Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made and entered into
as of March 17, 2014 by and among SANUWAVE Health, Inc., a Nevada corporation
with offices located at 11475 Great Oaks Way, Suite 150, Alpharetta, Georgia
30022 (the “Company”), and the purchasers listed on Schedule I hereto (each a
“Purchaser” and together the “Purchasers”). Certain terms used and not otherwise
defined in the text of this Agreement are defined in Section 10 hereof.

 

RECITALS

 

WHEREAS, the Company and the Purchasers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities
Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the
United States Securities and Exchange Commission (the “Commission”) under the
Securities Act;

 

WHEREAS, the Company desires to sell to the Purchasers, and the Purchasers
desire to purchase from the Company (i) shares of common stock, $0.001 par value
per share (the “Common Stock”), (ii) shares of Preferred Stock and (iii) the
Warrants, each in accordance with the terms and provisions of this Agreement.

 

NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties and covenants herein contained, the parties hereto
hereby agree as follows:

 

1.     Authorization of Shares. The Company has authorized the issuance and sale
of (i) Common Stock, (ii) Preferred Stock, (iii) warrants to initially acquire
up to the aggregate number of shares of Common Stock set forth opposite each
Purchaser’s name in Schedule I in the form attached hereto as Exhibit A-1 (the
“Series A Warrants”) (as exercised, collectively, the “Series A Warrant
Shares”), and (iv) warrants to initially acquire up to the aggregate number of
shares of Common Stock set forth opposite each Purchaser’s name in Schedule I in
the form attached hereto as Exhibit A-2 (the “Series B Warrants”) (as exercised,
collectively, the “Series B Warrant Shares”), in an aggregate principal amount
of up to $9,280,000. The Series A Warrants and the Series B Warrants are
collectively referred to herein as the “Warrants.” The Series A Warrant Shares
and the Series B Warrant Shares are collectively referred to herein as the
“Warrant Shares”. The shares of Common Stock issuable at Closing are referred to
herein as the “Common Shares” and the shares of Preferred Stock issuable at
Closing are referred to herein as the “Preferred Shares”. The shares of Common
Stock into which the Preferred Stock is convertible are referred to herein as
the “Underlying Shares” and, together with the Common Shares, the Warrant Shares
and the Preferred Shares, as the “Shares”.

 

 
 

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2.     Sale and Purchase of the Shares and Warrants. Upon the terms and subject
to the conditions herein contained, the Company agrees to sell to each
Purchaser, and each Purchaser agrees severally, but not jointly, to purchase
from the Company, at the Closing (as defined in Section 3): (i) that number of
Common Shares set forth opposite such purchaser’s name on Schedule I hereto for
the purchase price set forth opposite such Purchasers name, which amount
represents the number of Common Shares purchased by such Purchaser multiplied by
the price per Common Share of $0.50 (the “Per Share Price”), (ii) that number of
Preferred Shares set forth opposite such purchaser’s name on Schedule I hereto
for the purchase price set forth opposite such Purchasers name, which amount
represents the number of Preferred Shares purchased by such Purchaser multiplied
by the Stated Value (as defined herein), (iii) Series A Warrants to initially
acquire up to the aggregate number of Series A Warrant Shares set forth opposite
such Purchaser’s name on Schedule I hereto, and (iv) Series B Warrants to
initially acquire up to the aggregate number of Series B Warrant Shares set
forth opposite such Purchaser’s name on Schedule I hereto. The aggregate price
paid by all Purchasers, as set forth on Schedule I, shall be referred to as the
“Total Purchase Price.” At or prior to the Closing, each Purchaser will pay the
Aggregate Purchase Price set forth opposite such Purchaser’s name on Schedule I
by wire transfer of immediately available funds in accordance with wire
instructions provided by the Company to the Purchasers prior to the Closing. On
or before the Closing, the Company will deliver each Purchaser the Warrants to
purchase the number of Warrant Shares set forth opposite such Purchaser’s name
on Schedule I and instruct its transfer agent to deliver stock certificates to
the Purchasers representing the Common Shares and the Preferred Shares set forth
on Schedule I against delivery of the Total Purchase Price. The foregoing
notwithstanding, if the Purchaser has indicated to the Company at the time of
execution of this Agreement a need to settle “delivery versus payment”, the
Company shall deliver to such Purchaser or such Purchaser’s designated custodian
the original stock certificates and Warrants on or prior to the Closing and,
upon receipt the Purchaser shall wire the Total Purchase Price as provided in
the first sentence of this Section 2.

 

3.     Closing. Subject to the satisfaction of the closing conditions set forth
in Section 7, the closing (the “Closing”), with respect to the transaction
contemplated in Section 2 hereof, shall take place at the offices of Sichenzia
Ross Friedman Ference LLP, 61 Broadway, 32nd Floor, New York, New York 10006.
The date and time of the Closing (the “Closing Date”) shall be 10:00 a.m., New
York time on March 17, 2014 or at such other time and place as the Company and
the Major Purchaser may agree, including remotely via the exchange of documents
and signatures (the “Closing Date”).

 

4.     Representations and Warranties of the Purchasers. Each Purchaser,
severally but not jointly, represents and warrants to the Company that the
statements contained in this Section 4 are true and complete as of the date of
this Agreement and will be true and complete as of the date of the Closing:

 

4.1.     Validity. The execution, delivery and performance of this Agreement and
the other instruments referred to herein, in each case to which the Purchaser is
a party, and the consummation by the Purchaser of the transactions contemplated
hereby, have been duly authorized by all necessary corporate, partnership,
limited liability or similar actions, as applicable, on the part of such
Purchaser. This Agreement has been duly executed and delivered by the Purchaser,
and the other instruments referred to herein to which it is a party will be duly
executed and delivered by the Purchaser, and each such agreement and other
instruments constitutes or will constitute a valid and binding obligation of the
Purchaser, enforceable against it in accordance with its terms, except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, and any other laws of general application affecting
enforcement of creditors’ rights generally, and as limited by laws relating to
the availability of specific performance, injunctive relief, or other equitable
remedies.

 

 
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4.2.     Brokers. There is no broker, investment banker, financial advisor,
finder or other Person which has been retained by or is authorized to act on
behalf of the Purchaser who might be entitled to any fee or commission for which
the Company will be liable in connection with the execution of this Agreement
and the consummation of the transactions contemplated hereby.

 

4.3.     Investment Representations and Warranties. The Purchaser understands
and agrees that the offering and sale of the Shares has not been registered
under the Securities Act or any applicable state securities laws and is being
made in reliance upon federal and state exemptions for transactions not
involving a public offering which depend upon, among other things, the bona fide
nature of the investment intent and the accuracy of the Purchaser’s
representations as expressed herein.

 

4.4.     Acquisition for Own Account. The Purchaser is acquiring the Shares for
its own account for investment and not with a view toward distribution in a
manner which would violate the Securities Act or any applicable state securities
laws.

 

4.5.     Ability to Protect Its Own Interests and Bear Economic Risks. The
Purchaser, by reason of the business and financial experience of its management,
has the capacity to protect its own interests in connection with the
transactions contemplated by this Agreement and is capable of evaluating the
merits and risks of the investment in the Shares. The Purchaser is able to bear
the economic risk of an investment in the Shares and is able to sustain a loss
of all of its investment in the Shares without economic hardship, if such a loss
should occur.

 

4.6.     Accredited Investor. The Purchaser is an “accredited investor” as that
term is defined in Regulation D promulgated under the Securities Act.

 

4.7.     Access to Information. The Purchaser has been given access to Company
documents, records, and other information, and has had adequate opportunity to
ask questions of, and receive answers from, the Company’s officers, employees,
agents, accountants, and representatives concerning the Company’s business,
operations, financial condition, assets, liabilities, and all other matters
relevant to its investment in the Shares. Purchaser understands that an
investment in the Shares bears significant risk and represents that it has
reviewed the SEC Reports (as defined herein), which serve to qualify certain of
the Company representations set forth below.

 

4.8.     Restricted Shares.

 

(a)     The Purchaser understands that the Shares will be characterized as
“restricted securities” under the federal securities laws inasmuch as they are
being acquired from the Company in a private placement under Section 4(a)(2) of
the Securities Act and that under such laws and applicable regulations such
Shares may be resold without registration under the Securities Act only in
certain limited circumstances.

 

(b)     The Purchaser acknowledges that the Shares must be held indefinitely
unless subsequently registered under the Securities Act and under applicable
state securities laws or an exemption from such registration is available. The
Purchaser understands that the Company is under no obligation to register the
Shares, except as provided in the Registration Rights Agreement (as defined
below).

 

 
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(c)     The Purchaser is aware of the provisions of Rule 144 under the
Securities Act which permit limited resale of securities purchased in a private
placement.

 

4.9.     Tax Advisors. The Purchaser has had the opportunity to review with the
Purchaser’s own tax advisors the federal, state and local tax consequences of
this investment, where applicable, and the transactions contemplated by this
Agreement. The Purchaser is relying solely on the Purchaser’s own determination
as to tax consequences or the advice of such tax advisors and not on any
statements or representations of the Company or any of its agents and
understands that the Purchaser (and not the Company) shall be responsible for
the Purchaser’s own tax liability that may arise as a result of this investment
or the transactions contemplated by this Agreement.

 

5.     Representations and Warranties by the Company. The Company represents and
warrants to the Purchasers that the statements contained in this Section 5 are
true and complete as of the date of this Agreement and will be true and complete
as of the date of the Closing, as the case may be.

 

5.1.     Capitalization. As of the date hereof, the authorized capital stock of
the Company consists of (i) 150,000,000 shares of Common Stock, of which
38,932,182 are issued and outstanding and 28,154,359 shares are reserved for
issuance (including 4,933,010 shares for the conversion of the 18% Convertible
Promissory Notes as a result of this Agreement and exercise of warrants issued
in connection therewith as set forth in Schedule 5.1) pursuant to Convertible
Securities (as defined below) (other than the Common Shares, Preferred Shares
and the Warrants), and (ii) 5,000,000 shares of preferred stock, none of which
are issued and outstanding. No shares of Common Stock or Preferred Stock are
held in treasury. All of such outstanding shares are duly authorized and have
been, or upon issuance will be, validly issued and are fully paid and
non-assessable. 14,033,859 shares of the Company’s issued and outstanding Common
Stock on the date hereof are owned by Persons who are “affiliates” (as defined
in Rule 405 of the Securities Act and calculated based on the assumption that
only officers, directors and holders of at least 10% of the Company’s issued and
outstanding Common Stock are “affiliates” without conceding that any such
Persons are “affiliates” for purposes of federal securities laws) of the Company
or any of its Subsidiaries. Except as disclosed on Schedule 5.1, to the
Company’s knowledge, no Person (together with any family member or Affiliate
thereof) owns 10% or more of the Company’s issued and outstanding shares of
Common Stock (calculated based on the assumption that all Convertible
Securities, whether or not presently exercisable or convertible, have been fully
exercised or converted (as the case may be) taking account of any limitations on
exercise or conversion (including “blockers”) contained therein without
conceding that such identified Person is a 10% stockholder for purposes of
federal securities laws). (i) None of the Company’s or any Subsidiary’s capital
stock is subject to preemptive rights or any other similar rights or any
Encumbrances suffered or permitted by the Company or any Subsidiary; (ii) except
as disclosed on Schedule 5.1, there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any capital stock of the Company or any of its Subsidiaries
(as defined below), or contracts, commitments, understandings or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional capital stock of the Company or any of its Subsidiaries or options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or exercisable
or exchangeable for, any capital stock of the Company or any of its
Subsidiaries; (iii) except as disclosed on Schedule 5.1, there are no
outstanding debt securities, notes, credit agreements, credit facilities or
other agreements, documents or instruments evidencing Indebtedness of the
Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) except as disclosed on Schedule 5.1,
there are no financing statements securing obligations in any amounts filed in
connection with the Company or any of its Subsidiaries; (v) except as disclosed
on Schedule 5.1, there are no agreements or arrangements under which the Company
or any of its Subsidiaries is obligated to register the sale of any of their
securities under the Securities Act (except pursuant to the Registration Rights
Agreement); (vi) there are no outstanding securities or instruments of the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries; (vii)
there are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Securities; (viii)
neither the Company nor any Subsidiary has any stock appreciation rights or
“phantom stock” plans or agreements or any similar plan or agreement; and (ix)
neither the Company nor any of its Subsidiaries have any liabilities or
obligations required to be disclosed in the SEC Reports which are not so
disclosed in the SEC Reports, other than those incurred in the ordinary course
of the Company’s or its Subsidiaries’ respective businesses and which,
individually or in the aggregate, do not or could not have a Material Adverse
Effect.

 

 
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5.2.     Organization. The Company and each Subsidiary (a) is duly incorporated
or otherwise organized, validly existing and in good standing under the laws of
the jurisdiction of its formation, (b) is duly qualified to do business as a
foreign entity and is in good standing in each jurisdiction where the nature of
the property owned or leased by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to be so qualified
would not have a Material Adverse Effect, and (c) has all requisite corporate
power and authority to own or lease and operate its assets and carry on its
business as presently being conducted as disclosed in the SEC Reports.

 

5.3.     Subsidiaries. Other than the Persons set forth on Schedule 5.3, the
Company has no Subsidiaries. “Subsidiaries” means any Person (i) at least 50% of
the outstanding voting securities of which are at the time owned or controlled
directly or indirectly by the Company or (ii) with respect to which the Company
possesses, directly or indirectly, the power to direct or cause the direction of
the affairs or management of such Person, and each of the foregoing, is
individually referred to herein as a “Subsidiary.”

 

5.4.     Consents. Neither the execution, delivery or performance of this
Agreement by the Company, nor the consummation by it of the obligations and
transactions contemplated hereby (including, without limitation, the issuance,
the reservation for issuance and the delivery of the Shares and the provision to
the Purchaser of the rights contemplated by the Transaction Documents) requires
any consent of, authorization by, exemption from, filing with or notice to any
Governmental Entity or any other Person, other than filings required under
applicable U.S. federal and state securities laws.

 

 
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5.5.     Authorization; Enforcement. The Company has all requisite corporate
power and has taken all necessary corporate action required for the due
authorization, execution, delivery and performance by the Company of this
Agreement and the other Transaction Documents and the consummation of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance, the reservation for issuance and the delivery of the Shares and
Warrants and the provision to the Purchaser of the rights contemplated by the
Transaction Documents). The execution, delivery and performance by the Company
of this Agreement and the consummation by the Company of the transactions
contemplated hereby (including, without limitation, the issuance of the Shares
and Warrants and the provision to the Purchaser of the rights contemplated by
the Transaction Documents), have been duly authorized by the Company’s board of
directors and no further consent or authorization of the Company, its board of
directors or its stockholders is required. This Agreement has been duly executed
and delivered by the Company, and the other instruments referred to herein to
which it is a party will be duly executed and delivered by the Company, and each
such agreement constitutes or will constitute a legal, valid and binding
obligation of the Company enforceable against it in accordance with its terms,
except to the extent that enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and any other
laws of general application affecting enforcement of creditors’ rights
generally, and as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.

 

5.6.     Valid Issuance of Shares and Warrants. The Shares and Warrants have
been duly and validly authorized and, when the Shares are issued and paid for
pursuant to this Agreement, the Shares will be validly issued, fully paid and
non-assessable, and shall be free and clear of all Encumbrances, and will not be
subject to preemptive rights or other similar rights of stockholders of the
Company.

 

5.7.     No Conflicts. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby (including, without
limitation, the issuance, the reservation for issuance and the delivery of the
Shares and Warrants and the provision to the Purchaser of the rights
contemplated by the Transaction Documents) will not (a) result in a violation of
the Articles of Incorporation, as amended, the by-laws, as amended, or any
equivalent organizational document of the Company or any Subsidiary (the
“Charter Documents”) or require the approval of the Company’s stockholders, (b)
violate, conflict with or result in the breach of the terms, conditions or
provisions of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give rise to any right of
termination, acceleration or cancellation under, any material agreement, lease,
mortgage, license, indenture, instrument or other contract to which the Company
or any Subsidiary is a party, (c) result in a violation of any law, rule,
regulation, order, judgment or decree (including, without limitation, U.S.
federal and state securities laws and regulations and regulations of any
self-regulatory organizations to which the Company or its securities are
subject) applicable to the Company or any Subsidiary or by which any property or
asset of the Company or any Subsidiary is bound or affected, (d) result in a
violation of or require stockholder approval under any rule or regulation of the
Over-the-Counter Bulletin Board (the “Principal Market”), or (e) result in the
creation of any Encumbrance upon any of the Company’s or any of its Subsidiary’s
assets. Neither the Company nor any Subsidiary is (i) in violation of its
Charter Documents, (ii) in default (and no event has occurred which, with notice
or lapse of time or both, would cause the Company or any Subsidiary to be in
default) under, nor has there occurred any event giving others (with notice or
lapse of time or both) any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument to which the
Company or any Subsidiary is a party, nor has the Company or any Subsidiary
received written notice of a claim that it is in default under, or that it in
violation of, any Material Agreement (whether or not such default or violation
has been waived), (iii) in violation of, or in receipt of written notice that it
is in violation of, any law, ordinance or regulation of any Governmental Entity,
except where the violation would not result in a Material Adverse Effect, and
(iv) in violation of any order of any Governmental Entity having jurisdictional
over the Company or any Subsidiary or any of the Company’s or any Subsidiary’s
properties or assets.

 

 
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5.8.     Principal Markets. There is no requirement for the Company to obtain
approval of the Principal Market for listing or trading of Registrable
Securities (as defined in the Registration Rights Agreement), which constitute
Common Stock. Without limiting the generality of the foregoing, the Company is
not in violation of any of the rules, regulations or requirements of the
Principal Market and has no knowledge of any facts or circumstances that could
reasonably lead to delisting or suspension of the Common Stock by the Principal
Market in the foreseeable future. Since January 1, 2012, (i) the Common Stock
has been listed or designated for quotation on the Principal Market, (ii)
trading in the Common Stock has not been suspended by the SEC or the Principal
Market and (iii) the Company has received no communication, written or oral,
from the SEC or the Principal Market regarding the suspension or delisting of
the Common Stock from the Principal Market.

 

5.9.     Material Contracts. Each Material Contract is the legal, valid and
binding obligation of the Company or a Subsidiary, as the case may be,
enforceable against the Company or such Subsidiary, as the case may be, in
accordance with its terms, except to the extent that enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement of
creditors’ rights generally, and as limited by laws relating to the availability
of specific performance, injunctive relief, or other equitable remedies. The
Company and each Subsidiary, as the case may be, is in compliance with all
material terms of the Material Contracts to which it is party, and there has not
occurred any breach, violation or default or any event that, with the lapse of
time, the giving of notice or the election of any Person, or any combination
thereof, would constitute a breach, violation or default by the Company or any
Subsidiary under any such Material Contract or, to the knowledge of the Company
and each Subsidiary, by any other Person to any such contract except where such
breach, violation or default would not have a Material Adverse Effect. Neither
the Company nor any Subsidiary has been notified that any party to any Material
Contract intends to cancel, terminate, not renew or exercise an option under any
Material Contract, whether in connection with the transactions contemplated
hereby or otherwise.

 

 
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5.10.     Right of First Refusal; Stockholders Agreement; Voting and
Registration Rights. Except with respect to options and warrants listed above in
Section 5.1 or as provided in this Agreement and for the options granted under
the Company’s stock option plans disclosed in the SEC Reports, the Company does
not have any outstanding options to purchase, or, any right of first refusal,
right of first offer, right of co-sale, no shareholder rights plan, preemptive
right or other right to subscribe for or to purchase any securities or
obligations convertible into, or any contracts or commitments to issue or sell,
shares of its capital stock or any such options, rights, convertible securities
or obligations, or any registration right regarding the securities of the
Company. There are no provisions of the Charter Documents, and no Material
Contracts, other than this Agreement, that (a) may affect or restrict the voting
rights of the Purchaser with respect to the Shares in its capacity as a
stockholder of the Company, (b) restrict the ability of the Purchaser, or any
successor thereto or assignee or transferee thereof, to transfer the Shares,
(c)  would adversely affect the Company’s or the Purchaser’s right or ability to
consummate the transactions contemplated by this Agreement or comply with the
terms of this Agreement and the transactions contemplated hereby, (d) require
the vote of more than a majority of the Company’s issued and outstanding Common
Stock, voting together as a single class, to take or prevent any corporate
action, other than those matters requiring a different vote under Nevada law, or
(e) entitle any party to nominate or elect any director of the Company or
require any of the Company’s stockholders to vote for any such nominee or other
person as a director of the Company in each case.

 

5.11.     Previous Issuances. All shares of capital stock and other securities
previously issued by the Company and each Subsidiary have been issued in
transactions registered under or exempt from the registration requirements under
the Securities Act and all applicable state securities or “blue sky” laws, and
in compliance with all applicable corporate laws. The Company and each
Subsidiary has not violated the Securities Act or any applicable state
securities or “blue sky” laws in connection with the previous issuance of any
shares of capital stock or other securities.

 

5.12.     No Integrated Offering. Neither the Company, any Subsidiary, nor any
of the Company’s or any Subsidiary’s Affiliates or any other Person acting on
the Company’s or any Subsidiary’s behalf, has directly or indirectly engaged in
any form of general solicitation or general advertising with respect to the
Shares, nor have any of such Persons made any offers or sales of any security of
the Company, any Subsidiary or any of the Company’s or any Subsidiary’s
Affiliates or solicited any offers to buy any security of the Company, any
Subsidiary or any of the Company’s or any Subsidiary’s Affiliates under
circumstances that would require registration of the Shares under the Securities
Act or any other securities laws or cause this offering of Shares to be
integrated with any prior offering of securities of the Company or any
Subsidiary for purposes of the Securities Act in any manner that would affect
the validity of the private placement exemption under the Act for the offer and
sale of the Shares hereunder.

 

 
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5.13.     SEC Reports; Financial Statements.

 

(a)     The Company’s Common Stock is registered under Section 12 of the
Exchange Act. The Company has filed all reports, schedules, forms, statements
and other documents required to be filed by the Company under the Securities Act
and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
since March 1, 2012 (the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively referred to
herein as the “SEC Reports”) on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. 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, in each case, to the rules promulgated thereunder, as
applicable, 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 the
light of the circumstances under which they were made, not misleading. The
Company has delivered to each Purchaser, or each Purchaser has had access to,
true and complete copies of the SEC Reports and all agreements to which the
Company or any Subsidiary is a party or to which the property or assets of the
Company or any Subsidiary are subject, which are required to be described in or
filed as exhibits to an SEC Report, have been so described or filed.

 

(b)     The financial statements and the related notes of the Company 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. Such financial statements have been
prepared in accordance with GAAP, except as may be otherwise specified in such
financial statements or the notes thereto and except that unaudited financial
statements may not contain all footnotes required by GAAP, and fairly present
the consolidated financial position of the Company as of and for the dates
thereof and the consolidated 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. There is no transaction, arrangement, or
other relationship between the Company or any Subsidiary and an unconsolidated
or other off balance sheet entity that is required to be disclosed by the
Company in SEC Reports and is not so disclosed and would have or reasonably be
expected to result in a Material Adverse Effect.

 

5.14.     Disclosure Controls and Procedures. The Company has established and
maintains disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) that are effective in all material respects to ensure
that material information relating to the Company, including any consolidated
Subsidiaries, is made known to its chief executive officer and chief financial
officer by others within those entities. The Company’s certifying officers have
evaluated the effectiveness of the Company’s disclosure controls and procedures
as of the end of the period covered by the most recently filed quarterly or
annual periodic report under the Exchange Act (such date, the “Evaluation
Date”). The Company presented in its most recently filed quarterly or annual
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date. The Company maintains internal
control over financial reporting (as such term is defined in Exchange Act Rule
13a-15(f) and 15d-15(f)) designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with GAAP and such internal control over
financial reporting is effective. The Company presented in its most recently
filed annual report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the Company’s internal control over
financial reporting based on their evaluations as of the end of the period
covered by such report. Since the Evaluation Date, there have been no
significant changes in the Company’s internal control over financial reporting
(as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) or, to
the Company’s knowledge, in other factors that could significantly affect the
Company’s internal control over financial reporting.

 

 
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5.15.     Accounting Controls. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management’s general or specific
authorization, (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles as applied in the United States and to maintain accountability for
assets, (iii) access to assets is permitted only in accordance with management’s
general or specific authorization, and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.

 

5.16.     Absence of Litigation. There is no claim, action, suit, arbitration,
investigation or other proceeding pending against, or to the knowledge of the
Company and each Subsidiary, threatened against or affecting, the Company, any
Subsidiary or any of the Company’s or any Subsidiary’s properties or, to the
knowledge of the Company and each Subsidiary, any of its respective officers or
directors before any Governmental Entity. Neither the Company nor any
Subsidiary, nor any director or officer thereof, 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 relating to the Company
or any Subsidiary. There has not been, and to the knowledge of the Company and
each Subsidiary, there is not pending or contemplated, any investigation by the
Commission of the Company or any Subsidiary or any current or former director or
officer of the Company or any Subsidiary. The Company has not received any stop
order or other order suspending the effectiveness of any registration statement
filed by the Company under the Exchange Act or the Securities Act and, to the
Company’s knowledge, the SEC has not issued any such order.

 

5.17.     Taxes. The Company and each Subsidiary has properly filed all federal,
foreign, state, local, and other tax returns and reports which are required to
be filed by it, which returns and reports were properly completed and are true
and correct in all material respects, and all taxes, interest, and penalties due
and owing have been timely paid. There are no outstanding waivers or extensions
of time with respect to the assessment or audit of any tax or tax return of the
Company or any Subsidiary, or claims now pending or matters under discussion
between the Company and any taxing authority in respect of any tax of the
Company. The Company has no material uncertain tax positions pursuant to FASB
Interpretation 48 (FIN 48), Accounting for Uncertainty in Income Taxes. The
Company is not operated in such a manner as to qualify as a passive foreign
investment company, as defined in Section 1297 of the U.S. Internal Revenue Code
of 1986, as amended.

 

 
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5.18.     Employee Matters.

 

(a)     The Company has disclosed in the SEC Reports any “employee benefit plan”
subject to the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”), that it or any Subsidiary maintains for employees.

 

(b)     No director or officer or other employee of the Company or any
Subsidiary will become entitled to any retirement, severance, change of control,
or similar benefit or enhanced or accelerated benefit (including any
acceleration of vesting) or lapse of repurchase rights or obligations with
respect to any employee benefit plan subject to ERISA or other benefit under any
compensation plan or arrangement of the Company (each, an “Employee Benefit
Plan”) as a result of the transactions contemplated in this Agreement.

 

(c)     No executive officer, to the knowledge of the Company and each
Subsidiary, is, or is now reasonably expected to be, in violation of any term of
any employment contract, confidentiality, disclosure or proprietary information
agreement or non-competition agreement, or any other contract or agreement or
any restrictive covenant with the Company or any Subsidiary, and, to the
knowledge of the Company and each Subsidiary, the continued employment of each
such executive officer does not subject the Company or any Subsidiary to any
material liability with respect to any of the foregoing matters.

 

(d)     The Company and each Subsidiary is in compliance with all applicable
federal, state, local and foreign statutes, laws (including, without limitation,
common law), judicial decisions, regulations, ordinances, rules, judgments,
orders and codes respecting employment, employment practices, labor, terms and
conditions of employment and wages and hours, except where the failure to comply
would not have a Material Adverse Effect, and no work stoppage or labor strike
against the Company or any Subsidiary is pending or, to their knowledge,
threatened, nor is the Company or any Subsidiary involved in or, to their
knowledge, threatened with any labor dispute, grievance or litigation relating
to labor matters involving any current or former employees of the Company, any
Subsidiary or any independent contractors. There are no suits, actions,
disputes, claims (other than routine claims for benefits), investigations or
audits pending or, to the knowledge of the Company and each Subsidiary,
threatened in connection with any Employee Benefit Plan, but excluding any of
the foregoing which would not have a Material Adverse Effect.

 

5.19.     Compliance with Laws.

 

(a)     The Company and each Subsidiary possess, and has been and is in material
compliance with the terms of, all franchises, permits, licenses and other rights
and privileges necessary to conduct the Company’s and each Subsidiary’s business
and is in compliance with and has not violated, in any material respect, (i) any
judgments, orders, decrees, injunctions or writs applicable to the Company or
any Subsidiary, or (ii) any laws, statutes, ordinances, rules or regulations
applicable to the conduct of the Company’s or any Subsidiary’s business,
including, without limitation, the ownership, testing, development, manufacture,
packaging, processing, use, distribution, marketing, labeling, promotion, sale,
offer for sale, storage, import, export or disposal of any drug or drug
candidate under development, manufactured or distributed by the Company or any
Subsidiary (collectively, “Applicable Laws”). Neither the Company nor any
Subsidiary has received any notice of any proceeding relating to revocation or
modification of any such franchise, permit, license or other right or privilege
except where such revocation or modification would not reasonably be expected to
have a Material Adverse Effect.

 

 
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(b)     The Company and each Subsidiary:

 

(i)     has not received any FDA Form 483, notice of adverse finding, warning
letter, untitled letter or other correspondence or notice from the U.S. Food and
Drug Administration (the “FDA”) or any other federal, state, local or foreign
governmental or regulatory authority alleging or asserting material
noncompliance with any Applicable Laws or any licenses, certificates, approvals,
clearances, authorizations, permits and supplements or amendments thereto
required by any such Applicable Laws (“Authorizations”);

 

(ii)     possesses all material Authorizations and such Authorizations are valid
and in full force and effect and the Company is not in material violation of any
term of any such Authorizations;

 

(iii)     has not received notice of any claim, action, suit, proceeding,
hearing, enforcement, investigation, arbitration or other action from the FDA or
any other federal, state, local or foreign governmental or regulatory authority
or third party alleging that any study, clinical trial, operation or activity
related to any product or product under development by the Company is in
material violation of any Applicable Laws or Authorizations and has no knowledge
that the FDA or any other federal, state, local or foreign governmental or
regulatory authority or third party is considering any such claim, litigation,
arbitration, action, suit, investigation or proceeding;

 

(iv)     has not received notice that the FDA or any other federal, state, local
or foreign governmental or regulatory authority has taken, is taking or intends
to take action to limit, suspend, modify or revoke any material Authorizations
and has no knowledge that the FDA or any other federal, state, local or foreign
governmental or regulatory authority is considering such action;

 

(v)     has filed, obtained, maintained or submitted all material reports,
documents, forms, notices, applications, records, claims, submissions and
supplements or amendments as required by any Applicable Laws or Authorizations
and that all such reports, documents, forms, notices, applications, records,
claims, submissions and supplements or amendments were materially complete and
correct on the date filed (or were corrected or supplemented by a subsequent
submission); and

 

 
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(vi)     has not, either voluntarily or involuntarily, initiated, conducted, or
issued or caused to be initiated, conducted or issued, any recall, market
withdrawal or replacement, safety alert, “dear doctor” letter, or other notice
or action relating to the alleged lack of safety or efficacy of any product or
any alleged product defect or violation and, to the Company’s knowledge, no
third party has initiated, conducted or intends to initiate any such notice or
action.

 

(c)     The studies, tests and preclinical and clinical trials conducted by or
on behalf of the Company or any Subsidiary were and, if still pending, are being
conducted in accordance with experimental protocols, procedures and controls
pursuant to accepted professional scientific standards and all Applicable Laws
and Authorizations, including, without limitation, the Federal Food, Drug and
Cosmetic Act and the rules and regulations promulgated thereunder (collectively,
“FFDCA”); the descriptions of the results of such studies, tests and trials
contained in the SEC Reports are accurate and complete and fairly present the
data derived from such studies, tests and trials; the Company and each
Subsidiary is not aware of any studies, tests or trials, the results of which
the Company or any Subsidiary believes reasonably call into question the study,
test, or trial results described or referred to in the SEC Reports when viewed
in the context in which such results are described and the clinical state of
development; and, since January 1, 2011, the Company and each Subsidiary has not
received any notices or correspondence from the FDA or any other federal, state,
local or foreign governmental or regulatory authority requiring the termination,
suspension or material modification of any studies, tests or preclinical or
clinical trials conducted by or on behalf of the Company or any Subsidiary.

 

5.20.     Brokers. Other than Newport Coast Securities Inc. (the “Placement
Agent”), neither the Company nor any of its Subsidiaries has engaged any
placement agent or other agent in connection with the offer or sale of the
Securities and there is no investment banker, broker, finder, financial advisor
or other Person that has been retained by or is authorized to act on behalf of
the Company or any Subsidiary who might be entitled to any fee or commission in
connection with the transactions contemplated by this Agreement other than
Oppenheimer & Co. Inc. (the “Former Placement Agent”) as detailed on Schedule
5.20. The Placement Agent and the Former Placement Agent’s aggregate
compensation shall be 6% of the Total Purchase Price plus warrants to purchase
such number of shares of Common Stock equal to 6% of the Common Shares (which
equals 348,000 Class A Warrants and 208,800 Class B Warrants each to both the
Placement Agent and the Former Placement Agent). The Placement Agent shall also
be entitled to reimbursement of out-of-pocket expenses, up to $50,000, which
amount may be increased with the consent of the Company, not to be unreasonably
withheld.

 

 
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5.21.     Environmental Matters.

 

(a)      (i) No written notice, notification, demand, request for information,
citation, summons, complaint or order has been received by, and no
investigation, action, claim, suit, proceeding or review is pending or, to the
knowledge of the Company and each Subsidiary, threatened by any Person against
the Company or any Subsidiary and no penalty has been assessed against the
Company or any Subsidiary with respect to any matters relating to or arising out
of any Environmental Law; (ii) the Company and each Subsidiary is in compliance
with all Environmental Laws except where the failure to comply would not have a
Material Adverse Effect; and (iii) to the knowledge of the Company and each
Subsidiary there are no liabilities of or relating to the Company or any
Subsidiary relating to or arising out of any Environmental Law except such as
would not have a Material Adverse Effect, and, to the knowledge of the Company
and each Subsidiary, there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in such a liability.

 

(b)     For purposes of this Agreement, the term “Environmental Laws” means
federal, state, local and foreign statutes, laws, judicial decisions,
regulations, ordinances, rules, judgments, orders, codes, injunctions, permits
and governmental agreements relating to human health and the environment,
including, but not limited to, Hazardous Materials; and the term “Hazardous
Material” means all substances or materials regulated as hazardous, toxic,
explosive, dangerous, flammable or radioactive under any Environmental Law
including, but not limited to: (i) petroleum, asbestos, or polychlorinated
biphenyls and (ii) in the United States, all substances defined as Hazardous
Substances, Oils, Pollutants or Contaminants in the National Oil and Hazardous
Substances Pollution Contingency Plan.

 

5.22.     Intellectual Property Matters.

 

(a)     “Intellectual Property” means any and all of the following arising under
the laws of the United States, any other jurisdiction or any treaty regime: (i)
all inventions (whether patentable or unpatentable and whether or not reduced to
practice), all improvements thereon, and all patents, patent applications and
patent disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions and reexaminations thereof, (ii)
all trademarks, service marks, trade dress, logos, trade names and corporate
names, together with all translations, adaptations, derivations and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations and renewals in connection therewith, (iii) all copyrightable
works, all copyrights and all applications, registrations and renewals in
connection therewith, (iv) all trade secrets and confidential business
information (including, without limitation, ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information and business and marketing plans
and proposals), (v) all computer software (including, without limitation, data
and related documentation and except for any commercial “shrink-wrapped”
software) and source codes (other than open source codes), (vi) all other
proprietary rights, (vii) all copies and tangible embodiments of the foregoing
(in whatever form or medium) and (viii) all licenses or agreements in connection
with the foregoing. “Company Intellectual Property” means all Intellectual
Property which is used in connection with, and is material to, the business of
the Company or any Subsidiary and all Intellectual Property owned by the Company
or any Subsidiary, provided that any Intellectual Property that is licensed by
the Company and each Subsidiary shall be included within the meaning of Company
Intellectual Property only within the scope of use by the Company or in
connection with the Company’s and each Subsidiary’s business.

 

 
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(b)     With respect to each item of Company Intellectual Property that is
material to the Company’s and each Subsidiary’s business:

 

(i)     The Company and each Subsidiary possess all rights, titles and interests
in and to the item if owned by the Company or any Subsidiary, as applicable,
free and clear of any Encumbrance, license or other restriction, and possess all
rights necessary in the case of a licensed item to use such item in the manner
in which it presently uses the item or reasonably contemplates using such item,
and the Company and each Subsidiary has taken or caused to be taken reasonable
and prudent steps to protect its rights in and to, and the validity and
enforceability of, the item owned by the Company or any Subsidiary;

 

(ii)     the item if owned by the Company or any Subsidiary is not, and if
licensed, to the knowledge of the Company and each Subsidiary is not, subject to
any outstanding injunction, judgment, order, decree, ruling or charge naming the
Company or any Subsidiary;

 

(iii)     no action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand is pending that challenges the legality, validity,
enforceability, use or ownership of the item;

 

(iv)     to the knowledge of the Company and each Subsidiary, the item or use
thereof by the Company or any Subsidiary does not infringe, misappropriate or
contribute to infringement or misappropriation of or upon any Intellectual
Property right or other right of any third party;

 

(v)     to the knowledge of the Company and each Subsidiary, no third party has
infringed upon or misappropriated or contributed to the infringement upon or
misappropriation of the Company’s or any Subsidiary’s Intellectual Property
rights in the item;

 

(vi)     the Company and each Subsidiary is not party to any option, license,
sublicense or agreement of any kind covering the item that it is in material
breach or default thereunder, and to the knowledge of the Company and each
Subsidiary no event has occurred which, with notice or lapse of time, would
constitute such a breach or default or permit termination, modification or
acceleration thereunder; and

 

(vii)     each option, license, sublicense or agreement of any kind covering the
item is legal, valid, binding, enforceable and in full force and effect.

 

 
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(c)     All registered patents, copyrights, trademarks and service marks
included in the Company Intellectual Property: (x) if owned by the Company and
(y) if licensed, to the knowledge of the Company and each Subsidiary, are valid
and subsisting and are not subject to any claims, Encumbrances, taxes or other
fees except for periodic filing, annuity and maintenance fees and Permitted
Encumbrance.

 

(d)     None of the Key Employees are obligated under any contract (including,
without limitation, licenses, covenants, or commitments of any nature) or other
agreement, or subject to any judgment, decree, or order of any court or
administrative agency, that would interfere with the use of his or her
reasonable diligence to promote the interests of the Company or any Subsidiary
or that would conflict with the Company’s or any Subsidiary’s business as
presently conducted. Neither the execution, delivery or performance of this
Agreement, nor the carrying on of the Company’s or any Subsidiary’s business by
the employees of the Company or any Subsidiary, nor the conduct of the Company’s
or any Subsidiary’s businesses as presently conducted, will violate or result in
a breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant, or instrument under which any such Key Employee
is obligated, and which violation, breach or default would be materially adverse
to the Company or any Subsidiary.

 

(e)     The Company has entered into confidentiality and proprietary information
and assignment of inventions agreements in customary form and sufficient to
protect the rights of the Company, with any current and former employee or
contractor of the Company and each Subsidiary that had contributed to the
development of any Intellectual Property used by the Company or any Subsidiary
(other than Intellectual Property licensed by the Company or a Subsidiary from
any Person other than the Company or a Subsidiary). Neither the Company nor any
Subsidiary is aware of any violation by any such individual of such agreements.

 

(f)     No current or former stockholder, director, officer, employee,
consultant or contractor of the Company or any Subsidiary has any right, title
or interest in any of the Company Intellectual Property.

 

(g)     To the knowledge of the Company and each Subsidiary, it is not, nor will
it be, necessary to utilize any inventions, trade secrets or proprietary
information of any of the Company’s or any Subsidiary’s current or former
stockholder, director, officer, employee, consultant or contractor, made prior
to their employment or engagement by the Company or any Subsidiary, except for
valid and enforceable inventions, trade secrets or proprietary information that
have been duly and irrevocably assigned to the Company or any Subsidiary.

 

(h)     The Company and each Subsidiary maintains policies and procedures
regarding data security, privacy and data use that are commercially reasonable
and, in any event, comply with the Company’s and each Subsidiary’s obligations
to its customers and with applicable laws, rules, standards and regulations. To
the knowledge of the Company and each Subsidiary, there have not been, and the
transaction contemplated under this Agreement will not result in, any breach of
any security policy, data use restriction or breach under any such policies or
any breach of applicable laws, rules or regulations relating to data security,
privacy and data use.

 

 
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(i)     To the knowledge of the Company, the Company’s and each of the Company
Subsidiary’s businesses as currently conducted and proposed to be conducted does
not and will not infringe, misappropriate or violate any Intellectual Property
of any third party.

 

5.23.     Related-Party Transactions. Except as disclosed in the SEC Reports or
as set forth on Schedule 5.23 attached hereto, no stockholder who is known by
the Company to beneficially own 5% or more (on a fully-diluted basis) of any
class of equity securities and no officer or director of the Company or any
Subsidiary, or member of the foregoing’s immediate family, is currently indebted
to the Company or any Subsidiary, nor is the Company or any Subsidiary indebted
(or committed to make loans or extend or guarantee credit) to any of such
individuals. All transactions that have occurred between or among the Company
and any Subsidiary, on the one hand, and any of the Company’s or any
Subsidiary’s officers or directors, or any Affiliate or Affiliates of any such
officer or director, on the other hand, prior to the date hereof have been
disclosed in the SEC Reports.

 

5.24.     Title to Property and Assets. Neither the Company nor any Subsidiary
owns any real property. The Company and each Subsidiary own or have legally
enforceable rights to use or hold for use its personal property and assets free
and clear of all Encumbrances except: (i) Permitted Encumbrance and (ii) such
other Encumbrances, if any, that individually or in the aggregate, do not and
would not detract from the value of any asset or property of the Company or any
Subsidiary or interfere with the use or contemplated use of any personal
property of the Company or any Subsidiary. With respect to any real property,
the Company and each Subsidiary is not in violation in any material respect of
any of its leases. All machinery, equipment, furniture, fixtures and other
personal property that is material to the Company’s and each Subsidiary’s
business and all buildings, structures and other facilities, if any, including,
without limitation, office or other space used by the Company or any Subsidiary
in the conduct of its business and material to its business, are in good
operating condition and fit for operation in the ordinary course of business
(subject to normal wear and tear) except for any defects which will not
interfere with the conduct of normal operations of the Company or any
Subsidiary, as the case may be.

 

5.25.     Disclosure. The Company understands and confirms that the Purchaser
will rely on the foregoing representations in effecting transactions in
securities of the Company. No representation or warranty by the Company
contained in this Agreement contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. The Company acknowledges and agrees that the Purchaser does not make
and has not made and the Company does not rely in any way on any representations
or warranties with respect to the transactions contemplated hereby other than
those specifically set forth in Section 4 hereof. The Company confirms that
neither it nor any of its officers or directors nor any other Person acting on
its or their behalf has provided, and it has not authorized any other Person to
provide, any Purchaser or its respective agents or counsel with any information
that it believes constitutes material non-public information except insofar as
the existence, provisions and terms of the Transaction Documents and the
proposed transactions thereunder may constitute such information, all of which
will be disclosed by the Company in the press release or 8-K Filing, as
contemplated by Section 6.8 hereof.

 

 
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5.26.     Absence of Changes. Since September 30, 2013, except as disclosed on
Schedule 5.26, there has not been any Material Adverse Effect or any event or
events that individually or in the aggregate would reasonably be expected to
have a Material Adverse Effect. Since September 30, 2013, (i) there has not been
any dividend or distribution of any kind declared, set aside for payment, paid
or made by the Company on any class of capital stock, (ii) neither the Company
nor any Subsidiary has sustained any material loss or interference with the
Company’s or any Subsidiary’s business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor disturbance or
dispute or any action, order or decree of any court or arbitrator or
governmental or regulatory authority, and (iii) neither the Company nor any
Subsidiary has incurred any material liabilities except in the ordinary course
of business.

 

5.27.     Suppliers and Customers. Neither the Company nor any Subsidiary has
any knowledge of any termination, cancellation or threatened termination or
cancellation or limitation of, or any material dissatisfaction with, the
business relationship between the Company or any Subsidiary and any material
supplier, customer, vendor, customer or client.

 

5.28.     Regulatory Permits. The Company and each Subsidiary possess all
material certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to conduct the
Company’s or any Subsidiary’s business, as they are currently being conducted
(“Material Permits”), and neither the Company nor any Subsidiary has received
any notice of proceedings relating to the revocation or modification of any
Material Permit.

 

5.29.     Indebtedness. Other than Permitted Indebtedness, neither the Company
nor any Subsidiary (i) has any outstanding Indebtedness, (ii) is a party to any
contract, agreement or instrument, the violation of which, or default under
which, by any other party to such contract, agreement or instrument could
reasonably be expected to result in a Material Adverse Effect, (iii) is in
violation of any term of or in default under any contract, agreement or
instrument relating to any Indebtedness, except where such violations and
defaults would not result, individually or in the aggregate, in a Material
Adverse Effect or potential future violations relating to the inability to honor
conversions of indebtedness into Common Stock due to having an insufficient
number of shares of Common Stock authorized and available for issuance, or (iv)
is a party to any contract, agreement or instrument relating to any
Indebtedness, the performance of which, in the judgment of the Company’s or such
Subsidiary’s officers, as applicable, has or is expected to have a Material
Adverse Effect.

 

5.30.     Investment Company. The Company is not, and is not an Affiliate of,
and immediately after receipt of payment for the Shares, will not be or be an
Affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended.

 

 
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5.31.     Accountants. The accountant who expressed their opinion with respect
to the financial statements included in the SEC Reports, are independent
accountants as required by the Securities Act and the rules and regulations
promulgated thereunder. There are no disagreements of any kind presently
existing, or reasonably anticipated by the Company to arise, between the Company
and its accountants.

 

5.32.     Application of Takeover Protections. The Company and its Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company’s Charter Documents or the laws of its
state of incorporation (including Sections 78.378 to 78.3793 of the Nevada
Revised Statutes) that is or could become applicable to each Purchaser as a
result of such Purchaser and the Company fulfilling their obligations or
exercising their rights under this Agreement, including without limitation as a
result of the Company’s issuance of the Shares and such Purchaser’s ownership of
the Shares.

 

5.33.     Foreign Corrupt Practices. Since January 1, 2012, neither the Company,
its Subsidiaries, nor to the Company’s and each Subsidiary’s knowledge, any
director, officer, agent, employee or other person acting on behalf of the
Company or any Subsidiary has, in the course of its actions for, or on behalf
of, the Company or any Subsidiary (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of in any material respect any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee.

 

5.34.     Private Placement. Neither the Company nor its Subsidiaries or any
Affiliates, nor any person acting on its or their behalf, has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under any circumstances that would require registration of the
Securities under the Securities Act. Assuming the accuracy of the
representations and warranties of the Purchasers contained in Section 4 hereof,
the issuance of the Shares are exempt from registration under the Securities
Act.

 

5.35.     Acknowledgment Regarding Purchasers’ Purchase of Securities. The
Company acknowledges and agrees that each of the Purchasers is acting solely in
the capacity of an arm’s length purchaser with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity with respect to the Company) with respect to this Agreement
and the transactions contemplated hereby and any advice given by any Purchaser
or any of their respective representatives or agents to the Company in
connection with this Agreement and the transactions contemplated hereby is
merely incidental to such Purchaser’s purchase of the Securities. The Company
further represents to each Purchaser that the Company’s decision to enter into
this Agreement has been based on the independent evaluation of the transactions
contemplated hereby by the Company and its representatives.

 

 
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5.36.     No Registration Rights. Other than as set forth in the Registration
Rights Agreement, no person has the right to (i) prohibit the Company from
filing a Registration Statement or (ii) require the Company to register any
securities for sale under the Securities Act by reason of the filing of a
Registration Statement. The granting and performance of the registration rights
under the Registration Rights Agreement will not violate or conflict with, or
result in a breach of any provision of, or constitute a default under, any
agreement, indenture, or instrument to which the Company is a party.

 

5.37.     Insurance. The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as the Company
believes are prudent and customary for a company (i) in the businesses and
location in which the Company is engaged, (ii) with the resources of the
Company, and (iii) at a similar stage of development as the Company. The Company
has not received any written notice that the Company will not be able to renew
its existing insurance coverage as and when such coverage expires. The Company
believes it will be able to obtain similar coverage at reasonable cost from
similar insurers as may be necessary to continue its business.

 

5.38.     No Additional Agreements. The Company has no other agreements or
understandings (including, without limitation, side letters) with any Purchaser
to purchase Securities on terms other than as set forth herein.

 

5.39.     Dilutive Effect. The Company acknowledges that its obligation to issue
the Warrant Shares upon exercise of the Warrants in accordance with this
Agreement and the Warrants is absolute and unconditional (other than the
conditions set forth in the Warrants), regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders of the
Company.

 

5.40.     Subsidiary Rights. The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.

 

5.41.     Acknowledgement Regarding Purchasers’ Trading Activity. It is
understood and acknowledged by the Company that (i) following the public
disclosure of the transactions contemplated by the Transaction Documents in
accordance with the terms thereof, none of the Purchasers have been asked by the
Company or any of its Subsidiaries to agree, nor has any Purchaser agreed with
the Company or any of its Subsidiaries, to desist from effecting any
transactions in or with respect to (including, without limitation, purchasing or
selling, long and/or short) any securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold any of the
Securities for any specified term; (ii) any Purchaser, and counterparties in
“derivative” transactions to which any such Purchaser is a party, directly or
indirectly, presently may have a “short” position in the Common Stock which was
established prior to such Purchaser’s knowledge of the transactions contemplated
by the Transaction Documents; and (iii) each Purchaser shall not be deemed to
have any affiliation with or control over any arm’s length counterparty in any
“derivative” transaction. The Company further understands and acknowledges that
following the public disclosure of the transactions contemplated by the
Transaction Documents pursuant to the Press Release (as defined below) one or
more Purchasers may engage in hedging and/or trading activities at various times
during the period that the Securities are outstanding, including, without
limitation, during the periods that the value and/or number of the Warrant
Shares deliverable with respect to the Securities are being determined and such
hedging and/or trading activities, if any, can reduce the value of the existing
stockholders’ equity interest in the Company both at and after the time the
hedging and/or trading activities are being conducted. The Company acknowledges
that such aforementioned hedging and/or trading activities do not constitute a
breach of this Agreement or any other Transaction Document or any of the
documents executed in connection herewith or therewith.

 

 
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5.42.     Manipulation of Price. Neither the Company nor any of its Subsidiaries
has, and, to the knowledge of the Company, no Person acting on their behalf has,
directly or indirectly, (i) taken any action designed to cause or to result in
the stabilization or manipulation of the price of any security of the Company or
any of its Subsidiaries to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities (other than the Placement Agent),
or (iii) paid or agreed to pay to any Person any compensation for soliciting
another to purchase any other securities of the Company or any of its
Subsidiaries (other than the Placement Agent).

 

5.43.     U.S. Real Property Holding Corporation. Neither the Company nor any of
its Subsidiaries is, or has ever been, and so long as any of the Securities are
held by any of the Purchasers, shall become, a U.S. real property holding
corporation within the meaning of Section 897 of the Internal Revenue Code of
1986, as amended, and the Company and each Subsidiary shall so certify upon any
Purchaser’s request.

 

5.44.     Transfer Taxes. On the Closing Date, all stock transfer or other taxes
(other than income or similar taxes) which are required to be paid in connection
with the issuance, sale and transfer of the Securities to be sold to each
Purchaser hereunder will be, or will have been, fully paid or provided for by
the Company, and all laws imposing such taxes will be or will have been complied
with.

 

5.45.     Bank Holding Company Act. Neither the Company nor any of its
Subsidiaries is subject to the Bank Holding Company Act of 1956, as amended (the
“BHCA”) and to regulation by the Board of Governors of the Federal Reserve
System (the “Federal Reserve”). Neither the Company nor any of its Subsidiaries
or affiliates owns or controls, directly or indirectly, five percent (5%) or
more of the outstanding shares of any class of voting securities or twenty-five
percent (25%) or more of the total equity of a bank or any equity that is
subject to the BHCA and to regulation by the Federal Reserve. Neither the
Company nor any of its Subsidiaries or affiliates exercises a controlling
influence over the management or policies of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve.

 

5.46.     Shell Company Status. Since January 1, 2010, the Company is not an
issuer identified in, or subject to, Rule 144(i).

 

5.47.     Public Utility Holding Act. None of the Company nor any of its
Subsidiaries is a “holding company,” or an “affiliate” of a “holding company,”
as such terms are defined in the Public Utility Holding Act of 2005.

 

 
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5.48.     Federal Power Act. None of the Company nor any of its Subsidiaries is
subject to regulation as a “public utility” under the Federal Power Act, as
amended.

 

5.49.     Money Laundering. The Company and its Subsidiaries are in compliance
with, and have not previously violated, the USA Patriot Act of 2001 and all
other applicable U.S. and non-U.S. anti-money laundering laws and regulations,
including, without limitation, the laws, regulations and Executive Orders and
sanctions programs administered by the U.S. Office of Foreign Assets Control,
including, without limitation, (i) Executive Order 13224 of September 23, 2001
entitled, “Blocking Property and Prohibiting Transactions With Persons Who
Commit, Threaten to Commit, or Support Terrorism” (66 Fed. Reg. 49079 (2001));
and (ii) any regulations contained in 31 CFR, Subtitle B, Chapter V.

 

5.50.     No Disqualification Events. None of the Company, any of its
predecessors, any affiliated issuer, any director, executive officer, other
officer of the Company participating in the offering contemplated hereby, any
beneficial owner of 20% or more of the Company’s outstanding voting equity
securities, calculated on the basis of voting power, nor any promoter (as that
term is defined in Rule 405 under the Securities Act) connected with the Company
in any capacity at the time of sale (each, an “Issuer Covered Person”) is
subject to any of the “Bad Actor” disqualifications described in Rule
506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”),
except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The
Company has exercised reasonable care to determine whether any Issuer Covered
Person is subject to a Disqualification Event.

 

6.     Covenants.

 

6.1.     Best Efforts. Each party shall use its best efforts to timely satisfy
each of the conditions to be satisfied by it as provided in Section 7 of this
Agreement.

 

6.2.     Reporting Status. During the Reporting Period, the Company shall (i)
timely file all reports required to be filed with the Commission pursuant to the
Exchange Act or the rules and regulations thereunder and (ii) not take any
action or file any document (whether or not permitted by the Securities Act or
the rules promulgated thereunder) to terminate or suspend the Company’s
reporting and filing obligations under the Exchange Act or Securities Act.

 

6.3.     Use of Proceeds. The Company will use the proceeds from the sale of the
Shares for general corporate purposes, repayment of Indebtedness, research and
development, clinical trial studies and related preclinical studies, business
development, working capital and general and administrative expenses.

 

6.4.     Financial Information. The Company agrees to send the following to each
Investor (as defined in the Registration Rights Agreement) during the Reporting
Period (i) unless the following are filed with the SEC through EDGAR and are
available to the public through the EDGAR system, within one (1) Business Day
after the filing thereof with the SEC, a copy of its Annual Reports on Form 10-K
and Quarterly Reports on Form 10-Q, any interim reports or any consolidated
balance sheets, income statements, stockholders’ equity statements and/or cash
flow statements for any period other than annual, any Current Reports on Form
8-K and any registration statements (other than on Form S-8) or amendments filed
pursuant to the Securities Act and (ii) copies of any notices and other
information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders.

 

 
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6.5.     Listing. The Company shall promptly secure the listing or designation
for quotation (as the case may be) of all of the Registrable Securities upon
each trading market and national securities exchange and automated quotation
system, if any, upon which the Common Stock is then listed or designated for
quotation (as the case may be) (subject to official notice of issuance) (but in
no event later than the Closing Date) and shall maintain such listing or
designation for quotation (as the case may be) of all Registrable Securities
from time to time issuable under the terms of the Transaction Documents on such
national securities exchange or automated quotation system. The Company shall
maintain the Common Stock’s listing or designation for quotation (as the case
may be) on the Principal Market, The New York Stock Exchange, the NYSE MKT, the
Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital
Market (each, an “Eligible Market”). Neither the Company nor any of its
Subsidiaries shall take any action which could be reasonably expected to result
in the delisting or suspension of the Common Stock on an Eligible Market. The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 6.5.

 

6.6.     Conduct of Business. The business of the Company shall not be conducted
in violation of any law, ordinance or regulation of any governmental entity,
except where such violations would not result, either individually or in the
aggregate, in a Material Adverse Effect.

 

6.7.     Pledge of Shares. The Company acknowledges and agrees that the Shares
may be pledged by the Purchasers in connection with a bona fide margin agreement
or other loan or financing arrangement that is secured by the Shares. The pledge
of Shares shall not be deemed to be a transfer, sale or assignment of the Shares
hereunder, and in effecting a pledge of Shares the Purchasers shall not be
required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement. The Company hereby agrees to
execute and deliver such documentation as a pledgee of the Shares may reasonably
request in connection with a pledge of the Shares to such pledgee by the
Purchasers.

 

6.8.     Disclosure of Transactions and Other Material Information. On or before
8:30 a.m., New York City time, on the second Business Day following the date of
this Agreement, the Company shall issue a press release and file a Current
Report on Form 8-K describing the terms and conditions of the transactions
contemplated by the Transaction Documents in the form required by the Exchange
Act and attaching the Agreement as an exhibit to such filing (including all
attachments, the “8-K Filing”). The Company shall not publicly disclose the name
of any Purchaser or any affiliate or investment adviser of the Purchaser, or
include the name of any Purchaser or any affiliate or investment adviser of the
Purchaser in any filing with the Commission (other than in a Registration
Statement and any exhibits to filings made in respect of this transaction in
accordance with periodic report or current report filing requirements under the
Exchange Act) or any regulatory agency, without the prior written consent of
such Purchaser, except to the extent such disclosure is required by law or
regulations, in which case the Company shall provide each Purchaser whose name
is to be disclosed with prior notice of such disclosure and a reasonable
opportunity to comment on the proposed disclosure insofar as it relates
specifically to such Purchaser. Subject to the foregoing, neither the Company
nor the Purchasers shall issue any press releases or any other public statements
with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of the Purchasers, to
make any press release or other public disclosure with respect to such
transactions (i) in substantial conformity with the 8-K Filing and
contemporaneously therewith and (ii) as is required by applicable law and
regulations.

 

 
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6.9.     Expenses. The Company shall pay the reasonable legal fees and expenses
of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., counsel to certain
Purchasers (“Mintz Levin”), incurred by such Purchasers in connection with the
transactions contemplated by this Agreement, not to exceed $50,000, which amount
shall be paid directly by the Company to Mintz Levin at the Closing or paid by
the Company to Mintz Levin upon termination of this Agreement. The Company shall
be responsible for the payment of any placement agent’s fees, financial advisory
fees, or broker’s commissions (other than for Persons engaged by any Purchaser)
relating to or arising out of the transactions contemplated hereby (including,
without limitation, any fees payable to the Placement Agent, who is the
Company’s sole placement agent in connection with the transactions contemplated
by this Agreement, and the Former Placement Agent). The Company shall pay, and
hold each Purchaser harmless against, any liability, loss or expense (including,
without limitation, reasonable attorneys’ fees and out-of-pocket expenses)
arising in connection with any claim relating to any such payment. Except as set
forth above, the Company and each Purchaser is liable for, and will pay, its own
expenses incurred in connection with the negotiation, preparation, execution and
delivery of this Agreement, including, without limitation, attorneys’ and
consultants’ fees and expenses.

 

6.10.     Underlying Shares; Warrant Shares; Conversion Procedures. The Company
shall reserve and keep available at all times during which the Preferred Shares
and Warrants remain outstanding, free of preemptive rights, a sufficient number
of shares of Common Stock for the purpose of enabling the Company to issue the
Underlying Shares upon conversion of the Preferred Shares pursuant to the
Certificate of Designation and the Warrant Shares pursuant to the terms of the
respective Warrant. The form of Notice of Conversion included in the Certificate
of Designation sets forth the totality of the procedures required of the
Purchasers in order to convert the Preferred Shares. No additional legal
opinion, other information or instructions shall be required of the Purchasers
order for them to convert their Preferred Shares. The Company shall honor
conversions of the Preferred Shares and exercise of the Warrants and shall
deliver Underlying Shares and the Warrant Shares in accordance with the terms,
conditions and time periods set forth in the Transaction Documents.

 

6.11.     Form D and Blue Sky. The Company shall file a Form D with respect to
the Securities as required under Regulation D and to provide a copy thereof to
each Purchaser promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary in order to obtain an exemption for, or to, qualify the Securities for
sale to the Purchasers at the Closing pursuant to this Agreement under
applicable securities or “Blue Sky” laws of the states of the United States (or
to obtain an exemption from such qualification), and shall provide evidence of
any such action so taken to the Purchasers on or prior to the Closing Date.
Without limiting any other obligation of the Company under this Agreement, the
Company shall timely make all filings and reports relating to the offer and sale
of the Securities required under all applicable securities laws (including,
without limitation, all applicable federal securities laws and all applicable
“Blue Sky” laws), and the Company shall comply in all material respects with all
applicable federal, foreign, state and local laws, statutes, rules, regulations
and the like relating to the offering and sale of the Securities to the
Purchasers.

 

 
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6.12.     Additional Registration Statements. Until the Applicable Date (as
defined below) and at any time thereafter while any Registration Statement is
not effective or any prospectus contained therein is not available for use, the
Company shall not file a registration statement under the Securities Act
relating to securities that are not the Registrable Securities. “Applicable
Date” means the first date on which the resale by the Purchasers of all
Registrable Securities is covered by one or more effective Registration
Statements (as defined in the Registration Rights Agreement) (and each
prospectus contained therein is available for use on such date).

 

6.13.     Additional Issuance of Securities. Without the prior written consent
of each Major Purchaser) (which may be granted or withheld in the sole
discretion of such Major Purchaser), the Company agrees that for the period
commencing on the date hereof and ending on the date immediately following the
one hundred eighty (180) day anniversary of the Applicable Date (provided that
such period shall be extended by the number of days during such period and any
extension thereof contemplated by this proviso on which the Registration
Statement is not effective or any prospectus contained therein is not available
for use) (the “Restricted Period”), neither the Company nor any of its
Subsidiaries shall directly or indirectly issue, offer, sell, grant any option
or right to purchase, or otherwise dispose of (or announce any issuance, offer,
sale, grant of any option or right to purchase or other disposition of) any
equity security or any equity-linked or related security (including, without
limitation, any “equity security” (as that term is defined under Rule 405
promulgated under the Securities Act), any Convertible Securities, any debt, any
preferred stock or any purchase rights (any such issuance, offer, sale, grant,
disposition or announcement (whether occurring during the Restricted Period or
at any time thereafter) is referred to as a “Subsequent Placement”).
Notwithstanding the foregoing, this Section 6.14 shall not apply in respect of
the issuance of:

 

(a)     shares of Common Stock or standard options to purchase Common Stock to
directors, officers or employees of the Company in their capacity as such
pursuant to an Approved Share Plan (as defined below), provided that (1) all
such issuances (taking into account the shares of Common Stock issuable upon
exercise of such options) after the date hereof pursuant to this clause (A) do
not, in the aggregate, exceed more than 1,950,000 shares of Common Stock (as
adjusted for stock splits, stock combinations and other similar transactions
occurring after the date of this Agreement) and (2) the exercise price of any
such options is not lowered, none of such options are amended to increase the
number of shares issuable thereunder and none of the terms or conditions of any
such options are otherwise materially changed in any manner that adversely
affects any of the Purchasers;

 

 
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(b)     shares of Common Stock issued upon the conversion or exercise of, or
otherwise on account of, Convertible Securities (other than standard options to
purchase Common Stock issued pursuant to an Approved Share Plan that are covered
by clause (a) above) issued prior to the date hereof, provided that the
conversion, exercise or other method of issuance (as the case may be) of any
such Convertible Security is made solely pursuant to the conversion, exercise or
other method of issuance (as the case may be) provisions of such Convertible
Security that were in effect on the date immediately prior to the date of this
Agreement, the conversion, exercise or issuance price of any such Convertible
Securities (other than standard options to purchase Common Stock issued pursuant
to an Approved Share Plan that are covered by clause (a) above) is not lowered,
none of such Convertible Securities are (other than standard options to purchase
Common Stock issued pursuant to an Approved Share Plan that are covered by
clause (a) above) (nor is any provision of any such Convertible Securities)
amended or waived in any manner (whether by the Company or the holder thereof)
to increase, or which results in an increase in, the number of shares issuable
thereunder and none of the terms or conditions of any such Convertible
Securities (other than standard options to purchase Common Stock issued pursuant
to an Approved Share Plan that are covered by clause (a) above) are otherwise
materially changed or waived (whether by the Company or the holder thereof) in
any manner that adversely affects any of the Purchasers;

 

(c)     the Warrants;

 

(d)     the Shares; and

 

(e)     shares of Common Stock issued in connection with strategic mergers and
acquisitions, provided that (I) the primary purpose of such issuance is not to
raise capital, (II) the acquirer of such shares of Common Stock in such issuance
solely consists of either (1) the actual owners of such assets or securities
acquired in such merger or acquisition or (2) the stockholders, partners or
members of the foregoing Persons, (III) the number or amount (as the case may
be) of such shares of Common Stock issued to each such Person by the Company
shall not be disproportionate to such Person’s actual ownership of such assets
or securities to be acquired by the Company (as applicable) and (IV) all such
issuances of Common Stock after the date hereof pursuant to this clause (F) do
not, in the aggregate, exceed more than 3,900,000 shares of Common Stock
(adjusted for stock splits, stock combinations and other similar transactions
occurring after the date of this Agreement) (each of the foregoing in clauses
(a) through (e), collectively the “Excluded Securities”).

 

“Approved Share Plan” means any employee benefit plan which has been approved by
the board of directors of the Company prior to the date hereof pursuant to which
shares of Common Stock and standard options to purchase Common Stock may be
issued to any employee, officer or director for services provided to the Company
in their capacity as such. “Convertible Securities” means any capital stock,
note, debenture or other security of the Company or any of its Subsidiaries that
is, or may become, at any time and under any circumstances directly or
indirectly convertible into, exercisable or exchangeable for, or which otherwise
entitles the holder thereof to acquire, any capital stock, note, debenture or
other security of the Company (including, without limitation, Common Stock) or
any of its Subsidiaries.

 

 
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6.14.     Variable Rate Transaction. Until the earlier to occur of (i) the date
on which all of the Purchasers shall have sold all of the Registrable Securities
and (ii) the third (3rd) anniversary of the date hereof, the Company and each
Subsidiary shall be prohibited from effecting or entering into an agreement to
effect any Subsequent Placement involving a Variable Rate Transaction without
the prior written consent of the Required Significant Purchasers (which may be
granted or withheld in the sole discretion of the Required Significant
Purchasers). “Variable Rate Transaction” means a transaction in which the
Company or any Subsidiary (i) issues or sells any Convertible Securities either
(A) at a conversion, exercise or exchange rate or other price that is based upon
and/or varies with the trading prices of, or quotations for, the shares of
Common Stock at any time after the initial issuance of such Convertible
Securities, or (B) with a conversion, exercise or exchange price that is subject
to being reset at some future date after the initial issuance of such
Convertible Securities or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for
the Common Stock, other than pursuant to a customary “weighted average”
anti-dilution provision or (ii) enters into any agreement (including, without
limitation, an “equity line of credit” or an “at the market offering”) whereby
the Company or any Subsidiary may sell securities at a future determined price
(other than standard and customary “preemptive” or “participation” rights). Each
Purchaser shall be entitled to obtain injunctive relief against the Company and
its Subsidiaries (as applicable) to preclude any such issuance, which remedy
shall be in addition to any right to collect damages.

 

6.15.     Passive Foreign Investment Company. The Company shall conduct its
business in such a manner as will ensure that the Company will not be deemed to
constitute a passive foreign investment company within the meaning of Section
1297 of the U.S. Internal Revenue Code of 1986, as amended.

 

6.16.     Corporate Existence. So long as any Purchaser owns any Warrants, the
Company shall not be party to any Fundamental Transaction (as defined in the
Warrants) unless the Company is in compliance with the applicable provisions
governing Fundamental Transactions set forth in the Warrants.

 

7.     Conditions of Parties’ Obligations.

 

7.1.     Conditions of the Purchasers’ Obligations at the Closing. The
obligations of the Purchasers under Section 2 hereof are subject to the
fulfillment, prior to the Closing, of all of the following applicable
conditions, any of which may be waived in whole or in part by the Purchasers in
their absolute discretion. If the following conditions are not satisfied on or
before March 27, 2014, then any Purchaser may terminate this Agreement with
respect to that particular Purchaser upon providing written notice to the
Company.

 

(a)     Representations and Warranties. The representations and warranties of
the Company contained in this Agreement and in any certificate, if any, or other
writing, if any, delivered by the Company pursuant hereto shall be true and
correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of the Closing Date
(except to the extent expressly made as of an earlier date in which case as of
such earlier date).

 

 
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(b)    Performance. The Company shall have performed and complied in all
material respects with all covenants, agreements, obligations and conditions
contained in this Agreement that are required to be performed or complied by it
on or prior to the Closing Date.

 

(c)    Delivery. The Company shall deliver this Agreement duly executed by the
Company and evidence of the filing and acceptance of the Certificate of
Designation from the Secretary of State of Nevada;

 

(d)    Qualification Under State Securities Laws. All registrations,
qualifications, permits and approvals, if any, required under applicable state
securities laws shall have been obtained for the lawful execution, delivery and
performance of this Agreement.

 

(e)    Consents and Waivers. The Company shall have obtained all consents or
waivers necessary to execute and perform its obligations under this Agreement.
All corporate and other action and governmental filings necessary for the
Company to effectuate the terms of this Agreement and other agreements and
instruments executed and delivered by the Company in connection herewith shall
have been made or taken by the Company, and no Material Adverse Effect has
occurred with respect to the operation of the Company’s business.

 

(f)     No Material Adverse Effect. Since the date of the latest audited balance
sheet of the Company included in the SEC Reports, no event or series of events
shall have occurred that has had or would reasonably be expected to have a
Material Adverse Effect.

 

(g)    Legal Opinion. The Company shall have delivered to such Purchaser an
opinion, dated as of the Closing Date, from Smith, Gambrell & Russell, LLP,
counsel to the Company, in a form reasonably acceptable to the Purchasers.

 

(h)    Registration Rights Agreement. The Company shall have delivered to such
Purchaser the Registration Rights Agreement by an among the Company and the
Purchasers, dated as of the Closing Date, in the form attached hereto as Exhibit
C (as amended, modified or supplemented from time to time in accordance with its
terms, the “Registration Rights Agreement”) duly executed by the Company.

 

(i)     Transfer Agent Instructions. The Company shall have delivered to its
transfer agent irrevocable instructions to issue to such Purchaser or in such
nominee name(s) as designated by such Purchaser in writing (i) one or more
certificates representing such Common Shares set forth opposite such Purchaser’s
name on Schedule I hereto, (ii) one or more certificates representing such
Preferred Shares set forth opposite such Purchaser’s name on Schedule I hereto,
and (ii) Warrants representing such Warrant Shares set forth opposite such
Purchaser’s name on Schedule I hereto; provided, however, that if such Purchaser
has indicated to the Company at the time of execution of this Agreement a need
to settle “delivery versus payment”, the Company shall deliver to such Purchaser
or such Purchaser’s designated custodian such original stock certificates and
Warrants to be acquired by such Purchaser.

 

 
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(j)     Officer’s Certificate. The Company shall have delivered to each
Purchaser a certificate, dated as of the Closing Date and signed by its Chief
Executive Officer or its Chief Financial Officer, certifying to the fulfillment
of the conditions specified in Sections 7.1(a), (b) and (f).

 

(k)    Secretary’s Certificate. The Company shall have delivered to each
Purchaser a certificate of the Secretary of the Company, dated as of the Closing
Date, (a) certifying the resolutions adopted by the board of directors of the
Company or a duly authorized committee thereof approving the transactions
contemplated by this Agreement and the other Transaction Documents and the
issuance of the Shares, (b) certifying the current versions of the certificate
or articles of incorporation, as amended, and by-laws of the Company and (c)
certifying as to the signatures and authority of persons signing the Transaction
Documents and related documents on behalf of the Company.

 

(l)     Absence of Litigation. No proceeding challenging this Agreement or the
transactions contemplated hereby, or seeking to prohibit, alter, prevent or
materially delay the Closing, shall have been instituted or be pending before
any court, arbitrator, governmental body, agency or official.

 

(m)   No Governmental Prohibition. The sale of the Shares by the Company shall
not be prohibited by any law or governmental order or regulation.

 

7.2.     Conditions of the Company’s Obligations. The obligations of the Company
under Section 2 hereof are subject to the fulfillment prior to or on the Closing
Date of all of the following conditions with respect to each Purchaser
separately, any of which may be waived in whole or in part by the Company: (i)
such Purchaser at the Closing shall have performed all of its obligations
hereunder required to be performed by it at or prior to the Closing, (ii) the
representations and warranties of such Purchasers at the Closing contained in
this Agreement shall be true and correct at and as of the Closing as if made at
and as of the Closing (except to the extent expressly made as of an earlier
date, in which case as of such earlier date), and (iii) such Purchaser shall
have delivered to the Company the Registration Rights Agreement duly executed by
such Purchaser. If the foregoing conditions are not satisfied on or before March
27, 2014, with respect to any Purchaser, then the Company may terminate this
Agreement with respect to such Purchaser only, upon providing written notice to
such Purchaser.

 

 
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8.             Transfer Restrictions; Restrictive Legend.

 

8.1.     Transfer Restrictions. The Purchasers understand that the Company may,
as a condition to the transfer of any of the Shares, require that the request
for transfer be accompanied by an opinion of counsel reasonably satisfactory to
the Company, to the effect that the proposed transfer does not result in a
violation of the Securities Act, unless such transfer is covered by an effective
registration statement or by Rule 144 or Rule 144A under the Securities Act;
provided, however, that an opinion of counsel shall not be required for a
transfer by a Purchaser that is (A) a partnership transferring to its partners
or former partners in accordance with partnership interests, (B) a corporation
transferring to a wholly owned subsidiary or a parent corporation that owns all
of the capital stock of such Purchaser, (C) a limited liability company
transferring to its members or former members in accordance with their interest
in the limited liability company, (D) an individual transferring to such
Purchaser’s family member or trust for the benefit of an individual Purchaser,
(E) transferring its Shares to any Affiliate of such Purchaser, in the case of
an institutional investor, or other Person under common management with such
Purchaser, or (F) a transfer that is made pursuant to a bona fide gift to a
third party; provided, further, that (i) the transferee in each case agrees to
be subject to the restrictions in this Section 8 and provides the Company with a
representation letter containing substantially the same representations and
warranties in Sections 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8 and 4.9 hereof, (ii)
the Company satisfies itself that the number of transferees is sufficiently
limited and (iii) in the case of transferees that are partners or limited
liability company members, the transfer is for no consideration. It is
understood that the certificates evidencing the Shares may bear substantially
the following legend:

 

“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A OF SUCH ACT.”

 

8.2.     Unlegended Certificates. The Company shall, at its sole expense, upon
appropriate notice from any Purchaser stating that Registerable Securities have
been sold pursuant to an effective registration statement, timely prepare and
deliver certificates representing the Shares to be delivered to a transferee
pursuant to the registration statement, which certificates shall be free of any
restrictive legends and in such denominations and registered in such names as
such Purchaser may request. Further, the Company shall, at its sole expense,
cause its legal counsel or other counsel satisfactory to the transfer agent (i)
while the registration statement is effective, to issue to the transfer agent a
“blanket” legal opinion to allow sales without restriction pursuant to the
effective registration statement and (ii) provide all other opinions as may
reasonably be required by the transfer agent in connection with the removal of
legends. A Purchaser may request that the Company remove, and the Company agrees
to authorize the removal of, any legend from such Shares, following the delivery
by a Purchaser to the Company or the Company’s transfer agent of a legended
certificate representing such Shares (i) following any sale of such Shares
pursuant to Rule 144, (ii) if such Shares are eligible for sale under Rule
144(b)(1), or (iii) following the time a legend is no longer required with
respect to such Shares. If a legend is no longer required pursuant to the
foregoing, the Company will no later than three (3) Business Days following the
delivery by a Purchaser to the Company or the Company’s transfer agent of a
legended certificate representing such Shares deliver or cause to be delivered
to such Purchaser a certificate representing such Shares that is free from all
restrictive legends. Certificates for Shares free from all restrictive legends
may be transmitted by the Company’s transfer agent to the Purchasers by
crediting the account of the Purchaser’s prime broker with the Depository Trust
Company (“DTC”) as directed by such Purchaser. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 8.2 will be given by the Company to its transfer agent and that
the Shares shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement. If a Purchaser
effects a transfer of the Shares in accordance with Section 8.1, the Company
shall permit the transfer and shall promptly instruct its transfer agent to
issue one or more certificates or credit shares to the applicable balance
accounts at DTC in such name and in such denominations as specified by such
Purchaser to effect such transfer. Each Purchaser hereby agrees that the removal
of the restrictive legend pursuant to this Section 8.2 is predicated upon the
Company’s reliance that such Purchaser will sell any such Shares pursuant to
either the registration requirements of the Securities Act, including any
applicable prospectus delivery requirements, or an exemption therefrom.

 

 
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At any time when the Company is required to cause an unlegended certificate to
replace a previously issued legended certificate, if: (1) the unlegended
certificate is not delivered to a Purchaser within three (3) Business Days of
submission by that Purchaser of a legended certificate and supporting
documentation to the transfer agent as provided above and (2) prior to the time
such unlegended certificate is received by the Purchaser, the Purchaser, or any
third party on behalf of such Purchaser or for the Purchaser’s account,
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Purchaser of shares represented by such
certificate (a “Buy-In”), then the Company shall pay in cash to the Purchaser
(for costs incurred either directly by such Purchaser or on behalf of a third
party) the amount by which the total purchase price paid for Common Stock as a
result of the Buy-In (including brokerage commissions, if any) exceeds the
proceeds received by such Purchaser as a result of the sale to which such Buy-In
relates. The Purchaser shall provide the Company written notice indicating the
amounts payable to the Purchaser in respect of the Buy-In.

 

9.             Registration, Transfer and Substitution of Certificates for
Shares.

 

9.1.     Stock Register; Ownership of Shares. The Company will keep at its
principal office, or cause its transfer agent to keep, a register in which the
Company will provide for the registration of transfers of the Shares. The
Company may treat the Person in whose name any of the Shares are registered on
such register as the owner thereof and the Company shall not be affected by any
notice to the contrary. All references in this Agreement to a “holder” of any
Shares shall mean the Person in whose name such Shares are at the time
registered on such register.

 

9.2.     Replacement of Certificates. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
certificate representing any of the Shares, and, in the case of any such loss,
theft or destruction, upon delivery of an indemnity agreement and surety bond
reasonably satisfactory to the Company or, in the case of any such mutilation,
upon surrender of such certificate for cancellation at the office of the Company
maintained pursuant to Section 9.1 hereof, the Company at its expense will
execute and deliver, in lieu thereof, a new certificate representing such Common
Share, of like tenor.

 

 
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10.           Definitions. Unless the context otherwise requires, the terms
defined in this Section 10 shall have the meanings specified for all purposes of
this Agreement; provided however, that capitalized terms that are not otherwise
defined herein shall have the meanings given to such terms in the Certificate of
Designation. All accounting terms used in this Agreement, whether or not defined
in this Section 10, shall be construed in accordance with GAAP. If the Company
has one or more Subsidiaries, such accounting terms shall be determined on a
consolidated basis for the Company and each of its Subsidiaries, and the
financial statements and other financial information to be furnished by the
Company pursuant to this Agreement shall be consolidated and presented with
consolidating financial statements of the Company and each of its Subsidiaries.

 

“Affiliate” shall have the meaning ascribed to such term in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act.

 

“Certificate of Designation” means the Certificate of Designation to be filed
prior to the Closing by the Company with the Secretary of State of Nevada, in
the form of Exhibit B attached hereto.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Encumbrances” means a lien, claim, judgment, charge, mortgage, security
interest, pledge, escrow, equity or other encumbrance other than restrictions
pursuant to any applicable state or federal securities laws.

 

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

 

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

 

“Governmental Entity” means any national, federal, state, municipal, local,
territorial, foreign or other government or any department, commission, board,
bureau, agency, regulatory authority, self-regulatory organization or
instrumentality thereof, or any court, judicial, administrative or arbitral body
or public or private tribunal.

 

“Indebtedness” means (1) all indebtedness for borrowed money, (2) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services (including, without limitation, “capital leases” in
accordance with GAAP) (other than trade payables entered into in the ordinary
course of business), (3) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (4) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (5) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (6) all monetary obligations under any
leasing or similar arrangement which, in connection with GAAP, consistently
applied for the periods covered thereby, is classified as a capital lease, (7)
all indebtedness referred to in clauses (1) through (6) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become liable for
the payment of such indebtedness, and (8) all contingent obligations in respect
of indebtedness or obligations of others of the kinds referred to in clauses (1)
through (7) above.

 

 
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“Knowledge” by a Person of a particular fact or other matter means the
following: (a) if the Person is an individual, that such individual is actually
aware or reasonably should be aware, after due inquiry, by virtue of such
person’s office, of such fact or other matter; and (b) if the Person is an
Entity, any executive officer of such Person is actually aware or reasonably
should be aware, after due inquiry, of such fact or other matter.

 

“Major Purchaser” means (i) prior to Closing any Purchaser who, together with
its Affiliates, has agreed to invest at least $1,500,000 pursuant to this
Agreement and (ii) from and after Closing, any Purchaser who, together with its
Affiliates, beneficially owns (as determined pursuant to Rule 13d-3 under the
Exchange Act but without giving effect to any limitation on the conversion of
the Preferred Shares included in the Certificate of Designation) at least
3,000,000 shares of Common Stock on an as converted basis, assuming conversion
of all Preferred Shares to Common Stock but without giving effect to any
limitation on the conversion of the Preferred Shares included in the Certificate
of Designation (appropriately adjusted for any stock split, reverse stock split,
stock dividend or other reclassification or combination of the Common Stock
occurring after the date hereof).

 

“Material Adverse Effect” means any (i) adverse effect on the reservation,
issuance, delivery or validity of the Shares, as applicable, or the transactions
contemplated hereby or on the ability of the Company to perform its obligations
under this Agreement, or (ii) material adverse effect on the condition
(financial or otherwise), prospects, properties, assets, liabilities, business
or operations of the Company or any of its Subsidiaries.

 

“Material Contract” means all written and oral contracts, agreements, deeds,
mortgages, leases, subleases, licenses, instruments, notes, commitments,
commissions, undertakings, arrangements and understandings (i) which by their
terms involve, or would reasonably be expected to involve, aggregate payments by
or to the Company or any Subsidiary during any twelve month period in excess of
$250,000, (ii) the breach of which by the Company or any Subsidiary would
reasonably be expected to have a Material Adverse Effect, or (iii) which are
required to be filed as exhibits by the Company with the Commission pursuant to
Items 601(b)(1), 601(b)(2), 601(b)(4), 601(b)(9) or 601(b)(10) of Regulation S-K
promulgated by the Commission.

 

“Person” means and includes all natural persons, corporations, business trusts,
associations, companies, partnerships, joint ventures, limited liability
companies and other entities and governments and agencies and political
subdivisions.

 

 
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“Permitted Encumbrance” means any Encumbrance disclosed in an SEC Report and:
(1) any Encumbrance for taxes not yet due or delinquent or being contested in
good faith by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP, (2) any statutory Encumbrance arising in
the ordinary course of business by operation of law with respect to a liability
that is not yet due or delinquent, (3) any Encumbrance created by operation of
law, such as materialmen’s liens, mechanics’ liens and other similar liens,
arising in the ordinary course of business with respect to a liability that is
not yet due or delinquent or that are being contested in good faith by
appropriate proceedings, (4) Encumbrance (a) upon or in any equipment acquired
or held by the Company or any of its Subsidiaries to secure the purchase price
of such equipment or indebtedness incurred solely for the purpose of financing
the acquisition or lease of such equipment, or (b) existing on such equipment at
the time of its acquisition, provided that the Encumbrance is confined solely to
the property so acquired and improvements thereon, and the proceeds of such
equipment, (5) Encumbrance incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Encumbrance of the type described in
clauses (1) through (4) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Encumbrance and the principal amount of the Indebtedness being extended, renewed
or refinanced does not increase, (7) leases, subleases, licenses and sublicenses
granted to others in the ordinary course of the Company’s business, not
interfering in any material respect with the business of the Company and its
Subsidiaries taken as a whole, and (8) Encumbrance in favor of customs and
revenue authorities arising as a matter of law to secure payments of custom
duties in connection with the importation of goods.

 

“Permitted Indebtedness” means (1) Indebtedness existing on the Closing Date and
disclosed in the SEC Reports, (2) Purchase Money Indebtedness, (3) Indebtedness
to trade creditors incurred in the ordinary course of business, (4) extensions,
refinancings and renewals of any items of Permitted Indebtedness in clauses (1)
and (2) hereof, provided that the principal amount is not increased, other than
by their existing terms, or the terms modified to impose more burdensome terms
upon Company and such Indebtedness shall not be secured by any additional
collateral, and Indebtedness otherwise listed on Schedule 5.29.

 

“Preferred Stock” means the up to 6,175 shares of the Company’s Series A
Convertible Preferred Stock, $0.001 par value, issued hereunder having the
rights, preferences and privileges set forth in the Certificate of Designation.

 

“Pro Rata Interest” means the number of Shares purchased by each Purchaser,
relative to the total number of Shares being sold hereunder, as reflected on
Schedule I attached hereto.

 

“Purchase Money Indebtedness” means Indebtedness, incurred at the time of, or
within 30 days after, the acquisition of any fixed assets for the purpose of
financing all or any part of the acquisition cost thereof.

 

“Purchaser” has the meaning assigned to it in the introductory paragraph of this
Agreement and shall include any Affiliates of the Purchaser.

 

“Reporting Period” means the period commencing on the Closing Date and ending on
the earlier of (i) the date as of which the Purchasers may sell all of the
Shares under Rule 144 without volume or manner of sale restrictions and without
the requirement for the Company to be in compliance with the current public
information requirements under Rule 144(c)(1) (or any successor thereto)
promulgated under the Securities Act and (ii) the date on which such Purchaser
shall have sold all of the Shares pursuant to a Registration Statement.

 

 
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“Required Holders” means (i) prior to the Closing, each Major Purchaser, and
(ii) from and after the Closing, (A) each Major Purchaser and (B) the Purchasers
beneficially owning (as determined pursuant to Rule 13d-3 under the Exchange Act
but without giving effect to any limitation on the conversion of the Preferred
Shares included in the Certificate of Designation) at least 66% of the Shares.

 

“Transaction Documents” means this Agreement, the Warrants, the Certificate of
Designation, the Registration Rights Agreement and all exhibits and schedules
thereto and hereto and any other documents or agreements executed in connection
with the transactions contemplated hereunder.

 

11.           Non-Public Information. Except with respect to the material terms
and conditions of the transactions contemplated by the Transaction Documents,
which shall be publicly disclosed by the Company in the press release to be
issued, or 8-K Filing to be filed, pursuant to Section 6.8 herein, the Company
covenants and agrees that neither it, nor any other Person acting on its behalf,
will provide any Purchaser or its agents or counsel with any information that
the Company believes constitutes material non-public information, unless prior
thereto such Purchaser shall have entered into a written agreement with the
Company regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
covenant in effecting transactions in securities of the Company.

 

12.           Miscellaneous.

 

12.1.     Entire Agreement; Amendments. This Agreement, the other Transaction
Documents and the schedules and exhibits attached hereto and thereto and the
instruments referenced herein and therein supersede all other prior oral or
written agreements between the Purchasers, the Company, their affiliates and
Persons acting on their behalf solely with respect to the matters contained
herein and therein, and this Agreement, the other Transaction Documents, the
schedules and exhibits attached hereto and thereto and the instruments
referenced herein and therein contain the entire understanding of the parties
solely with respect to the matters covered herein and therein; provided,
however, nothing contained in this Agreement or any other Transaction Document
shall (or shall be deemed to) (i) have any effect on any agreements any
Purchaser has entered into with, or any instruments any Purchaser has received
from, the Company or any of its Subsidiaries prior to the date hereof with
respect to any prior investment made by such Purchaser in the Company or (ii)
waive, alter, modify or amend in any respect any obligations of the Company or
any of its Subsidiaries, or any rights of or benefits to any Purchaser or any
other Person, in any agreement entered into prior to the date hereof between or
among the Company and/or any of its Subsidiaries and any Purchaser, or any
instruments any Purchaser received from the Company and/or any of its
Subsidiaries prior to the date hereof, and all such agreements and instruments
shall continue in full force and effect. Except as specifically set forth herein
or therein, neither the Company nor any Purchaser makes any representation,
warranty, covenant or undertaking with respect to such matters. For
clarification purposes, the Recitals are part of this Agreement. Provisions of
this Agreement may be amended only with the written consent of the Company and
each Purchaser. No waiver shall be effective unless it is in writing and signed
by an authorized representative of the waiving party. No consideration shall be
offered or paid to any Person to amend or consent to a waiver or modification of
any provision of any of the Transaction Documents unless the same consideration
also is offered to all of the parties to the Transaction Documents, all holders
of Common Shares or all holders of the Warrants (as the case may be). The
Company has not, directly or indirectly, made any agreements with any Purchasers
relating to the terms or conditions of the transactions contemplated by the
Transaction Documents except as set forth in the Transaction Documents. Without
limiting the foregoing, the Company confirms that, except as set forth in this
Agreement, no Purchaser has made any commitment or promise or has any other
obligation to provide any financing to the Company, any Subsidiary or otherwise.
As a material inducement for each Purchaser to enter into this Agreement, the
Company expressly acknowledges and agrees that (i) no due diligence or other
investigation or inquiry conducted by a Purchaser, any of its advisors or any of
its representatives shall affect such Purchaser’s right to rely on, or shall
modify or qualify in any manner or be an exception to any of, the Company’s
representations and warranties contained in this Agreement or any other
Transaction Document and (ii) unless a provision of this Agreement or any other
Transaction Document is expressly preceded by the phrase “except as disclosed in
the SEC Documents,” nothing contained in any of the SEC Documents shall affect
such Purchaser’s right to rely on, or shall modify or qualify in any manner or
be an exception to any of, the Company’s representations and warranties
contained in this Agreement or any other Transaction Document.

 

 
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12.2.     Notices. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be deemed delivered (a) when
delivered, if delivered personally, (b) four business days after being sent by
registered or certified mail, return receipt requested, postage prepaid; (c) one
business day after being sent via a reputable nationwide overnight courier
service guaranteeing next business day delivery, or (d) when receipt is
acknowledged, in the case of facsimile or email, in each case to the intended
recipient as set forth below, with respect to the Company, and to the addresses
set forth on the signature pages hereto with respect to the Purchasers.

 

If to the Company:

 

Sanuwave Health, Inc.

11475 Great Oaks Way, Suite 150

Alpharetta, Georgia 30022

Facsimile:

E-mail address:

Attention: Chief Executive Officer

 

With a copy (for informational purposes only) to:

 

Smith, Gambrell & Russell, LLP

1230 Peachtree Street, NE

Promenade, Suite 3100

Atlanta, Georgia 30309

Facsimile:

E-mail address:

Attention:

 

 
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If to the Placement Agent:

 

Newport Coast Securities Inc.

76 Beaver Street, 10th Floor

New York, New York 10005

Facsimile: 

E-mail address:

Attention:

 

With a copy (for informational purposes only) to:

 

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32nd Floor

New York, New York 10006

Facsimile:
E-mail addresses:

Attention:

 

or at such other address as the Company or each Purchaser each may specify by
written notice to the other parties hereto in accordance with this Section 12.2.

 

12.3.     No Waivers. No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.

 

12.4.     Successors and Assigns. All the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective parties hereto, the successors and permitted assigns of each
Purchaser and the successors of the Company, whether so expressed or not. None
of the parties hereto may assign its rights or obligations hereof without the
prior written consent of the Company, except that a Purchaser may, without the
prior consent of the Company, assign its rights to purchase the Shares and
Warrants hereunder to any of its Affiliates (provided such Affiliate agrees to
be bound by the terms of this Agreement and makes the same representations and
warranties set forth in Section 4 hereof). Except as specifically set forth
herein, this Agreement shall not inure to the benefit of or be enforceable by
any other Person.

 

12.5.     Headings; Gender. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement. Unless the context clearly indicates otherwise, each pronoun herein
shall be deemed to include the masculine, feminine, neuter, singular and plural
forms thereof. The terms “including,” “includes,” “include” and words of like
import shall be construed broadly as if followed by the words “without
limitation.” The terms “herein,” “hereunder,” “hereof” and words of like import
refer to this entire Agreement instead of just the provision in which they are
found.

 

 
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12.6.     Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
other Transaction Documents shall be governed by the internal laws of the State
of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in The City of New York,
Borough of Manhattan, for the adjudication of any dispute hereunder or under any
of the other Transaction Documents or in connection herewith or therewith or
with any transaction contemplated hereby or thereby or discussed herein or
therein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall (i) limit,
or be deemed to limit, in any way any right to serve process in any manner
permitted by law, (ii) operate, or shall be deemed to operate, to preclude any
Purchaser from bringing suit or taking other legal action against the Company in
any other jurisdiction to collect on the Company’s obligations to such Purchaser
or to enforce a judgment or other court ruling in favor of such Purchaser or
(iii) limit, or be deemed to limit, any provision of Section 13 of the Warrants.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.

 

12.7.     Counterparts; Effectiveness. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
with the same effect as if all parties had signed the same document. All such
counterparts (including counterparts delivered by facsimile or other electronic
format) shall be deemed an original, shall be construed together and shall
constitute one and the same instrument. This Agreement shall become effective
when each party hereto shall have received counterparts hereof signed by all of
the other parties hereto.

 

12.8.     Severability. If any provision of this Agreement shall be found by any
court of competent jurisdiction to be invalid or unenforceable, the parties
hereby waive such provision to the extent that it is found to be invalid or
unenforceable. Such provision shall, to the maximum extent allowable by law, be
modified by such court so that it becomes enforceable, and, as modified, shall
be enforced as any other provision hereof, all the other provisions hereof
continuing in full force and effect.

 

12.9.     Survival. The representations, warranties, agreements and covenants
shall survive the Closing. Each Purchaser shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.

 

 
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12.10.     Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

 

12.11.     Indemnification. In consideration of each Purchaser’s execution and
delivery of the Transaction Documents and acquiring the Shares and Warrants
thereunder and in addition to all of the Company’s other obligations under the
Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless each Purchaser and each holder of any Shares or Warrant (collectively,
“Securities”) and all of their stockholders, partners, members, officers,
directors, employees and direct or indirect investors and any of the foregoing
Persons’ agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the “Indemnitees”) from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys’ fees and disbursements (the
“Indemnified Liabilities”), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in any of the Transaction
Documents, (b) any breach of any covenant, agreement or obligation of the
Company contained in any of the Transaction Documents or (c) any cause of
action, suit, proceeding or claim brought or made against such Indemnitee by a
third party (including for these purposes a derivative action brought on behalf
of the Company or any Subsidiary) or which otherwise involves such Indemnitee
that arises out of or results from (i) the execution, delivery, performance or
enforcement of any of the Transaction Documents, (ii) any transaction financed
or to be financed in whole or in part, directly or indirectly, with the proceeds
of the issuance of the Securities, (iii) any disclosure properly made by such
Purchaser pursuant to Section 6.9, or (iv) the status of such Purchaser or
holder of the Securities either as an investor in the Company pursuant to the
transactions contemplated by the Transaction Documents or as a party to this
Agreement (including, without limitation, as a party in interest or otherwise in
any action or proceeding for injunctive or other equitable relief) (unless such
action is based upon actual fraud by such Indemnitee). To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
Except as otherwise set forth herein, the mechanics and procedures with respect
to the rights and obligations under this Section 12.12 shall be the same as
those set forth in Section 6 of the Registration Rights Agreement.

 

 
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12.12.     Construction. The language used in this Agreement will be deemed to
be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party. No specific
representation or warranty shall limit the generality or applicability of a more
general representation or warranty. Each and every reference to share prices,
shares of Common Stock and any other numbers in this Agreement that relate to
the Common Stock shall be automatically adjusted for stock splits, stock
dividends, stock combinations and other similar transactions that occur with
respect to the Common Stock after the date of this Agreement.

 

12.13.     Remedies. Each Purchaser and each holder of any Securities shall have
all rights and remedies set forth in the Transaction Documents and all rights
and remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any Person having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security, to the extent permitted by law), to recover damages by reason of any
breach of any provision of this Agreement and to exercise all other rights
granted by law. Furthermore, the Company recognizes that in the event that it
fails to perform, observe, or discharge any or all of its obligations under the
Transaction Documents, any remedy at law may prove to be inadequate relief to
the Purchasers. The Company therefore agrees that the Purchasers shall be
entitled to specific performance and/or temporary, preliminary and permanent
injunctive or other equitable relief from any court of competent jurisdiction in
any such case without the necessity of proving actual damages and without
posting a bond or other security. The remedies provided in this Agreement and
the other Transaction Documents shall be cumulative and in addition to all other
remedies available under this Agreement and the other Transaction Documents, at
law or in equity (including a decree of specific performance and/or other
injunctive relief).

 

12.14.     Exercise of Right. Notwithstanding anything to the contrary contained
in (and without limiting any similar provisions of) the Transaction Documents,
whenever any Purchaser exercises a right, election, demand or option under a
Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Purchaser may rescind
or withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights.

 

12.15.     Payment Set Aside; Currency. To the extent that the Company makes a
payment or payments to any Purchaser hereunder or pursuant to any of the other
Transaction Documents or any of the Purchasers enforce or exercise their rights
hereunder or thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other Person under any law (including, without
limitation, any bankruptcy law, foreign, state or federal law, common law or
equitable cause of action), then to the extent of any such restoration the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred. Until none of the Warrants are
outstanding, the Company shall not effect any stock combination, reverse stock
split or other similar transaction (or make any public announcement or
disclosure with respect to any of the foregoing) without the prior written
consent of the Required Holders (which may be granted or withheld in the sole
discretion of the Required Significant Purchasers). Unless otherwise expressly
indicated, all dollar amounts referred to in this Agreement and the other
Transaction Documents are in United States Dollars (“U.S. Dollars”), and all
amounts owing under this Agreement and all other Transaction Documents shall be
paid in U.S. Dollars. All amounts denominated in other currencies (if any) shall
be converted into the U.S. Dollar equivalent amount in accordance with the
Exchange Rate on the date of calculation. “Exchange Rate” means, in relation to
any amount of currency to be converted into U.S. Dollars pursuant to this
Agreement, the U.S. Dollar exchange rate as published in the Wall Street Journal
on the relevant date of calculation.

 

 
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12.16.     Independent Nature of Purchasers’ Obligations and Rights. The
obligations of each Purchaser under the Transaction Documents are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
other Transaction Document, and no action taken by any Purchaser pursuant hereto
or thereto, shall be deemed to constitute the Purchasers as, and the Company
acknowledges that the Purchasers do not so constitute, a partnership, an
association, a joint venture or any other kind of group or entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
or entity with respect to such obligations or the transactions contemplated by
the Transaction Documents or any matters, and the Company acknowledges that the
Purchasers are not acting in concert or as a group, and the Company shall not
assert any such claim, with respect to such obligations or the transactions
contemplated by the Transaction Documents. The decision of each Purchaser to
purchase Securities pursuant to the Transaction Documents has been made by such
Purchaser independently of any other Purchaser. Each Purchaser acknowledges that
no other Purchaser has acted as agent for such Purchaser in connection with such
Purchaser making its investment hereunder and that no other Purchaser will be
acting as agent of such Purchaser in connection with monitoring such Purchaser’s
investment in the Securities or enforcing its rights under the Transaction
Documents. The Company and each Purchaser confirms that each Purchaser has
independently participated with the Company in the negotiation of the
transaction contemplated hereby with the advice of its own counsel and advisors.
Each Purchaser shall be entitled to independently protect and enforce its
rights, including, without limitation, the rights arising out of this Agreement
or out of any other Transaction Documents, and it shall not be necessary for any
other Purchaser to be joined as an additional party in any proceeding for such
purpose. The use of a single agreement to effectuate the purchase and sale of
the Securities contemplated hereby was solely in the control of the Company, not
the action or decision of any Purchaser, and was done solely for the convenience
of the Company and not because it was required or requested to do so by any
Purchaser. It is expressly understood and agreed that each provision contained
in this Agreement and in each other Transaction Document is between the Company
and a Purchaser, solely, and not between the Company and the Purchasers
collectively and not between and among the Purchasers.

 

*     *     *

 

 
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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed as of the day and year first written above.

 

 

 

THE COMPANY 

 

 

 

 

 

 

SANUWAVE Health, Inc. 

 

 

 

 

 

 

By: 

 

 

 

 

Name:  

 

    Title:  

 

 

 

 

[PURCHASER’S SIGNATURE PAGE SEPARATELY ATTACHED] 

 

 

--------------------------------------------------------------------------------

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed as of the day and year first written above.

 

 

 

PURCHASER

 

 

 

 

 

 

 

[

] 

 

 

 

 

 

 

By: 

 

 

 

Name:    

 

    Title:    

  

 

 

 

[COMPANY’S SIGNATURE PAGE SEPARATELY ATTACHED]

 

 

--------------------------------------------------------------------------------

 

  

Exhibit A-1

 

FORM OF SERIES B WARRANT

 

 

[See attached] 

 

 
A-1

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Exhibit A-2

 

FORM OF SERIES B WARRANT

 

 

[See attached]

 

 
A-2

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EXHIBIT B

 

Form of Certificate of Designation

 

 

 

SANUWAVE HEALTH, INC.

 

CERTIFICATE OF DESIGNATION OF PREFERENCES,

RIGHTS AND LIMITATIONS

OF

SERIES [A] CONVERTIBLE PREFERRED STOCK

 

PURSUANT TO SECTION 78.1955 OF THE

NEVADA REVISED STATUTES

 

        The undersigned, __________ and ____________, do hereby certify that:

 

                1. They are the Chief Executive Officer and Secretary,
respectively, of SANUWAVE Health, Inc., a Nevada corporation (the
“Corporation”).

 

                2. The Corporation is authorized to issue 5,000,000 shares of
preferred stock, none of which are issued and outstanding.

 

                3. The following resolutions were duly adopted by the board of
directors of the Corporation (the “Board of Directors”):

 

        WHEREAS, the certificate of incorporation of the Corporation provides
for a class of its authorized stock known as preferred stock, consisting of
5,000,000 shares, $0.001 par value per share, issuable from time to time in one
or more series;

 

        WHEREAS, the Board of Directors is authorized to fix the dividend
rights, dividend rate, voting rights, conversion rights, rights and terms of
redemption and liquidation preferences of any wholly unissued series of
preferred stock and the number of shares constituting any series and the
designation thereof, of any of them; and

 

        WHEREAS, it is the desire of the Board of Directors, pursuant to its
authority as aforesaid, to fix the rights, preferences, restrictions and other
matters relating to a series of the preferred stock, which shall consist of,
except as otherwise set forth in the Purchase Agreement, up to ________ shares
of the preferred stock which the Corporation has the authority to issue, as
follows:

 

        NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby
provide for the issuance of a series of preferred stock for cash or exchange of
other securities, rights or property and does hereby fix and determine the
rights, preferences, restrictions and other matters relating to such series of
preferred stock as follows:

 

 
B-1

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TERMS OF PREFERRED STOCK

 

Section 1.      Definitions. For the purposes hereof, the following terms shall
have the following meanings:

 

“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 405 of the Securities
Act.

 

“Alternate Consideration” shall have the meaning set forth in Section 7(d).

 

“Beneficial Ownership Limitation” shall have the meaning set forth in Section
6(d).

 

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

 

“Buy-In” shall have the meaning set forth in Section 6(c)(iv).

 

“Commission” means the United States Securities and Exchange Commission.

 

“Common Stock” means the Corporation’s common stock, par value $0.001 per share,
and stock of any other class of securities into which such securities may
hereafter be reclassified or changed.

 

“Common Stock Equivalents” means any securities of the Corporation or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.

 

“Conversion Amount” means the sum of the Stated Value at issue.

 

“Conversion Date” shall have the meaning set forth in Section 6(a).

 

“Conversion Price” shall have the meaning set forth in Section 6(b).

 

“Conversion Shares” means, collectively, the shares of Common Stock issuable
upon conversion of the shares of Preferred Stock in accordance with the terms
hereof.

 

“Conversion Shares Registration Statement” means a registration statement that
registers the resale of the Conversion Shares of the Holders, who shall be named
as “selling stockholders” therein and meets the requirements of the Registration
Rights Agreement.

 

 
B-2

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“Effective Date” means the date that the Conversion Shares Registration
Statement filed by the Corporation pursuant to the Registration Rights Agreement
is first declared effective by the Commission.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

 

“Fundamental Transaction” shall have the meaning set forth in Section 7(d).

 

“Holder” shall have the meaning given such term in Section 2.

 

“Junior Securities” means the Common Stock and all other Common Stock
Equivalents of the Corporation other than those securities which are explicitly
senior or pari passu to the Preferred Stock in dividend rights or liquidation
preference.

 

“Liquidation” shall have the meaning set forth in Section 5.

 

“New York Courts” shall have the meaning set forth in Section 8(d).

 

“Notice of Conversion” shall have the meaning set forth in Section 6(a).

 

“Original Issue Date” means the date of the first issuance of any shares of the
Preferred Stock regardless of the number of transfers of any particular shares
of Preferred Stock and regardless of the number of certificates which may be
issued to evidence such Preferred Stock.

 

“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.

 

“Preferred Stock” shall have the meaning set forth in Section 2.

 

“Purchase Agreement” means the Securities Purchase Agreement, dated March___,
2014, among the Corporation and the original Holders, as amended, modified or
supplemented from time to time in accordance with its terms.

 

“Registration Rights Agreement” means the Registration Rights Agreement dated as
of March ____, 2014 among the Corporation and the original Holders, as amended,
modified or supplemented from time to time in accordance with its terms.

 

“Registration Statement” means a registration statement meeting the requirements
set forth in the Registration Rights Agreement and covering the resale of the
Underlying Shares by each Holder as provided for in the Purchase Agreement.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

 

 
B-3

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“Share Delivery Date” shall have the meaning set forth in Section 6(c).

 

“Stated Value” shall have the meaning set forth in Section 2.

 

“Subsidiary” means any Person (i) at least 50% of the outstanding voting
securities of which are at the time owned or controlled directly or indirectly
by the Company or (ii) with respect to which the Company possesses, directly or
indirectly, the power to direct or cause the direction of the affairs or
management of such Person.

 

“Successor Entity” shall have the meaning set forth in Section 7(d).

 

“Trading Day” means a day on which the principal Trading Market is open for
business.

 

“Trading Market” means any of the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the NYSE
MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global
Select Market, the New York Stock Exchange or the OTC Bulletin Board (or any
successors to any of the foregoing).

 

“Transaction Documents” means the Purchase Agreement, this Certificate of
Designation, the Warrants and all exhibits and schedules thereto and hereto and
any other documents or agreements executed in connection with the transactions
contemplated hereunder

 

“Transfer Agent” means Action Stock Transfer Corp, the current transfer agent
for the Common Stock, and any successor transfer agent of the Corporation.

 

“Underlying Shares” means the shares of Common Stock issued and issuable upon
conversion of the Preferred Stock.

 

“Warrants” means the Series A-1 Warrants and Series B-1 Warrants issued by the
Corporation pursuant to the Purchase Agreement on March ____, 2014.

 

Section 2.     Designation, Amount and Par Value. The series of preferred stock
shall be designated as its Series A Convertible Preferred Stock (the “Preferred
Stock”) and the number of shares so designated shall be _______ (which shall not
be subject to increase without the written consent of the holders of a majority
of the Underlying Shares (each, a “Holder” and collectively, the “Holders”)).
Each share of Preferred Stock shall have a par value of $0.001 per share and a
stated value equal to $______ (the “Stated Value”).

 

 
B-4

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Section 3.     Dividends.

 

a)     Holders shall be entitled to receive, and the Corporation shall pay,
dividends on shares of Preferred Stock equal (on an
as-if-converted-to-Common-Stock basis) to and in the same form as dividends
(other than dividends in the form of Common Stock) actually paid on shares of
the Common Stock when, as and if such dividends (other than dividends in the
form of Common Stock) are paid on shares of the Common Stock. Other than as set
forth in the previous sentence, no other dividends shall be paid on shares of
Preferred Stock; and the Corporation shall pay no dividends (other than
dividends in the form of Common Stock) on shares of the Common Stock unless it
simultaneously complies with the previous sentence.

 

b)     Other Securities. So long as any Preferred Stock shall remain
outstanding, the Corporation shall not redeem, purchase or otherwise acquire
directly or indirectly more than a de minimis amount of any Junior Securities
other than as to repurchases of Common Stock or Common Stock Equivalents from
departing, officers, directors or employees of the Company or any Subsidiary,
and provided that, while any of the Preferred Stock remains outstanding, such
repurchases shall not exceed an aggregate of [$100,000] in any fiscal year.

 

Section 4.     Voting Rights. In addition to the voting rights provided by
applicable law, the Preferred Stock shall have the right to vote on any matter
on which the Common Stock is eligible to vote on an
as-if-converted-to-Common-Stock basis; provided that each Holder shall only have
the right to vote such shares of Preferred Stock as are eligible for conversion
without exceeding the Beneficial Ownership Limitation.

 

Section 5.      Liquidation. Upon any liquidation, dissolution or winding-up of
the Corporation, whether voluntary or involuntary (a “Liquidation”), after the
satisfaction in full of the debts of the Corporation and the payment of any
liquidation preference owed to the holders of shares of capital stock of the
Corporation ranking prior to the Preferred Stock upon liquidation, the Holders
of the Preferred Stock shall participate pari passu with the holders of the
Common Stock (on an as-if-converted-to-Common-Stock basis without regard to any
limitation in Section 6(d) on the conversion of this Preferred Stock) in the net
assets of the Corporation. The Corporation shall mail written notice of any such
Liquidation, not less than 45 days prior to the payment date stated therein, to
each Holder.

 

 
B-5

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Section 6.      Conversion.

 

a)     Conversions at Option of Holder. Each share of Preferred Stock shall be
convertible, at any time and from time to time from and after the Original Issue
Date at the option of the Holder thereof, into that number of shares of Common
Stock (subject to the limitations set forth in Section 6(d)) determined by
dividing the Stated Value of such share of Preferred Stock by the Conversion
Price. Holders shall effect conversions by providing the Corporation with the
form of conversion notice attached hereto as Annex A (a “Notice of Conversion”).
Each Notice of Conversion shall specify the number of shares of Preferred Stock
to be converted, the number of shares of Preferred Stock owned prior to the
conversion at issue, the number of shares of Preferred Stock owned subsequent to
the conversion at issue and the date on which such conversion is to be effected,
which date may not be prior to the date the applicable Holder delivers by
facsimile such Notice of Conversion to the Corporation (such date, the
“Conversion Date”). If no Conversion Date is specified in a Notice of
Conversion, the Conversion Date shall be the date that such Notice of Conversion
to the Corporation is deemed delivered hereunder. The calculations and entries
set forth in the Notice of Conversion shall control in the absence of manifest
or mathematical error. No ink-original Notice of Conversion shall be required,
nor shall any medallion guarantee (or other type of guarantee or notarization)
of any Notice of Conversion form be required. To effect conversions of shares of
Preferred Stock, a Holder shall not be required to surrender the certificate(s)
representing the shares of Preferred Stock to the Corporation unless all of the
shares of Preferred Stock represented thereby are so converted, in which case
such Holder shall deliver the certificate representing such shares of Preferred
Stock promptly following the Conversion Date at issue. Shares of Preferred Stock
converted into Common Stock or redeemed in accordance with the terms hereof
shall be canceled and shall not be reissued.

 

b)     Conversion Price. The conversion price for the Preferred Stock shall
equal $0.50, subject to adjustment herein (the “Conversion Price”).

 

c)     Mechanics of Conversion

 

i.     Delivery of Certificate Upon Conversion. Not later than three (3) Trading
Days after each Conversion Date (the “Share Delivery Date”), the Corporation
shall deliver, or cause to be delivered, to the converting Holder (A) a
certificate or certificates representing the Conversion Shares which, on or
after the earlier of (i) the six month anniversary of the Original Issue Date or
(ii) the Effective Date, shall be free of restrictive legends and trading
restrictions (other than those which may then be required by the Purchase
Agreement) representing the number of Conversion Shares being acquired upon the
conversion of the Preferred Stock (including, if the Corporation has given
continuous notice pursuant to Section 3(b) for payment of dividends in shares of
Common Stock at least 20 Trading Days prior to the date on which the Notice of
Conversion is delivered to the Corporation, shares of Common Stock representing
the payment of accrued dividends otherwise determined pursuant to Section 3(a)
but assuming that the Dividend Notice Period is the 20 Trading Days period
immediately prior to the date on which the Notice of Conversion is delivered to
the Corporation and excluding for such issuance the condition that the
Corporation deliver the Dividend Share Amount as to such dividend payment prior
to the commencement of the Dividend Notice Period), and (B) a bank check in the
amount of accrued and unpaid dividends (if the Corporation has elected or is
required to pay accrued dividends in cash). On or after the earlier of (i) the
six month anniversary of the Original Issue Date or (ii) the Effective Date, the
Corporation shall use its best efforts to deliver any certificate or
certificates required to be delivered by the Corporation under this Section 6
electronically through the Depository Trust Company or another established
clearing corporation performing similar functions.

 

 
B-6

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ii.     Failure to Deliver Certificates. If, in the case of any Notice of
Conversion, such certificate or certificates are not delivered to or as directed
by the applicable Holder by the Share Delivery Date, the Holder shall be
entitled to elect by written notice to the Corporation at any time on or before
its receipt of such certificate or certificates, to rescind such Conversion, in
which event the Corporation shall promptly return to the Holder any original
Preferred Stock certificate delivered to the Corporation and the Holder shall
promptly return to the Corporation the Common Stock certificates issued to such
Holder pursuant to the rescinded Conversion Notice.

 

iii.     Obligation Absolute. The Corporation’s obligation to issue and deliver
the Conversion Shares upon conversion of Preferred Stock in accordance with the
terms hereof are absolute and unconditional, irrespective of any action or
inaction by a Holder to enforce the same, any waiver or consent with respect to
any provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by such Holder or any other
Person of any obligation to the Corporation or any violation or alleged
violation of law by such Holder or any other person, and irrespective of any
other circumstance which might otherwise limit such obligation of the
Corporation to such Holder in connection with the issuance of such Conversion
Shares; provided, however, that such delivery shall not operate as a waiver by
the Corporation of any such action that the Corporation may have against such
Holder. In the event a Holder shall elect to convert any or all of the Stated
Value of its Preferred Stock, the Corporation may not refuse conversion based on
any claim that such Holder or anyone associated or affiliated with such Holder
has been engaged in any violation of law, agreement or for any other reason,
unless an injunction from a court, on notice to Holder, restraining and/or
enjoining conversion of all or part of the Preferred Stock of such Holder shall
have been sought and obtained, and the Corporation posts a surety bond for the
benefit of such Holder in the amount of 150% of the Stated Value of Preferred
Stock which is subject to the injunction, which bond shall remain in effect
until the completion of arbitration/litigation of the underlying dispute and the
proceeds of which shall be payable to such Holder to the extent it obtains
judgment. In the absence of such injunction, the Corporation shall issue
Conversion Shares and, if applicable, cash, upon a properly noticed conversion.
Nothing herein shall limit a Holder’s right to pursue all remedies available to
it hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief. The exercise of any such rights
shall not prohibit a Holder from seeking to enforce damages pursuant to any
other Section hereof or under applicable law.

 

 
B-7

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iv.     Compensation for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion. In addition to any other rights available to the Holder, if the
Corporation fails for any reason to deliver to a Holder the applicable
certificate or certificates by the Share Delivery Date pursuant to Section
6(c)(i), and if after such Share Delivery Date such Holder is required by its
brokerage firm to purchase (in an open market transaction or otherwise), or the
Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver
in satisfaction of a sale by such Holder of the Conversion Shares which such
Holder was entitled to receive upon the conversion relating to such Share
Delivery Date (a “Buy-In”), then the Corporation shall (A) pay in cash to such
Holder (in addition to any other remedies available to or elected by such
Holder) the amount, if any, by which (x) such Holder’s total purchase price
(including any brokerage commissions) for the Common Stock so purchased exceeds
(y) the product of (1) the aggregate number of shares of Common Stock that such
Holder was entitled to receive from the conversion at issue multiplied by (2)
the actual sale price at which the sell order giving rise to such purchase
obligation was executed (including any brokerage commissions) and (B) at the
option of such Holder, either reissue (if surrendered) the shares of Preferred
Stock equal to the number of shares of Preferred Stock submitted for conversion
(in which case, such conversion shall be deemed rescinded) or deliver to such
Holder the number of shares of Common Stock that would have been issued if the
Corporation had timely complied with its delivery requirements under Section
6(c)(i). For example, if a Holder purchases shares of Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of shares of Preferred Stock with respect to which the actual sale
price of the Conversion Shares (including any brokerage commissions) giving rise
to such purchase obligation was a total of $10,000 under clause (A) of the
immediately preceding sentence, the Corporation shall be required to pay such
Holder $1,000. The Holder shall provide the Corporation written notice
indicating the amounts payable to such Holder in respect of the Buy-In and, upon
request of the Corporation, evidence of the amount of such loss. Nothing herein
shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Corporation’s
failure to timely deliver certificates representing shares of Common Stock upon
conversion of the shares of Preferred Stock as required pursuant to the terms
hereof.

 

v.     Reservation of Shares Issuable Upon Conversion. The Corporation covenants
that it will at all times reserve and keep available out of its authorized and
unissued shares of Common Stock for the sole purpose of issuance upon conversion
of the Preferred Stock and payment of dividends on the Preferred Stock, each as
herein provided, free from preemptive rights or any other actual contingent
purchase rights of Persons other than the Holder (and the other holders of the
Preferred Stock), not less than such aggregate number of shares of the Common
Stock as shall (subject to the terms and conditions set forth in the Purchase
Agreement) be issuable (taking into account the adjustments and restrictions of
Section 7) upon the conversion of the then outstanding shares of Preferred Stock
and payment of dividends hereunder. The Corporation covenants that all shares of
Common Stock that shall be so issuable shall, upon issue, be duly authorized,
validly issued, fully paid and nonassessable and, if the Conversion Shares
Registration Statement is then effective under the Securities Act, shall be
registered for public resale in accordance with such Conversion Shares
Registration Statement (subject to such Holder’s compliance with its obligations
under the Registration Rights Agreement).

 

 
B-8

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vi.     Fractional Shares. No fractional shares or scrip representing fractional
shares shall be issued upon the conversion of the Preferred Stock. As to any
fraction of a share which the Holder would otherwise be entitled to purchase
upon such conversion, the Corporation shall at its election, either pay a cash
adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Conversion Price or round up to the next whole share.

 

vii.     Transfer Taxes and Expenses. The issuance of certificates for shares of
the Common Stock on conversion of this Preferred Stock shall be made without
charge to any Holder for any documentary stamp or similar taxes that may be
payable in respect of the issue or delivery of such certificates, provided that
the Corporation shall not be required to pay any tax that may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the Holders of such
shares of Preferred Stock and the Corporation shall not be required to issue or
deliver such certificates unless or until the Person or Persons requesting the
issuance thereof shall have paid to the Corporation the amount of such tax or
shall have established to the satisfaction of the Corporation that such tax has
been paid. The Company shall pay all Transfer Agent fees required for same-day
processing of any Notice of Conversion.

 

 
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d)     Beneficial Ownership Limitation. The Corporation shall not effect any
conversion of the Preferred Stock, and a Holder shall not have the right to
convert any portion of the Preferred Stock, to the extent that, after giving
effect to the conversion set forth on the applicable Notice of Conversion, such
Holder (together with such Holder’s Affiliates, and any Persons acting as a
group together with such Holder or any of such Holder’s Affiliates) would
beneficially own in excess of the Beneficial Ownership Limitation (as defined
below).  For purposes of the foregoing sentence, the number of shares of Common
Stock beneficially owned by such Holder and its Affiliates shall include the
number of shares of Common Stock issuable upon conversion of the Preferred Stock
with respect to which such determination is being made, but shall exclude the
number of shares of Common Stock which are issuable upon (i) conversion of the
remaining, unconverted Stated Value of Preferred Stock beneficially owned by
such Holder or any of its Affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Corporation
subject to a limitation on conversion or exercise analogous to the limitation
contained herein (including, without limitation, the Preferred Stock and the
Warrants) beneficially owned by such Holder or any of its Affiliates.  Except as
set forth in the preceding sentence, for purposes of this Section 6(d),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. To the extent
that the limitation contained in this Section 6(d) applies, the determination of
whether the Preferred Stock is convertible (in relation to other securities
owned by such Holder together with any Affiliates) and of how many shares of
Preferred Stock are convertible shall be in the sole discretion of such Holder,
and the submission of a Notice of Conversion shall be deemed to be such Holder’s
determination of whether the shares of Preferred Stock may be converted (in
relation to other securities owned by such Holder together with any Affiliates)
and how many shares of the Preferred Stock are convertible, in each case subject
to the Beneficial Ownership Limitation. To ensure compliance with this
restriction, each Holder will be deemed to represent to the Corporation each
time it delivers a Notice of Conversion that such Notice of Conversion has not
violated the restrictions set forth in this paragraph and the Corporation shall
have no obligation to verify or confirm the accuracy of such determination. In
addition, a determination as to any group status as contemplated above shall be
determined in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder. For purposes of this Section 6(d), in
determining the number of outstanding shares of Common Stock, a Holder may rely
on the number of outstanding shares of Common Stock as stated in the most recent
of the following: (i) the Corporation’s most recent periodic or annual report
filed with the Commission, as the case may be, (ii) a more recent public
announcement by the Corporation or (iii) a more recent written notice by the
Corporation or the Transfer Agent setting forth the number of shares of Common
Stock outstanding.  Upon the written or oral request of a Holder, the
Corporation shall within two Trading Days confirm orally and in writing to such
Holder the number of shares of Common Stock then outstanding.  In any case, the
number of outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Corporation, including
the Preferred Stock and Warrants, by such Holder or its Affiliates since the
date as of which such number of outstanding shares of Common Stock was reported.
The “Beneficial Ownership Limitation” shall be 9.99% of the number of shares of
the Common Stock outstanding immediately after giving effect to the issuance of
shares of Common Stock issuable upon conversion of Preferred Stock held by the
applicable Holder. The provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with the terms of
this Section 6(d) to correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended Beneficial Ownership Limitation
contained herein or to make changes or supplements necessary or desirable to
properly give effect to such limitation. The limitations contained in this
paragraph shall apply to a successor holder of Preferred Stock.

 

 
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Section 7.      Certain Adjustments.

 

a)     Stock Dividends and Stock Splits. If the Corporation, at any time while
this Preferred Stock is outstanding: (i) pays a stock dividend or otherwise
makes a distribution or distributions payable in shares of Common Stock on
shares of Common Stock or any other Common Stock Equivalents (which, for
avoidance of doubt, shall not include any shares of Common Stock issued by the
Corporation upon conversion of, or payment of a dividend on, this Preferred
Stock), (ii) subdivides outstanding shares of Common Stock into a larger number
of shares, (iii) combines (including by way of a reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issues, in the event of a reclassification of shares of the Common Stock, any
shares of capital stock of the Corporation, then the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding any treasury shares of the Corporation) outstanding
immediately before such event, and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such event. Any
adjustment made pursuant to this Section 7(a) shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.

 

b)     Subsequent Rights Offerings. In addition to any adjustments pursuant to
Section 7(a) above, if at any time the Corporation grants, issues or sells any
Common Stock Equivalents or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of shares of Common
Stock (the “Purchase Rights”), then the Holder of will be entitled to acquire,
upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which the Holder could have acquired if the Holder had held the number of shares
of Common Stock acquirable upon complete conversion of such Holder’s Preferred
Stock (without regard to any limitations on exercise hereof, including without
limitation, the Beneficial Ownership Limitation) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights (provided, however, to the extent that the Holder’s right to
participate in any such Purchase Right would result in the Holder exceeding the
Beneficial Ownership Limitation, then the Holder shall not be entitled to
participate in such Purchase Right to such extent (or beneficial ownership of
such shares of Common Stock as a result of such Purchase Right to such extent)
and such Purchase Right to such extent shall be held in abeyance for the Holder
until such time, if ever, as its right thereto would not result in the Holder
exceeding the Beneficial Ownership Limitation).

 

c)     Pro Rata Distributions. During such time as this Preferred Stock is
outstanding, if the Corporation declares or makes any dividend or other
distribution of its assets (or rights to acquire its assets) to holders of
shares of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction) (a
“Distribution”), at any time after the issuance of this Preferred Stock, then,
in each such case, the Holder shall be entitled to participate in such
Distribution to the same extent that the Holder would have participated therein
if the Holder had held the number of shares of Common Stock acquirable upon
complete Conversion of this Preferred Stock (without regard to any limitations
on Conversion hereof, including without limitation, the Beneficial Ownership
Limitation) immediately before the date of which a record is taken for such
Distribution, or, if no such record is taken, the date as of which the record
holders of shares of Common Stock are to be determined for the participation in
such Distribution (provided, however, to the extent that the Holder's right to
participate in any such Distribution would result in the Holder exceeding the
Beneficial Ownership Limitation, then the Holder shall not be entitled to
participate in such Distribution to such extent (or in the beneficial ownership
of any shares of Common Stock as a result of such Distribution to such extent)
and the portion of such Distribution shall be held in abeyance for the benefit
of the Holder until such time, if ever, as its right thereto would not result in
the Holder exceeding the Beneficial Ownership Limitation).

 

 
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d)     Fundamental Transaction. If, at any time while this Preferred Stock is
outstanding, (i) the Corporation, directly or indirectly, in one or more related
transactions effects any merger or consolidation of the Corporation with or into
another Person, (ii) the Corporation, directly or indirectly, effects any sale,
lease, license, assignment, transfer, conveyance or other disposition of all or
substantially all of its assets in one or a series of related transactions,
(iii) any, direct or indirect, purchase offer, tender offer or exchange offer
(whether by the Corporation or another Person) is completed pursuant to which
holders of Common Stock are permitted to sell, tender or exchange their shares
for other securities, cash or property and has been accepted by the holders of
50% or more of the outstanding Common Stock, (iv) the Corporation, directly or
indirectly, in one or more related transactions effects any reclassification,
reorganization or recapitalization of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property, or (v) the Corporation,
directly or indirectly, in one or more related transactions consummates a stock
or share purchase agreement or other business combination (including, without
limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires more than
50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
or share purchase agreement or other business combination) (each a “Fundamental
Transaction”), then, upon any subsequent conversion of this Preferred Stock, the
Holder shall have the right to receive, for each Conversion Share that would
have been issuable upon such conversion immediately prior to the occurrence of
such Fundamental Transaction (without regard to any limitation in Section 6(d)
on the conversion of this Preferred Stock), the number of shares of Common Stock
of the successor or acquiring corporation or of the Corporation, if it is the
surviving corporation, and any additional consideration (the “Alternate
Consideration”) receivable as a result of such Fundamental Transaction by a
holder of the number of shares of Common Stock for which this Preferred Stock is
convertible immediately prior to such Fundamental Transaction (without regard to
any limitation in Section 6(d) on the conversion of this Preferred Stock). For
purposes of any such conversion, the determination of the Conversion Price shall
be appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Corporation shall apportion the
Conversion Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any conversion of this Preferred Stock following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions, any
successor to the Corporation or surviving entity in such Fundamental Transaction
shall file a new Certificate of Designation with the same terms and conditions
and issue to the Holders new preferred stock consistent with the foregoing
provisions and evidencing the Holders’ right to convert such preferred stock
into Alternate Consideration. The Corporation shall cause any successor entity
in a Fundamental Transaction in which the Corporation is not the survivor (the
“Successor Entity”) to assume in writing all of the obligations of the
Corporation under this Certificate of Designation and the other Transaction
Documents (as defined in the Purchase Agreement) in accordance with the
provisions of this Section 7(d) pursuant to written agreements in form and
substance reasonably satisfactory to the Holder and approved by the Holder
(without unreasonable delay) prior to such Fundamental Transaction and shall, at
the option of the holder of this Preferred Stock, deliver to the Holder in
exchange for this Preferred Stock a security of the Successor Entity evidenced
by a written instrument substantially similar in form and substance to this
Preferred Stock which is convertible for a corresponding number of shares of
capital stock of such Successor Entity (or its parent entity) equivalent to the
shares of Common Stock acquirable and receivable upon conversion of this
Preferred Stock (without regard to any limitations on the conversion of this
Preferred Stock) prior to such Fundamental Transaction, and with a conversion
price which applies the conversion price hereunder to such shares of capital
stock (but taking into account the relative value of the shares of Common Stock
pursuant to such Fundamental Transaction and the value of such shares of capital
stock, such number of shares of capital stock and such conversion price being
for the purpose of protecting the economic value of this Preferred Stock
immediately prior to the consummation of such Fundamental Transaction), and
which is reasonably satisfactory in form and substance to the Holder. Upon the
occurrence of any such Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Certificate of Designation and
the other Transaction Documents referring to the “Corporation” shall refer
instead to the Successor Entity), and may exercise every right and power of the
Corporation and shall assume all of the obligations of the Corporation under
this Certificate of Designation and the other Transaction Documents with the
same effect as if such Successor Entity had been named as the Corporation
herein.

 

 
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e)     Calculations. All calculations under this Section 7 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. For purposes
of this Section 7, the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding any treasury shares of the Corporation) issued and
outstanding.

 

f)     Notice to the Holders.

 

i.     Adjustment to Conversion Price. Whenever the Conversion Price is adjusted
pursuant to any provision of this Section 7, the Corporation shall promptly
deliver to each Holder a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.

 

 
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ii.     Notice to Allow Conversion by Holder. If (A) the Corporation shall
declare a dividend (or any other distribution in whatever form) on the Common
Stock, (B) the Corporation shall declare a special nonrecurring cash dividend on
or a redemption of the Common Stock, (C) the Corporation shall authorize the
granting to all holders of the Common Stock of rights or warrants to subscribe
for or purchase any shares of capital stock of any class or of any rights, (D)
the approval of any stockholders of the Corporation shall be required in
connection with any reclassification of the Common Stock, any consolidation or
merger to which the Corporation is a party, any sale or transfer of all or
substantially all of the assets of the Corporation, or any compulsory share
exchange whereby the Common Stock is converted into other securities, cash or
property or (E) the Corporation shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Corporation, then,
in each case, the Corporation shall cause to be filed at each office or agency
maintained for the purpose of conversion of this Preferred Stock, and shall
cause to be delivered to each Holder at its last address as it shall appear upon
the stock books of the Corporation, at least twenty (20) calendar days prior to
the applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided that the
failure to deliver such notice or any defect therein or in the delivery thereof
shall not affect the validity of the corporate action required to be specified
in such notice. To the extent that any notice provided hereunder constitutes, or
contains, material, non-public information regarding the Corporation or any of
the Subsidiaries, the Corporation shall simultaneously file such notice with the
Commission pursuant to a Current Report on Form 8-K. The Holder shall remain
entitled to convert the Conversion Amount of this Preferred Stock (or any part
hereof) during the 20-day period commencing on the date of such notice through
the effective date of the event triggering such notice except as may otherwise
be expressly set forth herein.

 

 
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              Section 8.      Miscellaneous.

 

a)     Notices. Any and all notices or other communications or deliveries to be
provided by the Holders hereunder including, without limitation, any Notice of
Conversion, shall be in writing and delivered personally, by facsimile, or sent
by a nationally recognized overnight courier service, addressed to the
Corporation, at the address set forth above Attention:[_________________],
facsimile number [_______________], or such other facsimile number or address as
the Corporation may specify for such purposes by notice to the Holders delivered
in accordance with this Section 8. Any and all notices or other communications
or deliveries to be provided by the Corporation hereunder shall be in writing
and delivered personally, by facsimile, or sent by a nationally recognized
overnight courier service addressed to each Holder at the facsimile number or
address of such Holder appearing on the books of the Corporation, or if no such
facsimile number or address appears on the books of the Corporation, at the
principal place of business of such Holder, as set forth in the Purchase
Agreement. Any notice or other communication or deliveries hereunder shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth in this Section prior to 5:30 p.m. (New York City time) on any date,
(ii) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth in
this Section on a day that is not a Trading Day or later than 5:30 p.m. (New
York City time) on any Trading Day, (iii) the second Trading Day following the
date of mailing, if sent by U.S. nationally recognized overnight courier
service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.

 

b)     Absolute Obligation. Except as expressly provided herein, no provision of
this Certificate of Designation shall alter or impair the obligation of the
Corporation, which is absolute and unconditional, to pay liquidated damages,
accrued dividends and accrued interest, as applicable, on the shares of
Preferred Stock at the time, place, and rate, and in the coin or currency,
herein prescribed.

 

c)     Lost or Mutilated Preferred Stock Certificate. If a Holder’s Preferred
Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation
shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated certificate, or in lieu of or in substitution for a
lost, stolen or destroyed certificate, a new certificate for the shares of
Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt
of evidence of such loss, theft or destruction of such certificate, and of the
ownership hereof reasonably satisfactory to the Corporation.

 

 
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d)     Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Certificate of Designation shall be
governed by and construed and enforced in accordance with the internal laws of
the State of Nevada, without regard to the principles of conflict of laws
thereof. Each party agrees that all legal proceedings concerning the
interpretation, enforcement and defense of the transactions contemplated by any
of the Transaction Documents (whether brought against a party hereto or its
respective Affiliates, directors, officers, shareholders, employees or agents)
shall be commenced in the state and federal courts sitting in the City of New
York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of such New York Courts,
or such New York Courts are improper or inconvenient venue for such proceeding.
Each party hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Certificate of Designation and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any other
manner permitted by applicable law. Each party hereto hereby irrevocably waives,
to the fullest extent permitted by applicable law, any and all right to trial by
jury in any legal proceeding arising out of or relating to this Certificate of
Designation or the transactions contemplated hereby. If any party shall commence
an action or proceeding to enforce any provisions of this Certificate of
Designation, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys’ fees and other costs and
expenses incurred in the investigation, preparation and prosecution of such
action or proceeding.

 

e)     Waiver. Any waiver by the Corporation or a Holder of a breach of any
provision of this Certificate of Designation shall not operate as or be
construed to be a waiver of any other breach of such provision or of any breach
of any other provision of this Certificate of Designation or a waiver by any
other Holders. The failure of the Corporation or a Holder to insist upon strict
adherence to any term of this Certificate of Designation on one or more
occasions shall not be considered a waiver or deprive that party (or any other
Holder) of the right thereafter to insist upon strict adherence to that term or
any other term of this Certificate of Designation on any other occasion. Any
waiver by the Corporation or a Holder must be in writing.

 

f)     Severability. If any provision of this Certificate of Designation is
invalid, illegal or unenforceable, the balance of this Certificate of
Designation shall remain in effect, and if any provision is inapplicable to any
Person or circumstance, it shall nevertheless remain applicable to all other
Persons and circumstances. If it shall be found that any interest or other
amount deemed interest due hereunder violates the applicable law governing
usury, the applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum rate of interest permitted under applicable law.

 

g)     Next Business Day. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day.

 

h)     Headings. The headings contained herein are for convenience only, do not
constitute a part of this Certificate of Designation and shall not be deemed to
limit or affect any of the provisions hereof.

 

i)     Status of Converted or Redeemed Preferred Stock. Shares of Preferred
Stock may only be issued pursuant to the Purchase Agreement. If any shares of
Preferred Stock shall be converted, redeemed or reacquired by the Corporation,
such shares shall resume the status of authorized but unissued shares of
preferred stock and shall no longer be designated as Series A Convertible
Preferred Stock.

 

 

*********************

 

 
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RESOLVED, FURTHER, that the Chairman, the president or any vice-president, and
the secretary or any assistant secretary, of the Corporation be and they hereby
are authorized and directed to prepare and file this Certificate of Designation
of Preferences, Rights and Limitations in accordance with the foregoing
resolution and the provisions of Nevada law.

 

        IN WITNESS WHEREOF, the undersigned have executed this Certificate this
___ day of March _____ 2014.

 

 

 

 

 

Name: 

 

Name:

Title:  

 

Title: 

 

 

 
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ANNEX A

 

NOTICE OF CONVERSION

 

(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF PREFERRED
STOCK)

 

The undersigned hereby elects to convert the number of shares of Series A
Convertible Preferred Stock indicated below into shares of common stock, par
value $0.001 per share (the “Common Stock”), of SANUWAVE Health, Inc., a Nevada
corporation (the “Corporation”), according to the conditions hereof, as of the
date written below. If shares of Common Stock are to be issued in the name of a
Person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates and
opinions as may be required by the Corporation in accordance with the Purchase
Agreement. No fee will be charged to the Holders for any conversion, except for
any such transfer taxes.

 

Conversion calculations:

 

 

Date to Effect Conversion:

 

       

Number of shares of Preferred Stock owned prior to Conversion: 

 

       

Number of shares of Preferred Stock to be Converted: 

 

        Stated Value of shares of Preferred Stock to be Converted:          
Number of shares of Common Stock to be Issued:           Applicable Conversion
Price:           Number of shares of Preferred Stock subsequent to Conversion:  
        Address for Delivery:           or     DWAC Instructions:     Broker no:
    Account no:  

 

 

[HOLDER]

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

  

 

 
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Exhibit C

 

FORM OF REGISTRATION RIGHTS AGREEMENT 

 

[See attached]