0001004878-18-000223.txt : 20181115
0001004878-18-000223.hdr.sgml : 20181115
20181115170859
ACCESSION NUMBER: 0001004878-18-000223
CONFORMED SUBMISSION TYPE: 8-K
PUBLIC DOCUMENT COUNT: 7
CONFORMED PERIOD OF REPORT: 20181113
ITEM INFORMATION: Entry into a Material Definitive Agreement
ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant
ITEM INFORMATION: Unregistered Sales of Equity Securities
ITEM INFORMATION: Financial Statements and Exhibits
FILED AS OF DATE: 20181115
DATE AS OF CHANGE: 20181115
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ESPORTS ENTERTAINMENT GROUP, INC.
CENTRAL INDEX KEY: 0001451448
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AMUSEMENT & RECREATION SERVICES [7900]
IRS NUMBER: 263062752
STATE OF INCORPORATION: NV
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: 8-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-55954
FILM NUMBER: 181187939
BUSINESS ADDRESS:
STREET 1: 155 JOLLY HARBOUR
STREET 2: UNITS 13/14
CITY: ST MARY'S
STATE: B9
ZIP: 00000
BUSINESS PHONE: 268-562-9111
MAIL ADDRESS:
STREET 1: 155 JOLLY HARBOUR
STREET 2: UNITS 13/14
CITY: ST MARY'S
STATE: B9
ZIP: 00000
FORMER COMPANY:
FORMER CONFORMED NAME: VGambling Inc.
DATE OF NAME CHANGE: 20150402
FORMER COMPANY:
FORMER CONFORMED NAME: VGambling, Inc.
DATE OF NAME CHANGE: 20140815
FORMER COMPANY:
FORMER CONFORMED NAME: DK Sinopharma, Inc.
DATE OF NAME CHANGE: 20100615
8-K
1
form8kitem203nov-18.txt
FORM 8-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): November 13, 2018
ESPORTS ENTERTAINMENT GROUP, INC.
---------------------------------
(Name of Small Business Issuer in its charter)
Nevada 000-55954 26-3062752
------------------ ----------------- --------------
(State of incorporation) (Commission File No.) (IRS Employer
Identification No.)
Commercial Centre, Jolly Harbour
St. Mary's, Antigua and Barbuda
--------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (905) 580-2978
(Former name or former address if changed since last report)
Check appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below)
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-14(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the Registrant is an emerging growth company as
defined in Rule 405 of the Securities Act of 1933 (230.405 of this chapter) or
Rule 12b-2 of the Securities Exchange Act of 1934 (240.12b-2 of this chapter).
Emerging Growth Company [ ]
If an emerging growth company, indicate by check mark if the Registrant has
elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13a of the
Exchange Act. [ ]
1
Item 1.01. Entry Into a Material Definitive Agreement.
See Item 2.03 of this report.
Item 2.03. Creation of a Direct Financial Obligation or an Obligation
under an Off-Balance Sheet Arrangement of a Registrant.
On November 13 and 14, 2018 the Company sold senior secured convertible
promissory notes in the principal amount of $1,914,000 to a group of private
investors. The Company received for gross proceeds of $1,740,000 from the sale
of the notes, after original issue discount of $174,000. The notes bear interest
at 5% per year and are secured by all of the Company's assets. Notes in the
principal amount of 1,650,000 mature on November 13, 2019. A note in the
principal amount of $264,000 matures on November 14, 2019. The notes are
convertible into shares of the Company's common stock, initially at a conversion
price of $0.60 per share, subject to adjustment.
Events of Default under the Notes include, but are not limited to, the
following:
o any default in the payment of the principal amount of the Notes or
interest, late fees, liquidated damages and other amounts owing to the
Note Holders;
o any representation or warranty made in the Notes or any other
documents relating to the Notes (the "Transaction Documents") becomes
untrue or incorrect in any material aspect;
o the Company fails to observe or perform any covenant or agreement
contained in the Notes or the Transaction Documents;
o the Company's common stock is not eligible for listing or quotation
for trading on a trading market and will not be eligible to resume
listing or quotation for trading within 10 trading days;
o the Company fails for any reason, except if caused by the action or
inaction of a Note Holder, to deliver certificates to a Note Holder
prior to the second trading day after a conversion notice is delivered
to the Company.
If an Event of Default occurs, the outstanding principal amount of the
Notes, plus accrued but unpaid interest, liquidated damages and other amounts
owing with respect to the Notes will become, at the Note Holder's election,
immediately due and payable in cash at the Mandatory Default Amount. The
Mandatory Default Amount means the sum of 130% of the outstanding principal
amount of the Notes plus accrued and unpaid interest, including default interest
of 18% per year, and all other amounts, costs, expenses and liquidated damages
due in respect of the Notes.
The note holders also received warrants which collectively allow the note
holders to purchase up to 3,190,000 shares of the Company's common stock. The
warrants are initially exercisable at a price of $0.75 per share, subject to
adjustment, and expire in November, 2021.
2
The Placement Agent for the offering received cash compensation of $159,200
and warrants to purchase 638,000 shares of the Company's common stock, at an
initial exercise price of $0.75 per share, subject to adjustment ("Agent
Warrants"). The Agent Warrants may be exercised on a "cashless" basis and will
expire in November 2023.
The Company relied upon the exemption provided by Section 4(a)(2) of the
Securities Act of 1933 and Rule 506(b) of the Securities and Exchange Commission
in connection with sale of the securities. The persons who acquired these
securities were accredited and sophisticated investors and were provided full
information regarding the Company's operations. There was no general
solicitation in connection with the offer or sale of these securities. The
persons who acquired the securities acquired them for their own accounts. The
certificates representing the securities will bear a restricted legend providing
that they cannot be sold except pursuant to an effective registration statement
or an exemption from registration.
The foregoing description is qualified in its entirety by reference to the
full text of the Securities Purchase Agreement, the Senior Secured Convertible
Note, the Warrant, the Security Agreement, the Pledge Agreement and the
Subsidiary Guarantee, which have been filed as Exhibits 10.1, 10.2, 10.3, 10.4,
10.5 and 10.6, respectively, to this Current Report on Form 8-K and are
incorporated in this Form 8-K by reference.
Item 3.02. Unregistered Sales of Equity Securities.
See Item 2.03 of this report.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit xhibit
No. E
10.1 Form of Securities Purchase Agreement
10.2 Form of Senior Secured Convertible Note
10.3 Form of Warrant
10.4 Form of Security Agreement
10.5 Form of Pledge Agreement
10.6 Form of Subsidiary Guarantee
3
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Date: November 14, 2018 ESPORTS ENTERTAINMENT GROUP, INC.
By: /s/ Grant Johnson
-----------------------------
Grant Johnson
Principal Executive Officer
EX-10
2
form8k203ex101nov-18.txt
EXHIBIT 10.1
EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
November __, 2018, between Esports Entertainment Group, Inc., a Nevada
corporation (the "Company"), and each purchaser identified on the signature
pages hereto (each, including its successors and assigns, a "Purchaser" and
collectively the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to an exemption from the registration requirements of Section 5 of
the Securities Act contained in Section 4(a)(2) thereof and/or Rule 506(b)
thereunder, the Company desires to issue and sell to each Purchaser, and each
Purchaser, severally and not jointly, desires to purchase from the Company,
securities of the Company as more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the words and terms defined elsewhere in
this Agreement, for all purposes of this Agreement, the following terms have the
meanings set forth in this Section 1.1:
"Acquiring Person" shall have the meaning ascribed to such term in Section
4.5.
"Action" shall have the meaning ascribed to such term in Section 3.1(j).
"Affiliate" means any Person that, directly or indirectly through one or
more intermediaries, controls or is controlled by or is under common control
with a Person as such terms are used in and construed under Rule 405 under the
Securities Act.
"Board of Directors" means the board of directors of the Company.
"Business Day" means any day except any Saturday, any Sunday, any day which
is a federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.
"Closing" means the closing of the purchase and sale of the Securities
pursuant to Section 2.1(a).
"Closing Date" means the Trading Day on which all of the Transaction
Documents have been executed and delivered by the applicable parties thereto,
and all conditions precedent to (i) the Purchasers' obligations to pay the
Subscription Amount and (ii) the Company's obligations to deliver the Securities
to be issued and sold, in each case, have been satisfied or waived, but in no
event later than the second Trading Day following the date hereof.
1
"Common Stock" means the common stock of the Company, par value $0.001 per
share, and any other class of securities into which such securities may
hereafter be reclassified or changed.
"Common Stock Equivalents" means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, right,
option, warrant or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.
"Company Counsel" means Hart & Hart, LLC.
"Escrow Agent" means Nason, Yeager, Gerson, Harris & Fumero, P.A.
"Escrow Agreement" means the escrow agreement, in the form of Exhibit F.
"Evaluation Date" shall have the meaning ascribed to such term in Section
3.1(s).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Exempt Issuance" means the issuance of (a) shares of Common Stock or
options to employees, officers or directors of the Company, in an aggregate
amount not to exceed 10% of shares of Common Stock outstanding at any given
time, or pursuant to any stock or option plan duly adopted for such purpose, by
a majority of the non-employee members of the Board of Directors or a majority
of the members of a committee of non-employee directors established for such
purpose for services rendered to the Company, (b) securities upon the exercise
or exchange of or conversion of any Securities issued hereunder and/or other
securities issuable pursuant to existing agreements, exercisable or exchangeable
for or convertible into shares of Common Stock issued and outstanding on the
date of this Agreement, provided that such securities have not been amended
since the date of this Agreement to increase the number of such securities or to
decrease the exercise price, exchange price or conversion price of such
securities (other than in connection with stock dividends, stock splits or
combinations) or to extend the term of such securities, (c) securities issued
pursuant to acquisitions or strategic transactions approved by a majority of the
directors of the Company, provided that any such issuance shall only be to a
Person (or to the equityholders of a Person) which is, itself or through its
subsidiaries, an operating company or an owner of an asset in a business
synergistic with the business of the Company and shall provide to the Company
additional benefits in addition to the investment of funds, but shall not
include a transaction in which the Company is issuing securities primarily for
the purpose of raising capital or to an entity whose primary business is
investing in securities, (d) securities issued pursuant to any purchase money
equipment loan or capital leasing arrangement approved by the Collateral Agent
under the Security Agreement, purchasing agent or debt financing from a
commercial bank or similar financial institution, (e) subject to Section 4(b) of
the Notes, shares of Common Stock in an underwritten public offering in an
amount in excess of $3 million if the Company utilizes at least 50% of the
proceeds to prepay the Notes in accordance with Section 2(b) of the Notes.
"FCPA" means the Foreign Corrupt Practices Act of 1977, as amended.
2
"GAAP" shall have the meaning ascribed to such term in Section 3.1(h).
"Guaranty Agreement" means the guaranty agreement for the Notes executed by
each Subsidiary in the form attached hereto as Exhibit C.
"Indebtedness" shall have the meaning ascribed to such term in Section
3.1(aa).
"Intellectual Property" means all of the following in any jurisdiction
throughout the world: (a) all inventions (whether patentable or unpatentable and
whether or not reduced to practice), all improvements thereto, and all U.S. and
foreign patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, brand names,
certification marks, trade dress, logos, trade names, domain names, assumed
names and corporate names, together with all colorable imitations thereof, and
including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all copyrights, and all
applications, registrations, and renewals in connection therewith, (d) all trade
secrets under applicable state laws and the common law and know-how (including
formulas, techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (e) all computer software (including source
code, object code, diagrams, data and related documentation), and (f) all copies
and tangible embodiments of the foregoing (in whatever form or medium).
"Intellectual Property Agreement" has the meaning set forth in Section
3.1(p).
"Lead Investor" means Cavalry Fund I LP.
"Liens" means a lien, charge, pledge, security interest, encumbrance, right
of first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning assigned to such term in
Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in Section
3.1(n).
"Notes" mean the 10% Original Issue Discount Senior Secured Convertible
Promissory Notes issued to the Purchasers, in the form of Exhibit A attached
hereto, which bear interest at the rate of 5% per annum, shall be secured
pursuant to a Security Agreement and shall be senior as to all Indebtedness.
"Note Conversion Price" means $0.60 per share, subject to adjustment as
provided in the Note.
3
"Participation Maximum" shall have the meaning ascribed to such term in
Section 4.11(a).
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
"Pledge Agreement" means the pledge agreement, in the form of Exhibit D,
pledging the outstanding common stock and other equity instruments of each
Subsidiary.
"Pre-Notice" shall have the meaning ascribed to such term in Section
4.11(a).
"Pro Rata Portion" shall have the meaning ascribed to such term in Section
4.11(d).
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an informal investigation or partial proceeding,
such as a deposition), whether commenced or threatened.
"Purchaser Party" shall have the meaning ascribed to such term in Section
4.8.
"Regulation FD" means Regulation FD promulgated by the SEC pursuant to the
Exchange Act, as such Regulation may be amended or interpreted from time to
time, or any similar rule or regulation hereafter adopted by the SEC having
substantially the same purpose and effect as such Regulation.
"Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).
"Required Minimum" means, as of any date, the maximum aggregate number of
shares of Common Stock then issued or potentially issuable in the future
pursuant to the Transaction Documents, including any Shares issuable upon
conversion of the Notes and Warrant Shares issuable upon exercise in full of all
Warrants ignoring any exercise limits set forth therein.
"Rule 144" means Rule 144 promulgated by the SEC pursuant to the Securities
Act, as such Rule may be amended or interpreted from time to time, or any
similar rule or regulation hereafter adopted by the SEC having substantially the
same purpose and effect as such Rule.
"SEC" means the United States Securities and Exchange Commission.
"SEC Reports" shall have the meaning ascribed to such term in Section
3.1(h).
"Securities" means the Notes, the Shares, the Warrants and the Warrant
Shares.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
4
"Security Agreement" means the security agreement, in the form of Exhibit
E, providing the Purchasers with a first lien on all of the assets of the
Company other than as provided in this Agreement.
"Shares" means the Common Stock issuable upon conversion of the Notes.
"Short Sales" means all "short sales" as defined in Rule 200 of Regulation
SHO under the Exchange Act (but shall not be deemed to include the location
and/or reservation of borrowable shares of Common Stock).
"Subscription Amount" means, as to each Purchaser, the aggregate amount to
be paid for Notes and Warrants purchased hereunder as specified below such
Purchaser's name on the signature page of this Agreement and next to the heading
"Subscription Amount," in United States dollars and in immediately available
funds.
"Subsequent Financing" shall have the meaning ascribed to such term in
Section 4.11(a).
"Subsequent Financing Notice" shall have the meaning ascribed to such term
in Section 4.11(a).
"Subsidiary" means with respect to any entity at any date, any direct or
indirect corporation, limited or general partnership, limited liability company,
trust, estate, association, joint venture or other business entity of which (A)
more than 50% of (i) the outstanding capital stock having (in the absence of
contingencies) ordinary voting power to elect a majority of the board of
directors or other managing body of such entity, (ii) in the case of a
partnership or limited liability company, the interest in the capital or profits
of such partnership or limited liability company or (iii) in the case of a
trust, estate, association, joint venture or other entity, the beneficial
interest in such trust, estate, association or other entity business is, at the
time of determination, owned or controlled directly or indirectly through one or
more intermediaries, by such entity, or (B) is under the actual control of the
Company.
"Trading Day" means a day on which the principal Trading Market is open for
trading.
"Trading Market" means any of the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question: the
NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq
Global Select Market, the New York Stock Exchange, the OTCQB, the OTCQX, or the
OTC Pink Marketplace (or any successors to any of the foregoing).
"Transaction Documents" means this Agreement, the Notes, the Warrants, the
Security Agreement, the Pledge Agreement, the Guaranty Agreement, the Escrow
Agreement and any other documents or agreements executed in connection with the
transactions contemplated hereunder.
5
"Transfer Agent" means Transhare Corporation, and any successor transfer
agent of the Company.
"Underlying Shares" means the Shares and the Warrant Shares.
"Variable Rate Transaction" shall have the meaning ascribed to such term in
Section 4.12.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted
on a Trading Market, the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time)) (or a similar organization or agency succeeding to its functions of
reporting prices), (b) if no volume weighted average price of the Common Stock
is reported for the Trading Market, the avergae closing price of the Common
Stock during the ten (10) Trading Days preceding such date, or (c) in all other
cases, the fair market value of a share of Common Stock as determined by the
Board of Directors of the Company.
"Warrants" means, collectively, the Common Stock purchase warrants
delivered to the Purchasers at the Closing in accordance with Section 2.2(a)
hereof, which Warrants shall be exercisable immediately and have a term of
exercise equal to three years from such initial exercise date, in the form of
Exhibit B attached hereto.
"Warrant Exercise Price" means $0.75 per share.
"Warrant Shares" means the shares of Common Stock issuable upon exercise of
the Warrants at the Warrant Exercise Price.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. (a) On the Closing Date, upon the terms and subject to the
conditions set forth herein, substantially concurrent with the execution and
delivery of this Agreement by the parties hereto, the Company agrees to sell,
and the Purchasers, severally and not jointly, agree to purchase an aggregate of
(i) $________ face value of 10% original issue discount Notes for a total
purchase price of $_________, and (ii) _________ Warrants, which is equal to
100% of the Shares issuable upon conversion of the purchased Notes. Each
Purchaser shall deliver to the Escrow Agent, via wire transfer immediately
available funds equal to such Purchaser's Subscription Amount as set forth on
the signature page hereto executed by such Purchaser, and the Company shall
deliver to the Escrow Agent each Purchaser's respective Note and a Warrant as
determined pursuant to Section 2.2(a), and the Company and each Purchaser shall
deliver the other items set forth in Section 2.2(b) deliverable at the Closing.
Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and
2.3, the Closing shall occur at the offices of Company Counsel or such other
location as the parties shall mutually agree. If a Closing is not held on or
6
before November 15, 2018, the Escrow Agent will return all Subscription Amounts,
if any such amounts have been funded, without interest or deduction to each
prospective Purchaser.
2.2 Deliveries.
(a) On or prior to Closing Date, the Company shall deliver or cause to
be delivered to the Escrow Agent on behalf of each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) an original Note, convertible at the Note Conversion Price,
registered in the name of such Purchaser;
(iii) an original Warrant, exercisable at the Warrant Exercise
Price, registered in the name of such Purchaser to purchase up to a
number of shares of Common Stock equal to 100% of such Purchaser's
Shares, subject to adjustment as described therein (such Warrant
certificate may be delivered within two Trading Days of the Closing
Date);
(iv) a Security Agreement providing the Purchasers with a lien on
all of the assets of the Company;
(v) a Guaranty Agreement executed by the Company's Subsidiaries
listed on Secdule 3.1(a);
(vi) a Pledge Agreement pledging the Company's outstanding common
stock and other equity instruments of each of the Company's
Subsidiaries;
(vii) the Escrow Agreement duly executed by the Company; and
(viii) a reservation letter executed by the Company's Transfer
Agent and the Company in the form attached as Exhibit G.
(b) On or prior to the Closing Date each Purchaser shall deliver or
cause to be delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser;
(ii) the Escrow Agreement duly executed by such Purchaser;
(iii) to such Purchaser's Subscription Amount by wire transfer to
the Escrow Agent; and
7
The Lead Investor shall deliver to the Escrow Agent the Security Agreement
and Pledge Agreement as collateral agent for the benefit of the Purchasers.
2.3 Closing Conditions.
(a) The obligations of the Company hereunder in connection with the
Closing are subject to the following conditions being met:
(i) the accuracy in all material respects (or, to the extent
representations or warranties are qualified by materiality or Material
Adverse Effect, in all respects) on the Closing Date of the
representations and warranties of the Purchasers contained herein
(unless as of a specific date therein in which case they shall be
accurate as of such date);
(ii) all obligations, covenants and agreements of each Purchaser
required to be performed at or prior to the Closing Date shall have
been performed; and
(iii) the delivery by each Purchaser of the items set forth in
Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions being
met:
(i) the accuracy in all material respects (or, to the extent
representations or warranties are qualified by materiality or Material
Adverse Effect, in all respects) when made and on the Closing Date of
the representations and warranties of the Company contained herein
(unless as of a specific date therein);
(ii) all obligations, covenants and agreements of the Company
required to be performed at or prior to the Closing Date shall have
been performed;
(iii) the delivery by the Company of the items set forth in
Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with
respect to the Company since the date hereof;
(v) from the date hereof to the Closing Date trading in the
Common Stock shall not have been suspended by the SEC or the Company's
principal Trading Market, and, at any time prior to the Closing Date,
trading in securities generally as reported by Bloomberg L.P. shall
not have been suspended or limited, or minimum prices shall not have
been established on securities whose trades are reported by such
service, or on any Trading Market, nor shall a banking moratorium have
8
been declared either by the United States or New York State
authorities nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international calamity
of such magnitude in its effect on, or any material adverse change in,
any financial market which, in each case, in the reasonable judgment
of such Purchaser, makes it impracticable or inadvisable to purchase
the Securities at the Closing;
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company hereby makes
the following representations and warranties to each Purchaser as of the date
hereof:
(a) Subsidiaries. All of the direct and indirect subsidiaries of the
Company are set forth in the SEC Reports. The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all of the issued and
outstanding shares of capital stock of each Subsidiary are validly issued
and are fully paid, non-assessable and free of preemptive and similar
rights to subscribe for or purchase securities. If the Company has no
subsidiaries, all other references to the Subsidiaries or any of them in
the Transaction Documents shall be disregarded. The Subsidiaries are listed
on Schedule 3.1(a).
(b) Organization and Qualification. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, with the requisite power and authority to
own and use its properties and assets and to carry on its business as
currently conducted. Neither the Company nor any Subsidiary is in violation
nor default of any of the provisions of its respective certificate or
articles of incorporation, bylaws or other organizational or charter
documents. Each of the Company and the Subsidiaries is duly qualified to
conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary, except where
the failure to be so qualified or in good standing, as the case may be,
could not have or reasonably be expected to result in: (i) a material
adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii)
a material adverse effect on the Company's ability to perform in any
material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a "Material Adverse Effect") and no
Proceeding has been instituted in any such jurisdiction revoking, limiting
or curtailing or seeking to revoke, limit or curtail such power and
authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by this Agreement and each of the other
Transaction Documents and otherwise to carry out its obligations hereunder
9
and thereunder. The execution and delivery of this Agreement and each of
the other Transaction Documents by the Company and the consummation by it
of the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of the Company and no
further action is required by the Company, the Board of Directors or the
Company's stockholders in connection herewith or therewith other than in
connection with the Required Approvals. Subject to obtaining the Required
Approvals, this Agreement and each other Transaction Document to which it
is a party has been (or upon delivery will have been) duly executed by the
Company and, when delivered in accordance with the terms hereof and
thereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except (i) as
limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.
(d) No Conflicts. Except as set forth in Schedule 3.1(d), the
execution, delivery and performance by the Company of this Agreement and
the other Transaction Documents to which it is a party, the issuance and
sale of the Securities and the consummation by it of the transactions
contemplated hereby and thereby do not and will not (i) subject to the
Required Approvals, conflict with or violate any provision of the Company's
or any Subsidiary's certificate or articles of incorporation, bylaws or
other organizational or charter documents, or (ii) constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, result in the creation of any Lien upon any of the properties or
assets of the Company or any Subsidiary, or give to others any rights of
termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or
other instrument (evidencing a Company or Subsidiary debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) subject to the Required Approvals, conflict with or
result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including
federal and state securities laws and regulations), or by which any
property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as could not
have or reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. Except as set forth on Schedule
3.1(e), the Company is not required to obtain any consent, waiver,
authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than: (i) the filings required pursuant to Section 4.4 of this Agreement,
10
(ii) application(s) to each applicable Trading Market for the listing of
the Shares and Warrant Shares for trading thereon in the time and manner
required thereby, (iii) filings necessary to perfect the Liens in favor of
the Purchasers under the Security Agreement, and (iv) such filings as are
required to be made under applicable state securities laws (collectively,
the "Required Approvals").
(f) Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable,
free and clear of all Liens imposed by the Company. The Shares, when issued
upon conversion of the Notes, and the Warrant Shares, when issued in
accordance with the terms of the Warrants, will be validly issued, fully
paid and nonassessable, free and clear of all Liens imposed by the Company.
The Company shall reserve from its duly authorized capital stock a number
of shares of Common Stock issuable pursuant to the Notes and the Warrants
equal to the amount set forth in Section 4.9.
(g) Capitalization. The capitalization of the Company is as set forth
in the SEC Reports. The Company has not issued any capital stock since its
most recently filed periodic report under the Exchange Act, other than as
set forth on Schedule 3.1(g) other than pursuant to the exercise of
employee stock awards under the Company's equity incentive plans, the
issuance of shares of Common Stock to employees pursuant to the Company's
employee stock purchase plans and pursuant to the conversion and/or
exercise of Common Stock Equivalents outstanding as of the date of the most
recently filed periodic report under the Exchange Act. No Person has any
right of first refusal, preemptive right, right of participation, or any
similar right to participate in the transactions contemplated by the
Transaction Documents. Except as set forth in the SEC Reports, as a result
of the purchase and sale of the Securities or as set forth on Schedule
3.1(g), there are no outstanding options, warrants, scrip rights to
subscribe to, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or
acquire, any shares of Common Stock or the capital stock of any Subsidiary,
or contracts, commitments, understandings or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional shares
of Common Stock or Common Stock Equivalents or capital stock of any
Subsidiary. The issuance and sale of the Securities will not obligate the
Company or any Subsidiary to issue shares of Common Stock or other
securities to any Person (other than the Purchasers) and will not result in
a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under any of such securities. There are
no outstanding securities or instruments of the Company or any Subsidiary
that contain any redemption or similar provisions, and there are no
contracts, commitments, understandings or arrangements by which the Company
or any Subsidiary is or may become bound to redeem a security of the
Company or such Subsidiary. The Company does not have any stock
appreciation rights or "phantom stock" plans or agreements or any similar
plan or agreement. All of the outstanding shares of capital stock of the
Company are duly authorized, validly issued, fully paid and nonassessable,
have been issued in compliance with all federal and state securities laws,
and none of such outstanding shares was issued in violation of any
preemptive rights or similar rights to subscribe for or purchase
securities. No further approval or authorization of any stockholder, the
11
Board of Directors or others is required for the issuance and sale of the
Securities. There are no stockholders agreements, voting agreements or
other similar agreements with respect to the Company's capital stock to
which the Company is a party or, to the knowledge of the Company, between
or among any of the Company's stockholders.
(h) SEC Reports; Financial Statements. The Company has filed all
reports, schedules, forms, statements and other documents required to be
filed by the Company under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was
required by law or regulation to file such material) (the foregoing
materials, including the exhibits thereto and documents incorporated by
reference therein, being collectively referred to herein as the "SEC
Reports"). As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the
Exchange Act, as applicable, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. The financial statements of the Company included
in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the SEC with
respect thereto as in effect at the time of filing. Such financial
statements have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the
periods involved ("GAAP"), except as may be otherwise specified in such
financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and
fairly present in all material respects the financial position of the
Company and its consolidated Subsidiaries as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
(i) Material Changes; Undisclosed Events, Liabilities or Developments.
Other than as set forth on Schedule 3.1(i) since the date of the latest
audited financial statements included within the SEC Reports, except as
specifically disclosed in a subsequent SEC Report filed prior to the date
hereof, (i) there has been no event, occurrence or development that has had
or that could reasonably be expected to result in a Material Adverse
Effect, (ii) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses incurred in
the ordinary course of business consistent with past practice and (B)
liabilities not required to be reflected in the Company's financial
statements pursuant to GAAP or disclosed in filings made with the SEC,
(iii) the Company has not altered its method of accounting, (iv) the
Company has not declared or made any dividend or distribution of cash or
other property to its stockholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock and (v)
the Company has not issued any equity securities to any officer, director
or Affiliate, except pursuant to existing Company equity incentive plans.
The Company does not have pending before the SEC any request for
confidential treatment of information. Except for the issuance of the
Securities contemplated by this Agreement or as set forth on Schedule
3.1(i), no event, liability, fact, circumstance, occurrence or development
12
has occurred or exists or is reasonably expected to occur or exist with
respect to the Company or its Subsidiaries or their respective businesses,
prospects, properties, operations, assets or financial condition that would
be required to be disclosed by the Company under applicable securities laws
at the time this representation is made or deemed made that has not been
publicly disclosed at least one (1) Trading Day prior to the date that this
representation is made.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation, inquiry except as set forth in
Schedule 3.1(j) or other similar proceeding of any federal or state
government unit pending or, to the knowledge of the Company, threatened
against or affecting the Company, any Subsidiary or any of their respective
properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county,
local or foreign) (collectively, an "Action") which (i) adversely affects
or challenges the legality, validity or enforceability of any of the
Transaction Documents or the issuance of the Securities or (ii) could, if
there were an unfavorable decision, have or reasonably be expected to
result in a Material Adverse Effect. The Company has no reason to believe
that an Action will be filed against it in the future. Neither the Company
nor any Subsidiary, nor any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty.
There has not been, and to the knowledge of the Company, there is not
pending or contemplated, any investigation by the SEC involving the Company
or any current or former director or officer of the Company. The SEC has
not issued any stop order or other order suspending the effectiveness of
any registration statement filed by the Company or any Subsidiary under the
Exchange Act or the Securities Act, and the Company has no reason to
believe it will do so in the future.
(k) Labor Relations. No labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the
Company, which could reasonably be expected to result in a Material Adverse
Effect. None of the Company's or its Subsidiaries' employees is a member of
a union that relates to such employee's relationship with the Company or
such Subsidiary, and neither the Company nor any of its Subsidiaries is a
party to a collective bargaining agreement, and the Company and its
Subsidiaries believe that their relationships with their employees are
good. To the knowledge of the Company, no effort is underway to unionize or
organize the employees of the Company or any Subsidiary. To the knowledge
of the Company, no executive officer of the Company or any Subsidiary, is,
or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information
agreement or non-competition agreement, or any other contract or agreement
or any restrictive covenant in favor of any third party, and the continued
employment of each such executive officer does not subject the Company or
13
any of its Subsidiaries to any liability with respect to any of the
foregoing matters. The Company and its Subsidiaries are in compliance with
all U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. There is no workmen's compensation liability matter,
employment-related charge, complaint, grievance, investigation, inquiry or
obligation of any kind pending, or to the Company's knowledge, threatened,
relating to an alleged violation or breach by the Company or its
Subsidiaries of any law, regulation or contract that could, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
(l) Compliance. Except as set forth on Schedule 3.1(l), neither the
Company nor any Subsidiary: (i) is in default under or in violation of (and
no event has occurred that has not been waived that, with notice or lapse
of time or both, would result in a default by the Company or any Subsidiary
under), nor has the Company or any Subsidiary received notice of a claim
that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which it
is a party or by which it or any of its properties is bound (whether or not
such default or violation has been waived), (ii) is in violation of any
judgment, decree or order of any court, arbitrator or other governmental
authority or (iii) is or has been in violation of any statute, rule,
ordinance or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws relating to taxes,
environmental protection, occupational health and safety, product quality
and safety and employment and labor matters, except in each case as could
not have or reasonably be expected to result in a Material Adverse Effect.
(m) Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with all federal, state, local and foreign laws relating to
pollution or protection of human health or the environment (including
ambient air, surface water, groundwater, land surface or subsurface
strata), including laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "Hazardous Materials") into
the environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees,
demands, or demand letters, injunctions, judgments, licenses, notices or
notice letters, orders, permits, plans or regulations, issued, entered,
promulgated or approved thereunder ("Environmental Laws"); (ii) have
received all permits licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses; and
(iii) are in compliance with all terms and conditions of any such permit,
license or approval where in each clause (i), (ii) and (iii), the failure
to so comply could be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect.
(n) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the
failure to possess such permits could not reasonably be expected to result
in a Material Adverse Effect ("Material Permits"), and neither the Company
nor any Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.
14
(o) Title to Assets. Subject to the disclosure set forth on Schedule
3.1(o), the Company and the Subsidiaries have good and marketable title in
fee simple to all real property owned by them and good and marketable title
in all personal property owned by them that is material to the business of
the Company and the Subsidiaries, in each case free and clear of all Liens,
except for (i) Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made
of such property by the Company and the Subsidiaries, and (ii) Liens for
the payment of federal, state or other taxes, for which appropriate
reserves have been made therefor in accordance with GAAP and, the payment
of which is neither delinquent nor subject to penalties. Any real property
and facilities held under lease by the Company and the Subsidiaries are
held by them under valid, subsisting and enforceable leases with which the
Company and the Subsidiaries are in compliance.
(p) Intellectual Property.
(i) Subject to the Existing Liens, the Company owns or possesses
or has the right to use pursuant to a valid and enforceable written
license, sublicense, agreement, or permission all Intellectual
Property necessary for the operation of the business of the Company as
presently conducted. The Company has provided the Purchaser a true and
complete copy of each such written license, sublicense, agreement or
permission.
(ii) The Intellectual Property does not interfere with, infringe
upon, misappropriate, or otherwise come into conflict with, any
Intellectual Property rights of third parties, and the Company has no
knowledge that facts exist which indicate a likelihood of the
foregoing. The Company has not received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or conflict (including any claim that the Company
must license or refrain from using any Intellectual Property rights of
any third party). To the knowledge of the Company, no third party has
interfered with, infringed upon, misappropriated, or otherwise come
into conflict with, any Intellectual Property rights of the Company.
(iii) The Company and the Subsidiaries have no pending patent
applications or applications for registration that either entity has
made with respect to any Intellectual Property. Schedule 3.1(p)
identifies each license, sublicense, agreement, or other permission
that the Company has granted to any third party with respect to any of
such Intellectual Property (together with any exceptions). The Company
has delivered to the Purchaser correct and complete copies of all such
licenses, sublicenses, agreements, and permissions (as amended to
date) ("Intellectual Property Agreements"). Schedule 3.1(p) also
identifies each registered and unregistered trademark, service mark,
trade name, corporate name, URLs or Internet domain name used by the
Company in connection with its business and which is not licensed from
a third party. With respect to each item of Intellectual Property
required to be identified in Schedule 3.1(p):
15
(A) The Company owns and possesses all right, title, and
interest in and to the item, free and clear of any Lien,
license, or other restriction or limitation regarding use or
disclosure;
(B) The item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(C) No Action, claim, or demand is pending or, to the knowledge
of the Company, is threatened that challenges the legality,
validity, enforceability, use, or ownership by the Company;
and
(D) The Company has not agreed to indemnify any Person for or
against any interference, infringement, misappropriation, or
other conflict with respect to the item.
(iv) Schedule 3.1(p)(iv) identifies each item of Intellectual
Property that any third party owns and that the Company uses pursuant
to license, sublicense, agreement, or permission, excluding
off-the-shelf software purchased or licensed by the Company. The
Company has delivered to the Purchaser correct and complete copies of
all such licenses, sublicenses, agreements, and permissions (each as
amended to date) (each, a "Licensed Intellectual Property Agreement").
With respect to each Licensed Intellectual Property Agreement:
(A) the Licensed Intellectual Property Agreement is legal,
valid, binding, enforceable, and in full force and effect;
(B) No party to the Licensed Intellectual Property Agreement is
in breach or default, and no event has occurred that with
notice or lapse of time would constitute a breach or default
or permit termination, modification, or acceleration
thereunder, which as to any such breach, default or event
could have a Material Adverse Effect on the Company;
(C) No party to such Licensed Intellectual Property Agreement
has repudiated any provision thereof;
(D) Except as set forth in such Licensed Intellectual Property
Agreement, the Company has not received written or verbal
notice or otherwise has knowledge that the underlying item
of Intellectual Property is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge; and
(E) Except as set forth on Schedule 3.1(p)(iv), the Company has
not granted any sublicense or similar right with respect to
the license, sublicense, agreement, or permission.
16
(v) The Company has complied with and is presently in compliance
with all foreign, federal, state, local, governmental (including, but
not limited to, the Federal Trade Commission and State Attorneys
General), administrative, or regulatory laws, regulations, guidelines,
and rules applicable to any personal identifiable information.
(vi) Each Person who participated in the creation, conception,
invention or development of the Intellectual Property currently used
in the business of the Company (each, a "Developer") which is not
licensed from third parties has executed one or more agreements
containing industry standard confidentiality, work for hire and
assignment provisions, whereby the Developer has assigned to the
Company all copyrights, patent rights, Intellectual Property rights
and other rights in the Intellectual Property, including all rights in
the Intellectual Property that existed prior to the assignment of
rights by such Person to the Company. The Company has provided to the
Purchaser copies of any such agreements and assignments from each such
Developer (collectively, the "Developer Agreements").
(vii) Each Developer has signed a perpetual non-disclosure
agreement with the Company. The Company has provided, or will provide
prior to Closing, to the Purchaser copies any such non-disclosure
agreements from each such Person, if any.
(q) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which the Company and the Subsidiaries are engaged. Neither the Company nor
any Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its business without a significant increase in cost.
(r) Transactions With Affiliates and Employees. Except as set forth in
the SEC Reports, none of the officers or directors of the Company or any
Subsidiary and, to the knowledge of the Company, none of the employees of
the Company or any Subsidiary is presently a party to any transaction with
the Company or any Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, providing for the
borrowing of money from or lending of money to 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, stockholder, member or partner, in each case in excess of $120,000
other than for (i) payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the Company
and (iii) other employee benefits, including stock award agreements under
any equity incentive plan of the Company.
17
(s) Sarbanes-Oxley; Internal Accounting Controls. Except as disclosed
in the SEC Reports, the Company and the Subsidiaries are in compliance with
any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that
are effective as of the date hereof, and any and all applicable rules and
regulations promulgated by the SEC thereunder that are effective as of the
date hereof and as of the Closing Date. The Company and the Subsidiaries
maintain a system of internal accounting controls as set forth in the SEC
Reports. The Company's certifying officers have evaluated the effectiveness
of the disclosure controls and procedures of the Company and the
Subsidiaries as of the end of the period covered by the most recently filed
periodic report under the Exchange Act (such date, the "Evaluation Date").
The Company presented in its most recently filed periodic report under the
Exchange Act the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there
have been no changes in the internal control over financial reporting (as
such term is defined in the Exchange Act) of the Company and its
Subsidiaries that have materially affected, or is reasonably likely to
materially affect, the internal control over financial reporting of the
Company and its Subsidiaries.
(t) Certain Fees. Other than as set forth on Schedule 3.1(t), no
brokerage or finder's fees or commissions are or will be payable by the
Company or any Subsidiary to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with
respect to the transactions contemplated by the Transaction Documents. The
Purchasers shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section that may be due in connection with the
transactions contemplated by the Transaction Documents.
(u) Investment Company. The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the Securities, will not
be or be an Affiliate of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. The Company shall conduct its
business in a manner so that it will not become an "investment company"
subject to registration under the Investment Company Act of 1940, as
amended.
(v) Registration Rights. No Person has any right to cause the Company
or any Subsidiary to effect the registration under the Securities Act of
any securities of the Company or any Subsidiary except as disclosed on
Schedule 3.1(v).
(w) Listing and Maintenance Requirements. The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is
likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification
that the SEC is contemplating terminating such registration. The Company
has not, in the 12 months preceding the date hereof, received notice from
any Trading Market on which the Common Stock is or has been listed or
quoted to the effect that the Company is not in compliance with the listing
or maintenance requirements of such Trading Market. The Company is, and has
18
no reason to believe that it will not in the foreseeable future continue to
be, in compliance with all such listing and maintenance requirements. The
Common Stock is currently eligible for electronic transfer through the
Depository Trust Company or another established clearing corporation and
the Company is current in payment of the fees to the Depository Trust
Company (or such other established clearing corporation) in connection with
such electronic transfer.
(x) Application of Takeover Protections. The Company and the Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's certificate of incorporation
(or similar charter documents) or the laws of its state of incorporation
that is or could become applicable to the Purchasers as a result of the
Purchasers and the Company fulfilling their obligations or exercising their
rights under the Transaction Documents, including without limitation as a
result of the Company's issuance of the Securities and the Purchasers'
ownership of the Securities.
(y) Disclosure. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents,
the Company confirms that neither it nor any other Person acting on its
behalf has provided any of the Purchasers or their agents or counsel with
any information that it believes constitutes or might constitute material,
non-public information which is not otherwise disclosed in the SEC Reports.
The Company understands and confirms that the Purchasers will rely on the
foregoing representation in effecting transactions in securities of the
Company. All of the disclosure furnished by or on behalf of the Company to
the Purchasers regarding the Company and its Subsidiaries, their respective
businesses and the transactions contemplated hereby, including the
Disclosure Schedules to this Agreement, is true and correct and does not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading. The
press releases disseminated by the Company during the twelve months
preceding the date of this Agreement do not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made and when made, not misleading.
The Company acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.2 hereof.
(z) No Integrated Offering. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, 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 or solicited any offers to buy any security, under circumstances
that would cause this offering of the Securities to be integrated with
19
prior offerings by the Company for purposes of any applicable shareholder
approval provisions of any Trading Market on which any of the securities of
the Company are listed or designated.
(aa) Solvency. Based on the consolidated financial condition of the
Company as of the Closing Date, after giving effect to the receipt by the
Company of the proceeds from the sale of the Securities hereunder, (i) the
fair saleable value of the Company's assets exceeds the amount that will be
required to be paid on or in respect of the Company's existing debts and
other liabilities (including known contingent liabilities) as they mature,
(ii) the Company's assets do not constitute unreasonably small capital to
carry on its business as now conducted and as proposed to be conducted
including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, consolidated and
projected capital requirements and capital availability thereof, and (iii)
the current cash flow of the Company, together with the proceeds the
Company would receive, were it to liquidate all of its assets, after taking
into account all anticipated uses of the cash, would be sufficient to pay
all amounts on or in respect of its liabilities when such amounts are
required to be paid. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing
and amounts of cash to be payable on or in respect of its debt). The
Company has no knowledge of any facts or circumstances which lead it to
believe that it will file for reorganization or liquidation under the
bankruptcy or reorganization laws of any jurisdiction within one year from
the Closing Date. The SEC Reports and Schedule 3.1(aa) set forth as of the
date hereof all outstanding secured and unsecured Indebtedness of the
Company or any Subsidiary, or for which the Company or any Subsidiary has
commitments. For the purposes of this Agreement, "Indebtedness" means (x)
any liabilities for borrowed money or amounts owed in excess of $10,000
(other than trade accounts payable incurred in the ordinary course of
business), (y) all guaranties, endorsements and other contingent
obligations in respect of indebtedness of others, whether or not the same
are or should be reflected in the Company's consolidated balance sheet (or
the notes thereto), except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the
ordinary course of business; and (z) the present value of any lease
payments in excess of $10,000 due under leases required to be capitalized
in accordance with GAAP. Except as set forth on Schedule 3.1(aa), neither
the Company nor any Subsidiary is in default with respect to any
Indebtedness.
(bb) Tax Status. Except for matters that would not, individually or in
the aggregate, have or reasonably be expected to result in a Material
Adverse Effect, the Company and its Subsidiaries each (i) has made or filed
all United States federal, state and local income and all foreign income
and franchise tax returns, reports and declarations required by any
jurisdiction to which it is subject, (ii) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations and (iii)
has set aside on its books provision reasonably adequate for the payment of
all material taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company or of any Subsidiary know of
no basis for any such claim.
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(cc) Foreign Corrupt Practices. Neither the Company nor any
Subsidiary, nor to the knowledge of the Company or any Subsidiary, any
agent or other person acting on behalf of the Company or any Subsidiary,
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 any Subsidiary (or
made by any person acting on its behalf of which the Company is aware)
which is in violation of law, or (iv) violated any provision of FCPA.
(dd) Accountants. The Company's accounting firm is set forth in the
SEC Reports. To the knowledge and belief of the Company, such accounting
firm (i) is a registered public accounting firm as required by the Exchange
Act and (ii) has expressed its opinion with respect to the financial
statements included in the Company's Annual Report for the fiscal year
ending June 30, 2018.
(ee) Acknowledgment Regarding Purchasers' Purchase of Securities. The
Company acknowledges and agrees that each of the Purchasers is acting
solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated thereby. The
Company further acknowledges that no Purchaser is acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with
respect to the Transaction Documents and the transactions contemplated
thereby and any advice given by any Purchaser or any of their respective
representatives or agents in connection with the Transaction Documents and
the transactions contemplated thereby is merely incidental to the
Purchasers' purchase of the Securities. The Company further represents to
each Purchaser that the Company's decision to enter into this Agreement and
the other Transaction Documents has been based solely on the independent
evaluation of the transactions contemplated hereby by the Company and its
representatives.
(ff) Acknowledgement Regarding Purchaser's Trading Activity.
Notwithstanding anything in this Agreement or elsewhere to the contrary
(except for Sections 3.2(f) and 4.14 hereof), it is understood and
acknowledged by the Company that: (i) none of the Purchasers has been asked
by the Company to agree, nor has any Purchaser agreed, to desist from
purchasing or selling, long and/or short, securities of the Company, or
"derivative" securities based on securities issued by the Company or to
hold the Securities for any specified term; (ii) past or future open market
or other transactions by any Purchaser, specifically including, without
limitation, Short Sales or "derivative" transactions, before or after the
closing of this or future private placement transactions, may negatively
impact the market price of the Company's publicly-traded securities; (iii)
any Purchaser, and counter-parties in "derivative" transactions to which
any such Purchaser is a party, directly or indirectly, presently may have a
"short" position in the Common Stock, and (iv) each Purchaser shall not be
deemed to have any affiliation with or control over any arm's length
counter-party in any "derivative" transaction. The Company further
understands and acknowledges that (y) one or more Purchasers may engage in
hedging activities at various times during the period that the Securities
are outstanding, including, without limitation, during the periods that the
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value of the Warrant Shares deliverable with respect to Securities are
being determined, and (z) such hedging activities (if any) could reduce the
value of the existing stockholders' equity interests in the Company at and
after the time that the hedging activities are being conducted. The Company
acknowledges that such aforementioned hedging activities do not constitute
a breach of any of the Transaction Documents.
(gg) Regulation M Compliance. The Company has not, and to its
knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of any of the Securities, (ii) sold, bid for, purchased,
or, paid any compensation for soliciting purchases of, any of the
Securities, or (iii) paid or agreed to pay to any Person any compensation
for soliciting another to purchase any other securities of the Company.
(hh) Private Placement. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the Notes,
the Shares upon conversion thereof, the Warrants or the Warrant Shares
issuable upon exercise thereof by the Company to the Purchasers as
contemplated hereby
(ii) No General Solicitation. Neither the Company nor any person
acting on behalf of the Company has offered or sold any of the Securities
by any form of general solicitation or general advertising. The Company has
offered the Securities for sale only to the Purchasers and certain other
"accredited investors" within the meaning of Rule 501 under the Securities
Act.
(jj) No Disqualification Events. With respect to the Securities to be
offered and sold hereunder in reliance on Rule 506(b) under the Securities
Act, none of the Company, any of its predecessors, any affiliated issuer,
any director, executive officer, other officer of the Company participating
in the offering hereunder, any beneficial owner of 20% or more of the
Company's outstanding voting equity securities, calculated on the basis of
voting power, nor any promoter (as that term is defined in Rule 405 under
the Securities Act) connected with the Company in any capacity at the time
of sale, nor any Person, including a placement agent, who will receive a
commission or fees for soliciting purchasers (each, an "Issuer Covered
Person" and, together, "Issuer Covered Persons") is subject to any of the
"Bad Actor" disqualifications described in Rule 506(d)(1)(i) to (viii)
under the Securities Act (a "Disqualification Event"), except for a
Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has
exercised reasonable care to determine whether any Issuer Covered Person is
subject to a Disqualification Event. The Company has complied, to the
extent applicable, with its disclosure obligations under Rule 506(e), and
has furnished to the Purchasers a copy of any disclosures provided
thereunder.
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(kk) Notice of Disqualification Events. The Company will notify the
Purchasers in writing, prior to the Closing Date of (i) any
Disqualification Event relating to any Issuer Covered Person and (ii) any
event that would, with the passage of time, reasonably be expected to
become a Disqualification Event relating to any Issuer Covered Person, in
each case of which it is aware.
(ll) Office of Foreign Assets Control. Neither the Company nor any
Subsidiary nor, to the Company's knowledge, any director, officer, agent,
employee or affiliate of the Company or any Subsidiary is currently subject
to any U.S. sanctions administered by the Office of Foreign Assets Control
of the U.S. Treasury Department ("OFAC").
(mm) U.S. Real Property Holding Corporation. The Company is not and
has never been a U.S. real property holding corporation within the meaning
of Section 897 of the Internal Revenue Code of 1986, as amended, and the
Company shall so certify upon Purchaser's request.
(nn) Bank Holding Company Act. Neither the Company nor any of its
Subsidiaries or Affiliates is subject to the Bank Holding Company Act of
1956, as amended (the "BHCA") and to regulation by the Board of Governors
of the Federal Reserve System (the "Federal Reserve"). Neither the Company
nor any of its Subsidiaries or Affiliates owns or controls, directly or
indirectly, five percent (5%) or more of the outstanding shares of any
class of voting securities or twenty-five percent or more of the total
equity of a bank or any entity that is subject to the BHCA and to
regulation by the Federal Reserve. Neither the Company nor any of its
Subsidiaries or Affiliates exercises a controlling influence over the
management or policies of a bank or any entity that is subject to the BHCA
and to regulation by the Federal Reserve.
(oo) Money Laundering. The operations of the Company and its
Subsidiaries are and have been conducted at all times in compliance with
applicable financial record-keeping and reporting requirements of the
Currency and Foreign Transactions Reporting Act of 1970, as amended,
applicable money laundering statutes and applicable rules and regulations
thereunder (collectively, the "Money Laundering Laws"), and no Action or
Proceeding by or before any court or governmental agency, authority or body
or any arbitrator involving the Company or any Subsidiary with respect to
the Money Laundering Laws is pending or, to the knowledge of the Company or
any Subsidiary, threatened.
3.2 Representations and Warranties of the Purchasers. Each Purchaser, for
itself and for no other Purchaser, hereby represents and warrants as of the date
hereof and as of the Closing Date to the Company as follows (unless as of a
specific date therein):
(a) Organization; Authority. Such Purchaser is either an individual or
an entity duly incorporated or formed, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
formation with full right, corporate, partnership, limited liability
company or similar power and authority to enter into and to consummate the
transactions contemplated by this Agreement and otherwise to carry out its
23
obligations hereunder and thereunder. The execution and delivery of this
Agreement and performance by such Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate, partnership, limited liability company or similar action, as
applicable, on the part of such Purchaser. Each Transaction Document to
which it is a party has been duly executed by such Purchaser, and when
delivered by such Purchaser in accordance with the terms hereof, will
constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms, except: (i) as limited
by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
(b) Understandings or Arrangements. Such Purchaser is acquiring the
Securities as principal for its own account and has no direct or indirect
arrangement or understandings with any other persons to distribute or
regarding the distribution of such Securities (this representation and
warranty not limiting such Purchaser's right to sell the Securities in
compliance with applicable federal and state securities laws). Such
Purchaser is acquiring the Securities hereunder in the ordinary course of
its business. Such Purchaser understands that the Securities are
"restricted securities" and have not been registered under the Securities
Act or any applicable state securities law and is acquiring such Securities
as principal for its own account and not with a view to or for distributing
or reselling such Securities or any part thereof in violation of the
Securities Act or any applicable state securities law, has no present
intention of distributing any of such Securities in violation of the
Securities Act or any applicable state securities law and has no direct or
indirect arrangement or understandings with any other persons to distribute
or regarding the distribution of such Securities in violation of the
Securities Act or any applicable state securities law (this representation
and warranty not limiting such Purchaser's right to sell such Securities in
compliance with applicable federal and state securities laws).
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and as of the date hereof it is, an accredited investor
within the meaning of Rule 501 under the Securities Act. No Purchaser is
subject to any of the "Bad Actor" disqualifications described in Rule
506(d)(1)(i) to (viii) under the Securities Act (a "Disqualification
Event"), except for a Disqualification Event covered by Rule 506(d)(2) or
(d)(3).
(d) Experience of Such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment.
(e) Access to Information. Such Purchaser acknowledges that it has had
the opportunity to review the Transaction Documents (including all exhibits
24
and schedules thereto) and the SEC Reports and has been afforded, subject
to Regulation FD, (i) the opportunity to ask such questions as it has
deemed necessary of, and to receive answers from, representatives of the
Company concerning the terms and conditions of the offering of the
Securities and the merits and risks of investing in the Securities; (ii)
access to information about the Company and its financial condition,
results of operations, business, properties, management and prospects
sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information that the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the
investment. Such Purchaser acknowledges and agrees that neither the Company
nor anyone else has provided such Purchaser with any information or advice
with respect to the Securities nor is such information or advice necessary
or desired.
(f) Certain Transactions and Confidentiality. Other than consummating
the transactions contemplated hereunder, such Purchaser has not, nor has
any Person acting on behalf of or pursuant to any understanding with such
Purchaser, directly or indirectly executed any purchases or sales,
including Short Sales, of the securities of the Company during the period
commencing as of the time that such Purchaser first received a term sheet
(written or oral) from the Company or any other Person representing the
Company setting forth the material terms of the transactions contemplated
hereunder and ending immediately prior to the execution hereof.
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser's assets and the portfolio managers
have no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of such Purchaser's assets, the
representation set forth above shall only apply with respect to the portion
of assets managed by the portfolio manager that made the investment
decision to purchase the Securities covered by this Agreement. Other than
to other Persons party to this Agreement or to such Purchaser's
representatives, including, without limitation, its officers, directors,
partners, legal and other advisors, employees, agents and Affiliates, such
Purchaser has maintained the confidentiality of all disclosures made to it
in connection with this transaction (including the existence and terms of
this transaction). Notwithstanding the foregoing, for avoidance of doubt,
nothing contained herein shall constitute a representation or warranty, or
preclude any actions, with respect to the identification of the
availability of, or securing of, available shares to borrow in order to
effect Short Sales or similar transactions in the future.
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The Company acknowledges and agrees that the representations contained in
this Section 3.2 shall not modify, amend or affect such Purchaser's right to
rely on the Company's representations and warranties contained in this Agreement
or any representations and warranties contained in any other Transaction
Document or any other document or instrument executed and/or delivered in
connection with this Agreement or the consummation of the transaction
contemplated hereby.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Removal of Legends.
(a) The Shares, the Warrants and Warrant Shares may only be disposed
of in compliance with state and federal securities laws. In connection with
any transfer of Warrants or Warrant Shares other than pursuant to an
effective registration statement or Rule 144, to the Company or to an
Affiliate of a Purchaser or in connection with a pledge as contemplated in
Section 4.1(b), the Company may require the transferor, provided that the
Company shall pay the transferor's cost thereof, to provide to the Company
an opinion of counsel selected by the transferor and reasonably acceptable
to the Company, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not
require registration of such transferred Shares, Warrants or Warrant Shares
under the Securities Act.
(b) The Purchasers agree to the imprinting, so long as is required by
this Section 4.1, of a legend on any of the Shares, the Warrants or Warrant
Shares in the following form:
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A
REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
26
The Company acknowledges and agrees that a Purchaser may from time to time
pledge pursuant to a bona fide margin agreement with a registered broker-dealer
or grant a security interest in some or all of the Shares or Warrant Shares to a
financial institution that is an "accredited investor" as defined in Rule 501(a)
under the Securities Act and who agrees to be bound by the provisions of this
Agreement and, if required under the terms of such arrangement, such Purchaser
may transfer pledged or secured Shares or Warrant Shares to the pledgees or
secured parties. Such a pledge or transfer would not be subject to approval of
the Company and no legal opinion of legal counsel of the pledgee, secured party
or pledgor shall be required in connection therewith. Further, no notice shall
be required of such pledge. At the appropriate Purchaser's expense, the Company
will execute and deliver such reasonable documentation as a pledgee or secured
party of Shares and Warrant Shares may reasonably request in connection with a
pledge or transfer of the Shares or Warrant Shares.
(c) Certificates evidencing the Shares and the Warrant Shares shall
not contain any legend (including the legend set forth in Section 4.1(b)
hereof): (i) while a registration statement covering the resale of such
securities is effective under the Securities Act, (ii) following any sale
of such Shares or Warrant Shares pursuant to Rule 144, (iii) if such Shares
or Warrant Shares are eligible for sale under Rule 144, without the
requirement for the Company to be in compliance with the current public
information required under Rule 144 as to such Shares or Warrant Shares and
without volume or manner-of-sale restrictions or (iv) if such legend is not
required under applicable requirements of the Securities Act (including
Section 4(a)(1), judicial interpretations and pronouncements issued by the
staff of the SEC) (the "Effective Date"). The Company shall, at its
expense, cause its counsel to issue a legal opinion to the Transfer Agent
promptly after the Effective Date if required by the Transfer Agent to
effect the removal of the legend hereunder. If all or any portion of a Note
is converted or a Warrant is exercised at a time when there is an effective
registration statement to cover the resale of the Shares or the Warrant
Shares, or if such Shares or Warrant Shares may be sold under Rule 144 and
the Company is then in compliance with the current public information
required under Rule 144, or if the Shares or Warrant Shares may be sold
under Rule 144 without the requirement for the Company to be in compliance
with the current public information required under Rule 144 as to such
Shares or Warrant Shares and without volume or manner-of-sale restrictions
or if such legend is not otherwise required under applicable requirements
of the Securities Act (including Section 4(a)(1), judicial interpretations
and pronouncements issued by the staff of the SEC) then such Shares or
Warrant Shares shall be issued or reissued free of all legends. The Company
agrees that following the effective date of any registration statement or
at such time as such legend is no longer required under this Section
4.1(c), it will, no later than two (2) Trading Days following the delivery
by a Purchaser to the Company or the Transfer Agent of a certificate
representing restricted Shares or Warrant Shares, as applicable, issued
with a restrictive legend (such second Trading Day, the "Legend Removal
Date"), deliver or cause to be delivered to such Purchaser a certificate
representing such Shares or Warrant Shares that is free from all
restrictive and other legends. The Company may not make any notation on its
records or give instructions to the Transfer Agent that enlarge the
restrictions on transfer set forth in this Section 4.1. Certificates for
Shares or Warrant Shares subject to legend removal hereunder shall be
27
transmitted by the Transfer Agent to the Purchaser by crediting the account
of the Purchaser's prime broker with the Depository Trust Company system as
directed by such Purchaser.
(d) In addition to such Purchaser's other available remedies, (i) the
Company shall pay to a Purchaser, in cash, as partial liquidated damages
and not as a penalty, for each $1,000 of the principal amount of the Notes
being converted or the value of the Warrant Shares for which a Warrant is
being exercised (based on the Warrant Exercise Price), $10 per Trading Day
for each Trading Day after the Legend Removal Date (increasing to $20 per
Trading Day after the fifth (5th ) Trading Day) until such certificate is
delivered without a legend. In no event shall liquidated damages for any
one transaction exceed $1,000 for the first ten (10) Trading Days. Nothing
herein shall limit such Purchaser's right to pursue actual damages for the
Company's failure to deliver certificates representing any Securities as
required by the Transaction Documents, and such Purchaser shall have the
right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive
relief, and (ii) if after the Legend Removal Date such Purchaser purchases
(in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by such Purchaser of all or any portion
of the number of shares of Common Stock, or a sale of a number of shares of
Common Stock equal to all or any portion of the number of shares of Common
Stock that such Purchaser anticipated receiving from the Company without
any restrictive legend, then, the Company shall pay to such Purchaser, in
cash, an amount equal to the excess of such Purchaser's total purchase
price (including brokerage commissions and other out-of-pocket expenses, if
any) for the shares of Common Stock so purchased (including brokerage
commissions and other out-of-pocket expenses, if any) (the "Buy-In Price")
over the product of (A) such number of Shares or Warrant Shares that the
Company was required to deliver to such Purchaser by the Legend Removal
Date multiplied by (B) the lowest closing sale price of the Common Stock on
any Trading Day during the period commencing on the date of the delivery by
such Purchaser to the Company of the applicable Shares or Warrant Shares
(as the case may be) and ending on the date of such delivery and payment
under this Section 4.1(d).
(e) In the event a Purchaser shall request delivery of unlegended
shares as described in this Section 4.1 and the Company is required to
deliver such unlegended shares, (i) it shall pay all fees and expenses
associated with or required by the legend removal and/or transfer including
but not limited to legal fees, transfer agent fees and overnight delivery
charges and taxes, if any, imposed by any applicable government upon the
issuance of Common Stock,; and (ii) the Company may not refuse to deliver
unlegended shares based on any claim that such Purchaser or anyone
associated or affiliated with such Purchaser has not complied with
Purchaser's obligations under the Transaction Documents, 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 Purchaser in the amount of the
greater of (i) 15% of the amount of the aggregate purchase price of the
Shares and Warrant Shares which is subject to the injunction or temporary
restraining order, or (ii) the VWAP of the Common Stock on the Trading Day
before the issue date of the injunction multiplied by the number of
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unlegended shares to be subject to the injunction, which bond shall remain
in effect until the completion of the litigation of the dispute and the
proceeds of which shall be payable to such Purchaser to the extent
Purchaser obtains judgment in Purchaser's favor.
4.2 Furnishing of Information.
(a) Until the earliest of the time that (i) no Purchaser owns
Securities or (ii) the Warrants have expired, the Company covenants to
timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company
after the date hereof pursuant to the Exchange Act even if the Company is
not then subject to the reporting requirements of the Exchange Act.
(b) At any time during the period commencing from the six (6) month
anniversary of the date hereof and ending at such time on the earlier to
occur that the Warrants are not outstanding, terminated or that all of the
Warrant Shares (assuming cashless exercise) may be sold without the
requirement for the Company to be in compliance with Rule 144(c)(1) and
otherwise without restriction or limitation pursuant to Rule 144, if the
Company (i) shall fail for any reason to satisfy the current public
information requirement under Rule 144(c) for a period of more than 30
consecutive days or (ii) has ever been an issuer described in Rule
144(i)(1)(i) or becomes an issuer in the future, and the Company shall fail
to satisfy any condition set forth in Rule 144(i)(2) for a period of more
than 30 consecutive days (a "Public Information Failure") then, in addition
to such Purchaser's other available remedies, the Company shall pay to a
Purchaser, in cash, as partial liquidated damages and not as a penalty, by
reason of any such delay in or reduction of its ability to sell the Shares
and/or Warrant Shares, an amount in cash equal to two percent (2%) of the
aggregate Note Conversion Price of such Purchaser's Note(s) and/or Warrant
Exercise Price of such Purchaser's Warrants on the day of a Public
Information Failure and on every thirtieth (30th) day (pro-rated for
periods totaling less than thirty days) thereafter until the earlier of (a)
the date such Public Information Failure is cured and (b) such time that
such public information is no longer required for the Purchasers to
transfer the Shares and/or Warrant Shares pursuant to Rule 144. In no event
shall the amount paid under this section exceed 6% of the aggregate Note
Conversion Price. The payments to which a Purchaser shall be entitled
pursuant to this Section 4.2(b) are referred to herein as "Public
Information Failure Payments." Public Information Failure Payments shall be
paid on the earlier of (i) the last day of the calendar month during which
such Public Information Failure Payments are incurred and (ii) the second
(2rd) Business Day after the event or failure giving rise to the Public
Information Failure Payments is cured. In the event the Company fails to
make Public Information Failure Payments in a timely manner, such Public
Information Failure Payments shall bear interest at the rate of 1.5% per
month (prorated for partial months) until paid in full. Nothing herein
shall limit such Purchaser's right to pursue actual damages for the Public
Information Failure, and such Purchaser shall have the right to pursue all
remedies available to it at law or in equity including, without limitation,
a decree of specific performance and/or injunctive relief.
29
4.3 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2(a)(1) of the Securities Act) that would be integrated with the offer
or sale of the Securities for purposes of the rules and regulations of any
Trading Market such that it would require shareholder approval prior to the
closing of such other transaction unless shareholder approval is obtained before
the closing of such subsequent transaction.
4.4 Securities Laws Disclosure; Publicity. The Company shall, by 5:30 p.m.
(New York City time) on the second trading date following the date of execution
hereof, file a Current Report on Form 8-K disclosing the material terms of this
Agreement, including the Transaction Documents as exhibits thereto, with the SEC
within the time required by the Exchange Act. From and after the filing of the
Form 8-K as provided in the preceding sentence, the Company represents to the
Purchasers that it shall have publicly disclosed all material, non-public
information delivered to any of the Purchasers by the Company or any of its
Subsidiaries, or any of their respective officers, directors, employees or
agents in connection with the transactions contemplated by the Transaction
Documents. In addition, effective upon the issuance of such Form 8-K, the
Company acknowledges and agrees that any and all confidentiality or similar
obligations under any agreement, whether written or oral, between the Company,
any of its Subsidiaries or any of their respective officers, directors, agents,
employees or Affiliates on the one hand, and any of the Purchasers or any of
their Affiliates on the other hand, shall terminate. The Company and each
Purchaser shall consult with each other in issuing any press releases with
respect to the transactions contemplated hereby, and neither the Company nor any
Purchaser shall issue any such press release nor otherwise make any such public
statement without the prior consent of the Company, with respect to any press
release of any Purchaser, or without the prior consent of each Purchaser, with
respect to any press release of the Company, which consent shall not
unreasonably be withheld or delayed, except if such disclosure is required by
law, in which case the disclosing party shall promptly provide the other party
with prior notice of such public statement or communication. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the SEC or any regulatory
agency or Trading Market, without the prior written consent of such Purchaser,
except (a) as required by federal securities law in connection with the filing
of final Transaction Documents with the SEC and (b) to the extent such
disclosure is required by law or Trading Market regulations, in which case the
Company shall provide the Purchasers with prior notice of such disclosure
permitted under this clause (b).
4.5 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that any
Purchaser is an "Acquiring Person" under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar anti-takeover plan or arrangement in effect or hereafter adopted by
the Company, or that any Purchaser could be deemed to trigger the provisions of
any such plan or arrangement, by virtue of receiving Securities under the
Transaction Documents or under any other agreement between the Company and the
Purchasers.
4.6 Non-Public Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, which
shall be disclosed pursuant to Section 4.4, the Company covenants and agrees
that neither it, nor any other Person acting on its behalf will provide any
30
Purchaser or its agents or counsel with any information that constitutes, or the
Company reasonably believes constitutes, material non-public information, unless
prior thereto such Purchaser shall have consented to the receipt of such
information and agreed with the Company to keep such information confidential.
The Company understands and confirms that each Purchaser shall be relying on the
foregoing covenant in effecting transactions in securities of the Company. To
the extent that the Company delivers any material, non-public information to a
Purchaser without such Purchaser's consent, the Company hereby covenants and
agrees that such Purchaser shall not have any duty of confidentiality to the
Company, any of its Subsidiaries, or any of their respective officers,
directors, agents, employees or Affiliates, not to trade on the basis of, such
material, non-public information, provided that the Purchaser shall remain
subject to applicable law. To the extent that any notice provided pursuant to
any Transaction Document or any other communications made by the Company, or
information provided, to the Purchaser constitutes, or contains, material,
non-public information regarding the Company or any Subsidiaries, the Company
shall simultaneously file such notice or other material information with the SEC
pursuant to a Current Report on Form 8-K. The Company understands and confirms
that each Purchaser shall be relying on the foregoing covenant in effecting
transactions in securities of the Company. In addition to any other remedies
provided by this Agreement or other Transaction Documents, if the Company
provides any material, non-public information to the Purchasers without their
prior written consent, and it fails to immediately (no later than that Business
Day) file a Form 8-K disclosing this material, non-public information, it shall
pay the Purchasers as partial liquidated damages and not as a penalty a sum
equal to $1,000 per day for each $100,000 of each Purchaser's Subscription
Amount beginning with the day the information is disclosed to the Purchaser and
ending and including the day the Form 8-K disclosing this information is filed.
4.7 Use of Proceeds. The Company shall use the net proceeds from the sale
of the Securities hereunder for working capital purposes and the implementation
of tournament play, and shall not use such proceeds: (a) for the satisfaction of
any other portion of the Company's debt (other than payment of trade payables in
the ordinary course of the Company's business and prior practices), (b) for the
redemption of any Common Stock or Common Stock Equivalents, (c) for the
settlement of any outstanding litigation, (d) in violation of FCPA or OFAC
regulations, or to lend money, give credit, or make advances to any officers,
directors, employees or affiliates of the Company or (e) for the purchase of
real estate.
4.8 Indemnification of Purchasers. Subject to the provisions of this
Section 4.8, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
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"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation (including local counsel, if retained) that any such
Purchaser Party may suffer or incur as a result of or relating to (a) any breach
of any of the representations, warranties, covenants or agreements made by the
Company in this Agreement or in the other Transaction Documents, (b) any action
instituted against the Purchaser Parties in any capacity, or any of them or
their respective Affiliates, by any stockholder of the Company who is not an
Affiliate of such Purchaser Party, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a
breach of such Purchaser Party's representations, warranties or covenants under
the Transaction Documents or any agreements or understandings such Purchaser
Party may have with any such stockholder or any violations by such Purchaser
Party of state or federal securities laws or any conduct by such Purchaser Party
which constitutes fraud, gross negligence, willful misconduct or malfeasance) or
(c) any untrue or alleged untrue statement of a material fact contained in any
registration statement, any prospectus or any form of prospectus or in any
amendment or supplement thereto or in any preliminary prospectus, or arising out
of or relating to any omission or alleged omission of a material fact required
to be stated therein or necessary to make the statements therein (in the case of
any prospectus or supplement thereto, in light of the circumstances under which
they were made) not misleading. If any action shall be brought against any
Purchaser Party in respect of which indemnity may be sought pursuant to this
Agreement, such Purchaser Party shall promptly notify the Company in writing,
and the Company shall have the right to assume the defense thereof with counsel
of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser
Party shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of counsel, a material conflict on any material issue between
the position of the Company and the position of such Purchaser Party, in which
case the Company shall be responsible for the reasonable fees and expenses of no
more than one such separate counsel (in addition to local counsel, if retained).
The Company will not be liable to any Purchaser Party under this Agreement (y)
for any settlement by a Purchaser Party effected without the Company's prior
written consent, which shall not be unreasonably withheld or delayed; or (z) to
the extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Purchaser Party's breach of any of the representations,
warranties, covenants or agreements made by such Purchaser Party in this
Agreement or in the other Transaction Documents. The Purchaser Parties shall
have the right to settle any action against any of them by the payment of money
provided that they cannot agree to any equitable relief and the Company, its
officers, directors and Affiliates receive unconditional releases in customary
form. The indemnification required by this Section 4.8 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as and when bills are received or are incurred. The indemnity
agreements contained herein shall be in addition to any cause of action or
similar right of any Purchaser Party against the Company or others and any
liabilities the Company may be subject to pursuant to law.
4.9 Reservation of Common Stock. The Company shall reserve and keep
available at all times in favor of the Purchasers on a pro rata basis based on
each Purchaser's Subscription Amount, free of preemptive rights, a number of
shares of Common Stock equal to three times the number of shares of Common Stock
issuable upon conversion of the Notes and exercise of the Warrants (subject to
adjustment for stock splits and dividends, combinations and similar events).
32
The Company shall not enter into any agreement or file any amendment to its
Articles of Incorporation (including the filing of a Certificate of Designation)
which conflicts with this Section 4.9 while the Notes and Warrants remain
outstanding.
4.10 Listing of Common Stock. The Company hereby agrees to use best efforts
to maintain the listing or quotation of the Common Stock on the Trading Market
on which it is currently listed, and concurrently with the Closing, the Company
shall (if necessary) apply to list or quote all of the Shares and Warrant Shares
on such Trading Market and promptly secure the listing of all of the Shares and
Warrant Shares on such Trading Market. The Company further agrees, if the
Company applies to have the Common Stock traded on any other Trading Market, it
will then include in such application all of the Shares and Warrant Shares, and
will take such other action as is necessary to cause all of the Shares and
Warrant Shares to be listed or quoted on such other Trading Market as promptly
as possible. The Company will then take all action necessary to continue the
listing and trading of its Common Stock on a Trading Market and will comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the Trading Market. The Company agrees to maintain the
eligibility of the Common Stock for electronic transfer through the Depository
Trust Company or another established clearing corporation, including, without
limitation, by timely payment of fees to the Depository Trust Company or such
other established clearing corporation in connection with such electronic
transfer.
4.11 Participation in Future Financing.
(a) From the date hereof until the date that is the 24 month
anniversary of the Closing Date, upon any issuance by the Company or any of
its Subsidiaries of Common Stock or Common Stock Equivalents for cash
consideration, Indebtedness or a combination of the foregoing in a
transaction exempt from registration under the Securities Act (a
"Subsequent Financing"), the Purchasers (as a group) shall have the right
to participate in up to an amount of the Subsequent Financing equal to 20%
of the Subsequent Financing (the "Participation Maximum") on the same
terms, conditions and price provided for in the Subsequent Financing. At
least five (5) Trading Days prior to the closing of the Subsequent
Financing, the Company shall deliver to each Purchaser a written notice of
its intention to effect a Subsequent Financing ("Pre-Notice"), which
Pre-Notice shall ask such Purchaser if it wants to review the details of
such financing (such additional notice, a "Subsequent Financing Notice").
Upon the request of a Purchaser, and only upon a request by such Purchaser,
for a Subsequent Financing Notice, the Company shall promptly, but no later
than one (1) Trading Day after such request, deliver a Subsequent Financing
Notice to such Purchaser. The Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the
amount of proceeds intended to be raised thereunder and the Person or
Persons through or with whom such Subsequent Financing is proposed to be
effected and shall include a term sheet or similar document relating
thereto as an attachment.
(b) Any Purchaser desiring to participate in such Subsequent Financing
must provide written notice to the Company by not later than 5:30 p.m. (New
York City time) on the fifth (5th) Trading Day after all of the Purchasers
have received the Pre-Notice that such Purchaser is willing to participate
33
in the Subsequent Financing, the amount of such Purchaser's participation,
and representing and warranting that such Purchaser has such funds ready,
willing, and available for investment on the terms set forth in the
Subsequent Financing Notice. If the Company receives no such notice from a
Purchaser as of such fifth (5th) Trading Day, such Purchaser shall be
deemed to have notified the Company that it does not elect to participate.
(c) If by 5:30 p.m. (New York City time) on the fifth (5th) Trading
Day after all of the Purchasers have received the Pre-Notice, notifications
by the Purchasers of their willingness to participate in the Subsequent
Financing is, in the aggregate, less than the total amount of the
Participation Maximum, then the Company may effect the remaining portion of
such Subsequent Financing on the terms and with the Persons set forth in
the Subsequent Financing Notice.
(d) If by 5:30 p.m. (New York City time) on the fifth (5th) Trading
Day after all of the Purchasers have received the Pre-Notice, the Company
receives responses to a Subsequent Financing Notice from Purchasers seeking
to purchase more than the aggregate amount of the Participation Maximum,
each such Purchaser shall have the right to purchase its Pro Rata Portion
(as defined below) of the Participation Maximum. "Pro Rata Portion" means
the ratio of (x) the Subscription Amount of Securities purchased on the
Closing Date by a Purchaser participating under this Section 4.11 and (y)
the sum of the aggregate Subscription Amounts of Securities purchased on
the Closing Date by all Purchasers participating under this Section 4.11.
(e) The Company must provide the Purchasers with a second Subsequent
Financing Notice, and the Purchasers will again have the right of
participation set forth above in this Section 4.11, if the Subsequent
Financing subject to the initial Subsequent Financing Notice is not
consummated for any reason on the terms set forth in such Subsequent
Financing Notice within thirty (30) Trading Days after the date of the
initial Subsequent Financing Notice.
(f) The Company and each Purchaser agree that if any Purchaser elects
to participate in the Subsequent Financing, the transaction documents
related to the Subsequent Financing shall not include any term or provision
whereby such Purchaser shall be required to agree to any restrictions on
trading as to any of the Securities purchased hereunder or be required to
consent to any amendment to or termination of, or grant any waiver, release
or the like under or in connection with, this Agreement, without the prior
written consent of such Purchaser.
(g) Notwithstanding anything to the contrary in this Section 4.11 and
unless otherwise agreed to by such Purchaser, the Company shall either
confirm in writing to such Purchaser that the transaction with respect to
the Subsequent Financing has been abandoned or shall publicly disclose its
intention to issue the securities in the Subsequent Financing, in either
case in such a manner such that such Purchaser will not be in possession of
any material, non-public information, by thirty (30) Trading Days following
delivery of the Subsequent Financing Notice. If by such thirtieth (30th)
34
Trading Day, no public disclosure regarding a transaction with respect to
the Subsequent Financing has been made, and no notice regarding the
abandonment of such transaction has been received by such Purchaser, such
transaction shall be deemed to have been abandoned and such Purchaser shall
not be deemed to be in possession of any material, non-public information
with respect to the Company or any of its Subsidiaries.
(h) Notwithstanding the foregoing, this Section 4.11 shall not apply in
respect of (i) an Exempt Issuance, (ii) a public offering registered with
the SEC, or (iii) after the date no Notes are outstanding.
4.12 Subsequent Equity Sales.
(a) From the date hereof until 30 days after the Closing Date neither
the Company nor any Subsidiary shall issue, enter into any agreement to
issue or announce the issuance or proposed issuance of any shares of Common
Stock or Common Stock Equivalents, except for Exempt Issuances.
(b) From the date hereof until the later of (i) such time as 80% of
the Warrants are no longer outstanding or (ii) such time as the Notes have
been paid in full, the Company will not, without the consent of the
Purchasers, enter into any Equity Line of Credit or similar agreement, nor
issue nor agree to issue any common stock, floating or Variable Priced
Equity Linked Instruments nor any of the foregoing or equity with price
reset rights (subject to adjustment for stock splits, distributions,
dividends, recapitalizations and the like) (collectively, the "Variable
Rate Transaction"). 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).
Notwithstanding the foregoing, the Company shall not be prohibited from
engaging in any Variable Rate Transaction in connection with any offering
of securities described in clause (e) of the Exempt Issuance definition.
35
(c) From the date hereof until the earlier of (i) date that is the
24th monthanniversary of the Closing Date or (ii) such time as no Purchaser
holds any Securities, in the event that the Company issues or sells any
Common Stock or Common Stock Equivalents, if a Purchaser then holding
Securities purchased under this Agreement reasonably believes that any of
the terms and conditions appurtenant to such issuance or sale are more
favorable to such investors than are the terms and conditions granted to
the Purchasers hereunder, upon notice to the Company by such Purchaser
within five (5) Trading Days after disclosure of such issuance or sale, the
Company shall amend the terms of this transaction as to such Purchaser only
so as to give such Purchaser the benefit of such more favorable terms or
conditions.
(d) Notwithstanding the foregoing, this Section 4.12 shall not apply
in respect of an Exempt Issuance. The Company shall provide each Purchaser
with notice of any such issuance or sale in the manner for disclosure of
Subsequent Financings set forth in Section 4.11.
4.13 Equal Treatment of Purchasers. No consideration (including any
modification of any Transaction Document) 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 to all of
the parties to the Transaction Documents. For clarification purposes, this
provision constitutes a separate right granted to each Purchaser by the Company
and negotiated separately by each Purchaser, and is intended for the Company to
treat the Purchasers as a class and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.
4.14 Certain Transactions and Confidentiality. Each Purchaser, severally
and not jointly with the other Purchasers, covenants that neither it nor any
Affiliate acting on its behalf or pursuant to any understanding with it will
execute any purchases or sales, including Short Sales of any of the Company's
securities during the period commencing with the execution of this Agreement and
ending at such time that the transactions contemplated by this Agreement are
first publicly announced pursuant to the initial press release as described in
Section 4.4. Each Purchaser, severally and not jointly with the other
Purchasers, covenants that until such time as the transactions contemplated by
this Agreement are publicly disclosed by the Company pursuant to the initial
press release as described in Section 4.4, such Purchaser will maintain the
confidentiality of the existence and terms of this transaction and the
information included in the Disclosure Schedules. Notwithstanding the foregoing
and notwithstanding anything contained in this Agreement to the contrary, the
Company expressly acknowledges and agrees that (i) no Purchaser makes any
representation, warranty or covenant hereby that it will not engage in effecting
transactions in any securities of the Company after the time that the
transactions contemplated by this Agreement are first publicly announced
pursuant to the initial press release as described in Section 4.4, (ii) no
Purchaser shall be restricted or prohibited from effecting any transactions in
any securities of the Company in accordance with applicable securities laws from
and after the time that the transactions contemplated by this Agreement are
first publicly announced pursuant to the initial press release as described in
Section 4.4 and (iii) no Purchaser shall have any duty of confidentiality or
duty not to trade in the securities of the Company to the Company or its
Subsidiaries after the issuance of the initial press release as described in
Section 4.4. Notwithstanding the foregoing, in the case of a Purchaser that is a
36
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser's assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser's assets, the covenant set forth above
shall only apply with respect to the portion of assets managed by the portfolio
manager that made the investment decision to purchase the Securities covered by
this Agreement.
4.15 Capital Changes. Until the one year anniversary of the Closing Date,
the Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent of the
Purchasers holding a majority in interest of the outstanding principal balance
of the Notes unless such stock split is necessary for purposes of having the
Company's common stock listed on the NYSE American Exchange or the Nasdaq
Capital Markets.
4.16 Conversion and Exercise Procedures. The forms of Conversion Notice and
Notice of Exercise included in the Notes and Warrants set forth the totality of
the procedures required of the Purchasers in order to convert the Notes or to
exercise the Warrants. No additional legal opinion, other information or
instructions shall be required of the Purchasers to convert their Notes or
exercise their Warrants. Without limiting the preceding sentences, no
ink-original Conversion Notice or Notice of Exercise shall be required, nor
shall any medallion guarantee (or other type of guarantee or notarization) of
any Conversion Notice or Notice of Exercise form be required in order to convert
the Notes or exercise the Warrants. The Company shall honor conversions of the
Notes and exercises of the Warrants and shall deliver Shares and Warrant Shares
in accordance with the terms, conditions and time periods set forth in the
Transaction Documents.
4.17 DTC Program. For so long as any Warrants are outstanding, the Company
will employ as the transfer agent for the Common Stock and Warrant Shares a
participant in the Depository Trust Company Automated Securities Transfer
Program and cause the Common Stock to be transferable pursuant to such program.
4.18 Maintenance of Property. The Company shall keep all of its property,
which is necessary or useful to the conduct of its business, in good working
order and condition, ordinary wear and tear excepted.
4.19 Preservation of Corporate Existence. The Company shall preserve and
maintain its corporate existence, rights, privileges and franchises in the
jurisdiction of its incorporation, and qualify and remain qualified, as a
foreign corporation in each jurisdiction in which such qualification is
necessary in view of its business or operations and where the failure to qualify
or remain qualified might reasonably have a Material Adverse Effect upon the
financial condition, business or operations of the Company taken as a whole.
4.20 No Registration of Securities. While the Notes are outstanding, the
Company will not file any registration statements, on Form S-8 or otherwise, to
register sales of Common Stock, including shares underlying any derivative
37
securities, unless such registration statement is with respect to an offering in
which the Company receives gross proceeds of $5,000,000 or more.
4.21 Piggy-back Registration. From the date hereof until the later of (i)
such time as the Warrants are no longer outstanding or (ii) such time as the
Notes have been paid in full, each Purchaser shall have the right to include the
Shares and the Warrant Shares as part of any other registration of securities
filed by the Company (other than pursuant to Form S-4, Form S-8 or any
equivalent form) as provided for in the Notes and the Warrants.
4.22 Collateral Agent. Each Purchaser hereby appoints Cavalry Fund I LP as
Collateral Agent under the Security Agreement, and as Agent under each of the
Subsidiary Guaranty and the Pledge Agreement.
4.23 D&O Insurance. Within 60 days of the Closing, the Company shall
purchase director and officer insurance on behalf of the Company's (including
its subsidiary) officers and directors for a period of 18 months after the
Closing with respect to any losses, claims, damages, liabilities, costs and
expense in connection with any actual or threatened claim or proceeding that is
based on, or arises out of their status as a director or officer of the Company.
The insurance policy shall provide for two years of tail coverage.
ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser, as to
such Purchaser's obligations hereunder only and without any effect whatsoever on
the obligations between the Company and the other Purchasers, by written notice
to the other parties, if the Closing has not been consummated on or before
November 15, 2018; provided, however, that no such termination will affect the
right of any party to sue for any breach by any other party (or parties).
5.2 Fees and Expenses. Except as expressly set forth below and in the
Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all Transfer Agent fees (including, without limitation, any fees
required for same-day processing of any instruction letter delivered by the
Company and any exercise notice delivered by a Purchaser), stamp taxes and other
taxes and duties levied in connection with the delivery of any Securities to the
Purchasers. Upon the Closing, the Company agrees to pay counsel for the
Purchasers a total of $20,000 in fees together with reasonable costs including
those necessary to provide the Purchasers with a lien on all of the assets of
the Company in an amount not to exceed $800. The Escrow Agent may withhold this
$20,800 in order to pay the fees and expenses due Purchaser's counsel.
5.3 Entire Agreement. The Transaction Documents, together with the exhibits
and schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and thereof and supersede all prior
38
agreements and understandings, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits and
schedules.
5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of: (a) the date of transmission, if
such notice or communication is delivered via facsimile or email attachment at
the facsimile number or email address as set forth on the signature pages
attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day,
(b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile or email attachment at the facsimile
number or email address as set forth on the signature pages attached hereto on a
day that is not a Trading Day or later than 5:30 p.m. (New York City time) on
any Trading Day, (c) the second (2nd) Trading Day following the date of mailing,
if sent by U.S. nationally recognized overnight courier service or (d) upon
actual receipt by the party to whom such notice is required to be given. The
address for such notices and communications shall be as set forth on the
signature pages attached hereto. To the extent that any notice provided pursuant
to any Transaction Document constitutes, or contains, material, non-public
information regarding the Company or any Subsidiaries, the Company shall
simultaneously file such notice with the SEC pursuant to a Current Report on
Form 8-K.
5.5 Amendments; Waivers. Except as provided in the last sentence of this
Section 5.5, no provision of this Agreement may be waived, modified,
supplemented or amended except in a written instrument signed, in the case of an
amendment, by the Company and the Purchasers who purchased at least a majority
in interest of the Amendment based on the initial Subscription Amounts hereunder
or, in the case of a waiver, by the party against whom enforcement of any such
waived provision is sought; provided, that if any amendment, modification or
waiver disproportionately and adversely impacts a Purchaser (or group of
Purchasers), the consent of such disproportionately impacted Purchaser (or group
of Purchasers) shall also be required. No waiver of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed to be
a continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of any party to exercise any right hereunder in any manner
impair the exercise of any such right. Any proposed amendment or waiver that
disproportionately, materially and adversely affects the rights and obligations
of any Purchaser relative to the comparable rights and obligations of the other
Purchasers shall require the prior written consent of such adversely affected
Purchaser, Any amendment effected in accordance with accordance with this
Section 5.5 shall be binding upon each Purchaser and holder of Securities and
the Company. In order to amend the definition of Exempt Issuance, the written
consent of the Company and each Purchaser must be obtained.
5.6 Reserved.
5.7 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.8 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser (other than by merger). Any
39
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom such Purchaser assigns or transfers any Securities, provided that such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of the Transaction Documents that apply to the
"Purchasers."
5.9 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.8 and this
Section 5.9. Notwithstanding the foregoing, Joseph Gunnar & Co., LLC shall be
deemed a third party beneficiary of the representations and warranties of the
Company as contained in Section 3.1 of this Agreement and shall have the right
to enforce such provisions directly to the extent it may deem such enforcement
necessary or advisable to protect its rights.
5.10 Governing Law; Exclusive Jurisdiction; Attorneys' Fees. All questions
concerning the construction, validity, enforcement and interpretation of the
Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof. Each party agrees that all legal
Proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and any other Transaction Documents
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, partners, members, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New
York. Each party hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in the City of New York, Borough of Manhattan
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein (including with respect
to the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any Action or Proceeding, any claim that it
is not personally subject to the jurisdiction of any such court, that such
Action or Proceeding is improper or is an inconvenient venue for such
Proceeding. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such Action or Proceeding 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. If any party shall commence an Action or Proceeding to enforce
any provisions of the Transaction Documents, then, in addition to the
obligations of the Company elsewhere in this Agreement, the prevailing party in
such Action or Proceeding shall be reimbursed by the non-prevailing party for
its reasonable attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such Action or Proceeding.
5.11 Survival. The representations and warranties contained herein shall
survive the Closing and the delivery of the Securities.
5.12 Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to each other party, it being understood that the parties need not
40
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a ".pdf" format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or ".pdf" signature page were an original thereof.
5.13 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
5.14 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) any of
the other Transaction Documents, whenever any Purchaser exercises a right,
election, demand or option under a Transaction Document and the Company does not
timely perform its related obligations within the periods therein provided, then
such Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights; provided,
however, that in the case of a rescission of an exercise of a Warrant, the
applicable Purchaser shall be required to return any shares of Common Stock
subject to any such rescinded exercise notice concurrently with the return to
such Purchaser of the aggregate exercise price paid to the Company for such
shares and the restoration of such Purchaser's right to acquire such shares
pursuant to such Purchaser's Warrant (including, issuance of a replacement
warrant certificate evidencing such restored right).
5.15 Replacement of Securities. If any certificate or instrument evidencing
any Securities is mutilated, lost, stolen or destroyed, the Company shall issue
or cause to be issued in exchange and substitution for and upon cancellation
thereof (in the case of mutilation), or in lieu of and substitution therefor, a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction without requiring
the posting of any bond.
5.16 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agree to waive and
not to assert in any Action for specific performance of any such obligation the
defense that a remedy at law would be adequate.
5.17 Payment Set Aside. To the extent the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
41
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.18 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance or non-performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any other Transaction Document, and no action taken by any Purchaser
pursuant hereto or thereto including any action taken by the Collateral Agent as
defined by the Security Agreement (whether under this Agreement or the Security
Agreement), shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to independently protect
and enforce its rights including, without limitation, the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
Proceeding for such purpose. Each Purchaser has been represented by its own
separate legal counsel in its review and negotiation of the Transaction
Documents. The Company has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by any of the Purchasers. It is expressly
understood and agreed that each provision contained in this Agreement and in
each other Transaction Document is between the Company and a Purchaser, solely,
and not between the Company and the Purchasers collectively and not between and
among the Purchasers.
5.19 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
5.20 Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such right
may be exercised on the next succeeding Business Day.
5.21 Construction. The parties agree that each of them and/or their
respective counsel have reviewed and had an opportunity to revise the
Transaction Documents and, therefore, the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of the Transaction Documents or any
42
amendments thereto. In addition, each and every reference to share prices and
shares of Common Stock in any Transaction Document shall be subject to
adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur after
the date of this Agreement.
5.22 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY
JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH
KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW,
HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVE FOREVER
TRIAL BY JURY.
5.23 Non-Circumvention. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Incorporation, including any
Certificates of Designation, or Bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Agreement, and will at all
times in good faith carry out all of the provision of this Agreement and take
all action as may be required to protect the rights of all holders of the
Securities. Without limiting the generality of the foregoing or any other
provision of this Agreement or the other Transaction Documents, the Company (a)
shall not increase the par value of any shares of Common Stock receivable upon
conversion of the Note or exercise of the Warrants above the Note Conversion
Price, or Warrant Exercise Price, as applicable, then in effect and (b) shall
take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable Shares upon
the conversion of the Note and Warrant Shares upon exercise of the Warrants.
Notwithstanding anything herein to the contrary, if after 180 days from the
original issuance date, a holder is not permitted to convert the Note or
exercise the Warrants, in full, for any reason, the Company shall use its best
efforts to promptly remedy such failure, including, without limitation,
obtaining such consent or approvals as necessary to permit such conversion or
exercise.
(Signature Pages Follow)
43
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
ESPORTS ENTERTAINMENT GROUP, INC. Address for Notice:
-------------------
By:____________________________ Commercial Centre, Jolly Harbour
St. Mary's, Antigua and Barbuda
Name: Grant Johnson Email: grant@esportsentertainmentgroup.com
Title: Chief Executive Officer
With a copy to (which shall not constitute notice):
William T. Hart
Hart & Hart, LLC
1624 N. Washington Street
Denver, CO 80203
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
44
PURCHASER SIGNATURE PAGES TO OBMP SECURITIES PURCHASE AGREEMENT
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: ____________________________________________________________
Signature of Authorized Signatory of Purchaser: _______________________________
Name of Authorized Signatory: _________________________________________________
Title of Authorized Signatory: ________________________________________________
Email Address of Authorized Signatory: ________________________________________
Facsimile Number of Authorized Signatory: _____________________________________
Address for Notice to Purchaser: ______________________________________________
Address for Delivery of Securities to Purchaser (if not same as address for
notice):
Subscription Amount: $_________________
Warrant Shares: __________________
Additional Subscription Amount: $_________________
Additional Warrant Shares: __________________
EIN Number: _______________________
45
EX-10
3
form8k203ex102nov-18.txt
EXHIBIT 10.2
EXHIBIT 10.2
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: November __, 2018
$---------
10% ORIGINAL ISSUE DISCOUNT
5% SENIOR CONVERTIBLE NOTE
DUE NOVEMBER __, 2019
THIS 10% SENIOR CONVERTIBLE NOTE is one of a series of duly authorized and
validly issued 5% Senior Convertible Notes issued at a 10% original issue
discount by Esports Entertainment Group, Inc., a Nevada corporation (the
"Company") (this note, the "Note" and, collectively with the other notes of such
series, the "Notes").
FOR VALUE RECEIVED, the Company promises to pay to ____________________, or
its registered assigns (the "Holder"), or shall have paid pursuant to the terms
hereunder, the principal sum of $__________ on the date that is the one year
anniversary of the Original Issue Date, or November __, 2019 (the "Maturity
Date") or such earlier date as this Note is required or permitted to be repaid
as provided hereunder, and to pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Note in accordance
with the provisions hereof. This Note is subject to the following additional
provisions:
Section 1. Definitions. For the purposes hereof, (a) capitalized terms not
otherwise defined herein shall have the meanings set forth in the Purchase
Agreement and (b) the following terms shall have the following meanings:
"Alternate Consideration" shall have the meaning set forth in Section 5(e).
"Bankruptcy Event" means any of the following events: (a) the Company or
any Significant Subsidiary (as such term is defined in Rule 1-02(w) of
Regulation S-X) thereof commences a case or other proceeding under any
bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
relating to the Company or any Significant Subsidiary thereof, (b) there is
commenced against the Company or any Significant Subsidiary thereof any such
case or proceeding that is not dismissed within 60 days after commencement, (c)
the Company or any Significant Subsidiary thereof is adjudicated insolvent or
1
bankrupt or any order of relief or other order approving any such case or
proceeding is entered, (d) the Company or any Significant Subsidiary thereof
suffers any appointment of any custodian or the like for it or any substantial
part of its property that is not discharged or stayed within 60 calendar days
after such appointment, (e) the Company or any Significant Subsidiary thereof
makes a general assignment for the benefit of creditors, (f) the Company or any
Significant Subsidiary thereof calls a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts or (g) the
Company or any Significant Subsidiary thereof, by any act or failure to act,
expressly indicates its consent to, approval of or acquiescence in any of the
foregoing or takes any corporate or other action for the purpose of effecting
any of the foregoing.
"Base Conversion Price" shall have the meaning set forth in Section 5(b).
"Beneficial Ownership Limitation" shall have the meaning set forth in
Section 4(e).
"Black Scholes Value" means the value of the outstanding principal amount
of this Note, plus all accrued and unpaid interest hereon based on the Black and
Scholes Option Pricing Model obtained from the "OV" function on Bloomberg L.P.
("Bloomberg") determined as of the day of consummation of the applicable
Fundamental Transaction for pricing purposes and reflecting (A) a risk-free
interest rate corresponding to the U.S. Treasury rate for a period equal to the
time between the date of the public announcement of the applicable Fundamental
Transaction and the Maturity Date, (B) an expected volatility equal to the
greater of 100% and the 100 day volatility obtained from the HVT function on
Bloomberg as of the Trading Day immediately following the public announcement of
the applicable Fundamental Transaction, (C) the underlying price per share used
in such calculation shall be the sum of the price per share being offered in
cash, if any, plus the value of any non-cash consideration, if any, being
offered in such Fundamental Transaction and (D) a remaining option time equal to
the time between the date of the public announcement of the applicable
Fundamental Transaction and the Maturity Date.
"Business Day" means any day except any Saturday, any Sunday, any day which
is a federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.
"Buy-In" shall have the meaning set forth in Section 4(c)(v).
"Change of Control Transaction" means the occurrence after the date hereof
of any of (a) an acquisition after the date hereof by an individual or legal
entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the
Exchange Act) of effective control (whether through legal or beneficial
ownership of capital stock of the Company, by contract or otherwise) of in
excess of 50% of the voting securities of the Company (other than by means of
conversion, exercise or exchange of the Notes or the Securities issued together
with the Notes), (b) the Company merges into or consolidates with any other
Person, or any Person merges into or consolidates with the Company and, after
giving effect to such transaction, the shareholders of the Company immediately
prior to such transaction own less than 50% of the aggregate voting power of the
Company or the successor entity of such transaction, (c) the Company sells or
2
transfers all or substantially all of its assets to another Person, (d) a
replacement at one time or within a three year period of more than one-half of
the members of the Board of Directors which is not approved by a majority of
those individuals who are members of the Board of Directors on the Original
Issue Date (or by those individuals who are serving as members of the Board of
Directors on any date whose nomination to the Board of Directors was approved by
a majority of the members of the Board of Directors who are members on the date
hereof), or (e) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth in clauses (a) through (d) above.
"Collateral Agent" means the party appointed agent on behalf of all
Purchasers in the Security Agreement dated October 16, 2018 by and between the
Company and the Collateral Agent.
"Conversion" shall have the meaning ascribed to such term in Section 4.
"Conversion Date" shall have the meaning set forth in Section 4(a).
"Conversion Price" shall have the meaning set forth in Section 4(b).
"Conversion Shares" means, collectively, the shares of Common Stock
issuable upon conversion of this Note in accordance with the terms hereof.
"Default Conversion Price" shall have the meaning set forth in Section
4(c).
"Default Interest Rate" shall have the meaning set forth in Section 2(a).
"Dilutive Issuance" shall have the meaning set forth in Section 5(b).
"Dilutive Issuance Notice" shall have the meaning set forth in Section
5(b).
"DWAC" means the Deposit or Withdrawal at Custodian system at The
Depository Trust Company.
"Event of Default" shall have the meaning set forth in Section 7(a).
"Exempt Issuance" shall have the meaning set forth in the Purchase
Agreement.
"Fundamental Transaction" shall have the meaning set forth in Section 5(e).
"Indebtedness" shall have the meaning set forth in the Purchase Agreement.
"Liens" shall have the meaning set forth in the Purchase Agreement.
"Mandatory Default Amount" means the sum of (a) (i) 130% of the outstanding
principal amount of this Note plus (ii) accrued and unpaid interest hereon,
including Default Interest, and (b) all other amounts, costs, expenses and
liquidated damages due in respect of this Note.
"New York Courts" shall have the meaning set forth in Section 8(e).
3
"Note Register" shall have the meaning set forth in Section 3(c).
"Notice of Conversion" shall have the meaning set forth in Section 4(a).
"Option Value" means the value of a Common Stock Equivalent based on the
Black Scholes Option Pricing model obtained from the "OV" function on Bloomberg
determined as of (A) the Trading Day prior to the public announcement of the
issuance of the applicable Common Stock Equivalent, if the issuance of such
Common Stock Equivalent is publicly announced or (B) the Trading Day immediately
following the issuance of the applicable Common Stock Equivalent if the issuance
of such Common Stock Equivalent is not publicly announced, for pricing purposes
and reflecting (i) a risk-free interest rate corresponding to the U.S. Treasury
rate for a period equal to the remaining term of the applicable Common Stock
Equivalent as of the applicable date of determination, (ii) an expected
volatility equal to the greater of 100% and the 100 day volatility obtained from
the HVT function on Bloomberg as of (A) the Trading Day immediately following
the public announcement of the applicable Common Stock Equivalent if the
issuance of such Common Stock Equivalent is publicly announced or (B) the
Trading Day immediately following the issuance of the applicable Common Stock
Equivalent if the issuance of such Common Stock Equivalent is not publicly
announced, (iii) the underlying price per share used in such calculation shall
be the highest VWAP of the Common Stock during the period beginning on the
Trading Day prior to the execution of definitive documentation relating to the
issuance of the applicable Common Stock Equivalent and ending on (A) the Trading
Day immediately following the public announcement of such issuance, if the
issuance of such Common Stock Equivalent is publicly announced or (B) the
Trading Day immediately following the issuance of the applicable Common Stock
Equivalent if the issuance of such Common Stock Equivalent is not publicly
announced, (iv) a zero cost of borrow and (v) a 360 day annualization factor.
"Original Issue Date" means the date of the first issuance of the Notes,
regardless of any transfers of any Note and regardless of the number of
instruments which may be issued to evidence such Notes.
"Permitted Indebtedness" means (a) the indebtedness evidenced by the Notes,
(b) capital lease obligations and purchase money indebtedness incurred in
connection with the acquisition of machinery and equipment as long as such
capital leases and indebtedness are approved in advance by the Collateral Agent
and (c) any indebtedness set forth on Schedule 3.1(aa) to the Purchase
Agreement.
"Permitted Lien" means the individual and collective reference to the
following: (a) Liens for taxes, assessments and other governmental charges or
levies not yet due or Liens for taxes, assessments and other governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves (in the good faith judgment of the management of the
Company) have been established in accordance with GAAP, (b) Liens imposed by law
which were incurred in the ordinary course of the Company's business, such as
4
carriers', warehousemen's and mechanics' Liens, statutory landlords' Liens, and
other similar Liens arising in the ordinary course of the Company's business,
and which (x) do not individually or in the aggregate materially detract from
the value of such property or assets or materially impair the use thereof in the
operation of the business of the Company and its consolidated Subsidiaries or
(y) are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing for the foreseeable future the
forfeiture or sale of the property or asset subject to such Lien, (c) Liens
incurred in connection with Permitted Indebtedness under clauses (a) and (b)
thereunder, and Liens set forth on Schedule 3.1(aa) to the Purchase Agreement.
"Purchase Agreement" means the Securities Purchase Agreement, dated as of
October 16, 2018 among the Company and the original Holders, as amended,
modified or supplemented from time to time in accordance with its terms.
"Qualified Financing" means a registered public offering of shares of the
Company's Common Stock (and warrants if included in a Qualified Financing), from
which the Company receives gross proceeds of not less than $5,000,000 and the
Company's Trading Market is a national securities exchange.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Share Delivery Date" shall have the meaning set forth in Section 4(c)(ii).
"Successor Entity" shall have the meaning set forth in Section 5(e).
"Trading Day" means a day on which the principal Trading Market is open for
trading.
"Trading Market" means any of the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question: the
NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq
Global Select Market, the New York Stock Exchange, or any market of the OTC
Markets, Inc. (or any successors to any of the foregoing).
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted
on a Trading Market, the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time)) (or a similar organization or agency succeeding to its functions of
reporting prices), (b) if no volume weighted average price of the Common Stock
is reported for the Trading Market, the most recent bid price per share of the
Common Stock so reported, or (c) in all other cases, the fair market value of a
share of Common Stock as determined by an independent appraiser selected in good
faith by the Holders of a majority of the outstanding principal amount of the
Notes then outstanding and reasonably acceptable to the Company, the fees and
expenses of which shall be paid by the Company.
Section 2. Interest/Prepayment.
(a) Interest. Interest shall accrue to the Holder on the aggregate
5
unconverted and then outstanding principal amount of this Note at the rate of
five percent (5%) per annum, calculated on the basis of a 360-day year and shall
accrue daily commencing on the Original Issue Date until payment in full of the
outstanding principal (or conversion to the extent applicable), together with
all accrued and unpaid interest, liquidated damages and other amounts which may
become due hereunder, has been made. During the existence of an Event of
Default, interest shall accrue at the lesser of (i) the rate of 18% per annum,
or (ii) the maximum amount permitted by law (the lesser of clause (i) or (ii),
the "Default Interest Rate").
(b) Prepayment. The Notes may be prepaid: (i) at any time until the 180th
day following the Original Issue Date at an amount equal to 110% of outstanding
principal balance of the Note and accrued and unpaid interest, and (ii) anytime
after the 180th day following the Original Issue Date at an amount equal to 125%
of outstanding principal balance of the Notes and accrued and unpaid interest.
In order to prepay the Notes, the Company shall provide twenty (20) Trading Days
prior written notice to the Holder, during which time the Holder may convert the
Notes in whole or in part at the Conversion Price.
Section 3. Registration of Transfers and Exchanges.
(a) Different Denominations. This Note is exchangeable for an equal
aggregate principal amount of Notes of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be payable
for such registration of transfer or exchange.
(b) Investor Representations. This Note has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement and may be transferred or exchanged only in compliance with the
Purchase Agreement and applicable federal and state securities laws and
regulations.
(c) Reliance on Note Register. Prior to due presentment for transfer to the
Company of this Note, the Company and any agent of the Company may treat the
Person in whose name this Note is duly registered on the Note Register as the
owner hereof for the purpose of receiving payment as herein provided and for all
other purposes, whether or not this Note is overdue, and neither the Company nor
any such agent shall be affected by notice to the contrary.
Section 4. Conversion.
(a) Voluntary Conversion. After the Original Issue Date until this Note is
no longer outstanding, this Note shall be convertible, in whole or in part, at
any time, and from time to time, into shares of Common Stock at the option of
the Holder. The Holder shall effect conversions by delivering to the Company a
Notice of Conversion, the form of which is attached hereto as Annex A (each, a
"Notice of Conversion"), specifying therein the principal amount of this Note to
be converted and the date on which such conversion shall be effected (such date,
the "Conversion Date"). If no Conversion Date is specified in a Notice of
6
Conversion, the Conversion Date shall be the date that such Notice of Conversion
is delivered hereunder. No ink-original Notice of Conversion shall be required,
nor shall any medallion guarantee (or other type of guarantee or notarization)
of any Notice of Conversion form be required. To effect conversions hereunder,
the Holder shall not be required to physically surrender this Note to the
Company unless the entire principal amount of this Note, plus all accrued and
unpaid interest thereon, has been so converted. Conversions hereunder shall have
the effect of lowering the outstanding principal amount of this Note in an
amount equal to the applicable conversion. The Holder and the Company shall
maintain records showing the principal amount(s) converted in each conversion,
the date of each conversion, and the Conversion Price in effect at the time of
each conversion. The Company may deliver an objection to any Notice of
Conversion within one Business Day of delivery of such Notice of Conversion. In
the event of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error. The Holder, and
any assignee by acceptance of this Note, acknowledge and agree that, by reason
of the provisions of this paragraph, following conversion of a portion of this
Note, the unpaid and unconverted principal amount of this Note may be less than
the amount stated on the face hereof.
(b) Mandatory Conversion. This Note (and any accrued or unpaid interest)
shall automatically convert into the Company's common stock, or into the
Company's common stock and warrants (if warrants are included in the Qualified
Financing), upon the closing of a Qualified Financing at a price per share equal
to the lower of (i) the Conversion Price and (ii) 80% of the offering price in
the Qualified Financing. At least five days prior to the closing of the
Qualified Financing, the Company will notify the Holder in writing of the terms
of the Qualified Financing. By way of example, if Notes in the principal amount
of $2,000,000 are sold in this offering, and units consisting of one share of
common stock and one warrant are sold in the Qualified Financing at a price of
$1.00 per unit, the Note Holders, as a group, would receive 3,333,333 shares of
common stock and 3,333,333 warrants upon the conversion of the Notes (excluding
shares and warrants which would be issued for accrued interest). The Warrants
issued upon conversion would have the same terms as the warrants sold in the
Qualified Offering.
(c) Conversion Price. The "Conversion Price" in effect on any Conversion
Date means, as of any Conversion Date or other date of determination, sixty
cents ($0.60) per share (subject to adjustment as provided herein), provided,
however, that if an Event of Default has occurred, regardless of whether such
Event of Default has been cured or remains ongoing, the Note shall be
convertible at 80% of the lowest closing price during the prior twenty (20)
Trading Days of the Common Stock as reported on the Trading Market (the "Default
Conversion Price").
(d) Mechanics of Conversion or Prepayment.
(i) Conversion Shares Issuable Upon Conversion of Principal Amount.
The number of Conversion Shares issuable upon a conversion hereunder shall
be determined by the quotient obtained by dividing (x) the outstanding
principal amount of this Note to be converted by (y) the Conversion Price
in effect at the time of such conversion.
(ii) Delivery of Certificate Upon Conversion. Not later than two (2)
Trading Days after each Conversion Date (the "Share Delivery Date"), the
Company shall deliver, or cause to be delivered, to the Holder any
certificate or certificates required to be delivered by the Company under
this Section 4(d) which, on or after the six month anniversary of the
Original Issue Date, shall be free of restrictive legends and trading
restrictions (other than those which may then be required by the Purchase
Agreement) and such shares shall be delivered electronically through the
7
Depository Trust Company or another established clearing corporation
performing similar functions provided the Holder has provided to the
Company complete delivery instructions as required by the Notice of
Conversion.
(iii) Failure to Deliver Certificates. If, in the case of any Notice
of Conversion, such certificate or certificates are not delivered to or as
directed by the applicable Holder by the Share Delivery Date, the Holder
shall be entitled to elect by written notice to the Company at any time on
or before its receipt of such certificate or certificates, to rescind such
Conversion, in which event the Company shall promptly return to the Holder
any original Note delivered to the Company and the Holder shall promptly
return to the Company the Common Stock certificates issued to such Holder
pursuant to the rescinded Notice of Conversion.
(iv) Obligation Absolute; Partial Liquidated Damages. The Company's
obligations to issue and deliver the Conversion Shares upon conversion of
this Note in accordance with the terms hereof, are absolute and
unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision
hereof, the recovery of any judgment against any Person or any action to
enforce the same, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged
violation of law by the Holder or any other Person, and irrespective of any
other circumstance which might otherwise limit such obligation of the
Company to the Holder in connection with the issuance of such Conversion
Shares; provided, however, that such delivery shall not operate as a waiver
by the Company of any such action the Company may have against the Holder.
In the event the Holder of this Note shall elect to convert any or all of
the outstanding principal amount hereof, the Company may not refuse
conversion based on any claim that the Holder or anyone associated or
affiliated with the Holder has been engaged in any violation of law,
agreement or for any other reason, unless an injunction from a court, on
notice to Holder, restraining and or enjoining conversion or prepayment of
all or part of this Note shall have been sought and obtained, and the
Company posts a surety bond for the benefit of the Holder in the amount of
150% of the outstanding principal amount of this Note, which is subject to
the injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the underlying dispute and the proceeds of which
shall be payable to the Holder to the extent it obtains judgment. In the
absence of such injunction, the Company shall issue Conversion Shares upon
a properly noticed conversion. If the Company fails for any reason to
deliver to the Holder such certificate or certificates pursuant to Section
4(d)(ii) by the Share Delivery Date, the Company shall pay to the Holder,
in cash, as liquidated damages and not as a penalty, for each $1,000 of
principal amount being converted, $10 per Trading Day (increasing to $20
per Trading Day on the fifth (5th) Trading Day after such Conversion Date)
for each Trading Day after such Share Delivery Date until such certificates
are delivered or Holder rescinds such conversion. In no event shall
liquidated damages for any one conversion exceed $1,000 for the first ten
(10) Trading Days. Nothing herein shall limit a Holder's right to pursue
actual damages or declare an Event of Default pursuant to Section 7 hereof
for the Company's failure to deliver Conversion Shares within the period
specified herein and the Holder shall have the right to pursue all remedies
available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief. The
exercise of any such rights shall not prohibit the Holder from seeking to
enforce damages pursuant to any other Section hereof or under applicable
law.
8
(v) Compensation for Buy-In on Failure to Timely Deliver Certificates
Upon Conversion. In addition to any other rights available to the Holder,
if the Company fails for any reason to deliver to the Holder such
certificate or certificates by the Share Delivery Date pursuant to Section
4(d)(ii), and if after such Share Delivery Date the Holder is required by
its brokerage firm to purchase (in an open market transaction or
otherwise), or the Holder's brokerage firm otherwise purchases, shares of
Common Stock to deliver in satisfaction of a sale by the Holder of the
Conversion Shares which the Holder was entitled to receive upon the
conversion relating to such Share Delivery Date (a "Buy-In"), then the
Company shall (A) pay in cash to the Holder (in addition to any other
remedies available to or elected by the Holder) the amount, if any, by
which (x) the Holder's total purchase price (including any brokerage
commissions) for the Common Stock so purchased exceeds (y) the product of
(1) the aggregate number of shares of Common Stock that the Holder was
entitled to receive from the conversion at issue multiplied by (2) the
actual sale price at which the sell order giving rise to such purchase
obligation was executed (including any brokerage commissions) and (B) at
the option of the Holder, either reissue (if surrendered) this Note in a
principal amount equal to the principal amount of the attempted conversion
(in which case such conversion shall be deemed rescinded) or deliver to the
Holder the number of shares of Common Stock that would have been issued if
the Company had timely complied with its delivery requirements under
Section 4(d)(ii). For example, if the Holder purchases Common Stock having
a total purchase price of $11,000 to cover a Buy-In with respect to an
attempted conversion of this Note with respect to which the actual sale
price of the Conversion Shares (including any brokerage commissions) giving
rise to such purchase obligation was a total of $10,000 under clause (A) of
the immediately preceding sentence, the Company shall be required to pay
the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In and,
upon request of the Company, evidence of the amount of such loss. Nothing
herein shall limit a Holder's right to pursue any other remedies available
to it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief with respect to the
Company's failure to timely deliver certificates representing shares of
Common Stock upon conversion of this Note as required pursuant to the terms
hereof.
(vi) Reservation of Shares Issuable Upon Conversion. The Company
covenants that it will reserve and keep available out of its authorized and
unissued shares of Common Stock for the purpose of issuances upon
conversion of this Note (and other purposes further detailed in the
Purchase Agreement), free from preemptive rights or any other actual
contingent purchase rights of Persons other than the Holder (and the other
holders of the Notes), not less than the amount of shares designated in
Section 4.9 of the Purchase Agreement. The Company covenants that all
shares of Common Stock that shall be so issuable shall, upon issue, be duly
authorized, validly issued, fully paid and nonassessable.
(vii) Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the conversion of this Note. As to
any fraction of a share which the Holder would otherwise be entitled to
purchase upon such conversion, the Company shall at its election, either
pay a cash adjustment in respect of such final fraction in an amount equal
to such fraction multiplied by the Conversion Price or round up to the next
whole share.
9
(viii) Transfer Taxes and Expenses. The issuance of certificates for
shares of the Common Stock on conversion of this Note shall be made without
charge to the Holder hereof for any documentary stamp or similar taxes that
may be payable in respect of the issue or delivery of such certificates,
provided that, the Company shall not be required to pay any tax that may be
payable in respect of any transfer involved in the issuance and delivery of
any such certificate upon conversion in a name other than that of the
Holder of this Note so converted and the Company shall not be required to
issue or deliver such certificates unless or until the Person or Persons
requesting the issuance thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of the Company
that such tax has been paid. The Company shall pay all Transfer Agent fees
required for same-day processing of any Notice of Conversion and all fees
to the Depository Trust Company (or another established clearing
corporation performing similar functions) required for same-day electronic
delivery of the Conversion Shares.
(e) Holder's Conversion Limitations. The Company shall not effect any
conversion of this Note, and a Holder shall not have the right to convert any
portion of this Note, to the extent that after giving effect to the conversion
set forth on the applicable Notice of Conversion, the Holder (together with the
Holder's Affiliates, and any Persons acting as a group together with the Holder
or any of the Holder's Affiliates) would beneficially own in excess of the
Beneficial Ownership Limitation (as defined below). For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned by
the Holder and its Affiliates shall include the number of shares of Common Stock
issuable upon conversion of this Note with respect to which such determination
is being made, but shall exclude the number of shares of Common Stock which are
issuable upon (i) conversion of the remaining, unconverted principal amount of
this Note beneficially owned by the Holder or any of its Affiliates and (ii)
exercise or conversion of the unexercised or unconverted portion of any other
securities of the Company subject to a limitation on conversion or exercise
analogous to the limitation contained herein (including, without limitation, any
other Notes or the Warrants) beneficially owned by the Holder or any of its
Affiliates. Except as set forth in the preceding sentence, for purposes of this
Section 4(e), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. To the extent that the limitation contained in this Section 4(e)
applies, the determination of whether this Note is convertible (in relation to
other securities owned by the Holder together with any Affiliates) and of which
principal amount of this Note is convertible shall be in the sole discretion of
the Holder, and the submission of a Notice of Conversion shall be deemed to be
the Holder's determination of whether this Note may be converted (in relation to
other securities owned by the Holder together with any Affiliates) and which
principal amount of this Note is convertible, in each case subject to the
Beneficial Ownership Limitation. To ensure compliance with this restriction, the
Holder will be deemed to represent to the Company each time it delivers a Notice
of Conversion that such Notice of Conversion has not violated the restrictions
set forth in this paragraph and the Company shall have no obligation to verify
or confirm the accuracy of such determination. In addition, a determination as
to any group status as contemplated above shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. For purposes of this Section 4(e), in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as stated in the most recent of the
following: (i) the Company's most recent periodic or annual report filed with
the SEC, as the case may be, (ii) a more recent public announcement by the
10
Company, or (iii) a more recent written notice by the Company or the Company's
transfer agent setting forth the number of shares of Common Stock outstanding.
Upon the written or oral request of a Holder, the Company shall within two
Trading Days confirm orally and in writing to the Holder the number of shares of
Common Stock then outstanding. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company, including this Note, by the Holder or its
Affiliates since the date as of which such number of outstanding shares of
Common Stock was reported. The "Beneficial Ownership Limitation" shall be 4.99%
of the number of shares of the Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock issuable upon conversion of
this Note held by the Holder. The Holder, upon not less than 61 days' prior
notice to the Company, may increase the Beneficial Ownership Limitation
provisions of this Section 4(e) solely with respect to the Holder's Note,
provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of
the number of shares of Common Stock outstanding immediately after giving effect
to the issuance of shares of Common Stock upon conversion of this Note held by
the Holder and the provisions of this Section 4(e) shall continue to apply. Any
such increase or decrease will not be effective until the 61st day after such
notice is delivered to the Company. The Holder may also decrease the Beneficial
Ownership Limitation provisions of this Section 4(e) solely with respect to the
Holder's Note at any time, which decrease shall be effectively immediately upon
delivery of notice to the Company. The Beneficial Ownership Limitation
provisions of this paragraph shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this Section 4(e) to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Beneficial Ownership Limitation contained herein
or to make changes or supplements necessary or desirable to properly give effect
to such limitation. The limitations contained in this paragraph shall apply to a
successor holder of this Note.
Section 5. Certain Adjustments.
(a) Stock Dividends and Stock Splits. If the Company, at any time while
this Note is outstanding: (i) pays a stock dividend or otherwise makes a
distribution or distributions payable in shares of Common Stock on shares of
Common Stock or any Common Stock Equivalents (which, for avoidance of doubt,
shall not include any shares of Common Stock issued by the Company upon
conversion of, or payment of interest on, the Notes or pursuant to any of the
other Transaction Documents), (ii) subdivides outstanding shares of Common Stock
into a larger number of shares, (iii) combines (including by way of a reverse
stock split) outstanding shares of Common Stock into a smaller number of shares
or (iv) issues, in the event of a reclassification of shares of the Common
Stock, any shares of capital stock of the Company, then the Conversion Price
shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock (excluding any treasury shares of the Company)
outstanding immediately before such event, and of which the denominator shall be
the number of shares of Common Stock outstanding immediately after such event.
Any adjustment made pursuant to this Section shall become effective immediately
after the record date for the determination of shareholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.
(b) Subsequent Equity Sales. If, at any time, for so long as the Note or
any amounts accrued and payable thereunder remain outstanding, the Company or
11
any Subsidiary, as applicable, sells or grants any option to purchase or sells
or grants any right to reprice, or otherwise disposes of or issues (or announces
any sale, grant or any option to purchase or other disposition), any Common
Stock or Common Stock Equivalents entitling any Person to acquire shares of
Common Stock at an effective price per share that is lower than the Conversion
Price then in effect (such lower price, the "Base Conversion Price" and each
such issuance or announcement a "Dilutive Issuance"), then the Conversion Price
shall be immediately reduced to equal the Base Conversion Price. Such adjustment
shall be made whenever such Common Stock or Common Stock Equivalents are issued.
If any Common Stock Equivalent is amended or adjusted, and such price as so
amended shall be less than the Conversion Price in effect at the time of such
amendment or adjustment, then the Conversion Price shall be adjusted upon each
such issuance or amendment as provided in this Section 5(b). In case any Common
Stock Equivalent is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated transaction, (x)
the Common Stock Equivalents will be deemed to have been issued for the Option
Value of such Common Stock Equivalents and (y) the other securities issued or
sold in such integrated transaction shall be deemed to have been issued or sold
for the difference of (I) the aggregate consideration received by the Company
less any consideration paid or payable by the Company pursuant to the terms of
such other securities of the Company, less (II) the Option Value. If any shares
of Common Stock or Common Stock Equivalents are issued or sold or deemed to have
been issued or sold for cash, the amount of such consideration received by the
Company will be deemed to be the net amount received by the Company therefor. If
any shares of Common Stock or Common Stock Equivalents are issued or sold for a
consideration other than cash, the amount of such consideration received by the
Company will be the fair value of such consideration, except where such
consideration consists of publicly traded securities, in which case the amount
of consideration received by the Company will be the VWAP of such public traded
securities on the date of receipt. If any shares of Common Stock or Common Stock
Equivalents are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such shares of Common Stock or Common Stock Equivalents, as the case may be.
If the holder of Common Stock or Common Stock Equivalents outstanding on
the Original Issue Date or issued after the Original Issuance Date shall at any
time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which are issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective price
per share that is lower than the Conversion Price then in effect, such issuance
shall be deemed to have occurred for less than the Conversion Price on such date
and such issuance shall be deemed to be a Dilutive Issuance.
If the Company enters into a Variable Rate Transaction despite the
prohibition set forth in the Purchase Agreement, the Company shall be deemed to
have issued Common Stock or Common Stock Equivalents at the lowest possible
conversion price at which such securities may be converted or exercised under
the terms of such Variable Rate Transaction.
The Company shall notify the Holder in writing, no later than the Trading
Day following the issuance of any Common Stock or Common Stock Equivalents
subject to this Section 5(b), indicating therein the applicable issuance price,
12
or applicable reset price, exchange price, conversion price and other pricing
terms (such notice, the "Dilutive Issuance Notice"). For purposes of
clarification, whether or not the Company provides a Dilutive Issuance Notice
pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the
Holder is entitled to receive a number of Conversion Shares based upon the Base
Conversion Price on or after the date of such Dilutive Issuance, regardless of
whether the Holder accurately refers to the Base Conversion Price in the Notice
of Conversion.
The provisions of this Section 5(b) shall apply each time a Dilutive
Issuance occurs after the Original Issue Date for so long as the Note or any
amounts accrued and payable thereunder remain outstanding, but any adjustment of
the Conversion Price pursuant to this Section 5(b) shall be downward only.
Notwithstanding the foregoing, no adjustment will be made under this Section
5(b) in respect of an Exempt Issuance.
(c) Subsequent Rights Offerings. In addition to any adjustments
pursuant to Section 5(a) above, if at any time the Company grants, issues
or sells any Common Stock, Common Stock Equivalents or rights to purchase
stock, warrants, securities or other property pro rata to the record
holders of any class of shares of Common Stock (the "Purchase Rights"),
then the Holder will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which the Holder could
have acquired if the Holder had held the number of shares of Common Stock
acquirable upon complete conversion of this Note (without regard to any
limitations on conversion hereof, including without limitation, the
Beneficial Ownership Limitation) immediately before the date on which a
record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the grant, issue or sale of
such Purchase Rights (provided, however, to the extent that the Holder's
right to participate in any such Purchase Right would result in the Holder
exceeding the Beneficial Ownership Limitation, then the Holder shall not be
entitled to participate in such Purchase Right to such extent (or
beneficial ownership of such shares of Common Stock as a result of such
Purchase Right to such extent) and such Purchase Right to such extent shall
be held in abeyance for the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Beneficial Ownership
Limitation).
(d) Pro Rata Distributions. During such time as this Note is
outstanding, if the Company shall declare or make any dividend or other
distribution of its assets or rights or warrants to acquire its assets, or
subscribe for or purchase any security other than Common Stock, to holders
of shares of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a "Distribution"), at any time after the issuance of
this Note, then, in each such case, the Holder shall be entitled to
participate in such Distribution to the same extent that the Holder would
have participated therein if the Holder had held the number of shares of
Common Stock acquirable upon complete conversion of this Note (without
regard to any limitations on exercise hereof, including without limitation,
the Beneficial Ownership Limitation) immediately before the date of which a
record is taken for such Distribution, or, if no such record is taken, the
date as of which the record holders of shares of Common Stock are to be
determined for the participation in such Distribution (provided, however,
to the extent that the Holder's right to participate in any such
13
Distribution would result in the Holder exceeding the Beneficial Ownership
Limitation with respect to the Company or any other publicly-traded
corporation subject to Section 13(d) of the Exchange Act, then the Holder
shall not be entitled to participate in such Distribution to such extent
(or in the beneficial ownership of any shares of common stock as a result
of such Distribution to such extent) and the portion of such Distribution
shall be held in abeyance for the benefit of the Holder until such time, if
ever, as its right thereto would not result in the Holder exceeding the
Beneficial Ownership Limitation with respect to the Company or any other
publicly-traded corporation subject to Section 13(d) of the Exchange Act).
(e) Fundamental Transaction. (1) If, at any time while this Note is
outstanding, (i) the Company, directly or indirectly, in one or more
related transactions effects any merger or consolidation of the Company
with or into another Person, (ii) the Company, directly or indirectly,
effects any sale, lease, license, assignment, transfer, conveyance or other
disposition of all or substantially all of its assets in one or a series of
related transactions, (iii) any, direct or indirect, purchase offer, tender
offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to sell,
tender or exchange their shares for other securities, cash or property and
has been accepted by the holders of 50% or more of the outstanding Common
Stock, (iv) the Company, directly or indirectly, in one or more related
transactions effects any reclassification, reorganization or
recapitalization of the Common Stock or any compulsory share exchange
pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property, (v) the Company, directly
or indirectly, in one or more related transactions consummates a stock or
share purchase agreement or other business combination (including, without
limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires more
than 50% of the outstanding shares of Common Stock (not including any
shares of Common Stock held by the other Person or other Persons making or
party to, or associated or affiliated with the other Persons making or
party to, such stock or share purchase agreement or other business
combination) (each a "Fundamental Transaction"), then, upon any subsequent
conversion of this Note, the Holder shall have the right to receive, for
each Conversion Share that would have been issuable upon such conversion
immediately prior to the occurrence of such Fundamental Transaction
(without regard to any limitation on the conversion of this Note), the
number of shares of Common Stock of the successor or acquiring corporation
or of the Company, if it is the surviving corporation, and any additional
consideration (the "Alternate Consideration") receivable as a result of
such Fundamental Transaction by a holder of the number of shares of Common
Stock for which this Note is convertible immediately prior to such
Fundamental Transaction (without regard to any limitation on the conversion
of this Note). For purposes of any such conversion, the determination of
the Conversion Price shall be appropriately adjusted to apply to such
Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Conversion Price among the
Alternate Consideration in a reasonable manner reflecting the relative
value of any different components of the Alternate Consideration. If
holders of Common Stock are given any choice as to the securities, cash or
property to be received in a Fundamental Transaction, then the Holder shall
be given the same choice as to the Alternate Consideration it receives upon
any conversion of this Note following such Fundamental Transaction. The
Company shall not effect a Fundamental Transaction unless it gives the
Holder at least ten (10) Trading Days prior notice together with sufficient
details so the Holder can make an informed decision as to whether it elects
to accept the Alternative Consideration. If a public announcement of the
Fundamental Transaction has not been made, the notice to the Holder may not
be given until the Company files a Form 8-K or other report disclosing the
Fundamental Transaction. (2) Notwithstanding anything to the contrary, in
the event of a Fundamental Transaction that is (x) an all cash transaction,
(y) a "Rule 13e-3 transaction" as defined in Rule 13e-3 under the Exchange
Act, or (z) a Fundamental Transaction involving a person or entity not
traded on a national securities exchange or trading market (with such
exchange or market including, without limitation, the Nasdaq Global Select
Trading Market, the Nasdaq Global Market, or the Nasdaq Capital Market, The
New York Stock Exchange, Inc., the NYSE American or the OTCQB), the Company
or any Successor Entity (as defined below) shall, at the Holder's option,
concurrently with the consummation of the Fundamental Transaction, purchase
this Note from the Holder by paying to the Holder the higher of (i) an
amount of cash equal to the Black Scholes Value of the outstanding
principal of this Note on the date of the consummation of such Fundamental
Transaction, or (ii) the product of (a) the number of Conversion Shares
issuable upon full conversion of this Note (without regard to any
limitation on conversion of this Note) and (b) the positive difference
between the cash per share paid in such Fundamental Transaction minus the
14
then in effect Conversion Price. (3) If Section 5(e)(1) and (2) are not
applicable, the Company shall cause any successor entity in a Fundamental
Transaction in which the Company is not the survivor (the "Successor
Entity") to assume in writing all of the obligations of the Company under
this Note and the other Transaction Documents (as defined in the Purchase
Agreement) in accordance with the provisions of this Section 5(e) pursuant
to written agreements in form and substance reasonably satisfactory to the
Holder and approved by the Holder (without unreasonable delay) prior to
such Fundamental Transaction and shall, at the option of the Holder,
deliver to the Holder in exchange for this Note a security of the Successor
Entity evidenced by a written instrument substantially similar in form and
substance to this Note which is convertible for a corresponding number of
shares of capital stock of such Successor Entity (or its parent entity)
equivalent to the shares of Common Stock acquirable and receivable upon
conversion of this Note (without regard to any limitations on the
conversion of this Note) prior to such Fundamental Transaction, and with a
conversion price which applies the Conversion Price hereunder to such
shares of capital stock (but taking into account the relative value of the
shares of Common Stock pursuant to such Fundamental Transaction and the
value of such shares of capital stock, such number of shares of capital
stock and such conversion price being for the purpose of protecting the
economic value of this Note immediately prior to the consummation of such
Fundamental Transaction), and which is reasonably satisfactory in form and
substance to the Holder. Upon the occurrence of any such Fundamental
Transaction, the Successor Entity shall succeed to, and be substituted for
(so that from and after the date of such Fundamental Transaction, the
provisions of this Note and the other Transaction Documents referring to
the "Company" shall refer instead to the Successor Entity), and may
exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Note and the other Transaction
Documents with the same effect as if such Successor Entity had been named
as the Company herein. Notwithstanding anything in this Section 5(e), an
Exempt Issuance (as defined in the Purchase Agreement) shall not be deemed
a Fundamental Transaction.
(f) Calculations. All calculations under this Section 5 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 5, the number of shares of Common Stock deemed
15
to be issued and outstanding as of a given date shall be the sum of the
number of shares of Common Stock (excluding any treasury shares of the
Company) issued and outstanding.
(g) Notice to the Holder.
(i) Adjustment to Conversion Price. Whenever the Conversion Price is
adjusted pursuant to any provision of this Section 5, the Company shall
promptly deliver to each Holder a notice setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.
(ii) Notice to Allow Conversion by Holder. If (A) the Company shall
declare a dividend (or any other distribution in whatever form) on the
Common Stock, (B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock, (C) the Company shall
authorize the granting to all holders of the Common Stock of rights or
warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights, (D) the approval of any shareholders of the Company
shall be required in connection with any reclassification of the Common
Stock, any consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets of the Company,
or any compulsory share exchange whereby the Common Stock is converted into
other securities, cash or property or (E) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of the
affairs of the Company, then, in each case, the Company shall cause to be
filed at each office or agency maintained for the purpose of conversion of
this Note, and shall cause to be delivered to the Holder at its last
address as it shall appear upon the Note Register, at least 20 calendar
days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken
for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the
holders of the Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or (y)
the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and
the date as of which it is expected that holders of the Common Stock of
record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided that the
failure to deliver such notice or any defect therein or in the delivery
thereof shall not affect the validity of the corporate action required to
be specified in such notice. To the extent that any notice provided
hereunder constitutes, or contains, material, non-public information
regarding the Company or any of the Subsidiaries (as determined in good
faith by the Company), the Company or its successor shall simultaneously
file such notice with the SEC pursuant to a Current Report on Form 8-K. If
the Company does not simultaneously file the required Form 8-K, the Holder
shall be entitled penalties in accordance with Section 4.6 of the Purchase
Agreement. The Holder shall remain entitled to convert this Note during the
20-day period commencing on the date of such notice through the effective
date of the event triggering such notice except as may otherwise be
expressly set forth herein.
Section 6. Negative Covenants. As long as any portion of this Note remains
outstanding, unless the holders of at least 75% in principal amount of the then
outstanding Notes shall have otherwise given prior written consent, the Company
shall not, and shall not permit any of the Subsidiaries to, directly or
indirectly:
16
(a) other than Permitted Indebtedness, enter into, create, incur, assume,
guarantee or suffer to exist any indebtedness for borrowed money of any kind,
including, but not limited to, a guarantee, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein or
any income or profits therefrom;
(b) other than Permitted Liens, enter into, create, incur, assume or suffer
to exist any Liens of any kind, on or with respect to any of its property or
assets now owned or hereafter acquired or any interest therein or any income or
profits therefrom;
(c) amend its charter documents, including, without limitation, its
certificate of incorporation and bylaws, in any manner that materially and
adversely affects any rights of the Holder;
(d) other than with respect to Permitted Indebtedness, repay, repurchase or
offer to repay, repurchase or otherwise acquire more than a de minimis number of
shares of its Common Stock or Common Stock Equivalents other than as to the
Conversion Shares or Warrant Shares as permitted or required under the
Transaction Documents;
(e) other than with respect to Permitted Indebtedness repay, repurchase or
offer to repay, repurchase or otherwise acquire any Indebtedness, other than the
Notes if on a pro-rata basis, other than regularly scheduled principal and
interest payments as such terms are in effect as of the Original Issue Date,
provided that such payments shall not be permitted if, at such time, or after
giving effect to such payment, any Event of Default exists or occurs;
(f) pay cash dividends or distributions on any equity securities of the
Company;
(g) enter into any transaction with any Affiliate of the Company which
would be required to be disclosed in any public filing with the SEC assuming
that the Company is subject to the Securities Act or the Exchange Act, unless
such transaction is made on an arm's-length basis and expressly approved by a
majority of the disinterested directors of the Company (even if less than a
quorum otherwise required for board approval);
(h) issue any equity securities of the Company other than pursuant to the
provisions of the Purchase Agreement or an Exempt Issuance; or
(i) enter into any agreement with respect to any of the foregoing.
Section 7. Events of Default.
(a) "Event of Default" means, wherever used herein, any of the following
events (whatever the reason for such event and whether such event shall be
voluntary or involuntary or effected by operation of law or pursuant to any
judgment, decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
(i) any default in the payment of (A) the principal amount of any Note
or (B) interest, late fees, liquidated damages and other amounts owing to a
17
Holder on any Note, as and when the same shall become due and payable
(whether on a Conversion Date, Payment Date or the Maturity Date, or by
acceleration or otherwise) which default, solely in the case of an interest
payment or other default under clause (B) above, is not cured within five
Trading Days;
(ii) the Company shall fail to observe or perform any other covenant
or agreement contained in the Notes (other than a breach by the Company of
its obligations to deliver shares of Common Stock to the Holder upon
conversion, which breach is addressed in clause (xi) below) or any
Transaction Document which failure is not cured, if possible to cure,
within the earlier to occur of (A) seven Trading Days after notice of such
failure is sent by the Holder or by any other Holder to the Company and (B)
10 Trading Days after the Company has become aware of such failure;
(iii) a default or event of default (subject to any grace or cure
period provided in the applicable agreement, document or instrument) shall
occur under (A) any of the Transaction Documents or (B) any other material
agreement, lease, document or instrument to which the Company or any
Subsidiary is obligated (and not covered by any other clause of this
Section 7) which default or event of default if not cured, if possible to
cure, within the earlier to occur of (i) seven Trading Days after notice of
such default sent by Holder or by any other holder to the Company and (ii)
10 Trading Days after the Company has become aware of such default;
(iv) any representation or warranty made in this Note, any other
Transaction Document, any written statement pursuant hereto or thereto or
any other report, financial statement or certificate made or delivered to
the Holder or any other Holder shall be untrue or incorrect in any material
respect as of the date when made or deemed made;
(v) the Company or any Significant Subsidiary (as such term is defined
in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;
(vi) the Company or any Subsidiary shall default on any of its
obligations under any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under which
there may be issued, or by which there may be secured or evidenced, any
indebtedness for borrowed money or money due under any long term leasing or
factoring arrangement that (a) involves an obligation greater than
$100,000, whether such indebtedness now exists or shall hereafter be
created, and (b) results in such indebtedness becoming or being declared
due and payable prior to the date on which it would otherwise become due
and payable and such default is not cured within the earlier to occur of
(i) seven Trading Days after notice of such default sent by Holder or by
any other holder to the Company and (ii) 10 Trading Days after the Company
has become aware of such default;
(vii) the Common Stock shall not be eligible for listing or quotation
for trading on a Trading Market and shall not be eligible to resume listing
or quotation for trading thereon within 10 Trading Days;
18
(viii) Except for an Exempt Issuance, the Company shall be a party to
any Change of Control Transaction or shall agree to sell or dispose of all
or in excess of 50% of its assets in one transaction or a series of related
transactions (whether or not such sale would constitute a Change of Control
Transaction); (ix) from and after the Original Issue Date, the Company
fails to have authorized and reserved the amount of shares designated in
Section 4.9 of the Purchase Agreement (without regard to any limitations on
conversion hereof, including without limitation, the Beneficial Ownership
Limitation) and shall not have cured such failure within 10 Trading Days of
such failure;
(x) the Company shall fail for any reason, except if caused by the
action or inaction of the Holder to deliver certificates to a Holder prior
to the second (2nd) Trading Day after a Conversion Date pursuant to Section
4(d) or the Company shall provide at any time notice to the Holder,
including by way of public announcement, of the Company's intention to not
honor requests for conversions of any Notes in accordance with the terms
hereof; or
(xi) any monetary judgment, writ or similar final process shall be
entered or filed against the Company, any Subsidiary or any of their
respective property or other assets for more than $100,000, and such
judgment, writ or similar final process shall remain unvacated, unbonded or
unstayed for a period of 10 calendar days.
(b) Remedies Upon Event of Default. If any Event of Default occurs, the
outstanding principal amount of this Note, plus accrued but unpaid interest,
liquidated damages and other amounts owing in respect thereof through the date
of acceleration, shall become, at the Holder's election, immediately due and
payable in cash at the Mandatory Default Amount. Upon the payment in full of the
Mandatory Default Amount, the Holder shall promptly surrender this Note to or as
directed by the Company. In connection with such acceleration described herein,
the Holder need not provide, and the Company hereby waives, any presentment,
demand, protest or other notice of any kind, and the Holder may immediately and
without expiration of any grace period enforce any and all of its rights and
remedies hereunder and all other remedies available to it under applicable law.
Such acceleration may be rescinded and annulled by Holder at any time prior to
payment hereunder and the Holder shall have all rights as a holder of the Note
until such time, if any, as the Holder receives full payment pursuant to this
Section 7(b). No such rescission or annulment shall affect any subsequent Event
of Default or impair any right consequent thereon.
(c) Interest Rate Upon Event of Default. Commencing on the occurrence of
any Event of Default and until such Event of Default is cured, this Note shall
accrue interest at an interest rate equal to the Default Interest Rate.
(d) Conversion Price Upon Event of Default. Commencing on the occurrence of
any Event of Default and until such Event of Default is cured, this Note shall
be convertible at the Default Conversion Price.
Section 8. Miscellaneous.
(a) No Rights as Stockholder Until Conversion. This Note does not entitle
the Holder to any voting rights, dividends or other rights as a stockholder of
the Company prior to the conversion hereof other than as explicitly set forth in
Section 5.
19
(b) Notices. All notices, offers, acceptance and any other acts under this
Agreement (except payment) shall be in writing, and shall be sufficiently given
if delivered to the addressees in person, by Federal Express or similar
receipted next business day delivery, as follows:
If to the Company: Esports Entertainment Group, Inc.
Commercial Centre, Jolly Harbour
St. Mary's, Antigua and Barbuda
Attention: Chief Executive Officer
with a copy to: Hart & Hart, LLC
(which shall not 1624 N. Washington Street
constitute notice) Denver, CO 80203
Attention: William Hart
If to Holder: ____________________
____________________
Attention: ___________
or to such other address as any of them, by notice to the other may designate
from time to time. Time shall be counted to, or from, as the case may be, the
date of delivery.
(c) Absolute Obligation. Except as expressly provided herein, no provision
of this Note shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, liquidated damages and
accrued interest and late fees, as applicable, on this Note at the time, place,
and rate, and in the coin or currency, herein prescribed. This Note is a direct
debt obligation of the Company. This Note ranks pari passu with all other Notes
now or hereafter issued under the Purchase Agreement.
(d) Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen
or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Note, or in lieu of or in
substitution for a lost, stolen or destroyed Note, a new Note for the principal
amount of this Note so mutilated, lost, stolen or destroyed, but only upon
receipt of evidence of such loss, theft or destruction of such Note, and of the
ownership hereof, reasonably satisfactory to the Company.
(e) Exclusive Jurisdiction; Governing Law. All questions concerning the
construction, validity, enforcement and interpretation of this Note shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflict of laws
thereof. Each party agrees that all legal proceedings concerning the
interpretation, enforcement and defense of the transactions contemplated by any
of the Transaction Documents (whether brought against a party hereto or its
respective Affiliates, directors, officers, shareholders, employees or agents)
shall only be commenced in the state and federal courts sitting in New York
County, New York (the "New York Courts"). Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
20
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of such New York Courts,
or such New York Courts are improper or inconvenient venue for such proceeding.
Each party hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof 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
Note 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
applicable law. Each party hereto hereby irrevocably waives, to the fullest
extent permitted by applicable law, any and all right to trial by jury in any
legal proceeding arising out of or relating to this Note or the transactions
contemplated hereby.
(f) Waiver. Any waiver by the Company or the Holder of a breach of any
provision of this Note shall not operate as or be construed to be a waiver of
any other breach of such provision or of any breach of any other provision of
this Note. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Note on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Note on any other
occasion. Any waiver by the Company or the Holder must be in writing.
(g) Severability. If any provision of this Note is invalid, illegal or
unenforceable, the balance of this Note shall remain in effect, and if any
provision is inapplicable to any Person or circumstance, it shall nevertheless
remain applicable to all other Persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder violates the
applicable law governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum rate of interest permitted
under applicable law. The Company covenants (to the extent that it may lawfully
do so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or
usury law or other law which would prohibit or forgive the Company from paying
all or any portion of the principal of or interest on this Note as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this Note, and the Company (to the
extent it may lawfully do so) hereby expressly waives all benefits or advantage
of any such law, and covenants that it will not, by resort to any such law,
hinder, delay or impede the execution of any power herein granted to the Holder,
but will suffer and permit the execution of every such as though no such law has
been enacted.
(h) Remedies, Characterizations, Other Obligations, Breaches and Injunctive
Relief. The remedies provided in this Note shall be cumulative and in addition
to all other remedies available under this Note and any of the other Transaction
Documents at law or in equity (including a decree of specific performance and/or
other injunctive relief), and nothing herein shall limit the Holder's right to
pursue actual and consequential damages for any failure by the Company to comply
with the terms of this Note. The Company covenants to the Holder that there
shall be no characterization concerning this instrument other than as expressly
provided herein. Amounts set forth or provided for herein with respect to
payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the Holder and shall not, except as expressly provided
herein, be subject to any other obligation of the Company (or the performance
21
thereof). The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach would be inadequate. The Company therefore agrees that, in
the event of any such breach or threatened breach, the Holder shall be entitled,
in addition to all other available remedies, to an injunction restraining any
such breach or any such threatened breach, without the necessity of showing
economic loss and without any bond or other security being required. The Company
shall provide all information and documentation to the Holder that is requested
by the Holder to enable the Holder to confirm the Company's compliance with the
terms and conditions of this Note.
(i) Next Business Day. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day.
(j) Headings. The headings contained herein are for convenience only, do
not constitute a part of this Note and shall not be deemed to limit or affect
any of the provisions hereof.
(k) Piggy-back Registration. After the Original Issue Date until this Note
is no longer outstanding, the Holder shall have the right, to include the
Conversion Shares issuable upon the conversion of this Note as part of any
registration of securities filed by the Company (other than pursuant to Form
S-4, Form S-8, or any equivalent form, or any Form S-1 that the Company files
with the SEC on or before January 31, 2019 with respect to a firm commitment
underwritten offering). The Company shall bear all fees and expenses related to
registering the Conversion Shares pursuant to this Section 8(k), but the Holder
shall pay any and all underwriting commissions and the expenses of any legal
counsel selected by the Holder to represent it in connection with the sale of
the Conversion Shares. In the event of such a proposed registration, the Company
shall furnish the then Holder with not less than thirty (30) days written notice
prior to the proposed date of filing of such registration statement. The Holder
shall exercise the "piggy-back" rights provided for herein by giving written
notice within ten (10) days of the receipt of the Company's notice of its
intention to file a registration statement.
(Signature Pages Follow)
22
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by
a duly authorized officer as of the date first above indicated.
ESPORTS ENTERTAINMENT GROUP, INC.
By:_____________________________
Name: Grant Johnson
Title: Chief Executive Officer
23
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 10% Senior
Convertible Note due November ________, 2019 of Esports Entertainment Group,
Inc., a Nevada corporation (the "Company"), into shares of common stock (the
"Common Stock"), of the Company according to the conditions hereof, as of the
date written below. If shares of Common Stock are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates and
opinions as reasonably requested by the Company in accordance therewith. No fee
will be charged to the holder for any conversion, except for such transfer
taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Common Stock does not exceed
the amounts specified under Section 4 of this Note, as determined in accordance
with Section 13(d) of the Exchange Act.
The undersigned agrees to comply with the prospectus delivery requirements
under the applicable securities laws in connection with any transfer of the
aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
--------------------------
Principal Amount of Note to be Converted:
-----------
Number of shares of Common Stock to be issued:
Signature:
------------------------------
Name:
-----------------------------------
DWAC Instructions:
Broker No:
-------------------------------
Account No:
------------------------------
24
EX-10
4
form8k203ex103nov-18.txt
EXHIBIT 10.3
EXHIBIT 10.3
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
ESPORTS ENTERTAINMENT GROUP, INC.
Warrant Shares: _________ Initial Exercise Date: November __, 2018
THIS COMMON STOCK PURCHASE WARRANT (the "Warrant") certifies that, for
value received, ____________________, or its assigns (the "Holder") is entitled,
upon the terms and subject to the limitations on exercise and the conditions
hereinafter set forth, at any time on or after the date hereof (the "Initial
Exercise Date") and on or prior to the close of business on the three (3) year
anniversary of the Initial Exercise Date (the "Termination Date") but not
thereafter, to subscribe for and purchase from Esports Entertainment Group,
Inc., a Nevada corporation (the "Company"), up to _______ shares of Common Stock
(subject to adjustment hereunder, the "Warrant Shares"). The purchase price of
one Warrant Share under this Warrant shall be equal to the Exercise Price, as
defined in Section 2(b).
Section 1. Definitions. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in that certain Securities Purchase
Agreement (the "Purchase Agreement"), dated November __, 2018, among the Company
and the Purchasers.
Section 2. Exercise.
a) Exercise of the purchase rights represented by this Warrant may be made,
in whole or in part, at any time or times on or after the Initial Exercise Date
and on or before the Termination Date by delivery to the Company (or such other
office or agency of the Company as it may designate by notice in writing to the
registered Holder at the address of the Holder appearing on the books of the
Company) of a duly executed facsimile copy of the Notice of Exercise Form
annexed hereto. Within two (2) Trading Days following the date of exercise as
aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares
specified in the applicable Notice of Exercise by wire transfer or cashier's
check drawn on a United States bank unless the cashless exercise procedure
specified in Section 2(c) below is specified in the applicable Notice of
Exercise. Notwithstanding anything herein to the contrary (although the Holder
may surrender the Warrant to, and receive a replacement Warrant from, the
Company), the Holder shall not be required to physically surrender this Warrant
1
to the Company until the Holder has purchased all of the Warrant Shares
available hereunder and the Warrant has been exercised in full, in which case,
the Holder shall surrender this Warrant to the Company for cancellation within
two (2) Trading Days of the date the final Notice of Exercise is delivered to
the Company. Partial exercises of this Warrant resulting in purchases of a
portion of the total number of Warrant Shares available hereunder shall have the
effect of lowering the outstanding number of Warrant Shares purchasable
hereunder in an amount equal to the applicable number of Warrant Shares
purchased. The Holder and the Company shall maintain records showing the number
of Warrant Shares purchased and the date of such purchases. The Company shall
deliver any objection to any Notice of Exercise Form within one (1) Trading Day
of delivery of such notice. The Holder by acceptance of this Warrant,
acknowledges and agrees that, by reason of the provisions of this paragraph,
following the purchase of a portion of the Warrant Shares hereunder, the number
of Warrant Shares available for purchase hereunder at any given time may be less
than the amount stated on the face hereof.
b) Exercise Price. The initial exercise price per share of the Common Stock
under this Warrant shall be equal to $0.75 per share, subject to adjustment
under Section 3 (the "Exercise Price").
c) Cashless Exercise. If at any time after the six (6) months anniversary
of the Initial Exercise Date, there is no effective Registration Statement
covering the resale of the Warrant Shares by the Holder, then this Warrant may
also be exercised at the Holder's election, in whole or in part and in lieu of
making the cash payment otherwise contemplated to be made to the Company upon
such exercise, at such time by means of a "cashless exercise" in which the
Holder shall be entitled to receive a number of Warrant Shares equal to the
number obtained by dividing [(A x B) - (A x C)] by (D), where:
(A)= the number of Warrant Shares that would be issuable upon exercise of
this Warrant in accordance with the terms of this Warrant if such
exercise were by means of a cash exercise rather than a cashless
exercise;
(B)= the greater of (i) the arithmetic average of the VWAPs for the five
(5) consecutive Trading Days ending on the date immediately preceding
the date on which the Holder elects to exercise this Warrant by means
of a "cashless exercise," as set forth in the applicable Notice of
Exercise or (ii) the VWAP for the Trading Day immediately prior to the
date on which the Holder makes such "cashless exercise" election;
(C)= the Exercise Price of this Warrant, as adjusted hereunder, at the
time of such exercise; and
(D)= the lesser of (i) the arithmetic average of the VWAPs for the five
(5) consecutive Trading Days ending on the date immediately preceding
the date on which the Holder elects to exercise this Warrant by means
2
of a "cashless exercise," as set forth in the applicable Notice of
Exercise or (ii) the VWAP for the Trading Day immediately prior to the
date on which the Holder makes such "cashless exercise" election.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted
on a Trading Market, the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time)) (or a similar organization or agency succeeding to its functions of
reporting prices), (b) if no volume weighted average price of the Common Stock
is reported for the Trading Market,, the most recent reported bid price per
share of the Common Stock, or (c) in all other cases, the fair market value of a
share of Common Stock as determined by an independent appraiser selected in good
faith by the Holders of a majority in interest of the Warrants then outstanding
and reasonably acceptable to the Company, the fees and expenses of which shall
be paid by the Company.
If Warrant Shares are issued in such a cashless exercise, the parties
acknowledge and agree that in accordance with Section 3(a)(9) of the Securities
Act, the Warrant Shares shall take on the characteristics of the Warrants being
exercised, and the holding period of the Warrants being exercised may be tacked
on to the holding period of the Warrant Shares. The Company agrees not to take
any position contrary to this Section 2(c).
Notwithstanding anything herein to the contrary, if on the Termination Date
(unless the Holder notifies the Company otherwise) if there is no effective
Registration Statement covering the resale of the Warrant Shares by the Holder,
then this Warrant shall be automatically exercised via cashless exercise
pursuant to this Section 2(c).
d) Mechanics of Exercise.
(i) Delivery of Certificates Upon Exercise. Certificates for shares
purchased hereunder shall be transmitted to the Holder by the Transfer
Agent to the Holder by crediting the account of the Holder's prime broker
with The Depository Trust Company through its Deposit or Withdrawal at
Custodian system ("DWAC") if the Company is then a participant in such
system and either (A) there is an effective registration statement
permitting the issuance of the Warrant Shares to or resale of the Warrant
Shares by the Holder or (B) this Warrant is being exercised via cashless
exercise and Rule 144 is available, or otherwise by physical delivery to
the address specified by the Holder in the Notice of Exercise by the date
that is two (2) Trading Days after the latest of (A) the delivery to the
Company of the Notice of Exercise and (B) payment of the aggregate Exercise
Price as set forth above (unless by cashless exercise, if permitted) (such
date, the "Warrant Share Delivery Date"). The Warrant Shares shall be
deemed to have been issued, and Holder or any other person so designated to
be named therein shall be deemed to have become a holder of record of such
shares for all purposes, as of the date the Warrant has been exercised,
with payment to the Company of the Exercise Price (or by cashless exercise,
if permitted) and all taxes required to be paid by the Holder, if any,
pursuant to Section 2(d)(vi) prior to the issuance of such shares, having
been paid. The Company understands that a delay in the delivery of the
Warrant Shares after the Warrant Share Delivery Date could result in
3
economic loss to the Holder. As compensation to the Holder for such loss,
the Company agrees to pay (as liquidated damages and not as a penalty) to
the Holder for late issuance of Warrant Shares upon exercise of this
Warrant the proportionate amount of $10 per Trading Day (increasing to $20
per Trading Day after the fifth (5th) Trading Day) after the Warrant Share
Delivery Date for each $1,000 of the value of the Warrant Shares for which
this Warrant is exercised (based on the Exercise Price) which are not
timely delivered. In no event shall liquidated damages for any one
transaction exceed $1,000 for the first ten Trading Days. The Company shall
pay any payments incurred under this Section 2(d)(i) in immediately
available funds upon demand. Furthermore, in addition to any other remedies
which may be available to the Holder, in the event that the Company fails
for any reason to effect delivery of the Warrant Shares by the Warrant
Share Delivery Date, the Holder may revoke all or part of the relevant
Warrant exercise by delivery of a notice to such effect to the Company,
whereupon the Company and the Holder shall each be restored to their
respective positions immediately prior to the exercise of the relevant
portion of this Warrant, except that the liquidated damages described above
shall be payable through the date notice of revocation or rescission is
given to the Company or the date the Warrant Shares are delivered to the
Holder, whichever date is earlier.
(ii) Delivery of New Warrants Upon Exercise. If this Warrant shall
have been exercised in part, the Company shall, at the request of a Holder
and upon surrender of this Warrant certificate, at the time of delivery of
the certificate or certificates representing Warrant Shares, deliver to the
Holder a new Warrant evidencing the rights of the Holder to purchase the
unpurchased Warrant Shares called for by this Warrant, which new Warrant
shall in all other respects be identical to this Warrant.
(iii) Rescission Rights. If the Company fails to deliver the Warrant
Shares or cause the Transfer Agent to transmit to the Holder a certificate
or the certificates representing the Warrant Shares pursuant to Section
2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the
right, at any time prior to issuance of such Warrant Shares, to rescind
such exercise.
(iv) Compensation for Buy-In on Failure to Timely Deliver Certificates
Upon Exercise. In addition to any other rights available to the Holder, if
the Company fails to deliver the Warrant Shares, or cause the Transfer
Agent to transmit to the Holder a certificate or the certificates
representing the Warrant Shares pursuant to an exercise on or before the
Warrant Share Delivery Date, and if after such date the Holder is required
by its broker to purchase (in an open market transaction or otherwise) or
the Holder's brokerage firm otherwise purchases, shares of Common Stock to
deliver in satisfaction of a sale by the Holder of the Warrant Shares which
the Holder anticipated receiving upon such exercise (a "Buy-In"), then the
Company shall (A) pay in cash to the Holder the amount, if any, by which
(x) the Holder's total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased exceeds (y) the amount
obtained by multiplying (1) the number of Warrant Shares that the Company
was required to deliver to the Holder in connection with the exercise at
issue by (2) the price at which the sell order giving rise to such purchase
obligation was executed, and (B) at the option of the Holder, either
reinstate the portion of the Warrant and equivalent number of Warrant
Shares for which such exercise was not honored (in which case such exercise
shall be deemed rescinded) or deliver to the Holder the number of shares of
Common Stock that would have been issued had the Company timely complied
with its exercise and delivery obligations hereunder. For example, if the
Holder purchases Common Stock having a total purchase price of $11,000 to
4
cover a Buy-In with respect to an attempted exercise of shares of Common
Stock with an aggregate sale price giving rise to such purchase obligation
of $10,000, under clause (A) of the immediately preceding sentence the
Company shall be required to pay the Holder $1,000. The Holder shall
provide the Company written notice indicating the amounts payable to the
Holder in respect of the Buy-In and, upon request of the Company, evidence
of the amount of such loss. Nothing herein shall limit a Holder's right to
pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company's failure to timely deliver
certificates representing shares of Common Stock upon exercise of the
Warrant as required pursuant to the terms hereof.
(v) No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which the Holder would otherwise be
entitled to purchase upon such exercise, the Company shall, at its
election, either pay a cash adjustment in respect of such final fraction in
an amount equal to such fraction multiplied by the Exercise Price or round
up to the next whole share.
(vi) Charges, Taxes and Expenses. Issuance of certificates for Warrant
Shares shall be made without charge to the Holder for any issue or transfer
tax or other incidental expense in respect of the issuance of such
certificate including any charges (limited to $100 per issuance) of any
clearing firm, all of which taxes and expenses shall be paid by the
Company, and such certificates shall be issued in the name of the Holder or
in such name or names as may be directed by the Holder; provided, however,
that in the event certificates for Warrant Shares are to be issued in a
name other than the name of the Holder, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the Holder and the Company may require, as a condition thereto,
the payment of a sum sufficient to reimburse it for any transfer tax
incidental thereto. The Company shall pay all Transfer Agent fees required
for same-day processing of any Notice of Exercise.
(vii) Closing of Books. The Company will not close its stockholder
books or records in any manner which prevents the timely exercise of this
Warrant, pursuant to the terms hereof.
e) Holder's Exercise Limitations. The Company shall not effect any exercise
of this Warrant, and a Holder shall not have the right to exercise any portion
of this Warrant, pursuant to Section 2 or otherwise, to the extent that after
giving effect to such issuance after exercise as set forth on the applicable
Notice of Exercise, the Holder (together with the Holder's Affiliates, and any
other Persons acting as a group together with the Holder or any of the Holder's
Affiliates), would beneficially own in excess of the Beneficial Ownership
Limitation (as defined below). For purposes of the foregoing sentence, the
number of shares of Common Stock beneficially owned by the Holder and its
Affiliates shall include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which such determination is being made,
but shall exclude the number of shares of Common Stock which would be issuable
upon (i) exercise of the remaining, nonexercised portion of this Warrant
beneficially owned by the Holder or any of its Affiliates and (ii) exercise or
conversion of the unexercised or nonconverted portion of any other securities of
the Company (including, without limitation, any other Common Stock Equivalents)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by the Holder or any of its Affiliates.
Except as set forth in the preceding sentence, for purposes of this Section
2(e), beneficial ownership shall be calculated in accordance with Section 13(d)
of the Exchange Act and the rules and regulations promulgated thereunder, it
being acknowledged by the Holder that the Company is not representing to the
5
Holder that such calculation is in compliance with Section 13(d) of the Exchange
Act and the Holder is solely responsible for any schedules required to be filed
in accordance therewith. To the extent that the limitation contained in this
Section 2(e) applies, the determination of whether this Warrant is exercisable
(in relation to other securities owned by the Holder together with any
Affiliates) and of which portion of this Warrant is exercisable shall be in the
sole discretion of the Holder, and the submission of a Notice of Exercise shall
be deemed to be the Holder's determination of whether this Warrant is
exercisable (in relation to other securities owned by the Holder together with
any Affiliates) and of which portion of this Warrant is exercisable, in each
case subject to the Beneficial Ownership Limitation, and the Company shall have
no obligation to verify or confirm the accuracy of such determination. In
addition, a determination as to any group status as contemplated above shall be
determined in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder. For purposes of this Section 2(e), in
determining the number of outstanding shares of Common Stock, a Holder may rely
on the number of outstanding shares of Common Stock as reflected in (A) the
Company's most recent periodic or annual report filed with the Commission, as
the case may be, (B) a more recent public announcement by the Company or (C) a
more recent written notice by the Company or the Transfer Agent setting forth
the number of shares of Common Stock outstanding. Upon the written or oral
request of a Holder, the Company shall within one Trading Day confirm orally and
in writing to the Holder the number of shares of Common Stock then outstanding.
In any case, the number of outstanding shares of Common Stock shall be
determined after giving effect to the conversion or exercise of securities of
the Company, including this Warrant, by the Holder or its Affiliates since the
date as of which such number of outstanding shares of Common Stock was reported.
The "Beneficial Ownership Limitation" shall be 4.99% of the number of shares of
the Common Stock outstanding immediately after giving effect to the issuance of
shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon
not less than 61 days' prior notice to the Company, may increase the Beneficial
Ownership Limitation provisions of this Section 2(e) solely with respect to the
Holder's Warrant, provided that the Beneficial Ownership Limitation in no event
exceeds 9.99% of the number of shares of Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock upon exercise of
this Warrant held by the Holder and the provisions of this Section 2(e) shall
continue to apply. Any such increase will not be effective until the 61st day
after such notice is delivered to the Company. The Holder may also decrease the
Beneficial Ownership Limitation provisions of this Section 2(e) solely with
respect to the Holder's Warrant at any time, which decrease shall be effectively
immediately upon delivery of notice to the Company. The provisions of this
paragraph shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this Section 2(e) to correct this paragraph
(or any portion hereof) which may be defective or inconsistent with the intended
Beneficial Ownership Limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such limitation.
The limitations contained in this paragraph shall apply to a successor holder of
this Warrant.
f) Mandatory Exercise. The Company may require the Holder to exercise the
Warrants, if, after the Issuance Date, (i) the Common Stock closes above $1.25
6
per share on the Principal Market each Trading Day for 10 consecutive Trading
Days (the "10 Day Period") prior to the Termination Date, (ii) during the 10 Day
Period, the average daily volume must exceed $75,000 and (iii) there is an
effective registration statement covering the shares underlying this Warrant.
The Company shall give the Holder 5 days written notice if the foregoing
conditions are met, and the Holder shall have 10 days from the date of receipt
of the notice to pay the Exercise Price on the Warrants in which case the
Company shall issue and deliver to the Holder the shares of Common Stock in the
time and manner required by this Warrant. Any Warrants not exercised prior to
the end of such 10 day period will expire.
Section 3. Certain Adjustments.
(a) Stock Dividends and Splits. If the Company, at any time while this
Warrant is outstanding: (i) pays a stock dividend or otherwise makes a
distribution or distributions on shares of its Common Stock or any other equity
or equity equivalent securities payable in shares of Common Stock (which, for
avoidance of doubt, shall not include any shares of Common Stock issued by the
Company upon exercise of this Warrant or pursuant to any of the other
Transaction Documents), (ii) subdivides outstanding shares of Common Stock into
a larger number of shares, (iii) combines (including by way of reverse stock
split) outstanding shares of Common Stock into a smaller number of shares, or
(iv) issues by reclassification of shares of the Common Stock any shares of
capital stock of the Company, then in each case the Exercise Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding immediately before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event, and the number of shares
issuable upon exercise of this Warrant shall be proportionately adjusted such
that the aggregate Exercise Price of this Warrant shall remain unchanged. Any
adjustment made pursuant to this Section 3(a) shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.
(b) Adjustments for Issuance of Additional Securities. For a period of two
(2) years from the Initial Exercise Date, in the event that the Company shall,
at any time, issue or sell any additional shares of Common Stock or Common Stock
Equivalents (hereafter defined) ("Additional Shares of Common Stock"), in a
transaction other than an Exempt Issuance, at a price per share less than the
Exercise Price then in effect or without consideration (a "Dilutive Issuance"
based on a "Dilutive Issuance Price"), then the Exercise Price upon each such
issuance shall be reduced to the Dilutive Issuance Price, and the number of
Warrant Shares (excluding Warrant Shares previously exercised) shall be
increased on a full ratchet basis to the number of shares of Common Stock
determined by multiplying the Exercise Price then in effect immediately prior to
such adjustment by the number of Warrant Shares (excluding Warrant Shares
previously exercised) acquirable upon exercise of this Warrant immediately prior
to such adjustment and dividing the product thereof by the Exercise Price
resulting from such adjustment. By way of example, if E is the total number of
Warrant Shares in effect immediately prior to such Dilutive Issuance, F is the
Exercise Price in effect immediately prior to such Dilutive Issuance, and G is
the Dilutive Issuance Price, the adjustment to the number of Warrant Shares can
be expressed in the following formula: Total number of Warrant Shares after such
Dilutive Issuance = the number obtained from dividing [E x F] by G.
7
If, after any such issuance of Common Stock Equivalents, the price per
share for which Additional Shares of Common Stock may be issuable thereafter is
amended or adjusted, and such price as so amended shall be less than the
applicable Exercise Price in effect at the time of such amendment or adjustment,
then the applicable Exercise Price and number of Warrant Shares shall be
adjusted upon each such issuance or amendment as provided in this Section 3(b).
In case any Common Stock Equivalent is issued in connection with the issue or
sale of other securities of the Company, together comprising one integrated
transaction, (x) the Common Stock Equivalents will be deemed to have been issued
for the Option Value of such Common Stock Equivalents and (y) the other
securities issued or sold in such integrated transaction shall be deemed to have
been issued or sold for the difference of (I) the aggregate consideration
received by the Company less any consideration paid or payable by the Company
pursuant to the terms of such other securities of the Company, less (II) the
Option Value. If any shares of Common Stock or Common Stock Equivalents are
issued or sold or deemed to have been issued or sold for cash, the amount of
such consideration received by the Company will be deemed to be the net amount
received by the Company therefor. If any shares of Common Stock or Common Stock
Equivalents are issued or sold for a consideration other than cash, the amount
of such consideration received by the Company will be the fair value of such
consideration, except where such consideration consists of publicly traded
securities, in which case the amount of consideration received by the Company
will be the VWAP of such public traded securities on the date of receipt. If any
shares of Common Stock or Common Stock Equivalents are issued to the owners of
the non-surviving entity in connection with any merger in which the Company is
the surviving entity, the amount of consideration therefor will be deemed to be
the fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such shares of Common Stock or Common
Stock Equivalents, as the case may be.
"Common Stock Equivalents" means any rights or warrants or options to
purchase any Common Stock or Convertible Securities.
"Option Value" means the value of a Common Stock Equivalent based on the
Black Scholes Option Pricing model obtained from the "OV" function on Bloomberg
L.P. determined as of (A) the Trading Day prior to the public announcement of
the issuance of the applicable Common Stock Equivalent, if the issuance of such
Common Stock Equivalent is publicly announced or (B) the Trading Day immediately
following the issuance of the applicable Common Stock Equivalent if the issuance
of such Common Stock Equivalent is not publicly announced, for pricing purposes
and reflecting (i) a risk-free interest rate corresponding to the U.S. Treasury
rate for a period equal to the remaining term of the applicable Common Stock
Equivalent as of the applicable date of determination, (ii) an expected
volatility equal to the greater of 100% and the 100 day volatility obtained from
the HVT function on Bloomberg L.P. as of (A) the Trading Day immediately
following the public announcement of the applicable Common Stock Equivalent if
the issuance of such Common Stock Equivalent is publicly announced or (B) the
Trading Day immediately following the issuance of the applicable Common Stock
Equivalent if the issuance of such Common Stock Equivalent is not publicly
announced, (iii) the underlying price per share used in such calculation shall
be the highest VWAP of the Common Stock during the period beginning on the
Trading Day prior to the execution of definitive documentation relating to the
issuance of the applicable Common Stock Equivalent and ending on (A) the Trading
Day immediately following the public announcement of such issuance, if the
8
issuance of such Common Stock Equivalent is publicly announced or (B) the
Trading Day immediately following the issuance of the applicable Common Stock
Equivalent if the issuance of such Common Stock Equivalent is not publicly
announced, (iv) a zero cost of borrow and (v) a 360 day annualization factor.
The provisions of this Section 3(b) shall apply each time the Company, at
any time after the Original Issuance Date and prior to the date that is two (2)
years from Original Issuance Date, shall issue any securities with a Dilutive
Issuance Price. Notwithstanding the foregoing, no adjustment shall be made
pursuant to this Section 3(b) with respect to an Exempt Issuance (as defined in
the Purchase Agreement).
(c) Adjustment upon Event of Default. At any time from the Initial Exercise
Date until the Termination Date that, due to the occurrence of an Event of
Default (as defined in the Note), the Default Conversion Price (as defined in
the Notes) is in effect, the Exercise Price of this Warrant shall be reduced to
the Default Conversion Price. The Company shall give the Holder prompt written
notice of the occurrence of an Event of Default.
(d) Subsequent Rights Offerings. In addition to any adjustments pursuant to
Section 3(a) above, if at any time the Company grants, issues or sells any
Common Stock Equivalents or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of shares of Common
Stock (the "Purchase Rights"), then the Holder will be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which the Holder could have acquired if the Holder had held the number of shares
of Common Stock acquirable upon complete exercise of this Warrant (without
regard to any limitations on exercise hereof, including without limitation, the
Beneficial Ownership Limitation) immediately before the date on which a record
is taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of shares of Common
Stock are to be determined for the grant, issue or sale of such Purchase Rights
(provided, however, to the extent that the Holder's right to participate in any
such Purchase Right would result in the Holder exceeding the Beneficial
Ownership Limitation, then the Holder shall not be entitled to participate in
such Purchase Right to such extent (or beneficial ownership of such shares of
Common Stock as a result of such Purchase Right to such extent) and such
Purchase Right to such extent shall be held in abeyance for the Holder until
such time, if ever, as its right thereto would not result in the Holder
exceeding the Beneficial Ownership Limitation). Notwithstanding the foregoing,
no Purchase Rights will be made under this Section 3(d) in respect of an Exempt
Issuance.
(e) Pro Rata Distributions. If the Company, at any time while this Warrant
is outstanding, shall distribute to all holders of Common Stock (and not to the
Holder) evidences of its indebtedness or assets (including cash and cash
dividends) or rights or warrants to subscribe for or purchase any security other
than the Common Stock (which shall be subject to Section 3(d)), then in each
such case the Exercise Price shall be adjusted by multiplying the Exercise Price
in effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the VWAP determined as of the record date mentioned above,
and of which the numerator shall be such VWAP on such record date less the then
per share fair market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one outstanding share of
the Common Stock as determined by the Board of Directors in good faith. In
9
either case the adjustments shall be described in a statement provided to the
Holder of the portion of assets or evidences of indebtedness so distributed or
such subscription rights applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
(f) Fundamental Transaction.
(1) If, at any time while this Warrant is outstanding, (i) the
Company, directly or indirectly, in one or more related transactions
effects any merger or consolidation of the Company with or into another
Person, (ii) the Company, directly or indirectly, effects any sale, lease,
license, assignment, transfer, conveyance or other disposition of all or
substantially all of its assets in one or a series of related transactions,
(iii) any, direct or indirect, purchase offer, tender offer or exchange
offer (whether by the Company or another Person) is completed pursuant to
which holders of Common Stock are permitted to sell, tender or exchange
their shares for other securities, cash or property and has been accepted
by the holders of 50% or more of the outstanding Common Stock, (iv) the
Company, directly or indirectly, in one or more related transactions
effects any reclassification, reorganization or recapitalization of the
Common Stock or any compulsory share exchange pursuant to which the Common
Stock is effectively converted into or exchanged for other securities, cash
or property, or (v) the Company, directly or indirectly, in one or more
related transactions consummates a stock or share purchase agreement or
other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person or group of Persons whereby such other Person or group
acquires more than 50% of the outstanding shares of Common Stock (not
including any shares of Common Stock held by the other Person or other
Persons making or party to, or associated or affiliated with the other
Persons making or party to, such stock or share purchase agreement or other
business combination) (each a "Fundamental Transaction"), then, upon any
subsequent exercise of this Warrant, the Holder shall have the right to
receive, for each Warrant Share that would have been issuable upon such
exercise immediately prior to the occurrence of such Fundamental
Transaction (without regard to any limitation on the exercise of this
Warrant), at the option of the Holder the number of shares of Common Stock
of the successor or acquiring corporation or of the Company, if it is the
surviving corporation, and any additional consideration (the "Alternate
Consideration") receivable as a result of such Fundamental Transaction by a
holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such Fundamental Transaction (without
regard to any limitation on the exercise of this Warrant). For purposes of
any such exercise, the determination of the Exercise Price shall be
appropriately adjusted to apply to such Alternate Consideration based on
the amount of Alternate Consideration issuable in respect of one share of
Common Stock in such Fundamental Transaction, and the Company shall
apportion the Exercise Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components
of the Alternate Consideration. If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a
Fundamental Transaction, then the Holder shall be given the same choice as
to the Alternate Consideration it receives upon any exercise of this
10
Warrant following such Fundamental Transaction. The Company shall not
effect a Fundamental Transaction unless it gives the Holder at least ten
(10) Trading Days prior notice together with sufficient details so the
Holder can make an informed decision as to whether it elects to accept the
Alternative Consideration. If a public announcement of the Fundamental
Transaction has not been made, the notice to the Holder may be given until
the Company files a Form 8-K or other report disclosing the Fundamental
Transaction.
(2) Notwithstanding anything to the contrary, in the event of a
Fundamental Transaction, the Company or any Successor Entity (as defined
below) shall, at the Holder's option, exercisable at any time concurrently
with, or within 30 days after, the consummation of the Fundamental
Transaction, purchase this Warrant from the Holder by paying to the Holder
an amount of cash equal to the Black Scholes Value of the remaining
unexercised portion of this Warrant on the date of the consummation of such
Fundamental Transaction or (ii) the positive difference between the cash
per share paid in such Fundamental Transaction minus the then in effect
Exercise Price. "Black Scholes Value" means the value of the unexercised
portion of this Warrant based on the Black and Scholes Option Pricing Model
obtained from the "OV" function on Bloomberg L.P. determined as of the day
of consummation of the applicable Fundamental Transaction for pricing
purposes and reflecting (A) a risk-free interest rate corresponding to the
U.S. Treasury rate for a period equal to the time between the date of the
public announcement of the applicable Fundamental Transaction and the
Termination Date, (B) an expected volatility equal to the greater of 100%
and the 100 day volatility obtained from the HVT function on Bloomberg L.P.
as of the Trading Day immediately following the public announcement of the
applicable Fundamental Transaction, (C) the underlying price per share used
in such calculation shall be the sum of the price per share being offered
in cash, if any, plus the value of any non-cash consideration, if any,
being offered in such Fundamental Transaction and (D) a remaining option
time equal to the time between the date of the public announcement of the
applicable Fundamental Transaction and the Termination Date.
(3) If Section 5(e)(1) and (2) are not applicable, the Company shall
cause any successor entity in a Fundamental Transaction in which the
Company is not the survivor (the "Successor Entity") to assume in writing
all of the obligations of the Company under this Warrant and the other
Transaction Documents in accordance with the provisions of this Section
3(e) pursuant to written agreements in form and substance reasonably
satisfactory to the Holder and approved by the Holder (without unreasonable
delay) prior to such Fundamental Transaction and shall, at the option of
the Holder, deliver to the Holder in exchange for this Warrant a security
of the Successor Entity evidenced by a written instrument substantially
similar in form and substance to this Warrant which is exercisable for a
corresponding number of shares of capital stock of such Successor Entity
(or its parent entity) equivalent to the shares of Common Stock acquirable
and receivable upon exercise of this Warrant prior to such Fundamental
Transaction (without regard to any limitation on the exercise of this
Warrant), and with an exercise price which applies the exercise price
hereunder to such shares of capital stock (but taking into account the
relative value of the shares of Common Stock pursuant to such Fundamental
Transaction and the value of such shares of capital stock, such number of
shares of capital stock and such exercise price being for the purpose of
protecting the economic value of this Warrant immediately prior to the
11
consummation of such Fundamental Transaction), and which is reasonably
satisfactory in form and substance to the Holder. Upon the occurrence of
any such Fundamental Transaction, the Successor Entity shall succeed to,
and be substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Warrant and the other Transaction
Documents referring to the "Company" shall refer instead to the Successor
Entity), and may exercise every right and power of the Company and shall
assume all of the obligations of the Company under this Warrant and the
other Transaction Documents with the same effect as if such Successor
Entity had been named as the Company herein.
Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Section 3(f) with respect to an Exempt Issuance (as defined in the Purchase
Agreement).
(g) Calculations. All calculations under this Section 3 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be. For
purposes of this Section 3, the number of shares of Common Stock deemed to be
issued and outstanding as of a given date shall be the sum of the number of
shares of Common Stock (excluding treasury shares, if any) issued and
outstanding.
(h) Notice to Holder.
(i) Adjustment to Exercise Price. Whenever the Exercise Price is
adjusted pursuant to any provision of this Section 3, the Company shall
promptly email to the Holder a notice setting forth the Exercise Price
after such adjustment and any resulting adjustment to the number of Warrant
Shares and setting forth a brief statement of the facts requiring such
adjustment. The Holder may supply an email address to the Company and
change such address.
(ii) Notice to Allow Exercise by Holder. If (A) the Company shall
declare a dividend (or any other distribution in whatever form) on the
Common Stock, (B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock, (C) the Company shall
authorize the granting to all holders of the Common Stock rights or
warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights, (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common
Stock, any consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets of the Company,
or any compulsory share exchange whereby the Common Stock is converted into
other securities, or (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company, then, in each case, the Company shall deliver to the Holder at its
last address as it shall appear upon the Warrant Register of the Company,
at least 20 calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is
to be taken for the purpose of such dividend, distribution, redemption,
rights or warrants, or if a record is not to be taken, the date as of which
the holders of the Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or (y)
the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and
the date as of which it is expected that holders of the Common Stock of
record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided that the
12
failure to email such notice or any defect therein or in the emailing
thereof shall not affect the validity of the corporate action required to
be specified in such notice. To the extent that any notice provided
hereunder constitutes, or contains, material, non-public information
regarding the Company or any of the Subsidiaries (as determined in good
faith by the Company), the Company shall simultaneously file such notice
with the Commission pursuant to a Current Report on Form 8-K. The Holder
shall remain entitled to exercise this Warrant during the period commencing
on the date of such notice to the effective date of the event triggering
such notice except as may otherwise be expressly set forth herein.
Section 4. Transfer of Warrant.
(a) Transferability. Subject to compliance with any applicable securities
laws and the provisions of the Purchase Agreement, this Warrant and all rights
hereunder (including, without limitation, any registration rights) are
transferable, in whole or in part, upon surrender of this Warrant at the
principal office of the Company or its designated agent, together with a written
assignment of this Warrant substantially in the form attached hereto duly
executed by the Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees, as applicable, and
in the denomination or denominations specified in such instrument of assignment,
and shall issue to the assignor a new Warrant evidencing the portion of this
Warrant not so assigned, and this Warrant shall promptly be cancelled. The
Warrant, if properly assigned in accordance herewith, may be exercised by a new
holder for the purchase of Warrant Shares without having a new Warrant issued.
(b) New Warrants. This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by the Holder or its agent or attorney.
Subject to compliance with Section 4(a), as to any transfer which may be
involved in such division or combination, the Company shall execute and deliver
a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice. All Warrants issued on transfers or
exchanges shall be dated the initial issuance date of this Warrant and shall be
identical with this Warrant except as to the number of Warrant Shares issuable
pursuant thereto.
(c) Warrant Register. The Company shall register this Warrant, upon records
to be maintained by the Company for that purpose (the "Warrant Register"), in
the name of the record Holder hereof from time to time. The Company may deem and
treat the registered Holder of this Warrant as the absolute owner hereof for the
purpose of any exercise hereof or any distribution to the Holder, and for all
other purposes, absent actual notice to the contrary.
Section 5. Miscellaneous.
(a) No Rights as Stockholder Until Exercise. This Warrant does not entitle
the Holder to any voting rights, dividends or other rights as a stockholder of
the Company prior to the exercise hereof other than as explicitly set forth in
Section 3.
13
(b) Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or stock
certificate.
(c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall not be a Trading Day, then, such action may be taken or such right may be
exercised on the next succeeding Trading Day.
(d) Authorized Shares.
The Company covenants that during the period this Warrant is outstanding,
it will reserve from its authorized and unissued Common Stock, free of
preemptive rights three times the number of shares of Common Stock issuable upon
exercise of this Warrant, subject to adjustment for stock dividends, stock
splits, combination and similar events. The Company further covenants that its
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for the Warrant Shares upon the exercise of the purchase
rights under this Warrant. The Company will take all such reasonable action as
may be necessary to assure that such Warrant Shares may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of any Trading Market upon which the Common Stock may be listed.
The Company covenants that all Warrant Shares which may be issued upon the
exercise of the purchase rights represented by this Warrant will, upon exercise
of the purchase rights represented by this Warrant and payment for such Warrant
Shares in accordance herewith, be duly authorized, validly issued, fully paid
and non-assessable and free from all taxes, liens and charges created by the
Company in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue).
In addition to any other remedies provided by this Warrant or the Purchase
Agreement, if the Company at any time fails to meet this reservation of Common
Stock requirement within 45 days after written notice from the Holder, it shall
pay the Holder as partial liquidated damages and not as a penalty a sum equal to
$500 per day for each $100,000 of such Holder's Subscription Amount (or the
Subscription Amount of the original Purchaser). The Company shall not enter into
any agreement or file any amendment to its Articles of Incorporation (including
the filing of a Certificate of Designation) which conflicts with this Section
5(d) while the Notes (as defined in the Purchase Agreement) and Warrants remain
outstanding.
Except and to the extent as waived or consented to by the Holder, the
Company shall not by any action, including, without limitation, amending its
certificate of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company will (i) not increase the par value of any Warrant Shares above the
14
amount payable therefor upon such exercise immediately prior to such increase in
par value, (ii) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant and (iii) use best efforts to
obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof, as may be, necessary to enable the
Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number
of Warrant Shares for which this Warrant is exercisable or in the Exercise
Price, the Company shall obtain all such authorizations or exemptions thereof,
or consents thereto, as may be necessary from any public regulatory body or
bodies having jurisdiction thereof.
(e) Jurisdiction. All questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be determined in accordance
with the provisions of the Purchase Agreement.
(f) Restrictions. The Holder acknowledges that the Warrant Shares acquired
upon the exercise of this Warrant, if not registered or if not exercised on a
cashless basis when Rule 144 is available, may have restrictions upon resale
imposed by state and federal securities laws.
(g) Non-waiver and Expenses. No course of dealing or any delay or failure
to exercise any right hereunder on the part of Holder shall operate as a waiver
of such right or otherwise prejudice the Holder's rights, powers or remedies.
Without limiting any other provision of this Warrant or the Purchase Agreement,
if the Company willfully and knowingly fails to comply with any provision of
this Warrant, which results in any material damages to the Holder, the Company
shall pay to the Holder such amounts as shall be sufficient to cover any costs
and expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by the Holder in collecting
any amounts due pursuant hereto or in otherwise enforcing any of its rights,
powers or remedies hereunder.
(h) Notices. Any notice, request or other document required or permitted to
be given or delivered to the Holder by the Company shall be delivered in
accordance with the notice provisions of the Purchase Agreement.
(i) Limitation of Liability. No provision hereof, in the absence of any
affirmative action by the Holder to exercise this Warrant to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of the Holder,
shall give rise to any liability of the Holder for the purchase price of any
Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
(j) Remedies. The Holder, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Warrant and hereby agrees to
waive and not to assert the defense in any action for specific performance that
15
a remedy at law would be adequate or that there is no irreparable harm and not
to require the posting of a bond or other security.
(k) Successors and Assigns. Subject to applicable securities laws, this
Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors and permitted assigns of the
Company and the successors and permitted assigns of Holder. The provisions of
this Warrant are intended to be for the benefit of any Holder from time to time
of this Warrant and shall be enforceable by the Holder or holder of Warrant
Shares.
(l) Amendment. This Warrant may be modified or amended or the provisions
hereof waived with the written consent of the Company and Holders of 75% of the
outstanding Warrants issued pursuant to the Purchase Agreement.
(m) Severability. Wherever possible, each provision of this Warrant shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provisions
or the remaining provisions of this Warrant.
(n) Headings. The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.
(o) Piggy-back Registration. After the Original Exercise Date until this
Warrant is no longer outstanding, the Holder shall have the right to include the
Warrant Shares issuable upon the exercise of this Warrant as part of any
registration of securities filed by the Company (other than pursuant to Form
S-4, Form S-8, or any equivalent form, or any Form S-1 that the Company files
with the SEC on or before January 31, 2019 with respect to a firm commitment
underwritten offering). The Company shall bear all fees and expenses related to
registering the Warrant Shares pursuant to this Section 5(o), but the Holder
shall pay any and all underwriting commissions and the expenses of any legal
counsel selected by the Holder to represent it in connection with the sale of
the Warrant Shares. In the event of such a proposed registration, the Company
shall furnish the then Holder with not less than thirty (30) days written notice
prior to the proposed date of filing of such registration statement. The Holder
shall exercise the "piggy-back" rights provided for herein by giving written
notice within ten (10) days of the receipt of the Company's notice of its
intention to file a registration statement.
********************
(Signature Page Follows)
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officer thereunto duly authorized as of the date first above indicated.
ESPORTS ENTERTAINMENT GROUP, INC.
By:___________________________________
Name: Grant Johnson
Title: Chief Executive Officer
17
NOTICE OF EXERCISE
TO: ESPORTS ENTERTAINMENT GROUP, INC.
(1) The undersigned hereby elects to purchase ___________ Warrant Shares of
the Company pursuant to the terms of the attached Warrant (only if exercised in
full), and tenders herewith payment of the exercise price in full, together with
all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] if permitted the cancellation of such number of Warrant
Shares as is necessary, in accordance with the formula set
forth in subsection 2(c), to exercise this Warrant with
respect to the maximum number of Warrant Shares purchasable
pursuant to the cashless exercise procedure set forth in
subsection 2(c).
(3) Please issue a certificate or certificates representing said Warrant
Shares in the name of the undersigned or in such other name as is specified
below:
-------------------------------
(4) After giving effect to this Notice of Exercise, the undersigned will
not have exceeded the Beneficial Ownership Limitation.
The Warrant Shares shall be delivered to the following DWAC Account Number or by
physical delivery of a certificate to:
-------------------------------
-------------------------------
-------------------------------
SIGNATURE OF HOLDER
Name of Purchaser: ____________________________________________________________
Signature of Authorized Signatory of Purchaser: _______________________________
Name of Authorized Signatory: _________________________________________________
Title of Authorized Signatory: ________________________________________________
Email Address of Authorized Signatory: ________________________________________
Facsimile Number of Authorized Signatory: _____________________________________
Address for Notice to Purchaser: ______________________________________________
18
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
ESPORTS ENTERTAINMENT GROUP, INC.
FOR VALUE RECEIVED, ____ all of or _______ shares of the foregoing Warrant
and all rights evidenced thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________
_______________________________________________________________
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
19
EX-10
5
form8k203ex104nov-18.txt
EXHIBIT 10.4
EXHIBIT 10.4
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (as amended, restated, supplemented or otherwise
modified from time to time, this "Agreement") dated as of November __, 2018
between Esports Entertainment Group, Inc., a Nevada corporation ("Esports") and
Esports Services Antigua Ltd., Vie Esports Services B.V., Esports Services
(Malta) Limited and Esports Entertainment (Malta) Ltd., (collectively the
"Subsidiary") (the Subsidiary, together with each other Person who becomes a
party to this Agreement by execution of a joinder in the form of Exhibit A
attached hereto, which shall include all wholly-owned or majority-owned
subsidiaries of Esports acquired after the date hereof for so long as this
Agreement remains in effect, are hereinafter sometimes referred to individually
as a "Debtor" and, collectively, as the "Debtors") and Cavalry Fund I LP, a
Delaware limited partnership, in its capacity as Collateral Agent for the
benefit of itself and each of the Purchasers (as hereinafter defined) (each,
together with its respective successors and assigns, a "Secured Party," and
collectively the "Secured Parties").
W I T N E S S E T H:
WHEREAS, the Purchasers as from time to time parties to the Purchase
Agreements (as hereafter defined) (each a "Purchaser", and together with their
successors and assigns and each other purchaser of a Note (as defined below) and
their respective successors and assigns, individually and collectively, the
"Purchasers"), pursuant to which such Purchasers will purchase from Esports
certain senior secured notes each made by Esports and dated as of the date
hereof in an original aggregate principal amount of $_______ (all such notes,
together with any promissory notes or other securities issued in exchange or
substitution therefor or replacement thereof, and as any of the same may be
amended, supplemented, restated or modified and in effect from time to time, the
"Notes");
AND WHEREAS, the Notes are being acquired by Purchasers, and Purchasers
have made certain financial accommodations to Esports pursuant to certain
Purchase Agreements, dated as of the date hereof among Esports, and the
Purchasers (as the same may be amended, restated, supplemented or otherwise
modified from time to time, the "Purchase Agreements"). Capitalized terms used
herein but not otherwise defined shall have the meanings set forth in the
Purchase Agreements;
AND WHEREAS, each Debtor will derive substantial benefit and advantage from
the financial accommodations to Esports set forth in the Purchase Agreements and
the Notes, and it will be to each such Debtor's direct interest and economic
benefit to assist Esports in procuring said financial accommodations from
Purchasers;
AND WHEREAS, to induce Purchasers to enter into the Purchase Agreements and
purchase the Notes, (i) each Debtor (other than Esports) will guaranty the
Obligations (as hereinafter defined) of Esports pursuant to the terms of one or
more guaranties by each such Debtor in favor of Secured Party (on its behalf and
on behalf of the Purchasers) (such guaranties, as amended, restated, modified or
supplemented and in effect from time to time, individually and collectively, the
"Subsidiary Guaranty") and (ii) each Debtor will pledge and grant a security
1
interest in all of its right, title and interest in and to the Collateral (as
hereinafter defined) as security for its Obligations for the benefit of the
Secured Party, Purchasers and their respective successors and assigns.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1. Definitions. Capitalized terms used herein without definition
and defined in the Purchase Agreement are used herein as defined therein. In
addition, as used herein:
"Accounts" means any "account," as such term is defined in the UCC, and, in any
event, shall include, without limitation, "supporting obligations" as defined in
the UCC.
"Chattel Paper" means any "chattel paper," as such term is defined in the UCC.
"Collateral" shall have the meaning ascribed thereto in Section 3 hereof.
"Commercial Tort Claims" means "commercial tort claims", as such term is defined
in the UCC. "Contracts" means all contracts, undertakings, or other agreements
(other than rights evidenced by Chattel Paper, Documents or Instruments) in or
under which a Debtor may now or hereafter have any right, title or interest,
including, without limitation, with respect to an Account, any agreement
relating to the terms of payment or the terms of performance thereof.
"Copyrights" means any copyrights, rights and interests in copyrights, works
protectable by copyrights, copyright registrations and copyright applications,
including, without limitation, the copyright registrations and applications
listed on Schedule III attached hereto (if any), and all renewals of any of the
foregoing, all income, royalties, damages and payments now and hereafter due
and/or payable under or with respect to any of the foregoing, including, without
limitation, damages and payments for past, present and future infringements of
any of the foregoing and the right to sue for past, present and future
infringements of any of the foregoing.
"Deposit Accounts" means all "deposit accounts" as such term is defined in the
UCC, now or hereafter held in the name of a Debtor.
"Documents" means any "documents," as such term is defined in the UCC, and shall
include, without limitation, all documents of title (as defined in the UCC),
bills of lading or other receipts evidencing or representing Inventory or
Equipment.
"Equipment" means any "equipment," as such term is defined in the UCC and, in
any event, shall include, Motor Vehicles.
"Event of Default" shall have the meaning set forth in the Notes.
"Excluded Assets" means each of the following: (1) any lease, license or other
agreement or any property subject to a capital lease, purchase money security
interest or similar arrangement, to the extent that a grant of a Lien thereon in
favor of Secured Party would violate or invalidate such lease, license,
agreement or capital lease, purchase money security interest or similar
arrangement or create a right of termination in favor of any other party thereto
(other than the Debtors), so long as such provision exists and so long as such
lease, license or agreement was not entered into in contemplation of
2
circumventing the obligation to provide Collateral hereunder or in violation of
the Purchase Agreement, other than to the extent that any such term would be
rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the
UCC (or any successor provision or provisions) of any relevant jurisdiction or
any other applicable law including the bankruptcy code, or principles of equity.
"General Intangibles" means any "general intangibles," as such term is defined
in the UCC, and, in any event, shall include, without limitation, all right,
title and interest in or under any Contract, models, drawings, materials and
records, claims, literary rights, goodwill, rights of performance, Copyrights,
Trademarks, Patents, warranties, rights under insurance policies and rights of
indemnification.
"Goods" means any "goods", as such term is defined in the UCC, including,
without limitation, fixtures and embedded Software to the extent included in
"goods" as defined in the UCC.
"Governmental Authority" means the government of the United States of America or
any other nation, or any political subdivision thereof, whether state or local,
or any agency, authority, instrumentality, regulatory body, court, central bank
or other entity exercising executive, legislative, judicial, taxing, regulatory
or administration powers or functions of or pertaining to government over any
Debtor or any of its subsidiaries, or any of their respective properties, assets
or undertakings.
"Instruments" means any "instrument," as such term is defined in the UCC, and
shall include, without limitation, promissory notes, drafts, bills of exchange,
trade acceptances, letters of credit, letter of credit rights (as defined in the
UCC), and Chattel Paper.
"Inventory" means any "inventory," as such term is defined in the UCC.
"Investment Property" means any "investment property", as such term is defined
in the UCC.
"Obligations" means all obligations, liabilities and indebtedness of every
nature of Debtors from time to time owed or owing under or in respect of this
Agreement, the Notes, the Pledge Agreement, the Subsidiary Guaranty, and any of
the other Security Documents, as the case may be, including, without limitation,
the principal amount of all debts, claims and indebtedness, accrued and unpaid
interest and all fees, costs and expenses, whether primary, secondary, direct,
contingent, fixed or otherwise, heretofore, now and/or from time to time
hereafter owing, due or payable whether before or after the filing of a
bankruptcy, insolvency or similar proceeding under applicable federal, state,
foreign or other law and whether or not an allowed claim in any such proceeding.
"Lien" has the meaning set forth in the Purchase Agreement.
"Motor Vehicles" shall mean motor vehicles, tractors, trailers and other like
property, whether or not the title thereto is governed by a certificate of title
or ownership.
3
"Patents" means any patents and patent applications, including, without
limitation, the inventions and improvements described and claimed therein, all
patentable inventions and those patents and patent applications listed on
Schedule IV attached hereto (if any), and the reissues, divisions,
continuations, renewals, extensions and continuations-in-part of any of the
foregoing, and all income, royalties, damages and payments now or hereafter due
and/or payable under or with respect to any of the foregoing, including, without
limitation, damages and payments for past, present and future infringements of
any of the foregoing and the right to sue for past, present and future
infringements of any of the foregoing.
"Permitted Indebtedness" has the meaning set forth in the Notes.
"Permitted Lien" has the meaning set forth in the Notes.
"Proceeds" means "proceeds," as such term is defined in the UCC and, in any
event, includes, without limitation, (a) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable with respect to any of the Collateral,
(b) any and all payments (in any form whatsoever) made or due and payable from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Collateral by any Governmental
Authority (or any person acting under color of Governmental Authority), and (c)
any and all other amounts from time to time paid or payable under, in respect of
or in connection with any of the Collateral.
"Representative" means any Person acting as agent, representative or trustee on
behalf of the Secured Party from time to time.
"Security Documents" means this Agreement, the Subsidiary Guaranty, the Pledge
Agreement, and any other documents securing the Liens of the Secured Party
hereunder.
"Software" means all "software" as such term is defined in the UCC, now owned or
hereafter acquired by a Debtor, other than software embedded in any category of
Goods, including, without limitation, all computer programs and all supporting
information provided in connection with a transaction related to any program.
"Trademarks" means any trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service marks, logos,
other business identifiers, prints and labels on which any of the foregoing have
appeared or appear, all registrations and recordings thereof, and all
applications in connection therewith, including, without limitation, the
trademarks and applications listed in Schedule V attached hereto (if any) and
renewals thereof, and all income, royalties, damages and payments now or
hereafter due and/or payable under or with respect to any of the foregoing,
including, without limitation, damages and payments for past, present and future
infringements of any of the foregoing and the right to sue for past, present and
future infringements of any of the foregoing.
"Transaction Documents" means the Purchase Agreements, the Notes, the Security
Documents, the Warrants and any other related agreements.
4
"UCC" shall mean the Uniform Commercial Code as in effect from time to time in
the State of New York; provided, that to the extent that the Uniform Commercial
Code is used to define any term herein and such term is defined differently in
different Articles or Divisions of the Uniform Commercial Code, the definition
of such term contained in Article or Division 9 shall govern.
Section 2. Representations, Warranties and Covenants of Debtors. Each
Debtor represents and warrants to, and covenants with, the Secured Party as
follows:
(a) Subject to the Permitted Liens, such Debtor has or will have rights in
and the power to transfer the Collateral in which it purports to grant a
security interest pursuant to Section 3 hereof (subject, with respect to after
acquired Collateral, to such Debtor acquiring the same) and no Lien other than
Permitted Indebtedness exists or will exist upon such Collateral at any time.
(b) Subject to the Permitted Liens, this Agreement is effective to create
in favor of Secured Party a valid security interest in and Lien upon all of such
Debtor's right, title and interest in and to the Collateral, and upon (i) the
filing of appropriate UCC financing statements in the jurisdictions listed on
Schedule I attached hereto, (ii) creation of each Deposit Account, (iii) filings
in the United States Patent and Trademark Office, or United States Copyright
Office with respect to Collateral that constitutes Patents and Trademarks, or
Copyrights, as the case may be, (iv) the filing of the Mortgages in the
jurisdictions listed on Schedule I hereto, (v) the delivery to the Secured Party
of the Pledged Collateral together with assignments in blank, (vi) the security
interest created hereby being noted on each certificate of title evidencing the
ownership of any Motor Vehicle in accordance with Section 4.1(d) hereof and (v)
delivery to the Secured Party or its Representative of Instruments duly endorsed
by such Debtor or accompanied by appropriate instruments of transfer duly
executed by such Debtor with respect to Instruments not constituting Chattel
Paper, such security interest will be a duly perfected first priority perfected
security interest (subject to Permitted Indebtedness) in all of the Collateral.
(c) All of the Equipment, Inventory and Goods owned by such Debtor is
located at the places as specified on Schedule I attached hereto. Except as
disclosed on Schedule I, none of the Collateral is in the possession of any
bailee, warehousemen, processor or consignee. Schedule I discloses such Debtor's
name as of the date hereof as it appears in official filings in the state or
province, as applicable, of its incorporation, formation or organization, the
type of entity of such Debtor (including corporation, partnership, limited
partnership or limited liability company), organizational identification number
issued by such Debtor's state of incorporation, formation or organization (or a
statement that no such number has been issued), such Debtor's state or province,
as applicable, of incorporation, formation or organization and the chief place
of business, chief executive office and the office where such Debtor keeps its
books and records and the states in which such Debtor conducts its business.
Such Debtor has only one state or province, as applicable, of incorporation,
formation or organization. Such Debtor does not do business and has not done
business during the past five (5) years under any trade name or fictitious
business name except as disclosed on Schedule II attached hereto.
(d) No Copyrights, Patents or Trademarks listed on Schedules III, IV and V,
respectively, if any, have been adjudged invalid or unenforceable or have been
canceled, in whole or in part, or are not presently subsisting. Each of such
Copyrights, Patents and Trademarks (if any) is valid and enforceable. Subject to
the Permitted Lien, such Debtor is the sole and exclusive owner of the entire
and unencumbered right, title and interest in and to each of such Copyrights,
Patents and Trademarks, identified on Schedules III, IV and V, as applicable, as
5
being owned by such Debtor, free and clear of any liens (subject to the
Permitted Lien), charges and encumbrances, including without limitation
licenses, shop rights and covenants by such Debtor not to sue third persons.
Such Debtor has adopted, used and is currently using, or has a current bona fide
intention to use, all of such Trademarks and Copyrights. Such Debtor has no
notice of any suits or actions commenced or threatened with reference to the
Copyrights, Patents or Trademarks owned by it.
(e) Each Debtor agrees to deliver to the Secured Party an updated Schedule
I, II, III, IV and/or V within five (5) Business Days of any change thereto.
(f) All depositary and other accounts including, without limitation,
Deposit Accounts, securities accounts, brokerage accounts and other similar
accounts, maintained by each Debtor are described on Schedule VI hereto, which
description includes for each such account the name of the Debtor maintaining
such account, the name, address and telephone and telecopy numbers of the
financial institution at which such account is maintained, the account number
and the account officer, if any, of such account. No Debtor shall open any new
Deposit Accounts, securities accounts, brokerage accounts or other accounts
unless such Debtor shall have given Secured Party ten (10) Business Days' prior
written notice of its intention to open any such new accounts. Each Debtor shall
deliver to Secured Party a revised version of Schedule VI showing any changes
thereto within five (5) Business Days of any such change. Each Debtor hereby
authorizes the financial institutions at which such Debtor maintains an account
to provide Secured Party with such information with respect to such account as
Secured Party from time to time reasonably may request, and each Debtor hereby
consents to such information being provided to Secured Party. In addition, all
of such Debtor's depositary, security, brokerage and other accounts including,
without limitation, Deposit Accounts shall be subject to the provisions of
Section 2 hereof.
(g) Such Debtor does not own any Commercial Tort Claim except for those
disclosed on Schedule VII hereto (if any).
(h) Such Debtor does not have any interest in real property with respect to
real property except as disclosed on Schedule VIII (if any). Each Debtor shall
deliver to Secured Party a revised version of Schedule VIII showing any changes
thereto within ten (10) Business Days of any such change. Except as otherwise
agreed to by Secured Party, all such interests in real property with respect to
such real property are subject to a mortgage and deed of trust (in form and
substance satisfactory to Secured Party) in favor of Secured Party (hereinafter,
a "Mortgage").
(i) Each Debtor shall duly and properly record each interest in real
property held by such Debtor, except with respect to easements, rights of way,
access agreements, surface damage agreements, surface use agreements or similar
agreements that such Debtor, using prudent customs and practices in the industry
in which it operates, does not believe are of material value or material to the
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operation of such Debtor's business or, with respect to state and federal rights
of way, are not capable of being recorded as a matter of state and federal law.
(j) All Equipment (including, without limitation, Motor Vehicles) owned by
a Debtor and subject to a certificate of title or ownership statute is described
on Schedule IX hereto.
Section 3. Collateral. As collateral security for the prompt payment in
full when due (whether at stated maturity, by acceleration or otherwise) of the
obligations due the Secured Party under the Notes, each Debtor hereby pledges
and grants to the Secured Party, for the benefit of itself and each Purchaser, a
Lien on and security interest in and to all of such Debtor's right, title and
interest in the following properties and assets of such Debtor, whether now
owned by such Debtor or hereafter acquired and whether now existing or hereafter
coming into existence and wherever located (all being collectively referred to
herein as "Collateral"):
(a) all Instruments, together with all payments thereon or thereunder:
(b) all Accounts;
(c) all Inventory;
(d) all General Intangibles (including payment intangibles (as defined in
the UCC) and Software);
(e) all Equipment;
(f) all Documents;
(g) all Contracts;
(h) all Goods;
(i) all Investment Property, including without limitation all equity
interests now owned or hereafter acquired by such Debtor;
(j) all Deposit Accounts, including, without limitation, the balance from
time to time in all bank accounts maintained by such Debtor;
(k) all Commercial Tort Claims specified on Schedule VII;
(l) all Trademarks, Patents and Copyrights;
(m) all books and records pertaining to the other Collateral; and
(n) all other tangible and intangible property of such Debtor, including,
without limitation, all interests in real property, Proceeds, tort claims,
products, accessions, rents, profits, income, benefits, substitutions, additions
and replacements of and to any of the property of such Debtor described in the
preceding clauses of this Section 3 (including, without limitation, any proceeds
of insurance thereon, insurance claims and all rights, claims and benefits
7
against any Person relating thereto), other rights to payments not otherwise
included in the foregoing, and all books, correspondence, files, records,
invoices and other papers, including without limitation all tapes, cards,
computer runs, computer programs, computer files and other papers, documents and
records in the possession or under the control of such Debtor, or any computer
bureau or service company from time to time acting for such Debtor.
Notwithstanding anything to the contrary contained herein or in any
Transaction Document, in no event shall the security interest granted herein or
therein attach to any Excluded Assets.
Section 4. Covenants; Remedies. In furtherance of the grant of the pledge
and security interest pursuant to Section 3 hereof, each Debtor hereby agrees
with the Secured Party as follows (subject to the Permitted Liens):
4.1 Delivery and Other Perfection; Maintenance, etc.
(a) Delivery of Instruments, Documents, Etc. Each Debtor shall deliver
and pledge to the Secured Party or its Representative any and all
Instruments, negotiable Documents, Chattel Paper and certificated
securities (accompanied by stock powers executed in blank, which stock
powers may be filled in and completed at any time upon the occurrence of
any Event of Default) duly endorsed and/or accompanied by such instruments
of assignment and transfer executed by such Debtor in such form and
substance as the Secured Party or its Representative may request; provided,
that so long as no Event of Default shall have occurred and be continuing,
each Debtor may retain for collection in the ordinary course of business
any Instruments, negotiable Documents and Chattel Paper received by such
Debtor in the ordinary course of business, and the Secured Party or its
Representative shall, promptly upon request of a Debtor, make appropriate
arrangements for making any other Instruments, negotiable Documents and
Chattel Paper pledged by such Debtor available to such Debtor for purposes
of presentation, collection or renewal (any such arrangement to be
effected, to the extent deemed appropriate by the Secured Party or its
Representative, against a trust receipt or like document). If a Debtor
retains possession of any Chattel Paper, negotiable Documents or
Instruments pursuant to the terms hereof, such Chattel Paper, negotiable
Documents and Instruments shall be marked with the following legend: "This
writing and the obligations evidenced or secured hereby are subject to the
security interest of Cavalry Fund I LP, in its capacity as Collateral Agent
for the benefit of Purchasers, as secured party."
(b) Other Documents and Actions. Each Debtor shall give, execute,
deliver, file and/or record any financing statement, registration, notice,
instrument, document, agreement, Mortgage or other papers that may be
necessary or desirable (in the reasonable judgment of the Secured Party or
its Representative) to create, preserve, perfect or validate the security
interest granted pursuant hereto (or any security interest or mortgage
contemplated or required hereunder, including with respect to Section 2(h)
of this Agreement) or to enable the Secured Party or its Representative to
exercise and enforce the rights of the Secured Party hereunder with respect
to such pledge and security interest, provided that notices to account
debtors in respect of any Accounts or Instruments shall be subject to the
provisions of clause (e) below. Notwithstanding the foregoing each Debtor
hereby irrevocably authorizes the Secured Party at any time and from time
to time to file in any filing office in any jurisdiction any initial
financing statements (and other similar filings or registrations under
other applicable laws and regulations pertaining to the creation,
attachment, or perfection of security interests) and amendments thereto
that (a) indicate the Collateral (i) as all assets of such Debtor or words
of similar effect, regardless of whether any particular asset comprised in
the Collateral falls within the scope of Article 9 of the UCC, or (ii) as
being of an equal or lesser scope or with greater detail, and (b) contain
8
any other information required by part 5 of Article 9 of the UCC for the
sufficiency or filing office acceptance of any financing statement or
amendment, including (i) whether such Debtor is an organization, the type
of organization and any organization identification number issued to such
Debtor, and (ii) in the case of a financing statement filed as a fixture
filing, a sufficient description of real property to which the Collateral
relates. Each Debtor agrees to furnish any such information to the Secured
Party promptly upon request. Each Debtor also ratifies its authorization
for the Secured Party to have filed in any jurisdiction any like initial
financing statements or amendments thereto if filed prior to the date
hereof.
(c) Books and Records. Each Debtor (or a Company on behalf of a
Debtor) shall maintain at its own cost and expense complete and accurate
books and records of the Collateral, including, without limitation, a
record of all payments received and all credits granted with respect to the
Collateral and all other dealings with the Collateral. Upon the occurrence
and during the continuation of any Event of Default, each Debtor shall
deliver and turn over any such books and records (or true and correct
copies thereof) to the Secured Party or its Representative at any time on
demand. Each Debtor shall permit any Representative of the Secured Party,
to inspect such books and records at any time during reasonable business
hours and will provide photocopies thereof at such Debtor's expense to the
Secured Party upon request of the Secured Party.
(d) Motor Vehicles. Each Debtor shall, promptly upon acquiring same,
cause the Secured Party to be listed as the lienholder on each certificate
of title or ownership covering any items of Equipment, including Motor
Vehicles, having a value in excess of $50,000 individually or in the
aggregate for all such items of Equipment of the Debtor, or otherwise
comply with the certificate of title or ownership laws of the relevant
jurisdiction issuing such certificate of title or ownership in order to
properly evidence and perfect Secured Party's security interest in the
assets represented by such certificate of title or ownership.
(e) Notice to Account Debtors; Verification. (i) Upon the occurrence
and during the continuance of any Event of Default (or if any rights of
set-off (other than set-offs against an Account arising under the Contract
giving rise to the same Account) or contra accounts may be asserted, upon
request of the Secured Party or its Representative, each Debtor shall
promptly notify (and each Debtor hereby authorizes the Secured Party and
its Representative so to notify) each account debtor in respect of any
Accounts or Instruments or other Persons obligated on the Collateral that
such Collateral has been assigned to the Secured Party hereunder, and that
any payments due or to become due in respect of such Collateral are to be
made directly to the Secured Party, and (ii) the Secured Party and its
Representative shall have the right at any time or times to make direct
verification with the account debtors or other Persons obligated on the
Collateral of any and all of the Accounts or other such Collateral.
(f) Intellectual Property. Each Debtor represents and warrants that
the Copyrights, Patents and Trademarks listed on Schedules III, IV and V,
respectively (if any), constitute all of the registered Copyrights and all
9
of the Patents and Trademarks now owned by such Debtor. If such Debtor
shall (i) obtain rights to any new patentable inventions, any registered
Copyrights or any Patents or Trademarks, or (ii) become entitled to the
benefit of any registered Copyrights or any Patents or Trademarks or any
improvement on any Patent, the provisions of this Agreement above shall
automatically apply thereto and such Debtor shall give to Secured Party
prompt written notice thereof. Each Debtor hereby authorizes Secured Party
to modify this Agreement by amending Schedules III, IV and V, as
applicable, to include any such registered Copyrights or any such Patents
and Trademarks. Each Debtor shall have the duty (i) to prosecute diligently
any patent, trademark, or service mark applications pending as of the date
hereof or hereafter, (ii) to preserve and maintain all rights in the
Copyrights, Patents and Trademarks, to the extent material to the
operations of the business of such Debtor and (iii) to ensure that the
Copyrights, Patents and Trademarks are and remain enforceable, to the
extent material to the operations of the business of such Debtor. Any
expenses incurred in connection with such Debtor's obligations under this
Section 4.1(f) shall be borne by such Debtor. Except for any such items
that a Debtor reasonably believes (using prudent industry customs and
practices) are no longer necessary for the on-going operations of its
business, no Debtor shall abandon any material right to file a patent,
trademark or service mark application, or abandon any pending patent,
trademark or service mark application or any other Copyright, Patent or
Trademark without the prior written consent of Secured Party, which consent
shall not be unreasonably withheld.
(g) Further Identification of Collateral. Each Debtor will, when and
as often as requested by the Secured Party or its Representative, furnish
to the Secured Party or such Representative, statements and schedules
further identifying and describing the Collateral and such other reports in
connection with the Collateral as the Secured Party or its Representative
may reasonably request, all in reasonable detail.
(h) Investment Property. Each Debtor will take any and all actions
required or requested by the Secured Party, from time to time, to (i) cause
the Secured Party to obtain exclusive control of any Investment Property
owned by such Debtor in a manner acceptable to the Secured Party and (ii)
obtain from any issuers of Investment Property and such other Persons, for
the benefit of the Secured Party, written confirmation of the Secured
Party's control over such Investment Property. For purposes of this Section
4.1(h), the Secured Party shall have exclusive control of Investment
Property if (i) such Investment Property consists of certificated
securities and a Debtor delivers such certificated securities to the
Secured Party (with appropriate endorsements if such certificated
securities are in registered form); (ii) such Investment Property consists
of uncertificated securities and either (x) a Debtor delivers such
uncertificated securities to the Secured Party or (y) the issuer thereof
agrees, pursuant to documentation in form and substance satisfactory to the
Secured Party, that it will comply with instructions originated by the
Secured Party without further consent by such Debtor, and (iii) such
Investment Property consists of security entitlements and either (x) the
Secured Party becomes the entitlement holder thereof or (y) the appropriate
securities intermediary agrees, pursuant to the documentation in form and
substance satisfactory to the Secured Party, that it will comply with
entitlement orders originated by the Secured Party without further consent
by any Debtor.
(i) Commercial Tort Claims. Each Debtor shall promptly notify Secured
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Party of any Commercial Tort Claim acquired by it that concerns a claim in
excess of $50,000 and unless otherwise consented to by Secured Party, such
Debtor shall enter into a supplement to this Agreement granting to Secured
Party a Lien on and security interest in such Commercial Tort Claim.
4.2 Other Liens. Other than Permitted Liens as defined in the Notes,
Debtors will not create, permit or suffer to exist, and will defend the
Collateral against and take such other action as is necessary to remove, any
Lien on the Collateral except Permitted Indebtedness, and will defend the right,
title and interest of the Secured Party in and to the Collateral and in and to
all Proceeds thereof against the claims and demands of all Persons whatsoever.
4.3 Preservation of Rights. Whether or not any Event of Default has
occurred or is continuing, the Secured Party and its Representative may, but
shall not be required to, take any steps the Secured Party or its Representative
deems necessary or appropriate to preserve any Collateral or any rights against
third parties to any of the Collateral, including obtaining insurance for the
Collateral at any time when such Debtor has failed to do so, and Debtors shall
promptly pay, or reimburse the Secured Party for, all expenses incurred in
connection therewith.
4.4 Formation of Subsidiaries; Name Change; Location; Bailees.
(a) No Debtor shall form or acquire any subsidiary unless (i) such
Debtor pledges all of the stock or equity interests of such subsidiary to
the Secured Party pursuant to an agreement in a form agreed to by the
Secured Party, (ii) such subsidiary becomes a party to this Agreement and
all other applicable Security Documents and (iii) the formation or
acquisition of such Subsidiary is not prohibited by the terms of the
Transaction Documents.
(b) No Debtor shall (i) reincorporate or reorganize itself under the
laws of any jurisdiction other than the jurisdiction in which it is
incorporated or organized as of the date hereof, or (ii) otherwise change
its name, identity or corporate structure, in each case, without the prior
written consent of Secured Party, which consent shall not be unreasonably
withheld. Each Debtor will notify Secured Party promptly in writing prior
to any such change in the proposed use by such Debtor of any tradename or
fictitious business name other than any such name set forth on Schedule II
attached hereto.
(c) Except for the sale of Inventory in the ordinary course of
business and other sales of assets expressly permitted by the terms of the
Purchase Agreement, each Debtor will keep the Collateral at the locations
specified in Schedule I. Each Debtor will give Secured Party thirty (30)
day's prior written notice of any change in such Debtor's chief place of
business or of any new location for any of the Collateral.
(d) If any Collateral is at any time in the possession or control of
any warehousemen, bailee, consignee or processor, such Debtor shall, upon
the request of Secured Party or its Representative, notify such
warehousemen, bailee, consignee or processor of the Lien and security
interest created hereby and shall instruct such Person to hold all such
Collateral for Secured Party's account subject to Secured Party's
instructions.
(e) Each Debtor acknowledges that it is not authorized to file any
financing statement or amendment or termination statement with respect to
any financing statement without the prior written consent of Secured Party
and agrees that it will not do so without the prior written consent of
11
Secured Party, subject to such Debtor's rights under Section 9-509(d)(2) to
the UCC.
(f) No Debtor shall enter into any Contract that restricts or
prohibits the grant to Secured Party of a security interest in Accounts,
Chattel Paper, Instruments or payment intangibles or the proceeds of the
foregoing.
4.5 Reserved.
4.6 Events of Default, Etc. During the period during which an Event of
Default shall have occurred and be continuing subject to the Permitted
Lien:
(a) each Debtor shall, at the request of the Secured Party or its
Representative, assemble the Collateral and make it available to Secured
Party or its Representative at a place or places designated by the Secured
Party or its Representative which are reasonably convenient to Secured
Party or its Representative, as applicable, and such Debtor;
(b) the Secured Party or its Representative may make any reasonable
compromise or settlement deemed desirable with respect to any of the
Collateral and may extend the time of payment, arrange for payment in
installments, or otherwise modify the terms of, any of the Collateral;
(c) the Secured Party shall have all of the rights and remedies with
respect to the Collateral of a secured party under the UCC (whether or not
said UCC is in effect in the jurisdiction where the rights and remedies are
asserted) and such additional rights and remedies to which a secured party
is entitled under the laws in effect in any jurisdiction where any rights
and remedies hereunder may be asserted, including, without limitation, the
right, to the maximum extent permitted by law, to: (i) exercise all voting,
consensual and other powers of ownership pertaining to the Collateral as if
the Secured Party were the sole and absolute owner thereof (and each Debtor
agrees to take all such action as may be appropriate to give effect to such
right) and (ii) the appointment of a receiver or receivers for all or any
part of the Collateral or business of a Debtor, whether such receivership
be incident to a proposed sale or sales of such Collateral or otherwise and
without regard to the value of the Collateral or the solvency of any person
or persons liable for the payment of the Obligations secured by such
Collateral. Each Debtor hereby consents to the appointment of such receiver
or receivers, waives any and all defenses to such appointment and agrees
that such appointment shall in no manner impair, prejudice or otherwise
affect the rights of Secured Party under this Agreement. Each Debtor hereby
expressly waives notice of a hearing for appointment of a receiver and the
necessity for bond or an accounting by the receiver;
(d) the Secured Party or its Representative in its discretion may, in
the name of the Secured Party or in the name of a Debtor or otherwise,
demand, sue for, collect or receive any money or property at any time
payable or receivable on account of or in exchange for any of the
Collateral, but shall be under no obligation to do so;
(e) the Secured Party or its Representative may take immediate
possession and occupancy of any premises owned, used or leased by a Debtor
and exercise all other rights and remedies which may be available to the
Secured Party;
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(f) the Secured Party may, upon reasonable notice (such reasonable
notice to be determined by Secured Party in its sole and absolute
discretion, which shall not be less than ten (10) days), with respect to
the Collateral or any part thereof which shall then be or shall thereafter
come into the possession, custody or control of the Secured Party or its
Representative, sell, lease, license, assign or otherwise dispose of all or
any part of such Collateral, at such place or places as the Secured Party
deems best, and for cash or for credit or for future delivery (without
thereby assuming any credit risk), at public or private sale, without
demand of performance or notice of intention to effect any such disposition
or of the time or place thereof (except such notice as is required above or
by applicable statute and cannot be waived), and the Secured Party or
anyone else may be the purchaser, lessee, licensee, assignee or recipient
of any or all of the Collateral so disposed of at any public sale (or, to
the extent permitted by law, at any private sale) and thereafter hold the
same absolutely, free from any claim or right of whatsoever kind, including
any right or equity of redemption (statutory or otherwise), of Debtors, any
such demand, notice and right or equity being hereby expressly waived and
released. The Secured Party may, without notice or publication, adjourn any
public or private sale or cause the same to be adjourned from time to time
by announcement at the time and place fixed for the sale, and such sale may
be made at any time or place to which the sale may be so adjourned; and
(g) the rights, remedies and powers conferred by this Section 4.6 are
in addition to, and not in substitution for, any other rights, remedies or
powers that the Secured Party may have under any Transaction Document, at
law, in equity or by or under the UCC or any other statute or agreement.
The Secured Party may proceed by way of any action, suit or other
proceeding at law or in equity and no right, remedy or power of the Secured
Party will be exclusive of or dependent on any other. The Secured Party may
exercise any of its rights, remedies or powers separately or in combination
and at any time.
The proceeds of each collection, sale or other disposition under this Section
4.6 shall be applied in accordance with Section 4.9 hereof.
4.7 Deficiency. If the proceeds of sale, collection or other realization of
or upon the Collateral are insufficient to cover the costs and expenses of such
realization and the payment in full of the Obligations, Debtors shall remain
jointly and severally liable for any deficiency.
4.8 Private Sale. Each Debtor recognizes that the Secured Party may be
unable to effect a public sale of any or all of the Collateral consisting of
securities by reason of certain prohibitions contained in the Securities Act of
1933, as amended (the "Act"), and applicable state securities laws, but may be
compelled to resort to one or more private sales thereof to a restricted group
of purchasers who will be obliged to agree, among other things, to acquire such
Collateral for their own account for investment and not with a view to the
distribution or resale thereof. Each Debtor acknowledges and agrees that any
such private sale may result in prices and other terms less favorable to the
seller than if such sale were a public sale and each Debtor agrees that it is
not commercially unreasonable for Secured Party to engage in any such private
sales or dispositions under such circumstances. The Secured Party shall be under
no obligation to delay a sale of any of the Collateral to permit a Debtor to
register such Collateral for public sale under the Act, or under applicable
state securities laws, even if Debtors would agree to do so. The Secured Party
shall not incur any liability as a result of the sale of any such Collateral, or
any part thereof, at any private sale provided for in this Agreement conducted
13
in a commercially reasonable manner, and so long as Secured Party conducts such
sale in a commercially reasonable manner each Debtor hereby waives any claims
against the Secured Party arising by reason of the fact that the price at which
the Collateral may have been sold at such a private sale was less than the price
which might have been obtained at a public sale or was less than the aggregate
amount of the Obligations, even if the Secured Party accepts the first offer
received and does not offer the Collateral to more than one offeree.
Each Debtor further agrees to do or cause to be done all such other acts
and things as may be necessary to make such sale or sales of any portion or all
of any such Collateral valid and binding and in compliance with any and all
applicable laws, regulations, orders, writs, injunctions, decrees or awards of
any and all courts, arbitrators or governmental instrumentalities, domestic or
foreign, having jurisdiction over any such sale or sales, all at such Debtor's
expense. Each Debtor further agrees that a breach of any of the covenants
contained in this Section 4.8 will cause irreparable injury to the Secured
Party, that the Secured Party has no adequate remedy at law in respect of such
breach and, as a consequence, agrees that each and every covenant contained in
this Section 4.8 shall be specifically enforceable against Debtors, and each
Debtor hereby waives and agrees not to assert any defenses against an action for
specific performance of such covenants except for a defense that no Event of
Default has occurred and is continuing.
4.9 Application of Proceeds. The proceeds of any collection, sale or other
realization of all or any part of the Collateral, and any other cash at the time
held by the Secured Party under this Agreement, shall be applied to the
Obligations on a pro-rata basis based on investments made under the Securities
Purchase Agreement as detailed on Schedule 4.9.
4.10 Attorney-in-Fact. Each Debtor hereby irrevocably constitutes and
appoints the Secured Party, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of such Debtor and in the name of such Debtor or in its own name, from
time to time in the discretion of the Secured Party, for the purpose of carrying
out the terms of this Agreement, to take any and all appropriate action and to
execute and deliver any and all documents and instruments which may be necessary
or desirable to perfect or protect any security interest granted hereunder, to
maintain the perfection or priority of any security interest granted hereunder,
or to otherwise accomplish the purposes of this Agreement, and, without limiting
the generality of the foregoing, hereby gives the Secured Party the power and
right, on behalf of such Debtor, without notice to or assent by such Debtor (to
the extent permitted by applicable law), to do the following:
(a) to take any and all appropriate action and to execute and deliver any
and all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Agreement;
(b) upon the occurrence and during the continuation of an Event of Default,
to ask, demand, collect, receive and give acquittance and receipts for any and
all moneys due and to become due under any Collateral and, in the name of such
Debtor or its own name or otherwise, to take possession of and endorse and
collect any checks, drafts, notes, acceptances or other Instruments for the
payment of moneys due under any Collateral and to file any claim or to take any
14
other action or proceeding in any court of law or equity or otherwise deemed
appropriate by the Secured Party for the purpose of collecting any and all such
moneys due under any Collateral whenever payable and to file any claim or to
take any other action or proceeding in any court of law or equity or otherwise
deemed appropriate by the Secured Party for the purpose of collecting any and
all such moneys due under any Collateral whenever payable;
(c) to pay or discharge charges or liens levied or placed on or threatened
against the Collateral, to effect any insurance called for by the terms of this
Agreement and to pay all or any part of the premiums therefor;
(d) to direct any party liable for any payment under any of the Collateral
to make payment of any and all moneys due, and to become due thereunder,
directly to the Secured Party or as the Secured Party shall direct, and to
receive payment of and receipt for any and all moneys, claims and other amounts
due, and to become due at any time, in respect of or arising out of any
Collateral;
(e) upon the occurrence and during the continuation of an Event of Default,
to sign and indorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with accounts and other Documents
constituting or relating to the Collateral;
(f) upon the occurrence and during the continuation of an Event of Default,
to commence and prosecute any suits, actions or proceedings at law or in equity
in any court of competent jurisdiction to collect the Collateral or any part
thereof and to enforce any other right in respect of any Collateral;
(g) upon the occurrence and during the continuation of an Event of Default,
to defend any suit, action or proceeding brought against a Debtor with respect
to any Collateral;
(h) upon the occurrence and during the continuation of an Event of Default,
to settle, compromise or adjust any suit, action or proceeding described above
and, in connection therewith, to give such discharges or releases as the Secured
Party may deem appropriate;
(i) to the extent that a Debtor's authorization given in Section 4.1(b) of
this Agreement is not sufficient to file such financing statements with respect
to this Agreement, with or without such Debtor's signature, or to file a
photocopy of this Agreement in substitution for a financing statement, as the
Secured Party may deem appropriate and to execute in such Debtor's name such
financing statements and amendments thereto and continuation statements which
may require such Debtor's signature;
(j) upon the occurrence and during the continuation of an Event of Default,
generally to sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though the
Secured Party were the absolute owners thereof for all purposes; and
15
(k) to do, at the Secured Party's option and at such Debtor's expense, at
any time, or from time to time, all acts and things which the Secured Party
reasonably deems necessary to protect or preserve or, upon the occurrence and
during the continuation of an Event of Default, realize upon the Collateral and
the Secured Party's lien therein, in order to effect the intent of this
Agreement, all as fully and effectively as such Debtor might do.
Each Debtor hereby ratifies, to the extent permitted by law, all that such
attorneys lawfully do or cause to be done by virtue hereof provided the same is
performed in a commercially reasonable manner. The power of attorney granted
hereunder is a power coupled with an interest and shall be irrevocable until the
Obligations are indefeasibly paid in full in cash and this Agreement is
terminated in accordance with Section 4.12 hereof.
Each Debtor also authorizes the Secured Party, at any time from and after
the occurrence and during the continuation of any Event of Default, (x) to
communicate in its own name with any party to any Contract with regard to the
assignment of the right, title and interest of such Debtor in and under the
Contracts hereunder and other matters relating thereto and (y) to execute, in
connection with any sale of Collateral provided for in Section 4.6 hereof, any
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral.
4.11 Perfection. Prior to or concurrently with the execution and delivery
of this Agreement, each Debtor shall:
(a) file such financing statements, assignments for security and other
documents in such offices as may be necessary or as the Secured Party or the
Representative may request to perfect the security interests granted by Section
3 of this Agreement;
(b) at Secured Party's request, deliver to the Secured Party or its
Representative the originals of all Instruments together with, in the case of
Instruments constituting promissory notes, allonges attached thereto showing
such promissory notes to be payable to the order of a blank payee;
(c) deliver to the Secured Party or its Representative the originals of all
Motor Vehicle Titles, duly endorsed indicating the Secured Party's interest
therein as a lienholder, together with such other documents as may be required
consistent with Section 4.1(d) hereof to perfect the security interest granted
by Section 3 in all such Motor Vehicles (if any).
(d) If the Debtor has not done so, the Collateral Agent may do so at any
later time at the sole cost of the Debtors.
4.12 Termination; Partial Release of Collateral. This Agreement and the
Liens and security interests granted hereunder shall not terminate until the
full and complete performance and indefeasible satisfaction of all of the
Obligations (including, without limitation, the indefeasible payment in full in
cash of all such Obligations) (i) in respect of the Transaction Documents, and
(ii) with respect to which claims have been asserted by Collateral Agent and/or
Purchasers, whereupon the Secured Party shall forthwith cause to be assigned,
transferred and delivered, against receipt but without any recourse, warranty or
representation whatsoever, any remaining Collateral to or on the order of
Debtors. The Secured Party shall also execute and deliver to Debtors upon such
16
termination and at Debtors' expense such UCC termination statements,
certificates for terminating the liens on the Motor Vehicles (if any) and such
other documentation as shall be reasonably requested by Debtors to effect the
termination and release of the Liens and security interests in favor of the
Secured Party affecting the Collateral. Notwithstanding anything to the contrary
in this Agreement, upon full and complete satisfaction of the Notes Debtors
obligations under this Agreement shall terminate and any Liens shall thereupon
be void.
4.13 Further Assurances. At any time and from time to time, upon the
written request of the Secured Party or its Representative, and at the sole
expense of Debtors, Debtors will promptly and duly execute and deliver any and
all such further instruments, documents and agreements and take such further
actions as the Secured Party or its Representative may reasonably require in
order for the Secured Party to obtain the full benefits of this Agreement and of
the rights and powers herein granted in favor of the Secured Party, including,
without limitation, using Debtors' best efforts to secure all consents and
approvals necessary or appropriate for the assignment to the Secured Party of
any Collateral held by Debtors or in which a Debtor has any rights not
heretofore assigned, the filing of any financing or continuation statements
under the UCC with respect to the liens and security interests granted hereby,
transferring Collateral to the Secured Party's possession (if a security
interest in such Collateral can be perfected by possession), placing the
interest of the Secured Party as lienholder on the certificate of title of any
Motor Vehicle, and obtaining waivers of liens from landlords and mortgagees.
Each Debtor also hereby authorizes the Secured Party and its Representative to
file any such financing or continuation statement without the signature of such
Debtor to the extent permitted by applicable law.
4.14 Limitation on Duty of Secured Party. The powers conferred on the
Secured Party under this Agreement are solely to protect the Secured Party's
interest on behalf of itself and the Purchasers in the Collateral and shall not
impose any duty upon it to exercise any such powers. The Secured Party shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers and neither the Secured Party nor its Representative nor
any of their respective officers, directors, employees or agents shall be
responsible to Debtors for any act or failure to act, except for gross
negligence or willful misconduct. Without limiting the foregoing, the Secured
Party and any Representative shall be deemed to have exercised reasonable care
in the custody and preservation of the Collateral in their possession if such
Collateral is accorded treatment substantially equivalent to that which the
relevant Secured Party or any Representative, in its individual capacity,
accords its own property consisting of the type of Collateral involved, it being
understood and agreed that neither the Secured Party nor any Representative
shall have any responsibility for taking any necessary steps (other than steps
taken in accordance with the standard of care set forth above) to preserve
rights against any Person with respect to any Collateral.
Also without limiting the generality of the foregoing, neither the Secured
Party nor any Representative shall have any obligation or liability under any
Contract or license by reason of or arising out of this Agreement or the
granting to the Secured Party of a security interest therein or assignment
thereof or the receipt by the Secured Party or any Representative of any payment
relating to any Contract or license pursuant hereto, nor shall the Secured Party
or any Representative be required or obligated in any manner to perform or
fulfill any of the obligations of Debtors under or pursuant to any Contract or
17
license, or to make any payment, or to make any inquiry as to the nature or the
sufficiency of any payment received by it or the sufficiency of any performance
by any party under any Contract or license, or to present or file any claim, or
to take any action to collect or enforce any performance or the payment of any
amounts which may have been assigned to it or to which it may be entitled at any
time or times.
Section 5. Miscellaneous.
5.1 No Waiver. No failure on the part of the Secured Party or any of its
Representatives to exercise, and no course of dealing with respect to, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Secured Party or
any of its Representatives of any right, power or remedy hereunder preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy. The rights and remedies hereunder provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights and
remedies provided by law.
5.2 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
5.3 Notices. All notices, approvals, requests, demands and other
communications hereunder shall be delivered or made in the manner set forth in,
and shall be effective in accordance with the terms of, the Purchase Agreement.
Debtors and Collateral Agent may change their respective notice addresses by
written notice given to each other party five (5) days prior to the
effectiveness of such change.
5.4 Amendments, Etc. The terms of this Agreement may be waived, altered or
amended only by an instrument in writing duly executed by the Debtor sought to
be charged or benefited thereby and each of the Purchasers. Any such amendment
or waiver shall be binding upon the Secured Party and the Debtor sought to be
charged or benefited thereby and their respective successors and assigns.
5.5 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the respective successors and assigns of each of the parties
hereto, provided, that no Debtor shall assign or transfer its rights hereunder
without the prior written consent of each of the Secured Parties. Any Secured
Party, including the Collateral Agent in its capacity as Collateral Agent, may
assign its rights hereunder without the consent of Debtors, in which event such
assignee shall be deemed to be Secured Party and/or Collateral Agent, as
applicable, hereunder with respect to such assigned rights; provided, so long as
no Event of Default has occurred and is continuing, no Secured Party shall
assign any of its rights hereunder to a competitor of any Company.
5.6 Counterparts; Headings. This Agreement may be authenticated in any
number of counterparts, all of which taken together shall constitute one and the
18
same instrument and any of the parties hereto may authenticate this Agreement by
signing any such counterpart. This Agreement may be authenticated by manual
signature or facsimile, .pdf or similar electronic signature, all of which shall
be equally valid. The headings in this Agreement are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof.
5.7 Severability. If any provision hereof is invalid and unenforceable in
any jurisdiction, then, to the fullest extent permitted by law, (a) the other
provisions hereof shall remain in full force and effect in such jurisdiction and
shall be liberally construed in favor of the Secured Party and its
Representative in order to carry out the intentions of the parties hereto as
nearly as may be possible and (b) the invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
5.8 SUBMISSION TO JURISDICTION; WAIVER OF VENUE; SERVICE OF PROCESS. EACH
DEBTOR HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF ANY UNITED
STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK COUNTY, NEW YORK, IN
ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND EACH
DEBTOR HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES
ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF SECURED PARTY TO
BRING PROCEEDINGS AGAINST ANY DEBTOR IN THE COURTS OF ANY OTHER JURISDICTION.
ANY JUDICIAL PROCEEDING BY A DEBTOR AGAINST SECURED PARTY, ANY PURCHASER OR ANY
AFFILIATE THEREOF INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY
ARISING OUT OF, RELATED TO, OR CONNECTION WITH THIS AGREEMENT SHALL BE BROUGHT
ONLY IN A COURT IN NEW YORK COUNTY, NEW YORK (AND SECURED PARTY AND PURCHASERS
HEREBY SUBMIT TO THE JURISDICTION OF SUCH COURT). EACH DEBTOR HERETO HEREBY
IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING
SERVED IN ANY SUCH ACTION OR PROCEEDING BY MAILING BY REGISTERED OR CERTIFIED
MAIL A COPY THEREOF TO SUCH DEBTOR AT THE ADDRESS FOR NOTICES TO IT IN
ACCORDANCE WITH SECTION 5.3 OF THIS AGREEMENT AND AGREES THAT SUCH NOTICE SHALL
CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING
CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT OF SECURED PARTY
OR ANY PURCHASER TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
5.9 WAIVER OF RIGHT TO TRIAL BY JURY. EACH DEBTOR AND SECURED PARTY WAIVE
THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE
BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH
19
RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. EACH DEBTOR AND SECURED
PARTY AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT
TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE
THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS
SECTION 5.9 AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN
WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT
OR ANY PROVISION HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
5.10 Joint and Several. The obligations, covenants and agreements of
Debtors hereunder shall be the joint and several obligations, covenants and
agreements of each Debtor, whether or not specifically stated herein without
preferences or distinction among them.
5.11 Collateral Agent and Purchaser Indemnification.
(a) Each Purchaser has pursuant to the Securities Purchase Agreements
designated and appointed the Collateral Agent as the administrative agent
of such Purchaser under this Agreement and the related agreements.
(b) Nothing in this Section 5.11 shall be deemed to limit or otherwise
affect the rights of Secured Party or Purchasers to exercise any remedy
provided in this Agreement or any other Transaction Document.
(c) If pursuant to any related agreement Secured Party is given the
discretion to allocate proceeds received by Secured Party pursuant to the
exercise of remedies under the related agreements or at law or in equity
(including without limitation with respect to any secured creditor remedies
exercised against the Collateral and any other collateral security provided
for under any related agreement), Secured Party shall apply such proceeds
to the then outstanding Obligations in the following order of priority
(with amounts received being applied in the numerical order set forth below
until exhausted prior to the application to the next succeeding category
and each of the Purchasers or other Persons entitled to payment shall
receive an amount equal to its pro rata share of amounts available to be
applied pursuant to clauses second, third and fourth below):
first, to payment of fees, costs and expenses (including
reasonable attorney's fees) owing to the Secured Party;
second, to payment of all accrued unpaid interest and fees (other
than fees owing to Collateral Agent) on the Obligations;
third, to payment of principal of the Obligations;
fourth, to payment of any other amounts owing constituting
Obligations; and
20
fifth, any remainder shall be for the account of and paid to
whoever may be lawfully entitled thereto.
5.12 No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
5.13 ENTIRE AGREEMENT; AMENDMENT. THIS AGREEMENT, TOGETHER WITH THE OTHER
TRANSACTION DOCUMENTS, SUPERSEDES ALL OTHER PRIOR ORAL OR WRITTEN AGREEMENTS
BETWEEN SECURED PARTY, THE DEBTORS, THEIR AFFILIATES AND PERSONS ACTING ON THEIR
BEHALF WITH RESPECT TO THE MATTERS DISCUSSED HEREIN, AND THIS AGREEMENT,
TOGETHER WITH THE OTHER TRANSACTION DOCUMENTS AND THE OTHER INSTRUMENTS
REFERENCED HEREIN AND THEREIN, CONTAIN THE ENTIRE UNDERSTANDING OF THE PARTIES
WITH RESPECT TO THE MATTERS COVERED HEREIN AND THEREIN AND, EXCEPT AS
SPECIFICALLY SET FORTH HEREIN OR THEREIN, NEITHER THE SECURED PARTY NOR ANY
DEBTOR MAKES ANY REPRESENTATION, WARRANTY, COVENANT OR UNDERTAKING WITH RESPECT
TO SUCH MATTERS. AS OF THE DATE OF THIS AGREEMENT, THERE ARE NO UNWRITTEN
AGREEMENTS BETWEEN THE PARTIES WITH RESPECT TO THE MATTERS DISCUSSED HEREIN. NO
PROVISION OF THIS AGREEMENT MAY BE AMENDED, MODIFIED OR SUPPLEMENTED OTHER THAN
BY AN INSTRUMENT IN WRITING SIGNED BY THE DEBTORS AND THE SECURED PARTY.
- Remainder of Page Intentionally Left Blank; Signature Page Follows -
21
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement
to be duly executed and delivered as of the day and year first above written.
DEBTORS:
ESPORTS ENTERTAINMENT GROUP, INC., a Nevada
corporation
By: ____________________________
Name: Grant Johnson
Title: Chief Executive Officer
ESPORTS SERVICES ANTIGUA, LTD., an Antigua
corporation
By:____________________________
Name: Grant Johnson
Title: President and Chief Executive Officer
VIE ESPORTS SERVICES B.V., a Curacao corporation
By:____________________________
Name: Grant Johnson
Title: President and Chief Executive Officer
ESPORTS SERVICES (MALTA) LIMITED, a Malta
corporation
By:____________________________
Name: Grant Johnson
Title: President and Chief Executive Officer
ESPORTS ENTERTAINMENT (MALTA) LTD., a Malta
corporation
By:____________________________
Name: Grant Johnson
Title: President and Chief Executive Officer
22
COLLATERAL AGENT:
CAVALRY FUND I LP, a Delaware limited partnership,
in its capacity as Collateral Agent for Purchasers
By: Cavalry Fund I Management LLC
Its General Partner
By:
---------------------------------------
Name: Thomas P. Walsh
Title: Manager
Notice Address:
Cavalry Fund I LP
61 Kinderkamack Road
Woodcliff Lake, NJ 07677
23
EXHIBIT A
Form of Joinder
Joinder to Security Agreement
The undersigned, ______________________________, hereby joins in the
execution of that certain Security Agreement dated as of November ____, 2018 (as
amended, restated, supplemented or otherwise modified from time to time, the
"Security Agreement") by Esports Entertainment Group, Inc., a Nevada corporation
and _____________, Inc., a _______ corporation, the Purchasers (as defined
therein), and each other Person that becomes a Debtor or a Purchaser thereunder
after the date thereof and hereof and pursuant to the terms thereof, to and in
favor of Cavalry Fund I LP, a Delaware limited partnership, in its capacity as
Collateral Agent for Purchasers. By executing this Joinder, the undersigned
hereby agrees that it is a Debtor thereunder and agrees to be bound by all of
the terms and provisions of the Security Agreement. The undersigned represents
and warrants that the representations and warranties set forth in the Security
Agreement are, with respect to the undersigned, true and correct as of the date
hereof.
The undersigned represents and warrants to Secured Party that:
(a) all of the Equipment, Inventory and Goods owned by such Debtor is
located at the places as specified on Schedule I and such Debtor conducts
business in the jurisdiction set forth on Schedule I;
(b) except as disclosed on Schedule I, none of such Collateral is in the
possession of any bailee, warehousemen, processor or consignee;
(c) the chief place of business, chief executive office and the office
where such Debtor keeps its books and records are located at the place specified
on Schedule I;
(d) such Debtor (including any Person acquired by such Debtor) does not do
business or has not done business during the past five years under any tradename
or fictitious business name, except as disclosed on Schedule II;
(e) all Copyrights, Patents and Trademarks owned or licensed by the
undersigned are listed in Schedules III, IV and V, respectively;
(f) all Deposit Accounts, securities accounts, brokerage accounts and other
similar accounts maintained by such Debtor, and the financial institutions at
which such accounts are maintained, are listed on Schedule VI;
(g) all Commercial Tort Claims of such Debtor are listed on Schedule VII;
(h) all interests in real property and mining rights held by such Debtor
are listed on Schedule VIII;
24
(i) all Equipment (including Motor Vehicles) owned by such debtor are
listed on Schedule IX.
________________, a ________
By:_________________________________
Title:______________
FEIN: ______________
25
EX-10
6
form8k203ex105nov-18.txt
EXHIBIT 10.5
EXHIBIT 10.5
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT made as of November __, 2018 (as amended, restated,
supplemented or otherwise modified from time to time, this "Agreement"), by
Esports Entertainment Group, Inc., a Nevada corporation (the "Pledgor") and
Cavalry Fund I LP, a Delaware limited partnership, in its capacity as agent
("Agent") for the Purchasers identified below (in such capacity, together with
its successors and assigns, the "Pledgee").
WHEREAS:
1. The Pledgor has executed and delivered to the purchaser identified in
that certain Purchase Agreement (as defined below) (the "Purchaser", and
together with its successors and assigns and each other purchaser of a Note (as
defined below) and their respective successors and assigns, individually and
collectively, the "Purchasers") those certain senior secured convertible notes
each made by the Pledgor and dated as of the date hereof in an original
aggregate principal amounts of $_______ (such notes, together with any
promissory notes or other securities issued in exchange or substitution therefor
or replacement thereof, and as any of the same may be amended, supplemented,
restated or modified and in effect from time to time, the "Notes"). The Notes
were issued pursuant to that certain Securities Purchase Agreement dated as the
date hereof (as the same may be amended, restated, supplemented or otherwise
modified, the "Purchase Agreement"), among the Pledgor, the Agent and the
Purchasers. References to the "Transaction Documents" shall mean the Purchase
Agreement, the Notes, the Warrants and the other related agreements (capitalized
terms not defined herein have shall have the meanings ascribed to them in the
Purchase Agreement).
2. The Pledgor legally and beneficially owns the interests specified on
Exhibit A hereto and each other corporation or other entity, the stock or other
equity interests and securities (any, "Securities") of which are owned or
acquired by the Pledgor and described on an addendum hereto from time-to-time
executed by the Pledgor in form and substance satisfactory to the Pledgee (each
such entity is referred to herein as a "Pledge Entity" and collectively as the
"Pledge Entities," which shall include all subsidiaries of the Pledgor during
the time this Agreement remains in effect); provided that the parties hereto
agree that, as of the date hereof, the Pledge Entities specified on Exhibit A
are the only Pledge Entities. The failure to execute an addendum shall not
relieve the Pledgor of its obligation to pledge any after acquired Securities.
3. Pursuant to Security Agreement dated as of November __, 2018 by and
among the Agent, the Pledgor, the other entities party thereto as "Debtors" and
the Pledgee (as the same may be amended, restated, modified or supplement and in
effect from time to time, the "Security Agreement"), the Pledgor has granted the
Pledgee, for its benefit and the benefit of the Purchasers, a first priority
security interest in, lien upon and pledge of all of such Pledgor's rights in
such Pledgor's Collateral (as defined in the Security Agreement), subject to the
prior security interests reflected on Exhibit B.
4. To induce the Purchasers to enter into the Purchase Agreement, purchase
the Notes and to make the financial accommodations available to the Pledgor
under the Purchase Agreement, and in order to secure the payment and performance
by the Pledgor of the Obligations (as hereafter defined), the Pledgor has agreed
to pledge to the Pledgee all of the Securities (the "Pledged Equity") of the
Pledge Entities now or hereafter owned or acquired by such Pledgor to secure the
Obligations. For purposes of this Agreement, "Obligations" means all
obligations, liabilities and indebtedness of every nature of the Pledgor from
1
time-to-time owed or owing under or in respect of this Agreement, the Purchase
Agreement, the Notes, the Security Agreement, and any of the other Transaction
Documents, and under all other prior loans made to the Pledgor by any of the
Purchasers, including, without limitation, the principal amount of all debts,
claims and indebtedness, accrued and unpaid interest and all fees, costs and
expenses, whether primary, secondary, direct, contingent, fixed or otherwise,
heretofore, now and/or from time to time hereafter owing, due or payable whether
before or after the filing of a bankruptcy, insolvency or similar proceeding
under applicable federal, state, foreign or other law and whether or not an
allowed claim in any such proceeding.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Purchasers to purchase the Notes under the Purchase Agreement and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Pledgor hereby agrees with the Pledgee as follows:
Defined Terms. Unless otherwise defined herein, all capitalized terms used
herein shall have the meanings given them in the Purchase Agreement.
Pledge.
Subject to the security interests reflected on Exhibit B, the Pledgor
hereby pledges, assigns, hypothecates, transfers, delivers and grants to the
Pledgee, for the benefit of itself and the Purchasers, a first lien on and first
priority perfected security interest in (i) all of the Pledged Equity of the
Pledge Entities now owned or hereafter acquired by such Pledgor (collectively,
the "Pledged Interests"), (ii) any other shares of Pledged Equity hereafter
pledged or referred to be pledged to the Pledgee pursuant to this Agreement;
(ii) all "investment property" as such term is defined in ss.9-102(a)(49) of the
UCC (as defined below) with respect thereto; (iv) any "security entitlement" as
such term is defined in ss. 8-102(a)(17) of the UCC with respect thereto; (v)
all books and records relating to the foregoing; and (vi) all Accessions and
Proceeds (as each is defined in the UCC) of the foregoing, including, without
limitation, all distributions (cash, stock, or otherwise), dividends, stock
dividends, securities, cash, instruments, rights to subscribe, purchase, or
sell, and other property, rights, and interest that such Pledgor is at any time
entitled to receive or is otherwise distributed in respect of, or in exchange
for, any or all of the Pledged Collateral (as defined below), and without
affecting the obligations of the Pledgor under any provision of the Security
Agreement, in the event of any consolidation or merger in which the Pledgor is
not the surviving corporation, all shares of each class or Pledged Equity of the
successor entity formed by or resulting from such consolidation or merger (the
collateral described in clauses (i) through (vi) of this Section 2 being
collectively referred to as the "Pledged Collateral"), as collateral security
for the prompt and complete payment and performance when due (whether at the
stated maturity, by acceleration or otherwise) of the Obligations. All of the
Pledged Interests now owned by the Pledgor, which are presently represented by
certificates, are listed on Exhibit A hereto, which certificates, with undated
assignments separate from the certificates or stock/membership interest powers
duly executed in blank by such Pledgor and to the extent such certificates are
available and not covered by an existing lien or pledge, or irrevocable proxies,
2
are being delivered to the Pledgee simultaneously herewith. Upon the creation or
acquisition of any new Pledged Interests, to the extent such certificates are
available and not covered by an existing lien or pledge, the Pledgor shall
execute an Addendum in the form of Exhibit C attached hereto (a "Pledge
Addendum"). Any Pledged Collateral described in a Pledge Addendum executed by
the Pledgor shall thereafter be deemed to be listed on Exhibit A hereto. The
Pledgee shall maintain possession and custody of the certificates representing
the Pledged Interests and any additional Pledged Collateral.
Each Pledged Interest consisting of either (i) a membership interest in a
Person that is a limited liability company or (ii) a partnership interest in a
Person that is a partnership (if any) (1) is not and will not be evidenced by a
certificate and (2) is not and will not be deemed a "security" governed by
Article 8 of the UCC.
Representations and Warranties of Pledgor. The Pledgor represents and
warrants to the Pledgee, and covenants with the Pledgee, that:
Exhibit A sets forth (i) the authorized capital stock and other equity
interests of each Pledge Entity, (ii) the number of shares of capital stock and
other equity interests of each Pledge Entity that are issued and outstanding as
of the date hereof, and (iii) the percentage of the issued and outstanding
shares of capital stock and other equity interests of each Pledge Entity held by
such Pledgor. Subject to the liens, pledges and security interests set forth in
Section 3.1(o) of the Purchase Agreement (the "Existing Liens"), such Pledgor is
the record and beneficial owner of, and has good and marketable title to, the
Pledged Interests of such Pledgor, and subject to the Existing Liens, such
shares are and will remain free and clear of all pledges, liens, security
interests and other encumbrances and restrictions whatsoever, except the liens
and security interests in favor of the Pledgee created by this Agreement;
Except as set forth on Exhibit A, there are no outstanding options,
warrants or other similar agreements with respect to the Pledged Interests or
any of the other Pledged Collateral;
This Agreement is the legal, valid and binding obligation of the Pledgor,
enforceable against the Pledgor in accordance with its terms except to the
extent that such enforceability is subject to applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance and moratorium laws and other laws of
general application affecting enforcement of creditors' rights generally, or the
availability of equitable remedies, which are subject to the discretion of the
court before which an action may be brought;
The Pledged Interests have been duly and validly authorized and issued, are
fully paid and non-assessable, and the Pledged Interests listed on Exhibit A
constitute all of the issued and outstanding capital stock or other equity
interests of the Pledge Entities;
No consent, approval or authorization of or designation or filing with any
governmental or regulatory authority on the part of the Pledgor is required in
connection with the pledge and security interest granted under this Agreement;
The execution, delivery and performance of this Agreement will not violate
any provision of any applicable law or regulation or of any order, judgment,
writ, award or decree of any court, arbitrator or governmental authority, which
3
are applicable to the Pledgor, or of the articles or certificate of
incorporation, certificate of formation, bylaws or any other similar
organizational documents of the Pledgor or any Pledge Entity or of any
securities issued by the Pledgor or any Pledge Entity or subject to the
obtaining of a waiver agreement from the holder of the Existing Liens of any
mortgage, indenture, lease, contract, or other agreement, instrument or
undertaking to which the Pledgor or any Pledge Entity is a party or which is
binding upon the Pledgor or any Pledge Entity or upon any of the assets of the
Pledgor or any Pledge Entity, and subject to the Existing Liens will not result
in the creation or imposition of any lien, charge or encumbrance on or security
interest in any of the assets of the Pledgor or any Pledge Entity, except as
otherwise contemplated by this Agreement;
The pledge, assignment and delivery of the Pledged Interests and the other
Pledged Collateral pursuant to this Agreement creates a valid first lien on and
perfected first priority security interest in such Pledged Interests and Pledged
Collateral and the proceeds thereof in favor of the Pledgee, subject to the
security interests reflected on Exhibit B. Until this Agreement is terminated
pursuant to Section 11 hereof, the Pledgor covenants and agrees that it will
defend, for the benefit of the Pledgee, the Pledgee's right, title and security
interest subject to the Existing Liens in and to the Pledged Interests, the
other Pledged Collateral and the proceeds thereof against the claims and demands
of all other persons or entities; and
Neither the Pledgor nor any Pledged Entity (i) will become a person whose
property or interests in property are blocked or subject to blocking pursuant to
Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and
Prohibiting Transactions with Persons Who Commit, Threaten to Commit or Support
Terrorism (66 Fed. Reg. 49079(2001), (ii) will engage in any dealings or
transactions prohibited by Section 2 of such executive order, or (iii) will
otherwise become a person on the list of Specially Designated Nationals and
Blocked Persons or subject to the limitations or prohibitions under any other
Office of Foreign Asset Control regulation or executive order.
Dividends, Distributions, Etc. If, prior to irrevocable repayment in full
in cash of the Obligations, the Pledgor shall receive any certificate
(including, without limitation, any certificate representing a dividend or a
distribution in connection with any reclassification, increase or reduction of
capital, or issued in connection with any reorganization, merger or
consolidation), or any options or rights, whether as an addition to, in
substitution for, or in exchange for any of the Pledged Interests or otherwise,
such Pledgor agrees, in each case, to accept the same as the Pledgee's agent and
to hold the same in trust for the Pledgee, and to deliver the same promptly (but
in any event within five days) to the Pledgee in the exact form received, with
the endorsement of such Pledgor when necessary and/or with appropriate undated
assignments separate from certificates or stock powers duly executed in blank,
to be held by the Pledgee subject to the terms hereof, as additional Pledged
Collateral. The Pledgor shall promptly deliver to the Pledgee (i) a Pledge
Addendum with respect to such additional certificates, and (ii) any financing
statements or amendments to financing statements as requested by the Pledgee.
The Pledgor hereby authorizes the Pledgee to attach each such Pledge Addendum to
this Agreement. Except as provided in Section 5(b) below, all sums of money and
property so paid or distributed in respect of the Pledged Interests which are
received by the Pledgor shall, until paid or delivered to the Pledgee, be held
by the Pledgor in trust as additional Pledged Collateral.
4
Voting Rights; Dividends; Certificates.
So long as no Event of Default (as defined in the Notes) has occurred and
is continuing, the Pledgor shall be entitled (subject to the other provisions
hereof, including, without limitation, Section 8 below) to exercise its voting
and other consensual rights with respect to the Pledged Interests and otherwise
exercise the incidents of ownership thereof in any manner not inconsistent with
this Agreement, the Purchase Agreement and/or any of the other Transaction
Documents. Subject to the rights of the Existing Liens, as applicable, the
Pledgor hereby grants to the Pledgee or its nominee, an irrevocable proxy to
exercise all voting, corporate and limited liability company rights relating to
the Pledged Interests in any instance, which proxy shall be effective, at the
discretion of the Pledgee, upon the occurrence and during the continuance of an
Event of Default. Upon the request of the Pledgee at any time, the Pledgor
agrees to deliver to the Pledgee such further evidence of such irrevocable proxy
or such further irrevocable proxies to vote the Pledged Interests as the Pledgee
may request.
So long as no Event of Default shall have occurred and be continuing, the
Pledgor shall be entitled to receive cash dividends or other distributions made
in respect of the Pledged Interests, to the extent permitted to be made pursuant
to the terms of the Notes and the Purchase Agreement. Upon the occurrence and
during the continuance of an Event of Default, in the event that the Pledgor, as
record and beneficial owner of the Pledged Interests, shall have received or
shall have become entitled to receive, any cash dividends or other distributions
in the ordinary course, such Pledgor shall deliver to the Pledgee, and the
Pledgee shall be entitled to receive and retain, for the benefit of the Pledgee
and the Purchasers, all such cash or other distributions as additional security
for the Obligations.
Subject to any sale or other disposition by the Pledgee of the Pledged
Interests, any other Pledged Collateral or other property pursuant to this
Agreement, upon the indefeasible full payment in cash, satisfaction and
termination of all of the Obligations and the termination of this Agreement
pursuant to Section 11 hereof and of the liens and security interests hereby
granted, the Pledged Interests, the other Pledged Collateral and any other
property then held as part of the Pledged Collateral in accordance with the
provisions of this Agreement shall be returned to the Pledgor or to such other
persons or entities as shall be legally entitled thereto.
The Pledgor shall cause all Pledged Interests (other than the Pledged
Interests consisting of limited liability company interests) to be certificated
at all times while this Agreement is in effect.
Rights of Pledgee. The Pledgee shall not be liable for failure to collect
or realize upon the Obligations or any collateral security or guaranty therefor,
or any part thereof, or for any delay in so doing, nor shall the Pledgee be
under any obligation to take any action whatsoever with regard thereto. Any or
all of the Pledged Interests held by the Pledgee hereunder may, if an Event of
Default has occurred and is continuing, without notice, be registered in the
name of the Pledgee or its nominee, and the Pledgee or its nominee may
thereafter without notice exercise all voting and corporate rights at any
meeting with respect to any Pledge Entity and exercise any and all rights of
conversion, exchange, subscription or any other rights, privileges or options
pertaining to any of the Pledged Interests as if it were the absolute owner
thereof, including, without limitation, the right to vote in favor of, and to
5
exchange at its discretion any and all of the Pledged Interests upon the merger,
consolidation, reorganization, recapitalization or other readjustment with
respect to any Pledge Entity or upon the exercise by any Pledge Entity, the
Pledgor or the Pledgee of any right, privilege or option pertaining to any of
the Pledged Interests, and in connection therewith, to deposit and deliver any
and all of the Pledged Interests with any committee, depository, transfer agent,
registrar or other designated agency upon such terms and conditions as the
Pledgee may reasonably determine, all without liability except to account for
property actually received by the Pledgee, but the Pledgee shall have no duty to
exercise any of the aforesaid rights, privileges or options and shall not be
responsible for any failure to do so or delay in so doing.
Remedies. Upon the occurrence and during the continuance of an Event of
Default, the Pledgee may exercise in respect of the Pledged Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party under the Uniform
Commercial Code ("UCC") of the jurisdiction applicable to the affected Pledged
Collateral from time-to-time. Without limiting the foregoing, the Pledgee may,
without demand of performance or other demand, advertisement or notice of any
kind (except the notice specified below of time and place of public or private
sale) to or upon the Pledgor or any other person or entity (all and each of
which demands, advertisements and/or notices are hereby expressly waived), upon
the occurrence and during the continuance of an Event of Default forthwith
collect, receive, appropriate and realize upon the Pledged Collateral, or any
part thereof, and/or may forthwith date and otherwise fill in the blanks on any
assignments separate from certificates or stock powers or otherwise sell,
assign, give an option or options to purchase, contract to sell or otherwise
dispose of and deliver said Pledged Collateral, or any part thereof, in one or
more portions at one or more public or private sales or dispositions, at any
exchange or broker's board or at any of the Pledgee's offices or elsewhere upon
such terms and conditions as the Pledgee may deem advisable and at such prices
as it may deem best, for any combination of cash and/or securities or other
property or on credit or for future delivery without assumption of any credit
risk, with the right to the Pledgee upon any such sale, public or private, to
purchase the whole or any part of said Pledged Collateral so sold, free of any
right or equity of redemption in the Pledgor, which right or equity is hereby
expressly waived or released. The Pledgee shall apply the net proceeds of any
such collection, recovery, receipt, appropriation, realization, sale or
disposition, after deducting all costs and expenses of every kind incurred
therein or incidental to the safekeeping of any and all of the Pledged
Collateral or in any way relating to the rights of the Pledgee hereunder,
including reasonable attorneys' fees and legal expenses, to the payment, in
whole or in part, of the Obligations, in such order as the Pledgee may elect.
The Pledgor shall remain liable for any deficiency remaining unpaid after such
application. Only after so paying over such net proceeds and after the payment
by the Pledgee of any other amount required by any provision of law, including,
without limitation, Section 9-608 of the UCC, need the Pledgee account for the
surplus, if any, to the Pledgor. The Pledgor agrees that the Pledgee need not
give more than ten (10) days' notice of the time and place of any public sale or
of the time after which a private sale or other intended disposition is to take
place and that such notice is reasonable notification of such matters. No
6
notification need be given to the Pledgor if after default it has signed a
statement renouncing or modifying any right to notification of sale or other
intended disposition. Notwithstanding any provision in any operating agreement
or shareholder agreement of any issuer of the Pledged Collateral or any
applicable laws to the contrary, the undersigned constituting all of the members
and/or shareholders of each issuer hereby acknowledge that such member and/or
shareholder, as applicable, may pledge to the Agent all of such member's and/or
shareholder's right, title and interest in such issuer, and upon foreclosure the
successful bidder (which may include the Agent) will be deemed admitted as a
member and/or shareholder, as applicable, of such issuer, and will automatically
succeed to all of such pledged right, title and interest, including without
limitation such members' and/or shareholder's limited liability company and
equity interests, right to vote and participate in the management and business
affairs of the issuer, right to a share of the profits and losses of the issuer
and right to receive distributions from the issuer.
No Disposition, Etc. Until the irrevocable payment in full, satisfaction or
expiration of the Notes, the Pledgor agrees that it will not sell, assign,
transfer, exchange, or otherwise dispose of, or grant any option with respect
to, the Pledged Interests or any other Pledged Collateral, nor will the Pledgor
create, incur or permit to exist any pledge, lien, mortgage, hypothecation,
security interest, charge, option or any other encumbrance with respect to any
of the Pledged Interests or any other Pledged Collateral, or any interest
therein, or any proceeds thereof, except for the lien and security interest of
the Pledgee provided for by this Agreement and the Security Agreement and
Permitted Liens as defined in the Notes.
Sale of Pledged Interests.
The Pledgor recognizes that the Pledgee may be unable to effect a public
sale or disposition (including, without limitation, any disposition in
connection with a merger of a Pledge Entity) of any or all the Pledged Interests
by reason of certain prohibitions contained in the Securities Act, and
applicable state securities laws, but may be compelled to resort to one or more
private sales or dispositions thereof to a restricted group of purchasers who
will be obliged to agree, among other things, to acquire such securities for
their own account, for investment and not with a view to the distribution or
resale thereof. The Pledgor acknowledges and agrees that any such private sale
or disposition may result in prices and other terms (including the terms of any
securities or other property received in connection therewith) less favorable to
the seller than if such sale or disposition were a public sale or disposition
7
and the Pledgor agrees that it is not commercially unreasonable for the Pledgee
to engage in any such private sales or dispositions under such circumstances.
The Pledgee shall be under no obligation to delay a sale or disposition of any
of the Pledged Interests in order to permit the Pledgor or a Pledge Entity to
register such securities for public sale under the Securities Act, or under
applicable state securities laws, even if such Pledgor or a Pledge Entity would
agree to do so.
The Pledgor further agrees to do or cause to be done all such other acts
and things as may be reasonably necessary to make such sales or dispositions of
the Pledged Interests valid and binding and in compliance with any and all
applicable laws, regulations, orders, writs, injunctions, decrees or awards of
any and all courts, arbitrators or governmental instrumentalities, domestic or
foreign, having jurisdiction over any such sales or dispositions, all at such
Pledgor's expense; provided that the Pledgor shall not have any obligation to
register the Pledged Interests as securities under the Securities Act or the
applicable state securities laws solely by virtue of this Section 9(b). The
Pledgor further agrees that a breach of any of the covenants contained in
Sections 4, 5(a), 5(b), 8, 9 and 24 will cause irreparable injury to the Pledgee
and that the Pledgee has no adequate remedy at law in respect of such breach
and, as a consequence, agrees, without limiting the right of the Pledgee to seek
and obtain specific performance of other obligations of the Pledgor contained in
this Agreement, that each and every covenant referenced above shall be
specifically enforceable against the Pledgor, and the Pledgor hereby waives and
agrees not to assert any defenses against an action for specific performance of
such covenants.
The Pledgor further agrees to indemnify and hold harmless the Purchasers,
the Pledgee and their respective successors and assigns, their respective
officers, directors, employees, attorneys and agents, and any person or entity
in control of any thereof, from and against any loss, liability, claim, damage
and expense, including, without limitation, legal fees and expenses (in this
paragraph collectively called the "Indemnified Liabilities"), under federal and
state securities laws or otherwise insofar as such Indemnified Liability (i)
arises out of or is based upon any untrue statement or alleged untrue statement
of a material fact contained in any registration statement, prospectus or
offering memorandum or in any preliminary prospectus or preliminary offering
memorandum or in any amendment or supplement to any thereof or in any other
writing prepared by the Pledgor in connection with the offer, sale or resale of
all or any portion of the Pledged Collateral unless such untrue statement of
material fact was provided by the Pledgee, in writing, specifically for
inclusion therein, or (ii) arises out of or is based upon any omission or
alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading, such indemnification to
remain operative regardless of any investigation made by or on behalf of the
Pledgee or any successor thereof, or any person or entity in control of any
thereof. In connection with a public sale or other distribution, the Pledgor
will provide customary indemnification to any underwriters, their successors and
assigns, officers and directors and each person or entity who controls any such
underwriter (within the meaning of the Securities Act). If and to the extent
that the foregoing undertakings in this paragraph may be unenforceable for any
reason, the Pledgor agrees to jointly and severally make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The obligations of the
Pledgor under this paragraph (c) shall survive any termination of this
Agreement.
The Pledgor further agrees not to exercise any and all rights of
subrogation it may have against a Pledge Entity upon the sale or disposition of
all or any portion of the Pledged Collateral by the Pledgee pursuant to the
terms of this Agreement until the termination of this Agreement in accordance
with Section 11 below.
No Waiver; Cumulative Remedies. The Pledgee shall not by any act, delay,
omission or otherwise be deemed to have waived any of its remedies hereunder,
and no waiver by the Pledgee shall be valid unless in writing and signed by the
Pledgee, and then only to the extent therein set forth. A waiver by the Pledgee
of any right or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which the Pledgee would otherwise have on any further
occasion. No course of dealing between the Pledgor and the Pledgee and no
failure to exercise, nor any delay in exercising on the part of the Pledgee or
the Purchasers of, any right, power or privilege hereunder or under the other
Transaction Documents shall impair such right or remedy or operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided are cumulative and may be exercised singly or concurrently, and are not
exclusive of any rights or remedies provided by law or in the Purchase
Agreement.
8
Termination. This Agreement and the liens and security interests granted
hereunder shall terminate and the Pledgee, at the Pledgor's sole reasonable cost
and reasonable expense, shall immediately return any Pledged Interests or other
Pledged Collateral then held by the Pledgee in accordance with the provisions of
this Agreement to the Pledgor upon the full and complete performance and
indefeasible satisfaction of all of the Obligations (including, without
limitation, the indefeasible payment in full in cash of all such Obligations)
(i) in respect of the Transaction Documents, and (ii) with respect to which
claims have been asserted by the Pledgee and/or Purchasers.
Possession of Collateral. Beyond the exercise of reasonable care to assure
the safe custody of the Pledged Interests in the physical possession of the
Pledgee pursuant hereto, neither the Pledgee, nor any nominee of the Pledgee,
shall have any duty or liability to collect any sums due in respect thereof or
to protect, preserve or exercise any rights pertaining thereto (including any
duty to ascertain or take action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relating to the Pledged Collateral and any
duty to take any necessary steps to preserve rights against any parties with
respect to the Pledged Collateral), and shall be relieved of all responsibility
for the Pledged Collateral upon surrendering them to the Pledgor. The Pledgor
assumes the responsibility for being and keeping itself informed of the
financial condition of a Pledge Entity and of all other circumstances bearing
upon the risk of non-payment of the Obligations, and the Pledgee shall have no
duty to advise the Pledgor of information known to the Pledgee regarding such
condition or any such circumstance. The Pledgee shall have no duty to inquire
into the powers of a Pledge Entity or its officers, directors, managers,
members, partners or agents thereof acting or purporting to act on its behalf.
Taxes and Expenses. The Pledgor will jointly and severally pay to the
Pledgee within the Applicable Time Frame (as hereafter defined) (a) any taxes
(excluding income taxes, franchise taxes or other taxes levied on gross
earnings, profits or the like of the Pledgee) payable or ruled payable by any
Governmental Authority (as defined in the Security Agreement) in respect of this
Agreement, together with interest and penalties, if any, and (b) all expenses,
including the fees and expenses of counsel for the Pledgee and of any experts
and agents that the Pledgee may incur in connection with (i) the administration,
modification or amendment of this Agreement, (ii) the custody or preservation
of, or the sale of, collection from, or other realization upon, any of the
Pledged Collateral, (iii) the exercise or enforcement of any of the rights of
the Pledgee hereunder, or (iv) the failure of the Pledgor to perform or observe
any of the provisions hereof. For purposes hereof, the term "Applicable Time
Frame" means the earlier of (a) ten (10) days after the Pledgee's written demand
for such payment and (b) the date set forth in the Pledgee's written demand for
such payment if such payment is required to be made by the Pledgee prior to the
ten (10) day period referred to in the foregoing clause "(a)."
The Pledgee Appointed Attorney-In-Fact. The Pledgor hereby irrevocably
appoints the Agent as such Pledgor's attorney-in-fact, with full authority in
the place and stead of such Pledgor and in the name of such Pledgor or
otherwise, from time to time in the Pledgee's discretion, to take any action and
to execute any instrument that the Pledgee deems reasonably necessary or
advisable to accomplish the purposes of this Agreement, including, without
limitation, to receive, endorse and collect all instruments made payable to such
Pledgor representing any dividend, interest payment or other distribution in
9
respect of the Pledged Collateral or any part thereof and to give full discharge
for the same, when and to the extent permitted by this Agreement; provided that
the power of attorney granted hereunder shall only be exercised by the Pledgee
after the occurrence and during the continuance of an Event of Default.
Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in New York County, New York, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing by registered or certified mail a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof ten (10) business days after the mailing thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. Notwithstanding the foregoing, the Pledgee may enforce
its rights and remedies in any other jurisdiction applicable to the Pledged
Collateral. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which together shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile, .pdf or
similar electronically transmitted signature shall be considered due execution
and shall be binding upon the signatory thereto with the same force and effect
as if the signature were an original signature.
Headings. The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.
Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
ENTIRE AGREEMENT; AMENDMENTS. THIS AGREEMENT, TOGETHER WITH THE OTHER
TRANSACTION DOCUMENTS, SUPERSEDES ALL OTHER PRIOR ORAL OR WRITTEN AGREEMENTS
BETWEEN THE PLEDGOR, THE PLEDGEE, THEIR AFFILIATES AND PERSONS ACTING ON THEIR
BEHALF WITH RESPECT TO THE MATTERS DISCUSSED HEREIN, AND THIS AGREEMENT,
TOGETHER WITH THE OTHER TRANSACTION DOCUMENTS AND THE OTHER INSTRUMENTS
REFERENCED HEREIN AND THEREIN, CONTAIN THE ENTIRE UNDERSTANDING OF THE PARTIES
WITH RESPECT TO THE MATTERS COVERED HEREIN AND THEREIN AND, EXCEPT AS
10
SPECIFICALLY SET FORTH HEREIN OR THEREIN, NEITHER THE PLEDGEE NOR THE PLEDGOR
MAKES ANY REPRESENTATION, WARRANTY, COVENANT OR UNDERTAKING WITH RESPECT TO SUCH
MATTERS. AS OF THE DATE OF THIS AGREEMENT, THERE ARE NO UNWRITTEN AGREEMENT
BETWEEN THE PARTIES WITH RESPECT TO THE MATTERS DISCUSSED HEREIN. EXCEPT AS SET
FORTH IN SECTION 2(A) HEREOF, NO PROVISION OF THIS AGREEMENT MAY BE AMENDED,
MODIFIED OR SUPPLEMENTED OTHER THAN BY AN INSTRUMENT IN WRITING SIGNED BY THE
PLEDGOR AND THE PLEDGEE.
Notices. All notices, approvals, requests, demands and other communications
hereunder shall be delivered or made in the manner set forth in, and shall be
effective in accordance with the terms of, the Purchase Agreement, in the case
of communications to the Agent, directed to the notice address set forth in the
Security Agreement.
Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns,
including any purchasers of the Notes. The Pledgor shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Pledgee. The Pledgee may assign its rights hereunder without the
consent of each holder of any Notes, in which event such assignee shall be
deemed to be the Pledgee hereunder with respect to such assigned rights.
No Third Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
person or entity.
Survival. All representations, warranties, covenants and agreements of the
Pledgor and the Pledgee shall survive the execution and delivery of this
Agreement.
Further Assurances. The Pledgor agrees that it will, at any time and from
time to time upon the written request of the Pledgee, execute and deliver all
assignments separate from certificates or stock powers, financing statements and
such further documents and do such further acts and things as the Pledgee may
reasonably request consistent with the provisions hereof in order to carry out
the intent and accomplish the purpose of this Agreement and the consummation of
the transactions contemplated hereby.
No Strict Construction. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
Pledgee Authorized. The Pledgor hereby authorizes the Pledgee to file one
or more financing or continuation statements and amendments thereto (or similar
documents required by any laws of any applicable jurisdiction) relating to all
or any part of the Pledged Interests or other Pledged Collateral without the
signature of such Pledgor.
11
Pledgee Acknowledgement. The Pledgor acknowledges receipt of an executed
copy of this Agreement. The Pledgor waives the right to receive any amount that
it may now or hereafter be entitled to receive (whether by way of damages, fine,
penalty, or otherwise) by reason of the failure of the Pledgee to deliver to the
Pledgor a copy of any financing statement or any statement issued by any
registry that confirms registration of a financing statement relating to this
Agreement.
Agent. The terms and provisions of the Securities Purchase Agreements which
set forth the appointment of the Pledgee as Agent and the terms and provisions
of the Security Agreement which set forth the indemnifications to which the
Agent is entitled are hereby incorporated by reference herein as if fully set
forth herein.
[Signature Page Follows]
12
IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to
be duly executed and delivered by their duly authorized officers on the date
first above written.
PLEDGOR:
ESPORTS ENTERTAINMENT GROUP, INC.,
a Nevada corporation
By:
-----------------------------------
Name: Grant Johnson
Title:Chief Executive Officer
PLEDGEE:
CAVALRY FUND I LP, a Delaware limited
partnership, in its capacity as agent
for the Purchasers
By: Cavalry Fund I Management LLC
Its General Partner
By:
--------------------------------------
Name: Thomas P. Walsh
Title: Manager
13
ACKNOWLEDGEMENT
Each of the undersigned hereby (i) acknowledges receipt of a copy of the
foregoing Pledge Agreement, (ii) waives any rights or requirement at any time
hereafter to receive a copy of such Pledge Agreement in connection with the
registration of any Pledged Interests (as defined therein) in the name of the
Pledgee or its nominee or the exercise of voting rights by the Pledgee and (iii)
agrees promptly to note on its books and records the grant of the security
interest in the stock or other equity interests of the undersigned as provided
in such Pledge Agreement.
Dated: November __, 2018
ESPORTS ENTERTAINMENT GROUP, INC., a Nevada
corporation
By: ____________________________
Name: Grant Johnson
Title: Chief Executive Officer
ESPORTS SERVICES ANTIGUA, LTD., an Antigua
corporation
By: ____________________________
Name: Grant Johnson
Title: President and Chief Executive Officer
VIE ESPORTS SERVICES B.V., a Curacao corporation
By: ____________________________
Name: Grant Johnson
Title: President and Chief Executive Officer
ESPORTS SERVICES (MALTA) LIMITED, a Malta
corporation
By: ____________________________
Name: Grant Johnson
Title: President and Chief Executive Officer
14
ESPORTS ENTERTAINMENT (MALTA) LTD., a Malta
corporation
By: ____________________________
Name: Grant Johnson
Title: President and Chief Executive Officer
15
EX-10
7
form8k203ex106nov-18.txt
EXHIBIT 10.6
EXHIBIT 10.6
SUBSIDIARY GUARANTY
This SUBSIDIARY GUARANTY (as amended, restated, supplemented, or otherwise
modified and in effect from time to time, this "Guaranty") is made as of
November __, 2018, jointly and severally, between Esports Entertainment Group,
Inc., a Nevada corporation ("Esports") and Esports Services Antigua Ltd., Vie
Esports Services B.V., Esports Services (Malta) Limited and Esports
Entertainment (Malta) Ltd., (collectively the "Subsidiary" and, together with
Esports, the "Companies") (the Subsidiary together with each other person or
entity who becomes a party to this Guaranty by execution of a joinder in the
form of Exhibit A attached hereto, which shall include all wholly-owned or
majority-owned subsidiaries of Esports acquired after the date hereof for so
long as this Guaranty remains in effect, shall each referred to individually as
a "Guarantor" and collectively as the "Guarantors"); in favor of the Purchasers
listed on the signature pages of that certain Securities Purchase Agreement
dated November __, 2018 (each, a "Purchaser", and together with its successors
and assigns and each other purchaser of a Note (as defined below) and their
respective successors and assigns, individually and collectively, the
"Purchasers"), and Cavalry Fund I LP, a Delaware limited partnership, as agent
for the Purchasers (the "Agent").
WHEREAS, the Purchasers have made (the "Loans") to Esports as evidenced by
those certain senior convertible notes dated November __, 2018 (the "Closing
Date") in an original aggregate principal amount of $_________ (such notes,
together with any promissory notes or other securities issued in exchange or
substitution therefor or replacement thereof, and as any of the same may be
amended, supplemented, restated or modified and in effect from time to time, the
"Notes"), all of which shall be issued at the Closing Date;
WHEREAS, the Notes are being acquired by the Purchasers pursuant to a
Securities Purchase Agreement dated as of the Closing Date hereof among the
Purchasers and Esports (as the same may be amended, restated, supplemented or
otherwise modified from time to time, the "Purchase Agreement");
WHEREAS, pursuant to a Pledge Agreement dated as of the Closing Date,
Esports has granted to the Agent a lien on and security interest in all of the
issued and outstanding equity interests of the Subsidiary;
WHEREAS, pursuant to a Security Agreement dated as of the Closing Date (as
the same may be amended, restated, supplemented or otherwise modified and in
effect from time to time, the "Security Agreement") by the Debtors (as defined
therein) in favor of the Agent as Collateral Agent, such Debtors have granted
the Agent, for its benefit and the benefit of the Purchasers, a first priority
security interest in, lien upon and pledge of each of their rights in the
Collateral (as defined in the Security Agreement); and
WHEREAS, the Guarantor is a subsidiary of Esports and, as such, will derive
substantial benefit and advantage from the Loans, the Notes and the other
related agreements (together, the "Transaction Documents").
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NOW, THEREFORE, for and in consideration of the promises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Guarantor hereby jointly and severally agrees as follows:
1. Definitions: Capitalized terms used herein without definition and
defined in the Purchase Agreement are used herein as defined therein. In
addition, as used herein:
"Bankruptcy Code" shall mean the Federal Bankruptcy Reform Act of 1978
(11 U.S.C. ss.101, et seq.), as amended and in effect from time to time
thereunder.
"Obligations" shall mean (i) all obligations, liabilities and
indebtedness of every nature of each Company from time to time owed or
owing to the Purchasers and Agent arising under, out of or in connection
with the Purchase Agreement, the Notes, the Loans and the other Transaction
Documents, including, without limitation, the principal amount of all
debts, claims and indebtedness, accrued and unpaid interest and all fees,
taxes, indemnities, costs and expenses, whether primary, secondary, direct,
contingent, fixed or otherwise, heretofore, now and/or from time to time
hereafter owing, due or payable, whether before or after the filing of a
bankruptcy, insolvency or similar proceeding under applicable federal,
state, foreign or other law and whether or not an allowed claim in any such
proceeding, and (ii) all obligations, liabilities and indebtedness of every
nature of any subsequent Guarantor from time to time owed or owing to the
Purchasers and/or Agent, under or in respect of this Guaranty, the Pledge
Agreement, the Security Agreement, the Purchase Agreement, the Notes, the
Loans and the other Transaction Documents, as the case may be, including,
without limitation, the principal amount of all debts, claims and
indebtedness, accrued and unpaid interest and all fees, taxes, indemnities,
costs and expenses, whether primary, secondary, direct, contingent, fixed
or otherwise, heretofore, now and/or from time to time hereafter owing, due
or payable, whether before or after the filing of a bankruptcy, insolvency
or similar proceeding under applicable federal, state, foreign or other law
and whether or not an allowed claim in any such proceeding.
2. Guaranty of Payment
(a) Each Guarantor, jointly and severally, hereby unconditionally and
irrevocably guarantees the full and prompt payment and performance to Purchasers
and Agent, on behalf of itself and in its capacity as agent for the benefit of
Purchasers, when due, upon demand, at maturity or by reason of acceleration or
otherwise and at all times thereafter, of any and all of the Obligations.
(b) Each Guarantor acknowledges that valuable consideration supports this
Guaranty, including, without limitation, the consideration set forth in the
recitals above; any extension, renewal or replacement of any of the Obligations;
any forbearance with respect to any of the Obligations or otherwise; any
cancellation of an existing guaranty; any purchase of any Company's assets by
any Purchaser or Agent; or any other valuable consideration.
(c) Each Guarantor agrees that all payments under this Guaranty shall be
made in United States currency and in the same manner as provided for the
Obligations.
2
(d) Notwithstanding any provision of this Guaranty to the contrary, it is
intended that this Guaranty, and any interests, liens and security interests
granted by Guarantors as security for this Guaranty, not constitute a
"Fraudulent Conveyance" (as defined below) in the event that this Guaranty or
such interest is subject to the Bankruptcy Code or any applicable fraudulent
conveyance or fraudulent transfer law or similar law of any state. Consequently,
Guarantors, Agent and Purchasers agree that if this Guaranty, or any such
interests, liens or security interests securing this Guaranty, would, but for
the application of this sentence, constitute a Fraudulent Conveyance, this
Guaranty and each such lien and security interest shall be valid and enforceable
only to the maximum extent that would not cause this Guaranty or such interest,
lien or security interest to constitute a Fraudulent Conveyance, and this
Guaranty shall automatically be deemed to have been amended accordingly at all
relevant times. For purposes hereof, "Fraudulent Conveyance" means a fraudulent
conveyance under Section 548 of the Bankruptcy Code or a fraudulent conveyance
or fraudulent transfer under the provisions of any applicable fraudulent
conveyance or fraudulent transfer law or similar law of any state, as in effect
from time to time.
3. Costs and Expenses. The Company and each Guarantor, jointly and
severally, agrees to pay on demand, all reasonable costs and expenses of every
kind incurred by any Purchaser or Agent: (a) in enforcing this Guaranty, (b) in
collecting any of the Obligations from any Company or any Guarantor, (c) in
realizing upon or protecting or preserving any collateral for this Guaranty or
for payment of any of the Obligations, and (d) in connection with any amendment
of, modification to, waiver or forbearance granted under, or enforcement or
administration of any Transaction Document or for any other purpose in
connection with any Transaction Document, in each case, to the extent Purchaser
or Agent may take such action pursuant to the terms and conditions of this
Agreement. "Costs and expenses" as used in the preceding sentence shall include,
without limitation, reasonable attorneys' fees incurred by any Purchaser or
Agent in retaining legal counsel for advice, suit, appeal, any insolvency or
other proceedings under the Bankruptcy Code or otherwise, or for any purpose
specified in the preceding sentence.
4. Nature of Guaranty: Continuing, Absolute and Unconditional.
(a) This Guaranty is and is intended to be a continuing guaranty of payment
of the Obligations, and not of collectability, and is intended to be independent
of and in addition to any other guaranty, endorsement, collateral or other
agreement held by Purchasers or Agent therefor or with respect thereto, whether
or not furnished by a Guarantor. None of Purchasers and Agent shall be required
to prosecute collection, enforcement or other remedies against any Company, any
other Guarantor or guarantor of the Obligations or any other person or entity,
or to enforce or resort to any of the Collateral or other rights or remedies
pertaining thereto, before calling on a Guarantor for payment. The obligations
of each Guarantor to repay the Obligations hereunder shall be unconditional.
Guarantor shall have no right to exercise any right of subrogation,
reimbursement, indemnity, exoneration, contribution or any other claim which it
may now or hereafter have against any Company in connection with this Guaranty
until the termination of this Guaranty in accordance with Section 8 below, and
hereby waives any benefit of, and any right to participate in, any security or
collateral given to Purchasers to secure payment of the Obligations, and each
Guarantor agrees that it will not take any action to enforce any obligations of
any Company to such Guarantor prior to the Obligations being finally and
3
irrevocably paid in full in cash, provided that, in the event of the bankruptcy
or insolvency of any Company, to the extent the Obligations have not been
finally and irrevocably paid in full in cash, Agent, for the benefit of itself
and Purchasers, and Purchasers shall be entitled notwithstanding the foregoing,
to file in the name of any Guarantor or in its own name a claim for any and all
indebtedness owing to a Guarantor by such Company (exclusive of this Guaranty),
vote such claim and to apply the proceeds of any such claim to the Obligations.
(b) For the further security of Purchasers and without in any way
diminishing the liability of the Guarantors, following the occurrence and during
the continuance of an Event of Default, all debts and liabilities, present or
future, of the Companies to the Guarantors, and all monies received from any
Company or for its account by the Guarantors in respect thereof shall be
received in trust for Purchasers and Agent and promptly following receipt shall
be paid over to Agent, for its benefit and in its capacity as Agent for the
benefit of Purchasers, until all of the Obligations have been paid in full in
cash. This assignment and postponement is independent of and severable from this
Guaranty and shall remain in full effect whether or not any Guarantor is liable
for any amount under this Guaranty.
(c) This Guaranty is absolute and unconditional and shall not be changed or
affected by any representation, oral agreement, act or thing whatsoever, except
as herein provided. This Guaranty is intended by the Guarantors to be the final,
complete and exclusive expression of the guaranty agreement among the Companies
(as limited by the express terms of this Guaranty), the Guarantors, the Agent
and Purchasers. No modification or amendment of any provision of this Guaranty
shall be effective against any party hereto unless in writing and signed by a
duly authorized officer of such party. This Guaranty, together with the other
Transaction Documents, supersedes all other prior oral or written agreements
between each Purchaser, the Guarantors, the Agent, their Affiliates and Persons
acting on their behalf with respect to the matters discussed herein, and this
Guaranty, together with the other Transaction Documents and the other
instruments referenced herein and therein, contain the entire understanding of
the parties with respect to the matters covered herein and therein and, except
as specifically set forth herein or therein, neither any Guarantor, the Agent
nor any Purchaser makes any representation, warranty, covenant or undertaking
with respect to such matters. As of the date of this Guaranty, there are no
unwritten agreements between the parties with respect to the matters discussed
herein. No provision of this Guaranty may be amended, modified or supplemented
other than by an instrument in writing signed by the parties hereto.
(d) Each Guarantor hereby releases each Company from all, and agrees not to
assert or enforce (whether by or in a legal or equitable proceeding or
otherwise) any, "claims" (as defined in Section 101(5) of the Bankruptcy Code),
whether arising under any law, ordinance, rule, regulation, order, policy or
other requirement of any domestic or foreign Governmental Authority or any
instrumentality or agency thereof, having jurisdiction over the conduct of its
business or assets or otherwise, to which the Guarantors are or would at any
time be entitled by virtue of its obligations hereunder, any payment made
pursuant hereto or the exercise by any Purchaser or Agent of its rights with
respect to the Collateral, including any such claims to which such Guarantors
may be entitled as a result of any right of subrogation, exoneration or
reimbursement.
4
5. Certain Rights and Obligations.
(a) Each Guarantor acknowledges and agrees that Purchasers and Agent, for
its benefit and as agent for the benefit of Purchasers, may, without notice,
demand or any reservation of rights against such Guarantor and without affecting
such Guarantor's obligations hereunder, from time to time:
(i) renew, extend, increase, accelerate or otherwise change the time
for payment of, the terms of or the interest on the Obligations or any part
thereof or grant other indulgences to any Company or others;
(ii) accept from any person or entity and hold collateral for the
payment of the Obligations or any part thereof, and modify, exchange,
enforce or refrain from enforcing, or release, compromise, settle, waive,
subordinate or surrender, with or without consideration, such collateral or
any part thereof;
(iii) accept and hold any endorsement or guaranty of payment of the
Obligations or any part thereof, and discharge, release or substitute any
such obligation of any such endorser or guarantor, or discharge, release or
compromise any Guarantor, or any other person or entity who has given any
security interest in any collateral as security for the payment of the
Obligations or any part thereof, or any other person or entity in any way
obligated to pay the Obligations or any part thereof, and enforce or
refrain from enforcing, or compromise or modify, the terms of any
obligation of any such endorser, guarantor, or person or entity;
(iv) dispose of any and all collateral securing the Obligations in its
reasonable discretion, as it may deem appropriate, and direct the order or
manner of such disposition and the enforcement of any and all endorsements
and guaranties relating to the Obligations or any part thereof as Agent in
its reasonable discretion may determine;
(v) subject to the terms of the Notes, determine the manner, amount
and time of application of payments and credits, if any, to be made on all
or any part of any component or components of the Obligations (whether
principal, interest, fees, costs, and expenses, or otherwise), including,
without limitation, the application of payments received from any source to
the payment of indebtedness other than the Obligations even though
Purchasers might lawfully have elected to apply such payments to the
Obligations or to amounts which are not covered by this Guaranty; and
(vi) take advantage or refrain from taking advantage of any security
or accept or make or refrain from accepting or making any compositions or
arrangements when and in such manner as Agent, in its sole discretion, may
deem appropriate;
and generally do or refrain from doing any act or thing which might
otherwise, at law or in equity, release the liability of such Guarantor as
a guarantor or surety in whole or in part, and in no case shall Purchasers
or Agent be responsible or shall any Guarantor be released either in whole
or in part for any act or omission in connection with Purchasers or Agent
having sold any security at less than its value.
5
(b) Following the occurrence and during the continuance of an Event of
Default, and upon demand by Agent, each Guarantor, jointly and severally, hereby
agrees to pay the Obligations to the extent hereinafter provided and to the
extent unpaid:
(i) without deduction by reason of any setoff, defense (other than
payment) or counterclaim of any Company or any other Guarantor;
(ii) without requiring presentment, protest or notice of nonpayment or
notice of default to any Guarantor, to any Company or to any other person
or entity;
(iii) without demand for payment or proof of such demand or filing of
claims with a court in the event of receivership, bankruptcy or
reorganization of any Company or any other Guarantor;
(iv) without requiring Purchasers or Agent to resort first to any
Company (this being a guaranty of payment and not of collection), to any
other Guarantor, or to any other guaranty or any collateral which
Purchasers or Agent may hold;
(v) without requiring notice of acceptance hereof or assent hereto by
any Purchaser or Agent; and
(vi) without requiring notice that any of the Obligations has been
incurred, extended or continued or of the reliance by any Purchaser or
Agent upon this Guaranty;
all of which each Guarantor hereby waives.
(c) Each Guarantor's obligation hereunder shall not be affected by any of
the following, all of which such Guarantor hereby waives:
(i) any failure to perfect or continue the perfection of any security
interest in or other lien on any collateral securing payment of any of the
Obligations or any Guarantor's obligation hereunder;
(ii) the invalidity, unenforceability, propriety of manner of
enforcement of, or loss or change in priority of any document or any such
security interest or other lien or guaranty of the Obligations;
(iii) any failure to protect, preserve or insure any such collateral;
(iv) failure of a Guarantor to receive notice of any intended
disposition of such collateral;
(v) any defense arising by reason of the cessation from any cause
whatsoever of liability of any Company including, without limitation, any
failure, negligence or omission by any Purchaser or Agent in enforcing its
claims against any Company;
6
(vi) any release, settlement or compromise of any obligation of any
Company, any other Guarantor or any other guarantor of the Obligations;
(vii) the invalidity or unenforceability of any of the Obligations;
(viii) any change of ownership of any Company, any other Guarantor or
any other guarantor of the Obligations or the insolvency, bankruptcy or any
other change in the legal status of any Company, any other Guarantor or any
other guarantor of the Obligations;
(ix) any change in, or the imposition of, any law, decree, regulation
or other governmental act which does or might impair, delay or in any way
affect the validity, enforceability or the payment when due of the
Obligations;
(x) the existence of any claim, setoff or other rights which the
Guarantor, any Company, any other Guarantor or guarantor of the Obligations
or any other person or entity may have at any time against any Purchaser,
Agent or any Company in connection herewith or any unrelated transaction;
(xi) any Purchaser's or Agent's election in any case instituted under
chapter 11 of the Bankruptcy Code, of the application of section 1111(b)(2)
of the Bankruptcy Code;
(xii) any use of cash collateral, or grant of a security interest by
any Company, as debtor in possession, under sections 363 or 364 of the
Bankruptcy Code;
(xiii) the disallowance of all or any portion of any of any
Purchaser's or Agent's claims for repayment of the Obligations under
sections 502 or 506 of the Bankruptcy Code;
(xiv) any stay or extension of time for payment by any Company or any
other Guarantor resulting from any proceeding under the Bankruptcy Code or
any similar law; or
(xv) any other fact or circumstance which might otherwise constitute
grounds at law or equity for the discharge or release of a Guarantor from
its obligations hereunder, all whether or not such Guarantor shall have had
notice or knowledge of any act or omission referred to in the foregoing
clauses (i) through (xiv) of this Section 5(c).
6. Representations and Warranties. Each Guarantor further represents and
warrants to Purchasers and Agent that: (a) such Guarantor is a corporation or
other entity duly incorporated or organized, as applicable, validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
formation, as applicable, and has full power, authority and legal right to own
its property and assets and to transact the business in which it is presently
engaged; (b) such Guarantor has full power, authority and legal right to execute
7
and deliver, and to perform its obligations under, this Guaranty, and has taken
all necessary action to authorize the guarantee hereunder on the terms and
conditions of this Guaranty and to authorize the execution, delivery and
performance of this Guaranty; (c) this Guaranty has been duly executed and
delivered by such Guarantor and constitutes a legal, valid and binding
obligation of such Guarantor enforceable against such Guarantor in accordance
with its terms, except to the extent that such enforceability is subject to
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance and
moratorium laws and other laws of general application affecting enforcement of
creditors' rights generally, or the availability of equitable remedies, which
are subject to the discretion of the court before which an action may be
brought; and (d) the execution, delivery and performance by each Guarantor of
this Guaranty do not require any action by or in respect of, or filing with, any
governmental body, agency or official and do not violate, conflict with or cause
a breach or a default under any provision of (i) applicable law or regulation,
(ii) the organizational documents of any Guarantor, (iii) any judgment,
injunction, order, decree or other instrument binding upon it, or (iv) any
agreement binding upon it.
7. Negative Covenants. Each Guarantor covenants with Purchasers and Agent
that such Guarantor shall not grant any security interest in or permit any lien,
claim or encumbrance upon any of its assets in favor of any person or entity
other than liens and security interests in favor of Purchasers and Agent and
Permitted Liens as defined in the Notes. Each Guarantor agrees that it shall not
take any action or engage in any transaction that such Guarantor is prohibited
from taking or engaging in pursuant to the terms of the Purchase Agreement. In
addition, each Guarantor agrees to comply with the terms of the Purchase
Agreement to the same extent that the Company is required to cause the
Guarantors to comply with such terms of the Purchase Agreement. Each Company, by
its signature hereto, hereby acknowledges and agrees that any breach by a
Guarantor of any term or provision of this Guaranty or the Security Agreement,
which is not cured to the Agent's reasonable satisfaction within any applicable
cure or grace period, shall constitute an "Event of Default" under the Note.
8. Termination. This Guaranty shall not terminate until such time, if any,
as (i) all Obligations shall be finally and irrevocably paid in full in cash,
(ii) no Notes shall remain outstanding, (iii) all commitments to lend under the
Purchase Agreement shall have terminated and (iv) there shall exist no other
outstanding payment or reimbursement obligations (other than contingent
indemnification obligations for which no claims shall have been asserted) of
Esports or the Guarantors to the Agent under any of the Transaction Documents.
Thereafter, but subject to the following, Agent, on its behalf and as agent for
Purchasers, shall take such action and execute such documents as the Guarantors
may request (and at the Guarantors' cost and expense) in order to evidence the
termination of this Guaranty. Payment of all of the Obligations owing from time
to time shall not operate as a discontinuance of this Guaranty. Each Guarantor
further agrees that, to the extent that any Company makes a payment or payments
to Purchasers or Agent on the Obligations, or Purchasers or Agent receive any
proceeds of collateral securing the Obligations or any other payments with
respect to the Obligations, which payment or receipt of proceeds or any part
thereof is subsequently invalidated, declared to be fraudulent or preferential,
set aside or required to be returned or repaid to any Company, its estate,
trustee, receiver, debtor in possession or any other person or entity,
including, without limitation, the Guarantors, under any insolvency or
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such payment, return or repayment, the obligation or part thereof
which has been paid, reduced or satisfied by such amount shall be reinstated and
continued in full force and effect as of the date when such initial payment,
reduction or satisfaction occurred, and this Guaranty shall continue in full
8
force notwithstanding any contrary action which may have been taken by any
Purchaser or Agent in reliance upon such payment, and any such contrary action
so taken shall be without prejudice to any Purchaser's or Agent's rights under
this Guaranty and shall be deemed to have been conditioned upon such payment
having become final and irrevocable. Upon satisfaction of the Obligations the
Guarantors' obligations under this Agreement shall immediately terminate and the
Guaranty shall be void.
9. Guaranty of Performance. Each Guarantor also guarantees the full, prompt
and unconditional performance of all obligations and agreements of every kind
owed or hereafter to be owed by the Companies and the Guarantors to Purchasers
and Agent under the Purchase Agreement, the Notes, and the other Transaction
Documents. Every provision for the benefit of Purchasers and Agent contained in
this Guaranty shall apply to the guaranty of performance given in this
paragraph.
10. Assumption of Liens and Obligations. To the extent that a Guarantor has
received or shall hereafter receive distributions or transfers from any Company
of property or cash that are subject, at the time of such contribution, to liens
and security interests in favor of Purchasers and/or the Agent in accordance
with the Notes, the Security Agreements or any other Transaction Document, such
Guarantor hereby expressly agrees that (i) it shall hold such assets subject to
such liens and security interests, and (ii) it shall be liable for the payment
of the Obligations secured thereby. Each Guarantor's obligations under this
Section 10 shall be in addition to its obligations as set forth in other
sections of this Guaranty and not in substitution therefor or in lieu thereof.
11. Miscellaneous.
(a) The terms "Company" and "Guarantor" as used in this Guaranty shall
include: (i) any successor individual or individuals, association, partnership,
limited liability company or corporation to which all or substantially all of
the business or assets of such Company or such Guarantor shall have been
transferred and (ii) any other association, partnership, limited liability
company, corporation or entity into or with which such Company or such Guarantor
shall have been merged, consolidated, reorganized, or absorbed.
(b) Without limiting any other right of any Purchaser or Agent, whenever
any Purchaser or Agent has the right to declare any of the Obligations to be
immediately due and payable (whether or not it has been so declared), Agent, on
its behalf and in its capacity as agent for the benefit of Purchasers, at its
sole election without notice to the undersigned may appropriate and set off
against the Obligations:
(i) any and all indebtedness or other moneys due or to become due to
any Guarantor by any Purchaser or Agent in any capacity; and
(ii) any credits or other property belonging to any Guarantor
(including all account balances, whether provisional or final and whether
or not collected or available) at any time held by or coming into the
possession of any Purchaser or Agent, or any affiliate of any Purchaser or
Agent, whether for deposit or otherwise;
9
whether or not the Obligations or the obligation to pay such moneys owed by
any Purchaser or Agent is then due, and the applicable Purchaser or Agent
shall be deemed to have exercised such right of set off immediately at the
time of such election even though any charge therefor is made or entered on
such Purchaser's or Agent's records subsequent thereto. Agent agrees to
notify such Guarantor in a reasonably practicable time of any such set-off;
however, failure to so notify such Guarantor shall not affect the validity
of any set-off.
(c) Each Guarantor's obligation hereunder is to pay the Obligations in
full in cash when due according to the Notes, the other Transaction
Documents, this Guaranty and the other agreements, documents and
instruments governing the Obligations to the extent provided herein, and
shall not be affected by any stay or extension of time for payment by any
Company or any other Guarantor resulting from any proceeding under the
Bankruptcy Code or any similar law.
(d) No course of dealing between any Company or any Guarantor and
Purchasers or Agent and no act, delay or omission by Purchasers or Agent in
exercising any right or remedy hereunder or with respect to any of the
Obligations shall operate as a waiver thereof or of any other right or
remedy, and no single or partial exercise thereof shall preclude any other
or further exercise thereof or the exercise of any other right or remedy.
Any Purchaser or Agent may remedy any default by any Company under any
agreement with any Company or with respect to any of the Obligations in any
reasonable manner without waiving the default remedied and without waiving
any other prior or subsequent default by any Company. All rights and
remedies of Purchasers and Agent hereunder are cumulative.
(e) This Guaranty shall inure to the benefit of the parties hereto and
their respective successors and assigns.
(f) Agent may assign its rights hereunder, with the consent of all of
the Purchasers, without the consent of Guarantors, in which event such
assignee shall be deemed to be Agent hereunder with respect to such
assigned rights.
(g) Captions of the sections of this Guaranty are solely for the
convenience of the parties hereto, and are not an aid in the interpretation
of this Guaranty and do not constitute part of the agreement of the parties
set forth herein.
(h) If any provision of this Guaranty is unenforceable in whole or in
part for any reason, the remaining provisions shall continue to be
effective.
(i) All questions concerning the construction, validity, enforcement
and interpretation of this Guaranty shall be governed by the internal laws
of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York. Each Guarantor hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in New York County, New York, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it
10
is not personally subject to the jurisdiction of any such court, that such
suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each Guarantor hereby
irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing by
registered or certified mail a copy thereof to such party at the address
for such notices to it under this Guaranty and agrees that such service
shall constitute good and sufficient service of process and notice thereof
as of the date that is five (5) business days after the mailing thereof.
Nothing contained herein shall be deemed to limit in any way any right to
serve process in any manner permitted by law.
12. Notices. All notices, approvals, requests, demands and other
communications hereunder shall be delivered or made in the manner set forth in,
and shall be effective in accordance with the terms of, the Purchase Agreement
or, in the case of communications to the Agent, directed to the notice address
set forth in the Security Agreement; provided, that any communication shall be
effective as to any Guarantor if made or sent to Esports in accordance with the
foregoing.
13. WAIVERS.
(a) EACH GUARANTOR WAIVES THE BENEFIT OF ALL VALUATION, APPRAISAL AND
EXEMPTION LAWS.
(b) UPON THE OCCURRENCE OF A DEFAULT OR EVENT OF DEFAULT, EACH
GUARANTOR HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND PRIOR
TO THE EXERCISE BY ANY PURCHASER OR AGENT, ON ITS BEHALF AND IN ITS
CAPACITY AS AGENT FOR THE BENEFIT OF PURCHASERS, OF ITS RIGHTS TO REPOSSESS
THE COLLATERAL WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON
THE COLLATERAL WITHOUT PRIOR NOTICE OR HEARING. EACH GUARANTOR ACKNOWLEDGES
THAT IT HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS
TRANSACTION AND THIS GUARANTY.
(c) EACH GUARANTOR WAIVES ITS RIGHTS TO A TRIAL BY JURY OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
GUARANTY, OR THE TRANSACTIONS CONTEMPLATED HEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY PURCHASER OR
AGENT. EACH GUARANTOR AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL
BE TRIED BY A COURT WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, EACH
GUARANTOR FURTHER AGREES THAT ITS RIGHT TO A TRIAL BY JURY IS WAIVED BY
OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER
PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS GUARANTY OR ANY PROVISION HEREOF. THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS GUARANTY.
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14. Agent. The terms and provisions of the Purchase Agreement which set
forth the appointment of the Agent and the terms and provisions of the Security
Agreement which set for the indemnifications to which the Agent is entitled are
hereby incorporated by reference herein as if fully set forth therein.
15. Payments Free of Taxes.
(a) Definitions. In this Section 15:
(i) "Excluded Taxes" means, with respect to the Agent or the
Purchasers, or any other recipient of any payment to be made by or on
account of any obligations of any Guarantor under this Guaranty, or
under any other Security Document, income or franchise taxes imposed
on (or measured by) its net income by the United States of America or
such other jurisdiction under the laws of which such recipient is
organized or in which its principal office is located.
(ii) "Governmental Authority" means the government of the United
States of America or any other nation, or any political subdivision
thereof, whether state or local, or any agency, authority,
instrumentality, regulatory body, court, central bank or other entity
exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government over
any of the Companies, or any of their respective properties, assets or
undertakings.
(iii) "Indemnified Taxes" means Taxes other than Excluded Taxes.
(iv) "Taxes" means any and all present or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any
Governmental Authority.
(b) Any and all payments by or on account of the Obligations of any of
the Guarantors under this Guaranty or any other Transaction Document shall
be made without any set-off, counterclaim or deduction and free and clear
of and without deduction for any Indemnified Taxes; provided that if any
Guarantor shall be required to deduct any Indemnified Taxes from such
payments, then (i) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section 15(b)), the Agent or Purchasers,
as applicable, receives an amount equal to the sum it would have received
had no such deductions been made, (ii) such Guarantor shall make such
deductions and (iii) such Guarantor shall pay the full amount deducted to
the relevant Governmental Authority in accordance with applicable law.
16. Indemnification by the Guarantors. Each Guarantor shall indemnify the
Agent and the Purchasers, within ten (10) days after written demand therefor,
for the full amount of any Indemnified Taxes paid by the Agent or Purchasers, as
applicable, on or with respect to any payment by or on account of any obligation
of such Guarantor under this Guaranty and the other Transaction Documents
(including Indemnified Taxes or imposed or asserted on or attributable to
amounts payable under this Section 16) and any penalties, interest and
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reasonable expenses including reasonable attorneys fees arising therefrom or
with respect thereto, whether or not such Indemnified Taxes were correctly or
legally imposed or asserted by the relevant Governmental Authority. A
certificate of the Agent or any Purchaser as to the amount of such payment or
liability under this Section 16 shall be delivered to such Guarantor and shall
be conclusive absent manifest error.
17. Counterparts; Headings. This Guaranty may be executed in two or more
identical counterparts, all of which together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to each other party; provided that a facsimile, .pdf or
similar electronically transmitted signature shall be considered due execution
and shall be binding upon the signatory thereto with the same force and effect
as if the signature were an original signature. The headings in this Guaranty
are for convenience of reference only and shall not alter or otherwise affect
the meaning hereof.
18. Rights of Contribution. The Guarantors hereby agree as among themselves
that, if any Guarantor shall make an Excess Payment (as defined below), such
Guarantor shall have a right of contribution from each other Guarantor in an
amount equal to such other Guarantor's Contribution Share (as defined below) of
such Excess Payment. The payment obligations of any Guarantor under this Section
18 shall be subordinate and subject in right of payment to the Obligations until
such time as the Obligations have been paid in full in cash, and none of the
Guarantors shall exercise any right or remedy under this Section 18 against any
other Guarantor until such Obligations have been paid in full in cash. For
purposes of this Section 18, (a) "Excess Payment" shall mean the amount paid by
any Guarantor in excess of its Ratable Share of any Obligations; (b) "Ratable
Share" shall mean, for any Guarantor in respect of any payment of Obligations,
the ratio (expressed as a percentage) as of the date of such payment of
Obligations of (i) the amount by which the aggregate present fair salable value
of all of its assets and properties exceeds the amount of all debts and
liabilities of such Guarantor (including contingent, subordinated, unmatured,
and unliquidated liabilities, but excluding the obligations of such Guarantor
hereunder) to (ii) the amount by which the aggregate present fair salable value
of all assets and other properties of the Companies and the Guarantors exceeds
the amount of all of the debts and liabilities (including contingent,
subordinated, unmatured, and unliquidated liabilities, but excluding the
obligations of the Guarantors hereunder) of the Companies and the Guarantors,
provided, however, that, for purposes of calculating the Ratable Shares of the
Guarantors in respect of any payment of Obligations, any Guarantor that became a
Guarantor subsequent to the date of any such payment shall be deemed to have
been a Guarantor on the date of such payment and the financial information for
such Guarantor as of the date such Guarantor became a Guarantor shall be
utilized for such Guarantor in connection with such payment; and (c)
"Contribution Share" shall mean, for any Guarantor in respect of any Excess
Payment made by any other Guarantor, the ratio (expressed as a percentage) as of
the date of such Excess Payment of (i) the amount by which the aggregate present
fair salable value of all of its assets and properties exceeds the amount of all
debts and liabilities of such Guarantor (including contingent, subordinated,
unmatured, and unliquidated liabilities, but excluding the Obligations) of the
Companies and the Guarantors other than the maker of such Excess Payment;
provided, however, that, for purposes of calculating the Contribution Shares of
the Guarantors in respect of any Excess Payment, any Guarantor that became a
Guarantor subsequent to the date of any such Excess Payment shall be deemed to
have been a Guarantor on the date of such Excess Payment and the financial
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information for such Guarantor as of the date such Guarantor became a Guarantor
shall be utilized for such Guarantor in connection with such Excess Payment.
This Section 18 shall not be deemed to affect any right of subrogation,
indemnity, reimbursement or contribution that any Guarantor may have under law
against any Company in respect of any payment of Obligations.
[Signature page follows]
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IN WITNESS WHEREOF, each Company and the Guarantors have executed this
Guaranty as of the date first written above.
ESPORTS ENTERTAINMENT GROUP, INC.,
a Nevada corporation
By:___________________
Name:
Title:
ESPORTS SERVICES ANTIGUA, LTD., an Antigua corporation
By: ____________________________
Name: Grant Johnson
Title: President and Chief Executive Officer
VIE ESPORTS SERVICES B.V., a Curacao corporation
By: ____________________________
Name: Grant Johnson
Title: President and Chief Executive Officer
ESPORTS SERVICES (MALTA) LIMITED, a Malta corporation
By: ____________________________
Name: Grant Johnson
Title: President and Chief Executive Officer
ESPORTS ENTERTAINMENT (MALTA) LTD., a Malta corporation
By: ____________________________
Name: Grant Johnson
Title: President and Chief Executive Officer
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EXHIBIT A
Form of Joinder to
Subsidiary Guaranty
This Joinder Agreement is made between the undersigned, __________ a
__________ __________, (the "New Subsidiary") and Cavalry Fund I LP, a Delaware
limited partnership, as agent under that certain Guaranty dated as of November
___, 2018 by and between Esports Entertainment Group, Inc., a Nevada
corporation, and ____________, a ________ _______; together with each other
person or entity that becomes a Guarantor thereunder after the date and pursuant
to the terms thereof, to and in favor of the Purchasers (as amended, restated,
supplemented or otherwise modified from time to time, the "Guaranty").
Capitalized terms herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Guaranty.
1. The New Subsidiary hereby acknowledges, agrees and confirms that, by its
execution of this Agreement, the New Subsidiary will be deemed to be a party to
the Guaranty and a "Guarantor" for all purposes of the Guaranty, and shall have
all of the obligations of a Guarantor thereunder as if it had executed the
Guaranty. The New Subsidiary hereby ratifies, as of the date hereof, and agrees
to be bound by, all of the terms, provisions and conditions applicable to the
Guarantors contained in the Guaranty. Without limiting the generality of the
foregoing terms of this paragraph 1, the New Subsidiary hereby jointly and
severally together with the other Guarantors, guarantees to Purchasers and
Agent, as provided in the Guaranty, the prompt payment and performance of the
Obligations (as defined in the Guaranty) in full when due (whether at stated
maturity, as a mandatory prepayment, by acceleration or otherwise) strictly in
accordance with the terms thereof.
2. The New Subsidiary represents and warrants that the representations and
warranties set forth in Section 6 of the Guaranty are, with respect to the
undersigned, true and correct as of the date hereof.
3. From and after the date hereof, each reference to a Guarantor in the
Guaranty shall be deemed to include the undersigned.
4. This Agreement may be executed in multiple counterparts, each of which
shall constitute an original but all of which when taken together shall
constitute one contract.
5. THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW
PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION)
THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE
STATE OF NEW YORK.
[Signature page follows]
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IN WITNESS WHEREOF, the undersigned has executed this Joinder this ___ day
of ___________, 201___.
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