Document:

ex10-4.htm

Exhibit 10.4

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is made and entered into as of November __, 2011 (the “Execution Date”), by and among Quepasa Corporation, a Nevada corporation (the “Company”), and the purchaser which has executed this Agreement (the “Purchaser).

 

RECITALS

 

WHEREAS, the Company desires to sell to the Purchaser, and the Purchaser desires to purchase from the Company, on the terms and conditions set forth in this Agreement, $ 1,000,000 of common stock (the “Shares”), par value $0.001 per share, of the Company (the “Common Stock”); and

 

WHEREAS, the Company and the Purchaser are executing and delivering this Agreement in reliance upon exemption from securities registration afforded by Regulation D (“Regulation D”) as promulgated by the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”).

 

NOW, THEREFORE, in consideration of the foregoing, the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

1. AGREEMENT TO PURCHASE AND SELL STOCK.

 

(a) Company Authorization.  The Company’s board of directors (the “Board of Directors”) has authorized the issuance and sale of the Shares, pursuant to the terms and conditions of this Agreement.

 

(b) Agreement to Purchase and Sell Securities.  Subject to the terms and conditions of this Agreement, each Purchaser, severally and not jointly, agrees to purchase, and the Company agrees to sell to each Purchaser, at the Closing (as defined below), that number of 280,112 Shares of Common Stock.   The purchase price of each Share shall be $3.57 and shall be payable as hereafter set forth.  

 

(c)  Company Participation.  Each Purchaser acknowledges and accepts that the Company’s officers, directors and affiliates may purchase the Shares.

(d) Use of Proceeds.  The Company intends to apply the net proceeds for working capital, capital expenditures, and general corporate purposes as determined by the Company from time to time.

 

  

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2. CLOSING.  

(a)           The purchase and sale of the Shares will occur in one closing, which shall take place at the offices of Harris Cramer LLP, 3507 Kyoto Gardens Drive, Suite 320, Palm Beach Gardens, FL 33410, not later than two (2) Business Days (as defined below) following the Execution Date, or at such other time and place as the Company and Purchaser of the Shares to be purchased, mutually agree upon (which time and place are referred to in this Agreement as the “Closing”).  On or prior to the Closing Date, the Purchaser shall deliver (i) full payment for the Shares sold hereunder by wire transfer of immediately available funds to JP Morgan Chase (the “Escrow Agent”) in accordance with the wire instructions on Schedule B and (ii) to the Company, this Agreement duly executed by such Purchaser.  The Company shall issue and deliver or cause to be delivered to each Purchaser one or more stock certificates registered in the name of each Purchaser (or in such nominee name(s) as designated by such Purchaser in the Questionnaire, attached hereto as Appendix I and Appendix II (the “Registration Statement/Suitability Questionnaire”)) representing the number of shares of Common Stock, and bearing the legend set forth in Section 4(j)(i) herein; provided, however, that the Company may furnish to the Purchaser a copy of the irrevocable instructions to the Company’s transfer agent instructing the transfer agent to deliver a certificate or certificates evidencing the number of shares of Common Stock purchased by such Purchaser, registered in the name of such Purchaser (or designated nominee).   Closing documents, other than the stock certificates representing the Shares, may be delivered by facsimile or other electronic transmission on the Closing Date, with original signature pages sent by overnight courier.

 

For purposes of this Agreement, “Closing Date” means the date of the Closing, and “Business Day” means any day except Saturday, Sunday and any day which shall be a federal legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

3. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF THE COMPANY.  The Company hereby represents and warrants to each Purchaser that, except as set forth in the SEC Documents (as defined below):

 

(a) Organization Good Standing and Qualification.  The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada and has all corporate power and authority required to (i) own, operate and occupy its properties and to carry on its business as presently conducted and (ii) enter into this Agreement and the other agreements, instruments and documents contemplated hereby, and to consummate the transactions contemplated hereby and thereby.  The Company is qualified to do business and is in good standing in each jurisdiction in which the failure to so qualify would reasonably be expected to have a Material Adverse Effect.  As used in this Agreement, “Material Adverse Effect” means a material adverse effect on, or a material adverse change in, or a group of such effects on or changes in, the business, operations, financial condition, results of operations, assets or liabilities of the Company and the Subsidiaries (as defined below), taken as a whole. Provided, however, a Material Adverse Effect does not exist solely because (i) there are changes in the economy or capital markets or (ii) changes generally affecting the industry in which the Company operates which changes in clauses (i) or (ii) do not disproportionately affect the Company in contrast to its competitors. 

(b) Capitalization.  The capitalization of the Company is as follows:

 

(i) The authorized capital stock of the Company consists of 50,000,000 shares of Common Stock and 5,000,000 shares of preferred stock, par value $0.001 per share (“Preferred Stock”).  1,500,000 shares of Preferred Stock have been designated Series A Preferred Stock (the “Series A Preferred”) of which 1,000,000 shares of Series A Preferred Stock are outstanding.

 

  

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(ii) As of September 30,  2011, the issued and outstanding capital stock of the Company consisted of 16,670,781 shares of Common Stock.   The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable and have not been issued in violation of or are not otherwise subject to any preemptive or other similar rights.

 

(iii) As of September 30, 2011, the Company had (1) 7,456,920 shares of Common Stock reserved for issuance upon exercise of outstanding options granted under the Company’s 2006 Stock Incentive Plan (the “Stock Incentive Plan”) and (2) 4,200,000 shares of Common Stock reserved for issuance upon exercise of outstanding warrants.

 

(iv) As of September 30, 2011, the Company had 2,156,589 shares of Common Stock available for future grant under the Stock Incentive Plan and 443,038 non-plan options were outstanding.

 

(v) With the exception of the foregoing in this Section 3(b), any securities issuable pursuant to anti-dilution adjustments on the securities included in this Section 3(b),  there are no outstanding subscriptions, options, warrants, convertible or exchangeable securities or other rights granted to or by the Company to purchase shares of Common Stock or other securities of the Company and there are no commitments, plans or arrangements to issue any shares of Common Stock or any security convertible into or exchangeable for Common Stock, except as disclosed in the Form S-4 filed on October 5, 2011.

 

(c) Subsidiaries.  All subsidiaries of the Company are set forth in the SEC Documents (such entities, collectively, the “Subsidiaries”), and except for the Subsidiaries, the Company does not own any capital stock of, assets comprising the business of, obligations of, or any other interest (including any equity or partnership interest) in, any person or entity.  Each of the Subsidiaries is duly organized and validly existing in good standing under the laws of the jurisdiction of its incorporation or organization.  Each of the Subsidiaries has full power and authority to own, operate and occupy its properties and to conduct its business as presently conducted and is registered or qualified to do business and in good standing in each jurisdiction in which it owns or leases property or transacts business and where the failure to be so qualified would reasonably be expected to have a Material Adverse Effect.

 

(d) Due Authorization.  All corporate actions on the part of the Company necessary for the authorization, execution, delivery of, and the performance of all obligations of the Company under this Agreement and any other documents or agreements executed in connection with the transactions contemplated hereunder (the “Transaction Documents”), including the authorization, issuance, reservation for issuance and delivery of all the Shares being sold under this Agreement, have been taken and no further consent or authorization of the Company, the Board of Directors or the Company’s stockholders is required, and each of the Transaction Documents constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except (i) as may be limited by (1) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and (2) the effect of rules of law governing the availability of equitable remedies and (ii) as rights to indemnity or contribution may be limited under federal or state securities laws or by principles of public policy thereunder.

 

  

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(e) Valid Issuance of the Shares.  The Shares will be, upon payment therefor by the Purchasers in accordance with this Agreement, duly authorized, validly issued, fully paid and non-assessable, free and clear from all taxes and liens, claims and encumbrances imposed by the Company, other than restrictions on transfer provided for in the Transaction Documents, with respect to the issuance of such Shares and will not be subject to any preemptive rights or similar rights.

 

(f) Compliance with Securities Laws.  Subject to the accuracy of the representations and warranties made by the Purchasers in Section 4 hereof, the Shares will be issued and sold to the Purchasers in compliance with applicable exemptions from the registration and prospectus delivery requirements of the Securities Act.

 

(g) Governmental Consents.  No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, or notice to, any federal, state or local governmental authority or self regulatory agency on the part of the Company is required in connection with the issuance and sale of the Shares to the Purchasers by the Company or the consummation of the other transactions contemplated by this Agreement, except (i) such filings as have been made prior to the date hereof and (ii) such additional post-Closing filings as may be required to comply with applicable state and federal securities laws, including, but not limited to, the filing of a Form D relating to the sale of the Shares pursuant to Regulation D.

 

(h) Non-Contravention.  Assuming the accuracy of the representations and warranties made by the Purchasers in Section 4 hereof, the execution, delivery and performance of the Transaction Documents by the Company, and the consummation by the Company of the transactions contemplated hereby and thereby (including the issuance of the Shares), do not:  (i) contravene or conflict with the articles of incorporation, as amended (the “Articles of Incorporation”) or bylaws, as amended (the “Bylaws”) of the Company or any of the Subsidiaries; (ii) to the knowledge of the Company, constitute a violation of any provision of any federal, state, local or foreign law, rule, regulation, order or decree applicable to the Company or any of the Subsidiaries; or (iii) constitute a default or require any consent under, give rise to any right of termination, cancellation or acceleration of, or to a loss of any material benefit to which the Company or any of the Subsidiaries is entitled under, or result in the creation or imposition of any lien, claim or encumbrance on any asset of the Company or any of the Subsidiaries under, any material contract to which the Company or any of the Subsidiaries is a party or any material permit, license or similar right relating to the Company or any of the Subsidiaries or by which the Company or any of the Subsidiaries may be bound or affected, except in the case of clauses (ii) and (iii), for such violations, breaches or defaults as would not reasonably be expected to have a Material Adverse Effect.

 

  

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(i) Litigation.  Except as disclosed on Schedule 3(i), there is no action, suit, proceeding, claim, arbitration or investigation (“Action”) pending or, to the Company’s knowledge, threatened:  (i) against the Company or any of the Subsidiaries, their activities, properties or assets, or, to the Company’s knowledge, against any officer, director or employee of the Company or any of the Subsidiaries in connection with such officer’s, director’s or employee’s relationship with, or actions taken on behalf of, the Company or any of the Subsidiaries, that would reasonably be expected to have a Material Adverse Effect, or (ii) that seeks to prevent, enjoin, adversely alter, challenge or delay the transactions contemplated by the Transaction Documents.  The Company is not a party to nor subject to the provisions of, any order, writ, injunction, judgment or decree of any court or government agency or instrumentality that could reasonably be expected to prevent, enjoin, adversely alter, challenge or delay the consummation of the transactions contemplated by the Transaction Documents or would reasonably be expected to have a Material Adverse Effect.  No Action is currently pending nor does the Company currently intend to initiate any Action that could reasonably be expected to have a Material Adverse Effect.  The SEC has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company under the Securities Act or the Securities Exchange Act of 1934 (the “Exchange Act”).

 

 (j) Compliance with Law and Charter Documents.  The Company is not in violation or default of any provisions of the Articles of Incorporation or the Bylaws.  The Company has complied and is currently in compliance with all applicable statutes, laws, rules, regulations and orders of the United States of America and all states thereof, foreign countries and other governmental bodies and agencies having jurisdiction over the Company’s business or properties, except for any instance of non-compliance that has not had, and would not reasonably be expected to have, a Material Adverse Effect.  Neither the Company nor any of the Subsidiaries is in default (and there exists no condition which, with or without the passage of time or giving of notice or both, would constitute a default) in any material respect in the performance of any bond, debenture, note or any other evidence of indebtedness in any indenture, mortgage, deed of trust or any other material agreement or instrument to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries is bound or by which the properties of the Company are bound, which default has not been waived and would reasonably be expected to have a Material Adverse Effect.

 

(k) Material Non-Public Information.  The Company has not provided to the Purchasers any material non-public information other than information related to the transactions contemplated by the Transaction Documents.  All material non-public information provided to the Purchasers shall be disclosed by the Company pursuant to Section 7(m) hereof.

 

(l) SEC Documents.

 

(i) Reports.  The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Exchange Act and the rules and regulations promulgated thereunder, since December 31, 2010 (the “SEC Documents”).  Each of the SEC Documents, as of the respective dates thereof, (or, if amended or superceded by a filing or submission, as the case may be, prior to the Closing Date, then on the date of such filing or submission, as the case may be) (1) did not contain any untrue statement of a material fact nor omit to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading and (2) complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Document.

 

  

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(ii) Sarbanes-Oxley.  The Company is in material compliance with all requirements of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date.

 

(iii) Financial Statements.  The consolidated financial statements of the Company included in the SEC Documents (1) comply in all material respects with the applicable accounting rules and regulations of the SEC with respect thereto as were in effect at the time of filing and (2) 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 United States generally accepted accounting principles (“GAAP”), present fairly, in all material respects, the consolidated financial position of the Company as of the dates indicated therein, and the consolidated results of its operations and cash flows for the periods therein specified in accordance with GAAP, subject, in the case of unaudited financial statements, to normal, immaterial year-end audit adjustments.

 

(m) Absence of Certain Changes Since the Balance Sheet Date.  Except as disclosed on Schedule 3(m), since June 30, 2011, the business and operations of the Company and its Subsidiaries have been conducted in the ordinary course consistent with past practice, and there has not been:

 

(i) any declaration, setting aside or payment of any dividend or other distribution of the assets of the Company with respect to any shares of capital stock of the Company or any repurchase, redemption or other acquisition by the Company or any of its Subsidiaries of any outstanding shares of the Company;

 

(ii) any damage, destruction or loss to the Company’s or any of the Subsidiaries’ business or assets, whether or not covered by insurance, except for such occurrences, individually and collectively, that have not had, and would not reasonably be expected to have, a Material Adverse Effect;

 

(iii) any waiver by the Company or any of the Subsidiaries of a valuable right or of a material debt owed to it, except for such waivers, individually and collectively, that have not had, and would not reasonably be expected to have, a Material Adverse Effect;

 

(iv) any material change or amendment to, or any waiver of any material right under a material contract or arrangement by which the Company, any of the Subsidiaries or any of their assets or properties is bound or subject;

 

(v) any change by the Company in its accounting principles, methods or practices or in the manner in which it keeps its accounting books and records, except any such change required by a change in GAAP or by the SEC; or

 

(vi) any other event or condition of any character, except for such events and conditions that have not resulted, and would not reasonably be expected to result, either individually or collectively, in a Material Adverse Effect.

 

  

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(n) Intellectual Property.  The Company and each of the Subsidiaries own or possess sufficient rights to use all inventions, trade secrets, know-how, trademarks, service marks, trade names, copyrights or other information and, to the Company’s knowledge, patents, patent rights and licenses (collectively, “Intellectual Property”), which are necessary to conduct their businesses as currently conducted, except where the failure to own or possess such sufficient rights would not reasonably be expected to result, either individually or in the aggregate, in a Material Adverse Effect.  Neither the Company nor any of the Subsidiaries has received any written notice of, and has no actual knowledge of, any infringement of or conflict with asserted rights of others with respect to any Intellectual Property which, either individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would reasonably be expected to have a Material Adverse Effect, and to the Company’s and any of the Subsidiaries’ knowledge, none of the patent rights owned or licensed by the Company or any of the Subsidiaries are unenforceable or invalid or infringe the Intellectual Property rights of third parties.

 

(o) Registration Rights. Except as disclosed on Schedule 3(o), the Company is not currently subject to any agreement providing any person or entity any rights (including piggyback registration rights) to have any securities of the Company registered with the SEC or registered or qualified with any other governmental authority.

 

(p) Title to Property and Assets.  The properties and assets of the Company and each of its Subsidiaries that are material to the business of the Company and its Subsidiaries and that are owned by the Company or each Subsidiary are free and clear of all mortgages, deeds of trust, liens, charges, encumbrances and security interests, except for (i) statutory liens for the payment of current taxes that are not yet delinquent and (ii) liens, encumbrances and security interests that arise in the ordinary course of business and do not in any material respect affect the business of the Company and any of the Subsidiaries as currently conducted.  With respect to the property and assets that are material to the business of the Company and that it leases, each of the Company and the Subsidiaries is in compliance with such leases in all material respects.

 

(q) Taxes.  Except for matters that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, the Company and each of the Subsidiaries have filed or have valid extensions of the time to file all necessary federal, state, and foreign income and franchise tax returns due prior to the date hereof and has paid or accrued all taxes shown as due thereon, and neither the Company nor any of the Subsidiaries has knowledge of any material tax deficiency which has been asserted or threatened against it.

 

(r) Insurance.  The Company and each of the Subsidiaries maintain insurance of the types and in the amounts that the Company reasonably believes are prudent and adequate for their business, all of which insurance is currently in effect.

 

(s) Labor Relations.  No material labor dispute exists or, to the knowledge of the Company or any of the Subsidiaries, is imminent with respect to any of the employees of the Company or any of the Subsidiaries.

 

  

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(t) Internal Accounting Controls. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

 

(u) Transactions With Officers and Directors.  Except as disclosed in the SEC Documents, none of the officers or directors of the Company has entered into any transaction with the Company or any of the Subsidiaries that would be required to be disclosed pursuant to Item 404(a), (b) or (c) of Regulation S-K of the SEC.

 

(v) General Solicitation.  Assuming the accuracy of the Purchaser’s representations and warranties set forth in Section 4, neither the Company nor any other Person (as defined below) authorized by the Company to act on its behalf has engaged in a general solicitation or general advertising (within the meaning of Regulation D) of investors with respect to offers or sales of the Shares.  For purposes of this Agreement, “Person” means an individual or corporation, 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.

 

(w) No Integrated Offering.  Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 4, to the knowledge of the Company, neither the Company, nor any Affiliate (as hereafter defined) of the Company, nor any person acting on its behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Shares to be integrated with prior offerings by the Company for purposes of the Securities Act which would prevent the Company from selling the Shares pursuant to Regulation D and Rule 506 thereof under the Securities Act.

 

For the purposes of this Agreement, an “Affiliate” of any specified Person means any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with such specified Person.  For purposes of this definition, “control” means the power to direct the management and policies of such person or firm, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

(x) Market.  The Company has not taken and will not take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock of the Company to facilitate the sale or resale of the Shares.

 

(y) Investment Company.  The Company is not an “investment company” within the meaning of such term under the Investment Company Act of 1940, as amended, and the rules and regulations of the SEC thereunder.

 

  

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(z) Application of Anti-Takeover Provisions.  There is no control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s Articles of Incorporation (or similar charter documents) that would become applicable to the Purchasers as a result of the issuance of the Shares.

 

(aa) Trading and Registration Matters.  The Common Stock of the Company is listed on the NYSE Amex under the ticker symbol “QPSA.”  The Company has taken no action designed to terminate, or which would reasonably be expected to have the effect of terminating, the registration of the Common Stock under the Exchange Act.

 

(bb) Foreign Corrupt Practices.  Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is  in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

 

(cc) Foreign Assets Control.  Neither the Company nor, to the knowledge of the Company, any director, officer, employee of the Company, is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”), except for any such sanctions that would not be reasonably likely to result in a Material Adverse Effect; and the Company will not directly or indirectly use the proceeds of the offering of the Shares contemplated hereby, or knowingly lend, contribute or otherwise make available such proceeds to any person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC, except as would not be reasonably likely to result in a Material Adverse Effect.

 

4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF THE PURCHASERS.  Each Purchaser, severally and not jointly, hereby represents and warrants to the Company, and agrees that:

 

(a) Organization.  The Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with all corporate, limited liability company, partnership, trust or individual, as the case may be, power and authority required to enter into this Agreement and the other agreements, instruments and documents contemplated hereby, and to consummate the transactions contemplated hereby and thereby and otherwise to carry out its obligations hereunder and thereunder.

 

(b) Due Authorization.  All corporate, limited liability company, partnership, trust or individual, as the case may be, action on the part of the Purchaser necessary for the authorization, execution, delivery of and the performance of the transactions contemplated by the Transaction Documents and all obligations of the Purchaser under the Transaction Documents have been taken and no further consent or authorization of the Purchaser or its board of directors, stockholders, members, or partners, as the case may be, is necessary, and each Transaction Document, when delivered by the Purchaser in accordance with the terms hereof, will constitute such Purchaser’s legal, valid and binding obligation, enforceable in accordance with its terms, except (i) as may be limited by (1) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and (2) the effect of rules of law governing the availability of equitable remedies and (ii) as rights to indemnity or contribution may be limited under federal or state securities laws or by principles of public policy thereunder.

 

  

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(c) Litigation.  There is no Action pending to which such Purchaser is a party that is reasonably likely to prevent, enjoin, adversely alter or delay the transactions contemplated by this Agreement.

(d) Purchase for Own Account.  The Shares are being acquired for investment for the Purchaser’s own account, not as a nominee or agent, in the ordinary course of business, and not with a view to the public resale or distribution thereof within the meaning of the Securities Act.  The Purchaser also represents that it has not been formed for the specific purpose of acquiring the Shares.  The Purchaser does not have any agreement or understanding, direct or indirect, with any other Person to sell or otherwise distribute the Shares.  Notwithstanding the foregoing, the parties hereto acknowledge 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 and as otherwise contemplated by this Agreement.

 

(e) Investment Experience.  The Purchaser understands that the purchase of the Shares involves substantial risk.  The Purchaser has experience as an investor in securities of companies similar to the Company and acknowledges that it can bear the economic risk of its investment in the Shares and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of this investment in the Shares and protecting its own interests in connection with this investment.  The Purchaser represents that (i) it is able to bear the substantial economic risks of an investment in the Shares for an indefinite period of time, and (ii) it has no need for liquidity in such investment.

(f) Accredited Purchaser Status.  The Purchaser is an “accredited investor” within the meaning of Regulation D for one of the reasons on the attached Schedule 4(f).

 

(g) Reliance Upon Purchaser’s Representations.  The Purchaser understands that the offer and sale of the Shares to it will not be registered under the Securities Act on the ground that such offer and sale will be exempt from registration under the Securities Act, and that the Company’s reliance on such exemption is based on each Purchaser’s representations set forth herein.

 

(h) Receipt of Information.  The Purchaser acknowledges that it has reviewed the SEC Documents and has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the sale of the Shares and the business, properties, prospects and financial condition of the Company.  The Purchaser further acknowledges that pursuant to Section 517.061(11)(a)(3), Florida Statutes and Rule 3E-5090.05(a) thereunder, the Purchaser has had an opportunity to obtain additional information (to the extent the Company possesses such information and could acquire it without unreasonable effort or expense) necessary to verify the accuracy of any information furnished to such Purchaser or to which the Purchaser had access and has received and considered all information it deems relevant to make an informed decision to purchase the Shares.  Neither such inquiries nor any other investigation conducted by or on behalf of such Purchaser or its representatives or counsel shall modify, amend or affect such Purchaser’s right to rely on the truth, accuracy and completeness of such information and the Company’s representations and warranties contained in this Agreement.

 

  

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(i) Restricted Securities and Restrictions on Transfer.

 

(i) The Purchaser understands that the Shares have not been registered under the Securities Act and the Purchaser agrees that it will not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any of the Shares (except as permitted in Section 4(j) below) unless (1) pursuant to an effective registration statement under the Securities Act, (2) the Purchaser provides a reasonably acceptable legal opinion to the Company, to the effect that a sale, assignment, pledge, hypothecation or other transfer of the Shares may be made without registration under the Securities Act and the transferee agrees to be bound by the terms and conditions of this Agreement, (3) the Purchaser provides the Company  a “no action” letter from the SEC to the effect that the transfer of the Shares without registration will not result in a recommendation by the Staff of the SEC that enforcement action by taken with respect thereto, (4) the Purchaser provides the Company with reasonable assurances (in the form of a reasonably acceptable legal opinion and seller and broker representation letters, to the extent that a broker representation letter is required) that the Shares can be sold pursuant to Rule 144 promulgated under the Securities Act (“Rule 144”), or (5) pursuant to any other exemption contained in the Securities Act provided that the Purchaser provides a reasonably acceptable legal opinion to the Company.  Notwithstanding anything to the contrary contained in this Agreement, the Purchaser may transfer the Shares to its Affiliates provided that (x) the Purchaser provides the Company with a reasonably acceptable legal opinion, (y) such Affiliate is an “accredited investor” under Regulation D and (z) each such Affiliate agrees to be bound by the terms and conditions of this Agreement, and in particular, confirms to the Company that all of the representations set forth in Section 4 of this Agreement are true and correct as to such Affiliate as of the date of the transfer to such Affiliate.

 

(ii) Prior to any proposed transfer pursuant to clause (2), (3), (4) or (5) in Section 4(i) above, the Purchaser shall give written notice to the Company of such Purchaser’s intention to effect such transfer.  Each such notice shall describe the manner and circumstances of the proposed transfer in sufficient detail, and shall be accompanied by the applicable legal opinion, “no action” letter or seller and broker representation letters (to the extent that a broker representation letter is required).

 

(iii) Notwithstanding the foregoing provisions of this Section 4(i), no registration statement, legal opinion or “no action” letter shall be necessary for a transfer of the Shares (1) by a Purchaser that is a partnership to a partner of such partnership or a retired partner of such partnership who retires after the date of this Agreement, (2) by a Purchaser that is a limited liability company to a member of such limited liability company, (3) by a Purchaser that is a partnership or limited liability company to the estate of any partner, retired partner, or member thereof or (4) by any partner or member of a Purchaser that is a partnership or limited liability company by gift, will or intestate succession to such partner or member’s spouse or to the siblings, lineal descendants, ancestors of such partner or member or his or her spouse.

 

(j) Legends.

 

  

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(i) The Purchaser agrees that, to the extent necessary, the certificates representing the Shares shall bear substantially the following legend:

 

“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “SECURITIES ACT”) OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED UNLESS (I) A REGISTRATION STATEMENT COVERING SUCH SECURITIES IS EFFECTIVE UNDER THE SECURITIES ACT OR (II) THE TRANSACTION IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT, AND AN OPINION SATISFACTORY TO THE COMPANY TO SUCH EFFECT HAS BEEN RENDERED BY COUNSEL.”

 

(ii) Certificates evidencing the Shares shall not contain the legend set forth in Section 4(j)(i)(1) following any sale of such Shares pursuant to Rule 144 or (2) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the Staff of the SEC).  The Company shall cause its counsel to issue a legal opinion to the Company’s transfer agent promptly after the date on which the Registration Statement is declared effective (the “Effective Date”) if such legal opinion is required by the Company’s transfer agent to effect the removal of the legend hereunder.  The Company may not make any notation on its records or give instructions to any transfer agent of the Company that enlarge the restrictions on transfer set forth in Section 4(i) or this Section 4(j).

 

(iii) Each Purchaser, severally and not jointly with the other Purchasers, will offer and sell any and all Shares pursuant to all applicable federal and state securities laws, including pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and agrees that the removal of the restrictive legend from certificates representing the Shares as set forth in this Section 4(j) is predicated upon the Company’s reliance on such Purchaser’s representations and contained herein.

 

(iv) In addition, the Purchaser agrees that the Company may place stop transfer orders with its transfer agent with respect to such certificates in order to implement the restrictions on transfer set forth in this Agreement.  The appropriate portion of the legend and the stop transfer orders will be removed promptly upon delivery to the Company of such satisfactory evidence as reasonably may be required by the Company that such legend or stop transfer orders are not required to ensure compliance with the Securities Act.

 

(k) Questionnaires.  The Purchaser has completed or caused to be completed the Suitability/Registration Statement Questionnaire, attached as Appendix I and Appendix II hereto, and the answers to the questionnaires are true and correct as of the date of this Agreement.

 

  

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(l) Restrictions on Short Sales.  Neither the Purchaser nor any Affiliate of such Purchaser which (i) had knowledge of the transactions contemplated hereby, (ii) has or shares discretion relating to such Purchaser’s investments or trading or information concerning such Purchaser’s investments, including in respect of the Shares, or (iii) is subject to such Purchaser’s review or input concerning such Affiliate’s investments or trading, has or will, directly or indirectly, during the period beginning on the date the Company began discussions regarding the transactions contemplated by this Agreement until the time of the filing of the Current Report on Form 8-K required by Section 8(m), engage in (1) any “short sales” (as such term is defined in Rule 3b-3 promulgated under the Exchange Act) of the Common Stock, including, without limitation, the maintaining of any short position with respect to, establishing or maintaining a “put equivalent position” (within the meaning of Rule 16a-1(h) under the Exchange Act) with respect to, entering into any swap, derivative transaction or other arrangement (whether any such transaction is to be settled by delivery of Common Stock, other securities, cash or other consideration) that transfers to another, in whole or in part, any economic consequences or ownership, or otherwise dispose of, any of the Shares by the Purchaser or (2) any hedging transaction which establishes a net short position with respect to the Shares.

 

(m) Independent Investment.  The Purchaser has not agreed to act with any other Purchaser for the purpose of acquiring, holding or disposing of any of the Shares for purposes of Section 13(d) of the Exchange Act, and such Purchaser is acting independently with respect to its investment in the Shares.

(n) General Solicitation.  Each Purchaser acknowledges that the Shares were not offered to such Purchaser by means of any form of general or public solicitation or general advertising, or publicly disseminated advertisements or sales literature, including  (i) any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media, or broadcast over television or radio, or (ii) any seminar or meeting to which Purchaser was invited by any of the foregoing means of communication, or any other general solicitation or general advertisement.

 

(o) Confidentiality.  The Purchaser agrees to use any information it receives in the course of and in connection with the transactions contemplated under this Agreement for the sole purpose of evaluating a possible investment in the Shares and the Purchaser hereby acknowledges that it is prohibited from reproducing or distributing any such information, this Agreement, or any other offering materials provided by the Company or any of its Affiliates in connection with the Purchaser’s consideration of its investment in the Company, in whole or in part, or divulging or discussing any of their contents except to its advisors and representatives for the purpose of evaluating such investment. The foregoing agreements shall not apply to any information that (i) is or becomes publicly available through no fault of the Purchaser, (ii) was already known to the Purchaser prior to its disclosure by the Company or any of its Affiliates to the Purchasers, as evidenced by documentation or other evidence reasonably satisfactory to the Company, (iii) is or becomes available to the Purchaser on a non-confidential basis from a source other than the Company or any of its Affiliates (so long as the Purchaser is not aware such disclosure is in breach of a confidentiality obligation to the Company), (iv) is independently developed by the Purchaser’s personnel without access to or use of the confidential information received from the Company or any of its Affiliates, as evidenced by documentation or other evidence reasonably satisfactory to the Company or (v) is legally required to be disclosed by the Purchaser under operation of law or judicial or other governmental order; provided, however, that if the Purchaser is requested or ordered to disclose any such information pursuant to any court or other governmental order or any other applicable legal procedure, it shall provide the Company with reasonably prompt notice of any such request or order to enable the Company to seek an appropriate protective order and shall provide the Company with reasonable assistance in obtaining such protective order at the Company’s sole expense.  Other than to other Persons party to this Agreement, the Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction).

 

  

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(p)  Florida Rescission Rights.  The Purchaser acknowledges the following:

SALES IN FLORIDA

FLORIDA LAW PROVIDES THAT WHEN SALES ARE MADE TO FIVE OR MORE PERSONS IN FLORIDA, ANY SALE MADE IN FLORIDA IS VOIDABLE BY THE PURCHASER WITHIN THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY SUCH PURCHASER TO THE COMPANY, AN AGENT OF THE COMPANY OR AN ESCROW AGENT OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH PURCHASER, WHICHEVER OCCURS LATER.   ALL SALES IN THIS OFFERING ARE SALES IN FLORIDA.  PAYMENTS FOR TERMINATED SUBSCRIPTIONS VOIDED BY PURCHASERS AS PROVIDED FOR IN THIS PARAGRAPH WILL BE PROMPTLY REFUNDED WITHOUT INTEREST.  NOTICE SHOULD BE GIVEN TO THE COMPANY TO THE ATTENTION OF JOHN ABBOTT AT THE ADDRESS SET FORTH IN SECTION ___ OF THIS AGREEMENT.

 

5. CONDITIONS TO THE PURCHASERS’ OBLIGATIONS AT CLOSING.  The obligations of the Purchasers to consummate the transactions contemplated herein are subject to the fulfillment or waiver, on or before the Closing, of each of the following conditions:

 

(a) Representations and Warranties True.  Each of the representations and warranties of the Company contained in Section 3 shall be true and correct in all material respects on and as of the date hereof (provided, however, that such qualification shall only apply to representations or warranties not otherwise qualified by materiality) and on and as of the Closing Date with the same effect as though such representations and warranties had been made as of the Closing (except for representations and warranties that speak as of a specific date).

 

(b) Performance.  The Company shall have performed and complied in all material respects with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing and shall have obtained all approvals, consents and qualifications necessary to complete the purchase and sale described herein; provided, however, as provided in Section 2 hereof, the Company may furnish to each Purchaser a copy of the irrevocable instructions to the Company’s transfer agent instructing the transfer agent to deliver a certificate or certificates evidencing the number of shares of Common Stock purchased by such Purchaser, registered in the name of such Purchaser.

 

(c) Company Compliance Certificate.  The Company will have delivered to the Purchasers a certificate signed on its behalf by its Chief Executive Officer or Chief Financial Officer, dated as of the Closing Date, certifying that the conditions specified in Sections 5(a) and 5(b) hereof have been fulfilled.

 

(d) Agreement.  The Company shall have executed and delivered to the Purchasers this Agreement.

 

  

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(e) Securities Exemptions.  The offer and sale of the Shares to the Purchasers pursuant to this Agreement shall be exempt from the registration requirements of the Securities Act and the registration and/or qualification requirements of all applicable state securities laws.

 

(f) No Statute or Rule Challenging Transaction.  No statute, rule, regulation, executive order, decree, ruling, injunction, action, proceeding or interpretation shall have been enacted, entered, promulgated, endorsed or adopted by any court or governmental authority of competent jurisdiction or any self-regulatory organization or the staff of any of the foregoing, having authority over the matters contemplated hereby which questions the validity of, or challenges or prohibits the consummation of, any of the transactions contemplated by this Agreement.

 

(g) Other Actions.  The Company shall have executed such certificates, agreements, instruments and other documents, and taken such other actions as shall be customary or reasonably requested by the Purchasers in writing in connection with the transactions contemplated hereby.

 

6. CONDITIONS TO THE COMPANY’S OBLIGATIONS AT CLOSING.  The obligations of the Company to consummate the transactions contemplated herein are subject to the fulfillment or waiver, on or before the Closing, of each of the following conditions:

 

(a) Representations and Warranties True.  Each of the representations and warranties of the Purchasers contained in Section 4 shall be true and correct in all material respects on and as of the date hereof (provided, however, that such qualification shall only apply to representations and warranties not otherwise qualified by materiality) and on and as of the Closing Date with the same effect as though such representations and warranties had been made as of the Closing (except for representations and warranties that speak as of a specific date).

 

(b) Performance.  The Purchasers shall have performed and complied in all material respects with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by them on or before the Closing and shall have obtained all approvals, consents and qualifications necessary to complete the purchase and sale described herein.

 

(c) Agreement.  Each Purchaser shall have executed and delivered to the Company this Agreement.

 

(d) Securities Exemptions.  The offer and sale of the Shares to the Purchasers pursuant to this Agreement shall be exempt from the registration requirements of the Securities Act and the registration and/or qualification requirements of all applicable state securities laws.

 

(e) Payment of Purchase Price.  The Purchasers shall have delivered to the Company by wire transfer of immediately available funds, full payment of the purchase price for the Shares as specified in Section 1(b).

 

  

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(f) No Statute or Rule Challenging Transaction.  No statute, rule, regulation, executive order, decree, ruling, injunction, action, proceeding or interpretation shall have been enacted, entered, promulgated, endorsed or adopted by any court or governmental authority of competent jurisdiction or any self-regulatory organization or the staff of any of the foregoing, having authority over the matters contemplated hereby which questions the validity of, or challenges or prohibits the consummation of, any of the transactions contemplated by this Agreement.

 

(g) Other Actions.  The Purchasers shall have executed such certificates, agreements, instruments and other documents, and taken such other actions as shall be customary or reasonably requested by the Company in connection with the transactions contemplated hereby.

 

7. MISCELLANEOUS.

 

(a) Successors and Assigns.  The terms and conditions of this Agreement will inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties.  The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchasers holding at least a majority of the total aggregate number of Shares then held by all Purchasers.  Any Purchaser may assign its rights under this Agreement to any person to whom such Purchaser assigns or transfers any of the Shares, provided that such transferee agrees in writing to be bound by the terms and provisions of this Agreement, and such transfer is in compliance with the terms and provisions of this Agreement and permitted by federal and state securities laws.

 

(b) Governing Law.  This Agreement will be governed by and construed and enforced under the internal laws of the State of New York, without reference to principles of conflict of laws or choice of laws.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

(c) Survival.  The representations and warranties of the Company contained in Section 3 of this Agreement and of the Purchasers contained in Section 4 of this Agreement shall survive until the first (1st) anniversary of the Closing Date.

 

(d) Counterparts.  This Agreement may be executed in two (2) or more counterparts, each of which will be deemed an original, but all of which together will constitute one (1) and the same instrument.

 

(e) Headings.  The headings and captions used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.  All references in this Agreement to sections, paragraphs, exhibits and schedules will, unless otherwise provided, refer to sections and paragraphs hereof and exhibits and schedules attached hereto, all of which exhibits and schedules are incorporated herein by reference.

 

  

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(f) Notices.   All notices, offers, acceptance and any other acts under this Agreement (except payment) shall be in writing, and shall be sufficiently given if delivered to the addressees in person, by FedEx or similar receipted next business day delivery, or by facsimile delivery followed by overnight next business day delivery as follows:

 

                        the Company:               Quepasa Corp.

324 Datura Street, Suite 114

West Palm Beach, FL 33401

Attention: Michael D. Matte, CFO

                                                                Facsimile: (561) 651-9984

 

                        with a copy to:              Harris Cramer LLP

3507 Kyoto Gardens Drive, Suite 320

Palm Beach Gardens, FL 33410

Attention: Michael D. Harris, Esq.

                                                                Facsimile: (561) 659-0701

  

The Purchaser: Listed on Schedule A

or to such other address as any of them, by notice to the other may designate from time to time.  The transmission confirmation receipt from the sender's facsimile machine shall be evidence of successful facsimile delivery.  Time shall be counted to, or from, as the case may be, the date of delivery.

 

(g) Amendments and Waivers.  This Agreement may be amended and the observance of any term of this Agreement may be waived only with the written consent of the Company and the Purchasers holding at least a majority of the total aggregate number of the Shares then held by all Purchasers.  Any amendment effected in accordance with this Section 7(g) will be binding upon all Purchasers, the Company and their respective successors and assigns.

 

(h) Severability.  If any provision of this Agreement is held to be unenforceable under applicable law, such provision will be excluded from this Agreement and the balance of the Agreement will be interpreted as if such provision were so excluded and will be enforceable in accordance with its terms.

 

(i) Entire Agreement.  This Agreement and the Transaction Documents, together with all exhibits and schedules hereto and thereto, constitute the entire agreement and understanding of the parties with respect to the subject matter hereof and thereof and supersede any and all prior negotiations, correspondence, agreements, understandings, duties or obligations between the parties with respect to the subject matter hereof and thereof.

 

(j) Further Assurances.  From and after the date of this Agreement, upon the request of the Company or the Purchasers, the Company and the Purchasers will execute and deliver such instruments, documents or other writings, and take such other actions, as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement.

 

  

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(k) Meaning of Include and Including.  Whenever in this Agreement the word “include” or “including” is used, it shall be deemed to mean “include, without limitation” or “including, without limitation,” as the case may be, and the language following “include” or “including” shall not be deemed to set forth an exhaustive list.

 

(l) Fees, Costs and Expenses.  All fees, costs and expenses (including attorneys’ fees and expenses) incurred by any party hereto in connection with the preparation, negotiation and execution of the Transaction Documents and the exhibits and schedules hereto or thereto and the consummation of the transactions contemplated hereby and thereby (including the costs associated with any filings with, or compliance with any of the requirements of any governmental authorities), shall be the sole and exclusive responsibility of such party.

 

(m) 8-K Filing and Publicity.  As soon as practicable following the execution of this Agreement, but in no event later than the fourth day following the Execution Date, the Company shall file a Current Report on Form 8-K with the SEC describing the material terms of the transactions contemplated by this Agreement and attaching this Agreement and the press release referred to below as exhibits to such filing (the “8-K Filing” including all attachments).  Neither the Company nor any Purchaser shall issue any press releases or any other public statements with respect to the transactions contemplated by this Agreement without the prior approval of the other party; provided, however, that the Company shall be entitled, without the prior approval of any Purchaser, to issue any press release or make any other public disclosure (including a press release (concerning the offering of the Shares) pursuant to Rule 135c under the Securities Act) with respect to such transactions (i) in substantial conformity with the 8-K Filing and (ii) as is required by applicable laws and regulations; and, provided further, that no such release may identify a Purchaser unless such Purchaser has consented thereto in writing, or as required by law.

 

(n) Waivers.  No waiver by any party to this Agreement 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 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 accruing to it thereafter.

 

(o) Stock Splits, Dividends and other Similar Events.  The provisions of this Agreement shall be appropriately adjusted to reflect any stock split, stock dividend, reorganization or other similar event that may occur with respect to the Company after the date hereof.

 

(p) Remedies.  In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each Purchaser and the Company will be entitled to specific performance under this Agreement.  The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agree to waive 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.]

 

  

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

 

	  	
QUEPASA CORPORATION

	  
	  	  	  	  
	 	 	 	 
	 	By:	 	 
	  	 	  	  
	  	  	
Name:  Michael Matte

	  
	  	  	
Title:  Chief Financial Officer

	  

 

[PURCHASER SIGNATURE PAGES FOLLOW]

 

  

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

 

 

Name of Purchaser: ______________________

	Signature of Purchaser or Authorized Signatory:	 	 

 

 

	

Name of Authorized Signatory (if applicable): 

	 	 

 

 

	Title of Authorized Signatory: 	 	 

 

 

20ex4-1.htm

Exhibit 4.1

 

THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR QUALIFIED UNDER ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE OR SOLD UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO OR AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND/OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER OR SALE. THIS NOTE DOES NOT REQUIRE PHYSICAL SURRENDER HEREOF IN ORDER TO EFFECT A PARTIAL PAYMENT, REDEMPTION OR CONVERSION HEREOF.  ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT SHOWN BELOW.

 

CATASYS, INC.

 

SECOND AMENDED AND RESTATED SECURED CONVERTIBLE PROMISSORY NOTE

 

	
Original Issue Date: August 17, 2011

	
$970,000.00

	 

First Amendment and Restatement Date: November 2, 2011

Second Amendment and Restatement Date: November 15, 2011

 

FOR VALUE RECEIVED, CATASYS, INC., a Delaware corporation (the “Company”), hereby promises to pay to the order of SOCIUS CAPITAL GROUP, LLC, a Delaware limited liability company, or its successors or assigns (the “Holder”) the sum of Nine Hundred and Seventy Thousand Dollars ($970,000.00) in same day funds on or before 90 calendar days from the Issue Date (the “Maturity Date”), unless this Secured Convertible Promissory Note (this “Note”) is earlier converted pursuant to Section 3 hereof.  This Note amends, restates and replaces that certain secured convertible promissory note, originally issued as of August 17, 2011, in the original principal amount of $650,000.00, and that amended and restated secured convertible promissory note, issued as of November 2, 2011, in the principal amount of $810,000.00.

 

  The following terms shall apply to this Note:

 

1.           DEFINITIONS.

 

“Applicable Interest Rate” means an annual rate equal to twelve percent (12%) prior to any Event of Default, and twenty-four percent (24%) after the occurrence of any Event of Default, computed on the basis of a 365-day year and calculated using the actual number of days elapsed since the Issue Date or the date on which Interest was most recently paid.

 

“Business Day” means any day other than a Saturday, a Sunday or a day on which the New York Stock Exchange is closed or on which banks are authorized by law to close in New York, New York.

 

  

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“Common Stock” means the common stock of the Company, $0.0001 par value per share, and any securities into which such common stock may hereafter be reclassified.

 

“Conversion Date” means the date of closing of the Qualified Financing pursuant to which the Company has received at least $2,000,000.00.

 

“Highest Lawful Rate” means the maximum non-usurious rate of interest, as in effect from time to time, which may be charged, contracted for, reserved, received or collected by the Holder in connection with this Note under applicable law.

 

“Issue Date” means the date first written above.

 

“Maturity Date” has the meaning set forth in the preamble of this Note.

 

“Principal Market” means the principal securities exchange or market on which the Common Stock is listed or traded.

 

“Qualified Financing” means the first round of equity financing (which shall include any convertible debt, convertible preferred stock or other equity-linked derivative security financing) in a single or series of related transactions, which raises gross proceeds to the Company of at least Two Million Dollars ($2,000,000) in the aggregate.

 

“Qualified Financing Securities” means the Company’s securities issued and sold at the Qualified Financing.

 

“Trading Day” means a Business Day on which shares of Common Stock are purchased and sold on the Principal Market.

 

All definitions contained in this Note are equally applicable to the singular and plural forms of the terms defined.  The words “hereof,” “herein” and “hereunder” and words of similar import referring to this Note refer to this Note as a whole and not to any particular provision of this Note.  Any capitalized term used but not defined herein has the meaning specified in the Securities Purchase Agreement.

 

2.           INTEREST.

 

(a)           Interest Rate.  This Note shall bear interest on the unpaid principal amount hereof (“Interest”) at a rate per annum equal to the Applicable Interest Rate.

 

(b)           Interest Payments.  The Company shall pay accrued and unpaid Interest (unless this Note is converted pursuant to the terms hereof) (i) on the Maturity Date and (ii) on any date on which the entire principal amount of this Note is paid in full (whether through conversion or otherwise).  The Company shall pay Interest in cash by wire transfer of immediately available funds.

 

3.           CONVERSION.

 

(a)           Conversion upon Qualified Financing.  Upon a Qualified Financing that occurs prior to the Maturity Date, Holder may, at its sole option, by written notice convert all or any part of the entire unpaid principal amount of this Note, together with any Interest accrued but unpaid thereon, into Qualified Financing Securities (a “Financing Conversion”). Upon a Conversion, the Holder shall be entitled to receive, and shall be issued, the same type and number of Qualified Financing Securities (the “Financing Conversion Securities”) as such Holder would have received had such Holder invested any such amount in such Qualified Financing.  The issuance of the Conversion Securities upon a Conversion shall be upon the same terms and subject to the same conditions as are applicable to the Qualified Financing Securities issued in the Qualified Financing.

 

  

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(b)           Conversion into Common Stock.  The Holder may, at its sole option, by written notice convert all or any part of the entire unpaid principal amount of this Note, together with any Interest accrued but unpaid thereon, into shares of Common Stock (a “Common Conversion”).  (Either of a Financing Conversion and Common Conversion are referred to herein as a “Conversion.”)  Upon a Common Conversion, the Holder shall be entitled to receive, and shall be issued, the number of shares of Common Stock (the “Common Conversion Securities”) equal to the amount converted multiplied by a price per share equal to the lower of (i) $0.26 per share of Common Stock and (ii) the lowest price per share of Common Stock into which any security is convertible in any Qualified Financing (either of the Financing Conversion Securities and Common Conversion Securities are referred to herein as “Conversion Securities”).

 

(c)           Conversion Mechanics.  The Holder shall not be required to physically surrender this Note to the Company in order to effect any Conversion.  Upon a Conversion, the Holder shall be deemed to be the holder of record of the Conversion Securities upon the Conversion Date.  As soon as practicable after the Conversion Date, the Company shall, at its expense, issue and deliver to Holder (i) one or more certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company) for the applicable Conversion Securities, registered in the name of Holder, free of any and all liens, encumbrances or other impediments to clear title and (ii) if applicable, and if requested by the Holder, cash in the aggregate amount of any accrued, unpaid and unconverted Interest.  No fractional Conversion Securities shall be issued upon conversion of this Note, and any fractional Conversion Securities to which the Holder would otherwise be entitled shall be rounded up to the nearest whole Conversion Security and issued to the Holder along with the other Conversion Securities.  Upon the Conversion or payment, as applicable, of all amounts due Holder in accordance with this terms of this Note, this Note shall be cancelled and no further amounts shall be due hereunder.  Any full or partial payment or Conversion by Holder shall have no impact on the Warrant issued pursuant to the Securities Purchase Agreement concurrently herewith.

 

4.           EVENTS OF DEFAULT.  Upon the occurrence of any of the following events (each, an “Event of Default”):

 

(a)           the Company or any of its subsidiaries shall (i) apply for or consent to the appointment of a receiver, trustee or liquidator of itself or of its property, (ii) be unable, or admit in writing its inability, to pay its debts as they mature, (iii) make a general assignment for the benefit of creditors, (iv) be adjudicated a bankrupt or insolvent, (v) file a voluntary petition in bankruptcy, or a petition or answer seeking reorganization or an arrangement with creditors to take advantage of any insolvency law, or an answer admitting the material allegations of a bankruptcy, reorganization or insolvency petition filed against it, (vi) take corporate action for the purpose of effecting any of the foregoing, or (vii) have an order for relief entered against it in any proceeding under the United States Bankruptcy Code;

 

  

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(b)           an order, judgment or decree shall be entered, without the application, approval or consent of the Company or any of its subsidiaries, by any court of competent jurisdiction, approving a petition seeking reorganization of the Company or any of its subsidiaries, or appointing a receiver, trustee or liquidator of the Company or any of its subsidiaries, or of all or a substantial part of its assets, and such order, judgment or decree shall not be dismissed within thirty (30) consecutive days thereof;

 

(c)           the Company or any of its subsidiaries shall fail to pay as and when due any principal or Interest hereunder;

 

(d)           the Company breaches any condition or obligation under this Note, the Transaction Documents, or any other material agreement to which Company is a party, and such breach continues uncured for thirty (30) days after receipt of notice thereof; or

 

(e)           the Company  or any of its subsidiaries shall cease, substantially curtail, or substantially reduce its business operations;

 

then, and in every such event and at any time thereafter, the Holder, at its election, and without presentment, demand, notice of any kind, all of which are expressly waived by the Company, may (i) declare the entire outstanding balance of principal and Interest thereon immediately due and payable, together with all costs of collection, including attorneys’ fees, and (ii) whether or not the actions referred to in (i) above have been taken, exercise any or all of the Holder’s other rights and remedies available to the Holder under applicable law.

 

5.           HOLDER COSTS. The Company agrees to promptly pay, on demand, all of the losses, costs, and expenses (including, without limitation, attorneys’ fees and disbursements) which the Holder incurs in connection with enforcement of this Note, or the protection or preservation of the Holder’s rights under this Note, whether by judicial proceeding or otherwise.  Such costs and expenses include, without limitation, those incurred in connection with any workout or refinancing, or any bankruptcy, insolvency, liquidation or similar proceedings.

 

6.           PREPAYMENT. This Note may be prepaid by the Company at any time prior to issuance of a notice of conversion by Holder.

 

7.           COMPANY WAIVERS. The Company hereby waives diligence, demand, presentment, protest or notice of any kind.  The Company agrees to make all payments under this Note without setoff or deduction and regardless of any counterclaim or defense.

 

8.           SECURITY. 

 

(a)           Security Interest.  As security for the due and prompt payment and performance of all payment obligations under this Note and any modifications, replacements and extensions hereof (collectively, “Secured Obligations”), the Company hereby pledges and grants a first priority security interest to the Holder on a pari passu basis with the holder of the Secured Convertible Promissory Note, dated October 5, 2011, in favor of David E. Smith, as amended and restated from time to time,  in all assets of the Company, whether now owned or hereafter acquired, including without limitation all intellectual property, as more fully set forth on Schedule 1 hereto (collectively, the “Collateral”).

  

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(b)           Financing Statement; Further Assurances.  The Company agrees, concurrently with executing this Note, that the Holder may file a UCC-1 financing statement relating to the Collateral in favor of the Holder, and any similar financing statements in any jurisdiction in which the Holder reasonably determines such filing to be necessary.  The Company further agrees that at any time and from time to time the Company shall promptly execute and deliver all further instruments and documents that the Holder may request in order to perfect and protect the security interest granted hereby, or to enable the Holder to exercise and enforce its rights and remedies with respect to any Collateral following an Event of Default.

(c)           Default.  Following an Event of Default, the Company shall deliver the Collateral, including original certificates or other instruments representing any Collateral, to the Holder to hold as secured party, and Company shall, if requested by the Holder, execute a securities account control agreement. In addition, the Holder shall have all rights of a secured party under the Uniform Commercial Code, including without limitation the right to foreclose on all or any of the Collateral, in any order.

(d)           Powers of the Holder.  The Company hereby appoints the Holder as Company’s true and lawful attorney-in-fact to perform any and all of the following acts, which power is coupled with an interest, is irrevocable until the Secured Obligations are paid and performed in full, and may be exercised from time to time by the Holder in its discretion: To take any action and to execute any instrument which the Holder may deem reasonably necessary or desirable to accomplish the purposes of this Section 8(d) and, more broadly, this Note including, without limitation: (i) during the continuance of any Event of Default hereunder, to receive, endorse and collect all instruments or other forms of payment made payable to the Company representing any dividend, interest payment or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same, when and to the extent permitted by this Note, (ii) to perform or cause the performance of any obligation of the Company hereunder in the Company’s name or otherwise, (iii) during the continuance of any Event of Default hereunder, to liquidate any Collateral pledged to the Holder hereunder and to apply proceeds thereof to the payment of the Secured Obligations or to place such proceeds into a cash collateral account or to transfer the Collateral into the name of the Holder, all at the Holder’s sole discretion, (iv) to enter into any extension, reorganization or other agreement relating to or affecting the Collateral, and, in connection therewith, to deposit or surrender control of the Collateral, (v) to accept other property in exchange for the Collateral, (vi) to make any compromise or settlement the Holder deems desirable or proper, and (vii) to execute on the Company’s behalf and in the Company’s name any documents required in order to give the Holder a continuing first lien upon the Collateral or any part thereof.

(e)           Full Recourse Note.  This is a full recourse Note. Accordingly, notwithstanding that the Company’s obligations under this Note are secured by the Collateral, in the event of a material default hereunder, the Holder shall have full recourse to all the other assets of Company.  Moreover, the Holder shall not be required to proceed against or exhaust any Collateral, or to pursue any Collateral in any particular order, before the Holder pursues any other remedies against Company or against any of Company’s assets.

  

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9.           MISCELLANEOUS.

 

(a)           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 (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section, or via electronic mail, prior to 6:30 p.m. (New York City time) on a Trading Day and an electronic confirmation of delivery is received by the sender, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given by personal delivery.

 

(b)           Amendments; Waivers; No Oral Changes.  No provision of this Note may be waived or amended except in a written instrument signed by the Company and the Holder.  No waiver of any default with respect to any provision, condition or requirement of this Note 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 either party to exercise any right hereunder in any manner impair the exercise of any such right.  This Note may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of the Holder or the Company, but only by an agreement in writing signed by both parties.

 

(c)           Lost or Stolen Note.  Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of this Note, and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon surrender and cancellation of this Note, if mutilated, the Company shall execute and deliver to the Holder a new Note identical in all respects to this Note.

 

(d)           Governing Law.  This Note shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within the State of New York, without giving effect to conflict of law principles thereof.

 

(e)           Headings.  The headings in this Note are for purposes of reference only, and shall not limit or otherwise affect the meaning hereof.

 

(f)           Transfer; Successors and Assigns.  The terms of this Note shall inure to the benefit of and bind the parties hereto and their successors and assigns.  As used herein the term “Company” shall include the undersigned Company and any other person or entity who may subsequently become liable for the payment hereof; provided however, that the Company shall not have the right to assign this Note or its obligations or rights hereunder without the prior written consent of the Holder.  The term “Holder” shall include the named Holder as well as any other person or entity to whom this Note or any interest in this Note is conveyed, transferred or assigned.  The person signing this Note on behalf of the Company represents and warrants that he or she has full authority to do so and that this Note binds the Company in accordance with its terms, and that there are no other agreements, judgments, or other circumstances which would cause this Note to not be fully binding against the Company.  In the event Holder takes any action to enforce any provision of this Note, either through legal proceedings or otherwise, the Company shall reimburse the Holder for attorneys’ fees and all other costs and expenses so incurred.

 

  

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(g)           Usury.  Anything herein to the contrary notwithstanding, if during any period for which interest is computed hereunder the amount of interest, together with all fees, charges and other payments which are treated as interest under applicable law, as provided for herein or in any other document executed in connection herewith, would exceed the amount of such interest computed on the basis of the Highest Lawful Rate, the Company shall not be obligated to pay, and the Holder shall not be entitled to charge, collect, receive, reserve or take, interest in excess of the Highest Lawful Rate.

 

IN WITNESS WHEREOF, the Company has caused this Note to be signed in its name by its duly authorized officer on the date first above written.

 

	 	
CATASYS, INC.

	 
	 	 	 
	 	 	 	 
	
 

	
By: 

	/s/ Susan Etzel	 
	 	 	Susan Etzel, Chief Financial Officer	 
	 	 	 	 
	 	 	 	 

                         

      

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