Document:

ex10-1.htm

Exhibit 10.1

SUBSCRIPTION AGREEMENT

 

THIS SUBSCRIPTION AGREEMENT (this “Agreement”) is made as of the last date set forth on the signature page hereof between Spherix Incorporated, a Delaware corporation (the “Company”), and the undersigned (the “Subscriber”). The Company is conducting a private placement (the “Offering”) of One Hundred Thousand (100,000) shares (the “Shares” or the “Securities”) of the Company’s newly designated Series E Convertible Preferred Stock, par value $0.0001 per share (the “Series E Preferred Stock”) at a purchase price of $5.00 per Share (the “Purchase Price”).  Each share of Series E Preferred Stock is convertible into one (1) share of the Company’s common stock, $0.0001 par value per share (the “Common Stock”).

 

IMPORTANT INVESTOR NOTICES

 

NO OFFERING LITERATURE OR ADVERTISEMENT IN ANY FORM MAY BE RELIED UPON IN THE OFFERING OF THESE SECURITIES EXCEPT FOR THIS AGREEMENT AND ANY SUPPLEMENTS HERETO, AND NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATIONS EXCEPT THOSE CONTAINED HEREIN.

 

THIS AGREEMENT IS CONFIDENTIAL AND THE CONTENTS HEREOF MAY NOT BE REPRODUCED, DISTRIBUTED OR DIVULGED BY OR TO ANY PERSONS OTHER THAN THE RECIPIENT OR ITS REPRESENTATIVE, ACCOUNTANT OR LEGAL COUNSEL, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY.  EACH PERSON WHO ACCEPTS DELIVERY OF THIS AGREEMENT, ACKNOWLEDGES AND AGREES TO THE FOREGOING RESTRICTIONS.

 

THIS AGREEMENT DOES NOT PURPORT TO BE ALL-INCLUSIVE OR TO CONTAIN ALL OF THE INFORMATION THAT YOU MAY DESIRE IN EVALUATING THE COMPANY, OR AN INVESTMENT IN THE OFFERING. THIS AGREEMENT DOES NOT CONTAIN ALL OF THE INFORMATION THAT WOULD NORMALLY APPEAR IN A PROSPECTUS FOR AN OFFERING REGISTERED UNDER THE SECURITIES ACT.  YOU MUST CONDUCT AND RELY ON YOUR OWN EVALUATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED, IN DECIDING WHETHER TO INVEST IN THE OFFERING.

 

THIS AGREEMENT CONTAINS A SUMMARY OF CERTAIN PROVISIONS OF VARIOUS DOCUMENTS RELATING TO THE OPERATIONS OF THE COMPANY.  THESE SUMMARIES DO NOT PURPORT TO BE COMPLETE AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE TEXTS OF THE ORIGINAL DOCUMENTS.

 

THIS AGREEMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION OF AN OFFER TO ANY PERSON OR IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION IS UNLAWFUL OR NOT AUTHORIZED.  EACH PERSON WHO ACCEPTS DELIVERY OF THIS SUBSCRIPTION AGREEMENT AGREES TO RETURN IT AND ALL RELATED DOCUMENTS IF SUCH PERSON DOES NOT PURCHASE ANY OF THE SECURITIES DESCRIBED HEREIN.

 

NEITHER THE DELIVERY OF THIS AGREEMENT AT ANY TIME NOR ANY SALE OF SECURITIES HEREUNDER SHALL IMPLY THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.  THE COMPANY WILL EXTEND TO EACH PROSPECTIVE INVESTOR (AND TO ITS REPRESENTATIVE, ACCOUNTANT OR LEGAL COUNSEL, IF ANY) THE OPPORTUNITY, PRIOR TO ITS PURCHASE OF SHARES OF SERIES E PREFERRED STOCK, TO ASK QUESTIONS OF AND RECEIVE ANSWERS FROM THE COMPANY CONCERNING THE OFFERING AND TO OBTAIN ADDITIONAL INFORMATION, TO THE EXTENT THE COMPANY POSSESSES THE SAME OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE, IN ORDER TO VERIFY THE ACCURACY OF THE INFORMATION SET FORTH HEREIN.  ALL SUCH ADDITIONAL INFORMATION SHALL ONLY BE PROVIDED IN WRITING AND IDENTIFIED AS SUCH BY THE COMPANY THROUGH ITS DULY AUTHORIZED OFFICERS AND/OR DIRECTORS ALONE; NO ORAL INFORMATION OR INFORMATION PROVIDED BY ANY BROKER OR THIRD PARTY MAY BE RELIED UPON.

  

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NO REPRESENTATIONS, WARRANTIES OR ASSURANCES OF ANY KIND ARE MADE OR SHOULD BE INFERRED WITH RESPECT TO THE ECONOMIC RETURN, IF ANY, THAT MAY ACCRUE TO AN INVESTOR IN THE COMPANY.

 

THIS AGREEMENT CONTAINS FORWARD-LOOKING STATEMENTS REGARDING THE COMPANY’S PERFORMANCE, STRATEGY, PLANS, OBJECTIVES, EXPECTATIONS, BELIEFS AND INTENTIONS.  THE OUTCOME OF THE EVENTS DESCRIBED IN THESE FORWARD-LOOKING STATEMENTS IS SUBJECT TO SUBSTANTIAL RISKS, AND ACTUAL RESULTS COULD DIFFER MATERIALLY.  THE SECTIONS ENTITLED “EXECUTIVE SUMMARY,” “RISK FACTORS,” AND “DESCRIPTION OF BUSINESS,” IN ANY SEC FILING (AS DEFINED HEREIN) OR REPORT, AS WELL AS THIS AGREEMENT GENERALLY, CONTAIN DISCUSSIONS OF SOME OF THE FACTORS THAT COULD CONTRIBUTE TO THESE DIFFERENCES.

 

THIS SUBSCRIPTION AGREEMENT AND THE SEC FILINGS AND REPORTS INCLUDE DATA OBTAINED FROM INDUSTRY PUBLICATIONS AND REPORTS, WHICH THE COMPANY BELIEVES TO BE RELIABLE SOURCES; HOWEVER, NEITHER THE ACCURACY NOR COMPLETENESS OF THIS DATA IS GUARANTEED. WE HAVE NEITHER INDEPENDENTLY VERIFIED THIS DATA NOR SOUGHT THE CONSENT OF SUCH SOURCES TO REFER TO THEIR REPORTS IN THIS SUBSCRIPTION AGREEMENT.

 

THE OFFERING PRICE OF THE SHARES OF SERIES E PREFERRED STOCK HAS BEEN DETERMINED ARBITRARILY.  THE PRICE OF THE SHARES OF SERIES E PREFERRED STOCK DOES NOT NECESSARILY BEAR ANY RELATIONSHIP TO THE ASSETS, EARNINGS OR BOOK VALUE OF THE COMPANY, OR TO POTENTIAL ASSETS, EARNINGS, OR BOOK VALUE OF THE COMPANY.  THERE IS NO ACTIVE TRADING MARKET IN THE COMPANY’S COMMON STOCK AND THERE CAN BE NO ASSURANCE THAT AN ACTIVE TRADING MARKET IN ANY OF THE COMPANY’S SECURITIES WILL DEVELOP OR BE MAINTAINED.  A LIMITED NUMBER OF SHARES OF COMMON STOCK MAY BE ELIGIBLE FOR TRADING PRIOR TO REGISTRATION, IF ANY, OF THE SECURITIES SOLD IN THE OFFERING, AND SUCH REGISTRATION, IF ANY, MAY BE DELAYED IN CERTAIN CIRCUMSTANCES.  THE PRICE OF SHARES TRADED ON THE NASDAQ CAPITAL MARKET MAY BE IMPACTED BY A LACK OF LIQUIDITY OR AVAILABILITY OF SHARES FOR PUBLIC SALE AND ALSO WILL NOT NECESSARILY BEAR ANY RELATIONSHIP TO THE ASSETS, EARNINGS, BOOK VALUE OR POTENTIAL PROSPECTS OF THE COMPANY OR APPLICABLE QUOTED OR TRADING PRICES THAT MAY EXIST FOLLOWING REGISTRATION OR THE LAPSE OF RESTRICTIONS ON THE SECURITIES SOLD PURSUANT TO THE OFFERING OR UPON THE LAPSE OF ANY LOCKUP AGREEMENTS OR OTHER RESTRICTIONS. SUCH PRICES SHOULD NOT BE CONSIDERED ACCURATE INDICATORS OF FUTURE QUOTED OR TRADING PRICES THAT MAY SUBSEQUENTLY EXIST FOLLOWING REGISTRATION OR WHEN SUCH LOCKUP AGREEMENTS OR RESTRICTIONS LAPSE.

 

THE COMPANY RESERVES THE RIGHT, IN ITS SOLE DISCRETION, TO REJECT ANY SUBSCRIPTION IN WHOLE OR IN PART FOR ANY REASON OR FOR NO REASON. THE COMPANY IS NOT OBLIGATED TO NOTIFY RECIPIENTS OF THIS SUBSCRIPTION AGREEMENT WHETHER ALL OF THE SHARES OF SERIES E PREFERRED STOCK OFFERED HEREBY HAVE BEEN SOLD.

 

SUBSCRIBERS MAY BE DEEMED TO BE IN POSSESSION OF MATERIAL NON-PUBLIC INFORMATION WITHIN THE MEANING OF THE UNITED STATES SECURITIES LAWS AND REGULATIONS REGARDING A PUBLIC COMPANY. THIS AGREEMENT CONTAINS CONFIDENTIAL INFORMATION CONCERNING THE COMPANY, AND HAS BEEN PREPARED SOLELY FOR USE IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN. ANY USE OF THIS INFORMATION FOR ANY PURPOSE OTHER THAN IN CONNECTION WITH THE CONSIDERATION OF AN INVESTMENT IN THE SECURITIES OF THE COMPANY THROUGH THE OFFERING DESCRIBED HEREIN MAY SUBJECT THE USER TO CIVIL AND/OR CRIMINAL LIABILITY. THE RECIPIENT, BY ACCEPTING THIS SUBSCRIPTION AGREEMENT, AGREES NOT TO: (I) DISTRIBUTE OR REPRODUCE THIS SUBSCRIPTION AGREEMENT, IN WHOLE OR IN PART, AT ANY TIME, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY; (II) TO KEEP CONFIDENTIAL THE EXISTENCE OF THIS DOCUMENT AND THE INFORMATION CONTAINED HEREIN OR MADE AVAILABLE IN CONNECTION WITH ANY FURTHER INVESTIGATION OF THE

  

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COMPANY; AND (III) REFRAIN FROM TRADING IN THE PUBLICLY-TRADED SECURITIES OF THE COMPANY OR ANY OTHER RELEVANT COMPANY FOR SO LONG AS SUCH RECIPIENT IS IN POSSESSION OF THE MATERIAL NON-PUBLIC INFORMATION CONTAINED HEREIN. SUBSCRIBERS ARE ADVISED THAT THEY SHOULD SEEK THEIR OWN LEGAL COUNSEL PRIOR TO EFFECTUATING ANY TRANSACTIONS IN THE PUBLICLY TRADED COMPANY’S SECURITIES.

 

FOR RESIDENTS OF ALL STATES

 

THIS OFFERING IS BEING MADE SOLELY TO “ACCREDITED INVESTORS,” AS SUCH TERM IS DEFINED IN RULE 501 OF REGULATION D UNDER THE SECURITIES ACT.  THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE AND WILL BE OFFERED AND SOLD IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION AFFORDED BY SECTION 4(2) THEREUNDER AND REGULATION D (RULE 506) OF THE SECURITIES ACT AND CORRESPONDING PROVISIONS OF STATE SECURITIES LAWS.

 

THE SECURITIES OFFERED HEREBY ARE SUBJECT TO RESTRICTION ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.  INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

 

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (“SEC”), ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THIS SUBSCRIPTION AGREEMENT.  ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

 

PROSPECTIVE INVESTORS SHOULD NOT CONSTRUE THE CONTENTS OF THIS AGREEMENT AS INVESTMENT, LEGAL, BUSINESS, OR TAX ADVICE.  EACH INVESTOR SHOULD CONTACT HIS, HER OR ITS OWN ADVISORS REGARDING THE APPROPRIATENESS OF THIS INVESTMENT AND THE TAX CONSEQUENCES THEREOF, WHICH MAY DIFFER DEPENDING ON AN INVESTOR’S PARTICULAR FINANCIAL SITUATION.  IN NO EVENT SHOULD THIS AGREEMENT BE DEEMED OR CONSIDERED TO BE TAX ADVICE PROVIDED BY THE COMPANY.

 

 

1.           SUBSCRIPTION AND PURCHASE PRICE

 

(a)           Subscription.  Subject to the conditions set forth in Section 2 hereof, the Subscriber hereby subscribes for and agrees to purchase the number of Shares indicated on page 12 hereof on the terms and conditions described herein.

 

(b)           Purchase of Shares.  The Subscriber understands and acknowledges that the purchase price to be remitted to the Company in exchange for the Shares shall be set at $5.00 per Share, for an aggregate purchase price as set forth on page 12 hereof (the “Aggregate Purchase Price”). The Subscriber’s delivery of this Agreement to the Company shall be accompanied by payment for the Shares subscribed for hereunder, payable in United States Dollars, by wire transfer of immediately available funds delivered contemporaneously with the Subscriber’s delivery of this Agreement to the Company in accordance with the wire instructions provided on Exhibit A. The Subscriber understands and agrees that, subject to Section 2 and applicable laws, by executing this Agreement, it is entering into a binding agreement.

  

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2.           ACCEPTANCE, OFFERING TERM AND CLOSING PROCEDURES

 

(a)           Acceptance or Rejection. Subject to full, faithful and punctual performance and discharge by the Company of all of its duties, obligations and responsibilities as set forth in this Agreement and any other agreement entered into between the Subscriber and the Company relating to this subscription (collectively, the “Transaction Documents”), the Subscriber shall be legally bound to purchase the Shares pursuant to the terms and conditions set forth in this Agreement.  For the avoidance of doubt, upon the occurrence of the failure by the Company to fully, faithfully and punctually perform and discharge any of its duties, obligations and responsibilities as set forth in any of the Transaction Documents, which shall have been performed or otherwise discharged prior to the Closing, the Subscriber may, on or prior to the Closing (as defined below), at its sole and absolute discretion, elect not to purchase the Shares and provide instructions to receive the full and immediate refund of the Aggregate Purchase Price. The Subscriber understands and agrees that the Company reserves the right to reject this subscription for Shares in whole or part in any order at any time prior to the Closing for any reason, notwithstanding the Subscriber’s prior receipt of notice of acceptance of the Subscriber’s subscription.  In the event the Closing does not take place because of (i) the rejection of subscription for Shares by the Company; or (ii) the election not to purchase the Shares by the Subscriber, this Agreement and any other Transaction Documents shall thereafter be terminated and have no force or effect, and the parties shall take all steps to ensure that the Aggregate Purchase Price shall promptly be returned or caused to be returned to the Subscriber without interest thereon or deduction therefrom.

 

(b)           Closing.  The closing of the purchase and sale of the Shares hereunder (the “Closing”) shall take place at the offices of the Company or such other place as determined by the Company and may take place in one of more closings.  Closings shall take place on a Business Day promptly following the satisfaction of the conditions set forth in Section 5 below, as determined by the Company (the “Closing Date”). “Business Day” shall mean from the hours of 9:00 a.m. (Eastern Time) through 5:00 p.m. (Eastern Time) of a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required to be closed. The Shares purchased by the Subscriber will be delivered by the Company promptly following the Closing Date of the Offering.  In the event there is more than one Closing, the initial closing of the Offering shall be referred to as the “Initial Closing” and such date of the Initial Closing shall be referred to as the “Initial Closing Date”.  The last Closing of the Offering shall be referred to as the “Final Closing” and such date of the Final Closing, shall be referred to as the “Final Closing Date”.

(c)           Following Acceptance or Rejection.  The Subscriber acknowledges and agrees that this Agreement and any other documents delivered in connection herewith will be held by the Company. In the event that this Agreement is not accepted by the Company for whatever reason, which the Company expressly reserves the right to do, this Agreement, the Aggregate Purchase Price received (without interest thereon) and any other documents delivered in connection herewith will be returned to the Subscriber at the address of the Subscriber as set forth in this Agreement. If this Agreement is accepted by the Company, the Company is entitled to treat the Aggregate Purchase Price received as an interest free loan to the Company until such time as the Subscription is accepted.

 

(d)           Extraordinary Events Regarding Common Stock.  In the event that the Company shall (a) issue additional shares of Common Stock as a dividend or other distribution on outstanding Common Stock, (b) subdivide its outstanding shares of Common Stock, or (c) combine its outstanding shares of the Common Stock into a smaller number of shares of Common Stock, then, in each such event, the Purchase Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then purchase price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Purchase Price then in effect. The Purchase Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein. The number of Shares that the Subscriber shall thereafter, be issued and obtain on the conversion hereof, be entitled to receive shall be adjusted to a number determined by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this Section) be issuable on such exercise by a fraction of which (a) the numerator is the purchase price that would otherwise (but for the provisions of this Section) be in effect, and (b) the denominator is the purchase price in effect on the date of such exercise.

  

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(e)           Certificate as to Adjustments.  In each case of any adjustment or readjustment in the Shares, the Company at its expense will promptly cause its Executive Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms hereof and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company will forthwith mail a copy of each such certificate to the Subscriber.

 

3.           THE SUBSCRIBER’S REPRESENTATIONS, WARRANTIES AND COVENANTS

 

The Subscriber hereby acknowledges, agrees with and represents, warrants and covenants to the Company, as follows:

 

(a)           The Subscriber has full power and authority to enter into this Agreement, the execution and delivery of which has been duly authorized, if applicable, and this Agreement constitutes a valid and legally binding obligation of the Subscriber, except as may be limited by bankruptcy, reorganization, insolvency, moratorium and similar laws of general application relating to or affecting the enforcement of rights of creditors, and except as enforceability of the obligations hereunder are subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or law).

 

(b)           The Subscriber acknowledges its understanding that the Offering and sale of the Securities is intended to be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), by virtue of Section 4(2) of the Securities Act and the provisions of Regulation D promulgated thereunder (“Regulation D”).  In furtherance thereof, the Subscriber represents and warrants to the Company and its affiliates as follows:

 

(i)           The Subscriber realizes that the basis for the exemption from registration may not be available if, notwithstanding the Subscriber’s representations contained herein, the Subscriber is merely acquiring the Securities for a fixed or determinable period in the future, or for a market rise, or for sale if the market does not rise. The Subscriber does not have any such intention.

 

(ii)           The Subscriber realizes that the basis for exemption would not be available if the Offering is part of a plan or scheme to evade registration provisions of the Securities Act or any applicable state or federal securities laws.

 

(iii)           The Subscriber is acquiring the Securities solely for the Subscriber’s own beneficial account, for investment purposes, and not with a view towards, or resale in connection with, any distribution of the Securities.

 

(iv)           The Subscriber has the financial ability to bear the economic risk of the Subscriber’s investment, has adequate means for providing for its current needs and contingencies, and has no need for liquidity with respect to an investment in the Company.

 

(v)           The Subscriber and the Subscriber’s attorney, accountant, purchaser representative and/or tax advisor, if any (collectively, the “Advisors”) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of a prospective investment in the Securities. If other than an individual, the Subscriber also represents it has not been organized solely for the purpose of acquiring the Securities.

 

(vi)           The Subscriber (together with its Advisors, if any) has received all documents requested by the Subscriber, if any, has carefully reviewed them and understands the information contained therein, prior to the execution of this Agreement.

 

  

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(c)           The Subscriber is not relying on the Company or any of its employees, agents, sub-agents or advisors with respect to the legal, tax, economic and related considerations involved in this investment. The Subscriber has relied on the advice of, or has consulted with, only its Advisors. Each Advisor, if any, has disclosed to the Subscriber in writing (a copy of which is annexed to this Agreement) the specific details of any and all past, present or future relationships, actual or contemplated, between the Advisor and the Company or any affiliate or sub-agent thereof.

 

(d)           The Subscriber has carefully considered the potential risks relating to the Company and a purchase of the Securities, and fully understands that the Securities are a speculative investment that involves a high degree of risk of loss of the Subscriber’s entire investment. Among other things, the Subscriber has carefully considered each of the risks described under the heading “Risk Factors” in the Company’s SEC Filings (as defined below), which risk factors are incorporated herein by reference.

 

 (e)           The Subscriber will not sell or otherwise transfer any Securities without registration under the Securities Act or an exemption therefrom, and fully understands and agrees that the Subscriber must bear the economic risk of its purchase because, among other reasons, the Securities have not been registered under the Securities Act or under the securities laws of any state and, therefore, cannot be resold, pledged, assigned or otherwise disposed of unless they are subsequently registered under the Securities Act and under the applicable securities laws of such states, or an exemption from such registration is available.  In particular, the Subscriber is aware that the Securities are “restricted securities,” as such term is defined in Rule 144 promulgated under the Securities Act (“Rule 144”), and they may not be sold pursuant to Rule 144 unless all of the conditions of Rule 144 are met. The Subscriber also understands that the Company is under no obligation to register the Securities on behalf of the Subscriber or to assist the Subscriber in complying with any exemption from registration under the Securities Act or applicable state securities laws. The Subscriber understands that any sales or transfers of the Securities are further restricted by state securities laws and the provisions of this Agreement.  The Subscriber understands that the Company may limit further the right to sell or transfer Shares by establishing procedures for approval of any such transfer, limiting counsel authorized to review and approve Rule 144 transactions and approving opinion fees, for transfers sought to be permitted under Rule 144, which may result in delays in desired sales or transfers by Subscribers.

 

(f)           No oral or written representations or warranties have been made, or information furnished, to the Subscriber or its Advisors, if any, by the Company or any of its officers, employees, agents, sub-agents, affiliates, advisors or subsidiaries in connection with the Offering, other than any representations of the Company contained herein, and in subscribing for the Shares, the Subscriber is not relying upon any representations other than those contained herein.

 

(g)           The Subscriber’s overall commitment to investments that are not readily marketable is not disproportionate to the Subscriber’s net worth, and an investment in the Securities will not cause such overall commitment to become excessive.

 

(h)           The Subscriber understands and agrees that the certificates for the Securities shall bear substantially the following legend until (i) such Securities shall have been registered under the Securities Act and effectively disposed of in accordance with a registration statement that has been declared effective or (ii) in the opinion of counsel for the Company, such Securities may be sold without registration under the Securities Act, as well as any applicable “blue sky” or state securities laws:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS.  SUCH SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES AND MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FILED BY THE ISSUER WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION COVERING SUCH SECURITIES UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED.

  

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(i)           Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved the Securities or passed upon or endorsed the merits of the Offering. There is no government or other insurance covering any of the Securities.

 

(j)           The Subscriber and its Advisors, if any, have had a reasonable opportunity to ask questions of and receive answers from a person or persons acting on behalf of the Company concerning the Offering and the business, financial condition, results of operations and prospects of the Company, and all such questions have been answered to the full satisfaction of the Subscriber and its Advisors, if any.

 

(k)           The Subscriber is unaware of, is in no way relying on, and did not become aware of, the Offering through or as a result of, any form of general solicitation or general advertising, including, without limitation, any article, notice, advertisement or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or electronic mail over the Internet, in connection with the Offering and is not subscribing for Shares and did not become aware of the Offering through or as a result of any seminar or meeting to which the Subscriber was invited by, or any solicitation of a subscription by, a person not previously known to the Subscriber in connection with investments in securities generally.

 

(l)           The Subscriber has taken no action that would give rise to any claim by any person for brokerage commissions, finders’ fees or the like relating to this Agreement or the transactions contemplated hereby.

 

(m)           The Subscriber is not relying on the Company or any of its employees, agents, or advisors with respect to the legal, tax, economic and related considerations of an investment in the Shares, and the Subscriber has relied on the advice of, or has consulted with, only its own Advisors.

 

(n)           The Subscriber acknowledges that any estimates or forward-looking statements or projections furnished by the Company to the Subscriber were prepared by the management of the Company in good faith, but that the attainment of any such projections, estimates or forward-looking statements cannot be guaranteed by the Company or its management and should not be relied upon.

 

(o)           No oral or written representations have been made, or oral or written information furnished, to the Subscriber or its Advisors, if any, in connection with the Offering that are in any way inconsistent with the information contained herein.

 

(p)           (For ERISA plans only) The fiduciary of the ERISA plan (the “Plan”) represents that such fiduciary has been informed of and understands the Company’s investment objectives, policies and strategies, and that the decision to invest “plan assets” (as such term is defined in ERISA) in the Company is consistent with the provisions of ERISA that require diversification of plan assets and impose other fiduciary responsibilities. The Subscriber or Plan fiduciary (i) is responsible for the decision to invest in the Company; (ii) is independent of the Company and any of its affiliates; (iii) is qualified to make such investment decision; and (iv) in making such decision, the Subscriber or Plan fiduciary has not relied primarily on any advice or recommendation of the Company or any of its affiliates.

 

(q)           This Agreement is not enforceable by the Subscriber unless it has been accepted by the Company, and the Subscriber acknowledges and agrees that the Company reserves the right to reject any subscription for any reason.

 

  

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(r)           The Subscriber will indemnify and hold harmless the Company and, where applicable, its directors, officers, employees, agents, advisors, affiliates and shareholders, and each other person, if any, who controls any of the foregoing from and against any and all loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all fees, costs and expenses whatsoever reasonably incurred in investigating, preparing or defending against any claim, lawsuit, administrative proceeding or investigation whether commenced or threatened) (a “Loss”) arising out of or based upon any representation or warranty of the Subscriber contained herein or in any document furnished by the Subscriber to the Company in connection herewith being untrue in any material respect or any breach or failure by the Subscriber to comply with any covenant or agreement made by the Subscriber herein or therein; provided, however, that the Subscriber shall not be liable for any Loss that in the aggregate exceeds the Subscriber’s Aggregate Purchase Price tendered hereunder.

 

(s)           The Subscriber is, and on each date on which the Subscriber continues to own restricted Securities from the Offering will be, an “Accredited Investor” as defined in Rule 501(a) under the Securities Act. In general, an “Accredited Investor” is deemed to be an institution with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 (excluding such person’s residence) or annual income exceeding $200,000 or $300,000 jointly with his or her spouse.

 

(t)           The Subscriber, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the Offering, and has so evaluated the merits and risks of such investment. The Subscriber has not authorized any person or entity to act as its Purchaser Representative (as that term is defined in Regulation D of the General Rules and Regulations under the Securities Act) in connection with the Offering. The Subscriber is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

 

(u)           The Subscriber has reviewed, or had an opportunity to review, all of the SEC Filings, and all “Risk Factors” and “Forward Looking Statements” disclaimers contained therein.  In addition, the Subscriber has reviewed and acknowledges it has such knowledge, sophistication, and experience in securities matters.

 

4.           THE COMPANY’S REPRESENTATIONS, WARRANTIES AND COVENANTS

 

The Company hereby acknowledges, agrees with and represents, warrants and covenants to the Subscriber, as follows:

 

(a)           Organization and Qualification.  The Company is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware.  The Company is duly qualified to do business, and is in good standing in the states required due to (a) the ownership or lease of real or personal property for use in the operation of the Company's business or (b) the nature of the business conducted by the Company, except where the failure to do so would not result in a material adverse effect to the Company.  The Company has all requisite power, right and authority to own, operate and lease its properties and assets, to carry on its business as now conducted, to execute, deliver and perform its obligations under this Agreement and the other Transaction Documents to which it is a party, and to carry out the transactions contemplated hereby and thereby.  All actions on the part of the Company and its officers and directors necessary for the authorization, execution, delivery and performance of this Agreement and the other Transaction Documents, the consummation of the transactions contemplated hereby and thereby, and the performance of all of the Company's obligations under this Agreement and the other Transaction Documents have been taken or will be taken prior to the Closing.  This Agreement has been, and the other Transaction Documents to which the Company is a party on the Closing will be, duly executed and delivered by the Company, and this Agreement is, and each of the other Transaction Documents to which it is a party on the Closing will be, a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms.

 

(b)           Issuance of Securities.  The Securities to be issued to the Subscriber pursuant to this Agreement, when issued and delivered in accordance with the terms of this Agreement, will be duly and validly issued and will be fully paid and non-assessable.

 

  

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(c)           Authorization; Enforcement.  The execution, delivery and performance of this Agreement and the other Transaction Documents by the Company, and the consummation of the transactions contemplated hereby and thereby, will not (a) constitute a violation (with or without the giving of notice or lapse of time, or both) of any provision of any law or any judgment, decree, order, regulation or rule of any court, agency or other governmental authority applicable to the Company, (b) require any consent, approval or authorization of, or declaration, filing or registration with, any person, (c) result in a default (with or without the giving of notice or lapse of time, or both) under, acceleration or termination of, or the creation in any party of the right to accelerate, terminate, modify or cancel, any agreement, lease, note or other restriction, encumbrance, obligation or liability to which the Company is a party or by which it is bound or to which any assets of the Company are subject, (d) result in the creation of any lien or encumbrance upon the assets of the Company, or upon any Shares or other securities of the Company, (e) conflict with or result in a breach of or constitute a default under any provision of those certain articles of incorporation or those certain bylaws of the Company, or (f) invalidate or adversely affect any permit, license, authorization or status used in the conduct of the business of the Company.

 

(d)           SEC Filings. The Company is subject to, and in full compliance with, the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company has made available to each Subscriber through the EDGAR system true and complete copies of each of the Company’s Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and Current Reports on Form 8-K (collectively, the “SEC Filings”), and all such SEC Filings are incorporated herein by reference.

 

(e)           No Financial Advisor.  The Company acknowledges and agrees that the Subscriber is acting solely in the capacity of an arm’s length purchaser with respect to the Securities and the transactions contemplated hereby. The Company further acknowledges that the Subscriber is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by the Subscriber or any of its representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to the Subscriber’s purchase of the Shares. The Company further represents to the Subscriber that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

 

(f)           Indemnification.  The Company’s liability to Subscriber in the event of any claim or controversy shall not exceed the Subscriber’s Aggregate Purchase Price tendered hereunder, less the proceeds of any sales of securities purchased hereunder.

 

(g)           Capitalization and Additional Issuances.  The authorized, issued and outstanding capital stock of the Company is as set forth in the SEC Filings and all issued and outstanding shares of the Company are validly issued, fully paid and non-assessable.  Except as set forth in the SEC Filings and as otherwise required by law, there are no restrictions upon the voting or transfer of any of the shares of capital stock of the Company pursuant to the Company’s Certificate of Incorporation, as amended, Bylaws, as amended, or other governing documents or any agreement or other instruments to which the Company is a party or by which the Company is bound.

 

(h)           Private Placements.  Assuming the accuracy of the Subscriber’s representations and warranties set forth in Section 3, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Subscriber as contemplated hereby.

(j)           Investment Company.  The Company is not, and is not an affiliate of, and immediately after receipt of payment for the Shares will not be or be an affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.  The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act.

 

5.           CONDITIONS TO ACCEPTANCE OF SUBSCRIPTION

 

The Company’s right to accept the subscription of the Subscriber is conditioned upon satisfaction of the following conditions precedent on or before the date the Company accepts such subscription:

 

(a)           As of the Closing, no legal action, suit or proceeding shall be pending that seeks to restrain or prohibit the transactions contemplated by this Agreement.

  

-9-

  

(b)           The representations and warranties of the Company contained in this Agreement shall have been true and correct in all material respects on the date of this Agreement and shall be true and correct as of the Closing as if made on the Closing Date.

 

	
6.

	
MISCELLANEOUS PROVISIONS

 

(a)           All parties hereto have been represented by counsel, and no inference shall be drawn in favor of or against any party by virtue of the fact that such party’s counsel was or was not the principal draftsman of this Agreement.

 

(b)           Each of the parties hereto shall be responsible to pay the costs and expenses of its own legal counsel in connection with the preparation and review of this Agreement and related documentation.

 

(c)           Neither this Agreement, nor any provisions hereof, shall be waived, modified, discharged or terminated except by an instrument in writing signed by the party against whom any waiver, modification, discharge or termination is sought.

 

(d)           The representations, warranties and agreement of the Subscriber and the Company made in this Agreement shall survive the execution and delivery of this Agreement and the delivery of the Securities.

 

(e)           Any party may send any notice, request, demand, claim or other communication hereunder to the Subscriber at the address set forth on the signature page of this Agreement or to the Company at its primary office (including personal delivery, expedited courier, messenger service, fax, ordinary mail or electronic mail), but no such notice, request, demand, claim or other communication will be deemed to have been duly given unless and until it actually is received by the intended recipient. Any party may change the address to which notices, requests, demands, claims and other communications hereunder are to be delivered by giving the other parties written notice in the manner herein set forth.

 

(f)           Except as otherwise provided herein, this Agreement shall be binding upon, and inure to the benefit of, the parties to this Agreement and their heirs, executors, administrators, successors, legal representatives and assigns.  If the Subscriber is more than one person or entity, the obligation of the Subscriber shall be joint and several and the agreements, representations, warranties and acknowledgments contained herein shall be deemed to be made by, and be binding upon, each such person or entity and its heirs, executors, administrators, successors, legal representatives and assigns. This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of any and every nature among them.

 

(g)           This Agreement is not transferable or assignable by the Subscriber.

 

(h)           This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to conflicts of law principles.

 

(i)           The Company and the Subscriber hereby agree that any dispute that may arise between them arising out of or in connection with this Agreement shall be adjudicated before a court located in the City of New York, Borough of Manhattan, and they hereby submit to the exclusive jurisdiction of the federal and state courts of the State of New York located in the City of New York, Borough of Manhattan with respect to any action or legal proceeding commenced by any party, and irrevocably waive any objection they now or hereafter may have respecting the venue of any such action or proceeding brought in such a court or respecting the fact that such court is an inconvenient forum, relating to or arising out of this Agreement or any acts or omissions relating to the sale of the securities hereunder, and consent to the service of process in any such action or legal proceeding by means of registered or certified mail, return receipt requested, postage prepaid, in care of the address set forth herein or such other address as either party shall furnish in writing to the other.

  

-10-

  

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

 

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

 

[Signature Pages Follow]

 

  

-11-

  

ALL SUBSCRIBERS MUST COMPLETE THIS PAGE

IN WITNESS WHEREOF, the Subscriber has executed this Agreement on the ____ day of _____, 2013.

 

	  	
x $5.00  for each Share           =

	  
	
Shares subscribed for

	  	
      Aggregate Purchase Price

Manner in which Title is to be held (Please Check One):

 

	
1.

	
___

	
Individual

	
7.

	
___

	
Trust/Estate/Pension or Profit sharing Plan

Date Opened:______________

	
2.

	
___

	
Joint Tenants with Right of Survivorship

	
8.

	
___

	
As a Custodian for

________________________________

Under the Uniform Gift to Minors Act of the State of

________________________________

	
3.

	
___

	
Community Property

	
9.

	
___

	
Married with Separate Property

	
4.

	
___

	
Tenants in Common

	
10.

	
___

	
Keogh

	
5.

	
___

	
Corporation/Partnership/ Limited Liability Company

	
11.

	
___

	
Tenants by the Entirety

	
6.

	
___

	
IRA

	  	  	  

ALTERNATIVE DISTRIBUTION INFORMATION

 

To direct distribution to a party other than the registered owner, complete the information below. YOU MUST COMPLETE THIS SECTION IF THIS IS AN IRA INVESTMENT.

 

Name of Firm (Bank, Brokerage, Custodian):

 

Account Name:

 

Account Number:

 

Representative Name:

 

Representative Phone Number:

 

Address:

 

City, State, Zip:

 

 

 

[SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT – ______________________________]

  

-12-

  

IF MORE THAN ONE SUBSCRIBER, EACH SUBSCRIBER MUST SIGN.

 

INDIVIDUAL SUBSCRIBERS MUST COMPLETE THIS PAGE 13.

 

SUBSCRIBERS WHICH ARE ENTITIES MUST COMPLETE PAGE 14.

 

EXECUTION BY NATURAL PERSONS

 

	
_____________________________________________________________________________

Exact Name in Which Title is to be Held

	
_________________________________

Name (Please Print)

	  	
_________________________________

Name of Additional Purchaser

	
_________________________________

Residence: Number and Street

	  	
_________________________________

Address of Additional Purchaser

	
_________________________________

City, State and Zip Code

	  	
_________________________________

City, State and Zip Code

	
_________________________________

Social Security Number

	  	
_________________________________

Social Security Number

	
_________________________________

Telephone Number

	  	
_________________________________

Telephone Number

	
_________________________________

Fax Number (if available)

	  	
________________________________

Fax Number (if available)

	
_________________________________

E-Mail (if available)

	  	
________________________________

E-Mail (if available)

	
__________________________________

(Signature)

 

 

	  	
________________________________

(Signature of Additional Purchaser)

	
ACCEPTED this ___ day of _________ 2013, on behalf of the Company.

	  	
 

By:_________________________________

Name:

Title:

	  	  

 

 

[SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT – ______________________________]

 

  

-13-

  

EXECUTION BY SUBSCRIBER WHICH IS AN ENTITY

(Corporation, Partnership, LLC, Trust, Etc.)

 

	
_____________________________________________________________________________

Name of Entity (Please Print)

	
Date of Incorporation or Organization:

	
State of Principal Office:

	
Federal Taxpayer Identification Number:

____________________________________________

Office Address

 

____________________________________________

City, State and Zip Code

 

____________________________________________

Telephone Number

 

____________________________________________

Fax Number (if available)

 

____________________________________________

E-Mail (if available)

 

	  	
By: _________________________________

Name:

Title:

	
[seal]

Attest: _________________________________

(If Entity is a Corporation)

	
_________________________________

_________________________________

Address

	  	  
	
ACCEPTED this ____ day of __________ 2013, on behalf of the Company.

	  	
 

 

By: _________________________________

Name:

Title:

 

 

 

[SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT – ______________________________]

  

-14-

  

 

INVESTOR QUESTIONNAIRE

 

Instructions:  Check all boxes below which correctly describe you.

 

	
[  ]

	
You are (i) a bank, as defined in Section 3(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), (ii) a savings and loan association or other institution, as defined in Section 3(a)(5)(A) of the Securities Act, whether acting in an individual or fiduciary capacity, (iii) a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (iv) an insurance company as defined in Section 2(13) of the Securities Act, (v) an investment company registered under the Investment Company Act of 1940, as amended (the “Investment Company Act”), (vi) a business development company as defined in Section 2(a)(48) of the Investment Company Act, (vii) a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301 (c) or (d) of the Small Business Investment Act of 1958, as amended, (viii) a plan established and maintained by a state, its political subdivisions, or an agency or instrumentality of a state or its political subdivisions, for the benefit of its employees and you have total assets in excess of $5,000,000, or (ix) an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and (1) the decision that you shall subscribe for and purchase the Shares, is made by a plan fiduciary, as defined in Section 3(21) of ERISA, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or (2) you have total assets in excess of $5,000,000 and the decision that you shall subscribe for and purchase the Shares is made solely by persons or entities that are accredited investors, as defined in Rule 501 of Regulation D promulgated under the Securities Act (“Regulation D”) or (3) you are a self-directed plan and the decision that you shall subscribe for and purchase the Shares is made solely by persons or entities that are accredited investors.

 

	
[  ]

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

 

	
[  ]

	
You are an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation, Massachusetts or similar business trust or a partnership, in each case not formed for the specific purpose of making an investment in the Shares and its underlying securities in excess of $5,000,000.

 

	
[  ]

	
You are a director or executive officer of the Company.

 

	
[  ]

	
You are a natural person whose individual net worth, or joint net worth with your spouse, exceeds $1,000,000 (excluding residence) at the time of your subscription for and purchase of the Shares.

 

	
[  ]

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

 

	
[  ]

	
You are a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Shares and whose subscription for and purchase of the Shares is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D.

 

	
[  ]

	
You are an entity in which all of the equity owners are persons or entities described in one of the preceding paragraphs.

 

  

-15-

  

Check all boxes below which correctly describe you.

 

With respect to this investment in the Shares, your:

 

Investment Objectives:     [  ] Aggressive Growth    [  ] Speculation

 

Risk Tolerance:                 [  ] Low Risk                    [  ] Moderate Risk                [  ] High Risk

 

Are you associated with a FINRA Member Firm?           [  ] Yes     [  ] No

 

	
  

	
Your initials (purchaser and co-purchaser, if applicable) are required for each item below:

 

	
____   ____ 

	
I/We understand that this investment is not guaranteed.

 

	
____   ____ 

	
I/We are aware that this investment is not liquid.

 

	
____   ____ 

	
I/We are sophisticated in financial and business affairs and are able to evaluate the risks and merits of an investment in this offering.

 

	
____   ____ 

	
I/We confirm that this investment is considered “high risk.” (This type of investment is considered high risk due to the inherent risks including lack of liquidity and lack of diversification.  Success or

 

	
  

	
failure of private placements such as this is dependent on the corporate issuer of these securities and is outside the control of the investors. While potential loss is limited to the amount invested, such loss is possible.)

 

The Subscriber hereby represents and warrants that all of its answers to this Investor Questionnaire are true as of the date of its execution of the Subscription Agreement pursuant to which it purchased the Shares.

 

	
 

 

___________________________________

Name of Purchaser  [please print]

___________________________________

Signature of Purchaser (Entities please

provide signature of Purchaser’s duly

authorized signatory.)

___________________________________

Name of Signatory (Entities only)

___________________________________

Title of Signatory (Entities only)

	
 

 

___________________________________

Name of Co-Purchaser  [please print]

___________________________________

Signature of Co-Purchaser

 

[SIGNATURE PAGE TO INVESTOR QUESTIONNAIRE AGREEMENT – ______________________________]

  

-16-

  

VERIFICATION OF INVESTMENT ADVISOR/BROKER

 

I state that I am familiar with the financial affairs and investment objectives of the investor named above and reasonably believe that a purchase of the securities is a suitable investment for this investor and that the investor, either individually or together with his or her purchaser representative, understands the terms of and is able to evaluate the merits of this offering.  I acknowledge:

 

	
  

	
(a)

	
that I have reviewed the Subscription Agreement and forms of securities presented to me, and attachments (if any) thereto;

 

	
  

	
(b)

	
that the Subscription Agreement and attachments thereto have been fully completed and executed by the appropriate party; and

 

	
  

	
(c)

	
that the subscription will be deemed received by the Company upon acceptance of the Subscription Agreement.

 

	
  

	
Deposit securities from this offering directly to purchaser’s account? [  ] Yes [  ] No

 

	
  

	
If “Yes,” please indicate the account number: _____________________________________

 

__________________________                                             __________________________

Broker/Dealer                                                                               Account Executive

 

__________________________                                             __________________________

(Name of Broker/Dealer)                                                            (Signature)

 

__________________________                                             __________________________

(Street Address of Broker/Dealer Office)                                 (Print Name)

 

__________________________                                             __________________________

(City of Broker/Dealer Office)  (State)  (Zip)                           (Representative I.D. Number)

 

__________________________                                             __________________________

(Telephone Number of Broker/Dealer Office)                          (Date)

 

__________________________                                             __________________________

(Fax Number of Broker/Dealer Office)                                      (E-mail Address of Account Executive)

 

-17-ex10-2.htm

Exhibit 10.2

 

THE SECURITIES REPRESENTED BY THIS NOTE, INCLUDING THE  SECURITIES INTO WHICH THIS NOTE MAY BE CONVERTED, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (TOGETHER WITH THE RULES AND REGULATIONS PROMULGATED THEREUNDER, THE “ACT”) OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE OFFERED FOR SALE OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR UPON ISSUANCE OF AN OPINION OF COUNSEL (SATISFACTORY TO THE COMPANY) THAT SUCH SALES ARE PERMISSIBLE UNDER RULE 144 OR PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.

True Drinks Holdings, Inc.

SECURED CONVERTIBLE PROMISSORY NOTE

	
[$                        ]

(Original Principal Amount)

	
Dated:  [         , 2013]

(“Issuance Date”)

 

 

FOR VALUE RECEIVED, True Drinks Holdings, Inc., a corporation incorporated under the laws of the State of Nevada (the “Company”), hereby promises to pay to [ ] (the “Payee”), or its registered assigns, the principal amount of [] ([US$]) together with interest thereon calculated from the Issuance Date (“Interest Commencement Date”) in accordance with the provisions of this Senior Secured Convertible Promissory Note (as amended, modified and supplemented from time to time, this “Note” and together with any other Notes issued in the Offering or upon transfer or exchange, the “Notes”). This Note is issued in connection with the Offering and pursuant to the terms of the Subscription Agreement of even date herewith and is part of a series of Notes that may be issued from time to time by the Company in an aggregate principal amount not to exceed $2,500,000 (unless the Company’s over-allotment option is exercised) as provided in the Subscription Agreement. Capitalized terms not defined in this Note shall have the meaning ascribed to them in the Subscription Agreement.

Certain capitalized terms are defined in Section 9 hereof.

1.           Payment of Interest. Subject to increase following the Company’s exercise of the First Extension Option and/or the Second Extension Option (each as defined below), interest shall accrue on the unpaid principal amount of this Note at a rate equal to twelve percent (12%) per annum (the “Interest Rate”) beginning on the Interest Commencement Date. Interest on this Note shall compounded monthly and paid on a monthly basis, in cash. Following any Event of Default (as defined below), interest on this Note shall accrue, to the extent permitted by law, at a rate equal to the lesser of seventeen percent (17%) per annum or the maximum rate permitted by applicable law retroactive to the Issuance Date. Interest shall be computed on the basis of the actual number of days elapsed and a 360-day year. Provided that the Company is not in default under this Note or in breach of any provision of the Offering Documents at the time either extension option is exercised, the Company shall have two options to extend the Maturity Date (as defined below) until February 28, 2014 (the “First Extension Option”) and then until May 31, 2014 (the “Second Extension Option”);.In the event that the Company exercises the First Extension Option, the Interest Rate shall increase to fourteen percent (14%) per annum on the unpaid principal of this Note for such three month period. In the event that the Company exercises the Second Extension Option, the Interest Rate shall increase to fifteen percent (15%) per annum on the unpaid principal of this Note for such three month period. NOTWITHSTANDING THE FOREGOING, IN NO EVENT WILL THE APPLICABLE INTEREST RATE ON THIS NOTE EVER EXCEED THE MAXIMUM RATE PERMITTED UNDER APPLICABLE LAW. IF, BUT FOR THE PRECEDING SENTENCE, THE INTEREST RATE ON THIS NOTE FOR ANY PERIOD WOULD EXCEED THE MAXIMUM RATE PERMITTED UNDER APPLICABLE LAW, THE INTEREST RATE FOR SUCH PERIOD SHALL BE REDUCED TO THE MAXIMUM RATE PERMITTED UNDER APPLICABLE LAW.

  

  

  

2.           Maturity Date. Subject to the Company’s exercise of the First Extension Option and/or Second Extension Option, the entire principal amount of this Note and all accrued but unpaid interest thereon shall be due and payable in full in cash in immediately available funds on November 29, 2013 (the “Maturity Date”). Any overdue principal and overdue interest together with any interest thereon, shall be due and payable upon demand. Notwithstanding the foregoing, if an Event of Default has occurred and is continuing, the Company shall not be entitled to exercise either the First Extension Option or the Second Extension Option. In the event the Company elects to exercise the either the First Extension Option and/or the Second Extension Option, it shall provide the Payee with at least five (5) Business Days prior written notice (which notice may be provided by electronic mail) prior to the applicable Maturity Date.

	
  

	
3.

	
Conversion.

 

(a)           In the event of a Qualified Financing, the Payee shall have the option to (i) convert this Note into the securities purchased by investors in a Qualified Financing (the “Qualified Securities”), or (ii) tender this Note to the Company for immediate repayment of principal and accrued and unpaid interest. Payment of all interest owed and principal shall be made within five (5) Business Days of the tender of the Note. The Company shall give the Payee not less than ten (10) calendar days’ prior written notice of the closing of any such Qualified Financing. The number of Qualified Securities that shall be issuable upon conversion of the Note shall equal the number derived by dividing (x) the principal amount plus accrued and unpaid interest thereon of this Note, by (y) the Qualified Equity Applicable Price. The “Qualified Equity Applicable Price” shall be equal to the lesser of (a) $2.00, and (b) (i) ninety percent (90%) of the conversion price of the securities sold to investors in the Qualified Financing, or (ii) ninety percent (90%) of the issuance price of such securities sold to investors in the Qualified Financing in the event that such securities are not convertible securities. The Qualified Securities to be issued upon any such conversion shall have the same rights, preferences and privileges as the securities issued to investors in the Qualified Financing. The Payee, upon making such conversion or exchange, shall be entitled to all the benefits of any agreements entered into among the Company and the holders of the Qualified Securities. In the event that the securities sold in the Qualified Financing shall be sold as units including warrants, the Payee, upon conversion or exchange, shall receive all the securities comprising the units. No fractional shares shall be issued upon a conversion or exchange of Notes into Qualified Securities. In lieu of any fractional shares to which Payee would otherwise be entitled, the Company shall pay cash equal to such fraction multiplied by the Qualified Equity Applicable Price, or, at its option, may round up to the nearest whole number the amount of shares the Payee shall receive. At any time prior to the occurrence of a Qualified Financing, the Payee shall have the right, at any time, to convert the principal amount of the Note and all accrued interest at an initial conversion price equal to $2.00 per share (the “Conversion Price”), subject to adjustment as set forth in Section 3(g).

 

(b)           Except as otherwise expressly provided herein, if the conversion option is elected by the Payee, the conversion of this Note under Section 3(a) above shall be deemed to have been effected on the date of the Qualified Financing once this Note has been surrendered for conversion at the principal office of the Company or acquirer. At such time as such conversion has been effected, the rights of the holder of this Note as the holder of such Note shall cease (with respect to the amount so converted), and the Person or Persons in whose name or names any certificate or certificates for Qualified Securities are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the Qualified Securities represented thereby.

 

(c)           As soon as possible after the conversion has been effected (but in any event within five (5) Business Days), the Company shall deliver to the converting holder a certificate or certificates representing the Qualified Securities issuable by reason of such conversion in such name or names and such denomination or denominations as the converting holder has specified. In the event that the Payee elects to tender this Note to the Company for immediate repayment, such payment shall be delivered to the Payee within five (5) Business Days to the address provided by the Payee to the Company at the time of the surrender of this Note.

 

  

  

  

(d)           The issuance of certificates for Qualified Securities upon conversion of this Note shall be made without charge to the holder hereof in respect thereof or other cost incurred by the Company in connection with such conversion and the related issuance of Qualified Securities. Upon conversion of this Note, the Company shall take all such actions as are necessary in order to ensure that the Qualified Securities or shares of the  Company’s common stock issuable upon conversion of the Qualified Securities shall be validly issued, fully paid and nonassessable and free from all taxes, liens, charges, rights of first refusal, preemptive rights or other claims.

(e)           The Company shall not close its books against the transfer of this Note in any manner which interferes with the timely conversion of this Note. The Company shall assist and cooperate with any holder of this Note required to make any governmental filings or obtain any governmental approval prior to or in connection with the conversion of this Note (including, without limitation, making any filings required to be made by the Company).

(f)           The Company shall at all times reserve and keep available out of its authorized but unissued capital stock, solely for the purpose of issuance upon  conversion hereunder, such number of shares of Qualified Securities or shares of the Company’s Common Stock, par value $0.001 per share (“Common Stock”) issuable upon conversion. All shares of such capital stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Company shall take all such actions as may be necessary to assure that all such shares of capital stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which such shares of capital stock are then listed.

(g)           If the Company, at any time while this Note is outstanding, issues any debt or equity securities, rights, options or warrants entitling investors to subscribe for, purchase, or convert such securities into shares of Common Stock at a price per share less than the Conversion Price (other than the Warrants and any other instruments or securities convertible into or exchangeable for such equity securities which may be issued to either (i) Company directors or employees pursuant to an equity incentive plan approved by the Company’s Board of Directors, or (ii) professional service providers, including, without limitation, investor relations firms, financial advisors, legal advisors, accountants or other professional service providers), then the Conversion Price shall be reduced effective concurrently with such issuance to a price determined by multiplying such Conversion Price by a fraction: (a) the numerator of which shall be the number of shares of Common Stock deemed outstanding on a fully diluted basis immediately prior to such issue plus the number of shares which the aggregate consideration received (or to be received in the case of any rights, options or warrants) by the Company for the total number of additional shares of Common Stock to be issued on a fully diluted basis would purchase at such Conversion Price and (b) the denominator of which shall be the number of shares of Common Stock deemed outstanding on a fully diluted basis immediately prior to such issue plus the number of such additional shares of Common Stock to be issued on a fully diluted basis (such reduced Conversion Price, the “Weighted Average Conversion Price”).

 

4.          Prepayment. The Notes may be prepaid in whole or part without the prior written consent of the Subscriber at any time following not less than ten (10) days prior written notice to the Subscriber notifying the Subscriber of the Company’s decision to prepay the Notes. In the event the Company elects to prepay this Note, the Payee shall elect (within such ten (10) day period) to accept such prepayment either in cash or pursuant to the conversion of this Note into that number of shares of Common Stock equal to the number derived by dividing (x) the principal amount plus accrued and unpaid interest hereon, by (y) the Conversion Price or Weighted Average Conversion Price, as applicable. In the event the Payee fails to make such election within the aforementioned notice period, the Note shall be prepaid and settled in cash.

  

  

  

5.          Seniority; Additional Issuances of Debt and Equity. 

 

    (a)          Except for those amounts of indebtedness set forth in Schedule 5 as being pari passu with, the Notes, if any (the “ExistingIndebtedness”), no indebtedness of the Company is senior to, or pari passu with, this Note in right of payment, whether with respect to interest, damages or upon liquidation or dissolution or otherwise. Other than the Existing Indebtedness, indebtedness permitted pursuant to Section 5(c), and any renewal, refinancing or replacement thereof that does not exceed the aggregate amount of the Existing Indebtedness and the borrowing availability under the related credit or loan agreements on the date hereof, the Company will not, and will not permit any subsidiary to, directly or indirectly, enter into, create, incur, assume or suffer to exist any indebtedness of any kind, that is senior or pari passu in any respect to the Company’s obligations under the Notes, other than indebtedness secured by purchase money security interests (which will be senior only as to the underlying assets covered thereby), indebtedness under capital lease obligations (which will be senior only as to the assets covered thereby) and indebtedness of the types described in Section 5(c) (collectively, “Permitted Indebtedness”); and the Company will not, and will not permit any subsidiary to, directly or indirectly, incur any Lien on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom, except to secure any Permitted Indebtedness of the Company or its subsidiaries.

(b)           So long as any Notes are outstanding, neither the Company nor any Subsidiary shall, directly or indirectly issue any shares of Common Stock or Common Stock equivalents with an effective price or a number of underlying shares that floats or resets or otherwise varies or is subject to adjustment based (directly or indirectly) on the market price of the Common Stock.

(c)           Notwithstanding anything to the contrary herein, the Company and its subsidiaries shall be permitted to, without the consent of the Payees (i) incur additional indebtedness provided, that such additional indebtedness is either subordinate to the Existing Indebtedness and the Notes, or issued as part of a Qualified Financing, (ii) issue additional shares of Common Stock, subject to any adjustment required by Section 3(g), and/or (iii) enter into a commercial bank loan up to a maximum of $500,000, and/or an accounts receivable line (up to a maximum of $500,000), on commercially reasonable terms.

	
  

	
6.

	
Method of Payments; Transfer and Replacement.

 

(a)           Payment. So long as a Payee or any of its nominees shall be the holder of any Note, and notwithstanding anything contained elsewhere in this Note to the contrary, the Company will pay all sums for principal, interest, or otherwise becoming due on this Note held by the Payee or such nominee not later than 3:00 p.m. New York time, on the date such payment is due, in immediately available funds, in accordance with the payment instructions that the Payee may designate in writing, without the presentation or surrender of such Note or the making of any notation thereon. Any payment made after 3:00 p.m. New York time, on a Business Day will be deemed made on the next following Business Day. If the due date of any payment in respect of this Note would otherwise fall on a day that is not a Business Day, such due date shall be extended to the next succeeding Business Day, and interest shall be payable on any principal so extended for the period of such extension. All amounts payable under this Note shall be paid free and clear of, and without reduction by reason of, any deduction, set-off or counterclaim. The Company will afford the benefits of this Section to the Payee and to each other Person to which this Note is validly transferred in accordance with Section 6(b).

(b)           Transfer and Exchange. Upon surrender of any Note for registration of transfer or for exchange to the Company at its principal office, the Company at its sole expense will execute and deliver in exchange therefor a new Note or Notes, as the case may be, as requested by the holder or transferee, which aggregate principal amount is equal the unpaid principal amount of such Note, registered as such holder or transferee may request, dated so that there will be no loss of interest on the Note and otherwise of like tenor; provided that this Note may not be transferred by Payee to any Person without the prior written consent of the Company (which consent shall not be unreasonably withheld or delayed). The issuance of new Notes shall be made without charge to the holder(s) of the surrendered Note for any issuance tax in respect thereof or other cost incurred by the Company in connection with such issuance, provided that each Noteholder shall pay any transfer taxes associated therewith. The Company shall be entitled to regard the registered holder of this Note as the holder of the Note so registered for all purposes until the Company or its agent, as applicable, is required to record a transfer of this Note on its register.

  

  

  

(c)           Replacement. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Note and, in the case of any such loss, theft or destruction of any Note, upon receipt of an indemnity reasonably satisfactory to the Company or, in the case of any such mutilation, upon the surrender and cancellation of such Note, the Company, at its expense, will execute and deliver, in lieu thereof, a new Note of like tenor and dated the date of such lost, stolen, destroyed or mutilated Note.

	
  

	
7.

	
Covenants of the Company. The Company covenants and agrees as follows:

 

(a)           Consolidation, Merger and Sale. If at any time that this Note is outstanding, the Company provides notice to the Payee that the Company intends to (i) consolidate or merge with or into (or permit any subsidiary to consolidate or merge with or into) any other person other than a subsidiary (where the pre-existing stockholders of the Company will own a majority of the voting stock of the surviving entity), or (ii) sell or otherwise dispose of (or permit any subsidiary to sell or otherwise dispose of) all or substantially all of its property or assets in one or more transactions to any other person or entity, or enter into (or permit any subsidiary to enter into) an agreement with respect to any of the foregoing (a “Change of Control Transaction”), then the Payee will have ten (10) days following the date of such notice (the “COC Notice Period”) to make a binding election either to convert this Note at the Conversion Price, or if applicable at the Weighted Average Conversion Price (which conversion shall be effected as of the date immediately prior to the consummation of the Change of Control Transaction), or receive repayment of principal and accrued and unpaid interest in cash (which repayment in cash shall be effected no later than 30 days after the consummation of the Change of Control Transaction). If the Payee does not make such an election within the COC Notice Period, then the rights granted herein to convert this Note at the Conversion Price, or if applicable the Weighted Average Conversion Price, will be forfeited. In the event that the Company, after providing notice that it intends to pursue a Change of Control Transaction, does not consummate such transaction within 120 days of the date of the aforementioned notice, the Payee’s right to convert this Note at the Conversion Price, or if applicable at the Weighted Average Conversion Price, will be restored as if the notice had not been given by the Company.

 

(b) Restricted Payments. The Company will not (i) declare or pay any dividends on, or make any other distribution or payment on account of, or redeem, retire, purchase or otherwise acquire, directly or indirectly, any equity interests of any class of the Company or any subsidiary, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash, property or in obligations of the Company or any of its subsidiaries, (ii) other than in respect to accounts payable in the ordinary course of business, payments and prepayments of Permitted Indebtedness, and payments permitted under the Subscription Agreement and/or listed on Schedule 7(e), make any payments of principal of or interest on, or retire, redeem, purchase or otherwise acquire any indebtedness other than this Note and the other Notes, or (iii) other than to incur Permitted Indebtedness, enter into a loan agreement of any kind, without receiving the prior written consent of Noteholders representing at least a majority of the aggregate principal amount of all Notes then outstanding.

 

(c)           Notice of Qualified Financing. At least ten (10) calendar days prior to the first closing of any Qualified Financing, the Company shall provide the Payee with written notice of the projected closing date of such Qualified Financing, specifying the terms of the transaction and the proposed price per share of Qualified Securities to be paid in such Qualified Financing. The Company shall promptly provide telephonic notice or notice by overnight courier, e-mail or facsimile to Payee of any adjournments or rescheduling of such projected closing date, or any changes to the terms of the Qualified Financing.

 

(d)           Notes. All Notes shall be on the same terms and shall be in substantially the same form. All payments to the holder of any Note (that has not yet matured or otherwise become due and payable) shall be made to all holders of Notes, pro rata, based on the aggregate principal amount plus accrued but unpaid interest outstanding on such Notes at such time. The Company may make payments on Notes which have become due and payable by their terms without having to make pro rata payments to other holders of Notes whose notes have not yet matured.

  

  

  

(e) Use of Proceeds. The Company shall use the proceeds of the Notes only for general working capital purposes as more fully described on Schedule 7(e) and not to redeem or make any payment on account of any securities or Existing Indebtedness of the Company other than as provided in Schedule 7(e) hereto; provided, that the Company may use proceeds to pay other Notes issued in this Offering if Notes issued in connection with this Offering come due in the ordinary course of business and this Offering is still open at the time such Note must be paid.

 

8.           Events of Default. If any of the following events takes place before the Maturity Date (each, an “Event of Default”), the Payee at its option may declare all principal and accrued and unpaid interest thereon and all other amounts payable under this Note immediately due and payable; provided, however, that this Note shall automatically become due and payable without any declaration in the case of an Event of Default specified in clause (c) or (e), below:

(a)           the Company fails to make payment of any amount when due under this Note (a “Payment Default”);

 

(b)           a receiver, liquidator or trustee of the Company or any substantial part of the Company’s assets or properties is appointed by a court order;

 

(c) the Company is adjudicated bankrupt or insolvent;

 

(d)           any of the Company’s property is sequestered by or in consequence of a court order and such order remains in effect for more than thirty (30) days;

 

(e)           the Company files a petition in voluntary bankruptcy or requests reorganization under any provision of any bankruptcy, reorganization or insolvency law or consents to the filing of any petition against it under such law;

 

(f)           any petition against the Company is filed (and not dismissed or withdrawn within 60 days) under bankruptcy, receivership or insolvency law;

 

(g)           the Company makes a formal or informal general assignment for the benefit of its creditors, or admits in writing its inability to pay debts generally when they become due, or consents to the appointment of a receiver or liquidator of the Company or of all or any part of its property;

(h)           an attachment or execution is levied against any substantial part of the Company’s assets that is not released within thirty (30) days;

 

(i)           the Company dissolves, liquidates or ceases business activity, or transfers any major portion of its assets other than in the ordinary course of business;

 

(j)           the Company breaches any covenant or agreement on its part contained in this Note or any of the other Offering Documents other than a Payment Default, and such breach is not waived or cured within thirty (30) days of receipt by the Company of notice of such breach;

 

(k)           any material inaccuracy or untruthfulness of any representation or warranty of the Company set forth in this Note, the Subscription Agreement or any of the other Offering Documents;

  

  

  

(l)           there has been an event of default under any of the other Offering Documents, as defined therein, which causes a Material Adverse Effect;

(m)           the Company shall default in any of its obligations under any mortgage, credit agreement or other facility or financing instrument that involves an obligation of the Company of greater than $25,000 whether such indebtedness now exists or shall hereafter be created; or

(n)           the Company has entered against it any monetary judgment, writ or similar final process for an amount greater than $25,000.

 

       9.            Definitions.

 

“Person” means any person or entity of any nature whatsoever, specifically including an individual, a firm, a company, a corporation, a partnership, a limited liability company, a trust or other entity.

“Noteholder” with respect to any Note, means at any time each Person then the record owner hereof and “Noteholders” means all of such Noteholders collectively.

 

“Qualified Financing” shall be defined as the sale, subsequent to the final closing of the Offering, for cash by the Company of debt or equity securities in an amount equal to $4,000,000 including the amount of any Notes which convert into securities offered in such Qualified Financing.

10.          Expenses of Enforcement, etc. The Company agrees to pay all reasonable fees and expenses incurred by the Payee in connection with any amendments, modifications, waivers, extensions, renewals, renegotiations or “workouts” of the provisions hereof or incurred by the Payee in connection with the enforcement or protection of its rights in connection with this Note, or in connection with any pending or threatened action, proceeding, or investigation relating to the foregoing, including but not limited to the reasonable fees and disbursements of counsel for the Payee. The Company indemnifies the Payee and its directors, managers, affiliates, partners, members, officers, employees and agents against, and agrees to hold the Payee and each such person and/or entity harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees and expenses, incurred by or asserted against the Payee or any such person and/or entity arising out of, in any way connected with, or as a result of (i)the consummation of the loan evidenced by this Note and the use of the proceeds thereof or (ii)any claim, litigation, investigation or proceedings relating to any of the foregoing, whether or not the Payee or any such person and/or entity is a party thereto other than any loss, claim, damage, liability or related expense incurred or asserted against the payee or any such person on account of the payee’s or such person’s gross negligence or willful misconduct. Notwithstanding the foregoing, with respect to the indemnification obligations of the Company hereunder, (a) the Company’s aggregate liability under this Note to the Payee shall not exceed the aggregate principal amount of the Note and all accrued and unpaid interest thereon and (b) indemnified liabilities shall not include any liability of any indemnitee arising out of such indemnitee’s gross negligence or willful misconduct. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the indemnified liabilities which is permissible under applicable law.

  

  

  

	
  

	
11.

	
Security Interest.

 

(a)           Security Interest. In order to secure the payment of the principal and interest and all other obligations of the Company hereunder now or hereafter owed by the Company to the Payee under this Note (the “Obligations”), the Company shall execute and deliver the Security Agreement and Collateral Agent Agreement (the “Security Agreement”), pursuant to which the Company will, subject to the terms and conditions set forth in the Security Agreement, grant to the Payee (or its designee) a first priority security interest in the Collateral (as defined in the Security Agreement).

(b)           Collateral Agent. Union Bank, N.A., or an affiliate thereof, shall serve as collateral agent (the “Collateral Agent”) with respect to the Collateral (as defined in the Security Agreement) pursuant to the terms of the Security Agreement.

(c)           The Security Interest shall terminate when all the Obligations (as defined in the Security Agreement) have been fully and indefeasibly paid in full, at which time the Collateral Agent shall execute and deliver to the Company all Uniform Commercial Code termination statements and similar documents which the Company shall reasonably request to evidence such termination.

12.           Amendment and Waiver. The provisions of this Note may not be modified, amended or waived, and the Company may not take any action herein prohibited, or omit to perform any act herein required to be performed by it, without the written consent of the holders of a majority of the then outstanding principal amount of this Note and all similar convertible notes issued in the Company’s offering of Notes; provided, however, that any waiver of any Event of Default shall require the written consent of the holders of not less than 60% of the then outstanding principal amount of this Note and all similar convertible notes issued in the Company’s offering of Notes; provided, further, that any amendment to this Note which (i) changes the Interest Rate in Section 1 hereof, (ii) changes the Maturity Date in Section 2 hereof, or (iii) adversely affects the Payee’s ability to convert or to refrain from converting this Note in its sole discretion pursuant to Section 3 hereof, must be approved in writing by the holder hereof.

13.           Remedies Cumulative. No remedy herein conferred upon the Payee is intended to be exclusive of any other remedy and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise.

14.           Remedies Not Waived.   No course of dealing between the Company and the Payee or any delay on the part of the Payee in exercising any rights hereunder shall operate as a waiver of any right of the Payee.

15.           Assignments. The Company shall not assign or delegate this Note or any of its liabilities or obligations hereunder.

16.           Headings. The headings of the sections and paragraphs of this Note are inserted for convenience only and do not constitute a part of this Note.

17.           Severability. If any provision of this Note is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Note will remain in full force and effect. 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.

  

  

  

 

18.           Cancellation. After all principal, premiums (if any) and accrued interest at any time owed on this Note have been paid in full, or this Note has been converted this Note will be surrendered to the Company for cancellation and will not be reissued.

19.           Place of Payment and Notices. Unless otherwise stated herein, payments of principal and interest are to be delivered to the Noteholder at the address provided by the Payee in the Subscription Agreement, or at such other address as such Noteholder has specified by prior written notice to the Company. No notice shall be deemed to have been delivered until the first (1st) Business Day following actual receipt thereof.

20.           Waiver of Jury Trial. The Payee and the Company each hereby waives any right it may have to a trial by jury in respect of any litigation directly or indirectly arising out of, under or in connection with this Note and/or the transactions contemplated hereunder.

21.           Submission   to   Jurisdiction.      THE PARTIES   HERETO EACHHEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN. THE PARTIES HERETO EACH AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY MUST BE LITIGATED EXCLUSIVELY IN ANY SUCH STATE OR FEDERAL COURT THAT SITS IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, AND ACCORDINGLY, THE PARTIES EACH IRREVOCABLY WAIVE ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH LITIGATION IN

 

ANY SUCH COURT. Each of the Subscriber and Company hereby irrevocably waive and agree not to assert, by way of motion, as a defense, or otherwise, in every suit, action or other proceeding arising out of or based on this Subscription Agreement and/or the Offering Documents and brought in any such court, any claim that Subscriber or the Company is not subject personally to the jurisdiction of the above named courts, that Subscriber’s or the Company’s property, as applicable, is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper.

 

22.           GOVERNING LAW. ALL ISSUES AND QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.

 

[SIGNATURE PAGE FOLLOWS]

 

  

  

  

 

 

IN  WITNESS  WHEREOF,  the  Company  has  executed  and  delivered  this  Secured Convertible Promissory Note on the date first written above.

 

COMPANY:

True Drinks Holdings, Inc.

By:           

Name: 

Title:

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