Document:

robl_ex1015.htm

EXHIBIT 10.15

 

 

February 12, 2008

 

Solstice International, Inc.

628 Harbor View Lane

Petoskey, Ml 49770

 

Attention:     Mr, John Paulsen, Chairman

 

Dear John,

 

We are pleased that Solstice International, lnc., including any subsidiary thereof and any affiliate controlled thereby or under common control therewith (the "Company"), has selected CRT Capital Group LLC ("CRT") to act as its exclusive financial advisor and sole placement agent. Neither the Seneca Nation of Indians, nor any of its wholly-owned corporations, including the Seneca Catskills Gaming Corporation, is a subsidiary of or an affiliate controlled by or under common control with the Company. This letter (this "Engagement Letter") will confirm our acceptance and set forth our understanding of the terms of our engagement and replaces any and all existing active engagement letters between CRT and the Company,

 

	
1,

	
Retention. The Company hereby retains CRT as its exclusive financial advisor and sole placement agent from the date hereof until December 31, 2009 (the "Engagement Period"). The Company understands that (i) execution of this Engagement Letter is not intended to constitute a binding agreement to consummate any Placement (defined herein) and/or Transaction (defined herein) and does not assure the successful completion of any Placement and/or Transaction or any portion thereof and (ii) this Engagement Letter is solely for the use of the Company and may not be relied on by any third party.

 

	
2.

	
Information. In connection with CRT's activities hereunder, the Company will furnish CRT and its counsel upon request with all materials and information regarding the business and financial condition of the Company (all such information so furnished being the "Information") to be used by both the Company and CRT in the production of offering materials, in the event that CRT deems such materials necessary (the Information and such offering materials, collectively the "Offering Materials"). The Company represents and warrants that the Offering Materials will be complete and correct in all material respects and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances under which such statements are or will be made. CRT does not assume responsibility for the accuracy or completeness of the Offering Materials and/or such other information and, therefore, retains the right to continue to perform due diligence throughout the Engagement Period.

 

  

1

  

 

Solstice International, Inc.

February 12, 2008

Page 2

 

	
3.

	
Scope of Service. The Company recognizes and confirms that CRT will use and rely primarily on the Information and information available from generally recognized public sources in performing the services contemplated by this Engagement Letter, without having independently verified the same. Such services may include without limitation:

 

	
(a)   

	
assisting the Company in the production of the Offering Materials;

 

	
(b)  

	
preparing a list of potential investors (the "Investors") to be contacted by CRT in connection with the Placement;

 

	
(c)  

	
if appropriate, assisting the Company with the preparation of any other communications to be used in placing the securities, whether in the form of letter, circular, notice or otherwise;

 

	
(d)  

	
assisting the Company in the drafting and circulating definitive transaction documents to Investors as described in the Offering Materials;

 

	
(e)  

	
assisting in the negotiation of the final terms and conditions of the Placement with Investors; and

 

	
(f)  

	
negotiating, analyzing and valuing the financial aspects of any proposed Transaction.

 

	
4,

	
Financing Provision. The Company hereby agrees that in the event the Company pursues the issuance of any securities of the Company in one or a series of transactions (each, a "Placement"), CRT will serve as the sole placement agent, on a best efforts basis, with respect to any Placement. During the Engagement Period, the Company will not contact or solicit potential investors with respect to any Placement (unless approved in advance by CRT), and all inquiries and offers received by the Company with respect thereto shall be referred to CRT. Upon closing of any Placement, the Company agrees to pay CRT a placement fee (the "Placement Fee"), in cash, equal to:

 

	
(a)  

	
an amount that is equal to 6.5% of the aggregate gross proceeds raised by CRT from equity or equity-linked securities, including without limitation common stock, preferred stock and convertible debt; and

 

	
(b)  

	
an amount that is equal to 3.5% of the aggregate gross proceeds raised by CRT from debt securities, including without limitation, senior and subordinated debt.

 

Notwithstanding any termination of this Engagement Letter pursuant to the terms hereof or otherwise, if within 12 months from the date of such termination, the Company enters into a commitment relating to, or consummates, a placement with any investor who was contacted by CRT in connection with its services for the Company hereunder, or as a result of the use by the Company of materials or other work product prepared by CRT, CRT shall be entitled to payment in full of the Placement Fee related thereto.

 

  

2

  

 

Solstice International, Inc.

February 12, 2008

Page 3

 

The Company and CRT understand that if any Placement is consummated by means of more than one closing, CRT shall be entitled to the Placement Fee with respect to each such closing.

 

The Placement Fee is contingent upon the consummation of any Placement. CRT understands and agrees that the Company may accept or reject any proposed Placement in its sole and absolute discretion.

 

	
5. 

	
Advisory Provision. The Company hereby agrees that in the event the Company pursues an acquisition, sale, merger, consolidation or other business combination of, or by, the Company in one or a series of transactions (each, a "Transaction"), CRT will serve as exclusive financial advisor with respect to any Transaction. Upon closing of any Transaction, the Company agrees to pay CRT a success fee (the "Success Fee"), in cash, equal to the aggregate of:

 

	
(a)  

	
a minimum fee of $1,000,000 for the first $50,000,000 of Transaction Value; plus

 

	
(b)  

	
1.25% of Transaction Value, if any, greater than $50,000,000 and up to and including $100,000,000; plus

 

	
(c)  

	
1.00% of Transaction Value, if any, greater than $100,000,000 and up to and including $250,000,000; plus

 

	
(d)   

	
0.75% of Transaction Value, if any, greater than $250,000,000 and up to and including $500,000,000; plus

 

	
(e)   

	
0.50% of Transaction Value, if any, greater than $500,000,000.

 

Notwithstanding any termination of this Engagement Letter puruant to the terms hereof or otherwise, if within 12 months from the date of such termination, a Transaction is consummated with a party (i) contacted by CRT during the term of the Engagement Period or (ii) with which the Company and CRT had discussions regarding a Transaction, CRT shall be entitled to payment in full of the Success Fee relating thereto,

 

The Company and CRT understand that if any Transaction is consummated by means of more than one closing, CRT shall be entitled to the Success Fee with respect to each such closing.

 

The Success Fee is contingent upon the consummation of a Transaction, CRT understands and agrees that the Company may accept or reject any proposed Transaction in its sole and absolute discretion.

 

  

3

  

 

Solstice International, Inc.

February 12, 2008

Page 4

 

The 'Transaction Value" of any Transaction, unless otherwise noted, shall include, without duplication, (i) the fair market value of the aggregate consideration directly or indireclty received by the non-surviving company, which may or may not include the Company (the "Target"), and by the holders of any stock, options, warrants, stock purchase rights, stock appreciation rights, convertible securities or other equity securities of the Target (plus, in the case of a sale, merger, consolidation or other business combination of the Company, whereby the Company is the non-surving company, the value of any such securities retained by such holders following such Transaction including, for clarification, the value of any securities distributed to such holders by the Company through a spin-off, dividend or other similar action) and (ii) the value of any debt, capital leases, preferred stock and other securities of the Target directly or indirectly issued, incurred, assumed, redeemed or repaid in connection with such Transaction, but shall not include any compensation paid or payable to any executive of the Target in connection with such person's prior or future employment with the Target or any successor thereto. The value of any securities (whether debt, equity, options or warrants) or other property or agreements shall be determined as follows: (a) the value of securities that are freely tradable in an established public market shall be the average of the closing market price of such securities for the thirty business days immediately prior to the consummation of a Transaction; and (b) the value of securities which are not freely tradable or which have no established public market, or if the consideration consists of property or agreements other than securities, the value of such securities or other property or agreements shall be the fair market value thereof immediately prior to the consummation of a Transaction as mutually agreed by the Company and CRT; provided, however, that if the Company and CRT shall not so agree within ten business days of such parties' attempting to determine the value thereof, the matter shall be determined by an appraiser to be selected jointly by the Company and CRT, which determination shall be binding on the parties hereto, provided, further that the parties hereto agree that no such arbitration shall delay the consummation of a Transaction. Any amounts to be paid which are contingent upon future events shall be included in the Transaction Value at a net present value thereof provided that CRT and the Company are able to agree upon the estimated net present value thereof taking into consideration, along with any other appropriate factors, the likelihood of a payment, the likely amount of such a payment and the likely timing of such a payment. In the absence of such an agreement, CRT shall be paid such portion of the fee at the time the contingent payment is paid to the Company.

 

	
6.  

	
Expenses. In addition to payment of CRT's fees hereunder, and regardless of whether any Placement or Transaction is consummated, the Company shall promptly, upon request therefor, reimburse CRT for all reasonable expenses (including without limitation fees and expenses of counsel and all travel, lodging, meals, mailing, telephone, due diligence and all other out-of-pocket expenses) incurred by CRT in connection with its engagement hereunder,

 

	
7.  

	
Acknowledgments. The Company and CRT hereby acknowledge that certain letter, dated the date hereof, by and between CRT and Seneca Catskills Gaming Corporation (the "Enterprise"), whereby CRT is engaged as placement agent. The Company and CRT hereby also acknowledge those certain agreements, dated June 18, 2007, by and between the Company and The Seneca Nation of Indians, whereby the Company is engaged as the exclusive developer and manager of the Enterprise. Upon closing of the financing necessary to develop, construct and equip the Enterprise by CRT as lead manager or co-manager, as the case may be (the "Financing"), the Company hereby agrees to compensate CRT as follows:

  

4

  

 

Solstice International, Inc.

February 12, 2008

Page 5

 

	
(a)   

	
Upon closing of the Financing, the Company shall issue to CRT warrants to purchase shares of the Company's common stock equal to 7.0% of the Company's fully diluted shares outstanding, defined as the sum of (i) common shares outstanding, (ii) options outstanding and (iii) warrants outstanding (the "Placement Agent Warrants"). The Placement Agent Warrants will have a five-year term, will be exercisable on a cashless basis, and will have an exercise price equal to $0,01.

 

In addition to payment of CRT's fees hereunder, and regardless of whether the Financing is consummated, the Company shall promptly, upon request therefor, reimburse CRT for all reasonable expenses (including without limitation expenses accrued to date, fees and expenses of counsel and all travel, lodging, meals, mailing, telephone, due diligence and all other out-of-pocket expenses) incurred by CRT, and not reimbursed by the Enterprise, in connection with CRT's engagement with the Enterprise.

 

Notwithstanding any termination of this Engagement Letter pursuant to the terms hereof or otherwise, if the Enterprise consummates the Financing, the Company shall pay CRT fees and expenses in accordance with the terms and provisions of this Section 7.

 

	
8.  

	
Indemnification. CRT shall act under this Engagement Letter as an independent contractor with duties solely to the Company, The Company shall indemnify CRT pursuant to the terms and conditions set forth in Addendum I, which is hereby incorporated by reference.

 

	
9.  

	
Press Announcements, At any time after the consummation of any Placement or Transaction, and with the approval of the Company (which approval shall not be unreasonably withheld or delayed), CRT may place an announcement in such newspapers and publications as it may choose, stating that CRT has acted as sole placement agent and/or exclusive financial advisor to the Company in connection with a Placement and/or Transaction as the case may be.

 

	
10.  

	
Future Transactions. For a period of one year from the expiration of the Engagement Period, if the Company proposes to enter into any other transaction, including the sale of any securities by the Company, any merger, consolidation, exchange offer, recapitalization or other business combination or any public offering or private placement of securities, the Company shall, give CRT an irrevocable, preferential right of first refusal to act as exclusive financial advisor, lead managing underwriter or lead placement agent, as the case may be, in connection with the aforementioned transactions. The Company agrees to offer CRT the opportunity to purchase or sell such securities on terms no less favorable than they can obtain elsewhere. If within 30 business days of the receipt of such notice of intention and the statement of terms, CRT does not accept in writing such offer to purchase such securities or to act as advisor, underwriter or agent with respect to such offering upon the terms proposed, and subject to the transfer restrictions set forth herein, the Company shall be free to negotiate terms with third parties with respect to such offering and to effect such offering on such proposed terms. Before the Company shall accept any proposal materially less favorable to them than that originally proposed by CRT, CRT's preferential right shall be applied, and the procedure set forth above with respect to such modified proposal adopted. CRT's failure to exercise these preferential rights in any situation shall not affect CRT's preferential rights to any subsequent offering during the term of the right of first refusal agreement. The Company represents and warrants that no other person has any right to participate in any offer, sale or distribution of the Company securities to which CRT's preferential rights shall apply.

 

  

5

  

 

Solstice International, Inc.

February 12, 2008

Page 6

 

	
11.  

	
Broker Dealer. Please note that CRT is a securities firm engaged in securities trading and brokerage activities, as well as providing investment banking, financing and financial advisory services. In the ordinary course of CRT's trading, brokerage and financing activities, CRT or its affiliates may at any time hold long or short positions, and may trade or otherwise effect transactions, for CRT's own account or the accounts of customers, in debt or equity securities or senior loans of the Company or its competitors or any other company that may be involved in a Transaction.

 

	
12.  

	
Notices. All notices provided hereunder shall be given in writing and either delivered personally or by overnight courier service or sent by certified mail.

 

	
13.  

	
Governing Law: Amendment; Headings. This Engagement Letter shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be fully performed therein, without regard to conflicts of law principles. This Engagement Letter may not be modified or amended except in a writing duly executed by the parties hereto. The section headings in this Engagement Letter have been inserted as a matter of convenience of reference and are not part of this Engagement Letter,

 

	
14.  

	
Successors and Assigns. The benefits of this Engagement Letter shall inure to the parties hereto, their respective successors and assigns and to the indemnified parties hereunder and their respective successors and assigns, and the obligations and liabilities assumed in this Engagement Letter shall be binding upon the parties hereto and their respective successors and assigns. Notwithstanding anything contained herein to the contrary, neither CRT nor the Company shall assign to an unaffiliated third party any of its obligations hereunder.

 

	
15.  

	
Counterparts. For the convenience of the parties, this Engagement Letter may be executed in any number of counterparts, each of which shall be, and shall be deemed to be, an original instrument, but all of which taken together shall constitute one and the same Engagement Letter.

 

  

6

  

 

Solstice International, Inc.

February 12, 2008

Page 7

 

	
16.  

	
Termination; Survival of Provisions. CRT or the Company may terminate this Engagement Letter at any time upon 30 days' prior written notice to the other party. In the event of such termination, the Company shall pay CRT fees earned through the date of such termination ("Termination Date") as well as afterwards pursuant to any provision of Section 4, 5 and 7 hereof, together with all expense reimbursements due under the terms of Section 6 and 7 hereof. All such fees and reimbursements due to CRT pursuant to the immediately preceding sentence shall be paid to CRT on or before the Termination Date (in the event such fees and reimbursements are earned or owed as of the Termination Date) or upon the closing of the Placement, Transaction, Financing or any applicable portion thereof (in the event such fees are due pursuant to the terms of Section 4, 5 and 7 above), Notwithstanding anything expressed or implied herein to the contrary, the terms and provisions of Sections 4, 5, 6, 7, 8, 10, 11, 13, 14, 16 and 17 shall survive the termination of this Engagement Letter for any reason.

 

	
17. 

	
Arbitration Provision. Any dispute between the parties to this Engagement Letter shall be settled by arbitration before the facilities of the National Association of Securities Dealers, Inc. in the City of New York and will be conducted pursuant to the rules of the selected arbitral facility. The parties understand that the award of the arbitrators, or of a majority of them, will be final and that a judgment upon any award rendered may be entered in any court having jurisdiction.

 

  

7

  

 

Solstice International, Inc.

February 12, 2008

Page 8

 

If the foregoing correctly sets forth the Company's understanding, please sign this Engagement Letter and return it to CRT,

 

Very truly yours,

 

 

 

 

  

8

  

 

ADDENDUM I

 

This Addendum I is attached to and incorporated by reference into the foregoing engagement letter (the "Engagement Letter"). Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Engagement Letter.

 

The Company hereby agrees to indemnify and hold harmless CRT and its affiliates, and the respective directors, officers, partners, members, controlling persons (within the meaning of Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as amended), agents, counsel and employees of CRT or any of its affiliates (CRT and each such other person or entity being referred to individually as an "Indemnified Person" and, collectively, as "Indemnified Persons"), to the full extent lawful, from and against any and all claims, liabilities, losses, damages, penalties, judgments, awards and expenses incurred by any Indemnified Person (including fees and disbursements of counsel) which (A) relate to or arise out of (i) actions taken or omitted to be taken (including any untrue statements made or alleged to have been made or any statements omitted or alleged to have been omitted, whether in connection with the Information or any other oral or written statements) by the Company, its affiliates, directors, employees or agents, or (ii) actions taken or omitted to be taken by an Indemnified Person with the Company's consent or in conformity with its instructions or its actions or omissions, or (B) otherwise relate to or arise out of CRT's activities on the Company's behalf in connection with the Engagement Letter (collectively. "Damages"). In addition, the Company will reimburse CRT and any other Indemnified Person for all costs and expenses, including counsel fees and disbursements, as they are incurred, in connection with investigating, preparing and defending any action, formal or informal claim, investigation, inquiry or other proceeding (collectively, "Action"), whether or not in connection with pending or threatened litigation, caused by or arising out of or in connection with CRT acting pursuant to the Engagement Letter, whether or not CRT or any Indemnified Person is named as a party thereto and whether or not any liability results therefrom. The Company will not, however, be responsible for any Damages pursuant to clause (B) of the preceding sentence which are finally judicially determined by a court of competent jurisdiction (not subject to further review) to have resulted primarily from CRT's willful misconduct or gross negligence. The Company also agrees that neither CRT nor any other Indemnified Person shall have any liability to the Company for or in connection with such engagement except for any such liability for Damages incurred by the Company which are finally judicially determined by a court of competent jurisdiction (not subject to further review) to have resulted primarily from CRT's willful misconduct or gross negligence.

 

The Company will not, without CRT's prior written consent, settle, compromise, consent to the entry of any judgment in or otherwise seek to terminate any Action in respect of which indemnification may be sought hereunder (whether or not any Indemnified Person is a party thereto) unless such settlement, compromise, consent or termination includes an unconditional release of each Indemnified Person from all Damages arising out of such Action.

 

  

9

  

 

In order to provide for just and equitable contribution, if a claim for indemnification is made pursuant to these provisions, but it is found in a final judgment by a court of competent jurisdiction (not subject to further appeal) that such indemnification is not available for any reason even though the express provisions hereof provide for indemnification in such case, then the Company, on the one hand, and CRT on the other hand, shall contribute to such Damages for which such indemnification or reimbursement is held unavailable in such proportion as is appropriate to reflect the relative benefits to the Company and its shareholders and creditors, on the one hand, and CRT on the other hand, in connection with the actions contemplated by the engagement, subject to the limitation that in any event the aggregate contribution of CRT and all Indemnified Persons to all Damages to which contribution is available hereunder shall not exceed the amount of fees actually received by CRT pursuant to the Engagement Letter. For the purposes of this agreement, the relative benefits to the Company and its shareholders and creditors, on the one hand, and CRT, on the other hand, of the Engagement shall be deemed to be in the same proportion as (a) the total value paid or contemplated to be paid or received or retained or contemplated to be received or retained by the Company and its shareholders and creditors in the transaction or transactions that are the subject of the Engagement, whether or not any such transaction is consummated, bears to (b) the fees paid or contemplated to be paid to CRT under the Engagement Letter,

 

The foregoing right to indemnity and contribution shall be in addition to any rights that CRT or any other Indemnified Person may have at common law or otherwise and shall remain in full force and effect following the completion or any termination of CRT's engagement and shall be binding on and inure to the benefit of the successors, assigns, heirs and personal representatives of the Company and CRT and any other Indemnified Party.

 

 

10robl_ex1022.htm

EXHIBIT 10.22

 

SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”), is dated as of May  ___, 2012, by and between Rotate Black, Inc., a Nevada corporation (the “Company”), and the subscribers listed on Schedule 1 hereto (the “Subscribers”).

WHEREAS, the Company and the Subscribers are executing and delivering this Agreement in reliance upon an exemption from securities registration afforded by the provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “1933 Act”);

WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to the Subscribers, as provided herein, and the Subscribers shall purchase, in the aggregate, (i) not less than $100,000 and up to $300,000 of principal amount (the “Principal Amount”) of convertible promissory notes of the Company (“Note” or “Notes”), a form of which is annexed hereto as Exhibit A, convertible into shares of the Company’s Common Stock, $0.001 par value (the “Common Stock”), at a per share conversion price set forth in the Notes (“Conversion Price”); and (ii) warrants (the “Warrants”) in the form attached hereto as Exhibit B, to purchase shares of the Company’s Common Stock at a per share conversion price set forth in the Warrants (the “Warrant Shares”) (the “Offering”).  The Notes, shares of Common Stock issuable upon conversion of the Notes (the “Conversion Shares”), the Warrants and the Warrant Shares are collectively referred to herein as the “Securities”; and

WHEREAS, each of the Subscribers represent and warrant to the Company, with the intention that the Company rely thereon, that it is an “Accredited Investor” as indicated in Section 4.2(i) hereof, and each of the Subscribers hereby executes this Agreement in accordance with and subject to the terms and conditions set forth herein for the purpose of purchasing the Securities;

 

WHEREAS, the aggregate proceeds of the sale of the Notes and the Warrants contemplated hereby (“Purchase Price”) shall be held in escrow by Sichenzia Ross Friedman Ference LLP, 61 Broadway, 32nd Floor, New York, NY 10006 (the “Escrow Agent”) pursuant to the terms of an Escrow Agreement to be executed by the parties substantially in the form attached hereto as Exhibit C (the “Escrow Agreement”).

 

NOW, THEREFORE, in consideration of the mutual covenants and other agreements contained in this Agreement the Company and the Subscribers hereby agree as follows:

 

1.             Closing.   The “Closing Date” shall be the date, not later than May __, 2012, that the aggregate Purchase Price in an amount not less than $100,000, shall have been transmitted by wire transfer or electronic funds transfer to the Escrow Agent or for the benefit of the Company and the conditions in the Escrow Agreement to the disbursement of the escrowed funds shall have been satisfied. The consummation of the transactions contemplated herein shall take place at the offices of the Escrow Agent, upon the satisfaction or waiver of all conditions to closing set forth in this Agreement.  Subject to the satisfaction or waiver of the terms and conditions of this Agreement, on the Closing Date, the Subscribers, respectively, shall purchase and the Company shall sell to Subscribers the Notes and Warrants as described in Section 2 of this Agreement, in the amounts subscribed by the Subscribers as set forth on the Subscribers’ signature pages attached hereto.

 

  

1

  

2.             Notes and Warrants.

(a)            Notes.   Subject to the satisfaction or waiver of the terms and conditions of this Agreement, on the Closing Date, each of the Subscribers shall purchase from the Company, and the Company shall sell to each of such Subscribers a Note in the Principal Amount set forth on such Subscriber’s signature page attached hereto for the Purchase Price indicated thereon.

(b)           Warrants.  On the Closing Date, the Company will issue and deliver the Warrants to each of the Subscribers for the number of Conversion Shares set forth on such Subscriber’s signature page attached hereto.

(c)           Allocation of Purchase Price.   The Purchase Price will be allocated by each Subscriber, among the components of the Securities so that each component of the Securities will be fully paid and non-assessable.

3.             Offering Material.   The Subscribers represent and warrant that they have had access to, and reviewed, prior to signing this Agreement, the following items (collectively, the “Offering Materials”):

 

(a)           this Agreement;

 

(b)           the form of Note attached hereto;

 

(c)           the Form of Warrant attached hereto;

 

(d)           the Escrow Agreement attached hereto;

 

(e)           the Company’s Annual Report on Form 10-K for the year ended June 30, 2010, filed on Edgar on November 8, 2010;

 

(f)            the Company’s Quarterly Reports on Form 10-Q, for the periods ended September 30, 2010; December 31, 2010; and March 31, 2011 filed on Edgar; and

 

(g)           the Company’s Current Reports on Form 8-K filed November 18, 2010, and on January 18, January 26, February 4, March 23, May 6, October 19, November 1, and November 23, 2011, and on March 9 and April 20, 2012 filed on Edgar; and that, as of the date hereof, the Company is not current in its filings with the Commission as required under the Securities and Exchange Act of 1934, as amended, and further that such failure on the part of the Company to be current in its filings may impair the ability of the Subscribers to sell, transfer or otherwise dispose of the Securities within one year after the date hereof unless and until the same have been registered pursuant to an effective registration statement under the Securities Act of 1933, as amended, or there otherwise is available for the Securities an exemption from such registration requirement. For purposes hereof, the term “Reports” shall mean all of the Company’s annual reports filed on Form 10-K, quarterly reports filed on Form 10-Q and current reports filed on Form 8-K, as the same may be amended, as filed on EDGAR with the Commission.

 

4.             Subscriber Representations and Warranties.  Each of the Subscribers hereby represents and warrants to and agrees with the Company with respect only to such Subscriber that:

(a)           Organization and Standing of the Subscriber.  Subscriber, to the extent applicable, is an entity duly formed, validly existing and in good standing under the laws of the jurisdiction of its formation.

(b)           Authorization and Power.  Subscriber has the requisite power and authority to enter into and perform this Agreement and the other Transaction Documents (hereinafter defined) and to purchase the Note and Warrants being sold to it hereunder.  The execution, delivery and performance of this Agreement and the other Transaction Documents by Subscriber and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action, and no further consent or authorization of Subscriber or its Board of Directors or stockholders, if applicable, is required.  This Agreement and the other Transaction Documents have been duly authorized and executed and when delivered by Subscriber shall constitute valid and binding obligation of Subscriber, enforceable against Subscriber in accordance with the terms thereof.

  

2

  

 

(c)            No Conflicts.  The execution, delivery and performance of this Agreement and the other Transaction Documents and the consummation by Subscriber of the transactions contemplated hereby and thereby or relating hereto do not and will not (i) result in a violation of Subscriber’s charter documents, bylaws or other organizational documents, if applicable, (ii) conflict with nor constitute a default (or an event which with notice or lapse of time or both would become a default) under any agreement to which Subscriber is a party, nor (iii) result in a violation of any law, rule, or regulation, or any order, judgment or decree of any court or governmental agency applicable to Subscriber or its properties (except for such conflicts, defaults and violations as would not, individually or in the aggregate, have a material adverse effect on Subscriber).  Subscriber is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement and the other Transaction Documents  nor to purchase the Securities in accordance with the terms hereof, provided that for purposes of the representation made in this sentence, Subscriber is assuming and relying upon the accuracy of the relevant representations and agreements of the Company herein.

(d)           Information on Company.   Subscriber has been furnished with or has had access to the EDGAR Website of the Commission to the Company's filings made with the Commission through the fifth business day preceding the Closing Date (hereinafter referred to collectively as the "Reports").  In addition, Subscriber may have received in writing from the Company such other information concerning its operations, financial condition and other matters as Subscriber has requested in writing, identified thereon as OTHER WRITTEN INFORMATION (such other information is collectively, the "Other Written Information"), and considered all factors Subscriber deems material in deciding on the advisability of investing in the Securities.

(e)           Information on each Subscriber.   The Subscriber is, and will be at the time of the conversion of the Notes and exercise of the Warrants, an "accredited investor", as such term is defined in Regulation D promulgated by the Commission under the 1933 Act, is experienced in investments and business matters, has made investments of a speculative nature and has purchased securities of United States publicly-owned companies in private placements in the past and, with its representatives, has such knowledge and experience in financial, tax and other business matters as to enable Subscriber to utilize the information made available by the Company to evaluate the merits and risks of and to make an informed investment decision with respect to the proposed purchase, which represents a speculative investment.  Subscriber has the authority and is duly and legally qualified to purchase and own the Securities.  Subscriber is able to bear the risk of such investment for an indefinite period and to afford a complete loss thereof.  The information set forth on the Accredited Investor Questionnaire submitted to the Company by the Subscriber, in the form attached hereto as Exhibit D, is true and complete.

(f)            Purchase of Notes and Warrants.  On the Closing Date, the Subscriber will purchase a Note and Warrants as the principal for its own account for investment only and not with a view toward, or for resale in connection with, the public sale or any distribution thereof.

(g)           Compliance with Securities Act.   The Subscriber understands and agrees that the Securities have not been registered under the 1933 Act or any applicable state securities laws, by reason of their issuance in a transaction that does not require registration under the 1933 Act (based in part on the accuracy of the representations and warranties of the Subscriber contained herein), and that such Securities must be held indefinitely unless a subsequent disposition is registered under the 1933 Act or any applicable state securities laws or is exempt from such registration.  In any event, and subject to compliance with applicable securities laws, the Subscriber may enter into lawful hedging transactions in the course of hedging the position they assume and the Subscriber may also enter into lawful short positions or other derivative transactions relating to the Securities, or interests in the Securities, and deliver the Securities, or interests in the Securities, to close out their short or other positions or otherwise settle other transactions, or loan or pledge the Securities, or interests in the Securities, to third parties who in turn may dispose of these Securities.

 

  

3

  

(h)           Conversion Shares and Warrant Shares Legend.  The Conversion Shares and Warrant Shares shall bear the following or similar legend:

"THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES."

(i)            Notes and Warrants Legend.  The Notes and Warrants shall bear the following legend:

 

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

 

(j)            Communication of Offer.  The offer to sell the Securities was directly communicated to Subscriber by the Company or by it placement agent Street Capital who will receive compensation in connection with this transaction. At no time was Subscriber presented with or solicited by any leaflet, newspaper or magazine article, radio or television advertisement, or any other form of general advertising or solicited or invited to attend a promotional meeting otherwise than in connection and concurrently with such communicated offer.

(k)            Restricted Securities.   Subscriber understands that the Securities have not been registered under the 1933 Act and Subscriber will not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any of the Securities unless pursuant to an effective registration statement under the 1933 Act, or unless an exemption from registration is available.  Notwithstanding anything to the contrary contained in this Agreement, Subscriber may transfer (without restriction and without the need for an opinion of counsel) the Securities to its Affiliates (as defined below) provided that each such Affiliate is an “accredited investor” under Regulation D and such Affiliate agrees to be bound by the terms and conditions of this Agreement. For the purposes of this Agreement, an “Affiliate” of any person or entity means any other person or entity directly or indirectly controlling, controlled by or under direct or indirect common control with such person or entity.  For purposes of this definition, “control” means the power to direct the management and policies of such person or firm, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

 

  

4

  

(l)            No Governmental Review.  Subscriber understands that no United States federal or state agency or any other governmental or state agency has passed on or made recommendations or endorsement of the Securities or the suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities, and that any representation to the contrary would be unlawful.

(m)          Correctness of Representations.  Subscriber represents that the foregoing representations and warranties are true and correct as of the date hereof and, unless Subscriber otherwise notifies the Company prior to the Closing Date, shall be true and correct as of the Closing Date.

(n)           Survival.  The foregoing representations and warranties shall survive the Closing Date.

 

5.             Company Representations and Warranties.  Except as set forth in the Schedules, the Company represents and warrants to and agrees with each Subscriber that:

 

(a)           Due Incorporation.  The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the requisite corporate power to own its properties and to carry on its business as presently conducted.  The Company is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have a Material Adverse Effect.  For purposes of this Agreement, a “Material Adverse Effect” shall mean a material adverse effect on the financial condition, results of operations, prospects, properties or business of the Company taken as a whole.

 

(b)           Outstanding Stock.  All issued and outstanding shares of capital stock and equity interests in the Company have been duly authorized and validly issued and are fully paid and non-assessable.

 

(c)            Authority; Enforceability.  This Agreement, the Notes, Warrants, the Escrow Agreement, and any other agreements delivered or required to be delivered together with or pursuant to this Agreement or in connection herewith (collectively “Transaction Documents”) have been duly authorized, executed and delivered by the Company and are valid and binding agreements of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity.  The Company has full corporate power and authority necessary to enter into and deliver the Transaction Documents and to perform its obligations thereunder.

 

(d)           Capitalization and Additional Issuances.   The authorized and outstanding capital stock of the Company on a fully diluted basis as of the date of this Agreement and the Closing Date (not including the Securities) are set forth on Schedule 5(d).  Except as set forth on Schedule 5(d), and the Notes and Warrants to be issued to the Subscribers, there are no options, warrants, or rights to subscribe to, securities, rights, understandings or obligations convertible into or exchangeable for or granting any right to subscribe for any shares of capital stock or other equity interest of the Company.  The only officer, director, employee and consultant stock option or stock incentive plan or similar plan currently in effect or contemplated by the Company is described on Schedule 5(d).  There are no outstanding agreements or preemptive or similar rights affecting the Company's Common Stock.

 

  

5

  

 

(e)           Consents.  No consent, approval, authorization or order of any court, governmental agency or body or arbitrator having jurisdiction over the Company or the Company's stockholders is required for the execution by the Company of the Transaction Documents and compliance and performance by the Company of its obligations under the Transaction Documents, including, without limitation, the issuance and sale of the Securities.  The Transaction Documents and the Company’s performance of its obligations thereunder have been approved by the Company’s Board of Directors in accordance with the Company’s Certificate of Incorporation and applicable law.  Any such qualifications and filings will, in the case of qualifications, be effective upon Closing and will, in the case of filings, be made within the time prescribed by law.

 

(f)            No Violation or Conflict.  Assuming the representations and warranties of the Subscriber in Section 4 are true and correct, neither the issuance and sale of the Securities nor the performance of the Company’s obligations under this Agreement and all other agreements entered into by the Company relating thereto by the Company will:

 

(i)           violate, conflict with, result in a breach of, or constitute a default (or an event which with the giving of notice or the lapse of time or both would be reasonably likely to constitute a default) under (A) the articles or certificate of incorporation, charter or bylaws of the Company, (B) to the Company's knowledge, any decree, judgment, order, law, treaty, rule, regulation or determination applicable to the Company of any court, governmental agency or body, or arbitrator having jurisdiction over the Company or over the properties or assets of the Company or any of its Affiliates, (C) the terms of any bond, debenture, note or any other evidence of indebtedness, or any agreement, stock option or other similar plan, indenture, lease, mortgage, deed of trust or other instrument to which the Company or any of its Affiliates is a party, by which the Company or any of its Affiliates is bound, or to which any of the properties of the Company or any of its Affiliates is subject, or (D) the terms of any "lock-up" or similar provision of any underwriting or similar agreement to which the Company, or any of its Affiliates is a party except the violation, conflict, breach, or default of which would not have a Material Adverse Effect; or

 

(ii)          result in the creation or imposition of any lien, charge or encumbrance upon the Securities; or

 

(iii)         result in the activation of any anti-dilution rights or a reset or repricing of any debt, equity or security instrument of any creditor or equity holder of the Company, or the holder of the right to receive any debt, equity or security instrument of the Company nor result in the acceleration of the due date of any obligation of the Company; or

 

(iv)         result in the triggering of any piggy-back or other registration rights of any person or entity holding securities of the Company or having the right to receive securities of the Company.

 

(g)           The Securities.  The Securities upon issuance:

 

(i)           are, or will be, free and clear of any security interests, liens, claims or other encumbrances, subject only to restrictions upon transfer under the 1933 Act and any applicable state securities laws;

 

(ii)          have been, or will be, duly and validly authorized and on the dates of issuance, conversion or exercise, as the case may be, of the Notes, Warrants, Conversion Shares upon conversion of the Notes, and the Warrant Shares upon exercise of the Warrants, such Notes, Warrants, Conversion Shares and Warrant Shares will be duly and validly issued, fully paid and non-assessable and if registered pursuant to the 1933 Act and resold pursuant to an effective registration statement will be free trading, unrestricted and unlegended;

 

  

6

  

 

(iii)         will not have been issued or sold in violation of any preemptive or other similar rights of the holders of any securities of the Company or rights to acquire securities of the Company;

 

(iv)        will not subject the holders thereof to personal liability by reason of being such holders; and

 

(v)         assuming the representations and warranties of the Subscribers as set forth in Section 4 hereof are true and correct, will not result in a violation of Section 5 under the 1933 Act.

 

(h)           Litigation.  There is no pending or, to the best knowledge of the Company, threatened action, suit, proceeding or investigation before any court, governmental agency or body, or arbitrator having jurisdiction over the Company, or any of its Affiliates that would affect the execution by the Company or the complete and timely performance by the Company of its obligations under the Transaction Documents.  Except as disclosed in the Reports, there is no pending or, to the best knowledge of the Company, basis for or threatened action, suit, proceeding or investigation before any court, governmental agency or body, or arbitrator having jurisdiction over the Company, or any of its Affiliates which litigation if adversely determined would have a Material Adverse Effect.

 

(i)            No Market Manipulation.  The Company and its Affiliates have not taken, and will not take, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Securities or affect the price at which the Securities may be issued or resold.

 

(j)            Information Concerning Company.  The Reports and Other Written Information contain all material information relating to the Company and its operations and financial condition as of their respective dates which information is required to be disclosed therein.   Since March 31, 2011, and except as disclosed in the Reports or modified in the Other Written Information or in the Schedules hereto, there has been no Material Adverse Event relating to the Company's business, financial condition or affairs. The Reports and Other Written Information including the financial statements included therein do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, taken as a whole, not misleading in light of the circumstances and when made.

 

(k)           Defaults.  The Company is not in violation of its articles of incorporation or bylaws.   The Company is (i) not in default under or in violation of any other material agreement or instrument to which it is a party or by which it or any of its properties are bound or affected, which default or violation would have a Material Adverse Effect, (ii) not in default with respect to any order of any court, arbitrator or governmental body or subject to or party to any order of any court or governmental authority arising out of any action, suit or proceeding under any statute or other law respecting antitrust, monopoly, restraint of trade, unfair competition or similar matters, or (iii) not in violation of any statute, rule or regulation of any governmental authority which violation would have a Material Adverse Effect.

 

(l)            No Integrated Offering.   Neither the Company, nor any of its Affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security of the Company nor solicited any offers to buy any security of the Company under circumstances that would cause the offer of the Securities pursuant to this Agreement to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of the Bulletin Board.  No prior offering will impair the exemptions relied upon in this Offering or the Company’s ability to timely comply with its obligations hereunder.  Neither the Company nor any of its Affiliates will take any action or steps that would cause the offer or issuance of the Securities to be integrated with other offerings which would impair the exemptions relied upon in this Offering or the Company’s ability to timely comply with its obligations hereunder.  The Company will not conduct any offering other than the transactions contemplated hereby that may be integrated with the offer or issuance of the Securities or that would impair the exemptions relied upon in this Offering or the Company’s ability to timely comply with its obligations hereunder.

 

  

7

  

 

(m)          No General Solicitation.  Neither the Company, nor any of its Affiliates, nor to its knowledge, 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 under the 1933 Act) in connection with the offer or sale of the Securities.

 

(n)           No Undisclosed Liabilities.  The Company has no liabilities or obligations which are material, individually or in the aggregate, other than those incurred in the ordinary course of the Company’s business since March 31, 2011 and which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.

 

(o)           No Undisclosed Events or Circumstances.  Since March 31, 2011, except as disclosed in the Reports, no event or circumstance has occurred or exists with respect to the Company or its businesses, properties, operations or financial condition, that, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed in the Reports.

 

(p)           Dilution.   The Company's executive officers and directors understand the nature of the Securities being sold hereby and recognize that the issuance of the Securities will have a potential dilutive effect on the equity holdings of other holders of the Company’s equity or rights to receive equity of the Company.  The board of directors of the Company has concluded, in its good faith business judgment, that the issuance of the Securities is in the best interests of the Company.  The Company specifically acknowledges that its obligation to issue the Conversion Shares upon conversion of the Notes and the Warrant Shares upon exercise of the Warrants is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other stockholders of the Company or parties entitled to receive equity of the Company.

(q)           Investment Company.   Neither the Company nor any Affiliate of the Company is an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

(r)            Foreign Corrupt Practices.  Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is  in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

(s)            DTC Status.   The Company’s transfer agent is a participant in, and the Common Stock is eligible for transfer pursuant to, the Depository Trust Company Automated Securities Transfer Program. The name, address, telephone number, fax number, contact person and email address of the Company transfer agent is set forth on Schedule 5(s) hereto.

 

  

8

  

(t)            Correctness of Representations.  The Company represents that the foregoing representations and warranties are true and correct as of the date hereof in all material respects, and, unless the Company otherwise notifies the Subscribers prior to the Closing Date, shall be true and correct in all material respects as of the Closing Date; provided, that, if such representation or warranty is made as of a different date, in which case such representation or warranty shall be true as of such date.

 

(u)           Survival.  The foregoing representations and warranties shall survive the Closing Date.

 

6.             Regulation D Offering/Legal Opinion.  The offer and issuance of the Securities to the Subscribers is being made pursuant to the exemption from the registration provisions of the 1933 Act afforded by Section 4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of Regulation D promulgated thereunder.  On the Closing Date, the Company will provide an opinion reasonably acceptable to the Subscribers from the Company's legal counsel opining on the availability of an exemption from registration under the 1933 Act as it relates to the offer and issuance of the Securities and other matters reasonably requested by Subscribers.  A form of the legal opinion is annexed hereto as Exhibit E.  The Company will provide, at the Company's expense, to the Subscribers, such other legal opinions, if any, as are reasonably necessary in each Subscriber’s opinion for the issuance and resale of the Notes, Warrants, Conversion Shares and Warrant Shares pursuant to an effective registration statement, Rule 144 under the 1933 Act or an exemption from registration, to the extent the same is available at the time.

7.             Fees.

 

(a)            Broker’s Commission.  The Company on the one hand, and each Subscriber (for himself only) on the other hand, agrees to indemnify the other against and hold the other harmless from any and all liabilities to any persons claiming brokerage commissions or similar fees on account of services purported to have been rendered on behalf of the indemnifying party in connection with this Agreement or the transactions contemplated hereby and arising out of such party’s actions.  Anything in this Agreement to the contrary notwithstanding, each Subscriber is providing indemnification only for such Subscriber’s own actions and not for any action of any other Subscriber.  The liability of the Company and each Subscriber’s liability hereunder is several and not joint.  The Company represents that to the best of its knowledge there are no other parties entitled to receive fees, commissions, or similar payments in connection with the Offering other than Street Capital, who shall be compensated at the sole expense of the Company pursuant to separate agreement.

(b)           Subscribers’ Legal Fees.   The Subscribers shall be responsible for the payment of any legal or other professional fees or expenses they incur in connection with purchase of the Securities and the review and execution of the Transaction Documents. The Company shall pay the fees and expenses of the Escrow Agent.

8.             Covenants of the Company.  The Company covenants and agrees with the Subscribers as follows:

(a)           Stop Orders.  Subject to the prior notice requirement described in Section 8(m), the Company will advise the Subscribers, within twenty-four hours after it receives notice of issuance by the Commission, any state securities commission or any other regulatory authority of any stop order or of any order preventing or suspending any offering of any securities of the Company, or of the suspension of the qualification of the Common Stock of the Company for offering or sale in any jurisdiction, or the initiation of any proceeding for any such purpose.  The Company will not issue any stop transfer order or other order impeding the sale, resale or delivery of any of the Securities, except as may be required by any applicable federal or state securities laws and only if at least two business days prior notice of such instruction is given to the Subscribers.

 

  

9

  

 

(b)           Listing/Quotation.  The Company shall promptly secure the quotation or listing of the Conversion Shares and Warrant Shares upon each national securities exchange, or automated quotation system upon which the Company’s Common Stock is quoted or listed and upon which such Conversion Shares and Warrant Shares are or become eligible for quotation or listing (subject to official notice of issuance) and shall maintain same so long as any Notes and Warrants are outstanding.  The Company will maintain the quotation or listing of its Common Stock on the American Stock Exchange, Nasdaq Capital Market, Nasdaq Global Market, Nasdaq Global Select Market, OTC Bulletin Board, or New York Stock Exchange (whichever of the foregoing is at the time the principal trading exchange or market for the Common Stock (the “Principal Market”), and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the Principal Market, as applicable. Subject to the limitation set forth in Section 8(m), the Company will provide Subscribers with copies of all notices it receives notifying the Company of the threatened and actual delisting of the Common Stock from any Principal Market.  As of the date of this Agreement and the Closing Date, the Company’s Common Stock is quoted on the OTC Bulletin Board.

 

(c)            Filing Requirements.  From the date of this Agreement and until the last to occur of (i) all the Conversion Shares have been resold or transferred by the Subscribers pursuant to a registration statement or pursuant to Rule 144(b)(1)(i), or (ii) the Notes and Warrants are no longer outstanding (the date of such latest occurrence being the “End Date”), the Company will (A) cause its Common Stock to continue to be registered under the 1934 Act, (B) comply in all respects with its reporting and filing obligations under the 1934 Act, (C)([omitted], and (D) comply with all requirements related to any registration statement filed pursuant to this Agreement.  The Company will use its best efforts not to take any action or file any document (whether or not permitted by the 1933 Act or the 1934 Act or the rules thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under said acts until the End Date.  Until the End Date, the Company will continue the listing or quotation of the Common Stock on a Principal Market and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Principal Market, except as described in Section 8(b).  The Company agrees to timely file a Form D with respect to the Securities if required under Regulation D and to provide a copy thereof to Subscribers promptly after such filing.

 

(d)            Use of Proceeds.   The proceeds of the Offering will be substantially employed by the Company for the purposes set forth in paragraph 1.5 of the Escrow Agreement.  Except as described the Escrow Agreement, the Purchase Price may not and will not be used for accrued and unpaid officer and director salaries, nor payment of financing related debt nor redemption of outstanding notes or equity instruments of the Company nor non-trade payables outstanding on the Closing Date.

 

(e)            Reservation.   Prior to the Closing, the Company undertakes to reserve on behalf of Subscribers from its authorized but unissued Common Stock, a number of shares of Common Stock equal to 150% of the amount of Common Stock necessary to allow Subscribers to be able to convert all of the Notes, and 100% of the amount of Warrant Shares issuable upon exercise of the Warrants (“Required Reservation”).   Failure to have sufficient shares reserved pursuant to this Section 8(e) at any time shall be a material default of the Company’s obligations under this Agreement and an Event of Default under the Notes.  Without waiving the foregoing requirement, if at any time Notes and Warrants are outstanding the Company has reserved on behalf of the Subscribers less than 125% of the amount necessary for full conversion of the outstanding Note principal and interest at the conversion price in effect on every such date and 100% of the Warrant Shares issuable upon exercise of outstanding Warrants (“Minimum Required Reservation”), the Company will promptly reserve the Minimum Required Reservation, or if there are insufficient authorized and available shares of Common Stock to do so, the Company will take all action necessary to increase its authorized capital to be able to fully satisfy its reservation requirements hereunder, including the filing of a preliminary proxy with the Commission not later than fifteen business days after the first day the Company has reserved less than the Minimum Required Reservation.  The Company agrees to provide notice to the Subscribers not later than three days after the date the Company has less than the Minimum Required Reservation reserved on behalf of the Subscribers.

 

  

10

  

 

(f)            DTC Program.  At all times that Notes or Warrants are outstanding, the Company will employ as the transfer agent for the Common Stock, Conversion Shares and Warrant Shares a participant in the Depository Trust Company Automated Securities Transfer Program.

 

(g)           Taxes.  From the date of this Agreement and until the End Date, the Company will promptly pay and discharge, or cause to be paid and discharged, when due and payable, all lawful taxes, assessments and governmental charges or levies imposed upon the income, profits, property or business of the Company; provided, however, that any such tax, assessment, charge or levy need not be paid if the validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company shall have set aside on its books adequate reserves with respect thereto, and provided, further, that the Company will pay all such taxes, assessments, charges or levies forthwith upon the commencement of proceedings to foreclose any lien which may have attached as security therefore.

 

(h)           Insurance.  From the date of this Agreement and until the End Date, the Company will keep its assets which are of an insurable character insured by financially sound and reputable insurers against loss or damage by fire, explosion and other risks customarily insured against by companies in the Company’s line of business and location, in amounts and to the extent and in the manner customary for companies in similar businesses similarly situated and located and to the extent available on commercially reasonable terms.

 

(i)            Books and Records.  From the date of this Agreement and until the End Date, the Company will keep true records and books of account in which full, true and correct entries will be made of all dealings or transactions in relation to its business and affairs in accordance with generally accepted accounting principles applied on a consistent basis.

 

(j)            Governmental Authorities.   From the date of this Agreement and until the End Date, the Company shall duly observe and conform in all material respects to all valid requirements of governmental authorities relating to the conduct of its business or to its properties or assets.

 

(k)           Intellectual Property.  From the date of this Agreement and until the End Date, the Company shall maintain in full force and effect its corporate existence, rights and franchises and all licenses and other rights to use intellectual property owned or possessed by it and reasonably deemed to be necessary to the conduct of its business, unless it is sold for value.  Schedule 8(k) hereto identifies all of the intellectual property owned by the Company and Subsidiaries, which schedule includes but is not limited to patents, patents pending, patent applications, trademarks, tradenames, service marks and copyrights.

 

(l)            Properties.  From the date of this Agreement and until the End Date, the Company will keep its properties in good repair, working order and condition, reasonable wear and tear excepted, and from time to time make all necessary and proper repairs, renewals, replacements, additions and improvements thereto; and the Company will at all times comply with each provision of all leases and claims to which it is a party or under which it occupies or has rights to property if the breach of such provision could reasonably be expected to have a Material Adverse Effect.  The Company will not abandon any of its assets except for those assets which have negligible or marginal value or for which it is prudent to do so under the circumstances.

 

  

11

  

 

(m)           Confidentiality/Public Announcement.   From the date of this Agreement and until the End Date, the Company agrees that except in connection with a Form 8-K, Form 10-Q, Form 10-K and the registration statement or statements regarding the Subscribers’ Securities or in correspondence with the Commission regarding same, it will not disclose publicly or privately the identity of the Subscribers unless expressly agreed to in writing by Subscribers or only to the extent required by law and then only upon not less than three days prior notice to Subscribers.  In any event and subject to the foregoing, the Company undertakes to file a Form 8-K describing the Offering not later than the second (2nd) business day after the Closing Date.  Prior to the filing date of such Form 8-K, a draft in the final form will be provided to Subscribers for Subscribers’ review and approval.  In the Form 8-K, the Company will specifically disclose the amount of Common Stock outstanding immediately after the Closing.  Upon  delivery by the Company to the Subscribers after the Closing Date of any notice or information, in writing, electronically or otherwise, and while a Note, Conversion Shares or Warrants are held by Subscribers, unless the  Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or Subsidiaries, the Company  shall within one business day after any such delivery publicly disclose such  material,  nonpublic  information on a Report on Form 8-K.  In the event that the Company believes that a notice or communication to Subscribers contains material, nonpublic information relating to the Company or Subsidiaries, except as required to be delivered in connection with this Agreement, the Company shall so indicate to Subscribers prior to delivery of such notice or information.  Subscribers will be granted three (3) business days to notify the Company that Subscriber elects not to receive such information.   In the case that Subscriber elects not to receive such information, the Company will not deliver such information to Subscribers.  If the Subscriber does not provide any affirmative election, it will be deemed as an election to receive such information.  In the absence of any such Company indication, Subscribers shall be allowed to presume that all matters relating to such notice and information do not constitute material, nonpublic information relating to the Company or Subsidiaries.

 

(n)           Non-Public Information.  The Company covenants and agrees that except for the Reports, Other Written Information and schedules and exhibits to this Agreement and the Transaction Documents, which information the Company undertakes to publicly disclose on the Form 8-K described in Section 9(n) above, neither it nor any other person acting on its behalf will at any time provide a Subscriber or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Subscriber, its agent or counsel shall have agreed in writing to accept such information as described in Section 9(n) above.  The Company understands and confirms that the Subscribers shall be relying on the foregoing representations in effecting transactions in securities of the Company.  The Company agrees that any information known to Subscriber not already made public by the Company, may be made public and disclosed by the Subscriber.

(o)           Negative Covenants.   As long as a Note is outstanding, without the consent of the Subscribers, the Company will not and will not permit any of its Subsidiaries to directly or indirectly:

(i)           create, incur, assume or suffer to exist any pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, security title, mortgage, security deed or deed of trust, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Uniform Commercial Code or comparable law of any jurisdiction) (each, a “Lien”) upon any of its property, whether now owned or hereafter acquired except for:  (A) the Excepted Issuances (hereinafter defined), and (B) (a) Liens imposed by law for taxes that are not yet due or are being contested in good faith and for which adequate reserves have been established in accordance with generally accepted accounting principles; (b) carriers’, warehousemen’s, mechanic’s, material men’s, repairmen’s and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or that are being contested in good faith and by appropriate proceedings; (c) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations; (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (e) Liens created with respect to the financing of the purchase of new property in the ordinary course of the Company’s business up to the amount of the purchase price of such property; and (f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property (each of (a) through (f), a “Permitted Lien”) For purposes hereof “Excepted Issuances” means issuances of securities in connection with (i) full or partial consideration in connection with a strategic merger, acquisition, consolidation or purchase of substantially all of the securities or assets of a corporation or other entity so long as such issuances are not for the purpose of raising capital and which holders of such securities or debt are not at any time granted registration rights, (ii) the Company’s issuance of securities in connection with strategic license agreements and other partnering arrangements so long as such issuances are not for the purpose of raising capital and which holders of such securities or debt are not at any time granted registration rights, (iii) the Company’s issuance of Common Stock or the issuances or grants of options to purchase Common Stock to employees, directors, and consultants, pursuant to equity compensation plans or consulting or services agreements as such plans or agreements are constituted on the Closing Date, (iv) securities upon the exercise or exchange of or conversion of any securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement on the terms disclosed in the Reports, (v) the redemption of the Notes (i.e. for the purpose of generating funds sufficient to repay the Notes), (vi) the settlement of litigation or other claims to the extent the litigation or other claims are existing as of the date hereof, and (vii) as a result of the exercise of Warrants or conversion of Notes which are granted or issued pursuant to this Agreement;

 

  

12

  

(ii)         amend its certificate of incorporation, bylaws or its charter documents so as to materially and adversely affect any rights of the Subscribers (an increase in the amount of authorized shares, will not be deemed adverse to the rights of the Subscribers);

(iii)         repay, repurchase or offer to repay, repurchase or otherwise acquire or make any dividend or distribution in respect of any of its Common Stock, preferred stock, or other equity securities other than to the extent permitted or required under the Transaction Documents;

 

(iv)        engage in any transactions with any officer, director, employee or any Affiliate of the Company, including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $100,000 other than (i) for payment of salary, or fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company, (iii) for other employee benefits, including stock option agreements under any stock option plan of the Company or (iv) other transactions disclosed on the Reports; or

 

(v)           pay or redeem any financing related debt or past due obligations or securities outstanding as of the Closing Date, or past due obligations (except with respect to vendor obligations, which in management’s good faith, reasonable judgment must be repaid to avoid disruption of the Company’s businesses).

 

(p)           Offering Restrictions.   For as long as the Notes are outstanding, the Company will not enter into any equity line of credit or similar agreement, nor issue nor agree to issue any floating or Variable Priced Equity Linked Instruments nor any of the foregoing or equity with price reset rights (collectively, the “Variable Rate Restrictions”).   For purposes hereof, “Equity Line of Credit” shall include any transaction involving a written agreement between the Company and an investor or underwriter whereby the Company has the right to “put” its securities to the investor or underwriter over an agreed period of time and at an agreed price or price formula, and “Variable Priced Equity Linked Instruments” shall include: (A) any debt or equity securities which are convertible into, exercisable or exchangeable for, or carry the right to receive additional shares of Common Stock either (1) at any conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for Common Stock at any time after the initial issuance of such debt or equity security, or (2) with a fixed conversion, exercise or exchange price that is subject to being reset at some future date at any time after the initial issuance of such debt or equity security due to a change in the market price of the Company’s Common Stock since date of initial issuance, and (B) any amortizing convertible security which amortizes prior to its maturity date, where the Company is required or has the option to (or any investor in such transaction has the option to require the Company to) make such amortization payments in shares of Common Stock which are valued at a price that is based upon and/or varies with the trading prices of or quotations for Common Stock at any time after the initial issuance of such debt or equity security (whether or not such payments in stock are subject to certain equity conditions).  Until 180 days after the Closing Date, for so long as any Note is outstanding, except for the Excepted Issuances, the Company will not enter into an agreement to issue nor issue any equity, convertible debt or other securities convertible into Common Stock or equity of the Company nor modify any of the foregoing which may be outstanding at anytime, without the prior written consent of the Subscribers.

 

(q)           Seniority.   Except for Permitted Liens, until the Notes are fully satisfied or converted, the Company shall not grant nor allow any security interest to be taken in any assets of the Company; nor issue or amend any debt, equity or other instrument which would give the holder thereof directly or indirectly, a right in any equity or assets of the Company or any right to payment equal to or superior to any right of the Subscribers as holders of the Notes in or to such equity, assets or payment, nor issue or incur any debt not in the ordinary course of business.

 

  

13

  

 

(r)            Notices.   For so long as the Subscribers hold any Notes or Warrants, the Company will maintain a United States address and United States fax number for notice purposes under the Transaction Documents.

 

(s)            Transactions With Insiders.  So long as the Notes are outstanding, the Company shall not, and shall cause each of its Subsidiaries not to, enter into, materially amend, materially modify or materially supplement, or permit any Subsidiary to enter into, materially amend, materially modify or materially supplement, any agreement, transaction, commitment, or arrangement relating to the sale, transfer or assignment of any of the Company’s tangible or intangible assets with any of its Insiders (as defined below)(or any persons who were Insiders at any time during the previous two (2) years), or any Affiliates (as defined below) thereof, or with any individual related by blood, marriage, or adoption to any such individual.  “Affiliate” for purposes of this Section 9(t) means, with respect to any person or entity, another person or entity that, directly or indirectly, (i) has a ten percent (10%) or more equity interest in that person or entity, (ii) has ten percent (10%) or more common ownership with that person or entity, (iii) controls that person or entity, or (iv) shares common control with that person or entity.  “Control” or “Controls” for purposes of the Transaction Documents means that a person or entity has the power, direct or indirect, to conduct or govern the policies of another person or entity.  For purposes hereof, “Insiders” shall mean any officer, director or manager of the Company, including but not limited to the Company’s president, chief executive officer, chief financial officer and chief operations officer, and any of their affiliates or family members.

 

(t)            No Change in Transfer Agent.  So long as the Notes are outstanding, the Company shall not take any action to cause a change in the Company’s transfer agent of record, without prior written consent to take such action from the Collateral Agent.

 

(u)           Stock Splits.  For so long as the Notes are outstanding, the Company will not engage in any stock splits whatsoever without the consent of Subscribers.

 

9.            Covenants of the Company Regarding Indemnification.

 

(a)           Indemnification.   The Company agrees to indemnify, hold harmless, reimburse and defend the Subscribers, the Subscribers’ officers, directors, agents, counsel, Affiliates, members, managers, control persons, and principal shareholders, against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon the Subscribers or any such person which results, arises out of or is based upon (i) any material misrepresentation by Company or breach of any representation or warranty by Company in this Agreement or in any Exhibits or Schedules attached hereto in any Transaction Document, or other agreement delivered pursuant hereto or in connection herewith, now or after the date hereof; or (ii) after any applicable notice and/or cure periods, any breach or default in performance by the Company of any covenant or undertaking to be performed by the Company hereunder, or any other agreement entered into by the Company and Subscribers relating hereto.

 

  

14

  

 

(b)           Indemnification Procedures.   Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to such indemnified party other than under this Section and shall only relieve it from any liability which it may have to such indemnified party under this Section, except and only if and to the extent the indemnifying party is prejudiced by such omission. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 9(b) for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected, provided, however, that, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnifying party shall have reasonably concluded that there may be reasonable defenses available to indemnified party which are different from or additional to those available to the indemnifying party or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified parties, as a group, shall have the right to select one separate counsel, reasonably satisfactory to the indemnified and indemnifying party, and to assume such legal defenses and otherwise to participate in the defense of such action, with the reasonable expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred.

 

10.           Unlegended Shares and 144 Sales.

 

(a)           Delivery of Unlegended Shares.  Within three (3) business days (such third business day being the “Unlegended Shares Delivery Date”) after the day on which the Company has received (i) a notice that Conversion Shares, Warrant Shares or any other Common Stock held by Subscriber has been sold pursuant to a registration statement or Rule 144 under the 1933 Act, (ii) a representation that the prospectus delivery requirements, or the requirements of Rule 144, as applicable and if required, have been satisfied, (iii) the original share certificates representing the shares of Common Stock that have been sold, and (iv) in the case of sales under Rule 144, customary representation letters of the Subscriber and, if required, Subscriber’s broker regarding compliance with the requirements of Rule 144, the Company at its expense, (y) shall deliver, and shall cause legal counsel selected by the Company to deliver to its transfer agent (with copies to Subscriber) an appropriate instruction and opinion of such counsel, directing the delivery of shares of Common Stock without any legends including the legend set forth in Section 4(h) above (the “Unlegended Shares”); and (z) cause the transmission of the certificates representing the Unlegended Shares together with a legended certificate representing the balance of the submitted Common Stock certificate, if any, to the Subscriber at the address specified in the notice of sale, via express courier, by electronic transfer or otherwise on or before the Unlegended Shares Delivery Date.

 

(b)           DWAC.   In lieu of delivering physical certificates representing the Unlegended Shares, upon request of Subscribers, so long as the certificates therefor do not bear a legend and the Subscriber is not obligated to return such certificate for the placement of a legend thereon, the Company shall cause its transfer agent to electronically transmit the Unlegended Shares by crediting the account of Subscriber’s prime broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission system, if such transfer agent participates in such DWAC system.  Such delivery must be made on or before the Unlegended Shares Delivery Date.

 

  

15

  

(c)           Late Delivery of Unlegended Shares.   The Company understands that a delay in the delivery of the Unlegended Shares pursuant to Section 11 hereof later than the Unlegended Shares Delivery Date could result in economic loss to a Subscriber.  As compensation to a Subscriber for such loss, the Company agrees to pay late payment fees (as liquidated damages and not as a penalty) to the Subscriber for late delivery of Unlegended Shares in the amount of $100 per business day after the Unlegended Shares Delivery Date for each $10,000 of purchase price of the Unlegended Shares subject to the delivery default.  If during any 360 day period, the Company fails to deliver Unlegended Shares as required by this Section for an aggregate of thirty days, then each Subscriber or assignee holding Securities subject to such default may, at its option, require the Company to redeem all or any portion of the Unlegended Shares subject to such default at a price per share equal to the greater of (i) 120% of the Purchase Price paid by the Subscriber for the Unlegended Shares that were not timely delivered, or (ii) a fraction in which the numerator is the highest closing price of the Common Stock during the aforedescribed thirty day period and the denominator of which is the lowest conversion price or exercise price, as the case may be, during such thirty day period, multiplied by the price paid by Subscriber for such Common Stock (“Unlegended Redemption Amount”).  The Company shall pay any payments incurred under this Section in immediately available funds upon demand.

(d)           Injunction.  In the event a Subscriber shall request delivery of Unlegended Shares as described in Section 11 and the Company is required to deliver such Unlegended Shares pursuant to this Section, the Company may not refuse to deliver Unlegended Shares based on any claim that such Subscriber or any one associated or affiliated with such Subscriber has been engaged in any violation of law, or for any other reason, unless, an injunction or temporary restraining order from a court, on notice, restraining and or enjoining delivery of such Unlegended Shares shall have been sought and obtained by the Company and the Company has posted a surety bond for the benefit of such Subscriber in the amount of the greater of (i) 120% of the amount of the aggregate purchase price of the Common Stock which is subject to the injunction or temporary restraining order, (ii) the closing price of the Common Stock on the trading day before the issue date of the injunction multiplied by the number of Unlegended Shares to be subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such Subscriber to the extent Subscriber obtains judgment in Subscriber’s favor.

 

(e)           Buy-In.   In addition to any other rights available to Subscriber, if the Company fails to deliver to a Subscriber Unlegended Shares as required pursuant to this Agreement and after the Unlegended Shares Delivery Date the Subscriber, or a broker on the Subscriber’s behalf, purchases (in an open market transaction or otherwise) shares of common stock to deliver in satisfaction of a sale by such Subscriber of the shares of Common Stock which the Subscriber was entitled to receive from the Company (a "Buy-In"), then the Company shall promptly pay in cash to the Subscriber (in addition to any remedies available to or elected by the Subscriber) the amount by which (A) the Subscriber's total purchase price (including brokerage commissions, if any) for the shares of common stock so purchased exceeds (B) the aggregate purchase price of the shares of Common Stock delivered to the Company for reissuance as Unlegended Shares together with interest thereon at a rate of 15% per annum accruing until such amount and any accrued interest thereon is paid in full (which amount shall be paid as liquidated damages and not as a penalty).  For example, if a Subscriber purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase price of shares of Common Stock delivered to the Company for reissuance as Unlegended Shares, the Company shall be required to pay the Subscriber $1,000, plus interest. The Subscriber shall provide the Company written notice indicating the amounts payable to the Subscriber in respect of the Buy-In.

 

  

16

  

(f)             144 Default.   At any time commencing six months after the Closing Date, in the event the Subscriber is not permitted to sell any of the Conversion Shares or Warrant Shares without any restrictive legend or if such sales are permitted but subject to volume limitations or further restrictions on resale as a result of the unavailability to Subscriber of Rule 144(b)(1)(i) under the 1933 Act or any successor rule (a “144 Default”), for any reason including but not limited to failure by the Company to file quarterly, annual or any other filings required to be made by the Company by the required filing dates, or the Company’s failure to make information publicly available which would allow Subscriber’s reliance on Rule 144 in connection with sales of Conversion Shares or Warrant Shares, except due to a change in current applicable securities laws or because the Subscriber is an Affiliate (as defined under Rule 144) of the Company, then the Company shall pay such Subscriber as liquidated damages and not as a penalty for each thirty days (or such lesser pro-rata amount for any period less than thirty days) an amount equal to two percent (2%) of the purchase price of the Conversion Shares and Warrant Shares subject to such 144 Default.  Liquidated Damages shall not be payable pursuant to this Section 11(f) in connection with Shares for such times as such Shares may be sold by the holder thereof without any legend or volume or other restrictions pursuant to Section 144(b)(1)(i) of the 1933 Act or pursuant to an effective registration statement.

 

11.           Miscellaneous.

 

(a)           Notices.  All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: (i) if to the Company, to: Rotate Black, Inc., 932 Spring Street, Petoskey, MI 49770, Attn: John Paulsen, President, facsimile: (231) 347-0177, with a copy by fax only to:Jeff Bacigalupi, CFO, facsimile: (231) 347-0177,  and (ii) if to the Subscribers, to: the addresses and fax numbers indicated on their signature pages, with an additional copy by fax only to: Paul Mannion, facsimile: (678) 353-2188  .

 

(b)           Entire Agreement; Assignment.  This Agreement and other documents delivered in connection herewith represent the entire agreement between the parties hereto with respect to the subject matter hereof and may be amended only by a writing executed by both parties.  Neither the Company nor the Subscribers has relied on any representations not contained or referred to in this Agreement and the documents delivered herewith.   No right or obligation of the Company shall be assigned without prior notice to and the written consent of the Subscribers.

 

  

17

  

 

(c)           Counterparts/Execution.  This Agreement may be executed in any number of counterparts and by the different signatories hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument.  This Agreement may be executed by facsimile signature and delivered by electronic transmission.

 

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

 

(e)           Specific Enforcement, Consent to Jurisdiction.  The Company and Subscribers acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the parties shall be entitled to seek an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which any of them may be entitled by law or equity.  Subject to Section 13(d) hereof, the Company and each Subscriber hereby irrevocably waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction in New York of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper.  Nothing in this Section shall affect or limit any right to serve process in any other manner permitted by law.

 

(f)            Damages.   In the event the Subscriber is entitled to receive any liquidated damages pursuant to the Transactions Documents, the Subscriber may elect to receive the greater of actual damages or such liquidated damages.

 

(g)           Maximum Payments.   Nothing contained herein or in any document referred to herein or delivered in connection herewith shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law.  In the event that the rate of interest or dividends required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Company to the Subscribers and thus refunded to the Company.  The Company agrees that it may not and actually waives any right to challenge the effectiveness or applicability of this Section 11(g).

 

(h)           Calendar Days.   All references to “days” in the Transaction Documents shall mean calendar days unless otherwise stated.  The terms “business days” and “trading days” shall mean days that the New York Stock Exchange is open for trading for three or more hours.  Time periods shall be determined as if the relevant action, calculation or time period were occurring in New York City.  Any deadline that falls on a non-business day in any of the Transaction Documents shall be automatically extended to the next business day and interest, if any, shall be calculated and payable through such extended period.

 

  

18

  

 

(i)           Captions: Certain Definitions.  The captions of the various sections and paragraphs of this Agreement have been inserted only for the purposes of convenience; such captions are not a part of this Agreement and shall not be deemed in any manner to modify, explain, enlarge or restrict any of the provisions of this Agreement.  As used in this Agreement the term “person” shall mean and include an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization and a government or any department or agency thereof.

 

(j)           Consent.   As used in this Agreement and the Transaction Documents and any other agreement delivered in connection herewith, “Consent of the Subscribers” or similar language means the consent of holders of not less than a majority of the outstanding Principal Amount of actually issued Notes on the date consent is requested (such Subscribers being a “Majority in Interest”).  A Majority in Interest may consent to take or forebear from any action permitted under or in connection with the Transaction Documents, modify any Transaction Documents or waive any default or requirement applicable to the Company, Subsidiaries or Subscribers under the Transaction Documents provided the effect of such action does not waive any accrued interest or damages and further provided that the relative rights of the Subscribers to each other remains unchanged.

 

(k)           Severability.  In the event that any term or provision of this Agreement shall be finally determined to be superseded, invalid, illegal or otherwise unenforceable pursuant to applicable law by an authority having jurisdiction and venue, that determination shall not impair or otherwise affect the validity, legality or enforceability: (i) by or before that authority of the remaining terms and provisions of this Agreement, which shall be enforced as if the unenforceable term or provision were deleted, or (ii) by or before any other authority of any of the terms and provisions of this Agreement.

 

(l)           Successor Laws.  References in the Transaction Documents to laws, rules, regulations and forms shall also include successors to and functionally equivalent replacements of such laws, rules, regulations and forms.  A successor rule to Rule 144(b)(1)(i) shall include any rule that would be available to a non-Affiliate of the Company for the sale of Common Stock not subject to volume restrictions and after a six month holding period.

 

(m)           Maximum Liability.   In no event shall the liability of the Subscribers or permitted successor hereunder or under any Transaction Document or other agreement delivered in connection herewith be greater in amount than the dollar amount of the net proceeds actually received by such Subscriber or successor upon the sale of Conversion Shares.

 

(n)           Independent Nature of Subscribers.     The Company acknowledges that the obligations of each Subscriber under the Transaction Documents are several and not joint with the obligations of any other Subscriber, and no Subscriber shall be responsible in any way for the performance of the obligations of any other Subscriber under the Transaction Documents. The Company acknowledges that each Subscriber has represented that the decision of each Subscriber to purchase Securities has been made by such Subscriber independently of any other Subscriber and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company which may have been made or given by any other Subscriber or by any agent or employee of any other Subscriber, and no Subscriber or any of its agents or employees shall have any liability to any other Subscriber (or any other person) relating to or arising from any such information, materials, statements or opinions.  The Company acknowledges that nothing contained in any Transaction Document, and no action taken by any Subscriber pursuant hereto or thereto shall be deemed to constitute the Subscribers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Subscribers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  The Company acknowledges that it has elected to provide all Subscribers with the same terms and Transaction Documents for the convenience of the Company and not because Company was required or requested to do so by the Subscribers.  The Company acknowledges that such procedure with respect to the Transaction Documents in no way creates a presumption that the Subscribers are in any way acting in concert or as a group with respect to the Transaction Documents or the transactions contemplated thereby.

 

(o)           Equal Treatment.   No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of the Transaction Documents unless the same consideration is also offered and paid to all the Subscribers and their permitted successors and assigns.

 

[SIGNATURE PAGE FOLLOWS]

 

  

19

  

COMPANY SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT

 

Please acknowledge your acceptance of the foregoing Subscription Agreement by signing and returning a copy to the undersigned whereupon it shall become a binding agreement between us.

 

	 	ROTATE BLACK, INC.,  a Nevada corporation	 
	 	 	 	 
	 	By:	 	 
	 	Name:	 	 
	 	Title:	
 

	 
	 	 	 	 
	 	Dated: May __, 2012	 

 

  

20

  

 

SUBSCRIBER SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT

	
SUBSCRIBER

	
PRINCIPAL

AMOUNT

	
CONVERSION

SHARES

(based on $0.25)

	
WARRANTS

SHARES

 @ 80% of

CONVERSION

SHARES

	
Purchaser Name:

 

Address:

 

Fax #:

 

Email:

 

Taxpayer ID# (if applicable):

 

 

_________________________

(Signature)

By:

 

	
$

	  	  

 

  

21

  

LIST OF EXHIBITS AND SCHEDULES

 

	Exhibit A 	Form of Convertible Note
	 	 
	Exhibit B 	Form of Warrant
	 	 
	Exhibit C 	Escrow Agreement
	 	 
	Exhibit D 	Accredited Investor Questionnaire
	 	 
	Exhibit E 	Form of Legal Opinion
	 	 
	Schedule 5(d) 	Capitalization
	 	 
	Schedule 5(s) 	Transfer Agent
	 	 
	Schedule 8(k) 	Intellectual Property

 

  

22

  

 

Schedule 5(s)

Transfer Agent

 

Mark Knight

Account Executive

Transfer Online, Inc.

512 SE Salmon Street

Portland, OR 97214

Mark@transferonline.com <mailto:Mark@transferonline.com>

503.227.2950 Office

503.227.6874 Fax

  

23

  

 

Schedule 8(k)

Intellectual Property

 

 

none

 

 

 

 

24

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00207-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00207-of-00352.parquet"}]]