Document:

SEC Connect

 

Exhibit
10.1

 

Third Amended and Restated Stockholder
Agreement

 

This
Third Amended and Restated Stockholder Agreement
(“Agreement”) is
made as of November 30, 2016 (“Effective Date”) by and among
Autobytel Inc., a Delaware corporation (the “Company”), Auto Holdings Ltd., a
British Virgin Islands business company (the “Original Restricted Stockholder”),
Manatee Ventures Inc., a British Virgin Islands business company
(“Manatee”),
Galeb3 Inc, a Florida corporation (“Galeb3”), Matías de Tezanos
(“de Tezanos”),
José Vargas (“Vargas”) and the parties set forth
on the signature pages hereto. The Company, the Original Restricted
Stockholder, Manatee, Galeb3, de Tezanos and Vargas are referred to
herein collectively as the “Original Parties.” The Original
Parties and any additional parties to this Agreement are referred
to herein collectively as the “Parties” and sometimes each
individually as a “Party.”

 Background

Pursuant to the
Note and Warrant Sale Agreement dated as of April 27, 2015 by and
among the Atrop, Inc., a Florida corporation (formerly
Autotropolis, Inc.), IBBF Ventures, Inc. a Florida corporation
(formerly Cyber Ventures, Inc.), the Original Restricted
Stockholder and the Company, the Original Restricted Stockholder
acquired approximately 14.25% of the Company’s outstanding
Common Stock. In connection with the Note and Warrant Sale
Agreement, the Original Parties entered into a Stockholder
Agreement dated as of April 27, 2015 (the “Original Agreement”).

As a
condition to and concurrently with the execution of that certain
Agreement and Plan of Merger, dated as of October 1, 2015 (the
“Merger
Agreement”) by and between the Company, New Horizon
Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of the Company, AutoWeb, Inc., a Delaware corporation
(“AutoWeb”), and
José Vargas, an individual, solely in his capacity as the
initial Stockholder Representative thereunder, the Original Parties
amended and restated the Original Agreement as set forth in an
Amended and Restated Stockholder Agreement dated as of October 1,
2015 (the “Amended and
Restated Stockholder Agreement”). Pursuant to the
Merger Agreement, and as a condition to receipt of the Merger
Consideration (as defined in the Merger Agreement) each of the
stockholders of AutoWeb being paid Merger Consideration pursuant to
the Merger Agreement (each, an “AutoWeb Securityholder” and,
collectively the “AutoWeb
Securityholders”) executed and delivered the Amended
and Restated Stockholder Agreement.

Effective as of May
26, 2010, the Company adopted a Tax Benefit Preservation Plan,
which plan was amended by Amendment No. 1 to Tax Benefit
Preservation Plan dated as of April 14, 2014 (collectively the
“NOL Plan”). The
Board of Directors of the Company (the “Board”) adopted the NOL Plan to
protect stockholder value by preserving important tax assets. The
Company has generated substantial net operating loss carryovers and
other tax attributes for United States federal income tax purposes
(“Tax Benefits”)
that can generally be used to offset future taxable income and
therefore reduce federal income tax obligations. However, the
Company’s ability to use the Tax Benefits will be adversely
affected if there is an “ownership change” of the
Company as defined under Section 382 (“Section 382”) of the Internal
Revenue Code (as defined below). In general, an ownership change
will occur if the Company’s “5% shareholders” (as
defined under Section 382) collectively increase their ownership in
the Company by more than 50% over a rolling three-year period. The
NOL Plan was adopted to reduce the likelihood that the
Company’s use of its Tax Benefits could be substantially
limited under Section 382. The NOL Plan is intended to deter any
“Person” (as
defined in the NOL Plan) from becoming an “Acquiring Person” (as defined in
the NOL Plan) and thereby jeopardizing the Company’s Tax
Benefits. In general, an Acquiring Person is any Person, itself or
together with all Affiliates (as defined below) of such Person,
that becomes the “Beneficial
Owner” (as defined in the NOL Plan) of 4.9% or more of
the Company’s outstanding Common Stock. Under the NOL Plan,
the Board may, in its sole discretion, exempt any person from being
deemed an Acquiring Person for purposes of the NOL Plan (a
“NOL Plan
Exemption”) if the Board determines that such
person’s ownership of Common Stock will not be likely to
directly or indirectly limit the availability of the
Company’s Tax Benefits or is otherwise in the best interests
of the Company. The Board does not have any obligation, implied or
otherwise, to grant such an exemption.

 

 

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In
reliance upon the representations, warranties and obligations of
the Original Restricted Stockholder under the Original Agreement,
the Board granted the Original Restricted Stockholder a NOL Plan
Exemption solely with respect to the Original Restricted
Stockholder’s acquisition of the Derivative Securities and
the Initial Restricted Securities. Further, in reliance upon the
representations, warranties and obligations of the AutoWeb
Securityholders under the Amended and Restated Stockholder
Agreement, the Board granted the AutoWeb Securityholders a NOL Plan
Exemption solely with respect to the AutoWeb Securityholders’
acquisition of the AutoWeb Restricted Securities.

On May
20, 2016, PF Auto, Inc., an AutoWeb Securityholder and a British
Virgin Islands business company (“PF Auto”), distributed to its
shareholders, with the consent of the Company, all of the AutoWeb
Restricted Securities that it held. Concurrently with the foregoing
distribution, each shareholder of PF Auto, if such shareholder was
not already a party to the Amended and Restated Stockholder
Agreement (the “Joining PF
Auto Stockholders”), executed a joinder to the Amended
and Restated Stockholder Agreement.

On
September 21, 2016, the Board, contingent upon the execution of
that certain Second Amended and Restated Stockholder Agreement,
dated as of October 19, 2016 (the “Second Amended and Restated Stockholder
Agreement”), granted under the Company’s Amended
and Restated 2014 Equity Incentive Plan options to purchase 65,000
shares of Common Stock to de Tezanos and options to purchase 65,000
shares of Common Stock to Vargas in connection with de
Tezanos’ and Vargas’ service to the Company as officers
of the Company. Additionally, the Board authorized the Second
Amended and Restated Stockholder Agreement to allow de Tezanos and
Vargas, each individually, to purchase up to 100,000 shares of
Common Stock in the open market; provided that any such purchases
comply with the terms of the Second Amended and Restated
Stockholder Agreement, the Securities Trading Policy (as defined
below) and applicable Law. The Board also authorized an increase in
the Restricted Stockholders’ NOL Plan Exemption for the
foregoing.

On
November 11, 2016, the Board authorized this Agreement, contingent
upon its execution and the execution by IDFC of a joinder to the
Second Amended and Restated Stockholder Agreement, to allow Ceiba
and IDFC to purchase, in the aggregate, up to 150,829 shares of
Common Stock in the open market; provided that any such purchases
comply with the terms of this Agreement, the Securities Trading
Policy and applicable Law. The Board also authorized an increase in
the Restricted Stockholders’ NOL Plan Exemption for the
foregoing.

In
consideration of the mutual promises and covenants set forth
herein, the Parties hereto further agree as follows:

 Article
I
 Definitions

As used
in this Agreement, the following defined terms shall have the
meanings ascribed below:

“Action or Proceeding” means any
complaint, claim, demand, prosecution, indictment, action,
litigation, lawsuit, arbitration, proceeding, hearing, inquiry,
audit, or investigation (whether civil, criminal, judicial or
administrative, and whether formal or informal, and whether public
or private) made or brought by any Person or brought or heard by or
before any Governmental Authority.

“Affiliate” means (i) an Affiliate
as defined in the NOL Plan; and (ii) with respect to any specified
Person, any other Person who or which, directly or indirectly,
controls, is controlled by, or is under common control with such
specified Person.

“Associate” shall be as defined in
the NOL Plan.

“Automotive Field” means the
automotive industry and all related products and services within
the automotive industry, including without limitation,
manufacturing, sales and distribution (including automotive
manufacturers and dealers) of automobiles, financing of
automobiles, automobile warranties, automobile insurance,
automobile parts and accessories, and automobile service and
repairs.

 

 

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“Automotive Leads” shall
mean the electronic record, whether fulfilled or delivered by
online internet-based systems, SMS or similar messaging systems,
telephonic systems, or any other electronic means with the
combination of a consumer’s information and any vehicle
information for the purpose of furthering the consumer’s
interest in any service or product within the Automotive
Field.

“AutoWeb Restricted Securities”
means any Capital Stock acquired by any AutoWeb Securityholder in
connection with the transactions contemplated by the Merger
Agreement.

“Beneficial Ownership” shall be as
defined in the NOL Plan.

“Business Day” means any day other
than a Saturday, Sunday or any other day on which commercial banks
in Delaware are authorized or required by law to
close.

“Capital Stock” means any and all
shares, interests, rights to purchase, warrants, options,
participations or other equivalents of or interests in (however
designated) equity of the Company, including any Common Stock or
any series of preferred stock of the Company, but excluding any
debt securities convertible into such equity.

“Ceiba” means Ceiba International
Corp., a Panama business company.

“Change in Control” means with
respect to any Person the first to occur of any of the following
(in one transaction or a series of related transactions): (i)
consummation of a sale of, directly or indirectly, all or
substantially all of the Person’s assets, (ii) any
“person” (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than a trustee or other fiduciary
holding securities of the Person under an employee benefit plan of
the Person, becomes the “beneficial owner” (as defined
in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of the Person representing 50% or more of
(A) the outstanding equity securities of the Person or (B) the
combined voting power of the Person’s then outstanding
securities, or (iii) the Person is party to a consummated merger or
consolidation which results in the voting securities of the Person
outstanding immediately prior thereto failing to continue to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving or another entity) at least
fifty (50%) percent of the combined voting power of the voting
securities of the Person or such surviving or other entity
outstanding immediately after such merger or
consolidation.

“Code” means the U.S. Internal
Revenue Code of 1986, as amended, and the Treasury regulations
promulgated thereunder.

“Common Stock” means the
Company’s common stock, $0.001 par value per
share.

“Company Business” means the
origination, sale, licensing or distribution of Automotive
Leads.

“Confidential Information” means
(i) Company’s trade secrets, business plans, strategies,
methods and/or practices; (ii) Company’s software,
technology, computer systems architecture and network
configurations; (iii) any other information relating to Company
that is not generally known to the public, including information
about Company’s personnel, products, customers, suppliers,
financial information, marketing and pricing strategies, services
or future business plans; (iv) material, non-public information
related to Company; and (v) any and all analyses, compilations,
studies, notes or other materials prepared which contain or are
based on other Confidential Information of Company.

“Consent” means any approval,
consent, permission, ratification, waiver, or other authorization
of any Person (including any Governmental Authority).

“Contract” means any agreement,
contract, obligation, promise, note, bond, mortgage, undertaking,
indenture, purchase order, sales order, instrument, lease,
franchise, license, permit, understanding, arrangement, commitment
or undertaking, whether written or oral, or express or implied, and
in each case, including all amendments thereto.

 

 

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“Control” means the possession,
directly or indirectly, of the power to direct or cause the
direction of management policies of a Person, whether through
ownership of voting securities, by contract, or
otherwise.

“Damages” means any loss, damage,
or liability (joint or several) to which a Party hereto may become
subject under the Securities Act, the Exchange Act, or other
foreign, federal, state or local law, insofar as such loss, damage,
or liability (or any action in respect thereof) arises out of or is
based upon (i) any untrue statement or alleged untrue statement of
a material fact contained in any registration statement of Company,
including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto; (ii) an omission
or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not
misleading; or (iii) any violation or alleged violation by the
indemnifying party (or any of its agents or Affiliates) of the
Securities Act, the Exchange Act, any state or foreign securities
law, or any rule or regulation promulgated under the Securities
Act, the Exchange Act, or any state or foreign securities law;
provided, however, that Damages shall not include any loss, damage,
or liability resulting from use of a preliminary prospectus if the
loss, damage, or liability arises after the Company makes a
correcting preliminary or final prospectus available, and any such
loss, damage, or liability would have been avoided by delivery of
such correcting preliminary or final prospectus.

“Derivative Securities” means
collectively (i) that certain Convertible Subordinated Promissory
Note dated as of September 16, 2010 executed by Company as maker to
Atrop, Inc., and IBBF Ventures, Inc. in the original principal
amount of $5 million and (ii) the Warrant to acquire shares of
Common Stock issued by Company to Atrop, Inc., and IBBF Ventures,
Inc. and dated as of September 16, 2010.

“Designated Restricted Stockholder
Affiliates” means de Tezanos and Vargas.

“Electronic Transmission” means a
communication (i) delivered by facsimile, telecommunication or
electronic mail when directed to the facsimile number of record or
electronic mail address of record, respectively, which the intended
recipient has provided to the other party for sending notices
pursuant to the Agreement and (ii) that creates a record of
delivery and receipt that is capable of retention, retrieval, and
review, and that may thereafter be rendered into clearly legible
tangible form.

“Encumbrance” means any mortgage,
charge, claim, condition, equitable interest, community or other
marital property interest, lien, option, pledge, security interest,
right of first refusal, right of first option, easement,
right-of-way, encroachment, or restriction of any kind, including
any restriction on use, voting, transfer, receipt of income, or
exercise of any other attribute of ownership and including any
conditional sale or other title retention agreement, any lease in
the nature thereof and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any
jurisdiction, and including any lien or charge arising by statute
or other Laws or which secures the payment of a debt (including any
Taxes due and payable) or the performance of an
obligation.

“Exchange Act” means the Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

“Excluded Registration” means (i) a
registration relating to the sale of securities to employees of the
Company or a subsidiary pursuant to a stock option, stock purchase,
or similar plan; (ii) a registration relating to an SEC Rule 145
transaction; (iii) a registration on any form that does not include
substantially the same information as would be required to be
included in a registration statement covering the sale of the
Restricted Securities; (iv) a registration in which the only Common
Stock being registered is Common Stock issuable upon conversion of
debt securities that are also being registered; or (v) a
registration in which the only Company securities being registered
are debt securities.

 

“Fair Market Value” means
(i) with respect to Common Stock, the weighted average of the
Market Values of the Common Stock for the thirty consecutive
trading day period preceding the applicable date for the
determination of the Fair Market Value, except in the case of
subsection (iii) of the definition of Market Value, in which case
Fair Market Value shall be Market Value determined as of the
applicable date for determination of Fair Market Value and
(ii) with respect to Capital Stock other than Common Stock,
the weighted average of the Market Values of the
Common Stock into which such Capital Stock could be converted for
the thirty consecutive trading day period preceding the applicable
date for the determination of the Fair Market Value, except in the
case of subsection (iii) of the definition of Market Value, in
which case Fair Market Value shall be Market Value determined as of
the applicable date for determination of Fair Market
Value.

 

 

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“Form S-3” means such form under
the Securities Act as in effect on the date hereof or any
registration form under the Securities Act subsequently adopted by
the SEC that permits incorporation of substantial information by
reference to other documents filed by the Company with the
SEC.

“Governing Documents” means
(i) with respect to a corporate Person, such Person’s
(1) certificate or articles of incorporation or other
formation document, as amended to date, and (2) bylaws or
similar document; (ii) with respect to a limited liability
company Person, such Person’s (1) certificate of
formation or organization or other formation document, and
(2) operating or similar agreement or document;
(iii) with respect to a business company Person, such
Person’s memorandum and articles of association or other
formation documents; or (iv) with respect to any other Person
(other than a natural person), such Person’s (1) certificate
of formation or organization or other formation document, and (2)
operating or similar agreement or document.

“Governmental Authority” means any:
(i) nation, state, county, city, town, or other jurisdiction of any
nature; (ii) federal, state, local, municipal, foreign, or other
government; (iii) governmental or quasi-governmental authority of
any nature (including any governmental agency, branch, department,
official, or entity and any court or other tribunal); (iv)
multi-national organization or body; (v) stock exchange or
quotation service; (vi) body exercising, or entitled to exercise,
any administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature; (vii)
arbitrator or mediator; or (viii) any official or authorized
representative of any of the foregoing.

“Governmental Authorization” means
any Consent, permit, license, Order or other authorization issued,
granted, given, or otherwise made available by or under the
authority, or any requirement, of any Governmental Authority or
pursuant to any Laws, including Environmental Permits.

“Group” shall have the meaning set
forth in Section 13(d)(3) of the Exchange Act and Rule 13d-5 of the
General Rules and Regulations under the Exchange Act.

“IDFC” means Investment and
Development Finance Corp., a Panama business company.

“Immediate Family Member” means a
child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, including
adoptive relationships, of a natural person referred to
herein.

“Initial Restricted Securities”
means the 1,475,268 shares of Common Stock issued upon the
conversion and exercise, as applicable, of the Derivative
Securities.

“Irrevocable Proxy” means an
Irrevocable Proxy in the form of Exhibit A attached
hereto.

“Law” means any federal, state,
local, municipal, foreign, international, multinational, or other
order, constitution, law, ordinance, principle of common law,
regulation, statute, rule, treaty, permit, license, certificate,
judgment, Order, decree, award or other decision or requirement of
any arbitrator or Governmental Authority.

“Market Value” means, with respect
to the Common Stock as of any date, (i) the closing price of the
Common Stock as reported on the principal U.S. national securities
exchange on which the Common Stock is listed and traded on that
date, or, if there is no closing price on that date, then on the
last preceding date on which a closing price was reported; (ii) if
the Common Stock is not listed on any U.S. national securities
exchange but are quoted in an inter-dealer quotation system on a
last sale basis, the final ask price of the Common Stock reported
on the inter-dealer quotation system for such date, or, if there is
no sale on that date, then on the last preceding date on which a
sale was reported; or (iii) if the Common Stock is neither listed
on a U.S. national securities exchange nor quoted on an
inter-dealer quotation system on a last sale basis, the amount
reasonably determined by the Company to be the fair market value of
the Common Stock as determined by the Company in good faith and in
light of all available information.

 

 

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“Non-Restricted
Securities” for the purposes of this
Agreement, Non-Restricted Securities are Restricted Securities for
which all of the Stock Restrictions have expired or
terminated.

“November 2016 Restricted
Securities” means up to 150,829 shares of Common Stock
that IDFC and/or Ceiba may purchase in the open market in
compliance with this Agreement, the Securities Trading Policy and
applicable Law.

“Order” means any judgment,
decision, order, injunction, decree, award, or writ of any
Governmental Authority.

“Permitted Immediate Family Member
Transferee” means (i) an
individual Restricted Stockholder’s Immediate Family Member,
(ii) one or more trusts established solely for the benefit of the
Restricted Stockholder and/or one or more of the Restricted
Stockholder’s Immediate Family Members; or (iii) one or more
entities that are beneficially owned solely by Restricted
Stockholder and/or one or more of the Restricted
Stockholder’s Immediate Family Members.

“PeopleFund” means PeopleFund,
Inc., a British Virgin Islands business company, which company is
directly or indirectly the beneficial owner of interests in the
Original Restricted Stockholder and in AutoWeb.

“Proposed Private Transfer” means a
proposed Transfer in a transaction not constituting a Proposed
Public Transfer.

“Proposed Private Transfer Qualified
Transferee” means a transferee of Shares or Capital
Stock pursuant to a Proposed Private Transfer after the end of the
Stock Restrictions Period that meets the following requirements:
(i) the transferee is not an Affiliate, Associate or Immediate
Family Member of any Restricted Stockholder or PeopleFund;
(ii) the transferee is not a competitor of Company;
(iii) the transferee is not a party to or bound by any voting
proxy, agreement, trust or other voting arrangement with any
Restricted Stockholder, PeopleFund, or any Associate or Affiliate
of any of the foregoing; (iv) the transferee is not, and will
not become as a result of the transfer, the beneficial owner of
4.9% or more of Company’s outstanding Common Stock or an
amount of Capital Stock that could, in any circumstance, be
convertible into 4.9% or more of Company’s outstanding Common
Stock; (v) the transferee provides Company a written
certification confirming the foregoing requirements; and
(vi) the transferee agrees to be bound by the standstill set
forth in Section 8.1.

“Proposed Public Transfer” means a
proposed Transfer to be implemented pursuant to (i) a
Restricted Stockholder’s exercise of the registration rights
as described in Article IV; or (ii) Rule 144; provided,
however, that no proposed Transfer under clauses (i) or (ii) of
this definition shall constitute a Proposed Public Transfer if the
transaction constitutes a directed sale or a block sale to known or
designated buyers or any known or designated group of
buyers.

“Reply Period” means (i) ten (10)
days if the Restricted Stockholder is selling 147,526 Shares or
less or an amount of Capital Stock that could, in any circumstance,
be convertible into 147,526 Shares, (ii) thirty (30) days if the
Restricted Stockholder is selling more than 147,526 Shares but not
more than 368,817 Shares or an amount of Capital Stock that could,
in any circumstance, be convertible into more than 147,526 Shares
but not more than 368,817 Shares, and (iii) sixty (60) days if the
Restricted Stockholder is selling more than 368,817 Shares or an
amount of Capital Stock that could, in any circumstance, be
convertible into more than more than 368,817 Shares. For purposes
of the determination of the applicable Reply Period, proposed
Transfers shall be aggregated with all Transfers proposed during
the six-month period preceding the most recent proposed Transfer.
The foregoing Share numbers shall be adjusted proportionately in
the event of a share split, combination or similar transaction of
the Common Stock or Capital Stock.

“Representative” means, as to any
Person, such Person’s Affiliates and its and their directors,
officers, employees, agents, representatives, debt and equity
financing sources, and advisors (including, without limitation,
financial and investment banking advisors, attorneys, consultants,
counsel and accountants and any representatives of such
advisors).

 

 

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“Repurchase Option Event” means any
Change in Control of a Restricted Stockholder.

“Restricted Securities” means (i)
the Initial Restricted Securities; (ii) any other Shares that may
be issued with respect to the Initial Restricted Securities by
reason of any stock split, reverse split, stock dividend (including
any dividend or distribution of securities convertible into
Shares), combination, reorganization, recapitalization or other
like change, conversion or exchange of shares, or any other change
in the corporate or capital structure of the Company; (iii) the
AutoWeb Restricted Securities; (iv) any other Capital Stock that
may be issued with respect to the AutoWeb Restricted Securities by
reason of any stock split, reverse split, stock dividend (including
any dividend or distribution of securities convertible into Capital
Stock), combination, reorganization, recapitalization or other like
change, conversion or exchange of shares, or any other change in
the corporate or capital structure of the Company; (v) the
September 2016 Restricted Securities; (vi) the November 2016
Restricted Securities; and (vii) any other Capital Stock that may
be issued with respect to the September 2016 Restricted Securities
or the November 2016 Restricted Securities by reason of any stock
split, reverse split, stock dividend (including any dividend or
distribution of securities convertible into Capital Stock),
combination, reorganization, recapitalization or other like change,
conversion or exchange of shares, or any other change in the
corporate or capital structure of the Company, in each case under
clauses (i), (ii), (iii), (iv), (v), (vi) or (vii), until such time
as all of the Stock Restrictions expire or terminate with respect
to such Shares or Capital Stock.

“Registrable Securities” means
Restricted Securities (excluding the September 2016 Restricted
Securities and the November 2016 Restricted Securities) that are
Common Stock.

“Restricted Stockholder Director”
means each director designated by the Restricted Stockholders,
including the directors initially designated pursuant to Section
2.1(b)(i).

“Restricted Stockholders” means the
Original Restricted Stockholders, the AutoWeb Securityholders, the
Joining PF Auto Stockholders, de Tezanos, Vargas, and
IDFC.

“SEC” means the Securities and
Exchange Commission.

“SEC Rule 144” means Rule 144
promulgated by the SEC under the Securities Act.

“SEC Rule 145” means Rule 145
promulgated by the SEC under the Securities Act.

“Section 382 5% Shareholder” means
a “5-percent shareholder” as defined under Section 382
and the rules and regulations thereunder.

“Securities Act” means the
Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.

“Securities Trading Policy” means
the Company’s then-current Securities Trading Policy as it
may be amended from time to time and furnished or made available to
de Tezanos and Vargas, including via the Company’s website
and/or intranet.

“Selling Expenses” means all
underwriting discounts, selling commissions, and stock transfer
taxes applicable to the sale of Restricted Securities in a
transaction described in Article IV, and fees and disbursements of
counsel for Restricted Stockholder.

“September 2016 Restricted
Securities” means the September 2016 de Tezanos
Restricted Securities and the September 2016 Vargas Restricted
Securities.

“September 2016 de Tezanos Restricted
Securities” means (i) the options to purchase 65,000
shares of Common Stock granted to de Tezanos by the Board on
September 21, 2016 and any shares of Common Stock issued upon
exercise of such options and (ii) up to 100,000 shares of Common
Stock that de Tezanos may purchase in the open market in compliance
with this Agreement, the Securities Trading Policy and applicable
Law.

 

 

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“September 2016 Vargas Restricted
Securities” means (i) the options to purchase 65,000
shares of Common Stock granted to Vargas by the Board on September
21, 2016 and any shares of Common Stock issued upon exercise of
such options and (ii) up to 100,000 shares of Common Stock that
Vargas may purchase in the open market in compliance with this
Agreement, the Securities Trading Policy and applicable
Law.

“Shares” means all issued and
outstanding shares of Common Stock that a Restricted Stockholder or
any of its Affiliates or Associates are collectively deemed to
Beneficially Own (as defined in the NOL Plan). In the event of any
change in the number of issued and outstanding shares of Common
Stock by reason of any stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible
into Shares), combination, reorganization, recapitalization or
other like change, conversion or exchange of shares, or any other
change in the corporate or capital structure of the Company, the
term “Shares”
shall be deemed to refer to and include the Shares as well as all
such stock dividends and distributions and any shares of capital
stock into which or for which any or all of the Shares may be
changed or exchanged.

“Stock Restrictions” means the
securities Laws restrictions, and the transfer restrictions and
obligations, voting proxy, right of first refusal and repurchase
option under Articles V, VI and VII.

“Stock Restrictions Period” means
the period commencing on October 1, 2015 and ending on October 1,
2017.

“Stockholder Representative”
has the meaning set forth in the Merger Agreement.

“Subsidiary” of any Person shall mean any
corporation or other entity of which a majority of the voting power
of the voting equity securities or equity interest is owned,
directly or indirectly, by such Person.

“Tax” or “Taxes” means any federal, state,
local, or foreign income, gross receipts, license, payroll,
employment, occupation, sales, use, excise, severance, stamp,
occupancy, premium, windfall profits, environmental (including
Taxes under Section 59A of the Code), customs duties, capital
stock, franchise, profits, net proceeds, transfer, withholding,
social security or similar, unemployment, disability, greenmail,
real and personal property (tangible and intangible), production,
escheat, registration, value added, alternative or add-on minimum,
estimated or other similar taxes, or other tax, charge, fee, levy,
deficiency or other assessment of whatever kind or nature, imposed
by any Tax Authority, together with any interest, penalties or
additions to tax relating thereto, and including an obligation to
indemnify or assume or otherwise succeed to or otherwise be liable
for the tax liability of any other Person (including any
Predecessor) as a transferee or successor or
otherwise.

“Tax Authority” means any branch,
office, department, agency, instrumentality, court, tribunal,
officer, employee, designee, representative, or other Person that
is acting for, on behalf or as a part of any Governmental Authority
that is engaged in or has any power, duty, responsibility or
obligation relating to the legislation, promulgation,
interpretation, enforcement, regulation, monitoring, supervision or
collection of or any other activity relating to any Tax or Tax
Return.

“Tax Return” means any return,
election, declaration, report, schedule, information return,
document, information, opinion, statement, or any attachment or
amendment to any of the foregoing (including any consolidated,
combined or unitary return) submitted or required to be submitted
to any Tax Authority and any claims for refund of Taxes
paid.

“Transfer” means (i) to sell,
assign, lend; offer; pledge; contract to sell; sell any option or
contract to purchase; purchase any option or contract to sell;
grant any option, right, or warrant to purchase; or otherwise
transfer or dispose of, directly or indirectly, any Shares or
Capital Stock or any securities convertible into or exercisable or
exchangeable (directly or indirectly) for Shares or Capital Stock
or (ii) to enter into any swap or other arrangement that transfers
to another, in whole or in part, any of the economic consequences
of ownership of such securities, whether any such transaction
described in clause (i) or this clause (ii) is to be settled by
delivery of Shares, Capital Stock or other securities, in cash, or
otherwise; or (iii) any Change in Control of a Restricted
Stockholder.

 

 

-8-

 

 

Aticle
II

Governance

 

               
2.1         Corporate
Governance.

(a)           Size
of Board. As of October 1,
2015, the authorized number of directors on the Board was increased
to nine (9) and shall be subject to increase or decrease by the
Board from time-to-time, in accordance with the Fifth Amended and
Restated Certificate of Incorporation of the Company, as amended,
the Bylaws of the Company and this Agreement.

(b)           Restricted
Stockholder Directors.

(i)         
As of October 1, 2015, the members of
the Board shall elect and appoint two (2) persons designated by the
Restricted Stockholders to the Board as Restricted Stockholder
Directors; provided
that if no other persons are so
designated, the initial Restricted Stockholder Directors shall be
de Tezanos and Vargas. Thereafter and subject to Section
2.1(b)(iii), the Restricted Stockholders shall be entitled to
designate the person or persons for nomination as a Restricted
Stockholder Director at each meeting of the Company’s
stockholders held for the election of directors at which a
Restricted Stockholder Director position is up for
election.

(ii)       
The Company shall cause the nomination
of each Restricted Stockholder Director (to the extent that such
Restricted Stockholder Director would be up for election at such
time) in connection with any subsequent proxy statement or
information statement pursuant to which the Company intends to
solicit stockholders with respect to the election of directors and
to have the Board recommend in connection with such subsequent
proxy statement or information statement that the stockholders of
the Company vote for the election of each Restricted Stockholder
Director up for election at such time.

(iii)       
If prior to the end of the term of any
member of the Board that is a Restricted Stockholder Director, a
vacancy in the office of such director shall occur by reason of
death, resignation, removal or disability, or for any other cause,
such vacancy shall be filled by the Restricted Stockholders with
another Restricted Stockholder Director, and the Restricted
Stockholders shall have the right to replace any Restricted
Stockholder Director, at any time, with or without
cause.

(iv)       
The Restricted Stockholders hereby
designate the Stockholder Representative to make any decision
regarding the designation or replacement of any Restricted
Stockholder Director or as otherwise required pursuant to Sections
2.1(b)(i) – (iii) above. The Restricted Stockholders hereby
acknowledge and agree that the Company may rely on any such
decision by the Stockholder Representative as binding on all
Restricted Stockholders.

(v)        
The Restricted Stockholders’
right to designate Restricted Stockholder Directors to the Board
shall terminate: (A) as to both Restricted Stockholder Director
seats, at such time as the Restricted Stockholders and all of their
Affiliates and Associates, individually and as a group,
Beneficially Own less than 4.9% of the Company’s outstanding
Common Stock (including any amount of Common Stock into which any
Capital Stock Beneficially Owned could, under any circumstance, be
convertible); and (B) as to one Restricted Stockholder Director
seat, at such time as the Restricted Stockholders and all of their
Affiliates and Associates, individually and as a group,
Beneficially Own less than 15.0% of the Company’s outstanding
Common Stock (including any amount of Common Stock into which any
Capital Stock Beneficially Owned could, under any circumstance, be
convertible). Upon the occurrence of subsection (A) of the
foregoing, both Restricted Stockholder Directors shall immediately
tender their resignations to the Board. Upon the occurrence of
subsection (B) in the foregoing, the Restricted Stockholder
Director that was appointed to the director class that was most
recently voted upon for election by the stockholders of the Company
shall immediately tender his or her resignation to the
Board.

 

 

-9-

 

 

(c)            
Additional
Independent Director. As of October 1, 2015, the members of the Board
appointed Robert J. Mylod to the Board.

(d)         
Governance
Standards. The nomination, appointment and election of any
Restricted Stockholder Director or of any additional directors
shall be subject to all legal requirements and the Company’s
governance standards regarding service as a director of the Company
and to the approval of the Corporate Governance and Nominations
Committee of the Board.

2.2
          Intentionally
Omitted.

2.3           Intentionally
Omitted.

2.4           Grant
of NOL Plan Exemptions

(a)         
Exemption
for the Derivative Securities and the Initial Restricted
Securities. Subject to and in
reliance upon the representations, warranties and obligations of
the Original Restricted Stockholder under the Original Agreement,
the Board granted the Original Restricted Stockholder a NOL Plan
Exemption solely with respect to the Original Restricted
Stockholder’s acquisition of the Derivative Securities and
the Initial Restricted Securities. As long as the Original
Restricted Stockholder remains in full compliance with this
Agreement, the Company shall maintain the NOL Plan Exemption in
effect with respect to the Initial Restricted Securities. This NOL
Plan Exemption is not applicable to the acquisition of Beneficial
Ownership of any other or additional Shares or Capital Stock by the
Original Restricted Stockholder or any of its Affiliates or
Associates.

(b)     
      Exemption
for the AutoWeb Restricted Securities. Subject to and in reliance upon the
representations, warranties and obligations of the applicable
AutoWeb Securityholder(s) and the Original Restricted Stockholder
under the Amended and Restated Stockholder Agreement, the Board
granted such AutoWeb Securityholders and the Original Restricted
Stockholder a NOL Plan Exemption solely with respect to such
AutoWeb Securityholders’ acquisition of the AutoWeb
Restricted Securities. As long as each of such AutoWeb
Securityholders and the Original Restricted Stockholder remain in
full compliance with this Agreement, the Company shall maintain the
NOL Plan Exemption in effect with respect to the AutoWeb Restricted
Securities. This NOL Plan Exemption, without the express written
approval of the Company in each such case, is not applicable to the
acquisition of Beneficial Ownership of any other or additional
Shares or Capital Stock by the Original Restricted Stockholder or
any AutoWeb Securityholders or any of their respective Affiliates
or Associates.

(c)           
Exemption
for the September 2016 Restricted Securities. Subject to and in reliance upon the
representations, warranties and obligations of the Restricted
Stockholders under this Agreement, the Board has granted the
Restricted Stockholders a NOL Plan Exemption solely with respect to
de Tezanos’ and Vargas’ acquisition of the September
2016 de Tezanos Restricted Securities and the September 2016 Vargas
Restricted Securities, as applicable. As long as the Restricted
Stockholders remain in full compliance with this Agreement, the
Company shall maintain the NOL Plan Exemption in effect with
respect to the September 2016 Restricted Securities. This NOL Plan
Exemption, without the express written approval of the Company in
each such case, is not applicable to the acquisition of Beneficial
Ownership of any other or additional Shares or Capital Stock by any
Restricted Stockholder or any of their respective Affiliates or
Associates.

(d)           
Exemption
for the November 2016 Restricted Securities. Subject to and in reliance upon the
representations, warranties and obligations of the Restricted
Stockholders under this Agreement, the Board has granted the
Restricted Stockholders a NOL Plan Exemption solely with respect to
IDFC’s and Ceiba’s acquisition of the November 2016
Restricted Securities. As long as the Restricted Stockholders
remain in full compliance with this Agreement, the Company shall
maintain the NOL Plan Exemption in effect with respect to the
November 2016 Restricted Securities. This NOL Plan Exemption,
without the express written approval of the Company in each such
case, is not applicable to the acquisition of Beneficial Ownership
of any other or additional Shares or Capital Stock by any
Restricted Stockholder or any of their respective Affiliates or
Associates.

 

 

-10-

 

 

2.5           Governmental
Filings. Upon request by
Company, each Restricted Stockholder and its Affiliates and
Associates shall cooperate with Company and furnish to Company such
information regarding such Restricted Stockholder and its
Affiliates and Associates, including information regarding the
beneficial ownership of such Restricted Stockholder and its
Affiliates and Associates.

2.6        
   Legends.

(a)           Restricted
Securities, excluding the September 2016 Restricted Securities and
the November 2016 Restricted Securities, shall be subject to and
bear the legends set forth below together with (i) any other
legends required by the securities laws of any state or other
jurisdiction to the extent such laws are applicable to the
Restricted Securities; and (ii) such other legends and restrictions
as are applicable to the Capital Stock
generally.

“THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (“SECURITIES ACT”), OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED UNLESS A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND OTHER
APPLICABLE STATE SECURITIES LAWS WITH RESPECT TO SUCH SECURITY IS
THEN IN EFFECT, OR SUCH REGISTRATION UNDER THE SECURITIES ACT AND
OTHER APPLICABLE SECURITIES LAWS IS NOT REQUIRED DUE TO AVAILABLE
EXEMPTIONS FROM SUCH REGISTRATION. SHOULD THERE BE ANY UNCERTAINTY
OR DISAGREEMENT BETWEEN THE COMPANY AND THE HOLDER AS TO THE
AVAILABILITY OF SUCH EXEMPTIONS, THEN THE HOLDER SHALL BE REQUIRED
TO DELIVER TO THE COMPANY AN OPINION OF COUNSEL (SKILLED IN
SECURITIES MATTERS, SELECTED BY THE HOLDER AND REASONABLY
SATISFACTORY TO THE COMPANY) IN FORM AND SUBSTANCE SATISFACTORY TO
COMPANY TO THE EFFECT THAT SUCH OFFER, SALE, TRANSFER, ASSIGNMENT,
PLEDGE, OR HYPOTHECATION IS IN COMPLIANCE WITH AN AVAILABLE
EXEMPTION UNDER THE SECURITIES ACT AND OTHER APPLICABLE SECURITIES
LAWS.”

“THE
SECURITIES EVIDENCED HEREBY ARE SUBJECT TO AN AMENDED AND RESTATED
STOCKHOLDER AGREEMENT DATED AS OF OCTOBER 1, 2015, AS MAY BE
AMENDED FROM TIME TO TIME, (A COPY OF WHICH MAY BE OBTAINED UPON
WRITTEN REQUEST FROM THE COMPANY), AND BY ACCEPTING ANY INTEREST IN
SUCH SECURITIES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED
TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF THAT
AMENDED AND RESTATED STOCKHOLDER AGREEMENT, INCLUDING CERTAIN
RESTRICTIONS ON TRANSFER, REPURCHASE RIGHTS, STANDSTILL PROVISIONS
AND VOTING ARRANGEMENTS, INCLUDING AN IRREVOCABLE PROXY, SET FORTH
THEREIN.”

(b)           In
addition to any legends pursuant to Section 2.6(a), Restricted
Securities acquired pursuant to the Merger Agreement also shall be
subject to and bear the legend set forth below:

THE
SECURITIES EVIDENCED HEREBY ARE SUBJECT TO THE TERMS OF AN
AGREEMENT AND PLAN OF MERGER DATED AS OF OCTOBER 1, 2015
(“MERGER AGREEMENT”) AND ARE SUBJECT TO VARIOUS RIGHTS
OF OFFSET BY THE COMPANY UNDER THE MERGER AGREEMENT.

 

 

-11-

 

 

(c)           The
September 2016 Restricted Securities and the November 2016
Restricted Securities shall be subject to and bear the legend set
forth below together with (i) any other legends required by the
securities laws of any state or other jurisdiction to the extent
such laws are applicable to the September 2016 Restricted
Securities or the November 2016 Restricted Securities, as
applicable; and (ii) such other legends and restrictions as are
applicable to the Capital Stock generally. Further, in order to
ensure the required legends are borne on the September 2016
Restricted Securities and the November 2016 Restricted Securities,
de Tezanos, Vargas, IDFC, and Ceiba are required to hold all
September 2016 Restricted Securities and November 2016 Restricted
Securities directly in de Tezanos’, Vargas’,
IDFC’s or Ceiba’s name, as applicable, or take other
actions as may be required in order to permit Company’s
transfer agent of record to denote the September 2016 Restricted
Securities and the November 2016 Restricted Securities as
Restricted Securities under this Agreement.

“THE
SECURITIES EVIDENCED HEREBY ARE SUBJECT TO A THIRD AMENDED AND
RESTATED STOCKHOLDER AGREEMENT DATED AS OF NOVEMBER 30, 2016, AS
MAY BE AMENDED FROM TIME TO TIME (A COPY OF WHICH MAY BE OBTAINED
UPON WRITTEN REQUEST FROM THE COMPANY), AND BY ACCEPTING ANY
INTEREST IN SUCH SECURITIES THE PERSON ACCEPTING SUCH INTEREST
SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE
PROVISIONS OF THAT THIRD AMENDED AND RESTATED STOCKHOLDER
AGREEMENT, INCLUDING CERTAIN RESTRICTIONS ON TRANSFER, REPURCHASE
RIGHTS, STANDSTILL PROVISIONS AND VOTING ARRANGEMENTS, INCLUDING AN
IRREVOCABLE PROXY, SET FORTH THEREIN.”

2.7           Stop
Transfer Instructions. So long
as Restricted Securities remain subject to the Stock Restrictions
and other provisions of this Agreement, Company may maintain
appropriate “stop transfer” orders with respect to such
securities represented thereby on its books and records and with
its transfer agent.

 

Article
III

Representations and
Warranties of Parties

3.1             
Representations
and Warranties of Restricted Stockholder. Each Restricted Stockholder hereby represents
and warrants to Company as follows:

(a)           

Organization and Good Standing.
Such Restricted Stockholder is, as applicable, (i) an entity, duly
formed and organized, validly existing, and in good standing under
the Laws of its jurisdiction of domicile or (ii) a natural
person.

(b)           Power
and Authorization. Such
Restricted Stockholder has the requisite power and lawful authority
to enter into and to perform its obligations under this Agreement
and to consummate the transactions contemplated by this Agreement.
The execution, delivery, and performance by such Restricted
Stockholder of this Agreement and the consummation by such
Restricted Stockholder of the transactions contemplated by this
Agreement have been duly and properly authorized in accordance with
applicable Laws, and no other action, entity or otherwise, on the
part of such Restricted Stockholder or any other Person is
necessary to authorize the execution, delivery, and performance by
such Restricted Stockholder of this Agreement.

(c)          

Execution and Performance of Agreement; Validity and Binding
Nature. This Agreement has been
duly executed and delivered by such Restricted Stockholder and
constitutes the legal, valid, and binding obligations of such
Restricted Stockholder, enforceable against such Restricted
Stockholder in accordance with its terms, except (i) to the extent
that such enforceability is limited by (1) bankruptcy,
receivership, moratorium, conservatorship, insolvency, fraudulent
conveyance, reorganization Laws or other Laws of general
application affecting the rights of creditors generally, or (2)
Laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies; and (ii) that the
indemnification provisions contained in this Agreement may be
limited by applicable federal or state securities
laws.

 

 

-12-

 

 

(d)           No
Conflicts/Consents. The
execution, delivery and performance of this Agreement by such
Restricted Stockholder does not and will not (with or without the
passage of time or the giving of notice): (i) violate or conflict
with any provision of such Restricted Stockholder’s Governing
Documents, if applicable, or any Laws to which such Restricted
Stockholder or its business, assets or properties are subject or
bound; (ii) violate or conflict with, result in a breach of any
provision of, or constitute a default, or otherwise cause any loss
of any benefit under any material Contract or other material
obligation to which such Restricted Stockholder is a party or by
which any of its business, assets or properties are subject or
bound; (iii) result in the termination or cancellation of any
material Contract to which such Restricted Stockholder is a party
or by which any of its assets or properties are subject or bound;
(iv) give any Governmental Authority or other Person the right to
challenge this Agreement or any aspect of the transactions
contemplated hereby or to exercise any remedy or obtain any relief
under any Law to which such Restricted Stockholder, or any of its
business, assets or properties may be subject or bound; (v) require
any Governmental Authorization, Consent or registration,
notification, filing and/or declaration with, or requirement of,
any Governmental Authority or other Person; (vi) result in,
require, or permit the creation or imposition of any Encumbrance
upon or with respect to any of the Restricted Securities; or (vii)
cause Company or any of its Affiliates to become subject to, or to
become liable for the payment of, any Tax.

(e)          
   
Intentionally Omitted.

(f)            

Actions or Proceedings. There is no Action or Proceeding pending, or to
the knowledge of Restricted Stockholder, threatened with respect to
Restricted Stockholder’s ownership of the Restricted
Securities, nor is there any judgment, decree, injunction or order
of any applicable Governmental Entity or arbitrator outstanding
which would prevent the carrying out by Restricted Stockholder of
its obligations under this Agreement or any of the transactions
contemplated hereby, declare unlawful the transactions contemplated
hereby or cause such transactions to be
rescinded.

(g)         

Beneficial Ownership. Other
than with respect to: (i) the Derivative Securities and the Initial
Restricted Securities acquired in connection with the Original
Agreement, (ii) the AutoWeb Restricted Securities, and (iii) the
September 2016 Restricted Securities, prior to the meeting of the
Board on November 11, 2016, such Restricted Stockholder
Beneficially Owned no shares of Common Stock or Capital Stock.
Following the meeting of the Board on November 11, 2016, the
Restricted Securities are and will be the only Shares, or options
to purchase Shares, Beneficially Owned by the Restricted
Stockholders together with their Affiliates and
Associates.

(h)         

Purchase Entirely for Own Account. The Restricted Securities acquired pursuant to
the Merger Agreement are being acquired by such Restricted
Stockholder for investment for Restricted Stockholder’s own
account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof. Such Restricted
Stockholder has no present intention of selling, granting any
participation in, or otherwise distributing the Restricted
Securities. Such Restricted Stockholder does not presently have any
contract, undertaking, agreement or arrangement with any Person to
sell, transfer or grant participations to such Person or to any
third Person, with respect to any of the Restricted
Securities.

(i)           

Disclosure of Information and Due Diligence. In addition to reviewing Company’s public
filings under the Exchange Act and Securities Act, such Restricted
Stockholder and each Affiliate or Associate thereof has had full
opportunity to discuss the Company’s business, management,
financial condition and results of operation, and affairs with
Company’s management, review such Contracts and other
documents as deemed warranted by such Restricted Stockholder or any
Affiliate or Associate thereof and to conduct such other due
diligence as such Restricted Stockholder or any Affiliate or
Associate thereof has deemed warranted and has acquired sufficient
information about Company to reach an informed and knowledgeable
decision to acquire the Restricted Securities.

(j)             

Accredited Investors. Such
Restricted Stockholder is an accredited investor as defined in Rule
501(a) of Regulation D promulgated under the Securities
Act.

 

 

-13-

 

 

(k)           

Foreign Investor. To the extent
such Restricted Stockholder is not a United States person (as
defined by Section 7701(a)(30) of the Code), such Restricted
Stockholder has satisfied itself as to the full observance of the
Laws of its jurisdiction in connection with its acquisition of the
Restricted Securities, including (i) the legal requirements within
its jurisdiction for the purchase of the Restricted Securities,
(ii) any foreign exchange restrictions applicable to such purchase,
(iii) any governmental or other Consents that may need to be
obtained, and (iv) the income tax and other tax consequences, if
any, that may be relevant to the purchase, holding, redemption,
sale, or transfer of the Restricted Securities. Such Restricted
Stockholder’s subscription and payment for and continued
Beneficial Ownership of the Restricted Securities will not violate
any applicable securities or other laws of such Restricted
Stockholder’s jurisdiction.

(l)           

Purchase Entirely for Own Account (de Tezanos and
Vargas). The September 2016
Restricted Securities acquired by de Tezanos and Vargas, as
applicable, following the meeting of the Board on September 21,
2016 are being acquired by such Restricted Stockholder for
investment for Restricted Stockholder’s own account, not as a
nominee or agent, and not with a view to the resale or distribution
of any part thereof. Such Restricted Stockholder has no present
intention of selling, granting any participation in, or otherwise
distributing the September 2016 Restricted Securities. Such
Restricted Stockholder does not presently have any contract,
undertaking, agreement or arrangement with any Person to sell,
transfer or grant participations to such Person or to any third
Person, with respect to any of the September 2016 Restricted
Securities.

(m)         

Purchase Entirely for Own Account (IDFC and
Ceiba). The November 2016
Restricted Securities acquired by IDFC and Ceiba, following the
meeting of the Board on November 11, 2016 are being acquired by
such Restricted Stockholder for investment for Restricted
Stockholder’s own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof. Such
Restricted Stockholder has no present intention of selling,
granting any participation in, or otherwise distributing the
November 2016 Restricted Securities. Such Restricted Stockholder
does not presently have any contract, undertaking, agreement or
arrangement with any Person to sell, transfer or grant
participations to such Person or to any third Person, with respect
to any of the November 2016 Restricted
Securities.

    
           
3.2        Representations
and Warranties of Company. 
Company
hereby represents and warrants to the Restricted Stockholders as
follows:

(a)         
  
Organization and Good Standing.
Company is a corporation duly formed and organized, validly
existing, and in good standing under the Laws of the State of
Delaware.

(b)        

Power and Authorization.
Company has the requisite power and lawful authority to enter into
and to perform its obligations under this Agreement and to
consummate the transactions contemplated by this Agreement. The
execution, delivery, and performance by Company of this Agreement
and the consummation by Company of the transactions contemplated by
this Agreement have been duly and properly authorized in accordance
with applicable Laws, and no other action, entity or otherwise, on
the part of Company or any other Person is necessary to authorize
the execution, delivery, and performance by Company of this
Agreement.

(c)           Execution
and Performance of Agreement; Validity and Binding
Nature. This Agreement has been
duly executed and delivered by Company and constitutes the legal,
valid, and binding obligations of Company, enforceable against
Company in accordance with its terms, except (i) to the extent that
such enforceability is limited by (1) bankruptcy, receivership,
moratorium, conservatorship, insolvency, fraudulent conveyance,
reorganization Laws or other Laws of general application affecting
the rights of creditors generally, or (2) Laws relating to the
availability of specific performance, injunctive relief, or other
equitable remedies; and (ii) that the indemnification provisions
contained in this Agreement may be limited by applicable federal or
state securities laws.

 

 

-14-

 

 

(d)           No
Conflicts/Consents. The
execution, delivery and performance of this Agreement by Company
will not (with or without the passage of time or the giving of
notice): (i) violate or conflict with any provision of
Company’s Governing Documents or any Laws to which Company or
its business, assets or properties are subject or bound; (ii)
violate or conflict with, result in a breach of any provision of,
or constitute a default, or otherwise cause any loss of any benefit
under any material Contract or other obligation to which Company is
a party or by which any of its business, assets or properties are
subject or bound; (iii) result in the termination or cancellation
of any material Contract to which Company is a party or by which
any of its assets or properties are subject or bound; (iv) give any
Governmental Authority or other Person the right to challenge this
Agreement or any aspect of the transactions contemplated hereby or
to exercise any remedy or obtain any relief under any Law to which
Company, or any of its business, assets or properties may be
subject or bound; (v) require any Governmental Authorization,
Consent or registration, notification, filing and/or declaration
with, or requirement of, any Governmental Authority or other
Person; (vi) result in, require, or permit the creation or
imposition of any Encumbrance upon or with respect to any of the
Restricted Securities; or (vii) cause Company or any of its
Affiliates to become subject to, or to become liable for the
payment of, any Tax.

(e)         

Actions or Proceedings. There is no Action or Proceeding pending, or to
the knowledge of Company, threatened with respect to Restricted
Stockholder’s ownership of the Restricted Securities, nor is
there any judgment, decree, injunction or order of any applicable
Governmental Entity or arbitrator outstanding which would prevent
the carrying out by Company of its obligations under this Agreement
or any of the transactions contemplated hereby, declare unlawful
the transactions contemplated hereby or cause such transactions to
be rescinded.

 

Article
IV

Registration
Rights

The
Restricted Stockholders are granted the following registration
rights after October 1, 2018 with regard to Registrable Securities
held by the Restricted Stockholders.

 

               
4.1        Demand
Registration.

 

(a)           If
at any time the Company is eligible to use a Form S-3 registration
statement, the Company receives a request in writing from one or
more Restricted Stockholders (“Requesting Restricted
Stockholders”) that the
Company file a Form S-3 registration statement with respect to
outstanding Registrable Securities held by the Requesting
Restricted Stockholders having an anticipated aggregate offering
price, net of Selling Expenses, of at least five million dollars
($5,000,000.00) (a “Demand Registration
Request”), then the
Company shall as soon as practicable, and in any event within
ninety (90) days after the date the Demand Registration Request is
received by the Company, file a Form S-3 registration statement
under the Securities Act covering all Restricted Securities
requested to be included in such registration by the Requesting
Restricted Stockholders, subject to the limitations of Section
4.1(b), 4.1(c), and Section 4.3. The Company shall use reasonable
best efforts to cause such Form S-3 registration statement to be
declared effective by the SEC as soon as practicable after filing.
Any registration requested by any Restricted Stockholder pursuant
to this Section 4.1 is referred to in this Agreement as a
“Demand
Registration.”

(b)           Notwithstanding
the foregoing obligations, if the Company furnishes to the
applicable Requesting Restricted Stockholders a certificate signed
by the Company’s chief executive officer stating that in the
good faith judgment of the Board it would be materially detrimental
to the Company and its stockholders for such registration statement
to either become effective or remain effective for as long as such
registration statement otherwise would be required to remain
effective, because such action would: (i) materially interfere with
a significant acquisition, corporate reorganization, or other
similar transaction involving the Company; (ii) require premature
disclosure of material information that the Company has a bona fide
business purpose for preserving as confidential; or (iii) render
the Company unable to comply with requirements under the Securities
Act or Exchange Act, then the Company shall have the right to defer
taking action with respect to such filing, and any time periods
with respect to filing or effectiveness thereof shall be tolled
correspondingly, for a period of not more than ninety
(90) days after the Demand Registration
Request; provided,
however, that the Company may not invoke this right more than once
with respect to any given Requesting Restricted Stockholders in any
twelve (12) month period; and provided further
that the Company shall not register
any securities for its own account or that of any other stockholder
during such ninety (90) day period other than an Excluded
Registration.

 

 

-15-

 

 

(c)           The
Company shall not be obligated to effect, or to take any action to
effect, any registration pursuant to Section 4.1(a) (i) during the
period that is ninety (90) days before the Company’s good
faith estimate of the date of filing of, and ending on a date that
is ninety (90) days after the effective date of, a
Company-initiated registration, provided, that the Company is
actively employing in good faith commercially reasonable efforts to
cause such registration statement to become effective; or (ii) if
the Company has effected a registration pursuant to Section 4.1(a)
within the twelve (12) month period immediately preceding the date
of such request. A registration shall not be counted as
“effected” for purposes of this Section 4.1(c) until
such time as the applicable registration statement has been
declared effective by the SEC, unless the Requesting Restricted
Stockholders withdraw their request for such registration, elects
not to pay the registration expenses therefor, and forfeits its
right to one demand registration statement pursuant to this Section
4.1 as provided in Section 4.6, in which case such withdrawn
registration statement shall be counted as “effected”
for purposes of this Section 4.1(c).

(d)           The
Restricted Stockholders as a group shall only be entitled to two
(2) Demand Registrations under this Section
4.1.

(e)         
Promptly after receipt of any Demand
Registration Request, the Company shall give written notice of such
request to all other Restricted Stockholders. Upon the request in
writing of a Restricted Stockholder given within twenty (20) days
after such notice is given by the Company, the Company shall use,
subject to the provisions of Section 4.3, its commercially
reasonable efforts to register, in accordance with the provisions
of this Agreement, all the Registrable Securities that have been
properly requested to be registered in such Demand
Registration.

4.2           Company
Registration. If the Company
proposes to register (including, for this purpose, a registration
effected by the Company for stockholders other than Restricted
Stockholders) any of its capital stock or other securities under
the Securities Act in connection with the public offering of such
securities solely for cash (other than in an Excluded
Registration), the Company shall, at such time, promptly give each
Restricted Stockholder notice of such registration. Upon the
request in writing of a Restricted Stockholder given within twenty
(20) days after such notice is given by the Company, the Company
shall, subject to the provisions of Section 4.3, cause to be
registered all of the Registrable Securities that such Restricted
Stockholder has properly requested to be included in such
registration. The Company shall have the right to terminate or
withdraw any registration initiated by it under this Section 4.2
before the effective date of such registration, whether or not any
Restricted Stockholder has elected to include Registrable
Securities in such registration. The expenses (other than Selling
Expenses) of such withdrawn registration shall be borne by the
Company in accordance with Section 4.6.

 

4.3           
Underwriting
Requirements.

 

(a)           If,
pursuant to Section 4.1, the Requesting Restricted Stockholders
intend to distribute Registrable Securities covered by the Demand
Registration Request by means of an underwriting, the Requesting
Restricted Stockholders shall so advise the Company as a part of
the Demand Registration Request. The underwriter(s) will be
selected by the Requesting Restricted Stockholders subject to the
reasonable approval of Company. In such event, the right of any
Restricted Stockholders to include its Registrable Securities in
such registration shall be conditioned upon the Restricted
Stockholder’s participation in such underwriting and the
inclusion of the Restricted Stockholder’s Registrable
Securities in the underwriting to the extent provided herein. The
Requesting Restricted Stockholders (and any other Restricted
Stockholders participating in the Demand Registration pursuant to
Section 4.1(e) (the Requesting Restricted Stockholders and such
additional Restricted Stockholders participating in the Demand
Registration are collectively referred to herein as
“Participating Restricted
Stockholders”)) shall
(together with the Company as provided in Section 4.4(e)) enter
into an underwriting agreement in customary form with the
underwriter(s) selected for such underwriting. Notwithstanding any
other provision of this Section 4.3, if the managing underwriter(s)
advise(s) the Participating Restricted Stockholders in writing that
marketing factors require a limitation on the number of shares to
be underwritten, then the number of Registrable Securities that may
be included in the underwriting shall be reduced to the number of
Registrable Securities determined by the managing underwriter(s),
which securities will be so included in the following order of
priority: (i) first, all Registrable Securities of the Requesting
Restricted Stockholders, (ii) second, all
Registrable Securities of any other Participating Restricted
Stockholder, pro rata on the basis of the aggregate number of
Registrable Securities owned by each such Person, and (iii) third,
any other securities of the Company that have been requested to be
so included, subject to the terms of this Agreement.

 

 

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(b)           In
connection with any offering involving an underwriting of shares of
the Company’s capital stock pursuant to Section 4.2, the
Company shall not be required to include any Registrable Securities
of any Restricted Stockholder in such underwriting unless such
Restricted Stockholder accepts the terms of the underwriting as
agreed upon between the Company and the underwriters, and then only
in such quantity as the underwriters in their sole discretion
determine will not jeopardize the success of the offering by the
Company. If the total number of securities, including Registrable
Securities, requested by stockholders to be included in such
offering exceeds the number of securities to be sold (other than by
the Company) that the underwriters in their reasonable discretion
determine is compatible with the success of the offering, then the
Company shall be required to include in the offering only that
number of such securities, including Registrable Securities, which
the underwriters and the Company in their sole discretion determine
will not jeopardize the success of the offering. If the managing
underwriter(s) determine that less than all of the Registrable
Securities requested to be registered can be included in such
offering, then the Registrable Securities that are included in such
offering shall be reduced to the number determined by the managing
underwriter(s). Notwithstanding the foregoing, in no event shall
the number of Registrable Securities included in the offering be
reduced unless all other securities (other than securities to be
sold by the Company) are first entirely excluded from the offering
or, subject to Section 4.11, cutback proportionately with Third
Party Registrable Securities (as defined in Section 4.11) requested
to be registered. For purposes of the provision in this Section
4.3(b) concerning apportionment, for any Participating Restricted
Stockholder that is a partnership, limited liability company, or
corporation, the partners, members, retired partners, retired
members, stockholders, and Affiliates of such Participating
Restricted Stockholder, or the estates and Immediate Family Members
of any such partners, retired partners, members, and retired
members and any trusts for the benefit of any of the foregoing
Persons, shall be deemed to be a single Participating Restricted
Stockholder,” and any pro rata reduction with respect to such
Participating Restricted Stockholder” shall be based upon the
aggregate number of Registrable Securities owned by all Persons
included in such Participating Restricted
Stockholder.

(c)           
For purposes of Section 4.1, a
registration shall not be counted as “effected” if, as
a result of an exercise of the underwriter’s cutback
provisions in Section 4.3(b), fewer than fifty percent (50%) of the
total number of Registrable Securities that the Requesting
Restricted Stockholders have requested to be included in such
registration statement are actually included.

4.4           Obligations
of the Company. Whenever required under this Article IV to effect
the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:

(a)           prepare
and file with the SEC a registration statement with respect to such
Registrable Securities and use its commercially reasonable efforts
to cause such registration statement to become effective and, upon
the request of the Participating Restricted Stockholders, keep such
registration statement effective for a period of at least one
hundred eighty (180) days or, if earlier, until the distribution
contemplated in the registration statement has been
completed; provided,
however, that (i) such one
hundred eighty (180) day period shall be extended for a period of
time equal to the period the Participating Restricted Stockholders
refrain, at the request of an underwriter of securities of the
Company, from selling any securities included in such registration,
and (ii) in the case of any registration of Registrable Securities
on Form S-3 that are intended to be offered on a continuous or
delayed basis, subject to compliance with applicable SEC rules,
such one hundred eighty (180) day period shall be extended, if
necessary, to keep the registration statement effective until all
such Registrable Securities are sold;

(b)           prepare
and file with the SEC such amendments and supplements to such
registration statement, and the prospectus used in connection with
such registration statement, as may be necessary to comply with the
Securities Act in order to enable the disposition of all securities
covered by such registration statement;

(c)           
furnish to the Participating
Restricted Stockholders such numbers of copies of a prospectus,
including a preliminary prospectus, as required by the Securities
Act, and such other documents as the Participating Restricted
Stockholder may reasonably request in order to facilitate the
disposition of the Registrable Securities;

 

 

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(d)        
use its commercially reasonable
efforts to register and qualify the securities covered by such
registration statement under such other securities or blue-sky laws
of such jurisdictions as shall be reasonably requested by any
Participating Restricted Stockholder; provided that
the Company shall not be required to
qualify to do business or to file a general consent to service of
process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may
be required by the Securities Act;

(e)         
in the event of any underwritten
public offering, enter into and perform its obligations under an
underwriting agreement, in usual and customary form, with the
underwriter(s) of such offering;

(f)        
use its commercially reasonable
efforts to cause all such Registrable Securities covered by such
registration statement to be listed on a national securities
exchange or trading system and each securities exchange and trading
system (if any) on which similar securities issued by the Company
are then listed;

(g)        
provide a transfer agent and registrar
for all Registrable Securities registered pursuant to this
Agreement and provide a CUSIP number for all such Registrable
Securities, in each case not later than the effective date of such
registration;

(h)        
promptly make available for inspection
by the Participating Restricted Stockholders, any managing
underwriter(s) participating in any disposition pursuant to such
registration statement, and any attorney or accountant or other
agent retained by any such underwriter or selected by the
Participating Restricted Stockholders, all financial and other
records, pertinent corporate documents, and properties of the
Company, and cause the Company’s officers, directors,
employees, and independent accountants to supply all information
reasonably requested by any such seller, underwriter, attorney,
accountant, or agent, in each case, as necessary or advisable to
verify the accuracy of the information in such registration
statement and to conduct appropriate due diligence in connection
therewith;

(i)         
notify the Participating Restricted
Stockholders, promptly after the Company receives notice thereof,
of the time when such registration statement has been declared
effective or a supplement to any prospectus forming a part of such
registration statement has been filed; and

(j)         
after such registration statement
becomes effective, notify the Participating Restricted Stockholders
of any request by the SEC that the Company amend or supplement such
registration statement or prospectus.

 

4.5         
Furnish
Information. It shall be a
condition precedent to the obligations of Company to take any
action pursuant to this Article IV with respect to the Registrable
Securities of any Restricted Stockholder that the Restricted
Stockholder shall furnish to the Company such information regarding
the Restricted Stockholder, the Registrable Securities held by the
Restricted Stockholder, and the intended method of disposition of
such securities as is reasonably required to effect the
registration of the Restricted Stockholder’s Registrable
Securities.

 

4.6           Expenses
of Registration. All expenses
(other than Selling Expenses) incurred in connection with
registrations, including without limitation, those expenses for
filings, or qualifications pursuant to Article IV, including all
registration, filing, and qualification fees; printers’ and
accounting fees; fees and expenses of compliance with securities
laws or blue sky laws; and fees and disbursements of counsel for
Company shall be borne and paid by Company; provided, however, that
Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to Section 4.1 if the
registration request is subsequently withdrawn at the request of
the Participating Restricted Stockholders (in which case the
Participating Restricted Stockholders shall bear such expenses),
unless the Participating Restricted Stockholders agree to forfeit
the right to one (1) registration pursuant to Section 4.1, as the
case may be; provided
further that if, at the time of
such withdrawal, the Participating Restricted Stockholders have
learned of a material adverse change in the condition, business, or
prospects of Company from that known to the Participating
Restricted Stockholders at the time of its request and has
withdrawn the request with reasonable promptness after learning of
such information, then the Participating Restricted
Stockholders
shall not be required to pay any of such expenses and shall not
forfeit the right to one (1) registration pursuant to Section 4.1.
All Selling Expenses relating to Registrable Securities registered
pursuant to this Article IV shall be borne and paid by the
Participating Restricted Stockholders.

 

 

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4.7         
Delay
of Registration. No Restricted
Stockholder shall have any right to obtain or seek an injunction
restraining or otherwise delaying any registration pursuant to this
Agreement as the result of any controversy that might arise with
respect to the interpretation or implementation of this Article
IV.

 

4.8              
If any Registrable Securities are included in a
registration statement under this Article IV:

(a)           To
the maximum extent permitted by applicable Law, Company will
indemnify and hold harmless the Participating Restricted
Stockholders, and the Affiliates, Associates, partners, members,
officers, directors, and stockholders of the Participating
Restricted Stockholders; legal counsel and accountants for the
Participating Restricted Stockholders; any underwriter (as defined
in the Securities Act) for the Participating Restricted
Stockholders; and each Person, if any, who controls the
Participating Restricted Stockholders or underwriter within the
meaning of the Securities Act or the Exchange Act, against any
Damages, and Company will pay to each such Participating Restricted
Stockholder, underwriter, controlling Person, or other
aforementioned Person any legal or other expenses reasonably
incurred thereby in connection with investigating or defending any
Action or Proceeding from which Damages may result, as such
expenses are incurred; provided,
however,
that the indemnity agreement contained in this Section 4.8(a) shall
not apply to amounts paid in settlement of any such Action or
Proceeding if such settlement is effected without the consent of
the Company, which consent shall not be unreasonably withheld, nor
shall the Company be liable for any Damages to the extent that they
arise out of or are based upon actions or omissions made in
reliance upon and in conformity with written information furnished
by or on behalf of any such Participating Restricted Stockholder,
underwriter, controlling Person, or other aforementioned Person
expressly for use in connection with such
registration.

(b)           To
the extent permitted by applicable Law, each Participating
Restricted Stockholder, severally and not jointly, will indemnify
and hold harmless Company, and each of its directors, each of its
officers who has signed the registration statement, each Person (if
any), who controls Company within the meaning of the Securities
Act, legal counsel and accountants for Company, any underwriter (as
defined in the Securities Act), any other Person selling securities
in such registration statement, and any controlling Person of any
such underwriter or other selling Person, against any Damages, in
each case only to the extent that such Damages arise out of or are
based upon actions or omissions made in reliance upon and in
conformity with written information furnished by or on behalf of
such Participating Restricted Stockholder expressly for use in
connection with such registration; and such Participating
Restricted Stockholder will pay to Company and each other
aforementioned Person any legal or other expenses reasonably
incurred thereby in connection with investigating or defending any
claim or proceeding from which Damages may result, as such expenses
are incurred; provided, however, that the indemnity agreement
contained in this Section 4.8(b) shall not apply to amounts paid in
settlement of any such claim or proceeding if such settlement is
effected without the consent of such Participating Restricted
Stockholder, which consent shall not be unreasonably withheld; and
provided further that in no event shall any indemnity under this
Section 4.8(b) exceed the proceeds from the offering received by
such Participating Restricted Stockholder (net of any Selling
Expenses paid by such Participating Restricted Stockholder), except
in the case of fraud or willful misconduct by such Participating
Restricted Stockholder.

(c)           Promptly
after receipt by an indemnified party under this Section 4.8 of
notice of the commencement of any Action or Proceeding (including
any governmental Action or Proceeding) for which a party may be
entitled to indemnification hereunder, such indemnified party will,
if a claim in respect thereof is to be made against any
indemnifying party under this Section 4.8, give the indemnifying
party notice of the commencement thereof. The indemnifying party
shall have the right to participate in such Action or Proceeding
and, to the extent the indemnifying party so desires, participate
jointly with any other indemnifying party to which notice has been
given, and to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified
party (together with all other indemnified parties that may be
represented without conflict by one counsel) shall have the right
to retain one (1) separate counsel, with the fees and expenses to
be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party
represented by such counsel in such action. Failure to give notice
to the indemnifying party within a reasonable
time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the indemnified party under
this Section 4.8, to the extent that such failure does not
materially prejudice the indemnifying party’s ability to
defend such action.

 

 

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(d)           Notwithstanding
anything else herein to the contrary, the foregoing indemnity
agreements of Company and the Participating Restricted Stockholders
are subject to the condition that, insofar as they relate to any
Damages arising from any untrue statement or alleged untrue
statement of a material fact contained in, or omission or alleged
omission of a material fact from, a preliminary prospectus (or
necessary to make the statements therein not misleading) that has
been corrected in the form of prospectus included in the
registration statement at the time it becomes effective, or any
amendment or supplement thereto filed with the SEC pursuant to Rule
424(b) under the Securities Act (“Final
Prospectus”), such
indemnity agreement shall not inure to the benefit of any Person if
a copy of the Final Prospectus was furnished to the indemnified
party and such indemnified party failed to deliver, at or before
the confirmation of the sale of the shares registered in such
offering, a copy of the Final Prospectus to the Person asserting
the loss, liability, claim, or damage in any case in which such
delivery was required by the Securities Act.

(e)           To
provide for just and equitable contribution to joint liability
under the Securities Act in any case in which either (i) any party
otherwise entitled to indemnification hereunder makes a claim for
indemnification pursuant to this Section 4.8
but it is judicially determined (by
the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be
enforced in such case, notwithstanding the fact that this Section
4.8 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any party
hereto for which indemnification is provided under this Section
4.8, then, and in each such case, such parties will contribute to
the aggregate losses, claims, damages, liabilities, or expenses to
which they may be subject (after contribution from others) in such
proportion as is appropriate to reflect the relative fault of each
of the indemnifying party and the indemnified party in connection
with the statements, omissions, or other actions that resulted in
such loss, claim, damage, liability, or expense, as well as to
reflect any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall
be determined by reference to, among other things, whether the
untrue or allegedly untrue statement of a material fact, or the
omission or alleged omission of a material fact, relates to
information supplied by the indemnifying party or by the
indemnified party and the parties’ relative intent,
knowledge, access to information, and opportunity to correct or
prevent such statement or omission; provided,
however,
that, in any such case, (x) each Participating Restricted
Stockholder will not be required to contribute any amount in excess
of the public offering price of all Registrable Securities offered
and sold by such Participating Restricted Stockholder pursuant to
such registration statement except in the case of willful
misconduct or fraud, and (y) no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation; and
provided,
further,
that in no event shall such
Participating Restricted Stockholder’s liability pursuant to
this Section 4.8(e), when combined with the amounts paid or payable
by such Participating Restricted Stockholder pursuant to Section
4.8(b), exceed the proceeds from the offering received by such
Participating Restricted Stockholder (net of any Selling Expenses
paid by such Participating Restricted Stockholder), except in the
case of willful misconduct or fraud by such Participating
Restricted Stockholder.

(f)         
Notwithstanding the foregoing, to the
extent that the provisions on indemnification and contribution
contained in the underwriting agreement entered into in connection
with the underwritten public offering are in conflict with the
foregoing provisions, the provisions in the underwriting agreement
shall control.

(g)          
Unless otherwise superseded by an
underwriting agreement entered into in connection with the
underwritten public offering, the obligations of Company and the
Restricted Stockholders under this Section 4.8 shall survive the
completion of any offering of Registrable Securities in a
registration under this Article IV, and otherwise shall survive the
termination of this Agreement.

 

 

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4.9        
Reports
Under Exchange Act. With a view
to making available to the Restricted Stockholders the benefits of
SEC Rule 144 and any other rule or regulation of the SEC that may
at any time permit the Restricted Stockholders to sell securities
of the Company to the public without registration or pursuant to a
registration on Form S-3, the Company shall:

(a)         
make and keep available adequate
current public information, as those terms are understood and
defined in SEC Rule 144;

(b)        
use commercially reasonable efforts to
file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the
Exchange Act (at any time after the Company has become subject to
such reporting requirements); and

(c)        
furnish to any Restricted Stockholder,
so long as such Restricted Stockholder owns any Registrable
Securities, forthwith upon request (i) to the extent accurate, a
written statement by the Company that it has complied with the
reporting requirements of SEC Rule 144, the Securities Act, and the
Exchange Act, or that it qualifies as a registrant whose securities
may be resold pursuant to Form S-3 (at any time after Company so
qualifies); (ii) a copy of the most recent annual or quarterly
report of Company and such other reports and documents so filed by
Company; and (iii) such other information as may be reasonably
requested in availing such Restricted Stockholder of any rule or
regulation of the SEC that permits the selling of any such
securities without registration (at any time after the Company has
become subject to the reporting requirements under the Exchange
Act) or pursuant to Form S-3 (at any time after Company so
qualifies to use such form).

4.10      
“Market
Stand-off” Agreement.
Each Restricted Stockholder hereby agrees that it will not, without
the prior written consent of the managing underwriter(s), during
the period commencing on the date of the final prospectus relating
to a registration of equity securities of the Company under the
Securities Act and ending on the date specified by the Company and
the managing underwriter(s) (such period not to exceed (x) one
hundred eighty (180) days, which period may be extended upon the
request of the managing underwriter(s) for an additional period of
up to fifteen (15) days if the Company issues or proposes to issue
an earnings or other public release within fifteen (15) days of the
expiration of the 180-day lockup period), Transfer any Shares or
Capital Stock held immediately before the effective date of the
registration statement for such offering. The foregoing provisions
of this Section 4.10 shall not apply to the sale of any securities
to an underwriter pursuant to an underwriting agreement. The
underwriters in connection with such registration are intended
third-party beneficiaries of this Section 4.10 and shall have the
right, power, and authority to enforce the provisions hereof as
though they were a party hereto. Each Restricted Stockholder
further agrees to execute such agreements as may be reasonably
requested by the underwriters in connection with such registration
that are consistent with this Section 4.10 or that are necessary to
give further effect thereto.

4.11      
Addition
of Third Party Registrable Securities. Notwithstanding any other provision of this
Article IV, in the event the Company grants to any third parties
any rights to register their securities under the Securities Act
(“Third Party Registrable
Securities”), such rights
may be granted by the Company on a pari passu basis with the rights
granted to the Restricted Stockholders under this Agreement. Any
such Third Party Registrable Securities may be included in any
registration statement in which Registrable Securities are included
on the same terms and conditions as set forth in this Article IV as
if the Third Party Registrable Securities were Registrable
Securities and the holders of the Third Party Registrable
Securities were Restricted Stockholders, subject to customary
provisions for pro rata participation, allocations and cutbacks of
securities included any such registrations. Upon request by the
Company, the Parties shall amend this Article IV to provide for
such combined participation by holders of Third Party Registrable
Securities or terminate the provisions of this Article IV and enter
into a separate agreement providing for such combined
participation.

 

 

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4.12      
Termination
of Registration Rights. No
Restricted Stockholder shall be entitled to exercise any right
provided for in this Article IV after the earlier of (i) October 1,
2020; and (ii) such time as all Registrable Securities held by such
Restricted Stockholder, together with its Affiliates, may be sold
in a three (3)-month period without registration pursuant to SEC
Rule 144, subject to the volume limitations contained in such rule.
The registration rights granted to the Restricted Stockholders
under this Article IV are personal to each Restricted Stockholder
and may not be transferred or assigned to any subsequent holder of
Registrable Securities, except that a permitted transferee of
Registrable Securities that becomes a party to this Agreement as an
additional Restricted Stockholder in accordance with Section 5.6
will be entitled to the registration rights under this Article IV
with all other Restricted Stockholders (and other third parties
holding registration rights as provided in Section 4.11), subject
to customary provisions for pro rata participation, allocations and
cutbacks of securities included any such registrations. Each
Restricted Stockholder acknowledges that any request for
registration under the Securities Act pursuant to this Agreement
shall give rise to the right of first refusal set forth in Section
5.3, to the extent such right has not been previously
terminated.

 

Article
V

Transfer
Restrictions

 

               
5.1         Restriction Under Securities
Laws.

(a)          
Each Restricted Stockholder
understands that Restricted Securities (excluding the September
2016 Restricted Securities and the November 2016 Restricted
Securities) have not been, and will not be, registered under the
Securities Act, by reason of a specific exemption from the
registration provisions of the Securities Act which depends upon,
among other things, the bona fide nature of the investment intent
and the accuracy of the Restricted Stockholder’s
representations and warranties made to Company. Each Restricted
Stockholder understands that the Restricted Securities (excluding
the September 2016 Restricted Securities and the November 2016
Restricted Securities) are “restricted
securities” under
applicable U.S. federal and state securities Laws and that,
pursuant to these Laws, each Restricted Stockholder must hold the
Restricted Securities (excluding the September 2016 Restricted
Securities and the November 2016 Restricted Securities)
indefinitely unless they are registered with the SEC and qualified
by state authorities or an exemption from such registration and
qualification requirements is available. Each Restricted
Stockholder acknowledges that Company has no obligation to register
or qualify the Restricted Securities for resale except as set forth
in this Agreement. Each Restricted Stockholder further acknowledges
that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including,
but not limited to, the time and manner of sale, the holding period
for the Restricted Securities, and on requirements relating to
Company which are outside of the Restricted Stockholder’s or
the Company’s control, and which Company is under no
obligation and may not be able to satisfy.

(b)         
Before any proposed Transfer of any
Restricted Securities by any Restricted Stockholder to a permitted
purchaser, pledgee, assignee or transferee, unless there is in
effect a registration statement under the Securities Act covering
the proposed transaction, such Restricted Stockholder shall give
notice to Company of such Restricted Stockholder’s intention
to effect such Transfer. Each such notice shall describe the manner
and circumstances of the proposed sale, pledge, or transfer in
sufficient detail. If at the time of the proposed Transfer of
Restricted Securities no registration statement is in effect with
respect to such shares under applicable provisions of the
Securities Act and other applicable securities laws, such
Restricted Stockholder hereby agrees that it will not Transfer all
or any part of the Restricted Securities unless there shall be
available exemptions from such registration requirements. Should
there be any uncertainty or disagreement between Company and such
Restricted Stockholder as to the availability of such exemptions,
then such Restricted Stockholder shall be required to deliver to
Company an opinion of counsel (skilled in securities matters,
selected by such Restricted Stockholder and reasonably satisfactory
to Company) in form and substance satisfactory to Company to the
effect that such Transfer is in compliance with an available
exemption under the Securities Act and other applicable securities
laws.

 

(c)          
In addition to the other restrictions
set forth in this Article V, Restricted Securities may only be
acquired or Transferred by a Restricted Stockholder in compliance
with the Securities Trading Policy generally applicable to officers
and directors of the Company. The September 2016 Restricted
Securities and the November
2016 Restricted Securities may be purchased by Ceiba, IDFC, de
Tezanos and Vargas after 2016, so long as such purchases comply
with the Securities Trading Policy, this Agreement and applicable
Law.

 

 

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(d)          
Each Restricted Stockholder
acknowledges that the United States securities Laws prohibit any
person or entity from: (i) purchasing or selling a security, in
breach of a fiduciary duty or other relationship of trust and
confidence, while in possession of material, nonpublic information
about the security, or (ii) tipping material nonpublic information
in breach of such a fiduciary duty or other relationship. In
addition, each Restricted Stockholder acknowledges that such
Restricted Stockholder and any Affiliates of such Restricted
Stockholder may be deemed “affiliates” of Company under
applicable securities Laws, and if so, such Restricted Stockholder
will be subject to additional restrictions on Transfers under
applicable securities Laws by reason of such Restricted
Stockholder’s status as an “affiliate” of the
Company, which, among other things, may result in such Restricted
Stockholder being deemed to be an underwriter or in possession of
material, non-public information of Company. Each Restricted
Stockholder agrees that it will not: (i) purchase or sell any
security of Company while in possession of, or on the basis of,
material, nonpublic information about those securities or Company
(other than in connection with any purchase of Company securities
direct from the Company with the consent of the Company), or (ii)
tip material nonpublic information about the Company’s
securities or Company in violation of the United States securities
Laws. Each Restricted Stockholder further agrees to comply with all
applicable securities Laws in connection with (i) any Transfers of
Restricted Securities that are otherwise permitted under this
Article V and (ii) any acquisitions of Restricted
Securities.

 

               
5.2        
No Transfers
During Stock Restrictions Period.

(a)           
No Restricted Stockholder shall,
without the prior written consent of the Company, Transfer any
Restricted Securities to any Person during the Stock Restrictions
Period; provided, however, that Transfers to Permitted Immediate
Family Member Transferees shall be permitted during the Stock
Restrictions Period, subject to compliance with the other
provisions of this Article V except for Section
5.3.

(b)           
The restriction on Transfers set forth
in Section 5.2(a) shall terminate upon the expiration of the Stock
Restrictions Period.

               
5.3         Right
of First Refusal.

(a)           
Prior to any intended Transfer of any
Restricted Securities that is otherwise permitted by the provisions
of this Article V, a Restricted Stockholder shall first give
written notice (“Offer Notice”) to Company specifying (i) such Restricted
Stockholder’s bona fide intention to sell or otherwise
transfer such Restricted Securities, (ii) the name and address of
the proposed purchaser(s) or transferee(s) and their beneficial
owners (if different from the proposed purchaser(s) or
transferee(s), (iii) the number of Restricted Securities the
Restricted Stockholder proposes to sell (“Offered
Securities”), (iv) the
price for which such Restricted Stockholder proposes to sell the
Offered Securities, and (v) all other material terms and conditions
of the proposed sale or other transfer. Notwithstanding the
foregoing, if such Restricted Stockholder proposes to Transfer
Restricted Securities pursuant to a Proposed Public Transfer, the
name, address and price of the Offered Securities may not be
applicable or available. In case of a Proposed Public Transfer
under Rule 144, the Offer Notice shall include only the information
specified in items (i), (iii) and (v) above, and in the case of a
demand pursuant to Section 4.1 or request for registration pursuant
to Section 4.2 such Restricted Stockholder’s demand or
request will constitute its Offer Notice. In the case of any
Proposed Public Transfer, the purchase price for purposes of this
Section 5.3 will be the volume-weighted average closing price of
the Common Stock (or the volume-weighted average closing price of
the amount of Common Stock into which the Capital Stock is
convertible) over the thirty 30 days preceding Restricted
Stockholder’s delivery of the Offer
Notice.

 

 

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(b)           Within
the applicable Reply Period after receipt of the Offer Notice,
Company or its nominee(s) may elect to purchase all (but not less
than all) of the Offered Securities at the price and on the terms
and conditions set forth in the Offer Notice by delivery of written
notice (“Acceptance
Notice”) to such
Restricted Stockholder. Within fifteen (15) days after delivery of
the Acceptance Notice to such Restricted Stockholder, Company
and/or its nominee(s) shall deliver a check or wire transfer (or,
at the discretion of Company, such other form of consideration set
forth in the Offer Notice) in the amount of the purchase price of
the Offered Securities to be purchased pursuant to this Section
5.3, against delivery by such Restricted Stockholder of a
certificate or certificates representing the Offered Securities (or
book-entry account transfer instructions) to be purchased, duly
endorsed for transfer to Company or such nominee(s), as the case
may be. If Company and/or its nominee(s) do not elect to purchase
the Offered Securities, such Restricted Stockholder shall be
entitled to sell the Offered Securities to the purchaser(s) named
in the Offer Notice or in accordance with the Proposed Public
Transfer at the price specified in the Offer Notice or at a higher
price and substantially on the same terms and conditions set forth
in the Offer Notice, provided,
however, that a private sale or
a Proposed Public Transfer under Rule 144 must be consummated
within sixty (60) days from the date of the earlier of (i)
expiration of the applicable Reply Period for the Offer Notice and
(ii) if applicable, the Company’s election not to exercise
its right of first refusal, and any proposed sale after such sixty
(60) day period may be made only by again complying with the
procedures set forth in this Section 5.3; and provided,
further, that a Proposed Public
Transfer under Section 4.1 or 4.2 herein shall be conducted in
accordance with the terms described in Article IV, and shall not be
subject to the above sixty-day limitation.

(c)           
The right of first refusal set forth
in this Section 5.3 shall terminate upon the later of (i) the
expiration of the Stock Restrictions Period; and (ii) such time as
the Restricted Stockholders and all of their Affiliates and
Associates, individually and as a group, Beneficially Own less than
4.9% of the Company’s outstanding Common Stock (including any
amount of Common Stock into which any Capital Stock Beneficially
Owned could, under any circumstance, be
convertible).

5.4         
Limitation
on Number of Transfers of Restricted Securities. Notwithstanding any other provision of this
Agreement, the number of Restricted Securities that may be resold
or otherwise Transferred to the public or through any public
securities trading market at any time may not exceed the volume
limitations contained in SEC Rule 144. The number of Restricted
Securities that may be sold pursuant to a registered offering under
Article IV of this Agreement shall be determined among the Company,
the applicable Restricted Stockholder and the applicable
underwriters in accordance with Article IV.

5.5         
Restrictions
Related to NOL Plan and Section 382 Compliance. No Restricted Stockholder will Transfer any
Beneficial Ownership in any Shares or Capital Stock to any Person
who the Restricted Stockholder reasonably believes after due
inquiry Beneficially Owns or as a result of such transaction would
Beneficially Own 4.9% or more of the Company’s then
outstanding Common Stock (including any amount of Common Stock into
which any Capital Stock Beneficially Owned could, under any
circumstance, be convertible); provided,
that the obligation of due inquiry set forth in this Section 5.5
shall not apply to any Proposed Public
Transfer.

5.6          
Permitted
Transfers. Any permitted
successor of any Restricted Stockholder, and any other permitted
transferee of Restricted Securities pursuant to this Article V
(other than transferees in Proposed Public Transfers), as a
condition to such Transfer shall execute and become a party to this
Agreement as an additional Restricted Stockholder, execute and
deliver an Irrevocable Proxy with respect to the Restricted
Securities Transferred to such permitted transferee or successor
and hold the Restricted Securities subject to the terms and
conditions of this Agreement as if the permitted successor or other
transferee were a Restricted Stockholder; provided,
however, that (i) any Proposed Private Transfer Qualified
Transferee shall not be subject to the Company’s right of
repurchase under Article VII nor required to execute the
Irrevocable Proxy under Article VI; and (ii) any Transfer to a
Permitted Immediate Family Member Transferee will not be subject to
the Company’s right of first refusal under Section 5.3 and
such Transfer shall not be deemed to trigger a Repurchase Option
Event for purposes of Article VII. Upon request by Company, the
parties to this Agreement shall enter into such amendment or
modifications to this Agreement as the Company may deem necessary
to facilitate the inclusion of additional Restricted Stockholders
as parties to this Agreement. No further Transfer of Restricted
Securities may be made without complying with the provisions of
this Agreement.

 

 

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5.7         Transfers Pursuant to Certain
Events.   

(a)           Provided
that the Company has not elected to exercise its right of first
refusal under Section 5.3 with respect to Restricted Securities
proposed to be Transferred in a Proposed Public Transfer after the
Stock Restrictions Period has ended, the right of first refusal set
forth in Section 5.3 shall terminate, and the provisions of Section
5.6 shall not apply, as to such Restricted Securities on the date
such Restricted Securities are sold pursuant to such Proposed
Public Transfer.

(b)           The
restrictions on Transfers contained in this Article V shall not
prohibit any Transfers of Shares or Capital Stock by Restricted
Stockholder to the acquirer in connection with any Change in
Control of the Company that has been approved by the Board and such
Transfer is made in accordance with the terms and conditions of the
Board-approved transaction agreement that provides for the Transfer
of shares of Capital Stock of the Company to the acquirer by all
holders of the Company’s Capital Stock on the same
basis.

5.8        
Termination
of Remaining Restrictions. Any
and all remaining restrictions on Transfers set forth in this
Article V that have not already terminated or expired according to
any other more specific terms herein shall terminate on October 1,
2020, except that the provisions of Sections 5.1 and 5.5 shall
remain in effect beyond such termination date for all proposed
Transfers.

 

Article
VI

Voting
Proxy

6.1         
Irrevocable
Proxy. Concurrently with the
execution and delivery of this Agreement, each Restricted
Stockholder has executed and delivered an Irrevocable Proxy with
respect to the Shares currently owned or to be acquired in the
future upon conversion of other Restricted Securities.
Notwithstanding the foregoing, any references to the Amended and
Restated Stockholder Agreement set forth in any Irrevocable Proxy
previously executed by any Restricted Stockholder shall be deemed
to refer to this Agreement.

6.2         
Termination
of Irrevocable Proxy. The
Irrevocable Proxy granted in Section 6.1 shall terminate upon the
later of (i) the expiration of the Stock Restrictions Period; and
(ii) such time as the Restricted Stockholders and all of their
Affiliates and Associates, individually and as a group,
Beneficially Own less than 4.9% of the Company’s outstanding
Common Stock (including any amount of Common Stock into which any
Capital Stock Beneficially Owned could, under any circumstance, be
convertible). In addition, if not sooner terminated pursuant to the
preceding sentence, the irrevocable proxy granted under Section 6.1
shall terminate (i) as to Restricted Securities proposed to be
Transferred in a Proposed Public Transfer on the date such
Restricted Securities are sold pursuant to such Proposed Public
Transfer; (ii) as to Restricted Securities proposed to be
Transferred to a Proposed Private Transfer Qualified Transferee, on
the date such Restricted Securities are transferred to such
Proposed Private Transfer Qualified Transferee; and (iii) as to all
Restricted Securities on October 1,
2020. 

 

Article
VII

Repurchase
Option

7.1          
Right
to Repurchase. Effective
immediately upon the occurrence of a Repurchase Option Event,
Company shall have the right and option (but not the obligation) to
purchase, all or part, of the Restricted Securities from any
Restricted Stockholder that is the subject of the Repurchase Option
Event (“Repurchase
Option”). The purchase
price for the Restricted Securities to be purchased under the
Repurchase Option shall be the Fair Market Value determined as of
the date of the occurrence of the applicable Repurchase Option
Event.

7.2         
Exercise
of Repurchase Option. For
ninety (90) days after the occurrence of a Repurchase Option Event
(“Repurchase Option Exercise
Period”), the Company
shall have the right to exercise the Repurchase Option by giving to
the applicable Restricted Stockholder written notice of such
exercise, specifying the number of Restricted Securities to be
repurchased by the Company and the aggregate purchase price
thereof. Such notice
shall be accompanied by the Company’s payment in immediately
available funds. Notwithstanding the foregoing, the Repurchase
Option Exercise Period shall be tolled until such time as the
Restricted Stockholder that is the subject of the Repurchase Option
Event provides notice of the occurrence of the Repurchase Option
Event to the Company.

 

 

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7.3         
Termination
of Repurchase Option. The
Repurchase Option granted in this Article VII shall terminate upon
the later of (i) the expiration of the Stock Restrictions Period;
and (ii) such time as the Restricted Stockholders and all of their
Affiliates and Associates, individually and as a group,
Beneficially Own less than 4.9% of the Company’s outstanding
Common Stock (including any amount of Common Stock into which any
Capital Stock Beneficially Owned could, under any circumstance, be
convertible). In addition, the Repurchase Option granted under this
Article VII shall terminate (i) as to Restricted Securities
proposed to be Transferred in a Proposed Public Transfer on the
date such Restricted Securities are sold pursuant to such Proposed
Public Transfer; and (ii) as to Restricted Securities proposed to
be Transferred to a Proposed Private Transfer Qualified Transferee,
on the date such Restricted Securities are transferred to such
Proposed Private Transfer Qualified Transferee.

 

Article
VIII

Standstill

8.1           
Agreement
to Standstill.

 (a)           No
Restricted Stockholder nor any Affiliate or Associate of any
Restricted Stockholder will, without the prior written consent of
the Company (i) acquire, offer to acquire, propose (whether
publicly or otherwise) to acquire, announce any intention to effect
or cause or participate in or in any way assist or encourage any
other person to effect or seek, offer or propose (whether publicly
or otherwise) to acquire or agree to acquire, directly or
indirectly, by purchase or otherwise, any securities (or beneficial
ownership thereof) or direct or indirect rights to acquire any
securities of the Company or any subsidiary thereof, or of any
successor to or person in control of the Company, or any assets of
the Company or any subsidiary or division thereof or of any such
successor or controlling person; (ii) participate in (1) any tender
or exchange offer, merger or other business combination involving
the Company or any of its affiliates; (2) any recapitalization,
restructuring, liquidation, dissolution or other extraordinary
transaction with respect to the Company or any of its affiliates;
or (3) any “solicitation” of “proxies” (as
such terms are used in the proxy rules of the SEC) or consents to
vote any voting securities of the Company or any of its affiliates;
(iii) form, join or in any way participate in a “group”
as defined in Section 13(d)(3) of the Securities Exchange Act of
1934, as amended, in connection with any of the foregoing; (iv)
otherwise act, alone or in concert with others, to seek to control
or influence the management, Board or policies of the Company or
any of its affiliates; (v) nominate or seek to nominate any person
to the Board or otherwise act, alone or in concert with others, to
seek to control or influence the management, the Board or policies
of the Company; (vi) request that any part of this Section 8.1 be
waived; (vii) participate in any special meeting or written consent
of stockholders of the Company; (vii) request any list of
stockholders of the Company; (viii) enter into any voting agreement
with respect to the Company’s Common Stock or any other
voting securities; (ix) initiate any stockholder proposals; (x)
participate in any financing for the acquisition by any Person of
securities or assets of the Company; (xi) seek to influence any
person with respect to voting of any Company securities; (xii) seek
any changes in composition of the Board or management; (xiii) take
any actions that may impede the acquisition of control of the
Company or any other Person; (xiv) cause the Common Stock to be
eligible for termination of registration under Section 12 of the
Exchange Act; (xv) take any action which might force the Company to
make a public announcement regarding any of the types of matters
set forth in clauses (i)-(xiv) above; or (xvi) enter into any
discussions or arrangements with any third party with respect to
any of the foregoing; provided, however, that clause (i) above
shall not prohibit Ceiba and IDFC from purchasing the November 2016
Restricted Securities, or prohibit de Tezanos and Vargas from
purchasing the September 2016 Restricted Securities, in each case
in accordance with this Agreement.

 (b)           Section
8.1 shall not be interpreted to preclude the Restricted Stockholder
Directors, acting solely in their capacities as directors of the
Company, from exercising their fiduciary duties in fulfilling their
duties and responsibilities as members of the Board. The Restricted
Stockholders and the Restricted Stockholder Directors acknowledge
that the fiduciary duties of the Restricted Stockholder Directors
are owed to the Company and all of its stockholders and not solely
to the other Restricted Stockholders, and that conflicts or
appearances of conflicts may arise, in which case they may be faced
with a decision to abstain from participation in any matter that
may result in a conflict or have the appearance of a
conflict.

 

 

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8.2       
Expiration
of Standstill. The standstill
provisions of Section 8.1 shall terminate at such time as the
Restricted Stockholders and all of their Affiliates and Associates,
individually and as a group, Beneficially Own less than 4.9% of the
Company’s outstanding Common Stock (including any amount of
Common Stock into which any Capital Stock Beneficially Owned could,
under any circumstance, be convertible).

 

Article
IX

Non-Competition and
Other Restrictions

9.1         
Non-Competition.
Each Restricted Stockholder and each Designated Restricted
Stockholder Affiliate covenants and agrees that, without the
express written consent of the Company, it will not, nor will it
cause or knowingly permit any of its Affiliates or Associates to,
directly or indirectly engage in, invest in (either directly or
indirectly, whether as an agent, stockholder, creditor, advisor,
consultant or otherwise), operate or acquire any business in the
world that competes with the Company Business. Notwithstanding the
foregoing, each Restricted Stockholder, each Designated Restricted
Stockholder and any of their respective Affiliates or Associates
may (i) own, directly or indirectly, solely as an investment,
securities of any corporation or other entity traded on any
national securities exchange if neither Restricted Stockholder, any
Designated Restricted Stockholder Affiliate nor any of their
respective Affiliates or Associates do not, directly or indirectly,
collectively own 5% or more of any class of securities of such
corporation or other entity; or (ii) engage in, invest in or
acquire any business that competes with the Company Business where
(1) the adverse impact on the Company Business from such competing
business is not material to the Company Business; or (2) the
competing business is not the primary business of the third party
company and the competing business is not the primary purpose for
Restricted Stockholder, a Designated Restricted Stockholder
Affiliate or any of their respective Affiliates or Associates
engaging in, investing in or acquiring the third
party.

9.2         
Non-Interference.
Without the prior written consent of Company, each Restricted
Stockholder and each Designated Restricted Stockholder Affiliate
will not, and will use commercially reasonable efforts to cause
each of their respective Affiliates and Associates to not, directly
or indirectly, cause, induce, influence, encourage or solicit any
material business relationship or any other customer, vendor or
supplier of Company to terminate or modify in any respect any such
relationship with Company.

9.3         
Non-Solicitation.
Without the prior written consent of Company, each Restricted
Stockholder and each Designated Restricted Stockholder Affiliate
will not, and will use commercially reasonable efforts to cause
each of their respective Affiliate and Associate to not, directly
or indirectly, solicit for employment or hire or engage any
employee or independent contractor of Company while such employee
or independent contractor is employed or engaged by Company or any
of its Affiliates or any employee or independent contractor who was
employed or engaged by Company or any of its Affiliates within six
(6) months prior to such time, or cause, induce, influence or
encourage to terminate, reduce or modify any employee’s or
independent contractor’s relationship with Company or any of
its Affiliates while so employed or engaged. Notwithstanding the
foregoing, neither Restricted Stockholder, Designated Restricted
Stockholder Affiliate nor any of their respective Affiliates or
Associates shall be deemed to have violated the covenants in this
Section 9.3 (i) by publishing or running advertisements and general
solicitations in or through any print, broadcast, internet, direct
mail or other medium to generally solicit qualified job applicants
to apply for employment opportunities within Restricted
Stockholder, either Designated Restricted Stockholder Affiliate or
any of their respective Affiliates or Associates and not
specifically directed to any employee or independent contractor of
Company or any of its Affiliates, (ii) hiring or engaging any
employee or independent contractor of Company or any of its
Affiliates who is terminated by Company or its Affiliates, provided
that no breach of the foregoing provisions of this Section 9.3 has
occurred with respect to such employee or independent
contractor.

 

 

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9.4           Restrictions
Reasonable. The Parties
acknowledge that the restrictions contained in this Article IX
are reasonable and necessary to protect the legitimate interests of
Company and constitute a material inducement to Company to enter
into this Agreement and consummate the transactions contemplated by
this Agreement. In the event that any covenant contained in this
Article IX should ever be adjudicated to exceed the time,
geographic, product or service or other limitations permitted by
applicable Law in any jurisdiction, then any court is expressly
empowered to reform such covenant, and such covenant shall be
deemed reformed, in such jurisdiction to the maximum time,
geographic, product or service or other limitations permitted by
applicable Law. The covenants contained in this Article IX and each
provision hereof are severable and distinct covenants and
provisions. The invalidity or unenforceability of any such covenant
or provision as written shall not invalidate or render
unenforceable the remaining covenants or provisions hereof, and any
such invalidity or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such covenant or provision in
any other jurisdiction.

9.5           Termination
of Restrictions. The
restrictions set forth in this Article IX shall terminate two (2)
years after the later of (i) the expiration of the Stock
Restrictions Period; (ii) such time as the Restricted Stockholders
and all of their Affiliates and Associates, individually and as a
group, Beneficially Own less than 4.9% of the Company’s
outstanding Common Stock (including any amount of Common Stock into
which any Capital Stock Beneficially Owned could, under any
circumstance, be convertible); and (iii) the date the Restricted
Stockholders no longer have the right to designate a representative
or representatives to sit on the Board pursuant to Section
2.1(b).

9.6          
Several
Liability. The liability of
each Restricted Stockholder and each Designated Restricted
Stockholder Affiliate for any breach of the provisions of this
Article IX by one of them, but not the others, shall be limited
solely to the breaching party, and not jointly with the
non-breaching parties.

 

 Article
X

Confidentiality

10.1        
Confidentiality
Obligations. Unless otherwise
agreed to in writing by Company, each Restricted Stockholder agrees
(i) to keep all Confidential Information confidential and not to
disclose or reveal any Confidential Information (or the fact that
Confidential Information has been made available to Restricted
Stockholder or its Representatives) to any Person other than the
Representatives of Restricted Stockholder who are performing
services for Restricted Stockholder directly or indirectly related
to the management of Restricted Stockholder’s investment in
Company and who have the need to know the Confidential Information
for such purpose and who are subject to confidentiality obligations
consistent with the obligations set forth in this Article X; and
(ii) not to use Confidential Information for any purpose other than
in connection with the management of its investment in Company and
more specifically not to use Confidential Information to compete
with Company. Each Restricted Stockholder acknowledges that it is
aware, and that it has advised or will advise any Person to whom or
which Restricted Stockholder divulges, furnishes or otherwise
discloses any of Confidential Information that, in general, the
United States securities laws prohibit any person or entity who or
which possesses material, non-public information regarding a
publicly-held company such as Company from purchasing or selling
securities of such company or from communicating the information to
any person or entity. Each Restricted Stockholder will be
responsible for any breach of the terms of this Article X by any
Representative of Restricted Stockholder.

10.2        
Limitation
on Confidentiality Obligations.
The confidentiality obligations set forth in Section 10.1 shall not
apply to any Confidential Information held by any Restricted
Stockholder that (i) is or becomes generally available to the
public other than as a result of a disclosure by such Restricted
Stockholder or any of its Representatives; (ii) was available to
such Restricted Stockholder on a nonconfidential basis prior to its
disclosure to such Restricted Stockholder by Company; (iii) becomes
available to such Restricted Stockholder on a nonconfidential basis
from a Person other than Company or its Representatives who is not
known by such Restricted Stockholder to be otherwise bound by a
confidentiality agreement with, or other obligation of
confidentiality or duty to, Company or any of its Representatives;
or (iv) is independently developed by such Restricted Stockholder
without use of the Confidential Information.

 

 

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10.3         
Disclosure
Required by Law. In the event
any Restricted Stockholder is required by applicable Law or legal
process (other than as a result of an affirmative action taken by
such Restricted Stockholder or any of its Affiliates, Associates or
Representatives that triggers the disclosure obligation) to
disclose any Confidential Information, such Restricted Stockholder
will provide Company with prompt notice of such requirement (to the
extent permitted by such applicable Law or legal process) in order
to enable Company to seek an appropriate protective order or other
remedy, to consult with such Restricted Stockholder with respect to
Company taking steps to resist or narrow the scope of such required
disclosure, or to waive compliance, in whole or in part, with the
terms of this Article X. In any event, such Restricted Stockholder
will use such Restricted Stockholder’s best efforts to ensure
that all Confidential Information that is so disclosed will be
accorded confidential treatment.

10.4         
Termination
of Restrictions. The
restrictions set forth in this Article X shall terminate two (2)
years after the later of (i) the expiration of the Stock
Restrictions Period; (ii) such time as the Restricted Stockholders
and all of their Affiliates and Associates, individually and as a
group, Beneficially Own less than 4.9% of the Company’s
outstanding Common Stock (including any amount of Common Stock into
which any Capital Stock Beneficially Owned could, under any
circumstance, be convertible); and (iii) the date the Restricted
Stockholders longer have the right to designate a representative or
representatives to sit on the Board pursuant to Section
2.1(b).

Article XI

Consent and Agreement of AutoWeb Securityholders to Merger
Agreement

11.1         
Approval,
Adoption and Consent to Merger Agreement. Each AutoWeb Securityholder has irrevocably
approved, adopted, and consented to the Merger and the terms and
provisions of the Merger Agreement in accordance with
Section 251(c) of Delaware General Corporation
Law.

11.2        
Agreement
to Merger Agreement Provisions.
Each AutoWeb Securityholder hereby agrees to the provisions of the
Merger Agreement in all respects and to be bound thereby,
including, without limitation, (a) the obligations of the AutoWeb
Securityholders to submit to cancellation of shares if required
under Section 2.13 of the Merger Agreement (Post-Closing
Adjustment of Merger Consideration) and (b) the obligations of the
AutoWeb Securityholders to indemnify the Company and certain other
Persons as specified in Article V of the Merger Agreement. Each
AutoWeb Securityholder further agrees (x) to be bound by the
provisions of any ancillary agreement to the Merger Agreement or
other related agreement as applicable to such AutoWeb
Securityholder and (y) to be bound by any properly executed
amendment, extension or waiver to the Merger
Agreement.

11.3         
Appointment
of Stockholder Representative.
Subject to the terms and conditions of the Merger Agreement, each
AutoWeb Securityholder hereby (a) irrevocably appoints and
constitutes the Stockholder Representative (and any successor
Stockholder Representative appointed in accordance with the terms
of the Merger Agreement) as its agent, proxy and attorney-in-fact
to the full extent specified in Section 2.14 of the Merger
Agreement, including specifically the authorization to act on
behalf of the AutoWeb Securityholders in any other respect as set
forth in Sections 2.13, 2.14, 5.1, 5.4 and 6.2 of the Merger
Agreement, including without limitation representing the AutoWeb
Securityholders with respect to indemnification claims under the
Merger Agreement, (b) agrees to be bound by all decisions and
actions taken by the Stockholder Representative in accordance with
the Merger Agreement and the ancillary agreements to the Merger
Agreement, (c) adopts, ratifies, confirms and approves in all
respects all such decisions and actions taken prior to the date
hereof and (d) acknowledges and agrees to the limitations on
the Stockholder Representative’s liability and duties and the
Stockholder Representative’s right to indemnification set
forth in Section 2.14 of the Merger Agreement. The AutoWeb
Securityholders, by approving the Merger Agreement, further agree
that such agency, proxy and attorney-in-fact are coupled with an
interest, are therefore irrevocable, except as provided in Section
2.14(c) of the Merger Agreement, and shall be binding upon the
successors, heirs, executors, administers and legal representatives
of each AutoWeb Securityholder and shall not be affected by, and
shall survive, the death, incapacity, bankruptcy, dissolution or
liquidation of any AutoWeb Securityholder.

 

 

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11.4           Waiver
of Appraisal Rights; Notice.
Each AutoWeb Securityholder hereby irrevocably (a) waives any and
all right of appraisal, any dissenters rights and any similar
rights relating to the Merger that such AutoWeb Securityholder may
have by virtue of, or with respect to, any shares of capital stock
of the AutoWeb owned by such AutoWeb Securityholder (including
those rights pursuant to Section 262 of the Delaware General
Corporation Law), (b) withdraws all written objections to the
Merger and demands for appraisal, if any, with respect to the
shares of capital stock of AutoWeb owned by such AutoWeb
Securityholder, to the full extent permitted by law and (c) waives
the requirement for any advance notice of the record date for any
provision under this Article XI and any advance notice that may be
required in connection with the Merger Agreement, the Merger and
the other transactions contemplated thereby under AutoWeb’s
certificate of incorporation, bylaws, applicable law or
otherwise.

11.5           
Irrevocability.
Each AutoWeb Securityholder hereby agrees that the provisions of
this Article XI are irrevocable until the termination of the Merger
Agreement in accordance with its terms.

 

 Article
XII

General
Provisions

12.1           Entire
Agreement. This Agreement
(including any Exhibits attached hereto, each of which is
incorporated herein by reference) constitutes and contains the
entire agreement and understanding of the parties with respect to
the subject matter hereof and supersede any and all prior
negotiations, correspondence, agreements, understandings, duties or
obligations between the parties respecting the subject matter
hereof. This Agreement amends, restates and replaces the Second
Amended and Restated Stockholder Agreement dated October 19,
2016.

12.2          
Amendments
and Waivers. This Agreement may
be amended, modified, superseded, or cancelled, and the terms and
conditions hereof may be waived, only by a written instrument
signed by the parties hereto or, in the case of a waiver, by the
party waiving compliance. No delay on the part of any party in
exercising any right, power, or privilege hereunder will operate as
a waiver thereof, nor will any waiver on the part of any party of
any right hereunder, nor any single or partial exercise of any
rights hereunder, preclude any other or further exercise thereof or
the exercise of any other right hereunder.

12.3           
Assignment.
Neither party may assign or otherwise transfer or delegate this
Agreement or any of a party’s rights, duties or obligations
under this Agreement to another person or entity without the prior
written consent of the other party. Notwithstanding the foregoing,
this Agreement may be assigned or transferred by a party to any
person or entity that succeeds the party by operation of law or
that controls, is controlled by or is under common control of the
party without the consent of the other party; provided,
that in the case of any Restricted Stockholder, such Restricted
Stockholder has complied with the restrictions on Transfer set
forth in this Agreement that are applicable to any such Transfer.
Nothing herein will prohibit or restrict a Change in Control of any
party or any party controlling, controlled by or under common
control with such party or require the consent of any other party
to any assignment or transfer of this Agreement in connection with
any Change in Control; provided,
that in the case of any Restricted Stockholder, such Restricted
Stockholder has complied with the restrictions on Transfer set
forth in this Agreement that are applicable to any such Transfer.
This Agreement will be binding on and inure to the benefit of each
party hereto and to each party’s respective permitted
successors and assigns.

 

 

-30-

 

 

12.4           Notices.
Any notice required or permitted under this Agreement will be
considered to be effective in the case of (i) certified U.S. mail,
when sent postage prepaid and addressed to the party for whom it is
intended at its address of record, three (3) days after deposit in
the U.S. mail; (ii) by courier or messenger service, upon receipt
by recipient as indicated on the courier’s receipt; or (iii)
upon receipt of an Electronic Transmission by the party that is the
intended recipient of the Electronic Transmission. All notices
hereunder shall be delivered to the addresses set forth below, or
pursuant to such other instructions as may be designated in writing
by the party to receive such notice:

(a)           if
to the Company, to:

 

           
           
           
        Autobytel Inc.

18872
MacArthur Blvd., Suite 200

Irvine,
California 92612-1400

Attention:
Glenn E. Fuller

Executive
Vice President, Chief Legal and

Administrative
Officer and Secretary

Facsimile:
(949) 862-1323

Email: glennf@autobytel.com

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

 

   
           
           
           
    Gibson, Dunn & Crutcher LLP

   
           
           
           
    2029 Century Park East, Suite 4000

   
           
           
           
    Los Angeles, California 90067

   
           
           
           
    Attention: Jonathan K. Layne

   
           
           
           
    Facsimile: (310) 552-7053

   
           
           
           
    E-mail: jlayne@gibsondunn.com

(b)           if
to Restricted Stockholder(s) or Designated Restricted Stockholder
Affiliates, to:

 

c/o
Stockholder Representative

3250
NE 1st Avenue, Suite 915

           
           
           
        Miami, FL 33137

Attention:
José Vargas

           
           
           
        Facsimile: (305)
400-0817

           
           
           
        E-mail:
jose@peoplefund.com.com

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

 

   
           
           
           
    TangoLaw LLC

   
           
           
           
    7616 116th Avenue NE

   
           
           
           
    Seattle, WA 98033

   
           
           
           
    Attention: Douglas Choi, Esq.

   
           
           
           
    E-mail: doug@tangolaw.com

12.5           Choice
of Law. This Agreement, its
construction and the determination of any rights, duties or
remedies of the parties arising out of or relating to this
Agreement will be governed by, enforced under and construed in
accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of
conflicts of laws of such state.

 

 

-31-

 

 

               
12.6          
Dispute
Resolution.

 

     (a)       
The parties consent to and agree that
any dispute or claim arising hereunder shall be submitted to
binding arbitration in New Castle County, Delaware, and conducted
in accordance with the Judicial Arbitration and Mediation Service
(“JAMS”) rules of practice then in effect or such other
procedures as the parties may agree in writing, and the parties
expressly waive any right they may otherwise have to cause any such
action or preceding to be brought or tried elsewhere. The parties
hereunder further agree that (i) any request for arbitration shall
be made in writing and must be made within a reasonable time after
the claim, dispute or other matter in question has arisen; provided
however, that in no event shall the demand for arbitration be made
after the date that institution of legal or equitable proceedings
based on such claim, dispute, or other matter would be barred by
the applicable statute(s) of limitations; (ii) the appointed
arbitrator must be a former or retired judge or an attorney at law
with at least ten (10) years’ experience in corporate law
matters; (iii) costs and fees of the arbitrator shall be borne by
both parties equally, unless the arbitrator or arbitrators
determine otherwise; (iv) depositions may be taken and other
discovery may be obtained during such arbitration proceedings to
the same extent as authorized in civil judicial proceedings; and
(v) the award or decision of the arbitrator, which may include
equitable relief, shall be final and judgment may be entered on
such award in accordance with applicable law in any court having
jurisdiction over the matter.

     (b)       
TO THE EXTENT PERMITTED BY APPLICABLE
LAW, EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.

     (c)       
The parties acknowledge and agree that
money damages may not be a sufficient remedy for a breach of
certain provisions of the Agreement, and accordingly, a
non-breaching party may be entitled to specific performance and
injunctive relief as remedies for such violation. Accordingly,
notwithstanding the other provisions of this Section 11.6, the
parties agree that a non-breaching party may seek relief in the
federal and state courts of the State of Delaware located in New
Castle County for the purposes of seeking equitable relief
hereunder, and that such remedies shall not be deemed to be
exclusive remedies for a violation of the terms of the Agreement
but shall be in addition to all other remedies available to the
non-breaching party at law or in equity.

    (d)       
In any action, arbitration, or other
proceeding by which one party either seeks to enforce its rights
under the Agreement, or seeks a declaration of any rights or
obligations under the Agreement, the prevailing party will be
entitled to reasonable attorneys’ fees, and subject to
Section 11.6(a), reasonable costs and expenses incurred to resolve
such dispute and to enforce any final judgment.

     (e)        
No remedy conferred on either party by
any of the specific provisions of this Agreement is intended to be
exclusive of any other remedy, and each and every remedy will be
cumulative and will be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by
statute or otherwise. The election of one or more remedies by a
party will not constitute a waiver of the right to pursue other
available remedies.

12.7          
Severability.
Each term, covenant, condition, or provision of this Agreement will
be viewed as separate and distinct, and in the event that any such
term, covenant, condition or provision will be deemed to be invalid
or unenforceable, the arbitrator or court finding such invalidity
or unenforceability will modify or reform this Agreement to give as
much effect as possible to the terms and provisions of this
Agreement. Any term or provision which cannot be so modified or
reformed will be deleted and the remaining terms and provisions
will continue in full force and effect.

 

 

-32-

 

 

12.8           
Delays
or Omissions. No delay or
omission to exercise any right, power, or remedy accruing to any
Party under this Agreement, upon any breach or default of any other
Party under this Agreement, shall impair any such right, power, or
remedy of such nonbreaching or nondefaulting Party, nor shall it be
construed to be a waiver of or acquiescence to any such breach or
default, or to any similar breach or default thereafter occurring,
nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter
occurring. All remedies, whether under this Agreement or by law or
otherwise afforded to any Party, shall be cumulative and not
alternative.

12.9            
Further
Assurances. Each party agrees
to execute and deliver any and all further documents, and to
perform such other acts, as may be reasonably necessary or
expedient to carry out and make effective this
Agreement.

12.10         
Interpretation.
Every provision of this Agreement is the result of full
negotiations between the Parties, both of whom have either been
represented by counsel throughout or otherwise been given an
opportunity to seek the aid of counsel. Each Party hereto further
agrees and acknowledges that it is sophisticated in legal affairs
and has reviewed this Agreement in detail. Accordingly, no
provision of this Agreement shall be construed in favor of or
against any Party hereto by reason of the extent to which any such
Party or its counsel participated in the drafting thereof. Captions
and headings of sections contained in this Agreement are for
convenience only and shall not control the meaning, effect, or
construction of this Agreement. Time periods used in this Agreement
shall mean calendar periods (i.e., days, months, and years) in the
State of California, USA unless otherwise expressly indicated. All
references to fees, expenses, costs and payments thereof are U.S.
Dollars. The English language shall apply to any interpretation of
this Agreement.

12.11          
Counterparts;
Facsimile or PDF Signature. This
Agreement may be executed in counterparts, each of which will be
deemed an original hereof and all of which together will constitute
one and the same instrument. This Agreement may be executed by
facsimile or PDF signature by either party and such signature shall
be deemed binding for all purposes hereof, without delivery of an
original signature being thereafter required.

 

[Remainder of Page Intentionally Left Blank;
Signature Page and Exhibits Follow]

 

 

 

-33-

 

IN
WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

 

	
 

	

Company

Autobytel
Inc.  
 

	
 

	

By:

	
/s/ Glenn E.
Fuller

	
 

	
 

	

Name:
Glenn E. Fuller

	
 

	
 

	

Title:
Executive Vice President, Chief Legal and Administrative Officer
and Secretary

 

 

	
 

	

Restricted Stockholders  

Auto
Holdings Ltd., a British Virgin Islands business company
 
 

	
 

	

By:

	
/s/ Matías de
Tezanos

	
 

	
 

	

Matías
de Tezanos,

	
 

	
 

	

Co-Managing
Director and President

	
 

	
 

	
 

	
 

	

By:

	
/s/ José
Vargas

	
 

	
 

	

Name:
José Vargas,

	
 

	
 

	

Title:
Co-Managing Director and Secretary

	
 

	
 

	
 

	
 

	

Ceiba
International Corp., a Panama business company  
 

	
 

	

By:

	
/s/ Peter
Klose

	
 

	
 

	

Name:
Peter Klose

	
 

	
 

	

Title:
Managing Director

	
 

	
 

	
 

	
 

	

Picua
Limited, a British Virgin Islands business company
 
 
 

	
 

	

By:

	
/s/ Manuel
Ayau

	
 

	
 

	

Name:
Manuel Ayau

	
 

	
 

	

Title:
Director

	
 

	
 

	
 

	
 

	

Jeffery H. Boyd,
an individual  
 
 

	
 

	
 

	
/s/ Jeffery H.
Boyd

	
 

	
 

	

Jeffery
H. Boyd

	
 

	
 

	
 

	
 

	

Robert
J. Mylod, Jr., an individual  
 
 

	
 

	
 

	
/s/ Robert J. Mylod,
Jr.

	
 

	
 

	

Robert
J. Mylod, Jr.

	
 

	
 

	
 

	
 

	

Galeb3
Inc, a Florida corporation  
 
 

	
 

	

By:

	
/s/ José
Vargas

	
 

	
 

	

Name:
José Vargas

	
 

	
 

	

Title:
President

	
 

	
 

	
 

	
 

	

Manatee Ventures
Inc., a British Virgin Islands business
company  
 
 

	
 

	

By:

	
/s/ Matías de
Tezanos

	
 

	
 

	

Name:
Matías de Tezanos

	
 

	
 

	

Title:
Director

	
 

	
 

	
 

	
 

	

Julio
Gonzalez Arrivillaga, an individual  
 

	
 

	
 

	
/s/ Julio Gonzalez
Arrivillaga

	
 

	
 

	

Julio
Gonzalez Arrivillaga

	
 

	
 

	
 

	
 

	

William Ferriolo,
an individual  
 

	
 

	
 

	
/s/ William
Ferriolo

	
 

	
 

	

William
Ferriolo

	
 

	
 

	
 

	
 

	

José Vargas,
an individual  
 

	
 

	
 

	
/s/ José
Vargas

	
 

	
 

	

José
Vargas

	
 

	
 

	
 

	
 

	

Matías de
Tezanos, an individual  
 
 

	
 

	
 

	
/s/ Matías de
Tezanos

	
 

	
 

	

Matías
de Tezanos

	
 

	
 

	
 

	
 

	

Del
Saler Inc., a British Virgin Islands business company
 
 

	
 

	

By:

	
/s/ Julio Gonzalez
Arrivillaga

	
 

	
 

	

Name:
Julio Gonzalez Arrivillaga

	
 

	
 

	

Title:
Director

	
 

	
 

	
 

	
 

	

PF
Holding, Inc., a British Virgin Islands business company
 
 

	
 

	

By:

	
/s/ Julio Gonzalez
Arrivillaga

	
 

	
 

	

Name:
Julio Gonzalez Arrivillaga

	
 

	
 

	

Title:
Director

	
 

	
 

	
 

	
 

	

People
F, Inc., a British Virgin Islands business company
 
 

	
 

	

By:

	
/s/ Matías de
Tezanos

	
 

	
 

	

Name:
Matías de Tezanos

	
 

	
 

	

Title:
Director

	
 

	
 

	
 

	
 

	
 

	
 

 

	
 

	

Investment and
Development Finance Corp., a Panama business company
 
 

	
 

	

By:

	
/s/ Peter
Klose

	
 

	
 

	

Name:
Peter Klose

	
 

	
 

	

Title:
Attorney

	
 

	
 

	

 

	
 

	Designated
Restricted Stockholder Affiliates
	
 

	
 

	Matías de
Tezanos
	
 

	
 

	José
Vargas
	
 

	
 

	

	
 

	
 

	

 

	
 

	
 

	/s/ Matías de
Tezanos
	
 

	
 

	Matías de
Tezanos
	
 

	
 

	

 

	
 

	
 

	/s/ José
Vargas
	
 

	
 

	José
Vargas
	
 

	
 

	

 

	
 

	
 

	

 

	
 

	
 

	

 

 

 

 

 

 

-34-

 

EXHIBIT

A

 

IRREVOCABLE
PROXY

The
undersigned stockholder (“Restricted
Stockholder”) of Autobytel Inc., a Delaware
corporation (“Company”),
hereby irrevocably appoints and constitutes the Company’s
Chief Executive Officer, Chief Financial Officer and Chief Legal
Officer (collectively, the “Proxyholders”),
and each of them individually, the agents, attorneys-in-fact and
proxies of the undersigned, with full power of substitution and
resubstitution, to the full extent of the undersigned’s
rights with respect to all Shares (as defined in that certain Third
Amended and Restated Stockholder Agreement dated as of November 30,
2016 by and between Company and Restricted Stockholder
(“Stockholder
Agreement”)) beneficially owned by Restricted
Stockholder (including any Shares acquired by Restricted
Stockholder on or after the date hereof and before the date this
proxy terminates) to vote the Shares as follows:

The
Proxyholders named above, or each of them individually, are
empowered at any time before termination of this proxy to exercise
all voting rights of the undersigned at any meeting (whether annual
or special and whether or not an adjourned or postponed meeting) of
stockholders of the Company, and in any action by written consent
of the stockholders of the Company, in accordance with the
recommendations of or instructions provided by the Company’s
Board of Directors.

The
proxy granted by Restricted Stockholder to the Proxyholders hereby
is granted as of the date of this Irrevocable Proxy in order to
secure the obligations of Restricted Stockholder set forth in
Section 6.1 of the Stockholder Agreement and, as such, is coupled
with an interest and is irrevocable in accordance with subdivision
(e) of Section 212 of the Delaware General Corporation
Law.

This
proxy shall survive the insolvency, incapacity, death, liquidation
or dissolution of the undersigned and shall terminate as provided
in Section 6.2 of the Stockholder Agreement in accordance with its
terms.

Upon
the execution and delivery hereof, all prior proxies given by the
undersigned with respect to the Shares are hereby revoked, and
until such time as this proxy shall be terminated in accordance
with its terms, Restricted Stockholder shall not purport to grant
any other proxy or power of attorney with respect to any Shares,
deposit any of Shares into a voting trust or enter into any
agreement, arrangement or understanding with any person, directly
or indirectly, to vote, grant any proxy or give instructions with
respect to the voting of any Shares.

Any
obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.

 

Dated:
____________________, 2016

 

Restricted Stockholder

 

___________________________,
a _______________________

 

By:           

 

Name:_____________________

 

Title:
_____________________

 

 

 

 

A-1ex1-01.htm

Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of December 1, 2016, is by and among Helios and Matheson Analytics Inc., a Delaware corporation with offices located at Empire State Building, 350 5th Avenue, New York, New York 10118 (the “Company”), and each of the investors listed on the Schedule of Buyers attached hereto (individually, a “Buyer” and collectively, the “Buyers”).

 

RECITALS

 

A.     The Company and each Buyer is executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “1933 Act”), and Rule 506(b) of Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the 1933 Act.

 

B.     The Company has authorized a new series of senior secured convertible notes of the Company, in the aggregate original principal amount of $6,720,000, substantially in the form attached hereto as Exhibit A (the “Notes”), which Notes shall be convertible into shares of Common Stock (as defined below) (the shares of Common Stock issuable pursuant to the terms of the Notes, including, without limitation, upon conversion or otherwise, collectively, the “Conversion Shares”), in accordance with the terms of the Notes.

 

C.     Each Buyer wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, (a) a Note in the aggregate original principal amount set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers (the “Initial Note”) and (b) a Note in the aggregate original principal amount set forth opposite such Buyer’s name in column (4) on the Schedule of Buyers (the “Additional Note”).

 

D.     At the Closing, the parties hereto shall execute and deliver a Registration Rights Agreement, in the form attached hereto as Exhibit B (the “Registration Rights Agreement”), pursuant to which the Company has agreed to provide certain registration rights with respect to the Registrable Securities (as defined in the Registration Rights Agreement), under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws.

 

E.     The Notes and the Conversion Shares are collectively referred to herein as the “Securities.”

 

F.     On September 7, 2016, the Company and certain investors (including a Buyer) (the “September Buyers”) entered into a securities purchase agreement (the “September Securities Purchase Agreement”), pursuant to which such September Buyers purchased certain senior secured convertible notes of the Company (the “September Notes”).

 

 

 

 

 

G.     The Notes will rank pari passu with the September Notes and senior to all outstanding and future indebtedness of the Company, and its Subsidiaries (as defined below) (other than Permitted Indebtedness (as defined in the Notes) secured by Permitted Liens (as defined in the Notes)) and will be secured by a security interest in all of the existing and future assets of the Company and its direct and indirect U.S. Subsidiaries, including a pledge of all of the capital stock of each of the U.S. Subsidiaries, as evidenced by (i) a security agreement in the form attached hereto as Exhibit D (the “Security Agreement”) and (ii) a guaranty executed by each U.S. Subsidiary of the Company, in the form attached hereto as Exhibit E (the “Guaranty”, and together with the Security Agreement, the Perfection Certificate (as defined below) and the other security documents and agreements entered into in connection with this Agreement and each of such other documents and agreements, as each may be amended or modified from time to time, collectively, the “Security Documents”) pursuant to which the U.S. subsidiaries of the Company shall guarantee the obligations of the Company under the Transaction Documents (as defined below). 

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and each Buyer hereby agree as follows:

 

	
1.
	
PURCHASE AND SALE OF NOTES.

 

(a)     Purchase of Notes . Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall issue and sell to each Buyer, and each Buyer severally, but not jointly, agrees to purchase from the Company on the Closing Date (as defined below) (x) an Initial Note in the original principal amount as is set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers and (y) an Additional Note in the original principal amount as is set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers.

 

(b)     Closing. The closing (the “Closing”) of the purchase of the Notes by the Buyers shall occur at the offices of Kelley Drye & Warren LLP, 101 Park Avenue, New York, NY 10178. The date and time of the Closing (the “Closing Date”) shall be 10:00 a.m., New York time, on the first (1st) Business Day on which the conditions to the Closing set forth in Sections 6 and 7 below are satisfied or waived (or such other date as is mutually agreed to by the Company and each Buyer). As used herein “Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to remain closed.

 

(c)     Purchase Price. The aggregate purchase price for the Notes to be purchased by each Buyer (the “Purchase Price”) shall be the amount set forth opposite such Buyer’s name in column (5) on the Schedule of Buyers, consisting of (x) a cash payment of such aggregate amount set forth opposite such Buyer’s name in column (6) on the Schedule of Buyers (the “Cash Purchase Price”), (y) the issuance by such Buyer of a promissory note in the form attached hereto as Exhibit F (each, an “Investor Note”, and collectively, the “Investor Notes”) in the aggregate original principal amount set forth opposite such Buyer’s name in column (7) on the Schedule of Buyers (each, an “Investor Note Amount”) and (z) an authorized person of such Buyer shall certify in a written certificate in the form attached hereto as Exhibit G (the “Investor Collateral Certificate”) that as of the Closing Date the bank account described on Schedule I to such Investor Note, which secures such Investor Note in accordance therewith, contains at least the Investor Note Amount of cash, in U.S. dollars and immediately available funds (and shall keep a cash amount equal to the principal of such Investor Note in such bank account as long as such Investor Note remains outstanding). For the avoidance of doubt, each Buyer shall pay, whether in cash or in an Investor Note, approximately $0.93 for each $1.00 of aggregate principal of Notes purchased hereunder.

 

 

2

 

 

(d)     Form of Payment. On the Closing Date, (i) each Buyer shall pay its respective Cash Purchase Price (less, in the case of any Buyer, the amounts withheld pursuant to Section 4(g)) to the Company for the Notes to be issued and sold to such Buyer at the Closing, by wire transfer of immediately available funds in accordance with the Flow of Funds Letter and deliver an Investor Note to the Collateral Agent in such original principal amount as is set forth across from such Buyer’s name in column (7) of the Schedule of Buyers and (ii) the Company shall deliver to each Buyer (x) an Initial Note in the aggregate original principal amount as is set forth opposite such Buyer’s name in column (3) of the Schedule of Buyers and (y) an Additional Note in the aggregate original principal amount as is set forth opposite such Buyer’s name in column (4) of the Schedule of Buyers, in each case, duly executed on behalf of the Company and registered in the name of such Buyer or its designee.

 

(e)     Consent. Each September Buyer signatory hereto, in its capacity as a holder of September Notes, hereby consents to the transactions contemplated hereby and agrees that the Notes shall constituted Permitted Indebtedness (as defined in the September Notes) and Permitted Liens (as defined in the September Notes) thereunder, which shall rank pari passu with the Notes.

 

	
2.
	
BUYER’S REPRESENTATIONS AND WARRANTIES.

 

Each Buyer, severally and not jointly, represents and warrants to the Company with respect to only itself that, as of the date hereof and as of the Closing Date:

 

(a)     Organization; Authority. Such Buyer is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents (as defined below) to which it is a party and otherwise to carry out its obligations hereunder and thereunder.

 

(b)     No Public Sale or Distribution. Such Buyer (i) is acquiring its Note, and (ii) upon conversion of its Note will acquire the Conversion Shares issuable upon conversion thereof, in each case, for its own account and not with a view towards, or for resale in connection with, the public sale or distribution thereof in violation of applicable securities laws, except pursuant to sales registered or exempted under the 1933 Act; provided, however, by making the representations herein, such Buyer does not agree, or make any representation or warranty, 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 from registration under the 1933 Act. Such Buyer does not presently have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Securities in violation of applicable securities laws. For purposes of this Agreement, “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and any Governmental Entity or any department or agency thereof

 

 

3

 

 

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

 

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

 

(e)     Information. Such Buyer and its advisors, if any, have been 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 that have been requested by such Buyer. Such Buyer and its advisors, if any, have been afforded (i) the opportunity to ask questions of and receive answers from the Company concerning the terms and conditions of the offering of the Notes and the merits and risks of investing in the Notes; and (ii) access to information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment. Neither such inquiries nor any other due diligence investigations conducted by such Buyer or its advisors, if any, or its representatives shall modify, amend or affect such Buyer's right to rely on the Company's representations and warranties contained herein. Such Buyer understands that its investment in the Securities involves a high degree of risk. Such Buyer has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities.

 

(f)     No Governmental Review. Such Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.

 

(g)     Transfer or Resale. Such Buyer understands that except as provided in the Registration Rights Agreement and Section 4(h) hereof: (i) the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, (B) such Buyer shall have delivered to the Company (if requested by the Company) an opinion of counsel, in a form reasonably acceptable to the Company, to the effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (C) such Buyer provides the Company with reasonable assurance that such Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act (or a successor rule thereto) (collectively, “Rule 144”); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144, and further, if Rule 144 is not applicable, any resale of the 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 promulgated thereunder; and (iii) neither the Company nor any other Person is under any obligation to register the Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. 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 and such pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Buyer effecting a pledge of Securities shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document (as defined in Section 3(b)), including, without limitation, this Section 2(g).

 

 

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(h)     Validity; Enforcement. This Agreement and the Registration Rights Agreement have been duly and validly authorized, executed and delivered on behalf of such Buyer and shall constitute the legal, valid and binding obligations of such Buyer enforceable against such Buyer in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.

 

(i)     No Conflicts. The execution, delivery and performance by such Buyer of this Agreement and the Registration Rights Agreement and the consummation by such Buyer of the transactions contemplated hereby and thereby will not (i) result in a violation of the organizational documents of such Buyer, or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which such Buyer is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws) applicable to such Buyer, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults, rights or violations which could not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of such Buyer to perform its obligations hereunder.

 

(j)     Company’s Representation and Warranties. Buyer acknowledges and agrees that the Company does not make and has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.

 

	
3.
	
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The Company represents and warrants to each of the Buyers that, as of the date hereof and as of the Closing Date:

 

(a)     Organization and Qualification. Each of the Company and each of its Subsidiaries are entities duly organized and validly existing and in good standing under the laws of the jurisdiction in which they are formed, and have the requisite power and authority to own their properties and to carry on their business as now being conducted and as presently proposed to be conducted. Each of the Company and each of its Subsidiaries is duly qualified as a foreign entity to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not reasonably be expected to have a Material Adverse Effect (as defined below). As used in this Agreement, “Material Adverse Effect” means any material adverse effect on (i) the business, properties, assets, liabilities, operations (including results thereof), condition (financial or otherwise) or prospects of the Company or any Subsidiary, individually or taken as a whole, (ii) the transactions contemplated hereby or in any of the other Transaction Documents or (iii) the authority or ability of the Company or any of its Subsidiaries to perform any of their respective obligations under any of the Transaction Documents (as defined below). Other than the Persons (as defined below) set forth on Schedule 3(a), the Company has no Subsidiaries. “Subsidiaries” means any Person in which the Company, directly or indirectly, (I) owns any of the outstanding capital stock or holds any equity or similar interest of such Person or (II) controls or operates all or any part of the business, operations or administration of such Person, and each of the foregoing, is individually referred to herein as a “Subsidiary.”

 

 

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(b)     Authorization; Enforcement; Validity. The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement and the other Transaction Documents and to issue the Securities in accordance with the terms hereof and thereof. Each Subsidiary has the requisite power and authority to enter into and perform its obligations under the Transaction Documents to which it is a party. The execution and delivery of this Agreement and the other Transaction Documents by the Company and its Subsidiaries, and the consummation by the Company and its Subsidiaries of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Notes and the reservation for issuance and issuance of the Conversion Shares issuable upon conversion of the Notes) have been duly authorized by the Company’s board of directors and each of its Subsidiaries’ board of directors or other governing body, as applicable, and other than (i) the filing with the SEC of one or more Registration Statements in accordance with the requirements of the Registration Rights Agreement, (ii) a Form D with the SEC and any other filings as may be required by any state securities agencies, (iii) the Form 8-K Filing, (iv) a Listing of Additional Shares Notification with the Principal Market, and (v) the Stockholder Approval (as defined below) (collectively, the “Required Filings and Approvals”) no further filing, consent or authorization is required by the Company, its Subsidiaries, their respective boards of directors or their stockholders or other governing body. This Agreement has been, and the other Transaction Documents to which it is a party will be prior to the Closing, duly executed and delivered by the Company, and each constitutes the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies and except as rights to indemnification and to contribution may be limited by federal or state securities law. Prior to the Closing, the Transaction Documents to which each Subsidiary is a party will be duly executed and delivered by each such Subsidiary, and shall constitute the legal, valid and binding obligations of each such Subsidiary, enforceable against each such Subsidiary in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies and except as rights to indemnification and to contribution may be limited by federal or state securities law. “Transaction Documents” means, collectively, this Agreement, the Notes, the Investor Note, the Security Documents, the Registration Rights Agreement, the Voting and Lockup Agreement, the Irrevocable Transfer Agent Instructions (as defined below) and each of the other agreements and instruments entered into or delivered by any of the parties hereto in connection with the transactions contemplated hereby and thereby, as may be amended from time to time.

 

 

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(c)     Issuance of Securities. The issuance of the Notes are duly authorized and upon issuance in accordance with the terms of the Transaction Documents shall be validly issued, fully paid and non-assessable and free from all preemptive or similar rights, mortgages, defects, claims, liens, pledges, charges, taxes, rights of first refusal, encumbrances, security interests and other encumbrances (collectively “Liens”) with respect to the issuance thereof. As of the Closing, the Company shall have reserved from its duly authorized capital stock not less than the greater of (I) 6 million shares of Common Stock and (II) 200% of the maximum number of Conversion Shares issuable upon conversion of the Notes (assuming for purposes hereof that (x) the Notes are convertible at the Alternate Conversion Price (as defined in the Notes) assuming an Alternate Conversion Date (as defined in the Note) as of the Closing Date, (y) interest on the Notes shall accrue through the eight month anniversary of the Closing Date and will be converted in shares of Common Stock at a conversion price equal to the Alternate Conversion Price (as defined in the Notes) assuming an Alternate Conversion Date as of the Closing Date and (z) any such conversion shall not take into account any limitations on the conversion of the Notes set forth in the Notes),. Upon issuance or conversion in accordance with the Notes, the Conversion Shares, when issued, will be validly issued, fully paid and nonassessable and free from all preemptive or similar rights or Liens with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. Subject to the accuracy of the representations and warranties of the Buyers in this Agreement, the offer and issuance by the Company of the Securities is exempt from registration under the 1933 Act. 

 

(d)     No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and its Subsidiaries and the consummation by the Company and its Subsidiaries of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Notes and the Conversion Shares and the reservation for issuance of the Conversion Shares) will not (i) result in a violation of the Certificate of Incorporation (as defined below) (including, without limitation, any certificate of designation contained therein), By-Laws (as defined below), certificate of formation, memorandum of association, articles of association, bylaws or other organizational documents of the Company or any of its Subsidiaries, or any capital stock or other securities of the Company or any of its Subsidiaries, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) in any respect under, or 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 (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including, without limitation, foreign, federal and state securities laws and regulations and the rules and regulations of the Nasdaq Capital Market (the “Principal Market”) and including all applicable foreign, federal and state laws, rules and regulations) 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.

 

 

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(e)     Consents. Neither the Company nor any Subsidiary is required to obtain any consent from, authorization or order of, or make any filing or registration with (other than the filing with the SEC of one or more Registration Statements in accordance with the requirements of the Registration Rights Agreement, a Form D with the SEC and any other filings as may be required by any state securities agencies), any Governmental Entity (as defined below) or any regulatory or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of its respective obligations under or contemplated by the Transaction Documents, in each case, in accordance with the terms hereof or thereof. All consents, authorizations, orders, filings and registrations which the Company or any Subsidiary is required to obtain pursuant to the preceding sentence have been or will be obtained or effected on or prior to the Closing Date, and neither the Company nor any of its Subsidiaries are aware of any facts or circumstances which might prevent the Company or any of its Subsidiaries from obtaining or effecting any of the registration, application or filings contemplated by the Transaction Documents. Except for the minimum stockholders equity requirement for continued listing on the Principal Market and assuming receipt of the Stockholder Approval to the extent required pursuant to Nasdaq Listing Rule 5635 for conversion of the Notes, the Company is not in violation of the requirements of the Principal Market and has no knowledge of any other facts or circumstances which could reasonably lead to delisting or suspension of the Common Stock in the foreseeable future. “Governmental Entity” means any nation, state, county, city, town, village, district, or other political jurisdiction of any nature, federal, state, local, municipal, foreign, or other government, governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal), multi-national organization or body; or body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature or instrumentality of any of the foregoing, including any entity or enterprise owned or controlled by a government or a public international organization or any of the foregoing.

 

(f)     Acknowledgment Regarding Buyer’s Purchase of Securities. The Company acknowledges and agrees that each Buyer is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby and that no Buyer is (i) an officer or director of the Company or any of its Subsidiaries, (ii) an “affiliate” (as defined in Rule 144) of the Company or any of its Subsidiaries or (iii) to its knowledge, a “beneficial owner” of more than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “1934 Act”)). The Company further acknowledges that no Buyer is acting as a financial advisor or fiduciary of the Company or any of its Subsidiaries (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated hereby and thereby, and any advice given by a Buyer or any of its representatives or agents in connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to such Buyer’s purchase of the Securities. The Company further represents to each Buyer that the Company’s and each Subsidiary’s decision to enter into the Transaction Documents to which it is a party has been based solely on the independent evaluation by the Company, each Subsidiary and their respective representatives.

 

 

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(g)     No General Solicitation; Placement Agent’s Fees. Neither the Company, nor any of its Subsidiaries or affiliates, nor any Person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Securities. The Company shall be responsible for the payment of any placement agent’s fees, financial advisory fees, or brokers’ commissions (other than for Persons engaged by any Buyer or its investment advisor) relating to or arising out of the transactions contemplated hereby, including, without limitation, placement agent fees payable to Palladium Capital Advisors LLC, as placement agent (the “Placement Agent”) in connection with the sale of the Securities. The fees and expenses of the Placement Agent to be paid by the Company or any of its Subsidiaries are as set forth on Schedule 3(g) attached hereto. The Company shall pay, and hold each Buyer harmless against, any liability, loss or expense (including, without limitation, attorney's fees and out-of-pocket expenses) arising in connection with any such claim. The Company acknowledges that it has engaged the Placement Agent in connection with the sale of the Securities. Other than the Placement Agent, neither the Company nor any of its Subsidiaries has engaged any placement agent or other agent in connection with the offer or sale of the Securities.

 

(h)     No Integrated Offering. None of the Company, its Subsidiaries or any of their affiliates, nor any Person acting on their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of the issuance of any of the Securities under the 1933 Act, whether through integration with prior offerings or otherwise, or cause this offering of the Securities to require approval of stockholders of the Company for purposes of the 1933 Act or under any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated for quotation. None of the Company, its Subsidiaries, their affiliates nor any Person acting on their behalf will take any action or steps that would require registration of the issuance of any of the Securities under the 1933 Act or cause the offering of any of the Securities to be integrated with other offerings of securities of the Company.

 

(i)     Dilutive Effect. The Company understands and acknowledges that the number of Conversion Shares will increase in certain circumstances. The Company further acknowledges that its obligation to issue the Conversion Shares pursuant to the terms of the Notes in accordance with this Agreement and the Notes is, in each case, absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company.

 

(j)     Application of Takeover Protections; Rights Agreement. The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, interested stockholder, business combination, poison pill (including, without limitation, any distribution under a rights agreement), stockholder rights plan or other similar anti-takeover provision under the Certificate of Incorporation, Bylaws or other organizational documents or the laws of the jurisdiction of its incorporation or otherwise which is or could become applicable to any Buyer as a result of the transactions contemplated by this Agreement, including, without limitation, the Company’s issuance of the Securities and any Buyer’s ownership of the Securities. The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any stockholder rights plan or similar arrangement relating to accumulations of beneficial ownership of shares of Common Stock or a change in control of the Company or any of its Subsidiaries.

 

 

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(k)     SEC Documents; Financial Statements. During the two (2) years prior to the date hereof, the Company has timely filed all reports, schedules, forms, proxy statements, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act (all of the foregoing filed prior to the date hereof, including without limitation, Current Reports on Form 8-K filed by the Company with the SEC whether required to be filed or not (but excluding Item 7.01 thereunder), and all exhibits and appendices included therein (other than Exhibits 99.1 to Form 8-K) and financial statements, notes and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the “SEC Documents”). The Company has delivered or has made available to the Buyers or their respective representatives true, correct and complete copies of each of the SEC Documents not available on the EDGAR system. 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 the light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as in effect as of the time of filing. Such financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”), consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments which will not be material, either individually or in the aggregate). No other information provided by or on behalf of the Company to any of the Buyers which is not included in the SEC Documents (including, without limitation, information referred to in Section 2(e) of this Agreement or in the disclosure schedules to this Agreement) contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein not misleading, in the light of the circumstance under which they are or were made. The Company is not currently contemplating to amend or restate any of the financial statements (including, without limitation, any notes or any letter of the independent accountants of the Company with respect thereto) included in the SEC Documents (the “Financial Statements”), nor is the Company currently aware of facts or circumstances which would require the Company to amend or restate any of the Financial Statements, in each case, in order for any of the Financials Statements to be in compliance with GAAP and the rules and regulations of the SEC. The Company has not been informed by its independent accountants that they recommend that the Company amend or restate any of the Financial Statements or that there is any need for the Company to amend or restate any of the Financial Statements.

 

 

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(l)     Absence of Certain Changes. Except as set forth in the SEC Documents, since the date of the Company’s most recent audited financial statements contained in a Form 10-K, there has been no material adverse change and no material adverse development in the business, assets, liabilities, properties, operations (including results thereof), condition (financial or otherwise) or prospects of the Company or any of its Subsidiaries. Since the date of the Company’s most recent audited financial statements contained in a Form 10-K, neither the Company nor any of its Subsidiaries has (i) declared or paid any dividends, (ii) sold any assets, individually or in the aggregate, outside of the ordinary course of business or (iii) made any capital expenditures, individually or in the aggregate, outside of the ordinary course of business. Neither the Company nor any of its Subsidiaries has taken any steps to seek protection pursuant to any law or statute relating to bankruptcy, insolvency, reorganization, receivership, liquidation or winding up, nor does the Company or any Subsidiary have any knowledge or reason to believe that any of their respective creditors intend to initiate involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so. The Company and its Subsidiaries, individually and on a consolidated basis, are not as of the date hereof, and after giving effect to the transactions contemplated hereby to occur at the Closing, will not be Insolvent (as defined below). For purposes of this Section 3(l), “Insolvent” means, (i) with respect to the Company and its Subsidiaries, on a consolidated basis, (A) the present fair saleable value of the Company’s and its Subsidiaries’ assets is less than the amount required to pay the Company’s and its Subsidiaries’ total Indebtedness (as defined below), (B) the Company and its Subsidiaries are unable to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured or (C) the Company and its Subsidiaries intend to incur or believe that they will incur debts that would be beyond their ability to pay as such debts mature; and (ii) with respect to the Company and each Subsidiary, individually, (A) the present fair saleable value of the Company’s or such Subsidiary’s (as the case may be) assets is less than the amount required to pay its respective total Indebtedness, (B) the Company or such Subsidiary (as the case may be) is unable to pay its respective debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured or (C) the Company or such Subsidiary (as the case may be) intends to incur or believes that it will incur debts that would be beyond its respective ability to pay as such debts mature. Neither the Company nor any of its Subsidiaries has engaged in any business or in any transaction, and is not about to engage in any business or in any transaction, for which the Company’s or such Subsidiary’s remaining assets constitute unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted.

  

(m)     No Undisclosed Events, Liabilities, Developments or Circumstances. Except as set forth in the SEC Documents, no event, liability, development or circumstance has occurred or exists, or is reasonably expected to exist or occur with respect to the Company, any of its Subsidiaries or any of their respective businesses, properties, liabilities, prospects, operations (including results thereof) or condition (financial or otherwise), that (i) would be required to be disclosed by the Company under applicable securities laws on a registration statement on Form S-1 filed with the SEC relating to an issuance and sale by the Company of its Common Stock and which has not been publicly announced, (ii) could have a material adverse effect on any Buyer’s investment hereunder or (iii) could have a Material Adverse Effect. 

 

 

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(n)     Conduct of Business; Regulatory Permits. Neither the Company nor any of its Subsidiaries is in violation of any term of or in default under its Certificate of Incorporation, any certificate of designation, preferences or rights of any other outstanding series of preferred stock of the Company or any of its Subsidiaries or Bylaws or their organizational charter, certificate of formation, memorandum of association, articles of association, Certificate of Incorporation or certificate of incorporation or bylaws, respectively. Except as set forth in the SEC Documents, neither the Company nor any of its Subsidiaries is in violation of any judgment, decree or order or any statute, ordinance, rule or regulation applicable to the Company or any of its Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct its business in violation of any of the foregoing, except in all cases for possible violations which could not, individually or in the aggregate, have a Material Adverse Effect. Except as set forth in the SEC Documents, without limiting the generality of the foregoing, the Company is not in violation of any of the rules, regulations or requirements of the Principal Market and has no knowledge of any facts or circumstances that could reasonably lead to delisting or suspension of the Common Stock by the Principal Market in the foreseeable future. During the two years prior to the date hereof, (i) the Common Stock has been listed or designated for quotation on the Principal Market, (ii) trading in the Common Stock has not been suspended by the SEC or the Principal Market and (iii) the Company has received no communication, written or oral, from the SEC or the Principal Market regarding the suspension or delisting of the Common Stock from the Principal Market. The Company and each of its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such certificates, authorizations or permits would not have, individually or in the aggregate, a Material Adverse Effect, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit. There is no agreement, commitment, judgment, injunction, order or decree binding upon the Company or any of its Subsidiaries or to which the Company or any of its Subsidiaries is a party which has or would reasonably be expected to have the effect of prohibiting or materially impairing any business practice of the Company or any of its Subsidiaries, any acquisition of property by the Company or any of its Subsidiaries or the conduct of business by the Company or any of its Subsidiaries as currently conducted other than such effects, individually or in the aggregate, which have not had and would not reasonably be expected to have a Material Adverse Effect on the Company or any of its Subsidiaries.

 

(o)     Foreign Corrupt Practices. Neither the Company, the Company’s subsidiary or any director, officer, agent, employee, nor any other person acting for or on behalf of the foregoing (individually and collectively, a “Company Affiliate”) have violated the U.S. Foreign Corrupt Practices Act (the “FCPA”) or any other applicable anti-bribery or anti-corruption laws, nor has any Company Affiliate offered, paid, promised to pay, or authorized the payment of any money, or offered, given, promised to give, or authorized the giving of anything of value, to any officer, employee or any other person acting in an official capacity for any Governmental Entity to any political party or official thereof or to any candidate for political office (individually and collectively, a “Government Official”) or to any person under circumstances where such Company Affiliate knew or was aware of a high probability that all or a portion of such money or thing of value would be offered, given or promised, directly or indirectly, to any Government Official, for the purpose of:

 

(i)     (A) influencing any act or decision of such Government Official in his/her official capacity, (B) inducing such Government Official to do or omit to do any act in violation of his/her lawful duty, (C) securing any improper advantage, or (D) inducing such Government Official to influence or affect any act or decision of any Governmental Entity, or

 

 

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(ii)     assisting the Company or its Subsidiaries in obtaining or retaining business for or with, or directing business to, the Company or its Subsidiaries.

 

(p)     Sarbanes-Oxley Act. The Company and each Subsidiary is in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002, as amended, and any and all applicable rules and regulations promulgated by the SEC thereunder.

 

(q)     Transactions With Affiliates. Except as set forth in the SEC Documents, no current or former employee, partner, director, officer or stockholder (direct or indirect) of the Company or its Subsidiaries, or any associate, or, to the knowledge of the Company, any affiliate of any thereof, or any relative with a relationship no more remote than first cousin of any of the foregoing, is presently, or has ever been, (i) a party to any transaction with the Company or its Subsidiaries (including any contract, agreement or other arrangement providing for the furnishing of services by, or rental of real or personal property from, or otherwise requiring payments to, any such director, officer or stockholder or such associate or affiliate or relative Subsidiaries (other than for ordinary course services as employees, officers or directors of the Company or any of its Subsidiaries)) or (ii) the direct or indirect owner of an interest in any corporation, firm, association or business organization which is a competitor, supplier or customer of the Company or its Subsidiaries (except for a passive investment (direct or indirect) in less than 5% of the common stock of a company whose securities are traded on or quoted through an Eligible Market (as defined in the Notes)), nor does any such Person receive income from any source other than the Company or its Subsidiaries which relates to the business of the Company or its Subsidiaries or should properly accrue to the Company or its Subsidiaries. No employee, officer, stockholder or director of the Company or any of its Subsidiaries or member of his or her immediate family is indebted to the Company or its Subsidiaries, as the case may be, nor is the Company or any of its Subsidiaries indebted (or committed to make loans or extend or guarantee credit) to any of them, other than (i) for payment of salary for services rendered, (ii) reimbursement for reasonable expenses incurred on behalf of the Company, and (iii) for other standard employee benefits made generally available to all employees or executives (including stock option agreements outstanding under any stock option plan approved by the Board of Directors of the Company).

 

(r)     Equity Capitalization. 

 

(i)     Definitions: 

 

(A)     “Common Stock” means (x) the Company’s shares of common stock, $0.01 par value per share, and (y) any capital stock into which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock. 

 

(B)     “Preferred Stock” means (x) the Company’s blank check preferred stock, $0.01 par value per share, the terms of which may be designated by the board of directors of the Company in a certificate of designations and (y) any capital stock into which such preferred stock shall have been changed or any share capital resulting from a reclassification of such preferred stock (other than a conversion of such preferred stock into Common Stock in accordance with the terms of such certificate of designations). 

 

 

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(ii)     Authorized and Outstanding Capital Stock. As of the date hereof, the authorized capital stock of the Company consists of (A) One Hundred Million (100,000,000) shares of Common Stock, of which, 4,729,367 are issued and outstanding as of the date hereof and none of which are reserved for issuance pursuant to Convertible Securities (as defined below) other than the September Notes and the warrants to be issued to the Placement Agent upon the Closing as specified on Schedule 3(g) hereof (the “Placement Agent Warrants”)) and the warrants issued and issuable to the Placement Agent as partial compensation in connection with the September Securities Purchase Agreement, in each case exercisable or exchangeable for, or convertible into, shares of Common Stock, and (B) Two Million shares of Preferred Stock, none of which are issued and outstanding. No shares of Common Stock are held in the treasury of the Company.

 

(iii)     Valid Issuance; Available Shares; Affiliates. All of such outstanding shares are duly authorized and have been, or upon issuance will be, validly issued and are fully paid and nonassessable. Schedule 3(r)(iii) sets forth the number of shares of Common Stock that are, as of the date hereof, owned by Persons who are “affiliates” (as defined in Rule 405 of the 1933 Act and calculated based on the assumption that only officers, directors and holders of at least 10% of the Company’s issued and outstanding Common Stock are “affiliates” without conceding that any such Persons are “affiliates” for purposes of federal securities laws) of the Company or any of its Subsidiaries.

 

(iv)     Existing Securities; Obligations. Except as disclosed in the SEC Documents: (A) none of the Company’s or any Subsidiary’s shares, interests or capital stock is subject to preemptive rights or any other similar rights or Liens suffered or permitted by the Company or any Subsidiary; (B) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any shares, interests or capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares, interests or capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any shares, interests or capital stock of the Company or any of its Subsidiaries; (C) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act (except pursuant to the Registration Rights Agreement); (D) there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries; (E) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities; and (F) neither the Company nor any Subsidiary has any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement.

 

 

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(v)     Organizational Documents. The Company has furnished to the Buyers true, correct and complete copies of the Company’s Certificate of Incorporation, as amended and as in effect on the date hereof (the “Certificate of Incorporation”), and the Company’s bylaws, as amended and as in effect on the date hereof (the “Bylaws”), and the terms of all Convertible Securities and the material rights of the holders thereof in respect thereto. 

 

(s)     Indebtedness and Other Contracts. Neither the Company nor any of its Subsidiaries, (i) except as disclosed on Schedule 3(s), has any outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing Indebtedness of the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries is or may become bound, (ii) is a party to any contract, agreement or instrument, the violation of which, or default under which, by the other party(ies) to such contract, agreement or instrument could reasonably be expected to result in a Material Adverse Effect, (iii) has any financing statements securing obligations in any amounts filed in connection with the Company or any of its Subsidiaries; (iv) is in violation of any term of, or in default under, any contract, agreement or instrument relating to any Indebtedness, except where such violations and defaults would not result, individually or in the aggregate, in a Material Adverse Effect, or (v) is a party to any contract, agreement or instrument relating to any Indebtedness, the performance of which, in the judgment of the Company’s officers, has or is expected to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries have any liabilities or obligations required to be disclosed in the SEC Documents which are not so disclosed in the SEC Documents, other than those incurred in the ordinary course of the Company’s or its Subsidiaries’ respective businesses and which, individually or in the aggregate, do not or could not have a Material Adverse Effect. For purposes of this Agreement: (x) “Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (including, without limitation, “capital leases” in accordance with GAAP) (other than trade payables entered into in the ordinary course of business consistent with past practice), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with GAAP, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (G) above; and (y) “Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any Indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto.

 

 

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(t)     Litigation. There is no action, suit, arbitration, proceeding, inquiry or investigation before or by the Principal Market, any court, public board, other Governmental Entity, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries, the Common Stock or any of the Company’s or its Subsidiaries’ officers or directors , whether of a civil or criminal nature or otherwise, in their capacities as such, except as set forth in Schedule 3(t). No director, officer or employee of the Company or any of its subsidiaries has willfully violated 18 U.S.C. §1519 or engaged in spoliation in reasonable anticipation of litigation. Without limitation of the foregoing, there has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the SEC involving the Company, any of its Subsidiaries or any current or former director or officer of the Company or any of its Subsidiaries. The SEC has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company under the 1933 Act or the 1934 Act. Neither the Company nor any of its Subsidiaries is subject to any order, writ, judgment, injunction, decree, determination or award of any Governmental Entity.

 

(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 been refused any insurance coverage sought or applied for, and neither the Company nor any such Subsidiary has any reason to believe that it will be unable 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.

 

(v)     Employee Relations. Neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement or employs any member of a union. The Company and its Subsidiaries believe that their relations with their employees are good. No executive officer (as defined in Rule 501(f) promulgated under the 1933 Act) or other key employee of the Company or any of its Subsidiaries has notified the Company or any such Subsidiary that such officer intends to leave the Company or any such Subsidiary or otherwise terminate such officer’s employment with the Company or any such Subsidiary. To the Company’s knowledge, no executive officer or other key employee of the Company or any of its Subsidiaries is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each such executive officer or other key employee (as the case may be) does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all federal, state, local and foreign laws and regulations respecting labor, employment and employment practices and benefits, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

 

 

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(w)     Title. 

 

(i)     Real Property. Each of the Company and its Subsidiaries holds good title to all real property, leases in real property, facilities or other interests in real property owned or held by the Company or any of its Subsidiaries (the “Real Property”) owned by the Company or any of its Subsidiaries (as applicable). The Real Property is free and clear of all Liens and is not subject to any rights of way, building use restrictions, exceptions, variances, reservations, or limitations of any nature except for (a) Liens for current taxes not yet due and (b) zoning laws and other land use restrictions that do not impair the present or anticipated use of the property subject thereto. Any Real Property held under lease by the Company or any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company or any of its Subsidiaries. 

 

(ii)     Fixtures and Equipment. Each of the Company and its Subsidiaries (as applicable) has good title to, or a valid leasehold interest in, the tangible personal property, equipment, improvements, fixtures, and other personal property and appurtenances that are used by the Company or its Subsidiary in connection with the conduct of its business (the “Fixtures and Equipment”). The Fixtures and Equipment are structurally sound, are in good operating condition and repair, are adequate for the uses to which they are being put, are not in need of maintenance or repairs except for ordinary, routine maintenance and repairs and are sufficient for the conduct of the Company’s and/or its Subsidiaries’ businesses (as applicable) in the manner as conducted prior to the Closing. Each of the Company and its Subsidiaries owns all of its Fixtures and Equipment free and clear of all Liens except for (a) liens for current taxes not yet due and (b) zoning laws and other land use restrictions that do not impair the present or anticipated use of the property subject thereto.

 

(x)     Intellectual Property Rights. The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, original works of authorship, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights and all applications and registrations therefor (“Intellectual Property Rights”) necessary to conduct their respective businesses as now conducted. None of the Company or its Subsidiaries owns any patents. Except as set forth in Schedule 3(x)(ii), none of the Company's Intellectual Property Rights have expired or terminated or have been abandoned or are expected to expire or terminate or are expected to be abandoned, within three years from the date of this Agreement. The Company does not have any knowledge of any infringement by the Company or its Subsidiaries of Intellectual Property Rights of others. There is no claim, action or proceeding being made or brought, or to the knowledge of the Company or any of its Subsidiaries, being threatened, against the Company or any of its Subsidiaries regarding its Intellectual Property Rights. Neither the Company nor any of its Subsidiaries is aware of any facts or circumstances that could reasonably be expected to give rise to any of the foregoing infringements or claims, actions or proceedings. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their Intellectual Property Rights

 

 

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(y)     Environmental Laws.     (i) The Company and its Subsidiaries (A) are in compliance with any and all Environmental Laws (as defined below), (B) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (C) are in compliance with all terms and conditions of any such permit, license or approval where, in each of the foregoing clauses (A), (B) and (C), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect. 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.

 

(ii)     No Hazardous Materials:

 

(A)     have been disposed of or otherwise released from any Real Property of the Company or any of its Subsidiaries in violation of any Environmental Laws; or

 

(B)     to the Company’s knowledge, are present on, over, beneath, in or upon an Real Property or any portion thereof in quantities that would constitute a violation of any Environmental Laws. To the Company’s knowledge, no prior use by the Company or any of its Subsidiaries of any Real Property has occurred that violates any Environmental Laws, which violation would have a material adverse effect on the business of the Company or any of its Subsidiaries.

 

(iii)     Neither the Company nor any of its Subsidiaries knows of any other person who or entity which has stored, treated, recycled, disposed of or otherwise located on any Real Property any Hazardous Materials, including, without limitation, such substances as asbestos and polychlorinated biphenyls.

 

(iv)     None of the Real Property are on any federal or state “Superfund” list or Liability Information System (“CERCLIS”) list or any state environmental agency list of sites under consideration for CERCLIS, nor subject to any environmental related Liens.

 

(z)     Subsidiary Rights. The Company or one of its Subsidiaries has the unrestricted right to vote, and (subject to limitations imposed by applicable law) to receive dividends and distributions on, all capital securities of its Subsidiaries as owned by the Company or such Subsidiary.

 

 

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(aa)     Tax Status. The Company and each of its Subsidiaries (i) has timely made or filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has timely 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 (iii) has set aside on its books provision 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 and its Subsidiaries know of no basis for any such claim. The Company is not operated in such a manner as to qualify as a passive foreign investment company, as defined in Section 1297 of the Internal Revenue Code of 1986, as amended (the “Code”). The net operating loss carryforwards (“NOLs”) for United States federal income tax purposes of the consolidated group of which the Company is the common parent, if any, shall not be adversely effected by the transactions contemplated hereby. The transactions contemplated hereby do not constitute an “ownership change” within the meaning of Section 382 of the Code, thereby preserving the Company’s ability to utilize such NOLs.

 

(bb)     Internal Accounting and Disclosure Controls. The Company and each of its Subsidiaries maintains internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the 1934 Act) that is effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, including 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 GAAP and to maintain asset and liability accountability, (iii) access to assets or incurrence of liabilities is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets and liabilities is compared with the existing assets and liabilities at reasonable intervals and appropriate action is taken with respect to any difference. The Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the 1934 Act) that are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the 1934 Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, including, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the 1934 Act is accumulated and communicated to the Company’s management, including its principal executive officer or officers and its principal financial officer or officers, as appropriate, to allow timely decisions regarding required disclosure. Neither the Company nor any of its Subsidiaries has received any notice or correspondence from any accountant, Governmental Entity or other Person relating to any potential material weakness or significant deficiency in any part of the internal controls over financial reporting of the Company or any of its Subsidiaries.

 

(cc)     Off Balance Sheet Arrangements. There is no transaction, arrangement, or other relationship between the Company or any of its Subsidiaries and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its 1934 Act filings and is not so disclosed or that otherwise could be reasonably likely to have a Material Adverse Effect.

 

 

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(dd)     Investment Company Status. The Company is not, and upon consummation of the sale of the Securities will not be, an “investment company,” an affiliate of an “investment company,” a company controlled by an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company” as such terms are defined in the Investment Company Act of 1940, as amended.

 

(ee)     Acknowledgement Regarding Buyers’ Trading Activity. It is understood and acknowledged by the Company that (i) following the public disclosure of the transactions contemplated by the Transaction Documents, in accordance with the terms thereof, none of the Buyers have been asked by the Company or any of its Subsidiaries to agree, nor has any Buyer agreed with the Company or any of its Subsidiaries other than pursuant to Section 4(gg) hereof, to desist from effecting any transactions in or with respect to (including, without limitation, purchasing or selling, long and/or short) any securities of the Company, or “derivative” securities based on securities issued by the Company or to hold any of the Securities for any specified term; (ii) any Buyer, and counterparties in “derivative” transactions to which any such Buyer is a party, directly or indirectly, presently may have a “short” position in the Common Stock which was established prior to such Buyer’s knowledge of the transactions contemplated by the Transaction Documents; and (iii) each Buyer shall not be deemed to have any affiliation with or control over any arm’s length counterparty in any “derivative” transaction. The Company further understands and acknowledges that following the public disclosure of the transactions contemplated by the Transaction Documents pursuant to the 8-K Filing (as defined below) one or more Buyers may engage in hedging and/or trading activities (including, without limitation, the location and/or reservation of borrowable shares of Common Stock) at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value and/or number of the Conversion Shares deliverable with respect to the Notes are being determined and such hedging and/or trading activities, if any, can reduce the value of the existing stockholders’ equity interest in the Company both at and after the time the hedging and/or trading activities are being conducted. The Company acknowledges that such aforementioned hedging and/or trading activities (including, without limitation, the location and/or reservation of borrowable shares of Common Stock) do not constitute a breach of this Agreement, the Notes or any other Transaction Document or any of the documents executed in connection herewith or therewith.

 

(ff)     Manipulation of Price. Neither the Company nor any of its Subsidiaries has, and, to the knowledge of the Company, no Person acting on their behalf has, directly or indirectly, (i) taken any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company or any of its Subsidiaries to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities (other than the Placement Agent), (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company or any of its Subsidiaries or (iv) paid or agreed to pay any Person for research services with respect to any securities of the Company or any of its Subsidiaries.

 

(gg)     U.S. Real Property Holding Corporation. Neither the Company nor any of its Subsidiaries is, or has ever been, and so long as any of the Securities are held by any of the Buyers, shall become, a U.S. real property holding corporation within the meaning of Section 897 of the Code, and the Company and each Subsidiary shall so certify upon any Buyer’s request.

 

 

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(hh)     Registration Eligibility. The Company is eligible to register the Registrable Securities for resale by the Buyers using Form S-3 promulgated under the 1933 Act.

 

(ii)     Transfer Taxes. On the Closing Date, all stock transfer or other taxes (other than income or similar taxes) which are required to be paid in connection with the issuance, sale and transfer of the Securities to be sold to each Buyer hereunder will be, or will have been, fully paid or provided for by the Company, and all laws imposing such taxes will be or will have been complied with. 

 

(jj)     Bank Holding Company Act. Neither the Company nor any of its Subsidiaries is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor any of its Subsidiaries or affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. 

 

(kk)     Shell Company Status. The Company is not, and has never been, an issuer identified in, or subject to, Rule 144(i).

 

(ll)     Illegal or Unauthorized Payments; Political Contributions. Neither the Company nor any of its Subsidiaries nor, to the best of the Company’s knowledge (after reasonable inquiry of its officers and directors), any of the officers, directors, employees, agents or other representatives of the Company or any of its Subsidiaries or any other business entity or enterprise with which the Company or any Subsidiary is or has been affiliated or associated, has, directly or indirectly, made or authorized any payment, contribution or gift of money, property, or services, whether or not in contravention of applicable law, (i) as a kickback or bribe to any Person or (ii) to any political organization, or the holder of or any aspirant to any elective or appointive public office except for personal political contributions not involving the direct or indirect use of funds of the Company or any of its Subsidiaries.

 

(mm)     Money Laundering. The Company and its Subsidiaries are in compliance with, and have not previously violated, the USA Patriot Act of 2001 and all other applicable U.S. and non-U.S. anti-money laundering laws and regulations, including, without limitation, the laws, regulations and Executive Orders and sanctions programs administered by the U.S. Office of Foreign Assets Control, including, but not limited, to (i) Executive Order 13224 of September 23, 2001 entitled, “Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism” (66 Fed. Reg. 49079 (2001)); and (ii) any regulations contained in 31 CFR, Subtitle B, Chapter V.

 

 

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(nn)     Management. Except as set forth in Schedule 3(nn) hereto, during the past five year period, no current or former officer or director or, to the knowledge of the Company, no current ten percent (10%) or greater stockholder of the Company or any of its Subsidiaries has been the subject of:

 

(i)     a petition under bankruptcy laws or any other insolvency or moratorium law or the appointment by a court of a receiver, fiscal agent or similar officer for such Person, or any partnership in which such person was a general partner at or within two years before the filing of such petition or such appointment, or any corporation or business association of which such person was an executive officer at or within two years before the time of the filing of such petition or such appointment;

 

(ii)     a conviction in a criminal proceeding or a named subject of a pending criminal proceeding (excluding traffic violations that do not relate to driving while intoxicated or driving under the influence);

 

(iii)     any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining any such person from, or otherwise limiting, the following activities:

 

(1)     Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the United States Commodity Futures Trading Commission or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;

 

(2)     Engaging in any particular type of business practice; or

 

(3)     Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of securities laws or commodities laws;

 

(iv)     any order, judgment or decree, not subsequently reversed, suspended or vacated, of any authority barring, suspending or otherwise limiting for more than sixty (60) days the right of any such person to engage in any activity described in the preceding sub paragraph, or to be associated with persons engaged in any such activity;

 

(v)     a finding by a court of competent jurisdiction in a civil action or by the SEC or other authority to have violated any securities law, regulation or decree and the judgment in such civil action or finding by the SEC or any other authority has not been subsequently reversed, suspended or vacated; or

 

(vi)     a finding by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding has not been subsequently reversed, suspended or vacated.

 

 

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(oo)     Stock Option Plans.     The Company has one equity incentive plan from which equity incentive awards may be granted to eligible recipients thereunder, namely the Helios and Matheson Analytics Inc. 2014 Equity Incentive Plan (the “Equity Incentive Plan”), and has not granted any awards thereunder. 

 

(pp)     No Disagreements with Accountants and Lawyers.     There are no material disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company's ability to perform any of its obligations under any of the Transaction Documents. In addition, on or prior to the date hereof, the Company has no reason to believe that it will need to restate any such financial statements or any part thereof.

 

(qq)     No Disqualification Events.     With respect to Securities to be offered and sold hereunder in reliance on Rule 506(b) under the 1933 Act (“Regulation D Securities”), none of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering contemplated hereby, any beneficial owner of 20% or more of the Company's outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the 1933 Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered Person” and, together, “Issuer Covered Persons”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the 1933 Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event. The Company has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Buyers a copy of any disclosures provided thereunder.

 

(rr)     Other Covered Persons.     The Company is not aware of any Person (other than the Placement Agent) that has been or will be paid (directly or indirectly) remuneration for solicitation of Buyers or potential purchasers in connection with the sale of any Regulation D Securities.

 

(ss)     No Additional Agreements. The Company does not have any agreement or understanding with any Buyer with respect to the transactions contemplated by the Transaction Documents other than as specified in the Transaction Documents.

 

(tt)     Public Utility Holding Act. None of the Company nor any of its Subsidiaries is a “holding company,” or an “affiliate” of a “holding company,” as such terms are defined in the Public Utility Holding Act of 2005.

 

(uu)     Federal Power Act. None of the Company nor any of its Subsidiaries is subject to regulation as a “public utility” under the Federal Power Act, as amended.

 

(vv)     Ranking of Notes. No Indebtedness of the Company, at the Closing, will be senior to, or pari passu with, the Notes in right of payment, whether with respect to payment or redemptions, interest, damages, upon liquidation or dissolution or otherwise.

 

 

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(ww)     Disclosure. The Company confirms that neither it nor any other Person acting on its behalf has provided any of the Buyers or their agents or counsel with any information that constitutes or could reasonably be expected to constitute material, non-public information concerning the Company or any of its Subsidiaries, other than the existence of the transactions contemplated by this Agreement and the other Transaction Documents. The Company understands and confirms that each of the Buyers will rely on the foregoing representations in effecting transactions in securities of the Company. Each press release issued by the Company or any of its Subsidiaries during the twelve (12) months preceding the date of this Agreement did not at the time of release contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. To the Company’s knowledge, no event or circumstance has occurred or information exists with respect to the Company or any of its Subsidiaries or its or their business, properties, liabilities, prospects, operations (including results thereof) or conditions (financial or otherwise), which, under applicable law, rule or regulation, requires public disclosure at or before the date hereof or announcement by the Company but which has not been so publicly disclosed. The Company acknowledges and agrees that no Buyer makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 2.

 

	
4.
	
COVENANTS.

 

(a)     Best Efforts. Each Buyer shall use its best efforts to timely satisfy each of the covenants hereunder and conditions to be satisfied by it as provided in Section 6 of this Agreement. The Company shall use its best efforts to timely satisfy each of the covenants hereunder and conditions to be satisfied by it as provided in Section 7 of this Agreement.

 

(b)     Form D and Blue Sky. The Company shall file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to each 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 in order to obtain an exemption for, or to, qualify the Securities for sale to the Buyers at the 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 Buyers on or prior to the Closing Date. Without limiting any other obligation of the Company under this Agreement, the Company shall timely make all filings and reports relating to the offer and sale of the Securities required under all applicable securities laws (including, without limitation, all applicable federal securities laws and all applicable “Blue Sky” laws), and the Company shall comply with all applicable foreign, federal, state and local laws, statutes, rules, regulations and the like relating to the offering and sale of the Securities to the Buyers.

 

(c)     Reporting Status. Until the date on which the Buyers shall have sold all of the Registrable Securities (the “Reporting Period”), the Company shall timely file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would no longer require or otherwise permit such termination. The Company shall use reasonable best efforts to maintain its eligibility to register the Registrable Securities for resale by the Buyers on Form S-3, provided that Buyer acknowledges that such eligibility depends on the Company’s continued listing on the Principal Market, and the Company provides no assurance of such continued listing, which is subject to fulfillment of certain conditions of the Nasdaq Hearings Panel as disclosed in the Company’s Current Report on Form 8-K filed with the SEC on July 26, 2016.

 

 

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(d)     Use of Proceeds. The Company shall use the proceeds from the sale of the Securities for general corporate purposes, but not, directly or indirectly, for (i) except as set forth on Schedule 4(d), the satisfaction of any indebtedness of the Company or any of its Subsidiaries, (ii) the redemption or repurchase of any securities of the Company or any of its Subsidiaries, or (iii) the settlement of any outstanding litigation.

 

(e)     Financial Information. The Company agrees to send the following to each Investor (as defined in the Registration Rights Agreement) during the Reporting Period (i) unless the following are filed with the SEC through EDGAR and are available to the public through the EDGAR system, within one (1) Business Day after the filing thereof with the SEC, a copy of its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, any interim reports or any consolidated balance sheets, income statements, stockholders’ equity statements and/or cash flow statements for any period other than annual, any Current Reports on Form 8-K and any registration statements (other than on Form S-8) or amendments filed pursuant to the 1933 Act, (ii) unless the following are either filed with the SEC through EDGAR or are otherwise widely disseminated via a recognized news release service (such as PR Newswire or Globe Newswire), on the same day as the release thereof, facsimile or PDF copies of all press releases issued by the Company or any of its Subsidiaries and (iii) unless the following are filed with the SEC through EDGAR, copies of any notices and other information made available or given to the stockholders of the Company generally, contemporaneously with the making available or giving thereof to the stockholders.

 

(f)     Listing. The Company shall promptly secure the listing or designation for quotation (as the case may be) of all of the Registrable Securities upon each national securities exchange and automated quotation system, if any, upon which the Common Stock is then listed or designated for quotation (as the case may be) (subject to official notice of issuance) and shall maintain such listing or designation for quotation (as the case may be) of all Registrable Securities from time to time issuable under the terms of the Transaction Documents on such national securities exchange or automated quotation system. The Company shall maintain the Common Stock’s listing or authorization for quotation (as the case may be) on the Principal Market, The New York Stock Exchange, the NYSE MKT, the Nasdaq Global Market or the Nasdaq Global Select Market (each, an “Eligible Market”). Neither the Company nor any of its Subsidiaries shall take any action which could be reasonably expected to result in the delisting or suspension of the Common Stock on an Eligible Market. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 4(f). Notwithstanding the foregoing, Buyer acknowledges and accepts the risk of the Company’s potential delisting from the Principal Market for failure to meet the Principal Market’s minimum stockholders equity requirement as described in the Company’s SEC Documents and understands that the Company provides no assurance that it will regain compliance with the Principal Market’s minimum stockholders’ equity requirement.

 

 

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(g)     Fees. The Company shall reimburse the lead Buyer for all reasonable costs and expenses incurred by it or its affiliates in connection with the structuring, documentation, negotiation and closing of the transactions contemplated by the Transaction Documents (including, without limitation, as applicable, all reasonable legal fees of outside counsel and disbursements of Kelley Drye & Warren LLP, counsel to the lead Buyer, any other reasonable fees and expenses in connection with the structuring, documentation, negotiation and closing of the transactions contemplated by the Transaction Documents and due diligence and regulatory filings in connection therewith) (the “Transaction Expenses”) and shall be withheld by the lead Buyer from its Purchase Price at the Closing; provided, that the Company shall promptly reimburse Kelley Drye & Warren LLP on demand for all Transaction Expenses not so reimbursed through such withholding at the Closing. The Company shall be responsible for the payment of any placement agent’s fees, financial advisory fees, transfer agent fees, DTC (as defined below) fees or broker’s commissions (other than for Persons engaged by any Buyer) relating to or arising out of the transactions contemplated hereby (including, without limitation, any fees or commissions payable to the Placement Agent, who is the Company’s sole placement agent in connection with the transactions contemplated by this Agreement). The Company shall pay, and hold each Buyer harmless against, any liability, loss or expense (including, without limitation, reasonable attorneys’ fees and out-of-pocket expenses) arising in connection with any claim relating to any such payment. Except as otherwise set forth in the Transaction Documents, each party to this Agreement shall bear its own expenses in connection with the sale of the Securities to the Buyers.

 

(h)     Pledge of Securities. Notwithstanding anything to the contrary contained in this Agreement, the Company acknowledges and agrees that the Securities may be pledged by an Investor in connection with a bona fide margin agreement or other loan or financing arrangement that is secured by the Securities. The pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Investor effecting a pledge of Securities shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document, including, without limitation, Section 2(g) hereof; provided that an Investor and its pledgee shall be required to comply with the provisions of Section 2(g) hereof in order to effect a sale, transfer or assignment of Securities to such pledgee. The Company hereby agrees to execute and deliver such documentation as a pledgee of the Securities may reasonably request in connection with a pledge of the Securities to such pledgee by a Buyer.

 

(i)     Disclosure of Transactions and Other Material Information. 

 

(i)     Disclosure of Transaction. On or before 9:30 a.m., New York time, on the first (1st) Business Day after the date of this Agreement, the Company shall file a Current Report on Form 8-K describing all the material terms of the transactions contemplated by the Transaction Documents in the form required by the 1934 Act and attaching all the material Transaction Documents (including, without limitation, this Agreement (and all schedules to this Agreement), the form of Notes, the form of Investor Note, the form of Security Agreement, the form of Guaranty, the form of Voting and Lockup Agreement and the form of the Registration Rights Agreement) (including all attachments, the “8-K Filing”). From and after the filing of the 8-K Filing, the Company shall have disclosed all material, non-public information (if any) provided to any of the Buyers (other than the Placement Agent, the “Investor Buyers”) by the Company or any of its Subsidiaries or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents. In addition, effective upon the filing of the 8-K Filing, the Company acknowledges and agrees that any and all confidentiality or similar obligations under any agreement, whether written or oral, between the Company, any of its Subsidiaries or any of their respective officers, directors, affiliates, employees or agents, on the one hand, and any of the Investor Buyers or any of their affiliates, on the other hand, shall terminate. 

 

 

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(ii)     Limitations on Disclosure. The Company shall not, and the Company shall cause each of its Subsidiaries and each of its and their respective officers, directors, employees and agents not to, provide any Investor Buyer with any material, non-public information regarding the Company or any of its Subsidiaries from and after the date hereof without the express prior written consent of such Investor Buyer (which may be granted or withheld in such Investor Buyer’s sole discretion). In the event of a breach of any of the foregoing covenants, including, without limitation, Section 4(o) of this Agreement, or any of the covenants or agreements contained in any other Transaction Document, by the Company, any of its Subsidiaries, or any of its or their respective officers, directors, employees and agents (as determined in the reasonable good faith judgment of such Investor Buyer), in addition to any other remedy provided herein or in the Transaction Documents, such Investor Buyer shall have the right to make a public disclosure, in the form of a press release, public advertisement or otherwise, of such breach or such material, non-public information, as applicable, without the prior approval by the Company, any of its Subsidiaries, or any of its or their respective officers, directors, employees or agents. No Investor Buyer shall have any liability to the Company, any of its Subsidiaries, or any of its or their respective officers, directors, employees, affiliates, stockholders or agents, for any such disclosure. To the extent that the Company delivers any material, non-public information to a Investor Buyer without such Investor Buyer's consent, the Company hereby covenants and agrees that such Investor Buyer shall not have any duty of confidentiality with respect to, or a duty not to trade on the basis of, such material, non-public information. Subject to the foregoing, neither the Company, its Subsidiaries nor any Investor Buyer shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, the Company shall be entitled, without the prior approval of any Investor Buyer, to make the Press Release and any press release or other public disclosure with respect to such transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith and (ii) as is required by applicable law and regulations (provided that in the case of clause (i) each Investor Buyer shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release). Without the prior written consent of the applicable Buyer (which may be granted or withheld in such Buyer’s sole discretion), the Company shall not (and shall cause each of its Subsidiaries and affiliates to not) disclose the name of such Buyer in any filing, announcement, release or otherwise, except as such disclosure may be required by applicable law including, without limitation, in the 8-K Filing and in one or more registration statements filed pursuant to the Registration Rights Agreement in order to identify the Buyers as selling stockholders. Notwithstanding anything contained in this Agreement to the contrary and without implication that the contrary would otherwise be true, the Company expressly acknowledges and agrees that no Investor Buyer shall have (unless expressly agreed to by a particular Investor Buyer after the date hereof in a written definitive and binding agreement executed by the Company and such particular Investor Buyer (it being understood and agreed that no Investor Buyer may bind any other Investor Buyer with respect thereto)), any duty of confidentiality with respect to, or a duty not to trade on the basis of, any material, non-public information regarding the Company or any of its Subsidiaries. Each Buyer further acknowledges that the Company shall not be deemed to violate this Section 4(i) by disclosing the name of any Buyer that beneficially owns more than 4.99% of the Common Stock of the Company in accordance with the disclosure made by such Buyer in any Schedule 13D or Schedule 13G filed by such Buyer with the SEC.

 

 

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(iii)     Other Confidential Information. Disclosure Failures; Disclosure Delay Payments. In addition to other remedies set forth in this Section 4(i), and without limiting anything set forth in any other Transaction Document, at any time after the Closing Date if the Company, any of its Subsidiaries, or any of their respective officers, directors, employees or agents, provides any Investor Buyer with material non-public information relating to the Company or any of its Subsidiaries (each, the “Confidential Information”), the Company shall, on or prior to the applicable Required Disclosure Date (as defined below), publicly disclose such Confidential Information on a Current Report on Form 8-K or otherwise (each, a “Disclosure”). From and after such Disclosure, the Company shall have disclosed all Confidential Information provided to such Investor Buyer by the Company or any of its Subsidiaries or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents. In addition, effective upon such Disclosure, the Company acknowledges and agrees that any and all confidentiality or similar obligations under any agreement, whether written or oral, between the Company, any of its Subsidiaries or any of their respective officers, directors, affiliates, employees or agents, on the one hand, and any of the Investor Buyers or any of their affiliates, on the other hand, shall terminate. In the event that the Company fails to effect such Disclosure on or prior to the Required Disclosure Date and such Investor Buyer shall have possessed Confidential Information for at least ten (10) consecutive Trading Days (each, a “Disclosure Failure”), then, as partial relief for the damages to such Investor Buyer by reason of any such delay in, or reduction of, its ability to buy or sell shares of Common Stock after such Required Disclosure Date (which remedy shall not be exclusive of any other remedies available at law or in equity), the Company shall pay to such Investor Buyer an amount in cash equal to the greater of (I) two percent (2%) of the aggregate Purchase Price and (II) the applicable Disclosure Restitution Amount, on each of the following dates (each, a “Disclosure Delay Payment Date”): (i) on the date of such Disclosure Failure and (ii) on every thirty (30) day anniversary such Disclosure Failure until the earlier of (x) the date such Disclosure Failure is cured and (y) such time as all such non-public information provided to such Investor Buyer shall cease to be Confidential Information (as evidenced by a certificate, duly executed by an authorized officer of the Company to the foregoing effect) (such earlier date, as applicable, a “Disclosure Cure Date”). Following the initial Disclosure Delay Payment for any particular Disclosure Failure, without limiting the foregoing, if a Disclosure Cure Date occurs prior to any thirty (30) day anniversary of such Disclosure Failure, then such Disclosure Delay Payment (prorated for such partial month) shall be made on the third (3rd) Business Day after such Disclosure Cure Date. The payments to which an Investor shall be entitled pursuant to this Section 4(l)(iii) are referred to herein as “Disclosure Delay Payments.” In the event the Company fails to make Disclosure Delay Payments in a timely manner in accordance with the foregoing, such Disclosure Delay Payments shall bear interest at the rate of two percent (1.25%) per month (prorated for partial months) until paid in full. 

 

 

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(iv)     For the purpose of this Agreement the following definitions shall apply: 

 

(1)      “Disclosure Failure Market Price” means, as of any Disclosure Delay Payment Date, the price computed as the quotient of (I) the sum of the five (5) highest VWAPs (as defined in the Notes) of the Common Stock during the applicable Disclosure Restitution Period (as defined below), divided by (II) five (5) (such period, the “Disclosure Failure Measuring Period”). All such determinations to be appropriately adjusted for any share dividend, share split, share combination, reclassification or similar transaction that proportionately decreases or increases the Common Stock during such Disclosure Failure Measuring Period.

 

(2)     “Disclosure Restitution Amount” means, as of any Disclosure Delay Payment Date, the product of (x) difference of (I) the Disclosure Failure Market Price less (II) the lowest purchase price, per share of Common Stock, of any Common Stock issued or issuable to such Investor Buyer pursuant to this Agreement or any other Transaction Documents, multiplied by (y) 10% of the aggregate daily dollar trading volume (as reported on Bloomberg (as defined in the Notes)) of the Common Stock on the Principal Market for each Trading Day (as defined in the Notes) either (1) with respect to the initial Disclosure Delay Payment Date, during the period commencing on the applicable Required Disclosure Date through and including the Trading Day immediately prior to the initial Disclosure Delay Payment Date or (2) with respect to each other Disclosure Delay Payment Date, during the period commencing the immediately preceding Disclosure Delay Payment Date through and including the Trading Day immediately prior to such applicable Disclosure Delay Payment Date (such applicable period, the “Disclosure Restitution Period”).

 

(3)     “Required Disclosure Date” means (x) if such Investor Buyer authorized the delivery of such Confidential Information, either (I) if the Company and such Investor Buyer have mutually agreed upon a date (as evidenced by an e-mail or other writing) of Disclosure of such Confidential Information, such agreed upon date or (II) otherwise, the seventh (7th) calendar day after the date such Investor Buyer first received any Confidential Information or (y) if such Investor Buyer did not authorize the delivery of such Confidential Information, the first (1st) Business Day after such Investor Buyer’s receipt of such Confidential Information.

 

 

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(j)     Additional Registration Statements. Until the Applicable Date (as defined below) and at any time thereafter while any Registration Statement is not effective or the prospectus contained therein is not available for use or any Current Public Information Failure (as defined in the Registration Rights Agreement) exists, the Company shall not file a registration statement under the 1933 Act relating to securities that are not the Registrable Securities (other than a registration statement registering Excluded Securities, a registration statement on Form S-8 or such supplements or amendments to registration statements that are outstanding and have been declared effective by the SEC as of the date hereof (solely to the extent necessary to keep such registration statements effective and available and not with respect to any Subsequent Placement); provided, however, the foregoing shall not prohibit the Company from filing a prospectus supplement to its effective shelf registration statement on Form S-3 (SEC Registration No. 333-212550) in respect of a Subsequent Placement so long as such prospectus supplement is not filed during the period commencing on the date hereof through and including the fifth (5th) Trading Day immediately following the Closing Date. “Applicable Date” means the earlier of (x) the first date on which the resale by the Investor Buyers of all the Registrable Securities required to be filed on the initial Registration Statement (as defined in the Registration Rights Agreement) pursuant to the Registration Rights Agreement is declared effective by the SEC (and each prospectus contained therein is available for use on such date) or (y) the first date on which all of the Registrable Securities are eligible to be resold by the Investor Buyers pursuant to Rule 144 (or, if a Current Public Information Failure has occurred and is continuing, such later date after which the Company has cured such Current Public Information Failure).

 

 

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(k)     Additional Issuance of Securities. So long as any Investor Buyer beneficially owns any Securities, the Company will not, without the prior written consent of the Required Holders, issue any Notes (other than to the Buyers as contemplated hereby) and the Company shall not issue any other securities that would cause a breach or default under the Notes. The Company agrees that for the period commencing on the date hereof and ending on the date immediately following the 90th Trading Day after the Applicable Date (provided that such period shall be extended by the number of calendar days during such period and any extension thereof contemplated by this proviso on which any Registration Statement is not effective or any prospectus contained therein is not available for use or any Current Public Information Failure exists or, if later, until such time after the Applicable Date as the Equity Conditions (as defined in the Notes) are initially satisfied in full) (the “Restricted Period”), neither the Company nor any of its Subsidiaries shall directly or indirectly issue, offer, sell, grant any option or right to purchase, or otherwise dispose of (or announce any issuance, offer, sale, grant of any option or right to purchase or other disposition of) any equity security or any equity-linked or related security (including, without limitation, any “equity security” (as that term is defined under Rule 405 promulgated under the 1933 Act), any Convertible Securities (as defined below), any debt, any preferred stock or any purchase rights) (any such issuance, offer, sale, grant, disposition or announcement (whether occurring during the Restricted Period or at any time thereafter and whether pursuant to a public or private offering) is referred to as a “Subsequent Placement”). Notwithstanding the foregoing, this Section 4(k) shall not apply in respect of the issuance of (i) shares of Common Stock or standard options to purchase Common Stock to directors, officers, consultants or employees of the Company in their capacity as such pursuant to an Approved Stock Plan (including, without limitation, the Equity Incentive Plan, as amended on or prior to the date hereof), provided that the exercise price of any such options is not lowered after issuance, none of such options are amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such options are otherwise materially changed in any manner that adversely affects any of the Investor Buyers; (ii) shares of Common Stock issued upon the conversion or exercise of Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) issued prior to the date hereof, provided that the conversion, exercise or other method of issuance (as the case may be) of any such Convertible Security is made solely pursuant to the conversion, exercise or other method of issuance (as the case may be) provisions of such Convertible Security that were in effect on the date immediately prior to the date of this Agreement, the conversion, exercise or issuance price of any such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) is not lowered after issuance, none of such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) are amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) are otherwise materially changed in any manner that adversely affects any of the Investor Buyers; (iii) the Placement Agent Warrants and (iv) the Conversion Shares (each of the foregoing in clauses (i) through (iv), collectively the “Excluded Securities”) and (v) one or more Subsequent Placements for aggregate gross proceeds up to Ten Million Dollars ($10,000,000) (a “Capital Raising Transaction”), including, without limitation, the exercise or conversion of any Convertible Securities issued pursuant to such Capital Raising Transaction, provided that (x) the minimum price per share of Common Stock issued (or issuable upon conversion or exercise of any Convertible Securities, as applicable) in such Subsequent Placement shall be at least $4.00 (as adjusted for stock splits, stock dividends, recapitalizations and similar events), (y) the conversion or exercise price of any such Convertible Securities is not lowered after issuance, none of such Convertible Securities are amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such Convertible Securities are otherwise materially changed in any manner that adversely affects any of the Investor Buyers , and (z) during the period commencing on the date hereof through and including the fifth (5th) Trading Day immediately following the Closing Date, no Capital Raising Transaction shall be consummated or otherwise publicly announced and no prospectus or prospectus supplement in respect of a Capital Raising Transaction shall be filed with the SEC. “Approved Stock Plan” means any employee benefit plan which has been approved by the board of directors of the Company prior to or subsequent to the date hereof pursuant to which shares of Common Stock and standard options to purchase Common Stock may be issued to any employee, officer, director or consultant for services provided to the Company in their capacity as such. “Convertible Securities” means any capital stock or other security of the Company or any of its Subsidiaries that is at any time and under any circumstances directly or indirectly convertible into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any capital stock or other security of the Company (including, without limitation, Common Stock) or any of its Subsidiaries.

 

 

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(l)     Reservation of Shares. So long as any of the Notes remain outstanding, the Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, no less than the greater of (I) 6 million shares of Common Stock (II) 200% of the maximum number of shares of Common Stock issuable upon conversion of all the Notes then outstanding (assuming for purposes hereof that (x) the Notes are convertible at the Alternate Conversion Price as of the applicable time of determination, (y) interest on the Notes shall accrue through the eight month anniversary of the Closing Date and will be converted in shares of Common Stock at a conversion price equal to the Alternate Conversion Price assuming an Alternate Conversion Date as of the applicable time of determination and (z) any such conversion shall not take into account any limitations on the conversion of the Notes set forth in the Notes), (collectively, the “Required Reserve Amount”); provided that at no time shall the number of shares of Common Stock reserved pursuant to this Section 4(l) be reduced other than proportionally in connection with any conversion, exercise and/or redemption, as applicable of Notes. If at any time the number of shares of Common Stock authorized and reserved for issuance is not sufficient to meet the Required Reserve Amount, the Company will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares, including, without limitation, calling a special meeting of stockholders to authorize additional shares to meet the Company's obligations pursuant to the Transaction Documents, in the case of an insufficient number of authorized shares, obtain stockholder approval of an increase in such authorized number of shares, and voting the management shares of the Company in favor of an increase in the authorized shares of the Company to ensure that the number of authorized shares is sufficient to meet the Required Reserve Amount.

 

(m)     Conduct of Business. The business of the Company and its Subsidiaries shall not be conducted in violation of any law, ordinance or regulation of any Governmental Entity, except where such violations would not reasonably be expected to result, either individually or in the aggregate, in a Material Adverse Effect.

 

(n)     Other Notes; Variable Securities. So long as any Investor Buyer holds any of the Securities, the Company and each Subsidiary shall be prohibited from effecting or entering into an agreement to effect any Subsequent Placement involving a Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company or any Subsidiary (i) issues or sells any Convertible Securities either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such Convertible Securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such Convertible Securities or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock, other than pursuant to a customary “weighted average” anti-dilution provision or (ii) enters into any agreement (including, without limitation, an equity line of credit or an “at-the-market” offering) whereby the Company or any Subsidiary may sell securities at a future determined price (other than standard and customary “preemptive” or “participation” rights). Each Buyer shall be entitled to obtain injunctive relief against the Company and its Subsidiaries to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

 

(o)     Participation Right. At any time on or prior to the later of (x) the date no Notes remain outstanding and (y) the second anniversary of the Closing Date, neither the Company nor any of its Subsidiaries shall, directly or indirectly, effect any Subsequent Placement unless the Company shall have first complied with this Section 4(o). The Company acknowledges and agrees that the right set forth in this Section 4(o) is a right granted by the Company, separately, to each Investor Buyer.

 

 

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(i)     At least five (5) Trading Days prior to any proposed or intended Subsequent Placement, the Company shall deliver to each Investor Buyer a written notice (each such notice, a “Pre-Notice”), which Pre-Notice shall not contain any information (including, without limitation, material, non-public information) other than: (A) if the proposed Offer Notice (as defined below) constitutes or contains material, non-public information, a statement asking whether the Investor is willing to accept material non-public information or (B) if the proposed Offer Notice does not constitute or contain material, non-public information, (x) a statement that the Company proposes or intends to effect a Subsequent Placement, (y) a statement that the statement in clause (x) above does not constitute material, non-public information and (z) a statement informing such Investor Buyer that it is entitled to receive an Offer Notice (as defined below) with respect to such Subsequent Placement upon its written request. Upon the written request of a Investor Buyer within three (3) Trading Days after the Company’s delivery to such Investor Buyer of such Pre-Notice, and only upon a written request by such Investor Buyer, the Company shall promptly, but no later than one (1) Trading Day after such request, deliver to such Investor Buyer an irrevocable written notice (the “Offer Notice”) of any proposed or intended issuance or sale or exchange (the “Offer”) of the securities being offered (the “Offered Securities”) in a Subsequent Placement, which Offer Notice shall (A) identify and describe the Offered Securities, (B) describe the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the Offered Securities to be issued, sold or exchanged, (C) identify the Persons (if known) to which or with which the Offered Securities are to be offered, issued, sold or exchanged and (D) offer to issue and sell to or exchange with such Investor Buyer in accordance with the terms of the Offer such Investor Buyer’s pro rata portion of 50% of the Offered Securities, provided that the number of Offered Securities which such Investor Buyer shall have the right to subscribe for under this Section 4(o) shall be (x) based on such Investor Buyer’s pro rata portion of the aggregate original principal amount of the Notes purchased hereunder by all Investor Buyers (the “Basic Amount”), and (y) with respect to each Investor Buyer that elects to purchase its Basic Amount, any additional portion of the Offered Securities attributable to the Basic Amounts of other Investor Buyers as such Investor Buyer shall indicate it will purchase or acquire should the other Investor Buyers subscribe for less than their Basic Amounts (the “Undersubscription Amount”), which process shall be repeated until each Investor Buyer shall have an opportunity to subscribe for any remaining Undersubscription Amount.

 

(ii)     To accept an Offer, in whole or in part, such Investor Buyer must deliver a written notice to the Company prior to the end of the fifth (5th) Business Day after such Investor Buyer’s receipt of the Offer Notice (the “Offer Period”), setting forth the portion of such Investor Buyer’s Basic Amount that such Investor Buyer elects to purchase and, if such Investor Buyer shall elect to purchase all of its Basic Amount, the Undersubscription Amount, if any, that such Investor Buyer elects to purchase (in either case, the “Notice of Acceptance”). If the Basic Amounts subscribed for by all Investor Buyers are less than the total of all of the Basic Amounts, then each Investor Buyer who has set forth an Undersubscription Amount in its Notice of Acceptance shall be entitled to purchase, in addition to the Basic Amounts subscribed for, the Undersubscription Amount it has subscribed for; provided, however, if the Undersubscription Amounts subscribed for exceed the difference between the total of all the Basic Amounts and the Basic Amounts subscribed for (the “Available Undersubscription Amount”), each Investor Buyer who has subscribed for any Undersubscription Amount shall be entitled to purchase only that portion of the Available Undersubscription Amount as the Basic Amount of such Investor Buyer bears to the total Basic Amounts of all Investor Buyers that have subscribed for Undersubscription Amounts, subject to rounding by the Company to the extent it deems reasonably necessary. Notwithstanding the foregoing, if the Company desires to modify or amend the terms and conditions of the Offer prior to the expiration of the Offer Period, the Company may deliver to each Investor Buyer a new Offer Notice and the Offer Period shall expire on the fifth (5th) Business Day after such Investor Buyer’s receipt of such new Offer Notice.

 

 

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(iii)     The Company shall have ten (10) Business Days from the expiration of the Offer Period above (A) to offer, issue, sell or exchange all or any part of such Offered Securities as to which a Notice of Acceptance has not been given by a Investor Buyer (the “Refused Securities”) pursuant to a definitive agreement(s) (the “Subsequent Placement Agreement”), but only to the offerees described in the Offer Notice (if so described therein) and only upon terms and conditions (including, without limitation, unit prices and interest rates) that are not more favorable to the acquiring Person or Persons or less favorable to the Company than those set forth in the Offer Notice and (B) to publicly announce (x) the execution of such Subsequent Placement Agreement, and (y) either (I) the consummation of the transactions contemplated by such Subsequent Placement Agreement or (II) the termination of such Subsequent Placement Agreement, which shall be filed with the SEC on a Current Report on Form 8-K with such Subsequent Placement Agreement and any documents contemplated therein filed as exhibits thereto.

 

(iv)     In the event the Company shall propose to sell less than all the Refused Securities (any such sale to be in the manner and on the terms specified in Section 4(o)(iii) above), then each Investor Buyer may, at its sole option and in its sole discretion, withdraw its Notice of Acceptance or reduce the number or amount of the Offered Securities specified in its Notice of Acceptance to an amount that shall be not less than the number or amount of the Offered Securities that such Investor Buyer elected to purchase pursuant to Section 4(o)(ii) above multiplied by a fraction, (i) the numerator of which shall be the number or amount of Offered Securities the Company actually proposes to issue, sell or exchange (including Offered Securities to be issued or sold to Investor Buyers pursuant to this Section 4(o) prior to such reduction) and (ii) the denominator of which shall be the original amount of the Offered Securities. In the event that any Investor Buyer so elects to reduce the number or amount of Offered Securities specified in its Notice of Acceptance, the Company may not issue, sell or exchange more than the reduced number or amount of the Offered Securities unless and until such securities have again been offered to the Investor Buyers in accordance with Section 4(o)(i) above.

 

 

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(v)     Upon the closing of the issuance, sale or exchange of all or less than all of the Refused Securities, such Investor Buyer shall acquire from the Company, and the Company shall issue to such Investor Buyer, the number or amount of Offered Securities specified in its Notice of Acceptance, as reduced pursuant to Section 4(o)(iv) above if such Investor Buyer has so elected, upon the terms and conditions specified in the Offer. The purchase by such Investor Buyer of any Offered Securities is subject in all cases to the preparation, execution and delivery by the Company and such Investor Buyer of a separate purchase agreement relating to such Offered Securities reasonably satisfactory in form and substance to such Investor Buyer and its counsel.

 

(vi)     Any Offered Securities not acquired by a Investor Buyer or other Persons in accordance with this Section 4(o) may not be issued, sold or exchanged until they are again offered to such Investor Buyer under the procedures specified in this Agreement.

 

(vii)     The Company and each Investor Buyer agree that if any Investor Buyer elects to participate in the Offer, (x) neither the Subsequent Placement Agreement with respect to such Offer nor any other transaction documents related thereto (collectively, the “Subsequent Placement Documents”) shall include any term or provision whereby such Investor Buyer shall be required to agree to any restrictions on trading as to any securities of the Company or be required to consent to any amendment to or termination of, or grant any waiver, release or the like under or in connection with, any agreement previously entered into with the Company or any instrument received from the Company, and (y) any registration rights set forth in such Subsequent Placement Documents shall be similar in all material respects to the registration rights contained in the Registration Rights Agreement.

 

(viii)     Notwithstanding anything to the contrary in this Section 4(o) and unless otherwise agreed to by such Investor Buyer, the Company shall either confirm in writing to such Investor Buyer that the transaction with respect to the Subsequent Placement has been abandoned or shall publicly disclose its intention to issue the Offered Securities, in either case, in such a manner such that such Investor Buyer will not be in possession of any material, non-public information, by the tenth (10th) Business Day following delivery of the Offer Notice. If by such tenth (10th) Business Day, no public disclosure regarding a transaction with respect to the Offered Securities has been made, and no notice regarding the abandonment of such transaction has been received by such Investor Buyer, such transaction shall be deemed to have been abandoned and such Investor Buyer shall not be in possession of any material, non-public information with respect to the Company or any of its Subsidiaries. Should the Company decide to pursue such transaction with respect to the Offered Securities, the Company shall provide such Investor Buyer with another Offer Notice and such Investor Buyer will again have the right of participation set forth in this Section 4(o). The Company shall not be permitted to deliver more than one such Offer Notice to such Investor Buyer in any sixty (60) day period, except as expressly contemplated by the last sentence of Section 4(o)(ii).

 

(ix)     The restrictions contained in this Section 4(o) shall not apply in connection with the issuance of any Excluded Securities The Company shall not circumvent the provisions of this Section 4(o) by providing terms or conditions to one Investor Buyer that are not provided to all.

 

 

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(p)     Dilutive Issuances. For so long as any Notes remain outstanding, the Company shall not, in any manner, enter into or affect any Dilutive Issuance (as defined in the Notes) if the effect of such Dilutive Issuance is to cause the Company to be required to issue upon conversion of any Notes any shares of Common Stock in excess of that number of shares of Common Stock which the Company may issue upon conversion of the Notes without breaching the Company’s obligations under the rules or regulations of the Principal Market. 

 

(q)     Passive Foreign Investment Company. The Company shall conduct its business, and shall cause its Subsidiaries to conduct their respective businesses, in such a manner as will ensure that the Company will not be deemed to constitute a passive foreign investment company within the meaning of Section 1297 of the Code.

 

(r)     Restriction on Redemption and Cash Dividends. So long as any Notes are outstanding, the Company shall not, directly or indirectly, redeem, or declare or pay any cash dividend or distribution on, any securities of the Company without the prior express written consent of the Required Holders.

 

(s)     Corporate Existence. So long as any Buyer beneficially owns any Notes, the Company shall not be party to any Fundamental Transaction (as defined in the Notes) unless the Company is in compliance with the applicable provisions governing Fundamental Transactions set forth in the Notes.

 

(t)     Stock Splits. Until the Notes and all notes issued pursuant to the terms thereof are no longer outstanding, the Company shall not effect any stock combination, reverse stock split or other similar transaction (or make any public announcement or disclosure with respect to any of the foregoing) without the prior written consent of the Required Holders (as defined below), except as required by an Eligible Market to provide for the eligibility or continued eligibility of the Common Stock for listing or quotation on such market.

 

(u)     Conversion Procedures. Each of the form of Conversion Notice (as defined in the Notes) included in the Notes set forth the totality of the procedures required of the Buyers in order to convert the Notes. Except as provided in Section 5(d), no additional legal opinion, other information or instructions shall be required of the Buyers to convert their Notes. The Company shall honor conversions of the Notes and shall deliver the Conversion Shares in accordance with the terms, conditions and time periods set forth in the Notes.

 

(v)     Regulation M. The Company will not take any action prohibited by Regulation M under the 1934 Act, in connection with the distribution of the Securities contemplated hereby.

 

(w)     General Solicitation.     None of the Company, any of its affiliates (as defined in Rule 501(b) under the 1933 Act) or any person acting on behalf of the Company or such affiliate will solicit any offer to buy or offer or sell the Securities by means of any form of general solicitation or general advertising within the meaning of Regulation D, including: (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar medium or broadcast over television or radio; and (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.

 

 

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(x)     Integration.     None of the Company, any of its affiliates (as defined in Rule 501(b) under the 1933 Act), or any person acting on behalf of the Company or such affiliate will sell, offer for sale, or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the 1933 Act) which will be integrated with the sale of the Securities in a manner which would require the registration of the Securities under the 1933 Act or require stockholder approval under the rules and regulations of the Principal Market and the Company will take all action that is appropriate or necessary to assure that its offerings of other securities will not be integrated for purposes of the 1933 Act or the rules and regulations of the Principal Market, with the issuance of Securities contemplated hereby.

 

(y)     Notice of Disqualification Events.     The Company will notify the Buyers in writing, prior to the Closing Date of (i) any Disqualification Event relating to any Issuer Covered Person and (ii) any event that would, with the passage of time, become a Disqualification Event relating to any Issuer Covered Person.

 

(z)     Subsidiary Guarantee.     Until such initial time as the only Principal outstanding under the Notes consists of Restricted Principal (as defined in the Notes), upon any entity becoming direct, or indirect, Subsidiary of the Company or a Subsidiary that has executed or joined, as applicable, the Guaranty (each, a “Permitted Subsidiary”), the Company shall cause each such Permitted Subsidiary to become party to the Guaranty by executing a joinder to the Guaranty reasonably satisfactory in form and substance to the Required Holders. The Company shall not permit its Permitted Subsidiary, Zone Technologies, Inc. (“Zone”), or any other Person to effect any transfer of any assets of Zone to the Company or any Subsidiary of the Company other than a Permitted Subsidiary without the prior written consent of the Required Holders.

 

(aa)     Stockholder Approval. On or prior to the Closing Date, the Company shall obtain the written consent (the “Written Consent”) of holders of a majority of its Common Stock to authorize resolutions (“Stockholder Resolutions”) providing for the issuance of all of the Securities in accordance with Nasdaq Listing Rule 5635 (the “Stockholder Approval”). No later than January 16, 2016, the Company shall file with the SEC and mail to its stockholders a definitive information statement on Schedule 14C (the “Information Statement”) in accordance with the requirements of the 1934 Act and substantially in the form that has been previously reviewed and approved by the Investor Buyers and Kelley Drye & Warren LLP, at the expense of the Company, informing such stockholders of the actions taken in accordance with the Stockholder Resolutions and the Stockholder Approval (the 20th calendar day after the Company’s distribution of the Information Statement to its stockholders, the “Stockholder Approval Date”). The Company shall use its reasonable best efforts to cause the Stockholder Approval Date to occur on or prior to February 6, 2017 (the “Stockholder Approval Deadline”).

 

(bb)     No Waiver of Voting and Lockup Agreements. The Company shall not amend, waive or modify any provision of any of the Voting and Lockup Agreements (as defined below).

 

 

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(cc)     Collateral Agent. Each Buyer hereby (i) appoints Hudson Bay Master Fund Ltd., as the collateral agent hereunder and under the other Security Documents (in such capacity, the “Collateral Agent”), and (ii) authorizes the Collateral Agent (and its officers, directors, employees and agents) to take such action on such Buyer’s behalf in accordance with the terms hereof and thereof. The Collateral Agent shall not have, by reason hereof or any of the other Security Documents, a fiduciary relationship in respect of any Buyer. Neither the Collateral Agent nor any of its officers, directors, employees or agents shall have any liability to any Buyer for any action taken or omitted to be taken in connection hereof or any other Security Document except to the extent caused by its own gross negligence or willful misconduct, and each Buyer agrees to defend, protect, indemnify and hold harmless the Collateral Agent and all of its officers, directors, employees and agents (collectively, the “Collateral Agent Indemnitees”) from and against any losses, damages, liabilities, obligations, penalties, actions, judgments, suits, fees, costs and expenses (including, without limitation, reasonable attorneys’ fees, costs and expenses) incurred by such Collateral Agent Indemnitee, whether direct, indirect or consequential, arising from or in connection with the performance by such Collateral Agent Indemnitee of the duties and obligations of Collateral Agent pursuant hereto or any of the Security Documents. The Collateral Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Holders, and such instructions shall be binding upon all holders of Notes; provided, however, that the Collateral Agent shall not be required to take any action which, in the reasonable opinion of the Collateral Agent, exposes the Collateral Agent to liability or which is contrary to this Agreement or any other Transaction Document or applicable law. The Collateral Agent shall be entitled to rely upon any written notices, statements, certificates, orders or other documents or any telephone message believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person, and with respect to all matters pertaining to this Agreement or any of the other Transaction Documents and its duties hereunder or thereunder, upon advice of counsel selected by it.

 

(dd)     Successor Collateral Agent.

 

(i)     The Collateral Agent may resign from the performance of all its functions and duties hereunder and under the other Transaction Documents at any time by giving at least ten (10) Business Days’ prior written notice to the Company and each holder of Notes. Such resignation shall take effect upon the acceptance by a successor Collateral Agent of appointment pursuant to clauses (ii) and (iii) below or as otherwise provided below. If at any time the Collateral Agent (together with its affiliates) beneficially owns less than $100,000 in aggregate principal amount of Notes, the Required Holders may, by written consent, remove the Collateral Agent from all its functions and duties hereunder and under the other Transaction Documents.

 

(ii)     Upon any such notice of resignation or removal, the Required Holders shall appoint a successor collateral agent. Upon the acceptance of any appointment as Collateral Agent hereunder by a successor agent, such successor collateral agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the collateral agent, and the Collateral Agent shall be discharged from its duties and obligations under this Agreement and the other Transaction Documents. After the Collateral Agent’s resignation or removal hereunder as the collateral agent, the provisions of this Section 4(dd) shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Collateral Agent under this Agreement and the other Transaction Documents.

 

 

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(iii)     If a successor collateral agent shall not have been so appointed within ten (10) Business Days of receipt of a written notice of resignation or removal, the Collateral Agent shall then appoint a successor collateral agent who shall serve as the Collateral Agent until such time, if any, as the Required Holders appoint a successor collateral agent as provided above.

 

(iv)     In the event that a successor Collateral Agent is appointed pursuant to the provisions of this Section 4(dd) that is not a Buyer or an affiliate of any Buyer (or the Required Holders or the Collateral Agent (or its successor), as applicable, notify the Company that they or it wants to appoint such a successor Collateral Agent pursuant to the terms of this Section 4(dd), the Company and each Subsidiary thereof covenants and agrees to promptly take all actions reasonably requested by the Required Holders or the Collateral Agent (or its successor), as applicable, from time to time, to secure a successor Collateral Agent satisfactory to the requesting part(y)(ies), in their sole discretion, including, without limitation, by paying all reasonable and customary fees and expenses of such successor Collateral Agent, by having the Company and each Subsidiary thereof agree to indemnify any successor Collateral Agent pursuant to reasonable and customary terms and by each of the Company and each Subsidiary thereof executing a collateral agency agreement or similar agreement and/or any amendment to the Security Documents reasonably requested or required by the successor Collateral Agent.

 

(ee)     Closing Documents. On or prior to fourteen (14) calendar days after the Closing Date, the Company agrees to deliver, or cause to be delivered, electronically to each Buyer and Kelley Drye & Warren LLP a complete closing set of the executed Transaction Documents, Securities and any other document required to be delivered to any party pursuant to Section 7 hereof or otherwise (which may be photocopies or pdf versions of executed copies).

 

(ff)     No Short Sales. So long as any Notes remain outstanding, during any five (5) Trading Day period immediately preceding any Interest Date (as defined in the Notes) and during any True Up Measuring Period or Alternate Conversion Measuring Period (each as defined in the Notes), neither a Buyer nor any of its affiliates nor any entity managed or controlled by such Buyer nor any other Investor with respect to the Notes originally purchased by such Buyer hereunder (collectively, the “Restricted Persons” and each of the foregoing is referred to herein as a “Restricted Person”) shall, directly or indirectly, engage in any “Short Sales” of the Common Stock (other than any sale marked “short exempt” or any sale of shares deemed to be held “long” hereunder). For purposes hereof, “Short Sales” shall mean “short sales” as defined in Rule 200 promulgated under Regulation SHO under the 1934 Act (other than any sale marked “short exempt” or any sale of shares deemed to be held “long” hereunder). Notwithstanding the foregoing, no “Short Sale” or “short” position shall be deemed to exist as a result of any failure by the Company (or its agents) to deliver Conversion Shares upon conversion of the Notes to any Restricted Person converting such Notes. For purposes of determining whether a Restricted Person is deemed to have a “long” position in the Common Stock, at any given time of determination, such Restricted Person shall be deemed to hold “long” all Common Stock that is either (i) then owned by such Restricted Person, if any, or (ii) issuable to such Restricted Person as Conversion Shares pursuant to the terms of the Notes then held by such Restricted Person. Notwithstanding the foregoing, nothing contained herein shall (without implication that the contrary would otherwise be true) prohibit any Restricted Person from selling “long” (as defined under Rule 200 promulgated under Regulation SHO under the 1934 Act) the Securities or any other Common Stock then owned by such Restricted Person.

 

 

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5.
	
REGISTER; TRANSFER AGENT INSTRUCTIONS; LEGEND.

 

(a)     Register. The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to each holder of Securities), a register for the Notes in which the Company shall record the name and address of the Person in whose name the Notes have been issued (including the name and address of each transferee), the principal amount of the Notes held by such Person and the number of Conversion Shares issuable pursuant to the terms of the Notes. The Company shall keep the register open and available at all times during business hours for inspection of any Buyer or its legal representatives.

 

(b)     Transfer Agent Instructions. The Company shall issue irrevocable instructions to its transfer agent and any subsequent transfer agent (as applicable, the “Transfer Agent”) in a form acceptable to each of the Buyers (the “Irrevocable Transfer Agent Instructions”) to issue certificates or credit shares to the applicable balance accounts at The Depository Trust Company (“DTC”), registered in the name of each Buyer or its respective nominee(s), for the Conversion Shares in such amounts as specified from time to time by each Buyer to the Company upon conversion of the Notes. The Company represents and warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5(b), and stop transfer instructions to give effect to Section 2(g) hereof, will be given by the Company to its transfer agent with respect to the Securities, and that the Securities shall otherwise be freely transferable on the books and records of the Company, as applicable, to the extent provided in this Agreement and the other Transaction Documents. If a Buyer effects a sale, assignment or transfer of the Securities in accordance with Section 2(g), the Company shall permit the transfer and shall promptly instruct its transfer agent to issue one or more certificates or credit shares to the applicable balance accounts at DTC in such name and in such denominations as specified by such Buyer to effect such sale, transfer or assignment. In the event that such sale, assignment or transfer involves Conversion Shares sold, assigned or transferred pursuant to an effective registration statement or in compliance with Rule 144, the transfer agent shall issue such shares to such Buyer, assignee or transferee (as the case may be) without any restrictive legend in accordance with Section 5(d) below. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to a Buyer. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5(b) will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5(b), that a Buyer shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. The Company shall cause its counsel to issue the legal opinion referred to in the Irrevocable Transfer Agent Instructions to the Company’s transfer agent on each Effective Date (as defined in the Registration Rights Agreement). Any fees (with respect to the transfer agent, counsel to the Company or otherwise) associated with the issuance of such opinion or the removal of any legends on any of the Securities shall be borne by the Company.

 

(c)     Legends. Each Buyer understands that the Securities have been issued (or will be issued in the case of the Conversion Shares) pursuant to an exemption from registration or qualification under the 1933 Act and applicable state securities laws, and except as set forth below, the Securities shall bear any legend as required by the “blue sky” laws of any state and a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such stock certificates):

 

 

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[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT 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 TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE 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.

 

(d)     Removal of Legends. Certificates evidencing Securities shall not be required to contain the legend set forth in Section 5(c) above or any other legend (i) while a registration statement (including a Registration Statement) covering the resale of such Securities is effective under the 1933 Act, (ii) following any sale of such Securities pursuant to Rule 144 (assuming the transferor is not an affiliate of the Company), (iii) if such Securities are eligible to be sold, assigned or transferred under Rule 144 (provided that a Buyer provides the Company with reasonable assurances that such Securities are eligible for sale, assignment or transfer under Rule 144 which shall not include an opinion of Buyer’s counsel), (iv) in connection with a sale, assignment or other transfer (other than under Rule 144), provided that such Buyer provides the Company with an opinion of counsel to such Buyer, in a generally acceptable form, to the effect that such sale, assignment or transfer of the Securities may be made without registration under the applicable requirements of the 1933 Act or (v) if such legend is not required under applicable requirements of the 1933 Act (including, without limitation, controlling judicial interpretations and pronouncements issued by the SEC). If a legend is not required pursuant to the foregoing, the Company shall no later than three (3) Trading Days (or such earlier date as required pursuant to the 1934 Act or other applicable law, rule or regulation for the settlement of a trade initiated on the date such Buyer delivers such legended certificate representing such Securities to the Company) following the delivery by a Buyer to the Company or the transfer agent (with notice to the Company) of a legended certificate representing such Securities (endorsed or with stock powers attached, signatures guaranteed, and otherwise in form necessary to affect the reissuance and/or transfer, if applicable), together with any other deliveries from such Buyer as may be required above in this Section 5(d), as directed by such Buyer, either: (A) provided that the Company’s transfer agent is participating in the DTC Fast Automated Securities Transfer Program and such Securities are Conversion Shares, credit the aggregate number of shares of Common Stock to which such Buyer shall be entitled to such Buyer’s or its designee’s balance account with DTC through its Deposit/Withdrawal at Custodian system or (B) if the Company’s transfer agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver (via reputable overnight courier) to such Buyer, a certificate representing such Securities that is free from all restrictive and other legends, registered in the name of such Buyer or its designee (the date by which such credit is so required to be made to the balance account of such Buyer’s or such Buyer’s designee with DTC or such certificate is required to be delivered to such Buyer pursuant to the foregoing is referred to herein as the “Required Delivery Date”, and the date such shares of Common Stock are actually delivered without restrictive legend to such Buyer or such Buyer’s designee with DTC, as applicable, the “Share Delivery Date”). The Company shall be responsible for any transfer agent fees or DTC fees with respect to any issuance of Securities or the removal of any legends with respect to any Securities in accordance herewith.

 

 

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(e)     Failure to Timely Deliver; Buy-In. If the Company fails to fail, for any reason or for no reason, to issue and deliver (or cause to be delivered) to a Buyer (or its designee) by the Required Delivery Date, either (I) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, a certificate for the number of Conversion Shares to which such Buyer is entitled and register such Conversion Shares on the Company’s share register or, if the Transfer Agent is participating in the DTC Fast Automated Securities Transfer Program, to credit the balance account of such Buyer or such Buyer’s designee with DTC for such number of Conversion Shares submitted for legend removal by such Buyer pursuant to Section 5(d) above or (II) if the Registration Statement covering the resale of the Conversion Shares submitted for legend removal by such Buyer pursuant to Section 5(d) above (the “Unavailable Shares”) is not available for the resale of such Unavailable Shares and the Company fails to promptly, but in no event later than as required pursuant to the Registration Rights Agreement (x) so notify such Buyer and (y) deliver the Conversion Shares electronically without any restrictive legend by crediting such aggregate number of Conversion Shares submitted for legend removal by such Buyer pursuant to Section 5(d) above to such Buyer’s or its designee’s balance account with DTC through its Deposit/Withdrawal At Custodian system (the event described in the immediately foregoing clause (II) is hereinafter referred as a “Notice Failure” and together with the event described in clause (I) above, a “Delivery Failure”), then, in addition to all other remedies available to such Buyer, the Company shall pay in cash to such Buyer on each day after the Share Delivery Date and during such Delivery Failure an amount equal to 2% of the product of (A) the sum of the number of shares of Common Stock not issued to such Buyer on or prior to the Required Delivery Date and to which such Buyer is entitled, and (B) any trading price of the Common Stock selected by such Buyer in writing as in effect at any time during the period beginning on the date of the delivery by such Buyer to the Company of the applicable Conversion Shares and ending on the applicable Share Delivery Date. In addition to the foregoing, if on or prior to the Required Delivery Date either (I) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, the Company shall fail to issue and deliver a certificate to a Buyer and register such shares of Common Stock on the Company's share register or, if the Transfer Agent is participating in the DTC Fast Automated Securities Transfer Program, credit the balance account of such Buyer or such Buyer’s designee with DTC for the number of shares of Common Stock to which such Buyer submitted for legend removal by such Buyer pursuant to Section 5(d) above (ii) below or (II) a Notice Failure occurs, and if on or after such Trading Day such Buyer purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Buyer of shares of Common Stock submitted for legend removal by such Buyer pursuant to Section 5(d) above that such Buyer is entitled to receive from the Company (a “Buy-In”), then the Company shall, within three (3) Trading Days after such Buyer’s request and in such Buyer’s discretion, either (i) pay cash to such Buyer in an amount equal to such Buyer’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any, for the shares of Common Stock so purchased) (the “Buy-In Price”), at which point the Company’s obligation to so deliver such certificate or credit such Buyer’s balance account shall terminate and such shares shall be cancelled, or (ii) promptly honor its obligation to so deliver to such Buyer a certificate or certificates or credit the balance account of such Buyer or such Buyer’s designee with DTC representing such number of shares of Common Stock that would have been so delivered if the Company timely complied with its obligations hereunder and pay cash to such Buyer in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Conversion Shares that the Company was required to deliver to such Buyer by the Required Delivery Date multiplied by (B) the lowest Closing Sale Price (as defined in the Notes) of the Common Stock on any Trading Day during the period commencing on the date of the delivery by such Buyer to the Company of the applicable Conversion Shares and ending on the date of such delivery and payment under this clause (ii). Nothing shall limit such Buyer’s right to pursue any other remedies available to it hereunder, at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock (or to electronically deliver such shares of Common Stock) as required pursuant to the terms hereof. Notwithstanding anything herein to the contrary, with respect to any given Notice Failure and/or Delivery Failure, this Section 5(e) shall not apply to the applicable Buyer the extent the Company has already paid such amounts in full to such Buyer with respect to such Notice Failure and/or Delivery Failure, as applicable, pursuant to the analogous sections of the Note held by such Buyer.

 

 

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(f)     FAST Compliance. While any Notes remain outstanding, the Company shall maintain a transfer agent that participates in the DTC Fast Automated Securities Transfer Program.

 

	
6.
	
CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

 

(a)     The obligation of the Company hereunder to issue and sell the Notes to each Buyer 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 Company’s sole benefit and may be waived by the Company at any time in its sole discretion by providing each Buyer with prior written notice thereof:

 

(i)     Such Buyer shall have duly executed and delivered to the Company an Investor Collateral Certificate and, at the Company’s direction, an Investor Note to the Collateral Agent in such original principal amount as is set forth across from such Buyer’s name in column (7) of the Schedule of Buyers.

 

(ii)     Such Buyer shall have executed each of the other Transaction Documents to which it is a party and delivered the same to the Company.

 

 

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(iii)     Such Buyer and each other Buyer shall have delivered to the Company the Cash Purchase Price (less, in the case of any Buyer, the amounts withheld pursuant to Section 4(g)) for the Note being purchased by such Buyer at the Closing by wire transfer of immediately available funds in accordance with the Flow of Funds Letter.

 

(iv)     The representations and warranties of such Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date as though originally made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specific date), and such 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 such Buyer at or prior to the Closing Date.

 

	
7.
	
CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.

 

(a)     The obligation of each Buyer hereunder to purchase its 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 each Buyer’s sole benefit and may be waived by such Buyer at any time in its sole discretion by providing the Company with prior written notice thereof:

 

(i)     The Company and each Subsidiary (as the case may be) shall have duly executed and delivered to such Buyer each of the Transaction Documents to which it is a party and the Company shall have duly executed and delivered to such Buyer a Note in such original principal amount as is set forth across from such Buyer’s name in column (3) of the Schedule of Buyers as being purchased by such Buyer at the Closing pursuant to this Agreement.

 

(ii)     Such Buyer shall have received the opinion of Mitchell Silberberg & Knupp LLP, the Company’s corporate counsel, dated as of the Closing Date, in the form acceptable to such Buyer.

 

(iii)     The Company shall have delivered to such Buyer a copy of the Irrevocable Transfer Agent Instructions, in the form acceptable to such Buyer, which instructions shall have been delivered to and acknowledged in writing by the Company’s transfer agent.

 

(iv)     The Company shall have delivered to such Buyer a certificate evidencing the formation and good standing of the Company, HMNY Zone Loan LLC and Zone in each such entity’s jurisdiction of formation issued by the Secretary of State (or comparable office) of such jurisdiction of formation as of a date within ten (10) days of the Closing Date.

 

(v)     The Company shall have delivered to such Buyer (A) a certificate evidencing the good standing of each of the Company and Zone issued by the Secretary of State of Delaware, and (B) a certificate evidencing the Company’s qualification as a foreign corporation and good standing issued by the Secretary of State of each of New York and California (as to the Company), as of a date within ten (10) days of the Closing Date.

 

 

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(vi)     The Company shall have delivered to such Buyer a certified copy of the Certificate of Incorporation as certified by the Delaware Secretary of State within ten (10) days of the Closing Date.

 

(vii)     Zone shall have delivered to such Buyer a certified copy of its Certificate of Incorporation as certified by the Secretary of State (or comparable office) of Nevada within ten (10) days of the Closing Date.

 

(viii)     The Company, HMNY Zone Loan LLC and Zone shall have delivered to such Buyer a certificate, in the form acceptable to such Buyer, executed by the Secretary of the Company, HMNY Zone Loan LLC and Zone and dated as of the Closing Date, as to (i) the resolutions consistent with Section 3(b) as adopted by the Company’s and Zone’s respective board of directors in a form reasonably acceptable to such Buyer, (ii) the Certificate of Incorporation of the Company and Zone, (iii) the Bylaws of the Company and Zone, each as in effect at the Closing and (iv) the certificate of formation and limited liability company agreement of HMNY Zone Loan LLC.

 

(ix)     Each and every representation and warranty of the Company shall be true and correct in all material respects (except for such representations and warranties that are qualified by materiality or Material Adverse Effect, which shall be true and correct in all respects) as of the date when made and as of the Closing Date as though originally made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required to be performed, satisfied or complied with by the Company at or prior to the Closing Date. Such Buyer shall have received a certificate, duly 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 such Buyer in the form acceptable to such Buyer.

 

(x)     The Company shall have delivered to such Buyer a letter from the Company’s transfer agent certifying the number of shares of Common Stock outstanding on the Closing Date immediately prior to the Closing.

 

(xi)     The Common Stock (A) shall be designated for quotation or listed (as applicable) on the Principal Market and (B) shall not have been suspended, as of the Closing Date, by the SEC or the Principal Market from trading on the Principal Market nor shall suspension by the SEC or the Principal Market have been threatened, as of the Closing Date, either (I) in writing by the SEC or the Principal Market or (II) by falling below the minimum maintenance requirements of the Principal Market. 

 

(xii)     The Company shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the sale of the Securities, including without limitation, those required by the Principal Market, if any.

 

 

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(xiii)     No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or Governmental Entity of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents.

 

(xiv)     Since the date of execution of this Agreement, no event or series of events shall have occurred that reasonably would have or result in a Material Adverse Effect.

 

(xv)     The Company shall have obtained approval of the Principal Market to list or designate for quotation (as the case may be) the Conversion Shares.

 

(xvi)     Within two (2) Business Days prior to the Closing, the Company shall have delivered or caused to be delivered to each Buyer (A) certified copies of requests for copies of information on Form UCC-11, listing all effective financing statements which name as debtor the Company or Zone and which are filed in such office or offices as may be necessary or, in the opinion of the Buyers, desirable to perfect the security interests purported to be created hereby, together with copies of such financing statements, none of which, except as otherwise agreed in writing by the Buyers, shall cover any of the Collateral (as defined in any Security Agreement), and the results of searches for any tax Lien and judgment Lien filed against such Person or its property, which results, except as otherwise agreed to in writing by the Buyers, shall not show any such Liens; and (B) a perfection certificate, duly completed and executed by the Company and each of its Subsidiaries, in form and substance satisfactory to the Buyers.

 

(xvii)     The Company shall have directed each Buyer to deliver such Buyer’s Investor Note to the Collateral Agent and the Collateral Agent shall have physical possession of each Investor Note at the Closing.

 

(xviii)     In accordance with the terms of the Security Documents, the Company shall have delivered to the Collateral Agent (A) original certificates (I) representing 100% of the outstanding capital stock of Zone, and all promissory notes required to be pledged thereunder, in each case, accompanied by undated stock powers and allonges executed in blank and other proper instruments of transfer and (B) appropriate financing statements on Form UCC-1 to be duly filed in such office or offices as may be necessary or, in the opinion of the Collateral Agent, desirable to perfect the security interests purported to be created by each Security Document (the “Perfection Certificate”).

 

(xix)     The Collateral Agent shall have received all promissory notes required to be pledged thereunder, accompanied by undated stock powers and allonges executed in blank and other proper instruments of transfer.

 

(xx)     The Collateral Agent shall have received the Company Security Agreement, duly executed by the Company, and all promissory notes required to be pledged thereunder, accompanied by undated stock powers and allonges executed in blank and other proper instruments of transfer.

 

(xxi)     Such Buyer shall have received a letter on the letterhead of the Company, duly executed by the Chief Executive Officer of the Company, setting forth the wire amounts of each Buyer and the wire transfer instructions of the Company (the “Flow of Funds Letter”).

 

 

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(xxii)     The Company shall have duly executed and delivered to such Buyer voting and lockup agreements, each in the form of Exhibit H hereof (the “Voting and Lockup Agreement”), duly executed and delivered to such Buyer by the Company, on one hand, and, in separate Voting and Lockup Agreements, on the other hand, each stockholder listed on schedule 7(a)(xxiii) (the “Principal Stockholders”), representing at least 51% of the outstanding Common Stock of the Company as of the date hereof.

 

(xxiii)     The Principal Stockholders shall have duly executed and delivered the Written Consent to the Company and such Buyer.

 

(xxiv)     The Company and its Subsidiaries shall have delivered to such Buyer such other documents, instruments or certificates relating to the transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request.

 

	
8.
	
TERMINATION.

 

In the event that the Closing shall not have occurred with respect to a Buyer within five (5) days of the date hereof, then such Buyer shall have the right to terminate its obligations under this Agreement with respect to itself at any time on or after the close of business on such date without liability of such Buyer to any other party; provided, however, (i) the right to terminate this Agreement under this Section 8 shall not be available to such Buyer if the failure of the transactions contemplated by this Agreement to have been consummated by such date is the result of such Buyer’s breach of this Agreement and (ii) the abandonment of the sale and purchase of the Notes shall be applicable only to such Buyer providing such written notice, provided further that no such termination shall affect any obligation of the Company under this Agreement to reimburse such Buyer for the expenses described in Section 4(g) above. Nothing contained in this Section 8 shall be deemed to release any party from any liability for any breach by such party of the terms and provisions of this Agreement or the other Transaction Documents or to impair the right of any party to compel specific performance by any other party of its obligations under this Agreement or the other Transaction Documents. 

 

	
9.
	
MISCELLANEOUS.

 

(a)     Governing Law; Jurisdiction; Jury Trial. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or under any of the other Transaction Documents or with any transaction contemplated hereby or thereby, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such 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 manner permitted by law. Nothing contained herein shall be deemed or operate to preclude any Buyer from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company’s obligations to such Buyer or to enforce a judgment or other court ruling in favor of such Buyer. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR UNDER ANY OTHER TRANSACTION DOCUMENT OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY.

 

 

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(b)     Counterparts. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. In the event that any signature is delivered by facsimile transmission or by an e-mail which contains a portable document format (.pdf) file of an executed signature page, such signature page shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such signature page were an original thereof.

 

(c)     Headings; Gender. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. Unless the context clearly indicates otherwise, each pronoun herein shall be deemed to include the masculine, feminine, neuter, singular and plural forms thereof. The terms “including,” “includes,” “include” and words of like import shall be construed broadly as if followed by the words “without limitation.” The terms “herein,” “hereunder,” “hereof” and words of like import refer to this entire Agreement instead of just the provision in which they are found.

 

 

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(d)     Severability; Maximum Payment Amounts. If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s). Notwithstanding anything to the contrary contained in this Agreement or any other Transaction Document (and without implication that the following is required or applicable), it is the intention of the parties that in no event shall amounts and value paid by the Company and/or any of its Subsidiaries (as the case may be), or payable to or received by any of the Buyers, under the Transaction Documents (including without limitation, any amounts that would be characterized as “interest” under applicable law) exceed amounts permitted under any applicable law. Accordingly, if any obligation to pay, payment made to any Buyer, or collection by any Buyer pursuant the Transaction Documents is finally judicially determined to be contrary to any such applicable law, such obligation to pay, payment or collection shall be deemed to have been made by mutual mistake of such Buyer, the Company and its Subsidiaries and such amount shall be deemed to have been adjusted with retroactive effect to the maximum amount or rate of interest, as the case may be, as would not be so prohibited by the applicable law. Such adjustment shall be effected, to the extent necessary, by reducing or refunding, at the option of such Buyer, the amount of interest or any other amounts which would constitute unlawful amounts required to be paid or actually paid to such Buyer under the Transaction Documents. For greater certainty, to the extent that any interest, charges, fees, expenses or other amounts required to be paid to or received by such Buyer under any of the Transaction Documents or related thereto are held to be within the meaning of “interest” or another applicable term to otherwise be violative of applicable law, such amounts shall be pro-rated over the period of time to which they relate. 

 

 

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(e)     Entire Agreement; Amendments. This Agreement, the other Transaction Documents and the schedules and exhibits attached hereto and thereto and the instruments referenced herein and therein supersede all other prior oral or written agreements between the Buyers, the Company, its Subsidiaries, their affiliates and Persons acting on their behalf, including, without limitation, any transactions by any Buyer with respect to Common Stock or the Securities, and the other matters contained herein and therein, and this Agreement, the other Transaction Documents, the schedules and exhibits attached hereto and thereto and the instruments referenced herein and therein contain the entire understanding of the parties solely with respect to the matters covered herein and therein; provided, however, nothing contained in this Agreement or any other Transaction Document shall (or shall be deemed to) (i) have any effect on any agreements any Buyer has entered into with, or any instruments any Buyer has received from, the Company or any of its Subsidiaries prior to the date hereof with respect to any prior investment made by such Buyer in the Company or (ii) waive, alter, modify or amend in any respect any obligations of the Company or any of its Subsidiaries, or any rights of or benefits to any Buyer or any other Person, in any agreement entered into prior to the date hereof between or among the Company and/or any of its Subsidiaries and any Buyer, or any instruments any Buyer received from the Company and/or any of its Subsidiaries prior to the date hereof, and all such agreements and instruments shall continue in full force and effect. Except as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. For clarification purposes, the Recitals are part of this Agreement. No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the Required Holders (as defined below), and any amendment to any provision of this Agreement made in conformity with the provisions of this Section 9(e) shall be binding on all Buyers and holders of Securities, as applicable; provided that no such amendment shall be effective to the extent that it (A) applies to less than all of the holders of the Securities then outstanding or (B) imposes any obligation or liability on any Buyer without such Buyer’s prior written consent (which may be granted or withheld in such Buyer’s sole discretion). No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party, provided that the Required Holders may waive any provision of this Agreement, and any waiver of any provision of this Agreement made in conformity with the provisions of this Section 9(e) shall be binding on all Buyers and holders of Securities, as applicable, provided that no such waiver shall be effective to the extent that it (1) applies to less than all of the holders of the Securities then outstanding (unless a party gives a waiver as to itself only) or (2) imposes any obligation or liability on any Buyer without such Buyer’s prior written consent (which may be granted or withheld in such Buyer’s sole discretion). No consideration (other than reimbursement of legal fees) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration also is offered to all of the parties to the Transaction Documents, all holders of the Notes. From the date hereof and while any Notes are outstanding, the Company shall not be permitted to receive any consideration from a Buyer or a holder of Notes that is not otherwise contemplated by the Transaction Documents in order to, directly or indirectly, induce the Company or any Subsidiary (i) to treat such Buyer or holder of Notes in a manner that is more favorable than to other similarly situated Buyers or holders of Notes, or (ii) to treat any Buyer(s) or holder(s) of Notes in a manner that is less favorable than the Buyer or holder of Notes that is paying such consideration; provided, however, that the determination of whether a Buyer has been treated more or less favorably than another Buyer shall disregard any securities of the Company purchased or sold by any Buyer. The Company has not, directly or indirectly, made any agreements with any Buyers relating to the terms or conditions of the transactions contemplated by the Transaction Documents except as set forth in the Transaction Documents. Without limiting the foregoing, the Company confirms that, except as set forth in this Agreement, no Buyer has made any commitment or promise or has any other obligation to provide any financing to the Company, any Subsidiary or otherwise. As a material inducement for each Buyer to enter into this Agreement, the Company expressly acknowledges and agrees that (x) no due diligence or other investigation or inquiry conducted by a Buyer, any of its advisors or any of its representatives shall affect such Buyer’s right to rely on, or shall modify or qualify in any manner or be an exception to any of, the Company’s representations and warranties contained in this Agreement or any other Transaction Document and (y) unless a provision of this Agreement or any other Transaction Document is expressly preceded by the phrase “except as disclosed in the SEC Documents,” nothing contained in any of the SEC Documents shall affect such Buyer’s right to rely on, or shall modify or qualify in any manner or be an exception to any of, the Company’s representations and warranties contained in this Agreement or any other Transaction Document. “Required Holders” means (I) prior to the Closing Date, each Buyer entitled to purchase Notes at the Closing and (II) on or after the Closing Date, holders of a majority of the Registrable Securities as of such time (excluding any Registrable Securities held by the Company or any of its Subsidiaries as of such time) issued or issuable hereunder or pursuant to the Notes (or the Buyers, with respect to any waiver or amendment of Section 4(o)); provided, that such Buyers or holders of Registrable Securities, as applicable, must include Hudson Bay Master Fund Ltd. so long as it beneficially owns any of the Registrable Securities (on an as-converted and as-exercised basis without regard to any limitations on conversion or exercise thereof).

 

 

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(f)     Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party) or electronic mail; or (iii) one (1) Business Day after deposit with an overnight courier service with next day delivery specified, in each case, properly addressed to the party to receive the same. The addresses, facsimile numbers and e-mail addresses for such communications shall be:

 

If to the Company:

 

Helios and Matheson Analytics Inc.
Empire State Building

350 5th Avenue

New York, New York 10118
Telephone: (212) 979-8228
Facsimile: (212) 979-2517
Attention: Chief Executive Officer
E-Mail: pat.k@hmny.com 

 

With a copy (for informational purposes only) to:

 

Mitchell Silberberg & Knupp LLP
11377 W. Olympic Blvd.

Los Angeles, CA 90065
Telephone: (310) 312-3106
Facsimile: (310) 312-3100
Attention: Kevin Friedmann, Esq.
E-Mail: kxf@msk.com 

 

If to the Transfer Agent:

 

Computershare
211 Quality Circle, Suite 210

College Station, TX 77845
Telephone: (502) 301-6102 
Facsimile: (866) 519-2854
Attention: Jade Larimore
E-Mail: Jade.Larimore@computershare.com 

 

If to a Buyer, to its address, e-mail address and facsimile number set forth on the Schedule of Buyers, with copies to such Buyer’s representatives as set forth on the Schedule of Buyers,

 

with a copy (for informational purposes only) to:

 

Kelley Drye & Warren LLP
101 Park Avenue
New York, NY 10178
Telephone: (212) 808-7540
Facsimile: (212) 808-7897
Attention: Michael A. Adelstein, Esq.
E-mail: madelstein@kelleydrye.com 

 

 

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or to such other address, e-mail address and/or facsimile number and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change, provided that Kelley Drye & Warren LLP shall only be provided copies of notices sent to the lead Buyer. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine or e-mail containing the time, date, recipient facsimile number and, with respect to each facsimile transmission, an image of the first page of such transmission or (C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (i), (ii) or (iii) above, respectively.

 

(g)     Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of any of the Notes. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Required Holders, including, without limitation, by way of a Fundamental Transaction (as defined in the Notes) (unless the Company is in compliance with the applicable provisions governing Fundamental Transactions set forth in the Notes). A Buyer may assign some or all of its rights hereunder in connection with any transfer of any of its Securities without the consent of the Company, in which event such assignee shall be deemed to be a Buyer hereunder with respect to such assigned rights.

 

(h)     No 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, other than the Indemnitees referred to in Section 9(k).

 

(i)     Survival. The representations, warranties, agreements and covenants shall survive the Closing. Each Buyer shall be responsible only for its own representations, warranties, agreements and covenants hereunder.

 

(j)     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 any 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.

 

 

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(k)     Indemnification. In consideration of each Buyer’s execution and delivery of the Transaction Documents and acquiring the Securities thereunder and in addition to all of the Company’s other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless each Buyer and each holder of any Securities and all of their stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing Persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (i) any misrepresentation or breach of any representation or warranty made by the Company or any Subsidiary in any of the Transaction Documents, (ii) any breach of any covenant, agreement or obligation of the Company or any Subsidiary contained in any of the Transaction Documents or (iii) any cause of action, suit, proceeding or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company or any Subsidiary) or which otherwise involves such Indemnitee that arises out of or results from (A) the execution, delivery, performance or enforcement of any of the Transaction Documents, (B) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, (C) any disclosure properly made by such Buyer pursuant to Section 4(i), or (D) the status of such Buyer or holder of the Securities either as an investor in the Company pursuant to the transactions contemplated by the Transaction Documents or as a party to this Agreement (including, without limitation, as a party in interest or otherwise in any action or proceeding for injunctive or other equitable relief). To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. Except as otherwise set forth herein, the mechanics and procedures with respect to the rights and obligations under this Section 9(k) shall be the same as those set forth in Section 6 of the Registration Rights Agreement.

 

(l)     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. No specific representation or warranty shall limit the generality or applicability of a more general representation or warranty. Each and every reference to share prices, shares of Common Stock and any other numbers in this Agreement that relate to the Common Stock shall be automatically adjusted for any stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions that occur with respect to the Common Stock after the date of this Agreement. It is expressly understood and agreed that for all purposes of this Agreement, and without implication that the contrary would otherwise be true, neither transactions nor purchases nor sales shall include the location and/or reservation of borrowable shares of Common Stock.

 

(m)     Remedies. Each Buyer and in the event of assignment by Buyer of its rights and obligations hereunder, each holder of Securities, shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law. Any Person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. Furthermore, the Company recognizes that in the event that it or any Subsidiary fails to perform, observe, or discharge any or all of its or such Subsidiary’s (as the case may be) obligations under the Transaction Documents, any remedy at law would inadequate relief to the Buyers. The Company therefore agrees that the Buyers shall be entitled to specific performance and/or temporary, preliminary and permanent injunctive or other equitable relief from any court of competent jurisdiction in any such case without the necessity of proving actual damages and without posting a bond or other security. The remedies provided in this Agreement and the other Transaction Documents shall be cumulative and in addition to all other remedies available under this Agreement and the other Transaction Documents, at law or in equity (including a decree of specific performance and/or other injunctive relief).

 

 

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(n)     Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Buyer exercises a right, election, demand or option under a Transaction Document and the Company or any Subsidiary does not timely perform its related obligations within the periods therein provided, then such Buyer may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company or such Subsidiary (as the case may be), any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

 

(o)     Payment Set Aside; Currency. To the extent that the Company makes a payment or payments to any Buyer hereunder or pursuant to any of the other Transaction Documents or any of the Buyers enforce or exercise their rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, foreign, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. Unless otherwise expressly indicated, all dollar amounts referred to in this Agreement and the other Transaction Documents are in United States Dollars (“U.S. Dollars”), and all amounts owing under this Agreement and all other Transaction Documents shall be paid in U.S. Dollars. All amounts denominated in other currencies (if any) shall be converted into the U.S. Dollar equivalent amount in accordance with the Exchange Rate on the date of calculation. “Exchange Rate” means, in relation to any amount of currency to be converted into U.S. Dollars pursuant to this Agreement, the U.S. Dollar exchange rate as published in the Wall Street Journal on the relevant date of calculation.

 

(p)     Judgment Currency.

 

(i)     If for the purpose of obtaining or enforcing judgment against the Company in connection with this Agreement or any other Transaction Document in any court in any jurisdiction it becomes necessary to convert into any other currency (such other currency being hereinafter in this Section 9(p) referred to as the “Judgment Currency”) an amount due in US Dollars under this Agreement, the conversion shall be made at the Exchange Rate prevailing on the Trading Day immediately preceding:

 

(1)     the date actual payment of the amount due, in the case of any proceeding in the courts of New York or in the courts of any other jurisdiction that will give effect to such conversion being made on such date: or

 

(2)     the date on which the foreign court determines, in the case of any proceeding in the courts of any other jurisdiction (the date as of which such conversion is made pursuant to this Section 9(p)(i)(2) being hereinafter referred to as the “Judgment Conversion Date”).

 

 

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(ii)     If in the case of any proceeding in the court of any jurisdiction referred to in Section 9(p)(i)(2) above, there is a change in the Exchange Rate prevailing between the Judgment Conversion Date and the date of actual payment of the amount due, the applicable party shall pay such adjusted amount as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the Exchange Rate prevailing on the date of payment, will produce the amount of US Dollars which could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial order at the Exchange Rate prevailing on the Judgment Conversion Date.

 

(iii)     Any amount due from the Company under this provision shall be due as a separate debt and shall not be affected by judgment being obtained for any other amounts due under or in respect of this Agreement or any other Transaction Document.

 

(q)     Independent Nature of Buyers’ Obligations and Rights. The obligations of each Buyer under the Transaction Documents are several and not joint with the obligations of any other Buyer, and no Buyer shall be responsible in any way for the performance of the obligations of any other Buyer under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Buyer pursuant hereto or thereto, shall be deemed to constitute the Buyers as, and the Company acknowledges that the Buyers do not so constitute, a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption that the Buyers are in any way acting in concert or as a group or entity, and the Company shall not assert any such claim with respect to such obligations or the transactions contemplated by the Transaction Documents or any matters, and the Company acknowledges that the Buyers are not acting in concert or as a group, and the Company shall not assert any such claim, with respect to such obligations or the transactions contemplated by the Transaction Documents. The decision of each Buyer to purchase Securities pursuant to the Transaction Documents has been made by such Buyer independently of any other Buyer. Each Buyer acknowledges that no other Buyer has acted as agent for such Buyer in connection with such Buyer making its investment hereunder and that no other Buyer will be acting as agent of such Buyer in connection with monitoring such Buyer’s investment in the Securities or enforcing its rights under the Transaction Documents. The Company and each Buyer confirms that each Buyer has independently participated with the Company and its Subsidiaries in the negotiation of the transaction contemplated hereby with the advice of its own counsel and advisors. Each Buyer shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of any other Transaction Documents, and it shall not be necessary for any other Buyer to be joined as an additional party in any proceeding for such purpose. The use of a single agreement to effectuate the purchase and sale of the Securities contemplated hereby was solely in the control of the Company, not the action or decision of any Buyer, and was done solely for the convenience of the Company and its Subsidiaries and not because it was required or requested to do so by any Buyer. It is expressly understood and agreed that each provision contained in this Agreement and in each other Transaction Document is between the Company, each Subsidiary and a Buyer, solely, and not between the Company, its Subsidiaries and the Buyers collectively and not between and among the Buyers.

 

 

55

 

 

[signature pages follow]

 

 

56

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first written above.

 

 

	
 
	
COMPANY:
	
 

	 	 	 
	 	
HELIOS AND MATHESON ANALYTICS INC.
	 
	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
 

	 	 	 	 
	
 
	
By: 
	/s/ Parthasarathy Krishnan	
 

	
 
	
 
	
Name: Parthasarathy Krishnan
	
 

	
 
	
 
	
Title: Chief Executive Officer
	
 

 

 

 

 

 

Agreed and Accepted, with respect to 
Section 1(e) herein,

 

	
PALLADIUM CAPITAL ADVISORS LLC 
	
 

	
 
	
 
	
 

	
 
	
 
	
 

	 	 	 
	
By: 
	/s/ Joel Padowitz	
 

	
 
	
Name: Joel Padowitz
	
 

	
 
	
Title: Chief Executive Officer
	
 

 

 

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first written above.

 

 

	
 
	
BUYER AND SEPTEMBER BUYER:
	
 

	 	 	 
	 	
HUDSON BAY MASTER FUND LTD
	 
	
 
	
 
	
 
	
 

	 	 	 	 
	
 
	
 
	
 
	
 

	
 
	
By: 
	
/s/ Yoav Roth
	
 

	
 
	
 
	
Name: Yoav Roth
	
 

	
 
	
 
	
Title: Authorized Signatory
	
 

 

 

 

 

SCHEDULE OF BUYERS

 

 

	
(1)
	
(2)
	
(3)
	
(4)
	
(5)
	
(6)
	
(7)
	
(8)

	  	  	  	  	  	  	  	  
	
Buyer
	
Address and Facsimile Number
	
Original 

Principal 

Amount of 

Initial

Notes
	
Original 

Principal 

Amount of 

Additional

Notes
	
Purchase 

Price
	
Aggregate
Cash
Wire 
Amount
	
Original 

Principal 

Amount of 

Investor 

Notes
	
Legal Representative’s
Address and Facsimile Number

	  	  	  	  	  	  	  	  
	 	 	 	 	 	 	 	 
	
Hudson Bay Master 
	
Please deliver any notices other than 
	$1,820,000	$4,900,000	$6,000,000	$1,100,000	$4,900,000	
Kelley Drye & Warren LLP

	
Fund Ltd.
	
Pre-Notices to:
	 	 	 	 	 	
101 Park Avenue

	 	 	 	 	 	 	 	
New York, NY 10178

	

 
	
777 Third Avenue, 30th Floor
New York, NY 10017
Attention: Yoav Roth
Facsimile: (212) 571-1279
E-mail: investments@hudsonbaycapital.com
Residence: Cayman Islands

 

Please deliver any Pre-Notice to:

 

777 Third Ave., 30th Floor

New York, NY 10017

Facsimile: (646) 214-7946

Attention: Scott Black

General Counsel and Chief Compliance Officer
	 	 	
 
	
 
	
 
	
 

Telephone: (212) 808-7540

Facsimile: (212) 808-7897

Attention: Michael A. Adelstein, Esq.

 

 

 

 

 

 

 

DISCLOSURE SCHEDULES TO THE

 

SECURITIES PURCHASE AGREEMENT

 

 

 

These Disclosure Schedules are being delivered by Helios and Matheson Analytics Inc., a Delaware corporation (the “Company”), to each buyer identified on the signature pages to that certain Securities Purchase Agreement, dated December 1, 2016 (the “Agreement”). Capitalized terms used herein, but not defined herein, shall have the respective meanings ascribed thereto in the Agreement.

 

The inclusion of any information in these Disclosure Schedules shall not be deemed to be an admission or evidence of the materiality of such information, nor shall it establish a standard of materiality for any purpose whatsoever. Matters reflected in these Disclosure Schedules are not necessarily limited to matters required by the Agreement to be disclosed in these Disclosure Schedules. Neither the specification of any dollar amount in the representations and warranties contained in the Agreement nor the inclusion of any specific item in these Disclosure Schedules is intended to imply that such amounts, higher or lower amounts, the items so included or other items, are or are not material, and no Party shall use the fact of the setting of such amounts or the fact of the inclusion of any such item in these Disclosure Schedules in any dispute or controversy between the Parties as to whether any obligation, item or matter is or is not material, or may constitute an event or condition which could be considered to have a Material Adverse Effect.

 

No disclosure in these Disclosure Schedules relating to any possible or alleged breach or violation of any Law or contract shall be construed as an admission or indication that any such breach or violation exists or has actually occurred. In disclosing the information in these Disclosure Schedules, each of the Company and its Subsidiaries expressly does not waive any attorney-client privilege associated with such information or any protection afforded by the work-product doctrine with respect to any of the matters disclosed or discussed herein. References in these Disclosure Schedules to any Contract or other agreement, whether or not binding, include references to such contract’s or other agreement’s exhibits, annexes and schedules.

 

 

 

 

Section 3(a)

 

Subsidiaries

 

1.     Helios and Matheson Global Services Private Limited, a corporation incorporated under the laws of India, of which the Company owns 99.99% of the outstanding equity and voting power.

 

2.     Zone Technologies, Inc., a Nevada corporation (“Zone”), which is a wholly owned subsidiary of the Company.

 

3.     HMNY Zone Loan LLC (“NewSub”), a Delaware limited liability company, which is a wholly owned subsidiary of the Company.

 

 

2

 

 

Section 3(g)

 

Placement Agent Fee

 

Placement Agent: Palladium Capital Advisors LLC (“Palladium”)

 

Fee Amount:

 

(1) eight percent (8.00%) of the gross cash proceeds actually received by the Company from the sale of the Notes in respect of the unrestricted Principal portion of the Notes; plus (2) a warrant to purchase 8% of the number of shares of the Company’s common stock (“Common Stock”) into which the unrestricted Principal of such Notes is initially convertible at the conversion price thereunder, without regard to any increase in shares issuable under a “true up” or ratchet provision pursuant to which the number of shares issuable upon conversion of the Notes may be subsequently increased. 

 

 

3

 

 

Section 3(r)(iii)

 

Affiliate Shares

 

3,521,352 shares of Common Stock. 

 

 

4

 

 

Section 3(s)

 

Indebtedness and Other Contracts

 

The Company issued convertible notes dated September 7, 2016 in the aggregate principal amount of $4,381,075 of which $980,000 in aggregate principal amount is outstanding. In connection with this indebtedness, a UCC Financing Statement has been filed in Delaware to reflect the creditor’s security interest in certain collateral of the Company.

 

Zone issued a promissory note to NewSub dated September 7, 2016, as amended by the Amendment dated October 25, 2016, in the aggregate principal amount of $1,113,305. In connection with this indebtedness, a UCC Financing Statement has been filed in Nevada to reflect NewSub’s security interest in certain collateral of Zone.

 

The Company has material customer service contracts with the Company’s four largest customers.

 

 

5

 

 

Section 3(t)

 

Litigation

 

On August 24, 2016, 3839 Holdings LLC (“3839 Holdings”) filed a summons and complaint against Theodore Farnsworth (“Mr. Farnsworth”), Highland Holdings Group, Inc. (“HHGI”) and Zone. The claims arise out of 3839 Holdings’ purchase of a 10% interest in HHGI and an unsuccessful real estate investment by HHGI. The Complaint asserts claims: i) for breach of contract, breach of the implied covenant of good faith and fair dealing and breach of fiduciary duty against Mr. Farnsworth and HHGI; ii) for unjust enrichment against Mr. Farnsworth and Zone; iii) for fraudulent conveyance against all defendants; and iv) alter ego liability against Mr. Farnsworth for HHGI’s obligations. The suit also seeks, as part of any final relief it may obtain after trial, an injunction against the merger between Zone and the Company, along with an award of attorneys’ fees. The Complaint does not request any preliminary injunctive relief regarding the merger.

 

Based upon Defendants' investigation to date, it appears that the claims are completely baseless. According to the Defendants, the Defendants will vigorously defend the suit and expect to have the claims dismissed. 3839 Holdings alleges most of the essential allegations underlying its claims “upon information and belief” rather than on knowledge because 3839 Holdings apparently has no knowledge of any facts which would support the asserted claims. 

 

The Company received a letter dated July 1, 2016 from counsel to 3839 Holdings requesting that the Company pay $500,000 to 3839 Holdings as part of any consideration paid to Mr. Farnsworth pursuant to the acquisition of Zone by the Company, in order to pay an alleged debt owed by Mr. Farnsworth to 3839 Holdings. After communication with Zone’s counsel and Mr. Farnsworth, the Company determined not to respond to the letter inasmuch as the request made of the Company in the letter appeared to be baseless.

 

 

6

 

 

Section 3(x)(ii)

 

Intellectual Property Rights

 

None.

 

 

7

 

 

Section 3(nn)

 

Management

 

The following matters relate to the Company’s majority stockholder, Helios & Matheson Information Technology, Ltd., an Indian corporation (“HMIT”).

 

	 	
1.
	
In the Matter of The Companies Act, 1956 and HMIT. A petition was filed on April 18. 2015 by EXIM Bank, USA in the Madras High Court (Tamil Nadu, India) seeking for winding up of HMIT under ss. 433, 434 of Companies Act, 1956. Loans in an approximate amount of $12 million were made by UPS Capital Credit, USA to HMIT’s subsidiary, Helios and Matheson (Singapore) Pte. Ltd., and guaranteed by HMIT. At the time of default, approximately $3.8 million in principle amount remained unpaid. EXIM Bank claims that UPS Capital Credit has assigned the loan to them, and have initiated winding up proceedings on that ground by giving a power of attorney to an Indian agent. HMIT is contesting the maintainability of the claim made by Export Import Bank of the ground of jurisdiction and the matter is pending before the Madras High Court. The Madras High Court has in the meanwhile declined to grant any interim relief to the Petitioner, EXIM Bank when the same was pressed for by EXIM Bank in the summer of 2015. The matter is still pending before the Madras High Court with no adverse order or finding against HMIT, till date. 

 

	 	
2.
	
Complaint filed by Dr. Ranjith Sindoori against HMIT. A complaint was filed against HMIT on April 1, 2015 by Dr. Ranjith Sindoori with the Economic Offenses Headquarters, a division of the Chennai City Police Department. The complaint alleges a violation of Section 5 of the Tamil Nadu Protection of Investors Deposits Act and connected ss. 420 of Indian Penal Code. Dr. Sindoori alleged that he had deposited a total of $5,950,000 rupees (or approximately $88,000) with HMIT on which he was to receive a 12% return. The money was not repaid to Dr. Sindoori in accordance with the terms of the deposit agreement. The matter is under investigation and no charge-sheet has been filed, on the ground of federalism and applicability of the State Act in this case, as the subject matter is governed by a central legislation i.e. Companies Act, 1956 and therefore State law cannot encroach upon the Centre’s domain and occupied field.

 

	 	
3.
	
In the Matter of The Companies Act, 1956 and HMIT. In February 2015, Mrs. Baby Sundaram, along with her husband Mr. Sundaram and a certain L. George Williams filed petitions seeking winding up of HMIT under ss. 433, 434 of Companies Act, 1956. Mr. and Mrs. Sundaram alleged that they deposited approximately $6,000 with HMIT and were not repaid in accordance with the terms of the deposit agreement. Mr. Williams alleged that he deposited approximately $4,500 and that he was not repaid in accordance with the terms of the deposit agreement. The Company proposed a plan to repay its smaller creditors first and deposited substantial sums before the Court (about 9 Crores INR), but due to the objections of a few of the creditors, the Company Court took a view that the plan was unworkable, thereby admitting the said petitions. On appeal, the Appellate Bench of the Madras High Court stayed in the ruling, in view of the prima facie errors in the approach of the single judge of the Company Court and in part because the HMIT had deposited adequate funds with the lower court to repay the all of the smaller creditors. The appeal is pending final adjudication before the Appellate Bench of the Madras High Court. 

 

 

8

 

  

	 	
4.
	
Action by the Securities and Exchange Board of India. On January 31, 2011, the Securities and Exchange Board of India (“SEBI”) concluded that HMIT violated certain of SEBI’s rules as they related to disclosures made by HMIT in a press release dated May 11, 2005, which was sent to the Indian stock exchanges on May 12, 2005, regarding the acquisition of the company vMoksha. SEBI concluded that the press release contained misstatements and withheld price sensitive information from investors who were thereby misled. SEBI imposed a monetary penalty on HMIT of approximately $41,000. HMIT appealed the decision before the Securities Appellate Tribunal (Mumbai). On November 16, 2011, the Securities Appellate Tribunal determined that the press release did not contain misstatements but confirmed that price sensitive information was withheld. Based on its findings, the Securities Appellate Tribunal reduced the penalty from approximately $41,000 to approximately $25,000.

 

 

9

 

 

Section 4(d)

 

Use of Proceeds

 

None.

 

 

10

 

 

Section 7(a)(xxiii)

 

Principal Stockholders

 

(1) Theodore Farnsworth, an individual; (2) Helios & Matheson Information Technology, Ltd, an Indian corporation, and (3) its wholly-owned subsidiary, Helios & Matheson Inc., a Delaware corporation.

 

11

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