Document:

Exhbit 4.1

 

THIS PROMISSORY NOTE (THE “NOTE”) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT UNDER ANY CIRCUMSTANCES BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR THE NOTE UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OF THE UNITED STATES OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAWS.

 

4LICENSING CORPORATION

SENIOR SECURED PROMISSORY NOTE

 

	
U.S. $200,000

	
October 23, 2015

New York, New York

FOR VALUE RECEIVED, the undersigned, 4Licensing Corporation, a Delaware corporation, with its principal office at 767 Third Avenue, New York, New York 10017 (the “Company”), and its direct and indirect subsidiaries, 4Kids Digital Games, Inc., 4Kids Entertainment Home Video, Inc., 4Kids Entertainment Licensing, Inc., 4Kids Entertainment Music, Inc.,  4Kids Productions, Inc., 4Kids Websites, Inc., 4LC Sports & Entertainment, Inc., 4LC Technology, Inc., 4Sight Licensing Solutions, Inc., Leisure Concepts International, Inc., The Summit Media Group, Inc. and World Martial Arts Productions, Inc. (collectively with the Company, the “Borrowers”) unconditionally promise, jointly and severally, to pay to Prescott Group Aggressive Small Cap Masterfund, GP, or its permitted assigns, transferees and successors (collectively, the “Holder”), on December 31, 2016 (the “Maturity Date”), at such place as may be designated in writing by the Holder, the principal sum of Two Hundred Thousand Dollars (U.S. $200,000), together with any unpaid interest thereon accrued at a rate per annum equal to 5.0% (computed on the basis of a three hundred sixty-five (365)-day year and based upon the number of days actually elapsed, such interest to be compounded annually), from and after the date of this Note (the “Original Issue Date”).

 

	ARTICLE 1:	PAYMENTS AND OTHER PAYMENT TERMS.

 

1.1            Principal.  The entire outstanding principal balance of this Note, together with all accrued and unpaid interest thereon to, but excluding, the Maturity Date, shall be due and payable on the Maturity Date.  For purposes of this Note, “Repayment Amount” shall mean the outstanding principal balance of this Note, together with all accrued and unpaid interest thereon to, but excluding, the date of repayment, whether on the Maturity Date or otherwise.

 

1.2            Interest.  Interest shall accrue on this Note from (a) the Original Issue Date or (b) from the last Due Date (as defined below) on which interest was paid, in each case to, but excluding, the first business day of each fiscal quarter commencing with the first fiscal quarter beginning after the Original Issue Date (each, a “Due Date”), at a rate per annum equal to 5.0%.  Interest shall be due and payable on each Due Date.

 

1.3            Voluntary Prepayments.  At the sole option of the Borrowers, this Note may be prepaid in whole at any time prior to the Maturity Date at 100% of the entire outstanding principal balance of this Note, plus any and all unpaid accrued interest thereon to, but excluding, the date of such prepayment.

 

1.4            Top-Up.  If (a) the Borrowers do not pay the Repayment Amount on or prior to the Maturity Date, and (b)(i) the common stock of the Company (“Common Stock”) is traded on a national securities exchange, (ii) the Common Stock is traded on the OTC Bulletin Board (or any successor thereof) or (iii) prices for the Common Stock are reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or any successor thereof), upon notice to the Borrowers (the “Top-Up Notice”), the Holder may, in its sole discretion, elect to reduce all or a portion of the Repayment Amount (the “Offset Amount”) by receiving in lieu of cash, additional shares of Common Stock in amount equal to the Offset Amount divided by the 30-Day VWAP on the date of the Top-Up Notice, rounded down to the nearest whole share.  The Holder’s rights under this Section 1.4 shall continue until the Repayment Amount has been paid in full, whether with cash or with additional shares of Common Stock pursuant to this Section 1.4.  No fractional shares of Common Stock will be issued in connection with this Note.

 

For purposes of this Note, (i) the “30-Day VWAP” on any date of determination shall mean the average of the Closing Price per share of Common Stock on each of the 30 consecutive Trading Days ending on the third Trading Day immediately preceding the date of determination; (ii) the “Closing Price” on any date of determination shall mean (A) the closing sale price of the Common Stock as of the close of the principal trading session (or, if no closing price is reported, the last reported sale price) per share on the principal national securities exchange or over-the-counter market on which the Common Stock is listed on such date or (B) if the Common Stock is not listed for trading on a national securities exchange or over-the-counter market on any such date, the last closing sale price per share as reported on a national securities exchange or over-the-counter market; and (iii) “Trading Day” shall mean a day on which the Common Stock is not suspended from trading on any national securities exchange or over-the-counter market at the close of business and has traded at least once on the national securities exchange or over-the-counter market that is the primary market for the trading of the Common Stock.

 

1.5            Cancellation of Note.  Upon payment in full of the outstanding principal balance of this Note and all accrued and unpaid interest thereon, including pursuant to Section 1.4, this Note will be automatically cancelled and the Borrowers’ payment obligations hereunder will be extinguished.

 

	ARTICLE 2:	SECURITIES MATTERS.

 

2.1            Accredited Investor; Borrowers’ Information. By acceptance hereof, the Holder represents and warrants that it (a) is an accredited investor as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933 (the “Securities Act”) and, by virtue of its experience in evaluating and investing in private placement transactions of securities in companies similar to the Borrowers, (b) is capable of evaluating the merits and risks of its investment in the Borrowers and has the capacity to protect its own interests, and (c) has the financial ability to bear the economic risk of its investment in the Borrowers.  By acceptance hereof, the Holder represents and warrants that it (a) has been provided access to all information regarding the business and financial condition of the Borrowers, their expected plans for future business activities, material contracts, intellectual property, and the merits and risks of its purchase of the Note, which the Holder has requested or otherwise needs to evaluate an investment in the Note,  (b) the Holder has had an opportunity to discuss the Borrowers’ business, management and financial affairs with directors, officers and management of the Borrowers and has had the opportunity to review the Borrowers’ operations and facilities and (c) the Holder has also had the opportunity to ask questions of and receive answers from, the Borrowers and its management regarding the terms and conditions of this investment and all such questions have been answered to the Holder’s satisfaction.

 

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2.2            Restricted Securities.  By acceptance hereof, the Holder understands and agrees that this Note is a “restricted security” under the federal securities laws inasmuch as it is being acquired from the Borrowers in a transaction not involving a public offering under the Securities Act of 1933 (the “Securities Act”) and that under such laws and applicable regulations such securities may be resold in the absence of registration under the Securities Act only in certain limited circumstances.  The Holder hereby represents that it is familiar with Rule 144, as promulgated by the Securities and Exchange Commission under the Securities Act, as currently in effect, and understands the resale limitations imposed thereby and by the Securities Act.

 

	ARTICLE 3:	TRANSFER RESTRICTIONS

 

3.1            The Holder shall not sell, assign, transfer, pledge or dispose of all or any part of this Note, by operation of law or otherwise.  Notwithstanding anything in this Note to the contrary, the Holder may transfer all or any part of the Note to any person or corporation (profit or nonprofit), partnership, limited liability company, association, trust or other entity that controls, is controlled by, or under common control with, the Holder, so long as such transferee consents in writing to be bound by the terms and conditions of this Note.

 

	ARTICLE 4:	EVENTS OF DEFAULT.

 

The occurrence of any of the following events with respect to the Company shall constitute an event of default under this Note (an “Event of Default”).  The Company shall notify the Holder in writing within five (5) business days following the occurrence of any Event of Default.

 

4.1            The Company fails to make any payment of principal or interest as required hereunder.

 

4.2            Pursuant to or within the meaning of applicable law relating to insolvency or relief of debtors (a “Bankruptcy Law”), the Company (a) commences a voluntary case or proceeding, (b) consents to the entry of an order for relief against it in an involuntary case, (c) consents to the appointment of a trustee, receiver, assignee, liquidator or similar official, (d) makes an assignment for the benefit of its creditors, or (e) admits in writing its inability to pay its debts as they become due.

 

4.3            A court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (a) is for relief against the Company in an involuntary case, (b) appoints a trustee, receiver, assignee, liquidator or similar official for the Company’s properties, or (c) orders the liquidation of the Company, and in each case the order or decree is not dismissed within forty-five (45) days.

 

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	ARTICLE 5:	REMEDIES IN THE EVENT OF DEFAULT.

 

5.1            Upon the occurrence of an Event of Default that is continuing, the Holder may, at its option, declare the aggregate amount of principal and interest outstanding under this Note immediately due and payable by providing written notice to the Borrowers; provided, that such demand will be in addition to all other rights and remedies of the Holder under this Note and under applicable law.

 

5.2            The Borrowers shall pay all costs and expenses incurred by or on behalf of the Holder in connection with the Holder’s exercise of any or all of its rights and remedies under this Note, including, without limitation, reasonable attorneys’ fees.

 

5.3            In the case of any Event of Default under this Note that is continuing and has not been waived in writing by the Holder, this Note will continue to bear interest at the interest rate otherwise in effect hereunder plus 1% per annum (but in any event not in excess of the maximum rate of interest permitted by applicable law).

 

	
ARTICLE 6:

	
COLLATERAL

 

6.1            As security for this Note, and the full and prompt payment when due hereunder of all obligations of the Borrowers to the Holder, the Borrowers hereby sell, assign, convey, mortgage, pledge, hypothecate and transfer to the Holder a security interest in, to and under of the following of the Borrowers, whether now owned or hereafter acquired:  all accounts, chattel paper, deposit accounts, documents, equipment, fixtures, general intangibles, goods, instruments, inventory, investment property, letter-of-credit rights, money, all other items, kinds and types of personal property, tangible or intangible, of whatever nature, whether similar or dissimilar to any or all of the foregoing, and regardless of whether the creation or perfection or effect of perfection or nonperfection of a security interest therein is governed by the Uniform Commercial Code of any particular jurisdiction or by any other applicable treaty, convention, statute, law or regulation of any applicable jurisdiction, and all products and proceeds of the foregoing (collectively, the “Collateral”); provided, however, that the term Collateral shall not include any equity interests in Pinwrest Development Group, LLC (“Pinwrest”) or capital stock of 4LC Technology, Inc. or any successor thereto.

 

6.2            Terms used in the definition of Collateral and not otherwise defined herein shall have the meanings provided in the Uniform Commercial Code as from time to time in effect in the State of New York.  This Note constitutes a “security agreement” within the meaning of the Uniform Commercial Code.

 

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6.3            Upon the occurrence and during the continuance of an Event of Default, the Holder shall have, in addition to any other remedies it may have, all the rights and remedies afforded by the Uniform Commercial Code or afforded by other applicable law, and the Holder shall be entitled to at any time or from time to time to sell, assign and deliver, or grant options to purchase, all or any part of the Collateral, or any interest therein, at any public or private sale, without demand of performance, advertisement or notice of intention to sell or of the time or place of sale or adjournment thereof or to redeem or otherwise (all of which are hereby waived by the Borrowers), for cash, on credit or for other property, for immediate or future delivery without any assumption of credit risk, and for such price or prices and on such terms as the Holder in its absolute discretion may determine, provided that at least 10 days’ notice of the time and place of any such sale shall be given to the Borrowers, which notice the Borrowers agree is commercially reasonable; each purchaser at any such sale shall hold the property so sold absolutely free from any claim or right on the part of the Borrowers, and the Borrowers hereby waive and release to the fullest extent permitted by law any right or equity of redemption with respect to the Collateral, whether before or after sale hereunder, all rights, if any, of marshalling the Collateral, and all rights, if any, of stay and/or appraisal which they now have or may at any time in the future have under rule of law or statute now existing or hereafter enacted; at any such sale, unless prohibited by applicable law, the Holder may bid for and purchase (by bidding in obligations or otherwise) all or any part of the Collateral so sold free from any such right or equity of redemption; and the Holder shall not be liable for failure to collect or realize upon any or all of the Collateral or for any delay in so doing nor shall it be under any obligation to take any action whatsoever with regard thereto.

 

6.4            The Borrowers hereby authorize the Holder to, at the Borrowers’ expense, file and refile under the Uniform Commercial Code such financing statements, continuation statements and other documents in such offices as the Holder may deem  necessary or appropriate (including, without limitation, financing statements describing the Collateral as “all assets” or “all personal property” or words of similar import) and wherever required or permitted by law in order to perfect and preserve the Holder’s security interest in the Collateral hereunder and hereby authorizes the Holder to file financing statements and amendments thereto relative to all or any part of the Collateral without the signature of the Holder where permitted by law, and agrees to do such further acts and things and to execute and deliver to the Holder such additional conveyances, assignments, agreements and instruments as the Holder may require or deem advisable to carry into effect the purposes of this Note or to further assure and confirm unto the Holder its rights, powers and remedies hereunder.

 

6.5            As of the date hereof, the Borrowers represent and warrant that they have good title of the Collateral material and necessary to the conduct of their respective businesses and the Collateral is and shall continue to be free of all liens or other encumbrances, in each case, securing indebtedness for borrowed money, except that the Borrowers have also granted a security interest in the Collateral to the Leslie G. Rudd Living Trust pursuant to the Senior Secured Promissory Note, dated July 8, 2015, issued by the Borrowers to such holder (the “Rudd Note”) and to the Holder pursuant to the Promissory Note, dated March 25, 2014, as amended, issued by the Company to the Holder.  The Borrowers has full power and authority to grant to the Holder a security interest in the Collateral.

 

6.6            The Borrowers shall maintain all material property necessary for the conduct of their respective businesses in good repair, ordinary wear and tear excepted.  The Borrowers shall, in their reasonable business judgment, defend the Collateral against any unlawful adverse claims and demands.  The Borrowers shall keep, in all material respects and consistent with past practice, accurate books and records related to such Collateral.  The Borrowers will promptly notify the Holder in writing of any event which materially and adversely affects the value of the Collateral or the rights and remedies of the Holder in relation thereto.  The Borrowers will maintain and keep in force insurance covering the Collateral, to the extent that any Collateral is of a type which can be so insured, consistent with past practice.

 

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6.7            The Borrowers shall not sell or otherwise transfer the Collateral, whether now owned or hereafter acquired, without the prior written consent of the Holder; provided, however, that such consent shall not be required (a) in connection with the sale or other transfer of Collateral in the ordinary course of business or (b) any other sale or transfer so long as (i) no Event of Default has occurred and is continuing at the time of such sale or transfer, (ii) such sale or transfer is for $50,000 or less and (iii) the net proceeds from such sale or transfer are used to acquire assets that are Collateral.  Additionally, without the prior written consent of the Holder, Borrowers shall not incur any lien other than a Permitted Lien.

 

For purposes hereof, “Permitted Lien” means the individual and collective reference to the following: (a) any liens existing on the date hereof or arising under this agreement and any replacement liens that do not encumber any additional Collateral, (b) liens for taxes, assessments and other governmental charges or levies, (c) liens which were or are incurred in the ordinary course of the Borrowers’ respective businesses, including, without limitation, the Borrowers’ operations, insurance related thereto and existing and future compensation, reimbursement, insurance and other obligations to employees, officers and directors of the Borrowers, and the leasing or subleasing and licensing and sublicensing of any assets (tangible or intangible), (d) liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default, (e) liens on all property existing at the time of acquisition thereof, provided that such liens were not created in connection with, or in contemplation of, such acquisition, (f) liens incurred by operation of law, including, without limitation, statutory and common law liens, (g) liens incurred in connection with the Rudd Note, and any refinancings thereof, and (h) liens arising from any partnership, limited liability company or joint venture arrangements, including, without limitation, the Operating Agreement of Pinwrest, as amended from time to time.

 

6.8            If any of the property of the Borrowers is sold or otherwise disposed of or otherwise does not secure the Rudd Note (each a “Release Transaction”), at the request of the Borrowers, such property shall automatically be released from the security interest created hereunder concurrently with the consummation of such Release Transaction. Upon such release or on or after the repayment of this Note in full, the Holder will, at the reasonable request of the Borrowers, promptly execute and deliver such releases to evidence the foregoing.

 

	
ARTICLE 7

	MISCELLANEOUS.

 

7.1            Severability.  In the event that any provisions of this Note are determined to be invalid or unenforceable by a court of competent jurisdiction, the remainder of the Note shall remain in full force and effect without such provision.  Any provision of this Note held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.

 

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7.2            Waivers and Amendments; Preservation of Remedies.  No waiver by the Holder of any right or remedy under this Note shall be effective unless in a writing signed by the Holder.  Neither the failure nor any delay in exercising any right, power or privilege under this Note will operate as a waiver of such right, power or privilege and no single or partial exercise of any such right, power or privilege by the Holder will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege.  To the maximum extent permitted by applicable law, (a) no claim or right of the Holder arising out of this Note may be discharged by the Holder, in whole or in part, by a waiver or renunciation of the claim or right unless in writing, signed by the Holder; (b) no waiver that may be given by the Holder will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on the Borrowers will be deemed to be a waiver of any obligation of the Borrowers or of the right of the Holder to take further action without notice or demand as provided in this Note.  The Borrowers hereby waive presentment, demand, protest and notice of dishonor, protest, diligence, filing suit, nonpayment and all other notice.  The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies which any party may otherwise have at law or in equity.

 

7.3            Headings.  The captions to the several Articles and Sections hereof are not a part of this Note, but are included merely for convenience of reference only and shall not affect its meaning or interpretation.

 

7.4            Successors.  This Note shall be binding upon each of the Borrowers and each of their successors and permitted assigns.

 

7.5            Governing Law.  This Note will be governed by the laws of the State of New York without regard to conflicts of laws principles.

 

7.6            Notices.  All notices, requests, demands, claims and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally, via electronic mail, by facsimile, sent by nationally recognized overnight courier or mailed by registered or certified mail (return receipt requested), postage prepaid, to the appropriate party at the address, email address or facsimile number, as applicable, set forth below (or at such other address for such party as shall be specified by like notice):

If to the Borrowers, to:

 

4Licensing Corporation

767 Third Avenue

New York, New York 10017

Telephone: (646) 822-4258

Facsimile (212) 754-5481

Email: BFoster@4LicensingCorp.com

Attention: Bruce R. Foster

 

If to the Holder, to:

Prescott Group Aggressive Small Cap Masterfund, GP

1924 South Utica

Suite 1120

Tulsa, Oklahoma 74104

Telephone: 918-747-3412

Facsimile: 918-742-7303

Email:  phil@prescottcapital.com

Attention: Phil Frohlich

 

(Signature page follows.)

 

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IN WITNESS WHEREOF, the Borrowers have caused each of their duly authorized representative to execute this Note on the date first above written.

 

	 	
4LICENSING CORPORATION

4Kids Digital Games, Inc.

	 	
4Kids Entertainment Home Video, Inc.

	 	
4Kids Entertainment Licensing, Inc.

	 	
4Kids Entertainment Music, Inc.,

	 	
4Kids Productions, Inc.

	 	
4Kids Websites, Inc.

	 	
4LC Sports & Entertainment, Inc.

	 	
4LC Technology, Inc.

	 	
4Sight Licensing Solutions, Inc.

	 	
Leisure Concepts International, Inc.

	 	
The Summit Media Group, Inc.

	 	
World Martial Arts Productions, Inc.

	 	
By:

	
/s/ Bruce R. Foster

	 	 	
Name: Bruce R. Foster

 

[Signature Page to Promissory Note]Exhibit 4.2

 

COMMON STOCK PURCHASE WARRANT

4LICENSING CORPORATION

 

	
Warrant Shares: 800,000

	
Issue Date:  October 23, 2015

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, Prescott Group Aggressive Small Cap Masterfund, GP or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to the close of business on March 25, 2024 (the “Termination Date”) but not thereafter, to subscribe for and purchase from 4Licensing Corporation, a Delaware corporation (the “Company”), up to 800,000 shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 1(b).

 

Section 1.         Exercise.

 

a)            Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise in the form annexed hereto. Within three (3) days on which the Common Stock is not suspended from trading on any national securities exchange or over-the-counter market at the close of business and has traded at least once on the national securities exchange or over-the-counter market that is the primary market for the trading of the Common Stock (“Trading Days”) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank; provided, however, in the event that the Holder has not delivered such aggregate Exercise Price within three (3) Trading Days following the date of such exercise as aforesaid, the Company shall not be obligated to deliver such Warrant Shares hereunder until such payment is made. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required.  Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased.  The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within two (2) Business Days of receipt of such notice.  The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

b)           Exercise Price.  The exercise price per share of the Common Stock under this Warrant shall be $0.25, subject to adjustment hereunder (the “Exercise Price”).

 

c)            Mechanics of Exercise.

 

i.          Delivery of Warrant Shares Upon Exercise.  Upon exercise of this Warrant, the Company shall promptly, but in no event later than three (3) Trading Days after the delivery of the aggregate Exercise Price pursuant to Section 2(a), issue or cause to be issued and cause to be delivered to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate for the Warrant Shares issuable upon such exercise.  The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price and all taxes required to be paid by the Holder, if any, pursuant to Section 1(c)(v) prior to the issuance of such shares, having been paid.

 

ii.        Delivery of New Warrants Upon Exercise.  If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

iii.       Rescission Rights.  If the Company fails to issue or cause to have issued the Warrant Shares pursuant to Section 1(c)(i) within three (3) Trading Days after the delivery of the aggregate Exercise Price pursuant to Section 1(a), then the Holder will have the right to rescind such exercise. The right of rescission of Holder under this Section 1(c)(iii) is subject to delivery by the Holder of the aggregate Exercise Price in accordance with the terms of Section 1(a) herein.

 

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

 

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v.        Charges, Taxes and Expenses.  Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder in the Notice of Exercise; provided, however, that in the event Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.  The Company shall pay all fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

 

vi.      Closing of Books.  The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

Section 2.         Certain Adjustments.

 

a)            Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged.  Any adjustment made pursuant to this Section 2(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re‐classification.

 

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b)            Subsequent Rights Offerings.  In addition to any adjustments pursuant to the other subsections of this Section 2, if at any time the Company grants, issues or sells any Common Stock equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

 

c)      Pro Rata Distributions.  During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution.  To the extent that this Warrant has not been partially or completed exercised at the time of such Distribution, such portion of the Distribution shall be held in abeyance for the benefit of the Holder until the Holder has exercised this Warrant.

 

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d)            Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof) (each, a “Person”), (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction.  For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction.  Upon the occurrence of any such Fundamental Transaction in which the Company is the survivor (such surviving entity, the “Successor Entity”), the Successor Entity shall succeed to, and be substituted for, the Company (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the “Company” shall refer instead to the Successor Entity), and the Successor Entity may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein.

 

e)        Calculations. All calculations under this Section 2 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 2, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

f)         Notice to Holder.

 

i.   Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 2, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

 

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ii.   Notice to Allow Exercise by Holder. If, during the period in which this Warrant is outstanding, (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register (as defined in Section 3(b)) of the Company, at least 10 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.  To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the subsidiaries, the Company shall simultaneously file such notice with the Securities and Exchange Commission pursuant to a Current Report on Form 8-K.  The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

Section 3.               Transfer of Warrant.

 

a)            Transferability.  The Holder shall not sell, assign, transfer, pledge or dispose of all or any part of this Warrant, by operation of law or otherwise.  Notwithstanding anything in this Warrant to the contrary, the Holder may transfer all or any part of the Warrant to any person or corporation (profit or nonprofit), partnership, limited liability company, association, trust or other entity that controls, is controlled by, or under common control with, the Holder, so long as such transferee consents in writing to be bound by the terms and conditions of this Warrant.

 

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b)            Warrant Register.  The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time.  The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

Section 4.         Miscellaneous.

 

a)            No Rights as Stockholder Until Exercise.  This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 1(c)(i), except as expressly set forth in Section 3.

 

b)            Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

c)            Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.

 

d)            Authorized Shares.

 

The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant.  The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant.  The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any national securities exchange upon which the Common Stock may be listed.  The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

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e)            Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of New York without giving effect to the principles of conflict of laws thereof.

 

f)            Nonwaiver.  No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies.

 

g)            Notices.  All notices, requests, demands, claims and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally, via electronic mail, by facsimile, sent by nationally recognized overnight courier or mailed by registered or certified mail (return receipt requested), postage prepaid, to the appropriate party at the address, email address or facsimile number, as applicable, set forth below (or at such other address for such party as shall be specified by like notice):

 

If to the Company, to:

 

4Licensing Corporation

767 Third Avenue

New York, New York 10017

Telephone: (646) 822-4258

Facsimile (212) 754-5481

Email: BFoster@4LicensingCorp.com

Attention: Bruce R. Foster

If to the Holder, to:

 

Prescott Group Aggressive Small Cap Masterfund, GP

1924 South Utica

Suite 1120

Tulsa, Oklahoma 74104

Telephone: 918-747-3412

Facsimile: 918-742-7303

Email:  phil@prescottcapital.com

Attention: Phil Frohlich

 

h)            Limitation of Liability.  No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

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i)            Successors and Assigns.  Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder.  The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

j)            Amendment.  This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

 

k)            Severability.  Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

l)            Headings.  The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

	 	
4LICENSING CORPORATION

	 
	 	 	 	 
	 	
By: 

	
/s/ Bruce R. Foster

	 
	 	 	
Name:   Bruce R. Foster

	 
	 	 	
Title:    Chief Executive Officer

	 

 

[Signature Page to Warrant]

 

NOTICE OF EXERCISE

TO:            4LICENSING CORPORATION

(1)    The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2)    Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

	 	
       

	
 

 

The Warrant Shares shall be delivered to the following address:

		
       

	 

		
       

	 

		
       

	 

[SIGNATURE OF HOLDER]

 

	
Name of Investing Entity:

	
   

	
Signature of Authorized Signatory of Investing Entity:

	
   

	
Name of Authorized Signatory:

	
   

	
Title of Authorized Signatory:

	
   

	
Date:

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