NOTE PURCHASE AGREEMENT

 

 

This Note Purchase Agreement, dated as of September 20, 2010 (this “Agreement”), is entered into by and between Hollywood Creations, Inc., a Delaware corporation (the “Company”), and Quepasa Corporation, a Nevada corporation (the “Investor”).

 

 

A.           On the terms and subject to the conditions set forth herein, the Investor is willing to purchase from the Company, and the Company is willing to sell to such Investor, convertible promissory notes (each a “Note” and, collectively, the “Notes”) in the principal amounts set forth in Section 2(a) below.

 

B.           Capitalized terms not otherwise defined herein shall have the meaning set forth in the form of Note attached hereto as Exhibit A.

 

 

NOW THEREFORE, in consideration of the foregoing, and the representations, warranties, and conditions set forth below, the parties hereto, intending to be legally bound, hereby agree as follows:

 

1.           Authorization and Sale of the Notes.

 

(a)      Authorization.  As of the First Tranche Closing (as defined below) the Company will have authorized the issuance and sale, pursuant to the terms of this Agreement, of the Notes.

 

(b)      Issuance of Notes.  Subject to all of the terms and conditions hereof, the Company agrees to issue and sell to the Investor, and the Investor agrees to purchase, the Notes, each in the form of Exhibit A hereto, in the principal amounts set forth in Section 2(a) below.

 

2.           Closing Mechanics.

 

(a)      Tranches.  The sale and purchase of the Notes shall take place in three tranches.  The first tranche (the “First Tranche”) shall consist of the sale of a Note (the “First Tranche Note”) in the aggregate principal amount of Two Hundred Sixteen Thousand Six Hundred Sixty Six Dollars and Sixty Seven Cents ($216,666.67).  Subject to Section 2(c) below, the second tranche (the “Second Tranche”) shall consist of the sale of a Note (the “Second Tranche Note”) in the aggregate principal amount of Two Hundred Sixteen Thousand Six Hundred Sixty Six Dollars and Sixty Seven Cents ($216,666.67).  Subject to Section 2(d) below, the third tranche (the “Third Tranche”) shall consist of the sale of a Note (the “Third Tranche Note”) in the aggregate principal amount of Two Hundred Sixteen Thousand Six Hundred Sixty Six Dollars and Sixty Seven Cents ($216,666.67).

 

(b)      First Tranche Closing.  The closing of the First Tranche (the “First Tranche Closing”) shall be held at such place and time as the Company and the Investor may determine (the “First Tranche Closing Date”).  At the First Tranche Closing, the Company will deliver to the Investor the First Tranche Note, against receipt by the Company of the corresponding purchase price of Two Hundred Sixteen Thousand Six Hundred Sixty Six Dollars and Sixty Seven Cents ($216,666.67).  The First Tranche Note will be promptly registered in the Investor’s name in the Company’s records.

 

(c)      Second Tranche Closing.  Following the completion of the Second Tranche Milestone set forth in Schedule I, within ten (10) days of a request in writing (a “Funding Notice”) from the Chief Executive Officer of the Company or another authorized representative of the Company to the Investor, the Company shall issue and sell and the Investor shall purchase the Second Tranche Note (the “Second Tranche Closing”); provided, however, that the Investor shall not be obligated to purchase the Second Tranche Note if an Event of Default has occurred or would result from the Second Tranche Closing.  At the Second Tranche Closing, the Company will deliver to the Investor the Second Tranche Note, against receipt by the Company of the corresponding purchase price of Two Hundred Sixteen Thousand Six Hundred Sixty Six Dollars and Sixty Seven Cents ($216,666.67).  The Second Tranche Note will be promptly registered in the Investor’s name in the Company’s records.  The Second Tranche Closing shall take place at such date, time and place as shall be approved by the Company in its sole discretion provided that the Investor may deliver funds by wire transfer and any required documents by overnight courier (the “Second Tranche Closing Date”). Notwithstanding the foregoing, following the First Tr anche Closing, the Company and the Investor shall jointly develop additional specifications for the first two games, as well as any future games developed under this Agreement so that the games include social sharing tools.

 

(d)      Third Tranche Closing.  Following the completion of the Third Tranche Milestone set forth in Schedule I, within ten (10) days of a Funding Notice from the Chief Executive Officer of the Company or another authorized representative of the Company to the Investor, the Company shall issue and sell and the Investor shall purchase the Third Tranche Note (the “Third Tranche Closing”); provided, however, that the Investor shall not be obligated to p urchase the Third Tranche Note if an Event of Default has occurred or would result from the Third Tranche Closing.  At the Third Tranche Closing, the Company will deliver to the Investor the Third Tranche Note, against receipt by the Company of the corresponding purchase price of Two Hundred Sixteen Thousand Six Hundred Sixty Six Dollars and Sixty Seven Cents ($216,666.67).  The Third Tranche Note will be promptly registered in the Investor’s name in the Company’s records.  The Third Tranche Closing shall take place at such date, time and place as shall be approved by the Company in its sole discretion (the “Third Tranche Closing Date”).

 

(e)      Put. In the event that at least 60 but not more than 120 days have elapsed from the completion of the Second Tranche Milestone and/or the Third Tranche Milestone, as the case may be, and in either or both events the Company has not delivered a funding Notice to the Investor, the Investor  may deliver a notice of intent to lend $216,666.67  to the Company in which case all of the provisions of Section 2(c) or 2(d) (except for the reference to a Funding Notice) as well as other provisions of this Agreement shall apply.

 

(f)      Use of Proceeds.  The proceeds of the sale and issuance of the Notes shall be used for general corporate purposes, including development of skill-based wagering titles as contemplated by Schedule I.

 

(g)       Payments.  The Company will make all cash payments due under the Notes in immediately available funds by 1:00 p.m. Pacific time on the date such payment is due at the address for such purpose set forth on the signature pages hereto, or at such other address, or in such other manner, as an Investor or other registered holder of a Note may from time to time direct in writing.

 

(h)       Reservation of Stock.  Following the date hereof and prior to conversion of the Notes, the Company will use its best efforts to promptly take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares to such number of shares as shall be sufficient for effectuating the actions contemplated hereby.

 

(i)       Right of the Investor Not to Fund.  Notwithstanding anything in this Agreement to the contrary, the Investor may elect to not consummate the Second Tranche Closing  and/or the Third Tranche Funding and make further loans, as the case may be by giving written notice to the Company within seven (7) days after the Funding Notice referred to in Section 2(c) or (d), as applicable.  In such event, the Investor shall have no liability to the Company.  If the Investor declines to consummate the Second Tranche Closing and the Company and the Investor have agreed upon the additional specificatio ns outlined in Section 2(b), the First Tranche Note shall be deemed paid in full. If, however, the Company and the Investor have not, acting reasonably and in good faith, agreed upon the additional specifications outlined in Section 2(b), the Note shall remain payable according to its terms.  If the Investor declines to consummate the Third Tranche Closing, the First Tranche Note and the Second Tranche Note shall be payable according to their terms.

 

(j)      Definitions.  Each of the First Tranche Closing, the Second Tranche Closing and the Third Tranche Closing are referred to herein as a “Closing”.  Each of the First Tranche Closing Date, the Second Tranche Closing Date and the Third Tranche Closing Date are referred to herein as a “Closing Date”.

 

3.           Representations and Warranties of the Company.  The Company represents and warrants to the Investor that:

 

(a)           Due Incorporation, Qualification, etc.  The Company (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (ii) has the power and authority to own, lease and operate its properties and carry on its business as now conducted; and (iii) is duly qualified, licensed to do business and in good standing as a foreign corporation in each jurisdiction where the failure to be so qualified or licensed, individually or in the aggregate, could reasonably be expected to have a material adverse effect on the Company or its business or the Company’s ability to perform in any material respect on a timely basis its material obligations un der any Transaction Document (a “Material Adverse Effect”).

 

(b)           Authority.  The execution, delivery and performance by the Company of each Transaction Document to be executed by the Company and the consummation of the transactions contemplated thereby (i) are within the power of the Company and (ii), subject to Section 2(h), have been duly authorized by all necessary actions on the part of the Company and its officers, directors and stockholders.

 

(c)           Enforceability.  Each Transaction Document executed, or to be executed, by the Company has been, or will be, duly executed and delivered by the Company and constitutes, or will constitute, a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and general principles of equity.

 

(d)           Non-Contravention.  The execution and delivery by the Company of the Transaction Documents executed by the Company and the performance and consummation of the transactions contemplated thereby do not and will not (i) violate the Company’s certificate of incorporation or bylaws (as amended, the “Charter Documents”) or any material judgment, order, writ, decree, statute, rule or regulation applicable to the Company; (ii) violate any provision of, or result in the breach or the acceleration of, or entitle any other Person to accelerate (whether after the giving of notice or lapse of time or both), any material mortgage, i ndenture, agreement, instrument or contract to which the Company is a party or by which it is bound; or (iii) result in the creation or imposition of any Lien upon any property, asset or revenue of the Company 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.

 

 

 

(e)           Duly Issued; Nonassessable.  The Notes, when issued, sold and delivered in accordance with the terms of this Agreement and the Notes for the consideration provided for herein and therein, will be duly and validly issued, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof.  The shares of capital stock issuable upon conversion of the Notes, when issued upon such conversion in accordance with the Notes, will be duly authorized and validly issued, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof, with the Investor being entitled to all rights accorded to a holder of such capital stoc k.

 

(f)           Subsidiaries.  Each of the Company’s subsidiaries is duly organized, validly existing and in good standing (where such concept exists in the applicable jurisdiction) under the laws of its jurisdiction of organization and is in good standing under such laws and has the power and authority to own, lease and operate its properties and carry on its business as now conducted.  None of the Company’s subsidiaries owns or leases property or engages in any activity in any jurisdiction that might require its qualification to do business as a foreign corporation in such jurisdiction and in which the failure to qualify as such would have a Material Adverse Effect.

 

(g)           Approvals.  Subject to Section 2(h), no consent, approval, order or authorization of, or registration, declaration or filing with, any governmental authority or other Person (including, without limitation, the shareholders of any Person) is required in connection with the execution and delivery of the Transaction Documents executed by the Company and the performance and consummation of the transactions contemplated thereby, other than such as have been obtained and remain in full force and effect and other than such qualifications or filings under applicable securities laws as may be required in connection with the transactions contemplated by th is Agreement.

 

(h)           No Violation or Default.  Subject to Section 3(h) of the Disclosure Schedule, none of the Company or the Company’s subsidiaries is in violation of or in default with respect to (i) their Charter Documents or other organizational documents or any material judgment, order, writ, decree, statute, rule or regulation applicable to such Person, or (ii) any material mortgage, indenture, agreement, instrument or contract to which such Person is a party or by which it is bound (nor is there any waiver in effect which, if not in effect, would result in such a violation or default), in either case as such would have a Material Adverse Effect.

 

(i)           Litigation.  Subject to Section 3(i) of the Disclosure Schedule, there are no actions (including, without limitation, derivative actions), suits, proceedings or investigations pending or, to the knowledge of the Company, overtly threatened against the Company or the Company’s subsidiaries at law or in equity in any court or before any other governmental authority that (i) if adversely determined would (alone or in the aggregate) result in a material liability or (ii) seeks to enjoin, either directly or indirectly, the execution, delivery or performance by the Company of the Transaction Documents or the transactions contemplated thereby.

 

(j)           Title.  Subject to Section 3(j) of the Disclosure Schedule, the Company and the Company’s subsidiaries own and have good and marketable title in fee simple absolute to, or a valid leasehold interest in, all their respective real properties and good title to their other respective assets and properties that are material to the business of the Company and the Company’s subsidiaries, in each case free and clear of all liens, encumbrances and defects.

 

(k)           Intellectual Property.  The Company owns, or has the right to use pursuant to written license agreements, sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, processes and other intellectual property rights necessary for its business as now conducted and as proposed to be conducted, without any conflict with, or infringement of the rights of, others. The Company and its subsidiaries do not have any knowledge of any infringement by the Company or its subsidiaries of any material trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, tra de secret or other similar rights of others, or of any such development of similar or identical trade secrets or technical information by others and there is no action or proceeding being made or brought against, or to the Company’s knowledge, claim, action or proceeding being threatened against, the Company or its subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement, which could reasonably be expected to have a Material Adverse Effect.

 

(l)           Financial Statements.  The Company was recently formed, is in the early stages of its development, and has not prepared any financial statements.

 

(m)           Equity Securities.  The Company’s total authorized and issued capitalization as of the date hereof is as set forth in Section 3(m) of the Disclosure Schedule.  The equity securities (“Equity Securities”) of the Company have the respective rights, preferences and privileges set forth in the Company’s Charter Documents in effect on the date hereof.  All of the outstanding Equity Securities of the Company have been duly authorized and are validly issued, fully paid and nonassessable.  Except as expressly referenced herein or as set forth in Section 3(m) of the Disclosure Sched ule, there are as of the date of this Agreement no options, warrants or rights to purchase Equity Securities of the Company authorized, issued or outstanding, and the Company is not obligated in any other manner to issue shares of its Equity Securities.  Except as set forth in Section 3(m) of the Disclosure Schedule, there are no restrictions on the transfer of Equity Securities of the Company, other than those imposed by the Company’s Charter Documents as of the date hereof, or relevant state and federal securities laws, and no holder of any Equity Security of the Company or other Person is entitled to preemptive or similar statutory or contractual rights, either arising pursuant to any agreement or instrument to which the Company is a party or that are otherwise binding upon the Company.  The offer and sale of all Equity Securities of the Company issued before the Closing Date complied with or were exempt from registration or qualification under all applicable federal an d state securities laws.  Except as expressly referenced herein or as set forth in Section 3(m) of the Disclosure Schedule, no Person has the right to demand or other rights to cause the Company to file any registration statement under the Securities Act of 1933, as amended (the “Securities Act”), relating to any Equity Securities of the Company presently outstanding or that may be subsequently issued, or any right to participate in any such registration statement.

 

(n)           Accuracy of Information Furnished.  None of the Transaction Documents and none of the other certificates, statements or information furnished to the Investors by or on behalf of the Company or the Company’s subsidiaries in connection with the Transaction Documents or the transactions contemplated thereby contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

(o)           Tax Status.  The Company and each of its subsidiaries has made or filed all federal and state income and all other material tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply.  There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.

 

 

(p)           No Financial Advisor, Placement Agent, Broker or Finder.  The Company represents and warrants to the Investor that it has not engaged any financial advisor, placement agent, broker or finder in connection with the transactions contemplated hereby.    The Company shall be responsible for the payment of any fees or commissions, if any, of any financial advisor, placement agent, broker or finder relating to or arising out of the transactions contemplated hereby.  The Company shall pay, and hold the Investor harmless against, any liability, loss or expense (including, without limitation, attorneys' fees and out of pocket expenses) arising in connection with any such claim.

 

4.           Representations and Warranties of the Investor.  The Investor represents and warrants to the Company upon the acquisition of a Note as follows:

 

(a)           Binding Obligation.  The Investor has full legal capacity, power and authority to execute and deliver this Agreement and to perform its obligations hereunder.  This Agreement and the Transaction Documents constitute valid and binding obligations of the Investor, enforceable in accordance with their terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and general principles of equity.

 

(b)           Securities Law Compliance.  The Investor has been advised that the Notes and the underlying securities have not been registered under the Securities Act, or any state securities laws and, therefore, cannot be resold unless they are registered under the Securities Act and applicable state securities laws or unless an exemption from such registration requirements is available. The Investor is aware that the Company is under no obligation to effect any such registration with respect to the Notes or the underlying securities or to file for or comply with any exemption from registration.  The Investor has not been formed solely for the purpose of making this investment and is purchasing the Notes to be acquired by the Investor hereunder for its own account for investment, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof, and the Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. The Investor has such knowledge and experience in financial and business matters that the Investor is capable of evaluating the merits and risks of such investment, is able to incur a complete loss of such investment without impairing the Investor’s financial condition and is able to bear the economic risk of such investment for an indefinite period of time.  The residency of the Investor (or, in the case of a partnership or corporation, such entity’s principal place of business) is correctly set forth beneath the Investor’s name on the signature pages hereto.

 

(c)           Access to Information.  The Investor acknowledges that the Company has given the Investor access to the corporate records and accounts of the Company and to all information in its possession relating to the Company, has made its officers and representatives available for interview by the Investor, and has furnished the Investor with all documents and other information required for the Investor to make an informed decision with respect to the purchase of the Notes.  The foregoing, however, does not limit or modify the representations or warranties of the Company in Section 2 hereof or the right of the Investor to rely thereon.