Document:

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of January 6, 2021, between CFN Enterprises Inc., a Delaware corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

 

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

ARTICLE I.

DEFINITIONS

1.1 Definitions.In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings set forth in this Section 1.1: 

“Acquiring Person” shall have the meaning ascribed to such term in Section 4.5.

“Action” shall have the meaning ascribed to such term in Section 3.1(j). 

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person as such terms are used in and construed under Rule 405 under the Securities Act.

“Board of Directors” means the board of directors of the Company.

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

“Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1.

“Closing Date” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Securities, in each case, have been satisfied or waived.

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

“Dentons” means Dentons US LLP, with offices located at 1221 Avenue of the Americas, New York, NY 10020.

“Disclosure Schedules” means the Disclosure Schedules of the Company delivered

concurrently herewith.

“Disclosure Time” means, (i) if this Agreement is signed on a day that is not a Trading Day or after 9:00 a.m. (New York City time) and before midnight (New York City time) on any Trading Day, 9:01 a.m. (New York City time) on the fourth Trading Day immediately following the date hereof, and (ii) if this Agreement is signed between midnight (New York City time) and 9:00 a.m. (New York City time) on any Trading Day, no later than 9:01 a.m. (New York City time) on the third Trading Day immediately following the date hereof.

“Evaluation Date” shall have the meaning ascribed to such term in Section 3.1(s). “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the

rules and regulations promulgated thereunder.

“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended. “GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

“Intellectual Property Rights” shall have the meaning ascribed to such term in

Section 3.1(p).

“Legend Removal Date” shall have the meaning ascribed to such term in Section 4.1(c).

“Liens” means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

“Material Adverse Effect” shall have the meaning ascribed to such term in Section3.1(b).

“Material Permits” shall have the meaning ascribed to such term in Section 3.1(n).

“Share(s)” means the shares of common stock of the Company, par value $0.001

per share, and any other class of securities into which such securities may hereafter be reclassified or changed.

“Share Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Shares, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Shares.

“Per Share Purchase Price” equals $0.04, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of Shares that occur after the date of this Agreement.

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

“Placed Shares” means the Shares deliverable and delivered to Purchasers at the Closing pursuant to this Agreement.

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

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.8. “Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the

Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h). 

“Securities” means the Placed Shares.

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

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include locating and/or borrowing Shares).

“Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for the Shares purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a), and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.

“Trading Day” means a day on which the principal Trading Market is open for trading.

“Trading Market” means any of the following markets or exchanges on which the Shares are listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the OTCQB or OTCQX (or any successors to any of the foregoing).

“Transaction Documents” means this Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

 

ARTICLE II.

PURCHASE AND SALE

 

2.1Closing. On the Closing Date, upon the terms and subject to the conditions set forth herein, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, up to an aggregate of $500,000 of Placed Shares. Each Purchaser shall deliver to the Company, via wire transfer or a certified check, immediately available funds equal to such Purchaser’s Subscription Amount as set forth on the signature page hereto executed by such Purchaser, and the Company shall deliver to each Purchaser its respective Placed Shares as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of Dentons or such other location as the parties shall mutually agree. 

 

2.2Deliveries. 

 

(a)On or prior to the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following: 

 

(i)this Agreement duly executed by the Company; 

 

(ii)the Company’s wire instructions, on Company letterhead and 

executed by the Chief Executive Officer or Chief Financial Officer; and

 

(iii)a copy of the irrevocable instructions to the Company’s transfer agent to deliver on an expedited basis, the Placed Shares in book entry form equal to such Purchaser’s Subscription Amount divided by the Per Share Purchase Price, registered in the name of such Purchaser. 

 

(b)On or prior to the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company the following: 

 

(i)this Agreement duly executed by such Purchaser; and 

 

(ii)to the Company, such Purchaser’s Subscription Amount by wire 

transfer or certified check.

 

2.3Closing Conditions. 

(a)The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met: 

 

(i)the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) on the Closing Date of the representations and warranties of the Purchasers contained herein (unless as of a specific date therein in which case they shall be accurate as of such date); 

 

(ii)all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been performed; and 

 

(iii)the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement. 

 

(b)The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met: 

 

(i)the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) when made and on the Closing Date of the representations and warranties of the Company contained herein (unless as of a specific date therein in which case they shall be accurate as of such date); 

 

(ii)all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed; 

 

(iii)the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement; 

 

(iv)there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and 

 

(v)from the date hereof to the Closing Date, trading in the Shares shall not have been suspended by the Commission or the Company’s principal Trading Market, and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing. 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1Representations and Warranties of the Company. Except as set forth in the SEC Reports or the Disclosure Schedules, which SEC Reports and Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the SEC Reports or in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Purchaser: 

 

(a)Subsidiaries. All of the direct and indirect subsidiaries of the Company are as set forth on Schedule 3.1(a). The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, all other references to the Subsidiaries or any of them in the Transaction Documents shall be disregarded. 

 

(b)Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and, if such concept is applicable, in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of association, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification. 

 

(c)Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s shareholders in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and 

each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

(d)No Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of association, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary pursuant to, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect. 

 

(e)Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.4 of this Agreement, (ii) if applicable, the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws, and (iii) such consents, waivers and authorizations that shall be obtained prior to Closing (collectively, the “Required Approvals”). 

 

(f)Issuance of the Securities. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and non-assessable, free and clear of all Liens imposed by the Company other than restrictions provided for in the Transaction Documents or imposed by applicable securities laws. The Company has available for allotment pursuant to authority duly granted to the Board of Directors the maximum number of Placed Shares issuable pursuant to this Agreement. 

(g)Capitalization. The capitalization of the Company as of the date hereof is as set forth on Schedule 3.1(g). Except as set forth in Schedule 3.1(g), the Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of Shares to employees pursuant to the Company’s employee stock purchase plans and pursuant to the conversion and/or exercise of Share Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any Shares or the capital stock of any Subsidiary, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional Shares or Share Equivalents or capital stock of any Subsidiary. The issuance and sale of the Securities will not obligate the Company or any Subsidiary to issue Shares or other securities to any Person (other than the Purchasers). There are no outstanding securities or instruments of the Company or any Subsidiary with any provision that adjusts the exercise, conversion, exchange or reset price of such security or instrument upon an issuance of securities by the Company or any Subsidiary. There are no outstanding securities or instruments of the Company or any Subsidiary that contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to redeem a security of the Company or such Subsidiary. The Company does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no shareholders’ agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s shareholders. 

 

(h)SEC Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the one year preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension, except as otherwise set forth in the SEC Reports. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when 

filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Company has never been an issuer subject to Rule 144(i) under the Securities Act. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

 

(i)Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included within the SEC Reports, except as set forth on Schedule 3.1(i), (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its shareholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement or as set forth on Schedule 3.1(i), no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries or their respective businesses, prospects, properties, operations, assets or financial condition that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least 1 Trading Day prior to the date that this representation is made. 

 

(j)Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) would have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or 

officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company that would have or reasonably be expected to result in a Material Adverse Effect. The Commission has not issued any stop order or other order suspending the effectiveness of any outstanding registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.

 

(k)Labor Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 

 

(l)Compliance. Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could have or reasonably be expected to result in a Material Adverse Effect. 

 

(m)Environmental Laws. The Company and its Subsidiaries (i) are in compliance with all federal, state, local and foreign laws relating to pollution or protection of human health or the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), including laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands, or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations, issued, entered, promulgated or approved thereunder (“Environmental Laws”); (ii) have received all permits licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses; and (iii) are in compliance with all terms and conditions of any such 

permit, license or approval, except where in each clause (i), (ii) and (iii), the failure to so comply or the failure of such receipt could not be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.

 

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

 

(o)Title to Assets. Except where the failure to possess could not reasonably be expected to result in a Material Adverse Effect, the Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries, and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP and, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance except where the failure to comply could not reasonably be expected to result in a Material Adverse Effect. 

 

(p)Intellectual Property. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights necessary or required for use in connection with their respective businesses as described in the SEC Reports and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement, except as would not reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Subsidiary has received, since the date of the latest audited financial statements included within the SEC Reports, a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as could not have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality 

and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(q)[Intentionally Left Blank.] 

 

(r)Transactions With Affiliates and Employees. None of the officers or directors of the Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, providing for the borrowing of money from or lending of money to or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case in excess of $120,000 other than for (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company. 

 

(s)Sarbanes-Oxley; Internal Accounting Controls. The Company and the Subsidiaries are in material compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the Commission thereunder that are effective as of the date hereof and as of the Closing Date. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d- 15(e)) for the Company and the Subsidiaries and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. The Company’s certifying officers have evaluated the effectiveness of the disclosure controls and procedures of the Company and the Subsidiaries as of the end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the internal control over financial reporting (as such term is defined in the Exchange Act) of the Company and its Subsidiaries 

that have materially adversely affected, or is reasonably likely to materially adversely affect, the internal control over financial reporting of the Company and its Subsidiaries.

 

(t)Certain Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents. 

 

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

 

(v)Registration Rights. Except as set forth on Schedule 3.1(v), no Person has any right to cause the Company or any Subsidiary to effect the registration under the Securities Act of any securities of the Company or any Subsidiary. 

 

(w)Listing and Maintenance Requirements. The Shares are registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of Shares under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. The Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Shares are or have been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. The Shares are currently eligible for electronic transfer through The Depository Trust Company or another established clearing corporation and the Company is current in payment of the fees to The Depository Trust Company (or such other established clearing corporation) in connection with such electronic transfer. 

 

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

(y)Disclosure. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that it believes constitutes or might constitute material, non-public information. The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company. All of the disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company and its Subsidiaries, their respective businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct in all material respects and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof. 

 

(z)No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated. 

 

(aa) Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or of any Subsidiary know of no basis for any such claim.

 

(bb) Foreign Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent or other person acting on behalf of the Company or any Subsidiary, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic

government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person acting on its behalf of which the Company is aware) which is in violation of law, or (iv) violated in any material respect any provision of FCPA.

(cc)Accountants. The Company’s  independent registered public accounting firm is RBSM LLP. To the knowledge and belief of the Company, such accounting firm is a registered public accounting firm as required by the Exchange Act and (ii) has expressed its opinion with respect to the financial statements included in the Company’s Annual Report for the fiscal year ended December 31, 2019. 

(dd) Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

 

(ee) Acknowledgment Regarding Purchaser’s Trading Activity. Anything in this Agreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(e) and 4.11 hereof), it is understood and acknowledged by the Company that: (i) none of the Purchasers has been asked by the Company to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) past or future open market or other transactions by any Purchaser, specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities; (iii) any Purchaser, and counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, presently may have a “short” position in the Shares, and (iv) each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. The Company further understands and acknowledges that (y) one or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding, and (z) such hedging activities (if any) could reduce the value of the existing shareholders' equity interests in the Company at and after the time that the hedging activities are being conducted. The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.

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

 

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

 

(hh) Office of Foreign Assets Control.  Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer, agent, employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”).

 

(i)U.S. Real Property Holding Corporation. The Company is not and has never been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon Purchaser’s request. 

 

(jj) Bank Holding Company Act. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.

 

(kk) Money Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money Laundering Laws”), and no Action or Proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened.

(ll)  Private Placement. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities to the Purchasers as contemplated hereby.

 

(mm) No General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

 

(nn) No Disqualification Events. With respect to the Securities to be offered and sold hereunder in reliance on Rule 506 under the Securities Act, none of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering hereunder, or, to the knowledge of the Company, any beneficial owner (as that term is defined in Rule 13d-3 under the Exchange Act) of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale (each, an "Issuer Covered Person" and, together, "Issuer Covered Persons") is subject to any of the "Bad Actor" disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a "Disqualification Event"), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event. The Company has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Purchasers a copy of any disclosures provided thereunder.

 

(oo) Other Covered Persons. The Company is not aware of any person (other than any Issuer Covered Person) that has been or will be paid (directly or indirectly) remuneration for solicitation of purchasers in connection with the sale of any Securities.

 

(pp) Notice of Disqualification Events. The Company will notify the Purchasers in writing, prior to the Closing Date of (i) any Disqualification Event relating to any Issuer Covered Person and (ii) any event that would, with the passage of time, reasonably be expected to become a Disqualification Event relating to any Issuer Covered Person, in each case of which it is aware.

 

3.2Representations and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein, in which case they shall be accurate as of such date): 

 

(a)Organization; Authority. Such Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and 

delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

(b)Understandings or Arrangements. Such Purchaser is acquiring the Securities as principal for its own account and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to a registration statement or otherwise in compliance with applicable federal and state securities laws). Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business. Specifically, such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any other applicable state securities law and is acquiring such Securities as principal for its own account, not as nominee or agent, and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting such Purchaser’s right to sell such Securities pursuant to a registration statement, if applicable, or otherwise in compliance with applicable federal and state securities laws). 

 

(c)Purchaser Status. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, either: (i) an “accredited investor” as defined in Rule 501(a) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act. 

 

(d)Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment. 

 

(e)Access to Information. Such Purchaser acknowledges that it has had the opportunity to review the Transaction Documents (including all exhibits and schedules 

thereto) and the SEC Reports and has been afforded, (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment.

 

(f)Certain Transactions and Confidentiality. Other than consummating the transactions contemplated hereunder, such Purchaser has not, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, directly or indirectly executed any purchases or sales of the securities of the Company during the period commencing as of the time that such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material terms of the transactions contemplated hereunder and ending immediately prior to the execution hereof. In addition to the foregoing, such Purchaser has not, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, directly or indirectly executed any Short Sales of the securities of the Company during the period commencing 60 days prior to the date hereof and ending immediately prior to the execution hereof. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. Other than to other Persons party to this Agreement or to such Purchaser’s representatives, including, without limitation, its officers, directors, partners, legal and other advisors, employees, agents and Affiliates, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction). 

 

(g)No General Solicitation. Such Purchaser is not purchasing the Securities as a result of any registration statement, advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented ay any seminar or any other general solicitation or general advertisement. 

 

The Company acknowledges and agrees that the representations contained in this Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transactions contemplated hereby. Notwithstanding the foregoing, for the avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to locating or borrowing shares in order to effect Short Sales or similar transactions in the future.

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1Removal of Legends. 

 

(a)The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement with a current prospectus or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. 

 

(b)The Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form: 

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) AND ARE “RESTRICTED SECURITIES” AS DEFINED IN RULE 144 PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, OR OTHERWISE DISTRIBUTED OR TRANSFERRED EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (ii) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, AND, IN THE CASE OF A TRANSACTION EXEMPT FROM REGISTRATION, UNLESS THE COMPANY AND TRANSFER AGENT HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO EACH OF THEM THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER THE ACT.

 

The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities issuable upon exercise thereof to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities issuable upon exercise thereof may reasonably request in connection with a pledge or transfer of the Securities.

 

(c)Certificates evidencing the Placed Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while a registration statement with a current prospectus covering the resale of such security is effective under the 

Securities Act, (ii) following any sale of such Placed Shares pursuant to Rule 144, (iii) if such Placed Shares are eligible for sale under Rule 144, without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Placed Shares and without volume or manner-of-sale restrictions or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) (“Effective Date”). The Company shall cause its counsel to issue a legal opinion to the transfer agent promptly after the Effective Date if required by the transfer agent to effect the removal of the legend hereunder. If the Placed Shares may be sold under Rule 144 without limitation or restriction and the Company is then in compliance with the current public information required under Rule 144, or if the Placed Shares may be sold under Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Placed Shares or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Placed Shares shall be issued free of all legends. The Company agrees that following the Effective Date and at such time as such legend is no longer required under this Section 4.1(c), it will, no later than the number of Trading Days comprising the Standard Settlement Period (as defined below) following the delivery by a Purchaser to the Company or the transfer agent of a certificate representing Placed Shares, as applicable, issued with a restrictive legend (such date, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to the transfer agent that enlarge the restrictions on transfer set forth in this Section 4. Certificates for Placed Shares subject to legend removal hereunder shall be transmitted by the transfer agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser. “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Shares as in effect on the date of delivery of a certificate representing Placed Shares issued with a restrictive legend.

 

4.2Furnishing of Information. Until the first anniversary of the Closing Date, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act even if the Company is not then subject to the reporting requirements of the Exchange Act. 

 

4.3Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Placed Shares for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction. 

 

4.4Securities Laws Disclosure; Publicity. The Company shall by the Disclosure Time, file a Current Report on Form 8-K, including the Transaction Documents as exhibits thereto, with 

the Commission within the time required by the Exchange Act. From and after the issuance of such Form 8-K, the Company represents to the Purchasers that it shall have publicly disclosed all material, non-public information delivered to any of the Purchasers by the Company or any of its Subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents. In addition, effective upon the issuance of such Form 8-K, the Company acknowledges and agrees that any and all confidentiality or similar obligations under any agreement, whether written or oral, between the Company, any of its Subsidiaries or any of their respective officers, directors, agents, employees or Affiliates on the one hand, and any of the Purchasers or any of their Affiliates on the other hand, shall terminate. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release nor otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except (a) as required by federal securities law in connection with the filing of final Transaction Documents with the Commission and (b) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under this clause (b).

 

4.5Shareholder Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers. 

 

4.6Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, which shall be disclosed pursuant to Section 4.4, the Company covenants and agrees that neither it, nor any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that constitutes, or the Company reasonably believes constitutes, material non-public information, unless prior thereto such Purchaser shall have consented to the receipt of such information and agreed with the Company to keep such information confidential. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company. To the extent that the Company delivers any material, non-public information to a Purchaser without such Purchaser’s consent, the Company hereby covenants and agrees that such Purchaser shall not have any duty of confidentiality to the Company, any of its Subsidiaries, or any of their respective officers, directors, agents, employees or Affiliates, or a duty to the Company, any of its Subsidiaries or any of their respective officers, directors, agents, employees or Affiliates not to trade on the basis of, such material, non-public information, provided that the Purchaser shall remain subject to applicable law. To the extent that any notice provided pursuant 

to any Transaction Document constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.

 

4.7Use of Proceeds. The Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes and shall not use such proceeds: (a) for the satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and prior practices), (b) for the redemption of any Shares or Share Equivalents, (c) for the settlement of any outstanding litigation or (d) in violation of FCPA or OFAC regulations. 

 

4.8Indemnification of Purchasers. Subject to the provisions of this Section 4.8, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents, (b) any action instituted against the Purchaser Party in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is solely based upon a breach of such Purchaser Party’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser Party may have with any such stockholder or any violations by such Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party which is finally judicially determined to constitute fraud, gross negligence or willful misconduct) or (c) in connection with any registration statement of the Company providing for the resale by the Purchasers of the Placed Shares, the Company will indemnify each Purchaser Party, to the fullest extent permitted by applicable law, arising out of or relating to (i) any untrue or alleged untrue statement of a material fact contained in such registration statement, any prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that such untrue statements or omissions are based solely upon information regarding such Purchaser furnished in writing to the Company by such Purchaser expressly for use therein, or (ii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder in connection therewith. If any action shall be brought against any Purchaser Party in respect of which 

indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (x) the employment thereof has been specifically authorized by the Company in writing, (y) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (z) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (1) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (2) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents. The indemnification required by this Section 4.8 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law.

 

4.9Listing of Shares. The Company hereby agrees to use reasonable efforts to maintain the listing or quotation of the Shares on the Trading Market on which it is currently listed. The Company further agrees, if the Company applies to have the Shares traded on any other Trading Market, it will then include in such application all of the Placed Shares, and will take such other action as is necessary to cause all of the Placed Shares to be listed or quoted on such other Trading Market as promptly as possible. The Company will then take all action reasonably necessary to continue the listing and trading of its Placed Shares on a Trading Market and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Trading Market. The Company agrees to maintain the eligibility of the Placed Shares for electronic transfer through the Depository Trust Company or another established clearing corporation, including, without limitation, by timely payment of fees to the Depository Trust Company or such other established clearing corporation in connection with such electronic transfer. 

 

4.10Certain Transactions and Confidentiality. Each Purchaser, severally and not jointly with the other Purchasers, covenants that neither it nor any Affiliate acting on its behalf or pursuant to any understanding with it will execute any purchases or sales, including Short Sales of any of the Company’s securities during the period commencing with the execution of this Agreement and ending at such time that the transactions contemplated by this Agreement are first publicly announced pursuant to the Form 8-K as described in Section 4.4. Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company pursuant to the Form 8-K as described in Section 4.4, such Purchaser will maintain the confidentiality of the existence and terms of this transaction and the information included in the Disclosure Schedules. Notwithstanding the foregoing, and notwithstanding anything contained in this Agreement to the contrary, the Company 

expressly acknowledges and agrees that (i) no Purchaser makes any representation, warranty or covenant hereby that it will not engage in effecting transactions in any securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the Form 8-K as described in Section 4.4, (ii) no Purchaser shall be restricted or prohibited from effecting any transactions in any securities of the Company in accordance with applicable securities laws from and after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the Form 8-K as described in Section 4.4 and (ii) no Purchaser shall have any duty of confidentiality or duty not to trade in the securities of the Company to the Company or its Subsidiaries after the issuance of the Form 8-K as described in Section 4.4. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.

 

4.11Form D; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser. 

 

4.12Piggyback Registration Rights. If at any time before the Effective Date the Company shall determine to prepare and file with the Commission a registration statement (a “Registration Statement”) relating to an offering for its own account or the account of others under the Securities Act of any of its Shares, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, the Company shall send to Purchaser written notice of such determination and, if within ten (10) days after receipt of such notice, or within such shorter period of time as may be specified by the Company in such written notice as may be necessary for the Company to comply with its obligations with respect to the timing of the filing of such Registration Statement, any such Purchaser shall so request in writing (which request shall specify the Placed Shares intended to be disposed of by the Purchasers, if any), the Company will cause the registration under the Securities Act of all the Placed Shares which the Company has been so requested to register by the Purchaser, to the extent required to permit the disposition of the Placed Shares so to be registered; provided that if at any time after giving written notice of its intention to register any securities and prior to the effective date of the Registration Statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to such Purchaser and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Placed Shares in connection with such registration, and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Placed Shares being registered pursuant to this Section 4.12 for the same period as the delay in registering such other securities. The Company shall include in such Registration Statement all or 

any part of such Placed Shares such Purchaser requests to be registered; provided, however, that the Company shall not be required to register any Placed Shares pursuant to this Section 4.12 that are eligible for resale without limitations concerning the availability of current public information pursuant to Rule 144 of the Securities Act. In the case of an underwritten public offering, if the managing underwriter(s) or underwriter(s) should reasonably object to the inclusion of the Placed Shares in such Registration Statement, then if the Company after consultation with the managing underwriter should reasonably determine that the inclusion of the Placed Shares would materially adversely affect the offering contemplated in such Registration Statement, and based on such determination recommends inclusion in such Registration Statement of fewer or none of the Placed Shares of the Purchasers, then (x) the number of Placed Shares of the Purchaser included in such Registration Statement shall be reduced pro-rata among such Purchasers (based upon the number of Placed Shares requested to be included in the registration), if the Company after consultation with the underwriter(s) recommends the inclusion of fewer Placed Shares, or (y) none of the Placed Shares of the Purchasers shall be included in such Registration Statement, if the Company after consultation with the underwriter(s) recommends the inclusion of none of such Placed Shares; provided, however, that if securities are being offered for the account of other persons or entities as well as the Company, such reduction shall not represent a greater fraction of the number of Placed Shares intended to be offered by the Purchasers than the fraction of similar reductions imposed on such other persons or entities (other than the Company).

 

ARTICLE V.

MISCELLANEOUS

 

5.1Termination. This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before the fifth (5th) Trading Day following the date hereof; provided, however, that no such termination will affect the right of any party to sue for any breach by any other party (or parties). 

 

5.2Fees and Expenses. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all transfer agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company to issue Shares), stamp taxes and other taxes and duties levied in connection with the delivery of any Shares to the Purchasers. 

 

5.3Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules. 

 

5.4Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the time of transmission, if such notice or communication is delivered via 

facsimile at the facsimile number or email attachment at the email address as set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the time of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment at the email address as set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd)Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto. To the extent that any notice provided pursuant to any Transaction Document constitutes, or contains, material, non- public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.

 

5.5Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and holders of at least a majority of the aggregate amount of Placed Shares issued hereunder or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought, provided that if any amendment, modification or waiver disproportionately and adversely impacts a Purchaser (or group of Purchasers), the consent of such disproportionately impacted Purchaser (or group of Purchasers) shall also be required. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right. Any proposed amendment or waiver that disproportionately, materially and adversely affects the rights and obligations of any Purchaser relative to the comparable rights and obligations of the other Purchasers shall require the prior written consent of such adversely affected Purchaser. Any amendment effected in accordance with this Section 5.5 shall be binding upon each Purchaser and holder of Securities and the Company. 

 

5.6Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. 

 

5.7Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Placed Shares, provided that such transferee agrees in writing to be bound, with respect to the transferred Placed Shares, by the provisions of the Transaction Documents that apply to the “Purchasers.” 

 

5.8No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.8. 

5.9Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Action or Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Action or Proceeding is improper or is an inconvenient venue for such Proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such Action or Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If any party shall commence an Action or Proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.8, the prevailing party in such Action or Proceeding shall be reimbursed by the non-prevailing party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Action or Proceeding. 

 

5.10Survival. The representations and warranties contained herein shall survive the Closing and the delivery of the Securities. 

 

5.11Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof. 

 

5.12Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. 

5.13Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in respect of the securities or other matter to which the default relates without prejudice to its future actions and rights. 

 

5.14Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities. 

 

5.15Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any Action for specific performance of any such obligation the defense that a remedy at law would be adequate. 

 

5.16Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. 

 

5.17 Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non- performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser 

to be joined as an additional party in any Proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in its review and negotiation of the Transaction Documents. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any of the Purchasers. It is expressly understood and agreed that each provision contained in this Agreement and in each other Transaction Document is between the Company and a Purchaser, solely, and not between the Company and the Purchasers collectively and not between and among the Purchasers.

 

5.18Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day. 

 

5.19Construction. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and Shares in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Shares that occur after the date of this Agreement. 

 

5.20WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY. 

 

 

 

(Signature Pages Follow)

 

 

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

 

	CFN ENTERPRISES INC.

	 

	Address for Notice:

	 

	 

	 

	 

	 

	 

	 

	 

	By:

	 

	 

	Fax:

	 

	Name: Brian Ross

	 

	Email: brian@accelerize.com

	 

	Title: CEO

	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

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

	 

	 

 

 

 

 

 

 

 

 

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[PURCHASER SIGNATURE PAGES TO CNFN SECURITIES PURCHASE AGREEMENT]

 

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

 

Name of Purchaser:    

 

Signature of Authorized Signatory of Purchaser:    

 

Name of Authorized Signatory:    

 

Title of Authorized Signatory:    

 

Email Address of Authorized Signatory:   

 

Facsimile Number of Authorized Signatory:    

 

Address for Notice to Purchaser: 

 

Subscription Amount: $   

Shares:    

 

EIN Number:    

 

Address for Delivery of Shares to Purchaser (if not same as address for notice): 

 

Name:

 

Address:

 

 

[SIGNATURE PAGES CONTINUE]COMMON STOCK AND COMMON UNIT INVESTMENT AGREEMENT

 

This Common Stock and Common Unit Investment Agreement (this “Agreement”) is dated as of the Agreement Date and is between the Companies (as hereafter defined), on the one hand, and the Purchasers (as hereafter defined), on the other hand.

 

The parties agree as follows:

 

1.DEFINITIONS. Capitalized terms used and not otherwise defined in this Agreement or the Exhibit and Schedules thereto have the meanings set forth in Exhibit A. 

 

2.INVESTMENT. Subject to the terms and conditions of this Agreement, including the Agreement Terms set forth in Exhibit B, (i) each Purchaser shall purchase from the Corporation at the applicable Closing, and the Corporation shall sell and issue to each Purchaser at such Closing, that number of shares of Common Stock of the Corporation set forth opposite such Purchaser’s name on Schedule 1, at a price per share equal to the applicable Purchase Price for the Corporation’s Common Stock, (ii) each Purchaser shall purchase from the LLC at the applicable Closing, and the LLC shall sell and issue to each Purchaser at such Closing, that number of Common Units of the LLC set forth opposite such Purchaser’s name on Schedule 1, at a price per Unit equal to the applicable Purchase Price for the LLC’s Common Units and (iii) each Purchaser, the Corporation and the LLC, agrees to be bound by its obligations set forth in this Agreement and to grant to the other parties hereto the rights set forth in this Agreement. 

 

3.ENTIRE AGREEMENT. This Agreement (including all the Exhibits and Schedules hereto) together with the Restated Charter and the Restated Operating Agreement, constitute the full and entire understanding and agreement between the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties is expressly canceled. 

 

 

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EXHIBIT A DEFINITIONS

 

1.OVERVIEW DEFINITIONS. 

 

"Agreement Date" means January 6, 2021.

"Companies" means , collectively, (i) Innovation Labs Ltd., a Delaware corporation (the "Corporation"),

and (ii) Innovation Shares LLC, a Delaware limited liability company (the "LLC"). "Company " means either the Corporation or the LLC, individually, as applicable. "Governing Law" means the laws of the State of Delaware.

"Dispute Resolution Jurisdiction" means the federal or state courts located in New York County, Borough of Manhattan, the State of New York.

 

2.TERM SHEET DEFINITIONS. 

 

"Maior Purchaser Threshold" means both (i) 1,685,760 shares of the Corporation's Common Stock 

and (ii) 1,685,760 units of the LLC's Common Units.

"Purchase Price" means $0.0475 per share for the Common Stock and $0.19 per unit for the Company Common Units.

"Purchaser" is defined on Exhibit B hereto.

"Total Series Post Seed Investment Amount" means the sum of (a) the Corporation Investment Amount and (b) the LLC Investment Amount.

"Corporation Amount" means $40,000.

"LLC Investment Amount" means $160,000.

 

 

 

 

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A-1

SCHEDULE 1

 

SCHEDULE OF PURCHASERS

 

PURCHASERS:

 

	 

Name, Address and E-Mail of Purchaser

	Common Stock

Shares Purchased

	 

Common Units Purchased

	Total

Purchase Amount

	CFN Enterprises, Inc.

	842,105

	842,105

	$200,000

	 

	 

	 

	 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Schedule 1-1

EXHIBIT B

 

AGREEMENT TERMS

 

1.PURCHASE AND SALE OF COMMON STOCK AND COMMON UNITS. 

 

1.1Sale and Issuance of Common Stock and Common Units. 

 

1.1.1The Corporation shall adopt and file the Corporation’s Amended and Restated Certificate of Incorporation in substantially the form of Exhibit C attached to this Agreement (the “Restated Charter”) with the Delaware Secretary of State on or before the Initial Closing. The LLC shall adopt the LLC’s Second Amended and Restated Limited Liability Company Agreement in substantially the form of Exhibit D attached to this Agreement (the “Restated Operating Agreement”). 

 

1.1.2Subject to the terms and conditions of this Agreement, each investor listed as a “Purchaser” on Schedule 1 (each, a “Purchaser”) (a) shall purchase from the Corporation at the applicable Closing, and the Corporation agrees to sell and issue to each Purchaser at such Closing, that number of shares of Common Stock of the Corporation (“Common Stock”) set forth opposite such Purchaser’s name on Schedule 1, at a purchase price per share equal to the Purchase Price (for Common Stock), as applicable; and (b) shall purchase from the LLC at the applicable Closing, and the LLC agrees to sell and issue to each Purchaser at such Closing, that number of Series Post Seed Preferred Membership Units of the LLC (“Common Units”) set forth opposite such Purchaser’s name on Schedule 1, at a purchase price per such membership unit equal to the Purchase Price (for Common Units). 

 

1.2Closing; Delivery. 

 

1.2.1The initial purchase and sale of the shares of Common Stock and accounts the Common Units hereunder shall take place remotely via the exchange of documents and signatures on the Agreement Date or the subsequent date on which one or more Purchasers execute counterpart signature pages to this Agreement and deliver to each Company the portion of the Purchase Price payable to such Company for the shares of Common Stock (in the case of the Corporation) or the Common Units (in the case of the LLC), as applicable, issuable by such Company under this Agreement (which date is referred to herein as the “Initial Closing”). 

 

1.2.2At any time and from time to time during the ninety (90) day period immediately following the date of the Initial Closing (the “Additional Closing Period”), the Companies may, at one or more additional closings (each, an “Additional Closing” and together with the Initial Closing, each, a “Closing”), without obtaining the signature, consent or permission of any of the Purchasers in the Initial Closing or any prior Additional Closing, offer and sell to other investors, who may include Purchasers who have purchased Common Stock and Common Units at the Closing or any earlier Additional Closing (the “New Purchasers”), as follows, at a per share or unit purchase price equal to the applicable Purchase Price, (a) in the case of the Corporation, up to that number of shares of Common Stock that is equal to that number of shares of Common Stock equal to the quotient of (x) Corporation Series Post Seed Investment Amount divided by (y) the Purchase Price for Common Stock, rounded up to the next whole share (the “Total Shares Authorized for Sale”) less the number of shares of Common Stock actually issued and sold by the Company at the Initial Closing and at any prior Additional Closings and (b) in the case of the LLC, up to that number of units of Common Units that is equal to that number of units of Common Units equal to the quotient of (x) LLC Series Post Seed Investment Amount divided by (y) the Purchase Price for Common Units, rounded up to the next whole unit (the “Total Units Authorized for Sale”) less the number of Common Units actually issued and sold by the Company at the Initial Closing and at any prior Additional Closings. New Purchasers may include persons or entities who are already 

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Purchasers under this Agreement. The Companies and each of the New Purchasers purchasing shares of Common Stock or Common Units at each Additional Closing will execute counterpart signature pages to this Agreement and each New Purchaser will, upon delivery by such New Purchaser and acceptance by the Companies of such New Purchaser’s signature page and delivery of the applicable Purchase Price by such New Purchaser to each of the Companies, become a party to, and bound by, this Agreement to the same extent as if such New Purchaser had been a Purchaser at the Initial Closing and each such New Purchaser shall be deemed to be a Purchaser for all purposes under this Agreement as of the date of the applicable Additional Closing.

 

1.2.3Promptly following each Closing, if required by either of the Companies’ governing documents, the Companies shall deliver to each Purchaser participating in such Closing a certificate representing (in the case of the Corporation) the shares of Common Stock or (in the case of the LLC) units of Common Units being purchased by such Purchaser at such Closing against payment of the Purchase Price therefor by check payable to such Company, by wire transfer to a bank account designated by such Company, by cancellation or conversion of indebtedness of such Company to Purchaser or by any combination of such methods. 

 

2.REPRESENTATIONS AND WARRANTIES OF THE CORPORATION. The Corporation hereby represents and warrants to each Purchaser that the following representations are true and complete as of the date of the Agreement Date, except as otherwise indicated. 

 

2.1Organization, Good Standing, Corporate Power and Qualification. The Corporation is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware and has all corporate power and corporate authority required (a) to carry on its business as presently conducted and as presently proposed to be conducted and (b) to execute, deliver and perform its obligations under this Agreement. The Corporation is duly qualified to transact business as a foreign corporation and is in good standing under the laws of each jurisdiction in which the failure to so qualify or be in good standing would have a material adverse effect on the business, assets (including intangible assets), liabilities, financial condition, property, or results of operations of the Companies. 

 

2.2Capitalization. 

 

2.2.1The authorized capital of the Corporation consists, immediately prior to the Agreement Date (unless otherwise noted), of the following: 

 

(a)18,000,000 shares of Common Stock, $0.00001 par value per share (the “Common Stock”), 12,613,158 shares of which are, issued and outstanding; and 

 

(b)3,000,000 shares of Preferred Stock, $0.00001 par value per share (the “Preferred Stock”), 921,054 of which are designated Series Seed Preferred Stock (the “Series Seed Preferred Stock”), 761,911 of which are designated Post Series Seed Preferred Stock (the “Post Series Seed Preferred Stock”), all of which are issued and outstanding, and the remaining 1,317,305 which have been designated Common Stock, none of which will be issued and outstanding immediately prior to the Initial Closing. 

 

(c)All of the outstanding shares of Common Stock are duly authorized, validly issued, fully paid and non-assessable and were issued in material compliance with all applicable federal and state securities laws. 

 

(d)The Corporation has reserved 1,394,779 shares of Common Stock for issuance to officers, directors, employees, consultants and advisors of the Corporation and its subsidiaries 

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and parents pursuant to the Corporation’s 2017 Equity Incentive Plan, as amended (the “Corporation’s Incentive Plan”). The Corporation’s Incentive Plan has been duly adopted by the Board of Directors of the Corporation (the “Corporation Board”) and approved by the Corporation’s stockholders. After giving effect to issuances out of the Corporation’s Incentive Plan prior to the Agreement Date and those contemplated as of the Agreement Date, 409,901 shares of Common Stock remain reserved for issuance under the Corporation’s Incentive Plan.

 

(e)Except as set forth in the Corporation’s Restated Charter, the rights of Purchasers to purchase Common Stock under this Agreement, and rights of the holders of Series Seed Preferred Stock pursuant to any Investment Agreements executed in connection with the issuance of the Series Seed Preferred Stock, there are no outstanding preemptive rights, options, warrants, conversion privileges or rights (including but not limited to rights of first refusal or similar rights), orally or in writing, to purchase or acquire any securities from the Corporation including, without limitation, any shares of Common Stock, or Preferred Stock, or any securities convertible into or exchangeable or exercisable for shares of Common Stock or Preferred Stock. 

 

2.3Subsidiaries. The Corporation does not currently own or control, directly or indirectly, any interest in any other corporation, partnership, trust, joint venture, limited liability company, association, or other business entity. The Corporation is not a participant in any joint venture, partnership or similar arrangement. 

 

2.4Authorization. All corporate action has been taken, or will be taken prior to the applicable Closing, on the part of the Corporation Board and stockholders that is necessary for the authorization, execution and delivery of this Agreement by the Corporation and the performance by the Corporation of the obligations to be performed by the Corporation as of the date hereof under this Agreement. This Agreement, when executed and delivered by the Corporation (assuming due execution and delivery by the Purchasers), shall constitute the valid and legally binding obligation of the Corporation, enforceable against the Corporation in accordance with its terms except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general application relating to or affecting the enforcement of creditors’ rights generally, or (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. 

 

2.5Valid Issuance of Shares. The shares of Common Stock, when issued, sold and delivered in accordance with the terms and for the consideration set forth in this Agreement, will be duly authorized, validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under the Restated Charter, this Agreement, applicable state and federal securities laws and liens or encumbrances created by or imposed by a Purchaser. Based in part on the accuracy of the representations of the Purchasers in Section 5 of this Agreement and subject to filings pursuant to Regulation D of the Securities Act of 1933, as amended (the “Securities Act”), and applicable state securities laws, the offer, sale and issuance of the shares of Common Stock to be issued pursuant to and in conformity with the terms of this Agreement and the issuance of the Common Stock, if any, to be issued upon conversion thereof for no additional consideration and pursuant to the Restated Charter, will be issued in compliance with all applicable federal and state securities laws. The Common Stock issuable upon conversion of the shares of Common Stock has been duly reserved for issuance, and upon issuance in accordance with the terms of the Restated Charter, will be duly authorized, validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under the Restated Charter, this Agreement, applicable federal and state securities laws and liens or encumbrances created by or imposed by a Purchaser. Based in part upon the representations of the Purchasers in Section 5 of this Agreement, and subject to filings pursuant to Regulation D of the Securities Act and applicable state securities laws, the Common Stock issuable upon conversion of the shares of Common Stock will be issued in compliance with all applicable federal and state securities laws. The Corporation is not under any 

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obligation to register under the Securities Act any of its securities (whether currently outstanding or to be issued in the future).

 

3.REPRESENTATIONS AND WARRANTIES OF THE LLC. The LLC hereby represents and warrants to each Purchaser that the following representations are true and complete as of the date of the Agreement Date, except as otherwise indicated. 

 

3.1Organization, Good Standing, Company Power and Qualification. The LLC is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and has all organization power and organizational authority required (a) to carry on its business as presently conducted and as presently proposed to be conducted and (b) to execute, deliver and perform its obligations under this Agreement. The LLC is duly qualified to transact business as a foreign entity and is in good standing under the laws of each jurisdiction in which the failure to so qualify or be in good standing would have a material adverse effect on the business, assets (including intangible assets), liabilities, financial condition, property, or results of operations of the Companies. 

 

3.2Capitalization. 

 

3.2.1The authorized membership of the LLC consists, immediately prior to the Agreement Date (unless otherwise noted), of the following: 

 

(a)18,000,000 common units (the “Common Units”), 12,570,176 units of which are issued and outstanding; and 

 

(b)3,000,000 preferred units (the “Preferred Units”), 921,054 of which are designed Series Seed Preferred Units (the “Series Seed Preferred Units”), 761,911 of which are designated Post Series Seed Preferred Units (the “Post Series Seed Preferred Units”) all of which are issued and outstanding, and the remaining 1,317,305 of which are designated Common Units, none of which will be issued and outstanding immediately prior to the Initial Closing. 

 

(c)All of the outstanding units that are Common Units are duly authorized, validly issued, fully paid and non-assessable and were issued in material compliance with all applicable federal and state securities laws. 

 

(d)The LLC has reserved 1,394,779 Common Units for issuance to officers, directors, employees and consultants and advisors of the LLC and its subsidiaries and parents pursuant to the LLC’s 2018 Equity Incentive Plan, as amended (the “LLC’s Incentive Plan”). The LLC’s Incentive Plan has been duly adopted by the Board of Managers of the LLC (the “LLC Board”) and approved by the LLC’s members. After giving effect to issuances out of the LLC’s Incentive Plan prior to the Agreement Date and those contemplated as of the Agreement Date, 369,497 Common Units remain reserved for issuance under the LLC’s Incentive Plan. 

 

(e)Except as set forth in the Company’s Restated Operating Agreement, the rights of the Purchasers to purchase Common Units under this Agreement, and rights of the holders of Series Seed Preferred Units pursuant to any Investment Agreements executed in connection with the issuance of the Series Seed Preferred Units, there are no outstanding preemptive rights, options, warrants, conversion privileges or rights (including but not limited to rights of first refusal or similar rights), orally or in writing, to purchase or acquire any securities from the LLC including, without limitation, any Common Units, or Preferred Units, or any securities convertible into or exchangeable or exercisable for Common Units or Preferred Units. 

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3.3Subsidiaries. The LLC does not currently own or control, directly or indirectly, any interest in any other corporation, partnership, trust, joint venture, limited liability company, association, or other business entity. The LLC is not a participant in any joint venture, partnership or similar arrangement. 

 

3.4Authorization. All company action has been taken, or will be taken prior to the applicable Closing, on the part of the LLC Board and members that is necessary for the authorization, execution and delivery of this Agreement by the LLC and the performance by the LLC of the obligations to be performed by the LLC as of the date hereof under this Agreement. This Agreement, when executed and delivered by the LLC (assuming due execution and delivery by the Purchasers), shall constitute the valid and legally binding obligation of the LLC, enforceable against the LLC in accordance with its terms except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general application relating to or affecting the enforcement of creditors’ rights generally, or (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. 

 

3.5Valid Issuance of Units. The units of Common Units, when issued, sold and delivered in accordance with the terms and for the consideration set forth in this Agreement, will be duly authorized, validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under the Restated Operating Agreement, this Agreement, applicable state and federal securities laws and liens or encumbrances created by or imposed by a Purchaser. Based in part on the accuracy of the representations of the Purchasers in Section 5 of this Agreement and subject to filings pursuant to Regulation D of the Securities Act, and applicable state securities laws, the offer, sale and issuance of the units of Common Units to be issued pursuant to and in conformity with the terms of this Agreement and the issuance of the Common Units, if any, to be issued upon conversion thereof for no additional consideration and pursuant to the Restated Operating Agreement, will be issued in compliance with all applicable federal and state securities laws. The Common Units issuable upon conversion of the units of Common Units has been duly reserved for issuance, and upon issuance in accordance with the terms of the Restated Operating Agreement, will be duly authorized, validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under the Restated Operating Agreement, this Agreement, applicable federal and state securities laws and liens or encumbrances created by or imposed by a Purchaser. Based in part upon the representations of the Purchasers in Section 5 of this Agreement, and subject to filings pursuant to Regulation D of the Securities Act and applicable state securities laws, the Common Units issuable upon conversion of the units of Common Units will be issued in compliance with all applicable federal and state securities laws. The LLC is not under any obligation to register under the Securities Act any of its securities (whether currently outstanding or to be issued in the future). 

 

4.REPRESENTATIONS AND WARRANTIES OF THE COMPANIES. The Corporation and LLC, jointly as the Companies, each hereby represents and warrants to each Purchaser that the following representations are true and complete as of the date of the Agreement Date, except as otherwise indicated. 

 

4.1Litigation. There is no pending action, suit, proceeding, arbitration, mediation, complaint, claim, charge or investigation before any court, arbitrator, mediator or governmental body or, to the Companies’ knowledge, currently threatened in writing (a) against either of the Companies or 

(b) against any consultant, officer, director or key employee of either of the Companies arising out of his or her consulting, employment or board relationship with the Companies or that could otherwise materially impact the Companies.

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4.2Compliance with Other Instruments. The Corporation is not in material violation or material default of any provisions of the Restated Charter or the Corporation’s bylaws and the LLC is not in material violation of the Restated Operating Agreement. Neither of the Companies is in material violation or material default (a) of any judgment, order, writ or decree of any court or governmental entity, (b) under any material agreement, instrument, contract, lease, note, indenture, mortgage or purchase order to which it is a party, or (c) to its knowledge, of any provision of federal or state statute, rule or regulation materially applicable to the Companies. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in any such violation or default, or constitute, with or without the passage of time and giving of notice, either (i) a material default by either of the Companies under any such judgment, order, writ, decree, agreement, instrument, contract, lease, note, indenture, mortgage or purchase order or (ii) an event which results in the creation of any lien, charge or encumbrance upon any assets of either of the Companies or the suspension, revocation, forfeiture, or nonrenewal of any material permit or license applicable to either of the Companies. 

 

5.REPRESENTATIONS AND WARRANTIES AND COVENANTS OF THE PURCHASERS. Each Purchaser hereby represents and warrants to the Companies, severally and not jointly, as follows. 

 

5.1Authorization. The Purchaser has full power and authority to enter into this Agreement. This Agreement, when executed and delivered by the Purchaser (assuming due execution and delivery by the Company), will constitute a valid and legally binding obligation of the Purchaser, enforceable in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application relating to or affecting the enforcement of creditors’ rights generally, or (b) the effect of rules of law governing the availability of equitable remedies. 

 

5.2Purchase Entirely for Own Account. This Agreement is made with the Purchaser in reliance upon the Purchaser’s representation to the Companies, which by the Purchaser’s execution of this Agreement, the Purchaser hereby confirms, that the shares of Common Stock and units of Common Units to be acquired by the Purchaser will be acquired for investment for the Purchaser’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Purchaser further represents that the Purchaser does not presently have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the shares of Common Stock or units of Common Units. The Purchaser has not been formed for the specific purpose of acquiring the shares of Common Stock or Common Units. 

 

5.3Disclosure of Information. The Purchaser has had an opportunity to discuss the Companies’ business, management, financial affairs and the terms and conditions of the offering of the shares of Common Stock and units of Common Units with the Companies’ management. Nothing in this Section 5, including the foregoing sentence, limits or modifies the representations and warranties of the Corporation in Section 2, the representations and warranties of the LLC in Section 3 and the representations and warranties of the Companies in Section 4 of this Agreement or the right of the Purchasers to rely thereon. The Purchaser understands that investing in the shares of the Common Stock and the units of the Common Units involves a high degree of risk, including, but not limited to, those risk factors set forth on Exhibit E hereto. 

 

5.4Restricted Securities. The Purchaser understands that the shares of Common Stock and units of Common Units have not been, and will not be, registered under the Securities Act, by 

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reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Purchaser’s representations as expressed herein. The Purchaser understands that the shares of Common Stock and units of Common Units are “restricted securities” under applicable United States federal and state securities laws and that, pursuant to these laws, the Purchaser must hold the shares of Common Stock and units of Common Units indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities or an exemption from such registration and qualification requirements is available. The Purchaser acknowledges that the Companies have no obligation to register or qualify the shares of Common Stock or units of Common Units, or the Common Stock and Common Units into which they may be converted, for resale. The Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the shares of Common Stock and units of Common Units, and on requirements relating to the Companies which are outside of the Purchaser’s control, and which the Companies are under no obligation and may not be able to satisfy.

 

5.5No Public Market. The Purchaser understands that no public market now exists for the shares of Common Stock or the Common Units, and that the Companies have made no assurances that a public market will ever exist for the shares of Common Stock or the Common Units. 

 

5.6Legends. The Purchaser understands that the shares of Common Stock and/or the Common Units and any securities issued in respect of or exchange for those securities, may bear any one or more of the following legends: (a) any legend set forth in, or required by, this Agreement; (b) any legend required by the securities laws of any state to the extent such laws are applicable to the shares of Common Stock or the Common Units represented by the certificate so legended; and (c) the following legend: 

 

“THE SHARES/UNITS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.”

 

5.7Accredited and Sophisticated Purchaser. The Purchaser is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Securities Act and will contemporaneous with the execution hereof, execute an accredited investor questionnaire in the form attached hereto as Exhibit F. The Purchaser is an investor in securities of companies in the development stage and acknowledges that Purchaser is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the shares of Common Stock and the Common Units. If other than an individual, Purchaser also represents it has not been organized for the purpose of acquiring the shares of Common Stock or the Common Units. 

 

5.8No General Solicitation. Neither the Purchaser nor any of its officers, directors, employees, agents, stockholders or partners has either directly or indirectly, including through a broker or finder (a) engaged in any general solicitation with respect to the offer and sale of the shares of Common Stock or units of Common Units, or (b) published any advertisement in connection with the offer and sale of the shares of Common Stock or Common Units. 

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5.9Exculpation Among Purchasers. The Purchaser acknowledges that it is not relying upon any person, other than the Companies and its officers and directors, in making its investment or decision to invest in the Companies. The Purchaser agrees that neither any Purchaser nor the respective controlling persons, officers, directors, partners, agents, or employees of any Purchaser shall be liable to any other Purchaser for any action heretofore taken or omitted to be taken by any of them in connection with the purchase of the shares of Common Stock or the units of the Common Units. 

 

5.10Residence. If the Purchaser is an individual, then the Purchaser resides in the state identified in the address of the Purchaser set forth on the signature page hereto and/or on Schedule 1; if the Purchaser is a partnership, corporation, limited liability company or other entity, then the office or offices of the Purchaser in which its principal place of business is identified in the address or addresses of the Purchaser set forth on the signature page hereto and/or on Schedule 1. In the event that the Purchaser is not a resident of the United States, such Purchaser hereby agrees to make such additional representations and warranties relating to such Purchaser’s status as a non-United States resident as reasonably may be requested by either of the Companies and to execute and deliver such documents or agreements as reasonably may be requested by either of the Companies relating thereto as a condition to the purchase and sale of any shares of Common Stock or units of Common Units by such Purchaser. 

 

6.COVENANTS OF THE COMPANIES. 

 

6.1Information Rights. 

 

6.1.1Basic Financial Information. The Corporation shall furnish, as soon as practical after the reporting period ends but in no event later than 60 days (or 120 days in the case of any annual financial statements) after such reporting period ends, to each Purchaser holding a total number of shares of Common Stock and units of Common Units equal to or in excess of the Major Purchaser Threshold (a “Major Purchaser”) and any entity that requires such information pursuant to its organizational documents when available both (1) annual unaudited financial statements for each fiscal year of the Corporation, including an unaudited balance sheet as of the end of such fiscal year, an unaudited income statement, and an unaudited statement of cash flows, all prepared in accordance with generally accepted accounting principles and practices; and (2) quarterly unaudited financial statements for each fiscal quarter of the Corporation (except the last quarter of the Corporation’s fiscal year), including an unaudited balance sheet as of the end of such fiscal quarter, an unaudited income statement, and an unaudited statement of cash flows, all prepared in accordance with generally accepted accounting principles and practices, subject to changes resulting from normal year-end audit adjustments. The LLC shall furnish, as soon as practical after the reporting period ends but in no event later than 60 days (or 120 days in the case of any annual financial statements) after such reporting period ends, to each Major Purchaser and any entity that requires such information pursuant to its organizational documents when available both (1) annual unaudited financial statements for each fiscal year of the LLC, including an unaudited balance sheet as of the end of such fiscal year, an unaudited income statement, and an unaudited statement of cash flows, all prepared in accordance with generally accepted accounting principles and practices; and (2) quarterly unaudited financial statements for each fiscal quarter of the LLC (except the last quarter of the LLC’s fiscal year), including an unaudited balance sheet as of the end of such fiscal quarter, an unaudited income statement, and an unaudited statement of cash flows, all prepared in accordance with generally accepted accounting principles and practices, subject to changes resulting from normal year-end audit adjustments. If the Company has audited records of any of the foregoing, it shall provide those in lieu of the unaudited versions. 

 

6.1.2Confidentiality. Anything in this Agreement to the contrary notwithstanding, no Purchaser by reason of this Agreement shall have access to any trade secrets or confidential information of either of the Companies. Neither of the Companies shall be required to comply with any information rights of any Purchaser whom such Company reasonably determines to be a 

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competitor or any officer, employee, director, or holder of ten percent (10%) or more of a competitor. Each Purchaser shall keep confidential and shall not disclose, divulge, or use for any purpose (other than to monitor its investment in the Companies), or enable or permit any other person to use, any confidential information obtained from any of the Companies pursuant to the terms of this Agreement other than to any of the Purchaser’s attorneys, accountants, consultants, and other professionals, to the extent necessary to obtain their services in connection with monitoring the Purchaser’s investment in the Companies.

 

7.RESTRICTIONS ON TRANSFER; DRAG ALONG. 

 

7.1Limitations on Disposition. In addition to any transfer restrictions contained in the Company’s bylaws or Restated Operating Agreement, each person owning of record shares of Series Seed Preferred Stock or Series Seed Preferred Units, or Common Stock of the Corporation or Common Units of the LLC issued or issuable pursuant to the conversion of the shares of Series Seed Preferred Stock or Series Seed Preferred Units, and any shares of Common Stock of the Corporation or any Common Units of the LLC issued as a dividend or other distribution with respect thereto or in exchange therefor or in replacement thereof (collectively, the “Securities”) or any assignee of record of Securities (each such person, a “Holder”) shall not make any disposition of all or any portion of any Securities unless: 

 

(a)there is then in effect a registration statement under the Securities Act, covering such proposed disposition and such disposition is made in accordance with such registration statement; or 

 

(b)such Holder has notified the applicable Company of the proposed disposition and has furnished such Company with a statement of the circumstances surrounding the proposed disposition, and, at the expense of such Holder or its transferee, with an opinion of counsel, reasonably satisfactory to such Company, that such disposition will not require registration of such securities under the Securities Act. 

 

Notwithstanding the provisions of Sections 7.1(a) and (b), no such registration statement or opinion of counsel will be required: (i) for any transfer of any Securities in compliance with the Securities and Exchange Commission’s Rule 144 or Rule 144A, or (ii) for any transfer of any Securities by a Holder that is a partnership, limited liability company, a corporation, or a venture capital fund to (A) a partner of such partnership, a member of such limited liability company, or stockholder of such corporation,

(B) an affiliate of such partnership, limited liability company or corporation (including, any affiliated investment fund of such Holder), (C) a retired partner of such partnership or a retired member of such limited liability company, (D) the estate of any such partner, member, or stockholder, or (iii) for the transfer without additional consideration or at no greater than cost by gift, will, or intestate succession by any Holder to the Holder’s spouse or lineal descendants or ancestors or any trust for any of the foregoing; provided that, in the case of clauses (ii) and (iii), the transferee agrees in writing to be subject to the terms of this Agreement to the same extent as if the transferee were an original Purchaser under this Agreement.

 

7.2“Market Stand-Off” Agreement. To the extent requested by any Company or an underwriter of securities of any Company, each Holder shall not sell or otherwise transfer or dispose of any Securities or other shares of stock or units of such Company then owned by such Holder (other than to donees or partners of the Holder who agree to be similarly bound) for up to 180 days following the effective date of the final prospectus related to the initial public offering of or up to 90 days following the effective date of any other registration statement of such Company filed under the Securities Act. For purposes of this Section 7.2, “Company” includes any wholly-owned subsidiary of the Company into which the Company merges or consolidates. The Company may place restrictive legends on the certificates representing the shares subject to this Section 7.2 and may impose stop transfer instructions with respect to the Securities and such other shares of stock of each Holder (and the shares or securities of every other 

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person subject to the foregoing restriction) until the end of such period. Each Holder shall enter into any agreement reasonably required by the underwriters to implement the foregoing within any reasonable time frame so requested. Any discretionary waiver or termination of the restrictions of this Section 7.2 or any other similar market stand-off restriction by a Company (unless such discretionary waiver or termination is approved by the holders of outstanding securities of such Company holding securities of such Company possessing at least a majority of the voting power of all outstanding securities of such Company) shall apply pro rata to all Holders subject to such agreements, based on the number of shares subject to such agreements.

 

7.3Drag Along Right. In the event of both, or either, (a) a Deemed Liquidation Event (as defined in the Restated Charter) is approved by each of (i) the holders of a majority of the shares of the Corporation’s Common Stock then-outstanding (other than those issued or issuable upon conversion of the shares of Series Seed Preferred Stock and the Common Stock), (ii) the holders of then-outstanding shares of Series Seed Preferred Stock, then-outstanding shares of Common Stock issued upon conversion of shares of Series Seed Preferred Stock (“Series Seed Conversion Stock”), then-outstanding shares of Common Stock, then-outstanding shares of Common Stock issued upon conversion of shares of Common Stock (“Series Post Seed Conversion Stock”) that represent a majority of the voting power (measured on an as- converted basis) of all such then-outstanding shares of Series Seed Preferred Stock, Series Seed Conversion Stock, Common Stock and Series Post Seed Conversion Stock and (iii) the Corporation Board, then each Stockholder who is a party to this Agreement or a transferee of Series Seed Preferred Stock and/or Series Seed Conversion Stock and of Common Stock and/or Series Post Seed Conversion Stock shall vote (in person, by proxy or by action by written consent, as applicable) all shares of capital stock of the Corporation now or hereafter directly or indirectly owned of record or beneficially by such Stockholder (collectively, the “Shares”) in favor of, and adopt, such Deemed Liquidation Event and to execute and deliver all related documentation and take such other action in support of the Deemed Liquidation Event as may reasonably be requested by the Corporation to carry out the terms and provision of this Section 7.3, including executing and delivering instruments of conveyance and transfer, and any purchase agreement, merger agreement, indemnity agreement, escrow agreement, consent, waiver, governmental filing, share certificates duly endorsed for transfer (free and clear of impermissible liens, claims and encumbrances) and any similar or related documents and/or (b) a Deemed Liquidation Event (as defined in the Restated Operating Agreement) is approved by each of (i) the holders of a majority of the Common Units then-outstanding (other than those issued or issuable upon conversion of the Series Seed Preferred Units and the Common Units), (ii) the holders of then-outstanding Series Seed Preferred Units, then-outstanding Common Units issued upon conversion of Series Seed Preferred Units (“Series Seed Conversion Units”), then-outstanding Common Units and then-outstanding Common Units issued upon conversion of Common Units (“Series Post Seed Conversion Units”) that represent a majority of the voting power (measured on an as-converted basis) of all such then-outstanding Series Seed Preferred Units, Series Seed Conversion Units, Common Units and Series Post Seed Conversion Units and (iii) the LLC Board, then each Unitholder who is a party to this Agreement or a transferee of Series Seed Preferred Units and/or Series Seed Conversion Units and Common Units and/or Series Post Seed Conversion Units shall vote (in person, by proxy or by action by written consent, as applicable) all Units of the LLC now or hereafter directly or indirectly owned of record or beneficially by such Unitholder (collectively, the “Units”) in favor of, and adopt, such Deemed Liquidation Event and to execute and deliver all related documentation and take such other action in support of the Deemed Liquidation Event as may reasonably be requested by the LLC to carry out the terms and provision of this Section 7.3, including executing and delivering instruments of conveyance and transfer, and any purchase agreement, merger agreement, indemnity agreement, escrow agreement, consent, waiver, governmental filing, units certificates duly endorsed for transfer (free and clear of impermissible liens, claims and encumbrances) and any similar or related documents. The obligation of any party to take the actions required by this Section 7.3 will not apply to a Deemed Liquidation Event if the other party involved in such Deemed Liquidation Event is an affiliate, unitholder, or stockholder of the Company holding more than 10% of the voting power of the Company.  “Stockholder” means each Holder of capital stock of the 

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Corporation and any transferee thereof. “Unitholder” means each Holder of units of the LLC and any transferee thereof.

 

7.4Exceptions to Drag Along Right. Notwithstanding the foregoing, a Stockholder or Unitholder need not comply with Section 7.3 above in connection with any proposed Deemed Liquidation Event of the Corporation or LLC, as applicable (the “Proposed Sale”) unless: 

 

(a)any representations and warranties to be made by the Stockholder and/or Unitholder in connection with the Proposed Sale are limited to representations and warranties related to authority, ownership and the ability to convey title to such Shares or Units, as applicable, including representations and warranties that (i) the Stockholder and/or Unitholder holds all right, title and interest in and to the Shares the Stockholder and/or the Units the Unitholder purports to hold, free and clear of all liens and encumbrances, (ii) the obligations of the Stockholder and/or Unitholder in connection with the transaction have been duly authorized, if applicable, (iii) the documents to be entered into by the Stockholder and/or Unitholder have been duly executed by the Stockholder and/or Unitholder and delivered to the acquirer and are enforceable against the Stockholder and/or Unitholder in accordance with their respective terms, and (iv) neither the execution and delivery of documents to be entered into in connection with the transaction, nor the performance of the Stockholder’s and/or Unitholder’s obligations thereunder, will cause a breach or violation of the terms of any agreement, law, or judgment, order, or decree of any court or governmental agency; 

 

(b)the Stockholder and/or Unitholder will not be liable for the inaccuracy of any representation or warranty made by any other Person in connection with the Proposed Sale, other than either of the Companies (except to the extent that funds may be paid out of an escrow established to cover breach of representations, warranties, and covenants of any of the Companies as well as breach by any stockholder or unitholder of any identical representations, warranties and covenants provided by all stockholders or unitholders); 

 

(c)the liability for indemnification, if any, of the Stockholder and/or Unitholder in the Proposed Sale and for the inaccuracy of any representations and warranties made by any of the Companies or its Stockholder and/or Unitholders in connection with such Proposed Sale, is several and not joint with any other Person (except to the extent that funds may be paid out of an escrow established to cover breach of representations, warranties and covenants of any of the Companies as well as breach by any stockholder or unitholder of any identical representations, warranties, and covenants provided by all stockholders or unitholders), and except as required to satisfy the liquidation preference of the Series Seed Preferred Stock, Series Seed Preferred Units, the Common Stock or the Common Units, if any, is pro rata in proportion to, and does not exceed, the amount of consideration paid to such Stockholder and/or Unitholder in connection with such Proposed Sale; 

 

(d)liability will be limited to the Stockholder’s and/or Unitholder’s applicable share (determined based on the respective proceeds payable to each Stockholder and/or Unitholder in connection with the Proposed Sale in accordance with the provisions of the Restated Charter or the Restated Operating Agreement) of a negotiated aggregate indemnification amount that applies equally to all Stockholders and/or Unitholders but that in no event exceeds the amount of consideration otherwise payable to the Stockholder and/or Unitholder in connection with the Proposed Sale, except with respect to claims related to fraud by the Stockholder and/or Unitholder, the liability for which need not be limited as to the Stockholder and/or Unitholder; 

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(e)upon the consummation of the Proposed Sale, (i) each holder of each class or series of any of the Companies’ stock or units will receive the same form of consideration for their shares or units of such class or series as is received by other holders in respect of their shares or units of such same class or series of stock or units unless the holders of at least a majority of Series Seed Preferred Stock and Common Stock, voting as a single class, or Series Seed Preferred Unit or Series Post Seed Preferred Unit, voting as a single class, as applicable, elect otherwise, (ii) each holder of Series Seed Preferred Stock or Series Seed Preferred Units will receive the same amount of consideration per share of such Series Seed Preferred Stock or per unit of Series Seed Preferred Units as is received by other holders in respect of their shares or units of such same series, (iii) each holder of Common Stock or Common Units will receive the same amount of consideration per share of such Common Stock or per unit of Common Units as is received by other holders in respect of their shares or units of such same series, (iv) each holder of Common Stock or Common Units will receive the same amount of consideration per share of Common Stock or per unit of Common Units as is received by other holders in respect of their shares of Common Stock or Common Units, and (v) unless the holders of at least a majority of the Series Seed Preferred Stock and Common Stock, voting as a single class, or Series Seed Preferred Units and Common Units, voting as a single class, elect to receive a lesser amount, the aggregate consideration receivable by all holders of the preferred and common shall be allocated among the holders of preferred and common on the basis of the relative liquidation preferences to which the holders of each respective series are entitled in a Deemed Liquidation Event (assuming for this purpose that the Proposed Sale is a Deemed Liquidation Event) in accordance with the Restated Charter or Restated Operating Agreement, as applicable, in effect immediately prior to the Proposed Sale. 

 

7.5Legends. Each certificate, instrument, or book entry representing any Common Stock or Series Post Seed Conversion Stock, or any Common Units or Series Post Seed Conversion Units, shall be notated by the applicable Company with a legend reading substantially as follows: 

 

“THE [SHARES] [UNITS] REPRESENTED HEREBY ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER, A MARKET STANDOFF AGREEMENT AND A DRAG-ALONG AGREEMENT SET FORTH IN A COMMON STOCK AND SERIES POST SEED PREFERRED UNIT INVESTMENT AGREEMENT WITH THE ISSUER OF SUCH [SHARES] [UNITS] AND OTHER PARTIES, AS IT MAY BE AMENDED FROM TIME TO TIME, (A COPY OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST FROM THE COMPANY), AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SUCH RESTRICTIONS ON TRANSFER, A MARKET STANDOFF AGREEMENT AND A DRAG-ALONG AGREEMENT THAT ARE SET FROTH THEREIN.”

 

The Corporation, by its execution of this Agreement, agrees that it will cause the certificates, instruments, or book entry evidencing the shares of Common Stock and Series Post Seed Conversion Stock that are now or hereafter subject to the provisions of this Section 7, and the LLC, by its execution of this Agreement, agrees that it will cause the certificates, instruments, or book entry evidencing the Common Units and Series Post Seed Conversion Units that are now or hereafter subject to the provisions of this Section 7, to be notated with the legend required by this Section 7.5 and it shall supply, free of charge, a copy of this Agreement to any holder of such shares or units upon written request from such holder to the Company at its principal office. The parties to this Agreement do hereby agree that the failure to cause the certificates, instruments, or book entry evidencing the shares or units to be notated with the legend required by this

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Section 7.5 and/or the failure of any of the Companies to supply, free of charge, a copy of this Agreement as provided hereunder shall not affect the validity or enforcement of this Agreement.

 

8.PARTICIPATION RIGHT. 

 

8.1General. Each Major Purchaser has the right of first refusal to purchase the Major Purchaser’s Pro Rata Share of any New Securities (as defined below) that the Corporation and/or the LLC may from time to time issue after the date of this Agreement, provided, however, the Major Purchaser will have no right to purchase any such New Securities if the Major Purchaser cannot demonstrate to the Companies’ reasonable satisfaction that such Major Purchaser is at the time of the proposed issuance of such New Securities an “accredited investor” as such term is defined in Regulation D under the Securities Act. A Major Purchaser’s “Pro Rata Share” for means: (a) with respect to a proposed issuance of New Securities by the Corporation, the ratio of (i) the number of shares of the Corporation’s Common Stock issued or issuable upon conversion of the shares of Common Stock issued under this Agreement that are owned by such Major Purchaser, to (ii) the Fully-Diluted Capitalization Number for the Corporation and 

(b) with respect to a proposed issuance of New Securities by the LLC, the ratio of (i) the number of the LLC’s Common Units issued or issuable upon conversion of the Common Units issued under this Agreement that are owned by such Major Purchaser, to (ii) the Fully-Diluted Capitalization Number for the LLC. For purposes of this Agreement, the term “Fully-Diluted Capitalization Number” shall mean (A) for the Corporation, that number of shares of the Corporation’s capital stock equal to the sum of (i) all shares of the Corporation’s capital stock (on an as-converted basis) issued and outstanding, assuming exercise or conversion of all options, warrants and other convertible securities and (ii) all shares of the Corporation’s capital stock reserved and available for future grant under any equity incentive or similar plan and (B) for the LLC, that number of units of the LLC equal to the sum of (i) all units of the LLC (on an as-converted basis) issued and outstanding, assuming exercise or conversion of all options, warrants and other convertible securities and (ii) all units of the LLC reserved and available for future grant under any equity incentive or similar plan.

 

8.2New Securities. “New Securities” means (A) for the Corporation, any Common Stock or Preferred Stock, whether now authorized or not, and rights, options or warrants to purchase Common Stock or Preferred Stock, and securities of any type whatsoever that are, or may become, convertible or exchangeable into Common Stock or Preferred Stock; provided, however, that “New Securities” does not include: (a) shares of Common Stock issued or issuable upon conversion of any outstanding shares of Preferred Stock; (b) shares of Common Stock or Preferred Stock issuable upon exercise of any options, warrants, or rights to purchase any securities of the Corporation outstanding as of the Agreement Date and any securities issuable upon the conversion thereof; (c) shares of Common Stock or Preferred Stock issued in connection with any stock split or stock dividend or recapitalization; (d) shares of Common Stock (or options, warrants or rights therefor) granted or issued after the Agreement Date to employees, officers, directors, contractors, consultants or advisers to, the Corporation or any subsidiary of the Corporation pursuant to incentive agreements, stock purchase or stock option plans, stock bonuses or awards, warrants, contracts or other arrangements that are approved by the Corporation Board; (e) shares of the Corporation’s Common Stock issued pursuant to this Agreement; (f) any other shares of Common Stock or Preferred Stock (and/or options or warrants therefor) issued or issuable primarily for other than equity financing purposes (including those issued to banks, equipment lessors or other financial institutions pursuant to a debt financing or equipment lease or to landlords pursuant to real estate leases, as well as related to a commercial transaction, technology license, development, marketing or similar transaction with a strategic partnership) and approved by the Corporation Board; and (g) shares of Common Stock issued or issuable by the Corporation to the public pursuant to a registration statement filed under the Securities Act and (B) for the LLC, any Common Units or Preferred Units, whether now authorized or not, and rights, options or warrants to purchase Common Units or Preferred Units, and securities of any type whatsoever that are, or may become, convertible or exchangeable into Common Units or Preferred Units; provided, 

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however, that “New Securities” does not include: (a) Common Units issued or issuable upon conversion of any outstanding Preferred Units; (b) Common Units or Preferred Units issuable upon exercise of any options, warrants, or rights to purchase any securities of the LLC outstanding as of the Agreement Date and any securities issuable upon the conversion thereof; (c) Common Units or Preferred Units issued in connection with any unit split or unit distribution or recapitalization; (d) Common Units (or options, warrants or rights therefor) granted or issued after the Agreement Date to employees, officers, directors, contractors, consultants or advisers to, the LLC or any subsidiary of the LLC pursuant to incentive agreements, unit purchase or unit option plans, unit bonuses or awards, warrants, contracts or other arrangements that are approved by the LLC Board; (e) the LLC’s Common Units issued pursuant to this Agreement; (f) any other Common Units or Preferred Units (and/or options or warrants therefor) issued or issuable primarily for other than equity financing purposes (including those issued to banks, equipment lessors or other financial institutions pursuant to a debt financing or equipment lease, or to landlords pursuant to real estate leases as well as related to a commercial transaction, technology license, development, marketing or similar transaction with a strategic partnership) and approved by the LLC Board; and (g) Common Units issued or issuable by the LLC to the public pursuant to a registration statement filed under the Securities Act.

 

8.3Procedures. If the Corporation and/or LLC proposes to undertake an issuance of New Securities, the applicable Company shall give notice to each Major Purchaser of its intention to issue New Securities (the “Notice”), describing the type of New Securities and the price and the general terms upon which the Corporation and/or LLC proposes to issue the New Securities. Each Major Purchaser will have (10) days from the date of notice, to agree in writing to purchase such Major Purchaser’s Pro Rata Share of such New Securities for the price and upon the general terms specified in the Notice by giving written notice to the Corporation and/or LLC, as appropriate and applicable, and stating therein the quantity of New Securities to be purchased (not to exceed such Major Purchaser’s Pro Rata Share). 

 

8.4Failure to Exercise. If the Major Purchasers fail to exercise in full the right of first refusal within the 10-day period, then the Corporation and/or LLC, as appropriate and applicable, will have one hundred twenty (120) days thereafter to sell the New Securities with respect to which the Major Purchasers’ rights of first refusal hereunder were not exercised, at a price and upon general terms not materially more favorable to the purchasers thereof than specified in the Companies’ Notice to the Major Purchasers. If the Corporation and/or LLC has not issued and sold the New Securities within the 120-day period, then the Corporation and/or LLC shall not thereafter issue or sell any New Securities without again first offering those New Securities to the Major Purchasers pursuant to this Section 8. 

 

 

 

9.GENERAL PROVISIONS. 

 

9.1Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties to this Agreement or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. No Stockholder or Unitholder may transfer Shares or Units unless each transferee agrees to be bound by the terms of this Agreement. 

 

9.2Governing Law. This Agreement is governed by the Governing Law, regardless of the laws that might otherwise govern under applicable principles of choice of law. 

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9.3Counterparts; Facsimile or Electronic Signature. This Agreement may be executed and delivered by facsimile or electronic signature and in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. 

 

9.4Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. References to sections or subsections within this set of Agreement Terms shall be deemed to be references to the sections of this set of Agreement Terms contained in Exhibit B to the Agreement, unless otherwise specifically stated herein. 

 

9.5Notices. All notices and other communications given or made pursuant to this Agreement must be in writing and will be deemed to have been given upon the earlier of actual receipt or: 

(a) personal delivery to the party to be notified, (b) when sent, if sent by facsimile or electronic mail during normal business hours of the recipient, and if not sent during normal business hours, then on the recipient’s next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) business day after deposit with a nationally recognized overnight courier, freight prepaid, specifying next business day delivery, with written verification of receipt. All communications must be sent to the respective parties at their address as set forth on the signature page or Schedule 1, or to such address, facsimile number or electronic mail address as subsequently modified by written notice given in accordance with this Section 9.5.

 

9.6No Finder’s Fees. Each party severally represents to the other parties that it neither is nor will be obligated for any finder’s fee or commission in connection with this transaction. Each Purchaser shall indemnify, defend, and hold harmless the Companies from any liability for any commission or compensation in the nature of a finder’s or broker’s fee arising out of this transaction (and the costs and expenses of defending against such liability or asserted liability) for which the Purchaser or any of its officers, employees, or representatives is responsible. The Companies shall indemnify, defend, and hold harmless each Purchaser from any liability for any commission or compensation in the nature of a finder’s or broker’s fee arising out of this transaction (and the costs and expenses of defending against such liability or asserted liability) for which the Companies or any of its officers, employees or representatives is responsible. 

 

9.7Attorneys’ Fees. If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of this Agreement, the prevailing party will be entitled to reasonable attorneys’ fees, costs, and necessary disbursements in addition to any other relief to which the party may be entitled. Each party shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery, and performance of the Agreement. 

 

9.8Amendments and Waivers. Except as specified in Section 1.2.2, any term of this Agreement may be amended, terminated or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Corporation, the LLC, the Purchasers holding a majority of the then-outstanding shares of Common Stock (or Series Post Seed Conversion Stock) and the Purchasers holding a majority of then-outstanding units of Common Units (or Series Post Seed Conversion Units). Notwithstanding the foregoing, the addition of a party to this Agreement pursuant to a transfer of Shares or Units in accordance with Section 9.1 will not require any further consent. Any amendment or waiver effected in accordance with this Section 9.8 will be binding upon the Purchasers, each transferee of the shares of Common Stock (or Series Post Seed Conversion Stock) or Common Stock or of the units of Common Units (or Series Post Seed Conversion Units) or Common Units from a Purchaser, as applicable, and each future holder of all such securities, and the Companies. 

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9.9Severability. The invalidity or unenforceability of any provision of this Agreement will in no way affect the validity or enforceability of any other provision. 

 

9.10Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, will impair any such right, power or remedy of such non-breaching or non-defaulting party nor will it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor will any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, are cumulative and not alternative. 

 

9.11Termination. For the avoidance of doubt, the continued obligations of the parties to this Agreement under Sections 6, 7, 8 and 9 shall survive the Closing, and unless terminated earlier pursuant to the terms of this Agreement, (x) the rights, duties and obligations under Sections 6 and 8 will terminate immediately prior to the closing of either of the Companies’ initial public offering of Common Stock or Common Units pursuant to an effective registration statement filed under the Securities Act, (y) notwithstanding anything to the contrary herein, this Agreement (excluding any then-existing obligations) will terminate upon the closing of a Deemed Liquidation Event as defined in the Companies’ Restated Charter or Restated Operating Agreement, in each case as amended from time to time and (z) notwithstanding anything to the contrary herein, Section, 1, 2, 3, 4, 5 and 6.1.2 and this Section 9 will survive any termination of this Agreement. 

 

9.12Dispute Resolution. Each party (a) hereby irrevocably and unconditionally submits to the personal jurisdiction of the Dispute Resolution Jurisdiction for the purpose of any suit, action, or other proceeding arising out of or based upon this Agreement; (b) shall not commence any suit, action or other proceeding arising out of or based upon this Agreement except in the Dispute Resolution Jurisdiction; and (c) hereby waives, and shall not assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject to the personal jurisdiction of the Dispute Resolution Jurisdiction, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement, or the subject matter hereof and thereof may not be enforced in or by the Dispute Resolution Jurisdiction. 

 

9.13Transfers. Each transferee or assignee (a) of any shares of Common Stock issued under this Agreement (or of any shares of Series Post Seed Conversion Stock) and (b) of any Common Units issued under this Agreement (or of any Series Post Seed Conversion Units) shall continue to be bound by and subject to the terms of Section 7 of this Agreement, and, as a condition precedent to the Company’s recognizing any such transfer, each transferee or assignee shall first agree in writing to be bound by and subject to each of the terms of Section 7 and Section 9 of this Agreement by executing and delivering an Adoption Agreement in the form attached hereto as Exhibit G. Upon the execution and delivery of an Adoption Agreement by any such transferee, such transferee shall be deemed to be a party to this Agreement solely for all purposes of Section 7 and Section 9 of this Agreement as if such transferee were the transferor and such transferee’s signature appeared on the signature pages of this Agreement. The Company shall not permit the transfer of the Shares or Units subject to this Agreement on its books or issue a new certificate representing any such Shares or Units unless and until such transferee shall have complied with the terms of this Section 9.13. Each certificate, instrument, or book entry representing the shares of Common Stock issued under this Agreement (or of any shares of Series Post Seed Conversion Stock) or representing any Common Units issued under this Agreement (or of any Series Post Seed Conversion Units) if issued on or 

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after the date of this Agreement shall be notated by the Company with the legend set forth in Section 7.5 hereof.

 

 

 

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first written above.

	THE CORPORATION:

	 

	Name:

	Innovation Labs Ltd.

	 

	 

	By:

	 

	 

	 

	Title:

	President and Chief Executive Officer

	 

 

	THE LLC:

	 

	Name:

	Innovation Shares LLC

	 

	 

	By:

	 

	 

	 

	Title:

	President and Chief Executive Officer

	 

[SIGNATURE PAGES]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first written above.

 

	PURCHASERS:

	 

	[FOR ENTITY INVESTOR USE
FOLLOWING SIGNATURE BLOCK:]

	 

	Name:

	CFN ENTERPRISES, INC.

	 

	 

	 

	 

	 

	 

	By:

	 

	 

	 

	Name:

Title:

	 

 

	 

	 

 

 

EXHIBIT C

 

FORM OF RESTATED CHARTER

EXHIBIT D

 

FORM OF RESTATED OPERATING AGREEMENT

EXHIBIT E

 

RISK FACTORS

 

For purposes of these Risk Factors, (i) the term “Company” shall mean each of the Corporation and the LLC as if the Corporation and the LLC were one Company; (ii) the term “Shares” shall mean shares of Common Stock and Series Post Seed Conversion Units; (iii) the term “directors” shall mean directors of the Corporation and managers or the LLC; (iv) the term “dividends” shall mean dividends on the shares of Common Stock and distributions on the Common Units; and (v) the term “Stockholders” shall refer to stockholders of Common Stock and unitholders of Common Units.

 

Risks Related to the Company

 

Lack of Operating History of the Company.

 

We have a limited operating history, which does not afford investors the ability to evaluate our future revenue prospects. Additionally, to date we have not generated any revenue and have incurred substantial losses and we may not achieve or maintain profitability in the future.

Limited access to capital resources could adversely affect our results of operations and financial condition.

We have limited access to financial resources. An inability on our part to access funding may lead to an inability to finance our operations and meet short-term financial obligations as they become due, which in turn could materially adversely affect our results of operations and financial condition. If additional financing is not available when required or is not available on favorable terms, we may be unable to take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business and prospects. In addition, our ability to access sufficient funding may be impaired by factors that are not specific to us, such as general market conditions, severe disruption of the financial markets or negative views about the prospects for the industries in which we operate.

 

We may not be able to secure adequate or reliable sources of funding required to operate our business and execute on our business plan.

 

The continued development of our business will require significant additional financing following the sale of the Shares, and there is no assurance that we will obtain the financing necessary to be able to achieve our business objectives. Our ability to obtain additional financing will depend on investor demand, our performance and reputation, economic and market conditions and other factors. Our inability to raise such capital could result in the delay or indefinite postponement of our current business objectives or in our inability to continue to carry on our business. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, the terms of such financing will be favorable to us.

 

Our efforts to grow our business may be costlier than anticipated.

 

Our efforts to grow our business may be costlier than we expect and we may not be able to increase our revenue enough to offset higher operating expenses. We may incur significant losses in the

future for a number of reasons, including as a result of unforeseen expenses, difficulties, complications and delays, the other risks described herein and other unknown events.

 

We may be unable to achieve our projected revenue growth.

Our ability to achieve our projected revenue growth will depend on a number of factors, many of which are beyond our control, including, but not limited to, the availability of sufficient capital on suitable terms and competition from others. In addition, we are subject to a variety of business risks generally associated with developing companies. Future development and expansion could place significant strain on our management personnel and likely will require us to recruit additional management personnel, and there is no assurance that we will be able to do so.

We may be unable to attract or retain key personnel with sufficient experience, and we may be unable to attract, develop and retain additional employees required for our development and future success.

 

Our success is largely dependent on the performance of our management team and certain employees and our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand, and we may incur significant costs to attract and retain them. The loss of the services of any key personnel, or an inability to attract other suitably qualified persons when needed, could prevent us from executing on our business plan and strategy, and we may be unable to find adequate replacements on a timely basis, or at all. We do not currently maintain key-person insurance on the lives of any of our key personnel.

 

Our directors and officers are engaged in other business activities.

 

We are subject to various potential conflicts of interest because some of our directors and officers may be engaged in a range of business activities. These business interests could require the investment of significant time and attention by our directors and officers.

 

Actual results may vary materially from any projections provided to you.

 

Any financial projections which were provided to you are forward-looking statements that are based on assumptions that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. While all financial projections and estimates are necessarily speculative, we believe that the preparation of prospective financial information involves increasingly higher levels of uncertainty the further out the projection and estimate extend from the date of preparation. The assumptions and estimates underlying the projected and expected results are inherently uncertain and are subject to a wide variety of significant business, economic, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those contained in the financial projections, estimates and targets. The inclusion of financial projection and estimates in any presentation to you should not be regarded as an indication that we or our representatives considered or consider the financial projections and estimates to be a reliable predication of future events.

 

We do not undertake any obligation to update or revise any forward-looking statements or projections; whether as a result of new information, future event or otherwise except as required

3

by law. Important factors, among others that may affect actual results, including our ability to execute on our plans and strategies and the timing of these programs, our estimates of expenses and future revenues and profitability. Our estimates of the size of the markets for our products, our ability to protect our intellectual property rights, our estimate regarding our capital currency requirements, developments in the regulatory environment and general economic and market conditions impacting demand for our products.

 

Risks Related to the Sale of Shares

Your ability to liquidate your investment in the Shares will be limited because of the lack of a trading market in, and restrictions on the resale or transfer of, the Shares.

You should view the acquisition of the Shares as an illiquid investment, and you must be prepared to hold your investment indefinitely. There is no trading market for the Shares and it is uncertain when, if ever, one will develop. The Shares are not listed on a securities exchange or quoted in the over-the-counter market. In addition, subject to the limited exceptions set forth in the Company’s organizational documents, any transfer of the Shares requires the approval of the Board. The organizational documents also provide for significant restrictions on the rights of stockholders to transfer Shares. Such restrictions may adversely impact the value of the Shares.

 

Moreover, we will issue the Shares pursuant to exemptions from registration contained in rules promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and under applicable state laws. Consequently, such securities will be subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the Securities Act and applicable state securities laws. You cannot transfer these securities except pursuant to an effective registration statement under the Securities Act or an exemption from registration. Any such resales or transfers must also comply with any applicable state securities law requirements. We may refuse to effect certain transfers of the Shares if such transfers would result in a violation of federal or state securities laws or the terms of the organizational documents.

 

The consideration for the Shares was arbitrarily determined by us.

 

The price at which the Shares are being issued to you is not necessarily indicative of the value of our assets, earnings, or book value. You should not regard the purchase price of the Shares as an indication of the current or future value of the Company. We cannot provide any assurance that the Shares could be sold for the purchase price or for any amount.

 

Dividends are not guaranteed.

We cannot provide any assurance that we will be able to make any dividends from operations or any distribution upon the ultimate sale or other disposition of the Company or our assets. Dividends, if any, will at all times be subject to the prior payment of expenses and establishment and maintenance of reserves, and subject to the determination of the Board.

4

You will be a minority equity holder of the Company.

Your Shares represent a minority of the equity interests of the Company. The interests of those stockholders holding a majority of the equity interests may differ from your interests and other holders of a minority of the equity interests with respect to the issuance of equity, business transactions with or sales to other companies, selection of officers and managers and other business decisions. Accordingly, you will not be able to significantly influence management decisions.

 

Stockholders may suffer substantial dilution from future issuances of equity or securities exercisable, convertible or exchangeable into equity of the Company.

 

We may issue additional equity or securities exercisable, convertible or exchangeable into equity of the Company in the next several months and years, either in connection with attracting or retaining management, employees or consultants, or in private offerings to meet working capital requirements and to fund growth and expansion. Any grants or sales of additional equity will have a dilutive effect on the existing stockholders, which could adversely affect the value of the Shares.

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EXHIBIT F

 

ACCREDITED INVESTOR QUESTIONNAIRE

 

You represent that you are an “accredited investor” defined in Rule 501 of the Securities Act because (please initial as appropriate):

 

	a.Individuals 

	_______
Initial

	i.Subscriber has an individual net worth1, or joint net worth with his or her spouse, in excess of $1,000,000;  

	_______
Initial

	ii.Subscriber had individual income2 (exclusive of any income attributable to his or her spouse) of more than $200,000 in each of the past two years, or joint income with his or her spouse of more than $300,000 in each of those years, and reasonably expects to reach the same income level in the current year; or  

	_______
Initial

	iii.Subscriber is a director or executive officer of the Company.  

	b.Corporations, Foundations, Endowments, Partnerships or Limited Liability Companies 

	_______
Initial

	i.Subscriber has total assets in excess of $5,000,000 and was not formed for the specific purpose of acquiring the Units offered; or 

	_______
Initial

	ii.Each of Subscriber’s equity owners is an accredited investor as described in this Section. The Company, in its sole discretion, may request information regarding the basis on which such equity owners are accredited. 

	c.Employee Benefit Plans 

	_______
Initial

	i.Subscriber is an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 (“ERISA”), and the decision to invest in the Company was made by a plan fiduciary (as defined in Section 3(21) of ERISA), which is either a bank, savings and loan association, insurance company or registered investment adviser. The name of such plan fiduciary is: _____________________. 

 

 

 

 

1For purposes of this Agreement, the term "net worth" means the excess of total assets at fair market value, including home furnishings and automobiles, over total liabilities; provided that, (i) Subscriber's primary residence shall not be included as an asset, (ii) indebtedness that is secured by Subscriber's primary residence, up to the estimated fair market value of the primary residence at the time of the sale of the Series A Preferred Units, shall not be included as a liability (except that if the amount of such indebtedness outstanding at the time of sale of the Series A Preferred Units exceeds the amount outstanding 60 days before such time, other than as a result of the acquisition of the primary residence, the amount of such excess shall be included as a liability), and (iii) indebtedness that is secured by Subscriber's primary residence in excess of the estimated fair market value of the primary residence at the time of the sale of the Series A Preferred Units shall be included as a liability.

2For purposes of this Agreement, the term "individual income" means adjusted gross income, as reported for federal income tax purposes, less any income attributable to a spouse or to property owned by a spouse, increased by the following amounts (but not including any amounts attributable to a spouse or to property owned by a spouse): (i) the amount of any tax-exempt interest income under Section 103 of the Code, received; (ii) the amount of losses claimed as a limited partner in a limited partnership as reported on Schedule E of Form 1040; (iii) any deduction claimed for depletion under Section 611 et seq. of the Code; (iv) amounts contributed to an Individual Retirement Account (as defined in the Code) or Keogh retirement plan; (v) alimony paid; and (vi) any elective contributions to a cash or deferred arrangement under Section 401(k) of the Code.

 

 

 

 

EXHIBIT G

 

ADOPTION AGREEMENT

 

This Adoption Agreement (“Adoption Agreement”) is executed on June 25, 2019, by the undersigned (the “Holder”) pursuant to the terms of that certain Common Stock and Series Post Seed Preferred Unit Investment Agreement dated as of June 25, 2019 (the “Investment Agreement”), by and among the Companies and certain investors, as such Agreement may be amended or amended and restated hereafter. Capitalized terms used but not defined in this Adoption Agreement shall have the respective meanings ascribed to such terms in the Agreement. By the execution of this Adoption Agreement, the Holder agrees as follows.

 

1.1Acknowledgement. Holder acknowledges that Holder is acquiring certain shares of the capital stock of Innovation Labs Ltd., a Delaware corporation (the “Corporation”), and/or units of membership interests in Innovation Shares LLC, a Delaware limited liability company (the “LLC”), as a transferee of such shares of the Corporation (the “Shares”) and/or such units of membership interests in the LLC (the “Units”) from a party who is either (a) a “Purchaser” bound by the Investment Agreement or 

(b) a direct or indirect assignee or transferee of a “Purchaser” who is bound by the Investment Agreement or portions thereof, and after such transfer, Holder shall be a party to the Investment Agreement solely for all purposes of Section 7 and Section 9 of the Investment Agreement.

1.2Agreement. Holder hereby (a) agrees that the Shares and the Units (and any other shares of the Corporation or units of interest in the LLC issuable upon conversion thereof) as required by the Investment Agreement to be bound thereby, shall be bound by and subject to, and hereby accepts, adopts and agrees to be bound by, all of the terms of Section 7 and Section 9 of the Agreement as if Holder were originally a party to the Agreement solely for purposes of such Sections. 

 

1.3Notice. Any notice required or permitted by the Agreement shall be given to Holder at the address or facsimile number listed below Holder’s signature hereto. 

 

HOLDER: CFN ENTERPRISES, INC. ACCEPTED AND AGREED: 

 

 

By:   [NAME/TITLE] 

 

Address:

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