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Securities Purchase Agreement
The Issuer and RJSM entered into the Securities
Purchase Agreement pursuant to which RJSM agreed to acquire the Common
Shares, an aggregate of 5,606,500 shares of the Issuer’s common stock, for an
aggregate purchase price of $2,803,250 (the “Common Share Purchase Price”).
The Common Share Purchase Price is payable in accordance with the Securities
Purchase Agreement, which required that a portion of such Common Share
Purchase Price be paid to the Issuer upon closing and that the balance of the
Common Share Purchase Price be paid by RJSM when RJSM forgives the Company’s
obligations under a loan agreement (the “Loan Agreement”) and promissory note
(the “Note”). RJSM will have full voting rights associated with the Common
Shares once the shares are issued in the name of RJSM upon the closing, but
RJSM may not transfer the Common Shares until the Common Shares are delivered
to RJSM at the time that RJSM forgives the Issuer’s obligations to RJSM under
the Loan Agreement and the Note, which will not occur later than September 1,
2013.
In addition, pursuant to the Loan Agreement, so long
as at least 50% of the aggregate principal amount of the loan is outstanding
and RJSM holds at least a majority of the outstanding principal amount of the
Loan, the Issuer is restricted from doing any of the following without RJSM’s
prior written consent:
·
participating
in a sale, transfer, lease, or merger involving any material portion of the
Issuer’s assets or business;
·
effecting
any acquisition with a valuation in excess of $500,000;
·
altering
or changing the rights of RJSM;
·
creating
any series or class of convertible securities that are exchangeable into
equity securities having a preference senior to or pari passu with the Series
B Preferred Stock;
·
incurring
debt in an amount greater than $500,000 (other than debt permitted by the
Loan Agreement);
·
redeeming
or repurchasing any equity securities of the Issuer;
·
taking
any action that could result in taxation of RJSM under Section 305 of the
Internal Revenue Code;
·
amending,
altering, or repealing the Certificate of Incorporation or Bylaws of the
Issuer in a manner that would materially affect RJSM;
·
issuing
any warrants not outstanding as of the closing of the transaction (although
no consent will be required to issue warrants that represent the right to
acquire not more than 2.5% of the then-outstanding shares of common stock on
a fully diluted basis); or
·
creating
or issuing any other Series B Preferred Stock.
Subscription Agreement
The Issuer and RJSM entered into the Subscription
Agreement pursuant to which RJSM acquired 50,000 shares of Series B Preferred
Stock for a price per share of $0.50. The Series B Preferred Stock is
convertible at RJSM’s option into an aggregate of 1,393,500 shares of the
Company’s common stock (which conversion rate is subject to adjustment).
Registration Rights Agreement
The Issuer and RJSM entered into a registration
rights agreement (the “Registration Rights Agreement”) pursuant to which the
Issuer granted to RJSM registration rights with respect to the Common Shares
and the shares of Common Stock into which the shares of Series B Preferred
Stock purchased by RJSM are convertible. RJSM has the right to require the
Issuer to register such shares at any time after the Issuer fully delivers
any of such shares to RJSM in accordance with the terms and conditions of the
Loan Agreement. Such rights (i) require the Issuer to file a registration
statement and to maintain its effectiveness, subject to customary blackout
periods and other exceptions and (ii) grant RJSM the right to participate in
the Issuer’s future registered offerings, subject to customary exceptions.
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