Item 1.01. Entry
into a Material Definitive Agreement.
Issuance of
Incentive Shares, Notes and Warrants Pursuant to Subsequent Closing
On December 23,
2015, the Company entered into a Securities Purchase Agreement the “Initial Purchase Agreement”) with respect to the
sale and issuance to certain institutional investors of up to (i) 2,500,043 shares of the Company’s Common Stock (the “Initial
Incentive Shares”); (ii) $862,500 aggregate principal amount of Secured Convertible Notes (the “Initial Notes”)
and (iii) Common Stock Purchase Warrants to purchase up to an aggregate of 7,187,542 shares of the Company’s Common Stock
(the “Initial Warrants”). The transaction closed on December 23, 2015 (the “Initial Closing Date”).
The material terms and conditions of the transaction were described in, and copies of the full text of those documents were filed
with, the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (“Commission”)
on December 24, 2015.
The terms of the
Initial Purchase Agreement provided that until two years after the Initial Trading Day (as defined in the Initial Purchase Agreement),
but not later than three years after the Initial Closing Date (December 23, 2015), the purchasers may require a Closing for up
to an additional Subscription Amount equal to the Subscription Amount paid on the Initial Closing Date on the same terms and conditions
as the Initial Closing.
On November 10,
2017, pursuant to a partial exercise of the Subsequent Closing provision of the Initial Purchase Agreement, the Company
entered
into a subsequent Securities Purchase Agreement (the “Purchase Agreement”) with respect to the sale and issuance to
certain institutional investors of (i) 833,354 shares of the Company’s Common Stock (the “Incentive Shares”);
(ii) $287,502 aggregate principal amount of Secured Convertible Notes (the “Notes”) and (iii) Common Stock Purchase
Warrants to purchase up to an aggregate of 3,593,776 shares of the Company’s Common Stock (the “Warrants”). The
Incentive Shares, Notes and Warrants were issued as of November 10, 2017 (the “Issue Date”). Purchasers received (i)
Incentive Shares at the rate of 2.8986 Incentive Shares for each $1.00 of Note principal issued to such Purchaser; (ii) a Note
with a principal amount of $1.00 for each $0.86956 for each $1.00 paid by each purchaser for such purchaser’s Note; and (iii)
Warrants to purchase up to a number of shares of Common Stock equal to 100% of such purchaser’s Note principal amount divided
by $0.08, the conversion price in effect on the Subsequent Closing Date, with a per share exercise price equal to
$0.30,
subject to adjustment
. The aggregate cash subscription amount received by the Company from
the purchasers for the issuance of the Incentive Shares, Notes and Warrants was $250,000 (the “Subscription Amount”).
This summary is not a complete description of all of the terms of the Purchase Agreement and is qualified in its entirety by reference
to the full text of the Purchase Agreement filed as Exhibit 10.1 hereto, which is incorporated by reference to this Item 1.01.
On November 16,
2017, the Company and the investors mutually agreed to (1) extend the Maturity Date (as defined in the Notes) of the Notes dated
December 23, 2015 and November 10, 2016 to June 30, 2018, (2) extend the termination date of the Warrants dated December 23, 2015
and November 10, 2016, to November 10, 2022, and also to amend the Warrants dated December 23, 2015, November 10, 2016 and November
10, 2017, to state that the Exercise Price (as defined in the Warrants) shall be $0.15 per share, subject to further adjustment
if the Company effects a forward stock split. The Notes and Warrants dated November 10, 2016 were filed as Exhibits 10.2 and 10.7
to the Form 8-K filed on November 14, 2016.
Terms of Notes;
Collateral and Guarantees; Optional Redemption
The Notes mature
on May 10, 2019, eighteen (18) months after the Issue Date, and provide for interest to accrue at an interest rate equal to the
lesser of 15% per annum or the maximum rate permitted under applicable law after the occurrence of any event of default as provided
in the Notes. At any time after the Issue Date, the holders, at their option, may convert the outstanding principal balance and
accrued interest into shares of Common Stock of the Company. The initial conversion price for the principal and interest in connection
with voluntary conversions by a holder of a Note is $0.08 per share, subject to adjustment as provided therein. Each Note, for
example, is subject to adjustment upon certain events such as stock splits and has full ratchet anti-dilution protections for issuance
of securities by the Company at a price that is lower than the then-current conversion price except for certain exempt issuances.
Each Note also contains certain negative covenants, including prohibitions on incurrence of indebtedness, liens, charter amendments,
dividends, redemption. None of the holders of the Note have the right to convert any portion of their Note if it (together with
its affiliates) would beneficially own in excess of 9.99% of the number of shares of Common Stock outstanding immediately after
giving effect to the exercise (the “Beneficial Ownership Limitation”). The Notes include customary events of default,
including, among other things, payment defaults, covenant breaches, certain representations and warranties, certain events of bankruptcy,
liquidation and suspension of the Company’s Common Stock from trading. If such an event of default occurs, the holders
of the Notes may be entitled to take various actions, which may include the acceleration of amounts due under the Notes and accrual
of interest as described above. As described below, the Notes are collectively collateralized by substantially all of the assets
of the Company and guarantees of payment of the Notes have also been delivered by certain parties. The foregoing description is
qualified in its entirety by reference to the full text of the form of Note filed as Exhibit 10.2 hereto, which is incorporated
by reference into this Item 1.01.
In
connection with the Purchase Agreement, the security agreement, dated December 23, 2015 (the “Security Agreement”)
with the collateral agent for the holders of the Original Notes was amended to include the Notes. The Security Agreement provides
the holders a security interest in substantially all of the assets of the Company, subject to the terms of the security
agreement. This summary is not a complete description of all of the terms of the Security Agreement and is qualified in its entirety
by reference to the full text of the Security Agreement included as part of the Company’s Current Report on Form 8-K filed
with the Commission on December 24, 2015 and are incorporated by reference to this Item 1.01.
In addition, pursuant
to the terms of guaranty agreements, as amended, between them and the holders of the Original Notes dated December 23, 2015, Joseph
Segelman, the Chief Executive Officer and President of the Company, and ASC, a stockholder of the Company which is wholly-owned
by Joseph Segelman, guaranteed payment of all amounts owed under the Notes, subject to the terms of such guaranty agreements. The
guaranty agreement delivered by Joseph Segelman is referred to herein as the “Personal Guaranty” and the guaranty agreement
delivered by ASC is referred to herein as the “Corporate Guaranty”. ASC also granted the holders of the Notes a security
interest in substantially all of the assets of ASC, subject to the terms of a security agreement entered into by and among the
collateral agent for the holders of the Notes and ASC (the “Guarantor Security Agreement”). This summary is not a complete
description of all of the terms of the agreements referred to in this paragraph and is qualified in its entirety by reference to
the full text of the Corporate Guaranty, Guarantor Security Agreement and Personal Guaranty filed as Exhibits 10.4, 10.5 and 10.6,
respectively, which are all included as part of the Company’s Current Report on Form 8-K filed with the Commission on December
24, 2015 and are incorporated by reference to this Item 1.01.
The Notes provide
that commencing six (6) months after the Original Issue Date, the Company will have the option of prepaying the outstanding principal
amount of the Notes (an “Optional Redemption”), in whole or in part, by paying to the holders a sum of money in cash
equal to one hundred percent (100%) of the principal amount to be redeemed, together with accrued but unpaid interest thereon,
if any, and any and all other sums due, accrued or payable to the holder arising under the Note through the Redemption Payment
Date (as defined below) and 2.8986 shares of Common Stock of the Company for each $1.00 of Note principal amount being redeemed.
The Company’s election to exercise its Optional Redemption rights must be by notice in writing (a “Notice of Redemption”)
that specifies the date for such Optional Redemption (the “Redemption Payment Date”), which date shall be a date certain
not sooner than thirty (30) trading days after the date of the Notice of Redemption (the “Redemption Period”). A Notice
of Redemption, if given, may be given on the first Trading Day following twenty (20) consecutive Trading Days (the “Lookback
Period”) during which all of the “Equity Conditions”, as defined in the Notes and described below, have been
in effect. A Notice of Redemption shall not be effective with respect to any portion of the principal amount for which the holder
has previously delivered an election to convert, or for conversions initiated or made by the holder during the Redemption Period.
A Notice of Redemption is subject to certain other limitations described in the Notes and the failure of the Company to pay the
Redemption Amount on the Redemption Payment Date may be deemed by the holder to be a non-curable event of default under the Notes.
As discussed above,
the ability of the Company to exercise its Optional Redemption rights is subject to satisfaction of all of the “Equity Conditions”,
a term which is defined in the Notes to mean, during the period in question, (a) the Company shall have duly honored all conversions
scheduled to occur or occurring by virtue of one or more notices of conversion of the applicable holder on or prior to the dates
so requested or required, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the applicable
holder in respect of the Note and the other documents executed and delivered in connection with the issuance of the Notes and as
specifically defined in the Purchase Agreement (the “Transaction Documents”), (c) there is either (i) an effective
registration statement pursuant to which the holders are permitted to utilize the prospectus thereunder to resell all of the shares
issuable upon conversion of the Notes (the “Conversion Shares”) and exercise of the Warrants (the “Warrant Shares”)
(and the Company believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future), or (ii)
all of the Conversion Shares and Warrant Shares (and shares issuable in lieu of cash payments of interest) may be resold pursuant
to Rule 144 without volume or manner of sale restrictions or current public information requirements; and Company counsel has delivered
to the Company’s transfer agent and holder a standing, written unqualified opinion that resales may then be made by the holder
of all of the holder’s Conversion Shares and Warrant Shares pursuant to such effective registration statement, (d) the Common
Stock is trading on a trading market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted
for trading on the trading market (and the Company believes, in good faith, that trading of the Common Stock on such trading market
will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized, but unissued and otherwise
unreserved, shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents, (f)
an Event of Default (as defined in the Notes) has not occurred, whether or not such Event of Default has been cured, (g) there
is no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (h) the issuance
of the shares in question to the applicable holder would not exceed the Beneficial Ownership Limitation, (i) there has been
no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction (each as defined in the
Notes) that has not been consummated, and (j) the applicable holder is not in possession of any information provided by Borrower
that constitutes, or may constitute, material non-public information.
Terms of Warrants
As described above,
holders of the Notes received Warrants to purchase up to a number of shares of Common Stock equal to 100% of such holder’s
Note principal amount divided by $0.08, which is the conversion price of the Notes in effect on the Subsequent Closing Date. The
initial exercise price for the Warrants is $0.30, subject to adjustment, and the Warrants are exercisable for five years after
the “Initial Exercise Date”, which is defined as the any time on or after the six month anniversary of the date of
the Warrant. The Warrants are exercisable for shares of Common Stock upon the payment in cash of the exercise price and they are
also exercisable on a cashless basis at any time there is no effective registration statement registering the shares of Common
Stock underlying the Warrants. The exercise price of the Warrants is subject to adjustment in the event of certain stock dividends
and distributions, stock splits, stock combinations, reclassifications or similar events affecting the Common Stock and also upon
any distributions of assets, including cash, stock or other property to the Company’s stockholders. In the event of a fundamental
transaction, as described in the Warrants and generally including any reorganization, recapitalization or reclassification of the
Common Stock, the sale, transfer or other disposition of all or substantially all of the Company’s properties or assets,
the Company’s consolidation or merger with or into another person, the acquisition of more than 50% of the outstanding Common
Stock, or any person or group becoming the beneficial owner of 50% of the voting power represented by the outstanding Common Stock,
the holders of the Warrants will be entitled to receive upon exercise of the Warrants the kind and amount of securities, cash or
other property that the holders would have received had they exercised the Warrants immediately prior to such fundamental transaction;
provided that upon the occurrence of certain fundamental transactions, the holder can require the Company to purchase the Warrant
for cash at a price equal to the higher of the Black Scholes Value of the unexercised portion of the Warrant or difference between
the cash per share paid in the fundamental transaction and the exercise price per share. The holder of Warrants will not have the
right to exercise any portion of the Warrant if the holder (together with its affiliates) would beneficially own in excess of 9.99%
of the number of shares of Common Stock outstanding immediately after giving effect to the exercise, as such percentage ownership
is determined in accordance with the terms of the Warrants. The foregoing description is qualified in its entirety by reference
to the full text of the form of Warrant filed as Exhibit 10.7 hereto, which is incorporated by reference to this Item 1.01.
On November 16,
2017, the Company and the investors mutually agreed to (1) extend the Maturity Date (as defined in the Notes) of the Notes dated
December 23, 2015 and November 10, 2016 to June 30, 2018, (2) extend the termination date of the Warrants dated December 23, 2015
and November 10, 2016, to November 10, 2022, and also to amend the Warrants dated December 23, 2015, November 10, 2016 and November
10, 2017, to state that the Exercise Price (as defined in the Warrants) shall be $0.15 per share, subject to further adjustment
if the Company effects a forward stock split. The Notes and Warrants dated November 10, 2016 were filed as Exhibits 10.2 and 10.7
to the Form 8-K filed on November 14, 2016.
Additional
Purchaser Rights and Company Obligations
The Purchase Agreement
includes additional purchaser rights and Company obligations including obligations on the Company to satisfy the current public
information requirements under SEC Rule 144(c); obligations on the Company with respect to the use of proceeds from the sale of
securities under the Purchase Agreement; purchaser rights to approve certain subsequent equity sales by the Company; purchaser
rights to participate in future Company financings; and piggy-back registration rights in favor of the purchasers. Reference should
be made to the full text of the Purchase Agreement filed as Exhibit 10.1 hereto, which is incorporated by reference to this Item
1.01.