SECURITIESPURCHASEAGREEMENT
ThisSECURITIESPURCHASEAGREEMENT(the“Agreement”),datedasofAugust18,2014,byandbetweenAJACANNAFACTURING,INC.f/k/aIDSINDUSTRIES,INC.,aNevadacorporation,withheadquarterslocatedat5333BirchStreet,LakeElsinore,CA 92530(the“Company”),andKBMWORLDWIDE,INC., aNew Yorkcorporation,with itsaddressat 80CuttermillRoad, Suite410,GreatNeck,NY11021(the “Buyer”).
WHEREAS:
A. TheCompanyandtheBuyerareexecutinganddeliveringthisAgreementinrelianceupontheexemptionfromsecuritiesregistrationaffordedbytherulesandregulationsaspromulgatedbytheUnitedStatesSecuritiesandExchange Commission(the“SEC”) under theSecuritiesAct of1933, asamended(the“1933Act”);
B. BuyerdesirestopurchaseandtheCompanydesirestoissueandsell,uponthetermsandconditionssetforthinthisAgreementan8%convertiblenoteoftheCompany,intheformattachedheretoasExhibitA,intheaggregateprincipalamountof$53,000.00(togetherwith any note(s)issuedinreplacementthereof orasadividendthereon orotherwisewithrespecttheretoinaccordancewiththetermsthereof,the“Note”),convertibleintosharesofcommonstock, $0.001parvaluepershare, of the Company(the“CommonStock”), upon thetermsandsubject to the limitationsandconditionssetforth insuchNote.
C. TheBuyerwishestopurchase,uponthetermsandconditionsstatedinthisAgreement,suchprincipalamountofNoteasissetforthimmediatelybelowitsnameonthesignature pageshereto; and
NOWTHEREFORE,theCompanyandtheBuyerseverally(andnotjointly)herebyagreeasfollows:
1. Purchase and SaleofNote.
a. PurchaseofNote.OntheClosingDate(asdefinedbelow),theCompanyshallissueandselltotheBuyerandtheBuyeragreestopurchasefromtheCompanysuchprincipalamountofNoteasissetforthimmediatelybelowtheBuyer’sname onthesignature pageshereto.
b. FormofPayment.OntheClosingDate(asdefinedbelow),(i)theBuyershallpaythepurchasepricefortheNotetobeissuedandsoldtoitattheClosing(asdefinedbelow)(the“PurchasePrice”) bywire transfer ofimmediatelyavailablefunds to theCompany,inaccordancewiththeCompany’swrittenwiringinstructions,againstdelivery oftheNotein theprincipalamountequal to thePurchasePriceas issetforth immediately below theBuyer’sname on thesignaturepageshereto, and(ii)the Companyshalldeliversuch dulyexecutedNoteon behalfofthe Company, to theBuyer,against delivery ofsuchPurchase Price.
c. ClosingDate.Subjecttothesatisfaction(orwrittenwaiver)oftheconditionstheretosetforthinSection6andSection7below,thedateandtimeoftheissuanceandsaleoftheNotepursuanttothisAgreement(the“ClosingDate”)shallbe12:00noon,EasternStandardTimeonoraboutAugust20,2014,orsuchothermutuallyagreedupontime.The closingof thetransactionscontemplated bythisAgreement(the“Closing”)shall occur on theClosingDateatsuchlocationas may beagreed to by the parties.
2. Buyer’sRepresentationsandWarranties. TheBuyerrepresentsandwarrants to theCompanythat:
a. InvestmentPurpose.Asofthedatehereof,theBuyerispurchasingtheNoteandthesharesofCommonStockissuableuponconversionoforotherwisepursuanttotheNote(including,withoutlimitation,suchadditionalsharesofCommonStock,ifany,asareissuable(i)onaccountofinterestontheNote,(ii) asaresultoftheeventsdescribedinSections1.3and1.4(g) of theNote or(iii)inpaymentof theStandardLiquidatedDamagesAmount(asdefinedinSection2(f)below)pursuanttothisAgreement,suchsharesofCommonStockbeing collectivelyreferredtohereinas the“ConversionShares”and, collectivelywith theNote, the“Securities”) for itsownaccountand notwith apresent viewtowards the publicsale ordistributionthereof, exceptpursuanttosalesregistered orexemptedfromregistration under the 1933Act;provided,however, that by making therepresentations herein, theBuyerdoesnotagree to hold any of theSecuritiesfor any minimum orotherspecifictermandreserves theright to dispose of theSecuritiesat any time inaccordancewith or pursuant to aregistrationstatement or an exemptionunderthe1933Act.
b. AccreditedInvestorStatus.TheBuyerisan“accreditedinvestor”asthatterm isdefined inRule 501(a)of Regulation D (an“AccreditedInvestor”).
c. Reliance onExemptions.TheBuyerunderstandsthattheSecuritiesarebeingofferedandsoldtoitinrelianceuponspecificexemptionsfromtheregistrationrequirementsofUnitedStatesfederalandstatesecuritieslawsandthattheCompanyisrelyinguponthetruthandaccuracyof,andtheBuyer’scompliancewith,therepresentations, warranties,agreements,acknowledgmentsandunderstandings of theBuyersetforthherein inordertodeterminetheavailability ofsuchexemptionsandtheeligibilityof theBuyertoacquire the Securities.
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d. Information.TheBuyeranditsadvisors,if any,havebeen,andforsolongastheNoteremainoutstandingwillcontinuetobe,furnishedwithallmaterialsrelatingtothebusiness,financesandoperationsoftheCompanyandmaterialsrelatingtotheofferandsaleoftheSecurities whichhavebeenrequestedbytheBuyeroritsadvisors.TheBuyerand itsadvisors,ifany,have been,andforsolongas theNoteremainoutstandingwillcontinue tobe,affordedthe opportunitytoaskquestionsof theCompany.Notwithstandingtheforegoing,the CompanyhasnotdisclosedtotheBuyeranymaterialnonpublicinformationandwillnotdisclosesuchinformationunlesssuchinformation isdisclosed to the publicprior to or promptlyfollowingsuch disclosure to theBuyer. Neithersuchinquiries nor anyother duediligenceinvestigationconductedbyBuyeror any ofits advisors or representativesshallmodify,amend oraffectBuyer’sright torely ontheCompany’srepresentationsandwarrantiescontainedinSection 3below.TheBuyerunderstands that itsinvestment in theSecuritiesinvolves asignificant degreeofrisk.TheBuyeris notawareofanyfactsthatmay constitutea breach of any ofthe Company'srepresentationsandwarrantiesmade herein.
e. GovernmentalReview.TheBuyerunderstandsthat noUnitedStatesfederalorstateagencyoranyothergovernmentorgovernmentalagencyhaspasseduponor madeanyrecommendation or endorsementofthe Securities.
f. TransferorRe-sale.TheBuyerunderstandsthat(i)thesaleorre-saleoftheSecuritieshasnotbeenandisnotbeingregisteredunderthe1933Actoranyapplicablestate securitieslaws,andthe Securitiesmaynot be transferredunless(a)the Securitiesare soldpursuanttoaneffectiveregistrationstatementunder the 1933 Act,(b)theBuyershall havedelivered to theCompany,at thecost of theBuyer,an opinion of counselthatshall be inform,substanceand scope customaryfor opinions ofcounsel incomparabletransactions to theeffectthat theSecurities to be sold ortransferred may be sold ortransferred pursuant toan exemptionfromsuchregistration,which opinionshall beacceptedby theCompany,(c)theSecurities are soldortransferred toan“affiliate”(asdefined in Rule144promulgatedunder the 1933Act(or asuccessorrule)(“Rule144”)) of theBuyerwhoagrees tosell orotherwisetransfertheSecuritiesonly inaccordancewith thisSection2(f)andwhoisanAccreditedInvestor,(d)theSecuritiesare soldpursuant to Rule 144, or(e)theSecuritiesare sold pursuanttoRegulation Sunder the 1933Act(or a successorrule)(“Regulation S”),and theBuyershallhavedelivered to theCompany,at thecost of theBuyer,an opinion of counselthatshall be inform,substanceand scope customaryfor opinions ofcounsel incorporatetransactions,which opinionshall beacceptedbytheCompany;(ii)anysale ofsuch Securitiesmade inreliance on Rule144maybemade onlyinaccordancewiththetermsofsaidRuleandfurther,ifsaidRuleis notapplicable,anyre-sale ofsuchSecurities undercircumstances inwhichtheseller(or thepersonthroughwhom thesale is made)maybedeemed tobeanunderwriter (asthat term isdefinedinthe1933Act) mayrequirecompliancewithsomeother exemptionunderthe1933Act ortherulesandregulationsoftheSECthereunder;and(iii)neither theCompanynoranyotherpersonisunderanyobligationtoregistersuchSecuritiesunderthe1933Act orany statesecuritieslawsor to complywith the termsand conditions of any exemptionthereunder(ineachcase).Notwithstanding theforegoingoranythingelsecontained herein to thecontrary, theSecuritiesmaybe pledgedascollateral in connectionwith abonafidemarginaccount orotherlendingarrangement.
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g. Legends.TheBuyer understandsthat theNoteand, untilsuch timeastheConversionShareshavebeenregisteredunderthe1933ActmaybesoldpursuanttoRule144orRegulationSwithoutanyrestrictionastothenumberofsecuritiesasofaparticulardatethatcanthenbeimmediately sold,theConversionSharesmay bear arestrictivelegendin substantiallythe followingform(andastop-transfer order maybeplacedagainsttransfer of thecertificatesforsuchSecurities):
“NEITHERTHEISSUANCEANDSALEOFTHESECURITIESREPRESENTEDBYTHISCERTIFICATENORTHESECURITIESINTOWHICHTHESESECURITIESAREEXERCISABLEHAVEBEENREGISTEREDUNDERTHESECURITIESACTOF1933,ASAMENDED,ORAPPLICABLESTATESECURITIESLAWS.THESECURITIESMAYNOT BEOFFERED FORSALE,SOLD,TRANSFERRED ORASSIGNED(I) IN THEABSENCE OF(A)ANEFFECTIVEREGISTRATIONSTATEMENT FOR THESECURITIESUNDERTHESECURITIESACTOF 1933,ASAMENDED, OR(B)AN OPINIONOFCOUNSEL(WHICHCOUNSELSHALLBESELECTEDBYTHEHOLDER), INAGENERALLYACCEPTABLEFORM,THATREGISTRATION ISNOTREQUIREDUNDERSAIDACT OR(II)UNLESSSOLDPURSUANTTORULE 144 ORRULE 144AUNDERSAIDACT.NOTWITHSTANDING THEFOREGOING,THESECURITIESMAYBEPLEDGEDINCONNECTIONWITH ABONAFIDEMARGINACCOUNTOROTHERLOAN ORFINANCINGARRANGEMENTSECUREDBY THE SECURITIES.”
ThelegendsetforthaboveshallberemovedandtheCompanyshallissueacertificatewithoutsuchlegendtotheholderofanySecurityuponwhichitisstamped,if,unlessotherwiserequiredbyapplicablestatesecuritieslaws,(a)suchSecurity isregisteredfor sale underaneffectiveregistrationstatementfiled under the 1933Act orotherwise maybe soldpursuantto Rule 144orRegulationSwithoutanyrestrictionastothe numberof securitiesasof aparticulardatethatcanthenbeimmediately sold,or(b)suchholderprovidestheCompanywithanopinion ofcounsel, inform,substanceandscope customary for opinions ofcounsel incomparabletransactions,totheeffectthatapublicsaleortransferofsuchSecurity maybemadewithoutregistrationunderthe1933Act,whichopinionshallbeaccepted by theCompany sothatthesale ortransfer iseffected.TheBuyeragrees to sellallSecurities,including thoserepresentedby acertificate(s)fromwhich thelegendhasbeenremoved,incompliancewithapplicableprospectus deliveryrequirements,ifany.Inthe eventthat the Companydoesnotaccept the opinionofcounselprovided by theBuyerwithrespecttothetransfer ofSecuritiespursuanttoanexemptionfromregistration,such as Rule 144 orRegulation S,at theDeadline, itwill beconsideredanEvent of Default pursuant toSection 3.2 ofthe Note.
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h. Authorization;Enforcement.ThisAgreementhasbeendulyandvalidlyauthorized.ThisAgreementhasbeendulyexecutedanddeliveredonbehalfoftheBuyer,andthisAgreementconstitutesavalidandbindingagreementoftheBuyerenforceableinaccordance with itsterms.
i. Residency.TheBuyerisaresidentofthejurisdictionsetforthimmediatelybelowtheBuyer’snameon the signature pageshereto.
3. RepresentationsandWarranties oftheCompany. The Companyrepresentsandwarrantsto the Buyer that:
a. OrganizationandQualification.TheCompanyandeachofitsSubsidiaries(asdefinedbelow),ifany,isacorporationdulyorganized,validlyexistingandingoodstandingunder thelawsof thejurisdictioninwhichitisincorporated,withfullpower and authority(corporateandother)toown,lease,useandoperateitsproperties andtocarryonitsbusinessasandwhere nowowned,leased,used,operatedandconducted.Schedule3(a)setsforth a list ofall of theSubsidiaries of the Companyandthe jurisdiction inwhicheach isincorporated.The Companyandeachof itsSubsidiariesisdulyqualifiedasaforeigncorporation to do businessand is in good standing in everyjurisdiction inwhich itsownership or use of property or the nature of thebusinessconductedby itmakessuchqualificationnecessaryexceptwhere thefailure tobe soqualifiedor ingoodstandingwouldnothave aMaterialAdverseEffect.“MaterialAdverseEffect”meansanymaterialadverseeffectonthebusiness,operations,assets, financialcondition orprospects of the Company or itsSubsidiaries, ifany,takenas awhole,oron the transactionscontemplated hereby orby theagreements orinstruments to beentered into inconnectionherewith.“Subsidiaries”meansanycorporation orotherorganization,whetherincorporatedorunincorporated,inwhichtheCompanyowns,directlyorindirectly,any equity orother ownershipinterest.
b. Authorization;Enforcement.(i)TheCompanyhasallrequisitecorporatepowerandauthoritytoenterintoandperformthisAgreement,theNoteandtoconsummatethetransactionscontemplatedherebyandtherebyandtoissuetheSecurities,inaccordancewith the termshereofand thereof,(ii) theexecutionanddelivery of thisAgreement, theNoteby the Company and theconsummationby it of thetransactionscontemplated herebyand thereby(includingwithoutlimitation, theissuance of the Note and theissuanceandreservationforissuance of theConversionSharesissuable uponconversion orexercisethereof)havebeendulyauthorizedbytheCompany’sBoard ofDirectorsand nofurtherconsentorauthorization of theCompany, itsBoard ofDirectors, or itsshareholders isrequired,(iii) thisAgreementhas been dulyexecutedanddeliveredby the Companybyitsauthorizedrepresentative,andsuchauthorizedrepresentative is the trueandofficialrepresentativewith authority tosign thisAgreementand theother documentsexecuted inconnectionherewithandbindtheCompanyaccordingly,and(iv)thisAgreementconstitutes,anduponexecutionand deliverybythe Companyof theNote,each of suchinstrumentswillconstitute, alegal,validand bindingobligationoftheCompanyenforceableagainsttheCompanyinaccordancewithitsterms.
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c. Capitalization.Asofthedatehereof,theauthorizedcapitalstockoftheCompanyconsistsof:(i)500,000,000sharesofCommonStock,$0.001parvaluepershare,ofwhich121,184,334sharesareissuedandoutstanding;and(ii)10,000,000authorizedsharesofPreferredStock,$0.001parvaluepershare,ofwhichnosharesareissuedandoutstanding;nosharesarereservedforissuancepursuanttotheCompany’sstockoptionplans, noshares arereserved forissuancepursuant tosecurities(otherthan theNoteandtwo(2)priorconvertiblepromissory notes infavoroftheBuyer
(a) PriorconvertiblepromissorynoteinfavoroftheBuyerdatedMarch19,2014intheamount of$53,000.00 ;
(b) PriorconvertiblepromissorynoteinfavoroftheBuyerdatedMay20,2014intheamountof$53,000.00;anaggregatetotalofforwhich115,000,000sharesofCommonStockarepresentlyreservedforboth prior notesreferenced above;andexercisablefor,orconvertible into orexchangeableforshares of CommonStockand 60,000,000sharesarereservedforissuanceuponconversionoftheNote.All ofsuchoutstandingsharesofcapitalstockare,oruponissuancewillbe,duly authorized,validlyissued, fullypaidandnon-assessable.Noshares ofcapitalstock oftheCompanyaresubject topreemptiverightsoranyothersimilarrightsof theshareholdersof the Company oranyliensorencumbrancesimposedthrough theactions orfailure toact of theCompany.Asof theeffectivedate of thisAgreement,(i)thereare nooutstandingoptions,warrants,scrip,rightstosubscribefor,puts,calls,rights offirstrefusal,agreements, understandings,claimsorothercommitments orrights ofanycharacterwhatsoeverrelating to, orsecurities or rightsconvertible into orexchangeable foranyshares ofcapitalstock of the Company orany of itsSubsidiaries, orarrangements bywhichthe Company orany of itsSubsidiaries is ormaybecome bound to issueadditionalshares ofcapitalstock of the Companyorany of itsSubsidiaries,(ii)there arenoagreements orarrangementsunderwhich theCompanyoranyof itsSubsidiaries isobligated toregister thesale ofanyof its ortheirsecuritiesunder the 1933Actand(iii)thereare noanti- dilutionorpriceadjustmentprovisionscontainedinany securityissuedbythe Company(or in anyagreementprovidingrights tosecurityholders)thatwill betriggeredbytheissuance oftheNoteortheConversionShares.TheCompany hasfurnished to theBuyertrueandcorrectcopies of theCompany’sCertificate ofIncorporationasineffectonthedatehereof(“Certificate ofIncorporation”), theCompany’sBy-laws,as ineffect on thedatehereof (the“By-laws”),and theterms ofallsecuritiesconvertible into orexercisablefor CommonStock of the Companyand thematerialrightsof theholdersthereof inrespectthereto.TheCompany shallprovide theBuyerwithawrittenupdate of thisrepresentationsignedby theCompany’sChiefExecutive onbehalf oftheCompanyas oftheClosingDate.
d. IssuanceofShares.TheConversionSharesaredulyauthorizedandreservedforissuanceand,uponconversionoftheNoteinaccordancewithitsrespectiveterms,willbevalidlyissued,fullypaidandnon-assessable,andfreefromalltaxes,liens,claimsandencumbranceswithrespect to the issuethereofandshall not besubject topreemptiverights orothersimilarrightsofshareholdersof the Companyandwillnotimposepersonalliability upon the holder thereof.
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e. AcknowledgmentofDilution.TheCompanyunderstandsandacknowledgesthepotentiallydilutiveeffecttotheCommonStockupontheissuanceoftheConversionSharesuponconversionoftheNote.The Companyfurtheracknowledgesthatitsobligation to issueConversionShares uponconversion oftheNoteinaccordancewith thisAgreement,theNote isabsoluteandunconditionalregardless ofthe dilutiveeffectthatsuchissuancemay haveon theownership interests ofother shareholders ofthe Company.
f. NoConflicts.Theexecution,deliveryandperformanceofthisAgreement,the NotebytheCompanyand theconsummationbytheCompanyofthetransactionscontemplatedherebyandthereby(including,withoutlimitation,theissuanceandreservationforissuance of the ConversionShares)willnot(i)conflictwithorresultinaviolationofanyprovisionof theCertificate ofIncorporationorBy-laws,or(ii)violate orconflictwith,orresult inabreachofany provisionof,orconstitute a default(oraneventwhichwithnotice or lapse of time or bothcouldbecome adefault)under,orgive toothersanyrightsoftermination,amendment,acceleration orcancellationof,anyagreement,indenture, patent,patentlicense orinstrumenttowhichtheCompany orany ofitsSubsidiariesisaparty, or(iii)resultinaviolation ofanylaw, rule,regulation,order,judgmentor decree (includingfederalandstatesecuritieslawsandregulationsandregulationsofanyself-regulatoryorganizationstowhichthe Companyor its securitiesare subject)applicable to the Companyoranyof itsSubsidiaries orbywhichany property orasset of the Companyor anyof itsSubsidiaries is bound oraffected(exceptfor suchconflicts,defaults,terminations,amendments,accelerations,cancellationsandviolationsaswould not, individuallyor in theaggregate, have aMaterialAdverseEffect).NeithertheCompanynoranyofitsSubsidiariesis inviolationofitsCertificateofIncorporation,By-laws or otherorganizationaldocumentsandneither the Companynor anyof itsSubsidiaries isindefault(andnoeventhasoccurredwhichwithnotice orlapse of time or bothcouldputthe Company orany of itsSubsidiaries indefault)under,andneither the Company norany of itsSubsidiarieshastakenanyaction orfailed to take anyactionthatwouldgive toothersanyrights oftermination,amendment,acceleration orcancellationof,anyagreement,indenture orinstrumenttowhichthe Companyoranyof itsSubsidiariesisa partyorbywhichanyproperty orassets of the Company orany of itsSubsidiaries is bound or affected,exceptfor possibledefaultsaswouldnot,individually orintheaggregate,have aMaterialAdverse Effect.Thebusinesses of the Companyand itsSubsidiaries, ifany, are not beingconducted,andshall not beconductedsolongastheBuyer ownsany of theSecurities,inviolationofanylaw,ordinanceorregulation of anygovernmentalentity.Exceptasspecificallycontemplatedby thisAgreementandasrequiredunder the 1933Actandanyapplicablestatesecuritieslaws,the Company isnotrequiredtoobtainany consent,authorizationororder of,ormakeany filingorregistrationwith, anycourt,governmentalagency,regulatoryagency,self regulatory organizationorstockmarket or anythird party inorderfor it toexecute,deliver orperform any of itsobligationsunder this
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Agreement,theNoteinaccordancewiththetermshereoforthereofortoissueandselltheNoteinaccordancewiththetermshereofandtoissuetheConversionSharesuponconversionoftheNote.Allconsents, authorizations,orders,filingsandregistrations which the Company isrequired toobtain pursuant to theprecedingsentence have beenobtained oreffected on orpriorto thedatehereof.The Companyis not inviolation of the listingrequirements of theOver-the-CounterBulletinBoard(the“OTCBB”)anddoes not reasonablyanticipatethat the CommonStockwillbedelistedby theOTCBBintheforeseeablefuture. TheCompanyanditsSubsidiariesare unaware ofanyfacts orcircumstanceswhichmightgiverise toanyof theforegoing.
g. SECDocuments;FinancialStatements.TheCompanyhastimelyfiledallreports,schedules,forms,statementsandotherdocumentsrequiredtobefiledby itwiththeSECpursuanttothereportingrequirementsoftheSecuritiesExchangeActof1934,asamended(the “1934Act”) (all of the foregoingfiledprior to thedatehereofandallexhibitsincludedthereinandfinancialstatementsandschedulestheretoand documents(otherthan exhibits tosuchdocuments)incorporated byreferencetherein, beinghereinafterreferred tohereinas the“SECDocuments”).Uponwrittenrequest the Company willdeliver to the BuyertrueandcompletecopiesoftheSECDocuments,exceptforsuchexhibitsandincorporateddocuments.As oftheirrespectivedates, theSECDocumentscomplied inallmaterialrespectswith therequirements of the 1934Actand the rulesandregulations of theSECpromulgatedthereunderapplicableto theSECDocuments,and none of theSECDocuments,at the time theywerefiledwith theSEC,containedanyuntruestatement of amaterial fact oromitted tostate amaterialfactrequiredtobestatedthereinornecessary inordertomake thestatementstherein,inlight of thecircumstancesunderwhich theyweremade, notmisleading.None of thestatementsmade inanysuchSECDocuments is, orhas been,required to beamended orupdated underapplicablelaw(exceptforsuchstatementsashavebeenamendedorupdatedinsubsequentfilingsprior the datehereof). Asoftheirrespectivedates,thefinancialstatementsof the Company included intheSECDocumentscompliedas toform inallmaterialrespectswithapplicableaccountingrequirementsandthepublishedrulesandregulationsof theSECwithrespectthereto.Suchfinancialstatementshave beenpreparedinaccordancewithUnitedStates generallyaccepted accountingprinciples, consistentlyapplied, duringtheperiodsinvolvedand fairlypresentinallmaterialrespectstheconsolidatedfinancialpositionof the CompanyanditsconsolidatedSubsidiariesas of thedatesthereofand theconsolidated results oftheiroperationsandcashflowsfortheperiodsthenended(subject, in thecaseofunauditedstatements, tonormalyear-endauditadjustments).Exceptassetforth in thefinancialstatements of the CompanyincludedintheSECDocuments,theCompanyhasnoliabilities,contingentorotherwise,otherthan(i)liabilitiesincurred in theordinary course ofbusinesssubsequent to May 31, 2014,and (ii)obligationsundercontractsandcommitmentsincurredintheordinary course ofbusinessandnotrequiredundergenerallyacceptedaccountingprinciplestobereflectedinsuchfinancialstatements,which,individuallyor in theaggregate,are notmaterial to thefinancialcondition oroperatingresults of theCompany. The Companyissubject to the reportingrequirements ofthe 1934Act.
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h. AbsenceofCertainChanges.SinceMay31,2014,therehasbeennomaterialadversechangeandnomaterialadversedevelopmentintheassets,liabilities,business,properties,operations,financialcondition,resultsofoperations,prospectsor1934Actreportingstatus oftheCompanyor anyofitsSubsidiaries.
i. AbsenceofLitigation.Thereisnoaction,suit,claim,proceeding,inquiry orinvestigationbeforeorbyany court,publicboard,governmentagency,self-regulatoryorganizationorbodypendingor,totheknowledgeoftheCompanyorany ofitsSubsidiaries,threatened against or affecting the Company orany of itsSubsidiaries, ortheirofficers ordirectors intheircapacity as such,thatcould have aMaterialAdverseEffect. Schedule 3(i)contains acomplete listand summarydescription ofanypendingor, to theknowledge of theCompany,threatened proceedingagainst oraffecting the Companyoranyof itsSubsidiaries,withoutregard towhether itwouldhave aMaterialAdverseEffect. The Companyand itsSubsidiariesare unaware ofanyfacts orcircumstanceswhichmightgiverise toanyof theforegoing.
j. Patents,Copyrights,etc.TheCompanyandeachofitsSubsidiariesownsorpossessestherequisitelicensesorrightstouseallpatents,patentapplications,patentrights,inventions,know-how,tradesecrets,trademarks,trademarkapplications,servicemarks,servicenames,tradenamesandcopyrights(“IntellectualProperty”)necessary to enable it toconductitsbusinessas nowoperated(and,as presentlycontemplated to beoperatedinthefuture);thereisnoclaimoractionby any personpertaining to,orproceedingpending, or to theCompany’s knowledgethreatened,whichchallenges theright of the Company or of a Subsidiarywithrespect to anyIntellectualPropertynecessaryto enable it toconduct itsbusinessas nowoperated(and,as presentlycontemplatedtobeoperatedinthefuture); tothebest of theCompany’sknowledge, theCompany’s or itsSubsidiaries’currentandintendedproducts,servicesandprocessesdonotinfringeonanyIntellectualProperty orother rightsheld by any person;and the Company isunaware ofanyfacts orcircumstanceswhichmightgiverise to any of the foregoing.The Companyandeach of itsSubsidiarieshavetaken reasonable securitymeasures toprotect the secrecy, confidentialityand valueof theirIntellectualProperty.
k. NoMateriallyAdverseContracts,Etc.NeithertheCompanynoranyofitsSubsidiariesissubjecttoanycharter,corporateorotherlegalrestriction,oranyjudgment,decree,order,rule orregulationwhich inthejudgment of theCompany’sofficershas or isexpected inthefuture tohave aMaterialAdverseEffect.Neither the Company norany ofitsSubsidiariesisa party toanycontract oragreement whichinthe judgment of theCompany’sofficers has oris expected tohavea MaterialAdverse Effect.
l. TaxStatus.The CompanyandeachofitsSubsidiarieshasmadeorfiledallfederal,stateandforeignincomeandallothertaxreturns,reportsanddeclarationsrequiredbyanyjurisdiction towhich it issubject (unlessandonlyto theextentthat theCompanyandeachofitsSubsidiarieshassetasideonitsbooksprovisions reasonablyadequateforthepaymentofallunpaidandunreportedtaxes)andhaspaidalltaxesandothergovernmental
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assessmentsandchargesthatarematerialinamount,shownordeterminedtobedueonsuchreturns,reportsanddeclarations,exceptthosebeingcontestedingoodfaithandhassetasideonitsbooksprovisionsreasonablyadequateforthepaymentofalltaxesforperiodssubsequentto the periods towhichsuchreturns,reports ordeclarationsapply.Thereare nounpaidtaxes in anymaterialamountclaimed to be due by the taxing authority of any jurisdiction,and theofficers of the Company know of nobasisfor anysuch claim.The Companyhas notexecuted awaiverwithrespecttothestatuteoflimitationsrelatingtotheassessmentorcollectionofanyforeign,federal,stateorlocaltax.NoneoftheCompany’staxreturnsispresentlybeingauditedby any taxingauthority.
m. CertainTransactions.Exceptforarm’slengthtransactionspursuanttowhichtheCompanyoranyofitsSubsidiariesmakespaymentsintheordinarycourseofbusinessupontermsnolessfavorablethantheCompanyoranyofitsSubsidiariescouldobtainfromthirdpartiesandotherthan the grant ofstock optionsdisclosed onSchedule3(c),none oftheofficers,directors,oremployeesofthe Company ispresentlya partytoanytransactionwith the Companyoranyof itsSubsidiaries(other thanforservicesasemployees,officersanddirectors), includinganycontract,agreement orotherarrangementprovidingfor thefurnishing ofservices to orby,providing forrental ofreal orpersonal property to orfrom, orotherwiserequiringpayments to orfrom anyofficer,directororsuchemployeeor, to theknowledge of theCompany,anycorporation,partnership,trustor other entityinwhichanyofficer,director,oranysuchemployeehas a substantialinterest or isanofficer,director, trustee or partner.
n. Disclosure.AllinformationrelatingtoorconcerningtheCompanyoranyofitsSubsidiariessetforthinthisAgreementandprovidedtotheBuyerpursuanttoSection2(d)hereofandotherwiseinconnectionwiththetransactionscontemplatedherebyistrueandcorrect inallmaterialrespectsand the Companyhas notomitted tostate anymaterialfact necessary inordertomake thestatementsmadeherein ortherein, inlight of thecircumstancesunderwhich theyweremade, notmisleading.Noevent orcircumstancehasoccurred or existswithrespect to the Companyor any of itsSubsidiaries or its ortheirbusiness,properties,prospects,operationsorfinancial conditions,which,underapplicablelaw,ruleorregulation,requires publicdisclosureor announcementby the Company butwhichhas not been so publiclyannouncedordisclosed(assuming for thispurposethat theCompany’sreportsfiledunderthe 1934Actarebeingincorporatedintoaneffectiveregistrationstatementfiledby the Company underthe1933Act).
o. AcknowledgmentRegardingBuyer’PurchaseofSecurities.TheCompanyacknowledgesandagreesthattheBuyerisacting solelyinthecapacityofarm’slengthpurchaserswithrespecttothisAgreementandthetransactionscontemplatedhereby.TheCompanyfurtheracknowledgesthat theBuyer is notactingas afinancialadvisor or fiduciaryof the Company(or inanysimilarcapacity)with respect to thisAgreementand thetransactionscontemplated hereby and anystatement madeby theBuyer orany of itsrespectiverepresentatives or agents inconnectionwith thisAgreementand thetransactionscontemplated
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herebyisnotadviceorarecommendationandismerelyincidentaltotheBuyer’purchaseoftheSecurities.TheCompanyfurtherrepresentstotheBuyerthattheCompany’sdecisiontoenterintothisAgreementhasbeenbasedsolely ontheindependentevaluationofthe Companyanditsrepresentatives.
p. NoIntegratedOffering.NeithertheCompany,nor anyofitsaffiliates,noranypersonactingonitsortheirbehalf,hasdirectlyorindirectlymadeanyoffersor sales inany securityor solicitedanyoffers tobuyany security under circumstancesthatwouldrequireregistrationunder the 1933Actof theissuance of theSecurities to the Buyer.Theissuance of theSecurities to theBuyerwill not beintegratedwith anyotherissuance of theCompany’ssecurities(past,currentorfuture)forpurposes ofanyshareholderapprovalprovisionsapplicableto theCompanyoritssecurities.
q. NoBrokers.TheCompanyhastakennoactionwhichwouldgiverisetoanyclaimbyanypersonforbrokeragecommissions,transactionfeesorsimilarpaymentsrelatingto thisAgreement orthe transactionscontemplatedhereby.
r. Permits;Compliance. TheCompanyandeach ofitsSubsidiaries isinpossessionofallfranchises,grants,authorizations,licenses,permits,easements,variances,exemptions,consents,certificates,approvalsandordersnecessarytoown,leaseandoperateitspropertiesandtocarry onitsbusinessasit isnowbeingconducted(collectively,the “CompanyPermits”),and there is noaction pendingor, to theknowledgeof theCompany,threatenedregardingsuspensionorcancellationof any of the CompanyPermits.Neither the Companynor any ofitsSubsidiariesis inconflictwith,orindefault orviolationof,any ofthe CompanyPermits,exceptfor anysuchconflicts,defaults orviolationswhich,individually or intheaggregate,wouldnotreasonably beexpectedtohave aMaterialAdverseEffect.Since May 31,2014,neither the Companynor anyof itsSubsidiarieshasreceivedanynotificationwithrespect to possibleconflicts,defaults orviolations ofapplicablelaws,except fornoticesrelating to possibleconflicts,defaultsorviolations,whichconflicts,defaults or violationswould nothave aMaterialAdverse Effect.
s. EnvironmentalMatters.
(i) Thereare,totheCompany’sknowledge,withrespecttotheCompanyoranyofitsSubsidiariesoranypredecessoroftheCompany,nopastorpresentviolationsofEnvironmentalLaws(asdefinedbelow),releasesofanymaterialintotheenvironment,actions,activities,circumstances,conditions,events,incidents, orcontractualobligationswhichmaygive risetoanycommonlaw environmental liability orany liability under theComprehensiveEnvironmentalResponse,CompensationandLiabilityAct of 1980 orsimilarfederal,state,local orforeign lawsand neither the Company norany of itsSubsidiarieshasreceivedanynoticewithrespecttoanyof theforegoing, nor isanyactionpendingor,to theCompany’sknowledge,threatened inconnectionwith anyof theforegoing.Theterm“EnvironmentalLaws”meansallfederal,state,local orforeignlawsrelating to pollution or
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protectionofhumanhealthortheenvironment(including,withoutlimitation,ambientair,surfacewater,groundwater,landsurfaceorsubsurfacestrata),including,withoutlimitation,lawsrelatingtoemissions,discharges,releasesorthreatenedreleasesofchemicals,pollutantscontaminants,or toxic orhazardoussubstancesorwastes(collectively,“HazardousMaterials”) into theenvironment, orotherwiserelating to themanufacture,processing,distribution,use,treatment, storage, disposal,transport or handlingofHazardous Materials,aswellasallauthorizations,codes,decrees, demands ordemandletters, injunctions,judgments,licenses,notices ornoticeletters,orders,permits,plans orregulationsissued,entered,promulgated orapprovedthereunder.
(ii) Otherthanthosethatareorwerestored,usedordisposedofincompliancewithapplicablelaw,noHazardousMaterialsarecontainedonoraboutanyrealpropertycurrentlyowned,leasedorusedbytheCompanyoranyofitsSubsidiaries,andnoHazardousMaterialswerereleasedonorabout anyrealproperty previously owned,leasedorusedby theCompany oranyofitsSubsidiariesduring theperiodtheproperty wasowned,leased or usedby theCompany oranyofitsSubsidiaries,except in thenormal courseofthe Company’s orany ofitsSubsidiaries’ business.
(iii) Therearenoundergroundstoragetanksonorunderanyrealpropertyowned,leasedorusedbytheCompanyoranyofitsSubsidiariesthatarenotincompliance withapplicable law.
t. TitletoProperty.TheCompanyanditsSubsidiarieshavegoodandmarketabletitleinfeesimpletoallrealpropertyandgoodandmarketabletitletoallpersonal property owned bythemwhich ismaterial to thebusiness of the Companyand itsSubsidiaries, ineach casefreeandclear ofall liens,encumbrancesanddefectsexceptsuchas aredescribed in Schedule 3(t) orsuchaswould nothave aMaterialAdverseEffect. Anyreal propertyandfacilities heldunder lease by the Companyand itsSubsidiariesare held bythemundervalid, subsisting andenforceableleases withsuchexceptionsaswould nothave aMaterialAdverseEffect.
u. Insurance.TheCompanyandeachofitsSubsidiariesareinsuredbyinsurersofrecognizedfinancialresponsibilityagainstsuchlossesandrisksandinsuchamountsasmanagementoftheCompanybelievestobeprudentandcustomary inthe businesses inwhich the Companyand itsSubsidiariesareengaged.Neither the Company norany such Subsidiaryhasany reason tobelievethat itwill not beable torenew itsexistinginsurancecoverageas andwhen such coverageexpires ortoobtainsimilar coveragefromsimilarinsurersasmaybe necessarytocontinue itsbusinessat acostthatwould not have aMaterialAdverseEffect.Uponwrittenrequest the Companywillprovide to theBuyertrueandcorrectcopies ofallpoliciesrelating todirectors’andofficers’liabilitycoverage,errorsandomissionscoverage,andcommercialgeneral liabilitycoverage.
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v. InternalAccountingControls.TheCompanyandeachofitsSubsidiariesmaintainasystemofinternalaccountingcontrolssufficient,inthejudgmentoftheCompany’sboardofdirectors,toprovidereasonableassurancethat(i)transactionsareexecutedinaccordancewithmanagement’sgeneralorspecificauthorizations,(ii) transactionsarerecordedasnecessary topermitpreparationoffinancialstatementsinconformitywithgenerallyaccepted accountingprinciplesand tomaintainassetaccountability, (iii)access toassets ispermitted only inaccordancewithmanagement’sgeneral orspecificauthorizationand(iv) therecorded accountability forassets iscomparedwith theexistingassetsatreasonableintervalsandappropriateaction is takenwithrespect toanydifferences.
w. ForeignCorruptPractices.NeithertheCompany,noranyofitsSubsidiaries,noranydirector,officer,agent,employeeorotherpersonactingonbehalfoftheCompanyoranySubsidiaryhas, in the course of hisactionsfor, or on behalfof, theCompany,usedanycorporatefundsforanyunlawfulcontribution,gift,entertainmentorotherunlawfulexpensesrelating to politicalactivity; made anydirect orindirectunlawfulpayment toanyforeign ordomesticgovernmentofficial oremployeefromcorporate funds;violated or is inviolationof anyprovisionof theU.S.ForeignCorruptPracticesActof 1977,asamended,ormadeanybribe,rebate,payoff,influencepayment,kickbackorotherunlawfulpayment toanyforeign or domesticgovernmentofficial oremployee.
x. Solvency.TheCompany(aftergivingeffecttothetransactionscontemplatedbythisAgreement)issolvent(i.e.,itsassetshaveafairmarketvalueinexcessof theamountrequired to payits probableliabilities on its existingdebtsas theybecomeabsoluteandmatured)and currently the Company has noinformationthatwouldlead it toreasonablyconcludethatthe Companywouldnot,aftergivingeffecttothetransactioncontemplatedbythisAgreement, have the ability to, nor does itintendtotake anyactionthat wouldimpair its ability to, payitsdebtsfromtime to timeincurred inconnectiontherewithassuchdebtsmature.The Company did notreceive aqualified opinionfrom itsauditorswithrespect to its mostrecentfiscalyearendand,aftergivingeffecttothetransactionscontemplatedby thisAgreement,does notanticipate or know of any basis uponwhich itsauditorsmight issue aqualified opinion inrespect ofitscurrent fiscalyear.
y. NoInvestmentCompany.TheCompanyisnot,andupontheissuanceandsaleoftheSecuritiesascontemplatedby thisAgreementwillnotbean“investmentcompany”requiredtoberegisteredundertheInvestmentCompanyActof1940(an“InvestmentCompany”).TheCompany is notcontrolledbyanInvestmentCompany.
z. BreachofRepresentationsandWarrantiesbytheCompany.IftheCompanybreachesanyoftherepresentationsorwarrantiessetforthinthisSection3,andinaddition toany otherremediesavailable to theBuyer pursuant to thisAgreement, itwill beconsideredanEvent of defaultunderSection 3.4 ofthe Note.
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4. COVENANTS.
a. BestEfforts.Thepartiesshallusetheirbesteffortstosatisfytimelyeach oftheconditionsdescribed inSection6and 7 ofthisAgreement.
b. FormD;BlueSkyLaws.TheCompanyagreestofileaFormDwithrespecttotheSecuritiesasrequiredunderRegulationDandtoprovideacopythereoftotheBuyerpromptlyaftersuchfiling.TheCompanyshall,onorbefore the ClosingDate,take suchactionas theCompany shall reasonably determineis necessary to qualifytheSecurities forsale to theBuyerat theapplicableclosing pursuant tothisAgreement underapplicablesecurities or“bluesky” laws of thestates of theUnitedStates(or toobtainanexemptionfromsuchqualification),andshallprovideevidence ofanysuchactionsotaken totheBuyer on or prior to theClosingDate.
c. UseofProceeds.TheCompanyshallusetheproceedsforgeneralworkingcapital purposes.
d. RightofFirstRefusal.UnlessitshallhavefirstdeliveredtotheBuyer,atleastseventytwo(72)hourspriortotheclosingofsuchFutureOffering(asdefinedherein),writtennoticedescribing theproposedFutureOffering(“ROFRNotice”),includingthetermsandconditionsthereof,identityof theproposed purchaserandproposeddefinitivedocumentation to beentered into inconnectiontherewith,andproviding theBuyeran optionduring the seventytwo(72) hour period following delivery of suchnotice topurchase thesecurities beingoffered in theFutureOffering on thesametermsascontemplatedbysuchFutureOffering(thelimitationsreferredtointhissentenceandthe precedingsentenceare collectivelyreferredtoas the“Right ofFirstRefusal”) (andsubject totheexceptionsdescribedbelow),the Companywill not conductany equity(ordebtwithan equity component) financing inanamountlessthan$100,000(“FutureOffering(s)”)duringtheperiodbeginningonthe ClosingDateandending six(6)months following theClosingDate.Notwithstandinganythingcontainedherein to thecontrary, the Companyshall notconsummate anyFutureOffering withaninvestor, oranaffiliate ofsuch investor(collectively“ProspectiveInvestor”),identified onanROFR Notice whereby theBuyerexerciseditsRightofFirstRefusalforaperiodofforty(45)daysfollowingsuchexercise;andany subsequentofferby aProspectiveInvestor is subject to this Section4(d)and theRight ofFirstRefusal. In theevent thetermsandconditions of aproposedFuture Offering areamended in anyrespectafter deliveryof thenotice to theBuyerconcerning theproposedFutureOffering,theCompanyshalldeliveranewnoticetotheBuyerdescribingtheamended termsand conditions of theproposedFuture Offeringand theBuyerthereaftershallhavean optionduring the seventytwo(72) hourperiodfollowing delivery ofsuch newnotice topurchaseitsproratashareofthesecuritiesbeingofferedonthesametermsascontemplatedbysuchproposedFutureOffering,asamended. Theforegoingsentenceshallapplytosuccessiveamendmentstothe termsandconditionsofanyproposedFutureOffering. TheRightofFirstRefusalshallnotapply toanytransactioninvolving(i)issuancesofsecuritiesinafirmcommitmentunderwritten publicoffering (excluding acontinuous offeringpursuant to Rule 415under the 1933Act) or(ii)issuances ofsecuritiesasconsiderationfor amerger,consolidation orpurchase ofassets,orinconnectionwithanystrategicpartnershipor jointventure(the primarypurpose ofwhich is not toraiseequitycapital), or inconnection with the disposition oracquisitionofabusiness,productorlicensebytheCompany.TheRightofFirstRefusalalsoshall not apply to the issuance ofsecurities uponexercise orconversion of theCompany’s options,warrantsor otherconvertiblesecurities outstandingasof thedatehereofor to thegrant ofadditionaloptionsorwarrants,ortheissuanceofadditionalsecurities,underanyCompanystock option or restrictedstockplanapproved by the shareholders ofthe Company.
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e. Expenses.AttheClosing,theCompanyshallreimburseBuyerforexpensesincurredbytheminconnectionwiththenegotiation,preparation,execution,deliveryandperformanceofthisAgreementandtheotheragreementstobeexecutedinconnectionherewith(“Documents”),including,withoutlimitation,reasonableattorneys’andconsultants’feesandexpenses,transfer agentfees,feesfor stockquotationservices,feesrelating to anyamendmentsormodificationsof theDocuments or anyconsentsorwaiversofprovisionsintheDocuments,feesfor thepreparation ofopinions ofcounsel,escrowfees,andcosts ofrestructuring the transactionscontemplatedby theDocuments. Whenpossible, the Company mustpaythesefeesdirectly,otherwise the Company mustmakeimmediatepaymentforreimbursement to theBuyer forallfeesandexpenses immediately uponwrittennoticeby theBuyer or the submission ofaninvoice by theBuyer.TheCompany’sobligationwithrespect to thistransaction is toreimburse Buyer’expensesshall be$3,000.
f. FinancialInformation.UponwrittenrequesttheCompanyagreestosendormakeavailablethefollowingreportstotheBuyeruntiltheBuyertransfers,assigns,orsellsallof theSecurities:(i) withinten(10)daysafter thefilingwiththeSEC,a copy of itsAnnualReportonForm10-K itsQuarterlyReportsonForm10-QandanyCurrentReportsonForm8-K;(ii) withinone(1)dayafterrelease,copiesofallpressreleasesissuedby theCompanyor anyof itsSubsidiaries;and(iii)contemporaneouslywith themakingavailable orgiving to theshareholders of theCompany, copies of any notices orotherinformation the Companymakesavailableorgives tosuchshareholders.
g. [INTENTIONALLYDELETED]
h. Listing.TheCompanyshallpromptlysecurethelistingoftheConversionShares uponeach nationalsecuritiesexchangeor automated quotationsystem, if any,uponwhichsharesofCommonStockarethenlisted(subjecttoofficialnoticeofissuance)and,solongastheBuyerownsany oftheSecurities,shallmaintain,solongasany othersharesof CommonStockshall be solisted,suchlistingofallConversionSharesfrom time to timeissuable uponconversion of theNote. The Companywillobtainand, so longas theBuyerownsanyof theSecurities, maintain the listingand tradingof its CommonStock on theOTCBB or anyequivalent replacementexchange, theNasdaqNationalMarket(“Nasdaq”), theNasdaqSmallCapMarket(“NasdaqSmallCap”),theNewYorkStockExchange(“NYSE”),ortheAmericanStockExchange(“AMEX”)andwill complyinallrespectswith theCompany’sreporting,filingandotherobligationsunder thebylaws orrulesof theFinancial Industry
| 15 |
RegulatoryAuthority(“FINRA”)andsuchexchanges,asapplicable.TheCompanyshallpromptlyprovidetotheBuyercopiesofanynoticesitreceivesfromtheOTCBBandanyotherexchangesorquotationsystemsonwhichtheCommonStockisthenlistedregardingthecontinuedeligibilityoftheCommonStockfor listing onsuchexchanges andquotationsystems.
i. CorporateExistence.SolongastheBuyerbeneficiallyownsanyNote,theCompanyshallmaintainitscorporateexistenceandshallnotsellallorsubstantiallyallof theCompany’s assets,except in theevent of amerger or consolidation orsale ofall or substantiallyalloftheCompany’sassets,wherethesurvivingorsuccessorentity insuchtransaction(i)assumes theCompany’sobligationshereunderand under theagreementsand instrumentsentered into inconnectionherewith and(ii) is a publiclytradedcorporationwhose CommonStockislistedfor trading on theOTCBB,Nasdaq,NasdaqSmallCap,NYSE orAMEX.
j. NoIntegration.TheCompanyshallnotmakeanyoffersorsalesofanysecurity(otherthantheSecurities)undercircumstancesthatwouldrequireregistrationoftheSecuritiesbeingofferedorsoldhereunderunderthe1933ActorcausetheofferingoftheSecurities to beintegratedwithanyotheroffering ofsecurities bytheCompanyfor thepurpose ofanystockholderapprovalprovisionapplicableto theCompany orits securities.
k. BreachofCovenants.IftheCompanybreachesanyofthecovenantssetforthinthisSection4,andinadditiontoanyotherremediesavailabletotheBuyerpursuanttothisAgreement,itwillbe consideredaneventofdefaultunderSection3.4oftheNote.
l. FailuretoComplywiththe1934Act.SolongastheBuyerbeneficiallyownstheNote,theCompanyshallcomplywiththereportingrequirementsofthe1934Act;and the Companyshallcontinuetobesubject tothereportingrequirementsof the 1934Act.
m. TradingActivities.NeithertheBuyernoritsaffiliateshasanopenshort position in the commonstock oftheCompanyand theBuyer agreethat itshall not,andthatitwillcauseitsaffiliatesnotto,engageinanyshortsalesoforhedgingtransactionswithrespectto the commonstock ofthe Company.
5. TransferAgentInstructions.TheCompanyshallissueirrevocableinstructionstoitstransferagenttoissuecertificates,registeredinthenameoftheBuyeroritsnominee,fortheConversionSharesinsuchamountsasspecifiedfromtimetotimebytheBuyer to the Company uponconversion of theNote inaccordancewith thetermsthereof(the“Irrevocable TransferAgentInstructions”). IntheeventthattheBorrowerproposestoreplace itstransferagent, theBorrowershallprovide,prior to theeffective dateofsuchreplacement, a fullyexecutedIrrevocableTransferAgentInstructions in aformas initiallydelivered pursuant to thePurchaseAgreement(including but notlimited to theprovision to irrevocablyreserveshares
| 16 |
ofCommonStockintheReservedAmount)signedbythesuccessortransferagenttoBorrowerandtheBorrower.PriortoregistrationoftheConversionSharesunderthe1933ActorthedateonwhichtheConversionSharesmaybesoldpursuanttoRule144withoutanyrestrictionastothenumberofSecuritiesasofaparticulardatethatcanthenbeimmediatelysold,allsuchcertificatesshallbear therestrictivelegend specified inSection2(g) ofthisAgreement.The Companywarrantsthat:(i)noinstructionotherthan theIrrevocableTransferAgentInstructionsreferred to in thisSection 5,and stoptransferinstructions togiveeffect toSection2(f)hereof(in thecaseof the ConversionShares,prior toregistrationof the ConversionSharesunderthe 1933Act orthe date onwhich theConversionShares maybe soldpursuant to Rule 144without anyrestrictionas to the number ofSecuritiesas of aparticulardate that canthen be immediatelysold),will begivenby the Company toitstransferagentandthat theSecuritiesshallotherwise be freelytransferableon the booksandrecords ofthe Companyasandtothe extentprovided in thisAgreementand theNote;(ii) itwill notdirect itstransfer agent not totransferordelay,impair,and/orhinder itstransferagent intransferring(orissuing)(electronically or incertificatedform)anycertificateforConversionShares to beissued to theBuyer uponconversion of orotherwisepursuant to theNoteasandwhenrequiredby theNoteand thisAgreement;and(iii) itwill notfail toremove(ordirects itstransferagent not to remove or impairs,delays,and/orhinders itstransferagentfromremoving)anyrestrictivelegend(or towithdrawany stop transferinstructionsinrespectthereof)onanycertificateforany ConversionSharesissuedtotheBuyer uponconversion of orotherwisepursuant totheNoteasandwhenrequired by theNoteandthisAgreement.Nothing inthisSectionshallaffectinanyway theBuyer’sobligationsandagreementsetforth inSection2(g) hereof to complywithallapplicableprospectus deliveryrequirements, ifany, uponre-saleof theSecurities. If theBuyer provides theCompany,at thecost of theBuyer,with(i)an opinion of counsel inform, substanceandscope customary for opinionsincomparabletransactions,totheeffectthat a publicsale ortransfer ofsuchSecurities maybemadewithoutregistrationunder the 1933Actandsuchsaleortransfer iseffectedor(ii) theBuyer providesreasonableassurancesthat theSecuritiescan be soldpursuant to Rule 144, theCompanyshallpermitthetransfer,and, inthecaseoftheConversionShares,promptlyinstruct itstransferagent to issue one ormorecertificates,freefrom restrictivelegend, insuchname and in such denominationsasspecifiedby theBuyer. TheCompanyacknowledgesthatabreach by it ofitsobligationshereunderwillcauseirreparableharm to theBuyer, by vitiating theintentandpurposeof thetransactionscontemplatedhereby.Accordingly, the Companyacknowledgesthat theremedyatlawforabreachofitsobligationsunderthisSection 5 may beinadequateandagrees, in theevent of abreachorthreatenedbreach by the Company of theprovisionsofthisSection,thattheBuyershallbeentitled,inaddition toallotheravailableremedies, toaninjunctionrestraininganybreachandrequiringimmediatetransfer,without the necessity ofshowing economiclossandwithout any bond orothersecuritybeingrequired.
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6. ConditionstotheCompany’sObligationtoSell.TheobligationoftheCompanyhereundertoissueandselltheNotetotheBuyerattheClosingissubjecttothesatisfaction,atorbeforetheClosing Dateofeach ofthefollowingconditionsthereto,providedthattheseconditions arefor theCompany’s solebenefitand may bewaived by the Companyat any timein its sole discretion:
a. TheBuyershallhaveexecutedthisAgreementanddeliveredthe sameto the Company.
b. TheBuyershallhavedeliveredthePurchasePriceinaccordancewithSection1(b) above.
c. TherepresentationsandwarrantiesoftheBuyershallbetrueandcorrectinallmaterialrespectsasofthedatewhenmadeandasoftheClosingDateasthoughmadeatthattime(exceptforrepresentationsandwarrantiesthatspeakasof aspecificdate),and theBuyershallhaveperformed, satisfiedandcomplied inallmaterialrespectswith thecovenants,agreementsandconditionsrequiredbythisAgreementtobeperformed,satisfiedorcompliedwith by theBuyerat orpriorto theClosingDate.
d. Nolitigation,statute,rule,regulation,executiveorder,decree,rulingorinjunctionshallhavebeenenacted,entered,promulgatedorendorsed byorinanycourtorgovernmentalauthorityofcompetentjurisdictionoranyself-regulatoryorganizationhaving authority over thematterscontemplated hereby whichprohibits theconsummation of anyof thetransactionscontemplatedby thisAgreement.
7. ConditionstoTheBuyer’sObligationtoPurchase.TheobligationoftheBuyerhereundertopurchasetheNoteattheClosing issubjecttothesatisfaction,atorbeforetheClosingDateofeachofthefollowingconditions,providedthattheseconditionsarefortheBuyer’s sole benefitandmaybe waivedby the Buyeratanytimein its sole discretion:
a. TheCompanyshallhaveexecutedthisAgreementanddelivered
b. TheCompanyshallhavedeliveredtotheBuyerthedulyexecutedNote (insuch denominationsas the Buyer shallrequest)inaccordancewithSection1(b) above.
c. TheIrrevocableTransferAgentInstructions, informand substancesatisfactoryto a majority-in-interest oftheBuyer,shallhavebeendeliveredtoandacknowledgedinwritingbythe Company’s TransferAgent.
d. TherepresentationsandwarrantiesoftheCompanyshallbetrueandcorrectinallmaterialrespectsasofthedatewhenmadeandasoftheClosingDateasthoughmadeatsuchtime(exceptforrepresentationsandwarrantiesthatspeakasof aspecific
| 18 |
date)andtheCompanyshallhaveperformed,satisfiedandcompliedinallmaterialrespectswiththecovenants,agreementsandconditionsrequiredbythisAgreementtobeperformed,satisfiedorcompliedwithbytheCompanyatorpriortotheClosingDate.TheBuyershallhavereceivedacertificateorcertificates,executedby thechiefexecutiveofficer of theCompany,datedas of the ClosingDate, to theforegoingeffectandas tosuchothermatters as maybe reasonablyrequestedbytheBuyerincluding, but notlimited tocertificateswithrespect to theCompany’sCertificate ofIncorporation,By-lawsandBoard ofDirectors’ resolutionsrelating to thetransactionscontemplatedhereby.
e. Nolitigation,statute,rule,regulation,executiveorder,decree,rulingorinjunctionshallhavebeenenacted,entered,promulgatedorendorsed byorinanycourtorgovernmentalauthorityofcompetentjurisdictionoranyself-regulatoryorganizationhaving authority over thematterscontemplated hereby whichprohibits theconsummation of anyof thetransactionscontemplatedby thisAgreement.
f. NoeventshallhaveoccurredwhichcouldreasonablybeexpectedtohaveaMaterialAdverseEffectontheCompanyincludingbutnotlimitedtoachangeinthe1934ActreportingstatusoftheCompanyorthefailureoftheCompanytobetimelyinits1934Actreportingobligations.
g. TheConversionSharesshallhavebeenauthorizedforquotationontheOTCBBandtradingintheCommonStockontheOTCBBshallnothavebeensuspendedbythe SEC orthe OTCBB.
h. TheBuyershallhavereceivedanofficer’scertificatedescribedinSection3(c)above,datedas oftheClosingDate.
8. GoverningLaw;Miscellaneous.
a. GoverningLaw.ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofNewYorkwithoutregardtoprinciplesofconflictsoflaws. Any actionbroughtby either partyagainst theother concerning thetransactionscontemplatedbythisAgreementshallbebroughtonly in thestatecourtsof NewYork or in thefederal courtslocated in the stateand county of Nassau.Theparties to thisAgreement herebyirrevocablywaiveanyobjectiontojurisdictionandvenue ofanyactioninstitutedhereunderandshallnotassertanydefensebased onlack of jurisdiction orvenueorbased uponforum nonconveniens. The CompanyandBuyer waivetrialbyjury.The prevailing partyshall beentitled torecoverfrom theother party itsreasonableattorney'sfeesandcosts.In theeventthatanyprovisionof thisAgreement oranyotheragreement deliveredinconnectionherewith isinvalid orunenforceable under anyapplicablestatute orrule oflaw,thensuch provisionshallbe deemedinoperative totheextentthatitmayconflicttherewithandshallbedeemedmodified toconformwithsuchstatuteorruleoflaw.Anysuchprovisionwhichmay
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proveinvalidorunenforceableunder anylawshallnotaffectthevalidityorenforceabilityof anyotherprovisionofanyagreement.Eachpartyherebyirrevocablywaivespersonalserviceofprocessandconsentstoprocessbeingservedinany suit,actionorproceeding inconnectionwiththisAgreementorany otherTransactionDocumentby mailing acopythereof viaregisteredorcertifiedmailor overnightdelivery(withevidence ofdelivery) tosuchpartyattheaddressineffectfornotices to it under thisAgreementandagreesthatsuchserviceshallconstitutegoodandsufficientserviceofprocessandnoticethereof.Nothingcontained hereinshall be deemed to limit in anywayany right toserve process inanyother manner permittedbylaw.
b. Counterparts.ThisAgreementmaybeexecutedinoneormorecounterparts,eachofwhichshallbedeemedanoriginalbutallofwhichshallconstituteoneandthesameagreementandshallbecomeeffectivewhencounterpartshavebeensignedbyeach partyanddelivered to theother party.
c. Headings.TheheadingsofthisAgreementareforconvenienceofreferenceonlyandshallnotformpartof, oraffectthe interpretationof, thisAgreement.
d. Severability.IntheeventthatanyprovisionofthisAgreementisinvalidorunenforceableunderanyapplicablestatuteorruleoflaw,thensuchprovisionshallbedeemedinoperativetotheextentthatitmayconflicttherewithandshallbedeemedmodified toconformwithsuchstatute orrule oflaw.Anyprovisionhereofwhich may proveinvalid orunenforceableunderanylawshallnotaffectthevalidity orenforceabilityofany otherprovisionhereof.
e. EntireAgreement;Amendments.ThisAgreementandtheinstrumentsreferencedhereincontaintheentireunderstandingofthepartieswithrespecttothematterscoveredhereinandthereinand,exceptasspecificallysetforthhereinortherein,neither the Company nor theBuyermakes any representation,warranty, covenant orundertakingwithrespecttosuchmatters.Noprovisionof thisAgreementmaybewaivedoramendedotherthan byaninstrument in writingsigned by themajority ininterest ofthe Buyer.
f. Notices.Allnotices,demands,requests,consents,approvals,andothercommunicationsrequiredorpermittedhereundershallbeinwritingand,unlessotherwisespecifiedherein,shallbe(i)personallyserved,(ii)depositedinthemail,registeredorcertified,returnreceiptrequested,postageprepaid,(iii)deliveredbyreputable aircourierservicewith chargesprepaid,or(iv)transmittedbyhanddelivery,telegram, or facsimile,addressedas setforthbelowortosuchotheraddressassuchparty shallhavespecifiedmostrecentlybywrittennotice.Anynotice or othercommunicationrequired orpermitted to begiven hereundershallbedeemedeffective (a) uponhand deliveryor delivery byfacsimile,withaccurateconfirmationgeneratedbythe transmittingfacsimilemachine,at theaddress ornumberdesignated below(ifdelivered on a businessday duringnormal businesshourswhere such noticeis to bereceived),or thefirstbusinessdayfollowingsuch delivery(ifdelivered otherthanonabusinessdayduring
| 20 |
normalbusinesshourswheresuchnoticeistobereceived)or(b)onthesecondbusinessdayfollowingthedateofmailingbyexpresscourierservice,fully prepaid,addressedtosuchaddress,oruponactualreceipt ofsuchmailing,whichevershallfirstoccur.Theaddressesforsuchcommunicationsshallbe:
Ifto the Company, to:
AJA CANNAFACTURING,INCf/k/aIDSINDUSTRIES,INC.
5333BirchStreet
Lake Elsinore, CA92530
Attn:SCOTT PLANTINGA,Chief Executive Officer
facsimile:[enter faxnumber]
With acopybyfaxonlyto(which copyshall not constitute notice):
[enter nameof lawfirm]
Attn: [attorneyname]
[enter address line1]
[enter city,state, zip]
facsimile:[enter faxnumber]
Ifto the Buyer:
KBMWORLDWIDE,INC.
80CuttermillRoad –Suite410
GreatNeck, NY11021
Attn:SethKramer,President
e-mail:info@kwbmlaw.com
With acopybyfaxonlyto(which copyshall not constitute notice):
NaidichWurman Birnbaum &MadayLLP
Attn:Bernard S.Feldman,Esq.
facsimile:516-466-3555
e-mail:dyork@nwbmlaw.com
Each partyshallprovidenoticeto the otherpartyofanychangeinaddress.
g. SuccessorsandAssigns.ThisAgreementshallbebindinguponandinuretothebenefitofthepartiesandtheirsuccessorsandassigns.NeithertheCompany northeBuyershallassignthisAgreementoranyrightsorobligationshereunderwithoutthepriorwrittenconsentof the other.Notwithstanding theforegoing,subject to Section2(f), theBuyer
| 21 |
mayassignitsrightshereundertoanypersonthatpurchasesSecuritiesinaprivatetransactionfromtheBuyerortoanyofits“affiliates,”asthattermisdefinedunderthe1934Act,withoutthe consent ofthe Company.
h. ThirdPartyBeneficiaries.ThisAgreementisintendedforthebenefitofthepartiesheretoandtheirrespectivepermittedsuccessorsandassigns,andisnotforthe benefitof, normayanyprovisionhereofbe enforcedby,anyotherperson.
i. Survival.TherepresentationsandwarrantiesoftheCompanyandtheagreementsandcovenantssetforthinthisAgreementshallsurvivetheclosinghereundernotwithstandinganyduediligenceinvestigationconducted byor onbehalf oftheBuyer. The Companyagrees to indemnifyand holdharmless theBuyerandalltheirofficers,directors,employeesand agents for loss ordamage arisingas aresult of orrelatedto any breach orallegedbreach bythe Company ofanyof itsrepresentations, warrantiesandcovenantssetforth in thisAgreement or any ofitscovenantsandobligationsunderthisAgreement, includingadvancement of expensesas they are incurred.
j. Publicity.TheCompany,andtheBuyershallhavetherighttoreviewareasonableperiodoftimebeforeissuanceofanypressreleases,SEC,OTCBBorFINRAfilings,oranyother publicstatementswithrespecttothetransactionscontemplatedhereby;provided,however,that the Company shall beentitled,without thepriorapproval of theBuyer, tomakeanypressrelease orSEC,OTCBB(orother applicable tradingmarket) orFINRAfilingswithrespect tosuchtransactions as isrequiredbyapplicablelawandregulations(althoughtheBuyershallbeconsultedbythe Companyinconnectionwithanysuchpressreleaseprior to itsreleaseandshall beprovidedwith a copythereofand begivenan opportunity tocommentthereon).
k. FurtherAssurances.Eachpartyshalldoandperform,orcausetobedoneandperformed,allsuchfurtheractsandthings,andshallexecuteanddeliverallsuchotheragreements,certificates,instrumentsanddocuments,astheotherpartymay reasonablyrequest in order to carryout theintentand accomplish thepurposes of thisAgreementand theconsummation ofthe transactionscontemplatedhereby.
l. NoStrictConstruction.ThelanguageusedinthisAgreementwillbedeemedtobethelanguagechosen bythepartiestoexpresstheirmutualintent,andnorulesofstrictconstructionwill be appliedagainstanyparty.
m. Remedies.TheCompanyacknowledgesthatabreachbyitofitsobligationshereunderwillcause irreparableharmto the Buyerbyvitiatingthe intentandpurposeofthetransactioncontemplatedhereby.Accordingly, theCompanyacknowledgesthat the remedyatlawforabreachofitsobligationsunderthisAgreementwillbeinadequateandagrees, in theevent of a breach orthreatenedbreachby the Company of theprovisions of thisAgreement,thattheBuyershall beentitled, in addition toallotheravailableremediesat law or
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inequity,andinadditiontothepenaltiesassessableherein,toaninjunctionorinjunctionsrestraining,preventingorcuringanybreachofthisAgreementandtoenforcespecificallythetermsandprovisionshereof,withoutthenecessityofshowingeconomiclossandwithoutanybond or othersecurity beingrequired.
INWITNESSWHEREOF,theundersignedBuyerandtheCompanyhavecausedthisAgreement to bedulyexecutedasofthe datefirst above written.
AJA CANNAFACTURING,INC.f/k/aIDSINDUSTRIES,INC.
By:/s/ Scott Plantinga
SCOTT PLANTINGA
Chief Executive Officer
KBM WORLDWIDE,INC.
By: /s/ Seth Kramer
Name:SethKramer
Title:President
80CuttermillRoad –Suite410
GreatNeck, NY. 11021
| AGGREGATE SUBSCRIPTION AMOUNT: | |
| Aggregate Principal Amount of Note: | $53,000.00 |
| AggregatePurchase Price: | $53,000.00 |
Tranche#3K-1266(AJAC) August18,2014 |
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