Document:

Unassociated Document

Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of July 9, 2012, by and between MASS HYSTERIA ENTERTAINMENT COMPANY, INC., a Nevada corporation, with headquarters located at 8899 Beverly Blvd, Suite 710, Los Angeles, CA 90048(the “Company”), and ASHER ENTERPRISES, INC., a Delaware corporation, with its address at 1 Linden Place, Suite 207, Great Neck, NY 11021 (the “Buyer”).

WHEREAS:

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

B.   Buyer desires to purchase and the Company desires to issue and sell, upon the terms and conditions set forth in this Agreement an 8% convertible note of the Company, in the form attached hereto as Exhibit A, in the aggregate principal amount of $30,000.00 (together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof, the “Note”), convertible into shares of common stock, $0.00001 par value per share, of the Company (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in such Note.

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

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

 

1.     Purchase and Sale of Note.

 

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

 

  

  

  

 

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

c.   Closing Date.  Subject to the satisfaction (or written waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the date and time of the issuance and sale of the Note pursuant to this Agreement (the “Closing Date”) shall be 12:00 noon, Eastern Standard Time on or about July 11, 2012, or such other mutually agreed upon time.  The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on the Closing Date at such location as may be agreed to by the parties.

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

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

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

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

 

  

2

  

 

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

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

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

 

  

3

  

 

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

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

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

 

  

4

  

 

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

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

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

a.   Organization and Qualification.  The Company and each of its Subsidiaries (as defined below), if any, is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted.  The SEC Documents (as defined in Section 3(g) below) set forth a list of all of the Subsidiaries of the Company and the jurisdiction in which each is incorporated.  The Company and each of its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such qualification necessary except where the failure to be so qualified or in good standing would not have a Material Adverse Effect.  “Material Adverse Effect” means any material adverse effect on the business, operations, assets, financial condition or prospects of the Company or its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith.  “Subsidiaries” means any corporation or other organization, whether incorporated or unincorporated, in which the Company owns, directly or indirectly, any equity or other ownership interest.

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

 

  

5

  

 

c.   Capitalization.  As of the date hereof, the authorized capital stock of the Company consists of: (i) 2,000,000,000 shares of Common Stock, $0.00001 par value per share, of which 226,684,974 shares are issued and outstanding, and (ii)10,000,000 shares of Series A Preferred tock, $0.00001 par value per share, of which 10,000 shares of preferred stock are issued and outstanding; except as set forth in the SEC Documents and on Schedule 3(c), no shares are reserved for issuance pursuant to the Company’s stock option plans, no shares are reserved for issuance pursuant to securities (other than the Note, and four (4) prior convertible promissory notes in favor of the Buyer and a Common Stock Purchase Warrant: (a) prior convertible promissory note in favor of the Buyer dated August 9, 2011 in the amount of $37,500.00 and  Warrant of same date;  (b)  prior convertible note in favor of the Buyer dated October 28, 2011 in the amount of $10,000.00;  (c) prior convertible note in favor of the Buyer dated January 4, 2012  in the amount of $22,500.00 and (d) prior convertible promissory note in favor of the Buyer dated May 9, 2012 in the amount of $32,500.00. An aggregate total of 1,414,549,723 shares  of  Common Stock are presently reserved (and should continue to be reserved) for the prior notes and warrant referenced above);  exercisable for, or convertible into or exchangeable for shares of Common Stock and shares are reserved for issuance upon conversion of the Note and the four prior referenced prior convertible promissory notes and warrant. All of such outstanding shares of capital stock are, or upon issuance will be, duly authorized, validly issued, fully paid and nonassessable.  No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the shareholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company.  Except as set forth in the SEC Documents, as of the effective date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, (ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its or their securities under the 1933 Act and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of the Note or the Conversion Shares.  The Company has furnished to the Buyer true and correct copies of the Company’s Certificate of Incorporation as in effect on the date hereof (“Certificate of Incorporation”), the Company’s By-laws, as in effect on the date hereof (the “By-laws”), and the terms of all securities convertible into or exercisable for Common Stock of the Company and the material rights of the holders thereof in respect thereto.  The Company shall provide the Buyer with a written update of this representation signed by the Company’s Chief Executive or Chief Financial Officer on behalf of the Company as of the Closing Date.

 

  

6

  

 

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

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

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

 

  

7

  

 

g.   SEC Documents; Financial Statements.  Except as set forth in Schedule 3(a), since April 1, 2010, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein, being hereinafter referred to herein as the “SEC Documents”).  Upon written request the Company will deliver to the Buyer true and complete copies of the SEC Documents, except for such exhibits and incorporated documents.  As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings prior the date hereof).  As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto.  Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved  and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).  Except as set forth in the financial statements of the Company included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to February 29, 2012, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. The Company is subject to the reporting requirements of the 1934 Act.

 

  

8

  

 

h.   Absence of Certain Changes.  Except as set forth in the SEC Documents, since February 29, 2012, there has been no material adverse change and no material adverse development in the assets, liabilities, business, properties, operations, financial condition, results of operations, prospects or 1934 Act reporting status of the Company or any of its Subsidiaries.

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

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

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

 

  

9

  

 

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

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

n.   Disclosure.  All information relating to or concerning the Company or any of its Subsidiaries set forth in this Agreement and provided to the Buyer pursuant to Section 2(d) hereof and otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading.  No event or circumstance has occurred or exists with respect to the Company or any of its Subsidiaries or its or their business, properties, prospects, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed (assuming for this purpose that the Company’s reports filed under the 1934 Act are being incorporated into an effective registration statement filed by the Company under the 1933 Act).

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

 

  

10

  

 

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

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

r.            Permits; Compliance.  The Company and each of its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the “Company Permits”), and there is no action pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits.  Neither the Company nor any of its Subsidiaries is in conflict with, or in default or violation of, any of the Company Permits, except for any such conflicts, defaults or violations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.  Since February 29, 2012, neither the Company nor any of its Subsidiaries has received any notification with respect to possible conflicts, defaults or violations of applicable laws, except for notices relating to possible conflicts, defaults or violations, which conflicts, defaults or violations would not have a Material Adverse Effect.

s.     Environmental Matters.

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

 

  

11

  

 

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

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

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

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

 

  

12

  

 

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

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

x.   Solvency.  The Company (after giving effect to the transactions contemplated by this Agreement) is solvent (i.e., its assets have a fair market value in excess of the amount required to pay its probable liabilities on its existing debts as they become absolute and matured) and currently the Company has no information that would lead it to reasonably conclude that the Company would not, after giving effect to the transaction contemplated by this Agreement, have the ability to, nor does it intend to take any action that would impair its ability to, pay its debts from time to time incurred in connection therewith as such debts mature.

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

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

4.     COVENANTS.

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

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

 

  

13

  

 

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

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

e.   Expenses.  At the Closing, the Company shall reimburse Buyer for expenses incurred by them in connection with the negotiation, preparation, execution, delivery and performance of this Agreement and the other agreements to be executed in connection herewith (“Documents”), including, without limitation, reasonable attorneys’ and consultants’ fees and expenses, transfer agent fees, fees for stock quotation services, fees relating to any amendments or modifications of the Documents or any consents or waivers of provisions in the Documents, fees for the preparation of opinions of counsel, escrow fees, and costs of restructuring the transactions contemplated by the Documents.  When possible, the Company must pay these fees directly, otherwise the Company must make immediate payment for reimbursement to the Buyer for all fees and expenses immediately upon written notice by the Buyer or the submission of an invoice by the Buyer.The Company’s obligation with respect to this transaction is to reimburse Buyer’ expenses shall be $2,500.00.

 

  

14

  

 

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

g.   [INTENTIONALLY DELETED]

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

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

 

  

15

  

 

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

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

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

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

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

 

  

16

  

 

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

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

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

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

 

  

17

  

 

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

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

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

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

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

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

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

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

 

  

18

  

 

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

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

8.     Governing Law; Miscellaneous.

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

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

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

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

 

  

19

  

 

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

f.    Notices.  All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be:

If to the Company, to:

MASS HYSTERIA ENTERTAINMENT COMPANY, INC.

8899 Beverly Blvd, Suite 710

Los Angeles, CA 90048

Attn: DANIEL  GRODNICK, Chief Executive Officer

facsimile: 323-862-2216

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

Indeglia & Carney

Attn: Marc A. Indeglia

1900 Main Street, Suite 300

Irvine, CA 92614

facsimile: 949-861-3324

                 If to the Buyer:

ASHER ENTERPRISES, INC.

1 Linden Pl., Suite 207

Great Neck, NY  11021

Attn: Curt Kramer, President

facsimile: 516-498-9894

 

  

20

  

 

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

Naidich Wurman Birnbaum &Maday LLP

80 Cuttermill Road, Suite 410

Great Neck, NY11021

Attn: Bernard S. Feldman, Esq.

facsimile: 516-466-3555

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

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

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

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

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

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

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

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

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

MASS HYSTERIA ENTERTAINMENT COMPANY, INC.

By:________________________________

DANIEL  GRODNICK

Chief Executive Officer

ASHER ENTERPRISES, INC.

By: ________________________________

Name: Curt Kramer

Title:   President

1 Linden Pl., Suite 207

Great Neck, NY. 11021

 

AGGREGATE SUBSCRIPTION AMOUNT:

 

	Aggregate Principal Amount of Note:   	 	 $30,000.00
	 	 	 
	Aggregate Purchase Price: 	 	 $30,000.00

 

2746(7) 7/9/12

grodzilla@earthlink.net

 

  

21

  

 

Schedule 3(c)

Reserved Shares

101,456,659 shares have been reserved in respect of (i) that certain promissory note dated February 23, 2011 in the aggregate principal amount of $12,500 made by Mass Hysteria Entertainment Company, Inc. in favor of Metacomet Company, LLC and (ii) ) that certain promissory note dated March 1, 2012 in the aggregate principal amount of $10,000 made by Mass Hysteria Entertainment Company, Inc. in favor of Metacomet Company, LLC .

 

  

22

  

 

Schedule 3(g)

SEC Documents

 

The Company’s was late filing its Quarterly Report on Form 10-Q for the period ended February 29, 2012.

 

 

23f10q0512ex10ii_masshysteria.htm

Exhibit 10.2

 

As of May 11, 2012

 

Coral Ridge Capital Partners, LLC 

119 Bristol Road

Wellesley, MA 02481

Attention: Henry A. Malkasian Jr.

 

Re:        "End Of The Gun"/ Finance Agreement (the "Agreement")

 

Dear Mr. Malkasian:

 

This agreement ("Agreement") will confirm the terms and conditions of the agreement between Coral Ridge Capital Partners, LLC ("CRC"), Florida limited liability company, and Mass Hysteria Entertainment Company, Inc. (the "Producer"), with respect to certain financing of the motion picture currently entitled "End Of The Gun" ("Picture").

 

1.  The Picture.

 

A.     General. The Picture is a feature .length motion picture, the specifics of which are set forth on Schedule 1, annexed hereto. CRC wishes to participate in the funding of the Picture and has agreed to provide the Production Contribution (as hereinafter defined). The Picture will be produced by a single purpose production entity ("SPE") formed by Producer.

 

B.      Production Contribution. (i) CRC agrees to provide equity financing for the Picture to Producer or its designee in the form of an equity contribution in the amount of Three Hundred Thousand U.S. Dollars (USD$300,000.00) ("Production Contribution") in exchange for the Premium (as defined below) and, thereafter, a minimum twenty percent (20%) perpetual equity interest in the "Adjusted Gross Receipts" of the Picture as defined below ("Minimum Equity Interest"), to be repaid solely from the Gross Receipts of the Picture in the manner provided in paragraph 1 C below. CRC acknowledges that Producer shall, at all times, have the right to seek and obtain alternate and/or additional funding for the Picture from any other source, including, without limitation, production, post production and completion cost deferrals, but so long as CRC provides the Production Contribution, CRC shall remain entitled to the benefits set forth herein. The Production Contribution shall be paid to Producer as follows: (i) One Hundred Thousand Dollars ($100,000) shall be paid to Producer within five (5) business days from execution of this Agreement; and (ii) the balance of the Production Contribution Two Hundred Thousand US Dollars (USD$200,000)] shall be paid to SPE to an account specified by Producer no later than two weeks prior to the scheduled start date for commencement of principal photography of the Picture, provided (i) the completion guarantor bonding the completion and delivery of the Picture ("Completion Guarantor") may require CRC to place the balance of its Production Contribution in escrow on an earlier date, and if so, CRC shall comply with the requirements of the Completion Guarantor upon not less than five (5) business days notice of same, subject to the following; (ii) CRC shall have no obligation to furnish the balance of the Production Contribution until Producer provides a fully executed commitment letter from the proposed secured senior debt production lender ("Primary Financier") to cover the balance of the proposed production cost of the Picture, after taking into account all sources of production funding. The Production Contribution shall be disbursed by Producer and SPE in accordance with a cashflow schedule ("Cashflow Schedule") as the same may hereafter be revised as needed by the Completion Guarantor, if any, the Primary Financier or due to producti on exigencies, and shall be used solely to pay for the necessary and actual costs of development, production, completion and delivery of the Picture. The initial Cashflow is attached hereto as Schedule 2 and incorporated by this reference.

 

Financing Agreement v Final

 

  

  

  

 

(ii) Producer shall engage the Completion Guarantor and obtain a completion bond, and CRC shall be named a beneficiary under such completion bond to the extent of such Production Contribution actually provided by CRC.

 

(iii) In the event that (a) production of the Picture is abandoned, for any reason, or (b) Producer materially breaches any warranty or representation of Producer as set forth in Section 3B of this Agreement then, in such event, notwithstanding anything set forth elsewhere in this Agreement to the contrary, CRC may terminate this Agreement by written notice to Producer and Producer shall return the Production Contribution actually advanced by CRC to CRC in full along with interest which shall accrue at the rate of twelve percent (12%) per annum applied retroactively from the date CRC tendered the Production Contribution.

 

C.  Repayment of Production Contribution, Premium and Adjusted Gross Receipts Participation. Provided the Production Contribution is paid to Producer, in fu ll, CRC shall be entitled to the following:

 

(i)  Following indefeasible repayment in full to the Primary Financier providing a production loan for the Picture, CRC shall be entitled to repayment of its Production Contribution and the Premium from One Hundred Percent (100%) of the "Gross Receipts" of the Picture until such time as the Production Contribution and the Premium is paid in full to CRC,. In the event additional equity investment is obtained with respect to the Picture, Production Contribution and Premium shall be repaid to CRC before any distributions, recoupments or repayments are made to any other investors or lenders, except for any equity production incentive (such as the Manatoba equity incentive) which shall be repayable in accordance with the terms upon which such incentive is granted. The term "Gross Receipts" is defined as all amounts actually and unconditionally received by Producer from the exploitation and licensing of the Picture from all sources, less any production deferrals, CAM fees, residuals, and all other actual necessary and customary distribution costs and expenses. Producer shall provide periodic written accountings to CRC specifying Gross Receipts and deductions therefrom. If required by the Primary Financier, Gross Receipts may be deposited in a third party collection account ("Collection Account") pursuant to a collection account management agreement to which CRC shall be a signatory and which shall set forth the agreed distribution of all Gross Receipts.

 

(ii)  The "Premium"shall be a sum equal to Fifty Thousand US Dollars ($50,000).

 

Financing Agreement v Final

 

  

2

  

 

(iii)     In addition, following repayment of the Production Contribution and Premium, CRC shall be entitled to the Minimum Equity Interest defined as a sum equal to twenty percent (20%) of one hundred percent (100%) of the Adjusted Gross Receipts of the Picture, in perpetuity, but subject to the Primary Financier's rights as a secured creditor. Adjusted Gross Receipts shall be defined, computed, paid and accounted for in accordance with the standard definition adopted by Producer in connection with the Picture (attached hereto as Schedule 3 and incorporated by this reference), but no less favorable than the definition of Adjusted Gross Receipts applicable to any other participant therein in connection with the Picture. With respect to sequels, remakes and other subsequent productions, for purposes of calculating Adjusted Gross Receipts, Gross Receipts shall include a fair market value rights fee for the particular derivative right so exploited.

 

D.  Credit. Provided the Production Contribution is paid to Producer, in full, and CRC is not in breach or default of this Agreement, CRC shall receive two (2) executive producer credits in the main titles of the Picture on all positive prints of the Picture (or, if there are no "main titles" at the beginning of the Picture, in the end titles), on a shared or separate card (to be determined by Producer), subject to applicable guild or union requirements, if any, and, subject to customary distributor exclusions, in all paid advertising and promotional materials wherein any other executive producer is accorded credit, as applicable. Upon Producer's request, CRC shall promptly and timely provide the names of the individuals (with accurate spelling thereof) who shall receive such executive producer credit on behalf of CRC; Producer reserves the right to reject the use of any pseudonym, sobriquet, nom de plume, or the like. No casual or inadvertent failure to accord proper credit hereunder shall be deemed to be a breach of this Agreement. All other aspects of such credit shall be determined in Producer's sole discretion, and Producer reserves the right to accord a more favorable credit than the contractually required credit hereunder.

 

E.  First Opportunity. Provided the Production Contribution is paid to Producer, in full, and CRC is not in breach or default of this Agreement, Producer shall offer CRC the right to make a similar production contribution to the motion picture "Boiling Point" ("Second Picture") prior to the Producer offering such financing opportunity to any other person or entity, on the same terms applicable to the Picture (with appropriate adjustment due to budget variations and available ftnancing) if produced by Producer. In the event that a written finance agreement is not executed with respect to such Second Picture within fifteen (15) days following Producer's written notice to CRC to commence negotiations and the parties' good faith negotiations with respect to same, then Producer shall have no further obligation to CRC with respect to such Second Picture, whatsoever.

 

Financing Agreement v Final

 

  

3

  

 

2.  Rights/Ownership of Picture. Producer and Producer's assigns shall be the sole and exclusive owners and/or controllers of all rights in and to the Picture, including, without limitation, to all copyrights therein and thereto (including all renewals and extensions thereof), and shall have the sole and absolute unfettered right to develop, prod uce, distribute and exploit the Picture in any and all media now known or hereafter devised or improved, in perpetuity, throughout the Universe, without any obligation to CRC, or any other party, whatsoever, claiming rights through CRC, except Producer shall perform the express obligations to CRC provided for in this Agreement (subject to the Security Interest granted to CRC as defined below and the rights of the Primary Financier as a secured creditor). All rights herein of Producer are: (i) irrevocable and not subject to rescission or termination for any reason or cause, whatsoever; and (ii) freely assignable by Producer and its successors, assigns and licensees, but no such assignment shall relieve Producer of its obligations hereunder unless the assignee is a major studio, network, production company or the SPE and the assignee assumes such obligations in writing, in which case, the assignee shall be deemed substituted as a party to this Agreement in place and stead of Producer; provided, however, that Producer shall at times remain primarily liable for its obligations as set forth in Section 1 B(iii) of this Agreement notwithstanding any such assignment by Producer. CRC's rights in the event of any breach of this Agreement are limited to claims for money damages only proximately caused by such breach. CRC shall execute and deliver to Producer or its designee(s) any written acknowledgements and quitclaims reasonably required by Producer to confirm that CRC does not have any ownership interest in or to the Picture, whatsoever.. The provisions of this paragraph 2 shall survive any termination or other expiration of this Agreement.

 

3.  Warranties.

 

A.  CRC acknowledges, warrants, represents and agrees that: (a) CRC has received sufficient information regarding the Picture from Producer and has had an opportunity to speak with Producer as CRC deems necessary, to make an informed decision regarding the providing of the Production Contribution herein; (b); CRC is a sophisticated financier and is thoroughly familiar with the risks and consequences of participating in the financing of motion pictures and is able to bear the financial risk of the Picture being unprofitable for any reason; (c) The funds tendered for the Production Contribution do not represent funds borrowed from any person, entity or lending institution; (d) CRC is an "accredited investor" under the rules and regulations of the Securities and Exchange Commission, if applicable; and (e) Excepting only the remedy provided to CRC under Section lB(iii) of this Agreement, CRC shall have no recourse other than payment through the Collection Account for repayment of the Production Contribution, Premium, and/or the Minimum Equity Interest.

 

B.  Producer. Producer acknowledges, warrants, represents and agrees that: (i) Producer is in bona fide good faith negotiation for and will obtain written minimum distribution guarantees (a) for North American distribution from Grindstone in the amount of $500,000, and (b) for foreign distribution from CMG in the amount of $450,000 and $200,000 from Lions Gate for Latin American, on or before August 1, 2012 (the "Outside Date"); (ii) Producer shall obtain a commercial loan from the Primary Financier for an amount not less than the amount needed to fund the balance of the production budget of the Picture, anticipated to be approximately $1,550,000, no later than the Outside Date; (iii) filming on the Picture shall commence in accordance with the production schedule approved by the Completion Guarantor or otherwise, by the Primary Financier but in any event shall commence on or before September 1, 2012; (iv) (a) all corporate action on the part of the Producer, its officers, directors and stockholders necessary for the authorization of this Agreement, the performance of all obligations of the Producer hereunder and thereunder and the authorization, sale, issuance and delivery of the Minimum Equity Interest have been taken, (b) this Agreement, when executed and delivered, will be valid and legally binding obligations of the Producer enforceable in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights; and general principles of equity that restrict the availability of equitable remedies, and (c) Producer's grant of the Minimum Equity Interest to CRC is not and will not be subject to any preemptive rights or rights of first refusal or conflicting rights that have not been properly waived or complied with; and (v) the Producer shall properly and duly acquire all required intellectual property rights to Produce the Picture and such production of the Picture by Producer shall not constitute infringement of any kind on any interest or rights of any person or entity.

 

Financing Agreement v Final

 

  

4

  

 

4.  Indemnity. Each party ("Indemnifying Party") hereby forever indemnifies, defends and holds harmless the other party (and their respective successors, licensees, assigns, and employees, officers and directors) [collectively for the purposes of this paragraph 4, the "Indemnified Party"] from and against any and all third party liability, claims, actions, causes of action, losses, costs, expenses, damages, judgments, and settlements, including reasonable outside attorney's fees ("Claims") arising out of any breach with respect to any warranty, representation or agreement made hereunder by the Indemnifying Party. The Indemnified Party has the right to assume the defense of any claim made by a third party and arising from a breach or alleged breach of any representation, warranty or agreement of Indemnifying Party hereunder or that otherwise may be subject to the indemnity set forth herein.

 

5.  Insurance. Upon production of the Picture, Producer shall procure that the SPE obtain all usual and customary production, errors and omissions and general liability policies with respect to the Picture. Producer shall cause SPE to name CRC as an additional insured party under such errors and omissions and general liability policies, as and when obtained and subject to all terms and conditions of such policies.

 

6.  Notices. All notices hereunder shall be in writing and shall be given either by personal delivery, e-mail, or registered or certified mail postage prepaid and shall be deemed given hereunder on the date delivered or faxed or on a date two (2) business days after the date mailed. Until further notice, the addresses of the parties shall be as follows:

 

	
To CRC:

	
At the address set forth above.

	  	  
	
With a copy to:

	
Steven D. Frank, Esq.

	  	  
	  	
LAW OFFICES OF STEVEN D. FRANK

	  	
The Meadows

	  	
161 Worcester Road, Suite 302

	  	
Framingham, MA 01701

	  	
Email: steven.frank@stevendfrank.com

	  	  
	
To Producer:

	
8899 Beverly Boulevard,

	  	
Suite710,

	  	
Los Angeles, CA 90048

	  	  
	
With a copy to:

	
Costa Abrams & Coate, LLP

	  	
1221 Second Street, Third Floor

	  	
Santa Monica, California  90401

	  	
Attn: Alan Abrams, Esq.

	  	
Email: aafilmlaw@aol.com

 

Financing Agreement v Final

 

  

5

  

 

7.  Disputes. Any and all disputes arising between the parties under this Agreement and/or arising from the relationship of the parties created by virtue of this Agreement, including, without limitation, disputes involving interpretation and/or performance of this Agreement, the rendition of services under this Agreement, the subject matter of this Agreement, and/or the granting of any rights and/or benefits under this Agreement (including, without limitation, disputes involving the actual or purported right of any party to terminate and/or rescind this Agreement for any reason or cause, whatsoever, as well as the rights and obligations of the parties following any such purported termination and/or rescission),shall all be solely and exclusively submitted to final and binding arbitration ("Arbitration') in accordance with the arbitration rules of the Independent Film & Television ("Rules"), before a single neutral arbitrator experienced in matters involving the entertainment industry determined in accordance with the Rules ("Arbitrator"), which Arbitration shall be conducted in the county of Los Angeles, California, in accordance with such Rules. Each party hereto irrevocably submits to the jurisdiction of such Arbitrator in Arbitration, agrees to be bound by any final Arbitrator's Award rendered pursuant to such Arbitration, provided the same has been confirmed by the "Court" (as hereafter defined), and consents to the service process of any demands for Arbitration, or other notices and documents pertaining to such Arbitration and/or any confirmation proceedings described in the next paragraph, by international courier and/or by personal delivery to the addresses set forth in this Agreement.

 

Any award of the Arbitrator in connection with any such Arbitration may be confirmed by any party hereto in any State or Federal court of competent jurisdiction ("Court") sitting in the State of California and each party hereto irrevocably agrees and consents to such jurisdiction of the Court for such purpose. The prevailing party as determined by the Arbitrator shall be entitled to an award of such prevailing party's reasonable attorneys' fees and costs of Arbitration.

 

8.  Security Interest. As security for Producer's obligation to repay the Production Contribution Amount and the Premium to CRC, and until such time as the Production Contribution Amount and Premium have been paid to CRC, Producer shall grant CRC a continuing security interest in and to the Picture including, without limitation, all copyrights therein and thereto (including all renewals and extensions thereof), and all development, production, distribution and exploitation rights in any and all media now known or hereafter devised or improved (the "Security Interest"). The Security Interest shall be subordinate to only the security interest in the Picture granted to Producer's Primary Financier(s) and the completion guarantor and CRC shall execute such subordination and standstill agreements required by such Primary Financier(s) and the completion guarantor. Producer shall execute and deliver to CRC the Security Agreement attached hereto.

 

Financing Agreement v Final

 

  

6

  

 

9.  General. This Agreement contains the full, complete and entire understanding of the parties hereto with respect to the within subject matter and this Agreement supersedes all prior representations, agreements and understandings, whether written or oral, pertaining thereto and cannot be modified except by written instruments signed by each party. All of Producer's rights hereunder are freely assignable, provided no such assignment shall relieve Producer of its obligations hereunder, except to the extent this agreement is assigned to the SPE, and the SPE assumes the obligations of Producer hereunder, provided, further, notwithstanding any such assignment to and assumption by the SPE, Producer shall nevertheless remain responsible for performance of its obligations under paragraph 1 B (iii) hereof. Each party acknowledges that no representations or promises not expressly contained in this Agreement have been made to the other. CRC's remedies in the event of a breach by Producer shall be limited to an action at law for damages and in no event shall CRC (or any party claiming through CRC) be entitled to rescind this Agreement or enjoin or otherwise interfere with the development, production, marketing, distribution and/or exploitation of the Picture. Producer may prepare and, subject to good faith negotiations, require execution of a more formal agreement incorporating the foregoing and other customary terms and conditions common in the entertainment industry and consistent with the express terms of this Agreement, but pending execution of such a more formal agreement, this Agreement shall be binding upon the parties and the successors and assigns thereof. The parties hereby agree that California law shall govern the terms, conditions, performance and interpretation of this Agreement. If any provision of this Agreement is adjudged to be unlawful, then such provision shall be deemed limited or curtailed (but only to the extent necessary to bring it within legal requirements) and the remainder of this Agreement shall remain in full force and effect. The parties have agreed that this Agreement may be executed and delivered to each other via telefacsimile and/or email, and in counter-parts. Accordingly, reproductions of original signatures by any reliable means shall be given the same legal weight and effect as original signatures.

 

Kindly confirm your Agreement to the foregoing by signing in the appropriate place below.

 

Very truly yours,

 

Mass ent Company, Inc.. ('Producer")

 

	
By: 

	 	 
	
lts:

	 	 
	 	 	 
	
Agreed to and Accepted:

	 
	
Coral Ridge Capital Partners, LLC

	 
	 	 	 
	
	 	 
	Attachments	 
	 	 	 
	Schedule 1 - Picture Specifications	 

 

Financing Agreement v Final

 

7

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00206-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00206-of-00352.parquet"}]]