Document:

Exhibit 10.3

 

EXECUTION COPY

 

AMENDMENT NO. 1 TO 
 SECOND TIER PURCHASE AND SALE AGREEMENT

 

THIS AMENDMENT NO. 1 TO SECOND TIER PURCHASE AND SALE AGREEMENT, dated as of June 7, 2012, (this “Amendment”) is entered into by and between Ares Capital CP Funding LLC, as the purchaser (in such capacity, the “Purchaser”), and Ares Capital CP Funding Holdings LLC, as the seller (in such capacity, the “Seller”), and consented to by Wells Fargo Securities, LLC, as the agent (in such capacity, the “Agent”), and U.S. Bank National Association, as the trustee (in such capacity, the “Trustee”).  Capitalized terms used but not defined herein have the meanings provided in the Agreement (as defined below).

 

R  E  C  I  T  A  L  S

 

WHEREAS, certain parties hereto are party to a Second Tier Purchase and Sale Agreement, dated as of January 22, 2010 (as further amended, modified, waived, supplemented or restated from time to time, the “Agreement”), by and between the Purchaser and the Seller; and;

 

WHEREAS, the parties hereto desire to make certain amendments to certain provisions of the Agreement as specified herein, pursuant to and in accordance with Section 10.3 of the Agreement;

 

NOW, THEREFORE, based upon the above Recitals, the mutual premises and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

 

SECTION 1.                            AMENDMENT.

 

The Agreement, including all exhibits and schedules thereto, is hereby amended such that, after giving effect to all such amendments, it shall read in its entirety as Exhibit A attached hereto.

 

SECTION 2.                            AGREEMENT IN FULL FORCE AND EFFECT AS AMENDED.

 

Except as specifically amended hereby, all provisions of the Agreement shall remain in full force and effect.  After this Amendment becomes effective, all references to the Agreement and corresponding references thereto or therein such as “hereof”, “herein”, or words of similar effect referring to the Agreement shall be deemed to mean the Agreement as amended hereby.  This Amendment shall not be deemed to expressly or impliedly waive, amend or supplement any provision of the Agreement other than as expressly set forth herein.

 

SECTION 3.                            REPRESENTATIONS.

 

The Seller represents and warrants as of the date of this Amendment as follows:

 

(i)                                     it is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization;

 

 

(ii)                                  the execution, delivery and performance by it of this Amendment and the Agreement as amended hereby are within its powers, have been duly authorized, and do not contravene (A) its charter, by-laws, or other organizational documents, or (B) any Applicable Law;

 

(iii)                               no consent, license, permit, approval or authorization of, or registration, filing or declaration with any governmental authority, is required in connection with the execution, delivery, performance, validity or enforceability of this Amendment and the Agreement as amended hereby by or against it;

 

(iv)                              this Amendment has been duly executed and delivered by it;

 

(v)                                 each of this Amendment and the Agreement as amended hereby constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally or by general principles of equity; and

 

(vi)                              there is no Unmatured Event of Default, Event of Default or Seller Termination Event.

 

SECTION 4.                            CONDITIONS TO EFFECTIVENESS.

 

The effectiveness of this Amendment is conditioned upon: (i) delivery and execution of certain amendments to the Amended and Restated Sale and Servicing Agreement and (ii) delivery of executed signature pages by all parties hereto to the Agent.

 

SECTION 5.                            MISCELLANEOUS.

 

(a)                                  The Seller, by its execution of this Amendment (a) re-pledges and re-grants to the Purchaser a security interest in the Sale Portfolio (as defined in the Agreement) to secure the obligations of the Seller and (b) confirms and ratifies that all of its obligations and the security interests granted by it under each of the Transaction Documents to which it is a party shall continue in full force and effect in favor of the Purchaser.

 

(b)                                 This Amendment may be executed in any number of counterparts (including by facsimile or e-mail), and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instrument but all of which together shall constitute one and the same agreement.

 

(c)                                  The descriptive headings of the various sections of this Amendment are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof.

 

(d)                                 This Amendment may not be amended or otherwise modified except as provided in the Agreement.

 

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(e)                                  The failure or unenforceability of any provision hereof shall not affect the other provisions of this Amendment.

 

(f)                                    Whenever the context and construction so require, all words used in the singular number herein shall be deemed to have been used in the plural number, and vice versa, and the masculine gender shall include the feminine and neuter and the neuter shall include the masculine and feminine.

 

(g)                                 This Amendment and the Agreement represent the final agreement among the parties with respect to the matters set forth therein and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements among the parties.  There are no unwritten oral agreements among the parties with respect to such matters.

 

(h)                                 THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE CHOICE OF LAW PROVISIONS SET FORTH IN THE AGREEMENT AND SHALL BE SUBJECT TO THE WAIVER OF JURY TRIAL AND NOTICE PROVISIONS OF THE AGREEMENT.

 

(i)                                     The Agent hereby consents and directs U.S. Bank National Association in its capacity as the Trustee to consent to this Amendment in substantially the form presented to it.

 

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to be executed by their respective officers thereunto duly authorized, as of the date first above written.

 

	
 
    	
ARES CAPITAL CP FUNDING LLC,
    
	
 
    	
as the Purchaser
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Penni Roll
    
	
 
    	
 
    	
Name: Penni Roll
    
	
 
    	
 
    	
Title: Authorized Signatory
    

 

 

[SIGNATURES CONTINUE ON THE FOLLOWING PAGE]

 

Ares Capital CP Funding LLC

Amendment No. 1 to STP&SA

 

 

	
 
    	
ARES CAPITAL CP FUNDING HOLDINGS LLC,
    
	
 
    	
as the Seller
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Penni Roll
    
	
 
    	
 
    	
Name: Penni Roll
    
	
 
    	
 
    	
Title: Authorized Signatory
    

 

 

[SIGNATURES CONTINUE ON THE FOLLOWING PAGE]

 

Ares Capital CP Funding LLC

Amendment No. 1 to STP&SA

 

5

 

	
 
    	
CONSENTED TO BY:
    
	
 
    	
 
    
	
 
    	
WELLS FARGO SECURITIES, LLC,
    
	
 
    	
as the Agent
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Allan Schmitt
    
	
 
    	
 
    	
Name: Allan Schmitt
    
	
 
    	
 
    	
Title: Vice President
    

 

 

[SIGNATURES CONTINUE ON THE FOLLOWING PAGE]

 

Ares Capital CP Funding LLC

Amendment No. 1 to STP&SA

 

6

 

	
 
    	
CONSENTED TO BY:
    
	
 
    	
 
    
	
 
    	
U.S. BANK NATIONAL ASSOCIATION,
    
	
 
    	
as the Trustee
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ John F. Delaney, Jr.
    
	
 
    	
 
    	
Name: John F. Delaney, Jr.
    
	
 
    	
 
    	
Title: Vice President
    

 

Ares Capital CP Funding LLC

Amendment No. 1 to STP&SA

 

7

 

EXHIBIT A

 

CONFORMED Second Tier Purchase and Sale AGREEMENT

 

 

EXECUTION COPY

 

Conformed through Amendment No. 1

 

SECOND TIER PURCHASE AND SALE AGREEMENT

 

between

 

ARES CAPITAL CP FUNDING LLC,

 

as the Purchaser

 

and

 

ARES CAPITAL CP FUNDING HOLDINGS LLC,

 

as the Seller

 

Dated as of January 22, 2010

 

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
ARTICLE I.
    	
DEFINITIONS
    	
1
    
	
 
    	
 
    	
 
    
	
Section 1.1.
    	
General
    	
1
    
	
Section 1.2.
    	
Specific Terms
    	
2
    
	
Section 1.3.
    	
Other Terms
    	
5
    
	
Section 1.4.
    	
Computation of Time   Periods
    	
5
    
	
Section 1.5.
    	
Certain References
    	
5
    
	
 
    	
 
    	
 
    
	
ARTICLE II.
    	
SALE AND PURCHASE OF THE ELIGIBLE LOAN ASSETS   AND OTHER PORTFOLIO ASSETS
    	
5
    
	
 
    	
 
    	
 
    
	
Section 2.1.
    	
Sale and Purchase   of the Eligible Loan Assets and the Other Portfolio Assets
    	
5
    
	
Section 2.2.
    	
Purchase Price
    	
8
    
	
Section 2.3.
    	
Payment of Purchase   Price
    	
8
    
	
Section 2.4.
    	
Nature of the Sales
    	
9
    
	
 
    	
 
    	
 
    
	
ARTICLE III.
    	
CONDITIONS OF SALE AND PURCHASE
    	
10
    
	
 
    	
 
    	
 
    
	
Section 3.1.
    	
Conditions   Precedent to Effectiveness
    	
10
    
	
Section 3.2.
    	
Conditions   Precedent to All Purchases
    	
11
    
	
 
    	
 
    	
 
    
	
ARTICLE IV.
    	
REPRESENTATIONS AND WARRANTIES
    	
12
    
	
 
    	
 
    	
 
    
	
Section 4.1.
    	
Representations and   Warranties of the Seller
    	
12
    
	
Section 4.2.
    	
Representations and   Warranties of the Seller Relating to the Agreement and the Sale Portfolio
    	
20
    
	
Section 4.3.
    	
Representations and   Warranties of the Purchaser
    	
21
    
	
 
    	
 
    	
 
    
	
ARTICLE V.
    	
COVENANTS OF THE SELLER
    	
23
    
	
 
    	
 
    	
 
    
	
Section 5.1.
    	
Protection of Title   of the Purchaser
    	
23
    
	
Section 5.2.
    	
Affirmative   Covenants of the Seller
    	
26
    
	
Section 5.3.
    	
Negative Covenants   of the Seller
    	
30
    
	
 
    	
 
    	
 
    
	
ARTICLE VI.
    	
REPURCHASES AND SUBSTITUTION BY THE SELLER
    	
32
    
	
 
    	
 
    	
 
    
	
Section 6.1.
    	
Repurchase of Loan   Assets
    	
32
    
	
Section 6.2.
    	
Substitution of   Loan Assets
    	
32
    
	
Section 6.3.
    	
Repurchase   Limitations
    	
34
    
	
 
    	
 
    	
 
    
	
ARTICLE VII.
    	
ADDITIONAL RIGHTS AND OBLIGATIONS IN RESPECT   OF THE SALE PORTFOLIO
    	
34
    
	
 
    	
 
    	
 
    
	
Section 7.1.
    	
Rights of the   Purchaser
    	
34
    
	
Section 7.2.
    	
Notice to Trustee   and Agent
    	
35
    

 

i

 

TABLE OF CONTENTS

(cont’d)

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
ARTICLE VIII.
    	
SELLER TERMINATION EVENTS
    	
35
    
	
 
    	
 
    	
 
    
	
Section 8.1.
    	
Seller Termination   Events
    	
35
    
	
Section 8.2.
    	
Remedies
    	
37
    
	
Section 8.3.
    	
Survival of Certain   Provisions
    	
37
    
	
 
    	
 
    	
 
    
	
ARTICLE IX.
    	
INDEMNIFICATION
    	
38
    
	
 
    	
 
    	
 
    
	
Section 9.1.
    	
Indemnification by   the Seller
    	
38
    
	
Section 9.2.
    	
Assignment of   Indemnities
    	
41
    
	
 
    	
 
    	
 
    
	
ARTICLE X.
    	
MISCELLANEOUS
    	
41
    
	
 
    	
 
    	
 
    
	
Section 10.1.
    	
Liability of the   Seller
    	
41
    
	
Section 10.2.
    	
Limitation on   Liability
    	
41
    
	
Section 10.3.
    	
Amendments; Limited   Agency
    	
42
    
	
Section 10.4.
    	
Waivers; Cumulative   Remedies
    	
42
    
	
Section 10.5.
    	
Notices
    	
42
    
	
Section 10.6.
    	
Merger and   Integration
    	
43
    
	
Section 10.7.
    	
Severability of   Provisions
    	
43
    
	
Section 10.8.
    	
GOVERNING LAW; JURY   WAIVER
    	
43
    
	
Section 10.9.
    	
Consent to   Jurisdiction; Service of Process
    	
44
    
	
Section 10.10.
    	
Costs, Expenses and   Taxes
    	
45
    
	
Section 10.11.
    	
Counterparts
    	
45
    
	
Section 10.12.
    	
Bankruptcy   Non-Petition and Limited Recourse; Claims
    	
45
    
	
Section 10.13.
    	
Binding Effect;   Assignability
    	
45
    
	
Section 10.14.
    	
Waiver of Setoff
    	
45
    
	
Section 10.15.
    	
Headings and   Exhibits
    	
46
    
	
Section 10.16.
    	
Rights of   Inspection
    	
46
    
	
Section 10.17.
    	
Subordination
    	
46
    
	
Section 10.18.
    	
Breaches of   Representations, Warranties and Covenants
    	
46
    
	
Section 10.19.
    	
Confidentiality
    	
47
    
	
Section 10.20.
    	
Assignments of Loan   Assets
    	
47
    

 

SCHEDULES AND EXHIBITS

 

	
Schedule I
    	
-
    	
Sale Portfolio List
    
	
 
    	
 
    	
 
    
	
Exhibit A
    	
-
    	
Form of Second Tier Loan Assignment
    
	
Exhibit B
    	
-
    	
Form of Officer’s Purchase Date   Certificate
    
	
Exhibit C
    	
-
    	
Form of Power of Attorney for Seller
    

 

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SECOND TIER PURCHASE AND SALE AGREEMENT

 

THIS SECOND TIER PURCHASE AND SALE AGREEMENT, dated as of January 22, 2010, among ARES CAPITAL CP FUNDING HOLDINGS LLC, a Delaware limited liability company, as the seller (the “Seller”) and ARES CAPITAL CP FUNDING LLC, a Delaware limited liability company, as the purchaser (the “Purchaser”).

 

W I T N E S S E T H:

 

WHEREAS, the Seller acquired certain Loan Assets and Portfolio Assets (in each case, as hereinafter defined) related thereto pursuant to the terms of that certain Amended and Restated Purchase and Sale Agreement, dated as of the date hereof, by and between, the Seller, as the purchaser and Ares Capital Corporation, as the seller (such agreement as amended, modified, waived, supplemented or restated from time to time, the “First Tier Purchase and Sale Agreement”);

 

WHEREAS, the Purchaser has agreed to Purchase (as hereinafter defined) from the Seller from time to time, and the Seller has agreed to Sell (as hereinafter defined) to the Purchaser from time to time, certain Loan Assets and Portfolio Assets related thereto on the terms set forth herein;

 

WHEREAS, it is contemplated that the Loan Assets and Portfolio Assets Purchased hereunder may be Pledged by the Purchaser pursuant to the Loan and Servicing Agreement (as defined herein) and the related Transaction Documents, to the Trustee, for the benefit of the Secured Parties; and

 

WHEREAS, the Seller agrees that all representations, warranties, covenants and agreements made by the Seller herein with respect to the Sale Portfolio shall also be for the benefit of any Secured Party.

 

NOW, THEREFORE, in consideration of the premises and the mutual agreements hereinafter contained, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Purchaser and the Seller, intending to be legally bound, hereby agree as follows:

 

ARTICLE I.

 

DEFINITIONS

 

Section 1.1.            General.  The specific terms defined in this Article include the plural as well as the singular.  Words herein importing a gender include the other gender.  References herein to “writing” include printing, typing, lithography and other means of reproducing words in visible form.  References to agreements and other contractual instruments include all subsequent amendments thereto or changes therein entered into in accordance with their respective terms and not prohibited by this Agreement or the Loan and Servicing Agreement (as hereinafter defined).  References herein to Persons include their successors and assigns permitted hereunder or under the Loan and Servicing Agreement.  The terms “include” or “including” mean “include without limitation” or “including without limitation”.  The words “herein”,

 

 

“hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision, and Article, Section, Schedule and Exhibit references, unless otherwise specified, refer to Articles and Sections of and Schedules and Exhibits to this Agreement.  Capitalized terms used herein but not defined herein shall have the respective meanings assigned to such terms in the Loan and Servicing Agreement, provided that, if, within such definition in the Loan and Servicing Agreement a further term is used which is defined herein, then such further term shall have the meaning given to such further term herein.

 

Section 1.2.            Specific Terms.  Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings:

 

“Agreement” means this Second Tier Purchase and Sale Agreement, as the same may be amended, restated, waived, supplemented and/or otherwise modified from time to time hereafter.

 

“Early Termination” has the meaning specified in Section 8.1.

 

“Facility Financing Statements” has the meaning specified in Section 3.1(iv).

 

“Indemnified Amounts” has the meaning specified in Section 9.1.

 

“Indemnified Party” has the meaning specified in Section 9.1.

 

“Loan and Servicing Agreement” means that certain Loan and Servicing Agreement, dated as of the Restatement Date, by and among the Purchaser, as the Borrower, Ares Capital Corporation, as the Servicer and the Transferor, Wells Fargo Bank, National Association, as the Swingline Lender, each of the Lenders from time to time party thereto, Wells Fargo Securities, LLC, as the Agent, and U.S. Bank National Association, as the Trustee, the Bank and the Collateral Custodian, as such may be amended, restated, supplemented or otherwise modified from time to time pursuant to the terms thereof.

 

“Loan Asset” means any loan listed on Schedule I hereto, as the same may be amended, supplemented, restated or replaced from time to time.

 

“Non-Consolidation/True Sale Opinion” has the meaning specified in Section 4.1(kk).

 

“Pension Plan” has the meaning specified in Section 4.1(r).

 

“Portfolio Assets” means all Loan Assets owned by the Seller, together with all proceeds thereof and other assets or property related thereto, including all right, title and interest of the Seller in and to:

 

(a)           any amounts on deposit in any cash reserve, collection, custody or lockbox accounts securing the Loan Assets;

 

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(b)           all rights with respect to the Loan Assets to which the Seller is entitled as lender under the applicable Loan Agreement;

 

(c)           any Underlying Collateral securing a Loan Asset and all Recoveries related thereto, all payments paid in respect thereof and all monies due, to become due and paid in respect thereof accruing after the applicable Cut-Off Date and all liquidation proceeds;

 

(d)           all Required Loan Documents, the Loan Asset Files related to any Loan Asset, any Records, and the documents, agreements, and instruments included in the Loan Asset Files or Records;

 

(e)           all Insurance Policies with respect to any Loan Asset;

 

(f)            all Liens, guaranties, indemnities, warranties, letters of credit, accounts, bank accounts and property subject thereto from time to time purporting to secure or support payment of any Loan Asset, together with all UCC financing statements, mortgages or similar filings signed or authorized by an Obligor relating thereto;

 

(g)           all records (including computer records) with respect to the foregoing; and

 

(h)           all collections, income, payments, proceeds and other benefits of each of the foregoing.

 

“Purchase” means a purchase by the Purchaser of an Eligible Loan Asset and the related Portfolio Assets from the Seller pursuant to Article II.

 

“Purchase Date” has the meaning specified in Section 2.1(b).

 

“Purchase Price” has the meaning specified in Section 2.2.

 

“Purchaser” has the meaning specified in the Preamble.

 

“Purchaser Restricted Junior Payment” means (i) any dividend or other distribution, direct or indirect, on account of any class of membership interests of the Purchaser now or hereafter outstanding, except a dividend paid solely in interests of that class of membership interests or in any junior class of membership interests of the Purchaser; (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any class of membership interests of the Purchaser now or hereafter outstanding, (iii) any payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire membership interests of the Purchaser now or hereafter outstanding, and (iv) any payment of management fees by the Purchaser (except for reasonable management fees to the Transferor or its Affiliates in reimbursement of actual management services performed).

 

“Replaced Loan Asset” has the meaning specified in Section 6.2(b)(i).

 

“Repurchase Price” means, with respect to a Loan Asset to be repurchased pursuant to Article VI hereof, an amount equal to the Purchase Price less all Principal

 

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Collections received in respect of such Loan Asset from the Purchase Date to the date of repurchase hereunder.

 

“Sale” and “Sell” have the meanings specified in Section 2.1(a), and the term “Sold” shall have the corresponding meaning.

 

“Sale Portfolio” means all right, title, and interest (whether now owned or hereafter acquired or arising, and wherever located) of the Seller in the property identified below in clauses (i) through (iv) and all accounts, cash and currency, chattel paper, tangible chattel paper, electronic chattel paper, copyrights, copyright licenses, equipment, fixtures, contract rights, general intangibles, instruments, certificates of deposit, certificated securities, uncertificated securities, financial assets, securities entitlements, commercial tort claims, deposit accounts, inventory, investment property, letter-of-credit rights, software, supporting obligations, accessions, or other property consisting of, arising out of, or related to any of the following (in each case excluding the Retained Interest and the Excluded Amounts):

 

(i)            the Loan Assets, and all monies due or to become due in payment under such Loan Assets on and after the related Cut-Off Date, including, but not limited to, all Available Collections, but excluding any related Attached Equity;

 

(ii)           the Portfolio Assets with respect to the Loan Assets referred to in clause (i);

 

(iii)          all the Seller’s rights under the First Tier Purchase and Sale Agreement; and

 

(iv)          all income and Proceeds of the foregoing.

 

“Schedule I” means the schedule of all Sale Portfolio that is Sold by the Seller to the Purchaser on a Purchase Date, as supplemented on any subsequent Purchase Date by the “Schedule I” attached to the applicable Second Tier Loan Assignment, and incorporated herein by reference, as such schedule may be supplemented and amended from time to time pursuant to the terms hereof, which schedule shall, together with all supplements and amendments thereto, be included in and made part of the Loan Asset Schedule attached to the Loan and Servicing Agreement.

 

“Second Tier Loan Assignment” means a Second Tier Loan Assignment executed by the Seller, substantially in the form of Exhibit A attached hereto.

 

“Seller Purchase Event” means the occurrence of a breach of the Seller’s representations and warranties under Section 4.2.

 

“Seller Termination Event” has the meaning specified in Section 8.1(a).

 

“Substitute Eligible Loan Asset” has the meaning specified in Section 6.2(a).

 

“Substitution” has the meaning specified in Section 6.2(a).

 

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“Transfer Taxes” means any tax, fee or governmental charge payable by the Purchaser, the Seller or any other Person to any federal, state or local government arising from or otherwise related to the Sale of any Loan Asset, the related Underlying Collateral (if any) and/or any other related Portfolio Assets from the Seller to the Purchaser under this Agreement (excluding taxes measured by net income).

 

Section 1.3.            Other Terms.  All accounting terms used but not specifically defined herein shall be construed in accordance with GAAP.  All terms used in Article 9 of the UCC in the State of New York, and used but not specifically defined herein, are used herein as defined in such Article 9.

 

Section 1.4.            Computation of Time Periods.  Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to later specified date, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding”.

 

Section 1.5.            Certain References.  All references to the Outstanding Balance of a Loan Asset as of a Purchase Date shall refer to the close of business on such day.

 

ARTICLE II.

 

SALE AND PURCHASE OF THE ELIGIBLE LOAN ASSETS
 AND OTHER PORTFOLIO ASSETS

 

Section 2.1.            Sale and Purchase of the Eligible Loan Assets and the Other Portfolio Assets.

 

(a)           Subject to the terms and conditions of this Agreement, on and after the Restatement Date, the Seller hereby agrees to (i) sell, transfer and otherwise convey (collectively, “Sell” and any such sale, transfer and/or other conveyance, a “Sale”), from time to time, to the Purchaser, without recourse (except to the extent specifically provided herein), and the Purchaser hereby agrees to purchase, all right, title and interest of the Seller (whether now owned or hereafter acquired or arising, and wherever located) in and to certain Sale Portfolio designated by the Seller and (ii) transfer, or cause the deposit into, the Collection Account of all Available Collections received by the Seller on account of any Sale Portfolio hereunder on and after the Purchase Date with respect to such Sale Portfolio, in each case, within two Business Days of the receipt thereof.  The Seller hereby acknowledges that each Sale to the Purchaser hereunder is absolute and irrevocable, without reservation or retention of any interest whatsoever by the Seller.

 

(b)           The Seller shall on or prior to any Business Day prior to a Seller Termination Event (each a “Purchase Date”) execute and deliver to the Purchaser a proposed Second Tier Loan Assignment identifying the Sale Portfolio to be Sold by the Seller to the Purchaser on such Purchase Date.  From and after such Purchase Date, the Sale Portfolio listed on Schedule I to the related Second Tier Loan Assignment shall be deemed to be listed on Schedule I hereto and constitute part of the Sale Portfolio hereunder.

 

5

 

(c)           On or before any Purchase Date with respect to the Sale Portfolio to be acquired by the Purchaser on such date, the Seller shall provide the Purchaser with an Officer’s Certificate, in the form of Exhibit B hereto, signed by a duly authorized Responsible Officer certifying, as of such Purchase Date, to each of the items in Section 4.2.

 

(d)           On and after each Purchase Date hereunder and upon payment of the Purchase Price therefor, the Purchaser shall own the Sale Portfolio Sold by the Seller to the Purchaser on such Purchase Date, and the Seller shall not take any action inconsistent with such ownership and shall not claim any ownership interest in such Sale Portfolio.

 

(e)           Except as specifically provided in this Agreement, the Sale and Purchase of the Sale Portfolio under this Agreement shall be without recourse to the Seller; it being understood that the Seller shall be liable to the Purchaser for all representations, warranties, covenants and indemnities made by the Seller pursuant to the terms of this Agreement, all of which obligations are limited so as not to constitute recourse to the Seller for the credit risk of the Obligors.

 

(f)            Neither the Purchaser nor any assignee of the Purchaser (including the Secured Parties) shall have any obligation or liability to any Obligor or client of the Seller (including any obligation to perform any obligation of the Seller, including with respect to any other related agreements) in respect of the Sale Portfolio (other than with respect to funding obligations to Obligors pursuant to the terms of the applicable Loan Agreement for Revolving Loan Assets and Delayed Draw Loan Assets, as applicable).  No such obligation or liability is intended to be assumed by the Purchaser or any assignee of the Purchaser (including the Secured Parties) and any such assumption is expressly disclaimed.  Without limiting the generality of the foregoing, the Sale of the Sale Portfolio by the Seller to the Purchaser pursuant to this Agreement does not constitute and is not intended to result in a creation or assumption by the Purchaser or any assignee of the Purchaser (including the Secured Parties), of any obligation of the Seller, as lead agent, collateral agent or paying agent under any Agented Note.

 

(g)           In connection with each Purchase of Sale Portfolio hereunder, the Seller shall cause to be delivered to the Collateral Custodian (with a copy to the Agent (who will provide each Lender with a copy promptly upon receipt thereof)), no later than 2:00 p.m. one Business Day prior to the related Purchase Date, a faxed or e-mailed copy of the duly executed original promissory notes of the Loan Assets (and, in the case of any Noteless Loan Asset, a fully executed assignment agreement) and if any Loan Assets are closed in escrow, a certificate (in the form of Exhibit K to the Loan and Servicing Agreement) from the closing attorneys of such Loan Assets certifying the possession of the Required Loan Documents; provided that, notwithstanding the foregoing, the Seller shall cause the Loan Asset Checklist and the Required Loan Documents to be in the possession of the Collateral Custodian within five Business Days after the related Purchase Date.

 

(h)           In accordance with the Loan and Servicing Agreement, certain documents relating to Sale Portfolio shall be delivered to and held in trust by the Collateral Custodian for the benefit of the Purchaser and its assignees, and the Purchaser hereby instructs the Seller to cause such documents to be delivered to the Collateral Custodian.  Such delivery to the

 

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Collateral Custodian of such documents and the possession thereof by the Collateral Custodian is at the will of the Purchaser and its assignees and in a custodial capacity for their benefit only.

 

(i)            The Seller shall provide all information, and any other reasonable assistance, to the Servicer, the Collateral Custodian and the Trustee necessary for the Servicer, the Collateral Custodian and the Trustee, as applicable, to conduct the management, administration and collection of the Sale Portfolio Purchased hereunder in accordance with the terms of the Loan and Servicing Agreement.

 

(j)            In connection with each Purchase of Sale Portfolio hereunder, the Seller hereby grants to each of the Purchaser and its assigns, the Agent, the Lenders, the Trustee, the Collateral Custodian and the Servicer an irrevocable, non—exclusive license to use, without royalty or payment of any kind, all software used by the Seller to account for the Sale Portfolio, to the extent necessary to administer the Sale Portfolio, whether such software is owned by the Seller or is owned by others and used by the Seller under license agreements with respect thereto; provided that, should the consent of any licensor of such software be required for the grant of the license described herein to be effective or for the Purchaser to assign such licenses to the Servicer or any successor, the Seller hereby agrees that upon the request of the Purchaser or its assignees, the Agent, the Collateral Custodian or the Trustee, the Seller shall use its best efforts to obtain the consent of such third—party licensor.  The license granted hereby shall be irrevocable until the Collection Date and shall terminate on the date this Agreement terminates in accordance with its terms.  The Seller (i) shall take such action reasonably requested by the Purchaser or the Agent, from time to time hereafter, that may be necessary or appropriate to ensure that the Purchaser and its assigns under the Loan and Servicing Agreement have an enforceable ownership or security interest, as applicable, in the Sale Portfolio Purchased by the Purchaser as contemplated by this Agreement, and (ii) shall use its commercially reasonable efforts to ensure that each of the Purchaser (and its assignees), the Agent, the Lenders, the Trustee, the Collateral Custodian and the Servicer (or any successor) has an enforceable right (whether by license or sublicense or otherwise) to use all of the computer software used to account for the Sale Portfolio and/or to recreate the related Loan Asset Files.

 

(k)           In connection with the Purchase by the Purchaser of Sale Portfolio as contemplated by this Agreement, the Seller further agrees that it shall, at its own expense, indicate clearly and unambiguously in its computer files on or prior to each Purchase Date, and its financial statements, that such Sale Portfolio has been purchased by the Purchaser in accordance with this Agreement.

 

(l)            The Seller further agrees to deliver to the Purchaser on or before each Purchase Date a computer file containing a true, complete and correct list of all Loan Assets to be Sold hereunder on such Purchase Date, identified by Obligor’s name and Outstanding Balance as of the related Cut—Off Date.  Such file or list shall be marked as Schedule I to the applicable Second Tier Loan Assignment and shall be delivered to the Purchaser as confidential and proprietary, and is hereby incorporated into and made a part of Schedule I to this Agreement, as such Schedule I may be supplemented and amended from time to time.

 

(m)          The Seller shall, at all times, continue to fulfill its obligations under, and in strict conformance with the terms of all Loan Agreements (other than with respect to funding

 

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obligations to Obligors in connection with Revolving Loan Assets and Delayed Draw Loan Assets, as applicable) related to any Sale Portfolio purchased hereunder, including without limitation any obligations pertaining to any Retained Interest.

 

(n)           The Seller and the Purchaser each acknowledge with respect to itself that the representations and warranties of the Seller in Sections 4.1 and 4.2 hereof and of the Purchaser in Section 4.3 hereof, and the covenants of the Seller in Article V hereof, will run to and be for the benefit of the Purchaser and the Trustee (on behalf of the Secured Parties) and the Trustee (on behalf of the Secured Parties) may enforce directly (without joinder of the Purchaser when enforcing against the Seller), the obligations of the Seller or the Purchaser, as applicable, with respect to breaches of such representations, warranties and covenants as set forth in this Agreement.

 

Section 2.2.            Purchase Price.

 

The purchase price for each item of Sale Portfolio Sold to the Purchaser hereunder (the “Purchase Price”) shall be in a dollar amount equal to the fair market value of such Loan Asset as determined from time to time by the Seller and the Purchaser.  Each of the Purchaser and the Seller hereby agree that the fair market value of each Loan Asset Sold hereunder as of the related Purchase Date shall not be less than the Assigned Value thereof as of the applicable Cut-Off Date multiplied by the principal balance of such Loan Asset (exclusive of Accreted Interest).

 

Section 2.3.            Payment of Purchase Price.

 

(a)           The Purchase Price for any Sale Portfolio Sold by the Seller to the Purchaser on any Purchase Date shall be paid in a combination of:  (i) immediately available funds; and (ii) if the Purchaser does not have sufficient funds to pay the full amount of the Purchase Price (after taking into account the proceeds the Purchaser expects to receive pursuant to the Advances under the Loan and Servicing Agreement), by means of a capital contribution by the Seller to the Purchaser.

 

(b)           The portion of such Purchase Price to be paid in immediately available funds shall be paid by wire transfer on the applicable Purchase Date to an account designated by the Seller on or before such Purchase Date or by means of proper accounting entries being entered upon the accounts and records of the Seller and the Purchaser on the applicable Purchase Date.

 

(c)           In connection with each delivery of a Second Tier Loan Assignment, the Seller hereunder shall be deemed to have certified, with respect to the Sale Portfolio to be Sold by it on such day, that its representations and warranties contained in Sections 4.1 and 4.2 are true and correct in all material respects on and as of such day, with the same effect as though made on and as of such day (other than any representation or warranty that is made as of a specific date), that no Event of Default has occurred or would result therefrom and no Unmatured Event of Default exists or would result therefrom.

 

(d)           Upon the payment of the Purchase Price for any Purchase, title to the Sale Portfolio included in such Purchase shall vest in the Purchaser, whether or not the conditions

 

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precedent to such Purchase and the other covenants and agreements contained herein were in fact satisfied; provided that the Purchaser shall not be deemed to have waived any claim it may have under this Agreement for the failure by the Seller in fact to satisfy any such condition precedent, covenant or agreement.

 

Section 2.4.            Nature of the Sales.

 

(a)           It is the express intent of the parties hereto that the Sale of the Sale Portfolio by the Seller to the Purchaser hereunder be, and be treated for all purposes (other than tax and accounting purposes) as an absolute sale by the Seller (free and clear of any Lien, security interest, charge or encumbrance other than Permitted Liens) of such Sale Portfolio.  It is, further, not the intention of the parties that such Sale be deemed a pledge of the Sale Portfolio by the Seller to the Purchaser to secure a debt or other obligation of the Seller.  However, in the event that, notwithstanding the intent of the parties, the Sale Portfolio is held to continue to be property of the Seller, then the parties hereto agree that:  (i) this Agreement shall also be deemed to be a “security agreement” within the meaning of Article 9 of the UCC; (ii) the transfer of the Sale Portfolio provided for in this Agreement shall be deemed to be a grant by the Seller to the Purchaser of a first priority security interest (subject only to Permitted Liens) in all of the Seller’s right, title and interest in and to the Sale Portfolio and all amounts payable to the holders of the Sale Portfolio in accordance with the terms thereof and all proceeds of the conversion, voluntary or involuntary, of the foregoing into cash, instruments, securities or other property, including, without limitation, all amounts from time to time held or invested in the Controlled Accounts, whether in the form of cash, instruments, securities or other property, to secure the prompt and complete payment of a loan deemed to have been made in an amount equal to the aggregate Purchase Price of the Sale Portfolio together with all of the other obligations of the Seller hereunder; (iii) the possession by the Purchaser (or the Collateral Custodian on behalf of the Trustee, for the benefit of the Secured Parties) of Sale Portfolio and such other items of property as constitute instruments, money, negotiable documents or chattel paper shall be, subject to clause (iv), for purposes of perfecting the security interest pursuant to the UCC; and (iv) acknowledgements from Persons holding such property shall be deemed acknowledgements from custodians, bailees or agents (as applicable) of the Purchaser for the purpose of perfecting such security interest under Applicable Law.  The parties further agree in such event that any assignment of the interest of the Purchaser pursuant to any provision hereof shall also be deemed to be an assignment of any security interest created pursuant to the terms of this Agreement.  The Purchaser shall, to the extent consistent with this Agreement and the other Transaction Documents, take such actions as may be necessary to ensure that, if this Agreement were deemed to create a security interest in the Sale Portfolio, such security interest would be deemed to be a perfected security interest of first priority (subject only to Permitted Liens) under Applicable Law and will be maintained as such throughout the term of this Agreement.  The Purchaser shall have, in addition to the rights and remedies which it may have under this Agreement, all other rights and remedies provided to a secured creditor under the UCC and other Applicable Law, which rights and remedies shall be cumulative.

 

(b)           It is the intention of each of the parties hereto that the Sale Portfolio Sold by the Seller to the Purchaser pursuant to this Agreement shall constitute assets owned by the Purchaser and shall not be part of the Seller’s estate in the event of the filing of a bankruptcy petition by or against the Seller under any bankruptcy or similar law.

 

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ARTICLE III.

 

CONDITIONS OF SALE AND PURCHASE

 

Section 3.1.            Conditions Precedent to Effectiveness.  This Agreement shall be effective upon the satisfaction of the conditions precedent that the Purchaser shall have received on or before the Restatement Date, in form and substance satisfactory to the Purchaser, all of the following:

 

(i)            a copy of this Agreement duly executed by each of the parties hereto;

 

(ii)           a certificate of the Secretary or Assistant Secretary of the Seller, dated the Restatement Date, certifying (A) the names and true signatures of the incumbent officers of the Seller authorized to sign on behalf of the Seller this Agreement, the Second Tier Loan Assignments and all other documents to be executed by the Seller hereunder or in connection herewith (on which certificate the Purchaser and its assignees may conclusively rely until such time as the Purchaser and such assignees shall receive from the Seller, a revised certificate meeting the requirements of this Section 3.1(ii)), (B) that the copy of the certificate of formation of the Seller attached thereto is a complete and correct copy and that such certificate of formation has not been amended, modified or supplemented and is in full force and effect, (C) that the copy of the amended and restated limited liability company agreement of the Seller attached thereto is a complete and correct copy, and that such amended and restated limited liability company agreement has not been amended, modified or supplemented and is in full force and effect, and (D) the resolutions of the board of directors of the Seller attached thereto approving and authorizing the execution, delivery and performance by the Seller of this Agreement, the Second Tier Loan Assignments and all other documents to be executed by the Seller hereunder or in connection herewith;

 

(iii)          a good standing certificate, dated as of a recent date for the Seller, issued by the Secretary of State of the Seller’s State of formation;

 

(iv)          filed, original copies of proper financing statements (the “Facility Financing Statements”) describing the Sale Portfolio, and naming the Seller as the “Debtor/Seller” and the Purchaser as “Secured Party/Buyer”, or other similar instruments or documents, in form and substance sufficient for filing under the UCC or any comparable law of any and all jurisdictions as may be necessary to perfect the Purchaser’s ownership interest in all Sale Portfolio;

 

(v)           copies of properly authorized termination statements or statements of release (on Form UCC-3) or other similar instruments or documents, if any, in form and substance sufficient for filing under the UCC or any comparable law of any and all jurisdictions as may be necessary to release all security interests and similar rights of any Person in the Sale Portfolio previously granted by the Seller;

 

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(vi)          copies of tax and judgment lien searches in all jurisdictions reasonably requested by the Purchaser or its assignees and requests for information (or a similar UCC search report certified by a party acceptable to the Purchaser and its assigns), dated a date reasonably near to the Restatement Date, and with respect to such requests for information or UCC searches, listing all effective financing statements which name the Seller (under its present name and any previous name) as debtor and which are filed in the State of Delaware, together with copies of such financing statements (none of which shall cover any Sale Portfolio);

 

(vii)         all instruments in connection with the transactions contemplated by this Agreement shall be satisfactory in form and substance to the Purchaser and the Agent, and the Purchaser and the Agent shall have received from the Seller copies of all documents (including, without limitation, records of corporate proceedings, approvals and opinions) relevant to the transactions herein contemplated as the Purchaser and the Agent may have reasonably requested;

 

(viii)        any necessary third party consents to the closing of the transactions contemplated hereby, in form and substance satisfactory to the Purchaser;

 

(ix)           the Seller shall have paid all fees required to be paid by it on the Restatement Date; and

 

(x)            one or more favorable Opinions of Counsel from counsel to the Seller with respect to the perfection and enforceability of the security interest hereunder and such other matters as the Purchaser or any assignee thereof may reasonably request.

 

Section 3.2.            Conditions Precedent to All Purchases.  The Purchase to take place on the initial Purchase Date and each Purchase to take place on a subsequent Purchase Date hereunder shall be subject to the further conditions precedent that:

 

(a)           The following statements shall be true:

 

(i)            The representations and warranties of the Seller contained in Sections 4.1 and 4.2 shall be true and correct on and as of such Purchase Date in all material respects, before and after giving effect to the Purchase to take place on such Purchase Date and to the application of proceeds therefrom, as though made on and as of such date (other than any representation and warranty that is made as of a specific date);

 

(ii)           The Seller is in compliance in all respects with each of its covenants and other agreements set forth herein;

 

(iii)          No Seller Termination Event (or event which, with the passage of time or the giving of notice, or both would constitute a Seller Termination Event) shall have occurred or would result from such Purchase;

 

(iv)          The Facility Maturity Date has not yet occurred; and

 

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(v)           No Applicable Law shall prohibit or enjoin, and no order, judgment or decree of any federal, state or local court or governmental body, agency or instrumentality shall prohibit or enjoin, the making of any such Purchase by the Purchaser in accordance with the provisions hereof.

 

(b)           The Purchaser shall have received a duly executed and completed Second Tier Loan Assignment along with a Schedule I that is true, accurate and complete in all respects as of the related Cut-Off Date.

 

(c)           The Seller shall have delivered to the Collateral Custodian on behalf of the Purchaser and any assignee thereof each item required to be contained in the Required Loan Documents and the Loan Asset Checklist of any of the Eligible Loan Assets or Portfolio Assets related thereto being acquired by the Purchaser within five Business Days of the related Purchase Date.

 

(d)           The Seller shall have taken all steps necessary under all Applicable Law in order to Sell to the Purchaser the Sale Portfolio being Purchased on such Purchase Date and, upon the Sale of such Sale Portfolio from the Seller to the Purchaser pursuant to the terms hereof, the Purchaser will have acquired good and marketable title to (subject to Section 10.20) and a valid and perfected ownership interest in such Sale Portfolio, free and clear of any Lien, security interest, charge or encumbrance (other than Permitted Liens); provided that if such item of Sale Portfolio contains a restriction of transferability, the applicable Loan Agreement provides that any consents necessary for future assignments shall not be unreasonably withheld by the applicable Obligor and/or agent, and the rights to enforce rights and remedies in respect of the same under the applicable Loan Agreement inure to the benefit of the holder of such Loan Asset (subject to the rights of any applicable agent or other lenders).

 

(e)           The Seller shall have received a copy of an Approval Notice executed by the Agent evidencing the approval of the Agent, in its sole and absolute discretion of the Sale to the Purchaser of the Eligible Loan Assets identified on Schedule I to the applicable Second Tier Loan Assignment on the applicable Purchase Date.

 

ARTICLE IV.

 

REPRESENTATIONS AND WARRANTIES

 

Section 4.1.            Representations and Warranties of the Seller.  The Seller makes the following representations and warranties, on which the Purchaser relies in acquiring the Sale Portfolio Purchased hereunder and each of the Secured Parties relies upon in entering into the Loan and Servicing Agreement.  As of each Purchase Date (unless a specific date is specified below), the Seller represents and warrants to the Purchaser for the benefit of the Purchaser and each of its successors and assigns that:

 

(a)           Organization and Good Standing.  The Seller has been duly organized and is validly existing as a limited liability company in good standing under the laws of the State of Delaware (subject to Section 5.1(f)), with all requisite limited liability company power and authority to own or lease its properties and to conduct its business as such business is presently

 

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conducted, and has all necessary power, authority and legal right to acquire and own the Sale Portfolio and to Sell such Sale Portfolio to the Purchaser hereunder.

 

(b)           Due Qualification.  The Seller is duly qualified to do business and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of its property or the conduct of its business requires such qualification, licenses and/or approvals.

 

(c)           Power and Authority; Due Authorization; Execution and Delivery.  The Seller (i) has all necessary power, authority and legal right to (a) execute and deliver this Agreement, each Second Tier Loan Assignment and the other Transaction Documents to which it is a party and (b) carry out the terms of this Agreement, each Second Tier Loan Assignment and the other Transaction Documents to which it is a party and (ii) has duly authorized by all necessary limited liability company action the execution, delivery and performance of this Agreement, each Second Tier Loan Assignment and the other Transaction Documents to which it is a party and the sale and assignment of an ownership interest in the Sale Portfolio on the terms and conditions herein provided.  This Agreement, each Second Tier Loan Assignment and each other Transaction Document to which the Seller is a party have been duly executed and delivered by the Seller.

 

(d)           Valid Conveyance; Binding Obligations.  This Agreement, each Second Tier Loan Assignment and the Transaction Documents to which the Seller is party have been and, in the case of each Second Tier Loan Assignment delivered after the Restatement Date, will be, duly executed and delivered by the Seller, and this Agreement, together with the applicable Second Tier Loan Assignment in each case, shall effect valid Sales of Sale Portfolio, enforceable against the Seller and creditors of and purchasers from the Seller, and this Agreement, each Second Tier Loan Assignment and such Transaction Documents shall constitute legal, valid and binding obligations of the Seller enforceable against the Seller in accordance with their respective terms, except as enforceability may be limited by Bankruptcy Laws and general principles of equity (whether such enforceability is considered in a proceeding in equity or at law).

 

(e)           No Violation.  The execution, delivery and performance of this Agreement, each Second Tier Loan Assignment and all other agreements and instruments executed and delivered or to be executed and delivered by the Seller pursuant hereto or thereto in connection with the Sale of the Sale Portfolio will not (i) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, the Seller’s certificate of formation or limited liability company agreement or any contractual obligation of the Seller, (ii) result in the creation or imposition of any Lien (other than Permitted Liens) upon any of the Seller’s properties pursuant to the terms of any such contractual obligation, other than this Agreement, or (iii) violate any Applicable Law.

 

(f)            No Proceedings.  There is no litigation, proceeding or investigation pending or, to the knowledge of the Seller, threatened against the Seller, before any Governmental Authority (i) asserting the invalidity of this Agreement, any Second Tier Loan Assignment or any other Transaction Document to which the Seller is a party, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement, any

 

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Second Tier Loan Assignment or any other Transaction Document to which the Seller is a party or (iii) seeking any determination or ruling that could reasonably be expected to have a Material Adverse Effect.

 

(g)           No Consents.  The Seller is not required to obtain the consent or approval of any other party or any consent, license, approval or authorization, or registration or declaration with, any Governmental Authority, bureau or agency in connection with the execution, delivery, performance, validity or enforceability of this Agreement or any Second Tier Loan Assignment, except those which have been obtained.

 

(h)           State of Organization, Etc.  Except as permitted hereunder, the Seller’s legal name is as set forth in this Agreement.  Except as permitted hereunder, the Seller has not changed its name since its formation; does not have tradenames, fictitious names, assumed names or “doing business as” names.  The chief executive office of the Seller (and the location of the Seller’s records regarding the Sale Portfolio (other than those delivered to the Collateral Custodian)) is at the address of the Seller set forth in Section 10.5 hereto.  The Seller’s only jurisdiction of formation is Delaware, and, except as permitted hereunder, Seller has not changed its jurisdiction of formation.

 

(i)            Bulk Sales.  The execution, delivery and performance of this Agreement and the transactions contemplated hereby do not require compliance with any “bulk sales” act or similar law by the Seller.

 

(j)            Solvency.  The Seller is not the subject of any Bankruptcy Proceedings or Bankruptcy Event.  The Seller is solvent and will not become insolvent after giving effect to the transactions contemplated by this Agreement and the other Transaction Documents.  The Seller, after giving effect to the transactions contemplated by this Agreement and the other Transaction Documents, will have an adequate amount of capital to conduct its business in the foreseeable future.

 

(k)           Selection Procedures.  No procedures believed by the Seller to be adverse to the interests of the Purchaser were utilized by the Seller in identifying and/or selecting the Eligible Loan Assets included in the Sale Portfolio.

 

(l)            Compliance with Laws.  The Seller has complied in all material respects with all Applicable Law to which it may be subject, and no Sale Portfolio contravenes any Applicable Law.

 

(m)          Taxes.  The Seller has filed or caused to be filed all tax returns that are required to be filed by it.  The Seller has paid or made adequate provisions for the payment of all taxes and all assessments and other governmental charges due and payable from the Seller except for those Taxes being contested in good faith by appropriate proceedings and in respect of which it has established proper reserves on its books. No Tax lien or similar adverse claim has been filed, and no claim is being asserted, with respect to any such Tax, assessment or other governmental charge. Any Taxes, fees and other governmental charges due and payable by the Seller, as applicable, in connection with the execution and delivery of this Agreement and the

 

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other Transaction Documents and the transactions contemplated hereby or thereby have been paid or shall have been paid if and when due.

 

(n)           Exchange Act Compliance; Regulations T, U and X.  None of the transactions contemplated herein or in the other Transaction Documents (including, without limitation, the use of the proceeds from the Sale of the Sale Portfolio) will violate or result in a violation of Section 7 of the Exchange Act, or any regulations issued pursuant thereto, including, without limitation, Regulations T, U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II.  The Seller does not own or intend to carry or purchase, and no proceeds from the Sale of the Sale Portfolio will be used to carry or purchase, any Margin Stock or to extend “purpose credit” within the meaning of Regulation U.

 

(o)           Second Tier Loan Assignments.  Each Second Tier Loan Assignment is accurate in all respects.

 

(p)           No Liens, Etc.  The Sale Portfolio to be acquired by Purchaser hereunder is owned by the Seller free and clear of any Lien, security interest, charge or encumbrance (subject only to Permitted Liens), and the Seller has the full right, limited liability company power and lawful authority to Sell the same and interests therein and, upon the Sale thereof hereunder, the Purchaser will have acquired good and marketable title to (subject to Section 10.20) and a valid and perfected ownership interest in such Sale Portfolio, free and clear of any Lien, security interest, charge or encumbrance (subject only to Permitted Liens); provided that if such item of Sale Portfolio contains a restriction of transferability, the applicable Loan Agreement provides that any consents necessary for future assignments shall not be unreasonably withheld by the applicable Obligor and/or agent, and the rights to enforce rights and remedies in respect of the same under the applicable Loan Agreement inure to the benefit of the holder of such Loan Asset (subject to the rights of any applicable agent or other lenders).  No effective financing statement reflecting the Seller or the Seller’s predecessor in interest, as a “Debtor”, or other instrument similar in effect covering all or any part of any Sale Portfolio Purchased hereunder is on file in any recording office, except such as may have been filed in favor of the Trustee as “Secured Party” or “Assignee”, in each case, for the benefit of the Secured Parties pursuant to the Loan and Servicing Agreement.

 

(q)           Information True and Correct.  All information heretofore furnished by or on behalf of the Seller to the Purchaser or any assignee thereof in connection with this Agreement or any transaction contemplated hereby is as of the date furnished, accurate, true and correct in all material respects; provided that, solely with respect to written or electronic information furnished by the Seller which was provided to the Seller from an Obligor with respect to a Loan Asset, such information need only be accurate, true and correct in all material respects to the knowledge of the Seller; provided, further, that the foregoing proviso shall not apply to any information presented in a Servicer’s Certificate, Servicing Report, Notice of Borrowing or Borrowing Base Certificate.

 

(r)            ERISA Compliance.  The present value of all vested benefits under each “employee pension benefit plan”, as such term is defined in Section 3(2) of ERISA, other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by the Seller or any ERISA Affiliate of the Seller, or to which the Seller or any ERISA Affiliate of the

 

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Seller contributes or has an obligation to contribute, or has any liability (each, a “Pension Plan”), does not exceed the value of the assets of the Pension Plan allocable to such vested benefits (based on the value of such assets as of the last annual valuation date for such Pension Plan) determined in accordance with the assumptions used for funding such Pension Plan pursuant to Sections 412 and 430 of the Code for the applicable plan year.  No prohibited transactions (within the meaning of Section 406(a) or (b) of ERISA or Section 4975 of the Code) for which an exemption is not available or has not previously been obtained from the United States Department of Labor, failure to meet the minimum funding standard set forth in Section 302(a) of ERISA and Section 412(a) of the Code with respect to any Pension Plan, withdrawal from a Pension Plan subject to Section 4063 of ERISA during a plan year in which the Seller or any ERISA Affiliate of the Seller was a “substantial employer” (as defined in Section 4001(a)(2) of ERISA), or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA, or Reportable Events have occurred with respect to any Pension Plan that, in the aggregate, could subject the Seller to any material Tax penalty or other liability.  No notice of intent to terminate a Pension Plan has been filed under Section 4041 of ERISA, nor has any Pension Plan been terminated under Section 4041 of ERISA, nor has the Pension Benefit Guaranty Corporation instituted proceedings to terminate, or appoint a trustee to administer a Pension Plan under Section 4042 of ERISA and no event has occurred or condition exists that constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan.

 

(s)           Investment Company Status.  The Seller is not required to register as an “investment company” under the provisions of the 1940 Act.

 

(t)            Intent of the Seller.  The Seller has not sold, contributed, transferred, assigned or otherwise conveyed any interest in any Sale Portfolio to the Purchaser with any intent to hinder, delay or defraud any of the Seller’s creditors.

 

(u)           Value Given.  The Seller has received reasonably equivalent value from the Purchaser in exchange for the Sale of such Sale Portfolio Sold hereunder.  No such Sale has been made for or on account of an antecedent debt owed by the Seller and no such transfer is or may be voidable or subject to avoidance under any section of the Bankruptcy Code.

 

(v)           Accounting.  Other than for tax and consolidated accounting purposes, the Seller will not account for or treat (whether in financial statements or otherwise) the transactions contemplated hereby in any manner other than as a sale of the Sale Portfolio by the Seller to the Purchaser.

 

(w)          No Broker-Dealers.  The Seller is not a broker-dealer or subject to the Securities Investor Protection Act of 1970, as amended.

 

(x)            Special Purpose Entity.  The Purchaser is an entity with assets and liabilities separate and distinct from those of the Seller and any Affiliates thereof, and the Seller hereby acknowledges that the Agent, the Lenders, the Trustee and the other Secured Parties are entering into the transactions contemplated by the Loan and Servicing Agreement in reliance upon the Purchaser’s identity as a legal entity that is separate from the Seller and from each other Affiliate of the Seller.  Therefore, from and after the date of execution and delivery of this

 

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Agreement, the Seller shall take all reasonable steps, including, without limitation, all steps that the Agent and the Trustee may from time to time reasonably request, to maintain the Purchaser’s identity as a separate legal entity and to make it manifest to third parties that the Purchaser is an entity with assets and liabilities distinct from those of the Seller and each other Affiliate thereof and not just a division of the Seller or any such other Affiliate (other than for tax purposes).  Without limiting the generality of the foregoing and in addition to the other covenants set forth herein, the Seller shall take all reasonable steps to ensure that the Purchaser has not and will not take, refrain from taking, or fail to take (as applicable) any action described in Section 9(j) of its operating agreement and Sections 5.01(a), 5.01(b), 5.02(a) and 5.02(b) of the Loan and Servicing Agreement.

 

(y)           Sale Agreement.  This Agreement and the Second Tier Loan Assignments contemplated herein are the only agreements or arrangements pursuant to which the Seller Sells the Sale Portfolio Sold by it to the Purchaser.

 

(z)            Security Interest.

 

(i)            This Agreement creates a valid and continuing security interest (as defined in the applicable UCC) in the Sale Portfolio in favor of the Purchaser, which security interest is prior to all other Liens (except for Permitted Liens), and is enforceable as such against creditors of and purchasers from the Seller;

 

(ii)           the Loan Assets, along with the related Loan Asset Files, constitute either a “general intangible,” an “instrument,” an “account,” “securities entitlement,” “tangible chattel paper”, “certificated security,” “uncertificated security,” “supporting obligation,” or “insurance” (each as defined in the applicable UCC), real property and/or such other category of collateral under the applicable UCC as to which the Seller has complied with its obligations under this Section 4.1(z).

 

(iii)          the Seller owns and has good and marketable title to the Sale Portfolio (subject to Section 10.20) Sold by it to the Purchaser hereunder on such Purchase Date, free and clear of any Lien (other than Permitted Liens) of any Person;

 

(iv)          the Seller has received all consents and approvals required by the terms of any Loan Asset, to the Sale thereof and the granting of a security interest in the Loan Assets hereunder to the Purchaser;

 

(v)           the Seller has caused the filing of all appropriate financing statements in the proper filing office in the appropriate jurisdictions under Applicable Law in order to perfect the security interest of the Purchaser in that portion of the Sale Portfolio in which a security interest may be perfected by filing granted hereunder to the Purchaser; provided that filings in respect of real property shall not be required;

 

(vi)          other than (i) as expressly permitted by the terms of this Agreement and the Loan and Servicing Agreement and (ii) the security interest granted to the Purchaser, the Seller has not pledged, assigned, sold, granted a security interest in or otherwise conveyed any of the Sale Portfolio.  The Seller has not authorized the filing of and is not aware of any financing statements against the Seller that include a description

 

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of collateral covering the Sale Portfolio other than any financing statement (A) relating to the security interest granted to the Purchaser under this Agreement, (B) relating to the closing of a Permitted Securitization contemplated by Section 2.07(c) of the Loan and Servicing Agreement or (C) that has been terminated and/or fully and validly assigned to the Trustee on or prior to the date hereof.  The Seller is not aware of the filing of any judgment or tax lien filings against the Seller;

 

(vii)         all original executed copies of each underlying promissory note or copies of each Loan Asset Register, as applicable, that constitute or evidence each Loan Asset have been, or subject to the delivery requirements contained herein, will be delivered to the Collateral Custodian;

 

(viii)        other than in the case of Noteless Loan Assets, the Seller has received, or subject to the delivery requirements herein will receive, a written acknowledgment from the Collateral Custodian that the Collateral Custodian, as the bailee of the Trustee, is holding the underlying promissory notes that constitute or evidence the Loan Assets solely on behalf of and for the Trustee, for the benefit of the Secured Parties; provided that the acknowledgement of the Collateral Custodian set forth in Section 12.11 of the Loan and Servicing Agreement may serve as such acknowledgement;

 

(ix)           none of the underlying promissory notes or Loan Asset Registers, as applicable, that constitute or evidence the Loan Assets has any marks or notations indicating that they have been pledged, assigned or otherwise conveyed to any Person other than the Trustee, on behalf of the Secured Parties;

 

(x)            with respect to any Sale Portfolio that constitutes a “certificated security”, such certificated security has been delivered to the Collateral Custodian, on behalf of the Secured Parties and, if in registered form, has been specifically Indorsed to the Trustee, for the benefit of the Secured Parties, or in blank by an effective Indorsement or has been registered in the name of the Trustee, for the benefit of the Secured Parties, upon original issue or registration or transfer by the Purchaser of such certificated security; and

 

(xi)           with respect to any Sale Portfolio that constitutes an “uncertificated security”, that the Seller shall cause the issuer of such uncertificated security to register the Trustee, on behalf of the Secured Parties, as the registered owner of such uncertificated security.

 

(aa)         Servicing Standard.  The Seller has complied in all material respects with the Servicing Standard with respect to all of the Sale Portfolio.

 

(bb)         Notice to Agents and Obligors.  The Seller has directed any agent, administrative agent or Obligor for any Loan Asset to remit all payments and collections with respect to such Loan Asset directly to the Collection Account.

 

(cc)         Collections.  The Collection Account is the only account to which Obligors have been instructed to send Interest Collections and Principal Collections on the Sale

 

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Portfolio Sold by the Seller.  The Seller acknowledges that all Interest Collections and Principal Collections received by it or its Affiliates with respect to the Sale Portfolio Purchased by the Purchaser as contemplated by this Agreement are held and shall be held in trust for the benefit of the Purchaser (or its assignees) until deposited into the Collection Account as required by the Loan and Servicing Agreement.

 

(dd)         Set—Off, Etc.  No Sale Portfolio has been compromised, adjusted, extended, satisfied, subordinated, rescinded, set—off or modified by the Seller or the Obligor thereof, and no Sale Portfolio is subject to compromise, adjustment, extension, satisfaction, subordination, rescission, set—off, counterclaim, defense, abatement, suspension, deferment, deduction, reduction, termination or modification, whether arising out of transactions concerning the Sale Portfolio or otherwise, by the Seller or the Obligor with respect thereto, except for amendments, extensions or modifications to such Sale Portfolio otherwise permitted under Section 6.04(a) of the Loan and Servicing Agreement and in accordance with the Servicing Standard.

 

(ee)         Full Payment.  As of the related Purchase Date thereof, the Seller has no knowledge of any fact which should lead it to expect that any Sale Portfolio will not be paid in full.

 

(ff)           Ownership of the Purchaser.  The Seller owns, directly or indirectly, 100% of the membership interests of the Purchaser, free and clear of any Lien (other than liens pursuant to the Pledge Agreement).  Such membership interests are validly issued, fully paid and non—assessable, and there are no options, warrants or other rights to acquire membership interests of the Purchaser.

 

(gg)         Confirmation from the Seller.  The Seller has provided written confirmation to the Purchaser that the Seller will not cause the Purchaser to file a voluntary petition under the Bankruptcy Code.

 

(hh)         Environmental.  With respect to each item of Underlying Collateral as of the Cut-Off Date for the Loan Asset related to such Underlying Collateral, to the actual knowledge of a Responsible Officer of the Seller (a) the related Obligor’s operations comply in all material respects with all applicable Environmental Laws; (b) none of the related Obligor’s operations is the subject of a Federal or state investigation evaluating whether any remedial action, involving expenditures, is needed to respond to a release of any Hazardous Materials into the environment; and (c) the related Obligor does not have any material contingent liability in connection with any release of any Hazardous Materials into the environment.  As of the Cut-Off Date for the Loan Asset related to such Underlying Collateral, the Seller has not received any written or verbal notice of, or inquiry from any Governmental Authority regarding, any violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Underlying Collateral, nor does the Seller have knowledge or reason to believe that any such notice will be received or is being threatened.

 

(ii)           USA PATRIOT Act.  Neither the Seller nor any Affiliate of the Seller is (i) a country, territory, organization, person or entity named on an Office of Foreign Asset

 

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Control (OFAC) list, (ii) a Person that resides or has a place of business in a country or territory named on such lists or which is designated as a “Non-Cooperative Jurisdiction” by the Financial Action Task Force on Money Laundering, or whose subscription funds are transferred from or through such a jurisdiction; (iii) a “Foreign Shell Bank” within the meaning of the USA PATRIOT Act, i.e., a foreign bank that does not have a physical presence in any country and that is not affiliated with a bank that has a physical presence and an acceptable level of regulation and supervision; or (iv) a person or entity that resides in or is organized under the laws of a jurisdiction designated by the United States Secretary of the Treasury under Sections 311 or 312 of the USA PATRIOT Act as warranting special measures due to money laundering concerns.

 

(jj)           Seller Termination Event.  No event has occurred which constitutes a Seller Termination Event and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both would constitute a Seller Termination Event (other than as previously disclosed to the Agent as such).

 

(kk)         Opinion.  The statements of fact in the section heading “Assumptions” in the non-consolidation and true sale opinion of Latham & Watkins LLP, dated as of the Restatement Date (together with any subsequent bringdown opinions of Latham & Watkins LLP delivered thereafter, the “Non-Consolidation/True Sale Opinion”), are true and correct in all material respects.

 

(ll)           Accuracy of Representations and Warranties.  Each representation or warranty by the Seller contained (i) herein or (ii) in any certificate or other document furnished by the Seller to the Purchaser or the Agent in writing pursuant hereto or in connection herewith is, as of its date, true and correct in all material respects.

 

(mm)       Representations and Warranties for Benefit of the Purchaser’s Assignees.  The Seller hereby makes each representation and warranty contained in this Agreement and the other Transaction Documents to which it is a party and that have been executed and delivered on or prior to such Purchase Date to, and for the benefit of the Purchaser (and its assignees), the Agent, the Lenders and the Trustee as if the same were set forth in full herein.

 

It is understood and agreed that the representations and warranties provided in this Section 4.1 shall survive (x) the Sale of the Sale Portfolio to the Purchaser and (y) the grant of a first priority perfected security interest in, to and under the Sale Portfolio pursuant to the Loan and Servicing Agreement by the Purchaser.  Upon discovery by the Seller or the Purchaser of a breach of any of the foregoing representations and warranties, the party discovering such breach shall give prompt written notice thereof to the other and to the Agent immediately upon obtaining knowledge of such breach.

 

Section 4.2.            Representations and Warranties of the Seller Relating to the Agreement and the Sale Portfolio.  The Seller makes the following representations and warranties, on which the Purchaser relies in acquiring the Sale Portfolio Purchased hereunder and each of the Secured Parties relies upon in entering into the Loan and Servicing Agreement.  As of each Purchase Date (unless a specific date is specified below), the Seller represents and warrants to the Purchaser for the benefit of the Purchaser and each of its successors and assigns that:

 

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(a)           Binding Obligation, Valid Transfer and Security Interest.  This Agreement, together with the Second Tier Loan Assignments, constitutes a valid transfer to the Purchaser of all right, title and interest in, to and under all Sale Portfolio, free and clear of any Lien of any Person claiming through or under the Seller or its Affiliates, except for Permitted Liens.  If the conveyances contemplated by this Agreement are determined to be a transfer for security, then this Agreement constitutes a grant of a security interest in all Sale Portfolio to the Purchaser which upon the delivery of the Required Loan Documents and the filing of the financing statements shall be a first priority perfected security interest in all Sale Portfolio, subject only to Permitted Liens.  Neither the Seller nor any Person claiming through or under the Seller shall have any claim to or interest in the Controlled Accounts; provided that if this Agreement constitutes only a grant of a security interest in such property, then the Seller shall have the rights in such property as a debtor for purposes of the UCC.

 

(b)           Eligibility of Loan Assets.  As of each Purchase Date, (i) Schedule I is an accurate and complete listing of all the Sale Portfolio as of the related Cut—Off Date and the information contained therein with respect to the identity of such Sale Portfolio and the amounts owing thereunder is true and correct as of the related Cut—Off Date, (ii) each item of the Sale Portfolio Purchased by the Purchaser hereunder is an Eligible Loan Asset, and (iii) with respect to each item of the Sale Portfolio all consents, licenses, approvals or authorizations of or registrations or declarations of any Governmental Authority or any Person required to be obtained, effected or given by the Seller in connection with the transfer of an ownership interest or security interest in each item of Sale Portfolio to the Purchaser have been duly obtained, effected or given and are in full force and effect.  For the avoidance of doubt, any inaccurate representation that a Loan Asset is an Eligible Loan Asset hereunder shall not constitute an Event of Default if the Seller complies with Section 6.1 of this Agreement.

 

(c)           No Fraud.  Each Eligible Loan Asset was originated without any fraud or material misrepresentation by the Seller or, to the best of the Seller’s knowledge, on the part of the Obligor.

 

It is understood and agreed that the representations and warranties provided in this Section 4.2 shall survive (x) the Sale of the Sale Portfolio to the Purchaser, (y) the grant of a first priority perfected security interest in, to and under the Sale Portfolio pursuant to the Loan and Servicing Agreement by the Purchaser and (z) the termination of this Agreement, the First Tier Purchase and Sale Agreement and the Loan and Servicing Agreement.  Upon discovery by the Seller or the Purchaser of a breach of any of the foregoing representations and warranties, the party discovering such breach shall give prompt written notice thereof to the other and to the Agent immediately upon obtaining knowledge of such breach.

 

Section 4.3.            Representations and Warranties of the Purchaser.  The Purchaser makes the following representations and warranties, on which the Seller relies in selling Sale Portfolio to the Purchaser hereunder.  Such representations are made as of the execution and delivery of this Agreement, but shall survive until the Collection Date, the Sale of Sale Portfolio hereunder, and the grant of a security interest in such Sale Portfolio by the Purchaser to the Trustee, on behalf of the Secured Parties, under the Loan and Servicing Agreement.

 

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(a)           Organization and Good Standing.  The Purchaser has been duly organized and is validly existing and in good standing as a limited liability company under the laws of the State of Delaware or such other jurisdiction as permitted under the terms of the Transaction Documents, with the power and authority to own or lease its properties and to conduct its business as such properties are currently owned and such business is currently conducted, and had at all relevant times, and has, all necessary power, authority and legal right to acquire and own the Sale Portfolio.

 

(b)           Due Qualification.  The Purchaser is duly qualified to do business as a limited liability company in good standing, and has obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of its property or the conduct of its business requires such qualification, licenses and/or approvals.

 

(c)           Power and Authority; Due Authorization; Execution and Delivery.  The Purchaser has all necessary power, authority and legal right to execute and deliver this Agreement and to carry out the terms hereof and to acquire the Sale Portfolio; and the execution, delivery and performance of this Agreement and all of the documents required pursuant hereto have been duly authorized by the Purchaser by all necessary limited liability company action.

 

(d)           No Consent Required.  The Purchaser is not required to obtain the consent of any other Person, or any consent, license, approval or authorization or registration or declaration with, any Governmental Authority, bureau or agency in connection with the execution, delivery or performance of this Agreement, each Second Tier Loan Assignment and the Transaction Documents to which it is a party, except for such as have been obtained, effected or made.

 

(e)           Binding Obligation.  This Agreement constitutes a legal, valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms, subject, as to enforceability, to applicable Bankruptcy Laws and general principles of equity.

 

(f)            No Violation.  The consummation of the transactions contemplated by this Agreement, each Second Tier Loan Assignment and the other Transaction Documents to which it is a party and the fulfillment of the terms hereof and thereof will not (i) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, the Purchaser’s certificate of formation, operating agreement or any contractual obligation of the Purchaser, (ii) result in the creation or imposition of any Lien (other than Permitted Liens) upon any of the Purchaser’s properties pursuant to the terms of any such contractual obligation, other than this Agreement, or (iii) violate any Applicable Law.

 

(g)           Value Given.  The Purchaser has given reasonably equivalent value to the Seller in exchange for the Sale of such Sale Portfolio, which amount the Purchaser hereby agrees is the fair market value of such Sale Portfolio.  No such Sale has been made for or on account of an antecedent debt owed by the Seller and no such transfer is or may be voidable or subject to avoidance under any section of the Bankruptcy Code.

 

(h)           No Proceedings.  No litigation or administrative proceeding of or before any court, tribunal or governmental body is presently pending or, to the knowledge of the

 

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Purchaser, threatened against the Purchaser or any properties of the Purchaser or with respect to this Agreement, any Second Tier Loan Assignment or any other Transaction Document to which the Purchaser is a party, which, if adversely determined, could have a material adverse effect on the ability of the Purchaser to perform its obligations under this Agreement, any Second Tier Loan Assignment or any Transaction Document to which the Purchaser is a party or any of the other applicable documents forming part of the Sale Portfolio.

 

(i)            Sale Agreement.  This Agreement and the Second Tier Loan Assignments contemplated herein are the only agreements or arrangements pursuant to which the Purchaser Purchases the Sale Portfolio Sold to it by the Seller.

 

(j)            Investment Company Act.  The Purchaser is not required to register as an “investment company” under the provisions of the 1940 Act.

 

(k)           Compliance with Law.  The Purchaser has complied in all material respects with all Applicable Law to which it may be subject, and no Sale Portfolio contravenes any Applicable Law.

 

(l)            Opinions.  The statements of fact in the section heading “Assumptions” in the Non-Consolidation/True Sale Opinion are true and correct in all material respects.

 

ARTICLE V.

 

COVENANTS OF THE SELLER

 

Section 5.1.            Protection of Title of the Purchaser.

 

(a)           On or prior to the Restatement Date, the Seller shall have filed or caused to be filed UCC-1 financing statements, naming the Seller as “Debtor/Seller”, naming the Purchaser as “Secured Party/Buyer”, and naming the Trustee, for the benefit of the Secured Parties, as “Total Assignee”, and describing the Sale Portfolio to be acquired by the Purchaser, with the office of the Secretary of State of the state of the jurisdiction of organization of the Seller.  From time to time thereafter, the Seller shall file such financing statements and cause to be filed such continuation statements, all in such manner and in such places as may be required by law (or deemed desirable by the Purchaser or any assignee thereof) to fully perfect, preserve, maintain and protect the ownership interest of the Purchaser under this Agreement and the security interest of the Trustee for the benefit of the Secured Parties under the Loan and Servicing Agreement, in the Sale Portfolio acquired by the Purchaser hereunder, as the case may be, and in the proceeds thereof.  The Seller shall deliver (or cause to be delivered) to the Purchaser, the Trustee, the Collateral Custodian, the Servicer and the Agent (who will provide each Lender with a copy promptly upon receipt thereof) file-stamped copies of, or filing receipts for, any document filed as provided above, as soon as available following such filing.  The Seller agrees that it will from time to time, at its expense, take all actions, that the Purchaser, the Trustee or the Agent may reasonably request in order to perfect, protect or more fully evidence the Purchases hereunder and the security and/or interest granted in the Sale Portfolio, or to enable the Purchaser, the Trustee, the Agent or the Secured Parties to exercise and enforce their rights and remedies hereunder or under any Transaction Document.

 

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(b)           On or prior to each Purchase Date hereunder, the Seller shall take all steps necessary under all Applicable Law in order to Sell to the Purchaser the Sale Portfolio being acquired by the Purchaser on such Purchase Date to the Purchaser so that, upon the Sale of such Sale Portfolio from the Seller to the Purchaser pursuant to the terms hereof on such Purchase Date, the Purchaser will have acquired good and marketable title to (subject to Section 10.20) and a valid and perfected ownership interest in such Sale Portfolio, free and clear of any Lien, security interest, charge or encumbrance or restrictions on transferability (subject only to Permitted Liens).  On or prior to each Purchase Date hereunder, the Seller shall take all steps required under Applicable Law in order for the Purchaser to grant to the Trustee, for the benefit of the Secured Parties, a first priority perfected security interest (subject only to Permitted Liens) in the Sale Portfolio being Purchased by the Purchaser on such Purchase Date and, from time to time thereafter, the Seller shall take all such actions as may be required by Applicable Law to fully preserve, maintain and protect the Purchaser’s ownership interest in, and the Trustee’s first priority perfected security interest in (subject only to Permitted Liens), the Sale Portfolio which have been acquired by the Purchaser hereunder.

 

(c)           The Seller shall direct any agent or administrative agent for any Sale Portfolio originated or acquired by the Seller to remit all payments and collections with respect to such Sale Portfolio and direct the Obligor with respect to such Sale Portfolio to remit all such payments and collections directly to the Collection Account.  The Seller will not make any change, or permit the Servicer to make any change, in its instructions to Obligors regarding payments to be made to the Seller or the Servicer or payments to be made to the Collection Account, unless the Purchaser and the Agent have consented to such change.  The Seller shall direct or cause only funds constituting payments and collections relating to the Sale Portfolio to be deposited into the Collection Account.  In the event any payments relating to any Sale Portfolio are remitted directly to the Seller or any Affiliate of the Seller, the Seller will remit (or will cause all such payments to be remitted) directly to the Collection Account within two Business Days following receipt thereof, and, at all times prior to such remittance, the Seller will itself hold or, if applicable, will cause such payments to be held in trust for the exclusive benefit of the Purchaser and its assignees.  Until so deposited, all such Interest Collections and Principal Collections shall be held in trust for the Purchaser or its assignees by the Seller.

 

(d)           At any time after the occurrence or declaration of the Facility Maturity Date, the Purchaser, the Trustee or the Agent may direct the Seller or the Servicer to notify the Obligors, at Seller’s expense, of the Purchaser’s (or its assigns) or the Secured Parties’ interest in the Sale Portfolio under this Agreement and may direct that payments of all amounts due or that become due under any or all of the Sale Portfolio be made directly to the Purchaser (or its assigns), the Trustee or the Agent.

 

(e)           The Seller shall, not earlier than six months and not later than three months prior to the fifth anniversary of the date of filing of the financing statement referred to in Section 3.1 or any other financing statement filed pursuant to this Agreement or in connection with any Purchase hereunder, unless the Collection Date shall have occurred:

 

(i)            file or cause to be filed an appropriate continuation statement with respect to such financing statement and the Purchaser hereby authorizes the Seller to file such continuation statements; and

 

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(ii)           deliver or cause to be delivered to the Purchaser, the Trustee and the Agent an opinion of the counsel for Seller, in form and substance reasonably satisfactory to the Purchaser, the Trustee and the Agent, confirming and updating the opinion delivered pursuant to Section 3.1 with respect to perfection and otherwise to the effect that the security interest hereunder continues to be an enforceable and perfected security interest, subject to no other Liens of record except as specified therein, provided herein or otherwise permitted hereunder, which opinion may contain usual and customary assumptions, limitations and exceptions.

 

(f)            The Seller shall not (x) change its name, move the location of its principal place of business and chief executive office, change the offices where it keeps records concerning the Sale Portfolio from the address set forth under its name in Section 10.5 hereto, or change the jurisdiction of its formation, or (y) subject to Section 2.16 of the Loan and Servicing Agreement move, or consent to the Collateral Custodian moving, the Required Loan Documents and Loan Asset Files from the location required under the Transaction Documents, unless the Seller has given at least 30 days’ (or such shorter notice period as consented to by the Agent) written notice to the Purchaser and the Agent (who will provide each Lender with a copy promptly upon receipt thereof) and has taken all actions required under the UCC of each relevant jurisdiction in order to continue the first priority perfected security interest of the Purchaser in the Sale Portfolio, together with such Opinions of Counsel and other documents and instruments as the Agent may request in connection therewith.

 

(g)           The Seller shall at all times maintain each office from which it services Sale Portfolio and its principal executive office within the United States of America.

 

(h)           The Seller shall mark its master data processing records so that, from and after the time of Sale under this Agreement of Sale Portfolio to the Purchaser and the grant of a security interest in such Sale Portfolio by the Purchaser to the Trustee for the benefit of the Secured Parties under the Loan and Servicing Agreement, the Seller’s master data processing records (including archives) that refer to such Sale Portfolio shall indicate clearly that such Sale Portfolio has been Purchased by the Purchaser hereunder and Pledged by the Purchaser to the Trustee, on behalf of the Secured Parties, under the Loan and Servicing Agreement.  Indication of the Trustee’s security interest for the benefit of the Secured Parties in the Sale Portfolio shall be deleted from or modified on the Seller’s computer systems when, and only when, such Sale Portfolio shall be (i) paid off by the related Obligor, (ii) purchased or substituted by the Seller in accordance with Section 6.1 or 6.2 hereof or (iii) released by the Trustee pursuant to Section 2.16 of the Loan and Servicing Agreement.

 

(i)            If the Seller fails to perform any of its obligations hereunder, the Purchaser, the Trustee or the Agent may (but shall not be required to) perform, or cause performance of, such obligation; and the Purchaser’s, the Trustee’s or the Agent’s costs and expenses incurred in connection therewith shall be payable by the Seller as provided in Section 9.1.  The Seller irrevocably authorizes the Purchaser, the Trustee or the Agent at any time and from time to time at the Purchaser’s, the Trustee’s or the Agent’s sole discretion and appoints the Purchaser, the Trustee and the Agent as its attorney—in—fact pursuant to a Power of Attorney substantially in the form of Exhibit C to act on behalf of the Seller (i) to file financing statements on behalf of the Seller, as debtor, necessary or desirable in the Purchaser’s, the 

 

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Trustee’s or the Agent’s sole discretion to perfect and to maintain the perfection and priority of the interest of the Purchaser or the Trustee in the Sale Portfolio and (ii) to file a carbon, photographic or other reproduction of this Agreement or any financing statement with respect to the Sale Portfolio as a financing statement in such offices as the Purchaser, the Trustee or the Agent in their sole discretion deem necessary or desirable to perfect and to maintain the perfection and priority of the interests of the Purchaser or the Trustee in the Sale Portfolio.  This appointment is coupled with an interest and is irrevocable.

 

Section 5.2.            Affirmative Covenants of the Seller.

 

From the date hereof until the Collection Date:

 

(a)           Compliance with Law.  The Seller will comply in all material respects with all Applicable Law, including those applicable to the Seller as a result of its interest in the Sale Portfolio or any part thereof.

 

(b)           Preservation of Company Existence.  The Seller will preserve and maintain its limited liability company existence, rights, franchises and privileges in the jurisdiction of its formation, and qualify and remain qualified in good standing as a limited liability company in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification could reasonably be expected to have a Material Adverse Effect.

 

(c)           Performance and Compliance with Sale Portfolio.  The Seller will, at its expense, timely and fully perform and comply in all material respects with all provisions, covenants and other promises required to be observed by it under the Sale Portfolio and all other agreements related to such Sale Portfolio.

 

(d)           Keeping of Records and Books of Account.  The Seller will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing the Sale Portfolio in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all or any portion of the Sale Portfolio.

 

(e)           Separate Identity.  The Seller acknowledges that the Agent, the Trustee, the Lenders and the other Secured Parties are entering into the transactions contemplated by this Agreement, the Loan and Servicing Agreement and the other Transaction Documents in reliance upon the Purchaser’s identity as a legal entity that is separate from the Seller and each other Affiliate of the Seller.  Therefore, from and after the date of execution and delivery of this Agreement, the Seller will take all reasonable steps including, without limitation, all steps that the Agent and the Trustee may from time to time reasonably request to maintain the Purchaser’s identity as a legal entity that is separate from the Seller and each other Affiliate of the Seller and to make it manifest to third parties that the Purchaser is an entity with assets and liabilities distinct from those of the Seller and each other Affiliate thereof (other than for tax purposes) and not just a division of the Seller or any such other Affiliate.  Without limiting the generality of the foregoing and in addition to the other covenants set forth herein, the Seller agrees that:

 

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(i)            the Seller will take all other actions necessary on its part to ensure that the Purchaser is at all times in compliance with the criteria and the restrictions set forth in Section 9(j) of the limited liability company operating agreement of the Purchaser and Sections 5.01(a), 5.01(b), 5.02(a) and 5.02(b) of the Loan and Servicing Agreement;

 

(ii)           the Seller shall maintain corporate records and books of account separate from those of the Purchaser;

 

(iii)          the annual financial statements of the Seller shall disclose the effects of the Seller’s transactions in accordance with GAAP and the annual financial statements of the Seller shall not reflect in any way that the assets of the Purchaser, including, without limitation, the Sale Portfolio, could be available to pay creditors of the Seller or any other Affiliate of the Seller;

 

(iv)          the resolutions, agreements and other instruments underlying the transactions described in this Agreement shall be continuously maintained by the Seller as official records;

 

(v)           the Seller shall maintain an arm’s—length relationship with the Purchaser and will not hold itself out as being liable for the debts of the Purchaser;

 

(vi)          the Seller shall keep its assets and its liabilities wholly separate from those of the Purchaser; and

 

(vii)         the Seller will avoid the appearance, and promptly correct any known misperception of any of the Seller’s creditors, that the assets of the Purchaser are available to pay the obligations and debts of the Seller.

 

(f)            Servicing Standard.  The Seller will comply in all material respects with the Servicing Standard in regard to the Sale Portfolio.

 

(g)           Taxes.  The Seller will file or cause to be filed its tax returns and pay any and all Taxes imposed on it or its property as required by the Transaction Documents (except as contemplated in Section 4.1(m)).

 

(h)           Cooperation with Requests for Information or Documents.  The Seller will cooperate fully with all reasonable requests of the Purchaser and its assigns regarding the provision of any information or documents, necessary or desirable, including the provision of such information or documents in electronic or machine—readable format, to allow each of the Purchaser and its assignees to carry out their responsibilities under the Transaction Documents.

 

(i)            Payment, Performance and Discharge of Obligations.  The Seller will pay, perform and discharge all of its obligations and liabilities, including, without limitation, all taxes, assessments and governmental charges upon its income and properties, when due, unless and only to the extent that such obligations, liabilities, taxes, assessments and governmental charges shall be contested in good faith and by appropriate proceedings and that, to the extent required by GAAP, proper and adequate book reserves relating thereto are established by the Seller and 

 

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then only to the extent that a bond is filed in cases where the filing of a bond is necessary to avoid the creation of a Lien against any of its properties.

 

(j)            Notices.  The Seller will furnish to the Purchaser, the Trustee and the Agent (who will provide each Lender with a copy promptly upon receipt thereof):

 

(i)            Income Tax Liability.  Telephonic or facsimile notice within 10 Business Days (confirmed in writing within five Business Days thereafter) of the receipt of revenue agent reports or other written proposals, determinations or assessments of the Internal Revenue Service or any other taxing authority which propose, determine or otherwise set forth positive adjustments (i) to the Tax liability of Ares or any “affiliated group” (within the meaning of Section 1504(a)(l) of the Code) of which Ares is a member in an amount equal to or greater than $50,000,000 in the aggregate, or (ii) to the Tax liability of the Purchaser in an amount equal to or greater than $1,000,000 in the aggregate.  Any such notice shall specify the nature of the items giving rise to such adjustments and the amounts thereof;

 

(ii)           Auditors’ Management Letters.  Promptly after the receipt thereof, any auditors’ management letters that are received by the Seller or by its accountants;

 

(iii)          Representations and Covenants.  The Seller shall promptly, upon receipt of notice or discovery thereof, notify the Purchaser, the Trustee and the Agent (i) if any representation or warranty set forth in Section 4.1 or Section 4.2 was incorrect at the time it was given or deemed to have been given or (ii) of the breach of any covenant under Section 5.1, Section 5.2 or Section 5.3 and at the same time deliver to the Purchaser, the Trustee and the Agent a written notice setting forth in reasonable detail the nature of such facts and circumstances.  In particular, but without limiting the foregoing, the Seller shall notify the Purchaser, the Trustee and the Agent in the manner set forth in the preceding sentence before any Purchase Date of any facts or circumstances within the knowledge of the Seller which would render any of the said representations and warranties untrue at the date when such representations and warranties were made or deemed to have been made;

 

(iv)          ERISA.  Promptly after receiving notice of the occurrence of any Reportable Event with respect to any Pension Plan and promptly provide the Agent with a copy of such notice;

 

(v)           Proceedings.  As soon as possible and in any event within three Business Days, after the Seller receives notice or obtains knowledge thereof, the Seller will provide the Purchaser and the Agent with notice of any settlement of, judgment (including a judgment with respect to the liability phase of a bifurcated trial) in or commencement of any labor controversy, litigation, action, suit or proceeding before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, that could reasonably be expected to have a Material Adverse Effect on the Sale Portfolio, the Transaction Documents, the Trustee’s interest in the Sale Portfolio, for the benefit of the Secured Parties, or the Purchaser, the Servicer, the Seller or the Transferor or any of their Affiliates.  For purposes of this Section 5.2(j), (i) any 

 

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settlement, judgment, labor controversy, litigation, action, suit or proceeding affecting the Sale Portfolio, the Transaction Documents, the Trustee’s interest in the Sale Portfolio, for the benefit of the Secured Parties, or the Purchaser or the Seller in excess of $1,000,000 shall be deemed to be expected to have such a Material Adverse Effect and (ii) any settlement, judgment, labor controversy, litigation, action, suit or proceeding affecting the Servicer or the Transferor or any of their Affiliates (other than the Purchaser or the Seller) in excess of $50,000,000 shall be deemed to be expected to have such a Material Adverse Effect;

 

(vi)          Material Events.  Promptly upon becoming aware thereof, of any event or other circumstance that is reasonably likely to have a Material Adverse Effect;

 

(vii)         Events of Default.  The Seller will provide the Purchaser, the Agent and the Trustee with prompt written notice of the occurrence of each Event of Default (and in any event within one Business Day) and each Unmatured Event of Default (and in any event within two Business Days) of which the Seller has knowledge or has received notice (other than notice received from the Agent).  In addition, no later than two Business Days following the Seller’s knowledge or notice of the occurrence of any Event of Default or Unmatured Event of Default, the Seller will provide to the Purchaser, the Trustee and the Agent a written statement of a Responsible Officer of the Seller setting forth the details of such event and the action that the Seller proposes to take with respect thereto; and

 

(viii)        Seller Termination Event and Seller Purchase Event.  The Seller will provide the Purchaser, the Agent and the Trustee with prompt (and in any event within one Business Day) written notice of the occurrence of each Seller Termination Event and each Seller Purchase Event of which the Seller has knowledge or has received notice (other than notice received from the Agent).

 

(k)           Other.  The Seller will furnish to the Purchaser, the Trustee and the Agent promptly, from time to time such other information, documents, records or reports respecting the Sale Portfolio or the condition or operations, financial or otherwise, of the Seller as the Purchaser, the Trustee and the Agent may from time to time reasonably request in order to protect the interests of the Purchaser, the Agent, the Trustee, the Lenders or the Secured Parties under or as contemplated by this Agreement and the other Transaction Documents. The Agent will provide each Lender with a copy of any such other information, documents, records or reports promptly upon receipt thereof.

 

(l)            Costs and Expenses.  The Seller shall pay all reasonable, documented costs and disbursements in connection with the performance of its obligations hereunder.

 

(m)          Annual Certificates.  On each anniversary of the Restatement Date, the Seller shall deliver an Officer’s Certificate, in form and substance acceptable to the Purchaser and the Agent, providing (i) a certification, based upon a review and summary of UCC search results reasonably satisfactory to the Purchaser and the Agent, that there is no other interest in the Sale Portfolio perfected by filing of a UCC financing statement other than in favor of the Purchaser and the Trustee pursuant to the terms of the Transaction Documents and (ii) a 

 

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certification, based upon a review and summary of tax and judgment lien searches satisfactory to the Purchaser and the Agent, that there is no other interest in the Sale Portfolio based on any tax or judgment lien.  The Agent will provide each Lender with a copy of any such Officer’s Certificate promptly upon receipt thereof.

 

(n)           Opinion.  The Seller will comply in all material respects with any requirements for future action set forth in the section heading “Assumptions” in the Non-Consolidation/True Sale Opinion, with respect to the Transaction Documents.

 

Section 5.3.            Negative Covenants of the Seller.

 

From the date hereof until the Collection Date:

 

(a)           Other Business.  Seller will not (i) engage in any business other than the transactions contemplated by the Transaction Documents, (ii) incur any Indebtedness, obligation, liability or contingent obligation of any kind other than pursuant to the Transaction Documents, or (iii) form any Subsidiary or make any investments in any other Person (other than the Purchaser and the Sale Portfolio).

 

(b)           Sale Portfolio Not to be Evidenced by Instruments.  The Seller will take no action to cause any Sale Portfolio that is not, as of the related Purchase Date, as the case may be, evidenced by an instrument, to be so evidenced except in connection with the enforcement or collection of such Sale Portfolio.

 

(c)           Security Interests.  Except as otherwise permitted herein and in the Loan and Servicing Agreement, the Seller will not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist any Lien on any Sale Portfolio Sold by the Seller to the Purchaser hereunder, whether now existing or hereafter transferred hereunder, or any interest, therein, and the Seller will not sell, pledge, assign or suffer to exist any Lien (except for Permitted Liens) on its interest in the Sale Portfolio Sold by the Seller to the Purchaser hereunder.  The Seller will promptly notify the Purchaser, the Trustee and the Agent (who will provide each Lender with notice promptly upon receipt thereof) of the existence of any Lien on any Sale Portfolio and the Seller shall defend the right, title and interest of the Purchaser and the Trustee, on behalf of the Secured Parties, in, to and under the Sale Portfolio against all claims of third parties; provided that nothing in this Section 5.3(c) shall prevent or be deemed to prohibit the Seller from suffering to exist Permitted Liens upon any of the Sale Portfolio.

 

(d)           Mergers, Acquisitions, Sales, Etc.  The Seller shall not change its organizational structure, enter into any transaction of merger or consolidation or amalgamation, or asset sale (other than pursuant to Section 2.07 of the Loan and Servicing Agreement), or liquidate, wind up or dissolve itself (or suffer any liquidation, winding up or dissolution) without the prior written consent of the Agent.

 

(e)           Transfer of Purchaser Membership Interests. The Seller shall not transfer, pledge, participate or otherwise encumber its membership interests in the Purchaser without the prior written consent of the Agent and the delivery of an acceptable (in the Agent’s reasonable discretion) non-consolidation opinion (except pursuant to the terms of the Pledge Agreement).

 

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(f)            Restricted Junior Payments.  The Seller shall not cause or permit the Purchaser to make any Purchaser Restricted Junior Payment, except that, so long as no Event of Default has occurred or Unmatured Event of Default is continuing or would result therefrom, the Purchaser may declare and make distributions to its member on its membership interests.

 

(g)           Accounting of Purchases.  Other than for tax and consolidated accounting purposes, the Seller will not account for or treat (whether in financial statements or otherwise) the transactions contemplated hereby in any manner other than as a sale of the Loan Assets to the Purchaser.

 

(h)           ERISA.  The Seller will not (a) engage, and will exercise its best efforts not to permit any ERISA Affiliate of the Seller to engage, in any prohibited transaction (within the meaning of Sections 406(a) or (b) of ERISA or Section 4975 of the Code) for which an exemption is not available or has not previously been obtained from the United States Department of Labor, (b) fail to meet the minimum funding standard set forth in Section 302(a) of ERISA and Section 412(a) of the Code with respect to any Pension Plan, (c) fail to make any payments to a Multiemployer Plan that the Seller or any ERISA Affiliate of the Seller may be required to make under the agreement relating to such Multiemployer Plan or any law pertaining thereto, (d) terminate any Pension Plan so as to result, directly or indirectly in any liability to the Seller, or (e) permit to exist any occurrence of any Reportable Event with respect to any Pension Plan.

 

(i)            Extension or Amendment of Sale Portfolio.  The Seller will not, except as otherwise permitted in Section 6.04(a) of the Loan and Servicing Agreement, extend, amend or otherwise modify, or permit the Servicer to extend, amend or otherwise modify, the terms of any Sale Portfolio.

 

(j)            [Reserved].

 

(k)           Limitation on Financing Activities.  The Seller shall not, directly or indirectly, advance or contribute to the Purchaser any funds pursuant to any financial accommodation.  For the avoidance of doubt, this clause (j) shall not prohibit the Seller from contributing Loan Assets to the Purchaser as contemplated herein.

 

(l)            Organizational Documents.  The Seller will not cause or permit the Purchaser to amend, modify, waive or terminate any provision of the Purchaser’s operating agreement without the prior written consent of the Agent.

 

(m)          Tax Treatment.  The Seller shall not elect to be treated as a corporation for U.S. federal income tax purposes and shall take all reasonable steps necessary to avoid being treated as a corporation for U. S. federal income tax purposes.

 

(n)           Deposits to Special Accounts.  The Seller will not deposit or otherwise credit, or cause to be so deposited or credited, to the Collection Account cash or cash proceeds other than Principal Collections and Interest Collections in respect of the Sale Portfolio.

 

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(o)           Changes in Payment Instructions to Obligors.  The Seller will not make any change, or permit the Purchaser to make any change, in its instructions to Obligors regarding payments to be made with respect to the Sale Portfolio to the Collection Account.

 

ARTICLE VI.

 

REPURCHASES AND SUBSTITUTION BY THE SELLER

 

Section 6.1.            Repurchase of Loan Assets.  In the event of the occurrence of a Seller Purchase Event, the Seller will within 10 Business Days of the discovery by or notice (from any Person) to the Seller of the Seller Purchase Event, (i) purchase each Loan Asset hereunder which is affected by or related to such Seller Purchase Event from the Purchaser, and the Seller shall pay to the Purchaser (by means of a deposit to the Collection Account, provided that the excess if any of the Repurchase Price of such Loan Asset over the amount equal to the Assigned Value of such Loan Asset on the applicable Cut-Off Date multiplied by the principal balance of such Loan Asset (exclusive of Accreted Interest) as of the date of repurchase shall be paid to the Purchaser or as otherwise directed by the Purchaser) the Repurchase Price of such Loan Asset as of the date of the purchase thereof from the Purchaser or (ii) subject to the satisfaction of the conditions in Section 6.2, substitute for such Loan Asset, a Substitute Eligible Loan Asset.  It is understood and agreed that the obligation of the Seller to purchase the Loan Assets or substitute a Substitute Eligible Loan Asset for the Loan Assets which are affected by or related to such Seller Purchase Event is not intended to, and shall not, constitute a guaranty of the collectability or payment of any Loan Asset which is not collected, not paid or uncollectible on account of the insolvency, bankruptcy or financial inability to pay of the related Obligor.  Upon deposit in the Collection Account of the Repurchase Price for any Loan Asset purchased by the Seller, the Purchaser shall (and shall request the Trustee to), at the sole expense of the Seller, take such steps as may be reasonably requested by the Seller in order to Sell to the Seller all of the Purchaser’s and the Trustee’s right, title and interest in and to such Loan Asset, without recourse, representation or warranty of any kind, except as to the absence of Liens, charges or encumbrances created by or arising solely as a result of actions of the Purchaser or the Trustee.  Such Sale shall be a sale outright, and not for security.

 

Section 6.2.            Substitution of Loan Assets.

 

(a)           The Seller shall have the right, but not the obligation, subject to the prior written consent of the Agent and the Purchaser, in their sole discretion, to substitute one or more Eligible Loan Assets (“Substitute Eligible Loan Asset”) for a Loan Asset (each such act, a “Substitution”).

 

(b)           The Substitution shall not occur unless the following conditions are satisfied as of the date of such Substitution:

 

(i)            the Seller has recommended to the Purchaser and the Agent (with a copy to the Trustee and the Collateral Custodian) in writing that the Loan Asset to be replaced should be replaced (each, a “Replaced Loan Asset”);

 

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(ii)           no event has occurred, or would result from such Substitution, which constitutes an Event of Default and no event has occurred and is continuing, or would result from such Substitution, which constitutes an Unmatured Event of Default or a Borrowing Base Deficiency; provided that the Seller may effect a Substitution as necessary to facilitate a cure of a Borrowing Base Deficiency (and any Unmatured Event of Default arising therefrom) so long as the Agent shall approve of such sale and immediately after giving effect to such Substitution and any other sale or transfer substantially contemporaneous therewith, such Borrowing Base Deficiency shall be cured or closer to being cured;

 

(iii)          each Substitute Eligible Loan Asset is an Eligible Loan Asset on the date of Substitution;

 

(iv)          solely in the case of Substitutions pursuant to this Section 6.2 undertaken because a Seller Purchase Event has occurred, the sum of the Outstanding Balances of such Substitute Eligible Loan Assets shall be equal or greater than the sum of the Assigned Value of the Replaced Loan Assets on the applicable Cut-Off Date multiplied by the principal balance thereof (exclusive of Accreted Interest);

 

(v)           all representations and warranties contained in Sections 4.1 and 4.2 shall be true and correct in all material respects as of the date of Substitution (other than any representation and warranty that is made as of a specific date);

 

(vi)          no selection procedures adverse to the interests of the Purchaser, the Agent, the Lenders or the other Secured Parties were utilized by the Seller in the selection of the Loan Asset to be replaced by the Substitute Eligible Loan Asset;

 

(vii)         the Outstanding Balance of all Loan Assets subject to clauses (ii), (iv) or (vi) of the definition of “Value Adjustment Event” which were dividended from the Purchaser to the Seller in accordance with Section 2.07(d) of the Loan and Servicing Agreement or substituted pursuant to this Section 6.2, in each case during the 12-month period immediately preceding the proposed date of such Substitution does not exceed 10% of the highest aggregate Outstanding Balance of any month during such 12-month period (or such lesser number of months as shall have elapsed as of such date);

 

(viii)        the Outstanding Balance of all Loan Assets (other than Warranty Loan Assets), sold pursuant to Section 2.07(b) of the Loan and Servicing Agreement, sold without the consent of the Agent in accordance with Section 2.07(c) of the Loan and Servicing Agreement (in each case, other than Loan Assets subject to clauses (ii), (iv) or (vi) of the definition of “Value Adjustment Event”), substituted pursuant to this Section 6.2 or dividended from the Purchaser to the Seller in accordance with Section 2.07(d) of the Loan and Servicing Agreement during the 12-month period immediately preceding the proposed date of Substitution does not exceed 20% of the highest aggregate Outstanding Balance of any month during such 12-month period (or such lesser number of months as shall have elapsed as of such date);

 

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(ix)           each Loan Asset that is replaced pursuant to the terms of this Section 6.2 shall be substituted only with another Eligible Loan Asset that meets the foregoing conditions; and

 

(x)            all terms, provisions, representations, warranties and covenants hereunder with respect to Loan Assets that have been Sold by the Seller to the Purchaser hereunder shall apply equally to Substitute Eligible Loan Assets.

 

Section 6.3.            Repurchase Limitations.  Except as otherwise expressly permitted under the Loan and Servicing Agreement, the Seller and the Purchaser agree that the Seller and any Affiliate of the Seller may repurchase any Sale Portfolio only from the Purchaser in the case of a repurchase or Substitution of any Sale Portfolio pursuant to Sections 6.1 or 6.2.

 

ARTICLE VII.

 

ADDITIONAL RIGHTS AND OBLIGATIONS IN
 RESPECT OF THE SALE PORTFOLIO

 

Section 7.1.            Rights of the Purchaser.

 

(a)           After the occurrence or declaration of the Facility Maturity Date, the Seller hereby authorizes the Purchaser, the Servicer, the Trustee, the Agent, and/or their respective designees or assignees to take any and all steps in Seller’s name and on behalf of the Seller that the Purchaser, the Servicer, the Trustee, the Agent and/or their respective designees or assignees determine are reasonably necessary or appropriate to collect all amounts due under any and all Sale Portfolio and to enforce or protect the Purchaser’s, the Trustee’s, the Agent’s and the Lenders’ rights under this Agreement, including endorsing the name of the Seller on checks and other instruments representing Interest Collections and Principal Collections and enforcing such Sale Portfolio.

 

(b)           Except as set forth in Sections 6.1 and 6.2 with respect to the repurchase or Substitution of certain Loan Assets, the Purchaser shall have no obligation to account for, replace, substitute or return any Sale Portfolio to the Seller.  The Purchaser shall have no obligation to account for or to return Interest Collections or Principal Collections, or any interest or other finance charge collected pursuant thereto, to the Seller, irrespective of whether such Interest Collections and Principal Collections and charges are in excess of the Purchase Price for such Sale Portfolio.

 

(c)           The Purchaser shall have the right to further assign, transfer, deliver, hypothecate, subdivide or otherwise deal with the Sale Portfolio and all of the Purchaser’s right, title and interest in, to and under this Agreement, pursuant to the Second Tier Purchase and Sale Agreement or the Loan and Servicing Agreement.

 

(d)           The Purchaser shall have the sole right to retain any gains or profits created by buying, selling or holding the Sale Portfolio and shall have the sole risk of and responsibility for losses or damages created by such buying, selling or holding.

 

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Section 7.2.            Notice to Trustee and Agent.

 

The Seller agrees that, concurrently with its delivery to the Purchaser, copies of all notices, reports, documents and other information required to be delivered by the Seller to the Purchaser hereunder shall be delivered by the Seller to the Trustee and the Agent (who will provide each Lender with a copy promptly upon receipt thereof).

 

ARTICLE VIII.

 

SELLER TERMINATION EVENTS

 

Section 8.1.            Seller Termination Events.

 

(a)           If any of the following events (each a “Seller Termination Event”) shall have occurred:

 

(i)            the Seller shall fail to pay (A) any amount due pursuant to Section 6.1 in accordance with the provisions thereof and such failure shall continue unremedied for a period of five Business Days from the earlier of (1) the date any Responsible Officer of the Seller obtains knowledge of such failure and (2) the date the Seller receives notice of such failure from the Purchaser, the Servicer, the Trustee or the Agent or (B) any other amount required to be paid by the Seller hereunder within two Business Days of the date when due; or

 

(ii)           the Seller shall fail to observe or perform in any material respect any covenant or agreement applicable to it contained herein (other than as specified in paragraph (i) of this Section 8.1); provided that no such failure shall constitute a Seller Termination Event under this paragraph (ii) unless such failure shall continue unremedied for a period of 30 days (if such failure can be remedied) after the earlier to occur of (i) the date on which written notice of such failure requiring the same to be remedied shall have been given to the Seller by the Agent, the Servicer, the Trustee or the Purchaser and (ii) the date on which the Seller acquires knowledge thereof; or

 

(iii)          any representation, warranty or certification made by the Seller in this Agreement or in any statement, record, certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect when made, which has a Material Adverse Effect on the Purchaser and continues to be unremedied for a period of 30 days after the earlier to occur of (i) the date on which written notice of such incorrectness requiring the same to be remedied shall have been given to the Seller by the Agent, the Servicer, the Trustee or the Purchaser and (ii) the date on which a Responsible Officer of the Seller acquires knowledge thereof; provided that a Seller Termination Event shall not be deemed to have occurred under this paragraph (iii) based upon a Seller Purchase Event if the Seller shall have complied with the provisions of Section 6.1 in respect thereof; or

 

(iv)          (A) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Seller in an involuntary case under the Bankruptcy Code or any other Bankruptcy Laws, which decree or order is not stayed or any other similar relief shall be granted under any applicable federal or state law now or hereafter

 

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in effect and shall not be stayed; (B) (1) any involuntary case is commenced against the Seller under any Bankruptcy Law now or hereafter in effect, a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Seller, or over all or a substantial part of the property of the Seller, shall have been entered, an interim receiver, trustee or other custodian of the Seller for all or a substantial part of the property of the Seller is involuntarily appointed, a warrant of attachment, execution or similar process is issued against any substantial part of the property of the Seller, and (2) any event referred to in clause (B)(1) above continues for 60 days unless dismissed, bonded or disclosed; (C) the Seller shall at its request have a decree or an order for relief entered with respect to it or commence a voluntary case under any Bankruptcy Law now or hereafter in effect, or shall consent to the entry of a decree or an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such Bankruptcy Law, consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; (D) the making by the Seller of any general assignment for the benefit of creditors; (E) the inability or failure of the Seller generally to pay its debts as such debts become due; or (F) the board of directors of the Seller authorizes action to approve any of the foregoing; or

 

(v)           the occurrence of (A) an Event of Default set forth in Section 7.01 of the Loan and Servicing Agreement or (B) the Facility Maturity Date; or

 

(vi)          a notice of Lien shall have been filed by the Pension Benefit Guaranty Corporation against the Seller under Section 430(k) of the Code or Section 303(k) of ERISA for a failure to make a required installment or other payment to a plan to which Section 430(k) of the Code or Section 303(k) of ERISA applies unless there shall have been delivered to the Agent proof of release of such Lien; or

 

(vii)         any Lien in an amount equal to or greater than $1,000,000 has been asserted against or imposed on, any real or personal property of the Seller pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9607(1), or any equivalent or comparable state law, relating to or arising from the costs of, response to, or investigation, remediation or monitoring of, any environmental contamination resulting from the current or past operations of the Seller; or

 

(viii)        a Federal tax notice of Lien, in an amount equal to or greater than $1,000,000, shall have been filed against the Seller unless there shall have been delivered to the Agent proof of release of such Lien;

 

then, (A) in the case of any Seller Termination Event described in paragraph (iv), (v)(A), (vi), (vii) or (viii) above, the obligation of the Purchaser to Purchase Sale Portfolio from the Seller shall thereupon automatically terminate without further notice of any kind, which is hereby waived by the Seller, (B) in the case of any Seller Termination Event described in paragraph (v)(B) above, the obligation of the Purchaser to Purchase Sale Portfolio from the Seller shall thereupon terminate without notice of any kind, which is hereby waived by the Seller unless both the Purchaser and the Seller agree in writing that such event shall not trigger an Early

 

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Termination (as hereinafter defined) hereunder, and (C) in the case of any other Seller Termination Event, so long as such Seller Termination Event shall be continuing, the Purchaser or the Agent may terminate its obligation to Purchase Sale Portfolio from the Seller by written notice to the Seller (any termination pursuant to clause (A), (B) or (C) of this Article VIII is herein called an “Early Termination”); provided that, in the event of any involuntary petition or proceeding as described in paragraphs (iv)(A) and (iv)(B) above, the Purchaser shall not Purchase Sale Portfolio from the Seller unless such involuntary petition or proceeding is dismissed, bonded or discharged within 60 days of the filing of such petition or the commencement of such proceeding.

 

Section 8.2.            Remedies.

 

(a)           If a Seller Termination Event has occurred, the Purchaser (and its assignees) shall have, in addition to all other rights and remedies under this Agreement or otherwise all of the rights and remedies provided to a secured creditor under the UCC of each applicable jurisdiction and other Applicable Law in respect thereto, which rights shall be cumulative.

 

(b)           The Seller agrees that, upon the occurrence of a Seller Termination Event under Section 8.1(a)(iv) or Section 8.1(a)(v)(A) the Purchaser, the Trustee or the Agent shall have the right to:

 

(i)            require the Seller to, and the Seller hereby agrees that it will at the Seller’s expense and upon request of the Purchaser, the Trustee or the Agent forthwith, assemble all or any part of the Sale Portfolio as directed by the Purchaser, the Trustee or the Agent and make the same available at a place to be designated by the Purchaser, the Trustee or the Agent; and

 

(ii)           without notice except as specified below, sell the Sale Portfolio or any part thereof in one or more parcels at a public or private sale, at any of the Trustee’s, the Purchaser’s or the Agent’s offices or elsewhere, for cash, or credit or for future delivery, and upon such other terms as the Purchaser, the Trustee or the Agent may deem commercially reasonable.  The Seller agrees that, to the extent notice of sale shall be required by law, at least ten days’ notice to the Seller of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification.  The Purchaser, the Trustee or the Agent shall not be obligated to make any sale of Sale Portfolio regardless of notice of sale having been given.  The Purchaser, the Trustee or the Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

 

Section 8.3.            Survival of Certain Provisions.

 

Notwithstanding any provision contained herein to the contrary, the Seller’s and the Purchaser’s representations, covenants and obligations set forth in Articles IV, V, VI, and VII, as applicable, create and constitute the continuing obligation of the parties hereto in accordance with its terms, and shall remain in full force and effect until the Collection Date;

 

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provided that the rights and remedies with respect to any breach of any representation and warranty made or deemed made by the Seller pursuant to Articles III and IV and the provisions of Sections 6.1 and 6.2, the rights and obligations under Article VII, the indemnification provisions of Article IX and the provisions of Sections 5.1, 10.2, 10.8, 10.9, 10.10, 10.12, 10.13, 10.14 and 10.17 shall be continuing and shall survive any termination of this Agreement.  For the avoidance of doubt, in the event that a Seller Termination Event has occurred but has been waived unconditionally and in its entirety in accordance with the terms hereof, such Seller Termination Event shall be deemed to have not “occurred” and references to “after the occurrence of a Seller Termination Event” shall be inapplicable for all purposes in this Agreement or any of the Transaction Documents, except to the extent otherwise provided for in the relevant waiver; provided that any waiver which by its terms becomes effective upon certain conditions precedent being met will not be considered a conditional waiver solely due to the existence of such conditions precedent if all such conditions precedent to effectiveness have been satisfied.

 

ARTICLE IX.

 

INDEMNIFICATION

 

Section 9.1.            Indemnification by the Seller.

 

(a)           Without limiting any other rights which the Purchaser, any assignee of the Purchaser or any such Persons’ respective shareholders, officers, employees, agents, or Affiliates (each an “Indemnified Party”) may have hereunder or under Applicable Law, the Seller hereby agrees to indemnify any Indemnified Party from and against any and all costs, expenses, losses, damages, claims, and liabilities, including attorneys’ fees and disbursements (all of the foregoing, being collectively referred to as, “Indemnified Amounts”), awarded against or incurred by such Indemnified Party or other non-monetary damages of any such Indemnified Party or any of them arising out of or as a result of this Agreement excluding, however, (a) any such amounts resulting solely from any gross negligence, bad faith or willful misconduct on the part of the applicable Indemnified Party or (b) Loan Assets that are uncollectible due to the Obligor’s financial inability to pay.  Without limiting the foregoing, the Seller shall indemnify each Indemnified Party for Indemnified Amounts relating to or resulting from any of the following (to the extent not resulting from the conditions set forth in (a) or (b) above):

 

(i)            any Person’s use, ownership or operation of any Underlying Collateral to the extent that such use, ownership or operation took place prior to the Purchase Date with respect to the related Sale Portfolio;

 

(ii)           any action taken by the Seller, other than in accordance with this Agreement, in respect of any portion of the Sale Portfolio, which results in any claim, suit or action of any kind pertaining to the Sale Portfolio or which reduces or impairs the rights of the Purchaser (or any assignee thereof) with respect to any Loan Asset or the value of any such Loan Asset;

 

(iii)          any taxes (other than taxes based upon the net or gross income of an Indemnified Party and taxes that would constitute Excluded Amounts) that may at any

 

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time be asserted against any Indemnified Party with respect to the transactions contemplated in this Agreement, including, without limitation, any sales, gross receipts, general corporation, tangible or intangible personal property, privilege, stamp or license taxes and costs and expenses in defending against the same, arising by reason of the acts to be performed by the Seller under this Agreement and imposed against such Indemnified Party.  Without limiting the foregoing, in the event that the Purchaser, the Trustee, the Collateral Custodian, the Bank, the Servicer, any Lender or the Agent receives actual notice of any Transfer Taxes arising out of the Sale of any Sale Portfolio from the Seller to the Purchaser under this Agreement, on written demand by such party, or upon the Seller otherwise being given notice thereof, the Seller shall pay, and otherwise indemnify and hold the Purchaser, the Trustee, the Collateral Custodian, the Bank, the Servicer, each Lender and the Agent harmless, on an after-tax basis, from and against any and all such Transfer Taxes (it being understood that the Purchaser, the Trustee, the Collateral Custodian, the Bank, the Servicer, each Lender and the Agent shall have no contractual obligation to pay such Transfer Taxes);

 

(iv)          the failure by the Seller to pay when due any Taxes due by the Seller for which the Seller is liable, including without limitation, sales, excise or personal property taxes payable in connection with the Sale Portfolio;

 

(v)           the negligence, willful misconduct or bad faith of the Seller in the performance of its duties under this Agreement or by reason of reckless disregard of the Seller’s obligations and duties under this Agreement;

 

(vi)          any failure of the Seller to perform its duties or obligations in accordance with the provisions of this Agreement or any of the other Transaction Documents to which it is a party or any failure by the Seller or any Affiliate thereof to perform its respective duties under any Sale Portfolio;

 

(vii)         the failure of any Sale Portfolio to comply with all requirements of Applicable Law as of its Purchase Date;

 

(viii)        the failure by the Seller to comply with all requirements of Section 6.1 hereof;

 

(ix)           the failure by the Seller to comply with any term, provision or covenant contained in this Agreement or any agreement executed in connection with this Agreement, any Transaction Document or with any Applicable Law;

 

(x)            any representation or warranty made or deemed made by the Seller, or any of its officers, under or in connection with this Agreement or any other Transaction Document, which shall have been false, incorrect or misleading in any material respect when made or deemed made or delivered;

 

(xi)           the failure to vest and maintain vested in the Purchaser an undivided ownership interest in the Sale Portfolio, together with all Interest Collections and Principal Collections, free and clear of any Lien (other than Permitted Liens) whether existing at the time of any Purchase or at any time thereafter;

 

39

 

(xii)          the failure to file, or any delay in filing, financing statements, continuation statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other Applicable Law with respect to any Sale Portfolio, whether at the time of any Purchase or at any subsequent time;

 

(xiii)         any dispute, claim, offset or defense (other than the discharge in bankruptcy of the Obligor) of the Obligor to the payment with respect to any Sale Portfolio (including, without limitation, a defense based on the Sale Portfolio not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms);

 

(xiv)        any inability to obtain any judgment in, or utilize the court or other adjudication system of, any state in which an Obligor may be located as a result of the failure of the Seller to qualify to do business or file any notice or business activity report or any similar report;

 

(xv)         any action taken by the Seller in the enforcement or collection of any Sale Portfolio;

 

(xvi)        any claim, suit or action of any kind arising out of or in connection with Environmental Laws including any vicarious liability;

 

(xvii)       the commingling of Interest Collections and Principal Collections on the Sale Portfolio at any time with other funds of the Seller;

 

(xviii)      any investigation, litigation or proceeding related to this Agreement or the use of proceeds by the Seller or the security interest in the Sale Portfolio granted hereunder;

 

(xix)         any failure by the Purchaser to give reasonably equivalent value to the Seller in consideration for the transfer by the Seller to the Purchaser of any item of the Sale Portfolio or any attempt by any Person to void or otherwise avoid any such transfer under any statutory provision or common law or equitable action, including, without limitation, any provision of the Bankruptcy Code; or

 

(xx)          the failure of the Seller or any of its agents or representatives to remit to the Purchaser Interest Collections and Principal Collections on the Sale Portfolio remitted to the Seller or any such agent or representative as provided in this Agreement.

 

(b)           Any amounts subject to the indemnification provisions of this Section 9.1 shall be paid by the Seller to the Indemnified Party within five Business Days following such Person’s demand therefor.

 

(c)           If for any reason the indemnification provided above in this Section 9.1 is unavailable to the Indemnified Party or is insufficient to hold an Indemnified Party harmless, then the Seller shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by such Indemnified Party on the one hand and the Seller, as

 

40

 

the case may be, on the other hand but also the relative fault of such Indemnified Party as well as any other relevant equitable considerations.

 

(d)           Indemnification under this Section 9.1 shall be in an amount necessary to make the Indemnified Party whole after taking into account any tax consequences to the Indemnified Party of the receipt of the indemnity provided hereunder, including the effect of such tax or refund on the amount of tax measured by net income or profits that is or was payable by the Indemnified Party.

 

(e)           If the Seller has made any payments in respect of Indemnified Amounts to an Indemnified Party pursuant to this Section 9. 1 and such Indemnified Party thereafter collects any of such amounts from others, such Indemnified Party will promptly repay such amounts collected to the Seller in an amount equal to the amount it has collected from others in respect of such Indemnified Amounts, without interest.

 

(f)            The obligations of the Seller under this Section 9.1 shall survive the termination of this Agreement.

 

Section 9.2.            Assignment of Indemnities.

 

The Seller acknowledges that, pursuant to the Loan and Servicing Agreement, the Purchaser shall assign its rights of indemnity hereunder to the Trustee, on behalf of the Secured Parties.  Upon such assignment, (a) the Trustee, on behalf of the Secured Parties, shall have all rights of the Purchaser hereunder and may in turn assign such rights, and (b) the obligations of the Seller under this Section 9.2 shall inure to the Trustee, on behalf of the Secured Parties.  The Seller agrees that, upon such assignment, the Trustee, on behalf of the Secured Parties, may enforce directly, without joinder of the Purchaser, the indemnities set forth in this Article IX.

 

ARTICLE X.

 

MISCELLANEOUS

 

Section 10.1.          Liability of the Seller.  The Seller shall be liable in accordance herewith only to the extent of the obligations in this Agreement specifically undertaken by the Seller and with respect to its representations and warranties expressly set forth hereunder.

 

Section 10.2.          Limitation on Liability.  Except with respect to any claim arising solely out of the willful misconduct or gross negligence of a Lender, the Trustee, the Agent or any other Secured Party, no claim may be made by the Seller or any other Person against any Lender, the Trustee, the Agent or any other Secured Party or their respective Affiliates, directors, officers, employees, attorneys or agents for any special, indirect, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement, or any act, omission or event occurring in connection therewith; and the Seller hereby waives, releases and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.

 

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Section 10.3.          Amendments; Limited Agency.  Except as provided in this Section 10.3, no amendment, waiver or other modification of any provision of this Agreement shall be effective unless signed by the Purchaser and the Seller and consented to in writing by the Agent and the Trustee.  The Purchaser shall provide not less than ten Business Days’ prior written notice of any such amendment to the Agent (who will provide each Lender with a copy promptly upon receipt thereof) and the Trustee.

 

Section 10.4.          Waivers; Cumulative Remedies.  No failure or delay on the part of the Purchaser (or any assignee thereof) or the Seller, in exercising any power, right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other or future exercise thereof or the exercise of any other power, right or remedy.  The powers, rights and remedies herein provided are cumulative and not exhaustive of any powers, rights and remedies provided by law.  Any waiver of this Agreement shall be effective only in the specific instance and for the specific purpose for which it is given.

 

Section 10.5.          Notices.  All demands, notices and other communications hereunder shall, unless otherwise stated herein, be in writing (which shall include facsimile communication and communication by e-mail in portable document format (.pdf)) and faxed, e-mailed or delivered, to each party hereto, at its address set forth under its name below or at such other address as shall be designated by such party in a written notice to the other parties hereto:

 

If to the Purchaser:

 

Ares Capital CP Funding LLC
 2000 Avenue of the Stars, 12th Floor
 Los Angeles, California 90067
 Attention:  Chief Accounting Officer
 Facsimile No.:  (310) 201-4197
 Confirmation No.:  (310) 201-4205

 

and

 

Ares Capital CP Funding LLC
 245 Park Avenue, 44th Floor 
 New York, New York 10167
 Attention:  General Counsel and Chief Financial Officer
 Facsimile No.:  (212) 750-1777
 Confirmation No.:  (212) 750-7300

 

If to the Seller:

 

Ares Capital CP Funding Holdings LLC
 2000 Avenue of the Stars, 12th Floor
 Los Angeles, California 90067
 Attention:  Chief Accounting Officer

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Facsimile No.:  (310) 201-4197
 Confirmation No.:  (310) 201-4205

 

and

 

Ares Capital CP Funding Holdings LLC
 245 Park Avenue, 44th Floor 
 New York, New York 10167
 Attention:  General Counsel and Chief Financial Officer
 Facsimile No.:  (212) 750-1777
 Confirmation No.:  (212) 750-7300

 

Notices and communications by facsimile and e-mail shall be effective when sent, and notices and communications sent by other means shall be effective when received.

 

Section 10.6.          Merger and Integration.  Except as specifically stated otherwise herein, this Agreement, the Loan and Servicing Agreement and the other Transaction Documents set forth the entire understanding of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded by this Agreement, the Loan and Servicing Agreement and the Transaction Documents.  This Agreement may not be modified, amended, waived or supplemented except as provided herein.

 

Section 10.7.          Severability of Provisions.  If any one or more of the covenants, provisions or terms of this Agreement shall be for any reason whatsoever held invalid, then such covenants, provisions or terms shall be deemed severable from the remaining covenants, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement.

 

Section 10.8.          GOVERNING LAW; JURY WAIVER.  THIS AGREEMENT SHALL, IN ACCORDANCE WITH SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.  EACH OF THE PARTIES HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING DIRECTLY OR INDIRECTLY OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREUNDER.

 

Section 10.9.          Consent to Jurisdiction; Service of Process.

 

(a)           Each party hereto hereby irrevocably submits to the non-exclusive jurisdiction of any New York State or Federal court sitting in New York City in any action or proceeding arising out of or relating to this Agreement, and each party hereto hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by law, in such Federal court.  The parties hereto hereby irrevocably waive, to the fullest extent they may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding.  The parties hereto agree

 

43

 

that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

 

(b)           Each of the Seller and the Purchaser agrees that service of process may be effected by mailing a copy thereof by registered or certified mail, postage prepaid, to the Seller or the Purchaser, as applicable, at its address specified in Section 10.5.  Nothing in this Section 10.9 shall affect the right of the Seller or the Purchaser to serve legal process in any other manner permitted by law.

 

Section 10.10.        Costs, Expenses and Taxes.

 

(a)           In addition to the rights of indemnification granted to the Purchaser and its Affiliates and officers, directors, employees and agents thereof under Section 9.1 hereof, the Seller agrees to pay on demand all reasonable, invoiced out-of-pocket costs and expenses of the Purchaser or its assignees incurred in connection with the preparation, execution, delivery, enforcement, administration (including periodic auditing), renewal, amendment or modification of, or any waiver or consent issued in connection with, this Agreement and the other documents to be delivered hereunder or in connection herewith, including, without limitation, the reasonable fees and out—of—pocket expenses of counsel with respect thereto and with respect to advising the Purchaser or its assignees as to its rights and remedies under this Agreement and the other documents to be delivered hereunder or in connection herewith, and all invoiced out-of-pocket costs and expenses, if any (including reasonable counsel fees and expenses), incurred by the Purchaser or its assignees in connection with the enforcement of this Agreement and the other documents to be delivered hereunder or in connection herewith.

 

(b)           The Seller shall pay on demand any and all stamp, sales, excise and other similar Taxes (“Other Taxes”) and fees payable or determined to be payable to any Governmental Authority in connection with the execution, delivery, filing and recording of this Agreement and the other documents to be delivered hereunder.

 

(c)           The Seller shall pay on demand all other reasonable, invoiced out-of-pocket costs, expenses and other Taxes (other than Excluded Taxes or Indemnified Taxes) incurred by the Purchaser or its assignees in connection with the execution, delivery, filing and recording of this Agreement and the other documents to be delivered hereunder, including, without limitation, all costs and expenses incurred by the Purchaser or its assignees in connection with periodic audits of the Seller’s books and records.

 

(d)           For the avoidance of doubt, costs and expenses to be paid pursuant to this Section 10.10 shall exclude all allocable overhead costs and expenses.

 

Section 10.11.        Counterparts.  For the purpose of facilitating the execution of this Agreement and for other purposes, this Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, and all of which counterparts shall constitute but one and the same instrument.  Delivery of an executed counterpart of a signature page to this Agreement by facsimile or e-mail in portable document format (.pdf) shall be effective as delivery of a manually executed counterpart of this Agreement.

 

44

 

Section 10.12.        Bankruptcy Non-Petition and Limited Recourse; Claims.  The Seller hereby agrees that it will not institute against, or join any other Person in instituting against, the Purchaser any Bankruptcy Proceeding so long as there shall not have elapsed one year (or such longer preference period as shall then be in effect) and one day since the Collection Date.  The Seller hereby acknowledges that (i) the Purchaser has no assets other than the Sale Portfolio, (ii) the Purchaser shall, immediately upon Purchase hereunder, grant a security interest in the Sale Portfolio to the Trustee, on behalf of the Secured Parties, pursuant to the Loan and Servicing Agreement, and (iii) Available Collections generated by the Sale Portfolio will be applied to payment of the Purchaser’s obligations under the Loan and Servicing Agreement.  In addition, the Seller shall have no recourse for any amounts payable or any other obligations arising under this Agreement against any officer, member, director, employee, partner, Affiliate or security holder of the Purchaser or any of its successors or assigns.

 

The provisions of this Section 10.12 are a material inducement for the Purchaser to enter into this Agreement and the transactions contemplated hereby and for the Agent and the Secured Parties to enter into the Loan and Servicing Agreement and the transactions contemplated thereby and are an essential term hereof.  The Purchaser (or its assignees) may seek and obtain specific performance of such provisions (including injunctive relief), including, without limitation, in any bankruptcy, reorganization, arrangement, winding-up, insolvency, moratorium or liquidation proceedings, or other proceedings under United States federal or state bankruptcy laws or any similar laws.

 

Section 10.13.        Binding Effect; Assignability.

 

(a)           This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.

 

(b)           Notwithstanding anything to the contrary contained herein, this Agreement may not be assigned by the Purchaser or the Seller except as permitted by this Section 10.13, the First Tier Purchase and Sale Agreement or the Loan and Servicing Agreement.  The Seller hereby assigns all of its right, title and interest in the First Tier Purchase and Sale Agreement to the Purchaser.  Simultaneously with the execution and delivery of this Agreement, the Purchaser will assign all of its right, title and interest in this Agreement to the Trustee, for the benefit of the Secured Parties, to which assignment the Seller hereby expressly consents.  Upon assignment, the Seller agrees to perform its obligations hereunder for the benefit of the Trustee, for the benefit of the Secured Parties, under the Loan and Servicing Agreement and the Trustee, in such capacity, shall be a third party beneficiary hereof.  The Trustee, for the benefit of the Secured Parties, under the Loan and Servicing Agreement upon such assignment may enforce the provisions of this Agreement, exercise the rights of the Purchaser and enforce the obligations of the Seller hereunder without joinder of the Purchaser.

 

Section 10.14.        Waiver of Setoff.

 

(a)           The Seller’s obligations under this Agreement shall not be affected by any right of setoff, counterclaim, recoupment, defense or other right the Seller might have against the Purchaser, the Agent, the Lenders, the Trustee, the other Secured Parties or any assignee of such Persons, all of which rights are hereby waived by the Seller.

 

45

 

(b)           The Purchaser shall have the right to set—off against the Seller any amounts to which the Seller may be entitled hereunder and to apply such amounts to any claims the Purchaser may have against the Seller from time to time under this Agreement.  Upon any such set—off, the Purchaser shall give notice of the amount thereof and the reasons therefor to the Seller.

 

Section 10.15.        Headings and Exhibits.  The headings herein are for purposes of references only and shall not otherwise affect the meaning or interpretation of any provision hereof.  The schedules and exhibits attached hereto and referred to herein shall constitute a part of this Agreement and are incorporated into this Agreement for all purposes.

 

Section 10.16.        Rights of Inspection.  The Purchaser and its representatives and assigns may conduct at any reasonable time, with reasonable notice, and from time to time, and the Seller will fully cooperate with, a reasonable number of field examinations and audits of the Loan Assets and the business affairs of the Seller with respect thereto each calendar year.  Each such inspection shall be at the sole expense of the Seller; provided that, at the Seller’s expense, (i) prior to the occurrence of a Seller Termination Event, the Purchaser and the Agent shall be entitled to two (2) such audits in the aggregate during each calendar year and, (ii) after the occurrence of a Seller Termination Event, the Purchaser and the Agent shall be entitled to such number of audits per annum and at such times as it shall require in its reasonable discretion.  The Purchaser and its representatives and successors and assigns acknowledge that in exercising the rights and privileges conferred in this Section 10.16, it or its representatives or assigns may, from time to time, obtain knowledge of information, practices, books, correspondence and records of a confidential nature and in which the Seller has a proprietary interest.  The Purchaser and its representatives and successors and assigns agree that (i) they shall retain in strict confidence and shall use their best efforts to ensure that their representatives retain in strict confidence and will not disclose without the prior written consent of the Seller any or all of such information, practices, books, correspondence and records furnished to them and (ii) that they will not, and will use their best efforts to ensure that their representatives and assigns will not, make any use whatsoever (other than for the purposes contemplated by this Agreement) of any of such information, practices, books, correspondence and records without the prior written consent of the Seller, unless such information is generally available to the public or is required by law to be disclosed.

 

Section 10.17.        Subordination.  After giving effect to any payment relating to any indebtedness, obligation or claim the Seller may from time to time hold or otherwise have against the Purchaser or any assets or properties of the Purchaser, whether arising hereunder or otherwise existing, the Borrowing Base at such time must exceed the Obligations owed by the Purchaser to the Secured Parties under the Loan and Servicing Agreement.  The Seller hereby agrees that at any time during which the condition set forth in the preceding sentence shall not be satisfied, the Seller shall be subordinate in right of payment to the prior payment of any indebtedness or obligation of the Purchaser owing to the Lenders, the Trustee, the Collateral Custodian, the Agent or any other Secured Party under the Loan and Servicing Agreement.

 

Section 10.18.        Breaches of Representations, Warranties and Covenants.  For the avoidance of doubt, no breach or default of any representation, warranty or covenant contained in Sections 4.1, 4.2, 4.3, 5.1, 5.2 or 5.3 that does not constitute an “Unmatured Event of Default”

 

46

 

under the Loan and Servicing Agreement, “Event of Default” under the Loan and Servicing Agreement or Seller Termination Event under this Agreement shall be deemed to be a breach or default hereunder; provided that the foregoing shall not affect the definition of “Seller Purchase Event”, Sections 2.1(n), 2.3(c), 3.2(a), 4.1(ll), 4.1(mm), 5.2(j)(iii), 6.2(b), 8.3, 9.1 and the schedules and exhibits hereto.

 

Section 10.19.        Confidentiality.  Each of the parties hereto hereby agrees with the confidentiality provisions set forth in Sections 11.13 and 11.14 of the Loan and Servicing Agreement.

 

Section 10.20.        Assignments of Loan Assets.

 

(a)           Notwithstanding anything to the contrary herein, solely for administrative convenience and solely in the case of Third Party Acquired Loan Assets, (i) for purposes of clause (a)(i) of the definition of “Required Loan Documents” in the Loan and Servicing Agreement, the chain of endorsements required therein by the third party to the Transferor, the Transferor to the Seller and the Seller to the Purchaser may be satisfied by a direct endorsement from the applicable third party to the Purchaser or (ii) delivery of the transfer documents or instruments required by clause (a)(ii) of the definition of “Required Loan Documents” may be satisfied by delivery of transfer documents or instruments evidencing the assignment of such Loan Asset by the applicable third party directly to the Purchaser (and by the Purchaser either to the Trustee or in blank).

 

(b)           Nothing in this Section 10.20 shall limit any requirement that all Loan Assets treated as or represented to be Eligible Loan Assets hereunder or in any Transaction Document be purchased by the Purchaser from the Seller pursuant to this Agreement and by the Seller from the Transferor pursuant to the First Tier Purchase and Sale Agreement (as evidenced by the Assignments applicable to each Purchase and Sale Agreement) or any representations or warranties with respect to Loan Assets so purchased or the liabilities or recourse of the Seller or Purchaser, as applicable, pertaining to such sales.

 

[Signature pages to follow.]

 

47

 

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective officers as of the day and year first above written.

 

	
 
    	
ARES CAPITAL CP FUNDING LLC,
    
	
 
    	
as the Purchaser
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    

 

 

	
 
    	
ARES CAPITAL CP FUNDING HOLDINGS LLC, as the Seller
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    

 

 

SCHEDULE I

 

SALE PORTFOLIO LIST

 

(See Attached)

 

 

EXHIBIT A

 

FORM OF SECOND TIER LOAN ASSIGNMENT

 

SECOND TIER LOAN ASSIGNMENT NO.       , dated as of                             , from Ares Capital CP Funding Holdings LLC (the “Seller”) to Ares Capital CP Funding LLC (the “Purchaser”).

 

(A)          We refer to the Second Tier Purchase and Sale Agreement, dated as of January 22, 2010 (such agreement as amended, modified, supplemented or restated from time to time, the “Agreement”), by and between the Seller and the Purchaser.

 

(B)           Defined Terms.  All capitalized terms used herein shall have the meanings ascribed to them in the Agreement unless otherwise defined herein.

 

“Cut—Off Date” shall mean, with respect to the Loan Assets designated hereby,                           ,           .

 

(C)           Designation of Loan Assets.  Seller delivers herewith a computer file or microfiche list containing a true and complete list of the Loan Assets Sold and assigned hereunder, identified by account number, Obligor and Outstanding Balance as of the Cut—Off Date.  Such computer file, microfiche list or other documentation shall be as of the date of this Second Tier Loan Assignment incorporated into and made part of this Second Tier Loan Assignment and is marked as Schedule I hereto.

 

(D)          Transfer and Sale of Loan Assets.  The Seller does hereby Sell to the Purchaser, and the Purchaser hereby Purchases and takes from the Seller, all right, title and interest of the Seller (whether now owned or hereafter acquired) in the property identified in clauses (i) - (iv) below and all accounts, cash and currency, chattel paper, tangible chattel paper, electronic chattel paper, copyrights, copyright licenses, equipment, fixtures, contract rights, general intangibles, instruments, certificates of deposit, certificated securities, uncertificated securities, financial assets, securities entitlements, commercial tort claims, deposit accounts, inventory, investment property, letter-of-credit rights, software, supporting obligations, accessions, and other property consisting of, arising out of, or related to any of the following, property, whether now owned or existing or hereafter created, arising or acquired and wherever located (in each case excluding the Retained Interest and the Excluded Amounts) (the “Sale Portfolio”):

 

(i)            the Loan Assets that are identified by the Seller as of the Cut—Off Date, which are listed on Schedule I, together with all monies due or to become due in payment under such Loan Assets on and after the related Cut—Off Date, including, but not limited to, all Available Collections, but excluding any related Attached Equity;

 

(ii)           the Portfolio Assets with respect to the Loan Assets referred to in clause (i);

 

(iii)          all the Seller’s rights under the First Tier Purchase and Sale Agreement; and

 

Ex. A-1

 

(iv)          all income and Proceeds of the foregoing.

 

(E)           Further Obligations.  This Second Tier Loan Assignment is made without recourse but on the terms and subject to the conditions set forth in the Transaction Documents to which the Seller is a party.  The Seller acknowledges and agrees that the Purchaser is accepting this Second Tier Loan Assignment in reliance or the representations, warranties and covenants of the Seller contained in the Transaction Documents to which the Seller is a party.

 

(F)           Ratification of the Agreement.  The Agreement is hereby ratified, and all references to the “Second Tier Purchase and Sale Agreement,” to “this Agreement” and “herein” shall be deemed to be a reference to the Agreement as supplemented by this Second Tier Loan Assignment.  Except as expressly amended hereby, all the representations, warranties, terms covenants and conditions of the Agreement shall remain unamended and shall continue to be, and shall, remain, in full force and effect in accordance with its terms and except as expressly provided herein shall not constitute or be deemed to constitute a waiver of compliance with or consent to non—compliance with any term or provision of the Agreement.

 

(G)           Security Interest.  It is the express intent of the parties hereto that the Sale of the Loan Assets by the Seller to the Purchaser hereunder be, and be treated for all purposes (other than tax and accounting purposes) as an absolute sale by the Seller (free and clear of any Lien, security interest, charge or encumbrance other than Permitted Liens) of such Loan Assets.  It is, further, not the intention of the parties that such Sale be deemed a pledge of such Loan Assets by the Seller to the Purchaser to secure a debt or other obligation of the Seller.  However, in the event that, notwithstanding the intent of the parties, such Loan Assets are held to continue to be property of the Seller, then the parties hereto agree that:  (i) the Agreement shall also be deemed to be a “security agreement” within the meaning of Article 9 of the UCC; (ii) the transfer of the Loan Assets provided for hereunder shall be deemed to be a grant by the Seller to the Purchaser of a first priority security interest (subject only to Permitted Liens) in all of the Seller’s right, title and interest in and to such Loan Assets and all amounts payable to the holders of such Loan Assets in accordance with the terms thereof and all proceeds of the conversion, voluntary or involuntary, of the foregoing into cash, instruments, securities or other property, including, without limitation, all amounts from time to time held or invested in the Controlled Accounts, whether in the form of cash, instruments, securities or other property; (iii) the possession by the Purchaser (or the Collateral Custodian on behalf of the Trustee, for the benefit of the Secured Parties) of such Loan Assets and such other items of property as constitute instruments, money, negotiable documents or chattel paper shall be, subject to clause (iv), for purposes of perfecting the security interest pursuant to the UCC; and (iv) acknowledgements from Persons holding such property shall be deemed acknowledgements from custodians, bailees or agents (as applicable) of the Purchaser for the purpose of perfecting such security interest under Applicable Law.  The parties further agree in such event that any assignment of the interest of the Purchaser pursuant to any provision hereof shall also be deemed to be an assignment of any security interest created pursuant to the terms of the Agreement.  The Purchaser shall, to the extent consistent with the Agreement and the other Transaction Documents, take such actions as may be necessary to ensure that, if the Agreement were deemed to create a security interest in such Loan Assets, such security interest would be deemed to be a perfected security interest of first priority (subject only to Permitted Liens) under Applicable Law and will be maintained as such throughout the term of

 

Ex. A-2

 

the Agreement.  The Purchaser shall have, in addition to the rights and remedies which it may have under the Agreement, all other rights and remedies provided to a secured creditor under the UCC and other Applicable Law, which rights and remedies shall be cumulative.

 

(H)          GOVERNING LAW.  THIS SECOND TIER LOAN ASSIGNMENT NO.          SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO THE CHOICE OF LAW PROVISIONS.

 

[Remainder of Page Intentionally Left Blank]

 

Ex. A-3

 

IN WITNESS WHEREOF, the undersigned have caused this Second Tier Loan Assignment to be executed by its duly authorized officer as of the date first above written.

 

	
 
    	
ARES CAPITAL CP FUNDING HOLDINGS LLC, as the Seller
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
ARES CAPITAL CP FUNDING LLC, as the Purchaser
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
				

 

A-4

 

SCHEDULE I TO EXHIBIT A

 

SEE ATTACHED

 

 

EXHIBIT B

 

FORM OF OFFICER’S PURCHASE DATE CERTIFICATE

 

This Officer’s Purchase Date Certificate is delivered pursuant to the provisions of Section 2.1(c) of the Second Tier Purchase and Sale Agreement (such agreement as amended, supplemented, modified or restated from time to time, the “Agreement”), dated as of January 22, 2010, between Ares Capital CP Funding Holdings LLC, as the Seller, and Ares Capital CP Funding LLC, as the Purchaser.  This Officer’s certificate relates to the Purchase Date on                                 , 20    .

 

(A)                              Capitalized terms used and not otherwise defined herein have the meanings assigned to them in the Agreement.  References herein to certain sections are referenced to the respective sections of the Agreement.

 

(B)                                The undersigned is a Responsible Officer of the Seller.

 

(C)                                The undersigned hereby certifies to the Purchaser, the Trustee, the Agent and the Secured Parties that all of the representations and warranties in Section 4.2 of the Agreement are true, accurate and complete as of the Purchase Date referenced above.

 

IN WITNESS WHEREOF, the undersigned has executed this certificate this          day of                                     , 20[   ].

 

	
 
    	
ARES CAPITAL CP FUNDING HOLDINGS LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    

 

Ex. B-1

 

EXHIBIT C

 

FORM OF POWER OF ATTORNEY
 ARES CAPITAL CP FUNDING HOLDINGS LLC

 

January [    ], 2010

 

This Power of Attorney is executed and delivered by Ares Capital CP Funding Holdings LLC, as the Seller under the Second Tier Purchase and Sale Agreement (each as defined below), to [Ares Capital CP Funding LLC] [U.S. Bank National Association] [Wells Fargo Securities, LLC], as the [Purchaser] [Trustee] [Agent] (in such capacity, the “Attorney”), pursuant to that certain Second Tier Purchase and Sale Agreement, dated as of January 22, 2010 (as amended, modified, supplemented or restated from time to time, the “Purchase and Sale Agreement”), by and between Ares Capital CP Funding Holdings LLC, as the seller (in such capacity, the “Seller”) and Ares Capital CP Funding LLC, as the purchaser (in such capacity, the “Purchaser”).  Capitalized terms used but not defined herein shall have the meanings provided in the Purchase and Sale Agreement.

 

No Person to whom this Power of Attorney is presented, as authority for the Attorney to take any action or actions contemplated hereby, shall be required to inquire into or seek confirmation from the Seller as to the authority of the Attorney to take any action described below, or as to the existence of or fulfillment of any condition to this Power of Attorney, which is intended to grant to the Attorney unconditionally the authority to take and perform the actions contemplated herein, and the Seller irrevocably waives any right to commence any suit or action, in law or equity, against any Person or entity that acts in reliance upon or acknowledges the authority granted under this Power of Attorney.  The power of attorney granted hereby is coupled with an interest and may not be revoked or canceled by the Seller until all obligations of the Purchaser under the Transaction Documents have been indefeasibly paid in full and the Attorney has provided its written consent thereto (which consent shall not be unreasonably withheld or delayed).

 

Ares Capital CP Funding Holdings LLC hereby irrevocably constitutes and appoints the Attorney (and all officers, employees or agents designated by the Attorney), as its attorney—in—fact to act on behalf of the Seller solely (i) to file financing statements on behalf of the Seller, as debtor, necessary or desirable in the Purchaser’s, the Trustee’s or the Agent’s sole discretion to perfect and to maintain the perfection and priority of the interest of the Purchaser or the Trustee, on behalf of the Secured Parties, in the Sale Portfolio and (ii) to file a carbon, photographic or other reproduction of the Purchase and Sale Agreement or any financing statement with respect to the Sale Portfolio as a financing statement in such offices as the Purchaser or the Trustee, on behalf of the Secured Parties, in their sole discretion deem necessary or desirable to perfect and to maintain the perfection and priority of the interests of the Purchaser or the Trustee in the Sale Portfolio.  This appointment is coupled with an interest and is irrevocable.  The Seller hereby ratifies, to the extent permitted by law, all that said attorneys shall lawfully do or cause to be done by virtue hereof.

 

[Remainder of Page Left Intentionally Blank]

 

Ex. C-1

 

IN WITNESS WHEREOF, this Power of Attorney is executed by the Seller as of the date set forth above.

 

	
 
    	
ARES CAPITAL CP FUNDING HOLDINGS LLC
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    

 

	
Sworn to and subscribed before me this   January [    ], 2010:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
Notary Public
    	
 
    

 

Ex. C-2EXHIBIT 10.1

 

SECURITIES PURCHASE AGREEMENT

 

SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of June 7, 2012, by and among Digital Domain Media Group, Inc., a Florida corporation, with headquarters located at 10250 SW Village Parkway, Port St. Lucie, Florida 34987 (the “Company”), and the investors listed on the Schedule of Buyers attached hereto (individually, a “Buyer” and collectively, the “Buyers”).

 

WHEREAS:

 

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

 

B.            Each Buyer wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, (i) that aggregate number of shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers (which aggregate number for all Buyers together shall be 1,500,000 shares of Common Stock and shall collectively be referred to herein as the “Common Shares”) and (ii) Warrants, in substantially the form attached hereto as Exhibit A (the “Warrants”), representing the right to acquire up to that number of additional shares of Common Stock set forth opposite such Buyer’s name in column (4) on the Schedule of Buyers (as exercised, collectively, the “Warrant Shares”).

 

C.            Contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement, substantially 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.

 

D.            The Common Shares, the Adjustment Shares (as defined in Section 1(b)), the Warrants and the Warrant Shares collectively are referred to herein as the “Securities”.

 

NOW, THEREFORE, the Company and each Buyer hereby agree as follows:

 

1.             PURCHASE AND SALE OF COMMON SHARES AND WARRANTS; ADJUSTMENT SHARES OBLIGATION.

 

(a)    Purchase and Sale of Common Shares and Warrants.

 

(i)            Purchase of Common Shares and Warrants 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) the number of Common Shares as is 

 

 

set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers, along with (y) Warrants to acquire up to that number of Warrant Shares as is set forth opposite such Buyer’s name in column (4) on the Schedule of Buyers (the “Closing”).

 

(ii)           Closing.  The date and time of the Closing (the “Closing Date”) shall be 10:00 a.m., New York City time, on the date hereof (or such other date and time as is mutually agreed to by the Company and each Buyer) after notification of satisfaction (or waiver) of the conditions to the Closing set forth in Sections 6 and 7 below have been satisfied, at the offices of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022.

 

(iii)          Purchase Price.  The aggregate purchase price for the Common Shares and the related Warrants to be purchased by each Buyer at the Closing shall be the amount set forth opposite each Buyer’s name in column (5) of the Schedule of Buyers (the “Purchase Price”) which shall be equal to $7.00 per Common Share and the related Warrants.

 

(iv)          Form of Payment.  On the Closing Date, (i) each Buyer shall pay its respective Purchase Price to the Company for the Common Shares and the Warrants to be issued and sold to such Buyer at the Closing (less, in the cases of Hudson Bay Master Fund Ltd. (“Hudson Bay”) and Tenor Opportunity Master Fund, Ltd. (“Tenor”), the amounts withheld pursuant to Section 4(h)), by wire transfer of immediately available funds in accordance with the Company’s written wire instructions and (ii) the Company shall deliver to each Buyer (x) one or more stock certificates, evidencing the number of Common Shares such Buyer is purchasing as is set forth opposite such Buyer’s name in column (3) of the Schedule of Buyers and (y) Warrants (allocated in the amounts as such Buyer shall request) which such Buyer is purchasing hereunder pursuant to which such Buyer shall have the right to acquire up to such number of Warrant Shares 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.

 

(b)   Adjustment Shares.

 

(i)            The following terms used in this Section 1(b), shall have the following meanings:

 

(1)           “Adjustment Balance Shares” means, with respect to each Buyer, for any applicable Adjustment Date, a number of shares of Common Stock equal to (i) the Post-Adjustment Shares calculated with respect to such Buyer for such date minus (ii) the amount of any applicable Pre-Delivery Adjustment Shares delivered to such Buyer in respect of the applicable Adjustment Date; provided, that in the event that the amount of Pre-Delivery Adjustment Shares delivered to a Buyer exceeds the Post-Adjustment Shares calculated with respect to such Buyer for such date (such excess, the “Adjustment Excess”), the Adjustment Balance Shares shall equal zero (0) for such date and in no event shall the Adjustment Excess reduce the number of Pre-Delivery 

 

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Adjustment Shares payable on the next Pre-Delivery Adjustment Date, if any.

 

(2)           “Adjustment Date” means, as applicable, the First Adjustment Date, the Second Adjustment Date and/or the Third Adjustment Date.

 

(3)           “Adjustment Price” means, as applicable, the First Adjustment Price, the Second Adjustment Price and/or the Third Adjustment Price.

 

(4)           “Adjustment Share Amount” means, as applicable, the First Adjustment Share Amount, the Second Adjustment Share Amount and/or the Third Adjustment Share Amount.

 

(5)           “Adjustment Shares” means, collectively, the Pre-Delivery Shares and all Adjustment Balance Shares.

 

(6)           “Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person, it being understood for purposes of this definition that “control” of a Person means the power directly or indirectly either to vote 10% or more of the stock having ordinary voting power for the election of directors of such Person or direct or cause the direction of the management and policies of such Person whether by contract or otherwise.

 

(7)           “Approved Stock Plan” means any employee benefit plan which has been approved by the Board of Directors of the Company, pursuant to which the Company’s securities may be issued to any employee, officer or director for services provided to the Company.

 

(8)           “Bloomberg” means Bloomberg Financial Markets.

 

(9)           “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or the last trade price, respectively, of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the OTC Link or “pink sheets” by OTC Markets Group Inc. (formerly Pink OTC 

 

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Markets Inc.).  If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and the Required Holders.  If the Company and the Required Holders are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 1(c).  All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or other similar transaction during the applicable calculation period.

 

(10)         “Convertible Securities” means any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock.

 

(11)         “Common Stock Equivalents” means, collectively, Options and Convertible Securities.

 

(12)         “Eligible Market” means the Principal Market (as hereinafter defined), The NASDAQ Capital Market, The NASDAQ Global Market, The NASDAQ Global Select Market or the NYSE MKT LLC.

 

(13)         “First Adjustment Date” means the date that is the thirtieth (30th) Trading Day immediately following the date that is the earliest of (1) the date that all Registrable Securities (as defined in the Registration Rights Agreement) and the Adjustment Shares have become registered pursuant to an effective Registration Statement that is available for the resale of all such Registrable Securities and Adjustment Shares; provided, however, if less than all Registrable Securities and Adjustment Shares have become registered for resale on the date that a Registration Statement is declared effective, each Buyer with respect to itself only, shall have the right to deem such condition satisfied, (2) the date that such Buyer can sell all of the Registrable Securities and the Adjustment Shares without restriction or limitation pursuant to Rule 144 and (3) the date that is six (6) months immediately following the Closing Date.

 

(14)         “First Adjustment Price” means eighty-five percent (85%) of the ten (10) lowest Weighted Average Prices of the Common Stock during the twenty (20) Trading Days immediately preceding the second (2nd) Trading Day immediately preceding the First Adjustment Date (as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events during such period).

 

(15)         “First Adjustment Share Amount” means the number of shares of Common Stock equal to the number (if positive) obtained by subtracting (I) the Initial Shares purchased by such Buyer from (II) the quotient determined by dividing (x) the aggregate Purchase Price paid by such Buyer on the Closing Date, 

 

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by (y) the First Adjustment Price.

 

(16)         “Fundamental Transaction” means that (A) the Company or any of its Subsidiaries shall, directly or indirectly, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company or any of its Subsidiaries is the surviving corporation) another Person or Persons, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company or any of its Subsidiaries to another Person or Persons, or (iii) make, or be subject to or party to another Person or Persons making, a purchase, tender or exchange offer that is accepted by the holders of at least either (x) 50% of the outstanding shares of Common Stock, (y) 50% of the outstanding shares of Common Stock calculated as if any shares of Common Stock held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer were not outstanding; or (z) such number of shares of Common Stock such that the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer, become collectively the beneficial owners (as defined in Rule 13d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common Stock, or (iv) consummate a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock purchase agreement or other business combination), or (v) reorganize, recapitalize or reclassify its Common Stock or (B) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of either (x) 50% of the aggregate ordinary voting power represented by issued and outstanding shares of Common Stock, (y) 50% or more of the shares of Voting Stock of the Company not held by such Person or Persons as of the date hereof or (z) a percentage of the aggregate Voting Stock of the Company sufficient to allow such Person to effect a statutory short form merger or other transaction requiring other shareholders of the Company to surrender their shares of Common Stock without approval of the shareholders of the Company.

 

(17)         “Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

 

(18)         “Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common shares or common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity

 

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with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.

 

(19)         “Post-Adjustment Shares” means, for any Adjustment Date, that number of shares of Common Stock equal to the applicable Adjustment Share Amount on such Adjustment Date (without taking into account the delivery of any Pre-Adjustment Shares related to such Adjustment Date), rounded up to the nearest whole share of Common Stock.

 

(20)         “Pre-Delivery Adjustment Date” means, as applicable, the Pre-Delivery First Adjustment Date, the Pre-Delivery Second Adjustment Date and/or the Pre-Delivery Third Adjustment Date.

 

(21)         “Pre-Delivery First Adjustment Date” means the twenty-fifth (25th) Trading Day immediately preceding the First Adjustment Date.

 

(22)         “Pre-Delivery First Adjustment Price” means eighty-five percent (85%) of the ten (10) lowest Weighted Average Prices of the Common Stock during the twenty (20) Trading Days immediately preceding the second (2nd) Trading Day immediately preceding the Pre-Delivery First Adjustment Date (as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events during such period).

 

(23)         “Pre-Delivery Second Adjustment Date” means the twenty-fifth (25th) Trading Day immediately preceding the Second Adjustment Date.

 

(24)         “Pre-Delivery Second Adjustment Price” means eighty-five percent (85%) of the ten (10) lowest Weighted Average Prices of the Common Stock during the twenty (20) Trading Days immediately preceding the second (2nd) Trading Day immediately preceding the Pre-Delivery Second Adjustment Date (as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events during such period).

 

(25)         “Pre-Delivery Third Adjustment Date” means the twenty-fifth (25th) Trading Day immediately preceding the Third Adjustment Date.

 

(26)         “Pre-Delivery Third Adjustment Price” means eighty-five percent (85%) of the ten (10) lowest Weighted Average Prices of the Common Stock during the twenty (20) Trading Days immediately preceding the second (2nd) Trading Day immediately preceding the Pre-Delivery Third Adjustment Date (as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events during such period).

 

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(27)         “Second Adjustment Date” means a date after the First Adjustment Date that is the thirtieth (30th) Trading Day immediately following the date that is the earliest of (1) the date that all Registrable Securities and the Adjustment Shares are registered pursuant to an effective Registration Statement that is available for the resale of all such Registrable Securities and Adjustment Shares; provided, however, if less than all Registrable Securities and Adjustment Shares have become registered for resale on the date that a Registration Statement is declared effective, each Buyer with respect to itself only, shall have the right to deem such condition satisfied, (2) the date that such Buyer can sell all of the Registrable Securities and the Adjustment Shares without restriction or limitation pursuant to Rule 144, (3) the date that such Buyer can sell all of the Registrable Securities and the Adjustment Shares without restriction or limitation pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1) and (4) the date that is one (1) year immediately following the Closing Date.

 

(28)         “Second Adjustment Price” means eighty-five percent (85%) of the ten (10) lowest Weighted Average Prices of the Common Stock during the twenty (20) Trading Days immediately preceding the second (2nd) Trading Day immediately preceding the Second Adjustment Date (as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events during such period).

 

(29)         “Second Adjustment Share Amount” means the number of shares of Common Stock equal to the number (if positive) obtained by subtracting (I) the sum of (i) the number of Initial Shares purchased by such Buyer and (ii) the First Adjustment Share Amount with respect to such Buyer from (II) the quotient determined by dividing (x) the aggregate Purchase Price paid by such Buyer on the Closing Date, by (y) the Second Adjustment Price.

 

(30)         “Successor Entity” means the Person (or, if so elected by the Required Holders, the Parent Entity), which may be the Company, formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Required Holders, the Parent Entity) with which such Fundamental Transaction shall have been entered into, provided that if such Person is not a publicly traded entity whose common stock or equivalent equity security is quoted or listed for trading on an Eligible Market, Successor Entity shall mean such Person’s Parent Entity.

 

(31)         “Third Adjustment Date” means a date after the Second Adjustment Date that is the thirtieth (30th) Trading Day immediately following the earlier of (i) the date that such Buyer can sell all of the Registrable Securities and the Adjustment Shares without restriction or limitation pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1) and (ii) the date that is one (1) year immediately following the Closing Date.

 

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(32)         “Third Adjustment Price” means eighty-five percent (85%) of the ten (10) lowest Weighted Average Prices of the Common Stock during the twenty (20) Trading Days immediately preceding the second (2nd) Trading Day immediately preceding the Third Adjustment Date (as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events during such period).

 

(33)         “Third Adjustment Share Amount” means the number of shares of Common Stock equal to the number (if positive) obtained by subtracting (I) the sum of (i) the number of Initial Shares purchased by such Buyer, (ii) the First Adjustment Share Amount with respect to such Buyer and (iii) the Second Adjustment Share Amount with respect to such Buyer from (II) the quotient determined by dividing (x) the aggregate Purchase Price paid by such Buyer on the Closing Date, by (y) the Third Adjustment Price.

 

(34)         “Trading Day” means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded; provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York Time).

 

(35)         “Voting Stock” of a Person means capital stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power to elect, or the general power to appoint, at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).

 

(36)         “Weighted Average Price” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30:01 a.m., New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York Time (or such other time as such market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York time (or such other time as the Principal Market publicly announces is the official close of trading) as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by 

 

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Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the OTC Link or “pink sheets” by OTC Markets Group Inc. (formerly Pink OTC Markets Inc.).  If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Required Holders.  If the Company and the Required Holders are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 1(c). All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or other similar transaction during the applicable calculation period.

 

(ii)           Obligation to Issue Adjustment Shares.  The Company shall, without any additional consideration, issue to each Buyer a number of shares of Common Stock on the Pre-Delivery First Adjustment Date equal to the number (if positive) obtained by subtracting (I) the number of Common Shares purchased by such Buyer on the Closing Date (as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events) (the “Initial Shares”) from (II) the quotient determined by dividing (x) the aggregate Purchase Price paid by such Buyer on the Closing Date (without regard to any amount of such Buyer’s Purchase Price withheld pursuant to Section 4(h), if any) , by (y) the Pre-Delivery First Adjustment Price (such number, the “Pre-Delivery First Adjustment Share Amount”). On the First Adjustment Date, the Company shall issue to each Buyer any Adjustment Balance Shares with respect to the First Adjustment Date calculated with respect to such Buyer.  If (A) the First Adjustment Date was triggered by clause (1) of such definition and the Registration Statement is not available for the resale of all Registrable Securities thereunder at all times from the Pre-Delivery First Adjustment Date until the sixtieth (60th) day following the First Adjustment Date, (B) the First Adjustment Date was triggered by clause (2) of such definition and there shall occur a Public Information Failure (as hereinafter defined) at any time on or prior to the sixtieth (60th) day following the First Adjustment Date or (C) the First Adjustment Date was triggered by clause (3) of such definition and clause (2) of such definition is not satisfied, the Company shall, without any additional consideration, issue to each Buyer a number of shares of Common Stock on the Pre-Delivery Second Adjustment Date equal to the number (if positive) obtained by subtracting (I) the sum of (i) the First Adjustment Share Amount and (ii) the number of Initial Shares, from (II) the quotient determined by dividing (x) the aggregate Purchase Price paid by such Buyer on the Closing Date (without regard to any amount of such Buyer’s Purchase Price withheld pursuant to Section 4(h), if any), by (y) the Pre-Delivery Second Adjustment Price (such number, the “Pre-Delivery Second Adjustment Share Amount”).  On the Second Adjustment Date, the Company shall issue to each Buyer any Adjustment Balance Shares with respect to the Second Adjustment Date calculated with respect to such Buyer.  If (A) the Second Adjustment Date was triggered by clause (1) of such definition and the Registration Statement is not available for the resale of all Registrable Securities and Adjustment Shares thereunder at all times from the Pre-Delivery Second Adjustment Date until the sixtieth (60th) day following the Second Adjustment Date or (B) the Second Adjustment Date was triggered by either clause (2) or (3) of such definition and there shall occur a Public Information Failure at any time on or prior to the sixtieth (60th) day following the Second Adjustment Date, the Company shall, without any additional consideration, issue to each Buyer a number of shares of 

 

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Common Stock on the Pre-Delivery Third Adjustment Date equal to the number (if positive) obtained by subtracting (I) the sum of (i) the Second Adjustment Share Amount, (ii) the First Adjustment Share Amount and (iii) the number of Initial Shares, from (II) the quotient determined by dividing (x) the aggregate Purchase Price paid by such Buyer on the Closing Date (without regard to any amount of such Buyer’s Purchase Price withheld pursuant to Section 4(h), if any), by (B) the Pre-Delivery Third Adjustment Price (such number, the “Pre-Delivery Third Adjustment Share Amount” and, together with the Pre-Delivery First Adjustment Share Amount and the Pre-Delivery Second Adjustment Share Amount, the “Pre-Delivery Adjustment Shares”).  On the Third Adjustment Date, the Company shall issue to each Buyer any Adjustment Balance Shares with respect to the Third Adjustment Date calculated with respect to such Buyer.  For the avoidance of doubt, the obligation of the Company to issue Adjustment Shares pursuant to this Section 1(b) is irrespective of whether Buyers hold any Common Shares.  All Pre-Delivery Adjustment Shares and Adjustment Balance Shares shall be fully paid and nonassessable shares of Common Stock.

 

(iii)          Blocker.  Notwithstanding anything to the contrary contained herein, the Company shall not issue Adjustment Shares, and no Buyer shall have the right to receive Adjustment Shares, and any such issuance shall be null and void and treated as if never made, to the extent that after giving effect to such issuance, such Buyer (together with such Buyer’s Affiliates) would beneficially own in excess of 9.99% (the “Maximum  Percentage”) of the number of shares of Common Stock outstanding immediately after giving effect to such issuance.  For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by such Buyer and its Affiliates shall include the number of shares of Common Stock issuable pursuant to Section 1(b) hereof with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, unexercised portion of the Warrants beneficially owned by such Buyer or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by such Buyer or any of its Affiliates (including, without limitation, any convertible notes or convertible preferred stock or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein.  Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”).  For purposes of determining the number of outstanding shares of Common Stock, the Buyers may rely on the number of outstanding shares of Common Stock as reflected in (1) the Company’s most recent Form 10-K, Form 10-Q, Form 8-K or other public filing with the SEC, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding.  For any reason at any time, upon the written or oral request of a Buyer, the Company shall within one (1) Business Day confirm orally and in writing to such Buyer the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the issuance of the Adjustment Shares and the conversion or exercise of securities of the Company, including the Warrants, held by each Buyer and its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported.  By written notice to the Company, each Buyer may from time to time increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% specified in such notice; provided that (i) any such increase will not be effective until the sixty-first (61st) day after such notice 

 

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is delivered to the Company and (ii) any such increase or decrease will apply only to such Buyer and not to any of the other Buyers.  The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this paragraph to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation.  If a Buyer’s right to receive Adjustment Shares is limited, in whole or in part, by this Section, all such Adjustment Shares that are so limited shall be held in abeyance for the benefit of such Buyer by the Company until such time, if ever, as the Buyer notifies the Company that its right thereto would not result in such Buyer exceeding the Maximum Percentage.  As used herein, “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

 

(iv)          Principal Market Regulation.  Until the effectiveness of the Information Statement (as hereinafter defined), the Company shall not be obligated to issue any Adjustment Shares and no Buyer shall have the right to receive Adjustment Shares, and any such issuance shall be null and void and treated as if never made, to the extent the issuance of such shares of Common Stock would exceed the aggregate number of shares of Common Stock which the Company may issue without breaching the Company’s obligations under the rules or regulations of the Principal Market, whether or not the Common Stock is listed on the Principal Market (the “Exchange Cap”), except that such limitation shall not apply in the event that the Company obtains the approval of its shareholders as required by the applicable rules of the Principal Market for issuances of shares of Common Stock in excess of such amount.  Until such approval or written opinion is obtained, no Buyer shall be issued in the aggregate Adjustment Shares or upon exercise of the Warrants, shares of Common Stock in an amount greater than the product of the Exchange Cap multiplied by a fraction, the numerator of which is the total number of Common Shares issued to such Buyer pursuant to the Securities Purchase Agreement on the Issuance Date and the denominator of which is the aggregate number of Common Shares issued to all Buyers pursuant to the Securities Purchase Agreement on the Issuance Date (with respect to each Buyer, the “Exchange Cap Allocation”).

 

(v)           Cash Settlement.  In the event that the Company is prohibited from issuing any Adjustment Shares as a result of the operation of Section 1(b)(iv) or for any other reason (other than Section 1(b)(iii)), in lieu of delivering the Adjustment Shares otherwise required to be delivered pursuant to this Section 1(b), the Company shall pay the Buyers in cash by wire transfer of immediately available funds in a dollar amount determined by multiplying the number of Adjustment Shares otherwise deliverable to such Buyer pursuant to this Section 1(b) by eighty-five percent (85%) of the ten (10) lowest Weighted Average Prices of the Common Stock during the twenty (20) Trading Days immediately preceding the applicable Adjustment Date.  In the event the Company fails to make any cash payments required under this Agreement by a specified deadline, such payments shall bear interest at the rate of one and one-half percent (1.5%) per month (prorated for partial months) (or such lesser maximum amount that is permitted to be paid by applicable law) until paid in full.

 

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(vi)          Mechanics of Issuance.

 

(1)   Delivery of Certificates Upon Adjustment.  Certificates for the Adjustment Shares shall be transmitted by the Company’s transfer agent to a Buyer by crediting the account of such Buyer’s prime broker with The Depository Trust Company through its Deposit/Withdrawal At Custodian system if the Company is then a participant in such system and there is an effective registration statement permitting the issuance of the Adjustment Shares to or resale of the Adjustment Shares by Buyer and otherwise by physical delivery to the address specified by such Buyer in a written notice delivered prior to the delivery of such Adjustment Shares (such date, the “Adjustment Shares Delivery Date”).   Notwithstanding anything to the contrary contained herein, in no event will any Adjustment Shares be issued with any restrictive legends or any restrictions or limitations on resale by the Buyers. If the Company and/or its transfer agent requires any legal opinions with respect to the issuance of any Adjustment Shares without restrictive legends or the removal of any such restrictive legends, the Company agrees to cause its legal counsel to issue any such legal opinions.

 

(2)   Company’s Failure to Timely Deliver Securities.  If the Company shall fail for any reason or for no reason to issue to a Buyer on or prior to the Adjustment Shares Delivery Date a certificate for the number of shares of Common Stock to which such Buyer is entitled and register such shares of Common Stock on the Company’s share register or to credit such Buyer’s balance account with DTC for such number of shares of Common Stock to which such Buyer is entitled under Section 1(b), then, in addition to all other remedies available to such Buyer, the Company shall pay in cash to such Buyer on each day after such Adjustment Shares Delivery Date that the issuance of such shares of Common Stock is not timely effected an amount equal to 1.5% of the product of (A) the sum of the number of shares of Common Stock not issued to such Buyer on a timely basis and to which such Buyer is entitled and (B) the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the last possible date which the Company could have issued such shares of Common Stock to the Buyer without violating Section 1(b).  In addition to the foregoing, if on or prior to the Adjustment Shares Delivery Date the Company shall fail to issue and deliver a certificate to the Buyer and register such shares of Common Stock on the Company’s share register or credit the Buyer’s balance account with DTC for the number of shares of Common Stock to which the Buyer is entitled pursuant to the Company’s obligation pursuant to Section 1(b)(ii) or clause (ii) below, and if on or after such Trading Day the Buyer purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Buyer of shares of Common Stock the Buyer anticipated receiving from the Company (a “Buy-In”) under Section 1(b), then the Company shall, within three (3) Trading Days after the Buyer’s request and in the Buyer’s discretion, either (i) pay cash to the Buyer in an amount equal to the 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 deliver such certificate (and to issue such shares of Common Stock) or credit such Buyer’s balance account with DTC for such shares of Common Stock shall terminate, or (ii) promptly honor its obligation to deliver to the Buyer a certificate or certificates representing such shares of Common Stock or credit such Buyer’s balance account with DTC and pay cash to the 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 Common Stock, times (B) the Closing Bid Price on 

 

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the applicable Adjustment Shares Delivery Date.  Nothing shall limit the 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.

 

(3)   Charges, Taxes and Expenses.  Issuance of certificates for Adjustment Shares shall be made without charge to the Buyers for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the respective Buyer or in such name or names as may be directed by the respective Buyer.

 

(4)   Closing of Books.  The Company will not close its shareholder books or records in any manner which prevents the timely exercise of such Buyer’s rights with respect to the Adjustment Shares.

 

(vii)         Certain Adjustments.

 

(1)   Adjustment Upon Subdivision or Combination of Shares of Common Stock. If the Company at any time on or after the date of this Agreement subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the number of Adjustment Shares will be proportionately increased.  If the Company at any time on or after the date of this Agreement combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the number of Adjustment Shares will be proportionately decreased.  Any adjustment under this Section 1(b)(vii) shall become effective at the close of business on the date the subdivision or combination becomes effective.

 

(2)   Purchase Rights. While any Adjustment Shares are issuable hereunder, the Company shall not grant, issue or sell any Purchase Rights (as defined in the Warrants).

 

(3)   Other Events.  If any event occurs of the type contemplated by the provisions of this Section 1(b)(vii) but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s Board of Directors will make an appropriate adjustment in the number of Adjustment Shares, as mutually determined by the Company’s Board of Directors and the holders of at least a majority of the aggregate amount of Securities issued and issuable hereunder and under the Warrants (the “Required Holders”), so as to protect the rights of the Buyers; provided that no such adjustment pursuant to this Section 1(b)(vii) will decrease the number of Adjustment Shares as otherwise determined pursuant to this Section 1(b)(vii).

 

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(4)   Pro Rata Distributions.  If the Company shall declare or make any dividend or other distributions of its assets (or rights to acquire its assets) to any or all holders of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the Closing Date and prior to the later of the date of delivery of all Adjustment Shares which the Company is obligated to deliver under this Agreement and the date that the right to receive Adjustment Shares shall expire then, in each such case, each Buyer shall be entitled to participate in such Distribution, with respect to each unissued Adjustment Share, to the same extent that such Buyer would have participated therein with respect to each such Adjustment Share if such Buyer had held such unissued Adjustment Shares (without taking into account any limitations or restrictions on the issuance of Adjustment Shares, including without limitation, the Maximum Percentage) immediately before the date as of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that such Buyer’s right to participate in any such Distribution would result in such Buyer exceeding the Maximum Percentage, then such Buyer shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of such Buyer until such time, if ever, as its right thereto would not result in such Buyer exceeding the Maximum Percentage).

 

(5)   Fundamental Transaction. If, at any time after the Closing Date and prior to an Adjustment Date, a Fundamental Transaction occurs, then for each Adjustment Share otherwise issuable under Section 1(b) not issued prior to the date of such Fundamental Transaction, the respective Buyer shall be entitled to receive the number of shares of capital stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of shares of Common Stock immediately prior to such Fundamental Transaction.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Buyer shall be given the same choice as to the Alternate Consideration it receives upon the issuance of an Adjustment Share following such Fundamental Transaction.   The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Section 1(b) in accordance with the provisions of this Section 1(b)(vii)(5) pursuant to written agreements in form and substance reasonably satisfactory to the Required Holders (as defined in the Registration Rights Agreement). If a Fundamental Transaction is publicly announced or occurs prior to occurrence of an Adjustment Event or the issuance of the Adjustment Shares, for all purposes under this Subsection (5) an Adjustment Date will have deemed to have occurred twenty (20) Trading Days immediately preceding the consummation of such Fundamental Transaction and the applicable Adjustment Price shall be deemed to equal eighty-five percent (85%) of the ten (10) lowest Weighted Average Prices of the Common Stock during the twenty (20) Trading Days immediately following such deemed Adjustment Date (as adjusted for 

 

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stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events during such period).  The Company shall provide each Buyer with written notice, including a summary of material terms, of any Fundamental Transaction described in the preceding sentence no less than fifteen (15) days prior to the consummation such Fundamental Transaction, provided that if the Company does not have knowledge of such Fundamental Transaction or material terms thereof at least fifteen (15) days prior to the consummation, the Company shall provide written notice, including a summary of material terms, within two (2) Trading Days of having such knowledge.

 

(6)   Calculations. All calculations under this Section 1(b) shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 1(b), the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

(7)   Notice to Buyers.

 

(A) Adjustment to Number of Adjustment Shares. Whenever there is an adjustment pursuant to any provision of Section 1(b)(vii), the Company shall promptly mail to each Buyer a notice setting forth the adjustment to the number of Adjustment Shares and setting forth a brief statement of the facts requiring such adjustment.

 

(B)  Notice of Certain Events. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any shareholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, in each case prior to the later of an Adjustment Date or the issuance of the applicable number of Adjustment Shares issuable in respect of such Adjustment Date, then, in each case, the Company shall cause to be mailed to each Buyer at its last address, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure 

 

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to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.  To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of its subsidiaries, the Company shall simultaneously file such notice with the SEC pursuant to a Current Report on Form 8-K.  On or prior to any Pre-Delivery Adjustment Date and Adjustment Date, the Company shall file with the SEC on a Current Report on Form 8-K disclosing the number of Adjustment Shares issued or issuable on such date (each, an “Adjustment 8-K Filing”).  From and after the filing of an Adjustment 8-K Filing with the SEC, no Buyer shall be in possession of any material, nonpublic information received from the Company, any of its Subsidiaries or any of their respective officers, directors, employees or agents, that is not disclosed in such Adjustment 8-K Filing

 

(c)   Dispute Resolution.  In the case of a dispute as to the determination of the number of Adjustment Shares deliverable hereunder and/or the amount of cash payable hereunder, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within two (2) Business Days of event giving rise to such dispute, as the case may be, to the Buyers.  If a Buyer and the Company are unable to agree upon such determination or calculation of the number of shares of Common Stock issuable within three (3) Business Days of such disputed determination or arithmetic calculation being submitted to the Buyers, then the Company shall, within two (2) Business Days submit via facsimile (a) the disputed determination of the number of Adjustment Shares and/or the amount of cash to an independent, reputable investment bank selected by the Company and approved by the Required Holders  or (b) the disputed arithmetic calculation of the number of Adjustment Shares and/or the amount of cash to the Company’s independent, outside accountant.  The Company shall cause at its expense the investment bank or accountant, as the case may be, to perform the determinations or calculations and notify the Company and the applicable Buyer(s) of the results no later than ten (10) Business Days from the time it receives the disputed determinations or calculations.  Such accountant’s determination or calculation shall be binding upon all parties absent demonstrable error.

 

2.             BUYER’S REPRESENTATIONS AND WARRANTIES.  Each Buyer, severally and not jointly, represents and warrants with respect to only itself that:

 

(a)   No Public Sale or Distribution.  Such Buyer is (i) acquiring the Common Shares and the Warrants and (ii) upon exercise of the Warrants (other than pursuant to a Cashless Exercise (as defined in the Warrants)) will acquire the Warrant Shares issuable upon exercise of the Warrants, for its own account and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the 1933 Act; provided, however, that by making the representations herein, such Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.  Such Buyer is acquiring the Securities hereunder in the ordinary course of its business.  Such Buyer does not presently have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Securities.  As used herein, “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof.

 

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

 

(c)    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.

 

(d)    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 the opportunity to ask questions of the Company.  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.

 

(e)    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.

 

(f)     Transfer or Resale.  Such Buyer understands that except as provided in the Registration Rights Agreement:  (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 an opinion of counsel, in a generally acceptable form, 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, as amended, (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 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 

 

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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(f).

 

(g)    Legends.  Such Buyer understands that the certificates or other instruments representing the Common Shares and the Warrants and, until such time as the resale of the Common Shares and Warrant Shares have been registered under the 1933 Act as contemplated by the Registration Rights Agreement, the stock certificates representing the Warrant Shares, except as set forth below, 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):

 

[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE  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, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of the Securities upon which it is stamped or issue to such holder by electronic delivery at the applicable balance account at The Depository Trust Company (“DTC”), if, unless otherwise required by state securities laws, (i) such Securities are registered for resale under the 1933 Act, (ii) in connection with a sale, assignment or other transfer, such holder provides the Company with an opinion of counsel (which in the case of the Adjustment Shares, shall, to the extent required by the Company or its transfer agent, be an opinion of counsel to the Company), 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 (iii) the Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A.  The Company shall be responsible for the fees of its transfer agent and all DTC fees associated 

 

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with such issuance.  If the Company shall fail for any reason or for no reason to issue to the holder of the Securities within three (3) Trading Days after the occurrence of any of (i) through (iii) above a certificate without such legend or to issue such Securities to such holder by electronic delivery at the applicable balance account at DTC, and if on or after such Trading Day the holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the holder of such Securities that the holder anticipated receiving without legend from the Company (a “Buy-In”), then the Company shall, within three (3) Trading Days after the holder’s request and in the holder’s discretion, either (i) pay cash to the holder in an amount equal to the holder’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 deliver such unlegended Securities shall terminate, or (ii) promptly honor its obligation to deliver to the holder such unlegended Securities as provided above and pay cash to the holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the Closing Bid Price (as defined in the Warrants) on the date of the occurrence of any of clauses (i) through (iii), as applicable.

 

(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 would 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)     Residency.  Such Buyer is a resident of that jurisdiction specified below its address on the Schedule of Buyers.

 

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:

 

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(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 authorization 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 have a Material Adverse Effect. 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 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 in 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.”  Each of Digital Domain Productions (Sydney) Pty Ltd., Digital Domain Media Group (Middle East) FZ LLC and Digital Domain Emirates LLC are wholly-owned Subsidiaries of the Company and each has no assets, liabilities or business (the “Inactive Subsidiaries”).

 

(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.  The execution and delivery of this Agreement and the other Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Common Shares and the Warrants, reservation for issuance and the issuance of the Warrant Shares issuable upon exercise of the Warrants and the reservation for issuance and issuance of the Adjustment Shares pursuant to the terms of this Agreement have been duly authorized by the Company’s Board of Directors and (other than the filing with the SEC of one or more Registration Statements (as defined in the Registration Rights Agreement) 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) no further filing, consent or authorization is required by the Company, its Board of Directors or its shareholders.  This Agreement and the other Transaction Documents have been duly executed and delivered by the Company, and constitute the legal, valid and binding obligations of the Company, enforceable against the Company 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 laws. “Transaction Documents” means, collectively, the Warrants, the Registration Rights Agreement, the Irrevocable Transfer Agent Instructions (as defined in Section 5(b)) and each of 

 

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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.

 

(c)           Issuance of Securities.  The issuance of the Common Shares, the Adjustment and the Warrants are duly authorized and, upon issuance in accordance with the terms of the Transaction Documents, the Common Shares and the Warrants shall be validly issued and free from all preemptive or similar rights, taxes, liens and charges and other encumbrances with respect to the issue thereof and the Common Shares shall be fully paid and nonassessable with the holders being entitled to all rights accorded to a holder of Common Stock.  As of the Closing, the Company shall have reserved from its duly authorized capital stock not less than 135% of the sum of (i) the maximum number of Warrant Shares issuable upon exercise of the Warrants (without taking into account any limitations on the exercise of the Warrants set forth therein) and (ii) the maximum number of Adjustment Shares issuable pursuant to the terms of this Agreement (without taking into account the Adjustment Shares Cap and the Maximum Percentage).  Upon exercise of the Warrants in accordance with the Warrants, the Warrant Shares when issued will be validly issued, fully paid and nonassessable and free from all preemptive or similar rights, taxes, liens, charges and other encumbrances with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Common Stock.  The Adjustment Shares, when issued in accordance with the terms of Section 1(b), will be validly issued, fully paid and nonassessable and free from all preemptive or similar rights, taxes, liens, charges and other encumbrances 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 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 the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Common Shares and the Warrants and reservation for issuance and issuance of the Warrant Shares and the Adjustment Shares) will not (i) result in a violation of the Articles of Incorporation (as defined below) or Bylaws (as defined below) or other organizational documents of the Company or any of its Subsidiaries, any capital stock of the Company or any of its Subsidiaries or the articles of association or bylaws of the Company or any of its Subsidiaries 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 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 foreign, federal and state securities laws and regulations and the rules and regulations of The New York Stock Exchange Inc. (the “Principal Market”) and including all applicable federal 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, except in the case of clause (ii) or (iii) above, to the extent such violations that could not reasonably be expected to have a Material Adverse Effect.

 

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(e)           Consents.  The Company is not 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 e 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 is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the Closing Date (or in the case of filings, will be made timely after the Closing Date), and the Company is unaware of any facts or circumstances which might prevent the Company from obtaining or effecting any of the registration, application or filings contemplated by the Transaction Documents.  The Company is not in violation of the requirements of the Principal Market and has no knowledge of any 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.

 

(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 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 decision to enter into the Transaction Documents has been based solely on the independent evaluation by the Company and its representatives.

 

(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. 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.

 

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(h)          No Integrated Offering.  Other than as set forth on Schedule 3(h), 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 shareholders of the Company under any applicable shareholder 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.  Except as otherwise required herein, 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.

 

(i)            Dilutive Effect.  The Company understands and acknowledges that the number of Warrant Shares issuable upon exercise of the Warrants and Adjustment Shares issuable pursuant to the terms of this Agreement will increase in certain circumstances.  The Company further acknowledges that its obligation to issue the Warrant Shares upon exercise of the Warrants in accordance with this Agreement and the Warrants and to issue the Adjustment Shares in accordance with Section 1(b) is, in each case, is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders 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 shareholder, business combination, poison pill (including, without limitation, any distribution under a rights agreement) or other similar anti-takeover provision under the Articles of Incorporation, Bylaws or other organizational documents or the laws of the jurisdiction of its formation 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 shareholder 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.

 

(k)           SEC Documents; Financial Statements.  During the time the Company has been a reporting Company under the 1934 Act, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act (all of the foregoing filed prior to the date hereof, and all exhibits included therein and financial statements, notes and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the “SEC Documents”), other than as set forth on Schedule 3(k).  As of their respective dates, the SEC Documents complied as to form in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC 

 

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promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents (excluding for this purpose the exhibits thereto), 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 as to form 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 U.S. generally accepted accounting principles, consistently applied, during the periods involved (“GAAP”) (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 and its Subsidiaries 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(d) of 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.

 

(l)            Absence of Certain Changes.  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 that would reasonably be expected to result in a material adverse change. 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 material capital expenditures, individually or in the aggregate. 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, (i) 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), (ii) 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 (iii) 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, (i) the present fair saleable value of the Company’s or such Subsidiary’s (as the case may 

 

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be) assets is less than the amount required to pay its respective total Indebtedness, (ii) 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 (iii) 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.

 

(m)          No Undisclosed Events, Liabilities, Developments or Circumstances.  No event, liability, development or circumstance has occurred or exists or, to the Company’s knowledge, 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.

 

(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 Articles 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 or certificate of incorporation or bylaws, respectively.  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. 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. Since November 18, 2011, (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.

 

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

 

(p)          Sarbanes-Oxley Act.  The Company and, to the extent required by applicable law, rule or regulation, each Subsidiary, is in compliance in all material respects with all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and all applicable rules and regulations promulgated by the SEC thereunder that are effective as of the date hereof.

 

(q)          Transactions With Affiliates.  None of the officers, directors or employees of the Company or any of its Subsidiaries is presently a party to any transaction with the Company or any of its Subsidiaries (other than for ordinary course services as employees, officers or directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such officer, director or employee or, to the knowledge of the Company or any of its Subsidiaries, any corporation, partnership, trust or other Person in which any such officer, director, or employee has a substantial interest or is an employee, officer, director, trustee or partner.

 

(r)           Equity Capitalization.  As of the date hereof but taking into effect the issuance and sale pursuant to the terms hereof of the Common Shares and Warrants, the authorized capital stock of the Company consists of (i) 100,000,000 shares of Common Stock, of which, 43,545,316  are issued and outstanding and 21,383,517 shares are reserved for issuance pursuant to securities exercisable or exchangeable for, or convertible into, shares of Common Stock and (ii) 25,000,000 shares of preferred stock, of which 0 are issued and outstanding.  1,893,807 shares of Common Stock are held in treasury.  All of such outstanding shares are duly authorized and have been, or upon issuance will be, validly issued and are fully paid and nonassessable. 32,721,199 shares of the Company’s issued and outstanding Common Stock on the date hereof 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. Except as disclosed in Schedule 3(r), to the Company’s knowledge, no Person owns 10% or more of the Company’s issued and outstanding shares of Common Stock (calculated based on the assumption that all Convertible Securities (as defined below), whether or not presently exercisable or convertible, have been fully exercised or converted (as the case may be) taking account of any limitations on exercise or conversion (including “blockers”) contained therein without conceding that such identified Person is a 10% shareholder for purposes of federal securities laws).  (i) None of the Company’s or any Subsidiary’s capital stock is subject to preemptive rights or any other similar rights 

 

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or any liens or encumbrances suffered or permitted by the Company or any Subsidiary; (ii) except as disclosed in Schedule 3(r)(ii), 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 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 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 capital stock of the Company or any of its Subsidiaries; (iii) except as disclosed in Schedule 3(r)(iii), there are no 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; (iv) [Intentionally Omitted]; (v) except as disclosed in Schedule 3(r)(v), 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); (vi) except as disclosed in Schedule 3(r)(vi), 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; (vii) except as disclosed in Schedule 3(r)(vii), there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities; (viii) neither the Company nor any Subsidiary has any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement; and (ix) 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. The Company has furnished to the Buyers true, correct and complete copies of the Company’s articles of incorporation, as amended and as in effect on the date hereof (the “Articles of Incorporation”), and the Company’s bylaws, as amended and as in effect on the date hereof (the “Bylaws”), and the terms of all securities convertible into, or exercisable or exchangeable for, shares of Common Stock 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 in Schedule 3(s), has any outstanding Indebtedness (as defined below), (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) 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 (iv) 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. For purposes of this Agreement: (x) “Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all 

 

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obligations issued, undertaken or assumed as the deferred purchase price of property or services (including, without limitation, “capital leases” in accordance with generally accepted accounting principles) (other than trade payables entered into in the ordinary course of business), (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, 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 mortgage, claim, lien, tax, right of first refusal, pledge, charge, security interest or other encumbrance 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; (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; and (z) “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.

 

(t)           Absence of Litigation.  Except as disclosed in Schedule 3(t), there is no action, suit, 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 which is outside of the ordinary course of business or individually or in the aggregate material to the Company or any of its Subsidiaries. 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.

 

(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 

 

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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 believes that its and its Subsidiaries’ relations with their respective 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. 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.

 

(w)          Title.  The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and any of its Subsidiaries.  Any real property and facilities 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.

 

(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, patents, patent rights, copyrights, original works, 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 and as presently proposed to be conducted.  Except as set forth in Schedule 3(x), none of the Company’s or its Subsidiaries’ Intellectual Property Rights have expired, terminated or been abandoned, or are expected to expire, terminate or be abandoned, within three years from the date of this Agreement.  The Company has no knowledge of any infringement by the Company or any of its 

 

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Subsidiaries of Intellectual Property Rights of others.  Except as disclosed in Schedule 3(x), 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 their Intellectual Property Rights.  The Company is not aware of any facts or circumstances which might give rise to any of the foregoing infringements or claims, actions or proceedings. The Company and each of its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their Intellectual Property Rights.

 

(y)          Environmental Laws.  The Company and its Subsidiaries (A) are in compliance with 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.

 

(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.

 

(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 delinquent 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 U.S. Internal Revenue Code of 1986, as amended.

 

(bb)        Internal Accounting and Disclosure Controls.  Except as disclosed in Schedule 3(bb), 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

 

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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 generally accepted accounting principles 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. Except as disclosed in Schedule 3(bb), neither the Company nor any of its Subsidiaries has received any notice or correspondence from any accountant 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.

 

(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, except as provided in Section 4(e), 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 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 

 

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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 Press Release (as defined below) one or more Buyers may engage in hedging and/or trading activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Warrant Shares and/or the Adjustment Shares are being determined and (b) such hedging and/or trading activities, if any, can reduce the value of the existing shareholders’ 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 do not constitute a breach of this Agreement, the Warrants or any other Transaction Document or any of the documents executed in connection herewith or therewith.

 

(ff)          Manipulation of Price. Except as disclosed in Schedule 3(ff), 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, or (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.

 

(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 Internal Revenue Code of 1986, as amended, and the Company and each Subsidiary shall so certify upon any Buyer’s request.

 

(hh)        Registration Eligibility.  The Company is eligible to register the Registrable Securities for resale by the Buyers using Form S-1 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 equity 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

 

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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.  Except as disclosed in Schedule 3(ll), 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, (a) as a kickback or bribe to any Person or (b) 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, but not limited to, 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.

 

(nn)        Management.  During the past five year period, no current or former officer or director of the Company or any of its Subsidiaries has been the subject of:

 

(i)    except as otherwise previously disclosed to the Buyers in writing, 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:

 

(A)          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 

 

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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;

 

(B)           engaging in any type of business practice; or

 

(C)           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 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.

 

(oo) 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.

 

(pp) 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.

 

(qq) 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.

 

(rr)   Grants.  With respect to the agreements set forth on Schedule 3(rr) attached hereto (the “Grant Agreements”), the Company and its Subsidiaries (A) are in compliance with all certification, notice and reporting requirements, (B) have met all conditions precedent to receiving grant payments or other incentives due as of the Closing Date and (C) have received all grant payments and other incentives from the applicable Governmental Entity due as of the Closing Date.  The Grant Agreements constitute all agreements between the Company and its Subsidiaries whereby the State of Florida and/or any other Governmental Entity (including any state university) has provided a financial incentive (monetary, land, or other) to the Company and its 

 

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Subsidiaries in consideration of its business establishment, maintenance and expansion in the State of Florida or in any other state, province or country.

 

(ss)         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. All disclosure provided to the Buyers regarding the Company and its Subsidiaries, their businesses and the transactions contemplated hereby, including the schedules to this Agreement, furnished by or on behalf of the Company or any of its Subsidiaries is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.  All of the written information furnished after the date hereof by or on behalf of the Company or any of its Subsidiaries to you pursuant to or in connection with this Agreement and the other Transaction Documents, taken as a whole, will be true and correct in all material respects as of the date on which such information is so provided and will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they are made, not misleading.  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 were made, not misleading.  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.  All financial projections and forecasts that have been prepared by or on behalf of the Company or any of its Subsidiaries and made available to you have been prepared in good faith based upon reasonable assumptions and represented, at the time each such financial projection or forecast was delivered to you, the Company’s best estimate of future financial performance (it being recognized that such financial projections or forecasts are not to be viewed as facts and that the actual results during the period or periods covered by any such financial projections or forecasts may differ from the projected or forecasted results).  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.

 

(tt)          Majority Written Consent.  The Company has obtained the written consent from the holders of a majority of the outstanding voting securities of the Company in the form attached hereto as Exhibit C (collectively, the “Shareholder Consent”) of the resolutions (the “Resolutions”) approving the transactions contemplated hereby, including, without limitation, the issuance and terms of all the Securities as described in the Transaction Documents (without the need for any limit on the number of Adjustment 

 

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Shares issuable hereunder or the number of Warrant Shares issuable pursuant to the Warrants or any floor price) and the approval of such transactions pursuant to applicable law, the provisions of the Bylaws and the rules and regulations of the Principal Market (the “Shareholder Approval”).

 

4.     COVENANTS.

 

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

 

(b)           Form D and Blue Sky.  The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to 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.  The Company shall make all filings and reports relating to the offer and sale of the Securities required under applicable securities or “Blue Sky” laws of the states of the United States following the Closing Date.

 

(c)           Reporting Status.  Until the date on which the Investors (as defined in the Registration Rights Agreement) shall have sold all of the Common Shares, Adjustment Shares and Warrant Shares, none of the Warrants are outstanding and no additional Adjustment Shares are issuable hereunder (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, and the Company shall take all actions necessary to maintain its eligibility to register the Common Shares and Warrant Shares for resale by the Investors on Form S-3.

 

(d)           Use of Proceeds.  The Company will use the proceeds from the sale of the Securities for general corporate purposes.

 

(e)           Short Sales.  During the period(s) prior to the applicable Adjustment Date during which the number of Adjustment Shares are being determined pursuant to the terms of Section 1(b) of this Agreement (such period, the “Restricted Period”), each Buyer, severally and not jointly with any other Buyers, covenants that neither it nor any of its Buyer Trading Affiliates will engage in any “short sale” (solely as defined in Rule 200 of Regulation SHO under the 1934 Act (“Regulation SHO”)) of the Common Stock (other than (x) any sale by any Buyer of Common Stock beneficially owned by such Buyer prior to or during such Restricted Period or (y) any “Short Sale Exempt” (as defined in Regulation SHO) transaction). Notwithstanding the foregoing, for the avoidance of doubt, nothing contained herein shall constitute a covenant, or preclude any actions, with respect to the identification of the availability of, or securing of, available shares to borrow in order to effect short sales or similar transactions not during the 

 

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Restricted Period. As used herein, “Buyer Trading Affiliates” means any Person acting on behalf of or pursuant to any understanding with such Buyer which had knowledge of the transactions contemplated hereby, (x) has or shares discretion relating to such Buyer’s investments and trading or information concerning such Buyer’s investments or (y) is subject to such Buyer’s review or input concerning such Buyer’s investments or trading.

 

(f)           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, any Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K (or any analogous reports under the 1934 Act) and any registration statements (other than on Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same day as the release thereof, facsimile or e-mailed copies of all press releases issued by the Company or any of its Subsidiaries, and (iii) copies of any notices and other information made available or given to the shareholders of the Company generally, contemporaneously with the making available or giving thereof to the shareholders.

 

(g)          Listing.  The Company shall promptly secure the listing of all of the Registrable Securities (as defined in the Registration Rights Agreement) upon each national securities exchange and automated quotation system, if any, upon which the Common Stock is then listed (subject to official notice of issuance) and shall maintain such listing of all Registrable Securities from time to time issuable under the terms of the Transaction Documents.  The Company shall maintain the authorization for quotation of the Common Stock on the Principal Market or any other Eligible Market (as defined in the Warrants).  Neither the Company nor any of its Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the Common Stock on the Principal Market.  The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 4(g).

 

(h)          Fees.  The Company shall reimburse Hudson Bay (a Buyer) or its designee(s) (in addition to any other expense amounts paid to any Buyer or its counsel prior to the date of this Agreement) for all costs and expenses incurred in connection with the transactions contemplated by the Transaction Documents (including all legal fees and disbursements in connection therewith, documentation and implementation of the transactions contemplated by the Transaction Documents and due diligence in connection therewith), which amount may be withheld by such Buyer from its Purchase Price at the Closing to the extent not previously reimbursed by the Company.  The Company shall also reimburse Tenor (a Buyer) or its designee(s) (in addition to any other expense amounts paid to any Buyer or its counsel prior to the date of this Agreement) for all costs and expenses incurred in connection with the transactions contemplated by the Transaction Documents (including all legal fees and disbursements in connection therewith, documentation and implementation of the transactions contemplated by the Transaction Documents and due diligence in connection therewith), which amount may be withheld by such Buyer from its Purchase Price at the Closing to the extent not previously reimbursed by the Company.  The Company shall be responsible for the payment of any placement agent’s fees, financial advisory fees, or broker’s commissions (other than for Persons engaged by any Buyer) relating to or arising out of the transactions 

 

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contemplated hereby, including, without limitation, any fees or commissions payable to the Placement Agent.  The Company shall pay, and hold each Buyer harmless against, any liability, loss or expense (including, without limitation, reasonable attorney’s 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.

 

(i)            Pledge of Securities.  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(f) hereof; provided that an Investor and its pledgee shall be required to comply with the provisions of Section 2(f) 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 an Investor.

 

(j)            Disclosure of Transactions and Other Material Information.  On or before 8:30 a.m., New York City time, on the first Business Day after this Agreement has been executed, the Company shall file a Current Report on Form 8-K describing the terms of the transactions contemplated by the Transaction Documents in the form required by the 1934 Act and attaching the material Transaction Documents (including, without limitation, this Agreement (and all schedules and exhibits to this Agreement), the form of the Warrant and the form of the Registration Rights Agreement as exhibits to such filing (including all attachments), the “8-K Filing”).  On or before 8:30 a.m., New York City time, on the second Business Day after this Agreement has been executed, the Company shall issue a press release describing the material terms of the transactions contemplated by the Transaction Documents. From and after the filing of the 8-K Filing with the SEC, no Buyer shall be in possession of any material, nonpublic information received from the Company, any of its Subsidiaries or any of their respective officers, directors, employees or agents, that is not disclosed in the 8-K Filing.  The Company shall not, and shall cause each of its Subsidiaries and its and each of their respective officers, directors, employees and agents, not to, provide any Buyer with any material, nonpublic information regarding the Company or any of its Subsidiaries from and after the filing of the 8-K Filing with the SEC without the express prior written consent of such Buyer.  If a Buyer has, or believes it has, received any such material, nonpublic information regarding the Company or any of its Subsidiaries from the Company, any of its Subsidiaries or any of their respective officers, directors, affiliates or agents, it may provide the Company with written notice thereof.  The Company shall, within two (2) Trading Days of receipt of such notice, make public disclosure of such material, nonpublic information.  In the event of a breach of the foregoing covenant by the Company, any of its Subsidiaries, or any of its or their respective officers, directors, employees and agents, in addition to any other remedy provided herein or in the Transaction Documents, a Buyer shall have the right to make a public disclosure, in the form of a press release, public 

 

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advertisement or otherwise, of such material, nonpublic information without the prior approval by the Company, its Subsidiaries, or any of its or their respective officers, directors, employees or agents.  No Buyer shall have any liability to the Company, its Subsidiaries, or any of its or their respective officers, directors, employees, shareholders or agents for any such disclosure.  To the extent that the Company delivers any material, non-public information to a Buyer without such Buyer’s consent, the Company hereby covenants and agrees that such 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 Buyer shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of any Buyer, to make 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 Buyer shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release).  Except for the Registration Statement required to be filed pursuant to the Registration Rights Agreement, without the prior written consent of any applicable Buyer, neither the Company nor any of its Subsidiaries or affiliates shall disclose the name of such Buyer in any filing, announcement, release or otherwise.

 

(k)           Variable Securities; Dilutive Issuances.  For so long as any Warrants remain outstanding, the Company shall not, in any manner, issue or sell any rights, warrants or options to subscribe for or purchase Common Stock or directly or indirectly convertible into or exchangeable or exercisable for Common Stock at a price which varies or may vary with the market price of the Common Stock, including by way of one or more reset(s) to any fixed price unless the conversion, exchange or exercise price of any such security cannot be less than the then applicable Exercise Price (as defined in the Warrants) with respect to the Common Stock into which any Warrant is exercisable.  For so long as any Warrants remain outstanding, the Company shall not, in any manner, enter into or affect any Dilutive Issuance (as defined in the Warrants) if the effect of such Dilutive Issuance is to cause the Company to be required to issue upon exercise of any Warrant any Common Stock in excess of that number of shares of Common Stock which the Company may issue upon exercise of the Warrants without breaching the Company’s obligations under the rules or regulations of the Principal Market or any applicable Eligible Market (as defined in the Warrants), in each case without giving effect to limitations on exercise contained in the Warrants (the “Securities Limitations”).  For so long as any Warrants are outstanding, unless or until the Shareholder Approval (as defined below) has been obtained, the Company shall not take any action if the effect of such action would be to cause the Exercise Price to be reduced, in each case without giving effect to any Securities Limitations.

 

(l)            Corporate Existence.  So long as any Buyer beneficially owns any Securities, the Company shall maintain its corporate existence and shall not be party to any Fundamental Transaction (as defined in the Warrants) unless the Company is in compliance with the applicable provisions governing Fundamental Transactions set forth in the Warrants.

 

39

 

(m)          Reservation of Shares.  So long as any Buyer owns any Securities, the Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, no less than 150% of the sum of (i) the number of shares of Common Stock issuable upon exercise of the Warrants then outstanding (without taking into account any limitations on the exercise of the Warrants set forth in the Warrants) and (ii) the number of Adjustment Shares then issuable pursuant to the terms of this Agreement (the “Required Reserve Amount”).  If at any time the number of shares of Common Stock authorized and reserved for issuance is not sufficient to meet the Required Reserved 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 shareholders to authorize additional shares to meet the Company’s obligations under Section 3(c), in the case of an insufficient number of authorized shares, obtain shareholder 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 Reserved Amount.

 

(n)          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 result, either individually or in the aggregate, in a Material Adverse Effect.

 

(o)          Additional Registration Statements.  From the date hereof until the date the Registration Statement(s) covering the resale of all of the Registrable Securities (as defined in the Registration Rights Agreement) has been declared effective by the SEC and each prospectus contained therein is available for use on such date) (the “Trigger Date”), the Company will not, directly or indirectly, file any registration statement with the SEC other than the Registration Statement (as defined in the Registration Rights Agreement) and as set forth in Schedule 4(o).

 

(p)          Public Information.  At any time during the period commencing from the six (6) month anniversary of the Closing Date and ending at such time that all of the Securities, if a registration statement is not available for the resale of all of the Securities, may be sold without restriction or limitation pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1), if the Company shall (i) fail for any reason to satisfy the requirements of Rule 144(c)(1), including, without limitation, the failure to satisfy the current public information requirements under Rule 144(c) or (ii) if the Company has ever been an issuer described in Rule 144(i)(1)(i) or becomes such an issuer in the future, and the Company shall fail to satisfy any condition set forth in Rule 144(i)(2) (each, a “Public Information Failure”) then, as partial relief for the damages to any holder of Securities by reason of any such delay in or reduction of its ability to sell the Securities (which remedy shall not be exclusive of any other remedies available at law or in equity), the Company shall pay to each such holder an amount in cash equal to two percent (2.0%) of the aggregate Purchase Price of such holder’s Securities on the day of a Public Information Failure and on every thirtieth day (pro rated for periods totaling less than thirty days) thereafter until the earlier of (i) the date such Public Information Failure is cured and (ii) such time that such Public Information Failure no longer prevents a holder of Securities from selling such Securities pursuant to Rule 144 without any restrictions or limitations. The payments to which a holder shall be entitled pursuant to this Section 4(p) are referred to herein as 

 

40

 

“Public Information Failure Payments.”  Public Information Failure  Payments shall be paid on the earlier of (I) the last day of the calendar month during which such Public Information Failure  Payments are incurred and (II) the third Business Day after the event or failure giving rise to the Public Information Failure  Payments is cured.  In the event the Company fails to make Public Information Failure  Payments in a timely manner, such Public Information Failure  Payments shall bear interest at the rate of 1.5% per month (prorated for partial months) until paid in full.

 

(q)                                             Shareholder Approval.  The Company shall prepare and file with the SEC, as promptly as practicable after the date hereof but in no event later than twenty (20) days after the date hereof, an information statement (the “Information Statement”), in a form reasonably acceptable to the Buyers after review by Schulte Roth & Zabel LLP at the expense of the Company (in a maximum amount of $5,000), informing the shareholders of the Company of its receipt of the Shareholder Consent for the Shareholder Approval. In addition to the foregoing, if otherwise required by applicable law, rule or regulation, or if the Shareholder Consent is not sufficient to obtain the Shareholder Approval, the Company shall prepare and file with the SEC a preliminary proxy statement with respect to a special or annual meeting of the shareholders of the Company (the “Shareholder Meeting”), which shall be called as promptly as practicable after the date hereof, but in no event later than September 4, 2012 (the “Shareholder Meeting Deadline”) soliciting each such shareholder’s affirmative vote for approval of, to the extent not previously adopted, the Resolutions (the date such Shareholder Approval is obtained, the “Shareholder Approval Date”), and the Company shall use its reasonable best efforts to solicit its shareholders’ approval of such Resolutions and to cause the Board of Directors of the Company to recommend to the shareholders that they approve the Resolutions by the Shareholder Meeting Deadline.  The Company shall be obligated to seek to obtain the Shareholder Approval by the Shareholder Meeting Deadline.  If, despite the Company’s best efforts the Shareholder Approval is not obtained on or prior to the Shareholder Meeting Deadline, the Company shall cause an additional Shareholder Meeting to be held each calendar quarter thereafter until Shareholder Approval is obtained.

 

(r)                                                Transfer Restriction.  The Company hereby covenants and agrees that, on or prior to the Call Option Termination Date (as defined in the Call Option Agreements), it will not allow or honor any direct or indirect sale, transfer, hypothecation, pledge or other disposition of any Option Shares by any Grantor (as such terms are defined in the Call Option Agreements) to any Person other than to one or more Buyers pursuant to the terms of one or more Call Option Agreements.  The Company further covenants and agrees to instruct its transfer agent not to allow or honor any such direct or indirect sale, transfer, hypothecation, pledge or other disposition other than to one or more Buyers pursuant to the terms of one or more Call Option Agreements.  As used herein, “Call Option Agreements” shall mean those agreements described on Schedule 4(r) attached hereto.

 

(s)                                              Closing Documents.  On or prior to fourteen (14) calendar days after the Closing Date, the Company agrees to deliver, or cause to be delivered, to each Buyer and Schulte Roth & Zabel LLP a complete closing set of the executed Transaction Documents, Securities and any other documents required to be delivered to any party pursuant to Section 7

 

41

 

hereof or otherwise.

 

5.                                       REGISTER; TRANSFER AGENT INSTRUCTIONS.

 

(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 Warrants in which the Company shall record the name and address of the Person in whose name the Warrants have been issued (including the name and address of each transferee) and the number of Warrant Shares issuable upon exercise of the Warrants held by such Person.  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, in the form of Exhibit D attached hereto (the “Irrevocable Transfer Agent Instructions”) to issue certificates or credit shares to the applicable balance accounts at DTC, registered in the name of each Buyer or its respective nominee(s), for the Common Shares and the Warrant Shares issued at the Closing or upon exercise of the Warrants in such amounts as specified from time to time by each Buyer to the Company upon exercise of the Warrants.  The Company 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(f) hereof, will be given by the Company to its transfer agent, and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the other Transaction Documents.  If a Buyer effects a sale, assignment or transfer of the Securities in accordance with Section 2(f), 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 the Warrant Shares sold, assigned or transferred pursuant to an effective registration statement or pursuant to Rule 144, the transfer agent shall issue such Securities to the Buyer, assignee or transferee, as the case may be, without any restrictive legend.  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.

 

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

 

The obligation of the Company hereunder to issue and sell the Common Shares and the related Warrants 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:

 

42

 

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

 

(ii)                                  Such Buyer shall have delivered to the Company the Purchase Price (less, in the cases of Hudson Bay and Tenor, the amounts withheld pursuant to Section 4(h)) for the Common Shares and the related Warrants being purchased by such Buyer at the Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by the Company.

 

(iii)                               The representations and warranties of such Buyer shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date which shall be true and correct as of such specified 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.

 

The obligation of each Buyer hereunder to purchase the Common Shares  and the related Warrants 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 shall have duly executed and delivered to such Buyer (A) each of the Transaction Documents, (B) the Common Shares (allocated in such amounts as such Buyer shall request), being purchased by such Buyer at the Closing pursuant to this Agreement and (C) the related Warrants (allocated in such amounts as such Buyer shall request) being purchased by such Buyer at the Closing pursuant to this Agreement.

 

(ii)                                  Such Buyer shall have received the opinion of Eavenson & Karailla, P.L., the Company’s outside counsel, dated as of the Closing Date, in substantially the form of Exhibit E attached hereto.

 

(iii)                               The Company shall have delivered to such Buyer a copy of the Irrevocable Transfer Agent Instructions, in the form of Exhibit D attached hereto, 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 and each of its Subsidiaries in such entity’s jurisdiction of formation issued by the Secretary of State (or comparable office) of such jurisdiction, as of a date within ten (10) days of the Closing Date.

 

(v)                                 The Company shall have delivered to such Buyer a certificate evidencing the Company’s qualification as a foreign corporation and good standing issued by the Secretary of State (or comparable office) of each jurisdiction

 

43

 

in which the Company conducts business, as of a date within ten (10) days of the Closing Date.

 

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

 

(vii)                           The Company shall have delivered to such Buyer a certificate, executed by the Secretary of the Company and dated as of the Closing Date, as to (i) the resolutions consistent with Section 3(b) as adopted by the Company’s Board of Directors in a form reasonably acceptable to such Buyer, (ii) the Articles of Incorporation and (iii) the Bylaws, each as in effect at the Closing, in the form attached hereto as Exhibit F.

 

(viii)                        The representations and warranties of the Company shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date which shall be true and correct as of such specified date) and the Company shall have performed, satisfied and complied in all respects with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the Closing Date.  Such Buyer shall have received a certificate, 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 attached hereto as Exhibit G.

 

(ix)                                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 as of a date within five (5) days of the Closing Date.

 

(x)                                   The Common Stock (I) shall be designated for quotation or listed on the Principal Market and (II) 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 (A) in writing by the SEC or the Principal Market or (B) by falling below the minimum listing maintenance requirements of the Principal Market.

 

(xi)                                The Company shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the sale of the Securities.

 

(xii)                             The Company shall have delivered to such Buyer such other documents 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 on or before five (5) Business Days from the date hereof due to the Company’s or such Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7 above (and the nonbreaching party’s failure to waive such unsatisfied condition(s)), the nonbreaching party shall have the option to terminate this Agreement with respect to such breaching party at the close of business on such date by delivering a written notice to that effect to each other party to this Agreement and without liability of any party to any other party; provided, however, that if this 

 

44

 

Agreement is terminated pursuant to this Section 8, the Company shall remain obligated to reimburse Hudson Bay and Tenor or their respective designee(s), as applicable, for the expenses described in Section 4(h) above.

 

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.  Each party 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 with any transaction contemplated hereby or discussed herein, 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.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

(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; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature.

 

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

 

(d)                                             Severability.  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 

 

45

 

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).

 

(e)                                              Entire Agreement; Amendments; Waivers.  This Agreement and the other Transaction Documents supersede all other prior oral or written agreements between the Buyers, the Company, their affiliates and Persons acting on their behalf with respect to the matters discussed herein, and this Agreement, the other Transaction Documents and the instruments referenced herein and therein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be amended or waived other than by an instrument in writing signed, in the case of an amendment, by the Company and the Required Holders and, in the case of a waiver by the Company, signed by the Company and, in the case of a waiver by the Buyers, signed by the Required Holders, and any amendment or waiver to this Agreement made in conformity with the provisions of this Section 9(e) shall be binding on all Buyers and holders of Securities and the Company; provided that any such amendment or waiver that complies with the foregoing but that disproportionately, materially and adversely affects the rights and obligations of any Buyer relative to the comparable rights and obligations of the other Buyers shall require the prior written consent of such adversely affected Buyer. No such amendment or waiver shall be effective to the extent that it applies to less than all of the Buyers or holders of the applicable Securities then outstanding.  No consideration 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 (other than the reimbursement of legal fees) also is offered to all of the parties to the Transaction Documents, holders of Common Shares or holders of the Warrants, as the case may be.  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 or otherwise.

 

(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 by electronic mail; or (iii) one Business Day after deposit with an overnight courier service, 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:

 

46

 

	
Digital   Domain Media Group, Inc.
    
	
10250   SW Village Parkway
    
	
Port   St. Lucie, FL 34987
    
	
Telephone:
    	
(772)   345-8000
    
	
Facsimile:
    	
(772)   345-8114
    
	
Attention:
    	
Chief   Executive Officer
    
	
E-mail:
    	
jtextor@media.d2.com
    
	
 
    
	
With   a copy to:
    
	
 
    
	
Sullivan &   Triggs, LLP
    
	
1230   Montana Avenue, Suite 201
    
	
Santa   Monica, CA 90403
    
	
Telephone:
    	
(310)   451-8300
    
	
Facsimile:
    	
(310)   451-8303
    
	
Attention:
    	
Brian   A. Sullivan, Esq.
    
	
E-mail:
    	
bsullivan@sullivantriggs.com
    
	
 
    
	
If   to the Transfer Agent:
    
	
 
    
	
American   Stock Transfer & Trust Company, LLC
    
	
6201   15th Avenue
    
	
Brooklyn,   NY 11219
    
	
Telephone:
    	
(718)   921-8380
    
	
Attention:
    	
Felix   Orihuela
    
	
Facsimile:
    	
(718)   236-2641
    
	
E-mail:
    	
FOrihuela@amstock.com
    

 

If to a Buyer, to its address, facsimile number and e-mail address 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:
    
	
 
    
	
Schulte   Roth & Zabel LLP
    
	
919   Third Avenue
    
	
New   York, New York 10022
    
	
Telephone:
    	
(212)   756-2000
    
	
Facsimile:
    	
(212)   593-5955
    
	
Attention:
    	
Eleazer   N. Klein, Esq.
    
	
E-mail:
    	
eleazer.klein@srz.com
    

 

or to such other address, facsimile number and/or e-mail address 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.  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 an image of the first 

 

47

 

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 the Common Shares or the Warrants.  The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Required Holders, including by way of a Fundamental Transaction (unless the Company is in compliance with the applicable provisions governing Fundamental Transactions set forth in the Warrants).  A Buyer may assign some or all of its rights hereunder 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, except that each Indemnitee shall have the right to enforce the obligations of the Company with respect to Section 9(k).

 

(i)               Survival.  Unless this Agreement is terminated under Section 8, the representations and warranties of the Company and the Buyers contained in Sections 2 and 3, and the agreements and covenants set forth in Sections 4, 5 and 9 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.

 

(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 other holder of the Securities and all of their shareholders, 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 (a) any misrepresentation or breach of any representation or warranty made by the Company in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant,

 

48

 

agreement or obligation of the Company contained in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby or (c) any cause of action, suit 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) and arising out of or resulting from (i) the execution, delivery, performance or enforcement of the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, (iii) any disclosure made by such Buyer pursuant to Section 4(j), or (iv) the status of such Buyer or holder of the Securities as an investor in the Company pursuant to the transactions contemplated by the Transaction Documents.  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 that 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)               No Strict Construction.  The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

 

(m)         Remedies.  Each Buyer and each holder of the 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 fails to perform, observe, or discharge any or all of its obligations under the Transaction Documents, any remedy at law may prove to be inadequate relief to the Buyers.  The Company therefore agrees that the Buyers shall be entitled to seek temporary and permanent injunctive relief in any such case without the necessity of proving actual damages and without posting a bond or other security.

 

(n)           Rescission and 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 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, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

 

(o)           Payment Set Aside.  To the extent that the Company makes a payment or payments to the Buyers hereunder or pursuant to any of the other Transaction Documents or 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, 

 

49

 

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.

 

(p)           Independent Nature of Buyers’ Obligations and Rights.  The obligations of each Buyer under any Transaction Document 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 entity, or create a presumption that the Buyers are in any way 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 and the Company acknowledges that the Buyers are not acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  The Company acknowledges and each Buyer confirms that it has independently participated 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.

 

[Signature Page Follows]

 

50

 

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

 

 

	
 
    	
COMPANY:
    
	
 
    	
 
    
	
 
    	
DIGITAL   DOMAIN MEDIA GROUP, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   John C. Textor
    
	
 
    	
 
    	
Name:   John C. Textor
    
	
 
    	
 
    	
Title:   Chief Executive Officer
    

 

[Signature Page to Securities Purchase Agreement]

 

 

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

 

	
 
    	
BUYERS:
    
	
 
    	
 
    
	
 
    	
HUDSON BAY MASTER FUND LTD.
    
	
 
    	
By: Hudson Bay Capital Management LP, as its   Investment Manager
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Yoav Roth
    
	
 
    	
 
    	
Name:   Yoav Roth
    
	
 
    	
 
    	
Title:   Authorized Signatory
    

 

[Signature Page to Securities Purchase Agreement]

 

 

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

 

	
 
    	
BUYERS:
    
	
 
    	
 
    
	
 
    	
EMPERY   ASSET MASTER LTD.
    
	
 
    	
 
    
	
 
    	
By:   EMPERY ASSET MANAGEMENT, LP, its Authorized Agent
    
	
 
    	
 
    
	
 
    	
By:   EMPERY AM GP, LLC, its General Partner
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Ryan M. Lane
    
	
 
    	
 
    	
Name:   Ryan M. Lane
    
	
 
    	
 
    	
Title:   Managing Member
    

 

[Signature Page to Securities Purchase Agreement]

 

 

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

 

	
 
    	
BUYERS:
    
	
 
    	
 
    
	
 
    	
HARTZ   CAPITAL INVESTMENTS, LLC
    
	
 
    	
 
    
	
 
    	
By:   EMPERY ASSET MANAGEMENT, LP, its Authorized Agent
    
	
 
    	
 
    
	
 
    	
By:   EMPERY AM GP, LLC, its General Partner
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Ryan M. Lane
    
	
 
    	
 
    	
Name:   Ryan M. Lane
    
	
 
    	
 
    	
Title:   Managing Member
    

 

[Signature Page to Securities Purchase Agreement]

 

 

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

 

 

	
 
    	
BUYERS:
    
	
 
    	
 
    
	
 
    	
PARSOON   SPECIAL SITUATION LTD.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Daniel Kochav
    
	
 
    	
 
    	
Name:   Daniel Kochav
    
	
 
    	
 
    	
Title:   Director
    

 

[Signature Page to Securities Purchase Agreement]

 

 

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

 

 

	
 
    	
BUYERS:
    
	
 
    	
 
    
	
 
    	
TENOR   OPPORTUNITY MASTER FUND, LTD.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Daniel Kochav
    
	
 
    	
 
    	
Name:   Daniel Kochav
    
	
 
    	
 
    	
Title:   Director
    

 

[Signature Page to Securities Purchase Agreement]

 

 

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

 

 

	
 
    	
BUYERS:
    
	
 
    	
 
    
	
 
    	
ARIA   OPPORTUNITY FUND, LTD.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Daniel Kochav
    
	
 
    	
 
    	
Name:   Daniel Kochav
    
	
 
    	
 
    	
Title:   Director
    

 

[Signature Page to Securities Purchase Agreement]

 

 

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

 

 

	
 
    	
BUYERS:
    
	
 
    	
 
    
	
 
    	
KINGSBROOK   OPPORTUNITIES MASTER FUND LP
    
	
 
    	
 
    
	
 
    	
By:   KINGSBROOK OPPORTUNITIES GP LLC, its general partner
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Adam J. Chill
    
	
 
    	
 
    	
Name:   Adam J. Chill
    
	
 
    	
 
    	
Title:   Managing Member
    

 

[Signature Page to Securities Purchase Agreement]

 

 

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

 

 

	
 
    	
BUYERS:
    
	
 
    	
 
    
	
 
    	
IROQUOIS   MASTER FUND LTD.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Joshua Silverman
    
	
 
    	
 
    	
Name:   Joshua Silverman
    
	
 
    	
 
    	
Title:   Authorized Signatory
    

 

[Signature Page to Securities Purchase Agreement]

 

 

SCHEDULE OF BUYERS

 

	
 
    	
 
    	
(2)
    	
 
    	
(3)
    	
 
    	
(4)
    	
 
    	
 
    	
 
    	
(6)
    	
 
    
	
(1)
   Buyer
    	
 
    	
Address and
   Facsimile Number
    	
 
    	
Number of Common
   Shares
    	
 
    	
Number of 
   Warrant Shares
    	
 
    	
(5)
   Purchase Price
    	
 
    	
Legal Representative’s Address and
   Facsimile Number
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Hudson Bay Master Fund Ltd.
    	
 
    	
777   Third Avenue, 30th Floor

New   York, NY 10017

Attention:   Yoav Roth

George   Antonopolous

Facsimile:   646-214-7946

Telephone:   212-571-1244

Residence:   Cayman Islands

E-mail:   investments@hudsonbaycapital.com

operations@hudsonbaycapital.com
    	
 
    	
428,572
    	
 
    	
171,429
    	
 
    	
$
    	
3,000,004
    	
 
    	
Schulte   Roth & Zabel LLP

919   Third Avenue

New   York, New York 10022

Attention:   Eleazer Klein, Esq.

Facsimile:   (212) 593-5955

Telephone:   (212) 756-2376
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Empery Asset Master Ltd.
    	
 
    	
c/o   Empery Asset Management, LP

1   Rockefeller Plaza, Suite 1205

New   York, NY 10020

Attention:   Ryan M. Lane

Facsimile:   212-608-3307

Telephone:   212-608-3300

Residence:   Cayman Islands

Email:   ryan.lane@emperyam.com
    	
 
    	
114,286
    	
 
    	
45,714
    	
 
    	
$
    	
800,002
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Hartz Capital Investments, LLC 
    	
 
    	
c/o   Empery Asset Management, LP

1   Rockefeller Plaza, Suite 1205

New   York, NY 10020

Attention:   Ryan M. Lane

Facsimile:   212-608-3307

Telephone:   212-608-3300

Residence:   Cayman Islands

Email:   ryan.lane@emperyam.com
    	
 
    	
314,286
    	
 
    	
125,714
    	
 
    	
$
    	
2,200,002
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Parsoon Special Situation Ltd.

 
    	
 
    	
c/o   Tenor Capital Management Company, L.P.

1180   Avenue of Americas, 19th Floor

New   York, NY 10036

Attention:   Waqas Khatri

Facsimile:   1-212-918-5301

Telephone:   1-212-918-5213

Residence:   Cayman Islands
    	
 
    	
214,286
    	
 
    	
85,714
    	
 
    	
$
    	
1,500,002
    	
 
    	
Greenberg   Traurig, LLP

MetLife   Building

200   Park Avenue

New   York, NY 10166

Attention:   Michael A. Adelstein, Esq.

Telephone:   (212) 801-9200

Facsimile:   (212) 805-9222
    	
 
    

 

 

	
 
    	
 
    	
Email:   Operations@tenorcapital.com with cc to wkhatri@tenorcapital.com
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Tenor Opportunity Master   Fund, Ltd.
    	
 
    	
c/o   Tenor Capital Management Company, L.P.

1180   Avenue of Americas, 19th Floor

New   York, NY 10036

Attention:   Waqas Khatri

Facsimile:   1-212-918-5301

Telephone:   1-212-918-5213

Residence:   Cayman Islands

Email:             Operations@tenorcapital.com   with cc to wkhatri@tenorcapital.com
    	
 
    	
107,143
    	
 
    	
42,857
    	
 
    	
$
    	
750,001
    	
 
    	
Greenberg   Traurig, LLP

MetLife   Building

200   Park Avenue

New   York, NY 10166

Attention:   Michael A. Adelstein, Esq.

Telephone:   (212) 801-9200

Facsimile:   (212) 805-9222
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Aria Opportunity   Fund, Ltd.
    	
 
    	
c/o   Tenor Capital Management Company, L.P.

1180   Avenue of Americas, 19th Floor

New   York, NY 10036

Attention:   Waqas Khatri

Telephone:   1-212-918-5213

Facsimile:   1-212-918-5301

Email:             Operations@tenorcapital.com   with cc to wkhatri@tenorcapital.com
    	
 
    	
35,715
    	
 
    	
14,286
    	
 
    	
$
    	
250,005
    	
 
    	
Greenberg   Traurig, LLP

MetLife   Building

200   Park Avenue

New   York, NY 10166

Attention:   Michael A. Adelstein, Esq.

Telephone:   (212) 801-9200

Facsimile:   (212) 805-9222
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Kingsbrook Opportunities Master   Fund LP
    	
 
    	
c/o   Kingsbrook Partners LP

590   Madison Avenue, 27th Floor

New   York, New York 10022

Attention:   Ari J. Storch

Adam   J. Chill

Facsimile:   (212) 600-8290

Telephone:   (212) 600-8240

Residence:   Cayman Islands

Email:   investments@kingsbrookpartners.com/

operations@kingsbrookpartners.com
    	
 
    	
142,858
    	
 
    	
57,143
    	
 
    	
$
    	
1,000,006
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Iroquois Master Fund Ltd.
    	
 
    	
c/o   Iroquois Capital Management, LLC

641   Lexington Avenue

26th   Floor

New   York, NY 10022

Attention:   Joshua Silverman

Facsimile:   (646) 274-1728

Telephone:   (212) 974-3070

Residence:   Cayman Islands

Email:   jsilverman@icfunds.com
    	
 
    	
142,858
    	
 
    	
57,143
    	
 
    	
$
    	
1,000,006
    	
 
    	
 
    	
 
    

 

 

EXHIBITS

 

	
Exhibit A
    	
Form of   Warrants
    
	
Exhibit B
    	
Form of   Registration Rights Agreement
    
	
Exhibit C
    	
Form of   Shareholder Consent
    
	
Exhibit D
    	
Form of   Irrevocable Transfer Agent Instructions
    
	
Exhibit E
    	
Form of   Opinion of Company Counsel
    
	
Exhibit F
    	
Form of   Secretary’s Certificate
    
	
Exhibit G
    	
Form of   Officer’s Certificate
    

 

SCHEDULES

 

	
Schedule 3(a)
    	
Subsidiaries
    
	
Schedule 3(h)
    	
No Integrated Offering
    
	
Schedule 3(k)
    	
SEC Documents
    
	
Schedule 3(r)
    	
Equity Capitalization
    
	
Schedule 3(s)
    	
Indebtedness and Other Contracts
    
	
Schedule 3(t)
    	
Absence of Litigation
    
	
Schedule 3(x)
    	
Intellectual Property Rights
    
	
Schedule (bb)
    	
Internal Accounting and Disclosure Controls
    
	
Schedule 3(ff)
    	
Manipulation of Price
    
	
Schedule 3(ll)
    	
Illegal or Unauthorized Payments; Political Contributions
    
	
Schedule 3(rr)
    	
Grant Agreements
    
	
Schedule 4(d)
    	
Use of Proceeds
    
	
Schedule 4(o)
    	
Additional Registration Statements
    
	
Schedule (r)
    	
Transfer Restriction

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