Document:

BNP Exhibit

[EXECUTION COPY]
SECOND AMENDMENT TO
AMENDED AND RESTATED
CREDIT AGREEMENT
This SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this “Second Amendment”) dated as of September 21, 2011 is among INTL Commodities, Inc., a Delaware corporation (the “Borrower”), each of the lenders (including, without limitation, the Issuing Banks and the Swing Line Lender, the “Lenders”) that is a party to the Credit Agreement (as defined below) that has signed a counterpart hereof, and BNP Paribas as Administrative Agent.
W I T N E S S E T H:
WHEREAS, each of the Borrower, the Lenders (including, without limitation, ABN AMRO Capital USA LLC (as successor by assignment to ABN AMRO Bank N.V.) and BNP Paribas, in their capacities as Issuing Banks and BNP Paribas in its capacity as Swing Line Lender), BNP Paribas Securities Corp., ABN AMRO Capital USA LLC and Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland”, New York Branch, as Joint Lead Arrangers and Joint Bookrunners, ABN AMRO Capital USA LLC and Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland”, New York Branch, as Co-Syndication Agents, and BNP Paribas, as the Administrative Agent, are parties to an Amended and Restated Credit Agreement dated as of September 22, 2010 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"; capitalized terms used herein having the meanings given to them in the Credit Agreement unless otherwise defined herein); and
WHEREAS, the Borrower has requested certain amendments to the Credit Agreement, and, pursuant to Section 11.01 of the Credit Agreement, the Borrower, the Lenders and the Administrative Agent have agreed to amend the Credit Agreement on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1.   Amendments.
The Credit Agreement is hereby amended, effective upon the occurrence of the Effective Date (as defined in Section 2 below), as follows:

(a)The definition of “Borrowing Base Advance Cap” set forth in Section 1.01 is amended and restated in its entirety as follows:

““Borrowing Base Advance Cap” means at any time an amount equal to the lesser of:

(a)    the Committed Line; and

(b)    the sum of:

		
	(i)
	100% of Eligible Cash and Marketable Securities Collateral; plus

		
	(ii)
	90% of the Eligible Net Liquidity in Brokerage Accounts; plus

		
	(iii)
	90% of the value of Tier I Accounts; plus

		
	(iv)
	85% of the value of Tier II Accounts; plus

		
	(v)
	85% of the value of Eligible Precious Metals Inventory; plus

		
	(vi)
	85% of the value of Eligible Base Metals Inventory; plus

		
	(vii)
	85% of the value of Eligible Grain Inventory; plus

		
	(viii)
	85% of the value of Eligible Non-U.S. Inventory; plus

		
	(ix)
	80% of the value of Contingent Inventory in respect of Products other than Raw Materials; plus

		
	(x)
	75% of the value of Contingent Inventory in respect of Raw Materials; plus

		
	(xi)
	80% of the value of Eligible Special Inventory; plus

		
	(xii)
	80% of the value of Eligible Airway BL Inventory; plus

		
	(xiii)
	80% of the value of Eligible Other Metals Inventory; plus

		
	(xiv)
	60% of the value of Eligible Mexican Inventory; plus

		
	(xv)
	75% of the value of Eligible Raw Materials Inventory; plus

		
	(xvi)
	85% of the value of Eligible Swap Exposure; less 

		
	(xvii)
	110% of the Close-out Amounts to each Swap Bank as to which there is a positive Close-out Amount to such Swap Bank at such time as reported by the Swap Banks.

In no event shall any amounts described in (b)(i) through (b)(xvi) above which may fall into more than one of such categories be counted more than once when making the calculation under paragraph (b) of this definition. 

Other than inventory of lead which constitutes Eligible Mexican Inventory, no inventory located in Mexico shall be included in the Borrowing Base Advance Cap.” 

(b)The definition of “Close-out Amount” set forth in Section 1.01 is amended and restated in its entirety as follows:

““Close-out Amount” shall have the meaning ascribed to it in the Intercreditor Agreement, provided, however, that for purposes of clause (b)(xvii) of the definition of “Borrowing Base Advance Cap” shall mean, as of any date of calculation thereof, the amount due or that would be due from the Borrower, if any (without giving effect to any netting by the Borrower), upon the designation of an “early termination date” or its equivalent or a “termination event” or its equivalent with respect to all Swap Contracts with a particular Swap Bank under the applicable ISDA Master Agreement (or other applicable agreements 

for physical trades or other transactions) or its equivalent (e.g., long-form confirmations), including, without limitation, any amount due upon the voluntary termination or early settlement thereof.”

(c)The definition of “Committed Line” set forth in Section 1.01 is amended and restated in its entirety as follows:

““Committed Line” means the aggregate Committed Line Portions of all of the Lenders as set forth on Schedule 2.01 hereto, which shall be $140,000,000 on the Closing Date and shall be subject to reduction in accordance with Section 2.05A hereof or increase in accordance with Section 2.14 hereof.” 

(d)The definition of “Contingent Inventory” set forth in Section 1.01 is amended and restated in its entirety as follows:

““Contingent Inventory” means an amount equal to the undrawn and available Face Amount of any outstanding letter of credit issued in connection with the physical purchase of Products by the Borrower, which Products have not yet been delivered to the Borrower, minus the amount (determined by means of a commercially reasonable method agreed to by the Borrower and the Administrative Agent) of any costs or other liabilities payable under such letter of credit (other than with respect to value of such Products); provided, that (i) the applicable supplier is required to have title to such Products prior to transfer thereof to the Borrower, (ii) such Products are not included as Eligible Inventory, but upon delivery to the Borrower, such Products would qualify as Eligible Inventory, regardless of any dollar cap set forth in any applicable definition, (iii) the Borrower shall have the absolute and unqualified right to obtain such Products from the applicable supplier, and (iv) the Borrower's right to acquire such Products shall be subject to an Agent's First Lien.”

(e)Subclause (A) of the definition of “Eligible Special Inventory” set forth in Section 1.01 is amended and restated in its entirety as follows:

“(A)    such inventory is in transit to or in the possession and under the control of an Approved Inventory Holder, provided, that such inventory shall not constitute Eligible Special Inventory while it is located in any one country for more than ten (10) consecutive days,” 

(f)The definition of “Expiration Date” set forth in Section 1.01 is hereby amended by deleting “September 21, 2011” and replacing it with “September 20, 2012”.

(g)The definition of “Issuing Bank” set forth in Section 1.01 is amended and restated in its entirety as follows:

““Issuing Bank” means (a) BNP Paribas and ABN AMRO Capital USA LLC, (b) subject to the agreement of the Borrower, the Administrative Agent and such other Lender, any other Lender, (c) any office, branch or affiliate designated by the applicable Issuing Bank, and (d) any successor Issuing Bank pursuant to the terms of this Agreement.”

(h)The definition of “Issuance Cap” set forth in Section 1.01 is amended and restated in its entirety as follows:

“Issuance Cap” means with respect to the obligation of an Issuing Bank to Issue any Letter 

of Credit under this Agreement, the maximum permitted aggregate outstanding amount of L/C Obligations attributable to Letters of Credit Issued by such Issuing Bank, as shall be agreed  upon by each Issuing Bank, the Borrower and the Administrative Agent in writing upon any new Issuing Bank becoming an Issuing Bank. As of September 21, 2011, BNP Paribas and ABN AMRO Capital USA LLC each has an Issuance Cap in an amount equal to $70,000,000. The Issuance Cap for each Issuing Bank shall be reduced, in its sole discretion, ratably by all such reducing Issuing Banks in accordance with their Issuance Caps prior to such reduction, by all or any part of the amount of the Issuance Cap of each new Issuing Bank. The Issuance Caps may be modified in accordance with the agreements referred to in and the terms of this definition without regard to Section 11.01 of this Agreement.”

(i)The definition of “L/C Cap” set forth in Section 1.01 is amended and restated in its entirety as follows: 

““L/C Cap” means the cap upon L/C Obligations with respect to all Letters of Credit which shall be an amount equal to $70,000,000.”

(j)The definition of “Parent” set forth in Section 1.01 is amended and restated in its entirety as follows:

““Parent” means INTL FCStone Inc., a Delaware corporation (formerly known as International Assets Holding Corporation).”

(k)The definition of “Product” set forth in Section 1.01 is amended and restated in its entirety as follows:

““Product” means (a) Base Metals and Precious Metals, (b) Grain and (c) Raw Materials.”

(l)The definition of “Specified Letters of Credit” set forth in Section 1.01 is amended and restated in its entirety as follows:

“Specified Letters of Credit” means Documentary L/Cs, in an aggregate Face Amount not to exceed $5,000,000 at any time, which are issued before the date that is fifteen (15) days prior to the Expiration Date and have an expiry date after the Expiration Date.”

(m)The definition of “Standby L/C” set forth in Section 1.01 is amended and restated in its entirety as follows:

“Standby L/C” means a Letter of Credit which is issued as credit support for a financial obligation of the Borrower to the beneficiary and which is intended to be drawn upon by the related beneficiary only in the event that the original financial obligation remains unpaid when due, which Letter of Credit shall have a tenor not extending beyond the date set forth in clause (a) of the definition of “Expiration Date”, unless otherwise approved in writing by the Lenders.”

(n)The definition of “Working Capital” set forth in Section 1.01 is amended and restated in its entirety as follows:

““Working Capital” means with respect to the Borrower and the Mexican Sub the excess of Current Assets (excluding all net amounts due from employees, owners and Affiliates 

(calculated as the sum of the positive net amounts due from each such Person without offset for amounts due to any other Person), except any such amount due from employees, owners or Affiliates the payment of which is fully and unconditionally guaranteed by the Parent to the Borrower), over Current Liabilities, 

adjusted to reflect the Net Accounting Adjustment.”

(o)The following definitions are inserted into Section 1.01 in their appropriate alphabetical place:

“Acceptable Raw Materials Account Party” means any Tier I Account Party or Tier II Account Party indicated as an Acceptable Raw Materials Account Party on Schedule A.
“Basel III” means all regulations, requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or any United States or foreign regulatory authorities, in each case pursuant to “Basel III”, as amended from time to time.

“Dodd-Frank Act” means the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, as amended from time to time, and all rules, regulations, requests, guidelines or directives in connection therewith.

“Eligible Raw Materials Inventory” means Eligible Inventory consisting of Raw Materials which, notwithstanding the definition of “Eligible Inventory”, is valued at the lower of cost or market, that is subject to a valid sale contract (on the same pricing basis (i.e., fixed or floating) as the applicable purchase contract) with an Acceptable Raw Materials Account Party or another purchaser reasonably acceptable to the Administrative Agent and the Required Lenders and the Borrower's rights thereunder are subject to an Agent's First Lien, provided, that the aggregate amount of Eligible Raw Materials Inventory included in the Borrowing Base Advance Cap at any time shall not exceed $15,000,000 after application of the applicable advance rate.

“Eligible Swap Exposure” means the value of the sum of any mark to market exposure of each of the Swap Banks which has exposure to the Borrower under Swap Contracts as reported by the Swap Banks, after taking into account any netting by each such Swap Bank in accordance with industry standards, if positive, provided, that the aggregate amount of Eligible Swap Exposure included in the Borrowing Base Advance Cap at any time shall not exceed $2,000,000 before application of the applicable advance rate.

“Increase Amount” shall have the meaning given such term in Section 2.14(a).

“Increase and New Lender Agreement” shall have the meaning given such term in Section 2.14(c).

“Increasing Lender” shall have the meaning given such term in Section 2.14(c).

“L/C Cap for Documentary L/Cs” means the cap upon L/C Obligations relating to Documentary L/Cs which shall be an amount equal to $50,000,000.

“New Lenders” shall have the meaning given such term in Section 2.14(c).

“Raw Materials” means coal, iron ore, alumina and bauxite. 

“Requested Increase Effective Date” shall have the meaning given such term in Section 2.14(a).

“Total Leverage Ratio” means a ratio of (a) the Borrower's and the Mexican Sub's consolidated liabilities, determined in accordance with GAAP to (b) Equity.

(p)Section 2.03 is amended by deleting “and ABN AMRO Bank N.V.”
(q)Section 2.05(c) is amended and restated in its entirety as follows:
“(c) If on any date the Effective Amount of L/C Obligations relating to Letters of Credit exceeds the L/C Cap or the Effective Amount of L/C Obligations relating to Standby L/Cs exceeds the L/C Cap for Standbys or the Effective Amount of L/C Obligations relating to Documentary L/Cs exceeds the L/C Cap for Documentary L/Cs, the Borrower shall Cash Collateralize on such date the outstanding Letters of Credit, Standby L/Cs or Documentary L/Cs, as applicable, in an amount equal to 105% of the excess above each such cap.  If at any time such excess shall be reduced or eliminated and no Default or Event of Default shall have occurred and be continuing, such Cash Collateral or portion thereof which is no longer necessary to comply with the preceding sentence shall be released to the Borrower.  On the Expiration Date, Borrower shall Cash Collateralize all then outstanding Letters of Credit in the manner described in and to be applied as set forth in Section 9.03 whether or not Section 9.03 is otherwise applicable at such time.”  
(r)Section 2.14 is amended and restated in its entirety as follows:
“Section 2.14    Increase in Committed Line.  The Committed Line may be increased, with the consent of the Administrative Agent, the Joint Lead Arrangers, the Swing Line Lender, the Issuing Banks, the Increasing Lenders and the Borrower, at any time, prior to the date which is 90 days prior to the Expiration Date, to an aggregate principal amount of not more than $175,000,000 as follows:

(a)    Not more than ninety (90) days and not less than sixty (60) days (but not less than fifteen (15) days in the case of a proposed increase to be effective on or prior to November 30, 2011) prior to the proposed effective date of such increase in the Committed Line, the Borrower may make a written request for such increase to the Administrative Agent, who shall forward a copy of any such request to each of the Lenders.  The request by the Borrower pursuant to the immediately preceding sentence shall specify a proposed effective date of such increase (the “Requested Increase Effective Date”), the aggregate amount of such requested increase in the Committed Line, which shall not be less than $10,000,000 (the “Increase Amount”), and shall constitute an invitation to each Lender to increase its Committed Line Portion by a ratable portion of such Increased Amount. 

(b)    Each Lender, acting in its sole discretion and with no obligation to increase its Committed Line Portion pursuant to this Section 2.14, shall by written notice to the Borrower and the Administrative Agent advise the Borrower and the Administrative Agent whether or not such Lender agrees to all or any portion of such increase in its Committed Line Portion within thirty (30) days after the Borrower's request (but in respect of a proposed increase to be effective on or prior to November 30, 2011, within five (5) days after the Borrower's request).  Any such Lender may, in its sole discretion, accept all of such ratable increase, a portion of such increase, or decline to accept any of such increase in its Committed Line Portion.  If any Lender shall not have responded affirmatively within 

such thirty (30) day or five (5) day, as applicable, period, such Lender shall be deemed to have rejected the Borrower's request for an increase in its Committed Line Portion.  Promptly following the conclusion of such thirty (30) day or five (5) day, as applicable, period, the Administrative Agent shall notify the Borrower of the results of such request to the Lenders to so increase the Committed Line by the Increase Amount.  
(c)    If the aggregate amount of the increases in the Committed Line Portions which the Lenders have accepted in accordance with clause (b) of this Section 2.14 shall be less than the Increase Amount, the Borrower and the Administrative Agent may offer to such additional Persons (“New Lenders”) as may be approved by each of the Borrower, the Administrative Agent, the Joint Lead Arrangers, the Swing Line Lender and the Issuing Banks, the opportunity to make available such amount of new Committed Line Portions as may be required so that the aggregate increases in the Committed Line by the existing Lenders and new Committed Line Portions by the New Lenders shall equal the Increase Amount.  The effectiveness of all such increases in the Committed Line are subject to the satisfaction of the following conditions: (A) each Lender that so elects to increase its Committed Line Portion (each an “Increasing Lender”), each New Lender, the Administrative Agent, the Joint Lead Arrangers, each Issuing Bank, the Swing Line Lender and the Borrower shall have executed and delivered an agreement, substantially in the form of Exhibit L (an “Increase and New Lender Agreement”); (B) any fees and other amounts (including, without limitation, pursuant to Sections 4.04, 11.04 and 11.05) payable by the Borrower in connection with such increase shall have been paid; (C) any other amounts then due hereunder shall have been paid; (D) a certificate of a Responsible Officer of the Borrower as to the matters set forth in Sections 5.02(b), (c), (d) and (g) shall have been delivered to the Administrative Agent; (E) before and after giving effect thereto, the Borrower shall be in compliance with Section 7.14 and prior thereto shall have delivered to the Administrative Agent a detailed written calculation thereof certified as true and correct by a Responsible Officer and (F) if after giving effect to such increase, the Committed Line shall exceed $150,000,000, the Administrative Agent shall have obtained (i) a written consent of the B of A Facility Agent, as subordinated creditor and (ii) an executed amendment to the B of A Facility, in each case permitting such increase and in form and substance acceptable to the Administrative Agent.

(d)    Upon the Requested Increase Effective Date, Schedule 1 of the Increase and New Lender Agreement, which shall reflect the Committed Line and the Committed Line Portions of the Lenders at such time, shall be deemed to supersede Schedule 2.01 hereto without any further action or consent of any party.  The Administrative Agent shall cause a copy of such revised Schedule 2.01 to be available to the Issuing Banks and the Lenders.” 

(s)Section 3.01(b)(iii) is amended and restated in its entirety as follows:

“(iii)    (x) the expiry date of such Letter of Credit would occur after the earlier of (A) the expiry date set forth herein for a Letter of Credit of such Type, (B) except in respect of Specified Letters of Credit, the Expiration Date, or (C) in respect of Specified Letters of Credit, the date which is 120 days after the Expiration Date, or (y) the amount of such Letter of Credit would cause (A) the outstanding L/C Obligations to exceed the L/C Cap, (B) the outstanding L/C Obligations with respect to Standby L/Cs to exceed the L/C Cap for Standbys or (C) the outstanding L/C Obligations with respect to Documentary L/Cs to exceed the L/C Cap for Documentary L/Cs;”

(t)Section 3.08(b) is hereby amended by deleting “$350” and replacing it with “$500”.

(u)Section 4.02(a) is hereby amended by adding the following sentence at the end thereof:

“For purposes of this Agreement, the Dodd-Frank Act and Basel III, and all rules, regulations, requests, guidelines or directives in connection with the Dodd-Frank Act or Basel III shall be deemed to have been introduced and become effective, enacted and adopted after the date hereof.”

(v)Section 4.02(b) is amended and restated in its entirety as follows:

“(b)    If any Lender shall have determined  that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any Person controlling such Lender with any Requirement of Law regarding capital adequacy or with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof (including, without limitation, under or pursuant to Basel III or the Dodd-Frank Act) shall have the effect of reducing the rate of return on such Lender's or such Person's capital as a consequence of this Agreement, its obligations or Committed Line Portion hereunder or its obligations under Letters of Credit or participation therein to a level below that which such Lender or such Person would have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such Person's policies with respect to capital adequacy), then from time to time, the Borrower shall promptly pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction.”

(w)Section 4.02 is hereby amended by adding the following new Section 4.02(e) at the end thereof:

“(e)     Notwithstanding any other provision herein, the Applicable Margin for each Loan shall be increased to reflect all market, liquidity and regulatory conditions which the Administrative Agent or any Lender shall deem applicable from time to time, and any such increase shall be effective as of the date that is ten (10) Business Days after written notice is delivered by the Administrative Agent (at the request of any Lender) to the Borrower requesting such increase and setting forth the amount thereof and an explanation therefor.”

(x)Section 4.04(a) is amended by deleting the second parenthetical therein and replacing it with the following “(including, without limitation, the acceleration of the Loans pursuant to Article IX hereof and, the reallocation or repayment of Loans in connection with an increase in the Committed Line pursuant to Section 2.14).”

(y)Section 7.01(c) is hereby amended by deleting “thirty (30) days” and replacing it with “forty-five (45) days”.

(z)Section 7.02(a)(i)(B) is amended and restated in its entirety as follows:
“(B)  and shall cause the Parent to deliver to the Administrative Agent and the Lenders, (i) as soon as available, but not later than the date that is forty-five (45) days after the end of each calendar quarter of each year, a certificate executed by the chief financial officer of the Parent setting forth detailed calculations of the requirements set forth in Section 9.01(q) as of the last Business Day of such calendar 

quarter, in form and substance satisfactory to the Lenders and (ii) concurrently with each delivery of a compliance certificate or other similar document demonstrating compliance or non-compliance with the financial covenants under the BofA Facility to the lenders thereunder, a copy of such certificate and any attachments thereto;” 

(aa)Section 7.02(b) is amended and restated in its entirety as follows:

“(b)    on Thursday of each week, as of the first Business Day of such week, a Borrowing Base Collateral Position Report and a Net Position Report, each certified by a Responsible Officer or Officers of the Borrower who have authority to execute such reports, provided that if in any month the last Business Day of such month is not such first Business Day of a week, the last Business Day of such month shall be the reporting date instead of such first Business Day of that week and such reports shall be delivered on the third Business Day after such last Business Day of such month, provided further that if the preceding proviso is applicable, the Borrower shall deliver additional Borrowing Base Collateral Position Reports and Net Position Reports as required in the discretion of the Administrative Agent;”

(ab)Section 7.14 is amended and restated in its entirety as follows:
“7.14    Financial Covenants.  The Borrower shall at all times maintain, on a pre-tax basis (such pre-tax basis to be consistent with the presentation of financial statements required to be delivered under Section 7.01(c)):
(a)    Working Capital in an amount not less than $25,000,000, provided, that, from and after the date that the Committed Line is increased to an amount greater than $150,000,000 pursuant to Section 2.14 hereof, the Borrower shall at all times maintain Working Capital in an amount not less than $28,000,000;

(b)    Equity in an amount not less than $25,000,000, provided, that, from and after the date that the Committed Line is increased to an amount greater than $150,000,000 pursuant to Section 2.14 hereof, the Borrower shall at all times maintain Equity in an amount not less than $28,000,000; 

		
	(a)
	a Leverage Ratio not to exceed 6.0:1.0; and

		
	(b)
	a Total Leverage Ratio not to exceed 13.5:1.0.”

(ac)Section 8.11 is amended by inserting the following new paragraph at the end thereof: 
“At no time will the Borrower allow its Net Position with respect to Products which are Raw Materials multiplied by the current market price relating thereto based on the most recent daily pricing provided by a commodity pricing report or other source acceptable to the Administrative Agent and the Required Lenders to exceed $0.”
(ad)Section 8.15 is amended and restated in its entirety as follows:
“8.15    Loans and Investments”.  Borrower shall not, nor suffer or permit the Mexican Sub to, purchase or acquire, or make any commitment therefor, any equity interest, or any obligations, bonds, notes, debentures or other securities of, or any interest in, or any assets constituting all or substantially all assets of, or a business unit of, any Person, or make or commit to make any advance, loan, extension of credit (other than pursuant to sales or purchases on open account in the 

ordinary course of Borrower's business) or capital contribution to or any other investment in, any Person, except that the Borrower may lease Precious Metals under leasing arrangements (i) with any one lessee pursuant to a lease arrangement in effect on September 21, 2011, so long as such lessee's long term senior unsecured rating is A or higher by S&P or A2 or higher by Moody's (on terms and conditions (including, without limitation, the maintenance of insurance by such lessee) and subject to documentation in form and substance, acceptable to the Required Lenders), provided that (x) the Borrower's aggregate cost of Precious Metals leased to such lessee shall not exceed $20,000,000 and (y) upon the request of the Required Lenders, the Borrower shall have delivered to the Lenders a written summary of the principal lease terms (including, without limitation, name of lessee, lease tenor, location of lessee's premises and monetary terms) and a fully executed copy of the lease agreement, in each case certified as true and correct by a Responsible Officer, or (ii) with any other lessee approved by the Required Lenders (on terms and conditions (including, without limitation, the maintenance of insurance by the lessee) and subject to documentation in form and substance, acceptable to the Required Lenders) so long as (x) the Borrower's cost of Precious Metals leased to any such lessee shall not exceed $2,500,000 in the aggregate and the Borrower's cost of Precious Metals leased to all such lessees shall not exceed $5,000,000 in the aggregate, (y) the termination date of any such lease is not later than one year from the date such lease is entered into, and (z) the Borrower shall have given the Lenders prior written notice of any such lease.  Notwithstanding the foregoing, any such lease which is otherwise permitted pursuant to the preceding provisions shall cease to be permitted if the lease is not a valid, enforceable and binding obligation of the lessee thereunder and in full force and effect except if such lease has terminated in accordance with its terms.”  
(ae)All references to ABN AMRO Bank N.V. in the Credit Agreement (after giving effect to clauses (g), (h) and (p) above) shall be deemed to be references to ABN AMRO Capital USA LLC. Accordingly, ABN AMRO Capital USA LLC shall replace ABN AMRO Bank N.V. as a Joint Lead Arranger, Joint Bookrunner and a Co-Syndication Agent. 
(af)Schedule A is amended and restated in its entirety as set forth on Exhibit A hereto.
(ag)Schedule 7.03(h) is amended and restated in its entirety and replaced with new Schedule 7.03(h) in the form of Exhibit B hereto.

(ah)Exhibit B-1 is amended and restated in its entirety in the form of Exhibit C hereto.

(ai)Exhibit C is amended and restated in its entirety in the form of Exhibit D hereto.

(aj)Exhibit D is amended and restated in its entirety in the form of Exhibit E hereto.

(ak)Exhibit E is amended and restated in its entirety in the form of Exhibit F hereto.

(al)Exhibit F is amended and restated in its entirety in the form of Exhibit G hereto.

(am)New Exhibit L in the form of Exhibit H hereto is hereby inserted at the end of the Credit Agreement following Exhibit K thereto.

SECTION 2.   Effectiveness of Amendment, etc.
This Second Amendment shall become effective on the date (the “Effective Date”) on which (a) each of the Borrower, the Administrative Agent, and the Lenders shall have duly executed this Second Amendment, (b) the Parent shall have duly executed and delivered to the Administrative Agent a consent substantially in the form of Annex I hereto, (c) Bank of America, N.A., as Agent shall have duly executed 

and delivered to the Administrative Agent a consent substantially in the form of Annex II hereto, (d) the Borrower shall have duly executed and delivered each of the fee letters to be provided in connection herewith, in form and substance satisfactory to the Administrative Agent, (e) the Administrative Agent shall have received from the Borrower payment in full of (i) the fees set forth in each of the fee letters including, without limitation, the Administrative Agent's legal fees and a collateral inspection fee for the Administrative Agent's own account, (ii) all reasonable out-of-pocket costs incurred in connection with this Second Amendment and due diligence in respect thereto and (iii) for the account of each Lender, a non-refundable and fully earned amendment fee in an amount equal to one half of one percent (0.50%) flat on the Committed Line Portion of such Lender as of the Effective Date, (f) the Borrower shall have delivered to the Administrative Agent an opinion of counsel to the Borrower and the Parent which shall include, without limitation, an opinion under New York Law as to the enforceability of the Credit Agreement as amended by this Second Amendment, in form and substance satisfactory to the Administrative Agent, and (g) the Administrative Agent shall have received such corporate authorization documents of the Borrower and the Parent, such good standing certificates and such opinions of counsel as the Lenders shall request. 

SECTION 3.   Effect of Amendment; Ratification; Representations; etc.
(a)    On and after the Effective Date, this Second Amendment shall be a part of the Credit Agreement, all references to the Credit Agreement in the Credit Agreement and the other Loan Documents shall be deemed to refer to the Credit Agreement as amended by this Second Amendment, and the term "this Agreement", and the words "hereof", "herein", "hereunder" and words of similar import, as used in the Credit Agreement, shall mean the Credit Agreement as amended hereby.

(b)    Except as expressly set forth herein, this Second Amendment shall not constitute an amendment, waiver or consent with respect to any provision of the Credit Agreement, as amended hereby, and the Credit Agreement, as amended hereby, is hereby ratified, approved and confirmed in all respects.

(c)    In order to induce the Administrative Agent and the Lenders to enter into this Second Amendment, the Borrower represents and warrants to the Administrative Agent and the Lenders that before and after giving effect to the execution and delivery of this Second Amendment:

(i)    the representations and warranties of the Borrower set forth in the Credit Agreement and in the other Loan Documents shall be true and correct in all material respects as if made on and as of the date hereof, except for those representations and warranties that by their terms were made as of a specified date which shall be true and correct on and as of such date, and

(ii)    no Default or Event of Default has occurred and is continuing.

SECTION 4.   Counterparts.
This Second Amendment may be executed by one or more of the parties to this Second Amendment on any number of separate counterparts (including by facsimile transmission of, or by email with pdf attachments of, signature pages hereto), each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same agreement.  A set of the copies of this Second Amendment signed by all the parties shall be lodged with the Borrower and the Administrative Agent.
SECTION 5.   Severability.

Any provision of this Second Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
SECTION 6.   GOVERNING LAW.
THIS SECOND AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF).
SECTION 7.   WAIVERS OF JURY TRIAL.
EACH PARTY TO THIS SECOND AMENDMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING HEREUNDER OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS SECOND AMENDMENT, OR THE TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS SECOND AMENDMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.  
[Remainder of Page Intentionally Left Blank; Signature Pages Follow]

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

INTL COMMODITIES, INC.

By:    /s/    Bruce Fields        
Name:    Bruce Fields
Title:    Chief Operating Officer

By:    /s/    Steven Springer    
Name:    Steven Springer
Title:    Chief Financial Officer

BNP PARIBAS,
as Administrative Agent, an Issuing Bank, Swing Line Lender and a Lender

By:    /s/    Deborah P. Whittle    
Name:    Deborah P. Whittle
Title:    Director

By:    /s/    William B. Murray    
Name:    William B. Murray
Title:    Managing Director

Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland”, New York Branch, as a Lender

By:    /s/    Brett Delfino        
Name:    Brett Delfino
Title:    Executive Director

By:    /s/    Tracey Duffy        
Name:    Tracey Duffy
Title:    Vice President

ABN AMRO CAPITAL USA LLC (as successor to ABN AMRO BANK N.V. by assignment), as an Issuing Bank and a Lender

By:    /s/    Boris Kwantes        
Name:    Boris Kwantes
Title:    Managing Director

By:    /s/    Stacey Judd        
Name:    Stacey Judd
Title:    Director

MIZUHO CORPORATE BANK, LTD.,
as a Lender

By:    /s/    Kenji Yoshioka    
Name:    Kenji Yoshioka
Title:    Deputy General Manager

ACKNOWLEDGED AND AGREED:

ABN AMRO BANK N.V.

By:    /s/  P.H.L.M.  Ingen Housz    
Name:    P.H.L.M. Ingen Housz
Title:    Managing Director

By:    /s/    J.G. Cregten        
Name:    J.G. Cregten
Title:frzt_ex101.htm

EXHIBIT 10.1

 

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of September 16, 2011, by and between FREEZE TAG, INC., a Delaware corporation, with headquarters located at 228 West Main Street - 2nd Floor, Tustin, CA 92780 (the “Company”), and ASHER ENTERPRISES, INC., a Delaware corporation, with its address at 1 Linden Place, Suite 207, Great Neck, NY 11021 (the “Buyer”).

WHEREAS:

A. The Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the rules and regulations as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933 Act”);

B. Buyer desires to purchase and the Company desires to issue and sell, upon the terms and conditions set forth in this Agreement an 8% convertible note of the Company, in the form attached hereto as Exhibit A, in the aggregate principal amount of $40,000.00 (together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof, the “Note”), convertible into shares of common stock, $0.001 par value per share, of the Company (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in such Note.

C. The Buyer wishes to purchase, upon the terms and conditions stated in this Agreement, such principal amount of Note as is set forth immediately below its name on the signature pages hereto; and

NOW THEREFORE, the Company and the Buyer severally (and not jointly) hereby agree as follows:

1. Purchase and Sale of Note.

a. Purchase of Note.  On the Closing Date (as defined below), the Company shall issue and sell to the Buyer and the Buyer agrees to purchase from the Company such principal amount of Note as is set forth immediately below the Buyer’s name on the signature pages hereto.

b. Form of Payment.  On the Closing Date (as defined below), (i) the Buyer shall pay the purchase price for the Note to be issued and sold to it at the Closing (as defined below) (the “Purchase Price”) by wire transfer of immediately available funds to the Company, in accordance with the Company’s written wiring instructions, against delivery of the Note in the principal amount equal to the Purchase Price as is set forth immediately below the Buyer’s name on the signature pages hereto, and (ii) the Company shall deliver such duly executed Note on behalf of the Company, to the Buyer, against delivery of such Purchase Price.

 

  

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c. Closing Date.  Subject to the satisfaction (or written waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the date and time of the issuance and sale of the Note pursuant to this Agreement (the “Closing Date”) shall be 12:00 noon, Eastern Standard Time on or about September 16, 2011, or such other mutually agreed upon time.  The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on the Closing Date at such location as may be agreed to by the parties.

2. Buyer’s Representations and Warranties.  The Buyer represents and warrants to the Company that:

a. Investment Purpose.  As of the date hereof, the Buyer is purchasing the Note and the shares of Common Stock issuable upon conversion of or otherwise pursuant to the Note (including, without limitation, such additional shares of Common Stock, if any, as are issuable (i) on account of interest on the Note, (ii) as a result of the events described in Sections 1.3 and 1.4(g) of the Note or (iii) in payment of the Standard Liquidated Damages Amount (as defined in Section 2(f) below) pursuant to this Agreement, such shares of Common Stock being collectively referred to herein as the “Conversion Shares” and, collectively with the Note, the “Securities”) for its own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the 1933 Act; provided, however, that by making the representations herein, the Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.

b. Accredited Investor Status.  The Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D (an “Accredited Investor”).

c. Reliance on Exemptions.  The Buyer understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities.

d. Information.  The Buyer and its advisors, if any, have been, and for so long as the Note remain outstanding will continue to be, furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer or its advisors.  The Buyer and its advisors, if any, have been, and for so long as the Note remain outstanding will continue to be, afforded the opportunity to ask questions of the Company.  Notwithstanding the foregoing, the Company has not disclosed to the Buyer any material nonpublic information and will not disclose such information unless such information is disclosed to the public prior to or promptly following such disclosure to the Buyer.  Neither such inquiries nor any other due diligence investigation conducted by Buyer or any of its advisors or representatives shall modify, amend or affect Buyer’s right to rely on the Company’s representations and warranties contained in Section 3 below.  The Buyer understands that its investment in the Securities involves a significant degree of risk. The Buyer is not aware of any facts that may constitute a breach of any of the Company's representations and warranties made herein.

 

  

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e. Governmental Review.  The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.

f. Transfer or Re-sale.  The Buyer understands that (i) the sale or re-sale of the Securities has not been and is not being registered under the 1933 Act or any applicable state securities laws, and the Securities may not be transferred unless (a) the Securities are sold pursuant to an effective registration statement under the 1933 Act, (b) the Buyer shall have delivered to the Company, at the cost of the Buyer, an opinion of counsel that shall be in form of the Form of Opinion attached as Exhibit B to the Note,  to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, which opinion shall be accepted by the Company, (c) the Securities are sold or transferred to an “affiliate” (as defined in Rule 144 promulgated under the 1933 Act (or a successor rule) (“Rule 144”)) of the Buyer who agrees to sell or otherwise transfer the Securities only in accordance with this Section 2(f) and who is an Accredited Investor, (d) the Securities are sold pursuant to Rule 144, or (e) the Securities are sold pursuant to Regulation S under the 1933 Act (or a successor rule) (“Regulation S”), and the Buyer shall have delivered to the Company, at the cost of the Buyer, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in corporate transactions, which opinion shall be accepted by the Company; (ii) any sale of such Securities made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any re-sale of such Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder (in each case).  Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged as collateral in connection with a bonafide margin account or other lending arrangement.

g. Legends.  The Buyer understands that the Note and, until such time as the Conversion Shares have been registered under the 1933 Act or may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Conversion Shares may bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such Securities):

 

  

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“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which it is stamped, if, unless otherwise required by applicable state securities laws, (a) such Security is registered for sale under an effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) such holder provides the Company with an opinion of counsel, in the form of the Form of Opinion attached as Exhibit B to the Note, , to the effect that a public sale or transfer of such Security may be made without registration under the 1933 Act, which opinion shall be accepted by the Company so that the sale or transfer is effected.  The Buyer agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

h. Authorization; Enforcement. This Agreement has been duly and validly authorized.  This Agreement has been duly executed and delivered on behalf of the Buyer, and this Agreement constitutes a valid and binding agreement of the Buyer enforceable in accordance with its terms.

i. Residency.  The Buyer is a resident of the jurisdiction set forth immediately below the Buyer’s name on the signature pages hereto.

 

  

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3. Representations and Warranties of the Company.  The Company represents and warrants to the Buyer that:

a. Organization and Qualification.  The Company  is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted.    The Company is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such qualification necessary except where the failure to be so qualified or in good standing would not have a Material Adverse Effect.  “Material Adverse Effect” means any material adverse effect on the business, operations, assets, or financial condition of the Company  taken as a whole, or on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith.  “Subsidiaries” means any corporation or other organization, whether incorporated or unincorporated, in which the Company owns, directly or indirectly, any equity or other ownership interest.  The Company has no Subsidiaries.

b. Authorization; Enforcement.  (i) The Company has all requisite corporate power and authority to enter into and perform this Agreement, the Note and to consummate the transactions contemplated hereby and thereby and to issue the Securities, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Note by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Note and the issuance and reservation for issuance of the Conversion Shares issuable upon conversion or exercise thereof) have been duly authorized by the Company’s Board of Directors and no further consent or authorization of the Company, its Board of Directors, or its shareholders is required, (iii) this Agreement has been duly executed and delivered by the Company by its authorized representative, and such authorized representative is the true and official representative with authority to sign this Agreement and the other documents executed in connection herewith and bind the Company accordingly, and (iv) this Agreement constitutes, and upon execution and delivery by the Company of the Note, each of such instruments will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms.

 

  

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c. Capitalization.  As of the date hereof, the authorized capital stock of the Company consists of: (i) 100,000,000 shares of Common Stock, $0.001 par value per share, of which 39,038,720 shares are issued and outstanding; and (ii) 10,000,000 shares of Preferred Stock, $0.001 par value per share, of which no shares are issued and outstanding; other than as set forth in Schedule 3(c) no shares are reserved for issuance pursuant to the Company’s stock option plans, no shares are reserved for issuance pursuant to securities (other than the Note and a prior convertible promissory note in favor of the Buyer dated July 21, 2011 in the amount of $62,500 for which 1,298,701 shares of Common Stock are presently reserved) exercisable for, or convertible into or exchangeable for shares of Common Stock and 2,142,000 shares are reserved for issuance upon conversion of the Note.  All of such outstanding shares of capital stock are, or upon issuance will be, duly authorized, validly issued, fully paid and non-assessable.  No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the shareholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company.  As of the effective date of this Agreement, other than as set forth herein (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, (ii) other than piggyback registration rights there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its or their securities under the 1933 Act and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of the Note or the Conversion Shares.  The Company has furnished to the Buyer true and correct copies of the Company’s Certificate of Incorporation as in effect on the date hereof (“Certificate of Incorporation”), the Company’s By-laws, as in effect on the date hereof (the “By-laws”), and the terms of all securities convertible into or exercisable for Common Stock of the Company and the material rights of the holders thereof in respect thereto.  The Company shall provide the Buyer with a written update of this representation signed by the Company’s Chief Executive on behalf of the Company as of the Closing Date.

d. Issuance of Shares.  The Conversion Shares are duly authorized and reserved for issuance and, upon conversion of the Note in accordance with its respective terms, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Company and will not impose personal liability upon the holder thereof.

e. Acknowledgment of Dilution.  The Company understands and acknowledges the potentially dilutive effect to the Common Stock upon the issuance of the Conversion Shares upon conversion of the Note.  The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Note in accordance with this Agreement, the Note is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.

 

  

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f. No Conflicts.  The execution, delivery and performance of this Agreement, the Note by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance of the Conversion Shares) will not (i) conflict with or result in a violation of any provision of the Certificate of Incorporation or By-laws, or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture, patent, patent license or instrument to which the Company or any of its Subsidiaries is a party, or (iii)  result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company or its securities are subject) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect).  Neither the Company nor any of its Subsidiaries is in violation of its Certificate of Incorporation, By-laws or other organizational documents and neither the Company nor any of its Subsidiaries is in default (and no event has occurred which with notice or lapse of time or both could put the Company or any of its Subsidiaries in default) under, and neither the Company nor any of its Subsidiaries has taken any action or failed to take any action that would give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party or by which any property or assets of the Company or any of its Subsidiaries is bound or affected, except for possible defaults as would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its Subsidiaries, if any, are not being conducted, and shall not be conducted so long as the Buyer owns any of the Securities, in violation of any law, ordinance or regulation of any governmental entity.  Except as specifically contemplated by this Agreement and as required under the 1933 Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency, regulatory agency, self regulatory organization or stock market or any third party in order for it to execute, deliver or perform any of its obligations under this Agreement, the Note in accordance with the terms hereof or thereof or to issue and sell the Note in accordance with the terms hereof and to issue the Conversion Shares upon conversion of the Note.  All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof.  The Company is not in violation of the listing requirements of the Over-the-Counter Bulletin Board (the “OTCBB”) and does not reasonably anticipate that the Common Stock will be delisted by the OTCBB in the foreseeable future.  The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.

g. SEC Documents; Financial Statements.  The Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein, being hereinafter referred to herein as the “SEC Documents”).  Upon written request the Company will deliver to the Buyer true and complete copies of the SEC Documents, except for such exhibits and incorporated documents.  As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings prior the date hereof).  As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto.  Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved  and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).  Except as set forth in the financial statements of the Company included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to June 30, 2011, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. The Company is subject to the reporting requirements of the 1934 Act.

 

  

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h. Absence of Certain Changes.  Since June 30, 2011, there has been no material adverse change and no material adverse development in the assets, liabilities, business, properties, operations, financial condition, results of operations, or 1934 Act reporting status of the Company or any of its Subsidiaries.

i. Absence of Litigation.  There is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company or any of its Subsidiaries, or their officers or directors in their capacity as such, that could have a Material Adverse Effect.  Schedule 3(i) contains a complete list and summary description of any pending or, to the knowledge of the Company, threatened proceeding against or affecting the Company or any of its Subsidiaries, without regard to whether it would have a Material Adverse Effect.  The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.

j. Patents, Copyrights, etc.  The Company and each of its Subsidiaries owns or possesses the requisite licenses or rights to use all patents, patent applications, patent rights, inventions, know-how, trade secrets, trademarks, trademark applications, service marks, service names, trade names and copyrights (“Intellectual Property”) necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); there is no claim or action by any person pertaining to, or proceeding pending, or to the Company’s knowledge threatened, which challenges the right of the Company or of a Subsidiary with respect to any Intellectual Property necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); to the best of the Company’s knowledge, the Company’s or its Subsidiaries’ current and intended products, services and processes do not infringe on any Intellectual Property or other rights held by any person; and the Company is unaware of any facts or circumstances which might give rise to any of the foregoing.  The Company and each of its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of their Intellectual Property.

k. No Materially Adverse Contracts, Etc.  Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect.  Neither the Company nor any of its Subsidiaries is a party to any contract or agreement which in the judgment of the Company’s officers has or is expected to have a Material Adverse Effect.

 

  

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l. Tax Status.  The Company and each of its Subsidiaries has made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply.  There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.  The Company has not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, state or local tax.  None of the Company’s tax returns is presently being audited by any taxing authority.

m. Certain Transactions.  Except for arm’s length transactions pursuant to which the Company or any of its Subsidiaries makes payments in the ordinary course of business upon terms no less favorable than the Company or any of its Subsidiaries could obtain from third parties and other than the grant of stock options and the convertible note disclosed on Schedule 3(c), none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

n. Disclosure.  All information relating to or concerning the Company or any of its Subsidiaries set forth in this Agreement and provided to the Buyer pursuant to Section 2(d) hereof and otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading.  No event or circumstance has occurred or exists with respect to the Company or any of its Subsidiaries or its or their business, properties,  operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed.

 

  

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o. Acknowledgment Regarding Buyer’ Purchase of Securities.  The Company acknowledges and agrees that the Buyer is acting solely in the capacity of arm’s length purchasers with respect to this Agreement and the transactions contemplated hereby.  The Company further acknowledges that the Buyer 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 statement made by the Buyer or any of its respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely incidental to the Buyer’ purchase of the Securities.  The Company further represents to the Buyer that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the Company and its representatives.

p. No Integrated Offering.  Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales in any security or solicited any offers to buy any security under circumstances that would require registration under the 1933 Act of the issuance of the Securities to the Buyer.  The issuance of the Securities to the Buyer will not be integrated with any other issuance of the Company’s securities (past, current or future) for purposes of any shareholder approval provisions applicable to the Company or its securities.

q. No Brokers.  The Company has taken no action which would give rise to any claim by any person for brokerage commissions, transaction fees or similar payments relating to this Agreement or the transactions contemplated hereby.

r. Permits; Compliance.  The Company and each of its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the “Company Permits”), and there is no action pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits.  Neither the Company nor any of its Subsidiaries is in conflict with, or in default or violation of, any of the Company Permits, except for any such conflicts, defaults or violations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.  Since June 30, 2011, neither the Company nor any of its Subsidiaries has received any notification with respect to possible conflicts, defaults or violations of applicable laws, except for notices relating to possible conflicts, defaults or violations, which conflicts, defaults or violations would not have a Material Adverse Effect.

s. Environmental Matters.

(i) There are, to the Company’s knowledge, with respect to the Company or any of its Subsidiaries or any predecessor of the Company, no past or present violations of Environmental Laws (as defined below), releases of any material into the environment, actions, activities, circumstances, conditions, events, incidents, or contractual obligations which may give rise to any common law environmental liability or any liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 or similar federal, state, local or foreign laws and neither the Company nor any of its Subsidiaries has received any notice with respect to any of the foregoing, nor is any action pending or, to the Company’s knowledge, threatened in connection with any of the foregoing.  The term “Environmental Laws” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.

 

  

10

  

(ii) Other than those that are or were stored, used or disposed of in compliance with applicable law, no Hazardous Materials are contained on or about any real property currently owned, leased or used by the Company or any of its Subsidiaries, and no Hazardous Materials were released on or about any real property previously owned, leased or used by the Company or any of its Subsidiaries during the period the property was owned, leased or used by the Company or any of its Subsidiaries, except in the normal course of the Company’s or any of its Subsidiaries’ business.

 

(iii) There are no underground storage tanks on or under any real property owned, leased or used by the Company or any of its Subsidiaries that are not in compliance with applicable law.

 

t. Title to Property.  The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in Schedule 3(t) or such as would not have a Material Adverse Effect.  Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as would not have a Material Adverse Effect.

u. Insurance.  The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged.  Neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect.  Upon written request the Company will provide to the Buyer true and correct copies of all policies relating to directors’ and officers’ liability coverage, errors and omissions coverage, and commercial general liability coverage.

v. Internal Accounting Controls.  The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient, in the judgment of the Company’s board of directors, to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

 

  

11

  

w. Foreign Corrupt Practices.  Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any Subsidiary has, in the course of his actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

x. Solvency.  The Company (after giving effect to the transactions contemplated by this Agreement) is solvent (i.e., its assets have a fair market value in excess of the amount required to pay its probable liabilities on its existing debts as they become absolute and matured) and currently the Company has no information that would lead it to reasonably conclude that the Company would not, after giving effect to the transaction contemplated by this Agreement, have the ability to, nor does it intend to take any action that would impair its ability to, pay its debts from time to time incurred in connection therewith as such debts mature.  The Company did not receive a qualified opinion from its auditors with respect to its most recent fiscal year end and, after giving effect to the transactions contemplated by this Agreement, does not anticipate or know of any basis upon which its auditors might issue a qualified opinion in respect of its current fiscal year.

y. No Investment Company.  The Company is not, and upon the issuance and sale of the Securities as contemplated by this Agreement will not be an “investment company” required to be registered under the Investment Company Act of 1940 (an “Investment Company”).  The Company is not controlled by an Investment Company.

z. Breach of Representations and Warranties by the Company.  If the Company breaches any of the representations or warranties set forth in this Section 3, and in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an Event of default under Section 3.4 of the Note.

4. COVENANTS.

a. Best Efforts.  The parties shall use their best efforts to satisfy timely each of the conditions described in Section 6 and 7 of this Agreement.

b. Form D; Blue Sky Laws.  The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to the Buyer promptly after such filing.  The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to the Buyer at the applicable closing pursuant to this Agreement under applicable securities or “blue sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Buyer on or prior to the Closing Date.

 

  

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c. Use of Proceeds.  The Company shall use the proceeds for general working capital purposes.

d. Right of First Refusal.  Unless it shall have first delivered to the Buyer, at least seventy two (72) hours prior to the closing of such Future Offering (as defined herein), written notice describing the proposed Future Offering, including the terms and conditions thereof and proposed definitive documentation to be entered into in connection therewith, and providing the Buyer an option during the seventy two (72) hour period following delivery of such notice to purchase the securities being offered in the Future Offering on the same terms as contemplated by such Future Offering (the limitations referred to in this sentence and the preceding sentence are collectively referred to as the “Right of First Refusal”) (and subject to the exceptions described below), the Company will not conduct any equity financing (including debt with an equity component) (“Future Offerings”) during the period beginning on the Closing Date and ending twelve (12) months following the Closing Date.  In the event the terms and conditions of a proposed Future Offering are amended in any respect after delivery of the notice to the Buyer concerning the proposed Future Offering, the Company shall deliver a new notice to the Buyer describing the amended terms and conditions of the proposed Future Offering and the Buyer thereafter shall have an option during the seventy two (72) hour period following delivery of such new notice to purchase its pro rata share of the securities being offered on the same terms as contemplated by such proposed Future Offering, as amended.  The foregoing sentence shall apply to successive amendments to the terms and conditions of any proposed Future Offering.  The Right of First Refusal shall not apply to any transaction involving (i) issuances of securities in a firm commitment underwritten public offering (excluding a continuous offering pursuant to Rule 415 under the 1933 Act) or (ii) issuances of securities as consideration for a merger, consolidation or purchase of assets, or in connection with any strategic partnership or joint venture (the primary purpose of which is not to raise equity capital), or in connection with the disposition or acquisition of a business, product or license by the Company.  The Right of First Refusal also shall not apply to the issuance of securities upon exercise or conversion of the Company’s options, warrants or other convertible securities outstanding as of the date hereof or to the grant of additional options or warrants, or the issuance of additional securities, under any Company stock option or restricted stock plan approved by the shareholders of the Company.  The Right of First Refusal also shall not apply to any Future offerings that are in excess of $100,000 or any Future Offerings as a result of the Company's Private Placement memorandum dated June 6, 2011.

e. Expenses.  At the Closing, the Company shall reimburse Buyer for expenses incurred by them in connection with the negotiation, preparation, execution, delivery and performance of this Agreement and the other agreements to be executed in connection herewith (“Documents”), including, without limitation, reasonable attorneys’ and consultants’ fees and expenses, transfer agent fees, fees for stock quotation services, fees relating to any amendments or modifications of the Documents or any consents or waivers of provisions in the Documents, fees for the preparation of opinions of counsel, escrow fees, and costs of restructuring the transactions contemplated by the Documents.  When possible, the Company must pay these fees directly, otherwise the Company must make immediate payment for reimbursement to the Buyer for all fees and expenses immediately upon written notice by the Buyer or the submission of an invoice by the Buyer. The Company’s obligation with respect to this transaction to reimburse Buyer’ expenses shall be $2,500.

f. Financial Information.  Upon written request the Company agrees to send or make available the following reports to the Buyer until the Buyer transfers, assigns, or sells all of the Securities: (i) within ten (10) days after the filing with the SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K; (ii) within one (1) day after release, copies of all press releases issued by the Company or any of its Subsidiaries; and (iii) contemporaneously with the making available or giving to the shareholders of the Company, copies of any notices or other information the Company makes available or gives to such shareholders.

 

  

13

  

g. [INTENTIONALLY DELETED]

h. Listing.  The Company shall promptly secure the listing of the Conversion Shares upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and, so long as the Buyer owns any of the Securities, shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Conversion Shares from time to time issuable upon conversion of the Note.  The Company will obtain and, so long as the Buyer owns any of the Securities, maintain the listing and trading of its Common Stock on the OTCBB or any equivalent replacement exchange, the OTCQB tier maintained by OTC Markets Group, Inc. (“OTCQB”), the Nasdaq National Market (“Nasdaq”), the Nasdaq SmallCap Market (“Nasdaq SmallCap”), the New York Stock Exchange (“NYSE”), or the American Stock Exchange (“AMEX”) and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Financial Industry Regulatory Authority (“FINRA”) and such exchanges, as applicable.  The Company shall promptly provide to the Buyer copies of any notices it receives from the OTCBB and any other exchanges or quotation systems on which the Common Stock is then listed regarding the continued eligibility of the Common Stock for listing on such exchanges and quotation systems.

i. Corporate Existence.  So long as the Buyer beneficially owns any Note, the Company shall maintain its corporate existence and shall not sell all or substantially all of the Company’s assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company’s assets, where the surviving or successor entity in such transaction (i) assumes the Company’s obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) is a publicly traded corporation whose Common Stock is listed for trading on the OTCBB, OTCQB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.

j. No Integration.  The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold hereunder under the 1933 Act or cause the offering of the Securities to be integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision applicable to the Company or its securities.

k. Breach of Covenants.  If the Company breaches any of the covenants set forth in this Section 4, and in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an event of default under Section 3.4 of the Note.

l. Failure to Comply with the 1934 Act.  So long as the Buyer beneficially owns the Note, the Company shall comply with the reporting requirements of the 1934 Act; and the Company shall continue to be subject to the reporting requirements of the 1934 Act.

m. Trading Activities.  Neither the Buyer nor its affiliates has an open short position in the common stock of the Company and the Buyer agrees that it shall not, and that it will cause its affiliates not to, engage in any short sales of or hedging transactions with respect to the common stock of the Company.

 

  

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5. Transfer Agent Instructions.  The Company shall issue irrevocable instructions to its transfer agent to issue certificates, registered in the name of the Buyer or its nominee, for the Conversion Shares in such amounts as specified from time to time by the Buyer to the Company upon conversion of the Note in accordance with the terms thereof (the “Irrevocable Transfer Agent Instructions”).  In the event that the Borrower proposes to replace its transfer agent, the Borrower shall provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower. Prior to registration of the Conversion Shares under the 1933 Act or the date on which the Conversion Shares may be sold pursuant to Rule 144 without any restriction as to the number of Securities as of a particular date that can then be immediately sold, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement.  The Company warrants that: (i) no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop transfer instructions to give effect to Section 2(f) hereof (in the case of the Conversion Shares, prior to registration of the Conversion Shares under the 1933 Act or the date on which the Conversion Shares may be sold pursuant to Rule 144 without any restriction as to the number of Securities as of a particular date that can then be immediately sold), will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Note; (ii) it will not direct its transfer agent not to transfer or delay, impair, and/or hinder its transfer agent in transferring (or issuing)(electronically or in certificated form) any certificate for Conversion Shares to be issued to the Buyer upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement; and (iii) it will not fail to remove (or direct its transfer agent not to remove or impairs, delays, and/or hinder its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any Conversion Shares issued to the Buyer upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement.  Nothing in this Section shall affect in any way the Buyer’s obligations and agreement set forth in Section 2(g) hereof to comply with all applicable prospectus delivery requirements, if any, upon re-sale of the Securities.  If the Buyer provides the Company, at the cost of the Buyer, with (i) an opinion of counsel in form, substance and scope customary for opinions in comparable transactions, to the effect that a public sale or transfer of such Securities may be made without registration under the 1933 Act and such sale or transfer is effected or (ii) the Buyer provides reasonable assurances that the Securities can be sold pursuant to Rule 144, the Company shall permit the transfer, and, in the case of the Conversion Shares, promptly instruct its transfer agent to issue one or more certificates, free from restrictive legend, in such name and in such denominations as specified by the Buyer.  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer, by vitiating the intent and purpose of the transactions contemplated hereby.  Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 may be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section, that the Buyer shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate transfer, without the necessity of showing economic loss and without any bond or other security being required.

 

  

15

  

6. Conditions to the Company’s Obligation to Sell.  The obligation of the Company hereunder to issue and sell the Note to the Buyer at the Closing is subject to the satisfaction, at or before the Closing Date of each of the following conditions thereto, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:

a. The Buyer shall have executed this Agreement and delivered the same to the Company.

b. The Buyer shall have delivered the Purchase Price in accordance with Section 1(b) above.

c. The representations and warranties of the Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and the Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer at or prior to the Closing Date.

d. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.

7. Conditions to The Buyer’s Obligation to Purchase.  The obligation of the Buyer hereunder to purchase the Note at the Closing is subject to the satisfaction, at or before the Closing Date of each of the following conditions, provided that these conditions are for the Buyer’s sole benefit and may be waived by the Buyer at any time in its sole discretion:

a. The Company shall have executed this Agreement and delivered the same to the Buyer.

b. The Company shall have delivered to the Buyer the duly executed Note (in such denominations as the Buyer shall request) in accordance with Section 1(b) above.

c. The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to the Buyer, shall have been delivered to and acknowledged in writing by the Company’s Transfer Agent.

 

  

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d. The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at such time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date.  The Buyer shall have received a certificate or certificates, executed by the chief executive officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by the Buyer including, but not limited to certificates with respect to the Company’s Certificate of Incorporation, By-laws and Board of Directors’ resolutions relating to the transactions contemplated hereby.

e. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.

f. No event shall have occurred which could reasonably be expected to have a Material Adverse Effect on the Company including but not limited to a change in the 1934 Act reporting status of the Company or the failure of the Company to be timely in its 1934 Act reporting obligations.

g. The Conversion Shares shall have been authorized for quotation on the OTCBB and trading in the Common Stock on the OTCBB shall not have been suspended by the SEC or the OTCBB.

h. The Buyer shall have received an officer’s certificate described in Section 3(c) above, dated as of the Closing Date.

 

  

17

  

 

8. Governing Law; Miscellaneous.

a. Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws.  Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state and county of Nassau.  The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens.  The Company and Buyer waive trial by jury.  The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs.  In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement.   Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

b. Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party.

 

c. Headings.  The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement.

d. Severability.  In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.

e. Entire Agreement; Amendments.  This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Buyer makes any representation, warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the majority in interest of the Buyer.

 

  

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f. 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:

If to the Company, to:

FREEZE TAG, INC.

228 West Main Street - 2nd Floor

Tustin, CA 92780

Attn: CRAIG HOLLAND, Chief Executive Officer

facsimile: (714) 210-3851

With a copy by fax only to (which copy shall not constitute notice):

The Lebrecht Group, APLC

Attn: Brian A. Lebrecht, Esq.

9900 Research Drive

Irvine, CA  92618

facsimile: (949) 635-1244]

                   If to the Buyer:

ASHER ENTERPRISES, INC.

1 Linden Pl., Suite 207

Great Neck, NY. 11021

Attn: Curt Kramer, President

facsimile: 516-498-9894

With a copy by fax only to (which copy shall not constitute notice):

Naidich Wurman Birnbaum & Maday LLP

80 Cuttermill Road, Suite 410

Great Neck, NY 11021

Attn: Bernard S. Feldman, Esq.

facsimile: 516-466-3555

Each party shall provide notice to the other party of any change in address.

 

  

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g. Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns.  Neither the Company nor the Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other.  Notwithstanding the foregoing, subject to Section 2(f), the Buyer may assign its rights hereunder to any person that purchases Securities in a private transaction from the Buyer or to any of its “affiliates,” as that term is defined under the 1934 Act, without the consent of the Company.

h. Third Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

i. Survival.  The representations and warranties of the Company and the agreements and covenants set forth in this Agreement shall survive the closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of the Buyer.  The Company agrees to indemnify and hold harmless the Buyer and all their officers, directors, employees and agents for loss or damage arising as a result of or related to any breach or alleged breach by the Company of any of its representations, warranties and covenants set forth in this Agreement or any of its covenants and obligations under this Agreement, including advancement of expenses as they are incurred.

j. Publicity.  The Company, and the Buyer shall have the right to review a reasonable period of time before issuance of any press releases, with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of the Buyer, to make any press release with respect to such transactions as is required by applicable law and regulations (although the Buyer shall be consulted by the Company in connection with any such press release prior to its release and shall be provided with a copy thereof and be given an opportunity to comment thereon).

k. Further Assurances.  Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

l. No Strict Construction.  The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

m. Remedies.  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby.  Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Agreement will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement, that the Buyer shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Agreement and to enforce specifically the terms and provisions hereof, without the necessity of showing economic loss and without any bond or other security being required.

 

  

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IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this Agreement to be duly executed as of the date first above written.

FREEZE TAG, INC.

By:    /s/ Craig Holland                                                

CRAIG HOLLAND

Chief Executive Officer

ASHER ENTERPRISES, INC.

By:    /s/ Curt Kramer                                                  

Name: Curt Kramer

Title:   President

1 Linden Pl., Suite 207

Great Neck, NY. 11021

AGGREGATE SUBSCRIPTION AMOUNT:

Aggregate Principal Amount of Note:                                                                                                           $40,000.00

Aggregate Purchase Price:                                                                                                                              $40,000.00

 

  

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Disclosure Schedules

to

Securities Purchase Agreement

dated July 21, 2011

Schedule 3(c)

The Company has outstanding options to acquire 560,000 shares of common stock, at a weighted average exercise price of $0.10 per share, pursuant to the Freeze Tag, Inc. 2006 Stock Plan.  The Plan is authorized to issue an aggregate of 1,512,650 shares.

On July 1, 2010, the Company issued a $100,000 principal amount, 10% convertible promissory note the principal and interest of which is convertible at $0.10 per share.

Schedule 3(i)

None.

Schedule 3(t)

None.

  

22

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