NOTE AND WARRANT PURCHASE AGREEMENT

EXHIBIT 10.1

NOTE AND WARRANT PURCHASE AGREEMENT

This Note and Warrant Purchase Agreement (this “ Agreement ”), dated as of February 17, 2009, is made by and among Genius Products, Inc., a Delaware corporation (“ Genius Inc. ”), Genius Products, LLC, a Delaware limited liability company (“ Genius LLC ” and, collectively with Genius Inc., “ Genius ”), and each of the other parties whose name appears from time to time on the signature pages hereto (each an “ Investor ” and collectively, the “ Investors ”).

WHEREAS, on the terms and subject to the conditions set forth herein, each Investor is willing to purchase from Genius LLC, and the Genius LLC is willing to issue and sell to such Investor, a promissory note in the principal amount set forth opposite such Investor’s name on Annex A hereto;

WHEREAS, on the terms and subject to the conditions set forth herein, each Investor is willing to purchase from Genius Inc., and Genius Inc. is willing to issue and sell to such Investor, a Warrant for the number of shares of Genius Inc.’s Common Stock set forth opposite such Investor’s name on Annex A hereto; and

WHEREAS, the Board of Directors of Genius Inc. has authorized, and the stockholders of Genius Inc. have approved, a 500-for-1 reverse split of the Common Stock (the “ Reverse Split ”) so that Genius Inc. will have sufficient authorized shares of Common Stock to issue the Warrant Shares upon exercise of the Warrant.  The Reverse Split will be effected immediately upon the filing with the Commission of a definitive Information Statement on Schedule 14C, the mailing to stockholders of Genius Inc. of such Schedule 14C and the expiration of the 20-day waiting period specified by the Commission in Rule 14c-2 under the Exchange Act (the “ Reverse Split Procedure ”).

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the parties agree as follows:

ARTICLE 1.

DEFINITIONS

Article 1.1 .     In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms shall have the meanings indicated in this Definitions section:

“ Action ” means any action, suit, inquiry, notice of violation, proceeding (including any partial proceeding such as a deposition) or investigation pending or threatened in writing against or affecting Genius Inc., any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency, regulatory authority (federal, state, county, local or foreign), stock market, stock exchange or trading facility.

“ Affiliate ” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144.

 

 

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

“ Closing ” means the closing of the transactions contemplated under Section 2.1.

“ Closing Date ” means the date hereof.

“ Commission ” means the Securities and Exchange Commission.

“ Common Stock ” means the common stock of Genius Inc., par value $0.0001 per share, and any securities into which such common stock may hereafter be reclassified.

“ Company Counsel ” means Reed Smith LLP.

“ Disclosure Materials ” has the meaning set forth in Section 4.8.

“ Evaluation Date ” has the meaning set forth in Section 4.19.

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

“ GAAP ” means U.S. generally accepted accounting principles.

“ Intellectual Property Rights ” has the meaning set forth in Section 4.16.

“ Lien ” means any lien, charge, encumbrance, security interest, right of first refusal or other restrictions of any kind.

“ Material Adverse Effect ” means any of (i) a material and adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material and adverse effect on the results of operations, assets, prospects, business or condition (financial or otherwise) of Genius Inc. and the Subsidiaries, taken as a whole, or (iii) an adverse impairment to Genius Inc.’s or Genius LLC’s ability to perform on a timely basis its obligations under any Transaction Document.

“ New York Courts ” means the state and federal courts sitting in the City of New York, Borough of Manhattan.

“ Note ” has the meaning set forth in Section 2.1.

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

“ Proceeding ” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

 

“ Registration Statement ” means a registration statement meeting the requirements set forth in the Warrant Shares Registration Rights Agreement and covering the resale by the Investors of the Common Stock.

“ Required Approvals ” has the meaning set forth in Section 4.5.

“ Rule 144 ” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“ SEC Reports ” has the meaning set forth in Section 4.8.

“ Securities ”   means the Notes, the Warrants and the Common Stock issuable upon the exercise of the Warrants.

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

“ Subsidiary ” means any “significant subsidiary” as defined in Rule 1-02(w) of the Regulation S-X promulgated by the Commission under the Exchange Act, and, for the avoidance of doubt, includes Genius LLC.

“ Trading Day ” means (i) a day on which the Common Stock is traded on a Trading Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is not listed on a Trading Market (other than the OTC Bulletin Board), a day on which the Common Stock is traded in the over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter market as reported by the Pink Sheets, LLC (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

“ Trading Market ” means whichever of the New York Stock Exchange, the American Stock Exchange, the NASDAQ National Market, the NASDAQ SmallCap Market or OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.

“ Transaction ” has the meaning set forth in Section 2.1.

“ Transaction Documents ” means this Agreement, the Notes, the Warrants, the Warrant Shares Registration Rights Agreement, and any other documents or agreements executed in connection with the transactions contemplated hereunder.

“ Warrant or Warrants ” means the warrants, dated February 17, 2009, issued by Genius Inc. to the Investors exercisable for shares of Common Stock in the amounts set forth on Annex A hereto.

“ Warrant Shares ”   means the shares of Common Stock received upon exercise of a Warrant.

 

 

“ Warrant Shares Registration Rights Agreement ” means the Registration Rights Agreement, dated as of the date of this Agreement, among Genius Inc. and the Investors pursuant to which Genius Inc. will agree to register for resale the Warrant Shares with the Commission.

ARTICLE 2.

PURCHASE AND SALE

Section 2.1     Purchase and Sale . On the terms and subject to the conditions set forth in this Agreement, at the Closing on the Closing Date: (a) Genius LLC shall issue and sell to each of the Investors, and, subject to all of the terms and conditions hereof, each of the Investors severally shall purchase, a promissory note in the form of Exhibit A hereto (each, a “ Note ” and, collectively, the “ Notes ”) in the principal amount set forth opposite the respective Investor’s name on Annex A hereto, (b) each Investor agrees that each of the warrants set forth opposite its name on Annex B hereto are canceled and of no further force or effect, and (c) Genius Inc. shall issue and sell to each of the Investors, and, subject to all of the terms and conditions hereof, each of the Investors severally shall purchase, a Warrant in the form of Exhibit B hereto exercisable for the number of shares of Common Stock set forth opposite the respective Investor’s name on Annex A hereto.  The obligations of the Investors to purchase the Notes and the Warrants are several and not joint.  The transactions contemplated in clauses (a) and (b) of this Section 2.1 are referred to collectively herein as the “ Transaction ”.

Section 2.2     Closing Deliveries .

(a)     At the Closing, Genius will deliver or cause to be delivered to each Investor the following:

(i)           the Notes described in Section 2.1;

(ii)           the Warrants described in Section 2.1;

(iii)           the Registration Rights Agreement, duly executed by Genius Inc.;

(iv)           the legal opinion of Company Counsel, in agreed form, addressed to the Investors; and,

(v)           evidence from the Secretary of State of Delaware that the Certificate of Designation of Series A Interim Convertible Preferred Stock (the “Series A Preferred Stock”) of Genius Inc. has been amended such that the Series A Preferred Stock will be automatically converted into Common Stock, without notice or delay or any action required on the part of the holders of the Series A Preferred Stock, at the earliest time that Genius Inc. has a sufficient number of authorized and unreserved shares of Common Stock to permit the conversion of all (and not less than all) outstanding shares of Series A Preferred Stock into shares of Common Stock.

(b)     At the Closing, each Investor shall deliver or cause to be delivered to Genius LLC the following:

 

 

(i)           the amount set forth for such Investor on Annex A   hereto in United States dollars and in immediately available funds, by wire transfer to the following account designated by Genius LLC for such purpose:

Account Name:  Genius Products, LLC

Account No.:  202304853

Bank Name:  Citibank, NA

Bank Address:  Los Angeles, CA

ABA Routing No.:  322271724; and

 

(ii)           the Registration Rights Agreement, duly executed by such Investor.

Section 2.3     Supplemental Action . If, at any time after the Closing Date, the Investors or Genius shall determine that any further conveyances, agreements, documents, instruments, and assurances or any further action is necessary or desirable to carry out the provisions of this Article 2, the Investors or Genius, as the case may be, shall execute and deliver any and all proper conveyances, agreements, documents, instruments, and assurances and perform all necessary or proper acts to carry out the provisions of this Article 2.

Section 2.4     Subsequent Closings .  Additional investors may become Investors under this agreement by executing the signature page hereto and shall have all of the rights and obligations of an Investor hereunder; provided, however, that (i) upon the ascension of any additional investors as Investors under this agreement, Section 2.1 shall only apply to such additional investors, (ii) the representations of Genius in Sections 4.7 shall only be accurate as of the Closing Date; and (iii) no subsequent closings shall occur under this Agreement after June 30, 2009.  Genius may amend Annex A and Annex B hereto to reflect information relating to such additional investors. The maximum aggregate principal amount of Notes that may be issued under this Agreement is $9.5 million and the maximum number of Warrant Shares underlying Warrants that may be issued under this Agreement is 1,984,587,356 (subject to adjustment for stock splits, stock dividends, stock combinations and similar transactions occurring after the date hereof) (the “Total Warrant Shares”).  The ratio of Warrant Shares to principal amount of Notes issued at subsequent closings shall be no higher than the ratio of Warrant Shares to principal amount of Notes issued on the Closing Date (excluding from the calculation of the number of Warrant Shares in each instance the number of shares of Common Stock underlying warrants listed on Annex B and cancelled on the Closing Date or at subsequent closings).

ARTICLE 3.

REPRESENTATIONS AND WARRANTIES OF THE INVESTORS

The following representations and warranties are made severally and not jointly by each of the Investors, for itself and no other Investor, to Genius:

 Section 3.1     Authorization, Validity and Effect of Agreements . Such Investor has the requisite power and authority to execute and deliver this Agreement and to consummate the Transaction.  This Agreement constitutes the valid and legally binding obligation of such Investor, enforceable against such Investor in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors’ rights or by other equitable principles of general application.

 

 

Section 3.2     Litigation .  There are (i) no continuing orders, injunctions or decrees of any court, arbitrator or governmental authority to which such Investor, in its capacity as an Investor, is a party or by which any of their properties or assets are bound or likely to be affected and (ii) no actions, suits or proceedings pending against such Investor, in its capacity as an Investor, or to which any of its properties or assets are subject or, to the knowledge of such Investor, threatened against such Investor, in its capacity as an Investor, or to which any of its properties or assets are subject, at law or in equity, that in each such case could, individually or in the aggregate, have a Material Adverse Effect.  

Section 3.3     No Violation . The execution, delivery and performance by such Investor of this Agreement and the consummation of the Transaction does not and will not (i) contravene or conflict with or constitute a violation of any provision of any law, judgment, injunction, order or decree binding upon or applicable to the Investor; (ii) require the consent or other action of any person under, constitute a default under, or give rise to any right of termination, cancellation or acceleration of any right or obligation of the Investor or to a loss of any benefit to which the Investor is entitled under any provision of any material agreement or other instrument binding upon the Investor; or (iii) result in the creation or imposition of any material lien on any asset of the Investor, except in each case, such as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.

Section 3.4       Investment Representations . 

(a)     Each Investor understands that the Securities issued pursuant to Section 2 of this Agreement have not been registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of such Investor’s representations as expressed herein or otherwise made pursuant hereto. Each Investor is acquiring the Securities for his/her/its own account, not as a nominee or agent, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act; provided, however, that by making the representations herein, such Investor does not agree to hold any of the Securities for any minimum period of time and reserves the right, subject to the provisions of this Agreement and the Warrant Shares Registration Rights Agreement, at all times to sell or otherwise dispose of all or any part of such Securities pursuant to an effective registration statement under the Securities Act or under an exemption from such registration and in compliance with applicable federal and state securities laws.

(b)     Each Investor understands that the Securities issued pursuant to this Agreement will be “restricted securities” under the federal securities laws, inasmuch as the Securities are being acquired from Genius in a transaction not involving a public offering and that under such laws such Securities may not be resold without registration under the Securities Act or an exemption therefrom. Each of the Securities issued pursuant to this Agreement will be endorsed with a legend to such effect. Each Investor has been informed and understands that (i) there are substantial restrictions on the transferability of the, and (ii) no federal or state agency has made any finding or determination as to the fairness for public investment, nor any recommendation nor endorsement, of the Securities.

 

 

(c)     Each Investor has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to Genius and acknowledges that such Investor can protect his/her/its own interests.  Each Investor has such knowledge and experience in financial and business matters so that such Investor is capable of evaluating the merits and risks of his/her/its investment in Genius.

(d)     Each Investor is an “accredited investor” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act. 

(e)     Each Investor understands that all books, records, and documents of Genius relating to this investment have been and remain available for inspection by such Investor upon reasonable notice. Each Investor confirms that all documents requested have been made available, and that such Investor has been supplied with all of the information concerning this investment that has been requested. Each Investor confirms that he/she/it has obtained sufficient information, in his/her/its judgment or that of his/her/its’ independent purchaser representative, if any, to evaluate the merits and risks of this investment. Each Investor confirms that he/she/it has had the opportunity to obtain such independent legal and tax advice and financial planning services as such Investor has deemed appropriate prior to making a decision to subscribe for the Securities. In making a decision to purchase the Securities, each Investor has relied exclusively upon his/her/its’ experience and judgment, or that of his/her/its’ purchaser representative, if any, upon such independent investigations as he/she/it, or they, deemed appropriate, and upon information provided by Genius in writing or found in the books, records, or documents of Genius.

(f)     Each Investor is aware that an investment in the Securities is speculative and subject to substantial risks. Each Investor is capable of bearing the high degree of economic risk and burdens of this venture, including, but not limited to, the possibility of a complete loss, the lack of a sustained and orderly public market, and limited transferability of the Securities, which may make the liquidation of this investment impossible for the indefinite future.

(g)     The offer to sell the Securities was directly communicated to each Investor by such a manner that such Investor, or his/her/its purchaser representative, if any, was able to ask questions of and receive answers from Genius or a person acting on its behalf concerning the terms and conditions of this Transaction. At no time, except in connection and concurrently with such communicated offer, was such Investor presented with or solicited by or through any leaflet, public promotional meeting, television advertisement, or any other form of general advertising.

(h)     None of the following information has ever been represented, guaranteed, or warranted to the undersigned, expressly or by implication by any broker, Genius, or agent or employee of the foregoing, or by any other person:

(i)           The approximate or exact length of time prior to maturity that the undersigned will be required to remain as a holder of the Securities;

 

 

(ii)          The amount of consideration, profit, or loss to be realized, if any, as a result of an investment in Genius; or

(iii)         That the past performance or experience of Genius, its officers, directors, associates, agents, affiliates, or employees or any other person will in any way indicate or predict economic results in connection with the plan of operations of Genius or the return on the investment.

(i)     No Investor has distributed any information relating to this investment to anyone other than his/her/its’ purchaser representative, if any, and such Investor’s legal and investment advisers and no other person except such personal representative, advisers and such Investor has used this information.

(j)     Each Investor hereby agrees to indemnify Genius and its affiliates and to hold them harmless from and against any and all liability, damage, cost, or expense, including their respective reasonable attorneys’ fees and costs for a period of four (4) years from the Closing Date, incurred on account of or arising out of:

(i)           Any material inaccuracy in the declarations, representations, and warranties hereinabove set forth; and

(ii)           The disposition of the Securities or any part thereof by such Investor, contrary to the foregoing declarations, representations, and warranties.

(k)     Each Investor acknowledges that no market exists or is expected to develop for the Notes or the Warrants.

Section 3.5     Short Sales and Confidentiality Prior To the Date Hereof .  Other than the Transaction, such Investor has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Investor, executed any disposition, including short sales (but not including the location and/or reservation of borrowable shares of Common Stock), in the Securities during the period commencing from the time that such Investor first received a term sheet from Genius or any other Person setting forth the material terms of the Transaction until the date hereof (“ Discussion Time ”).  Notwithstanding the foregoing, in the case of an Investor that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Investor’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Investor’s assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.  Other than to other Persons party to this Agreement and to its legal and investment advisers, such Investor has maintained the confidentiality of all disclosures made to it in connection with the Transaction (including the existence and terms of the Transaction).

 

 

ARTICLE 4.

REPRESENTATIONS AND WARRANTIES OF GENIUS

Each of Genius Inc. and Genius LLC hereby makes the following representations and warranties to each Investor:

Section 4.1     Subsidiaries . Genius Inc. has no direct or indirect Subsidiaries other than Genius LLC and as otherwise specifically disclosed in the SEC Reports.  Except as otherwise disclosed in the SEC Reports, Genius Inc. owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any and all Liens, and all the issued and outstanding shares of capital stock or other equity interests of each Subsidiary are validly issued, fully paid and non-assessable.

Section 4.2     Organization and Qualification . Genius Inc. and each Subsidiary are duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted.  Except as disclosed in Schedule 4.2 , neither Genius Inc. nor any Subsidiary is in violation of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents.  Genius Inc. and each Subsidiary are duly qualified to conduct its respective businesses and are in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.

Section 4.3     Authorization; Enforcement . Each of Genius Inc. and Genius LLC has the requisite corporate or limited liability company power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations thereunder.  Except for the Required Approvals, the execution and delivery of each of the Transaction Documents by Genius and the consummation by each of them of the transactions contemplated thereby have been duly authorized by all necessary action on the part of each of Genius Inc. and Genius LLC and no further action is required by them in connection therewith.  Each Transaction Document has been (or upon delivery will have been) duly executed by each of Genius Inc. and Genius LLC and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of Genius enforceable against them in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.

Section 4.4     No Conflicts . The execution, delivery and performance of the Transaction Documents by each of Genius Inc. and Genius LLC and the consummation by them of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of Genius Inc.’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a debt of Genius Inc. or Genius LLC or otherwise) or other understanding to which Genius Inc. or any Subsidiary is a party or by which any property or asset of Genius Inc. or any Subsidiary is bound or affected, or (iii) subject to the filing contemplated by Section 4.5(iii), result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which Genius Inc. or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of Genius Inc. or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.

 

 

Section 4.5     Filings, Consents and Approvals .  Genius Inc. and Genius LLC are not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by either of them of the Transaction Documents, other than (i) the filing with the Commission of one or more Registration Statements in accordance with the requirements of the Warrant Shares Registration Rights Agreement, (ii) filings required by state securities laws, (iii) the filing of a Notice of Sale of Securities on Form D with the Commission under Regulation D of the Securities Act, (iv) applications to the Trading Market for the listing of the Common Stock for trading thereon and (v) filings required by Section 5.4 hereof and, (vi) those that have been made or obtained prior to the date of this Agreement (collectively, the “ Required Approvals ”).

Section 4.6     Issuance of the Securities .  The Securities have been duly authorized (other than the Warrant Shares which will be duly authorized upon consummation of the Reverse Split) and, when issued and paid for in accordance with the Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens other than restrictions on transfer provided for in the Transaction Documents.  Upon consummation of the Reverse Split, Genius Inc. will have reserved from its duly authorized capital stock the shares of Common Stock issuable upon exercise of the Warrant.

Section 4.7     Capitalization .   Schedule 4.7 discloses the number of shares and type of all authorized, issued and outstanding capital stock of Genius Inc. and all shares of Common Stock reserved for issuance under Genius Inc.’s option and incentive plans and arrangements and provides the vesting conditions for the grant of options to management to purchase up to 1,014,136,410 shares of Common Stock or the grant of the same number of shares of restricted stock (in either case prior to any Reverse Split), subject to customary adjustments.   Schedule 4.7 discloses the post-Closing capitalization of Genius Inc., giving effect to the options to management to purchase up to 1,014,136,410 shares of Common Stock or the grant of the same number of shares of restricted stock.  Except as disclosed in Schedule 4.7 , no securities of Genius Inc. are entitled to preemptive or similar rights, and no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents.  Except as disclosed in Schedule 4.7 and in connection with Genius Inc.’s agreements under the Transaction, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which Genius Inc. or any Subsidiary is or may become bound to issue additional shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common Stock.  Except as contemplated under the Transaction, the issue and sale of the Securities will not, immediately or with the passage of time, obligate Genius Inc. to issue shares of Common Stock or other securities to any Person (other than the Investors) and will not result in a right of any holder of Common Stock to adjust the exercise, conversion, exchange or reset price under such securities.

 

 

Section 4.8     SEC Reports; Financial Statements .  Except as disclosed in Schedule 4.8 , Genius Inc. has filed all reports required to be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the twelve months preceding the date hereof (or such shorter period as Genius Inc. was required by law to file such reports) (the foregoing materials being collectively referred to herein as the “ SEC Reports ” and, together with the Transaction Documents and the Schedules to this Agreement, the “ Disclosure Materials ”) on a timely basis or has timely filed a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension.  Except as disclosed in Schedule 4.8 , as of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  Except as disclosed in Schedule 4.8 , the financial statements of Genius Inc. included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing.  Except as disclosed in Schedule 4.8 , such financial statements have been prepared in accordance with GAAP applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto, and fairly present in all material respects the financial position of Genius Inc. and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

Section 4.9     Press Releases . The press releases disseminated by Genius Inc. during the twelve months preceding the date of this Agreement taken do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading.

Section 4.10    Material Changes . Except as disclosed on Schedule 4.10 , since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in the SEC Reports, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) except in connection with the Transaction, Genius has not incurred any liabilities (contingent or otherwise) other than (A) trade payables, accrued expenses and other liabilities incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in Genius Inc.’s financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) Genius Inc. has not altered its method of accounting (except as may be required by GAAP) or the identity of its auditors, (iv) Genius Inc. has not declared or made any dividend or distribution of cash or other property to its stockholders or, except in connection with the Transaction, purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (v) Genius Inc. has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing stock option or incentive plans or arrangements specifically approved by the Board of Directors of Genius Inc.  Genius Inc. does not have pending before the Commission any request for confidential treatment of information.  Except for the transactions contemplated by this Agreement or as disclosed on Schedule 4.10 , no event, liability or development has occurred or exists with respect to Genius or its Subsidiaries or their respective business, properties, operations or financial condition that would be required to be disclosed by Genius under applicable securities laws at the time this representation is made that has not been publicly disclosed at least one Trading Day prior to the date that this representation is made.

 

 

Section 4.11    Litigation . There is no Action which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) except as specifically disclosed in the SEC Reports, could, if there were an unfavorable decision, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.  Neither Genius Inc. nor any Subsidiary, nor any director or officer thereof (in his or her capacity as such), is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty, except as specifically disclosed in the SEC Reports.  There has not been, and to the knowledge of Genius Inc., there is not pending any investigation by the Commission involving Genius Inc. or any current or former director or officer of Genius Inc. (in his or her capacity as such).  The Commission has not issued any stop order or other order suspending the ef