	
 

 

By: _________________________________

Name:

Title:

 

[SIGNATURE PAGE FOR SUBSCRIPTION AGREEMENT]

 

  

-16-

  

 

INVESTOR QUESTIONNAIRE

 

Instructions:  Check all boxes below which correctly describe you.

 

	
o

	
You are (i) a bank, as defined in Section 3(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), (ii) a savings and loan association or other institution, as defined in Section 3(a)(5)(A) of the Securities Act, whether acting in an individual or fiduciary capacity, (iii) a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (iv) an insurance company as defined in Section 2(13) of the Securities Act, (v) an investment company registered under the Investment Company Act of 1940, as amended (the “Investment Company Act”), (vi) a business development company as defined in Section 2(a)(48) of the Investment Company Act, (vii) 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, as amended, (viii) a plan established and maintained by a state, its political subdivisions, or an agency or instrumentality of a state or its political subdivisions, for the benefit of its employees and you have total assets in excess of $5,000,000, or (ix) an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and (1) the decision that you shall subscribe for and purchase shares of common stock or preferred stock, is made by a plan fiduciary, as defined in Section 3(21) of ERISA, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or (2) you have total assets in excess of $5,000,000 and the decision that you shall subscribe for and purchase the Shares is made solely by persons or entities that are accredited investors, as defined in Rule 501 of Regulation D promulgated under the Securities Act (“Regulation D”) or (3) you are a self-directed plan and the decision that you shall subscribe for and purchase the Securities is made solely by persons or entities that are accredited investors.

 

	
o

	
You are a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940, as amended.

 

	
o

	
You are an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation, Massachusetts or similar business trust or a partnership, in each case not formed for the specific purpose of making an investment in the Securities  and its underlying securities in excess of $5,000,000.

 

	
o

	
You are a director or executive officer of the Company.

 

	
o

	
You are a natural person whose individual net worth, or joint net worth with your spouse, exceeds $1,000,000 (excluding residence) at the time of your subscription for and purchase of the Securities.

 

	
o

	
You are a natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with your spouse in excess of $300,000 in each of the two most recent years, and who has a reasonable expectation of reaching the same income level in the current year.

 

	
o

	
You are a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Securities and whose subscription for and purchase of the Securities is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D.

 

	
o

	
You are an entity in which all of the equity owners are persons or entities described in one of the preceding paragraphs.

 

  

-17-

  

Check all boxes below which correctly describe you.

 

With respect to this investment in the Securities, your:

 

Investment Objectives:        p Aggressive Growth       p Speculation

 

Risk Tolerance:                  o Low Risk           o Moderate Risk   p High Risk

 

Are you associated with a FINRA Member Firm?                o Yes                       o No

 

	
  

	
Your initials (purchaser and co-purchaser, if applicable) are required for each item below:

 

	
____   ____ 

	
I/We understand that this investment is not guaranteed.

 

	
____   ____ 

	
I/We are aware that this investment is not liquid.

 

	
____   ____ 

	
I/We are sophisticated in financial and business affairs and are able to evaluate the risks and merits of an investment in this offering.

 

	
____   ____ 

	
I/We confirm that this investment is considered “high risk.” (This type of investment is considered high risk due to the inherent risks including lack of liquidity and lack of diversification.  Success or failure of private placements such as this is dependent on the corporate issuer of these securities and is outside the control of the investors. While potential loss is limited to the amount invested, such loss is possible.)

 

 

The Subscriber hereby represents and warrants that all of its answers to this Investor Questionnaire are true as of the date of its execution of the Subscription Agreement pursuant to which it purchased the Securities.

 

	
 

 

___________________________________

Name of Purchaser  [please print]

___________________________________

Signature of Purchaser (Entities please

provide signature of Purchaser’s duly

authorized signatory.)

___________________________________

Name of Signatory (Entities only)

___________________________________

Title of Signatory (Entities only)

	
 

 

___________________________________

Name of Co-Purchaser  [please print]

___________________________________

Signature of Co-Purchaser

 

[SIGNATURE PAGE FOR INVESTOR QUESTIONNAIRE]

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