INVO INVO BioScience Inc

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): October 11, 2024

 

INVO BIOSCIENCE, INC.

(Exact name of registrant as specified in its charter)

 

Nevada		001-39701		20-4036208
(State or other jurisdiction of incorporation)		(Commission File Number)		(IRS Employer Identification No.)

 

5582 Broadcast Court

Sarasota, Florida 34240

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (978) 878-9505

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Common Stock, $0.0001 par value		INVO		The Nasdaq Stock Market LLC
(Title of Each Class)		(Trading Symbol)		(Name of Each Exchange on Which Registered)

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (CFR §230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (CFR §240.12b-2 of this chapter). Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 

INTRODUCTORY NOTE

 

INVO Bioscience, Inc., a Nevada corporation (the “Company”) is filing this Current Report on Form 8-K (this “Form 8-K”) to disclose the consummation of the Company’s acquisition of NAYA Biosciences, Inc., a Delaware corporation (“NAYA”) pursuant to an Amended and Restated Agreement and Plan of Merger by and among the Company, NAYA, and INVO Merger Sub Inc., a wholly owned subsidiary of the Company and a Delaware corporation (“Merger Sub”) dated as of October 11, 2024 therewith (the “Merger Agreement”), (b) the filing with the Nevada Secretary of State a Certificate of Designation of Series C-1 Convertible Preferred Stock and of a Certificate of Designation of Series C-2 Convertible Preferred Stock, and (c) the closing of the transactions contemplated by the Merger Agreement, which occurred on October 11, 2024 (the “Closing Date”) (together, the “Merger”). All capitalized terms in this introductory note not otherwise defined here are defined below in this Form 8-K.

 

The closing of the Merger resulted in an increase in the Company’s stockholders’ equity of approximately $16,000,000, which the Company believes – as detailed in this Form 8-K below – is sufficient to evidence compliance with the Nasdaq listing criteria and to maintain its listing on Nasdaq.

 

Item 1.01 Entry into a Material Definitive Agreement.

 

Amended and Restated Merger Agreement

 

On October 11, 2024 (the “Effective Time”), INVO, Merger Sub, and NAYA, entered into the Merger Agreement and consummated and the transactions contemplated thereby. Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub merged with and into NAYA, with NAYA continuing as the surviving corporation and a wholly owned subsidiary of the Company.

 

At the Effective Time and as a result of the consummation of the Merger:

 

	●	Each share of Class A common stock, par value $0.000001 per share, and Class B common stock, par value $0.000001 per share, of NAYA (“NAYA common stock”) outstanding immediately prior to the effective time of the Merger, other than certain excluded shares held by NAYA as treasury stock or owned by the Company or Merger Sub, automatically converted into the right to receive 118,148 shares of the Company’s common stock and 30,375 shares of the Company’s newly-designated Series C-1 Convertible Preferred Stock (the “Series C-1 Preferred”). The Series C-1 Preferred is not redeemable, has no voting rights, and may not be converted into shares of the Company’s Common Stock unless and until the Company’s stockholders approve the issuance of common stock upon conversion of the Series C-1 Preferred. If the Company’s stockholders approve the issuance of common stock upon conversion of the Series C-1 Preferred, such Series C-1 Preferred will automatically convert into approximately 29,515,315 shares of the Company’s common stock, subject to adjustment if, as a result of such conversion if, after giving effect to the conversion or issuance, any single holder, together with its affiliates, would beneficially own in excess of 19.99% of the Company’s outstanding common stock. A description of the rights, preferences, and privileges of the Series C-1 Preferred are set forth in Item 5.03 below.
	●	Certain outstanding debt obligations of NAYA, including a portion of an amended and restated senior secured convertible debenture issued to Five Narrow Lane LP (“FNL”), with a combined principal balance of $8,575,833 converted into the right to receive 669,508 shares of the Company’s common stock and 8,576 shares of the Company’s newly-designated Series C-2 Convertible Preferred Stock (the “Series C-2 Preferred”). The Series C-2 Preferred is only redeemable upon a “Bankruptcy Triggering Event” or a “Change of Control” that occurs 210 days after the closing date of the Merger. The Series C-2 Preferred may not be converted into shares of the Company’s Common Stock unless and until the Company’s stockholders approve the issuance of common stock upon conversion of the Series C-2 Preferred. If the Company’s stockholders approve the issuance of common stock upon conversion of the Series C-2 Preferred, such Series C-2 Preferred will be convertible at the option of the holders into approximately 12,441,607 shares of the Company’s common stock, subject to limitations on beneficial ownership by the holders thereof. A description of the rights, preferences, and privileges of the Series C-2 Preferred are set forth in Item 5.03 below.

 

 

	●	The remaining balance of the amended and restated senior secured convertible debenture issued to FNL in the amount of $3,934,146 was exchanged for a 7.0% Senior Secured Convertible Debenture in the principal balance of $3,934,146 due December 11, 2025 (the “Debenture”). A description of the rights, preferences, and privileges of the Debenture are set forth below.
	●	NAYA has been renamed to “NAYA Therapeutics Inc.”

 

In addition, NAYA stock options shall be converted into Company options to acquire a number of shares of the Company’s common stock equal to the number of shares of NAYA common stock subject to such NAYA options multiplied by 8.9108 (the “Exchange Ratio”) (rounded up to the nearest whole share) at an exercise price per share of such NAYA stock option divided by the Exchange Ratio, and NAYA restricted stock units shall be converted into Company restricted stock units representing the right to receive a number of shares of the Company’s common stock equal to the number of shares of NAYA common stock subject to such NAYA restricted stock unit multiplied by the Exchange Ratio. However, such options may not be exercised for shares of the Company’s common stock and such restricted stock units may not be settled for shares of the Company’s common stock unless and until the Company’s stockholders approve the issuance of common stock upon exercise of such options and settlement of such restricted stock units.

 

In connection with the Merger, Dr. Daniel Teper, NAYA’s current Chairman and Chief Executive Officer, was appointed President of the Company, and Dr. Teper will remain as NAYA’s Chief Executive Officer. The combined company will be led by INVO Chief Executive Officer Steven Shum, INVO Chief Financial Officer Andrea Goren, and Dr. Teper. In addition, Dr. Teper and Ms. Lyn Falconio have been appointed to the Company’s board of directors.

 

Pursuant to the Merger Agreement, the Company is required to hold a meeting of its stockholders to, among other things, (i) ratify the Merger Agreement and the transactions contemplated thereby, including the Merger, (ii) approve the increase in the amount of authorized shares under the Company’s Second Amended and Restated 2019 Stock Incentive Plan, (iii) approve the issuance of the Company’s common stock issuable upon conversion of the Series C-1 Preferred and Series C-2 Preferred, and (iv) approve an amendment to the Company’s articles of incorporation to (1) increase the number of shares of the Company’s authorized common stock to 100,000,000 shares, and (2) effectuate a reverse stock split of the Company’s common stock at a ratio ranging from any whole number between 1-for-2 and 1-for-20, as determined by the Company’s board of directors in its discretion. The Company also agreed to take all action necessary to hold the aforementioned stockholder meeting as soon as reasonably practicable.

 

Pursuant to both the Merger Agreement and the Assignment Agreement described below, the Company has agreed to file a registration statement with the SEC to register for resale the shares of the Company’s common stock issued pursuant to the Merger and the shares of common stock issuable upon exercise or conversion of the Series C-1 Preferred, the Series C-2 Preferred, and the Debenture, as applicable, as soon as practicable but in no event later than 30 days after the Closing Date.

 

The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which is attached hereto as Exhibit 2.1 and is incorporated herein by reference.

 

The Merger Agreement has been included to provide investors and security holders with information regarding its terms. It is not intended to provide any other factual information about the Company, Merger Sub, or NAYA. The representations, warranties, and covenants contained in the Merger Agreement were made only for purposes of that agreement and as of specific dates, were solely for the benefit of the parties to the Merger Agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Merger Agreement instead of establishing these matters as facts and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors should not rely on the representations, warranties, and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company, Merger Sub or NAYA or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Company’s or NAYA’s public disclosures.

 

 

7.0% Senior Secured Convertible Debenture

 

In connection with the Merger, on October 11, 2024, the Company issued the Debenture to FNL in an exchange of an outstanding note of NAYA held by FNL. The Debenture carries an interest rate of seven percent (7%) per annum, payable on the first business day of each calendar month commencing November 1, 2024. The maturity date of the Debenture is December 11, 2025 (the “Maturity Date”), at which point the outstanding principal amount, together with any accrued and unpaid interest and other fees, shall be due and payable to the holder of the Debenture.

 

Conversion. At any time after the Company’s stockholders approve the issuance of any Company common stock upon conversion of the Debenture, the holder of the Debenture will be entitled to convert any portion of the outstanding and unpaid principal amount and accrued interest into shares of Company common stock at a conversion price of $0.93055 per share, subject to adjustment as described therein. The Debenture may not be converted and shares of Company common stock may not be issued upon conversion of the Debenture if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 4.99% of the outstanding common stock of the Company.

 

Prepayment. The Company may not prepay the Debenture without the prior written consent of FNL

 

Monthly Redemption. Commencing March 14, 2025 and on the 14^th of each month thereafter until the Maturity Date, the Company shall redeem $437,127.24, plus accrued but unpaid interest and other fees, of the principal amount of the Debenture.

 

Mandatory Redemption. While any portion of the Debenture is outstanding, if the Company receives gross proceeds of more than $3,000,000 from any equity or debt financings (other than a public offering as described herein), the Company shall, at the option of the holder, apply one-third (1/3) of such gross proceeds to the redemption of the principal amount of the Debenture, except that if such equity or debt financing is a public offering of the Company’s securities pursuant to a registration statement on Form S-1, the Company shall, at the option of the holder, apply one hundred percent (100%) of such gross proceeds, not to exceed $500,000, to the redemption of the principal amount of the Debenture.

 

The Debenture contains events representations, warranties, covenants, and events of default that are customary for similar transactions. Upon an event of default, the Debenture becomes immediately due and payable, and the Borrower is subject to a default rate of interest of 15% per annum and a default sum as stipulated.

 

The foregoing description of the Debenture does not purport to be complete and is qualified in its entirety by reference to the Debenture, which is attached hereto as Exhibit 4.1 and is incorporated herein by reference.

 

Joinder Agreement

 

In connection with the Merger, the Company entered in a joinder agreement (the “Joinder Agreement”) with FNL dated as of October 11, 2024 to a certain securities purchase agreement dated as of January 3, 2024 by and between NAYA and FNL (the “FNL SPA”) pursuant to which the Company agreed to become a party to the FNL SPA.

 

The foregoing description of the Joinder Agreement does not purport to be complete and is qualified in its entirety by reference to the Joinder Agreement, which is attached hereto as Exhibit 10.1 and is incorporated herein by reference.

 

Assignment and Assumption Agreement

 

In connection with the Merger, on October 11, 2024, the Company entered in an assignment and assumption agreement (the “Assignment Agreement”), pursuant to which the Company agreed to assume the rights, duties, and liabilities of NAYA under a certain registration rights agreement dated as of September 12, 2024 by and between NAYA and FNL, pursuant to which the Company agreed to register FNL’s resale of shares of Company common stock issuable upon conversion of the Debenture and the Series C-2 Preferred as well as certain commitment shares issued to FNL in connection with the transactions.

 

The foregoing description of the Assignment Agreement does not purport to be complete and is qualified in its entirety by reference to the Assignment Agreement, which is attached hereto as Exhibit 10.2 and is incorporated herein by reference.

 

 

Second Amendment to Revenue Loan and Security Agreement

 

On October 11, 2024, the Company entered into a second amendment to Revenue Loan and Security Agreement (the “Second Amendment”) with Decathlon Alpha V, L.P. (“Decathlon”), Steven Shum, and certain subsidiaries of the Company (the “Guarantors”), pursuant to which Decathlon consented to the Merger and NAYA becoming a subsidiary of the Company. Pursuant to the Second Amendment, NAYA joined the Revenue Loan and Security Agreement as a Guarantor. The Company agreed to pay down its loan by at least $500,000 and increase its monthly payments by up to $30,000 if the Company closes a private offering of its securities. The Company also agreed to retain an investment banker to pursue a financing or a sale if it fails to meet certain liquidity covenants. The Company also agreed to enter into an intercreditor agreement with Decathlon and Five Narrow Lane LP within 5 business days of the Merger.

 

The foregoing description of the Second Amendment does not purport to be complete and is qualified in its entirety by reference to the Second Agreement, which is attached hereto as Exhibit 10.3 and is incorporated herein by reference.

 

Item 2.01 Completion of Acquisition or Disposition of Assets.

 

On October 11, 2024, the Company, NAYA, and Merger Sub consummated the Merger described in Item 1.01 above, pursuant to which the Company acquired NAYA.

 

NAYA aims to bring breakthrough therapies to market at accelerated speed through an agile and synergistic platform, backed by access to capital and public markets and driven by experienced, entrepreneurial leadership. NAYA seeks to develop and build a group of agile, disruptive, high-growth business segments dedicated to increasing patient access to life-transforming treatments in the areas of oncology, fertility, and regenerative medicine. NAYA’s business model is based on a portfolio approach, optimizing the risk-return investment profile through steady, scalable, profitable revenues augmented by the partnering upside of disruptive clinical-stage therapeutics. Fueled by this value creation approach, NAYA aims to continue our strategic acquisition of undervalued specialty assets, accelerate their clinical development and commercialization, and capitalize on their potential to transform patients’ lives.

 

Item 3.02 Unregistered Sale of Equity Securities.

 

The information set forth in Item 1.01 is incorporated herein by reference. The offer and sale of the common stock, Series C-1 Preferred, Series C-2 Preferred, and the 7% Senior Secured Convertible Debenture has been made pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.

 

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

 

In connection with the Merger, the Company’s board of directors appointed Dr. Daniel Teper and Lyn Falconio as directors of the Company to fill two vacancies on the board. In addition, the board of directors appointed Dr. Teper as President of the Company. Dr. Teper will also remain as Chief Executive Officer of NAYA Therapeutics.

 

Daniel Teper, PharmD, MBA, 64 years old, is the Founder, Chairman, Chief Executive Officer, Chief Financial Officer, and Director of NAYA Biosciences since August 2023. He has over 30 years of leadership experience as a biopharma entrepreneur, corporate executive, and management consultant. Previously, Dr. Teper was the Chairman & CEO of Cytovia Therapeutics, from June 2019 to July 2023, where he remains Chairman of the Board. Dr. Teper brings extensive experience. From September 2011 to April 2017, he was the CEO of Immune Pharmaceuticals, which he listed on NASDAQ. He previously served as New York-based Managing Partner (Head of North America) at Bionest Partners, now Accenture, where he advised companies on corporate strategy and business development. He was previously a Partner at ISO Healthcare Group, now Deloitte Monitor, in New York. Dr. Teper helped drive the accelerated growth of Softwatch, a pioneer digital health company, as senior vice president of sales and business development. He also served as global president of Havas Health, advising companies on global launches of major new drugs in multiple disease areas. Dr. Teper started his career at Novartis in Basel and then in the US, where he held management responsibilities in sales and marketing and as head of cardiovascular, new product development. Dr. Teper held general management positions in Europe at GlaxoSmithKline and Sanofi. He was the co-founder and CEO of Wintec Pharma, a European specialty pharmaceutical company focused on anti-infectives and dermatology, which he went on to sell. Dr. Teper co-founded Novagali, an ophthalmology specialty pharma later listed on EuroNext Paris and acquired by Japan’s Santen. He holds a Doctor of Pharmacy degree from Paris XI University and an MBA from INSEAD, where he was the J. Salmon scholar.

 

 

Lyn Falconio, 62 years old, is a director at NAYA Biosciences. She brings 25 years of pharmaceutical product marketing experience, working across a wide range of therapeutic categories and clinical innovations. Since April of 2021, she has served as Executive Engagement Lead for Publicis, responsible for bringing together worldwide talent and capabilities that serve top tier pharmaceutical companies’ go-to-market strategies, product commercialization planning and market growth. As part of the Publicis family since 2008, her prior roles include Chief Marketing Officer (January 2018 – April 2021), and EVP Business Development & Growth, where she designed collaborative working models that provided invaluable returns. Prior to Publicis, Lyn held senior level positions in business development and client services for some of the industry’s leading communications, digital and healthcare marketing companies. In 2007 she launched NOVA Grey, WPP’s first connected network of global healthcare companies, from 1999-2001 she led strategic alliances and partnerships at Softwatch, one of the industry’s first digital health platforms, and prior to that she was part of a start-up team to launch a new brand of marketing agencies at Omnicom. Her drive towards future vision and new emerging capabilities in health and wellness are at the core of what she brings to the industry.

 

Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year

 

Name Change and Application for Symbol Change

 

On October 15, 2024, the Company changed its corporate name to NAYA Biosciences, Inc., pursuant to an Amendment to Articles of Incorporation filed with the Nevada Secretary of State on October 15, 2024 (the “Name Change”). Pursuant to Nevada law, a stockholder vote was not necessary to effectuate the Name Change.

 

The Company also announced that it intends for its common stock to cease trading under the ticker symbol “INVO” and begin trading under its new ticker symbol, “NAYA”, on the Nasdaq Capital Market, as promptly as possible.

 

A copy of the Company’s Amendment to Articles of Incorporation was filed as Exhibit 3.1 to this Current Report on Form 8-K and is incorporated herein by reference.

 

Series C-1 Preferred

 

The Company’s Articles of Incorporation, as amended, authorizes the Company to issue 100,000,000 shares of preferred stock, $0.0001 par value per share, issuable from time to time in or more series (“Preferred Stock”). On October 14, 2024, the Company filed with the Nevada Secretary of State a Certificate of Designation of Series C-1 Convertible Preferred Stock (the “Series C-1 Certificate of Designation”) which sets forth the rights, preferences, and privileges of the Series C-1 Preferred. Thirty thousand three hundred seventy five (30,375) shares of Series C-1 Preferred with a stated value of $1,000.00 per share were authorized under the Series C-1 Certificate of Designation.

 

Each share of Series C-1 Preferred has a stated value of $1,000.00, which is convertible into shares of the Company’s common stock (the “Common Stock”) at a conversion price equal to $1.02913 per share, subject to adjustment. The Series C-1 Preferred may not be converted into shares of the Company’s Common Stock unless and until the Company’s stockholders approve the issuance of common stock upon conversion of the Series C-1 Preferred. Each share of Series C-1 Preferred shall automatically convert into the Company’s common stock if the Company’s stockholders approve the issuance, except that the Company may not effect such conversion if, after giving effect to the conversion or issuance, the holder, together with its affiliates, would beneficially own in excess of 19.99% of the Company’s outstanding common stock.

 

 

Commencing on the ninety-first (91^st) day after the first issuance of any Series C-1 Preferred, the holders of Series C-1 Preferred shall be entitled to receive dividends on the stated value at the rate of two percent (2%) per annum, payable in shares of the Company’s common stock at the conversion price. Such dividends shall continue to accrue until paid. Such dividends will not be paid in shares of the Company’s common stock unless and until the Company’s stockholders approve the issuance of common stock upon conversion of the Series C-1 Convertible Preferred Stock. The holders of Series C-1 Preferred shall also be entitled to receive a pro-rata portion, on an as-if convertible basis, of any dividends payable on Common Stock.

 

The Series C-1 Preferred ranks senior to the Company’s common stock and junior to the Series C-2 Preferred. Subject to the rights of the holders of any senior securities, in the event of any voluntary or involuntary liquidation, dissolution, or winding up, or sale of the Company, each holder of Series C-1 Preferred shall be entitled to receive its pro rata portion of an aggregate payment equal to the amount as would be paid on the Company’s common stock issuable upon conversion of the Series C-1 Preferred, determined on an as-converted basis, without regard to any beneficial ownership limitation.

 

Other than those rights provided by law, the Series C-1 Preferred has no voting rights. The Series C-1 Preferred is not redeemable.

 

The foregoing summary of the Series C-1 Certificate of Designation is not complete and is qualified in its entirety by reference to the Series C-1 Certificate of Designation, a copy of which was filed as Exhibit 3.2 to this Current Report on Form 8-K and is incorporated herein by reference.

 

Series C-2 Preferred Stock

 

On October 14, 2024, the Company filed with the Nevada Secretary of State a Certificate of Designation of Series C-2 Convertible Preferred Stock (the “Series C-2 Certificate of Designation”) which sets forth the rights, preferences, and privileges of the Series C-2 Preferred. Eight thousand five hundred seventy six (8,576) shares of Series C-2 Preferred with a stated value of $1,000.00 per share were authorized under the Series C-2 Certificate of Designation.

 

Each share of Series C-2 Preferred has a stated value of $1,000.00, which, along with any additional amounts accrued thereon pursuant to the terms of the Series C-2 Certificate of Designation (collectively, the “Conversion Amount”) is convertible into shares of the Company’s common stock (the “Common Stock”) at a conversion price equal to $0.6893 per share, subject to adjustment. The Series C-2 Preferred may not be converted into shares of the Company’s Common Stock unless and until the Company’s stockholders approve the issuance of common stock upon conversion of the Series C-2 Convertible Preferred Stock. Each share of Series C-2 Preferred shall become convertible into the Company’s common stock at the option of the holder of such Series C-2 Preferred shares if the Company’s stockholders approve the issuance of common stock upon conversion of the Series C-2 Preferred, except that the Company may not effect such conversion if, after giving effect to the conversion or issuance, the holder, together with its affiliates, would beneficially own in excess of 9.99% of the Company’s outstanding common stock.

 

Commencing on the ninety-first (91^st) day after the first issuance of any Series C-2 Preferred, the holders of Series C-2 Preferred shall be entitled to receive dividends on the stated value at the rate of ten percent (10%) per annum, payable in shares of the Company’s common stock, with each payment of a dividend payable in shares of the Company’s common stock at a conversion price of eighty-five percent (85%) of the average of the volume weighted average price of the Company’s common stock for the five (5) trading days before the applicable dividend date. Such dividends shall continue to accrue until paid. Such dividends will not be paid in shares of the Company’s common stock unless and until the Company’s stockholders approve the issuance of common stock upon conversion of the Series C-2 Preferred. The holders of Series C-2 Preferred shall also be entitled to receive a pro-rata portion, on an as-if convertible basis, of any dividends payable on Common Stock.

 

The Series C-2 Preferred ranks senior to the Company’s common stock and to the Series C-1 Preferred. Subject to the rights of the holders of any senior securities, in the event of any voluntary or involuntary liquidation, dissolution, or winding up, or sale of the Company, each holder of Series C-2 Preferred shall be entitled to receive its pro rata portion of an aggregate payment equal to the greater of (a) 125% of the Conversion Amount with respect to such shares, and (b) the amount as would be paid on the Company’s common stock issuable upon conversion of the Series C-2 Preferred, determined on an as-converted basis, without regard to any beneficial ownership limitation.

 

 

Other than those rights provided by law, the Series C-2 Preferred has no voting rights. The Series C-2 Preferred is only redeemable upon a “Bankruptcy Triggering Event” or a “Change of Control” that occurs 210 days after the closing date of the Merger.

 

The foregoing summary of the Series C-2 Certificate of Designation is not complete and is qualified in its entirety by reference to the Series C-2 Certificate of Designation, a copy of which was filed as Exhibit 3.3 to this Current Report on Form 8-K and is incorporated herein by reference.

 

Item 8.01 Other Events.

 

Press Release

 

On October 14, 2024, the Company and NAYA issued a joint press release announcing that they had consummated the Merger. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference into this Item 8.01.

 

Nasdaq Compliance – Stockholder Equity

 

As a result of the Merger, as of the date of this filing, the Company believes it has stockholders’ equity in excess of the minimum $2.5 million requirement for continued listing on The Nasdaq Capital Market, as required by Nasdaq Listing Rule 5550(b)(1) (the “Equity Rule”). The Company awaits the Nasdaq Listing Qualifications Staff’s formal determination with respect to the Company’s compliance with the Equity Rule. Nasdaq will continue to monitor the Company’s ongoing compliance with the Equity Rule and, if at the time of the Company’s next periodic report the Company does not evidence compliance with the Equity Rule, it may again be subject to delisting.

 

Nasdaq Compliance – Minimum Bid Price

 

On September 18, 2024, the Company received a letter from the staff of the Nasdaq listing qualifications group indicating that, based upon the closing bid price of the Company’s common stock for the last 34 consecutive business days, the Company is not currently in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing under Nasdaq Listing Rule 5550(a)(2).

 

The notice has no immediate effect on the listing of the Company’s common stock, and its common stock will continue to trade on The Nasdaq Capital Market.

 

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been provided an initial period of 180 calendar days, or until May 17, 2025, to regain compliance with the minimum bid price requirement. If at any time before May 17, 2025, the closing bid price of the Company’s common stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, Nasdaq will provide written notification that the Company has achieved compliance with the minimum bid price requirement, and the matter would be resolved. If the Company does not regain compliance prior to May 17, 2025, then Nasdaq may grant the Company a second 180 calendar day period to regain compliance, provided the Company (i) meets the continued listing requirement for market value of publicly-held shares and all other initial listing standards for The Nasdaq Capital Market, other than the minimum closing bid price requirement, and (ii) notifies Nasdaq of its intent to cure the deficiency within such second 180 calendar day period, by effecting a reverse stock split, if necessary.

 

The Company agreed to prepare and file a proxy statement with the U.S. Securities and Exchange Commission (the “SEC”) to be used for a stockholder meeting of the Company to seek, among other things, ratification of the Merger, an increase in the amount of authorized shares under the Company’s stock incentive plan, to (1) increase the number of shares of the Company’s authorized common stock to 100,000,000 shares, and (2) effectuate a reverse stock split of the Company’s common stock at a ratio ranging from any whole number between 1-for-2 and 1-for-20, as determined by the Company’s board of directors in its discretion.

 

 

The Company will continue to monitor the closing bid price of its common stock and will consider implementing available options to regain compliance with the minimum bid price requirement under the Nasdaq Listing Rules. If the Company does not regain compliance with the minimum bid price requirement within the allotted compliance periods, the Company will receive a written notification from Nasdaq that its securities are subject to delisting. The Company would then be entitled to appeal that determination to a Nasdaq hearings panel. There can be no assurance that the Company will regain compliance during either compliance period, or maintain compliance with the other Nasdaq listing requirements.

 

Forward-Looking Statements

 

This Form 8-K contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In this context, forward-looking statements often address future business and financial events, conditions, expectations, plans or ambitions, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “target,” similar expressions, and variations or negatives of these words, but not all forward-looking statements include such words. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about the Merger, the anticipated benefits thereof, and the Company’s compliance with the Equity Rule. All such forward-looking statements are based upon current plans, estimates, expectations, and ambitions that are subject to risks, uncertainties, and assumptions, many of which are beyond the control of the Company and NAYA, that could cause actual results to differ materially from those expressed in such forward-looking statements. Important risk factors that may cause such a difference include, but are not limited to, the following: Nasdaq’s determination of the Company’s compliance with the Equity Rule; Company stockholder approval of the matters described herein; anticipated tax treatment, unforeseen liabilities, future capital expenditures, revenues, expenses, earnings, synergies, economic performance, indebtedness, financial condition, losses, future prospects, business, and management strategies for the management, expansion, and growth of the combined company’s operations after the Merger, including the possibility that any of the anticipated benefits of the Merger will not be realized or will not be realized within the expected time period; the ability of the Company and NAYA to integrate the business successfully and to achieve anticipated synergies and value creation; potential litigation relating to the Merger that could be instituted against the Company, NAYA, or their respective directors; the risk that disruptions from the Merger will harm the Company’s or NAYA’s business, including current plans and operations and that management’s time and attention will be diverted on transaction-related issues; potential adverse reactions or changes to business relationships resulting from the announcement or completion of the Merger; legislative, regulatory and economic developments, including regulatory implementation of the Inflation Reduction Act, and other regulatory actions targeting public companies in the biotech industry and changes in local, national, or international laws, regulations, and policies affecting the Company and NAYA; potential business uncertainty, including the outcome of commercial negotiations and changes to existing business relationships that could affect the Company’s and/or NAYA’s financial performance and operating results; acts of terrorism or outbreak of war, hostilities, civil unrest, attacks against the Company or NAYA, and other political or security disturbances; dilution caused by the Company’s issuance of additional shares of Company common stock in connection with the Merger or if Company stockholder approval is obtained; the impacts of pandemics or other public health crises, including the effects of government responses on people and economies; changes in technical or operating conditions, including unforeseen technical difficulties; and those risks described in Item 1A of the Company’s Annual Report on Form 10-K, filed with the SEC on April 16, 2024.

 

While the list of factors presented here is considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements. We caution you not to place undue reliance on any of these forward-looking statements as they are not guarantees of future performance or outcomes and that actual performance and outcomes, including, without limitation, our actual results of operations, financial condition and liquidity, and the development of new markets or market segments in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this communication. Neither the Company nor NAYA assumes any obligation to publicly provide revisions or updates to any forward-looking statements, whether as a result of new information, future developments or otherwise, should circumstances change, except as otherwise required by securities and other applicable laws. Neither future distribution of this communication nor the continued availability of this communication in archive form on the Company’s or NAYA’s website should be deemed to constitute an update or re-affirmation of these statements as of any future date.

 

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits

 

Exhibit		Description
2.1		Amended and Restated Agreement and Plan of Merger, entered into as of October 11, 2024, by and among NAYA Biosciences, Inc., INVO Bioscience, Inc., INVO Merger Sub Inc.
3.1		Amendment to Articles of Incorporation of INVO Bioscience, Inc.
3.2		Certificate of Designation Establishing Series C-1 Convertible Preferred Stock of INVO Bioscience, Inc.
3.3		Certificate of Designation Establishing Series C-2 Convertible Preferred Stock of INVO Bioscience, Inc.
4.1		7.0% Senior Secured Convertible Debenture.
10.1		Joinder Agreement by and among Five Narrow Lane LP and INVO Bioscience, Inc. dated as of October 11, 2024
10.2		Assignment and Assumption Agreement by and among NAYA Biosciences, Inc. and INVO Bioscience, Inc. dated as of October 11, 2024
10.3		Second Amendment to Revenue Loan and Security Agreement by and among Steven Shum, INVO Bioscience, Inc., the Guarantors, and Decathlon Alpha V, L.P. dated October 11, 2024.
99.1		Press Release dated October 14, 2024.
104		Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: October 15, 2024

 

	INVO BIOSCIENCE, INC.
	By:	/s/ Steven Shum
		Steven Shum
		Chief Executive Officer

 

 

 

 

Exhibit 2.1

 

Execution Version

 

AMENDED AND RESTATED

 

AGREEMENT AND PLAN OF MERGER

 

By and Among

 

INVO BIOSCIENCE, INC.

 

INVO MERGER SUB INC.

 

And

 

NAYA BIOSCIENCES, INC.

 

Dated as of October 11, 2024

 

 

TABLE OF CONTENTS

 

ARTICLE I DEFINITIONS	2
ARTICLE II THE MERGER	17
ARTICLE III EFFECT OF THE MERGER ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES	18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY	24
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB	37
ARTICLE VI COVENANTS	55
ARTICLE VII CONDITIONS TO CLOSING	65
ARTICLE VIII TERMINATION; AMENDMENT AND WAIVER	68
ARTICLE IX MISCELLANEOUS	70
EXHIBITS:

 

	EXHIBIT A – Form of Parent Support Agreements
	EXHIBIT B – List of parties required to sign Parent Support Agreements
	EXHIBIT C – Parent Stockholder Proposals
	EXHIBIT D – Post Closing Board of Directors
	EXHIBIT E – Amended and Restated Certificate of the Surviving Corporation
	EXHIBIT F – Company SAFEs on the Date of the Merger
	EXHIBIT G – Post Closing Officers of Parent and Company
	EXHIBIT H – Form of Series C-1 Certificate of Designation
	EXHIBIT I – Form of Joint Press Release of Parent and Company

 

 

AMENDED AND RESTATED

 

AGREEMENT AND PLAN OF MERGER

 

This Amended and Restated Agreement and Plan of Merger (this “Agreement”), is entered into as of October 11, 2024, by and among NAYA Biosciences, Inc., a Delaware corporation (the “Company”), INVO Bioscience, Inc., a Nevada corporation (the “Parent”), and INVO Merger Sub Inc., a Delaware corporation and a wholly owned Subsidiary of Parent (“Merger Sub”). Capitalized terms used herein (including in the immediately preceding sentence) and not otherwise defined herein shall have the meanings set forth in ARTICLE I hereof.

 

RECITALS:

 

WHEREAS, on October 22, 2023, the parties entered into an agreement and plan of merger (the “Original Agreement”);

 

WHEREAS, on October 24, 2023, the parties entered into an amendment to the Original Agreement (the “First Amendment”);

 

WHEREAS, on December 27, 2023, the parties entered into a second amendment to the Original Agreement (the “Second Amendment”);

 

WHEREAS, on May 1, 2024, the parties entered into a third amendment to the Original Agreement (the “Third Amendment”);

 

WHEREAS, on September 12, 2024, the parties entered into a fourth amendment to the Original Agreement (the “Fourth Amendment”);

 

WHEREAS, the parties desire to enter into this Amended and Restated Agreement and Plan of Merger, amending the Original Agreement in its entirety, to reflect all amendments previously made and to establish the rights and obligations of the parties as more specifically set forth herein.

 

WHEREAS, the parties intend that Merger Sub be merged with and into the Company, with the Company surviving that merger on the terms and subject to the conditions set forth herein;

 

WHEREAS, the Board of Directors of the Company (the “Company Board”) has unanimously, pursuant to the Amended and Restated Certificate of Incorporation of the Company (the “Company Charter”): (a) determined that it is in the best interests of the Company and the holders of shares of the Company’s (i) Class A Common Stock (as defined below), (ii) Class B Common Stock (as defined below), and (iii) Preferred Stock (as defined below); subclauses (i)-(iii), collectively, the “Company Capital Stock”), and declared it advisable, to enter into this Agreement with Parent and the Merger Sub; (b) approved the execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby, including the Merger; and (c) resolved, subject to the terms and conditions set forth in this Agreement, to recommend adoption of this Agreement by the stockholders of the Company; in each case, in accordance with the Delaware General Corporation Law (the “DGCL”);

 

 

WHEREAS, the respective Boards of Directors of Parent (the “Parent Board”) and the Merger Sub (the “Merger Sub Board”) have each unanimously: (a) determined that it is in the best interests of Parent or the Merger Sub, as applicable, and their respective stockholders, and declared it advisable, to enter into this Agreement with the Company; and (b) approved the execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby, including the Merger and the issuance of Parent Capital Stock pursuant thereto (the “Parent Stock Issuance”); in each case, in accordance with the Nevada Revised Statutes Chapter 78 (“NRS 78”) or DGCL, as applicable;

 

WHEREAS, the Parent Board has (i) unanimously approved this Agreement, pursuant to which each share of Company Capital Stock shall be converted into the right to receive the NAYA Per Share Merger Consideration (as defined herein), and (ii) unanimously resolved to recommend that the Parent Stockholders approve the Parent Stockholder Matters;

 

WHEREAS, for U.S. federal income Tax purposes, the parties intend that the Merger qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and that this Agreement be, and is hereby, adopted as a plan of reorganization within the meaning of Section 368(a) of the Code;

 

WHEREAS, the parties desire to make certain representations, warranties, covenants, and agreements in connection with the Merger and the other transactions contemplated by this Agreement and also to prescribe certain terms and conditions to the Merger, including that none of the holders of Company Capital Stock or Parent Common Stock, as applicable, shall have any dissenters’ or appraisal rights; and

 

WHEREAS, concurrently with the execution and delivery of this Agreement and as a condition and inducement to the Company’s willingness to enter into this Agreement, the officers, directors, and stockholders of Parent together with other parties listed on Exhibit B attached hereto have entered into Support Agreements, dated as of the date of this Agreement, in the form attached hereto as Exhibit A (the “Parent Support Agreements”), pursuant to which such stockholders have, subject to the terms and conditions set forth therein, agreed to vote all of their shares of capital stock of Parent in favor of the proposals with regard to Stockholder Matters on Exhibit C hereto. and

 

NOW, THEREFORE, in consideration of the foregoing and of the representations, warranties, covenants, and agreements contained in this Agreement, the parties, intending to be legally bound, agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

The following terms, as used herein, have the following meanings:

 

1.1 “Acquisition Agreement” has the meaning set forth in Section 6.4 of this Agreement.

 

 

1.2 “Action” means any legal, administrative, arbitral, or other proceedings, suits, actions, investigations, examinations, claims, audits, hearings, charges, complaints, indictments, litigations, labor organization activities or examinations.

 

1.3 “Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such first Person. For the purposes of this definition, “control” (including, the terms “controlling,” “controlled by,” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities, by Contract, or otherwise.

 

1.4 “Agreement” has the meaning set forth in the Preamble.

 

1.5 “Ancillary Documents” shall mean the executed copies of all documents reasonably requested by the Company in connection with the Closing, including but not limited to the offer letters, , respective Officers’ Certificates, and Parent Support Agreements, requisite waivers of warrant holders, and the Series B Exchange Agreement.

 

1.6 “Books and Records” means all books and records, ledgers, employee records, customer lists, files, correspondence, and other records of every kind (whether written, electronic, or otherwise embodied) owned or used by a Person or in which a Person’s assets, the business or its transactions are otherwise reflected, other than stock books and minute books.

 

1.7 “Book-Entry Share” has the meaning set forth in Section 3.1(g) of this Agreement.

 

1.8 “Business Day” means any day other than a Saturday, Sunday, or a legal holiday on which commercial banking institutions in New York are authorized to close for business.

 

1.9 “By-laws” shall mean the by-laws of the Company, Parent, or Merger Sub, as applicable.

 

1.10 “Cancelled Shares” has the meaning set forth in Section 3.1(a) of this Agreement.

 

1.11 “Certificate” has the meaning set forth in Section 3.1(c) of this Agreement.

 

1.12 “Certificate of Designation” means a certificate of designation setting forth the voting powers, designations, preferences, limitations, restrictions, and relative rights of a class or series of Parent Capital Stock.

 

1.13 “Certificate of Merger” has the meaning set forth in Section 2.3 of this Agreement.

 

1.14 “Change of Control” means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the SEC thereunder as in effect on the date hereof), of Parent Securities representing more than 50% of the aggregate voting power represented by the issued and outstanding Parent Securities (on an as converted basis) or (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of Parent by Persons who were neither (i) members of the Parent Board on the date of this Agreement, (ii) nominated, appointed, or approved by the Parent Board (either by a specific vote or by approval of a proxy statement issued by Parent on behalf of the Parent Board in which such individual is named as a nominee for director) nor (iii) nominated, appointed, or approved (either by a specific vote or by approval of a proxy statement issued by Parent on behalf of the Parent Board in which such individual is named as a nominee for director) by directors so nominated.

 

 

1.15 “Class A Common Stock” has the meaning set forth in Section 4.4(a) of this Agreement.

 

1.16 “Class B Common Stock” has the meaning set forth in Section 4.4(a) of this Agreement.

 

1.17 “Closing” has the meaning set forth in Section 2.2 of this Agreement.

 

1.18 “Closing Date” has the meaning set forth in Section 2.2 of this Agreement.

 

1.19 “COBRA” means collectively, the requirements of Sections 601 through 606 of ERISA and Section 4980B of the Code.

 

1.20 “Code” means the Internal Revenue Code of 1986, as amended.

 

1.21 “Company” has the meaning set forth in the Preamble.

 

1.22 “Company Asset Purchase Agreement” means that certain Asset Purchase Agreement by and among the Company, Cytovia, and Cytovia Therapeutics, LLC, a Delaware limited liability company, as has been amended.

 

1.23 “Company Balance Sheet” has the meaning set forth in Section 4.6 of this Agreement.

 

1.24 “Company Balance Sheet Date” has the meaning set forth in Section 4.6 of this Agreement.

 

1.25 “Company Board” has the meaning set forth in the Recitals.

 

1.26 “Company Board Recommendation” has the meaning set forth in Section 4.2(b) of this Agreement.

 

1.27 “Company Capital Stock” has the meaning set forth in the Recitals.

 

1.28 “Company Charter” has the meaning set forth in the Recitals.

 

1.29 “Company Common Stock” means the Company’s Class A Common Stock and Class B Common Stock.

 

 

1.30 “Company Common Stock Deemed Outstanding” means, immediately prior to the Closing, the sum of (a) all Company Class A Common Stock actually outstanding at such time, plus (b) all Company Class B Common Stock actually outstanding at such time, plus (c) all Company Class A Common Stock reserved for issuance at such time under Company Stock Plans, regardless of whether such Company Class A Common Stock is actually subject to outstanding Company Options at such time or whether any outstanding Company Options are actually exercisable at such time, plus (d) all Company Class B Common Stock reserved for issuance at such time under Company Stock Plans, regardless of whether such Company Class B Common Stock is actually subject to outstanding Company Options at such time or whether any outstanding Options are actually exercisable at such time, plus (e) all Company Class A Common Stock issuable upon exercise of any other Company Options (other than Company Options described in clause (c) above) actually outstanding at such time, plus (f) all Company Class B Common Stock issuable upon exercise of any other Company Options (other than Company Options described in clause (d) above) actually outstanding at such time, plus (g) all Company Class A Common Stock issuable upon conversion or exchange of Company Convertible Securities actually outstanding at such time (treated as actually outstanding at such time), in each case, regardless of whether the Company Options or Company Convertible Securities are actually exercisable at such time (including, without limitation, the Company SAFE Conversion Shares), plus (h) all Company Class B Common Stock issuable upon conversion or exchange of Company Convertible Securities actually outstanding at such time (treated as actually outstanding at such time), in each case, regardless of whether the Company Options or Company Convertible Securities are actually exercisable at such time, minus all Company Class A Common Stock or Class B Common Stock issuable upon conversion or exchange of the FNL Note and the GreenBlock Note.

 

1.31 “Company Convertible Securities” means any securities (directly or indirectly) convertible into or exchangeable for Company Class A Common Stock or Company Class B Common Stock, but excluding Company Options. For clarity, Company Convertible Securities include the Company SAFEs.

 

1.32 “Company Disclosure Schedule” means the disclosure schedule, dated as of the date of this Agreement and delivered by the Company to Parent and Merger Sub concurrently with the execution of this Agreement.

 

1.33 “Company Equity Award” means a Company Stock Option or a Company Restricted Share, as the case may be.

 

1.34 “Company Financial Statements” has the meaning set forth in Section 4.6 of this Agreement.

 

1.35 “Company Governing Documents” means, collectively, the Company Charter and By-Laws of the Company.

 

1.36 “Company Intellectual Property” has the meaning set forth in Section 4.14(a) of this Agreement.

 

1.37 “Company IP Agreements” means all licenses, sublicenses, consent to use agreements, settlements, coexistence agreements, covenants not to sue, waivers, releases, permissions, and other Contracts, whether written or oral, relating to Intellectual Property and to which the Company or any of its Subsidiaries is a party, beneficiary, or otherwise bound.

 

 

1.38 “Company IT Systems” mean means all software, computer hardware, servers, networks, platforms, peripherals, and similar or related items of automated, computerized, or other information technology networks and systems (including telecommunications networks and systems for voice, data, and video) owned, leased, licensed, or used (including through cloud-based or other third-party service providers) by the Company.

 

1.39 “Company Material Adverse Effect” means any event, circumstance, development, occurrence, fact, condition, effect, or change (each, an “Effect”) that is, or would reasonably be expected to become, individually or in the aggregate, materially adverse to: (a) the business, results of operations, condition (financial or otherwise), or assets of the Company and its Subsidiaries, taken as a whole; or (b) the ability of the Company to timely perform its obligations under this Agreement or consummate the transactions contemplated hereby on a timely basis; provided, however, that, for the purposes of clause (a), a Company Material Adverse Effect shall not be deemed to include any Effect (alone or in combination) arising out of, relating to, or resulting from: (i) changes generally affecting the economy, financial or securities markets, or political conditions; (ii) the execution and delivery, announcement, or consummation of the transactions contemplated by this Agreement (it being understood and agreed that this clause shall not apply with respect to any representation or warranty that is intended to address the consequences of the execution and delivery, announcement or consummation of this Agreement; (iii) any changes in applicable Law or GAAP or other applicable accounting standards (iv) acts of war, terrorism, or military actions, or the escalation thereof; (v) natural disasters, epidemics, pandemics, or public health emergencies (as declared by the World Health Organization or the Health and Human Services Secretary of the United States); (vi) general conditions in the industry in which the Company and its Subsidiaries operate; (vii) any failure, in and of itself, by the Company to meet any internal or published projections, forecasts, estimates, or predictions in respect of revenues, earnings, or other financial or operating metrics for any period (it being understood that any Effect underlying such failure may be deemed to constitute, or be taken into account in determining whether there has been or would reasonably be expected to become, a Company Material Adverse Effect, to the extent permitted by this definition and not otherwise excepted by another clause of this proviso); or (viii) actions taken as required or specifically permitted by the Agreement or actions or omissions taken with Parent’s consent; provided further, however, that any Effect referred to in clauses (i), (iii), (iv), (v), or (vi) immediately above shall be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur if it has a disproportionate effect on the Company and its Subsidiaries, taken as a whole, compared to other participants in the industries in which the Company and its Subsidiaries conduct their businesses (in which case, only the incremental disproportionate adverse effect may be taken into account in determining whether a Company Material Adverse Effect has occurred).

 

1.40 “Company Material Contracts” has the meaning set forth in Section 4.11(a) of this Agreement.

 

1.41 “Company Options” means Company Stock Options and any other warrants or other rights or options to subscribe to purchase Company Class A Common Stock, Company Class B Common Stock, or Company Convertible Securities, if any.

 

1.42 “Company Preferred Stock” has the meaning set forth in Section 4.4(a) of this Agreement.

 

 

1.43 “Company Restricted Share Units” means any right to receive Company Common Stock subject to vesting, repurchase, or other lapse of restrictions granted under any Company Stock Plan.

 

1.44 “Company SAFE” means the Simple Agreements for Future Equity of the Company that are outstanding as of the date hereof listed on Exhibit F hereto.

 

1.45 “Company SAFE Conversion Shares” means the total number of shares of Company Common Stock that would be issuable to the holders of Company SAFEs if all Company SAFEs as of the Effective Time were converted into shares of the Company’s Common Stock immediately prior to the Effective Time at the price per share set forth on Exhibit F corresponding to such Company SAFE (as adjusted for stock splits, stock dividends, and the like).

 

1.46 “Company Securities” has the meaning set forth in Section 3.2(b) of this Agreement.

 

1.47 “Company Stockholder Matters” means the following matters, as submitted by the Company Board to the stockholders of the Company, for approval and adoption: (a) the Merger and all other transactions contemplated by this Agreement, and (b) any related actions with respect to the transactions contemplated by this Agreement and the applicable Ancillary Documents.

 

1.48 “Company Stockholders Meeting” means the special meeting of the stockholders of the Company to be held to consider the adoption of this Agreement.

 

1.49 “Company Stock Options” means any option to purchase Company Common Stock granted under any Company Stock Plan.

 

1.50 “Company Stock Plans” means the following plans, in each case as amended: The Global Equity Incentive Plan (2024).

 

1.51 “Confidentiality Agreement” has the meaning set forth in Section 6.3(b) of this Agreement.

 

1.52 “Consents” shall mean any consent, approval, order, or authorization of, or registration, declaration, or filing with, or notice to any Governmental Authority.

 

1.53 “Contracts” means any contracts, agreements, licenses, notes, bonds, mortgages, indentures, leases, or other binding instruments or binding commitments, whether written or oral.

 

1.54 “Cytovia” means Cytovia Therapeutics Holdings, Inc., a Delaware corporation.

 

1.55 “Data Room” shall mean the data room referred to in Section 4.19.

 

1.56 “DGCL” has the meaning set forth in the Recitals.

 

1.57 “Effective Time” has the meaning set forth in Section 2.3 of this Agreement.

 

1.58 “Employment Agreements” has the meaning set forth in Section 4.16.

 

 

1.59 “End Date” shall mean October 14, 2024.

 

1.60 “Environmental Laws” has the meaning set forth in Section 5.12(a) of this Agreement.

 

1.61 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.

 

1.62 “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

1.63 “Exchange Agent” has the meaning set forth in Section 3.2(a) of this Agreement.

 

1.64 “Exchange Fund” has the meaning set forth in Section 3.2(a) of this Agreement.

 

1.65 “Exchange Ratio” means the quotient obtained by dividing (a) the Total Fully Diluted Merger Consideration Common Shares by (b) the Company Common Stock Deemed Outstanding.

 

1.66 “Exchanged Option” has the meaning set forth in Section 3.1(c) of this Agreement.

 

1.67 “Expenses” means, with respect to any Person, all reasonable and documented out-of-pocket fees and expenses (including all fees and expenses of counsel, accountants, financial advisors, and investment bankers of such Person and its Affiliates), incurred by such Person or on its behalf in connection with or related to the authorization, preparation, negotiation, execution, and performance of this Agreement and any transactions related thereto, any litigation with respect thereto, the preparation, printing, filing, and mailing of the Proxy Statement, the filing of any notices required by any Governmental Authority in connection with the transactions contemplated by this Agreement, or in connection with other regulatory approvals, and all other matters related to the Merger, the Parent Stock Issuance, and the other transactions contemplated by this Agreement.

 

1.68 “Existing Employment Agreement” has the meaning set forth in Section 4.16 of this Agreement.

 

1.69 “FDA” has the meaning set forth in Section 4.13(c) of this Agreement.

 

1.70 “FDCA” has the meaning set forth in Section 4.13(c) of this Agreement.

 

1.71 “FNL” means Five Narrow Lane LP.

 

1.72 “FNL Debenture PIPE” means a private offering of a [senior secured] debenture of Parent in the principal amount of $500,000 to FNL.

 

1.73 “FNL Common Share Merger Consideration” means the number of shares of Parent Common Stock equal to the product of (a) the number of shares of Parent Common Stock Outstanding multiplied by (b) 0.16915.

 

 

1.74 “FNL Note” means that certain Senior Secured Debenture dated September 12, 2024 in the principal amount of $11,734,979.48 issued by the Company to FNL.

 

1.75 “FNL Preferred Share Merger Consideration” means 8,576 shares of Parent Series C-2 Preferred Stock.

 

1.76 “FNL Underlying Merger Consideration Common Shares” means the number of shares of Parent Common Stock issuable upon full conversion of the FNL Preferred Share Merger Consideration pursuant to the Certificate of Designation for the Parent Series C-2 Preferred Stock.

 

1.77 “Governmental Authority” means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-governmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of Law), or any arbitrator, court or tribunal of competent jurisdiction.

 

1.78 “Governmental Order” means any order, writ, judgment, injunction, decree, stipulation, determination, or award entered by or with any Governmental Authority.

 

1.79 “GreenBlock” means GreenBlock Capital, LLC.

 

1.80 “GreenBlock Note” means that certain promissory note dated April 4, 2024 in the principal amount of $500,000 issued by the Company to Greenblock.

 

1.81 “Hazardous Substances” has the meaning set forth in Section 5.12(a) of this Agreement.

 

1.82 “HIPAA” has the meaning set forth in Section 4.13 of this Agreement.

 

1.83 “Indebtedness” means, without duplication (and whether or not required to be disclosed by GAAP), all (a) indebtedness for borrowed money; (b) obligations for the deferred purchase price of property or services, (c) long or short-term obligations evidenced by notes, bonds, debentures or other similar instruments; (d) obligations under any interest rate, currency swap or other hedging agreement or arrangement; (e) capital lease obligations; (f) reimbursement obligations under any letter of credit, banker’s acceptance or similar credit transactions; (g) guarantees made by Parent on behalf of any third party in respect of obligations of the kind referred to in the foregoing clauses (a) through (f); (h) with respect to Parent, any Expenses of Parent and (i) any unpaid interest, prepayment penalties, premiums, costs and fees that would arise or become due as a result of the prepayment of any of the obligations referred to in the foregoing clauses (a) through (h).

 

1.84 “Intellectual Property” means any and all of the following arising pursuant to the Laws of any jurisdiction throughout the world: (a) trademarks, service marks, trade names, and similar indicia of source or origin, all registrations and applications for registration thereof, and the goodwill connected with the use of and symbolized by the foregoing; (b) copyrights and all registrations and applications for registration thereof; (c) trade secrets and know-how; (d) patents and patent applications; (e) internet domain name registrations; and (f) other intellectual property and related proprietary rights.

 

 

1.85 “Key Employees” means the employees and/or service providers of the Parent and/or its Subsidiaries, as determined by the Company in its sole discretion.

 

1.86 “Knowledge” means: (a) with respect to the Company and its Subsidiaries, the actual knowledge of Daniel Teper; and (b) with respect to Parent and its Subsidiaries, the actual knowledge of each of the following: Steven Shum, Andrea Goren, and Michael Campbell; in each case, after due inquiry.

 

1.87 “Law” means any domestic or foreign, federal, state, municipality or local law, statute, ordinance, code, rule, or regulation.

 

1.88 “Leases” has the meaning set forth in Section 4.9(b) of this Agreement.

 

1.89 “Liabilities” means any Indebtedness, Expenses, debt, liability, indebtedness, or obligation of any kind (whether accrued, absolute, contingent, matured, unmatured, determined, determinable, or otherwise, and whether or not required to be recorded or reflected on a balance sheet under GAAP).

 

1.90 “Lien” means, with respect to any property or asset, all pledges, liens, mortgages, charges, encumbrances, hypothecations, options, rights of first refusal, rights of first offer, and security interests of any kind or nature whatsoever.

 

1.91 “Merger” has the meaning set forth in Section 2.1 of this Agreement.

 

1.92 “Merger Consideration” means, collectively, the FNL Common Share Merger Consideration, the NAYA Common Share Merger Consideration, the FNL Preferred Share Merger Consideration, and the NAYA Preferred Share Merger Consideration.

 

1.93 “Merger Sub” has the meaning set forth in the Preamble.

 

1.94 “Merger Sub Board” has the meaning set forth in the Recitals.

 

1.95 “Nasdaq” has the meaning set forth in Section 3.1(e) of this Agreement.

 

1.96 “NAYA Common Share Merger Consideration” means the number of shares of Parent Common Stock equal to the product of (a) the number of shares of Parent Common Stock Outstanding multiplied by (b) 0.02985.

 

1.97 “NAYA Per Share Merger Consideration” means (a) a number of shares of Parent Common Stock equal to the quotient obtained by dividing (i) the NAYA Common Share Merger Consideration by (ii) the number of shares of Company Common Stock Deemed Outstanding, and (b) a number of shares of Parent Series C-1 Preferred Stock equal to the quotient obtained by dividing (i) the NAYA Preferred Share Merger Consideration by (ii) the number of shares of Company Common Stock Deemed Outstanding.

 

 

1.98 “NAYA Preferred Share Merger Consideration” means 30,375 shares of Parent Series C-1 Preferred Stock.

 

1.99 “NAYA Underlying Merger Consideration Common Shares” means the number of shares of Parent Common Stock issuable upon full conversion of the NAYA Preferred Share Merger Consideration pursuant to the Certificate of Designation for the Parent Series C-1 Preferred Stock, which shall equal the Total Underlying Merger Consideration Common Shares less the FNL Underlying Merger Consideration Common Shares.

 

1.100 “NRS 78” has the meaning set forth in the Recitals.

 

1.101 “Parent” has the meaning set forth in the Preamble.

 

1.102 “Parent Balance Sheet” has the meaning set forth in Section 5.4(c) of this Agreement.

 

1.103 “Parent Board” has the meaning set forth in the Recitals.

 

1.104 “Parent Board Recommendation” has the meaning set forth in Section 5.3(a) of this Agreement.

 

1.105 “Parent Capital Stock” means the Parent Common Stock and the Parent Preferred Stock.

 

1.106 “Parent Charter” means the Amended and Restated Articles of Incorporation of Parent, as amended to date.

 

1.107 “Parent Clinical Trials” has the meaning set forth in Section 5.5(d) of this Agreement.

 

1.108 “Parent Common Stock” has the meaning set forth in the Recitals.

 

1.109 “Parent Common Stock Deemed Outstanding” means, immediately prior to the Closing, the sum of (a) all Parent Common Stock Outstanding, plus (b) all Parent Common Stock reserved for issuance at such time under Parent Stock Plans, regardless of whether such Parent Common Stock is actually subject to outstanding Parent Stock Options at such time or whether any outstanding Parent Stock Options are actually exercisable at such time, plus (c) all Parent Common Stock issuable upon exercise of any other Parent Options (other than Parent Options described in clause (b) above) actually outstanding at such time, plus (d) all Parent Common Stock issuable upon conversion or exchange of Parent Convertible Securities actually outstanding at such time (treated as actually outstanding at such time), in each case, regardless of whether the Parent Options or Parent Convertible Securities are actually exercisable at such time.

 

1.110 “Parent Common Stock Outstanding” means, immediately prior to the Effective Time, all Parent Common Stock actually issued and outstanding at such time.

 

 

1.111 “Parent Convertible Securities” means any securities (directly or indirectly) convertible into or exchangeable for Parent Common Stock, but excluding Parent Options. For clarity, Parent Convertible Securities do not include any shares of Parent Series C-1 Preferred Stock issuable hereunder, Parent Series C-2 Preferred Stock issuable hereunder, or Parent Series D Preferred Stock issued or issuable in the Series D PIPE.

 

1.112 “Parent Debenture” means a senior secured convertible debenture issued by the Parent to FNL pursuant to the terms of Section 5(a) of the FNL Note in a form satisfactory to the Parent and the Company.

 

1.113 “Parent Disclosure Schedule” means the disclosure schedule, dated as of the date of this Agreement and delivered by Parent and Merger Sub to the Company concurrently with the execution of this Agreement.

 

1.114 “Parent Employee” has the meaning set forth in Section 5.11(a) of this Agreement.

 

1.115 “Parent Employee Plans” has the meaning set forth in Section 5.11(a) of this Agreement.

 

1.116 “Parent Equity Awards” means a Parent Stock Option or a Parent Restricted Share, as the case may be.

 

1.117 “Parent Financial Statements” has the meaning set forth in Section 5.4 of this Agreement.

 

1.118 “Parent Governing Documents” means, collectively, the Parent Charter and By-Laws of Parent.

 

1.119 “Parent Intellectual Property” has the meaning set forth in Section 5.6(b) of this Agreement.

 

1.120 “Parent IP Agreements” means all licenses, sublicenses, consent to use agreements, settlements, coexistence agreements, covenants not to sue, waivers, releases, permissions, and other Contracts, whether written or oral, relating to Intellectual Property and to which the Parent or any of its Subsidiaries is a party, beneficiary, or otherwise bound.

 

1.121 “Parent IT Systems” mean means all software, computer hardware, servers, networks, platforms, peripherals, and similar or related items of automated, computerized, or other information technology networks and systems (including telecommunications networks and systems for voice, data, and video) owned, leased, licensed, or used (including through cloud-based or other third-party service providers) by the Parent or any of its Subsidiaries.

 

 

1.122 “Parent Material Adverse Effect” means any Effect that is, or would reasonably be expected to become, individually or in the aggregate, materially adverse to: (a) the business, results of operations, condition (financial or otherwise), or assets of Parent and its Subsidiaries, taken as a whole; or (b) the ability of Parent to timely perform its obligations under this Agreement or consummate the transactions contemplated hereby on a timely basis; provided, however, that, for the purposes of clause (a), a Parent Material Adverse Effect shall not be deemed to include any Effect (alone or in combination) arising out of, relating to, or resulting from: (i) changes generally affecting the economy, financial or securities markets, or political conditions; (ii) the execution and delivery, announcement or consummation of the transactions contemplated by this Agreement (it being understood and agreed that this clause shall not apply with respect to any representation or warranty that is intended to address the consequences of the execution and delivery, announcement or consummation of this Agreement; (iii) any changes in applicable Law or GAAP or other applicable accounting standards, (iv) any outbreak or escalation of war or any act of terrorism, (v) natural disasters, epidemics, pandemics, or public health emergencies (as declared by the World Health Organization or the Health and Human Services Secretary of the United States); (vi) general conditions in the industry in which Parent and its Subsidiaries operate; (vii) any failure, in and of itself, by Parent to meet any internal or published projections, forecasts, estimates, or predictions in respect of revenues, earnings, or other financial or operating metrics for any period (it being understood that any Effect underlying such failure may be deemed to constitute, or be taken into account in determining whether there has been or would reasonably be expected to become, a Parent Material Adverse Effect, to the extent permitted by this definition and not otherwise excepted by another clause of this proviso); (viii) any change, in and of itself, in the market price or trading volume of Parent’s securities (it being understood that any Effect underlying such change may be deemed to constitute, or be taken into account in determining whether there has been or would reasonably be expected to become, a Parent Material Adverse Effect, to the extent permitted by this definition and not otherwise excepted by another clause of this proviso); or (ix) actions taken as required or specifically permitted by the Agreement or actions or omissions taken with the Company’s consent; provided further, however, that any Effect referred to in clauses (i), (iii), (iv), (v), or (vi) immediately above shall be taken into account in determining whether a Parent Material Adverse Effect has occurred or would reasonably be expected to occur if it has a disproportionate effect on Parent and its Subsidiaries, taken as a whole, compared to other participants in the industries in which Parent and its Subsidiaries conduct their businesses (in which case, only the incremental disproportionate adverse effect may be taken into account in determining whether a Parent Material Adverse Effect has occurred).

 

1.123 “Parent Material Contract” has the meaning set forth in Section 5.7(a) of this Agreement.

 

1.124 “Parent Options” means Parent Stock Options and any other warrants or other rights or options to subscribe to or purchase Parent Common Stock or Parent Convertible Securities.

 

1.125 “Parent-Owned IP” means all Intellectual Property owned by the Parent or any of its Subsidiaries.

 

1.126 “Parent Preferred Stock” means the preferred stock, par value $0.0001 per share, of the Parent.

 

1.127 “Parent Restricted Share” means any Parent Common Stock subject to vesting, repurchase, or other lapse of restrictions granted under any Parent Stock Plan.

 

1.128 “Parent SEC Documents” has the meaning set forth in Section 5.4 of this Agreement.

 

1.129 “Parent Securities” has the meaning set forth in Section 5.2(c) of this Agreement.

 

 

1.130 “Parent Series A Preferred Stock” means the Preferred Stock of Parent designated as “Series A Preferred Stock”.

 

1.131 “Parent Series B Preferred Stock” means the Preferred Stock of Parent designated as “Series B Preferred Stock”.

 

1.132 “Parent Series C-1 Preferred Stock” means the Preferred Stock of Parent to be designated as “Series C-1 Preferred Stock” pursuant to a Certificate of Designation substantially in the form attached hereto as Exhibit H.

 

1.133 “Parent Series C-2 Preferred Stock” means the Preferred Stock of Parent to be designated as “Series C-2 Preferred Stock” pursuant to a Certificate of Designation in a form satisfactory to the Parent and the Company.

 

1.134 “Parent Series D Preferred Stock” means the Preferred Stock of Parent designated as “Series D Preferred Stock” to be issued pursuant to the Series D PIPE.

 

1.135 “Parent Stockholder Approval” means the approval, affirmative vote, or consent of the holders of a majority in voting power of the votes cast affirmatively or negatively (excluding abstentions) at a meeting of the holders of Parent Company Stock to the Parent Stockholder Matters.

 

1.136 “Parent Stockholder Matters” means the matters listed on Exhibit C hereto, as have been approved by the Parent Board on or prior to the date hereof and will be submitted to the stockholders of the Parent, for approval and adoption within 120 days after the Effective Date, provided that such stockholder meeting date shall be subject to delay if reviewed or delayed by the SEC.

 

1.137 “Parent Stockholders Meeting” means the special meeting of the stockholders of Parent to be held to consider the approval of the Parent Stockholder Matters.

 

1.138 “Parent Stock Issuance” has the meaning set forth in the Recitals.

 

1.139 “Parent Stock Options” means any option to purchase Parent Common Stock granted under any Parent Stock Plan.

 

1.140 “Parent Stock Plans” means the following plans, in each case as amended: The Second Amended and Restated 2019 Stock Incentive Plan of INVO Bioscience, Inc.

 

1.141 “Parent Subsidiary Securities” has the meaning set forth in Section 5.3 of this Agreement.

 

1.142 “Parent Voting Debt” has the meaning set forth in Section 5.3 of this Agreement.

 

1.143 “Permits” means all permits, licenses, franchises, approvals, authorizations and consents required to be obtained from Governmental Authorities.

 

 

1.144 “Permitted Liens” means (a) statutory Liens for current Taxes or other governmental charges not yet due and payable or the amount or validity of which is being contested in good faith (provided appropriate reserves required pursuant to GAAP have been made in respect thereof), (b) mechanics’, carriers’, workers’, repairers’, and similar statutory Liens arising or incurred in the ordinary course of business for amounts which are not delinquent or which are being contested by appropriate proceedings (provided appropriate reserves required pursuant to GAAP have been made in respect thereof), (c) zoning, entitlement, building, and other land use regulations imposed by Governmental Authorities having jurisdiction over such Person’s owned or leased real property, which are not violated by the current use and operation of such real property, (d) covenants, conditions, restrictions, easements, and other similar non-monetary matters of record affecting title to such Person’s owned or leased real property, which do not materially impair the occupancy or use of such real property for the purposes for which it is currently used in connection with such Person’s businesses, (e) any right of way or easement related to public roads and highways, which do not materially impair the occupancy or use of such real property for the purposes for which it is currently used in connection with such Person’s businesses, (f) any non-exclusive license to any Intellectual Property entered into in the ordinary course, and (g) Liens arising under workers’ compensation, unemployment insurance, social security, retirement, and similar legislation.

 

1.145 “Person” means an individual, corporation, partnership (including a general partnership, limited partnership, or limited liability partnership), limited liability company, association, trust or other entity or organization, including a government, domestic or foreign, or political subdivision thereof, or an agency or instrumentality thereof.

 

1.146 “PHSA” has the meaning set forth in Section 4.13(c) of this Agreement.

 

1.147 “Preferred Conversion Date” shall mean that date on which the Parent Stockholder Matters shall have been approved by the Stockholders of the Parent.

 

1.148 “Proxy Statement” means the preliminary and/or definitive proxy statements to be sent to Parent’s stockholders and to be used in connection for the Parent Stockholders Meeting for the approval of the Parent Stockholder Matters.

 

1.149 “Representatives” has the meaning set forth in Section 6.4(a) of this Agreement.

 

1.150 “Requisite Company Vote” has the meaning set forth in Section 4.2(a) of this Agreement.

 

1.151 “Requisite Parent Vote” has the meaning set forth in Section 5.3(a) of this Agreement.

 

1.152 “Reverse Split” means a reverse stock split of Parent Common Stock at a ratio between 2:1 and 20:1 as determined by the Parent’s Board of Directors.

 

1.153 “Sarbanes-Oxley Act” means the Sarbanes-Oxley Act of 2002, as amended.

 

1.154 “SEC” means the Securities and Exchange Commission.

 

 

1.155 “Securities Act” means the Securities Act of 1933, as amended.

 

1.156 “Series B Exchange Agreement” means an agreement by and between the Parent and Cytovia to exchange shares of Class B Common Stock held by the Parent for shares of Parent Series B Preferred Stock held by Cytovia.

 

1.157 “Series D PIPE” means Parent’s proposed private offering of up to $20,000,000 of shares of Parent Series D Preferred Stock.

 

1.158 “Series D PIPE Shares” means the shares of Parent Series D Common Stock issued in the Series D PIPE.

 

1.159 “Stock Converting Portion” means the portion of the FNL Note constituting $8,075,833.33 of the aggregate principal amount of the FNL Note that shall convert into Parent Series C-2 Preferred Stock pursuant to the terms of Section 5(b) of the FNL Note and this Agreement.

 

1.160 “Subsidiary” of a Person means any other Person of which at least a majority of the securities or ownership interests having by their terms ordinary voting power to elect a majority of the board of directors or other persons performing similar functions is directly or indirectly owned or controlled by such Person and/or by one or more of its Subsidiaries.

 

1.161 “Surviving Corporation” has the meaning set forth in Section 2.1 of this Agreement.

 

1.162 “Takeover Proposal” means with respect to the Parent, as the case may be, a proposal, or offer from, or indication of interest in making a proposal or offer by, any Person or group relating to any transaction or series of related transactions (other than the transactions contemplated by this Agreement), involving any (a) direct or indirect acquisition of assets of Parent or its Subsidiaries (including any voting equity interests of their respective Subsidiaries, but excluding sales of assets in the ordinary course of business) equal to 15% or more of the fair market value of Parent and its Subsidiaries’ consolidated assets or to which 15% or more of Parent’s and its Subsidiaries’ net revenues or net income on a consolidated basis are attributable, (b) direct or indirect acquisition of 15% or more of the voting equity interests of Parent or any of its Subsidiaries whose business constitutes 15% or more of the consolidated net revenues, net income, or assets of Parent and its Subsidiaries, taken as a whole, (c) tender offer or exchange offer that if consummated would result in any Person or group (as defined in Section 13(d) of the Exchange Act) beneficially owning (within the meaning of Section 13(d) of the Exchange Act) 15% or more of the voting power of Parent hereto, (d) merger, consolidation, other business combination, or similar transaction involving Parent or any of its Subsidiaries, pursuant to which such Person or group (as defined in Section 13(d) of the Exchange Act) would own 15% or more of the consolidated net revenues, net income, or assets of Parent and its Subsidiaries, taken as a whole, or (e) any combination of the foregoing.

 

1.163 “Taxes” means all federal, state, local, foreign and other income, gross receipts, sales, use, production, ad valorem, transfer, franchise, registration, profits, license, lease, service, service use, withholding, payroll, employment, unemployment, estimated, excise, severance, environmental, stamp, occupation, premium, property (real or personal), real property gains, windfall profits, customs, duties or other taxes, fees, assessments, or charges of any kind whatsoever, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties.

 

 

1.164 “Tax Return” means any return, declaration, report, claim for refund, information return or statement, or other document relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

 

1.165 “Total Common Share Merger Consideration” means the number of shares of Parent Common Stock equal to the product of (a) the number of shares of Parent Common Stock Outstanding multiplied by (b) 0.199.

 

1.166 “Total Fully Diluted Merger Consideration Common Shares” means the number of shares of Parent Common Stock equal to the product of (a) the number of shares of Parent Common Stock Deemed Outstanding multiplied by (b) 4.6338.

 

1.167 “Total Underlying Merger Consideration Common Shares” means the number of shares of Parent Common Stock equal to the Total Fully Diluted Merger Consideration Common Shares less the Total Common Share Merger Consideration.

 

1.168 “U.S. GAAP” or “GAAP” means U.S. generally accepted accounting principles, consistently applied.

 

1.169 “Warrants” has the meaning set forth in Section 6.13 of this Agreement.

 

1.170 “Warrants Holders” has the meaning set forth in Section 6.13 of this Agreement.

 

ARTICLE II

 

THE MERGER

 

2.1 The Merger. On the terms and subject to the conditions set forth in this Agreement, and in accordance with NRS 78 and the DGCL, as applicable, at the Effective Time, (a) Merger Sub will merge with and into the Company (the “Merger”), (b) the separate corporate existence of Merger Sub will cease, and (c) the Company will continue its corporate existence under the DGCL as the surviving corporation in the Merger and a Subsidiary of Parent (the Company will sometimes be referred to herein as the “Surviving Corporation”).

 

2.2 Closing. Subject to the terms and conditions of this Agreement, the closing of the Merger contemplated hereby shall take place at a closing (the “Closing”) to be held at 11:00 a.m., Eastern Daylight Time, no later than two Business Days after the last of the conditions to Closing set forth in ARTICLE VII have been satisfied or waived (other than conditions which, by their nature, are to be satisfied on the Closing Date), remotely by exchange of documents and signatures (or their electronic counterparts), or at such other time or on such other date as the parties hereto may mutually agree upon in writing (the day on which the Closing takes place being the “Closing Date”).

 

 

2.3 Effective Time. Subject to the provisions of this Agreement, at the Closing, the Company, Parent, and Merger Sub will cause a certificate of merger (the “Certificate of Merger”) to be executed, acknowledged, and filed with the Secretary of State of the State of Delaware in accordance with the relevant provisions of the DGCL and shall make all other filings or recordings required under the DGCL. The Merger will become effective at such time as the Certificate of Merger has been duly filed with the Secretary of State of the State of Delaware or at such later date or time as may be agreed by the Company and Parent in writing and specified in the Certificate of Merger in accordance with the DGCL (the effective time of the Merger being hereinafter referred to as the “Effective Time”).

 

2.4 Effect of the Merger. The Merger shall have the effects set in this Agreement and in the applicable provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto, from and after the Effective Time, all property, rights, privileges, immunities, powers, franchises, licenses, and authority of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities, obligations, restrictions, and duties of each of the Company and Merger Sub shall become the debts, liabilities, obligations, restrictions, and duties of the Surviving Corporation.

 

2.5 Surviving Corporation: Certificate of Incorporation; By-Laws. At the Effective Time: (a) the certificate of incorporation of the Surviving Corporation shall be amended and restated so as to read in its entirety as set forth in Exhibit E, and, as so amended and restated, shall be the certificate of incorporation of the Surviving Corporation until, subject to Section 6.8, thereafter amended in accordance with the terms thereof and applicable Law; and (b) the By-laws of Merger Sub as in effect immediately prior to the Effective Time shall be the By-laws of the Surviving Corporation, except that references to Merger Sub’s name shall be replaced with references to the Surviving Corporation’s name until, subject to Section 6.8, thereafter amended in accordance with the terms thereof, the certificate of incorporation of the Surviving Corporation, and applicable Law.

 

2.6 Surviving Corporation: Directors and Officers. The directors and officers of the Company, in each case, immediately prior to the Effective Time shall, from and after the Effective Time, be the directors and officers, respectively, of the Surviving Corporation until their successors have been duly elected or appointed and qualified or until their earlier death, resignation, or removal in accordance with the certificate of incorporation and by-laws of the Surviving Corporation.

 

ARTICLE III

 

EFFECT OF THE MERGER ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES

 

3.1 Effect of the Merger on Capital Stock. At the Effective Time, as a result of the Merger and without any action on the part of the Parent, Merger Sub, or the Company or the holder of any capital stock of the Parent, Merger Sub, or the Company:

 

(a) Cancellation of Certain Company Capital Stock. Each share of Company Capital Stock that is owned by Parent or the Company (as treasury stock or otherwise) or any of their respective direct or indirect wholly owned Subsidiaries as of immediately prior to the Effective Time (the “Cancelled Shares”) will automatically be cancelled and retired and will cease to exist, and no consideration will be delivered in exchange therefor.

 

 

(b) Conversion of Company Capital Stock. Each share of Company Capital Stock issued and outstanding immediately prior to the Effective Time (other than Cancelled Shares) will be converted into the right to receive the following: (i) the NAYA Per Share Merger Consideration; and (ii) any dividends or other distributions to which the holder thereof becomes entitled to upon the surrender of such shares of Company Capital Stock in accordance with Section 3.2(f).

 

(c) Options and Restricted Stock Units. Each Company Option issued and outstanding immediately prior to the Effective Time (and by its terms will not terminate upon the Effective Time), whether vested or unvested, shall be converted into a Parent Option to purchase a number of shares of Parent Common Stock (each an “Exchanged Option”) equal to the product (rounded down to the nearest whole number) of (x) the number of shares of Company Common Stock subject to such Company Option immediately prior to the Effective Time multiplied by (y) the Exchange Ratio, at an exercise price per share (rounded up to the nearest whole cent) equal to (A) the exercise price per share of such Company Option or immediately prior to the Effective Time divided by (B) the Exchange Ratio; provided, that, that the exercise price and the number of shares of Parent Common Stock purchasable pursuant to the Exchanged Options shall be determined in a manner consistent with the requirements of Section 409A of the Code; provided, further, that in the case of any Exchanged Option to which Section 422 of the Code applies, the exercise price and the number of shares of the Parent Common Stock purchasable pursuant to such Exchanged Option shall be determined in accordance with the foregoing, subject to such adjustments as are necessary in order to satisfy the requirements of Section 424(a) of the Code. Each Company Restricted Stock Unit issued and outstanding immediately prior to the Effective Time (and by its terms will not terminate upon the Effective Time), whether vested or unvested, shall be converted into a Parent Restricted Stock Unit representing the right to receive a number of shares of Parent Common Stock (each an “Exchanged RSU”) equal to the product (rounded down to the nearest whole number) of (x) the number of shares of Company Common Stock subject to such Company Restricted Stock Unit immediately prior to the Effective Time multiplied by (y) the Exchange Ratio; provided, that, the number of shares of Parent Common Stock subject to settlement pursuant to the Exchanged RSU shall be determined in a manner consistent with the requirements of Section 409A of the Code. Except as specifically provided above, following the Effective Time, each Exchanged Option and Exchanged RSU shall continue to be governed by the same terms and conditions (including vesting and exercisability terms) as were applicable to the corresponding former Company Option and Company Restricted Stock Unit, respectively, immediately prior to the Effective Time. At or prior to the Effective Time, the parties and their boards, as applicable, shall adopt any resolutions and take any actions that are necessary to effectuate the treatment of the Company Options and Company Restricted Stock Units pursuant to this Section 3.1(c). Notwithstanding anything herein to the contrary, no Exchanged Option or Exchanged RSU shall be exercisable into or able to be settled for Parent Common Stock unless and until the Parent Stockholder Approval is obtained.

 

(d) Conversion of SAFE Notes. Each Company SAFE listed on Exhibit F issued and outstanding immediately prior to the Effective Time will be converted into the right to receive, for each Company SAFE Conversion Share represented by such Company SAFE, (i) the NAYA Per Share Merger Consideration, and (ii) any dividends or other distributions to which the holder thereof becomes entitled to upon the surrender of such Company SAFE in accordance with Section 3.2(f).

 

 

(e) Conversion of Greenblock Note. The Greenblock Note will be converted into the right to receive (i) 5.83% of the FNL Common Share Merger Consideration, (ii) 5.83% of the FNL Preferred Share Merger Consideration, and (iii) any dividends or other distributions to which the holder thereof becomes entitled to upon the surrender of such GreenBlock Note in accordance with Section 3.2(f).

 

(f) Conversion of Stock Converting Portion of FNL Note. The Stock Converting Portion of the FNL Note will be converted into the right to receive (i) 94.17% of the FNL Common Share Merger Consideration, (ii) 94.17% of the FNL Preferred Share Merger Consideration, and (iii) any dividends or other distributions to which the holder thereof becomes entitled to upon the surrender of such FNL Note in accordance with Section 3.2(f). The unconverted portion of the FNL Note shall be exchanged for the Parent Debenture.

 

(g) Cancellation of Shares, SAFEs, and Partially Converted Notes. At the Effective Time after the conversions and exchanges set forth in Sections 3.1(a) through (f) above, all shares of Company Capital Stock, all Company Options, all Company SAFEs, the Greenblock Note, and the FNL Note will no longer be outstanding and will be cancelled and retired and will cease to exist, and, subject to Section 3.1(a), each holder of: (i) a certificate formerly representing any shares of Company Capital Stock (each, a “Certificate”); (ii) any book-entry shares which immediately prior to the Effective Time represented shares of Company Capital Stock (each, a “Book-Entry Share”); (iii) any Company SAFE, (iv) the GreenBlock Note, and (v) the FNL Note will cease to have any rights with respect thereto, except the right to receive (A) the Merger Consideration in accordance with Section 3.2 hereof, (B) any cash in lieu of fractional shares of Parent Common Stock payable pursuant to Section 3.1(e), and (C) any dividends or other distributions to which the holder thereof becomes entitled to upon the surrender of such shares of Company Capital Stock in accordance with Section 3.2(f).

 

(h) Conversion of Merger Sub Capital Stock. Each share of common stock, par value $0.0001 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become one newly issued, fully paid, and non-assessable share of common stock, par value $0.0001 per share, of the Surviving Corporation with the same rights, powers, and privileges as the shares so converted and shall constitute the only outstanding shares of capital stock of the Surviving Corporation. From and after the Effective Time, all certificates representing shares of Merger Sub Common Stock shall be deemed for all purposes to represent the number of shares of common stock of the Surviving Corporation into which they were converted in accordance with the immediately preceding sentence.

 

(i) Cancellation of Parent Series A Preferred Stock. Each share of Parent Series A Preferred Stock that is owned by Parent or the Company (as treasury stock or otherwise) or any of their respective direct or indirect wholly owned Subsidiaries as of immediately prior to the Effective Time will automatically be cancelled and retired and will cease to exist, and no consideration will be delivered in exchange therefor.

 

(j) Fractional Shares. No certificates or scrip representing fractional shares of Parent Common Stock shall be issued pursuant to Sections 3.1(b) through (f) but in lieu of such fractional shares, the Parent shall round the number of shares of Parent Common Stock to be issued shall be issued pursuant to Sections 3.1(b) through (f) to the nearest whole number of shares. No certificates or scrip representing fractional shares of Preferred Stock of Parent shall be issued pursuant to Sections 3.1(b) through (f).

 

 

3.2 Exchange Procedures.

 

(a) Exchange Agent; Exchange Fund. Prior to the Effective Time, Parent shall appoint an exchange agent (the “Exchange Agent”) to act as the agent for the purpose of paying the Merger Consideration for the Certificates, the Book-Entry Shares, the Company SAFEs, the GreenBlock Note, and the FNL Note. On or before the Effective Time, Parent shall deposit, or cause the Surviving Corporation to deposit, with the Exchange Agent certificates representing the shares of the Parent Common Stock, Parent Series C-1 Preferred Stock, and Parent C-2 Preferred Stock to be issued as Merger Consideration (or make appropriate alternative arrangements if uncertificated shares of Parent Common Stock, Parent Series C-1 Preferred Stock, or Parent C-2 Preferred Stock represented by book-entry shares will be issued). In addition, Parent shall deposit or cause to be deposited with the Exchange Agent, as necessary from time to time after the Effective Time, any dividends or other distributions, if any, to which the holders of Company Capital Stock, Company SAFES, the GreenBlock Note, and the FNL Note may be entitled pursuant to Section 3.2(f) for distributions or dividends, on the Merger Consideration to which they are entitled, with both a record and payment date after the Effective Time and prior to the surrender of the shares of Company Capital Stock the Company SAFES, the GreenBlock Note, or the FNL Note, as the case may be, in exchange for such Merger Consideration. Such shares of Merger Consideration, together with any dividends or other distributions deposited with the Exchange Agent pursuant to this Section 3.2(a), are referred to collectively in this Agreement as the “Exchange Fund.”

 

(b) Procedures for Surrender; No Interest. Promptly after the Effective Time, Parent shall send, or shall cause the Exchange Agent to send, to each record holder of shares of Company Capital Stock, each record holder of Company SAFES, the record holder of the GreenBlock Note, and the record holder of the FNL Note at the Effective Time, whose Company Securities were converted pursuant to Sections 3.1(b) through (f) into the right to receive the Merger Consideration, a letter of transmittal and instructions (which shall specify that the delivery shall be effected, and risk of loss and title shall pass, only upon proper delivery of the Certificates, the Company SAFEs, the GreenBlock Note, the FNL Note, or transfer of the Book-Entry Shares, each as applicable, to the Exchange Agent, and which letter of transmittal will be in customary form and have such other provisions as Parent and the Surviving Corporation may reasonably specify) for use in such exchange. Each holder of shares of Company Capital Stock, Company SAFEs, the GreenBlock Note, the FNL Note (collectively, the “Company Securities”) that have been converted into the right to receive the Merger Consideration shall be entitled to receive the Merger Consideration into which such Company Securities have been converted pursuant to Sections 3.1(b) through (f) in respect of the Company Securities represented by a Certificate, Book-Entry Share, SAFE, or note and any dividends or other distributions pursuant to Section 3.2(f) upon: (i) surrender to the Exchange Agent of a Certificate, Company SAFE, the GreenBlock Note, or the FNL Note, as the case may be; or (ii) receipt of an “agent’s message” by the Exchange Agent (or such other evidence, if any, of transfer as the Exchange Agent may reasonably request) in the case of Book-Entry Shares; in each case, together with a duly completed and validly executed letter of transmittal and such other documents as may reasonably be requested by the Exchange Agent. No interest shall be paid or accrued upon the surrender or transfer of any Certificate, SAFE, or Book-Entry Share. Upon payment of the Merger Consideration pursuant to the provisions of this Section 3.2(b), each Certificate, Book-Entry Share, SAFE, and Note so surrendered or transferred, as the case may be, shall immediately be cancelled.

 

 

(c) Payments to Non-Registered Holders. If any portion of the Merger Consideration is to be paid to a Person other than the Person in whose name the surrendered Certificate, Company SAFE, Greenblock Note, or FNL Note, or the transferred Book-Entry Share, as applicable, is registered, it shall be a condition to such payment that (i) such Certificate, Company SAFE, Greenblock Note, or FNL Note shall be properly endorsed or shall otherwise be in proper form for transfer or such Book-Entry Share shall be properly transferred, and (ii) the Person requesting such payment shall pay to the Exchange Agent any transfer or other Tax required as a result of such payment to a Person other than the registered holder of such Certificate, Book-Entry Share, Company SAFE, Greenblock Note, or FNL Note, as applicable, or establish to the reasonable satisfaction of the Exchange Agent that such Tax has been paid or is not payable.

 

(d) Full Satisfaction. All Merger Consideration paid upon the surrender of Certificates, Company SAFEs, the GreenBlock Note, or the FNL Note, or transfer of Book-Entry Shares in accordance with the terms hereof shall be deemed to have been paid in full satisfaction of all rights pertaining to the shares of Company Capital Stock formerly represented by such Certificate or Book-Entry Shares, the Company SAFEs, the GreenBlock Note, and the FNL Note, and from and after the Effective Time, there shall be no further registration of transfers of shares of Company Capital Stock on the stock transfer books of the Surviving Corporation, and there shall be no further registration of transfers of Company SAFEs, the GreenBlock Note, or the FNL Note on the books of the Surviving Corporation. If, after the Effective Time, Certificates, Book-Entry Shares, Company SAFEs, the GreenBlock Note, or the FNL Note are presented to the Surviving Corporation, they shall be cancelled and exchanged as provided in this Section 3.2.

 

(e) Termination of Exchange Fund. Any portion of the Exchange Fund that remains unclaimed by the holders of shares of Company Capital Stock, any Company SAFEs, the Greenblock Note, or the FNL Note six months after the Effective Time shall be returned to Parent, upon demand, and any such holder who has not exchanged shares of Company Capital Stock, a Company SAFE, the Greenblock Note, or the FNL Note for the Merger Consideration in accordance with this Section 3.2 prior to that time shall thereafter look only to Parent (subject to abandoned property, escheat, or other similar Laws), as general creditors thereof, for payment of the Merger Consideration without any interest. Notwithstanding the foregoing, Parent shall not be liable to any holder of shares of Company Capital Stock, any Company SAFE, the Greenblock Note, or the FNL Note for any amounts paid to a public official pursuant to applicable abandoned property, escheat, or similar Laws. Any amounts remaining unclaimed by holders of shares of Company Capital Stock, any Company SAFE, the Greenblock Note, or the FNL Note two years after the Effective Time (or such earlier date, immediately prior to such time when the amounts would otherwise escheat to or become property of any Governmental Authority) shall become, to the extent permitted by applicable Law, the property of Parent, free and clear of any claims or interest of any Person previously entitled thereto.

 

 

(f) Distributions with Respect to Unsurrendered Shares of Company Capital Stock, Company SAFEs, the Greenblock Note, or the FNL Note. All shares of Parent Common Stock, Parent Series C-1 Preferred Stock, and Parent Series C-2 Preferred Stock to be issued pursuant to the Merger shall be deemed issued and outstanding as of the Effective Time and whenever a dividend or other distribution is declared by Parent in respect of the Parent Common Stock, the Parent Series C-1 Preferred Stock, or the Parent Series C-2 Preferred Stock, the record date for which is after the Effective Time, that declaration shall include dividends or other distributions in respect of all shares issuable pursuant to this Agreement. No dividends or other distributions in respect of the Parent Common Stock, the Parent Series C-1 Preferred Stock, or the Parent Series C-2 Preferred Stock shall be paid to any holder of any shares of unsurrendered Company Capital Stock, Company SAFEs, the Greenblock Note, or the FNL Note until the Certificate (or affidavit of loss in lieu of the Certificate as provided in Section 3.5), Book-Entry Share, Company SAFE, the GreenBlock Note, or the FNL Note is surrendered for exchange in accordance with this Section 3.2. Subject to the effect of applicable Laws, following such surrender, there shall be issued or paid to the holder of record of the whole shares of Parent Common Stock, Parent Series C-1 Preferred Stock, or Parent Series C-2 Preferred Stock issued in exchange for shares of Company Capital Stock, Company SAFE, the Greenblock Note, or the FNL Note in accordance with this Section 3.2, without interest: (i) at the time of such surrender, the dividends or other distributions with a record date after the Effective Time theretofore payable with respect to such whole shares of Parent Common Stock, Parent Series C-1 Preferred Stock, or Parent Series C-2 Preferred Stock and not paid; and (ii) at the appropriate payment date, the dividends or other distributions payable with respect to such whole shares of Parent Common Stock, Parent Series C-1 Preferred Stock, or Parent Series C-2 Preferred Stock with a record date after the Effective Time but with a payment date subsequent to surrender.

 

3.3 General Adjustments. Without limiting the other provisions of this Agreement, if at any time during the period between the date of this Agreement and the Effective Time, any change in the outstanding shares of Company Capital Stock, the Parent Common Stock, or the Parent Preferred Stock shall occur (other than the issuance of additional shares of capital stock of the Company or Parent as permitted by this Agreement), including by reason of any reclassification, recapitalization, stock split (including a reverse stock split), or combination, exchange, readjustment of shares, or similar transaction, or any stock dividend or distribution paid in stock, the Exchange Ratio and any other amounts payable pursuant to this Agreement shall be appropriately adjusted to reflect such change; provided, however, that this sentence shall not be construed to permit the Parent or the Company to take any action with respect to its securities that is prohibited by the terms of this Agreement.

 

3.4 Withholding Rights. Each of the Exchange Agent, the Parent, Merger Sub, and the Surviving Corporation shall be entitled to deduct and withhold from the consideration otherwise payable to any Person pursuant to this Article III such amounts as may be required to be deducted and withheld with respect to the making of such payment under any Tax Laws. To the extent that amounts are so deducted and withheld by the Exchange Agent, the Parent, Merger Sub, or the Surviving Corporation, as the case may be, such amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which the Exchange Agent, the Parent, Merger Sub, or the Surviving Corporation, as the case may be, made such deduction and withholding.

 

 

3.5 Lost Certificates. If any Certificate, Company SAFE, the GreenBlock Note, or the FNL Note shall have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate, SAFE, GreenBlock Note, or FNL Note to be lost, stolen, or destroyed and, if required by the Parent, the posting by such Person of a bond, in such reasonable amount as the Parent may direct, as indemnity against any claim that may be made against it with respect to such Certificate, SAFE, GreenBlock Note, or FNL Note, the Exchange Agent will issue, in exchange for such lost, stolen, or destroyed Certificate, SAFE, GreenBlock Note, or FNL Note, as the case may be, the Merger Consideration to be paid in respect of the shares of Company Capital Stock formerly represented by such Certificate SAFE, GreenBlock Note, or FNL Note, as the case may be, as contemplated under this Article III.

 

3.6 Tax Treatment. For U.S. federal income Tax purposes, it is intended that the Merger qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and the regulations promulgated thereunder, that this Agreement will constitute a “plan of reorganization” for purposes of Sections 354 and 361 of the Code.

 

3.7 No Dissenters’ Rights. In accordance with Section 262 of the DGCL and the NRS 78, no dissenters’ or appraisal rights shall be available with respect to the Merger or the other transactions contemplated by this Agreement.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES

OF THE COMPANY

 

Except as set forth in the Company Disclosure Schedules, the Company represents and warrants to the Parent that the statements contained in this Article IV are true and correct as of the date hereof.

 

4.1 Organization; Standing and Power; Charter.

 

(a) Organization; Standing and Power. The Company is a corporation, duly organized, validly existing, and in good standing under the Laws of the State of Delaware, and has all necessary corporate power and authority to own, operate, or lease the properties and assets now owned, operated, or leased by it and to carry on its business as it is currently conducted. The Company is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business as currently conducted makes such licensing or qualification necessary, except where the failure to be so licensed, qualified, or in good standing would not have a Company Material Adverse Effect.

 

(b) Company Governing Documents. The copies of the Company Governing Documents as delivered to Parent are true, correct, and complete copies of such documents as in effect as of the date of this Agreement. The Company is not in violation of any of the provisions of its governing documents.

 

 

4.2 Authorization.

 

(a) The Company has all necessary corporate power and authority to enter into and perform its obligations under this Agreement and the Ancillary Documents to which it is a party and, subject to, in the case of the consummation of the Merger, adoption of this Agreement by the affirmative vote or consent of stockholders of the Company representing a majority of the outstanding shares of Company Capital Stock (“Requisite Company Vote”), to consummate the transactions contemplated hereby and thereby. The execution, delivery, and performance by the Company of this Agreement and any Ancillary Document to which it is a party and the consummation by the Company of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of the Company, subject only, in the case of consummation of the Merger, to the receipt of the Requisite Company Vote. The Requisite Company Vote is the only vote or consent of the holders of any class or series of the shares of Company Capital Stock required to approve and adopt this Agreement and the Ancillary Documents, approve the Merger, and consummate the Merger and the other transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by the Company, and (assuming due authorization, execution and delivery by each other party hereto) this Agreement constitutes a legal, valid, and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium and other similar laws affecting creditors’ rights generally and by general principles of equity. When each Ancillary Document to which the Company is or will be a party has been duly executed and delivered by the Company (assuming due authorization, execution and delivery by each other party thereto), such Ancillary Document will constitute a legal and binding obligation of the Company enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium and other similar laws affecting creditors’ rights generally and by general principles of equity.

 

(b) The Company Board, by resolutions duly adopted by unanimous vote at a meeting of the directors of the Company duly called and held and, as of the date hereof, not subsequently rescinded or modified in any way, has, as of the date hereof (i) determined that this Agreement and the transactions contemplated hereby, including the Merger, are in the best interests of the Company and its stockholders, (ii) approved and declared advisable the “agreement of merger” (as such term is used in Section 251 of the DGCL) contained in this Agreement and the transactions contemplated by this Agreement, including the Merger, in accordance with the DGCL, (iii) directed that the “agreement of merger” contained in this Agreement be submitted to the Company’s stockholders for adoption, and (iv) resolved to recommend that the Company’s stockholders adopt the “agreement of merger” set forth in this Agreement (collectively, the “Company Board Recommendation”) and directed that such matter be submitted for consideration of the Company’s stockholders.

 

4.3 No Conflicts; Consents. The execution, delivery and performance by the Company of this Agreement and the Ancillary Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, including the Merger, do not and will not: (a) contravene or conflict with, or result in a violation or breach of any provision of the Company Governing Documents; (b) subject to, in the case of the Merger, obtaining the Requisite Company Vote, result in a violation or breach of any provision of any Law or Governmental Order applicable to the Company; or (c) require the consent, notice or other action by any Person under, conflict with, result in a violation or breach of, constitute a default under or result in the acceleration of any Material Contract, except in the cases of clauses (b) and (c), where the violation, breach, conflict, default, acceleration or failure to give notice or obtain consent would not have a Company Material Adverse Effect. No consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to the Company in connection with the execution and delivery of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby, except for the filing of the Certificate of Merger with the Secretary of State of Delaware, the filing of the Certificate of Designation with regard to Parent Series C Preferred Stock with the Nevada Secretary of State, and except where the failure to make or obtain such consents, approvals, Permits, Governmental Orders, declarations, filings, or notices would not have, in the aggregate, a Company Material Adverse Effect.

 

 

4.4 Capitalization.

 

(a) Capital Stock. The total number of shares of all classes of capital stock which the Company has authority to issue is 58,500,000 shares, consisting of: (i) 50,000,000 shares of Class A Common Stock, $0.000001 par value per share (“Class A Common Stock”), of which 1,744,098 are outstanding as of the date hereof; (ii) 8,000,000 shares of Class B Common Stock, $0.000001 par value per share (“Class B Common Stock” and together with the Class A Common Stock, the “Company Common Stock”), of which 1,325,000 are outstanding as of the date hereof, and (iii) 500,000 shares of Preferred Stock, $0.000001 par value per share (“Company Preferred Stock”), of which 0 are outstanding as of the date hereof. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid, and non-assessable, and not subject to any pre-emptive rights.

 

(b) Section 4.4(b) of the Company Disclosure Schedules sets forth, as of the date hereof, the name of each Person that is the registered owner of any shares of Company Capital Stock and the number of such shares owned by such Person.

 

(c) Stock Awards.

 

(i) As of the date of this Agreement, an aggregate of 436,840 shares of Company Common Stock were reserved for issuance pursuant to Company Equity Awards not yet granted under the Company Stock Plans. As of the date of this Agreement, 40,926 shares of Company Common Stock were reserved for issuance pursuant to outstanding Company Stock Options and 140,926 shares of Company Restricted Stock Units were issued and outstanding. All shares of Company Common Stock subject to issuance under the Company Stock Plans, upon issuance in accordance with the terms and conditions specified in the instruments pursuant to which they are issuable, will be duly authorized, validly issued, fully paid, and non-assessable.

 

(ii) Except as set forth on Section 4.4(b)(ii), as of the date hereof, there are no outstanding (A) securities of the Company convertible into or exchangeable for Company Voting Debt (as defined below) or shares of capital stock of the Company, (B) options, warrants, or other agreements or commitments to acquire from the Company or any of its Subsidiaries, or obligations of the Company or any of its Subsidiaries to issue, any Company Voting Debt or shares of capital stock of (or securities convertible into or exchangeable for shares of capital stock of) the Company, or (C) restricted shares, restricted stock units, stock appreciation rights, performance shares, profit participation rights, contingent value rights, “phantom” stock, or similar securities or rights that are derivative of, or provide economic benefits based, directly or indirectly, on the value or price of, any shares of capital stock of the Company, in each case that have been issued by the Company or its Subsidiaries. All outstanding shares of the Company Capital Stock have been issued or granted, as applicable, in compliance in all material respects with all applicable securities Laws.

 

 

(iii) As of the date hereof, there are no outstanding Contracts requiring the Company to repurchase, redeem, or otherwise acquire any Company Capital Stock, Company Options, Company Voting Debt, or Company Convertible Securities. The Company is not a party to any voting agreement with respect to any Company Securities.

 

(d) Company Voting Debt. Except as set forth on Section 4.4(c), no bonds, debentures, notes, or other indebtedness issued by Company (i) having the right to vote on any matters on which stockholders or equityholders of the Company may vote (or which is convertible into, or exchangeable for, securities having such right), or (ii) the value of which is directly based upon or derived from the capital stock, voting securities, or other ownership interests of the Company, are issued or outstanding (collectively, “Company Voting Debt”).

 

4.5 No Subsidiaries. The Company does not own, or have any interest in any shares or have an ownership interest in, any other Person.

 

4.6 Financial Statements.

 

(a) Section 4.6 of the Company Disclosure Schedule sets forth (a) the audited consolidated balance sheets of the Company as of December 31, 2023 and 2022, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes, and (b) unaudited consolidated balance sheets of the Company as of June 30, 2024 and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the six months then ended, and the related notes (collectively, the “Company Financial Statements”). Each of the Company Financial Statements (including, in each case, any notes and schedules thereto): (i) complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto as of their respective dates; (ii) was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto and, in the case of unaudited interim financial statements, as may be permitted by the SEC for Quarterly Reports on Form 10-Q or other rules and regulations of the SEC); and (iii) fairly presented in all material respects the consolidated financial position and the results of operations and cash flows of the Company as of the respective dates of and for the periods referred to in such financial statements, subject, in the case of unaudited interim financial statements, to normal and year-end audit adjustments as permitted by the applicable rules and regulations of the SEC (but only if the effect of such adjustments would not, individually or in the aggregate, be material).

 

(b) The Company’s auditor has at all times since its retention by the Company been (i) to the Knowledge of the Company, a registered public accounting firm (as defined in Section 2(a)(12) of the Sarbanes-Oxley Act), (ii) to the Knowledge of the Company, “independent” with respect to the Company within the meaning of Regulation S-X under the Exchange Act, and (iii) to the Knowledge of the Company, in material compliance with subsections (g) through (l) of Section 10A of the Exchange Act and the rules and regulations promulgated by the SEC and the Public Company Accounting Oversight Board thereunder with respect to services provided to the Company.

 

 

(c) Since the incorporation of the Company, there have been no formal internal investigations regarding financial reporting or accounting policies and practices discussed with, reviewed by or initiated at the direction of the chief executive officer or chief financial officer of the Company, the Company Board or any committee thereof, other than ordinary course audits or reviews of accounting policies and practices or internal controls.

 

(d) The Company maintains a system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and to provide reasonable assurance: (i) that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, (ii) that receipts and expenditures are made only in accordance with authorizations of management and the Company Board and (iii) regarding prevention or timely detection of the unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.

 

4.7 Undisclosed Liabilities. The balance sheet of the Company as of June 30, 2024 is referred to herein as the “Company Balance Sheet” and the date thereof as the “Company Balance Sheet Date.” The Company has no Liabilities of a type required to be reflected on a balance sheet prepared in accordance with GAAP, except (a) those which are adequately reflected or reserved against in the Company Balance Sheet as of the Company Balance Sheet Date; and (b) those which have been incurred in the ordinary course of business since the Company Balance Sheet Date and which are not material in amount.

 

4.8 Absence of Certain Changes. Except as expressly contemplated by this Agreement or as set forth on Section 4.8 of the Company Disclosure Schedules, from the Company Balance Sheet Date until the date of this Agreement, the Company has operated in the ordinary course of business in all material respects and there has not been any (i) Company Material Adverse Effect or any event, condition, change, or effect that could reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, or (ii) any event, condition, action, or effect that, if taken during the period from the date of this Agreement through the Effective Time, would constitute a breach of Section 6.1.

 

4.9 Properties; Title to the Company’s Assets.

 

(a) The Company has good and valid title to, or a valid leasehold interest in, all real property and tangible personal property and other assets reflected in the Company Financial Statements or acquired after the Company Balance Sheet Date, other than properties and assets sold or otherwise disposed of in the ordinary course of business since the Company Balance Sheet Date. All such properties and assets (including leasehold interests) are free and clear of Liens, except for Permitted Liens.

 

(b) Section 4.9(b) of the Company Disclosure Schedules lists (i) the street address of each parcel of owned real Property; and (ii) the street address of each parcel of leased real Property, and a list, as of the date of this Agreement (collectively, “Leases”), including the identification of the lessee and lessor thereunder.

 

 

4.10 Litigation. Except as set forth in Section 4.10 of the Company Disclosure Schedules, there are no Actions or other legal proceedings pending or, to the Company’s Knowledge, threatened against or by the Company affecting any of its properties or assets (or by or against any Affiliate thereof and relating to the Company), which if determined adversely to the Company (or to any Affiliate thereof) would result in a Company Material Adverse Effect. Neither the Company nor any of its properties or assets is subject to any Governmental Order, whether temporary, preliminary, or permanent, which would reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. To the Knowledge of the Company, there are no SEC inquiries or investigations, other governmental inquiries or investigations, or internal investigations pending or, to the Knowledge of the Company, threatened, in each case regarding any accounting practices of the Company or any malfeasance by any officer or director of the Company.

 

4.11 Material Contracts.

 

(a) Section 4.11(a) of the Company Disclosure Schedules lists each of the following contracts and other agreements of the Company (together with all Leases listed in Section 4.9(b) of the Company Disclosure Schedules, collectively, the “Company Material Contracts”):

 

(i) any “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K promulgated by the SEC);

 

(ii) each agreement of the Company involving aggregate consideration in excess of $100,000, which cannot be cancelled by the Company without penalty or without more than 180 days’ notice;

 

(iii) any employment or consulting Contract (in each case with respect to which the Company has continuing obligations as of the date hereof) with any current or former (A) officer of the Company, (B) member of the Company Board, or (C) any Company Employee providing for an annual base salary or payment in excess of $100,000;

 

(iv) all agreements that relate to the sale of any of the Company’s assets, other than in the ordinary course of business, for consideration in excess of $100,000;

 

(v) all agreements that relate to the acquisition of any business, a material amount of stock or assets of any other Person or any real property (whether by merger, sale of stock, sale of assets or otherwise), in each case involving amounts in excess of $100,000;

 

(vi) all agreements relating to Indebtedness (including, without limitation, guarantees) of the Company, in each case having an outstanding principal amount in excess of $100,000, except for agreements relating to trade payables;

 

(vii) any Contract relating to the disposition or acquisition, directly or indirectly (by merger, sale of stock, sale of assets, or otherwise), by the Company after the date of this Agreement of assets or capital stock or other equity interests of any Person;

 

 

(viii) any mortgages, indentures, guarantees, loans, or credit agreements, security agreements, or other Contracts, in each case relating to indebtedness for borrowed money, whether as borrower or lender, in each case in excess of $100,000, other than accounts receivables and payables;

 

(ix) any employee collective bargaining agreement or other Contract with any labor union;

 

(x) all agreements between the Company and any Affiliate of the Company; and

 

(xi) any Company IP Agreement, other than licenses for shrinkwrap, clickwrap, or other similar commercially available off-the-shelf software that has not been modified or customized by a third party for the Company;

 

(xii) any other Contract under which the Company is obligated to make payment or incur costs in excess of $100,000 in any year and which is not otherwise described in clauses (i)–(xii) above;

 

(xiii) any Contact related to a real property lease to which the Company is a party or otherwise bound); or

 

(xiv) any Contract which is not otherwise described in clauses (i)-(xiv) above that is material to the Company, taken as a whole.

 

(b) Except as set forth on Section 4.11(b) of the Company Disclosure Schedules, (i) all of the Company Material Contracts are legal, valid, and binding on the Company, enforceable against it in accordance with its terms, and is in full force and effect; (ii) neither the Company nor, to the Knowledge of the Company, any third party has violated any provision of, or failed to perform any obligation required under the provisions of, any Company Material Contract; and (iii) neither the Company nor, to the Knowledge of the Company, any third party is in breach or default, or has received written notice of breach or default, of any Company Material Contract. No event has occurred that, with notice or lapse of time or both, would constitute such a breach or default pursuant to any Company Material Contract by the Company, or, to the Knowledge of the Company, any other party thereto, and, as of the date of this Agreement, the Company has not received written notice of the foregoing or from the counterparty to any Company Material Contract (or, to the Knowledge of the Company, any of such counterparty’s Affiliates) regarding an intent to terminate, cancel, or modify any Company Material Contract (whether as a result of a change of control or otherwise).

 

4.12 Licenses and Permits. All Permits required for the Company to conduct its business have been obtained by it and are valid and in full force and effect, except where the failure to obtain such Permits would not have a Company Material Adverse Effect.

 

4.13 Compliance; Permits.

 

(a) The Company is and has been in compliance with all Laws and Governmental Orders applicable to the Company or by which any of its businesses or properties is bound. No Governmental Authority has issued any notice or notification stating that the Company or any of its Subsidiaries is not in compliance with any Law.

 

 

(b) The Company holds all Permits, to the extent necessary to operate their respective businesses as such businesses are being operated as of the date hereof. No suspension, cancellation, non-renewal, or adverse modifications of any Permits of the Company is pending or, to the Knowledge of the Company, threatened. The Company has been in compliance with the terms of all Permits.

 

(c) There are no Actions pending, including any Form FDA-483 observations, demand letter, warning letter, untitled letter, or, to the Knowledge of the Company, threatened with respect to an alleged material violation by the Company of the Federal Food, Drug, and Cosmetic Act (“FDCA”), Food and Drug Administration (“FDA”) regulations adopted thereunder, the Public Health Service Act (“PHSA”), or any other similar Law administered or promulgated by any Governmental Authority, or any act, omission, event, or circumstance of which the Company has Knowledge that would reasonably be expected to give rise to or form the basis for any Actions, Form FDA-483 observation, demand letter, warning letter, untitled letter, proceeding or request for information or any liability (whether actual or contingent) for failure to comply with the FDCA, PHSA or other similar Laws administered or promulgated by any Governmental Authority.

 

(d) All clinical, pre-clinical and other studies and tests conducted by or on behalf of, or sponsored by, the Company, or in which the Company or its current products or product candidates have participated, were and, if still pending, are being conducted (collectively “Company Clinical Trials”) in all material respects in accordance with standard medical and scientific research procedures and in compliance in all material respects with the applicable regulations of any applicable Governmental Authority and other applicable Law, including 21 C.F.R. Parts 50, 54, 56, 58 and 312. The Company has not received any written notices, correspondence, or other written communications from any Governmental Authority requiring, or to the Knowledge of the Company threatening to initiate, the termination or suspension of any clinical studies conducted by or on behalf of, or sponsored by, the Company or in which the Company or its current products or product candidates have participated. All Company Clinical Trials were, and if still pending are, being conducted in all material respects in accordance with standard medical and scientific research procedures and in compliance in all material respects with applicable regulations of any applicable Governmental Authority and other applicable Law, including the Good Clinical Practice regulations under 21 C.F.R. Parts 50, 54, 56, 312 and 314 and Good Laboratory Practice regulations under 21 C.F.R. Part 58.

 

(e) The Company is not the subject of any pending or, to the Knowledge of the Company, threatened investigation in respect of its business or products by the FDA pursuant to its “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities” Final Policy set forth in 56 Fed. Reg. 46191 (September 10, 1991) and any amendments thereto. To the Knowledge of the Company, the Company has not committed any acts, made any statement, or has not failed to make any statement, in each case in respect of its business or products that would violate the FDA’s “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities” Final Policy, and any amendments thereto. None of the Company or any of its officers, employees, or agents has been convicted of any crime or engaged in any conduct that could result in a debarment or exclusion (i) under 21 U.S.C. Section 335a, or (ii) any similar applicable Law. No debarment or exclusionary claims, actions, proceedings, or investigations in respect of their business or products are pending or, to the Knowledge of the Company, threatened against the Company or any of its officers, employees, or agents.

 

 

(f) The Company is in compliance in all material respects with all applicable Laws relating to patient, medical, or individual health information, including the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), including the standards for the privacy of Individually Identifiable Health Information at 45 C.F.R. Parts 160 and 164, Subparts A and E, the standards for the protection of Electronic Protected Health Information set forth at 45 C.F.R. Part 160 and 45 C.F.R. Part 164, Subpart A and Subpart C, the standards for transactions and code sets used in electronic transactions at 45 C.F.R. Part 160, Subpart A and Part 162, and the standards for Breach Notification for Unsecured Protected Health Information at 45 C.F.R. Part 164, Subpart D, all as amended from time to time. The Company has entered into, where required, and is in compliance in all material respects with the terms of all Business Associate Agreements to which the Company is a party or otherwise bound. The Company has not received written notice from the Office for Civil Rights for the U.S. Department of Health and Human Services or any other Governmental Body of any allegation regarding its failure to comply with HIPAA or any other state law or regulation applicable to the protection of individually identifiable health information or personally identifiable information. No successful “Security Incident,” “Breach of Unsecured Protected Health Information” or breach of personally identifiable information under applicable state or federal laws have occurred with respect to information maintained or transmitted to the Company or an agent or third party subject to a Business Associate Agreement with the Company. The Company is currently submitting, receiving, and handling or is capable of submitting receiving and handling transactions in accordance with the Standard Transaction Rule. All capitalized terms in this Section 4.13(f) not otherwise defined in this Agreement shall have the meanings set forth under HIPAA.

 

4.14 Intellectual Property.

 

(a) Section 4.14(a) of the Company Disclosure Schedules lists all Intellectual Property (i) owned by the Company, and (ii) all Company IP Agreements. Except as set forth in Section 4.14(a) of the Company Disclosure Schedules, or as would not have a Company Material Adverse Effect, the Company owns or has the right to use, or, as of the Closing, will own or have the right to use, all Intellectual Property necessary for the conduct of the Company’s business as currently conducted and proposed to be conducted (the “Company Intellectual Property”).

 

(b) Except as set forth in Section 4.14(b) of the Company Disclosure Schedules, or as would not have a Company Material Adverse Effect, to the Company’s Knowledge: (i) the conduct of the Company’s business as currently conducted does not infringe, misappropriate or otherwise violate the Intellectual Property of any Person; and (ii) no Person is infringing, misappropriating, or otherwise violating any Company Intellectual Property. This Section 4.14(b) constitutes the sole representation and warranty of the Company under this Agreement with respect to any actual or alleged infringement, misappropriation, or other violation of Intellectual Property.

 

(c) Right to Use; Title. The Company is, or as of the Closing will be, the sole and exclusive legal and beneficial owner of all right, title, and interest in and to the Company Intellectual Property, and has, or as of the Closing will have, the valid and enforceable right to use all other Company Intellectual Property, in each case, free and clear of all Liens other than Permitted Liens.

 

 

(d) Validity and Enforceability. The Company’s rights in the Company Intellectual Property are, or will be as of the Closing, valid, subsisting, and enforceable. To the Company’s Knowledge, all reasonable steps to maintain the Company Intellectual Property and to protect and preserve the confidentiality of all trade secrets included in the Company Intellectual Property have been taken.

 

(e) Non-Infringement. The conduct of the business of the Company has not infringed, misappropriated, or otherwise violated, and, to the Company’s Knowledge, the conduct of the proposed business of the Company will not infringe, misappropriate, or otherwise violate, any Intellectual Property of any other Person, and to the Knowledge of the Company, no third party is infringing upon, violating, or misappropriating any Company Intellectual Property.

 

(f) Actions and Orders. There are no Actions pending or, to the Knowledge of the Company, threatened: (i) alleging any infringement, misappropriation, or violation by the Company of the Intellectual Property of any Person; or (ii) challenging the validity, enforceability, or ownership of any Company Intellectual Property or the Company’s rights with respect to any Company Intellectual Property. The Company is not subject to any outstanding Governmental Order that restricts or impairs the use of any Company Intellectual Property.

 

(g) Company IT Systems. In the past five years, there has been no malfunction, failure, continued substandard performance, denial-of-service, or other cyber incident, including any cyberattack, or other impairment of the Company IT Systems. The Company has taken all reasonable commercial effort steps to safeguard the confidentiality, availability, security, and integrity of the Company IT Systems, including implementing and maintaining appropriate backup, disaster recovery, and software and hardware support arrangements.

 

(h) Privacy and Data Security. The Company has complied with all applicable Laws and all internal or publicly posted policies, notices, and statements concerning the collection, use, processing, storage, transfer, and security of personal information in the conduct of the Company’s business and proposed business. In the past five years, the Company has not: (i) experienced any actual, alleged, or suspected data breach or other security incident involving personal information in their possession or control; or (ii) been subject to or received any notice of any audit, investigation, complaint, or other Action by any Governmental Authority or other Person concerning the Company’s use, processing, storage, transfer, or protection of personal information or actual, alleged, or suspected violation of any applicable Law concerning privacy, data security, or data breach notification, and to the Company’s Knowledge, there are no facts or circumstances that could reasonably be expected to give rise to any such Action.

 

4.15 Insurance Coverage. Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, all insurance policies maintained by the Company and its Subsidiaries are in full force and effect and provide insurance in such amounts and against such risks as the Company reasonably has determined to be prudent, taking into account the industries in which the Company and its Subsidiaries operate, and as is sufficient to comply with applicable Law.

 

 

4.16 Employment Matters. Section 4.16 of the Company Disclosure Schedule sets forth a true and complete list of every employment agreement (each an “Existing Employment Agreement”), commission agreement, employee group or executive medical, life, or disability insurance plan, and each incentive, bonus, profit sharing, retirement, deferred compensation, equity, phantom stock, stock option, stock purchase, stock appreciation right or severance plan of the Company, to the extent that any such agreement relates to the business of the Company, now in effect or under which the Company has or might have any obligation (collectively, “Employment Agreements”).

 

4.17 Brokers. No broker, finder, or investment banker is entitled to any brokerage, finder’s, or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company.

 

4.18 Employee Benefit Plans; ERISA.

 

(a) Neither the execution of this Agreement nor any of the transactions contemplated by this Agreement will, either alone or in combination with any other event (i) entitle any current or former director, officer, employee, independent contractor, or consultant of the Company to any severance pay, increase in severance pay, or other payment, (ii) accelerate the time of payment, funding, or vesting, or increase the amount of compensation (including stock-based compensation) due to any such individual, (iii) limit or restrict the right of the Company to amend or terminate any plan, program, policy, agreement, collective bargaining agreement, or other arrangement providing for compensation, severance, deferred compensation, performance awards, stock or stock-based awards, health, dental, retirement, life insurance, death, accidental death & dismemberment, disability, fringe, or wellness benefits, or other employee benefits or remuneration of any kind, including each employment, termination, severance, retention, change in control, or consulting or independent contractor plan, program, arrangement, or agreement, in each case whether written or unwritten or otherwise, funded or unfunded, insured or self-insured, including each “employee benefit plan,” within the meaning of Section 3(3) of ERISA, whether or not subject to ERISA, which is or has been sponsored, maintained, contributed to, or required to be contributed to, by the Company for the benefit of any current or former employee, independent contractor, consultant, or director of the Company (each, a “Company Employee”), or with respect to which the Company or any Company ERISA Affiliate has or may have any Liability (collectively, the “Company Employee Plans”), (iv) increase the amount payable under any Company Employee Plan, (v) result in any “excess parachute payments” within the meaning of Section 280G(b) of the Code, or (vi) require a “gross-up” or other payment to any “disqualified individual” within the meaning of Section 280G(c) of the Code.

 

(b) No Company Employee Plan provides post-termination or retiree health benefits to any person for any reason, except as may be required by COBRA or other applicable Law, and neither the Company nor any Company ERISA Affiliate has any Liability to provide post-termination or retiree health benefits to any person or ever represented, promised, or contracted to any Company Employee (either individually or to Company Employees as a group) or any other person that such Company Employee(s) or other person would be provided with post-termination or retiree health benefits, except to the extent required by COBRA or other applicable Law.

 

 

(c) Each Company Employee Plan that is subject to Section 409A of the Code has been operated in compliance with such section and all applicable regulatory guidance (including, without limitation, proposed regulations, notices, rulings, and final regulations).

 

(d) The Company (i) is in compliance with all applicable Laws and agreements regarding hiring, employment, termination of employment, plant closing and mass layoff, employment discrimination, harassment, retaliation, and reasonable accommodation, leaves of absence, terms and conditions of employment, wages and hours of work, employee classification, employee health and safety, use of genetic information, leasing and supply of temporary and contingent staff, engagement of independent contractors, including proper classification of same, payroll taxes, and immigration with respect to Company Employees and contingent workers, and (ii) is in compliance with all applicable Laws relating to the relations between it and any labor organization, trade union, work council, or other body representing Company Employees.

 

4.19 Tax Matters.

 

(a) Tax Returns and Payment of Taxes. The Company has filed its 2023 federal and state tax returns prior to their being due on October 15. The Company was incorporated in June 2023. The Company is not currently the beneficiary of any extension of time within which to file any Tax Return other than extensions of time to file Tax Returns obtained in the ordinary course of business consistent with past practice. All material Taxes due and owing by the Company (whether or not shown on any Tax Return) have been timely paid or, where payment is not yet due, the Company has made an adequate provision for such Taxes in the Company’s financial statements included in Schedule 4.6 (in accordance with GAAP). The Company’s most recent financial statements included in Schedule 4.6 reflect an adequate reserve (in accordance with GAAP) for all material Taxes payable by the Company through the date of such financial statements. The Company has not incurred any material Liability for Taxes since the date of the Company’s most recent financial statements included in Schedule 4.6 outside of the ordinary course of business or otherwise inconsistent with past practice.

 

(b) Withholding. The Company has withheld and timely paid each material Tax required to have been withheld and paid in connection with amounts paid or owing to any Company Employee, creditor, customer, stockholder, or other party (including, without limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of the Code or similar provisions under any state, local, and foreign Laws), and materially complied with all information reporting and backup withholding provisions of applicable Law.

 

(c) Liens. There are no Liens for Taxes upon the assets of the Company other than for current Taxes not yet due and payable or for Taxes that are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP has been made in the Company’s most recent financial statements.

 

 

(d) Tax Deficiencies and Audits. No deficiency for any material amount of Taxes which has been proposed, asserted, or assessed in writing by any taxing authority against the Company remains unpaid. There are no waivers or extensions of any statute of limitations currently in effect with respect to Taxes of the Company. There are no audits, suits, proceedings, investigations, claims, examinations, or other administrative or judicial proceedings ongoing or pending with respect to any material Taxes of the Company.

 

(e) Tax Rulings. The Company has not requested or is the subject of or bound by any private letter ruling, technical advice memorandum, or similar ruling or memorandum with any taxing authority with respect to any material Taxes, nor is any such request outstanding.

 

(f) Consolidated Groups, Transferee Liability, and Tax Agreements. The Company (i) has not been a member of a group filing Tax Returns on a consolidated, combined, unitary, or similar basis, (ii) has any material liability for Taxes of any Person (other than the Company) under Treasury Regulation Section 1.1502-6 (or any comparable provision of local, state, or foreign Law), as a transferee or successor, by Contract, or otherwise, or (iii) is a party to, bound by or has any material liability under any Tax sharing, allocation, or indemnification agreement or arrangement.

 

(g) Change in Accounting Method. The Company has not agreed to make, nor is it required to make, any material adjustment under Section 481(a) of the Code or any comparable provision of state, local, or foreign Tax Laws by reason of a change in accounting method or otherwise.

 

(h) Ownership Changes. Without regard to this Agreement, the Company has not undergone an “ownership change” within the meaning of Section 382 of the Code.

 

(i) Section 355. The Company has not been a “distributing corporation” or a “controlled corporation” in connection with a distribution described in Section 355 of the Code.

 

(j) Reportable Transactions. The Company has not been a party to, or a material advisor with respect to, a “reportable transaction” within the meaning of Section 6707A(c)(1) of the Code and Treasury Regulations Section 1.6011-4(b).

 

(k) Intended Tax Treatment. The Company has not taken or agreed to take any action, and to the Knowledge of the Company there exists no fact or circumstance, that is reasonably likely to prevent or impede the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code.

 

(l) Related Person Transactions. There are, and since the inception of the Company, there have been, no Contracts, transactions, arrangements, or understandings between the Company, on the one hand, and any Affiliate (including any director, officer, or employee or any of their respective family members) thereof or any holder of 5% or more of the shares of the Company’s Capital Stock (or any of their respective family members), on the other hand, that would be required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC that has not been disclosed in Schedule 4.20.

 

 

4.20 Anti-Corruption. Since its inception, neither the Company nor any director, officer or, to the Knowledge of the Company, employee or agent of the Company has (i) used any funds for unlawful contributions, gifts, entertainment, or other unlawful payments relating to an act by any Governmental Authority, (ii) made any unlawful payment to any foreign or domestic government official or employee or to any foreign or domestic political party or campaign or violated any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or (iii) made any other unlawful payment under any applicable Law relating to anti-corruption, bribery, or similar matters. Since its inception, the Company has not disclosed to any Governmental Authority that it violated or may have violated any Law relating to anti-corruption, bribery, or similar matters. To the Knowledge of the Company, no Governmental Authority is investigating, examining, or reviewing the Company’s compliance with any applicable provisions of any Law relating to anti-corruption, bribery, or similar matters.

 

4.21 Brokers. No broker, finder, or investment banker is entitled to any brokerage, finder’s, or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company.

 

4.22 No Other Representations and Warranties. Except for the representations and warranties contained in this Article IV (including the related portions of the Company Disclosure Schedules), none of the Company or its stockholders or any other Person has made or makes any other express or implied representation or warranty, either written or oral, on behalf of the Company, its Affiliates, or any of their respective stockholders, representatives, agents, officers or directors, including any representation or warranty as to the accuracy or completeness of any information regarding the Company furnished or made available to Parent or Merger Sub (including any information, documents or material made available to Parent in the Data Room or any management presentations made in expectation of the transactions contemplated hereby) or as to the future revenue, profitability or success of the Company, or any representation or warranty arising from statute or otherwise in Law.

 

ARTICLE V

 

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

 

Except: (a) as disclosed in the Parent SEC Documents at least five Business Days prior to the date hereof and that is reasonably apparent on the face of such disclosure to be applicable to the representation and warranty set forth herein (other than any disclosures contained or referenced therein under the captions “Risk Factors,” “Forward-Looking Statements,” “Quantitative and Qualitative Disclosures About Market Risk,” and any other disclosures contained or referenced therein of information, factors, or risks that are predictive, cautionary, or forward-looking in nature); or (b) as set forth in the Parent Disclosure Schedules, the Parent and Merger Sub hereby jointly and severally represent and warrant to the Company as follows:

 

5.1 Organization; Standing and Power; Charter; Subsidiaries.

 

(a) Organization; Standing and Power. Each of the Parent and its Subsidiaries is a corporation, limited liability company, or other legal entity duly organized, validly existing, and in good standing under the Laws of its jurisdiction of organization, and has the requisite corporate, limited liability company, or other organizational, as applicable, power and authority to own, lease, and operate its assets and to carry on its business as now conducted. Each of the Parent and its Subsidiaries is duly qualified or licensed to do business as a foreign corporation, limited liability company, or other legal entity and is in good standing in each jurisdiction where the character of the assets and properties owned, leased, or operated by it or the nature of its business makes such qualification or license necessary.

 

 

(b) Parent and Merger Sub Governing Documents. The copies of the Parent Governing Documents as most recently filed with the Parent SEC Documents are true, correct, and complete copies of such documents as in effect as of the date of this Agreement. The Parent has delivered or made available to the Company a true and correct copy of the Certificate of Incorporation and By-Laws of Merger Sub. Neither the Parent nor Merger Sub is in violation of any of the provisions of its governing documents.

 

(c) Subsidiaries. All of the outstanding shares of capital stock of, or other equity or voting interests in, each Subsidiary of the Parent have been validly issued and are owned by the Parent, directly or indirectly, free of pre-emptive rights, are fully paid and non-assessable, and are free and clear of all Liens, including any restriction on the right to vote, sell, or otherwise dispose of such capital stock or other equity or voting interests, except for any Liens: (i) imposed by applicable securities Laws; or (ii) arising pursuant to the governing documents of any non-wholly owned Subsidiary of the Parent. Except for the capital stock of, or other equity or voting interests in, its Subsidiaries, the Parent does not own, directly or indirectly, any capital stock of, or other equity or voting interests in, any Person.

 

5.2 Capital Structure.

 

(a) Capital Stock. The authorized capital stock of the Parent consists of (i) 50,000,000 shares of Parent Common Stock, and (ii) 100,000,000 shares of preferred stock. As of the date of this Agreement: (A) 3,906,072 shares of Parent Common Stock are issued and outstanding (not including shares held in treasury); (B) 0 shares of Parent Common Stock are issued and held by the Parent in its treasury; (C) 301,280 shares of preferred stock are issued and outstanding as Parent Series A Preferred Stock; (D) 1,200,000 shares of preferred stock are issued and outstanding as Parent Series B Preferred Stock; and 0 shares of Parent Preferred Stock are held by the Parent in its treasury. All of the outstanding shares of capital stock of the Parent are, and all shares of capital stock of the Parent which may be issued as contemplated or permitted by this Agreement, including the shares of Parent Common Stock, Parent Series C-1 Preferred Stock, and Parent Series C-2 Preferred Stock constituting the Merger Consideration, will be, when issued, duly authorized, validly issued, fully paid, and non-assessable, and not subject to any pre-emptive rights. No Subsidiary of the Parent owns any shares of Parent Common Stock.

 

(b) Stock Awards.

 

(i) As of the date of this Agreement, an aggregate of 3,445 shares of Parent Common Stock were reserved for issuance pursuant to Parent Equity Awards not yet granted under the Parent Stock Plans. As of the date of this Agreement, 88,218 shares of Parent Common Stock were reserved for issuance pursuant to outstanding Parent Stock Options and 25 shares of Parent Restricted Shares were issued and outstanding. All shares of Parent Common Stock subject to issuance under the Parent Stock Plans, upon issuance in accordance with the terms and conditions specified in the instruments pursuant to which they are issuable, will be duly authorized, validly issued, fully paid, and non-assessable.

 

 

(ii) Other than the Parent Equity Awards or as set forth on Section 5.2(b) of the Parent Disclosure Schedule, as of the date hereof, there are no outstanding (A) securities of the Parent or any of its Subsidiaries convertible into or exchangeable for Parent Voting Debt (as defined below) or shares of capital stock of the Parent, (B) options, warrants, or other agreements or commitments to acquire from the Parent or any of its Subsidiaries, or obligations of the Parent or any of its Subsidiaries to issue, any Parent Voting Debt or shares of capital stock of (or securities convertible into or exchangeable for shares of capital stock of) the Parent, or (C) restricted shares, restricted stock units, stock appreciation rights, performance shares, profit participation rights, contingent value rights, “phantom” stock, or similar securities or rights that are derivative of, or provide economic benefits based, directly or indirectly, on the value or price of, any shares of capital stock of the Parent, in each case that have been issued by the Parent or its Subsidiaries. All outstanding shares of Parent Common Stock, all outstanding Parent Equity Awards, and all outstanding shares of capital stock, voting securities, or other ownership interests in any Subsidiary of the Parent, have been issued or granted, as applicable, in compliance in all material respects with all applicable securities Laws.

 

(iii) As of the date hereof, there are no outstanding Contracts requiring the Parent or any of its Subsidiaries to repurchase, redeem, or otherwise acquire any Parent Common Stock, Parent Preferred Stock, Parent Options, Parent Voting Debt, Parent Convertible Securities, or Parent Subsidiary Securities. Neither the Parent nor any of its Subsidiaries is a party to any voting agreement with respect to any Parent Common Stock, Parent Preferred Stock, Parent Options, Parent Voting Debt, Parent Convertible Securities, or Parent Subsidiary Securities (as defined below).

 

(c) Voting Debt. No bonds, debentures, notes, or other indebtedness issued by the Parent or any of its Subsidiaries (i) having the right to vote on any matters on which stockholders or equityholders of the Parent or any of its Subsidiaries may vote (or which is convertible into, or exchangeable for, securities having such right), or (ii) the value of which is directly based upon or derived from the capital stock, voting securities, or other ownership interests of the Parent or any of its Subsidiaries, are issued or outstanding (collectively, “Parent Voting Debt”).

 

(d) Parent Subsidiary Securities. As of the date hereof, there are no outstanding (i) securities of the Parent or any of its Subsidiaries convertible into or exchangeable for Parent Voting Debt, capital stock, voting securities, or other ownership interests in any Subsidiary of the Parent, (ii) options, warrants, or other agreements or commitments to acquire from the Parent or any of its Subsidiaries, or obligations of the Parent or any of its Subsidiaries to issue, any Parent Voting Debt, capital stock, voting securities, or other ownership interests in (or securities convertible into or exchangeable for capital stock, voting securities, or other ownership interests in) any Subsidiary of the Parent, or (iii) restricted shares, restricted stock units, stock appreciation rights, performance shares, profit participation rights, contingent value rights, “phantom” stock, or similar securities or rights that are derivative of, or provide economic benefits based, directly or indirectly, on the value or price of, any capital stock or voting securities of, or other ownership interests in, any Subsidiary of the Parent, in each case that have been issued by a Subsidiary of the Parent (the items in clauses (i), (ii), and (iii), together with the capital stock, voting securities, or other ownership interests of such Subsidiaries, being referred to collectively as “Parent Subsidiary Securities”).

 

 

5.3 Authority; Non-Contravention; Governmental Consents; Board Approval.

 

(a) Authority. Each of the Parent and Merger Sub has all requisite corporate power and authority to enter into and to perform its obligations under this Agreement and, subject to, in the case of the consummation of the Merger, (i) the adoption of this Agreement by the Parent as the sole stockholder of Merger Sub, and (ii) the need to obtain the affirmative vote or consent of the holders of a majority in voting power of the votes cast affirmatively or negatively (excluding abstentions) at a meeting of the holder of Parent Company Stock to the Parent Stockholder Matters (the “Requisite Parent Vote”), to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by the Parent and Merger Sub and the consummation by the Parent and Merger Sub of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of the Parent and Merger Sub and no other corporate proceedings on the part of the Parent or Merger Sub are necessary to authorize the execution and delivery of this Agreement or to consummate the Merger, the Parent Stockholder Matters, and the other transactions contemplated by this Agreement, subject only, in the case of consummation of the Merger, to (i) the adoption of this Agreement by the Parent as the sole stockholder of Merger Sub, and (ii) the need to obtain the Requisite Parent Vote. This Agreement has been duly executed and delivered by the Parent and Merger Sub and, assuming due execution and delivery by the Company, constitutes the legal, valid, and binding obligation of the Parent and Merger Sub, enforceable against the Parent and Merger Sub in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium, and other similar Laws affecting creditors’ rights generally and by general principles of equity.

 

(b) Non-Contravention. Other than as set forth on Section 5.3(b) of the Parent Disclosure Schedule, the execution, delivery, and performance of this Agreement by the Parent and Merger Sub and the consummation by the Parent and Merger Sub of the transactions contemplated by this Agreement, do not and will not (i) contravene or conflict with, or result in any violation or breach of, the organizational documents of the Parent or Merger Sub, (ii) assuming that all of the Consents contemplated by clauses (i) through (v) of Section 5.3(c) have been obtained or made, and in the case of the consummation of the Merger, obtaining the Requisite Parent Vote, conflict with or violate any Law applicable to the Parent or Merger Sub or any of their respective properties or assets, (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the Parent’s or any of its Subsidiaries’ loss of any benefit or the imposition of any additional payment or other liability under, or alter the rights or obligations of any third party under, or give to any third party any rights of termination, amendment, acceleration, or cancellation, or require any Consent under, any Contract to which the Parent or any of its Subsidiaries is a party or otherwise bound as of the date hereof, or (iv) result in the creation of any Liens (other than Permitted Liens) on any of the properties or assets of the Parent or any of its Subsidiaries.

 

(c) Governmental Consents. No consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to the Parent or Merger Sub in connection with the execution, delivery, and performance by the Parent and Merger Sub of this Agreement or the consummation by the Parent and Merger Sub of the Merger, the Parent Stockholder Matters, and the other transactions contemplated hereby, except for (i) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, (ii) the filing with the SEC of (A) the Proxy Statement in definitive form in accordance with the Exchange Act, and (B) the filing of such reports under the Exchange Act as may be required in connection with this Agreement, the Merger, the Parent Stockholder Matters, and the other transactions contemplated by this Agreement, and (iii) such consents, approvals, or notices as may be required under applicable state securities or “blue sky” Laws and the securities Laws of any foreign country or the rules and regulations of Nasdaq.

 

 

(d) Board Approval.

 

(i) The Parent Board, by resolutions duly adopted by a unanimous vote at a meeting of all directors of the Parent duly called and held and, not subsequently rescinded or modified in any way, has (A) determined that this Agreement and the transactions contemplated hereby, including the Merger and the Parent Stockholder Matters, upon the terms and subject to the conditions set forth herein, are fair to, and in the best interests of, the Parent and the Parent’s stockholders, (B) approved and declared advisable this Agreement, including the execution, delivery, and performance thereof, and the consummation of the transactions contemplated by this Agreement, including the Merger and the Parent Stockholder Matters, upon the terms and subject to the conditions set forth herein, (C) directed that the Parent Stockholder Matters be submitted to a vote of the Parent’s stockholders for adoption at the Parent Stockholders Meeting, and (D) resolved to recommend that Parent’s stockholders vote in favor of approval of the Parent Stockholder Matters (collectively, the “Parent Board Recommendation”).

 

(ii) The Merger Sub Board by resolutions duly adopted by a unanimous vote at a meeting of all directors of Merger Sub duly called and held and, not subsequently rescinded or modified in any way, has (A) determined that this Agreement and the transactions contemplated hereby, including the Merger, upon the terms and subject to the conditions set forth herein, are fair to, and in the best interests of, Merger Sub and the Parent, as the sole stockholder of Merger Sub, (B) approved and declared advisable this Agreement, including the execution, delivery, and performance thereof, and the consummation of the transactions contemplated by this Agreement, including the Merger, upon the terms and subject to the conditions set forth herein, and (C) resolved to recommend that the Parent, as the sole stockholder of Merger Sub, approve the adoption of this Agreement in accordance with the DGCL.

 

5.4 SEC Filings; Financial Statements; Undisclosed Liabilities.

 

(a) SEC Filings. The Parent has timely filed with or furnished to, as applicable, the SEC all registration statements, prospectuses, reports, schedules, forms, statements, and other documents (including exhibits and all other information incorporated by reference) required to be filed or furnished by it with the SEC since for the two years preceding the date hereof and up to and including the Closing Date (the “Parent SEC Documents”). True, correct, and complete copies of all the Parent SEC Documents are publicly available on EDGAR. Except as set forth in Schedule 5.4, as of their respective filing dates or, if amended or superseded by a subsequent filing prior to the date hereof, as of the date of the last such amendment or superseding filing (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of the relevant meetings, respectively), each of the Parent SEC Documents complied as to form in all material respects with the applicable requirements of the Securities Act, the Exchange Act, and the Sarbanes-Oxley Act, and the rules and regulations of the SEC thereunder applicable to such Parent SEC Documents. Except as set forth in Schedule 5.4, none of the Parent SEC Documents, including any financial statements, schedules, or exhibits included or incorporated by reference therein at the time they were filed (or, if amended or superseded by a subsequent filing prior to the date hereof, as of the date of the last such amendment or superseding filing), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. To the Knowledge of the Parent, except as set forth in Schedule 5.4, none of the Parent SEC Documents is the subject of ongoing SEC review or outstanding SEC investigation and there are no outstanding or unresolved comments received from the SEC with respect to any of the Parent SEC Documents. None of the Parent’s Subsidiaries is required to file or furnish any forms, reports, or other documents with the SEC and neither the Parent nor any of its Subsidiaries is required to file or furnish any forms, reports, or other documents with any securities regulation (or similar) regime of a non-United States Governmental Authority.

 

 

(b) Financial Statements. Except as set forth in Schedule 5.4, each of the consolidated financial statements (including, in each case, any notes and schedules thereto) contained in or incorporated by reference into the Parent SEC Documents (i) complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto as of their respective dates, (ii) was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto and, in the case of unaudited interim financial statements, as may be permitted by the SEC for Quarterly Reports on Form 10-Q or other rules and regulations of the SEC), and (iii) fairly presented in all material respects the consolidated financial position and the results of operations and cash flows of the Parent and its consolidated Subsidiaries as of the respective dates of and for the periods referred to in such financial statements, subject, in the case of unaudited interim financial statements, to normal and year-end audit adjustments as permitted by the applicable rules and regulations of the SEC (but only if the effect of such adjustments would not, individually or in the aggregate, be material).

 

(c) Undisclosed Liabilities. The audited balance sheet of the Parent dated as of June 30, 2024 contained in the Parent SEC Documents filed prior to the date hereof is hereinafter referred to as the “Parent Balance Sheet.” Neither the Parent nor any of its Subsidiaries has any Liabilities other than Liabilities that: (i) are reflected or reserved against in the Parent Balance Sheet (including in the notes thereto); (ii) were incurred since the date of the Parent Balance Sheet in the ordinary course of business consistent with past practice; or (iii) are incurred in connection with the transactions contemplated by this Agreement.

 

(d) Sarbanes-Oxley and Nasdaq Compliance. Each of the principal executive officer and the principal financial officer of the Parent (and each former principal executive officer and each former principal financial officer of the Parent, as applicable) has made all certifications required by Rule 13a-14 or 15d-14 under the Exchange Act and Sections 302 and 906 of the Sarbanes-Oxley Act with respect to the Parent SEC Documents, and, except as set forth in Schedule 5.4, the statements contained in such certifications are true and accurate in all material respects. For purposes of this Agreement, “principal executive officer” and “principal financial officer” shall have the meanings given to such terms in the Sarbanes-Oxley Act. The Parent is also in compliance with all of the other applicable provisions of the Sarbanes-Oxley Act and, except as set forth in Section 5.4(d) of the Parent Disclosure Schedule, the applicable listing and corporate governance rules of Nasdaq.

 

 

(e) Amendments and Supplements. Prior to and until the Effective Time, the Parent will provide to the Company copies of any and all amendments or supplements to the Parent SEC Documents filed with the SEC and all subsequent registration statements and reports filed by the Parent subsequent to the filing of the Parent SEC Documents with the SEC and any and all subsequent information statements, proxy statements, reports or notices filed by the Parent with the SEC or delivered to the stockholders of the Parent.

 

(f) Investment Company. The Parent is not an investment company within the meaning of Section 3 of the Investment Company Act of 1940, as amended.

 

(g) Shell Company. The Parent is not a “shell company” as defined in Rule 12b-2 under the Exchange Act and as indicated in the Parent SEC Documents.

 

(h) The Parent’s auditor has at all times since its retention by the Parent been: (i) to the Knowledge of the Parent, a registered public accounting firm (as defined in Section 2(a)(12) of the Sarbanes-Oxley Act); (ii) to the Knowledge of the Parent, “independent” with respect to the Parent within the meaning of Regulation S-X under the Exchange Act; and (iii) to the Knowledge of the Parent, in material compliance with subsections (g) through (l) of Section 10A of the Exchange Act and the rules and regulations promulgated by the SEC and the Public Company Accounting Oversight Board thereunder with respect to services provided to the Parent.

 

(i) Since January 1, 2016, there have been no formal internal investigations regarding financial reporting or accounting policies and practices discussed with, reviewed by, or initiated at the direction of the chief executive officer or chief financial officer of the Parent, the Parent Board or any committee thereof, other than ordinary course audits or reviews of accounting policies and practices or internal controls required by the Sarbanes-Oxley Act.

 

(j) The Parent maintains a system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and to provide reasonable assurance: (i) that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, (ii) that receipts and expenditures are made only in accordance with authorizations of management and the Parent Board and (iii) regarding prevention or timely detection of the unauthorized acquisition, use or disposition of the Parent’s assets that could have a material effect on the Parent’s financial statements. The Parent has evaluated the effectiveness of the Parent’s internal control over financial reporting as of December 31, 2023, and, to the extent required by applicable Law, except as set forth in Schedule 5.4, presented in any applicable Parent SEC Document that is a report on Form 10-K or Form 8-K (or any amendment thereto) its conclusions about the effectiveness of the internal control over financial reporting as of the end of the period covered by such report or amendment based on such evaluation. The Parent has disclosed, based on its most recent evaluation of internal control over financial reporting, to Parent’s auditors and audit committee (and made available to the Company a summary of the significant aspects of such disclosure), (A) all deficiencies, if any, in the design or operation of internal control over financial reporting that are reasonably likely to adversely affect the Parent’s ability to record, process, summarize and report financial information, and (B) any known fraud that involves management or other employees who have a significant role in the Parent’s internal control over financial reporting. Except as set forth in Schedule 5.4, the Parent has not identified, based on its most recent evaluation of internal control over financial reporting, any material weaknesses in the design or operation of Parent’s internal control over financial reporting.

 

 

(k) Except as set forth in Schedule 5.4, the Parent maintains “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) that are reasonably designed to ensure that information required to be disclosed by the Parent in the periodic reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the required time periods, and that all such information is accumulated and communicated to the Parent’s management as appropriate to allow timely decisions regarding required disclosure and to make the certifications.

 

5.5 Compliance; Permits.

 

(a) The Parent and each of its Subsidiaries are and, since January 1, 2016, have been in compliance with, all Laws and Governmental Orders applicable to the Parent or any of its Subsidiaries or by which the Parent or any of its Subsidiaries or any of their respective businesses or properties is bound. Since January 1, 2016, no Governmental Authority has issued any notice or notification stating that the Parent or any of its Subsidiaries is not in compliance with any Law.

 

(b) Permits. The Parent and its Subsidiaries hold all Permits, to the extent necessary to operate their respective businesses as such businesses are being operated as of the date hereof. No suspension, cancellation, non-renewal, or adverse modifications of any Permits of the Parent or any of its Subsidiaries is pending or, to the Knowledge of the Parent, threatened. The Parent and each of its Subsidiaries is and, since January 1, 2016, has been in compliance with the terms of all Permits.

 

(c) There are no Actions pending, including any Form FDA-483 observations, demand letter, warning letter, untitled letter, or, to the Knowledge of the Parent, threatened with respect to an alleged material violation by the Parent or any of its Subsidiaries of the FDCA, FDA regulations adopted thereunder, the PHSA, or any other similar Law administered or promulgated by any Governmental Authority, or any act, omission, event, or circumstance of which the Parent has Knowledge that would reasonably be expected to give rise to or form the basis for any Actions, Form FDA-483 observation, demand letter, warning letter, untitled letter, proceeding or request for information or any liability (whether actual or contingent) for failure to comply with the FDCA, PHSA or other similar Laws administered or promulgated by any Governmental Authority.

 

(d) All clinical, pre-clinical and other studies and tests conducted by or on behalf of, or sponsored by, the Parent or its Subsidiaries, or in which the Parent or its Subsidiaries or its respective current products or product candidates have participated, were and, if still pending, are being conducted (collectively “Parent Clinical Trials”) in all material respects in accordance with standard medical and scientific research procedures and in compliance in all material respects with the applicable regulations of any applicable Governmental Authority and other applicable Law, including 21 C.F.R. Parts 50, 54, 56, 58 and 312. Since January 1, 2016, neither the Parent nor its Subsidiaries have received any written notices, correspondence, or other written communications from any Governmental Authority requiring, or to the Knowledge of the Parent threatening to initiate, the termination or suspension of any clinical studies conducted by or on behalf of, or sponsored by, the Parent or its Subsidiaries or in which the Parent or its current products or product candidates have participated. All Parent Clinical Trials were, and if still pending are, being conducted in all material respects in accordance with standard medical and scientific research procedures and in compliance in all material respects with applicable regulations of any applicable Governmental Authority and other applicable Law, including the Good Clinical Practice regulations under 21 C.F.R. Parts 50, 54, 56, 312 and 314 and Good Laboratory Practice regulations under 21 C.F.R. Part 58.

 

 

(e) Neither the Parent nor any of its Subsidiaries is the subject of any pending or, to the Knowledge of the Parent, threatened investigation in respect of its business or products by the FDA pursuant to its “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities” Final Policy set forth in 56 Fed. Reg. 46191 (September 10, 1991) and any amendments thereto. To the Knowledge of the Parent, neither the Parent nor any of its Subsidiaries has not committed any acts, made any statement, or has not failed to make any statement, in each case in respect of its business or products that would violate the FDA’s “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities” Final Policy, and any amendments thereto. None of the Parent, any of its Subsidiaries, or any of their respective officers, employees or agents has been convicted of any crime or engaged in any conduct that could result in a debarment or exclusion: (i) under 21 U.S.C. Section 335a or (ii) any similar applicable Law. No debarment or exclusionary claims, actions, proceedings or investigations in respect of their business or products are pending or, to the Knowledge of the Parent, threatened against the Parent, any of its Subsidiaries or any of their respective officers, employees or agents.

 

(f) The Parent and its Subsidiaries are in compliance in all material respects with all applicable Laws relating to patient, medical or individual health information, including HIPAA, including the standards for the privacy of Individually Identifiable Health Information at 45 C.F.R. Parts 160 and 164, Subparts A and E, the standards for the protection of Electronic Protected Health Information set forth at 45 C.F.R. Part 160 and 45 C.F.R. Part 164, Subpart A and Subpart C, the standards for transactions and code sets used in electronic transactions at 45 C.F.R. Part 160, Subpart A and Part 162, and the standards for Breach Notification for Unsecured Protected Health Information at 45 C.F.R. Part 164, Subpart D, all as amended from time to time. The Parent and its Subsidiaries have entered into, where required, and are in compliance in all material respects with the terms of all Business Associate Agreements to which the Parent or a Subsidiary is a party or otherwise bound. Neither the Parent nor any of its Subsidiaries has received written notice from the Office for Civil Rights for the U.S. Department of Health and Human Services or any other Governmental Body of any allegation regarding its failure to comply with HIPAA or any other state law or regulation applicable to the protection of individually identifiable health information or personally identifiable information. No successful “Security Incident,” “Breach of Unsecured Protected Health Information” or breach of personally identifiable information under applicable state or federal laws have occurred with respect to information maintained or transmitted to the Parent or an agent or third party subject to a Business Associate Agreement with the Parent or any of its Subsidiaries. The Parent is currently submitting, receiving and handling or is capable of submitting receiving and handling transactions in accordance with the Standard Transaction Rule. All capitalized terms in this Section 5.5(f) not otherwise defined in this Agreement shall have the meanings set forth under HIPAA.

 

 

5.6 Intellectual Property.

 

(a) Scheduled Parent-Owned IP. Section 5.6(a) of the Parent Disclosure Schedule contains a true and complete list, as of the date hereof, of all: (i) Parent-Owned IP that is the subject of any issuance, registration, certificate, application, or other filing by, to or with any Governmental Authority or authorized private registrar, including patents, patent applications, trademark registrations and pending applications for registration, copyright registrations and pending applications for registration, and internet domain name registrations; and (ii) material unregistered Parent-Owned IP.

 

(b) Right to Use; Title. The Parent or one of its Subsidiaries is the sole and exclusive legal and beneficial owner of all right, title, and interest in and to the Parent-Owned IP, and has the valid and enforceable right to use all other Intellectual Property used in or necessary for the conduct of the business of the Parent and its Subsidiaries as currently conducted and as proposed to be conducted (“Parent Intellectual Property”), in each case, free and clear of all Liens other than Permitted Liens.

 

(c) Validity and Enforceability. The Parent and its Subsidiaries’ rights in the Parent-Owned IP are valid, subsisting, and enforceable. The Parent and each of its Subsidiaries have taken reasonable steps to maintain the Parent Intellectual Property and to protect and preserve the confidentiality of all trade secrets included in the Parent Intellectual Property.

 

(d) Non-Infringement. The conduct of the businesses of the Parent and any of its Subsidiaries has not infringed, misappropriated, or otherwise violated, and is not infringing, misappropriating, or otherwise violating, any Intellectual Property of any other Person, and to the Knowledge of the Parent, no third party is infringing upon, violating, or misappropriating any Parent Intellectual Property.

 

(e) Section 5.6(e) of the Parent Disclosure Schedule sets forth each Parent IP Agreement.

 

(f) Actions and Orders. There are no Actions pending or, to the Knowledge of the Parent, threatened: (i) alleging any infringement, misappropriation, or violation by the Parent or any of its Subsidiaries of the Intellectual Property of any Person; or (ii) challenging the validity, enforceability, or ownership of any Parent-Owned IP or the Parent or any of its Subsidiaries’ rights with respect to any Parent Intellectual Property. The Parent and its Subsidiaries are not subject to any outstanding Governmental Order that restricts or impairs the use of any Parent-Owned IP.

 

(g) Parent IT Systems. In the past five years, there has been no malfunction, failure, continued substandard performance, denial-of-service, or other cyber incident, including any cyberattack, or other impairment of the Parent IT Systems. The Parent and its Subsidiaries have taken all reasonable commercial effort steps to safeguard the confidentiality, availability, security, and integrity of the Parent IT Systems, including implementing and maintaining appropriate backup, disaster recovery, and software and hardware support arrangements.

 

 

(h) Privacy and Data Security. The Parent and each of its Subsidiaries have complied with all applicable Laws and all internal or publicly posted policies, notices, and statements concerning the collection, use, processing, storage, transfer, and security of personal information in the conduct of the Parent’s and its Subsidiaries’ businesses. In the past five years, the Parent and its Subsidiaries have not: (i) experienced any actual, alleged, or suspected data breach or other security incident involving personal information in their possession or control; or (ii) been subject to or received any notice of any audit, investigation, complaint, or other Action by any Governmental Authority or other Person concerning the Parent’s or any of its Subsidiaries’ collection, use, processing, storage, transfer, or protection of personal information or actual, alleged, or suspected violation of any applicable Law concerning privacy, data security, or data breach notification, and to the Parent’s Knowledge, there are no facts or circumstances that could reasonably be expected to give rise to any such Action.

 

5.7 Material Contracts.

 

(a) Material Contracts. For purposes of this Agreement, “Parent Material Contract” shall mean the following to which the Parent or any of its Subsidiaries is a party or any of the respective assets are bound:

 

(i) any “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K promulgated by the SEC), whether or not filed by the Parent with the SEC;

 

(ii) any employment or consulting Contract (in each case with respect to which the Parent has continuing obligations as of the date hereof) with any current or former (A) officer of the Parent, (B) member of the Parent Board, or (C) Parent Employee providing for an annual base salary or payment in excess of $100,000;

 

(iii) any agreement of indemnification or guaranty not entered into in the Parent’s ordinary course of business;

 

(iv) any Contract that purports to limit in any material respect the right of the Parent or any of its Subsidiaries (A) to engage in any line of business, (B) compete with any Person or solicit any client or customer, or (C) operate in any geographical location;

 

(v) any Contract relating to the disposition or acquisition, directly or indirectly (by merger, sale of stock, sale of assets, or otherwise), by the Parent or any of its Subsidiaries after the date of this Agreement of assets or capital stock or other equity interests of any Person;

 

(vi) any Contract that grants any right of first refusal, right of first offer, or similar right with respect to any material assets, rights, or properties of the Parent or any of its Subsidiaries;

 

(vii) any Contract that contains any provision that requires the purchase of all or a material portion of the Parent’s or any of its Subsidiaries’ requirements for a given product or service from a given third party, which product or service is material to the Parent and its Subsidiaries, taken as a whole;

 

(viii) any Contract that obligates the Parent or any of its Subsidiaries to conduct business on an exclusive or preferential basis or that contains a “most favored nation” or similar covenant with any third party or upon consummation of the Merger will obligate Parent, the Surviving Corporation, or any of their respective Subsidiaries to conduct business on an exclusive or preferential basis or that contains a “most favored nation” or similar covenant with any third party;

 

 

(ix) any partnership, joint venture, limited liability company agreement, or similar Contract relating to the formation, creation, operation, management, or control of any material joint venture, partnership, or limited liability company, other than any such Contract solely between the Parent and its wholly owned Subsidiaries or among the Parent’s wholly owned Subsidiaries;

 

(x) any mortgages, indentures, guarantees, loans, or credit agreements, security agreements, or other Contracts, in each case relating to indebtedness for borrowed money, whether as borrower or lender, in each case in excess of $100,000, other than (A) accounts receivables and payables, and (B) loans to direct or indirect wholly owned Subsidiaries of the Parent;

 

(xi) any employee collective bargaining agreement or other Contract with any labor union;

 

(xii) any Parent IP Agreement, other than licenses for shrinkwrap, clickwrap, or other similar commercially available off-the-shelf software that has not been modified or customized by a third party for the Parent or any of its Subsidiaries;

 

(xiii) any other Contract under which the Parent or any of its Subsidiaries is obligated to make payment or incur costs in excess of $100,000 in any year and which is not otherwise described in clauses (i)–(xii) above;

 

(xiv) any Contact related to a real property lease to which Parent or any of its Subsidiaries is a party or otherwise bound); or

 

(xv) any Contract which is not otherwise described in clauses (i)-(xiv) above that is material to the Parent and its Subsidiaries, taken as a whole.

 

(b) Schedule of Material Contracts; Documents. Section 5.10(b) of the Parent Disclosure Schedule sets forth a true and complete list as of the date hereof of all Parent Material Contracts. The Parent has made available to Company correct and complete copies of all Parent Material Contracts, including any amendments thereto.

 

(c) No Breach. (i) All of the Parent Material Contracts are legal, valid, and binding on the Parent or its applicable Subsidiary, enforceable against it in accordance with its terms, and is in full force and effect; (ii) neither the Parent nor any of its Subsidiaries nor, to the Knowledge of the Parent, any third party has violated any provision of, or failed to perform any obligation required under the provisions of, any Parent Material Contract; and (iii) neither the Parent nor any of its Subsidiaries nor, to the Knowledge of the Parent, any third party is in breach or default, or has received written notice of breach or default, of any Parent Material Contract. No event has occurred that, with notice or lapse of time or both, would constitute such a breach or default pursuant to any Parent Material Contract by the Parent or any of its Subsidiaries, or, to the Knowledge of the Parent, any other party thereto, and, as of the date of this Agreement, neither the Parent nor any of its Subsidiaries has received written notice of the foregoing or from the counterparty to any Parent Material Contract (or, to the Knowledge of the Parent, any of such counterparty’s Affiliates) regarding an intent to terminate, cancel, or modify any Parent Material Contract (whether as a result of a change of control or otherwise).

 

 

5.8 Absence of Changes. Since the Parent Balance Sheet Date, except in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, the business of the Parent and each of its Subsidiaries has been conducted in the ordinary course of business consistent with past practice and there has not been or occurred any (i) Parent Material Adverse Effect or any event, condition, change, or effect that could reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect, or (ii) any event, condition, action, or effect that, if taken during the period from the date of this Agreement through the Effective Time, would constitute a breach of Section 6.2.

 

5.9 Tax Matters.

 

(a) Tax Returns and Payment of Taxes. Except as set forth on Schedule 5.9, the Parent and each of its Subsidiaries have duly and timely filed or caused to be filed (taking into account any valid extensions) all material Tax Returns required to be filed by them. Such Tax Returns are true, complete, and correct in all material respects. Neither the Parent nor any of its Subsidiaries is currently the beneficiary of any extension of time within which to file any Tax Return other than extensions of time to file Tax Returns obtained in the ordinary course of business consistent with past practice. All material Taxes due and owing by the Parent or any of its Subsidiaries (whether or not shown on any Tax Return) have been timely paid or, where payment is not yet due, the Parent has made an adequate provision for such Taxes in the Parent’s financial statements included in the Parent SEC Documents (in accordance with GAAP). The Parent’s most recent financial statements included in the Parent SEC Documents reflect an adequate reserve (in accordance with GAAP) for all material Taxes payable by the Parent and its Subsidiaries through the date of such financial statements. Neither the Parent nor any of its Subsidiaries has incurred any material Liability for Taxes since the date of the Parent’s most recent financial statements included in the Parent SEC Documents outside of the ordinary course of business or otherwise inconsistent with past practice.

 

(b) Availability of Tax Returns. The Parent has made available to the Company complete and accurate copies of all federal, state, local, and foreign income, franchise, and other material Tax Returns filed by or on behalf of the Parent or its Subsidiaries for any Tax period ending after December 31, 2020.

 

(c) Withholding. The Parent and each of its Subsidiaries have withheld and timely paid each material Tax required to have been withheld and paid in connection with amounts paid or owing to any Parent Employee, creditor, customer, stockholder, or other party (including, without limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of the Code or similar provisions under any state, local, and foreign Laws), and materially complied with all information reporting and backup withholding provisions of applicable Law.

 

 

(d) Liens. There are no Liens for Taxes upon the assets of the Parent or any of its Subsidiaries other than for current Taxes not yet due and payable or for Taxes that are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP has been made in the Parent’s most recent financial statements included in the Parent SEC Documents.

 

(e) Tax Deficiencies and Audits. No deficiency for any material amount of Taxes which has been proposed, asserted, or assessed in writing by any taxing authority against the Parent or any of its Subsidiaries remains unpaid. There are no waivers or extensions of any statute of limitations currently in effect with respect to Taxes of the Parent or any of its Subsidiaries. There are no audits, suits, proceedings, investigations, claims, examinations, or other administrative or judicial proceedings ongoing or pending with respect to any material Taxes of the Parent or any of its Subsidiaries.

 

(f) Tax Jurisdictions. No claim has ever been made in writing by any taxing authority in a jurisdiction where the Parent and its Subsidiaries do not file Tax Returns that the Parent or any of its Subsidiaries is or may be subject to Tax in that jurisdiction.

 

(g) Tax Rulings. Neither the Parent nor any of its Subsidiaries has requested or is the subject of or bound by any private letter ruling, technical advice memorandum, or similar ruling or memorandum with any taxing authority with respect to any material Taxes, nor is any such request outstanding.

 

(h) Consolidated Groups, Transferee Liability, and Tax Agreements. Neither the Parent nor any of its Subsidiaries: (i) has been a member of a group filing Tax Returns on a consolidated, combined, unitary, or similar basis; (ii) has any material liability for Taxes of any Person (other than the Parent or any of its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any comparable provision of local, state, or foreign Law), as a transferee or successor, by Contract, or otherwise; or (iii) is a party to, bound by or has any material liability under any Tax sharing, allocation, or indemnification agreement or arrangement.

 

(i) Change in Accounting Method. Neither the Parent nor any of its Subsidiaries has agreed to make, nor is it required to make, any material adjustment under Section 481(a) of the Code or any comparable provision of state, local, or foreign Tax Laws by reason of a change in accounting method or otherwise.

 

(j) Post-Closing Tax Items. The Parent and its Subsidiaries will not be required to include any material item of income in, or exclude any material item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any: (i) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign income Tax Law) executed on or prior to the Closing Date; (ii) installment sale or open transaction disposition made on or prior to the Closing Date; (iii) prepaid amount received on or prior to the Closing Date; (iv) any income under Section 965(a) of the Code, including as a result of any election under Section 965(h) of the Code with respect thereto; or (v) election under Section 108(i) of the Code.

 

(k) Ownership Changes. Without regard to this Agreement, neither the Parent nor any of its Subsidiaries has undergone an “ownership change” within the meaning of Section 382 of the Code.

 

 

(l) Section 355. Neither the Parent nor any of its Subsidiaries has been a “distributing corporation” or a “controlled corporation” in connection with a distribution described in Section 355 of the Code.

 

(m) Reportable Transactions. Neither the Parent nor any of its Subsidiaries has been a party to, or a material advisor with respect to, a “reportable transaction” within the meaning of Section 6707A(c)(1) of the Code and Treasury Regulations Section 1.6011-4(b).

 

(n) Intended Tax Treatment. Neither the Parent nor any of its Subsidiaries has taken or agreed to take any action, and to the Knowledge of the Parent there exists no fact or circumstance, that is reasonably likely to prevent or impede the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code.

 

5.10 Related Person Transactions. There are, and since January 1, 2016, there have been, no Contracts, transactions, arrangements, or understandings between the Parent or any of its Subsidiaries, on the one hand, and any Affiliate (including any director, officer, or employee or any of their respective family members) thereof or any holder of 5% or more of the shares of the Parent’s capital stock (or any of their respective family members), but not including any wholly owned Subsidiary of the Parent, on the other hand, that would be required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC that has not been disclosed in the Parent SEC Documents.

 

5.11 Employee Benefit Plans; ERISA.

 

(a) Schedule. Section 5.11(a) of the Parent Disclosure Schedule contains a true and complete list, as of the date hereof, of each plan, program, policy, agreement, collective bargaining agreement, or other arrangement providing for compensation, severance, deferred compensation, performance awards, stock or stock-based awards, health, dental, retirement, life insurance, death, accidental death & dismemberment, disability, fringe, or wellness benefits, or other employee benefits or remuneration of any kind, including each employment, termination, severance, retention, change in control, or consulting or independent contractor plan, program, arrangement, or agreement, in each case whether written or unwritten or otherwise, funded or unfunded, insured or self-insured, including each “employee benefit plan,” within the meaning of Section 3(3) of ERISA, whether or not subject to ERISA, which is or has been sponsored, maintained, contributed to, or required to be contributed to, by the Parent or any of its Subsidiaries for the benefit of any current or former employee, independent contractor, consultant, or director of the Parent or any of its Subsidiaries (each, a “Parent Employee”), or with respect to which the Parent or any Parent ERISA Affiliate has or may have any Liability (collectively, the “Parent Employee Plans”).

 

(b) Documents. The Parent has made available to Company correct and complete copies (or, if a plan or arrangement is not written, a written description) of all Parent Employee Plans and amendments thereto, and, to the extent applicable: (i) all related trust agreements, funding arrangements, insurance contracts, and service provider agreements now in effect or required in the future as a result of the transactions contemplated by this Agreement or otherwise; (ii) the most recent determination letter received regarding the tax-qualified status of each Parent Employee Plan; (iii) the most recent financial statements for each Parent Employee Plan; (iv) the Form 5500 Annual Returns/Reports and Schedules for the most recent plan year for each Parent Employee Plan; (v) the current summary plan description and any related summary of material modifications and, if applicable, summary of benefits and coverage, for each Parent Employee Plan; and (vi) all actuarial valuation reports related to any Parent Employee Plans.

 

 

(c) Compliance. Each Parent Employee Plan and related trust has been established, administered, and maintained in accordance with its terms and in compliance with all applicable Laws (including ERISA and the Code). Nothing has occurred with respect to any Parent Employee Plan that has subjected or could subject the Parent or any of its Affiliates, to a civil action, penalty, surcharge, or Tax under applicable Law or which would jeopardize the previously-determined qualified status of any Parent Employee Plan. All benefits, contributions, and premiums relating to each Parent Employee Plan have been timely paid in accordance with the terms of such Parent Employee Plan and all applicable Laws and accounting principles. Benefits accrued under any unfunded Parent Employee Plan have been paid, accrued, or adequately reserved for to the extent required by GAAP.

 

(d) The Parent has not incurred and does not reasonably expect to incur: (i) any Liability under Title I or Title IV of ERISA, any related provisions of the Code, or applicable Law relating to any Parent Employee Plan; or (ii) any Liability to the Pension Benefit Guaranty Corporation. No complete or partial termination of any Parent Employee Plan has occurred or is expected to occur.

 

(e) The Parent has not now or at any time within the previous six years contributed to, sponsored, or maintained: (i) any “multiemployer plan” as defined in Section 3(37) of ERISA; (ii) any “single-employer plan” as defined in Section 4001(a)(15) of ERISA; (iii) any “multiple employer plan” as defined in Section 413(c) of the Code; (iv) any “multiple employer welfare arrangement” as defined in Section 3(40) of ERISA; (v) a leveraged employee stock ownership plan described in Section 4975(e)(7) of the Code; or (vi) any other Parent Employee Plan subject to required minimum funding requirements.

 

(f) Other than as required under Sections 601 to 608 of ERISA or other applicable Law, no Parent Employee Plan provides post-termination or retiree welfare benefits to any individual for any reason.

 

(g) Neither the execution of this Agreement nor any of the transactions contemplated by this Agreement will, either alone or in combination with any other event: (i) entitle any current or former director, officer, employee, independent contractor, or consultant of the Parent or its Subsidiaries to any severance pay, increase in severance pay, or other payment; (ii) accelerate the time of payment, funding, or vesting, or increase the amount of compensation (including stock-based compensation) due to any such individual; (iii) limit or restrict the right of the Parent to amend or terminate any Parent Employee Plan; (iv) increase the amount payable under any Parent Employee Plan; (v) result in any “excess parachute payments” within the meaning of Section 280G(b) of the Code; or (vi) require a “gross-up” or other payment to any “disqualified individual” within the meaning of Section 280G(c) of the Code.

 

 

(h) No Post-Employment Obligations. No Parent Employee Plan provides post-termination or retiree health benefits to any person for any reason, except as may be required by COBRA or other applicable Law, and neither the Parent nor any Parent ERISA Affiliate has any Liability to provide post-termination or retiree health benefits to any person or ever represented, promised, or contracted to any Parent Employee (either individually or to Parent Employees as a group) or any other person that such Parent Employee(s) or other person would be provided with post-termination or retiree health benefits, except to the extent required by COBRA or other applicable Law.

 

(i) Section 409A Compliance. Each Parent Employee Plan that is subject to Section 409A of the Code has been operated in compliance with such section and all applicable regulatory guidance (including, without limitation, proposed regulations, notices, rulings, and final regulations).

 

(j) Employment Law Matters. The Parent and each of its Subsidiaries: (i) is in compliance with all applicable Laws and agreements regarding hiring, employment, termination of employment, plant closing and mass layoff, employment discrimination, harassment, retaliation, and reasonable accommodation, leaves of absence, terms and conditions of employment, wages and hours of work, employee classification, employee health and safety, use of genetic information, leasing and supply of temporary and contingent staff, engagement of independent contractors, including proper classification of same, payroll taxes, and immigration with respect to Parent Employees and contingent workers; and (ii) is in compliance with all applicable Laws relating to the relations between it and any labor organization, trade union, work council, or other body representing Parent Employees.

 

(k) Labor. Neither the Parent nor any of its Subsidiaries are bound by any collective bargaining or labor union agreements. Over the past five years, there have been no labor disputes, strikes, or slowdowns involving the Parent Employees, whether based in the U.S. or internationally. No Parent Employees are union-represented, and the Parent is unaware of any ongoing unionization efforts. No significant employment-related legal claims or investigations are pending or anticipated with respect to the Parent, its Subsidiaries or any Parent Employees, including those concerning discrimination, harassment, labor practices, or other employment Laws.

 

5.12 Environmental Laws.

 

(a) The terms: (i) “Environmental Laws” means all Laws, now or hereafter in effect, in each case as amended or supplemented from time to time, relating to the regulation and protection of human health, safety, the environment, and natural resources, including any federal, state, or local transfer of ownership notification or approval statutes; and (ii) “Hazardous Substances” means: (A) “hazardous materials,” “hazardous wastes,” “hazardous substances,” “industrial wastes,” or “toxic pollutants,” as such terms are defined under any Environmental Laws; (B) any other hazardous or radioactive substance, contaminant, or waste; and (C) any other substance with respect to which any Environmental Law or Governmental Authority requires environmental investigation, regulation, monitoring, or remediation.

 

(b) Each of the Parent and its Subsidiaries has complied, and is now complying, with all Environmental Laws. Neither the Parent nor any of its Subsidiaries has received notice from any Person that the Parent, its Subsidiaries, its business or assets, or any real property currently or formerly owned, leased, or used by the Parent or its Subsidiaries is or may be in violation of any Environmental Law or any applicable Law regarding Hazardous Substances.

 

 

(c) There has not been any spill, leak, discharge, injection, escape, leaching, dumping, disposal, or release of any kind of any Hazardous Substances in violation of any Environmental Law: (i) with respect to the business or assets of the Parent or its Subsidiaries; or (ii) at, from, in, adjacent to, or on any real property currently or formerly owned, leased, or used by the Parent or its Subsidiaries. There are no Hazardous Substances in, on, about, or migrating to any real property currently or formerly owned, leased, or used by the Parent or its Subsidiaries, and such real property is not affected in any way by any Hazardous Substances.

 

5.13 Litigation. There is no Action pending, or to the Knowledge of the Parent, threatened against the Parent or any of its Subsidiaries or any of their respective properties or assets or, to the Knowledge of the Parent, any officer or director of the Parent or any of its Subsidiaries in their capacities as such. None of the Parent or any of its Subsidiaries or any of their respective properties or assets is subject to any Governmental Order, whether temporary, preliminary, or permanent, which would reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. Except as set forth on Schedule 5.13, to the Knowledge of the Parent, there are no SEC inquiries or investigations, other governmental inquiries or investigations, or internal investigations pending or, to the Knowledge of the Parent, threatened, in each case regarding any accounting practices of the Parent or any of its Subsidiaries or any malfeasance by any officer or director of the Parent.

 

5.14 Anti-Corruption. Since January 1, 2016, none of the Parent, any of its Subsidiaries or any director, officer or, to the Knowledge of the Parent, employee or agent of the Parent or any of its Subsidiaries has: (i) used any funds for unlawful contributions, gifts, entertainment, or other unlawful payments relating to an act by any Governmental Authority; (ii) made any unlawful payment to any foreign or domestic government official or employee or to any foreign or domestic political party or campaign or violated any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iii) made any other unlawful payment under any applicable Law relating to anti-corruption, bribery, or similar matters. Since January 1, 2016, neither the Parent nor any of its Subsidiaries has disclosed to any Governmental Authority that it violated or may have violated any Law relating to anti-corruption, bribery, or similar matters. To the Knowledge of the Parent, no Governmental Authority is investigating, examining, or reviewing the Parent’s compliance with any applicable provisions of any Law relating to anti-corruption, bribery, or similar matters.

 

5.15 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement or the Ancillary Documents based upon arrangements made by or on behalf of the Parent or Merger Sub.

 

5.16 Ownership of Company Capital Stock. Neither the Parent nor any of its Affiliates or Associates “owns” (as defined in Section 203(c)(9) of the DGCL) any shares of Company Capital Stock.

 

 

5.17 Merger Sub. Merger Sub (a) has engaged in no business activities other than those related to the transactions contemplated by this Agreement, and (b) is a direct, wholly owned Subsidiary of the Parent.

 

ARTICLE VI

 

COVENANTS

 

6.1 Conduct of Business Prior to the Closing. During the period from the date of this Agreement until the earlier of the termination of this Agreement (in accordance with its terms) or the Effective Time, the Company shall, except as expressly permitted or contemplated by this Agreement, as set forth in Section 6.1 of the Company Disclosure Schedule, as required by applicable Law, or with the prior written consent of the Parent (which consent shall not be unreasonably withheld, conditioned, or delayed): (a) use commercially reasonable efforts to conduct the Company’s business in the ordinary course of business in all material respects; and (b) use commercially reasonable efforts to maintain and preserve intact the current organization, business and franchise of the Company and to preserve its rights, franchises, goodwill and relationships with its Company Employees, customers, lenders, suppliers, regulators and others having business relationships with the Company. From the date hereof until the Closing Date, except as otherwise provided in this Agreement, set forth in Section 6.1 of the Company Disclosure Schedules, or consented to in writing by the Parent (which consent shall not be unreasonably withheld, conditioned, or delayed), the Company shall not take any action that would cause any of the changes, events, or conditions described in Section 4.8 to occur), including the following:

 

(a) to amend the Company Charter or its By-Laws in a manner that would adversely affect the Parent or the holders of the Parent Common Stock relative to the holders of Company Capital Stock;

 

(b) issue, sell, pledge, dispose of, or encumber any Company Securities;

 

(c) to acquire, by merger, consolidation, acquisition of stock or assets, or otherwise, any business or Person or division thereof or make any loans, advances, or capital contributions to or investments in any Person, in each case that would reasonably be expected to prevent, impede, or materially delay the consummation of the Merger or other transactions contemplated by this Agreement;

 

(d) adopt or effect a plan of complete or partial liquidation, dissolution, restructuring, recapitalization, or other reorganization;

 

(e) make, change, or revoke any material Tax election, fail to pay any income or other material Tax as such Tax becomes due and payable (subject to good faith disputes with respect to such Taxes), file any amendment making any material change to any Tax Return, settle or compromise any income or other material Tax liability, enter into any Tax allocation, sharing, indemnification or other similar agreement or arrangement, request or consent to any extension or waiver of any limitation period with respect to any claim or assessment for any income or other material Taxes (other than pursuant to an extension of time to file any Tax Return granted in the ordinary course of business of not more than six months), or adopt or change any material accounting method in respect of Taxes;

 

 

(f) engage in any transaction with, or enter into any agreement, arrangement, or understanding with, any Affiliate of the Parent, the Company, or other Person covered by Item 404 of Regulation S-K promulgated by the SEC that would be required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC; or

 

(g) to amend the Company Asset Purchase Agreement in a manner that results in a Company Material Adverse Effect.

 

6.2 Conduct of the Business of the Parent. During the period from the date of this Agreement until the earlier of the termination of this Agreement (in accordance with its terms) or the Effective Time, the Parent shall, and shall cause each of its Subsidiaries, except as expressly permitted or contemplated by this Agreement, as required by applicable Law, or with the prior written consent of the Company (which consent shall not be unreasonably withheld, conditioned, or delayed), to conduct its business in the ordinary course of business. Until the Preferred Conversion Date, the Parent business shall be operated within the Parent and the Company business shall be operated within the Surviving Corporation. From and after the Closing, the Parent Board will authorize the Persons set forth on Exhibit G to manage the Company business and the Parent business, respectively. Without limiting the generality of the foregoing, between the date of this Agreement and the Preferred Conversion Date, except as otherwise expressly permitted or contemplated by this Agreement, or as required by applicable Law, the Parent shall not, nor shall it permit any of its Subsidiaries to, without the prior written consent of the Company (which consent shall not be unreasonably withheld, conditioned, or delayed):

 

(a) amend the Parent Charter or its By-Laws in a manner that would adversely affect the Company or the holders of Company Capital Stock relative to the other holders of Parent Common Stock;

 

(b) reclassify any Parent Securities or Parent Subsidiary Securities in a manner that would adversely affect the Company or the holders of Company Capital Stock relative to the other holders of Parent Common Stock;

 

(c) incur any new liability or obligation in excess of the total amount of $250,000;

 

(d) acquire, by merger, consolidation, acquisition of stock or assets, or otherwise, any business or Person or division thereof or make any loans, advances, or capital contributions to or investments in any Person, in each case that would reasonably be expected to prevent, impede, or materially delay the consummation of the Merger or other transactions contemplated by this Agreement;

 

(e) adopt or effect a plan of complete or partial liquidation, dissolution, restructuring, recapitalization, or other reorganization;

 

 

(f) make, change or revoke any material Tax election, fail to pay any income or other material Tax as such Tax becomes due and payable (subject to good faith disputes with respect to such Taxes), file any amendment making any material change to any Tax Return, settle or compromise any income or other material Tax liability, enter into any Tax allocation, sharing, indemnification or other similar agreement or arrangement, request or consent to any extension or waiver of any limitation period with respect to any claim or assessment for any income or other material Taxes (other than pursuant to an extension of time to file any Tax Return granted in the ordinary course of business of not more than six months), or adopt or change any material accounting method in respect of Taxes;

 

(g) engage in any transaction with, or enter into any agreement, arrangement or understanding with, any Affiliate of the Company or other Person covered by Item 404 of Regulation S-K promulgated by the SEC that would be required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC;

 

(h) take any action that would cause any of the changes, events or conditions described in Section 5.8 to occur; or

 

(i) agree or commit to do any of the foregoing.

 

6.3 Access to Information; Confidentiality.

 

(a) Access to Information. From the date of this Agreement until the earlier to occur of the Effective Time or the termination of this Agreement in accordance with the terms set forth in Article VIII, each Party shall, and shall cause its Subsidiaries to, afford to the other Party’s Representatives reasonable access, at reasonable times and in a manner as shall not unreasonably interfere with the business or operations of the Party giving such access (or any Subsidiary thereof), to the officers, employees, accountants, agents, properties, offices, and other facilities and to all books, records, contracts, and other assets of such Party and its Subsidiaries, and such Party shall, and shall cause its Subsidiaries to, furnish promptly to the other Party such other information concerning the business and properties of such Party and its Subsidiaries as the other Party may reasonably request from time to time. None of the Company, the Parent nor any of their respective Subsidiaries shall be required to provide access to or disclose information where such access or disclosure would jeopardize the protection of attorney-client privilege or contravene any Law (it being agreed that the parties shall use their reasonable commercial efforts to cause such information to be provided in a manner that would not result in such jeopardy or contravention).

 

(b) The Parties hereby agree that all information provided to the other Party or the other Parties’ Representatives in connection with this Agreement and the consummation of the transactions contemplated hereby, including any information obtained pursuant to Section 6.3(a), shall be treated in accordance with the Confidentiality Agreement, dated August 31, 2023, between the Parent and the Company (the “Confidentiality Agreement”). The Parent and the Company shall comply with, and shall cause their respective Representatives to comply with, all of their respective confidentiality obligations under the Term Sheet, which shall survive the termination of this Agreement in accordance with the terms set forth therein.

 

 

6.4 Non-Solicitation. The Parent shall, and shall direct and cause its respective Subsidiaries and its or its respective Subsidiaries’ directors, officers, employees, investment bankers, attorneys, accountants, consultants, or other agents or advisors (with respect to any Person, the foregoing Persons are referred to herein as such Person’s “Representatives”) not to, directly or indirectly, solicit, initiate, or knowingly take any action to facilitate or encourage the submission of any Takeover Proposal or the making of any proposal that could reasonably be expected to lead to any Takeover Proposal, or (i) conduct or engage in any discussions or negotiations with, disclose any non-public information relating to the Parent or any of its respective Subsidiaries to, afford access to the business, properties, assets, books, or records of the Parent or any of its respective Subsidiaries to, or knowingly assist, participate in, facilitate, or encourage any effort by, any third party (or its potential sources of financing) that is seeking to make, or has made, any Takeover Proposal, (ii) (A) amend or grant any waiver or release under any standstill or similar agreement with respect to any class of equity securities of the Parent, as applicable, or any of its respective Subsidiaries, or (B) approve any transaction under, or any third party becoming an “interested stockholder” under, Section 203 of the DGCL, or (iii) enter into any agreement in principle, letter of intent, term sheet, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement, or other Contract relating to any Takeover Proposal (each, an “Acquisition Agreement”). The Parent shall, and shall cause its respective Subsidiaries and their and their Subsidiaries’ Representatives to cease immediately and cause to be terminated any and all existing activities, discussions, or negotiations, if any, with any third party conducted prior to the date hereof with respect to any Takeover Proposal and shall use its reasonable best efforts to cause any such third party (or its agents or advisors) in possession of non-public information in respect of the Parent and any of its respective Subsidiaries that was furnished by or on behalf of the Parent or its Subsidiaries to return or destroy (and confirm destruction of) all such information. Without limiting the foregoing, it is understood that any violation of or the taking of actions inconsistent with the restrictions set forth in this Section 6.4 by any Representative of the Parent or its Subsidiaries, whether or not such Representative is purporting to act on behalf of the Parent or any of its Subsidiaries, shall be deemed to be a breach of this Section 6.4 by the Parent.

 

6.5 Proxy Statement.

 

(a) Preparation and Filing. As promptly as practicable after the execution of this Agreement, but in no event later than 30 calendar days after the Closing Date, the parties shall cooperate to prepare, and the Parent shall cause to be filed with the SEC, the Proxy Statement, which will be used as a proxy statement for the Parent Stockholder Meeting with respect to the Parent Stockholder Matters. Each of the Parent and the Company shall furnish all information concerning it as may reasonably be requested by the other party in connection with such actions and the preparation of the Proxy Statement. The Parent covenants and agrees that the Proxy Statement, including any pro forma financial statements included therein (and the letter to stockholders, notice of meeting, and form of proxy included therewith) will (i) comply as to form in all material respects with the requirements of applicable U.S. federal securities laws and NRS 78, and not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.

 

 

(b) The Parent shall use commercially reasonable efforts to cause the Proxy Statement to be mailed to the Parent’s stockholders as promptly as practicable after the Proxy Statement has been filed with the SEC and either (i) the SEC has indicated that it does not intend to review the Proxy Statement or that its review of the Proxy Statement has been completed or (ii) at least ten (10) days shall have passed since the Proxy Statement was filed with the SEC without receiving any correspondence from the SEC commenting upon, or indicating that it intends to review, the Proxy Statement, all in compliance with applicable U.S. federal securities laws and NRS 78. If the Parent or the Company becomes aware of any event or information that, pursuant to the Securities Act or the Exchange Act, is required to be disclosed in an amendment or supplement to the Proxy Statement, as the case may be, then such party, as the case may be, shall file such amendment or supplement with the SEC to correct such Proxy Statement.

 

(c) The Company covenants and agrees that the information with regard to the Company provided by the Company to the Parent for inclusion in the Proxy Statement (including the Company Financial Statements and the pro-forma financial statements) will not, to the Company’s Knowledge, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make such information not misleading. Notwithstanding the foregoing, Company makes no covenant, representation, or warranty with respect to statements with regard to the Parent. The Company and its legal counsel shall be given reasonable opportunity to review and comment on the Proxy Statement, including all amendments and supplements thereto, prior to the filing thereof with the SEC, and on the response to any comments of the SEC on the Proxy Statement, prior to the filing thereof with the SEC. Each of the Parent and the Company shall use commercially reasonable efforts to cause the Proxy Statement to comply with the applicable rules and regulations promulgated by the SEC and to respond promptly to any comments of the SEC or its staff.

 

(d) If the Parent, Merger Sub, or the Company become aware (i) of any event or information that, pursuant to the Exchange Act, should be disclosed in an amendment or supplement to the Proxy Statement, or (ii) that any information in the Proxy Statement is or has become false or misleading in any material respect, then such party shall promptly inform the other parties thereof and shall cooperate with such other parties in filing an amendment or supplement with the SEC including such event or information or correcting such information and, if appropriate, the Parent shall mail such amendment or supplement to the Parent’s stockholders.

 

(e) Contents of Proxy Statement. The Proxy Statement shall include, among other matters required by applicable law and regulations, notice of the Parent Stockholder Meeting for the purpose of seeking the approval of the stockholders of the Parent Stockholder Matters and any other transactions contemplated by this Agreement for which stockholder approval is required.

 

(f) Cooperation. The parties shall reasonably cooperate with each other and provide, and require their respective Representatives to provide, the other party and its Representatives, with all true, correct, and complete information regarding such party or its Subsidiaries that is required by Law to be included in the Proxy Statement or reasonably requested by the other party to be included in the Proxy Statement.

 

6.6 Parent Stockholders Meeting; Approval by Sole Stockholder of Merger Sub.

 

(a) Parent Stockholders Meeting. The Parent shall take all action necessary to duly call, give notice of, convene, and hold the Parent Stockholders Meeting as soon as reasonably practicable, and, in connection therewith, the Parent shall mail the Proxy Statement to the holders of Parent Common Stock in advance of the Parent Stockholders Meeting. The Proxy Statement shall include the Parent Board Recommendation. The parties will use their commercial best efforts to hold the Parent Stockholder Meeting within 120 days after the Closing Date, provided that such stockholder meeting date shall be subject to delay if reviewed or delayed by the SEC.

 

 

(b) Subject to Section 6.4 hereof, the Parent shall take all action necessary under applicable Law to (i) solicit from the holders of Parent Common Stock proxies in favor of the approval of the Parent Stockholder Matters, and (ii) take all other actions necessary or advisable to secure the Requisite Parent Vote with respect to the Parent Stockholder Matters. The Parent shall keep the Company updated with respect to proxy solicitation results as requested by the Company. Once the Parent Stockholders Meeting has been called and noticed, the Parent shall not postpone or adjourn the Parent Stockholders Meeting without the consent of Company (other than (A) in order to obtain a quorum of its stockholders, or (B) as reasonably determined by the Parent to comply with applicable Law). The Parent Stockholder Meeting shall be held as promptly as practicable after the date that the definitive Proxy Statement is filed with the SEC, and in any event no later than one hundred and eighty (180) days after the Closing Date. The Parent shall take reasonable measures to ensure that all proxies solicited in connection with the Parent Stockholder Meeting are solicited in compliance with all applicable Law. Notwithstanding anything to the contrary contained herein, if, on the date of the Parent Stockholder Meeting, or a date preceding the date on which the Parent Stockholder Meeting is scheduled, the Parent reasonably believes that (i) it will not receive proxies sufficient to obtain the Parent Stockholder Approval, whether or not a quorum would be present or (ii) it will not have sufficient shares of Parent Common Stock represented (whether in person or by proxy) to constitute a quorum necessary to conduct the business of the Parent Stockholder Meeting, the Parent may postpone or adjourn, or make one or more successive postponements or adjournments of, the Parent Stockholder Meeting as long as the date of the Parent Stockholder Meeting is not postponed or adjourned more than an aggregate of thirty (30) days in connection with any postponements or adjournments. The Parent agrees that, subject to the Parent Board’s compliance with its fiduciary duties under applicable Law, (i) the Parent Board shall recommend that the holders of Parent Common Stock vote to approve the Parent Stockholder Matters and shall use commercially reasonable efforts to solicit such approval within the time frame set forth in this Section, and (ii) the Proxy Statement shall include a statement to the effect that the Parent Board recommends that Parent’s stockholders vote to approve the Parent Stockholder Matters.

 

(c) If the Parent Stockholder Approval is not obtained by the first Parent Stockholder Meeting, the Parent shall, during the period beginning on such date and continuing 180 days thereafter, cause an additional Parent Stockholder Meeting to be held every thirty (30) days until the Parent Stockholder Approval is obtained.

 

(d) Approval by Sole Stockholder. Immediately following the execution and delivery of this Agreement, the Parent, as sole stockholder of Merger Sub, shall adopt this Agreement and approve the Merger, in accordance with the DGCL.

 

 

(e) Notices of Certain Events. Subject to applicable Law, the Company shall notify the Parent and Merger Sub, and the Parent and Merger Sub shall notify the Company, promptly of (a) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement, (b) any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement, and (c) any event, change, or effect between the date of this Agreement and the Effective Time which individually or in the aggregate causes or is reasonably likely to cause or constitute (i) a material breach of any of its representations, warranties, or covenants contained herein, or (ii) the failure of any of the conditions set forth in Article VII of this Agreement to be satisfied; provided that, any failure to give notice in accordance with the foregoing with respect to any breach shall not be deemed to constitute a violation of this Section 6.7 or the failure of any condition set forth in Article VII to be satisfied, or otherwise constitute a breach of this Agreement by the party failing to give such notice, in each case unless the underlying breach would independently result in a failure of the conditions set forth in Article VII to be satisfied; and provided, further, that the delivery of any notice pursuant to this Section 6.6 shall not cure any breach of, or noncompliance with, any other provision of this Agreement or limit the remedies available to the party receiving such notice.

 

6.7 Directors’ and Officers’ Indemnification.

 

(a) Indemnification. The Parent and Merger Sub agree that all rights to indemnification, advancement of expenses, and exculpation by the Company and the Parent now existing in favor of each Person who is now, or has been at any time prior to the date hereof or who becomes prior to the Effective Time an officer or director of the Company or any of its Subsidiaries or an officer or director of the Parent or any of its Subsidiaries, respectively, (each an “Indemnified Party”) as provided in the Company Governing Documents or the Parent Governing Documents, as the case may be, in each case as in effect on the date of this Agreement, or pursuant to any other Contracts in effect on the date hereof and disclosed in Schedule 4.11 of the Company Disclosure Schedule or in Section 5.7 of the Parent Disclosure Schedule, shall be assumed by the Parent and the Surviving Corporation in the Merger, without further action, at the Effective Time and shall survive the Merger and shall remain in full force and effect in accordance with their terms. For a period of six years from the Effective Time, the Parent and the Surviving Corporation shall, and the Parent shall cause the Surviving Corporation to, cause the governing documents of the Parent and the Surviving Corporation, respectively, to contain provisions with respect to indemnification, advancement of expenses, and exculpation that are at least as favorable to the Indemnified Parties as the indemnification, advancement of expenses, and exculpation provisions set forth in the Parent Governing Documents and the Company Governing Documents, respectively, as of the date of this Agreement. During such six-year period, such provisions may not be repealed, amended, or otherwise modified in any manner except as required by applicable Law.

 

(b) Insurance. The Parent and the Surviving Corporation shall, and the Parent shall cause the Surviving Corporation to (i) obtain as of the Effective Time “tail” insurance policies with a claims period of six years from the Effective Time with at least the same coverage and amounts and containing terms and conditions that are not less advantageous to the Indemnified Parties, in each case with respect to claims arising out of or relating to events which occurred before or at the Effective Time (including in connection with the transactions contemplated by this Agreement).

 

(c) Survival. The obligations of the Parent, Merger Sub, and the Surviving Corporation under this Section 6.8 shall survive the consummation of the Merger and shall not be terminated or modified in such a manner as to adversely affect any Indemnified Party to whom this 6.8 applies without the consent of such affected Indemnified Party (it being expressly agreed that the Indemnified Parties to whom this Section 6.8 applies shall be third party beneficiaries of this Section 6.8, each of whom may enforce the provisions of this Section 6.8).

 

 

(d) Assumptions by Successors and Assigns; No Release or Waiver. If the Parent, the Surviving Corporation, or any of their respective successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity in such consolidation or merger, or (ii) transfers all or substantially all of its properties and assets to any Person, then, and in either such case, proper provision shall be made so that the successors and assigns of the Parent or the Surviving Corporation, as the case may be, shall assume all of the obligations set forth in this Section 6.8. The agreements and covenants contained herein shall not be deemed to be exclusive of any other rights to which any Indemnified Party is entitled, whether pursuant to Law, Contract, or otherwise. Nothing in this Agreement is intended to, shall be construed to, or shall release, waive, or impair any rights to directors’ and officers’ insurance claims under any policy that is or has been in existence with respect to the Company or its officers, directors, and employees, it being understood and agreed that the indemnification provided for in this Section 6.8 is not prior to, or in substitution for, any such claims under any such policies.

 

6.8 Governmental and Other Third-Party Approval; Cooperation and Notification. Upon the terms and subject to the conditions set forth in this Agreement (including those contained in this Section 6.8), each of the parties hereto shall, and shall cause its Subsidiaries to, use its reasonable commercial efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper, or advisable to consummate and make effective, and to satisfy all conditions to, as promptly as reasonably practicable (and in any event no later than the End Date), the Merger and the other transactions contemplated by this Agreement, including (i) the obtaining of all necessary Permits, waivers, and actions or nonactions from Government Authorities and the making of all necessary registrations, filings, and notifications (including filings with Government Authorities) and the taking of all steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any Government Authorities, (ii) the obtaining of all necessary consents or waivers from third parties, and (iii) the execution and delivery of any additional instruments necessary to consummate the Merger and to fully carry out the purposes of this Agreement. The Company and the Parent shall, subject to applicable Law, promptly (A) cooperate and coordinate with the other in the taking of the actions contemplated by clauses (i), (ii), and (iii) immediately above, and (B) supply the other with any information that may be reasonably required in order to effectuate the taking of such actions. Each party hereto shall promptly inform the other party or parties hereto, as the case may be, of any communication from any Government Authority regarding any of the transactions contemplated by this Agreement. If the Company, on the one hand, or the Parent or Merger Sub, on the other hand, receives a request for additional information or documentary material from any Government Authority with respect to the transactions contemplated by this Agreement, then it shall use reasonable commercial efforts to make, or cause to be made, as soon as reasonably practicable and after consultation with the other party, an appropriate response in compliance with such request. If permitted by applicable Law and by any applicable Government Authority, provide the other party’s counsel with advance notice and the opportunity to attend and participate in any meeting with any Government Authority in respect of any filing made thereto in connection with the transactions contemplated by this Agreement.

 

 

6.9 Public Announcements. The initial press release with respect to this Agreement and the transactions contemplated hereby shall be a release mutually agreed to by the Company and the Parent which shall substantially in the form attached as Exhibit I hereunder. Thereafter, each of the Company and the Parent agrees that no public release, statement, announcement, or other disclosure concerning the Merger and the other transactions contemplated hereby shall be issued by any party without the prior written consent of the other party (which consent shall not be unreasonably withheld, conditioned, or delayed), except as may be required by (a) applicable Law, (b) court process, (c) the rules or regulations of any applicable United States securities exchange, or (d) any Governmental Authority to which the relevant party is subject or submits; provided, in each such case, that the party making the release, statement, announcement, or other disclosure shall use its reasonable commercial efforts to allow the other party reasonable time to comment on such release, statement, announcement, or other disclosure in advance of such issuance. Notwithstanding the foregoing, the restrictions set forth in this Section 6.9 shall not apply to any release, statement, announcement, or other disclosure made with respect to the Merger and the other transactions contemplated hereby that is substantially similar (and identical in any material respect) to those in a previous release, statement, announcement, or other disclosure made by the Company or the Parent in accordance with this Section 6.9.

 

6.10 Section 368(a) of the Code. Each of the Company and the Parent shall (and the Company and the Parent shall cause their respective Subsidiaries to) use its reasonable commercial efforts to cause the Merger to qualify, and not take or fail to take any action which action (or failure to act) would reasonably be expected to prevent or impede the Merger from qualifying, as a “reorganization” within the meaning of Section 368(a) of the Code.

 

6.11 Stockholder Litigation. Prior to the Closing, the Parent shall conduct and control the settlement and defense of any stockholder litigation against the Parent, its Subsidiaries (or any of their respective directors) relating to this Agreement, the Merger and/or the transactions contemplated hereby; provided that (i) the Parent shall keep the Company apprised of any developments in connection with any such stockholder litigation, (ii) the Parent shall consult with the Company in connection with the defense and settlement of any such stockholder litigation and (iii) any settlement or other resolution of any such stockholder litigation shall be subject to the approval of the Company (in its reasonable discretion), provided further, for clarity, that any such stockholder litigation against the Parent and/or its Subsidiaries that has not been settled or resolved in accordance with this Section 6.11 prior to Closing shall be deemed a Parent Material Adverse Effect.

 

6.12 Post-Closing Parent Board. The parties shall take all necessary action so that, immediately after the Effective Time, (a) the post-Closing Parent Board is comprised of the individuals listed on Exhibit D hereto, which individuals shall serve as the Board of Directors following the Closing, and (b) the existing officers and the Persons listed in Exhibit G under the heading “Officers” shall be appointed, as applicable, to the positions of officers of Parent, as set forth therein, to serve in such positions effective as of the Effective Time until successors are duly appointed and qualified in accordance with the Parent Governing Documents and applicable Law.

 

 

6.13 Warrants Holders; Waivers. Prior to Closing, Parent shall obtain waivers from holders of at least eighty percent (80%) of the outstanding warrants (and any other similar instruments) outstanding as of October 26, 2023 (with any warrants that have been or are exercised before Closing to be deemed to having delivered waivers) (such holders, collectively, the “Warrants Holders”) to purchase Parent Securities (such warrants and other instruments, collectively, the “Warrants” and such waivers, the “Warrant Holder Waivers”), with respect to any fundamental transaction rights such Warrant Holders may have under any such Warrants, including any right to vote, consent, or otherwise approve or veto any of the transactions contemplated by this Agreement, including the Stockholder Matters, or any option to cause Parent to purchase any such Warrants from any Warrant Holders (or pay any other consideration to any Warrant Holders) in the event of a Fundamental Transaction.

 

6.14 Series D PIPE. The Parent and the Company shall, in coordination with each other, use their commercially reasonable efforts to consummate the Series D PIPE prior to or concurrently with the Closing or within sixty (60) days thereafter. The Parent will use the net proceeds from the Series D PIPE in the manner specified in the Series D PIPE offering materials.

 

6.15 S-3 Registration Statement; Preparation and Filing. As promptly as practicable after the consummation of the Series D PIPE, the Parent shall prepare and shall cause to be filed with the SEC, a Form S-3 to register the FNL Common Share Merger Consideration, the NAYA Common Share Merger Consideration, and the shares of common stock of the Parent that are issuable upon exercise or conversion of (a) the FNL Note, (b) the FNL Preferred Share Merger Consideration, (c) the NAYA Preferred Share Merger Consideration, and (d) FNL Preferred Series D PIPE Shares, as applicable. Each of the Parent and the Company shall furnish all information concerning it as may reasonably be requested by the other party in connection with such actions and the preparation of the Form S-3 registration statement. Parent covenants and agrees that the Form S-3, will not, at the time that the S-3 or any amendments or supplements thereto is filed with the SEC, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The Company and its legal counsel shall be given reasonable opportunity to review and comment on the S-3, including all amendments and supplements thereto, prior to the filing thereof with the SEC, and on the response to any comments of the SEC on the S-3, prior to the filing thereof with the SEC. The Parent shall use commercially reasonable efforts to cause the S-3 to comply with the applicable rules and regulations promulgated by the SEC and to respond promptly to any comments of the SEC or its staff, to have the Form S-3 declared effective as promptly as practicable after it is filed with the SEC and to keep the Form S-3 effective for at least 24 months in order to permit the consummation of the transactions contemplated hereby.

 

6.16 Stock Exchange Listing. From the date hereof through the Closing, the Parent and the Company shall use reasonable commercial efforts to ensure that the Parent remains listed as a public company on the Nasdaq Stock Market, including, without limitation, the preparation, execution, and filing of all necessary applications, documents, forms, and agreements with the Nasdaq Stock Market and the SEC. The Parent and the Company shall use reasonable commercial efforts to cause the Parent Common Stock to be issued pursuant to the Merger to be approved for listing on the Nasdaq Stock Market as promptly as practicable following the issuance thereof, subject to official notice of issuance, prior to the Closing Date.

 

 

6.17 Obligations of Merger Sub. The Parent will take all action necessary to cause Merger Sub to perform its obligations under this Agreement and to consummate the Merger on the terms and conditions set forth in this Agreement.

 

6.18 Resignations. At the written request of the Parent, the Company shall cause each director of the Company or any director of any of the Company’s Subsidiaries to resign in such capacity, with such resignations to be effective as of the Effective Time.

 

6.19 Further Assurances. At and after the Effective Time, the officers and directors of the Surviving Corporation shall be authorized to execute and deliver, in the name and on behalf of the Company or Merger Sub, any deeds, bills of sale, assignments, or assurances and to take and do, in the name and on behalf of the Company or Merger Sub, any other actions and things to vest, perfect, or confirm of record or otherwise in the Surviving Corporation any and all right, title, and interest in, to and under any of the rights, properties, or assets of the Company acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger.

 

6.20 Obligations of Merger Sub. The Parent will take all action necessary to cause Merger Sub to perform its obligations under this Agreement and to consummate the Merger on the terms and conditions set forth in this Agreement.

 

ARTICLE VII

CONDITIONS TO CLOSING

 

7.1 Conditions to Each Party’s Obligation to Effect the Merger. The respective obligations of each party to this Agreement to effect the Merger is subject to the satisfaction or waiver (where permissible pursuant to applicable Law) on or prior to the Closing of each of the following conditions:

 

(a) Company Stockholder Approval. The Company Stockholder Matters will have been duly approved and adopted by the Requisite Company Vote.

 

(b) No Injunctions, Restraints, or Illegality. No Governmental Authority having jurisdiction over any party hereto shall have enacted, issued, promulgated, enforced, or entered any Laws or Orders, whether temporary, preliminary, or permanent, that make illegal, enjoin, or otherwise prohibit consummation of the Merger, the Parent Stock Issuance, or the other transactions contemplated by this Agreement.

 

7.2 Conditions to Obligations of Parent and Merger Sub. The obligations of Parent and Merger Sub to effect the Merger are also subject to the satisfaction or waiver (where permissible pursuant to applicable Law) by Parent and Merger Sub on or prior to the Closing of the following conditions:

 

(a) Representations and Warranties. The representations and warranties of the Company set forth in Article IV of this Agreement shall be true and correct in all respects (without giving effect to any limitation indicated by the words “Company Material Adverse Effect,” “in all material respects,” “in any material respect,” “material,” or “materially”) as of the date of this Agreement and as of the Closing Date, as if made on and as of such date (except those representations and warranties that address matters only as of a particular date, which shall be true and correct in all respects as of that date), except where the failure of such representations and warranties to be so true and correct would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.

 

 

(b) Performance of Covenants. The Company shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement and each of the Ancillary Documents to be performed or complied with by it prior to or on the Closing Date.

 

(c) Officer’s Certificate. The Parent will have received a certificate, signed by the chief executive officer or chief financial officer of the Company, certifying as to the matters set forth in Section 7.2(a), Section 7.2(b), and Section 7.2(c) hereof.

 

(d) Deliveries. The Parent will have received copies of the Ancillary Documents, duly executed by the counterparties thereto.

 

(e) FNL Debenture PIPE. The FNL Debenture PIPE shall have been consummated prior to or concurrent with the Closing on terms satisfactory to the Parent.

 

(f) FNL Note Exchange. The FNL Note shall have been exchanged pursuant to Section 5 of the FNL Note prior to or concurrent with the Closing on terms satisfactory to the Parent.

 

(g) Consents. The Parent shall have received evidence (in forms acceptable to the Company) that all consents and approvals listed in the Company Disclosure Schedules and the Parent Disclosure Schedules have been obtained.

 

(h) Side Letter. The Company shall have entered into a side letter regarding the Company’s budget in a form acceptable to the Parent.

 

(i) Investment Representation Certificates. The Parent shall have received investment representation letters, in a form acceptable to the Parent, duly executed by each recipient of Merger Consideration.

 

7.3 Conditions to Obligations of the Company. The obligation of the Company to effect the Merger is also subject to the satisfaction or waiver by the Company on or prior to the Closing of the following conditions:

 

(a) Representations and Warranties. The representations and warranties of the Parent set forth in Article V of this Agreement shall be true and correct in all respects (without giving effect to any limitation indicated by the words “Parent Material Adverse Effect,” “in all material respects,” “in any material respect,” “material,” or “materially”) as of the date of this Agreement and as of the Closing Date, as if made on and as of such date (except those representations and warranties that address matters only as of a particular date, which shall be true and correct in all respects as of that date), except where the failure of such representations and warranties to be so true and correct would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect.

 

 

(b) Performance of Covenants. The Parent and Merger Sub shall have each duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement to be performed or complied with by it prior to or on the Closing Date.

 

(c) Parent Material Adverse Effect. Since the date of this Agreement, there shall not have been any Parent Material Adverse Effect or any event, change, or effect that would, individually or in the aggregate, reasonably be expected to have a Parent Material Adverse Effect.

 

(d) Officer’s Certificate. The Company will have received a certificate, signed by the chief executive officer or chief financial officer of the Parent, certifying as to the matters set forth in Section 7.3(a), Section 7.3(b), and Section 7.3(c) hereof.

 

(e) Deliveries. Company will have received copies of the Ancillary Documents, duly executed by the counterparties thereto.

 

(f) FNL Debenture PIPE. The FNL Debenture PIPE shall have been consummated prior to or concurrent with the Closing.

 

(g) Warrant Holder Waivers. The Company shall have received copies of the Warrant Holder Waivers, duly executed by the applicable Warrant Holders.

 

(h) Listing. The Parent Common Stock shall have been continually listed on the Nasdaq Stock Market as of and from the date of this Agreement through the Closing Date and shall not have been delisted. Nasdaq shall have approved for quotation on the Nasdaq Stock Market, upon official notice of issuance, all of the shares of Parent Common Stock to be issued in connection with the Merger.

 

(i) Parent Support Agreements. The Company shall have received duly executed copies of the Parent Support Agreements, each of which (i) shall have remained in full force and effect through the Closing Date, and (ii) shall not have been amended, modified, canceled, or rescinded in any respects.

 

(j) Consents. The Company shall have received evidence (in forms acceptable to the Company) that all consents and approvals listed in the Parent Disclosure Schedules have been obtained.

 

(k) Key Employees. The Company shall have received duly executed copies of the offer letters, in forms acceptable to the Company, with respect to each Key Employee.

 

(l) Director & Officer Insurance. The Company shall have received evidence (in forms acceptable to the Company) that the individuals listed on Exhibit D and Exhibit G are insured persons under the Parent’s director & officer insurance policy(ies) in effect as of the Closing Date.

 

 

ARTICLE VIII

 

TERMINATION; AMENDMENT AND WAIVER

 

8.1 Termination by Mutual Consent. This Agreement may be terminated at any time prior to the Closing (whether before or after the receipt of the Requisite Company Vote or the Requisite Parent Vote) by the mutual written consent of the Parent and the Company.

 

8.2 Termination by Either Parent or the Company. This Agreement may be terminated by either the Parent or the Company at any time prior to the Closing (whether before or after the receipt of the Requisite Company Vote):

 

(a) if the Merger has not been consummated on or before the End Date; provided, however, that the right to terminate this Agreement pursuant to this Section 8.2(a) shall not be available to any party whose material breach of any representation, warranty, covenant, or agreement set forth in this Agreement has been the principal cause of, or primarily contributing factor that resulted in, the failure of the Merger to be consummated on or before the End Date;

 

(b) if any Governmental Authority of competent jurisdiction shall have enacted, issued, promulgated, enforced, or entered any Law or Order making illegal, permanently enjoining, or otherwise permanently prohibiting the consummation of the Merger, the Parent Stock Issuance, or the other transactions contemplated by this Agreement, and such Law or Order shall have become final and nonappealable; provided, however, that the right to terminate this Agreement pursuant to this Section 8.2(b) shall not be available to any party whose material breach of any representation, warranty, covenant, or agreement set forth in this Agreement has been the principal cause of, or primarily contributing factor that resulted in, the issuance, promulgation, enforcement, or entry of any such Law or Order; or

 

(c) if this Agreement has been submitted to the stockholders of the Company for adoption at a duly convened Company Stockholders Meeting and the Requisite Company Vote shall not have been obtained at such meeting (unless such Company Stockholders Meeting has been adjourned or postponed, in which case at the final adjournment or postponement thereof).

 

8.3 Termination by the Company. This Agreement may be terminated by the Company at any time prior to the Closing:

 

(a) if the Parent shall have breached or failed to perform in any material respect any of its covenants and agreements set forth in Section 6.3;

 

(b) if the Company determines that a Parent Material Adverse Effect has occurred; or

 

(c) if there shall have been a breach of any representation, warranty, covenant, or agreement on the part of the Parent or Merger Sub set forth in this Agreement such that the conditions to the Closing of the Merger set forth in Section 7.3(a) or Section 7.3(b), as applicable, would not be satisfied and, in either such case, such breach is incapable of being cured by the End Date; or, if capable of being cured by the End Date, shall not have been cured prior to the earlier of (i) 15 days after written notice thereof is given by the Company to Parent and (ii) the End Date; unless such failure is caused primarily by the Company’s failure to materially perform or comply with any of the covenants, agreements, or conditions hereof to be performed or complied with by it prior to the Closing.

 

 

8.4 Termination by the Parent. This Agreement may be terminated by Parent at any time prior to the Closing:

 

(a) if the Parent determines that a Company Material Adverse Effect has occurred; or

 

(b) if there shall have been a breach of any representation, warranty, covenant, or agreement on the part of the Company set forth in this Agreement such that the conditions to the Closing of the Merger set forth in Section 7.2(a) or Section 7.2(b), as applicable, would not be satisfied and, in either such case, such breach is incapable of being cured by the End Date; or, if capable of being cured by the End Date, shall not have been cured prior to the earlier of (i) 15 days after written notice thereof is given by Parent to the Company and (ii) the End Date; unless such failure is caused primarily by Parent’s failure to materially perform or comply with any of the covenants, agreements, or conditions hereof to be performed or complied with by it prior to the Closing.

 

8.5 Notice of Termination; Effect of Termination. The party desiring to terminate this Agreement pursuant to this Article VIII (other than pursuant to Section 8.1) shall deliver written notice of such termination to each other party hereto specifying with particularity the reason for such termination, and any such termination in accordance with this Section 8.5 shall be effective immediately upon delivery of such written notice to the other party. If this Agreement is terminated pursuant to this Article VIII, it will become void and of no further force and effect, with no liability on the part of any party to this Agreement (or any stockholder, director, officer, employee, agent, or Representative of such party) to any other party hereto, except: (a) with respect to Section 6.3(b), this Section 8.5, Section 8.6, and Article IX (and any related definitions contained in any such Sections or Article), which shall remain in full force and effect; and (b) with respect to any liabilities or damages incurred or suffered by a party, to the extent such liabilities or damages were the result of fraud or the breach by another party of any of its representations, warranties, covenants, or other agreements set forth in this Agreement.

 

8.6 Fees and Expenses Following a Failure to Close.

 

(a) The parties acknowledge and hereby agree that the provisions of this Section 8.6 are an integral part of the transactions contemplated by this Agreement (including the Merger), and that, without such provisions, the parties would not have entered into this Agreement. If the Company, on the one hand, or the Parent and Merger Sub, on the other hand, shall fail to pay in a timely manner the amounts due pursuant to this Section 8.6, and, in order to obtain such payment, the other party makes a claim against the non-paying party that results in a judgment, the non-paying party shall pay to the other party the reasonable costs and expenses (including its reasonable attorneys’ fees and expenses) incurred or accrued in connection with such suit, together with interest on the amounts set forth in this Section 8.6 at the prime rate as published in The Wall Street Journal in effect on the date such payment was actually received, or a lesser rate that is the maximum permitted by applicable Law. The parties acknowledge and agree that (i) in no event shall the Company be obligated to pay the Company Termination Fee, or the Parent the Parent Termination Fee, on more than one occasion, and (ii) the terms of this Section 8.6 provide each party with a non-exclusive remedy in the event of a Parent Failure to Close or Company Failure to Close, as applicable.

 

 

(b) Except as expressly set forth in this Section 8.6, all Expenses incurred in connection with this Agreement and the transactions contemplated hereby will be paid by the party incurring such Expenses.

 

8.7 Amendments. This Agreement may be amended or supplemented in any and all respects, whether before or after receipt of the Requisite Company Vote, by written agreement signed by each of the parties hereto; provided, however, that, following the receipt of the Requisite Company Vote, there shall be no amendment or supplement to the provisions of this Agreement which by Law would require further approval by the holders of Company Capital Stock without such approval.

 

8.8 Extension and Waiver. At any time prior to the Effective Time, the Parent or Merger Sub, on the one hand, or the Company, on the other hand, may (a) extend the time for the performance of any of the obligations of the other party(ies), (b) waive any inaccuracies in the representations and warranties of the other party(ies) contained in this Agreement or in any document delivered under this Agreement, or (c) unless prohibited by applicable Law, waive compliance with any of the covenants, agreements, or conditions contained in this Agreement. Any agreement on the part of a party to any extension or waiver will be valid only if set forth in an instrument in writing signed by such party. The failure of any party to assert any of its rights under this Agreement or otherwise will not constitute a waiver of such rights.

 

ARTICLE IX

 

MISCELLANEOUS

 

9.1 Survival. None of the representations and warranties contained in this Agreement or in any instrument delivered under this Agreement will survive the Effective Time. This Section 9.1 does not limit any covenant or agreement of the parties contained in this Agreement which, by its terms, contemplates performance after the Effective Time. The Confidentiality Agreement will survive termination of this Agreement in accordance with its terms.

 

9.2 Governing Law. This Agreement and all Actions (whether based on contract, tort, or statute) arising out of, relating to, or in connection with this Agreement or the actions of any of the parties hereto in the negotiation, administration, performance, or enforcement hereof, shall be governed by and construed in accordance with the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of Laws of any jurisdiction other than those of the State of Delaware.

 

9.3 Submission to Jurisdiction. Any legal suit, action, proceeding, or dispute arising out of or related to this Agreement, the Ancillary Documents, or the transactions contemplated hereby or thereby may be instituted in the federal courts of the United States of America or the Chancery Court of the State of Delaware in each case located in Wilmington, Delaware, and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action, proceeding, or dispute.

 

 

9.4 Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL ACTION, PROCEEDING, CAUSE OF ACTION, OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, INCLUDING ANY EXHIBITS AND SCHEDULES ATTACHED TO THIS AGREEMENT, THE ANCILLARY DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT: (I) NO REPRESENTATIVE OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION; (II) EACH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER; (III) EACH PARTY MAKES THIS WAIVER KNOWINGLY AND VOLUNTARILY; AND (IV) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

9.5 Notices. All notices, requests, consents, claims, demands, waivers, and other communications hereunder shall be in writing and shall be deemed to have been given upon the earlier of actual receipt or (a) when delivered by hand providing proof of delivery; (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); or (c) on the date sent by email if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient. Such communications must be sent to the respective parties at the following addresses (or to such other Persons or at such other address for a party as shall be specified in a notice given in accordance with this Section 9.5):

 

If to Parent or Merger Sub, to:	INVO Bioscience, Inc. 5582 Broadcast Court Sarasota, FL 34240 Attention: Steven Shum, CEO Email: sshum@invobio.com
with a copy (which will not constitute notice to Parent or Merger Sub) to:	Glaser Weil Fink Howard Jordan & Shapiro LLP 10250 Constellation Boulevard, 19th Floor Los Angeles, CA 90067 Attention: Marc Indeglia, Esq. Email: mindeglia@glaserweil.com

 

 

If to the Company, to:	Naya Biosciences 19505 Biscayne Blvd Suite 2350 3rd floor Aventura, FL 33180 Attention: Daniel Teper, CEO Email: daniel@nayabiosciences.com
with a copy (which will not constitute notice to the Company) to:	Pearl Cohen Zedek Latzer Baratz LLP 131 Dartmouth St, 3rd Floor Boston, MA 02116 Attention: Oded Kadosh, Esq. Email: okadosh@pearlcohen.com

 

9.6 Severability. If any provision of this Agreement, or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, or incapable of being enforced under any applicable Law, the remainder of this Agreement shall continue in full force and effect and the application of such provision to other Persons or circumstances shall be interpreted so as reasonably to effect the intent of the Parties. The Parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that shall achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision.

 

9.7 Assignment. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither Parent or Merger Sub, on the one hand, nor the Company on the other hand, may assign its rights or obligations hereunder without the prior written consent of the other party (Parent in the case of Parent and Merger Sub), which consent shall not be unreasonably withheld, conditioned, or delayed. No assignment shall relieve the assigning party of any of its obligations hereunder.

 

9.8 Entire Agreement. This Agreement (including all exhibits, annexes, and schedules referred to herein), the Company Disclosure Schedule, the Parent Disclosure Schedule, the Ancillary Agreements, and the Confidentiality Agreement constitute the entire agreement among the parties with respect to the subject matter of this Agreement and supersede all other prior agreements and understandings, both written and oral, among the parties to this Agreement with respect to the subject matter of this Agreement. In the event of any inconsistency between the statements in the body of this Agreement, the Confidentiality Agreement, the Ancillary Documents, the Parent Disclosure Schedule, and the Company Disclosure Schedule (other than an exception expressly set forth as such in the Parent Disclosure Schedule or the Company Disclosure Schedule), the statements in the body of this Agreement will control.

 

9.9 No Third-Party Beneficiaries. This Agreement is for the sole benefit of the parties hereto and their permitted assigns and respective successors and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit, or remedy of any nature whatsoever under or by reason of this Agreement, except if the Effective Time occurs: (a) the rights of holders of Company Capital Stock to receive the Merger Consideration and (b) the rights of the Indemnified Parties as set forth in Section 6.10.

 

 

9.10 Specific Performance.

 

(a) The parties hereto agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to an injunction or injunctions to prevent breaches or threatened breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof, in addition to any other remedy to which they are entitled at Law or in equity.

 

(b) Each party further agrees that (i) no such party will oppose the granting of an injunction or specific performance as provided herein on the basis that the other party has an adequate remedy at law or that an award of specific performance is not an appropriate remedy for any reason at law or equity, (ii) no such party will oppose the specific performance of the terms and provisions of this Agreement, and (iii) no other party or any other Person shall be required to obtain, furnish, or post any bond or similar instrument in connection with or as a condition to obtaining any remedy referred to in this Section 9.10, and each party irrevocably waives any right it may have to require the obtaining, furnishing, or posting of any such bond or similar instrument.

 

(c) Notwithstanding the foregoing, the provisions of this Section 9.10 shall not apply to any termination of this Agreement by any party under Article VIII, to the extent that a Company Termination Fee or Parent Termination Fee is applicable and such fees are timely paid in accordance with Section 8.6.

 

9.11 Incorporation of Recitals. The Recitals set forth at the beginning of this Agreement are incorporated herein by reference and made an integral part hereof.

 

9.12 Counterparts; Effectiveness. This Agreement may be executed in any number of counterparts, all of which will be one and the same agreement. This Agreement will become effective when each party to this Agreement will have received counterparts signed by all of the other parties.

 

[signature pages follow]

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.

 

	COMPANY:
	NAYA BIOSCIENCES, INC.
	By:	/s/ Daniel Teper
	Name:	Daniel Teper
	Title:	CEO
	PARENT:
	INVO BIOSCIENCE, INC.
	By:	/s/ Steven Shum
	Name:	Steven Shum
	Title:	CEO
	MERGER SUB:
	INVO MERGER SUB INC.
	By:	/s/ Steven Shum
	Name:	Steven Shum
	Title:	CEO

 

 

 

Exhibit 3.1

 

 

 

 

 

 

Exhibit 3.2

 

EXHIBIT A

 

TO

 

CERTIFICATE OF DESIGNATION

OF

SERIES C-1 CONVERTIBLE PREFERRED STOCK

OF

INVO BIOSCIENCES, INC.

 

I, Steven Shum, hereby certify that I am the Chief Executive Officer of INVO Bioscience, Inc. (the “Corporation”), a corporation organized and existing under the Nevada Revised Statutes (the “NRS”), and further do hereby certify the following:

 

That pursuant to the authority expressly conferred upon the Board of Directors of the Corporation (the “Board”) by the Corporation’s Amended and Restated Articles of Incorporation (as amended, the “Articles of Incorporation”), and the provisions of the NRS, on October 11, 2024, the Board adopted the following resolution determining it desirable and in the best interests of the Company and its stockholders for the Corporation to establish a series of Thirty Thousand Three Hundred Seventy Five (30,375) shares of preferred stock designated as “Series C-1 Convertible Preferred Stock”, none of which shares have been issued, be issued pursuant to the Merger Agreement (as defined below) in accordance with the terms of the Merger Agreement, and which shall be convertible into Common Stock of the Corporation subject to receipt of Stockholder Approval (defined below);

 

RESOLVED, pursuant to authority expressly set forth in the Articles of Incorporation, (i) the establishment of a series of preferred stock designated as the Series C-1 Convertible Preferred Stock, par value $0.0001 per share, of the Corporation is hereby authorized; (ii) the issuance of up to 30,375 shares of Series C-1 Convertible Preferred Stock pursuant to the terms of the Merger Agreement, dated October 23, 2023, as amended and restated on October 11, 2024, by and among the Corporation and by and among NAYA Biosciences, Inc., a Delaware corporation (“NAYA”), the Corporation and INVO Merger Sub Inc., a Delaware corporation and a wholly owned Subsidiary of the Corporation (the “Merger Agreement”) is hereby authorized; and (iii) the designation, number of shares, powers, preferences, rights, qualifications, limitations and restrictions thereof (in addition to any provisions set forth in the Articles of Incorporation that are applicable to the preferred stock of all classes and series) are hereby fixed, and the Certificate of Designation of Series C-1 Convertible Preferred Stock is hereby approved as follows:

 

TERMS OF SERIES C-1 CONVERTIBLE PREFERRED STOCK

 

Section 1. Definitions. For the purposes hereof, the following terms shall have the following meanings:

 

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with (as such terms are used in and construed under Rule 144 under the Securities Act of 1933), a Person. With respect to a Holder, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Holder will be deemed to be an Affiliate of such Holder.

 

 

“Attribution Parties” means, collectively, the following Persons and entities: (i) any investment vehicle, including, any funds, feeder funds or managed accounts, currently, or from time to time after the date hereof, directly or indirectly managed or advised by a Holder’s investment manager or any of its Affiliates or principals, (ii) any direct or indirect Affiliates of a Holder or any of the foregoing, (iii) any Person acting or who could be deemed to be acting as a Group together with a Holder or any of the foregoing and (iv) any other Persons whose beneficial ownership of the Corporation’s Common Stock would or could be aggregated with a Holder’s and the other Attribution Parties for purposes of Section 13(d) of the Exchange Act. For clarity, the purpose of the foregoing is to subject collectively a Holder and all other Attribution Parties to the Maximum Percentage.

 

“Business Day” means any day except Saturday, Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

 

“Commission” means the U.S. Securities and Exchange Commission.

 

“Common Stock” means the Corporation’s common stock, par value of $0.0001 per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed.

 

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of the shares of Series C-1 Convertible Preferred Stock in accordance with the terms hereof, including the Initial Conversion Shares (as defined below).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Group” means a “group” as that term is used in Section 13(d) of the Exchange Act and as defined in Rule 13d-5 thereunder.

 

“Holder” means any holder of Series C-1 Convertible Preferred Stock.

 

“Person” means any individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

“Series C-2 Conversion Price” means the conversion price of shares of the Company’s Series C-2 Convertible Preferred Stock as set forth in the Certificate of Designation Establishing Series C-2 Convertible Preferred Stock.

 

“Series C-2 Conversion Amount” means the “Conversion Amount” per share of the Company’s Series C-2 Convertible Preferred Stock as set forth in the Certificate of Designation Establishing Series C-2 Convertible Preferred Stock.

 

“Stated Value” shall mean $1,000.00.

 

 

“Total Underlying Merger Consideration Common Shares” has the meaning set forth in the Merger Agreement.

 

“Trading Day” means a day on which the principal Trading Market is open for business.

 

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange (or any successors to any of the foregoing).

 

Section 2. Designation, Amount and Par Value; Assignment.

 

(a) The series of preferred stock designated by this Certificate of Designation shall be designated as the Corporation’s “Series C-1 Convertible Preferred Stock” and the number of shares so designated shall be 30,375. Series C-1 Convertible Preferred Stock shall have a par value of $0.0001 per share.

 

(b) The Corporation shall maintain a register of shares of the Series C-1 Convertible Preferred Stock, upon records to be maintained by the Corporation for that purpose (the “Series C-1 Convertible Preferred Stock Register”), in the name of the Holders thereof from time to time, including the name, address, and electronic mail address of each such Holder. The Corporation may deem and treat the registered Holder of shares of Series C-1 Convertible Preferred Stock as the absolute owner thereof for the purpose of any conversion thereof and for all other purposes. Shares of Series C-1 Convertible Preferred Stock may be issued solely in book entry form or, if requested by any Holder, such Holder’s shares may be issued in certificated form. The Corporation shall register the transfer of any shares of Series C-1 Convertible Preferred Stock in the Series C-1 Convertible Preferred Stock Register, upon surrender of the certificates (if applicable) evidencing such shares to be transferred, duly endorsed by the Holder thereof, to the Corporation at its address specified herein. Upon any such transfer, a new certificate evidencing the shares of Series C-1 Convertible Preferred Stock so transferred shall be issued to the transferee and a new certificate evidencing the remaining portion of the shares not so transferred, if any, shall be issued to the transferring Holder, in each case, within three Business Days. The provisions of this Certificate of Designation are intended to be for the benefit of all Holders from time to time and shall be enforceable by any such Holder.

 

Section 3. Dividends.

 

(a) Dividends and Payments.

 

(i) From and after the ninety-first (91^st) date after the first date of issuance of any Series C-1 Convertible Preferred Stock (the “Initial Issuance Date”), each Holder of shares of Series C-1 Convertible Preferred Stock shall be entitled to receive dividends (“Dividends”) payable, subject to the conditions and other terms hereof, in shares of Common Stock (“Dividend Shares”) on the Stated Value at a rate of two percent (2.0%) per annum (the “Dividend Rate”) of such Series C-1 Convertible Preferred Stock with each payment of a Dividend payable in the number of shares of Common Stock at the Conversion Price. Such payment of Dividends shall be cumulative and shall continue to accrue whether or not declared and whether or not in any fiscal year there shall be net profits or surplus available for the payment of Dividends in such fiscal year, so that if in any fiscal year or years, unpaid Dividends shall accumulate as against the holders of Common Stock or any other Junior Securities (as defined below). Dividends on the Series C-1 Convertible Preferred Stock shall commence accruing on the Initial Issuance Date and shall be computed on the basis of a 360-day year and twelve 30-day months. Dividends shall be payable in arrears for each three-month period on the first Trading Day of each such period (each, a “Dividend Date”) with the first Dividend Date being December 31, 2024 to the then current holder of such shares.

 

 

(ii) Prior to the payment of Dividends on a Dividend Date, Dividends shall accrue at the Dividend Rate and be payable by way of inclusion of the Dividends in the Conversion Amount on each Conversion Date in accordance with Section 6(a).

 

(iii) When any Dividend Shares are to be paid on a Dividend Date, as applicable, then the Company shall credit such aggregate number of Dividend Shares to which such Holder shall be entitled to each Holder’s or its designee’s balance account with the Depository Trust Company (“DTC”) through its deposit/Withdrawal At Custodian (“DWAC”) system.

 

(b) Participation. Holders shall be entitled to receive, and the Corporation shall pay, dividends on shares of the Series C-1 Convertible Preferred Stock (on an as-if-converted-to-Common-Stock basis, without regard to the beneficial ownership limitation set forth in Section 6(c)) equal to and in the same form, and in the same manner, as dividends (other than dividends on shares of the Common Stock payable in the form of Common Stock) actually paid on shares of the Common Stock when, as and if such dividends (other than dividends payable in the form of Common Stock) are paid on shares of the Common Stock.

 

Section 4. Voting Rights; Amendments.

 

Except as otherwise provided herein or as otherwise required by the NRS, the Series C-1 Convertible Preferred Stock shall have no voting rights.

 

Section 5. Rank; Liquidation.

 

(a) The Series C-1 Convertible Preferred Stock shall rank: (i) senior to the Common Stock and any other class or series of capital stock of the Corporation hereafter created specifically ranking by its terms junior to the Series C-1 Convertible Preferred Stock (“Junior Securities”); (ii) on parity with the Series A Preferred Stock, Series B Preferred Stock, and any other class or series of capital stock of the Corporation hereafter created specifically ranking by its terms on parity with the Series C-1 Convertible Preferred Stock (the “Parity Securities”); and (iii) junior to the Series C-2 Convertible Preferred Stock and any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms senior to the Series C-1 Convertible Preferred Stock (“Senior Securities”), in each case, as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntarily or involuntarily (all such distributions being referred to collectively as “Distributions”).

 

 

(b) Subject to the prior and superior rights of the holders of any Senior Securities of the Corporation, upon liquidation, dissolution or winding up of the Corporation (a “Liquidation”), each Holder shall be entitled to receive, in preference to any Distributions of any of the assets or surplus funds of the Corporation to the holders of the Junior Securities, and pari passu with any Distribution to the holders of the Parity Securities, an equivalent amount of Distributions as would be paid on the Common Stock underlying the Series C-1 Convertible Preferred Stock, determined on an as-converted basis (without regard to the beneficial ownership limitation set forth in Section 6(c)), plus an additional amount equal to any dividends declared but unpaid on such shares, before any payments shall be made or any assets distributed to holders of any class of Junior Securities. If, upon any such Liquidation, the assets of the Corporation shall be insufficient to pay the Holders of shares of the Series C-1 Convertible Preferred Stock the amount required under the preceding sentence, then all remaining assets of the Corporation shall be distributed ratably to the Holders and holders of Parity Securities in accordance with the respective amounts that would be payable on all such securities if all amounts payable thereon were paid in full. A Fundamental Transaction shall not be deemed a Liquidation unless the Corporation expressly declares that such Fundamental Transaction shall be treated as if it were a Liquidation.

 

Section 6. Conversion.

 

(a) Automatic and Optional Conversions. The shares of Series C-1 Convertible Preferred Stock shall be convertible into shares of Common Stock as follows:

 

(i) Automatic Conversion on Stockholder Approval. Effective as of 5:00 p.m. (Eastern time) on the fourth Business Day after the date on which the Corporation’s stockholders approve the conversion of the Series C-1 Convertible Preferred Stock into shares of Common Stock in accordance with the listing rules of the Nasdaq Stock Market (or any other Trading Market on which the Common Stock is then traded), as set forth in the Section 6.6 of the Merger Agreement (the “Stockholder Approval”), each share of Series C-1 Convertible Preferred Stock then outstanding shall automatically convert into a number of shares of Common Stock equal to such whole number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Stated Value by the Series C-1 Conversion Price (determined as hereinafter provided) in effect at the time of conversion and then multiplying such quotient by the number of shares of Series C-1 Convertible Preferred Stock to be converted, subject to the beneficial ownership limitation set forth in Section 6(c) (the “Automatic Conversion”). In determining the application of the beneficial ownership limitation set forth in Section 6(c) solely with respect to the Automatic Conversion, the Corporation shall calculate beneficial ownership for each Holder assuming beneficial ownership of: (x) the number of shares of Common Stock issuable to such Holder in such Automatic Conversion, plus (y) any additional shares of Common Stock for which a Holder has provided the Corporation with prior written notice of beneficial ownership within 45 days prior to the date of Stockholder Approval (a “Beneficial Ownership Statement”). If a Holder fails to provide the Corporation with a Beneficial Ownership Statement within 45 days prior to the date of Stockholder Approval, then the Corporation shall presume the Holder’s beneficial ownership of Common Stock (apart from the Initial Conversion Shares) to be zero. The shares of Common Stock issued upon the Automatic Conversion are referred to as the “Initial Conversion Shares” and shares of Series C-1 Convertible Preferred Stock that are converted in the Automatic Conversion are referred to as the “Converted Stock”. The Initial Conversion Shares shall be issued as follows:

 

(1) Converted Stock that is registered in book entry form shall be automatically cancelled upon the Automatic Conversion and converted into the corresponding Initial Conversion Shares, which shares shall be issued in book entry form and without any action on the part of the Holders.

 

 

(2) Converted Stock that is issued in certificated form shall be deemed converted into the corresponding Initial Conversion Shares on the date of Automatic Conversion and the Holder’s rights as a holder of such shares of Converted Stock shall cease and terminate on such date, excepting only the right to receive the Initial Conversion Shares upon the Holder tendering to the Corporation (or its designated agent) the stock certificate(s) (duly endorsed) representing such certificated Converted Stock.

 

(3) Notwithstanding the cancellation of the Converted Stock upon the Automatic Conversion, Holders of Converted Stock shall continue to have any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Corporation to comply with the terms of this Certificate of Designation. In all cases, the Holder shall retain all of its rights and remedies for the Corporation’s failure to convert the Converted Stock.

 

(ii) Optional Conversion Following Stockholder Approval.

 

(1) Subject to Section 6(a)(i) and Section 6(c), at any time and from time to time as of 5:00 p.m. (Eastern time) on the fourth Business Day after Stockholder Approval is obtained, each Holder may, at its option, effect conversions (other than the Automatic Conversion of shares of Series C-1 Convertible Preferred Stock) into a number of shares of Common Stock equal to such whole number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Stated Value by the Series C-1 Conversion Price (determined as hereinafter provided) in effect at the time of conversion and then multiplying such quotient by the number of shares of Series C-1 Convertible Preferred Stock to be converted, subject to the beneficial ownership limitation set forth in Section 6(c) (each, an “Optional Conversion”) by providing the Corporation with the form of conversion notice attached hereto as Annex A (a “Notice of Conversion”), duly completed and executed. Provided the Corporation’s transfer agent is participating in the DTC Fast Automated Securities Transfer program, the Notice of Conversion may specify, at the Holder’s election, whether the applicable Conversion Shares shall be credited to the account of the Holder’s prime broker with DTC through its DWAC system (a “DWAC Delivery”).

 

(2) The date on which an Optional Conversion shall be deemed effective (the “Conversion Date”) shall be the Trading Day that the Notice of Conversion, completed and executed, is sent via email to, and received during regular business hours by, the Corporation; provided, that the original certificate(s) (if any) representing such shares of Series C-1 Convertible Preferred Stock being converted, duly endorsed, and the accompanying Notice of Conversion, are received by the Corporation within one (1) Trading Day thereafter. In all other cases, the Conversion Date shall be defined as the Trading Day on which the original certificate(s) (if any) representing such shares of Series C-1 Convertible Preferred Stock being converted, duly endorsed, and the accompanying Notice of Conversion, are received by the Corporation. The calculations set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error.

 

(b) Conversion Price. The “Conversion Price” for each share of Series C-1 Convertible Preferred Stock shall be $1.02913.

 

 

(c) Beneficial Ownership Limitation. Notwithstanding anything to the contrary contained herein, the Corporation shall not effect any conversion of the Series C-1 Convertible Preferred Stock, and a Holder shall not have the right to convert any portion of the Series C-1 Convertible Preferred Stock, pursuant to the terms and conditions of this Certificate of Designation and any such conversion shall be null and void and treated as if never made, to the extent that, after giving effect to such conversion, such Holder together with such Holder’s Attribution Parties collectively would beneficially own in excess of 19.99% (the “Maximum Percentage”) of the number of shares of Common Stock outstanding immediately after giving effect to such conversion. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by such Holder and such Holder’s Attribution Parties shall include the number of shares of Common Stock held by such Holder and such Holder’s Attribution Parties plus the number of shares of Common Stock issuable upon conversion of the Series C-1 Convertible Preferred Stock subject to the Notice of Conversion or the Automatic Conversion (as applicable) with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) conversion of the remaining, unconverted Series C-1 Convertible Preferred Stock beneficially owned by such Holder or any of such Holder’s Attribution Parties, and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation (including, without limitation, any convertible notes or convertible preferred stock or warrants) beneficially owned by such Holder or such Holder’s Attribution Parties subject to a limitation on conversion or exercise analogous to the limitation contained herein. For purposes of this Section 6(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act. For purposes of this Series C-1 Convertible Preferred Stock, in determining the number of outstanding shares of Common Stock a Holder may acquire upon the conversion of such Holder’s Series C-1 Convertible Preferred Stock without exceeding the Maximum Percentage, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Corporation’s most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q or Current Report on Form 8-K or other public filing with the Commission, as the case may be, (B) a more recent public announcement by the Corporation, or (C) any other written notice by the Corporation or the Corporation’s transfer agent setting forth the number of shares of Common Stock outstanding (any of the foregoing, as applicable, the “Reported Outstanding Share Number”). In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to any actual conversion or exercise of securities of the Corporation, including shares of Series C-1 Convertible Preferred Stock, by such Holder or such Holder’s Attribution Parties since the date as of which the Reported Outstanding Share Number was reported. If the issuance of Common Stock to a Holder upon conversion of such Holder’s Series C-1 Convertible Preferred Stock results in such Holder and the such Holder’s Attribution Parties being deemed to beneficially own, in the aggregate, more than the Maximum Percentage of the number of outstanding shares of Common Stock (as determined under Section 13(d) of the Exchange Act), the number of shares of Common Stock so issued by which such Holder’s and such Holder’s Attribution Parties’ aggregate beneficial ownership exceeds the Maximum Percentage (the “Excess Shares”) shall be deemed null and void and shall be cancelled ab initio, and such Holder shall not have the power to vote or to transfer the Excess Shares. Upon delivery of a written notice to the Corporation, a Holder may from time to time increase or decrease the Maximum Percentage to any other percentage not in excess of 19.99% as specified in such notice; provided that (i) any such increase in the Maximum Percentage will not be effective until the sixty-first (61st) day after such notice is delivered to the Corporation and (ii) any such increase or decrease will apply only to such Holder and such Holder’s Attribution Parties and not to any other holder of Series C-1 Convertible Preferred Stock that is not an Attribution Party of such Holder. No prior inability to convert all or a portion of such Holder’s Series C-1 Convertible Preferred Stock pursuant to this Section 6(c) shall have any effect on the applicability of the provisions of this Section 6(c) with respect to any subsequent determination of conversion. The provisions of this Section 6(c) shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 6(c) to the extent necessary to correct this Section 6(c) or any portion of this Section 6(c) which may be defective or inconsistent with the intended beneficial ownership limitation contained in this Section 6(c) or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this Section 6(c) may not be waived and shall apply to a successor holder of such Holder’s Series C-1 Convertible Preferred Stock. Each Holder hereby acknowledges and agrees that the Corporation shall be entitled to rely on the representations and the other information set forth in any Notice of Conversion and shall not be required to independently verify whether any conversion of Series C-1 Convertible Preferred Stock would cause a Holder (together with such Holder’s Attribution Parties) to collectively beneficially own in excess of the Maximum Percentage of the number of shares of Common Stock outstanding after giving effect to such conversion or otherwise trigger the provisions of this Section 6(c).

 

 

(d) Mechanics of Conversion

 

(i) Delivery of Certificate or Electronic Issuance Upon Conversion. Not later than three (3) Trading Days after the applicable Conversion Date, or if the Holder requests the issuance of physical certificate(s), three (3) Trading Days after receipt by the Corporation of the original certificate(s) representing such shares of Series C-1 Convertible Preferred Stock being converted, duly endorsed, and the accompanying Notice of Conversion (the “Share Delivery Date”), the Corporation shall either (a) deliver, or cause to be delivered, to the converting Holder a physical certificate or certificates representing the number of Conversion Shares being acquired upon the conversion of shares of Series C-1 Convertible Preferred Stock, or (b) in the case of a DWAC Delivery (if so requested by the Holder), electronically transfer such Conversion Shares by crediting the account of the Holder’s prime broker with DTC through its DWAC system. If in the case of any Notice of Conversion such certificate or certificates for the Conversion Shares are not delivered to or as directed by or, in the case of a DWAC Delivery, such shares are not electronically delivered to or as directed by, the applicable Holder by the Share Delivery Date, the applicable Holder shall be entitled to elect to rescind such Notice of Conversion by written notice to the Corporation at any time on or before its receipt of such certificate or certificates for Conversion Shares or electronic receipt of such shares, as applicable, in which event the Corporation shall promptly return to such Holder any original Series C-1 Convertible Preferred Stock certificate delivered to the Corporation and such Holder shall promptly return to the Corporation any Common Stock certificates or otherwise direct the return of any shares of Common Stock delivered to the Holder through the DWAC system, representing the shares of Series C-1 Convertible Preferred Stock unsuccessfully tendered for conversion to the Corporation.

 

(ii) Obligation Absolute. Subject to Section 6(c) and Section 6(d)(iv) hereof and subject to Holder’s right to rescind a Notice of Conversion pursuant to Section 6(d)(i) above, the Corporation’s obligation to issue and deliver the Conversion Shares upon conversion of Series C-1 Convertible Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by such Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Corporation to such Holder in connection with the issuance of such Conversion Shares. Subject to Section 6(c) and Section 6(d)(iv) hereof and subject to Holder’s right to rescind a Notice of Conversion pursuant to Section 6(d)(i) above, if a Holder shall elect to convert any or all of its Series C-1 Convertible Preferred Stock, the Corporation may not refuse conversion based on any claim that such Holder or anyone associated or affiliated with such Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and/or enjoining conversion of all or part of the Series C-1 Convertible Preferred Stock of such Holder shall have been sought and obtained by the Corporation. In the absence of such injunction, the Corporation shall, subject to Section 6(c) and Section 6(d)(iv) hereof and subject to Holder’s right to rescind a Notice of Conversion pursuant to Section 6(d)(i) above, issue Conversion Shares upon a properly noticed conversion.

 

(iii) Reserved.

 

(iv) Reservation of Shares Issuable Upon Conversion. The Corporation covenants that at all times after the Stockholder Approval, it will reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of outstanding shares of Series C-1 Convertible Preferred Stock, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holders of the Series C-1 Convertible Preferred Stock, not less than such aggregate number of shares of the Common Stock as shall be issuable (taking into account the adjustments of Section 7) upon the conversion of all outstanding shares of Series C-1 Convertible Preferred Stock. The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and non-assessable.

 

(v) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series C-1 Convertible Preferred Stock, and the number of shares of Common Stock to be issued shall be determined by rounding to the nearest whole share (a half share being treated as a full share for this purpose). Such conversion shall be determined on the basis of the total number of shares of Series C-1 Convertible Preferred Stock the holder is at the time converting into Common Stock and such rounding shall apply to the number of shares of Common Stock issuable upon such aggregate conversion.

 

(vi) Transfer Taxes. The issuance of certificates for shares of the Common Stock upon conversion of the Series C-1 Convertible Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the registered Holder(s) of such shares of Series C-1 Convertible Preferred Stock and the Corporation shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid.

 

(e) Status as Stockholder. Upon each Conversion Date, (i) the shares of Series C-1 Convertible Preferred Stock being converted shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a holder of such converted shares of Series C-1 Convertible Preferred Stock shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Corporation to comply with the terms of this Certificate of Designation. In all cases, the Holder shall retain all of its rights and remedies for the Corporation’s failure to convert Series C-1 Convertible Preferred Stock. In no event shall the Series C-1 Convertible Preferred Stock convert into shares of Common Stock prior to the Stockholder Approval.

 

Section 7. Certain Adjustments.

 

(a) Stock Dividends and Stock Splits. If the Corporation, at any time while this Series C-1 Convertible Preferred Stock is outstanding, (A) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of this Series C-1 Convertible Preferred Stock) with respect to the then outstanding shares of Common Stock, (B) subdivides outstanding shares of Common Stock into a larger number of shares, or (C) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, then the Conversion Ratio shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately after such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately before such event (excluding any treasury shares of the Corporation). Any adjustment made pursuant to this Section 7(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision or combination.

 

 

(b) Fundamental Transaction. If, at any time while any Series C-1 Convertible Preferred Stock is outstanding, (A) the Corporation, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Corporation with or into another Person, (B) the Corporation, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (C) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which holders of the Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and such offer has been accepted by the holders of a majority of the outstanding Common Stock, (D) the Corporation, directly or indirectly, in one or more transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (E) the Corporation, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each, a “Fundamental Transaction”), then, upon any subsequent conversion of this Series C-1 Convertible Preferred Stock, the Holders shall have the right to receive, in lieu of the right to receive Conversion Shares, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the number of shares of common stock or other equity securities of the successor or acquiring corporation of the Corporation, if it is the surviving corporation, and any other or additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Series C-1 Convertible Preferred Stock is then convertible immediately prior to such Fundamental Transaction (without regard to any beneficial ownership limitation set forth in Section 6(c) above, which shall cease to be applicable at the time of and following the Fundamental Transaction). For purposes of any such subsequent conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Corporation shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash, or property to be received in a Fundamental Transaction, then the Holders shall be given the same choice as to the Alternate Consideration they receive upon any conversion of this Series C-1 Convertible Preferred Stock following such Fundamental Transaction. Notwithstanding the foregoing, in the event the Alternate Consideration consist solely of cash (a “Fundamental Cash Transaction”), the Holders shall exercise their conversion rights under this Series C-1 Convertible Preferred Stock and such exercise will be deemed effective immediately prior to the consummation of such Fundamental Cash Transaction. If Holders do not so convert this Series C-1 Convertible Preferred Stock, this Series C-1 Convertible Preferred Stock shall automatically convert pursuant to Section 6(a) above, without any action by Holders and without regard to the beneficial ownership limitation set forth in Section 6(c) above immediately prior to the consummation of such Fundamental Cash Transaction. The Corporation shall provide the Holders with written notice of the Fundamental Cash Transaction (together with such reasonable information as the Holders may request in connection with such contemplated transaction giving rise to such notice), which is to be delivered to the Holders not less than 10 days prior to the closing of the Fundamental Cash Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Fundamental Transaction shall file a new certificate of designation with the same terms and conditions and issue to the Holders new preferred stock consistent with the foregoing provisions and evidencing the Holders’ right to convert such preferred stock into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 7(b) and insuring that this Series C-1 Convertible Preferred Stock (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

 

 

(c) Calculations. All calculations under this Section 7 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding.

 

Section 8. Redemption. The shares of Series C-1 Convertible Preferred Stock shall not be redeemable; provided, however, that the foregoing shall not limit the ability of the Corporation to purchase or otherwise deal in such shares to the extent otherwise permitted hereby and by law, nor shall the foregoing limit the Holder’s rights under Section 6(d)(iii).

 

Section 9. Transfer. A Holder may transfer such shares of Series C-1 Convertible Preferred Stock in whole, or in part, together with the accompanying rights set forth herein, held by such holder without the consent of the Corporation; provided that such transfer is in compliance with applicable securities laws. The Corporation shall in good faith (i) do and perform, or cause to be done and performed, all such further acts and things, and (ii) execute and deliver all such other agreements, certificates, instruments and documents, in each case, as any holder of Series C-1 Convertible Preferred Stock may reasonably request in order to carry out the intent and accomplish the purposes of this Section 9.

 

Section 10. Miscellaneous.

 

(a) Notices. Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, via email or sent by a nationally recognized overnight courier service, addressed to the Corporation, at [*], or such other email address or mailing address as the Corporation may specify for such purposes by notice to the Holders delivered in accordance with this Section. Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, by email at the email address of such Holder appearing on the books of the Corporation, or if no such email address appears on the books of the Corporation, sent by a nationally recognized overnight courier service addressed to each Holder, at the principal place of business or principal residence of such Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via email at the email address specified in this Section prior to 5:30 p.m. (Eastern time) on any date, (ii) the date immediately following the date of transmission, if such notice or communication is delivered via email at the email address specified in this Section between 5:30 p.m. and 11:59 p.m. (Eastern time) on any date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.

 

(b) Lost or Mutilated Series C-1 Convertible Preferred Stock Certificate. If a Holder’s Series C-1 Convertible Preferred Stock certificate is mutilated, lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Series C-1 Convertible Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such certificate, and of the ownership thereof, reasonably satisfactory to the Corporation and, in each case, customary and reasonable indemnity, if requested. Applicants for a new certificate under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Corporation may prescribe.

 

 

(c) Waiver. Any waiver by the Corporation or a Holder of a breach of any provision of this Certificate of Designation shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate of Designation or a waiver by any other Holders. The failure of the Corporation or a Holder to insist upon strict adherence to any term of this Certificate of Designation on one or more occasions shall not be considered a waiver or deprive that party (or any other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of Designation. Any waiver by the Corporation or a Holder must be in writing. Notwithstanding any provision in this Certificate of Designation to the contrary, any provision contained herein and any right of the Holders of Series C-1 Convertible Preferred Stock granted hereunder may be waived as to all shares of Series C-1 Convertible Preferred Stock (and the Holders thereof) upon the written consent of the Holders of not less than a majority of the shares of Series C-1 Convertible Preferred Stock then outstanding, unless a higher percentage is required by law, in which case the written consent of the Holders of not less than such higher percentage shall be required.

 

(d) Severability. If any provision of this Certificate of Designation is invalid, illegal, or unenforceable, the balance of this Certificate of Designation shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances.

 

(e) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

(f) Headings. The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not be deemed to limit or affect any of the provisions hereof.

 

(g) Status of Converted Series C-1 Convertible Preferred Stock. If any shares of Series C-1 Convertible Preferred Stock shall be converted or repurchased or otherwise be acquired by the Corporation, or cash settled pursuant to Section 6(d)(iii) hereof, such shares shall resume the status of authorized but unissued shares of preferred stock and shall no longer be designated as Series C-1 Convertible Preferred Stock.

 

********************

 

 

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Designation this 11^th day of October , 2024.

 

/s/ Steven Shum
By:	Steven Shum
Title:	CEO

 

Signature Page – Certificate of Designation

 

 

ANNEX A

 

NOTICE OF CONVERSION

 

(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES

 OF SERIES C-1 CONVERTIBLE PREFERRED STOCK)

 

The undersigned Holder hereby irrevocably elects to convert the number of shares of Series C-1 Convertible Preferred Stock indicated below into shares of common stock, par value $0.0001 per share (the “Common Stock”), of INVO Bioscience, Inc., a Nevada corporation (the “Corporation”), as of the date written below. If securities are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Capitalized terms utilized but not defined herein shall have the meaning ascribed to such terms in that certain Certificate of Designation of Series C-1 Convertible Preferred Stock (the “Certificate of Designation”) filed by the Corporation with the Secretary of State of the State of Nevada on October 11, 2024.

 

As of the date hereof, the number of shares of Common Stock beneficially owned by the undersigned Holder (together with such Holder’s Affiliates, and any other Person whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) or Section 16 of the Exchange Act and the applicable regulations of the Commission, including any “group” of which the Holder is a member (the foregoing, “Attribution Parties”)), including the number of shares of Common Stock issuable upon conversion of the Series C-1 Convertible Preferred Stock subject to this Notice of Conversion, but excluding the number of shares of Common Stock which are issuable upon (A) conversion of the remaining, unconverted Series C-1 Convertible Preferred Stock beneficially owned by such Holder or any of its Attribution Parties, and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation (including any warrants) beneficially owned by such Holder or any of its Attribution Parties that are subject to a limitation on conversion or exercise similar to the limitation contained in Section 6(c) of the Certificate of Designation, is [●]%, based on publicly available information or information provided to the Holder by the Corporation. For purposes hereof, beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the applicable regulations of the Commission. In addition, for purposes hereof, “group” has the meaning set forth in Section 13(d) of the Exchange Act and the applicable regulations of the Commission.

 

Conversion calculations:

 

Date to Effect Conversion:_______________________________________________

 

Number of shares of Series C-1 Convertible Preferred Stock owned prior to Conversion: _________

 

Number of shares of Series C-1 Convertible Preferred Stock to be Converted: _________________

 

Number of shares of Common Stock to be Issued: ____________________________

 

 

Address for delivery of physical certificates: ________________________________

 

or

For DWAC Delivery:   DWAC Instructions:   Broker no: ___________________   Account no: _________________

 

	HOLDER
	By:
	Name:
	Title:
	Date:

 

Annex A

 

 

 

Exhibit 3.3

 

EXHIBIT TO

 

CERTIFICATE OF DESIGNATIONS OF

SERIES C-2 CONVERTIBLE PREFERRED STOCK

OF

INVO BIOSCIENCE, INC.

 

I, Steven Shum, hereby certify that I am the Chief Executive Officer of INVO Bioscience, Inc. (the “Company”), a corporation organized and existing under the Nevada Revised Statutes (the “NRS”), and further do hereby certify the following:

 

That pursuant to the authority expressly conferred upon the Board of Directors of the Company (the “Board”) by the Company’s Amended and Restated Articles of Incorporation (as amended, the “Articles of Incorporation”), and the provisions of the NRS, on October 11, 2024, the Board adopted the following resolution determining it desirable and in the best interests of the Company and its stockholders for the Company to create a series of Eight Thousand Five Hundred Seventy Six (8,576) shares of preferred stock designated as “Series C-2 Convertible Preferred Stock”, none of which shares have been issued, to be issued pursuant to the Securities Purchase Agreement and the Merger Agreement in accordance with the terms of the Securities Purchase Agreement and the Merger Agreement:

 

RESOLVED, that pursuant to the authority vested in the Board, in accordance with the provisions of the Articles of Incorporation, a series of preferred stock, par value $0.0001 per share, of the Company be and hereby is created pursuant to this certificate of designations (this “Certificate of Designations”), and that the designation and number of shares thereof and the voting and other powers, preferences and relative, participating, optional or other rights of the shares of such series and the qualifications, limitations and restrictions thereof are as follows:

 

TERMS OF SERIES C-2 CONVERTIBLE PREFERRED STOCK

 

1. Designation and Number of Shares. There shall hereby be created and established a series of preferred stock of the Company designated as “Series C-2 Convertible Preferred Stock” (the “Preferred Shares”). The authorized number of Preferred Shares shall be Eight Thousand Five Hundred Seventy Six (8,576) shares. Each Preferred Share shall have a par value of $0.0001. Capitalized terms not defined herein shall have the meanings as set forth in Section 31 below.

 

2. Ranking. Except to the extent that the holders of at least a majority of the outstanding Preferred Shares (the “Required Holders”) expressly consent to the creation of Parity Stock (as defined below) or Senior Preferred Stock (as defined below) in accordance with Section 16, all shares of capital stock of the Company shall be junior (the “Junior Stock”) in rank to all Preferred Shares with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company. The rights of all such shares of capital stock of the Company shall be subject to the rights, powers, preferences and privileges of the Preferred Shares. Without limiting any other provision of this Certificate of Designations, without the prior express consent of the Required Holders, voting separately as a single class, the Company shall not hereafter authorize or issue any additional or other shares of capital stock that are (i) of senior rank to the Preferred Shares in respect of the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company (collectively, the “Senior Preferred Stock”), (ii) of pari passu rank to the Preferred Shares in respect of the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company (collectively, the “Parity Stock”), or (iii) any Junior Stock having a maturity date or any other date requiring redemption or repayment of such shares of Junior Stock that is prior to the date no Preferred Shares remain outstanding. In the event of the merger or consolidation of the Company with or into another corporation, the Preferred Shares shall maintain their relative rights, powers, designations, privileges and preferences provided for herein and no such merger or consolidation shall be consummated if it would result in the Preferred Shares being treated in any manner inconsistently with the foregoing.

 

 

3. Dividends.

 

(a) Dividends and Payments.

 

(i) From and after the ninety-first (91^st) date after the first date of issuance of any Preferred Shares (the “Initial Issuance Date”), each holder of a Preferred Share (each, a “Holder” and collectively, the “Holders”) shall be entitled to receive dividends (“Dividends”) payable, subject to the conditions and other terms hereof, in shares of Common Stock (“Dividend Shares”) on the Stated Value (as defined below) at the Dividend Rate of such Preferred Shares with each payment of a Dividend payable in the number of Common Stock as shall equal the quotient of the (A) Dividend payable on such Dividend Date (as defined herein) and (B) eighty-five percent (85%) of the average of the VWAP of the Common Stock on the Principal Market for each of the five (5) Trading Days before the applicable Dividend Date; provided that such price shall not be lower than the Floor Price. Such payment of Dividends shall be cumulative and shall continue to accrue whether or not declared and whether or not in any fiscal year there shall be net profits or surplus available for the payment of Dividends in such fiscal year, so that if in any fiscal year or years, unpaid Dividends shall accumulate as against the holders of Common Stock or any other Junior Stock. Dividends on the Preferred Shares shall commence accruing on the Initial Issuance Date and shall be computed on the basis of a 360-day year and twelve 30-day months. Dividends shall be payable in arrears for each quarter on the first Trading Day of each quarter (each, a “Dividend Date”) with the first Dividend Date being January 2, 2025.

 

(ii) Prior to the payment of Dividends on a Dividend Date, Dividends shall accrue at the Dividend Rate and be payable by way of inclusion of the Dividends in the Conversion Amount on each Conversion Date in accordance with Section 4(c)(i).

 

(iii) When any Dividend Shares are to be paid on a Dividend Date, as applicable, then the Company shall credit such aggregate number of Dividend Shares to which such Holder shall be entitled to each Holder’s or its designee’s balance account with the Depository Trust Company (“DTC”) through its Deposit/Withdrawal At Custodian (“DWAC”) system.

 

(b) Participation. In addition to the Dividends referred to in Section 3(a), the Holders shall, as holders of Preferred Shares, be entitled to such dividends paid and distributions made to the holders of Common Stock to the same extent as if such Holders had converted the Preferred Shares into Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and distributions. Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders of Common Stock. The Company shall not declare or pay any dividends on any other shares of Junior Stock or Parity Stock unless the holders of Preferred Shares then outstanding shall simultaneously receive a dividend on a pro rata basis as if the Preferred Shares had been converted into shares of Common Stock pursuant to Section 4 immediately prior to the record date for determining the stockholders eligible to receive such dividends.

 

(c) Maximum Percentage. Notwithstanding the foregoing, to the extent that a Holder’s right to participate in any such dividend or distribution pursuant to this Section 3 would result in such Holder and its other Attribution Parties exceeding the Maximum Percentage, if applicable, then such Holder shall not be entitled to participate in such Dividend or distribution to such extent (and shall not be entitled to beneficial ownership of such shares of Common Stock as a result of such Dividend or distribution to such extent) and the portion of such Dividend or distribution shall be held in abeyance for such Holder until such time or times as its right thereto would not result in such Holder and its other Attribution Parties exceeding the Maximum Percentage, if applicable, at which time or times such Holder shall be granted such rights (and any rights under this Section 3 on such initial rights or on any subsequent such rights to be held similarly in abeyance) to the same extent as if there had been no such limitation.

 

(d) Default Rate. From and after the occurrence and during the continuance of any Triggering Event, the Dividend Rate shall automatically be increased to twenty percent (20.0%) per annum (the “Default Rate”). In the event that such Triggering Event is subsequently cured (and no other Triggering Event then exists), the adjustment referred to in the preceding sentence shall cease to be effective as of the calendar day immediately following the date of such cure; provided that the Dividends as calculated and unpaid at such increased rate during the continuance of such Triggering Event shall continue to apply to the extent relating to the days after the occurrence of such Triggering Event through and including the date of such cure of such Triggering Event.

 

4. Conversion. At any time after the Stockholder Approval Date, each Preferred Share shall be convertible into validly issued, fully paid and non-assessable shares of Common Stock (as defined below), on the terms and conditions set forth in this Section 4.

 

 

(a) Holder’s Conversion Right. Subject to the provisions of Section 4(d), at any time or times on or after the Stockholder Approval Date, each Holder shall be entitled to convert any portion of the outstanding Preferred Shares held by such Holder into validly issued, fully paid and non-assessable shares of Common Stock in accordance with Section 4(c) at the Conversion Rate (as defined below). The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all transfer, stamp, issuance and similar taxes, costs and expenses (including, without limitation, fees and expenses of the Transfer Agent (as defined below)) that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Preferred Shares.

 

(b) Conversion Rate. The number of shares of Common Stock issuable upon conversion of any Preferred Share pursuant to Section 4(a) shall be determined by dividing (x) the Conversion Amount of such Preferred Share by (y) the Conversion Price (the “Conversion Rate”):

 

(i) “Conversion Amount” means, with respect to each Preferred Share, as of the applicable date of determination, the sum of (A) the Stated Value thereof plus (B) the Additional Amount thereon, plus (C) the Make-Whole Amount, plus (D) any accrued and unpaid Late Charges (as defined below in Section 24(c)) with respect to such Stated Value and Additional Amount as of such date of determination.

 

(ii) “Conversion Price” means, with respect to each Preferred Share, as of any Conversion Date or other date of determination, $0.6893, subject to adjustment as provided herein.

 

(c) Mechanics of Conversion. The conversion of each Preferred Share shall be conducted in the following manner:

 

(i) Optional Conversion. To convert a Preferred Share into shares of Common Stock on any date (a “Conversion Date”), a Holder shall deliver (whether via electronic mail or otherwise), for receipt on or prior to 11:59 p.m., New York time, on such date, a copy of an executed notice of conversion of the share(s) of Preferred Shares subject to such conversion in the form attached hereto as Exhibit I (the “Conversion Notice”) to the Company. If required by Section 4(c)(iii), within two (2) Trading Days following a conversion of any such Preferred Shares as aforesaid, such Holder shall surrender to a nationally recognized overnight delivery service for delivery to the Company the original certificates, if any, representing the Preferred Shares (the “Preferred Share Certificates”) so converted as aforesaid (or an indemnification undertaking with respect to the Preferred Shares in the case of its loss, theft or destruction as contemplated by Section 18(b)). On or before the first (1st) Trading Day following the date of receipt of a Conversion Notice, the Company shall transmit by electronic mail an acknowledgment of confirmation in the form attached hereto as Exhibit II, of receipt of such Conversion Notice to such Holder and the Company’s transfer agent (the “Transfer Agent”), which confirmation shall constitute an instruction to the Transfer Agent to process such Conversion Notice in accordance with the terms herein. On or before the first (1st) Trading Day following each date on which the Company has received a Conversion Notice (or such earlier date as required pursuant to the 1934 Act or other applicable law, rule or regulation for the settlement of a trade initiated on the applicable Conversion Date of such shares of Common Stock issuable pursuant to such Conversion Notice) (the “Share Delivery Deadline”), the Company shall (1) provided that the Transfer Agent is participating in the Depository Trust Company’s (“DTC”) Fast Automated Securities Transfer Program (“FAST”), credit such aggregate number of shares of Common Stock to which such Holder shall be entitled pursuant to such conversion to such Holder’s or its designee’s balance account with DTC through its Deposit/Withdrawal at Custodian system, or (2) if the Transfer Agent is not participating in FAST, upon the request of such Holder, issue and deliver (via reputable overnight courier) to the address as specified in such Conversion Notice, a certificate, registered in the name of such Holder or its designee, for the number of shares of Common Stock to which such Holder shall be entitled. If the number of Preferred Shares represented by the Preferred Share Certificate(s) submitted for conversion pursuant to Section 4(c)(iii) is greater than the number of Preferred Shares being converted, then the Company shall, as soon as practicable and in no event later than one (1) Trading Day after receipt of the Preferred Share Certificate(s) and at its own expense, issue and deliver to such Holder (or its designee) a new Preferred Share Certificate or a new Book-Entry (in either case, in accordance with Section 18(d)) representing the number of Preferred Shares not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of Preferred Shares shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.

 

 

(ii) Company’s Failure to Timely Convert. If the Company shall fail, for any reason or for no reason, on or prior to the applicable Share Delivery Deadline, if the Transfer Agent is not participating in FAST, to issue and deliver to such Holder (or its designee) a certificate for the number of shares of Common Stock to which such Holder is entitled and register such shares of Common Stock on the Company’s share register or, if the Transfer Agent is participating in FAST, to credit such Holder’s or its designee’s balance account with DTC for such number of shares of Common Stock to which such Holder is entitled upon such Holder’s conversion of any Conversion Amount (as the case may be) (a “Conversion Failure”), then, in addition to all other remedies available to such Holder, (X) the Company shall pay in cash from funds legally available therefor to such Holder on each day after the Share Delivery Deadline that the issuance of such shares of Common Stock is not timely effected an amount equal to 1% of the product of (A) the sum of the number of shares of Common Stock not issued to such Holder on or prior to the Share Delivery Deadline and to which such Holder is entitled, multiplied by (B) any trading price of the Common Stock selected by such Holder in writing as in effect at any time during the period beginning on the applicable Conversion Date and ending on the applicable Share Delivery Deadline, and (Y) such Holder, upon written notice to the Company, may void its Conversion Notice with respect to, and retain or have returned, as the case may be, all, or any portion, of such Preferred Shares that has not been converted pursuant to such Conversion Notice; provided that the voiding of a Conversion Notice shall not affect the Company’s obligations to make any payments which have accrued prior to the date of such notice pursuant to this Section 4(c)(ii) or otherwise. In addition to the foregoing, if on or prior to the Share Delivery Deadline the Transfer Agent is not participating in FAST, the Company shall fail to issue and deliver to such Holder (or its designee) a certificate and register such shares of Common Stock on the Company’s share register or, if the Transfer Agent is participating in FAST, the Transfer Agent shall fail to credit the balance account of such Holder or such Holder’s designee, as applicable, with DTC for the number of shares of Common Stock to which such Holder is entitled upon such Holder’s conversion hereunder or pursuant to the Company’s obligation pursuant to clause (ii) below, and if on or after such Share Delivery Deadline such Holder purchases (in an open market transaction, stock loan or otherwise) shares of Common Stock corresponding to all or any portion of the number of shares of Common Stock issuable upon such conversion that such Holder is entitled to receive from the Company and has not received from the Company in connection with such Conversion Failure, as applicable (a “Buy-In”), then, in addition to all other remedies available to such Holder, the Company shall, within two (2) Business Days after receipt of such Holder’s request and in such Holder’s discretion, either: (I) pay cash from funds legally available therefor to such Holder in an amount equal to such Holder’s total purchase price (including brokerage commissions, stock loan costs and other out-of- pocket expenses, if any) for the shares of Common Stock so purchased (including, without limitation, by any other Person in respect, or on behalf, of such Holder) (the “Buy-In Price”), at which point the Company’s obligation to so issue and deliver such certificate (and to issue such shares of Common Stock) or credit to the balance account of such Holder or such Holder’s designee, as applicable, with DTC for the number of shares of Common Stock to which such Holder is entitled upon such Holder’s conversion hereunder (as the case may be) (and to issue such shares of Common Stock) shall terminate, or (II) promptly honor its obligation to so issue and deliver to such Holder a certificate or certificates representing such shares of Common Stock or credit the balance account of such Holder or such Holder’s designee, as applicable, with DTC for the number of shares of Common Stock to which such Holder is entitled upon such Holder’s conversion hereunder (as the case may be) and pay cash from funds legally available therefor to such Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (x) such number of shares of Common Stock multiplied by (y) the lowest Closing Sale Price of the Common Stock on any Trading Day during the period commencing on the date of the applicable Conversion Notice and ending on the date of such issuance and payment under this clause (II). Nothing herein shall limit the Holder’s right to pursue any other remedies available to it hereunder, at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock (or to electronically deliver such shares of Common Stock) upon the conversion of Preferred Shares as required pursuant to the terms hereof.

 

 

(iii) Registration; Book-Entry. At the time of issuance of any Preferred Shares hereunder, the applicable Holder may, by written request (including by electronic-mail) to the Company, elect to receive such Preferred Shares in the form of one or more Preferred Share Certificates or in Book-Entry form. The Company (or the Transfer Agent, as custodian for the Preferred Shares) shall maintain a register (the “Register”) for the recordation of the names and addresses of the Holders of each Preferred Share and the Stated Value of the Preferred Shares and whether the Preferred Shares are held by such Holder in Preferred Share Certificates or in Book-Entry form (the “Registered Preferred Shares”). The entries in the Register shall be conclusive and binding for all purposes absent manifest error. The Company and each Holder of the Preferred Shares shall treat each Person whose name is recorded in the Register as the owner of a Preferred Share for all purposes (including, without limitation, the right to receive payments and Dividends hereunder) notwithstanding notice to the contrary. A Registered Preferred Share may be assigned, transferred or sold only by registration of such assignment or sale on the Register. Upon its receipt of a written request to assign, transfer or sell one or more Registered Preferred Shares by such Holder thereof, the Company shall record the information contained therein in the Register and issue one or more new Registered Preferred Shares in the same aggregate Stated Value as the Stated Value of the surrendered Registered Preferred Shares to the designated assignee or transferee pursuant to Section 18, provided that if the Company does not so record an assignment, transfer or sale (as the case may be) of such Registered Preferred Shares within two (2) Business Days of such a request, then the Register shall be automatically deemed updated to reflect such assignment, transfer or sale (as the case may be). Notwithstanding anything to the contrary set forth in this Section 4, following conversion of any Preferred Shares in accordance with the terms hereof, the applicable Holder shall not be required to physically surrender such Preferred Shares held in the form of a Preferred Share Certificate to the Company unless (A) the full or remaining number of Preferred Shares represented by the applicable Preferred Share Certificate are being converted (in which event such certificate(s) shall be delivered to the Company as contemplated by this Section 4(c)(iii)) or (B) such Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of Preferred Shares upon physical surrender of the applicable Preferred Share Certificate. Each Holder and the Company shall maintain records showing the Stated Value, Dividends paid, and Late Charges converted and/or paid (as the case may be) and the dates of such conversions and/or payments (as the case may be) or shall use such other method, reasonably satisfactory to such Holder and the Company, so as not to require physical surrender of a Preferred Share Certificate upon conversion. If the Company does not update the Register to record such Stated Value, Dividends paid, and Late Charges converted and/or paid (as the case may be) and the dates of such conversions and/or payments (as the case may be) within two (2) Business Days of such occurrence, then the Register shall be automatically deemed updated to reflect such occurrence. In the event of any dispute or discrepancy, such records of such Holder establishing the number of Preferred Shares to which the record holder is entitled shall be controlling and determinative in the absence of manifest error. A Holder and any transferee or assignee, by acceptance of a certificate, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of any Preferred Shares, the number of Preferred Shares represented by such certificate may be less than the number of Preferred Shares stated on the face thereof. Each Preferred Share Certificate shall bear the following legend:

 

ANY TRANSFEREE OR ASSIGNEE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE TERMS OF THE COMPANY’S CERTIFICATE OF DESIGNATIONS RELATING TO THE SHARES OF SERIES C-2 PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE, INCLUDING SECTION 4(c)(iii) THEREOF. THE NUMBER OF SHARES OF SERIES C-2 PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE MAY BE LESS THAN THE NUMBER OF SHARES OF SERIES C-2 PREFERRED STOCK STATED ON THE FACE HEREOF PURSUANT TO SECTION 4(c)(iii) OF THE CERTIFICATE OF DESIGNATIONS RELATING TO THE SHARES OF SERIES C-2 PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE.

 

 

(iv) Pro Rata Conversion; Disputes. If the Company receives a Conversion Notice from more than one Holder for the same Conversion Date and the Company can convert some, but not all, of such Preferred Shares submitted for conversion, the Company shall convert from each Holder electing to have Preferred Shares converted on such date a Pro Rata Amount of such Holder’s Preferred Shares submitted for conversion on such date based on the number of Preferred Shares submitted for conversion on such date by such Holder relative to the aggregate number of Preferred Shares submitted for conversion on such date. In the event of a dispute as to the number of shares of Common Stock issuable to a Holder in connection with a conversion of Preferred Shares, the Company shall issue to such Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance with Section 23.

 

(d) Limitation on Beneficial Ownership.

 

(i) Beneficial Ownership. The Company shall not effect the conversion of any of the Preferred Shares held by a Holder, and such Holder shall not have the right to convert any of the Preferred Shares held by such Holder pursuant to the terms and conditions of this Certificate of Designations and any such conversion shall be null and void and treated as if never made, to the extent that after giving effect to such conversion, such Holder together with the other Attribution Parties collectively would beneficially own in excess of 9.99% (the “Maximum Percentage”) of the shares of Common Stock outstanding immediately after giving effect to such conversion. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by such Holder and the other Attribution Parties shall include the number of shares of Common Stock held by such Holder and all other Attribution Parties plus the number of shares of Common Stock issuable upon conversion of the Preferred Shares with respect to which the determination of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (A) conversion of the remaining, nonconverted Preferred Shares beneficially owned by such Holder or any of the other Attribution Parties and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any convertible notes, convertible preferred stock or warrants, including the Preferred Shares and the Debenture) beneficially owned by such Holder or any other Attribution Party subject to a limitation on conversion or exercise analogous to the limitation contained in this Section 4(d)(i). For purposes of this Section 4(d)(i), beneficial ownership shall be calculated in accordance with Section 13(d) of the 1934 Act. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the 1934 Act and the rules and regulations promulgated thereunder. For purposes of determining the number of outstanding shares of Common Stock a Holder may acquire upon the conversion of such Preferred Shares without exceeding the Maximum Percentage, such Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other public filing with the SEC, as the case may be, (y) a more recent public announcement by the Company or (z) any other written notice by the Company or the Transfer Agent, if any, setting forth the number of shares of Common Stock outstanding (the “Reported Outstanding Share Number”). If the Company receives a Conversion Notice from a Holder at a time when the actual number of outstanding shares of Common Stock is less than the Reported Outstanding Share Number, the Company shall notify such Holder in writing of the number of shares of Common Stock then outstanding and, to the extent that such Conversion Notice would otherwise cause such Holder’s beneficial ownership, as determined pursuant to this Section 4(d)(i), to exceed the Maximum Percentage, such Holder must notify the Company of a reduced number of shares of Common Stock to be purchased pursuant to such Conversion Notice. For any reason at any time, upon the written or oral request of any Holder, the Company shall within one (1) Business Day confirm orally and in writing or by electronic mail to such Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including such Preferred Shares, by such Holder and any other Attribution Party since the date as of which the Reported Outstanding Share Number was reported. In the event that the issuance of shares of Common Stock to a Holder upon conversion of such Preferred Shares results in such Holder and the other Attribution Parties being deemed to beneficially own, in the aggregate, more than the Maximum Percentage of the number of outstanding shares of Common Stock (as determined under Section 13(d) of the 1934 Act), the number of shares so issued by which such Holder’s and the other Attribution Parties’ aggregate beneficial ownership exceeds the Maximum Percentage (the “Excess Shares”) shall be deemed null and void and shall be cancelled ab initio, and such Holder shall not have the power to vote or to transfer the Excess Shares. Upon delivery of a written notice to the Company, any Holder may from time to time increase (with such increase not effective until the sixty-first (61st) day after delivery of such notice) or decrease the Maximum Percentage of such Holder to any other percentage not in excess of 9.99% as specified in such notice; provided that (i) any such increase in the Maximum Percentage will not be effective until the sixty-first (61st) day after such notice is delivered to the Company, (ii) any such increase or decrease will apply only to such Holder and the other Attribution Parties and not to any other Holder that is not an Attribution Party of such Holder, and (iii) the Maximum Percentage shall not exceed 19.99%. For purposes of clarity, the shares of Common Stock issuable to a Holder pursuant to the terms of this Certificate of Designations in excess of the Maximum Percentage shall not be deemed to be beneficially owned by such Holder for any purpose including for purposes of Section 13(d) or Rule 16a-1(a)(1) of the 1934 Act. No prior inability to convert such Preferred Shares pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of convertibility. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d)(i) to the extent necessary to correct this paragraph (or any portion of this paragraph) which may be defective or inconsistent with the intended beneficial ownership limitation contained in this Section 4(d)(i) or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitation contained in this paragraph may not be waived and shall apply to a successor holder of such Preferred Shares.

 

(ii) Principal Market Regulation. The Company shall not issue any shares of Common Stock upon conversion of any Preferred Shares or otherwise pursuant to the terms of this Certificate of Designations if the issuance of such shares of Common Stock would exceed the aggregate number of shares of Common Stock (taken together with the issuance of all shares of Common Stock issuable upon conversion of the Debenture (the ‘Debenture Shares”)) which the Company may issue upon conversion or exercise (as the case may be) of the Preferred Shares or the Debenture without breaching the Company’s obligations under the rules and regulations of the Principal Market (the number of shares which may be issued without violating such rules and regulations, including rules related to the aggregate offerings under NASDAQ Listing Rule 5635(d), the “Exchange Cap”), except that such limitation shall not apply if the Company (A) obtains the approval of its stockholders as required by the applicable rules and regulations of the Principal Market for issuances of shares of Common Stock in excess of such amount or (B) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the Required Holders. Until such approval or such written opinion is obtained, no Holder shall be issued in the aggregate, upon conversion or exercise (as the case may be) of any Preferred Shares or the Debenture, shares of Common Stock in an amount greater than the product of (i) the Exchange Cap as of the Initial Issuance Date multiplied by (ii) the quotient of (1) the aggregate number of Preferred Shares issued to such Holder on the Initial Issuance Date divided by (2) the aggregate number of Preferred Shares issued to the Holders on the Initial Issuance Date (with respect to each Holder, the “Exchange Cap Allocation”). If any Holder shall sell or otherwise transfer any of such Holder’s Preferred Shares, the transferee shall be allocated a pro rata portion of such Holder’s Exchange Cap Allocation with respect to such portion of such Preferred Shares so transferred, and the restrictions of the prior sentence shall apply to such transferee with respect to the portion of the Exchange Cap Allocation so allocated to such transferee. Upon conversion in full of a holder’s Preferred Shares, the difference (if any) between such holder’s Exchange Cap Allocation and the number of shares of Common Stock actually issued to such holder upon such holder’s conversion in full of such Preferred Shares shall be allocated, to the respective Exchange Cap Allocations of the remaining holders of Preferred Shares and/or the Debenture on a pro rata basis in proportion to the shares of Common Stock underlying the Preferred Shares and/or the Debenture then held by each such holder of Preferred Shares and/or the Debenture.

 

 

(e) Right of Alternate Conversion.

 

	(i)	Alternate Conversion Upon a Triggering Event. Subject to Section 4(d), at any time after the later of (A) the Stockholder Approval Date, and (B) the earlier of a Holder’s receipt of a Triggering Event Notice (as defined herein) and such Holder becoming aware of a Triggering Event (such earlier date, the “Triggering Event Right Commencement Date”) and ending upon the Holder’s receipt of a notice from the Company that such Triggering Event has been cured (which notice shall be delivered via electronic mail and overnight courier (with next day delivery specified)) (such ending date, the “Triggering Event Right Expiration Date”, and each such period, a “Triggering Event Period”), such Holder may, at such Holder’s option, by delivery of a Conversion Notice to the Company (the date of any such Conversion Notice, each an “Alternate Conversion Date”), convert all, or any number of Preferred Shares (such Conversion Amount of the Preferred Shares to be converted pursuant to this Section 4(e)(ii), each, an “Alternate Conversion Amount”) into shares of Common Stock at the Alternate Conversion Price (each an “Alternate Conversion”).
	(ii)	Mechanics of Alternate Conversion. On any Alternate Conversion Date, a Holder may voluntarily convert any Alternate Conversion Amount of Preferred Shares pursuant to Section 4(c) (with “Alternate Conversion Price” replacing “Conversion Price” for all purposes hereunder with respect to such Alternate Conversion and with “Redemption Premium multiplied by the Conversion Amount” replacing “Conversion Amount” in clause (x) of the definition of Conversion Rate above with respect to such Alternate Conversion) by designating in the Conversion Notice delivered pursuant to this Section 4(e) of this Certificate of Designations that such Holder is electing to use the Alternate Conversion Price for such conversion. Notwithstanding anything to the contrary in this Section 4(e), but subject to Section 4(d), until the Company delivers shares of Common Stock representing the applicable Alternate Conversion Amount of Preferred Shares to such Holder, such Preferred Shares may be converted by such Holder into shares of Common Stock pursuant to Section 4(c) without regard to this Section 4(e).

 

5. Triggering Event Redemptions.

 

(a) Triggering Event. Each of the following events shall constitute a “Triggering Event” and each of the events in clauses (viii), (ix), and (x) shall constitute a “Bankruptcy Triggering Event”:

 

(i) the suspension from trading or the failure of the Common Stock to be trading or listed (as applicable) on an Eligible Market for a period of five (5) consecutive Trading Days;

 

(ii) the Company’s (A) failure to cure a Conversion Failure (as defined herein) or failure to cure the failure to deliver Debenture Shares pursuant to Section 4(b)(iii) of the Debenture by delivery of the required number of shares of Common Stock within five (5) Trading Days after the applicable Conversion Date or exercise date (as the case may be) or (B) written notice to any holder of Preferred Shares and/or the Debenture, including, without limitation, by way of public announcement or through any of its agents, at any time, of its intention not to comply, as required, with a request for conversion of (i) any Preferred Shares into shares of Common Stock that is requested in accordance with the provisions of this Certificate of Designations or (ii) the Debenture into shares of Common Stock that is requested in accordance with the provisions of the Debenture, other than pursuant to Section 4(d) hereof;

 

(iii) except to the extent the Company is in compliance with Section 10(b) below, at any time (A) after the Stockholder Approval Date, and (B) following the tenth (10th) consecutive day that a Holder’s Authorized Share Allocation (as defined in Section 10(a) below) is less than the sum of (i) 200% of the number of shares of Common Stock that such Holder would be entitled to receive upon a conversion, in full, of all of the Preferred Shares then held by such Holder (assuming conversion at the Conversion Price then in effect without regard to any limitations on conversion set forth in this Certificate of Designations), and (ii) 200% of the number of shares of Common Stock that such Holder would then be entitled to receive upon conversion of the Debenture in full;

 

(iv) the Company’s failure to pay to any Holder any Dividend on any Dividend Date (whether or not declared by the Board), solely to the extent such failure remains uncured for a period of at least five (5) Trading Days;

 

 

(v) the Company’s failure to pay any other amount when and as due under this Certificate of Designations (including, without limitation, the Company’s failure to pay any Late Charges, redemption payments or other amounts hereunder), the Securities Purchase Agreement or any other Transaction Document or any other agreement, document, certificate, or other instrument delivered in connection with the transactions contemplated hereby and thereby (in each case, whether or not permitted pursuant to the NRS), solely to the extent such failure remains uncured for a period of at least five (5) Trading Days;

 

(vi) the Company fails to deliver Conversion Shares or Debenture Shares without restrictive legend on any certificate or any shares of Common Stock issued to the applicable Holder upon conversion or exercise (as the case may be) of any Securities (as defined in the Securities Purchase Agreement) acquired by such Holder under the Transaction Documents as and when required by such Securities or the Securities Purchase Agreement, as applicable, unless otherwise then prohibited by applicable federal securities laws, and any such failure remains uncured for at least five (5) Trading Days;

 

(vii) the occurrence of any default under, redemption of, or acceleration prior to maturity of at least an aggregate of $500,000 of Indebtedness of the Company or any of its Subsidiaries;

 

(viii) bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for the relief of debtors shall be instituted by or against the Company or any Subsidiary and, if instituted against the Company or any Subsidiary by a third party, shall not be dismissed within thirty (30) days of their initiation;

 

(ix) the commencement by the Company or any Subsidiary of a voluntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree, order, judgment or other similar document in respect of the Company or any Subsidiary in an involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal, state or foreign law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Subsidiary or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the execution of a composition of debts, or the occurrence of any other similar federal, state or foreign proceeding, or the admission by it in writing of its inability to pay its debts generally as they become due, the taking of corporate action by the Company or any Subsidiary in furtherance of any such action or the taking of any action by any Person to commence a Uniform Commercial Code foreclosure sale or any other similar action under federal, state or foreign law;

 

(x) the entry by a court of (i) a decree, order, judgment, or other similar document in respect of the Company or any Subsidiary of a voluntary or involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization, or other similar law or (ii) a decree, order, judgment or other similar document adjudging the Company or any Subsidiary as bankrupt or insolvent, or approving as properly filed a petition seeking liquidation, reorganization, arrangement, adjustment or composition of or in respect of the Company or any Subsidiary under any applicable federal, state or foreign law or (iii) a decree, order, judgment or other similar document appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Subsidiary or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree, order, judgment or other similar document or any such other decree, order, judgment or other similar document unstayed and in effect for a period of thirty (30) consecutive days;

 

(xi) a final judgment or judgments for the payment of money aggregating in excess of $500,000 are rendered against the Company and/or any of its Subsidiaries and which judgments are not, within thirty (30) days after the entry thereof, bonded, discharged, settled, or stayed pending appeal, or are not discharged within thirty (30) days after the expiration of such stay; provided, however, any judgment which is covered by insurance or an indemnity from a credit worthy party shall not be included in calculating the $500,000 amount set forth above so long as the Company provides each Holder a written statement from such insurer or indemnity provider (which written statement shall be reasonably satisfactory to each Holder) to the effect that such judgment is covered by insurance or an indemnity and the Company or such Subsidiary (as the case may be) will receive the proceeds of such insurance or indemnity within thirty (30) days of the issuance of such judgment;

 

 

(xii) [intentionally omitted];

 

(xiii) other than as specifically set forth in another clause of this Section 5(a), the Company or any Subsidiary breaches any representation or warranty in any material respect (other than the representations or warranties subject to material adverse effect or materiality, which may not be breached in any respect) or any covenant or other term or condition of any Transaction Document, except, in the case of a breach of a covenant or other term or condition that is curable, only if such breach remains uncured for a period of five (5) consecutive Trading Days;

 

(xiv) a false or inaccurate certification (including a false or inaccurate deemed certification) by the Company as to whether any Triggering Event has occurred;

 

(xv) the Company and/or any Subsidiary, individually or in the aggregate, either (i) fails to pay, when due, or within any applicable grace period, any payment with respect to any Indebtedness in excess of $500,000 due to any third party (other than, with respect to unsecured Indebtedness only, payments contested by the Company and/or such Subsidiary (as the case may be) in good faith by proper proceedings and with respect to which adequate reserves have been set aside for the payment thereof in accordance with GAAP) or is otherwise in breach or violation of any agreement for monies owed or owing in an amount in excess of $500,000, which breach or violation permits the other party thereto to declare a default or otherwise accelerate amounts due thereunder, or (ii) suffer to exist any other circumstance or event that would, with or without the passage of time or the giving of notice, result in a default or event of default under any agreement binding the Company or any Subsidiary, which default or event of default would or is likely to have a material adverse effect on the business, assets, operations (including results thereof), liabilities, properties, condition (including financial condition) or prospects of the Company or any of its Subsidiaries, individually or in the aggregate, but only if such failure or occurrence remains uncured for a period of at least five (5) days;

 

(xvi) any Material Adverse Effect occurs that has not been cured, if capable of curing, within ten (10) Trading Days of the occurrence thereof; or

 

(xvii) any provision of any Transaction Document shall at any time for any reason (other than pursuant to the express terms thereof) cease to be valid and binding on or enforceable against the Company, or the validity or enforceability thereof shall be contested, directly or indirectly, by the Company or any Subsidiary, or a proceeding shall be commenced by the Company or any Subsidiary or any governmental authority having jurisdiction over any of them, seeking to establish the invalidity or unenforceability thereof or the Company or any of its Subsidiaries shall deny in writing that it has any liability or obligation purported to be created under one or more Transaction Documents.

 

(b) Notice of a Triggering Event. Upon the occurrence of a Triggering Event, including a Bankruptcy Triggering Event, with respect to the Preferred Shares, the Company shall within two (2) Business Days deliver written notice thereof via electronic mail and overnight courier (with next day delivery specified) (a “Triggering Event Notice”) to each Holder. Such Triggering Event Notice shall include (I) a reasonable description of the applicable Triggering Event, (II) a certification as to whether, in the opinion of the Company, such Triggering Event is capable of being cured and, if applicable, a reasonable description of any existing plans of the Company to cure such Triggering Event, and (III) a certification as to the date the Triggering Event occurred and, if cured on or prior to the date of such Triggering Event Notice, the applicable Triggering Event Right Expiration Date.

 

 

(c) Mandatory Redemption upon Bankruptcy Triggering Event. Notwithstanding anything to the contrary herein, and notwithstanding any conversion that is then required or in process, at any time after the earlier of (i) a Holder’s receipt of a Triggering Event Notice, and (ii) such Holder becoming aware of a Bankruptcy Triggering Event (such earlier date, the “Bankruptcy Triggering Event Right Commencement Date”), and ending on the date in which the Holder receives a notice from the Company that such Bankruptcy Triggering Event has been cured (which notice shall be delivered via electronic mail and overnight courier (with next day delivery specified)) (such ending date, the “Bankruptcy Triggering Event Right Expiration Date”, and each such period, a “Bankruptcy Triggering Event Period”), such Holder may require the Company to immediately redeem all or any of the Preferred Shares by delivering written notice thereof (the “Bankruptcy Triggering Event Redemption Notice”) to the Company, which Bankruptcy Triggering Event Redemption Notice shall indicate the number of the Preferred Shares such Holder is electing to redeem. Upon receipt of any Bankruptcy Triggering Event Redemption Notice, the Company shall immediately redeem, out of funds legally available therefor, each of the Preferred Shares then outstanding at a redemption price equal to the greater of (i) the product of (A) the Conversion Amount to be redeemed multiplied by (B) the Redemption Premium and (ii) the product of (X) the Conversion Rate with respect to the Conversion Amount in effect at such time as such Holder delivers a Bankruptcy Triggering Event Redemption Notice multiplied by (Y) the product of (1) the Redemption Premium multiplied by (2) the greatest Closing Sale Price of the Common Stock on any Trading Day during the period commencing on the date immediately preceding such Bankruptcy Triggering Event and ending on the date the Company makes the entire payment required to be made under this Section 5(c) (the “Bankruptcy Triggering Event Redemption Price”), without the requirement for any notice or demand or other action by any Holder or any other person or entity, provided that a Holder may, in its sole discretion, waive such right to receive payment upon a Bankruptcy Triggering Event, in whole or in part, and any such waiver shall not affect any other rights of such Holder or any other Holder hereunder, including any other rights in respect of such Bankruptcy Triggering Event, any right to conversion, and any right to payment of such Bankruptcy Triggering Event Redemption Price or any other Redemption Price, as applicable.

 

6. Rights Upon Fundamental Transactions.

 

(a) Assumption. The Company shall not enter into or be party to a Fundamental Transaction unless (i) the Successor Entity (if the Successor Entity is not the Company) assumes in writing all of the obligations of the Company under this Certificate of Designations and the other Transaction Documents in accordance with the provisions of this Section 6(a) pursuant to written agreements in form and substance satisfactory to the Required Holders and approved by the Required Holders prior to such Fundamental Transaction, including agreements to deliver to each holder of Preferred Shares in exchange for such Preferred Shares a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Certificate of Designations, including, without limitation, having a stated value and dividend rate equal to the stated value and dividend rate of the Preferred Shares held by the Holders and having similar ranking to the Preferred Shares, and satisfactory to the Required Holders and (ii) the Successor Entity (including its Parent Entity) is a publicly traded corporation whose shares of common stock are quoted on or listed for trading on an Eligible Market. Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Certificate of Designations and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Certificate of Designations and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein and therein. In addition to the foregoing, upon consummation of a Fundamental Transaction, the Successor Entity (if the Successor Entity is not the Company) shall deliver to each Holder confirmation that there shall be issued upon conversion or redemption of the Preferred Shares at any time after the consummation of such Fundamental Transaction, in lieu of the shares of Common Stock (or other securities, cash, assets or other property (except such items still issuable under Sections 7 and 15, which shall continue to be receivable thereafter)) issuable upon the conversion or redemption of the Preferred Shares prior to such Fundamental Transaction, such shares of the publicly traded common stock (or their equivalent) of the Successor Entity (including its Parent Entity) which each Holder would have been entitled to receive upon the happening of such Fundamental Transaction had all the Preferred Shares held by each Holder been converted immediately prior to such Fundamental Transaction (without regard to any limitations on the conversion of the Preferred Shares contained in this Certificate of Designations), as adjusted in accordance with the provisions of this Certificate of Designations. Notwithstanding the foregoing, such Holder may elect, at its sole option, by delivery of written notice to the Company to waive this Section 6(a) to permit the Fundamental Transaction without the assumption of the Preferred Shares. The provisions of this Section 6 shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations on the conversion or redemption of the Preferred Shares.

 

 

(b) Notice of a Change of Control Redemption Right. (x) At any time commencing on the earlier of (i) ten (10) Trading Days after the Stockholder Approval Date and (ii) 210 days from the Closing Date (such earlier date, the “Change of Control Period Commencement Date)”, and (y) no sooner than twenty (20) Trading Days nor later than ten (10) Trading Days prior to the consummation of a Change of Control (the “Change of Control Date”), but not prior to the public announcement of such Change of Control, the Company shall deliver written notice thereof via electronic mail and overnight courier to each Holder (a “Change of Control Notice”). After the Change of Control Period Commencement Date, at any time during the period beginning after a Holder’s receipt of a Change of Control Notice or, after the Change of Control Period Commencement Date, such Holder becoming aware of a Change of Control if a Change of Control Notice is not delivered to such Holder in accordance with the immediately preceding sentence (as applicable) and ending on the later of (A) the date of consummation of such Change of Control or (B) twenty (20) Trading Days after the date of receipt of such Change of Control Notice or (C) twenty (20) Trading Days after the date of the announcement of such Change of Control, such Holder may require the Company to redeem all or any portion of such Holder’s Preferred Shares by delivering written notice thereof (“Change of Control Redemption Notice”) to the Company, which Change of Control Redemption Notice shall indicate the number of Preferred Shares such Holder is electing to have the Company redeem. Each Preferred Share subject to redemption pursuant to this Section 6(b) shall be redeemed by the Company in funds legally available therefor at a price equal to the greatest of (i) the product of (x) the Change of Control Redemption Premium multiplied by (y) the Conversion Amount of the Preferred Shares being redeemed, (ii) the product of (x) the Change of Control Redemption Premium multiplied by (y) the product of (A) the Conversion Amount of the Preferred Shares being redeemed multiplied by (B) the quotient determined by dividing (I) the greatest Closing Sale Price of the shares of Common Stock during the period beginning on the date immediately preceding the earlier to occur of (1) the consummation of the applicable Change of Control and (2) the public announcement of such Change of Control and ending on the date such Holder delivers the Change of Control Redemption Notice by (II) the Conversion Price then in effect and (iii) the product of (y) the Change of Control Redemption Premium multiplied by (z) the product of (A) the Conversion Amount of the Preferred Shares being redeemed multiplied by (B) the quotient of (I) the aggregate cash consideration and the aggregate cash value of any non-cash consideration per share of Common Stock to be paid to such holders of the shares of Common Stock upon consummation of such Change of Control (any such non-cash consideration constituting publicly-traded securities shall be valued at the highest of the Closing Sale Price of such securities as of the Trading Day immediately prior to the consummation of such Change of Control, the Closing Sale Price of such securities on the Trading Day immediately following the public announcement of such proposed Change of Control and the Closing Sale Price of such securities on the Trading Day immediately prior to the public announcement of such proposed Change of Control) divided by (II) the Conversion Price then in effect (the “Change of Control Redemption Price”). Redemptions required by this Section 6(b) shall have priority to payments to all other stockholders of the Company in connection with such Change of Control. To the extent redemptions required by this Section 6(b) are deemed or determined by a court of competent jurisdiction to be prepayments of the Preferred Shares by the Company, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 6(b), but subject to Section 4(d), until the applicable Change of Control Redemption Price (together with any Late Charges thereon) is paid in full to the applicable Holder, the Preferred Shares submitted by such Holder for redemption under this Section 6(b) may be converted, in whole or in part, by such Holder into Common Stock pursuant to Section 4 or in the event the Conversion Date is after the consummation of such Change of Control, stock or equity interests of the Successor Entity substantially equivalent to the Company’s shares of Common Stock pursuant to Section 4. In the event of the Company’s redemption of any of the Preferred Shares under this Section 6(b), such Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for a Holder. Accordingly, any redemption premium due under this Section 6(b) is intended by the parties to be, and shall be deemed, a reasonable estimate of such Holder’s actual loss of its investment opportunity and not as a penalty. The Company shall make payment of the applicable Change of Control Redemption Price concurrently with the consummation of such Change of Control if a Change of Control Redemption Notice is received prior to the consummation of such Change of Control and within two (2) Trading Days after the Company’s receipt of such notice otherwise (the “Change of Control Redemption Date”). In the event of a redemption of less than all of the Preferred Shares, the Company shall promptly cause to be issued and delivered to such Holder a new Preferred Share Certificate (in accordance with Section 18) (or evidence of the creation of a new Book-Entry) representing the number of Preferred Shares which have not been redeemed. Upon the Company’s receipt of a Change of Control Redemption Notice from any Holder for redemption as a result of an event or occurrence substantially similar to the events or occurrences described in this Section 6(b), the Company shall immediately, but no later than one (1) Business Day of its receipt thereof, forward to each other Holder by electronic mail a copy of such notice. If the Company receives one or more Change of Control Redemption Notices, during the seven (7) Business Day period beginning on and including the date which is two (2) Business Days prior to the Company’s receipt of the initial Change of Control Redemption Notice and ending on and including the date which is two (2) Business Days after the Company’s receipt of the initial Change of Control Redemption Notice and the Company is unable to redeem all of such Preferred Shares designated in such initial Change of Control Redemption Notice and such other Change of Control Redemption Notices received during such seven (7) Business Day period, then the Company shall redeem a pro rata amount from each Holder based on the Stated Value of the Preferred Shares submitted for redemption pursuant to such Change of Control Redemption Notices received by the Company during such seven (7) Business Day period.

 

 

7. Rights Upon Issuance of Purchase Rights and Other Corporate Events.

 

(a) Purchase Rights. In addition to any adjustments pursuant to Section 8 and Section 15 below, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to all or substantially all of the record holders of any class of Common Stock (the “Purchase Rights”), then each Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of all the Preferred Shares (without taking into account any limitations or restrictions on the convertibility of the Preferred Shares and assuming for such purpose that all the Preferred Shares were converted at the Alternate Price as of the applicable record date) held by such Holder immediately prior to the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights, provided, however, to the extent that such Holder’s right to participate in any such Purchase Right would result in such Holder and the other Attribution Parties exceeding the Maximum Percentage, then such Holder shall not be entitled to participate in such Purchase Right to such extent of the Maximum Percentage (and shall not be entitled to beneficial ownership of such shares of Common Stock as a result of such Purchase Right (and beneficial ownership) to such extent of any such excess) and such Purchase Right to such extent shall be held in abeyance (and, if such Purchase Right has an expiration date, maturity date or other similar provision, such term shall be extended by such number of days held in abeyance, if applicable) for the benefit of such Holder until such time or times, if ever, as its right thereto would not result in such Holder and the other Attribution Parties exceeding the Maximum Percentage, at which time or times such Holder shall be granted such right (and any Purchase Right granted, issued or sold on such initial Purchase Right or on any subsequent Purchase Right held similarly in abeyance (and, if such Purchase Right has an expiration date, maturity date or other similar provision, such term shall be extended by such number of days held in abeyance, if applicable)) to the same extent as if there had been no such limitation.

 

(b) Other Corporate Events. In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make appropriate provision to ensure that each Holder will thereafter have the right, at such Holder’s option, to receive upon a conversion of all the Preferred Shares held by such Holder (i) in addition to the shares of Common Stock receivable upon such conversion, such securities or other assets to which such Holder would have been entitled with respect to such shares of Common Stock had such shares of Common Stock been held by such Holder upon the consummation of such Corporate Event (without taking into account any limitations or restrictions on the convertibility of the Preferred Shares set forth in this Certificate of Designations) or (ii) in lieu of the shares of Common Stock otherwise receivable upon such conversion, such securities or other assets received by the holders of shares of Common Stock in connection with the consummation of such Corporate Event in such amounts as such Holder would have been entitled to receive had the Preferred Shares held by such Holder initially been issued with conversion rights for the form of such consideration (as opposed to shares of Common Stock) at a conversion rate for such consideration commensurate with the Conversion Rate. Provision made pursuant the preceding sentence shall be in a form and substance satisfactory to the Required Holders. The provisions of this Section 7 shall apply similarly and equally to successive Corporate Events and shall be applied without regard to any limitations on the conversion or redemption of the Preferred Shares set forth in this Certificate of Designations.

 

 

8. Rights Upon Issuance of Other Securities.

 

(a) Adjustment of Conversion Price upon Issuance of Common Stock. If and whenever on or after the Closing Date, the Company grants, issues or sells (or enters into any agreement or publicly announces its intention to grant, issue or sell), or in accordance with this Section 8(a) is deemed to have granted, issued or sold, any shares of Common Stock (including the grant, issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding any Excluded Securities granted, issued or sold or deemed to have been granted, issued or sold) for a consideration per share (the “New Issuance Price”) less than a price equal to the Conversion Price in effect immediately prior to such grant, issuance or sale or deemed grant, issuance or sale (such Conversion Price then in effect is referred to herein as the “Applicable Price”) (the foregoing a “Dilutive Issuance”), then, immediately after such Dilutive Issuance, the Conversion Price then in effect shall be reduced to an amount equal to the New Issuance Price. For all purposes of the foregoing (including, without limitation, determining the adjusted Conversion Price and the New Issuance Price under this Section 8(a)), the following shall be applicable:

 

(i) Issuance of Options. If the Company in any manner grants, issues or sells (or enters into any agreement to grant, issue or sell) any Options and the lowest price per share for which one share of Common Stock is at any time issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting, issuance or sale of such Option for such price per share. For purposes of this Section 8(a)(i), the “lowest price per share for which one share of Common Stock is at any time issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting, issuance or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option or otherwise pursuant to the terms thereof and (y) the lowest exercise price set forth in such Option for which one share of Common Stock is issuable (or may become issuable assuming all possible market conditions) upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof minus (2) the sum of all amounts paid or payable to the holder of such Option (or any other Person) with respect to any one share of Common Stock upon the granting, issuance or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option or otherwise pursuant to the terms thereof plus the value of any other consideration consisting of cash, debt forgiveness, assets or any other property received or receivable by, or benefit conferred on, the holder of such Option (or any other Person). Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such shares of Common Stock or of such Convertible Securities upon the exercise of such Options or otherwise pursuant to the terms thereof or upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities.

 

 

(ii) Issuance of Convertible Securities. If the Company in any manner issues or sells (or enters into any agreement to issue or sell) any Convertible Securities and the lowest price per share for which one share of Common Stock is at any time issuable upon the conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale (or the time of execution of such agreement to issue or sell, as applicable) of such Convertible Securities for such price per share. For purposes of this Section 8(a)(ii), the “lowest price per share for which one share of Common Stock is at any time issuable upon the conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale (or pursuant to the agreement to issue or sell, as applicable) of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security or otherwise pursuant to the terms thereof and (y) the lowest conversion price set forth in such Convertible Security for which one share of Common Stock is issuable (or may become issuable assuming all possible market conditions) upon conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof minus (2) the sum of all amounts paid or payable to the holder of such Convertible Security (or any other Person) with respect to any one share of Common Stock upon the issuance or sale (or the agreement to issue or sell, as applicable) of such Convertible Security plus the value of any other consideration received or receivable consisting of cash, debt forgiveness, assets or other property by, or benefit conferred on, the holder of such Convertible Security (or any other Person). Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities or otherwise pursuant to the terms thereof, and if any such issuance or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price has been or is to be made pursuant to other provisions of this Section 8(a), except as contemplated below, no further adjustment of the Conversion Price shall be made by reason of such issuance or sale.

 

(iii) Change in Option Price or Rate of Conversion. If the purchase or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for shares of Common Stock increases or decreases at any time (other than proportional changes in conversion or exercise prices, as applicable, in connection with an event referred to in Section 8(b) below), the Conversion Price in effect at the time of such increase or decrease shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate (as the case may be) at the time initially granted, issued or sold. For purposes of this Section 8(a)(iii), if the terms of any Option or Convertible Security (including any Option or Convertible Security that was outstanding as of the Closing Date) are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 8(a) shall be made if such adjustment would result in an increase of the Conversion Price then in effect.

 

(iv) Calculation of Consideration Received. If any Option and/or Convertible Security and/or Adjustment Right is issued in connection with the issuance or sale or deemed issuance or sale of any other securities of the Company (as determined by the Required Holders, the “Primary Security”, and such Option and/or Convertible Security and/or Adjustment Right, the “Secondary Securities” and together with the Primary Security, each a “Unit”), together comprising one integrated transaction, the aggregate consideration per share of Common Stock with respect to such Primary Security shall be deemed to be the lower of (x) the purchase price of such Unit, (y) if such Primary Security is an Option and/or Convertible Security, the lowest price per share for which one share of Common Stock is at any time issuable upon the exercise or conversion of the Primary Security in accordance with Section 8(a)(i) or 8(a)(ii) above and (z) the lowest VWAP of the shares of Common Stock on any Trading Day during the five (5) Trading Day period (the “Adjustment Period”) immediately following the public announcement of such Dilutive Issuance (for the avoidance of doubt, if such public announcement is released prior to the opening of the Principal Market on a Trading Day, such Trading Day shall be the first Trading Day in such five (5) Trading Day period and if any Preferred Shares are converted, on any given Conversion Date during any such Adjustment Period, solely with respect to such Preferred Shares converted on such applicable Conversion Date, such applicable Adjustment Period shall be deemed to have ended on, and included, the Trading Day immediately prior to such Conversion Date). If any shares of Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount of consideration received by the Company therefor. If any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company for such securities will be the arithmetic average of the VWAPs of such security for each of the five (5) Trading Days immediately preceding the date of receipt. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non- surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities (as the case may be). The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Company and the Required Holders. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Trading Days after the tenth (10th) day following such Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Required Holders. The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company.

 

 

(v) Record Date. If the Company takes a record of the holders of shares of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in shares of Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase shares of Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issuance or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase (as the case may be).

 

(b) Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. Without limiting any provision of Section 7 or Section 8(a), if the Company at any time on or after the Closing Date subdivides (by any stock split, stock dividend, stock combination, recapitalization or other similar transaction) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. Without limiting any provision of Section 7 or Section 8(a), if the Company at any time on or after the Closing Date combines (by any stock split, stock dividend, stock combination, recapitalization or other similar transaction) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. Any adjustment pursuant to this Section 8(b) shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this Section 8(b) occurs during the period that a Conversion Price is calculated hereunder, then the calculation of such Conversion Price shall be adjusted appropriately to reflect such event.

 

(c) Holder’s Right of Adjusted Conversion Price. In addition to and not in limitation of the other provisions of this Section 8(c), if the Company in any manner issues or sells or enters into (whether initially or pursuant to any subsequent amendment thereof) any agreement to issue or sell, any Common Stock, Options or Convertible Securities (any such securities, “Variable Price Securities”) after the Stockholder Approval Date that are issuable pursuant to such agreement or convertible into or exchangeable or exercisable for shares of Common Stock at a price which varies or may vary with the market price of the shares of Common Stock, including by way of one or more reset(s) to a fixed price, but exclusive of such formulations reflecting customary anti-dilution provisions (such as share splits, share combinations, share dividends and similar transactions) (each of the formulations for such variable price being herein referred to as, the “Variable Price”), the Company shall provide written notice thereof via electronic mail and overnight courier to each Holder on the date of such agreement and/or the issuance of such shares of Common Stock, Convertible Securities or Options, as applicable. From and after the date the Company enters into such agreement or issues any such Variable Price Securities, each Holder shall have the right, but not the obligation, in its sole discretion to substitute the Variable Price for the Conversion Price upon conversion of the Preferred Shares by designating in the Conversion Notice delivered upon any conversion of Preferred Shares that solely for purposes of such conversion such Holder is relying on the Variable Price rather than the Conversion Price then in effect. A Holder’s election to rely on a Variable Price for a particular conversion of Preferred Shares shall not obligate such Holder to rely on a Variable Price for any future conversions of Preferred Shares.

 

(d) [intentionally omitted].

 

 

(d) Most Favored Nation Provision. From the date hereof and for so long as any Preferred Shares are outstanding, if the Company issues or sells any Common Stock, Options, Convertible Securities or rights to purchase stock, warrants or securities, but excluding any Excluded Securities, if a Holder then holding outstanding Preferred Shares reasonably believes that any of the terms and conditions appurtenant to such issuance or sale are more favorable to such Holders than are the terms and conditions granted to the Holders hereunder, upon notice to the Company by such Holder within five (5) Trading Days after disclosure of such issuance or sale, the Company shall amend the terms of this Certificate of Designations as to give such Holders the benefit of such more favorable terms or conditions. The Company shall provide each Holder with notice of any such issuance or sale not later than ten (10) Trading Days before such issuance or sale.

 

(e) Other Events. If the Company (or any Subsidiary) shall take any action to which the provisions hereof are not strictly applicable, or, if applicable, would not operate to protect any Holder from dilution (other than with respect to Excluded Securities) or if any event occurs of the type contemplated by the provisions of this Section 8 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Board shall in good faith determine and implement an appropriate adjustment in the Conversion Price so as to protect the rights of such Holder, provided that no such adjustment pursuant to this Section 8(e) will increase the Conversion Price as otherwise determined pursuant to this Section 8, provided further that if such Holder does not accept such adjustments as appropriately protecting its interests hereunder against such dilution, then the Board and such Holder shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such appropriate adjustments, whose determination shall be final and binding absent manifest error and whose fees and expenses shall be borne by the Company.

 

(f) Calculations. All calculations under this Section 8 shall be made by rounding to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.

 

(g) Voluntary Adjustment by Company. Subject to the rules and regulations of the Principal Market, the Company may at any time any Preferred Shares remain outstanding, with the prior written consent of the Required Holders, reduce the then current Conversion Price to any amount and for any period of time deemed appropriate by the Board.

 

9. Non-circumvention. The Company hereby covenants and agrees that the Company will not, by amendment of its Articles of Incorporation, bylaws, or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Certificate of Designations, and will at all times in good faith carry out all the provisions of this Certificate of Designations and take all action as may be required to protect the rights of the Holders hereunder. Without limiting the generality of the foregoing or any other provision of this Certificate of Designations or the other Transaction Documents, the Company (a) shall not increase the par value of any shares of Common Stock receivable upon the conversion of any Preferred Shares above the Conversion Price then in effect, (b) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock upon the conversion of Preferred Shares and (c) shall, so long as any Preferred Shares are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Preferred Shares, the maximum number of shares of Common Stock as shall from time to time be necessary to effect the conversion of the Preferred Shares then outstanding (without regard to any limitations on conversion contained herein). Notwithstanding anything herein to the contrary, if after the sixty (60) calendar day anniversary of the Stockholder Approval Date, each Holder is not permitted to convert such Holder’s Preferred Shares in full for any reason (other than pursuant to restrictions set forth in Section 4(d)(i) hereof), the Company shall use its reasonable best efforts to promptly remedy such failure, including, without limitation, obtaining such consents or approvals as necessary to effect such conversion into shares of Common Stock.

 

 

10. Authorized Shares.

 

(a) Reservation. On or after the Stockholder Approval Date, so long as any Preferred Shares remain outstanding, the Company shall at all times reserve out of its authorized and unissued Common Stock a number of shares of Common Stock equal to the sum of (i) 200% of the aggregate number of shares of Common Stock as shall from time to time be necessary to effect the conversion of all of the Preferred Shares then outstanding at the Conversion Price then in effect (without regard to any limitations on conversions) (the “Required Reserve Amount”) and (ii) the maximum number of Dividend Shares issuable pursuant to the terms of this Certificate of Designations valued at the Conversion Price from the Initial Issuance Date through the fifth (5th) anniversary of the Initial Issuance Date (without regard to any limitations on the issuance of securities set forth herein). The Required Reserve Amount (including, without limitation, each increase in the number of shares so reserved) shall be allocated pro rata among the Holders based on the number of the Preferred Shares held by each Holder on the Initial Issuance Date or increase in the number of reserved shares, as the case may be (the “Authorized Share Allocation”). If a Holder shall sell or otherwise transfer any of such Holder’s Preferred Shares, each transferee shall be allocated a pro rata portion of such Holder’s Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any Person which ceases to hold any Preferred Shares shall be allocated to the remaining Holders of Preferred Shares, pro rata based on the number of the Preferred Shares then held by the Holders.

 

(b) Insufficient Authorized Shares. If, notwithstanding Section 10(a) and not in limitation thereof, at any time after the Stockholder Approval Date and while any of the Preferred Shares remain outstanding, the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of the Preferred Shares at least a number of shares of Common Stock equal to the Required Reserve Amount (an “Authorized Share Failure”), then the Company shall immediately take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Preferred Shares then outstanding (or deemed outstanding pursuant to Section 10(a) above). Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal. Notwithstanding the foregoing, if at any such time of an Authorized Share Failure, the Company is able to obtain the written consent of a majority of the shares of its issued and outstanding shares of Common Stock to approve the increase in the number of authorized shares of Common Stock, the Company may satisfy this obligation by obtaining such consent and submitting for filing with the SEC an Information Statement on Schedule 14C. After the Stockholder Approval Date, in the event that the Company is prohibited from issuing shares of Common Stock to a Holder upon any conversion due to the failure by the Company to have sufficient shares of Common Stock available out of the authorized but unissued shares of Common Stock (such unavailable number of shares of Common Stock, the “Authorized Failure Shares”), the Dividend Rate shall automatically increase to the Default Rate until such time as the Company cures the Authorized Share Failure, subject to compliance with the rules of Nasdaq Capital Market.

 

11. Redemptions.

 

(a)

General. If a Holder has submitted a Bankruptcy Triggering Event Redemption Notice in accordance with Section 5(c), the Company shall deliver the applicable Bankruptcy Triggering Event Redemption Price to such Holder in legally available funds within five (5) Business Days after the Company’s receipt of such Holder’s Bankruptcy Triggering Event Redemption Notice. If a Holder has submitted a Change of Control Redemption Notice in accordance with Section 6(b), the Company shall deliver the applicable Change of Control Redemption Price to such Holder in legally available funds concurrently with the consummation of such Change of Control if such notice is received prior to the consummation of such Change of Control and within five (5) Business Days after the Company’s receipt of such notice otherwise. Notwithstanding anything herein to the contrary, in connection with any redemption hereunder at a time a Holder is entitled to receive a cash payment under any of the other Transaction Documents, at the option of such Holder delivered in writing to the Company, the applicable Redemption Price hereunder shall be increased by the amount of such cash payment owed to such Holder under such other Transaction Document and, upon payment in full or conversion in accordance herewith, shall satisfy the Company’s payment obligation under such other Transaction Document. In the event of a redemption of less than all of the Preferred Shares, the Company shall promptly cause to be issued and delivered to such Holder a new Preferred Share Certificate (in accordance with Section 18) (or evidence of the creation of a new Book-Entry) representing the number of Preferred Shares which have not been redeemed. If the Company does not pay the applicable Redemption Price to a Holder within the time period required for any reason (including, without limitation, to the extent such payment is prohibited pursuant to the NRS), at any time thereafter and until the Company pays such unpaid Redemption Price in full, such Holder shall have the option, in lieu of redemption, to require the Company to promptly return to such Holder all or any of the Preferred Shares that were submitted for redemption and for which the applicable Redemption Price (together with any Late Charges thereon) has not been paid. Upon the Company’s receipt of such notice, (x) the applicable Redemption Notice shall be null and void with respect to such Preferred Shares, and (y) the Company shall immediately return the applicable Preferred Share Certificate, or issue a new Preferred Share Certificate (in accordance with Section 18(d)), to such Holder (unless the Preferred Shares are held in Book-Entry form, in which case the Company shall deliver evidence to such Holder that a Book-Entry for such Preferred Shares then exists), and in each case the Additional Amount of such Preferred Shares shall be increased by an amount equal to the difference between (1) the applicable Redemption Price (as the case may be, and as adjusted pursuant to this Section 11, if applicable) minus (2) the Stated Value portion of the Conversion Amount submitted for redemption A Holder’s delivery of a notice voiding a Redemption Notice and exercise of its rights following such notice shall not affect the Company’s obligations to make any payments of Late Charges which have accrued prior to the date of such notice with respect to the Preferred Shares subject to such notice.

 

 

(b)

Redemption by Multiple Holders. Upon the Company’s receipt of a Redemption Notice from any Holder for redemption or repayment as a result of an event or occurrence substantially similar to the events or occurrences described in Section 5(b) or Section 6(b), the Company shall immediately, but no later than one (1) Business Day of its receipt thereof, forward to each other Holder by electronic mail a copy of such notice. If the Company receives one or more Redemption Notices, during the seven (7) Business Day period beginning on and including the date which is two (2) Business Days prior to the Company’s receipt of the initial Redemption Notice and ending on and including the date which is two (2) Business Days after the Company’s receipt of the initial Redemption Notice and the Company is unable to redeem all of the Conversion Amount of such Preferred Shares designated in such initial Redemption Notice and such other Redemption Notices received during such seven (7) Business Day period, then the Company shall redeem a pro rata amount from each Holder based on the Stated Value of the Preferred Shares submitted for redemption pursuant to such Redemption Notices received by the Company during such seven (7) Business Day period.

 

12. Voting Rights. Holders of Preferred Shares shall have no voting rights, except as required by law (including without limitation, the NRS) and as expressly provided in this Certificate of Designations. To the extent that under the NRS the vote of the holders of the Preferred Shares, voting separately as a class or series, as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of the Required Holders of the shares of the Preferred Shares, voting together in the aggregate and not in separate series unless required under the NRS, represented at a duly held meeting at which a quorum is presented or by written consent of the Required Holders (except as otherwise may be required under the NRS), voting together in the aggregate and not in separate series unless required under the NRS, shall constitute the approval of such action by both the class or the series, as applicable. Subject to Section 4(d), to the extent that, under the NRS, holders of the Preferred Shares are required to vote on a matter with holders of shares of Common Stock, voting together as one class, each Preferred Share shall entitle the holder thereof to cast that number of votes per share as is equal to the number of shares of Common Stock into which it is then convertible (subject to the ownership limitations specified in Section 4(d) hereof) using the record date for determining the stockholders of the Company eligible to vote on such matters as the date as of which the Conversion Price is calculated. Holders of the Preferred Shares shall be entitled to written notice of all stockholder meetings or written consents (and copies of proxy materials and other information sent to stockholders) with respect to which they would be entitled to vote, which notice would be provided pursuant to the Company’s bylaws and the NRS.

 

13. [Intentionally Omitted.]

 

14. Liquidation, Dissolution, Winding-Up. In the event of a Liquidation Event, the Holders shall be entitled to receive in cash out of the assets of the Company, whether from capital or from earnings available for distribution to its stockholders (the “Liquidation Funds”), before any amount shall be paid to the holders of any of shares of Junior Stock, but pari passu with any Parity Stock then outstanding, an amount per Preferred Share equal to the greater of (A) 125% of the Conversion Amount of such Preferred Share on the date of such payment and (B) the amount per share such Holder would receive if such Holder converted such Preferred Share into Common Stock immediately prior to the date of such payment, provided that if the Liquidation Funds are insufficient to pay the full amount due to the Holders and holders of shares of Parity Stock, then each Holder and each holder of Parity Stock shall receive a percentage of the Liquidation Funds equal to the full amount of Liquidation Funds payable to such Holder and such holder of Parity Stock as a liquidation preference, in accordance with their respective certificate of designations (or equivalent), as a percentage of the full amount of Liquidation Funds payable to all holders of Preferred Shares and all holders of shares of Parity Stock. To the extent necessary, the Company shall cause such actions to be taken by each of its Subsidiaries so as to enable, to the maximum extent permitted by law, the proceeds of a Liquidation Event to be distributed to the Holders in accordance with this Section 14. All the preferential amounts to be paid to the Holders under this Section 14 shall be paid or set apart for payment before the payment or setting apart for payment of any amount for, or the distribution of any Liquidation Funds of the Company to the holders of shares of Junior Stock in connection with a Liquidation Event as to which this Section 14 applies.

 

 

15. Distribution of Assets. In addition to any adjustments pursuant to Section 7(a) and Section 8, if the Company shall declare or make any dividend or other distributions of its assets (or rights to acquire its assets) to any or all holders of shares of Common Stock, by way of return of capital or otherwise (including without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (the “Distributions”), then each Holder, as holders of Preferred Shares, will be entitled to such Distributions as if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of the Preferred Shares (without taking into account any limitations or restrictions on the convertibility of the Preferred Shares and assuming for such purpose that the Preferred Share were converted at the Alternate Price as of the applicable record date) immediately prior to the date on which a record is taken for such Distribution or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for such Distributions (provided, however, that to the extent that such Holder’s right to participate in any such Distribution would result in such Holder and the other Attribution Parties exceeding the Maximum Percentage, then such Holder shall not be entitled to participate in such Distribution to such extent of the Maximum Percentage (and shall not be entitled to beneficial ownership of such shares of Common Stock as a result of such Distribution (and beneficial ownership) to such extent of any such excess) and the portion of such Distribution shall be held in abeyance for the benefit of such Holder until such time or times as its right thereto would not result in such Holder and the other Attribution Parties exceeding the Maximum Percentage, at which time or times, if any, such Holder shall be granted such Distribution (and any Distributions declared or made on such initial Distribution or on any subsequent Distribution held similarly in abeyance) to the same extent as if there had been no such limitation).

 

16. Vote to Change the Terms of or Issue Preferred Shares. In addition to any other rights provided by law, except where the vote or written consent of the holders of a greater number of shares is required by law or by another provision of the Articles of Incorporation, without first obtaining the affirmative vote at a meeting duly called for such purpose or the written consent without a meeting of the Required Holders, voting together as a single class, the Company shall not: (a) amend or repeal any provision of, or add any provision to, its Articles of Incorporation or bylaws, or file any certificate of designations or articles of amendment of any series of shares of preferred stock, if such action would adversely alter or change in any respect the preferences, rights, privileges or powers, or restrictions provided for the benefit of the Preferred Shares hereunder, regardless of whether any such action shall be by means of amendment to the Articles of Incorporation or by merger, consolidation or otherwise; (b) increase or decrease (other than by conversion) the authorized number of Preferred Shares; without limiting any provision of Section 2, create or authorize (by reclassification or otherwise) any new class or series of Senior Preferred Stock or Parity Stock; (d) purchase, repurchase or redeem any shares of Junior Stock (other than pursuant to the terms of the Company’s equity incentive plans and options and other equity awards granted under such plans (that have in good faith been approved by the Board)); (e) without limiting any provision of Section 2, pay dividends or make any other distribution on any shares of any Junior Stock; (f) issue any Preferred Shares other than as contemplated hereby or pursuant to the Securities Purchase Agreement; or (g) without limiting any provision of Section 9, whether or not prohibited by the terms of the Preferred Shares, circumvent a right of the Preferred Shares hereunder.

 

17. Transfer of Preferred Shares. A Holder may transfer some or all of its Preferred Shares without the consent of the Company, but any such transfer shall be in compliance with all applicable securities laws.

 

 

18. Reissuance of Preferred Share Certificates and Book Entries.

 

(a) Transfer. If any Preferred Shares are to be transferred, the applicable Holder shall provide written notice of such transfer to the Company and surrender the applicable Preferred Share Certificate to the Company (or, if the Preferred Shares are held in Book-Entry form, a written instruction letter to the Company), whereupon the Company will forthwith issue and deliver upon the order of such Holder a new Preferred Share Certificate (in accordance with Section 18(d)) (or evidence of the transfer of such Book- Entry), registered as such Holder may request, representing the outstanding number of Preferred Shares being transferred by such Holder and, if less than the entire outstanding number of Preferred Shares is being transferred, a new Preferred Share Certificate (in accordance with Section 18(d)) to such Holder representing the outstanding number of Preferred Shares not being transferred (or evidence of such remaining Preferred Shares in a Book-Entry for such Holder). Such Holder and any assignee, by acceptance of the Preferred Share Certificate or evidence of Book-Entry issuance, as applicable, acknowledge and agree that, by reason of the provisions of Section 4(c)(i) following conversion or redemption of any of the Preferred Shares, the outstanding number of Preferred Shares represented by the Preferred Shares may be less than the number of Preferred Shares stated on the face of the Preferred Shares.

 

(b) Lost, Stolen or Mutilated Preferred Share Certificate. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of a Preferred Share Certificate (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of any indemnification undertaking by the applicable Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of such Preferred Share Certificate, the Company shall execute and deliver to such Holder a new Preferred Share Certificate (in accordance with Section 18(d)) representing the applicable outstanding number of Preferred Shares.

 

(c) Preferred Share Certificate and Book-Entries Exchangeable for Different Denominations and Forms. Each Preferred Share Certificate is exchangeable, upon the surrender hereof by the applicable Holder at the principal office of the Company, for a new Preferred Share Certificate or Preferred Share Certificate(s) or new Book-Entry (in accordance with Section 18(d)) representing, in the aggregate, the outstanding number of the Preferred Shares in the original Preferred Share Certificate, and each such new Preferred Share Certificate and/or new Book-Entry, as applicable, will represent such portion of such outstanding number of Preferred Shares from the original Preferred Share Certificate as is designated in writing by such Holder at the time of such surrender. Each Book-Entry may be exchanged into one or more new Preferred Share Certificates or split by the applicable Holder by delivery of a written notice to the Company into two or more new Book-Entries (in accordance with Section 18(d)) representing, in the aggregate, the outstanding number of the Preferred Shares in the original Book-Entry, and each such new Book-Entry and/or new Preferred Share Certificate, as applicable, will represent such portion of such outstanding number of Preferred Shares from the original Book-Entry as is designated in writing by such Holder at the time of such surrender.

 

(d) Issuance of New Preferred Share Certificate or Book-Entry. Whenever the Company is required to issue a new Preferred Share Certificate or a new Book-Entry pursuant to the terms of this Certificate of Designations, such new Preferred Share Certificate or new Book-Entry (i) shall represent, as indicated on the face of such Preferred Share Certificate or in such Book-Entry, as applicable, the number of Preferred Shares remaining outstanding (or in the case of a new Preferred Share Certificate or new Book-Entry being issued pursuant to Section 18(a) or Section 18(c), the number of Preferred Shares designated by such Holder) which, when added to the number of Preferred Shares represented by the other new Preferred Share Certificates or other new Book-Entry, as applicable, issued in connection with such issuance, does not exceed the number of Preferred Shares remaining outstanding under the original Preferred Share Certificate or original Book- Entry, as applicable, immediately prior to such issuance of new Preferred Share Certificate or new Book- Entry, as applicable, and (ii) shall have an issuance date, as indicated on the face of such new Preferred Share Certificate or in such new Book-Entry, as applicable, which is the same as the issuance date of the original Preferred Share Certificate or in such original Book-Entry, as applicable.

 

 

19. Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Certificate of Designations shall be cumulative and in addition to all other remedies available under this Certificate of Designations and any of the other Transaction Documents, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit any Holder’s right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Certificate of Designations. No failure on the part of a Holder to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by such Holder of any right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. In addition, the exercise of any right or remedy of a Holder at law or equity or under this Certificate of Designations or any of the documents shall not be deemed to be an election of such Holder’s rights or remedies under such documents or at law or equity. The Company covenants to each Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by a Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). No failure on the part of a Holder to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by such Holder of any right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. In addition, the exercise of any right or remedy of any Holder at law or equity or under Preferred Shares or any of the documents shall not be deemed to be an election of such Holder’s rights or remedies under such documents or at law or equity. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holders and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, each Holder shall be entitled, in addition to all other available remedies, to specific performance and/or temporary, preliminary and permanent injunctive or other equitable relief from any court of competent jurisdiction in any such case without the necessity of proving actual damages and without posting a bond or other security. The Company shall provide all information and documentation to a Holder that is requested by such Holder to enable such Holder to confirm the Company’s compliance with the terms and conditions of this Certificate of Designations.

 

20. Payment of Collection, Enforcement and Other Costs. If (a) any Preferred Shares are placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or a Holder otherwise takes action to collect amounts due under this Certificate of Designations with respect to the Preferred Shares or to enforce the provisions of this Certificate of Designations or (b) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors’ rights and involving a claim under this Certificate of Designations, then the Company shall pay the costs incurred by such Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, without limitation, attorneys’ fees and disbursements. The Company expressly acknowledges and agrees that no amounts due under this Certificate of Designations with respect to any Preferred Shares shall be affected, or limited, by the fact that the purchase price paid for each Preferred Share was less than the original Stated Value thereof.

 

21. Construction; Headings. This Certificate of Designations shall be deemed to be jointly drafted by the Company and the Holders and shall not be construed against any such Person as the drafter hereof. The headings of this Certificate of Designations are for convenience of reference and shall not form part of, or affect the interpretation of, this Certificate of Designations. Unless the context clearly indicates otherwise, each pronoun herein shall be deemed to include each gender and the singular and plural forms thereof. The terms “including,” “includes,” “include” and words of like import shall be construed broadly as if followed by the words “without limitation.” The terms “herein,” “hereunder,” “hereof” and words of like import refer to this entire Certificate of Designations instead of just the provision in which they are found. Unless expressly indicated otherwise, all section references are to sections of this Certificate of Designations. Terms used in this Certificate of Designations and not otherwise defined herein, but defined in the other Transaction Documents, shall have the meanings ascribed to such terms on the Initial Issuance Date in such other Transaction Documents unless otherwise consented to in writing by the Required Holders.

 

22. Failure or Indulgence Not Waiver. No failure or delay on the part of a Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party. This Certificate of Designations shall be deemed to be jointly drafted by the Company and all Holders and shall not be construed against any Person as the drafter hereof. Notwithstanding the foregoing, nothing contained in this Section 22 shall permit any waiver of any provision of Section 4(d).

 

 

23. Dispute Resolution.

 

(a) Submission to Dispute Resolution.

 

(i) In the case of a dispute relating to a Closing Bid Price, a Closing Sale Price, a Conversion Price, an Alternate Conversion Price, a VWAP or a fair market value or the arithmetic calculation of a Conversion Rate (as the case may be) (including, without limitation, a dispute relating to the determination of any of the foregoing), the Company or the applicable Holder (as the case may be) shall submit the dispute to the other party via electronic mail (A) if by the Company, within two (2) Business Days after the occurrence of the circumstances giving rise to such dispute or (B) if by such Holder at any time after such Holder learned of the circumstances giving rise to such dispute. If such Holder and the Company are unable to promptly resolve such dispute relating to such Closing Bid Price, such Closing Sale Price, such Conversion Price, such Alternate Conversion Price, such VWAP or such fair market value, or the arithmetic calculation of such Conversion Rate (as the case may be), at any time after the second (2nd) Business Day following such initial notice by the Company or such Holder (as the case may be) of such dispute to the Company or such Holder (as the case may be), then such Holder may, at its sole option, select an independent, reputable investment bank to resolve such dispute.

 

(ii) Such Holder and the Company shall each deliver to such investment bank (A) a copy of the initial dispute submission so delivered in accordance with the first sentence of this Section 23 and (B) written documentation supporting its position with respect to such dispute, in each case, no later than 5:00 p.m. (New York time) by the fifth (5th) Business Day immediately following the date on which such Holder selected such investment bank (the “Dispute Submission Deadline”) (the documents referred to in the immediately preceding clauses (A) and (B) are collectively referred to herein as the “Required Dispute Documentation”) (it being understood and agreed that if either such Holder or the Company fails to so deliver all of the Required Dispute Documentation by the Dispute Submission Deadline, then the party who fails to so submit all of the Required Dispute Documentation shall no longer be entitled to (and hereby waives its right to) deliver or submit any written documentation or other support to such investment bank with respect to such dispute and such investment bank shall resolve such dispute based solely on the Required Dispute Documentation that was delivered to such investment bank prior to the Dispute Submission Deadline). Unless otherwise agreed to in writing by both the Company and such Holder or otherwise requested by such investment bank, neither the Company nor such Holder shall be entitled to deliver or submit any written documentation or other support to such investment bank in connection with such dispute (other than the Required Dispute Documentation).

 

(iii) The Company and such Holder shall cause such investment bank to determine the resolution of such dispute and notify the Company and such Holder of such resolution no later than ten (10) Business Days immediately following the Dispute Submission Deadline. The fees and expenses of such investment bank shall be borne solely by the Company, and such investment bank’s resolution of such dispute shall be final and binding upon all parties absent manifest error.

 

(b) Miscellaneous. The Company expressly acknowledges and agrees that (i) this Section 23 constitutes an agreement to arbitrate between the Company and each Holder (and constitutes an arbitration agreement) under § 7501, et seq. of the New York Civil Practice Law and Rules (“CPLR”) and that any Holder is authorized to apply for an order to compel arbitration pursuant to CPLR § 7503(a) in order to compel compliance with this Section 23, (ii) a dispute relating to a Conversion Price includes, without limitation, disputes as to (A) whether an issuance or sale or deemed issuance or sale of Common Stock occurred under Section 8(a), (B) the consideration per share at which an issuance or deemed issuance of Common Stock occurred, (C) whether any issuance or sale or deemed issuance or sale of Common Stock was an issuance or sale or deemed issuance or sale of Excluded Securities, (D) whether an agreement, instrument, security or the like constitutes and Option or Convertible Security and (E) whether a Dilutive Issuance occurred, (iii) the terms of this Certificate of Designations and each other applicable Transaction Document shall serve as the basis for the selected investment bank’s resolution of the applicable dispute, such investment bank shall be entitled (and is hereby expressly authorized) to make all findings, determinations and the like that such investment bank determines are required to be made by such investment bank in connection with its resolution of such dispute and in resolving such dispute such investment bank shall apply such findings, determinations and the like to the terms of this Certificate of Designations and any other applicable Transaction Documents, (iv) the applicable Holder (and only such Holder with respect to disputes solely relating to such Holder), in its sole discretion, shall have the right to submit any dispute described in this Section 23 to any state or federal court sitting in The City of New York, Borough of Manhattan in lieu of utilizing the procedures set forth in this Section 23 and (v) nothing in this Section 23 shall limit such Holder from obtaining any injunctive relief or other equitable remedies (including, without limitation, with respect to any matters described in this Section 23).

 

 

24. Notices; Currency; Payments.

 

(a) Notices. The Company shall provide each Holder of Preferred Shares with prompt written notice of all actions taken pursuant to the terms of this Certificate of Designations, including in reasonable detail a description of such action and the reason therefor. Whenever notice is required to be given under this Certificate of Designations, unless otherwise provided herein, such notice must be in writing, and shall be given in accordance with Section 5.1 of the Securities Purchase Agreement. The Company shall provide each Holder with prompt written notice of all actions taken pursuant to this Certificate of Designations, including in reasonable detail a description of such action and the reason therefore. Without limiting the generality of the foregoing, the Company shall give written notice to each Holder (i) immediately upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least fifteen (15) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any grant, issuances, or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property to holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to such Holder.

 

(b) Currency. All dollar amounts referred to in this Certificate of Designations are in United States Dollars (“U.S. Dollars”), and all amounts owing under this Certificate of Designations shall be paid in U.S. Dollars. All amounts denominated in other currencies (if any) shall be converted into the U.S. Dollar equivalent amount in accordance with the Exchange Rate on the date of calculation. “Exchange Rate” means, in relation to any amount of currency to be converted into U.S. Dollars pursuant to this Certificate of Designations, the U.S. Dollar exchange rate as published in the Wall Street Journal on the relevant date of calculation (it being understood and agreed that where an amount is calculated with reference to, or over, a period of time, the date of calculation shall be the final date of such period of time).

 

(c) Payments. Whenever any payment of cash is to be made by the Company to any Person pursuant to this Certificate of Designations, unless otherwise expressly set forth herein, such payment shall be made in lawful money of the United States of America by wire transfer of immediately available funds pursuant to wire transfer instructions that Holder shall provide to the Company in writing from time to time. Whenever any amount expressed to be due by the terms of this Certificate of Designations is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day. Any amount due under the Transaction Documents which is not paid when due (except to the extent such amount is simultaneously accruing Dividends at the Default Rate hereunder) shall result in a late charge being incurred and payable by the Company in an amount equal to interest on such amount at the rate of fifteen percent (15%) per annum from the date such amount was due until the same is paid in full (“Late Charge”).

 

25. Waiver of Notice. To the extent permitted by law, the Company hereby irrevocably waives demand, notice, presentment, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Certificate of Designations and the Securities Purchase Agreement.

 

26. Governing Law. This Certificate of Designations shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Certificate of Designations shall be governed by, the internal laws of the State of Nevada, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Nevada or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Nevada. Except as otherwise required by Section 23 above, the Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, New York, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Nothing contained herein (i) shall be deemed or operate to preclude any Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company’s obligations to such Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of such Holder or (ii) shall limit, or shall be deemed or construed to limit, any provision of Section 23 above. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS CERTIFICATE OF DESIGNATIONS OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

 

27. Judgment Currency.

 

(a) If for the purpose of obtaining or enforcing judgment against the Company in any court in any jurisdiction it becomes necessary to convert into any other currency (such other currency being hereinafter in this Section 27 referred to as the “Judgment Currency”) an amount due in U.S. dollars under this Certificate of Designations, the conversion shall be made at the Exchange Rate prevailing on the Trading Day immediately preceding:

 

(i) the date actual payment of the amount due, in the case of any proceeding in the courts of New York or in the courts of any other jurisdiction that will give effect to such conversion being made on such date: or

 

(ii) the date on which the foreign court determines, in the case of any proceeding in the courts of any other jurisdiction (the date as of which such conversion is made pursuant to this Section 27(a)(ii) being hereinafter referred to as the “Judgment Conversion Date”).

 

(b) If in the case of any proceeding in the court of any jurisdiction referred to in Section 27(a)(ii) above, there is a change in the Exchange Rate prevailing between the Judgment Conversion Date and the date of actual payment of the amount due, the applicable party shall pay such adjusted amount as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the Exchange Rate prevailing on the date of payment, will produce the amount of US dollars which could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial order at the Exchange Rate prevailing on the Judgment Conversion Date.

 

(c) Any amount due from the Company under this provision shall be due as a separate debt and shall not be affected by judgment being obtained for any other amounts due under or in respect of this Certificate of Designations.

 

28. Severability. If any provision of this Certificate of Designations is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Certificate of Designations so long as this Certificate of Designations as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

 

29. Maximum Payments. Without limiting Section 9(d) of the Securities Purchase Agreement, nothing contained herein shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Company to the applicable Holder and thus refunded to the Company.

 

30. Stockholder Matters; Amendment.

 

(a) Stockholder Matters. Any stockholder action, approval or consent required, desired or otherwise sought by the Company pursuant to the NRS, the Articles of Incorporation, this Certificate of Designations or otherwise with respect to the issuance of Preferred Shares may be effected by written consent of the Company’s stockholders or at a duly called meeting of the Company’s stockholders, all in accordance with the applicable rules and regulations of the NRS. This provision is intended to comply with the applicable sections of the NRS permitting stockholder action, approval and consent affected by written consent in lieu of a meeting.

 

(b) Amendment. Except for Section 4(d), which may not be amended or waived hereunder, this Certificate of Designations or any provision hereof may be amended by obtaining the affirmative vote at a meeting duly called for such purpose, or written consent without a meeting in accordance with the NRS, of the Required Holders, voting separately as a single class, and with such other stockholder approval, if any, as may then be required pursuant to the NRS and the Articles of Incorporation.

 

31. Certain Defined Terms. For purposes of this Certificate of Designations, the following terms shall have the following meanings:

 

(a) “1934 Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

 

(b) “Additional Amount” means, as of the applicable date of determination, with respect to each Preferred Share, all declared and unpaid Dividends on such Preferred Share and any other unpaid amounts then due and payable hereunder with respect to such Preferred Share.

 

(c) “Adjustment Right” means any right granted with respect to any securities issued in connection with, or with respect to, any issuance or sale (or deemed issuance or sale in accordance with Section 8(a)) of shares of Common Stock (other than rights of the type described in Section 7(a) hereof) that could result in a decrease in the net consideration received by the Company in connection with, or with respect to, such securities (including, without limitation, any cash settlement rights, cash adjustment or other similar rights).

 

(d) “Affiliate” or “Affiliated” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person, it being understood for purposes of this definition that “control” of a Person means the power directly or indirectly either to vote 10% or more of the stock having ordinary voting power for the election of directors of such Person or direct or cause the direction of the management and policies of such Person whether by contract or otherwise.

 

(e) “Alternate Conversion Price” means, with respect to any Alternate Conversion that price which shall be the lowest of (i) the applicable Conversion Price as in effect on the applicable Conversion Date of the applicable Alternate Conversion, and (ii) the greater of (x) the Floor Price and (y) 75% of the lowest VWAP of the Common Stock of any Trading Date during the twenty (20) consecutive Trading Day period ending and including the Trading Day immediately preceding the delivery or deemed delivery of the applicable Conversion Notice (such period, the “Alternate Conversion Measuring Period”). All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately decreases or increases the Common Stock during such Alternate Conversion Measuring Period.

 

(f) “Approved Stock Plan” means any employee benefit plan or agreement which has been approved by the Board prior to or subsequent to the Closing Date pursuant to which shares of Common Stock and options to purchase Common Stock or other awards convertible, exercisable for or exchangeable for shares of Common Stock may be issued to any employee, officer, consultant, or director for services provided to the Company in their capacity as such.

 

(g) “Attribution Parties” means, collectively, the following Persons and entities: (i) any investment vehicle, including, any funds, feeder funds or managed accounts, currently, or from time to time after the Initial Issuance Date, directly or indirectly managed or advised by a Holder’s investment manager or any of its Affiliates or principals, (ii) any direct or indirect Affiliates of such Holder or any of the foregoing, (iii) any Person acting or who could be deemed to be acting as a Group together with such Holder or any of the foregoing and (iv) any other Persons whose beneficial ownership of the Company’s Common Stock would or could be aggregated with such Holder’s and the other Attribution Parties for purposes of Section 13(d) of the 1934 Act. For clarity, the purpose of the foregoing is to subject collectively such Holder and all other Attribution Parties to the Maximum Percentage.

 

(h) “Bloomberg” means Bloomberg, L.P.

 

(i) “Book-Entry” means each entry on the Register evidencing one or more Preferred Shares held by a Holder in lieu of a Preferred Share Certificate issuable hereunder.

 

 

(j) “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee” or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York generally are open for use by customers on such day.

 

(k) “Change of Control” means (a) any Fundamental Transaction other than (i) any merger of the Company or any of its, direct or indirect, wholly-owned Subsidiaries with or into any of the foregoing Persons, (ii) any reorganization, recapitalization or reclassification of the Common Stock in which holders of the Company’s voting power immediately prior to such reorganization, recapitalization or reclassification continue after such reorganization, recapitalization or reclassification to hold publicly traded securities and, directly or indirectly, are, in all material respects, the holders of the voting power of the surviving entity (or entities with the authority or voting power to elect the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities) after such reorganization, recapitalization or reclassification, (iii) pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company or any of its Subsidiaries or (iv) bona fide arm’s length sales or acquisitions by the Company with one or more third parties as long as holders of the Company’s voting power as of the Issuance Date continue after such sale or acquisition to hold publicly traded securities and, directly or indirectly, are, in all material respects, the holders of at least 50.1% of the voting power of the surviving entity (or entities with the authority or voting power to elect the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities) after such sale or acquisition, or (b) individuals who constitute the Continuing Directors, taken together, ceasing for any reason to constitute at least a majority of the Board.

 

(l) “Change of Control Redemption Premium” means 115%.

 

(m) “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price (as the case may be) then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices). If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price (as the case may be) of such security on such date shall be the fair market value as mutually determined by the Company and the Required Holder. If the Company and the Required Holders are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 23. All such determinations shall be appropriately adjusted for any stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions during such period.

 

(n) “Closing Date” shall mean the date of the closing of the Merger, which is the date on which the Company initially issued the Preferred Shares and the Debenture pursuant to the terms of the Merger Agreement.

 

(o) “Common Stock” means (i) the Company’s shares of common stock, $0.0001 par value per share, and (ii) any capital stock into which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.

 

(p) “Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any Indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto.

 

 

(q) “Continuing Directors” means the directors of the Company on the date hereof and each other director, if, in each case, such other director is nominated for election by the Board a majority of whom are directors on the date hereof or whose election or nomination for election was approved by one or more of such directors.

 

(r) “Convertible Securities” means any stock or other security (other than Options) that is at any time and under any circumstances, directly or indirectly, convertible into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any shares of Common Stock.

 

(s) “Current Subsidiary” means any Person in which the Company on the Closing Date, directly or indirectly, (i) owns any of the outstanding capital stock or holds any equity or similar interest of such Person or (ii) controls or operates all or any part of the business, operations or administration of such Person, and all of the foregoing, collectively, “Current Subsidiaries”.

 

(t) “Debenture” means, that Senior Secured Convertible Debenture in the aggregate principal amount of $3,921,696.67 of the Company issued on or about the Closing Date pursuant to that certain Amended and Restated Senior Secured Convertible Debenture Due the Earlier of the Trigger Date and October 14, 2024.

 

(u) “Dividend Date” means, with respect to any given calendar quarter, the first Trading Day of such calendar quarter, but with the first Dividend Date commencing on January 2, 2025.

 

(v) “Dividend Rate” means ten percent (10%) per annum, as may be adjusted from time to time in accordance with Section 3(d).

 

(w) “Eligible Market” means The New York Stock Exchange, the NYSE American, the Nasdaq Global Select Market, the Nasdaq Global Market, the OTCQX, the OTCQB or the Principal Market.

 

(x) “Excluded Securities” means (i) shares of Common Stock or standard options to purchase Common Stock issued or issuable to directors, officers, employees or other service providers of the Company for services rendered to the Company in their capacity as such pursuant to an Approved Stock Plan (as defined above), provided that (A) all such issuances (taking into account the shares of Common Stock issuable upon exercise of such awards) after the Closing Date pursuant to this clause (i) do not, in the aggregate, exceed more than 12.5% of the Common Stock issued and outstanding as of the date of such issuance and (B) the exercise price of any such options is not lowered and none of such options are amended to increase the number of shares issuable thereunder; (ii) shares of Common Stock issued or issuable upon the conversion or exercise of Convertible Securities (other than shares of Common Stock issued or issuable pursuant to an Approved Stock Plan that are covered by clause (i) above) issued prior to the Closing Date, provided that the conversion price of any such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) is not lowered (other than in accordance with the terms thereof in effect as of the Closing Date) from the conversion price in effect as of the Closing Date (whether pursuant to the terms of such Convertible Securities or otherwise), none of such Convertible Securities (other than those issued pursuant to an Approved Stock Plan that are covered by clause (i) above) are amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such Convertible Securities (other than those issued pursuant to an Approved Stock Plan that are covered by clause (i) above) are otherwise materially changed in any manner that adversely affects any of the Holders; and (iii) securities issued as consideration for the acquisition of another entity by the Company by merger, purchase of substantially all of the assets or other reorganization or bona fide joint venture agreement, provided that such issuance is approved by the majority of the disinterested directors of the Company.

 

(y) “Floor Price” means 20% of the “Minimum Price” (as defined in Rule 5635 of the Rule of the Nasdaq Stock Market) on the closing date of the Merger (subject to adjustment for stock splits, stock dividends, stock combinations, recapitalizations or other similar events) or, in any case, such lower amount as permitted, from time to time, by the Principal Market.

 

 

(z) “Fundamental Transaction” means (A) that the Company shall, directly or indirectly, including through subsidiaries, Affiliates or otherwise, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Subject Entity, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company or any of its “significant subsidiaries” (as defined in Rule 1-02 of Regulation S-X) to one or more Subject Entities, or (iii) make, or allow one or more Subject Entities to make, or allow the Company to be subject to or have its Common Stock be subject to or party to one or more Subject Entities making, a purchase, tender or exchange offer that is accepted by the holders of at least either (x) 50% of the outstanding shares of Common Stock, (y) 50% of the outstanding shares of Common Stock calculated as if any shares of Common Stock held by all Subject Entities making or party to, or Affiliated with any Subject Entities making or party to, such purchase, tender or exchange offer were not outstanding; or (z) such number of shares of Common Stock such that all Subject Entities making or party to, or Affiliated with any Subject Entity making or party to, such purchase, tender or exchange offer, become collectively the beneficial owners (as defined in Rule 13d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common Stock, or (iv) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with one or more Subject Entities whereby all such Subject Entities, individually or in the aggregate, in any transaction or series or related transactions, acquire, either (x) at least 50% of the outstanding shares of Common Stock, (y) at least 50% of the outstanding shares of Common Stock calculated as if any shares of Common Stock held by all the Subject Entities making or party to, or Affiliated with any Subject Entity making or party to, such stock purchase agreement or other business combination were not outstanding; or (z) such number of shares of Common Stock such that the Subject Entities become collectively the beneficial owners (as defined in Rule 13d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common Stock, or (v) reorganize, recapitalize or reclassify its Common Stock, (B) that the Company shall, directly or indirectly, including through subsidiaries, Affiliates or otherwise, in one or more related transactions, allow any Subject Entity individually or the Subject Entities in the aggregate to be or become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, whether through acquisition, purchase, assignment, conveyance, tender, tender offer, exchange, reduction in outstanding shares of Common Stock, merger, consolidation, business combination, reorganization, recapitalization, spin-off, scheme of arrangement, reorganization, recapitalization or reclassification or otherwise in any manner whatsoever, of either (x) at least 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock, (y) at least 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock not held by all such Subject Entities as of the date of this Certificate of Designations calculated as if any shares of Common Stock held by all such Subject Entities were not outstanding, or (z) a percentage of the aggregate ordinary voting power represented by issued and outstanding shares of Common Stock or other equity securities of the Company sufficient to allow such Subject Entities to effect a statutory short form merger or other transaction requiring other stockholders of the Company to surrender their shares of Common Stock without approval of the stockholders of the Company or (C) directly or indirectly, including through subsidiaries, Affiliates or otherwise, in one or more related transactions, the issuance of or the entering into any other instrument or transaction structured in a manner to circumvent, or that circumvents, the intent of this definition in which case this definition shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this definition to the extent necessary to correct this definition or any portion of this definition which may be defective or inconsistent with the intended treatment of such instrument or transaction.

 

(aa) “GAAP” means United States generally accepted accounting principles, consistently applied.

 

(bb) “Group” means a “group” as that term is used in Section 13(d) of the 1934 Act and as defined in Rule 13d-5 thereunder.

 

(cc) “Holder Pro Rata Amount” means, with respect to any Holder, a fraction (i) the numerator of which is the number of Preferred Shares issued to such Holder pursuant to the Securities Purchase Agreement and the Merger Agreement on the Initial Issuance Date and (ii) the denominator of which is the number of Preferred Shares issued to all Holders pursuant to the Securities Purchase Agreement and the Merger Agreement on the Initial Issuance Date.

 

 

(dd) “Indebtedness” means of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than obligations issued, undertaken or assumed as the deferred purchase price in existence as of the Closing Date), including, without limitation, “capital leases” in accordance with United States generally accepted accounting principles consistently applied for the periods covered thereby (other than accounts payable, trade payables, and accrued compensation entered into in the ordinary course of business consistent with past practice), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with United States generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, deed of trust, lien, pledge, charge, security interest or other encumbrance of any nature whatsoever in or upon any property or assets (including accounts and contract rights) with respect to any asset or property owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (G) above.

 

(ee) “Intellectual Property Rights” means, with respect to the Company and its Subsidiaries, all of their rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, original works of authorship, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights and all applications and registrations therefor.

 

(ff) “Liquidation Event” means, whether in a single transaction or series of transactions, the voluntary or involuntary liquidation, dissolution or winding up of the Company or such Subsidiaries the assets of which constitute all or substantially all of the assets of the business of the Company and its Subsidiaries, taken as a whole.

 

(gg) “Make-Whole Amount” means, as of any given date and as applicable, in connection with any conversion or other repayment hereunder, an amount equal to the amount of additional Dividends that would accrue under this Certificate of Designations at the Dividend Rate then in effect assuming for calculation purposes that the Stated Value of this Certificate of Designations as of the Closing Date remained outstanding through and including the one year anniversary of the applicable date of conversion of the Preferred Shares.

 

(hh) “Material Adverse Effect” means any event or circumstance that results in, or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document; provided, however, that none of the following shall constitute, or shall be considered in determining whether there has occurred, and no event, circumstance, change or effect resulting from or arising out of any of the following shall constitute, a Company Material Adverse Effect: (A) the announcement of the execution of the Merger Agreement or the pendency of consummation of the Merger (including the threatened or actual impact on relationships of the Company and its Subsidiaries with customers, vendors, suppliers, distributors, landlords or employees (including the threatened or actual termination, suspension, modification or reduction of such relationships)); (B) changes in the national or world economy or financial markets as a whole or changes in general economic conditions that affect the industries in which the Company and its Subsidiaries conduct their business, so long as such changes or conditions do not adversely affect the Company and the Company Subsidiaries, taken as a whole, in a materially disproportionate manner relative to other similarly situated participants in the industries or markets in which they operate; (C) any change in applicable Law, rule or regulation or GAAP or interpretation thereof after the date hereof, so long as such changes do not adversely affect the Company and the Company Subsidiaries, taken as a whole, in a materially disproportionate manner relative to other similarly situated participants in the industries or markets in which they operate; (D) the failure, in and of itself, of the Company to meet any published or internally prepared estimates of revenues, earnings, or other financial projections, performance measures or operating statistics; provided, however, that the facts and circumstances underlying any such failure may, except as may be provided in subsections (A), (B), (C), (E), (F) and (G) of this definition, be considered in determining whether a Material Adverse Effect has occurred; (E) a decline in the price, or a change in the trading volume, of the Common Stock; (F) compliance with the terms of, and taking any action required by, any Transaction Document, or taking or not taking any actions at the request of, or with the consent of, the Holder; and (G) the incurrence of losses, the existence of working capital deficits, or going concern opinions, so long as such losses, deficits, and opinions are not, taken as a whole, materially disproportionate to the performance of the Company or NAYA Biosciences, Inc., a Delaware corporation, respectively.

 

 

(ii) “Merger” means the merger of INVO Merger Sub Inc., a Delaware corporation and a wholly owned Subsidiary of the Company, into NAYA Biosciences, Inc., a Delaware corporation, pursuant to the Merger Agreement.

 

(jj) “Merger Agreement” means the Amended and Restated Merger Agreement, dated October 11, 2024, by and among the Company, NAYA Biosciences, Inc., a Delaware corporation, and INVO Merger Sub Inc., a Delaware corporation and a wholly owned Subsidiary of the Company.

 

(kk) “New Subsidiary” means, as of any date of determination, any Person in which the Company after the Closing Date, directly or indirectly, (i) owns or acquires any of the outstanding capital stock or holds any equity or similar interest of such Person or (ii) controls or operates all or any part of the business, operations or administration of such Person, and all of the foregoing, collectively, “New Subsidiaries.”

 

(ll) “Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

 

(mm) “Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.

 

(nn) “Permitted Indebtedness” means (i) Indebtedness set forth in the Company’s reports filed pursuant to the Exchange Act on or before the Closing Date, (ii) Indebtedness secured by Permitted Liens or unsecured but as described in clauses (iv) and (v) of the definition of Permitted Liens, (iii) if (x) the Stockholder Approval Date has occurred and (y) less than 10% of the Preferred Shares remain outstanding, the Permitted Senior Indebtedness, and (iv) any unsecured Indebtedness outstanding at any time in an aggregate principal amount not to exceed $500,000.

 

(oo) “Permitted Liens” means (i) any Lien for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent, (iii) any Lien created by operation of law, such as materialmen’s liens, mechanics’ liens and other similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or that are being contested in good faith by appropriate proceedings, (iv) Liens (A) upon or in any equipment acquired or held by the Company or any of its Subsidiaries to secure the purchase price of such equipment or Indebtedness incurred solely for the purpose of financing the acquisition or lease of such equipment, or (B) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment, in either case, with respect to Indebtedness in an aggregate amount not to exceed $500,000, (v) Liens incurred in connection with the extension, renewal or refinancing of the Indebtedness secured by Liens of the type described in clause (iv) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness being extended, renewed or refinanced does not increase, (vi) Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of custom duties in connection with the importation of goods, and (vii) Liens arising from judgments, decrees or attachments in circumstances not constituting a Triggering Event under Section 5(a)(ix).

 

 

(pp) “Permitted Senior Indebtedness” means non-convertible Indebtedness issued pursuant to a credit facility with a bank or similar financial institution, provided, however, that the aggregate outstanding principal amount of such Indebtedness permitted hereunder does not at any time exceed $500,000; provided, further, however, no Permitted Senior Indebtedness shall permit the lender to accelerate such Permitted Senior Indebtedness as a result of the occurrence of any Triggering Event hereunder.

 

(qq) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity or a government or any department or agency thereof.

 

(rr) “Principal Market” means the Nasdaq Capital Market.

 

(ss) “Redemption Notices” means, collectively, the Bankruptcy Triggering Event Redemption Notices, and the Change of Control Redemption Notices, and each of the foregoing, individually, a “Redemption Notice.”

 

(tt) “Redemption Premium” means 125%.

 

(uu) “Redemption Prices” means, collectively, any Bankruptcy Triggering Event Redemption Price and any Change of Control Redemption Price and each of the foregoing, individually, a “Redemption Price.”

 

(vv) “SEC” means the United States Securities and Exchange Commission or the successor thereto.

 

(ww) “Securities Purchase Agreement” means, that certain Securities Purchase Agreement, dated as of January 3, 2024, as amended, by and among the Company and the investors signatory thereto.

 

(xx) “Stated Value” shall mean $1,000 per share, subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions or other similar events occurring after the Initial Issuance Date with respect to the Preferred Shares.

 

(yy) “Stockholder Approval Date” means the date on which the Company’s stockholders approve the conversion of the Preferred Shares into shares of Common Stock in accordance with the listing rules of the Principal Market (or any other Eligible Market on which the Common Stock is then traded), as set forth in the Section 6.6 of the Merger Agreement.

 

(zz) “Subject Entity” means any Person, Persons or Group or any Affiliate or associate of any such Person, Persons or Group.

 

(aaa) “Subsidiaries” means, as of any date of determination, collectively, all Current Subsidiaries and all New Subsidiaries, and each of the foregoing, individually, a “Subsidiary.”

 

(bbb) “Successor Entity” means the Person (or, if so elected by the Required Holders, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Required Holders, the Parent Entity) with which such Fundamental Transaction shall have been entered into.

 

(ccc) “Trading Day” means, as applicable, (x) with respect to all price or trading volume determinations relating to the Common Stock, any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded, provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the applicable Holder or (y) with respect to all determinations other than price determinations relating to the Common Stock, any day on which The New York Stock Exchange (or any successor thereto) is open for trading of securities.

 

 

(ddd) “Transaction Documents” means the Securities Purchase Agreement, the Debenture, the Merger Agreement, this Certificate of Designations, and each of the other agreements and instruments entered into or delivered by the Company or any of the Holders in connection with the transactions contemplated by the Securities Purchase Agreement and Merger Agreement, all as may be amended from time to time in accordance with the terms thereof.

 

(eee) “VWAP” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market (or, if the Principal Market is not the principal trading market for such security, then on the principal securities exchange or securities market on which such security is then traded), during the period beginning at 9:30 a.m., New York time, and ending at 4:00 p.m., New York time, as reported by Bloomberg through its “VAP” function (set to 09:30 start time and 16:00 end time) or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m., New York time, and ending at 4:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices). If the VWAP cannot be calculated for such security on such date on any of the foregoing bases, the VWAP of such security on such date shall be the fair market value as mutually determined by the Company and the Required Holders. If the Company and the Required Holders are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 23. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination, recapitalization or other similar transaction during such period.

 

32. Disclosure. Upon receipt or delivery by the Company of any notice in accordance with the terms of this Certificate of Designations, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, non-public information relating to the Company or any of its Subsidiaries, the Company shall within one (1) Business Day of such receipt or prior to (or simultaneous with) such delivery, as applicable, publicly disclose such material, non-public information on a Current Report on Form 8-K or otherwise. If the Company believes that a notice contains material, non-public information relating to the Company or any of its Subsidiaries, the Company so shall indicate to such Holder explicitly in writing in such notice (or immediately upon receipt of notice from such Holder, as applicable), and in the absence of any such written indication in such notice (or notification from the Company immediately upon receipt of notice from such Holder), such Holder shall be allowed to presume that information contained in the notice does not constitute material, non-public information relating to the Company or any of its Subsidiaries.

 

33. Absence of Trading and Disclosure Restrictions. The Company acknowledges and agrees that no Holder is a fiduciary or agent of the Company and that each Holder shall have no obligation to (a) maintain the confidentiality of any information provided by the Company or (b) refrain from trading any securities while in possession of such information in the absence of a written non-disclosure agreement signed by an officer of such Holder that explicitly provides for such confidentiality and trading restrictions. In the absence of such an executed, written non-disclosure agreement, the Company acknowledges that each Holder may freely trade in any securities issued by the Company, may possess and use any information provided by the Company in connection with such trading activity, and may disclose any such information to any third party.

 

* * * * *

 

 

IN WITNESS WHEREOF, the Company has caused this Certificate of Designations of Series C-2 Convertible Preferred Stock of INVO Bioscience, Inc. to be signed by its Chief Executive Officer on this 11^th day of October, 2024.

 

	INVO Bioscience, Inc.
	By:	/s/ Steven Shum
	Name:	Steven Shum
	Title:	CEO

 

[Signature Page to Certificate of Designations

of the Series C-2 Convertible Preferred Stock of INVO Bioscience, Inc.]

 

 

EXHIBIT I

 

INVO Bioscience, Inc.

CONVERSION NOTICE

 

Reference is made to the Certificate of Designations, Preferences and Rights of the Series C-2 Convertible Preferred Stock of INVO Bioscience, Inc. (the “Certificate of Designations”). In accordance with and pursuant to the Certificate of Designations, the undersigned hereby elects to convert the number of shares of Series C-2 Convertible Preferred Stock, $0.0001 par value per share (the “Preferred Shares”), of INVO Bioscience, Inc., a Nevada corporation (the “Company”), indicated below into shares of common stock, $0.0001 par value per share (the “Common Stock”), of the Company, as of the date specified below.

 

Date of Conversion:	_______________________________
Aggregate number of Preferred Shares to be converted:	_______________________________
Aggregate Stated Value of such Preferred Shares to be converted:	_______________________________
Aggregate accrued and unpaid Dividends with respect to such Preferred Shares, accrued and unpaid Late Charges with respect to such Preferred Shares and such Aggregate Dividends and Late Charges to be converted:	_______________________________
Make-Whole Amount:	_______________________________
AGGREGATE CONVERSION AMOUNT TO BE CONVERTED:	_______________________________
Please confirm the following information:	_______________________________
Conversion Price:	_______________________________
Number of shares of Common Stock to be issued:	_______________________________

 

☐	If this Conversion Notice is being delivered with respect to an Alternate Conversion, check here if Holder is electing to use the following Alternate Conversion Price:____________________

 

Please issue the Common Stock into which the applicable Preferred Shares are being converted to Holder, or for its benefit, as follows:

 

☐	Check here if requesting delivery as a certificate to the following name and to the following address:

 

Issue to:

 

☐	Check here if requesting delivery by Deposit/Withdrawal at Custodian as follows:

 

DTC Participant:
DTC Number:
Account Number:

 

Date: _____________ __, ____
___________________________
Name of Registered Holder
By:
Name:
Title:
Tax ID: _________________________________
Facsimile: _______________________________
E-mail Address: ___________________________

 

 

EXHIBIT II

 

ACKNOWLEDGMENT

 

The Company hereby (a) acknowledges this Conversion Notice, [(b) certifies that the above indicated number of shares of Common Stock are eligible to be resold by the Holder without restriction or any legend] and [(b)][(c)] hereby directs ___________to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated ______________, 2024 from the Company and acknowledged and agreed to by ____________________.

 

	INVO Bioscience, Inc.
	By:
	Name:
	Title:

 

 

 

Exhibit 4.1

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

Original Issue Date: October 11, 2024

 

$3,934,146

 

SENIOR SECURED CONVERTIBLE DEBENTURE

DUE December 11, 2025

 

THIS SENIOR SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued Senior Secured Convertible Debentures of INVO Bioscience, Inc., a Nevada corporation (the “Company”), having its principal place of business at 5582 Broadcast Court, Sarasota, FL 34240, designated as its Senior Secured Convertible Debenture due December 11, 2025 (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”).

 

FOR VALUE RECEIVED, the Company promises to pay to FIVE NARROW LANE LP or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $3,934,146 (or, if lower, the outstanding principal amount of this Debenture as such amount may be modified pursuant to the terms hereof) on December 11, 2025 (the “Maturity Date”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:

 

Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

 

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

 

 

“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts, (g) the Company or any Significant Subsidiary thereof admits in writing that it is generally unable to pay its debts as they become due, (h) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

“Base Conversion Price” shall have the meaning set forth in Section 5(b).

 

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(d).

 

“Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee” or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York are generally are open for use by customers on such day.

 

“Buy-In” shall have the meaning set forth in Section 4(c)(v).

 

 

“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 33% of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company (and all of its Subsidiaries, taken as a whole) sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

 

“Conversion” shall have the meaning ascribed to such term in Section 4.

 

“Conversion Date” shall have the meaning set forth in Section 4(a).

 

“Conversion Price” shall have the meaning set forth in Section 4(b).

 

“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.

 

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

 

“Debenture Register” shall have the meaning set forth in Section 2(b).

 

“Dilutive Issuance” shall have the meaning set forth in Section 5(b).

 

“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

 

“Event of Default” shall have the meaning set forth in Section 9(a).

 

“Fundamental Transaction” shall have the meaning set forth in Section 5(e).

 

“Interest Payment Date” shall have the meaning set forth in Section 2(a).

 

“Late Fees” shall have the meaning set forth in Section 2(c).

 

“Mandatory Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture, plus all accrued and unpaid interest hereon, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 130% of the outstanding principal amount of this Debenture, plus 100% of accrued and unpaid interest hereon, and (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture.

 

 

“Material Adverse Effect” means a material adverse effect on (a) the business, assets, operations, liabilities (actual or contingent), or financial condition of the Company or any of its Subsidiaries, (b) the ability of the Company or any of its Subsidiaries to perform any of its obligations under this Debenture or any other Transaction Document; (c) Holder’s Liens on the assets of the Company and its Subsidiaries or the priority of such Liens or (d) the rights of, remedies of or benefits available to the Holder under the Transaction Documents; provided, however, that none of the following shall constitute, or shall be considered in determining whether there has occurred, and no event, circumstance, change or effect resulting from or arising out of any of the following shall constitute, a Material Adverse Effect: (A) the announcement of the execution of the Merger Agreement or the pendency of consummation of the Merger (including the threatened or actual impact on relationships of the Company and its Subsidiaries with customers, vendors, suppliers, distributors, landlords or employees (including the threatened or actual termination, suspension, modification or reduction of such relationships)); (B) changes in the national or world economy or financial markets as a whole or changes in general economic conditions that affect the industries in which the Company and its Subsidiaries conduct their business, so long as such changes or conditions do not adversely affect the Company and the Company Subsidiaries, taken as a whole, in a materially disproportionate manner relative to other similarly situated participants in the industries or markets in which they operate; (C) any change in applicable Law, rule or regulation or GAAP or interpretation thereof after the date hereof, so long as such changes do not adversely affect the Company and the Company Subsidiaries, taken as a whole, in a materially disproportionate manner relative to other similarly situated participants in the industries or markets in which they operate; (D) the failure, in and of itself, of the Company to meet any published or internally prepared estimates of revenues, earnings, or other financial projections, performance measures or operating statistics; provided, however, that the facts and circumstances underlying any such failure may, except as may be provided in subsections (A), (B), (C), (E), (F) and (G) of this definition, be considered in determining whether a Material Adverse Effect has occurred; (E) a decline in the price, or a change in the trading volume, of the Common Stock; (F) compliance with the terms of, and taking any action required by, any Transaction Document, or taking or not taking any actions at the request of, or with the consent of, the Holder; and (G) the incurrence of losses, the existence of working capital deficits, or going concern opinions, so long as such losses, deficits, and opinions are not, taken as a whole, materially disproportionate to the performance of the Company or NAYA Biosciences, Inc., a Delaware corporation, respectively.

 

 

“Merger” means the merger of INVO Merger Sub Inc., a Delaware corporation and a wholly owned Subsidiary of the Company, into NAYA pursuant to the Merger Agreement.

 

“Merger Agreement” means the Amended and Restated Merger Agreement, dated October 11, 2024, by and among the Company, NAYA, and INVO Merger Sub Inc., a Delaware corporation and a wholly owned Subsidiary of the Company.

 

“Monthly Redemption” means the redemption of this Debenture pursuant to Section 6(b) hereof.

 

“Monthly Redemption Amount” means, as to a Monthly Redemption, $437,127.34, plus accrued but unpaid interest, liquidated damages and any other amounts then owing to the Holder in respect of this Debenture.

 

“Monthly Redemption Date” means the 14^th day of each calendar month, commencing on March 11, 2025 and terminating upon the full redemption of this Debenture.

 

“NAYA” means NAYA Biosciences, Inc., a Delaware corporation.

 

“NAYA Debenture” means the Senior Secured Convertible Debenture due the Earlier of the Trigger Date (as defined therein) and October 14, 2024 of NAYA in the original principal amount of $11,734,979.48, issued as of September 12, 2024, together with any other “Debentures” as defined therein, in each case, as amended, restated, supplemented or otherwise modified from time to time prior to the date hereof, which amended, restated and consolidated, collectively.

 

“New York Courts” shall have the meaning set forth in Section 10(d).

 

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

 

“Original Issue Date” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debentures.

 

“Permitted Indebtedness” means (a) the indebtedness evidenced by the Debentures and (b) the Indebtedness existing on the Original Issue Date and set forth on Schedule 3.1(bb) attached to the Purchase Agreement.

 

“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien and (c) Liens incurred in connection with Permitted Indebtedness under clauses (a) and (b).

 

 

“Purchase Agreement” means the Securities Purchase Agreement, dated as of January 3, 2024 among NAYA and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

 

“Registration Rights Agreement” means the Registration Rights Agreement, dated as of September 12, 2024, by and between the Holder and NAYA.

 

“Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale of the Conversion Shares by each Holder as provided for in the Registration Rights Agreement.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).

 

“Stockholder Approval Date” means the date on which the Company’s stockholders approve the conversion of the Debenture into shares of Common Stock in accordance with the listing rules of the Principal Market (or any other Eligible Market on which the Common Stock is then traded), as set forth in the Section 6.6 of the Merger Agreement.

 

“Successor Entity” shall have the meaning set forth in Section 5(e).

 

“Trading Day” means a day on which the principal Trading Market is open for trading.

 

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing).

 

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

 

Section 2. Interest.

 

a) Payment of Interest. The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture at the rate of seven percent (7.00%) per annum, payable monthly on the first Business Day of each calendar month, beginning on the first such date after the Original Issue Date, on each Monthly Redemption Date (as to that principal amount then being redeemed), on each Conversion Date (as to that principal amount then being converted), and on the Maturity Date (each such date, an “Interest Payment Date”) (if any Interest Payment Date is not a Business Day, then the applicable payment shall be due on the next succeeding Business Day), in cash.

 

b) Interest Calculations. Interest shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily commencing on the Original Issue Date (or, with respect to the principal amount of any loan under this Debenture, the date such loan is funded) until payment in full of the outstanding principal, together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made. Payment of interest in shares of Common Stock shall otherwise occur pursuant to Section 4(c)(ii) herein and, solely for purposes of the payment of interest in shares, the Interest Payment Date shall be deemed the Conversion Date. Interest shall cease to accrue with respect to any principal amount converted, provided that, the Company actually delivers the Conversion Shares within the time period required by Section 4(c)(ii) herein. Interest hereunder will be paid to the Person in whose name this Debenture is registered on the records of the Company regarding registration and transfers of this Debenture (the “Debenture Register”).

 

c) Late Fee. All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the lesser of 15% per annum or the maximum rate permitted by applicable law (the “Late Fees”) which shall accrue daily from the date such interest is due hereunder through and including the date of actual payment in full.

 

d) Prepayment. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

 

 

Section 3. Registration of Transfers and Exchanges.

 

a) Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

 

b) Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

 

c) Reliance on Debenture Register. Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

 

Section 4. Conversion.

 

a) Voluntary Conversion. At any time after the Stockholder Approval Date until this Debenture is no longer outstanding, this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. Except for the rescission of any Mandatory Default Amount in accordance with Section 9(b), any principal amount of this Debenture converted pursuant to this Section 4(a) shall be applied against the last principal amount of this Debenture scheduled to be redeemed hereunder, in reverse time order from the Maturity Date. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture, plus all accrued and unpaid interest thereon, has been so converted in which case the Holder shall surrender this Debenture as promptly as is reasonably practicable after such conversion without delaying the Company’s obligation to deliver the shares on the Share Delivery Date. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

 

 

b) Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $0.93055, subject to adjustment herein (the “Conversion Price”).

 

c) Mechanics of Conversion.

 

i. Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

 

ii. Delivery of Conversion Shares Upon Conversion. Not later than the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder (A) the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date (as defined in the Registration Rights Agreement), shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture and (B) a bank check in the amount of accrued and unpaid interest (if the Company has elected or is required to pay accrued interest in cash). On or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, the Company shall deliver any Conversion Shares required to be delivered by the Company under this Section 4(c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Conversion.

 

iii. Failure to Deliver Conversion Shares. If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Conversion Shares issued to such Holder pursuant to the rescinded Conversion Notice.

 

 

iv. Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such Conversion Shares pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5^th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 9 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

 

v. Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such Conversion Shares by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver Conversion Shares upon conversion of this Debenture as required pursuant to the terms hereof.

 

vi. Reservation of Shares Issuable Upon Conversion. The Company covenants that it will, at all times after the Stockholder Approval Date, reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public resale in accordance with such Registration Statement (subject to such Holder’s compliance with its obligations under the Registration Rights Agreement).

 

 

vii. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

 

viii. Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.

 

d) Holder’s Conversion Limitations. The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures) beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates or Attribution Parties) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company, or (C) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61^st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.

 

 

Section 5. Certain Adjustments.

 

a) Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) Subsequent Equity Sales. If, at any time while this Debenture is outstanding, the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive Issuance the Conversion Price shall be reduced to equal the Base Conversion Price. (subject to adjustment for reverse and forward stock splits, recapitalizations and similar transactions following the date of the Purchase Agreement). Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance. If the Company enters into a Variable Rate Transaction, despite the prohibition set forth in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised. The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.

 

 

c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 5(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Debenture (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

d) Pro Rata Distributions. During such time as this Debenture is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Debenture, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Debenture (without regard to any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, that, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

 

e) Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (and all of its Subsidiaries, taken as a whole), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(d), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Debenture is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Debenture and the other Transaction Documents (as defined in the Purchase Agreement) in accordance with the provisions of this Section 5(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Debenture, deliver to the Holder in exchange for this Debenture a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Debenture which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Debenture (without regard to any limitations on the conversion of this Debenture) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Debenture immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Debenture and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Debenture and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

 

f) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

 

g) Notice to the Holder.

 

i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

ii. Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company(and all of its Subsidiaries, taken as a whole) is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

 

Section 6. Redemption.

 

a) Mandatory Redemption.

 

	i.	In the event the Company or any of its Subsidiaries obtains one or more equity or debt financings (including any Subsequent Financings (as defined in the Purchase Agreement)) with gross proceeds in excess of $3,000,000, the Company shall, at the option of the Holder, concurrently with the receipt of such gross proceeds, apply one-third (1/3) (or, in the case of a Public Offering Mandatory Redemption (as defined herein) required under clause (ii) below, 100%) of such gross proceeds towards the redemption (each, a “Mandatory Redemption”) of the principal amount of this Debenture.
	ii.	In the event the Company or any of its Subsidiaries conducts a public offering of its securities pursuant to a registration on Form S-1 following the consummation of the Merger (a “Public Offering”), the Company shall, at the option of the Holder, concurrently with the receipt of the proceeds of such Public Offering, apply 100% of such gross proceeds towards the redemption (each, a “Public Offering Mandatory Redemption”) of the principal amount of this Debenture; provided that the Company shall not be required to make Public Offering Mandatory Redemptions under this clause (ii) to the extent the aggregate amount of such Public Offering Mandatory Redemptions exceeds $500,000 of the principal amount of this Debenture.
	iii.	Any principal amount of this Debenture redeemed pursuant to a Mandatory Redemption or a Public Offering Mandatory Redemption shall be applied against the last principal amount of this Debenture scheduled to be redeemed hereunder, in reverse time order from the Maturity Date.

 

b) Monthly Redemption. On each Monthly Redemption Date, the Company shall redeem the Monthly Redemption Amount (the “Monthly Redemption”). The Monthly Redemption Amount payable on each Monthly Redemption Date shall be paid in cash. The Holder may convert, pursuant to Section 4(a), any principal amount of this Debenture subject to a Monthly Redemption at any time prior to the date that the Monthly Redemption Amount, plus accrued but unpaid interest, liquidated damages and any other amounts then owing to the Holder are due and paid in full. The Company covenants and agrees that it will honor all Notices of Conversion tendered up until such amounts are paid in full.

 

c) Redemption Procedure. The payment of cash pursuant to a Monthly Redemption shall be payable on the Monthly Redemption Date. If any portion of the payment pursuant to a Monthly Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 15% per annum or the maximum rate permitted by applicable law until such amount is paid in full. The Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.

 

d) Voluntary Redemption. The Company may voluntarily redeem the outstanding principal amount of this Debenture, in whole or in part, in cash upon irrevocable notice to the Holder at least one (1) Business Day prior to the date of such redemption. Any such redemption of the principal amount of this Debenture (in whole or in part) shall be accompanied by the sum, in cash, of (i) accrued and unpaid interest on the principal amount being so redeemed as of the date of such redemption and any other amounts then due hereunder and (ii) an amount equal to the product of (A) the principal amount of this Debenture being redeemed, (b) the per annum rate of seven percent (7.00%) and (c) the number of calendar days from, and including, the date of such prepayment to, and including, the Maturity Date divided by 360. Any principal amount of this Debenture redeemed pursuant this Section 6(d) shall be applied against the last principal amount of this Debenture scheduled to be redeemed hereunder, in reverse time order from the Maturity Date.

 

 

Section 7. Affirmative Covenants. As long as any portion of this Debenture remains outstanding, the Company shall, and shall cause each of its Subsidiaries to:

 

a) preserve and maintain its legal existence, rights, franchises and privileges in the jurisdiction of its organization, and qualify and remain qualified as a foreign business entity in each jurisdiction in which qualification is necessary in view of its business and operations or the ownership of its properties;

 

b) provide to the Holder, promptly upon becoming aware thereof (and in any event within three (3) days after the occurrence thereof), a notice of each Event of Default known to an executive officer of the Company, together with a statement of such executive officer setting forth the details of such Event of Default and the actions which the Company has taken and proposes to take with respect thereto;

 

c) pay and discharge as the same shall become due and payable: (x) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings diligently conducted (which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien) and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary, as applicable; (y) all lawful claims which, if unpaid, would by law become a Lien upon its property, unless the same are being contested in good faith by appropriate proceedings diligently conducted (which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien) and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary, as applicable; and (z) all Indebtedness, as and when due and payable, but subject to the terms of this Debenture; and (2) timely file all tax returns required to be filed (subject to any valid extension);

 

d) (1) maintain, preserve and protect all of its properties and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear excepted; and (2) make all necessary repairs thereto and renewals and replacements thereof;

 

e) take all action necessary or advisable to maintain all of the intellectual property rights of the Company and/or any of its Subsidiaries that are necessary or material to the conduct of its business in full force and effect;

 

f) comply with the requirements of all applicable laws and all orders, writs, injunctions and decrees applicable to it or to its business or property, in each case; and

 

g) maintain (1) insurance with financially sound and reputable insurance companies in at least the amounts (and with only those deductibles) customarily maintained, and against such risks as are typically insured against, by persons of comparable size engaged in the same or similar business as the Company and its Subsidiaries; and (2) all worker’s compensation, employer’s liability insurance or similar insurance as may be required under the laws of any state or jurisdiction in which it may be engaged in business;

 

 

Section 8. Negative Covenants. As long as any portion of this Debenture remains outstanding, the Company shall not, and shall not permit any of the Subsidiaries to, except with the prior written consent of the Agent (as defined in the Security Agreement), directly or indirectly:

 

	a)	other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;
	b)	other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;
	c)	amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that adversely affects any rights of the Holder, except as contemplated by the Merger Agreement;
	d)	repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Debenture;
	e)	redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents (in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion of any Indebtedness (other than (i) the Debentures if on a pro-rata basis and (ii) Permitted Indebtedness) whether by way of payment in respect of principal of (or premium, if any) or interest on, such Indebtedness;
	f)	pay cash dividends or distributions on any equity securities of the Company;
	g)	sell, lease, license, assign, transfer, spin-off, split-off, close, convey or otherwise dispose of any assets or rights of the Company or any Subsidiary owned or hereafter acquired whether in a single transaction or a series of related transactions, other than (i) sales, leases, licenses, assignments, transfers, conveyances and other dispositions of such assets or rights by the Company and its Subsidiaries in the ordinary course of business consistent with its past practice, or (ii) sales of inventory and product in the ordinary course of business;
	h)	engage in any material line of business substantially different from those lines of business conducted by or publicly contemplated to be conducted by the Company and/or its Subsidiaries as of the date hereof or any business reasonably related or incidental thereto. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, modify its or their corporate structure or purpose in any material respect;

 

 

	i)	insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law (wherever or whenever enacted or in force) that may affect the covenants or the performance of this Debenture; and (B) expressly waives all benefits or advantages of any such law and agrees that it will not, by resort to any such law, hinder, delay or impede the execution of any power granted to the Holders by this Debenture, but will suffer and permit the execution of every such power as though no such law has been enacted;
	j)	enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or
	k)	enter into any agreement with respect to any of the foregoing.

 

Section 9. Events of Default.

 

a) “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

 

i. any default in the payment of (A) the principal amount of any Debenture or (B) interest, liquidated damages and other amounts owing to a Holder on any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise);

 

ii. the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures (other than (A) a breach of Section 12 hereof, which breach is address in clause (xvii) below or (B) a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (xi) below) or in any Transaction Document, which failure is not cured, if possible to cure, within the earlier to occur of (A) 5 Trading Days after the earlier of (x) notice of such failure sent by the Holder or by any other Holder to the Company and (B) 10 Trading Days after the Company has become or should have become aware of such failure;

 

iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

 

 

iv. any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

 

v. the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

 

vi. the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $500,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

 

vii. the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days;

 

viii. At any time commencing on the earlier of (i) ten (10) Trading Days after the Stockholder Approval Date and (ii) 210 days from the Original Issue Date, the Company (and all of its Subsidiaries, taken as a whole) shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 33% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

 

ix. the initial Registration Statement required to be filed pursuant to Section 2(a) of the Registration Rights Agreement shall not have been declared effective by the Commission by the Effectiveness Deadline (as defined in the Registration Rights Agreement) (unless, and only to the extent, there is a reduction pursuant to Section 2(f) thereof) or the Company does not meet the current public information requirements under Rule 144 in respect of the Registrable Securities (as defined in the Registration Rights Agreement);

 

x. an Effectiveness Failure (as defined in the Registration Rights Agreement) or a Maintenance Failure (as defined in the Registration Rights Agreement) shall occur (unless, and only to the extent, there is a reduction pursuant to Section 2(f) thereof);

 

 

xi. the Company shall fail for any reason to deliver Conversion Shares to a Holder prior to the fifth Trading Day after a Conversion Date pursuant to Section 4(c) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof;

 

xii. any Person shall breach any agreement delivered to the initial Holders pursuant to Section 2.2 of the Purchase Agreement;

 

xiii. the electronic transfer by the Company of shares of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a “chill”;

 

xiv. any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $500,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days;

 

xv. the Security Agreement shall for any reason fail or cease to create a valid Lien on the collateral described therein in favor of the Agent, or any material provision of the Security Agreement or any Guarantee shall at any time for any reason cease to be valid and binding on or enforceable against the Company or the applicable Subsidiary, the validity or enforceability thereof shall be contested by any party thereto, or a proceeding shall be commenced by the Company, any Subsidiary or any governmental authority having jurisdiction over the Company or any such Subsidiary, seeking to establish the invalidity or unenforceability thereof;

 

xvi. a false or inaccurate certification (including a false or inaccurate deemed certification) by the Company as to whether any Event of Default has occurred;

 

xvii. any default under or failure to satisfy any requirement set forth in Section 12; or

 

xviii. any other development not described above that results in, or could reasonably be expected to result in, a Material Adverse Effect.

 

b) Remedies Upon Event of Default. If any Event of Default occurs, the outstanding principal amount of this Debenture, plus accrued but unpaid interest, the Mandatory Default Amount, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash. Upon the occurrence of an Event of Default, the interest rate on this Debenture shall accrue at an interest rate equal to the lesser of 15% per annum or the maximum rate permitted under applicable law. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 9(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

 

Section 10. Miscellaneous.

 

a) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by email attachment, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other email address, or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 10(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by email attachment, or sent by a nationally recognized overnight courier service addressed to each Holder at the email address or address of the Holder appearing on the books of the Company, or if no such email attachment or address appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Purchase Agreement. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via email attachment to the email address set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via email attachment to the email address set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

 

b) Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein.

 

c) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

 

 

d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

e) Amendment; Waiver. This Agreement nor any provision hereof may not be waived, amended or modified except pursuant to an agreement in writing entered into by the Company and the Holder. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture on any other occasion. Any waiver by the Company or the Holder must be in writing.

 

 

f) Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Debenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

 

g) Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Debenture shall be cumulative and in addition to all other remedies available under this Debenture and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Debenture. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Debenture.

 

h) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

 

i) Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

 

j) Secured Obligation; Guaranty. The obligations of the Company under this Debenture are secured by all assets of the Company and each Subsidiary pursuant to the Security Agreement, dated as of January 3, 2024 (as amended from time to time, the “Security Agreement”) between NAYA, Company, the Subsidiaries of the Company and the Secured Parties (as defined therein) (other than any assets expressly identified therein to be excluded from such security) and are guaranteed by each Subsidiary pursuant to one or more Subsidiary Guarantees (each, as amended from time to time, a “Guarantee”) in favor of the Holder.

 

Section 11. Disclosure. Upon receipt or delivery by the Company of any notice in accordance with the terms of this Debenture, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries, the Company shall within two (2) Business Days after such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, non-public information relating to the Company or its Subsidiaries, the Company so shall indicate to the Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries.

 

Section 12. Post-Closing. The Company covenants and agrees that, within five (5) Business Days following the date hereof, the Company, NAYA and their respective Subsidiaries shall execute and deliver, or cause to be executed and delivered, to Holder such documents as Holder may reasonably request in connection with the exchange of the NAYA Debenture for this Debenture and the INVO Preferred Stock (as defined in the NAYA Debenture), including, without limitation, a Subsidiary Guarantee from NAYA, an Additional Debtor Joinder to the Security Agreement from the Company and each of its Subsidiaries (pursuant to which, among other things, the Company and its Subsidiaries will grant security interests to the Holder in all of its assets, including without limitation all assets in which the Company and/or its Subsidiaries has granted security interests to Decathlon Alpha V, L.P. (“Decathlon”) in connection with the loan facility extended by Decathlon to the Company (the “Decathlon Facility”), a legal opinion from counsel to NAYA, an intercreditor agreement among Decathlon, the Company and/or its Subsidiaries and the Holder, and subordination agreements among the Company and/or its Subsidiaries, any other lender or creditor of the Company and/or its subsidiaries, and the Holder similar to the subordination agreements entered into in connection with the Decathlon Facility, in each case, in form and substance reasonably satisfactory to Holder. Any failure to satisfy any requirement of this Section 12 within five (5) Business Days after the date hereof shall constitute an immediate Event of Default, unless the Company has delivered a request for the Loan pursuant to Section 13, in which case the execution and delivery of the documents requested pursuant to this Section 12 shall be delivered at a closing of the Loan against delivery of the Loan funds pursuant to Section 13.

 

 

Section 13. Incremental Loan Facility.

 

	a)	Loan. Subject to the terms and conditions set forth in this Debenture and the Purchase Agreement and provided that (i) each requirement set forth in Section 12 hereof has been satisfied in accordance therewith and no other default or Event of Default has occurred and (ii) the shares of Common Stock of the Company continue to be listed or quoted on any national securities exchange registered under the Exchange Act on which the Common Stock is then listed or quoted, the Holder shall make one additional loan (the “Loan”) under this Debenture to the Company upon the terms and conditions set forth herein. Upon the funding of the Loan, the outstanding principal amount of this Debenture shall be increased by the principal amount of such Loan. The aggregate principal amount of the Loan shall be in the amount requested by the Company but shall not exceed $500,000.
	b)	Request for Loan. In order to request the Loan, the Company shall deliver a written request (which may be by email) to Holder no later than 12:00 p.m. on the Business Day immediately preceding the funding date of the Loan setting forth (1) the requested funding date of the Loan, which shall be a Business Day occurring on the date on which all conditions to such funding have been satisfied, (2) the requested amount of the Loan, and (3) wire instructions for the Company’s account where the proceeds of the Loan shall be deposited. Any request for the Loan shall be irrevocable and binding on the Company.
	c)	Funding of Loan. Subject to the terms and conditions herein, the Holder shall send by wire transfer the amount of the Loan to the Company pursuant to the wire instructions given by the Company in accordance with Section 13(b), whereupon the principal amount of this Debenture shall be increased by the amount so transferred.
	d)	Conditions to Loan. The Holder may in its sole discretion agree to waive any of the conditions set forth in this Section 13 for the funding of the Loan.
	e)	Use of Proceeds. The Company shall use the proceeds of the Loan solely for general corporate purposes.

 

*********************

 

(Signature Page Follows)

 

 

IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

 

	INVO BIOSCIENCE, INC.
	By:	/s/ Steven Shum
	Name:	Steven Shum
	Title:	CEO

 

 

ANNEX A

 

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert principal under Senior Secured Convertible Debenture due December 11, 2025, of INVO Bioscience, Inc., a Nevada corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

 

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

 

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

 

Conversion calculations:

 

	Date to Effect Conversion:
	Principal Amount of Debenture to be Converted:
	Payment of Interest in Common Stock __ yes __ no
	If yes, $_____ of Interest Accrued on Account of Conversion at Issue.
	Number of shares of Common Stock to be issued:
	Signature:
	Name:
	Address for Delivery of Common Stock Certificates:
	Or
	DWAC Instructions:
	Broker No:_________________
	Account No:_________________

 

 

Schedule 1

 

CONVERSION SCHEDULE

 

The Senior Secured Convertible Debentures due on December 11, 2025, in the aggregate principal amount of $3,934,146 are issued by INVO Bioscience, Inc., a Nevada corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

 

Dated:

 

Date of Conversion (or for first entry, Original Issue Date)		Amount of Conversion		Aggregate Principal Amount Remaining Subsequent to Conversion (or original Principal Amount)		Company Attest

 

 

Exhibit 10.1

 

JOINDER AGREEMENT

 

THIS JOINDER AGREEMENT (this “Joinder Agreement”) to that certain Securities Purchase Agreement (the “Purchase Agreement”) dated as of January 3, 2024, between NAYA Biosciences, Inc., a Delaware corporation (the “Company”), and each purchaser identified on the signature pages thereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”) is made and entered into as of October 11, 2024, by and among the Company, the Purchasers and INVO Bioscience, Inc., a Nevada corporation (“INVO”).

 

RECITALS

 

A. WHEREAS, the Company and the Purchasers have entered into the Purchase Agreement; and

 

B. WHEREAS, INVO desires to become a party to the Purchase Agreement, to the extent of its rights and obligations described in the Purchase Agreement, and is willing to assume the obligations pursuant to the Purchase Agreement that are applicable to INVO.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

 

1.

Definitions. In addition to the terms defined elsewhere in this Joinder Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Purchase Agreement and (b) the following terms have the meanings set forth in this Section 1:

 

“Acquiring Person” shall have the meaning ascribed to such term in Section 2(l).

 

“Conversion Price” shall have the meaning ascribed to such term in the PubCo Senior Secured Convertible Debenture.

 

“Conversion Shares” shall have the meaning ascribed to such term in the PubCo Senior Secured Convertible Debenture.

 

“Effective Date” means the earliest of the date that (a) the initial Registration Statement has been declared effective by the Commission, (b) all of the Underlying Shares have been sold pursuant to Rule 144 or may be sold pursuant to Rule 144 without the requirement for INVO to be in compliance with the current public information required under Rule 144 and without volume or manner-of-sale restrictions, (c) following the one year anniversary of the Closing Date provided that a holder of the Underlying Shares is not an Affiliate of INVO, or (d) all of the Underlying Shares may be sold pursuant to an exemption from registration under Section 4(a)(1) of the Securities Act without volume or manner-of-sale restrictions and INVO Counsel has delivered to such holders a standing written unqualified opinion that resales may then be made by such holders of the Underlying Shares pursuant to such exemption which opinion shall be in form and substance reasonably acceptable to such holders.

 

 

“Exempt Issuance” means the issuance of (a) shares of INVO Common Stock or options to employees, officers or directors of INVO pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the board of directors of INVO or a majority of the members of a committee of non-employee directors established for such purpose for services rendered to INVO, (b) securities upon the exercise or exchange of or conversion of any Securities issued on the Trigger Date and/or other securities exercisable or exchangeable for or convertible into shares of INVO Common Stock issued and outstanding on the date of this Joinder Agreement, provided that such securities have not been amended since the date of this Joinder Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities (other than in connection with stock splits or combinations) or to extend the term of such securities, (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of INVO, provided that such securities are issued as “restricted securities” (as defined in Rule 144) and carry no registration rights that require or permit the filing of any registration statement in connection therewith during the prohibition period in Section 2(i) herein, and provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of INVO and shall provide to INVO additional benefits in addition to the investment of funds, but shall not include a transaction in which INVO is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities, and (d) shares of INVO Common Stock or INVO Common Stock Equivalents resulting in the aggregate gross proceeds of greater than $5 million.

 

“INVO Common Stock Equivalents” means any securities of INVO or INVO Subsidiaries which would entitle the holder thereof to acquire at any time INVO Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, INVO Common Stock.

 

“INVO Counsel” means Glaser Weil Fink Howard Jordan & Shapiro LLP, 10250 Constellation Blvd., 19th Floor, Los Angeles, CA 90067.

 

“INVO Material Adverse Effect” means (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document or any Joinder Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of INVO and INVO Subsidiaries, taken as a whole, or (iii) a material adverse effect on INVO’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document or any Joinder Document.

 

 

“INVO Subsidiaries” means any subsidiary of INVO as set forth on Schedule 1 to the INVO Disclosure Schedules and shall, where applicable, also include any direct or indirect subsidiary of INVO formed or acquired after the date hereof.

 

“Joinder Documents” means, collectively, (i) this Joinder Agreement, (ii) the PubCo Senior Secured Convertible Debenture, (iii) the PubCo Series C-2 Certificate of Designations, (iv) the assumption and assignment of the Registration Rights Agreement, (iv) the Security Agreement (as defined in PubCo Senior Secured Convertible Debenture), (v) the Guarantees (as defined in the PubCo Senior Secured Convertible Debenture), (vi) any other documents and filings required under the Security Agreement in order to grant the Purchasers a first priority security interest in the assets of INVO and INVO Subsidiaries as provided in the Security Agreement, including all UCC-1 filing receipts, and (vii) all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

 

“Legend Removal Date” shall have the meaning ascribed to such term in Section 2(a).

 

“Pre-Notice” shall have the meaning ascribed to such term in Section 2(i).

 

“Pro Rata Portion” means the ratio of (x) the Subscription Amount of Debentures and accompanying Commitment Shares purchased on the Closing Date by a Purchaser participating under Section 2(h) hereof and (y) the sum of the aggregate Subscription Amounts of Debentures and accompanying Commitment Shares purchased on the Closing Date by all Purchasers participating under Section 2(i) hereof.

 

“PubCo Preferred Shares” means shares of Series C-2 Convertible Preferred Stock of Invo issued on or about the Effective Date, with aggregate stated value of $8,075,833.33.

 

“PubCo Senior Secured Convertible Debenture” means that certain Senior Secured Convertible Debenture of Invo issued on or about the Effective Date, in aggregate principal amount of $3,921,696.67.

 

“PubCo Series C-2 Certificate of Designations” means that certain Certificate of Designations for the Series C-2 Convertible Preferred Shares of Invo.

 

“Public Information Failure” shall have the meaning ascribed to such term in Section 2(e).

 

“Public Information Failure Payments” shall have the meaning ascribed to such term in Section 2(e).

 

“Required Minimum” means, as of any date, the maximum aggregate number of shares of INVO Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents and the Joinder Documents, including any Underlying Shares issuable upon conversion in full of all PubCo Senior Secured Convertible Debenture (including Underlying Shares issuable as payment of interest on the PubCo Senior Secured Convertible Debenture) and PubCo Preferred Shares, ignoring any conversion or exercise limits set forth therein, and assuming that the Conversion Price is at all times on and after the date of determination 75% of the then Conversion Price on the Trading Day immediately prior to the date of determination.

 

 

“Securities” means the PubCo Senior Secured Convertible Debenture, PubCo Preferred Shares, the PubCo Shares, and the Underlying Shares.

 

“Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on INVO’s primary Trading Market with respect to INVO Common Stock as in effect on the date of delivery of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend.

 

“Subsequent Financing” shall have the meaning ascribed to such term in Section 2(i).

 

“Subsequent Financing Notice” shall have the meaning ascribed to such term in Section 2(i).

 

“Transfer Agent” means Transfer Online, Inc., the transfer agent of INVO with a mailing address of 512 SE Salmon St., Portland, OR 97214, and any successor transfer agent of INVO.

 

“Underlying Shares” means the shares of INVO Common Stock issued and issuable pursuant to the terms of the PubCo Senior Secured Convertible Debenture and PubCo Series C-2 Certificate of Designations, including without limitation, shares of INVO Common Stock issued and issuable in lieu of the cash payment of interest on the PubCo Senior Secured Convertible Debenture in accordance with the terms of the PubCo Senior Secured Convertible Debenture, in each case without respect to any limitation or restriction on the conversion of the PubCo Senior Secured Convertible Debenture and PubCo Preferred Shares.

 

“Variable Rate Transaction” means a transaction in which INVO (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of INVO Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of INVO Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of INVO or the market for INVO Common Stock or (ii) enters into, or effects a transaction under, any agreement, including, but not limited to, an equity line of credit or an “at-the-market offering”, whereby INVO may issue securities at a future determined price whereby INVO may issue securities at a future determined price regardless of whether shares pursuant to such agreement have actually been issued and regardless of whether such agreement is subsequently canceled.

 

 

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if INVO Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of INVO Common Stock for such date (or the nearest preceding date) on the Trading Market on which INVO Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB Venture Market (“OTCQB”) or OTCQX Best Market (“OTCQX”) is not a Trading Market, the volume weighted average price of INVO Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if INVO Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on the Pink Open Market operated by OTC Markers, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of INVO Common Stock so reported, or (d) in all other cases, the fair market value of a share of INVO Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to INVO, the fees and expenses of which shall be paid by INVO.

 

2.

Agreement to be Bound. INVO hereby agrees that, upon execution of this Joinder Agreement, INVO shall become a party to the Purchase Agreement and shall be fully bound by, and subject to, all of the covenants, terms and conditions of the Purchase Agreement as though an original party thereto, except as set forth herein. In addition, INVO and the Purchaser hereby agree as follows:

 

a.

Legends. Certificates evidencing the Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b) of the Purchase Agreement): (i) while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, (ii) following any sale of such Underlying Shares pursuant to Rule 144, (iii) if such Underlying Shares are eligible for sale under Rule 144, without the requirement for INVO, to be in compliance with the current public information required under Rule 144 as to such Underlying Shares and without volume or manner-of-sale restrictions, or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). INVO shall cause its counsel to issue a legal opinion to the Transfer Agent or the Purchaser promptly after the Effective Date if required by the Transfer Agent to effect the removal of the legend hereunder, or if requested by a Purchaser, respectively. If all or any portion of the PubCo Senior Secured Convertible Debenture or the PubCo Preferred Shares is converted at a time when there is an effective registration statement to cover the resale of the Underlying Shares, or if such Underlying Shares may be sold under Rule 144 without the requirement for INVO to be in compliance with the current public information required under Rule 144 as to such Underlying Shares and without volume or manner-of-sale restrictions or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Underlying Shares shall be issued free of all legends. INVO agrees that following the Effective Date or at such time as such legend is no longer required under this Section 2(a), it will, no later than the earlier of (i) one (1) Trading Day and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) following the delivery by a Purchaser to INVO or the Transfer Agent of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend (such date, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends. INVO may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in Section 4 of the Purchase Agreement. Certificates for Underlying Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser.

 

 

	b.	Pledges of the Securities. INVO acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of INVO and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s expense, INVO will execute and deliver such reasonable documentation as a pledgee or secured party of the Securities may reasonably request in connection with a pledge or transfer of the Securities, including, if the Securities are subject to registration pursuant to the Registration Rights Agreement, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of Selling Stockholders (as defined in the Registration Rights Agreement) thereunder.
	c.	Legend Removal Failure. In addition to such Purchaser’s other available remedies, INVO shall pay to a Purchaser, in cash, (i) as partial liquidated damages and not as a penalty, for each $1,000 of Underlying Shares (based on the VWAP of INVO Common Stock on the date such Securities are submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 2(a) above, $10 per Trading Day (increasing to $20 per Trading Day five (5) Trading Days after the Legend Removal Date) for each Trading Day after the Legend Removal Date until such certificate is delivered without a legend and (ii) if INVO fails to (a) issue and deliver (or cause to be delivered) to a Purchaser by the Legend Removal Date a certificate representing the Securities so delivered to INVO by such Purchaser that is free from all restrictive and other legends and (b) if after the Legend Removal Date such Purchaser purchases (in an open market transaction or otherwise) shares of INVO Common Stock to deliver in satisfaction of a sale by such Purchaser of all or any portion of the number of shares of INVO Common Stock, or a sale of a number of shares of INVO Common Stock equal to all or any portion of the number of shares of INVO Common Stock that such Purchaser anticipated receiving from INVO without any restrictive legend, then, an amount equal to the excess of such Purchaser’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of INVO Common Stock so purchased (including brokerage commissions and other out-of-pocket expenses, if any) over the product of (A) such number of Underlying Shares that INVO was required to deliver to such Purchaser by the Legend Removal Date multiplied by (B) the lowest closing sale price of INVO Common Stock on any Trading Day during the period commencing on the date of the delivery by such Purchaser to INVO of the applicable Underlying Shares (as the case may be) and ending on the date of such delivery and payment under this clause (ii).

 

 

	d.	Agreements of the Purchasers. Each Purchaser, severally and not jointly with the other Purchasers, agrees with INVO that such Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in Section 2(a) hereof is predicated upon INVO’s reliance upon this understanding.
	e.	Furnishing of Information; Public Information.

 

	i.	From the Trigger Date until the date on which the Securities no longer remain outstanding, INVO covenants to maintain the registration of INVO Common Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by INVO after the date hereof pursuant to the Exchange Act even if INVO is not then subject to the reporting requirements of the Exchange Act.
	ii.	At any time during the period commencing from the six (6) month anniversary of the Trigger Date and ending at such time that all of the Securities may be sold without the requirement for INVO to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, if INVO (i) shall fail for any reason to satisfy the current public information requirement under Rule 144(c) or (ii) has ever been an issuer described in Rule 144 (i)(1)(i) or becomes an issuer in the future, and INVO shall fail to satisfy any condition set forth in Rule 144(i)(2) (a “Public Information Failure”) then, in addition to such Purchaser’s other available remedies, INVO shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, by reason of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal to two percent (2.0%) of the aggregate Subscription Amount of such Purchaser’s Securities on the day of a Public Information Failure and on every thirtieth (30th) day (pro rated for periods totaling less than thirty days) thereafter until the earlier of (a) the date such Public Information Failure is cured and (b) such time that such public information is no longer required for the Purchasers to transfer the Underlying Shares pursuant to Rule 144. The payments to which a Purchaser shall be entitled pursuant to this Section 2(e) are referred to herein as “Public Information Failure Payments.” Public Information Failure Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Payments are incurred and (ii) the third (3rd) Business Day after the event or failure giving rise to the Public Information Failure Payments is cured. In the event INVO fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of 1.5% per month (prorated for partial months) until paid in full. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Public Information Failure, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

 

 

	f.	Conversion Procedures. The form of Notice of Conversion included in the PubCo Senior Secured Convertible Debenture and the form of Conversion Notice included in the PubCo Series C-2 Certificate of Designations, each sets forth the totality of the procedures required of the Purchasers in order to convert the PubCo Senior Secured Convertible Debenture and the PubCo Preferred Shares. Without limiting the preceding sentences, no ink-original Notice of Conversion or the Conversion Notice shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form or the Conversion Notice form be required in order convert the PubCo Senior Secured Convertible Debenture and the PubCo Preferred Shares, respectively. No additional legal opinion, other information or instructions shall be required of the Purchasers to convert their PubCo Senior Secured Convertible Debenture or the PubCo Preferred Shares. INVO shall honor conversions of the PubCo Senior Secured Convertible Debenture and the PubCo Preferred Shares and shall deliver Underlying Shares in accordance with the terms, conditions and time periods set forth in the PubCo Senior Secured Convertible Debenture and the PubCo Preferred Shares.
	g.	Non-Public Information. INVO covenants and agrees that neither it, nor any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that constitutes, or INVO reasonably believes constitutes, material non-public information, unless prior thereto such Purchaser shall have consented in writing to the receipt of such information and agreed in writing with INVO to keep such information confidential. INVO understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of INVO. To the extent that INVO, any of INVO Subsidiaries, or any of their respective officers, director, agents, employees or Affiliates delivers any material, non-public information to a Purchaser without such Purchaser’s consent, INVO hereby covenants and agrees that such Purchaser shall not have any duty of confidentiality to INVO, any of INVO Subsidiaries, or any of their respective officers, directors, employees, Affiliates, or agents, including, without limitation, the Placement Agent, or a duty to INVO, any of INVO Subsidiaries or any of their respective officers, directors, employees, Affiliates or agents, including, without limitation, the Placement Agent, not to trade on the basis of, such material, non-public information, provided that the Purchaser shall remain subject to applicable law. To the extent that any notice provided pursuant to any Transaction Document constitutes, or contains, material, non-public information regarding the Company or any INVO Subsidiaries, INVO shall simultaneously with the delivery of such notice file such notice with the Commission pursuant to a Current Report on Form 8-K. INVO understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of INVO.

 

 

h. Reservation and Listing of Securities.

 

	i.	Following the Stockholder Approval Date (as defined in the Series C-2 Certificate of Designations), INVO shall maintain a reserve of the Required Minimum from its duly authorized shares of INVO Common Stock for issuance pursuant to the PubCo Senior Secured Convertible Debenture and the PubCo Preferred Shares in such amount as may then be required to fulfill its obligations in full under the Transaction Documents and the Joinder Documents.
	ii.	Following the Stockholder Approval Date, if, on any date, the number of authorized but unissued (and otherwise unreserved) shares of INVO Common Stock is less than the Required Minimum on such date, then the Board of Directors shall use commercially reasonable efforts to amend the INVO’s certificate or articles of incorporation to increase the number of authorized but unissued shares of INVO Common Stock to at least the Required Minimum at such time, as soon as possible and in any event not later than the 75th day after such date.
	iii.	INVO shall, if applicable: (i) in the time and manner required by the principal Trading Market, prepare and file with such Trading Market an additional shares listing application covering a number of shares of INVO Common Stock at least equal to the Required Minimum on the date of such application, (ii) take all steps necessary to cause such shares of INVO Common Stock to be approved for listing or quotation on such Trading Market as soon as possible thereafter, (iii) provide to the Purchasers evidence of such listing or quotation and (iv) maintain the listing or quotation of such INVO Common Stock on any date at least equal to the Required Minimum on such date on such Trading Market or another Trading Market. INVO agrees to maintain the eligibility of INVO Common Stock for electronic transfer through the Depository Trust Company or another established clearing corporation, including, without limitation, by timely payment of fees to the Depository Trust Company or such other established clearing corporation in connection with such electronic transfer.

 

 

i. Participation in Future Financing.

 

	i.	From the Trigger Date until the date on which the Securities no longer remain outstanding, upon any issuance by INVO or any of INVO Subsidiaries of INVO Common Stock or INVO Common Stock Equivalents for cash consideration, Indebtedness or a combination of units thereof (a “Subsequent Financing”), each Purchaser shall have the right to participate in up to an amount of the Subsequent Financing equal to 33.0% of the Subsequent Financing (the “Participation Maximum”) on the same terms, conditions and price provided for in the Subsequent Financing.
	ii.	At least five (5) Trading Days prior to the closing of the Subsequent Financing, INVO shall deliver to each Purchaser a written notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Purchaser if it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”). Upon the request of a Purchaser, and only upon a request by such Purchaser, for a Subsequent Financing Notice, INVO shall promptly, but no later than one (1) Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser. The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing is proposed to be effected and shall include a term sheet or similar document relating thereto as an attachment.
	iii.	Any Purchaser desiring to participate in such Subsequent Financing must provide written notice to INVO by not later than 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after all of the Purchasers have received the Pre-Notice that such Purchaser is willing to participate in the Subsequent Financing, the amount of such Purchaser’s participation, and representing and warranting that such Purchaser has such funds ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice. If INVO receives no such notice from a Purchaser as of such fifth (5th) Trading Day, such Purchaser shall be deemed to have notified INVO that it does not elect to participate.

 

 

	iv.	If by 5:30 p.m. (New York City time) on the fifth (5th ) Trading Day after all of the Purchasers have received the Pre-Notice, notifications by the Purchasers of their willingness to participate in the Subsequent Financing (or to cause their designees to participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then INVO may effect the remaining portion of such Subsequent Financing on the terms and with the Persons set forth in the Subsequent Financing Notice.
	v.	If by 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after all of the Purchasers have received the Pre-Notice, INVO receives responses to a Subsequent Financing Notice from Purchasers seeking to purchase more than the aggregate amount of the Participation Maximum, each such Purchaser shall have the right to purchase its Pro Rata Portion (as defined below) of the Participation Maximum.
	vi.	INVO must provide the Purchasers with a second Subsequent Financing Notice, and the Purchasers will again have the right of participation set forth above in this Section 2(i), if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within thirty (30) Trading Days after the date of the initial Subsequent Financing Notice.
	vii.	INVO and each Purchaser agree that if any Purchaser elects to participate in the Subsequent Financing, the transaction documents related to the Subsequent Financing shall not include any term or provision that, directly or indirectly, will, or is intended to, exclude one or more of the Purchasers from participating in a Subsequent Financing, including, but not limited to, provisions whereby such Purchaser shall be required to agree to any restrictions on trading as to any securities of INVO or be required to consent to any amendment to or termination of, or grant any waiver, release or the like under or in connection with, the Purchase Agreement, without the prior written consent of such Purchaser.
	viii.	Notwithstanding anything to the contrary in this Section 2(i) and unless otherwise agreed to by such Purchaser, INVO shall either confirm in writing to such Purchaser that the transaction with respect to the Subsequent Financing has been abandoned or shall publicly disclose its intention to issue the securities in the Subsequent Financing, in either case in such a manner such that such Purchaser will not be in possession of any material, non-public information, by the tenth (10th) Business Day following delivery of the Subsequent Financing Notice. If by such tenth (10th) Business Day, no public disclosure regarding a transaction with respect to the Subsequent Financing has been made, and no notice regarding the abandonment of such transaction has been received by such Purchaser, such transaction shall be deemed to have been abandoned and such Purchaser shall not be deemed to be in possession of any material, non-public information with respect to INVO or any of INVO Subsidiaries.
	ix.	Notwithstanding the foregoing, this Section 2(i) shall not apply in respect of an Exempt Issuance.

 

 

j. Subsequent Equity Sales.

 

	i.	Intentionally Omitted.
	ii.	From the Trigger Date until the date of the twelve months anniversary of the Trigger Date, INVO shall be prohibited from effecting or entering into an agreement to effect any issuance by INVO or any of INVO Subsidiaries of INVO Common Stock or INVO Common Stock Equivalents (or a combination of units thereof) involving a Variable Rate Transaction. Any Purchaser shall be entitled to obtain injunctive relief against INVO to preclude any such issuance, which remedy shall be in addition to any right to collect damages.
	iii.	Notwithstanding the foregoing, this Section 2(j) shall not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance.

 

	k.	Capital Changes. After the Stockholder Approval Date and until such date as the PubCo Debentures no longer remain outstanding, INVO, shall not undertake a reverse or forward stock split or reclassification of INVO Common Stock without the prior written consent of the Purchasers holding a majority in principal amount outstanding of the PubCo Debentures.
	l.	Shareholder Rights Plan. No claim will be made or enforced by INVO or, with the consent of INVO, any other Person, that any Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by INVO, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between INVO and the Purchasers.

 

 

3.

Representation and Warranties. Except as set forth in the Disclosure Schedules to this Joinder Agreement (“INVO Disclosure Schedules”) and SEC Reports, which INVO Disclosure Schedules and SEC Reports shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the INVO Disclosure Schedules, INVO hereby makes to each Purchaser (I) all representations and warranties contained in Section 3.1 of the Purchase Agreement (other than representations and warranties contained in Sections 3.1(e), 3.1(g), 3.1(h), 3.1(i), and 3.1(s) of the Purchase Agreement), with (a) references to the “Company” therein and in the applicable definitions contained in Section 1.1 of the Purchase Agreement deemed to refer to INVO, (b) references to the “Subsidiaries” therein deemed to refer to the INVO Subsidiaries, (c) references to the “Material Adverse Effect” therein deemed to refer to INVO Material Adverse Effect, (d) references to the “Closing Date” therein deemed to refer to the date hereof, (e) references to “Transaction Documents” therein deemed to refer to, collectively, the Transaction Documents and the Joinder Documents, and (f) references any Disclosure Schedules therein deemed to refer to the SEC Reports and (II) the following representations and warranties:

 

	a.	Filings, Consents and Approvals. INVO is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with (a) the execution, delivery and performance by INVO of the Joinder Documents, and (b) the execution, delivery and performance by INVO Subsidiaries of Subsidiary Guarantees, other than: (i) any filings with the Commission pursuant to the Registration Rights Agreement, (ii) the notice and/or application(s) to each applicable Trading Market for the issuance of the Securities and the listing of the Conversion Shares for trading thereon in the time and manner required thereby, and (iii) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws (collectively, the “INVO Required Approvals”).
	b.	Capitalization. The capitalization of INVO as of the date hereof is as set forth on Schedule 3(b) of the INVO Disclosure Schedules, which Schedule 3(b) shall also include the number of shares of INVO Common Stock owned beneficially, and of record, by Affiliates of INVO as of the date hereof. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents or the Joinder Documents. Except as set forth on Schedule 3(b), there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of INVO Common Stock or the capital stock of any INVO Subsidiary, or contracts, commitments, understandings or arrangements by which the INVO or any INVO Subsidiary is or may become bound to issue additional shares of INVO Common Stock or INVO Common Stock Equivalents or capital stock of any INVO Subsidiary. The issuance and sale of the Securities will not obligate INVO or any INVO Subsidiary to issue shares of INVO Common Stock or other securities to any Person (other than the Purchasers). There are no outstanding securities or instruments of INVO or any INVO Subsidiary with any provision that adjusts the exercise, conversion, exchange or reset price of such security or instrument upon an issuance of securities by INVO or any INVO Subsidiary. There are no outstanding securities or instruments of INVO or any INVO Subsidiary that contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which INVO or any INVO Subsidiary is or may become bound to redeem a security of INVO or such INVO Subsidiary. INVO does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement. All of the outstanding shares of capital stock of INVO are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the board of directors of INVO or others is required for the issuance of PubCo Debentures, PubCo Shares, and Underlying Shares. There are no stockholders agreements, voting agreements or other similar agreements with respect to INVO’s capital stock to which INVO is a party or, to the knowledge of INVO, between or among any of the INVO’s stockholders.

 

 

	c.	SEC Reports. INVO has filed all reports, schedules, forms, statements and other documents required to be filed by INVO under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as INVO was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. INVO is not an issuer subject to Rule 144(i) under the Securities Act. The financial statements of INVO included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance GAAP, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of INVO and its consolidated INVO Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.
	d.	Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included within the SEC Reports, except as set forth on Schedule 3(d) of INVO Disclosure Schedules, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in an INVO Material Adverse Effect, (ii) INVO has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in INVO’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) INVO has not altered its method of accounting, (iv) INVO has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) INVO has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing INVO stock option plans. INVO does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated by the Purchase Agreement, the Merger Agreement, or as set forth on Schedule 3(d) of INVO Disclosure Schedules, no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to INVO or INVO Subsidiaries or their respective businesses, prospects, properties, operations, assets or financial condition, that would be required to be disclosed by INVO under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least 1 Trading Day prior to the date that this representation is made.

 

 

	e.	Investigations; Stop Orders. There has not been, and to the knowledge of INVO, there is not pending or contemplated, any investigation by the Commission involving INVO or any current or former director or officer of INVO. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by INVO or any INVO Subsidiary under the Exchange Act or the Securities Act.
	f.	Sarbanes-Oxley; Internal Accounting Controls. INVO and INVO Subsidiaries are in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002, as amended, that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the Commission thereunder that are effective as of the date hereof. INVO and INVO Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. INVO and INVO Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for INVO and INVO Subsidiaries and designed such disclosure controls and procedures to ensure that information required to be disclosed by INVO in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. INVO’s certifying officers have evaluated the effectiveness of the disclosure controls and procedures of INVO and INVO Subsidiaries as of the end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”). INVO presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the internal control over financial reporting (as such term is defined in the Exchange Act) that have materially affected, or is reasonably likely to materially affect, the internal control over financial reporting of INVO and INVO Subsidiaries.

 

 

	g.	Listing and Maintenance Requirements. INVO Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and INVO has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of INVO Common Stock under the Exchange Act nor has INVO received any notification that the Commission is contemplating terminating such registration. INVO has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which INVO Common Stock is or has been listed or quoted to the effect that INVO is not in compliance with the listing or maintenance requirements of such Trading Market. INVO is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. INVO Common Stock is currently eligible for electronic transfer through the Depository Trust Company or another established clearing corporation and INVO is current in payment of the fees to the Depository Trust Company (or such other established clearing corporation) in connection with such electronic transfer.
	h.	Disclosure. INVO confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that it believes constitutes or might constitute material, non-public information. INVO understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of INVO.
	i.	No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2 of the Purchase Agreement, neither INVO, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by INVO for purposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of INVO are listed or designated.
	j.	Accountants. INVO’s accounting firm is set forth on Schedule 3(j) of the INVO Disclosure Schedules. To the knowledge and belief of INVO, such accounting firm (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall express its opinion with respect to the financial statements to be included in the INVO’s Annual Report for the fiscal year ending December 31, 2024.

 

 

	k.	Regulation M Compliance. INVO has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of INVO to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of INVO, other than, in the case of clauses (ii) and (iii), compensation paid to the Placement Agent in connection with the placement of the Securities.
	l.	Form S-3 Eligibility. INVO is eligible to register the resale of the Underlying Shares for resale by the Purchaser on Form S-3 promulgated under the Securities Act.
	m.	Acknowledgment Regarding Purchaser’s Trading Activity. Anything in the Purchase Agreement to the contrary notwithstanding (except for Section 4.12 of the Purchase Agreement), it is understood and acknowledged by INVO that: (i) none of the Purchasers has been asked by INVO to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of INVO, or “derivative” securities based on securities issued by INVO or to hold the Securities for any specified term, (ii) past or future open market or other transactions by any Purchaser, specifically including, without limitation, “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include locating and/or borrowing shares of INVO Common Stock) or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of INVO’s publicly-traded securities, (iii) any Purchaser, and counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, may presently have a “short” position in the shares of INVO Common Stock and (iv) each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. INVO further understands and acknowledges that (y) one or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Underlying Shares deliverable with respect to Securities are being determined, and (z) such hedging activities (if any) could reduce the value of the existing stockholders’ equity interests in INVO at and after the time that the hedging activities are being conducted. INVO acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents or the Joinder Documents.

 

 

	4.	Successors and Assigns. This Joinder Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. INVO may not assign this Joinder Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Joinder Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents and the Joinder Documents that apply to the “Purchasers.”
	5.	Notices. All notices, consents, requests, claims, demands and other communications under this Joinder Agreement shall be in accordance with the provisions of Section 5.4 of the Purchase Agreement at the following addresses:

 

If to INVO:

 

Steve Shum

Chief Executive Officer

INVO Bioscience, Inc.

5582 Broadcast Court

Sarasota, Florida 34240

Telephone: (978) 878-9505

 

with a copy (which shall not constitute notice) to:

 

Glaser Weil Fink Howard Jordan & Shapiro LLP

10250 Constellation Blvd., 19th Floor

Los Angeles, CA 90067

Attention: Marc Indeglia

Telephone: 310-282-6245

E-mail: mindeglia@glaserweil.com

 

If to Purchaser:

 

Five Narrow Lane LP

510 Madison Ave, Ste 1401

New York, NY 10022

 

with a copy (which shall not constitute notice) to:

 

Haynes and Boone, LLP

30 Rockefeller Plaza, 26^th Floor

New York, NY 10012

Attention: Rick Werner

Telephone: (212) 659-4974

E-mail: rick.werner@haynesboone.com and

 

or to such other address as the parties hereto may designate in writing to the other. Any party may change the address to which notices are to be sent by giving written notice of such change of address to the other parties in the manner above provided for giving notice.

 

  

	6.	Headings. The headings herein are for convenience only, do not constitute a part of this Joinder Agreement and shall not be deemed to limit or affect any of the provisions hereof.
	7.	Governing Law; Waiver of Jury Trial. This Joinder Agreement shall be subject to the provisions regarding governing law and waiver of jury trial set forth in Section 5.9 and Section 5.22, respectively, of the Purchase Agreement, and such provisions are incorporated herein by this reference, mutatis mutandis.
	8.	Execution. This Joinder Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such “.pdf” signature page were an original thereof.

 

[Signatures on the Following Page]

 

 

INVO BIOSCIENCE, INC.
By:	/s/ Steven Shum
Name:	Steven Shum
Title:	CEO
By:	/s/ Joseph Hammer
Name:	Joseph Hammer
Title:	General Partner

 

 

Exhibit 10.2

 

ASSIGNMENT AND ASSUMPTION AGREEMENT

 

THIS ASSIGNMENT AND ASSUMPTION (this “Assignment”) is made as of October 11, 2024 (the “Effective Date”), by and between NAYA Biosciences, Inc., a Delaware corporation (“Assignor”), and INVO Bioscience, Inc., a Nevada corporation (“Assignee”).

 

WITNESSETH

 

WHEREAS, Assignor entered into that certain Registration Rights Agreement, dated as of September 12, 2024, by and among the Assignor and Five Narrow Lane LP, attached hereto as Exhibit A (as amended from time to time, the “Registration Rights Agreement”);

 

WHEREAS, Assignee, INVO Merger Sub Inc., a wholly owned subsidiary of Assignee and a Delaware corporation (“Merger Sub”), and Assignor entered into the Amended and Restated Agreement and Plan of Merger, dated as of October 11, 2024 (as may be amended, amended and restated, supplemented or otherwise modified from time to time, the “Merger Agreement”), pursuant to which Merger Sub will merge with and into Assignor, with Assignor continuing as the surviving corporation and a wholly owned subsidiary of Assignee; and

 

WHEREAS, Assignor desires to assign, and Assignee desires to assume the rights, duties and liabilities of Assignor under the Registration Rights Agreement.

 

NOW, THEREFORE, in consideration for entering into the Merger Agreement, the parties hereto, intending legally to be bound, hereby agree as follows:

 

1. Assignment. As of the Effective Date, Assignor assigns to Assignee all of its rights, duties, liabilities and obligations in, to and under the Registration Rights Agreement. Notwithstanding the foregoing, Assignor shall remain liable under the Registration Rights Agreement for all liabilities and obligations under the Registration Rights Agreement that accrue on or prior to the Effective Date.

 

2. Assumption. Assignee hereby assumes all rights, duties, liabilities and obligations required of Assignor under the Registration Rights Agreement, and Assignee shall comply with all terms and conditions of the Registration Rights Agreement.

 

3. Section 2(e) of the Registration Rights Agreement shall be amended by replacing “disregarding any reduction pursuant to Section 2(f)” with “other than a reduction pursuant to Section 2(f)” throughout Section 2(e).

 

[Remainder of Page Intentionally Blank]

 

 

IN WITNESS WHEREOF, the parties have executed this Assignment on the day and year first above written.

 

		ASSIGNOR:
		NAYA Biosciences, Inc.
		By:	/s/ Daniel Teper
		Name:	DR. Daniel Teper
		Title:	CEO
		ASSIGNEE:
		INVO BIOSCIENCE, INC.
		By:	/s/ Steven Shum
		Name:	Steven Shum
		Title:	CEO

 

Acknowledged and Agreed to by:

 

FIVE NARROW LANE LP
By:	/s/ Joseph Hammer
Name:	Joseph Hammer
Title:	General Partner

 

 

EXHIBIT A

 

REGISTRATION RIGHTS AGREEMENT

 

 

 

Exhibit 10.3

 

SECOND AMENDMENT TO REVENUE LOAN AND SECURITY AGREEMENT

 

This second amendment (this “Second Amendment”) to that certain Revenue Loan and Security Agreement dated September 29, 2023, as amended September 24, 2024 (the “Agreement”), by and among Steven Shum (“Key Person”), INVO Bioscience Inc., a Nevada corporation (the “Company”), the Guarantors identified on the signature page hereto (the “Guarantors”), and Decathlon Alpha V, L.P., a Delaware limited partnership (“Lender”), is effective as of October 11, 2024 (the “Second Amendment Date”). Unless otherwise defined herein, all capitalized terms have the meanings given to them in the Agreement.

 

The Company has requested that Lender consent to the transactions contemplated by that certain Amended and Restated Merger Agreement (the “Merger Agreement”), dated October [11], 2024, by and among the Company, NAYA Biosciences, Inc., a Delaware corporation (“NAYA”), and INVO Merger Sub Inc., a Delaware corporation and a wholly owned Subsidiary of the Company (“Merger Sub”), pursuant to which Merger Sub will merge with and into NAYA (the “Merger”), resulting in NAYA becoming a wholly owned subsidiary of the Company.

 

In connection with and as a material inducement to Lender to make an accommodation with respect to this request, the Company desires to make amendments to the Agreement as provided herein.

 

The Company, the Key Person, the Guarantors and Lender hereby agree as follows:

 

1. Consent to Merger. The Lender hereby consents to (a) the transactions contemplated by the Merger Agreement, including, without limitation, the Merger and the issuance of a subordinated secured convertible debenture pursuant thereto, (b) NAYA becoming a New Subsidiary, (c) the liability of NAYA for its obligations and Indebtedness existing as of the date of the Merger, and (d) the liens, security interests, mortgages, and pledges of NAYA, existing as of the date of the Merger.

 

2. Joinder. Pursuant to Sections 2.5, 5.8 and 6.4 of the Agreement, NAYA hereby jointly and severally with each other Guarantor, hereby irrevocably, unconditionally and absolutely guarantees the punctual payment in full when due and the performance of the Obligations, in accordance with the terms of the Agreement (with respect to each individual Guarantor, the “Guaranty”). Subject to the foregoing, each Guarantor hereby further agrees that if Company fails to pay in full when due (whether at stated maturity, by acceleration or otherwise) all or any part of the Obligations, each Guarantor will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any Obligations, it will promptly pay the same in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of that extension or renewal. Each Guaranty is a continuing guaranty and shall apply to each Guarantor and all Obligations whenever arising and regardless of any intermediate payment or discharge in part thereof. As security for the performance of each Guarantor’s Guaranty obligations, each Guarantor hereby assigns and grants to Lender a continuing security interest in all of its right, title and interest in and to the Collateral of such Guarantor (in each case, substituting the name of the applicable Guarantor for the “Company” on Schedule 11.2 of the Agreement) subject to the same rights and obligations as set forth in Section 2.4 of the Agreement.

 

3. Amendments.

 

3.1. Required Paydowns and Increase in Monthly Payments upon Certain Financings. A new Section 2.3(e) is hereby added to the Agreement as follows:

 

 

(e) Required Paydowns and Increase in Monthly Payments upon Certain Financings.

 

(i) Upon the Company’s closing of the Series D PIPE (as defined in the Merger Agreement), if the Series D PIPE results in gross proceeds of less than $10,000,000, (x) the Company shall pay to Lender $500,000, plus $0.15 for each dollar of gross proceeds in excess of $5,000,000, for application against the Amount Advanced balance and accrued but unpaid Interest, and (y) the monthly payment set forth in Section 2.3(b) shall increase by $30,000.

 

(ii) Upon the Company’s closing of the Series D PIPE, if the Series D PIPE results in gross proceeds of at least $10,000,000 but less than $15,000,000, (x) the Company shall pay to Lender $1,250,000, plus $0.17 for each dollar of gross proceeds in excess of $10,000,000, for application against the Amount Advanced balance and accrued but unpaid Interest, and (y) the monthly payment set forth in Section 2.3(b) shall increase by $20,000.

 

(iii) Upon the Company’s closing of Series D PIPE, if the Series D PIPE results in gross proceeds of at least $15,000,000, the Company shall pay to Lender the entire Amount Advanced balance and accrued but unpaid Interest.

 

3.2. Liquidity Covenant. A new Section 5.19 is hereby added to the Agreement as follows:

 

5.19 Liquidity Covenant. If at any time the Company’s cash on hand is less than the Minimum Liquidity, it shall, within 30 days, retain an investment banker or direct its existing investment banker to pursue a sale of the Company or to pursue a follow-on equity financing. For purposes hereof, “Minimum Liquidity” means the product of multiplying (a) EBITDA for the three months preceding the measurement date, by (b) 2.

 

3.3. Intercreditor Agreement. A new Section 5.20 is hereby added to the Agreement as follows:

 

5.20 Intercreditor Agreement. Within 5 business days after the Second Amendment Date, the Company and Five Narrow Lane LP shall have executed and delivered to Lender an intercreditor agreement satisfactory to Lender in its reasonable discretion with respect to the subordinated secured convertible debenture referenced in the Merger Agreement, as well as all documents, instruments, and certificates relating hereto and thereto.

 

3.4. Permitted Indebtedness. Schedule 11.4 to the Agreement is hereby replaced with Schedule 11.4 attached hereto.

 

3.5. Permitted Liens. Schedule 11.5 to the Agreement is hereby replaced with Schedule 11.5 attached hereto.

 

4. Transaction Costs. Pursuant to Section 12.7 of the Agreement, Company will reimburse Lender for all fees and expenses incurred by Lender relating to this Amendment. Without limiting the foregoing, Company shall pay Lender $5,000 related to Lender’s fees and expenses incurred in connection with this Amendment.

 

5. No Other Changes. In all other respects, the Agreement shall remain in full force and effect.

 

** Signatures on following page **

 

 

The parties have executed this Amendment as of the Second Amendment Date.

 

COMPANY:
INVO BIOSCIENCE, INC.
By:	/s/ Steven Shum
	Steven Shum, CEO
LENDER:
DECATHLON ALPHA V, L.P.
By:	Decathlon Alpha GP V, LLC
Its:	General Partner
By:	/s/ Wayne Cantwell
	Wayne Cantwell, Managing Director
KEY PERSON:
By:	/s/ Steven Shum
	Steven Shum
GUARANTORS:
NAYA BIOSCIENCES, INC.
By:	/s/ Daniel Teper
BIO X CELL INC
By:	/s/ Steven Shum
	Steve Shum, President

 

 

INVO CENTERS LLC
By:	/s/ Steven Shum
	Steve Shum, Managing Member
WOOD VIOLET FERTILITY LLC
By:	/s/ Steven Shum
	Steve Shum, Managing Member
FERTILITY LABS OF WISCONSIN LLC
By:	/s/ Steven Shum
	Steve Shum, Managing Member
ORANGE BLOSSOM FERTILITY LLC
By:	/s/ Steven Shum
	Steve Shum, Managing Member

 

 

SCHEDULE 11.4

PERMITTED INDEBTEDNESS

 

“Permitted Indebtedness” is:

 

(a) Company’s and the Company Entities’ Indebtedness to Lender under this Agreement and the other Transaction Documents;

 

(b) Current and future equipment lease financing secured only by a security interest in the financed equipment (the “Permitted Equipment Leases”);

 

(c) unsecured Indebtedness to trade creditors incurred in the ordinary course of business;

 

(d) Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of any Company Entity’s business;

 

(e) Indebtedness incurred pursuant to that certain Standard Merchant Cash Advance Agreement between the Company and Cedar Advance LLC dated September 16, 2024 in the “Net Funds Provided” amount of $251,750 (the “Cedar Advance Loan”); and

 

(f) Company’s guaranty of that certain Senior Secured Convertible Debenture issued to Five Narrow Lane LP.

 

 

SCHEDULE 11.5

PERMITTED LIENS

 

“Permitted Liens” are:

 

(a) Liens existing on the Effective Date and shown on the Perfection Certificates or arising under this Agreement and the other Transaction Documents;

 

(b) Liens for taxes, fees, assessments or other government charges or levies, either not delinquent or being contested in good faith and for which the applicable Company Entity maintains adequate reserves on its books, provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code of 1986, as amended , and the Treasury Regulations adopted thereunder;

 

(c) Liens securing Permitted Equipment Leases;

 

(d) statutory Liens securing claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other Persons imposed without action of such parties, provided they have no priority over any of Lender’s Lien and the aggregate amount of such Liens does not exceed $10,000 at any one time;

 

(e) leases or subleases of real property granted in the ordinary course of business, if the leases, subleases, licenses and sublicenses do not prohibit granting Lender a security interest; and

 

(f) banker’s liens, rights of setoff and Liens in favor of financial institutions incurred made in the ordinary course of business arising in connection with a Company Entity’s deposit accounts or securities accounts held at such institutions to secure solely payment of fees and similar costs and expenses;

 

(g) Liens to secure payment of workers’ compensation, employment insurance, old-age pensions, social security and other like obligations incurred in the ordinary course of business (other than Liens imposed by ERISA);

 

(h) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 7.4;

 

(i) easements, reservations, rights-of-way, restrictions, minor defects or irregularities in title and similar charges or encumbrances affecting real property not constituting a Material Adverse Effect;

 

(j) non-exclusive licenses of intellectual property granted to third parties in the ordinary course of business;

 

(k) non-exclusive licenses of intellectual property granted to third parties in the ordinary course of business in connection with joint ventures and corporate collaborations;

 

(l) Liens securing the Cedar Advance Loan, provided Cedar Advance LLC has executed a subordination agreement in form satisfactory to Lender; and

 

(m) Liens securing that Senior Secured Convertible Debenture issued to Five Narrow Lane, LP, provided such holder and Lender have executed an intercreditor agreement in form satisfactory to Lender.

 

 

 

Exhibit 99.1

 

 

INVO Bioscience and NAYA Biosciences Close Merger, Combined Company to Operate as NAYA Biosciences (NASDAQ: NAYA)

 

Combined company to expand portfolio of clinical & commercial-stage assets in fertility, oncology, and autoimmune diseases

 

SARASOTA, Fla. and MIAMI, Oct. 14, 2024 (GLOBE NEWSWIRE) — INVO Bioscience (“INVO”) (NASDAQ: INVO) today announced it has closed its merger with NAYA Biosciences, a company dedicated to increasing patient access to breakthrough treatments in oncology and autoimmune diseases. The combined company expects to change its name to NAYA Biosciences and trade on the NASDAQ under the “NAYA” ticker. The combined company will continue to operate the revenue-generating fertility business as well as expand its focus to the development of first-in-class clinical-stage assets in oncology and autoimmune diseases.

 

The combined company will be led by INVO Chief Executive Officer Steve Shum, INVO Chief Financial Officer Andrea Goren, and Dr. Daniel Teper, founder and former CEO of NAYA Biosciences, who will be appointed as President of the combined company and Chief Executive Officer of the NAYA Therapeutics subsidiary. Dr. Teper has over 30 years of strategic leadership experience as a biopharma entrepreneur, corporate executive, and management consultant. Two members of NAYA’s board, Dr. Teper and Ms. Lyn Falconio, will join the combined company’s board alongside INVO’s current board members.

 

“We are confident that our expanded portfolio business model and combined assets have the potential to create significant value for both legacy and new shareholders,” commented Steve Shum, CEO of the combined company. “Combining scalable, profitable revenues from our fertility business with the upside of innovative therapeutics optimizes risk-return for investors. In addition, the hub-and-spoke model allows for shared resources and talent to accelerate the development of our lean, agile subsidiaries.”

 

“We are excited about the growth potential of NAYA as a public company with improved access to capital and shared resources to accelerate the development of its pipeline,” added Dr. Daniel Teper, President of the combined company and CEO of the NAYA Therapeutics subsidiary. “Our lead GPC3-targeting FLEX-NK™ bispecific antibody is entering Phase I/II clinical trials and uniquely positioned as a monotherapy option to address the unmet needs of the majority of hepatocellular carcinoma (HCC) patients not responding to current standard of care with checkpoint inhibitors. Our CD38-targeting FLEX-NK™ bispecific antibody has demonstrated a differentiated profile to daratumumab, establishing potential to both emerge as a best-in-class therapeutic in the competitive multiple myeloma market and address patient needs in the high-growth, underserved autoimmune disease market.”

 

 

About the Acquisition

 

Under the terms of the amended and restated merger agreement, INVO acquired 100% of the outstanding equity interests in NAYA by means of a reverse triangular merger of a wholly owned subsidiary of INVO with and into NAYA, with NAYA surviving as a wholly owned subsidiary of INVO (the “Merger”). In connection with the Merger, INVO issued to NAYA’s security holders a combination of shares of INVO common stock, INVO Series C-1 preferred stock, and Series C-2 preferred stock. Subject to stockholder approval of the conversion of the Series C-1 and C-2 preferred stock into INVO common stock, each share of Series C-1 preferred stock will convert into shares of INVO common stock subject to certain beneficial ownership limitations initially set at and not to exceed 19.9%, and each share of Series C-2 preferred stock will become convertible into shares of INVO common stock at the option of the holder, subject to certain beneficial ownership limitations initially set at 9.99% and not to exceed 19.9%

 

On a pro forma basis, based upon the number of shares of INVO common stock, Series C-1 preferred stock, and Series C-2 preferred stock, assuming the conversion of all such Series C-1 and C-2 preferred stock into INVO common stock, INVO equity holders immediately prior to the acquisition will own 17.75% of the combined company on an as-converted-to-common basis immediately after these transactions. The acquisition was approved by the board of directors of INVO and the board of directors and stockholders of NAYA. The closing of the transaction was not subject to the approval of INVO stockholders.

 

Additional Information about the Proposed Merger and Where to Find It

 

INVO will furnish to the U.S. Securities and Exchange Commission (the “SEC”) a Current Report on Form 8-K regarding the Merger, which will include the Amended and Restated Merger Agreement as an exhibit thereto. Stockholders and others wishing to obtain additional information regarding the Amended and Restated Merger Agreement and the Merger are urged to review these documents, which will be available at the SEC’s website (https://www.sec.gov).

 

Safe Harbor Statement

 

This release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company invokes the protections of the Private Securities Litigation Reform Act of 1995. All statements regarding our expected future financial position, results of operations, cash flows, financing plans, business strategies, products and services, competitive positions, growth opportunities, plans and objectives of management for future operations, as well as statements that include words such as “anticipate,” “if,” “believe,” “plan,” “estimate,” “expect,” “intend,” “may,” “could,” “should,” “will,” and other similar expressions are forward-looking statements. All forward-looking statements involve risks, uncertainties, and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from anticipated results, performance, or achievements. Factors that may cause actual results to differ materially from those in the forward-looking statements include those set forth in our filings at www.sec.gov. We are under no obligation to (and expressly disclaim any such obligation to) update or alter our forward-looking statements, whether as a result of new information, future events or otherwise.

 

Investor & Media Contacts

 

INVO Bioscience

Steve Shum

Chief Executive Officer

sshum@invobio.com

 

NAYA Biosciences

Anna Baran-Djokovic

SVP, Investor Relations

+1-305-615-9162

anna@nayabiosciences.com

 

 

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Cover	Oct. 11, 2024
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