Document:

Unassociated Document

 

NOTE AND WARRANT PURCHASE AGREEMENT

THIS NOTE AND WARRANT PURCHASE AGREEMENT, dated as of June 29, 2011 (this “Agreement”), is entered into by and between MUSCLEPHARM CORPORATION, a Nevada corporation (the “Company”), and INTER-MOUNTAIN CAPITAL CORP., a Delaware corporation, its successors or assigns (the “Buyer”).

WITNESSETH:

WHEREAS, the Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, under Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933 Act”), and/or Section 4(2) of the 1933 Act; and

WHEREAS, the Buyer wishes to acquire from the Company, and the Company desires to issue and sell to the Buyer, the Warrant (as defined below) and the Note (as defined below), which Note will be convertible into shares of common stock of the Company, par value $0.001 per share (the “Common Stock”), upon the terms and subject to the conditions of the Note, the Warrant, this Agreement and the other Transaction Documents (as defined below).

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

1.           CERTAIN DEFINITIONS. As used herein, each of the following terms has the meaning set forth below, unless the context otherwise requires:

“Affiliate” means, with respect to a specific Person referred to in the relevant provision, another Person who or which controls or is controlled by or is under common control with such specified Person.

“Buyer’s Counsel” means Carman Lehnhof Israelsen LLP.

“Buyer Control Person” means each manager, executive officer, promoter, and such other Persons as may be deemed in control of the Buyer pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act (as defined below).

“Certificate of Incorporation” means the certificate of incorporation, articles of incorporation or other charter document (howsoever denominated) of the Company, as amended to date.

“Closing Date” means the date of the closing of the purchase and sale of the Note and the Warrant.

 “Company Control Person” means each director, executive officer, promoter, and such other Persons as may be deemed in control of the Company pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act.

“Company Counsel” means Lucosky Brookman LLP.

“Company’s SEC Documents” means the Company’s filings on the SEC’s EDGAR system.

  

 

  

“Conversion Date” means the date a Holder submits a Notice of Conversion, as provided in the Note.

“Conversion Shares” means the shares of Common Stock issuable upon conversion of the Note and/or in payment of accrued interest, as contemplated in the Note.

“Delivery Date” has the meaning ascribed to it in the Note (with respect to Conversion Shares) or the Warrant (with respect to Warrant Shares).

“Holder” means the Person holding the relevant Securities at the relevant time.

“Last Audited Date” means December 31, 2010.

“Material Adverse Effect” means an event or combination of events, which individually or in the aggregate, would reasonably be expected to (a) adversely affect the legality, validity or enforceability of the Note, the Warrant or any of the Transaction Documents, (b)  have or result in a material adverse effect on the results of operations, assets, or financial condition of the Company and its subsidiaries, taken as a whole, or (c) adversely impair the Company’s ability to perform fully on a timely basis its material obligations under any of the Transaction Documents or the transactions contemplated thereby.

“Maturity Date” has the meaning ascribed to it in the Note.

“Person” means any living person or any entity, such as, but not necessarily limited to, a corporation, partnership or trust.

“Principal Trading Market” means (a) NYSE Amex, (b) the New York Stock Exchange, (c) the Nasdaq Global Market, (d) the Nasdaq Capital Market, (e) the OTC Bulletin Board, (f) the OTCQX or OTCQB, or (g) such other market on which the Common Stock is principally traded at the relevant time, but shall not include the “pink sheets.”

 “Rule 144” means (a) Rule 144 promulgated under the 1933 Act or (b) any other similar rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration under the 1933 Act.

“Securities” means the Note, the Warrant and the Shares.

“Shares” means the shares of Common Stock representing any or all of the Conversion Shares and the Warrant Shares.

“State of Incorporation” means Nevada.

“Subsidiary” means, as of the relevant date, any subsidiary of the Company (whether or not included in the Company’s SEC Documents) whether now existing or hereafter acquired or created.

“Trading Day” means any day during which the Principal Trading Market shall be open for business.

  

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“Transaction Documents” means this Agreement, the Note, the Security Agreement (defined below), each of the Buyer Trust Deed Notes (defined below), the Trust Deed (defined below), the Request (defined below), the Escrow Agreement (defined below), the Transfer Agent Letter (defined below), the Warrant, the Confession (as defined below), and all other certificates, documents, agreements, resolutions and instruments delivered to any party under or in connection with this Agreement.

“Transfer Agent” means, at any time, the transfer agent for the Common Stock.

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrant.

“Wire Instructions” means the wire instructions for the Initial Cash Purchase Price (as defined below), as provided by the Company, set forth on Annex I.

2.           AGREEMENT TO PURCHASE; PURCHASE PRICE.

a.           Purchase.

(i)           Subject to the terms and conditions of this Agreement and the other Transaction Documents, the undersigned Buyer hereby agrees to enter into a Secured Convertible Promissory Note in the principal amount of $2,651,000.00 substantially in the form attached hereto as Annex II (the “Note”). The Note shall be secured by a Security Agreement substantially in the form attached hereto as Annex III listing each of the Buyer Trust Deed Notes as security for the Company’s obligations under the Transaction Documents (the “Security Agreement”). In consideration thereof, the Buyer shall (1) pay the principal amount indicated as the “Initial Cash Purchase Price” set forth on the Buyer’s signature page to this Agreement (the “Initial Cash Purchase Price”) and (2) issue to the Company the Buyer Trust Deed Notes (the sum of the principal amounts of the Buyer Trust Deed Notes, together with the Initial Cash Purchase Price, the “Purchase Price”), which Buyer Trust Deed Notes shall be secured by a Trust Deed substantially in the form attached hereto as Annex IV (the “Trust Deed”) or such substitute collateral as determined by the Buyer in its sole discretion. The Company shall also execute and deliver to the Escrow Agent (as defined in the Escrow Agreement) a Request for Full Reconveyance (the “Request”) substantially in the form attached hereto as Annex V.  The Initial Cash Purchase Price shall be paid in accordance with the Wire Instructions. The Initial Cash Purchase Price is allocated to the Note, the OID (as defined below), and the Warrant as set forth in the table in Annex VI attached hereto.

(ii)          In consideration for the Initial Cash Purchase Price, the Company shall also issue to the Buyer a Warrant to Purchase Shares of Common Stock in the form attached hereto as Annex VII (the “Warrant”) and execute and deliver to the Buyer a Confession of Judgment substantially in the form attached hereto as Annex VIII (the “Confession”).

(iii)         The Request shall be held in escrow in accordance with the terms of the Escrow Agreement substantially in the form attached hereto as Annex IX (the “Escrow Agreement”).

 

 

(iv)        The Company shall also execute and deliver to the Transfer Agent, and the Transfer Agent shall execute to indicate its acceptance thereof, the irrevocable transfer agent instruction letter substantially in the form attached hereto as Annex X (the “Transfer Agent Letter”).

(v)         At the Closing (as defined below), the Buyer shall deliver to the Company the following:

  

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(1)           The Initial Cash Purchase Price;

(2)           A Buyer Trust Deed Note in the principal amount of $200,000.00 substantially in the form attached hereto as Annex XI (“Buyer Trust Deed Note #1”);

(3)           A Buyer Trust Deed Note in the principal amount of $200,000.00 substantially in the form attached hereto as Annex XII (“Buyer Trust Deed Note #2”);

(4)           A Buyer Trust Deed Note in the principal amount of $200,000.00 substantially in the form attached hereto as Annex XIII (“Buyer Trust Deed Note #3”);

(5)           A Buyer Trust Deed Note in the principal amount of $200,000.00 substantially in the form attached hereto as Annex XIV (“Buyer Trust Deed Note #4”);

(6)           A Buyer Trust Deed Note in the principal amount of $200,000.00 substantially in the form attached hereto as Annex XV (“Buyer Trust Deed Note #5”);

(7)           A Buyer Trust Deed Note in the principal amount of $200,000.00 substantially in the form attached hereto as Annex XVI (“Buyer Trust Deed Note #6”);

(8)           A Buyer Trust Deed Note in the principal amount of $200,000.00 substantially in the form attached hereto as Annex XVII (“Buyer Trust Deed Note #7”);

(9)           A Buyer Trust Deed Note in the principal amount of $200,000.00 substantially in the form attached hereto as Annex XVIII (“Buyer Trust Deed Note #8”);

(10)         A Buyer Trust Deed Note in the principal amount of $200,000.00 substantially in the form attached hereto as Annex XIX (“Buyer Trust Deed Note #9”);

(11)         A Buyer Trust Deed Note in the principal amount of $200,000.00 substantially in the form attached hereto as Annex XX (“Buyer Trust Deed Note #10,” and together with Buyer Trust Deed Note #1, Buyer Trust Deed Note #2, Buyer Trust Deed Note #3, Buyer Trust Deed Note #4, Buyer Trust Deed Note #5, Buyer Trust Deed Note #6, Buyer Trust Deed Note #7, Buyer Trust Deed Note #8, and Buyer Trust Deed Note #9, the “Buyer Trust Deed Notes”); and

(12)         The Trust Deed.

(vi)        Notwithstanding anything to the contrary herein, the Buyer may, in its sole discretion, add additional collateral to the collateral covered by the Trust Deed (the “Collateral”) or substitute collateral as it deems fit provided that the fair market value of the Collateral is not less than the principal balance of the Buyer Trust Deed Notes as of the date of any such substitution.  In the event of a substitution of collateral, the Buyer shall timely execute any and all documents necessary or advisable in order to properly grant a first priority security interest upon the substitute collateral in favor of the Company and take such other measures as are necessary or advisable in order to accomplish the intent of the Transaction Documents.

b.           Form of Payment; Delivery of Note and Warrant. The purchase and sale of the Note and the Warrant shall take place at a closing (the “Closing”) to be held at the offices of the Buyer on the Closing Date.  At the Closing, the Company will deliver to the Buyer the Transaction Documents against delivery by the Buyer to the Company of the Initial Cash Purchase Price and the Buyer Trust Deed Notes.

  

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c.           Initial Cash Purchase Price. The Note carries an original issue discount of $241,000.00 (the “OID”).  In addition, the Company agrees to pay $15,000.00 ($5,000.00 of which has been previously paid to the Buyer) to the Buyer to cover the Buyer’s legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the purchase and sale of the Securities, $10,000.00 of which amount is included in the initial principal balance of the Note (the “Transaction Expenses”).  The Initial Cash Purchase Price, therefore, shall be $400,000.00, computed as follows: $2,651,000.00 less the OID less the Transaction Expenses less the sum of initial principal amounts of the Buyer Trust Deed Notes.

3.           BUYER REPRESENTATIONS AND WARRANTIES.

The Buyer represents and warrants to, and covenants and agrees with, the Company, as of the date hereof and as of the Closing Date, as follows:

a.           Binding Obligation. The Transaction Documents to which the Buyer is a party, and the transactions contemplated hereby and thereby, have been duly and validly authorized by the Buyer.  This Agreement has been executed and delivered by the Buyer, and this Agreement is, and each of the other Transaction Documents to which the Buyer is a party, when executed and delivered by the Buyer (if necessary), will be valid and binding obligations of the Buyer enforceable in accordance with their respective terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors’ rights generally.

b.           Accredited Investor Status. The Buyer is an “accredited investor” as that term is defined in Regulation D.

4.           COMPANY REPRESENTATIONS AND WARRANTIES.   The Company represents and warrants to the Buyer as of the date hereof and as of the Closing Date that:

a.           Rights of Others Affecting the Transactions.  There are no preemptive rights of any stockholder of the Company, as such, to acquire the Securities.  No other party has a currently exercisable right of first refusal which would be applicable to any or all of the transactions contemplated by the Transaction Documents.

b.           Status.  The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Incorporation and has the requisite corporate power to own its properties and to carry on its business as now being conducted.  The Company is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have or result in a Material Adverse Effect.  The Company has registered its stock under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), and is obligated to file reports pursuant to Section 13 or Section 15(d) of the 1934 Act.   The Company has taken no action designed to terminate, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the 1934 Act, nor has the Company received any notification that the SEC is contemplating terminating such registration.  The Common Stock is quoted on the Principal Trading Market.  The Company has received no notice, either oral or written, with respect to the continued eligibility of the Common Stock for quotation on the Principal Trading Market, and the Company has maintained all requirements on its part for the continuation of such quotation. The Company has not, in the twelve (12) months preceding the date hereof, received notice from the Principal Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Principal Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.

  

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c.            Authorized Shares.

 

(i)           The authorized capital stock of the Company consists of 10,000,000 shares of Series A Convertible Preferred Stock, $0.001 par value per share, no shares of which have been issued, and 500,000,000 shares of Common Stock, of which approximately 167,610,888 are outstanding. Of the outstanding shares of Common Stock, approximately _______________ shares are beneficially owned by Affiliates of the Company.

(ii)         Other than as set forth in the Company’s SEC Documents, there are no outstanding securities which are convertible into or exchangeable for shares of Common Stock, whether such conversion is currently exercisable or exercisable only upon some future date or the occurrence of some event in the future.

(iii)        All issued and outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid and non-assessable.  After considering all other commitments that may require the issuance of Common Stock, the Company has sufficient authorized and unissued shares of Common Stock as may be necessary to effect the issuance of the Shares on the Closing Date, were (1) the Note issued and fully converted on that date and (2) the Warrant issued and fully exercised on that date.

(iv)        The Shares have been duly authorized by all necessary corporate action on the part of the Company, and, when issued (1) on conversion of, or in payment of interest on the Note, or (2) upon exercise of the Warrant, in each case in accordance with their respective terms, will have been duly and validly issued, fully paid and non-assessable, free from all taxes, liens, claims, pledges, mortgages, restrictions, obligations, security interests and encumbrances of any kind, nature and description, and will not subject the Holder thereof to personal liability by reason of being a Holder.

(v)         The Conversion Shares and Warrant Shares are enforceable against the Company and the Company presently has no claims or defenses of any nature whatsoever with respect to the Conversion Shares or the Warrant Shares.

d.            Transaction Documents and Stock.  This Agreement and each of the other Transaction Documents, and the transactions contemplated hereby and thereby, have been duly and validly authorized by the Company. This Agreement has been duly executed and delivered by the Company and this Agreement is, and the Note, the Security Agreement, the Warrant, the Request, the Escrow Agreement and each of the other Transaction Documents, when executed and delivered by the Company (if necessary), will be, valid and binding obligations of the Company enforceable in accordance with their respective terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium, and other similar laws affecting the enforcement of creditors’ rights generally.

e.            Non-contravention.  The execution and delivery of this Agreement and each of the other Transaction Documents by the Company, the issuance of the Securities in accordance with the terms hereof and thereof, and the consummation by the Company of the other transactions contemplated by this Agreement, the Note, the Security Agreement, the Warrant, the Request, the Escrow Agreement and the other Transaction Documents do not and will not conflict with or result in a breach by the Company of any of the terms or provisions of, or constitute a default under (i) the Certificate of Incorporation or bylaws of the Company, each as currently in effect, (ii) any indenture, mortgage, deed of trust, or other material agreement or instrument to which the Company is a party or by which it or any of its properties or assets are bound, including any listing agreement for the Common Stock except as herein set forth, or (iii) to its knowledge, any existing applicable law, rule, or regulation or any applicable decree, judgment, or order of any court, United States federal or state regulatory body, administrative agency, or other governmental body having jurisdiction over the Company or any of its properties or assets, except such conflict, breach or default which would not have or result in a Material Adverse Effect.

  

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f.           Approvals.  No authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market or the stockholders of the Company is required to be obtained by the Company for the issuance and sale of the Securities to the Buyer as contemplated by this Agreement, except such authorizations, approvals and consents that have been obtained.

g.           Filings; Financial Statements.  None of the Company’s SEC Documents contained, at the time they were filed, any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company with the SEC under the 1934 Act on a timely basis or has received a valid extension of such time of filing and has filed any such report, schedule, form, statement or other document prior to the expiration of any such extension.  As of their respective dates, the financial statements of the Company included in the Company’s SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto.  Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).  No other information provided by or on behalf of the Company to the Buyer which is not included in the Company’s SEC Documents, including, without limitation, information referred to in this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstance under which they are or were made, not misleading.

h.           Absence of Certain Changes.  Since the Last Audited Date, there has been no Material Adverse Effect, except as disclosed in the Company’s SEC Documents. Since the Last Audited Date, except as provided in the Company’s SEC Documents, the Company has not (i) incurred or become subject to any material liabilities (absolute or contingent) except liabilities incurred in the ordinary course of business consistent with past practices; (ii) discharged or satisfied any material lien or encumbrance or paid any material obligation or liability (absolute or contingent), other than current liabilities paid in the ordinary course of business consistent with past practices; (iii) declared or made any payment or distribution of cash or other property to stockholders with respect to its capital stock, or purchased or redeemed, or made any agreements to purchase or redeem, any shares of its capital stock; (iv) sold, assigned or transferred any other material tangible assets, or canceled any material debts owed to the Company by any third party or material claims of the Company against any third party, except in the ordinary course of business consistent with past practices; (v) waived any rights of material value, whether or not in the ordinary course of business, or suffered the loss of any material amount of existing business; (vi) made any increases in employee compensation, except in the ordinary course of business consistent with past practices; or (vii) experienced any material problems with labor or management in connection with the terms and conditions of their employment.

  

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i.            Full Disclosure.  There is no fact known to the Company or that the Company should know after having made all reasonable inquiries (other than conditions known to the public generally or as disclosed in the Company’s SEC Documents) that has not been disclosed in writing to the Buyer that would reasonably be expected to have or result in a Material Adverse Effect.

j.            Absence of Litigation.  To the knowledge of the Company, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or threatened against or affecting the Company before or by any governmental authority or non-governmental department, commission, board, bureau, agency or instrumentality or any other person, wherein an unfavorable decision, ruling or finding would have a Material Adverse Effect or which would adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, any of the Transaction Documents.  The Company is not aware of any valid basis for any such claim that (either individually or in the aggregate with all other such events and circumstances) could reasonably be expected to have a Material Adverse Effect. There are no outstanding or unsatisfied judgments, orders, decrees, writs, injunctions or stipulations to which the Company is a party or by which it or any of its properties is bound, that involve the transactions contemplated herein or that, alone or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

k.           Absence of Events of Default. Neither the Company nor any of its Subsidiaries is in violation of or in default with respect to (i) its Certificate of Incorporation or bylaws or other organizational documents, each as currently in effect, or, to the knowledge of the Company, any material judgment, order, writ, decree, statute, rule or regulation applicable to such entity; or, (ii) to the knowledge of the Company, any material mortgage, indenture, agreement, instrument or contract to which such entity is a party or by which it or any of its properties or assets are bound (nor is there any waiver in effect which, if not in effect, would result in such a violation or default), except such breach or default which would not have or result in a Material Adverse Effect.

l.            Absence of Certain Company Control Person Actions or Events.  Other than as set forth in the Company’s SEC Documents, none of the following has occurred during the past five (5) years with respect to a Company Control Person:

(i) A petition under the federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such Company Control Person, or any partnership in which he or she was a general partner at or within two (2) years before the time of such filing, or any corporation or business association of which he or she was an executive officer at or within two (2) years before the time of such filing;

(ii) Such Company Control Person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

(iii) Such Company Control Person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him or her from, or otherwise limiting, the following activities:

A. acting, as an investment advisor, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, any other Person regulated by the Commodity Futures Trading Commission (“CFTC”) or engaging in or continuing any conduct or practice in connection with such activity;

  

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B. engaging in any type of business practice; or

C. engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws;

(iv) Such Company Control Person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending or otherwise limiting for more than sixty (60) days the right of such Company Control Person to engage in any activity described in subsection (iii) immediately above, or to be associated with Persons engaged in any such activity; or

(v) Such Company Control Person was found by a court of competent jurisdiction in a civil action or by the CFTC or SEC to have violated any federal or state securities law, and the judgment in such civil action or finding by the CFTC or SEC has not been subsequently reversed, suspended, or vacated.

m.           No Undisclosed Liabilities or Events.  The Company has no liabilities or obligations other than those disclosed in the Transaction Documents or the Company’s SEC Documents or those incurred in the ordinary course of the Company’s business since the Last Audited Date, or which individually or in the aggregate, do not or would not have a Material Adverse Effect.  No event or circumstance has occurred or exists with respect to the Company or its properties, business, operations, condition (financial or otherwise), or results of operations, which, under applicable laws, rules or regulations, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed.  There are no proposals currently under consideration or currently anticipated to be under consideration by the Board of Directors or the executive officers of the Company which proposal would (i) change the Certificate of Incorporation or bylaws of the Company, each as currently in effect, with or without stockholder approval, which change would reduce or otherwise adversely affect the rights and powers of the stockholders of the Common Stock or (ii) materially or substantially change the business, assets or capital of the Company, including its interests in Subsidiaries.

n.            No Integrated Offering.  Neither the Company nor any of its Affiliates nor any Person acting on its or their behalf has, directly or indirectly, made any offer or sale of any security of the Company or solicited any offer to buy any such security under circumstances that would eliminate the availability of the exemption from registration under Regulation D in connection with the offer and sale of the Securities as contemplated hereby.

o.            Dilution.  Each of the Company and its executive officers and directors is aware that the number of shares of Common Stock issuable upon conversion of the Note and exercise of the Warrant, or pursuant to the other terms of the Transaction Documents may have a dilutive effect on the ownership interests of the other stockholders (and Persons having the right to become stockholders) of the Company.  The Company specifically acknowledges that its obligation to issue (i) the Conversion Shares upon conversion of the Note and (ii) the Warrant Shares upon exercise of the Warrant, is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other stockholders of the Company, and the Company will honor such obligations, including honoring every Notice of Conversion (or “Conversion Notice” as contemplated by the Note), unless the Company is subject to an injunction (which injunction was not sought by the Company or any of its directors or executive officers) prohibiting the Company from doing so.

  

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p.            Fees to Brokers, Placement Agents and Others.  The Company has taken no action which would give rise to any claim by any Person for a brokerage commission, placement agent or finder’s fees or similar payments by the Buyer relating to this Agreement or the transactions contemplated hereby.  Except for such fees arising as a result of any agreement or arrangement entered into by the Buyer without the knowledge of the Company (a “Buyer’s Fee”), the Buyer shall have no obligation with respect to such fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this subsection that may be due in connection with the transactions contemplated hereby.  The Company shall indemnify and hold harmless each of the Buyer, its employees, officers, directors, stockholders, managers, agents, and partners, and their respective Affiliates, from and against all claims, losses, damages, costs (including the costs of preparation and attorneys’ fees) and expenses suffered in respect of any such claimed or existing fees (other than a Buyer’s Fee, if any).

q.            Disclosure.  All information relating to or concerning the Company set forth in the Transaction Documents or in the Company’s SEC Documents or other public filings provided by or on behalf of the Company to the Buyer is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.  No event or circumstance has occurred or exists with respect to the Company or its business, properties, prospects, operations or financial conditions, which under applicable laws, rules or regulations, requires public disclosure or announcement by the Company.

r.            Confirmation.  The Company agrees that, if, to the knowledge of the Company, any events occur or circumstances exist prior to the payment of the Purchase Price by the Buyer to the Company which would make any of the Company’s representations or warranties set forth herein materially untrue or materially inaccurate as of such date, the Company shall immediately notify the Buyer in writing prior to such date of such events or circumstances, specifying which representations or warranties are affected and the reasons therefor.

s.            Title. The Company and the Subsidiaries, if applicable, own and have good and marketable title in fee simple absolute to, or a valid leasehold interest in, all their respective real properties and good title to their other respective assets and properties, subject to no liens, claims or encumbrances except as have been disclosed to the Buyer.

t.            Intellectual Property.

(i)           Ownership.  The Company owns or possesses or can obtain on commercially reasonable terms sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses (software or otherwise), information, know-how, inventions, discoveries, published and unpublished works of authorship, processes and any and all other proprietary rights (“Intellectual Property”) necessary to the business of the Company as presently conducted, the lack of which could reasonably be expected to have a Material Adverse Effect.  Except for agreements with its own employees or consultants, standard end-user license agreements, support/maintenance agreements and agreements entered in the ordinary course of the Company’s business, all of which have been made available for review by the Buyer, there are no outstanding options, licenses or agreements relating to the Intellectual Property of the Company, and the Company is not bound by or a party to any options, licenses or agreements with respect to the Intellectual Property of any other person or entity.  The Company has not received any written communication alleging that the Company has violated or, by conducting its business as currently conducted, would violate any of the Intellectual Property of any other person or entity, nor is the Company aware of any basis therefor.  The Company is not obligated to make any payments by way of royalties, fees or otherwise to any owner or licensor of or claimant to any Intellectual Property with respect to the use thereof in connection with the present conduct of its business other than in the ordinary course of its business.  There are no agreements, understandings, instruments, contracts, judgments, orders or decrees to which the Company is a party or by which it is bound which involve indemnification by the Company with respect to infringements of Intellectual Property, other than in the ordinary course of its business.

  

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(ii)           No Breach by Employees.  The Company is not aware that any of its employees is obligated under any contract or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would materially interfere with the use of his or her efforts to promote the interests of the Company or that would conflict with the Company’s business as presently conducted.  Neither the execution nor delivery of this Agreement, nor the carrying on of the Company’s business by the employees of the Company, nor the conduct of the Company’s business as presently conducted, will, to the Company’s knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any such employee is now obligated.  The Company does not believe it is or will be necessary to use any inventions of any of its employees made prior to their employment by the Company of which it is aware.

5.           CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

a.           Covenants and Acknowledgements of the Buyer.

(i)           Transfer Restrictions.  The Buyer acknowledges that (1) the Securities have not been and are not being registered under the provisions of the 1933 Act and, except as included in an effective registration statement, the Shares have not been and are not being registered under the 1933 Act, and may not be transferred unless (A) subsequently registered thereunder, or (B) the Buyer shall have delivered to the Company an opinion of counsel, reasonably satisfactory in form, scope and substance to the Company, to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; (2) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of such Rule and further, if such Rule is not applicable, any resale of such Securities under circumstances in which the seller, or the Person through whom the sale is made, may be deemed to be an underwriter, as that term is used in the 1933 Act, may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (3) neither the Company nor any other Person is under any obligation to register the Securities under the 1933 Act or to comply with the terms and conditions of any exemption thereunder.

(ii)          Restrictive Legend.  The Buyer acknowledges and agrees that, until such time as the relevant Securities have been registered under the 1933 Act, and may be sold in accordance with an effective registration statement, or until such Securities can otherwise be sold without restriction, whichever is earlier, the certificates and other instruments representing any of the Securities shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of any such Securities):

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

  

11

  

(iii)         Confession of Judgment.  The Buyer agrees it will not file the Confession unless and until an a Payment Default or a Share Delivery Default (as defined in the Note) under the Note has occurred; provided, however, that upon such an Payment Default or Share Delivery Default, the Buyer shall be entitled to immediately file such the Confession in an ex parte fashion.

b.           Covenants, Acknowledgements and Agreements of the Company. As a condition to the Buyer’s obligation to purchase the Securities contemplated by this Agreement, and as a material inducement for the Buyer to enter into this Agreement and the other Transaction Documents, until all of the Company’s obligations hereunder and the Note are paid and performed in full and the Warrant is exercised in full, or within the timeframes otherwise specifically set forth below, the Company shall comply with the following covenants:

(i)           Filings.  From the date hereof until the date that is six (6) months after all the Conversion Shares and Warrant Shares either have been sold by the Buyer, or may permanently be sold by the Buyer without any restrictions pursuant to Rule 144 (the “Registration Period”), the Company shall  timely make all filings required to be made by it under the 1933 Act, the 1934 Act, Rule 144 or any United States state securities laws and regulations thereof applicable to the Company or by the rules and regulations of the Principal Trading Market, and such filings shall conform to the requirements of applicable laws, regulations and government agencies, and, unless such filings are publicly available on the SEC’s EDGAR system (via the SEC’s web site at no additional charge), the Company shall provide a copy thereof to the Buyer promptly after such filings.  Additionally, within four (4) business days following the date of this Agreement, the Company shall file a current report on Form 8-K describing the terms of the transactions contemplated by the Transaction Documents in the form required by the 1934 Act and approved by the Buyer and attaching the material Transaction Documents as exhibits to such filing. The Company shall further redact all confidential information from such Form 8-K.   Additionally, the Company shall furnish to the Buyer, so long as the Buyer owns any Securities, promptly upon request, (1) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (2) a copy of the most recent annual or quarterly report of the Company, and (3) such other information as may be reasonably requested to permit the Buyer to sell such Securities pursuant to Rule 144 without registration.

(ii)          Reporting Status.  So long as the Buyer beneficially owns Securities and for at least twenty (20) Trading Days thereafter, the Company shall file all reports required to be filed with the SEC pursuant to Sections 13 or 15(d) of the 1934 Act, and shall take all reasonable action under its control to ensure that adequate current public information with respect to the Company, as required in accordance with Rule 144, is publicly available, and shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would permit such termination.

(iii)         Listing.  The Common Stock shall be listed or quoted for trading on any of (1) NYSE Amex, (2) the New York Stock Exchange, (3) the Nasdaq Global Market, (4) the Nasdaq Capital Market, (5) the OTC Bulletin Board, or (6) the OTCQX or OTCQB. The Company shall promptly secure the listing of all of the Conversion Shares and Warrant Shares upon each national securities exchange and automated quotation system, if any, upon which the Common Stock is then listed (subject to official notice of issuance) and shall maintain such listing of all securities from time to time issuable under the terms of the Transaction Documents. The Company shall comply in all material respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Principal Trading Market and/or the Financial Industry Regulatory Authority, Inc. (“FINRA”) or any successor thereto, as the case may be, applicable to it at least through the date which is sixty (60) days after the later of (1) the date on which the Note has been converted or paid in full, or (2) the date on which the Warrant has been exercised in full.

  

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(iv)        Use of Proceeds.  The Company shall use the net proceeds received hereunder for working capital and general corporate purposes only; provided, however, the Company will not use such proceeds to pay fees payable (1) to any broker or finder relating to the offer and sale of the Note and the Warrant, or (2) to any other party relating to any financing transaction effected prior to the Closing Date.

(v)         Publicity, Filings, Releases, Etc.  Neither party shall disseminate any information relating to the Transaction Documents or the transactions contemplated thereby, including issuing any press releases, holding any press conferences or other forums, or filing any reports (collectively, “Publicity”), without giving the other party reasonable advance notice and an opportunity to comment on the contents thereof.  Neither party will include in any such Publicity any statement or statements or other material to which the other party reasonably objects, unless in the reasonable opinion of counsel to the party proposing such statement, such statement is legally required to be included.  “Publicity” for the purposes hereof shall not include any statement or dissemination made in any Form 8-K or a quarterly or annual report on Form 10-Q or 10-K, as the case may be, made with the SEC which refers to the Transaction Documents or the transactions contemplated thereby, which such statements and disseminations shall be expressly permitted.

(vi)        FINRA Rule 5110. In the event that the Corporate Financing Rule 5110 of FINRA is or becomes applicable to the transactions contemplated by the Transaction Documents or to the sale by a Holder of any of the Securities, then the Company shall, to the extent required by such rule, timely make any filings and cooperate with any broker or selling stockholder in respect of any consents, authorizations or approvals that may be necessary for FINRA to timely and expeditiously permit the Holder to sell the Securities.

 

(vii)       Keeping of Records and Books of Account. The Company shall keep and cause each Subsidiary to keep adequate records and books of account, in which complete entries shall be made in accordance with GAAP consistently applied, reflecting all financial transactions of the Company and such Subsidiaries, and in which, for each fiscal year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in connection with its business shall be made.

(viii)      Corporate Existence.  The Company shall (1) do all things necessary to preserve and keep in full force and effect its corporate existence, including, without limitation, preserving and keeping in full force and effect all licenses or similar qualifications required by it to engage in its business in all jurisdictions in which it is at the time so engaged; (2) continue to engage in business of the same general type as conducted as of the date hereof; and (3) continue to conduct its business substantially as now conducted or as otherwise permitted hereunder.

(ix)         Taxes.  The Company shall pay and discharge promptly when due all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property before the same shall become delinquent or in default, which, if unpaid, might reasonably be expected to give rise to liens or charges upon such properties or any part thereof, unless, in each case, the validity or amount thereof is being contested in good faith by appropriate proceedings and the Company has maintained adequate reserves with respect thereto in accordance with GAAP.

(x)          Compliance. The Company shall comply in all material respects with all federal, state and local laws and regulations, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations and requirements (collectively, “Requirements”) of all governmental bodies, insurers, departments, commissions, boards, courts, authorities, officials or officers which are applicable to the Company, its business, operations, or any of its properties, except where the failure to so comply would not have a Material Adverse Effect on the Company or any of its properties; provided, however, that nothing provided herein shall prevent the Company from contesting in good faith the validity or the application of any Requirements.

  

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(xi)         3(a)(10) Shares.  In the event the Company, in violation of the covenants contained herein, ever ceases to be a reporting company for purposes of the 1934 Act for any period of time, then the Company, for so long as Rule 144 is not available to the Buyer as an exemption from registration, shall cause any of its stockholders who at such time are in possession of Common Stock tradable under Section 3(a)(10) of the Securities Act (“3(a)(10) Shares”) to cease to sell such 3(a)(10) Shares.

(xii)        Litigation.  From and after the date hereof and until all of the Company’s obligations hereunder and the Note is paid and performed in full and the Warrant is exercised in full, the Company shall notify the Buyer in writing, promptly upon learning thereof, of any litigation or administrative proceeding commenced or threatened against the Company involving a claim in excess of $250,000.00.

(xiii)       Performance of Obligations.  The Company shall promptly and in a timely fashion perform and honor all demands, notices, requests and obligations that exist or may arise under the Transaction Documents.

(xiv)       Failure to Make Timely Filings.  The Company agrees that, if the Company fails to timely file (utilizing any applicable extensions permitted by the SEC) on the SEC’s EDGAR system any information required to be filed by it, whether on a Form 10-K, Form 10-Q, Form 8-K, Proxy Statement or otherwise so as to be deemed a “reporting issuer” with current public information under the 1934 Act, the Company shall be liable to pay to the Holder an amount based on the following schedule (where “No. Business Days Late” refers to each Trading Day after the latest due date for the relevant filing):

  

	  	 	
Late Filing Payment For

	 
	  	 	
Each $10,000.00 of

	 
	
No. Business Days Late

	 	
Outstanding Principal funded under the Note

	 
	  	 	 	 
	
    1

	 	$	100.00	 
	
    2

	 	$	200.00	 
	
    3

	 	$	300.00	 
	
    4

	 	$	400.00	 
	
    5

	 	$	500.00	 
	
    6

	 	$	600.00	 
	
    7

	 	$	700.00	 
	
    8

	 	$	800.00	 
	
    9

	 	$	900.00	 
	
  10

	 	$	1,000.00	 
	
>10

	 	
$1,000.00 + $200.00 for each Trading Day Late beyond 10 days

	 

The Company shall pay any payments incurred under this subsection in immediately available funds upon demand by the Holder; provided, however, that the Holder making the demand may specify that the payment shall be made in shares of Common Stock at the Conversion Price (as defined in the Note) applicable to the date of such demand.  If the payment is to be made in shares of Common Stock, such shares shall be considered Conversion Shares under the Note, with the “Delivery Date” for such shares being determined from the date of such demand. The demand for payment of such amount in shares of Common Stock shall be considered a “Conversion Notice” (but the delivery of such shares shall be in payment of the amount contemplated by this subsection and not in payment of any principal or interest on the Note).

  

14

  

 

(xv)       Authorized Shares.  The Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, such number of shares of Common Stock as shall be necessary to effect the full conversion of the Note and the full exercise of the Warrant multiplied by 1.5 (the “Share Reserve”). If at any time the Share Reserve is insufficient to effect the full conversion of the Note and exercise of the Warrant, the Company shall immediately increase the Share Reserve accordingly. If the Company does not have sufficient authorized and unissued shares of Common Stock available to increase the Share Reserve, the Company shall call and hold a special meeting of the stockholders within thirty (30) days of such occurrence, for the sole purpose of increasing the number of authorized shares of Common Stock. The Company’s management shall recommend to the Company’s stockholders to vote in favor of increasing the number of authorized shares of Common Stock.  Management shall also vote all of its shares in favor of increasing the number of authorized shares of Common Stock. The Company shall use its best efforts to cause such additional shares of Common Stock to be authorized so as to comply with the requirements of this Section.

(xvi)      DWAC Eligibility. For so long as (1) any portion of the Note remains outstanding, or (2) any portion of the Warrant remains unexercised, the Company shall use its best efforts to maintain DWAC eligibility. In the event the Company is not DWAC eligible or does not otherwise deliver Shares to the Buyer pursuant to a conversion of all or any portion of the Note or an exercise of all or any portion of the Warrant, the outstanding principal balance of the Note shall increase by an amount equal to the decline in value of the Shares, if any, between the time the applicable Conversion Notice or exercise notice (delivered pursuant to the Warrant) (a “Notice of Exercise”) was delivered to the Company and the time such Shares are freely tradeable in the Buyer’s brokerage account.

 

(xvii)     Anti-Dilution Certification.  For so long as (1) any portion of the Note remains outstanding, or (2) any portion of the Warrant remains unexercised, the Company shall deliver to the Buyer on or before the 10th day of each month a certification in the form attached hereto as Annex XXI whereby the Company shall notify the Buyer of any events that occurred during the previous month that trigger anti-dilution protection or other adjustments to the applicable Conversion Price (as defined in the Note) or the Exercise Price (as defined in the Warrant) (collectively, “Adjustment Events”) under the Note or the Warrant or, if no Adjustment Events occurred, certifying to the Buyer that no Adjustment Events occurred during the previous month.

 

(xviii)    Certain Negative Covenants of the Company.  From and after the date hereof and until all of the Company’s obligations hereunder and the Note is paid and performed in full and the Warrant is exercised in full, the Company shall not:

 

A.           Enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate of the Company, or amend or modify any agreement related to any of the foregoing, except on terms that are no less favorable, in any material respect, than those obtainable from any person or entity who is not an Affiliate of the Company;

B.            Transfer, assign, sell, pledge, hypothecate or otherwise alienate or encumber the Buyer Trust Deed Notes in any way without the prior written consent of the Buyer; or

  

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C.           Enter into any financing transaction without giving the Buyer notice of such prospective financing transaction (the “Transaction Notice”) and the pre-emptive right to provide such financing on substantially similar terms within three (3) days of receiving the Transaction Notice.

6.           TRANSFER AGENT INSTRUCTIONS.

a.           The Company warrants that, with respect to the Securities, other than the stop transfer instructions to give effect to Section 5(a)(i) hereof, it will give the Transfer Agent no instructions inconsistent with instructions to issue Common Stock upon conversion of the Note and/or exercise of the Warrant, as may be applicable from time to time, in such amounts as specified from time to time by the Company to the Transfer Agent, bearing the restrictive legend specified in Section 5(a)(ii) of this Agreement prior to registration of the Shares under the 1933 Act, registered in the name of the Holder or its designee and in such denominations to be specified by the Holder in connection therewith.  Except as so provided, the Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the other Transaction Documents.  Nothing in this Section shall affect in any way the Buyer’s obligations and agreement to comply with all applicable securities laws upon resale of the Securities.  If the Buyer provides the Company with an opinion of counsel reasonably satisfactory to the Company that registration of a resale by the Buyer of any of the Securities in accordance with clause (1)(B) of Section 5(a)(i) of this Agreement is not required under the 1933 Act or upon request from a Holder while an applicable registration statement is effective, the Company shall (except as provided in clause (2) of Section 5(a)(i) of this Agreement) permit the transfer of the Securities and, in the case of the Conversion Shares and the Warrant Shares, as may be applicable, use its best efforts to cause the Transfer Agent to promptly electronically transmit to the Holder via DWAC such Conversion Shares or Warrant Shares.  The Company specifically covenants that, as of the Closing Date, the Transfer Agent shall be (a) participating in the DWAC program, and (b) DWAC eligible.  Moreover, the Company shall notify the Buyer in writing if the Company at any time while the Holder holds Securities becomes aware of any plans of the Transfer Agent to terminate such DWAC participation or eligibility.  While any Holder holds Securities, the Company shall at all times after the Closing Date maintain a transfer agent which participates in the DWAC program and is DWAC eligible, and the Company shall not appoint any transfer agent which does not both participate in the DWAC program and maintain DWAC eligibility.  Nevertheless, if at any time that the Company receives a Conversion Notice the Transfer Agent is not participating in the DWAC program or the Conversion Shares or Warrant Shares are not otherwise transferable via the DWAC program, then the Company shall instruct the Transfer Agent to issue one or more certificates for Common Stock without legend in such name and in such denominations as specified by the Holder.  In the event the Transfer Agent is not DWAC eligible on any Conversion Date or Exercise Date (as defined in the Warrant), and consequently the Company issues Conversion Shares or Warrant Shares pursuant to a Notice of Conversion or Notice of Exercise in certificated rather than electronic form, then in such event the amount set forth in Section 5(b)(xvi) shall be added to the principal balance of the Note.

b.           (i)            The Company understands that a delay in the delivery of Conversion Shares or Warrant Shares, whether on conversion of all or any portion of the Note and/or in payment of accrued interest, or exercise of the Warrant, beyond the relevant Delivery Date (as defined in the Note or the Warrant, as applicable) could result in economic loss to the Holder.  As compensation to the Holder for such loss, in addition to any other available remedies at law or equity, the Company shall pay late payments to the Holder for late delivery of the Shares in accordance with the following schedule (where “No. Business Days Late” is defined as the number of Trading Days beyond three (3) Trading Days after the Delivery Date):

  

16

  

	  	 	
Late Payment for Each $10,000.00

	 
	  	 	
of Principal or Interest Being Converted

	 
	
No. Business Days Late

	 	
(or amount of Warrant exercise)

	 
	  	 	 	 
	
1

	 	$	100.00	 
	
2

	 	$	200.00	 
	
3

	 	$	300.00	 
	
4

	 	$	400.00	 
	
5

	 	$	500.00	 
	
6

	 	$	600.00	 
	
7

	 	$	700.00	 
	
8

	 	$	800.00	 
	
9

	 	$	900.00	 
	
10

	 	$	1,000.00	 
	
>10

	 	
$1,000.00 + $200.00 for each Business Day Late beyond 10 days

	 

As elected by the Holder, the amount of any payments incurred under this Section 6(b)(i) shall either be automatically added to the principal balance of the Note or otherwise paid by the Company in immediately available funds upon demand. Nothing herein shall limit the Holder’s right to pursue additional damages for the Company’s failure to issue and deliver the Shares to the Holder within a reasonable time.  Furthermore, in addition to any other remedies which may be available to a Holder, in the event that the Company fails for any reason to effect delivery of such Shares within three (3) Trading Days after the Delivery Date, the Holder will be entitled to revoke the relevant Notice of Conversion or Notice of Exercise by delivering a notice to such effect to the Company prior to such Holder’s receipt of the relevant Shares, whereupon the Company and the Holder shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion or Notice of Exercise, as the case may be; provided, however, that any payments contemplated by this Section 6(b)(i) which have accrued through the date of such revocation notice shall remain due and owing to the Holder notwithstanding such revocation.

(ii)          If, by the fifth Trading Day after the  relevant Delivery Date, the Company fails for any reason to deliver the Shares, but at any time after the Delivery Date, the Holder purchases, in an arm’s-length open market transaction or otherwise, shares of Common Stock (the “Covering Shares”) in order to make delivery in satisfaction of a sale of Common Stock by the Holder (the “Sold Shares”), which delivery such Holder anticipated to make using the shares of Common Stock to be issued upon such conversion or exercise (a “Buy-In”), the Holder shall have the right to require the Company to pay to the Holder, in addition to and not in lieu of the amounts contemplated in other provisions of the Transaction Documents, including, but not limited to, the provisions of the immediately preceding Section 6(b)(i), the Buy-In Adjustment Amount (as defined below).  The “Buy-In Adjustment Amount” is the amount equal to the number of Sold Shares multiplied by the excess, if any, of (1) the Holder’s total purchase price per share (including brokerage commissions, if any) for the Covering Shares over (2) the net proceeds per share (after brokerage commissions, if any) received by the Holder from the sale of the Sold Shares.  The Company shall pay the Buy-In Adjustment Amount to the Holder in immediately available funds immediately upon demand by the Holder.  By way of illustration and not in limitation of the foregoing, if the Holder purchases shares of Common Stock having a total purchase price (including brokerage commissions) of $11,000.00 to cover a Buy-In with respect to shares of Common Stock the Holder sold for net proceeds of $10,000.00, the Buy-In Adjustment Amount which Company will be required to pay to the Holder will be $1,000.00.

  

17

  

c.            The Company shall assume any fees or charges of the Transfer Agent or Company Counsel regarding (i) the removal of a legend or stop transfer instructions with respect to the Securities, and (ii) the issuance of certificates or DWAC registration to or in the name of the Holder or the Holder’s designee or to a transferee as contemplated by an effective registration statement.  Notwithstanding the foregoing, it shall be the Holder’s responsibility to obtain all needed formal requirements (specifically: medallion guarantee and prospectus delivery compliance) in connection with any electronic issuance of shares of Common Stock.

d.           The Holder of the Note shall be entitled to exercise its conversion privilege with respect to such Note, notwithstanding the commencement of any case under 11 U.S.C. §101 et seq. (the “Bankruptcy Code”).  In the event the Company is a debtor under the Bankruptcy Code, the Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.S.C. §362 in respect of such Holder’s exercise privilege.  The Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.S.C. §362 in respect of the conversion of such Note. The Company agrees, without cost or expense to such Holder, to take or to consent to any and all action necessary to effectuate relief under 11 U.S.C. §362.

7.           CLOSING DATE.

a.           The Closing Date shall occur on the date which is the first Trading Day after each of the conditions contemplated by Sections 8 and 9 hereof shall have either been satisfied or been waived by the party in whose favor such conditions run.

b.           Closing of the purchase and sale of the Note and the Warrant, which the parties anticipate shall occur concurrently with the execution of this Agreement and shall occur at the offices of the Buyer on such day or such time as is mutually agreed upon by the Company and the Buyer.

8.           CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL. The Company’s obligation to sell the Note and the Warrant to the Buyer pursuant to this Agreement on the Closing Date is conditioned upon and subject to the fulfillment, on or prior to the Closing Date, of all of the following conditions, any of which may be waived in whole or in part by the Company:

a.           The execution and delivery of this Agreement and, as applicable, the other Transaction Documents by the Buyer;

b.           Delivery by the Buyer of good funds as payment in full of an amount equal to the Initial Cash Purchase Price in accordance with this Agreement;

c.           Delivery by the Buyer to the Company of executed copies of the Buyer Trust Deed Notes and the Trust Deed;

d.           The accuracy on the Closing Date of the representations and warranties of the Buyer contained in this Agreement, each as if made on such date, and the performance by the Buyer on or before such date of all covenants and agreements of the Buyer required to be performed on or before such date; and

e.           There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained.

  

18

  

9.           CONDITIONS TO THE BUYER’S OBLIGATION TO PURCHASE. The Buyer’s obligation to purchase the Note and the Warrant from the Company pursuant to this Agreement on the Closing Date is conditioned upon and subject to the fulfillment, on or prior to the Closing Date, of all of the following conditions, any of which may be waived in whole or in part by the Buyer:

a.           The execution and delivery of this Agreement, the Security Agreement, the Escrow Agreement, the Request, the Transfer Agent Letter, the Confession, and, as applicable, the other Transaction Documents by the Company;

b.           The delivery by the Company to the Buyer of the Note and the Warrant, each in original form, duly executed by the Company, in accordance with this Agreement;

c.           On the Closing Date, each of the Transaction Documents executed by the Company on or before such date shall be in full force and effect and the Company shall not be in default thereunder;

d.           The Share Reserve shall be sufficient to effect the full conversion of the Note and exercise of the Warrant as of the Closing Date;

e.           The accuracy in all material respects on the Closing Date of the representations and warranties of the Company contained in this Agreement and the other Transaction Documents, each as if made on such date, and the performance by the Company on or before such date of all covenants and agreements of the Company required to be performed on or before such date;

f.            There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained;

g.           From and after the date hereof up to and including the Closing Date, each of the following conditions will remain in effect: (i) the trading of the Common Stock shall not have been suspended by the SEC or on the Principal Trading Market; (ii) trading in securities generally on the Principal Trading Market shall not have been suspended or limited; (iii) no minimum prices shall been established for securities traded on the Principal Trading Market; (iv) there shall not have been any material adverse change in any financial market; and (v) there shall not have occurred any Material Adverse Effect;

h.           Except for any notices required or permitted to be filed after the Closing Date with certain federal and state securities commissions, the Company shall have obtained (i) all governmental approvals required in connection with the lawful sale and issuance of the Securities, and (ii) all third party approvals required to be obtained by the Company in connection with the execution and delivery of the Transaction Documents by the Company or the performance of the Company’s obligations thereunder; and

i.           All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to the Buyer.

 

  

19

  

 

10.        INDEMNIFICATION.

a.           The Company agrees to defend, indemnify and forever hold harmless the Buyer and its stockholders, directors, officers, managers, members, partners, Affiliates, employees, and agents, and each Buyer Control Person (collectively, the “Buyer Parties”) from and against any losses, claims, damages, liabilities or expenses incurred (collectively, “Damages”), joint or several, and any action in respect thereof to which the Buyer or any of the other Buyer Parties becomes subject, resulting from, arising out of or relating to any misrepresentation, breach of warranty or nonfulfillment of or failure to perform any covenant or agreement on the part of the Company contained in this Agreement or any of the other Transaction Documents, as such Damages are incurred. The Buyer Parties with the right to be indemnified under this Section (the “Indemnified Parties”) shall have the right to defend any such action or proceeding with attorneys of their own selection, and the Company shall be solely responsible for all reasonable costs and expenses related thereto.  If the Indemnified Parties opt not to retain their own counsel, the Company shall defend any such action or proceeding with attorneys of its choosing at its sole cost and expense, provided that such attorneys have been pre-approved by the Indemnified Parties, which approval shall not be unreasonably withheld, and provided further that the Company may not settle any such action or proceeding without first obtaining the written consent of the Indemnified Parties.

b.           The indemnity contained in this Agreement shall be in addition to (i) any cause of action or similar rights of the Buyer Parties against the Company or others, and (ii) any other liabilities the Company may be subject to.

11.         SPECIFIC PERFORMANCE.  The Company and the Buyer acknowledge and agree that irreparable damage would occur in the event that any provision of this Agreement or any of the other Transaction Documents were not performed in accordance with its specific terms or were otherwise breached.  It is accordingly agreed that the parties (including any Holder) shall be entitled to an injunction or injunctions, without the necessity to post a bond (except as specified below), to prevent or cure breaches of the provisions of this Agreement or any of the other Transaction Documents and to enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity; provided, however that the Company, upon receipt of a Notice of Conversion or a Notice of Exercise, may not fail or refuse to deliver certificates representing shares of Common Stock and the related legal opinions, if any, or if there is a claim for a breach by the Company of any other provision of this Agreement or any of the other Transaction Documents, the Company shall not raise as a legal defense any claim that the Holder or anyone associated or affiliated with the Holder has violated any provision hereof or any of the other Transaction Documents or has engaged in any violation of law or any other claim or defense, unless the Company has first posted a bond for one hundred fifty percent (150%) of the principal amount and, if relevant, then obtained a court order specifically directing it not to deliver such certificates to the Holder. The proceeds of such bond shall be payable to the Holder to the extent that the Holder obtains judgment or its defense is recognized.  Such bond shall remain in effect until the completion of the relevant proceeding and, if the Holder appeals therefrom, until all such appeals are exhausted.  This provision is deemed incorporated by reference into each of the Transaction Documents as if set forth therein in full.

12.         OWNERSHIP LIMITATION. If at any time after the Closing, the Buyer shall or would receive shares of Common Stock in payment of interest or principal under the Note or upon conversion of the Note or exercise of the Warrant, so that the Buyer would, together with other shares of Common Stock held by it or its Affiliates, hold by virtue of such action or receipt of additional shares of Common Stock a number of shares exceeding 9.99% of the number of shares of Common Stock outstanding on such date (the “9.99% Cap”), the Company shall not be obligated and shall not issue to the Buyer shares of Common Stock which would exceed the 9.99% Cap, but only until such time as the 9.99% Cap would no longer be exceeded by any such receipt of shares of Common Stock by the Buyer. The foregoing limitations are enforceable, unconditional and non-waivable and shall apply to all Affiliates and assigns of the Buyer.

13.         MISCELLANEOUS.  The Company and the Buyer hereby agree that the provisions of this Section 13 shall apply to all of the Transaction Documents.

  

20

  

a.           Governing Law and Venue.  This Agreement shall be governed by and interpreted in accordance with the laws of the State of Utah for contracts to be wholly performed in such state and without giving effect to the principles thereof regarding the conflict of laws.  Each of the parties consents to the exclusive personal jurisdiction of the federal courts whose districts encompass any part of Salt Lake County or the state courts of the State of Utah sitting in Salt Lake County in connection with any dispute arising under this Agreement or any of the other Transaction Documents, and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions or to any claim that such venue of the suit, action or proceeding is improper. Nothing in this subsection shall affect or limit any right to serve process in any other manner permitted by law.

b.           No Waiver.  Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

c.           Successors and Assigns.  This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties hereto.

d.           Pronouns.  All pronouns and any variations thereof in this Agreement refer to the masculine, feminine or neuter, singular or plural, as the context may permit or require.

e.           Counterparts.  This Agreement may be signed in one or more counterparts, each of which shall be deemed an original, but all of which together shall be deemed to constitute one instrument.  Facsimile and email copies of signed signature pages will be deemed binding originals.

f.            Headings.  The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.

g.           Severability.  Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such provision shall be modified to achieve the objective of the parties to the fullest extent permitted and such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.

h.           Amendment.  This Agreement may be amended only by an instrument in writing signed by the Company and the Buyer.

i.            Entire Agreement.  This Agreement together with the other Transaction Documents constitutes and contains the entire agreement between the Company and the Buyer and supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof.

j.            Currency.  All dollar amounts referred to or contemplated by this Agreement or any other Transaction Documents shall be deemed to refer to US Dollars, unless otherwise explicitly stated to the contrary.

k.           Buyer’s Expenses.  In the event the Company or the Buyer elects not to effect the Closing for any reason, the Company shall pay $10,000 in cash to the Buyer for the Buyer’s legal, administrative and due diligence expenses.  Except as provided in the immediately preceding sentence, and except for $10,000 which has been added to and included in the principal amount of the Note for the Buyer’s legal, administrative and due diligence expenses and the sum of $5,000 which the Company has previously paid to the Buyer, the Company and the Buyer shall be responsible for paying such party’s own fees and expenses (including legal expenses) incurred in connection with the preparation and negotiation of this Agreement and the other Transaction Documents and the closing of the transactions contemplated hereby and thereby.

  

21

  

l.           Assignment.  Notwithstanding anything to the contrary herein, the rights, interests or obligations of the parties hereunder may not be assigned, by operation of law or otherwise, in whole or in part, by either party without the prior written consent of the other party; provided, however, that the Buyer may assign this Agreement to any of its Affiliates without the prior written consent of the Company and, furthermore, the Company agrees that it shall not unreasonably withhold, condition or delay its consent to any other assignment of this Agreement by the Buyer.

m.          Advice of Counsel. In connection with the preparation of this Agreement and all other Transaction Documents, each of the Company, its stockholders, officers, agents, and representatives acknowledges and agrees that the attorney that prepared this Agreement and all of the other Transaction Documents acted as legal counsel to the Buyer only.  Each of the Company, its stockholders, officers, agents, and representatives (i) hereby acknowledges that he/she/it has been, and hereby is, advised to seek legal counsel and to review this Agreement and all of the other Transaction Documents with legal counsel of his/her/its choice, and (ii) either has sought such legal counsel or hereby waives the right to do so.

n.           No Strict Construction. The language used in this Agreement is the language chosen mutually by the parties hereto and no doctrine of construction shall be applied for or against any party.

o.           Attorney’s Fees.  In the event of any action at law or in equity to enforce or interpret the terms of this Agreement or any of the other Transaction Documents, the Prevailing Party (as defined hereafter) shall be entitled to reasonable attorneys’ fees, court costs and collection costs in addition to any other relief to which such party may be entitled.  “Prevailing Party” shall mean the party in any litigation or enforcement action that prevails in the highest number of final rulings, counts or judgments adjudicated by a court of competent jurisdiction.

p.           Replacement of the Note. Subject to any restrictions on or conditions to transfer set forth in the Note, the Holder of the Note, at its option, may in person or by duly authorized attorney surrender the same for exchange at the Company’s principal corporate office, and promptly thereafter and at the Company’s expense, except as provided below, receive in exchange therefor one or more new convertible secured promissory note(s), each in the principal amount requested by such Holder, dated the date to which interest shall have been paid on the Note so surrendered or, if no interest shall have yet been so paid, dated the date of the Note so surrendered and registered in the name of such person or persons as shall have been designated in writing by such Holder or its attorney for the same principal amount as the then unpaid principal amount of the Note so surrendered. As applicable, upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of the Note and (i) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it; or (ii) in the case of mutilation, upon surrender thereof, the Company, at its expense, will execute and deliver in lieu thereof a new convertible secured promissory note executed in the same manner as the Note being replaced, in the same principal amount as the unpaid principal amount of such Note and dated the date to which interest shall have been paid on the Note or, if no interest shall have yet been so paid, dated the date of the Note.

q.           Notices. Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given on the earliest of

  

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(i) the date delivered, if delivered by personal delivery as against written receipt therefor or by confirmed facsimile or electronic mail transmission,

(ii) the fifth Trading Day after deposit, postage prepaid, in the United States Postal Service by registered or certified mail, or

(iii) the third Trading Day after mailing by domestic or international express courier, with delivery costs and fees prepaid,

in each case, addressed to each of the other parties thereunto entitled at the following addresses (or at such other addresses as such party may designate by ten (10) days’ advance written notice similarly given to each of the other parties hereto):

If to the Company:

MusclePharm Corporation

Attn: Brad Pyatt

4721 Ironton Street, Building A

Denver, Colorado 90839

with a copy to (which shall not constitute notice):

Lucosky Brookman LLP

Attn:  Joseph M. Lucosky, Esq.

33 Wood Avenue South, 6th Floor

Iselin, New Jersey 08830

Telephone: (732) 395-4400

If to the Buyer:

Inter-Mountain Capital Corp.

Attn: John M. Fife

303 East Wacker Drive, Suite 1200

Chicago, Illinois  60601

with a copy to (which shall not constitute notice):

Carman Lehnhof Israelsen LLP

Attn: Jonathan K. Hansen

4626 North 300 West, Suite 160

Provo, Utah 84604

Telephone: (801) 209-5558

14.        SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES. The Company’s and the Buyer’s covenants, agreements, representations and warranties contained herein shall survive the execution and delivery of this Agreement and the other Transaction Documents and the Closing hereunder, and shall inure to the benefit of the Buyer and the Company and their respective successors and permitted assigns.

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]

  

23

  

IN WITNESS WHEREOF, each of the undersigned represents that the foregoing statements made by it above are true and correct and that it has caused this Agreement to be duly executed on its behalf (if an entity, by one of its officers thereunto duly authorized) as of the date first above written.

	
TOTAL PURCHASE PRICE:

	
$2,400,000.00

	  	  
	
INITIAL CASH PURCHASE PRICE:

	
$400,000.00

	 	
THE BUYER:

	 	  
	 	
INTER-MOUNTAIN CAPITAL CORP.

	 	  
	 	
By:

	
/s/ John M. Fife

	 	  	
John M. Fife, President

	 	  
	 	
THE COMPANY:

	 	  
	 	
MUSCLEPHARM CORPORATION

	 	  
	 	
By:

	
/s/ Brad J. Pyatt

	 	
Name: 

	
Brad J. Pyatt

	 	
Title:

	
Chief Executive Officer

[SIGNATURE PAGE TO NOTE AND WARRANT PURCHASE AGREEMENT]

  

 

  

	
ANNEX I

	
WIRE INSTRUCTIONS

	  	  
	
ANNEX II

	
NOTE

	  	  
	
ANNEX III

	
SECURITY AGREEMENT

	  	  
	
ANNEX IV

	
TRUST DEED

	  	  
	
ANNEX V

	
REQUEST

	  	  
	
ANNEX VI

	
ALLOCATION OF PURCHASE PRICE

	  	  
	
ANNEX VII

	
WARRANT

	  	  
	
ANNEX VIII

	
CONFESSION

	  	  
	
ANNEX IX

	
ESCROW AGREEMENT

	  	  
	
ANNEX X

	
TRANSFER AGENT LETTER

	  	  
	
ANNEX XI

	
BUYER TRUST DEED NOTE #1

	  	  
	
ANNEX XII

	
BUYER TRUST DEED NOTE #2

	  	  
	
ANNEX XIII

	
BUYER TRUST DEED NOTE #3

	  	  
	
ANNEX XIV

	
BUYER TRUST DEED NOTE #4

	  	  
	
ANNEX XV

	
BUYER TRUST DEED NOTE #5

	  	  
	
ANNEX XVI

	
BUYER TRUST DEED NOTE #6

	  	  
	
ANNEX XVII

	
BUYER TRUST DEED NOTE #7

	  	  
	
ANNEX XVIII

	
BUYER TRUST DEED NOTE #8

	  	  
	
ANNEX XIX

	
BUYER TRUST DEED NOTE #9

	  	  
	
ANNEX XX

	
BUYER TRUST DEED NOTE #10

	  	  
	
ANNEX XXI

	
ANTI-DILUTION CERTIFICATIONUnassociated Document

EXECUTIVE EMPLOYMENT AGREEMENT

 

This EXECUTIVE EMPLOYMENT AGREEMENT (“Agreement”) is made and entered into as of this 15th day of September,  2011 (the “Effective Date”), by and between MUSCLE PHARM CORP., a Nevada corporation (the “Company”), and, John H. Bluher, an individual (the “Executive”).  Company or Executive are sometimes referred to herein as “party” or collectively “parties”.

 

RECITALS

 

WHEREAS, Company and Executive have been working under a consulting agreement and Executive has successfully commenced or completed the work agreed upon under that agreement, and Company has made the cash and warrant payment appropriate under the terms of that Consulting Agreement;

 

WHEREAS, Company and Executive have decided to enter into an employment relationship for Executive to serve as Chief Operating Officer of the Company, responsibilities to start on September 19th, 2011;

 

WHEREAS, by unanimous consent of its Board of Directors, Company named Executive to serve as Chief Operating Officer to manage the Company and its day-to-day operations;

 

WHEREAS, Executive is willing to be employed by the Company and provide services to the Company under the terms and conditions stated herein, as of the Effective Date;

 

WHEREAS, Company and Executive now mutually desire to enter into this Agreement as approved by the Board of Directors;

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, and for other good and valuable consideration, it is hereby agreed by and between the parties hereto as follows:

 

	
1. 

	
Employment and Duties

 

1.1           Employment.  The Company hereby employs Executive as the Chief Operating Officer (“COO”) of the Company and Executive hereby accepts such employment as of the Effective Date pursuant to the terms, covenants and conditions set forth herein.  Executive shall report directly to the Chief Executive Officer and the Board of Directors of the Company (the “Board”).

 

1.2           Duties.  Executive shall have the overall responsibility as COO for the management and operation of the Company, and shall perform all duties and responsibilities and have such powers which are commonly incident to the position of Chief Operating Officer, as well as any additional responsibilities and authority as may be from time to time assigned or delegated to him by the CEO or the Board of Directors.  Executive shall perform the duties assigned to him to the best of his ability and in a manner satisfactory to the Company.

 

  

  

  

 

1.3           Change in Responsibility.  If, during the term of this agreement, Executive shall not be vested by Employer with the responsibilities of acting as its Chief Operating Officer by lawful Board Action, the Board will have the authority to designate other titles and duties of the Executive by mutual agreement. If mutual agreement between the Board and the Executive are not achieved, and the change is not pursuant to Section 5.1, Executive shall be employed as an advisor and consultant to Employer so that Employer may benefit from Executive’s experience. Such employment as an advisor shall be through the end of the calendar year within which the change has occurred, and will allow the Executive to be paid for the full prior year under the company’s bonus and compensation cycle. At the end of the calendar year within which the change has occurred, Executive will thereafter be subject to the provisions in Section 5.2 through 5.6 and Section 6 of this Agreement. Executive has the right to decline the advisors position and immediately receive payments under Section 6 hereafter. It is expressly agreed that Executive’s services as an advisor and consultant will be required at such times and places as will result in the least inconvenience to Executive, having in mind his other business commitments during that period which may obligate him to perform his services under such other commitments before performing the advisory services under this agreement.  While Executive is employed as an advisor and consultant by Employer, Employer shall pay Executive all compensation, benefits provided for in this agreement.  During the course for his employment as an advisor and consultant, Executive shall not compete, directly or indirectly, with Employer.

1.4           Time and Efforts.  Executive shall devote his full business time, efforts, attention, and energies to the business of the Company and to the performance of Executive's duties hereunder during the Term, and shall not engage in any other business, profession or occupation for compensation or otherwise which would conflict or interfere with the rendition of such services, either directly or indirectly, without the prior written consent of the Company; provided that, nothing herein shall preclude Executive from (i) continuing to serve on any board of directors or trustees of any organization that is not in direct competition or which business conflicts with the Company, (ii) continuing to manage funds or provide consulting services to companies that do not compete with the Company, (iii) being involved in charitable activities, or (iv) managing his personal and family passive investments; provided, further that, in each case, and in the aggregate, such activities shall not materially conflict or interfere with the performance of Executive's duties hereunder or conflict with his duty of loyalty and/or fiduciary duties owed to the Company.

 

	
2. 

	
Term

 

The term of employment under this Agreement shall be for a period of two (2) years commencing on the Effective Date (the “Initial Term”), and this Agreement will then be renewed automatically for additional one (1) year periods commencing on the last date of the Initial Term, and on each one (1) year anniversary date thereafter (each subsequent one year period together with the Initial Term, hereinafter collectively the “Term”), unless either the Company or Executive provides the other party with written notice at least sixty (60) days prior to the last date of the Initial Term or any subsequent Term stating that the Agreement will not be renewed.  In connection with any notice of non-renewal pursuant to this Section 2, the Executive’s termination date of employment will be the last date of the applicable Term and Executive will not be eligible or entitled to receive any severance pay or post-termination benefits that may otherwise be provided under this Agreement; provided, however, that if a notice of non-renewal is provided by the Company to Executive within two (2) years after the date of a Change of Control as defined in Section 5.2(b) below, then the notice of non-renewal shall be deemed to be and shall be treated as a Termination Without Cause After a Change of Control and Executive shall be entitled to the pay and benefits as set forth in Section 6.4 below.  The Company reserves the right to relieve Executive from all duties during all or any portion of the 60-day notice period.  Notwithstanding the above, either party may terminate this Agreement at any time during the Term pursuant to the applicable provisions of Section 5 of this Agreement.

 

  

2

  

 

	
3. 

	
Compensation

 

As the total consideration for Executive’s services rendered hereunder, Executive shall be entitled to the following:

 

3.1           Base Salary.  Executive shall be paid an initial annual base salary of One Hundred Seventy Five Thousand Dollars ($175,000.00) per year (“Base Salary”) beginning on the Effective Date of the Agreement and payable in regular installments in accordance with the customary payroll practices of the Company. Executive and the CEO will sign an addendum to this contract to specify performance based objectives that could result in further cash payments. Executive’s Base Salary will be reviewed at least annually by the Company and may be increased at the discretion of the Company.  The Base Salary may not be decreased, except upon a mutual written agreement between the parties.

 

3.2           Annual Performance Bonus.  In addition to Base Salary, Executive shall be eligible to receive an annual bonus based upon Executive’s performance for the preceding year as measured against certain targets and goals as mutually established by the parties.  The bonus shall be paid within thirty (30) days of the conclusion of the bonus period.  Executive must be employed on the Bonus payment date in order to be eligible to receive the Bonus, except as otherwise expressly provided for in this Agreement.  The target Bonus amount for 2011 shall be Fifty Thousand Dollars ($50,000.00).  Thereafter, the Board of Directors will determine performance based cash bonus targets.

 

3.3           Equity Consideration. Effective on December 31, 2012, and at the end of each successive calendar year on December 31 thereafter, or as soon as reasonably practicable after each such December 31 (each a “Grant Date”) during the Term of this Agreement, and as part of the consideration for this Agreement and based on the achievement of the specific execution of responsibilities and performance of duties from the immediate prior year as may be determine by the Board, the Compensation Committee of the Board shall grant annually to Executive, non-qualified stock options with a Black Scholes value of Five Hundred Thousand ($500,000), with two year vesting, exercisable into shares of common stock of the Company, with an exercise price per share equal to “Fair Market Value” (as defined in the Company’s stock incentive plan) on the applicable Grant Date, which shares shall have a ten year expiration date from the Grant Date and a cashless exercise feature.   One-third (1/3) of the options granted shall vest immediately upon the applicable Grant Date, one-third (1/3) shall vest on the First anniversary of the applicable Grant Date, and the final one-third (1/3) shall vest on the Second anniversary of the applicable Grant Date.

 

  

3

  

 

Effective December 31, 2011, or as soon as practicable thereafter, As part of consideration for this Agreement, the Company will grant non-qualified stock options to Executive, with a value of Fifty Thousand ($50,000) with two year vesting, 1\2 vesting on the Grant Date, 1\2 vesting on the first anniversary of the Grant Date,  exercisable into shares of common stock of the Company, with an exercise price per share equal to “Fair Market Value” (as defined in the Company’s stock incentive plan) on the applicable Grant Date, which shares shall have a ten year expiration date from the Grant Date and a cashless exercise feature.   Any unvested options will vest upon (i) a Change of Control as defined in and pursuant to Section 5.2(b) below, or (ii) any termination of Executive’s employment other than (a) termination by Executive, or (b) termination for Cause as defined in Section 5.1 below.    In the event that the Executive is terminated for any reason other than (i) Cause, (ii) death or (iii) disability or retirement, each Option granted to such Participant, to the extent that it is exercisable at the time of such termination, shall remain exercisable for the 90 day period following such termination, but in no event following the expiration of its term.  In the event of the termination of Executive’s employment for Cause, each outstanding option granted to Executive shall terminate at the commencement of business on the date of such termination.  In the event that the Executive’s employment with the Company terminates on account of death, disability or, with respect to any non-qualified stock option, retirement of Executive, each option granted that is outstanding and vested as of the date of such termination shall remain exercisable by Executive (or Executive’s legal representatives, heirs or legatees) for the one year period following such termination, but in no event following the expiration of its term.

3.4           Signing Bonus. As an inducement to close the Executive’s consulting business and to forego other opportunities, the Company will pay a one time signing bonus in the form of an non-qualified stock option award, 50% vesting on the Grant Date, and 50% vesting on the anniversary of this Agreement, at the price of the common stock on the Grant Date, in the amount of Fifty Thousand Dollars ($50,000) or approximately 2,000,000 shares.

3.5           Compensation Committee. The Annual Performance Bonus and the Equity Consideration shall be reviewed by the Compensation Committee of the Company’s Board on an annual basis and may be revised upon mutual agreement between Company and Executive to set performance criteria for purposes of compliance with the exemption requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended (“Code”).

 3.6           Expenses.  During employment, Executive is entitled to reimbursement for reasonable and necessary business expenses incurred by Executive in connection with the performance of Executive’s duties and pursuant to applicable Company policy.  The Company shall also provide Executive with a laptop computer and cell phone for use during Executive’s employment.

 

3.7           Vacation.  Executive shall be entitled to accrue four (4) weeks of paid vacation each year pursuant to the terms and provisions of the Company’s vacation leave policies as in effect from time to time.  Although unused vacation may be carried over from year to year, the maximum cap on accrual shall be equal to 1.5 times the annual accrual.

 

3.8           Benefits.  Executive shall be entitled to participate in and receive all benefits made available by the Company to its Executives, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements, including without limitation, medical, dental, vision, life and disability insurance plans and coverage.

 

  

4

  

 

	
4. 

	
Proprietary Information

 

As a condition of this Agreement, Executive shall sign the Employee Confidentiality and Invention Assignment Agreement as presented by the Company, and such agreement shall remain in full force and effect as provided therein even after the termination of this Agreement and the employment relationship.

 

	
5. 

	
Termination

 

Executive’s employment shall terminate upon the happening of the following:

 

5.1           Termination For Cause.  The Company may terminate this Agreement for Cause if the Board of Directors determines that Cause exists.  For purposes of this Agreement, “Cause” shall mean:

 

(a)           A proven act of dishonesty, fraud, embezzlement, or misappropriation of proprietary information in connection with the Executive’s responsibilities as an Executive;

 

(b)           Executive’s conviction of, or plea of nolo contendere to, a felony or a crime involving moral turpitude;

 

(c)           Executive’s willful misconduct in connection with his employment duties that is detrimental to the Company and which cannot be cured on reasonable notice to Executive; or

 

(d)           Executive’s habitual failure or refusal to perform his employment duties under this Agreement if such failure or refusal is not cured by Executive within twenty (20) days after receiving written notice thereof from the Board of Directors.

 

For purposes hereof, no act or failure to act by the Executive shall be considered ‘willful’ unless done or omitted to be done by him not in good faith or without reasonable belief that his action or omission was in the best interest of the Employer or contrary to a formal resolution of the Board.  Cause shall not exist unless and until there shall have been delivered to the Executive a copy of a resolution, duly adopted by the Affirmative vote of not less than two thirds of the entire membership of the Board at a meeting of the Board held for the purpose thereof and an opportunity for him, together with his counsel, to be heard before the Board at such meeting, finding that in the good faith option of the Board, the Executive was guilty of conduct set forth above in clause (ii) of this Paragraph and specifying the particulars thereof in detail.  The Date of Termination shall be the date specified in the Notice of Termination; provided, however, that, in the case of a termination for Cause under (ii) above, the Date of Termination shall not be earlier than 30 days after delivery of the Notice of Termination.  Anything herein to the contrary notwithstanding, if, following a termination of the Executive’s employment by the Employer for Cause based upon the conviction of the Executive for a felony, such conviction is overturned in a final determination on appeal, the Executive shall be entitled to the payments and the economic equivalent of the benefits the Executive would have received if his employment had been terminated by the Employer without Cause.

 

  

5

  

 

5.2           Termination Without Cause.

 

(a)           The Company may terminate this Agreement Without Cause.  For purposes of this Agreement, “Without Cause” shall mean termination by the Company of Executive’s employment for any reason, other than as specified in Sections 5.1 or 5.3 hereof, including any termination Without Cause that occurs within a two (2) year period after a Change of Control (as defined below).

 

(b)           Change of Control shall mean the occurrence of any one of the following:  (i) any “person,” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (other than the Company, a subsidiary, an affiliate, or a Company employee benefit plan, including any trustee of such plan acting as trustee) becoming the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of Company’s then outstanding securities; (ii) a sale of assets involving 50% or more of the fair market value of the assets of Company as determined in good faith by the Board of Directors of the Company; or (iii) any merger or reorganization of the Company whether or not another entity is the survivor, pursuant to which the holders of all the shares of capital stock of the Company outstanding prior to the transaction hold, as a group, fewer than 50% of the shares of capital stock of the Company outstanding after the transaction.

 

(c)           The Company may terminate the employment of Executive and all of the Company’s obligations hereunder at any time during the Term of Employment “Without Cause” by giving Executive written notice of such termination, to be effective thirty (30) days following the giving of such written notice, in which case Executive shall receive the compensation, severance and benefit continuation required by Section 6.3 below; provided, however, that if Company terminates Executive’s employment Without Cause at any time within a two (2) year period after the date of a Change of Control as defined in Section 5.2(b) above, then Executive shall receive the compensation, severance and benefit continuation required by Section 6.4 below.

 

5.3           Termination Due to Disability or Death.  Executive’s employment hereunder may be terminated by the Company as follows:

 

(a)           To the extent permitted by law, upon thirty (30) days’ notice to Executive in the event that Executive has been unable to perform substantially all of his duties under this Agreement for an aggregate of 120 days (inclusive of weekends and holidays) within any 12-month period, as the result of Executive’s incapacity to perform the essential functions of his job due to a physical or mental disability and after reasonable accommodation made by the Company, and within thirty (30) days of receipt of such notice, Executive shall not have returned to the full-time, continuing performance of his duties hereunder, or

 

(b)           Immediately upon the death of Executive.

 

  

6

  

 

5.4           Termination by Executive for Good Reason.  Executive may terminate the Agreement for “Good Reason”. Executive’s termination shall be for “Good Reason” if Executive provides written notice to the Company of the Good Reason within ninety (90) days of the event constituting Good Reason, and provides the Company with a period of thirty (30) days to cure the Good Reason and the Company fails to cure the Good Reason within that period.  For purposes of this Agreement, “Good Reason” shall mean any of the following events if the event is effected by the Company or third-parties without Executive’s consent:  (i) a reduction of more than 10% in Executive’s Base Salary or other component of compensation and benefits, except for changes to the Company’s generally applicable benefit plans and policies; unless the salary or compensation reduction is part of a general reduction for all executive employees; (ii) a change in the location of the business requiring Executive to move or drive to work more than 40 miles from the current location; (iii) any material diminution of Executive’s authority, responsibilities, reporting or job duties (except for any reduction for Cause as defined above); or (iv) any other material breach by the Company of this Agreement.  Executive may terminate his/her employment at any time for Good Reason as provided in this Section 5.4, in which case Executive shall receive the compensation, severance and benefit continuation required by Section 6.3 below; provided, however, that if Executive terminates his/her employment at any time for Good Reason within a two (2) year period after the date of a Change of Control as defined in Section 5.2(b) above, then Executive shall receive the compensation, severance and benefit continuation required by Section 6.4 below.

 

5.5           Voluntary Termination.  Executive’s employment hereunder may be terminated by Executive for any reason (other than by Termination Due to Disability or Death or for Good Reason) upon Executive providing Company with thirty (30) days’ notice of Executive’s voluntary termination.

	
6. 

	
Effect of Termination

6.1           Termination For Cause or Voluntary Termination.  In the event that Executive’s employment is terminated pursuant to Sections 5.1 or 5.5 above:

(a)           The Company shall pay to Executive, or his representatives, on the date of termination of employment (the “Termination Date”) only that portion of the Base Salary provided in Section 3.1 that has been earned to the Termination Date, and any accrued but unpaid Vacation pay provided in Section 3.6, and any expense reimbursements due and owing to Executive as of the Termination Date; and

 

 (b)           Executive shall not be entitled to (i) any other salary or compensation, (ii) the Annual Performance Bonus pursuant to Section 3.2, (iii) any Equity Consideration pursuant to Section 3.3 or Section 3.4, nor (iv) any Benefits pursuant to Section 3.7, except for benefit continuation under COBRA or similar state or federal legislation.

 

6.2           Termination Due to Disability or Death.  In the event Executive’s employment is terminated pursuant to Section 5.3 above, the Company shall pay to Executive, or his representatives, all of the following:

 

(a)           The payments, if any, referred to in Section 6.1(a) above as of the Termination Date; and

 

  

7

  

 

(b)           An amount equal to the full year targeted Annual Performance Bonus referenced in Section 3.2 above for the calendar year in which the Termination Date occurs, less applicable statutory deductions and tax withholdings, to be paid within thirty (30) days of the Termination Date; and

 

(c)           For a Termination Due to Disability only, and provided that Executive signs a binding release of all claims relating to his employment in the standard form then being used by the Company at the time, then Company shall continue to pay Executive a severance package equal to six (6) months of Executive’s Base Salary at the time of termination.  This severance amount shall be paid to Executive in equal regular installments over the six (6) month period pursuant to the Company’s regular payroll periods, less applicable statutory deductions and tax withholdings.  The first installment shall be paid to Executive on the first payroll period after the Termination Date once the release becomes effective; and

 

(d)           If Executive elects benefit continuation under COBRA or similar state or federal legislation for the available Benefits provided in Section 3.7, Company shall pay or reimburse the COBRA premiums for a period of up to six (6) months commencing on the Termination Date, provided that Executive remains eligible for COBRA continuation coverage.

 

6.3           Termination Without Cause or for Good Reason.  In the event Executive’s employment is terminated pursuant to Sections 5.2 or 5.4 above at anytime in which there has not been a qualifying Change of Control termination, the Company shall pay Executive on the date of Termination the payments referred to in Section 6.1(a) above, and provided that, within sixty (60) days of the Termination Date, Executive signs a binding release of all claims relating to his employment in the standard form then being used by the Company at the time, Executive shall also receive all of the following:

 

(a)           A severance package equal to one (1) year of Executive’s Base Salary at the time of termination.  This severance amount shall be paid to Executive in equal regular installments over the twelve (12) month period pursuant to the Company’s regular payroll periods, less applicable statutory deductions and tax withholdings.  The first installment shall be paid to Executive on the first payroll period after the Termination Date once the release becomes effective; and

 

(b)           A pro rata amount of the Annual Performance Bonus referenced in Section 3.2 above for the calendar year in which the Termination Date occurs, less applicable statutory deductions and tax withholdings, based on the achievement of any applicable performance terms or goals for the year and to be paid at the same time such Annual Bonus would have been payable under Section 3.2 if Executive had remained employed with the Company; and

 

(c)           If Executive elects benefit continuation under COBRA or similar state or federal legislation for the available Benefits provided in Section 3.7, Company shall pay or reimburse the COBRA premiums for a  period of up to twelve (12) months commencing on the Termination Date, provided that Executive remains eligible for COBRA continuation.

 

  

8

  

 

6.4           Termination Without Cause or for Good Reason After a Change of Control.  In the event Executive’s employment is terminated pursuant to Sections 5.2 or 5.4 above within the qualifying two (2) year period after a Change of Control, the Company shall pay Executive on the date of Termination the payments referred to in Section 6.1(a) above, and provided that, within sixty (60) days of the Termination Date, Executive signs a binding release of all claims relating to his employment in the standard form then being used by the Company at the time, Executive shall also receive all of the following:

 

(a)           A severance package equal to two (2) years of Executive’s Base Salary at the time of termination.  This severance amount shall be paid to Executive in equal regular installments over a twelve (12) month period pursuant to the Company’s regular payroll periods, less applicable statutory deductions and tax withholdings.  The first installment shall be paid to Executive on the first payroll period after the Termination Date once the release becomes effective; and

 

(b)           An amount equal to double (2 times) the full year targeted Annual Performance Bonus referenced in Section 3.2 above for the calendar year in which the Termination Date occurs, less applicable statutory deductions and tax withholdings, to be paid within thirty (30) days of the Termination Date; and

 

(c)           A one-time cash payment of two hundred thousand dollars ($200,000) less applicable statutory deductions and tax withholdings, to be paid within thirty (30) days of the Termination Date; and

 

(d)           If Executive elects benefit continuation under COBRA or similar state or federal legislation for the available Benefits provided in Section 3.7 Company shall pay or reimburse the COBRA premiums for a  period of up to twelve (12) months commencing on the Termination Date, provided that Executive remains eligible for COBRA continuation; and

 

(e)           Executive shall also be entitled to full vesting of all stock, options, incentive or performance share awards, and shall be free from all lock-ups or contractual restrictions on the free sale of shares, and shall have twenty four (24) months within which to sell or exercise awards, shares or options (subject to expiration of the applicable term for any options), but Executive shall not be released from the black-out periods for the next financial reporting quarter following the Termination Date or Securities and Exchange Act of 1934 trading obligations typically required for an executive in this position.

 

NOTWITHSTANDING THE PROVISIONS SET FORTH ABOVE, IF EXECUTIVE’S EMPLOYMENT, TITLE, RESPONSIBILITY OR ROLE IS CHANGED AS A RESULT OF A CHANGE OF CONTROL (INCLUDING ANY MERGER, ACQUISITION, BUSINESS COMBINATION OR JOINT OPERATING AGREEMENT) WITH ANY THIRD PARTY COMPANY THAT OCCURS WITHIN 180 DAYS OF SIGNING OF THIS AGREEMENT, AND EXECUTIVE ASSUMES A NEW ROLE OTHER THAN COO, BUT WITH SIMILAR RESPONSIBILITIES, THEN THE PROVISIONS OF SECTION 5.4(iii) AND 5.4(iv) ABOVE SHALL NOT APPLY AS A BASIS FOR EXECUTIVE TO ASSERT A TERMINATION FOR GOOD REASON, AND EXECUTIVE SHALL NOT BE ENTITLED TO THE BENEFITS OF THIS SECTION 6.4.

 

  

9

  

 

	
7. 

	
Assignment

 

This Agreement is personal in nature, and neither this Agreement nor any part of any obligation herein shall be assignable by Executive.  The Company shall be entitled to assign this Agreement to any affiliate of the Company or any person or entity that assumes the ownership and control of the business of the Company.  This Agreement shall inure to the benefit of and shall be binding upon the Company, its successors and assigns.

 

	
8. 

	
Severability

 

Should any term, provision, covenant or condition of this Agreement be held to be void or invalid, the same shall not affect any other term, provision, covenant or condition of this Agreement, but such remainder shall continue in full force and effect as though each such voided term, provision, covenant or condition is not contained herein.

 

	
9. 

	
Governing Law and Submission to Jurisdiction

 

This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado applicable to contracts made and to be carried out in Colorado.  Subject to the Binding Arbitration provision of this Agreement as set forth below, and without in any way limiting the applicability of binding arbitration, each of the parties submits to the exclusive jurisdiction of any state or federal court sitting in Denver or Arapahoe county, Colorado in any action or proceeding arising out of or relating to this Agreement and further agrees that all claims in respect of the action or proceeding may be heard and determined in any such court  to the extent that any court proceeding is necessary in connection with the Binding Arbitration provision below, and further agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each of the parties agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner so provided by law.

 

	
10. 

	
Binding Arbitration

 

Any and all disputes which involve or relate in any way to this Agreement and/or to Executive’s employment or termination of employment with the Company, whether initiated by Executive or by the Company and whether based on contract, tort, statute, or common law, shall be submitted to and resolved by final and binding arbitration as the exclusive method for resolving all such disputes.  The arbitration shall be private and confidential and conducted in Los Angeles, California pursuant to the Federal Arbitration Act and applicable California law, and pursuant to the applicable rules of the American Arbitration Association (“AAA”) relating to employment disputes, unless the parties otherwise mutually agree to modify the AAA Rules.  A copy of the AAA Employment Rules are available for review at www.adr.org/employment and are incorporated herein by reference.

 

The party demanding arbitration shall submit a written claim to the other party, setting out the basis of the claim or claims, within the time period of any applicable statute of limitations relating to such claim(s).  If the parties cannot mutually agree upon an Arbitrator, then the parties shall select a neutral Arbitrator through the procedures established by the AAA.  The Arbitrator shall have the powers provided under the Colorado Code of Civil Procedure relating to the arbitration of disputes, except as expressly limited or otherwise provided in this Agreement.  The parties shall have the right to reasonable discovery as mutually agreed or as determined by the Arbitrator, including at least one deposition each, it being the goal of the parties to resolve any disputes as expeditiously and economically as reasonably practicable.  The parties agree to equally share in the payment of the administration costs of the AAA arbitration, including payment of the fees for the Arbitrator, and any other costs directly related to the administration of the arbitration.  The parties shall otherwise be responsible for their own respective costs and attorneys fees relating to the dispute, such as deposition costs, expert witnesses and similar expenses, except as otherwise provided in this Agreement to the prevailing party.

 

  

10

  

 

The Arbitrator may award, if properly proven, any damages or remedy that a party could recover in a civil litigation, and shall award costs and reasonable attorneys fees to the prevailing party as provided by law.  The award of the Arbitrator shall be issued in writing, setting forth the basis for the decision, and shall be binding on the parties to the fullest extent permitted by law, subject to any limited statutory right to appeal as provided by law.  Judgment upon the award of the Arbitrator may be entered in any court having proper jurisdiction and enforced as provided by law.

 

This agreement to arbitrate is freely negotiated between Executive and the Company and is mutually entered into between the parties.  Each party understands and agrees that they are giving up certain rights otherwise afforded to them by civil court actions, including but not limited to the right to a jury trial; provided, however, that either party may seek provisional remedies in a court of competent jurisdiction as provided pursuant to applicable law.

 

	
11. 

	
Captions

 

The Section captions herein are inserted only as a matter of convenience and reference and in no way define, limit or describe the scope of this Agreement or the intent of any provisions hereof.

 

	
12. 

	
Compliance with IRC Section 409A

 

Notwithstanding anything herein to the contrary, (i) if at the time of Executive's termination of employment with the Company Executive is a "specified employee" as defined in Section 409A of the Code, and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such termination of employment is necessary in order to prevent any accelerated or additional tax under Section 409A of the Code, then the Company will defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to Executive) until the date that is six (6) months following Executive's termination of employment with the Company (or the earliest date as is permitted under Section 409A of the Code) and (ii) if any other payments of money or other benefits due to Executive hereunder could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section 409A of the Code, or otherwise such payment or other benefits shall be restructured, to the extent possible, in a manner, determined by the Board, that does not cause such an accelerated or additional tax.  In the event that payments under this Agreement are deferred pursuant to this Section 12 in order to prevent any accelerated tax or additional tax under Section 409A of the Code, then such payments shall be paid at the time specified under this Section 12 without any interest thereon. The Company shall consult with Executive in good faith regarding the implementation of this Section 12; provided that neither the Company nor any of its employees or representatives shall have any liability to Executive with respect thereto. Notwithstanding anything to the contrary herein, a termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of amounts or benefits upon or following a termination of employment unless such termination is also a "Separation from Service" within the meaning of Section 409A of the Code and, for purposes of any such provision of this Agreement, references to a "resignation," "termination," "termination of employment" or like terms shall mean Separation from Service. For purposes of Section 409A of the Code, each payment made under this Agreement shall be designated as a "separate payment" within the meaning of the Section 409A of the Code. Notwithstanding anything to the contrary herein, except to the extent any expense, reimbursement or in-kind benefit provided pursuant to this Agreement does not constitute a "deferral of compensation" within the meaning of Section 409A of the Code: (x) the amount of expenses eligible for reimbursement or in-kind benefits provided to Executive during any calendar year will not affect the amount of expenses eligible for reimbursement or in-kind benefits provided to Executive in any other calendar year, (y) the reimbursements for expenses for which Executive is entitled to be reimbursed shall be made on or before the last day of the calendar year following the calendar year in which the applicable expense is incurred, and (z) the right to payment or reimbursement or in-kind benefits hereunder may not be liquidated or exchanged for any other benefit

 

  

11

  

 

	
13. 

	
Entire Agreement

 

This Agreement contains the entire agreement of the parties relating to the subject matter hereof, and the parties hereto have made no agreements, representations or warranties relating to the subject matter of this Agreement that are not set forth otherwise herein.  In this regard, each of the parties represents and warrants to the other party that such party is not relying on any promises or representations that do not appear in writing herein.  This Agreement supersedes and replaces any prior agreements that Executive had with the Company.  Each of the parties further agrees and understands that this Agreement can be amended or modified only by a written agreement signed by all parties.

 

	
14. 

	
Notice

 

All notices and other communications under this Agreement shall be in writing and mailed, telegraphed, telecopied, or delivered by hand (by a party or a recognized courier service) to the other party at the following address (or to such other address as such party may have specified by notice given to the other party pursuant to this provision):

 

If to the Company:

Muscle Pharm Corp

4721 Ironton Street, Building A

Denver, CO 80239

 

If to Executive:

John H. Bluher

12981 N 2nd Street

Parker, CO 80134

  

12

  

 

 

	
15. 

	
Attorney’s Fees

 

In the event that any party shall bring an action or proceeding in connection with the performance, breach or interpretation of this Agreement, then the prevailing party in any such action or proceeding, as determined by the arbitrator, court or other body having jurisdiction, shall be entitled to recover from the losing party all reasonable costs and expenses of such action or proceeding, including reasonable attorneys’ fees, court costs, costs of investigation, expert witness fees and other costs reasonably related to such action or proceeding.

 

 

IN WITNESS WHEREOF, this Agreement is executed as of the day and year first above written.

 

	  	  	
“COMPANY”

	 
	  	  	
 

MUSCLE PHARM CORP, A Nevada Corporation

	 
	  	  	  	 
	  	
By:

	/s/ Brad Pyatt	 
	  	  	
Brad Pyatt

Chief Executive Officer

	 
	  	  	  	 
	  	  	  	 
	  	
and

	  	 
	  	  	  	 
	  	  	
“EXECUTIVE”

	 
	  	  	  	 
	  	
By:

	/s/ John H. Bluher	 
	  	  	
John H. Bluher

	 
	  	  	  	 
	  	  	  	 

  

13

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