Document:

EX-10.10

 Exhibit 10.10 

AMENDED AND RESTATED 

ACCELERATE PARENT CORP. 

MANAGEMENT EQUITY INCENTIVE PLAN 

Adopted August 30, 2010 (the “Effective Date”) 

Amended and Restated April 28, 2014 
  

	 	1.	Purpose of the Plan 

 The purpose of the Amended and Restated Accelerate Parent
Corp. Management Equity Incentive Plan (the “Plan”) is to promote the interests of the Company and its Affiliates and stockholders by providing the key employees, directors, service providers and consultants of the Company and its
Affiliates with an appropriate incentive to encourage them to continue in the employ of the Company or Affiliate and to improve the growth and profitability of the Company. 
  

	 	2.	Definitions 

 As used in this Plan, the following capitalized terms shall have the
following meanings: 
 (a) “Affiliate” shall mean the Company and any of its direct or indirect subsidiaries. 

(b) “Board” shall mean the Board of Directors of the Company. 

(c) “Cause” shall mean, when used in connection with the termination of a Participant’s Employment, (x) if the
Participant has an effective employment agreement with the Company or any Affiliate as of the Grant Date, the definition used in such employment agreement, or (y) if the Participant does not have an effective employment agreement, unless
otherwise provided in the Participant’s Option Grant Agreement, (i) the termination of the Participant’s Employment with the Company and all Affiliates on account of a failure of the Participant to perform his or her duties (other
than as a result of physical or mental illness or injury); (ii) the termination of the Participant’s Employment with the Company and all Affiliates on account of the Participant’s willful misconduct or gross negligence which is
injurious to the Company, any of its Affiliates, the Majority Stockholder or any of its affiliates (whether financially, reputationally or otherwise); (iii) the termination of the Participant’s Employment with the Company and all
Affiliates on account of a breach by a Participant of the Participant’s fiduciary duty or duty of loyalty to the Company or its Affiliates; (iv) the termination of the Participant’s Employment with the Company and all Affiliates on
account of the Participant’s unauthorized removal from the premises of the Company or an Affiliate of any document (in any medium or form) relating to the Company or an Affiliate, the Majority Stockholder, or the customers of the Company or an
Affiliate; (v) the termination of the Participant’s Employment with the Company and all Affiliates on account of the commission by the Participant of any felony or other serious crime involving moral turpitude or (vi) Competing. If,
subsequent to the termination of Employment, it is discovered that such Participant’s Employment could have been terminated for Cause, as such term is defined above, or if the Participant Competes, the

 
Participant’s Employment shall, at the election of the Committee, in its sole discretion, be deemed to have been terminated for Cause retroactively to the date the events giving rise to
Cause occurred. For the avoidance of doubt, in the event that the Participant has an effective employment agreement with the Company or any Affiliate as described in (x) above, a Participant’s Employment shall not be treated as having
terminated for Cause for purposes of this Plan unless such Employment was terminated for Cause under such Participant’s employment agreement. 

(d) “Change in Control” shall mean the occurrence of any of the following events after Closing: (i) any sale, lease,
exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company on a consolidated basis with its Affiliates to any Person or group of related persons for purposes of
Section 13(d) of the Exchange Act (a “Group”), other than to a Majority Stockholder; (ii) the approval by the holders of the outstanding voting power of the Company of any plan or proposal for the liquidation or
dissolution of the Company; (iii) (A) any Person or Group (other than the Majority Stockholder) becoming the beneficial owner (within the meaning of Section 13(d) of the Exchange Act), directly or indirectly, of securities
representing more than 40% of the aggregate outstanding voting power of the Company and such Person or Group actually has the power to vote such securities in any election of the Board and (B) the Majority Stockholder beneficially owning
(within the meaning of Section 13(d) of the Exchange Act), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Company than such other Person or Group; (iv) the approval by the holders of the outstanding
voting power of the Company of a reorganization, merger or consolidation of the Company, unless all or substantially all of such Persons who were beneficial owners of the outstanding shares of Common Stock immediately prior to such transaction will
beneficially own, directly or indirectly, more than 50% of the then outstanding combined voting power of the Company; or (v) the replacement of a majority of the Board over a two-year period from the directors who constituted the members of the
Board at the beginning of such period, and such replacement shall not have been approved by a vote of at least a majority of the Board then still in office who either were members of such Board at the beginning of such period or whose election as a
member of such Board was previously so approved or who were nominated by, or designees of, a Majority Stockholder. 
 (e)
“Closing” shall mean the completion of the various transactions contemplated by the Agreement and Plan of Merger, dated as of April 20, 2010 by and among American Tire Distributors Holdings, Inc., Accelerate Holdings Corp.,
Accelerate Acquisition Corp., and Investcorp International, Inc. (as stockholders representative). 
 (f) “Code” shall mean
the Internal Revenue Code of 1986, as amended. 
 (g) “Committee” shall the Compensation Committee of the Board of
Directors of the Company or any other committee appointed by the Board to administer the Plan pursuant to Section 3, and if no such committee exists or has been appointed, the Board. 

(h) “Common Stock” shall mean a share of the Company’s Common Stock, par value $0.01. 

(i) “Company” shall mean Accelerate Parent Corp., a Delaware corporation. 

  
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 (j) “Compete” shall mean with respect to any Participant who (i) is party
to an effective employment agreement or an effective non-competition, non-solicitation and/or confidentiality agreement, each as of the Grant Date, failing to comply with any obligation thereunder and being in breach of the non-competition,
non-solicitation or confidentiality provisions of such agreement; and (ii) is not party to an effective employment agreement or an effective non-competition, non-solicitation or confidentiality agreement, during Employment and for the eighteen
month period following the termination of such Participant’s Employment, (A) becoming an employee, director, or independent contractor of, or a consultant to, or performing any services for, any Person engaging in any business activity
that competes with the business of the Company or its Affiliates at such time, (B) soliciting or hiring or attempting to solicit or hire (1) any customer or supplier of the Company or any of its Affiliates in connection with any business
activity that then competes with the Company or its Affiliates or to terminate or alter in manner adverse to the Company or its Affiliates such customer’s or supplier’s relationship with the Company, or (2) any Employee or individual
who was an Employee within the six-month period immediately prior thereto to terminate or otherwise alter his or her Employment with the Company, or (C) disclosing any Confidential Information. “Competed” and
“Competing” shall have correlative meanings. 
 (k) “Confidential Information” shall mean all information
regarding the Company or any of its Affiliates, any Company activity or the activity of any Affiliate, Company business or the business of any Affiliate or any customer or supplier of the Company or any of its Affiliates that is not generally known
by the public or to Persons not employed by the Company or its Affiliates, including, without limiting the foregoing, information that would not be known to the public but for the actions of or disclosure by, directly or indirectly, the Participant.

 (l) “Disability” shall mean a permanent disability as defined in the Company’s or an Affiliate’s disability
plans, or as defined from time to time by the Company, in its sole discretion, or as specified in the Participant’s Option Grant Agreement, provided that in the event the Participant is party to an effective employment agreement with the
Company or any Affiliate as of the Grant Date, and such agreement contains or operates under a different definition of Disability (or any derivative of such term), the definition of Disability used in such agreement at the time of determination
shall be substituted for the definition set forth above for all purposes hereunder. 
 (m) “EBITDA” shall be determined in
good faith by the Board. 
 (n) “Eligible Employee” shall mean (i) any Employee who is a key executive of the Company
or an Affiliate, or (ii) certain other Employees, directors, service providers or consultants who, in the judgment of the Committee, should be eligible to participate in the Plan due to the services they perform on behalf of the Company or an
Affiliate. 
 (o) “Employment” shall mean employment with the Company or any Affiliate and shall include the provision of
services as a director, service provider or consultant for the Company or any Affiliate. “Employee” and “Employed” shall have correlative meanings. 

(p) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended. 

  
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 (q) “Exercise Date” shall have the meaning set forth in Section 4.9 herein.

 (r) “Exercise Notice” shall have the meaning set forth in Section 4.9 herein. 

(s) “Exercise Price” shall mean the price that the Participant must pay under the Option for each share of Common Stock. as
determined by the Committee for each Grant and initially specified in the Option Grant Agreement, which shall be no less than the Fair Market Value of a share of Common Stock on the Grant Date, subject to any adjustment that may be made following
the Grant Date in accordance with the Plan. 
 (t) “Fair Market Value” shall mean, as of any date (1) prior to the
existence of a Public Market for the Common Stock, the value per share of Common Stock as determined in good faith by the Board, taking into account the fair market value of the entire equity of the Company determined on a going concern basis as
between a willing buyer and a willing seller, and taking into account any relevant factors determinative of value (based on all available information material to the value of the Company), without, however, giving effect to any discount for any lack
of liquidity attributable to a lack of a Public Market, any block discount or control premiums attributable to the size of any person’s holdings of Common Stock, or any voting rights or lack thereof; or (2) on which a Public Market for the
Common Stock exists, (i) closing price on such day of the Common Stock as reported on the principal securities exchange on which the Common Stock is then listed or admitted to trading or (ii) if not so reported, the average of the closing
bid and ask prices on such day as reported on the National Association of Securities Dealers Automated Quotation System or (iii) if not so reported, as furnished by any member of the National Association of Securities Dealers, Inc.
(“NASD”) selected by the Board. The Fair Market Value of the Common Stock as of any such date on which the applicable exchange or inter-dealer quotation system through which trading in the Common Stock regularly occurs is closed
shall be the Fair Market Value determined pursuant to the preceding sentence as of the immediately preceding date on which the Common Stock is traded, a bid and ask price is reported or a trading price is reported by any member of NASD selected by
the Board. In the event that the price of a share of Common Stock shall not be so reported or furnished, the Fair Market Value shall be determined by the Board in good faith. In any case, the Fair Market Value shall be determined in accordance with
the requirements of Section 409A of the Code, to the extent applicable. 
 (u) “Good Reason” shall mean (i) a
material diminution in a Participant’s duties and responsibilities other than a change in such Participant’s duties and responsibilities that results from becoming part of a larger organization following a Change in Control, (ii) a
decrease in a Participant’s base salary, or (iii) a relocation of a Participant’s primary work location more than 75 miles from the Participant’s work location in effect immediately prior to the Grant Date, without the
Participant’s prior written consent; provided that, within thirty days following the occurrence of any of the events set forth herein, the Participant shall have delivered written notice to the Company of his or her intention to terminate his
or her Employment for Good Reason, which notice specifies in reasonable detail the circumstances claimed to give rise to the Participant’s right to terminate Employment for Good Reason, and the Company shall not have cured such circumstances
within thirty days following the Company’s receipt of such notice. Notwithstanding the foregoing, if, as of the Grant Date, the Participant is a party to an effective employment or consulting agreement or the Option Grant Agreement contains a
different definition of the term “Good Reason” (or any derivation of such term), the definition in such agreement shall control. 

  
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 (v) “Grant” shall mean a grant of an Option under the Plan evidenced by an
Option Grant Agreement. 
 (w) “Grant Date” shall mean the Grant Date as defined in Section 4.2 herein. 

(x) “Initial Majority Stockholder Shares” shall mean the shares of the Company’s Common Stock issued to the Majority
Stockholders in connection with the Closing, and shall include any stock, securities or other property or interests received by the Majority Stockholders in respect of such shares in connection with any stock dividend or other similar distribution,
stock split or combination of shares, recapitalization, conversion, reorganization, consolidation, split-up, spin-off, combination, repurchase, merger, exchange of stock or other transaction or event that affects the Company’s capital stock
occurring after the date of issuance. 
 (y) “Liquidity Event” shall occur on the date of (i) a transaction, which
when aggregated, if applicable, with any other prior transaction (whether or not related) results in the cumulative sale, transfer or other disposition of more than 65% of the Initial Majority Stockholder Shares and with respect to which the
Majority Stockholders have received only cash; or (ii) any other transaction or series of transactions (whether or not related) determined by the Board, in its sole discretion, to constitute a “Liquidity Event.” 

(z) “Majority Stockholder” shall mean, collectively or individually as the context requires, TPG Partners V, L.P. and TPG
Partners VI, L.P. and/or their respective affiliates. 
 (aa) “Management Stockholders’ Agreement” shall mean the
Management Stockholders’ Agreement, substantially in the form attached hereto as Exhibit B or such other stockholders’ agreement to which the Company and the Participant are a party. 

(bb) “MoM” shall mean a number, determined on each Liquidity Event, equal to the quotient of (i) all cash received
directly or indirectly by the Majority Stockholders in connection with the Liquidity Event, including all cash dividends and other distributions made directly or indirectly to the Majority Stockholders, in respect of the Initial Majority Stockholder
Shares sold, transferred or otherwise disposed of on or prior to the date on which the Liquidity Event occurs, divided by (ii) the aggregate purchase price paid by such Majority Stockholders for the Initial Majority Stockholder Shares. 

(cc) “Option” shall mean the option to purchase shares of Common Stock granted to any Participant under the Plan. Any
references in the Plan to an “Option” will be deemed to include “Time-Based Options” and “Performance-Based Options” unless specifically noted to the contrary. 

(dd) “Option Grant Agreement” shall mean an agreement, substantially in the form attached hereto as Exhibit A, entered into
by each Participant and the Company evidencing the Grant of each Option pursuant to the Plan, provided the Committee may make such changes to the form of Option Grant Agreement for any particular Grant as the Committee may determine pursuant to its
powers set forth in Section 3.1(c) of the Plan. 

  
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 (ee) “Participant” shall mean an Eligible Employee to whom a Grant of an Option
under the Plan has been made, and, where applicable, shall include Permitted Transferees. 
 (ff) “Performance-Based
Option” shall mean an Option which vests based on the achievement of EBITDA targets to be established by the Board, and set forth in the applicable Option Grant Agreement; provided that if any Performance-Based Option does not vest during a
fiscal year as a result of not meeting such fiscal year’s EBITDA target, such Option shall remain outstanding until terminated in accordance with its terms and shall become immediately vested upon the occurrence of (i) the achievement of
cumulative EBITDA targets for such fiscal year and the first fiscal year following such fiscal year; or (ii) the occurrence of a Liquidity Event at any time during the term of the Option in which the Majority Stockholder realizes an MoM that is
at least 2.2; subject to the Participant being Employed on such vesting date. 
 (gg) “Permitted Transferee” shall have the
meaning set forth in Section 4.5. 
 (hh) “Person” means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof. 
 (ii)
“Public Market” shall be deemed to exist for purposes of the Plan if the shares of Common Stock are registered under Section 12(b) or 12(g) of the Exchange Act and trading regularly occurs in such securities in, on or through
the facilities of securities exchanges and/or inter-dealer quotation systems in the United States (within the meaning of Section 902(n) of the Securities Act) or any designated offshore securities market (within the meaning of Rule 902(a) of
the Securities Act). 
 (jj) “Qualifying Termination” shall mean, with respect to a Participant, a termination of such
Participant’s Employment by the Company without Cause or by the Participant for Good Reason within the two-year period following a Change in Control of the Company. 

(kk) “Securities Act” shall mean the Securities Act of 1933, as amended. 

(ll) “Time-Based Option” shall mean, except as otherwise provided in the Plan or an Option Grant Agreement, an Option which
vests ratably on each of the first through fifth anniversaries of the Grant Date until 100% of the Time-Based Options are fully vested and exercisable, subject in all cases to the Participant’s continuous Employment through each such vesting
date. Unless the Committee provides otherwise, the vesting of the Time-Based Option may be suspended during any leave of absence as may be set forth by Company policy, if any. 

(mm) “Transfer” shall mean any transfer, sale, assignment, hedge, gift, testamentary transfer, pledge, hypothecation or other
disposition of any interest. “Transferee” and “Transferor” shall have correlative meanings. 

  
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	 	3.	Administration of the Plan 

 The Committee shall administer the Plan. In addition,
the Committee, in its discretion, may delegate its authority to grant Options to an officer or committee of officers of the Company, subject to reasonable limits and guidelines established by the Committee at the time of such delegation. 

3.1 Powers of the Committee. In addition to the other powers granted to the Committee under the Plan, the Committee shall have
the power: (a) to determine the Eligible Employees to whom Grants shall be made; (b) to determine the time or times when Grants shall be made and to determine the number of shares of Common Stock subject to each such Grant; (c) to
prescribe the form of and terms and conditions of any instrument evidencing a Grant, so long as such terms and conditions are not otherwise inconsistent with the terms of the Plan; (d) to adopt, amend and rescind such rules and regulations as,
in its opinion, may be advisable for the administration of the Plan; (e) to construe and interpret the Plan, such rules and regulations and the instruments evidencing Grants; and (f) to make all other determinations necessary or advisable
for the administration of the Plan. 
 3.2 Determinations of the Committee. Any Grant, determination, prescription or other
act of the Committee shall be final and conclusively binding upon all Persons. 
 3.3 Indemnification of the Committee. No
member of the Committee nor the Majority Stockholder or its employees, partners, directors or associates shall be liable for any action or determination made in good faith with respect to the Plan or any Grant. To the full extent permitted by law,
the Company shall indemnify and hold harmless each Person made or threatened to be made a party to any civil or criminal action or proceeding by reason of the fact that such Person, or such Person’s testator or intestate, is or was a member of
the Committee or is or was a Majority Stockholder or an employee, partner, director or associate thereof, to the extent such criminal or civil action or proceeding relates to the Plan. 

3.4 Compliance with Applicable Law; Securities Matters; Effectiveness of Option Exercise. The Company shall be under no
obligation to effect the registration pursuant to the Securities Act of any shares of Common Stock to be issued hereunder or to effect similar compliance under any state or non-U.S. laws. Notwithstanding anything herein to the contrary, the Company
shall not be required to issue or deliver any certificates evidencing the shares of Common Stock pursuant to the exercise of any Options, which shares of Common Stock shall be evidenced by book-entry into the books and records of the Company, and
may only issue such certificates in the event the Committee has determined, with advice of counsel, that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authorities and, if
applicable, the requirements of any exchange on which the shares of Common Stock are listed or traded. In addition to the terms and conditions provided herein, the Committee may require that a Participant make such reasonable covenants, agreements
and representations as the Committee, in its sole discretion, deems advisable in order to comply with any such laws, regulations or requirements. The Company may, in its sole discretion, defer the effectiveness of an exercise of an Option hereunder
or the issuance or transfer of the shares of Common Stock pursuant to any Grant pending or to ensure compliance under federal, state or non-U.S. securities laws. The Company shall inform the Participant in

  
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writing of its decision to defer the effectiveness of the exercise of an Option or the issuance or transfer of the shares of Common Stock pursuant to any Grant. During the period that the
effectiveness of the exercise of an Option has been deferred, the Participant may, by written notice, withdraw such exercise and obtain the refund of any amount paid with respect thereto. 

3.5 Inconsistent Terms. In the event of a conflict between the terms of the Plan, the terms of the Management Stockholders’
Agreement and the terms of any Option Grant Agreement, the terms of the Plan shall govern except as otherwise provided herein. 
 3.6
Plan Term. The Committee shall not Grant any Options under this Plan on or after the tenth anniversary of the Effective Date. All Options which remain outstanding after such date shall continue to be governed by the Plan. 

 

	 	4.	Options 

 Subject to adjustment as provided in Section 4.12 hereof, the
Committee may grant to Participants Options to purchase up to 54,433,333 shares of Common Stock. With respect to each Grant made to a Participant under the Plan, unless otherwise specified in the Option Grant Agreement evidencing such Grant, fifty
percent (50%) of the Option that is part of such Grant will be a Time-Based Option, and fifty percent (50%) of the Option that is part of such Grant will be a Performance-Based Option. To the extent that any Option granted under the Plan
terminates, expires or is canceled without having been exercised, the shares of Common Stock covered by such Option shall again be available for Grant under the Plan. 

4.1 Exercise Price. The Exercise Price of any Option granted under the Plan shall be such price as the Committee
shall determine and which shall be specified in the Option Grant Agreement. 
 4.2 Grant Date. The Grant Date of
the Options shall be the date designated by the Committee and specified in the Option Grant Agreement as of the date the Option is granted. 

4.3 Accelerated Vesting on a Qualifying Termination. In the event that a Participant’s Employment is
terminated as the result of a Qualifying Termination, 100% of the then outstanding Time-Based Options held by the Participant shall immediately vest and become exercisable as of such Qualifying Termination of Employment. 

4.4 Expiration of Options. All Options, whether vested or not, shall expire on the tenth anniversary of their Grant Date unless
such Options expire earlier as provided below. With respect to each Participant, such Participant’s Option(s), or portion thereof, which have not become exercisable shall expire on the date such Participant’s Employment is terminated for
any reason unless otherwise specified in the Option Grant Agreement. With respect to each Participant, (x) each Participant’s Option(s), or any portion thereof, which have not become vested and exercisable as of the date the
Participant’s Employment is terminated, shall be forfeited without consideration therefor, and (y) each Participant’s Option(s), or any portion thereof, which have become exercisable on or before the date such Participant’s
Employment is terminated (or that become exercisable as a result of such termination) shall, unless otherwise provided in the Participant’s Option Grant Agreement, expire on the earliest of (i) the commencement of business on the date the
Participant’s Employment is terminated for Cause, 

  
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or, following the Participant’s termination of employment, the Participant engaging in an act that constitutes Cause; (ii) 30 days after the date the Participant’s Employment is
terminated by the Participant other than for Good Reason; (iii) 90 days after (A) the date the Participant’s Employment is terminated by the Company for any reason other than Cause (unless the Participant engages in an act that
constitutes Cause) or by reason of the Participant’s death or Disability, or (B) the date the Participant’s Employment is terminated by the Participant for Good Reason; (iv) one year after the date the Participant’s
Employment is terminated by reason of death or Disability; or (v) the 10th anniversary of the Grant Date for such Option(s). Any Option, or portion thereof, that has become exercisable by a Permitted Transferee on account of the death of a
Participant shall expire one year after the date such deceased Participant’s Employment terminated by reason of death, unless otherwise provided in the Participant’s Option Grant Agreement, and any Option or portion thereof that has been
transferred to a Permitted Transferee during the lifetime of a Participant shall expire in connection with the Participant’s termination of Employment at the time set forth under this Section 4.4 as if the Option were held directly by the
Participant, unless otherwise provided in the Participant’s Option Grant Agreement. Notwithstanding the foregoing, the Committee may specify in the Option Grant Agreement a different expiration date or period (not to exceed 10 years from the
Grant Date) for any Option granted hereunder, and such expiration date or period shall supersede the foregoing expiration period. 
 4.5
Limitation on Transfer. Each Option granted to a Participant shall be exercisable only by such Participant, except that a Participant may assign or transfer his or her rights with respect to any or all of the Options held by such
Participant to: (i) such Participant’s beneficiaries or estate upon the death of the Participant (by will, by the laws of descent and distribution or otherwise) and (ii) subject to the prior written approval by the Committee and
compliance with all applicable tax, securities and other laws, any trust or custodianship created by the Participant, the beneficiaries of which may include only the Participant, the Participant’s spouse or the Participant’s lineal
descendants (by blood or adoption) (each of (i) and (ii), a “Permitted Transferee”). 
 4.6 Condition Precedent
to Transfer of Any Option. It shall be a condition precedent to any Transfer of any Option by any Participant that the Transferee, shall agree prior to the Transfer in writing with the Company to be bound by the terms of the Plan, the Option
Grant Agreement and the Management Stockholder’s Agreement as if he, she or it had been an original signatory thereto, except that any provisions of the Plan based on the Employment (or termination thereof) of the original Participant shall
continue to be based on the Employment (or termination thereof) of the original Participant. 
 4.7 Effect of Void Transfers.
In the event of any purported Transfer of any Options in violation of the provisions of the Plan, such purported Transfer shall, to the extent permitted by applicable law, be void and of no effect. 

4.8 Exercise of Options. A Participant (or his or her Permitted Transferee, guardian or legal representative, if applicable) may
exercise any or all of the vested Options by serving an Exercise Notice on the Company as provided in Section 4.9 hereto. 

  
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 4.9 Method of Exercise. The Option shall be exercised by delivery of written notice
to the Company’s principal office (the “Exercise Notice”), to the attention of its Secretary, no less than five business days in advance of the effective date of the proposed exercise (the “Exercise Date”).
Such notice shall (a) specify the number of shares of Common Stock with respect to which the Option is being exercised, the Grant Date of such Option and the Exercise Date, (b) be signed by the Participant (or his or her Permitted
Transferee, guardian or legal representative, if applicable), (c) prior to the existence of a Public Market for the shares of Common Stock of the Company, indicate in writing that the Participant agrees to be bound by the Management
Stockholders’ Agreement, and (d) if the Option is being exercised by the Participant’s Permitted Transferee(s), such Permitted Transferee(s) shall indicate in writing that they agree to and shall be bound by the Plan and Option Grant
Agreement as if they had been original signatories thereto (as provided in Section 4.6 hereof) and, prior to the existence of a Public Market for the shares of Common Stock, by the Management Stockholders’ Agreement. The Exercise Notice
shall include payment in cash for an amount equal to the Exercise Price multiplied by the number of shares of Common Stock specified in such Exercise Notice or any method otherwise approved by the Committee. In addition, the Participant shall be
responsible for the payment of applicable withholding and other taxes in cash (or shares of Common Stock if approved by the Committee) that may become due as a result of the exercise of such Option. The Committee may, in its sole discretion, permit
the person exercising an Option to make the above-described payments in forms other than cash. The partial exercise of the Option, alone, shall not cause the expiration, termination or cancellation of the remaining Options. 

4.10 Management Stockholders’ Agreement. Subject to Section 3.4 herein, upon the exercise of the Options in accordance
with Section 4.9 and, prior to the existence of a Public Market, no shares of Common Stock shall be issued to or recorded in the name of any Participant until such Participant agrees to be bound by and executes the Management Stockholders’
Agreement and any Option Grant Agreement. 
 4.11 Amendment of Terms of Options. The Committee may, in its sole discretion,
amend the Plan or terms of any Option, provided, however, that any such amendment shall not impair or adversely affect the Participants’ existing rights under the Plan or such Option without such Participant’s written consent. 

4.12 Adjustment Upon Changes in Company Stock. 

4.12.1 Increase or Decrease in Issued Common Stock Without Consideration. Subject to any required action by the stockholders of the
Company, in the event of any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of the shares of Common Stock, or any other increase or decrease in the number of such shares of Common
Stock effected without receipt of consideration by the Company, the Committee shall make adjustments as the Committee deems appropriate to prevent the enlargement or dilution of rights with respect to the number of shares of Common Stock available
for grant under this Plan, the number of shares of Common Stock subject to the Options and/or the Exercise Price per share of Common Stock. 

4.12.2 Certain Mergers. Subject to any required action by the stockholders of the Company, in the event that the Company shall be the
surviving corporation in any merger or 

  
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consolidation (except a merger or consolidation as a result of which the holders of shares of Common Stock receive securities of another corporation), the Options outstanding on the date of such
merger or consolidation shall pertain and apply to the securities that a holder of the number of shares of Common Stock subject to any such Option would have received (it being understood that if, in connection with such transaction, the
stockholders of the Company retain their shares of Common Stock and are not entitled to any additional or other consideration, the Options shall not be affected by such transaction). 

4.12.3 Certain Other Transactions. Except as otherwise provided in a Participant’s Option Grant Agreement, in the event of
(i) a dissolution or liquidation of the Company, (ii) a sale of all or substantially all of the Company’s assets, (iii) a merger or consolidation involving the Company in which the Company is not the surviving corporation or
(iv) a merger or consolidation involving the Company in which the Company is the surviving corporation but the stockholders receive securities of another corporation and/or other property, including cash, the Committee shall, in its sole
discretion, (a) have the power to provide for the exchange of each Option outstanding immediately prior to such event (whether or not then exercisable) for an option on some or all of the property for which the shares of Common Stock underlying
such Options are exchanged and, incident thereto, make an equitable adjustment, as determined by the Committee, in the exercise price of the Options, or the number or kind of securities or amount of property subject to the Options and/or,
(b) if appropriate, cancel, effective immediately prior to such event, any outstanding Option (whether or not exercisable or vested) and in full consideration of such cancellation pay to the Participant an amount in cash, with respect to each
underlying share of Common Stock, equal to the excess of (1) the value, as determined by the Committee in its sole discretion of securities and/or property (including cash) received by such stockholders as a result of such event over
(2) the Exercise Price, as the Committee may consider appropriate to prevent dilution or enlargement of rights. 
 4.12.4 Other
Changes. In the event of any change in the capitalization of the Company or a corporate change other than those specifically referred to in Sections 4.12.1 through 4.12.3 hereof, or in the event a Public Market exists for the securities of any
Affiliate of the Company, the Committee shall make such adjustments in the number and kind of shares or securities subject to Options outstanding on the date on which such change occurs and in the per-share Exercise Price of each such Option, as the
Committee deems appropriate, to prevent dilution or enlargement of rights. In such event, references to Common Stock herein shall be deemed to be a reference to such other kind of shares or securities subject to Options hereunder. 

4.12.5 No Other Rights. Except as expressly provided in the Plan or the Option Grant Agreements evidencing the Options, the
Participants shall not have any rights as a holder of Options by reason of (i) any subdivision or consolidation of the shares of Common Stock or any other securities of any class, (ii) the payment of any distribution, any increase or
decrease in the number of shares of Common Stock, or (iii) any dissolution, liquidation, merger or consolidation of the Company or any other corporation. Except as expressly provided in the Plan or the Option Grant Agreements evidencing the
Options, no issuance by the Company of shares of Common Stock or shares of any class, or securities convertible into shares of Common Stock or shares of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Common Stock subject to the Options or the Exercise Price of such Options. 
 4.12.6 Tax Requirements. Any
adjustments or changes to the Options or the shares of Common Stock pursuant to this Section 4.12 shall be made in accordance with any applicable requirements of Section 409A of the Code and any guidance issued thereunder. 

  
 11 

	 	5.	Miscellaneous 

 5.1 Rights as Option Holders. The Participants shall
not have any rights as stockholders with respect to any shares of Common Stock covered by or relating to the Options granted pursuant to the Plan until the date the Participants become the registered owners of such shares of Common Stock. Except as
otherwise expressly provided in Sections 4.11 and 4.12 hereof, no adjustment to the Options shall be made for dividends or other rights for which the record date occurs prior to the effective date such stock is registered. 

5.2 No Special Employment Rights. Nothing contained in the Plan shall confer upon the Participants any right with respect to the
continuation of their Employment or interfere in any way with the right of the Company or an Affiliate, subject to the terms of any separate Employment agreements to the contrary, at any time to terminate such Employment or to increase or decrease
the compensation of the Participants from the rate in existence at the time of the grant of any Option. 
 5.3 No
Obligation to Exercise. The Grant to the Participants of the Options shall impose no obligation upon the Participants to exercise such Options.  

5.4 Restrictions on Common Stock. The rights and obligations of the Participants with respect to the shares of Common Stock
obtained through the exercise of any Option provided in the Plan shall be governed by the terms and conditions of the Management Stockholders’ Agreement. 

5.5 Notices. Each notice and other communication hereunder shall be in writing and shall be given and shall be deemed to have
been duly given on the date it is delivered in person, on the next business day if delivered by overnight mail or other reputable overnight courier, or the third business day if sent by registered mail, return receipt requested, to the parties as
follows: 
 If to the Participant: 

To the most recent address shown on records of the Company or its Affiliate. 

If to the Company: 

Accelerate Parent Corp. 
 c/o
American Tire Distributors, Inc. 
 12200 Herbert Wayne Court, Suite 150 

Huntersville, NC 28070 

Attention: General Counsel 

  
 12 

 With a copy to each of: 

TPG Capital, L.P. 
 301 Commerce
Street, Suite 3300 
 Fort Worth, TX 76102 

Attention: General Counsel 

Cleary Gottlieb Steen & Hamilton LLP 

One Liberty Plaza 
 New York, NY
10006 
 Attention: Robert J. Raymond 
 or to
such other address as any party may have furnished to the other in writing in accordance herewith. 
 5.6 Descriptive
Headings. The headings in the Plan are for convenience of reference only and shall not limit or otherwise affect the meaning of the terms contained herein.  

5.7 Severability. In the event that any one or more of the provisions, subdivisions, words, clauses, phrases or sentences
contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision, subdivision, word, clause, phrase or
sentence in every other respect and of the remaining provisions, subdivisions, words, clauses, phrases or sentences hereof shall not in any way be impaired, it being intended that all rights, powers and privileges of the Company and Participants
shall be enforceable to the fullest extent permitted by law. 
 5.8 Governing Law. The Plan shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York, without regard to the provisions governing conflict of laws. 

  
 13 

 Exhibit A 

 FORM OF OPTION GRANT AGREEMENT 

THIS AGREEMENT, made as of this      day of             ,
20     between Accelerate Parent Corp. (the “Company”) and (the “Participant”). 

WHEREAS, the Company has adopted and maintains the Accelerate Parent, Corp. Management Equity Incentive Plan (the “Plan”) to
promote the interests of the Company and its Affiliates and stockholders by providing the Company’s key employees and others with an appropriate incentive to encourage them to continue in the employ of and provide services for the Company or
its Affiliates and to improve the growth and profitability of the Company; 
 WHEREAS, the Plan provides for the Grant to Participants of
Options to purchase shares of Common Stock. 
 NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set
forth, the parties hereto hereby agree as follows: 
 1. Grant of Options. Pursuant to, and subject to, the terms and conditions set
forth herein and in the Plan, the Company hereby grants to the Participant an option (the “Option”) with respect to                 shares of Common
Stock of the Company. 50% of the Option will be a Time-Based Option to purchase shares of                  Common Stock, and 50% of the Option will be a
Performance-Based Option to purchase shares                  of Common Stock. 

2. Grant Date. The Grant Date of the Option hereby granted is
                    . 
 3.
Incorporation of Plan. All terms, conditions and restrictions of the Plan are incorporated herein and made part hereof as if stated herein. If there is any conflict between the terms and conditions of the Plan and this Agreement, the terms
and conditions of this Plan, as interpreted by the Committee, shall govern. All capitalized terms used and not defined herein shall have the meaning given to such terms in the Plan. 

4. Exercise Price. The exercise price of each share of Common Stock underlying the Option hereby granted is
$        . 
 5. Vesting. In addition to the provisions with respect to vesting set forth in
the Plan, the Option shall become exercisable as follows: 
 a. With respect to the portion of the Option that is a
Time-Based Option, fifty percent (50%) of such Time-Based Option shall vest on             1 in each of calendar years 2014 and
2015, subject to the Participant’s continued Employment through each such vesting date; 
  

	1 	Insert day and month of grant date. 

 b. With respect to the portion of the Option that is a Performance-Based Option,
fifty percent (50%) of such Performance-Based Option shall vest on             2 in each of calendar years 2013 and 2014 if, as of
the end of the Company’s most recent fiscal year ending on or prior to each such date, the Company has achieved the EBITDA target set forth below for such fiscal year: 
  

									
	 Fiscal Year
	  	2013	 	  	2014	 
	 EBITDA Target (in millions)
	  	$	194	  	  	$	224	  

 provided, that if any Performance-Based Option does not vest during a fiscal year as a result of not meeting
such fiscal year’s EBITDA target, such Option shall remain outstanding until terminated in accordance with its terms and shall become immediately vested upon the occurrence of (i) the achievement of cumulative EBITDA targets for such
fiscal year and the first fiscal year following such fiscal year; or (ii) the occurrence of a Liquidity Event at any time during the term of the Option in which the Majority Stockholder realizes an MoM that is at least 2.2, subject in each case
to the Participant’s continued Employment through each such vesting date. 
 c. [Notwithstanding the forgoing, in the
event that the Participant’s Employment is terminated by the Company without Cause or by the Participant for Good Reason, (A) any portion of the Time-Based Options with a vesting date (as set forth above in clause (a)) within the first six
(6) months following the date of termination of the Participant’s Employment, shall become immediately vested upon the Participant’s termination of Employment, and (B) any portion of the Performance-Based Options which would have
vested within the first six (6) months following the date of termination of the Participant’s Employment, had the Participant’s Employment continued through such date, shall become vested upon the date the performance criteria
described above in clause (b) is determined to have been achieved.]3 
 6.
[Expiration of Performance-Based Options. In the event that the Participant’s Employment is terminated by the Company without Cause or by the Participant for Good Reason, and a portion or all of the Performance-Based Options held by the
Participant that would have vested within the first six (6) months following the date of termination of the Participant’s Employment, had the Participant’s Employment continued through such date, vest in accordance with
Section 5(c), such Performance-Based Options shall expire 90 days after the date on which such Options vest.]4 

7. [Cashless Exercise. In the event that the Participant’s Employment is terminated by the Company without Cause or by the
Participant for Good Reason, the 
  

	2 	Insert day and month of grant date. 

	3 	Note: This provision would be included only in the grant agreements for certain executives. 

	4 	 Note: This provision would be included only in the grant agreements for certain executives.

 
Committee may, in its sole discretion, permit the Participant to exercise all or any portion of his or her then-exercisable Options through cashless exercise (to satisfy both the Exercise Price
and any applicable withholding taxes), to the extent permitted under Section 409A of the Code.]5 

8. Construction of Agreement. Any provision of this Agreement (or portion thereof) which is deemed invalid, illegal or unenforceable in
any jurisdiction shall, as to that jurisdiction and subject to this section, be ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions thereof in such jurisdiction or
rendering that or any other provisions of this Agreement invalid, illegal, or unenforceable in any other jurisdiction. If any covenant should be deemed invalid, illegal or unenforceable because its scope is considered excessive, such covenant shall
be modified so that the scope of the covenant is reduced only to the minimum extent necessary to render the modified covenant valid, legal and enforceable. No waiver of any provision or violation of this Agreement by the Company shall be implied by
the Company’s forbearance or failure to take action. This Agreement is intended to comply with Section 409A of the Code and any guidance issued thereunder and shall be interpreted, operated and administered accordingly. 

9. Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party hereto upon any breach or
default of any party under this Agreement, shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part of any party or any provisions or conditions of this Agreement, shall be in writing and shall be effective only to the extent specifically set forth in such writing. 

10. Limitation on Transfer. The Option shall be exercisable only by the Participant or the Participant’s Permitted Transferee(s),
as determined in accordance with the terms of the Plan (including without limitation the requirement that the Participant obtain the prior written approval by the Committee of any proposed Transfer to a Permitted Transferee during the lifetime of
the Participant). Each Permitted Transferee shall be subject to all the restrictions, obligations, and responsibilities as apply to the Participant under the Plan and this Option Grant Agreement and shall be entitled to all the rights of the
Participant under the Plan, provided that in respect of any Permitted Transferee which is a trust or custodianship, the Option shall become exercisable and/or expire based on the Employment and termination of Employment of the Participant. All
shares of Common Stock obtained pursuant to the Option granted herein shall not be transferred except as provided in the Plan and, where applicable, the Management Stockholders’ Agreement. 

11. Integration. This Agreement, and the other documents referred to herein or delivered pursuant hereto which form a part hereof
contain the entire understanding of the 
  

	5 	 Note: This provision would be included only in the grant agreements for certain executives.

 
parties with respect to its subject matter. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other
than those expressly set forth herein and in the Plan. This Agreement, including without limitation the Plan, supersedes all prior agreements and understandings between the parties with respect to its subject matter, except to the extent of any
conflict between the provisions hereof and an employment agreement effective on the date hereof. 
 12. Counterparts. This Agreement
may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 

13. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York
without regard to the provisions governing conflict of laws. 
 14. Participant Acknowledgment. The Participant hereby acknowledges
receipt of a copy of the Plan. The Participant hereby acknowledges that all decisions, determinations and interpretations of the Committee in respect of the Plan, this Agreement and the Option shall be final and conclusive. The Participant further
acknowledges that, prior to the existence of a Public Market, no exercise of the Option or any portion thereof shall be effective unless and until the Participant has executed the Management Stockholders’ Agreement and the Participant hereby
agrees to be bound thereby. 

*        *        *       
 *        * 

 IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by its duly
authorized officer and said Participant has hereunto signed this Agreement on his own behalf, thereby representing that he has carefully read and understands this Agreement, the Plan and the Management Stockholders’ Agreement as of the day and
year first written above. 
  

	
	Accelerate Parent Corp.
	
	  

	By:
	Title:
	
	  

	[Participant’s name]

 Exhibit B 

[See Exhibit 10.21]ohgi_ex101.htm

Exhibit 10.1

 

 

SECURITIES PURCHASE AGREEMENT

among

ONE HORIZON GROUP, INC.

and

THE PURCHASERS LISTED ON EXHIBIT A

 

Dated as of July 21, 2014

 

 

 

  

1

  

 

Table of Contents

 

	 	 	 	 	 	Page
	 	 	 	 
	ARTICLE 1	
Purchase and Sale of the Units

	 	
1

	 	 	 	 	 	 
	 	
Section 1.1

	 	
Purchase and Sale of Units

	 	
1

	 	
Section 1.2

	 	
Warrants

	 	
1

	 	
Section 1.3

	 	
Conversion and Warrant Shares

	 	
2

	 	
Section 1.4

	 	
Purchase Price and Closing

	 	
2

	 	 	 	 	 	 
	ARTICLE 2	
 
 
Representations and Warranties

	 	
2

	 	 	 	 	 	 
	 	
Section 2.1

	 	
Representations and Warranties of the Company and Subsidiary

	 	
2

	 	
Section 2.2

	 	
Representations and Warranties of the Purchasers

	 	
13

	 	 	 	 	 	 
	ARTICLE 3	
Covenants

	 	
16

	 	 	 	 	 	 
	 	
Section 3.1

	 	
Securities Compliance

	 	
16

	 	
Section 3.2

	 	
Liquidation

	 	
16

	 	
Section 3.3

	 	
Keeping of Records and Books of Account

	 	
16

	 	
Section 3.4

	 	
Amendments

	 	
17

	 	
Section 3.5

	 	
Other Agreements

	 	
17

	 	
Section 3.6

	 	
Reservation of Shares

	 	
17

	 	
Section 3.7

	 	
Disposition of Assets

	 	
17

	 	
Section 3.8

	 	
Reporting Status

	 	
17

	 	
Section 3.9

	 	
Disclosure of Transaction

	 	
17

	 	
Section 3.10

	 	
Sarbanes-Oxley Act

	 	
18

	 	
Section 3.11

	 	
No Integrated Offerings

	 	
18

	 	
Section 3.12

	 	
Subsequent Financing

	 	
18

	 	
Section 3.13

	 	
No Commissions in Connection with Conversion of Preferred Shares

	 	
20

	 	
Section 3.14

	 	
Piggy‐Back Registrations for Registrable Securities

	 	20
	 	
Section 3.15

	 	No Manipulation of Price	 	21
	 	
Section 3.15

	 	
Best Efforts

	 	
21

	 	 	 	 	 	 
	ARTICLE 4	
Conditions

	 	
21

	 	 	 	 	 	 
	 	
Section 4.1

	 	
Conditions Precedent to the Obligation of the Company to Sell the Units

	 	
21

	 	
Section 4.2

	 	
Conditions Precedent to the Obligation of the Purchasers to Purchase the Units

	 	
22

	 	 	 	 	 	 
	ARTICLE 5	
Stock Certificate Legend

	 	
24

	 	 	 	 	 	 
	 	
Section 5.1

	 	
Legend

	 	
24

	 	 	 	 	 	 
	ARTICLE 6	
Indemnification

	 	
25

	 	 	 	 	 	 
	 	
Section 6.1

	 	
General Indemnity

	 	
25

	 	
Section 6.2

	 	
Indemnification Procedure

	 	
25

	 	 	 	 	 	 
	ARTICLE 7	
Miscellaneous

	 	
26

	 	 	 	 	 	 
	 	
Section 7.1

	 	
Fees and Expenses

	 	
26

	 	
Section 7.2

	 	
Specific Enforcement, Consent to Jurisdiction

	 	
26

	 	
Section 7.3

	 	
Entire Agreement; Amendment

	 	
27

	 	
Section 7.4

	 	
Notices

	 	
27

	 	
Section 7.5

	 	
Waivers

	 	
28

	 	
Section 7.6

	 	
Headings

	 	
29

	 	
Section 7.7

	 	
Successors and Assigns

	 	
29

	 	
Section 7.8

	 	
Rescission and Withdrawal Right

	 	
29

	 	
Section 7.9

	 	
Replacement of Securities

	 	
29

	 	
Section 7.10

	 	
Limitation of Liability

	 	
30

	 	
Section 7.11

	 	
No Third Party Beneficiaries

	 	
30

	 	
Section 7.12

	 	
Governing Law

	 	
30

	 	
Section 7.13

	 	
Survival

	 	
30

	 	
Section 7.14

	 	
Counterparts

	 	
30

	 	
Section 7.15

	 	
Severability

	 	
30

	 	
Section 7.16

	 	
Further Assurances

	 	
30

	 	
Section 7.17

	 	
Currency

	 	
31

	 	
Section 7.18

	 	
Termination

	 	
31

 

  

2

  

 

EXHIBIT LIST

 

	
Exhibit A

	
List of Purchasers

	  
	  	  	  
	
Exhibit B

	
Definition of Accredited Investor

	  
	  	  	  
	
Exhibit B-1

	
Accredited Investor Representations and Acknowledgements

	  
	  	  	  
	
Exhibit B-2

	
Non-US Persons Representations and Acknowledgement Forms

	  
	  	  	  
	
Exhibit C

	
Form of Series A Certificate of Designation

	  
	  	  	  
	
Exhibit D

	
Form of Class B Warrant

	  
	  	  	  
	
Exhibit E

	
Form of Escrow Deposit Agreement

	  
	  	  	  
	
Exhibit F

	
Irrevocable Transfer Agent Instructions

	  
	  	  	  
	
Exhibit G

	
Form of Hunter Taubman Weiss LLP Opinion

	  
	  	  	  
	
Exhibit H

	
Selling Stockholder Questionnaire

	  

 

  

3

  

 

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (this “Agreement”) is dated as of July 21, 2014 by and among One Horizon Group, Inc., a Delaware corporation (the “Company”), and each of the Purchasers whose names are set forth on Exhibit A hereto (individually, a “Purchaser” and collectively, the “Purchasers”).

 

RECITALS

 

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

 

WHEREAS, the Company is offering units (the “Units”), each consisting of (i) seventeen thousand ninety four (17,094) shares of the Company’s Series A Redeemable Convertible Preferred Stock, par value $0.0001 per share (the “Preferred Shares”), initially convertible into seventeen thousand ninety four (17,094) shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) (subject to adjustment), and (ii) ten thousand (10,000) Class B Warrants (the “Class B Warrant” or “Warrant(s)”), each exercisable to purchase one (1) share of Common Stock, for a maximum of  $1,000,000 (the “Maximum Offering Amount” and the “Financing Transaction”).

 

AGREEMENT

 

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

 

ARTICLE 1

 

PURCHASE AND SALE OF THE UNITS

 

Section 1.1 Purchase and Sale of Units.  Upon the following terms and conditions, the Company is offering to each Purchaser the number of Units set forth opposite such Purchaser’s name as Exhibit A hereto consisting of (i) seventeen thousand ninety four (17,094) shares of the Company’s Preferred Shares, initially convertible into seventeen thousand ninety four (17,094) shares of Common Stock (subject to adjustment), and (ii) 10,000 Class B Warrants.  The designation, rights, preferences and other terms and provisions of the Preferred Shares are set forth in the Series A Certificate of Designation, substantially in the form attached hereto as Exhibit C (the “Series A Certificate of Designation”).

 

Section 1.2 Warrants.  Each of the Purchasers shall be issued, as part of the Units, ten thousand (10,000) Class B Warrants per each unit, each of which is exercisable to purchase one (1) share of Common Stock.  The Class B Warrant, in substantially the form attached hereto as Exhibit D, shall expire three (3) years following the Closing Date, and have an initial exercise price of $4.00.

 

Section 1.3 Conversion and Warrant Shares.  The Company has authorized and has reserved and covenants to continue to reserve, free of preemptive rights and other similar contractual rights of stockholders, a number of shares of Common Stock equal to one hundred ten percent (110%) of the number of shares of Common Stock as shall from time to time be sufficient to effect conversion of all of the Preferred Shares and exercise of the Warrants then outstanding. Any shares of Common Stock issuable upon conversion of the Preferred Shares and exercise of the Warrants (and such shares when issued) are herein referred to as the “Conversion Shares” and the “Warrant Shares”, respectively.  The Preferred Shares, the Conversion Shares and the Warrant Shares are sometimes collectively referred to as the “Shares.”

 

Section 1.4 Purchase Price and Closing.  Subject to the terms and conditions hereof, the Company agrees to issue and sell to the Purchasers and, in consideration of and in express reliance upon the representations, warranties, covenants, terms and conditions of this Agreement, the Purchasers, severally but not jointly, agree to purchase the Units for $100,000 per Unit (the “Unit Price”) for an aggregate purchase price up to $1,000,000 (the amount paid by each Purchaser is referred herein as the “Purchase Price”). Subject to all conditions to closing being satisfied or waived, the closing of the purchase and sale of the Units shall take place at the offices of Hunter Taubman Weiss LLP (the “Closing”) by the earlier to occur of (a) completion of the $200, 000 ( the “Minimum Offering Amount”) and receipt by the Escrow Agent (as defined in the Escrow Deposit Agreement) of the Minimum Offering Amount, or (b) by 5:00 pm (EDT) on June 30, 2014 ( the “Initial Closing Date”);  or by the earlier of (a) completion of the sale of all Units included in the Maximum Offering (subject to increase to cover over-allotments, if any), or (b) by 5:00 pm (EDT) on July 1, 2014 ( the “Final Closing Date”) which can be further extended up to 30 days by the mutual agreement of the Company and the Placement Agent if the sale of all Units in the Maximum Offering has not been completed by July 1, 2014 (the “Final Closing Date”, collectively with the Initial Closing Date are sometimes referred herein as the “Closing Date”). Subject to the terms and conditions of this Agreement, at the Closing the Company shall deliver or cause to be delivered to each Purchaser (x) certificates for the number of Preferred Shares set forth opposite the name of such Purchaser on Exhibit A hereto, (y) the Warrants to purchase such number of shares of Common Stock as is set forth opposite the name of such Purchaser on Exhibit A attached hereto, and (z) any other documents required to be delivered pursuant to Article 4 hereof.  At the time of the Closing, each Purchaser shall have delivered its Purchase Price by wire transfer to the escrow account pursuant to the Escrow Deposit Agreement (as hereafter defined).  Subject to Section 7.16(b), the Company may also, in its sole discretion, terminate the offering and the Company and TriPoint Global Equities, LLC (the “Placement Agent”) would then notify the Escrow Agent to return the funds deposited in escrow, in accordance with the Escrow Deposit Agreement.

 

  

4

  

ARTICLE 2

 

REPRESENTATIONS AND WARRANTIES

 

Section 2.1 Representations and Warranties of the Company and Subsidiary.  The Company hereby represents and warrants to the Purchasers on behalf of itself, its Subsidiaries, as set forth on Schedule 2.1(e), as of the date hereof (except as set forth on the Schedule of Exceptions attached hereto with each numbered Schedule corresponding to the section number herein), as follows:

 

(a) Organization, Good Standing and Power. Each of the Company, its Subsidiaries is a corporation or other entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization (as applicable) and has the requisite corporate power to own, lease and operate its properties and assets and to conduct its business as it is now being conducted.  Except as set forth on Schedule 2.1(a), each of the Company, its Subsidiary is duly qualified to do business and is in good standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary except for any jurisdiction(s) (alone or in the aggregate) in which the failure to be so qualified will not have a Material Adverse Effect (as defined in Section 2.1(g) hereof) on the Company’s consolidated financial condition.

 

(b) Corporate Power; Authority and Enforcement. The Company has the requisite corporate power and authority to enter into and perform this Agreement, the Escrow Deposit Agreement by and among the Company, the Placement Agent and the escrow agent named therein, substantially in the form of Exhibit E attached hereto (the “Escrow Deposit Agreement”), the Irrevocable Transfer Agent Instructions  in the form of Exhibit F attached hereto (as defined in Section 3.10),  the Series A Certificate of Designation, and the Warrants (collectively, the “Transaction Documents”), and to issue and sell the Units in accordance with the terms hereof. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action, and no further consent or authorization of the Company or its Board of Directors or stockholders is required.  Each of the Transaction Documents constitutes, or shall constitute when executed and delivered, a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the enforcement of, creditor’s rights and remedies or by other equitable principles of general application.

 

(c) Capitalization. The authorized capital stock of the Company and the shares thereof currently issued and outstanding as of the date hereof is set forth on Schedule 2.1(c) hereto.  All of the issued and outstanding shares of the Common Stock have been duly and validly authorized. Except as contemplated by the Transaction Documents or as set forth on Schedule 2.1(c) hereto:

 

(i) no shares of Common Stock are entitled to preemptive, conversion or other rights and there are no outstanding options, warrants, scrip, rights to subscribe to, call or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company;

 

(ii) there are no contracts, commitments, understandings, or arrangements by which the Company is or may become bound to issue additional shares of  capital stock of the Company or options, securities or rights convertible into shares of capital stock of the Company;

 

(iii) the Company is not a party to any agreement granting registration or anti-dilution rights to any person with respect to any of its equity or debt securities; and

 

(iv) the Company is not a party to, and it has no knowledge of, any agreement restricting the voting or transfer of any shares of the capital stock of the Company.

 

The offer and sale of all capital stock, convertible securities, rights, warrants, or options of the Company issued prior to the Closing complied with all applicable Federal and state securities laws.  The Company has furnished or made available to the Purchasers true and correct copies of the Company’s Articles of Incorporation, as amended and in effect on the date hereof (the “Articles”), and the Company’s Bylaws, as amended and in effect on the date hereof (the “Bylaws”).  Except as restricted under applicable federal, state, local or foreign laws and regulations, the Articles, the Series A Certificate of Designation or the Transaction Documents, or as set forth on Schedule 2.1 (c), no written or oral contract, instrument, agreement, commitment, obligation, plan or arrangement of the Company shall limit the payment of dividends on the Company’s Preferred Shares, or its Common Stock.

 

(d) Issuance of Shares.  The Units, the Preferred Shares, and the Warrants to be issued at the Closing have been duly authorized by all necessary corporate action and the Preferred Shares, when paid for or issued in accordance with the terms hereof, will be validly issued and outstanding, fully paid and nonassessable and entitled to the rights and preferences set forth in the Series A Certificate of Designation and, immediately after the Closing, the Purchasers will be the record and beneficial owners of all of such securities and have good and valid title to all of such securities, free and clear of all encumbrances. When the Conversion Shares and the Warrant Shares are issued in accordance with the terms of the Series A Certificate of Designation and the Warrants, respectively, such Shares will be duly authorized by all necessary corporate action and validly issued and outstanding, fully paid and nonassessable, and the holders will be entitled to all rights accorded to a holder of Common Stock and will be the record and beneficial owners of all of such securities and have good and valid title to all of such securities, free and clear of all encumbrances.

 

  

5

  

(e) Subsidiaries. Schedule 2.1(e) hereto sets forth each Subsidiary of the Company, showing the jurisdiction of its incorporation or organization and showing the percentage of ownership of each Subsidiary. There are no outstanding preemptive, conversion or other rights, options, warrants or agreements granted or issued by or binding upon any Subsidiary for the purchase or acquisition of any shares of capital stock of any Subsidiary or any other securities convertible into, exchangeable for or evidencing the rights to subscribe for any shares of such capital stock. Neither the Company, nor any Subsidiary is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of the capital stock of any Subsidiary or any convertible securities, rights, warrants or options of the type described in the preceding sentence. Except as filed as exhibits to the Commission Documents (as defined below), neither the Company, nor any Subsidiary is party to, nor has any knowledge of, any agreement restricting the voting or transfer of any shares of the capital stock of any Subsidiary. All of the outstanding shares of capital stock of each Subsidiary has been duly authorized and validly issued, and are fully paid and nonassessable.  For the purposes of this Agreement, “Subsidiary” shall mean any corporation or other entity of which at least a majority of the securities or other ownership interests having ordinary voting power (absolutely or contingently) for the election of directors or other persons performing similar functions are at the time owned directly or indirectly by the Company and/or any Subsidiary.

 

(f) Commission Documents, Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the Commission pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including material filed pursuant to Section 13(a) or 15(d) of the Exchange Act (all of the foregoing including filings incorporated by reference therein being referred to herein as the “Commission Documents”).  The Company has not provided to the Purchasers any material non-public information or other information which, according to applicable law, rule or regulation, was required to have been disclosed publicly by the Company but which has not been so disclosed, other than (i) with respect to the transactions contemplated by this Agreement, or (ii) pursuant to a non-disclosure or confidentiality agreement signed by the Purchasers.  At the time of the respective filings, the Form 10-K and the Form 10-Q complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission promulgated thereunder and other federal, state and local laws, rules and regulations applicable to such documents.  As of their respective filing dates, none of the Form 10-K or Form 10-Q contained any untrue statement of a material fact; and none omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the Commission Documents (the “Financial Statements”) comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission or other applicable rules and regulations with respect thereto. The Financial Statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in the Financial Statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements), and fairly present in all material respects the consolidated financial position of the Company as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).

 

(g) No Material Adverse Effect. Since March 31, 2014, neither the Company,  nor any Subsidiary has experienced or suffered any Material Adverse Effect. For the purposes of this Agreement, “Material Adverse Effect” means any of  (i) a material and adverse effect on the legality, validity or enforceability of this Agreement or the other Transaction Documents, (ii) a material adverse effect on the business, operations, properties, or financial condition of the Company, its non-PRC Subsidiaries, the PRC Subsidiary, individually, or in the aggregate and/or any condition, circumstance, or situation that would prohibit or otherwise materially interfere with the ability of the Company to perform any of its obligations under this Agreement or the other Transaction Documents in any material respect or (iii) an adverse impairment to the Company’s ability to perform on a timely basis its obligations under this Agreement or the other Transaction Document.

 

(h) No Undisclosed Liabilities.  Other than as disclosed on Schedule 2.1(h) or set forth in the Commission Documents, to the knowledge of the Company, neither the Company, nor any Subsidiary has any liabilities, obligations, claims or losses (whether liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent or otherwise) other than those incurred in the ordinary course of the Company’s and any Subsidiary’s respective businesses since March 31, 2014 and those which, individually or in the aggregate, do not have a Material Adverse Effect on the Company and any Subsidiary.

 

(i) No Undisclosed Events or Circumstances. To the Company’s knowledge, no event or circumstance has occurred or exists with respect to the Company or any Subsidiary or their respective businesses, properties, operations or financial condition, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed.

 

(j) Indebtedness. The Financial Statements set forth all outstanding secured and unsecured Indebtedness of the Company on a consolidated basis, or for which the Company, or any Subsidiary have commitments as of the date of Financial Statements or any subsequent period that would require disclosure. For the purposes of this Agreement, “Indebtedness” shall mean (a) any liabilities for borrowed money or amounts owed (other than trade accounts payable incurred in the ordinary course of business), (b) all guaranties, endorsements and other contingent obligations in respect of Indebtedness of others, whether or not the same should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (c) the present value of any lease payments due under leases required to be capitalized in accordance with GAAP.  Neither the Company, nor any Subsidiary is in default with respect to any Indebtedness which, individually or in the aggregate, would have a Material Adverse Effect.

 

(k) Title to Assets. Except as disclosed on Schedule 2.1(k), each of the Company and any Subsidiary has good and marketable title to (i) all properties and assets purportedly owned or used by them as reflected in the Financial Statements, (ii) all properties and assets necessary for the conduct of their business as currently conducted, and (iii) all of the real and personal property reflected in the Financial Statements free and clear of any Lien. All leases are valid and subsisting and in full force and effect.

 

(l) Actions Pending. Except as disclosed on Schedule 2.1(l), there is no action, suit, claim, investigation, arbitration, alternate dispute resolution proceeding or any other proceeding pending or, to the knowledge of the Company, threatened against or involving the Company, any Subsidiary (i) which questions the validity of this Agreement or any of the other Transaction Documents or the transactions contemplated hereby or thereby or any action taken or to be taken pursuant hereto or thereto or (ii) involving any of their respective properties or assets.  To the knowledge of the Company, there are no outstanding orders, judgments, injunctions, awards or decrees of any court, arbitrator or governmental or regulatory body against the Company or any Subsidiary or any of their respective executive officers or directors in their capacities as such.

 

  

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(m) Compliance with Law.  The Company and its Subsidiaries have all material franchises, permits, licenses, consents and other governmental or regulatory authorizations and approvals necessary for the conduct of their respective business as now being conducted by it unless the failure to possess such franchises, permits, licenses, consents and other governmental or regulatory authorizations and approvals, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

 

(n) No Violation.  The business of the Company and any Subsidiary is not being conducted in violation of any federal, state, local or foreign governmental laws, or rules, regulations and ordinances of any governmental entity, except for possible violations which singularly or in the aggregate could not reasonably be expected to have a Material Adverse Effect. The Company is not required under federal, state, local or foreign law, rule or regulation to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under the Transaction Documents, or issue and sell the Units, the Preferred Shares, the Warrants, the Conversion Shares and the Warrant Shares in accordance with the terms hereof or thereof (other than (x) any consent, authorization or order that has been obtained as of the date hereof, (y) any filing or registration that has been made as of the date hereof or (z) any filings which may be required to be made by the Company with the Commission or state securities administrators subsequent to the Closing).

 

(o) No Conflicts. The execution, delivery and performance of this Agreement and the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated herein and therein do not and will not (i) violate any provision of the Articles or Bylaws, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond, license, lease agreement, instrument or obligation to which the Company or any Subsidiary is a party or by which it or its properties or assets are bound, (iii) create or impose a lien, mortgage, security interest, pledge, charge or encumbrance (collectively, “Lien”) of any nature on any property of the Company or any Subsidiary under any agreement or any commitment to which the Company or any Subsidiary is a party or by which the Company, or any Subsidiary is bound or by which any of its respective properties or assets are bound, or (iv) result in a violation of any federal, state, local or foreign statute, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations) applicable to the Company or any Subsidiary or by which any property or asset of the Company, or any Subsidiary are bound or affected, provided, however, that, excluded from the foregoing in all cases are such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect.

 

(p) Taxes. Each of the Company and any Subsidiary, to the extent its applicable, has accurately prepared and filed all federal, state and other tax returns required by law to be filed by it, has paid or made provisions for the payment of all taxes shown to be due and all additional assessments, and adequate provisions have been and are reflected in the consolidated financial statements of the Company for all current taxes and other charges to which the Company, or any Subsidiary, if any, is subject and which are not currently due and payable. None of the federal income tax returns of the Company have been audited by the Internal Revenue Service. The Company has no knowledge of any additional assessments, adjustments or contingent tax liability (whether federal, state or foreign) of any nature whatsoever, whether pending or threatened against the Company or any Subsidiary for any period, nor of any basis for any such assessment, adjustment or contingency.

 

(q) Certain Fees. Except as set forth on Schedule 2.1(q) hereto, no brokers fees, finders fees or financial advisory fees or commissions will be payable by the Company with respect to the transactions contemplated by this Agreement and the other Transaction Documents.

 

(r) Intellectual Property. Each of the Company and any Subsidiary, owns or has the lawful right to use all patents, trademarks, domain names (whether or not registered) and any patentable improvements or copyrightable derivative works thereof, websites and intellectual property rights relating thereto, service marks, trade names, copyrights, licenses and authorizations, if any, and all rights with respect to the foregoing, if any, which are necessary for the conduct of their respective business as now conducted without any conflict with the rights of others, except where the failure to so own or possess would not have a Material Adverse Effect.

 

(s) Books and Records Internal Accounting Controls. Except as may have otherwise been disclosed in the Commission Documents, the books and records of the Company, and any Subsidiary accurately reflect in all material respects the information relating to the business of the Company and any Subsidiary, the location and collection of their assets, and the nature of all transactions giving rise to the obligations or accounts receivable of the Company, or any Subsidiary.  Except as disclosed on Schedule 2.1(s), the Company and any Subsidiary maintain a system of internal accounting controls sufficient, in the judgment of the Company, to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate actions are taken with respect to any differences.

 

(t) Material Agreements. Any and all written or oral contracts, instruments, agreements, commitments, obligations, plans or arrangements, the Company and any Subsidiary is a party to, that a copy of which would be required to be filed with the Commission as an exhibit to a registration statement (collectively, the “Material Agreements”) if the Company or any Subsidiary were registering securities under the Securities Act has previously been publicly filed with the Commission in the Commission Documents.  Each of the Company and any Subsidiary has in all material respects performed all the obligations required to be performed by them to date under the foregoing agreements, have received no notice of default and are not in default under any Material Agreement now in effect the result of which would cause a Material Adverse Effect.

 

  

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(u) Transactions with Affiliates. Except as set forth in the Financial Statements or in the Commission Documents or on Schedule 2.1(u), there are no loans, leases, agreements, contracts, royalty agreements, management contracts or arrangements or other continuing transactions between (a) the Company, or any Subsidiary on the one hand, and (b) on the other hand, any officer, employee, consultant or director of the Company or any Subsidiary, or any person owning more than 10% capital stock of the Company, or any Subsidiary, or any member of the immediate family of such officer, employee, consultant, director or stockholder or any corporation or other entity controlled by such officer, employee, consultant, director or stockholder, or a member of the immediate family of such officer, employee, consultant, director or stockholder.

 

(v) Securities Act of 1933. Assuming the accuracy of the representations of the Purchasers set forth in Section 2.2 (d)-(i) hereof, the Company has complied with all applicable federal and state securities laws in connection with the offer, issuance and sale of the Units hereunder. Neither the Company nor anyone acting on its behalf, directly or indirectly, has sold or will sell, offer to sell or solicit offers to buy any of the Units, the Preferred Shares, the Warrants or similar securities to, or solicit offers with respect thereto from, or enter into any preliminary conversations or negotiations relating thereto with, any person, or has taken or will take any action so as to bring the issuance and sale of any of the Units, the Preferred Shares and the Warrants in violation of the registration provisions of the Securities Act and applicable state securities laws, and neither the Company nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of any of the Units, the Preferred Shares and the Warrants.

 

(w) Governmental Approvals. Except for the filing of any notice prior or subsequent to the Closing Date that may be required under applicable state and/or federal securities laws (which if required, shall be filed on a timely basis), including the filing of a Form D and the filing of the Series A Certificate of Designation with the Secretary of State for the State of Delaware, no authorization, consent, approval, license, exemption of, filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, is or will be necessary for, or in connection with, the execution or delivery of the Units, the Preferred Shares and the Warrants, or for the performance by the Company of its obligations under this Agreement and the Transaction Documents.

 

(x) Employees. Except as disclosed on Schedule 2.1(x), neither the Company nor any Subsidiary has any collective bargaining arrangements covering any of its employees.  Schedule 2.1(x) sets forth a list of the employment contracts, agreements regarding proprietary information, non-competition agreements, non-solicitation agreements, confidentiality agreement, or any other similar contract or restrictive covenant, relating to the right of any officer, employee or consultant to be employed or engaged by the Company. Since March 31, 2014, no officer, consultant or key employee of the Company or any Subsidiary whose termination, either individually or in the aggregate, would have a Material Adverse Effect, has terminated or, to the knowledge of the Company, has any present intention of terminating his or her employment or engagement with the Company or any Subsidiary.

 

(y) Absence of Certain Developments. Except as disclosed on Schedule 2.1(y), since March 31, 2014, other than in the ordinary course of business, neither the Company, nor any Subsidiary have:

 

(i) issued any stock, bonds or other corporate securities or any rights, options or warrants with respect thereto;

 

(ii) borrowed any amount or incurred or become subject to any liabilities (absolute or contingent) except current liabilities incurred in the ordinary course of business which are comparable in nature and amount to the current liabilities incurred in the ordinary course of business during the comparable portion of its prior fiscal year, as adjusted to reflect the current nature and volume of the business of the Company and any Subsidiary;

 

(iii) discharged or satisfied any lien or encumbrance or paid any obligation or liability (absolute or contingent), other than current liabilities paid in the ordinary course of business;

 

(iv) declared or made any payment or distribution of cash or other property to stockholders with respect to its stock, or purchased or redeemed, or made any agreements so to purchase or redeem, any shares of its capital stock;

 

(v) sold, assigned or transferred any other tangible assets, or canceled any debts or claims, except in the ordinary course of business;

 

(vi) sold, assigned or transferred any patent rights, trademarks, trade names, copyrights, trade secrets or other intangible assets or intellectual property rights, or disclosed any proprietary confidential information to any person except to customers in the ordinary course of business or to the Purchasers or their representatives;

 

(vii) suffered any material losses or waived any rights of material value, whether or not in the ordinary course of business, or suffered the loss of any material amount of prospective business;

 

(viii) made any changes in employee compensation except in the ordinary course of business and consistent with past practices;

 

(ix) made capital expenditures or commitments therefor that aggregate in excess of $50,000;

 

  

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(x) entered into any other transaction other than in the ordinary course of business, or entered into any other material transaction, whether or not in the ordinary course of business;

 

(xi) made charitable contributions or pledges in excess of $10,000;

 

(xii) suffered any material damage, destruction or casualty loss, whether or not covered by insurance;

 

(xiii) experienced any material problems with labor or management in connection with the terms and conditions of their employment;

 

(xiv) effected any two or more events of the foregoing kind which in the aggregate would be material to the Company or any Subsidiary; or

 

(xv) entered into an agreement, written or otherwise, to take any of the foregoing actions.

 

(z) Public Utility Holding Company Act; Investment Company Act and U.S. Real Property Holding Corporation Status. The Company is not a “holding company” or a “public utility company” as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. The Company is not, and as a result of and immediately upon the Closing will not be, an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended.  The Company is not and has never been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended.

 

(aa) ERISA. No liability to the Pension Benefit Guaranty Corporation has been incurred with respect to any Plan (as defined below) by the Company or any of its subsidiaries which is or would be materially adverse to the Company and its subsidiaries. The execution and delivery of this Agreement and the other Transaction Documents and the issuance and sale of the Units, the Preferred Shares and the Warrants will not involve any transaction which is subject to the prohibitions of Section 406 of ERISA or in connection with which a tax could be imposed pursuant to Section 4975 of the Internal Revenue Code of 1986, as amended, provided, that, if any of the Purchasers, or any person or entity that owns a beneficial interest in any of the Purchasers, is an “employee pension benefit plan” (within the meaning of Section 3(2) of ERISA) with respect to which the Company is a “party in interest” (within the meaning of Section 3(14) of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in this Section 2.1(aa), the term “Plan” shall mean an “employee pension benefit plan” (as defined in Section 3 of ERISA) which is or has been established or maintained, or to which contributions are or have been made, by the Company, any non-PRC Subsidiary or the PRC Subsidiary by any trade or business, whether or not incorporated, which, together with the Company, any non-PRC Subsidiary or the PRC Subsidiary, is under common control, as described in Section 414(b) or (c) of the Code.

 

(bb) Integrated Offerings. Except as previously disclosed to the Purchasers and listed on Schedule 2.1(bb), neither the Company, nor any of officers, directors or shareholders owning more than 10% of the outstanding Common Stock (an “Affiliate”), nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would cause the offering of the Units pursuant to this Agreement and the Transaction Documents to be integrated with prior offerings by the Company for purposes of the Securities Act which would prevent the Company from selling the Units pursuant to Rule 506 under the Securities Act, nor will the Company or any of its affiliates take any action or steps that would cause the offering of the Units to be integrated with other offerings. Since March 31, 2014, other than as contemplated under this Agreement and the Transaction Documents, the Company has not offered or sold any of its equity securities or debt securities convertible into shares of Common Stock.

 

(cc) Sarbanes-Oxley Act. Except as specified in the Commission Documents, the Company is in compliance with the applicable provisions of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and the rules and regulations promulgated thereunder, that are effective and for which compliance by the Company is required as of the date hereof.

 

(dd) Solvency. Based on the financial condition of the Company as of the Closing Date (and assuming that the Closing shall have occurred), (i) the Company’s fair saleable value of its assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amount are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).

 

(ee) Intentionally Left Blank.

 

(ff) Listing and Maintenance Requirements. Except as specified in the Commission Documents, the Company has not, in the two years preceding the date hereof, received notice from any Trading Market to the effect that the Company is not in compliance with the listing maintenance requirement thereof. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with the listing and maintenance requirements for continued listing of the Common Stock on the Trading Market on which the Common Stock is currently listed or quoted. The issuance and sale of the Units under this Agreement and the Transaction Documents do not contravene the rules and regulations of the Trading Market which the Common Stock is currently listed or quoted, and, except as otherwise set forth in the Transaction Documents, no approval of the stockholders of the Company thereunder is required for the Company to issue and deliver to the Purchasers the Units contemplated by this Agreement and the Transaction Documents. “Trading Market” means whichever of the New York Stock Exchange, NYSE Amex, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market, OTC Markets or OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.

 

  

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(gg) Intentionally Left Blank

 

(hh) Insurance. The Company, any non-PRC Subsidiary and the PRC Subsidiary are insured against such losses and risks and in such amounts as are prudent and customary for businesses in which the Company, any non-PRC Subsidiary and the PRC Subsidiary are engaged.

 

(ii) Intentionally Left Blank.

 

(jj) Disclosure. All disclosure provided to the Purchasers regarding the Company and any Subsidiary or their respective businesses and the transactions contemplated hereby, furnished by or on behalf of the Company (including the Company’s representations and warranties set forth in this Agreement and the disclosure set forth in any diligence report or business plan provided by the Company or any person acting on the Company’s behalf) are true and correct in all material aspects and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.

 

(kk) No Additional Agreements.  Neither the Company nor any Affiliate has any agreement or understanding with any Purchaser with respect to the transactions contemplated by this Agreement and the Transaction Documents other than as specified in this Agreement and the Transaction Documents.

 

(ll) Foreign Corrupt Practices Act.  Neither the Company or any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent or other person acting on behalf of the Company or any PRC Subsidiary, has, directly or indirectly, (i) used any funds, or will use any proceeds from the sale of the Units, for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any Person acting on their behalf of which the Company or any Subsidiary is aware) or any members of their respective management which is in violation of any applicable law, or (iv) has violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder which was or is applicable to the Company, any Subsidiary.

 

(mm) PFIC.  None of the Company or any Subsidiary is or intends to become a “passive foreign investment company” within the meaning of Section 1297 of the U.S. Internal Revenue Code of 1986, as amended.

 

(nn) OFAC. None of the Company or any Subsidiary nor, to the knowledge of the Company, any director, officer, agent, employee, affiliate or person acting on behalf of any of the Company or any of its Subsidiaries, is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and the Company will not directly or indirectly use the proceeds of the sale of the Units, or lend, contribute or otherwise make available such proceeds to any of its  Subsidiaries, joint venture partner or other Person or entity, towards any sales or operations in Cuba, Iran, Syria, Sudan, Myanmar or any other country sanctioned by OFAC or for the purpose of financing the activities of any Person currently subject to any U.S. sanctions administered by OFAC.

 

(oo) Money Laundering Laws. The operations of each of the Company and any Subsidiary have been conducted at all times in compliance with the money laundering requirements of all applicable governmental authorities and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental authority (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental authority or any arbitrator involving any of the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the best knowledge of the Company, threatened.

 

Section 2.2 Representations and Warranties of the Purchasers.  Each Purchaser hereby makes the following representations and warranties to the Company as of the date hereof, with respect solely to itself and not with respect to any other Purchaser:

 

(a) Organization and Good Standing of the Purchasers. If the Purchaser is an entity, such Purchaser is a corporation, partnership or limited liability company duly incorporated or organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization.

 

(b) Authorization and Power. Each Purchaser has the requisite power and authority to enter into and perform this Agreement and each of the other Transaction Documents to which such Purchaser is a party and to purchase the Units, consisting of the Preferred Shares and Warrants, being sold to it hereunder. The execution, delivery and performance of this Agreement and each of the other Transaction Documents to which such Purchaser is a party by such Purchaser and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate, partnership or limited liability company action, and no further consent or authorization of such Purchaser or its Board of Directors, stockholders, partners, members, or managers, as the case may be, is required. This Agreement and each of the other Transaction Documents to which such Purchaser is a party has been duly authorized, executed and delivered by such Purchaser and constitutes, or shall constitute when executed and delivered, a valid and binding obligation of such Purchaser enforceable against such Purchaser in accordance with the terms hereof.

 

(c) No Conflicts. The execution, delivery and performance of this Agreement and each of the other Transaction Documents to which such Purchaser is a party and the consummation by such Purchaser of the transactions contemplated hereby and thereby or relating hereto do not and will not (i) result in a violation of such Purchaser’s charter documents, bylaws, operating agreement, partnership agreement or other organizational documents or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of any agreement, indenture or instrument or obligation to which such Purchaser is a party or by which its properties or assets are bound, or result in a violation of any law, rule, or regulation, or any order, judgment or decree of any court or governmental agency applicable to such Purchaser or its properties (except for such conflicts, defaults and violations as would not, individually or in the aggregate, have a material adverse effect on such Purchaser). Such Purchaser is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement or any other Transaction Document to which such Purchaser is a party or to purchase the Units in accordance with the terms hereof, provided, that for purposes of the representation made in this sentence, such Purchaser is assuming and relying upon the accuracy of the relevant representations and agreements of the Company herein.

 

  

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(d) Status of Purchasers. Each Purchaser is an “accredited investor” (“Accredited Investor”) as defined in Regulation D, or a “non-US person” as defined in Regulation S. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act and such Purchaser is not a broker-dealer, nor an affiliate of a broker-dealer.

 

(e) Acquisition for Investment. Each Purchaser is acquiring the Units, and the underlying Preferred Shares and the Warrants solely for its own account for the purpose of investment and not with a view to or for sale in connection with a distribution. The Purchaser does not have a present intention to sell the Units, Preferred Shares or the Warrants, nor a present arrangement (whether or not legally binding) or intention to effect any distribution of the Units, Preferred Shares or the Warrants to or through any person or entity; provided, however, that by making the representations herein and subject to Section 2.2(h) below, such Purchaser does not agree to hold the Units, Preferred Shares or the Warrants for any minimum or other specific term and reserves the right to dispose of the Units, Preferred Shares or the Warrants at any time in accordance with federal and state securities laws applicable to such disposition. Each Purchaser acknowledges that it is able to bear the financial risks associated with an investment in the Units, Preferred Shares and the Warrants and that it has been given full access to such records of the Company, the non-PRC Subsidiaries and the PRC Subsidiary and to the officers of the Company, the non-PRC Subsidiaries and the PRC Subsidiary and received such information as it has deemed necessary or appropriate to conduct its due diligence investigation and has sufficient knowledge and experience in investing in companies similar to the Company in terms of the Company’s stage of development so as to be able to evaluate the risks and merits of its investment in the Company. Each Purchaser further acknowledges that such Purchaser understands the risks of investing in companies domiciled and/or which operate primarily in the PRC and that the purchase of the Units, Preferred Shares and Warrants involves substantial risks.

 

(f) Additional Representations and Warranties of Accredited Investors.  Each Purchaser indicating that such Purchaser is an Accredited Investor, severally and not jointly, further makes the representations and warranties to the Company set forth on Exhibit B-1.

 

(g) Additional Representations and Warranties of Non-U.S. Persons.  Each Purchaser indicating that it is not a U.S. person, severally and not jointly, further makes the representations and warranties to the Company set forth on Exhibit B-2.

 

(h) Opportunities for Additional Information. Each Purchaser acknowledges that such Purchaser has had the opportunity to ask questions of and receive answers from, or obtain additional information from, the executive officers of the Company concerning the financial and other affairs of the Company.

 

(i) No General Solicitation. Each Purchaser acknowledges that the Units were not offered to such Purchaser by means of any form of general or public solicitation or general advertising, or publicly disseminated advertisements or sales literature, including (i) any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media, or broadcast over television or radio, or (ii) any seminar or meeting to which such Purchaser was invited by any of the foregoing means of communications.

 

(j) Rule 144. Such Purchaser understands that the Units must be held indefinitely unless such Shares are registered under the Securities Act or an exemption from registration is available. Such Purchaser acknowledges that such Purchaser is familiar with Rule 144, of the rules and regulations of the Commission, as amended, promulgated pursuant to the Securities Act (“Rule 144”), and that such person has been advised that Rule 144 permits resales only under certain circumstances. Such Purchaser understands that to the extent that Rule 144 is not available, such Purchaser will be unable to sell any Units without either registration under the Securities Act or the existence of another exemption from such registration requirement.

 

(k) General. Such Purchaser understands that the Units are being offered and sold in reliance on a transactional exemption from the registration requirements of federal and state securities laws and the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein in order to determine the applicability of such exemptions and the suitability of such Purchaser to acquire the Units.

 

(l) Independent Investment. Except as may be disclosed in any filings with the Commission by the Purchasers under Section 13 and/or Section 16 of the Exchange Act, no Purchaser has agreed to act with any other Purchaser for the purpose of acquiring, holding, voting or disposing of the Units purchased hereunder for purposes of Section 13(d) under the Exchange Act, and each Purchaser is acting independently with respect to its investment in the Units.

 

(m) Brokers. Other than the Placement Agent and selected dealers of the Placement Agent, no Purchaser has any knowledge of any brokerage or finder’s fees or commissions that are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other person or entity with respect to the transactions contemplated by this Agreement and the Transaction Documents.

 

(n) Confidential Information.  Each Purchaser agrees that such Purchaser and its employees, agents and representatives will keep confidential and will not disclose, divulge or use (other than for purposes of monitoring its investment in the Company) any confidential information which such Purchaser may obtain from the Company pursuant to financial statements, reports and other materials submitted by the Company to such Purchaser pursuant to this Agreement, unless such information is (i) known to the public through no fault of such Purchaser or his or its employees or representatives; (ii) becomes part of the public domain other than by a breach of this Agreement; (iii) becomes known by the action of a third party not in breach of a duty of confidence; or (iv) is required to be disclosed to a third party pursuant to any applicable law, government resolution, or decision of any court or tribunal of competent jurisdiction; provided, however, that a Purchaser may disclose such information (i) to its attorneys, accountants and other professionals in connection with their representation of such Purchaser in connection with such Purchaser’s investment in the Company, (ii) to any prospective permitted transferee of the Units, or (iii) to any general partner or affiliate of such Purchaser, so long as the prospective transferee agrees to be bound by the provisions of this Section 2.2(n).

 

  

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ARTICLE 3

 

COVENANTS

 

The Company covenants with each of the Purchasers as follows, which covenants are for the benefit of the Purchasers and their permitted assignees (as defined herein).

 

Section 3.1 Securities Compliance. The Company shall notify the Commission in accordance with its rules and regulations, of the transactions contemplated by this Agreement and the Transaction Documents, including filing a Form D with respect to the Units, as required under Regulation D and applicable “blue sky” laws if such Units are offered pursuant to Rule 506 of Regulation D (“Regulation D”)  and shall take all other necessary action and proceedings as may be required and permitted by applicable law, rule and regulation, for the legal and valid issuance of the Units to the Purchasers or subsequent holders.

 

Section 3.2 Liquidation.  Subject to the terms of the Transaction Documents, the Company covenants that it will take such further action as the Purchasers may reasonably request, all to the extent required from time to time to enable the Purchasers to sell the Units without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act, as amended.

 

Section 3.3 Keeping of Records and Books of Account.  The Company shall keep and cause each Subsidiary to keep adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied, reflecting all financial transactions of the Company and its Subsidiaries, and in which, for each fiscal year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in connection with its business shall be made.

 

Section 3.4 Amendments.  The Company shall not amend or waive any provision of the Articles or Bylaws of the Company in any way that would adversely affect the liquidation preferences, dividends rights, conversion rights, voting rights or redemption rights of the Preferred Shares; provided, however, that while the Preferred Shares are outstanding, any creation and issuance of another series of Junior Stock (as defined in the Series A Certificate of Designation) shall not be deemed to materially and adversely affect such rights, preferences or privileges.

 

Section 3.5 Other Agreements.  The Company shall not and shall cause its Subsidiaries, enter into any agreement the terms of which would restrict or impair the ability of the Company to perform its obligations under this Agreement and the Transaction Document.

 

Section 3.6 Reservation of Shares.  So long as any of the Preferred Shares or Warrants remain outstanding, the Company shall take all actions necessary to at all times have authorized, and reserved for the purpose of issuance, no less than one hundred ten percent (110%) of the aggregate number of shares of Common Stock needed to provide for the issuance of the Conversion Shares and the Warrant Shares.

 

Section 3.7 Disposition of Assets.  So long as any Preferred Shares remain outstanding, neither the Company, nor any of its Subsidiaries shall sell, transfer or otherwise dispose of any of its material properties, assets and rights including, without limitation, its software and intellectual property, to any person except for (i) sales to customers in the ordinary course of business (ii) sales or transfers between the Company, the Subsidiaries or (iii) otherwise with the prior written consent of the holders of a majority of the Preferred Shares then outstanding.

 

Section 3.8 Reporting Status.  So long as a Purchaser beneficially owns any of the Shares, the Company shall timely file all reports required to be filed with the Commission pursuant to the Exchange Act, and the Company shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would permit such termination.

 

Section 3.9 Disclosure of Transaction.  The Company shall file with the Commission, the Form 8-K describing the material terms of the transactions contemplated hereby and all material non-public information disclosed to the Purchasers prior to the filing as soon as practicable after the Closing but in no event later than 5:30 P.M. (EDT) on the fourth Business Day following the Closing.  In the event that the Company is unable to disclose specific non-public information in the Form 8-K, the Company shall include such information in its Form 10-Q for the interim period during which the Closing contemplated hereby occurs. “Business Day” means any day during which the NASDAQ (or other principal exchange) shall be open for trading.

 

Section 3.10 Sarbanes-Oxley Act.  The Company shall be in compliance with the applicable provisions of the Sarbanes-Oxley Act of 2002, and the rules and regulations promulgated thereunder, as required under such Act.

 

  

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Section 3.11 No Integrated Offerings.  The Company shall not make any offers or sales of any security (other than the securities being offered or sold hereunder) under circumstances that would require registration of the securities being offered or sold hereunder under the Securities Act.

 

Section 3.12 Subsequent Financings.

 

(a) For twelve (12) months following the Closing, the Company covenants and agrees to promptly notify in writing (a “Rights Notice”) the Purchasers of the terms and conditions of any proposed offer or sale to, or exchange with (or other type of distribution to) any third party (a “Subsequent Financing”), of Common Stock or any equity securities convertible, exercisable or exchangeable into Common Stock; provided, however, prior to delivering to each Purchaser a Rights Notice, the Company shall first deliver to each Eligible Purchaser a written notice of its intention to effect a Subsequent Financing (“Pre-Notice”) within three (3) Business Days of receiving an applicable offer, which Pre-Notice shall ask such Eligible Purchaser if it wants to review the details of such financing.  Upon the request of an Eligible  Purchaser, and only upon a request by such Eligible Purchaser within three (3) Business Days of receipt of a Pre-Notice, the Company shall promptly, but no later than two (2) Business Days after such request, deliver a Rights Notice to such Eligible Purchaser.  The Rights Notice shall describe, in reasonable detail, the proposed Subsequent Financing, the names and investment amounts of all investors participating in the Subsequent Financing (if known), the proposed closing date of the Subsequent Financing, which shall be no earlier than ten (10) Business Days from the date of the Rights Notice, and all of the terms and conditions thereof and proposed definitive documentation to be entered into in connection therewith.  The Rights Notice shall provide each Purchaser an option (the “Rights Option”) during the five (5) Business Days following delivery of the Rights Notice (the “Option Period”) to inform the Company whether such Eligible Purchaser will purchase up to its pro rata portion of all or a portion of the securities being offered in such Subsequent Financing on the same, absolute terms and conditions as contemplated by such Subsequent Financing, provided that, the amount of such purchase shall not exceed such Purchaser’s Purchase Price hereunder except as allowed by the following sentence.  If any Purchaser elects not to participate in such Subsequent Financing, the other Purchasers may participate on a pro-rata basis so long as such participation in the aggregate does not exceed the total Purchase Price hereunder.  For purposes of this Section, all references to “pro rata” means, for any Purchaser electing to participate in such Subsequent Financing, the percentage obtained by dividing (x) the number of Preferred Shares purchased by such Purchaser at the Closing by (y) the total number of all of the Preferred Shares purchased by all of the participating Purchasers at the Closing. Delivery of any Rights Notice constitutes a representation and warranty by the Company that there are no other material terms and conditions, arrangements, agreements or otherwise except for those disclosed in the Rights Notice, to provide additional compensation to any party participating in any proposed Subsequent Financing, including, but not limited to, additional compensation based on changes in the Purchase Price or any type of reset or adjustment of a purchase or conversion price or to issue additional securities at any time after the closing date of a Subsequent Financing.  If the Company does not receive notice of exercise of the Rights Option from any or all of Eligible Purchasers within the Option Period, the Company shall have the right to close the Subsequent Financing on the scheduled closing date set forth in the Rights Notice (or within sixty (60) days thereafter) without the participation of any or all of such Purchasers; provided that, all of the material terms and conditions of the closing are the same as those provided to the Purchasers in the Rights Notice.  If the closing of the proposed Subsequent Financing does not occur on the scheduled closing date set forth in the Rights Notice (or within sixty (60) days thereafter), any closing of the contemplated Subsequent Financing or any other Subsequent Financing shall be subject to all of the provisions of this Section 3.12(a), including, without limitation, the delivery of a new Rights Notice.  The provisions of this Section 3.12(a) shall not apply to issuances of securities in a Permitted Financing.

 

(b) For purposes of this Agreement, a Permitted Financing (as defined hereinafter) shall not be considered a Subsequent Financing.  A “Permitted Financing” shall mean (i) securities issued pursuant to a bona fide acquisition of another business entity or business segment of any such entity by the Company pursuant to a merger, purchase of substantially all the assets or any type of reorganization (each an “Acquisition”) provided that (A) the Company will own more than fifty percent (50%) of the voting power of such business entity or business segment of such entity and (B) such Acquisition is approved by the Company’s Board of Directors; (ii) securities issued pursuant to the conversion or exercise of convertible or exercisable securities issued or outstanding on or prior to the date of this Agreement or issued pursuant to this Agreement (so long as the terms governing the conversion or exercise price in such securities are not amended to lower such price and/or adversely affect the Purchasers); (iii) securities issued in connection with bona fide strategic license agreements or other partnering arrangements so long as such issuances are not for the primary purpose of raising capital; (iv) Common Stock issued or the issuance or grants of options to purchase Common Stock, in each case, at no less than the then-applicable fair market value, pursuant to equity incentive plans that are adopted by the Company’s Board of Directors; (v) securities issued to any placement agent and its respective designees for the transactions contemplated by this Agreement; (vi) securities issued at no less than the then-applicable fair market value to advisors or consultants (including, without limitation, financial advisors and investor relations firms) in connection with any engagement letter or consulting agreement, provided that any such issuance is approved by the Company’s Board of Directors; (vii) securities issued to financial institutions or lessors in connection with reasonable commercial credit arrangements, equipment financings or similar transactions, provided that any such issue is approved by the Company’s Board of Directors; (viii) securities issued to vendors or customers or to other persons in similar commercial situations as the Company, provided that any such issue is approved by the Company’s Board of Directors; (ix) securities issued in connection with any recapitalization of the Company; or (x) securities issued pursuant to an underwritten public offering of its common stock.

 

Section 3.13 No Commissions in Connection with Conversion of Preferred Shares.  In connection with the conversion of the Preferred Shares into the Conversion Shares, neither the Company nor any person acting on its behalf will take any action that would result in the Conversion Shares being exchanged by the Company other than with the then existing holders of the Preferred Shares exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting the exchange in compliance with Section 3(a)(9) of the Securities Act.

 

Section 3.14 Piggy-Back Registrations for Registrable Securities.  If at any time when there is not an effective Registration Statement covering (i) the Conversion Shares, or (ii) Warrant Shares, the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, the Company shall send to each holder of outstanding Registrable Securities written notice of such determination and, if within ten (10) calendar days after receipt of such notice, or within such shorter period of time as may be specified by the Company in such written notice as may be necessary for the Company to comply with its obligations with respect to the timing of the filing of such registration statement, any such holder shall so request in writing (which request shall specify the Registrable Securities intended to be disposed of by the such holder), the Company will cause the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holder, to the extent requisite to permit the disposition of the Registrable Securities so to be registered, provided that if at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to such Holder and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay expenses in accordance with Section 4 hereof), and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities being registered pursuant to this Section 7(d) for the same period as the delay in registering such other securities. The Company shall include in such registration statement all or any part of such Registrable Securities such holder requests to be registered; provided, however, that the Company shall not be required to register any Registrable Securities pursuant to this Section 3.14(d) that are eligible for sale pursuant to Rule 144 of the Securities Act.  In the case of an underwritten public offering, if the managing underwriter(s) or underwriter(s) should reasonably object to the inclusion of the Registrable Securities in such registration statement, then if the Company after consultation with the managing underwriter should reasonably determine that the inclusion of such Registrable Securities would materially adversely affect the offering contemplated in such registration statement, and based on such determination recommends inclusion in such registration statement of fewer or none of the Registrable Securities of the holders, then (x) the number of Registrable Securities of the Holders included in such registration statement shall be reduced among such holders based upon the number of Registrable Securities requested to be included in the registration in the order set forth in Section 2(b) hereof, if the Company after consultation with the underwriter(s) recommends the inclusion of fewer Registrable Securities, or (y) none of the Registrable Securities of the holders shall be included in such registration statement, if the Company after consultation with the underwriter(s) recommends the inclusion of none of such Registrable Securities; provided, however, that if securities are being offered for the account of other persons or entities as well as the Company, such reduction shall not represent a greater fraction of the number of Registrable Securities intended to be offered by the holders than the fraction of similar reductions imposed on such other persons or entities (other than the Company).  For purposes of this Section 7(d), Registrable Securities shall include any shares actually issued to the Purchasers pursuant to the Securities Escrow Agreement. Registrable Securities means, collectively (i) the Conversion Shares; (ii) the Warrant Shares; and (iii) any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing; provided, that the holder has completed and delivered to the Company a Selling Stockholder Questionnaire, in a substantial form of Exhibit H; and provided, further, that the Conversion Shares and the Warrant Shares shall cease to be Registrable Securities upon the earlier to occur of the following: (A) sale pursuant to a Registration Statement or Rule 144 under the Securities Act (in which case, only such security sold shall cease to be a Registrable Security) or (B) becoming eligible for sale by the holder pursuant to Rule 144, without limitation.

 

  

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Section 3.15 No Manipulation of Price.  The Company will not take, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any securities of the Company.

 

Section 3.16 Best Efforts.  The Company shall exert its best efforts to satisfy the closing conditions set forth in Section 4.1 hereof or cause such closing conditions to be satisfied at or before the Closing.

 

ARTICLE 4

 

CONDITIONS

 

Section 4.1 Conditions Precedent to the Obligation of the Company to Sell the Units.  The obligation hereunder of the Company to issue and sell the Units, and the underlying Preferred Shares and the Warrants to the Purchasers is subject to the satisfaction or waiver, at or before the Closing, of each of the 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) Accuracy of Each Purchaser’s Representations and Warranties. The representations and warranties of each Purchaser in this Agreement and each of the other Transaction Documents to which such Purchaser is a party shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at that time, except for representations and warranties that are expressly made as of a particular date, which shall be true and correct in all material respects as of such date.

 

(b) Performance by the Purchasers. Each Purchaser shall have performed, satisfied and complied in all respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Purchaser at or prior to the Closing.

 

(c) No Injunction. 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.

 

(d) Delivery of Purchase Price. The Purchase Price for each of the Units sold shall have been delivered to the escrow agent pursuant to the Escrow Deposit Agreement.

 

(e) Delivery of Transaction Documents. The Transaction Documents to which the Purchasers are parties shall have been duly executed and delivered by the Purchasers to the Company.

 

Section 4.2 Conditions Precedent to the Obligation of the Purchasers to Purchase the Units.  The obligation hereunder of each Purchaser to acquire and pay for the Units is subject to the satisfaction or waiver, at or before the Closing, of each of the conditions set forth below. These conditions are for each Purchaser’s sole benefit and may be waived by such Purchaser at any time in its sole discretion.

 

(a) Accuracy of the Company’s Representations and Warranties. Each of the representations and warranties of the Company in this Agreement and the other Transaction Documents that are qualified by materiality or by reference to any Material Adverse Effect shall be true and correct in all respects, and all other representations and warranties shall be true and correct in all material respects, as of the date when made and as of the Closing Date as though made at that time, except for representations and warranties that are expressly made as of a particular date, which shall be true and correct in all respects as of such date.

 

(b) Performance by the Company. The Company shall have performed, satisfied and complied in all respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing.

 

(c) No Injunction. 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 and the Transaction Documents.

 

(d) No Proceedings or Litigation. No action, suit or proceeding before any arbitrator or any governmental authority shall have been commenced, and no investigation by any governmental authority shall have been threatened, against the Company or any Subsidiary, or any of the officers, directors or affiliates of the Company or any of non-PRC Subsidiaries and the PRC Subsidiary seeking to restrain, prevent or change the transactions contemplated by this Agreement and the Transaction Documents, or seeking damages in connection with such transactions.

 

(e) Series A Certificate of Designation of Rights and Preferences. Prior to the Closing, the Series A Certificate of Designation shall have been filed with the Secretary of State of Delaware.

 

  

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(f) Opinions of Counsel, Etc. At the Closing, the Purchasers shall have received an opinion of (i) Hunter Taubman Weiss LLP, securities counsel to the Company, dated the date of the Closing, in substantially the form of Exhibit G.

 

(g) Certificates. The Company shall have executed and delivered to the Purchasers the certificates (in such denominations as such Purchaser shall request) for the Units being acquired by such Purchaser at the Closing (in such denominations as such Purchaser shall request) to such address set forth next to each Purchasers name on Exhibit A with respect to the Closing.

 

(h) Resolutions. The Board of Directors of the Company shall have adopted resolutions consistent with Section 2.1(b) hereof in a form reasonably acceptable to such Purchaser (the “Resolutions”).

 

(i) Reservation of Shares. As of the Closing Date, the Company shall have reserved out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Preferred Shares and the exercise of the Warrants, a number of shares of Common Stock equal to one hundred ten percent (110%) of the aggregate number of Conversion Shares issuable upon conversion of the Preferred Shares issued or to be issued pursuant to this Agreement and the number of Warrant Shares issuable upon exercise of the number of Warrants issued or to be issued pursuant to this Agreement.

 

(j) Secretary’s Certificate. The Company shall have delivered to such Purchaser a secretary’s certificate, dated as of the Closing Date, as to (i) the resolutions adopted by the Board of Directors of the Company consistent with Section 2.1(b), (ii) the Articles, (iii) the Bylaws, (iv) the Series A Certificate of Designation, each as in effect at the Closing, and (v) the authority and incumbency of the officers of the Company executing this Agreement and the Transaction Documents and any other documents required to be executed or delivered in connection herewith and therewith.

 

(k) Officer’s Certificate. The Company shall have delivered to the Purchasers a certificate of an executive officer of the Company, dated as of the Closing Date, confirming the accuracy of the Company’s representations, warranties and covenants as of the Closing Date and confirming the compliance by the Company with the conditions precedent set forth in this Section 4.2 as of the Closing Date.

 

(l) Escrow Deposit Agreement. On the Closing Date, the Company and the escrow agent shall have executed and delivered the Escrow Deposit Agreement to each Purchaser.

 

(m) Material Adverse Effect. No Material Adverse Effect shall have occurred at or before the Closing Date.

 

(n) Stop Orders.  No stop order or suspension of trading shall have been imposed by the Commission or any other governmental or regulatory body having jurisdiction over the Company or the Trading Market(s) where the Common Stock is listed or quoted, with respect to public trading in the Common Stock; and

 

ARTICLE 5

 

STOCK CERTIFICATE LEGEND

 

Section 5.1 Legend.  Each certificate representing the Preferred Shares, the Warrants and Warrant Shares and if appropriate, securities issued upon conversion or exercise thereof, shall be stamped or otherwise imprinted with a legend substantially in the following form (in addition to any legend required by applicable state securities or “blue sky” laws):

 

“THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.”

 

Each certificate representing the Preferred Shares, the Warrants and Warrant Shares and if appropriate, securities issued upon conversion or exercise thereof, if such securities are being offered to Purchasers in reliance upon Regulation S, shall be stamped or otherwise imprinted with a legend substantially in the following form (in addition to any legend required by applicable state securities or “blue sky” laws):

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED EXCEPT (1) IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S PROMULGATED UNDER THE SECURITIES ACT, AND BASED ON AN OPINION OF COUNSEL, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT THE PROVISIONS OF REGULATION S HAVE BEEN SATISFIED, (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR (3) PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, IN WHICH CASE THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY AN OPINION OF COUNSEL, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED IN THE MANNER CONTEMPLATED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.  HEDGING TRANSACTIONS INVOLVING THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.”

 

  

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The restrictions on transfer contained in this Section 5.1 shall be in addition to, and not by way of limitation of, any other restrictions on transfer contained in any other section of this Agreement. Whenever a certificate representing the Conversion Shares or the Warrant Shares is required to be issued to a Purchaser without a legend, in lieu of delivering physical certificates representing the Conversion Shares or the Warrant Shares (provided that a registration statement under the Securities Act providing for the resale of the Warrant Shares and Conversion Shares is then in effect), the Company may cause its transfer agent to electronically transmit the Conversion Shares or Warrant Shares to a Purchaser by crediting the account of such Purchaser or such Purchaser’s prime broker with the DTC through its DWAC system (to the extent not inconsistent with any provisions of this Agreement).

 

ARTICLE 6

 

INDEMNIFICATION

 

Section 6.1 General Indemnity.  The Company agrees to indemnify and hold harmless the Purchasers (and their respective directors, officers, managers, partners, members, shareholders, affiliates, agents, successors and assigns) from and against any and all losses, liabilities, deficiencies, costs, damages and expenses (including, without limitation, reasonable attorneys’ fees, charges and disbursements) incurred by the Purchasers as a result of any breach of the representations, warranties or covenants made by the Company herein. Each Purchaser severally but not jointly agrees to indemnify and hold harmless the Company and its directors, officers, affiliates, agents, successors and assigns from and against any and all losses, liabilities, deficiencies, costs, damages and expenses (including, without limitation, reasonable attorneys’ fees, charges and disbursements) incurred by the Company as a result of any breach of the representations, warranties or covenants made by such Purchaser herein. The maximum aggregate liability of each Purchaser pursuant to its indemnification obligations under this Article 6 shall not exceed the portion of the Purchase Price paid by such Purchaser hereunder. In no event shall any “Indemnified Party” (as defined below) be entitled to recover consequential or punitive damages resulting from a breach or violation of this Agreement.

 

Section 6.2 Indemnification Procedure. Any party entitled to indemnification under this Article 6 (an “Indemnified Party”) will give written notice to the indemnifying party of any matters giving rise to a claim for indemnification; provided, that the failure of any party entitled to indemnification hereunder to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Article 6 except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any action, proceeding or claim is brought against an Indemnified Party in respect of which indemnification is sought hereunder, the indemnifying party shall be entitled to participate in and, unless in the reasonable judgment of the Indemnified Party a conflict of interest between it and the indemnifying party may exist with respect of such action, proceeding or claim, to assume the defense thereof with counsel reasonably satisfactory to the Indemnified Party. In the event that the indemnifying party advises an Indemnified Party that it will contest such a claim for indemnification hereunder, or fails, within thirty (30) days of receipt of any indemnification notice to notify, in writing, such person of its election to defend, settle or compromise, at its sole cost and expense, any action, proceeding or claim (or discontinues its defense at any time after it commences such defense), then the Indemnified Party may, at its option, defend, settle or otherwise compromise or pay such action or claim. In any event, unless and until the indemnifying party elects in writing to assume and does so assume the defense of any such claim, proceeding or action, the Indemnified Party’s costs and expenses arising out of the defense, settlement or compromise of any such action, claim or proceeding shall be losses subject to indemnification hereunder. The Indemnified Party shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party which relates to such action or claim. The indemnifying party shall keep the Indemnified Party fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. If the indemnifying party elects to defend any such action or claim, then the Indemnified Party shall be entitled to participate in such defense with counsel of its choice at its sole cost and expense. The indemnifying party shall not be liable for any settlement of any action, claim or proceeding effected without its prior written consent, provided, however, that the indemnifying party shall be liable for any settlement if the indemnifying party is advised of the settlement but fails to respond to the settlement within thirty (30) days of receipt of such notification. Notwithstanding anything in this Article 6 to the contrary, the indemnifying party shall not, without the Indemnified Party’s prior written consent, settle or compromise any claim or consent to entry of any judgment in respect thereof which imposes any future obligation on the Indemnified Party or which does not include, as an unconditional term thereof, the giving by the claimant or the plaintiff to the Indemnified Party of a release from all liability in respect of such claim. The indemnity agreements contained herein shall be in addition to (a) any cause of action or similar rights of the Indemnified Party against the indemnifying party or others, and (b) any liabilities the indemnifying party may be subject to pursuant to the law.

 

ARTICLE 7

 

MISCELLANEOUS

 

Section 7.1 Fees and Expenses.  Except as otherwise set forth in this Agreement and the other Transaction Documents, each party shall pay the fees and expenses of its advisors, counsel, accountants and other experts, if any, and all other expenses, incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement.  The Company shall pay its counsel a legal fee of $15,000 on the Closing Date contemplated hereby.

 

Section 7.2 Specific Enforcement, Consent to Jurisdiction.

 

(a) The Company and the Purchasers acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement or the other Transaction Documents were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement or the other Transaction Documents and to enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity.

 

  

16

  

(b) Each of the Company and the Purchasers (i) hereby irrevocably submits to the jurisdiction of the United States District Court sitting in the Southern District of New York and the courts of the State of New York located in New York county for the purposes of any suit, action or proceeding arising out of or relating to this Agreement or any of the other Transaction Documents or the transactions contemplated hereby or thereby and (ii) hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. Each of the Company and the Purchasers consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 7.2 shall affect or limit any right to serve process in any other manner permitted by law.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  The Company hereby appoints Anslow & Jaclin, LLP as its agent for service of process in New York.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.

 

Section 7.3 Entire Agreement; Amendment.  This Agreement and the other Transaction Documents contain the entire understanding and agreement of the parties with respect to the matters covered hereby and, except as specifically set forth herein or in the Transaction Documents, neither the Company nor any of the Purchasers makes any representations, warranty, covenant or undertaking with respect to such matters and they supersede all prior understandings and agreements with respect to said subject matter, all of which are merged herein. No provision of this Agreement nor any of the Transaction Documents may be waived or amended other than by a written instrument signed by the Company and the holders of at least fifty percent (50%) of the Preferred Shares then outstanding (the “Majority Holders”), and no provision hereof may be waived other than by a written instrument signed by the party against whom enforcement of any such waiver is sought. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Preferred Shares then outstanding. No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents or holders of Preferred Shares, as the case may be.

 

Section 7.4 Notices.  All notices, demands, consents, requests, instructions and other communications to be given or delivered or permitted under or by reason of the provisions of this Agreement and the Transaction Documents or in connection with the transactions contemplated hereby and thereby shall be in writing and shall be deemed to be delivered and received by the intended recipient as follows: (i) if personally delivered, on the business day of such delivery (as evidenced by the receipt of the personal delivery service), (ii) if delivered by overnight courier (with all charges having been prepaid), on the business day of such delivery (as evidenced by the receipt of the overnight courier service of recognized standing), or (iii) if delivered by facsimile transmission, on the business day of such delivery if sent by 6:00 p.m. in the time zone of the recipient, or if sent after that time, on the next succeeding business day (as evidenced by the printed confirmation of delivery generated by the sending party’s telecopier machine). If any notice, demand, consent, request, instruction or other communication cannot be delivered because of a changed address of which no notice was given (in accordance with this Section 4), or the refusal to accept same, the notice, demand, consent, request, instruction or other communication shall be deemed received on the second business day the notice is sent (as evidenced by a sworn affidavit of the sender). All such notices, demands, consents, requests, instructions and other communications will be sent to the following addresses or facsimile numbers as applicable:

 

If to the Company:

One Horizon Group, Inc.

First Floor, 1 Duchess Street

London     W1W 6AN

Attn: Martin Ward

Phone: 44 (0)20 7580 4294

with copies (which shall not constitute notice) to:

Hunter Taubman Weiss LLP

130 W 42nd Street, Suite 1050

New York, NY 10038

Attn: Louis Taubman

Direct: (001) 917-512-0827

Email: LTaubman@htwlaw.com

If to any Purchaser:  At the address of such Purchaser set forth on Exhibit A to this Agreement, as the case may be, with copies to Purchaser’s counsel as set forth on Exhibit A or as specified in writing by such Purchaser.

Any party hereto may from time to time change its address for notices by giving at least ten (10) days written notice of such changed address to the other party hereto.

  

17

  

Section 7.5 Waivers.  No waiver by any party of any default with respect to any provision, condition or requirement of this Agreement and the other Transaction Documents shall be deemed to be a continuing waiver in the future or a waiver of any other provisions, condition or requirement hereof and thereof, nor shall any delay or omission of any party to exercise any right hereunder and thereunder in any manner impair the exercise of any such right accruing to it thereafter.

 

Section 7.6 Headings.  The section headings contained in this Agreement (including, without limitation, section headings and headings in the exhibits and schedules) are inserted for reference purposes only and shall not affect in any way the meaning, construction or interpretation of this Agreement and the other Transaction Documents. Any reference to the masculine, feminine, or neuter gender shall be a reference to such other gender as is appropriate. References to the singular shall include the plural and vice versa.

 

Section 7.7 Successors and Assigns.  This Agreement may not be assigned by a party hereto without the prior written consent of the Company or the Purchasers, as applicable, provided, however, that, subject to federal and state securities laws and as otherwise provided in the Transaction Documents, a Purchaser may assign its rights and delegate its duties hereunder in whole or in part (i) to a third party acquiring all or substantially all of its Shares or Warrants in a private transaction or (ii) to an affiliate, in each case, without the prior written consent of the Company or the other Purchasers, after notice duly given by such Purchaser to the Company provided, that no such assignment or obligation shall affect the obligations of such Purchaser hereunder and that such assignee agrees in writing to be bound, with respect to the transferred securities, by the provisions hereof that apply to the Purchasers.  The provisions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties.  Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. If any Purchaser transfers the Preferred Shares purchased hereunder, any such penalty shares or liquidated damages, as the case may be, pursuant to this Agreement shall similarly transfer to such transferee with no further action required by the purchaser or the Company.

 

Section 7.8 Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) this Agreement and the Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under this Agreement or a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

 

Section 7.9 Replacement of Securities.  If any certificate or instrument evidencing any Unit is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested.  The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Unit.  If a replacement certificate or instrument evidencing any Unit is requested due to a mutilation thereof, the Company may require delivery of such mutilated certificate or instrument as a condition precedent to any issuance of a replacement.

 

Section 7.10 Limitation of Liability. Notwithstanding anything herein to the contrary, the Company acknowledges and agrees that the liability of any Purchaser arising directly or indirectly, under this Agreement and the other Transaction Documents of any and every nature whatsoever shall be satisfied solely out of the assets of such Purchaser, and that no trustee, officer, other investment vehicle or any other Affiliate of such Purchaser or any Purchaser, shareholder or holder of shares of beneficial interest of such a Purchaser shall be personally liable for any liabilities of such Purchaser.

 

Section 7.11 No Third Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

 

Section 7.12 Governing Law.  This Agreement and the other Transaction Documents shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction. This Agreement and the other Transaction Documents shall not be interpreted or construed with any presumption against the party causing this Agreement and the other Transaction Documents to be drafted.

 

Section 7.13 Survival.  The representations and warranties of the Company hereunder and under the other Transaction Documents shall survive the execution and delivery hereof and the Closing hereunder for a period of three (3) years following the Closing Date.

 

Section 7.14 Counterparts.  This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement and shall become effective when counterparts have been signed by each party and delivered to the other parties hereto, it being understood that all parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

 

Section 7.15 Severability.  The provisions of this Agreement and the Transaction Documents are severable and, in the event that any court of competent jurisdiction shall determine that any one or more of the provisions or part of the provisions contained in this Agreement or the Transaction Documents shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement or the Transaction Documents and such provision shall be reformed and construed as if such invalid or illegal or unenforceable provision, or part of such provision, had never been contained herein, so that such provisions would be valid, legal and enforceable to the maximum extent possible.

 

  

18

  

Section 7.16 Further Assurances.  From and after the date of this Agreement, upon the request of any Purchaser or the Company, each of the Company and the Purchasers shall execute and deliver such instrument, documents and other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement and the other Transaction Documents.

 

Section 7.17 Currency.  Unless otherwise indicated, all dollar amounts referred to in this Agreement are in United States Dollars (“US Dollars”).  All amounts owed under this Agreement or any Transaction Document shall be paid in US Dollars.  All amounts denominated in other currencies shall be converted in the US Dollar equivalent amount in accordance with the Exchange Rate on the date of calculation.  “Exchange Rate” means, in relation to any amount of currency to be converted into US Dollars pursuant to this Agreement, the US Dollar exchange rate as published by the People’s Bank of China on the relevant date of calculation.

 

Section 7.18 Termination.  This Agreement may be terminated prior to the Closing:

 

(a) by mutual written agreement of the Purchasers and the Company, a copy of which shall be provided to the escrow agent appointed under the Escrow Deposit Agreement; and

 

(b) by the Company or a Purchaser (as to itself but no other Purchaser) upon written notice to the other, with a copy to the Escrow Agent, if the Closing shall not have taken place by 5:00 p.m. Eastern time on June 30, 2014, unless extended to a later date by the mutual consent of the Company and the Placement Agent; provided, that the right to terminate this Agreement under this Section 7.18(b) shall not be available to any person whose failure to comply with its obligations under this Agreement has been the cause of or resulted in the failure of the Closing to occur on or before such time.

 

(c) In the event of a termination pursuant to Section 7.18(a) or 7.18(b), each Purchaser shall have the right to a return of up to its entire Purchase Price deposited with the Escrow Agent pursuant to this Agreement and the Escrow Deposit Agreement, without interest or deduction.  The Company covenants and agrees to cooperate with such Purchaser in obtaining the return of its Purchase Price, and shall not communicate any instructions to the contrary to the Escrow Agent.

 

(d) In the event of a termination pursuant to this Section 7.18, the Company shall promptly notify all non-terminating Purchasers. Upon a termination in accordance with this Section 7.18, the Company and the terminating Purchaser(s) shall not have any further obligation or liability (including as arising from such termination) to the other and no Purchaser will have any liability to any other Purchaser under the Transaction Documents as a result therefrom.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

  

19

  

 

ONE HORIZON GROUP, INC.

COMPANY SIGNATURE PAGE TO

SECURITIES PURCHASE AGREEMENT

 

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

 

	 	 
One Horizon Group, Inc.

	 
	 	 	 	 
	
 

	
By: 

	/s/ Martin Ward	 
	 	 	Name: Martin Ward	 
	 	 	Title:   Chief Financial Officer	 
	 	 	 	 

 

  

20

  

 

ONE HORIZON GROUP, INC.

PURCHASER SIGNATURE PAGE TO

SECURITIES PURCHASE AGREEMENT

Purchaser hereby elects to purchase a total of  ____ of Units in an amount of $___________.

 

Date (NOTE: To be completed by the Purchaser):    , 2014

 

If the Purchaser is an INDIVIDUAL, and if purchased as JOINT TENANTS, as

TENANTS IN COMMON, or as COMMUNITY PROPERTY:

 

 

	 	 	 
	Print Name(s) 	 	Social Security Number(s)
	 	 	 
	 	 	 
	 	 	 
	Signature(s) of Purchaser(s)  	 	Signature
	 	 	 
	 	 	 
	 	 	 
	Date 	 	Address

 

 

If the Purchaser is a PARTNERSHIP, CORPORATION, LIMITED LIABILITY COMPANY or TRUST:

 

	 	 	 
	Name of Partnership, 	 	Federal Taxpayer 
	Corporation, Limited	 	Identification Number 
	Liability Company or Trust	 	 
	 	 	 
	 	 	 
	By: 	 	 	 
	Name:	 	State of Organization
	Title:	 	 
	 	 	 
	 	 	 
	Date 	 	Address

 

  

21

  

 

EXHIBIT A TO THE

SECURITIES PURCHASE AGREEMENT

 

Purchasers

 

	
Investor

	 	
Investment Amount

	 	
Series A

Preferred Stock

	 	
Class B Warrants

	  	 	  	 	  	 	  
	  	 	  	 	  	 	  
	  	 	  	 	  	 	  
	
Total

	 	  	 	  	 	  

 

  

22

  

 

EXHIBIT B TO THE

SECURITIES PURCHASE AGREEMENT

 

DEFINITION OF “ACCREDITED INVESTOR”

 

The term “accredited investor” means:

 

	
1)  

	
A bank as defined in Section 3(a)(2) of the Securities Act, or a savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act, whether acting in its individual or fiduciary capacity; a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934; an insurance company as defined in Section 2(13) of the Securities Act; an investment company registered under the Investment Company Act of 1940 (the “Investment Company Act”) or a business development company as defined in Section 2(a)(48) of the Investment Company Act; a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; a plan established and maintained by a state, its political subdivisions or any agency or instrumentality of a state or its political subdivisions for the benefit of its employees, if such plan has total assets in excess of US $5,000,000; an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 (“ERISA”), if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of ERISA, which is either a bank, savings and loan association, insurance company, or registered investment advisor, or if the employee benefit plan has total assets in excess of US $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors.

 

	
2)  

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

 

	
3)  

	
An organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of US $5,000,000.

 

	
4)  

	
A director or executive officer of the Company.

 

	
5)  

	
A natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of his or her purchase exceeds US $1,000,000.

 

	
6)  

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

 

	
7)  

	
A trust, with total assets in excess of US $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) (i.e., a person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment).

 

	
8)  

	
An entity in which all of the equity owners are accredited investors.  (The Purchaser, as an entity, must identify each equity owner and provide statements signed by each demonstrating how each is qualified as an accredited investor.)

 

  

23

  

 

EXHIBIT B-1 TO THE

SECURITIES PURCHASE AGREEMENT

 

EXHIBIT B-1

 

ACCREDITED INVESTOR REPRESENTATIONS AND ACKNOWLEDGEMENT

 

ACCREDITED INVESTOR CERTIFICATION

 

For Individual Investors Only

 

(All individual investors must INITIAL where appropriate. Where there are joint investors both parties must INITIAL):

 

 

	 
Initial _________

	I certify that I have a “net worth” of at least $1 million either individually or through aggregating my individual holdings and those in which I have a joint, community property or other similar shared ownership interest with my spouse. For purposes hereof, “net worth” shall be deemed to include all of your assets, liquid or illiquid (excluding the value of your principal residence), minus all of your liabilities (excluding the amount of indebtedness secured by your principal residence up to its fair market value).
	 	 
	 
Initial _________

	I certify that I have had an annual gross income for the past twoyears of at least $200,000 (or $300,000 jointly with my spouse) and expect my income (or joint income, as appropriate) to reach the same level in the current year.

 

For Non-Individual Investors

(all Non-Individual Investors must INITIAL where appropriate):

 

	 
Initial _________

	
The undersigned certifies that it is a partnership, corporation, limited liability company or business trust that is 100% owned by persons who meet either of the criteria for Individual Investors, above.

	 	 
	 
Initial _________

	
The undersigned certifies that it is a partnership, corporation, limited liability company or business trust that has total assets of at least $5,000,000 and was not formed for the purpose of investing in Company.

	 	 
	 
Initial _________

	The undersigned certifies that it is an employee benefit plan whose investment decision is made by a plan fiduciary (as defined in ERISA §3(21)) that is a bank, savings and loan association, insurance company or registered investment adviser.
	 	 
	 
Initial _________

	The undersigned certifies that it is an employee benefit plan whose total assets exceed $5,000,000 as of the date of the Purchase Agreement.
	 	 
	 
Initial _________

	The undersigned certifies that it is a self-directed employee benefit plan whose investment decisions are made solely by persons who meet either of the criteria for Individual Investors, above.
	 	 
	 
Initial _________

	The undersigned certifies that it is a U.S. bank, U.S. savings and loan association or other similar U.S. institution acting in its individual or fiduciary capacity.
	 	 
	 
Initial _________

	The undersigned certifies that it is a broker-dealer registered pursuant to §15 of the Securities Exchange Act of 1934.
	 	 
	 
Initial _________

	The undersigned certifies that it is an organization described in §501(c)(3) of the Internal Revenue Code with total assets exceeding $5,000,000 and not formed for the specific purpose of investing in Company.
	 	 
	 
Initial _________

	The undersigned certifies that it is a trust with total assets of at least $5,000,000, not  formed  for  the  specific  purpose  of  investing  in  Company,  and  whose purchase is directed by a person with such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment.
	 	 
	 
Initial _________

	The undersigned certifies that it is a plan established and maintained by a state or its political subdivisions, or any agency or instrumentality thereof, for the benefit of its employees, and which has total assets in excess of $5,000,000.
	 	 
	 
Initial _________

	The undersigned certifies that it is an insurance company as defined in §2(a)(13) of the Securities Act of 1933, as amended, or a registered investment company.

                         

  

24

  

 

EXHIBIT B-2 TO THE

SECURITIES PURCHASE AGREEMENT

 

  

NON U.S. PERSON REPRESENTATIONS AND ACKNOWLEDGEMENT FORM

 

Name of Recipient: ______________________

ONE HORIZON GROUP, INC..

Ladies and Gentlemen:

	
1.  

	
Purchaser.  I (sometimes referred to herein as the "Purchaser") hereby agree to purchase the Shares pursuant to Regulation S from Freedom Petroleum, Inc., a Nevada corporation (the "Company”), on the terms and conditions described herein.

	
2.  

	
Disclosure. (a) I understand that this offering is made outside the United States and may not be made to any “U.S. person” as defined in Rule 902(k) under the Securities Act of 1933, as amended (“Securities Act”) (a “Non-U.S. Person”);  (b)  The Company may not register any transfer of the Shares not made in accordance with Regulation S of the Securities Act (“Regulation S”), pursuant to registration under the Securities Act, or pursuant to an available exemption to registration; provided, however, that if the Shares are in bearer form or foreign law prevents the Company from refusing to register the Shares transfers, other reasonable procedures are implemented to prevent any transfer of the Shares not made in accordance with the Provisions of Regulation S.

	
3.  

	
Purchaser Representations and Warranties. I acknowledge, represent and warrant to, and agree with, the Company as follows:

	
(a)  

	
(i) my principal address is outside the United States, (ii) I was located outside the United States at the time any offer to buy the Shares was made to me and at the time that the buy order was originated by me, and (iii) I am not a “U.S. person” (as defined in Rule 902(k) under the Securities Act;

	
(b)  

	
Any purchase of the Shares by me will be for my own account or for the account of one or more other Non U.S. Persons located outside of the United States at the time any offer to buy the Shares was made and at the time that the buy order was originated by me;

	
(c)  

	
I and any accounts for which I am acting are acquiring the Shares for investment purposes and not with a view to distribution thereof or with any present intention of offering or selling any of the Shares in violation of the Securities Act;

	
(d)  

	
I will not engage in hedging transactions involving the Shares unless in compliance with the Securities Act;

	
(e)  

	
I  understand that the Shares are being offered in a transaction not involving  any public offering within the United States within the meaning of the Securities Act and that the Shares have not been registered under the Securities Act and that the Shares will bear the following legend:

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED.  THE SHARES WERE ISSUED IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT PURSUANT TO REGULATION S PROMULGATED UNDER IT.  THE SHARES MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES UNLESS REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.  TRANSFERS OF THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED EXCEPT IN ACCORDANE WITH THE PROVISIONS OF REGULATION S, PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION.  FURTHER, HEDGING TRANSACTIONS WITH REGARD TO THE SHARES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.

	
(f)  

	
I agree to resell the Shares only in accordance with the provisions of Regulation S pursuant to registration under the Securities Act, or pursuant to an available exemption from registration;

	
(g)  

	
I acknowledge that you, the Company and others will rely upon my confirmation, acknowledgments and agreements set forth herein and I agree to notify you promptly if any of my representations or warranties herein cease to be accurate and complete; and

	
(h)  

	
I understand that the Company is entitled to rely upon this Acknowledgment and is irrevocably authorized to produce this Acknowledgment or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.

 

Date:

__________________________

Recipient Signature

___________________________

Recipient Name (Please print)

 

Address to which correspondence should be directed:

 

______________________________________________________

 

_______________________________________________________

25

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