Document:

f8k030113ex10i_cloudsecurity.htm

Exhibit 10.3

 

TRANSFER AGREEMENT

 

THIS TRANSFER AGREEMENT (this “Agreement”) is entered into this 3rd day of December, 2013, by and among Cloud Security Corporation (f/k/a Cloud Star Corp.), a Nevada corporation (“CLDS”) and App Ventures Ltd., a Hong Kong private limited liability company (“App Ventures”).

 

WHEREAS, CLDS and App Ventures entered into that certain Joint Venture Agreement/Development and Collaboration Agreement dated March 1, 2013 (the “JV Agreement”) pursuant to which CLDS and App Ventures proposed to jointly develop and market software products for the field of mobile security.

 

WHEREAS, on June 7, 2013, CLDS filed a patent application (U.S. Serial Number 61/832,534) titled “Systems and Method for One-Time Password Generation on a Mobile Computing Device” for process and methods for one-time password generation on mobile computing devices (the “Patent”).

 

WHEREAS, App Ventures and CLDS desire to terminate the JV Agreement.

 

WHEREAS, the Patent is considered a “Joint Technology” under the terms of the JV Agreement.

 

WHEREAS, CLDS desires to purchase App Ventures’ shares of the Patent pursuant to Section 3.03(c) of the JV Agreement, on the terms and conditions set forth in this Agreement;

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein and intending to be legally bound hereby, the parties hereto agree as follows:

 

ARTICLE I

THE TRANSACTIONS

 

	
1.1

	
Assignment of the Intellectual Property.  App Ventures hereby irrevocably grants, assigns and transfers to CLDS, all of App Venture’s right, title and interest in and to the Patent and Technology related thereto, including all income, royalties, damages and payments now or hereafter due or payable with respect thereto, and to all causes of action and the right to sue, counterclaim, and recover for past, present and future infringement of the rights assigned under this Assignment (collectively, the “Assets”).  App Ventures shall take all reasonable actions and sign documents, and cause its employees and consultants to take all reasonable actions and sign documents, to evidence and/or further this assignment, including the short form assignment, a form of which is included as Schedule 1.1

 

	
1.2

	
Issuance of Shares.  On the Closing Date, CLDS shall deliver to App Ventures one million (1,000,000) shares (the “Shares”) of its common stock, par value, $0.001 per share (“Common Stock”);

 

  

  

  

 

	
1.3

	
No Assumption of Liabilities.  CLDS shall not assume or be responsible for any claims against or commitments, contracts, agreements, obligations or other liabilities of the App Ventures, whether known or unknown, asserted or unasserted, accrued or unaccrued, absolute or contingent, liquidated or unliquidated, due or to become due, and whether contractual, statutory, or otherwise, and App Ventures will at all times indemnify and hold CLDS harmless from and against any claim therefor or liability arising therefrom.

 

	
1.4

	
Termination of JV Agreement.  At Closing, the parties agree that the JV Agreement shall be terminated and of no further force and effect.

 

ARTICLE II

THE PURCHASE PRICE

 

	
2.1

	
Purchase Price.  The aggregate purchase price to be paid by CLDS to App Ventures in consideration of the sale, assignment and transfer of the Assets and the consummation of the other transactions contemplated herein shall be the issuance of the Shares (the “Purchase Price”).

 

ARTICLE III

CLOSING

 

	
3.1

	
Closing.  The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place contemporaneously with the execution of this Agreement (the “Closing Date”) at the offices of CLDS’ counsel in Santa Monica, California or at such other place as may be agreed by the parties.  For convenience, the parties agree that the Closing may take place by the exchange of electronic signatures to the documents to be executed and delivered at the Closing (the “Closing Documents”) and delivery of the Purchase Price by wire transfer of immediately available funds, followed by the mailing of executed originals of the Closing Documents, without the need for a face to face meeting.

 

	
3.2

	
Deliveries and Actions by the App Ventures.  At the Closing, App Ventures shall deliver, or cause to be delivered, to Tejas:

 

	
  

	
(a)

	
all of its right, title and interest in the Assets, free and clear of all Encumbrances;

 

	
  

	
(b)

	
one or more bills of sale, assignments or other conveyances, in form and substance reasonably satisfactory to CLDS (collectively, the “Assignments”), duly executed by App Ventures;

 

	
  

	
(c)

	
copies of all consents and approvals required in connection with (i) the execution, delivery and performance of this Agreement and (ii) the sale or license of the Assets;

 

	
  

	
(d)

	
a copy of the resolutions of the board of directors of App Ventures, authorizing the execution, delivery, and performance by App Ventures of this Agreement and the ancillary agreements described therein, and the consummation by App Ventures of the transactions contemplated hereby and thereby;

 

  

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(e)

	
such other documents and instruments as CLDS may reasonably request and which are deemed by CLDS to be reasonably necessary or advisable to effect the transactions contemplated herein and by the ancillary agreements.

 

	
3.3

	
Deliveries and Actions by CLDS.  At the Closing, CLDS shall deliver, or cause to be delivered, to the Sellers:

 

	
  

	
(a)

	
A certificate evidencing the Shares issued in the name of App Ventures; and

 

	
  

	
(b)

	
such other documents and instruments as App Ventures may reasonably request and which are deemed by App Ventures to be reasonably necessary or advisable to effect the transactions contemplated herein and by the ancillary agreements.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE PARTIES

 

	
4.1

	
Representations and Warranties of CLDS.  CLDS represents and warrants to App Ventures, as of the date hereof, as follows:

 

	
  

	
(a)

	
Organization.  CLDS is duly organized, validly existing and in good standing under the laws of Nevada and is duly qualified to do business and are in good standing in each jurisdiction in which the nature of the business being conducted requires such Seller to be so qualified.

 

	
  

	
(b)

	
Authorization.  CLDS has the necessary power and authority to enter into and deliver this Agreement and to perform its obligations hereunder.  The execution and delivery of this Agreement by CLDS and the performance by CLDS of its obligations hereunder have been duly authorized by all necessary corporate action.  This Agreement and all agreements contemplated to be delivered hereunder have been executed and delivered by CLDS and constitutes the legal, valid and binding obligations of CLDS enforceable against it in accordance with their terms, subject, however, to limitations with respect to enforcement imposed by law in connection with bankruptcy, insolvency and other laws affecting creditors’ rights generally.

 

	
  

	
(c)

	
Noncontravention.  Neither the execution and the delivery of this Agreement by CLDS, nor the consummation by CLDS of the transactions contemplated hereby will (with or without the giving of notices or the passage of time) (i) violate any applicable Law or other restriction of any Governmental Authority to which any CLDS is subject or any provision of CLDS’ charter or bylaws (or other organizational documents) or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice under any agreement, contract, lease, license, instrument or other arrangement to which the CLDS is a party or by which CLDS is bound could adversely affect the consummation of the transactions contemplated hereby.  CLDS does not need to give any notice to, make any filing with or obtain any authorization, consent or approval of, any Governmental Authority or other third party in order for the parties to consummate the transactions contemplated by this Agreement.

 

  

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(d)

	
Securities and Exchange Commission Filings.  The information filed with the U.S. Securities and Exchange Commission (the “SEC”) by or on behalf of CLDS since May 22, 2012 (the “SEC Filings”) complies as to form in all material respects with the requirements of the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as applicable.  No facts have come to the attention of CLDS that have caused any of CLDS to believe that any such information contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading.

 

	
  

	
(e)

	
Financial Statements. Except as may have been corrected or supplemented in a subsequent SEC Filing, the financial statements of CLDS included in the SEC Filings (the “Financial Statements”) comply in all material respects with applicable accounting requirements and the rules and regulations of the SEC with respect thereto as in effect at the time of filing.  Except as may have been corrected or supplemented in a subsequent SEC Filing, the Financial Statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved, except as may be otherwise specified in such Financial Statements or the notes thereto, or, in the case of unaudited financial statements, as permitted by Regulation S-X promulgated under the Securities Act and the Exchange Act, and fairly present in all material respects the financial position of CLDS as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal,  year-end audit adjustments and the lack of footnotes.

 

	
  

	
(f)

	
Legal Proceedings.  There is no complaint or petition in which relief is sought that would prevent, delay or make illegal the transactions contemplated by this Agreement, and there is no litigation, action, suit, proceeding or investigation by any Governmental Authority pending or threatened against (orally or in writing), involving, affecting or relating to CLDS or the transactions contemplated by this Agreement.

 

	
  

	
(g)

	
Accuracy of Information Furnished.  No representation, warranty, statement or information contained in this Agreement (including the various Schedules attached hereto) or any agreement executed in connection herewith or in any certificate delivered pursuant hereto or thereto or made or furnished to App Ventures or their respective representatives by or on behalf of CLDS, contains or shall contain any untrue statement of a material fact or omits or shall omit any material fact necessary to make the information contained therein not misleading.  CLDS has provided App Ventures with true, accurate and complete copies of all documents listed or described in the various Schedules attached hereto.

 

  

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4.2

	
Representations and Warranties of App Ventures.  App Ventures hereby represents and warrants to CLDS as of the date hereof, as follows:

 

	
  

	
(a)

	
Organization.  App Ventures is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and is duly qualified to do business and is in good standing in each jurisdiction in which the nature of its business being conducted requires it to be so qualified.

 

	
  

	
(b)

	
Authorization.  App Ventures has the necessary power and authority to enter into and deliver this Agreement and to perform its obligations hereunder.  The execution and delivery of this Agreement by App Ventures and the performance by App Ventures of its obligations hereunder have been duly authorized by all necessary action.  This Agreement and all agreements contemplated to be delivered hereunder constitute the legal, valid and binding obligations of  App Ventures enforceable against it in accordance with their terms, subject, however, to limitations with respect to enforcement imposed by law in connection with bankruptcy, insolvency and other laws affecting creditors’ rights generally.

 

	
  

	
(c)

	
Noncontravention.  Neither the execution and the delivery of this Agreement by App Ventures, nor the consummation by App Ventures of the transactions contemplated hereby will (with or without the giving of notices or the passage of time) (i) violate any applicable Law or other restriction of any Governmental Authority to which App Ventures is subject or any provision of its charter or bylaws (or other organizational documents) or (ii)  conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice under any agreement, contract, lease, license, instrument or other arrangement to which App Ventures is a party or by which App Ventures is bound or could adversely affect the consummation of the transactions contemplated hereby or the value of the Assets or result in the imposition of any Encumbrance upon any of the Assets  App Ventures does not need to give any notice to, make any filing with or obtain any authorization, consent or approval of, any Governmental Authority or other third party in order for the parties to consummate the transactions contemplated by this Agreement.

 

	
  

	
(d)

	
Legal Proceedings.  There is no complaint or petition in which relief is sought involving, affecting, or relating to the ownership, operation or use of the Assets or that would prevent, delay or make illegal the transactions contemplated by this Agreement, and there is no litigation, action, suit, proceeding or investigation by any Governmental Authority pending or threatened against (orally or in writing), involving, affecting or relating to App Ventures, the Assets or the transactions contemplated by this Agreement.

 

	
  

	
(e)

	
Accuracy of Information Furnished. No representation, warranty, statement or information contained in this Agreement (including the various Schedules attached hereto) or any agreement executed in connection herewith or in any certificate delivered pursuant hereto or thereto or made or furnished to CLDS or their respective representatives by or on behalf of App Ventures, contains or shall contain any untrue statement of a material fact or omits or shall omit any material fact necessary to make the information contained therein not misleading.  App Ventures has provided CLDS with true, accurate and complete copies of all documents listed or described in the various Schedules attached hereto.

 

  

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(f)

	
Brokers’ Fees.  App Ventures has not incurred any obligation or liability, contingent or otherwise, for brokers’ or finders’ fees in respect of the matters provided for in this Agreement for which CLDS could become liable.

 

	
  

	
(g)

	
Information on CLDS.  App Ventures has received and had the opportunity to review all documents and any other information requested from CLDS, has been given full and complete access to information regarding CLDS, and has utilized such access to App Ventures’ satisfaction for the purpose of obtaining such information regarding CLDS as App Ventures has reasonably requested; and, particularly, App Ventures has been given reasonable opportunity to ask questions of, and receive answers from, representatives of CLDS concerning the terms and conditions of the offering of the Shares and to obtain any additional information, to the extent reasonably available.

 

	
  

	
(h)

	
Information on App Ventures.  App Ventures is an “accredited investor”, as such term is defined in Regulation D promulgated by the Commission under the Securities Act, is experienced in investments and business matters, has made investments of a speculative nature and, with its representatives, has such knowledge and experience in financial, tax and other business matters as to enable App Ventures to utilize the information made available by CLDS to evaluate the merits and risks of and to make an informed investment decision with respect to the proposed purchase App Ventures has the authority and is duly and legally qualified to purchase and own the Securities.  App Ventures is able to bear the risk of such investment for an indefinite period and to afford a complete loss thereof.

 

	
  

	
(i)

	
Investment Intent. On the Closing Date, App Ventures will purchase the Shares as principal for its own account for investment only and not with a view toward, or for resale in connection with, the public sale or any distribution thereof.

 

	
  

	
(j)

	
Compliance with Securities Act.  App Ventures understands and agrees that the Shares have not been registered under the Securities Act or any applicable state securities laws, by reason of their issuance in a transaction that does not require registration under the Securities Act (based in part on the accuracy of the representations and warranties of App Ventures contained herein), and that the Shares must be held indefinitely unless a subsequent disposition is registered under the Securities Act or any applicable state securities laws or is exempt from such registration.

 

  

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(k)

	
Shares Legend. The Shares shall bear the following legend:

 

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.  THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO SHUMATE INDUSTRIES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”

 

	
  

	
(l)

	
Communication of Offer.  The offer to sell the Shares was directly communicated to App Ventures by CLDS.  At no time was App Ventures presented with or solicited by any leaflet, newspaper or magazine article, radio or television advertisement, or any other form of general advertising or solicited or invited to attend a promotional meeting otherwise than in connection and concurrently with such communicated offer.

 

	
  

	
(m)

	
Restricted Securities.  App Ventures understands that the Shares have not been registered under the Securities Act and App Ventures will not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any of the Shares unless pursuant to an effective registration statement under the Securities Act.

 

	
  

	
(n)

	
No Governmental Review. App Ventures understands that no United States federal or state agency or any other governmental or state agency has passed on or made recommendations or endorsement of the Securities or the suitability of the investment in the Shares nor have such authorities passed upon or endorsed the merits of the offering of the Shares.

 

ARTICLE V

COVENANTS

 

	
5.1

	
Reasonable Commercial Efforts.  Each party will use its reasonable commercial efforts to take all actions and to do all things necessary, proper or advisable to consummate, make effective and comply with all of the terms of this Agreement and the transactions contemplated hereby (including satisfaction, but not waiver, of the closing deliveries required by ARTICLE III).

 

	
5.2

	
Confidentiality.

 

	
  

	
(a)

	
Each party acknowledges that in performing this Agreement, the party may be provided with and have access to the other party’s confidential information, including, without limitation, technical information (such as software, algorithms, technology, and trade secrets relating to the Assets), processes, product plans and sales information, that the party treats as proprietary, confidential or of substantial value and which value would be impaired if improperly used or disclosed to third parties (“Confidential Information”).  The parties acknowledge that Confidential Information may include any of the foregoing which has been provided to the other party prior to the Closing Date. However, “Confidential Information” shall not include information that (i) is or becomes available to the public through no wrongful act of the receiving party, (ii) was in the possession of the receiving party prior to the time it was disclosed hereunder, (iii) is independently made available as a matter of right to the receiving party by a third party, or (iv) is independently developed for the receiving party.

 

  

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(b)

	
For a period of five (5) years from the Closing Date, each party shall maintain the other party’s Confidential Information in confidence and not disclose the other party’s Confidential Information to any Person other than to its officers, fiduciaries, employees, agents or consultants who have a business need to know such Confidential Information, who have been informed of the confidential nature of such Confidential Information and who are, either by nature of their positions or duties or pursuant to written agreement, subject to substantially equivalent restrictions with respect to the use and disclosure of the Confidential Information as are set forth in this Agreement.

 

	
  

	
(c)

	
The obligation of each party to maintain the other party’s Confidential Information in confidence shall not apply to any Confidential Information (i) that becomes publicly available (other than by reason of a disclosure by a party in violation of this Agreement), (ii) the disclosure of which has been consented to by the other party in writing, or (iii) the disclosure of which is required by a court of competent jurisdiction or other Governmental Authority or otherwise as required by applicable Law or regulation of a national securities exchange on which the securities of such party may then be listed.

 

	
  

	
(d)

	
Before any party discloses any of the other party’s Confidential Information pursuant to Section 5.2(c)(iii), such party shall as soon as practicable, and in any event prior to making any such disclosure, notify the other party of the specific Confidential Information proposed to be disclosed and of the court order, subpoena, interrogatories, government order or other reason that requires disclosure of the Confidential Information so that the other party may seek a protective order or other remedy to protect the confidentiality of the Confidential Information or waive compliance with the applicable provisions of this ARTICLE V.  Such party shall also consult with the other party on the advisability of taking steps to eliminate or narrow the requirement to disclose the Confidential Information and shall otherwise cooperate with the efforts of the other party to obtain a protective order or other remedy to protect the Confidential Information.  If a protective order or other remedy cannot be obtained, such party may disclose only that Confidential Information that its counsel advises in writing (which writing shall also be addressed and delivered to the other party) is legally required to be disclosed.

 

  

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(e)

	
Each party shall promptly inform the other party if it becomes aware of any reason, whether under applicable law, policy or otherwise, that it will, or might become compelled to, use the other party’s Confidential Information other than as contemplated by Section 5.2(b) or disclose Confidential Information in violation of the confidentiality restrictions in this ARTICLE V.

 

	
5.3

	
Transfer Taxes.  App Ventures shall bear and pay any and all applicable sales and use Taxes and similar transfer Taxes payable in connection with the sale, assignment, transfer or license of the Assets.  App Ventures, at their own expense, shall file all necessary Tax Returns and other documentation with respect to such Taxes, if required by applicable law.

 

ARTICLE VI

MISCELLANEOUS

 

	
6.1

	
Nature and Survival of Representations.  The representations and warranties of App Ventures and CLDS contained in this Agreement shall survive the Closing indefinitely.

 

	
6.2

	
Notices.  All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: (i) if to CLDS to: Cloud Security Corp., 4590 MacArthur Blvd, Suite 500, Newport Beach, CA 92660; Attn: President, telecopier number:  ____________ with a copy by telecopier only to: Indeglia & Carney, telecopier number: (310) 458-8007, Attn: Marc A. Indeglia, and (ii) if to App Ventures to: App Ventures Ltd., 151 Gloucester Road, 11th Floor, Wanchai, Hong Kong, Attn: Kerry Singh, telecopier number: ___________. The Parties agree to promptly advise the other parties hereto of any change of address from that so set forth.

 

	
6.3

	
Successors and Assigns.  This Agreement, and all rights and powers granted hereby, will bind and inure to the benefit of the parties hereto and their respective successors and assigns, but neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned by any of the parties hereto without the prior written consent of the other parties hereto.  This Agreement is not intended to confer upon any other Person except the parties hereto any rights or remedies hereunder.

 

  

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6.4

	
Governing Law.  This Agreement shall be governed by, and construed in accordance with, the laws of the State of California (without giving effect to conflict of laws principles thereof).

 

	
6.5

	
Venue; Service of Process.  With respect to any suit, action or proceeding (“Proceeding”) arising out of or relating to this Agreement each of the parties hereto hereby irrevocably (i) submits to the exclusive jurisdiction of the United States District Court for the Central District of California and waives any objection to venue being laid therein whether based on the grounds of forum non conveniens or otherwise and hereby agrees not to commence any such Proceeding other than before the United States District Court for the Central District of California; provided, however, that a party may commence any Proceeding in a court other than the United States District Court for the Central District of California solely for the purpose of enforcing an order or judgment issued by the United States District Court for the Central District of California and (ii) consents to service of process in any Proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, or by recognized international express carrier or delivery service, to the Company or Holders at their respective addresses referred to in Section 6.2 hereof; provided, however, that nothing herein shall affect the right of any party hereto to serve process in any other manner permitted by law.

 

	
6.6

	
Headings.  The headings preceding the text of the sections and subsections hereof are inserted solely for convenience of reference and shall not constitute a part of this Agreement, nor shall they affect its meaning, construction, or effect.

 

	
6.7

	
Counterparts and Facsimile Signatures.  This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement.  In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

 

	
6.8

	
Further Assurances.  The parties hereby agree to perform, execute or deliver, or cause to be performed, executed or delivered, such further acts, assurances and instruments as either party may reasonably require to complete or perfect the conveyance and transfer to CLDS of all of App Ventures’ right, title and interest in and to the Assets free and clear of any and all Encumbrances consistent with this Agreement, and to do any and all such further acts and things as may be reasonably necessary to effect completely the intent of this Agreement.

 

	
6.9

	
Amendment and Waiver.  The parties may by mutual written agreement amend this Agreement in any respect; and any party, as to such party, may (a) extend the time for the performance of any of the obligations of any other party; (b) waive any inaccuracies in representations by any other party; (c) waive compliance by any other party with any of the agreements contained herein and performance of any obligations by such other party; and (d) waive the fulfillment of any condition that is precedent to the performance by such party of any of its obligations under this Agreement.  To be effective, any such amendment or waiver must be in writing and be signed by the party against whom enforcement of the same is sought.

 

  

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6.10

	
Entire Agreement.  This Agreement and the Schedules hereto, each of which is hereby incorporated herein, and the other documents executed and delivered pursuant hereto and contemporaneously herewith, set forth all of the representations, warranties, promises, covenants, agreements, conditions, and undertakings between the parties hereto with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written.

 

	
6.11

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

 

	
6.12

	
Expenses.  Except as otherwise expressly agreed herein, CLDS, on the one hand, and App Ventures, on the other hand, will bear their own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby.

 

	
6.13

	
Construction.  Whenever the context requires, the gender of all words used in this Agreement includes the masculine, feminine and neuter.  Terms defined in the singular have the corresponding meanings in the plural, and vice versa.  All references to Articles and Sections refer to articles and sections of this Agreement, all references to Annexes refer to annexes to this Agreement and all references to Schedules refer to Schedules to this Agreement, which Exhibits and Schedules are attached hereto and made a part hereof for all purposes.  A “party” means any of CLDS and App Ventures, and the “parties” means all of them.  The word “includes” or “including” means “including, but not limited to.”  The word “or” will have the inclusive meaning represented by the phrase “and/or.”  The words “hereof,” “hereby,” “herein,” “hereunder” and similar terms in this Agreement shall refer to this Agreement as a whole and not any particular section or article in which such words appear.  “Shall” and “will” have equal force and effect.  Any reference to a statute, regulation or law shall include any amendment thereof or any successor thereto and any rules and regulations promulgated thereunder.  Currency amounts referenced herein, unless otherwise specified, are in United States Dollars.  Whenever this Agreement refers to a number of days, such number shall refer to calendar days unless business days are specified.

 

  

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6.14

	
Definitions.  The following definitions shall be applicable to the terms set forth herein:

 

	
  

	
(a)

	
“Affiliate” shall mean, as applied to any Person, any other Person that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, that Person.

 

	
  

	
(b)

	
“Encumbrance” means any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and any lease in the nature thereof) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing.

 

	
  

	
(c)

	
“Governmental Authority” shall mean any federal, state, municipal, national or other government, governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government.

 

	
  

	
(d)

	
“Law” shall mean all constitutions, treaties, statutes, laws, ordinances, regulations, rules or Orders associated with any Governmental Authority;

 

	
  

	
(e)

	
“Order” shall mean any order, writ, rule, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority; and

 

	
  

	
(f)

	
“Person” shall include an individual, a partnership, a limited liability company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or any federal, state, county or municipal governmental or quasi-governmental agency, department, commission, board, bureau, instrumentality or similar entity, foreign or domestic, having jurisdiction over App Ventures or CLDS.

 

[SIGNATURES BEGIN ON THE FOLLOWING PAGE]

 

  

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.

	  	

CLOUD SECURITY CORPORATION

	  	  	  
	  	
By:

	

/s/ Safa Movassaghi

	  	Name:	
Safa Movassaghi

	  	Title:	
President

	  	  	  
	  	

APP VENTURES LTD.

	  	  	  
	  	
By:

	

/s/ Kerry Singh

	  	Name:  	
Kerry Singh

	  	Title:	
President

 

 

 

SIGNATURE PAGE TO TRANSFER AGREEMENTex10_1.htm

Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

This Note and Warrant Purchase Agreement (this “Agreement”) is entered into as of [●], 2014, by and among Wireless Ronin Technologies, Inc., a Minnesota corporation (the “Company”), and the parties indicated as Purchasers on one or more counterpart signature pages hereof (each of which is a “Purchaser,” and collectively the “Purchasers”).

 

INTRODUCTION

The Company desires to offer and sell, in a private placement transaction exempt from the registration requirements of the Securities Act of 1933 and applicable state securities laws, up to $1,000,000 in face value of Unsecured Convertible Promissory Notes (“Notes”) and Warrants to Purchase Common Stock for the purchase of up to 250,000 shares of the common stock of the Company (“Warrants”).  The Purchasers desire to purchase the Notes in substantially the form attached hereto as Exhibit A, and the Warrants in substantially the form attached hereto as Exhibit B.

 

AGREEMENT

Now, Therefore, in consideration of the foregoing and the mutual promises hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows:

1.           Purchase and Sale of Notes and Warrants.  Subject to the terms and conditions hereof, at the Closing, as hereinafter defined, the Company shall sell, issue and deliver, and each Purchaser shall purchase, a Note and a Warrant in the amounts indicated on the schedule attached hereto as Exhibit C.  The purchase price of each Note and associated Warrant (the “Purchase Price”) shall equal the principal amount of such Note.

2.           Closing, Delivery, and Payment.  The transactions contemplated by this Agreement shall be effectuated at a Closing (the “Closing”), which shall take place at 10:00 a.m. no later than ____________, 2014, at the offices of the Company at 5929 Baker Road, Suite 475, Minnetonka, MN 55345 (the “Closing Date”), or at such other time or place as the Company and the Purchasers may mutually agree, with such other subsequent Closings at such other times and places as the Company and the Purchasers shall determine.  At the Closing, and subject to the terms and conditions hereof, the Company will deliver to each Purchaser its Note, against payment by such Purchaser of the amount of the Purchase Price payable by such Purchaser by wire transfer to an account identified by the Company.

3.           Representations and Warranties of the Company.  The Company represents and warrants to each Purchaser as of the date of this Agreement and as of the Closing Date as follows:

3.1           Organization, Good Standing and Qualification.  The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Minnesota.  The Company has all requisite power and authority to own and operate its properties and assets; to execute, deliver, and perform this Agreement, the Notes and the other documents and instruments contemplated hereby or thereby or otherwise made or delivered in connection herewith or therewith (collectively, the “Transaction Documents”) to which it is a party; to issue, sell, and deliver the Notes and the shares of common stock issuable upon conversion thereof, and the Warrants and the shares of common stock issuable upon exercise thereof (collectively, all of the foregoing are referred to as the “Securities”); and to carry on its business as presently conducted and as presently proposed to be conducted.  The Company is duly qualified, authorized to do business, and in good standing as a foreign corporation in all jurisdictions in which the nature of its activities and properties makes such qualification necessary.

  

 

  

3.2           Capitalization.  The authorized capital of the Company (the “Capital Stock”) is as set forth in its Annual Report on Form 10-K for the period ended December 31, 2013 filed with the United States Securities and Exchange Commission (the “Commission”).  All issued and outstanding shares of Capital Stock have been duly authorized and validly issued and are fully paid and non-assessable.  The Securities have been duly and validly reserved for issuance.  The Securities, when issued, shall be validly issued, fully paid, and non-assessable.

3.3           Authorization; Binding Obligations.  All corporate action on the part of the Company necessary for the authorization, sale, issuance, and delivery of the Securities; the authorization, execution, and delivery of this Agreement and the other Transaction Documents; and the performance of all obligations of the Company hereunder and thereunder, has been taken.  This Agreement, the Notes, the Warrants and the other Transaction Documents to which it is a party, when executed and delivered, shall be valid and binding obligations of the Company enforceable against it in accordance with their respective terms.

3.4           Financial Statements.  The Company’s Annual Report for the period ended December 31, 2014, filed with the Commission, presents fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of the dates thereof, and the consolidated results of its operations and its cash flows for year then ended in conformity with U.S. generally accepted accounting principles.

3.5           Intellectual Property.  The Company owns or possesses adequate licenses or other rights to use all trademarks, service marks, trade names, copyrights, trade secrets, manufacturing processes, software, formulae, know-how, and other proprietary rights and patents necessary or appropriate for its business as now conducted and as presently proposed to be conducted, without any infringement of the rights of others.

3.6           Compliance with Other Instruments.  The Company is in compliance with all of the provisions of its articles of incorporation and bylaws.  Except with respect to the Permitted Indebtedness (as defined in Section 6.2(b) below), the execution, delivery, and performance by the Company of this Agreement and each of the other Transaction Documents, the issuance of the Securities, and the fulfillment and compliance with respective terms hereof and thereof by the Company, do not and will not (a) conflict with or result in a material breach or violation of the terms, conditions, or provisions of any indenture, agreement, or instrument to which the Company is bound, (b) constitute a default under such indenture, agreement, or instrument, (c) result in the creation of any lien, security interest, charge, or encumbrance upon the Capital Stock or assets pursuant to any such indenture, agreement, or instrument, (d) give any third party the right to accelerate any obligation under any such indenture, agreement, or instrument, or (e) require any authorization, consent, approval, exemption, or other action by or notice to any court, administrative or governmental body, or any third party pursuant to, the articles of incorporation or bylaws of the Company, or any law, statute, rule, or regulation to which the Company is subject, or any agreement, instrument, order, judgment or decree to which any Company is subject, other than the filing of a Form D with the Commission and appropriate blue sky filings with state securities commissions as applicable.

  

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3.7           Litigation.  There is no material action, suit, claim, investigation, arbitration, or other legal or administrative proceeding pending or, to the Company’s knowledge, threatened against the Company and, to the Company’s knowledge, there is no basis for any of the foregoing.  There are no unsatisfied judgments, penalties, or awards against or affecting the Company or its businesses, properties or assets.

3.8           Compliance with Laws; Regulatory Permits.  The Company is not in violation, in any material respect, of any applicable statute, rule, regulation, order, or restriction of any domestic or foreign government or any instrumentality or agency thereof in respect of the conduct of its business or the ownership of its properties.  The Company has all necessary approvals, clearances, permits, licenses, registrations, and any similar authority necessary for the conduct of its business as now being or presently being proposed to be conducted by it.

3.9           Offering Valid.  Assuming the accuracy of the representations and warranties of the Purchaser contained in Section 4.2, the offer, sale and issuance of the Securities shall be exempt from the registration requirements of the Securities Act of 1933, and are exempt from registration and qualification under the registration or qualification requirements of applicable state securities laws.  Neither the Company nor any agent on behalf of the Company has solicited or shall solicit any offers to sell or has offered to sell or shall offer to sell all or any part of the Securities to any Person so as to bring the sale of such Securities by the Company within the registration provisions of the Securities Act or applicable state securities laws.

3.10           Tax Returns and Payments.  All federal, state, local, and foreign tax returns and reports of the Company required by law to be filed as of the date of this Agreement have been filed, and such returns and reports are correct and complete, and amounts equal to all taxes and other fees that are due and payable have been fully and timely paid or, in the case of taxes not yet due, fully provided for in the Financial Statements.

3.11           Environmental Regulations.  No notice, notification, demand, request for information, citation, summons, complaint, or order has been received by, and, to the Company’s knowledge, no action, claim, suit, proceeding, review, or investigation is pending or threatened against, the Company with respect to any matters relating to or arising out of any Environmental Law.  As used herein, “Environmental Law” means any federal, state, local or foreign statute, law, judicial decision, regulation, ordinance, rule, judgment, order, code, injunction, permit, or governmental agreement relating to human health or the environment.

3.13           Periodic Reports.  As of the date of this Agreement, (A) the Company has not sustained any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth in the Company’s periodic reports and other information filed with the Commission, and (B) there has not been any change in the capital stock of the Company (other than a change in the number of outstanding shares of the Company’s common stock, $0.01 par value (the “Common Stock”) due to the issuance of shares upon the exercise of outstanding options or warrants and restricted stock awards granted in connection with standard director compensatory arrangements) or any material adverse change in the business, affairs, operations, properties, financial condition or results of operations of the Company taken as a whole, otherwise than as set forth in the Company’s previously filed periodic reports and other information filed with the Commission.

3.13           Labor Relations.  There are no pending or, to the Company’s knowledge, threatened or anticipated (a) employment discrimination charges or complaints against or involving the Company before any federal, state, or local board, department, commission, or agency, or (b) unfair labor practice charges or complaints, disputes, or grievances affecting the Company.  None of the employees of the Company are represented by any labor unions nor, to the Company knowledge, is any union organization campaign in progress.

  

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3.14           Insurance.  The Company has in full force and effect fire, casualty, liability and other insurance policies of such types and amounts and with such coverage as are typically carried by companies of established reputations in a business and position similar to that of the Company.

3.15           Disclosure.  The Company has only provided each Purchaser with the information that such Purchaser has requested in deciding whether to purchase any Notes.  In addition, the Company has required each Purchaser to acknowledge receipt and review of (i) the Company’s most recent cautionary statement regarding forward-looking statements, filed with the Commission on March 11, 2014, and (ii) the Liquidity and Capital Resources discussion from the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Commission on March 11, 2014, each of which are attached hereto as Exhibit D, prior to making an investment decision regarding the Notes and Warrants.

4.           Representations and Warranties of Purchasers.  Each Purchaser hereby represents and warrants to the Company, effective as of the date of this Agreement and as of the Closing Date as follows:

4.1           Requisite Power and Authority.  The Purchaser, if an entity and not a natural person, is duly organized or incorporated and validly existing under the laws of the jurisdiction of its organization or incorporation and has full partnership, corporate or other power and authority under its governing instruments and such laws to conduct its business as now conducted and to execute and deliver this Agreement and the other Transaction Documents to which it is a party.  All action on the part of the Purchaser necessary for the authorization, execution, delivery and performance of all obligations of the Purchaser under this Agreement and the other Transaction Documents to which it is a party has been taken prior to or concurrently with the Closing.  Upon execution and delivery, this Agreement and the other Transaction Documents to which the Purchaser is a party shall be valid and binding obligations of the Purchaser, enforceable against the Purchaser in accordance with their respective terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other laws of general application affecting enforcement of creditors’ rights, and by general principles of equity that restrict the availability of equitable remedies.

4.2           Investment Representations.  The Purchaser understands that the issuance of the Securities have not been registered under the Securities Act of 1933.  The Purchaser also understands that such securities are being offered and sold pursuant to an exemption from registration contained in the Securities Act of 1933 based in part upon the Purchaser’s representations contained in this Agreement.  The Purchaser hereby represents and warrants to the Company as follows:

  

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(a)           The Purchaser has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect such Purchaser’s own interests.  The Purchaser must bear the economic risk of this investment indefinitely unless the resale of the Notes, Warrants or the Common Stock issuable upon conversion of the Notes or exercise of the Warrants is registered pursuant to the Securities Act 1933, or an exemption from registration is available.  The Purchaser understands that the Company has no intention of registering the resale of the Securities.  The Purchaser also understands that there is no assurance that any exemption from registration under the Securities Act of 1933 will be available and that, even if it is available, such exemption may not allow the Purchaser to transfer all or any portion of the Securities under the circumstances, in the amounts or at the times the Purchaser might propose.

(b)           The Purchaser is acquiring the Securities for the Purchaser’s own account for investment only, and not with a view towards their distribution.

(c)           The Purchaser acknowledges that the Company has not prepared and distributed any disclosure documents in connection with the offer and sale of the Securities except for this Agreement (including its exhibits and schedules).  The Purchaser acknowledges that it has had an opportunity to review the Company’s public filings with the Commission, and to ask questions of and receive answers from the Company, or a person or persons acting on its behalf, concerning the terms and conditions and all other aspects of investment in the Company and the Securities.  The Purchaser represents that by reason of its, or of its management’s, business or financial experience, the Purchaser has the capacity to protect its own interests in connection with the transactions contemplated in this Agreement.

(d)           The Purchaser represents that it is an accredited investor within the meaning of Rule 501 of Regulation D under the Securities Act of 1933, as more specifically set forth on the Accredited Investor Certification attached hereto as Exhibit E.

(e)           The Purchaser hereby acknowledges receipt, review and understanding of the Cautionary Statement and Liquidity and Capital Resources disclosure attached hereto as Exhibit D.

(f)           To comply with applicable U.S. laws, including but not limited to the International Anti-Money Laundering and Financial Anti-Terrorism Abatement Act of 2001 (Title III of the USA PATRIOT Act), Purchaser represents and warrants that all payments by such Purchaser to the Company and all securities or payments made or distributions paid to the Purchaser from the Company will be made only in the Purchaser’s name and to and from a bank account of a bank based or incorporated in or formed under the laws of the United States.

  

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(g)           Merriman Capital, Inc. will be paid a customary commission relating to the consummation of the investment transactions contemplated by this Agreement.  Other than the payment by the Company to Merriman Capital, Inc., no agent, broker, investment banker, person or firm acting on behalf of or under the authority of such Purchaser is or will be entitled to any broker’s or finder’s fee or any other commission directly or indirectly in connection with the transactions contemplated by this Agreement.  Such Purchaser agrees to indemnify the Company for any claims, losses or expenses incurred by the Company in connection with any claim for any such fees or commissions.

4.3           Investment Representations.  The Purchaser understands and agrees that the Notes are expressly subordinated to the Company’s senior debt to Silicon Valley Bank, as described in Schedule 6.2(b).  If requested, at the Closing the Purchaser will enter into a subordination agreement with Silicon Valley Bank in customary and negotiated form reasonably acceptable to Silicon Valley Bank.

5.           Survival of Representations and Warranties.  The representations and warranties made herein are made as of the date of this Agreement and as of the date of Closing.  They shall survive the Closing.

6.           Post-Closing Covenants.

6.1           Affirmative Covenants of the Company.  From the date hereof until the date on which all Notes, or any successor, substitute, or replacement Notes, shall have been paid in full or converted pursuant to the terms herein and contained in the Notes, the following shall be true or the Company shall take, or permit or cause to be taken, each of the following actions, as applicable, unless otherwise provided by the prior written consent of Majority Purchasers, as defined below:

(a)           The Company shall maintain a standard system of accounts in accordance with generally accepted accounting principles consistently applied, and shall keep full and complete financial records, and shall file with the EDGAR system of the Commission quarterly and year-to-date financial statements, and audited financial statements, within the statutorily required period pursuant to Rule 12b-2 of the Securities Exchange Act of 1934.

(b)           The Company shall at all times preserve and keep in full force and effect its corporate existence and licenses, authorizations, permits, rights, and franchises material to the business of the Company, and shall qualify to do business as a foreign corporation in all jurisdictions in which the nature of its activities and properties (both owned and leased) makes such qualification necessary.

(c)           The Company shall pay and discharge all taxes, assessments and governmental charges or levies imposed upon the Company or upon its respective income or profits, or upon any respective properties belonging to it, prior to the date on which penalties attach thereto, and all lawful claims that, if unpaid, might become a lien or charge upon any such properties, provided that the Company shall not be required to pay any such tax, assessment, charge, levy, or claim which is being contested in good faith and by proper proceedings if the Company shall have set aside on its books adequate reserves with respect thereto.

  

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(d)           The Company shall comply in all material respects with all applicable laws, rules, regulations and orders of any governmental authority.

(e)           The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, a number of shares sufficient to allow the conversion in full of all of the Notes.  The Company shall take all such actions as may be necessary to assure that all the Securities may be issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which such Securities may be listed (except for official notice of issuance which shall be immediately transmitted by the Company upon issuance).

(f)           The Company shall as promptly as practicable under the circumstances, but in any event within three days, give notice to each Purchaser after becoming aware of the existence of any condition or event which constitutes, or the occurrence of, any of the following: (i) any Event of Default (as defined in the Notes); (ii) any other event of non-compliance by the Company under this Agreement; or (iii) the institution of an action, suit, or proceeding against the Company before any court, administrative agency, or arbitrator including, without limitation, any action of a foreign government or instrumentality, which, if adversely decided, could materially adversely affect the business, properties, financial condition, or results of operations of the Company, taken as a whole, whether or not arising in the ordinary course of business.

6.2           Negative Covenants of the Company.  From the date hereof until the date on which all Notes, or any successor, substitute or replacement Notes, shall be paid in full or converted, the Company shall not take, or permit or cause to be taken, any of the following actions without the prior written consent of Purchasers holding a majority of the aggregate outstanding principal amount of the Notes (the “Majority Purchasers”):  (a) redeem or repurchase any outstanding Capital Stock or declare or pay or set aside for payment any dividend or distribution to any stockholder or on account of any Capital Stock of the Company; or (b) create, incur, or suffer to exist any indebtedness other than the following (collectively, “Permitted Indebtedness”):  (i) indebtedness existing on the date hereof and set forth in Schedule 6.2(b), (ii) any indebtedness approved by Majority Purchasers at any time, or (iii) indebtedness which is expressly subordinated to the Notes.

6.3           Piggyback Registration Rights.  Each Purchaser shall have the following rights, with respect to the filing by the Company of registration statements (each a “Registration Statement”) with the SEC, for the resale of the shares of Common Stock issuable upon conversion of the Notes and the shares of Common Stock issuable upon exercise of the Warrants (collectively, the “Conversion Shares” and referred to together with any equity issued with respect to the Conversion Shares upon any dividend or stock split in connection with a combination or conversion of equity securities, recapitalization, merger, consolidation or other reorganization, as the “Registrable Shares”); provided, however, that as to any particular securities constituting Registrable Shares, such securities will cease to be Registrable Shares when they have been: (i) effectively registered under the Securities Act of 1933 and disposed of in accordance with the Registration Statement covering them, or sold to the public through a broker, dealer or market maker pursuant to Rule 144 (or by similar provision then in force) under the Securities Act of 1933; (ii) when registration under the Securities Act of 1933 would no longer be required for the immediate sale of such securities held by such Purchaser pursuant to the provisions of Rule 144 (or any successor provision); or (iii) two years have passed from the date hereof.

  

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(a)           If, at any time when there is not an effective Registration Statement providing for the resale of all of the Registrable Shares, then, whenever the Company proposes to prepare and file with the SEC a Registration Statement relating to an offering under the Securities Act of 1933 of any of its equity securities (other than on Form S-4 or Form S-8, each as promulgated under the Securities Act of 1933, or their then equivalents), and the registration form to be used may be used for the registration of Registrable Shares, the Company shall send to each holder of Registrable Shares written notice of such determination.  If, within 30 days after receipt of such notice (or within such shorter period of time as may be specified by the Company in such written notice as may be necessary for the Company to comply with its obligations with respect to the timing of the filing of such Registration Statement), any such holder of Registrable Shares shall so request in writing (which request shall specify the Registrable Shares intended to be registered), the Company will use commercially reasonable efforts to cause the registration under the Securities Act of 1933 of all Registrable Shares which the Company has been so requested to register by the Purchaser; provided, however, that the Purchaser must cooperate in providing the Company with all information reasonably required to be included in the Registration Statement of otherwise obtained by the Company for purposes of preparing and filing the Registration Statement and any amendments thereto.

(b)           If, for any reason, the SEC requires that the number of Registrable Shares to be registered for resale pursuant to the Registration Statement in connection with any Registration Statement, be reduced, or if a greater number of Registrable Shares is offered for participation in the proposed offering than in the reasonable opinion of the managing underwriter(s) of the proposed offering can be accommodated without adversely affecting the proposed offering, such reduction (the “Cut Back”) shall be allocated pro rata among the holders whose shares have been included in such Registration Statement until the reduction required by the SEC or its rules shall have been effected.  At the discretion of the Company, the Cut Back may be effected first among one particular type of Registrable Securities (e.g., Conversion Shares issuable upon exercise of Warrants).

(c)           All expenses incurred by the Company in complying with this Section, including without limitation all registration and filing fees, printing expenses (if required), fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including reasonable counsel fees) incurred in connection with complying with state securities or “blue sky” laws, fees of the FINRA, transfer taxes, and fees of transfer agents and registrars, are called “Registration Expenses.”  The Company will pay all Registration Expenses in connection with any registration statement described in this Section.

7.           Conditions to Closing.  The obligation of any Purchaser to pay the Purchase Price of any Note being purchased by such Purchaser on the Closing Date is, at its option, subject to the satisfaction, on or before the Closing Date, of each of the following conditions:  (a) all required Transaction Documents shall be fully executed and delivered; (b) all of the representations and warranties of the Company contained in this Agreement shall be true as of the date of this Agreement, and shall be deemed to have been made again as of the Closing Date and shall be true as of the Closing Date; and (c) the Company shall have caused all covenants, agreements, and conditions required by this Agreement to be performed or complied with by them prior to or at the Closing to be so performed or complied with.

  

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8.           Consent of Purchasers.  Any action, election, consent or other right of a Purchaser hereunder (including but not limited to any consent required pursuant to Section 9.6 hereof) may be made, given, or exercised in writing by the Majority Purchasers in their sole discretion.  Such action, election, consent or other right exercised may be affected by any available legal means, including at a meeting, by written consent, or otherwise.  Any such action, election, consent, or other right exercised by Majority Purchasers shall apply to and be binding upon all Purchasers.

9.           General Provisions.

9.1           Governing Law.  This Agreement shall be governed in all respects by the laws of the State of Minnesota, without reference to its conflicts-of law-principles.

9.2           Successors and Assigns.  The Company may not assign its rights hereunder or any part thereof to any other Person, and any attempted assignment shall be void.  Any Purchaser may assign or transfer any Note that it owns, provided that the assignee of such Note becomes, as of the effective date of any such assignment, a party to this Agreement, and executes an Accredited Investor Certification.  Subject to the foregoing, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each Person who shall be a holder of the Securities from time to time.

9.3           Further Assurance.  Each party shall execute such other documents and instruments, give such further assurance and perform such acts as are or may become necessary or appropriate to effectuate and carry out the provisions of this Agreement.

9.4           Entire Agreement.  This Agreement, the Notes, the Warrants and the other Transaction Documents constitute the entire agreement between the Company and the Purchasers with respect to the purchase and sale of the Securities and supersede all prior communications and agreements of the Company and the Purchaser with respect to the subject matter hereof and thereof.  All Exhibits and Schedules hereto are hereby incorporated herein by reference.  Nothing in this Agreement, express or implied, is intended to confer upon any third party any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

9.5           Severability.  In case any provision of the Agreement shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

9.6           Amendment.  This Agreement may be amended or modified by the mutual agreement of the Company and the Majority Purchasers.

9.7           Notices.  Any notice provided or permitted to be given under this Agreement must be in writing and may be served by depositing same in the United States mail, addressed to the party to be notified, postage prepaid and registered or certified with return receipt requested; by delivering the same in person to such party; by depositing with a nationally recognized overnight courier, specifying next-day delivery, with written verification of receipt; or by facsimile or electronic mail.  Notice given in accordance herewith shall be effective the date the same is deposited in the mail, delivered to a nationally recognized overnight courier, faxed or delivered by electronic mail.  All notices to the Company shall be sent in care of the Company at 5929 Baker Road, Suite 475, Minnetonka MN 55345, FAX: (952) 974 7787, Attention: Chief Executive Officer, skoller@wirelessronin.com,with a copy to Maslon Edelman Borman & Brand, LLP, 90 S. 7th St. Suite 3200, Minneapolis, MN 55402, Attention: Paul Chestovich, paul.chestovich@maslon.com.  All notices to Purchasers shall be sent to the address set forth on the signature pages hereof.  Either the Company or the Purchasers may designate a new address for notices upon ten days’ advance written notice to the other parties.

  

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9.8           Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.  Signatures delivered via electronic mail utilizing .pdf or other format shall be deemed original signatures for all purposes hereunder.

9.9           Waiver of Trial by Jury.  TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY AND EACH PURCHASER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

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In Witness Whereof, the parties hereto have executed this Securities Purchase Agreement as of the date first set forth above.

WIRELESS RONIN TECHNOLOGIES, INC.

                          

Scott Koller

President & Chief Executive Officer

  

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PURCHASER SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT

Aggregate Purchase Price to be Paid by the Purchaser: $__________________________

Please confirm that the foregoing correctly sets forth the agreement between us by signing in the space provided below for that purpose.

Dated as of:  ___________________, 2014

PURCHASER:

By:                                                                          

Print Name:                                                                          

Title:                                                                       

E-mail address:                                                                          

Name in which Note(s) are to be registered:                                                                                                                               

Mailing Address:                          

 

                        

                        

 

State of residence (for securities compliance purposes):                                                                                                                                          

Address for delivery of Note(s) (if different):

                         

                        

Taxpayer Identification Number:                                                                                                          

 

  

  

  

Exhibit A

The Form of Note is attached hereto.

  

  

  

Exhibit B

The Form of Warrant is attached hereto.

  

  

  

Exhibit C

The List of Investors is attached hereto.

  

  

  

Exhibit D

The disclosures referenced in Section 3.15 are reproduced below.

[Excerpts from MD&A in Form 10-K for year ended December 31, 2013]

Forward-Looking Statements

The following discussion contains various forward-looking statements within the meaning of Section 21E of the Exchange Act. Although we believe that, in making any such statement, our expectations are based on reasonable assumptions, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. When used in the following discussion, the words “anticipates,” “believes,” “expects,” “intends,” “plans,” “estimates” and similar expressions, as they relate to us or our management, are intended to identify such forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from those anticipated. Factors that could cause actual results to differ materially from those anticipated, certain of which are beyond our control, are set forth in Item 1A under the caption “Risk Factors.”

Our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking statements. Accordingly, we cannot be certain that any of the events anticipated by forward-looking statements will occur or, if any of them do occur, what impact they will have on us. We caution you to keep in mind the cautions and risks described in this document and to refrain from attributing undue certainty to any forward-looking statements, which speak only as of the date of the document in which they appear. We do not undertake to update any forward-looking statement.

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Liquidity and Capital Resources

Going Concern

We incurred net losses and negative cash flows from operating activities for the years ended December 31, 2013, 2012 and 2011.  At December 31, 2013, we had cash, cash equivalents and restricted cash of $1.5 million and working capital of $1.3 million.  The cash used in operating activities for the year ended December 31, 2013 was $2.8 million.  At December 31, 2013, we had no outstanding balance and no borrowing capability on our line of credit with Silicon Valley Bank.  Silicon Valley Bank has issued a letter of credit in the amount of $180,000 as collateral to the landlord of our corporate office and another letter of credit to a vendor in the amount of $50,000. As of December 31, 2013, we were unable to meet the minimum tangible net worth requirements per the terms of the loan and security agreement with Silicon Valley bank, and therefore we are currently unable to drawn down on the line of credit.  As of December 31, 2013, our tangible net worth totaled $1.6 million or $0.6 million below the minimum required amount per the terms of the loan and security agreement with Silicon Valley Bank. The line of credit is secured by all of our assets and matures on  July 15, 2014. Starting with the month ending March 31, 2014 and on the last day of each following month, our new tangible net worth requirement has been reduced to $150,000 and, commencing with the quarter ending March 31, 2014, the minimum tangible net worth requirement increases, commencing with the quarter ending March 31, 2014 and each quarter thereafter, by the sum of (a) fifty-percent (50%) of our quarterly net income (without reduction for any losses) for such quarter, plus (b) fifty-percent (50%) of all proceeds received from the issuance of equity during such quarter and/or the principal amount of all subordinated debt incurred during such quarter.  We must comply with this tangible net worth minimum in order to draw down on such line of credit and also while there are outstanding credit extensions (other than our existing lease letter of credit).

  

D-1

  

The financial statements for the fiscal year ended December 31, 2013 were prepared on a going concern basis, meaning that they do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should our company be unable to continue as a going concern.  However, our auditor also expressed substantial doubt about our ability to continue as a going concern.

Our ability to continue as a going concern is an issue raised as a result of losses suffered from operations.  Although we believe we extended our ability to fund our operations as a result of the restructuring we initiated on July 29, 2013 (see “Restructuring” below), even after the savings we expect to achieve and the additional funds received from the unsecured promissory notes issued in December 2013, we do not currently have sufficient capital resources to fund operations beyond June 2014. We continue to experience operating losses. Management continues to seek financing on favorable terms; however, there can be no assurance that any such financing can be obtained on favorable terms, if at all. At present, we have no commitments for any additional financing. Because we have received an opinion from our auditor that substantial doubt exists as to whether our company can continue as a going concern, it may be more difficult for our company to attract investors, secure debt financing or bank loans, or a combination of the foregoing, on favorable terms, if at all. Our future depends upon our ability to obtain financing and upon future profitable operations. If we are unable to generate sufficient revenue, find financing, or adjust our operating expenses so as to maintain positive working capital, then we will be forced to cease operations and investors will lose their entire investment. We can give no assurance as to our ability to generate adequate revenue, raise sufficient capital, sufficiently reduce operating expenses or continue as a going concern.

Restructuring

In July 2013, we implemented a restructuring plan designed to conserve our cash resources and to further align our ongoing expenses with our business by focusing sales efforts on high-potential customers and prospects, preserving the research and development staff required to maintain and enhance our RoninCast® software, and consolidating certain positions.  We incurred a  one-time charge in 2013 aggregating approximately $0.2 million, consisting primarily of severance payments.   We believe this restructuring will reduce our annual operating costs by approximately $1.3 million.

Operating Activities

We do not currently generate positive cash flow. Our investments in infrastructure have been greater than sales generated to date. As of December 31, 2013, we had an accumulated deficit of $98.0 million. The cash flow used in operating activities was $2.8 million, $4.8 million and $4.6 million for the years ended December 31, 2013, 2012 and 2011, respectively.  In 2013, net cash used by operating activities was attributable to our net loss, partially offset by an overall decrease in changes to our operating assets and liability accounts of $0.1 million and $0.7 million of depreciation and amortization and stock compensation expense.  Included in the changes to our operating accounts were decreases in accounts receivable, inventory and other assets all of which were due to lower sales during the fourth quarter of 2013 when compared to the same period in the prior year.  In addition, accounts payable and accrued liabilities balances were lower by $0.3 million and $0.1 million at the end of December 31, 2013 when compared to the prior year end balances.  This was primarily the result of lower operating costs incurred during the fourth quarter of 2013 when compared to the same period in the prior year.  Changes in our deferred revenue balances when comparing December 31, 2013 to December 31, 2012 increased $0.2 million as a result of additional uncompleted projects and higher levels of deferred maintenance contracts as our installation base continues to grow.

  

D-2

  

In 2012, net cash used by operating activities was attributable to our net loss, along with an overall increase in changes to our operating assets and liability accounts of $0.3 million, partially offset by depreciation and amortization and stock compensation expense.  Included in the changes to our operating accounts were decreases in inventory, prepaid expenses, accounts payable, deferred revenue and accrued liabilities, all of which were primarily due to lower operating costs incurred during the fourth quarter of 2012 when compared to the same period in the prior year.  The accounts receivable balance at the end of 2012 increased from the prior year balance as a result of an increase in sales during the fourth quarter of 2012 when compared to the same period in the prior year.

Disruptions in the economy and constraints in the credit markets have caused companies to reduce or delay capital investment.  Some of our prospective customers may cancel or delay spending on the development or roll-out of capital and technology projects with us due to continuing economic uncertainty.  Difficult economic conditions have adversely affected certain industries in particular, including the automotive and restaurant industries, in which we have major customers.  We could also experience lower than anticipated order levels from current customers, cancellations of existing but unfulfilled orders, and extended payment or delivery terms.  Economic conditions could also materially impact us through insolvency of our suppliers or current customers.  As of December 31, 2013, Chrysler and EWI accounted for 44.8% and 15.0%, respectively, of our total receivables.  In the case of insolvency by one of our significant customers, an account receivable with respect to that customer might not be collectible, might not be fully collectible, or might be collectible over longer than normal terms, each of which could adversely affect our financial position.  There can be no assurance that we will not suffer credit losses in the future.

In addition, our financial condition and potential for continued net losses could cause current and prospective customers to defer placing orders with us, to require terms that are unfavorable to us, or to place their orders with marketing technology suppliers other than ourselves, which could adversely affect our business, financial condition and results of operations. On the same basis, third-party suppliers may refuse to do business with us, or may do so only on terms that are unfavorable to us, which also could cause our revenue to decline.

  

D-3

  

Investing Activities

Net cash used in investing activities was $29,000, $47,000 and $149,000 for the years ended December 31, 2013, 2012 and 2011, respectively.  Net cash used in investing activities for the periods presented was attributable to the purchases of property and equipment.  We believe capital investments for 2014 will be similar to 2013 as our current infrastructure has the capacity to service additional deployments.

Financing Activities

We have financed our operations primarily through sales of common stock and the issuance of notes payable to vendors, shareholders and investors. For the years ended December 31, 2013, 2012 and 2011, we generated a net $2.1 million, $1.6 million and $3.2 million from financing activities, respectively.

In March 2013, we sold a total of 868 units at a price of $1.80 per unit, each unit consisting of one share of common stock and one –five year warrant to purchase 0.50 of a share of common stock, with exercisability commencing six months and one day after issuance, at an exercise price of $2.73 per share, pursuant to a registration statement on Form S-3 which was declared effective by the Securities and Exchange Commission in January 2013.  We obtained approximately $1.4 million in net proceeds as a result of this registered direct offering.

In December 2013, we sold an aggregate of $1.1 million in unsecured convertible promissory notes, along with warrants to purchase 1.1 million shares of our common stock, in a private placement transaction with certain accredited investors.  The notes mature two years after issuance, require the payment of interest at the rate of 4% per year (payable on maturity), and are convertible, at the holder’s option, into unregistered shares of our common stock at a conversion price of $0.50 per share.  The warrants are immediately exercisable, expire three years after issuance, have a cashless exercise feature, and may be exercised to purchase unregistered shares of our common stock at an exercise price of $0.75 per share.

During 2013, we received proceeds of $21,000 from the issuance of 19,000 shares under our associate (employee) stock purchase plan, which was terminated effective July 2013.  Also during 2013, we made a repayment of the line of credit with Silicon Valley Bank of $0.4 million.

In September 2012, we sold approximately 348,000 shares of our common stock at $4.05 per share pursuant to a registration statement on Form S-3 which was declared effective by the SEC in September 2009.  We obtained approximately $1.2 million in net proceeds as a result of this registered direct offering.  During 2012, we also received $51,000 from the sale of approximately 12,000 shares of common stock to our associates (employees) through our 2007 Associate Stock Purchase Plan.  We also received a $0.4 million advance on our line of credit with Silicon Valley Bank in 2012.

In December 2011, we sold approximately 664,000 shares of our common stock at $5.00 per share pursuant to a registration statement on Form S-3 which was declared effective by the SEC in September 2009.  We obtained approximately $2.9 million in net proceeds as a result of this registered direct offering. During 2011, we received $68,000 from the sale of approximately 14,000 shares of common stock to our associates (employees) through our 2007 Associate Stock Purchase Plan and we received approximately $0.2 million from the exercise of outstanding stock options.  We used $36,000 for the payment of capital leases during 2011.

  

D-4

  

We will likely be required to raise additional funding through public or private financings, including equity financings. Any additional equity financings may be dilutive to shareholders and may be completed at a discount to market price. Debt financing, if available, would likely involve restrictive covenants similar to or more restrictive than those contained in the security and loan agreement we currently have with Silicon Valley Bank. Those covenants include maintaining minimum tangible net worth, which we may not satisfy. There can be no assurance we will successfully complete any future equity or debt financing. Adequate funds for our operations, whether from financial markets, collaborative or other arrangements, may not be available when needed or on terms attractive to us, especially from markets which continue to be risk averse. If adequate funds are not available, our plans to operate our business may be adversely affected and we could be required to curtail our activities significantly and/or cease operating.

Due to losses suffered from operations, for the year ended December 31, 2013, our independent registered public accounting firm expressed substantial doubt about our ability to continue as a going concern. We do not currently have sufficient capital resources to fund our operations beyond April 2014. We continue to experience operating losses. Management continues to seek financing on favorable terms; however, there can be  no assurance that any such financing can be obtained on favorable terms, if at all. At present, we have no commitments for any additional financing. If we are unable to generate sufficient revenue, find financing, or adjust our operating expenses so as to maintain positive working capital, then we likely will be forced to cease operations and investors will likely lose their entire investment.

Line of Credit

In March 2010, we entered into a Loan and Security Agreement with Silicon Valley Bank (the “Loan and Security Agreement”), which was most recently amended effective March 6, 2014.  The Loan and Security Agreement provides us with a revolving line-of-credit at an annual interest rate of prime plus 1.5%, the availability of which is the lesser of (a) $1.5 million, or (b) the amount available under our borrowing base (75% of our eligible accounts receivable plus 50% of our eligible inventory) minus (1) the dollar equivalent amount of all outstanding letters of credit, (2) 10% of each outstanding foreign exchange contract, (3) any amounts used for cash management services, and (4) the outstanding principal balance of any advances.  In connection with the July 2010 lease amendment for our corporate offices, Silicon Valley Bank issued a letter of credit which as of December 31, 2013 was in the amount of $180,000 along with a letter of credit issued to a vendor for $50,000.

As of December 31, 2013, we were not in compliance with the tangible net worth requirement and therefore not eligible to draw down on the line of credit.  As of December 31, 2013, our tangible net worth totaled $1.6 million or $0.6 million below the minimum required amount per the terms of the Loan and Security Agreement.  We had no outstanding balance under this loan agreement (other than our letter of credits) as of December 31, 2013.

Under the Loan and Security Agreement, we are generally required to obtain the prior written consent of Silicon Valley Bank to, among other things, (a) dispose of assets, (b) change its business, (c) liquidate or dissolve, (d) change CEO or COO (replacements must be satisfactory to the lender), (e) enter into any transaction in which our shareholders who were not shareholders immediately prior to such transaction own more than 40% of our voting stock (subject to limited exceptions) after the transaction, (f) merge or consolidate with any other person, (g) acquire all or substantially all of the capital stock or property of another person, or (h) become liable for any indebtedness (other than permitted indebtedness). The line of credit is secured by all our assets and matures on July 15, 2014.  Starting with the month ending March 31, 2014, our new tangible net worth requirement has been reduced to $150,000 as of the end of each month and, commencing with the quarter ending March 31, 2014, the minimum tangible net worth requirement increases, commencing with the quarter ending March 31, 2014 and each quarter thereafter, by the sum of (a) fifty-percent (50%) of our quarterly net income (without reduction for any losses) for such quarter, plus (b) fifty-percent (50%) of all proceeds received from the issuance of equity during such quarter and/or the principal amount of all subordinated debt incurred during such quarter.  We must comply with this tangible net worth minimum in order to draw down on such line of credit and also while there are outstanding credit extensions (other than our existing lease letter of credit).

  

D-5

  

Exhibit E

The Form of Accredited Investor Certification is attached hereto.

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