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DRIFTWOOD VENTURES, INC.
NOTE PURCHASE AGREEMENT
JULY
7, 2008
DRIFTWOOD VENTURES, INC.
NOTE PURCHASE AGREEMENT
This Note Purchase Agreement
(the
“Agreement”
)
is
made as of July 7, 2008 (the
“Effective Date”
)
by
and among DRIFTWOOD VENTURES
, Inc.
,
a
Delaware corporation (the
“Company” ),
and
the persons and entities named on the Schedule of Purchasers
attached hereto (individually,
a
“Purchaser” and
collectively, the
“Purchasers” ).
RECITAL
WHEREAS ,
the Company has requested that the Purchasers make loans to the
Company in the aggregate principal amount of at least
$7,000,000.00;
WHEREAS ,
the Purchasers are willing to make such loans to the Company
pursuant to the terms and conditions set forth in this
Agreement;
WHEREAS ,
as a condition to making such loans to the Company, the Company has
agreed to grant a security interest in all of its assets to secure
the Company’s obligations under the Notes (as defined below);
and
WHEREAS ,
certain capitalized terms have the meaning ascribed to such terms
in Section 10 below.
AGREEMENT
NOW THEREFORE ,
in
consideration of the foregoing, and the representations,
warranties, covenants and conditions set forth below, the Company
and each Purchaser, severally and not jointly, intending to be
legally bound, hereby agree as follows:
1.
Amount and Terms of the Loans; Warrants.
Subject
to the terms of this Agreement, each Purchaser, severally and not
jointly, agrees to lend to the Company up to that amount
(the
“Total Loan Amount”
)
set forth opposite each such Purchaser’s name under the
heading “Total Loan Amount” on the
Schedule of Purchasers attached
hereto against the issuance and delivery by the Company of a senior
secured convertible promissory note or notes in substantially the
form attached hereto as
Exhibit A (each,
a
“Note” and
collectively, the
“Notes” ).
The
Purchasers will also receive common stock purchase warrants
in
the form attached hereto as
Exhibit B (each,
a “
Warrant ”
and
collectively, the “
Warrants ”),
which Warrants when exercised will result in the issuance of common
stock of the Company as set forth therein (the “
Warrant Shares ”).
Subject
to the terms and conditions of this Agreement, the Company agrees
to issue and sell to each Purchaser at Closing (as defined below),
as partial inducement to purchase the Notes purchased by such
Purchaser at Closing and against payment by such Purchaser of the
amount set forth on the
Schedule of Purchasers ,
a Warrant entitling such Lender to purchase capital stock as set
forth in such Warrant.
(a)
Initial Closing. The
initial closing of the sale and purchase of the Notes (the
“Initial Closing” )
shall
be held on the Effective Date or at such other date and time
(the
“Initial Closing Date”
)
as
the Company and holders representing at least a majority of the
aggregate principal amount of Notes outstanding or, if no amounts
are outstanding, Purchasers representing at least a majority of the
aggregate principal amount of Notes outstanding (the “
Majority Purchasers ”)
shall agree.
At
the Initial Closing, (i) each Purchaser shall deliver to the
Company by check or wire transfer of immediately available funds
such Purchaser’s Drawdown Amount (such Purchaser’s
“
Drawdown Amount ”)
and (ii) the Company shall issue and deliver to each Purchaser a
Note in favor of such Purchaser in the corresponding principal
amount equal to such Purchaser’s Drawdown Amount, and the
Company agrees to issue to each Purchaser a Warrant in accordance
with Section 1.
(b)
Subsequent Closing(s). At
any time and from time to time on or before July 15, 2008, the
Company may issue additional Notes to one or more additional
persons or entities (an “
Additional Purchaser ”)
at one or more subsequent closings (each a
“Subsequent Closing”
and
the date of closing of any Subsequent Closing, a
“Subsequent Closing
Date” ).
At each Subsequent Closing, (i) each Additional Purchaser shall
deliver to the Company by check or wire transfer of immediately
available funds such Purchaser’s Drawdown Amount and (ii) the
Company shall issue and deliver to each Purchaser a Note in favor
of such Purchaser in the corresponding principal amount equal to
such Purchaser’s Drawdown Amount, and the Company agrees to
issue to each Purchaser a Warrant in accordance with Section 1.
Each Subsequent Closing shall be made on the terms and conditions
set forth in this Agreement. At each Subsequent Closing, the
representations and warranties of the Company in Section 3 hereof
(and the Schedule of Exceptions delivered to the Purchasers in the
Initial Closing (the
“Schedule of Exceptions”
))
shall be deemed to speak as of the Initial Closing Date
and
the Company shall have no obligation to update any such
disclosure and
the representations
and warranties of the Additional Purchasers in Section 4 hereof
shall speak as of such Subsequent Closing.
(c) Additional Purchaser(s). This
Agreement, including without limitation, the
Schedule of Purchasers ,
may be amended by the Company to include any Additional Purchasers
upon the execution by such Additional Purchaser of a counterpart
signature page hereto. Any Notes or Warrants issued pursuant to
Section 2(c) shall be deemed to be “Notes” or
“Warrants” for all purposes under this Agreement and
any Additional Purchasers thereof shall be deemed to be
“Purchasers” for all purposes under this Agreement and
the Security Agreement (as hereinafter defined).
3.
Representations, Warranties and Covenants of the
Company
Except
as set forth on the Schedule of Exceptions, the Company hereby
represents and warrants to each Purchaser as
follows:
3.1
Organization, Good Standing and Qualification.
The
Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. The Company
has the requisite corporate power to own and operate its properties
and assets and to carry on its business as now conducted and as
proposed to be conducted. The Company is duly qualified and is
authorized to do business and is in good standing as a foreign
corporation in all jurisdictions in which the nature of its
activities and of its properties (both owned and leased) makes such
qualification necessary, except for those jurisdictions in which
failure to do so would not have a Material Adverse Effect (as
defined below).
3.2
Subsidiaries. The
Company (i) has no subsidiaries, (ii) does not own, directly or
indirectly, any securities issued by any other corporation,
business organization or governmental authority and (iii) is not a
partner or participant in any joint venture or partnership of any
kind.
3.3
Corporate Power. The
Company has all requisite corporate power and authority to execute
and deliver this Agreement and the other Loan Documents (as defined
below) and to carry out and perform its obligations under the terms
of this Agreement and the other Loan Documents.
3.4
Authorization. All
corporate action on the part of the Company, its directors,
officers and stockholders necessary for the authorization,
execution, delivery and performance of this Agreement and each
other Loan Document by the Company and the performance of the
Company’s obligations hereunder and thereunder, including the
issuance and delivery of the Notes and the Warrant Shares, and the
reservation of the equity securities issuable upon conversion of
the Notes (the
“Note Securities” )
and upon conversion of the Note Securities or exercise of the
Warrants has been taken or will be taken prior to the issuance of
such equity securities. This Agreement and each of the other Loan
Documents, when executed and delivered by the Company, shall
constitute valid and binding obligations of the Company enforceable
in accordance with their terms, subject to laws of general
application relating to bankruptcy, insolvency, the relief of
debtors and, with respect to rights to indemnity, subject to
federal and state securities laws.
3.5
Governmental Consents. All
consents, approvals, orders, or authorizations of, or
registrations, qualifications, designations, declarations, or
filings with, any governmental authority, required on the part of
the Company in connection with the valid execution and delivery of
this Agreement, the offer, sale or issuance of the Notes, the Note
Securities, the Warrants, the Warrant Shares and the securities
issuable upon conversion of the Note Securities, or the
consummation of any other transaction contemplated hereby or by any
other Loan Document have been obtained and will be effective at the
Closing, other
than filings required to be made after the Closing under applicable
federal and state securities laws and as required to perfect the
security interest granted under the Security Agreement
.
3.6
Compliance with Laws. The
Company has complied with all laws, statutes, rules, regulations,
orders or restrictions of any domestic or foreign government or any
instrumentality or agency thereof applicable to the Company or its
operations, properties, assets, products or services, or to the
conduct of its business, and is not in violation or default (or
with due notice or lapse of time or both would be in violation or
default) of any of the foregoing, the non-compliance or violation
of which would, either individually or in the aggregate, have a
material adverse effect on the business, assets, liabilities,
financial condition, operations or prospects of the Company
(a
“Material Adverse Effect”
).
The Company has not received any notice of any violation of any
laws, governmental rules, regulations or orders, judgment, decrees,
injunctions or awards.
3.7
Compliance with Other Instruments. The
Company is not in violation or default of any term of (1) its
certificate of incorporation or by-laws or (ii) any judgment,
decree, order or writ binding upon the Company. Neither the
execution, delivery and performance of this Agreement or any of
other Loan Document, the consummation of the transactions
contemplated hereby or thereby, or the issuance and delivery of the
Notes, the Warrants, the Note Securities, the Warrant Shares or any
other securities of the Company upon conversion of the Note
Securities will conflict with or result in a breach of or default
under (or with due notice or lapse of time or both would result in
a breach or default under) the Company’s certificate of
incorporation or by-laws, or any statute, law, rule, regulation,
judgment, decree, writ, injunction, order or award of any
arbitrator, court or governmental authority, material agreement or
instrument which is applicable to the Company or by which the
Company or any of its assets is bound, or result in the creation or
imposition of any Lien upon any of the assets of the Company (other
than Liens pursuant to the Security Agreement), or the suspension,
revocation, impairment, forfeiture, or nonrenewal of any material
permit, license, authorization or approval applicable to the
Company, its business or operations or any of its assets or
properties. Without limiting the foregoing, the Company has
obtained all waivers necessary with respect to any preemptive
rights, rights of first refusal or similar rights, including any
notice or offering periods provided for as part of any such rights,
in order for the Company to consummate the transactions
contemplated hereunder without any third party obtaining any rights
to cause the Company to offer or issue any securities of the
Company as a result of the consummation of the transactions
contemplated hereunder.
3.8
Offering. The
Company and its representatives have complied and will comply with
all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Notes, Warrants, Note
Securities, Warrant Shares and securities issuable upon conversion
of the Note Securities. Assuming the accuracy of the
representations and warranties of the Purchasers contained in
Section 4 hereof, the offer, issue, and sale of the Notes,
Warrants, Note Securities, Warrant Shares and securities issuable
upon conversion of the Note Securities are and will be exempt from
the registration and prospectus delivery requirements of the
Securities Act of 1933, as amended (the
“Act” ),
and
have been registered or qualified (or are exempt from registration
and qualification) under the registration, permit, or qualification
requirements of all applicable state securities laws.
3.9
Litigation. There
is no action, suit, claim, litigation, proceeding, arbitration,
investigation or governmental inquiry, at law or in equity, or
before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, or arbitration involving private parties
(collectively, a
“Proceeding” )
pending
or, to the knowledge of the Company, threatened against the Company
or affecting any of its properties or assets, or, to the knowledge
of the Company, against any officer, employee, consultant or holder
of any of the securities of the Company relating to the Company or
its business, which might result in a Material Adverse Effect.
There are no Proceedings pending or, or to the Company’s
knowledge, threatened (or any basis therefor known to the Company)
which might call into question the validity of this Agreement or
any of the other Loan Documents or any action taken or to be taken
pursuant hereto or thereto.
3.10
Bankruptcy. The
Company has not admitted in writing its inability to pay its debts
generally as they become due, filed or consented to the filing
against it of a petition in bankruptcy or a petition to take
advantage of any insolvency act, made an assignment for the benefit
of creditors, consented to the appointment of a receiver for itself
or for the whole or any substantial part of its property, or had a
petition in bankruptcy filed against it, been adjudicated a
bankrupt, or filed a petition or answer seeking reorganization or
arrangement under the federal bankruptcy laws or any other law or
statute of the United States of America or any other
jurisdiction.
3.11
Agreements. Each
material written or oral contract, instrument, agreement,
commitment, obligation, plan and arrangement to which the Company
is a party or by which it or any of its assets is bound (the
“Material Agreements”
)
is in full force and effect, and neither the Company nor, to the
knowledge of the Company, any other party thereto, is in breach or
violation of, or default under, nor is the Company aware of any
reasonable basis for a claim of such breach or violation of, or
default under, the terms of any Material Agreement, and no event
has occurred which constitutes or, with the lapse of time or the
giving of notice or both, would constitute a breach or violation
of, or default under, any Material Agreement by the Company, or to
the knowledge of the Company, any other party thereto, in any case,
which breach, violation or default could, either individually or in
the aggregate, have a Material Adverse Effect. There is no
anticipated or threatened default or material failure of
performance or observance of any obligations or conditions
contained in the Company Agreements by the Company, or, to the
knowledge of the Company, by any other party thereto which could,
either individually or in the aggregate, have a Material Adverse
Effect. Except as contemplated in connection with the Initial
Closing, the Company has not provided to, or received from, any
other party to any Company Agreement, any notice of default or
notice of its intention to terminate any of the Company Agreements,
and, to the knowledge of the Company, does any party to any Company
Agreement intend to terminate such Company Agreement prior to the
scheduled expiration of term of such Company
Agreement.
3.12
No Undisclosed Liabilities. Except
as set forth in
Schedule 3.12 of
the Schedule of Exceptions or in the Company’s filings with
the Securities and Exchange Commission, the Company does not have
any liabilities or obligations of any nature whatsoever, contingent
or otherwise, other than liabilities incurred in the ordinary
course of the Company’s business, which liabilities are not,
individually or in the aggregate, material.
3.13
No Liens. There
are no Liens on any of the Company’s assets, properties,
interests or rights, other than the Liens contemplated by the
Security Agreement.
4.
Representations and Warranties of the
Purchasers
Each
Purchaser severally, but not jointly, represents and warrants
to the Company solely to itself as follows:
4.1
Purchase for Own Account. Each
Purchaser is acquiring the Notes, Warrants, Warrant Shares and the
Note Securities issuable upon conversion of the Notes
(collectively, the
“Securities”
)
solely
for its own account and beneficial interest for investment and not
for sale or with a view to distribution of the Securities or any
part thereof, and has no present intention of selling (in
connection with a distribution or otherwise), granting any
participation in, or otherwise distributing the same.
4.2
Experience and Sophistication. Each
Purchaser hereby represents that it has such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risk of t
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