DRIFTWOOD VENTURES,
INC.
NOTE PURCHASE
AGREEMENT
September 26, 2008
DRIFTWOOD VENTURES,
INC.
NOTE PURCHASE
AGREEMENT
This Note Purchase
Agreement (the
“Agreement” ) is made as
of September 26, 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 up
to $5,000,000;
WHEREAS , as partial inducement to make such loans to
the Company, the Company desires to issue to the Purchasers an
aggregate of up to 4,545,455 warrants to purchase common stock of
the Company;
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 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 October 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
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).
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Representations, Warranties and Covenants of the
Company
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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 only subsidiary of the Company is Zoo
Games, Inc. (“ Zoo Games ”).
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 (2) any judgment,
decree, order or writ binding upon the Company. Except with respect
to the Note Purchase Agreement, dated as of July 7, 2008, as
amended on July 15, 2008, July 31, 2008 and August 12, 2008, and
the Security Agreement, dated as of July 7, 2008, as amended on
August 12, 2008, each executed in favor of the purchasers set forth
on the schedules of purchasers thereto in connection with the sale
of senior secured convertible notes in the aggregate principal
amount of $9,000,000 (the “ First Financing
”), for which the Company has obtained all required consents
and waivers, 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.
Except with respect to the First
Financing, for which the Company has obtained all required consents
and waivers, 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 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 from the First Financing and as contemplated by the
Security Agreement, including, but not limited to, Section 4(f)
thereof.
3.14. Capitalization.
The authorized capital stock of the
Company consists of (i) 75,000,000 shares of common stock, $0.001
par value per share (“Common Stock”); and (ii)
5,000,000 shares of preferred stock, $0.001 par value per share
(“Preferred Stock”).
(a)
As of the close of business on
September 24, 2008: (i) 37,425,756 shares of Common
Stock were issued and outstanding; (ii) no shares of Preferred
Stock were issued or outstanding; (iii) no shares of Common Stock
were held in the treasury of the Company; (iv) 25,000 shares
of Common Stock were duly reserved for future issuance pursuant to
stock grants pursuant to the Company’s 2007 Employee,
Director and Consultant Stock Plan; (v) 2,352,677 shares of Common
Stock were duly reserved for future issuance upon the exercise of
options granted pursuant to the Zoo Games 2008 Long-Term Incentive
Plan; and (vi) 6,047,613 shares of Common Stock were duly
reserved for future issuance upon the exercise of common stock
purchase warrants. Except as described above or in the forms,
reports and documents required to be filed by the Company with the
Securities Exchange Commission, as of such date, there were no
shares of voting or non-voting capital stock, equity interests or
other securities of the Company authorized, issued, reserved for
issuance or otherwise outstanding. Except as described above or in
, there are no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of
any kind (contingent or otherwise) to which the Company is a party
or
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