Document:

seriesb.htm

SERIES B WARRANT

 

THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAW, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION OR AN EXEMPTION THEREFROM UNDER THE ACT OR ANY APPLICABLE STATE SECURITIES LAWS.  AS A CONDITION TO SALE OR OTHER TRANSFER OF THE SECURITY, THE COMPANY MAY, AT ITS OPTION, REQUIRE THE PROPOSED TRANSFEROR HEREOF TO DELIVER TO THE COMPANY AN OPINION OF COUNSEL, WHICH OPINION AND WHICH COUNSEL SHALL BE SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED FOR SUCH PROPOSED SALE OR OTHER TRANSFER.

 

To Purchase 22,368,421 Shares of Common Stock ($0.001 par value)

 

Warrant Number: B-CAP-001

 

TWINLAB CONSOLIDATED HOLDINGS, INC.

 

Incorporated Under the Laws of Nevada

 

Warrant

 

1. Basic Terms.  This certifies that, for value received, the Registered Owner (the “Registered Owner”) is entitled, subject to the terms and conditions of this Warrant, at any time and from time to time, in whole or in part, from the time set forth in Paragraph 3 below until the expiration date, to purchase shares of the common stock, par value $0.001 per share (the “Common Stock”), of Twinlab Consolidated Holdings, Inc. (“TCH” or the “Company”) from the Company at the purchase price set forth in Paragraph 2 below, on delivery of this Warrant to the Company with the exercise form duly executed and payment of the purchase price (as further described in Paragraph 6 below) for each share purchased.

 

Registered Owner: Capstone Financial Group, Inc., a Nevada corporation

 

2. Purchase Price. The purchase price per share shall be $0.76.

 

3. When Exercisable.  This Warrant shall be exercisable at any time from and after October 1, 2014 and shall expire at 5:00 p.m., New York Time, October 31, 2017 (the “Expiration Date”) unless terminated sooner under (i) Paragraph 16 of this Warrant or (ii) in accordance with Section 2.1(c) of the Common Stock Put Agreement, dated as of September 30, 2014, by and between TCH and Capstone (the “Put Agreement”). This Warrant shall expire, become void, and be of no further force or effect after the Expiration Date.

 

4. Company’s Covenants as to Common Stock.  Shares of the Common Stock deliverable on the exercise of this Warrant shall, at delivery, be fully paid and non-assessable, and free from taxes, liens, and charges with respect to their purchase. The Company shall take any necessary steps to assure that the par value per share of the Common Stock issuable hereunder is at all times equal to or less than the then current purchase price per share of the Common Stock issuable pursuant to this Warrant. The Company shall at all times reserve and hold available sufficient shares of Common Stock to satisfy all conversion and purchase rights of all outstanding convertible securities, options, and warrants, including, without limitation, this Warrant.

 

 

  

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5. Method of Exercise.  The purchase rights represented by this Warrant are exercisable at the option of the Registered Owner in whole at any time, or in part, from time to time, within the period above specified.  In case of the exercise of this Warrant for less than all shares purchasable, the Company shall cancel the Warrant and execute and deliver a new Warrant of like tenor and date for the balance of the shares purchasable. Notwithstanding anything to the contrary contained elsewhere in this Warrant, this Series B Warrant may only be exercised to the extent and in the same cumulative proportions as the Series A Warrant, dated as of September 30, 2014, issued by the Company to the Registered Owner (“Series A Warrant”) has then been exercised by the Registered Owner.

 

6. Payment for Shares.  The Registered Owner shall notify the Company of the number of shares that it desires to purchase and deliver with such notice cash, immediately available funds or a certified bank check payable to the Company for the purchase price of the shares being purchased.

 

7. Fractional Shares.  The Company shall not be required to issue a fractional share of Common Stock upon exercise of the Warrant. As to any fraction of a share of Common Stock that the Registered Owner would otherwise be entitled to purchase upon such exercise, the Company shall pay to such Registered Owner an amount in cash (by delivery of a certified or official bank check or by wire transfer of immediately available funds) equal to the product of (i) such fraction multiplied by (ii) the fair market value of one share of Common Stock on the exercise date.  The Board of Directors of the Company, acting in good faith, shall determine the fair market value of the share of Common Stock.

 

8. Taxes.  The Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issuance or delivery of shares of Common Stock upon exercise of this Warrant; provided, that the Company shall not be required to pay any tax or governmental charge that may be imposed with respect to any applicable withholding or the issuance or delivery of the shares of Common Stock to any person other than the Registered Owner, and no such issuance or delivery shall be made unless and until the person requesting such issuance has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid.

 

9. Limited Rights of Owner.  This Warrant does not entitle the Registered Owner to any voting rights or other rights as a shareholder of the Company, or to any other rights whatsoever except the rights herein expressed.  No dividends are payable or will accrue on this Warrant or the shares purchasable hereunder until, and except to the extent that, this Warrant is exercised.

 

10. Exchange or Other Denominations.  This Warrant is exchangeable, on its surrender by the Registered Owner to the Company, for new Warrants of like tenor and date representing in the aggregate the right to purchase the number of shares purchasable hereunder in denominations designated by the Registered Owner at the time of surrender.

 

11. Transfer.  Except as otherwise above provided, this Warrant is transferable only on the books of the Company by the Registered Owner in person or by attorney, on surrender of this Warrant, properly endorsed.

 

 

 

  

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12. Recognition of Registered Owner.  Prior to due presentment for registration of transfer of this Warrant, the Company may treat the Registered Owner as the person exclusively entitled to receive notices and otherwise to exercise rights hereunder.

 

13. Effect of Stock Split, etc.  If the Company, by stock split, stock dividend, reverse split, reclassification of shares, or otherwise, changes as a whole the outstanding Common Stock into a different number or class of shares, then:   (1) the number and/or class of shares as so changed shall, for the purposes of this Warrant, replace the shares outstanding immediately prior to the change; and (2) the purchase price in effect, and the number of shares purchasable under this Warrant, immediately prior to the date upon which the change becomes effective, shall be proportionately adjusted (the price to the nearest cent).   Irrespective of any adjustment or change in the purchase price or the number of shares purchasable under this or any other Warrant of like tenor, the Warrants therefore and thereafter issued may continue to express the purchase price per share and the number of shares purchasable as the Warrant purchase price per share and the number of share purchasable were expressed in the Warrant when initially issued.

 

14. Effect of Merger, etc.   If the Company consolidates with or merges into another corporation, in each case which entitles the holders of Common Stock to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock, the Registered Owner shall thereafter be entitled, upon exercise of this Warrant, to purchase, with respect to each share of Common Stock purchasable hereunder immediately before the consolidation or merger becomes effective, the securities or other consideration to which the Registered Owner is entitled in the consolidation or merger without any change in or payment in addition to the Warrant purchase price in effect immediately prior to the merger or consolidation.  The Company shall take any necessary steps in connection with a consolidation or merger to assure that all the provisions of this Warrant shall thereafter be applicable, as nearly as reasonably may be, to any securities or other consideration so deliverable on exercise of this Warrant.  The Company shall not consolidate or merge unless, prior to consummation, the successor corporation (if other than the Company) assumes the obligations of this paragraph by written instrument executed and mailed to the Registered Owner at the address of such owner on the books of the Company.  A sale or lease of all or substantially all the assets of the Company for a consideration (apart from the assumption of obligations) consisting primarily of securities is a consolidation or merger for the foregoing purposes.

 

15. Notice of Adjustment.  On the happening of an event requiring an adjustment of the purchase price or the shares purchasable hereunder, the Company shall forthwith give written notice to the Registered Owner stating the adjusted purchase price and the adjusted number and kind of securities or other property purchasable hereunder resulting from the event and setting forth reasonable detail of the method of calculation and the facts upon which the calculation is based.  The Board of Directors of the Company, acting in good faith, shall determine the calculation.

 

16. Notice and Effect of Dissolution, etc.  In case a voluntary or involuntary dissolution, liquidation, or winding up of the Company (other than a connection with a consolidation or merger covered by Paragraph 14 above) is at any time proposed, the Company shall give at least 30 days’ prior written notice to the Registered Owner.  Such notice shall contain: (1) the date on which the transaction is to take place; (2) the record date (which shall be at least 30 days after the giving of the notice) as of which the Registered Owner will be entitled to receive distributions as a result of the transaction; (3) a brief description of the transaction; (4) a brief description of the distributions made to the Registered Owner as a result of the transaction and (5) an estimate of the fair value of the distributions. On the date of the transaction, if it actually occurs, this Warrant and all rights hereunder shall terminate.

 

 

 

  

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17. Compliance with the Securities Act.

 

(A) Agreement to Comply with the Securities Act; Legend. The Registered Owner, by acceptance of this Warrant, agrees to comply in all respects with the provisions of this Paragraph 17 and the restrictive legend requirements set forth on the face of this Warrant and further agrees that such Registered Owner shall not offer, sell or otherwise dispose of this Warrant or any shares of Common Stock to be issued upon exercise hereof except under circumstances that will not result in a violation of the Securities Act of 1933, as amended (the "Securities Act"). This Warrant and all shares of Common Stock issued upon exercise of this Warrant (unless registered under the Securities Act) shall be stamped or imprinted with a legend in substantially the following form:

 

"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR QUALIFIED UNDER ANY STATE OR FOREIGN SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR ASSIGNED UNLESS (I) A REGISTRATION STATEMENT COVERING SUCH SHARES IS EFFECTIVE UNDER THE ACT AND IS QUALIFIED UNDER APPLICABLE STATE AND FOREIGN LAW OR (II) THE TRANSACTION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS UNDER THE ACT AND THE QUALIFICATION REQUIREMENTS UNDER APPLICABLE STATE AND FOREIGN LAW AND, IF THE CORPORATION REQUESTS, AN OPINION SATISFACTORY TO THE CORPORATION TO SUCH EFFECT HAS BEEN RENDERED BY COUNSEL."

 

In addition, if the Registered Owner is an Affiliate (as defined in the Securities Act) of the Company, certificates evidencing the shares of Common Stock issued to the Registered Owner shall bear a customary “affiliates” legend.

 

(B) Representations of the Registered Owner. In connection with the issuance of this Warrant, the Registered Owner specifically represents, as of the date hereof, to the Company by acceptance of this Warrant as follows:

 

(i) The Registered Owner is an "accredited investor" as defined in Rule 501 of Regulation D promulgated under the Securities Act. The Registered Owner is acquiring this Warrant and the shares of Common Stock to be issued upon exercise hereof for investment for its own account and not with a view towards, or for resale in connection with, the public sale or distribution of this Warrant or the shares of Common Stock, except pursuant to sales registered or exempted under the Securities Act.

 

(ii) The Registered Owner understands and acknowledges that this Warrant and the shares of Common Stock to be issued upon exercise hereof are "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that, under such laws and applicable regulations, such securities may be resold without registration under the Securities Act only in certain limited circumstances. In addition, the Registered Owner represents that it is familiar with Rule 144 under the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act.

 

 

  

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(iii) The Registered Owner acknowledges that it can bear the economic and financial risk of its investment for an indefinite period, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Warrant and the shares of Common Stock. The Registered Owner has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Warrant and the business, properties, prospects and financial condition of the Company.

 

18. Registration Rights.  The Registered Owner shall be entitled to register the shares of Common Stock issued upon exercise of this Warrant upon the terms and subject to the conditions of that certain Registration Rights Agreement, dated as of September 30, 2014, by and between Twinlab Consolidated Holdings, Inc. and Capstone Financial Group, Inc. (the “Registration Rights Agreement”).

 

19. Anti-dilution.  In the event that TCH issues a security (i) exercisable or exchangeable for or (ii) convertible into shares of Common Stock at a date after October 1, 2014 and such security provides for anti-dilution protection, the shares of Common Stock issuable hereunder shall enjoy the same anti-dilution protection as that first issued security.

 

20. Warrant Register.  The Company shall keep and properly maintain at its principal executive offices books for the registration of the Warrant and any transfers thereof. The Company may deem and treat the Person in whose name the Warrant is registered on such register as the Registered Owner thereof for all purposes, and the Company shall not be affected by any notice to the contrary, except any assignment, division, combination or other transfer of the Warrant effected in accordance with the provisions of this Warrant.

 

21. Notices.  All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given: (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient; or (d) on the fifth day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the addresses indicated below (or at such other address for a party as shall be specified in a notice given in accordance with this Paragraph 21).

 

	
If to the Company:

	
Twinlab Consolidated Holdings, Inc.

632 Broadway, Suite 201

New York, NY 10012

E-mail: RNeuwirth@twinlab.com

Attention: General Counsel 

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

	
Wilk Auslander LLP

1515 Broadway

New York, NY 10036

E-mail: jfrank@wilkauslander.com

Attention: Joel I. Frank, Esq.

	
If to the Registered Owner:

	
Capstone Financial Group, Inc.

2600 Michelson Drive, Suite 700

Irvine, CA 92612

E-mail: dpastor@capstonefg.com

Attention: Darin R. Pastor

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

	
Stoecklein Law Group, LLP

401 West A Street, Suite 1150

San Diego, CA 92101

E-mail: djs@slgseclaw.com

Attention: Donald J. Stoecklein, Esq.

22. Equitable Relief. Each of the Company and the Registered Owner acknowledges that a breach or threatened breach by such party of any of its obligations under this Warrant would give rise to irreparable harm to the other party hereto for which monetary damages would not be an adequate remedy and hereby agrees that in the event of a breach or a threatened breach by such party of any such obligations, the other party hereto shall, in addition to any and all other rights and remedies that may be available to it in respect of such breach, be entitled to equitable relief, including a restraining order, an injunction, specific performance and any other relief that may be available from a court of competent jurisdiction.

 

23. Entire Agreement. This Warrant, together with the Registration Rights Agreement, Put Agreement and Series A Warrant, constitutes the sole and entire agreement of the parties to this Warrant with respect to the subject matter contained herein, and supersedes all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event of any inconsistency between the statements in the body of this Warrant and the Registration Rights Agreement, the statements in the body of this Warrant shall control.

 

24. Successor and Assigns. This Warrant and the rights evidenced hereby shall be binding upon and shall inure to the benefit of the parties hereto and the successors of the Company and the successors of the Registered Owner. Such successors of the Registered Owner shall be deemed to be a Registered Owner for all purposes hereunder. This Warrant may only be assigned with the mutual consent of the Registered Owner and the Company in writing.

 

25. No Third-Party Beneficiaries. This Warrant is for the sole benefit of the Company and the Registered Owner and their respective successors and, in the case of the Registered Owner, permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever, under or by reason of this Warrant.

 

 

 

  

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26. Headings. The headings in this Warrant are for reference only and shall not affect the interpretation of this Warrant.

 

27. Amendment and Modification; Waiver. Except as otherwise provided herein, this Warrant may only be amended, modified or supplemented by an agreement in writing signed by each party hereto. No waiver by the Company or the Holder of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No waiver by any party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any rights, remedy, power or privilege arising from this Warrant shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

 

28. Severability. If any term or provision of this Warrant is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Warrant or invalidate or render unenforceable such term or provision in any other jurisdiction.

 

29. Governing Law. This Warrant shall be governed by and construed in accordance with the internal laws of the State of Nevada without giving effect to any choice or conflict of law provision or rule (whether of the State of Nevada or any other jurisdiction) that would cause the application of laws of any jurisdiction other than those of the State of Nevada.

 

30. Submission to Jurisdiction. Any legal suit, action or proceeding arising out of or based upon this Warrant or the transactions contemplated hereby may be instituted in the federal courts of the United States of America or the courts of the State of New York in each case located in the city of New York and County of New York, and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. Service of process, summons, notice or other document by certified or registered mail to such party's address set forth herein shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or any proceeding in such courts and irrevocably waive and agree not to plead or claim in any such court that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

 

31. Waiver of Jury Trial. Each party acknowledges and agrees that any controversy which may arise under this Warrant is likely to involve complicated and difficult issues and, therefore, each such party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Warrant or the transactions contemplated hereby.

 

32. Counterparts. This Warrant may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Warrant delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Warrant.

 

33. No Strict Construction. This Warrant shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted.

 

[SIGNATURE PAGE TO FOLLOW]

 

 

 

 

  

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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and delivered by a duly authorized representative as of the 30th day of September, 2014.

 

 

TWINLAB CONSOLIDATED HOLDINGS, INC.

 

 

	
  

	
By:

	
/S/ Thomas A. Tolworthy      

 

	
  

	
Thomas A. Tolworthy

 

	
  

	
President and Chief Executive Officer

 

 

ACCEPTED AND AGREED TO AS OF THE DATE SET FORTH ABOVE:

 

 

CAPSTONE FINANCIAL GROUP, INC.

 

 

	
By:

	
/S/ Darin R. Pastor      

 

	
  

	
Darin R. Pastor

 

	
  

	
Chief Executive Officer

 

 

 

  

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Exercise Form

 

(To be executed by the Registered Owner to purchase

 

Common Stock pursuant to the Warrant)

 

 

	
To:

	
TWINLAB CONSOLIDATED HOLDINGS, INC.

 

	
  

	
632 Broadway, Suite 201

 

	
  

	
New York, NY 10012

 

 

The undersigned hereby: (1) irrevocably subscribes for ___________ shares of your Common Stock pursuant to this Warrant, and encloses payment of $ ____________therefor, (2) requests that a certificate for the shares be issued in the name of the undersigned and delivered to the undersigned at the address below; and (3) if such number of shares is not all of the shares purchasable hereunder, that a new Warrant of like tenor for the balance of the remaining shares purchasable hereunder be issued in the name of the undersigned and delivered to the undersigned at the address below.

 

 

Date:  ______________________

 

 

_________________________________________________________

 

(Please sign exactly as name appears on Warrant)

 

 

	
Address:

	
_______________________________________________________

 

 

	
  

	
_______________________________________________________

 

 

Taxpayer ID No.  ________________________________________

 

 

 

 

  

8putagreement.htm

COMMON STOCK PUT AGREEMENT

 

COMMON STOCK PUT AGREEMENT (this “Agreement”), dated as of September 30, 2014, between Twinlab Consolidated Holdings, Inc., a Nevada corporation (“TCH”), and Capstone Financial Group, Inc., a Nevada corporation (“Capstone”).

 

RECITALS:

 

WHEREAS, in consideration for the put rights granted herein TCH has issued Capstone a Series A Warrant, dated as of September 30, 2014 (the “Series A Warrant”) and a Series B Warrant, dated as of September 30, 2014 (the “Series B Warrant” and with the Series A Warrant, the “Warrants”), which Warrants provide Capstone the right to purchase shares of TCH’s common stock, par value $0.001 per share (“Common Stock”), at a price $0.76 per share over a period of 36 months in accordance with the terms and conditions of the Warrants;

 

WHEREAS, in consideration of the issuance of the Series A Warrant and the Series B Warrant Capstone intends by this Agreement to exercise the Series A Warrant at the rate of no less than 1,461,988 shares of Common Stock per month for a period of 36 months; and

 

WHEREAS, this Agreement is intended to create such rights and to set forth the terms and conditions under which TCH shall cause Capstone to exercise its rights to purchase shares of Common Stock pursuant to the Series A Warrant at the rate of no less than 1,461,988 shares of Common Stock per month.

 

In consideration of the mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows:

 

 

ARTICLE I

 

 

 

 

INTENT TO EXERCISE

 

Section 1.1 Intent to Exercise.  Capstone intends to exercise the Series A Warrant, in accordance with the terms and conditions of the Series A Warrant, at a rate of no less than 1,461,988 shares of Common Stock (the “Minimum Amount”) per month over the 36 month life of the Series A Warrant (the “Minimum Rate”) until the Series A Warrant has been fully exercised, with the first exercise being no later than November 15, 2014 (the “Initial Exercise Date”) and the remaining exercises on the 15th day of each month thereafter unless the 15th of any given month is not a business day, in which case the particular exercise shall be on the next business day after the 15th of such month (each, a “Periodic Exercise Date”).  The foregoing notwithstanding, nothing contained herein shall prevent Capstone from exercising the Series A Warrant to purchase more than the Minimum Amount in any given month.  To the degree that Capstone exercises the Series A Warrant to purchase more than the Minimum Amount in any given month, all Common Stock so purchased shall be accounted for in calculating whether in subsequent months Capstone has maintained the Minimum Rate.  By way of example, if Capstone exercised the Series A Warrant to acquire 2,923,976 shares of Common Stock (2 times the Minimum Amount) by the Initial Exercise Date, then even if Capstone did not make an additional purchase by the next Periodic Exercise Date (i.e., during Month 2) Capstone would still be deemed to have maintained the Minimum Rate because as of the close of Month 2 it would have acquired Common Stock at a rate equal to the Minimum Amount per month for each of the first 2 months of the life of the Series A Warrant.  Likewise, in the foregoing example, Capstone would be required to exercise the Series A Warrant to purchase no less than the Minimum Amount by the Month 3 Periodic Exercise Date in order to maintain the Minimum Rate as of the Month 3 Periodic Exercise Date.

 

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PUT RIGHTS

 

Section 1.2 The Put.  (a) In the event that Capstone does not exercise the Series A Warrant on the Initial Exercise Date or any subsequent Periodic Exercise Date such that as of the applicable Exercise Date, Capstone’s cumulative purchases of Common Stock pursuant to the Series A Warrant shall not have been at a rate that is equal to or in excess of the Minimum Rate, then TCH shall have the right to notify Capstone not earlier than 30 days and not later than 40 days after the applicable Exercise Date of TCH’s exercise of its put rights hereunder (the “Put Notice”).  Upon receipt of the Put Notice, Capstone shall be required to exercise the Series A Warrant to (i) purchase the Minimum Amount by a date identified in the Put Notice that is no earlier than 10 days after and no later than 30 days after the date of the Put Notice (the “Put Date”), or if Capstone has previously exercised the Series A Warrant to purchase shares in excess of the Minimum Rate, then such lesser amount of Common Stock as would, if purchased as of the applicable Exercise Date, have made Capstone’s purchases of Common Stock pursuant to the Series A Warrant as of such Exercise Date equal to the Minimum Rate (the “Initial Mandatory Purchase”), and (ii) purchase by a date that is no later than each subsequent Periodic Exercise Date an amount of Common Stock such that as of each such Periodic Exercise Date, Capstone’s cumulative purchases of Common Stock pursuant to the Series A Warrant through that date shall have been at a rate that is no less than the Minimum Rate (the “Periodic Mandatory Purchases”).

 

(b) Following delivery of the Put Notice by TCH, Capstone’s failure to make the Initial Mandatory Purchase by the Put Date shall be an “Event of Default” hereunder.

 

(c) Following the delivery of the Put Notice by TCH, Capstone’s failure to make when due any Periodic Mandatory Purchase in accordance with clause (a) above shall be a breach of this Agreement, and if such breach is not cured by Capstone within 10 days of receipt of written notice by TCH of the breach, then such uncured breach shall be deemed an Event of Default.

 

(d) Upon the occurrence of an Event of Default pursuant to either clause (b) or (c) above, (i) Capstone’s right to purchase all shares of Common Stock remaining unpurchased under the Series A Warrant shall be converted into an obligation, accelerated and immediately due and (ii) the Series B Warrant shall immediately terminate as to any shares of Common Stock remaining exercisable under the Series B Warrant.

 

(e) Notwithstanding anything to be contrary contained in the Series A Warrant, in the event TCH has invoked its right pursuant to the Put Notice to require Capstone to exercise the Series A Warrant, the purchase price per share of Common Stock thereunder shall be $0.775 per share (the “Put Price”).

 

(f) In the event that TCH has so converted and accelerated Capstone’s obligations to purchase the shares of Common Stock remaining unexercised under the Series A Warrant, Capstone shall have the right to surrender issued and outstanding shares of Common Stock to TCH to be credited towards Capstone’s obligations hereunder, which surrendered shares shall be valued at $0.76 per share of Common Stock.

 

  

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Section 1.3 Effect of Stock Split, etc. If TCH, by stock split, stock dividend, reverse split, reclassification of shares, or otherwise, changes as a whole the outstanding Common Stock into a different number or class of shares, then: (1) the number and/or class of shares as so changed shall, for the purposes of this Agreement, replace the shares outstanding immediately prior to the change; and (2) the Put Price in effect, and the number of shares purchasable under this Agreement, immediately prior to the date upon which the change becomes effective, shall be proportionately adjusted (the price to the nearest cent).

 

Section 1.4 Notice of Adjustment. On the happening of an event requiring an adjustment of the Put Price per share, TCH shall forthwith give written notice to Capstone stating the adjusted Put Price per share and the adjusted number and kind of securities or other property purchasable hereunder resulting from the event and setting forth reasonable detail of the method of calculation and the facts upon which the calculation is based. The Board of Directors of TCH, acting in good faith, shall determine the calculation.

 

 

ARTICLE II

 

 

 

 

REPRESENTATIONS AND WARRANTIES OF TCH

 

TCH represents and warrants to Capstone as follows:

 

Section 2.1 Corporate Organization. TCH is a corporation duly incorporated, validly existing and subsisting under the laws of Nevada. Each TCH Subsidiary is a corporation duly incorporated, validly existing and in good standing under the laws of its respective state of incorporation. TCH and each of its Subsidiaries has all requisite power and authority to own, operate and lease its properties and to conduct its business as currently conducted. TCH and each of its Subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction in which its ownership or leasing of property or the conduct of its business requires such licensing or qualification, except to the extent that the failure to be so qualified or licensed would not have a Material Adverse Effect. As used in this Agreement, “Material Adverse Effect” means any event, circumstance or development which individually or in the aggregate could have a material adverse effect on the business, properties, operations, condition (financial or otherwise), assets, liabilities, tradability of the Common Stock, earnings or results of operations of TCH and its Subsidiaries taken as a whole or on the transactions contemplated hereby.

 

Section 2.2 Authorization. TCH has all requisite power and full legal right to execute and deliver this Agreement and the Series A Warrant, the Series B Warrant and the Registration Rights Agreement (collectively, the “Ancillary Agreements”), and to perform all of its obligations hereunder and thereunder in accordance with the respective terms hereof and thereof. This Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby have been duly approved and authorized by all requisite corporate action on the part of TCH, and this Agreement has been duly executed and delivered by TCH and constitutes, and each of the Ancillary Agreements, when executed and delivered by TCH, will constitute, a legal, valid, and binding obligation of TCH, enforceable against it in accordance with its respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to the enforcement of creditors’ rights and remedies or by other equitable principles of general application. The execution, delivery, and performance by TCH of this Agreement and the Ancillary Agreements in accordance with their respective terms, and the consummation by TCH of the transactions contemplated hereby or thereby, will not result (with or without the giving of notice or the lapse of time or both) in any conflict, violation, breach, or default, or the creation of any Lien, or the termination, acceleration, vesting, or modification of any right or obligation, under or in respect of (x) the Certificate of Incorporation or By-laws of TCH and its Subsidiaries, (y) any judgment, decree, order, statute, rule or regulation binding on or applicable to TCH or its Subsidiaries, or (z) any agreement or instrument to which TCH or any of its Subsidiaries is a party or by which it or any of its assets is or are bound.

 

  

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Section 2.3 No Undisclosed or Contingent Liabilities. Except as set forth in the SEC Reports, neither TCH nor its Subsidiaries has any liabilities or obligations of any nature (whether absolute, accrued, contingent or otherwise and whether due or to become due) which are not fully reflected or reserved against on the balance sheet as of June 30, 2014 in accordance with GAAP, except for liabilities and obligations incurred in the ordinary course of business and consistent with past practice since the date thereof.

 

Section 2.4 No Violation. Neither the execution and delivery of this Agreement or any of the Ancillary Agreements by TCH nor the performance by TCH of its obligations hereunder or thereunder will: (i) conflict with or result in any breach of any provision of its or its Subsidiaries’ respective Certificate of Incorporation or By-laws, (ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default or give rise to any Lien on TCH’s or its Subsidiaries’ properties or assets or any right of termination, cancellation or acceleration under any of the terms or conditions of any note, bond, mortgage, indenture, license, agreement or other instrument or obligation to which TCH or any of its Subsidiaries is a party or by which it or any of their respective material properties or assets may be bound, or require the consent of any person, (iii) violate any statute, law, rule, regulation, writ, injunction, judgment, order or decree of any court, administrative agency or governmental authority binding on TCH, it Subsidiaries or any of their respective properties or assets, or (iv) violate any provision (including those requiring the furnishing of notice prior to the taking of specific actions) of the rules of any marketplace on which the Common Stock of TCH is listed or quoted.

 

Section 2.5 Compliance with Applicable Law. TCH and each of its Subsidiaries is currently in compliance with all applicable laws (whether statutory or otherwise), rules, regulations, orders, ordinances, judgments, decrees, writs, requirements and injunctions of all governmental authorities, agencies, courts, and administrative tribunals, except for such noncompliance that, individually and in the aggregate, would not have a Material Adverse Effect.

 

Section 2.6 Governmental Consents. Except for the filing of any forms required under the federal securities laws and any filings required under state “blue sky” laws, no consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority is required to be made or obtained by TCH in connection with the execution and delivery of this Agreement or any of the Ancillary Agreements by TCH or the performance by TCH of its obligations hereunder and thereunder, or the continued conduct by TCH of its present business after the date hereof.

 

 

ARTICLE III

 

 

 

 

REPRESENTATIONS AND WARRANTIES OF CAPSTONE

 

Section 3.1 Representations and Warranties. Capstone represents that (each of which representations and warranties are true as of the date hereof, as of the Initial Exercise Date and as of each Periodic Exercise Date):

 

  

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(a) Capstone is a corporation duly incorporated, validly existing and in good standing under the laws of Nevada. Capstone has all requisite power and authority to own, operate and lease its properties and to conduct its business as currently conducted.  Capstone is duly qualified or licensed to do business and is in good standing in each jurisdiction in which its ownership or leasing of property or the conduct of its business requires such licensing or qualification.

 

(b) It has all requisite power and full legal right to execute and deliver this Agreement and the Ancillary Agreements and to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and the Ancillary Agreements, and the performance by it of its obligations hereunder and thereunder, have been duly approved and authorized by all requisite corporate action on the part of Capstone. This Agreement and each of the Ancillary Agreements has been duly executed and delivered by Capstone and constitute its valid and binding obligations, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to the enforcement of creditors’ rights and remedies or by other equitable principles of general application.  The execution, delivery, and performance by Capstone of this Agreement and the Ancillary Agreements in accordance with their respective terms, and the consummation by Capstone of the transactions contemplated hereby or thereby, will not result (with or without the giving of notice or the lapse of time or both) in any conflict, violation, breach, or default, or the creation of any Lien, or the termination, acceleration, vesting, or modification of any right or obligation, under or in respect of (x) the Certificate of Incorporation or By-laws of Capstone, (y) any judgment, decree, order, statute, rule or regulation binding on or applicable to Capstone, or (z) any agreement or instrument to which Capstone is a party or by which it or any of its assets is or are bound.

 

(c) Capstone will purchase any securities in connection herewith pursuant to the Warrants for its own account for investment only and not with a present view to the distribution thereof.

 

(d) It has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the investment contemplated by this Agreement and making an informed investment decision with respect thereto.

 

(e) It has had the opportunity to ask questions and receive answers concerning the terms and conditions of the offering of securities purchased in connection herewith pursuant to the Warrants, as well as the opportunity to obtain additional information necessary to verify the accuracy of information furnished in connection with such offerings that TCH possesses or can acquire without unreasonable effort or expense.

 

(f) There are no claims for investment banking fees, brokerage commissions, finder’s fees or similar compensation (other than professional fees to attorneys and accountants) in connection with the transactions contemplated by this Agreement or any of the Ancillary Agreements based on any arrangement or agreement made by or on behalf of Capstone.

 

  

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It has adequate means of providing for its current financial needs and foreseeable contingencies and has no need for liquidity of the investment in the Warrants for an indefinite period of time.

 

(g) It is aware that entering into this Agreement and investment in the Common Stock involves a number of very significant risks.

 

(h) It is an “accredited investor” as that term is defined in Regulation D under the Securities Act.

 

 

ARTICLE IV

 

 

 

 

DEFINITIONS

 

Section 4.1 Certain Defined Terms. For purposes of this Agreement, the following terms shall have the meanings set forth in this Section 5:

 

“GAAP” means generally accepted accounting principles in the United States that are (i) consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, (ii) applied on a basis consistent with prior periods, and (iii) such that, insofar as the use of accounting principles is pertinent, a certified public accountant could deliver an unqualified opinion with respect to financial statements in which such principles have been properly applied.

 

“Person” or “person” (regardless of whether capitalized) means any natural person, entity, or association, including without limitation any corporation, partnership, limited liability company, government (or agency or subdivision thereof), trust, joint venture or proprietorship.

 

“SEC” means the Securities and Exchange Commission.

 

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

 

“Subsidiary” or “Subsidiaries” means, with respect to any person, any corporation a majority (by number of votes) of the outstanding shares of any class or classes of which are at the time owned by such person or by a Subsidiary of such person, if the holders of the shares of such class or classes (a) are ordinarily, in the absence of contingencies, entitled to vote for the election of a majority of the directors (or persons performing similar functions) of the issuer thereof, even though the right so to vote has been suspended by the happening of such a contingency, or (b) are at the time entitled, as such holders, to vote for the election of a majority of the directors (or persons performing similar functions) of the issuer thereof, whether or not the right so to vote exists by reason of the happening of a contingency.

 

 

ARTICLE V

 

 

 

 

MISCELLANEOUS

 

  

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Waivers and Consents. For the purposes of this Agreement and all agreements executed pursuant hereto, no course of dealing between TCH and Capstone and no delay on the part of any party hereto in exercising any rights hereunder or thereunder shall operate as a waiver of the rights hereof or thereof. No provision hereof may be waived except by a written instrument signed by the party so waiving such provision.

 

Section 5.1 Amendment and Modification. This Agreement shall not be amended or modified, except by an instrument in writing signed by TCH or Capstone.

 

Section 5.2 Governing Law; Jurisdiction; Venue etc. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York, without giving effect to the principles of conflicts of law thereof. The state and federal courts of the State of New York located in New York shall have exclusive jurisdiction to hear and determine any claims or disputes between Capstone and TCH pertaining directly or indirectly to this Agreement and all documents, instruments and agreements executed pursuant hereto, or to any matter arising therefrom (unless otherwise expressly provided for therein); the exclusive choice of forum set forth in this Section 6.3 shall not be deemed to preclude the enforcement of any judgment obtained in such forum or the taking of any action to enforce the same in any other appropriate jurisdiction. All of the parties hereto waive all rights to trial by jury in any action or proceeding instituted by any party against any other party arising out of, on or by reason of this Agreement or the documents and transactions contemplated herein.

 

Section 5.3 Headings. The descriptive headings in this Agreement have been inserted for convenience only and shall not be deemed to limit or otherwise affect the construction or interpretation of any provision thereof or hereof.

 

Section 5.4 Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which when so executed and delivered shall be taken to be an original; but such counterparts shall together constitute but one and the same document.

 

Section 5.5 Notices and Demands. Any notice or demand which is required or provided to be given under this Agreement shall be deemed to have been sufficiently given and received for all purposes when delivered by hand on a business day, one (1) business day after being sent by nationally recognized overnight courier on any day, or five (5) business days after being sent by certified or registered mail, postage and charges prepaid, return receipt requested, to the following addresses:

 

  

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If to TCH:

	
Twinlab Consolidated Holdings, Inc.

632 Broadway, Suite 201

New York, NY 10012

Attn:           Thomas A. Tolworthy

Twinlab Consolidated Holdings, Inc.

632 Broadway, Suite 201

New York, NY 10012

Attention: General Counsel

 

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

	
Wilk Auslander LLP

1515 Broadway

New York, New York 10036

E-mail: jfrank@wilkauslander.com

Attention: Joel I. Frank, Esq.

	
If to Capstone:

	
Capstone Financial Group, Inc.

2600 Michelson Drive, Suite 700

Irvine, California 92612

Attn: Darin Pastor

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

	
Stoecklein Law Group, LLP

401 West A Street, Suite 1150

San Diego, CA 92101

Attn: Donald J. Stoecklein, Esq.

Section 5.6 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be deemed prohibited or invalid under such applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, and such prohibition or invalidity shall not invalidate the remainder of such provision or the other provisions of this Agreement, provided, however, that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party.

 

Section 5.7 Integration. This Agreement, including the Ancillary Agreements and instruments referred to herein or therein, constitutes the entire agreement, and supersedes any other prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof.

 

Section 5.8 Publicity. TCH and Capstone shall have the right to approve before issuance of any press releases or any other public statements is sought to be made by the other with respect to the transactions contemplated hereby, except for any disclosures required in connection with obtaining any consents to the transactions contemplated by this Agreement. Notwithstanding the foregoing, TCH shall have the right to issue any press release or other public statement in connection with the transaction contemplated hereby, excluding the identity of Capstone, without the prior consent of Capstone, but may disclose the identity of Capstone upon prior written consent of Capstone, which shall not be unreasonably withheld. TCH shall also have the right to file this Agreement and the Ancillary Agreements with the SEC under the Securities Act or the Exchange Act if required by such acts or regulations thereunder.

 

  

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Section 5.9 Expenses. TCH and Capstone will each bear their own costs and expenses and those of their respective advisors related to the transactions herein contemplated.

 

Section 5.10 Assignment. Neither TCH nor Capstone may assign this Agreement or its rights and obligations hereunder.

 

Section 5.11 Equitable Relief. Each of the parties acknowledges that any breach by such party of its obligations under this Agreement would cause substantial and irreparable damage to the other party and that money damages would be an inadequate remedy therefor. Accordingly, each party agrees that the other party will be entitled to an injunction, specific performance and/or other equitable relief to prevent the breach of such obligations.

 

Section 5.12 Usage. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. All terms defined in this Agreement in their singular or plural forms have correlative meanings when used herein in their plural or singular forms, respectively.

 

Section 5.13 Facsimile or Electronic Signatures. A facsimile signature on this Agreement or an original signature delivered by facsimile or an electronic signature or an original signature delivered by electronic transmission in the form of a .pdf, .tif, .jpeg or similar attachment to electronic mail shall be considered the same as an original.

 

 

[Signature page follows]

 

  

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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the day and year first above written.

 

TWINLAB CONSOLIDATED HOLDINGS, INC.

By: /S/ Thomas A. Tolworthy         

Name: Thomas A. Tolworthy

Title: President and Chief Executive Officer

 

CAPSTONE FINANCIAL GROUP, INC.

 

By: /S/ Darin R. Pastor            

Name: Darin R. Pastor

Title: Chief Executive Officer

 

 

  

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