EXECUTION COPY
MASTER EXCHANGE AGREEMENT
MASTER EXCHANGEAGREEMENT(this“Agreement”), datedasofApril
3, 2014,byandamongPetron Energy II,Inc., acorporation incorporated underthelawsoftheState of Nevada, withitsprincipalplace ofbusinesslocatedat 17950PrestonRoad, Suite 960, Dallas, Texas 75252(the “Company”)andMagna Group,LLC, aTexaslimitedliabilitycompany(the“Creditor”).
WHEREAS:
A.TheCompanyandtheCreditorareexecutinganddeliveringthis
Agreement inrelianceupon theexemption from securities registrationaffordedbySection
4(a)(2) oftheSecurities Actof1933,asamended(the“Securities Act”)andRule144(d)(3)(ii) oftheSecurities Act,as promulgatedby theUnitedStatesSecuritiesandExchange Commission (the “SEC”) under theSecurities Act.
B.Asofthedatehereof,theCreditor holdssuchaggregate principalamount ofconvertible notesoftheCompanyas setforth onthesignature pageoftheCreditor (the“InitialExistingDebt”,andtheamount owingpursuant thereto,the“InitialDebtAmount”), which Existing DebttheCreditorpurchased fromTCAGlobalCredit MasterFund,LP(the“Original Creditor”),pursuanttoa Claims PurchaseAgreement, datedas of April1,2014, between the Creditorand the Original Creditor, with options (each, a“Put Option”) toacquire up to $118,268 ofadditionalconvertible notes of the Company (the “Additional Debt”,and together withthe Initial Existing Debt,the “ExistingDebt”),andtheamountowing pursuantto theAdditional Debt,the“Additional DebtAmount”,and together withtheInitial Debt Amount, the“DebtAmount”)asdescribed onSchedule Iattachedhereto (the“OptionSchedule”).
C.TheCompanyandtheCreditordesiretoenterintothisAgreement, pursuanttowhich,among otherthings, theCreditor shallexchange,attheoptionoftheCreditor fromtime totime,inwholeorinpart, theInitial Existing Debt (and,followingeachexerciseofaPut Option,therelated AdditionalDebtas described ontheOptionSchedule) for sharesofthe Company’scommonstock,$0.0001par valueper share (the“CommonStock”),asprovided hereunder inrelianceontheexemption fromregistration providedbySection 4(a)(2) oftheSecurities Act.
NOW, THEREFORE,inconsideration of the foregoingrecitalsandthemutual promises hereinafter setforth, the Companyand the Creditor herebyagreeas follows:
1.EXCHANGES OFEXISTING DEBT.Atany timeduringtheperiodcommencing onthedate hereofandending onthe datenoExisting Debtremainsoutstanding (the“Exchange Period”), the Company hereby grants the Creditoran option, subject tosection
1(d) below,toexchange (each,an“Exchange”)all,orany part,of theExisting Debtinto validly issued,fully paidandnon-assessable sharesofCommonStock(as definedbelow)(collectively, the“ExchangeShares”), onthetermsandconditions setforth inthisSection 1. Certaincapitalized terms used herein are defined inSection 1(h).
(a)Exchange Right.SubjecttotheprovisionsofSection 1(d),atany time ortimesduringtheExchangePeriod,theCreditor shallbeentitled toexchangeanyportion
of theoutstandingandunpaid Existing Debtinto validly issued,fullypaidandnon-assessable sharesof Common Stock inaccordance with Section 1(c),atthe Exchange Rate (asdefined below). TheCompanyshall notissueanyfraction ofashare ofCommonStock uponany Exchange.Iftheissuance wouldresultintheissuance ofafractionof a shareof CommonStock, the Company shall round such fraction of a share of CommonStock up to thenearest whole share.TheCompany shallpayanyandall transfer,stamp,issuanceandsimilar taxesthatmaybe payablewithrespect totheissuanceanddelivery ofCommonStockuponExchange ofExisting Debt.
(b)Exchange Rate.The number of shares of Common Stock issuable uponexchange ofany ExistingDebtpursuant toSection 1(a)shall bedeterminedbydividing (x) theExchange Amount(as definedbelow)with respectto suchExistingDebtby(y) theExchangePrice(the “Exchange Rate”).
(i)“Exchange Amount”means, withrespect tosuchExisting Debttobeexchanged hereunder, thesumof(I)theapplicable DebtAmountof the Existing Debt tobeexchanged hereunder, theInterest Amountwithrespect theretoandany otheramountsowedby theCompany totheCreditorthereunder(the“Debt ExchangeAmount”);(II)the totaldollaramount of the Creditor’saccruedandunpaid legalfeesandexpenses then outstanding, whichshall notexceed the sumof (x) $30,000 (less $5,000previouslypaid)and(y)aftertheexercise ofeachPutOption,anadditional
$5,000 withrespect thereto (collectively, the “LegalFee ExchangeAmount”);and(III)accruedandunpaidagent feesof $75,000(the“AgentFee Exchange Amount”), whichLegalFeeExchange AmountandAgentFee Exchange Amount,asapplicable, shallbe includedinanExchange Amountwithrespect toanExchange, inwhole or inpart,at the solediscretion oftheCreditor,aselected in theapplicable Exchange Noticeofthe Creditor.
(ii)“Exchange Price”means,foranydateof determination, thelowerof (A)either (x)withrespecttotheapplicable DebtExchangeAmount,45%of thelowest theVWAPoftheCommonStock ofany Trading Day duringtheten(10)consecutive Trading Day periodendingand including the Trading Day immediately preceding suchdateofdetermination or(y) withrespect totheapplicableLegalFee Exchange Amountor AgentFeeExchange Amount,90%ofthelowest the VWAPof the CommonStockofanyTradingDay during thefive(5)consecutive TradingDayperiodendingand including theTradingDay immediately preceding suchdate ofdeterminationand(B) $0.0025(asadjustedforany stocksplit, stockdividend, stockcombination or othersimilar transaction).Allsuch determinations tobeappropriatelyadjusted forany stock split, stock dividend, stockcombination orothersimilar transaction duringany such measuring period.
(iii)“InterestAmount” means,withrespecttoany portionof Existing Debtas ofany ExchangeDate,thegreater of (I)anyaccruedandunpaid interest withrespect tothesuchExisting DebtoutstandingasofsuchExchange Dateunder the termsofsuchExisting Debtand(II)thedifference of(x)thesumof(A)anyaccruedand unpaidinterest outstanding withrespect tothe such Existing DebtasofthedatetheCreditoracquired such Existing Debtand (B)suchaggregateamount ofinterest that
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would haveaccrued undersuchExisting Debtduring theperiodcommencing onthedate theCreditoracquired thesuch Existing Debt throughsuchExchangeDate(asdefined below)assuminganinterest rateof12% perannum,less(y)any interest paidtothe Creditor incash with respectto such Existing Debt prior to such Exchange Date.
(c)Mechanics ofExchange.
(i)OptionalExchange. ToexchangeanyExchange Debtinto sharesofCommonStockonany date (a“Exchange Date”),theCreditor shalldeliver (whetherviafacsimile orotherwise), forreceipt onorpriorto11:59p.m., NewYork time, on such date, acopyofanexecuted noticeofexchange in the formattachedheretoasExhibit I (the “Exchange Notice”) to the Company. On orbefore the first (1st) Trading Day followingthedate of receipt ofan Exchange Notice,the Company shall
transmitbyfacsimileanacknowledgment ofconfirmation, intheformattached heretoasExhibitII,of receiptofsuch Exchange Notice tothe CreditorandtheCompany’s transferagent(the“Transfer Agent”). Onorbefore the second(2nd) TradingDay following the dateofreceiptofanExchange Notice,theCompany shall(1)providedthattheTransfer AgentisparticipatinginTheDepository TrustCompany’s (“DTC”)FastAutomatedSecurities TransferProgram,credit suchaggregate numberof shares of CommonStock towhich the Creditor shallbeentitled tothe Creditor’s or itsdesignee’s balanceaccount with DTCthrough its Deposit/Withdrawalat Custodiansystem or (2) if the Transfer Agentisnotparticipating intheDTCFastAutomatedSecuritiesTransferProgram, issueanddeliver (via reputable overnightcourier) totheaddressasspecified intheExchange Notice,acertificate, registered inthename oftheCreditor or itsdesignee, for thenumber of sharesof CommonStock to which theCreditor shallbe entitled. ThePerson or Persons
entitledtoreceivethesharesof Common StockissuableuponanExchange of the Existing Debtshall betreated forallpurposesastherecordholderor holdersofsuch shares of CommonStock on theExchange Date.
(ii)Company’sFailure toTimely Exchange.IftheCompany shallfail,forany reasonorfornoreason,toissuetothe Creditororitsdesignee within three(3)TradingDaysafterthe Company’sreceipt ofanExchange Notice(whether via facsimile orotherwise)(the“Share Delivery Deadline”), acertificate forthe number of shares of Common Stock towhichthe Creditorisentitledandregister suchshares of CommonStock onthe Company’s share register or tocredit the Creditor’s or its designee’sbalanceaccount withDTCfor such number ofsharesofCommonStockto which theCreditor isentitled upontheCreditor’sexchange ofany ExistingDebt (asthecase may be) (a “ExchangeFailure”), then, inaddition toall other remediesavailable to theCreditor, (1) theCompany shall pay incash to theCreditor oneach dayafter suchShareDelivery Deadline that the issuance of such shares of CommonStock isnottimelyeffectedanamountequal to2% of theproduct of(A) the sumofthe number of sharesof CommonStocknot issued to theCreditor on a timelybasisandtowhich theCreditor isentitled multipliedby (B) the ClosingSalePrice of the CommonStock on the Trading Day immediately precedingthe last possible date which the Companycould have issued such sharesof CommonStock to the Creditorwithout violatingSection 1(c)(i)and (2) the Creditor, uponwritten noticetotheCompany, may voidits Exchange Noticewithrespect to,and retain orhavereturned (as thecase maybe)anyportion of the Existing Debt that
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has notbeenexchanged pursuanttosuchExchange Notice,provided thatthe voiding ofa Exchange Noticeshallnot affecttheCompany’sobligations to make any payments which haveaccrued priortothedate ofsuch noticepursuantto thisSection1(c)(ii) orotherwise.Inaddition totheforegoing, ifonorpriortotheShareDeliveryDeadline, theCompany shall failtoissueanddeliver acertificate tothe Creditorandregister suchshares of Common Stock onthe Company’sshareregister orcredit the Creditor’sor itsdesignee’s balanceaccountwithDTCfor the number ofshares of Common Stock towhichthe Creditor isentitled upontheCreditor’s Exchange hereunder (asthecasemaybe),andif onorafter suchShareDelivery Deadline the Creditorpurchases (inanopenmarket transaction or otherwise) sharesof Common Stock todeliver insatisfaction of asaleby theCreditor oritsdesignee ofallorany portionofthenumberofsharesofCommonStock,orasale ofanumber ofshares ofCommonStockequal toallorany portionofthe number ofshares ofCommon Stock,issuable uponsuch Exchange thattheCreditor orits designeesoanticipated receiving fromtheCompany, then,inaddition toallother remediesavailable totheCreditororitsdesignee, theCompany shall,withinthree(3)Business Daysafterreceipt oftheCreditor’s oritsdesignee’s writtenrequest, paycash to the Creditor or its designee,asapplicable, inanamountequal tothe Creditor’s or its designee’stotalpurchaseprice(including brokeragecommissionsandotherout-of- pocketexpenses,ifany) for thesharesof Common Stock sopurchased(including, without limitation,byany otherPerson in respect, or on behalf, of the Creditor) (the“Buy-InPrice”),atwhich pointtheCompany’s obligation tosoissueanddeliver suchcertificate orcredittheCreditor’s or itsdesignee’s balanceaccount withDTCfor the number ofshares ofCommonStocktowhichthe Creditorisentitled upontheCreditor’sexchange hereunder (as thecase may be)(andtoissue suchshares of CommonStock) shallterminate.
(iii)Book-Entry.Notwithstandinganything tothecontraryset forth in thisSection 1,followingExchange ofany portion oftheExisting Debt inaccordance withthe termshereof, the Creditor shallnotbe required tophysically surrenderanycertificateevidencingtheExisting DebttotheCompany unless (A)the full Exchange Amountrepresentedby theExisting Debtisbeingexchanged(inwhichevent theExisting Debt shall bedelivered totheCompany followingexchange thereofascontemplatedbySection 1(c)(i)) or (B) theCreditor has provided theCompany with prior writtennotice(whichnotice may beincluded inanExchange Notice)requesting reissuance ofacertificate with respect to theExisting Debt uponphysical surrenderofacertificatewithrespectto theExistingDebt.TheCreditorandtheCompany shall maintainrecords showing theamount oftheExisting Debtexchangedand/or paidand/oradjusted (asthecasemaybe)andthedates ofsuchexchangesand/orpaymentsand/oradjustments (as thecase may be) or shall use such other method, reasonablysatisfactory to theCreditorandtheCompany,soasnot to requirephysical surrenderofanycertificate with respectto theExistingDebt upon any Exchange.
(iv)Pro RataExchange; Disputes.Intheeventof a disputeasto thenumberofsharesofCommonStockissuabletotheCreditor inconnection withan ExchangeoftheExistingDebt,theCompany shall issuetotheCreditor thenumberof shares ofCommon Stock notindisputeandresolve suchdispute in accordance withSection 1(e).
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(d)LimitationsonExchanges. Notwithstandinganythingtothecontrarycontained intheExisting Debt,theExistingDebt shallnotbeexchangeableby the Creditorhereof,andtheCompany shallnoteffectanyexchangeoftheExistingDebtor otherwiseissueanyshares ofCommonStockpursuant hereto, totheextent (butonly totheextent)thataftergivingeffect tosuchexchange orother share issuance hereunder theCreditor (together withitsaffiliates) wouldbeneficially owninexcess of9.99%(the“MaximumPercentage”)oftheCommonStock.Totheextent theabovelimitationapplies, the determination ofwhether theExisting Debtshall beexchangeable (vis-à-vis otherconvertible,exercisable orexchangeable securities ownedby the Creditor oranyof itsaffiliates)andof which suchsecurities shallbeconvertible,exercisable orexchangeable (asamongallsuch securitiesownedby theCreditoranditsaffiliates) shall,subjecttosuchMaximumPercentage limitation, bedetermined onthebasis ofthefirst submissiontotheCompany forconversion,exercise orexchange (asthecasemaybe).Nopriorinability toexchange theExisting Debt,orto issueshares ofCommonStock,pursuant tothisparagraph shallhaveanyeffect ontheapplicabilityoftheprovisionsofthis paragraph withrespect toany subsequent determination ofexchangeability.Forpurposes of thisparagraph, beneficial ownershipandalldeterminationsandcalculations (including, withoutlimitation, withrespect tocalculations ofpercentageownership) shall be determined inaccordance with Section 13(d) of theSecuritiesExchange Actof 1934,asamended,and therulesandregulations promulgatedthereunder(the“1934Act”). The provisionsof thisparagraphshallbe implementedina manner otherwise thaninstrictconformity withtheterms ofthisparagraph tocorrect thisparagraph (orany portionhereof) whichmay bedefective orinconsistent withtheintended MaximumPercentage beneficial ownershiplimitation hereincontainedortomakechanges orsupplements necessary ordesirable toproperlygiveeffect tosuchMaximumPercentage limitation.Thelimitationscontainedinthis paragraph shallapply to a successor Creditor of the Existing Debt. The holders of CommonStock shallbethirdparty beneficiaries ofthisparagraphandtheCompanymay not waivethis paragraph withouttheconsent ofholdersofamajority ofitsCommonStock.Foranyreasonatany time,uponthewritten ororalrequest oftheCreditor,theCompanyshallwithin one(1)BusinessDayconfirm orallyand inwriting totheCreditor thenumberofsharesofCommonStock thenoutstanding, includingby virtueofany priorconversion,exchange orexercise ofconvertible orexercisable securitiesintoCommonStock,including, withoutlimitation, pursuant totheExistingDebt or securities issued pursuantto this ExchangeAgreement.
(e)DISPUTE RESOLUTION.Inthecaseof a disputeastothe determination ofany ExchangePrice,anyCompanyOptionalRedemptionPrice,theClosingBidPrice,theClosingSalePriceorfairmarketvalue(asthecasemay be)orthearithmeticcalculation oftheExchange Rate, theCompanyor theCreditor (asthecasemay be)shallsubmit thedisputeddeterminations orarithmeticcalculations (asthecasemaybe) viafacsimile (i) withintwo(2)BusinessDaysafterreceipt oftheapplicable noticegiving risetosuch dispute to theCompanyor theCreditor (asthecasemay be) or(ii)if nonoticegaverisetosuchdispute,atanytimeafter the Creditor learned of thecircumstancesgiving riseto such dispute.If the CreditorandtheCompanyare unable toagree uponsuch determination or calculation withintwo (2)Business Days ofsuchdisputeddetermination orarithmeticcalculation (asthecase maybe) beingsubmitted to theCompanyor the Creditor (as thecase maybe), then the Company shall, withintwo(2)BusinessDays,submitvia facsimile (a)thedisputeddetermination ofany ExchangePrice,any Company OptionalRedemptionPrice,theClosingBidPrice, theClosingSale Priceorfair market value(as thecasemaybe) to an independent, reputableinvestment bank
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selectedby theCompanyandapprovedby theCreditor or(b)thedisputedarithmeticcalculation oftheExchange Ratetoanindependent, outsideaccountant selectedby theCreditor thatis reasonablyacceptable totheCompany. TheCompany shallcauseatitsexpense theinvestment bank ortheaccountant (asthecase maybe) toperform thedeterminations orcalculations (asthecase may be)andnotify theCompanyand theCreditor oftheresults nolaterthanten(10)BusinessDays fromthe time itreceives suchdisputed determinations orcalculations (asthecase may be).Suchinvestmentbank’s oraccountant’s determination orcalculation (asthecasemay be) shall bebinding uponallpartiesabsent demonstrableerror.
(f)INITIALEXCHANGE.Asofthedatehereof(the“Initial Exchange Date”),theCreditor shallbedeemedto havedeliveredanExchange NoticetoeffectanExchange withrespect tosuchaggregate initial DebtExchange Amountand suchinitial ExchangePricesasset forth on the signaturepage of the Creditor.If the Companyfails to deliver the CommonStock with respect to such initialExchange on or prior to theShare DeliveryDeadline withrespect thereto, the Creditor shall have theoption,bydeliveryofwritten notice tothe Company,toterminate thisAgreement. Upon receipt of suchwritten notice of terminationbythe Company, thisAgreement shall bevoid, abinitio,andof noforce oreffect,andsuch DebtExchange AmountshallrevertbacktoCreditor (forfurther re-assignmentand reversion totheOriginal Creditor)and shallbeandremainavalidandeffective Existing Debt of theCompany,enforceable inaccordance withitsterms,and suchExisting Debt(including, without limitation,allcollateraland security rights relating thereto) shall not bedeemedorconstruedashaving beenexchanged, settled,compromised, modified,satisfied orotherwise impaired inany manner whatsoever, notwithstandingtheexecution ofthis Agreement by the parties hereto. Theforegoing shallbeeffectiveandapplicable notwithstandinganyreleases included in this Agreement, orany otherterms orprovisions ofthis Agreement,and this provision shallcontrol andsupersedeany otherterms or provisions of this Agreement.
(g)COMPANYOPTIONALREDEMPTION. NotwithstandinganythingsetforthintheExisting Debttothecontrary, theCompanyandtheCreditor herebyagree that the Existing Debt heldby the Creditor may be prepaid, in whole or in part,at a redemption price, incash,equal to theCompany Optional RedemptionPrice,at theoption ofthe Companyatanytime,bythe Companydeliveringan irrevocable written notice thereof by facsimileand overnightcouriertothe Creditor (the“Company OptionalRedemption Notice”and thedate the Holder receives suchnotice isreferred toasthe “Company Optional RedemptionNoticeDate”);provided,thateither (x)allAdditionalDebtshallhavebeenacquired by the Creditor on or prior to such Company Optional Redemption Notice Date or(y) on orpriorto theapplicableCompany Optional Redemption Date(as defined below),all Additional Debt thenheldby theOriginal Creditor shall havebeeneither paid in full by the Company orpurchasedby theCreditor. TheCompany may deliver onlyoneCompany Optional Redemption Noticeinany ninety (90)day period. TheCompany Optional Redemption Notice shall (x)state the date on which the Company Optional Redemption shalloccur (the “Company Optional Redemption Date”) whichdate shall not be less than sixty(60)calendardays nor morethanninety (90)calendardays followingtheCompany Optional Redemption NoticeDate,and(y) statetheaggregate Debt Amount which is being redeemed in such Company Optional Redemption from theHolder pursuant to thisSection 1(g)ontheCompany OptionalRedemption Date. TheCompany shall deliver theapplicable Company Optional RedemptionPriceto the Creditor incash,inU.S.dollarsandimmediatelyavailable funds, ontheapplicable Company
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Optional Redemption Date. Notwithstandinganythingherein tothecontrary,at anytime prior to thedatetheCompany OptionalRedemptionPriceispaid,infull,theCompany Optional Redemption Amountmaybeexchanged, inwholeorinpart,by theCreditor intoshares of CommonStock pursuanttoSection 1.AllDebt Amountsexchangedby theCreditorafterthe Company OptionalRedemption NoticeDate shallreducetheCompanyOptionalRedemption AmountoftheExisting Debt required tobe redeemed ontheCompany OptionalRedemption Date.
(h)CERTAIN DEFINITIONS.Forpurposesofthis Agreement, the followingtermsshallhavethefollowingmeanings:
(i)“ApprovedStockPlan”meansanyemployee benefitplan whichhas beenapprovedbytheboardofdirectorsoftheCompanypriortoorsubsequent to the date hereof pursuant towhichshares ofCommon Stockandstandard optionsto purchase CommonStock maybeissued toanyemployee, officerordirector forservices provided totheCompanyintheircapacityas such.
(ii)“Bloomberg” meansBloomberg,L.P.
(iii)“BusinessDay”meansanydayotherthanSaturday,Sundayorother dayonwhichcommercial banksinTheCityofNewYorkareauthorized orrequiredbylaw toremain closed.
(iv)“ClosingBidPrice”and“ClosingSalePrice” means,foranysecurityasofany date,thelastclosingbidpriceandlastclosing tradeprice, respectively, forsuchsecurity onthePrincipal Market,asreportedbyBloomberg, or,if thePrincipal Marketbeginstooperate onanextended hoursbasisanddoes notdesignate theclosing bidpriceortheclosing tradeprice (asthecasemay be)thenthelastbidprice orlasttradeprice,respectively, ofsuchsecuritypriorto4:00:00p.m.,NewYork time,as reportedbyBloomberg,or,ifthe PrincipalMarketisnottheprincipalsecuritiesexchange ortrading marketforsuchsecurity, thelastclosing bidpriceorlast tradeprice, respectively,ofsuch security ontheprincipal securitiesexchange or tradingmarket where suchsecurity is listed or tradedasreportedbyBloomberg, or if the foregoing do notapply, thelastclosing bidpriceorlasttrade price,respectively, ofsuchsecurityinthe over-the-countermarket ontheelectronic bulletin boardfor suchsecurityasreportedbyBloomberg, or,ifnoclosing bidpriceorlasttradeprice,respectively, isreportedforsuch securitybyBloomberg, theaverage of the bid prices, or theask prices, respectively, ofanymarket makersforsuch securityas reportedinthe“pink sheets”by OTCMarkets GroupInc. (formerlyPinkSheetsLLC).
(v)“CompanyOptional RedemptionPrice”means,with respecttoany DebtAmount toberedeemed inaCompany OptionalRedemption, 145% oftheapplicable Exchange Amountwithrespect tosuchDebtAmount (assuming, for suchpurposethattheentireDebtAmountbeingredeemedisbeingexchanged hereunder).
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(vi)“ConvertibleSecurities” meansanycapital stockorother securityoftheCompanyorany ofitsSubsidiariesthatisatany timeandunderanycircumstances directly orindirectlyconvertible into,exercisable orexchangeablefor, or which otherwiseentitles theholderthereof toacquire,anycapital stockorothersecurity oftheCompany (including,withoutlimitation,CommonStock)oranyofitsSubsidiaries.
(vii)“CommonStock”means(i)theCompany’scommon stock,$0.0001par valuepershare,and(ii)anycapital stockintowhichsuchcommon stockshallhave beenchanged orany sharecapital resultingfroma reclassification of suchcommon stock.
(viii)“ExcludedSecurities”means(A)sharesofCommonStock or standard optionstopurchase CommonStock todirectors,officers oremployees oftheCompany intheircapacityassuch pursuant toanApprovedStockPlan (asdefined below),provided that(1)all suchissuances (taking intoaccounttheshares ofCommonStock issuable uponexercise ofsuchoptions)after thedatehereof pursuant tothisclause (A) donot,intheaggregate,exceed morethan5% of the Common Stock issuedand outstanding immediately priortothe datehereofand(2)theexercise priceofany such optionsisnot lowered, noneof such optionsareamended toincreasethe numberof shares issuablethereunderandnone of theterms orconditions ofanysuchoptionsare otherwise materiallychanged inany manner thatadverselyaffects the Creditor; (B) sharesof Common Stockissuedupontheconversionorexerciseof ConvertibleSecurities (other than standard options topurchase Common Stock issued pursuanttoan ApprovedStockPlan thatarecoveredbyclause (A)above) issued prior to thedate hereof, providedthattheconversion priceofany such ConvertibleSecurities (otherthan standard optionstopurchase Common Stock issuedpursuanttoanApprovedStockPlan thatarecoveredbyclause (A)above) isnotlowered, none ofsuch ConvertibleSecurities (other than standard options topurchase Common Stock issuedpursuanttoan ApprovedStockPlan thatarecoveredbyclause (A)above)areamended toincrease thenumberof shares issuablethereunderand noneoftheterms orconditions ofany such ConvertibleSecurities (other thanstandard optionstopurchase Common Stock issued pursuanttoan ApprovedStockPlan thatarecoveredbyclause (A)above)areotherwisemateriallychanged inany mannerthatadverselyaffects the Creditor;(C)any“equity line ofcredit” facilityof theCompanyand (D) theExchangeShares.
(ix)“Person” meansan individual,alimitedliabilitycompany, a partnership,a jointventure, acorporation, a trust,an unincorporated organization,any other entityor agovernment oranydepartment oragency thereof.
(x)“SEC” meanstheUnitedStatesSecuritiesandExchange
Commission or thesuccessor thereto.
(xi)“SubsequentPlacement” meansany, directorindirect, issuance, offer,sale,grantofany optionorrighttopurchase, orotherwise dispositionof (orannouncement ofany issuance, offer,sale,grant ofany optionorrighttopurchase or otherdispositionof)anyequitysecurityoranyequity-linkedorrelatedsecurity
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(including, withoutlimitation,any“equity security” (asthat termisdefined underRule
405 promulgated underthe 1933Act),any ConvertibleSecurities,anydebt,any preferred stock or anypurchase rights) ofthe Companyor anyof itsSubsidiaries.
(xii)“TradingDay” meansanydayonwhichtheCommonStock istraded onthe principalsecuritiesexchangeor securities market onwhichthe CommonStock isthentraded,providedthat“Trading Day”shall notincludeany day on whichtheCommonStock isscheduled totradeonsuchexchange ormarket forlessthan
4.5 hoursoranyday that theCommonStockissuspended fromtradingduringthefinal houroftrading onsuchexchange ormarket (orifsuchexchange ormarket doesnot designate inadvance theclosing timeoftradingon suchexchange ormarket, thenduring thehourendingat4:00:00 p.m.,NewYorktime) unlesssuchday isotherwise designatedas aTrading Dayin writingbythe Creditor.
(xiii)“VWAP” means,forany securityas ofanydate,thedollar volume-weightedaverage pricefor suchsecurity ontheprincipal securitiesexchangeor securitiesmarketonwhichsuchsecurity isthentraded duringtheperiod beginningat
9:30:01a.m.,New Yorktime,andendingat4:00:00 p.m.,New York time,as reportedbyBloomberg throughits“VolumeatPrice” function or,iftheforegoing doesnotapply, the dollarvolume-weightedaveragepriceofsuchsecurity intheover-the-counter market on theelectronic bulletin boardforsuchsecurityduringtheperiodbeginningat9:30:01a.m., New York time,andendingat 4:00:00 p.m., New York time,as reportedbyBloomberg, or, if no dollar volume-weightedaverage price is reported for such securitybyBloomberg forsuchhours,theaverageofthe highestclosing bidpriceandthelowestclosingaskprice ofany ofthemarket makersfor such securityasreported inthe“pink sheets”byOTC Markets Group Inc. (formerlyPinkSheets LLC). If the VWAPcannot be calculated forsuch security onsuchdateonanyof theforegoing bases, theVWAP of such security onsuch date shall be the fairmarket valueasmutuallydeterminedby the Companyandthe Creditor. IftheCompanyandthe Creditorareunabletoagree uponthe fairmarketvalue of suchsecurity, then suchdispute shall be resolvedinaccordance with the procedures inSection 1(e).All suchdeterminations shall beappropriatelyadjusted forany stockdividend,stocksplit,stockcombination, recapitalization orothersimilar transaction duringsuchperiod.
2.REPRESENTATIONS ANDWARRANTIES
(a)Company's Representations.TheCompany herebyrepresentsand warrantsandcovenantstothe Creditor,asof thedate hereofandeach other dateinwhichthe Companyissues ExchangeShares totheCreditor,as follows:
(i) EachoftheCompanyandits subsidiariesareentities duly organizedandvalidlyexistingandingoodstanding under thelaws ofthejurisdiction in whichtheyareformed,and havetherequisitepowerandauthorization toowntheir propertiesandtocarry ontheirbusinessas nowbeingconductedandaspresently proposedtobeconducted. EachoftheCompanyandeach ofitssubsidiaries isduly qualifiedasaforeignentity todobusinessandis ingoodstanding inevery jurisdiction in whichits ownershipofpropertyorthenature ofthebusinessconductedbyitmakessuch
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qualification necessary,except totheextent thatthefailure tobesoqualified orbeingood standingwouldnothave aMaterial Adverse Effect. AsusedinthisAgreement,“MaterialAdverseEffect”meansany materialadverseeffect on(i)thebusiness, properties,assets,liabilities, operations (includingresultsthereof),condition (financial or otherwise)orprospects oftheCompany orany subsidiary, individuallyortakenasa whole,(ii)thetransactionscontemplatedhereby orinany oftheotherTransaction Documents(as definedbelow)or(iii)theauthorityorability of theCompanytoperformany ofitsobligations underany oftheExchange Documents(asdefined below).Other than its subsidiaries, there is noPerson in which the Company, directly or indirectly, owns sharecapital or holdsanequityor similarinterest.
(ii)TheCompany hastherequisitepowerandauthority toenter intoandperform itsobligations under thisAgreementandeach of the otheragreementsentered intoby theparties hereto inconnection withthetransactionscontemplatedby thisAgreement (collectively, the“Exchange Documents”)andtoissue theExchangeShares inaccordance withtheterms hereofandthereof.Theexecutionand delivery oftheExchange Documents by theCompanyandtheconsummationby the Company ofthetransactionscontemplatedherebyandthereby, including,without limitation,theissuance oftheExchangeShares havebeen dulyauthorizedby the Company'sBoard ofDirectorsandnofurtherfiling,consent,orauthorization is requiredby theCompany, itsBoard ofDirectors oritsstockholders.This Agreementandthe otherExchange Documents havebeen dulyexecutedanddeliveredby theCompany,andconstitute the legal,validand binding obligations of the Company,enforceableagainst the Company inaccordance with theirrespective terms,exceptas suchenforceability may belimitedby general principles ofequity orapplicable bankruptcy, insolvency, reorganization, moratorium,liquidationorsimilar lawsrelating to,oraffectinggenerally, theenforcement ofapplicablecreditors' rightsand remediesandexceptasrights to indemnificationand tocontributionmaybelimitedbyfederal or statesecurities laws.
(iii) Theexecution, deliveryandperformanceoftheExchange Documents by theCompanyand theconsummationby theCompany ofthetransactionscontemplatedherebyandthereby (including, withoutlimitation,eachExchangeandthe reservationandissuance of the ExchangeShares) willnot(A) resultina violationof the CertificateofIncorporation (asdefined below)orotherorganizational documentsofthe Company orany ofitssubsidiaries,anysharecapital oftheCompany orany ofits subsidiaries orBylaws (asdefined below)oftheCompany orany ofitssubsidiaries,(B)conflictwith,orconstitute adefault (oranevent which with noticeorlapseoftimeor bothwouldbecome adefault) under,orgive toothersany rights oftermination,amendment,acceleration orcancellation of,anyagreement, indentureorinstrumentto whichtheCompany orany ofitssubsidiariesisaparty,or(C) resultinaviolation ofany law,rule, regulation,order, judgmentordecree (includingforeign,federalandstate securities lawsand regulationsandthe rulesandregulations of the OTCBulletinBoard (the“PrincipalMarket”)applicable to theCompany oranyofits subsidiaries orby whichanyproperty orasset ofthe Companyoranyof its subsidiaries is bound oraffectedexcept, inthecase ofclause (B)or (C)above, totheextentsuchviolations thatcouldnot reasonablybe expectedto haveaMaterial Adverse Effect.
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(iv)NeithertheCompanynorany subsidiary isrequiredto obtainanyconsentfrom,authorization ororder of,ormakeany filing orregistration with,anycourt,governmentalagency orany regulatory orself-regulatoryagency orany otherPerson inorderforittoexecute, deliver orperformany ofitsrespective obligations underorcontemplatedby theExchange Documents,ineachcase, inaccordance withthe termshereofor thereof. Allconsents,authorizations, orders, filingsand registrations whichtheCompany orany subsidiary isrequiredtoobtainpursuant tothepreceding sentencehavebeenobtained oreffected onorpriortotheapplicable Closing Date,and neither theCompany norany ofitssubsidiariesareaware ofany factsorcircumstances whichmight preventtheCompany orany ofitssubsidiariesfromobtainingoreffectinganyof theregistration,application orfilingscontemplatedby theExchange Documents. TheCompany isnotinviolation oftherequirements ofthePrincipal Marketandhas no knowledgeofanyfacts orcircumstances whichcould reasonably lead todelistingor suspension of theCommonStock in theforeseeablefuture.
(v)Oneach datetheCompany issues ExchangeShares tothe Creditor,allshare transfer orothertaxes (otherthan incomeorsimilar taxes)whichare requiredtobepaid inconnection withthe issuanceof the ExchangeShares tobeexchanged withtheCreditor hereunder onsuchdatewillbe, orwillhave been,fully paid orprovided forby theCompany,andall lawsimposing suchtaxes willbeorwillhave beencompliedwith.
(vi)Duringthe two(2)years priortothedatehereof,the Companyhasfiledall reports,schedules, forms,statementsandotherdocumentsrequired tobefiledby itwiththeSEC pursuantto thereporting requirements oftheSecurities Exchange Act(all ofthe foregoing filedpriortothedatehereofandallexhibitsincluded thereinand financial statements, notesand schedules theretoand documents incorporatedby reference thereinbeinghereinafter referred toasthe“SEC Documents”). The Company has delivered totheCreditor orits representative true,correctandcompletecopiesofeach of theSECDocuments notavailable onthe EDGARsystem requestedby theCreditoror its respective representatives. Asof theirrespective dates,theSEC Documentscompliedinallmaterial respectswiththerequirements oftheExchange Actandtherulesand regulations of theSECpromulgated thereunderapplicable totheSEC Documents,andnoneoftheSECDocuments,atthetimethey werefiledwiththeSEC,containedany untrue statementofamaterial factoromitted tostateamaterialfact required tobestatedtherein ornecessary inorder tomakethestatementstherein, inthe light ofthecircumstances underwhich theywere made,notmisleading. Asoftheir respectivedates,thefinancialstatementsoftheCompany includedintheSEC Documentscompliedas toforminallmaterialrespectswithapplicableaccounting requirementsand the published rulesand regulations of the SECwith respectthereto as ineffect asof thetime offiling.Such financialstatements havebeenprepared in accordance withgenerallyacceptedaccounting principles,consistentlyapplied, duringtheperiods involved (except (i)asmaybeotherwise indicated insuchfinancialstatementsorthe notesthereto, or(ii)inthecaseofunaudited interimstatements,totheextent they mayexclude footnotesormaybecondensedorsummary statements)and fairlypresent inall material respects thefinancial positionoftheCompanyas ofthedates thereofand the results of its operationsandcash flows forthe periods thenended (subject, in thecase of
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unaudited statements,tonormalyear-endauditadjustments whichwillnotbe material,either individuallyor intheaggregate). Nootherinformation providedby oronbehalf of theCompanytoany oftheCreditors whichis notincludedin theSECDocumentscontainsany untruestatement of amaterialfact or omits to stateany material fact necessary inorder tomakethestatementstherein notmisleading, inthelight ofthecircumstance underwhich theyareorwere made.
(vii)Asofthedatehereof,theauthorized sharecapital ofthe
Companyconsistsof(A)15,000,000,000sharesofCommonStock,ofwhich,
1,561,600,412areissuedand outstandingand 3,912,697,212 sharesarereserved for issuance pursuanttosecurities(other thanthe ExchangeShares)exercisable orexchangeable for,orconvertible into,shares ofCommon Stockand(B)10,000,000 preferred shares,of which675,438 areissuedandoutstanding.Asofthedate hereof, the Companyhas reservedfromits dulyauthorizedcapital stock1,000,000,000sharesof CommonStockforissuanceasExchangeShares. Noshares ofCommonStockare held intreasury. Allofsuch outstandingsharesaredulyauthorizedandhave been,or upon issuance willbe,validly issuedandare fully paidandnonassessable.Noshares ofthe Company’sissuedandoutstanding CommonStock onthedate hereofareasofthedate hereof ownedbyPersons whoare“affiliates”(as defined in Rule 405 of theSecurities Actandcalculatedbased ontheassumption thatonlyofficers, directorsandholdersofat least 10%oftheCompany’s issuedand outstandingCommonStockare“affiliates” withoutconceding thatany suchPersonsare“affiliates” forpurposes offederal securities laws) of theCompanyorany of its subsidiaries.TotheCompany’s knowledge,asof the date hereof, noPerson owns 10% or more ofthe Company’s issuedand outstanding sharesofCommonStock,whether ornotpresentlyexercisableorconvertible, havebeen fullyexercised orconverted (asthecase maybe) takingaccount ofanylimitationsonexercise orconversion(including“blockers”)contained thereinwithoutconceding that such identified Person isa 10% stockholder for purposes of federal securitieslaws). ExceptasdisclosedinSchedule 2(a)(vii):(A)none oftheCompany’s orany subsidiary’s sharecapital issubjecttopreemptive rightsorany othersimilar rightsorany liensorencumbrances sufferedorpermittedby theCompanyorany subsidiary;(B) thereare no outstanding options,warrants, scrip,rights tosubscribe to,calls orcommitments ofanycharacter whatsoever relating to,orsecuritiesorrightsconvertible into, orexercisable orexchangeablefor,anysharecapitaloftheCompany oranyofitssubsidiaries,orcontracts,commitments, understandings orarrangementsby which the Company orany ofitssubsidiaries isormay becomebound toissueadditional sharecapital ofthe Company oranyof itssubsidiaries oroptions,warrants,scrip,rightstosubscribeto,calls orcommitmentsofanycharacterwhatsoeverrelating to,orsecuritiesorrightsconvertible into,orexercisable orexchangeablefor,any sharecapital oftheCompany orany ofitssubsidiaries;(C)therearenooutstanding debtsecurities, notes,creditagreements,creditfacilities or otheragreements, documentsor instrumentsevidencing Indebtednessofthe Company orany of its subsidiariesorbywhichtheCompany orany ofitssubsidiariesisormay becomebound;(D)therearenofinancing statements securingobligations inanyamountsfiledinconnection withtheCompany orany ofits subsidiaries; (E)therearenoagreements orarrangements underwhichtheCompany orany ofitssubsidiaries isobligated to register thesaleofany oftheirsecurities undertheSecurities Act;(F) thereare no outstanding securities or instruments of the Company or
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any ofitssubsidiarieswhichcontainanyredemption orsimilar provisions,and thereare nocontracts,commitments, understandings orarrangementsbywhich theCompany oranyof itssubsidiaries isormaybecomeboundtoredeem asecurityoftheCompany oranyofits subsidiaries;(G) thereare no securities orinstrumentscontaininganti-dilution orsimilar provisionsthatwillbetriggeredby theissuance oftheExchangeShares; (H) neither theCompany norany subsidiaryhasanystockappreciation rights or“phantom stock”plansor agreements orany similar planoragreement;and(I) neither theCompany norany of its subsidiaries haveany liabilities or obligations required to be disclosed in theSECDocuments whichare notsodisclosedintheSECDocuments,otherthanthose incurredintheordinarycourseoftheCompany’soritssubsidiaries’respective businessesand which,individually or in theaggregate, do not orcould not have a MaterialAdverseEffect. TheCompanyhas furnishedtotheCreditor true,correctandcompletecopiesof theCompany’sCertificate ofIncorporation,asamendedandas ineffectonthedatehereof (the“Certificate ofIncorporation”),andtheCompany’sbylaws,asamendedandas ineffect on the date hereof (the“Bylaws”),and the terms ofall securitiesconvertible into, orexercisable orexchangeable for, shares of CommonStockand the materialrightsof the holders thereof inrespecttheretothathave notbeen disclosed in the SECDocuments
(viii) TheCompanyconfirmsthatneither itnorany otherPersonacting onitsbehalfhasprovidedtheCreditororitsagentsorcounselwithany informationthatconstitutes orcouldreasonably beexpected toconstitute material,non- publicinformationconcerning theCompany orany ofitssubsidiaries, otherthantheexistence ofthetransactionscontemplatedby thisAgreementandtheotherAgreements. TheCompany understandsandconfirms thattheCreditor willrely ontheforegoing representations ineffecting transactions insecurities oftheCompany. Alldisclosure providedtotheCreditor regarding theCompanyand itssubsidiaries, theirbusinessesand thetransactionscontemplatedhereby,including theschedulestothisAgreement, furnishedbyoron behalf of theCompanyoranyof its subsidiaries istrueandcorrect and doesnotcontainany untruestatement ofamaterial factoromittostateanymaterial fact necessary inorder tomakethestatements made therein, inthelightofthecircumstances underwhich theywere made,notmisleading. Eachpress release issuedby theCompany orany of its subsidiaries during the twelve(12) months preceding the date of this Agreement did notatthetime ofreleasecontainany untruestatement ofamaterial fact or omit tostateamaterialfactrequired tobestated thereinornecessary inorder tomakethe statements therein,inthelight ofthecircumstances underwhich theyaremade,not misleading. Noevent orcircumstancehasoccurred orinformationexists withrespect to theCompanyoranyofitssubsidiaries oritsortheirbusiness,properties, liabilities, prospects,operations (includingresults thereof)orconditions (financial orotherwise), which,underapplicablelaw,ruleorregulation, requirespublic disclosureator beforethe datehereoforannouncement by theCompany butwhichhasnotbeensopubliclyannounced ordisclosed.
(ix) Theissuance oftheExchangeSharesaredulyauthorizedanduponissuance inaccordance withthetermshereof shallbe validly issuedand outstanding, fully paidandnonassessable, freeandclear ofallliens,encumbrancesand rights of refusal ofany kind. Uponissuance inaccordance herewith, the Exchange
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Shares willbeexempt fromtheregistration requirements ofthe Securities ActunderSection 4(a)(2) of theSecurities Actandallof suchExchangeShares willbe freely transferableandfreelytradableby theCreditorwithoutrestrictionpursuant toRule 144, including,withoutlimitation 144(d)(3)(ii),oftheSecuritiesAct.Neitherany ExchangeShares issuablehereunder noranycertificatesevidencinganyofsuchExchangeShares (if acertificate thereforis requested inwritingby the Creditor) shall bearany restrictive orotherlegends ornotations. TheCompany shallnot,andtheCompany shallcauseall otherpersonstonot,issueany stop-transferorder, instructionorotherrestrictionwith respecttoany such ExchangeShares.
(x)OtherthaneachAgentFeeExchange Amountincluding inanExchange Amounthereunder, theCompanyrepresentsthatithas notpaid,andshall notpay,anycommissions orotherremuneration, directlyor indirectly, toany thirdparty forthe solicitation of anyExchange pursuantto this Agreement.Other thantheapplicable ExchangeofExisting Debt, theCompanyhas not receivedandwillnot receiveanyconsideration fromtheCreditorfor theExchangeShares to beissued in anExchange.
(xi)TotheCompany’sknowledge,neither theCreditor northe
Original Creditor, norany oftheir respectiveaffiliates, (i)isorwasan officer,director,
10% shareholder,controlperson,oraffiliateofthe Companywithin thelast90daysor (ii)hasorwill,directly orindirectly, provideanyconsideration toorinvestinany manner in the Company inexchangeorconsideration for, or otherwise inconnection with,thesale orsatisfaction oftheExisting Debt, other than pursuantto this Agreement.
(xii) TheCompanyacknowledgesandagreesthat(A)the issuance ofExchangeShares pursuanttothisAgreementmay haveadilutiveeffect, which maybe substantial, (B) neither theCompany noranyoftheCompany’saffiliates has orwill providetheCreditor withany material non-publicinformation regarding the Company or its securities, (C)the Creditorhas no obligation ofconfidentiality to the Companyand maysellanyof its ExchangeShares issued pursuant to thisAgreementatany time, including, without limitation,atanytimeand from time totime during the CalculationPeriod,and(D)
(xiii)TheCompanyacknowledgesandagrees that with respectto thisAgreementandthetransactionscontemplated hereby,(A)theCreditorisacting solely inanarm’slengthcapacity,(B)the Creditor doesnotmakeandhas notmadeany representations or warranties, other than thosespecificallyset forth inthis Agreement, (C) the Company’s obligations hereunderare unconditionalandabsoluteand not subject toany rightof setoff,counterclaim,delay orreduction, regardless ofanyclaimthe Companymayhaveagainst theCreditor, (D)the Creditor hasnotandisnotactingasa legal, financial,accounting or taxadvisor tothe Company,oragent or fiduciary of the Company, or inany similarcapacity,and(E)any statement madebythe Creditor orany of theCreditor’s representatives,agents orattorneys isnot advice orarecommendation to the Company.
(xiv) TheCompanyisnotanissueridentified in,orsubject to, Rule 144(i) under theSecurities Act.
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(xv)TheCompany has not,in the12months precedingthedate ofthisAgreement,received noticefromanynationalsecuritiesexchangeorautomatedquotationsystemonwhichthesharesofCommonStockarelistedordesignatedforquotation to theeffect that theCompany is not incompliance with thelisting or maintenancerequirements ofsuchnational securitiesexchangeorautomated quotationsystem. Asofthedate ofthisAgreement,the Company isincompliance withallsuch listingand maintenancerequirements.
(xvi)TheCompany hasnot,inthe12monthsprecedingthedate ofthisAgreement,receivedany noticefromDTC totheeffect thatasuspension of,or restrictionon,acceptingadditional depositsof the sharesofCommon Stock,orelectronic tradingorsettlementservices withrespect totheshares ofCommonStockarebeing imposed orarecontemplatedby DTC.
(xvii)TheCompanyand itsboardofdirectorshavetakenallnecessaryaction,ifany, inorder torender inapplicableanycontrol shareacquisition, interested stockholder,businesscombination,orothersimilarantitakeover provision under the certificate of incorporation, bylaws orother organizationaldocumentsoftheCompany,ascurrently ineffect,or thelawsofthejurisdictionof itsincorporationorotherwise whichisor could become applicable as aresult ofthe transactions contemplated bythis Agreement, including, withoutlimitation, the Company’sissuanceof ExchangeShareshereunderand theCreditor’sownershipofsuchExchangeShares,togetherwithallother securitiesnoworhereafterownedoracquiredby the Creditor. The Companyand its board of directors have takenallnecessaryaction, ifany,inorderto render inapplicableany shareholder rightsplanor similararrangementrelating toaccumulationsofbeneficialownershipofExchangeSharesorachangeincontrol ofthe Companyoranyofitssubsidiaries.
(xviii) TheCompany shall takesuchactionastheCreditor shall reasonablydetermine isnecessary inorder toqualify the Exchange Shares issuable to the Creditor hereunder underapplicablesecurities or“bluesky” laws ofthestates of theUnited Statesfor the issuance to the Creditor hereunderandforresale bytheCreditor to the public(or to obtainanexemptionfromsuch qualification), and shall provide evidence of any suchactionso taken to the Creditor. Withoutlimiting any other obligation of the Company hereunder, the Company shall timelymake all filings andreportsrelating totheofferandissuanceofsuch ExchangeSharesrequiredunderallapplicablesecuritieslaws(including,without limitation,all applicable federal securities lawsand all applicable statesecuritiesor“bluesky” laws),andthe Companyshallcomplywithallapplicablefederal,state,localandforeign laws, statutes,rules, regulationsand the likerelating to the offeringand issuance ofsuch Exchange Shares to the Creditor.
(xix) TheCompanyshallpromptlysecurethelistingordesignationforquotation (as thecase maybe)ofallof the ExchangeShares tobe issued to the Creditorpursuant to thisAgreementoneach national securitiesexchangeandautomatedquotation system, ifany,onwhich the sharesof CommonStockarelistedordesignatedforquotation (as thecasemaybe)and shalluse its reasonablebestefforts to
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maintainsuchlistingordesignationforquotation(asthecasemaybe) ofallsuch ExchangeShares on such national securitiesexchange orautomatedquotationsystemforsolongastheCreditoror anyofitsaffiliatesholds anyExchangeShares.theCompanyshallpay all fees and expensesinconnection with satisfying itsobligationsunderthisSection2(a)(xvii).
(b)TheCreditorherebymakesthefollowingrepresentations, warrantiesandcovenants totheCompany:
(i)TheCreditor isanentitydulyorganized,validlyexistingandingoodstandingunder thelawsofthejurisdiction ofitsorganization withthe requisite powerandauthority toenter intoand toconsummatethetransactionscontemplatedhereby to whichit is a partyandotherwise tocarry out its obligations hereunderand thereunder.
(ii)TheCreditor ownsandholds,beneficiallyandofrecord, theentire right,title,andinterest inandtotheExisting Debtbeingexchanged intheapplicable Exchangefreeandclearofall rightsand Encumbrances(asdefinedbelow). TheCreditorhasfullpowerandauthority totransferanddisposeoftheExisting Debtto theCompanyfreeandclear ofany rightorEncumbrance. Other thanthe transactionscontemplatedby thisAgreement, thereis no outstanding vote, plan, pendingproposal, or otherright ofany person toacquireall oranyof such Existing Debt. As used herein,“Encumbrances” shall meanany security or other property interest orright,claim, lien, pledge, option,charge, security interest,contingent orconditional sale, or other titleclaim or retentionagreement, interest or otherright orclaimof thirdparties, whether perfectedor not perfected,voluntarily incurredorarisingbyoperationof law,and includinganyagreement (other than thisAgreement) to grant or submit toanyof the foregoing inthefuture.
(iii) TheCreditorunderstandsthattheExchangeSharesare being offeredandsoldtoit inreliance onspecificexemptions fromthe registration requirementsofUnitedStatesfederalandstatesecuritieslawsand thattheCompany is relying inpart uponthetruthandaccuracy of,andtheCreditor’scompliance with,the representations, warranties,agreements,acknowledgmentsandunderstandings of the Creditorsetforth hereininordertodetermine theavailability ofsuchexemptionsandtheeligibility of theCreditor to acquiretheExchangeShares.
(iv)ThisAgreement hasbeen dulyand validlyauthorized,executedanddelivered onbehalf oftheCreditorandconstitute thelegal, validand binding obligations oftheCreditorenforceableagainst theCreditor inaccordance with theirrespective terms,exceptassuchenforceabilitymaybe limitedbygeneral principles ofequity orapplicable bankruptcy, insolvency, reorganization, moratorium,liquidationandothersimilar lawsrelating to,oraffecting generally, theenforcement ofapplicablecreditors’ rights andremedies.
(v)Theexecution, deliveryandperformanceby theCreditor of thisAgreementandtheconsummationby theCreditor ofthetransactionscontemplated
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herebyandthereby willnot(i)resultinaviolation oftheorganizational documentsofthe Creditoror(ii)conflict with,orconstitute adefault (oraneventwhichwithnoticeor lapseoftime orbothwouldbecomeadefault) under,orgivetoothersany rights of termination,amendment,acceleration orcancellation of,anyagreement, indentureor instrument towhichtheCreditor isaparty, or(iii)resultinaviolation ofany law,rule, regulation,order, judgment ordecree (including federalandstatesecuritieslaws)applicable tothe Creditor,except inthecaseofclauses (ii)and(iii) above,for suchconflicts, defaults, rights orviolations whichwould not,individually orintheaggregate, reasonablybeexpectedtohave amaterialadverseeffect ontheability of theCreditor to perform its obligations hereunder.
(vi)As ofthe dateof this Agreementand during the 90calendar daysprior tothedateof this Agreement, neither theCreditor noranyaffiliate thereof is or wasan officer, director,or 10%or more shareholder ofthe Company.
(vii)SolongasCreditor holdsany ExistingDebt,neither the Creditornoranyofitsaffiliates shall(i)holdany shortpositionintheshares ofCommonStock or(ii)engage inoreffect, directlyor indirectly,anyshort saleof theshares of CommonStock.
(viii)Forsolongas theCreditor orany ofitsaffiliates holdsany ExchangeShares, neither theCreditor norany ofitsaffiliates will:(i)voteany sharesof CommonStock ownedorcontrolledby it,orsolicitany proxies orseek toadvise or influenceanyperson withrespect toany votingsecurities oftheCompany; or(ii)engage orparticipate inanyactions,plansorproposalsthatrelatetoorwouldresultin(a)the Creditor orany ofitsaffiliatesacquiringadditional securitiesoftheCompany,aloneor together withany otherperson,whichwouldresult intheCreditoranditsaffiliatescollectivelybeneficially owning,orbeingdeemed tobeneficially own,morethan9.99% oftheshares ofCommonStockorothervotingsecuritiesoftheCompany(ascalculated pursuanttoSection 13(d)ofthe Exchange Actand therulesandregulations thereunder), (b)anextraordinarycorporatetransaction,suchasamerger,reorganizationor liquidation,involvingtheCompanyoranyofitssubsidiaries, (c) asaleortransfer ofa materialamountofassetsoftheCompanyorany ofitssubsidiaries,(d)anychange inthe present boardofdirectors ormanagement oftheCompany, includingany plansor proposals tochange the number ortermof directors or to fillanyexistingvacancies on theboard,(e)any materialchange in thepresentcapitalization ordividend policyofthe Company,(f)any othermaterialchangeintheCompany’sbusinessorcorporate structure, (g)changes inthe Company’scharter,bylaws or instrumentscorresponding theretoorotheractions whichmay impede theacquisition ofcontroloftheCompanybyany person,(h)causingaclass ofsecuritiesof theCompanytobedelistedfrom anational securitiesexchange or tocease tobeauthorized tobe quoted inan inter-dealer quotationsystemofaregisterednationalsecuritiesassociation,(i)causing aclassofequity securitiesoftheCompany tobecomeeligible fortermination of registration pursuanttoSection12(g)(4)oftheExchangeActor(j) takinganyaction,intention,planorarrangement similartoany of thoseenumeratedabove.
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3.PARTICIPATIONRIGHTS.1
So longasany Exchange Debtremains outstanding, neither theCompanynorany ofitsSubsidiaries shall,directlyorindirectly,effectanySubsequentPlacement unlesstheCompany shallhave first compliedwiththisSection 3.
(a)Atleast three(3)Trading Dayspriortoany proposed orintendedSubsequentPlacement,theCompany shalldeliver totheCreditor awrittennoticeofitsproposal or intention toeffect aSubsequentPlacement(each suchnotice, a“Pre-Notice”), whichPre- Noticeshallnotcontainany information (including, withoutlimitation, material,non-public information)otherthan:(i)astatementthattheCompanyproposesorintends toeffect aSubsequentPlacement, (ii) a statementthatthestatement inclause (i)above doesnotconstitute material, non-publicinformationand (iii)astatement informing theCreditorthatitisentitled to receiveanOffer Notice (asdefinedbelow) withrespecttosuch Subsequent Placementuponits written request. Uponthewrittenrequestofthe Creditor withinthree (3)TradingDaysafter the Company’s delivery totheCreditorofsuchPre-Notice,andonly upon awritten requestbythe Creditor, theCompanyshall promptly,butnolater thanone(1) TradingDayafter suchrequest, deliver totheCreditoranirrevocable writtennotice(the“Offer Notice”) ofanyproposedor intended issuanceorsale orexchange (the“Offer”) ofthesecurities beingoffered (the “OfferedSecurities”) inaSubsequentPlacement,whichOffer Noticeshall(w)identifyanddescribe the OfferedSecurities, (x) describe thepriceand other terms upon which theyare to beissued, sold orexchanged,andthe number oramountofthe OfferedSecuritiestobe issued, soldorexchanged,(y)identifythePersons(ifknown)towhichorwithwhich the OfferedSecuritiesare tobeoffered, issued,soldorexchangedand(z)offertoissueand selltoorexchange withthe Creditor inaccordancewith the terms oftheOffer 30%of theOfferedSecurities.
(b)ToacceptanOffer, inwhole or inpart,the Creditor mustdeliver a writtennoticetotheCompany priortotheendofthethird(3rd)BusinessDayafterthe Creditor’s receipt oftheOffer Notice(the“Offer Period”), settingforththeportionofthe OfferedSecurities thatthe Creditorelectstopurchase (ineithercase,the“Notice of Acceptance”). Notwithstandingtheforegoing, iftheCompany desirestomodify oramendthe termsandconditions of theOffer priortotheexpiration oftheOfferPeriod, theCompanymay deliver totheCreditor anewOffer Noticeandthe OfferPeriodshallexpire onthethird (3rd)Business Dayafter the Creditor’s receiptof suchnewOfferNotice.
(c) TheCompanyshallhavefive(5)BusinessDaysfromtheexpiration oftheOfferPeriodabove(i)tooffer, issue,sellorexchangealloranypart ofsuch OfferedSecuritiesastowhichaNoticeofAcceptance hasnotbeengivenby theCreditor (the“RefusedSecurities”) pursuanttoadefinitiveagreement(s) (the“Subsequent Placement Agreement”), butonlyto theoffereesdescribed intheOffer Notice(ifso described therein)and only upontermsandconditions (including, withoutlimitation, unitpricesandinterestrates)thatarenotmorefavorable totheacquiringPersonorPersonsorlessfavorable totheCompany than thosesetforth intheOffer Noticeand(ii)topubliclyannounce(a)theexecution ofsuchSubsequentPlacementAgreement,and(b)either (x) theconsummation of thetransactionscontemplatedby suchSubsequentPlacement Agreement or(y) the termination of such
1Note:Wedidnotmaketherequested changeasthatwasalready covered inSection3(i)below.
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SubsequentPlacementAgreement,which shallbe filedwiththeSECon a CurrentReportonForm 8-KwithsuchSubsequentPlacementAgreementandany documentscontemplatedtherein filedasexhibitsthereto.
(d)Intheevent theCompanyshallpropose toselllessthanall the RefusedSecurities(any such saletobeinthemannerandonthetermsspecified inSection3(c)above), thentheCreditor may,atits soleoptionand inits solediscretion, reduce thenumberoramount oftheOfferedSecuritiesspecified initsNotice ofAcceptance toanamountthatshallbe notlessthan thenumberoramount oftheOfferedSecurities thatthe Creditorelected topurchase pursuanttoSection 3(b)abovemultipliedby afraction, (i)thenumerator ofwhich shall bethe numberoramountofOfferedSecuritiestheCompanyactuallyproposestoissue,sellorexchange (includingOfferedSecurities tobe issued or sold to the Creditor pursuant to thisSection 3prior tosuch reduction)and(ii) the denominator of whichshall be the originalamount of theOfferedSecurities.Intheeventthatthe Creditor soelects toreduce the numberoramount ofOfferedSecurities specified initsNoticeofAcceptance, theCompanymay notissue, sellorexchange more than the reduced number oramount of the OfferedSecurities unlessand until such securities haveagain been offered totheCreditor inaccordance withSection 3(a)above.
(e)Upontheclosingoftheissuance, saleorexchange ofallorless thanallof the RefusedSecurities,the Creditor shallacquirefromthe Company,andthe Company shall issuetotheCreditor, thenumberoramountofOfferedSecuritiesspecifiedinits Noticeof Acceptance.Thepurchaseby the Creditor ofanyOfferedSecurities issubjectinallcases tothepreparation,executionanddeliverybytheCompanyand the Creditorofaseparate purchaseagreement relating to such OfferedSecurities reasonably satisfactory in formand substance totheCreditorand itscounsel.
(f)AnyOfferedSecurities notacquiredbyaBuyer orother Persons inaccordance withthisSection 3may notbeissued, soldorexchanged untiltheyareagain offered totheCreditor under theprocedures specified inthis Agreement.
(g)TheCompanyandtheCreditor agreethatiftheCreditorelects to participate intheOffer, neither the SubsequentPlacementAgreement withrespect tosuchOffer norany othertransaction documentsrelated thereto(collectively, the “SubsequentPlacement Documents”) shallincludeany termorprovisionwhereby theCreditor shallberequiredtoagree to anyrestrictions on tradingas to anysecurities of theCompanyorberequired to consenttoanyamendmenttoortermination of,orgrantany waiver, release orthelikeunder orinconnection with,anyagreement previouslyentered intowiththeCompanyoranyinstrumentreceivedfrom the Company.
(h) Notwithstandinganything tothecontrary inthisSection 3and unlessotherwiseagreed toby theCreditor, theCompany shalleitherconfirm inwriting tothe Creditor thatthe transaction withrespect totheSubsequentPlacementhasbeenabandoned or shallpublicly disclose itsintention to issue the OfferedSecurities,ineithercase, insucha mannersuch thattheCreditor willnotbeinpossessionofany material, non-public information,by the fifth (5th)BusinessDayfollowing delivery oftheOffer Notice.Ifby such fifth(5th)BusinessDay, nopublicdisclosureregarding atransaction withrespect totheOfferedSecurities has been made,and nonotice regarding theabandonment of such transaction has been received
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by theCreditor, suchtransaction shallbedeemedtohavebeenabandonedandtheCreditorshall notbeinpossessionofany material, non-publicinformationwithrespecttotheCompany orany ofitsSubsidiaries.ShouldtheCompany decide topursuesuch transaction withrespect tothe OfferedSecurities, theCompany shall provide theCreditor withanother OfferNoticeandthe Creditor willagain havetherightofparticipation setforth inthisSection 3.TheCompany shall notbepermitted todeliver morethanoneOfferNoticetotheCreditor inany sixty (60)day period,except asexpresslycontemplatedbythe lastsentence of Section 3(b).
(i)Therestrictionscontained inthisSection 3shall notapply inconnection withtheissuance ofany ExcludedSecurities.TheCompany shallnotcircumvent the provisionsofthisSection 3byprovidingterms orconditions tooneBuyer thatarenotprovided to all.
4.DISCLOSURE
(a)Priortotheearlierof(i) theopening timefortradingstockson publicsecuritiesexchanges locatedinNew YorkCity onthefirst tradingday immediately followingthedate ofthisAgreementand(ii)theinitialShareDeliveryDeadline, timebeing of theessence, theCompany shallfileaCurrent ReportonForm8-K withtheSECpursuant toSection 13orSection15(d)oftheExchange Actdisclosingallofthematerial termsofthis Agreement,including,withoutlimitation,the issuanceofsharesofCommonStocktothe Creditor pursuanttothisAgreementapproving this Agreement,anddisclosingallothermaterial, nonpublic information delivered to the Creditor (or the Creditor’srepresentatives oragents)by theCompanyorany ofitsofficers,directors,employees,agentsorrepresentatives, ifany, inconnection with the Existing Debt,any Exchange, theOriginal Creditor or the transactionscontemplatedby thisAgreement,andattaching acopy ofthisAgreementandthisAgreementasexhibits thereto (the “Initial8-K Filing”).Fromandafter the Initial8-KFiling,neither the Company norany of its officers, directors,employees,agents or representatives shall discloseanymaterialnon-publicinformationabouttheCompany totheCreditor (or theCreditor’s representatives oragents), unlesspriorthereto theCompany shall havefiled aCurrentReportonForm 8-Kwith theSEC pursuant toSection 13orSection 15(d)oftheExchange Actdisclosingall such material non-public information. Inaddition, theCompanyshall filea Current Report onForm 8-KwiththeSECpursuant to Section 13orSection 15(d) ofthe Exchange Actonor prior to the first trading day immediately following the date ofconsummation ofeachPut Option,ifany, timebeing oftheessence, disclosing thenumberofshares soissuedanddelivered totheCreditorandthe dateofissuance (each,an“Additional8-K Filing”). Intheevent ofa breachofany oftheforegoingcovenants inthisSection 4by the Company,inadditiontoany other remedyavailableto the Creditor, the Creditor shall have the right to make a public disclosure, intheformofapressrelease, publicadvertisement,SECfilingorotherwise,ofthe matterscontemplatedhereby withoutthepriorapprovalby theCompany, orany ofits officers, directors,employees, stockholders oragents,andtheCreditorshallnothaveany liability tothe Company,oranyofits officers,directors,employees, stockholdersoragents,forany such disclosure.
(b)NeithertheCompany,itssubsidiariesnortheCreditorshall issueanypressreleasesoranyotherpublic statements with respect tothetransactionscontemplatedhereby;provided,however, theCompany shall beentitled,without the prior
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approvaloftheCreditor,toissueanypressreleaseormakeotherpublicdisclosurewithrespecttosuchtransactions(i)insubstantialconformitywiththeInitial8-KFilingandanyAdditional8- KFilingandcontemporaneouslytherewithand(ii)asisrequiredbyapplicablelawandregulations(providedthattheCreditorshallbeconsultedbytheCompanyinconnectionwithanysuchpressreleaseorotherpublicdisclosurepriortoitsrelease).
(c)WithoutthepriorwrittenconsentoftheCreditor,theCompanyshallnot(andshallcauseeachofitssubsidiariesandaffiliatestonot) disclose the name ofthe Creditor inany filing(otherthantheInitial8-KFilingandanyAdditional8-KFiling),announcement,releaseorotherwise.
5.INDEMNIFICATION
(a)Inconsideration oftheCreditor’sexecutionanddelivery ofthe Exchange DocumentstowhichitisapartyandacquiringtheSecurities thereunderandinaddition toalloftheCompany’s otherobligations under theExchange Documents,theCompany shall defend,protect,indemnifyandholdharmless theCreditorandeachaffiliate oftheCreditor thatholdsanySecuritiesandalloftheir shareholders, partners,members, officers, directors,employeesand direct or indirect investorsandanyofthe foregoingPersons’agentsorother representatives (including, withoutlimitation, those retained inconnection withthe transactionscontemplated by thisAgreement)(collectively, the“Indemnitees”)fromandagainstanyandallactions,causes ofaction, suits,claims, losses,costs, penalties, fees, liabilitiesand damages,andexpenses inconnection therewith(irrespective of whetherany suchIndemnitee isaparty totheaction forwhichindemnificationhereunder issought),andincluding reasonableattorneys’feesand disbursements(the“Indemnified Liabilities”), incurred byanyIndemniteeasaresult of,orarising out of,orrelating to (a)any misrepresentation or breach ofanyrepresentation orwarranty madeby the Companyinanyof the Exchange Documents, (b)anybreach ofanycovenant,agreement orobligation oftheCompanycontainedinanyoftheExchange Documents or (c)anycauseofaction,suitorclaimbroughtormadeagainstsuchIndemniteeby athirdparty (including for thesepurposes aderivativeaction broughtonbehalf oftheCompany)andarising outoforresultingfrom(i)theexecution, delivery,performance orenforcement ofany ofthe Exchange Documents,or(ii)thestatusof theCreditor or holder of the Securitiesasa holderof securitiesof theCompanypursuanttothe transactionscontemplatedby theExchange Documents.Totheextent thattheforegoing undertakingbytheCompany maybeunenforceable forany reason,theCompany shall makethe maximumcontributionto thepaymentand satisfaction ofeach of theIndemnifiedLiabilities which is permissible underapplicable law.
(b)Promptlyafter receiptbyanIndemnitee underthisSection 5of notice ofthecommencement ofanyactionorproceeding (includinganygovernmentalactionor proceeding)involvinganIndemnifiedLiability,suchIndemnitee shall,ifanIndemnifiedLiability inrespect thereofistobemadeagainst theCompanyunderthisSection 5,deliver to the Company a written notice of thecommencement thereof,and the Company shall have the right toparticipatein,and,totheextent theCompany sodesires, toassumecontrolofthedefense thereofwithcounselmutually satisfactory totheCompanyandthe Indemnitee; provided, however, thatanIndemnitee shallhave the righttoretainitsowncounsel withthe feesandexpenses ofnotmorethanonecounsel forsuchIndemnitee tobepaidbythe Company,if,inthe reasonable opinion ofcounsel retainedby the Company, therepresentationby suchcounselof
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theIndemniteeandtheCompany wouldbeinappropriate duetoactualorpotentialdiffering interests between suchIndemniteeandany otherparty representedbysuchcounselinsuch proceeding.InthecaseofanIndemnitee, legalcounsel referred tointheimmediately preceding sentenceshallbeselectedby theCreditor.TheIndemniteeshallcooperatefully withthe Companyinconnection withany negotiation ordefense ofany suchIndemnifiedLiabilitybythe CompanyandshallfurnishtotheCompanyallinformationreasonablyavailabletotheIndemnitee whichrelates tosuchIndemnifiedLiability.TheCompany shallkeep theIndemnitee reasonablyapprisedatall timesas tothestatus ofthedefense orany settlement negotiations with respectthereto. TheCompany shall not be liable foranysettlementofanyaction,claim or proceedingeffected withoutitspriorwrittenconsent, provided,however, thattheCompany shall not unreasonably withhold, delay orcondition itsconsent. TheCompanyshall not,withoutthe priorwrittenconsentoftheIndemnitee,consent toentry ofany judgment orenterintoany settlement orothercompromisewhichdoes not includeasanunconditional termthereof thegivingbytheclaimantorplaintiff tosuchIndemnitee ofa releasefromall liability inrespect to suchIndemnifiedLiability.Followingindemnificationasprovided forhereunder, the Company shall be subrogatedtoallrights oftheIndemnitee withrespect toallthirdparties, firmsorcorporationsrelating to the matter for which indemnification has been made. The failure to deliver written notice to the Company within a reasonable time of thecommencement ofany suchaction shall notrelieve the Companyofany liability totheIndemnitee under thisSection
8.12,exceptto theextent that the Companyis prejudiced inits abilitytodefend suchaction.
(c) Theindemnification requiredbythisSection 5shallbemadeby periodicpaymentsoftheamountthereof during thecourseoftheinvestigationordefense,asand when bills arereceivedorIndemnifiedLiabilitiesareincurred.
(d)Theindemnification requiredbythisSection 5shall beinaddition to (i)anycauseofaction orsimilar rightoftheIndemniteeagainst theCompanyor others,and (ii)anyliabilities theCompanymaybe subjectto pursuantto the law..
6.RESERVATION OFSHARES
(a)Reservation.TheCompany shallinitially reserve 1,000,000,000sharesof CommonStockforthepurposeofeffectingExchanges ofsuch ExistingDebt (the“Initial ReserveAmount”.So longasany oftheExistingDebt remains outstandingand is held by the Creditor,theCompany shall takeallactionnecessary to reserveandkeepavailable outofitsauthorizedand unissued CommonStock,solelyforthe purposeofeffecting Exchanges ofsuch Existing Debt,thegreater of(x)theInitialReserve Amountand(y) suchnumberofshares of CommonStock,asofany date ofdetermination, forsuchExistingDebtinaccordance withthe followingformula:
P
------------------ x3 =Share Reserve
(T xB)
P=Theaggregate principalamountoftheExisting Debtoutstandingandheldby the Creditoras of suchdate ofdetermination;
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T=TheapplicableVariableExchangeBasePriceasofsuch dateof determination;
B=0.85;
provided, that,theShare Reserveshallinnoevent be lessthan 150% ofthe numberofshares of CommonStockasshall fromtime totimebenecessary toeffect theexchange ofallofthe Existing Debtthenoutstandingandheldby theCreditor (withoutregardtoany limitationsonexchanges) (the“Required ReserveAmount”).Onor prior tothedatehereof, boththe Companyand itstransferagent shallexecuteanddeliver totheCreditortheirrevocable transferagentinstructions in theformattachedhereto asExhibitIII.
(b)Insufficient AuthorizedShares.If, notwithstandingSection 6(a),and notin limitation thereof,atanytimewhiletheExisting Debtremains outstanding theCompany does nothave asufficient numberofauthorizedandunreserved sharesofCommonStocktosatisfy its obligation toreserve forissuance uponexchange oftheExisting Debtheldby theCreditor ofat least a numberof sharesof Common StockequaltotheRequired ReserveAmount(an“AuthorizedShareFailure”), then theCompanyshall immediately takeallaction necessary to increase theCompany’sauthorized sharesof Common Stocktoanamountsufficienttoallow the Company toreserve the RequiredReserveAmountforsuchExisting Debt.Without limiting thegenerality oftheforegoing sentence,assoonaspracticableafter thedateoftheoccurrenceofan AuthorizedShareFailure, butinnoevent laterthansixty (60)daysaftertheoccurrence ofsuch AuthorizedShareFailure, the Company shall hold a meetingof its stockholder for theapproval ofanincrease inthenumber ofauthorized shares ofCommon Stock.Inconnection withsuch meeting, the Companyshall provideeach stockholder witha proxystatementand shalluseits besteffortstosolicit itsstockholders’approval ofsuchincreaseinauthorized sharesofCommonStockand tocause itsboard of directors to recommend to the stockholders that theyapprove such proposal.Intheeventthatthe Companyis prohibitedfrom issuing sharesof CommonStock uponanyexchangedueto thefailureby the Company tohave sufficient sharesof CommonStockavailable outof theauthorized butunissued sharesof CommonStock (such unavailable numberof shares of CommonStock, the“AuthorizationFailureShares”), inlieu ofdelivering suchAuthorizationFailureSharestotheCreditor,theCompany shallpaycashinexchange for the redemption of suchportionof theDebtAmountexchangeable intosuch AuthorizedFailureSharesatapriceequal tothesumof(i)theproductof(x)such numberof AuthorizationFailureSharesand(y) thegreatest ClosingSalePriceofthe CommonStock onanyTradingDay during theperiodcommencing onthedate theCreditor delivers theapplicable Exchange Notice with respect to such AuthorizationFailureShares to the Companyandending on the date of such issuanceandpayment under thisSection 6(b)and (ii) to theextent the Creditor purchases (inanopenmarket transaction orotherwise) sharesofCommonStock to deliver insatisfaction ofasaleby theCreditorofAuthorizationFailureShares,anybrokeragecommissionsandother out-of-pocketexpenses, ifany,of the Creditorincurred inconnection therewith. Nothingcontained inSection 6(a)orthisSection 6(b)shall limitany obligations of the Company underanyotherprovision hereunder orintheExistingDebt.
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7.MISCELLANEOUS.
(a)HoldingPeriod.Forthepurposes ofRule144oftheSecurities Act,theCompanyacknowledges thattheholding periodof theExchangeShares may betacked ontheholding periodof theExisting Debt,and theCompanyagrees nottotakeapositioncontrary tothisSection 7(a).
(b)Further Assurances; AdditionalDocuments.The partiesshalltakeanyactionsandexecuteanyotherdocumentsthatmaybenecessaryordesirable tothe implementationandconsummation of thisAgreement uponthe reasonable requestof the other party.
(c)NoOral Modification.ThisAgreement may only beamended in writing signedbytheCompanyandbytheCreditor.Allwaiversrelating toanyprovisionofthis Agreement must be in writingand signedbythewaiving party.
(d)Expenses.Exceptasotherwise setforth inthisAgreement,each partytothisAgreementshallbearits ownexpenses in connectionwithtransactionscontemplated hereby. TheCompanyshallberesponsible forthepayment ofany placementagent’s fees, financialadvisoryfees, DTCfees, transferagent fees,orbroker’scommissions (other than forPersonsengagedby the Creditor) relatingtoorarisingoutof the transactionscontemplated hereby. The Company shall pay,andhold theCreditor harmlessagainst,any liability, loss orexpense (including, withoutlimitation, reasonableattorneys’ feesand out-of-pocketexpenses)arisingin connection withanyclaim relating to anysuchpayment.
(e)GoverningLaw;Jurisdiction;JuryTrial.Allquestionsconcerning theconstruction, validity,enforcementandinterpretation of thisAgreement shallbegovernedby theinternallawsoftheState ofNewYork,withoutgivingeffect toanychoiceoflaworconflict oflawprovisionorrule(whether oftheState ofNew Yorkorany other jurisdictions) thatwouldcausetheapplication ofthelaws ofany jurisdictions otherthantheStateofNewYork.Each partyhereby irrevocably submits to theexclusive jurisdiction of the stateand federalcourts sitting inTheCityofNew York,BoroughofManhattan, fortheadjudication ofany dispute hereunder orinconnection herewithorwithany transactioncontemplatedhereby ordiscussed herein,andhereby irrevocablywaives,andagrees nottoassert inany suit,action orproceeding,anyclaimthatitisnotpersonally subjecttothejurisdiction ofany suchcourt,thatsuchsuit,action orproceeding isbrought inaninconvenient forumorthatthevenue ofsuchsuit,action or proceeding isimproper. Eachpartyhereby irrevocablywaivespersonal serviceofprocessandconsents toprocessbeingservedinany suchsuit,action orproceedingby mailing acopythereof tosuchpartyattheaddressforsuchnoticestoitunder thisAgreementandagrees thatsuch service shallconstitutegoodand sufficient serviceofprocessandnotice thereof. Nothingcontainedherein shallbedeemedtolimit inany wayany righttoserveprocess inany manner permittedbylaw.EACHPARTY HEREBYIRREVOCABLY WAIVESANY RIGHTITMAY HAVE,ANDAGREESNOTTOREQUEST, AJURY TRIALFORTHE ADJUDICATION OFANYDISPUTEHEREUNDER ORINCONNECTION WITHOR ARISING OUTOF THISAGREEMENTORANY TRANSACTIONCONTEMPLATED HEREBY.
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(f)Headings; Gender. Theheadings of thisAgreementareforconvenience ofreferenceandshallnotformpart of,oraffecttheinterpretationof, this Agreement.Unless thecontextclearly indicatesotherwise,eachpronounherein shallbedeemed toinclude themasculine,feminine, neuter, singularandplural formsthereof. Theterms“including,”“includes,”“include”andwordsoflike importshall beconstrued broadlyas if followedby thewords“withoutlimitation.” Theterms“herein,”“hereunder,”“hereof”and wordsoflikeimport refer tothis entireAgreement insteadofjusttheprovisioninwhichtheyare found.
(g)Remedies.TheCreditorandeachaffiliate oftheCreditor that holdsanySecurities shallhaveallrightsandremedies setforth intheExchange Documentsandallrightsand remedieswhichsuch holdershave beengrantedatanytime underany otheragreement orcontractandall of therights which suchholders haveunderany law. AnyPerson havingany rightsunderanyprovisionofthisAgreement shallbeentitled toenforce suchrights specifically (withoutpostingabondorothersecurity), torecover damagesby reasonofany breachofany provision ofthisAgreementand toexerciseallotherrightsgrantedbylaw.Furthermore, theCompany recognizes thatin theeventthatitfails toperform, observe, or dischargeanyorallof itsobligations underanyoftheExchange Documents,anyremedyat law mayprove tobe inadequate relief to the Creditor. The Companythereforeagrees that the Creditor shallbeentitled toseek specificperformanceand/ortemporary,preliminaryand permanent injunctive or otherequitable relieffromanycourt ofcompetent jurisdiction inany suchcasewithoutthe necessity of provingdamagesand withoutpostingabond orothersecurity.
(h)WithdrawalRight.Notwithstandinganythingtothecontrarycontainedin(andwithoutlimitingany similarprovisionsof)theExchangeDocuments, whenever the Creditorexercisesa right,election,demand or optionunderanExchange Documentand theCompany does nottimelyperformitsrelated obligations withintheperiods thereinprovided,thentheCreditor mayrescind orwithdraw,initssolediscretion fromtime to timeuponwrittennoticetotheCompany,any relevant notice,demandorelection inwholeorin partwithout prejudice toits futureactionsand rights.
(i)PaymentSetAside.TotheextentthattheCompany makesa payment or payments totheCreditor hereunder or theCreditorenforces orexercises itsrights hereunder or thereunder,andsuch paymentor payments or the proceeds of suchenforcement orexerciseoranypartthereofaresubsequentlyinvalidated,declaredtobefraudulentor preferential, setaside, recoveredfrom,disgorgedbyorarerequired toberefunded,repaid or otherwiserestored to theCompany, atrustee,receiver orany otherPerson underany law (including, withoutlimitation,anybankruptcy law,foreign, stateorfederal law,common laworequitablecauseof action), thentotheextentofany suchrestoration theobligation orpartthereof originally intended to be satisfied shall be revivedandcontinued in full forceandeffectas if such payment had not been made orsuchenforcement orsetoff hadnot occurred. Unless otherwiseexpressly indicated,alldollaramountsreferred tointhisAgreementandthe other Exchange Documentsare inUnited States Dollars(“US Dollars”),and allamounts owing under this Agreementandall other Exchange Documentsshallbe paid inUSDollars. Allamounts denominated in othercurrencies shall beconverted in the US Dollarequivalentamount inaccordance withtheDollar Exchange Rateonthedateofcalculation.“Dollar Exchange Rate” means, in relation toanyamount ofcurrency to beconverted into US Dollars pursuant to this
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Agreement, theUSDollarexchange rateas publishedintheWallStreetJournalontherelevant date ofcalculation.
(j)Counterparts. ThisAgreement maybeexecuted intwoormore identicalcounterparts,allof whichshall beconsidered oneandthe sameagreementandshall becomeeffective whencounterparts havebeensignedbyeachpartyanddelivered totheother party; providedthata facsimile signature shall beconsidered dueexecutionandshall be binding uponthesignatory thereto withthesame forceandeffectasifthesignature wereanoriginal, not afacsimile signature.
(k)Survival.Therepresentations,warranties,agreementsandcovenants inthisAgreement shallsurvivetheexecutionanddeliveryhereofandtheconsummation of thetransactionscontemplatedhereby.
(l)Headings.The headings ofthis Agreementareforconvenience of referenceand shall not form part of, oraffecttheinterpretation of, thisAgreement.
(m)Severability; Usury.Ifany termorprovisionofthis Agreementis determinedby acourt ofcompetent jurisdictiontobeinvalid,illegal orincapable ofbeingenforcedbyany ruleoflaworpublic policy,allothertermsand provisionsofthisAgreement shall neverthelessremain infullforceandeffect solongas theeconomic or legal substance of thetransactionscontemplated hereby isnotaffected inany mannermateriallyadverse toany party. Upon determination thatanytermor other provision of thisAgreement is invalid, illegal orincapableofbeingenforced, theparties heretoshallnegotiate ingoodfaithtoattempt toagree onamodification ofthis Agreementsoastoeffect theoriginal intentof thepartiesascloselyas possibleto thefullestextent permittedby law inanacceptable mannerto theendthatthe transactionscontemplated herebyarefulfilledtothegreatestextent possible.Notwithstandinganything tothecontrarycontainedinthisAgreementorany otherExchange Document(and withoutimplication thatthe followingisrequired orapplicable), itistheintention of the parties thatinnoevent shallamountsandvaluepaidbytheCompany,orpayable toorreceivedby the Creditor, undertheExchange Documents,including withoutlimitation,anyamountsthatwould becharacterizedas“interest” underapplicable law,exceedamountspermitted underany suchapplicablelaw.Accordingly,ifany obligationtopay,paymentmadetotheCreditor,orcollectionby the Creditor pursuant the Exchange Documentsis finally judiciallydetermined to becontrary toany suchapplicable law,such obligation topay, payment orcollection shall be deemed tohavebeen madebymutualmistake ofthe Creditorand theCompanyandsuchamount shallbe deemedtohavebeenadjusted withretroactiveeffect tothemaximumamountorrateof interest,asthe casemay be,aswouldnot besoprohibitedby theapplicablelaw.Suchadjustment shall beeffected, totheextent necessary,by reducing or refunding,atthe option of theCreditor, theamountofinterest orany otheramounts which wouldconstitute unlawfulamounts requiredtobepaid oractually paidtotheCreditor undertheExchange Documents.Forgreatercertainty, totheextent thatanyinterest,charges,fees,expenses orother amounts required tobepaid toorreceivedbytheCreditorunderany oftheExchange Documentsorrelated theretoareheld to be within the meaning of“interest” oranotherapplicable term to otherwisebe violative ofapplicable law, suchamounts shallbepro-rated over theperiod of timeto which they relate.
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(n)NoThirdParty Beneficiaries.ThisAgreementisintended forthe benefit of the partiesheretoandtheir respective permitted successorsandassigns,andisnotfor the benefit of, normayanyprovision hereofbe enforcedby,anyotherPerson.
(o)Further Assurances.Each partyshalldoandperform,orcauseto be doneandperformed,allsuch furtheractsandthings,andshallexecuteanddeliverallsuch otheragreements,certificates, instrumentsanddocuments,astheotherparty mayreasonably requestinordertocarry outtheintentandaccomplish thepurposes ofthisAgreementandtheconsummation of thetransactionscontemplatedhereby.
(p)NoStrict Construction.The language usedinthisAgreement will bedeemedtobethelanguagechosenbythepartiestoexpress theirmutual intent,andnorulesof strictconstruction willbe appliedagainstanyparty.
(q)SuccessorsandAssigns. ThisAgreement shallbebindinguponand inuretothebenefitof thepartiesand theirrespective successorsandassigns.
(r)Notices.Any notices,consents,waiversorothercommunications requiredorpermitted tobegiven underthetermsofthisAgreement mustbeinwritingand will be deemedto havebeen delivered: (i) uponreceipt, whendelivered personally; (ii)upon receipt, when sent byfacsimile(providedconfirmation of transmission ismechanically orelectronicallygeneratedand kept on fileby thesending party); or(iii) onebusiness dayafter deposit withan overnightcourierservice, ineachcase properlyaddressedto theparty toreceivethesame.Theaddressesandfacsimile numbersforsuchcommunications shallbe(x)if totheCompany,at theaddresssetforth onitssignature pageattached heretoor(y) iftothe Creditor,attheaddress set forthonitssignature pageattached hereto,ortosuch otheraddressand/or facsimile numberand/orto theattention of suchotherPersonas the recipientparty has specified by writtennoticegiven toeach otherparty five (5)days priorto theeffectiveness ofsuchchange.Writtenconfirmation ofreceipt (A)givenby therecipient ofsuch notice,consent, waiver orothercommunication, (B) mechanically orelectronically generated by the sender's facsimile machinecontaining the time,date, recipientfacsimile numberandanimage ofthefirst pageofsuch transmission or(C)providedbyan overnightcourierserviceshall berebuttableevidenceof personalservice, receiptby facsimile orreceiptfroman overnightcourier service inaccordance with clause(i), (ii)or(iii)above,respectively.
[SignaturePageFollows]
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INWITNESS WHEREOF, theCreditorandtheCompanyhavecaused their respective signature pagetothisExchangeAgreement tobedulyexecutedasofthedatefirstwrittenabove.
SCHEDULE IOPTION SCHEDULE
OptionNumber | Additional ExistingDebt |
1 | $118,268 |
INWITNESS WHEREOF, theCreditorandtheCompanyhavecaused their respective signature pagetothisExchangeAgreement tobedulyexecutedasofthedatefirstwrittenabove.
EXHIBIT I
PETRON ENERGY II, INC.
EXCHANGE NOTICE
Reference ismadeto(a)thatcertain Master ExchangeAgreement,datedasofApril3,
2014 (the“Exchange Agreement”),byandbetween theundersignedandPetron EnergyII,Inc., aNevadacorporation(the“Company”)and(b)certainExisting Debt(asdefinedinthe ExchangeAgreement)heldby theundersignedasofthedatehereof.Inaccordance withand pursuanttotheExchangeAgreement,theundersignedherebyelectstoexchange theDebt Exchange Amount (as defined in the ExchangeAgreement) indicatedbelow into shares of Common Stock, $0.0001 par valueper share (the“CommonStock”), of the Company,at the ExchangeRate(asdefined inthe ExchangeAgreement,asofthedate specifiedbelow. Capitalized termsnotdefinedherein shallhave themeaningassetforthintheExchange Agreement.