Document:

konaredexh10_4.htm

 Exhibit 10.4

 

 

EXECUTION COPY

 

 

REGISTRATION RIGHTS AGREEMENT, dated as of January 28, 2014 (this “Agreement”), by and between KonaRed Corporation, a Nevada corporation (the “Company”), and VDF FutureCeuticals, Inc., an Illinois corporation (the “Investor”).

 

WHEREAS, pursuant to the Settlement Agreement, dated as of January 28, 2014, by and between the Company and the Investor (the “Settlement Agreement”), and the License Agreement, dated as of January 28, 2014, by and between the Company and the Investor (the “License Agreement”), upon the terms and subject to the conditions contained therein, the Company is issuing to the Investor a Senior Secured Convertible Note of the Company, dated as of January 28, 2014 (the “Convertible Note”), and a Warrant to purchase shares of Common Stock (the “Warrant”).

 

WHEREAS, as a condition to the Investor consummating the transactions contemplated by the Settlement Agreement and the License Agreement, the Company has agreed to provide the Investor with the rights set forth in this Agreement.

 

Accordingly, the parties hereto agree as follows:

 

SECTION 1.  Definitions.  As used herein, unless the context otherwise requires, the following terms have the following respective meanings:

 

1.1.           “Affiliate” means with respect to any Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person.

 

1.2.           “Agreement” has the meaning set forth in the introduction.

 

1.3.           “Assignee” has the meaning set forth in Section 4.2.

 

1.4.           “Board of Directors” means the board of directors of the Company.

 

1.5.           “Common Stock” means any shares of common stock, par value $0.001 per share, of the Company, now or hereafter authorized to be issued, and any and all securities of any kind whatsoever of the Company or any successor thereof which may be issued on or after the date hereof in respect of, in exchange for, or upon conversion of shares of Common Stock pursuant to a merger, consolidation, stock split, reverse split, stock dividend, recapitalization of the Company or otherwise.

 

1.6.           “Company” has the meaning set forth in the introduction and includes any successor thereto by merger, consolidation or otherwise.

 

1.7.           “Convertible Note” has the meaning set forth in the recitals.

 

1.8.           “Convertible Securities” shall mean (i) any options or warrants to purchase or other rights to acquire Common Stock, (ii) any securities by their terms convertible into or exchangeable for Common Stock, and (iii) any options or warrants to purchase or other rights to acquire any such convertible or exchangeable securities.

 

 

  

  

  

 

 

1.9.           “Demand Exercise Notice” has the meaning set forth in Section 2.1(a).

 

1.10.         “Demand Registration” has the meaning set forth in Section 2.1(g).

 

1.11.         “Exchange Act” means the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time.  Reference to a particular section of the Exchange Act, shall include a reference to the comparable section, if any, of any such similar federal statute.

 

1.12.         “FINRA” means Financial Industry Regulatory Authority.

 

1.13.         “Holder” means the Investor and any Assignee.

 

1.14.         “Holder Demand” has the meaning set forth in Section 2.1(a).

 

1.15.         “Indemnified Party” means any Person seeking indemnification pursuant to Section 2.6.

 

1.16.         “Indemnifying Party” means any Person from whom indemnification is sought pursuant to Section 2.6.

 

1.17.         “Indemnitees” has the meaning set forth in Section 2.6(a).

 

1.18.         “Initiating Holder” means the party or parties delivering a Holder Demand as provided for under Section 2.1(a).

 

1.19.         “Investor” has the meaning set forth in the introduction and includes any successor thereto by merger, consolidation or otherwise.

 

1.20.         “License Agreement” has the meaning set forth in the recitals.

 

1.21.         “Lincoln Park” means Lincoln Park Capital Fund, LLC, a Illinois limited liability company or an Affiliate thereof.

 

1.22.         “Losses” has the meaning set forth in Section 2.6(a).

 

1.23.         “Majority Participating Holders” means, at any time, Participating Holders holding more than 50% of the Registrable Securities proposed to be included in any offering of Registrable Securities by such Participating Holders pursuant to Section 2.1 or Section 2.2.

 

1.24.         “Participating Holders” means any Holder participating in any offering of Registrable Securities pursuant to Section 2.1 or Section 2.2.

 

1.25.         “Person” means an individual, a corporation, a partnership, a limited liability company, a business, an association, a trust, an individual, or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

 

1.26.         “Postponement Period” has the meaning set forth in Section 2.1(i).

 

 

  

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1.27.         “Settlement Agreement” has the meaning set forth in the recitals.

 

1.28.         “Qualified Independent Underwriter” has the meaning set forth in FINRA Rule 5121(f)(12).

 

1.29.         “Registrable Securities” means any of the following when held by a Holder: (i) any shares of Common Stock issued upon the conversion of the Convertible Note, (ii) any shares of Common Stock issued upon exercise of the Warrant, and (iii) any shares of Common Stock acquired by the Holders from the Company after the date hereof upon exercise or conversion of Convertible Securities that are acquired by the Holders from the Company after the date hereof.  For purposes of this Agreement, a Person will be deemed to be a Holder of Registrable Securities whenever such Person has the right to acquire, directly or indirectly, such Registrable Securities (upon conversion, exercise or exchange of the Convertible Note, the Warrant or any other Convertible Securities but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected, and such Person shall not be required to convert, exercise or exchange the Convertible Note, the Warrant or any such Convertible Security (or otherwise acquire such Registrable Security) to participate in any registered offering hereunder until the closing of such offering.  As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (a) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement or (b) when such securities shall have been sold pursuant to Rule 144 under the Securities Act or similar rule then in effect.

 

1.30.         “Registration Expenses” means all fees and expenses incurred in connection with the Company’s performance of or compliance with Section 2 hereof, including, without limitation, (i) all registration, filing and applicable SEC fees, FINRA fees, national securities exchange or inter-dealer quotation system fees, and fees and expenses of complying with state securities or “blue sky” laws (including fees and disbursements of counsel to the underwriters and the Participating Holders in connection with “blue sky” qualification of the Registrable Securities and determination of their eligibility for investment under the laws of the various jurisdictions), (ii) all printing (including, if applicable, printing certificates for the Registrable Securities in a form eligible for deposit with The Depository Trust Company and printing preliminary and final prospectuses), word processing, duplicating, telephone and facsimile expenses, and messenger and delivery expenses, (iii) all fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of “cold comfort” letters or any special audits required by, or incident to, such registration, (iv) all reasonable fees and expenses of any special experts or other Persons retained by the Company in connection with any registration, (v) Securities Act liability insurance or similar insurance if the Company so desires or the underwriters so require in accordance with then-customary underwriting practices, (vi) all applicable rating agency fees with respect to the Registrable Securities, (vii) reasonable fees and expenses of a Qualified Independent Underwriter and its counsel, (viii) all fees and disbursements of the underwriters (other than underwriting discounts and commissions but, including reasonable fees and disbursements of one counsel for such underwriters), (ix) all transfer taxes, and (x) all expenses incurred in connection with promotional efforts or “roadshows” (as negotiated by the Company with the underwriters); provided, however, that Registration Expenses shall exclude, and the Participating Holders shall pay ratably, underwriting discounts and commissions in respect of the Registrable Securities being registered for such Participating Holders.

 

1.31.         “SEC” means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.

 

 

  

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1.32.         “Section 2.2 Sale Amount” has the meaning set forth in Section 2.2(c).

 

1.33.         “Securities Act” means the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time.  References to a particular section of the Securities Act shall include a reference to the comparable section, if any, of any such similar federal statute.

 

1.34.         “Warrant” has the meaning set forth in the recitals.

 

SECTION 2.  Registration Under the Securities Act.

 

2.1.           Registration on Demand.

 

(a)           Demand.  At any time or from time to time, a Holder or Holders holding a majority of Registrable Securities then outstanding may require the Company to use its best efforts to effect the registration under the Securities Act of all or part of their respective Registrable Securities (subject to any limits that may be imposed by the SEC pursuant to Rule 415 under the Securities Act), by delivering a written request (a “Holder Demand”) therefor to the Company specifying the number of shares of Registrable Securities to be registered and the intended method of distribution thereof.  As promptly as practicable, but no later than 10 days after receipt of a Holder Demand, the Company shall give written notice (the “Demand Exercise Notice”) of the Holder Demand to all Holders of Registrable Securities.  Such Holders shall have the option, within 10 days after the receipt of the Demand Exercise Notice, to request, in writing, that the Company include in such registration any Registrable Securities held by such Holder (which request shall specify the maximum number of Registrable Securities intended to be disposed of by such Holder).  The Company shall as expeditiously as possible use its best efforts to effect the registration under the Securities Act of the Registrable Securities which the Company has been so requested to register by the Initiating Holder and any other Holders which have made such written request (subject to any limits that may be imposed by the SEC pursuant to Rule 415 under the Securities Act).  The Company shall use its best efforts (i) to effect as soon as practicable (but, in any event, within 45 days of the receipt of the Holder Demand or, in the event the SEC reviews and has written comments to the registration statement, within 120 days of the receipt of the Holder Demand) the registration of Registrable Securities for distribution in accordance with the intended method of distribution set forth in a written request delivered by the Majority Participating Holders and (ii) if requested by the Majority Participating Holders, obtain acceleration of the effective date of the registration statement relating to such registration.

 

(b)           Registration Statement Form.  Registrations under this Section 2.1 shall be on such appropriate form of the SEC, which the Company is then eligible to use for such purpose (i) as shall be selected by the Company and as shall be reasonably acceptable to the Majority Participating Holders and (ii) as shall permit the disposition of such Registrable Securities in accordance with the intended method or methods of disposition 

 

 

  

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specified in such Participating Holders’ requests for such registration, including, without limitation, a continuous or delayed basis offering pursuant to Rule 415 under the Securities Act to the extent available to the Company.  The Company agrees to include in any such registration statement all information which, in the opinion of counsel to the Participating Holders and counsel to the Company, is necessary or desirable to be included therein.

 

(c)           Expenses.  The Company shall pay, and shall be responsible for, all Registration Expenses in connection with any registration requested pursuant to this Section 2.1.

 

(d)           Effective Registration Statement.  A registration requested pursuant to this Section 2.1 shall not be deemed a Demand Registration (including for purposes of Section 2.1(g)) unless a registration statement with respect thereto has become effective and unless the Participating Holders are able to sell at least 80% of the Registrable Securities requested to be included in such registration; provided, that a registration which is withdrawn at the sole request of the Majority Participating Holders pursuant to Section 2.1(f) will count as a Demand Registration unless (i) the Demand Registration does not become effective because a material adverse change has occurred, or is reasonably likely to occur, in the condition (financial or otherwise), prospects, business, assets or results of operations of the Company and its subsidiaries taken as a whole subsequent to the date of the delivery of the Demand Exercise Notice, (ii) after the Demand Registration has become effective, such registration is interfered with by any stop order, injunction, or other order or requirement of the SEC or other governmental agency or court, (iii) the Demand Registration is withdrawn at the request of the Majority Participating Holders due to the advice of the managing underwriter(s) that the Registrable Securities covered by the registration statement could not be sold in such offering within a price range acceptable to the Majority Participating Holders, (iv) the Demand Registration is withdrawn for any reason at any time during a Postponement Period or within 10 days thereafter or (v) the Participating Holders reimburse the Company for any and all Registration Expenses incurred by the Company in connection with such request for a Demand Registration that was withdrawn or not pursued, in which case the Demand Registration shall not be deemed to have been effected and will not count as a Demand Registration.

 

(e)           Selection of Underwriters.  The underwriters of each underwritten offering of the Registrable Securities pursuant to this Section 2.1 shall be selected by the Majority Participating Holders, which underwriters shall be reasonably acceptable to the Company.

 

(f)           Right to Withdraw.  Any Participating Holder shall have the right to withdraw its request for inclusion of Registrable Securities in any registration statement pursuant to this Section 2.1 at any time prior to the effective date of such registration statement by giving written notice to the Company of its request to withdraw.  Upon receipt of notices from the Majority Participating Holders to such effect, the Company shall cease all efforts to obtain effectiveness of the applicable registration statement, and whether the Initiating Holder’s request for registration pursuant to this Section 2.1 shall be counted as a Demand Registration for purposes of Section 2.1(g) shall be determined in accordance with Section 2.1(d) above.

 

 

  

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(g)           Limitations on Registration on Demand.  The Holders shall be entitled to require the Company to effect, and the Company shall be required to effect, three (3) registrations in the aggregate pursuant to this Section 2.1 (each, a “Demand Registration”): provided, however, that the Company shall not be required to have a registration statement declared effective pursuant to a Demand Registration until at least 90 days after the effective date of any other registration statement filed by the Company pursuant to a previous Demand Registration.

 

(h)           Priority in Registrations on Demand.  If any registration pursuant to a Holder Demand involves an underwritten offering and the managing underwriter(s) of such offering shall inform the Company in writing of its belief that the number of Registrable Securities requested to be included in such registration pursuant to this Section 2.1, when added to the number of any other securities to be offered in such registration, would materially adversely affect such offering, then the Participating Holders shall be entitled to participate on a pro rata basis based on the number of shares of Registrable Securities requested to be included in the offering by each such Participating Holder prior to the inclusion of any securities other than Registrable Securities.

 

(i)           Postponement.  The Company shall be entitled once in any twelve month period to postpone for a reasonable period of time (but not exceeding 60 days) (the “Postponement Period”) the filing of any registration statement required to be prepared and filed by it pursuant to this Section 2.1 if the Company determines, in its reasonable judgment, upon advice of counsel, as authorized by a resolution of the Board of Directors, that such registration and offering would require premature disclosure of any material financing, material corporate reorganization or other material transaction involving the Company, and promptly gives the Participating Holders written notice of such determination, containing, to the extent each such Participating Holder agrees to keep such information confidential in accordance with Regulation FD, a specific statement of the reasons for such postponement and an approximation of the anticipated delay.

 

2.2.           Incidental Registration.

 

(a)           Right to Include Registrable Securities.  If the Company at any time proposes to register any of its equity securities under the Securities Act by registration on Form S-l, S-2 or S-3, or any successor or similar form(s) (except registrations (i) pursuant to Section 2.1, (ii) solely for registration of equity securities in connection with an employee benefit plan (as defined in Rule 405 under the Securities Act) or dividend reinvestment plan or stock option or stock incentive plan on Form S-8 or any successor form thereto, (iii) in connection with any acquisition or merger on Form S-4 or any successor form thereto, or (iv) of the Common Stock issuable to Lincoln Park pursuant to the equity line of credit to be entered into by the Company with Lincoln Park pursuant to the Term Sheet dated as of January 20, 2014 between the Company and Lincoln Park and the Common Stock to be issued to Lincoln Park and no more than one other investor in connection therewith in a bridge financing at $.55 per share for gross proceeds of up to $1 million (the “Lincoln Equity Line”)), whether or not for sale for its own account, it will at each such time give prompt written notice (but in no event less than 30 days prior to the initial filing of a registration statement with respect thereto) to each of the Holders of its intention to do so and such notice shall offer the Holders of such Registrable Securities the opportunity to register under such registration statement such number of Registrable Securities as each such Holder may request in writing.  Upon the written request of any 

 

 

  

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of the Holders (which request shall specify the maximum number of Registrable Securities intended to be disposed of by such Holder), made as promptly as practicable and in any event within 20 days after the receipt of any such notice, the Company shall include in such registration under the Securities Act all Registrable Securities which the Company has been so requested to register by each Holder; provided, however, that if, at any time after giving written notice of its intention to register any equity securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such equity securities, the Company shall give written notice of such determination and its reasons therefor to the Holders and (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from any obligation of the Company to pay the Registration Expenses in connection therewith as provided for in Section 2.2(d)), without prejudice, however, to the rights of the Holders to request that such registration be effected as a registration under Section 2.1 and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registering such other securities.  No registration effected under this Section 2.2 shall relieve the Company of its obligation to effect any registration upon request under Section 2.1.

 

(b)           Right to Withdraw; Option to Participate in Shelf Takedowns.  Any Holder shall have the right to withdraw its request for inclusion of Registrable Securities in any registration statement pursuant to this Section 2.2 at any time prior to the effective date of such registration statement by giving written notice to the Company of its request to withdraw.  In the event that the Holder has requested inclusion of Registrable Securities in a shelf registration, the Holder shall have the right, but not the obligation, to participate in any offering of the Company’s equity securities under such shelf registration.

 

(c)           Priority in Incidental Registrations.  If any registration pursuant to this Section 2.2 involves an underwritten offering and the managing underwriter(s) of such offering shall inform the Company in writing of its belief that the number of Registrable Securities requested to be included in such registration or offering, when added to the number of other equity securities to be offered in such registration or offering, would materially adversely affect such offering, then the Company shall include in such registration or offering, to the extent of the number and type which the Company is so advised can be sold in (or during the time of) such registration or offering without so materially adversely affecting such registration or offering (the “Section 2.2 Sale Amount”), (i) all of the securities proposed by the Company to be sold for its own account; (ii) thereafter, to the extent the Section 2.2 Sale Amount is not exceeded, the Registrable Securities requested by the Participating Holders (provided that if all of the Registrable Securities requested by the Participating Holders may not be included, the Participating Holders shall be entitled to participate on a pro rata basis based on the aggregate number of shares of Registrable Securities requested by the Participating Holders to be registered); and (iii) thereafter, to the extent the Section 2.2 Sale Amount is not exceeded, any other securities of the Company requested to be included by Company stockholders holding other such registration rights on a pro rata basis based on the aggregate number of shares requested by the Participating Holders and the other Company stockholders to be registered; provided, that in any event the Participating Holders of Registrable Securities shall be entitled to register at least 30% of the securities to be included in any such registration.

 

 

  

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(d)           Expenses.  The Company shall pay, and shall be responsible for, all Registration Expenses in connection with any registration requested pursuant to this Section 2.2.

 

(e)           Selection of Underwriters.  The underwriters of each underwritten offering of the Registrable Securities pursuant to this Section 2.2 shall be selected by the Company provided that the Majority Participating Holders shall have the right to select a co-managing underwriter.

 

(f)           Right to Terminate Registration.  The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.2 prior to the effectiveness of such registration, whether or not any Holder has elected to include Registrable Securities in such registration.

 

2.3.           Registration Procedures.

 

(a)           If and whenever the Company is required to effect the registration of any Registrable Securities under the Securities Act pursuant to either Section 2.1 or Section 2.2 hereof, the Company shall use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Company shall act as expeditiously as possible:

 

(i)            use its best efforts to prepare and file with the SEC as soon as practicable (and in the case of a demand pursuant to Section 2.1, within 30 days after receipt by the Company of a Demand Exercise Notice) a registration statement on an appropriate registration form of the SEC for the disposition of such Registrable Securities in accordance with the intended method of disposition thereof which registration statement shall comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the SEC to be filed therewith, and thereafter use its best efforts to cause such registration statement to become and remain effective (A) with respect to an underwritten offering, for a period of at least 90 days or until all shares subject to such registration statement have been sold and (B) with respect to any other registration, until the earlier of (1) the sale of all Registrable Securities thereunder and (2) the 18 month anniversary of the effective date of such shelf registration;

 

(ii)           use its best efforts to prepare and file with the SEC any amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement in accordance with the intended methods of disposition by the Participating Holders set forth in such registration statement for such period as provided for in Section 2.3(a)(i) above;

 

 

  

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(iii)          furnish, without charge, to each Participating Holder and each underwriter such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as the Majority Participating Holders and such underwriters may request (it being understood that the Company consents to the use of such prospectus or any amendment or supplement thereto by each Participating Holder and the underwriters in connection with the offering and sale of the Registrable Securities covered by such prospectus or any amendment or supplement thereto); provided, that the Company shall have no obligation to provide any document pursuant to this clause that is available on the SEC’s EDGAR system;

 

(iv)           use its best efforts (A) to register or qualify all Registrable Securities and other securities covered by such registration statement under such state securities or “blue sky” laws where an exemption is not available and as the Majority Participating Holders or any managing underwriter shall reasonably request, (B) to keep such registration or qualification in effect for so long as such registration statement remains in effect, and (C) to take any and all other actions which may be necessary or advisable to enable the Participating Holders or underwriters to consummate the disposition in such U.S. jurisdictions of the securities to be sold by the Participating Holders or underwriters, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not, but for the requirements of this Section 2.3(a)(iv), be obligated to be so qualified or file a general consent to service of process in any such jurisdiction;

 

(v)            without limiting Section 2.3(a)(iv) above, use its best efforts to cause all Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary in the opinion of counsel to the Company and counsel to the Participating Holders to consummate the disposition of such Registrable Securities;

 

(vi)           to the extent any Participating Holder could be deemed to be an “underwriter” for purposes of Section 11 of the Securities Act in connection with such registration of Registrable Securities, furnish to each Participating Holder and each underwriter a signed counterpart of (A) an opinion of counsel for the Company and (B) a “comfort” letter signed by the independent public accountants who have certified the Company’s financial statements included or incorporated by reference in such registration statement, in each case, addressed to each Participating Holder and each underwriter covering matters with respect to such registration statement (and the prospectus included therein) as such Majority Participating Holders and managing underwriter(s) shall request;

 

(vii)          promptly notify each Participating Holder and each managing underwriter (A) when such registration statement, any pre-effective amendment, the prospectus or any prospectus supplement related thereto or post-effective amendment to such registration statement has been filed, and, with respect to such registration statement or any post-effective amendment, when the same has become effective; (B) of 

 

 

  

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the receipt by the Company of any comments from the SEC or receipt of any request by the SEC for additional information with respect to any registration statement or the prospectus related thereto or any request by the SEC for amending or supplementing the registration statement and the prospectus used in connection therewith; (C) of the issuance by the SEC of any stop order suspending the effectiveness of such registration statement or the initiation of any proceedings for that purpose; (D) of the receipt by the Company of any notification with respect to the suspension of the qualification of any of the Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction or the initiation of any proceeding for such purpose; (E) at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, in the light of the circumstances under which they were made, and in the case of this clause (E), promptly prepare and furnish, at the Company’s expense, to each Participating Holder and each managing underwriter a number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; and (F) at any time when the representations and warranties of the Company contemplated by Section 2.4(a) or (b) hereof cease to be true and correct;

 

(viii)        otherwise comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as practicable, an earnings statement covering the period of at least 12 consecutive months beginning with the first full calendar month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 1l(a) of the Securities Act and Rule 158 promulgated thereunder;

 

(ix)           provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by such registration statement from and after a date not later than the effective date of such registration statement;

 

(x)            use its best efforts to cause all Registrable Securities covered by such registration statement to be listed on the principal securities exchange on which similar securities issued by the Company are then listed (if any), if the listing of such Registrable Securities is then permitted under the rules of such exchange;

 

(xi)           deliver promptly to counsel to the Participating Holders and each, underwriter, if any, participating in the offering of the Registrable Securities, copies of all correspondence between the SEC and the Company, its counsel or auditors and all memoranda relating to discussions with the SEC or its staff with respect to such registration statement;

 

(xii)          use its best efforts to obtain the withdrawal of any order suspending the effectiveness of the registration statement;

 

(xiii)        provide a CUSIP number for all Registrable Securities, no later than the effective date of the registration statement and, to the extent required, provide the applicable transfer agents with printed certificates for the Registrable Securities which are in a form eligible for deposit with The Depository Trust Company;

 

 

  

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(xiv)         cause its officers and employees to participate in, and to otherwise facilitate and cooperate with the preparation of the registration statement and prospectus and any amendments or supplements thereto (including participating in meetings, drafting sessions, due diligence sessions and the marketing of the Registrable Securities covered by the registration statement (including, without limitation, participation in “road shows”) taking into account the Company’s business needs;

 

(xv)          enter into and perform its obligations under such customary agreements (including, without limitation, if applicable, an underwriting agreement as provided for in Section 2.4 herein) and take such other actions as the Majority Participating Holders or managing underwriter(s) shall reasonably request in order to expedite or facilitate the disposition of such Registrable Securities;

 

(xvi)         promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter(s) or Majority Participating Holders reasonably request to be included therein relating to the plan of distribution with respect to such Registrable Securities; and make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment;

 

(xvii)        cooperate with each Participating Holder and each underwriter, and their respective counsel in connection with any filings required to be made with FINRA or any securities exchange on which such Registrable Securities are traded or will be traded;

 

(xviii)       cooperate with the Participating Holders and the managing underwriter(s) to facilitate the timely preparation and delivery of certificates not bearing any restrictive legends representing the Registrable Securities to be sold, and cause such Registrable Securities to be issued in such denominations and registered in such names in accordance with the underwriting agreement prior to any sale of Registrable Securities to the underwriters or, if not an underwritten offering, in accordance with the instructions of the Participating Holders at least five business days prior to any sale of Registrable Securities and instruct any transfer agent or registrar of Registrable Securities to release any stop transfer orders in respect thereof;

 

(xix)         to the extent required by the rules and regulations of FINRA, retain a Qualified Independent Underwriter, which shall be reasonably acceptable to the Majority Participating Holders; and

 

(xx)          take no direct or indirect action prohibited by Regulation M under the Exchange Act; provided, however, that to the extent that any prohibition is applicable to the Company, the Company will take such action as is necessary to make any such prohibition inapplicable.

 

(b)           If the disposition by a Participating Holder of its securities is discontinued because of the happening of any event of the kind described in Section 2.3(a)(vii)(C) or (E), the Company shall extend the period of effectiveness of the registration statement by the number of days during the period from and including the date of the giving of such notice to and including the date when the Participating Holder shall have received 

 

 

  

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copies of the supplemented or amended prospectus contemplated by Section 2.3(a)(vii)(E); and, if the Company shall not so extend such period, the Participating Holder’s request pursuant to which such registration statement was filed shall not be counted for purposes of the requests for registration to which the Participating Holder is entitled pursuant to Section 2.1 hereof.  If for any other reason the effectiveness of any registration statement filed pursuant to Section 2.1 or Section 2.2 is suspended or interrupted prior to the expiration of the time period regarding the maintenance of the effectiveness of such registration statement required by Section 2.3(a)(i) so that Registrable Securities may not be sold pursuant thereto, the applicable time period shall be extended by the number of days equal to the number of days during the period beginning with the date of such suspension or interruption to and ending with the date when the sale of Registrable Securities pursuant to such registration statement may be resumed.

 

(c)           If any such registration statement or comparable statement under “blue sky” laws refers to any Holder by name or otherwise as the Holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder and the Company, and subject to any comments made by the SEC staff, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the Company’s securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Holder by name or otherwise is not in the judgment of the Company, as advised by counsel, required by the Securities Act or any similar federal statute or any state “blue sky” or securities law then in force, the deletion of the reference to such Holder.

 

(d)           Holders may seek to register different types of Registrable Securities simultaneously and the Company shall use its reasonable best efforts to effect such registration and sale in accordance with the intended method or methods of disposition specified by such holders.

 

2.4.           Underwritten Offerings.

 

(a)           Demanded Underwritten Offerings.  If requested by the underwriters for any underwritten offering by the Participating Holders pursuant to a registration requested under Section 2.1, the Company shall enter into a customary underwriting agreement with the managing underwriter(s) selected by the Majority Participating Holders (in accordance with Section 2.1(e) hereto).  Such underwriting agreement shall be reasonably satisfactory in form and substance to the Majority Participating Holders and the Company and shall contain such representations and warranties by, and such other agreements on the part of, the Company and such other terms as are generally prevailing in agreements of that type, including, without limitation, customary provisions relating to indemnification and contribution which are no less favorable to the recipient than those provided in Section 2.6 hereof.  Each Participating Holder shall be a party to such underwriting agreement; provided, that no Participating Holder shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Participating Holder, its ownership of and title to the Registrable Securities and its intended method of distribution; and any liability of any Participating Holder to any underwriter or other person under such underwriting agreement shall be limited to liability arising from breach of its representations and warranties and shall be limited to an amount equal to the proceeds (net of expenses and underwriting discounts and commissions) that it derives from such registration.

 

 

  

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(b)           Incidental Underwritten Offerings.  In the case of a registration pursuant to Section 2.2 hereof, if the Company shall have determined to enter into an underwriting agreement in connection therewith, all of the Registrable Securities to be included in such registration shall be subject to such underwriting agreement.  Each Participating Holder shall be a party to such underwriting agreement; provided, that no Participating Holder shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Participating Holder, its ownership of and title to the Registrable Securities and its intended method of distribution; and any liability of any Participating Holder to any underwriter or other Person under such underwriting agreement shall be limited to liability arising from breach of its representations and warranties and shall be limited to an amount equal to the proceeds (net of expenses and underwriting discounts and commissions) that it derives from such registration.

 

2.5.           Preparation; Reasonable Investigation.  In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company will give the Participating Holders, the managing underwriter(s), and their respective counsel, accountants and other representatives and agents the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the SEC, and each amendment thereof or supplement thereto or comparable statements under securities or “blue sky” laws of any jurisdiction, and give each of the foregoing parties access to its books and records, all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and such opportunities to discuss the business of the Company and its subsidiaries with their respective directors, officers and employees and the independent public accountants who have certified the Company and its subsidiaries’ financial statements, and supply all other information and respond to all inquiries requested by such Participating Holders, managing underwriter(s), or their respective counsel, accountants or other representatives or agents in connection with such registration statement, as shall be necessary or appropriate, in the opinion of counsel to such Participating Holder or managing underwriter(s), to conduct a reasonable investigation within the meaning of the Securities Act, and the Company shall not file any registration statement or amendment thereto or any prospectus or supplement thereto to which the Majority Participating Holders or the managing underwriter(s) shall object.

 

2.6.           Indemnification.

 

(a)           Indemnification by the Company.  The Company agrees that in the event of any registration of any Registrable Securities under the Securities Act, the Company shall, and hereby does, indemnify and hold harmless, to the fullest extent permitted by law, (i) each of the Holders and their Affiliates, (ii) each of the Holders’ and their Affiliates’ respective Affiliates, officers, directors, successors, assigns, members, partners, shareholders, employees, advisors, representatives, and agents, (iii) each other Person who participates as an underwriter or Qualified Independent Underwriter in the offering or sale of such securities, (iv) each Person who controls (within the meaning of the Securities Act or the Exchange Act) any of the Persons listed in clauses (i), (ii) or (iii) and (v) any representative (legal or otherwise) of any of the 

 

 

  

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Persons listed in clauses (i), (ii), (iii) or (iv) (collectively, the “Indemnitees”) from and against any losses, penalties, fines, liens, judgments, suits, claims, damages, liabilities, costs and expenses (including reasonable attorney’s fees and any amounts paid in any settlement effected in compliance with Section 2.6(e)) or liabilities, joint or several (or actions or proceedings, whether commenced or threatened, in respect thereof, and whether or not such Indemnitee is a party thereto) (“Losses”), to which such Indemnitee has become or may become subject under the Securities Act or otherwise, insofar as such Losses arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, or any preliminary prospectus, final prospectus or summary prospectus contained therein, any amendment or supplement thereto, or any documents incorporated by reference therein, (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any violation by the Company of any federal, state or common law rule or regulation applicable to the Company and relating to action required of or inaction by the Company in connection with any such registration, and the Company shall reimburse such Indemnitee for any reasonable legal or any other fees or expenses incurred by it in connection with investigating or defending any such Loss; provided that the Company shall not be liable to an Indemnitee to the extent that any such Loss arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement, or document incorporated by reference, in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Indemnitee, which specifically states that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement.

 

(b)           Indemnification by Participating Holders.  As a condition to including any Registrable Securities in any registration statement, the Company shall have received an undertaking reasonably satisfactory to it from each Participating Holder so including any Registrable Securities to, severally and not jointly, to the fullest extent permitted by law, indemnify and hold harmless (i) the Company, each director and officer of the Company (including each officer of the Company that signed the registration statement), employees and agents and each other Person, if any, who controls the Company within the meaning of the Securities Act or Exchange Act and (ii) any underwriters of the Registrable Securities, their officers and directors and each person who controls such underwriters (within the meaning of the Securities Act or the Exchange Act), with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, but only to the extent such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished by such Participating Holder to the Company specifically for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement and such Participating Holder shall reimburse such Indemnified Party for any reasonable legal or 

 

 

  

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any other fees or expenses reasonably incurred by them in connection with investigating or defending any such Loss; provided, however, that the liability of such Indemnifying Party under this Section 2.6(b) shall be limited to the amount of proceeds (net of expenses and underwriting discounts and commissions) received by such Indemnifying Party in the offering giving rise to such liability.  Each Participating Holder shall also indemnify and hold harmless all other prospective sellers and Participating Holders, their respective Affiliates, officers, directors, successors, assigns, members, partners, shareholders, employees, advisors, representatives, and agents, and each Person who controls (within the meaning of the Securities Act or the Exchange Act) any such seller or Participating Holder to the same extent as provided above with respect to indemnification of the Company and underwriters.

 

(c)           Notices of Claims.  Promptly after receipt by an Indemnified Party of notice of the commencement of any action or proceeding involving a claim referred to in Section 2.6(a) or Section 2.6(b), such Indemnified Party shall, if a claim in respect thereof is to be made against an Indemnifying Party, give written notice to such Indemnifying Party of the commencement of such action or proceeding; provided, however, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under Section 2.6(a) or Section 2.6(b), except to the extent that the Indemnifying Party is actually and materially prejudiced by such failure to give notice, and shall not relieve the Indemnifying Party from any liability which it may have to the Indemnified Party otherwise than under this Section 2.6.

 

(d)           Defense of Claims.  In case any such action or proceeding is brought against an Indemnified Party, except as provided for in the next sentence, the Indemnifying Party shall be entitled to participate therein and assume the defense thereof, jointly with any other Indemnifying Party, with counsel reasonably satisfactory to such Indemnified Party, and after notice from the Indemnifying Party to such Indemnified Party of its election so to assume the defense thereof and approval by the Indemnified Party of such counsel, the Indemnifying Party shall not be liable to such Indemnified Party for any legal expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than costs of investigation and the Indemnified Party shall be entitled to participate in such defense at its own expense.  If (i) the Indemnifying Party fails to notify the Indemnified Party in writing, within 15 days after the Indemnified Party has given notice of the action or proceeding, that the Indemnifying Party will indemnify the Indemnified Party from and against all Losses the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the claim, (ii) the Indemnifying Party fails to provide the Indemnified Party with evidence acceptable to the Indemnified Party that the Indemnifying Party will have the financial resources to defend against the claim or proceeding and fulfill its indemnification obligations hereunder, (iii) the Indemnifying Party fails to defend diligently the action or proceeding within 15 days after receiving notice of such failure from such Indemnified Party; (iv) such Indemnified Party reasonably shall have concluded (upon advice of its counsel) that there may be one or more legal defenses available to such Indemnified Party or other indemnified parties which are not available to the Indemnifying Party; or (v) if such Indemnified Party reasonably shall have concluded (upon advice of its counsel) that, with respect to such claims, the Indemnified Party and the Indemnifying Party may have different, conflicting, or adverse legal positions or interests then, in any such case, the Indemnified Party shall have the right to assume or continue its own defense and the Indemnifying Party shall be liable for any fees and expenses therefor; provided, that the Indemnifying Party shall not be liable for the fees and expenses of more than one counsel (and such other local counsel as the Indemnified Parties shall determine to be reasonably necessary) at any time for all Indemnified Parties.

 

 

  

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(e)           Consent to Entry of Judgment and Settlements.  No Indemnifying Party shall be liable for any settlement of any action or proceeding effected without its written consent, which consent shall not be unreasonably withheld, provided, that, in the case where the Indemnifying Party shall have failed to take any of the actions listed in clauses (i), (ii) or (iii) of the last sentence of Section 2.6(d), the Indemnified Party shall have the right to compromise or settle such action on behalf of and for the account, expense, and risk of the Indemnifying Party and the Indemnifying Party will remain responsible for any Losses the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the action or proceeding to the fullest extent provided in this Section 2.6.  No Indemnifying Party shall, without the written consent of the Indemnified Party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the Indemnified Party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (A) includes an unconditional release of the Indemnified Party from all liability arising out of such action or claim, (B) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any Indemnified Party and (C) does not require any inaction or action other than the payment of money by the Indemnifying Party.

 

(f)           Contribution.  If for any reason the indemnification provided for in Sections 2.6(a), (b) or (g) is unavailable to an Indemnified Party or insufficient in respect of any Losses referred to therein, then, in lieu of the amount paid or payable under Sections 2.6(a), (b) or (g), the Indemnifying Party shall contribute to the amount paid or payable by the Indemnified Party as a result of such Loss (i) in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand, and the Indemnified Party on the other, with respect to the statements or omissions which resulted in such Loss, as well as any other relevant equitable considerations, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law or if the allocation provided in this clause (ii) provides a greater amount to the Indemnified Party than clause (i) above, in such proportion as shall be appropriate to reflect not only the relative fault but also the relative benefits received by the Indemnifying Party and the Indemnified Party from the offering of the securities covered by such registration statement as well as any other relevant equitable considerations.  The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Indemnifying Party or the Indemnified Party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission.  The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 2.6(f) were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in the preceding sentence of this Section 2.6(f).  No Person guilty of fraudulent misrepresentation (within the meaning of Section 1l(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.  The amount paid or payable by an Indemnified Party as a result of the Losses referred to in Sections 2.6(a), (b) or (g) shall be deemed to include, subject to the limitations set forth in Sections 2.6(a), (b) and (g), any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim.  Notwithstanding anything in this Section 2.6(f) to the contrary, no Participating Holder shall be required to contribute any amount in excess of the proceeds (net of expenses and underwriting discounts and commissions) received by such Participating Holder from the sale of the Registrable Securities in the offering to which the Losses of the indemnified parties relate.

 

 

  

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(g)           Other Indemnification.  Indemnification and contribution similar to that specified in the preceding subsections of this Section 2.6 (with appropriate modifications) shall be given by the Company and the Participating Holders with respect to any required registration or other qualification of securities under state or “blue sky” law or regulation.  The indemnification agreements contained in this Section 2.6 shall be in addition to any other rights to indemnification or contribution which any Indemnified Party may have pursuant to law or contract and shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Indemnitee or other Indemnified Party and shall survive the transfer of any of the Registrable Securities by any such party.

 

(h)           Indemnification Payments.  The indemnification and contribution required by this Section 2.6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or a Loss is incurred.

 

2.7.           Limitation on Sale of Securities.

 

(a)           For the Company and Others.  If the Company receives a request for registration pursuant to an underwritten offering of Registrable Securities pursuant to Section 2.1 or 2.2 hereof, and if such a request is being implemented or has not been withdrawn or abandoned, the Company agrees that (i) the Company shall not effect any public or private offer, sale, distribution or other disposition of any of its equity securities or of any security convertible into or exchangeable or exercisable for any equity security of the Company or effect any registration of any of such securities under the Securities Act (in each case, other than (x) option grants to employees pursuant to the Company’s option plan, (y) as part of such registration and (z) as a registration using Form S-8 or any successor or similar form which is then in effect), whether or not for sale for its own account, during the period beginning on the date the Company receives such request until 90 days after the effective date of such registration (or such shorter period as the managing underwriter(s) may require) and (ii) the Company shall use its commercially reasonable efforts to obtain from each of its officers, directors and beneficial owners of 5% or more of Common Stock, an agreement not to effect any public or private offer, sale, distribution or other disposition of Common Stock, or any securities that are convertible or exchangeable or exercisable for Common Stock, during the period referred to in clause (i) of this paragraph, including, without limitation, a sale pursuant to Rule 144 under the Securities Act.

 

(b)           For the Holders.  If the Company receives a request for registration pursuant to an underwritten offering of Registrable Securities pursuant to Section 2.1 or 2.2 hereof, and if such a request is being implemented or has not been withdrawn or abandoned, each Holder agrees that, to the extent requested in writing by the managing underwriter(s); it will not effect any public or private offer, sale, distribution or other disposition of any Registrable Securities, or any securities convertible into or exchangeable or exercisable for such Registrable Securities (other than the conversion of shares of the Convertible Note), including, without limitation, 

 

 

  

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any sale pursuant to Rule 144 under the Securities Act, during the 90-day period beginning on the effective date of such registration statement (or such shorter period as the managing underwriter(s) may require), provided, that each Holder has received the written notice required by Sections 2.1(a) and 2.2(a); and further, provided, that in connection with such underwritten offering each officer and director of the Company and all stockholders owning more than 5% of the Company’s Common Stock are subject to restrictions substantially equivalent to those imposed on the Holders.

 

2.8.           No Required Sale.  Nothing in this Agreement shall be deemed to create an independent obligation on the part of any of the Holders to sell any Registrable Securities pursuant to any effective registration statement.

 

2.9.           Rule 144; Rule 144A; Regulation S.  The Company covenants that, at its own expense, it will file the reports required to be filed by it under the Securities Act and the Exchange Act, and it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rules 144, 144A or Regulation S under the Securities Act or (ii) any similar rule or regulation hereafter adopted by the SEC.  Upon the request of a Holder, the Company, at its own expense, will promptly deliver to such Holder (i) a written statement as to whether it has complied with such requirements (and such Holder shall be entitled to rely upon the accuracy of such written statement), (ii) a copy of the most recent annual or quarterly report of the Company and (iii) such other reports and documents as such Holder may reasonably request in order to avail itself of any rule or regulation of the SEC allowing it to sell any Registrable Securities without registration.

 

2.10.           Adjustments.  At the request of any Holder, in the event of any change in the capitalization of the Company as a result of any stock split, stock dividend, reverse split, combination, recapitalization, merger, consolidation, or otherwise, the provisions of this Section 2 shall be appropriately adjusted.  The Company agrees that it shall not effect or permit to occur any combination or subdivision of shares which would adversely affect the ability of the Holders to include any Registrable Securities in any registration contemplated by this Agreement.

 

SECTION 3.  Subsequent Registration Rights; No Inconsistent Agreements.

 

3.1.           Limitations on Subsequent Registration Rights.  Except with respect to the registration of the Common Stock to be issued pursuant to Lincoln Equity Line, from and after the date of this Agreement and for so long as the (x) the Convertible Note remains outstanding, (y) the Warrant remains outstanding or (z) the Investor Percentage Interest (as defined in the Investor Right Agreement between Investor and the Company dated January 28, 2014) is 0.5% or greater, without the prior written consent of the Investor, the Company shall not enter into an agreement that grants a holder or prospective holder of any securities of the Company demand or incidental registration rights that by their terms are not subordinate to the registration rights granted to the Holders in this Agreement.  Except with respect to the registration of the shares of Common Stock to be issued pursuant to the Lincoln Equity Line, so long as the Holders hold Registrable Securities, the Company shall not enter into any agreement granting a holder or prospective holder of securities of the Company registration rights that are senior to the 

 

 

  

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rights of the Holders hereunder and if, after the date of this Agreement, the Company enters into any other agreement with respect to the registration of any of its equity securities, and the terms contained therein are more favorable to, or less restrictive on, the other party thereto than the terms and conditions contained in this Agreement (insofar as they are applicable) with respect to the Holders, then the terms of this Agreement shall immediately be deemed to have been amended without further action by the Company or the Holders so that the Holders shall be entitled to the benefit of any such more favorable or less restrictive terms or conditions.

 

3.2.           No Inconsistent Agreements.  The Company will not, on or after the date of this Agreement, enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Holders in Section 2 or otherwise conflicts with the provisions of Section 2, other than any customary lock-up agreement with the underwriters in connection with any offering effected hereunder, pursuant to which the Company shall agree not to register for sale, and the Company shall agree not to sell or otherwise dispose of, Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, for a specified period (not to exceed 180 days) following such offering.  The Company warrants that the rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with any other agreements to which the Company is a party or by which it is bound.  The Company has not previously entered into any agreement with respect to its securities granting any registration rights to any Person that is in force or effect as of the date hereof or will become effective after the date hereof.

 

SECTION 4.  Miscellaneous.

 

4.1.           Amendments and Waivers.  This Agreement and any of the provisions hereof may be amended, waived (either generally or in a particular instance and either retroactively or prospectively), modified or supplemented, in whole or in part, only by written agreement of the Company and the Investor; provided, however, that any amendment, waiver, modification or supplement of Section 2.6 shall require the written agreement of the Company and Holders holding at least a majority of the Registrable Securities; and provided, further, that the observance of any provision of this Agreement may be waived in writing by the party that will lose the benefit of such provision as a result of such waiver.  The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a further or continuing waiver of such breach or as a waiver of any other or subsequent breach, except as otherwise explicitly provided for in such waiver.  Except as otherwise expressly provided herein, no failure on the part of any party to exercise, and no delay in exercising, any right, power or remedy hereunder, or otherwise available in respect hereof at law or in equity, shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such party preclude any other or further exercise thereof or the exercise of any other right, power or remedy.  The execution of a counterpart signature page to this Agreement after the date hereof by any Person as provided for herein shall not require consent of any party hereto and shall not be deemed an amendment to this Agreement.

 

4.2.           Assignment.  This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and any of their respective successors, personal representatives and permitted assigns who agree in writing to be bound by the terms hereof.  The Company may not assign any of its rights or delegate any of its duties under this Agreement without the prior written consent of the Holders.  Any Holder may, at its election and at any time or from time to time, assign its rights and delegate its duties under this Agreement, in whole or in part, to an Affiliate or to any Person to whom the Holder sells, assigns or otherwise transfers any of its Registrable Securities (an “Assignee”); provided that, no such assignment shall be binding upon or obligate the Company to any such Assignee unless and until the Assignee delivers to the Company (i) a written notice stating the 

 

 

  

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name and address of the Assignee and identifying the securities with respect to which such rights are being assigned, if any, and (ii) a written instrument by which such Assignee agrees to be bound by the obligations imposed upon Holders under this Agreement to the same extent as if such Assignee were a party hereto (or executes and delivers to the Company a counterpart to this Agreement and agrees to be treated as a “Holder” for all purposes of this Agreement).

 

4.3.           Third Party Beneficiaries.  This Agreement is for the sole benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever, under or by reason of this Agreement, other than Persons entitled to indemnification under Section 2.6.

 

4.4.           Notice.  Unless otherwise provided herein, all notices, requests, demands, claims and other communications provided for under the terms of this Agreement shall be in writing and shall be delivered personally, by facsimile (with receipt confirmed telephonically) or sent by certified, registered or express mail, postage prepaid.  Any such notice shall be deemed given if delivered personally or facsimile, on the date of such delivery or such confirmation is received, or if sent by reputable overnight courier, on the first business day following the date of such mailing, as follows:

 

(a)           If to any Holder, to:

 

VDF FutureCeuticals, Inc.

2692 N. State Rt. 1-17

Momence, IL 60954

Facsimile: 815-472-3529

Attention: John Hunter

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

 

Sidley Austin LLP

 

One South Dearborn Street

 

Chicago, Illinois 60603

 

Facsimile:  (312) 853-7036

 

Attention:  Pran Jha

 

(b)           If to the Company, to:

 

KonaRed Corporation

2829 Ala Kalani Kaumaka St., Suite F-133

Koloa, HI 96756

Facsimile: (808) 442-9922

Attention: Shaun Roberts

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

 

 

  

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Clark Wilson LLP

900-885 West Georgia Street

Vancouver, BC V6C 3H1

Canada

Facsimile: (604) 687-6314

Attention: Bernard Pinsky

Any party may by notice given in accordance with this Section 4.4 designate another address or person for receipt of notices hereunder.

 

4.5.           Governing Law; Waiver of Jury Trial.

 

(a)           Governing Law.  This Agreement shall be construed and enforced in accordance with, and the rights and obligations of the parties hereto shall be governed by, the laws of the State of New York, without giving effect to principles of conflicts of laws.

 

(b)           Waiver of Jury Trial.  With respect to any action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby, each of the parties hereby irrevocably, to the extent not prohibited by applicable law that cannot be waived, waives, and covenants that it will not assert (whether as plaintiff, defendant or otherwise), any right to trial by jury in any action arising in whole or in part under or in connection with this Agreement or the transactions contemplated hereby, whether now existing or hereafter arising, and whether sounding in contract, tort or otherwise, and agrees that any of them may file a copy of this paragraph with any court as written evidence of the knowing, voluntary and bargained-for agreement among the parties irrevocably to waive its right to trial by jury in any action or proceeding whatsoever between them relating to this Agreement or the transactions contemplated hereby.  Such action or proceeding shall instead be tried by a judge sitting without a jury.

 

4.6.           Remedies.  The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or was otherwise breached and further agree that money damages or other remedy at law would not be a sufficient or adequate remedy for any breach or violation of, or a default under, this Agreement by them and that, in addition to all other remedies available to them, each of them shall be entitled to an injunction restraining such breach, violation or default or threatened breach, violation or default and to any other equitable relief, including, without limitation, specific performance of the terms and provisions of this Agreement.  Any requirements for the securing or posting of any bond with respect to such remedy are hereby waived by each of the parties hereto.  Each party further agrees that, in the event of any action for an injunction or other equitable remedy in respect of such breach or enforcement of specific performance, it will not assert the defense that a remedy at law would be adequate.  In any action or proceeding brought to enforce any provision of this Agreement (including the indemnification provisions thereof), or where any provision hereof is validly asserted as a defense, the successful party to such action or proceeding shall be entitled to recover, to the extent permitted by applicable law, attorneys’ fees in addition to its costs and expenses and any other available remedy.

 

 

  

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

 

4.8.           Severability.  If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.

 

4.9.           Entire Agreement.  This Agreement, the Settlement Agreement, the Convertible Note, the Warrant and the documents referred to herein or therein or delivered pursuant hereto or thereto, are intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein.  There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein or therein.  This Agreement, the Settlement Agreement, the Convertible Note, the Warrant and the documents referred to herein or therein or delivered pursuant hereto or thereto, supersede all prior agreements and understandings between the parties with respect to such subject matter.

 

4.10.           Counterparts.  This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, all of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

 

4.11.           Defaults.  A default by any party to this Agreement in such party’s compliance with any of the conditions or covenants hereof or performance of any of the obligations of such party hereunder shall not constitute a default by any other party.

 

4.12.           General Interpretive Principles.  Whenever used in this Agreement, except as otherwise expressly provided or unless the context otherwise requires, any noun or pronoun shall be deemed to include the plural as well as the singular and to cover all genders.  The headings of the sections, paragraphs, subparagraphs, clauses and subclauses of this Agreement are for convenience of reference only and shall not in any way affect the meaning or interpretation of any of the provisions hereof.  Unless otherwise specified, the terms “hereof,” “herein” and similar terms refer to this Agreement as a whole, and references herein to Sections refer to Sections of this Agreement.  Words of inclusion shall not be construed as terms of limitation herein, so that references to “include,” “includes” and “including” shall not be limiting and shall be regarded as references to non-exclusive and non-characterizing illustrations.

 

 

  

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their respective officers hereunto duly authorized as of the date first above written.

 

	 	KONARED CORPORATION	 
	 	 	  	 
	 	By: 	
“Shaun Roberts”

	 
	 	 	
Name:

	 
	 	 	
Title:

	 
	 	 	  	 
	 	 	  	 
	 	VDF FUTURECEUTICALS, INC.	 
	 	 	  	 
	 	By: 	
“John Hunter”

	 
	 	 	
Name: John Hunter

	 
	 	 	
Title: Executive Vice President

	 

 

 

 

23konaredexh10_5.htm

Exhibit 10.5

 

 

EXECUTION COPY

 

 

INVESTOR RIGHTS AGREEMENT

 

INVESTOR RIGHTS AGREEMENT, dated as of January 28, 2014 (this “Agreement”), by and between KonaRed Corporation, a Nevada corporation (the “Company”) and VDF FutureCeuticals, Inc., an Illinois corporation (“Investor”).

 

WHEREAS, Investor and the Company are entering into that certain Settlement Agreement dated as of January 28, 2014 (the “Settlement Agreement”) to settle certain outstanding litigation between the parties; and

 

WHEREAS, in connection with the execution of the Settlement Agreement, the Company is issuing to Investor a Senior Secured Convertible Note of the Company dated as of the date hereof (the “Note”) and a Warrant to purchase shares of Common Stock of the Company dated as of the date hereof (the “Warrant”); and

 

WHEREAS, as a condition to entering into the Settlement Agreement, the Note and the Warrant, Investor and the Company have agreed to enter into this Agreement.

 

Accordingly, the parties hereto agree as follows:

 

ARTICLE 1

 

DEFINITIONS

 

1.1           Definitions.  As used in this Agreement, and unless the context requires a different meaning, the following terms shall have the meanings set forth below:

 

“Agreement” has the meaning assigned to such term in the preamble.

 

“Articles of Incorporation” means the certificate of incorporation of the Company, as the same may have been amended.

 

“Beneficially own” with respect to any securities means having “beneficial ownership” of such securities as determined pursuant to Rule 13d-3 under the Exchange Act, as in effect on the date hereof.

 

“Board of Directors” means either the board of directors of the Company or any duly authorized committee thereof.

 

“Board Observer” has the meaning assigned to such term in Section 2.2.

 

“Business Day” means any day other than (i) a Saturday or Sunday or (ii) a day on which banking institutions in New York City are authorized or obligated by law or executive order to remain closed.

 

 

  

  

  

 

 

“Bylaws” means the bylaws of the Company, as the same may have been amended.

 

“Change of Control” means (a) any sale, transfer, lease or license of all or substantially all of the assets of the Company in a transaction or series of related transactions, (b) any merger, consolidation or reorganization that results in any Person or group of Persons acting in concert (other than Shaun Roberts, Dana Roberts and/or or any trust set up solely for the benefit of Shaun Roberts or Dana Roberts and/or their descendents) owning in excess of 50% of the outstanding voting power of the Company, (c) any issuance or sale or series of issuances or sales of capital stock of the Company by the Company or any holder of such capital stock that results in any Person or group of Persons acting in concert (other than Shaun Roberts, Dana Roberts and/or any trust set up solely for the benefit of Shaun Roberts or Dana Roberts and/or their descendents) owning in excess of 50% of the outstanding voting power of the Company or (d) the voluntarily or involuntarily dissolution or liquidation of the Company or winding up of the Company’s affairs, or the taking by the Company of any action to effect any of the foregoing.

 

“Commission” means the Securities and Exchange Commission or any similar agency then having jurisdiction to enforce the Securities Act.

 

“Common Stock” means any shares of common stock, par value $0.001 per share, of the Company, now or hereafter authorized to be issued, and any and all securities of any kind whatsoever of the Company or any successor thereof which may be issued on or after the date hereof in respect of, in exchange for, or upon conversion of shares of Common Stock pursuant to a merger, consolidation, stock split, reverse split, stock dividend, recapitalization of the Company or otherwise.

 

“Company” has the meaning assigned to such term in the preamble.

 

“Conversion Shares” means the shares of Common Stock issuable upon conversion of the Note or the exercise of the Warrant.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder by the Commission from time to time.

 

“GAAP” means United States generally accepted accounting principles consistently applied.

 

“Governmental Authority” means any court, tribunal, arbitrator, arbitrational panel or authority, agency, commission, official or other instrumentality of the United States or any other country, or any supra-national organization, state, county, city or other political subdivision or any self-regulatory organization.

 

“Investor” has the meaning assigned to such term in the recitals.

 

“Investor Percentage Interest” means the percentage of the aggregate voting power of the Company, determined on the basis of the number of Voting Securities actually outstanding, that is controlled directly or indirectly by Investor, including as beneficially owned.

 

 

  

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“License Agreement” means the license agreement among the Company and the Investor dated January 28, 2014 whereby the Investor grants to the Company the right to use the trademarked name “Coffeeberry”, provides use of the Investor’s human clinical science on Coffeeberry and grants a license to the Company to use the Investor’s patented process to extract any portion of the Coffeeberry for any use.

 

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, lien (statutory or other), voting or other restriction, preemptive right or other security interest of any kind or nature whatsoever.

 

“Note” has the meaning assigned to such term in the recitals.

 

“Order” means any writ, judgment, decree, injunction, award or similar order of any Governmental Authority, including any award in an arbitration proceeding (in each case, whether preliminary or final).

 

“Permitted Lien” has the meaning specified in the Note.

 

“Person” means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint-stock company, company, limited liability company, trust, unincorporated association, Governmental Authority, or any other entity of whatever nature.

 

“Pledge and Security Agreement” means that certain Pledge and Security Agreement between the Company and Investor, dated January 28, 2014.

 

“Qualifying Investor Interest” means an Investor Percentage Interest equal to or greater than 10%.

 

“Registration Rights Agreement” means the Registration Rights Agreement between the Company and Investor dated January 28, 2014.

 

“Related Party Agreement" means any agreement, arrangement or understanding between the Company and any stockholder or any affiliate of a stockholder or any director, officer or employee of the Company, as such agreement may be amended, modified, supplemented or restated in accordance with the terms of this Agreement.

 

“Requirement of Law” means any law, statute, code, treaty, Order, ordinance, rule, regulation or other requirement promulgated or enacted by any Governmental Authority.

 

“Restricted Period” has the meaning assigned to such term in Section 3.1.

 

“Rule 144” means Rule 144 promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder by the Commission from time to time.

 

 

  

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“Settlement Agreement” has the meaning assigned to such term in the recitals.

 

“Subsidiary” of any specified Person means any other Person more than 50% of the outstanding voting securities of which is owned or controlled, directly or indirectly, by such specified Person or by one or more other Subsidiaries of such specified Person, or by such specified Person and one or more other Subsidiaries of such specified Person.  For the purposes of this definition, “voting securities” means securities which ordinarily have voting power for the election of directors (or other Persons having similar functions), whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency, or other ownership interests ordinarily constituting a majority voting interest.

 

“Transaction Agreements” means this Agreement, the Note, the Pledge and Security Agreement, the Registration Rights Agreement, the Warrant and the License Agreement.

 

“Voting Securities” mean any class or classes of stock of the Company pursuant to which the holders thereof have the general power under ordinary circumstances to vote with respect to the election of the Board of Directors, irrespective of whether or not, at the time, stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency.

 

“Warrant” has the meaning assigned to such term in the recitals.

 

ARTICLE 2

 

BOARD OF DIRECTORS

 

2.1           Board of Directors.  (a)  From and after the date that Investor acquires shares of Common Stock and for so long as Investor has a Qualifying Investor Interest, Investor shall have the right to designate that number of nominees to the Board of Directors such that the total number of directors designated by Investor is at least proportional to (and not less than) Investor Percentage Interest; provided, that, to the extent that the proportional number of designees to the Board of Directors that Investor is entitled to designate based on Investor Percentage Interest shall not be a whole number (because of the size of the Board of Directors), the number of nominees to the Board of Directors that Investor shall be entitled to designate shall be rounded up to the next higher whole number.  Investor’s nominees to the Board of Directors shall satisfy all applicable Requirements of Law relating to service as a director of the Company.  The Board of Directors may elect to (a) increase the size of the Board of Directors, (b) fill any vacancies resulting from resignations, or (c) a combination of (a) and (b) to accomplish the proportional representation of Investor on the Board of Directors pursuant to this Section 2.1(a); provided, that, to the extent necessary to comply with applicable Requirements of Law or applicable stock exchange rules, the Board of Directors shall increase the size of the Board of Directors to accomplish proportional representation of Investor’s nominees on the Board of Directors pursuant to this Section 2.1.(a).  The Company shall be required to recommend to its 

 

 

  

4

  

 

 

stockholders the election of such designees of Investor to the Board of Directors at the Company’s stockholder meetings and shall solicit proxies for them to the same extent as it does for any of its other nominees to the Board of Directors.  So long as Investor’s designated nominees are members of the Board of Directors, any transactions between Investor and the Company shall be approved by a special committee of the Board of Directors consisting entirely of directors that are independent of Investor.

 

(b)           Within five (5) Business Days of the acquisition of shares of Common Stock by Investor (by conversion of the Note, exercise of the Warrant or otherwise), the Board of Directors and the Company shall take or cause to be taken all necessary action not previously taken (including any necessary Bylaw amendments to cause the numbers of directors constituting the Board of Directors to be increased) to the extent necessary to accomplish the proportional representation of Investor’s nominees to the Board of Directors pursuant to Section 2.1(a).

 

(c)           Each committee of the Board of Directors (other than any special committee or committee of independent directors that may be constituted for purposes of making any determination with respect to any agreement or transaction between the Company and Investor) shall at all times include a number of directors designated by Investor that is at least proportional to the Investor Percentage Interest; provided, that, to the extent having Investor designate a number of members proportional to the Investor Percentage Interest would not comply with applicable Requirements of Law or applicable stock exchange rules, each of the audit committee, the compensation committee and the nominating committee of the Board of Directors shall instead of having a number of members designated by Investor proportional to the Investor Percentage Interest have one member designated by Investor.  Any director designated by Investor to serve on any committee may designate as his or her alternate another director designated by Investor.

 

2.2           Board Observer Rights.  From and after the date hereof and until such time as (i) the Note has terminated, (ii) the Warrant has terminated or been exercised and (iii) the Investor Percentage Interest is less than 1%, if Investor does not have a designee on the Board of Directors pursuant to Section 2.1, Investor shall have the right to appoint one individual (the “Board Observer”) selected by Investor as a non-voting observer entitled to attend meetings of the Board of Directors, and such Board Observer shall be entitled to be delivered all notices and information provided to the members of such Board of Directors (within the same time frames provided to such members) and attend all meetings of such Board of Directors; provided, however, that the Board Observer may be excluded from receiving such information and materials (or the relevant portions thereof) or from attending such meetings (or the relevant portions thereof) if the Company reasonably determines that such exclusion is necessary to avoid a conflict of interest or to protect attorney-client privilege.

 

ARTICLE 3

COVENANTS OF THE COMPANY

 

3.1           Conduct of Business.  Except as agreed in writing by Investor, from and after the date hereof for so long as (x) the Note remains outstanding, (y) the Warrant remains outstanding or (z) Investor owns a Qualifying Investor Interest (collectively, the “Restricted Period”), the Company shall not, and will cause its Subsidiaries not to:

 

 

  

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(i)           amend the Articles of Incorporation or Bylaws or the organizational documents of the Company or any of its Subsidiaries, or increase or decrease its authorized capital unless the rights of the Investor under the Transaction Agreements would not be adversely affected thereby;

 

(ii)          recapitalize or otherwise change its capital structure in a manner that would result in, or affect any transaction constituting, a Change of Control;

 

(iii)         make any material change to the nature of the business conducted by the Company or its primary line of business;

 

(iv)        incur, create, assume, become or be liable in any manner with respect to, or permit to exist, any indebtedness other than (a) the Note, (b) trade payables incurred in the ordinary course of business or (c) other indebtedness not to exceed $7,500,000 in the aggregate at any one time outstanding;

 

(v)         purchase, redeem, retire or otherwise acquire, split, combine or reclassify, directly or indirectly, any of the Common Stock or other equity securities of the Company or give notice of any intention to exercise any right to purchase, redeem or otherwise acquire, split, combine or reclassify, any of the Common Stock or other equity securities of the Company (including any such purchase, redemption or acquisition in accordance with the terms of the Articles of Incorporation or Bylaws or any stockholders agreement), other than redemptions in accordance with any employee or consultant agreement approved by the Board of Directors in connection with a separation of service, unless the rights of the Investor under the Transaction Agreements would not be adversely affected thereby;

 

(vi)        prior to the termination of the Note, declare or pay any dividends on or make other distributions of any kind (whether in cash, stock or property or any combination thereof), directly or indirectly, in respect of the Common Stock or other equity securities;

 

(vii)       enter into or permit to exist any agreement or undertaking (other than this Agreement) which prohibits, restricts or limits the ability of any Subsidiary of the Company to pay dividends or distributions to the Company, or otherwise to transfer any material assets or engage in transactions with the Company;

 

(viii)      voluntarily dissolve, wind up or liquidate;

 

(ix)         sell, lease, license, surrender, relinquish, transfer, assign, amend, convey or otherwise dispose of outside of the ordinary course of business in one or more transactions any business, property or assets (whether tangible or intangible) having an aggregate market value of in excess of $250,000 individually or $1,000,000 in the aggregate, or allow any Lien to be placed on any of its assets other than a Permitted Lien;

 

(x)          enter into, amend in any material respect, waive or terminate any Related Party Agreement other than the entry into a Related Party Agreement that is on an arm's length basis and on terms no less favorable to the Company than those that could be obtained from an unaffiliated third party;

 

 

  

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(xi)         discontinue, permit to lapse or otherwise fail to keep in full force and effect any material policies of insurance or knowingly take any action that would cause any such policy to terminate or be terminable prior to the expiration of its stated term;

 

(xii)        change any method of accounting or accounting practice used by the Company or any of its Subsidiaries, except for any change required by GAAP, by any Governmental Authority or by a change in Requirements of Law;

 

(xiii)       file a voluntary petition in bankruptcy or commence a voluntary legal procedure for reorganization, arrangement, adjustment, release or composition of indebtedness in bankruptcy or other similar Requirements of Law now or hereafter in effect, consent of the entry of an order for relief in an involuntary case under any such Requirements of Law or apply for or consent to the appointment of a rescuer, liquidator, assignee, custodian or trustee (or similar office) of the Company or any of its Subsidiaries;

 

(xiv)       grant any put or similar rights to any Person that would reasonably be expected to affect adversely the rights of Investor under this Agreement, the Note or the other Transaction Agreements; or

 

(xv)        enter into any agreement with respect to any of the foregoing.

 

3.2           Access; Information Rights.  (a)  Except as otherwise expressly contemplated by the terms of this Agreement or agreed in writing by Investor, during the Restricted Period, upon reasonable notice, the Company shall (and shall cause its Subsidiaries to) permit the officers, employees, accountants, counsel, financial advisors and other representatives of Investor reasonable access during normal business hours to all of its books, records, properties and personnel (including the ability to discuss the Company’s affairs, finances and accounts with its officers).

 

(b)           During the Restricted Period, the Company shall deliver to Investor:

 

(i)           as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of stockholders’ equity as of the end of such year, and a schedule as to the sources and applications of funds for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with GAAP, and audited and certified by independent public accountants of nationally recognized standing selected by the Company;

 

(ii)          as soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited income statement for such fiscal quarter and a balance sheet of the Company and a statement of stockholders’ equity as of the end of such fiscal quarter;

 

 

  

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(iii)         with respect to the financial statements called for in subsections (i), (ii) and (iii) of this Section 3.2(b) at a time when the Company is not required to file reports under Section 13 or Section 15(d) of the Exchange Act, an instrument executed by the chief financial officer or chief executive officer of the Company and certifying that such financials were prepared in accordance with GAAP consistently applied with prior practice for earlier periods (with the exception of footnotes that may be required by GAAP) and fairly present the financial condition of the Company and its results of operation for the period specified, subject to year-end audit adjustment; and

 

(iv)        such other information relating to the financial condition, business, properties, personnel, prospects or corporate affairs of the Company as Investor may from time to time request.

 

ARTICLE 4

 

OTHER AGREEMENTS

 

4.1           Registration Rights.  Except with respect to the registration of the shares of Common Stock to be issued pursuant to the Lincoln Equity Line (as defined in the Registration Rights Agreement), the Company shall not grant any right of registration under the Securities Act relating to any of its securities to any Person other than Investor if such rights would or could reasonably be expected to frustrate, impede or limit Investor’s rights pursuant to the Registration Rights Agreement (it being understood that inclusion of securities of the Company in any registration statement filed by the Company that is not a Demand Registration (as defined in the Registration Rights Agreement) that, by reason of the restrictions on the amount of securities that may be included in a registration statement under Rule 415 promulgated under the Securities Act, results in a limitation on the amount of securities that may be registered on behalf of the Investor in a Demand Registration shall not be deemed to frustrate, impede or limit Investor’s rights under the Registration Rights Agreement).

 

4.2           Rule 144.  The Company shall file all reports required to be filed by it under the Securities Act and the Exchange Act and shall take such further action as Investor may reasonably request, all to the extent required to enable Investor to sell the Common Stock into which the Note may be converted pursuant to and in accordance with Rule 144.  Such action shall include, but not be limited to, making available adequate current public information meeting the requirements of paragraph (c) of Rule 144.

 

4.3           Availability of Common Stock.  The Company shall at all times reserve and keep available out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of the Note and the exercise of the Warrant, at least the full number of shares of Common Stock then issuable upon the conversion of the Note and exercise of the Warrant.  The Company will, from time to time, take the actions specified in Section 7 of the Note and Section 6 of the Warrant to increase the authorized amount of Common Stock if at any time the number of shares of Common Stock remaining unissued and available for issuance shall be insufficient to permit conversion of the Note and/or exercise of the Warrant.

 

 

  

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4.4           No Rights Plan.  From the date hereof through the Restricted Period, without the prior written consent of Investor, the Company shall not adopt or enter into any “poison pill” rights plan or any similar plan or agreement or declare or pay any dividend of any rights to purchase stock of the Company in connection with such a plan or agreement, unless the Investor and its affiliates are specifically excluded from being subject to any restrictions, limitations or other triggering events that are otherwise applicable to holders of capital stock of the Company pursuant to such plan (including any restrictions on, or provisions triggered by, transactions between an “acquiring person” under such rights plan (or any holder who owns greater than an identified amount of the outstanding capital stock of the Company as described in such rights plan) and the Company).

 

4.5           Legends.  Any legends placed on the Warrant or the Conversion Shares, pursuant to the transactions contemplated by the Transaction Agreements shall be removed by the Company upon delivery of an opinion of counsel reasonably acceptable to the Company stating that such legend is no longer necessary.

 

4.6           Takeover Statutes

 

.  If any “fair price,” “moratorium,” “control share acquisition” or other form of antitakeover statute or regulation shall become applicable to the transactions contemplated by the Transaction Agreements, the Board of Directors of the Company shall grant such approvals and take such actions as are reasonably necessary so that the transactions contemplated by the Transaction Agreements may be consummated as promptly as practicable on the terms contemplated hereby and otherwise act to eliminate or minimize the effects of such statute or regulation on the transactions contemplated by the Transaction Agreements.

 

ARTICLE 5

 

TERMINATION

 

5.1           Term.  This Agreement shall be in effect until such time as: (i) the Note no longer remains outstanding; (ii) the Warrant no longer remains outstanding; and (iii) Investor fails to own shares of Common Stock or other Voting Securities in the Company. Notwithstanding the foregoing, in the event the Investor transfers the Note (in whole) and the Warrant and does not hold Conversion Shares, Sections 2.1, 2.2, 3.1, 4.1 and 4.4 shall terminate and be of no force and effect.

 

ARTICLE 6

 

MISCELLANEOUS

 

6.1           Survival

 

.  All covenants and agreements of the Company and Investor contained in this Agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of Investor or any controlling Person thereof or by or on behalf of the Company, any of its officers and directors or any controlling Person thereof.  The covenants and agreements contained herein shall survive in accordance with their terms.

 

6.2           Notices

 

.  All notices or other communications required or permitted hereunder shall be in writing and shall be delivered personally, by facsimile (with receipt confirmed telephonically) or sent by certified, registered or express mail, postage prepaid.  Any such notice shall be deemed given if delivered personally or facsimile, on the date of such delivery or such confirmation is received, or if sent by reputable overnight courier, on the first Business Day following the date of such mailing, as follows:

 

 

  

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(a)           if to the Company:

 

	 	
KonaRed Corporation

2829 Ala Kalani Kaumaka St., Suite F-133

Koloa, HI 96756

Facsimile: (808) 442-9922

Attention: Shaun Roberts

	  
	 	
with a copy to (which shall not constitute notice):

	  
	 	  	  
	 	
Clark Wilson LLP

	  
	 	
900-885 West Georgia Street

	  
	 	
Vancouver, BC V6C 3H1 Canada

	  
	 	
Attn: Bernard Pinsky

	  
	 	
Facsimile: (604) 687-6314

	  
	 	  	  

(b)           if to Investor:

 

	 	
VDF FutureCeuticals, Inc.

2692 N. State Rt. 1-17

Momence, IL 60954

Facsimile: (815)472-3529

Attention: John Hunter

	  
	 	  	  
	 	
with a copy to (which shall not constitute notice):

	  
	 	  	  
	 	
Sidley Austin LLP

	  
	 	
One South Dearborn

	  
	 	
Chicago, Illinois  60603

	  
	 	
Attn: Pran Jha

	  
	 	
Facsimile: (312) 853-7036

	  
	 	  	  

Any party may by notice given in accordance with this Section 6.2 designate another address or Person for receipt of notices hereunder.

 

6.3           Successors and Assigns.  This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto.  Other than the parties hereto and their successors and permitted assigns, and no Person is intended to be a beneficiary of this Agreement.  No party hereto may assign its rights under this Agreement without the prior written consent of the other party hereto; provided, however, that, without the prior written consent of the Company, Investor may assign its rights hereunder (along with the corresponding obligations) to any purchaser or transferee of the Note or the Warrant.  Any assignee of Investor pursuant to the proviso of the foregoing sentence shall be deemed to be “Investor” for all purposes of this Agreement.

 

 

  

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6.4           Amendment and Waiver.  (a)  No failure or delay on the part of the Company or Investor in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy.

 

(b)           Any amendment, supplement or modification of or to any provision of this Agreement and any waiver of any provision of this Agreement shall be effective only if it is made or given in writing and signed by the Company and Investor.

 

6.5           Counterparts.  This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, all of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

 

6.6           Headings.  The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

 

6.7           Governing Law; Waiver of Jury Trial.

 

(a)           Governing Law.  This Agreement shall be construed and enforced in accordance with, and the rights and obligations of the parties hereto shall be governed by, the laws of the State of New York, without giving effect to principles of conflicts of laws.

 

(b)           Waiver of Jury Trial.  With respect to any action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby, each of the parties hereby irrevocably, to the extent not prohibited by applicable law that cannot be waived, waives, and covenants that it will not assert (whether as plaintiff, defendant or otherwise), any right to trial by jury in any action arising in whole or in part under or in connection with this Agreement or the transactions contemplated hereby, whether now existing or hereafter arising, and whether sounding in contract, tort or otherwise, and agrees that any of them may file a copy of this paragraph with any court as written evidence of the knowing, voluntary and bargained-for agreement among the parties irrevocably to waive its right to trial by jury in any action or proceeding whatsoever between them relating to this Agreement or the transactions contemplated hereby.  Such action or proceeding shall instead be tried by a judge sitting without a jury.

 

6.8           Severability.  If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.

 

 

  

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6.9           Entire Agreement.  This Agreement, together with the schedules and exhibits hereto, and the other Transaction Agreements referred to herein or delivered pursuant hereto, are intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein.  There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein or therein.  This Agreement, together with the schedules and exhibits hereto, and the other Transaction Agreements referred to herein or delivered pursuant hereto, supersede all prior agreements and understandings between the parties with respect to such subject matter.

 

6.10           Further Assurances.  Subject to the terms and conditions of this Agreement, as of the date hereof, the Company and Investor agree to cooperate with each other, and at the request of the other party, to execute and deliver any further instruments or documents and take all such further action as the other party may reasonably request in order to evidence or effectuate the consummation of the transactions contemplated by the Transaction Agreements and to otherwise carry out the intent of the parties hereunder.

 

6.11           Public Announcements.  Except as required by any Requirement of Law or the rules of any securities exchange, none of the parties hereto will issue or make any reports, statements or releases to the public with respect to this Agreement or the transactions contemplated by the Transaction Agreements without the approval of the other party (such approval not to be unreasonably withheld or delayed). The Investor acknowledges that the Transaction Agreements will be publicly filed on EDGAR and disclosed in the Company’s periodic filings.

 

6.12           Specific Performance.  The parties acknowledge that money damages are not an adequate remedy for violations of this Agreement and that any party may, in its sole discretion, apply to a court of competent jurisdiction for specific performance or injunctive or such other relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation hereof and, to the extent permitted by applicable law, each party waives any objection to the imposition of such relief or any requirement for a bond.

 

 

 

 

 

 

 

 

 

 

 

 

  

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their respective officers hereunto duly authorized as of the date first above written.

 

	 	
KONARED CORPORATION

	 
	 	  	 
	 	
By:

	
“Shaun Roberts”

	 
	 	  	
Name:

	 
	 	  	
Title:

	 
	 	  	 
	 	  	 
	 	  	 
	 	
VDF FUTURECEUTICALS, INC.

	 
	 	  	 
	 	
By:

	
 “John Hunter”

	 
	 	  	
Name: John Hunter

	 
	 	  	
Title: Executive Vice President

	 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13

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