Document:

Exhibit 10.2

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of August 14, 2018, between Enphase Energy, Inc., a Delaware corporation (the “Company”), and the purchaser identified on Exhibit A hereto (the “Purchaser”).

 

RECITALS

 

WHEREAS, on the terms and subject to the conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (including the rules and regulations promulgated thereunder, the “Securities Act”), and Rule 506 under the Securities Act, the Company desires to issue and sell to the Purchaser, and the Purchaser desires to purchase from the Company, securities of the Company as more fully described in this Agreement;

 

WHEREAS, the Company has authorized, upon the terms and conditions stated in this Agreement, the sale and issuance of $5,000,000 aggregate principal amount of Notes (as defined below); and

 

WHEREAS, at the Closing (as hereinafter defined), the Purchaser wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, the Notes.

 

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 Purchaser agree as follows:

 

ARTICLE 1
  DEFINITIONS

 

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

 

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

 

“Agreement” shall have the meaning ascribed to such term in the preamble.

 

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

 

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

 

“Closing” shall have the meaning ascribed to such term in Section 2.2.

 

“Closing Date” shall have the meaning ascribed to such term in Section 2.2.

 

 

“Code” shall have the meaning ascribed to such term in Section 3.16.

 

“Commission” and/or “SEC” means the United States Securities and Exchange Commission.

 

“Common Stock” means the common stock, $0.00001 par value per share, of the Company.

 

“Company” shall have the meaning ascribed to such term in the preamble.

 

“Derivative Transaction” shall have the meaning ascribed to such term in Section 4.2(d).

 

“Effective Date” means the date that a Registration Statement is first declared effective by the SEC.

 

“Effectiveness Period” shall have the meaning ascribed to such term in Section 5.1(b).

 

“Environmental Laws” shall have the meaning ascribed to such term in Section 3.15.

 

“ERISA” shall have the meaning ascribed to such term in Section 3.16.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder.

 

“GAAP” shall have the meaning ascribed to such term in Section 3.8.

 

“Indemnified Party” shall have the meaning ascribed to such term in Section 5.4(c).

 

“Indemnifying Party” shall have the meaning ascribed to such term in Section 5.4(c).

 

“Indenture” means the indenture, dated on or about the Closing Date, between the Company and the Trustee in respect of the Notes.

 

“Intellectual Property” means (i) worldwide patents, patent applications, invention disclosures and other rights of invention, filed with any governmental authority, and all reissues, divisions, renewals, extensions, provisionals, continuations and continuations-in-part thereof and all reexamined patents or other applications or patents claiming the benefit of the filing date of any of the foregoing; (ii) worldwide (A) registered trademarks and service marks and registrations and applications for such registrations, and (B) unregistered trademarks and service marks, trade names, fictitious business names, corporate names, trade dress, logos, product names and slogans, including any common law rights; in each case together with the goodwill associated therewith; (iii) worldwide (A) registered copyrights in published or unpublished works, mask work rights and similar rights, including rights created under Sections 901-914 of Title 17 of the United States Code, mask work registrations, and copyright applications for registration, including any renewals thereof, and (B) any unregistered copyrightable works and other rights of authorship in published or unpublished works; (iv) worldwide (A) internet domain names; (B) website content; (C) telephone numbers; and (D) moral rights and publicity rights; (v) any computer program or other software (irrespective of the type of hardware for which it is

 

 

intended), including firmware and other software embedded in hardware devices, whether in the form of source code, assembly code, script, interpreted language, instruction sets or binary or object code (including compiled and executable programs), including any library, component or module of any of the foregoing, including, in the case of source code, any related images, videos, icons, audio or other multimedia data or files, data files, and header, development or compilations tools, scripts, and files, and (vi) worldwide confidential or proprietary information or trade secrets, including technical information, inventions and discoveries (whether or not patentable and whether or not reduced to practice) and improvements thereto, know-how, processes, discoveries, developments, designs, techniques, plans, schematics, drawings, formulae, preparations, assays, surface coatings, diagnostic systems and methods, patterns, compilations, databases, database schemas, specifications, technical data, inventions, concepts, ideas, devices, methods, and processes; and includes any rights to exclude others from using or appropriating any Intellectual Property rights, including the rights to sue for or assets claims against and remedies against past, present or future infringements or misappropriations of any or all of the foregoing and rights of priority and protection of interests therein, and any other proprietary, intellectual property or other rights relating to any or all of the foregoing anywhere in the world.

 

“Losses” means any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation.

 

“Material Adverse Effect” means a material adverse effect on (i) the assets, liabilities, results of operations, condition (financial or otherwise), business, or prospects of the Company taken as a whole, or (ii) the ability of the Company to perform its obligations under the Transaction Documents.

 

“NASDAQ” means The NASDAQ Stock Market, LLC.

 

“Notes” means the convertible senior notes due 2023 issuable under the Indenture, and which shall be on the terms as agreed to by the Company in connection with the pricing of the offering of convertible senior notes due 2023 in the private placement contemplated by the Preliminary Offering Memorandum.

 

“Occupational Laws” shall have the meaning ascribed to such term in Section 3.16.

 

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

 

“Preliminary Offering Memorandum” means the Preliminary Offering Memorandum, dated August 14, 2018, relating to the issuance and sale by the Company of $60,000,000 aggregate principal amount of convertible senior notes due 2023 in a private placement undertaken pursuant to Rule 144A of the Securities Act which is to close on or about the Closing Date.

 

“Primary Securities Purchase Agreement” means the Securities Purchase Agreement, dated on or about the date hereof, between the Company and Credit Suisse Securities (USA)

 

 

LLC, as representative, in respect of the convertible senior notes due 2023 issuable in the offering described in the Preliminary Offering Memorandum.

 

“Principal Trading Market” means the Trading Market on which the Common Stock is primarily listed on and quoted for trading.

 

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

 

“Prospectus” means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

 

“Purchaser Party” shall have the meaning ascribed to such term in Section 6.6.

 

“Purchaser” shall have the meaning ascribed to such term in the preamble.

 

“Registration Statement” means each registration statement required to be filed under ARTICLE 5 and, in each case, the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

 

“Registrable Securities” means the Notes, the Shares and any shares of Common Stock issued as a dividend or other distribution with respect to, or in exchange for, or in replacement of, the Shares; provided, that the holder of such Notes and/or Shares has completed and delivered to the Company a Selling Stockholder Questionnaire; and provided further, that the Notes and/or the Shares shall cease to be Registrable Securities upon the earliest to occur of the following:  (A) sale by any Person to the public either pursuant to a registration statement under the Securities Act or under Rule 144 (in which case, only such applicable Notes and/or Shares sold shall cease to be Registrable Securities) or (B) becoming eligible for sale by the holder thereof pursuant to Rule 144 without volume or manner of sale restrictions.

 

“Rule 144,” “Rule 415,” and “Rule 424” means Rule 144, Rule 415 and Rule 424, respectively, promulgated by the Commission pursuant to the Securities Act, as such Rules may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC having substantially the same effect as such Rule.

 

“SEC Reports” shall have the meaning ascribed to such term in Section 3.7.

 

“Securities” means, collectively, the Notes and the Shares.

 

 

“Securities Act” shall have the meaning ascribed to such term in the Recitals.

 

“Selling Stockholder Questionnaire” shall have the meaning ascribed to such term in Section 5.2(j).

 

“Shares” shall mean the shares of Common Stock into which the Notes are convertible in accordance with the terms of the Indenture and the Notes.

 

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

 

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question:  the NYSE MKT, the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ Global Select Market, or the New York Stock Exchange (or any successors to any of the foregoing).

 

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

 

“Trustee” means U.S. Bank National Association.

 

“Voting Commitment” shall have the meaning ascribed to such term in Section 4.2(c).

 

ARTICLE 2
  PURCHASE AND SALE

 

2.1                               Purchase and Sale.  Subject to and upon the terms and conditions set forth in this Agreement, at the Closing, the Company shall issue and sell to the Purchaser, and the Purchaser shall purchase from the Company, $5,000,000 aggregate principal amount of Notes.

 

2.2                               Closing.  The Company agrees to issue and sell to the Purchaser and, in consideration of and in express reliance upon the representations, warranties, covenants, terms and conditions of this Agreement, the Purchaser agrees to purchase the Notes. The closing of the purchase and sale of the Notes (the “Closing”) shall take place at the offices of Arnold & Porter located at 3000 El Camino Real, #500, Palo Alto, California, five Business Days following the satisfaction or waiver of the conditions set forth in Section 2.5, or at such other time and place or on such date as the Purchaser and the Company may agree upon (such date is hereinafter referred to as the “Closing Date”).

 

2.3                               Payment.  On the Closing Date (a) the Purchaser shall pay to the Company 100% of the principal amount of the Notes in United States dollars and in immediately available funds, by wire transfer to the Company’s account as set forth in instructions previously delivered to the Purchaser, and (b) the Company shall irrevocably instruct the Trustee to deliver to the Purchaser one or more certificated Notes in the aggregate principal amount set forth opposite the Purchaser’s name on Exhibit A, each certificated Note duly executed on behalf of the Company.

 

 

2.4                               Deliveries.

 

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

 

(i)                                     this Agreement duly executed by the Company;

 

(ii)                                  a copy of the instructions to the Trustee instructing the Trustee to deliver to the Purchaser the certificated Notes in the aggregate principal amount set forth opposite the Purchaser’s name on Exhibit A;

 

(iii)                               a Certificate, executed on behalf of the Company by its Chief Executive Officer and its Chief Financial Officer, dated as of the Closing Date, certifying to the fulfillment of the conditions specified in Section 2.5(b); and

 

(iv)                              a Certificate, executed on behalf of the Company by its Secretary, dated as of the Closing Date, certifying the resolutions adopted by the Board of Directors of the Company approving the transactions contemplated by the Transaction Documents and the issuance of the Securities, certifying the current versions of the Certificate of Incorporation and Bylaws of the Company and certifying as to the signatures and authority of Persons signing the Transaction Documents and related documents on behalf of the Company.

 

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

 

(i)                                     this Agreement duly executed by the Purchaser;

 

(ii)                                  a fully completed and duly executed Accredited Investor Qualification Questionnaire in such form as reasonably requested by the Company;

 

(iii)                               a fully completed and duly executed Bad Actor Questionnaire in such form as reasonably requested by the Company; and

 

(iv)                              the note purchase price by wire transfer to the account specified by the Company.

 

2.5                               Closing Conditions.

 

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

 

(i)                                     the accuracy in all material respects on the Closing Date of the representations and warranties of the Purchaser contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);

 

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

 

 

(iii)                               the delivery by the Purchaser of the items set forth in Section 2.4(b) of this Agreement; and

 

(iv)                              NASDAQ shall have raised no objection to the consummation of the transactions contemplated by the Transaction Documents in the absence of stockholder approval of such transactions.

 

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

 

(i)                                     the representations and warranties made by the Company in ARTICLE 3 hereof qualified as to materiality shall be true and correct as of the date hereof and the Closing Date, except to the extent any such representation or warranty expressly speaks as of an earlier date, in which case such representation or warranty shall be true and correct as of such earlier date, and, the representations and warranties made by the Company in ARTICLE 3 hereof not qualified as to materiality shall be true and correct in all material respects as of the date hereof and the Closing Date, except to the extent any such representation or warranty expressly speaks as of an earlier date, in which case such representation or warranty shall be true and correct in all material respects as of such earlier date;

 

(ii)                                  all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date, whether under this Agreement or the other Transaction Documents, shall have been performed in all material respects;

 

(iii)                               the delivery by the Company of the items set forth in Section 2.4(a) of this Agreement;

 

(iv)                              the Company shall have obtained any and all consents, permits, approvals, registrations and waivers necessary or appropriate for consummation of the purchase and sale of the Notes and the consummation of the other transactions contemplated by the Transaction Documents, all of which shall be in full force and effect, except for such that could not reasonably be expected to have a Material Adverse Effect;

 

(v)                                 no judgment, writ, order, injunction, award or decree of or by any court, or judge, justice or magistrate, including any bankruptcy court or judge, or any order of or by any governmental authority, shall have been issued, and no action or proceeding shall have been instituted by any governmental authority, enjoining or preventing the consummation of the transactions contemplated hereby or in the other Transaction Documents;

 

(vi)                              NASDAQ shall have raised no objection to the consummation of the transactions contemplated by the Transaction Documents in the absence of stockholder approval of such transactions;

 

(vii)                           the sale and issuance of the notes under the Primary Securities Purchase Agreement shall have been completed; and the final interest rate applicable to the Notes (as established by the Company in connection with the pricing of the offering contemplated by the Preliminary Offering Memorandum) shall be at least 4.00% per year and the conversion premium applicable to the Notes shall not exceed 10%; and

 

 

(viii)                        there shall have been no Material Adverse Effect with respect to the Company since the date hereof.

 

ARTICLE 3
  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company hereby represents and warrants to the Purchaser that, except as otherwise disclosed to the Purchaser or as disclosed in the SEC Reports:

 

3.1                               Organization, Good Standing and Qualification.  The Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to carry on its business as now conducted and to own its properties. The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property makes such qualification or leasing necessary unless the failure to so qualify has not had and could not reasonably be expected to have a Material Adverse Effect.

 

3.2                               Authorization; Enforcement.  The Company has all corporate right, power and authority to enter into the Transaction Documents and to consummate the transactions contemplated hereby and thereby. All corporate action on the part of the Company, its directors and stockholders necessary for the authorization, execution, delivery and performance of the Transaction Documents by the Company, the authorization, sale, issuance and delivery of the Securities contemplated herein and the performance of the Company’s obligations hereunder and thereunder has been taken. The Transaction Documents have been (or upon delivery will have been) duly executed and delivered by the Company and constitute the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with their terms, except:  (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

3.3                               Capitalization.  The authorized capital stock of the Company consists of 150,000,000 shares of Common Stock, of which 96,848,549 shares were outstanding as of June 30, 2018. All of the issued and outstanding shares of the Company’s capital stock have been duly authorized and validly issued and are fully paid and nonassessable. Except (i) for options to purchase Common Stock or other equity awards (including restricted stock units) issued to employees and members of the Board of Directors pursuant to the equity compensation plans or arrangements disclosed in the SEC Reports, (ii) shares of capital stock issuable and reserved for issuance pursuant to securities exercisable for, or convertible into or exchangeable for any shares of capital stock of the Company disclosed in the SEC Reports, and (iii) as contemplated by this Agreement or the Primary Securities Purchase Agreement, there are no existing options, warrants, calls, preemptive (or similar) rights, subscriptions or other rights, agreements, arrangements or commitments of any character obligating the Company to issue, transfer or sell, or cause to be issued, transferred or sold, any shares of the capital stock of, or other equity interests in, the Company or any securities convertible into or exchangeable for such shares of

 

 

capital stock or other equity interests, and there are no outstanding contractual obligations of the Company to repurchase, redeem or otherwise acquire any shares of its capital stock or other equity interests. The issue and sale of the Notes will not result in the right of any holder of Company securities to adjust the exercise, conversion or exchange price under such securities.

 

3.4                               Issuance; Reservation of Shares.  When the Notes are delivered and paid for in accordance with this Agreement on the Closing Date, the Notes will be convertible into Shares in accordance with the terms of the Indenture and the Notes; the maximum number of Shares initially issuable upon conversion of the Notes as of the Closing Date, after taking into account the maximum make-whole adjustment in accordance with the Indenture, have been duly authorized and reserved for issuance upon such conversion; and when issued upon conversion of the Notes in accordance with the terms of the Indenture and the Notes, the Shares will be, validly issued, fully paid and non-assessable, and shall be free and clear of all encumbrances and restrictions (other than as provided in the Transaction Documents).

 

3.5                               No Conflicts.  The execution, delivery and performance of the Transaction Documents by the Company and the issuance and sale of the Securities will not conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under (i) the Company’s Certificate of Incorporation or the Company’s Bylaws, both as in effect on the date hereof (true and complete copies of which have been made available to the Purchaser through the EDGAR system), (ii) any statute, rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any of its respective assets or properties, or (iii) any material agreement or instrument to which the Company is a party or by which the Company is bound or to which any of their respective assets or properties is subject, in each case except for any such conflict, breach, violation or default that would not reasonably be expected to have a Material Adverse Effect.

 

3.6                               Filings, Consents and Approvals.  The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than filings that have been made, or will be made, or consents that have been obtained, or will be obtained, pursuant to the rules and regulations of NASDAQ, including a NASDAQ Listing of Additional Shares notification form, applicable state securities laws and post-sale filings pursuant to applicable state and federal securities laws which the Company undertakes to file or obtain within the applicable time periods.

 

3.7                               SEC Reports.  The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, since January 1, 2013 (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order

 

 

to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Company has not received any letters of comment from the staff of the Commission that have not been satisfactorily resolved as of the date hereof.

 

3.8                               Financial Statements.  The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”), applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

 

3.9                               Material Changes; Undisclosed Events, Liabilities or Developments.  Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof: (i) there has been no event, occurrence or development that has had or that could reasonably be expected to have a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting or changed its principal registered public accounting firm, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities, except pursuant to existing Company equity compensation plans. Except as contemplated by the Company in connection with the transactions described on the Company’s Current Report on Form 8-K, filed by the Company with the SEC on August 9, 2018, the Company does not have pending before the Commission any request for confidential treatment of information.

 

3.10                        Internal Controls.  The Company maintains a system of internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) that complies with the requirements of the Exchange Act and has been designed by the Company’s principal executive officer and principal financial officer, or under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; the Company’s internal control over financial reporting is effective and the Company is not aware of any material weaknesses in its internal control over financial reporting; there has been no fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting; since the date of the latest audited financial statements included or incorporated by reference in the Company’s SEC Reports, there has been no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company maintains disclosure controls and procedures (as

 

 

such term is defined in Rule 13a-15(e) of the Exchange Act) that comply with the requirements of the Exchange Act; such disclosure controls and procedures have been designed to ensure that material information relating to the Company is made known to the Company’s principal executive officer and principal financial officer by others within those entities; such disclosure controls and procedures are effective. The Company is in compliance in all material respects with all applicable provisions of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated by the Commission thereunder.

 

3.11                        Accountant.  To the Company’s knowledge, Deloitte & Touche LLP, which has expressed its opinion with respect to the Company’s financial statements as of December 31, 2017 and 2016 and 2015, respectively, and included in the SEC Reports (including the related notes), is an independent registered public accounting firm as required by the Act and the Public Company Accounting Oversight Board (United States). Deloitte & Touche LLP have not been engaged by the Company to perform any “prohibited activities” (as defined in Section 10A of the Exchange Act).

 

3.12                        Litigation.  There is not pending or, to the knowledge of the Company, threatened or contemplated, any action, suit or proceeding to which the Company is a party or of which any property or assets of the Company is the subject before or by any court or governmental agency, authority or body, or any arbitrator, which, individually or in the aggregate, could reasonably be expected to result in any Material Adverse Effect. There are no current or pending legal, governmental or regulatory actions, suits or proceedings that are required to be described in the SEC Reports that have not been so described.

 

3.13                        Tax Matters.  The Company has filed all federal, state, local and foreign income and franchise tax returns required to be filed or has requested extensions thereof (except in any case in which the failure so to file would not have a Material Adverse Effect), except as set forth in the SEC Reports and has paid all taxes required to be paid by it and any other assessment, fine or penalty levied against it, to the extent that any of the foregoing is due and payable, except for any such assessment, fine or penalty that is currently being contested in good faith or as would not have a Material Adverse Effect, except as set forth in or contemplated in the SEC Reports.

 

3.14                        Insurance.  The Company maintains in full force and effect insurance coverage that is customary for comparably situated companies for the business being conducted and properties owned or leased by the Company, and the Company reasonably believes such insurance coverage to be adequate against all liabilities, claims and risks against which it is customary for comparably situated companies to insure.

 

3.15                        Environmental Matters.  The Company (A) is in compliance in all material respects with any and all applicable federal, state, local and foreign laws, rules, regulations, decisions and orders relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (collectively, “Environmental Laws”); (B) has received and is in material compliance with all permits, licenses or other approvals required of it under applicable Environmental Laws to conduct its business; and (C) has not received notice of any actual or potential liability for the investigation or remediation of any disposal or release of hazardous or toxic substances or wastes, pollutants or contaminants, except in any such case for any such failure to comply, or failure to receive

 

 

required permits, licenses or approvals, or liability as would not, individually or in the aggregate, have a Material Adverse Effect.

 

3.16                        Labor Relations.  The Company (A) is in compliance, in all material respects, with any and all applicable foreign, federal, state and local laws, rules, regulations, treaties, statutes and codes promulgated by any and all governmental authorities (including pursuant to the Occupational Health and Safety Act) relating to the protection of human health and safety in the workplace (“Occupational Laws”); (B) has received all material permits, licenses or other approvals required of it under applicable Occupational Laws to conduct their business as currently conducted; and (C) is in compliance, in all material respects, with all terms and conditions of such permits, licenses or approvals. No action, proceeding, revocation proceeding, writ, injunction or claim is pending or, to the Company’s knowledge, threatened against the Company relating to Occupational Laws, and the Company does not have knowledge of any material facts, circumstances or developments relating to its operations or cost accounting practices that could reasonably be expected to form the basis for or give rise to such actions, suits, investigations or proceedings. Each employee benefit plan, within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), that is maintained, administered or contributed to by the Company or any of its affiliates for employees or former employees of the Company and has been maintained in material compliance with its terms and the requirements of any applicable statutes, orders, rules and regulations, including but not limited to, ERISA and the Internal Revenue Code of 1986, as amended (the “Code”). No prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any such plan excluding transactions effected pursuant to a statutory or administrative exemption; and for each such plan that is subject to the funding rules of Section 412 of the Code or Section 302 of ERISA, no “accumulated funding deficiency” as defined in Section 412 of the Code has been incurred, whether or not waived, and the fair market value of the assets of each such plan (excluding for these purposes accrued but unpaid contributions) exceeds the present value of all benefits accrued under such plan determined using reasonable actuarial assumptions.

 

3.17                        Certificates, Authorities and Permits.  The Company holds, and is operating in compliance in all material respects with, all registrations, approvals, certificates, authorizations and permits of any governmental authority or self-regulatory body required for the conduct of its business as described in the SEC Reports, including without limitation, all such registrations, approvals, certificates, authorizations and permits required by the FDA or any other federal, state, local or foreign agencies or bodies engaged in the regulation of pharmaceuticals or biohazardous substances or materials; and the Company has not received notice of any revocation or modification of any such registration, approval, certificate, authorization and permit or has reason to believe that any such registration, approval, certificate, authorization and permit will not be renewed in the ordinary course that could lead to, the withdrawal, revocation, suspension, modification or termination of any such registration, approval, certificate, authorization or permit, which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, could result in a Material Adverse Effect.

 

3.18                        Title to Assets.  The Company has good and marketable title to all property (whether real or personal) described in the SEC Reports as being owned by it, in each case free and clear of all liens, claims, security interests, other encumbrances or defects except as

 

 

described in the SEC Reports, and except those that could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The property held under lease by the Company is held under valid, subsisting and enforceable leases with only such exceptions with respect to any particular lease as do not interfere in any material respect with the conduct of the business of the Company.

 

3.19                        Intellectual Property.  The Company owns, possesses, or can acquire on reasonable terms, all Intellectual Property necessary for the conduct of its business as now conducted or as described in the SEC Reports to be conducted in all material respects, except as such failure to own, possess, or acquire such rights would not have a Material Adverse Effect. Except as set forth in the SEC Reports, (A) to the knowledge of the Company, there is no infringement, misappropriation or violation by third parties of any such Intellectual Property, except as such infringement, misappropriation or violation would not have a Material Adverse Effect; (B) there is no pending or, to the knowledge of the Company, threatened action, suit, proceeding or claim by others challenging the Company’s rights in or to any such Intellectual Property, and the Company is unaware of any material facts which would form a reasonable basis for any such claim; (C) the Intellectual Property owned by the Company, and to the knowledge of the Company, the Intellectual Property licensed to the Company, have not been adjudged invalid or unenforceable, in whole or in part, and there is no pending or threatened action, suit, proceeding or claim by others challenging the validity or scope of any such Intellectual Property, and the Company is unaware of any material facts which would form a reasonable basis for any such claim; (D) to the Company’s knowledge, there is no pending or threatened action, suit, proceeding or claim by others that the Company infringes, misappropriates or otherwise violates any Intellectual Property or other proprietary rights of others, the Company has not received any written notice of such claim and the Company is unaware of any other material fact which would form a reasonable basis for any such claim; and (E) to the Company’s knowledge, no Company employee is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of such employee’s best efforts to promote the interest of the Company or that would conflict with the Company’s business; none of the execution and delivery of this Agreement, the carrying on of the Company’s business by the employees of the Company, and the conduct of the Company’s business as proposed, will conflict with or result in a breach of terms, conditions, or provisions of, or constitute a default under, any contract, covenant or instrument under which any such employee is now obligated; and it is not and will not be necessary to use any inventions, trade secrets or proprietary information of any of its consultants, or its employees (or Persons it currently intends to hire) made prior to their employment by the Company, except for technology that is licensed to or owned by the Company.

 

3.20                        Intentionally Omitted.

 

3.21                        Compliance with NASDAQ Continued Listing Requirements.  The Company is, and has no reason to believe that it will not, upon the issuance of the Notes, or the Shares upon conversion of the Notes, continue to be, in compliance with the listing and maintenance requirements for continued listing on NASDAQ in all material respects. Assuming the representations and warranties of the Purchaser set forth in Section 4.2 are true and correct in all material respects, the consummation of the transactions contemplated by the Transaction

 

 

Documents does not contravene the rules and regulations of NASDAQ. There are no proceedings pending or, to the Company’s knowledge, threatened against the Company relating to the continued listing of the Common Stock on NASDAQ and the Company has not received any notice of, nor to the Company’s knowledge is there any basis for, the delisting of the Common Stock from NASDAQ.

 

3.22                        Application of Takeover Protections.  The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter documents) or the laws of its state of incorporation that would prevent the Purchaser or the Company from fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company’s issuance of the Notes (or the issuance of the Shares upon conversion of the Notes) and the Purchaser’s ownership of the Notes, or the Shares issuable upon conversion of the Notes.

 

3.23                        Fees.  No Person will have, as a result of the transactions contemplated by the Transaction Documents, any valid right, interest or claim against or upon the Purchaser for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Company, and the Purchaser shall not have any obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section 3.23 that may be due in connection with the transactions contemplated by the Transaction Documents.

 

3.24                        No General Solicitation.  Neither the Company nor any Person acting on its behalf has conducted any general solicitation or general advertising (as those terms are used in Regulation D) in connection with the offer or sale of any of the Securities.

 

3.25                        No Integrated Offering.  Neither the Company nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any Company security or solicited any offers to buy any security, under circumstances that would adversely affect reliance by the Company on Section 4(a)(2) for the exemption from registration for the transactions contemplated hereby or would require registration of the Shares under the Securities Act.

 

3.26                        Private Placement.  Assuming the accuracy of the Purchaser’s representations and warranties set forth in ARTICLE 4, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchaser as contemplated hereby.

 

3.27                        Form S-3 Eligibility.  The Company is eligible to register the resale of the Securities for resale by the Purchaser on Form S-3 promulgated under the Securities Act.

 

3.28                        Investment Company.  The Company is not and, after giving effect to the offering and sale of the Notes, will not be an “investment company,” as such term is defined in the Investment Company Act of 1940, as amended.

 

3.29                        Foreign Corrupt Practices.  The Company, nor, to the best knowledge of the Company, any director, officer, agent, employee or other Person associated with or acting on

 

 

behalf of the Company has (A) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (B) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (C) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977; or (D) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment.

 

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

 

3.31                        Disclosure.  No representation or warranty by the Company in this Agreement and no statement contained in the SEC Reports or any certificate or other document furnished or to be furnished to the Purchaser pursuant to this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading.

 

ARTICLE 4
  REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

 

The Purchaser hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein):

 

4.1                               Organization; Authority.  The Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by the Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of the Purchaser. Each Transaction Document to which it is a party has been duly executed by the Purchaser, and when delivered by the Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of the Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

4.2                               Purchaser Status.

 

(a)                                 At the time the Purchaser was offered the Notes, it was, and as of the date hereof it is, an “accredited investor” as defined in Rule 501 under the Securities Act.

 

 

(b)                                 The Purchaser is not a broker-dealer registered under Section 15 of the Exchange Act. The Purchaser is acting alone in its determination as to whether to invest in the Notes. The Purchaser is not a party to any voting agreements or similar arrangements with respect to any of the Securities. Except as expressly disclosed in a Schedule 13D or Schedule 13G (or amendments thereto) filed by the Purchaser with the Commission with respect to the beneficial ownership of the Company’s Common Stock, the Purchaser is not a member of a partnership, limited partnership, syndicate, or other group for the purpose of acquiring, holding, voting or disposing of any of the Securities.

 

(c)                                  The Purchaser represents and warrants that it (i) is not and will not become a party to (A) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any Person as to how such Person, if serving as a director or if elected as a director of the Corporation, will act or vote on any issue or question (a “Voting Commitment”) or (B) any Voting Commitment that could limit or interfere with such Person’s ability to comply, if serving as or elected as a director of the Company, with such Person’s fiduciary duties under applicable law; (ii) is not and will not become a party to any agreement, arrangement or understanding with any Person other than the corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director of the Company.

 

(d)                                 The Purchaser has disclosed in writing to the Company a description of all Derivative Transactions (as defined below) by the Purchaser in effect as of the date hereof, including the date of the transactions and the class, series and number of securities involved in, and the material economic terms of, such Derivative Transactions. For purposes of this Agreement, a “Derivative Transaction” means any agreement, arrangement, interest or understanding entered into by, or on behalf or for the benefit of, the Purchaser or any of its affiliates or associates, whether record or beneficial:  (i) the value of which is derived in whole or in part from the value of any class or series of shares or other securities of the Company, (ii) which otherwise provides any direct or indirect opportunity to gain or share in any gain derived from a change in the value of securities of the Company, (iii) the effect or intent of which is to mitigate loss, manage risk or benefit of security value or price changes, or (iv) which provides the right to vote or increase or decrease the voting power of, the Purchaser, or any of its affiliates or associates, with respect to any securities of the Company, which agreement, arrangement, interest or understanding may include, without limitation, any option, warrant, debt position, note, bond, convertible security, swap, stock appreciation right, short position, profit interest, hedge, right to dividends, voting agreement, performance-related fee or arrangement to borrow or lend shares (whether or not subject to payment, settlement, exercise or conversion in any such class or series), and any proportionate interest of the Purchaser in the securities of the Company held by any general or limited partnership, or any limited liability company, of which the Purchaser is, directly or indirectly, a general partner or managing member.

 

4.3                               General Solicitation; Pre-Existing Relationship.  The Purchaser is not purchasing the Notes as a result of any advertisement, article, notice or other communication regarding the Notes published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. The Purchaser also represents that the Purchaser was contacted regarding the sale of the Shares by the

 

 

Company (or an authorized agent or representative thereof) with which the Purchaser had a prior substantial pre-existing relationship.

 

4.4                               Purchase Entirely for Own Account.  The Securities to be received by the Purchaser hereunder will be acquired for the Purchaser’s own account, not as nominee or agent, and not with a view to the resale or distribution of any part thereof in violation of the Securities Act, and the Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same in violation of the Securities Act without prejudice, however, to the Purchaser’s right at all times to sell or otherwise dispose of all or any part of such Securities in compliance with applicable federal and state securities laws. Nothing contained herein shall be deemed a representation or warranty by the Purchaser to hold the Securities for any period of time.

 

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

 

4.6                               Disclosure of Information.  The Purchaser has had an opportunity to receive all information related to the Company and the Notes requested by it and to ask questions of and receive answers from the Company regarding the Company, its business and the terms and conditions of the offering of the Securities. The Purchaser acknowledges receipt of copies of the SEC Reports (or access thereto via EDGAR) and the Preliminary Offering Memorandum, including the description of Notes contained therein. Neither such inquiries nor any other due diligence investigation conducted by the Purchaser shall modify, limit or otherwise affect the Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement.

 

4.7                               Restricted Securities.  The Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act and may not be offered, resold, pledged or otherwise transferred except (i) pursuant to an exemption from registration under the Securities Act or pursuant to an effective registration statement in compliance with Section 5 under the Securities Act and (ii) in accordance with all applicable securities laws of the states of the United States and other jurisdictions, including Rule 144 under the Securities Act and Section 16 of the Exchange Act.

 

4.8                               Commissions.  No Person will have, as a result of the transactions contemplated by the Transaction Documents, any valid right, interest or claim against the Company or upon the Purchaser for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Purchaser.

 

The Company acknowledges and agrees that the representations contained in ARTICLE 4 shall not modify, amend or affect the Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed

 

 

and/or delivered in connection with this Agreement or the consummation of the transaction contemplated hereby.

 

ARTICLE 5
  REGISTRATION RIGHTS

 

5.1                               Registration Statement.

 

(a)                                 On or prior to the date that is 90 days following the Closing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance with the Securities Act) and shall contain (except if otherwise required pursuant to written comments received from the Commission upon a review of such Registration Statement) the “Plan of Distribution” in substantially the form delivered by the Company to the Purchaser prior to the initial filing of the applicable Registration Statement.

 

(b)                                 The Company shall use its commercially reasonable best efforts to cause each Registration Statement to be declared effective by the Commission as promptly as possible after the filing thereof, and shall use commercially reasonable best efforts to keep the Registration Statement continuously effective under the Securities Act until the earlier of (i) the date that all Registrable Securities covered by such Registration Statement have been sold or can be sold publicly without restriction or limitation under Rule 144 (including, without limitation, the requirement to be in compliance with Rule 144(c)(1)) or (ii) the date that is two (2) years following the Closing Date (the “Effectiveness Period”).

 

(c)                                  The Company shall notify the Purchaser in writing promptly (and in any event within two Trading Days) after receiving notification from the Commission that a Registration Statement has been declared effective and shall simultaneously provide the Purchaser with copies of any related Prospectus to be used in connection with the sale or other disposition of the securities covered thereby.

 

(d)                                 Notwithstanding anything in this Agreement to the contrary, the Company may, by written notice to the Purchaser, suspend sales under a Registration Statement after the Effective Date thereof and/or require that the Purchaser immediately cease the sale of shares of Common Stock pursuant thereto and/or defer the filing of any additional Registration Statement if the Company is engaged in a material merger, acquisition or sale or any other material pending development and the Board of Directors determines in good faith, by appropriate resolutions, that, as a result of such activity, it would be materially detrimental to the Company (other than as relating solely to the price of the Common Stock) to maintain a Registration Statement at such time. Upon receipt of such notice, the Purchaser agrees to immediately discontinue any sales of Registrable Securities pursuant to such Registration Statement until the Purchaser is advised in writing by the Company that the current Prospectus or amended Prospectus, as applicable, may be used. In no event, however, shall this right be exercised to suspend sales beyond the period during which (in the good faith determination of the Board of Directors) the failure to require

 

 

such suspension would be materially detrimental to the Company. The Company’s rights under this Section 5.1(d) may be exercised for a period of no more than 15 consecutive Trading Days and not more than three times in any twelve-month period. Immediately after the end of any suspension period under this Section 5.1(d), the Company shall take all necessary actions (including filing any required supplemental prospectus) to restore the effectiveness of the applicable Registration Statement and the ability of the Purchaser to publicly resell their Registrable Securities pursuant to such effective Registration Statement.

 

5.2                               Registration Procedures.  In connection with the Company’s registration obligations hereunder, the Company shall:

 

(a)                                 Not less than three Trading Days prior to the filing of a Registration Statement or any related Prospectus or any amendment or supplement thereto, furnish via email to the Purchaser or its counsels who has supplied the Company with email addresses copies of all such documents proposed to be filed, which documents (other than any document that is incorporated or deemed to be incorporated by reference therein) will be subject to the review of the Purchaser (it being acknowledged and agreed that if the Purchaser does not object to or comment on the aforementioned documents within the two Trading Day period, then the Purchaser shall be deemed to have consented to and approved the use of such documents). The Company shall reflect in each such document when so filed with the Commission such comments regarding the Purchaser and the plan of distribution as the Purchaser may reasonably and promptly propose no later than two Trading Days after the Purchaser has been so furnished with copies of such documents as aforesaid.

 

(b)                                 (i) Subject to Section 5.1(d), prepare and file with the Commission such amendments, including post-effective amendments, to each Registration Statement and the Prospectus used in connection therewith as may be necessary to keep the Registration Statement continuously effective, as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424; and (iii) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the applicable period in accordance with the intended methods of disposition by the Purchaser thereof set forth in the Registration Statement as so amended or in such Prospectus as so supplemented; provided, however, that, subject to applicable requirements, the Purchaser shall be responsible for the delivery of the Prospectus to the Persons to whom the Purchaser sells any of the Shares (including in accordance with Rule 172 under the Securities Act), and the Purchaser agrees to dispose of Registrable Securities in compliance with the plan of distribution described in the Registration Statement and otherwise in compliance with applicable federal and state securities laws.

 

(c)                                  Notify the Purchaser as promptly as reasonably possible, and if requested by the Purchaser, confirm such notice in writing no later than two Trading Days thereafter, of any of the following events:  (i) the Commission notifies the Company whether there will be a “review” of any Registration Statement; (ii) any Registration Statement or any post-effective

 

 

amendment is declared effective; (iii) the Commission issues any stop order suspending the effectiveness of any Registration Statement or initiates any Proceedings for that purpose; (iv) the Company receives notice of any suspension of the qualification or exemption from qualification of any Registrable Securities for sale in any jurisdiction, or the initiation or threat of any Proceeding for such purpose; (v) the financial statements included in any Registration Statement become ineligible for inclusion therein; and (vi) the occurrence or existence of any pending development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of a Registration Statement, provided that any and all of such information shall remain confidential to the Purchaser until such information otherwise becomes public, unless disclosure by the Purchaser is required by law; provided, further, that notwithstanding the Purchaser’s agreement to keep such information confidential, the Purchaser make no acknowledgement that any such information is material, non-public information.

 

(d)                                 Use commercially reasonable best efforts to avoid the issuance of or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of any Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, as soon as possible.

 

(e)                                  If requested by the Purchaser, provide the Purchaser, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission; provided, that the Company shall have no obligation to provide any document pursuant to this clause that is available on the Commission’s EDGAR system.

 

(f)                                   Promptly deliver to the Purchaser, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request. The Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by the selling Purchaser in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto to the extent permitted by federal and state securities laws and regulations.

 

(g)                                  Prior to any resale of Registrable Securities by the Purchaser, use commercially reasonable best efforts to register or qualify or cooperate with the selling Purchaser in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as the Purchaser requests in writing, to keep each such registration or qualification (or exemption therefrom) effective for so long as required, but not to exceed the duration of the Effectiveness Period, and to do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by a Registration Statement; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in

 

 

which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.

 

(h)                                 Cooperate with the Purchaser to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by this Agreement and under law, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as the Purchaser may reasonably request.

 

(i)                                     Upon the occurrence of any event described in Section 5.2(c)(iii)-(vi), as promptly as reasonably practicable, prepare a supplement or amendment, including a post-effective amendment, to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither the Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

 

(j)                                    It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of the Purchaser that the Purchaser furnishes to the Company a completed Selling Stockholder Questionnaire in the form proffered by the Company (the “Selling Stockholder Questionnaire”) and such other information regarding itself, the Registrable Securities and other shares of Common Stock held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall complete and execute such documents in connection with such registration as the Company may reasonably request, except in the case of any such information referred to in this paragraph, to the extent the failure to provide such information does not materially affect the Company’s ability to comply with such obligations.

 

(k)                                 The Company shall comply with all applicable rules and regulations of the Commission under the Securities Act and the Exchange Act, including, without limitation, Rule 172 under the Securities Act, file any final Prospectus, including any supplement or amendment thereof, with the Commission pursuant to Rule 424 under the Securities Act, promptly inform the Purchaser in writing if, at any time during the Effectiveness Period, the Company does not satisfy the conditions specified in Rule 172 and, as a result thereof, the Purchaser is required to make available a Prospectus in connection with any disposition of Registrable Securities and take such other actions as may be reasonably necessary to facilitate the registration of the Registrable Securities hereunder.

 

5.3                               Registration Expenses.  The Company shall pay all fees and expenses incident to the performance of or compliance with ARTICLE 5 of this Agreement by the Company, including without limitation (a) all registration and filing fees and expenses, including without limitation those related to filings with the Commission, any Trading Market, and in connection with applicable state securities or Blue Sky laws, (b) printing expenses (including without limitation expenses of printing certificates for Registrable Securities), (c) messenger, telephone and delivery expenses, (d) fees and disbursements of counsel for the Company, (e) fees and

 

 

expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement, and (f) all listing fees to be paid by the Company to the Trading Market. In no event shall the Company be responsible for any underwriting, broker or similar fees or commissions of the Purchaser or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Purchaser.

 

5.4                               Indemnification.

 

(a)                                 Indemnification by the Company.  The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless the Purchaser, the officers, directors, partners, members, agents and employees of each of them, each Person who controls any the Purchaser (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, partners, members, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all Losses, as incurred, arising out of or relating to any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities, any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any Prospectus or in any amendment or supplement thereto, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (A) such untrue statements, alleged untrue statements, omissions or alleged omissions are based solely upon information regarding the Purchaser furnished in writing to the Company by the Purchaser for use therein, or to the extent that such information relates to the Purchaser or the Purchaser’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved by the Purchaser expressly for use in the Registration Statement, or (B) with respect to any Prospectus, if the untrue statement or omission of material fact contained in such Prospectus was corrected on a timely basis in the Prospectus, as then amended or supplemented, if such corrected prospectus was timely made available by the Company to the Purchaser, and the Purchaser was advised in writing not to use the incorrect prospectus prior to the use giving rise to Losses.

 

(b)                                 Indemnification by Purchaser.  The Purchaser shall indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses (as determined by a court of competent jurisdiction in a final judgment not subject to appeal or review) arising solely out of any untrue statement of a material fact contained in the Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising out of or relating to any omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, but only to the extent that such untrue statement or omission is contained in any information so furnished by the Purchaser in writing to the Company specifically for inclusion in such Registration Statement or

 

 

such Prospectus or to the extent that (i) such untrue statements or omissions are based solely upon information regarding the Purchaser furnished to the Company by the Purchaser in writing expressly for use in the Registration Statement or Prospectus, or to the extent that such information relates to the Purchaser or the Purchaser’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved by the Purchaser expressly for use in the Registration Statement (it being understood that the information provided by the Purchaser to the Company in any applicable questionnaires and the Plan of Distribution in substantially the form delivered by the Company to the Purchaser prior to the initial filing of the applicable Registration Statement, as the same may be modified by the Purchaser constitutes information reviewed and expressly approved by the Purchaser in writing expressly for use in the Registration Statement), such Prospectus or such form of Prospectus or in any amendment or supplement thereto.  In no event shall the liability of the Purchaser hereunder be greater in amount than the dollar amount of the net proceeds received by the Purchaser upon the sale of the Registrable Securities giving rise to such indemnification obligation.

 

(c)                                  Conduct of Indemnification Proceedings.  If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party.

 

An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless:  (i) the Indemnifying Party has agreed in writing to pay such fees and expenses; or (ii) the Indemnifying Party shall have failed within 15 days of receiving notification of a Proceeding from an Indemnified Party to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; (iii) any counsel engaged by the applicable Indemnifying Party shall fail to timely commence or diligently conduct the defense of any such claim and such failure has materially prejudiced (or, in the reasonable judgment of the Indemnified Party, is in danger of materially prejudicing) the outcome of the applicable claim; or (iv) such Indemnified Party shall have been advised by counsel that a conflict of interest is likely to or may exist between the applicable Indemnifying Party and Indemnified Party or that there may be one or more different or additional defenses, claims, counterclaims or causes of action available to such Indemnified Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of separate counsel shall be at the expense of the Indemnifying Party). It being understood, however, that the Indemnifying Party shall not, in connection with any one such Proceeding (including separate Proceedings that have been or will be consolidated before a single judge) be liable for the fees and expenses of more than one

 

 

separate firm of attorneys at any time for all Indemnified Parties, which firm shall be appointed by a majority of the Indemnified Parties. The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

 

All reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within 20 Trading Days of written notice thereof to the Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined (not subject to appeal) that such Indemnified Party is not entitled to indemnification hereunder).

 

(d)                                 Contribution.  If a claim for indemnification under Section 5.4(a) or (b) is unavailable to an Indemnified Party (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 5.4(c), any reasonable attorneys’ or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.

 

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5.4(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 5.4(d), the Purchaser shall not be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by the Purchaser from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that the Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

 

 

The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties, including pursuant to Section 6.6 hereof.

 

5.5                               Dispositions.  The Purchaser agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement and shall sell its Registrable Securities that it sells pursuant to the Registration Statement in accordance with the Plan of Distribution set forth in the Prospectus. The Purchaser further agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 5.2(c)(iii)-(vi), the Purchaser will discontinue disposition of such Registrable Securities under the Registration Statement until the Purchaser is advised in writing by the Company that the use of the Prospectus, or amended Prospectus, as applicable, may be used. The Company may provide appropriate stop orders to enforce the provisions of this paragraph. The Purchaser agrees that the removal of the restrictive legend from certificates representing Shares as set forth in Section 6.1 is predicated upon the Company’s reliance that the Purchaser will comply with the provisions of this subsection.

 

5.6                               No Piggyback on Registrations.  Neither the Company nor any of its security holders (other than the Purchaser in such capacity pursuant hereto) may include securities of the Company in the Registration Statement other than the Registrable Securities.

 

5.7                               Amendments; Waivers.  Notwithstanding anything in this Agreement to the contrary, the provisions of this ARTICLE 5 may be amended or waived (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely), with the written consent of (i) the Company and (ii) the Purchaser

 

ARTICLE 6
  OTHER AGREEMENTS OF THE PARTIES

 

6.1                               Transfer Restrictions.

 

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

 

(b)                                 The Purchaser agree to the imprinting, so long as is required by this Section 6.1, of a legend on any of the Securities in substantially the following form:

 

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER ANY STATE SECURITIES OR BLUE SKY LAWS.

 

 

THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES OR BLUE SKY LAWS, PURSUANT TO REGISTRATION OR QUALIFICATION OR EXEMPTION THEREFROM.

 

INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE COMPANY MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT ANY PROPOSED TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS. THIS SECURITY IS SUBJECT TO THE TRANSFER RESTRICTIONS SET FORTH HEREIN AND IN A SECURITIES PURCHASE AGREEMENT, DATED AS OF AUGUST   , 2018 AND AS AMENDED FROM TIME TO TIME, COPIES OF WHICH ARE AVAILABLE WITH THE SECRETARY OF THE COMPANY.

 

(c)                                  Certificates evidencing the Securities shall not contain any legend (including the legend set forth in Section 6.1(b) hereof), (i) while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, (ii) following any sale of such Securities pursuant to Rule 144, (iii) if such Securities are eligible for sale under Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Shares and without volume or manner-of-sale restrictions, or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). Upon request by the Purchaser, following such time as a legend is no longer required under this Section 6.1(c), the Company shall cause its counsel to issue a legal opinion to (if required) to effect the removal of the legend hereunder from any Securities.

 

6.2                               Furnishing of Information; Public Information.  Until the time that the Purchaser owns no Registrable Securities, the Company covenants to maintain the registration of the Common Stock under Section 12(b) of the Exchange Act and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act.

 

6.3                               Integration.  The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of NASDAQ such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction. The Purchaser shall take no action to become a group such that any transactions contemplated by this Agreement would require shareholder approval prior to Closing.

 

 

6.4                               Publicity.  The Purchaser covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company as described in this Section 6.4, the Purchaser will maintain the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction), except that the Purchaser may disclose the terms to its financial, accounting, legal and other advisors.

 

6.5                               Use of Proceeds.  The Company shall use the net proceeds from the sale of the Securities hereunder for general corporate purposes, including the repayment of indebtedness, working capital, and potential acquisitions and strategic transactions.

 

6.6                               Indemnification of Purchaser.  Subject to the provisions of this Section 6.6, the Company will indemnify and hold the Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls the Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling Persons (each, a “Purchaser Party”) harmless from any and all Losses that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against the Purchaser Parties in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser Parties, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser Party’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser Parties may have with any such stockholder or any violations by such Purchaser Parties of state or federal securities laws or any conduct by such Purchaser Parties which constitutes fraud, gross negligence, willful misconduct or malfeasance of such Purchaser Party). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents. The indemnification required by this Section 6.6 shall be made by

 

 

periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law.

 

6.7                               Listing.  In the time and manner required by the Principal Trading Market, the Company shall prepare and file with such Trading Market an additional shares listing application covering all of the Shares. In addition, the Purchaser and the Company agree to cooperate in good faith, if necessary, to restructure the transactions contemplated by the Transaction Documents such that they do not contravene the rules and regulations of NASDAQ; provided, however, that such restructuring does not impact the economic interests of the Purchaser contemplated by the Transaction Documents. The Purchaser agrees to provide information reasonably requested by the Company to comply with this Section 6.7 and Section 3.21.

 

6.8                               Securities and Blue Sky Filings.  The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchaser at the Closing under the Securities Act and applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of the Purchaser. The Purchaser shall provide any information reasonably requested by the Company to comply with this Section 6.9.

 

6.9                               Acknowledgment of Dilution.  The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against the Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.

 

6.10                        Other Actions.  Except as otherwise set forth in this Agreement, from the date of this Agreement until the earlier to occur of the Closing or the termination of this Agreement in accordance with the terms hereof, the Company and the Purchaser shall not, and shall not permit any of their respective Affiliates to, take, or agree or commit to take, any action that would reasonably be expected to, individually or in the aggregate, prevent, materially delay or materially impede the consummation of the transactions contemplated by this Agreement.

 

ARTICLE 7
  TERMINATION

 

7.1                               Termination.  The obligations of the Company, on the one hand, and the Purchaser, on the other hand, to effect the Closing shall terminate as follows:

 

(a)                                 Upon the mutual written consent of the Company and the Purchaser;

 

(b)                                 By the Company if any of the conditions set forth in Section 2.5(a) shall have become incapable of fulfillment, and shall not have been waived by the Company;

 

 

(c)                                  By a Purchase if any of the conditions set forth in Section 2.5(b) shall have become incapable of fulfillment, and shall not have been waived by the Purchaser; or

 

(d)                                 By either the Company or the Purchaser if the Closing has not occurred on or prior to September 1, 2018;

 

provided, however, that, except in the case of clause (a) above, the party seeking to terminate its obligation to effect the Closing shall not then be in breach of any of its representations, warranties, covenants or agreements contained in this Agreement or the other Transaction Documents if such breach has resulted in the circumstances giving rise to such party’s seeking to terminate its obligation to effect the Closing.

 

7.2                               Effect of Termination.  Nothing in this ARTICLE 7 shall be deemed to release any party from any liability for any breach by such party of the terms and provisions of this Agreement or the other Transaction Documents or to impair the right of any party to compel specific performance by any other party of its obligations under this Agreement or the other Transaction Documents.

 

ARTICLE 8
  MISCELLANEOUS

 

8.1                               Fees and Expenses.  Each party hereto shall pay its own costs and expenses in connection herewith.

 

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

 

8.3                               Notices.  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of:  (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on Exhibit A attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows:

 

(i)                                     if to the Company, to Enphase Energy, Inc., 1420 N. McDowell Blvd., Petaluma, CA 94954, Attention:  Chief Legal Officer and Secretary, with a copy to Arnold & Porter, 250 W. 55th Street, New York, NY, Attention: Michael Penney; and

 

(ii)                                  if to the Purchaser, to its address as set forth on Exhibit A.

 

 

8.4                               Amendments; Waivers.  Subject to the provisions of Section 5.5, no provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

 

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

 

8.6                               Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchaser. With the consent of the Company which will not be unreasonably withheld, any Purchaser may assign any or all of its rights under this Agreement to any Person to whom the Purchaser assigns or transfers any Securities, provided, that the Purchaser may assign any or all rights under this Agreement to an Affiliate of the Purchaser without the consent of the Company, and provided, further:  (i) such transferor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company after such assignment; (ii) the Company is furnished with written notice of (x) the name and address of such transferee or assignee and (y) if the transferor is assigning any registration rights under ARTICLE 5 hereof, the Registrable Securities with respect to which such registration rights are being transferred or assigned; (iii) following such transfer or assignment, the further disposition of such securities by the transferee or assignee is restricted under the Securities Act and applicable state securities laws, unless such disposition was made pursuant to an effective registration statement or an exemption under Rule 144 under the Securities Act; (iv) such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchaser”; and (v) such transfer shall have been made in accordance with the applicable requirements of this Agreement and with all laws applicable thereto.

 

8.7                               No Third-Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Sections 5.4 and 6.7.

 

8.8                               Governing Law; Jurisdiction.  This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of Delaware without regard to the choice of law principles thereof. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the state and federal courts located in the State of Delaware for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Agreement. Each of the parties hereto

 

 

irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. Each party hereto irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

 

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

 

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

 

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

 

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

 

8.13                        Rescission and Withdrawal Right.  Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever the Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then the 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.

 

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

 

 

to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

 

[Remainder of Page Intentionally Left Blank; Signature Pages Follow]

 

 

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

 

	
 
    	
ENPHASE   ENERGY, INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Eric Branderiz
    
	
 
    	
 
    	
Name:   Eric Branderiz
    
	
 
    	
 
    	
Title:   VP and Chief Financial Officer
    

 

 

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

 

	
 
    	
Rodgers Massey Revocable Living Trust dtd 4/4/11
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Thurman John Rodgers
    
	
 
    	
 
    	
Name: Thurman John Rodgers
    
	
 
    	
 
    	
Title:   TrusteeExhibit 4.1

 

THIS NOTE AND THE SECURITIES ISSUABLE
UPON THE CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”), AS AMENDED, OR UNDER
THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT
AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION
THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER,
SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

 

GENIUS BRANDS INTERNATIONAL,
INC.

 

SECURED CONVERTIBLE
NOTE

 

	$[●]	 	August [●], 2018

 

FOR VALUE RECEIVED,
Genius Brands International, Inc., a Nevada corporation (the “Company”), promises to pay to [●]
(the “Holder”) in lawful money of the United States of America or Common Stock of the Company, or any
combination thereof, the principal sum of $[●], or such lesser amount as shall equal the outstanding principal amount hereof,
together with interest from the date of this Secured Convertible Note (this “Note”) on the unpaid principal
balance at a rate equal to 10% per annum computed on the basis of the actual number of days elapsed and a year of 365 days. All
unpaid principal, together with any then unpaid and accrued interest and other amounts payable hereunder, shall be due and payable
on August [●], 2019 (the “Maturity Date”) or such earlier date as this Note is permitted to be
repaid as provided hereunder. This Note is one of the Secured Convertible Notes issued pursuant to that certain Securities Purchase
Agreement, dated August, [●], 2018 (the “Purchase Agreement”), by and among the Company and the
Purchasers identified on the signature pages thereto. Capitalized terms not otherwise defined herein shall have the meanings set
forth in the Purchase Agreement.

 

The following is a
statement of the rights of Holder and the conditions to which this Note is subject, and to which Holder, by the acceptance of this
Note, agrees:

 

1.                 
Payments.

 

(a)              
Interest. Holder shall be entitled to receive, and Company shall pay simple interest on the outstanding principal
amount of this Note at an annual rate of ten percent (10%) from the Original Issuance Date through the Maturity Date if not otherwise
converted into shares of the Company’s Common Stock pursuant to Section 2 hereof. Interest shall be payable in arrears
beginning on September 1, 2018 and thereafter on each of December 1, 2018, March 1, 2019, June 1, 2019 and on the Maturity Date
when all amounts outstanding in connection with this Note shall be due and payable (each an “Interest Payment Date”)
in cash. If any Interest Payment Date is not a Trading Day, the applicable payment shall be due on the next succeeding Trading
Day.

 

(b)              
Voluntary Prepayment. Subject to the provisions of this Section 1(b), at any time after the Effective Date, the Company
may deliver a notice to the Holder (an “Optional Redemption Notice” and the date such notice is deemed
delivered hereunder, the “Optional Redemption Notice Date”) of its irrevocable election to redeem some
or all of the then outstanding principal amount of this Note for cash in an amount equal to the Optional Redemption Amount on the
fifth (5th) Trading Day following the Optional Redemption Notice Date (such date, the “Optional Redemption
Date”, such five (5) Trading Day period, the “Optional Redemption Period” and such redemption,
the “Optional Redemption”). The Optional Redemption Amount is payable in full on the Optional Redemption
Date. The Company may only effect an Optional Redemption if the Equity Conditions shall have been met (unless waived in writing
by the Holder) on each Trading Day during the period commencing on the Optional Redemption Notice Date through to the Optional
Redemption Date and through and including the date payment of the Optional Redemption Amount is actually made in full. If the Equity
Conditions shall cease to be satisfied at any time during the Optional Redemption Period, then the Holder may elect to nullify
the Optional Redemption Notice by notice to the Company within three (3) Trading Days after the first (1st) day on which
the Equity Conditions have not been met (provided that if, by a provision of the Transaction Documents, the Company is obligated
to notify the Holder of the non-existence of the Equity Conditions, such notice period shall be extended to the third (3rd)
Trading Day after proper notice from the Company) in which case the Optional Redemption Notice shall be null and void, ab initio.
The Company covenants and agrees that it will honor all Notices of Conversion tendered from the time of delivery of the Optional
Redemption Notice through the date all amounts owing thereon are due and paid in full. The Company’s determination to pay
an Optional Redemption in cash shall be applied ratably to all of the holders of the then outstanding Notes based on their (or
their predecessor’s) initial purchases of Notes pursuant to the Purchase Agreement. If any portion of the payment pursuant
to an Optional Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest
rate equal to the lesser of 10% per annum or the maximum rate permitted by applicable law until such amount is paid in full. Notwithstanding
anything herein contained to the contrary, if any portion of the Optional Redemption Amount remains unpaid after such date, the
Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Optional Redemption, ab
initio, and, with respect to the Company’s failure to honor the Optional Redemption, the Company shall have no further
right to exercise such Optional Redemption.

 

 

 

    	 	1	 

     

    

 

2.                 
Conversion.

 

(a)              
Conversion Price; Calculation of Conversion Shares. The conversion price for the principal and interest, if any,
shall be $2.50 per share of Common Stock (subject to adjustment as described herein (the “Conversion Price”).
The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x)
the outstanding principal amount of this Note to be converted by (y) the Conversion Price.

 

(b)              
Company Optional Conversion at Maturity. Notwithstanding anything herein to the contrary, if on the Maturity
Date the closing price of the Common Stock for each of the immediately prior five (5) consecutive Trading Days (such period the
“Threshold Period”) has traded at or above $2.75 (the “Company Redemption Condition”)
(subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions
of the Common Stock that occur after the Original Issue Date), the Company may deliver a written notice to the Holder on the Maturity
Date (a “Forced Conversion Notice” and the date such notice is delivered to the Holder, the “Forced
Conversion Notice Date”) to cause the Holder to convert all or part of the then outstanding principal amount of this
Note plus, if so specified in the Forced Conversion Notice, accrued but unpaid interest, liquidated damages and other amounts owing
to the Holder under this Note, it being agreed that the “Conversion Date” for purposes of Section 4 shall be deemed
to occur on the Maturity Date (such third (3rd) Trading Day, the “Forced Conversion Date”).
The Company may not deliver a Forced Conversion Notice, and any Forced Conversion Notice delivered by the Company shall not be
effective, unless the Company Redemption Condition is met (unless waived in writing by the Holder) on each Trading Day occurring
during the applicable Threshold Period through and including the later of the Forced Conversion Date and the Trading Day after
the date such Conversion Shares pursuant to such conversion are delivered to the Holder. Any Forced Conversion shall be applied
ratably to all Holders based on their initial purchases of Notes pursuant to the Purchase Agreement, provided that any voluntary
conversions by a Holder shall be applied against the Holder’s pro rata allocation, thereby decreasing the aggregate amount
forcibly converted hereunder if only a portion of this Note is forcibly converted. For purposes of clarification, a Forced Conversion
shall be subject to all of the provisions of this Section 2, including, without limitation, the provision requiring payment of
liquidated damages and limitations on conversions. Notwithstanding anything herein to the contrary, if the Company Redemption Condition
has not been met on the Maturity Date, the Company shall be obligated to repay one-sixth (1/6th) of the then outstanding
principal amount of this Note each month for the six (6) months following the Maturity Date, with the first such payment due on
the Maturity Date, followed by payments each month thereafter.

 

(c)              
Holder Voluntary Conversion.

 

(i)                
At any time until this Note is no longer outstanding, this Note shall be convertible, in whole or in part, into shares of
Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in
Section 2(k) and Section 2(l) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion,
the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein
the principal amount of this Note to be converted and the date on which such conversion shall be effected (such date, the “Conversion
Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such
Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion
guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions hereunder,
the Holder shall not be required to physically surrender this Note to the Company unless the entire principal amount of this Note,
plus all accrued and unpaid interest thereon, has been so converted in which case the Holder shall surrender this Note as promptly
as is reasonably practicable after such conversion without delaying the Company’s obligation to deliver the Conversion Shares
otherwise pursuant to the terms of this Note. Conversions hereunder shall have the effect of lowering the outstanding principal
amount of this Note in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing
the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion
within one (1) Business Days of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records
of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance
of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this
Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.

 

(ii)             
Mechanics of Conversion. Not later than two (2) Trading Days after each Conversion Date (the “Share Delivery
Date”), the Company shall deliver, or cause to be delivered, to the Holder (A) the Conversion Shares which, on or after
the earlier of (i) the six month anniversary of the date of this Note or (ii) the Effective Date, shall be free of restrictive
legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number
of Conversion Shares being acquired upon the conversion of this Note and (B) a bank check in the amount of accrued and unpaid interest.
On or after the earlier of (i) the six month anniversary of the date of this Note or (ii) the Effective Date, the Company shall
deliver any Conversion Shares required to be delivered by the Company under this Section 4(c) electronically through the Depository
Trust Company or another established clearing corporation performing similar functions.

 

 

 

    	 	2	 

     

    

 

(d)              
Failure to Deliver Conversion Shares. If, in the case of any Notice of Conversion, such Conversion Shares are not
delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written
notice to the Company at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event
the Company shall promptly return to the Holder any original Note delivered to the Company and the Holder shall promptly return
to the Company the Conversion Shares issued to such Holder pursuant to the rescinded Conversion Notice.

 

(e)              
Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion
Shares upon conversion of this Note in accordance with the terms hereof are absolute and unconditional, irrespective of any action
or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination,
or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged
violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however,
that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In
the event the Holder of this Note shall elect to convert any or all of the outstanding principal amount hereof, the Company may
not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in
any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and
or enjoining conversion of all or part of this Note shall have been sought and obtained, and the Company posts a surety bond for
the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Note, which is subject to the injunction,
which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of
which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue
Conversion Shares or, if applicable, cash, upon a properly noticed conversion. In addition to any other rights available to the
Holder, if the Company fails for any reason to deliver to the Holder such Conversion Shares by the Share Delivery Date pursuant
to Section 2(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open
market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating
to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition
to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase
price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number
of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale
price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B)
at the option of the Holder, either reissue (if surrendered) this Note in a principal amount equal to the principal amount of the
attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of
Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 2(c)(ii).
For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an
attempted conversion of this Note with respect to which the actual sale price of the Conversion Shares (including any brokerage
commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence,
the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts
payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein
shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver
Conversion Shares upon conversion of this Note as required pursuant to the terms hereof.

 

(f)               
Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Note
and payment of interest on this Note, each as herein provided, free from preemptive rights or any other actual contingent purchase
rights of Persons other than the Holder (and the other holders of the Notes), not less than such aggregate number of shares of
the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account
the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Note and payment
of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly
authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities
Act, shall be registered for public resale in accordance with such Registration Statement (subject to such Holder’s compliance
with its obligations under the Registration Rights Agreement).

 

 

 

    	 	3	 

     

    

 

(g)              
Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion
of this Note. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the
Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Conversion Price or round up to the next whole share.

 

(h)              
Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of this Note shall be made without charge
to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such
Conversion Shares, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holder of
this Note so converted and the Company shall not be required to issue or deliver such Conversion Shares unless or until the Person
or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day processing
of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing
similar functions) required for same-day electronic delivery of the Conversion Shares.

 

(i)                
Stock Dividends and Stock Splits. If the Company, at any time while this Note is outstanding: (i) pays a stock dividend
or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock
Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion
of the Notes), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by
way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of
a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of
the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after
the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination or re-classification.

 

(j)                
Notices of Record Date. In the event of:

 

(i)                
Any taking by the Company of a record of the holders of any class of securities of Company for the purpose of determining
the holders thereof who are entitled to receive any dividend or other distribution or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or property, or to receive any other right; or

 

(ii)             
Any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company
or any transfer of all or substantially all of the assets of the Company to any other Person or any consolidation or merger involving
the Company; or

 

(iii)           
Any voluntary or involuntary dissolution, liquidation or winding-up of the Company, or

 

(iv)            
the Company shall deliver to Holder at least ten (10) days prior to the earliest date specified therein, a notice specifying
(A) the date on which any such record is to be taken for the purpose of such dividend, distribution or right and the amount
and character of such dividend, distribution or right; and (B) the date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding-up is expected to become effective and the record date for
determining stockholders entitled to vote thereon.

 

 

 

    	 	4	 

     

    

 

(k)              
Holder’s Conversion Limitations. The Company shall not effect any conversion of this Note, and the Holder shall
not have the right to convert any portion of this Note, to the extent that after giving effect to the conversion set forth on the
applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any Persons acting as a group together
with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation
(as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder
and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which
such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion
of the remaining, unconverted principal amount of this Note beneficially owned by the Holder or any of its Affiliates and (ii)
exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation
on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Notes or the Warrants)
beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this
Section 2(k), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. To the extent that the limitation contained in this Section 2(k) applies, the determination of whether
this Note is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal
amount of this Note is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion
shall be deemed to be the Holder’s determination of whether this Note may be converted (in relation to other securities owned
by the Holder together with any Affiliates) and which principal amount of this Note is convertible, in each case subject to the
Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company
each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this
paragraph and Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination
as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder. For purposes of this Section 2(k), in determining the number of outstanding shares of Common
Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i)
Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public
announcement by the Company, or (iii) a more recent written notice by Company or Company’s transfer agent setting forth the
number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two (2) Trading
Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number
of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the
Company, including this Note, by the Company or the Holder or its Affiliates since the date as of which such number of outstanding
shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 9.99% of the number of shares
of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion
of this Note held by the Holder. The Holder may decrease the Beneficial Ownership Limitation at any time and the Holder, upon not
less than 61 days’ prior notice to the Company, and may increase the Beneficial Ownership Limitation provided that the Beneficial
Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock upon conversion of this Note held by the Holder and the Beneficial Ownership Limitation
provisions of this Section 2(k) shall continue to apply. Any such increase will not be effective until the 61st day
after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed
and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(k) to correct this paragraph (or
any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or
to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in
this paragraph shall apply to a successor holder of this Note.

 

(l)                
Conversion Cap. The Company shall not issue any shares of Common Stock upon conversion of this Note or otherwise
pursuant to the terms of this Note if the issuance of such shares of Common Stock would exceed the aggregate number of shares of
Common Stock which the Company may issue upon conversion of the Notes without breaching the Company’s obligations, if any,
under the rules or regulations of the Trading Market (the number of shares which may be issued without violating such rules and
regulations, including rules related to the aggregate of offerings under Nasdaq Listing Rule 5635(d), as applicable, the “Conversion
Cap”), except that such limitation shall not apply in the event that the Company obtains the approval of its stockholders
as required by the applicable rules of the Trading Market for issuances of shares of Common Stock upon conversion of the Notes
in excess of such amount. Until such approval is obtained, no Holder shall be issued in the aggregate, upon conversion of any Notes,
shares of Common Stock in an amount greater than the product of (i) the Conversion Cap multiplied by (ii) the quotient of (A) the
Holder’s Subscription Amount (as defined in the Purchase Agreement) divided by (B) the aggregate principal amount of Notes
issued to all Holders (with respect to each Holder, the “Conversion Cap Allocation”). The Conversion Cap Allocation
will be further allocated as to each Holder among its Notes. In the event that any Holder shall sell or otherwise transfer any
of such Holder’s Notes, the transferee shall be allocated a pro rata portion of such Holder’s Conversion Cap Allocation
with respect to such portion of such Notes so transferred, and the restrictions of the prior sentence shall apply to such transferee
with respect to the portion of the Conversion Cap Allocation so allocated to such transferee. Upon conversion in full of a Holder’s
Notes, the difference (if any) between such Holder’s Conversion Cap Allocation and the number of shares of Common Stock actually
issued to such Holder upon such conversion in full of such Holder’s Notes shall be allocated to the respective Conversion
Cap Allocations of the remaining Holders of Notes on a pro rata basis in proportion to the shares of Common Stock underlying the
Notes then held by each such Holder. As of the Original Issuance Date, the Conversion Cap is 1,826,197[1]
shares of Common Stock.

 

__________________

 

[1]
Based upon 9,130,986 shares outstanding as of August 14, 2018.

 

 

 

    	 	5	 

     

    

 

3.                 
Security Interest.

 

(a)              
As collateral security for the Company’s obligations pursuant to this Note, the Company hereby pledges, assigns and
transfers to the Holder a first priority security interest in and collateral assignment of the Company’s right, title and
interest in and to all of the Company’s tangible and intangible property, including the following, whether now owned or now
due, or in which the Company has an interest, or hereafter, at any time in the future, acquired, arising or to become due, or in
which the Company obtains an interest, and all products, proceeds, replacements, substitutions and accessions of or to any of the
following (collectively, the “Collateral”):

 

(i)                
all equipment and all warranties, express or implied, related thereto;

 

(ii)             
all accounts and accounts receivable;

 

(iii)           
all inventory;

 

(iv)            
all contract rights;

 

(v)              
all licenses, permits and approvals by any governmental authority;

 

(vi)            
all general intangibles (including payment intangibles, software, trademarks, patents, copyrights or other intellectual
property rights of the Company);

 

(vii)         
all equipment (including all machinery, furniture, and fixtures);

 

(viii)       
all goods;

 

(ix)            
all chattel paper (whether tangible or electronic);

 

(x)              
all fixtures;

 

(xi)            
all investment property (including all financial assets, certificated and uncertificated securities, securities accounts
and security entitlements);

 

(xii)         
all letter-of-credit rights;

 

(xiii)       
all rights under judgments and all commercial tort claims;

 

(xiv)        
all books, records and information relating to the Collateral and/or to the operation of the Company’s business and
all rights of access to such books, records and information and all property in which such books, records and information are stored,
recorded and maintained;

 

(xv)          
all insurance proceeds, refunds and premium rebates, including proceeds of fire and credit insurance, whether any of such
proceeds, refunds and premium rebates arise out of any of the foregoing or otherwise;

 

(xvi)        
all liens, guaranties, rights, remedies and privileges pertaining to any of the foregoing; and

 

(xvii)     
all proceeds and products of each of the foregoing and all accessions to, substitutions and replacements for, and rents,
profits and products of, each of the foregoing, and any and all proceeds of any insurance, indemnity, warranty or guaranty payable
to the Company from time to time with respect to any of the foregoing.

 

 

 

    	 	6	 

     

    

 

(b)              
Notwithstanding anything herein to the contrary, in no event shall the Collateral include, and the Company shall be deemed
not to have granted a security interest in, any of the Company’s right, title and interest in the issued and outstanding
equity interests of Llama Productions LLC.

 

(c)              
The Company authorizes the Holder to file or cause to be filed one or more financing statements, amendments to financing
statements, continuations to financing statements, in lieu financing statements, and other similar filings with any filing or recording
office for the purpose of perfecting or continuing the perfection of or otherwise establishing Holder’s security interest
in the Collateral.

 

(d)              
So long as this Note remains outstanding, the Company agrees to (i) do, observe and perform or cause to be done, observed
and performed all of its obligations and all matters and things necessary to be done, observed and performed for the purpose of
maintaining the Collateral in good condition, including complying with and maintaining in effect all licenses, approvals and permits
and all contracts and contract rights related to the Collateral and (ii) upon the reasonable request of Holder, execute and deliver
such further instruments and do or cause to be done such further acts as may be necessary or advisable to carry out the intent
and purposes of this Note with respect to the Collateral.

 

4.                 
Covenants. As long as any portion of this Note remains outstanding, unless the Required Holders shall have
otherwise given prior written consent, the Company shall not, directly or indirectly:

 

(a)              
other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for
borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now
owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

(b)              
other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect
to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

5.                 
Events of Default. The occurrence of any of the following shall constitute an “Event of Default”
under this Note:

 

(a)              
Failure to Pay. The Company shall fail to pay (i) when due any principal payment on the due date hereunder or
(ii) any interest payment or other payment required under the terms of this Note on the date due and such payment shall not have
been made within five (5) Business Days of the Company’s receipt of written notice by the Required Holders of such failure
to pay; or

 

(b)              
Breaches of Covenants. The Company shall fail to observe or perform any other covenant, obligation, condition
or agreement contained in this Note (other than those specified in Section 5(a) hereof) the failure of which would
have a material adverse effect on the Company and such failure shall continue for thirty (30) days after the Company’s receipt
of written notice by the Required Holders to the Company of such failure; or

 

(c)              
Voluntary Bankruptcy or Insolvency Proceedings. The Company shall (i) apply for or consent to the appointment
of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) admit in writing
its inability to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of
its creditors, (iv) be dissolved or liquidated, (v) commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official
in an involuntary case or other proceeding commenced against it, or (vi) take any action for the purpose of effecting any
of the foregoing; or

 

(d)              
Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee,
liquidator or custodian of the Company, or of all or a substantial part of the property thereof, or an involuntary case or other
proceedings seeking liquidation, reorganization or other relief with respect to the Company or any of its subsidiaries, if any,
or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an
order for relief entered or such proceeding shall not be dismissed or discharged within forty-five (45) days of commencement.

 

 

 

    	 	7	 

     

    

 

6.                 
Rights of Holder upon Default. Upon the occurrence of any Event of Default (other than an Event of Default
described in Section 5(c) or Section 5(d)) hereof and at any time thereafter during the continuance of such
Event of Default, Holder may, with the written consent of the Required Holders, by written notice to the Company, declare all outstanding
obligations payable by the Company hereunder to be immediately due and payable, and take possession of and exercise control over,
to the fullest extent permitted by law, any Collateral, without presentment, demand, protest or any other notice of any kind, all
of which are hereby expressly waived. Upon the occurrence of any Event of Default described in Section 5(c) and Section
5(d) hereof, immediately and without notice, all principal and accrued and unpaid interest hereunder shall automatically become
immediately due and payable, and the Holder may take possession of and exercise control over, to the fullest extent permitted by
law, any Collateral, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived.
In addition to the foregoing remedies, upon the occurrence and during the continuance of any Event of Default, Holder may exercise
any other right power or remedy permitted to it by law, either by suit in equity or by action at law, or both.

 

7.                 
Definitions. As used in this Note, the following capitalized terms shall have the following meanings:

 

“Common Stock”
means the Common stock of the Company, par value $0.001 per share.

 

“Conversion
Shares” means the shares of Common Stock issuable upon conversion of this Note.

 

“Equity Conditions”
means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur
or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated
damages and other amounts owing to the Holder in respect of this Note, (c)(i) there is an effective Registration Statement pursuant
to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant
to the Transaction Documents (and the Company believes, in good faith, that such effectiveness will continue uninterrupted for
the foreseeable future) or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents (and shares issuable
in lieu of cash payments of interest) may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current
public information requirements as determined by the counsel to the Company as set forth in a written opinion letter to such effect,
addressed and acceptable to the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the
shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company
believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future),
(e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of
all of the shares then issuable pursuant to the Transaction Documents, (f) there is no existing Event of Default and no existing
event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the shares
in question (or, in the case of an Optional Redemption, the shares issuable upon conversion in full of the Optional Redemption
Amount) to the Holder would not violate the limitations set forth in Section 2(k) and Section 2(l) herein, (h) the applicable Holder
is not in possession of any information provided by the Company, any of its Subsidiaries, or any of their officers, directors,
employees, agents or Affiliates, that constitutes, or may constitute, material non-public information.

 

“Event
of Default” has the meaning given in Section 5 hereof.

 

“Notes”
means each of the Notes issued pursuant to the Purchase Agreement.

 

“Original Issuance Date”
means the date of the first issuance of the Notes, regardless of any transfers of any Note and regardless of the number of instruments
which may be issued to evidence such Notes.

 

“Required
Holders” means the Holders holding a majority of the aggregate outstanding principal due under the Notes.

 

8.                 
Miscellaneous.

 

(a)              
Successors and Assigns; Transfer of this Note or Securities Issuable on Conversion Hereof.

 

 

 

    	 	8	 

     

    

 

(i)                
Subject to the restrictions on transfer described in this Section 8(a), the rights and obligations of the Company
and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the Company and
Holder.

 

(ii)             
With respect to any offer, sale or other disposition of this Note or securities into which such Note may be converted, Holder
shall give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion
of Holder’s counsel or other evidence reasonably satisfactory to the Company, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any federal or state law then in effect). Upon receiving
such written notice and reasonably satisfactory opinion or other evidence if so requested, the Company, as promptly as practicable,
shall notify Holder that Holder may sell or otherwise dispose of this Note or such securities, all in accordance with the terms
of the notice delivered to the Company. If a determination has been made pursuant to this Section 8(a) that the opinion
of counsel for Holder, or other evidence, is not reasonably satisfactory to the Company, the Company shall so notify Holder promptly
after such determination has been made. Each Note thus transferred and each certificate representing the securities thus transferred
shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act,
unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities
Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the
foregoing, transfers of this Note shall be registered upon registration books maintained for such purpose by or on behalf of the
Company. Prior to presentation of this Note for registration of transfer, the Company shall treat the registered holder hereof
as the owner and holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other
purposes whatsoever, whether or not this Note shall be overdue and the Company shall not be affected by notice to the contrary.

 

(iii)           
Neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise,
in whole or in part, by the Company without the prior written consent of Holder.

 

(b)              
Waiver and Amendment. Any provision of this Note may be amended, waived or modified only upon the written
consent of the Company and the Required Holders.

 

(c)              
Notices. All notices, requests, demands, consents, instructions or other communications required or permitted
hereunder shall be made in accordance with Section 5.4 of the Purchase Agreement.

 

(d)              
Ranking. The Company and Holder acknowledge and agree that the Notes rank senior to all other securities of
the Company. Payment of all or any portion of the outstanding principal amount of this Note and all interest hereon shall be senior
in right of payment and in all other respects to the all other securities of the Company. Payment of all or any portion of the
outstanding principal amount of this Note and all interest hereon shall be senior in right of payment and in all other respects
to other indebtedness of the Company except for Llama Productions LLC’s existing credit facility with Bank Leumi USA.

 

(e)              
Payment. Unless converted into the Company’s equity securities pursuant to the terms hereof, payment shall
be made in United States dollars.

 

(f)               
Usury. In the event any interest is paid on this Note which is deemed to be in excess of the then legal maximum
rate, then that portion of the interest payment representing an amount in excess of the then legal maximum rate shall be deemed
a payment of principal and applied against the principal of this Note.

 

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

 

(h)              
Governing Law.  This Note and all actions arising out of or in connection with this Note shall be governed
by and construed in accordance with the laws of New York, without regard to its internal rules governing the conflict of laws.

 

[Remainder of page
intentionally left blank.]

 

 

 

    	 	9	 

     

    

 

The Company has caused this Note to be issued
as of the date first written above.

 

	 	
        GENIUS BRANDS INTERNATIONAL,
        inc.

	 	 
	 	
        By:__________________________________________

        Name:

        Title:

 

 

 

 

 

 

 

 

 

    	 	10	 

     

    

 

Accepted by:

 

 PURCHASER:

 

 [Purchaser]

 

 

 

 

By:                                                        

 Name:

Title:

 

 

 

 

 

 

 

 

 

 

    	 	11	 

     

    

ANNEX A

 

NOTICE OF CONVERSION

 

The undersigned hereby
elects to convert principal under the Secured Convertible Note due [●], 2019 of Genius Brands International, Inc., a Nevada
corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company
according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith
such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder
for any conversion, except for such transfer taxes, if any.

 

By the delivery of
this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not
exceed the amounts specified under Section 2 of this Note, as determined in accordance with Section 13(d) of the Exchange Act.

 

The undersigned agrees
to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the
aforesaid shares of Common Stock.

 

Conversion calculations:

 

	 	Date to Effect Conversion: ____________________________
	 	 
	 	Principal Amount of Note to be Converted: $__________________
	 	 
	 	Accrued Interest to be Converted, if any: $______________
	 	 
	 	Conversion Price: $_________________
	 	 
	 	Number of shares of Common Stock to be issued: ______________
	 	 
	 	Signature: _________________________________________
	 	 
	 	Name: ____________________________________________
	 	 
	 	Address for Delivery of Common Stock Certificates: __________
	 	_____________________________________________________ 
	 	_____________________________________________________
	 	 
	 	Or
	 	 
	 	DWAC Instructions: _________________________________
	 	 
	 	Broker No:_____________
	 	Account No: _______________

  

	

 

 

 

 

    	 	12

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