UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington
D.C. 20549
FORM
8-K/A
CURRENT
REPORT
Pursuant
to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported): December 7, 2010
Wizard
World, Inc.
(Exact
Name of Registrant as specified in charter)
Delaware |
000-33383 |
98-0357690 |
(State
or other jurisdiction of
incorporation
or organization) |
(Commission
File Number) |
(IRS
Employee Identification No.) |
1350
Avenue of the Americas, 2nd Floor
New
York, NY 10019 |
(Address
of Principal Executive
Offices) |
(646)
801-5572
(Registrant’s
telephone number, including area code)
Check the
appropriate box below if the Form 8-K/A filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
¨ 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))
FORWARD-LOOKING
STATEMENTS
This Current Report on Form 8-K/A
and other reports filed by registrant from time to time with the Securities and
Exchange Commission (collectively, the “Filings”) contain or may contain
forward-looking statements and information that is based upon beliefs of, and
information currently available to, registrant’s management, as well as
estimates and assumptions made by registrant’s management. When used in the
Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,”
“intend,” “plan” or the negative of these terms and similar expressions as they
relate to registrant or registrant’s management identify forward-looking
statements. Such statements reflect the current view of registrant with respect
to future events and are subject to risks, uncertainties, assumptions and other
factors (including the risks contained in the section of this Current Report on
Form 8-K/A entitled “Risk Factors”) relating to registrant’s industry and
registrant’s operations and results of operations. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may differ significantly from those anticipated,
believed, estimated, expected, intended or planned.
You should not place undue reliance
on any forward-looking statement, each of which applies only as of the date of
this Current Report on Form 8-K/A. Except as required by law, we
undertake no obligation to update or revise publicly any of the forward-looking
statements after the date of this Current Report on Form 8-K/A to conform our
statements to actual results or changed expectations, or the results of any
revision to these forward-looking statements.
In this Current Report on Form
8-K/A, references to “we,” “our,” “us,” the “Company,” “our Company,” or
“Wizard” refer to Wizard World, Inc. (f/k/a GoEnergy, Inc.), and references to
“Conventions” refer collectively to Kick The Can Corp. and its predecessors
Wizard Conventions, Inc. and Kicking The Can, L.L.C.
Item 1.01. Entry into a
Material Definitive Agreement.
On
December 7, 2010 (the “Closing Date”), the Company acquired Conventions pursuant
to a Share Purchase and Share Exchange Agreement (the “Exchange Agreement”) by
and among the Company, Strato Malamas, an individual and the majority
stockholder of the Company (f/k/a GoEnergy, Inc.), Conventions, and shareholders
of Conventions (“Conventions Shareholders”) that are signatories thereto. On the
Closing Date, pursuant to the terms of the Exchange Agreement, the Conventions
Shareholders transferred and contributed all of their shares (the “Conventions
Shares”) to the Company, resulting in our acquisition of all of the outstanding
Conventions Shares. In return, we issued to the Conventions Shareholders, their
designees or assigns (the “Share Exchange”), an aggregate of 33,430,107 shares
(the “Exchange Shares”), which constituted approximately 96.4% on a fully
diluted basis of the shares of common stock, par value $.0001 per share (the
“Common Stock”), of the Company issued and outstanding immediately after the
consummation of the Share Exchange (the “Closing”).
As the
result of the Share Exchange, Conventions became a wholly owned subsidiary of
the Company. Our sole director and majority shareholder approved the Exchange
Agreement, the Share Exchange and the other transactions contemplated under the
Exchange Agreement. The sole director and majority shareholder of Conventions
approved the Exchange Agreement, the Share Exchange and the other transactions
contemplated under the Exchange Agreement.
As a
condition to the Share Exchange, Mr. Terry Fields (“Mr. Fields”) resigned from
all officer positions, other than as CFO, of the Company (f/k/a GoEnergy, Inc.),
and Mr. Gareb Shamus (“Mr. Shamus”) was appointed the Company’s President and
Chief Executive Officer. In accordance with the Exchange Agreement,
Mr. Fields resigned as CFO after the filing of the Company’s Form 10-Q for the
three month period ended October 31, 2010, effective immediately after the
filing of such Form 10-Q. As another condition to the Share Exchange, Mr. Fields
resigned as the sole director of the Company and Mr. Shamus was appointed as a
director of the Company, each effective as of January 14,
2011.
Immediately
after the consummation of the Share Exchange, we entered into subscription
agreements (collectively, the “Subscription Agreements”) with certain accredited
investors (collectively, the “Subscribers”) for the issuance and sale of (i) up
to $1.5 million in Series A Cumulative Convertible Preferred Stock (“Series A
Preferred”) having the rights and preferences set forth in the Certificate to
set forth Designations, Voting Powers, Preferences, Limitations, Restrictions,
and Relative Rights of Series A Cumulative Convertible Preferred Stock, $.0001
par value per share (the “Certificate of Designation”), which includes, among
other things, the ability to convert into shares of the Company’s Common Stock
at a per share conversion price of $0.40 and (ii) Warrants (collectively, the
“Subscriber Warrants”) to purchase shares of the Company’s Common Stock (the
“Subscriber Warrant Shares”) at an exercise price of $0.60 per share
(collectively, the “Offering”). The Company raised an aggregate of $775,000 from
the Offering.
The Share
Exchange is discussed more fully in Section 2.01 of this Current Report on Form
8-K/A. The information therein is hereby incorporated in this Section 1.01 by
reference. The description of the Exchange Agreement, Subscription Agreements,
Certificate of Designation and Subscriber Warrants does not purport to be
complete and is qualified in its entirety by reference to the full text of (i)
Exhibit 2 to the Form 8-K that we filed with the Securities and Exchange
Commission (the “Commission”) on November 16, 2010, (ii) Exhibit 10.1 to the
Form 8-K that we filed with the Commission on December 14, 2010, (iii) Exhibit
4.1 to the Form 8-K that we filed with the Commission on December 14, 2010 and
(iv) Exhibit 4.2 to the Form 8-K that we filed with the Commission on December
14, 2010, respectively, which are incorporated herein by reference.
We
borrowed an aggregate of $200,000 from four lenders and issued convertible
demand promissory notes (collectively, the “Notes”) made as of November 5, 2010
(the “Issuance Date”). Unless mandatorily converted, the Notes were convertible
at any time after the sixtieth (60th) day after the Issuance Date at a
conversion price of $.40 (the “Conversion Price”). In the event we raised
$600,000 or more pursuant to a private placement (the “Qualified Offering”), the
principal and accrued interest of each Note is mandatorily converted into our
capital stock having the same terms (e.g., same class or series and having the
same rights and privileges) as the securities issued pursuant to our private
placement. Further, in the event that we issue capital stock for a purchase
price that is less than the Conversion Price or we issue securities that are
convertible or exercisable into our capital stock at a conversion price or
exercise price, as applicable, that is lower than the Conversion Price, the
Conversion Price is automatically reduced to such lower price. The holders of
the Notes also have piggyback registration rights such that if we at any time
file a registration statement, the underlying common stock of the Notes must
also be included in such registration statement. The Notes were
mandatorily converted on December 7, 2010 when the Company raised an aggregate
of $775,000 from the issuance of Series A Preferred.
Together
with the Notes, we also issued to each lender a common stock purchase warrant
(each a “Warrant” and collectively, the “Warrants”) that is exercisable at any
time on or after a Qualified Offering and during the one year period after the
issuance of the Warrant. Such Warrant is exercisable into the same
number of shares as are issuable upon conversion of the corresponding Note at an
exercise price of $.60 (the “Exercise Price”), which may be paid through a
cashless exercise. The Exercise Price is proportionately adjusted in the event
of, among other things, a stock split, the issuance of a stock dividend,
subsequent equity sales and subsequent rights offerings.
The
description of the Notes and Warrants herein does not purport to be complete and
is qualified in its entirety by the full text of Exhibits 10.13 and 4.3,
respectively, of this Current Report on Form 8-K/A, which are incorporated
herein by reference.
Item 2.01. Completion of
Acquisition or Disposition of Assets.
CLOSING OF THE SHARE
EXCHANGE
As
described in Item 1.01 above, on December 7, 2010 (the “Closing Date”), we
acquired Conventions through the acquisition of all the Conventions Shares from
the Conventions Shareholders, and in return, we issued an aggregate of
33,430,107 shares of our Common Stock to the Conventions Shareholders, their
designees or assigns, which constituted approximately 96.4% of the issued and
outstanding shares of our Common Stock on a fully-diluted basis after the
Closing of the Share Exchange.
On the
Closing Date, Conventions became a wholly owned subsidiary of the Company. The
Company’s sole director and majority shareholder approved the Exchange
Agreement, the Share Exchange and the other transactions contemplated under the
Exchange Agreement. The sole director and majority shareholder of
Conventions approved the Exchange Agreement, the Share Exchange and the other
transactions contemplated thereunder. Immediately following the Closing of the
Share Exchange, the Company changed its business plan to that of
Conventions.
The
Company was a “shell company” (as such term is defined in Rule 12b-2 under the
Exchange Act of 1934, as amended (the “Exchange Act”)) immediately before the
completion of the Share Exchange. Accordingly, pursuant to the requirements of
Item 2.01(a)(f) of Form 8-K, set forth below is the information that would be
required if the Company were filing a general form for registration of a class
of securities on Form 10 under the Exchange Act, with such information
reflecting the Company and its securities upon consummation of the Share
Exchange.
BUSINESS
Overview
We, through our operating subsidiary
Conventions, are a producer of pop culture and live multimedia conventions
across North America. These live multimedia conventions provide a
social networking and entertainment venue for popular fiction enthusiasts of
movies, TV shows, video games, technology, toys, social networking/gaming
platforms, comic books and graphic novels. Such conventions also market movies,
TV shows, video games, technology, toys, social networking/gaming platforms,
comic books and graphic novels.
Background
Wizard
World, Inc. (f/k/a GoEnergy, Inc.) (“we,” “our,” “us,” the “Company,” “our
Company,” or “Wizard”) was incorporated in Delaware on May 2, 2001. The Company
was involved in oil and gas exploration and considered various oil and gas
properties. None of the properties that the Company explored had commercial
potential so operations were ceased and the Company abandoned any interests it
had in such properties.
On
December 7, 2010 (the “Closing Date”), the Company acquired Conventions pursuant
to a Share Purchase and Share Exchange Agreement (the “Exchange Agreement”) by
and among the Company, Strato Malamas, an individual and the majority
stockholder of the Company, Conventions, and shareholders of Conventions
(“Conventions Shareholders”) that are signatories thereto. On the Closing Date,
pursuant to the terms of the Exchange Agreement, the Conventions Shareholders
transferred and contributed all of their shares (the “Conventions Shares”) to
the Company, resulting in our acquisition of all of the outstanding Conventions
Shares. In return, we issued to the Conventions Shareholders, their designees or
assigns (the “Share Exchange”), an aggregate of 33,430,107 shares (the “Exchange
Shares”), which constituted approximately 96.4% on a fully diluted basis of the
shares of common stock, par value $.0001 per share (the “Common Stock”), of the
Company issued and outstanding immediately after the consummation of the Share
Exchange (the “Closing”). As the result of the Share Exchange,
Conventions (which collectively refers to Kick The Can Corp. and its
predecessors Wizard Conventions, Inc. and Kicking The Can, L.L.C) became a
wholly owned subsidiary of the Company.
Kick The
Can Corp. was incorporated in Nevada on September 20, 2010. Kicking
The Can, L.L.C. was formed in Delaware on April 17, 2009. It
also has not undergone any bankruptcy, receivership or similar proceeding, or
any any material reclassification, merger, consolidation, or purchase of a
significant amount of assets. It sold a significant amount of its
assets, namely the production rights to certain comic cons in certain cities
pursuant to an asset purchase agreement, to Kick The Can Corp. on September 29,
2010. Wizard Conventions, Inc. was originally incorporated under the
name Entertainment Conventions, Inc. in New York on February 27,
1997. Entertainment Conventions, Inc. changed its name to Wizard
Conventions, Inc. on October 1, 2001.
On
January 31, 2011, management of Wizard Conventions, Inc. ceased operations under
such entity and continued the convention operation under the Kick The Can Corp.
entity. Kicking The Can L.L.C. never officially commenced operations,
never had employees and never produced a comic con event. Due to
these circumstances, management concluded that Wizard Conventions, Inc.
recapitalized into Kick The Can Corp despite no formal legal agreement between
the parties.
The
description of the Exchange Agreement does not purport to be complete and is
qualified in its entirety by the full text of Exhibit 2.1 to this Current Report
on Form 8-K/A, which is herein incorporated by reference.
We
borrowed an aggregate of $200,000 from four lenders and issued to such lenders
convertible demand promissory notes (collectively, the “Notes”) made as of
November 5, 2010 (the “Issuance Date”). Unless mandatorily converted, the Notes
were convertible at any time after the sixtieth (60th) day after the Issuance
Date at a conversion price of $.40 (the “Conversion Price”). In the event we
raise $600,000 or more pursuant to a private placement (the “Qualified
Offering”), the principal and accrued interest of each Note is mandatorily
converted into our capital stock having the same terms (e.g., same class or
series and having the same rights and privileges) as the securities issued
pursuant to our private placement. Further, in the event that we issue capital
stock for a purchase price that is less than the Conversion Price or we issue
securities that are convertible or exercisable into our capital stock at a
conversion price or exercise price, as applicable, that is lower than the
Conversion Price, the Conversion Price is automatically reduced to such lower
price. The holders of the Notes also have piggyback registration rights such
that if we at any time file a registration statement, the underlying common
stock of the Notes must also be included in such registration
statement. The Notes were mandatorily converted on December 7, 2011
when the Company raised an aggregate of $775,000 from the issuance of Series A
Cumulative Convertible Preferred Stock (“Series A Preferred”).
Together
with the Notes, we also issued to each lender a common stock purchase warrant
(each a “Warrant” and collectively, the “Warrants”) that is exercisable at any
time on or after a Qualified Offering and during the one year period after the
issuance of the warrant. Such Warrant is exercisable into the same number of
shares as are issuable upon conversion of the corresponding Note at an exercise
price of $.60 (the “Exercise Price”), which may be paid through a cashless
exercise. The Exercise Price is proportionately adjusted in the event of, among
other things, a stock split, the issuance of a stock dividend, subsequent equity
sales and subsequent rights offerings.
The
description of the Notes and Warrants herein does not purport to be complete and
is qualified in its entirety by the full text of Exhibits 10.13 and 4.3,
respectively, of this Current Report on Form 8-K/A, which are incorporated
herein by reference.
On March
18, 2011, we formed a wholly owned subsidiary called Wizard World Digital, Inc.
(“Digital”). Among other things, Digital (i) monitors and sends emails to our
fan database, (ii) manages our website www.wizardworld.com
and our online accounts (e.g., Twitter and Facebook) and (iii) produces our
organically-developed online newsletter called Wizard World
Digital.
Our Business
Overview
Our
Company produces pop culture and live multimedia conventions (“Comic Cons”)
across North America that provides a social networking and entertainment venue
for popular fiction enthusiasts of movies, TV shows, video games, technology,
toys, social networking/gaming platforms, comic books and graphic
novels. These Comic Cons provide entertainment companies, toy
companies, gaming companies, publishing companies and retailers venues for their
sales, marketing, promotions, public relations, advertising and sponsorships
efforts.
Conventions
Conventions
have been producing conventions since July 1997. In 2009, Conventions produced 3
Comic Cons, namely the Philadelphia Comic Con, Chicago Comic Con and New York
‘Big Apple’ Comic Con. In 2010, Conventions produced 9 Comic Cons in
the following cities: Miami, New Orleans, Toronto, Anaheim, Philadelphia,
Chicago, New York, Boston and Austin.
Conventions
currently holds the production rights to the following (12) conventions: (i)
Atlanta Comic Con; (ii) Big Apple Comic Con; (iii) Cincinnati Comic Con; (iv)
Connecticut Comic Con; (v) Nashville Comic Con; (vi) New England Comic Con held
in Boston; (vii) North Coast Comic Con; (viii) Toronto Comic Con; (ix) Nola
Comic Con in New Orleans; (x) Central Canada Comic Con in Winnipeg; and (xi)
Mid-Ohio Comic Con. We organically developed the Comic Cons in Miami,
Anaheim, Austin, Philadelphia and Chicago.
Our most recent acquisition of production
rights was the Mid-Ohio Comic Con, which we acquired from GCX Holdings on
November 13, 2010. The total consideration for the acquisition was
$77,500, of which $60,000 was the initial purchase price, payable in royalties
consisting of 25% of the first $40,000 of exhibitor revenue, plus 10% of the
exhibitor revenue over $40,000. Additionally, we agreed to a
five-year consulting agreement for $3,500 per year, payable in annual
installments commencing in the year after the $60,000 initial purchase price had
been paid in full. The production of the Mid-Ohio Comic Con is expected to cost
approximately $150,000, which we plan to fund out of existing cash and cash flow
from our Company’s operations and proceeds from ticket sales and exhibitor sales
prior to the event.
Our 2011
Wizard World tour includes nine (9) conventions occurring in the
following cities: New Orleans, Miami, Toronto, Anaheim, New York, Philadelphia,
Rosemont, Columbus and Austin. All of our 2011 Comic Cons have
already occurred. We receive revenue from our Comic Cons in three (3)
ways, namely from (i) consumer ticket sales; (ii) exhibitor booth sales; and
(iii) national and/or regional sponsorships. Each Comic Con varies in cost
to produce. Production costs vary based on the size and scope of the
production. Generally, our production costs range from approximately
$150,000 for a smaller scale production to over $450,000 for a larger
production. We base the number of Comic Cons that we produce on how
much internal cash flow we have to fund them, which limits the number of Comic
Cons that we can produce in one year.
A
majority of our target audience is male-oriented and are active consumers of
many types of entertainment and media, such as movies, music, toys, video games,
apps, consumer electronics, computers, and lifestyle products (e.g., clothes,
footwear, digital devices, mobile phones and men’s personal items).
Digital
Media
We plan
to leverage the popularity of our Comic Cons and use it as a springboard to
enter the digital media market. We will use digital media (i) as a
distribution channel for the pop culture content that we showcase at our Comic
Cons, (ii) to provide coverage of our Comic Con events, and (iii) to introduce
new and upcoming products and talent in the pop culture world. To that end, we
formed a wholly owned subsidiary, Wizard World Digital, Inc. (“Digital”), to
send entertainment emails to our fan database, manage our website www.wizardworld.com
and our online presence on, among others, Twitter and Facebook, and produce our
organically-developed online newsletter called Wizard World
Digital. Wizard World Digital is
constantly being updated with new content and is distributed through various
digital media outlets, such as through our Twitter and Facebook accounts,
YouTube Channel, Flicker, Tumblr and an iPad app that we
developed.
Further,
we plan to launch our new digital entertainment network called the “Wizard World
Digital Entertainment Network,” which will be comprised of two entertainment
websites at www.wizardworld.com
and www.wizardworlddigital.com,
and the Wizard World email database. The Digital Entertainment Network will
offer display advertising to brand advertisers, priced on a traditional
cost-per-thousand (CPM) ad impression basis. We plan to work with display
advertising networks and third party representation firms, and to hire 4 direct
sales employees over the next 12 months to maximize the monetization of the
Digital Entertainment Network.
Our
objective is to use our Comic Cons and Wizard World Digital to
become the voice for pop culture enthusiasts across multiple media platforms.
Key elements of our strategy include:
• producing
high quality live multimedia events across North America for promotion of
consumer products and entertainment;
• leveraging
all the content created and generated at the live multimedia events to enter the
media market and distribute the content in digital media such as websites, apps,
emails, newsletters, Facebook, Twitter, Flicker, Tumblr and YouTube;
and
• obtaining
sponsorships and promotions from media and entertainment companies for the Comic
Cons, including:
• expanding
our relationships with entertainment and media companies; and
• forming
strategic relationships with new media and entertainment companies to promote
their products.
We
receive revenue from our Comic Cons in three (3) ways, namely from (i) consumer
ticket sales; (ii) exhibitor booth sales; and (iii) national and/or regional
sponsorships. If we were to receive revenues, we expect that
approximately 95% of the revenues will come from Live Conventions through ticket
sales, exhibitor sales and dealer sales, and 5% will come from Sponsorships and
Promotions. In time, our business plan is to generate a majority of
our revenues from advertising sales on all of Wizard World Digital’s media
properties. We expect that digital media revenues will primarily be
earned through offering advertisers the ability to place banner ads on our
digital media properties, priced on a standard cost-per-thousand (“CPM”)
basis.
Sponsorships and
Advertising
We sell
sponsorship and advertising opportunities to businesses seeking to reach our
core target audience of young adult males.
Sponsorships. We provide
sponsorship opportunities that allow advertisers a wide range of promotional
vehicles on-site and through our public relations efforts. For example, we offer
advertisers the ability to (i) display signage at the Comic Cons, (ii) include
their desired logos on all direct mail that is sent in connection with one or
more Comic Cons, (iii) be included in press releases to the media, (iv) obtain
sponsor tags on the radio spots or in the print or online ads where we advertise
and (v) obtain advertising space in our digital media. We also provide the
opportunity for advertisers to sponsor events at the Comic Cons like costume
contests or gaming tournaments and the ability to have step-and-repeats for
photo opportunities, meet and greets with celebrities, VIP packages and ‘goody’
bag giveaways. Sponsors pay a fee based upon the position of their advertising
media and the exposure it will receive. Specifically, the closer a sponsor is to
the entrance of the Comic Con, the more exposure such sponsor will receive and
the greater the number of attendees at the Comic Con who view the sponsor’s
product and/or services. Therefore, the rental fee for space at our Comic Cons
is more expensive if the space is closer to the entrance.
Promotions. Promotional
opportunities include product placement and brand associations on-site at the
Comic Cons. As our brand grows, we hope to earn revenues by co-promoting, for
example, a movie at one of our Comic Cons, with entertainment and media
companies and brands seeking to benefit from the popularity of the Comic Cons
and the exposure received from appearing at them. We have not and do not enter
into formal agreements with respect to co-promotion with other
parties.
Digital Media. We produce a
number of digital media properties, including our website www.wizardworld.com,
emails, newsletters, iPad app, Facebook, YouTube, Twitter, Flicker and Tumblr to
create awareness of our Comic Cons and provide updates to our fans and
consumers. We also use our website www.wizardworld.com
to a large extent to provide a source for the latest Comic Con news and
information. Display advertising is offered to brand advertisers across all our
digital media properties, priced on a traditional CPM basis.
Marketing
Our Comic
Cons are marketed through a variety of media outlets, including social media,
websites, public relations, television, radio, direct mail, email, flyers and
postcards. Our Comic Cons usually obtain publicity through coverage of the
events at our Comic Cons from local TV stations, radio stations, newspapers,
national press such as AP and Reuters, fan websites, blogs and social network
channels such as Twitter, Facebook, Flicker and Tumblr. In certain instances, we
do not pay for advertising because we can provide desirable content to media
outlets. For example, we typically invite the local TV stations to our Comic
Cons so that they can interview the celebrities featured at our Comic Cons. As a
result, we receive free TV coverage and the TV stations obtain content for their
shows. In addition, we arrange for celebrities to call into local radio
stations. As a result, we receive on-air promotion of our events and the radio
station reaches a larger audience who want to tune in to hear our celebrities.
We also receive on-air promotion by exchanging air time for ticket give-aways to
our Comic Cons. With respect to the internet and online advertising, we
advertise throughout our website www.wizardworld.com
about the upcoming Comic Cons. We also send out emails to our fans on
a regular basis. In addition, we send out direct mail postcards,
print flyers and postcards in each city where we hold a Comic Con, which are
handed out at local events, retailers and public gatherings. As a result, we
believe that we are cost effective when it comes to how we spend our advertising
dollars.
We are
consistently creating and developing new content to distribute to our fans via
all of the digital outlets we have developed, including, without limitation, our
iPad app called Wizard World, which can be downloaded via our website at
www.wizardworld.com or through Apple’s App store for the iPad. We are in the
process of creating a new app to make our content available to users of iPhone
and Android mobile devices.
Trademarks
and Copyrights
We have a
portfolio of trademarks and service marks and maintain a catalog of copyrighted
works. Such marks include Wizard World, Pop FI, Where Pop FI Comes to Life and
Wizard World Girls. We do not consider our trademarks, service marks
and trademarks to be significant to our business.
Typically,
we do not have to obtain permits to operate the Comic Cons. The
convention centers at which such events occur obtain any required permits and
cover fire safety and occupancy matters as part of the rental agreement. Crowd
control varies by location and are either provided by the convention center’s
personnel or by a third party security service recommended by the convention
center. The convention centers do, however, require liability insurance, which
Conventions has obtained and maintained.
Customers
Our
client base is diverse. We have access to some of what we consider to be the
leading movie studios, video game producers, comic book publishers, television
broadcasters and toy manufacturers. These customers are potential
exhibitors and sponsors of our Comic Con conferences. In addition,
our digital media business will provide sales opportunities across the Fortune
1000 corporate sector, as these brand advertisers look to leverage our media
properties to target our predominantly male, age 25-44 target
audience.
No single
advertiser, promoter or sponsor comprises a significant portion of our
revenues.
Competition; Competitive
Strengths
In the
live, regionally-based consumer conventions market, the strength of a competitor
is measured by the location and size of the region or city, the frequency of
live events per year, the guest and VIP list (e.g., celebrities and artists),
the number of paying attendees, the physical size of the convention, the extent
of the public relations outreach (through traditional media, digital media and
social media) and the quantity and quality of exhibitors and
dealers. We believe that we have a strong competitive position
because our Comic Cons take place in well-known major cities throughout North
America throughout the year. Our multiple conventions per year enable us to
market our events year round, create a large amount of content that can be
distributed through our digital media outlets, and market in not only the
regional consumer areas, but nationally as well. The multiple locations also
allow us to work with more celebrities, artists and writers and host them in
multiple cities.
Most of
our competitors produce local one-time events and/or once a year events. For
example, Reed Exhibitions, our competitor in the New York market, produces an
annual comic con event in New York City. Reed Exhibitions also has a
Chicago event that still remains a fraction of the size of our Chicago event.
There is an event in Toronto called Fan Expo produced by Hobby Star
Marketing Inc, which is limited to the Toronto marketplace. Other than Reed
Exhibitions or Hobby Star Marketing Inc, we are not aware of any competitor that
has successfully existed or entered a market in which we have a
foothold.
Unlike
regional competitors such as Reed Exhibitions and Hobby Star Marketing Inc,
however, we are able to tap into many geographic pop culture markets as opposed
to being limited to the local pop culture market. Further, the number of Comic
Cons we produce gives us a competitive advantage over these local comic cons
because they do not have the economies of scale and operating efficiencies that
result from producing a multitude of Comic Cons. For instance, despite the
number of Comic Cons that we hold, production costs remain relatively constant
because, for example, the number of personnel we employ or consult with does not
significantly increase with the production of more Comic Cons. Further, the size
of the Comic Cons and the volume at which they are produced provide greater
leverage to negotiate discounts on such things as hotels, convention centers and
other travel expenses. Therefore, it costs us less to produce a Comic Con than a
producer that holds only one convention a year.
There is
a non-profit educational organization called Comic-Con International, which
produces the largest Comic-Con event in the United States, held annually in San
Diego, CA during the month of July. Comic-Con International also produces a show
in San Francisco, called WonderCon. Because of the momentum of Comic-Con
International in those markets, we do not intend to enter those markets because
our view is that the markets are saturated, and therefore could not support
multiple shows in San Diego and San Francisco, which is what our shows would
provide if they were to be held in such cities. Further, the San
Diego Comic-Con has an established history and presence in San Diego, and draws
a large audience to the well-publicized and popular event. Thus, there is a
significant barrier to our Company entering into the San Diego
market. Despite our decision not to enter the San Diego Comic-Con
market, the San Diego Comic-Con is considered a competitor given that some fans
may have to choose between attending either the San Diego Comic-Con or any one
of our Comic Cons, regardless of geographic region.
We
believe, however, that we have an advantage over other event producers because
our Comic Cons are not limited to one city, but rather to several well-known
cities across North America. Therefore, rather than have to travel to
San Diego, which for some fans may be a long distance, our fans are able to
attend a Wizard World Comic Con that is closer to them.
We also
believe that we have an edge over competitors because our Comic Cons are well
known in the markets in which we hold our Comic Cons, we have a reputation among
fans, exhibitors and celebrities that our shows will be high quality and well
attended by popular fiction fans, and Gareb Shamus, our President and Chief
Executive Officer, is a prominent figure in the pop culture event
industry.
Sales Channels and Pricing
Policies
We have
outsourced our ticket sales to an online ticketing service, thereby eliminating
the need to mail physical badges. Consumers can order online, print out their
barcode, come to the show, get scanned and get a wristband for entry. We still,
however, sell tickets on-site at the live events themselves. We offer a five
dollar discount on the purchase price of our tickets to those who pre-purchase
tickets online as compared to those who purchase their tickets on-site at the
Comic Con. Tickets typically range from $25 for a single day pass to $55 for a
weekend pass. Entry of children 10 and under is free at all Comic
Cons.
Across
all our digital media properties, display advertising is offered to brand
advertisers, priced on a traditional CPM basis.
Sales and Marketing
Strategy
We
promote our Comic Cons through a wide variety of media outlets, such as local
radio and TV stations, newspapers, fan websites and blogs. We also use online
social networks such as Facebook, Twitter, YouTube, Flicker and Tumblr, and an
iPad app to reach our fans and provide updates. Further, we promote our Comic
Cons on our website www.wizardworld.com,
through email and in Wizard
World Digital, our digital
newsletter. We currently sell to prospective corporate sponsors and
advertisers through our direct sales force. In coming months, we plan
to augment our direct sales force through the utilization of 3rd party
representation firms and digital ad networks to help sell display advertising on
our digital properties.
Growth Strategy
Rather
than acquiring or organically developing new Comic Cons, we plan to grow our
existing Comic Cons and increase the revenues of our existing Comic Cons by
adding more dealers, exhibitors, celebrities, panels, gaming tournaments and
VIPs to our Comic Cons. Additionally, we are focused on increasing
revenues through increasing corporate sponsorships that allow advertisers a wide
range of promotional vehicles on-site and through our public relations
efforts. We believe that we will be able to leverage our
relationships with our existing dealers, exhibitors, celebrities and VIPs to
develop new relationships.
We use
the digital marketing outlets that we have developed, such as our website www.wizardworld.com
and digital newsletter Wizard
World Digital, which cover new and upcoming products and talents in the
pop culture world, to distribute the large amount of content we create from our
live events. We also reach consumers by email and direct mail. We
recently launched the new wizardworld.com website, and an app that will allow
users of iPhone mobile devices to access our content from the live events.
Through the distribution of our content via digital media, we offer advertisers
the ability to display their ads on our website www.wizardworld.com
and reach our large email database of fans. Through sales of display
advertising space on our digital media properties, we plan to generate revenues
and thus strengthen our financial condition.
Further,
we plan to launch our new digital entertainment network called the “Wizard World
Digital Entertainment Network,” which will be comprised of two entertainment
websites at www.wizardworld.com
and www.wizardworlddigital.com,
and the Wizard World email database. The Digital Entertainment Network will
offer display advertising to brand advertisers, priced on a traditional
cost-per-thousand (CPM) ad impression basis. We plan to work with display
advertising networks and third party representation firms, and to hire 4 direct
sales employees over the next 12 months to maximize the monetization of the
Digital Entertainment Network. We have
no signed agreements to date with third-party representation firms.
Third-party representation firms represent several web publishers (such as
Wizard World), selling their display advertising inventory to brand advertisers
and/or advertising agencies. These third-party representation firms obtain
a revenue share from the web publisher for any revenue earned through their
sales efforts. Wizard World is currently working with interclick,
inc. (ad network) to monetize Wizard World’s display advertising inventory.
To date,
we have invested over $700,000 in technical development costs to prepare for the
launch of the
Digital Entertainment Network. We plan to invest an aggregate of
approximately $1,000,000 during calendar year 2011 to build out all of the
Digital Entertainment Network’s digital assets, which include an email database
and system, a newly developed entertainment site,wizardworld.com, and
wizardworlddigital.com. We anticipate completing the build out by the
end of the 2011 calendar year.
To date,
we have been able to raise financing to implement our growth plans by issuing
capital stock and warrants through private placements. We plan to
continue to obtain financing, when needed, from private placements from time to
time, and/or from other traditional financing sources, including term notes. We
plan to use the proceeds from any private placements for working capital and to
expand our business including the build out of all of the Digital Entertainment
Network’s digital assets, which include an email database and system, a newly
developed entertainment site, wizardworld.com, and
wizardworlddigital.com.
Employees
As of the
date of the Filing, we have entered into an employment agreement with Gareb
Shamus, our President and Chief Executive Officer. We currently
have ten (10) employees, of which nine (9) are full time
and one (1) is part time. Additionally, we engage five (5)
part-time freelance consultants to operate our Comic Con business.
You
should carefully consider the risks described below together with all of the
other information included in this Current Report on Form 8-K/A before making an
investment decision with regard to our securities. The statements contained in
or incorporated herein that are not historic facts are forward-looking
statements that are subject to risks and uncertainties that could cause actual
results to differ materially from those set forth in or implied by
forward-looking statements. If any of the following risks actually occurs, our
business, financial condition or results of operations could be harmed. In that
case, you may lose all or part of your investment.
Risks Relating to our
Company
We have a limited
operating history from which you can evaluate our
performance.
Since we
have a limited operating history, it will be difficult for investors and
securities analysts to evaluate our business and prospects and predict future
revenue. Because we have a limited operating history, we will encounter risks,
expenses and difficulties of which we are unaware, and may be challenging to
overcome. There can be no assurance that our efforts will be successful or that
we will reach profitability.
Our independent
auditors have expressed doubt about our ability to continue as a going concern,
which may hinder our ability to obtain future financing and force us to cease
operations.
In their
report dated June 30, 2011, our independent auditors stated that our financial
statements for the years ended December 31, 2010 and 2009 were prepared assuming
that we would continue as a going concern. Our ability to continue as a going
concern is an issue raised because to date, we have incurred net operating
losses. We anticipate that we will continue to experience net operating
losses.
Our net
operating losses will require that we finance our operations from outside
sources, such as obtaining additional funding from the sale of our securities.
The going concern explanatory paragraph included in our auditor's report on our
financial statements, however, could inhibit our ability to raise additional
financing. If we are unable to obtain such additional capital, we will not be
able to sustain our operations and would be required to cease our operations.
You should consider our independent registered public accountant's comments when
determining if an investment in our Company is suitable.
Even if
we do raise sufficient capital and generate revenues to support our operating
expenses, there can be no assurance that the revenue will be sufficient to
enable us to develop our business to a level where it will generate profits and
cash flows from operations, or provide a return on investment. In addition, if
we raise additional funds through the issuance of equity or convertible debt
securities, the percentage ownership of our stockholders could be significantly
diluted, the newly-issued securities may have rights, preferences or privileges
senior to those of existing stockholders and the trading price of our common
stock could be adversely effected. Further, if we obtain additional debt
financing, a substantial portion of our operating cash flow may be dedicated to
the payment of principal and interest on such indebtedness, and the terms of the
debt securities issued could impose significant restrictions on our operations.
If we are unable to continue as a going concern, you may lose your entire
investment.
If we need
additional capital to fund our growing operations, we may not be able to obtain
sufficient capital and may be forced to limit the scope of our
operations.
As we
implement our growth strategies, we may experience increased capital needs. We
may not, however, have sufficient capital to fund our future operations without
additional capital investments. If adequate additional financing is not
available on reasonable terms or at all, we may not be able to carry out our
corporate strategy and we would be forced to modify our business plans (e.g.,
limit our expansion, limit our marketing efforts and/or decrease or eliminate
capital expenditures), any of which may adversely affect our financial
condition, results of operation and cash flow. Such reduction could materially
adversely affect our business and our ability to compete.
Our
capital needs will depend on numerous factors, including, without limitation,
(i) our profitability, (ii) our ability to respond to a release of competitive
products by our competition, and (iii) the amount of our capital expenditures,
including acquisitions. Moreover, the costs involved may exceed those originally
contemplated. Cost savings and other economic benefits expected may not
materialize as a result of any cost overruns or changes in market circumstances.
Failure to obtain intended economic benefits could adversely affect our
business, financial condition and operating performances.
We need to manage
growth in operations to maximize our potential growth and achieve our expected
revenues. Our failure to manage growth will cause a disruption of our operations
that may result in the failure to generate revenues at levels we
expect.
In order
to maximize potential growth in our current markets, we may have to expand our
operations. Such expansion will place a significant strain on our management and
our operational, accounting and information systems. We expect that we will need
to continue to improve our financial controls, operating procedures and
management information systems. We will also need to effectively train, motivate
and manage our employees. Our failure to manage our growth could disrupt our
operations and ultimately prevent us from generating the revenues we
expect.
Risks Related to our
Business
General
We may not be
able to prevent others from using our intellectual property, and may be subject
to claims by third parties that we infringe on their intellectual
property.
We regard
the content that we plan to distribute via digital media to be important to our
success. We plan to rely on non-disclosure and other contractual provisions to
protect our proprietary rights. We may also try to protect our intellectual
property rights by, among other things, searching the Internet to detect
unauthorized use of our intellectual property.
However,
policing the unauthorized use of our intellectual property is often difficult
and any steps we take may not in every case prevent the infringement by
unauthorized third parties. Further, there can be no assurance that our efforts
to enforce our rights and protect our intellectual property will be successful.
We may need to resort to litigation to enforce our intellectual property rights,
which may result in substantial costs and diversion of resources and management
attention.
Further, although management does not
believe that our products and services infringe on the intellectual rights of
others, there is no assurance that we will not be the target of infringement or
other claims. Such claims, even if not true, could result in significant legal
and other costs and may be a distraction to our management or interrupt our
business.
We encounter
competition in our business, and any failure to compete effectively could
adversely affect our results of operations.
We
anticipate that our competitors will continue to expand and seek to obtain
additional market share with competitive price and performance characteristics.
Aggressive expansion of our competitors or the entrance of new competitors into
our markets could have a material adverse effect on our business, results of
operations and financial condition.
If we do not
compete successfully against new and existing competitors, we may lose our
market share, and our operating results may be adversely
affected.
We
compete with other advertising service providers that may reach our target
audience by means that are more effective than our Comic Cons and digital media.
Further, if such other providers of advertising have a long operating history,
large product and service suites, more capital resources and broad international
or local recognition, our operating results may be adversely affected if we
cannot successfully compete.
The
loss of the services of our key employees and directors, particularly the
services rendered by Gareb Shamus, our President and Chief Executive Offices,
and Michael Mathews, our Chairman, could harm our business.
Our
success depends to a significant degree on the services rendered to us by our
key employees and directors. In particular, we are heavily dependent
on the continued services of Gareb Shamus, our President and Chief Executive
Officer, and Michael Mathews, our Chairman. The loss of Mr. Shamus, Mr. Mathews
or other members of our senior management team, and our inability to attract
highly skilled personnel with sufficient experience in our industry, could harm
our business.
Our
future success depends upon, in large part, our continuing ability to attract
and retain qualified personnel.
Expansion
of our business and operation may require additional managers and employees with
industry experience, in which case our success will be dependent on our ability
to attract and retain experienced management personnel and other employees.
There can be no assurance that we will be able to attract or retain qualified
personnel. Competition may also make it more difficult and expensive to attract,
hire and retain qualified managers and employees. If we fail to attract, train
and retain sufficient numbers of the qualified people, our prospects, business,
financial condition and results of operations will be materially and adversely
affected.
Comic Con
Business
If
we do not maintain and develop our Wizard World Comic Con brand and those of our
strategic partners, we will not be able to attract an audience to the Comic
Cons.
We
attract audiences and advertisers partly through brand name recognition. We
believe that establishing, maintaining and enhancing our portfolio of Comic Cons
and the brands of our strategic partners will enhance our growth prospects. The
promotion of our Wizard World Comic Con brand and those of our strategic
partners will depend largely on our success in maintaining a sizable and loyal
audience, providing high-quality content and organizing effective marketing
programs. If we fail to meet the standards to which our consumers are
accustomed, our reputation will be harmed and we may lose market
share.
Our future
success depends on attracting sponsors and pop culture advertisers who will
advertise at our Comic Cons. If we fail to attract a sufficient number of
sponsors and pop culture advertisers, our operating results and revenues may not
meet expectations.
One of
our important strategies is to create an integrated platform of tours on which
sponsors and pop-culture advertisers wishing to reach our young male target
audience may advertise. However, advertisers may find that our targeted
demographic does not consist of their desired consumers or a critical mass of
consumers, decide to use a competitor’s services or decide not to use our
services for other reasons. If the sponsors and pop-culture advertisers decide
against advertising with us, we may not realize our growth potential or meet
investor expectations. Our future operating results and business prospects could
be adversely affected.
We may not be
able to respond to changing consumer preferences and our sales may
decline.
We
operate in markets that are subject to change, including changes in customer
preferences. New fads, trends and shifts in pop culture could affect the type of
live events customers will attend or the products consumers will purchase.
Content in which we have invested significant resources may fail to meet
consumer demand at the time. A decrease in the level of media exposure or
popularity of the pop culture market or a loss in sales could have a material
adverse effect on our business, prospects and financial condition.
We rely on key
contracts and business relationships, and if our current or future business
partners or contracting counterparties fail to perform or terminate any of their
contractual arrangements with us for any reason or cease operations, or should
we fail to adequately identify key business relationships, our business could be
disrupted and our reputation may be harmed.
If any of
our business partners or contracting counterparties fails to perform or
terminates their agreement(s) with us for any reason, or if our business
partners or contracting counterparties with which we have short-term agreements
refuse to extend or renew the agreement or enter into a similar agreement, our
ability to carry on operations and cross-sell sales and marketing services among
different platforms may be impaired. In addition, we depend on the continued
operation of our long-term business partners and contracting counterparties and
on maintaining good relations with them. If one of our long-term partners or
counterparties is unable (including as a result of bankruptcy or a liquidation
proceeding) or unwilling to continue operating in the line of business that is
the subject of our contract, we may not be able to obtain similar relationships
and agreements on terms acceptable to us or at all. If a partner or counterparty
fails to perform or terminates any of the agreements with us or discontinues
operations, and we are unable to obtain similar relationships or agreements,
such events could have an adverse effect on our operating results and financial
condition. Further, if we are unable to timely produce our Comic Cons or produce
the same quality of Comic Cons to which our target demographic has been
accustomed, the consequences could be far-reaching and harmful to our
reputation, existing business relationships and future growth potential.
We may
also need to form new strategic partnerships or joint ventures to access
appropriate assets and industry know-how. Failing to identify, execute and
integrate such future partnerships or joint ventures may have an adverse effect
on our business, growth, financial condition, and cash flow from
operations.
Insiders have
substantial control over us, and they could delay or prevent a change in our
corporate control even if our other stockholders want it to
occur.
As of the
date of this filing, our executive officers, directors and principal
stockholders who beneficially own 5% or more of our outstanding common stock, in
the aggregate, approximately 56% of our outstanding common stock. These
stockholders are able to exercise significant control over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. This could delay or prevent an outside party
from acquiring or merging with our Company even if our other stockholders want
it to occur.
Our Certificate
of Incorporation provides for indemnification of officers and directors at our
expense and limits their liability, which may result in a major cost to us and
hurt the interests of our stockholders because corporate resources may be
expended for the benefit of officers and/or directors.
Our
certificate of incorporation and applicable Delaware law provide for the
indemnification of our directors and officers against attorney’s fees and other
expenses incurred by them in any action to which they become a party arising
from their association with or activities on our behalf. This indemnification
policy could result in substantial expenditures by us that we will be unable to
recoup.
We have
been advised that, in the opinion of the Commission, indemnification for
liabilities arising under federal securities laws is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification for liabilities arising under federal
securities laws, other than the payment by us of expenses incurred or paid by a
director, officer or controlling person in the successful defense of any action,
suit or proceeding, is asserted by a director, officer or controlling person in
connection with the securities being registered, we will (unless in the opinion
of our counsel, the matter has been settled by controlling precedent) submit to
a court of appropriate jurisdiction, the question whether indemnification by us
is against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue. The legal process relating to this
matter, if it were to occur, is likely to be very costly and may result in us
receiving negative publicity, either of which factors is likely to materially
reduce the market and price for our shares if such a market ever
develops.
Digital
Media
We could face a
variety of risks of expanding into a new business.
Risks of our entry into the new business
line of digital media, include, without limitation: (i) potential diversion of
management’s attention and other resources, including available cash, from our
existing businesses; (ii) unanticipated liabilities or contingencies; (iii) need
for additional capital and other resources to expand into this new line of
business; and (iv) inefficient combination or integration of operational and
management systems and controls. Entry into a new line of business may also
subject us to new laws and regulations with which we are not familiar, and may
lead to increased litigation and regulatory risk. Further, our business model
and strategy are still evolving and are continually being reviewed and revised,
and we may not be able to successfully implement our business model and
strategy. We may not be able to attract a sufficiently large number of audience
or customers, or recover costs incurred for developing and marketing these
products or services. If we are unable to successfully implement our growth
strategies, our revenue and profitability may not grow as we expect, our
competitiveness may be materially and adversely affected, and our reputation and
business may be harmed.
In
developing and marketing the new = business of digital media, we may invest
significant time and resources. Initial timetables for the introduction and
development of our digital media business may not be achieved and price and
profitability targets may not prove feasible. Furthermore, any new line of
business could have a significant impact on the effectiveness of our system of
internal controls. Failure to successfully manage these risks in the development
and implementation of our new digital media business could have a material
adverse effect on our business, results of operations and financial
condition.
We will face
significant competition in the digital media business. If we fail to compete
effectively, we may lose users to competitors, which could materially and
adversely affect our ability to generate revenues from online
advertising.
We will
face significant competition for online advertising revenues with other websites
that sell online advertising services. In addition, we indirectly compete for
advertising budgets with traditional advertising media, such as television and
radio stations, newspapers and magazines, and major out-of-home media. Some of
our competitors may have longer operating histories and significantly greater
financial, technical and marketing resources than we do, and in turn may have an
advantage in attracting and retaining users and advertisers.
Risks Relating to Being a Public
Company
We will incur
significant costs to ensure compliance with United States corporate governance
and accounting requirements.
We will
incur significant costs associated with our public company reporting
requirements and costs associated with corporate governance requirements,
including requirements under the Sarbanes-Oxley Act of 2002 and other rules
implemented by the Commission. We expect all of these applicable rules and
regulations to significantly increase our legal and financial compliance costs
and to make some activities more time consuming and costly. We also expect that
these applicable rules and regulations may make it more difficult and more
expensive for us to obtain director and officer liability insurance and we may
be required to accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage. As a result, it may be more
difficult for us to attract and retain qualified individuals to serve on our
board of directors or as executive officers. We may be wrong in our
prediction or estimate of the amount of additional costs we may incur or the
timing of such costs.
If we fail to
maintain an effective system of internal control over financial reporting, our
ability to accurately and timely report our financial results or prevent fraud
may be adversely affected and investor confidence may be adversely
impacted.
As
directed by Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404, the
Commission adopted rules requiring public companies to include a report of
management on the company’s internal controls over financial reporting in their
annual reports. Under current Commission rules, our management may conclude that
our internal controls over our financial reporting are not effective. Even if
our management concludes that our internal controls over financial reporting are
effective, our independent registered public accounting firm may issue a report
that is qualified if it is not satisfied with our controls or the level at which
our controls are documented, designed, operated or reviewed, or if it interprets
the relevant requirements differently from us. In the event that we are unable
to have effective internal controls, investors and others may lose confidence in
the reliability of our financial statements and our ability to obtain equity or
debt financing as needed could suffer.
Risks Relating To Our
Industry
A continued
decline in general economic conditions and disruption of financial markets may,
among other things, reduce the discretionary income of consumers or further
erode advertising markets, which could adversely affect our
business.
Our
operations are affected by general economic conditions, which affect consumers’
disposable income. The demand for entertainment and leisure activities tends to
be highly sensitive to the level of consumers’ disposable income. Declines in
general economic conditions could reduce the level of discretionary income that
our fans and potential fans have to spend on consumer products and
entertainment, which could adversely affect our revenues. Volatility and
disruption of financial markets could limit our advertisers,’ sponsors’ and/or
promoters’ ability to obtain adequate financing to maintain operations, and
result in a decrease in sales volume that could have a negative impact on our
business, financial condition and results of operations. Continued softness in
the market could adversely affect our revenues or the financial viability of our
distributors.
The advertising
market is particularly volatile and we may not be able to effectively adjust to
such volatility.
Advertising
spending is volatile and sensitive to changes in the economy. Our advertising
customers may reduce the amount they spend on our media for a number of reasons,
including, without limitation:
• a
downturn in economic conditions;
• a
deterioration of the ratings of their programs; or
• a
decline in advertising spending in general.
We may be
unable to maintain or increase our advertising fees and sales, which could
negatively affect our ability to generate revenues in the future. A decrease in
demand for advertising in general, and for our advertising services in
particular, could materially and adversely affect our operating results.
Risks Related To Our
Securities
Our common stock
is quoted on the Pink Sheets, which may have an unfavorable impact on our stock
price and liquidity.
Our
common stock is quoted on the Pink Sheets. The quotation of our
shares on the Pink Sheets may result in a less liquid market available for
existing and potential stockholders to trade shares of our common stock, could
depress the trading price of our common stock and could have a long-term adverse
impact on our ability to raise capital in the future.
There is limited
liquidity on the Pink Sheets, which enhances the volatile nature of our
equity.
When
fewer shares of a security are being traded on the Pink Sheets, volatility of
prices may increase and price movement may outpace the ability to deliver
accurate quote information. Due to lower trading volumes in shares of our common
stock, there may be a lower likelihood that orders for shares of our common
stock will be executed, and current prices may differ significantly from the
price that was quoted at the time of entry of the order.
Our stock price
is likely to be highly volatile because of our limited public
float.
The
market price of our common stock is likely to be highly volatile because there
has been a relatively thin trading market for our stock, which causes trades of
small blocks of stock to have a significant impact on our stock price. You may
not be able to resell shares of our common stock following periods of volatility
because of the market's adverse reaction to volatility. Other factors that could
cause such volatility may include, among other things: actual or anticipated
fluctuations in our operating results; the absence of securities analysts
covering us and distributing research and recommendations about us; overall
stock market fluctuations; economic conditions generally; announcements
concerning our business or those of our competitors; our ability to raise
capital when we require it, and to raise such capital on favorable terms;
conditions or trends in the industry; litigation; changes in market valuations
of other similar companies; announcements by us or our competitors of
significant contracts, acquisitions, strategic partnerships or joint ventures;
future sales of common stock; actions initiated by the Commission or other
regulatory bodies; and general market conditions. Any of these factors could
have a significant and adverse impact on the market price of our common stock.
These broad market fluctuations may adversely affect the trading price of our
common stock, regardless of our actual operating performance.
In order to raise
sufficient funds to expand our operations, we may have to issue additional
securities at prices which may result in substantial dilution to our
shareholders.
If we
raise additional funds through the sale of equity or convertible debt, our
current stockholders’ percentage ownership will be reduced. In addition, these
transactions may dilute the value of our common shares outstanding. We may also
have to issue securities that may have rights, preferences and privileges senior
to our common stock.
We do not
currently have a broker or dealer creating or maintaining a market in our
stock.
There is
currently no broker or dealer acting as a marketmaker for our securities. The
lack of a marketmaker for our securities could adversely influence the market
for, and price of, our securities, as well as your ability to dispose of, or to
obtain accurate information about, and/or quotations as to the price of, our
securities. If an active public trading market for our securities
does not develop, the market price and liquidity of such securities may be
adversely affected.
If a
market were to develop, future trading prices could depend upon many factors,
such as prevailing interest rates, our operating results, and the markets for
similar securities. Historically, the market for non-investment grade securities
has been subject to disruptions that have caused substantial volatility in the
prices of securities similar to our common stock. There can be no assurance that
if a market for our common stock was to develop, such a market would not be
subject to similar disruptions.
Our stock is
thinly traded, so you may be unable to sell at or near ask prices or at
all.
The
shares of our common stock are traded on the Pink Sheets and are thinly traded,
meaning that the number of persons interested in purchasing our common stock at
or near ask prices at any given time may be relatively small or non-existent.
This situation is attributable to a number of factors, including the fact that
we are a small company that is relatively unknown to stock analysts, stock
brokers, institutional investors and others in the investment community who
generate or influence sales volume. Even in the event that we come to the
attention of such persons, they would likely be reluctant to follow an unproven
company such as ours or purchase or recommend the purchase of our shares until
such time as we become more seasoned and viable. As a consequence, our stock
price may not reflect an actual or perceived value. Also, there may be periods
of several days or more when trading activity in our shares is minimal or
non-existent, as is currently the case, as compared to a seasoned issuer that
has a large and steady volume of trading activity that will generally support
continuous sales without an adverse effect on share price. A broader or more
active public trading market for our common shares may not develop or if
developed, may not be sustained. Due to these conditions, you may not be able to
sell your shares at or near ask prices or at all if you need money or otherwise
desire to liquidate your shares
Currently, there
is no public market for our securities, and there can be no assurances that any
public market will ever develop and, even if developed, it is likely to be
subject to significant price fluctuations.
We have a
trading symbol for our common stock, namely ‘WIZD’. However, our stock has been
thinly traded, if at all. Consequently, there can be no assurances as to
whether:
• any
market for our shares will develop;
• the
prices at which our common stock will trade; or
• the
extent to which investor interest in us will lead to the development of an
active, liquid trading market. Active trading markets generally
result in lower price volatility and more efficient execution of buy and sell
orders for investors.
Until our common stock is fully distributed
and an orderly market develops in our common stock, if ever, the price at which
it trades is likely to fluctuate significantly. Prices for our common stock will
be determined in the marketplace and may be influenced by many factors,
including the depth and liquidity of the market for shares of our common stock,
developments affecting our business, including the impact of the factors
referred to elsewhere in these risk factors, investor perception of our Company
and general economic and market conditions. No assurances can be
given that an orderly or liquid market will ever develop for the shares of our
common stock.
We are subject to
the penny stock rules which will make our securities more difficult to
sell.
We are
subject to the Commission’s “penny stock” rules because our securities sell
below $5.00 per share. The penny stock rules require broker-dealers to deliver a
standardized risk disclosure document prepared by the Commission which provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer must also provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson, and monthly account statements showing the market value of
each penny stock held in the customer’s account. in addition, the bid and offer
quotations, and the broker-dealer and salesperson compensation information must
be given to the customer orally or in writing prior to completing the
transaction and must be given to the customer in writing before or with the
customer’s confirmation.
Furthermore,
the penny stock rules require that prior to a transaction, the broker dealer
must make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser’s written agreement to
the transaction. The penny stock rules are burdensome and may reduce purchases
of any offerings and reduce the trading activity for our securities. As long as
our securities are subject to the penny stock rules, the holders of such
securities will find it more difficult to sell their
securities.
We are not likely
to pay cash dividends in the foreseeable future.
We
currently intend to retain any future earnings for use in the operation and
expansion of our business. Accordingly, we do not expect to pay any cash
dividends in the foreseeable future, but will review this policy as
circumstances dictate.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND PLAN OF OPERATION
This Current Report on Form 8-K/A
contains forward-looking statements within the meaning of the federal securities
laws. These include statements about our expectations, beliefs, intentions or
strategies for the future, which we indicate by words or phrases such as
“anticipate,” “expect,” “intend,” “plan,” “will,” “we believe,” “Wizard
believes,” “management believes” and similar language. Except for the historical
information contained herein, the matters discussed in this “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” and
elsewhere in this Current Report are forward-looking statements that involve
risks and uncertainties. The factors listed in the section captioned “Risk
Factors,” as well as any cautionary language in this Current Report, provide
examples of risks, uncertainties and events that may cause our actual results to
differ materially from those projected. Except as may be required by law, we
undertake no obligation to update any forward-looking statement to reflect
events after the date of this Current Report on Form 8-K/A.
Overview
We intend
for this discussion to provide information that will assist in understanding our
financial statements, the changes in certain key items in those financial
statements, and the primary factors that accounted for those changes, as well as
how certain accounting principles affect our financial statements. This
discussion should be read in conjunction with our financial statements and
accompanying notes for the years ended December 31, 2010 and 2009 (the “Subject
Period”) included elsewhere in this report.
We are a
producer of pop culture and multimedia conventions (“Comic Cons”) across North
America that markets movies, TV shows, video games, technology, toys, social
networking/gaming platforms, comic books and graphic novels. These Comic Cons
provide sales, marketing, promotions, public relations, advertising and
sponsorship opportunities for entertainment companies, toy companies, gaming
companies, publishing companies, marketers, corporate sponsors and
retailers.
Plan
of Operation
Our
Company has two lines of business: (i) live multimedia events, which
involves ticket sales and exhibitor booth space, and (ii) sponsorships and
advertising. Our current focus is on growing our existing Comic Cons
by obtaining new exhibitors and dealers and attracting more high profile
celebrities and VIPs. We also plan to expose our database of fans and our target
market of young adult males to our content through digital media such as
Facebook, Twitter, YouTube, Flicker, and Tumblr, and draw higher traffic to our
website www.wizardworld.com by creating content from our live multimedia events
and promoting such events through emails, newsletters, our iPad app and our soon
to be released iPhone and Android apps.
We expect
to produce nine (9) live events during the year ended December 31,
2011. We run the risk that we will not be profitable in the live
event business. To date, we have operated profitable live events in both the
Philadelphia and Chicago markets, but we have operated at a deficit in other
events. In order for us to operate a successful event, we must
produce an event that is relevant to the public in order drive ticket sales,
booth sales, sponsorship and advertising.
In order
for the Company to grow the digital business, we must attract unique users and
drive traffic to our online site. To date, we have exhausted
considerable resources developing our media platform, but we have yet to earn a
profit from the platform.
Currently,
our media platform has been funded on capital raised from outside
investors. We are currently earning revenue from the site, but not
enough to maintain the costs to operate. We must continue to fund the
media platform from outside investors and from cashflow from the live event
business until the media platform generates enough revenue to support its own
operation.
Results of
Operations
For the Year
Ended December 31, 2010 Compared to December 31, 2009
Summary
of Statements of Operations for the Years Ended December 31, 2010 and
2009:
|
|
Year ended |
|
|
|
December 31,
2010 |
|
|
December 31,
2009 |
|
Convention
revenue |
|
$ |
3,000,814 |
|
|
$ |
2,119,327 |
|
Gross
profit |
|
$ |
467,432 |
|
|
$ |
(59,678 |
) |
General
and administrative expenses |
|
$ |
(491,182 |
) |
|
$ |
(768,221 |
) |
Loss
from operations |
|
$ |
(23,750 |
) |
|
$ |
(827,899 |
) |
Other
expenses |
|
$ |
(3,454 |
) |
|
$ |
(1,726 |
) |
Net
Loss |
|
$ |
(27,204 |
) |
|
$ |
(829,625 |
) |
Loss
per common share – basic and diluted |
|
$ |
(27,204 |
) |
|
$ |
(829,625 |
) |
Convention
Revenue
Convention
revenue was $3,000,814 for the year ended December 31, 2010, as compared to
$2,119,327 for the comparable year ended December 31, 2009, and increase of
$881,487. The significant increase in convention revenue is primarily
attributable to an increase in the number of live events (8) produced in 2010 as
compared to 2009 (3) offset by
a $315,863 decrease in existing live event share revenue. The five (5) new
events generated revenue of $1,197,350.
Gross
Profit
Gross
profit percentage strengthened from (3)% during the year ended December 31, 2009
to 16% during the year ended December 31, 2010. The increase in the
gross profit percentage is primarily attributable to the Company significantly
cutting production costs on a per show basis while increasing the gross revenue
per show. For example, the Company significantly decreased convention
show staff and began utilizing more part-time staff to assist in running the
live events. The Company successfully decreased direct costs associated
with the Philadelphia, Rosemont and New York City live events during the year
ended December 31, 2010 by approximately $1,100,000. This decrease in
costs was offset by increases in costs of approximately $1,175,000 in the 5 new
events that were not produced during the year ended December 31,
2009.
General
and Administrative Expenses
General
and administrative expenses for the year ended December 31, 2010 was $491,182,
as compared to $768,221 for the year ended December 31, 2009. The
$277,039 decrease is attributable to a substantial decrease in employee
headcount, which accounted for a $68,000 decrease in salaries and
wages. In addition, bad debt expense decreased by approximately
$65,000 during the year ended December 31, 2010 as compared to the comparable
year ended December 31, 2009. Further, the Company made an effort to
decrease other overhead expense accounts due to a lack of funding during the
year ended December 31, 2010.
Loss
from Operations
Loss from
operations for the December 31, 2010, was $(23,750) as compared to $(827,899)
for the year ended December 31, 2009. The decrease in operating loss
is primarily attributable to the increased number of live events, increased
profitability experienced at each live event, and management’s effort to
decrease general and overhead expenses.
Other
expenses
Other
expenses consisted of interest expenses accrued on the Company’s
liabilities.
Net
Loss
Net loss
for year ended December 31, 2010 was $(27,204) or loss per share of $(27,204),
as compared to $(829,625) or loss per share of $(829,625) for the comparable
year ended December 31, 2009.
Inflation
did not have a material impact on the Company’s operations for the
period. Other than the foregoing, management knows of no trends,
demands, or uncertainties that are reasonably likely to have a material impact
on the Company’s results of operations.
Liquidity
and Capital Resources
The
following table summarizes total current assets, liabilities and working capital
at December 31, 2010 compared to December 31, 2009.
|
|
December 31,
2010 |
|
|
December 31,
2009 |
|
|
Increase/Decrease |
|
Current
Assets |
|
$ |
84,665 |
|
|
$ |
41,577 |
|
|
$ |
43,088 |
|
Current
Liabilities |
|
$ |
620,499 |
|
|
$ |
556,918 |
|
|
$ |
63,581 |
|
Working
Capital (Deficit) |
|
$ |
(535,834 |
) |
|
$ |
(515,341 |
) |
|
$ |
(20,493 |
) |
At
December 31, 2010, we had a working capital deficit of $535,834, as
compared to a working capital deficit of $515,341, at December 31, 2009, a
decrease of $(20,493). The decrease is primarily attributable to an
increase of prepaid expenses offset by a larger increase in accounts payable and
other current liabilities.
Net cash
used for operating activities for the year ended December 31, 2010 and 2009 was
$(26,341) and $(663,652), respectively. The net loss for year ended
December 31, 2010 and 2009 was $(27,204) and $(663,652), respectively. The
Company’s cash used in operations decreased significantly primarily due to
management’s decision to restrict expenses and cut costs in overhead during the
year ended December 31, 2010 as compared to the year ended December 31,
2009.
Net cash
obtained through all financing activities for the year ended December 31, 2010
was $26,169, as compared to $666,016 for the year ended December 31,
2009. The decrease is primarily attributable to the Company receiving
considerable funds from repayments of related party debt that was received
during the year ended December 31, 2009.
Going
Concern
As
reflected in the accompanying financial statements, the Company had a net loss
of $(27,204) and net cash used in operations of $26,341 for the year ended
December 31, 2010, and a working capital deficit and stockholders’ deficit of
$535,834 and $532,504, respectively, at December 31, 2010. These
factors raise substantial doubt about the Company’s ability to continue as a
going concern.
The
ability of the Company to continue its operations is dependent on management's
plans, which include the raising of capital through debt and/or equity markets
with some additional funding from other traditional financing sources, including
term notes.
The
Company will require additional funding to finance the growth of its current and
expected future operations as well as to achieve its strategic
objectives. The Company believes its current available cash along
with anticipated revenues may be insufficient to meet its cash needs for the
near future. There can be no assurance that financing will be
available in amounts or terms acceptable to the Company, if at all.
In
response to these problems, management has taken the following
actions:
|
¨ |
seek
additional third party debt and/or equity
financing; |
|
¨ |
continue
with the implementation of the business
plan; |
|
¨ |
increase
product prices and reduce
discounts; |
|
¨ |
increase
revenue from existing live events;
and |
|
¨ |
increase
revenue through sponsorship and advertising
deals. |
Off-Balance Sheet
Arrangements
As of
June 30, 2011, Conventions had no off-balance sheet
arrangements.
Critical Accounting
Policies
We believe that the following
accounting policies are the most critical to aid you in fully understanding and
evaluating this “Management’s Discussion and Analysis of Financial Condition and
Plan of Operation.”
Use of estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Property and
equipment
Property
and equipment is stated at historical cost less accumulated depreciation and
amortization. Depreciation and amortization is computed on a
straight-line basis over the estimated useful lives of the assets, varying from
3 to 5 years or, when applicable, the life of the lease, whichever is
shorter.
We comply
with the accounting and reporting requirements of Statement of Financial
Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. We will periodically evaluate the carrying
value of long-lived assets when events and circumstances warrant such a review.
Long-lived assets will be written down if the evaluation determines that the
fair value is less than the book amount.
Income taxes
We comply
with SFAS No. 109, Accounting
for Income Taxes, which requires an asset and liability approach to
financial reporting for income taxes. Deferred income tax assets and
liabilities are computed for differences between the financial statement and tax
bases of assets and liabilities that will result in future taxable or deductible
amounts, based on enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation
allowances are established, when necessary, to reduce deferred income tax assets
to the amount expected to be realized.
Revenue
recognition
In
accordance with the provisions of Staff Accounting Bulletin (“SAB”) No. 101,
Revenue Recognition, as
amended by SAB 104, revenues are generally recognized when products are shipped
or as services are performed. However, due to the nature of our
business, there are additional steps in the revenue recognition process, as
described below:
● |
Sponsorships: We
follow the guidance of Emerging Issues Task Force (“EITF”) Issue 00-21
Revenue Arrangements
with Multiple Deliverables, and assign the total of sponsorship
revenues to the various elements contained within a sponsorship package
based on their relative fair
values. |
Fair Value of Financial
Instruments
We
follow paragraph 825-10-50-10 of the FASB Accounting Standards Codification for
disclosures about fair value of our financial instruments and paragraph
820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph
820-10-35-37”) to measure the fair value of our financial instruments. Paragraph
820-10-35-37 establishes a framework for measuring fair value in accounting
principles generally accepted in the United States of America (U.S. GAAP), and
expands disclosures about fair value measurements. To increase consistency and
comparability in fair value measurements and related disclosures, Paragraph
820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to
valuation techniques used to measure fair value into three (3) broad levels. The
fair value hierarchy gives the highest priority to quoted prices (unadjusted) in
active markets for identical assets or liabilities and the lowest priority to
unobservable inputs. The three (3) levels of fair value hierarchy
defined by Paragraph 820-10-35-37 are described below:
Level 1
Quoted market prices available in active markets for identical assets or
liabilities as of the reporting date. Level 2 Pricing inputs other than quoted
prices in active markets included in Level 1, which are either directly or
indirectly observable as of the reporting date. Level 3 Pricing inputs that are
generally observable inputs and not corroborated by market data.
The
carrying amounts of our financial assets and liabilities, such as accrued
expenses, approximate our fair values because of the short maturity of this
instrument.
We do not
have any assets or liabilities measured at fair value on a recurring or a
non-recurring basis, consequently, we did not have any fair value adjustments
for assets and liabilities measured at fair value at January 31, 2011, nor gains
or losses are reported in the statement of operations that are attributable to
the change in unrealized gains or losses relating to those assets and
liabilities still held at the reporting date for the period.
Recent accounting
pronouncements
In
January 2010, the FASB issued the FASB Accounting Standards Update No. 2010-01
“Equity Topic 505 – Accounting
for Distributions to Shareholders with Components of Stock and Cash”,
which clarify that the stock portion of a distribution to shareholders that
allows them to elect to receive cash or stock with a potential limitation on the
total amount of cash that all shareholders can elect to receive in the aggregate
is considered a share issuance that is reflected in EPS prospectively and is not
a stock dividend for purposes of applying Topics 505 and 260 (Equity and
Earnings Per Share (“EPS”)). Those distributions should be accounted for and
included in EPS calculations in accordance with paragraphs 480-10-25- 14 and
260-10-45-45 through 45-47 of the FASB Accounting Standards codification. The
amendments in this Update also provide a technical correction to the Accounting
Standards Codification. The correction moves guidance that was
previously included in the Overview and Background Section to the definition of
a stock dividend in the Master Glossary. That guidance indicates that
a stock dividend takes nothing from the property of the corporation and adds
nothing to the interests of the stockholders. It also indicates that the
proportional interest of each shareholder remains the same, and is a key factor
to consider in determining whether a distribution is a stock
dividend.
In
January 2010, the FASB issued the FASB Accounting Standards Update No. 2010-02
“Consolidation Topic 810 –
Accounting and Reporting for Decreases in Ownership of a Subsidiary – a Scope
Clarification”, which provides amendments to Subtopic 810-10 and related
guidance within U.S. GAAP to clarify that the scope of the decrease in ownership
provisions of the Subtopic and related guidance applies to the
following:
1
A subsidiary or group of assets that is a business or nonprofit
activity;
2
A subsidiary that is a business or nonprofit activity that is transferred to an
equity method investee or joint venture; and
3 An
exchange of a group of assets that constitutes a business or nonprofit activity
for a noncontrolling interest in an entity (including an equity method investee
or joint venture).
The
amendments in this Update also clarify that the decrease in ownership guidance
in Subtopic 810-10 does not apply to the following transactions even if they
involve businesses:
1 Sales
of in substance real estate. Entities should apply the sale of real estate
guidance in Subtopics 360-20 (Property, Plant, and Equipment) and 976-605
(Retail/Land) to such transactions; and
2
Conveyances of oil and gas mineral rights. Entities should apply the mineral
property conveyance and related transactions guidance in Subtopic 932-360 (Oil
and Gas-Property, Plant, and Equipment) to such
transactions.
If a
decrease in ownership occurs in a subsidiary that is not a business or nonprofit
activity, an entity first needs to consider whether the substance of the
transaction causing the decrease in ownership is addressed in other U.S. GAAP,
such as transfers of financial assets, revenue recognition, exchanges of
nonmonetary assets, sales of in substance real estate, or conveyances of oil and
gas mineral rights, and apply that guidance as applicable. If no other guidance
exists, an entity should apply the guidance in Subtopic
810-10.
In
January 2010, the FASB issued the FASB Accounting Standards Update No. 2010-06
“Fair Value Measurements and
Disclosures (Topic 820) Improving Disclosures about Fair Value
Measurements”, which provides amendments to Subtopic 820-10 that require
new disclosures as follows:
1. |
Transfers
in and out of Levels 1 and 2. A reporting entity should disclose
separately the amounts of significant transfers in and out of Level 1 and
Level 2 fair value measurements and describe the reasons for the
transfers; and |
2. |
Activity
in Level 3 fair value measurements. In the reconciliation for fair value
measurements using significant unobservable inputs (Level 3), a reporting
entity should present separately information about purchases, sales,
issuances, and settlements (that is, on a gross basis rather than as one
net number). |
This
Update provides amendments to Subtopic 820-10 that clarify existing disclosures
as follows:
1 Level
of disaggregation. A reporting entity should provide fair value measurement
disclosures for each class of assets and liabilities. A class is often a subset
of assets or liabilities within a line item in the statement of financial
position. A reporting entity needs to use judgment in determining the
appropriate classes of assets and liabilities.; and
2 Disclosures
about inputs and valuation techniques. A reporting entity should provide
disclosures about the valuation techniques and inputs used to measure fair value
for both recurring and nonrecurring fair value measurements. Those disclosures
are required for fair value measurements that fall in either Level 2 or Level
3.
This
Update also includes conforming amendments to the guidance on employers'
disclosures about postretirement benefit plan assets (Subtopic 715-20). The
conforming amendments to Subtopic 715-20 change the terminology from major categories of assets to
classes of assets and
provide a cross reference to the guidance in Subtopic 820-10 on how to determine
appropriate classes to present fair value disclosures. The new disclosures and
clarifications of existing disclosures are effective for interim and annual
reporting periods beginning after December 15, 2009, except for the disclosures
about purchases, sales, issuances, and settlements in the roll forward of
activity in Level 3 fair value measurements. Those disclosures are effective for
fiscal years beginning after December 15, 2010, and for interim periods within
those fiscal years.
In
February 2010, the FASB issued the FASB Accounting Standards Update No. 2010-09
“Subsequent Events (Topic 855)
Amendments to Certain Recognition and Disclosure Requirements”, which
provides amendments to Subtopic 855-10 as follows:
1
An entity that either (a) is an SEC filer or(b) is a conduit bond obligor
for conduit debt securities that are traded in a public market (a domestic or
foreign stock exchange or an over-the-counter market, including local or
regional markets) is required to evaluate subsequent events through the date
that the financial statements are issued. If an entity meets neither of those
criteria, then it should evaluate subsequent events through the date the
financial statements are available to be issued;
2 An
entity that is an SEC filer is not required to disclose the date through which
subsequent events have been evaluated. This change alleviates potential
conflicts between Subtopic 855-10 and the SEC's requirements;
and
3 The
scope of the reissuance disclosure requirements is refined to include revised
financial statements only. The term revised financial statements
is added to the glossary of Topic 855. Revised financial statements
include financial statements revised either as a result of correction of an
error or retrospective application of U.S. generally accepted accounting
principles.
All of
the amendments in this Update are effective upon issuance of the final Update,
except for the use of the issued date for conduit debt obligors. That amendment
is effective for interim or annual periods ending after June 15,
2010.
In April
2010, the FASB issued the FASB Accounting Standards Update No. 2010-17 “Revenue Recognition — Milestone
Method (Topic 605) Milestone Method of Revenue Recognition”, which
provides guidance on the criteria that should be met for determining whether the
milestone method of revenue recognition is appropriate. A vendor can recognize
consideration that is contingent upon achievement of a milestone in its entirety
as revenue in the period in which the milestone is achieved only if the
milestone meets all criteria to be considered substantive.
Determining
whether a milestone is substantive is a matter of judgment made at the inception
of the arrangement. The following criteria must be met for a milestone to be
considered substantive. The consideration earned by achieving the milestone
should:
1. Be
commensurate with either of the following:
a. The
vendor's performance to achieve the milestone; and
b. The
enhancement of the value of the item delivered as a result of a specific outcome
resulting from the vendor's performance to achieve the milestone.
1 Relate
solely to past performance; and
2 Be
reasonable relative to all deliverables and payment terms in the
arrangement.
A milestone should be considered substantive
in its entirety. An individual milestone may not be bifurcated. An arrangement
may include more than one milestone, and each milestone should be evaluated
separately to determine whether the milestone is substantive. Accordingly, an
arrangement may contain both substantive and nonsubstantive
milestones.
A
vendor's decision to use the milestone method of revenue recognition for
transactions within the scope of the amendments in this Update is a policy
election. Other proportional revenue recognition methods also may be applied as
long as the application of those other methods does not result in the
recognition of consideration in its entirety in the period the milestone is
achieved. A vendor that is affected by the amendments in this Update is required
to provide all of the following disclosures:
1. |
A
description of the overall
arrangement; |
2. |
A
description of each milestone and related contingent
consideration; |
3. |
A
determination of whether each milestone is considered
substantive; |
4. |
The
factors that the entity considered in determining whether the milestone or
milestones are substantive; and |
5. |
The
amount of consideration recognized during the period for the milestone or
milestones. |
The
amendments in this Update are effective on a prospective basis for milestones
achieved in fiscal years, and interim periods within those years, beginning on
or after June 15, 2010. Early adoption is permitted. If a vendor elects early
adoption and the period of adoption is not the beginning of the entity's fiscal
year, the entity should apply the amendments retrospectively from the beginning
of the year of adoption. Additionally, a vendor electing early adoption should
disclose the following information at a minimum for all previously reported
interim periods in the fiscal year of adoption:
1 Revenue;
2 Income
before income taxes;
3 Net
income;
4 Earnings
per share; and
5. The
effect of the change for the captions presented.
A vendor
may elect, but is not required, to adopt the amendments in this Update
retrospectively for all prior periods. Management does not believe that any
other recently issued, but not yet effective accounting pronouncements, if
adopted, would have a material effect on the accompanying consolidated financial
statements.
MANAGEMENT
Directors
and Officers
Terry Fields has resigned from his position
as Chief Executive Officer and all officer positions that he held with our
Company, other than as Chief Financial Officer, effective as of the Closing Date
of the Share Exchange, and as the sole director of our Company, effective as of
January 14, 2011. Mr. Fields resigned as Chief Financial Officer
after the filing of the Company’s Form 10-Q for the three month period ended
October 31, 2010, effective immediately after the filing of the Form
10-Q. Gareb Shamus was appointed as our President, Chief Executive
Officer and a Director on the Closing Date.
The
following table sets forth the names, ages, and position of our executive
officer and directors. Each executive officer holds his office until he resigns,
is removed by our board of directors, or his successor is elected and
qualified. Directors are elected annually by our stockholders at the
annual meeting. Each director holds office until his successor is
elected and qualified or his earlier resignation or removal.
Name |
Age |
|
Title |
|
|
|
|
Gareb
Shamus |
42 |
|
President,
Chief Executive Officer
and
Director |
|
|
|
|
Michael
Mathews |
49 |
|
Chairman
of the Board |
|
|
|
|
Vadim
Mats |
27 |
|
Director |
|
|
|
|
Greg
Suess |
38 |
|
Director |
|
|
|
|
John
Macaluso |
54 |
|
Director |
|
|
|
|
John
Maatta |
59 |
|
Director |
|
|
|
|
Terry
Fields(1) |
67
|
|
Chief
Financial Officer |
(1) Mr.
Fields served as our Chief Financial Officer from September 11, 2008 to December
17, 2010, and as the Company’s President, Chief Executive Officer, Secretary and
a director of the Company from September 11, 2008 to December 7, 2010.
A brief
biography of our officers and directors is more fully described in Item 5.02,
which is incorporated herein by reference.
Audit
Committee; Audit Committee Financial Expert
We have
not yet appointed an audit committee. Our Board of Directors (the “Board”)
currently acts as our audit committee. At the present time, we believe that our
Board is capable of analyzing and evaluating our financial statements and
understanding internal controls and procedures for financial
reporting.
We
currently do not have a member who qualifies as an “audit committee financial
expert” as defined in Item 401(e) of Regulation S-K and is “independent” as the
term is used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act. Our
Board is in the process of searching for a suitable candidate for this
position.
Employment
Agreements
The Company entered into an employment
agreement, effective as of May 25, 2011 (the “Employment Agreement”), with Mr.
Gareb Shamus, pursuant to which he serves as Chief Executive Officer of the
Company. The term of the employment is for a period of three (3)
years and automatically renews for additional one (1) year periods unless either
Mr. Shamus or the Company gives written notice of non-renewal to the other party
no later than sixty (60) days prior to the expiration of the then current
term.
The
Employment Agreement provides for an annual base salary of $140,000 (the “Base
Salary”), subject to an annual increase of at least ten percent (10%) per annum,
and may not be decreased. In addition to the Base Salary, Mr. Shamus
will receive an annual bonus of up to one hundred percent (100%) of his
then-current Base Salary (to be paid 50% in cash and 50% in restricted stock)
based upon the achievement of certain performance targets to be agreed upon by
Mr. Shamus and a majority of the Board (the “Bonus
Target”). Notwithstanding the foregoing, in the event that the
performance of the Company business for any fiscal year is greater than
seventy-five percent (75%), but less than one hundred percent (100%) of the
applicable Bonus Target, Mr. Shamus shall be entitled to a percentage of the
annual bonus as determined in the Employment Agreement. In the event Mr. Shamus
and the Board are unable to agree to a mutually acceptable Bonus Target, Mr.
Shamus shall receive an annual bonus of not less than fifteen percent (15%) of
the Base Salary, all of which may be paid in restricted stock at Mr. Shamus’
sole discretion.
Upon
termination of Mr. Shamus’ employment for death or Total Disability (as defined
in the Employment Agreement), Mr. Shamus shall receive, in addition to the
accrued but unpaid compensation and vacation pay through the date of death or
Total Disability and any other benefits accrued under any Benefit Plans
outstanding, the following severance benefits (i) six (6) months Base Salary at
the then current rate, payable in a lump sum, less withholding of applicable
taxes; (ii) continues provision for a period of twelve (12) months following Mr.
Shamus’ death of benefits under the Benefit Plan extended from
time to time by the Corporation to its senior executives; and (iii) payment on a
pro-rated basis of any bonus or other payments earned in connection with any
bonus plan to which the Executive was a participant as of the date of death or
Total Disability.
Upon
termination of the Mr. Shamus’ employment at the option of Mr. Shamus, upon
ninety (90) days written notice, or at the Company’s option, in the event of an
act by Mr. Shamus that constitutes Cause (as defined in the Employment
Agreement), Mr. Shamus shall receive, in addition to the reimbursement of
documented, unreimbursed expenses incurred prior to such date, the following
severance benefits: (i) accrued and unpaid Base Salary and (ii) vacation pay
through the date of termination.
Upon a
Change of Control (as hereinafter defined), the Mr. Shamus shall receive, in
addition to the accrued but unpaid compensation and vacation pay through the
date of termination and any other benefits accrued to him under any Benefit
Plans outstanding at such time and the reimbursement of documented, unreimbursed
expenses incurred prior to such date, the following severance benefits: (i) the
greater of twelve (12) months’ Base Salary at the then current rate or the
remainder of the Base Salary due under the Employment Agreement; (ii) continued
provision for a period of twelve (12) months after the date of termination of
the benefits under Benefit Plans extended from time to time by the Corporation
to its senior executives; and (iii) payment on a pro-rated basis of any bonus or
other payments earned in connection with any bonus plan to which Mr. Shamus was
a participant as of the date of Mr. Shamus’ termination of employment. In
addition, any options or restricted stock shall be immediately vested upon
termination of Mr. Shamus’ employment for “Good Reason” (as defined in the
Employment Agreement) or by the Corporation without “Cause”.
The
Company also entered into a Non-qualified Stock Option Agreement (“Stock Option
Agreement”) with Mr. Shamus. Under the Stock Option Agreement, Mr.
Shamus was granted a non-qualified stock purchase option (the “Non-qualified
Option”) to purchase up to an aggregate of one hundred fifty thousand (150,000)
shares of Common Stock of the Company, subject to the terms and conditions of
the 2011 Incentive and Award Plan (the “Plan”). The Non-qualified
Option vests 33% on each yearly anniversary of the commencement of Mr. Shamus’
employment over a three (3) year period, and is exercisable until 5:30 p.m. New
York time on the date that is the fifth (5th) year anniversary of the date of
grant. Other than restrictions on exercise, neither the Non-qualified Option nor
any shares of Common Stock obtained upon exercise thereof shall be subject to
forfeiture or to the Company’s or other stockholders’ right to repurchase. The
options shall fully vest upon, among other things, termination for Good Reason
or without Cause and a change of control.
The above
descriptions of the Employment Agreement, Stock Option Agreement and Plan do not
purport to be complete, and are qualified in their entirety by reference to the
full text of the Employment Agreement, Plan, and Stock Option Agreement, which
is incorporated by reference herein as Exhibits 10.8, 10.9 and 10.6,
respectively, to this Current Report on Form 8-K/A.
Family
Relationships
Stephen
Shamus, the brother of Gareb Shamus, our President, CEO and a Director, is
expected to be appointed Chief Marketing Officer of our
Company.
Involvement
in Certain Legal Proceedings
None of
our directors or executive officers have been convicted in a criminal
proceeding, excluding traffic violations or similar misdemeanors, or have been a
party to any judicial or administrative proceeding during the past ten years
that resulted in a judgment, decree or final order enjoining the person from
future violations of, or prohibiting activities subject to, federal or state
securities laws, or a finding of any violation of federal or state securities
laws, except for matters that were dismissed without sanction or settlement.
Except as set forth in our discussion below in “Certain Relationships and
Related Transactions,” none of our directors, director nominees or executive
officers has been involved in any transactions with us or any of our directors,
executive officers, affiliates or associates which are required to be disclosed
pursuant to the rules and regulations of the Commission.
Code
of Ethics
We have
not yet adopted a code of ethics because we wanted to complete our constitution
of the Board prior to adopting such code of ethics to allow the entire Board to
review and approve a code of ethics.
EXECUTIVE
COMPENSATION
Executive
Compensation Summary
Summary Compensation
Table
The
following summary compensation table sets forth all compensation awarded to,
earned by, or paid by us to, the named executive officers during the fiscal
years ended July 31, 2010 and 2009 in all capacities for the accounts of our
executives, including the Chief Executive Officer and Chief Financial
Officer.
Name and
Principal
Position |
|
Year |
|
Salary
($) |
|
|
Bonus
($) |
|
|
Stock
Award
($) |
|
Option
Awards
($) |
|
|
Non-Equity
Incentive Plan
Compensation
($) |
|
|
Non-Qualified
Deferred
Compensation
Earnings
($) |
|
|
All Other
Compensation
($) |
|
|
Totals
($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terry
Fields
Pres.,
CEO, CFO and Secretary |
|
2009 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
2010 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gareb
Shamus
Pres.
& CEO (1) |
|
2009 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
2010 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
(1) |
Mr.
Shamus was not appointed President and CEO of the Company until December
7, 2010. |
Outstanding Equity awards at
Fiscal Year End
There are
no outstanding equity awards as of July 31, 2010.
President and CEO
Compensation
The
Company entered into an employment agreement, effective as of May 25, 2011 (the
“Employment Agreement”), with Mr. Gareb Shamus, pursuant to which he serves as
Chief Executive Officer of the Company. The term of the employment is
for a period of three (3) years and automatically renews for additional one (1)
year periods unless either Mr. Shamus or the Company gives written notice of
non-renewal to the other party no later than sixty (60) days prior to the
expiration of the then current term.
The
Employment Agreement provides for an annual base salary of $140,000 (the “Base
Salary”), subject to an annual increase of at least ten percent (10%) per annum,
and may not be decreased. In addition to the Base Salary, Mr. Shamus
will receive an annual bonus of up to one hundred percent (100%) of his
then-current Base Salary (to be paid 50% in cash and 50% in restricted stock)
based upon the achievement of certain performance targets to be agreed upon by
Mr. Shamus and a majority of the Board (the “Bonus
Target”). Notwithstanding the foregoing, in the event that the
performance of the Company business for any fiscal year is greater than
seventy-five percent (75%), but less than one hundred percent (100%), of the
applicable Bonus Target, Mr. Shamus shall be entitled to a percentage of the
annual bonus as determined in the Employment Agreement. In the event Mr. Shamus
and the Board are unable to agree to a mutually acceptable Bonus Target, Mr.
Shamus shall receive an annual bonus of not less than fifteen percent (15%) of
the Base Salary, all of which may be paid in restricted stock at Mr. Shamus’
sole discretion.
The
Company also entered into a Non-qualified Stock Option Agreement (“Stock Option
Agreement”) with Mr. Shamus in connection with a Director Agreement between the
Company and Mr. Shamus that commences on May 25, 2011 and continues through the
Company’s next annual stockholders’ meeting, unless automatically renewed at the
option of the Board on such date that Mr. Shamus is re-elected to the
Board. Under the Stock Option Agreement, Mr. Shamus was granted a
non-qualified stock purchase option (the “Non-qualified Option”) to purchase up
to an aggregate of one hundred fifty thousand (150,000) shares of Common Stock
of the Company, subject to the terms and conditions of the 2011 Incentive and
Award Plan (the “Plan”). The Non-qualified Option vests 33% on each
yearly anniversary of the commencement of Mr. Shamus’ employment over a three
(3) year period, and is exercisable until 5:30 p.m. New York time on the date
that is the fifth (5th) year anniversary of the date of grant. Other than
restrictions on exercise, neither the Non-qualified Option nor any shares of
Common Stock obtained upon exercise thereof shall be subject to forfeiture or to
the Company’s or other stockholders’ right to repurchase. The options shall
fully vest upon, among other things, termination for Good Reason or without
Cause and a change of control.
The above
descriptions of the Employment Agreement, Stock Option Agreement and Plan do not
purport to be complete, and are qualified in their entirety by reference to the
full text of the Employment Agreement, Plan, and Stock Option Agreement, which
is incorporated by reference herein as Exhibits 10.8, 10.9 and 10.6,
respectively, to this Current Report on Form 8-K/A.
Director
Compensation
No
compensation was earned or paid to directors during the fiscal year ended July
31, 2010. All directors are reimbursed for their reasonable out-of-pocket
expenses incurred in connection with attending Board and committee (if and when
committees are established) meetings.
Since the
end of the fiscal year ended July 31, 2010, the Company has entered into
director agreements with each of its six directors. Each director
agreement commences on the date that the respective director was appointed a
member of the Board and continues through the Company’s next annual
stockholders’ meeting, unless automatically renewed at the option of the Board
on such date that such director is re-elected to the Board. Pursuant
to the director agreements, each director is granted a non-qualified option to
purchase up to 150,000 shares of the Company’s common stock.
In
conjunction with the director agreements, we entered into an indemnification
agreement with each director that is effective during the term that such
director serves as a member of the Board until six years thereafter. The
indemnification agreement indemnifies the director to the fullest extent
permitted under Delaware law for any claims arising out of, or resulting from,
among other things, (i) any actual, alleged or suspected act or failure to act
as a director or agent of the Company and (ii) any actual, alleged or suspected
act or failure to act in respect of any business, transaction, communication,
filing, disclosure or other activity of the Company. Further, the director is
indemnified for any losses pertaining to such claims, provided, however, that
the losses not include expenses incurred by the director in respect of any claim
as which such director shall have been adjudged liable to the Company, unless
the Delaware Chancery Court rules otherwise.
The above
description of the director agreements do not purport to be complete, and are
qualified in their entirety by reference to the full text of the director
agreements, the form of which is incorporated by reference herein as Exhibit
10.2 to this Current Report on Form 8-K/A.
Option
Grants
As of
July 31, 2010, we did not maintain any equity incentive or stock option
plan. Accordingly, we did not grant options to purchase any equity
interests to any employees or officers, and no stock options are issued or
outstanding to any officers as of July 31, 2010. We have, however,
since the end of July 31, 2010, our last fiscal year, adopted the 2011 Incentive
Stock and Award Plan (the "Plan"), which was authorized and approved by the
Board, and have granted to all directors (other than our Chairman Michael
Mathews, who received restricted stock awards) non-qualified options (the
“Non-qualified Options”), incentive options (the “Incentive Options” and
together with the Non-qualified Options, the “Options”) to purchase
our Common Stock pursuant to the terms of their employment, consulting and/or
director agreements.
In
general, the Plan provides for the issuance of up to 3,000,000 shares of Common Stock
through the grant of Options and restricted stock (“Restricted Stock”) to
directors, officers, consultants, attorneys, advisors and employees.
Plan
shall be administered by a committee consisting of two or more independent,
non-employee and outside directors (the “Committee”). In the absence of such a
Committee, the Board of the Company shall administer the Plan.
Each
Option shall contain the following material terms:
(i) the
exercise price, which shall be determined by the Committee at the time of grant,
shall not be less than 100% of the Fair Market Value (defined as the closing
price on the final trading day immediately prior to the grant on the principal
exchange or quotation system on which the Common Stock is listed or quoted, as
applicable) of the Common Stock of the Company, provided that if the
recipient of the Option owns more than ten percent (10%) of the total combined
voting power of the Company, the exercise price shall be at least 110% of the
Fair Market Value, and provided further that with
respect to the Non-qualified Option, the purchase price of each share of stock
purchasable under a Non-qualified Option shall be at least 100% of the Fair
Market Value of such share of stock on the date that Non-qualified option is
granted, unless the
Committee, in its sole and absolute discretion, determines to set the purchase
price of such Non-qualified Option below Fair Market Value;
(ii) the
term of each Option shall be fixed by the Committee, provided that such Option
shall not be exercisable more than five (5) years after the date such Option is
granted, and provided
further that with respect to an Incentive Option, if the recipient owns
more than ten percent (10%) of the total combined voting power of the Company,
the Incentive Option shall not be exercisable more than five (5) years after the
date such Incentive Option is granted;
(iii)
subject to acceleration in the event of a Change of Control of the Company (as
further described in the Plan), the period during which the Options vest shall
be designated by the Committee or, in the absence of any Option vesting periods
designated by the Committee at the time of grant, shall vest and become
exercisable in equal amounts on each fiscal quarter of the Company through the
four (4) year anniversary of the date on which the Option was granted;
(iv) no
Option is transferable and each is exercisable only by the recipient of such
Option except in the event of the death of the recipient; and
(v) with
respect to Incentive Options, the aggregate Fair Market Value of Common Stock
exercisable for the first time during any calendar year shall not exceed
$100,000.
Each
award of Restricted Stock is subject to the following material terms:
(i) no
rights to an award of Restricted Stock is granted to the intended recipient of
Restricted Stock unless and until the grant of Restricted Stock is accepted
within the period prescribed by the Committee;
(ii)
Restricted Stock shall not be delivered until they are free of any restrictions
specified by the Committee at the time of grant;
(iii)
recipients of Restricted Stock have the rights of a stockholder of the Company
as of the date of the grant of the Restricted Stock;
(iv)
shares of Restricted Stock are forfeitable until the terms of the Restricted
Stock grant have been satisfied or the employment with the Company is
terminated; and
(v) the
Restricted Stock is not transferable until the date on which the Committee has
specified such restrictions have lapsed.
In
conjunction with the director agreements and indemnification agreements
described above, we entered into a Non-qualified Stock Option Agreement (“Stock
Option Agreement”) with each director, pursuant to which the director was
granted a non-qualified stock purchase option (the “Non-qualified Option”) to
purchase up to an aggregate of one hundred fifty thousand (150,000) shares of
our common stock, subject to the terms and conditions of the Plan. The exercise
price for the Non-qualified Option is the closing price of the Company’s common
stock on the execution date of the director agreement. The
Non-qualified Option is exercisable for a period of five years and vests in
equal amounts over a period of three (3) years at the rate of twelve thousand
five hundred (12,500) shares per fiscal quarter at the end of such quarter,
commencing in the quarter ended July 31, 2011, and pro-rated for the number of
days the director served on the Board during such fiscal quarter.
Notwithstanding the foregoing, if the director ceases to be a member of Board at
any time during the three (3)-year vesting period for any reason (such as
resignation, withdrawal, death, disability or any other reason), then any
un-vested portion of the Non-qualified Option shall be irrefutably
forfeited.
The
foregoing description of the Plan and the Stock Option Agreement does not
purport to be complete and is qualified in its entirety by the full text of
Exhibits 10.7 and 10.8, respectively, to this Current Report on Form 8-K/A,
which is incorporated herein by reference.
Restricted Stock
Awards
On March
23, 2011, we entered into a consulting agreement with our Chairman Michael
Mathews (the “Consulting Agreement”), pursuant to which Mr. Mathews will, among
other things, develop a digital platform for the Company and establish digital
planning systems that will include all forms of digital media and social,
search, content, and video applications. The term of the Consulting Agreement is
for a four (4) year period. As compensation for his services, Mr. Mathews
received, with the first issuance of 250,000 shares occurring on March 23, 2011,
one million (1,000,000) restricted shares of the Company’s common stock,
issuable in four yearly installments.
The above
description of the Consulting Agreement does not purport to be complete and is
qualified in its entirety by the full text of Exhibit 10.4 to this Current
Report on Form 8-K/A, which is incorporated herein by reference.
Certain
Relationships and Related Transactions
Gareb
Shamus, our President, CEO and a Director, is also the CEO of
Conventions. Stephen Shamus, the brother of Gareb Shamus, is expected
to be appointed our Chief Marketing Officer.
On
October 27, 2010 Kick The Can Corp entered into a promissory note with Gareb
Shamus Enterprises, a related party of the company’s chief executive officer,
for $329,807. The loan bears interest at 6% per annum and matures on
October 27, 2012. The note is secured by all assets of Gareb Shamus
Enterprises.
On
December 1, 2010 Kick The Can Corp entered into a promissory note with Gareb
Shamus Enterprises, a related party of the company’s chief executive officer,
for $114,384. The loan bears interest at 6% per annum and matures on
December 1, 2011. The note is secured by all assets of Gareb Shamus
Enterprises.
On
December 1, 2010 Gareb Shamus Enterprises, a related party of the
company’s chief executive officer, advanced Wizard Conventions
$60,000. The advance bears no interest and is due on demand.
We
acquired from Conventions the rights to the domain name www.wizardworld.com and
the intellectual property related to such domain name, pursuant to an Internet
Domain Name Assignment Agreement (“Domain Agreement”), for a purchase price of
$5,000. This description of the Domain Agreement does not purport to be complete
and is qualified in its entirety to the full text of Exhibit 10.12 attached
hereto and incorporated herein by reference.
On
October 27, 2010, Conventions lent to Gareb Shamus Enterprises, Inc. (d/b/a
Wizard Entertainment) an aggregate principal amount of $329,807.49 pursuant to a
senior secured (against all of the assets of Wizard Entertainment) promissory
note bearing an annual interest rate of 6% and having a maturity date of the
one-year anniversary of the issuance date of such note. The payment of the
principal amount was made through eight (8) advances. The principal
amount of $329,807.49 is currently outstanding and interest in the amount of
11,079.84 has
accrued and is payable. To date, no amount of principal or accrued
interest has been made by Wizard Entertainment.
On
December 10, 2010, Conventions lent to Wizard Entertainment an aggregate
principal amount of $114,383.88 pursuant to a senior secured (against all of the
assets of Wizard Entertainment) promissory note bearing an annual interest rate
of 6% and having a maturity date of the two-year anniversary of the issuance
date of such note. The payment of the principal was made through three (3)
advances. The principal amount of $16,676.59 is currently outstanding
and interest in the amount of $974.34 has accrued and is
payable. To date, no amount of principal or accrued interest has been
made by Wizard Entertainment.
Going
forward, we will present all possible transactions between us and our officers,
directors and 5% stockholders, and our affiliates, to our Board for their
consideration and approval. Any such transaction will require approval by a
majority of the disinterested directors and such transactions will be on terms
no less favorable than those available to disinterested third
parties.
PROPERTIES
Conventions,
through a service agreement with an officer service provider, occupies offices
at 1350 Avenue of the Americas, 2nd floor, New York, NY 10019. The
term is one (1) year and automatically renews for a one (1) year
period unless prior written notice of termination is provided to other party at
least ninety (90) days before the expiration of the then current term. and covers approximately
800 square feet. Our monthly rent is $6500.00. We do not own any real
estate.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth information as of June 23, 2011 with respect to the
beneficial ownership of our common stock by (i) each of our officers and
directors, (ii) our officers and directors as a group and (iii) each person
known by us to beneficially own five percent (5%) or more of our outstanding
common stock. Unless otherwise specified, the address of each of the
persons set forth below is in care of Wizard World, 1350 Avenue of the Americas,
2nd floor, New York, NY 10019.
Name and Address of Beneficial Owner |
|
Shares of Common Stock
Beneficially Owned((1) |
|
|
Percentage Ownership(2) |
|
|
|
|
|
|
|
|
Directors and Officers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gareb
Shamus (3) |
|
|
|
|
|
|
|
President,
CEO and Director |
|
|
19,449,765 |
(4)
|
|
|
56.05 |
|
|
|
|
|
|
|
|
|
|
Michael
Mathews
Chairman
of the Board |
|
|
250,000 |
(5) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
Vadim
Mats
Director |
|
|
12,500 |
(4) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
Greg
Suess
Director |
|
|
12,500 |
(4) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
John
Macaluso
Director |
|
|
12,500 |
(4) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
John
Maatta
Director |
|
|
12,500 |
(4) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
All officers and directors as a
group |
|
|
|
|
|
|
|
|
(6 persons named
above) |
|
|
19,749,765 |
|
|
|
56.45 |
|
|
|
|
|
|
|
|
|
|
5% Beneficial Owners |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bristol
Capital LLC |
|
|
2,172,759 |
|
|
|
6.26 |
|
|
|
|
|
|
|
|
|
|
Bristol
Investment Fund Ltd. |
|
|
2,951,845 |
|
|
|
8.51 |
|
|
|
|
|
|
|
|
|
|
Kicking
The Can, L.L.C. (3) |
|
|
19,437,265 |
|
|
|
56.03 |
|
|
|
|
|
|
|
|
|
|
Knie,
Robert |
|
|
2,400,000 |
|
|
|
6.92 |
|
|
|
|
|
|
|
|
|
|
The
David Rosenberg Irrevocable Trust (6) |
|
|
2,150,000 |
|
|
|
6.20 |
|
|
|
|
|
|
|
|
|
|
Weisblum,
Eric |
|
|
2,950,000 |
(6) |
|
|
5.62 |
|
* Less
than 1%
(1)
Beneficial ownership generally includes voting or investment power with respect
to securities. Unless otherwise indicated, each of the beneficial owners listed
above has direct ownership of and sole voting power and investment power with
respect to the securities. Beneficial ownership is determined in accordance with
Rule 13d–3(d)(1) under the Exchange Act and includes securities for which the
beneficial owner has the right to acquire beneficial ownership within 60
days.
(2) Based
on 34,687,735 shares of common stock issued and outstanding as of June 30,
2011.
(3) Gareb
Shamus is the Operating Manager of Kicking The Can, L.L.C. and may as such be
deemed to “beneficially own” the shares owned by Kicking The Can, L.L.C. Mr.
Shamus, however, disclaims beneficial ownership of all such
shares.
(4)
Includes 12,500 shares issuable upon exercise of an option for 150,000 shares of
common stock, of which 12,500 have vested. The option was granted pursuant to a
Nonqualified Stock Option Agreement dated May 25, 2011, the full text of which
is attached as Exhibit 10.5 to the Current Report on Form 8-K/A that we filed
with the Commission on May 31, 2011, and is incorporated herein by
reference.
(5)
Includes 250,000 shares issuable on March 23, 2011 in accordance with the
Consulting Agreement dated March 23, 2011 with the Company, pursuant to which
Mr. Mathews is to receive an aggregate of 1,000,000 million shares of common
stock, payable in equal installments over a period of four years.
(6) The
beneficiary of the Trust is Natalie Schlossberg and the trustee is Mitch
Schlossberg, the son of Natalie Schlossberg.
We do not
currently have any arrangements which if consummated may result in a change of
control of our Company.
DESCRIPTION
OF SECURITIES
General.
Our authorized capital stock consists of 100,000,000 shares, of which 80,000,000
are for shares of common stock, par value $0.0001 per share (“Common Stock”),
and 20,000,000 are for shares of preferred stock, par value $0.0001 per share
(“Preferred Stock”), of which 25,000 have been designated as Series A Cumulative
Convertible Preferred Stock, which was increased to 50,000 authorized shares
pursuant to a Certificate of Amendment to the Certificate to set forth
Designations, Voting Powers, Preferences, Limitations, Restrictions, and
Relative Rights of Series A Cumulative Convertible Preferred Stock, $.0001 par
value per share (the “Certificate of Designation”).
Common
Stock. As of June 23, 2011, there were 34,687,735 shares of our Common
Stock issued and outstanding held by approximately 42 beneficial
owners.
Voting Rights. Each
share of stock entitles the holder to one vote for each share on all matters
submitted to a stockholder vote. Directors are elected by a plurality of the
votes of the shares present in person or represented by proxy at an annual
shareholders' meeting and entitled to vote on the election of directors. Any
other action shall be authorized by
a majority of the votes cast, unless otherwise provided
under the Delaware General Corporation Law. Holders of our stock
representing a majority of the voting power of our capital stock issued,
outstanding and entitled to vote, represented in person or by proxy, are
necessary to constitute a quorum at any meeting of our
stockholders.
Dividend Rights.
Holders of our Common Stock are entitled to share in all dividends that our
board of directors, in its discretion, declares from legally available funds,
but only after we have satisfied our dividend obligations to the holders of our
Series A Cumulative Convertible Preferred Stock.
Liquidation Rights.
In the event of a liquidation, dissolution or winding up, each outstanding share
entitles its holder to participate pro rata in all assets that are legally
available for distribution and remain after (i) payment of liabilities and (ii)
payment in full of all amounts due to the holders of the Series A Cumulative
Convertible Preferred (on an as converted basis).
Conversion and Redemption
Rights. Holders of our Common Stock have no pre-emptive rights, no
conversion rights and there are no redemption provisions applicable to our
Common Stock.
Preferred
Stock. As of June 23, 2011, there were approximately 15,513 shares of our
Series A Cumulative Convertible Preferred Stock issued and outstanding held by
approximately 21 shareholders of record.
Series A Cumulative Convertible
Preferred Stock
As of
June 23, 2011, there were approximately 15,513 shares of our Series A Cumulative
Convertible Preferred Stock issued and outstanding held by approximately 21
shareholders of record. Each share of our Series A Cumulative
Convertible Preferred Stock (“Series A Preferred”) has a stated value
equal to $100 (the “Stated Value”).
Voting
Rights
The
holders of our Series A Preferred do not vote together with the holders of our
Common Stock on an as converted basis. The vote of the holders of our Series A
Preferred is required, however, to (i) amend our certificate of incorporation or
bylaws in a way that would be adverse to the holders of our Series A Preferred,
(ii) redeem or repurchase our stock (other than with respect to the Series A
Preferred), (iii) effect a liquidation event, (iv) declare or pay dividends
(other than on the Series A Preferred), and (v) issue any securities in parity
or senior to the rights of the Series A Preferred.
Dividends
The
holders of our Series A Preferred are entitled to receive preferential dividends
at the rate of 8% per share per annum of the Stated Value out of any funds
legally available, and before any dividend or other distribution will be paid or
declared and set apart for payment on any shares of our Common
Stock. Upon the occurrence of an event of default, the dividend rate
will increase to 15% per annum on the Stated Value. The dividends compound
annually and are fully cumulative, accumulate from the date of original issuance
of the Series A Preferred, and are payable annually on the last day of each
calendar year, in arrears, (i) in cash; (ii) at our option, in additional shares
of Series A Preferred valued at the Stated Value in an amount equal to 150% of
the cash dividend otherwise payable; or (iii) at our option, a combination of
cash and additional shares of Series A Preferred.
Liquidation.
Upon the
occurrence of a “liquidation event”, the holders of our Series A Preferred are
entitled to receive, before any payment or distribution is made on any shares of
our Common Stock, out of the assets available for distribution to our
stockholders, an amount equal to two (2) times the Stated Value and all accrued
and unpaid dividends. If the assets available is insufficient to pay
the holders of our Series A Preferred in full, then the assets will be
distributed pro rata among the holders of our Series A
Preferred.
A
“liquidation event” occurs in the event of (i) our liquidation, dissolution or
winding-up, whether voluntary or involuntary, (ii) (A) our purchase or
redemption of any shares of any class of our stock or (B) a merger or
consolidation with or into any entity, unless, among other things, the holders
of our Series A Preferred receive securities of the surviving corporation having
substantially similar rights and our stockholders immediately prior to such
transaction are holders of at least a majority of the voting securities of the
surviving entity.
Redemption
Upon (i)
the occurrence of an event of default, (ii) a “change in control” or (iii) our
liquidation, dissolution or winding up, and if the holder of the Series A
Preferred so elects, we must pay a sum of money determined by multiplying the
then current purchase price of the outstanding Series A Preferred by 110%, plus
accrued but unpaid dividends, no later than thirty (30) business days after
request for redemption is made. “Change in Control” means (i) our
Company no longer having a class of shares publicly traded, listed or quoted,
(ii) our becoming a subsidiary of another entity, (iii) a majority of our board
of directors as of the Closing Date no longer serving as our directors of the
Corporation, and (iv) the sale, lease or transfer of substantially all of our
assets or the assets of our subsidiary.
Conversion
Each
holder of our Series A Preferred has the right at any time after the issuance of
Series A Preferred to convert the shares at the Stated Value and accrued but
unpaid declared dividends into shares of our Common Stock at a conversion rate
of $0.40 per share.
Except
under certain circumstances (such as the issuance of our Common Stock pursuant
to a stock option plan), if we issue shares of our Common Stock or securities
convertible into or exchangeable or exercisable for shares of our Common Stock,
for a purchase price, conversion price or exercise price that is less than the
then current conversion price of our Series A Preferred, then the conversion
price of our Series A Preferred will be reduced to such lower
price.
The
conversion price for our Series A Preferred is further adjusted in the event
of: (i) a declaration of any dividend or distribution on our Common
Stock, (ii) stock split or (iii) reclassification of our Common Stock,
proportionately so that the holders of our Series A Preferred are entitled
receive the kind and number of shares or other securities to which they would
have owned or have been entitled to receive after the happening of any of such
events had such shares of our Series A Preferred been converted immediately
prior to the happening of such event.
If we
merge with or into any other corporation where we are not the surviving entity,
then unless the right to convert shares of our Series A Preferred is terminated
as part of such merger, then, if permitted under applicable law, the holder of
our Series A Preferred will have the right to convert each of their shares of
Series A Preferred into the same kind and amount of shares of stock receivable
upon the merger. A similar provision applies to the sale of all or
substantially all of our assets.
If a
holder of our Series A Preferred notifies us of such holder’s election to
convert and we do not deliver the shares of Common Stock issuable upon such
conversion, and the holder has to buy shares of our Common Stock on the open
market because of their obligation to deliver shares of Common Stock, then we
will pay such holder the difference between the price paid on the open market
and the Stated Value. We will also pay interest at the annual rate of
15% for each day that we are late as well $100 per business day for each $10,000
of Stated Value and dividend which is not timely delivered.
Neither
we nor the holder of our Series A Preferred may convert any amount that would
result in the holder having a beneficial ownership of our Common Stock which
would be in excess of the sum of (i) the number of shares of Common Stock
beneficially owned by the holder and its affiliates on the conversion date and
(ii) the number of shares of our Common Stock issuable upon the conversion,
which would result in the aggregate beneficial ownership by such holder and its
affiliates of more than 4.99% of the outstanding shares of our Common
Stock. The holder of our Series A Preferred may waive the conversion
limitation in whole or in part upon and effective after sixty one (61) days’
prior written notice to our Company.
Series
A Common Stock Purchase Warrants
Our
Series A Common Stock Purchase Warrants (the “Warrants”) have a term of five
years after their issuance date and an exercise price of $.60 per share. As of
December 10, 2010, we have warrants outstanding that are exercisable for an
aggregate of up to 614,703 shares of our Common Stock.
The
warrant holder may pay the exercise price in cash or through a cashless exercise
if the fair market value of our Common Stock is greater than the current
exercise price.
If we
issue Common Stock, except in the event of certain circumstances (such as the
issuance of Common Stock pursuant to a stock option plan), for a consideration
less than the exercise price then in effect, then the exercise price will be
reduced to the lower exercise price. Upon any reduction of the
exercise price, the number of shares of our Common Stock that the warrant holder
is entitled to receive upon exercise will also be adjusted.
If, at
any time while the Warrants are outstanding, (i) we merge or
consolidate with or into another entity, (ii) we sell all or
substantially all of our assets, (iii) we effect a tender offer or exchange
offer, (iv) we consummate a stock purchase agreement or other business
combination with another person or entity that results in such person or entity
acquiring more than 50% of our outstanding shares of Common Stock, (v) any
“person” or “group” (as these terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of 50% or more of our
Common Stock in the aggregate or (vi) we effect any reclassification of our
Common Stock or any share exchange where our Common Stock is converted into or
exchanged for other securities, cash or property, then the warrant holder will
have the right to receive, for each share of Common Stock issuable upon exercise
of the Warrant, (a) the number of shares of common stock of the successor or
acquiring corporation or of our Company if we are the surviving corporation, and
any additional consideration receivable by the warrant holder of the
number of shares of Common Stock for which the Warrant is exercisable
immediately prior to such event or (b) under certain transactions (such as where
the consideration paid to holders of our Common Stock consists solely of cash),
cash equal to the Black-Scholes value. To the extent necessary to
effectuate the above, any successor or surviving entity will issue to the
warrant holder a new warrant evidencing the warrant holder's right to
exercise such warrant as described above.
If a
warrant holder notifies us of such holder’s election to exercise and we do not
deliver the shares of Common Stock issuable upon such exercise, and the warrant
holder has to buy shares of our Common Stock on the open market because of their
obligation to deliver shares of Common Stock, then we will pay such holder the
difference between the price paid on the open market and the Stated
Value. We will also pay interest at the annual rate of 15% for each
day that we are late in delivering shares of our Common
Stock.
The
warrant holder cannot exercise any amount that would result in the holder having
a beneficial ownership of our Common Stock which would be in excess of the sum
of (i) the number of shares of Common Stock beneficially owned by the holder and
its affiliates on the exercise date and (ii) the number of shares of our Common
Stock issuable upon exercise, which would result in the aggregate beneficial
ownership by such holder and its affiliates of more than 4.99% of the
outstanding shares of our Common Stock. The warrant holder may waive the
exercise limitation in whole or in part upon and effective after sixty one (61)
days’ prior written notice to our Company.
Non-qualified
Stock Options
Our
Non-qualified Stock Options are issued pursuant to our 2011 Incentive Stock and
Award Plan (the “Plan”). We have issued Non-qualified Stock Options
to each of our directors (other than our Chairman Michael Mathews, who received
restricted stock awards), pursuant to which each director may purchase up to an
aggregate of one hundred fifty thousand (150,000) shares of our Common Stock,
and our CEO Gareb Shamus options to purchase our Common Stock pursuant to the
terms of his employment agreements. The Non-qualified Stock Options vests
quarterly over a three (3) year period, subject to the optionee continuing to be
a member of our board of directors on each applicable vesting date, and remains
exercisable until 5:30 p.m. New York time on the date that is the fifth (5th)
year anniversary of the date of grant. All or any part of the vested but
unexercised portion of the Non-qualified Stock Option is subject to forfeiture
under certain circumstances, such as in the event of a breach of insider trading
rules or obligations of confidentiality, in the event that the optionee or such
optionee’s affiliates competes with our Company or solicits our employees or
customers, and in the event of death, disability or retirement.
Convertible
Promissory Notes
Our
convertible promissory notes (the “Convertible Notes”) have a term of 4 months,
and an annual interest rate of 14% and a default interest rate of 18% per annum,
payable on the maturity date of the Convertible Notes. The
Convertible Notes are convertible at $.60 per share (the “Conversion
Price”). For as long as the Convertible Notes are outstanding, in the
event that we issue securities prior to the full conversion or payment of the
Convertible Note for consideration that is less than the Conversion Price, or
issue securities with a conversion or exercise price lower than the Conversion
Price, then the Conversion Price is reduced to such price. The
Convertible Notes may not be prepaid, converted, redeemed or called by the
Company without the consent of the noteholder.
The
description of the Convertible Notes herein does not purport to be complete and
is qualified in its entirety by the full text of Exhibit 10.14 of this Current
Report on Form 8-K/A, which are incorporated herein by reference.
MARKET PRICE OF AND DIVIDENDS ON THE
COMMON STOCK AND RELATED STOCKHOLDER MATTERS
While
there is no established public trading market for our Common Stock, our Common
Stock is quoted on the Pink Sheets under the symbol ‘WIZD’.
The
market price of our Common Stock is subject to significant fluctuations in
response to variations in our quarterly operating results, general trends in the
market and other factors, over many of which we have little or no control. In
addition, broad market fluctuations, as well as general economic, business and
political conditions, may adversely affect the market for our Common Stock,
regardless of our actual or projected performance.
Holders
As of the
date hereof, 34,687,735 shares of Common Stock are issued and
outstanding. There are approximately 16 beneficial owners of our
Common Stock.
Transfer Agent and Registrar
The
Transfer Agent for our Common Stock is VStock Transfer, LLC, with an address at
77 Spruce Street, Suite 201, Cedarhurst, NY 11516. VStock Transfer, LLC’s
telephone number is (212) 828-8436.
Penny Stock
Regulations
The
Securities and Exchange Commission has adopted regulations which generally
define “penny stock” to be an equity security that has a market price of less
than $5.00 per share. Our Common Stock, when and if a trading market develops,
may fall within the definition of penny stock and be subject to rules that
impose additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000, or annual incomes
exceeding $200,000 individually, or $300,000, together with their
spouse).
For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of such securities and have received
the purchaser’s prior written consent to the transaction. Additionally, for any
transaction, other than exempt transactions, involving a penny stock, the rules
require the delivery, prior to the transaction, of a risk disclosure document
mandated by the Securities and Exchange Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer’s presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the “penny stock” rules may
restrict the ability of broker-dealers to sell our Common Stock and may affect
the ability of investors to sell their Common Stock in the secondary
market.
Dividend Policy
Any
future determination as to the declaration and payment of dividends on shares of
our Common Stock will be made at the discretion of our board of directors out of
funds legally available for such purpose. We are under no contractual
obligations or restrictions to declare or pay dividends on our shares of Common
Stock. In addition, we currently have no plans to pay such
dividends. Our board of directors currently intends to retain
all earnings for use in the business for the foreseeable future. See
“Risk Factors.”
Equity
Compensation Plan Information
On May 9,
2011, our Board approved, authorized and adopted (subject to stockholder
approval) the 2011 Incentive Stock and Award Plan (the “Plan”). The Plan
provides for the issuance of up to 3,000,000 shares of our common stock through
the grant of non-qualified options, incentive options and restricted stock to
our directors, officers, consultants, attorneys, advisors and employees. Until a
committee consisting of two or more independent, non-employee and outside
directors is constituted, our Board administers the Plan.
Under the
Plan:
|
1. |
Each
option will contain the following
terms: |
(i) the
exercise price, which shall be
determined at the time of grant, shall not be less than 100% of the Fair Market
Value (defined as the closing price on the final trading day immediately prior
to the grant on the principal exchange or quotation system on which the common
stock is listed or quoted, as applicable) of the common stock of the
Company, provided that if
the recipient of the option owns more than ten percent (10%) of the total
combined voting power of the Company, the exercise price shall be at least 110%
of the Fair Market Value, and provided further that with
respect to the Non-qualified Option, the purchase price of each share of stock
purchasable under a Non-qualified Option shall be at least 100% of the Fair
Market Value of such share of stock on the date that Non-qualified option is
granted, unless the
Committee, in its sole and absolute discretion, determines to set the purchase
price of such Non-qualified Option below Fair Market Value;
(ii) the
term of each option shall be fixed by the
Board, provided that
such option shall not be exercisable more than five (5) years after the date
such option is granted, and provided further that with
respect to an incentive option, if the recipient owns more than ten percent
(10%) of the total combined voting power of the Company, the incentive option
shall not be exercisable more than five (5) years after the date such incentive
option is granted;
(iii) subject
to acceleration in the event of a change of control of the Company (as further
described in the Plan), the period during which the options vest shall be
designated by the Board or, in the absence of any option vesting periods designated by the Board
at the time of grant, shall vest and become
exercisable in equal amounts on each fiscal quarter of the Company through the
four (4) year anniversary of the date on which the option was
granted;
(iv) no
option is transferable and each is exercisable only by the recipient of such
option except in the event of the death of the recipient (if such recipient is a
natural person); and
(v) with
respect to incentive options, the aggregate Fair Market Value of common stock
exercisable for the first time during any calendar year shall not exceed
$100,000.
|
2. Each
award of restricted stock will be subject to the following
terms: |
(i) no
rights to an award of restricted stock is granted to the intended recipient of
restricted stock unless and until the grant of restricted stock is accepted
within the period prescribed by the Board;
(ii) restricted
stock shall not be delivered until they are free of any restrictions specified
by the Board at the time of grant;
(iii) recipients
of restricted stock have the rights of a stockholder of the Company as of the
date of the grant of the restricted stock;
(iv) shares
of restricted stock are forfeitable until the terms of the restricted stock
grant have been satisfied or the employment with the Company is terminated;
and
(v)
the restricted stock is not transferable until the date on
which the Board has specified such restrictions have lapsed.
The
description of the Plan set forth herein does not purport to be complete and is
qualified in its entirety by reference to the full text filed as Exhibit 10.7 to
this Current Report on Form 8-K/A, and is incorporated herein by
reference.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Gareb
Shamus, our President, CEO and Director, is also CEO of Conventions.
Stephen Shamus, the brother of Gareb Shamus, is expected to be appointed our
Chief Marketing Officer.
LEGAL
PROCEEDINGS
There are
no material proceedings to which any director or officer, or any associate of
any such director or officer, is a party that is adverse to our Company or any
of our subsidiaries or has a material interest adverse to our Company or any of
our subsidiaries. No director or executive officer has been a director or
executive officer of any business which has filed a bankruptcy petition or had a
bankruptcy petition filed against it during the past ten years. No
director or executive officer has been convicted of a criminal offense or is the
subject of a pending criminal proceeding during the past ten
years. No director or executive officer has been the subject of any
order, judgment or decree of any court permanently or temporarily enjoining,
barring, suspending or otherwise limiting his involvement in any type of
business, securities or banking activities during the past ten
years. No director or officer has been found by a court to have
violated a federal or state securities or commodities law during the past ten
years.
In
addition, there are no material proceedings to which any affiliate of our
Company, or any owner of record or beneficially of more than five percent of any
class of voting securities of our Company, is a party that is adverse to our
Company or any of our subsidiaries or has a material interest adverse to our
Company or any of our subsidiaries. Currently there are no legal
proceedings pending or threatened against us. We are not currently involved in
any litigation that we believe could have a materially adverse effect on our
financial condition or results of operations. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the executive officers of our Company or any of our subsidiaries,
threatened against or affecting our Company, our common stock, any of our
subsidiaries or of our Company’s or our Company’s subsidiaries’ officers or
directors in their capacities as such, in which an adverse decision could have a
material adverse effect.
However,
from time to time, we may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. Litigation is
subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm our business.
RECENT SALES OF UNREGISTERED
SECURITIES
Recent
sales of unregistered securities is more fully described in Item
3.02. The information therein is hereby incorporated in this section
by reference.
INDEMNIFICATION OF DIRECTORS AND
OFFICERS
Under
Section 145(a) of the Delaware General Corporation Law (“DGCL”), we have the
power to indemnify our directors, officers, employees or agents who are parties
or threatened to be made parties to any threatened, pending or completed civil,
criminal, administrative or investigative action, suit or proceeding (other than
an action by or in the right of the Company) arising from that person’s role as
our director, officer, employee or agent, against expenses (including attorneys’
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to our best interests, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe the person’s conduct
was unlawful.
Under
Section 145(b) of the DGCL, we have the power to indemnify our directors,
officers, employees and agents who are parties or threatened to be made parties
to any threatened, pending or completed action or suit by or in the right of the
Company to procure a judgment in our favor arising from that person’s
role as our director, officer, employee or agent against expenses (including
attorneys’ fees) actually and reasonably incurred by the person in connection
with the defense or settlement of such action or suit if the person acted in
good faith and in a manner the person reasonably believed to be in or not
opposed to our best interests, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to us unless and only to the extent that the Delaware
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability, but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper.
Section
145(c) of the DGCL further provides that if one of our present or former
directors or officers has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to above, or in defense of any claim,
issue or matter therein, such person shall be indemnified against expenses
(including attorneys’ fees) actually and reasonably incurred by such person in
connection therewith.
In
addition to the foregoing statutory provisions, we have entered into an
indemnification agreement (the “Indemnification Agreement”) with each of our
directors. Pursuant to such Indemnification Agreement, each director is
indemnified during the term of such director’s service and for a period of the
later of (i) six years, (ii) the expiration of the applicable statute of
limitations or (iii) the termination of all pending proceedings with respect to
indemnification.
The above
description of the Indemnification Agreement does not purport to be complete and
is qualified in its entirety by the full text of the Form of Indemnification
Agreement attached as Exhibit 10.6 to this Current Report on Form 8-K/A, and
incorporated herein by reference.
These
limitations of liability, indemnification and expense advancements may
discourage a stockholder from bringing a lawsuit against directors for breach of
their fiduciary duties. The provisions may also reduce the likelihood of
derivative litigation against directors and officers, even though an action, if
successful, might benefit us and our stockholders. A stockholder’s investment
may be adversely affected to the extent we pay the costs of defense or
settlement and damage awards against directors and officers pursuant to these
limitations of liability and indemnification provisions.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers, and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment of expenses incurred or paid by a director, officer or controlling
person in a successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, we will, unless in the opinion of our counsel the matter has
been settled by controlling precedent, submit to the court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
We
maintain directors’ and officers’ liability insurance covering our directors and
officers against certain claims or liabilities arising out of the performance of
their duties and reasonably incurred in connection with any proceeding, arising
by reason of the fact that such person is or was our agent.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item
3.02 Unregistered Sales of Equity Securities.
The
following contains information regarding our sales of unregistered securities
during the past two fiscal years and the six month period from December 31, 2010
to June 30, 2011. All of the securities sold during these periods
were sales of our shares of our capital stock to accredited investors and were
deemed to be exempt under Rule 506 of Regulation D of the Securities Act of
1933, as amended (the “Securities Act”), and Section 4(2) of the Securities Act.
No advertising or general solicitation was employed in offering these
securities. The offerings and sales were made to a limited number of persons,
all of whom were accredited investors, and, unless otherwise stated below, the
shares were restricted in accordance with the requirements of the Securities
Act.
Share
Exchange
Pursuant
to the Exchange Agreement, on December 7, 2010, we issued 33,430,107 shares of
our Common Stock to the Conventions Shareholders in exchange for 100% of the
outstanding shares of Conventions. Such securities were not
registered under the Securities Act. These securities qualified for
exemption under Section 4(2) of the Securities Act since the issuance of
securities by us did not involve a public offering. The offering was not a
“public offering” as defined in Section 4(2) due to the insubstantial number of
persons involved in the deal, size of the offering, manner of the offering and
number of securities offered.
We did not undertake an offering in which we
sold a high number of securities to a high number of investors. In addition,
these shareholders had the necessary investment intent as required by Section
4(2) of the Securities Act since the Conventions Shareholders agreed to and
received share certificates bearing a legend stating that such securities are
restricted pursuant to Rule 144 of the Securities Act. This restriction ensures
that these securities would not be immediately redistributed into the market and
therefore not be part of a “public offering.” Based on an analysis of the above
factors, we have met the requirements to qualify for exemption under Section
4(2) of the Securities Act.
Series A Cumulative
Convertible Preferred Stock
Immediately
after the Share Exchange, we entered into subscription agreements with certain
subscribers for the issuance and sale of (i) up to $1,500,000 in Series A
Cumulative Convertible Preferred Stock (the "Series A Preferred")with the rights
and preferences set forth in the Certificate of Designation (the “Certificate of
Designation”) attached hereto as Exhibit 4.1 to our Current Report on Form 8-K/A
filed with the Commission on February 18, 2011, convertible into shares of our
Common Stock at a per share conversion price of $0.40; and (ii) Series A Common
Stock Purchase Warrants (the "Warrants") on the basis of one share of common
stock issuable upon exercise of the Warrant for each share of Series A Preferred
in the form attached as Exhibit 4.2 to our Current Report on Form 8-K/A filed
with the Commission on February 18, 2011 to purchase shares of our Common
Stock.
In
addition, on April 18, 2011, we entered into subscription agreements with
certain subscribers for the issuance and sale of (i) $575,000 in shares of
Series A Preferred with the rights and preferences set forth in the Certificate
of Designations, as amended by the Certificate of Amendment. The Preferred Stock
is convertible into shares of the Company’s common stock, at a per share
conversion price of $0.40, and the Warrants are exercisable to purchase shares
of the Company’s common stock at a per share exercise price of
$.60.
These
securities were not registered under the Securities Act. These securities
qualified for exemption under Section 4(2) of the Securities Act since the
issuance of securities by us did not involve a public offering. The offering was
not a “public offering” as defined in Section 4(2) due to the insubstantial
number of persons involved in the deal, size of the offering, manner of the
offering and number of securities offered.
We did
not undertake an offering in which we sold a high number of securities to a high
number of investors. In addition, these shareholders had the necessary
investment intent as required by Section 4(2) of the Securities Act since the
subscribers agreed to and received share certificates bearing a legend stating
that such securities are restricted pursuant to Rule 144 of the Securities Act.
This restriction ensures that these securities would not be immediately
redistributed into the market and therefore not be part of a “public offering.”
Based on an analysis of the above factors, we have met the requirements to
qualify for exemption under Section 4(2) of the Securities Act.
Non-qualified Stock
Options
Our Non-qualified Stock Options are issued
pursuant to our 2011 Incentive Stock and Award Plan (the “Plan”). We have issued
Non-qualified Stock Options to each of our directors (other than our Chairman
Michael Mathews, who received restricted stock awards), pursuant to which each
director may purchase up to an aggregate of one hundred fifty thousand (150,000)
shares of our Common Stock, and our CEO Gareb Shamus pursuant to the terms of
his employment agreement. The Non-qualified Stock Options vests quarterly over a
three (3) year period, subject to the optionee continuing to be a member of our
board of directors on each applicable vesting date, and remains exercisable
until 5:30 p.m. New York time on the date that is the fifth (5th) year
anniversary of the date of grant. All or any part of the vested but unexercised
portion of the Non-qualified Stock Option is subject to forfeiture under certain
circumstances, such as in the event of a breach of insider trading rules or
obligations of confidentiality, in the event that the optionee or such
optionee’s affiliates competes with our Company or solicits our employees or
customers, and in the event of death, disability or retirement.
These
securities were not registered under the Securities Act. These securities
qualified for exemption under Section 4(2) of the Securities Act since the
issuance of securities by us did not involve a public offering. The offering was
not a “public offering” as defined in Section 4(2) due to the insubstantial
number of persons involved in the deal, size of the offering, manner of the
offering and number of securities offered.
We did
not undertake an offering in which we sold a high number of securities to a high
number of investors. In addition, these shareholders had the necessary
investment intent as required by Section 4(2) of the Securities Act since the
subscribers agreed to and received share certificates bearing a legend stating
that such securities are restricted pursuant to Rule 144 of the Securities Act.
This restriction ensures that these securities would not be immediately
redistributed into the market and therefore not be part of a “public offering.”
Based on an analysis of the above factors, we have met the requirements to
qualify for exemption under Section 4(2) of the Securities Act.
Convertible Promissory
Notes
Our
convertible promissory notes (the “Convertible Notes”) have a term of 4 months,
and an annual interest rate of 14% and a default interest rate of 18% per annum,
payable on the maturity date of the Convertible Notes. The
Convertible Notes are convertible at $.60 per share (the “Conversion
Price”). For as long as the Convertible Notes are outstanding, in the
event that we issue securities prior to the full conversion or payment of the
Convertible Note for consideration that is less than the Conversion Price, or
issue securities with a conversion or exercise price lower than the Conversion
Price, then the Conversion Price is reduced to such price. The
Convertible Notes may not be prepaid, converted, redeemed or called by the
Company without the consent of the noteholder.
These
securities were not registered under the Securities Act. These securities
qualified for exemption under Section 4(2) of the Securities Act since the
issuance of securities by us did not involve a public offering. The offering was
not a “public offering” as defined in Section 4(2) due to the insubstantial
number of persons involved in the deal, size of the offering, manner of the
offering and number of securities offered.
We did
not undertake an offering in which we sold a high number of securities to a high
number of investors. In addition, these shareholders had the necessary
investment intent as required by Section 4(2) of the Securities Act since the
subscribers agreed to and received share certificates bearing a legend stating
that such securities are restricted pursuant to Rule 144 of the Securities Act.
This restriction ensures that these securities would not be immediately
redistributed into the market and therefore not be part of a “public offering.”
Based on an analysis of the above factors, we have met the requirements to
qualify for exemption under Section 4(2) of the Securities Act.
Item
5.01 Changes in Control of Registrant.
As
explained more fully in Item 2.01, in connection with the Exchange Agreement, on
December 7, 2010, we issued 34,687,735 shares of our Common Stock to
Conventions. Shareholders in exchange for 100% of the outstanding shares of
Conventions. As such, immediately following the Closing of the Share
Exchange, the Conventions Shareholders held approximately 96.4% of the total
voting power of our Common Stock entitled to vote.
In
connection with the Closing of the Share Exchange, and as explained more fully
in the above Item 2.01 and below in Item 5.02 of this Current Report on Form
8-K, Terry Fields resigned from his position as Chief Executive Officer and all
other officer positions that he holds with our Company effective as of the
Closing Date and as the sole director effective as of the eleventh day after the
mailing of the information statement required by Rule 14f-1 promulgated under
the Exchange Act. Gareb Shamus was appointed as our President,
Chief Executive Officer and Chairman on the Closing Date.
Item 5.02 Departure of Directors or
Principal Officers; Election of Directors; Appointment of Principal Officers;
Compensatory Arrangements of Certain Officers.
Resignation of
Directors
On the
Closing Date, Terry Fields resigned as the sole director of our Company,
effective as of January 14, 2011. The resignation was not the result of any
disagreement with us on any matter relating to our operations, policies or
practices.
Resignation of
Officers
On the
Closing Date, Terry Fields resigned from his position as our Chief Executive
Officer and all other officer positions he held with our Company, except for his position as
Chief Financial Officer. His resignation was not the result of any
disagreement with us on any matter relating to our operations, policies or
practices. It was agreed that Terry Fields would resign from his
position as our Chief Financial Officer after our Quarterly Report for the Three
Month Period ended October 31, 2010 is filed with the Commission, effective
immediately after the filing of such Form 10-Q.
Appointment
of Directors and Officers
Gareb
Shamus was appointed as our President, Chief Executive Officer and a Director on
and effective as of the Closing Date. On January 14, 2011, Mr. Vadim Mats was
appointed a member of our board of directors. On March 23, 2011, Mr. Michael
Mathews was appointed Chairman of our board of directors. On May 9, 2011, Mr.
Greg Suess was appointed a member of our board of directors. On May 13, 2011,
Mr. John Macaluso was appointed a member of our board of directors. On May 24,
2011, Mr. John D. Maatta was appointed a member of our board of directors. The
business background description of each director and officer is as
follows:
Gareb
Shamus, age 42, President and Chief Executive Officer
Gareb
Shamus has been our President, Chief Executive Officer and a member of the Board
of Directors of the Company (the “Board”) since the consummation of the Share
Exchange on December 7, 2010. Prior to joining our Company, Mr.
Shamus founded, in 1991, Gareb Shamus Enterprises, Inc. (d/b/a Wizard
Entertainment), where he is currently CEO. Mr. Shamus is also the
operating manager of Kicking The Can, L.L.C., our majority
shareholder. In addition, Mr. Shamus co-founded, in 2009, and is a
director of PGM Media, LLC, which produces an online newsletter called
GeekChicDaily.com. Mr. Shamus was largely responsible for
establishing Conventions’ business of producing media and pop culture
conventions across North America.
Mr.
Shamus's extensive experience in the production of Comic Cons and his popularity
in the Comic Con and pop culture convention world make Mr. Shamus an asset to
the Company's business.
Mr.
Shamus earned a Bachelor of Arts in Economics and graduated magna cum laude from the
State University of New York at Albany.
Vadim
Mats, age 27, Director
Vadim
Mats has been a director of our Company since January 14, 2011. Mr.
Mats is also, and has been since June 28, 2010, the Chief Financial Officer of
FWS Capital Ltd. Prior to joining FWS Capital Ltd., Mr. Mats was assistant
controller at Eton Park Capital Management, a multi-strategy fund, from July 16,
2007 to Dec 1, 2009. Between December 2009 and June 2010 Mr. Mats served as
an independent financial consultant. From June 2006 to July 2007, Mr. Mats was a
senior fund accountant at The Bank of New York Mellon, where he was responsible
for over fifteen funds.
Mr. Mats’
extensive experience and background in finance, accounting and investment funds
will be a significant asset to the Company’s operation as a public
company.
Mr. Mats
graduated cum laude
from the Zicklin School of Business at Bernard Baruch College with a
Bachelor’s degree in Business Administration, specializing in finance and
investments.
Michael
Mathews, age 49, Chairman of the Board
Michael
Mathews has been our Company’s Chairman of the Board since March 23,
2011. In May 2011, Mr. Mathews was appointed Chief Executive Officer
and Director of privately-held Aspen University, Inc., a for-profit nationally
accredited exclusively online university. From August 2007 until January
31, 2011, Mr. Mathews was the Chief Executive Officer of interclick, inc.
(formerly Customer Acquisition Network Holdings, Inc.), a provider of data
driven campaign strategies for digital agencies and marketers. In August 2007,
Mr. Michael Mathews led the acquisition of interclick, inc. Mr.
Mathews remains a director of interclick, inc., a position he has held since
inception in 2007. From 2004 to 2007, Mr. Mathews served as the Senior
Vice-President of Marketing and Publisher Services of World Avenue U.S.A., LLC,
an Internet promotional marketing company.
The Board
believes that Mr. Mathews’ extensive experience and background in the internet
marketing industry will be a significant asset to the Company’s development of
its digital platform, and his leadership roles in public companies will aid in
the operation of our Company as a public company.
Mr.
Mathews graduated from San Francisco State University with a degree in Marketing
and holds a Masters in Business Administration from Golden Gate
University.
Mr.
John Maatta, age 59, Director
John
Maatta has been a member of our Board since May 25, 2011. Since 2006,
Mr. Maatta has been the Chief Operating Officer of The CW Network, which is
America’s fifth broadcast network and a network that focuses substantially on
targeting young adults between the ages of 18 and 34. From September 2005
through September 2006, Mr. Maatta served as the Chief Operating Officer of The
WB, a Warner Bros. television network (“The WB”), where he had direct oversight
of all business and operations departments, such as business affairs, finance,
network distribution (which included The WB 100+ station group), technology,
legal, research, network operations, broadcast standards and human resources.
While Chief Operating Officer at The WB, Mr. Maatta also served as The WB’s
General Counsel. Mr. Maatta is currently a director of Trader Vics, Inc., a
Polynesian-style restaurant chain, a position he has held since 1998.
The Board
believes that Mr. Maatta’s experience with operating companies in the
entertainment industry and his contacts in the industry will be an important
factor in the Company’s growth as a digital entertainment and event
company.
Mr.
Maatta received a Bachelor of Arts in Government from the University of San
Francisco in 1974, and a Juris Doctor from the University of California,
Hastings College of the Law, in 1977.
John
Macaluso, age 54, Director
John
Macaluso has served as a member of our Board since May 13, 2011. Mr.
Macaluso is the founder, sole owner and current Chief Executive Officer of
California Concepts, a domestic manufacturer of domestic and imported women’s
and girls’ clothing. Mr. Macaluso founded California Concepts in 1987 and
in 2007 Mr. Macaluso exited the clothing business and transitioned California
Concepts into a real estate development business, managing projects in Los
Angeles, Las Vegas and Big Sky, Montana at the Yellowstone Club, among
others.
The Board
believes that Mr. Macaluso’s business experience with managing gross profit
margins, markdown allowances, budgets and negotiating effective costs of goods
purchased will be a significant asset to the Company with respect to, among
other things, its operating budget as a growing public company.
Mr.
Macaluso studied business and political science at C.W. Post College.
Greg
Suess, age 38, Director
Greg
Suess has been a director of our Company since May 9, 2011. In 2000,
he founded ROAR, a Beverly Hills-based management and consulting company that
focuses on media and entertainment and provides comprehensive management
services for its clients, including talent and brand management, managing
partnerships, strategic alliances and marketing strategies that engage consumers
through entertainment, music and lifestyle experiences. Mr. Suess is, and has
been since inception, a partner at ROAR. Since 1997, Mr. Suess
has been with the law firm of Glaser, Weil, Fink, Jacobs, Howard, Avchen &
Shapiro, LLP, where he is currently Of Counsel and focuses on general corporate
law and media and entertainment. Mr. Suess also currently serves on the Board of
Directors of Derycz Scientific, Inc., a position he has held since November 5,
2010.
The Board
believes that Mr. Suess’ extensive experience and background in the media and
entertainment industry complements the Company’s events business, its new
digital initiatives and its new online media Wizard World Digital, which covers
new and upcoming products and talents in the pop culture world.
Mr. Suess
holds a Bachelor of Science from the University of Southern California (Lloyd
Greif Center for Entrepreneurial Studies), and holds a JD/MBA from Pepperdine
University. He is a member of the State Bar of California.
Terry
R. Fields, age 67, Chief Financial Officer
Terry R.
Fields served as our Chief Financial Officer from September 11, 2008 to December
17, 2010, and as the Company’s President, Chief Executive Officer, Secretary and
a director of the Company from September 11, 2008 to December 7, 2010.
Mr.
Fields served as the Chief Executive Officer, Secretary and director of Spirit
Exploration, Inc. from March 2007 to 2009. Since November 2009, he
has served as (i) the President, Treasurer, Secretary and director of Malwin
Ventures, Inc. from October 2009 to September 2011 and (ii) the Chief Financial
Officer, Chief Executive Officer, President, Treasurer, Secretary and a director
of Daulton Capital Corp. from October 2009 through the present.
He served
as the Chief Executive Officer and President of Union Town Energy Inc. (formerly
Intelbahn Inc.) from October 2010 to March 2011 and currently serves as
UnionTown Energy Inc.’s CFO since March 2011 and a director of UnionTown Energy
Inc. since inception. He has served as the Chief Financial Officer of
Meadow Bay Capital Corp. since February 24, 2009, and its Secretary and a
director until January 11, 2011.
Mr.
Fields served as the CEO, President, Treasurer, Secretary and a director of
Formcap Corp. from May/June 2010 to January 2011. He currently serves as the
Chief Executive Officer, President, Chief Financial Officer, Treasurer,
Secretary and director of Willow Creek Enterprises Inc., a position he has held
since August 9, 2010.
He served
as the President of Yankee Hat Minerals Ltd. from August 2, 2006 to July 16,
2007, its Chief Executive Officer from July 2007 to September 18, 2007, Director
of Yankee Hat Minerals Ltd., from August 2, 2006 to June 2010, and has been
Consultant to Yankee Hat Minerals, Ltd. since June 2010 through the present.Mr.
Fields served as President and Chief Executive Officer of Liberty Silver
Corp. from January 2010 to May 6, 2010, and as Director from February
2010 to May 6, 2010.
Mr.
Fields served as the President, and a director of Meadow Bay Capital Corporation
from February 2010 until 2010, and then as Chief Financial Officer from July
2010 to January 11, 2011. He has served as the Chairman of the Board
and Chief Executive Officer of First Pursuit Ventures Ltd., since January
2011 (formerly, Bishop Gold Inc.) and has been its President since January
27, 2004.
Mr.
Fields’ experience as President and director in several companies evidence his
leadership experience, which provides a benefit to the Company.
Mr.
Fields graduated from UCLA in 1965 with a Bachelor of Science degree and from
the University of Loyola Law School, where he received his Juris
Doctorate.
Related
Party Transactions
Gareb
Shamus, our President, CEO and Director, is also the CEO Conventions. Stephen
Shamus, the brother of Gareb Shamus, is expected to be appointed our Chief
Marketing Officer.
Compensatory Arrangements of
Certain Officers
The
Company entered into an employment agreement, effective as of May 25, 2011 (the
“Employment Agreement”), with Mr. Gareb Shamus, pursuant to which he serves as
Chief Executive Officer of the Company. The term of the employment is
for a period of three (3) years and automatically renews for additional one (1)
year periods unless either Mr. Shamus or the Company gives written notice of
non-renewal to the other party no later than sixty (60) days prior to the
expiration of the then current term.
The
Employment Agreement provides for an annual base salary of $140,000 (the “Base
Salary”), subject to an annual increase of at least ten percent (10%) per annum,
and may not be decreased. In addition to the Base Salary, Mr. Shamus
will receive an annual bonus of up to one hundred percent (100%) of his
then-current Base Salary (to be paid 50% in cash and 50% in restricted stock)
based upon the achievement of certain performance targets to be agreed upon by
Mr. Shamus and a majority of the Board (the “Bonus
Target”). Notwithstanding the foregoing, in the event that the
performance of the Company business for any fiscal year is greater than
seventy-five percent (75%), but less than one hundred percent (100%) of the
applicable Bonus Target, Mr. Shamus shall be entitled to a percentage of the
annual bonus as determined in the Employment Agreement. In the event Mr. Shamus
and the Board are unable to agree to a mutually acceptable Bonus Target, Mr.
Shamus shall receive an annual bonus of not less than fifteen percent (15%) of
the Base Salary, all of which may be paid in restricted stock at Mr. Shamus’
sole discretion.
The
Company also entered into a Non-qualified Stock Option Agreement (“Stock Option
Agreement”) with Mr. Shamus. Under the Stock Option Agreement, Mr.
Shamus was granted a non-qualified stock purchase option (the “Non-qualified
Option”) to purchase up to an aggregate of one hundred fifty thousand (150,000)
shares of Common Stock of the Company, subject to the terms and conditions of
the 2011 Incentive and Award Plan (the “Plan”). The Non-qualified
Option vests 33% on each yearly anniversary of the commencement of Mr. Shamus’
employment over a three (3) year period, and is exercisable until 5:30 p.m. New
York time on the date that is the fifth (5th) year anniversary of the date of
grant. Other than restrictions on exercise, neither the Non-qualified Option nor
any shares of Common Stock obtained upon exercise thereof shall be subject to
forfeiture or to the Company’s or other stockholders’ right to repurchase. The
options shall fully vest upon, among other things, termination for Good Reason
or without Cause and a change of control.
The above
descriptions of the Employment Agreement, Stock Option Agreement and Plan do not
purport to be complete, and are qualified in their entirety by reference to the
full text of the Employment Agreement, Plan, and Stock Option Agreement, which
is incorporated by reference herein as Exhibits 10.8, 10.9 and 10.6,
respectively, to this Current Report on Form 8-K/A.
Item 5.03 Amendment to Certificate of
Incorporation or Bylaws; Change in Fiscal Year
On
December 6, 2010, we filed a Certificate of Amendment to our Certificate of
Incorporation changing our name to Wizard World, Inc., and a Certificate of
Correction on December 7, 2010 clarifying that the effective date of such name
change is January 30, 2011. On April 20, 2011, we filed a Certificate
of Amendment to our Certificate of Designation increasing the number of
authorized shares of Series A Preferred from 25,000 shares to 50,000
shares.
Item 5.06 Change in Shell Company
Status.
As
explained more fully in Item 2.01 above, we were a “shell company” (as such term
is defined in Rule 12b-2 under the Exchange Act) immediately before the Closing
of the Share Exchange. As a result of the Share Exchange, Conventions
became our wholly owned subsidiary and became our main operational business.
Consequently, we believe that the Share Exchange has caused us to cease to be a
shell company. For information about the Share Exchange, please see
the information set forth above under Item 2.01 of this Current Report on Form
8-K/A, which information is incorporated herein by reference.
Item 9.01 Financial Statement and
Exhibits.
(a) Financial Statements
of Business Acquired. The Audited Financial Statements of
Wizard Conventions, Inc. are filed within this Current Report on Form 8-K/A and
are incorporated herein by reference.
(c) Shell Company Transactions.
Reference is made to Items 9.01(a) and 9.01(b) and the exhibits referred
to therein, which are incorporated herein by reference.
(d) Exhibits. Exhibit
No. Description
Exhibit
No. |
|
Description |
|
|
|
2.1
|
|
Share
Purchase and Share Exchange Agreement dated November 5, 2010 by and among
the Company, Strato Malamas, an individual and the majority stockholder of
GoEnergy, Inc., Kick The Can Corp., a Nevada corporation, Kicking The Can,
L.L.C., a Delaware limited liability company and shareholders of
Conventions. that are signatories thereto (incorporated by reference to
the Form 8-K filed on November 16,
2010) |
3.1 |
Certificate
of Incorporation (incorporated herein by reference to the Form SB-2 filed
on March 25, 2003) |
|
|
3.2 |
By-laws
(incorporated herein by reference to the Form SB-2 filed on March 25,
2003) |
|
|
3.3 |
Certificate
of Amendment filed December 6, 2010 (incorporated by reference to Exhibit
3.3 to the Form 8-K filed with the Commission on December 13,
2010) |
|
|
3.4 |
Certificate
of Correction filed December 8, 2010 (incorporated by reference to Exhibit
3.4 to the Form 8-K filed with the Commission on December 13,
2010) |
|
|
3.5 |
Second
Certificate of Correction filed January 20, 2011 (incorporated by
reference to Exhibit 3.5 to the Form 8-K filed with the Commission on
January 25, 2011) |
|
|
3.6
|
Certificate
of Formation for Kicking The Can, LLC, dated April 17, 2009 (1)
|
|
|
3.7
|
Certificate
of Incorporation for Entertainment Conventions, Inc., dated February 27,
1997 (1) |
|
|
3.8
|
Certificate
of Amendment of Certificate of Incorporation of Entertainment Conventions,
Inc., dated October 1, 2001 (1) |
|
|
4.1
|
Certificate
to set forth Designations, Voting Powers, Preferences, Limitations,
Restrictions, and Relative Rights of Series A Cumulative Convertible
Preferred Stock, $.0001 par value per share (incorporated by reference to
Exhibit 4.1 to the 8-K filed with the Commission on December 13,
2010) |
|
|
4.2 |
Certificate
of Amendment to Certificate to set forth Designations, Voting Powers,
Preferences, Limitations, Restrictions, and Relative Rights of Series A
Cumulative Convertible Preferred Stock, $.0001 par value per share
(incorporated by reference to Exhibit 4.3 to the Form 8-K filed with the
Commission on April 25, 2011) |
|
|
4.3 |
Form
of Warrant for the December 2010 offering (incorporated by reference to
Exhibit 4.1 to the Form 8-K filed with the Commission on December 13,
2010) |
|
|
4.4 |
Form
of Warrant for the April 2011 offering (incorporated by reference to
Exhibit 4.2 to the Form 8-K filed with the Commission on April 25,
2011) |
|
|
10.1 |
Form
of Subscription Agreement, dated December 6, 2010, by and between
GoEnergy, Inc. and the Subscribers (1) |
|
|
10.2 |
Form
of Director Agreement for each director other than the Chairman of the
Board (incorporated by reference to Exhibit 10.2 to the Form 8-K filed
with the Commission on January 19, 2011) |
|
|
10.3 |
Director
Agreement, dated March 23, 2011, between Wizard World, Inc. and Michael
Mathews (incorporated by reference to Exhibit 10.1 to the Form 8-K filed
with the Commission on March 25, 2011) |
|
|
10.4 |
Consulting
Agreement, dated March 23, 2011, between Wizard World, Inc. and Michael
Mathews (incorporated by reference to Exhibit 10.2 to the Form 8-K filed
with the Commission on March 25, 2011) |
|
|
10.5 |
Form
of Subscription Agreement for April 2011 offering (1) |
|
|
10.6 |
Form
of Director and Indemnification Agreement (incorporated by reference to
Exhibit 10.2 to the Form 8-K filed with the Commission on May 9,
2011) |
10.7 |
Wizard
World, Inc. 2011 Incentive Stock and Award Plan (incorporated by reference
to Exhibit 10.1 to the Form 8-K filed with the Commission on May 12,
2011) |
|
|
10.8 |
Form
of Non-qualified Stock Option Agreement for Non-Employees (incorporated by
reference to Exhibit 10.2 to the Form 8-K filed with the Commission on May
12, 2011) |
|
|
10.9 |
Employment
Agreement, including Non-Compete, Non-Solicitation and Non-Disclosure
Agreement, each dated May 25, 2011, by and between the Company and Mr.
Gareb Shamus (incorporated by reference to Exhibit 10.1 to the Form 8-K
filed with the Commission on May 31, 2011) |
|
|
10.10 |
Non-qualified
Stock Option Agreement between the Company and Mr. Gareb Shamus
(incorporated by reference to Exhibit 10.5 to the Form 8-K filed with the
Commission on May 31, 2011) |
|
|
10.11 |
Office
Service Agreement, dated January 18, 2011, between Kick The Can Corp. and
NYC Office Suites (1) |
|
|
10.12 |
Internet
Domain Name Assignment Agreement, dated January 2011, between Gareb Shamus
Enterprises, Inc. and Kick The Can Corp. (1) |
|
|
10.13 |
Convertible
Demand Promissory Note (incorporated by reference to Exhibit 10.7 to the
Form 8-K filed with the Commission on November 16,
2010) |
|
|
10.14 |
Form
of Convertible Promissory Note dated August 2011 (incorporated by
reference to Exhibit 10.2 to the Form 8-K filed with the Commission on
August 30, 2011) |
|
|
10.15
|
Mid-Ohio
Acquisition Agreement, dated November 13, 2010, by and between Kicking The
Can LLC and GCX Holdings LLC (1) |
|
|
17.1 |
Resignation
letter of Terry Fields dated as of January 4, 2011 (incorporated by
reference to Exhibit 17.1 to the Form 8-K filed with the Commission on
January 7, 2011) |
|
|
21.1 |
Subsidiaries
(incorporated by reference to Exhibit 21.1 to the Form 8-K filed with the
Commission on December 13, 2010) |
(1) Filed
herewith.
SIGNATURES
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.
Dated:
November 16, 2011 |
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By:
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/s/ Gareb
Shamus |
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Name:
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Title:
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Chief Executive Officer
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WIZARD
CONVENTIONS, INC.
December
31, 2010 and 2009
Index to
Financial Statements
Contents |
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Page(s) |
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Report
of Independent Registered Public Accounting Firm |
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F-2 |
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Balance
Sheets at December 31, 2010 and 2009 |
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F-3 |
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Statements
of Operations for the Years Ended December 31, 2010 and
2009 |
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F-4 |
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Statement
of Stockholder’s Deficit for the Years Ended December 31, 2010 and
2009 |
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F-5 |
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Statements
of Cash for the Years Ended December 31, 2010 and 2009 |
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F-6 |
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Notes
to the Financial Statements |
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F-7 |
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholder of
Wizard
Conventions, Inc.
We have
audited the accompanying balance sheets of Wizard Conventions, Inc., (the
“Company”) as of December 31, 2010 and 2009 and the related statements of
operations, stockholder’s deficit and cash flows for the years then
ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31, 2010
and 2009 and the results of its operations and its cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company had an accumulated deficit at December 31,
2010 and had a net loss and net cash used in operating activities for the fiscal
year then ended. These factors raise substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans in regards
to these matters are also described in Note 3. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/Li
& Company, PC |
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Li
& Company, PC |
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Skillman,
New Jersey |
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June
30, 2011 |
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Wizard
Conventions, Inc.
Balance
Sheets
|
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December 31, 2010 |
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December 31, 2009 |
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Assets |
|
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|
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|
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Current
Assets |
|
|
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|
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Cash |
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$ |
2,191 |
|
|
$ |
2,364 |
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Accounts
receivable |
|
|
19,127 |
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|
15,580 |
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Prepaid
expenses |
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63,347 |
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23,633 |
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Total
Current Assets |
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84,665 |
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|
41,577 |
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Property
and equipment, net |
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3,330 |
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10,042 |
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Total
Assets |
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$ |
87,995 |
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$ |
51,619 |
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Liabilities and Stockholder's
Deficit |
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Current
Liabilities: |
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Accounts
payable and accrued liabilities |
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$ |
484,846 |
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$ |
445,476 |
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Unearned
convention revenue |
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|
75,653 |
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|
77,611 |
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Secured
notes payable- related party |
|
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60,000 |
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|
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33,831 |
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Total
Current Liabilities |
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620,499 |
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556,918 |
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Total
Liabilities |
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620,499 |
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556,918 |
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Stockholder's
Deficit |
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Common
Stock, no par value; 200 shares authorized, 1 share issued and
outstanding |
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1 |
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1 |
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Accumulated
deficit |
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(532,504 |
) |
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(505,300 |
) |
Total
Stockholder's Deficit |
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(532,503 |
) |
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(505,299 |
) |
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Total
Liabilities and Stockholder's Deficit |
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$ |
87,995 |
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$ |
51,619 |
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Wizard
Conventions, Inc.
Statements of
Operations
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Year Ended December 31, |
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2010 |
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2009 |
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Convention
revenue |
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$ |
3,000,814 |
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$ |
2,119,327 |
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Cost
of revenue |
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2,533,382 |
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2,179,005 |
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Gross
profit |
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467,432 |
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(59,678 |
) |
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General
and administrative expenses |
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491,182 |
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768,221 |
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(23,750 |
) |
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|
(827,899 |
) |
Loss
from operations |
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Other
expenses |
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Interest
expense |
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(3,454 |
) |
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(1,726 |
) |
Total
other expense |
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(3,454 |
) |
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(1,726 |
) |
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Net
loss |
|
$ |
(27,204 |
) |
|
$ |
(829,625 |
) |
WIZARD
CONVENTIONS, INC.
Statement
of Stockholder's Deficit
Years Ended December 31,
2010 and 2009
|
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Common Stock, no par value |
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Additional Paid- |
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Accumulated |
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Total
Stockholders' |
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Shares |
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Amount |
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in Capital |
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Deficit |
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Equity
(Deficit) |
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Balance
- December 31, 2008 |
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|
1 |
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$ |
1 |
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$ |
- |
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$ |
324,325 |
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$ |
324,326 |
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|
|
|
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Net
loss |
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|
|
|
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|
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|
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|
- |
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|
(829,625 |
) |
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|
(829,625 |
) |
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|
|
|
|
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|
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|
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|
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|
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Balance
- December 31, 2009 |
|
|
1 |
|
|
|
1 |
|
|
|
- |
|
|
|
(505,300 |
) |
|
|
(505,299 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
(27,204 |
) |
|
|
(27,204 |
) |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2010 |
|
|
1 |
|
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
(532,504 |
) |
|
$ |
(532,503 |
) |
Wizard
Conventions, Inc.
Statements of Cash
Flows
|
|
Year Ended December 31, |
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|
|
2010 |
|
|
2009 |
|
Cash
Flows From Operating Activities: |
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|
|
|
|
|
Net
loss |
|
$ |
(27,204 |
) |
|
$ |
(829,625 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities: |
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|
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|
|
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Depreciation
and amortization |
|
|
6,712 |
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|
10,573 |
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Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
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Accounts
receivable |
|
|
(3,547 |
) |
|
|
(6,530 |
) |
Prepaid
expenses |
|
|
(39,714 |
) |
|
|
5,134 |
|
Accounts
payable and accrued liabilities |
|
|
39,370 |
|
|
|
157,510 |
|
Unearned
convention revenue |
|
|
(1,958 |
) |
|
|
(714 |
) |
Net
Cash Used In Operating Activities |
|
|
(26,341 |
) |
|
|
(663,652 |
) |
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|
|
|
|
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|
Cash
Flows From Financing Activities: |
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|
|
|
|
|
|
|
Proceeds
from secured notes payable - related party |
|
|
60,000 |
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|
666,016 |
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Repayment
of secured notes payable – related party |
|
|
(33,831 |
) |
|
|
- |
|
Net
Cash Provided By Financing Activities |
|
|
26,169 |
|
|
|
666,016 |
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|
|
|
|
|
|
|
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|
Net
change in cash |
|
|
(172 |
) |
|
|
2,364 |
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|
|
|
|
|
|
|
|
Cash
at beginning of the year |
|
|
2,364 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Cash
at end of year |
|
$ |
2,192 |
|
|
$ |
2,364 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow
information: |
|
|
|
|
|
|
|
|
Cash
paid for |
|
|
|
|
|
|
|
|
Interest |
|
$ |
- |
|
|
$ |
- |
|
Income
taxes |
|
$ |
- |
|
|
$ |
- |
|
Wizard
Conventions, Inc.
December
31, 2010 and 2009
Notes to
the Financial Statements
NOTE
1 - ORGANIZATION AND OPERATIONS
Wizard
Conventions, Inc. (the “Company”) was incorporated in the State of New York on
February 28, 1997. The Company is a producer of pop culture and live multimedia
conventions across North America that provides a social networking and
entertainment venue for popular fiction enthusiasts of movies, TV shows, video
games, technology, toys, social networking/gaming platforms, comic books and
graphic novels.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of
presentation
The
Company’s financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”).
Included
in the financial statements is an expense allocation to the Company from the
Company’s parent, Wizard Entertainment, Inc. Management has determined the
allocation based on a direct allocation of expenses clearly incurred on behalf
of the Company as well as a proportional cost allocation method for those costs
that are not specifically identifiable. Management has concluded that such
methodology is reasonable.
Use of
estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Significant estimates include the estimated useful lives of
property and equipment. Actual results could differ from those
estimates.
Fair value of financial
instruments on a recurring basis
The
Company follows paragraph 825-10-50-10 of the FASB Accounting Standards
Codification for disclosures about fair value of its financial instruments and
paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph
820-10-35-37”) to measure the fair value of its financial instruments. Paragraph
820-10-35-37 establishes a framework for measuring fair value in accounting
principles generally accepted in the United States of America (U.S. GAAP), and
expands disclosures about fair value measurements. To increase
consistency and comparability in fair value measurements and related
disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which
prioritizes the inputs to valuation techniques used to measure fair value into
three (3) broad levels. The fair value hierarchy gives the highest
priority to quoted prices (unadjusted) in active markets for identical assets or
liabilities and the lowest priority to unobservable inputs. The three
(3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are
described below:
Level
1 |
Quoted
market prices available in active markets for identical assets or
liabilities as of the reporting
date. |
Level
2 |
Pricing
inputs other than quoted prices in active markets included in Level 1,
which are either directly or indirectly observable as of the reporting
date. |
Level
3 |
Pricing
inputs that are generally observable inputs and not corroborated by market
data. |
Financial
assets are considered Level 3 when their fair values are determined using
pricing models, discounted cash flow methodologies or similar techniques and at
least one significant model assumption or input is unobservable.
The fair
value hierarchy gives the highest priority to quoted prices (unadjusted) in
active markets for identical assets or liabilities and the lowest priority to
unobservable inputs. If the inputs used to measure the financial
assets and liabilities fall within more than one level described above, the
categorization is based on the lowest level input that is significant to the
fair value measurement of the instrument.
The
carrying amount of the Company’s financial assets and liabilities, such as cash,
accounts receivable, prepaid expenses, accounts payable and accrued expenses and
unearned convention revenue approximate their fair value because of the short
maturity of those instruments.
Transactions involving related
parties cannot be presumed to be carried out on an arm's-length basis, as the
requisite conditions of competitive, free-market dealings may not exist.
Representations about transactions with related parties, if made, shall not
imply that the related party transactions were consummated on terms equivalent
to those that prevail in arm's-length transactions unless such representations
can be substantiated.
It is not
however, practical to determine the fair value of advances from stockholders due
to their related party nature.
Carrying value,
recoverability and impairment of long-lived assets
The
Company has adopted paragraph 360-10-35-17 of the FASB Accounting Standards
Codification for its long-lived assets. The Company’s long-lived assets, which
include property and equipment, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.
The
Company assesses the recoverability of its long-lived assets by comparing the
projected undiscounted net cash flows associated with the related long-lived
asset or group of long-lived assets over their remaining estimated useful lives
against their respective carrying amounts. Impairment, if any, is based on the
excess of the carrying amount over the fair value of those
assets. Fair value is generally determined using the asset’s expected
future discounted cash flows or market value, if readily
determinable. If long-lived assets are determined to be recoverable,
but the newly determined remaining estimated useful lives are shorter than
originally estimated, the net book values of the long-lived assets are
depreciated over the newly determined remaining estimated useful
lives.
The
Company considers the following to be some examples of important indicators that
may trigger an impairment review: (i) significant under-performance or
losses of assets relative to expected historical or projected future operating
results; (ii) significant changes in the manner or use of assets or in the
Company’s overall strategy with respect to the manner or use of the acquired
assets or changes in the Company’s overall business strategy;
(iii) significant negative industry or economic trends; (iv) increased
competitive pressures; (v) a significant decline in the Company’s stock
price for a sustained period of time; and (vi) regulatory
changes. The Company evaluates acquired assets for potential
impairment indicators at least annually and more frequently upon the occurrence
of such events.
The
impairment charges, if any, is included in operating expenses in the
accompanying statements of income and comprehensive income (loss).
Cash
equivalents
The
Company considers all highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents.
Accounts
receivable
Accounts
receivable are recorded at the invoiced amount, net of an allowance for doubtful
accounts. The allowance for doubtful accounts is the Company’s best
estimate of the amount of probable credit losses in the Company’s existing
accounts receivable. The Company determines the allowance based on historical
write-off experience, customer specific facts and economic conditions. Bad debt
expense is included in general and administrative expenses, if any.
Outstanding
account balances are reviewed individually for
collectability. Account balances are charged off against the
allowance after all means of collection have been exhausted and the potential
for recovery is considered remote.
The
Company does not have any off-balance-sheet credit exposure to its
customers.
Property
and equipment
Property
and equipment is recorded at cost. Expenditures for major additions and
betterments are capitalized. Maintenance and repairs are charged to
operations as incurred. Depreciation of property and equipment is computed by
the straight-line method (after taking into account their respective estimated
residual values) over the assets estimated useful life of three (3) to five (5)
years. Upon sale or retirement of property and equipment, the related
cost and accumulated depreciation are removed from the accounts and any gain or
loss is reflected in statements of operations.
The
Company follows subtopic 850-10 of the FASB Accounting Standards Codification
for the identification of related parties and disclosure of related party
transactions.
Pursuant
to Section 850-10-20 the Related parties include a. affiliates of the
Company; b. Entities for which investments in their equity securities
would be required, absent the election of the fair value option under the Fair
Value Option Subsection of Section 825–10–15, to be accounted for by the equity
method by the investing entity; c. trusts for the benefit of
employees, such as pension and profit-sharing trusts that are managed by or
under the trusteeship of management; d. principal owners of the Company;
e. management of the Company; f. other parties with which
the Company may deal if one party controls or can significantly influence the
management or operating policies of the other to an extent that one of the
transacting parties might be prevented from fully pursuing its own separate
interests; and g. Other parties that can significantly influence the
management or operating policies of the transacting parties or that have an
ownership interest in one of the transacting parties and can significantly
influence the other to an extent that one or more of the transacting parties
might be prevented from fully pursuing its own separate interests.
The
financial statements shall include disclosures of material related party
transactions, other than compensation arrangements, expense allowances, and
other similar items in the ordinary course of business. However, disclosure of
transactions that are eliminated in the preparation of consolidated or combined
financial statements is not required in those statements. The disclosures shall
include: a. the nature of the relationship(s) involved;
b. a description of the transactions, including transactions to which no
amounts or nominal amounts were ascribed, for each of the periods for which
income statements are presented, and such other information deemed necessary to
an understanding of the effects of the transactions on the financial statements;
c. the dollar amounts of transactions for each of the periods for which
income statements are presented and the effects of any change in the method of
establishing the terms from that used in the preceding period; and
d. amounts due from or to related parties as of the date of each balance
sheet presented and, if not otherwise apparent, the terms and manner of
settlement.
Commitment and
contingencies
The
Company follows subtopic 450-20 of the FASB Accounting Standards Codification to
report accounting for contingencies. Certain conditions may exist as of the date
the consolidated financial statements are issued, which may result in a loss to
the Company but which will only be resolved when one or more future events occur
or fail to occur. The Company assesses such contingent liabilities,
and such assessment inherently involves an exercise of judgment. In
assessing loss contingencies related to legal proceedings that are pending
against the Company or unasserted claims that may result in such proceedings,
the Company evaluates the perceived merits of any legal proceedings or
unasserted claims as well as the perceived merits of the amount of relief sought
or expected to be sought therein.
If the assessment of a contingency indicates
that it is probable that a material loss has been incurred and the amount of the
liability can be estimated, then the estimated liability would be accrued in the
Company’s consolidated financial statements. If the assessment
indicates that a potentially material loss contingency is not probable but is
reasonably possible, or is probable but cannot be estimated, then the nature of
the contingent liability, and an estimate of the range of possible losses, if
determinable and material, would be disclosed.
Loss
contingencies considered remote are generally not disclosed unless they involve
guarantees, in which case the guarantees would be
disclosed. Management does not believe, based upon information
available at this time, that these matters will have a material adverse effect
on the Company’s consolidated financial position, results of operations or cash
flows. However, there is no assurance that such matters will not materially and
adversely affect the Company’s business, financial position, and results of
operations or cash flows.
Revenue
recognition
The
Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards
Codification for revenue recognition. The Company will recognize
revenue when it is realized or realizable and earned. The Company
considers revenue realized or realizable and earned when all of the following
criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the
product has been shipped or the services have been rendered to the customer,
(iii) the sales price is fixed or determinable, and (iv) collectability is
reasonably assured.
Unearned
convention revenue is deposits received for conventions that have not yet taken
place.
Income
taxes
The
Company follows Section 740-10-30 of the FASB Accounting Standards Codification,
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
assets and liabilities are based on the differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the fiscal year in which the differences are expected to
reverse. Deferred tax assets are reduced by a valuation allowance to
the extent management concludes it is more likely than not that the assets will
not be realized. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the fiscal years
in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the Statements of Income and Comprehensive
Income in the period that includes the enactment date.
The
Company adopted section 740-10-25 of the FASB Accounting Standards Codification
(“Section 740-10-25”) with regards to uncertainty income
taxes. Section 740-10-25 addresses the determination of whether tax
benefits claimed or expected to be claimed on a tax return should be recorded in
the financial statements. Under Section 740-10-25, the Company may
recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements
from such a position should be measured based on the largest benefit that has a
greater than fifty percent (50%) likelihood of being realized upon ultimate
settlement. Section 740-10-25 also provides guidance on de-recognition,
classification, interest and penalties on income taxes, accounting in interim
periods and requires increased disclosures. The Company had no
material adjustments to its liabilities for unrecognized income tax benefits
according to the provisions of Section 740-10-25.
The
estimated future tax effects of temporary differences between the tax basis of
assets and liabilities are reported in the accompanying consolidated balance
sheets, as well as tax credit carry-backs and carry-forwards. The Company
periodically reviews the recoverability of deferred tax assets recorded on its
consolidated balance sheets and provides valuation allowances as management
deems necessary.
Management
makes judgments as to the interpretation of the tax laws that might be
challenged upon an audit and cause changes to previous estimates of tax
liability. In addition, the Company operates within multiple taxing
jurisdictions and is subject to audit in these jurisdictions. In management’s
opinion, adequate provisions for income taxes have been made for all years. If
actual taxable income by tax jurisdiction varies from estimates, additional
allowances or reversals of reserves may be necessary.
Cash
flows reporting
The
Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards
Codification for cash flows reporting, classifies cash receipts and payments
according to whether they stem from operating, investing, or financing
activities and provides definitions of each category, and uses the indirect or
reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25
of the FASB Accounting Standards Codification to report net cash flow from
operating activities by adjusting net income to reconcile it to net cash flow
from operating activities by removing the effects of (a) all deferrals of past
operating cash receipts and payments and all accruals of expected future
operating cash receipts and payments and (b) all items that are included in net
income that do not affect operating cash receipts and payments. The
Company reports the reporting currency equivalent of foreign currency cash
flows, using the current exchange rate at the time of the cash flows and the
effect of exchange rate changes on cash held in foreign currencies is reported
as a separate item in the reconciliation of beginning and ending balances of
cash and cash equivalents and separately provides information about investing
and financing activities not resulting in cash receipts or payments in the
period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards
Codification.
Subsequent
events
The
Company follows the guidance in Section 855-10-50 of the FASB Accounting
Standards Codification for the disclosure of subsequent events. The Company will
evaluate subsequent events through the date when the financial statements
were issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards
Codification, the Company as an SEC filer considers its financial statements
issued when they are widely distributed to users, such as through filing them on
EDGAR.
Recently issued accounting
pronouncements
In
January 2010, the FASB issued the FASB Accounting Standards Update No.
2010-06 “Fair Value
Measurements and Disclosures (Topic 820) Improving Disclosures about Fair Value
Measurements”, which provides amendments to Subtopic 820-10 that requires
new disclosures as follows:
|
1. |
Transfers
in and out of Levels 1 and 2. A reporting entity should disclose
separately the amounts of significant transfers in and out of Level 1 and
Level 2 fair value measurements and describe the reasons for the
transfers. |
|
2. |
Activity
in Level 3 fair value measurements. In the reconciliation for fair value
measurements using significant unobservable inputs (Level 3), a reporting
entity should present separately information about purchases, sales,
issuances, and settlements (that is, on a gross basis rather than as one
net number). |
This
Update provides amendments to Subtopic 820-10 that clarify existing disclosures
as follows:
|
1. |
Level
of disaggregation. A reporting entity should provide fair value
measurement disclosures for each class of assets and liabilities. A class
is often a subset of assets or liabilities within a line item in the
statement of financial position. A reporting entity needs to use judgment
in determining the appropriate classes of assets and
liabilities. |
|
2. |
Disclosures
about inputs and valuation techniques. A reporting entity should provide
disclosures about the valuation techniques and inputs used to measure fair
value for both recurring and nonrecurring fair value measurements. Those
disclosures are required for fair value measurements that fall in either
Level 2 or Level 3. |
This
Update also includes conforming amendments to the guidance on employers'
disclosures about postretirement benefit plan assets (Subtopic 715-20). The
conforming amendments to Subtopic 715-20 change the terminology from major categories of assets to
classes of assets and
provide a cross reference to the guidance in Subtopic 820-10 on how to determine
appropriate classes to present fair value disclosures. The new disclosures and
clarifications of existing disclosures are effective for interim and annual
reporting periods beginning after December 15, 2009, except for the disclosures
about purchases, sales, issuances, and settlements in the roll forward of
activity in Level 3 fair value measurements. Those disclosures are effective for
fiscal years beginning after December 15, 2010, and for interim periods within
those fiscal years.
In
December 2010, the FASB issued the FASB Accounting Standards Update No.
2010-28 “Intangibles—Goodwill and Other
(Topic 350): When to
Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or
Negative Carrying Amounts” (“ASU 2010-28”).Under ASU
2010-28, if the carrying amount of a reporting unit is zero or negative, an
entity must assess whether it is more likely than not that goodwill impairment
exists. To make that determination, an entity should consider whether there are
adverse qualitative factors that could impact the amount of goodwill, including
those listed in ASC 350-20-35-30. As a result of the new guidance, an entity can
no longer assert that a reporting unit is not required to perform the second
step of the goodwill impairment test because the carrying amount of the
reporting unit is zero or negative, despite the existence of qualitative factors
that indicate goodwill is more likely than not impaired. ASU 2010-28 is
effective for public entities for fiscal years, and for interim periods within
those years, beginning after December 15, 2010, with early adoption
prohibited.
In
December 2010, the FASB issued the FASB Accounting Standards Update No.
2010-29 “Business
Combinations (Topic 805): Disclosure of Supplementary Pro
Forma Information for Business Combinations” (“ASU 2010-29”). ASU 2010-29
specifies that if a public entity presents comparative financial statements, the
entity should disclose revenue and earnings of the combined entity as though the
business combination(s) that occurred during the current year had occurred as of
the beginning of the comparable prior annual reporting period only. The
amendments in this Update also expand the supplemental pro forma disclosures
under Topic 805 to include a description of the nature and amount of material,
nonrecurring pro forma adjustments directly attributable to the business
combination included in the reported pro forma revenue and earnings. The amended
guidance is effective prospectively for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2010. Early adoption is
permitted.
Management
does not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on the
accompanying consolidated financial statements.
NOTE
3 – GOING CONCERN
As
reflected in the accompanying financial statements, the Company had an
accumulated deficit of $532,504 at December 31, 2010 and had a net loss of
$27,204 and net cash used in operating activities of $26,341 for the year then
ended, respectively.
While the
Company is attempting to commence operations and generate revenues, the
Company’s cash position may not be significant enough to support the Company’s
daily operations. Management intends to raise additional funds by way
of a public or private offering. Management believes that the actions
presently being taken to further implement its business plan and generate
revenues provide the opportunity for the Company to continue as a going
concern. While the Company believes in the viability of its strategy
to generate revenues and in its ability to raise additional funds, there can be
no assurances to that effect. The ability of the Company to continue
as a going concern is dependent upon the Company’s ability to further implement
its business plan and generate revenues.
The
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
NOTE
4 – PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following at December 31, 2010 and December 31,
2009:
|
|
December 31,
2010 |
|
|
December 31,
2009 |
|
Estimated Useful Life |
|
|
|
|
|
|
|
|
|
|
Furniture
and fixtures |
|
|
47,844 |
|
|
|
47,844 |
|
5
years |
Computer
equipment |
|
|
67,085 |
|
|
|
67,085 |
|
3
years |
|
|
|
|
|
|
|
|
|
|
|
|
|
114,929 |
|
|
|
114,929 |
|
|
Less:
Accumulated depreciation and amortization |
|
|
(111,599 |
) |
|
|
(104,887 |
) |
|
|
|
$ |
3,330 |
|
|
$ |
10,042 |
|
|
Depreciation
expense
Depreciation
expense for the years ended December 31, 2010 and 2009 was $6,712, and $10,573,
respectively.
NOTE
5 – NOTES PAYABLE - RELATED PARTY
Notes
payable – related party, at December 31, 2010 and 2009, consisted of the
following:
|
|
December 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Notes
payable |
|
$ |
60,000 |
|
|
$ |
33,831 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
60,000 |
|
|
$ |
33,831 |
|
Notes
payable – related party are secured by all assets of the Company, bear no
interest and are due on demand.
NOTE
6 – STOCKHOLDERS’ DEFICIT
Shares
authorized
The
Company is authorized to issue 200 shares of common stock with no par
value.
Common
stock
On
February 28, 1997, the Company issued one share to the founder of the company
for services rendered.
NOTE
7 – INCOME TAX
Deferred tax
assets
At
December 31, 2010, the Company has available for federal income tax purposes a
net operating loss (“NOL”) carry-forwards of $532,504 that may be used to offset
future taxable income through the fiscal year ending December 31,
2030. No tax benefit has been reported with respect to these net
operating loss carry-forwards in the accompanying consolidated financial
statements since the Company believes that the realization of its net deferred
tax asset of approximately $181,051 was not considered more likely than not and
accordingly, the potential tax benefits of the net loss carry-forwards are fully
offset by a valuation allowance of $181,051.
Deferred
tax assets consist primarily of the tax effect of NOL
carry-forwards. The Company has provided a full valuation allowance
on the deferred tax assets because of the uncertainty regarding its
realizability. The valuation allowance increased approximately $9,249
and $282,072 for the years ended December 31, 2010 and 2009.
Components
of deferred tax assets as of December 31, 2010 and 2009are as
follows:
|
|
December 31,
2010 |
|
|
December 31,
2009 |
|
Net
deferred tax assets – Non-current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
income tax benefit from NOL carry-forwards |
|
$ |
181,051 |
|
|
$ |
171,802 |
|
Less
valuation allowance |
|
|
(181,051 |
) |
|
|
(171,802 |
) |
Deferred
tax assets, net of valuation allowance |
|
$ |
- |
|
|
$ |
- |
|
Income taxes in the
statements of operations
A
reconciliation of the federal statutory income tax rate and the effective income
tax rate as a percentage of income before income taxes is as
follows:
|
|
Year Ended
December 31,
2010 |
|
|
Year Ended
December 31,
201009 |
|
|
|
|
|
|
|
|
|
|
Federal
statutory income tax rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
Change
in valuation allowance on net operating loss
carry-forwards |
|
|
(34.0 |
)% |
|
|
(34.0 |
)% |
Effective
income tax rate |
|
|
0.0 |
% |
|
|
0.0 |
% |
NOTE
8 – SUBSEQUENT EVENTS
The
Company has evaluated all events that occurred after the balance sheet date
through the date when the financial statements were issued to determine if they
must be reported. The Management of the Company determined that there were
certain reportable subsequent events to be disclosed as follows:
On
January 31, 2011, management of Wizard Conventions, Inc. ceased operations under
such entity and continued the convention operation under the Kick The Can Corp.
entity. Kicking The Can L.L.C. never officially commenced operations,
never had employees and never produced a comic con event. Due to
these circumstances, management concluded that Wizard Conventions, Inc.
recapitalized into Kick The Can Corp despite no formal legal agreement between
the parties.
On
December 7, 2010, the Company’s successor, Kick The Can Corp., entered into a
share exchange agreement with GoEnergy, Inc., a public shell
company. The transaction was accounted for as a reverse merger
whereby Kick The Can Corp. became the accounting acquirer and GoEnergy, Inc.
remained the legal acquirer. Because of the predecessor/successor
relationship between the Company and Kick The Can Corp, the Company ultimately
became the accounting acquirer.
Share
Exchange
Pursuant
to the Exchange Agreement, on December 7, 2010, the Company issued 33,430,107
shares of our Common Stock to the Kick The Can Corp. Shareholders in exchange
for 100% of the outstanding shares of Kick The Can Corp. Such
securities were not registered under the Securities Act. These securities
qualified for exemption under Section 4(2) of the Securities Act since the
issuance of securities by the Company did not involve a public offering. The
offering was not a “public offering” as defined in Section 4(2) due to the
insubstantial number of persons involved in the deal, size of the offering,
manner of the offering and number of securities offered.
The
Company did not undertake an offering in which it sold a high number of
securities to a high number of investors. In addition, these shareholders had
the necessary investment intent as required by Section 4(2) of the Securities
Act since they agreed to and received share certificates bearing a legend
stating that such securities are restricted pursuant to Rule 144 of the
Securities Act. This restriction ensures that these securities would not be
immediately redistributed into the market and therefore not be part of a “public
offering.” Based on an analysis of the above factors, the Company has met the
requirements to qualify for exemption under Section 4(2) of the Securities
Act.
Series A Cumulative
Convertible Preferred Stock
Immediately
after the Share Exchange, the Company entered into subscription agreements with
certain subscribers for the issuance and sale of (i) up to $1,500,000 in Series
A Cumulative Convertible Preferred Stock with the rights and preferences set
forth in the Certificate of Designation, convertible into shares of our Common
Stock at $0.40 per share; and (ii) Warrants to purchase shares of
our Common Stock.
These
securities were not registered under the Securities Act. These securities
qualified for exemption under Section 4(2) of the Securities Act since the
issuance of securities by us did not involve a public offering. The offering was
not a “public offering” as defined in Section 4(2) due to the insubstantial
number of persons involved in the deal, size of the offering, manner of the
offering and number of securities offered.
The
Company did not undertake an offering in which we sold a high number of
securities to a high number of investors. In addition, these shareholders had
the necessary investment intent as required by Section 4(2) of the Securities
Act since they agreed to and received share certificates bearing a legend
stating that such securities are restricted pursuant to Rule 144 of the
Securities Act. This restriction ensures that these securities would not be
immediately redistributed into the market and therefore not be part of a “public
offering.” Based on an analysis of the above factors, we have met the
requirements to qualify for exemption under Section 4(2) of the Securities
Act.
Proforma Financial Information
|
|
As
Reported |
|
|
Pro
Forma |
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2010
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS: |
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,191
|
|
|
$
|
540,373
|
1 |
|
$
|
542,564
|
|
Accounts
receivable, net |
|
|
19,127
|
|
|
|
-
|
|
|
|
19,127
|
|
Prepaid
expenses |
|
|
63,347 |
|
|
|
- |
|
|
|
63,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets |
|
|
84,665
|
|
|
|
540,373
|
|
|
|
625,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, net |
|
|
3,330
|
|
|
|
-
|
|
|
|
3,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets |
|
$
|
87,995 |
|
|
$
|
540,373 |
|
|
$
|
628,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable ad accrued expenses |
|
|
484,846
|
|
|
|
-
|
|
|
|
484,846
|
|
Accrued
expenses |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Unearned
convention revenue |
|
|
75,653
|
|
|
|
-
|
|
|
|
75,653
|
|
Secured
notes payable - related party |
|
|
60,000
|
|
|
|
-
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities |
|
|
620,499
|
|
|
|
-
|
|
|
|
620,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DERIVATIVE
LIABILITES |
|
|
-
|
|
|
|
2,260,571
|
|
|
|
2,260,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITES |
|
|
620,499
|
|
|
|
2,260,571 |
1 |
|
|
2,881,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY (DEFICIT): |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock |
|
|
-
|
|
|
|
98
|
1 |
|
|
98
|
|
Common
stock |
|
|
1
|
|
|
|
32
|
1 |
|
|
33
|
|
Additional
paid-in capital |
|
|
-
|
|
|
|
243
|
1,2 |
|
|
243
|
|
Accumulated
deficit |
|
|
(532,505 |
)
|
|
|
(1,720,570 |
)
1,3 |
|
|
(2,253,075 |
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity |
|
|
(532,504 |
)
|
|
|
(1,720,198 |
)
|
|
|
(2,252,702 |
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity |
|
$
|
87,995 |
|
|
$
|
540,373 |
|
|
$
|
628,368 |
|
1.
|
To
account for the $976,300 sale ofconvertible preferred stocks and to
account for the corresponding derivatives liabilties and expense associated
with the convertible notes.
|
2.
|
Issuance
of common stock to effect the recapitalziation with a public
shell |
3.
|
Profit
and loss impact of 1,2 above as well as general and administrative
expenses and
to reflect the change in fair market value of the derivative
liabilties
|
PRO
FORMA STATEMENT OF OPERATIONS
For the
YEARs Ended December 31, 2010
|
|
As
Reported |
|
|
Pro
Forma |
|
|
|
|
|
|
|
|
|
|
12/31/2010
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL REVENUES
|
|
$
|
3,000,814
|
|
|
$
|
-
|
|
|
$
|
3,000,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF REVENUES |
|
|
2,533,382
|
|
|
|
-
|
|
|
|
2,533,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT |
|
|
467,432
|
|
|
|
-
|
|
|
|
467,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses |
|
|
491,182
|
|
|
|
435,927
|
3 |
|
|
927,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses |
|
|
491,182
|
|
|
|
435,927
|
|
|
|
927,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) FROM OPERATIONS |
|
|
(23,750
|
)
|
|
|
(435,927
|
)
|
|
|
(459,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
(INCOME) EXPENSE: |
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on extinguishment of debt |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Derivative
expense |
|
|
-
|
|
|
|
(1,284,643
|
)
1 |
|
|
(1,284,643
|
)
|
Interest
income |
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Interest
expense |
|
|
(3,454
|
)
|
|
|
-
|
|
|
|
(3,454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Income, net |
|
|
(3,454
|
)
|
|
|
(1,284,643
|
)
|
|
|
(1,288,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) BEFORE INCOME TAXES |
|
|
(27,204
|
)
|
|
|
(1,720,570
|
)
|
|
|
(1,747,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) |
|
|
(27,204
|
)
|
|
|
(1,720,570
|
)
|
|
|
(1,747,774
|
)
|
Exhibit 3.7
Exhibit 3.8
Exhibit
10.1
SUBSCRIPTION
AGREEMENT
THIS SUBSCRIPTION AGREEMENT
(this “Agreement”) is
dated as of December 6, 2010 by and between GoEnergy Inc., a Delaware
corporation (the “Company”), and the subscribers
identified on Schedule
1 hereto (collectively, the “Subscribers” and each, a
“Subscriber”).
WHEREAS, the Company and the
Subscribers are executing and delivering this Agreement in reliance upon an
exemption from securities registration afforded by the provisions of Section
4(2), Section 4(6) and/or Regulation D (“Regulation D”), as promulgated
by the United States Securities and Exchange Commission (the “Commission”) under the
Securities Act of 1933, as amended (the “1933 Act”);
WHEREAS, the parties hereto
desire that, upon the terms and subject to the conditions contained herein, the
Company shall issue and sell to the Subscribers, as provided herein, and the
Subscribers, in the aggregate, shall purchase up to $1,500,000 of shares of
Series A Cumulative Convertible Preferred
Stock of the Company, par value $.0001 per share (“Preferred Stock”), at a
purchase price (the “Purchase
Price”) equal to one hundred dollars ($100) per share, which
Preferred Stock shall be convertible into shares of the Company’s common stock,
$.0001 par value per share (the “Common Stock”), subject to the
rights and preferences described in the form of Certificate of Designation
annexed hereto as Exhibit
A (“Certificate of
Designation”), and Series A common stock purchase warrants (the “Warrants”) in the form
attached hereto as Exhibit
B, to purchase shares of Common Stock (the “Warrant Shares”) (the “Offering”). The
Preferred Stock, shares of Common Stock issuable upon conversion of the
Preferred Stock (the “Shares”), the Warrants and the
Warrant Shares are collectively referred to herein as the “Securities”; and
WHEREAS, the aggregate
proceeds of the sale of the Preferred Stock and the Warrants contemplated hereby
(“Purchase Price”) shall
be held in escrow by Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley
Stream, New York 11581 (the “Escrow Agent”) pursuant to the
terms of an Escrow Agreement to be executed by the parties hereto substantially
in the form attached hereto as Exhibit C (the “Escrow
Agreement”).
NOW, THEREFORE, in
consideration of the mutual covenants and other agreements contained in this
Agreement, the Company and each of the Subscribers hereby agree as
follows:
1. Closing and Special
Conditions.
(a) Closing. Subject
to the satisfaction or waiver of the terms and conditions of this Agreement, on
the “Closing Date,” the
Subscribers shall purchase, and the Company shall sell to such Subscribers in
accordance with Schedule I hereto, the Preferred Stock and the Warrants as
described in Section 2 below. The date the Escrow Agent releases the
funds received from one or more Subscribers to the Company and releases the
Escrow Documents (as defined in the Escrow Agreement) to the parties hereto in
accordance with the provisions of the Escrow Agreement shall be the Closing Date
with respect to such released funds and Escrow Documents, and such releases are
referred to herein as the “Closing.” The
parties hereto may agree to have more than one Closing once funds are deposited
into the escrow account, in which case the first Closing shall be referred to
herein as the “Initial
Closing”).
(b) Special
Conditions. The Closing hereunder is specifically
conditional on the closing of the share exchange contemplated by the
Share Purchase and Share Exchange Agreement, dated November 5, 2010 and annexed
hereto as Exhibit D (the
“Share Exchange
Agreement”), by and among the Company, Strato Malamas, an individual and
majority stockholder of the Company, Kick The Can Corp., a Nevada
corporation (“KTC
Corp.”), Kicking The Can, L.L.C., a Delaware limited liability company
and the majority shareholder of KTC Corp., and the other shareholders of KTC
Corp. who are signatories thereto, pursuant to which KTC Corp. shall become a
wholly owned subsidiary of the Company (the “Share
Exchange”). The Share Exchange must close immediately prior to
the Closing and by conducting the Closing and accepting the Purchase Price from
the Subscribers, the Company represents that the Share Exchange has irrevocably
closed in accordance with the terms of the Share Exchange Agreement
. The representations, covenants, warranties and undertakings of the
Company herein are made as of subsequent to the completion of the Share
Exchange. The Company represents and warrants that the Form 8-K,
substantially in the form annexed hereto as Exhibit E (“Super 8-K”), will be filed
with the Commission within four (4) business days after the Initial Closing, as
is required under the Securities Exchange Act of 1934, as amended (the “1934
Act”). Provided that the Share Exchange has occurred and all
of terms and conditions applicable to the Company have been met, the Closing
shall occur as soon as practicable after the occurrence of the Share Exchange,
but in any event no later than one (1) business day of such
events. Failure to timely file the Super 8-K is an Event of Default
under the Transaction Documents.
(c)
Time Effective
Clauses. All time effective clauses not specifically related
to an actual Closing Date shall be deemed to have commenced as of the Initial
Closing Date, if more than one Closing, or the Closing Date, if only one
Closing.
2. Series A Preferred Stock and
Series A Warrant.
(a) Series A Preferred
Stock. On the Closing Date, each Subscriber shall
purchase and the Company shall sell to each such Subscriber, the number of
shares of Preferred Stock designated on such Subscriber’s signature page hereto
for such Subscriber’s Purchase Price indicated thereon.
(b) Series A
Warrants. On the Closing Date, the Company shall issue and
deliver the Warrants to the Subscribers as follows: (i) one Warrant
shall be issued for each Two Dollars ($2.00) of Purchase Price paid by a
Subscriber on the Closing Date. The exercise price to acquire a
Warrant Share upon exercise of a Warrant shall be $0.60, subject to amendment as
described in the Warrants. The Warrants shall be exercisable until
five (5) years after the Closing Date.
3. Payment and Allocation of
Purchase Price. In consideration of the issuance of the
Preferred Stock and Warrants on the Closing Date, each Subscriber shall pay to
or for the benefit of the Company such Subscriber’s Purchase Price, as set forth
on the signature pages hereto. The number of Warrant Shares eligible
for purchase by each such Subscriber is set forth on the signature pages
hereto. The Purchase Price will be allocated among the components of
the Preferred Stock and Warrants so that each component of same will be fully
paid and non-assessable.
4. Subscriber Representations
and Warranties. Each of the Subscribers, severally but not
jointly, hereby represents and warrants to, and agrees with the Company that,
with respect only to such Subscriber:
(a) Organization and Standing of
Subscriber. Subscriber is duly formed, validly existing and in
good standing under the laws of the jurisdiction of its formation.
(b) Authorization and
Power. Such Subscriber has the requisite power and authority
to enter into and perform this Agreement and the other Transaction Documents (as
defined herein) and to purchase the Preferred Stock and Warrants being sold to
such Subscriber hereunder. The execution, delivery and performance of
this Agreement and the other Transaction Documents by such Subscriber, and the
consummation by such Subscriber of the transactions contemplated hereby and
thereby, have been duly authorized by all necessary action, and no further
consent or authorization of Subscriber or its board of directors or
stockholders, if applicable, is required. This Agreement and the
other Transaction Documents have been duly authorized, executed and delivered by
such Subscriber and constitutes, or shall constitute, when executed and
delivered, a valid and binding obligation of such Subscriber, enforceable
against Subscriber in accordance with the terms thereof.
(c) No
Conflicts. The execution, delivery and performance of this
Agreement and the other Transaction Documents and the consummation by such
Subscriber of the transactions contemplated hereby and thereby or relating
hereto do not and will not (i) result in a violation of such Subscriber’s
charter documents, bylaws or other organizational documents, if applicable; (ii)
conflict with nor constitute a default (or an event which with notice or lapse
of time or both would become a default) under any agreement to which such
Subscriber is a party; or (iii) result in a violation of any law, rule or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to such Subscriber or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
material adverse effect on Subscriber). Such Subscriber is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for such Subscriber
to execute, deliver or perform any of such Subscriber’s obligations under this
Agreement and the other Transaction Documents, nor to purchase the Securities in
accordance with the terms hereof, provided that for purposes of
the representation made in this sentence, such Subscriber is assuming and
relying upon the accuracy of the relevant representations and agreements of the
Company herein.
(d) Information on
Company. Such Subscriber has been furnished with or has
had access to the EDGAR Website of the Commission to the Company’s filings made
with the Commission through the tenth (10th)
business day preceding the Closing Date (hereinafter collectively referred to,
together with the Super 8-K, the “Reports”). Such
Subscriber is not deemed to have any knowledge of any information not included
in the Reports, unless such information is delivered in the manner described in
the next sentence. In addition, such Subscriber may have received in
writing from the Company such other information concerning its operations,
financial condition and other matters as such Subscriber has requested in
writing, identified thereon as OTHER WRITTEN INFORMATION (such other information
is collectively, the “Other
Written Information”), and considered all factors such Subscriber deems
material in deciding on the advisability of investing in the
Securities.
(e) Information on
Subscriber. Such Subscriber is, and will be at the time
of the conversion of the Preferred Stock and exercise of the Warrants, an “accredited investor,” as such
term is defined in Regulation D promulgated by the Commission under the 1933
Act, is experienced in investments and business matters, has made investments of
a speculative nature and has purchased securities of United States
publicly-owned companies in private placements in the past and, with its
representatives, has such knowledge and experience in financial, tax and other
business matters as to enable such Subscriber to utilize the information made
available by the Company to evaluate the merits and risks of, and to make an
informed investment decision with respect to, the proposed purchase, which such
Subscriber hereby agrees represents a speculative investment. Such
Subscriber has the authority and is duly and legally qualified to purchase and
own the Securities. Such Subscriber is able to bear the risk of such
investment for an indefinite period and to afford a complete loss
thereof. The information set forth on Schedule
1 hereto
regarding such Subscriber is accurate.
(f) Purchase of Preferred Stock
and Warrants. On the Closing Date, such Subscriber will
purchase the Preferred Stock and Warrants as principal for its own account for
investment only and not with a view toward, or for resale in connection with,
the public sale or any distribution thereof.
(g) Compliance with Securities
Act. Such Subscriber understands and agrees that the
Securities have not been registered under the 1933 Act or any applicable state
securities laws by reason of their issuance in a transaction that does not
require registration under the 1933 Act (based in part on the accuracy of the
representations and warranties of Subscriber contained herein), and that such
Securities must be held indefinitely unless a subsequent disposition is
registered under the 1933 Act or any applicable state securities laws or is
exempt from such registration. In any event, and subject to
compliance with applicable securities laws, Subscriber may enter into lawful
hedging transactions in the course of hedging the position they assume and the
Subscriber may also enter into lawful short positions or other derivative
transactions relating to the Securities, or interests in the Securities, and
deliver the Securities, or interests in the Securities, to close out their short
or other positions or otherwise settle other transactions, or loan or pledge the
Securities, or interests in the Securities, to third parties who in turn may
dispose of these Securities.
(h) Conversion Shares and
Warrant Shares Legend. The Conversion Shares and Warrant
Shares shall bear the following or similar legend:
“THE ISSUANCE AND SALE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, NOR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER AND REASONABLY
APPROVED BY THE COMPANY), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
(i) Preferred Stock and Warrants
Legend. The Preferred Stock and Warrants shall bear the
following legend:
“NEITHER THE ISSUANCE AND SALE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE -OR- EXERCISABLE] HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER AND REASONABLY
APPROVED BY THE COMPANY), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
(j) Communication of
Offer. The offer to sell the Securities was directly
communicated to such Subscriber by the Company. At no time was such
Subscriber presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated
offer.
(k) Restricted
Securities. Such Subscriber understands that the
Securities have not been registered under the 1933 Act and such Subscriber shall
not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any
of the Securities unless pursuant to an effective registration statement under
the 1933 Act, or unless an exemption from registration is
available. Notwithstanding anything to the contrary contained in this
Agreement, such Subscriber may transfer (without restriction and without the
need for an opinion of counsel) the Securities to its Affiliates (as defined
below), provided that
each such Affiliate is an “accredited investor,” as such term is defined under
Regulation D, and such Affiliate agrees in writing to be bound by the terms and
conditions of this Agreement. For the purposes of this Agreement, an “Affiliate” of any person or
entity means any other person or entity directly or indirectly controlling,
controlled by or under direct or indirect common control with such person or
entity. Without limiting the foregoing, each Subsidiary (as defined
herein) is an Affiliate of the Company. For purposes of this
definition, “control”
means the power to direct the management and policies of such person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise.
(l)
No Governmental
Review. Such Subscriber understands that no United States
federal or state agency or any other governmental or state agency has passed on
or made recommendations or endorsement of the Securities or the suitability of
the investment in the Securities, nor have such authorities passed upon or
endorsed the merits of the offering of the Securities.
(m) Independent
Decision. The decision of such Subscriber to purchase
Securities has been made by such Subscriber independently of any other
Subscriber and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
other Subscriber (or any other Person) relating to or arising from any such
information, materials, statements or opinions.
(n) Correctness of
Representations. Subscriber represents that the foregoing
representations and warranties are true and correct as of the date hereof and,
unless Subscriber otherwise notifies the Company in writing prior to the Closing
Date, shall be true and correct as of the Closing Date.
(o) Survival. The
foregoing representations and warranties shall survive the Closing
Date.
5. Company Representations and
Warranties. Except as set forth in the Schedules hereto, the
Company represents and warrants to and agrees with each Subscriber
that:
(a) Due
Incorporation. The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite corporate power to own its properties and to carry on its
business as presently conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have a Material Adverse Effect (as defined
herein). For purposes of this Agreement, a “Material Adverse Effect” shall
mean a material adverse effect on the financial condition, results of
operations, prospects, properties or business of the Company and its
Subsidiaries taken as a whole. For purposes of this Agreement, “Subsidiary” means, with
respect to any entity at any date, any direct or indirect corporation, limited
or general partnership, limited liability company, trust, estate, association,
joint venture or other business entity of which (A) more than 30% of
(i) the outstanding capital stock having (in the absence of contingencies)
ordinary voting power to elect a majority of the board of directors or other
managing body of such entity, (ii) in the case of a partnership or limited
liability company, the interest in the capital or profits of such partnership or
limited liability company or (iii) in the case of a trust, estate,
association, joint venture or other entity, the beneficial interest in such
trust, estate, association or other entity business is, at the time of
determination, owned or controlled directly or indirectly through one or more
intermediaries, by such entity, or (B) is under the actual control of the
Company. As of the Closing Date, all of the Company’s Subsidiaries
and the Company’s other ownership interests therein are set forth on Schedule
5(a). The Company represents that it owns all of the equity of
the Subsidiaries and rights to receive equity of the Subsidiaries set forth on
Schedule
5(a), free and clear of all liens, encumbrances and claims, except as set
forth on Schedule
5(a). No person or entity other than the Company has the right
to receive any equity interest in the Subsidiaries. The Company
further represents that neither the Company nor the Subsidiaries have been known
by any other names for the five (5) years preceding the date of this
Agreement.
(b) Outstanding
Stock. All issued and outstanding shares of capital stock and
equity interests in the Company have been duly authorized and validly issued and
are fully paid and non-assessable.
(c) Authority;
Enforceability. This Agreement, the Preferred Stock, Warrants,
the Escrow Agreement, and any other agreements delivered or required to be
delivered together with or pursuant to this Agreement or in connection herewith
(collectively, the “Transaction
Documents”) have been duly authorized, executed and delivered by the
Company and/or the Subsidiaries, as the case may be, and are valid and binding
agreements of the Company and/or the Subsidiaries, as the case may be,
enforceable in accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors’ rights generally and to
general principles of equity. Subject to the payment of the
Debentures (as defined in Section 13), the Company and/or the Subsidiaries, as
the case may be, have full corporate power and authority necessary to enter into
and deliver the Transaction Documents and to perform their obligations
thereunder.
(d) Capitalization and
Additional Issuances. The authorized and outstanding
capital stock of the Company and the Subsidiaries on a fully diluted basis and
all outstanding rights to acquire or receive, directly or indirectly, any equity
of the Company and/or the Subsidiaries as of the date of this Agreement and the
Closing Date (not including the Securities) are set forth on Schedule
5(d). Except as set forth on Schedule
5(d), there are no options, warrants or rights to subscribe to
securities, rights, understandings or obligations convertible into or
exchangeable for or granting any right to subscribe for any shares of capital
stock or other equity interest of the Company or any of the
Subsidiaries. The only officer, director, employee and consultant
stock option or stock incentive plan or similar plan currently in effect or
contemplated by the Company is described on Schedule
5(d). There are no outstanding agreements or preemptive or
similar rights affecting the Company’s Common Stock or equity.
(e) Consents. No
consent, approval, authorization or order of any court, governmental agency or
body or arbitrator having jurisdiction over the Company, the Subsidiaries or any
of their Affiliates, any Principal Market as defined in Section 9(b) or the
Company’s stockholders is required for the execution by the Company of the
Transaction Documents and compliance and performance by the Company and the
Subsidiaries of their respective obligations under the Transaction Documents,
including, without limitation, the issuance and sale of the
Securities. The Transaction Documents and the Company’s performance
of its obligations thereunder has been unanimously approved by the Company’s
board of directors in accordance with the Company’s Certificate of Incorporation
and applicable law. Any such qualifications and filings will, in the
case of qualifications, be effective upon Closing, and will, in the case of
filings, be made within the time prescribed by law.
(f) No Violation or
Conflict. Conditioned upon the representations and warranties
of Subscriber in Section 4 hereof being materially true and correct, neither the
issuance nor the sale of the Securities nor the performance of the Company’s
obligations under this Agreement and the other Transaction Documents by the
Company, will:
(i) violate,
conflict with, result in a breach of, or constitute a default (or an event which
with the giving of notice or the lapse of time or both would be reasonably
likely to constitute a default) under (A) the certificate of incorporation or
bylaws of the Company, (B) to the Company’s knowledge, any decree, judgment,
order, law, treaty, rule, regulation or determination applicable to the Company
of any court, governmental agency or body, or arbitrator having jurisdiction
over the Company or over the properties or assets of the Company or any of its
Affiliates, (C) the terms of any bond, debenture, note or any other evidence of
indebtedness, or any agreement, stock option or other similar plan, indenture,
lease, mortgage, deed of trust or other instrument to which the Company or any
of its Affiliates is a party, by which the Company or any of its Affiliates is
bound, or to which any of the properties of the Company or any of its Affiliates
is subject or (D) the terms of any “lock-up” or similar provision of any
underwriting or similar agreement to which the Company, or any of its Affiliates
is a party, except the violation, conflict, breach or default of which would not
have a Material Adverse Effect; or
(ii) result
in the creation or imposition of any lien, charge or encumbrance upon the
Securities or any of the assets of the Company or any of its Affiliates, except
in favor of each Subscriber as described herein; or
(iii) except
as set forth in Schedule
5(f) hereto, result in the activation of any anti-dilution rights or a
reset or repricing of any debt, equity or security instrument of any creditor or
equity holder of the Company, or the holder of the right to receive any debt,
equity or security instrument of the Company, nor result in the acceleration of
the due date of any obligation of the Company; or
(iv) except
as set forth in Schedule
5(f) hereto, result in the triggering of any piggy-back or other
registration rights of any person or entity holding securities of the Company or
having the right to receive securities of the Company.
(g) The
Securities. The Securities upon issuance:
(i) are,
or will be, free and clear of any security interests, liens, claims or other
encumbrances, subject only to restrictions upon transfer under the 1933 Act and
any applicable state securities laws;
(ii) have
been, or will be, duly and validly authorized and on the dates of issuance of
the Preferred Stock and Warrants, the Conversion Shares upon conversion of the
Preferred Stock, and the Warrant Shares upon exercise of the Warrants, such
Preferred Stock, Warrants, Conversion Shares and Warrant Shares will be duly and
validly issued, fully paid and non-assessable and if registered pursuant to the
1933 Act and resold pursuant to an effective registration statement or an
exemption from registration, will be free trading, unrestricted and
unlegended;
(iii) will
not have been issued or sold in violation of any preemptive or other similar
rights of the holders of any securities of the Company or rights to acquire
securities or debt of the Company;
(iv)
will not subject the holders thereof to personal liability by
reason of being such holders; and
(v)
conditioned upon the representations and
warranties of the Subscribers as set forth in Section 4 hereof being materially
true and correct, will not result in a violation of Section 5 under the 1933
Act.
(h) Litigation. There
is no pending or, to the best knowledge of the Company, threatened action, suit,
proceeding or investigation before any court, governmental agency or body, or
arbitrator having jurisdiction over the Company, or any of its Affiliates that
would affect the execution by the Company or the complete and timely performance
by the Company of its obligations under the Transaction
Documents. Except as disclosed in the Reports, there is no pending
or, to the best knowledge of the Company, basis for or threatened action, suit,
proceeding or investigation before any court, governmental agency or body, or
arbitrator having jurisdiction over the Company, or any of its Affiliates which
litigation if adversely determined would have a Material Adverse
Effect.
(i)
No Market
Manipulation. The Company and its Affiliates have not taken,
and will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Securities
or affect the price at which the Securities may be issued or
resold.
(j)
Information Concerning
Company. The Reports and Other Written Information contain all
material information relating to the Company and its operations and financial
condition as of their respective dates which information is required to be
disclosed therein. Since July 31, 2010, and except as disclosed in
the Reports or modified in the Reports and Other Written Information or in the
Schedules hereto, there has been no Material Adverse Effect relating to the
Company’s business, financial condition or affairs. The Reports and Other
Written Information including the financial statements included therein do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, taken
as a whole, not misleading in light of the circumstances and when
made.
(k) Solvency. Based
on the consolidated financial condition of the Company as of the Closing Date,
after giving effect to the receipt by the Company of the proceeds from the sale
of the Securities hereunder and the consummation of the Share Exchange, (i) the
Company’s fair saleable value of its assets exceeds the amount that will be
required to be paid on or in respect of the Company’s existing debts and other
liabilities (including known contingent liabilities) as they mature; (ii) the
Company’s assets do not constitute unreasonably small capital to carry on its
business for the current fiscal year as now conducted and as proposed to be
conducted, including its capital needs taking into account the particular
capital requirements of the business conducted by the Company, and projected
capital requirements and capital availability thereof; and (iii) the current
cash flow of the Company, together with the proceeds the Company would receive,
were it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its debt when such amounts are required to be paid. The
Company does not intend to incur debts beyond its ability to pay such debts as
they mature (taking into account the timing and amounts of cash to be payable on
or in respect of its debt).
(l)
Defaults. The
Company is not in violation of its certificate of incorporation or
bylaws. The Company is (i) not in default under or in violation
of any other material agreement or instrument to which it is a party or by which
it or any of its properties are bound or affected, which default or violation
would have a Material Adverse Effect, (ii) not in default with respect to any
order of any court, arbitrator or governmental body or subject to or party to
any order of any court or governmental authority arising out of any action, suit
or proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters which default would
have a Material Adverse Effect, or (iii) not in violation of any statute, rule
or regulation of any governmental authority which violation would have a
Material Adverse Effect.
(m) No Integrated
Offering. Neither the Company, 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 of the Company nor solicited
any offers to buy any security of the Company under circumstances that would
cause the offer of the Securities pursuant to this Agreement to be integrated
with prior offerings by the Company for purposes of the 1933 Act or any
applicable stockholder approval provisions, including, without limitation, under
the rules and regulations of the Bulletin Board. No prior offering
will impair the exemptions relied upon in this Offering or the Company’s ability
to timely comply with its obligations hereunder. Neither the Company
nor any of its Affiliates will take any action or suffer any inaction or conduct
any offering other than the transactions contemplated hereby that may be
integrated with the offer or issuance of the Securities or that would impair the
exemptions relied upon in this Offering or the Company’s ability to timely
comply with its obligations hereunder.
(n) No General
Solicitation. Neither the Company, nor any of its Affiliates,
nor to its knowledge, any person acting on its or their behalf, has engaged in
any form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
(o) No Undisclosed
Liabilities. The Company has no liabilities or obligations
which are material, individually or in the aggregate, other than those incurred
in the ordinary course of the Company’s business since July 31, 2010, and which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect, except as disclosed in the Reports or in Schedule
5(o).
(p) No Undisclosed Events or
Circumstances. Since July 31, 2010, except as disclosed in the
Reports, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the Reports.
(q) Dilution. The
Company’s executive officers and directors understand the nature of the
Securities being sold hereby and recognize that the issuance of the Securities
will have a potential dilutive effect on the equity holdings of other holders of
the Company’s equity or rights to receive equity of the Company. The
board of directors of the Company has concluded, in its good faith business
judgment, that the issuance of the Securities is in the best interests of the
Company. The Company specifically acknowledges that its obligation to
issue the Conversion Shares upon conversion of the Preferred Stock and the
Warrant Shares upon exercise of the Warrants is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the ownership
interests of other stockholders of the Company or parties entitled to receive
equity of the Company.
(r)
No Disagreements with
Accountants and Lawyers. There are no material disagreements
of any kind presently existing, or reasonably anticipated by the Company to
arise, between the Company and the accountants and lawyers previously and
presently employed by the Company, including, but not limited to, disputes or
conflicts over payment owed to such accountants and lawyers, nor have there been
any such disagreements during the two years prior to the Closing
Date.
(s) Investment
Company. Neither the Company nor any Affiliate of the
Company is an “investment company” within the meaning of the Investment Company
Act of 1940, as amended.
(t) Foreign Corrupt
Practices. Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has (i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended.
(u) Reporting Company/Shell
Company. The Company is a publicly-held company subject to
reporting obligations pursuant to Section 13 of the 1934 Act and has a class of
Common Stock registered pursuant to Section 12(g) of the 1934
Act. Pursuant to the provisions of the 1934 Act, the Company has
timely filed all reports and other materials required to be filed thereunder
with the Commission during the preceding twelve months. As of the
Closing Date, the Company is not a “shell company” but is a “former shell
company” as those terms are employed in Rule 144 under the 1933
Act.
(v) Listing. The
Company’s Common Stock is quoted on the OTC Bulletin Board (“Bulletin Board”) under the
symbol “GOEE”. The Company has not received any pending oral or
written notice that its Common Stock is not eligible nor will become ineligible
for quotation on the Bulletin Board nor that its Common Stock does not meet all
requirements for the continuation of such quotation.
(w) DTC
Status. The Company’s transfer agent is a participant
in, and the Common Stock is or shall be eligible for transfer pursuant to, the
Depository Trust Company Automated Securities Transfer Program. The name,
address, telephone number, fax number, contact person and email address of the
Company transfer agent is set forth on Schedule
5(w) hereto.
(x) Company Predecessor and
Subsidiaries. The Company makes each of the representations
contained in Sections 5(a), (b), (c), (d), (e), (f), (h), (j), (k), (l), (o),
(p), (r), (s) and (t) of this Agreement, as same relate or could be applicable
to each Subsidiary. All representations made by or relating to the
Company of a historical or prospective nature and all undertakings described in
Section 9 shall relate, apply and refer to the Company and the Subsidiaries and
their predecessors and successors.
(y) Correctness of
Representations. The Company represents that the foregoing
representations and warranties are true and correct as of the date hereof in all
material respects, and, unless the Company otherwise notifies the Subscribers
prior to the Closing Date, shall be true and correct in all material respects as
of the Closing Date; provided that if such
representation or warranty is made as of a different date, such representation
or warranty shall be true as of such date.
(z) Survival. The
foregoing representations and warranties shall survive the Closing
Date.
6. Regulation D Offering/Legal
Opinion. The offer and issuance of the Securities to the
Subscribers is being made pursuant to an exemption from the registration
provisions of the 1933 Act afforded by Section 4(2) or Section 4(6) of the 1933
Act and/or Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion reasonably acceptable to each
Subscriber from the Company’s legal counsel in substantially the form attached
hereto as Exhibit F
opining on the availability of an exemption from registration under the 1933 Act
as it relates to the offer and issuance of the Securities and other matters
reasonably requested by the Subscribers. The Company will provide, at
the Company’s expense, to the Subscribers such other legal opinions, if any, as
are necessary in each Subscriber’s opinion for the issuance and resale of the
Conversion Shares and Warrant Shares pursuant to an exemption from registration
such as Rule 144 under the 1933 Act.
7. Broker’s Commission/Finder’s
Fee. The Company on the one hand, and each Subscriber (for such
Subscriber only) on the other hand, agrees to indemnify the other against and
hold the other harmless from any and all liabilities to any Persons claiming
brokerage commissions or similar fees on account of services purported to have
been rendered on behalf of the indemnifying party in connection with this
Agreement or the transactions contemplated hereby and arising out of such
party’s actions. The Company represents that to the best of its
knowledge there are no parties entitled to receive fees, commissions, finder’s
fees, due diligence fees or similar payments in connection with the
Offering. Anything in this Agreement to the contrary notwithstanding,
each Subscriber is providing indemnification only for such Subscriber’s own
actions and not for any action of any other Subscriber. The liability
of the Company and each Subscriber’s liability hereunder is several and not
joint.
8. Subscriber’s Legal
Fees. The Company shall pay to Grushko & Mittman,
P.C. a cash fee of $15,000 (“Legal Fees”) as reimbursement
for services rendered in connection with the transactions described in the
Transaction Documents. The Legal Fees will be payable out of funds held pursuant
to the Escrow Agreement. Grushko & Mittman, P.C. will be
reimbursed at Closing or Initial Closing, as the case may be, by the Company for
all lien searches, filing fees and reasonable printing and shipping costs for
the closing statements to be delivered to the Subscribers.
9. Covenants of the
Company. The Company covenants and agrees with the Subscribers
as follows:
(a) Stop
Orders. Subject to the prior notice requirement described in
Section 9(n) hereof, the Company will advise the Subscribers, within twenty-four
(24) hours after it receives notice of issuance by the Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose. The Company will not issue any stop
transfer order or other order impeding the sale, resale or delivery of any of
the Securities, except as may be required by any applicable federal or state
securities laws, provided at least five (5)
business days prior notice of such instruction is given to the
Subscribers.
(b) Listing/Quotation. The
Company shall promptly secure the quotation or listing of the Conversion Shares
and Warrant Shares upon each national securities exchange, or automated
quotation system upon which the Company’s Common Stock is quoted or listed and
upon which such Conversion Shares and Warrant Shares are or become eligible for
quotation or listing (subject to official notice of issuance) and shall maintain
same so long as any Preferred Stock and Warrants are outstanding. The
Company will maintain the quotation or listing of its Common Stock on the NYSE
Amex Equities, Nasdaq Capital Market, Nasdaq Global Market, Nasdaq Global Select
Market, Bulletin Board, or New York Stock Exchange (whichever of the foregoing
is at the time the principal trading exchange or market for the Common Stock)
(the “Principal
Market”), and will comply in all respects with the Company’s reporting,
filing and other obligations under the bylaws or rules of the Principal Market,
as applicable. Subject to the limitation set forth in Section 9(n) hereof, the
Company will provide the Subscribers with copies of all notices it receives
notifying the Company of the threatened and actual delisting of the Common Stock
from any Principal Market. As of the date of this Agreement and the
Closing Date, the Bulletin Board is the Principal Market.
(c) Market
Regulations. If required, the Company shall notify the
Commission, the Principal Market and applicable state authorities, in accordance
with their requirements, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Securities to the Subscribers and promptly provide copies
thereof to the Subscribers.
(d) Filing
Requirements. From the date of this Agreement and until the
last to occur of (i) all the Conversion Shares have been resold or transferred
by the Subscribers pursuant to a registration statement or pursuant to Rule
144(b)(1)(i), or (ii) none of the Preferred Stock and Warrants
are outstanding (the date of such latest occurrence being the “End Date”), the Company will
(A) comply in all respects with its reporting and filing obligations under the
1934 Act, (B) voluntarily comply with all reporting requirements that are
applicable to an issuer with a class of shares registered pursuant to Section
12(g) of the 1934 Act even if the Company is not subject to such reporting
requirements sufficient to permit the Subscribers to be able to resell the
Conversion Shares and Warrant Shares pursuant to Rule 144(b)(i) and (C) comply
with all requirements related to any registration statement filed pursuant to
this Agreement. The Company will use its commercially reasonable best
efforts not to take any action or file any document (whether or not permitted by
the 1933 Act or the 1934 Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said acts until the End Date. Until the End Date,
the Company will continue the listing or quotation of the Common Stock on a
Principal Market and will comply in all respects with the Company’s reporting,
filing and other obligations under the bylaws or rules of the Principal
Market. The Company agrees to timely file a Form D with respect to
the Securities if required under Regulation D and to provide a copy thereof to
each Subscriber promptly after such filing.
(e) Use of
Proceeds. The proceeds of the Offering will be
substantially employed by the Company for the purposes set forth on Schedule
9(e) hereto. Except as described on Schedule
9(e), the Purchase Price may not and will not be used for accrued and
unpaid officer and director salaries, nor payment of financing related debt nor
redemption of outstanding notes or equity instruments of the Company nor
non-trade payables outstanding on the Closing Date.
(f) Reservation. Prior
to the Closing or Initial Closing, as the case may be, the Company undertakes to
reserve on behalf of the Subscribers from its authorized but unissued Common
Stock, a number of shares of Common Stock equal to 150% of the amount of Common
Stock necessary to allow the Subscribers to be able to convert all of the
Preferred Stock and 100% of the amount of Warrant Shares issuable upon exercise
of the Warrants (“Required
Reservation”). Failure to have sufficient shares
reserved pursuant to this Section 9(f) at any time prior to the End Date shall
be a material default of the Company’s obligations under this Agreement and an
Event of Default as employed in the Certificate of
Designation. Without waiving the foregoing requirement, if at any
time the Preferred Stock and Warrants are outstanding the Company has reserved
on behalf of the Subscribers less than 125% of the amount necessary for full
conversion of the outstanding Preferred Stock and dividends accrued on such
Preferred Stock at the conversion price in effect on every such date and 100% of
the Warrant Shares issuable upon exercise of outstanding Warrants (“Minimum Required
Reservation”), the Company will promptly reserve the Minimum Required
Reservation, or if there are insufficient authorized and available shares of
Common Stock to do reserve the Minimum Required Reservation, the Company will
take all action necessary to increase its authorized capital to be able to fully
satisfy its reservation requirements hereunder, including the filing of a
preliminary proxy with the Commission not later than fifteen (15) days after the
first day the Company has reserved less than the Minimum Required
Reservation. The Company agrees to provide notice to the Subscribers
not later than five days after the date the Company has less than the Minimum
Required Reservation reserved on behalf of the Subscribers.
(g) DTC
Program. At all times that Preferred Stock or Warrants are
outstanding, the Company will employ as the transfer agent for the Common Stock,
Conversion Shares and Warrant Shares a participant in the Depository Trust
Company Automated Securities Transfer Program.
(h) Taxes. From
the date of this Agreement and until the End Date, the Company will promptly pay
and discharge, or cause to be paid and discharged, when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon the
income, profits, property or business of the Company; provided, however, that any
such tax, assessment, charge or levy need not be paid if the validity thereof
shall currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefore.
(i)
Insurance. As
reasonably necessary as determined by the Company, from the date of this
Agreement and until the End Date, the Company will keep its assets which are of
an insurable character insured by financially sound and reputable insurers
against loss or damage by fire, explosion and other risks customarily insured
against by companies in the Company’s line of business and location, in amounts
and to the extent and in the manner customary for companies in similar
businesses similarly situated and located and to the extent available on
commercially reasonable terms.
(j)
Books and
Records. From the date of this Agreement and until the End
Date, the Company will keep true records and books of account in which full,
true and correct entries in all material respects will be made of all dealings
or transactions in relation to its business and affairs in accordance with
United States generally accepted accounting principles (“GAAP”) applied on a consistent
basis.
(k) Governmental
Authorities. From the date of this Agreement and until
the End Date, the Company shall duly observe and conform in all material
respects to all valid requirements of governmental authorities relating to the
conduct of its business or to its properties or assets.
(l)
Intellectual
Property. From the date of this Agreement and until the End
Date, the Company shall maintain in full force and effect its corporate
existence, rights and franchises and all licenses and other rights to use
intellectual property owned or possessed by it and reasonably deemed to be
necessary to the conduct of its business, unless it is sold for
value. Schedule
9(l) hereto identifies all of the intellectual property owned by the
Company and the Subsidiaries, which schedule includes, but is not limited to,
patents, patents pending, patent applications, trademarks, tradenames, service
marks and copyrights.
(m) Properties. From
the date of this Agreement and until the End Date, the Company will keep its
properties in good repair, working order and condition, reasonable wear and tear
excepted, and from time to time make all necessary and proper repairs, renewals,
replacements, additions and improvements thereto as the Company shall reasonably
determine; and the Company will at all times comply with each provision of all
leases and claims to which it is a party or under which it occupies or has
rights to property if the breach of such provision could reasonably be expected
to have a Material Adverse Effect. The Company will not abandon any
of its assets, except for those assets which have negligible or marginal value ,
are obsolete or for which it is prudent to do so under the circumstances as
reasonably determined by the Company.
(n) Confidentiality/Public
Announcement. From the date of this
Agreement until the End Date, the Company agrees that except in
connection with a Form 8-K, Form 10-Q, Form 10-K and the registration statement
or statements regarding the Subscribers’ Securities or in correspondence with
the Commission regarding same, it will not disclose publicly or privately the
identity of a Subscriber unless expressly agreed to in writing by such
Subscriber or only to the extent required by law and then only upon not less
than two (2) business days prior notice to such Subscriber. The
Company will specifically disclose the amount of Common Stock outstanding
immediately after the Closing in the Super 8-K. The Company
represents that the Super 8-K will contain the signed version of the audit
opinion substantially in the form attached as Exhibit G
hereto. Upon delivery by the Company to the Subscribers
after the Closing Date of any notice or information, in writing, electronically
or otherwise, and while Preferred Stock, Conversion Shares or Warrants are held
by the Subscribers, 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 the Subsidiaries, the Company shall, within
four (4) days after any such delivery, publicly disclose such
material, nonpublic information on a
Report on Form 8-K. In the event that
the Company believes that a notice or communication to the
Subscribers contains material, nonpublic information relating to the Company or
the Subsidiaries, except as required to be delivered in connection with this
Agreement, the Company shall so indicate to the Subscribers prior to delivery of
such notice or information. A Subscriber will be granted five (5)
days to notify the Company that such Subscriber elects not to receive such
information. In the case that a Subscriber elects not to
receive such information, the Company will not deliver such information to such
Subscriber. In the absence of any such Company indication, the
Subscribers shall be allowed to presume that all matters relating to such notice
and information do not constitute material, nonpublic information relating
to the Company or the Subsidiaries.
(o) Non-Public
Information. The Company covenants and agrees that except for
the Reports, Other Written Information and schedules and exhibits to this
Agreement and the Transaction Documents, which information the Company
undertakes to publicly disclose on the Form 8-K described in Section 9(n) above,
neither it nor any other person acting on its behalf will at any time provide
any Subscriber or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto such
Subscriber, its agent or counsel shall have agreed in writing to accept such
information as described in Section 9(n) above. The Company
understands and confirms that the Subscribers shall be relying on the foregoing
representations in effecting transactions in securities of the
Company. The Company agrees that any information known to Subscriber
required to be make public by the Company but not made public by the Company,
not already made public by the Company may be made public and disclosed by the
Subscriber.
(p) Negative
Covenants. So long as Preferred Stock is outstanding,
without the consent of the Subscribers, the Company will not and will not permit
any of its Subsidiaries to directly or indirectly:
(i) create,
incur, assume or suffer to exist any pledge, hypothecation, assignment, deposit
arrangement, lien, charge, claim, security interest, security title, mortgage,
security deed or deed of trust, easement or encumbrance, or preference, priority
or other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing, and
the filing of, or agreement to give, any financing statement perfecting a
security interest under the Uniform Commercial Code or comparable law of any
jurisdiction) (each, a “Lien”) upon any of its
property, whether now owned or hereafter acquired, except for: (a)
Liens imposed by law for taxes that are not yet due or are being contested in
good faith and for which adequate reserves have been established in accordance
with GAAP; (b) carriers,’ warehousemen’s, mechanic’s, material men’s,
repairmen’s and other like Liens imposed by law, arising in the ordinary course
of business and securing obligations that are not overdue by more than thirty
(30) days or that are being contested in good faith and by appropriate
proceedings; (c) pledges and deposits made in the ordinary course of business in
compliance with workers’ compensation, unemployment insurance and other social
security laws or regulations; (d) deposits to secure the performance of bids,
trade contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case in the
ordinary course of business; (e) Liens created with respect to the financing of
the purchase of new property in the ordinary course of the Company’s business up
to the amount of the purchase price of such property; and (f) easements, zoning
restrictions, rights-of-way and similar encumbrances on real property imposed by
law or arising in the ordinary course of business that do not secure any
monetary obligations and do not materially detract from the value of the
affected property (each of (a) through (f) hereof, a “Permitted
Lien”);
(ii) amend
its certificate of incorporation, bylaws or its charter documents so as to
materially and adversely affect any rights of the Subscribers; provided that an increase in
the amount of authorized shares will not be deemed adverse to the rights of the
Subscribers;
(iii) repay,
repurchase or offer to repay, repurchase or otherwise acquire or make any
dividend or distribution in respect of any of its Common Stock, preferred stock,
or other equity securities other than to the extent permitted or required under
the Transaction Documents;
(iv)
engage in any transactions with any officer, director,
employee or any Affiliate of the Company, including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any entity in which any officer, director or any such employee
has a substantial interest or is an officer, director, trustee or partner, in
each case in excess of $100,000, other than (i) for payment of salary or fees
for services rendered, pursuant to and on the terms of a written contract in
effect at least one (1) business day prior to the Closing Date, a copy of which
has been provided to the Subscriber at least one (1) business day prior to the
Closing Date, (ii) reimbursement for authorized expenses incurred on behalf of
the Company or its Affiliates, (iii) for other employee benefits, including
stock option agreements under any stock option plan of the Company disclosed in
the Reports or (iv) other transactions disclosed in the Reports; or
(v) pay
or redeem any financing related debt or past due obligations or securities
outstanding as of the Closing Date, or past due obligations, except with respect
to vendor obligations, which in management’s good faith, reasonable judgment
must be paid to avoid disruption of the Company’s businesses.
(q) Offering
Restrictions. Subject to the consent of the Subscribers,
for so long as the Preferred Stock and Warrants are outstanding, the Company
will not enter into or exercise any Equity Line of Credit (as defined herein) or
similar agreement, nor issue nor agree to issue any floating or Variable Priced
Equity Linked Instruments (as defined herein) nor any of the foregoing or equity
with price reset rights (collectively, the “Variable Rate
Restrictions”). For purposes hereof, “Equity Line of Credit” shall
include any transaction involving a written agreement between the Company and an
investor or underwriter whereby the Company has the right to “put” its
securities to the investor or underwriter over an agreed period of time and at a
price formula, and “Variable
Priced Equity Linked Instruments” shall include: (A) any debt or equity
securities which are convertible into, exercisable or exchangeable for, or carry
the right to receive additional shares of Common Stock either (1) at any
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for Common Stock at any time
after the initial issuance of such debt or equity security or (2) with a fixed
conversion, exercise or exchange price that is subject to being reset at some
future date at any time after the initial issuance of such debt or equity
security due to a change in the market price of the Company’s Common Stock since
date of initial issuance, and (B) any amortizing convertible security which
amortizes prior to its maturity date, where the Company is required or has the
option to (or any investor in such transaction has the option to require the
Company to) make such amortization payments in shares of Common Stock which are
valued at a price that is based upon and/or varies with the trading prices of or
quotations for Common Stock at any time after the initial issuance of such debt
or equity security (whether or not such payments in stock are subject to certain
equity conditions).
(r)
Seniority. Except
for Permitted Liens, for so long as the Preferred Stock is outstanding, without
written consent of the Subscribers, the Company and Subsidiaries shall not grant
nor allow any security interest to be taken in any assets of the Company or any
Subsidiary or any Subsidiary’s assets; nor issue or amend any debt, equity or
other instrument which would give the holder thereof directly or indirectly, a
right in any equity of the Company or any Subsidiary or any right to payment
equal to or superior to any right of the Subscribers as holders of the Preferred
Stock in or to such equity or payment, nor issue or incur any debt not in the
ordinary course of business in an amount greater than $500,000.
(s) Notices. For
so long as the Subscribers hold any Preferred Stock or Warrants, the Company
will maintain a United States address and United States fax number for notice
purposes under the Transaction Documents.
(t)
Transactions with
Insiders. So long as the Preferred Stock and Warrants are
outstanding, without consent of the Subscribers, the Company shall not, and
shall cause each of its Subsidiaries not to, enter into, materially amend,
materially modify or materially supplement, or permit any Subsidiary to enter
into, materially amend, materially modify or materially supplement, any
agreement, transaction, commitment, or arrangement relating to the sale,
transfer or assignment of any of the Company’s tangible or intangible assets
with any of its Insiders (as defined below) (or any persons who were Insiders at
any time during the previous two (2) years), or any Affiliates (as defined
below) thereof, or with any individual related by blood, marriage, or adoption
to any such individual. “Affiliate,” for purposes of
this Section 9(t), means, with respect to any person or entity, another person
or entity that, directly or indirectly, (i) has a ten percent (10%) or more
equity interest in that person or entity, (ii) has ten percent (10%) or more
common ownership with that person or entity, (iii) controls that person or
entity, or (iv) shares common control with that person or
entity. “Control” or “Controls” for purposes of the Transaction
Documents means that a person or entity has the power, direct or indirect, to
conduct or govern the policies of another person or entity. For
purposes hereof, “Insiders” shall mean any
officer, director or manager of the Company, including, but not limited to, the
Company’s president, chief executive officer, chief financial officer and chief
operations officer, and any of their Affiliates or family members.
(u) Stock
Splits. For so long as the Preferred Stock and Warrants are
outstanding, the Company will not enter into any stock splits without the
consent of the Subscribers.
(v) Notice of Event of
Default. The Company agrees to notify Subscriber of the
occurrence of an Event of Default (as defined and employed in the Transaction
Documents) not later than ten (10) days after any of the Company’s officers or
directors becomes aware of such Event of Default.
(w) Further Registration
Statements. Except for a registration statement filed on
behalf of the Subscribers and the parties listed on Schedule 9(w), the Company
will not, without the consent of the Subscribers, file with the Commission or
with state regulatory authorities any registration statement, including a
registration statement on Form S-8, or amend any already filed registration
statement to increase the amount of Common Stock registered therein, or reduce
the price of which securities of the Company are registered therein, until the
expiration of the “Exclusion
Period,” which shall be defined as the sooner of (i) the date all of the
Registrable Securities (as defined in Section 11.1) have been registered in an
effective registration statement that has been effective for not less than one
year, or (ii) until all the Conversion Shares and Warrant Shares have been
resold by the Subscribers pursuant to a registration statement or Rule
144b(1)(i), without regard to volume limitations. The Exclusion
Period will be tolled or reinstated, as the case may be, during the pendency of
an Event of Default as defined in the Certificate of
Designation.
10. Covenants of the Company
Regarding Indemnification.
(a) The
Company agrees to indemnify, hold harmless, reimburse and defend the
Subscribers, the Subscribers’ officers, directors, agents, counsel, Affiliates,
members, managers, control persons, and principal shareholders, against any
claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon the
Subscribers or any such person which results, arises out of or is based upon (i)
any material misrepresentation by Company or breach of any representation or
warranty by Company in this Agreement or in any Exhibits or Schedules attached
hereto in any Transaction Document, or other agreement delivered pursuant hereto
or in connection herewith, now or after the date hereof; or (ii) after any
applicable notice and/or cure periods, any breach or default in performance by
the Company of any covenant or undertaking to be performed by the Company
hereunder, or any other agreement entered into by the Company and Subscribers
relating hereto.
(b) In
no event shall the liability of the Subscribers or permitted successor hereunder
or under any Transaction Document or other agreement delivered in connection
herewith be greater in amount than the dollar amount of the net proceeds
actually received by such Subscriber or successor upon the sale of Registrable
Securities (as defined herein).
11.1. Registration
Rights. The Company hereby grants the following registration
rights to holders of the Securities.
(i)
On one occasion, commencing ninety one
(91) days after the Closing Date, but not later than two years after the Closing
Date, upon a written request therefor from any record holder or holders of more
than 50% of the Conversion Shares issued and issuable upon conversion of the
outstanding Preferred Stock and outstanding Warrant Shares, the Company shall
prepare and not later than sixty (60) days after such request (“Filing Date”) file, subject to
Section 11.1(iv) hereof, , with the Commission a registration statement under
the 1933 Act registering the Registrable Securities which are the subject of
such request, subject to applicable Commission rules and regulations, for
unrestricted public resale by the holder thereof. For purposes of
Sections 11.1(i) and 11.1(ii) hereof, the definition of Registrable Securities
shall not include Securities (A) which are registered for resale in an effective
registration statement, (B) which are included for registration in a pending
registration statement, (C) which have been issued without further transfer
restrictions after a sale or transfer pursuant to Rule 144 under the 1933 Act or
(D) which may be resold under Rule 144 without volume limitations but not giving
effect to the cashless exercise feature of the Warrants. Upon the
receipt of such written request, the Company shall promptly give written notice
to all other record holders (as of the date of delivery of such written notice)
of the Registrable Securities that such registration statement is to be filed
and shall include in such registration statement Registrable Securities for
which it has received written requests within ten (10) days after the Company
gives such written notice. Such other requesting record holders shall
be deemed to have exercised their demand registration right under this Section
11.1(i).
(ii) If
the Company at any time proposes to register any of its securities under the
1933 Act for sale to the public, whether for its own account or for the account
of other security holders or both, except with respect to registration
statements on Forms S-4, S-8 or another form not available for registering the
Registrable Securities for sale to the public, provided the Registrable
Securities are not otherwise registered for resale by the Subscribers or Holder
pursuant to an effective registration statement, each such time it will give at
least ten (10) days’ prior written notice to the record holders (as of the date
of delivery of such written notice) of the Registrable Securities of its
intention so to do. Upon the written request of the holder that is received by
the Company within ten (10) days after the giving of any such notice by the
Company to register any of the Registrable Securities not previously registered,
the Company will cause such Registrable Securities as to which registration
shall have been so requested to be included with the securities to be covered by
the registration statement proposed to be filed by the Company, all to the
extent required to permit the sale or other disposition of the Registrable
Securities so registered by the holder of such Registrable Securities (each, a
“Seller” and together,
the “Sellers”). In the
event that any registration pursuant to this Section 11.1(ii) shall be, in whole
or in part, an underwritten public offering of common stock of the Company, the
number of shares of Registrable Securities to be included in such an
underwriting may be reduced on a pro rata basis among the record holders so
requesting registration by the managing underwriter if and to the extent that
the Company and the underwriter shall reasonably be of the opinion that such
inclusion would adversely affect the marketing of the securities to be sold by
the Company therein; provided,
however, that the Company shall notify the Seller in writing of any such
reduction. Unless the Holder notifies the Company in writing that it elects to
deem the registration statement filed or to be filed pursuant to this Section
11.1(ii) as a registration statement filed or to be filed pursuant to Section
11.1(ii), the Company may withdraw or delay or suffer a delay of any
registration statement referred to in this Section 11.1(ii) without thereby
incurring any liability to the Sellers.
(iii) If,
at the time any written request for registration is received by the Company
pursuant to Section 11.1(i) hereof, the Company has determined to proceed with
the actual preparation and filing of a registration statement under the 1933 Act
in connection with the proposed offer and sale for cash of any of its securities
for the Company’s own account and the Company actually does file such other
registration statement, such written request shall be deemed to have been given
pursuant to Section 11.1(ii) rather than Section 11.1(i), and the rights of the
holders of Registrable Securities covered by such written request shall be
governed by Section 11.1(ii).
(iv)
The Company shall file with the Commission a
registration statement on Form S-1 (the “Registration Statement”) (or
such other form that it is eligible to use) in order to register the Registrable
Securities for resale and distribution under the 1933 Act within ninety (90)
days after the Closing Date or, if more than one Closing, the last Closing Date
(the “Filing Date”), and
use its commercially reasonable best efforts to cause the Registration Statement
to be declared effective not later than one hundred and eighty (180) days after
such Closing Date (the “Effective
Date”). The Company will register not less than a number of
shares of common stock in the aforedescribed registration statement that is
equal to 150% of the Conversion Shares issued and issuable upon conversion of
Preferred Stock including dividends at the default rate and 100% of the Warrant
Shares issuable upon exercise of the Warrants and Bridge Warrants (collectively
the “Registrable
Securities”). In the event that the Company is required by the Commission
to cutback the number of shares being registered in the Registration Statement
pursuant to Rule 415, the Company shall reduce the Registrable Securities in the
order and priority set forth on Schedule 11.1(iv). The
Registrable Securities shall be reserved and set aside exclusively for the
benefit of each Subscriber and Warrant holder, prorata, and not issued,
employed or reserved for anyone other than each Subscriber and Warrant
holder. The Registration Statement will immediately be amended or
additional registration statements will be immediately filed by the Company as
necessary to register additional shares of Common Stock to allow the public
resale of all Common Stock included in and issuable by virtue of the Registrable
Securities. Except as set forth on Schedule
11.1(iv), without the written consent of the Subscribers, no securities
of the Company other than the Registrable Securities will be included in the
Registration Statement. It shall be deemed a
Non-Registration Event (as defined herein) if at any time after the date the
Registration Statement is declared effective by the Commission (“Actual Effective Date”) the
Company has registered for unrestricted resale on behalf of the Subscribers
fewer than 110% of the amount of Common Shares issuable upon full conversion of
all sums due under the Preferred Stock and Warrant Shares (the difference
between such 110% and the actual amount of shares registered being referred to
herein as the “Shortfall”). In
such event, the Company shall take all actions necessary to cause at least 150%
of the amount of shares of Common Stock issuable upon full conversion of all
sums due under the Preferred Stock and 100% of the Warrant Shares to be
registered within sixty (60) days after the first day such Shortfall
exists. Failure to file the Registration Statement within thirty (30)
days after the first day such Shortfall first exists or failure to cause such
registration to become effective within sixty (60) days after such
Shortfall first exists shall be a Non-Registration Event.
11.2. Registration
Procedures. If and whenever the Company is required by the provisions of
Section 11.1 to effect the registration of any Registrable Securities under the
1933 Act, the Company will, as expeditiously as possible:
(a) subject
to the timelines provided in this Agreement, (i) prepare and file with the
Commission a registration statement required by Section 11.1 with respect to
such Registrable Securities and use its commercially reasonable best efforts to
cause such registration statement to become and remain effective for the period
of the distribution contemplated thereby (determined as herein provided), (ii)
promptly provide to the holders of the Registrable Securities copies of all
filings and Commission letters of comment and notify the Sellers (by telecopier
and by e-mail addresses provided by the Subscribers) and Grushko & Mittman,
P.C. (by telecopier and by email to counslers@aol.com) on
or before the second (2nd)
business days thereafter that the Company receives notice that (A) the
Commission has no comments or no further comments on the registration statement,
and (B) the registration statement has been declared effective (failure to
timely provide notice as required by this Section 11.2(a) shall be a material
breach of the Company’s obligation and an Event of Default as defined in the
Preferred Stock and a Non-Registration Event as defined in Section 11.4 of this
Agreement);
(b) prepare
and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective until such registration
statement has been effective for a period of one (1) year, and comply with the
provisions of the 1933 Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance with
the Sellers’ intended method of disposition set forth in such registration
statement for such period;
(c) furnish
to the Sellers, at the Company’s expense, such number of copies of the
registration statement and the prospectus included therein (including each
preliminary prospectus) as such persons reasonably may request in order to
facilitate the public sale or their disposition of the securities covered by
such registration statement, or make them electronically available;
(d) use
its commercially reasonable best efforts to register or qualify the Registrable
Securities covered by such registration statement under the securities or “blue
sky” laws of New York and such jurisdictions as the Sellers shall request in
writing, provided,
however, that the Company shall not for any such purpose be required to
qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;
(e) as
applicable, list or make available for quotation the Registrable Securities
covered by such registration statement with any securities exchange or quotation
system on which the Common Stock of the Company is then listed or
quoted;
(f) notify
the Sellers within two (2) business days of the happening of any event of which
the Company has knowledge as a result of which the prospectus contained in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, or which becomes subject to a Commission, state or
other governmental order suspending the effectiveness of the registration
statement covering any of the Registrable Securities;
(g) provided
same would not be in violation of the provision of Regulation FD under the 1934
Act, make available for inspection during reasonable business hours by the
Sellers and any attorney, accountant or other agent retained by the Sellers, all
publicly available, non-confidential financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company’s
officers, directors and employees to make available all publicly available,
non-confidential information reasonably requested by the Sellers, attorney,
accountant or agent in connection with such registration statement at such
requesting Seller’s expense; and
(h) provide
to the Sellers copies of the Registration Statement and amendments thereto at
least five (5) days prior to the filing thereof with the
Commission. A Seller’s failure to comment on any registration
statement or other document provided to a Subscriber or its counsel shall be
construed to constitute approval thereof nor the accuracy thereof.
11.3. Provision of
Documents. In connection with each registration described in
this Section 11, each Seller will furnish to the Company in writing such
information and representation letters with respect to itself and the proposed
distribution by it as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.
11.4. Non-Registration
Events. The Company agrees that the Sellers will suffer
damages if the Registration Statement is not filed by the Filing Date and not
declared effective by the Commission within sixty (60) days after the Effective
Date, and any registration statement required under Section 11.1(i) or 11.1(ii)
is not filed within ninety (90) days after written request and declared
effective by the Commission within one hundred eighty (180 ) days after such
request, and maintained in the manner and within the time periods contemplated
by Section 11 hereof, and it would not be feasible to ascertain the extent of
such damages with precision. Accordingly, if (A) the Registration
Statement is not filed on or before the Filing Date, (B) the Registration
Statement is not declared effective on or before sixty (60) days after the
Effective Date, (C) due to the intentional action or inaction of the Company the
Registration Statement is not declared effective within five (5) business days
after receipt by the Company or its attorneys of a written or oral communication
from the Commission that the Registration Statement will not be reviewed or that
the Commission has no further comments, (D) if the registration statement
described in Section 11.1(i) or 11.1(ii) is not filed within ninety (90) days
after such written request, or is not declared effective within one hundred
eighty (180) days after such written request, or (E) any registration statement
described in Sections 11.1(i), 11.1(ii) or 11.1(iv) is filed and declared
effective but shall thereafter cease to be effective without being succeeded
within thirty (30) business days by an effective replacement or amended
registration statement or for a period of time which shall exceed sixty (60)
days in the aggregate per year (defined as every rolling period of 365
consecutive days commencing on the Actual Effective Date) (each such event
referred to in clauses A through E of this Section 11.4 is referred to herein as
a “Non-Registration
Event”), then the Company shall pay to the holder of Registrable
Securities, as “Liquidated
Damages”, an amount equal to one percent (1%) for each thirty (30) days
(or such lesser pro-rata amount for any period of less than thirty (30) days) of
the lesser of the (i) purchase price of the outstanding Preferred Stock and (ii)
purchase price of the Conversion Shares and Warrant Shares issued upon
conversion of Preferred Stock and exercise (but excluding cashless exercise) of
Warrants held by Subscribers which are subject to such Non-Registration
Event. The Company may pay the Liquidated Damages in cash or
securities. The Liquidated Damages must be paid within ten (10)
business days after the end of each thirty (30) day period or shorter part
thereof for which Liquidated Damages are payable. In the event a
Registration Statement is filed by the Filing Date but is withdrawn prior to
being declared effective by the Commission, then such Registration Statement
will be deemed to have not been filed and Liquidated Damages will be calculated
accordingly. All oral or written comments received from the
Commission relating to a registration statement must be responded to within
twenty (20) business days after receipt of comments from the
Commission. Failure to timely respond to Commission comments is a
Non-Registration Event for which Liquidated Damages shall accrue and be payable
by the Company to the holders of Registrable Securities at the same rate and
amounts set forth above, calculated from the date the response was required to
have been made. Liquidated Damages shall not be payable pursuant to
this Section 11.4 in connection with Registrable Securities for such times as
such Registrable Securities may be sold by the holder thereof without volume
limitations or other restrictions pursuant to Section 144(b)(1)(i) of the 1933
Act. The Company shall not be liable for Liquidated Damages under this Agreement
as to any Registrable Securities which are not permitted by the Commission to be
included in a Registration Statement due solely to Commission guidance from the
time that it is determined that such Registrable Securities are not permitted to
be registered until such time as the provisions of this Agreement as to the
Registration Statements required to be filed hereunder are triggered, in which
case the provisions of this Section 11.4 shall once again apply. In
such case, the Liquidated Damages shall be calculated to only apply to the
percentage of Registrable Securities which are permitted in accordance with
Commission guidance to be included in such Registration Statement. The Company may
require, from time to time, information by a holder of the Securities that is
necessary to complete the Registration Statement
in accordance with the requirements of the 1933. In the event of the
failure by such holder to comply with the Company’s request within seven (7)
business days from the date of such request, the Company shall be permitted to
exclude such holder from a Registration Statement without being subject to the
payment of any amount of Liquidated Damages to such holder. At such time that
such holder complies with the Company’s request, the Company shall use its
reasonable best efforts to include such holder in the Registration Statement.
11.5. Expenses. All
expenses incurred by the Company in complying with Section 11, including,
without limitation, all registration and filing fees, printing expenses (if
required), fees and disbursements of Company counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or “blue sky”
laws, fees of FINRA, and fees of transfer agents and registrars are herein
called “Registration
Expenses.” All underwriting discounts, selling commissions and transfer
applicable to the sale of Registrable Securities are herein called “Selling
Expenses.” The Company will pay all Registration Expenses in
connection with any registration statement described in Section
11. Selling Expenses in connection with each such registration
statement shall be borne by the Seller and may be apportioned among the Sellers
in proportion to the number of shares included on behalf of the Seller relative
to the aggregate number of shares included under such registration statement for
all Sellers, or as all Sellers thereunder may agree.
11.6. Indemnification and
Contribution.
(a) In
the event of a registration of any Registrable Securities under the 1933 Act
pursuant to Section 11, the Company will, to the extent permitted by law,
indemnify and hold harmless the Seller and each of the officers, directors,
agents, Affiliates, members, managers, control persons, and principal
shareholders of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities to which such Seller or person may become
subject under the 1933 Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement of any material fact contained in any registration
statement under which such Registrable Securities was registered under the 1933
Act pursuant to Section 11, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances when made, and will, subject to the
provisions of Section 11.6(c), reimburse such Seller for any reasonable legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable to the Seller to the extent that any such damages
arise out of or are based upon an untrue statement or omission made in any
preliminary prospectus if (i) the Seller failed to send or deliver a copy of the
final prospectus delivered by the Company to the Seller with or prior to the
delivery of written confirmation of the sale by the Seller to the person
asserting the claim from which such damages arise, (ii) the final prospectus
would have corrected such untrue statement or alleged untrue statement or such
omission or alleged omission, or (iii) to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by any such Seller in writing specifically for use in
such registration statement or prospectus.
(b) In
the event of a registration of any of the Registrable Securities under the 1933
Act pursuant to Section 11, each Seller, severally but not jointly, will, to the
extent permitted by law, indemnify and hold harmless the Company, and each
person, if any, who controls the Company within the meaning of the 1933 Act,
each officer of the Company who signs the registration statement, each director
of the Company, each underwriter and each person who controls any underwriter
within the meaning of the 1933 Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer, director,
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement
under which such Registrable Securities were registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Seller will be liable hereunder
in any such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such Seller, as such, furnished in
writing to the Company by such Seller specifically for use in such registration
statement or prospectus, and provided, further, however,
that the liability of the Seller hereunder shall be limited to the net proceeds
actually received by the Seller from the sale of Registrable Securities pursuant
to such registration statement.
(c) Promptly
after receipt by an indemnified party hereunder of notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party hereunder, notify the indemnifying party in
writing thereof, but the omission to so notify the indemnifying party shall not
relieve the indemnifying party from any liability which it may have to such
indemnified party other than under this Section 11.6(c), and shall only relieve
it from any liability which it may have to such indemnified party under this
Section 11.6(c), except and only if and to the extent the indemnifying party is
materially prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election to so assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 11.6(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided,
however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to
indemnified party which are different from or additional to those available to
the indemnifying party or if the interests of the indemnified party reasonably
may be deemed to conflict with the interests of the indemnifying party, the
indemnified parties, as a group, shall have the right to select one separate
counsel, reasonably satisfactory to the indemnified and indemnifying party, and
to assume such legal defenses and otherwise to participate in the defense of
such action, with the reasonable expenses and fees of such separate counsel and
other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
(d) In
order to provide for just and equitable contribution in the event of joint
liability under the 1933 Act in any case in which either (i) a Seller, or any
controlling person of a Seller, makes a claim for indemnification pursuant to
this Section 11.6 but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 11.6 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
not provided under this Section 11.6, then, and in each such case, the Company
and the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities sold by it pursuant
to such registration statement; and (z) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation; and provided, further, however,
that the liability of the Seller hereunder shall be limited to the net proceeds
actually received by the Seller from the sale of Registrable Securities pursuant
to such registration statement.
11.7. Unlegended Shares and 144
Sales.
(a) Delivery of Unlegended
Shares. Within five (5) days (such fifth (5th) day
being the “Unlegended Shares
Delivery Date”) after the day on which the Company has received (i) a
notice that Conversion Shares, Warrant Shares or any other Common Stock held by
Subscriber has been sold pursuant to a registration statement or Rule 144 under
the 1933 Act, (ii) a representation that the prospectus delivery requirements,
or the requirements of Rule 144, as applicable and if required, have been
satisfied, (iii) the original share certificates representing the shares of
Common Stock that have been sold, and (iv) in the case of sales under Rule 144,
customary representation letters of Subscriber and, if required, Subscriber’s
broker regarding compliance with the requirements of Rule 144, the Company, at
its expense, (y) shall deliver, and shall cause legal counsel selected by the
Company to deliver to its transfer agent (with copies to Subscriber) an
appropriate instruction directing the delivery of shares of Common Stock without
any legends including the legend set forth in Section 4(h) above (the “Unlegended Shares”); and (z)
cause the transmission of the certificates representing the Unlegended Shares,
together with a legended certificate representing the balance of the submitted
Common Stock certificate, if any, to Subscriber at the address specified in the
notice of sale, via express courier, by electronic transfer or otherwise on or
before the Unlegended Shares Delivery Date.
(b) DWAC. In
lieu of delivering physical certificates representing the Unlegended Shares,
upon request of the Subscribers, so long as the certificates therefor do not
bear a legend and Subscriber is not obligated to return such certificate for the
placement of a legend thereon, the Company shall cause its transfer agent to
electronically transmit the Unlegended Shares by crediting the account of
Subscriber’s prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission system, if such transfer agent participates in such
DWAC system. Such delivery must be made on or before the Unlegended
Shares Delivery Date.
(c) Late Delivery of Unlegended
Shares. The Company understands that a delay in the
delivery of the Unlegended Shares pursuant to Section 11.7 hereof later than the
Unlegended Shares Delivery Date could result in economic loss to a
Subscriber. As compensation to a Subscriber for such loss, the
Company agrees to pay late payment fees (as liquidated damages and not as a
penalty) to Subscriber for late delivery of Unlegended Shares in the amount of
$100 per business day after the Unlegended Shares Delivery Date for each $10,000
of purchase price of the Unlegended Shares, subject to the delivery default;
provided that such
delay is not the direct or indirect result of Subscriber’s actions or
omissions. If during any three hundred sixty (360) day period, the
Company fails to deliver Unlegended Shares as required by this Section 11.7 for
an aggregate of thirty (30) days, then each Subscriber or assignee holding
Securities subject to such default may, at its option, require the Company to
redeem all or any portion of the Unlegended Shares subject to such default at a
price per share equal to the greater of (i) 110% of the Purchase Price paid by
Subscriber for the Unlegended Shares that were not timely delivered, or (ii) a
fraction in which the numerator is the highest closing price of the Common Stock
during the aforedescribed thirty day period and the denominator of which is the
lowest conversion price or exercise price, as the case may be, during such
thirty (30) day
period, multiplied by the price paid by Subscriber for such Common Stock (“Unlegended Redemption
Amount”). The Company shall promptly pay any payments incurred
under this Section in immediately available funds upon demand.
(d) Injunction. In
the event a Subscriber shall request delivery of Unlegended Shares as described
in Section 11 and the Company is required to deliver such Unlegended Shares
pursuant to Section 11.7, the Company may not refuse to deliver Unlegended
Shares based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has not complied with Subscriber’s obligations
under the Transaction Documents, or for any other reason, unless, an injunction
or temporary restraining order from a court, on notice, restraining and or
enjoining delivery of such Unlegended Shares shall have been sought and obtained
by the Company and the Company has posted a surety bond for the benefit of such
Subscriber in the amount of the greater of (i) 125% of the amount of the
aggregate purchase price of the Common Stock which is subject to the injunction
or temporary restraining order, (ii) the closing price of the Common Stock on
the trading day before the issue date of the injunction multiplied by the number
of Unlegended Shares to be subject to the injunction, which bond shall remain in
effect until the completion of arbitration/litigation of the dispute and the
proceeds of which shall be payable to such Subscriber to the extent Subscriber
obtains judgment in Subscriber’s favor.
(e) Buy-In. In
addition to any other rights available to Subscriber, if the Company fails to
deliver to Subscriber Unlegended Shares as required pursuant to this Agreement
and after the Unlegended Shares Delivery Date Subscriber, or a broker on
Subscriber’s behalf, purchases (in an open market transaction or otherwise)
shares of common stock to deliver in satisfaction of a sale by such Subscriber
of the shares of Common Stock which Subscriber was entitled to receive from the
Company (a “Buy-In”),
then the Company shall promptly pay in cash to Subscriber (in addition to any
remedies available to or elected by Subscriber) the amount by which (A)
Subscriber’s total purchase price (including brokerage commissions, if any) for
the shares of common stock so purchased exceeds (B) the aggregate purchase price
of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares together with interest thereon at a rate of 15% per annum
accruing until such amount and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a
penalty). For purposes of illustration only, if Subscriber purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to $10,000 of purchase price of shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, the Company shall
be required to pay the Subscriber $1,000, plus interest. Subscriber shall
promptly provide the Company written notice indicating the amounts payable to
Subscriber in respect of the Buy-In, including, evidence regarding the purchase
of common stock for which the Buy-In is implemented.
(e) 144
Default. At any time commencing six (6) months after the
Closing Date, in the event Subscriber is not permitted to sell any of the
Conversion Shares or Warrant Shares without any restrictive legend, or if such
sales are permitted but subject to volume limitations or further restrictions on
resale as a result of the unavailability to Subscriber of Rule 144(b)(1)(i)
under the 1933 Act or any successor rule (a “144 Default”), for any reason,
including, but not limited to, failure by the Company to file quarterly, annual
or any other filings required to be made by the Company by the required filing
dates (provided that any filing made within the time for a valid extension shall
be deemed to have been timely filed), or the Company’s failure to make
information publicly available which would allow Subscriber’s reliance on Rule
144 in connection with sales of Conversion Shares or Warrant Shares, except due
to a change in current applicable securities laws or because Subscriber is an
Affiliate (as defined under Rule 144) of the Company, then the Company shall pay
such Subscriber as liquidated damages and not as a penalty for each thirty (30)
days (or such lesser pro-rata amount for any period less than thirty (30) days)
an amount equal to one percent (1%) of the purchase price of the Conversion
Shares and Warrant Shares subject to such 144 Default. Liquidated
Damages shall not be payable pursuant to this Section 11.7(e) in connection with
Conversion Shares or Warrant Shares for such times as such shares may be sold by
the holder thereof without any legend or volume or other restrictions pursuant
to Section 144(b)(1)(i) of the 1933 Act or pursuant to an effective registration
statement.
12. (a) Favored Nations
Provision. Other than in connection with (i) full or partial
consideration in connection with a strategic merger, acquisition, consolidation
or purchase of substantially all of the securities or assets of a corporation or
other entity, so long as such issuances are not for the purpose of raising
capital and which holders of such securities or debt are not at any time granted
registration rights, (ii) the Company’s issuance of securities in connection
with strategic license agreements and other partnering arrangements, so long as
such issuances are not for the purpose of raising capital and which holders of
such securities or debt are not at any time granted registration rights, (iii)
the Company’s issuance of Common Stock or the issuances or grants of options to
purchase Common Stock to employees, directors, and consultants, pursuant to
plans described on Schedule
5(d) , (iv) securities upon the exercise or exchange of or conversion of
any securities exercisable or exchangeable for or convertible into shares of
Common Stock issued and outstanding on the date of this Agreement on the terms
disclosed in the Reports and which securities
are also described on Schedule
12(a), and (v) as a result of the exercise of Warrants or conversion of
Preferred Stock which are granted or issued pursuant to this Agreement on the
unamended terms in effect on the Closing Date (collectively, the foregoing (i)
through (v) are “Excepted
Issuances”), if at any time the Preferred Stock or Warrants are
outstanding, the Company shall agree to or issue (the “Lower Price Issuance”) any
Common Stock or securities convertible into or exercisable for shares of Common
Stock (or modify any of the foregoing which may be outstanding) to any Person at
a price per share or conversion or exercise price per share which shall be less
than the Conversion Price in effect at such time or the Warrant exercise price
in effect at such time, as applicable, without the consent of the Subscribers,
then the Conversion Price and Warrant exercise price, as applicable, shall
automatically be reduced to such other lower price. The average
Conversion Price of the Conversion Shares and average exercise price in relation
to the Warrant Shares shall be calculated separately for the Conversion Shares
and Warrant Shares. Common Stock issued or issuable by the Company
for no consideration or for consideration that cannot be determined at the time
of issue will be deemed issuable or to have been issued for $0.0001 per share of
Common Stock. For purposes of the issuance and adjustments described
in this paragraph, the issuance of any security of the Company carrying the
right to convert such security into shares of Common Stock or any warrant, right
or option to purchase Common Stock shall result in the issuance of the
additional shares of Common Stock upon the sooner of (A) the agreement to or (B)
actual issuance of such convertible security, warrant, right or options and
again at any time upon any subsequent issuances of shares of Common Stock upon
exercise of such conversion or purchase rights if such issuance is at a price
lower than the Conversion Price or Warrant exercise price, as applicable, in
effect upon such issuance. The rights of the Subscribers set forth in
this Section 12 are in addition to any other rights the Subscribers have
pursuant to this Agreement, the Preferred Stock, Warrants or any other
Transaction Document.
(b) Right of First
Refusal. Until one (1) year following the Closing Date, the
Subscribers shall be given not less than fifteen (15) days prior written notice
of any proposed sale by the Company of its common stock or other securities or
equity linked debt obligations (“Other Offering”), except in
connection with the Excepted Issuances. If the Subscribers elect to
exercise their rights pursuant to this Section 12(b), the Subscribers shall have
the right during the fifteen (15) days following receipt of the notice, to
purchase in the aggregate up to all of such offered
common stock, debt or other securities in accordance with the terms and
conditions set forth in the notice of sale, relative to each other in proportion
to the amount of Preferred Stock issued to them on the Closing
Date. Subscribers who participate in such Other Offering shall be
entitled at their option to purchase, in proportion to each other, the amount of
such Other Offering that could have been purchased by Subscribers who do not
exercise their rights hereunder until up to the entire Other Offering is
purchased by the Subscribers. In the event such terms and conditions
are modified during the notice period, Subscribers shall be given prompt notice
of such modification and shall have the right during the fifteen (15) days
following the notice of modification to exercise such right.
(c) Maximum Exercise of
Rights. Notwithstanding the foregoing, in the event the
exercise of the rights described in Section 12(a) and Section 12(b) would or
could result in the issuance of an amount of Common Stock of the Company that
would exceed the maximum amount that may be issued to a Subscriber as described
in Section 2D of the Certificate of Designation and Section 9 of the Warrant,
then the issuance of such additional shares of Common Stock of the Company to
such Subscriber will be deferred in whole or in part until such time as such
Subscriber is able to beneficially own such Common Stock without exceeding the
applicable maximum amount set forth and such Subscriber notifies the Company
accordingly.
13. Special
Conditions. On November 5, 2010, the Company issued an
aggregate of $200,000 in Convertible Promissory Notes (“Bridge Notes”) and Warrants to
the parties described on Schedule 13 hereto (“Bridge
Lenders”). The Bridge Lenders intend to become Subscribers
pursuant to this Agreement and pay for the Preferred Stock and Warrants to be
acquired hereunder by surrender of the Bridge Notes at an agreed value of the
$200,000 principal amount of the Bridge Notes and accrued interest (“Interest”) on the Bridge Notes
through the Closing Date on the amounts as set forth on Schedule 1 and
signature pages hereto. Together with such surrendered Bridge Notes
and Interest, the Bridge Lenders will deliver to the Escrow Agent, who shall
accept same on behalf of the Company pending Closing or Initial Closing, as the
case may be, the original Bridge Notes. Upon Closing or Initial
Closing, as the case may be, all of the Company’s obligations to the Bridge
Lenders pursuant to or in connection with the Bridge Notes and any other
agreement in connection with the issuance and/or amendment of the Bridge Notes
will be fully satisfied.
14. Miscellaneous.
(a) Notices. All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice in accordance with this Section 14(a). Any notice
or other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile with accurate
confirmation generated by the transmitting facsimile machine at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received, or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be: (i) if to the
Company, to: GoEnergy Inc., c/o Kick The Can Corp., 1010 Avenue of the Americas,
Suite 302, New York, NY 10018, Attn: Gareb Shamus, facsimile: (212) 765-5779,
with a copy by fax only to (which shall not constitute notice): Anslow &
Jaclin, LLP, 195 Route 9 South, Manalapan, NJ 07726, Attn: Joseph M. Lucosky,
Esq., facsimile: (732) 577-1188, and (ii) if to a Subscriber, to: the addresses
and fax numbers indicated on Schedule
1 hereto, with an additional copy by fax only to (which shall not
constitute notice): Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley
Stream, New York 11581, facsimile: (212) 697-3575.
(b) Entire Agreement;
Assignment. This Agreement and other documents delivered in
connection herewith represent the entire agreement between the parties hereto
with respect to the subject matter hereof and may be amended only by a writing
executed by all parties. Neither the Company nor the Subscribers has
relied on any representations not contained or referred to in this Agreement or
the other Transaction Documents. No right or obligation of the
Company shall be assigned without prior notice to and the written consent of the
Subscribers.
(c) Counterparts/Execution. This
Agreement may be executed in any number of counterparts and by the different
signatories hereto on separate counterparts, each of which, when so executed,
shall be deemed an original, but all such counterparts shall constitute but one
and the same instrument. This Agreement may be executed by facsimile
transmission, PDF, electronic signature or other similar electronic means with
the same force and effect as if such signature page were an original
thereof.
(d) Law Governing this
Agreement. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without regard to
principles of conflicts of laws thereof or any other State. Any action brought
by any party hereto against the other concerning the transactions contemplated
by this Agreement shall be brought only in the state courts of New York or in
the federal courts located in the state and county of New York. The
parties to this Agreement hereby irrevocably waive any objection to jurisdiction
and venue of any action instituted hereunder and shall not assert any defense
based on lack of jurisdiction or venue or based upon forum non
conveniens. The parties executing this Agreement
and other agreements referred to herein or delivered in connection herewith on
behalf of the Company agree to submit to the in personam jurisdiction of such
courts and hereby irrevocably waive trial by jury. The
prevailing party shall be entitled to recover from the other party its
reasonable attorney’s fees and costs. In the event that any provision
of this Agreement or any other agreement delivered in connection herewith is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other
provision of any agreement. Each party hereto hereby irrevocably
waives personal service of process and consents to process being served in any
suit, action or proceeding in connection with this Agreement or any other
Transaction Document 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 Agreement 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 law.
(e) Specific Enforcement,
Consent to Jurisdiction. The Company and each Subscriber
hereby irrevocably waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction in
New York of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. Nothing in this Section shall affect or limit any right to
serve process in any other manner permitted by law. Subject to
Section 13(d) hereof, the Company and the Subscribers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties hereto
shall be entitled to seek an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof, this being in addition to any other remedy to which
any of them may be entitled by law or equity. .
(f) Damages. In
the event the Subscriber is entitled to receive any liquidated or other damages
pursuant to the Transactions Documents, the Subscriber may elect to receive the
greater of actual damages or such liquidated damages. In the event
the Subscriber is granted rights under different sections of the Transaction
Documents relating to the same subject matter or which may be exercised
contemporaneously, or pursuant to which damages or remedies are different,
Subscriber is granted the right in Subscriber’s absolute discretion to proceed
under such section as Subscriber elects.
(g) Maximum
Payments. Nothing contained herein or in any document
referred to herein or delivered in connection herewith 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 or dividends 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 Subscribers and
thus refunded to the Company. The Company agrees that it may not and
actually waives any right to challenge the effectiveness or applicability of
this Section 14(g).
(h) Calendar
Days. All references to “days” in the Transaction
Documents shall mean calendar days unless otherwise stated. The terms
“business days” and “trading days” shall mean days that the New York Stock
Exchange is open for trading for three or more hours. Time periods
shall be determined as if the relevant action, calculation or time period were
occurring in New York City. Any deadline that falls on a non-business
day in any of the Transaction Documents shall be automatically extended to the
next business day and interest, if any, shall be calculated and payable through
such extended period.
(i)
Captions; Certain
Definitions. The captions of the various sections and
paragraphs of this Agreement have been inserted only for the purposes of
convenience; such captions are not a part of this Agreement and shall not be
deemed in any manner to modify, explain, enlarge or restrict any of the
provisions of this Agreement. As used in this Agreement the term
“person” shall
mean and include an individual, a partnership, a joint venture, a corporation, a
limited liability company, a trust, an unincorporated organization and a
government or any department or agency thereof.
(j)
Consent. As
used in this Agreement and the other Transaction Documents and any other
agreement delivered in connection herewith, “Consent of the Subscribers” or
similar language means the consent of all holders of the outstanding Preferred
Stock on the date consent is requested. The Subscribers may consent
to take or forebear from any action permitted under or in connection with the
Transaction Documents, modify any Transaction Documents or waive any default or
requirement applicable to the Company, the Subsidiaries or the Subscribers under
the Transaction Documents, provided the effect of such
action does not waive any accrued interest or damages and further provided that
the relative rights of the Subscribers to each other remains
unchanged.
(k) Severability. In
the event that any term or provision of this Agreement shall be finally
determined to be superseded, invalid, illegal or otherwise unenforceable
pursuant to applicable law by an authority having jurisdiction and venue, that
determination shall not impair or otherwise affect the validity, legality or
enforceability: (i) by or before that authority of the remaining terms and
provisions of this Agreement, which shall be enforced as if the unenforceable
term or provision were deleted, or (ii) by or before any other authority of any
of the terms and provisions of this Agreement.
(l)
Successor
Laws. References in the Transaction Documents to laws, rules,
regulations and forms shall also include successors to and functionally
equivalent replacements of such laws, rules, regulations and forms. A
successor rule to Rule 144(b)(1)(i) shall include any rule that would be
available to a non-Affiliate of the Company for the sale of Common Stock not
subject to volume restrictions and after a six month holding
period.
(m) Maximum
Liability. In no event shall the liability of the
Subscribers or permitted assign hereunder or under any Transaction Document or
other agreement delivered in connection herewith be greater in amount than the
dollar amount of the net proceeds actually received by such Subscriber or
successor upon the sale of Conversion Shares.
(n) Independent Nature of
Subscribers. The Company acknowledges that the
obligations of each Subscriber under the Transaction Documents are several and
not joint with the obligations of any other Subscriber, and no Subscriber shall
be responsible in any way for the performance of the obligations of any other
Subscriber under the Transaction Documents. The Company acknowledges that each
Subscriber has represented that the decision of each Subscriber to purchase
Securities has been made by such Subscriber independently of any other
Subscriber and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
other Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions. The Company
acknowledges that nothing contained in any Transaction Document, and no action
taken by any Subscriber pursuant hereto or thereto shall be deemed to constitute
the Subscribers as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Subscribers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company
acknowledges that it has elected to provide all Subscribers with the same terms
and Transaction Documents for the convenience of the Company and not because
Company was required or requested to do so by the Subscribers. The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption that the Subscribers are in any way acting in concert
or as a group with respect to the Transaction Documents or the transactions
contemplated thereby.
(o) Equal
Treatment. No consideration shall be offered or paid to
any person to amend or consent to a waiver or modification of any provision of
the Transaction Documents unless the same consideration is also offered and paid
to all the Subscribers and their permitted successors and assigns.
(p) Adjustments. The
conversion price, Warrant exercise price, amount of Conversion Shares and
Warrant Shares, trading volume amounts, price/volume amounts and similar figures
in the Transaction Documents shall be equitably adjusted and as otherwise
described in this Agreement, the Certificate of Designation and
Warrants.
[-SIGNATURE PAGES
FOLLOW-]
SIGNATURE PAGE TO
SUBSCRIPTION AGREEMENT (A)
Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.
|
GOENERGY
INC. |
|
a
Delaware corporation |
|
|
|
By: |
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|
Name: |
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Title: |
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Dated: December ___,
2010 |
SUBSCRIBER |
|
PURCHASE
PRICE |
|
|
PREFERRED
STOCK |
|
|
WARRANTS |
|
ALPHA
CAPITAL ANSTALT
Pradafant
7
9490
Furstentums
Vaduz,
Lichtenstein
Fax
No.: 011-42-32323196 |
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$ |
300,000.00 |
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|
|
3,000 |
|
|
|
150,000 |
|
Taxpayer ID# (if
applicable): |
|
|
SIGNATURE PAGE TO
SUBSCRIPTION AGREEMENT (B)
Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.
|
GOENERGY
INC. |
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a
Delaware corporation |
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By: |
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Name: |
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Title: |
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Dated: December ___,
2010 |
SUBSCRIBER |
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PURCHASE
PRICE |
|
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PREFERRED
STOCK |
|
|
WARRANTS |
|
MOMONA CAPITAL
LLC
150
Central Park South, 2nd
Floor
New
York, NY 10019
Fax:
(212) 586-8244 |
|
$ |
25,000.00 |
|
|
|
250 |
|
|
|
12,500 |
|
Taxpayer ID# (if
applicable): |
|
|
SIGNATURE PAGE TO
SUBSCRIPTION AGREEMENT (C)
Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.
|
GOENERGY
INC. |
|
a
Delaware corporation |
|
|
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By: |
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|
|
Name: |
|
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Title: |
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Dated: December ___,
2010 |
SUBSCRIBER |
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PURCHASE
PRICE |
|
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PREFERRED
STOCK |
|
|
WARRANTS |
|
BRISTOL INVESTMENT
FUND, LTD.
c/o
Bristol Capital Advisors, LLC
6353
W. Sunset Blvd., Suite 4006
Hollywood, CA
90028
Attn:
Amy Wang, Esq.
Fax:
(323) 960-3805 |
|
$ |
250,000.00 |
* |
|
|
2,500 |
|
|
|
125,000 |
|
Taxpayer ID# (if
applicable): |
|
|
* Bristol
Investment Fund, Ltd. is surrendering a Bridge Note in the principal amount of
$50,000.
SIGNATURE PAGE TO
SUBSCRIPTION AGREEMENT (D)
Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.
|
GOENERGY
INC. |
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a
Delaware corporation |
|
|
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By: |
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|
|
Name: |
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Title: |
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Dated: December ___,
2010 |
SUBSCRIBER |
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PURCHASE
PRICE |
|
|
PREFERRED
STOCK |
|
|
WARRANTS |
|
CANYONS
TRUST
c/o
Bristol Capital Advisors, LLC
6353
W. Sunset Blvd., Suite 4006
Hollywood, CA
90028
Attn:
Amy Wang, Esq.
Fax:
(323) 960-3805 |
|
$ |
100,000.00 |
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|
|
1,000 |
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|
|
50,000 |
|
Taxpayer ID# (if
applicable): |
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SIGNATURE PAGE TO
SUBSCRIPTION AGREEMENT (E)
Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.
|
GOENERGY
INC. |
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a
Delaware corporation |
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|
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By: |
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|
|
Name: |
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Title: |
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|
|
Dated: December ___,
2010 |
SUBSCRIBER |
|
PURCHASE
PRICE |
|
|
PREFERRED
STOCK |
|
|
WARRANTS |
|
Name
of Subscriber: |
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Address: |
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Taxpayer ID# (if
applicable): |
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or
Social Security # |
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LIST OF EXHIBITS AND
SCHEDULES
Exhibit
A |
|
Certificate of
Designation |
Exhibit
B |
|
Form
of Series A Warrants |
Exhibit
C |
|
Escrow
Agreement |
Exhibit
D |
|
Share
Exchange Documents |
Exhibit
E |
|
Super
8-K |
Exhibit
F |
|
Form
of Legal Opinion |
Exhibit
G |
|
Form
of Audit Opinion |
Schedule
1 |
|
List
of Subscribers |
Schedule
5(a) |
|
Subsidiaries |
Schedule
5(d) |
|
Capitalization and
Additional Issuances |
Schedule
5(f) |
|
Violations and
Conflicts |
Schedule
5(o) |
|
Undisclosed
Liabilities |
Schedule
5(w) |
|
Transfer
Agent |
Schedule
9(e) |
|
Use
of Proceeds |
Schedule
9(w) |
|
Further Registration
Statements |
Schedule
9(l) |
|
Intellectual
Property |
Schedule
11.1(iv) |
|
Registrable
Securities |
Schedule
12(a) |
|
Excepted
Issuances |
Schedule
13 |
|
Bridge
Lenders |
SCHEDULE
1
SUBSCRIBER AND ADDRESS |
|
PURCHASE
PRICE |
|
PREFERRED
STOCK |
|
WARRANTS |
ALPHA
CAPITAL ANSTALT
Pradafant
7
9490
Furstentums
Vaduz,
Lichtenstein
Fax
No.: 011-42-32323196 |
|
$300,000.00 |
|
3,000 |
|
150,000 |
MOMONA CAPITAL
LLC
150
Central Park South, 2nd
Floor
New
York, NY 10019
Fax:
(212) 586-8244 |
|
$25,000.00 |
|
250 |
|
12,500 |
BRISTOL INVESTMENT
FUND, LTD.
c/o
Bristol Capital Advisors, LLC
6353
W. Sunset Blvd., Suite 4006
Hollywood, CA
90028
Attn:
Amy Wang, Esq.
Fax:
(323) 960-3805 |
|
$250,000.00
(Bristol Investment
Fund, Ltd. is surrendering a Bridge Note in the principal amount of
$50,000.) |
|
2,5031 |
|
125,000 |
CANYONS
TRUST
c/o
Bristol Capital Advisors, LLC
6353
W. Sunset Blvd., Suite 4006
Hollywood, CA
90028
Attn:
Amy Wang, Esq.
Fax:
(323) 960-3805 |
|
$100,000.00 |
|
1,000 |
|
50,000 |
DPIT
2, LLC
8 Hop
Brook Lane
Holmdel, NJ
07733
Attn:
Sam DelPresto |
|
$100,622.00
(DPIT
2, LLC is surrendering a Bridge Note in the principal amount of
$100,000.) |
|
1,006 |
|
50,311 |
GLOBAL CAPITAL
PARNTERS, LLC
P.O.
Box 6560
Pahrum, Nevada
89041-6560
Fax:
(604) 987-7653 |
|
$25,150.00
(Global Capital
Partners LLC is surrendering a Bridge Note in the principal amount of
$25,000.) |
|
252 |
|
12,575 |
CHARLES
MALETTE
1550
West 35th
Avenue
Vancouver,
V6NNH2
Fax:
(604) 643-7498 |
|
$25,156.00
(Charles Malette is
surrendering a Bridge Note in the principal amount of
$25,000.) |
|
252 |
|
12,578 |
GUARDIAN TRUST COMPANY
LTD. AS TRUSTEE OF THE BRULEE TRUST
c/o
Guardian Trust Company Ltd.
15
Boulevard Helvetidale, 1207 Geneva
Switzerland
Fax:
011-41-22-718-7201 |
|
$50,000.00 |
|
500 |
|
25,000 |
AMPERSAND MANAGEMENT
SA
AS
TRUSTEE OF THE MUNT TRUST
20
Rue Etienne Dumont
P.O.
Box 3313, 1204 Geneva 3
Switzerland
Fax:
011-41-22-321-3526 |
|
$100,000.00 |
|
1,000 |
|
50,000 |
TOTALS |
|
$975,928.00 |
|
9760 |
|
487,964 |
1
Bristol is getting a second stock certificate for 3 shares to account for the
interest that accrued on the $50,000 bridge note.
SCHEDULE
5(a)
SUBSIDIARIES
Name of Subsidiary |
|
Ownership Interests |
|
|
|
|
|
Kick
The Can Corp., a Nevada corporation |
|
|
100 |
% |
No
exception to the Company’s representation that it owns all of the equity of the
Subsidiaries and rights to receive equity of the Subsidiaries, free and clear of
all liens, encumbrances and claims.
SCHEDULE
5(d)
CAPITALIZATION2
GoEnergy,
Inc.
|
1. |
Authorized and
Outstanding Stock: |
|
(a) |
Preferred Stock, par
value $.0001 per share – 20,000,000 authorized and none outstanding;
and |
|
(b) |
Common
Stock, par value $.0001 per share – 80,000,000 shares authorized and 38,942,9593 outstanding on a
fully diluted basis |
|
2. |
Outstanding rights to
acquire or receive, directly or indirectly, any equity of the Company
(e.g., options, warrants or rights to subscribe to securities, rights,
understandings or obligations convertible into or exchangeable for or
granting any right to subscribe for any shares of capital stock or other
equity interest of the Company): |
Warrants
dated November 5, 2010 issued in connection with the Bridge Notes exercisable
for an aggregate of 500,000 shares at an exercise price of $.60 per
share.
|
3. |
Officer, director,
employee and consultant stock option or stock incentive plan or similar
plan: |
None other
than a stock option plan to be adopted after the Closing Date.
Subsidiary Kick The Can
Corp.
|
1. |
Common Stock, par value $.0001 per
share – 60,000,000 authorized and 33,430,1074
outstanding. |
|
2. |
Outstanding rights to
acquire or receive, directly or indirectly, any equity of the Company
(e.g., options, warrants or rights to subscribe to securities, rights,
understandings or obligations convertible into or exchangeable for or
granting any right to subscribe for any shares of capital stock or other
equity interest of the Company): |
Convertible
Demand Promissory Note dated November 5, 2010 issued by GoEnergy, Inc., as
holder, and Kick The Can Corp., as maker, in the amount of $200,000 with a
conversion price of $.40 per share
|
3. |
Officer, director,
employee and consultant stock option or stock incentive plan or similar
plan: |
None.
Convertible
Demand Promissory Note dated November 5, 2010 issued by GoEnergy, Inc., as
holder, and Kick The Can Corp., as maker, in the amount of $200,000 with a
conversion price of $.40 per share
2 Does
not include the Securities
3
Represents the sum of (i) 4,319,893 issued and outstanding, (ii) 33,430,107
shares issuable upon the consummation of the share exchange, (iii) 502,740
shares issued upon conversion of the Bridge Notes, (iv) 500,000 shares issuable
upon exercise of the warrants issued in connection with the Bridge Notes and (v)
190,219 shares
issuable upon settlement of debt.
4 These
shares will be exchanged for shares of the Company pursuant to the share
exchange.
|
4. |
Officer, director,
employee and consultant stock option or stock incentive plan or similar
plan: |
None.
SCHEDULE
5(f)
ANTIDULTION AND REGISTRATION
RIGHTS5
|
1. |
Triggered
anti-dilution
rights/reset/repricing: |
Warrants
dated November 5, 2010 issued in connection with the Bridge Notes exercisable
for an aggregate of 500,000 shares at an exercise price of $.60 per
share.
|
2. |
Triggered registration
rights: |
None.
5 Post
consummation of the Share Exchange
SCHEDULE
5(o)
UNDISCLOSED
LIABILITIES
Undisclosed
Liabilities since July 31, 2010 that would reasonably be expected to have
a Material Adverse Effect:
None.
SCHEDULE
5(w)
TRANSFER
AGENT
SIGNATURE
STOCK TRANSFER, INC.
2632
Coachlight Court
Plano,
Texas 75093
Telephone
972.612.4120
Facsimile
972.612.4122
Attn: Jason M.
Bogutski-President
Email –
signaturestocktransfer@msn.com
SCHEDULE
9(e)
USE OF
PROCEEDS
All
proceeds will be used for working capital and general
corporate.
SCHEDULE
9(l)
INTELLECTUAL
PROPERTY
GoEnergy,
Inc.
Kick The Can
Corp.
1. |
Atlanta Comic
Convention, including, without limitation, the assignment of the
Memorandum, dated January 1, 2010, by and between the Company and Wes
Tillander. |
|
|
2. |
Big
Apple Comic Convention, including, without limitation, the assignment of
the Memorandum, dated April 1, 2009, by and between the Company and Big
Apple Tables, LLC. |
|
|
3. |
Cincinnati Comic
Convention, including, without limitation, the assignment of the
Memorandum, dated January 4, 2010, by and between the Company and Marc
Ballard. |
|
|
4. |
Connecticut Comic
Convention, including, without limitation, the assignment of the
Memorandum, dated May 2010, by and among the Company and Alternative
Universe, Mitchell Hallock, Erik Yaeko and Jay Claus. |
|
|
5. |
Nashville Comic
Convention, including, without limitation, the assignment of the
Memorandum, dated January 4, 2010, by and between the Company and Marc
Ballard. |
|
|
6. |
New
England Comic Convention, including, without limitation, the assignment of
the Memorandum, dated November 16, 2009, by and between the Company and
Harrisons Limited (Harrisons). |
|
|
7. |
North
Coast Comic Convention, including, without limitation, the assignment of
the Memorandum, dated January 2010, by and between the Company and Roger
Priebe. |
|
|
8. |
Toronto Comic
Convention, , including, without limitation, the assignment of the
Memorandum, dated June 2009, by and among the Company, Peter Dixon and
Paradise Conventions. |
SCHEDULE
9(w)
BENEFICIARIES OF
REGISTRATION STATEMENTS
SUBSCRIBER AND
ADDRESS |
|
ALPHA
CAPITAL ANSTALT
Pradafant
7
9490
Furstentums
Vaduz,
Lichtenstein
Fax
No.: 011-42-32323196 |
|
MOMONA CAPITAL
LLC
150
Central Park South, 2nd
Floor
New
York, NY 10019
Fax:
(212) 586-8244 |
|
BRISTOL INVESTMENT
FUND, LTD.
c/o
Bristol Capital Advisors, LLC
6353
W. Sunset Blvd., Suite 4006
Hollywood, CA
90028
Attn:
Amy Wang, Esq.
Fax:
(323) 960-3805 |
|
CANYONS
TRUST
c/o
Bristol Capital Advisors, LLC
6353
W. Sunset Blvd., Suite 4006
Hollywood, CA
90028
Attn:
Amy Wang, Esq.
Fax:
(323) 960-3805 |
|
DPIT
2, LLC
8 Hop
Brook Lane
Holmdel, NJ
07733
Attn:
Sam DelPresto |
|
GLOBAL CAPITAL
PARNTERS, LLC
P.O.
Box 6560
Pahrum, Nevada
89041-6560
Fax:
(604) 987-7653 |
|
CHARLES
MALETTE
1550
West 35th
Avenue
Vancouver,
V6NNH2
Fax:
(604) 643-7498 |
|
GUARDIAN TRUST COMPANY
LTD. AS TRUSTEE OF THE BRULEE TRUST
c/o
Guardian Trust Company Ltd.
15
Boulevard Helvetidale, 1207 Geneva
Switzerland
Fax:
011-41-22-718-7201 |
|
AMPERSAND MANAGEMENT
SA
AS
TRUSTEE OF THE MUNT TRUST
20
Rue Etienne Dumont
P.O.
Box 3313, 1204 Geneva 3
Switzerland
Fax:
011-41-22-321-3526 |
SCHEDULE
11.1(iv)
REGISTRATION
|
1. |
Cutback of Registrable
Securities |
Registrable
Securities shall be cut back on a pro rata basis among the number of shares
being registered.
|
2. |
Securities of the
Company other than the Registrable Securities that will be included in the
Registration Statement: |
None.
SCHEDULE
12(a)
See
Schedule 5(d)
SCHEDULE
13
BRIDGE
LENDERS
|
3. |
Global Capital
Partners |
|
4. |
Bristol Investment
Fund, Ltd. |
ESCROW
AGREEMENT
This
Agreement is dated as of the 6th day of
December, 2010 among GoEnergy, Inc., a Delaware corporation (the “Company”), the subscribers
listed on Schedule
1 hereto (the “Subscribers”), and Grushko
& Mittman, P.C. (the “Escrow Agent”):
WITNESSETH:
WHEREAS,
the Company and the Subscribers have entered into a Subscription Agreement
calling for the sale by the Company to the Subscribers of Series A Cumulative
Convertible Preferred Stock “the “Preferred Stock”) and Series A
Warrants (the “Warrants”) for an aggregate
purchase price of up to $1,500,000; and
WHEREAS,
the parties hereto require the Company to deliver the Preferred Stock and
Warrants against payment therefor, with such Preferred Stock and the Escrowed
Payment to be delivered to the Escrow Agent, along with the other documents,
instruments and payments hereinafter described, to be held in escrow and
released by the Escrow Agent in accordance with the terms and conditions of this
Agreement; and
WHEREAS,
the Escrow Agent is willing to serve as escrow agent pursuant to the terms and
conditions of this Agreement;
NOW
THEREFORE, the parties agree as follows:
ARTICLE I
INTERPRETATION
1.1. Definitions. Capitalized
terms used and not otherwise defined herein shall have the meanings given to
such terms in the Subscription Agreement (and the exhibits and schedules
thereto) entered into or to be entered into by the Company and the Subscribers
in reference to the sale and purchase of the Preferred Stock and Warrants (the
“Subscription
Agreement”). Whenever used in this Agreement, the following
terms shall have the following respective meanings:
§ “Agreement” means this
Agreement and all amendments made hereto by written agreement of the
parties hereto;
§ “Bridge Lenders” shall mean the
parties identified on Schedule 13 to the Subscription Agreement;
§ “Bridge Notes” shall have the
meaning set forth in Section 13 of the Subscription Agreement;
§ “Company Documents” means,
collectively, the Bridge Notes, Legal Opinion, Preferred Stock, Warrants ,
Subscription Agreement as signed by the Company, and the Subscriber Legal
Fees.
§ “Escrowed Payment” means an
aggregate cash payment of up to $1,500,000;
§ “Legal Opinion” means the
original signed legal opinion referred to in Section 6 of the Subscription
Agreement;
§ “Preferred Stock” shall have
the meaning set forth in the second recital to the Subscription
Agreement;
§ “Principal Amount” shall mean
an aggregate of up to $1,500,000;
§ “Subscriber Legal Fees” shall
have the meaning set forth in Section 8 of the Subscription
Agreement;
§ “Subscription Agreement” means
the Subscription Agreement (and the exhibits and schedules thereto) entered into
or to be entered into by the Company and Subscribers in reference to the sale
and purchase of the Preferred Stock and Warrants;
§ “Warrants” shall have the
meaning set forth in Section 2(b) of the Subscription Agreement;
§ Collectively,
the Bridge Notes, Legal Opinion, Preferred Stock, Warrants, and Subscription
Agreement signed and executed by all signators thereto other than the
Subscribers, and Subscriber Legal Fees are referred to as “Company Documents”;
and
§ Collectively,
the Escrowed Payment and the Subscribers executed Subscription Agreement are
referred to as “Subscriber
Documents.”
1.2. Entire
Agreement. This Agreement along with the Company Documents and
the Subscriber Documents to which the Subscriber and the Company are a party
constitute the entire agreement between the parties hereto pertaining to the
Company Documents and Subscriber Documents and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties hereto. There are no warranties, representations and other
agreements made by the parties hereto in connection with the subject matter
hereof, except as specifically set forth in this Agreement, the Company
Documents and the Subscriber Documents.
1.3. Extended
Meanings. In this Agreement words importing the singular
number include the plural and vice versa; words importing the masculine gender
include the feminine and neuter genders. The word “person” includes
an individual, body corporate, partnership, trustee or trust or unincorporated
association, executor, administrator or legal representative.
1.4. Waivers and
Amendments. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by all parties, or, in the
case of a waiver, by the party waiving compliance. Except as
expressly stated herein, no delay on the part of any party hereto in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any waiver on the part of any party hereto of any right, power or
privilege hereunder preclude any other or future exercise of any other right,
power or privilege hereunder.
1.5. Headings. The
division of this Agreement into articles, sections, subsections and paragraphs,
and the insertion of headings are for convenience of reference only and shall
not affect the construction or interpretation of this Agreement.
1.6. Law Governing this
Agreement. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without regard to conflicts
of laws principles that would result in the application of the substantive laws
of another jurisdiction. Any action brought by any party
hereto against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state and county of New York. The
parties hereto and the individuals executing this Agreement and other agreements
on behalf of the Company agree to submit to the jurisdiction of such courts and
waive trial by jury. The prevailing party (which shall be the party
which receives an award most closely resembling the remedy or action sought)
shall be entitled to recover from the other party its reasonable attorney’s fees
and costs. In the event that any provision of this Agreement or any
other agreement delivered in connection herewith is invalid or unenforceable
under any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any
agreement.
1.7. Specific Enforcement,
Consent to Jurisdiction. The Company and the Subscribers
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed
that the parties hereto shall be entitled to an injuction or injunctions to
prevent or cure breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof or thereof, this being in addition
to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 1.6 hereof, each of the Company and the
Subscribers hereby waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
such court, that the suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is
improper. Nothing in this Section shall affect or limit any right to
serve process in any other manner permitted by law.
ARTICLE II
DELIVERIES TO THE
ESCROW AGENT
2.1. Company
Deliveries. On or before the Closing Date, the Company shall
execute and deliver the Company Documents to the Escrow Agent.
2.2. Subscriber
Deliveries. On or before the Closing Date, the Subscribers
shall execute and deliver the Subscription Agreements, and shall deliver the
Escrowed Payment in cash, to the Escrow Agent, and the Bridge Lenders shall
deliver the Bridge Notes to the Escrow Agent. The Escrowed Payment
will be delivered pursuant to the following wire transfer
instructions:
Citibank,
N.A.
1155 6th
Avenue
New York,
NY 10036
ABA Number:
0210-00089
For Credit
to: Grushko & Mittman, IOLA Trust Account
Account
Number: 45208884
2.3. Intention to Create Escrow
Over Company Documents and Subscriber Documents. The
Subscribers and Company intend that the Company Documents and Subscriber
Documents shall be held in escrow by the Escrow Agent pursuant to this Agreement
for their respective benefit as set forth herein.
2.4. Escrow Agent to Deliver
Company Documents and Subscriber Documents. The Escrow Agent
shall hold and release the Company Documents and Subscriber Documents only in
accordance with the terms and conditions of this Agreement.
ARTICLE
III
RELEASE OF COMPANY
DOCUMENTS AND SUBSCRIBER DOCUMENTS
3.1. Release of
Escrow. Subject to the provisions of Section 4.2 hereof, the
Escrow Agent shall release the Company Documents and Subscriber Documents as
follows:
(a) On
the Closing Date, the Escrow Agent will simultaneously release the Company
Documents to the Subscribers and release the Subscriber Documents to the
Company, except that Subscriber Legal Fees will be released directly to the
Subscriber’s attorneys and the Bridge Notes will be released to the
Company.
(b) Notwithstanding
the above, upon receipt by the Escrow Agent of joint written instructions
(“Joint Instructions”)
signed by the Company and the Subscribers, it shall deliver the Company
Documents and Subscriber Documents in accordance with the terms of the Joint
Instructions.
(c) Anything
herein to the contrary notwithstanding, upon receipt by the Escrow Agent of a
final and non-appealable judgment, order, decree or award of a court of
competent jurisdiction (a “Court Order”), the Escrow
Agent shall deliver the Company Documents and Subscriber Documents in accordance
with the Court Order. Any Court Order shall be accompanied by an
opinion of counsel for the party presenting the Court Order to the Escrow Agent
(which opinion shall be satisfactory to the Escrow Agent) to the effect that the
court issuing the Court Order has competent jurisdiction and that the Court
Order is final and non-appealable.
3.2. Closings
may take place on or before December 20, 2010. After December 20,
2010, the Escrow Agent will promptly return the applicable Company Documents to
the Company and return the Subscriber Documents to the Subscriber, except that
the Bridge Notes will be returned to the Bridge Lenders.
3.3. Acknowledgement of Company
and Subscriber; Disputes. The Company and the Subscribers
acknowledge that the only terms and conditions upon which the Company Documents
and Subscriber Documents are to be released are set forth in Sections 3 and 4 of
this Agreement. The Company and the Subscribers reaffirm their
agreement to abide by the terms and conditions of this Agreement with respect to
the release of the Company Documents and Subscriber Documents. Any
dispute with respect to the release of the Company Documents and Subscriber
Documents shall be resolved pursuant to Section 4.2 hereof or by agreement
between the Company and Subscribers.
ARTICLE IV
CONCERNING THE ESCROW
AGENT
4.1. Duties and Responsibilities
of the Escrow Agent. The Escrow Agent’s duties and
responsibilities shall be subject to the following terms and
conditions:
(a) The
Subscribers and the Company acknowledge and agree that the Escrow Agent (i)
shall not be responsible for or bound by, and shall not be required to inquire
into whether either the Subscribers or Company is entitled to receipt of the
Company Documents and Subscriber Documents, respectively, pursuant to any other
agreement or otherwise; (ii) shall be obligated only for the performance of such
duties as are specifically assumed by the Escrow Agent pursuant to this
Agreement; (iii) may rely on and shall be protected in acting or refraining from
acting upon any written notice, instruction, instrument, statement, request or
document furnished to it hereunder and believed by the Escrow Agent in good
faith to be genuine and to have been signed or presented by the proper person or
party, without being required to determine the authenticity or correctness of
any fact stated therein or the propriety or validity or the service thereof;
(iv) may assume that any person believed by the Escrow Agent in good faith to be
authorized to give notice or make any statement or execute any document in
connection with the provisions hereof is so authorized; (v) shall not be under
any duty to give the property held by Escrow Agent hereunder any greater degree
of care than Escrow Agent gives its own similar property; and (vi) may consult
counsel satisfactory to Escrow Agent, the opinion of such counsel to be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by Escrow Agent hereunder in good faith and in accordance with the
opinion of such counsel.
(b) The
Subscribers and Company acknowledge that the Escrow Agent is acting solely as a
stakeholder at their request and that the Escrow Agent shall not be liable for
any action taken by Escrow Agent in good faith and believed by Escrow Agent to
be authorized or within the rights or powers conferred upon Escrow Agent by this
Agreement. The Subscribers and Company, jointly and severally, agree
to indemnify and hold harmless the Escrow Agent and any of Escrow Agent’s
partners, employees, agents and representatives for any action taken or omitted
to be taken by Escrow Agent or any of them hereunder, including the reasonable
fees of outside counsel and other costs and expenses of defending itself against
any claim or liability under this Agreement, except in the case of gross
negligence or willful misconduct on Escrow Agent’s part committed in its
capacity as Escrow Agent under this Agreement. The Escrow Agent shall
owe a duty only to the Subscribers and Company under this Agreement and to no
other person.
(c) The
Subscribers and the Company jointly and severally agree to reimburse the Escrow
Agent for reasonable outside counsel fees, to the extent authorized hereunder
and incurred in connection with the performance of its duties and
responsibilities hereunder.
(d) The
Escrow Agent may at any time resign as Escrow Agent hereunder by giving five (5)
days’ prior written notice of resignation to the Subscribers and the
Company. Prior to the effective date of the resignation as specified
in such notice, the Subscribers and the Company will issue to the Escrow Agent a
Joint Instruction authorizing delivery of the Company Documents and Subscriber
Documents to a substitute Escrow Agent selected by the Subscribers and the
Company. If no successor Escrow Agent is named by the Subscribers and
the Company, the Escrow Agent may apply to a court of competent jurisdiction in
the State of New York for appointment of a successor Escrow Agent, and to
deposit the Company Documents and Subscriber Documents with the clerk of any
such court.
(e) Other
than in connection with the Subscriber Legal Fees, the Escrow Agent does not
have and will not have any interest in the Company Documents and Subscriber
Documents, but is serving only as escrow agent, having only possession
thereof. The Escrow Agent shall not be liable for any loss resulting
from the making or retention of any investment in accordance with this Escrow
Agreement.
(f) This
Agreement sets forth exclusively the duties of the Escrow Agent with respect to
any and all matters pertinent thereto and no implied duties or obligations shall
be read into this Agreement.
(g) The
Escrow Agent shall be permitted to act as counsel for the Subscribers in any
dispute as to the disposition of the Company Documents and Subscriber Documents,
in any other dispute between the Subscribers and the Company, whether or not the
Escrow Agent is then holding the Company Documents and Subscriber Documents and
continues to act as the Escrow Agent hereunder.
(h) The
provisions of this Section 4.1 shall survive the resignation of the Escrow Agent
or the termination of this Agreement.
4.2. Dispute Resolution;
Judgments. Resolution of disputes arising under this Agreement
shall be subject to the following terms and conditions:
(a) If
any dispute shall arise with respect to the delivery, ownership, right of
possession or disposition of the Company Documents and Subscriber Documents, or
if the Escrow Agent shall in good faith be uncertain as to its duties or rights
hereunder, the Escrow Agent shall be authorized, without liability to anyone, to
(i) refrain from taking any action other than to continue to hold the Company
Documents and Subscriber Documents pending receipt of a Joint Instruction from
the Subscribers and the Company, or (ii) deposit the Company Documents and
Subscriber Documents with any court of competent jurisdiction in the State of
New York, in which event the Escrow Agent shall give written notice thereof to
the Subscribers and the Company and shall thereupon be relieved and discharged
from all further obligations pursuant to this Agreement. The Escrow
Agent may, but shall be under no duty to, institute or defend any legal
proceedings which relate to the Company Documents and Subscriber
Documents. The Escrow Agent shall have the right to retain counsel if
it becomes involved in any disagreement, dispute or litigation on account of
this Agreement or otherwise determines that it is necessary to consult
counsel.
(b) The
Escrow Agent is hereby expressly authorized to comply with and obey any Court
Order. In case the Escrow Agent obeys or complies with a Court Order,
the Escrow Agent shall not be liable to the Subscribers and the “Company or to
any other person, firm, corporation or entity by reason of such
compliance.
ARTICLE V
GENERAL
MATTERS
5.1. Termination. This
escrow shall terminate upon the release of all of the Company Documents and
Subscriber Documents or at any time upon the agreement in writing of the
Subscribers and Company.
5.2. Notices. All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
(a) |
If
to the Company, to: |
GoEnergy
Inc.
c/o Kick
The Can Corp.
1010 Avenue
of the Americas, Suite 302
New York,
NY 10018
Attn: Gareb
Shamus
Fax: (212)
765-5779
With a copy
by fax only to (which shall not constitute notice):
Anslow
& Jaclin, LLP
195 Route 9
South
Manalapan,
NJ 07726
Attn:
Joseph M. Lucosky, Esq.
Fax: (732)
577-1188
(b) |
If to
the Subscribers, to the addresses set forth on Schedule 1
hereto |
With a copy by facsimile only to (which
shall not constitute notice):
Grushko
& Mittman, P.C.
515
Rockaway Avenue
Valley
Stream, New York 11581
Fax: (212)
697-3575
(c) |
If to the Escrow
Agent, to: |
Grushko
& Mittman, P.C.
515
Rockaway Avenue
Valley
Stream, New York 11581
Fax: (212)
697-3575
or to such
other address as any of them shall give to the others by notice made pursuant to
this Section 5.2.
5.3. Interest. The
Escrowed Payment shall not be held in an interest bearing account nor will
interest be payable in connection therewith. In the event the
Escrowed Payment is deposited in an interest bearing account, the Subscribers
shall be entitled to receive any accrued interest thereon, but only if the
Escrow Agent receives from the Subscriber the Subscribers’ United States
taxpayer identification number and other requested information and
forms.
5.4. Assignment; Binding
Agreement. Neither this Agreement nor any right or obligation
hereunder shall be assignable by any party without the prior written consent of
the other parties hereto. This Agreement shall enure to the benefit
of and be binding upon the parties hereto and their respective legal
representatives, successors and assigns.
5.5. Invalidity. In
the event that any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal, or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be in any way impaired thereby, it being
intended that all of the rights and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
5.6. Counterparts/Execution. This
Agreement may be executed in any number of counterparts and by different
signatories hereto on separate counterparts, each of which, when so executed,
shall be deemed an original, but all such counterparts shall constitute but one
and the same instrument. This Agreement may be executed by facsimile
transmission and delivered by facsimile transmission.
5.7. Agreement. Each
of the undersigned states that he has read the foregoing Escrow Agreement and
understands and agrees to it.
IN WITNESS WHEREOF, the
undersigned have executed and delivered this Escrow Agreement, as of
the date first written above.
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THE
“COMPANY” |
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GOENERGY,
INC., |
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a
Delaware corporation |
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By: |
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ESCROW
AGENT: |
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GRUSHKO & MITTMAN,
P.C. |
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By: |
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Name: |
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SUBSCRIBERS:
ALPHA
CAPITAL ANSTALT |
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MOMONA CAPITAL
LLC |
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By: |
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By: |
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Name: |
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Name: |
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Title: |
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Title: |
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BRISTOL INVESTMENT
FUND, LTD. |
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CANYONS
TRUST |
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By: |
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By: |
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Name: |
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Name: |
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Title: |
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Title: |
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By: |
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By: |
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Name: |
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Name: |
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Title: |
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Title: |
SCHEDULE 1 -
(SUBSCRIBERS)
SUBSCRIBER AND ADDRESS |
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PURCHASE
PRICE |
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PREFERRED
STOCK |
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WARRANTS |
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ALPHA
CAPITAL ANSTALT
Pradafant
7
9490
Furstentums
Vaduz,
Lichtenstein
Fax
No.: 011-42-32323196 |
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$300,000.00 |
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3,000 |
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150,000 |
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MOMONA CAPITAL
LLC
150
Central Park South, 2nd
Floor
New
York, NY 10019
Fax:
(212) 586-8244 |
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$25,000.00 |
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250 |
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12,500 |
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BRISTOL INVESTMENT
FUND, LTD.
c/o
Bristol Capital Advisors, LLC
6353
W. Sunset Blvd., Suite 4006
Hollywood, CA
90028
Attn:
Amy Wang, Esq.
Fax:
(323) 960-3805 |
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$250,000.00
(Bristol Investment
Fund, Ltd. is surrendering a Bridge Note in the principal amount of
$50,000.) |
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2,5031 |
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125,000 |
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CANYONS
TRUST
c/o
Bristol Capital Advisors, LLC
6353
W. Sunset Blvd., Suite 4006
Hollywood, CA
90028
Attn:
Amy Wang, Esq.
Fax:
(323) 960-3805 |
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$100,000.00 |
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1,000 |
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50,000 |
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DPIT
2, LLC
8 Hop
Brook Lane
Holmdel, NJ
07733
Attn:
Sam DelPresto |
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$100,622.00
(DPIT
2, LLC is surrendering a Bridge Note in the principal amount of
$100,000.) |
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1,006 |
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50,311 |
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GLOBAL CAPITAL
PARNTERS, LLC
P.O.
Box 6560
Pahrum, Nevada
89041-6560
Fax:
(604) 987-7653 |
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$25,150.00
(Global Capital
Partners LLC is surrendering a Bridge Note in the principal amount of
$25,000.) |
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252 |
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12,575 |
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CHARLES
MALETTE
1550
West 35th
Avenue
Vancouver,
V6NNH2
Fax:
(604) 643-7498 |
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$25,156.00
(Charles Malette is
surrendering a Bridge Note in the principal amount of
$25,000.) |
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252 |
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12,578 |
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GUARDIAN TRUST COMPANY
LTD. AS TRUSTEE OF THE BRULEE TRUST
c/o
Guardian Trust Company Ltd.
15
Boulevard Helvetidale, 1207 Geneva
Switzerland
Fax:
011-41-22-718-7201 |
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$50,000.00 |
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500 |
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25,000 |
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AMPERSAND MANAGEMENT
SA
AS
TRUSTEE OF THE MUNT TRUST
20
Rue Etienne Dumont
P.O.
Box 3313, 1204 Geneva 3
Switzerland
Fax:
011-41-22-321-3526 |
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$100,000.00 |
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1,000 |
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50,000 |
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TOTALS |
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$975,928.00 |
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9760 |
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487,964 |
1 Bristol
is getting a second stock certificate for 3 shares to account for the interest
that accrued on the $50,000 bridge note.
[FORM OF
LEGAL OPINION]
November
____, 2010
TO: |
The Subscribers
identified on Schedule A
hereto: |
We have
acted as special counsel to GoEnergy, Inc., a Delaware corporation (the
“Company”), in connection with the offer and sale by the Company of the
Company’s Series A Preferred Stock and Series A Warrants, for the aggregate
Purchase Price of $[1,500,000] [2,100,000] to the subscribers
identified on Schedule
A hereto (each a “Subscriber” and together, the “Subscribers”) in the
amounts designated thereon pursuant to the exemption from registration under the
Securities Act of 1933, as amended (the “Act”) as set forth in Regulation D
(“Regulation D”) promulgated thereunder. Capitalized terms used herein and not
otherwise defined shall have the meaning assigned to them in that certain
subscription agreement (the “Agreement”) by and between the Company and the
Subscribers entered into at or about the date hereof. The Agreement
and the agreements described below are sometimes hereinafter referred to
collectively as the “Documents”.
In
connection with the opinions expressed herein, we have made such examination of
law as we considered appropriate or advisable for purposes hereof. As
to matters of fact material to the opinions expressed herein, we have relied,
with your permission, upon the representations and warranties as to factual
matters contained in and made by the Company and the Subscriber pursuant to the
Documents and upon certificates and statements of certain government officials
and of officers of the Company as described below. We have also
examined originals or copies of certain corporate documents or records of the
Company as described below:
(a) Bylaws
of the Company;
(b) Certificate
of Incorporation of the Company;
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(c) |
Certificate to Set
Forth Designations, Voting Powers, Preferences, Limitations, Restrictions,
and Relative Rights of Series A Cumulative Convertible Preferred Stock,
$.0001 Par Value Per Share; |
(d) Escrow
Agreement;
(e) Form
of Agreement;
(f) Form
of Series A Common Stock Purchase Warrant (the “Warrants”); and
|
(g) |
Minutes of the action
of the Company’s Board of Directors (the “Board”) or unanimous written
consent of the Board approving the Documents, a copy of which is annexed
hereto. |
In
rendering this opinion, we have, with your permission, assumed: (a) the
authenticity of all documents submitted to us as originals; (b) the conformity
to the originals of all documents submitted to us as copies; (c) the genuineness
of all signatures; (d) the legal capacity of natural persons; (e) the truth,
accuracy and completeness of the information, factual matters, representations
and warranties contained in all of such documents; (f) the due authorization,
execution and delivery of all such documents by the Subscribers, and the legal,
valid and binding effect thereof on the Subscribers; and (g) that the Company
and the Subscribers will act in accordance with their respective representations
and warranties as set forth in the Documents.
We are
members of the bar of the State of New York. We express no
opinion as to the laws of any jurisdiction other than New York and New Jersey
and the federal laws of the United States of America. We express no
opinion with respect to the effect or application of any other
laws. Special rulings of authorities administering any of such laws
or opinions of other counsel have not been sought or obtained by us in
connection with rendering the opinions expressed herein.
1. The
Company and each Subsidiary is duly incorporated, validly existing and in good
standing in the jurisdictions of their respective formation; have qualified to
do business in each state and jurisdiction where required, unless the failure to
do so would not have a Material Adverse Effect on their operations; and have the
requisite corporate power and authority to conduct their respective businesses,
and to own, lease and operate their respective properties.
2. The
Company and each Subsidiary has the requisite corporate power and authority to
execute, deliver and perform its respective obligations under the
Documents. The Documents, and the issuance of the Preferred Stock and
Warrants on the Closing Date and the reservation and issuance of Conversion
Shares and Warrant Shares have been (a) duly approved by the Board, as required,
and (b) all of the foregoing, when issued pursuant to the Agreement and upon
delivery, shall be validly issued and outstanding, fully paid and non
assessable.
3. The
execution, delivery and performance of the Documents by the Company and the
consummation of the transactions contemplated thereby, will not, with or without
the giving of notice or the passage of time or both Violate the provisions of
the Certificate of Incorporation or bylaws of the Company or any
Subsidiary.
4. The
Documents constitute the valid and legally binding obligations of the Company
and are enforceable against the Company in accordance with their respective
terms.
5. The
Preferred Stock, Warrants, Conversion Shares and Warrant Shares have not been
registered under the Securities Act of 1933, as amended (the “Act”) or under the
laws of any state or other jurisdiction, and are or will be issued pursuant to a
valid exemption from registration.
6. The
Company and each Subsidiary has either obtained the approval of the transactions
described in the Documents from its Principal Market, if
applicable, and shareholders, or no such approval is
required.
Our
opinions expressed above are specifically subject to the following limitations,
exceptions, qualifications and assumptions:
A. The
effect of bankruptcy, insolvency, reorganization, moratorium and other similar
laws relating to or affecting the relief of debtors or the rights and remedies
of creditors generally, including, without limitation, the effect of statutory
or other law regarding fraudulent conveyances and preferential
transfers.
B. Limitations
imposed by state law, federal law or general equitable principles upon the
specific enforceability of any of the remedies, covenants or other provisions of
any applicable agreement and upon the availability of injunctive relief or other
equitable remedies, regardless of whether enforcement of any such agreement is
considered in a proceeding in equity or at law.
C. This
opinion letter is governed by, and shall be interpreted in accordance with, the
Legal Opinion Accord (the “Accord”) of the ABA Section of Business Law (1991),
which is incorporated by reference herein. As a consequence, it is subject to a
number of qualifications, exceptions, definitions, limitations on coverage and
other limitations, all as more particularly described in the Accord, including
the General Qualifications and the Equitable Principles Limitation, and this
opinion letter should be read in conjunction therewith.
This
opinion is rendered as of the date first written above is solely for your
benefit in connection with the Agreement and may not be relied upon or used by,
circulated, quoted, or referred to nor may any copies hereof by delivered to any
other person without our prior written consent. We disclaim any
obligation to update this opinion letter or to advise you of facts,
circumstances, events or developments which hereafter may be brought to our
attention and which may alter, affect or modify the opinions expressed
herein.
SCHEDULE A TO LEGAL
OPINION
SUBSCRIBER AND ADDRESS |
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PURCHASE
PRICE |
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PREFERRED
STOCK |
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SERIES A
WARRANTS |
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Exhibit
10.5
SUBSCRIPTION
AGREEMENT
THIS SUBSCRIPTION AGREEMENT
(this “Agreement”) is
dated as of April 18, 2011 by and between Wizard World, Inc. (formerly GoEnergy,
Inc.), a Delaware corporation (the “Company”), and the subscribers
identified on Schedule
1 hereto (collectively, the “Subscribers” and each, a
“Subscriber”).
WHEREAS, the Company and the
Subscribers are executing and delivering this Agreement in reliance upon an
exemption from securities registration afforded by the provisions of Section
4(2), Section 4(6) and/or Regulation D (“Regulation D”), as promulgated
by the United States Securities and Exchange Commission (the “Commission”) under the
Securities Act of 1933, as amended (the “1933 Act”);
WHEREAS, the parties hereto
desire that, upon the terms and subject to the conditions contained herein, the
Company shall issue and sell to the Subscribers, as provided herein, and the
Subscribers, in the aggregate, shall purchase up to $1,000,000 of shares of
Series A Cumulative Convertible Preferred
Stock of the Company, par value $.0001 per share (“Preferred Stock”), at a
purchase price (the “Purchase
Price”) equal to one hundred dollars ($100) per share, which
Preferred Stock shall be convertible into shares of the Company’s common stock,
$.0001 par value per share (the “Common Stock”), subject to the
rights and preferences described in the Certificate of Designation, as amended,
annexed hereto as Exhibit
A (“Certificate of
Designation”), and Series A common stock purchase warrants (the “Warrants”) in the form
attached hereto as Exhibit
B, to purchase shares of Common Stock (the “Warrant Shares”) (the “Offering”). The
Preferred Stock, shares of Common Stock issuable upon conversion of the
Preferred Stock (the “Shares”), the Warrants and the
Warrant Shares are collectively referred to herein as the “Securities”; and
WHEREAS, the aggregate
proceeds of the sale of the Preferred Stock and the Warrants contemplated hereby
(“Purchase Price”) shall
be held in escrow by Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley
Stream, New York 11581 (the “Escrow Agent”) pursuant to the
terms of an Escrow Agreement to be executed by the parties hereto substantially
in the form attached hereto as Exhibit C (the “Escrow
Agreement”).
NOW, THEREFORE, in
consideration of the mutual covenants and other agreements contained in this
Agreement, the Company and each of the Subscribers hereby agree as
follows:
1. Closing.
(a) Closing. Subject
to the satisfaction or waiver of the terms and conditions of this Agreement, on
the “Closing Date,” the
Subscribers shall purchase, and the Company shall sell to such Subscribers in
accordance with Schedule 1 hereto, the Preferred Stock and the Warrants as
described in Section 2 below. The date the Escrow Agent releases the
funds received from one or more Subscribers to the Company and releases the
Escrow Documents (as defined in the Escrow Agreement) to the parties hereto in
accordance with the provisions of the Escrow Agreement shall be the Closing Date
with respect to such released funds and Escrow Documents, and such releases are
referred to herein as the “Closing.” The
parties hereto may agree to have more than one Closing once funds are deposited
into the escrow account, in which case the first Closing shall be referred to
herein as the “Initial
Closing”).
(b) Time Effective
Clauses. All time effective clauses not specifically related
to an actual Closing Date shall be deemed to have commenced as of the Initial
Closing Date, if more than one Closing, or the Closing Date, if only one
Closing.
2. Series
A Preferred Stock and Series A Warrant.
(a) Series A Preferred
Stock. On the Closing Date, each Subscriber shall
purchase and the Company shall sell to each such Subscriber, the number of
shares of Preferred Stock designated on such Subscriber’s signature page hereto
for such Subscriber’s Purchase Price indicated thereon.
(b) Series A
Warrants. On the Closing Date, the Company shall issue and
deliver the Warrants to the Subscribers as follows: (i) one Warrant
shall be issued for each Two Dollars ($2.00) of Purchase Price paid by a
Subscriber on the Closing Date. The exercise price to acquire a
Warrant Share upon exercise of a Warrant shall be $0.60, subject to amendment as
described in the Warrants. The Warrants shall be exercisable until
five (5) years after the Closing Date.
3. Payment and Allocation of
Purchase Price. In consideration of the issuance of the
Preferred Stock and Warrants on the Closing Date, each Subscriber shall pay to
or for the benefit of the Company such Subscriber’s Purchase Price, as set forth
on the signature pages hereto. The number of Warrant Shares eligible
for purchase by each such Subscriber is set forth on the signature pages
hereto. The Purchase Price will be allocated among the components of
the Preferred Stock and Warrants so that each component of same will be fully
paid and non-assessable.
4. Subscriber Representations
and Warranties. Each of the Subscribers, severally but not
jointly, hereby represents and warrants to, and agrees with the Company that,
with respect only to such Subscriber:
(a) Organization and Standing of
Subscriber. If Subscriber is an entity, Subscriber is duly
formed, validly existing and in good standing under the laws of the jurisdiction
of its formation. If the Subscriber is a natural person, Subscriber
has the legal capacity and power to enter into the Transaction Documents (as
defined herein).
(b) Authorization and
Power. Such Subscriber has the requisite power and authority
to enter into and perform this Agreement and the other Transaction Documents and
to purchase the Preferred Stock and Warrants being sold to such Subscriber
hereunder. The execution, delivery and performance of this Agreement
and the other Transaction Documents by such Subscriber, and the consummation by
such Subscriber of the transactions contemplated hereby and thereby, have been
duly authorized by all necessary action, and no further consent or authorization
of Subscriber or its board of directors, manager(s), trustee, stockholders,
partners, members or beneficiaries, as applicable, is required. This
Agreement and the other Transaction Documents have been duly authorized,
executed and delivered by such Subscriber and constitutes, or shall constitute,
when executed and delivered, a valid and binding obligation of such Subscriber,
enforceable against Subscriber in accordance with the terms thereof.
(c) No
Conflicts. The execution, delivery and performance of this
Agreement and the other Transaction Documents and the consummation by such
Subscriber of the transactions contemplated hereby and thereby or relating
hereto do not and will not (i) result in a violation of such Subscriber’s
charter documents, bylaws or other organizational documents, if applicable; (ii)
conflict with nor constitute a default (or an event which with notice or lapse
of time or both would become a default) under any agreement to which such
Subscriber is a party; or (iii) result in a violation of any law, rule or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to such Subscriber or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
Material Adverse Effect on Subscriber). Such Subscriber is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for such Subscriber
to execute, deliver or perform any of such Subscriber’s obligations under this
Agreement and the other Transaction Documents, nor to purchase the Securities in
accordance with the terms hereof, provided that for purposes of
the representation made in this sentence, such Subscriber is assuming and
relying upon the accuracy of the relevant representations and agreements of the
Company herein.
(d) Information on
Company. Such Subscriber has been furnished with or has
had access to the EDGAR Website of the Commission to the Company’s filings made
with the Commission through the tenth (10th) business day preceding the Closing
Date (hereinafter collectively referred to as the “Reports”). Such
Subscriber is not deemed to have any knowledge of any information not included
in the Reports, unless such information is delivered in the manner described in
the next sentence. In addition, such Subscriber may have received in
writing from the Company such other information concerning its operations,
financial condition and other matters as such Subscriber has requested in
writing, identified thereon as OTHER WRITTEN INFORMATION (such other information
is collectively, the “Other
Written Information”), and considered all factors such Subscriber deems
material in deciding on the advisability of investing in the
Securities.
(e) Information on
Subscriber. Such Subscriber is, and will be at the time
of the conversion of the Preferred Stock and exercise of the Warrants, an “accredited investor,” as such
term is defined in Regulation D promulgated by the Commission under the 1933
Act, is experienced in investments and business matters, has made investments of
a speculative nature and has purchased securities of United States
publicly-owned companies in private placements in the past and, with its
representatives, has such knowledge and experience in financial, tax and other
business matters as to enable such Subscriber to utilize the information made
available by the Company to evaluate the merits and risks of, and to make an
informed investment decision with respect to, the proposed purchase, which such
Subscriber hereby agrees represents a speculative investment. Such
Subscriber has the authority and is duly and legally qualified to purchase and
own the Securities. Such Subscriber is able to bear the risk of such
investment for an indefinite period and to afford a complete loss
thereof. The information set forth on Schedule
1 hereto
regarding such Subscriber is accurate.
(f) Purchase of Preferred Stock
and Warrants. On the Closing Date, such Subscriber will
purchase the Preferred Stock and Warrants as principal for its own account for
investment only and not with a view toward, or for resale in connection with,
the public sale or any distribution thereof.
(g) Compliance with Securities
Act. Such Subscriber understands and agrees that the
Securities have not been registered under the 1933 Act or any applicable state
securities laws by reason of their issuance in a transaction that does not
require registration under the 1933 Act (based in part on the accuracy of the
representations and warranties of Subscriber contained herein), and that such
Securities must be held indefinitely unless a subsequent disposition is
registered under the 1933 Act or any applicable state securities laws or is
exempt from such registration. In any event, and subject to
compliance with applicable securities laws, Subscriber may enter into lawful
hedging transactions in the course of hedging the position they assume and the
Subscriber may also enter into lawful short positions or other derivative
transactions relating to the Securities, or interests in the Securities, and
deliver the Securities, or interests in the Securities, to close out their short
or other positions or otherwise settle other transactions, or loan or pledge the
Securities, or interests in the Securities, to third parties who in turn may
dispose of these Securities.
(h) Conversion Shares and
Warrant Shares Legend. The Conversion Shares and Warrant
Shares shall bear the following or similar legend:
“THE ISSUANCE AND SALE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, NOR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER AND REASONABLY
APPROVED BY THE COMPANY), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
(i) Preferred Stock and Warrants
Legend. The Preferred Stock and Warrants shall bear the
following legend:
“NEITHER THE ISSUANCE AND SALE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE -OR- EXERCISABLE] HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER AND REASONABLY
APPROVED BY THE COMPANY), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
(j) Communication of
Offer. The offer to sell the Securities was directly
communicated to such Subscriber by the Company. At no time was such
Subscriber presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated offer.
(k) Restricted
Securities. Such Subscriber understands that the
Securities have not been registered under the 1933 Act and such Subscriber shall
not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any
of the Securities unless pursuant to an effective registration statement under
the 1933 Act, or unless an exemption from registration is
available. Notwithstanding anything to the contrary contained in this
Agreement, such Subscriber may transfer (without restriction and without the
need for an opinion of counsel as permitted under applicable law) the
Securities: (i) to such Subscriber’s Affiliates (as defined below), provided that each such
Affiliate is an “accredited investor,” as such term is defined under Regulation
D, and such Affiliate agrees in writing to be bound by the terms and conditions
of this Agreement; (ii) to such Subscriber’s Immediate Family (as defined
below), provided the
Immediate Family member agrees in writing to be bound by the terms and
conditions of this Agreement; (iii) to an inter vivos or testamentary trust (or
other entity) in which the Securities are to be passed to Subscriber’s
designated beneficiaries; or (iv) by will or by the laws of descent or
distribution. For the purposes of this Agreement, an “Affiliate” of any person or
entity means any other person or entity directly or indirectly controlling,
controlled by or under direct or indirect common control with such person or
entity. Without limiting the foregoing, each Subsidiary (as defined
herein) is an Affiliate of the Company. For purposes of this
definition, “control”
means the power to direct the management and policies of such person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise. For purposes of this Agreement, “Immediate Family” means any
child, stepchild, parent, stepparent, spouse, former spouse, sibling, niece,
nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law.
(l) No Governmental
Review. Such Subscriber understands that no United States
federal or state agency or any other governmental or state agency has passed on
or made recommendations or endorsement of the Securities or the suitability of
the investment in the Securities, nor have such authorities passed upon or
endorsed the merits of the offering of the Securities.
(m) Independent
Decision. The decision of such Subscriber to purchase
Securities has been made by such Subscriber independently of any other
Subscriber and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
other Subscriber (or any other Person) relating to or arising from any such
information, materials, statements or opinions.
(n) Correctness of
Representations. Subscriber represents that the foregoing
representations and warranties are true and correct as of the date hereof and,
unless Subscriber otherwise notifies the Company in writing prior to the Closing
Date, shall be true and correct as of the Closing Date.
(o) Survival. The
foregoing representations and warranties shall survive the Closing
Date.
5. Company Representations and
Warranties. Except as set forth in the Schedules hereto, the
Company represents and warrants to and agrees with each Subscriber
that:
(a) Due
Incorporation. The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite corporate power to own its properties and to carry on its
business as presently conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have a Material Adverse Effect (as defined
herein). For purposes of this Agreement, a “Material Adverse Effect” shall
mean a material adverse effect on the financial condition, results of
operations, prospects, properties or business of the Company and its
Subsidiaries taken as a whole. For purposes of this Agreement, “Subsidiary” means, with
respect to any entity at any date, any direct or indirect corporation, limited
or general partnership, limited liability company, trust, estate, association,
joint venture or other business entity of which (A) more than 30% of
(i) the outstanding capital stock having (in the absence of contingencies)
ordinary voting power to elect a majority of the board of directors or other
managing body of such entity, (ii) in the case of a partnership or limited
liability company, the interest in the capital or profits of such partnership or
limited liability company or (iii) in the case of a trust, estate,
association, joint venture or other entity, the beneficial interest in such
trust, estate, association or other entity business is, at the time of
determination, owned or controlled directly or indirectly through one or more
intermediaries, by such entity, or (B) is under the actual control of the
Company. As of the Closing Date, all of the Company’s Subsidiaries
and the Company’s other ownership interests therein are set forth on Schedule
5(a). The Company represents that it owns all of the equity of
the Subsidiaries and rights to receive equity of the Subsidiaries set forth on
Schedule
5(a), free and clear of all liens, encumbrances and claims, except as set
forth on Schedule
5(a). No person or entity other than the Company has the right
to receive any equity interest in the Subsidiaries. Except as set
forth on Schedule 5(a), the Company further represents that neither the Company
nor the Subsidiaries have been known by any other names for the five (5) years
preceding the date of this Agreement.
(b) Outstanding
Stock. All issued and outstanding shares of capital stock and
equity interests in the Company have been duly authorized and validly issued and
are fully paid and non-assessable.
(c) Authority;
Enforceability. This Agreement, the Preferred Stock, Warrants,
the Escrow Agreement, and any other agreements delivered or required to be
delivered together with or pursuant to this Agreement or in connection herewith
(collectively, the “Transaction
Documents”) have been duly authorized, executed and delivered by the
Company and/or the Subsidiaries, as the case may be, and are valid and binding
agreements of the Company and/or the Subsidiaries, as the case may be,
enforceable in accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors’ rights generally and to
general principles of equity. The Company and/or the Subsidiaries, as
the case may be, have full corporate power and authority necessary to enter into
and deliver the Transaction Documents and to perform their obligations
thereunder.
(d) Capitalization and
Additional Issuances. The authorized and outstanding
capital stock of the Company and the Subsidiaries on a fully diluted basis and
all outstanding rights to acquire or receive, directly or indirectly, any equity
of the Company and/or the Subsidiaries as of the date of this Agreement and the
Closing Date (not including the Securities) are set forth on Schedule
5(d). Except as set forth on Schedule
5(d), there are no options, warrants or rights to subscribe to
securities, rights, understandings or obligations convertible into or
exchangeable for or granting any right to subscribe for any shares of capital
stock or other equity interest of the Company or any of the
Subsidiaries. The only officer, director, employee and consultant
stock option or stock incentive plan or similar plan currently in effect or
contemplated by the Company is described on Schedule
5(d). There are no outstanding agreements or preemptive or
similar rights affecting the Company’s Common Stock or equity.
(e) Consents. No
consent, approval, authorization or order of any court, governmental agency or
body or arbitrator having jurisdiction over the Company, the Subsidiaries or any
of their Affiliates, any Principal Market as defined in Section 9(b) or the
Company’s stockholders is required for the execution by the Company of the
Transaction Documents and compliance and performance by the Company and the
Subsidiaries of their respective obligations under the Transaction Documents,
including, without limitation, the issuance and sale of the
Securities. The Transaction Documents and the Company’s performance
of its obligations thereunder have been unanimously approved by the Company’s
board of directors in accordance with the Company’s Certificate of Incorporation
and applicable law. Any such qualifications and filings will, in the
case of qualifications, be effective upon Closing, and will, in the case of
filings, be made within the time prescribed by law.
(f) No Violation or
Conflict. Conditioned upon the representations and warranties
of Subscriber in Section 4 hereof being materially true and correct, neither the
issuance nor the sale of the Securities nor the performance of the Company’s
obligations under this Agreement and the other Transaction Documents by the
Company, will:
(i) violate,
conflict with, result in a breach of, or constitute a default (or an event which
with the giving of notice or the lapse of time or both would be reasonably
likely to constitute a default) under (A) the certificate of incorporation or
bylaws of the Company, (B) to the Company’s knowledge, any decree, judgment,
order, law, treaty, rule, regulation or determination applicable to the Company
of any court, governmental agency or body, or arbitrator having jurisdiction
over the Company or over the properties or assets of the Company or any of its
Affiliates, (C) the terms of any bond, debenture, note or any other evidence of
indebtedness, or any agreement, stock option or other similar plan, indenture,
lease, mortgage, deed of trust or other instrument to which the Company or any
of its Affiliates is a party, by which the Company or any of its Affiliates is
bound, or to which any of the properties of the Company or any of its Affiliates
is subject or (D) the terms of any “lock-up” or similar provision of any
underwriting or similar agreement to which the Company, or any of its Affiliates
is a party, except the violation, conflict, breach or default of which would not
have a Material Adverse Effect; or
(ii) result
in the creation or imposition of any lien, charge or encumbrance upon the
Securities or any of the assets of the Company or any of its Affiliates, except
in favor of each Subscriber as described herein; or
(iii) except
as set forth in Schedule
5(f) hereto, result in the activation of any anti-dilution rights or a
reset or repricing of any debt, equity or security instrument of any creditor or
equity holder of the Company, or the holder of the right to receive any debt,
equity or security instrument of the Company, nor result in the acceleration of
the due date of any obligation of the Company; or
(iv) except
as set forth in Schedule
5(f) hereto, result in the triggering of any piggy-back or other
registration rights of any person or entity holding securities of the Company or
having the right to receive securities of the Company.
(g) The
Securities. The Securities upon issuance:
(i)
are, or will be, free and clear of any security interests,
liens, claims or other encumbrances, subject only to restrictions upon transfer
under the 1933 Act and any applicable state securities laws;
(ii)
have been, or will be, duly and validly authorized and
on the dates of issuance of the Preferred Stock and Warrants, the Conversion
Shares upon conversion of the Preferred Stock, and the Warrant Shares upon
exercise of the Warrants, such Preferred Stock, Warrants, Conversion Shares and
Warrant Shares will be duly and validly issued, fully paid and non-assessable
and if registered pursuant to the 1933 Act and resold pursuant to an effective
registration statement or an exemption from registration, will be free trading,
unrestricted and unlegended;
(iii) will
not have been issued or sold in violation of any preemptive or other similar
rights of the holders of any securities of the Company or rights to acquire
securities or debt of the Company;
(iv) will
not subject the holders thereof to personal liability by reason of being such
holders; and
(v) conditioned
upon the representations and warranties of the Subscribers as set forth in
Section 4 hereof being materially true and correct, will not result in a
violation of Section 5 under the 1933 Act.
(h) Litigation. There
is no pending or, to the best knowledge of the Company, threatened action, suit,
proceeding or investigation before any court, governmental agency or body, or
arbitrator having jurisdiction over the Company, or any of its Affiliates that
would affect the execution by the Company or the complete and timely performance
by the Company of its obligations under the Transaction
Documents. Except as disclosed in the Reports, there is no pending
or, to the best knowledge of the Company, basis for or threatened action, suit,
proceeding or investigation before any court, governmental agency or body, or
arbitrator having jurisdiction over the Company, or any of its Affiliates which
litigation if adversely determined would have a Material Adverse
Effect.
(i) No Market
Manipulation. The Company and its Affiliates have not taken,
and will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Securities
or affect the price at which the Securities may be issued or
resold.
(j) Information Concerning
Company. The Reports and Other Written Information contain all
material information relating to the Company and its operations and financial
condition as of their respective dates which information is required to be
disclosed therein. Since September 30, 2010, and except as disclosed
in the Reports or modified in the Reports and Other Written Information or in
the Schedules hereto, there has been no Material Adverse Effect relating to the
Company’s business, financial condition or affairs. The Reports and Other
Written Information including the financial statements included therein do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, taken
as a whole, not misleading in light of the circumstances and when
made.
(k) Solvency. Based
on the consolidated financial condition of the Company as of the Closing Date,
after giving effect to the receipt by the Company of the proceeds from the sale
of the Securities hereunder, and subject to the assumption of continuing as a
going concern, (i) the Company’s fair saleable value of its assets exceeds the
amount that will be required to be paid on or in respect of the Company’s
existing debts and other liabilities (including known contingent liabilities) as
they mature; (ii) the Company’s assets do not constitute unreasonably small
capital to carry on its business for the current fiscal year as now conducted
and as proposed to be conducted, including its capital needs taking into account
the particular capital requirements of the business conducted by the Company,
and projected capital requirements and capital availability thereof; and (iii)
the current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking into account
all anticipated uses of the cash, would be sufficient to pay all amounts on or
in respect of its debt when such amounts are required to be paid. The
Company does not intend to incur debts beyond its ability to pay such debts as
they mature (taking into account the timing and amounts of cash to be payable on
or in respect of its debt).
(l) Defaults. The
Company is not in violation of its certificate of incorporation or
bylaws. The Company is (i) not in default under or in violation
of any other material agreement or instrument to which it is a party or by which
it or any of its properties are bound or affected, which default or violation
would have a Material Adverse Effect, (ii) not in default with respect to any
order of any court, arbitrator or governmental body or subject to or party to
any order of any court or governmental authority arising out of any action, suit
or proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters which default would
have a Material Adverse Effect, or (iii) not in violation of any statute, rule
or regulation of any governmental authority which violation would have a
Material Adverse Effect.
(m) No Integrated
Offering. Neither the Company, 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 of the Company nor solicited
any offers to buy any security of the Company under circumstances that would
cause the offer of the Securities pursuant to this Agreement to be integrated
with prior offerings by the Company for purposes of the 1933 Act or any
applicable stockholder approval provisions, including, without limitation, under
the rules and regulations of the Pink Sheets. No prior offering will
impair the exemptions relied upon in this Offering or the Company’s ability to
timely comply with its obligations hereunder. Neither the Company nor
any of its Affiliates will take any action or suffer any inaction or conduct any
offering other than the transactions contemplated hereby that may be integrated
with the offer or issuance of the Securities or that would impair the exemptions
relied upon in this Offering or the Company’s ability to timely comply with its
obligations hereunder.
(n) No General
Solicitation. Neither the Company, nor any of its Affiliates,
nor to its knowledge, any person acting on its or their behalf, has engaged in
any form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
(o) No Undisclosed
Liabilities. The Company has no liabilities or obligations
which are material, individually or in the aggregate, other than those incurred
in the ordinary course of the Company’s business since September 30, 2010, and
which, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect, except as disclosed in the Reports or in Schedule
5(o).
(p) No Undisclosed Events or
Circumstances. Since September 30, 2010, except as disclosed
in the Reports, no event or circumstance has occurred or exists with respect to
the Company or its businesses, properties, operations or financial condition,
that, under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the Reports.
(q) Dilution. The
Company’s executive officers and directors understand the nature of the
Securities being sold hereby and recognize that the issuance of the Securities
will have a potential dilutive effect on the equity holdings of other holders of
the Company’s equity or rights to receive equity of the Company. The
board of directors of the Company has concluded, in its good faith business
judgment, that the issuance of the Securities is in the best interests of the
Company. The Company specifically acknowledges that its obligation to
issue the Conversion Shares upon conversion of the Preferred Stock and the
Warrant Shares upon exercise of the Warrants is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the ownership
interests of other stockholders of the Company or parties entitled to receive
equity of the Company.
(r) No Disagreements with
Accountants and Lawyers. There are no material disagreements
of any kind presently existing, or reasonably anticipated by the Company to
arise, between the Company and the accountants and lawyers previously and
presently employed by the Company, including, but not limited to, disputes or
conflicts over payment owed to such accountants and lawyers, nor have there been
any such disagreements during the two years prior to the Closing
Date.
(s) Investment
Company. Neither the Company nor any Affiliate of the
Company is an “investment company” within the meaning of the Investment Company
Act of 1940, as amended.
(t) Foreign Corrupt
Practices. Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has (i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended.
(u) Reporting Company/Shell
Company. The Company is a publicly-held company. As
of the Closing Date, the Company is not a “shell company” but is a “former shell
company” as those terms are employed in Rule 144 under the 1933
Act.
(v) Listing. The
Company’s Common Stock is quoted on the Pink Sheets (“Pink Sheets”) under the symbol
“WIZD”. The Company has not received any pending oral or written
notice that its Common Stock is not eligible nor will become ineligible for
quotation on the Pink Sheets nor that its Common Stock does not meet all
requirements for the continuation of such quotation.
(w) DTC
Status. The Company’s transfer agent is a participant
in, and the Common Stock is or shall be eligible for transfer pursuant to, the
Depository Trust Company Automated Securities Transfer Program. The name,
address, telephone number, fax number, contact person and email address of the
Company transfer agent is set forth on Schedule
5(w) hereto.
(x) Company Predecessor and
Subsidiaries. The Company makes each of the representations
contained in Sections 5(a), (b), (c), (d), (e), (f), (h), (j), (k), (l), (o),
(p), (r), (s) and (t) of this Agreement, as same relate or could be applicable
to each Subsidiary. All representations made by or relating to the
Company of a historical or prospective nature and all undertakings described in
Section 9 shall relate, apply and refer to the Company and the Subsidiaries and
their predecessors and successors.
(y) Correctness of
Representations. The Company represents that the foregoing
representations and warranties are true and correct as of the date hereof in all
material respects, and, unless the Company otherwise notifies the Subscribers
prior to the Closing Date, shall be true and correct in all material respects as
of the Closing Date; provided that if such
representation or warranty is made as of a different date, such representation
or warranty shall be true as of such date.
(z) Survival. The
foregoing representations and warranties shall survive the Closing
Date.
6. Regulation D Offering/Legal
Opinion. The offer and issuance of the Securities to the
Subscribers is being made pursuant to an exemption from the registration
provisions of the 1933 Act afforded by Section 4(2) or Section 4(6) of the 1933
Act and/or Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion reasonably acceptable to each
Subscriber from the Company’s legal counsel in substantially the form attached
hereto as Exhibit D
opining on the availability of an exemption from registration under the 1933 Act
as it relates to the offer and issuance of the Securities and other matters
reasonably requested by the Subscribers. The Company will provide, at
the Company’s expense, to the Subscribers such other legal opinions, if any, as
are necessary in each Subscriber’s opinion for the issuance and resale of the
Conversion Shares and Warrant Shares pursuant to an exemption from registration
such as Rule 144 under the 1933 Act.
7. Broker’s Commission/Finder’s
Fee. The Company on the one hand, and each Subscriber (for such
Subscriber only) on the other hand, agrees to indemnify the other against and
hold the other harmless from any and all liabilities to any Persons claiming
brokerage commissions or similar fees on account of services purported to have
been rendered on behalf of the indemnifying party in connection with this
Agreement or the transactions contemplated hereby and arising out of such
party’s actions. The Company represents that to the best of its
knowledge there are no parties entitled to receive fees, commissions, finder’s
fees, due diligence fees or similar payments in connection with the
Offering. Anything in this Agreement to the contrary notwithstanding,
each Subscriber is providing indemnification only for such Subscriber’s own
actions and not for any action of any other Subscriber. The liability
of the Company and each Subscriber’s liability hereunder is several and not
joint.
8. Subscriber’s Legal
Fees. The Company shall pay to Grushko & Mittman,
P.C. a cash fee of $15,000 (“Legal Fees”) as reimbursement
for services rendered in connection with the transactions described in the
Transaction Documents. The Legal Fees will be payable out of funds held pursuant
to the Escrow Agreement. Grushko & Mittman, P.C. will be
reimbursed at Closing or Initial Closing, as the case may be, by the Company for
all lien searches, filing fees and reasonable printing and shipping costs for
the closing statements to be delivered to the Subscribers.
9. Covenants of the
Company. The Company covenants and agrees with the Subscribers
as follows:
(a) Stop
Orders. Subject to the prior notice requirement described in
Section 9(n) hereof, the Company will advise the Subscribers, within twenty-four
(24) hours after it receives notice of issuance by the Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose. The Company will not issue any stop
transfer order or other order impeding the sale, resale or delivery of any of
the Securities, except as may be required by any applicable federal or state
securities laws, provided at least five (5)
business days prior notice of such instruction is given to the
Subscribers.
(b) Listing/Quotation. The
Company shall promptly secure the quotation or listing of the Conversion Shares
and Warrant Shares upon each national securities exchange, or automated
quotation system upon which the Company’s Common Stock is quoted or listed and
upon which such Conversion Shares and Warrant Shares are or become eligible for
quotation or listing (subject to official notice of issuance) and shall maintain
same so long as any Preferred Stock and Warrants are outstanding. The
Company will maintain the quotation or listing of its Common Stock on the NYSE
Amex Equities, Nasdaq Capital Market, Nasdaq Global Market, Nasdaq Global Select
Market, Pink Sheets, or New York Stock Exchange (whichever of the foregoing is
at the time the principal trading exchange or market for the Common Stock) (the
“Principal Market”), and
will comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable.
Subject to the limitation set forth in Section 9(n) hereof, the Company will
provide the Subscribers with copies of all notices it receives notifying the
Company of the threatened and actual delisting of the Common Stock from any
Principal Market. As of the date of this Agreement and the Closing
Date, the Pink Sheets is the Principal Market.
(c) Market
Regulations. If required, the Company shall notify the
Commission, the Principal Market and applicable state authorities, in accordance
with their requirements, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Securities to the Subscribers and promptly provide copies
thereof to the Subscribers.
(d) Filing
Requirements. From the date of this Agreement and until the
last to occur of (i) all the Conversion Shares have been resold or transferred
by the Subscribers pursuant to a registration statement or pursuant to Rule
144(b)(1)(i), or (ii) none of the Preferred Stock and Warrants
are outstanding (the date of such latest occurrence being the “End Date”), the Company will
(A) voluntarily comply with all reporting and filing requirements that are
applicable to an issuer subject to reporting obligations pursuant to Section 13
of the 1934 Act even if the Company is not subject to such reporting
requirements sufficient to permit the Subscribers to be able to resell the
Conversion Shares and Warrant Shares pursuant to Rule 144(b)(i), (B) voluntarily
comply with all reporting requirements that are applicable to an issuer with a
class of shares registered pursuant to Section 12(g) of the 1934 Act even if the
Company is not subject to such reporting requirements sufficient to permit the
Subscribers to be able to resell the Conversion Shares and Warrant Shares
pursuant to Rule 144(b)(i) and (C) comply with all requirements related to any
registration statement filed pursuant to this Agreement. The Company
will use its commercially reasonable best efforts not to take any action or file
any document (whether or not permitted by the 1933 Act or the 1934 Act or the
rules thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said acts until the End
Date. Until the End Date, the Company will continue the listing or
quotation of the Common Stock on a Principal Market and will comply in all
respects with the Company’s reporting, filing and other obligations under the
bylaws or rules of the Principal Market. The Company agrees to timely
file a Form D with respect to the Securities if required under Regulation D and
to provide a copy thereof to each Subscriber promptly after such
filing.
(e) Use of
Proceeds. The proceeds of the Offering will be
substantially employed by the Company for the purposes set forth on Schedule
9(e) hereto. Except as described on Schedule
9(e), the Purchase Price may not and will not be used for accrued and
unpaid officer and director salaries, nor payment of financing related debt nor
redemption of outstanding notes or equity instruments of the Company nor
non-trade payables outstanding on the Closing Date.
(f) Reservation. Prior
to the Closing or Initial Closing, as the case may be, the Company undertakes to
reserve on behalf of the Subscribers from its authorized but unissued Common
Stock, a number of shares of Common Stock equal to 150% of the amount of Common
Stock necessary to allow the Subscribers to be able to convert all of the
Preferred Stock and 100% of the amount of Warrant Shares issuable upon exercise
of the Warrants (“Required
Reservation”). Failure to have sufficient shares
reserved pursuant to this Section 9(f) at any time prior to the End Date shall
be a material default of the Company’s obligations under this Agreement and an
Event of Default as employed in the Certificate of
Designation. Without waiving the foregoing requirement, if at any
time the Preferred Stock and Warrants are outstanding the Company has reserved
on behalf of the Subscribers less than 125% of the amount necessary for full
conversion of the outstanding Preferred Stock and dividends accrued on such
Preferred Stock at the conversion price in effect on every such date and 100% of
the Warrant Shares issuable upon exercise of outstanding Warrants (“Minimum Required
Reservation”), the Company will promptly reserve the Minimum Required
Reservation, or if there are insufficient authorized and available shares of
Common Stock to do reserve the Minimum Required Reservation, the Company will
take all action necessary to increase its authorized capital to be able to fully
satisfy its reservation requirements hereunder, including the filing of a
preliminary proxy with the Commission not later than fifteen (15) days after the
first day the Company has reserved less than the Minimum Required
Reservation. The Company agrees to provide notice to the Subscribers
not later than five days after the date the Company has less than the Minimum
Required Reservation reserved on behalf of the Subscribers.
(g) DTC
Program. At all times that Preferred Stock or Warrants are
outstanding, the Company will employ as the transfer agent for the Common Stock,
Conversion Shares and Warrant Shares a participant in the Depository Trust
Company Automated Securities Transfer Program.
(h) Taxes. From
the date of this Agreement and until the End Date, the Company will promptly pay
and discharge, or cause to be paid and discharged, when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon the
income, profits, property or business of the Company; provided, however, that any
such tax, assessment, charge or levy need not be paid if the validity thereof
shall currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefore.
(i) Insurance. As
reasonably necessary as determined by the Company, from the date of this
Agreement and until the End Date, the Company will keep its assets which are of
an insurable character insured by financially sound and reputable insurers
against loss or damage by fire, explosion and other risks customarily insured
against by companies in the Company’s line of business and location, in amounts
and to the extent and in the manner customary for companies in similar
businesses similarly situated and located and to the extent available on
commercially reasonable terms.
(j) Books and
Records. From the date of this Agreement and until the End
Date, the Company will keep true records and books of account in which full,
true and correct entries in all material respects will be made of all dealings
or transactions in relation to its business and affairs in accordance with
United States generally accepted accounting principles (“GAAP”) applied on a consistent
basis.
(k) Governmental
Authorities. From the date of this Agreement and until
the End Date, the Company shall duly observe and conform in all material
respects to all valid requirements of governmental authorities relating to the
conduct of its business or to its properties or assets.
(l) Intellectual
Property. From the date of this Agreement and until the End
Date, the Company shall maintain in full force and effect its corporate
existence, rights and franchises and all licenses and other rights to use
intellectual property owned or possessed by it and reasonably deemed to be
necessary to the conduct of its business, unless it is sold for
value. Schedule
9(l) hereto identifies all of the intellectual property owned by the
Company and the Subsidiaries, which schedule includes, but is not limited to,
patents, patents pending, patent applications, trademarks, tradenames, service
marks and copyrights.
(m) Properties. From
the date of this Agreement and until the End Date, the Company will keep its
properties in good repair, working order and condition, reasonable wear and tear
excepted, and from time to time make all necessary and proper repairs, renewals,
replacements, additions and improvements thereto as the Company shall reasonably
determine; and the Company will at all times comply with each provision of all
leases and claims to which it is a party or under which it occupies or has
rights to property if the breach of such provision could reasonably be expected
to have a Material Adverse Effect. The Company will not abandon any
of its assets, except for those assets which have negligible or marginal value ,
are obsolete or for which it is prudent to do so under the circumstances as
reasonably determined by the Company.
(n) Confidentiality/Public
Announcement. From the date of this
Agreement until the End Date, the Company agrees that except in
connection with a Form 8-K, Form 10-Q, Form 10-K and the registration statement
or statements regarding the Subscribers’ Securities or in correspondence with
the Commission regarding same, it will not disclose publicly or privately the
identity of a Subscriber unless expressly agreed to in writing by such
Subscriber or only to the extent required by law and then only upon not less
than two (2) business days prior notice to such Subscriber. In any
event and subject to the foregoing, the Company undertakes to file a Form 8-K
describing the Offering no later than the fourth (4th) day of the Closing
Date. Prior to the filing of such Form 8-K, a draft in the final form
will be provided for Subscribers’ review and approval. In the Form
8-K, the Company will specifically disclose the amount of Common Stock
outstanding immediately after the Closing. Upon
delivery by the Company to the Subscribers after the Closing Date of any
notice or information, in writing, electronically or otherwise, and while
Preferred Stock, Conversion Shares or Warrants are held by the Subscribers,
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 the
Subsidiaries, the Company shall, within four (4) days after any
such delivery, publicly disclose such material, nonpublic
information on a Report on Form 8-K. In
the event that the Company believes that a
notice or communication to the Subscribers contains material, nonpublic
information relating to the Company or the Subsidiaries, except as required to
be delivered in connection with this Agreement, the Company shall so indicate to
the Subscribers prior to delivery of such notice or information. A
Subscriber will be granted five (5) days to notify the Company that such
Subscriber elects not to receive such information. In the case
that a Subscriber elects not to receive such information, the Company will not
deliver such information to such Subscriber. In the absence of any
such Company indication, the Subscribers shall be allowed to presume that
all matters relating to such notice and information do not
constitute material, nonpublic information relating to the Company or the
Subsidiaries.
(o) Non-Public
Information. The Company covenants and agrees that except for
the Reports, Other Written Information and schedules and exhibits to this
Agreement and the Transaction Documents, which information the Company
undertakes to publicly disclose on the Form 8-K described in Section 9(n) above,
neither it nor any other person acting on its behalf will at any time provide
any Subscriber or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto such
Subscriber, its agent or counsel shall have agreed in writing to accept such
information as described in Section 9(n) above. The Company
understands and confirms that the Subscribers shall be relying on the foregoing
representations in effecting transactions in securities of the
Company. The Company agrees that any information known to Subscriber
required to be make public by the Company but not made public by the Company,
not already made public by the Company may be made public and disclosed by the
Subscriber.
(p) Negative
Covenants. So long as Preferred Stock is outstanding,
without the unanimous consent of all of the Subscribers, the Company will not
and will not permit any of its Subsidiaries to directly or
indirectly:
(i) create,
incur, assume or suffer to exist any pledge, hypothecation, assignment, deposit
arrangement, lien, charge, claim, security interest, security title, mortgage,
security deed or deed of trust, easement or encumbrance, or preference, priority
or other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing, and
the filing of, or agreement to give, any financing statement perfecting a
security interest under the Uniform Commercial Code or comparable law of any
jurisdiction) (each, a “Lien”) upon any of its
property, whether now owned or hereafter acquired, except for: (a)
Liens imposed by law for taxes that are not yet due or are being contested in
good faith and for which adequate reserves have been established in accordance
with GAAP; (b) carriers,’ warehousemen’s, mechanic’s, material men’s,
repairmen’s and other like Liens imposed by law, arising in the ordinary course
of business and securing obligations that are not overdue by more than thirty
(30) days or that are being contested in good faith and by appropriate
proceedings; (c) pledges and deposits made in the ordinary course of business in
compliance with workers’ compensation, unemployment insurance and other social
security laws or regulations; (d) deposits to secure the performance of bids,
trade contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case in the
ordinary course of business; (e) Liens created with respect to the financing of
the purchase of new property in the ordinary course of the Company’s business up
to the amount of the purchase price of such property; and (f) easements, zoning
restrictions, rights-of-way and similar encumbrances on real property imposed by
law or arising in the ordinary course of business that do not secure any
monetary obligations and do not materially detract from the value of the
affected property (each of (a) through (f) hereof, a “Permitted
Lien”);
(ii) amend
its certificate of incorporation, bylaws or its charter documents so as to
materially and adversely affect any rights of the Subscribers; provided that an increase in
the amount of authorized shares will not be deemed adverse to the rights of the
Subscribers;
(iii) repay,
repurchase or offer to repay, repurchase or otherwise acquire or make any
dividend or distribution in respect of any of its Common Stock, preferred stock,
or other equity securities other than to the extent permitted or required under
the Transaction Documents;
(iv) engage
in any transactions with any officer, director, employee or any Affiliate of the
Company, including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of $100,000,
other than (i) for payment of salary or fees for services rendered, pursuant to
and on the terms of a written contract in effect at least one (1) business day
prior to the Closing Date, a copy of which has been provided to the Subscriber
at least one (1) business day prior to the Closing Date, (ii) reimbursement for
authorized expenses incurred on behalf of the Company or its Affiliates, (iii)
for other employee benefits, including stock option agreements under any stock
option plan of the Company disclosed in the Reports or (iv) other transactions
disclosed in the Reports; or
(v) pay
or redeem any financing related debt or past due obligations or securities
outstanding as of the Closing Date, or past due obligations, except with respect
to vendor obligations, which in management’s good faith, reasonable judgment
must be paid to avoid disruption of the Company’s businesses.
(q) Offering
Restrictions. Subject to the consent of a Majority in
Interest of the Subscribers, for so long as the Preferred Stock and Warrants are
outstanding, the Company will not enter into or exercise any Equity Line of
Credit (as defined herein) or similar agreement, nor issue nor agree to issue
any floating or Variable Priced Equity Linked Instruments (as defined herein)
nor any of the foregoing or equity with price reset rights (collectively, the
“Variable Rate
Restrictions”). For purposes hereof, “Equity Line of Credit” shall
include any transaction involving a written agreement between the Company and an
investor or underwriter whereby the Company has the right to “put” its
securities to the investor or underwriter over an agreed period of time and at a
price formula, and “Variable
Priced Equity Linked Instruments” shall include: (A) any debt or equity
securities which are convertible into, exercisable or exchangeable for, or carry
the right to receive additional shares of Common Stock either (1) at any
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for Common Stock at any time
after the initial issuance of such debt or equity security or (2) with a fixed
conversion, exercise or exchange price that is subject to being reset at some
future date at any time after the initial issuance of such debt or equity
security due to a change in the market price of the Company’s Common Stock since
date of initial issuance, and (B) any amortizing convertible security which
amortizes prior to its maturity date, where the Company is required or has the
option to (or any investor in such transaction has the option to require the
Company to) make such amortization payments in shares of Common Stock which are
valued at a price that is based upon and/or varies with the trading prices of or
quotations for Common Stock at any time after the initial issuance of such debt
or equity security (whether or not such payments in stock are subject to certain
equity conditions).
(r) Seniority. Except
for Permitted Liens, for so long as the Preferred Stock is outstanding, without
written consent of the Subscribers, the Company and Subsidiaries shall not grant
nor allow any security interest to be taken in any assets of the Company or any
Subsidiary or any Subsidiary’s assets; nor issue or amend any debt, equity or
other instrument which would give the holder thereof directly or indirectly, a
right in any equity of the Company or any Subsidiary or any right to payment
equal to or superior to any right of the Subscribers as holders of the Preferred
Stock in or to such equity or payment, nor issue or incur any debt not in the
ordinary course of business in an amount greater than
$500,000.
(s) Notices. For
so long as the Subscribers hold any Preferred Stock or Warrants, the Company
will maintain a United States address and United States fax number for notice
purposes under the Transaction Documents.
(t) Transactions with
Insiders. So long as the Preferred Stock and Warrants are
outstanding, without consent of a Majority in Interest of the Subscribers, the
Company shall not, and shall cause each of its Subsidiaries not to, enter into,
materially amend, materially modify or materially supplement, or permit any
Subsidiary to enter into, materially amend, materially modify or materially
supplement, any agreement, transaction, commitment, or arrangement relating to
the sale, transfer or assignment of any of the Company’s tangible or intangible
assets with any of its Insiders (as defined below) (or any persons who were
Insiders at any time during the previous two (2) years), or any Affiliates (as
defined below) thereof, or with any individual related by blood, marriage, or
adoption to any such individual. “Affiliate,” for purposes of
this Section 9(t), means, with respect to any person or entity, another person
or entity that, directly or indirectly, (i) has a ten percent (10%) or more
equity interest in that person or entity, (ii) has ten percent (10%) or more
common ownership with that person or entity, (iii) controls that person or
entity, or (iv) shares common control with that person or
entity. “Control” or “Controls” for purposes of the Transaction
Documents means that a person or entity has the power, direct or indirect, to
conduct or govern the policies of another person or entity. For
purposes hereof, “Insiders” shall mean any
officer, director or manager of the Company, including, but not limited to, the
Company’s president, chief executive officer, chief financial officer and chief
operations officer, and any of their Affiliates or family members.
(u) Stock
Splits. For so long as the Preferred Stock and Warrants are
outstanding, the Company will not enter into any stock splits without the
consent of the Subscribers.
(v) Notice of Event of
Default. The Company agrees to notify Subscriber of the
occurrence of an Event of Default (as defined and employed in the Transaction
Documents) not later than ten (10) days after any of the Company’s officers or
directors becomes aware of such Event of Default.
(w) Further Registration
Statements. Except for a registration statement filed on
behalf of the Subscribers and the parties listed on Schedule 9(w), the Company
will not, without the consent of a Majority in Interest of the Subscribers, file
with the Commission or with state regulatory authorities any registration
statement, including a registration statement on Form S-8, or amend any already
filed registration statement to increase the amount of Common Stock registered
therein, or reduce the price of which securities of the Company are registered
therein, until the expiration of the “Exclusion Period,” which shall
be defined as the sooner of (i) the date all of the Registrable Securities (as
defined in Section 11.1) have been registered in an effective registration
statement that has been effective for not less than one year, or (ii) until all
the Conversion Shares and Warrant Shares have been resold by the Subscribers
pursuant to a registration statement or Rule 144b(1)(i), without regard to
volume limitations. The Exclusion Period will be tolled or
reinstated, as the case may be, during the pendency of an Event of Default as
defined in the Certificate of Designation.
10. Covenants of the Company
Regarding Indemnification.
(a) The
Company agrees to indemnify, hold harmless, reimburse and defend the
Subscribers, the Subscribers’ officers, directors, agents, counsel, Affiliates,
members, managers, control persons, and principal shareholders, against any
claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon the
Subscribers or any such person which results, arises out of or is based upon (i)
any material misrepresentation by Company or breach of any representation or
warranty by Company in this Agreement or in any Exhibits or Schedules attached
hereto in any Transaction Document, or other agreement delivered pursuant hereto
or in connection herewith, now or after the date hereof; or (ii) after any
applicable notice and/or cure periods, any breach or default in performance by
the Company of any covenant or undertaking to be performed by the Company
hereunder, or any other agreement entered into by the Company and Subscribers
relating hereto.
(b) In
no event shall the liability of the Subscribers or permitted successor hereunder
or under any Transaction Document or other agreement delivered in connection
herewith be greater in amount than the dollar amount of the net proceeds
actually received by such Subscriber or successor upon the sale of Registrable
Securities (as defined herein).
11.1. Registration
Rights. The Company hereby grants the following registration
rights to holders of the Securities.
(i) On
one occasion, commencing ninety one (91) days after the Closing Date, but not
later than two years after the Closing Date, upon a written request therefor
from any record holder or holders of more than 50% of the Conversion Shares
issued and issuable upon conversion of the outstanding Preferred Stock and
outstanding Warrant Shares, the Company shall prepare and not later than sixty
(60) days after such request (“Filing Date”) file, subject to
Section 11.1(iv) hereof, , with the Commission a registration statement under
the 1933 Act registering the Registrable Securities which are the subject of
such request, subject to applicable Commission rules and regulations, for
unrestricted public resale by the holder thereof. For purposes of
Sections 11.1(i) and 11.1(ii) hereof, the definition of Registrable Securities
shall not include Securities (A) which are registered for resale in an effective
registration statement, (B) which are included for registration in a pending
registration statement, (C) which have been issued without further transfer
restrictions after a sale or transfer pursuant to Rule 144 under the 1933 Act or
(D) which may be resold under Rule 144 without volume limitations but not giving
effect to the cashless exercise feature of the Warrants. Upon the
receipt of such written request, the Company shall promptly give written notice
to all other record holders (as of the date of delivery of such written notice)
of the Registrable Securities that such registration statement is to be filed
and shall include in such registration statement Registrable Securities for
which it has received written requests within ten (10) days after the Company
gives such written notice. Such other requesting record holders shall
be deemed to have exercised their demand registration right under this Section
11.1(i).
(ii) If
the Company at any time proposes to register any of its securities under the
1933 Act for sale to the public, whether for its own account or for the account
of other security holders or both, except with respect to registration
statements on Forms S-4, S-8 or another form not available for registering the
Registrable Securities for sale to the public, provided the Registrable
Securities are not otherwise registered for resale by the Subscribers or Holder
pursuant to an effective registration statement, each such time it will give at
least ten (10) days’ prior written notice to the record holders (as of the date
of delivery of such written notice) of the Registrable Securities of its
intention so to do. Upon the written request of the holder that is received by
the Company within ten (10) days after the giving of any such notice by the
Company to register any of the Registrable Securities not previously registered,
the Company will cause such Registrable Securities as to which registration
shall have been so requested to be included with the securities to be covered by
the registration statement proposed to be filed by the Company, all to the
extent required to permit the sale or other disposition of the Registrable
Securities so registered by the holder of such Registrable Securities (each, a
“Seller” and together,
the “Sellers”). In the
event that any registration pursuant to this Section 11.1(ii) shall be, in whole
or in part, an underwritten public offering of common stock of the Company, the
number of shares of Registrable Securities to be included in such an
underwriting may be reduced on a pro rata basis among the record holders so
requesting registration by the managing underwriter if and to the extent that
the Company and the underwriter shall reasonably be of the opinion that such
inclusion would adversely affect the marketing of the securities to be sold by
the Company therein; provided,
however, that the Company shall notify the Seller in writing of any such
reduction. Unless the Holder notifies the Company in writing that it elects to
deem the registration statement filed or to be filed pursuant to this Section
11.1(ii) as a registration statement filed or to be filed pursuant to Section
11.1(ii), the Company may withdraw or delay or suffer a delay of any
registration statement referred to in this Section 11.1(ii) without thereby
incurring any liability to the Sellers.
(iii) If,
at the time any written request for registration is received by the Company
pursuant to Section 11.1(i) hereof, the Company has determined to proceed with
the actual preparation and filing of a registration statement under the 1933 Act
in connection with the proposed offer and sale for cash of any of its securities
for the Company’s own account and the Company actually does file such other
registration statement, such written request shall be deemed to have been given
pursuant to Section 11.1(ii) rather than Section 11.1(i), and the rights of the
holders of Registrable Securities covered by such written request shall be
governed by Section 11.1(ii).
(iv) The
Company shall file with the Commission a registration statement on Form S-1 (the
“Registration
Statement”) (or such other form that it is eligible to use) in order to
register the Registrable Securities for resale and distribution under the 1933
Act within ninety (90) days after the Closing Date or, if more than one Closing,
the last Closing Date (the “Filing Date”), and use its
commercially reasonable best efforts to cause the Registration Statement to be
declared effective not later than one hundred and eighty (180) days after such
Closing Date (the “Effective
Date”). The Company will register not less than a number of
shares of common stock in the aforedescribed registration statement that is
equal to 150% of the Conversion Shares issued and issuable upon conversion of
Preferred Stock including dividends at the default rate and 100% of the Warrant
Shares issuable upon exercise of the Warrants (collectively the “Registrable Securities”). In
the event that the Company is required by the Commission to cutback the number
of shares being registered in the Registration Statement pursuant to Rule 415,
the Company shall reduce the Registrable Securities in the order and priority
set forth on Schedule
11.1(iv). The Registrable Securities shall be reserved and set aside
exclusively for the benefit of each Subscriber and Warrant holder, pro rata, and not issued,
employed or reserved for anyone other than each Subscriber and Warrant
holder. The Registration Statement will immediately be amended or
additional registration statements will be immediately filed by the Company as
necessary to register additional shares of Common Stock to allow the public
resale of all Common Stock included in and issuable by virtue of the Registrable
Securities. Except as set forth on Schedule
11.1(iv), without the written consent of the Subscribers, no securities
of the Company other than the Registrable Securities will be included in the
Registration Statement. It shall be deemed a
Non-Registration Event (as defined herein) if at any time after the date the
Registration Statement is declared effective by the Commission (“Actual Effective Date”) the
Company has registered for unrestricted resale on behalf of the Subscribers
fewer than 110% of the amount of Common Shares issuable upon full conversion of
all sums due under the Preferred Stock and Warrant Shares (the difference
between such 110% and the actual amount of shares registered being referred to
herein as the “Shortfall”). In
such event, the Company shall take all actions necessary to cause at least 150%
of the amount of shares of Common Stock issuable upon full conversion of all
sums due under the Preferred Stock and 100% of the Warrant Shares to be
registered within sixty (60) days after the first day such Shortfall
exists. Failure to file the Registration Statement within thirty (30)
days after the first day such Shortfall first exists or failure to cause such
registration to become effective within sixty (60) days after such
Shortfall first exists shall be a Non-Registration Event.
11.2. Registration
Procedures. If and whenever the Company is required by the provisions of
Section 11.1 to effect the registration of any Registrable Securities under the
1933 Act, the Company will, as expeditiously as possible:
(a) subject
to the timelines provided in this Agreement, (i) prepare and file with the
Commission a registration statement required by Section 11.1 with respect to
such Registrable Securities and use its commercially reasonable best efforts to
cause such registration statement to become and remain effective for the period
of the distribution contemplated thereby (determined as herein provided), (ii)
promptly provide to the holders of the Registrable Securities copies of all
filings and Commission letters of comment and notify the Sellers (by telecopier
and by e-mail addresses provided by the Subscribers) and Grushko & Mittman,
P.C. (by telecopier and by email to counslers@aol.com) on
or before the second (2nd) business days thereafter that the Company receives
notice that (A) the Commission has no comments or no further comments on the
registration statement, and (B) the registration statement has been declared
effective (failure to timely provide notice as required by this Section 11.2(a)
shall be a material breach of the Company’s obligation and an Event of Default
as defined in the Preferred Stock and a Non-Registration Event as defined in
Section 11.4 of this Agreement);
(b) prepare
and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective until such registration
statement has been effective for a period of one (1) year, and comply with the
provisions of the 1933 Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance with
the Sellers’ intended method of disposition set forth in such registration
statement for such period;
(c) furnish
to the Sellers, at the Company’s expense, such number of copies of the
registration statement and the prospectus included therein (including each
preliminary prospectus) as such persons reasonably may request in order to
facilitate the public sale or their disposition of the securities covered by
such registration statement, or make them electronically available;
(d) use
its commercially reasonable best efforts to register or qualify the Registrable
Securities covered by such registration statement under the securities or “blue
sky” laws of New York and such jurisdictions as the Sellers shall request in
writing, provided,
however, that the Company shall not for any such purpose be required to
qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;
(e) as
applicable, list or make available for quotation the Registrable Securities
covered by such registration statement with any securities exchange or quotation
system on which the Common Stock of the Company is then listed or
quoted;
(f) notify
the Sellers within two (2) business days of the happening of any event of which
the Company has knowledge as a result of which the prospectus contained in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, or which becomes subject to a Commission, state or
other governmental order suspending the effectiveness of the registration
statement covering any of the Registrable Securities;
(g) provided
same would not be in violation of the provision of Regulation FD under the 1934
Act, make available for inspection during reasonable business hours by the
Sellers and any attorney, accountant or other agent retained by the Sellers, all
publicly available, non-confidential financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company’s
officers, directors and employees to make available all publicly available,
non-confidential information reasonably requested by the Sellers, attorney,
accountant or agent in connection with such registration statement at such
requesting Seller’s expense; and
(h) provide
to the Sellers copies of the Registration Statement and amendments thereto at
least five (5) days prior to the filing thereof with the
Commission. A Seller’s failure to comment on any registration
statement or other document provided to a Subscriber or its counsel shall not be
construed to constitute approval thereof nor the accuracy
thereof.
11.3. Provision of
Documents. In connection with each registration described in
this Section 11, each Seller will furnish to the Company in writing such
information and representation letters with respect to itself and the proposed
distribution by it as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.
11.4. Non-Registration
Events. The Company agrees that the Sellers will suffer
damages if the Registration Statement is not filed by the Filing Date and not
declared effective by the Commission within sixty (60) days after the Effective
Date, and any registration statement required under Section 11.1(i) or 11.1(ii)
is not filed within ninety (90) days after written request and declared
effective by the Commission within one hundred eighty (180 ) days after such
request, and maintained in the manner and within the time periods contemplated
by Section 11 hereof, and it would not be feasible to ascertain the extent of
such damages with precision. Accordingly, if (A) the Registration
Statement is not filed on or before the Filing Date, (B) the Registration
Statement is not declared effective on or before sixty (60) days after the
Effective Date, (C) due to the intentional action or inaction of the Company the
Registration Statement is not declared effective within five (5) business days
after receipt by the Company or its attorneys of a written or oral communication
from the Commission that the Registration Statement will not be reviewed or that
the Commission has no further comments, (D) if the registration statement
described in Section 11.1(i) or 11.1(ii) is not filed within ninety (90) days
after such written request, or is not declared effective within one hundred
eighty (180) days after such written request, or (E) any registration statement
described in Sections 11.1(i), 11.1(ii) or 11.1(iv) is filed and declared
effective but shall thereafter cease to be effective without being succeeded
within thirty (30) business days by an effective replacement or amended
registration statement or for a period of time which shall exceed sixty (60)
days in the aggregate per year (defined as every rolling period of 365
consecutive days commencing on the Actual Effective Date) (each such event
referred to in clauses A through E of this Section 11.4 is referred to herein as
a “Non-Registration
Event”), then the Company shall pay to the holder of Registrable
Securities, as “Liquidated
Damages”, an amount equal to one percent (1%) for each thirty (30) days
(or such lesser pro-rata amount for any period of less than thirty (30) days) of
the lesser of the (i) purchase price of the outstanding Preferred Stock and (ii)
purchase price of the Conversion Shares and Warrant Shares issued upon
conversion of Preferred Stock and exercise (but excluding cashless exercise) of
Warrants held by Subscribers which are subject to such Non-Registration
Event. The Company may pay the Liquidated Damages in cash or
securities. The Liquidated Damages must be paid within ten (10)
business days after the end of each thirty (30) day period or shorter part
thereof for which Liquidated Damages are payable. In the event a
Registration Statement is filed by the Filing Date but is withdrawn prior to
being declared effective by the Commission, then such Registration Statement
will be deemed to have not been filed and Liquidated Damages will be calculated
accordingly. All oral or written comments received from the
Commission relating to a registration statement must be responded to within
twenty (20) business days after receipt of comments from the
Commission. Failure to timely respond to Commission comments is a
Non-Registration Event for which Liquidated Damages shall accrue and be payable
by the Company to the holders of Registrable Securities at the same rate and
amounts set forth above, calculated from the date the response was required to
have been made. Liquidated Damages shall not be payable pursuant to
this Section 11.4 in connection with Registrable Securities for such times as
such Registrable Securities may be sold by the holder thereof without volume
limitations or other restrictions pursuant to Section 144(b)(1)(i) of the 1933
Act. The Company shall not be liable for Liquidated Damages under this Agreement
as to any Registrable Securities which are not permitted by the Commission to be
included in a Registration Statement due solely to Commission guidance from the
time that it is determined that such Registrable Securities are not permitted to
be registered until such time as the provisions of this Agreement as to the
Registration Statements required to be filed hereunder are triggered, in which
case the provisions of this Section 11.4 shall once again apply. In
such case, the Liquidated Damages shall be calculated to only apply to the
percentage of Registrable Securities which are permitted in accordance with
Commission guidance to be included in such Registration Statement. The Company may
require, from time to time, information by a holder of the Securities that is
necessary to complete the Registration Statement
in accordance with the requirements of the 1933. In the event of the
failure by such holder to comply with the Company’s request within seven (7)
business days from the date of such request, the Company shall be permitted to
exclude such holder from a Registration Statement without being subject to the
payment of any amount of Liquidated Damages to such holder. At such time that
such holder complies with the Company’s request, the Company shall use its
reasonable best efforts to include such holder in the Registration
Statement.
11.5. Expenses. All
expenses incurred by the Company in complying with Section 11, including,
without limitation, all registration and filing fees, printing expenses (if
required), fees and disbursements of Company counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or “blue sky”
laws, fees of FINRA, and fees of transfer agents and registrars are herein
called “Registration
Expenses.” All underwriting discounts, selling commissions and transfer
applicable to the sale of Registrable Securities are herein called “Selling
Expenses.” The Company will pay all Registration Expenses in
connection with any registration statement described in Section
11. Selling Expenses in connection with each such registration
statement shall be borne by the Seller and may be apportioned among the Sellers
in proportion to the number of shares included on behalf of the Seller relative
to the aggregate number of shares included under such registration statement for
all Sellers, or as all Sellers thereunder may agree.
11.6. Indemnification
and Contribution.
(a) In
the event of a registration of any Registrable Securities under the 1933 Act
pursuant to Section 11, the Company will, to the extent permitted by law,
indemnify and hold harmless the Seller and each of the officers, directors,
agents, Affiliates, members, managers, control persons, and principal
shareholders of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities to which such Seller or person may become
subject under the 1933 Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement of any material fact contained in any registration
statement under which such Registrable Securities was registered under the 1933
Act pursuant to Section 11, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances when made, and will, subject to the
provisions of Section 11.6(c), reimburse such Seller for any reasonable legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable to the Seller to the extent that any such damages
arise out of or are based upon an untrue statement or omission made in any
preliminary prospectus if (i) the Seller failed to send or deliver a copy of the
final prospectus delivered by the Company to the Seller with or prior to the
delivery of written confirmation of the sale by the Seller to the person
asserting the claim from which such damages arise, (ii) the final prospectus
would have corrected such untrue statement or alleged untrue statement or such
omission or alleged omission, or (iii) to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by any such Seller in writing specifically for use in
such registration statement or prospectus.
(b) In
the event of a registration of any of the Registrable Securities under the 1933
Act pursuant to Section 11, each Seller, severally but not jointly, will, to the
extent permitted by law, indemnify and hold harmless the Company, and each
person, if any, who controls the Company within the meaning of the 1933 Act,
each officer of the Company who signs the registration statement, each director
of the Company, each underwriter and each person who controls any underwriter
within the meaning of the 1933 Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer, director,
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement
under which such Registrable Securities were registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Seller will be liable hereunder
in any such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such Seller, as such, furnished in
writing to the Company by such Seller specifically for use in such registration
statement or prospectus, and provided, further, however,
that the liability of the Seller hereunder shall be limited to the net proceeds
actually received by the Seller from the sale of Registrable Securities pursuant
to such registration statement.
(c) Promptly
after receipt by an indemnified party hereunder of notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party hereunder, notify the indemnifying party in
writing thereof, but the omission to so notify the indemnifying party shall not
relieve the indemnifying party from any liability which it may have to such
indemnified party other than under this Section 11.6(c), and shall only relieve
it from any liability which it may have to such indemnified party under this
Section 11.6(c), except and only if and to the extent the indemnifying party is
materially prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election to so assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 11.6(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided,
however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to
indemnified party which are different from or additional to those available to
the indemnifying party or if the interests of the indemnified party reasonably
may be deemed to conflict with the interests of the indemnifying party, the
indemnified parties, as a group, shall have the right to select one separate
counsel, reasonably satisfactory to the indemnified and indemnifying party, and
to assume such legal defenses and otherwise to participate in the defense of
such action, with the reasonable expenses and fees of such separate counsel and
other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
(d) In
order to provide for just and equitable contribution in the event of joint
liability under the 1933 Act in any case in which either (i) a Seller, or any
controlling person of a Seller, makes a claim for indemnification pursuant to
this Section 11.6 but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 11.6 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
not provided under this Section 11.6, then, and in each such case, the Company
and the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities sold by it pursuant
to such registration statement; and (z) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation; and provided, further, however,
that the liability of the Seller hereunder shall be limited to the net proceeds
actually received by the Seller from the sale of Registrable Securities pursuant
to such registration statement.
11.7. Unlegended Shares and 144
Sales.
(a) Delivery of Unlegended
Shares. Within three (3) days (such third (3rd) day being the
(“Unlegended Shares Delivery
Date”) after the day on which the Company has received (i) a notice that
Conversion Shares, Warrant Shares or any other Common Stock held by Subscriber
has been sold pursuant to a registration statement or Rule 144 under the 1933
Act, (ii) a representation that the prospectus delivery requirements, or the
requirements of Rule 144, as applicable and if required, have been satisfied,
(iii) the original share certificates representing the shares of Common Stock
that have been sold, and (iv) in the case of sales under Rule 144, customary
representation letters of Subscriber and, if required, Subscriber’s broker
regarding compliance with the requirements of Rule 144, the Company, at its
expense, (y) shall deliver, and shall cause legal counsel selected by the
Company to deliver to its transfer agent (with copies to Subscriber) an
appropriate instruction directing the delivery of shares of Common Stock without
any legends including the legend set forth in Section 4(h) above (the “Unlegended Shares”); and (z)
cause the transmission of the certificates representing the Unlegended Shares,
together with a legended certificate representing the balance of the submitted
Common Stock certificate, if any, to Subscriber at the address specified in the
notice of sale, via express courier, by electronic transfer or otherwise on or
before the Unlegended Shares Delivery Date.
(b) DWAC. In
lieu of delivering physical certificates representing the Unlegended Shares,
upon request of the Subscribers, so long as the certificates therefor do not
bear a legend and Subscriber is not obligated to return such certificate for the
placement of a legend thereon, the Company shall cause its transfer agent to
electronically transmit the Unlegended Shares by crediting the account of
Subscriber’s prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission system, if such transfer agent participates in such
DWAC system. Such delivery must be made on or before the Unlegended
Shares Delivery Date.
(c) Late Delivery of Unlegended
Shares. The Company understands that a delay in the
delivery of the Unlegended Shares pursuant to Section 11.7 hereof later than the
Unlegended Shares Delivery Date could result in economic loss to a
Subscriber. As compensation to a Subscriber for such loss, the
Company agrees to pay late payment fees (as liquidated damages and not as a
penalty) to Subscriber for late delivery of Unlegended Shares in the amount of
$100 per business day after the Unlegended Shares Delivery Date for each $10,000
of purchase price of the Unlegended Shares, subject to the delivery default;
provided that such
delay is not the direct or indirect result of Subscriber’s actions or
omissions. If during any three hundred sixty (360) day period, the
Company fails to deliver Unlegended Shares as required by this Section 11.7 for
an aggregate of thirty (30) days, then each Subscriber or assignee holding
Securities subject to such default may, at its option, require the Company to
redeem all or any portion of the Unlegended Shares subject to such default at a
price per share equal to the greater of (i) 110% of the Purchase Price paid by
Subscriber for the Unlegended Shares that were not timely delivered, or (ii) a
fraction in which the numerator is the highest closing price of the Common Stock
during the aforedescribed thirty day period and the denominator of which is the
lowest conversion price or exercise price, as the case may be, during such
thirty (30) day
period, multiplied by the price paid by Subscriber for such Common Stock (“Unlegended Redemption
Amount”). The Company shall promptly pay any payments incurred
under this Section in immediately available funds upon demand.
(d) Injunction. In
the event a Subscriber shall request delivery of Unlegended Shares as described
in Section 11 and the Company is required to deliver such Unlegended Shares
pursuant to Section 11.7, the Company may not refuse to deliver Unlegended
Shares based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has not complied with Subscriber’s obligations
under the Transaction Documents, or for any other reason, unless, an injunction
or temporary restraining order from a court, on notice, restraining and or
enjoining delivery of such Unlegended Shares shall have been sought and obtained
by the Company and the Company has posted a surety bond for the benefit of such
Subscriber in the amount of the greater of (i) 125% of the amount of the
aggregate purchase price of the Common Stock which is subject to the injunction
or temporary restraining order, (ii) the closing price of the Common Stock on
the trading day before the issue date of the injunction multiplied by the number
of Unlegended Shares to be subject to the injunction, which bond shall remain in
effect until the completion of arbitration/litigation of the dispute and the
proceeds of which shall be payable to such Subscriber to the extent Subscriber
obtains judgment in Subscriber’s favor.
(e) Buy-In. In
addition to any other rights available to Subscriber, if the Company fails to
deliver to Subscriber Unlegended Shares as required pursuant to this Agreement
and after the Unlegended Shares Delivery Date Subscriber, or a broker on
Subscriber’s behalf, purchases (in an open market transaction or otherwise)
shares of common stock to deliver in satisfaction of a sale by such Subscriber
of the shares of Common Stock which Subscriber was entitled to receive from the
Company (a “Buy-In”),
then the Company shall promptly pay in cash to Subscriber (in addition to any
remedies available to or elected by Subscriber) the amount by which (A)
Subscriber’s total purchase price (including brokerage commissions, if any) for
the shares of common stock so purchased exceeds (B) the aggregate purchase price
of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares together with interest thereon at a rate of 15% per annum
accruing until such amount and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a
penalty). For purposes of illustration only, if Subscriber purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to $10,000 of purchase price of shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, the Company shall
be required to pay the Subscriber $1,000, plus interest. Subscriber shall
promptly provide the Company written notice indicating the amounts payable to
Subscriber in respect of the Buy-In, including, evidence regarding the purchase
of common stock for which the Buy-In is implemented.
(f) 144
Default. At any time commencing six (6) months after the
Closing Date, in the event Subscriber is not permitted to sell any of the
Conversion Shares or Warrant Shares without any restrictive legend, or if such
sales are permitted but subject to volume limitations or further restrictions on
resale as a result of the unavailability to Subscriber of Rule 144(b)(1)(i)
under the 1933 Act or any successor rule (a “144 Default”), for any reason,
including, but not limited to, failure by the Company to file quarterly, annual
or any other filings required to be made by the Company by the required filing
dates (provided that any filing made within the time for a valid extension shall
be deemed to have been timely filed), or the Company’s failure to make
information publicly available which would allow Subscriber’s reliance on Rule
144 in connection with sales of Conversion Shares or Warrant Shares, except due
to a change in current applicable securities laws or because Subscriber is an
Affiliate (as defined under Rule 144) of the Company, then the Company shall pay
such Subscriber as liquidated damages and not as a penalty for each thirty (30)
days (or such lesser pro-rata amount for any period less than thirty (30) days)
an amount equal to one percent (1%) of the purchase price of the Conversion
Shares and Warrant Shares subject to such 144 Default. Liquidated
Damages shall not be payable pursuant to this Section 11.7(e) in connection with
Conversion Shares or Warrant Shares for such times as such shares may be sold by
the holder thereof without any legend or volume or other restrictions pursuant
to Section 144(b)(1)(i) of the 1933 Act or pursuant to an effective registration
statement.
12. (a) Favored Nations
Provision. Other than in connection with (i) full or partial
consideration in connection with a strategic merger, acquisition, consolidation
or purchase of substantially all of the securities or assets of a corporation or
other entity, so long as such issuances are not for the purpose of raising
capital and which holders of such securities or debt are not at any time granted
registration rights, (ii) the Company’s issuance of securities in connection
with strategic license agreements and other partnering arrangements, so long as
such issuances are not for the purpose of raising capital and which holders of
such securities or debt are not at any time granted registration rights, (iii)
the Company’s issuance of Common Stock or the issuances or grants of options to
purchase Common Stock to employees, directors, and consultants, pursuant to
plans described on Schedule
5(d) , (iv) securities upon the exercise or exchange of or conversion of
any securities exercisable or exchangeable for or convertible into shares of
Common Stock issued and outstanding on the date of this Agreement on the terms
disclosed in the Reports and which securities
are also described on Schedule
12(a), and (v) as a result of the exercise of Warrants or conversion of
Preferred Stock which are granted or issued pursuant to this Agreement on the
unamended terms in effect on the Closing Date (collectively, the foregoing (i)
through (v) are “Excepted
Issuances”), if at any time the Preferred Stock or Warrants are
outstanding, the Company shall agree to or issue (the “Lower Price Issuance”) any
Common Stock or securities convertible into or exercisable for shares of Common
Stock (or modify any of the foregoing which may be outstanding) to any Person at
a price per share or conversion or exercise price per share which shall be less
than the Conversion Price in effect at such time or the Warrant exercise price
in effect at such time, as applicable, without the unanimous consent of all of
the Subscribers, then the Conversion Price and Warrant exercise price, as
applicable, shall automatically be reduced to such other lower
price. The average Conversion Price of the Conversion Shares and
average exercise price in relation to the Warrant Shares shall be calculated
separately for the Conversion Shares and Warrant Shares. Common Stock
issued or issuable by the Company for no consideration or for consideration that
cannot be determined at the time of issue will be deemed issuable or to have
been issued for $0.0001 per share of Common Stock. For purposes of
the issuance and adjustments described in this paragraph, the issuance of any
security of the Company carrying the right to convert such security into shares
of Common Stock or any warrant, right or option to purchase Common Stock shall
result in the issuance of the additional shares of Common Stock upon the sooner
of (A) the agreement to or (B) actual issuance of such convertible security,
warrant, right or options and again at any time upon any subsequent issuances of
shares of Common Stock upon exercise of such conversion or purchase rights if
such issuance is at a price lower than the Conversion Price or Warrant exercise
price, as applicable, in effect upon such issuance. The rights of the
Subscribers set forth in this Section 12 are in addition to any other rights the
Subscribers have pursuant to this Agreement, the Preferred Stock, Warrants or
any other Transaction Document.
(b) Right of First
Refusal. Until one (1) year following the Closing Date, the
Subscribers shall be given not less than fifteen (15) days prior written notice
of any proposed sale by the Company of its common stock or other securities or
equity linked debt obligations (“Other Offering”), except in
connection with the Excepted Issuances. If the Subscribers elect to
exercise their rights pursuant to this Section 12(b), the Subscribers shall have
the right during the fifteen (15) days following receipt of the notice, to
purchase in the aggregate up to all of such offered
common stock, debt or other securities in accordance with the terms and
conditions set forth in the notice of sale, relative to each other in proportion
to the amount of Preferred Stock issued to them on the Closing
Date. Subscribers who participate in such Other Offering shall be
entitled at their option to purchase, in proportion to each other, the amount of
such Other Offering that could have been purchased by Subscribers who do not
exercise their rights hereunder until up to the entire Other Offering is
purchased by the Subscribers. In the event such terms and conditions
are modified during the notice period, Subscribers shall be given prompt notice
of such modification and shall have the right during the fifteen (15) days
following the notice of modification to exercise such right.
(c) Maximum Exercise of
Rights. Notwithstanding the foregoing, in the event the
exercise of the rights described in Section 12(a) and Section 12(b) would or
could result in the issuance of an amount of Common Stock of the Company that
would exceed the maximum amount that may be issued to a Subscriber as described
in Section 2D of the Certificate of Designation and Section 9 of the Warrant,
then the issuance of such additional shares of Common Stock of the Company to
such Subscriber will be deferred in whole or in part until such time as such
Subscriber is able to beneficially own such Common Stock without exceeding the
applicable maximum amount set forth and such Subscriber notifies the Company
accordingly.
13. Miscellaneous.
(a) Notices. All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice in accordance with this Section 14(a). Any notice
or other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile with accurate
confirmation generated by the transmitting facsimile machine at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received, or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be: (i) if to the
Company, to: Wizard World, Inc., 1350 Avenue of the Americas, 2nd Floor, New
York, NY 10019, Attn: Gareb Shamus, facsimile: (212) 707-8180, with a copy by
fax only to (which shall not constitute notice):Lucosky Brookman LLP, 33 Wood
Avenue South, 6th Floor, Iselin, NJ 10019, Attn: Joseph M. Lucosky, Esq.,
facsimile: (732) 395-4401, and (ii) if to a Subscriber, to: the addresses and
fax numbers indicated on Schedule
1 hereto, with an additional copy by fax only to (which shall not
constitute notice): Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley
Stream, New York 11581, facsimile: (212) 697-3575.
(b) Entire Agreement;
Assignment. This Agreement and other documents delivered in
connection herewith represent the entire agreement between the parties hereto
with respect to the subject matter hereof and may be amended only by a writing
executed by all parties. Neither the Company nor the Subscribers has
relied on any representations not contained or referred to in this Agreement or
the other Transaction Documents. No right or obligation of the
Company shall be assigned without prior notice to and the written consent of the
Subscribers.
(c) Counterparts/Execution. This
Agreement may be executed in any number of counterparts and by the different
signatories hereto on separate counterparts, each of which, when so executed,
shall be deemed an original, but all such counterparts shall constitute but one
and the same instrument. This Agreement may be executed by facsimile
transmission, PDF, electronic signature or other similar electronic means with
the same force and effect as if such signature page were an original
thereof.
(d) Law Governing this
Agreement. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without regard to
principles of conflicts of laws thereof or any other State. Any action brought
by any party hereto against the other concerning the transactions contemplated
by this Agreement shall be brought only in the state courts of New York or in
the federal courts located in the state and county of New York. The
parties to this Agreement hereby irrevocably waive any objection to jurisdiction
and venue of any action instituted hereunder and shall not assert any defense
based on lack of jurisdiction or venue or based upon forum non
conveniens. The parties executing this Agreement
and other agreements referred to herein or delivered in connection herewith on
behalf of the Company agree to submit to the in personam jurisdiction of such
courts and hereby irrevocably waive trial by jury. The
prevailing party shall be entitled to recover from the other party its
reasonable attorney’s fees and costs. In the event that any provision
of this Agreement or any other agreement delivered in connection herewith is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other
provision of any agreement. Each party hereto hereby irrevocably
waives personal service of process and consents to process being served in any
suit, action or proceeding in connection with this Agreement or any other
Transaction Document 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 Agreement 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 law.
(e) Specific Enforcement,
Consent to Jurisdiction. The Company and each Subscriber
hereby irrevocably waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction in
New York of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. Nothing in this Section shall affect or limit any right to
serve process in any other manner permitted by law. Subject to
Section 13(d) hereof, the Company and the Subscribers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties hereto
shall be entitled to seek an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof, this being in addition to any other remedy to which
any of them may be entitled by law or equity.
(f) Damages. In
the event the Subscriber is entitled to receive any liquidated or other damages
pursuant to the Transactions Documents, the Subscriber may elect to receive the
greater of actual damages or such liquidated damages. In the event
the Subscriber is granted rights under different sections of the Transaction
Documents relating to the same subject matter or which may be exercised
contemporaneously, or pursuant to which damages or remedies are different,
Subscriber is granted the right in Subscriber’s absolute discretion to proceed
under such section as Subscriber elects.
(g) Maximum
Payments. Nothing contained herein or in any document
referred to herein or delivered in connection herewith 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 or dividends 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 Subscribers and
thus refunded to the Company. The Company agrees that it may not and
actually waives any right to challenge the effectiveness or applicability of
this Section 13(g).
(h) Calendar
Days. All references to “days” in the Transaction
Documents shall mean calendar days unless otherwise stated. The terms
“business days” and “trading days” shall mean days that the New York Stock
Exchange is open for trading for three or more hours. Time periods
shall be determined as if the relevant action, calculation or time period were
occurring in New York City. Any deadline that falls on a non-business
day in any of the Transaction Documents shall be automatically extended to the
next business day and interest, if any, shall be calculated and payable through
such extended period.
(i) Captions; Certain
Definitions. The captions of the various sections and
paragraphs of this Agreement have been inserted only for the purposes of
convenience; such captions are not a part of this Agreement and shall not be
deemed in any manner to modify, explain, enlarge or restrict any of the
provisions of this Agreement. As used in this Agreement the term
“person” shall
mean and include an individual, a partnership, a joint venture, a corporation, a
limited liability company, a trust, an unincorporated organization and a
government or any department or agency thereof.
(j) Consent. As
used in this Agreement and the other Transaction Documents and any other
agreement delivered in connection herewith, “Consent of the Subscribers” or
similar language means the consent of holders of not less than seventy percent
(70%) of the outstanding Preferred Stock on the date consent is requested (such
Subscribers being a “Majority
in Interest”). A Majority in Interest may consent to take or
forebear from any action permitted under or in connection with the Transaction
Documents, modify any Transaction Documents or waive any default or requirement
applicable to the Company, the Subsidiaries or the Subscribers under the
Transaction Documents, provided the effect of such
action does not waive any accrued interest or damages and further provided that
the relative rights of the Subscribers to each other remains unchanged.
(k) Severability. In
the event that any term or provision of this Agreement shall be finally
determined to be superseded, invalid, illegal or otherwise unenforceable
pursuant to applicable law by an authority having jurisdiction and venue, that
determination shall not impair or otherwise affect the validity, legality or
enforceability: (i) by or before that authority of the remaining terms and
provisions of this Agreement, which shall be enforced as if the unenforceable
term or provision were deleted, or (ii) by or before any other authority of any
of the terms and provisions of this Agreement.
(l) Successor
Laws. References in the Transaction Documents to laws, rules,
regulations and forms shall also include successors to and functionally
equivalent replacements of such laws, rules, regulations and forms. A
successor rule to Rule 144(b)(1)(i) shall include any rule that would be
available to a non-Affiliate of the Company for the sale of Common Stock not
subject to volume restrictions and after a six month holding
period.
(m) Maximum
Liability. In no event shall the liability of the
Subscribers or permitted assign hereunder or under any Transaction Document or
other agreement delivered in connection herewith be greater in amount than the
dollar amount of the net proceeds actually received by such Subscriber or
successor upon the sale of Conversion Shares.
(n) Independent Nature of
Subscribers. The Company acknowledges that the
obligations of each Subscriber under the Transaction Documents are several and
not joint with the obligations of any other Subscriber, and no Subscriber shall
be responsible in any way for the performance of the obligations of any other
Subscriber under the Transaction Documents. The Company acknowledges that each
Subscriber has represented that the decision of each Subscriber to purchase
Securities has been made by such Subscriber independently of any other
Subscriber and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
other Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions. The Company
acknowledges that nothing contained in any Transaction Document, and no action
taken by any Subscriber pursuant hereto or thereto shall be deemed to constitute
the Subscribers as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Subscribers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company
acknowledges that it has elected to provide all Subscribers with the same terms
and Transaction Documents for the convenience of the Company and not because
Company was required or requested to do so by the Subscribers. The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption that the Subscribers are in any way acting in concert
or as a group with respect to the Transaction Documents or the transactions
contemplated thereby.
(o) Equal
Treatment. No consideration shall be offered or paid to
any person to amend or consent to a waiver or modification of any provision of
the Transaction Documents unless the same consideration is also offered and paid
to all the Subscribers and their permitted successors and assigns.
(p) Adjustments. The
conversion price, Warrant exercise price, amount of Conversion Shares and
Warrant Shares, trading volume amounts, price/volume amounts and similar figures
in the Transaction Documents shall be equitably adjusted and as otherwise
described in this Agreement, the Certificate of Designation and
Warrants.
[-SIGNATURE PAGES
FOLLOW-]
SIGNATURE PAGE TO
SUBSCRIPTION AGREEMENT
Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.
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WIZARD WORLD
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Dated: __________ ___,
2011 |
SUBSCRIBER |
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PURCHASE
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PREFERRED
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WARRANTS |
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LIST OF EXHIBITS AND
SCHEDULES
Exhibit
A |
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Certificate of
Designation |
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Exhibit
B |
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Form
of Series A Warrants |
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Exhibit
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Escrow
Agreement |
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Exhibit
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Form
of Legal Opinion |
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Schedule
1 |
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List
of Subscribers |
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Schedule
5(a) |
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Subsidiaries |
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Schedule
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Capitalization and
Additional Issuances |
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Schedule
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Violations and
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Schedule
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Undisclosed
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Schedule
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Transfer
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Schedule
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Use
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Schedule
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Further Registration
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Schedule
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Intellectual
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Schedule
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Registrable
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Schedule
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Excepted
Issuances |
equal to
150% of the cash dividend otherwise payable or (ii) a combination of cash and
additional shares of Series A Preferred Stock, provided there is not an
existing current Event of Default on the annual date on which a dividend payment
is payable, in which event the Holder entitled to receive such dividend may
elect to receive such dividends in cash or additional shares of Series A
Preferred Stock. The issuance of such shares of Series A Preferred
Stock shall constitute full payment of such dividends or such portion of such
dividends payable in additional shares of Series A Preferred Stock, as the case
may be.
(b) The
dividends on the Series A Preferred Stock at the rates provided above shall be
cumulative whether or not declared so that, if at any time full cumulative
dividends at the rate aforesaid on all shares of the Series A Preferred Stock
then outstanding from the date from and after which dividends thereon are
cumulative to the end of the annual dividend period next preceding such time
shall not have been paid or declared and set apart for payment, or if the full
dividend on all such outstanding Series A Preferred Stock for the then current
dividend period shall not have been paid or declared and set apart for payment,
the amount of the deficiency shall be paid or declared and set apart for payment
before any sum shall be set apart for or applied by the Corporation or a
subsidiary of the Corporation to the purchase, redemption or other acquisition
of the Series A Preferred Stock or any shares of any other class of stock
ranking on a parity with the Series A Preferred Stock and before any dividend or
other distribution shall be paid or declared and set apart for payment on any
Junior Stock and before any sum shall be set aside for or applied to the
purchase, redemption or other acquisition of any Junior Stock.
C. Liquidation and Redemption
Rights. Upon the occurrence of a Liquidation Event (as defined
below), the Holders of the Series A Preferred Stock shall be entitled to
receive, and before any payment or distribution shall be made on any shares of
any Common Stock or other class of stock presently authorized or to be
authorized (the Common Stock and such other stock being hereinafter
collectively, the “Junior
Stock”), out of the assets of the Corporation available for distribution
to stockholders, an amount equal to two (2) times the Series A Stated Value and
all accrued and unpaid dividends to and including the date of payment
thereof. Upon the payment in full of all amounts due to the Holders
of the Series A Preferred Stock (on an as converted basis), the Common Stock and
any other class of Junior Stock shall collectively receive all remaining assets
of the Corporation legally available for distribution. If the assets
of the Corporation available for distribution to the Holders of the Series A
Preferred Stock shall be insufficient to permit payment in full of the amounts
payable as aforesaid to the Holders of Series A Preferred Stock upon a
Liquidation Event, then all such assets of the Corporation shall be distributed
to the exclusion of the Holders of Junior Stock ratably among the Holders of the
Series A Preferred Stock. “Liquidation Event” shall mean
(i) the liquidation, dissolution or winding-up, whether voluntary or
involuntary, of the Corporation, (ii) the purchase or redemption by the
Corporation of shares of any class of stock or the merger or consolidation of
the Corporation with or into any other corporation or corporations, unless (a)
the Holders of the Series A Preferred Stock receive securities of the surviving
corporation having substantially similar rights as the Series A Preferred Stock
and the stockholders of the Corporation immediately prior to such transaction
are holders of at least a majority of the voting securities of the successor
corporation immediately thereafter (the “Permitted Merger”), unless the
Holders of the shares of Series A Preferred Stock elect otherwise or (b) the
sale, license or lease of all or substantially all, or any material part of, the
Corporation’s assets, unless the Holders elect otherwise.
D. Conversion into Common
Stock. Holders of shares of Series A Preferred Stock shall
have the following conversion rights and obligations:
(a) Subject
to the further provisions of this paragraph D(a), each Holder of Series A
Preferred Stock shall have the right at any time commencing after the issuance
to such Holder of Series A Preferred Stock, to convert such shares, accrued but
unpaid declared dividends on the Series A Preferred Stock and any other sum owed
by the Corporation arising from the Series A Preferred Stock or pursuant to the
Subscription Agreement entered into by the Corporation and the Holder or
Holder’s predecessor in connection with the issuance of Series A Preferred Stock
(each a “Subscription
Agreement”) (collectively “Obligation Amount”) into fully
paid and non-assessable shares of Common Stock of the Corporation determined in
accordance with the applicable conversion price provided in paragraph D(b) below
(the “Conversion
Price”). All declared or accrued but unpaid dividends may be
converted at the election of the Holder together with or independent of the
conversion of the Series A Stated Value of the Series A Preferred
Stock.
(b) The
number of shares of Common Stock issuable upon conversion of the Obligation
Amount shall equal (i) the sum of (A) the Series A Stated Value being converted
and/or (B) at the Holder’s election, accrued and unpaid dividends or any other
component of the Obligation Amount, divided by (ii) the Conversion
Price. The Conversion Price of the Series A Preferred Stock shall be
$0.40, subject to adjustment only as described herein.
(c) Holder
will give notice of its decision to exercise its right to convert the Series A
Preferred Stock, or part thereof and/or accrued and unpaid dividends, by sending
by facsimile an executed and completed Notice of Conversion (a form of which is
annexed as Exhibit
A to this Certificate of Designation) to the Corporation via confirmed
facsimile transmission. The Holder will not be required to surrender
the Series A Preferred Stock certificate until the Series A Preferred Stock has
been fully converted. Each date on which a Notice of Conversion is
sent by facsimile to the Corporation in accordance with the provisions hereof
shall be deemed a Conversion Date. The Corporation will itself, or
cause the Corporation’s transfer agent to, transmit the Corporation’s Common
Stock certificates representing the Common Stock issuable upon conversion of the
Series A Preferred Stock to the Holder via express courier for receipt by such
Holder within three (3) business days after receipt by the Corporation of the
Notice of Conversion (the “Delivery Date”). In
the event the Common Stock is electronically transferable, then delivery of the
Common Stock must be made by electronic transfer, provided request for such
electronic transfer has been made by the Holder. A Series A Preferred
Stock certificate representing the balance of the Series A Preferred Stock not
so converted will be provided by the Corporation to the Holder if requested by
Holder, provided the
Holder has delivered the original Series A Preferred Stock certificate to the
Corporation. To the extent that a Holder elects not to surrender the
certificate for such Series A Preferred Stock for reissuance upon partial
payment or conversion, the Holder hereby indemnifies the Corporation against any
and all loss or damage attributable to a third-party claim in an amount in
excess of the actual amount of the Series A Stated Value then owned by the
Holder.
In the case
of the exercise of the conversion rights set forth in paragraph D(a) hereof, the
conversion privilege shall be deemed to have been exercised and the shares of
Common Stock issuable upon such conversion shall be deemed to have been issued
upon the date of receipt by the Corporation of the Notice of
Conversion. The person or entity entitled to receive Common Stock
issuable upon such conversion shall, on the date and thereafter, be treated for
all purposes as the recordholder of such Common Stock and shall on the same date
cease to be treated for any purpose as the record Holder of such shares of
Series A Preferred Stock so converted.
Upon the
conversion of any shares of Series A Preferred Stock, no adjustment or payment
shall be made with respect to such converted shares on account of any dividend
on the Common Stock, except that the Holder of such converted shares shall be
entitled to be paid any dividends declared on shares of Common Stock after
conversion thereof.
The
Corporation shall not be required, in connection with any conversion of the
Series A Preferred Stock and payment of dividends on Series A Preferred Stock,
to issue a fraction of a share of its Series A Preferred Stock or Common Stock
and shall instead deliver a stock certificate representing the next higher whole
number.
The
Corporation and the Holder may not convert that amount of the Obligation Amount
on a Conversion Date in amounts that would result in the Holder having a
beneficial ownership of Common Stock which would be in excess of the sum of (i)
the number of shares of Common Stock beneficially owned by the Holder and its
Affiliates on such Conversion Date, and (ii) the number of shares of Common
Stock issuable upon the conversion of the Obligation Amount with respect to
which the determination of this proviso is being made on such Conversion Date,
which would result in the aggregate beneficial ownership by the Holder and its
Affiliates of more than 4.99% of the outstanding shares of Common Stock of the
Corporation. For the purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the 1934 Act and Regulation 13d-3
thereunder. Subject to the foregoing, the Holder shall not be limited
to successive exercises which would result in the aggregate issuance of more
than 4.99%. The Holder may allocate which of the equity of the
Corporation deemed beneficially owned by the Holder shall be included in the
4.99% amount described above and which shall be allocated to the excess above
4.99%. The Holder
may waive the conversion limitation described in this Section in whole or in
part, upon and effective after sixty one (61) days’ prior written notice to the
Company.
(d) The
Conversion Price determined pursuant to Paragraph D(b) shall be subject to
adjustment from time to time as follows:
(i) In
case the Corporation shall at any time (A) declare any dividend or distribution
on its Common Stock or other securities of the Corporation other than the Series
A Preferred Stock, (B) split or subdivide the outstanding Common Stock, (C)
combine the outstanding Common Stock into a smaller number of shares, or (D)
issue by reclassification of its Common Stock any shares or other securities of
the Corporation, then in each such event the Conversion Price shall be adjusted
proportionately so that the Holders of Series A Preferred Stock shall be
entitled to receive the kind and number of shares or other securities of the
Corporation which such Holders would have owned or have been entitled to receive
after the happening of any of the events described above had such shares of
Series A Preferred Stock been converted immediately prior to the happening of
such event (or any record date with respect thereto). Such adjustment
shall be made whenever any of the events listed above shall occur. An
adjustment made to the Conversion Price pursuant to this paragraph D(d)(i) shall
become effective immediately after the effective date of the event.
(ii) For
so long as Series A Preferred Stock is outstanding, other than in the case of an
“Excepted Issuance” (as
defined in Section 12(a) of the Subscription Agreement), if the Corporation
issues shares of Common Stock or securities convertible into or exchangeable or
exercisable for Common Stock, for a consideration at a price per share, or
having a conversion, exchange or exercise price per share less than the
Conversion Price of the Series A Preferred Stock immediately in effect prior to
such sale or issuance, then immediately prior to such sale or issuance the
Conversion Price of the Series A Preferred Stock shall be reduced to such other
lower price. For purposes of this adjustment, the
issuance of any security carrying the right to convert such security directly or
indirectly into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in an adjustment to the Conversion Price upon
the issuance of the above-described security and again upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights if
such issuance is at a price lower than the then applicable Conversion
Price. Common Stock issued or issuable by the Company for no
consideration or for consideration that cannot be determined at the time of
issue will be deemed issuable or to have been issued for $.0001 per share of
Common Stock. The reduction of the Conversion Price described in this
paragraph is in addition to other rights of the Holder described in this
Certificate of Designation and the Subscription Agreement.
(e) (1) In
case of any merger of the Corporation with or into any other corporation (other
than a merger in which the Corporation is the surviving or continuing
corporation and which does not result in any reclassification, conversion, or
change of the outstanding shares of Common Stock), then unless the right to
convert shares of Series A Preferred Stock shall have terminated as part of such
merger, lawful provision shall be made so that Holders of Series A Preferred
Stock shall thereafter have the right to convert each share of Series A
Preferred Stock into the kind and amount of shares of stock and/or other
securities or property receivable upon such merger by a Holder of the number of
shares of Common Stock into which such shares of Series A Preferred Stock might
have been converted immediately prior to such consolidation or
merger. Such provision shall also provide for adjustments which shall
be as nearly equivalent as may be practicable to the adjustments provided for in
sub-paragraph (d) of this paragraph D. The foregoing provisions of
this paragraph D(e) shall similarly apply to successive mergers.
(i) In
case of any sale or conveyance to another person or entity of the property of
the Corporation as an entirety, or substantially as an entirety, in connection
with which shares or other securities or cash or other property shall be
issuable, distributable, payable, or deliverable for outstanding shares of
Common Stock, then, unless the right to convert such shares shall have
terminated, lawful provision shall be made so that the Holders of Series A
Preferred Stock shall thereafter have the right to convert each share of the
Series A Preferred Stock into the kind and amount of shares of stock or other
securities or property that shall be issuable, distributable, payable, or
deliverable upon such sale or conveyance with respect to each share of Common
Stock immediately prior to such conveyance.
(f) Whenever
the number of shares to be issued upon conversion of the Series A Preferred
Stock is required to be adjusted as provided in this paragraph D(f), the
Corporation shall forthwith compute the adjusted number of shares to be so
issued and prepare a certificate setting forth such adjusted conversion amount
and the facts upon which such adjustment is based, and such certificate shall
forthwith be filed with the Transfer Agent for the Series A Preferred Stock and
the Common Stock, and the Corporation shall give notice in the manner described
in the Subscription Agreement to each Holder of record of Series A Preferred
Stock of such adjusted conversion price not later than the first business day
after the event, giving rise to the adjustment.
(g) In
case at any time the Corporation shall propose:
(i) to
pay any dividend or distribution payable in shares upon its Common Stock or make
any distribution (other than cash dividends) to the Holders of its Common Stock;
or
(ii) to
offer for subscription to the Holders of its Common Stock any additional shares
of any class or any other rights; or
(iii) any
capital reorganization or reclassification of its shares or the merger of the
Corporation with another corporation (other than a merger in which the
Corporation is the surviving or continuing corporation and which does not result
in any reclassification, conversion, or change of the outstanding shares of
Common Stock); or
(iv) the
voluntary dissolution, liquidation or winding-up of the
Corporation;
then, and
in any one or more of said cases, the Corporation shall cause at least fifteen
(15) days prior notice of the date on which (A) the books of the Corporation
shall close or a record be taken for such stock dividend, distribution, or
subscription rights, or (B) such capital reorganization, reclassification,
merger, dissolution, liquidation or winding-up shall take place, as the case may
be, to be mailed to the Holders of record of the Series A Preferred
Stock.
(h) For
so long as any shares of Series A Preferred Stock or any Obligation Amount shall
remain outstanding and the Holders thereof shall have the right to convert the
same in accordance with provisions of this paragraph D(h), the Corporation shall
at all times reserve from the authorized and unissued shares of its Common Stock
150% of the number of shares of Common Stock that would be necessary to allow
the conversion of the entire Obligation Amount.
(i) The
term “Common Stock” as
used in this Certificate of Designation shall mean the Common Stock of the
Corporation as such stock is constituted at the date of issuance thereof or as
it may from time to time be changed, or shares of stock of any class or other
securities and/or property into which the shares of the Series A Preferred Stock
shall at any time become convertible pursuant to the provisions of this
paragraph D(i).
(j) The
Corporation shall pay the amount of any and all issue taxes (but not income
taxes) which may be imposed in respect of any issue or delivery of stock upon
the conversion of any shares of Series A Preferred Stock, but all transfer taxes
and income taxes that may be payable in respect of any change of ownership of
Series A Preferred Stock or any rights represented thereby or of stock
receivable upon conversion thereof shall be paid by the person or persons
surrendering such stock for conversion.
(k) In
the event a Holder shall elect to convert any shares of Series A Preferred Stock
as provided herein, the Corporation may not refuse conversion based on any claim
that such Holder or any one associated or affiliated with such Holder has been
engaged in any violation of law, or for any other reason unless, an injunction
from a court, on notice, restraining and or enjoining conversion of all or part
of said shares of Series A Preferred Stock shall have been sought and obtained
by the Corporation or at the Corporation’s request or with the Corporation’s
assistance and the Corporation posts a surety bond for the benefit of such
Holder equal to 120% of the Obligation Amount sought to be converted, which is
subject to the injunction, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Holder in the event Holder obtains
judgment.
(l)
In addition to
any other rights available to the Holder, if the Corporation fails to deliver to
the Holder such certificate or certificates pursuant to Section D(c) by the
Delivery Date and if after the Delivery Date the Holder or a broker on behalf of
the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by such Holder of the Common
Stock which the Holder anticipated receiving upon such conversion (a “Buy-In”), then the Corporation
shall pay in cash to the Holder (in addition to any remedies available to or
elected by the Holder) within five (5) business days after written notice from
the Holder, the amount by which (A) the Holder’s total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased
exceeds (B) the aggregate Series A Stated Value of the shares of Series A
Preferred Stock for which such conversion was not timely honored, together with
interest thereon at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). The Holder shall provide the
Corporation written notice indicating the amounts payable to the Holder in
respect of the Buy-In, which shall include evidence of the price at which such
Holder had to purchase the Common Stock in an open-market transaction or
otherwise.
(m) The
Corporation understands that a delay in the delivery of Common Stock upon
conversion of Series A Preferred Stock in the form required pursuant to this
Certificate of Designation and the applicable Subscription Agreement after the
Delivery Date could result in economic loss to the Holder. As
compensation to the Holder for such loss, the Corporation agrees to pay (as
liquidated damages and not as a penalty) to the Holder for such late issuance of
Common Stock upon Conversion of the Series A Preferred Stock in the amount of
$100 per business day after the Delivery Date for each $10,000 of Obligation
Amount being converted of the corresponding Common stock which is not timely
delivered. The Corporation shall pay any payments incurred under this
section in immediately available funds upon demand. Furthermore, in
addition to any other remedies which may be available to the Holder, in the
event that the Corporation fails for any reason to effect delivery of the Common
Stock by the Delivery Date, the Holder will be entitled to revoke all or part of
the relevant Notice of Conversion or rescind all by delivery of a notice to such
effect to the Corporation, whereupon the Corporation and the Holder shall each
be restored to their respective positions immediately prior to the delivery of
such notice, except that the liquidated damages described above shall be payable
through the date notice of revocation is given to the Corporation.
(n) Upon
(i) the occurrence of an Event of Default (as defined in
this Certificate of Designation), that continues for more than twenty (20)
business days after any applicable grace period, (ii) a Change in Control (as
defined in the Subscription Agreement), or (iii) of the liquidation, dissolution
or winding up of the Company, then at the Holder’s election, the Corporation
must pay to the Holder, ten (10) business days after request by the Holder (the
“Calculation Period”), a
sum of money determined by multiplying the then current purchase price of the
outstanding Preferred Stock designated by the Holder by 110%, plus accrued but
unpaid dividends (”Mandatory
Redemption Payment”). The Mandatory Redemption Payment must be received
by such Holder not later than thirty (30) business days after
request (“Mandatory
Redemption Payment Date”). Upon receipt of the Mandatory Redemption
Payment, the corresponding Series A Preferred Stock and dividends will be deemed
paid and no longer outstanding. For purposes of this Section, “Change in Control” shall mean
(i) the Corporation no longer having a class of shares publicly traded, listed
or quoted, as applicable, on a Principal Market, (ii) the Corporation becoming a
Subsidiary of another entity (other than a corporation formed by the Corporation
for purposes of reincorporation in another U.S. jurisdiction), (iii) a majority
of the board of directors of the Corporation as of the Closing Date no
longer serving as directors of the Corporation, except due to natural causes,
and (iv) the sale, lease or transfer of substantially all the assets of the
Corporation or Subsidiaries.
E. Voting
Rights. The Holders of shares of Series A Preferred
Stock shall not vote together with the holders of the Common Stock on an as
converted basis, provided,
however, that the consent of the Holders shall be required for the
following actions:
(a) amending
the Corporation’s certificate of incorporation or by-laws if such amendment
would adversely affect the Series A Preferred Stock, including, without
limitation,:
(i) changing
the relative seniority rights of the holders of the Series A Preferred Stock as
to the payment of dividends in relation to the holders of any other capital
stock of the Corporation, or create any other class or series of capital stock
entitled to seniority as to the payment of dividends in relation to the holders
of Series A Preferred Stock;
(ii) reducing
the amount payable to the holders of Series A Preferred Stock upon the voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, or
change the relative seniority of the liquidation preferences of the holders of
Series A Preferred Stock to the rights upon liquidation of the holders of other
capital stock of the Corporation, or change the dividend rights of the holders
of Series A Preferred Stock;
(iii) canceling
or modifying the conversion rights of the holders of Series A Preferred Stock
provided for in Section D herein;
(iv) canceling
or modifying the rights of the holders of the Series A Preferred Stock provided
for in this Section E; or
(v) changing
the authorized number of shares of Series A Preferred Stock.
(b) purchasing
any of the Corporation’s securities other than required redemptions of Series A
Preferred Stock and repurchase under restricted stock and option agreements
authorizing the Corporation’s employees (as permitted herein);
(c) effecting
a Liquidation Event;
(d) declaring
or paying any dividends other than in respect of the Series A Preferred Stock;
and
(e) issuing
any additional securities having rights senior to or on parity with the Series A
Preferred Stock.
3. Events of
Default. For so long as the Series A Preferred Stock is
outstanding, unless waived in writing by the Holders, the occurrence of any of
the following is an event of default (each, an “Event of Default”) and shall
thereafter or until such Event of Default has been cured, if such Event of
Default is permitted to be cured hereunder, cause the dividend rate to become
15% from and after the occurrence and during the pendency of such event with
respect to the Series A Preferred Stock:
(a) The
Corporation fails to timely pay any dividend payment or the failure to timely
pay any other sum of money due to a Holder of Series A Preferred Stock from the
Corporation pursuant to the Subscription Agreement or any other Transaction
Document.
(b) The
Corporation breaches any material covenant or other material term or condition
of the Subscription Agreement or this Certificate of Designation in any material
respect and such breach, if subject to cure, continues for a period of five (5)
business days.
(c) Any
material representation or warranty of the Corporation made herein, in any other
Transaction Document (as defined in Section 5(c) of the Subscription Agreement),
or in any agreement, statement or certificate given in writing pursuant hereto
or in connection herewith or therewith shall be false or misleading in any
material respect as of the date made and as of the Closing Date.
(d) Any
dissolution, liquidation or winding up of Corporation or any substantial portion
of its business.
(e) Any
continued cessation of operations by the Corporation or any material Subsidiary
for thirty (30) days or more or the Corporation is unable to pay its debts after
such debts become due.
(f) The
transfer or sale by the Corporation or any material Subsidiary of any material
Intellectual Property (as disclosed on Schedule 9(l) of the
Subscription Agreement), personal property, real property or other assets which
are necessary to conduct its business (whether now or in the future),without
receiving fair value.
(g) The
merger, consolidation or reorganization of the Corporation with or into another
corporation or person or entity (other than with or into a wholly owned
subsidiary of the Corporation), or sale of the capital stock of the
Corporation by the Corporation or the holders thereof, in any case under
circumstances in which the holders of a majority of the voting power of the
outstanding capital stock of Corporation immediately prior to such transaction
owning less than a majority in voting power of the outstanding capital stock of
Corporation or the surviving or resulting corporation or other entity, as the
case may be, immediately following such transaction.
(h) The
Corporation or any material Subsidiary shall make an assignment for the benefit
of creditors, or apply for or consent to the appointment of a receiver or
trustee for it or for a substantial part of its property or business; or such a
receiver or trustee shall otherwise be appointed.
(i) Any
money judgment, writ or similar final process shall be entered or filed against
the Corporation or its material Subsidiary or any of their property or other
assets for more than $100,000, and shall remain unpaid, unvacated, unbonded or
unstayed for a period of forty-five (45) days.
(j) Bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings or
relief under any bankruptcy law or any law, or the issuance of any notice in
relation to such event, for the relief of debtors shall be instituted by or
against the Corporation and/or any material Subsidiary.
(k) Failure
of the Corporation’s Common Stock to be listed for trading or quotation on the
NYSE Amex Equities, Nasdaq Capital Market, Nasdaq Global Market, Nasdaq Global
Select Market, Bulletin Board, or New York Stock Exchange (whichever of the
foregoing is at the time the principal trading exchange or market for the Common
Stock (the “Principal
Market”) for a period of ten (10) consecutive trading days.
(l) A
default by the Corporation or any material Subsidiary under any one or more
obligations in an aggregate monetary amount in excess of $100,000 for more than
twenty (20) days after the due date, unless the Corporation or its material
Subsidiary is contesting the validity of such obligation in good
faith.
(m) A
Commission or judicial stop trade order or Principal Market trading suspension
with respect to the Corporation’s Common Stock that lasts for ten (10) or more
consecutive trading days.
(n) The
failure by the Corporation to have reserved for issuance upon conversion of the
Series A Preferred Stock the number of shares of Common Stock as required in the
Subscription Agreement.
(o) A
default by the Corporation or any material Subsidiary of a material term,
covenant, warranty or undertaking of any other agreement to which the
Corporation or any material Subsidiary and Holder are parties, or the occurrence
of a material event of default under any such other agreement which is not cured
after any required notice and/or cure period.
(p) The
occurrence of one or more events having a Material Adverse Effect (as defined in
Section 5(a) of the Subscription Agreement).
(q) The
Corporation effectuates a reverse split of its Common Stock without twenty (20)
days prior written notice to the Holders.
(r) The
restatement of any financial statements filed by the Corporation for any date or
period from and after two years prior to the Issue Date of this Certificate of
Designation, if the result of such restatement would, by comparison to the
unrestated financial statements, have constituted a Material Adverse
Effect.
(s) The
Corporation’s failure to timely deliver to the Holder of Series A Preferred
Stock Common Stock issuable upon conversion of the Series A Preferred Stock or a
replacement Preferred Stock certificate (if required) within five (5) business
days after the required delivery date.
4.
Status of Converted or
Redeemed Stock. In case any shares of Series A Preferred Stock
shall be redeemed or otherwise repurchased or reacquired, the shares so
redeemed, repurchased, or reacquired shall resume the status of authorized but
unissued shares of preferred stock, and shall no longer be designated as Series
A Preferred Stock.
IN WITNESS
WHEREOF, the Corporation has caused this Certificate of Designation to be signed
by its duly authorized officer on December 7, 2010.
|
GoEnergy,
Inc. |
|
|
|
By: |
/s/
Gareb Shamus |
|
|
Name:
Gareb Shamus |
|
|
Title: President and
Chief Executive Officer |
EXHIBIT
A
NOTICE OF
CONVERSION
(To Be
Executed By the Registered Holder in Order to Convert Series A Preferred Stock
of Wizard World, Inc.)
The
undersigned hereby irrevocably elects to convert $______________ of the Series A
Stated Value of the above Series A Preferred Stock into shares of Common Stock
of Wizard World, Inc. (the “Corporation”) according to the
conditions hereof, as of the date written below.
The
undersigned hereby irrevocably elects to convert $______________ of the
dividends accrued on the Series A Preferred Stock held by the undersigned for
the period ________________ to _____________ into shares of Common Stock of the
Corporation according to the conditions hereof, as of the date written
below.
The
undersigned hereby irrevocably elects to convert $____________ of the Obligation
Amount consisting of ___________________________ for the period ____________ to
______________ into shares of Common Stock of the Corporation according to the
conditions hereof, as of the date written below.
Applicable Conversion Price Per Share: |
|
Number of Common Shares Issuable Upon This Conversion: |
|
Select
one:
¨ A
Series A Convertible Preferred Stock certificate is being delivered
herewith. The unconverted portion of such certificate should be
reissued and delivered to the undersigned.
¨ A
Series A Convertible Preferred Stock certificate is not being delivered to
Wizard World, Inc.
Deliveries
Pursuant to this Notice of Conversion Should Be Made to:
CERTIFICATE OF
AMENDMENT
TO
CERTIFICATE TO SET FORTH
DESIGNATIONS, VOTING POWERS, PREFERENCES,
LIMITATIONS, RESTRICTIONS,
AND RELATIVE RIGHTS OF SERIES A CUMULATIVE
CONVERTIBLE PREFERRED STOCK,
$.0001 PAR VALUE PER SHARE
OF
WIZARD
WORLD, INC.
The
undersigned, Gareb Shamus, the President and Chief Executive Officer of Wizard
World, Inc., a Delaware corporation (the “Company”), does hereby certify that,
in accordance with the provisions of Section 151 of the General Corporation Law
of the State of Delaware (“DGCL”), the board of directors of the Company(the
“Board”) has adopted by unanimous written consent the following resolution to
amend the Certificate to Set Forth Designations, Voting Powers, Preferences,
Limitations, Restrictions, and Relative Rights of Series A Cumulative
Convertible Preferred Stock, $.0001 Par Value per Share, of the Company (the
“Certificate of Designations”):
RESOLVED,
that in accordance with the provisions of Section 151 of General Corporation Law
of the State of Delaware, the Board hereby approves the following amendment to
subsection Aof Section 2 of the Certificate of Designation to increase the number of authorized shares of
Series A Cumulative Convertible Preferred Stock, $.0001 par value per share (the
“Series A Preferred”) from twenty five thousand (25,000) to fifty thousand
(50,000) shares:
Subsection
A of Section 2 of the Certificate of Designations is hereby deleted in its
entirety and replaced with the following new subsection A:
“The
designation of said series of preferred stock shall be Series A Cumulative
Convertible Preferred Stock (the “Series A Preferred
Stock”). The number of shares of Series A Preferred Stock
shall be up to 50,000 shares. Each share of Series A Preferred Stock
shall have a stated value equal to $100.00 (as adjusted for any stock dividends,
combinations or splits with respect to such shares) (the “Series A Stated
Value”).”
IN WITNESS
WHEREOF, the undersigned has signed this certificate as of the 20th day of April,
2011.
|
WIZARD WORLD,
INC.
|
|
By: |
/s/
Gareb Shamus |
|
|
Name: |
Gareb
Shamus
|
|
|
Title: |
President and Chief
Executive Officer |
Exhibit
B
NEITHER THE ISSUANCE AND SALE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF
(A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE
SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
|
Right
to Purchase ________ shares of Common |
|
Stock
of Wizard World, Inc. (subject to adjustment |
|
as
provided herein) |
SERIES A COMMON STOCK
PURCHASE WARRANT
No.
2011-A-001 |
Issue
Date: April 18, 2011 |
WIZARD WORLD, INC. (formerly
GoEnergy, Inc.), a corporation organized under the laws of the State of Delaware
(the “Company”), hereby
certifies that, for value received, ___________________, with an
address at ___________________, or its assigns (the
“Holder”), is entitled,
subject to the terms set forth below, to purchase from the Company at any time
after the Issue Date until 5:00 p.m., E.D.T on the five (5) year anniversary of
the Issue Date (the “Expiration
Date”), up to ___________________ fully paid and
non-assessable shares of Common Stock at a per share purchase price of
$0.60. The aforedescribed purchase price per share, as adjusted from
time to time as herein provided, is referred to herein as the “Purchase
Price.” The number and character of such shares of Common
Stock and the Purchase Price are subject to adjustment as provided
herein. The Company may reduce the Purchase Price for some or all of
the Warrants, temporarily or permanently, provided such reduction is
made as to all outstanding Warrants for all Holders of such
Warrants. Capitalized terms used and not otherwise defined herein
shall have the meanings set forth in that certain Subscription Agreement (the
“Subscription
Agreement”), dated as of April 18, 2011, entered into by the Company,
Holder and the other signatories thereto.
As used
herein the following terms, unless the context otherwise requires, have the
following respective meanings:
(a) The
term “Company” shall
mean Wizard World, Inc. (formerly GoEnergy, Inc.), a Delaware corporation, and
any corporation which shall succeed or assume the obligations of GoEnergy, Inc.
hereunder.
(b) The
term “Common Stock”
includes (i) the Company's Common Stock, $0.0001 par value per share, as
authorized on the date of the Subscription Agreement, and (ii) any other
securities into which or for which any of the securities described in (i) may be
converted or exchanged pursuant to a plan of recapitalization, reorganization,
merger, sale of assets or otherwise.
(c) The
term “Other Securities”
refers to any stock (other than Common Stock) and other securities of the
Company or any other person (corporate or otherwise) which the holder of the
Warrant at any time shall be entitled to receive, or shall have received, on the
exercise of the Warrant, in lieu of or in addition to Common Stock, or which at
any time shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 4 hereof
or otherwise.
(d) The
term “Warrant Shares”
shall mean the Common Stock issuable upon exercise of this Warrant.
1. Exercise of
Warrant.
1.1. Number of Shares Issuable
upon Exercise. From and after the Issue Date through and
including the Expiration Date, the Holder shall be entitled to receive, upon
exercise of this Warrant in whole in accordance with the terms of Section 1.2
hereof or upon exercise of this Warrant in part in accordance with Section 1.3
hereof, shares of Common Stock of the Company, subject to adjustment pursuant to
Section 4
hereof and Sections 12(a) and 14(p) of
the Subscription Agreement.
1.2. Full
Exercise. This Warrant may be exercised in full by the Holder
hereof by delivery to the Company of an original or facsimile copy of the form
of subscription attached as Exhibit A hereto
(the “Subscription
Form”) duly executed by such Holder and delivered within two (2) business
day thereafter of payment, in cash, wire transfer or by certified or official
bank check payable to the order of the Company, in the amount obtained by
multiplying the number of shares of Common Stock for which this Warrant is then
exercisable by the Purchase Price then in effect. The original
Warrant is not required to be surrendered to the Company until it has been fully
exercised.
1.3. Partial
Exercise. This Warrant may be exercised in part (but not for a
fractional share) by delivery of a Subscription Form in the manner and at the
place provided in Section 1.2
hereof, except that the amount payable by the Holder on such partial exercise
shall be the amount obtained by multiplying (a) the number of whole shares
of Common Stock designated by the Holder in the Subscription Form by
(b) the Purchase Price then in effect. On any such partial
exercise, upon the written request of the Holder, provided the Holder has
surrendered the original Warrant, the Company, at its expense, will forthwith
issue and deliver to or upon the order of the Holder a new Warrant of like
tenor, in the name of the Holder hereof or as such Holder (upon payment by such
Holder of any applicable transfer taxes) may request, the whole number of shares
of Common Stock for which such Warrant may still be exercised.
1.4. Fair Market
Value. For purposes of this Warrant, the Fair Market Value of a share
of Common Stock as of a particular date (the “Determination Date”) shall
mean:
(a) If
the Company's Common Stock is traded on an exchange or on the NASDAQ Global
Market, NASDAQ Global Select Market, the NASDAQ Capital Market, the New York
Stock Exchange or the NYSE AMEX Equities, then the average of the closing sale
prices of the Common Stock for the five (5) trading days immediately prior to
(but not including) the Determination Date;
(b) If
the Company's Common Stock is not traded on an exchange or on the NASDAQ Global
Market, NASDAQ Global Select Market, the NASDAQ Capital Market, the New York
Stock Exchange or the NYSE AMEX Equities, but is traded on the OTC Bulletin
Board or in the over-the-counter market or Pink Sheets, then the average of the
closing bid and ask prices reported for the five (5) trading days immediately
prior to (but not including) the Determination Date;
(c) Except
as provided in clause (d) below and Section 3.1 hereof,
if the Company's Common Stock is not publicly traded, then as the Holder and the
Company shall mutually agree, or in the absence of such an agreement after good
faith efforts of the Company and the Holder to reach an agreement, by
arbitration in accordance with the rules then standing of the American
Arbitration Association, before a single arbitrator to be chosen from a panel of
persons qualified by education and training to pass on the matter to be decided;
or
(d) If
the Determination Date is the date of a liquidation, dissolution or winding up,
or any event deemed to be a liquidation, dissolution or winding up pursuant to
the Company's charter, then all amounts to be payable per share to holders of
the Common Stock pursuant to the charter in the event of such liquidation,
dissolution or winding up, plus all other amounts to be payable per share in
respect of the Common Stock in liquidation under the charter, assuming for the
purposes of this clause (d) that all of the shares of Common Stock then
issuable upon exercise of all of the Warrants are outstanding at the
Determination Date.
1.5. Company
Acknowledgment. The Company will, at the time of the exercise
of the Warrant, upon the request of the Holder hereof, acknowledge in writing
its continuing obligation to afford to such Holder any rights to which such
Holder shall continue to be entitled after such exercise in accordance with the
provisions of this Warrant. If the Holder shall fail to make any such request,
such failure shall not affect the continuing obligation of the Company to afford
to such Holder any such rights.
1.6. Delivery of Stock
Certificates, etc. on Exercise. The Company agrees that, provided the
purchase price listed in the Subscription Form is received as specified in Section 2 hereof, the
shares of Common Stock purchased upon exercise of this Warrant shall be deemed
to be issued to the Holder hereof as the record owner of such shares as of the
close of business on the date on which delivery of a Subscription Form shall
have occurred and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part and the
payment is made, and in any event within five (5) business days thereafter
(“Warrant Share Delivery
Date”), the Company, at its expense (including the payment by it of any
applicable issue taxes), will cause to be issued in the name of, and delivered
to, the Holder hereof, or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct in compliance with applicable securities
laws, a certificate or certificates for the number of duly and validly issued,
fully paid and non-assessable shares of Common Stock (or Other Securities) to
which such Holder shall be entitled on such exercise, plus, in lieu of any
fractional share to which such Holder would otherwise be entitled, cash equal to
such fraction multiplied by the then Fair Market Value of one full share of
Common Stock, together with any other stock or other securities and property
(including cash, where applicable) to which such Holder is entitled upon such
exercise pursuant to Section 1 hereof
or otherwise. The Company understands that a delay in the delivery of
the Warrant Shares after the Warrant Share Delivery Date could result in
economic loss to the Holder. As compensation to the Holder for such
loss, the Company agrees to pay (as liquidated damages and not as a penalty) to
the Holder for late issuance of Warrant Shares upon exercise of this Warrant the
proportionate amount of $100 per business day after the Warrant Share Delivery
Date for each $10,000 of Purchase Price of Warrant Shares for which this Warrant
is exercised which are not timely delivered. The Company shall
promptly pay any payments incurred under this Section in immediately available
funds upon demand. Furthermore, in addition to any other remedies
which may be available to the Holder, in the event that the Company fails for
any reason to effect delivery of the Warrant Shares by the Warrant Share
Delivery Date, the Holder may revoke all or part of the relevant Warrant
exercise by delivery of a written notice to such effect to the Company,
whereupon the Company and the Holder shall each be restored to their respective
positions immediately prior to the exercise of the relevant portion of this
Warrant, except that the liquidated damages described above shall be payable
through the date notice of revocation or rescission is given to the
Company.
1.7. Buy-In. In
addition to any other rights available to the Holder, if the Company fails to
deliver to a Holder the Warrant Shares as required pursuant to this Warrant, and
the Holder or a broker on the Holder’s behalf, purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by such Holder of the Warrant Shares which the Holder was entitled to
receive from the Company (a “Buy-In”), then the Company
shall pay in cash to the Holder (in addition to any remedies available to or
elected by the Holder) the amount by which (A) the Holder's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate Purchase Price of the Warrant Shares
required to have been delivered together with interest thereon at a rate of 15%
per annum, accruing until such amount and any accrued interest thereon is paid
in full (which amount shall be paid as liquidated damages and not as a
penalty). For purposes of illustration, if a Holder purchases shares
of Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to $10,000 of Purchase Price of Warrant Shares to have been received
upon exercise of this Warrant, the Company shall be required to pay the Holder
$1,000, plus interest. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In, which
shall include evidence of the price at which such Holder had to purchase the
Common Stock in an open-market transaction or otherwise.
2. Cashless
Exercise.
(a) Payment
upon exercise may be made at the written option of the Holder either in (i)
cash, wire transfer or by certified or official bank check payable to the order
of the Company equal to the applicable aggregate Purchase Price, (ii) by
delivery of Common Stock issuable upon exercise of the Warrants in accordance
with Section (b) below or (iii) by a combination of any of the
foregoing methods, for the number of Common Stock specified in such form (as
such exercise number shall be adjusted to reflect any adjustment in the total
number of shares of Common Stock issuable to the Holder per the terms of this
Warrant) and the Holder shall thereupon be entitled to receive the number of
duly authorized, validly issued, fully-paid and non-assessable shares of Common
Stock (or Other Securities) determined as provided
herein. Notwithstanding the immediately preceding sentence, payment
upon exercise may be made in the manner described in Section 2(b) below
only with respect to Warrant Shares not included for
unrestricted public resale in an effective registration statement on the date
notice of exercise is given by the Holder.
(b) If
the Fair Market Value of one share of Common Stock is greater than the Purchase
Price (at the date of calculation as set forth below), in lieu of exercising
this Warrant for cash, the Holder may elect to receive shares equal to the value
(as determined below) of this Warrant (or the portion thereof being cancelled)
by delivery of a properly endorsed Subscription Form delivered to the Company by
any means described in Section 13 hereof, in
which event the Company shall issue to the holder a number of shares of Common
Stock computed using the following formula:
X=Y (A-B)
A
Where X= the
number of shares of Common Stock to be issued to the Holder
|
Y= |
the
number of shares of Common Stock purchasable under the Warrant or, if only
a portion of the Warrant is being exercised, the portion of the Warrant
being exercised (at the date of such calculation) |
|
|
|
|
A= |
Fair
Market Value |
|
|
|
|
B= |
Purchase Price (as
adjusted to the date of such
calculation) |
For
purposes of Rule 144 promulgated under the 1933 Act, it is intended, understood
and acknowledged that the Warrant Shares issued in a cashless exercise
transaction in the manner described above shall be deemed to have been acquired
by the Holder, and the holding period for the Warrant Shares shall be deemed to
have commenced, on the date this Warrant was originally issued pursuant to the
Subscription Agreement.
3. Adjustment for
Reorganization, Consolidation, Merger, etc.
3.1. Fundamental Transaction.
If, at any time while this Warrant is outstanding, (A) the Company
effects any merger or consolidation of the Company with or into
another entity, (B) the Company effects any sale of all or
substantially all of its assets in one or
a series of related transactions, (C)
any tender offer or exchange offer (whether by the
Company or another entity) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their
shares for other securities, cash or property, (D) the Company
consummates a stock purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, or spin-off) with one or
more persons or entities whereby such other persons or entities acquire more
than the 50% of the outstanding shares of Common Stock (not including any shares
of Common Stock held by such other persons or entities making or party to, or
associated or affiliated with the other persons or entities making or party to,
such stock purchase agreement or other business combination), (E) any “person”
or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of
the 1934 Act) is or shall become the “beneficial owner” (as defined in Rule
13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate
Common Stock of the Company, or (F) the Company effects any
reclassification 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 (in any such
case, a “Fundamental
Transaction”), then, upon any subsequent exercise of this
Warrant, the Holder shall have the right to receive, for each Warrant Share that
would have been issuable upon such exercise immediately prior to the occurrence
of such Fundamental Transaction, at the option of the Holder, (a) upon
exercise of this Warrant, 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 upon or as a result of
such reorganization, reclassification, merger,
consolidation or disposition of assets by a Holder of the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event or (b) if the Company is
acquired in (1) a transaction where the consideration paid to the holders
of the Common Stock consists solely of cash, (2) a “Rule 13e-3 transaction” as
defined in Rule 13e-3 under the 1934 Act, or (3) a transaction involving a
person or entity not traded on a national securities exchange, the Nasdaq Global
Select Market, the Nasdaq Global Market or the Nasdaq Capital
Market, cash equal to the Black-Scholes Value (as defined
herein). For purposes of any such exercise, the
determination of the Purchase 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 Company shall
apportion the Purchase 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 exercise of this Warrant
following such Fundamental Transaction. To the extent necessary to
effectuate the foregoing provisions, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the Holder a
new warrant consistent with
the foregoing provisions and evidencing the
Holder's right to exercise such warrant into Alternate
Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected include terms requiring any such successor
or surviving entity to comply with the provisions of
this Section
3.1 and insuring that this Warrant (or any such replacement
security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction. “Black-Scholes Value” shall be
determined in accordance with the Black-Scholes Option Pricing Model obtained
from the “OV” function on Bloomberg L.P. using (i) a price per share of Common
Stock equal to the Volume Weighted Average Price of the Common Stock for the
Trading Day immediately preceding the date of consummation of the applicable
Fundamental Transaction, (ii) a risk-free interest rate corresponding to the
U.S. Treasury rate for a period equal to the remaining term of this Warrant as
of the date of such request and (iii) an expected volatility equal to the 100
day volatility obtained from the HVT function on Bloomberg L.P. determined as of
the Trading Day immediately following the public announcement of the applicable
Fundamental Transaction.
3.2. Continuation of
Terms. Upon any reorganization, consolidation, merger or
transfer (and any dissolution following any transfer) referred to in this Section 3
hereof, this Warrant shall continue in full force and effect and the terms
hereof shall be applicable to the Other Securities and property receivable on
the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any Other
Securities, including, in the case of any such transfer, the person acquiring
all or substantially all of the properties or assets of the Company, whether or
not such person shall have expressly assumed the terms of this Warrant as
provided in Section 4
hereof.
3.3 Share
Issuance. Until the Expiration Date, if the Company shall
issue any Common Stock, except for the Excepted Issuances (as defined in the
Subscription Agreement), prior to the complete exercise of this Warrant for a
consideration less than the Purchase Price that would be in effect at the time
of such issuance, then, and thereafter successively upon each such issuance, the
Purchase Price shall be reduced to such other lower price for then outstanding
Warrants. For purposes of this adjustment, the issuance of any
security or debt instrument of the Company carrying the right to convert such
security or debt instrument into Common Stock or of any warrant to purchase
Common Stock shall result in an adjustment to the Purchase Price upon the
issuance of the of the above-described security, debt instrument, warrant,
right, or option if such issuance is at a price lower than the Purchase Price in
effect upon such issuance and again at any time upon any actual, permitted,
optional, or allowed issuances of shares of Common Stock upon any actual,
permitted, optional, or allowed exercise of such conversion or purchase rights
if such issuance is at a price lower than the Purchase Price in effect upon any
actual, permitted, optional, or allowed such issuance. Common Stock
issued or issuable by the Company for no consideration will be deemed issuable
or to have been issued for $0.0001 per share of Common Stock. The
reduction of the Purchase Price described in this Section 3.3 is in
addition to the other rights of the Holder described in the Subscription
Agreement. Upon any reduction of the Purchase Price, the number of
shares of Common Stock that the Holder of this Warrant shall thereafter, on the
exercise hereof, be entitled to receive shall be adjusted to a number determined
by multiplying the number of shares of Common Stock that would otherwise (but
for the provisions of this Section 3.3) be
issuable on such exercise by a fraction of which (a) the numerator is the
Purchase Price that would otherwise (but for the provisions of this Section 3.3) be in
effect, and (b) the denominator is the Purchase Price in effect on the date of
such exercise.
4. Extraordinary Events
Regarding Common Stock. In the event that the Company shall
(a) issue additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of Common Stock, then, in each such event,
the Purchase Price shall, simultaneously with the happening of such event, be
adjusted by multiplying the then Purchase Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such event, and the product so
obtained shall thereafter be the Purchase Price then in effect. The Purchase
Price, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described in this Section 4. The
number of shares of Common Stock that the Holder of this Warrant shall
thereafter, on the exercise hereof, be entitled to receive shall be adjusted to
a number determined by multiplying the number of shares of Common Stock that
would otherwise (but for the provisions of this Section 4) be
issuable on such exercise by a fraction of which (a) the numerator is the
Purchase Price that would otherwise (but for the provisions of this Section 4) be in
effect, and (b) the denominator is the Purchase Price in effect on the date of
such exercise.
5. Certificate as to
Adjustments. In each case of any adjustment or readjustment in
the shares of Common Stock (or Other Securities) issuable on the exercise of the
Warrants or in the Purchase Price, the Company at its expense will promptly
cause its Chief Financial Officer or other appropriate designee to compute such
adjustment or readjustment in accordance with the terms of the Warrant and
prepare a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based,
including a statement of (a) the consideration received or receivable by
the Company for any additional shares of Common Stock (or Other Securities)
issued or sold or deemed to have been issued or sold, (b) the number of
shares of Common Stock (or Other Securities) outstanding or deemed to be
outstanding, and (c) the Purchase Price and the number of shares of Common
Stock to be received upon exercise of this Warrant, in effect immediately prior
to such adjustment or readjustment and as adjusted or readjusted as provided in
this Warrant. The Company will forthwith mail a copy of each such certificate to
the Holder of the Warrant and any Warrant Agent (as defined herein) of the
Company (appointed pursuant to Section 10
hereof). Holder will be entitled to the benefit of the adjustment
regardless of the giving of such notice. The timely giving of such
notice to Holder is a material obligation of the Company.
6. Reservation of Stock, etc.
Issuable on Exercise of Warrant; Financial
Statements. The Company will at all times reserve and
keep available, solely for issuance and delivery on the exercise of the
Warrants, all shares of Common Stock (or Other Securities) from time to time
issuable on the exercise of the Warrant. This Warrant entitles the
Holder hereof, upon written request, to receive copies of all financial and
other information distributed or required to be distributed to the holders of
the Company's Common Stock.
7. Assignment; Exchange of
Warrant. Subject to compliance with applicable securities
laws, this Warrant, and the rights evidenced hereby, may be transferred by any
registered holder hereof (a “Transferor”). On the surrender
for exchange of this Warrant, with the Transferor's endorsement in the form of
Exhibit B
attached hereto (the “Transferor Endorsement Form”)
and together with an opinion of counsel reasonably satisfactory to the Company
that the transfer of this Warrant will be in compliance with applicable
securities laws, the Company will issue and deliver to or on the order of the
Transferor thereof a new Warrant or Warrants of like tenor, in the name of the
Transferor and/or the transferee(s) specified in such Transferor Endorsement
Form (each a “Transferee”), calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
called for on the face or faces of the Warrant so surrendered by the
Transferor.
8. Replacement of
Warrant. On receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and, in
the case of any such loss, theft or destruction of this Warrant, on delivery of
an indemnity agreement or security reasonably satisfactory in form and amount to
the Company or, in the case of any such mutilation, on surrender and
cancellation of this Warrant, the Company at its expense, twice only, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Maximum
Exercise. The Holder shall not be entitled to exercise this
Warrant on an exercise date, in connection with that number of shares of Common
Stock which would be in excess of the sum of (i) the number of shares of
Common Stock beneficially owned by the Holder and its Affiliates on an exercise
date, and (ii) the number of shares of Common Stock issuable upon the
exercise of this Warrant with respect to which the determination of this
limitation is being made on an exercise date, which would result in beneficial
ownership by the Holder and its Affiliates of more than 4.99% of the outstanding
shares of Common Stock on such date. For the purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the 1934 Act and Rule 13d-3
thereunder. Subject to the foregoing, the Holder shall not be limited
to aggregate exercises which would result in the issuance of more than
4.99%. The restriction described in this paragraph may be
waived, in whole or in part, upon sixty-one (61) days’ prior notice from the
Holder to the Company to increase such percentage. The Holder may
decide whether to convert the Preferred Stock or exercise this Warrant to
achieve an actual 4.99% or increase such ownership position as described
above.
10. Warrant
Agent. The Company may, by written notice to the Holder,
appoint an agent (a “Warrant
Agent”) for the purpose of issuing Common Stock (or Other Securities) on
the exercise of this Warrant pursuant to Section 1
hereof, exchanging this Warrant pursuant to Section 7
hereof, and replacing this Warrant pursuant to Section 8
hereof, or any of the foregoing, and thereafter any such issuance, exchange or
replacement, as the case may be, shall be made at such office by such Warrant
Agent.
11. Transfer on the Company's
Books. Until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the
contrary.
12. Registration
Rights. The Holder has been granted certain registration
rights by the Company as set forth in the Subscription Agreement. The
terms of the Subscription Agreement and such registration rights are
incorporated herein by this reference.
13. Notices. All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received), or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be: (i) if to the Company, to
Wizard World, Inc., 1350 Avenue of the Americas, 2nd Floor, New York, NY 10019,
Attn: Gareb Shamus, with a copy by fax only to (which shall not constitute
notice) Lucosky Brookman LLP, 33 Wood Avenue South, 6th Floor, Iselin, NJ 08830,
Attn: Joseph M. Lucosky, Esq., facsimile: (732) 395-4401, and (ii) if to the
Holder, to the address and facsimile number listed on the first paragraph of
this Warrant, with a copy by fax (which shall not constitute notice) only to
Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley Stream, New York 11581,
facsimile: (212) 697-3575.
14. Law Governing This
Warrant. This Warrant shall be governed by and construed in
accordance with the laws of the State of New York without regard to its
principles of conflicts of laws or of any other State. Any action
brought by either party hereto against the other concerning the transactions
contemplated by this Warrant shall be brought only in the state courts of New
York or in the federal courts located in the state and county of New
York. The parties to this Warrant hereby irrevocably waive any
objection to jurisdiction and venue of any action instituted hereunder and shall
not assert any defense based on lack of jurisdiction or venue or based upon
forum non
conveniens. The Company and the Holder waive
trial by jury. The prevailing party shall be entitled to
recover from the other party its reasonable attorney's fees and
costs. In the event that any provision of this Warrant or any other
agreement delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform to, such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any
agreement. Each party hereto hereby irrevocably waives personal
service of process and consents to process being served in any suit, action or
proceeding in connection with this Warrant or any other Transaction Document 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 Warrant 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 law.
[-Signature Page
Follows-]
IN WITNESS
WHEREOF, the Company has executed this Warrant as of the date first written
above.
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WIZARD WORLD
INC. |
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By: |
/s/
Gareb Shamus |
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Gareb
Shamus |
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President and Chief
Executive Officer |
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Exhibit I
FORM OF
SUBSCRIPTION
(to be
signed only on exercise of Warrant)
TO: WIZARD WORLD,
INC.
The
undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable
box):
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________ shares of the
Common Stock covered by such Warrant;
or |
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the maximum number of
shares of Common Stock covered by such Warrant pursuant to the cashless
exercise procedure set forth in Section 2 of the
Warrant. |
The
undersigned herewith makes payment of the full purchase price for such shares at
the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or
boxes):
___ |
$__________ in lawful
money of the United States; and/or |
___ |
the cancellation of
such portion of the attached Warrant as is exercisable for a total of
_______ shares of Common Stock (using a Fair Market Value of $_______ per
share for purposes of this calculation);
and/or |
___ |
the cancellation of
such number of shares of Common Stock as is necessary, in accordance with
the formula set forth in Section 2 of the Warrant, to exercise this
Warrant with respect to the maximum number of shares of Common Stock
purchasable pursuant to the cashless exercise procedure set forth in
Section 2. |
After
application of the cashless exercise feature as described above, _____________
shares of Common Stock are required to be delivered pursuant to the instructions
below.
The
undersigned requests that the certificates for such shares be issued in the name
of, and delivered to __________________________________________, whose address
is ___________________________
__________________________________________________________________________________________________.
The
undersigned represents and warrants that all offers and sales by the undersigned
of the securities issuable upon exercise of the within Warrant shall be made
pursuant to registration of the Common Stock under the Securities Act of 1933,
as amended (the “Securities Act”), or pursuant to an exemption from registration
under the Securities Act.
Dated:___________________ |
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(Signature
must conform to name of holder as
specified on the face
of the Warrant) |
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(Address) |
Exhibit II
FORM OF
TRANSFEROR ENDORSEMENT
(To be
signed only on transfer of Warrant)
For
value received, the undersigned hereby sells, assigns, and transfers unto the
person(s) named below under the heading “Transferees” the right represented by
the within Warrant to purchase the percentage and number of shares of Common
Stock of WIZARD WORLD, INC. to which the within Warrant relates specified under
the headings “Percentage Transferred” and “Number Transferred,” respectively,
opposite the name(s) of such person(s) and appoints each such person Attorney to
transfer its respective right on the books of WIZARD WORLD, INC., with full
power of substitution in the premises.
Transferees |
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Percentage Transferred |
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Number Transferred |
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Dated: __________________,
_______ |
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(Signature must
conform to name of holder as specified on the face of the
warrant) |
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Signed in the presence
of: |
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(Name) |
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(address) |
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ACCEPTED AND
AGREED: |
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[TRANSFEREE] |
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(address) |
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(Name) |
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ESCROW
AGREEMENT
This
Agreement is dated as of the ___ day of March, 2011 among Wizard World, Inc.
(formerly GoEnergy, Inc.), a Delaware corporation (the “Company”), the
subscribers listed on Schedule 1 hereto (the “Subscribers”), and Grushko &
Mittman, P.C. (the “Escrow Agent”):
WITNESSETH:
WHEREAS, the Company and the
Subscribers have entered into a Subscription Agreement calling for the sale by
the Company to the Subscribers of Series A Cumulative Convertible Preferred
Stock “the “Preferred Stock”) and Series A Warrants (the “Warrants”) for an
aggregate purchase price of up to $1,000,000; and
WHEREAS, the parties hereto
require the Company to deliver the Preferred Stock and Warrants against payment
therefor, with such Preferred Stock and the Escrowed Payment to be delivered to
the Escrow Agent, along with the other documents, instruments and payments
hereinafter described, to be held in escrow and released by the Escrow Agent in
accordance with the terms and conditions of this Agreement; and
WHEREAS, the Escrow Agent is
willing to serve as escrow agent pursuant to the terms and conditions of this
Agreement;
NOW
THEREFORE, the parties agree as follows:
ARTICLE I
INTERPRETATION
1.1. Definitions. Capitalized
terms used and not otherwise defined herein shall have the meanings given to
such terms in the Subscription Agreement (and the exhibits and schedules
thereto) entered into or to be entered into by the Company and the Subscribers
in reference to the sale and purchase of the Preferred Stock and Warrants (the
“Subscription Agreement”). Whenever used in this Agreement, the
following terms shall have the following respective meanings:
“Agreement” means this
Agreement and all amendments made hereto by written agreement of the
parties hereto;
“Company Documents”
means, collectively, the Legal Opinion, Preferred Stock, Warrants , Subscription
Agreement as signed by the Company, and the Subscriber Legal Fees.
“Escrowed Payment” means an
aggregate cash payment of up to $1,000,000;
“Legal
Opinion” means the original signed legal opinion referred to in Section 6 of the
Subscription Agreement;
“Preferred Stock” shall have
the meaning set forth in the second recital to the Subscription Agreement;
“Principal Amount” shall
mean an aggregate of up to $1,000,000;
“Subscriber Legal Fees”
shall have the meaning set forth in Section 8 of the Subscription
Agreement;
“Subscription Agreement”
means the Subscription Agreement (and the exhibits and schedules thereto)
entered into or to be entered into by the Company and Subscribers in reference
to the sale and purchase of the Preferred Stock and Warrants;
“Warrants” shall have the
meaning set forth in Section 2(b) of the Subscription Agreement;
Collectively, the Legal
Opinion, Preferred Stock, Warrants, and Subscription Agreement signed and
executed by all signators thereto other than the Subscribers, and Subscriber
Legal Fees are referred to as “Company Documents”; and
Collectively, the Escrowed
Payment and the Subscribers executed Subscription Agreement are referred to as
“Subscriber Documents.”
1.2. Entire
Agreement. This Agreement along with the Company Documents and the
Subscriber Documents to which the Subscriber and the Company are a party
constitute the entire agreement between the parties hereto pertaining to the
Company Documents and Subscriber Documents and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties hereto. There are no warranties, representations and other
agreements made by the parties hereto in connection with the subject matter
hereof, except as specifically set forth in this Agreement, the Company
Documents and the Subscriber Documents.
1.3. Extended
Meanings. In this Agreement words importing the singular number
include the plural and vice versa; words importing the masculine gender include
the feminine and neuter genders. The word “person” includes an
individual, body corporate, partnership, trustee or trust or unincorporated
association, executor, administrator or legal representative.
1.4. Waivers
and Amendments. This Agreement may be amended, modified, superseded,
cancelled, renewed or extended, and the terms and conditions hereof may be
waived, only by a written instrument signed by all parties, or, in the case of a
waiver, by the party waiving compliance. Except as expressly stated
herein, no delay on the part of any party hereto in exercising any right, power
or privilege hereunder shall operate as a waiver thereof, nor shall any waiver
on the part of any party hereto of any right, power or privilege hereunder
preclude any other or future exercise of any other right, power or privilege
hereunder.
1.5. Headings. The
division of this Agreement into articles, sections, subsections and paragraphs,
and the insertion of headings are for convenience of reference only and shall
not affect the construction or interpretation of this
Agreement.
1.6. Law
Governing this Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
conflicts of laws principles that would result in the application of the
substantive laws of another jurisdiction. Any action brought
by any party hereto against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state courts of New
York or in the federal courts located in the state and county of New
York. The parties hereto and the individuals executing this Agreement
and other agreements on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. The prevailing
party (which shall be the party which receives an award most closely resembling
the remedy or action sought) shall be entitled to recover from the other party
its reasonable attorney’s fees and costs. In the event that any
provision of this Agreement or any other agreement delivered in connection
herewith is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement.
1.7. Specific
Enforcement, Consent to Jurisdiction. The Company and the Subscribers
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed
that the parties hereto shall be entitled to an injuction or injunctions to
prevent or cure breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof or thereof, this being in addition
to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 1.6 hereof, each of the Company and the
Subscribers hereby waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
such court, that the suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is
improper. Nothing in this Section shall affect or limit any right to
serve process in any other manner permitted by law.
ARTICLE II
DELIVERIES TO THE ESCROW
AGENT
2.1. Company
Deliveries. On or before the Closing Date, the Company shall execute
and deliver the Company Documents to the Escrow Agent.
2.2. Subscriber
Deliveries. On or before the Closing Date, the Subscribers shall
execute and deliver the Subscription Agreements, and shall deliver the Escrowed
Payment in cash, to the Escrow Agent. The Escrowed Payment will be
delivered pursuant to the following wire transfer instructions:
Citibank,
N.A.
1155 6th
Avenue
New York,
NY 10036
ABA Number:
0210-00089
For Credit
to: Grushko & Mittman, IOLA Trust Account
Account
Number: 45208884
2.3. Intention
to Create Escrow Over Company Documents and Subscriber Documents. The
Subscribers and Company intend that the Company Documents and Subscriber
Documents shall be held in escrow by the Escrow Agent pursuant to this Agreement
for their respective benefit as set forth herein.
2.4. Escrow
Agent to Deliver Company Documents and Subscriber Documents. The
Escrow Agent shall hold and release the Company Documents and Subscriber
Documents only in accordance with the terms and conditions of this Agreement.
ARTICLE
III
RELEASE
OF COMPANY DOCUMENTS AND SUBSCRIBER DOCUMENTS
3.1. Release
of Escrow. Subject to the provisions of Section 4.2 hereof, the
Escrow Agent shall release the Company Documents and Subscriber Documents as
follows:
(a) On
the Closing Date, the Escrow Agent will simultaneously release the Company
Documents to the Subscribers and release the Subscriber Documents to the
Company, except that Subscriber Legal Fees will be released directly to the
Subscriber’s attorneys.
(b) Notwithstanding
the above, upon receipt by the Escrow Agent of joint written instructions
(“Joint Instructions”) signed by the Company and the Subscribers, it shall
deliver the Company Documents and Subscriber Documents in accordance with the
terms of the Joint Instructions.
(c) Anything
herein to the contrary notwithstanding, upon receipt by the Escrow Agent of a
final and non-appealable judgment, order, decree or award of a court of
competent jurisdiction (a “Court Order”), the Escrow Agent shall deliver the
Company Documents and Subscriber Documents in accordance with the Court
Order. Any Court Order shall be accompanied by an opinion of counsel
for the party presenting the Court Order to the Escrow Agent (which opinion
shall be satisfactory to the Escrow Agent) to the effect that the court issuing
the Court Order has competent jurisdiction and that the Court Order is final and
non-appealable.
3.2. Closings
may take place on or before March 31, 2011. After March 31, 2011, the
Escrow Agent will promptly return the applicable Company Documents to the
Company and return the Subscriber Documents to the Subscriber.
3.3. Acknowledgement
of Company and Subscriber; Disputes. The Company and the Subscribers
acknowledge that the only terms and conditions upon which the Company Documents
and Subscriber Documents are to be released are set forth in Sections 3 and 4 of
this Agreement. The Company and the Subscribers reaffirm their
agreement to abide by the terms and conditions of this Agreement with respect to
the release of the Company Documents and Subscriber Documents. Any
dispute with respect to the release of the Company Documents and Subscriber
Documents shall be resolved pursuant to Section 4.2 hereof or by agreement
between the Company and Subscribers.
ARTICLE IV
CONCERNING
THE ESCROW AGENT
4.1. Duties
and Responsibilities of the Escrow Agent. The Escrow Agent’s duties
and responsibilities shall be subject to the following terms and
conditions:
(a) The
Subscribers and the Company acknowledge and agree that the Escrow Agent (i)
shall not be responsible for or bound by, and shall not be required to inquire
into whether either the Subscribers or Company is entitled to receipt of the
Company Documents and Subscriber Documents, respectively, pursuant to any other
agreement or otherwise; (ii) shall be obligated only for the performance of such
duties as are specifically assumed by the Escrow Agent pursuant to this
Agreement; (iii) may rely on and shall be protected in acting or refraining from
acting upon any written notice, instruction, instrument, statement, request or
document furnished to it hereunder and believed by the Escrow Agent in good
faith to be genuine and to have been signed or presented by the proper person or
party, without being required to determine the authenticity or correctness of
any fact stated therein or the propriety or validity or the service thereof;
(iv) may assume that any person believed by the Escrow Agent in good faith to be
authorized to give notice or make any statement or execute any document in
connection with the provisions hereof is so authorized; (v) shall not be under
any duty to give the property held by Escrow Agent hereunder any greater degree
of care than Escrow Agent gives its own similar property; and (vi) may consult
counsel satisfactory to Escrow Agent, the opinion of such counsel to be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by Escrow Agent hereunder in good faith and in accordance with the
opinion of such counsel.
(b) The
Subscribers and Company acknowledge that the Escrow Agent is acting solely as a
stakeholder at their request and that the Escrow Agent shall not be liable for
any action taken by Escrow Agent in good faith and believed by Escrow Agent to
be authorized or within the rights or powers conferred upon Escrow Agent by this
Agreement. The Subscribers and Company, jointly and severally, agree
to indemnify and hold harmless the Escrow Agent and any of Escrow Agent’s
partners, employees, agents and representatives for any action taken or omitted
to be taken by Escrow Agent or any of them hereunder, including the reasonable
fees of outside counsel and other costs and expenses of defending itself against
any claim or liability under this Agreement, except in the case of gross
negligence or willful misconduct on Escrow Agent’s part committed in its
capacity as Escrow Agent under this Agreement. The Escrow Agent shall
owe a duty only to the Subscribers and Company under this Agreement and to no
other person.
(c) The
Subscribers and the Company jointly and severally agree to reimburse the Escrow
Agent for reasonable outside counsel fees, to the extent authorized hereunder
and incurred in connection with the performance of its duties and
responsibilities hereunder.
(d) The
Escrow Agent may at any time resign as Escrow Agent hereunder by giving five (5)
days’ prior written notice of resignation to the Subscribers and the
Company. Prior to the effective date of the resignation as specified
in such notice, the Subscribers and the Company will issue to the Escrow Agent a
Joint Instruction authorizing delivery of the Company Documents and Subscriber
Documents to a substitute Escrow Agent selected by the Subscribers and the
Company. If no successor Escrow Agent is named by the Subscribers and
the Company, the Escrow Agent may apply to a court of competent jurisdiction in
the State of New York for appointment of a successor Escrow Agent, and to
deposit the Company Documents and Subscriber Documents with the clerk of any
such court.
(e) Other
than in connection with the Subscriber Legal Fees, the Escrow Agent does not
have and will not have any interest in the Company Documents and Subscriber
Documents, but is serving only as escrow agent, having only possession
thereof. The Escrow Agent shall not be liable for any loss resulting
from the making or retention of any investment in accordance with this Escrow
Agreement.
(f) This
Agreement sets forth exclusively the duties of the Escrow Agent with respect to
any and all matters pertinent thereto and no implied duties or obligations shall
be read into this Agreement.
(g) The
Escrow Agent shall be permitted to act as counsel for the Subscribers in any
dispute as to the disposition of the Company Documents and Subscriber Documents,
in any other dispute between the Subscribers and the Company, whether or not the
Escrow Agent is then holding the Company Documents and Subscriber Documents and
continues to act as the Escrow Agent hereunder.
(h) The
provisions of this Section 4.1 shall survive the resignation of the Escrow Agent
or the termination of this Agreement.
4.2. Dispute
Resolution; Judgments. Resolution of disputes arising under this
Agreement shall be subject to the following terms and conditions:
(a) If
any dispute shall arise with respect to the delivery, ownership, right of
possession or disposition of the Company Documents and Subscriber Documents, or
if the Escrow Agent shall in good faith be uncertain as to its duties or rights
hereunder, the Escrow Agent shall be authorized, without liability to anyone, to
(i) refrain from taking any action other than to continue to hold the Company
Documents and Subscriber Documents pending receipt of a Joint Instruction from
the Subscribers and the Company, or (ii) deposit the Company Documents and
Subscriber Documents with any court of competent jurisdiction in the State of
New York, in which event the Escrow Agent shall give written notice thereof to
the Subscribers and the Company and shall thereupon be relieved and discharged
from all further obligations pursuant to this Agreement. The Escrow
Agent may, but shall be under no duty to, institute or defend any legal
proceedings which relate to the Company Documents and Subscriber
Documents. The Escrow Agent shall have the right to retain counsel if
it becomes involved in any disagreement, dispute or litigation on account of
this Agreement or otherwise determines that it is necessary to consult
counsel.
(b) The
Escrow Agent is hereby expressly authorized to comply with and obey any Court
Order. In case the Escrow Agent obeys or complies with a Court Order,
the Escrow Agent shall not be liable to the Subscribers and the “Company or to
any other person, firm, corporation or entity by reason of such
compliance.
ARTICLE V
GENERAL
MATTERS
5.1. Termination. This
escrow shall terminate upon the release of all of the Company Documents and
Subscriber Documents or at any time upon the agreement in writing of the
Subscribers and Company.
5.2. Notices. All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
(a) |
If to
the Company, to: |
Wizard
World, Inc.
1350 Avenue
of the Americas, 2nd Floor
New York,
NY 10019
Attn: Gareb
Shamus
Fax:
With a copy
by fax only to (which shall not constitute notice):
Lucosky
Brookman LLP
33 Wood
Avenue South, 6th Floor
Iselin, NJ
08830
Attn:
Joseph M. Lucosky, Esq.
Fax: (732)
395-4401
(b) |
If to
the Subscribers, to the addresses set forth on Schedule 1
hereto |
With a copy by facsimile only to (which
shall not constitute notice):
Grushko
& Mittman, P.C.
515
Rockaway Avenue
Valley
Stream, New York 11581
Fax: (212)
697-3575
(c) |
If to
the Escrow Agent, to: |
Grushko
& Mittman, P.C.
515
Rockaway Avenue
Valley
Stream, New York 11581
Fax: (212)
697-3575
or to such
other address as any of them shall give to the others by notice made pursuant to
this Section 5.2.
5.3. Interest. The
Escrowed Payment shall not be held in an interest bearing account nor will
interest be payable in connection therewith. In the event the
Escrowed Payment is deposited in an interest bearing account, the Subscribers
shall be entitled to receive any accrued interest thereon, but only if the
Escrow Agent receives from the Subscriber the Subscribers’ United States
taxpayer identification number and other requested information and forms.
5.4. Assignment;
Binding Agreement. Neither this Agreement nor any right or obligation
hereunder shall be assignable by any party without the prior written consent of
the other parties hereto. This Agreement shall enure to the benefit
of and be binding upon the parties hereto and their respective legal
representatives, successors and assigns.
5.5. Invalidity. In
the event that any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal, or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be in any way impaired thereby, it being
intended that all of the rights and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
5.6. Counterparts/Execution. This
Agreement may be executed in any number of counterparts and by different
signatories hereto on separate counterparts, each of which, when so executed,
shall be deemed an original, but all such counterparts shall constitute but one
and the same instrument. This Agreement may be executed by facsimile
transmission and delivered by facsimile transmission.
5.7. Agreement. Each
of the undersigned states that he has read the foregoing Escrow Agreement and
understands and agrees to it.
IN WITNESS WHEREOF, the
undersigned have executed and delivered this Escrow Agreement, as of
the date first written above.
THE
“COMPANY” |
|
WIZARD WORLD
INC. |
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a
Delaware corporation |
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By: |
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ESCROW
AGENT: |
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GRUSHKO &
MITTMAN, P.C. |
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By: |
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Name: |
SUBSCRIBERS: |
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By: |
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By: |
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Name: |
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Name: |
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Title: |
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Title: |
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By: |
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By: |
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Name: |
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Name: |
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Title: |
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Title: |
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By: |
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By: |
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Name: |
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Name: |
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Title: |
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Title: |
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Lucosky Brookman llp
33
Wood Avenue South
6th
Floor
Iselin, NJ
08830
T -
(732) 395-4400
F-
(732) 395-4401 |
|
|
|
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45
Rockefeller Plaza
Suite
2000
NewYork, NY
10111
T -
(212) 332-8160
F -
(212) 332-8161
www.lucbro.com |
EXHIBIT
D
April __,
2011
TO: |
The Subscribers
identified onSchedule A
hereto: |
We have
acted as special counsel to Wizard World, Inc., a Delaware corporation (the
“Company”), in connection with the offer and sale by the Company of the
Company’s Series A Cumulative Convertible Preferred Stock (“Series A Preferred”)
and Series A Common Stock Purchase Warrants (the “Warrants”), for the aggregate
Purchase Price of $575,000 to the subscribers identified on Schedule A hereto
(each a “Subscriber” and together, the “Subscribers”) in the amounts designated
thereon pursuant to the exemption from registration under the Securities Act of
1933, as amended (the “Act”) as set forth in Regulation D (“Regulation D”)
promulgated thereunder. Capitalized terms used herein and not otherwise defined
shall have the meaning assigned to them in that certain subscription agreement
(the “Agreement”) by and among the Company and the Subscribers entered into on
or about the date hereof. The Agreement and the agreements described
below are sometimes hereinafter referred to collectively as the
“Documents.”
In
connection with the opinions expressed herein, we have made such examination of
law as we have considered appropriate or advisable for purposes
hereof. As to matters of fact material to the opinions expressed
herein, we have relied, with your permission, upon the representations and
warranties as to factual matters contained in and made by the Company and the
Subscribers pursuant to the Documents and upon certificates and statements of
certain government officials and of officers of the Company as described
below. We have also examined originals or copies of certain corporate
documents or records of the Company as described below:
(a) Bylaws
of the Company;
(b) Certificate
of Incorporation of the Company;
|
(c) |
Certificate to Set
Forth Designations, Voting Powers, Preferences, Limitations, Restrictions,
and Relative Rights of Series A Cumulative Convertible Preferred Stock,
$.0001 Par Value Per Share, as
amended; |
(d) Escrow
Agreement;
(e) Form
of Agreement;
(f) Form
of Warrants; and
|
(g) |
Minutes of the action
of the Company’s Board of Directors (the “Board”) or unanimous written
consent of the Board approving the
Documents. |
In
rendering this opinion, we have, with your permission, assumed: (a) the
authenticity of all documents submitted to us as originals; (b) the conformity
to the originals of all documents submitted to us as copies; (c) the genuineness
of all signatures; (d) the legal capacity of natural persons; (e) the truth,
accuracy and completeness of the information, factual matters, representations
and warranties contained in all of such documents; (f) the due authorization,
execution and delivery of all such documents by the Subscribers, and the legal,
valid and binding effect thereof on the Subscribers; and (g) that the Company
and the Subscribers will act in accordance with their respective representations
and warranties as set forth
in the
Documents.
We are
members of the bar of the State of New York. We express no opinion as
to the laws of any jurisdiction other than New York, Delaware and New Jersey and
the federal laws of the United States of America. We express no
opinion with respect to the effect or application of any other
laws. Special rulings of authorities administering any of such laws
or opinions of other counsel have not been sought or obtained by us in
connection with rendering the opinions expressed herein.
1. The
Company and each Subsidiary is duly incorporated, validly existing and in good
standing in the jurisdictions of their respective formation; have qualified to
do business in each state and jurisdiction where required, unless the failure to
do so would not have a Material Adverse Effect on their operations; and have the
requisite corporate power and authority to conduct their respective businesses,
and to own, lease and operate their respective properties.
2. The
Company and each Subsidiary has the requisite corporate power and authority to
execute, deliver and perform its respective obligations under the
Documents. The Documents, and the issuance of the Series A Preferred
and Warrants on the Closing Date and the reservation and issuance of Conversion
Shares and Warrant Shares (a) have been duly approved by the Board, as required,
and (b) when issued pursuant to the Agreement and upon delivery, shall be
validly issued and outstanding, fully paid and non-assessable.
3. The
execution, delivery and performance of the Documents by the Company and the
consummation of the transactions contemplated thereby, will not, with or without
the giving of notice or the passage of time or both:
(a) Violate
the provisions of the Certificate of Incorporation or bylaws of the Company or
any Subsidiary; or
(b) To
the best of counsel's knowledge, violate any judgment, decree, order or award of
any court binding upon the Company or each Subsidiary.
4. The
Documents constitute the valid and legally binding obligations of the Company
and are enforceable against the Company in accordance with their respective
terms.
5. None
of the Series A Preferred, Warrants, Conversion Shares and Warrant Shares has
been registered under the Act or under the laws of any state or other
jurisdiction, and is or will be issued pursuant to a valid exemption from
registration.
6. The
Company and each Subsidiary has either obtained the approval of the transactions
described in the Documents from its Principal Market, if applicable, and
shareholders, or no such approval is required.
Our
opinions expressed above are specifically subject to the following limitations,
exceptions, qualifications and assumptions:
A. The
effect of bankruptcy, insolvency, reorganization, moratorium and other similar
laws relating to or affecting the relief of debtors or the rights and remedies
of creditors generally, including, without limitation, the effect of statutory
or other law regarding fraudulent conveyances and preferential
transfers.
B. Limitations
imposed by state law, federal law or general equitable principles upon the
specific enforceability of any of the remedies, covenants or other provisions of
any applicable agreement or upon the availability of injunctive relief or other
equitable remedies, regardless of whether enforcement of any such agreement is
considered in a proceeding in equity or at law.
C. This
opinion letter is governed by, and shall be interpreted in accordance with, the
Legal Opinion Accord (the “Accord”) of the ABA Section of Business Law (1991),
which is incorporated by reference herein. As a consequence, it is subject to a
number of qualifications, exceptions, definitions, limitations on coverage and
other limitations, all as more particularly described in the Accord, including
the General Qualifications and the Equitable Principles Limitation, and this
opinion letter should be read in conjunction therewith.
This
opinion is rendered as of the date first written above and is solely for your
benefit in connection with the Agreement and may not be relied upon or used by,
circulated, quoted, or referred to, nor may any copies hereof by delivered to,
any other person without our prior written consent. We disclaim any
obligation to update this opinion letter or to advise you of facts,
circumstances, events or developments which hereafter may be brought to our
attention and which may alter, affect or modify the opinions expressed
herein.
Very truly yours,
SCHEDULE A TO LEGAL
OPINION
SERIES A
CUMULATIVE CONVERTIBLE PREFERRED STOCK
SERIES A COMMON
STOCK PURCHASE WARRANTS
SUBSCRIBER |
|
PURCHASE
PRICE ($) |
|
NO. OF
SHARES OF
PREFERRED
STOCK |
|
WARRANTS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
|
|
|
|
SCHEDULE
1
LIST OF
SUBSCRIBERS
NAME OF SUBSCRIBER
ADDRESS AND FAX |
|
PURCHASE
PRICE ($) |
|
|
AMOUNT OF
PREFERRED
STOCK |
|
|
AMOUNT OF
WARRANTS |
|
Brio
Capital L.P.
401
East 34th
Street
Suite
South 33C
New
York, NY 10016
Attn:
Shaye Hirsch,
Managing
Partner
Fax:
(646) 390-2158 |
|
|
200,000 |
|
|
|
2,000 |
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cougar Trading
LLC
1370
Avenue of the Americas
New
York, NY 10019
Attn:
Carl J. Bennett
Fax:
(212) 319-8066 |
|
|
100,000 |
|
|
|
1,000 |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
W. Heavener
3300
University Blvd., #218
Winter Park, FL
32792
Fax:
(407) 657-4280 |
|
|
100,000 |
|
|
|
1,000 |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Macaluso
1240
5th
Street
Manhattan Beach, CA
90266
Fax:
(310) 798-6172 |
|
|
100,000 |
|
|
|
1,000 |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory Howard
Suess
955
Roscomare Road
Los
Angeles, CA 90077 |
|
|
25,000 |
|
|
|
250 |
|
|
|
12,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert S. Colman Trust
UDT 3/13/85
P.O.
Box 7370
Ketchum, ID
83340 |
|
|
50,000 |
|
|
|
500 |
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
575,000 |
|
|
|
5,750 |
|
|
|
287,500 |
|
SCHEDULE
5(a)
SUBSIDIARIES
Name of Subsidiary |
|
Ownership Interests |
|
|
|
|
|
Kick
The Can Corp., a Nevada corporation |
|
|
100 |
% |
|
|
|
|
|
Wizard World Digital,
Inc., a Nevada corporation |
|
|
100 |
% |
No
exception to the Company’s representation that it owns all of the equity of the
Subsidiaries and rights to receive equity of the Subsidiaries, free and clear of
all liens, encumbrances and claims.
Wizard
World, Inc. was formerly known as GoEnergy, Inc.
Kick The
Can Corp. is doing business in New York under the assumed name ‘Wizard
World.’
SCHEDULE
5(d)
CAPITALIZATION1
Wizard World,
Inc.
|
1. |
Authorized and
Outstanding Stock: |
|
(a) |
Preferred Stock, par
value $.0001 per share – 20,000,000 authorized and 2,440,610 outstanding;
and |
|
(b) |
Common Stock, par
value $.0001 per share – 80,000,000 shares authorized and 36,499,999
outstanding pre-dilution. |
|
2. |
Outstanding rights to
acquire or receive, directly or indirectly, any equity of the Company
(e.g., options, warrants or rights to subscribe to securities, rights,
understandings or obligations convertible into or exchangeable for or
granting any right to subscribe for any shares of capital stock or other
equity interest of the Company): |
|
· |
Warrants dated
November 5, 2010 issued in connection with the Bridge Notes exercisable
for an aggregate of 500,000 shares at an exercise price of $.60 per
share; |
|
· |
Series A Convertible
Preferred Stock issued December 6, 2010 convertible into an aggregate of
2,440,610 shares at a conversion price of $.40 per
share; |
|
· |
Warrants dated
December 6, 2010 exercisable for an aggregate of 688,892 shares at an
exercise price of $.60 per share; |
|
· |
Options issued
pursuant to non-qualified stock option agreements exercisable for an
aggregate of 3,000,000 shares at an exercise price of $.40 per share;
and |
|
· |
An aggregate of
1,500,000 common stock issuable over a three year period pursuant to
consulting agreements. |
|
3. |
Officer, director,
employee and consultant stock option or stock incentive plan or similar
plan: |
Each of
three consultants has entered into Non-Qualified Stock Option Agreements
pursuant to which each was granted 1,000,000 stock options exercisable at $.40
per share.
The Company
contemplates adopting a stock option plan after the Closing Date.
Subsidiary Kick The Can
Corp.
|
1. |
Common Stock, par
value $.0001 per share – 60,000,000 authorized and 33,239,840
outstanding. |
|
2. |
Outstanding rights to
acquire or receive, directly or indirectly, any equity of the Company
(e.g., options, warrants or rights to subscribe to securities, rights,
understandings or obligations convertible into or exchangeable for or
granting any right to subscribe for any shares of capital stock or other
equity interest of the Company): |
|
· |
Convertible Demand
Promissory Note dated November 5, 2010 issued by GoEnergy, Inc. (now
Wizard World, Inc.), as holder, and Kick The Can Corp., as maker, in the
amount of $200,000 with a conversion price of $.40 per share;
and |
1 Does
not include the Securities issuable on the Closing Date.
|
· |
Warrant issued
pursuant to a consulting agreement exercisable for 2,000,000 shares at an
exercise price of $.25 per share. |
|
3. |
Officer, director,
employee and consultant stock option or stock incentive plan or similar
plan: |
None.
Subsidiary Wizard World
Digital, Inc.
|
1. |
Common Stock, par
value $.0001 per share – 25,000,000 authorized and 1,000
outstanding. |
|
2. |
Outstanding rights to
acquire or receive, directly or indirectly, any equity of the Company
(e.g., options, warrants or rights to subscribe to securities, rights,
understandings or obligations convertible into or exchangeable for or
granting any right to subscribe for any shares of capital stock or other
equity interest of the
Company): None |
|
3. |
Officer, director,
employee and consultant stock option or stock incentive plan or similar
plan: None |
SCHEDULE
5(f)
ANTIDILUTION AND
REGISTRATION RIGHTS
|
1. |
Triggered
anti-dilution
rights/reset/repricing: |
|
· |
Warrants dated
November 5, 2010 issued in connection with the Bridge Notes exercisable
for an aggregate of 500,000 shares at an exercise price of $.60 per
share; |
|
· |
Series A Convertible
Preferred Stock issued December 6, 2010 convertible into an aggregate of
2,440,610 shares at a conversion price of $.40 per
share; |
|
· |
Warrants dated
December 6, 2010 exercisable for an aggregate of 688,892 shares at an
exercise price of $.60 per share;
and |
|
· |
Options issued
pursuant to non-qualified stock option agreements exercisable for an
aggregate of 3,000,000 shares at an exercise price of $.40 per
share. |
|
2. |
Triggered registration
rights: |
|
· |
Series A Convertible
Preferred Stock issued December 6, 2010 convertible into an aggregate of
2,440,610 shares at a conversion price of $.40 per share;
and |
|
· |
Warrants dated
December 6, 2010 exercisable for an aggregate of 688,892 shares at an
exercise price of $.60 per
share. |
SCHEDULE
5(o)
UNDISCLOSED
LIABILITIES
Undisclosed
Liabilities since July 31, 2010 that would reasonably be expected to have a
Material Adverse Effect:
Based on historical accounting
treatment, none. If a different accounting basis or principle is
applied to the Company, however, then there may be different or additional
liabilities that were not disclosed when the historical accounting method was
applied to the Company.
SCHEDULE
5(w)
TRANSFER
AGENT
SIGNATURE
STOCK TRANSFER, INC.
2632
Coachlight Court
Plano,
Texas 75093
Telephone
972.612.4120
Facsimile
972.612.4122
Attn: Jason M.
Bogutski-President
Email: signaturestocktransfer@msn.com
SCHEDULE
9(e)
USE OF
PROCEEDS
All
proceeds will be used for working capital and general
corporate.
SCHEDULE
9(l)
INTELLECTUAL
PROPERTY
Wizard World,
Inc.
Website
www.wizardworld.com
Kick The Can
Corp.
|
· |
Domain name
www.wizardworld.com; |
|
· |
License to use a
subscriber database granted to Kick The Can Corp. by Wizard Entertainment
(d/b/a Gareb Shamus Enterprises, Inc.), the licensor;
and |
|
· |
The following comic
conventions: |
1. |
Atlanta Comic
Convention, including, without limitation, the assignment of the
Memorandum, dated January 1, 2010, by and between Kick The Can Corp. and
Wes Tillander; and ‘Atlanta Comic Convention’
(non-exclusive).
|
2. |
Big
Apple Comic Convention, including, without limitation, the assignment of
the Memorandum, dated April 1, 2009, by and between Kick The Can Corp. and
Big Apple Tables, LLC; ‘Big Apple Con’; www.bigapplecon.com; and mail
and email lists (non-exclusive).
|
3. |
Cincinnati Comic
Convention, including, without limitation, the assignment of the
Memorandum, dated January 4, 2010, by and between Kick The Can Corp. and
Marc Ballard; and ‘Cincinnati Comic Con’ (non-exclusive).
|
4. |
Connecticut Comic
Convention, including, without limitation, the assignment of the
Memorandum, dated May 2010, by and among Kick The Can Corp. and
Alternative Universe, Mitchell Hallock, Erik Yaeko and Jay Claus;
‘ComiConn’ (non-exclusive); and mail and email lists
(non-exclusive).
|
5. |
Nashville Comic
Convention, including, without limitation, the assignment of the
Memorandum, dated January 4, 2010, by and between Kick The Can Corp. and
Marc Ballard; and ‘Nashville Comic Con’ (non-exclusive).
|
6. |
New
England Comic Convention, including, without limitation, the assignment of
the Memorandum, dated November 16, 2009, by and between Kick The Can Corp.
and Harrisons Limited (Harrisons); ‘New England Comic Con’; and
‘NECC’.
|
7. |
North
Coast Comic Convention, including, without limitation, the assignment of
the Memorandum, dated January 2010, by and between Kick The Can Corp. and
Roger Priebe; ‘North Coast Comic Con’ (non-exclusive); and mail and email
lists (non-exclusive).
|
8. |
Toronto Comic
Convention, including, without limitation, the assignment of the
Memorandum, dated June 2009, by and among Kick The Can Corp., Peter Dixon
and Paradise Conventions; ‘Paradise Toronto Comicon’; and
www.torontocomicon.com.
|
9. |
New
Orleans Comic Convention, including, without limitation, the assignment of
a Memorandum or agreement from Ronnie Prudhomme to Kick The Can Corp.;
‘Nola’; Nola Comic Con marks (non-exclusive); and mail and email lists
(non-exclusive).
|
10. |
Winnipeg (Central
Canada) Comic Convention, including, without limitation, the assignment of
a Memorandum or agreement from Michael Damien Paille to Kick The Can
Corp.; ‘Central Canada Comic Con’; C4 marks (non-exclusive); and mail and
email lists ((non-exclusive).
|
Kick The Can Corp. may
acquire, if not already owned, the following comic
conventions:
11. |
Houston
Comic Convention, including, without limitation, the assignment
of a Memorandum or agreement from Robert Quijano to Kick The Can
Corp.; ‘Houston Comic Con’ (non-exclusive); and mail and email lists
((non-exclusive).
|
12. |
Mid Ohio
Comic Convention, including, without limitation, the assignment
of a Memorandum or agreement from CGC Holdings LLC; ‘Mid-Ohio-Con’;
and Ohio Comic-Con marks
|
13. |
Austin Comic Convention
|
14. |
Anaheim Comic Convention
|
15. |
Miami Comic Convention
|
16. |
Philadelphia Comic Convention
|
17. |
Chicago Comic
Convention |
Wizard
World Digital, Inc.
Wizard World Girls
SCHEDULE
9(w)
FURTHER REGISTRATION
STATEMENTS
The
registration statement filed on behalf of the Subscribers may also be filed for
the parties to the following documents:
|
· |
Series A Convertible
Preferred Stock issued December 6, 2010 convertible into an aggregate of
2,440,610 shares at a conversion price of $.40 per share;
and |
|
· |
Warrants dated
December 6, 2010 exercisable for an aggregate of 688,892 shares at an
exercise price of $.60 per share; |
The Company
may file with the Commission or with state regulatory authorities a registration
statement, which may be on Form S-8, in connection with a stock option plan that
the Company contemplates entering into after the Closing Date.
SCHEDULE
11.1(iv)
REGISTRATION
|
1. |
Cutback of Registrable
Securities |
Registrable
Securities shall be cut back on a pro rata basis among the number of shares
being registered in the following order of priority: first, the
Warrant Shares shall be cut back and then the Conversion Shares will be cut
back.
|
2. |
Securities of the
Company other than the Registrable Securities that will be included in the
Registration Statement: |
|
· |
Series A Convertible
Preferred Stock issued December 6, 2010 convertible into an aggregate of
2,440,610 shares at a conversion price of $.40 per share;
and |
|
· |
Warrants dated
December 6, 2010 exercisable for an aggregate of 688,892 shares at an
exercise price of $.60 per share; |
SCHEDULE
12(a)
See
Schedule 5(d)
Exhibit
10.11
Office Service
Agreement
Agreement Date:
1/18/2011 |
|
Reference
Number: |
Business Center
Information: |
|
Client
Information: |
Salesperson: Ryan
Trimberger |
|
Client: Kick The Can
Corp. (d/b/a Wizard World) |
Center: 1350 Avenue of
the Americas |
|
Company: Kick The Can
Corp. (d/b/a Wizard World) |
Address: 1350 6th
Avenue, 3rd
Fl.
New
York, NY 10019 |
|
Address: 1101 The
Plaza
Tenafly, NJ
07670 |
Phone: (212)
257-6440 |
|
Phone: (212)
935-3470 |
e-mail:
ryan@nycofficesuites.com |
|
sgloss@wizardent.com |
Start
Date: 1/22/2011 |
Term
(Number of Months): 12 |
Office
Number |
|
Number of
Persons |
|
|
Monthly Office
Fee |
|
435,433 |
|
|
15 |
|
|
$ |
6,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
Total |
|
|
|
|
|
$ |
6,500 |
|
One-Time Set-Up
Fee |
|
|
|
|
|
|
2,250 |
|
Refundable Security
Retainer |
|
|
|
|
|
|
13,000 |
|
Opening
Charge |
|
|
|
|
|
$ |
21,750 |
|
Includes
Office Services Packages per Number of Persons Above:
IT & Telecom Package |
|
Business Service Package |
Telephone
Handset |
|
Unlimited Coffee, Tea
& Filtered Water |
Dedicated NYC Phone
Number |
|
Unlimited High Speed,
Color Scanning |
Voicemail and Rollover
Lines |
|
500
Free B&W Copies per Company |
High-Speed
Internet |
|
15
Free Color Copies per Company |
Secure Firewall and
Data Infrastructure |
|
Priority Package
Delivery to Office |
By signing
this Agreement you confirm that you have read and understand the attached
Summary Terms & Conditions. We both agree to comply with those
terms and our obligations set forth in this Agreement. Note that the
Agreement does not come to an end automatically.
/s/ Ryan
Trimberger |
|
/s/ Stanley M. Glass |
Name
(Print) |
|
Name
(Print) |
|
|
|
01-20-2011 |
|
01-20-2011 |
Date |
|
Date |
|
|
|
|
|
|
Signed on Behalf of
NYC Office Suites |
|
Signed on Behalf of
Client |
Summary Terms &
Conditions
Section 1: The
Agreement
1.1 These
Terms and Conditions apply to all business center locations operating under the
legal entities of either Universal Executive Centers, Inc. or Grand Central
Business Centers, both of which are referred to as “NYC Office
Suites”.
1.2 Client
agrees to comply also with the Complete Terms and Conditions as set forth by NYC
Office Suites. Complete Terms and Conditions are distributed to
Client upon move-in and are available upon request at any time.
1.3 The
Client accepts that this Office Service Agreement, otherwise known as License
Agreement (the “Agreement”), creates no tenancy interest, leasehold estate or
other real property interest in the Client’s favor with respect to the
accommodation. The Agreement is a contractual arrangement that
creates a revocable license. When the Agreement is terminated because
the term has expired or otherwise, Client’s license to occupy the center is
revoked.
1.4 This
Agreement shall be legally binding and Client’s use of the business center shall
commence on the Start Date. If Client takes occupancy prior to Start
Date then Client will be responsible for its pro-rata share of the monthly rent
and services. If a term (“Term”) is specified in this Agreement then
such “Term” shall automatically renew following the last day of such “Term”, and
following the last day of each subsequent renewal term (each such renewal term
to be a “Term” for all purposes of the Agreement), in each case for an
additional term equal to the initial “Term” stated in the Agreement, unless not
fewer than (90) days prior to the expiration of any term then in effect (whether
the initial “Term” or any renewal term), NYC Office Suites shall have received
from Client, or Client shall have received from NYC Office Suites, written
notice that such “Term” shall not be renewed, in which case such “Term” shall
expire on its last day. The fixed monthly charge during any renewal
term shall be at the then-prevailing market rate and shall be determined by NYC
Office Suites. All Addendums, Amendments and/or concessions expire
upon completion of the initial term.
1.5 All
Agreements run through the last day of the month in which the Term
expires. When the Agreement ends, the Client must vacate the Business
Center immediately leaving the accommodations in the same condition as when it
was taken. The Client will be assessed with a closing fee, as
determined in the Complete Terms and Conditions, to cover basic wear and tear
upon move-out or in the event of a transfer to another office.
1.6 The
Client may not solicit, offer employment to, or employ any staff employed by NYC
Office Suites current or past. It is stipulated that the breaching
party will pay the non-breaching party the equivalent of one year’s salary for
any employee concerned.
1.7 All
notices must be in writing to the Business Center address specified in the
Agreement via registered mail. The Client must keep an up-to-date
record of his or her address at all times.
1.8 The
Client may not disclose the terms of this Agreement, as they are confidential,
without NYC Office Suites’ written consent or unless required to do so by
law.
Section 2: Compliance
and Use
2.1 The
Client must comply with all relevant laws and regulations in the conduct of its
business. The Client must do nothing illegal in, or with in use of,
the Business Center.
2.2 The
Client must not do anything that may interfere with the use of the Business
Center by NYC Office Suites, or by others, or cause loss or damage to NYC Office
Suites.
2.3 The
Client may use the Business Center states in this Agreement as its business
address. Any other uses are prohibited without NYC Office Suites’
prior written consent.
2.4 The Client may only
carry on business at the Business Center in the name stated in this
Agreement.
2.5 The Client may not carry
on business that competes with NYC Office Suites.
3.1
Client acknowledges that due to the imperfect nature of verbal, written, and
electronic communications, neither NYC Office Suites nor its landlord nor any of
its respective officers, directors, employees, shareholders, partners, agents or
representatives shall be responsible for damages, direct or consequential, that
may result from the failure of NYC Office Suites to furnish any service,
including but not limited to the service of conveying messages, communications
and other utility or services. NYC Office Suites shall use its best
efforts to prevent the failure to provide or interruption of any such
services.
3.2 NYC
Office Suites will not be liable for any loss sustained as a result of NYC
Office Suites’ failure to provide a service as a result of a technical failure,
mechanical breakdown, termination of NYC Office Suites interest in the building
of the Business Center and/or strike.
3.3 The
Client agrees to waive, and agrees not to make any claims for damages, direct or
consequential, including but not limited to, lost business or profits arising
out of failure of NYC Office Suites or its employees, to furnish any service,
any error or omission with respect thereto, or any delay or interruption of
services. NYC Office Suites disclaims any warranty of merchantability
or fitness for a particular purpose.
4.1 The Client will be
invoiced once per month for recurring and variable services.
4.2
Payment is due to NYC Office Suites by the first of every
month. Payment not received by the first of the month will incur a
late payment penalty fee.
4.3 The
client will pay a service retainer equal to two times the recurring monthly
total as defined in the Agreement for performance of Client’s obligations under
this Agreement and will be held by NYC Office Suites without generating
interest. Client shall not deduct the security retainer from the
final payment due under this Agreement or consider such amount as a substitute
for such final payment. If Client has satisfied all payment
obligations and vacated the facility, the security retainer (less any
outstanding balances) will be returned within 45 days. If Client’s
users exceed the “Number of Persons” in this Agreement, additional set-up and
usage fees will be applied.
4.4 The
Client agrees to pay a flat monthly fee for unlimited local and domestic long
distance calls. Rates for unlimited local and domestic long distance
are outlined in the Complete Terms and Conditions.
4.5 The
Client agrees to pay all sales tax and any other taxes and license fees which
Client is required to pay to any governmental authority.
4.6 If
Client disputes any portion of the charges on Client’s bill, Client agrees to
pay the undisputed portion on the designated payment date.
5.1
Client is in default under this Agreement if: (i) Client fails to materially
abide by the Summary and Complete Terms & Conditions, (ii) Client does not
pay Client’s recurring and variable service charges (excluding immaterial or
disputed amounts of a nonrecurring nature) on the later of (a) the designated
payment date or (b) three days following receipt of written notice designating
such default, or (iii) Client conducts illegal activities in the Business
Center.
5.2 NYC Office Suites has
the right to stop providing all services to a Client in
default.
5.3 NYC
Office Suites has the right to terminate the Agreement early: (i) if Client
fails to correct a default or the default cannot be corrected, (ii) without
giving Client the opportunity to cure if Client repeatedly defaults under the
Agreement, or (iii) if Client uses the Business Center for any illegal
operations or purposes. If NYC Office Suites puts an end to this
Agreement it does not put an end to any outstanding obligations, including
additional services used and the monthly office fee for the remainder of the
period for which this Agreement would have lasted if NYC Office Suites had not
ended it.
5.4 The
Client must pay all costs including legal fees that NYC Office Suites incurs in
enforcing this Agreement. In the event of termination because of
default, NYC Office Suites may, at its option, declare the entire amount of the
recurring service charges which would come due and payable during the remainder
of the Term to be due and payable immediately, in which event Client agrees to
pay the same, plus any applicable fees and taxes, immediately.
Addendum to Service
Agreement
This
Addendum to the Service Agreement (“Addendum) dated 1/18/11, by and between NYC
Office Suites and Kick The Can Corp. (d/b/a Wizard World)
(“Client”).
Recitals
|
A. |
These Terms and
Conditions, and all Addendums, apply to all Business Center locations
operating under the legal entities of either Universal Executive Centers,
Inc. or Grand Central Business Centers, both of which are referred to as
(“NYC Office Suites”). |
|
B. |
Client and NYC Office
Suites are parties to that certain Service Agreement (“Agreement”) dated
1/18/11 in which NYC Office Suites provides services and/or facilities to
you. |
|
C. |
The parties desire to
amend the terms of the Service Agreement under the following terms and
conditions. |
NOW THEREFORE, for and in
consideration of the mutual covenants and promises contained herein and other
good and valuable considerations, the parties agree as follows:
|
1. |
Amendment/Concessions. The
Service Agreement will be amended as
follows: |
|
a. |
During Initial Term,
NYCOS will reduce unlimited local and domestic long distance calling plans
from $99 per person to $69 per
person; |
|
2. |
Control. Except
as specifically modified or amended by the terms of this Addendum, the
Agreement will remain in full force and effect. In the event of
a conflict between this Addendum and the Agreement or any attachment
thereto, this Addendum will
control. |
|
3. |
Capitalized
Terms. All capitalized terms not otherwise defined in
this Addendum will have their respective meanings as set forth in the
Agreement. |
|
4. |
General
Terms. This Addendum may be executed in one or more
counterparts and/or by facsimile, each of which will be deemed an original
and all of which signed counterparts, taken together will constitute one
and the same instrument. |
In Witness Whereof, the
parties have executed this Addendum as of the date first above
written.
Client: |
|
NYC Office
Suites: |
|
|
|
By: |
/s/ Stanley M.
Glass |
|
By: |
/s/ Ryan Trimberger |
Name: |
Stanley M. Glass |
|
Name: |
Ryan Trimberger |
Title: |
Controller |
|
Title: |
Saks
Associate |
Exhibit
10.12
INTERNET DOMAIN NAME
ASSIGNMENT AGREEMENT
THIS
INTERNET DOMAIN NAME ASSIGNMENT AGREEMENT (this “Agreement”) is made this ___
day of January, 2011 (the “Agreement”) by and between GAREB SHAMUS ENTERPRISES
INC., a corporation organized and existing under the laws of the State of New
York, having its principal place of business at 1010 Avenue of the Americas,
Suite 302, New York, NY 10018 (“Seller”), and KICK THE CAN CORP., a corporation
organized and existing under the laws of the State of Nevada, having its
principal place of business at 1010 Avenue of the Americas, Suite 302, New York,
NY 10018 (“Purchaser”).
RECITALS
Seller
hereby agrees to sell, transfer and assign (“Transfer”) to Purchaser, and
Purchaser hereby agrees to purchase from Seller, the domain name
www.wizardworld.com (the “Domain Name”), subject to the terms and conditions of
this Agreement.
AGREEMENT
The parties
hereto agree as follows:
1. Assignment of Domain
Name.
(a) Assignment of Domain
Name. For good and valuable consideration, payable upon the
consummation of the transactions contemplated hereby (the “Closing”) as more
particularly described herein, Seller hereby agrees to Transfer to Purchaser at
the Closing all of Seller's right, title and interest in and to the Domain Name
and the registration thereof, together with the goodwill of the business
connected with and symbolized by the Domain Name, including, without limitation,
the trademark and the service mark “wizardworld.com” and any intellectual
property rights relating thereto, to the extent any such trademark, service
mark, or intellectual property rights exist. The Transfer shall take effect at
the Closing as set forth herein upon Purchaser making the payment as provided in
Section 2 below.
(b) Co-operation in Transferring the
Domain Name. Seller agrees to cooperate with Purchaser and to
follow Purchaser's reasonable instructions in order to effectuate the Transfer
of the Domain Name registration in a timely manner. Specifically, but without
limitation, by the Closing, Seller shall prepare and transmit the necessary
InterNic Registrant Name Change Agreement (“RNCA”) and/or to correspond with
InterNic to authorize the Transfer of the Domain Name, effective as of the
Closing Date (as hereinafter defined).
(c) Warranty. Seller
hereby warrants and represents to Purchaser that no other party has any right,
title or interest in and to the Domain Name, that it has unencumbered rights in
the Domain Name, that Seller properly registered the Domain Name with InterNic
without committing fraud or misrepresentation, that the registration of the
Domain Name is still valid and in full effect, that Seller has the authority to
Transfer the Domain Name, and that, to the best of Seller's knowledge, the
Domain Name does not infringe the rights of any third party.
2. Purchase
Price. Purchaser agrees to pay Seller at Closing, a one-time
payment of Five Thousand Dollars ($5,000) (the “Purchase Price”) in immediately
available funds via wire transfer to an account designated by
Seller.
3. Closing.
(a) Conditions to Purchaser's Obligation
To Close. Purchaser's obligation to consummate the
transactions contemplated by this Agreement at the Closing is subject to
completion of the following:
(i) Transfer of Domain
Name. Seller shall have delivered to Purchaser all documents necessary or
appropriate to cause the Domain Name and the registration thereof, together with
the goodwill of the business connected with and symbolized by such Domain Name,
including, without the limitation, the trademark and the service mark
“wizardworld.com” and any intellectual property rights relating thereto (to the
extent any such trademark, service mark, or intellectual property rights exist),
to be Transferred from Seller to Purchaser. Such documents shall contain no
omissions, limitations or qualifications, and shall be fully executed by
authorized officers of Seller, such that the only remaining step to be taken by
Purchaser to accomplish the Transfer of the Domain Name and the registration
therefor from Seller to Purchaser is the Purchaser's filing of such documents
with the appropriate third parties; and
(ii) Representations, Warranties
and Covenants. The obligations of Seller required to be performed by
Seller hereunder at or prior to the date of the Closing Date shall have been
performed and complied with, and the representations and warranties of Seller
set forth in this Agreement shall be true and correct in all respects as of the
Closing Date as though made on and as of the Closing Date.
(b) Conditions to Seller's Obligation To
Close. Seller's obligation to consummate the transactions contemplated by
this Agreement at the Closing is subject to completion of the
following:
(i) Payment of Purchase
Price. Seller shall have received the Purchase Price in accordance with
Section 2 above; and
(ii) Representations, Warranties
and Covenants. The obligations of Purchaser required to be performed by
Purchaser hereunder at or prior to the Closing Date shall have been performed
and complied with in all material respects, and the representations and
warranties of Purchaser set forth in this Agreement shall be true and correct in
all respects as of the Close Date as though made on and as of the Closing
Date.
(c) Place and Date of
Closing. After satisfactory completion of the enumerated
conditions set forth in subsection (a) and (b) of this Section 3, the Closing
shall take place at the offices of Seller on or before January ___, 2011 (the
“Closing Date”). In the event the Closing does not occur by the Closing Date,
then this Agreement shall terminate and the rights and obligations of the
parties to this Agreement shall be of no further force and effect; provided that
no party hereunder shall be relieved of any breach of this Agreement occurring
prior to such termination date. At Closing, each party hereto shall deliver to
the other such documents, certificates and consents, approvals and waivers of
third parties that shall be reasonably necessary to satisfy the obligations of
the parties hereunder.
4. Expenses. Each
party to this Agreement shall bear all of his or its expenses incurred in the
preparation and performance hereof, regardless of whether the transactions
contemplated herein are consummated.
5. Confidentiality and Public
Relations. Each party hereto will not, without the
consent of the other, disclose the provisions contained herein to any third
parties (other than as may be required by law, in connection with legal or
administrative proceedings, or to attorneys, accountants, and consultants such
party may have retained to represent them in connection
herewith). This provision shall survive the Closing.
6. Miscellaneous
(a) Choice of Law. This Agreement
shall be construed in accordance with the laws of the State of New York, without
regard to the conflicts of law provisions thereof.
(b) Venue. The parties
hereto agree that all actions or proceedings arising in connection with this
Agreement shall exclusively be in the federal (if permitted by law and a party
hereto elects to file an action in federal court) and state courts located in
the County of New York in the State of New York. This choice of venue is
intended by the parties hereto to be mandatory and not permissive in nature, and
to preclude the possibility of litigation between the parties hereto with
respect to, or arising out of, this Agreement in any jurisdiction other than
that specified in this Section. Each party hereto waives any right it may have
to assert improper venue, the doctrine of forum non-conveniens or similar
doctrine or to object to venue with respect to any proceeding brought in
accordance with this Section.
(c) Indemnity. Each party hereto
will indemnify, defend and hold harmless the other party hereto from and against
any and all losses, liabilities, damages, fees and costs incurred through claims
of third persons or arising from breach by any party hereto of such party's
representations, warranties or covenants in this Agreement.
(d) Agreement Drafted by All
Parties. This Agreement is the result of arm's length negotiations
between the parties hereto and shall be construed to have been drafted by all
parties hereto such that any ambiguities in this Agreement shall not be
construed against either party.
(e) Section Headings. The section
headings contained herein are for convenience in reference and are not intended
to define or limit the scope of any provision of this Agreement.
(f) Counterparts. This Agreement
may be executed in one or more counterparts, each of which shall be deemed an
original, and constitute one and the same instrument, and will become effective
and binding upon the parties hereto as of the execution date at such time as all
the signatories hereto have signed a counterpart of this Agreement.
(g) Notices.
(i) Any
notices required or permitted to be given hereunder by either party hereto to
the other shall be given in writing: (A) by personal delivery; (B) by electronic
facsimile with confirmation sent by United States first class registered or
certified mail, postage prepaid, return receipt requested; (C) by bonded courier
or by a nationally recognized overnight delivery company; or (D) by United
States first class registered or certified mail, postage prepaid, return receipt
requested, in each case, addressed to the parties at such party's address set
forth at the beginning of this Agreement or to such other address as such party
shall designate by written notice given hereunder.
(ii) Notices
shall be deemed received on the earliest of personal delivery, upon delivery by
electronic facsimile with confirmation from the transmitting machine that the
transmission was completed, the business day following deposit with a bonded
courier or overnight delivery company, or 72 hours following deposit in the U.S.
mail as required herein.
7. Entire
Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the subject matter of this Agreement,
and supersedes all other prior and contemporary agreements, understandings, and
commitments, whether written or oral, between the parties with respect to the
subject matter of this Agreement.
8. Successors and
Assigns. This Agreement is binding on and shall inure to
the benefit of the respective successors and/or assigns of the parties
hereto.
9. Attorney's
Fees. In the event either party files suit to enforce
any of the terms hereof, the prevailing party shall be entitled to an award of
all of its reasonable attorney's fees and court costs from the other
party.
[Signature page
follows]
IN WITNESS
WHEREOF, the parties hereto have executed and delivered this Agreement on the
dates written below:
SELLER |
|
|
|
GAREB
SHAMUS ENTERPRISES INC. |
|
|
|
By: |
/s/Gareb Shamus |
|
|
|
|
Print
Name: |
Gareb Shamus |
|
|
|
|
Title: |
Chief Executive Officer |
|
|
|
PURCHASER |
|
|
|
KICK
THE CAN CORP. |
|
|
|
By: |
/s/Gareb Shamus |
|
|
|
|
Print
Name: |
Gareb Shamus |
|
|
|
|
Title: |
Chief Executive Officer |
|
Exhibit
10.15
GCX
Holdings-Wizard
Mid-Ohio-Con
Acquisition Transaction
Overview: This letter of
intent will outline the terms of a transaction in which Kicking The Can LLC and
its affiliates (collectively “Wizard”) will acquire Mid-Ohio-Con from GCX
Holdings LLC (“GCX”).
Acquisition: Wizard shall
acquire certain assets of GCX (the “Transaction”), inclusive of the Mid-Ohio-Con
and Ohio Comic-Con names along with their marks, symbols and associated
rights. GCX shall provide Wizard with all email lists and all other
promotional materials necessary to assist Wizard in the marketing of
Mid-Ohio-Con and said lists shall become the property of Wizard. This
agreement will refer to “Mid-Ohio-Con and that any such change will have no
bearing on this agreement or either party’s obligations
thereunder. Wizard shall take no ownership interest in GCX and shall
not be bound by any liabilities, if any, associated with GCX.
Consideration: Wizard will pay
total consideration of $77,500 for the Transaction comprised of an Initial
Purchase Price of $60,000 and a 5-year consulting agreement with GCX for $3,500
per year payable in annual installments commencing in the year after the $60,000
Initial Purchase Price has been paid in full. The $60,000 purchase
price will be paid out based on an annual royalty from Wizard’s revenue from
Artist Alley/Creators’ Common tables, Exhibitor Booths, Sponsorship and related
revenue streams (collectively “Exhibitor Revenue”) from
Mid-Ohio-Con. For the avoidance of doubt, GCX will not be entitled to
any revenue royalty related to box office ticket sales or merchandise
sales. The GCX revenue royalty will be equal to 25% of the first
$40,000 of Exhibitor Revenue and 10% on amounts in excess of $40,000 for each
annual Event with a $60,000 cap on cumulative payments. Payments
shall be rendered within 30 calendar days of the Event each year via check or
wire transfer.
Timing: The Transaction will
occur as of the date herein. This agreement shall have a term (the
“Restricted Term”) equal to the greater of 5 years or the time necessary to pay
out the $60,000 purchase price under the revenue royalty structure.
Expense Reimbursement: GCX
shall be entitled to reimbursement of expenses directly related to convention
and sponsorship sales and attendance at the Event during the Restricted Period,
provided said expenses have been pre-approved by Wizard. Any travel
directly related to conventions will be at the discretion of Wizard based upon
GCX’s necessity for presence at said convention as may be deemed necessary by
Wizard.
Responsibilities: GCX agrees
to use its best efforts to promote the Event during the Restricted
Period. Furthermore, GCX agrees that for three (3) years following
this agreement, it shall provide Wizard with assistance relating to the running
of Mid-Ohio-Con including, but not limited to, contacts with convention centers,
marketing, show management, municipal assistance, assistance with programming,
artists, guests, exclusives and any and all other aspects of Mid-Ohio that
Wizard may deem necessary and integral to the effective promotion and execution
of Mid-Ohio-Con.
Titles: James Henry will have
the title of Managing Director of the Event and Bill Henry will have the title
of Creative Director of the Event.
Confidentiality: GCX agrees
that all confidential and proprietary information, including information
concerning the Transaction and all future endeavors is involved in with Wizard,
its customers, marketing and business plans, and any other information shall be
kept confidential. GCX agrees not to disclose any such information or
the terms of this agreement to others outside of Wizard without Wizard’s written
consent. All parties agree to keep the terms and conditions of this
agreement confidential.
Mutual Non-Competition: GCX
agrees not to set up in business as a direct competitor of the Event, or work
with a company that competes with Wizard during the Restricted
Term. In doing so GCX agrees not to work for any of the following
competitors including but not limited to: San Diego International Comic Con, any
Reed Exhibition pop culture show including New York Comic Con and Chicago’s
C2E2; Wondercon, Megacon, Long Beach Comic Con, Gen Con, Fan Expo, and Dragon
Con. Wizard agrees not to set up in business as a direct competitor
of Mid-Ohio-Con. For the avoidance of doubt, Wizard will be
prohibited from owning, operating, or sponsoring any anime, comic book, fantasy,
gaming, manga, pop culture, toy or comparable convention or exposition other
than Mid-Ohio-Con within the greater Columbus, OH metropolitan
area.
Announcement: This transaction
will be announced on Saturday, November 13, 2010 at Wizard World Austin Comic
Con.
Accepted and Agreed to on November 13, 2010:
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Kicking The Can
LLC |
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GCX Holdings
LLC |
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/s/
Peter Katz |
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/s/
James H. Henry |
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Peter
Katz |
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James
H. Henry |
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Vice President
Business Affairs |
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Managing
Member |
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Wizard World,
Inc.
1350
Avenue of the Americas, 2nd
Floor
New
York, NY 10019
November
16, 2011
Pamela
Howell
U.S.
Securities and Exchange Commission
Division of
Corporation Finance
100 F
Street, N.E.
Washington,
D.C. 20549
Form 8-K/A
Filed September 13, 2011
File No. 000-33383
Dear Ms. Howell:
By
letter dated October 11, 2011, the staff (the “Staff,” “you” or “your”) of the United
States Securities & Exchange Commission (the “Commission”) provided
Wizard World, Inc. (“Wizard World” or the
“Company,”
“we,” “us” or “our”) with its
comments on the Company’s Form 8-K/A filed on September 13, 2011 (the “Filing”). We
are in receipt of your letter and set forth below are the Company’s responses to
the Staff’s comments. For your convenience, the comments are listed
below, followed by the Company’s response.
Form 8-K/A, filed September
13, 2011
Entry Into a Material
Definitive Agreement
1. |
We note your response
to comment one of our letter dated July 26, 2011 that the share exchange
agreement is incorrect. To the extent Exhibit 2.1 as filed on
Edgar is not the correct version, please file the correct
version. If the inconsistency is for another reason, please
disclose. |
RESPONSE: Exhibit
2.1 as filed on Edgar is the correct version and the version of the document
signed by the applicable parties. However, after execution, it was
discovered that the calculation was incorrect, which is the reason for the
inconsistency.
Business, page
3
Background, page
4
2. |
We note the removal of
Anaheim from the list of conventions production rights you have
acquired. However, this results in 11 convention production
rights locations, not 12. Please revise the disclosure
accordingly. |
RESPONSE: We have
revised our disclosure accordingly.
3. |
We reissue comment
four of our letter dated July 26, 2011 as we are unable to locate
responsive disclosure. Please discuss the business development
of Conventions as required by Items 101(h)(1)-(3) of Regulation
S-K. |
RESPONSE: We
have revised our disclosure to indicate that as the result of the
Share Exchange, Conventions (which collectively refers to Kick The Can Corp. and
its predecessors Wizard Conventions, Inc. and Kicking The Can, L.L.C) became a
wholly owned subsidiary of the Company.
Kick The Can Corp. was
incorporated in Nevada on September 20, 2010. Kicking The Can, L.L.C.
was formed in Delaware on April 17, 2009. It also has not undergone
any bankruptcy, receivership or similar proceeding, or any any material
reclassification, merger, consolidation, or purchase of a significant amount of
assets. It sold a significant amount of its assets, namely the
production rights to certain comic cons in certain cities pursuant to an asset
purchase agreement, to Kick The Can Corp. on September 29,
2010. Wizard Conventions, Inc. was originally incorporated under the
name Entertainment Conventions, Inc. in New York on February 27,
1997. Entertainment Conventions, Inc. changed its name to Wizard
Conventions, Inc. on October 1, 2001.
4. |
We note your revised
disclosure in response to comment five of our letter dated July 26,
2011. Please
clarify whether the royalty of 10% of exhibitor revenues over $40,000 is
capped at $60,000. Furthermore, please file the GCX Holdings,
Wizard Mid-Ohio
acquisition
agreement. We are
unable to locate this
exhibit. |
RESPONSE: The
royalty is 25% of the first $40,000 of revenue from tables and booths, plus 10%
of the amount over $40,000, "with a $60,000 cap on cumulative
payments." Additionally, we have filed the Wizard Mid-Ohio
acquisition agreement as an exhibit to the latest amendment.
Conventions, page
5
5. |
We note your revised
disclosure in response to comment eight of our letter dated July 26,
2011. Please
reconcile your disclosure “if [you] were to receive revenues” from
conventions with your substantial convention revenue line item in your
statement of operations. |
RESPONSE: We have
revised our disclosure accordingly.
Growth Strategy, page
11
6. |
We note your response
to comment 13 of our letter dated July 26, 2011 that you plan to raise
additional money through private placements of convertible preferred
stock, convertible promissory notes and warrants and we reissue the
comment. You have removed this disclosure from your amended
filing. Please revise to add back this disclosure and discuss
your plan of raising additional capital through private placements in
greater detail. |
RESPONSE: We have re-inserted
and revised our disclosure and included greater detail about our plans to raise
additional money through private placements.
7. |
We note you plan to
launch Wizard World Digital Entertainment Network by the end of
2011 and
that you will work with display advertising networks and third party
representation firms. Please revise to discuss in greater
detail your relationship with these third parties. In the event
any have been identified, name the party and disclose in what stage of
negotiations you are. Attach any executed agreements as
exhibits. See Item 601(b)(10) of Regulation
S-K. |
RESPONSE: We have
no signed agreements to date with third-party representation firms.
Third-party representation firms represent several web publishers (such as
Wizard World), selling their display advertising inventory to brand advertisers
and/or advertising agencies. These third-party representation firms obtain
a revenue share from the web publisher for any revenue earned through their
sales efforts. Wizard World is currently working with interclick,
inc. (ad network) to monetize Wizard World’s display advertising
inventory.
Management’s Discussion and
Analysis of Financial Condition and Plan of
Operation, page 21
8. |
We reissue comment 14
of our letter dated July 26, 2011. The Management’s Discussion
and Analysis section is one of the most critical aspects of your
disclosure. As such, we request that you revise this section to
provide a more
detailed executive overview to
discuss the events, trends, and uncertainties that management views as
most critical to your future revenues, financial position, liquidity, plan
of operations, and results of operations, to the extent known and
foreseeable. To assist you in this regard, please refer to the
Commission Guidance Regarding Management’s Discussion and Analysis of
Financial Condition and Results of Operations, Release Nos. 33-8350
(December 19, 2003) at
http://www.sec.gov/rules/interp/33-8350.htm. This guidance is
intended to elicit more meaningful disclosure in MD&A in a number of
areas, including the overall presentation and focus of MD&A, with
general emphasis on the discussion and analysis of known trends, demands,
commitments, events and uncertainties, and specific guidance on
disclosures about liquidity, capital resources, and critical
accounting. |
RESPONSE:
We have revised
our disclosure to provide a more detailed executive overview.
Results of Operation, page
22
9. |
Your response did not
fully address our prior comment 15. Please disclose how much of
the increase in revenue was related to an increase in events as opposed to
an increase in per event revenue to the extent
practicable. |
RESPONSE: The 8K/A
has been revised to disclose how much of the increase in revenue was related to
an increase in events as opposed to an increase in per event
revenue.
Management, page
31
10. |
We reissue comment 16
of our letter dated July 26, 2011. Please revise to provide
complete
Regulation S-K Item 401(e) disclosure for each officer
and director, including beginning and end dates for each employment and/or
director position. As nonexclusive examples, disclose when Mr.
Fields become chief executive officer, secretary and director for Spirit
Exploration, Inc., when Mr. Suess became a director for TicTock Studios
and Derycz Scientific, Inc. and the business experience for Mr. Mat
between December 2009 and June
2010. |
RESPONSE: We have
revised our disclosure to include the beginning and end dates for each officer’s
and director’s employment and/or director position.
11. |
We partially reissue
comment 17 of our letter dated July 26, 2011. Mr. Field should
be included in the list of officers and directors on page 31, as he was an
officer at the time of the filing of the Form
8-K. |
RESPONSE: We have
revised our disclosure accordingly and have included Mr. Fields in the list of
officers and directors.
Involvement in Certain Legal Proceedings, page
33
12. |
We reissue comment 19
of our letter dated July 26, 2011. Since the company possesses
the information to be in the position to know, please revise the opening
sentence in this section to make a definitive statement with respect to
the company’s directors and
officers. |
RESPONSE: We have revised our
disclosure accordingly by removing the qualifying language and making a
definitive statement with respect to the Company’s officers and
directors.
Executive Compensation, page
33
13. |
We partially reissue
comment 18 of our letter dated July 26, 2011. Please revise to
provide a discussion of the potential payments upon termination or change
of control in the Executive Compensation
section. |
RESPONSE: We have revised our
disclosure to provide a discussion of the potential payments upon termination or
change of control in the Executive Compensation section.
14. |
We reissue comment 20
of our letter dated July 26, 2011. While Mr. Shamus did not
become CEO of the company until December 7, 2010, Mr. Shamus is also CEO
of Conventions, which was acquired by the company, and therefore the
compensation provided to Mr. Shamus through Conventions should be
disclosed in this section. |
RESPONSE:
Mr. Shamus was
compensated through Wizard Entertainment, Inc. the parent of Conventions. The
Company included an overhead allocation that properly allocated Convention
overhead from Wizard Entertainment to Conventions.
15. |
We partially reissue
comment 21 of our letter dated July 26, 2011. Please disclose
the material terms of your 2011 Incentive Stock and Award Plan as we are
unable to locate responsive disclosure. In this regard, we note terms,
among others, relating to price and to the number of shares covered by the
plan. |
RESPONSE: We have
revised our disclosure to include the material terms of our 2011 Incentive Stock
and Award Plan.
Certain Relationships and
Related Transactions, page 36
16. |
We reissue comment 22
of our letter dated July 26, 2011. Please revise to clarify as
of what date the outstanding balances of your debt transactions have been
disclosed. In addition, please clarify how these transactions relate to
Wizard World Inc. and its predecessor and tell us how you accounted for
these transactions. We continue to note that these transactions
do not appear to be reflected in the financial statements. It
appears that you may be using the reference to “Conventions” in this
section differently than as disclosed at the beginning of the Form
8-K. For instance, you refer to acquiring the domain name and
intellectual property rights from Conventions. However, the
disclosure on page one reflects that the company acquired
Conventions. Please provide clear disclosure throughout this
section of these related party
transactions. |
RESPONSE:
The 8-K/A has
been revised to clarify as of what date the outstanding balances of our debt
transactions have been disclosed. In addition, the 8-K/A has been revised to
clarify how these transactions relate to Wizard World, Inc. and its predecessor
and to further disclose how management accounted for these
transactions.
Please
note that the financial statements are those of Wizard Conventions, Inc., and do
not include the consolidation of Kick The Can Corp. or Kicking The Can,
LLC.
17. |
We reissue comment 23
of our letter dated July 26, 2011. Please include in this
section the related party transaction discussed in footnote five to the
financial statements. |
RESPONSE: The 8K/A
has been revised to include in this section the related party transaction
discussed in footnote five to the financial statements.
Exhibits
18. |
We note that Exhibit
10.1 is missing exhibits, schedules and/or attachments. In
addition, we note that Schedule 1 to Exhibit 10.5 is not
complete. We also note that Exhibit 10.1 to the Form 8-K filed
on August 30, 2011 is missing exhibits, schedules and/or attachments.
Please file these exhibits in their
entirety. |
RESPONSE: We have
included all of the missing exhibits and or attachments and filed them with the
latest Amendment.
Item 9.01 Financial
Statements and Exhibits, page
57
19. |
Your response did not
address our prior comment 27. Please remove the reference to
Exhibit 99.2 in subparagraph (a) of this section as you have included
financial statements in this amended Form 8-K instead of including them in
exhibits. |
RESPONSE: We have
removed reference to Exhibit 99.2 in subparagraph (a) of this
section.
Financial Statements
20. |
We note your response
to prior comment 30. Please explain further to us why you believe it is
relevant and useful to present financial statements through December 31,
2010, a period that combines both post-merger and pre-merger periods
instead of the financial statements for the required pre-merger periods,
i.e., as of and for each of the years ended December 31, 2008 and 2009
plus as of and for the nine months ended September 30,
2010. Please also identify the amount of revenues earned and
amount of net income or loss for Conventions for the period from December
8, 2010 and December 31, 2010, explain why you have not disclosed that you
combined premerger and post- merger periods and also explain how you
believe investors should evaluate this presentation. Finally, please
clarify what you mean by “unconsolidated” financial statements as that
term can be interpreted as meaning the applicable financial statements are
not presented in accordance with GAAP. We may have further comments upon
review of your response. |
RESPONSE: The Financial statements provided are
that of Wizard Conventions for the years ended December 31, 2010 and
2009. The financial statements do not include the consolidation of
Goenergy. The Company plans to submit a waiver request with the Securities
Exchange Commission to request the Wizard Convention audit for the year ended
December 31, 2008 be permanently waived from disclosure. At this
point in time, the Company concludes that the information which would be
included in such 2008 audited financial statement is stale and the time,
resources and cost far outweigh the usefulness of such
disclosure.
The Company plans to file a
consolidated December 31, 2010 audited financial statement for Wizard World in a
December 31, 2010 Form 10K. This filing will include a consolidated
financial statement which includes both Wizard Conventions and
Goenergy.
The Company does not find
any disclosure of income or loss for the period December 8, 2010 to December 31,
2010 as relevant. The operations of Conventions have been included as
the accounting acquirer for the entire calendar year. The consolidation will
include Goenergy and will be filed as part of the December 31, 2010 Form
10K. Goenergy had no revenues during such period of
time.
Notes to the Consolidated Financial Statements
21. |
Please tell us where
you provided the disclosure requested in prior comment 28 as we do not see
them in the financial statements. Accordingly, we reiterate the
comment. We would expect the Basis of Presentation note to
include these disclosures. Please
revise. |
RESPONSE: The financial
statements have been revised to include these disclosures.
Note 8 – Subsequent Events,
page F-14
22. |
We note your response
to our prior comment 29. We note your response did not address
our comment as there has been no change to Note 8 – Subsequent
Events. Please expand the disclosure in this footnote to
describe in detail the transaction that resulted in Kick The Can Corp
becoming the successor to Wizard Conventions if that transaction was
actually a subsequent event, otherwise, please include that disclosure in
a non-Subsequent Events footnote. Please also explain why the
financial statements presented are those of Wizard Conventions given that
Goenergy merged with Kick-The-Can. |
RESPONSE:
The financial
statements have been revised to further disclose the relationships of each of
the entities and to further disclose how management determined Conventions as
the predecessor.
Pro Forma Financial
Information
23. |
We note your response
to our prior comment 31. We note you state you provided pro
forma financial statements; however, we cannot locate the pro forma
financial statements in your amended filing. Please revise to
present pro forma financial information giving effect to the merger
between Wizard Conventions and Kick-The-Can Corp and the merger between
Kick-The-Can Corp and Goenergy. |
RESPONSE: The
financial statements have been revised to present pro forma financial
information giving effect to the merger between Wizard Conventions and
Kick-The-Can Corp and the merger between Kick-The-Can Corp and
Goenergy.
Other Exchange Act
Reports
24. |
You disclose in prior
comment 32 that you have changed your year-end from July 31 to December
31. We presume this change was made in connection with the
merger with Kick-The-Can. If so, please note you are not
required to file Forms 10-Q for the interim periods ended January 31,
2011, April 30, 2011 and a Form 10-K for the year ended July 31,
2011. You should file instead for Wizard World Inc, a Form 10-K
for the year ended December 31, 2010, and Forms 10-Q for the interim
periods ended March 31, 2011 and June 30, 2011. If that this is
not the case, please explain to us your
plans. |
RESPONSE:
The Company
plans to file a Form 10-K for the year ended December 31, 2010 and Forms 10-Q
for the interim periods ended March 31, 2011, June 30, 2011 and September 30,
2011.
Sincerely, |
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/s/
Gareb
Shamus |
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Title:
Chief Executive Officer |
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Wizard World,
Inc. |
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