Document:

LOAN AGREEMENT

(CTMGT Williamsburg, LLC – Loan Acquisitions)

THIS LOAN AGREEMENT (this “Agreement”) is made and entered into by CTMGT WILLIAMSBURG, LLC, a Texas limited liability company (“Borrower”), CTMGT, LLC, a Texas limited liability company (“CTMGT”), Centamtar Terras, L.L.C., a Texas limited liability company (“Centamtar Terras;” Centamtar Terras and CTMGT are referred to herein each, as a “Guarantor” and collectively, as the “Guarantors”), for the benefit of UNITED DEVELOPMENT FUNDING IV, a Maryland real estate investment trust (“Lender”), to be effective as of September 27, 2011 (the “Effective Date”), on the terms and conditions and for the mutual considerations expressed herein.

ARTICLE 1 - OBLIGATIONS

1.1           Note.  This Agreement is executed pursuant to a loan from Lender to Borrower in amount not to exceed $16,407,805.00, evidenced by a Secured Promissory Note dated the Effective Date (the “Note”) issued by Borrower payable to the order of Lender, in the original principal amount of $16,407,805.00.

1.2           Definitions.  As used herein, the term “Note,” “Obligation” and/or “Liability” shall be deemed to mean each and all of the foregoing and any and all other obligations, whether now existing or hereafter arising, of Borrower to Lender of whatever nature, in connection with the Note and all agreements securing the Note.  As used herein, the term “Loan” shall mean the Loan by Lender to Borrower, as described in Article 1.1 above.  As used herein, the term “Loan Documents” shall mean (capitalized terms are defined elsewhere herein) this Agreement, the Note, the Guaranty Agreement of each Guarantor, the Collateral Assignments, the Allonges, the Estoppels, the Company Certificates of Borrower and each Guarantor, the Financial Statement Certifications of Borrower and each Guarantor, all Advance Requests, the Financing Statements, and such other instruments evidencing, securing, or pertaining to the Loan as shall, from time to time, be executed and delivered by Borrower, Guarantors or any other party to or for the benefit of Lender pursuant to this Agreement.

1.3           Funding.  All draws under the Loan will be funded subject to the Lender’s approval and to the covenants and conditions of this Agreement.  Lender will not be required to fund against any collateral unless said collateral is and remains acceptable to Lender. Principal sums repaid under the Note are subject to redraws by Borrower as Lender may approve. No more than the face amount of the Note will be outstanding at any one time.

1.4           Use of Proceeds.  Borrower shall use the proceeds of advances under the Note solely to purchase all of the lender’s right, title and interest in one or both of the following loans that are secured by certain real property in Fate, Rockwall County, Texas (each a “Collateral Loan” and collectively, the “Collateral Loans”):  that certain Promissory Note dated as of January 25, 2007, executed by MU Williamsburg, LLC, a Texas limited liability company (“MU Williamsburg”) to the order of Premier Bank, as endorsed to Bank of Commerce, then to Borrower, in the original principal amount of $21,862,500.00 (the “Construction Loan”), and that certain Promissory Note dated as of January 25, 2007, executed by MU Williamsburg to the order of Premier Bank, as endorsed to Providence Bank, then to Borrower, in the original principal amount of $5,908,818.00 (the “Land Loan”).

1.5           Interest.  Borrower shall pay to Lender interest on the aggregate unpaid principal balance of all advances made by Lender from time to time outstanding, for the actual period such funds are outstanding, at an annual interest rate and on such terms as are set out in the Note.

1.6           Conditions to Advances.  The obligations of Lender to make each advance shall be subject to the fulfillment of the following conditions precedent:

	
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(a)           Borrower shall have executed and delivered to Lender an Advance Request appropriate draw request and certification in form and content acceptable to Lender (an “Advance Request”);

(b)           each Guarantor shall have executed and delivered to Lender a guaranty agreement in form and content acceptable to Lender (each, a “Guaranty Agreement”);

(c)           Borrower and each Guarantor shall have executed and delivered to Lender a certificate in form and content acceptable to Lender attesting to the accuracy and completeness of its constituent documents, its existence and good standing in the state of Texas, and the authority resolutions of its governing body (each, a “Company Certificate”);

(d)           Borrower and each Guarantor shall have executed and delivered to Lender a certification of its most recent financial statements (each, a “Financial Statement Certification”);

(e)           All of Borrower’s and the Guarantors’ representations and warranties delivered in connection herewith are and shall be true and correct in all material respects as though made on and as of such borrowing date, and no event has or will have occurred, and is or will be continuing, or would result from such advance, which constitutes or would constitute an Event of Default (as defined herein), or which with notice or lapse of time or both will or would constitute an Event of Default (unless waived by or cured to the satisfaction of Lender);

(f)           The amount of the requested advance plus all prior unpaid advances does not exceed amounts available for draws under this Agreement;

(g)           Lender’s obligations to lend hereunder have not been terminated pursuant to any provision hereof;

(h)           No Event of Default exists, and no event has occurred and no condition exists which, with the lapse of time or notice or both, could become an Event of Default;

(i)           No legal proceeding is pending or threatened against Borrower or any Guarantor which might, in the reasonable opinion of Lender, have a material adverse effect upon the business, operations, or financial condition of Borrower or any Guarantor, or the collateral for the Loan;

(j)           No Default shall exist or have occurred, and no condition shall exist which with the lapse of time or notice or both would become a Default, under any note evidencing a Collateral Loan (a “Collateral Note”) or any of the loan documents or security instruments related to the Collateral Note (collectively, the “Collateral Loan Documents”);

(k)           The consummation of such advance shall not violate any applicable provision of any law;

(l)           Lender has received the following in connection with the Collateral Loans against which an advance is requested, in form and content acceptable to Lender:

(i)           The original of each Collateral Note with originals of all prior allonges and endorsements executed with respect thereto;

(ii)           Originals or copies of all Collateral Loan Documents;

	
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(iii)           An original, fully executed (if necessary by law or requested by Lender) and recordable assignment of any UCC financing statement of each lien instrument securing each Collateral Note, naming Lender as the secured party, which assignment may be recorded or filed in the appropriate recording office at Lender’s sole discretion;

(iv)           An original, fully executed allonge endorsed to Lender (each, an “Allonge”) for each Collateral Note, in the form attached hereto as Exhibit A;

(v)           An original, fully executed and recordable Collateral Assignment of Loan Documents (a “Collateral Assignment”) for each Collateral Loan in the form attached hereto as Exhibit B, which Collateral Assignment may be recorded in the Real Property Records of Rockwall County, Texas at Lender’s sole discretion; and

(vi)           An original, fully executed Estoppel Certificate and Agreement (an “Estoppel”) from MU Williamsburg regarding each Collateral Loan in the form attached hereto as Exhibit C.

1.7           Origination Fee.  Immediately upon demand of Lender, Borrower shall pay to Lender an “Origination Fee” (herein so called) in the amount of $164,078.05, which Origination Fee is charged by Lender in consideration of its origination of the Loan.

ARTICLE 2 – COLLATERAL; SECURITY INTEREST

2.1           Collateral.  The obligations of Borrower shall be secured by the Collateral Notes and the Collateral Loan Documents securing each Promissory Note and all property which secures, either directly or indirectly, the payment and performance of the Indebtedness and the Obligations, including, without limitation each Collateral Note, the Collateral Loan Documents, and all accounts equipment, inventory, general intangibles, securities, and personal property, wherever located, in which Borrower now has or at any time hereafter has or acquires any right, title or interest, and all proceeds and products thereof, together with all books and records, customer lists, credit files, computer files, programs, printouts and other computer materials and records related thereto (collectively, the “Collateral”).  The security interests and liens of Lender against the Collateral must be perfected in favor of Lender in such forms as Lender shall require from time to time.

2.2           Security Interest.  Borrower hereby pledges, assigns and grants to Lender a continuing first priority security interest in all of Borrower’s right, title and interest in and to all of the Collateral to secure the prompt and complete payment and performance when due of all of the Indebtedness and all of the Obligations.

2.3           Borrower Remains Liable.  Notwithstanding anything to the contrary contained herein, (a) Borrower and each Guarantor and other obligor shall remain liable under the contracts and agreements which are included in the Collateral and shall perform all of its respective duties and obligations thereunder to the same extent as if this Agreement had not been executed, and (b) Lender shall not have any obligation or liability under any of the contracts and agreements included in the Collateral by reason of this Agreement or the other Loan Documents, nor shall Lender be obligated to perform any of the obligations or duties of Borrower, any Guarantor or any other obligor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

	
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2.4           Authorization to File Financing Statements.  Borrower hereby irrevocably authorizes Lender at any time and from time to time to prepare and file one or more financing statements (and any continuation statements and amendments thereto) describing the Collateral whether or not the Borrower’s signature appears thereon.

2.5           Documentation.  Borrower shall execute such security agreements, assignments, transfers, endorsements, financing statements and other documentation as may be requested or required by Lender, on such terms as Lender shall require, and shall secure said subordinations, estoppels and other agreements, on such terms and from such parties as Lender shall require.

2.6           Review/Inspection.  Lender shall have the right to review and inspect each Collateral Note, the Collateral Loan Documents and the acquisition documents. In the event that Lender is not satisfied with any Collateral Note, Collateral Loan Documents or acquisition documents for any reason, Lender may refuse to advance funds for the purchase of such Collateral Note.

ARTICLE 3 - COVENANTS, REPRESENTATIONS AND WARRANTIES OF BORROWER

Borrower hereby covenants, agrees, represents and warrants:

3.1           Title.  Borrower holds or immediately following the execution hereof or the advance of funds hereunder, as applicable, will acquire (free of any adverse claims, security interest, mortgage, pledge, lien, conditional sale agreement, or encumbrance of any kind whatsoever except as expressly allowed herein) good and merchantable title to the Collateral.

3.2           Other Liens.  Borrower shall not execute any financing statement, security agreement, mortgage, pledge, agreement, or obligation purporting to include the Collateral, nor shall Borrower suffer or permit any lien or encumbrance of any kind whatsoever to be hereafter claimed or created on any of the Collateral other than those requested by Lender or as expressly allowed hereunder.

3.3           Location.  The Collateral is composed of original promissory notes and deeds of trust, which shall be endorsed and delivered to Lender. Lender shall be deemed a holder thereof for purposes of possession and perfection. All notes shall be with recourse against Borrower.

3.4           Dispositions.  Borrower shall not, without the written consent of Lender, in any manner whatsoever, abandon, sell, contract to sell, exchange, pledge, hypothecate, lease, encumber, transfer, assign, release or otherwise dispose of the Collateral or any interest or right therein or thereto (any such transaction, a “Disposition”).  Without limiting the generality of the foregoing, all rights to release all or any part of the real and personal property and assets covered by the security interests and liens of the Collateral Loan Documents are vested in Lender and in no event shall Borrower have any right or authority to release all or any part of same from the security interests or liens of the Collateral Loan Documents, unless Lender so consents in writing and then, such release shall be upon such terms and for such release price as is acceptable to Lender in its sole discretion (the “Release Price”).

3.5           Insurance.  Borrower shall continuously maintain in full force and effect insurance of such types and amounts with such amounts as may, from time to time, be reasonably required and reasonably acceptable to Lender. Such insurance shall contain such endorsements as Lender shall require. All property and improvements securing the Collateral Notes shall be fully insured.

3.6           Taxes.  Borrower will duly pay and discharge all taxes, assessments, and governmental charges owed or claimed to be owed by Borrower prior to the date on which any penalty will attach thereto, except to the extent that such taxes, assessments, and governmental charges shall be diligently contested in good faith by appropriate proceedings.

	
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3.7           Material Change.  Within five (5) business days of such event, Lender shall be notified in writing of any (a) change in the name in which Borrower regularly does business; (b) event causing material loss or depreciation in the  value of the Collateral or the real property securing same (whether by casualty, actions by governmental authorities, loss of permits, authorities, franchises, certificates, or rights or otherwise); (c) claim, action, notice, suspension or proceeding which affects all or part of the Collateral or the security interest created hereby or which could, in the event of an unfavorable outcome, have a material adverse effect on the business and financial affairs of Borrower or on the ability to fully perform and abide by the terms, covenants, and conditions hereof, and (d) change in any material fact or circumstance stated, covenanted, represented, or warranted herein or in any of the documents contemplated hereby.

3.8           If the validity or priority of the security interest hereby granted or of any of the rights, titles, liens or interests created or evidenced hereby with respect to the Collateral or any interest therein or part thereof shall (either directly or indirectly) be endangered, questioned or attacked, or if any legal proceedings are instituted with respect thereto, Borrower will diligently endeavor to cure same and will take all steps necessary for the prosecution or defense of any legal proceedings.

3.9           Lender may (but shall not be obligated to) in its own name or in the name of Borrower and in any event at the expense of Borrower, commence, appear in or defend any action or proceeding purporting to affect the Loan Documents, the Collateral, the real and personal property and assets covered by the Collateral Loan Documents, or the respective rights or obligations of Lender or Borrower.

3.10         Lender may (but shall not be obligated to) take in its own name or in the name of Borrower and in any event at the expense of Borrower, such action as Lender may at any time determine to be necessary or advisable to cure any Default of Borrower or to protect the rights of Borrower or Lender, or to protect the Collateral or the real and personal property and assets covered by the Collateral Loan Documents.

3.11         Borrower shall hold Lender harmless against and from any loss, cost, liability or expense (including but not limited to, reasonable attorneys’ fees) incurred in connection with any actions undertaken by Lender pursuant to this Agreement.  All sums expended by Lender in performance of its rights under this Agreement shall constitute additional obligations of Borrower to Lender; shall be payable upon demand and shall be secured as other sums advanced pursuant hereto.

3.12         Negative Covenants.  Borrower shall not, without the prior express written consent of Lender:

(a)           Intentionally fail to pay when due any obligation to any supplier of services, labor, or materials (other than failures due to legitimate disputes being diligently protested);

(b)           Merge, consolidate, reorganize, or recapitalize with or into any other entity;

(c)           Commit any act of bankruptcy (voluntary or involuntary);

(d)           Make any assignment for the benefit of creditors;

(e)           Surrender or commit any act causing the cancellation of a power, license, franchise, permit, authority, right or certificate held by Borrower necessary for Borrower to conduct its business as presently conducted;

(f)           Change or allow a change in the management, control or majority ownership of Borrower;

	
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(g)           Make any investments outside the ordinary course of business; or

(h)           Make any acquisitions.

3.13         Authority and Compliance.  Borrower has full power and authority to enter into this Agreement, to make the borrowing hereunder, to execute and deliver the Note and to incur the obligations provided for herein, all of which has been duly authorized by all proper and necessary corporate action.  No consent or approval of the partners, members, stockholders or of any public authority is required as a condition to the validity of this Agreement or the Note, and Borrower is in compliance with all laws and regulatory requirements to which it is subject.  Borrower is a limited liability company duly organized and in good standing under the laws of the State of Texas and has the power to own its property and carry on its business in each jurisdiction in which the Borrower operates.  This Agreement constitutes, and the Note when issued and delivered pursuant hereto will constitute, valid and legal binding obligations of Borrower in accordance with their terms.

3.14         Litigation.  There are no proceedings pending or, to the knowledge of Borrower, threatened before any court or administrative agency which will or may have a material adverse effect on the financial condition or operations of Borrower.

3.15         Certification.  Borrower shall, upon demand, certify to Lender that no Event of Default shall have occurred and be continuing nor shall any event have occurred or failed to have occurred which, with lapse of time or service of notice or both, would constitute an Event of Default hereunder or in any obligation of Borrower, to any third party.

3.16         Distributions.  Borrower shall make no distributions while the Loan or any part thereof is outstanding or Lender and Borrower have any obligations to each other under the Loan Documents.  Loan Document

3.17         Debt.  Any and all debt incurred by the Borrower shall be subordinated to any debt between Borrower and Lender.

ARTICLE 4 - RIGHTS AND REMEDIES OF LENDER

4.1           Rights of Lender.  Lender may, at its election:

(a)           Upon the occurrence of a Default and the lapse of any notice and opportunity to cure provided herein, exercise with reference to the Collateral and the proceeds of the disposition thereof, any or all of the rights and remedies provided in any of the Loan Documents or any or all of the rights and remedies of a secured party after a default by a debtor under the Texas Business and Commerce Code, or exercise any remedy provided in any document executed pursuant hereto or otherwise related to any collateral or security or lien given to secure any Obligation;

(b)           Take possession of all or any part of the Collateral and exclude Borrower, their agents and representatives therefrom and having and holding the same, may use, operate, manage, and control the Collateral and conduct the business of Borrower and exercise all rights and powers of Borrower with respect to the Collateral and/or Borrower’s business either in the name of Borrower or otherwise;

(c)           Collect and receive all proceeds of disposition or all earnings, revenues, rents, issues, profits and income of the Collateral, including, but not limited to, sums coming due under the Collateral Notes;

	
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(d)           Notify any account debtors/note makers to make payment direct to Lender;

(e)           Hold, maintain, and preserve the Collateral;

(f)           Offset against any sums in an account at Lender; or

(g)           Upon the occurrence of a Default and the lapse of any notice and opportunity to cure provided herein, exercise any right, option, power or remedy provided in any document or agreement securing the Obligations or any of them.

4.2           Acceleration.  Upon the occurrence of an Event of Default, Lender may, at its option, declare all obligations secured hereby immediately due and payable with only the notice, if any, as provided in the Note or any related document.

4.3           No Waiver or Exhaustion.  No rights, remedies, nor obligations hereunder shall be affected or impaired in any way whatsoever by any (a) release, indulgence, forbearance, renewal, extension, rearrangement or modification of any indebtedness; (b) failure, refusal, delay or omission to enforce any term, provision or condition hereof, or (c) surrender, compromise, release, renewal, extension, exchange or substitution granted in respect to any item of Collateral, part thereof or interest therein.

4.4           General Rights.  Regardless of whether or not a Default occurs or exists, Lender shall have the right to (i) contact and confirm note balances directly with each obligor of any part of the Collateral, (ii) audit the books and records of Borrower relating to the Collateral, and (iii) undertake such actions as Lender may desire to protect, confirm or otherwise collect on the Collateral.

4.5           Default.  “Default” or “Event of Default” shall mean the occurrence of any event set forth herein or in any other agreement securing or referencing the Note, which would be deemed a failure of Borrower to comply with any obligation or requirements or which is otherwise defined in any such agreement as a “default” including without limitation the occurrence of any one of the following:

(a)           Any indebtedness evidenced, governed or secured by any of the Loan Documents is not paid when due, whether by acceleration or otherwise;

(b)           Any covenant in this Agreement or any of the other Loan Documents is not fully and timely performed;

(c)           Any statement, representation or warranty in the Loan Documents, any financial statements or any other writing delivered to Lender in connection with the Loan is false, misleading or erroneous in any material respect;

(d)           Borrower, any Guarantor or any person obligated to pay any part of the indebtedness evidenced, governed or secured by the Loan Documents:

(1)           does not pay its debts as they become due or admits in writing its inability to pay its debts or makes a general assignment for the benefit of creditors; or

(2)           commences any case, proceeding or other action seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any debtor relief laws; or

	
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(3)           in any involuntary case, proceeding or other action commenced against it which seeks to have an order for relief entered against it, as debtor, or seeks reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, (i) fails to obtain a dismissal of such case, proceeding or other action within sixty (60) days of its commencement, or (ii) converts the case from one chapter of the Federal Bankruptcy Code to another chapter, or (iii) is the subject of an order for relief; or

(4)           conceals, removes, or permits to be concealed or removed, any part of its property, with intent to hinder, delay or defraud its creditors or any of them, or makes or suffers a transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or makes any transfer of its property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid; or suffers or permits, while insolvent, any creditor to obtain a lien upon any of its property through legal proceedings which is not vacated within sixty (60) days from the date thereof; or

(5)           has a trustee, receiver, custodian or other similar official appointed for or take possession of all or any part of the Property or any other of its property or has any court take jurisdiction of any other of its property which continues for a period of sixty (60) days (except where a shorter period is specified in the immediately following subparagraph;

(e)           The liquidation, termination, dissolution, or winding up of Borrower or any Guarantor;

(f)           Belief by Lender that the prospect of payment or performance of any obligation under any of the Loan Documents is impaired;

(g)           The occurrence of any material adverse change in the financial condition of Borrower or any Guarantor, or the value of the Collateral, as determined by Lender;

(h)           The sale, pledge, encumbrance or assignment of any of Borrower’s membership interests or the withdrawal from or admission into it of any manager or member without the prior written consent of Lender;

(i)           The sale, lease, transfer or other disposition of all or any substantial part of Borrower’s or any Guarantor’s assets (now or hereafter acquired) except that Borrower and each  Guarantor may each sell nonmaterial assets no longer used or useful in its business and Borrower and each Guarantor may each sell or lease other assets in the ordinary course of business as presently conducted, provided that such sale or lease shall not be for less than the fair market value of such assets or be on terms which are not commercially reasonably (and said value or the reasonableness of such terms shall have been determined by the governing body of such Borrower or Guarantor in good faith and in the exercise of prudent business judgment), and provided further that such sale or lease shall not constitute or give rise to a default under any agreement to which Borrower or a Guarantor is a party or by which Borrower or a Guarantor is bound;

(j)           The pledging, mortgaging, granting of a lien on or security interest in, or other hypothecation or encumbrance of all or any substantial part of Borrower’s  assets (now or hereafter acquired) except to secure indebtedness to Lender;

	
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(k)           Any “default” or “event of default” not cured within the grace period, if any, for such default or event of default (the terms “default” and “event of default” have the meaning given to such terms in the agreements and documents described below), shall occur under any credit agreement, loan agreement, promissory note or other document evidencing, guaranteeing or securing indebtedness to which Borrower or any Guarantor is a party as a borrower, debtor, guarantor or other obligor; or

(l)           The death or disability of Mehrdad Moayedi.

ARTICLE 5 - REPORTS/INSPECTIONS/FINANCIALS

Borrower hereby covenants and agrees as follows:

5.1           Collateral Reports.  Borrower shall provide Lender by the fifth (5) calendar day of each month for the prior month, a monthly aging of each Collateral Note, a payment report on each Collateral Note, and a status report of each Collateral Note. The report shall be in form and content as Lender shall reasonably require.

5.2           Collateral Inspections.  Lender shall have the right at all times to inspect all books and records relating to the Collateral, and Borrower shall provide Lender access thereto as requested by Lender.

5.3           Financials. Borrower shall provide to Lender:

(a)           not later than the one hundred twenty (120) calendar day after the last day of each fiscal year, audited financial statements prepared in accordance with accounting principles acceptable to Lender, showing the financial condition and results of operations for the fiscal year then most recently ended, such records to include (without necessarily being limited to) a balance sheet, cash flow statement, and a profit and loss statement;

(b)           quarterly financial statements (including but not limited to a balance sheet, cash flow statement, and profit and loss statement) of Borrower on or before forty-five (45) days after each end of each calendar quarter;

(c)           not later than the thirtieth (30) calendar day after the date annual federal income tax returns are due each year, a copy of the federal income tax return (including all schedules, attachments, and the like) as filed with the Internal Revenue Service;

(d)           a quarterly compliance certificate indicating compliance with all covenants of this Agreement, the Note, the Loan Documents, and any documents associated therewith, on or before forty-five (45) days after each end of each calendar quarter; and

(e)           promptly after Lender’s request, such other financial statements as Lender may from time to time request.

In each instance the financial statements will be accompanied by each such party’s certification that the financial statements present fairly each such party’s financial condition and results of operation.

Borrower authorizes all federal, state, municipal, and other authorities to furnish to the Lender, promptly after the Lender’s request, reports of examinations, records, and other information relating to the Borrower’s condition and affairs and any desired information from reports, returns, files, and records of such authorities. Borrower will pay all of the Lender’s costs in obtaining information contemplated by this paragraph.

	
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ARTICLE 6 - GENERAL TERMS AND CONDITIONS

6.1           Notices.  All notices, demands, requests and other communications required or permitted hereunder shall be in writing and shall be conclusively presumed to have been given when presented personally or three (3) days after having been deposited (in a receptacle maintained for the daily deposit and pick-up of mail for the United States Postal Service) postage prepaid, registered or certified, return receipt requested, addressed to the respective addresses set forth with the signatures hereto.

6.2           Severability.  If any word, phrase, clause, paragraph, sentence, part, portion or provision hereof or of the Loan Documents, Note, or any other agreement or instrument entered into between the parties hereto or the application thereof to any person, entity or circumstance is held to be invalid, the remainder thereof shall nevertheless be valid as though it had been entered into without such invalid word, phrase, clause, paragraph, sentence, part, portion, provision or application.

6.3           Form and Substance.  All documents, certificates, insurance policies, and other items required under this Agreement to be executed and/or delivered to Lender shall be in form and content reasonably satisfactory to Lender.

6.4           Captions.  The captions of this Agreement are inserted for convenience of reference only and shall not in any manner be held to modify, affect, limit, amplify or amend this Agreement in any respect.

6.5           Parties.  Whenever used herein, the terms “Lender” and “Borrower” shall include the parties hereto and their respective successors, heirs, personal representatives, transferees or assigns.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs, personal representatives, transferees or assigns.  It is specifically understood and agreed that Lender may sell, assign or otherwise transfer its rights hereunder.

6.6           Venue.  This Agreement is made and performable in all respects in Dallas County, Texas, where venue is hereby laid for all purposes.

6.7           Counterparts.  This Agreement may be executed in multiple counterparts, each of which, executed by the parties, shall be deemed to be an original, but all of which, taken together, shall constitute but one and the same Agreement.

6.8           Other Documents.  Each party will, promptly on the request of the other, correct any defect, error, or omission which may be discovered in the contents of this Agreement or in the execution, acknowledgement, recording, or maintenance of this Agreement or any agreement contemplated hereby and will promptly execute and deliver any and all additional instruments as may be reasonably requested.

6.9           Law.  This Agreement is made under and in contemplation of the laws of the State of Texas and of the United States applicable to such transactions and shall be construed and enforced in accordance therewith.

6.10           Costs and Expenses.  Borrower shall promptly pay when due all costs and expenses required by this Agreement or incurred in connection with the consummation of the transactions contemplated hereby including, without limitation, (a) all taxes and assessments; (b) all filing fees; (c) all reasonable fees and expenses of auditors and counsel to Lender, including fees for preparation of this Agreement and related documents; (d) premiums for casualty and liability insurance; (e) all other reasonable costs and expenses payable to third parties incurred in connection with the consummation of the transactions contemplated by this Agreement.

	
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6.11           Survival.  The covenants, representations, warranties and terms hereof shall survive the funding of this Loan and the execution of all documents contemplated hereby.

6.12           Conflicts.  In the event that the terms of this agreement conflict with any other agreement executed in any way in connection with any obligation, the agreement most specific to the transaction shall control.

6.13           Statutory Notice.  IN ACCORDANCE WITH SECTION 26.02 OF THE TEXAS BUSINESS AND COMMERCE CODE, LENDER HEREBY NOTIFIES BORROWER THAT:

(a)           THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO AN AGREEMENT SUBJECT TO SUBSECTION (b) OF THIS SECTION SHALL BE DETERMINED SOLELY FROM THE WRITTEN LOAN AGREEMENT, AND ANY PRIOR ORAL AGREEMENTS BETWEEN THE PARTIES ARE SUPERSEDED BY AND MERGED INTO THIS AGREEMENT.

(b)           THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO AN AGREEMENT SUBJECT TO SUBSECTION (c) OF THIS SECTION SHALL BE DETERMINED SOLELY FROM THE WRITTEN LOAN AGREEMENT, AND ANY PRIOR ORAL AGREEMENTS BETWEEN THE PARTIES ARE SUPERSEDED BY AND MERGED INTO THIS AGREEMENT.

(c)           THE LOAN INSTRUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

[SIGNATURE PAGES FOLLOW.]

	
Loan Agreement - CTMGT Williamsburg, LLC - Loan Acquisitions

	
Page 11

 

  

  

  

EXECUTED this ____ day of September, 2011 to be effective as of the Effective Date.

BORROWER:

CTMGT WILLIAMSBURG, LLC,

a Texas limited liability company

	
By:

	
Centamtar Terras, L.L.C.,

	 
	  	
a Texas limited liability company,

	 
	  	
its manager

	 
	  	  	 
	  	
By:

	
CTMGT, LLC,

	 
	  	  	
a Texas limited liability company,

	 
	  	  	
its manager

	 
	  	  	  	 
	  	  	
By:

	
  

	 
	  	  	
Name:

	
  

	 
	  	  	
Title:

	
  

	 

	
Notice address:

	
1221 N. I-35 E, Suite 200

	  	
Carrollton, Texas 75006

GUARANTORS:

CENTAMTAR TERRAS, L.L.C.,

a Texas limited liability company,

	
By:

	
CTMGT, LLC,

	 
	  	
a Texas limited liability company,

	 
	  	
its manager

	 
	  	  	 
	  	
By:

	
  

	 
	  	
Name:

	
  

	 
	  	
Title:

	
  

	 

	
Notice address:

	
1221 N. I-35 E, Suite 200

	  	
Carrollton, Texas 75006

CTMGT, LLC,

a Texas limited liability company

	
By:

	
  

	 
	
Name:

	
  

	 
	
Title:

	
  

	 

	
Notice address:

	
1221 N. I-35 E, Suite 200

	  	
Carrollton, Texas 75006

 

	
Loan Agreement - CTMGT Williamsburg, LLC - Loan Acquisitions

	
Page 12

 

  

  

  

 

LENDER:

UNITED DEVELOPMENT FUNDING IV,

a Maryland real estate investment trust

	
By:

	
  

	 
	
Name:

	
  

	 
	
Title:

	
  

	 

	
Notice address:

	
1301 Municipal Way, Suite 200

	  	
Grapevine, Texas 76051

	
Loan Agreement - CTMGT Williamsburg, LLC - Loan Acquisitions

	
Page 13

 

  

  

  

EXHIBIT A

FORM OF ALLONGE

ALLONGE

 

THIS ALLONGE is hereby attached to and made a part of that certain Promissory Note dated as of ________________ (as amended, restated, supplemented or otherwise modified, the “Note”), executed by MU WILLIAMSBURG, LLC, a Texas limited liability company, as the borrower, payable to the order of CTMGT WILLIAMSBURG, LLC, a Texas limited liability company, which Note is in the original principal amount of ____________________ and No/100 Dollars ($________________.00).

 

PAY TO THE ORDER OF UNITED DEVELOPMENT FUNDING IV, a Maryland real estate investment trust, its successors and assigns, with recourse.

 

DATED effective as of ________________________, 2011.

 

	  	
CTMGT WILLIAMSBURG, LLC,

	  	
a Texas limited liability company

	  	  	  
	  	
By:

	
Centamtar Terras, L.L.C.,

	  	  	
a Texas limited liability company,

	  	  	
its manager

	  	  	  
	  	  	
By:

	
CTMGT, LLC,

	  	  	  	
a Texas limited liability company,

	  	  	  	
its manager

	  	  	  
	  	  	  	
By:

	
  

	  	  	  	
Name:

	
  

	  	  	  	
Title:

	
  

	
Loan Agreement - CTMGT Williamsburg, LLC - Loan Acquisitions

	
Page 14

 

  

  

  

EXHIBIT B

FORM OF COLLATERAL ASSIGNMENT

After Recording, Return To:

United Development Funding IV

1301 Municipal Way, Suite 200

Grapevine, Texas 76051

Attn:  Melissa H. Youngblood

NOTICE OF CONFIDENTIALITY RIGHTS:  IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OR ALL OF THE FOLLOWING INFORMATION FROM ANY INSTRUMENT THAT TRANSFERS AN INTEREST IN REAL PROPERTY BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS:  YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER'S LICENSE NUMBER.

	
STATE OF TEXAS

	
§

	  
	  	
§

	
COLLATERAL ASSIGNMENT OF LOAN DOCUMENTS

	
COUNTY OF ROCKWALL

	
§

	
(CTMGT Williamsburg, LLC – __________ Loan Acquisition)

 

DEFINITIONS

The following terms shall have the meanings indicated, wherever these terms are used in this instrument:

 

	
Effective Date:

	
The effective date of this instrument, which shall be ____________, 2011.

	  	  
	
Assignor:

	
CTMGT Williamsburg, LLC, a Texas limited liability company

	  	
1221 N. I-35 E, Suite 200

	  	
Carrollton, Texas 75006

	  	  
	
Assignee:

	
United Development Funding IV, a Maryland real estate investment trust

	  	
1301 Municipal Way, Suite 200

	  	
Grapevine, Texas 76051

	  	  
	
Borrower:

	
MU Williamsburg, LLC, a Texas limited liability company

	  	
1221 N. I-35 E, Suite 200

	  	
Carrollton, Texas 75006

	  	  
	
Collateral

	  
	
Documents:

	
The Collateral Note, the Collateral Liens and the Collateral Loan Documents and all rights, titles interests, liens, privileges and benefits (but not the obligations) inuring to the benefit of the holder and owner of same.

	  	  
	
Collateral Liens:

	
_______________________

	  	  
	
Collateral

	  
	
Loan Documents:

	
The agreements, documents and items described on Schedule 1 attached hereto which were executed and delivered in connection with the Collateral Note.

 

	
Loan Agreement - CTMGT Williamsburg, LLC - Loan Acquisitions

	
Page 15

 

  

  

  

	
Collateral Note:

	
_______________________

	  	  
	
Loan Agreement:

	
Loan Agreement dated effective as of September 27, 2011, by and among Assignor, Assignee, and certain guarantors pertaining to that certain loan (the “Loan”) from Assignee to Assignor in the aggregate principal amount of $16,407,805.00.

	  	  
	
Property:

	
The real property located in Fate, Rockwall County, Texas as more particularly described on Exhibit A attached hereto and made a part hereof.

ASSIGNMENT

Assignor, for a good and valuable consideration paid to Assignor, the receipt and sufficiency of which is hereby acknowledged, has TRANSFERRED and ASSIGNED, and CONVEYED and by these presents TRANSFERS, ASSIGNS, and CONVEYS unto Assignee, all of Assignor’s right, title and interest in and to the Collateral Documents.  Assignor’s obligations under the Collateral Documents are not assigned to Assignee, but are retained by Assignor.  Assignor shall remain responsible for the full and faithful performance of all of Assignor’s covenants and obligations under Collateral Documents, including without limitation, the obligation to fund any remaining principal under the Collateral Note.   Assignor shall indemnify and hold Assignee harmless from any claims or liability resulting from any failure of Assignor to perform its obligations under the Collateral Documents.  For all purposes Assignee is the legal owner and holder of the Collateral Documents.  Accordingly, Assignee shall be the only party who has standing to modify, release, terminate, or enforce the Collateral Documents.

This transfer is made to secure payment and performance of the “Obligations” (as defined in the Loan Agreement) and upon full payment and performance of the Obligations, this transfer shall be null and void and the Collateral, shall, at the expense of Assignor, be re-transferred, without warranty or recourse, to Assignor by Assignee.  Accordingly, Assignor hereby also grants unto Assignee a security interest in the Collateral Documents.

Assignor hereby represents, warrants and agrees that (i) Assignor has the right, power and capacity to execute and deliver this Collateral Assignment; (ii) Assignor is the owner and holder of the Collateral Documents; (iii) Assignor is receiving good and valuable consideration and a material benefit, directly and indirectly in exchange making the assignments contained herein; and (iv) no person, firm, corporation or other entity, other than Assignor, has any right, title or interest in, to or under the Collateral Documents, or the liens, security interests and remedies contained therein, the Collateral Documents are transferred hereby to Assignee free and clear of any lines, security interests or other encumbrances.

Upon the occurrence of an “Event of Default” (as defined in the Loan Agreement), in addition to the rights and remedies provided Assignee in the Loan Agreement and the other “Loan Documents” (as defined in the Loan Agreement), Assignee shall be permitted to exercise all rights and remedies under the Collateral Documents just as if Assignee was the original payee under the Collateral Note and the original owner and holder of the Collateral Liens.  However, Assignee shall have no liability or obligation to perform any covenant or obligation of Assignor under the Collateral Documents. Furthermore, Assignee shall have all rights and remedies as a secured party under Article 9 of the Texas Business and Commerce Code.  Likewise, Assignee shall be entitled to avail itself of all such other rights and remedies as may now or hereafter exist at law or in equity for the collection of the amounts owing under the Collateral Documents and the foreclosure of the security interest created hereby.  Assignee shall have the right to resort to any remedy provided hereunder, or by any other law of Texas, and such action shall not prevent the concurrent employment of any other appropriate remedy or remedies.  Assignor authorizes Assignee, at Assignee’s option, to collect and receipt for any and all sums becoming due upon the Collateral Documents, such sums to be held by Assignee without liability for interest thereon and applied toward the payment of the Obligations.  Assignee shall have the full control of the Collateral Documents and shall have the further right to release the lien or liens securing the Collateral Note, but Assignee is under no obligation to make or enforce the collection of the Collateral Note and the failure of Assignee from any cause to make or enforce the collection thereof shall not in any way prejudice the right of Assignee to thereafter make or enforce collection thereof or in any way affect the Obligations hereby secured.

	
Loan Agreement - CTMGT Williamsburg, LLC - Loan Acquisitions

	
Page 16

 

  

  

  

EXECUTED this ____ day of September, 2011 to be effective as of the Effective Date.

ASSIGNOR:

CTMGT WILLIAMSBURG, LLC,

a Texas limited liability company

	
By:

	
Centamtar Terras, L.L.C.,

	 
	  	
a Texas limited liability company,

	 
	  	
its manager

	 
	  	  	 
	  	
By:

	
CTMGT, LLC,

	 
	  	  	
a Texas limited liability company,

	 
	  	  	
its manager

	 
	  	  	  	 
	  	  	
By:

	
  

	 
	  	  	
Name:

	
  

	 
	  	  	
Title:

	
  

	 

	
STATE OF TEXAS

	
)

	  	
)

	
COUNTY OF ___________

	
)

The foregoing instrument was ACKNOWLEDGED before me this ___ day of September, 2011, by ________________________, the _______________________ of CTMGT, LLC, a Texas limited liability company, the manager of Centamtar Terras, L.L.C., a Texas limited liability company, the manager of CTMGT Williamsburg, LLC, a Texas limited liability company, on behalf thereof.

	  	
  

	  	
Notary Public

	
[SEAL]

	  

	
Loan Agreement - CTMGT Williamsburg, LLC - Loan Acquisitions

	
Page 17

 

  

  

  

 

EXHIBIT C

FORM OF ESTOPPEL

ESTOPPEL CERTIFICATE AND AGREEMENT

(CTMGT Williamsburg, LLC - ______ Loan Acquisition)

Before me, the undersigned Notary Public, on this day personally appeared the undersigned Affiant, who, upon oath, after being duly sworn, did depose and state and warrant and represent and make the following assurances to United Development Funding IV, a Maryland real estate investment trust (with its successors and assigns, “Lender”), effective as of ___________, 2011 (the “Effective Date”):

1.             This Estoppel Certificate and Agreement (this “Certificate”) is given to Lender in order to induce Lender to acquire from CTMGT Williamsburg, LLC, a Texas limited liability company (“Assignor”), an assignment of all of Assignor’s right, title and interest in and to the documents executed in connection with that certain construction loan (the “Collateral Loan”) originated by Premier Bank, which bank was closed by the Missouri Division of Finance and the Federal Deposit Insurance Corporation was named Receiver (“FDIC Receiver”) for such bank on October 5, 2010, which Collateral Loan was assigned by FDIC Receiver to ____________ (“Bank”) and by Bank to Assignor which now holds the Collaeral Loan and which Collateral Loan is payable by MU Williamsburg, LLC, a Texas limited liability company (“Borrower”), as evidenced by the documents more particularly described on Schedule 1 attached hereto and made a part hereof (collectively, the “Collateral Loan Documents”), which Collateral Loan Documents include one or more promissory notes as described on Schedule 1 (whether one or more, the “Collateral Note”), as collateral as collateral for a loan from Lender to Assignor in the amount of $16,407,805.00.

2.             Assignor is the legal and equitable owner and holder of the Collateral Loan Documents and all of the liens and security interests arising thereunder, free and clear of any security interest, lien or claim by any other party.  Assignor has the power and authority to transfer and assign the Collateral Loan Documents to Lender.

3.             True and correct copies of all of the Collateral Loan Documents have been provided to Lender, and none of the Collateral Loan Documents have been modified or amended in any respect, except as shown in Collateral Loan Documents provided to Lender, nor has any right, privilege or provision in any of the Collateral Loan Documents been waived or released, except as shown in the Collateral Loan Documents provided to Lender.

4.             The Collateral Loan Documents evidence all of the existing agreements evidencing the Collateral Loan and are valid and enforceable documents in accordance with their terms, except as may be limited by applicable creditor’s rights laws.  The deed of trust liens securing the payment of the Collateral Note are valid and in full force and effect, are fully enforceable and constitute first and prior liens on the property described in such deed of trust (the “Property”).  All other liens held by Assignor or otherwise that affect the property that is encumbered by the Collateral Loan Documents are subordinate and inferior to the liens securing the Collateral Note, and any such other liens held by Assignor, if any, are hereby subordinated.

	
Loan Agreement - CTMGT Williamsburg, LLC - Loan Acquisitions

	
Page 18

 

  

  

  

5.             Assignor either (a) has no obligation to advance any additional principal under the Collateral Note or the other Collateral Loan Documents or (b) if Assignor has any obligation to advance any additional principal under the Collateral Loan Documents, Assignor agrees that Lender shall have no obligation whatsoever to advance any principal under the Collateral Note or any of the Collateral Loan Documents.  Assignor shall remain liable to Lender and responsible for the full and faithful performance of all covenants and obligations under the Collateral Loan Documents.  Assignor has performed and will perform all requirements as the owner and holder of the Collateral Loan Documents.  On the Effective Date, the outstanding balance of the Collateral Loan is $_____________, consisting of $____________ in outstanding principal and $_____________ in accrued, unpaid interest that has not been compounded into principal.

6.             Borrower has no defenses to or rights of offset or claims against its obligations under the Collateral Note or the other Collateral Loan Documents.  There is no indebtedness owing to Assignor or any related party that is secured by any of the deeds of trust referenced in Schedule 1 (whether one or more, the “Collateral Deed of Trust”) other than the indebtedness evidenced by the Collateral Note, and Assignor has made no agreement to extend any further credit to Borrower to be secured by the Collateral Deed of Trust.

7.             There are no outstanding liens, encumbrances, security interests or claims of any kind against or in respect of the Collateral Note.  Assignor has not waived or released any rights or remedies of the holder under the Collateral Loan Documents.  The Collateral Loan Documents are in full force and effect and are fully enforceable in accordance with their terms by Assignor.

8.             The foregoing statements are true and correct in all respects.

9.             The undersigned agrees to execute and deliver to Lender such documents and instruments as may be requested by Lender to effectuate the assignment of the Collateral Loan Documents to Lender and pay the costs incurred thereby by Lender.

10.           Assignor understands and agrees that the assignment of the Collateral Loan Documents to Lender is made with full recourse upon Assignor.

11.           Assignor acknowledges and agrees that Assignor has received and will receive good and valuable consideration and a material benefit in exchange for the warranties, representations and agreements made herein and the conveyance of the Collateral Loan Documents to Lender.

12.           The undersigned acknowledges that Lender is relying upon this Certificate in connection with the assignment of the Collateral Note and the other Collateral Loan Documents as collateral for the Loan and would not make such Loan without this Certificate.

[SIGNATURE PAGE FOLLOWS.]

	
Loan Agreement - CTMGT Williamsburg, LLC - Loan Acquisitions

	
Page 19

 

  

  

  

EXECUTED this ____ day of ______________, 20___ to be effective as of the Effective Date.

ASSIGNOR:

	
CTMGT WILLIAMSBURG, LLC,

	 
	
a Texas limited liability company

	 
	  	 
	
By:

	
Centamtar Terras, L.L.C.,

	 
	  	
a Texas limited liability company,

	 
	  	
its manager

	 
	  	  	 
	  	
By:

	
CTMGT, LLC,

	 
	  	  	
a Texas limited liability company,

	 
	  	  	
its manager

	 
	  	  	  	 
	  	  	
By:

	
  

	 
	  	  	
Name:

	
  

	 
	  	  	
Title:

	
  

	 

	
STATE OF TEXAS

	
)

	  	
)

	
COUNTY OF ______________

	
)

The foregoing instrument was ACKNOWLEDGED before me this ___ day of __________, 20___, by ________________________, the _______________________ of CTMGT, LLC, a Texas limited liability company, the manager of Centamtar Terras, L.L.C., a Texas limited liability company, the manager of CTMGT Williamsburg, LLC, a Texas limited liability company, on behalf thereof.

	  	  
	  	
Notary Public

	
[SEAL]

	  

	
Loan Agreement - CTMGT Williamsburg, LLC - Loan Acquisitions

	
Page 20Exhibit 10.17

INVESTMENT AGREEMENT

 

INVESTMENT AGREEMENT (this "AGREEMENT"), dated as of November 1, 2011 by and between Platinum Studios, Inc., a California corporation (the "Company"), and Dutchess Opportunity Fund, II, LP, a Delaware Limited Partnership (the "Investor").

 

WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Investor shall invest up to Ten Million dollars ($10,000,000) to purchase the Company's Common Stock, $.0001 par value per share (the "Common Stock");

 

WHEREAS, such investments will be made in reliance upon the provisions of Section 4(2) under the Securities Act of 1933, as amended (the "1933 Act"), Rule 506 of Regulation D, and the rules and regulations promulgated thereunder, and/or upon such other exemption from the registration requirements of the 1933 Act as may be available with respect to any or all of the investments in Common Stock to be made hereunder; and

 

WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement substantially in the form attached hereto (the "Registration Rights Agreement") pursuant to which the Company has agreed to provide certain registration rights under the 1933 Act, and the rules and regulations promulgated thereunder, and applicable state securities laws.

 

NOW THEREFORE, in consideration of the foregoing recitals, which shall be considered an integral part of this Agreement, the covenants and agreements set forth hereafter, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Investor hereby agree as follows:

 

SECTION 1. DEFINITIONS.

 

As used in this Agreement, the following terms shall have the following meanings specified or indicated below, and such meanings shall be equally applicable to the singular and plural forms of such defined terms.

“1933 Act” shall have the meaning set forth in the preamble of this agreement.

“1934 Act” shall mean the Securities Exchange Act of 1934, as it may be amended.

.INVESTMENT.AGREEMENT

November.2011.

  

1

  

“Affiliate” shall have the meaning specified in Section 5(H), below.

“Agreement” shall mean this Investment Agreement.

“Articles of Incorporation” shall have the meaning specified in Section 4(C).

“By-laws” shall have the meaning specified in Section 4(C).

“Closing” shall have the meaning specified in Section 2(G).

“Closing Date” shall mean no more than seven (7) Trading Days following the Put Notice Date, for each tranche.

“Common Stock” shall have the meaning set forth in the preamble of this Agreement.

“Control” or “Controls” shall have the meaning specified in Section 5(H).

“Effective Date” shall mean the date the SEC declares effective under the 1933 Act the Registration Statement covering the Securities.

“Environmental Laws” shall have the meaning specified in Section 4(M).

“Equity Line Transaction Documents” shall mean this Agreement and the Registration Rights Agreement.

“Execution Date” shall mean the date indicated in the preamble to this Agreement.

“Indemnities” shall have the meaning specified in Section 11.

“Indemnified Liabilities” shall have the meaning specified in Section 11.

“Investor” shall have the meaning indicated in the preamble of this Agreement.

“Material Adverse Effect” shall have the meaning specified in Section 4(A).

“Maximum Common Stock Issuance” shall have the meaning specified in Section 2(H).

“Minimum Acceptable Price” with respect to any Put Notice Date shall be the price defined by the Company in the applicable Put Notice.

.INVESTMENT.AGREEMENT

November.2011.

  

2

  

“Open Market Adjustment Amount” shall have the meaning specified in Section 2(I).

"Open Market Purchase" shall have the meaning specified in Section 2(I)

“Open Market Share Purchase” shall have the meaning specified in Section 2(I).

“Open Period” shall mean the period beginning on and including the Trading Day immediately following the Effective Date and ending on the earlier to occur of (i) the date which is thirty-six (36) months from the Effective Date; or (ii) termination of the Agreement in accordance with Section 9, below.

“Pricing Period” shall mean the five consecutive Trading Days beginning on the Put Notice Date and ending on and including the date that is four (4) Trading Days after such Put Notice Date.

“Principal Market” shall mean the Nasdaq Capital Market, the NYSE Amex, the New York Stock Exchange, the Nasdaq Global Market, the Nasdaq Global Select Market or the OTC Bulletin Board, whichever is the principal market on which the Common Stock is listed.

“Prospectus” shall mean the prospectus, preliminary prospectus and supplemental prospectus used in connection with the Registration Statement.

“Purchase Amount” shall mean the total amount being paid by the Investor on a particular Closing Date to purchase the Securities.

“Purchase Price” shall mean ninety-five percent (95%) of the lowest daily VWAP (as defined herein) of the Common Stock during the Pricing Period.

“Put” shall have the meaning set forth in Section 2(B) hereof.

“Put Amount” shall have the meaning set forth in Section 2(B) hereof.

“Put Notice” shall mean a written notice in the form attached hereto as Exhibit C, sent to the Investor by the Company stating the Put Amount in U.S. dollars the Company intends to sell to the Investor pursuant to the terms of the Agreement and stating the current number of Shares issued and outstanding on such date.

“Put Notice Date” shall mean the Trading Day, as set forth below, immediately following the day on which the Investor receives a Put Notice, however a Put Notice shall be deemed delivered on (a) the Trading Day it is received by facsimile or otherwise by the Investor if such notice is received prior to 9:00 am Eastern Time, or (b) the immediately succeeding Trading Day if it is received by facsimile or otherwise after 9:00 am Eastern Time on a Trading Day.  No Put Notice may be deemed delivered on a day that is not a Trading Day.

.INVESTMENT.AGREEMENT

November.2011.

  

3

  

“Put Restriction” shall mean the days during the Pricing Period.  During this time, the Company shall not be entitled to deliver another Put Notice.

“Put Shares Due” shall have the meaning specified in Section 2(I).

“Registration Period” shall have the meaning specified in Section 5(C), below.

“Registration Rights Agreement” shall have the meaning set forth in the recitals, above.

“Registration Statement” means the registration statement of the Company filed under the 1933 Act covering the resale by the Investor of the Common Stock issuable hereunder.

“Related Party” shall have the meaning specified in Section 5(H).

“Resolution” shall have the meaning specified in Section 8(E).

“SEC” shall mean the U.S. Securities & Exchange Commission.

“SEC Documents” shall have the meaning specified in Section 4(F).

“Securities” shall mean the shares of Common Stock issued pursuant to the terms of the Agreement.

“Shares” shall mean the shares of the Company’s Common Stock.

“Subsidiaries” shall have the meaning specified in Section 4(A).

“Trading Day” shall mean any day on which the Principal Market for the Common Stock is open for trading, from the hours of 9:30 am until 4:00 pm.

“VWAP” shall mean the volume weighted average price.

 

SECTION 2. PURCHASE AND SALE OF COMMON STOCK.

 

(A) PURCHASE AND SALE OF COMMON STOCK. Subject to the terms and conditions set forth herein, the Company may issue and sell to the Investor, and the Investor shall purchase from the Company, up to that number of Shares having an aggregate Purchase Price of Ten million dollars ($10,000,000).

.INVESTMENT.AGREEMENT

November.2011.

  

4

  

 

(B) DELIVERY OF PUT NOTICES.  Subject to the terms and conditions of the Equity Line Transaction Documents, and from time to time during the Open Period, the Company may, in its sole discretion, deliver a Put Notice to the Investor which states the dollar amount (designated in U.S. Dollars) (the "Put Amount") of Shares which the Company intends to sell to the Investor on a Closing Date (the "Put"). The Put Notice shall be in the form attached hereto as Exhibit C and incorporated herein by reference. The amount that the Company shall be entitled to Put to the Investor (the "Put Amount") shall not exceed the greater of 1) two hundred percent (200%) of the average daily volume (U.S. market only) of the Common Stock for the three (3) Trading Days prior to the applicable Put Notice Date, multiplied by the average of the three (3) daily closing prices immediately preceding the Put Date or 2) five hundred thousand dollars ($500,000). During the Open Period, the Company shall not be entitled to submit a Put Notice until the Put has been completed. The Common Stock identified in the Put Notice shall be purchased for a price equal to the Purchase Price.

 

(C) COMPANY’S RIGHT TO WITHDRAWAL. The Company shall reserve the right, but not the obligation, to withdraw that portion of the Put that is below the Minimum Acceptable Price, by submitting to the Investor prior to the applicable Closing Date, in writing, a notice to cancel that portion of the Put.  Any shares above the Minimum Acceptable price due to the Investor shall be sold to the Investor by the Company under the terms of this Agreement.

 

(D) INTENTIONALLY OMITTED

 

(E) CONDITIONS TO INVESTOR'S OBLIGATION TO PURCHASE SHARES. Notwithstanding anything to the contrary in this Agreement, the Company shall not be entitled to deliver a Put Notice and the Investor shall not be obligated to purchase any Shares at a Closing (as defined in Section 2(G)) unless each of the following conditions are satisfied:

 

(I) a Registration Statement shall have been declared effective and shall remain effective and available for the resale of all the Registrable Securities (as defined in the Registration Rights Agreement) at all times until the Closing with respect to the subject Put Notice;

 

(II) at all times during the period beginning on the related Put Notice Date and ending on and including the related Closing Date, the Common Stock shall have been listed on the Principal Market and shall not have been suspended from trading thereon for a period of two (2) consecutive Trading Days during the Open Period and the Company shall not have been notified of any pending or threatened proceeding or other action to suspend the trading of the Common Stock;

.INVESTMENT.AGREEMENT

November.2011.

  

5

  

 

(III) the Company has complied with its obligations and is otherwise not in breach of or in default under, this Agreement, the Registration Rights Agreement or any other agreement executed in connection herewith which has not been cured prior to delivery of the Investor’s Put Notice Date;

 

(IV) no injunction shall have been issued and remain in force, or action commenced by a governmental authority which has not been stayed or abandoned, prohibiting the purchase or the issuance of the Securities; and

 

(V) the issuance of the Securities will not violate any shareholder approval requirements of the Principal Market.

 

If any of the events described in clauses (I) through (V) above occurs during a Pricing Period, then the Investor shall have no obligation to purchase the Put Amount of Common Stock set forth in the applicable Put Notice.

 

(F) RESERVED

 

(G) MECHANICS OF PURCHASE OF SHARES BY INVESTOR. Subject to the satisfaction of the conditions set forth in Sections 2(E), the closing of the purchase by the Investor of Shares (a "Closing") shall occur on the date which is no later than seven (7) Trading Days following the applicable Put Notice Date (each a "Closing Date"). Prior to each Closing Date, (I) the Company shall deliver to the Investor pursuant to this Agreement, certificates representing the Shares to be issued to the Investor on such date and registered in the name of the Investor; and (II) the Investor shall deliver to the Company the Purchase Price to be paid for such Shares, determined as set forth in Section 2(B). In lieu of delivering physical certificates representing the Securities and provided that the Company's transfer agent then is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST") program, upon request of the Investor, the Company shall use all commercially reasonable efforts to cause its transfer agent to electronically transmit the Securities by crediting the account of the Investor's prime broker (as specified by the Investor within a reasonable period in advance of the Investor's notice) with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system.

 

The Company understands that a delay in the issuance of Securities beyond the Closing Date could result in economic damage to the Investor. After the Effective Date, as compensation to the Investor for such loss, the Company agrees to make late payments to the Investor for late issuance of Securities (delivery of Securities after the applicable Closing Date) in accordance with the following schedule (where "No. of Days Late" is defined as the number of trading days beyond the Closing Date, with the Amounts being cumulative.):

.INVESTMENT.AGREEMENT

November.2011.

  

6

  

	
LATE PAYMENT FOR EACH

	 	 	 
	
NO. OF DAYS LATE

	 	 	 
	  	 	 	 
	
1

	 	$	100	 
	
2

	 	$	200	 
	
3

	 	$	300	 
	
4

	 	$	400	 
	
5

	 	$	500	 
	
6

	 	$	600	 
	
7

	 	$	700	 
	
8

	 	$	800	 
	
9

	 	$	900	 
	
10

	 	$	1,000	 
	
Over 10

	 	$	1,000 + $200 for each Business Day late beyond 10 days	 

 

The Company shall make any payments incurred under this Section in immediately available funds upon demand by the Investor. Nothing herein shall limit the Investor's right to pursue actual damages for the Company's failure to issue and deliver the Securities to the Investor, except that such late payments shall offset any such actual damages incurred by the Investor, and any Open Market Adjustment Amount, as set forth below.

 

(H) OVERALL LIMIT ON COMMON STOCK ISSUABLE. Notwithstanding anything contained herein to the contrary, if during the Open Period the Company becomes listed on an exchange that limits the number of shares of Common Stock that may be issued without shareholder approval, then the number of Shares issuable by the Company and purchasable by the Investor, shall not exceed that number of the shares of Common Stock that may be issuable without shareholder approval (the "Maximum Common Stock Issuance").  If such issuance of shares of Common Stock could cause a delisting on the Principal Market, then the Maximum Common Stock Issuance shall first be approved by the Company's shareholders in accordance with applicable law and the By-laws and Articles of Incorporation of the Company, as amended, if such issuance of shares of Common Stock could cause a delisting on the Principal Market. The parties understand and agree that the Company's failure to seek or obtain such shareholder approval shall in no way adversely affect the validity and due authorization of the issuance and sale of Securities or the Investor's obligation in accordance with the terms and conditions hereof to purchase a number of Shares in the aggregate up to the Maximum Common Stock Issuance limitation, and that such approval pertains only to the applicability of the Maximum Common Stock Issuance limitation provided in this Section 2(H).

 

.INVESTMENT.AGREEMENT

November.2011.

  

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(I)  If, by the third (3rd) business day after the Closing Date, the Company fails to deliver any portion of the shares of the Put to the Investor (the "Put Shares Due") and the Investor purchases, in an open market transaction or otherwise, shares of Common Stock necessary to make delivery of shares which would have been delivered if the full amount of the shares to be delivered to the Investor by the Company (the "Open Market Share Purchase"), then the Company shall pay to the Investor, in addition to any other amounts due to Investor pursuant to the Put, and not in lieu thereof, the Open Market Adjustment Amount (as defined below).  The "Open Market Adjustment Amount" is the amount equal to the excess, if any, of (x) the Investor's total purchase price (including brokerage commissions, if any) for the Open Market Share Purchase minus (y) the net proceeds (after brokerage commissions, if any) received by the Investor from the sale of the Put Shares Due.  The Company shall pay the Open Market Adjustment Amount to the Investor in immediately available funds within five (5) business days of written demand by the Investor.  By way of illustration and not in limitation of the foregoing, if the Investor purchases shares of Common Stock having a total purchase price (including brokerage commissions) of $11,000 to cover an Open Market Purchase with respect to shares of Common Stock it sold for net proceeds of $10,000, the Open Market Purchase Adjustment Amount which the Company will be required to pay to the Investor will be $1,000.

 

(J)  LIMITATION ON AMOUNT OF OWNERSHIP. Notwithstanding anything to the contrary in this Agreement, in no event shall the Investor be entitled to purchase that number of Shares, which when added to the sum of the number of shares of Common Stock beneficially owned (as such term is defined under Section 13(d) and Rule 13d-3 of the 1934 Act), by the Investor, would exceed 4.99% of the number of shares of Common Stock outstanding on the Closing Date, as determined in accordance with Rule 13d-1(j) of the 1934 Act.

 

	
SECTION 3.

	
INVESTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.

 

The Investor represents and warrants to the Company, and covenants, that:

 

(A) SOPHISTICATED INVESTOR. The Investor has, by reason of its business and financial experience, such knowledge, sophistication and experience in financial and business matters and in making investment decisions of this type that it is capable of (I) evaluating the merits and risks of an investment in the Securities and making an informed investment decision; (II) protecting its own interest; and (III) bearing the economic risk of such investment for an indefinite period of time.

 

(B) AUTHORIZATION; ENFORCEMENT. The Investor has the requisite power and authority to enter into and perform this Agreement and the Registration Rights Agreement. The execution and delivery of the Equity Line Transaction Documents by the Investor and the consummation by it of the transactions contemplated hereby and thereby have been duly and validly authorized by the Investor's general partners and no further consent or authorization is required by the partners.  This Agreement has been duly and validly authorized, executed and delivered on behalf of the Investor and is a valid and binding agreement of the Investor enforceable against the Investor in accordance with its terms, subject as to enforceability to general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies.

.INVESTMENT.AGREEMENT

November.2011.

  

8

  

 

(C) SECTION 9 OF THE 1934 ACT. During the term of this Agreement, the Investor will comply with the provisions of Section 9 of the 1934 Act, and the rules promulgated thereunder, with respect to transactions involving the Common Stock. The Investor agrees not to sell the Company's stock short, either directly or indirectly through its affiliates, principals or advisors, the Company's common stock during the term of this Agreement.

 

(D) ACCREDITED INVESTOR. Investor is an "Accredited Investor" as that term is defined in Rule 501(a) of Regulation D of the 1933 Act.

 

(E) NO CONFLICTS. The execution, delivery and performance of the Transaction Documents by the Investor and the consummation by the Investor of the transactions contemplated hereby and thereby will not result in a violation of the partnership agreement or other organizational documents of the Investor.

 

(F) OPPORTUNITY TO DISCUSS. The Investor has received all materials relating to the Company's business, finance and operations which it has requested. The Investor has had an opportunity to discuss the business, management and financial affairs of the Company with the Company's management.

 

(G) INVESTMENT PURPOSES. The Investor is purchasing the Securities for its own account for investment purposes and agrees to resell or otherwise dispose of the Securities solely in accordance with the registration provisions of the 1933 Act (or pursuant to an exemption from such registration provisions).

 

(H) NO REGISTRATION AS A DEALER. The Investor is not and will not be required to be registered as a "dealer" under the 1934 Act, either as a result of its execution and performance of its obligations under this Agreement or otherwise.

 

(I)  GOOD STANDING.  The Investor is a Limited Partnership, duly organized, validly existing and in good standing in the state of Delaware.

 

(J)  TAX LIABILITIES.  The Investor understands that it is liable for its own tax liabilities.

 

(K) REGULATION M.  The Investor will comply with Regulation M under the 1934 Act, if applicable.

.INVESTMENT.AGREEMENT

November.2011.

  

9

  

 

SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

Except as set forth in the Schedules attached hereto, or as disclosed in the Company's SEC Documents, the Company represents and warrants to the Investor that:

 

(A) ORGANIZATION AND QUALIFICATION. The Company is a corporation duly organized and validly existing in good standing under the laws of the State of California, USA and has the requisite corporate power and authorization to own its properties and to carry on its business as now being conducted. Both the Company and the companies it owns or controls (“Subsidiaries”) are duly qualified to do business and are in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Agreement, "Material Adverse Effect" means any material adverse effect on (i) the properties, assets, operations, results of operations, or financial condition of the Company and its Subsidiaries, if any, taken as a whole, (ii) the transactions contemplated hereby or by the agreements and instruments to be entered into in connection herewith, or (iii) the authority or ability of the Company to perform its obligations under the Equity Line Transaction Documents.

 

(B) AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER INSTRUMENTS.

 

(I) The Company has the requisite corporate power and authority to enter into and perform this Investment Agreement and the Registration Rights Agreement, and to issue the Securities in accordance with the terms hereof and thereof.

 

(II) The execution and delivery of the Equity Line Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby, including without limitation the reservation for issuance and the issuance of the Securities pursuant to this Agreement, have been duly and validly authorized by the Company's Board of Directors and no further consent or authorization is required by the Company, its Board of Directors, or its shareholders.

 

(III) The Equity Line Transaction Documents have been duly and validly executed and delivered by the Company.

 

(IV) The Equity Line Transaction Documents constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies.

.INVESTMENT.AGREEMENT

November.2011.

  

10

  

 

(C) CAPITALIZATION. As of the date hereof, the authorized capital stock of the Company consists of 500,000,000 shares of Common Stock with $.0001 par value per share, of which as of the date hereof, 359,394,077 shares are issued and outstanding.

 

Except as disclosed in the Company's publicly available filings with the SEC:

 

(I) no shares of the Company's capital stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company; (II) there are no outstanding debt securities; (III) there are no outstanding shares of capital stock, options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries; (IV) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act (except the Registration Rights Agreement); (V) there are no outstanding securities of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries; (VI) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities as described in this Agreement; (VII) the Company does not have any stock appreciation rights or "phantom stock" plans or agreements or any similar plan or agreement; and (VIII) there is no dispute as to the classification of any shares of the Company's capital stock.

 

The Company has furnished to the Investor, or the Investor has had access through the SEC’s EDGAR website to, true and correct copies of the Company's Articles of Incorporation, as amended and in effect on the date hereof (the "Articles of Incorporation"), and the Company's By-laws, as in effect on the date hereof (the "By-laws"), and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto.

 

.INVESTMENT.AGREEMENT

November.2011.

  

11

  

 

(D) ISSUANCE OF SHARES. The Company has reserved 300,000,000 Shares for issuance pursuant to this Agreement, which have been duly authorized and reserved for issuance (subject to adjustment pursuant to the Company's covenant set forth in Section 5(F) below) pursuant to this Agreement. Upon issuance in accordance with this Agreement, the Securities will be validly issued, fully paid for and non-assessable and free from all taxes, liens and charges with respect to the issue thereof. In the event the Company cannot register a sufficient number of Shares for issuance pursuant to this Agreement, the Company will use its best efforts to authorize and reserve for issuance the number of Shares required for the Company to perform its obligations hereunder as soon as reasonably practicable.

 

(E) NO CONFLICTS. The execution, delivery and performance of the Equity Line Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby will not (I) result in a violation of the Articles of Incorporation, any Certificate of Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or the By-laws; or (II) conflict with, or constitute a material default (or an event which with notice or lapse of time or both would become a material default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, contract, indenture mortgage, indebtedness or instrument to which the Company or any of its Subsidiaries is a party, or to the Company's knowledge result in a violation of any law, rule, regulation, order, judgment or decree (including United States federal and state securities laws and regulations and the rules and regulations of the Principal Market or principal securities exchange or trading market on which the Common Stock is traded or listed) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected. Except as disclosed in Schedule 4(e), neither the Company nor its Subsidiaries is in violation of any term of, or in default under, the Articles of Incorporation, any Certificate of Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or the By-laws or their organizational charter or by-laws, respectively, or any contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its Subsidiaries, except for possible conflicts, defaults, terminations, amendments, accelerations, cancellations and violations that would not individually or in the aggregate have or constitute a Material Adverse Effect. The business of the Company and its Subsidiaries is not being conducted, and shall not be conducted, in violation of any law, statute, ordinance, rule, order or regulation of any governmental authority or agency, regulatory or self-regulatory agency, or court, except for possible violations the sanctions for which either individually or in the aggregate would not have a Material Adverse Effect. Except as specifically contemplated by this Agreement and as required under the 1933 Act or any securities laws of any states, to the Company's knowledge, the Company is not required to obtain any consent, authorization, permit or order of, or make any filing or registration (except the filing of a registration statement as outlined in the Registration Rights Agreement between the Parties) with, any court, governmental authority or agency, regulatory or self-regulatory agency or other third party in order for it to execute, deliver or perform any of its obligations under, or contemplated by, the Equity Line Transaction Documents in accordance with the terms hereof or thereof. All consents, authorizations, permits, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof and are in full force and effect as of the date hereof. Except as disclosed in Schedule 4(e), the Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any violation or default of any of the foregoing. The Company is not, and will not be, in violation of the listing requirements of the Principal Market as in effect on the date hereof and on each of the Closing Dates and is not aware of any facts which would reasonably lead to delisting of the Common Stock by the Principal Market in the foreseeable future.

.INVESTMENT.AGREEMENT

November.2011.

  

12

  

 

(F) SEC DOCUMENTS; FINANCIAL STATEMENTS. As of the date hereof, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the "SEC Documents"). The Company has delivered to the Investor or its representatives, or they have had access through the SEC’s EDGAR website to, true and complete copies of the SEC Documents. As of their respective filing dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, by a firm that is a member of the Public Companies Accounting Oversight Board ("PCAOB") consistently applied, during the periods involved (except (I) as may be otherwise indicated in such financial statements or the notes thereto, or (II) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other written information provided by or on behalf of the Company to the Investor which is not included in the SEC Documents, including, without limitation, information referred to in Section 4(D) of this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstance under which they are or were made, not misleading. Neither the Company nor any of its Subsidiaries or any of their officers, directors, employees or agents have provided the Investor with any material, nonpublic information which was not publicly disclosed prior to the date hereof and any material, nonpublic information provided to the Investor by the Company or its Subsidiaries or any of their officers, directors, employees or agents prior to any Closing Date shall be publicly disclosed by the Company prior to such Closing Date.

.INVESTMENT.AGREEMENT

November.2011.

  

13

  

 

(G) ABSENCE OF CERTAIN CHANGES. Except as otherwise set forth in the SEC Documents, the Company does not intend to change the business operations of the Company in any material way. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company or its Subsidiaries have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings.

 

(H) ABSENCE OF LITIGATION AND/OR REGULATORY PROCEEDINGS. Except as set forth in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of Company or any of its Subsidiaries, threatened against or affecting the Company, the Common Stock or any of the Company's Subsidiaries or any of the Company's or the Company's Subsidiaries' officers or directors in their capacities as such, in which an adverse decision could have a Material Adverse Effect.

 

(I) ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF SHARES. The Company acknowledges and agrees that the Investor is acting solely in the capacity of an arm's length purchaser with respect to the Equity Line Transaction Documents and the transactions contemplated hereby and thereby. The Company further acknowledges that the Investor is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Equity Line Transaction Documents and the transactions contemplated hereby and thereby and any advice given by the Investor or any of its respective representatives or agents in connection with the Equity Line Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to the Investor's purchase of the Securities, and is not being relied on by the Company. The Company further represents to the Investor that the Company's decision to enter into the Equity Line Transaction Documents has been based solely on the independent evaluation by the Company and its representatives.

.INVESTMENT.AGREEMENT

November.2011.

  

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(J) NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES. Except as set forth in the SEC Documents, as of the date hereof, no event, liability, development or circumstance has occurred or exists, or to the Company's knowledge is contemplated to occur, with respect to the Company or its Subsidiaries or their respective business, properties, assets, prospects, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws on a registration statement filed with the SEC relating to an issuance and sale by the Company of its Common Stock and which has not been publicly announced.

 

(K) EMPLOYEE RELATIONS. Neither the Company nor any of its Subsidiaries is involved in any union labor dispute nor, to the knowledge of the Company or any of its Subsidiaries, is any such dispute threatened. Neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that relations with their employees are good. No executive officer (as defined in Rule 501(f) of the 1933 Act) has notified the Company that such officer intends to leave the Company's employ or otherwise terminate such officer's employment with the Company.

 

(L) INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted. Except as set forth in the SEC Documents, none of the Company's trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, government authorizations, trade secrets or other intellectual property rights necessary to conduct its business as now or as proposed to be conducted have expired or terminated, or are expected to expire or terminate within two (2) years from the date of this Agreement. The Company and its Subsidiaries do not have any knowledge of any infringement by the Company or its Subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, or of any such development of similar or identical trade secrets or technical information by others and, except as set forth in the SEC Documents, there is no claim, action or proceeding being made or brought against, or to the Company's knowledge, being threatened against, the Company or its Subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement; and the Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and its Subsidiaries have taken commercially reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties.

 

.INVESTMENT.AGREEMENT

November.2011.

  

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(M) ENVIRONMENTAL LAWS. The Company and its Subsidiaries (I) are, to the knowledge of the Company and its Subsidiaries, in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"); (II) have, to the knowledge of the Company, received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses; and (III) are in compliance, to the knowledge of the  Company, with all terms and conditions of any such permit, license or approval where, in each of the three (3) foregoing cases, the failure to so comply would have, individually or in the aggregate, a Material Adverse Effect.

 

(N) TITLE. The Company and its Subsidiaries have good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in the SEC Documents or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or any of its Subsidiaries. Any real property and facilities held under lease by the Company or any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries.

 

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

 

(P) REGULATORY PERMITS. The Company and its Subsidiaries have in full force and effect all certificates, approvals, authorizations and permits from the appropriate federal, state, local or foreign regulatory authorities and comparable foreign regulatory agencies, necessary to own, lease or operate their respective properties and assets and conduct their respective businesses, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, approval, authorization or permit, except for such certificates, approvals, authorizations or permits which if not obtained, or such revocations or modifications which, would not have a Material Adverse Effect.

 

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November.2011.

  

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(Q) INTERNAL ACCOUNTING CONTROLS. The Company and each of its 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 generally accepted accounting principles by a firm with membership to the PCAOB 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.

 

(R) NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company's officers has or is expected in the future to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement which in the judgment of the Company's officers has or is expected to have a Material Adverse Effect.

 

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

 

(T) CERTAIN TRANSACTIONS. Except as set forth in the SEC Documents filed at least ten (10) days prior to the date hereof and except for arm's length transactions pursuant to which the Company makes payments in the ordinary course of business upon terms no less favorable than the Company could obtain from disinterested third parties and other than the grant of stock options disclosed in the SEC Documents, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (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, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

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November.2011.

  

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(U) DILUTIVE EFFECT. The Company understands and acknowledges that the number of shares of Common Stock issuable upon purchases pursuant to this Agreement will increase in certain circumstances including, but not necessarily limited to, the circumstance wherein the trading price of the Common Stock declines during the period between the Effective Date and the end of the Open Period. The Company's executive officers and directors have studied and fully understand the nature of the transactions contemplated by this Agreement and recognize that they have a potential dilutive effect on the shareholders of the Company. The Board of Directors of the Company has concluded, in its good faith business judgment, and with full understanding of the implications, that such issuance is in the best interests of the Company. The Company specifically acknowledges that, subject to such limitations as are expressly set forth in the Equity Line Transaction Documents, its obligation to issue shares of Common Stock upon purchases pursuant to this Agreement is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.

 

(V) LOCK-UP. The Company shall cause its officers, directors, and  any related parties under control of the Company, to refrain from selling Common Stock during each Pricing Period, and the Company shall use best efforts to cause other insiders or Affiliates to refrain from selling any Stock during each Pricing Period.

 

(W) NO GENERAL SOLICITATION. Neither the Company, nor any of its affiliates, nor any person acting on its behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Common Stock to be offered as set forth in this Agreement.

 

(X) NO BROKERS, FINDERS OR FINANCIAL ADVISORY FEES OR COMMISSIONS.  No brokers, finders or financial advisory fees or commissions will be payable by the Company, its agents or Subsidiaries, with respect to the transactions contemplated by this Agreement, except as otherwise disclosed in this Agreement.

 

SECTION 5. COVENANTS OF THE COMPANY

 

(A) BEST EFFORTS. The Company shall use all commercially reasonable efforts to timely satisfy each of the conditions set forth in Section 8 of this Agreement.

 

(B) BLUE SKY. The Company shall, at its sole cost and expense, on or before each of the Closing Dates, take such action as the Company shall reasonably determine is necessary to qualify the Securities for, or obtain exemption for the Securities for, sale to the Investor at each of the Closings pursuant to this Agreement under applicable securities or "Blue Sky" laws of such states of the United States, as reasonably specified by the Investor, and shall provide evidence of any such action so taken to the Investor on or prior to the Closing Date.

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(C) REPORTING STATUS. Until one of the following occurs, the Company shall file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status, or take an action or fail to take any action, which would terminate its status as a reporting company under the 1934 Act: (i) this Agreement terminates pursuant to Section 9, (ii) the date on which the Investor has sold all the Securities.

 

(D) USE OF PROCEEDS. The Company will use the proceeds from the sale of the Securities (excluding amounts paid by the Company for fees as set forth in the Equity Line Transaction Documents) for general corporate and working capital purposes and acquisitions or assets, businesses or operations or for other purposes that the Board of Directors, in its good faith deem to be in the best interest of the Company.

 

(E) FINANCIAL INFORMATION. During the Open Period, the Company agrees to make available to the Investor via the SEC’s EDGAR website or other electronic means the following documents and information on the forms set forth: (I) within five (5) Trading Days after the filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any Registration Statements or amendments filed pursuant to the 1933 Act; (II) copies of any notices and other information made available or given to the shareholders of the Company generally, contemporaneously with the making available or giving thereof to the shareholders; and (III) within two (2) calendar days of filing or delivery thereof, copies of all documents filed with, and all correspondence sent to, the Principal Market, any securities exchange or market, or the Financial Industry Regulatory Authority, unless such information is material nonpublic information.

 

(F) RESERVATION OF SHARES. The Company shall reserve Thirty-Five Million  (35,000,000) Shares for the issuance of the Securities to the Investor as required hereunder. In the event that the Company determines that it does not have a sufficient number of authorized shares of Common Stock to reserve and keep available for issuance as described in this Section 5(F), the Company shall use all commercially reasonable efforts to increase the number of authorized shares of Common Stock by seeking shareholder approval for the authorization of such additional shares.

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(G) LISTING. The Company shall promptly secure and maintain the listing of all of the Registrable Securities (as defined in the Registration Rights Agreement) on the Principal Market and each other national securities exchange and automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and shall maintain, such listing of all Registrable Securities from time to time issuable under the terms of the Equity Line Transaction Documents. Neither the Company nor any of its Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the Common Stock on the Principal Market (excluding suspensions of not more than one (1) trading day resulting from business announcements by the Company). The Company shall promptly provide to the Investor copies of any notices it receives from the Principal Market regarding the continued eligibility of the Common Stock for listing on such automated quotation system or securities exchange. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 5(G).

 

(H) TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall cause each of its Subsidiaries not to, enter into, amend, modify or supplement, or permit any Subsidiary to enter into, amend, modify or supplement, any agreement, transaction, commitment or arrangement with any of its or any Subsidiary's officers, directors, persons who were officers or directors at any time during the previous two (2) years, shareholders who beneficially own 5% or more of the Common Stock, or Affiliates or with any individual related by blood, marriage or adoption to any such individual or with any entity in which any such entity or individual owns a 5% or more beneficial interest (each a "Related Party"), except for (I) customary employment arrangements and benefit programs on reasonable terms, (II) any agreement, transaction, commitment or arrangement on an arms-length basis on terms no less favorable than terms which would have been obtainable from a disinterested third party other than such Related Party, or (III) any agreement, transaction, commitment or arrangement which is approved by a majority of the disinterested directors of the Company. For purposes hereof, any director who is also an officer of the Company or any Subsidiary of the Company shall not be a disinterested director with respect to any such agreement, transaction, commitment or arrangement. "Affiliate" for purposes hereof means, with respect to any person or entity, another person or entity that, directly or indirectly, (I) has a 5% or more equity interest in that person or entity, (II) has 5% or more common ownership with that person or entity, (III) controls that person or entity, or (IV) is under common control with that person or entity. "Control" or "Controls" for purposes hereof means that a person or entity has the power, directly or indirectly, to conduct or govern the policies of another person or entity.

 

(I) FILING OF FORM 8-K. On or before the date which is four (4) Trading Days after the Execution Date, the Company shall file a Current Report on Form 8-K with the SEC describing the terms of the transaction contemplated by the Equity Line Transaction Documents in the form required by the 1934 Act, if such filing is required.

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(J) CORPORATE EXISTENCE. The Company shall use all commercially reasonable efforts to preserve and continue the corporate existence of the Company.

 

(K) NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT TO MAKE A PUT. The Company shall promptly notify the Investor upon the occurrence of any of the following events in respect of a Registration Statement or related prospectus in respect of an offering of the Securities: (I) receipt of any request for additional information by the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to the Registration Statement or related prospectus; (II) the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose;  (III) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Securities for sale in any jurisdiction or the initiation or notice of any proceeding for such purpose; (IV) the happening of any event that makes any statement made in such Registration Statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, related prospectus or documents so that, in the case of a Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the related prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (V) the Company's reasonable determination that a post-effective amendment to the Registration Statement would be appropriate, and the Company shall promptly make available to Investor any such supplement or amendment to the related prospectus. The Company shall not deliver to Investor any Put Notice during the continuation of any of the foregoing events in this Section 5(K).

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(L)  REIMBURSEMENT.  If (I) the Investor becomes involved in any capacity in any action, proceeding or investigation brought by any shareholder of the Company, in connection with or as a result of the consummation of the transactions contemplated by the Equity Line Transaction Documents, or if the Investor is impleaded in any such action, proceeding or investigation by any person (other than as a result of a breach of the Investor’s representations and warranties set forth in this Agreement); or (II) the Investor becomes involved in any capacity in any action, proceeding or investigation brought by the SEC against or involving the Company or in connection with or as a result of the consummation of the transactions contemplated by the Equity Line Transaction Documents (other than as a result of a breach of the Investor’s representations and warranties set forth in this Agreement), or if this Investor is impleaded in any such action, proceeding or investigation by any person, then in any such case, the Company will reimburse the Investor for its reasonable legal and other expenses (including the cost of any investigation and preparation) incurred in connection therewith, as such expenses are incurred. In addition, other than with respect to any matter in which the Investor is a named party, the Company will pay to the Investor the charges, as reasonably determined by the Investor, for the time of any officers or employees of the Investor devoted to appearing and preparing to appear as witnesses, assisting in preparation for hearings, trials or pretrial matters, or otherwise with respect to inquiries, hearing, trials, and other proceedings relating to the subject matter of this Agreement. The reimbursement obligations of the Company under this section shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any affiliates of the Investor that are actually named in such action, proceeding or investigation, and partners, directors, agents, employees, attorneys, accountants, auditors and controlling persons (if any), as the case may be, of Investor and any such affiliate, and shall be binding upon and inure to the benefit of any successors of the Company, the Investor and any such affiliate and any such person.

(M) TRANSFER AGENT.  Upon effectiveness of the Registration Statement, and for so long as the Registration Statement is effective,  the Company shall deliver instructions to its transfer agent to issue Shares to the Investor that are covered for resale by the Registration Statement free of restrictive legends.

(N) ACKNOWLEDGEMENT OF TERMS.  The Company hereby represents and warrants to the Investor that: (i) it is voluntarily entering into this Agreement of its own freewill, (ii) it is not entering this Agreement under economic duress, (iii) the terms of this Agreement are reasonable and fair to the Company, and (iv) the Company has had independent legal counsel of its own choosing review this Agreement, advise the Company with respect to this Agreement, and represent the Company in connection with this Agreement.

 

SECTION 6. INTENTIONALLY OMITTED

 

SECTION 7. CONDITIONS OF THE COMPANY'S OBLIGATION TO SELL.

 

The obligation hereunder of the Company to issue and sell the Securities to the Investor is further subject to the satisfaction, at or before each Closing Date, of each of the following conditions set forth below. These conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion.

 

(A) The Investor shall have executed this Agreement and the Registration Rights Agreement and delivered the same to the Company.

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(B) The Investor shall have delivered to the Company the Purchase Price for the Securities being purchased by the Investor between the end of the Pricing Period and the Closing Date via a Put Settlement Sheet (hereto attached as Exhibit D). After receipt of confirmation of delivery of such Securities to the Investor, the Investor, by wire transfer of immediately available funds pursuant to the wire instructions provided by the Company, will disburse the funds constituting the Purchase Amount.

 

(C) The representations and warranties of the Investor shall be true and correct as of the date when made and as of the applicable Closing Date as though made at that time and the Investor shall have performed, satisfied and complied with the covenants, agreements and conditions required by the Equity Line Transaction Documents to be performed, satisfied or complied with by the Investor on or before such Closing Date.

 

(D)  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement.

 

SECTION 8. FURTHER CONDITIONS OF THE INVESTOR'S OBLIGATION TO PURCHASE.

 

The obligation of the Investor hereunder to purchase Shares is subject to the satisfaction, on or before each Closing Date, of each of the following conditions set forth below.

 

(A) The Company shall have executed the Equity Line Transaction Documents and delivered the same to the Investor.

 

(B) The Common Stock shall be authorized for quotation on the Principal Market and trading in the Common Stock shall not have been suspended by the Principal Market or the SEC, at any time beginning on the date hereof and through and including the respective Closing Date (excluding suspensions of not more than one (1) Trading Day resulting from business announcements by the Company, provided that such suspensions occur prior to the Company's delivery of the Put Notice related to such Closing).

 

(C) The representations and warranties of the Company shall be true and correct as of the date when made and as of the applicable Closing Date as though made at that time and the Company shall have performed, satisfied and complied with the covenants, agreements and conditions required by the Equity Line Transaction Documents to be performed, satisfied or complied with by the Company on or before such Closing Date. The Investor may request an update as of such Closing Date regarding the representation contained in Section 4(C) above.

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(D) The Company shall have executed and delivered to the Investor the certificates representing, or have executed electronic book-entry transfer of, the Securities (in such denominations as the Investor shall request) being purchased by the Investor at such Closing.

 

(E) The Board of Directors of the Company shall have adopted resolutions consistent with Section 4(B)(II) above (the "Resolutions") and such Resolutions shall not have been amended or rescinded prior to such Closing Date.

 

(F) Reserved

 

(G) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement.

 

(H) The Registration Statement shall be effective on each Closing Date and no stop order suspending the effectiveness of the Registration statement shall be in effect or to the Company's knowledge shall be pending or threatened. Furthermore, on each Closing Date (I) neither the Company nor the Investor shall have received notice that the SEC has issued or intends to issue a stop order with respect to such Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of such Registration Statement, either temporarily or permanently, or intends or has threatened to do so (unless the SEC's concerns have been addressed and Investor is reasonably satisfied that the SEC no longer is considering or intends to take such action), and (II) no other suspension of the use or withdrawal of the effectiveness of such Registration Statement or related prospectus shall exist.

 

(I) At the time of each Closing, the Registration Statement (including information or documents incorporated by reference therein) and any amendments or supplements thereto shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading or which would require public disclosure or an update supplement to the prospectus.

(J) If applicable, the shareholders of the Company shall have approved the issuance of any Shares in excess of the Maximum Common Stock Issuance in accordance with Section 2(H) or the Company shall have obtained appropriate approval pursuant to the requirements of California law and the Company’s Articles of Incorporation and By-laws.

 

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(K) The conditions to such Closing set forth in Section 2(E) shall have been satisfied on or before such Closing Date.

(L)  The Company shall have certified to the Investor the number of Shares of Common Stock outstanding when a Put Notice is given to the Investor.  The Company's delivery of a Put Notice to the Investor constitutes the Company's certification of the existence of the necessary number of shares of Common Stock reserved for issuance.

 

SECTION 9. TERMINATION. This Agreement shall terminate upon any of the following events:

 

(I) when the Investor has purchased an aggregate of Ten million dollars ($10,000,000) in the Common Stock of the Company pursuant to this Agreement; or,

 

(II) on the date which is thirty-six (36) months after the Effective Date; or,

 

(III) upon written notice of the Company to the Investor.  Any and all shares, or penalties, if any, due under this Agreement shall be immediately payable and due upon termination of this Agreement.

 

SECTION 10.  SUSPENSION

The Company’s right to Put Shares, and the Investor’s obligation to purchase Shares under this Agreement shall be suspended upon any of the following events, and shall remain suspended until such event is rectified:

(I)  the trading of the Common Stock is suspended by the SEC, the Principal Market or FINRA for a period of two (2) consecutive Trading Days during the Open Period; or,

(II) The Common Stock ceases to be registered under the 1934 Act or listed or traded on the Principal Market.  Immediately upon the occurrence of one of the above-described events, the Company shall send written notice of such event to the Investor.

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SECTION 11. INDEMNIFICATION.

 

In consideration of the parties mutual obligations set forth in the Transaction Documents, each of the parties (in such capacity, an "Indemnitor") shall defend, protect, indemnify and hold harmless the other and all of the other party's shareholders, officers, directors, employees, counsel, and direct or indirect investors and any of the foregoing person's agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Indemnitees") from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and reasonable expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by any Indemnitee as a result of, or arising out of, or relating to (I) any material misrepresentation or breach of any representation or warranty made by the Indemnitor in the Equity Line Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby; (II) any material breach of any covenant, agreement or obligation of the Indemnitor contained in the Equity Line Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby; or (III) any cause of action, suit or claim brought or made against such Indemnitee by a third party and arising out of or resulting from the execution, delivery, performance or enforcement of the Equity Line Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, except insofar as any such misrepresentation, breach or any untrue statement, alleged untrue statement, omission or alleged omission is made in reliance upon and in conformity with information furnished to Indemnitor which is specifically intended for use in the preparation of any such Registration Statement, preliminary prospectus, prospectus or amendments to the prospectus. To the extent that the foregoing undertaking by the Indemnitor may be unenforceable for any reason, the Indemnitor shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. The indemnity provisions contained herein shall be in addition to any cause of action or similar rights Indemnitor may have, and any liabilities the Indemnitor or the Indemnitees may be subject to.

 

SECTION 12. GOVERNING LAW; DISPUTES SUBMITTED TO ARBITRATION.  All disputes arising under this agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts, without regard to principles of conflict of laws.  The parties to this agreement will submit all disputes arising under this agreement to arbitration in Boston, Massachusetts before a single arbitrator of the American Arbitration Association (“AAA”).  The arbitrator shall be selected by application of the rules of the AAA, or by mutual agreement of the parties, except that such arbitrator shall be an attorney admitted to practice law in the Commonwealth of Massachusetts.  No party to this Agreement will challenge the jurisdiction or venue provisions as provided in this section.  No party to this agreement will challenge the jurisdiction or venue provisions as provided in this section.  Nothing contained herein shall prevent the party from obtaining an injunction.

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(B) LEGAL FEES; AND MISCELLANEOUS FEES. Except as otherwise set forth in the Equity Line Transaction Documents, each party shall pay the fees and expenses of its advisers, counsel, the 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. Any attorneys' fees and expenses incurred by either the Company or the Investor in connection with the preparation, negotiation, execution and delivery of any amendments to this Agreement or relating to the enforcement of the rights of any party, after the occurrence of any breach of the terms of this Agreement by another party or any default by another party in respect of the transactions contemplated hereunder, shall be paid on demand by the party which breached the Agreement and/or defaulted, as the case may be. The Company shall pay all stamp and other taxes and duties levied in connection with the issuance of any Securities.

 

(C) COUNTERPARTS. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original signature.

 

(D) HEADINGS; SINGULAR/PLURAL. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. Whenever required by the context of this Agreement, the singular shall include the plural and masculine shall include the feminine.

 

(E) SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.

 

(F) ENTIRE AGREEMENT; AMENDMENTS. This Agreement is the FINAL AGREEMENT between the Company and the Investor with respect to the terms and conditions set forth herein, and, the terms of this Agreement may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the Parties.  No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the Investor, and no provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. The execution and delivery of the Equity Line Transaction Documents shall not alter the force and effect of any other agreements between the Parties, and the obligations under those agreements.

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(G) NOTICES. Any notices or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (I) upon receipt, when delivered personally; (II) upon receipt, when sent by facsimile or email with the signed document attached in PDF format (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (III) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:

If to the Company:

Platinum Studios Inc.

2029 South Westgate Avenue

LOS ANGELES CA 90025

Telephone: (301) 807-8100

Facsimile: 310.276.2799

If to the Investor:

Dutchess Opportunity Fund, II, LP

50 Commonwealth Avenue, Suite 2

Boston, MA 02116

Telephone: 617-301-4700

Facsimile: 617-249-0947

E-mail: dleighton@dpef.com

 

Each party shall provide five (5) days prior written notice to the other party of any change in address or facsimile number.

 

(H) NO ASSIGNMENT. This Agreement may not be assigned.

 

(I) NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto and is not for the benefit of, nor may any provision hereof be enforced by, any other person, except that the Company acknowledges that the rights of the Investor may be enforced by its general partner.

 

(J) SURVIVAL. The indemnification provisions set forth in Section 11, shall survive each of the Closings and the termination of this Agreement.

 

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(K) PUBLICITY. The Company and the Investor shall consult with each other in issuing any press releases or otherwise making public statements with respect to the transactions contemplated hereby and no party shall issue any such press release or otherwise make any such public statement without the prior consent of the other party, which consent shall not be unreasonably withheld or delayed, except that no prior consent shall be required if such disclosure is required by law, in which such case the disclosing party shall provide the other party with prior notice of such public statement. The Investor acknowledges that this Agreement and all or part of the Equity Line Transaction Documents may be deemed to be "material contracts" as that term is defined by Item 601(b)(10) of Regulation S-B, and that the Company may therefore be required to file such documents as exhibits to reports or registration statements filed under the 1933 Act or the 1934 Act.  The Investor further agrees that the status of such documents and materials as material contracts shall be determined solely by the Company, in consultation with its counsel.

 

(L) FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

(M) PLACEMENT AGENT. If so required by the SEC, the Company agrees to pay a registered broker dealer, to act as placement agent, a percentage of the Put Amount on each draw toward the fee as outlined in the Placement Agent Agreement.  The Investor shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other persons or entities for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Equity Line Transaction Documents. The Company shall indemnify and hold harmless the Investor, their employees, officers, directors, agents, and partners, and their respective affiliates, from and against all claims, losses, damages, costs (including the costs of preparation and attorney's fees) and expenses incurred in respect of any such claimed or existing fees, as such fees and expenses are incurred.

 

(N) NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party, as the parties mutually agree that each has had a full and fair opportunity to review this Agreement and seek the advice of counsel on it.

 

(O) REMEDIES. The Investor shall have all rights and remedies set forth in this Agreement and the Registration Rights Agreement and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which the Investor has by law. Any person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any default or breach of any provision of this Agreement, including the recovery of reasonable attorneys fees and costs, and to exercise all other rights granted by law.

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(P) PAYMENT SET ASIDE. To the extent that the Company makes a payment or payments to the Investor hereunder or under the Registration Rights Agreement or the Investor enforces or exercises its rights hereunder or 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.

 

(Q) PRICING OF COMMON STOCK. For purposes of this Agreement, the VWAP of the Common Stock shall be as reported on Bloomberg.

 

SECTION 13. NON-DISCLOSURE OF NON-PUBLIC INFORMATION.

 

(a) The Company shall not disclose non-public information to the Investor, its advisors, or its representatives.

 

(b) Nothing herein shall require the Company to disclose non-public information to the Investor or its advisors or representatives, and the Company represents that it does not disseminate non-public information to any investors who purchase stock in the Company in a public offering, to money managers or to securities analysts, provided, however, that notwithstanding anything herein to the contrary, the Company will, as hereinabove provided, immediately notify the advisors and representatives of the Investor and, if any, underwriters, of any event or the existence of any circumstance (without any obligation to disclose the specific event or circumstance) of which it becomes aware, constituting non-public information (whether or not requested of the Company specifically or generally during the course of due diligence by such persons or entities), which, if not disclosed in the prospectus included in the Registration Statement would cause such prospectus to include a material misstatement or to omit a material fact required to be stated therein in order to make the statements, therein, in light of the circumstances in which they were made, not misleading. Nothing contained in this Section 13 shall be construed to mean that such persons or entities other than the Investor (without the written consent of the Investor prior to disclosure of such information) may not obtain non-public information in the course of conducting due diligence in accordance with the terms of this Agreement and nothing herein shall prevent any such persons or entities from notifying the Company of their opinion that based on such due diligence by such persons or entities, that the Registration Statement contains an untrue statement of material fact or omits a material fact required to be stated in the Registration Statement or necessary to make the statements contained therein, in light of the circumstances in which they were made, not misleading.

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ARTICLE 14  ACKNOWLEDGEMENTS OF THE PARTIES.

 

Notwithstanding anything in this Agreement to the contrary, the parties hereto hereby acknowledge and agree to the following: (i) the Investor makes no representations or covenants that it will not engage in trading in the securities of the Company, other than the Investor will not sell short the Company's common stock at any time during this Agreement; (ii) the Company shall, by 8:30 a.m. Boston Time on the fourth Trading Day following the date hereof, file a current report on Form 8-K disclosing the material terms of the transactions contemplated hereby and in the other Equity Line Transaction Documents; (iii) the Company has not and shall not provide material non-public information to the Investor unless prior thereto the Investor shall have executed a written agreement regarding the confidentiality and use of such information; and (iv) the Company understands and confirms that the Investor will be relying on the acknowledgements set forth in clauses (i) through (iii) above if the Investor effects any transactions in the securities of the Company.

 

SECTION 15   PRIOR AGREEMENTS.

 

The parties agree that upon signing of the Equity Line Transaction Documents, the prior agreements between the parties dated January 12, 2010 and May 20, 2010 shall be deemed cancelled and both parties agree to operate under this Agreement.

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SIGNATURE PAGE OF INVESTMENT AGREEMENT

 

Your signature on this Signature Page evidences your agreement to be bound by the terms and conditions of the Investment Agreement and the Registration Rights Agreement as of the date first written above.

 

The undersigned signatory hereby certifies that he has read and understands the Investment Agreement, and the representations made by the undersigned in this Investment Agreement are true and accurate, and agrees to be bound by its terms.

	  	
DUTCHESS OPPORTUNITY FUND, II, LP

	  	  
	  	
By: /s/ Douglas H. Leighton

	  	
Douglas H. Leighton

	  	
Managing Member of:

	  	
Dutchess Capital Management, II, LLC

	  	
General Partner to:

	  	
Dutchess Opportunity Fund, II, LP

	  	  
	  	
PLATINUM STUDIOS, INC.

	  	  
	  	
By: /s/ Scott Mitchell Rosenberg

	  	
Scott Mitchell Rosenberg, CEO

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LIST OF EXHIBITS

	
EXHIBIT  A

	  	
Registration  Rights  Agreement

	
EXHIBIT  B

	  	
Opinion  of  Company's  Counsel

	
EXHIBIT  C

	  	
Put  Notice

	
EXHIBIT  D

	
  

	
Put  Settlement  Sheet

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LIST OF SCHEDULES

 

Schedule 4(a) Subsidiaries

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EXHIBIT A

REGISTRATION RIGHTS AGREEMENT

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EXHIBIT B

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

Date: __________   

[TRANSFER AGENT]

	
  

	 	
Re:

	
PLATINUM STUDIOS, INC..

Ladies and Gentlemen:

We are counsel to Platinum Studios, Inc.., a California corporation (the "Company"), and have represented the Company in connection with that certain Investment Agreement (the "Investment Agreement") entered into by and among the Company and Dutchess Opportunity Fund, II, LP (the "Investor") pursuant to which the Company has agreed to issue to the Investor shares of the Company's common stock, without par value per share (the "Common Stock") on the terms and conditions set forth in the Investment Agreement. Pursuant to the Investment Agreement, the Company also has entered into a Registration Rights Agreement with the Investor (the "Registration Rights Agreement") pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement), including the shares of Common Stock issued or issuable under the Investment Agreement under the Securities Act of 1933, as amended (the "1933 Act"). In connection with the Company's obligations under the Registration Rights Agreement, on _________, 200_ the Company filed a Registration Statement on Form S- ___ (File No. 333-________) (the "Registration Statement") with the Securities and Exchange Commission (the "SEC") relating to the Registrable Securities which names the Investor as a selling shareholder thereunder.

In connection with the foregoing, we advise you that [a member of the SEC's staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective] [the Registration Statement has become effective] under the 1933 Act at [enter the time of effectiveness] on [enter the date of effectiveness] and to the best of our knowledge, after telephonic inquiry of a member of the SEC’s staff, no stop order suspending its effectiveness has been issued and no proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale under the 1933 Act pursuant to the Registration Statement.

	  	
Very truly yours,

	  	  
	  	
[Company Counsel]

 

.INVESTMENT.AGREEMENT

November.2011.

  

36

  

EXHIBIT C

 

Date:

 

RE: Put Notice Number __

 

Dear Mr. Leighton,

 

This is to inform you that as of today, Platinum Studios, Inc., Inc., a California corporation (the "Company"), hereby elects to exercise its right pursuant to the Investment Agreement to require Dutchess Opportunity Fund, II, LP to purchase shares of its common stock. The Company hereby certifies that:

 

The amount of this put is $__________.

 

The Pricing Period runs from ________ until _______.

 

The Minimum Acceptable Price is $________

 

The current number of shares issued and outstanding as of the Company are:

 

   

The number of shares currently available for issuance on the S-1 for the Equity Line are:

  

 

Regards,

 

 

Platinum Studios, Inc.

 

	  	  
	
Name:

	
Title:

.INVESTMENT.AGREEMENT

November.2011.

  

37

  

EXHIBIT D

PUT SETTLEMENT SHEET

 

Date:

 

Dear ______,

 

Pursuant to the Put given by Platinum Studios, Inc., to Dutchess Opportunity Fund, II, LP on _________________ 200_, we are now submitting the amount of common shares for you to issue to Dutchess.

 

Please have a certificate bearing no restrictive legend totaling __________ shares issued to Dutchess Opportunity Fund, II, LP immediately and send via DWAC to the following account:

 

XXXXXX

 

If not DWAC eligible, please send FedEx Priority Overnight to:

 

XXXXXX

 

Once these shares are received by us, we will have the funds wired to the Company.

 

Regards,

 

Douglas H. Leighton

.INVESTMENT.AGREEMENT

November.2011.

  

38

  

DATE. . . . . . . . . . . . . . . . . . . . .  VWAP

Day 1 – Day 5

LOWEST DAILY VWAP

 

PUT AMOUNT

   

AMOUNT WIRED TO COMPANY

 

PURCHASE PRICE (95)% (NINETY-FIVE PERCENT))

 

AMOUNT OF SHARES DUE

  

The undersigned has completed this Put as of this ___th day of _________, 200_.

 

	
Platinum Studios, Inc.

	  
	  	  
	
Name:

	
Title:

SCHEDULE 4(c) CAPITALIZATION

.INVESTMENT.AGREEMENT

November.2011.

  

39

  

SCHEDULE 4(e) CONFLICTS

SCHEDULE 4(g) MATERIAL CHANGES

SCHEDULE 4(h) LITIGATION

SCHEDULE 4(l) INTELLECTUAL PROPERTY

 

.INVESTMENT.AGREEMENT

November.2011.

  

40

  

SCHEDULE 4(n) LIENS

SCHEDULE 4(t) CERTAIN TRANSACTIONS

.INVESTMENT.AGREEMENT

November.2011.

  

41

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