Exhibit 10.2

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF
THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 20(a) HEREOF. THE PRINCIPAL AMOUNT
REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF
PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.

 

THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT (“OID”). PURSUANT TO
TREASURY REGULATION §1.1275-3(b)(1), DENNIS MCGRATH, A REPRESENTATIVE OF THE
COMPANY HEREOF WILL, BEGINNING TEN DAYS AFTER THE ISSUANCE DATE OF THIS NOTE,
PROMPTLY MAKE AVAILABLE TO THE HOLDER UPON REQUEST THE INFORMATION DESCRIBED IN
TREASURY REGULATION §1.1275-3(b)(1)(i). HE MAY BE REACHED AT TELEPHONE NUMBER
(212) 949 - 4319.

 

PAVmed Inc.

 

Senior Convertible Note

 

Issuance Date: August 5, 2020

Original Principal Amount: U.S. $7,750,000

 

FOR VALUE RECEIVED, PAVmed Inc., a Delaware corporation (the “Company”), hereby
promises to pay to the order of Alto Opportunity Master Fund, SPC-Segregated
Master Portfolio B or its registered assigns (“Holder”) the amount set forth
above as the Original Principal Amount (as reduced pursuant to the terms hereof
pursuant to redemption, conversion or otherwise, the “Principal”) when due,
whether upon the Maturity Date, or upon acceleration, redemption or otherwise
(in each case in accordance with the terms hereof) and to pay interest
(“Interest”) on any outstanding Principal at the applicable Interest Rate (as
defined below) from the date set forth above as the Issuance Date (the “Issuance
Date”) until the same becomes due and payable, whether upon the Maturity Date,
or upon acceleration, conversion, redemption or otherwise (in each case in
accordance with the terms hereof). This Senior Convertible Note (including all
Senior Convertible Notes issued in exchange, transfer or replacement hereof,
this “Note”) is one of an issue of Senior Convertible Notes issued pursuant to
the Securities Purchase Agreement, dated as of August 5, 2020 (the “Subscription
Date”), by and among the Company and the investors (the “Buyers”) referred to
therein, as amended from time to time (collectively, the “Notes”, and such other
Senior Convertible Notes, the “Other Notes”). Certain capitalized terms used
herein are defined in Section 33.

 

 

 

 

1.       PAYMENTS OF PRINCIPAL. On the Maturity Date, the Company shall pay to
the Holder an amount in cash representing all outstanding Principal, accrued and
unpaid Interest and accrued and unpaid Late Charges (as defined in Section
26(c)) on such Principal and Interest. Other than as specifically permitted by
this Note, the Company may not prepay any portion of the outstanding Principal,
accrued and unpaid Interest or accrued and unpaid Late Charges on Principal and
Interest, if any.

 

2.       INTEREST; INTEREST RATE.

 

(a)       Interest on this Note shall commence accruing on the Issuance Date and
shall be computed on the basis of a 360-day year and twelve 30-day months and
shall be payable in arrears on each Interest Date and shall compound each
calendar month and shall be payable in accordance with the terms of this Note.
Interest shall be paid on each Interest Date in cash.

 

(b)       Prior to the payment of Interest on an Interest Date, Interest on this
Note shall accrue at the Interest Rate and be payable by way of inclusion of the
Interest in the Conversion Amount on each Conversion Date in accordance with
Section 3(b) or upon any redemption in accordance with Section 10 or any
required payment upon any Bankruptcy Event of Default. From and after the
occurrence and during the continuance of any Event of Default, the Interest Rate
shall automatically be increased to eighteen percent (18.0%) per annum (the
“Default Rate”). In the event that such Event of Default is subsequently cured
(and no other Event of Default then exists (including, without limitation, for
the Company’s failure to pay such Interest at the Default Rate on the applicable
Interest Date)), the adjustment referred to in the preceding sentence shall
cease to be effective as of the calendar day immediately following the date of
such cure; provided that the Interest as calculated and unpaid at such increased
rate during the continuance of such Event of Default shall continue to apply to
the extent relating to the days after the occurrence of such Event of Default
through and including the date of such cure of such Event of Default.

 

3.       CONVERSION OF NOTES. At any time after the Issuance Date, this Note
shall be convertible into validly issued, fully paid and non-assessable shares
of Common Stock (as defined below), on the terms and conditions set forth in
this Section 3.

 

(a)       Conversion Right. Subject to the provisions of Section 3(d), at any
time or times on or after the Issuance Date, the Holder shall be entitled to
convert any portion of the outstanding and unpaid Conversion Amount (as defined
below) into validly issued, fully paid and non-assessable shares of Common Stock
in accordance with Section 3(c), at the Conversion Rate (as defined below). The
Company shall not issue any fraction of a share of Common Stock upon any
conversion. If the issuance would result in the issuance of a fraction of a
share of Common Stock, the Company shall round such fraction of a share of
Common Stock up to the nearest whole share. The Company shall pay any and all
transfer, stamp, issuance and similar taxes, costs and expenses (including,
without limitation, fees and expenses of the Transfer Agent (as defined below))
that may be payable with respect to the issuance and delivery of Common Stock
upon conversion of any Conversion Amount.

 

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(b)       Conversion Rate. The number of shares of Common Stock issuable upon
conversion of any Conversion Amount pursuant to Section 3(a) shall be determined
by dividing (x) such Conversion Amount by (y) the Conversion Price (the
“Conversion Rate”).

 

(i)       “Conversion Amount” means the sum of (x) portion of the Principal to
be converted, redeemed or otherwise with respect to which this determination is
being made and (y) all accrued and unpaid Interest with respect to such portion
of the Principal amount and accrued and unpaid Late Charges with respect to such
portion of such Principal and such Interest, if any.

 

(ii)       “Conversion Price” means, as of any Conversion Date or other date of
determination, $5.00, subject to adjustment as provided herein.

 

(c)       Mechanics of Conversion.

 

(i)       Optional Conversion. To convert any Conversion Amount into shares of
Common Stock on any date (a “Conversion Date”), the Holder shall deliver
(whether via facsimile, electronic mail or otherwise), for receipt on or prior
to 6:00 p.m., New York time, on such date, a copy of an executed notice of
conversion in the form attached hereto as Exhibit I (the “Conversion Notice”) to
the Company. If required by Section 3(c)(iii), within two (2) Trading Days
following a conversion of this Note as aforesaid, the Holder shall surrender
this Note to a nationally recognized overnight delivery service for delivery to
the Company (or an indemnification undertaking with respect to this Note in the
case of its loss, theft or destruction as contemplated by Section 20(b)). On or
before the first (1st) Trading Day following the date of receipt of a Conversion
Notice (it being agreed that the date of receipt shall be determined in
accordance with Section 9(f) of the Securities Purchase Agreement), the Company
shall transmit by facsimile or electronic mail an acknowledgment of confirmation
and representation as to whether such shares of Common Stock may then be resold
pursuant to Rule 144 or an effective and available registration statement, in
the form attached hereto as Exhibit II, of receipt of such Conversion Notice to
the Holder and the Company’s transfer agent (the “Transfer Agent”) which
confirmation shall constitute an instruction to the Transfer Agent to process
such Conversion Notice in accordance with the terms herein. On or before the
second (2nd) Trading Day following the date on which the Company has received a
Conversion Notice (or such earlier date as required pursuant to the 1934 Act or
other applicable law, rule or regulation for the settlement of a trade initiated
on the applicable Conversion Date of such shares of Common Stock issuable
pursuant to such Conversion Notice) (the “Share Delivery Deadline”), the Company
shall (1) provided that the Transfer Agent is participating in the Depository
Trust Company (“DTC”) Fast Automated Securities Transfer Program and the shares
of Common Stock to be issued are then covered by an effective, usable resale
registration statement or may otherwise be resold under Rule 144, credit such
aggregate number of shares of Common Stock to which the Holder shall be entitled
pursuant to such conversion to the Holder’s or its designee’s balance account
with DTC through its Deposit/Withdrawal at Custodian system or (2) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program or the shares of Common Stock that are to be issued are not
covered by an effective, usable resale registration statement and may not be
resold under Rule 144, upon the request of the Holder, issue and deliver (via
reputable overnight courier) to the address as specified in the Conversion
Notice, a certificate, registered in the name of the Holder or its designee, for
the number of shares of Common Stock to which the Holder shall be entitled
pursuant to such conversion. If this Note is physically surrendered for
conversion pursuant to Section 3(c)(iii) and the outstanding Principal of this
Note is greater than the Principal portion of the Conversion Amount being
converted, then the Company shall as soon as practicable and in no event later
than two (2) Business Days after receipt of this Note and at its own expense,
issue and deliver to the Holder (or its designee) a new Note (in accordance with
Section 20(d)) representing the outstanding Principal not converted. The Person
or Persons entitled to receive the shares of Common Stock issuable upon a
conversion of this Note shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on the Conversion Date.

 

3

 

 

(ii)       Company’s Failure to Timely Convert. If the Company shall fail, for
any reason or for no reason, on or prior to the applicable Share Delivery
Deadline, if the Transfer Agent is not participating in the DTC Fast Automated
Securities Transfer Program, to issue and deliver to the Holder (or its
designee) a certificate for the number of shares of Common Stock to which the
Holder is entitled and register such shares of Common Stock on the Company’s
share register or, if the Transfer Agent is participating in the DTC Fast
Automated Securities Transfer Program and the shares of Common Stock to be
issued are then covered by an effective, usable resale registration statement or
may otherwise be resold under Rule 144, to credit the balance account of the
Holder or the Holder’s designee with DTC for such number of shares of Common
Stock to which the Holder is entitled upon the Holder’s conversion of this Note
(as the case may be) (each, a “Conversion Failure”), then, in addition to all
other remedies available to the Holder, (1) the Company shall pay in cash to the
Holder on each day after such Share Delivery Deadline that the issuance of such
shares of Common Stock is not timely effected an amount equal to 1% of the
product of (A) the sum of the number of shares of Common Stock not issued to the
Holder on or prior to the Share Delivery Deadline and to which the Holder is
entitled, multiplied by (B) any trading price of the Common Stock selected by
the Holder in writing as in effect at any time during the period beginning on
the applicable Conversion Date and ending on the applicable Share Delivery
Deadline and (2) the Holder, upon written notice to the Company, may void its
Conversion Notice with respect to, and retain or have returned (as the case may
be) any portion of this Note that has not been converted pursuant to such
Conversion Notice, provided that the voiding of a Conversion Notice shall not
affect the Company’s obligations to make any payments which have accrued prior
to the date of such notice pursuant to this Section 3(c)(ii) or otherwise. In
addition to the foregoing, if on or prior to the Share Delivery Deadline if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, the Company shall fail to issue and deliver to the Holder (or
its designee) a certificate and register such shares of Common Stock on the
Company’s share register or, if the Transfer Agent is participating in the DTC
Fast Automated Securities Transfer Program, the Transfer Agent shall fail to
credit the balance account of the Holder or the Holder’s designee with DTC for
the number of shares of Common Stock to which the Holder is entitled upon the
Holder’s conversion hereunder or pursuant to the Company’s obligation pursuant
to clause (II) below, and if on or after such Share Delivery Deadline the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock
corresponding to all or any portion of the number of shares of Common Stock
issuable upon such conversion that the Holder is entitled to receive from the
Company and has not received from the Company in connection with such Conversion
Failure, as applicable (a “Buy-In”), then, in addition to all other remedies
available to the Holder, the Company shall, within two (2) Business Days after
receipt of the Holder’s request and in the Holder’s discretion, either: (I) pay
cash to the Holder in an amount equal to the Holder’s total purchase price
(including brokerage commissions and other out-of-pocket expenses, if any) for
the shares of Common Stock so purchased (including, without limitation, by any
other Person in respect, or on behalf, of the Holder) (the “Buy-In Price”), at
which point the Company’s obligation to so issue and deliver such certificate
(and to issue such shares of Common Stock) or credit the balance account of such
Holder or such Holder’s designee, as applicable, with DTC for the number of
shares of Common Stock to which the Holder is entitled upon the Holder’s
conversion hereunder (as the case may be) (and to issue such shares of Common
Stock) shall terminate, or (II) promptly honor its obligation to so issue and
deliver to the Holder a certificate or certificates representing such shares of
Common Stock or credit the balance account of such Holder or such Holder’s
designee, as applicable, with DTC for the number of shares of Common Stock to
which the Holder is entitled upon the Holder’s conversion hereunder (as the case
may be) and pay cash to the Holder in an amount equal to the excess (if any) of
the Buy-In Price over the product of (x) such number of shares of Common Stock
multiplied by (y) the lowest Closing Sale Price of the Common Stock on any
Trading Day during the period commencing on the date of the applicable
Conversion Notice and ending on the date of such issuance and payment under this
clause (II) (the “Buy-In Payment Amount”). Nothing shall limit the 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 Company’s failure to timely deliver
certificates representing shares of Common Stock (or to electronically deliver
such shares of Common Stock) upon the conversion of this Note as required
pursuant to the terms hereof.

 

4

 

 

(iii)       Registration; Book-Entry. The Company shall maintain a register (the
“Register”) for the recordation of the names and addresses of the holders of
each Note and the principal amount of the Notes held by such holders (the
“Registered Notes”). The entries in the Register shall be conclusive and binding
for all purposes absent manifest error. The Company and the holders of the Notes
shall treat each Person whose name is recorded in the Register as the owner of a
Note for all purposes (including, without limitation, the right to receive
payments of Principal and Interest hereunder) notwithstanding notice to the
contrary. A Registered Note may be assigned, transferred or sold in whole or in
part only by registration of such assignment or sale on the Register. Upon its
receipt of a written request to assign, transfer or sell all or part of any
Registered Note by the holder thereof, the Company shall record the information
contained therein in the Register and issue one or more new Registered Notes in
the same aggregate principal amount as the principal amount of the surrendered
Registered Note to the designated assignee or transferee pursuant to Section 20,
provided that if the Company does not so record an assignment, transfer or sale
(as the case may be) of all or part of any Registered Note within two (2)
Business Days of such a request, then the Register shall be automatically deemed
updated to reflect such assignment, transfer or sale (as the case may be).
Notwithstanding anything to the contrary set forth in this Section 3, following
conversion of any portion of this Note in accordance with the terms hereof, the
Holder shall not be required to physically surrender this Note to the Company
unless (A) the full Conversion Amount represented by this Note is being
converted (in which event this Note shall be delivered to the Company following
conversion thereof as contemplated by Section 3(c)(i)) or (B) the Holder has
provided the Company with prior written notice (which notice may be included in
a Conversion Notice) requesting reissuance of this Note upon physical surrender
of this Note. The Holder and the Company shall maintain records showing the
Principal, Interest and Late Charges converted and/or paid (as the case may be)
and the dates of such conversions, and/or payments (as the case may be) or shall
use such other method, reasonably satisfactory to the Holder and the Company, so
as not to require physical surrender of this Note upon conversion. If the
Company does not update the Register to record such Principal, Interest and Late
Charges converted and/or paid (as the case may be) and the dates of such
conversions, and/or payments (as the case may be) within two (2) Business Days
of such occurrence, then the Register shall be automatically deemed updated to
reflect such occurrence.

 

(iv)       Pro Rata Conversion; Disputes. In the event that the Company receives
a Conversion Notice from more than one holder of Notes for the same Conversion
Date and the Company can convert some, but not all, of such portions of the
Notes submitted for conversion, the Company, subject to Section 3(d), shall
convert from each holder of Notes electing to have Notes converted on such date
a pro rata amount of such holder’s portion of its Notes submitted for conversion
based on the principal amount of Notes submitted for conversion on such date by
such holder relative to the aggregate principal amount of all Notes submitted
for conversion on such date. In the event of a dispute as to the number of
shares of Common Stock issuable to the Holder in connection with a conversion of
this Note, the Company shall issue to the Holder the number of shares of Common
Stock not in dispute and resolve such dispute in accordance with Section 25.

 

5

 

 

(d)       Limitations on Conversions.

 

(i)       Beneficial Ownership. The Company shall not effect the conversion of
any portion of this Note, and the Holder shall not have the right to convert any
portion of this Note pursuant to the terms and conditions of this Note and any
such conversion shall be null and void and treated as if never made, to the
extent that after giving effect to such conversion, the Holder together with the
other Attribution Parties collectively would beneficially own in excess of 4.99%
(the “Maximum Percentage”) of the shares of Common Stock outstanding immediately
after giving effect to such conversion. For purposes of the foregoing sentence,
the aggregate number of shares of Common Stock beneficially owned by the Holder
and the other Attribution Parties shall include the number of shares of Common
Stock held by the Holder and all other Attribution Parties plus the number of
shares of Common Stock issuable upon conversion of this Note with respect to
which the determination of such sentence is being made, but shall exclude shares
of Common Stock which would be issuable upon (A) conversion of the remaining,
nonconverted portion of this Note beneficially owned by the Holder or any of the
other Attribution Parties and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including, without
limitation, any convertible notes or convertible preferred stock or warrants)
beneficially owned by the Holder or any other Attribution Party subject to a
limitation on conversion or exercise analogous to the limitation contained in
this Section 3(d)(i). For purposes of this Section 3(d)(i), beneficial ownership
shall be calculated in accordance with Section 13(d) of the 1934 Act. For
purposes of determining the number of outstanding shares of Common Stock the
Holder may acquire upon the conversion of this Note without exceeding the
Maximum Percentage, the Holder may rely on the number of outstanding shares of
Common Stock as reflected in (x) the Company’s most recent Annual Report on Form
10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other public
filing with the SEC, as the case may be, (y) a more recent public announcement
by the Company or (z) any other written notice by the Company or the Transfer
Agent, if any, setting forth the number of shares of Common Stock outstanding
(the “Reported Outstanding Share Number”). If the Company receives a Conversion
Notice from the Holder at a time when the actual number of outstanding shares of
Common Stock is less than the Reported Outstanding Share Number, the Company
shall notify the Holder in writing of the number of shares of Common Stock then
outstanding and, to the extent that such Conversion Notice would otherwise cause
the Holder’s beneficial ownership, as determined pursuant to this Section
3(d)(i), to exceed the Maximum Percentage, the Holder must notify the Company of
a reduced number of shares of Common Stock to be purchased pursuant to such
Conversion Notice. For any reason at any time, upon the written or oral request
of the Holder, the Company shall within one (1) Business Day confirm orally and
in writing or by electronic mail to the 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 Company, including this Note, by the Holder and any other
Attribution Party since the date as of which the Reported Outstanding Share
Number was reported. In the event that the issuance of shares of Common Stock to
the Holder upon conversion of this Note results in the Holder and the other
Attribution Parties being deemed to beneficially own, in the aggregate, more
than the Maximum Percentage of the number of outstanding shares of Common Stock
(as determined under Section 13(d) of the 1934 Act), the number of shares so
issued by which the Holder’s and the other Attribution Parties’ aggregate
beneficial ownership exceeds the Maximum Percentage (the “Excess Shares”) shall
be deemed null and void and shall be cancelled ab initio, and the Holder shall
not have the power to vote or to transfer the Excess Shares. Upon delivery of a
written notice to the Company, the Holder may from time to time increase (with
such increase not effective until the sixty-first (61st) day after delivery of
such notice) or decrease the Maximum Percentage to any other percentage not in
excess of 9.99% as specified in such notice; provided that (i) any such increase
in the Maximum Percentage will not be effective until the sixty-first (61st) day
after such notice is delivered to the Company and (ii) any such increase or
decrease will apply only to the Holder and the other Attribution Parties and not
to any other holder of Notes that is not an Attribution Party of the Holder. For
purposes of clarity, the shares of Common Stock issuable pursuant to the terms
of this Note in excess of the Maximum Percentage shall not be deemed to be
beneficially owned by the Holder for any purpose including for purposes of
Section 13(d) or Rule 16a-1(a)(1) of the 1934 Act. No prior inability to convert
this Note pursuant to this paragraph shall have any effect on the applicability
of the provisions of this paragraph with respect to any subsequent determination
of convertibility. The provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with the terms of
this Section 3(d)(i) to the extent necessary to correct this paragraph (or any
portion of this paragraph) which may be defective or inconsistent with the
intended beneficial ownership limitation contained in this Section 3(d)(i) or to
make changes or supplements necessary or desirable to properly give effect to
such limitation. The limitation contained in this paragraph may not be waived
and shall apply to a successor holder of this Note.

 

6

 

 

(ii)       Principal Market Regulation. The Company shall not issue any shares
of Common Stock upon conversion of this Note or otherwise pursuant to the terms
of this Note if the issuance of such shares of Common Stock would exceed the
aggregate number of shares of Common Stock which the Company may issue upon
conversion of the Notes or otherwise pursuant to the terms of this Note without
breaching the Company’s obligations under the rules or regulations of the
Principal Market (the number of shares which may be issued without violating
such rules and regulations, including rules related to the aggregate of
offerings under NASDAQ Listing Rule 5635(d), the “Exchange Cap”), except that
such limitation shall not apply in the event that the Company (A) obtains the
approval of its stockholders as required by the applicable rules of the
Principal Market for issuances of shares of Common Stock upon conversion of the
Notes or otherwise pursuant to the terms of this Note in excess of such amount
or (B) obtains a written opinion from outside counsel to the Company that such
approval is not required, which opinion shall be reasonably satisfactory to the
Holder. Until such approval or such written opinion is obtained, no Buyer shall
be issued in the aggregate, upon conversion of any Notes or otherwise pursuant
to the terms of this Note, shares of Common Stock in an amount greater than the
product of (i) the Exchange Cap multiplied by (ii) the quotient of (A) the
aggregate original principal amount of Notes issued to such Buyer pursuant to
the Securities Purchase Agreement on the Closing Date (as defined in the
Securities Purchase Agreement) divided by (B) the aggregate original principal
amount of all Notes issued to the Buyers pursuant to the Securities Purchase
Agreement on the Closing Date (with respect to each Buyer, the “Exchange Cap
Allocation”). In the event that any Buyer shall sell or otherwise transfer any
of such Buyer’s Notes, the transferee shall be allocated a pro rata portion of
such Buyer’s Exchange Cap Allocation with respect to such portion of such Notes
so transferred, and the restrictions of the prior sentence shall apply to such
transferee with respect to the portion of the Exchange Cap Allocation so
allocated to such transferee. Upon conversion in full of a holder’s Notes, the
difference (if any) between such holder’s Exchange Cap Allocation and the number
of shares of Common Stock actually issued to such holder upon such holder’s
conversion in full of such holder’s Notes shall be allocated to the respective
Exchange Cap Allocations of the remaining holders of Notes on a pro rata basis
in proportion to the shares of Common Stock underlying the Notes then held by
each such holder. At any time after the date hereof, in the event that the
Company is prohibited from issuing shares of Common Stock pursuant to this
Section 3(d)(ii) (the “Exchange Cap Shares”), the Company shall pay cash in
exchange for the cancellation of such shares of Common Stock at a price equal to
the sum of (i) the product of (x) such number of Exchange Cap Shares and (y) the
greatest Closing Sale Price of the Common Stock on any Trading Day during the
period commencing on the date the Holder delivers the applicable Conversion
Notice with respect to such Exchange Cap Shares to the Company and ending on the
date of such issuance and payment under this Section 3(d)(ii) and (ii) to the
extent of any Buy-In related thereto, any Buy-In Payment Amount, any brokerage
commissions and other out-of-pocket expenses, if any, of the Holder incurred in
connection therewith (collectively, the “Exchange Cap Share Cancellation
Amount”).

 

(e)       Right of Alternate Conversion Upon an Event of Default.

 

(i)       General. Subject to Section 3(d), at any time during an Event of
Default Redemption Right Period (as defined below) with respect to an Alternate
Conversion Event of Default (regardless of whether such Event of Default has
been cured or if the Holder has delivered an Event of Default Redemption Notice
to the Company), the Holder may, at the Holder’s option, convert (each, an
“Alternate Conversion”, and the date of such Alternate Conversion, each, an
“Alternate Conversion Date”) all, or any part of, the Conversion Amount (such
portion of the Conversion Amount subject to such Alternate Conversion, the
“Alternate Conversion Amount”) into shares of Common Stock at the Alternate
Conversion Price.

 

(ii)       Mechanics of Alternate Conversion. On any Alternate Conversion Date,
the Holder may voluntarily convert any Alternate Conversion Amount pursuant to
Section 3(c) (with “Alternate Conversion Price” replacing “Conversion Price” for
all purposes hereunder with respect to such Alternate Conversion and with
“Redemption Premium of the Conversion Amount” replacing “Conversion Amount” in
clause (x) of the definition of Conversion Rate above with respect to such
Alternate Conversion) by designating in the Conversion Notice delivered pursuant
to this Section 3(e) of this Note that the Holder is electing to use the
Alternate Conversion Price for such conversion; provided that in the event of
the Conversion Floor Price Condition, on the applicable Alternate Conversion
Date the Company shall also deliver to the Holder the applicable Alternate
Conversion Floor Amount. Notwithstanding anything to the contrary in this
Section 3(e), but subject to Section 3(d), until the Company delivers shares of
Common Stock representing the applicable Alternate Conversion Amount to the
Holder, such Alternate Conversion Amount may be converted by the Holder into
shares of Common Stock pursuant to Section 3(c) without regard to this Section
3(e).

 

7

 

 

4.       RIGHTS UPON EVENT OF DEFAULT.

 

(a)       Event of Default. Each of the following events shall constitute an
“Event of Default” and each of the events in clauses (viii), (ix) and (x) shall
constitute a “Bankruptcy Event of Default”:

 

(i)       the suspension from trading or the failure of the Common Stock to be
trading or listed (as applicable) on an Eligible Market for a period of ten (10)
consecutive Trading Days;

 

(ii)       at any time from and after November 3, 2020 (excluding days during an
Allowable Grace Period), the Company fails to have an effective shelf
registration statement, which, as of such time of determination, has an
available dollar offering amount of securities then issuable by the Company
thereunder (as reduced by any limitations on any such issuances by any law, rule
or regulations applicable thereto, whether pursuant to the 1933 Act, the
Principal Market or otherwise, including, without limitation, the “baby shelf
rules” set forth in Instruction I.B.6(a) to Form S-3 of the 1933 Act) (the
“Available Shelf Capacity”) of no less than 125% of the aggregate principal,
interest and other amounts outstanding under the April 2020 Notes and/or the
Notes, as applicable, as of such time of determination;

 

(iii)       the Company’s (A) failure to cure a Conversion Failure by delivery
of the required number of shares of Common Stock within five (5) Trading Days
after the applicable Conversion Date or (B) notice, written or oral, to any
holder of the Notes, including, without limitation, by way of public
announcement or through any of its agents, at any time, of its intention not to
comply, as required, with a request for conversion of any Notes into shares of
Common Stock that is requested in accordance with the provisions of the Notes,
other than pursuant to Section 3(d);

 

(iv)       except to the extent the Company is in compliance with Section 9(b)
below, at any time following the tenth (10th) consecutive day that the Holder’s
Authorized Share Allocation (as defined in Section 9(a) below) is less than the
number of shares of Common Stock that the Holder would be entitled to receive
upon a conversion of the full Conversion Amount of this Note (without regard to
any limitations on conversion set forth in Section 3(d) or otherwise);

 

(v)       the Company’s failure to pay to the Holder any amount of Principal,
Interest, Late Charges or other amounts when and as due under this Note
(including, without limitation, the Company’s failure to pay any redemption
payments or amounts hereunder) or any other Transaction Document (as defined in
the Securities Purchase Agreement) or any other agreement, document, certificate
or other instrument delivered in connection with the transactions contemplated
hereby and thereby, but only if such failure remains uncured for a period of at
least two (2) Trading Days;

 

8

 

 

(vi)       the Company fails to remove any restrictive legend on any certificate
or any shares of Common Stock issued to the Holder upon conversion of any
Securities (as defined in the Securities Purchase Agreement) acquired by the
Holder under the Securities Purchase Agreement (including this Note) as and when
required by such Securities or the Securities Purchase Agreement, unless
otherwise then prohibited by applicable federal securities laws, and any such
failure remains uncured for at least ten (10) days;

 

(vii)       the occurrence of any default (after lapse of any applicable cure
periods) under, redemption of or acceleration prior to maturity of at least an
aggregate of $150,000 of Indebtedness (as defined in the Securities Purchase
Agreement) of the Company or any of its Subsidiaries, other than with respect to
any Other Notes or with respect to any redemption of the April 2020 Note (as
defined in the Securities Purchase Agreement) or any 2019 Notes (as defined in
the Securities Purchase Agreement);

 

(viii)       bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings for the relief of debtors shall be instituted by or against
the Company or any Subsidiary and, if instituted against the Company or any
Subsidiary by a third party, shall not be dismissed within thirty (30) days of
their initiation;

 

(ix)       the commencement by the Company or any Subsidiary of a voluntary case
or proceeding under any applicable federal, state or foreign bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to
the entry of a decree, order, judgment or other similar document in respect of
the Company or any Subsidiary in an involuntary case or proceeding under any
applicable federal, state or foreign bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under any applicable federal, state or foreign
law, or the consent by it to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or of
any substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the execution of a composition of debts, or the
occurrence of any other similar federal, state or foreign proceeding, or the
admission by it in writing of its inability to pay its debts generally as they
become due, the taking of corporate action by the Company or any Subsidiary in
furtherance of any such action or the taking of any action by any Person to
commence a Uniform Commercial Code foreclosure sale or any other similar action
under federal, state or foreign law;

 

(x)       the entry by a court of (i) a decree, order, judgment or other similar
document in respect of the Company or any Subsidiary of a voluntary or
involuntary case or proceeding under any applicable federal, state or foreign
bankruptcy, insolvency, reorganization or other similar law or (ii) a decree,
order, judgment or other similar document adjudging the Company or any
Subsidiary as bankrupt or insolvent, or approving as properly filed a petition
seeking liquidation, reorganization, arrangement, adjustment or composition of
or in respect of the Company or any Subsidiary under any applicable federal,
state or foreign law or (iii) a decree, order, judgment or other similar
document appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or of
any substantial part of its property, or ordering the winding up or liquidation
of its affairs, and the continuance of any such decree, order, judgment or other
similar document or any such other decree, order, judgment or other similar
document unstayed and in effect for a period of thirty (30) consecutive days;

 

9

 

 

(xi)       a final judgment or judgments for the payment of money aggregating in
excess of $150,000 are rendered against the Company and/or any of its
Subsidiaries and which judgments are not, within thirty (30) days after the
entry thereof, bonded, discharged, settled or stayed pending appeal, or are not
discharged within thirty (30) days after the expiration of such stay; provided,
however, any judgment which is covered by insurance or an indemnity from a
credit worthy party shall not be included in calculating the $150,000 amount set
forth above so long as the Company provides the Holder a written statement from
such insurer or indemnity provider (which written statement shall be reasonably
satisfactory to the Holder) to the effect that such judgment is covered by
insurance or an indemnity and the Company or such Subsidiary (as the case may
be) will receive the proceeds of such insurance or indemnity within thirty (30)
days of the issuance of such judgment;

 

(xii)       the Company and/or any Subsidiary, individually or in the aggregate,
either (i) fails to pay, when due, or within any applicable grace period, any
payment with respect to any Indebtedness in excess of $150,000 due to any third
party (other than, with respect to unsecured Indebtedness only, payments
contested by the Company and/or such Subsidiary (as the case may be) in good
faith by proper proceedings and with respect to which adequate reserves have
been set aside for the payment thereof in accordance with GAAP) or is otherwise
in breach or violation of any agreement for monies owed or owing in an amount in
excess of $150,000, which failure to pay, breach or violation permits the other
party thereto to declare an event of default or otherwise accelerate amounts due
thereunder, or (ii) suffer to exist any other circumstance or event that would,
with or without the passage of time or the giving of notice, result in a default
or event of default under any agreement binding the Company or any Subsidiary,
which default or event of default would or is likely to have a material adverse
effect on the business, assets, operations (including results thereof),
liabilities, properties, condition (including financial condition) or prospects
of the Company or any of its Subsidiaries, individually or in the aggregate;

 

(xiii)       other than as specifically set forth in another clause of this
Section 4(a), the Company or any Subsidiary breaches any representation or
warranty, in any material respect (other than representations or warranties
subject to material adverse effect or materiality, which may not be breached in
any respect) or any covenant or other term or condition of any Transaction
Document, except, in the case of a breach of a covenant or other term or
condition that is curable, only if such breach remains uncured for a period of
five (5) consecutive Trading Days;

 

10

 

 

(xiv)       the occurrence of four (4) or more false or inaccurate certification
(including a false or inaccurate deemed certification) by the Company as to
whether any Event of Default has occurred;

 

(xv)       any breach or failure in any respect by the Company or any Subsidiary
to comply with any provision of clauses (a) to (g), (n), or (o) to (r) of
Section 15 of this Note, but only with respect to clauses (e) to (g), (n) or (o)
to (r) of Section 15 of this Note if such breach remains uncured for a period of
five (5) consecutive days;

 

(xvi)       any Material Adverse Effect (as defined in the Securities Purchase
Agreement) occurs (other than any material adverse development or material
adverse change with respect to any products of the Company other than the CarpX
or Esocheck products);

 

(xvii)       any provision of any Transaction Document (including, without
limitation, the Security Documents and the Guaranties) shall at any time for any
reason (other than pursuant to the express terms thereof) cease to be valid and
binding on or enforceable against the parties thereto, or the validity or
enforceability thereof shall be contested by any party thereto, or a proceeding
shall be commenced by the Company or any Subsidiary or any governmental
authority having jurisdiction over any of them, seeking to establish the
invalidity or unenforceability thereof, or the Company or any Subsidiary shall
deny in writing that it has any liability or obligation purported to be created
under any Transaction Document (including, without limitation, the Security
Documents and the Guaranties);

 

(xviii)       any Security Document shall for any reason fail or cease to create
a separate valid and perfected and, except to the extent permitted by the terms
hereof or thereof, first priority Lien (as defined in the Securities Purchase
Agreement) on the Collateral (as defined in the Security Documents) in favor of
the Collateral Agent (as defined in the Securities Purchase Agreement) or any
material provision of any Security Document shall at any time for any reason
cease to be valid and binding on or enforceable against the Company or the
validity or enforceability thereof shall be contested by any party thereto, or a
proceeding shall be commenced by the Company or any governmental authority
having jurisdiction over the Company, seeking to establish the invalidity or
unenforceability thereof;

 

(xix)       any material damage to, or loss, theft or destruction of, any
Collateral, whether or not insured, or any strike, lockout, labor dispute,
embargo, condemnation, act of God or public enemy, or other casualty which
causes, for more than fifteen (15) consecutive days, the cessation or
substantial curtailment of revenue producing activities at any facility of the
Company or any Subsidiary, if any such event or circumstance has had, or is
reasonably likely to have a Material Adverse Effect;

 

(xx)       if both (x) Lishan Aklog ceases to be the chief executive officer of
the Company and (y) Dennis McGrath ceases to be the chief financial officer or
chief executive officer of the Company; or

 

11

 

 

(xxi)       any Event of Default (as defined in the Other Notes) occurs with
respect to any Other Notes, the April 2020 Note or any 2019 Notes.

 

(b)       Notice of an Event of Default; Redemption Right. Upon the occurrence
of an Event of Default with respect to this Note or any Other Note, the Company
shall within one (1) Business Day deliver written notice thereof via facsimile
or electronic mail and overnight courier (with next day delivery specified) (an
“Event of Default Notice”) to the Holder. At any time after the earlier of the
Holder’s receipt of an Event of Default Notice and the Holder becoming aware of
the occurrence of an Event of Default (such earlier date, the “Event of Default
Right Commencement Date”) and ending (such ending date, the “Event of Default
Right Expiration Date”, and each such period, an “Event of Default Redemption
Right Period”) on the twentieth (20th) Trading Day after the later of (x) the
date such Event of Default is cured and (y) the Holder’s receipt of an Event of
Default Notice that includes (I) a reasonable description of the applicable
Event of Default, (II) a certification as to whether, in the opinion of the
Company, such Event of Default is capable of being cured and, if applicable, a
reasonable description of any existing plans of the Company to cure such Event
of Default and (III) a certification as to the date the Event of Default
occurred and, if cured on or prior to the date of such Event of Default Notice,
the applicable Event of Default Right Expiration Date, the Holder may require
the Company to redeem (regardless of whether such Event of Default has been
cured on or prior to the Event of Default Right Expiration Date) all or any
portion of this Note by delivering written notice thereof (the “Event of Default
Redemption Notice”) to the Company, which Event of Default Redemption Notice
shall indicate the portion of this Note the Holder is electing to redeem. Each
portion of this Note subject to redemption by the Company pursuant to this
Section 4(b) shall be redeemed by the Company at a price equal to the greater of
(i) the product of (A) the Conversion Amount to be redeemed multiplied by (B)
the Redemption Premium and (ii) the product of (X) the Conversion Rate with
respect to the Conversion Amount in effect at such time as the Holder delivers
an Event of Default Redemption Notice multiplied by (Y) the greatest Closing
Sale Price of the Common Stock on any Trading Day during the period commencing
on the date immediately preceding such Event of Default and ending on the date
the Company makes the entire payment required to be made under this Section 4(b)
(the “Event of Default Redemption Price”). Redemptions required by this Section
4(b) shall be made in accordance with the provisions of Section 10. To the
extent redemptions required by this Section 4(b) are deemed or determined by a
court of competent jurisdiction to be prepayments of this Note by the Company,
such redemptions shall be deemed to be voluntary prepayments. Notwithstanding
anything to the contrary in this Section 4(b), but subject to Section 3(d),
until the Event of Default Redemption Price (together with any Late Charges
thereon) is paid in full, the Conversion Amount submitted for redemption under
this Section 4(b) (together with any Late Charges thereon) may be converted, in
whole or in part, by the Holder into Common Stock pursuant to the terms of this
Note. In the event of the Company’s redemption of any portion of this Note under
this Section 4(b), the Holder’s damages would be uncertain and difficult to
estimate because of the parties’ inability to predict future interest rates and
the uncertainty of the availability of a suitable substitute investment
opportunity for the Holder. Accordingly, any redemption premium due under this
Section 4(b) is intended by the parties to be, and shall be deemed, a reasonable
estimate of the Holder’s actual loss of its investment opportunity and not as a
penalty. Any redemption upon an Event of Default shall not constitute an
election of remedies by the Holder, and all other rights and remedies of the
Holder shall be preserved.

 

12

 

 

(c)       Mandatory Redemption upon Bankruptcy Event of Default. Notwithstanding
anything to the contrary herein, and notwithstanding any conversion that is then
required or in process, upon any Bankruptcy Event of Default, whether occurring
prior to or following the Maturity Date, the Company shall immediately pay to
the Holder an amount in cash representing (i) all outstanding Principal, accrued
and unpaid Interest and accrued and unpaid Late Charges on such Principal and
Interest, multiplied by (ii) the Redemption Premium, in addition to any and all
other amounts due hereunder, without the requirement for any notice or demand or
other action by the Holder or any other person or entity, provided that the
Holder may, in its sole discretion, waive such right to receive payment upon a
Bankruptcy Event of Default, in whole or in part, and any such waiver shall not
affect any other rights of the Holder hereunder, including any other rights in
respect of such Bankruptcy Event of Default, any right to conversion, and any
right to payment of the Event of Default Redemption Price or any other
Redemption Price, as applicable.

 

5.       RIGHTS UPON FUNDAMENTAL TRANSACTION.

 

(a)       Assumption. The Company shall not enter into or be party to a
Fundamental Transaction unless (i) the Successor Entity assumes in writing all
of the obligations of the Company under this Note and the other Transaction
Documents in accordance with the provisions of this Section 5(a) pursuant to
written agreements in form and substance satisfactory to the Holder and approved
by the Holder prior to such Fundamental Transaction, including agreements to
deliver to each holder of Notes in exchange for such Notes a security of the
Successor Entity evidenced by a written instrument substantially similar in form
and substance to the Notes, including, without limitation, having a principal
amount and interest rate equal to the principal amounts then outstanding and the
interest rates of the Notes held by such holder, having similar conversion
rights as the Notes and having similar ranking and security to the Notes, and
satisfactory to the Holder and (ii) the Successor Entity (including its Parent
Entity) is a publicly traded corporation whose common stock is quoted on or
listed for trading on an Eligible Market. Upon the occurrence of any 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 Note and the other Transaction Documents referring to the “Company” shall
refer instead to the Successor Entity), and may exercise every right and power
of the Company and shall assume all of the obligations of the Company under this
Note and the other Transaction Documents with the same effect as if such
Successor Entity had been named as the Company herein. Upon consummation of a
Fundamental Transaction, the Successor Entity shall deliver to the Holder
confirmation that there shall be issued upon conversion or redemption of this
Note at any time after the consummation of such Fundamental Transaction, in lieu
of the shares of Common Stock (or other securities, cash, assets or other
property (except such items still issuable under Sections 6 and 16, which shall
continue to be receivable thereafter)) issuable upon the conversion or
redemption of the Notes prior to such Fundamental Transaction, such shares of
the publicly traded common stock (or their equivalent) of the Successor Entity
(including its Parent Entity) which the Holder would have been entitled to
receive upon the happening of such Fundamental Transaction had this Note been
converted immediately prior to such Fundamental Transaction (without regard to
any limitations on the conversion of this Note), as adjusted in accordance with
the provisions of this Note. Notwithstanding the foregoing, the Required Holders
may elect, at their sole option, by delivery of written notice to the Company to
waive this Section 5(a) to permit the Fundamental Transaction without the
assumption of this Note. The provisions of this Section 5 shall apply similarly
and equally to successive Fundamental Transactions and shall be applied without
regard to any limitations on the conversion of this Note.

 

13

 

 

(b)       Notice of a Change of Control; Redemption Right. No sooner than twenty
(20) Trading Days nor later than ten (10) Trading Days prior to the consummation
of a Change of Control (the “Change of Control Date”), but not prior to the
public announcement of such Change of Control, the Company shall deliver written
notice thereof via facsimile or electronic mail and overnight courier to the
Holder (a “Change of Control Notice”). At any time during the period beginning
after the Holder’s receipt of a Change of Control Notice or the Holder becoming
aware of a Change of Control if a Change of Control Notice is not delivered to
the Holder in accordance with the immediately preceding sentence (as applicable)
and ending on twenty (20) Trading Days after the later of (A) the date of
consummation of such Change of Control or (B) the date of receipt of such Change
of Control Notice or (C) the date of the announcement of such Change of Control,
the Holder may require the Company to redeem all or any portion of this Note by
delivering written notice thereof (“Change of Control Redemption Notice”) to the
Company, which Change of Control Redemption Notice shall indicate the Conversion
Amount the Holder is electing to redeem. The portion of this Note subject to
redemption pursuant to this Section 5 shall be redeemed by the Company in cash
at a price equal to the greatest of (i) the product of (w) the Change of Control
Redemption Premium multiplied by (y) the Conversion Amount being redeemed, (ii)
the product of (x) the Change of Control Redemption Premium multiplied by (y)
the product of (A) the Conversion Amount being redeemed multiplied by (B) the
quotient determined by dividing (I) the greatest Closing Sale Price of the
shares of Common Stock during the period beginning on the date immediately
preceding the earlier to occur of (1) the consummation of the applicable Change
of Control and (2) the public announcement of such Change of Control and ending
on the date the Holder delivers the Change of Control Redemption Notice by (II)
the Conversion Price then in effect and (iii) the product of (y) the Change of
Control Redemption Premium multiplied by (z) the product of (A) the Conversion
Amount being redeemed multiplied by (B) the quotient of (I) the aggregate cash
consideration and the aggregate cash value of any non-cash consideration per
share of Common Stock to be paid to the holders of the shares of Common Stock
upon consummation of such Change of Control (any such non-cash consideration
constituting publicly-traded securities shall be valued at the highest of the
Closing Sale Price of such securities as of the Trading Day immediately prior to
the consummation of such Change of Control, the Closing Sale Price of such
securities on the Trading Day immediately following the public announcement of
such proposed Change of Control and the Closing Sale Price of such securities on
the Trading Day immediately prior to the public announcement of such proposed
Change of Control) divided by (II) the Conversion Price then in effect (the
“Change of Control Redemption Price”). Redemptions required by this Section 5
shall be made in accordance with the provisions of Section 10 and shall have
priority to payments to stockholders in connection with such Change of Control.
To the extent redemptions required by this Section 5(b) are deemed or determined
by a court of competent jurisdiction to be prepayments of this Note by the
Company, such redemptions shall be deemed to be voluntary prepayments.
Notwithstanding anything to the contrary in this Section 5, but subject to
Section 3(d), until the Change of Control Redemption Price (together with any
Late Charges thereon) is paid in full, the Conversion Amount submitted for
redemption under this Section 5(b) (together with any Late Charges thereon) may
be converted, in whole or in part, by the Holder into Common Stock pursuant to
Section 3. In the event of the Company’s redemption of any portion of this Note
under this Section 5(b), the Holder’s damages would be uncertain and difficult
to estimate because of the parties’ inability to predict future interest rates
and the uncertainty of the availability of a suitable substitute investment
opportunity for the Holder. Accordingly, any redemption premium due under this
Section 5(b) is intended by the parties to be, and shall be deemed, a reasonable
estimate of the Holder’s actual loss of its investment opportunity and not as a
penalty.

 

14

 

 

6.       RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

 

(a)       Purchase Rights. In addition to any adjustments pursuant to Section 7
and 16 below, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to all or substantially all of the record holders of any
class of Common Stock (the “Purchase Rights”), then the Holder 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 this
Note (without taking into account any limitations or restrictions on the
convertibility of this Note and assuming for such purpose that the Note was
converted at the Alternate Conversion Price as of the applicable record date)
immediately prior to 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, that to the
extent that the Holder’s right to participate in any such Purchase Right would
result in the Holder and the other Attribution Parties exceeding the Maximum
Percentage, then the Holder shall not be entitled to participate in such
Purchase Right to the extent of the Maximum Percentage (and shall not be
entitled to beneficial ownership of such shares of Common Stock as a result of
such Purchase Right (and beneficial ownership) to the extent of any such excess)
and such Purchase Right to such extent shall be held in abeyance up to ninety
(90) Trading Days (and, if such Purchase Right has an expiration date, maturity
date or other similar provision, such term shall be extended by such number of
days held in abeyance, if applicable) for the benefit of the Holder until the
applicable expiration date, maturity date or similar time (as extended pursuant
to the foregoing), until such time or times during such extended period, if any,
as its right thereto would not result in the Holder and the other Attribution
Parties exceeding the Maximum Percentage, at which time or times the Holder
shall be granted such right (and any Purchase Right granted, issued or sold on
such initial Purchase Right or on any subsequent Purchase Right held similarly
in abeyance (and, if such Purchase Right has an expiration date, maturity date
or other similar provision, such term shall be extended by such number of days
held in abeyance, if applicable)) to the same extent as if there had been no
such limitation). The Holder shall be deemed to have waived the right to receive
any such Purchase Rights that remain held in abeyance at the end of such
abeyance period if not granted prior to such time.

 

(b)       Other Corporate Events. In addition to and not in substitution for any
other rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a “Corporate Event”), the Company shall make appropriate provision to
ensure that the Holder will thereafter have the right to receive upon a
conversion of this Note, at the Holder’s option (i) in addition to the shares of
Common Stock receivable upon such conversion, such securities or other assets to
which the Holder would have been entitled with respect to such shares of Common
Stock had such shares of Common Stock been held by the Holder upon the
consummation of such Corporate Event (without taking into account any
limitations or restrictions on the convertibility of this Note) or (ii) in lieu
of the shares of Common Stock otherwise receivable upon such conversion, such
securities or other assets received by the holders of shares of Common Stock in
connection with the consummation of such Corporate Event in such amounts as the
Holder would have been entitled to receive had this Note initially been issued
with conversion rights for the form of such consideration (as opposed to shares
of Common Stock) at a conversion rate for such consideration commensurate with
the Conversion Rate. Provision made pursuant to the preceding sentence shall be
in a form and substance satisfactory to the Holder. The provisions of this
Section 6 shall apply similarly and equally to successive Corporate Events and
shall be applied without regard to any limitations on the conversion or
redemption of this Note.

 

7.       RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

 

(a)       Adjustment of Conversion Price upon Subdivision or Combination of
Common Stock. Without limiting any provision of Section 4(c), if the Company at
any time on or after the Subscription Date subdivides (by any stock split, stock
dividend, stock combination, recapitalization or other similar transaction) one
or more classes of its outstanding shares of Common Stock into a greater number
of shares, the Conversion Price in effect immediately prior to such subdivision
will be proportionately reduced. Without limiting any provision of Section 6 or
Section 16, if the Company at any time on or after the Subscription Date
combines (by any stock split, stock dividend, stock combination,
recapitalization or other similar transaction) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination will be
proportionately increased. Any adjustment pursuant to this Section 7(a) shall
become effective immediately after the effective date of such subdivision or
combination. If any event requiring an adjustment under this Section 7(a) occurs
during the period that a Conversion Price is calculated hereunder, then the
calculation of such Conversion Price shall be adjusted appropriately to reflect
such event.

 

15

 

 

(b)       Holder’s Right of Adjusted Conversion Price. In addition to and not in
limitation of the other provisions of this Section 7 or in the Securities
Purchase Agreement, if the Company in any manner issues or sells or enters into
any agreement to issue or sell, any Common Stock, Options or Convertible
Securities (any such securities, “Variable Price Securities”), after the
Subscription Date that are issuable pursuant to such agreement or convertible
into or exchangeable or exercisable for shares of Common Stock at a price which
varies or may vary with the market price of the shares of Common Stock,
including by way of one or more reset(s) to a fixed price, but exclusive of such
formulations reflecting customary anti-dilution provisions (such as share
splits, share combinations, share dividends and similar transactions) (each of
the formulations for such variable price being herein referred to as, the
“Variable Price”), the Company shall provide written notice thereof via
facsimile or electronic mail and overnight courier to the Holder on the date of
such agreement and the issuance of such Convertible Securities or Options. From
and after the date the Company enters into such agreement or issues any such
Variable Price Securities, the Holder shall have the right, but not the
obligation, in its sole discretion to substitute the Variable Price for the
Conversion Price upon conversion of this Note by designating in the Conversion
Notice delivered upon any conversion of this Note that solely for purposes of
such conversion the Holder is relying on the Variable Price rather than the
Conversion Price then in effect. The Holder’s election to rely on a Variable
Price for a particular conversion of this Note shall not obligate the Holder to
rely on a Variable Price for any future conversion of this Note.

 

(c)       Calculations. All calculations under this Section 7 shall be made by
rounding to the nearest cent or the nearest 1/100th of a share, as applicable.
The number of shares of Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or sale of Common
Stock.

 

(d)       Voluntary Adjustment by Company. Subject to the rules and regulations
of the Principal Market, the Company may at any time during the term of this
Note, with the prior written consent of the Required Holders (as defined in the
Securities Purchase Agreement), reduce the then current Conversion Price of each
of the Notes to any amount and for any period of time deemed appropriate by the
board of directors of the Company.

 

8.       NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Certificate of Incorporation (as defined
in the Securities Purchase Agreement), Bylaws (as defined in the Securities
Purchase Agreement) or through any reorganization, transfer of assets,
consolidation, merger, scheme of arrangement, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Note, and will at all times in good
faith carry out all of the provisions of this Note and take all action as may be
required to protect the rights of the Holder of this Note. Without limiting the
generality of the foregoing or any other provision of this Note or the other
Transaction Documents, the Company (a) shall not increase the par value of any
shares of Common Stock receivable upon conversion of this Note above the
Conversion Price then in effect, and (b) shall take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the conversion of this
Note.

 

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9.       RESERVATION OF AUTHORIZED SHARES.

 

(a)       Reservation. So long as any Notes remain outstanding, the Company
shall at all times reserve the Required Reserve Amount (as defined in the
Securities Purchase Agreement) The Required Reserve Amount (including, without
limitation, each increase in the number of shares so reserved) shall be
allocated pro rata among the holders of the Notes based on the original
principal amount of the Notes held by each holder on the Closing Date or
increase in the number of reserved shares, as the case may be (the “Authorized
Share Allocation”). In the event that a holder shall sell or otherwise transfer
any of such holder’s Notes, each transferee shall be allocated a pro rata
portion of such holder’s Authorized Share Allocation. Any shares of Common Stock
reserved and allocated to any Person which ceases to hold any Notes shall be
allocated to the remaining holders of Notes, pro rata based on the principal
amount of the Notes then held by such holders.

 

(b)       Insufficient Authorized Shares. If, notwithstanding Section 9(a), and
not in limitation thereof, at any time while any of the Notes remain outstanding
the Company does not have a sufficient number of authorized and unreserved
shares of Common Stock to satisfy its obligation to reserve for issuance upon
conversion of the Notes at least a number of shares of Common Stock equal to the
Required Reserve Amount (an “Authorized Share Failure”), then the Company shall
immediately use its reasonable best efforts to take all action necessary to
increase the Company’s authorized shares of Common Stock to an amount sufficient
to allow the Company to reserve the Required Reserve Amount for the Notes then
outstanding. Without limiting the generality of the foregoing sentence, as soon
as practicable after the date of the occurrence of an Authorized Share Failure,
but in no event later than sixty (60) days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its stockholders
for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its best efforts to solicit its
stockholders’ approval of such increase in authorized shares of Common Stock and
to cause its board of directors to recommend to the stockholders that they
approve such proposal (or, if a majority of the voting power then in effect of
the capital stock of the Company consents to such increase, in lieu of such
proxy statement, deliver to the stockholders of the Company an information
statement that has been filed with (and either approved by or not subject to
comments from) the SEC with respect thereto). In the event that the Company is
prohibited from issuing shares of Common Stock pursuant to the terms of this
Note due to the failure by the Company to have sufficient shares of Common Stock
available out of the authorized but unissued shares of Common Stock (such
unavailable number of shares of Common Stock, the “Authorized Failure Shares”),
in lieu of delivering such Authorized Failure Shares to the Holder, the Company
shall pay cash in exchange for the redemption of such portion of the Conversion
Amount convertible into such Authorized Failure Shares at a price equal to the
sum of (i) the product of (x) such number of Authorized Failure Shares and (y)
the greatest Closing Sale Price of the Common Stock on any Trading Day during
the period commencing on the date the Holder delivers the applicable Conversion
Notice with respect to such Authorized Failure Shares to the Company and ending
on the date of such issuance and payment under this Section 9(a); and (ii) to
the extent the Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Holder of
Authorized Failure Shares, any brokerage commissions and other out-of-pocket
expenses, if any, of the Holder incurred in connection therewith. Nothing
contained in Section 9(a) or this Section 9(b) shall limit any obligations of
the Company under any provision of the Securities Purchase Agreement.

 

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10.       SUBSEQUENT PLACEMENT OPTIONAL REDEMPTION

 

(a)       General. At any time from and after the earlier of (x) the date the
Holder becomes aware of the occurrence of a Subsequent Placement (as defined in
the Securities Purchase Agreement) (the “Holder Notice Date”) and (y) the time
of consummation of a Subsequent Placement (in each case, other than with respect
to (I) Excluded Securities (as defined in the Securities Purchase Agreement) and
(II) the shares of Common Stock issuable upon conversion of the Notes) (each, an
“Eligible Subsequent Placement”), the Holder shall have the right, in its sole
discretion, to require that the Company redeem (each an “Subsequent Placement
Optional Redemption”) all, or any portion, of the Conversion Amount under this
Note not in excess of (together with any Subsequent Placement Optional
Redemption Amount (as defined in the applicable other Note of the Holder) of any
other Notes of the Holder) the Holder’s Holder Pro Rata Amount of 100% of the
gross proceeds (less (A) any reasonable placement agent, underwriter and/or
legal fees and expenses, and (B) any Subsequent Placement Optional Redemption
Amount (as defined in the 2019 Notes) and any Subsequent Placement Optional
Redemption Amount (as defined in the April 2020 Note), in the aggregate,
redeemed by the Company at the election of the applicable holders of such April
2020 Note and/or 2019 Notes (as applicable) in connection with such Eligible
Subsequent Placement) of such Eligible Subsequent Placement (the “Eligible
Subsequent Placement Optional Redemption Amount”) by delivering written notice
thereof (an “Subsequent Placement Optional Redemption Notice”) to the Company.
Notwithstanding the foregoing, if the Holder is participating in an Eligible
Subsequent Placement, upon the written request of the Holder, the Company shall
apply all, or any part, as set forth in such written request, of any amounts
that would otherwise be payable to the Holder in such Subsequent Placement
Optional Redemption, on a dollar-for-dollar basis, against the purchase price of
the securities to be purchased by the Holder in such Eligible Subsequent
Placement.

 

(b)       Mechanics. The Subsequent Placement Optional Redemption Notice shall
indicate that all, or such applicable portion, as set forth in the applicable
Subsequent Placement Optional Redemption Notice, of the Eligible Subsequent
Placement Optional Redemption Amount the Holder is electing to have redeemed
(the “Subsequent Placement Optional Redemption Amount”) and the date of such
Subsequent Placement Optional Redemption (the “Subsequent Placement Optional
Redemption Date”), which shall be the later of (x) the fifth (5th) Trading Day
after the date of the applicable Subsequent Placement Optional Redemption Notice
and (y) the date of the consummation of such Eligible Subsequent Placement. The
portion of this Note subject to redemption pursuant to this Section 10 shall be
redeemed by the Company in cash at a price equal to 115% of the Subsequent
Placement Optional Redemption Amount (the “Subsequent Placement Optional
Redemption Price”). Redemptions required by this Section 10 shall be made in
accordance with the provisions of Section 13. Notwithstanding anything to the
contrary in this Section 10, but subject to Section 3(d), until the Holder
receives the Subsequent Placement Optional Redemption Price, the Subsequent
Placement Optional Redemption Amount may be converted, in whole or in part, by
the Holder into Common Stock pursuant to Section 3, and any such conversion
shall reduce the Subsequent Placement Optional Redemption Amount in the manner
set forth by the Holder in the applicable Conversion Notice.

 

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11.       HOLDER OPTIONAL REDEMPTION. At any time from and after October 30,
2020, the Holder shall have the right, in its sole discretion, to require that
the Company redeem (each an “Holder Optional Redemption”) all, or any portion,
of the Conversion Amount under this Note by delivering written notice thereof
(an “Holder Optional Redemption Notice”) to the Company. The Holder Optional
Redemption Notice shall indicate that all, or such applicable portion, as set
forth in the applicable Holder Optional Redemption Notice, of the Conversion
Amount of this Note that the Holder is electing to have redeemed (the “Holder
Optional Redemption Amount”) and the date of such Holder Optional Redemption
(the “Holder Optional Redemption Date”), which shall be the fifth (5th) Trading
Day after the date of the applicable Holder Optional Redemption Notice (or such
later date as the Holder shall specify in such Holder Optional Redemption
Notice). The portion of this Note subject to redemption pursuant to this Section
11 shall be redeemed by the Company in cash at a price equal to 115% of the
Holder Optional Redemption Amount (the “Holder Optional Redemption Price”).
Redemptions required by this Section 11 shall be made in accordance with the
provisions of Section 13. Notwithstanding anything to the contrary in this
Section 11, but subject to Section 3(d), until the Holder receives the Holder
Optional Redemption Price, the Holder Optional Redemption Amount may be
converted, in whole or in part, by the Holder into Common Stock pursuant to
Section 3, and any such conversion shall reduce the Holder Optional Redemption
Amount in the manner set forth by the Holder in the applicable Conversion
Notice.

 

12.       REDEMPTIONS AT THE COMPANY’S ELECTION.

 

(a)       Company Optional Redemption. At any time after date hereof the Company
shall have the right to redeem all, but not less than all, of the Conversion
Amount then remaining under this Note (the “Company Optional Redemption Amount”)
on the Company Optional Redemption Date (each as defined below) (a “Company
Optional Redemption”). The portion of this Note subject to redemption pursuant
to this Section 12(a) shall be redeemed by the Company in cash at a price (the
“Company Optional Redemption Price”) equal to 115% of the greater of (i) the
Conversion Amount being redeemed as of the Company Optional Redemption Date and
(ii) the product of (1) the Conversion Rate with respect to the Conversion
Amount being redeemed as of the Company Optional Redemption Date multiplied by
(2) the greatest Closing Sale Price of the Common Stock on any Trading Day
during the period commencing on the date immediately preceding such Company
Optional Redemption Notice Date and ending on the Trading Day immediately prior
to the date the Company makes the entire payment required to be made under this
Section 12(a). The Company may exercise its right to require redemption under
this Section 12(a) by delivering a written notice thereof by facsimile or
electronic mail and overnight courier to all, but not less than all, of the
holders of Notes (the “Company Optional Redemption Notice” and the date all of
the holders of Notes received such notice is referred to as the “Company
Optional Redemption Notice Date”). The Company may deliver only one Company
Optional Redemption Notice hereunder and such Company Optional Redemption Notice
shall be irrevocable. The Company Optional Redemption Notice shall (x) state the
date on which the Company Optional Redemption shall occur (the “Company Optional
Redemption Date”) which date shall not be less than ten (10) Trading Days nor
more than twenty (20) Trading Days following the Company Optional Redemption
Notice Date, and (y) state the aggregate Conversion Amount of the Notes which is
being redeemed in such Company Optional Redemption from the Holder and all of
the other holders of the Notes pursuant to this Section 12(a) (and analogous
provisions under the Other Notes) on the Company Optional Redemption Date.
Notwithstanding anything herein to the contrary, at any time prior to the date
the Company Optional Redemption Price is paid, in full, the Company Optional
Redemption Amount may be converted, in whole or in part, by the Holder into
shares of Common Stock pursuant to Section 3. All Conversion Amounts converted
by the Holder after the Company Optional Redemption Notice Date shall reduce the
Company Optional Redemption Amount of this Note required to be redeemed on the
Company Optional Redemption Date. Redemptions made pursuant to this Section
12(a) shall be made in accordance with Section 13. In the event of the Company’s
redemption of any portion of this Note under this Section, the Holder’s damages
would be uncertain and difficult to estimate because of the parties’ inability
to predict future interest rates and the uncertainty of the availability of a
suitable substitute investment opportunity for the Holder. Accordingly, any
redemption premium due under this Section 9 is intended by the parties to be,
and shall be deemed, a reasonable estimate of the Holder’s actual loss of its
investment opportunity and not as a penalty. For the avoidance of doubt, the
Company shall have no right to effect a Company Optional Redemption if any Event
of Default has occurred and continuing, but any Event of Default shall have no
effect upon the Holder’s right to convert this Note in its discretion.

 

19

 

 

(b)       Pro Rata Redemption Requirement. If the Company elects to cause a
Company Optional Redemption of this Note pursuant to Section 12(a), then it must
simultaneously take the same action with respect to all of the Other Notes.

 

13.       REDEMPTIONS.

 

(a)       Mechanics. The Company shall deliver the applicable Event of Default
Redemption Price to the Holder in cash within five (5) Business Days after the
Company’s receipt of the Holder’s Event of Default Redemption Notice. If the
Holder has submitted a Change of Control Redemption Notice in accordance with
Section 5(b), the Company shall deliver the applicable Change of Control
Redemption Price to the Holder in cash concurrently with the consummation of
such Change of Control if such notice is received prior to the consummation of
such Change of Control and within five (5) Business Days after the Company’s
receipt of such notice otherwise. The Company shall deliver the applicable
Holder Optional Redemption Price to the Holder in cash on the applicable Holder
Optional Redemption Date. The Company shall deliver the applicable Subsequent
Placement Optional Redemption Price to the Holder in cash on the applicable
Subsequent Placement Optional Redemption Date. The Company shall deliver the
applicable Company Optional Redemption Price to the Holder in cash on the
applicable Company Optional Redemption Date. Notwithstanding anything herein to
the contrary, in connection with any redemption hereunder at a time the Holder
is entitled to receive a cash payment under any of the other Transaction
Documents, at the option of the Holder delivered in writing to the Company, the
applicable Redemption Price hereunder shall be increased by the amount of such
cash payment owed to the Holder under such other Transaction Document and, upon
payment in full or conversion in accordance herewith, shall satisfy the
Company’s payment obligation under such other Transaction Document. In the event
of a redemption of less than all of the Conversion Amount of this Note, the
Company shall promptly cause to be issued and delivered to the Holder a new Note
(in accordance with Section 20(d)) representing the outstanding Principal which
has not been redeemed. In the event that the Company does not pay the applicable
Redemption Price to the Holder within the time period required, at any time
thereafter and until the Company pays such unpaid Redemption Price in full, the
Holder shall have the option, in lieu of redemption, to require the Company to
promptly return to the Holder all or any portion of this Note representing the
Conversion Amount that was submitted for redemption and for which the applicable
Redemption Price (together with any Late Charges thereon) has not been paid.
Upon the Company’s receipt of such notice, (x) the applicable Redemption Notice
shall be null and void with respect to such Conversion Amount, (y) the Company
shall immediately return this Note, or issue a new Note (in accordance with
Section 20(d)), to the Holder, and in each case the principal amount of this
Note or such new Note (as the case may be) shall be increased by an amount equal
to the difference between (1) the applicable Redemption Price (as the case may
be, and as adjusted pursuant to this Section 10, if applicable) minus (2) the
Principal portion of the Conversion Amount submitted for redemption and (z) the
Conversion Price of this Note or such new Notes (as the case may be) shall be
automatically adjusted with respect to each conversion effected thereafter by
the Holder to the lowest of (A) the Conversion Price as in effect on the date on
which the applicable Redemption Notice is voided, (B) the greater of (x) the
Floor Price and (y) 75% of the lowest Closing Bid Price of the Common Stock
during the period beginning on and including the date on which the applicable
Redemption Notice is delivered to the Company and ending on and including the
date on which the applicable Redemption Notice is voided and (C) the greater of
(x) the Floor Price and (y) 75% of the quotient of (I) the sum of the five (5)
lowest VWAPs of the Common Stock during the twenty (20) consecutive Trading Day
period ending and including the applicable Conversion Date divided by (II) five
(5) (it being understood and agreed that all such determinations shall be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during such period). The Holder’s delivery of a notice
voiding a Redemption Notice and exercise of its rights following such notice
shall not affect the Company’s obligations to make any payments of Late Charges
which have accrued prior to the date of such notice with respect to the
Conversion Amount subject to such notice.

 

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(b)       Redemption by Other Holders. Upon the Company’s receipt of notice from
any of the holders of the Other Notes for redemption or repayment as a result of
an event or occurrence substantially similar to the events or occurrences
described in Section 4(b) or Section 5(b) (each, an “Other Redemption Notice”),
the Company shall immediately, but no later than one (1) Business Day of its
receipt thereof, forward to the Holder by facsimile or electronic mail a copy of
such notice. If the Company receives a Redemption Notice and one or more Other
Redemption Notices, during the seven (7) Business Day period beginning on and
including the date which is two (2) Business Days prior to the Company’s receipt
of the Holder’s applicable Redemption Notice and ending on and including the
date which is two (2) Business Days after the Company’s receipt of the Holder’s
applicable Redemption Notice and the Company is unable to redeem all principal,
interest and other amounts designated in such Redemption Notice and such Other
Redemption Notices received during such seven (7) Business Day period, then the
Company shall redeem a pro rata amount from each holder of the Notes (including
the Holder) based on the principal amount of the Notes submitted for redemption
pursuant to such Redemption Notice and such Other Redemption Notices received by
the Company during such seven (7) Business Day period.

 

14.       VOTING RIGHTS. The Holder shall have no voting rights as the holder of
this Note, except as required by law (including, without limitation, the
Delaware General Corporation Law) and as expressly provided in this Note.

 

15.       COVENANTS. Until all of the Notes have been converted, redeemed or
otherwise satisfied in accordance with their terms:

 

(a)       Rank. All payments due under this Note (a) shall rank pari passu with
all Other Notes and the 2019 Notes and (b) shall be senior to all other
Indebtedness of the Company and its Subsidiaries (other than Permitted
Indebtedness secured by Permitted Liens).

 

(b)       Incurrence of Indebtedness. The Company shall not, and the Company
shall cause each of its Subsidiaries to not, directly or indirectly, incur or
guarantee, assume or suffer to exist any Indebtedness (other than (i) the
Indebtedness evidenced by this Note and the Other Notes and (ii) other Permitted
Indebtedness).

 

(c)       Existence of Liens. The Company shall not, and the Company shall cause
each of its Subsidiaries to not, directly or indirectly, allow or suffer to
exist any mortgage, lien, pledge, charge, security interest or other encumbrance
upon or in any property or assets (including accounts and contract rights) owned
by the Company or any of its Subsidiaries (collectively, “Liens”) other than
Permitted Liens.

 

(d)       Restricted Payments. The Company shall not, and the Company shall
cause each of its Subsidiaries to not, directly or indirectly, redeem, defease,
repurchase, repay or make any payments in respect of, by the payment of cash or
cash equivalents (in whole or in part, whether by way of open market purchases,
tender offers, private transactions or otherwise), all or any portion of any
Indebtedness (other than the Notes or any amounts in respect of the Permitted
Insurance Indebtedness) whether by way of payment in respect of principal of (or
premium, if any) or interest on, such Indebtedness if at the time such payment
is due or is otherwise made or, after giving effect to such payment, (i) an
event constituting an Event of Default has occurred and is continuing or (ii) an
event that with the passage of time and without being cured would constitute an
Event of Default has occurred and is continuing.

 

(e)       Restriction on Redemption and Cash Dividends. Except with respect to
the Securities (as defined in the Securities Purchase Agreement), the Company
shall not, and the Company shall cause each of its Subsidiaries to not, directly
or indirectly, redeem, repurchase or declare or pay any cash dividend or
distribution on any of its capital stock (other than to the Company or any
Significant Subsidiary (as defined in the Securities Purchase Agreement)).

 

21

 

 

(f)       Restriction on Transfer of Assets. The Company shall not, and the
Company shall cause each of its Subsidiaries to not, directly or indirectly,
sell, lease, license, assign, transfer, spin-off, split-off, close, convey or
otherwise dispose of any assets or rights of the Company or any Subsidiary owned
or hereafter acquired whether in a single transaction or a series of related
transactions, other than (i) sales, leases, licenses, assignments, transfers,
conveyances and other dispositions of such assets or rights by the Company and
its Subsidiaries of any of the Company’s or any of its Subsidiaries’ products
(other than CarpX or Esocheck) to any third party in a bona fide transaction
approved by the board of directors of the Company or otherwise in the ordinary
course of business consistent with its past practice, (ii) sales of inventory
and product in the ordinary course of business, (iii) licenses or transfers of
limited samples of products to institutions to facilitate research projects in
connection with sponsored research agreements, (iv) the transfer of equity
interests in Lucid Diagnostics pursuant to the Lucid Call Right, (v) the
distribution to the holders of Common Stock (solely, to the extent, such
distribution includes the holders of the Notes, the April 2020 Note and the 2019
Notes, as applicable, in accordance with the terms thereof) of up to 10% of the
outstanding common equity of any Significant Subsidiary and (vi) the transfer of
equity interests in any Subsidiary that are issued upon the conversion of any
convertible Permitted Intercompany Indebtedness that is permitted to be incurred
hereunder; provided that the Holder shall have the right, in its sole
discretion, to require that the Company redeem all, or any portion, of the
Conversion Amount under this Note not in excess of the Holder’s Holder Pro Rata
Amount of the gross proceeds (less any reasonable placement agent, underwriter
and/or legal fees and expenses) of such transfer (the applicable provisions of
Section 10 regarding Subsequent Placement Optional Redemptions shall apply to
any such election by the Holder pursuant to this proviso, mutatis mutandis).

 

(g)       Maturity of Indebtedness. The Company shall not, and the Company shall
cause each of its Subsidiaries to not, directly or indirectly, permit any
Indebtedness (other than Permitted Indebtedness) of the Company or any of its
Subsidiaries to mature or accelerate prior to the Maturity Date.

 

(h)       Change in Nature of Business. The Company shall not, and the Company
shall cause each of its Subsidiaries to not, directly or indirectly, engage in
any material line of business substantially different from those lines of
business conducted by or publicly contemplated to be conducted by the Company
and each of its Subsidiaries on the Subscription Date or any business
substantially related or incidental thereto (it being agreed and understood that
the engagement by the Company or any of its Subsidiaries in any business in
respect of a new medical device or biotech product or service is not
substantially different than the lines of business conducted by the Company and
its Subsidiaries as of the Subscription Date). The Company shall not, and the
Company shall cause each of its Subsidiaries to not, directly or indirectly,
modify its or their corporate structure or purpose.

 

22

 

 

(i)       Preservation of Existence, Etc. The Company shall maintain and
preserve, and cause each of its Significant Subsidiaries to maintain and
preserve, its existence, rights and privileges, and become or remain, and cause
each of its Significant Subsidiaries to become or remain, duly qualified and in
good standing in each jurisdiction in which the character of the properties
owned or leased by it or in which the transaction of its business makes such
qualification necessary except in the case that any such failure to so maintain,
preserve or comply has not had, and is not reasonably likely to have, a Material
Adverse Effect.

 

(j)       Maintenance of Properties, Etc. The Company shall maintain and
preserve, and cause each of its Significant Subsidiaries to maintain and
preserve, all of its properties which are necessary or useful in the proper
conduct of its business in good working order and condition, ordinary wear and
tear excepted, and comply, and cause each of its Significant Subsidiaries to
comply, at all times with the provisions of all leases to which it is a party as
lessee or under which it occupies property, so as to prevent any loss or
forfeiture thereof or thereunder except in the case that any such failure to so
maintain, preserve or comply has not had, and is not reasonably likely to have,
a Material Adverse Effect.

 

(k)       Maintenance of Intellectual Property. The Company will, and will cause
each of its Subsidiaries to, take all action necessary or advisable to maintain
all of Material Intellectual Property Rights (as defined in the Securities
Purchase Agreement) of the Company and/or any of its Subsidiaries that are
necessary or material to the conduct of its business in full force and effect.

 

(l)       Maintenance of Insurance. The Company shall maintain, and cause each
of its Subsidiaries to maintain, insurance (including, without limitation,
comprehensive general liability, hazard, rent and business interruption
insurance) with respect to its properties (including all real properties leased
or owned by it) and business, in such amounts and covering such risks as is
required by any governmental authority having jurisdiction with respect thereto
or as is carried generally in accordance with sound business practice by
companies in similar businesses similarly situated.

 

(m)       Transactions with Affiliates. The Company shall not, nor shall it
permit any of its Subsidiaries to, enter into, renew, extend or be a party to,
any transaction or series of related transactions (including, without
limitation, the purchase, sale, lease, transfer or exchange of property or
assets of any kind or the rendering of services of any kind) with any affiliate,
except transactions between or among the Company and its Significant
Subsidiaries or other transactions in the ordinary course of business in a
manner and to an extent consistent with past practice and necessary or desirable
for the prudent operation of its business, for fair consideration and on terms
no less favorable to it or its Subsidiaries than would be obtainable in a
comparable arm’s length transaction with a Person that is not an affiliate
thereof.

 

(n)       Restricted Issuances. The Company shall not, directly or indirectly,
without the prior written consent of the holders of a majority in aggregate
principal amount of the Notes then outstanding, (i) issue any Notes (other than
as contemplated by the Securities Purchase Agreement and the Notes) or (ii)
issue any other securities that would cause a breach or default under the Notes.

 

23

 

 

(o)       New Significant Subsidiaries. Simultaneously with the acquisition or
formation of each New Significant Subsidiary (or upon such other time as a
Subsidiary becomes a Significant Subsidiary), the Company shall cause such New
Significant Subsidiary to execute, and deliver to each holder of Notes, all
Security Documents (as defined in the Securities Purchase Agreement) and
Guaranties (as defined in the Securities Purchase Agreement) as requested by the
Collateral Agent or the Required Holders, as applicable. The Company shall also
deliver to the Collateral Agent an opinion of counsel to such New Significant
Subsidiary that is reasonably satisfactory to the Collateral Agent and the
Required Holders covering such legal matters with respect to such New
Significant Subsidiary becoming a guarantor of the Company’s obligations,
executing and delivering the Security Document and the Guaranties and any other
matters that the Collateral Agent or the Required Holders may reasonably
request. The Company shall deliver, or cause the applicable Subsidiary to
deliver to the Collateral Agent, each of the physical stock certificates of such
New Significant Subsidiary, along with undated stock powers for each such
certificates, executed in blank (or, if any such shares of capital stock are
uncertificated, confirmation and evidence reasonably satisfactory to the
Collateral Agent and the Required Holders that the security interest in such
uncertificated securities has been transferred to and perfected by the
Collateral Agent, in accordance with Sections 8-313, 8-321 and 9-115 of the
Uniform Commercial Code or any other similar or local or foreign law that may be
applicable).

 

(p)       Change in Collateral; Collateral Records. The Company shall (i) give
the Collateral Agent not less than twenty (20) days’ prior written notice of any
change in the location of any Collateral (as defined in the Security Documents),
other than to locations set forth in the Perfection Certificate (as defined in
the Securities Purchase Agreement) hereto and with respect to which the
Collateral Agent has filed financing statements and otherwise fully perfected
its Liens thereon, (ii) advise the Collateral Agent promptly, in sufficient
detail, of any material adverse change relating to the type, quantity or quality
of the Collateral or the Lien granted thereon and (iii) execute and deliver, and
cause each of its Subsidiaries to execute and deliver, to the Collateral Agent
for the benefit of the Holder and holders of the Other Notes from time to time,
solely for the Collateral Agent’s convenience in maintaining a record of
Collateral, such written statements and schedules as the Collateral Agent or any
Holder may reasonably require, designating, identifying or describing the
Collateral.

 

24

 

 

(q)       Controlled Accounts.

 

(i)       General. The Company shall promptly following, but in any event within
twenty-one (21) days after, the Closing Date (the “Controlled Account
Deadline”), establish and maintain cash management services of a type and on
terms reasonably satisfactory to Holder at and each bank listed on Schedule
15(q)(i) attached hereto or any other bank in each case to the extent the
Company maintains deposit accounts therewith (each a “Controlled Account Bank”)
and cause all cash and cash equivalents of the Company or any of its
Subsidiaries to be held in Accounts (as defined in the Security Agreement) at
one or more Controlled Account Banks in accordance therewith. Subject to the
foregoing, the Company shall establish and maintain Controlled Account
Agreements (as defined in the Security Agreement) with the Collateral Agent (as
defined in the Security Agreement) and each Controlled Account Bank, in form and
substance reasonably acceptable to the Collateral Agent and the Required
Holders, with respect to each account maintained at such bank on behalf of
Company and/or its Subsidiaries (each such account a “Controlled Account” and
collectively, the “Controlled Accounts”), and the Operating Accounts (as defined
below). Each such Controlled Account Agreement shall provide, among other
things, that (A) the Controlled Account Bank will comply with any and all
instructions originated by the Collateral Agent directing the disposition of the
funds in the Controlled Accounts without further consent by the Company or any
such Subsidiaries following and during the continuance of an Event of Default,
(B) the Controlled Account Bank waives, subordinates or agrees not to exercise
any rights of setoff or recoupment or any other claim against the applicable
Controlled Account other than for payment of its service fees and other charges
directly related to the administration of such Controlled Account and for
returned checks or other items of payment (if so provided in the Controlled
Account Bank’s standard form controlled account agreement), and (C) with respect
to each Controlled Account (collectively, the “Operating Accounts”), upon the
instruction of Collateral Agent (an “Activation Instruction”), the Controlled
Account Bank shall not comply following and during the continuance of an Event
of Default with any instructions, directions or orders of any form with respect
to the Operating Accounts other than instructions, directions or orders
originated by Collateral Agent. The Collateral Agent shall not issue an
Activation Instruction with respect to the Operating Accounts unless an Event of
Default has occurred and is continuing at the time such Activation Instruction
is issued.

 

(ii)       Additional Controlled Account Agreements. If at any time on or after
the Controlled Account Deadline, the average daily balance of any Account of the
Company or any of its Subsidiaries that is not subject to a Controlled Account
Agreement, in form and substance reasonably satisfactory to the Collateral Agent
and the Required Holders, in favor of the Collateral Agent exceeds $10,000 (the
“Maximum Per Account Free Cash Amount”) during any calendar month (including the
calendar month in which the Closing Date occurs), the Company shall either (x)
within twenty-one (21) calendar days following the last day of such calendar
month, deliver to the Collateral Agent a Controlled Account Agreement, in form
and substance reasonably satisfactory to the Collateral Agent, duly executed by
the Company and the depositary bank in which such Account is maintained or (y)
within two (2) Business Days following such date, effect a transfer to a
Controlled Account of a cash amount sufficient to reduce the amount of the
Company’s or the applicable Subsidiary’s cash held in such Account to an amount
not in excess of the Maximum Per Account Free Cash Amount.

 

(iii)       Maximum Free Cash Amount. Notwithstanding anything to the contrary
contained in Section 15(q)(ii) above, and without limiting any of the foregoing,
if at any time on or after the Controlled Account Deadline, the total aggregate
amount of the Company’s and any of its Subsidiaries, in the aggregate, cash that
is not held in a Controlled Account exceeds $50,000 (the “Maximum Free Cash
Amount”), the Company shall within two (2) Business Days following such date,
effect a transfer to a Controlled Account of a cash amount sufficient to reduce
the total aggregate amount of the Company’s and its Subsidiaries’, as
applicable, cash that is not held in a Controlled Account to an amount not in
excess of the Maximum Free Cash Amount.

 

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(r)       Available Cash Test; Announcement of Operating Results.

 

(i)       Available Cash Test. At any time any Notes remains outstanding, the
Company’s Available Cash as of each Fiscal Quarter shall equal or exceed
$2,000,000 (the “Available Cash Test”).

 

(ii)        Operating Results Announcement. Commencing with the Fiscal Quarter
ending September 30, 2020, the Company shall publicly disclose and disseminate
(such date, the “Announcement Date”), if the Available Cash Test has not been
satisfied for such Fiscal Quarter or Fiscal Year, as applicable, a statement to
that effect no later than the tenth (10th) day after the end of such Fiscal
Quarter or Fiscal Year, as applicable, and such announcement shall include a
statement to the effect that the Company is (or is not, as applicable) in breach
of the Available Cash Test for such Fiscal Quarter or Fiscal Year, as
applicable. On the Announcement Date, the Company shall also provide to the
Holders a certification, executed on behalf of the Company by the Chief
Financial Officer of the Company, certifying that the Company satisfied the
Available Cash Tests for such Fiscal Quarter if that is the case. If the Company
has failed to meet the Available Cash Test for a Fiscal Quarter (a “Financial
Covenant Failure”), on or prior to the Announcement Date, the Company shall
provide to the Holders a written certification, executed on behalf of the
Company by the Chief Financial Officer of the Company, certifying that the
Available Cash Test has not been met for such Fiscal Quarter (a “Financial
Covenant Failure Notice”). Concurrently with the delivery of each Financial
Covenant Failure Notice to the Holders, the Company shall also make publicly
available (as part of a Quarterly Report on Form 10-Q, Annual Report on Form
10-K or on a Current Report on Form 8-K, or otherwise) the Financial Covenant
Failure Notice and the fact that an Event of Default has occurred under the
Notes.

 

(s)       Independent Investigation. At the reasonable request of the Holder
either (x) at any time when an Event of Default has occurred and is continuing,
(y) upon the occurrence and during the continuance of an event that with the
passage of time or giving of notice would constitute an Event of Default or (z)
at any time the Holder reasonably believes an Event of Default may have occurred
and be continuing, the Company shall hire an independent, reputable investment
bank selected by the Company and approved by the Required Holders, such approval
not to be unreasonably withheld or delayed, to investigate as to whether any
breach of this Note has occurred (the “Independent Investigator”). If the
Independent Investigator determines that such breach of this Note has occurred,
the Independent Investigator shall notify the Company of such breach and the
Company shall deliver written notice to each holder of a Note of such breach. In
connection with such investigation, the Independent Investigator may, during
normal business hours, inspect all contracts, books, records, personnel, offices
and other facilities and properties of the Company and its Subsidiaries and, to
the extent available to the Company after the Company uses reasonable efforts to
obtain them, the records of its legal advisors and accountants (including the
accountants’ work papers) and any books of account, records, reports and other
papers not contractually required of the Company to be confidential or secret,
or subject to attorney-client or other evidentiary privilege, and the
Independent Investigator may make such copies and inspections thereof as the
Independent Investigator may reasonably request. The Company shall furnish the
Independent Investigator with such financial and operating data and other
information with respect to the business and properties of the Company as the
Independent Investigator may reasonably request. The Company shall permit the
Independent Investigator to discuss the affairs, finances and accounts of the
Company with, and to make proposals and furnish advice with respect thereto to,
the Company’s officers, directors, key employees and independent public
accountants or any of them (and by this provision the Company authorizes said
accountants to discuss with such Independent Investigator the finances and
affairs of the Company and any Subsidiaries), all at such reasonable times, upon
reasonable notice, and as often as may be reasonably requested.

 

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16.       SECURITY. This Note and the Other Notes are secured to the extent and
in the manner set forth in the Transaction Documents (including, without
limitation, the Security Agreement, the other Security Documents and the
Guaranties).

 

17.       DISTRIBUTION OF ASSETS. In addition to any adjustments pursuant to
Section 6 and 7 above, if the Company shall declare or make any dividend or
other distributions of its assets (or rights to acquire its assets) to all
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) (the “Distributions”), then the Holder will be entitled to
such Distributions as if the Holder had held the number of shares of Common
Stock acquirable upon complete conversion of this Note (without taking into
account any limitations or restrictions on the convertibility of this Note and
assuming for such purpose that the Note was converted at the Conversion Price as
of the applicable record date) immediately prior to the date on which a record
is taken for such Distribution or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for such
Distributions (provided, however, that to the extent that the Holder’s right to
participate in any such Distribution would result in the Holder and the other
Attribution Parties exceeding the Maximum Percentage, then the Holder shall not
be entitled to participate in such Distribution to the extent of the Maximum
Percentage (and shall not be entitled to beneficial ownership of such shares of
Common Stock as a result of such Distribution (and beneficial ownership) to the
extent of any such excess) and the portion of such Distribution shall be held in
abeyance for ninety (90) Trading Days for the benefit of the Holder until such
time or times during such abeyance period, if ever, as its right thereto would
not result in the Holder and the other Attribution Parties exceeding the Maximum
Percentage, at which time or times the Holder shall be granted such Distribution
(and any Distributions declared or made on such initial Distribution or on any
subsequent Distribution held similarly in abeyance for additional ninety (90)
Trading Days) to the same extent as if there had been no such limitation). The
Holder shall be deemed to have waived the right to receive any such
Distributions that remain held in abeyance at the end of such abeyance period if
not granted prior to such time.

 

18.       AMENDING THE TERMS OF THIS NOTE. Except for Section 3(d)(i) which may
not be amended, modified or waived by the parties hereto, the prior written
consent of the Required Holders (as defined in the Securities Purchase
Agreement) and the Company shall be required for any change, waiver or amendment
to this Note. Any change, waiver or amendment so approved shall be binding upon
all existing and future holders of this Note and any Other Notes; provided,
however, that no such change, waiver or, as applied to any of the Notes held by
any particular holder of Notes, shall, without the written consent of that
particular holder, (i) reduce the amount of Principal, reduce the amount of
accrued and unpaid Interest, or extend the Maturity Date, of the Notes, (ii)
disproportionally and adversely affect any rights under the Notes of any holder
of Notes; or (iii) modify any of the provisions of, or impair the right of any
holder of Notes under, this Section 18.

 

27

 

 

19.       TRANSFER. This Note and any shares of Common Stock issued upon
conversion of this Note may be offered, sold, assigned or transferred by the
Holder without the consent of the Company, subject only to the provisions of
Section 2(g) of the Securities Purchase Agreement.

 

20.       REISSUANCE OF THIS NOTE.

 

(a)       Transfer. If this Note is to be transferred, the Holder shall
surrender this Note to the Company, whereupon the Company will forthwith issue
and deliver upon the order of the Holder a new Note (in accordance with Section
20(d)), registered as the Holder may request, representing the outstanding
Principal being transferred by the Holder and, if less than the entire
outstanding Principal is being transferred, a new Note (in accordance with
Section 20(d)) to the Holder representing the outstanding Principal not being
transferred. The Holder and any assignee, by acceptance of this Note,
acknowledge and agree that, by reason of the provisions of Section 3(c)(iii)
following conversion or redemption of any portion of this Note, the outstanding
Principal represented by this Note may be less than the Principal stated on the
face of this Note.

 

(b)       Lost, Stolen or Mutilated Note. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Note (as to which a written certification and the
indemnification contemplated below shall suffice as such evidence), and, in the
case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary and reasonable form and, in the case of
mutilation, upon surrender and cancellation of this Note, the Company shall
execute and deliver to the Holder a new Note (in accordance with Section 20(d))
representing the outstanding Principal.

 

(c)       Note Exchangeable for Different Denominations. This Note is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Note or Notes (in accordance with Section 20(d) and in
principal amounts of at least $1,000) representing in the aggregate the
outstanding Principal of this Note, and each such new Note will represent such
portion of such outstanding Principal as is designated by the Holder at the time
of such surrender.

 

(d)       Issuance of New Notes. Whenever the Company is required to issue a new
Note pursuant to the terms of this Note, such new Note (i) shall be of like
tenor with this Note, (ii) shall represent, as indicated on the face of such new
Note, the Principal remaining outstanding (or in the case of a new Note being
issued pursuant to Section 20(a) or Section 20(c), the Principal designated by
the Holder which, when added to the principal represented by the other new Notes
issued in connection with such issuance, does not exceed the Principal remaining
outstanding under this Note immediately prior to such issuance of new Notes),
(iii) shall have an issuance date, as indicated on the face of such new Note,
which is the same as the Issuance Date of this Note, (iv) shall have the same
rights and conditions as this Note, and (v) shall represent accrued and unpaid
Interest and Late Charges on the Principal and Interest of this Note, from the
Issuance Date.

 

28

 

 

21.       REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in
addition to all other remedies available under this Note and any of the other
Transaction Documents at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
Holder’s right to pursue actual and consequential damages for any failure by the
Company to comply with the terms of this Note. No failure on the part of the
Holder to exercise, and no delay in exercising, any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise by the Holder of any right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy. In
addition, the exercise of any right or remedy of the Holder at law or equity or
under this Note or any of the documents shall not be deemed to be an election of
Holder’s rights or remedies under such documents or at law or equity. The
Company covenants to the Holder that there shall be no characterization
concerning this instrument other than as expressly provided herein. Amounts set
forth or provided for herein with respect to payments, conversion and the like
(and the computation thereof) shall be the amounts to be received by the Holder
and shall not, except as expressly provided herein, be subject to any other
obligation of the Company (or the performance thereof). The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Holder and that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach or threatened
breach, the Holder shall be entitled, in addition to all other available
remedies, 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 Company shall provide all information and
documentation to the Holder that is reasonably requested by the Holder to enable
the Holder to confirm the Company’s compliance with the terms and conditions of
this Note (including, without limitation, compliance with Section 7).

 

22.       PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note
is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors’ rights and
involving a claim under this Note, then the Company shall pay the costs incurred
by the Holder for such collection, enforcement or action or in connection with
such bankruptcy, reorganization, receivership or other proceeding, including,
without limitation, attorneys’ fees and disbursements. The Company expressly
acknowledges and agrees that no amounts due under this Note shall be affected,
or limited, by the fact that the purchase price paid for this Note was less than
the original Principal amount hereof.

 

29

 

 

23.       CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly
drafted by the Company and the initial Holder and shall not be construed against
any such Person as the drafter hereof. The headings of this Note are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Note. 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 Note instead of just the provision in which
they are found. Unless expressly indicated otherwise, all section references are
to sections of this Note. Terms used in this Note and not otherwise defined
herein, but defined in the other Transaction Documents, shall have the meanings
ascribed to such terms on the Closing Date in such other Transaction Documents
unless otherwise consented to in writing by the Holder.

 

24.       FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege. No waiver shall be effective unless it is
in writing and signed by an authorized representative of the waiving party.
Notwithstanding the foregoing, nothing contained in this Section 24 shall permit
any waiver of any provision of Section 3(d).

 

25.       DISPUTE RESOLUTION.

 

(a)       Submission to Dispute Resolution.

 

(i)       In the case of a dispute relating to a Closing Bid Price, a Closing
Sale Price, a Conversion Price, an Alternate Conversion Price, a VWAP or a fair
market value or the arithmetic calculation of a Conversion Rate, or the
applicable Redemption Price (as the case may be) (including, without limitation,
a dispute relating to the determination of any of the foregoing), the Company or
the Holder (as the case may be) shall submit the dispute to the other party via
facsimile or electronic mail (A) if by the Company, within two (2) Business Days
after the occurrence of the circumstances giving rise to such dispute or (B) if
by the Holder at any time after the Holder learned of the circumstances giving
rise to such dispute. If the Holder and the Company are unable to promptly
resolve such dispute relating to such Closing Bid Price, such Closing Sale
Price, such Conversion Price, such Alternate Conversion Price, such VWAP or such
fair market value, or the arithmetic calculation of such Conversion Rate or such
applicable Redemption Price (as the case may be), at any time after the fifth
(5th) Business Day following such initial notice by the Company or the Holder
(as the case may be) of such dispute to the Company or the Holder (as the case
may be), then the Holder may, at its sole option, select an independent,
reputable investment bank reasonably acceptable to the Company to resolve such
dispute.

 

30

 

 

(ii)       The Holder and the Company shall each deliver to such investment bank
(A) a copy of the initial dispute submission so delivered in accordance with the
first sentence of this Section 25 and (B) written documentation supporting its
position with respect to such dispute, in each case, no later than 5:00 p.m.
(New York time) by the fifth (5th) Business Day immediately following the date
on which the Holder selected such investment bank (the “Dispute Submission
Deadline”) (the documents referred to in the immediately preceding clauses (A)
and (B) are collectively referred to herein as the “Required Dispute
Documentation”) (it being understood and agreed that if either the Holder or the
Company fails to so deliver all of the Required Dispute Documentation by the
Dispute Submission Deadline, then the party who fails to so submit all of the
Required Dispute Documentation shall no longer be entitled to (and hereby waives
its right to) deliver or submit any written documentation or other support to
such investment bank with respect to such dispute and such investment bank shall
resolve such dispute based solely on the Required Dispute Documentation that was
delivered to such investment bank prior to the Dispute Submission Deadline).
Unless otherwise agreed to in writing by both the Company and the Holder or
otherwise requested by such investment bank, neither the Company nor the Holder
shall be entitled to deliver or submit any written documentation or other
support to such investment bank in connection with such dispute (other than the
Required Dispute Documentation).

 

(iii)       The Company and the Holder shall cause such investment bank to
determine the resolution of such dispute and notify the Company and the Holder
of such resolution no later than ten (10) Business Days immediately following
the Dispute Submission Deadline. The fees and expenses of such investment bank
shall be borne solely by the Company (unless such investment bank determines
that the Holder’s claim in the dispute is without any merit, in which case such
fees and expenses of such investment bank shall be borne by the Holder), and
such investment bank’s resolution of such dispute shall be final and binding
upon all parties absent manifest error.

 

(b)       Miscellaneous. The Company expressly acknowledges and agrees that (i)
this Section 25 constitutes an agreement to arbitrate between the Company and
the Holder (and constitutes an arbitration agreement) under § 7501, et seq. of
the New York Civil Practice Law and Rules (“CPLR”) and that the Holder is
authorized to apply for an order to compel arbitration pursuant to CPLR §
7503(a) in order to compel compliance with this Section 25, (ii) the terms of
this Note and each other applicable Transaction Document shall serve as the
basis for the selected investment bank’s resolution of the applicable dispute,
such investment bank shall be entitled (and is hereby expressly authorized) to
make all findings, determinations and the like that such investment bank
determines are required to be made by such investment bank in connection with
its resolution of such dispute and in resolving such dispute such investment
bank shall apply such findings, determinations and the like to the terms of this
Note and any other applicable Transaction Documents, (iii) the Holder (and only
the Holder), in its sole discretion, shall have the right to submit any dispute
described in this Section 25 to any state or federal court sitting in The City
of New York, Borough of Manhattan in lieu of utilizing the procedures set forth
in this Section 25 and (iv) nothing in this Section 25 shall limit the Holder
from obtaining any injunctive relief or other equitable remedies (including,
without limitation, with respect to any matters described in this Section 25).

 

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26.       NOTICES; CURRENCY; PAYMENTS.

 

(a)       Notices. Whenever notice is required to be given under this Note,
unless otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement. The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to this Note,
including in reasonable detail a description of such action and the reason
therefore. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon any adjustment of the
Conversion Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least five (5) Trading Days prior to
the date on which the Company closes its books or takes a record (A) with
respect to any dividend or distribution upon the Common Stock, (B) with respect
to any grant, issuances, or sales of any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property to holders of
shares of Common Stock or (C) for determining rights to vote with respect to any
Fundamental Transaction, dissolution or liquidation, provided in each case that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to the Holder.

 

(b)       Currency. All dollar amounts referred to in this Note are in United
States Dollars (“U.S. Dollars”), and all amounts owing under this Note 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 Note,
the U.S. Dollar exchange rate as published in the Wall Street Journal on the
relevant date of calculation (it being understood and agreed that where an
amount is calculated with reference to, or over, a period of time, the date of
calculation shall be the final date of such period of time).

 

(c)       Payments. Whenever any payment of cash is to be made by the Company to
any Person pursuant to this Note, unless otherwise expressly set forth herein,
such payment shall be made in lawful money of the United States of America by a
certified check drawn on the account of the Company and sent via overnight
courier service to such Person at such address as previously provided to the
Company in writing (which address, in the case of each of the Buyers, shall
initially be as set forth on the Schedule of Buyers attached to the Securities
Purchase Agreement), provided that the Holder may elect to receive a payment of
cash via wire transfer of immediately available funds by providing the Company
with prior written notice setting out such request and the Holder’s wire
transfer instructions. Whenever any amount expressed to be due by the terms of
this Note is due on any day which is not a Business Day, the same shall instead
be due on the next succeeding day which is a Business Day. Any amount of
Principal or other amounts due under the Transaction Documents which is not paid
when due shall result in a late charge being incurred and payable by the Company
in an amount equal to interest on such amount at the rate of eighteen percent
(18%) per annum from the date such amount was due until the same is paid in full
(“Late Charge”).

 

27.       CANCELLATION. After all Principal, accrued Interest, Late Charges and
other amounts at any time owed on this Note have been paid in full, this Note
shall automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.

 

32

 

 

28.       WAIVER OF NOTICE. To the extent permitted by law, the Company hereby
irrevocably waives demand, notice, presentment, protest and all other demands
and notices in connection with the delivery, acceptance, performance, default or
enforcement of this Note and the Securities Purchase Agreement.

 

29.       GOVERNING LAW. This Note shall be construed and enforced in accordance
with, and all questions concerning the construction, validity, interpretation
and performance of this Note 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. Except as otherwise required by Section 25 above, 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 in connection herewith or with any
transaction contemplated hereby or discussed herein, 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. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law. Nothing contained
herein (i) shall be deemed or operate to preclude the Holder from bringing suit
or taking other legal action against the Company in any other jurisdiction to
collect on the Company’s obligations to the Holder, to realize on any collateral
or any other security for such obligations, or to enforce a judgment or other
court ruling in favor of the Holder or (ii) shall limit, or shall be deemed or
construed to limit, any provision of Section 25. THE COMPANY 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 NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

30.       JUDGMENT CURRENCY.

 

(a)       If for the purpose of obtaining or enforcing judgment against the
Company in any court in any jurisdiction it becomes necessary to convert into
any other currency (such other currency being hereinafter in this Section 30
referred to as the “Judgment Currency”) an amount due in U.S. dollars under this
Note, the conversion shall be made at the Exchange Rate prevailing on the
Trading Day immediately preceding:

 

(i)       the date actual payment of the amount due, in the case of any
proceeding in the courts of New York or in the courts of any other jurisdiction
that will give effect to such conversion being made on such date: or

 

(ii)       the date on which the foreign court determines, in the case of any
proceeding in the courts of any other jurisdiction (the date as of which such
conversion is made pursuant to this Section 30(a)(ii) being hereinafter referred
to as the “Judgment Conversion Date”).

 

33

 

 

(b)       If in the case of any proceeding in the court of any jurisdiction
referred to in Section 30(a)(ii) above, there is a change in the Exchange Rate
prevailing between the Judgment Conversion Date and the date of actual payment
of the amount due, the applicable party shall pay such adjusted amount as may be
necessary to ensure that the amount paid in the Judgment Currency, when
converted at the Exchange Rate prevailing on the date of payment, will produce
the amount of US dollars which could have been purchased with the amount of
Judgment Currency stipulated in the judgment or judicial order at the Exchange
Rate prevailing on the Judgment Conversion Date.

 

(c)       Any amount due from the Company under this provision shall be due as a
separate debt and shall not be affected by judgment being obtained for any other
amounts due under or in respect of this Note.

 

31.       SEVERABILITY. If any provision of this Note is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this Note
so long as this Note as so modified continues to express, without material
change, the original intentions of the parties as to the subject matter hereof
and the prohibited nature, invalidity or unenforceability of the provision(s) in
question does not substantially impair the respective expectations or reciprocal
obligations of the parties or the practical realization of the benefits that
would otherwise be conferred upon the parties. The parties will endeavor in good
faith negotiations to replace the prohibited, invalid or unenforceable
provision(s) with a valid provision(s), the effect of which comes as close as
possible to that of the prohibited, invalid or unenforceable provision(s).

 

32.       MAXIMUM PAYMENTS. Without limiting Section 9(d) of the Securities
Purchase Agreement, nothing contained herein shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest
required to be paid or other charges hereunder exceed the maximum permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Company to the Holder and thus refunded to the Company.

 

33.       CERTAIN DEFINITIONS. For purposes of this Note, the following terms
shall have the following meanings:

 

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

 

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

 

(c)       “Affiliate” means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common control
with, such Person, it being understood for purposes of this definition that
“control” of a Person means the power directly or indirectly either to vote 10%
or more of the stock having ordinary voting power for the election of directors
of such Person or direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.

 

34

 

 

(d)       “Alternate Conversion Event of Default” means (i) four or more
occurrences of Events of Default arising pursuant to either Section 4(a)(i) or
Section 4(a)(iii), (ii) any Event of Default arising pursuant to Sections
4(a)(v) through, and including, Section 4(a)(xiii), (iii) any Event of Default
arising pursuant to 4(a)(ii), 4(a)(xv) or 4(a)(xvi), or (iv) any other Event of
Default that remains uncured for a period of thirty (30) calendar days.

 

(e)       “Alternate Conversion Floor Amount” means an amount in cash, to be
delivered by wire transfer of immediately available funds pursuant to wire
instructions delivered to the Company by the Holder in writing, equal to the
product obtained by multiplying (A) the higher of (I) the highest price that the
Common Stock trades at on the Trading Day immediately preceding the relevant
Alternate Conversion Date and (II) the applicable Alternate Conversion Price and
(B) the difference obtained by subtracting (I) the number of shares of Common
Stock delivered (or to be delivered) to the Holder on the applicable Share
Delivery Deadline with respect to such Alternate Conversion from (II) the
quotient obtained by dividing (x) the applicable Conversion Amount that the
Holder has elected to be the subject of the applicable Alternate Conversion, by
(y) the applicable Alternate Conversion Price without giving effect to clause
(x) of such definition.

 

(f)        “Alternate Conversion Price” means, with respect to any Alternate
Conversion that price which shall be the lower of (i) the applicable Conversion
Price as in effect on the applicable Conversion Date of the applicable Alternate
Conversion and (ii) the greater of (x) the Floor Price and (y) the lowest of (A)
80% of the VWAP of the Common Stock as of the Trading Day immediately preceding
the delivery or deemed delivery of the applicable Conversion Notice, (B) 80% of
the VWAP of the Common Stock as of the Trading Day of the delivery or deemed
delivery of the applicable Conversion Notice and (C) 80% of the price computed
as the quotient of (I) the sum of the VWAP of the Common Stock for each of the
two (2) Trading Days with the lowest VWAP of the Common Stock during the ten
(10) consecutive Trading Day period ending and including the Trading Day
immediately preceding the delivery or deemed delivery of the applicable
Conversion Notice, divided by (II) two (2) (such period, the “Alternate
Conversion Measuring Period”). All such determinations to be appropriately
adjusted for any stock dividend, stock split, stock combination,
reclassification or similar transaction that proportionately decreases or
increases the Common Stock during such Alternate Conversion Measuring Period.

 

(g)       “Attribution Parties” means, collectively, the following Persons and
entities: (i) any investment vehicle, including, any funds, feeder funds or
managed accounts, currently, or from time to time after the Issuance Date,
directly or indirectly managed or advised by the Holder’s investment manager or
any of its Affiliates or principals, (ii) any direct or indirect Affiliates of
the Holder or any of the foregoing, (iii) any Person acting or who could be
deemed to be acting as a Group together with the Holder or any of the foregoing
and (iv) any other Persons whose beneficial ownership of the Company’s Common
Stock would or could be aggregated with the Holder’s and the other Attribution
Parties for purposes of Section 13(d) of the 1934 Act. For clarity, the purpose
of the foregoing is to subject collectively the Holder and all other Attribution
Parties to the Maximum Percentage.

 

35

 

 

(h)       “Available Cash” means, with respect to any date of determination, an
amount equal to the aggregate amount of the Cash of the Company and its
Subsidiaries (excluding for this purpose cash held in restricted accounts or
otherwise unavailable for unrestricted use by the Company or any of its
Subsidiaries for any reason) as of such date of determination held in bank
accounts of financial banking institutions in the United States of America.

 

(i)        “Bloomberg” means Bloomberg, L.P.

 

(j)       “Business Day” means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed; provided, however, for clarification, commercial banks
shall not be deemed to be authorized or required by law to remain closed due to
“stay at home”, “shelter-in-place”, “non-essential employee” or any other
similar orders or restrictions or the closure of any physical branch locations
at the direction of any governmental authority so long as the electronic funds
transfer systems (including for wire transfers) of commercial banks in The City
of New York generally are open for use by customers on such day.

 

(k)       “Cash” of the Company and its Subsidiaries on any date shall be
determined from such Persons’ books maintained in accordance with GAAP, and
means, without duplication, the cash, cash equivalents and Eligible Marketable
Securities accrued by the Company and its wholly owned Subsidiaries on a
consolidated basis on such date.

 

(l)       “Change of Control” means any Fundamental Transaction other than (i)
any merger of the Company or any of its, direct or indirect, wholly-owned
Subsidiaries with or into any of the foregoing Persons, (ii) any reorganization,
recapitalization or reclassification of the shares of Common Stock in which
holders of the Company’s voting power immediately prior to such reorganization,
recapitalization or reclassification continue after such reorganization,
recapitalization or reclassification to hold publicly traded securities and,
directly or indirectly, are, in all material respects, the holders of the voting
power of the surviving entity (or entities with the authority or voting power to
elect the members of the board of directors (or their equivalent if other than a
corporation) of such entity or entities) after such reorganization,
recapitalization or reclassification, or (iii) pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Company or any of its Subsidiaries.

 

(m)       “Change of Control Redemption Premium” means 115%.

 

36

 

 

(n)       “Closing Bid Price” and “Closing Sale Price” means, for any security
as of any date, the last closing bid price and last closing trade price,
respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price
(as the case may be) then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the “pink sheets” by OTC
Markets Group Inc. (formerly Pink Sheets LLC). If the Closing Bid Price or the
Closing Sale Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Closing Bid Price or the Closing Sale Price (as
the case may be) of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved in accordance with the procedures in Section 25. All
such determinations shall be appropriately adjusted for any stock splits, stock
dividends, stock combinations, recapitalizations or other similar transactions
during such period.

 

(o)       “Closing Date” shall have the meaning set forth in the Securities
Purchase Agreement, which date is the date the Company initially issued Notes
pursuant to the terms of the Securities Purchase Agreement.

 

(p)       “Common Stock” means (i) the Company’s shares of common stock, $0.001
par value per share, and (ii) any capital stock into which such common stock
shall have been changed or any share capital resulting from a reclassification
of such common stock.

 

(q)       “Conversion Floor Price Condition” means that the relevant Alternate
Conversion Price is being determined based on clause (x) of such definitions.

 

(r)        “Convertible Securities” means any stock or other security (other
than Options) that is 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 shares of Common Stock.

 

(s)       “Current Subsidiary” means any Person in which the Company on the
Subscription Date, directly or indirectly, (i) owns at least 25% of the
outstanding capital stock or holds at least 25% of the outstanding equity or
similar interest of such Person or (ii) controls the business, operations or
administration of such Person, and all of the foregoing, collectively, “Current
Subsidiaries”.

 

(t)        “Eligible Market” means The New York Stock Exchange, the NYSE
American, the Nasdaq Global Select Market, the Nasdaq Global Market or the
Principal Market.

 

(u)       “Eligible Marketable Securities” as of any date means marketable
securities which would be reflected on a consolidated balance sheet of the
Company and its Subsidiaries prepared as of such date in accordance with GAAP,
and which are permitted under the Company’s investment policies as in effect on
the Issuance Date or approved thereafter by the Company’s Board of Directors.

 

37

 

 

(v)       “Fiscal Quarter” means each of the fiscal quarters adopted by the
Company for financial reporting purposes that correspond to the Company’s fiscal
year as of the date hereof that ends on December 31.

 

(w)       “Fiscal Year” means the fiscal year adopted by the Company for
financial reporting purposes as of the date hereof that ends on December 31.

 

(x)       “Floor Price” means $0.46 (or such lower amount as permitted, from
time to time, by the Principal Market), subject to adjustment for stock splits,
stock dividends, stock combinations, recapitalizations or other similar events.

 

(y)        “Fundamental Transaction” means (A) that the Company shall, directly
or indirectly, including through subsidiaries, Affiliates or otherwise, in one
or more related transactions, (i) consolidate or merge with or into (whether or
not the Company is the surviving corporation) another Subject Entity, or (ii)
sell, assign, transfer, convey or otherwise dispose of all or substantially all
of the properties or assets of the Company and its Significant Subsidiaries to
one or more Subject Entities, or (iii) make, or allow one or more Subject
Entities to make, or allow the Company to be subject to or have its Common Stock
be subject to or party to one or more Subject Entities making, a purchase,
tender or exchange offer that is accepted by the holders of at least either (x)
50% of the outstanding shares of Common Stock, (y) 50% of the outstanding shares
of Common Stock calculated as if any shares of Common Stock held by all Subject
Entities making or party to, or Affiliated with any Subject Entities making or
party to, such purchase, tender or exchange offer were not outstanding; or (z)
such number of shares of Common Stock such that all Subject Entities making or
party to, or Affiliated with any Subject Entity making or party to, such
purchase, tender or exchange offer, become collectively the beneficial owners
(as defined in Rule 13d-3 under the 1934 Act) of at least 50% of the outstanding
shares of Common Stock, or (iv) consummate a stock or share purchase agreement
or other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with one or more Subject
Entities whereby all such Subject Entities, individually or in the aggregate,
acquire, either (x) at least 50% of the outstanding shares of Common Stock, (y)
at least 50% of the outstanding shares of Common Stock calculated as if any
shares of Common Stock held by all the Subject Entities making or party to, or
Affiliated with any Subject Entity making or party to, such stock purchase
agreement or other business combination were not outstanding; or (z) such number
of shares of Common Stock such that the Subject Entities become collectively the
beneficial owners (as defined in Rule 13d-3 under the 1934 Act) of at least 50%
of the outstanding shares of Common Stock, or (v) reorganize, recapitalize or
reclassify its Common Stock, (B) that the Company shall, directly or indirectly,
including through subsidiaries, Affiliates or otherwise, in one or more related
transactions, allow any Subject Entity individually or the Subject Entities in
the aggregate to be or become the “beneficial owner” (as defined in Rule 13d-3
under the 1934 Act), directly or indirectly, whether through acquisition,
purchase, assignment, conveyance, tender, tender offer, exchange, reduction in
outstanding shares of Common Stock, merger, consolidation, business combination,
reorganization, recapitalization, spin-off, scheme of arrangement,
reorganization, recapitalization or reclassification or otherwise in any manner
whatsoever, of either (x) at least 50% of the aggregate ordinary voting power
represented by issued and outstanding Common Stock, (y) at least 50% of the
aggregate ordinary voting power represented by issued and outstanding Common
Stock not held by all such Subject Entities as of the date of this Note
calculated as if any shares of Common Stock held by all such Subject Entities
were not outstanding, or (z) a percentage of the aggregate ordinary voting power
represented by issued and outstanding shares of Common Stock or other equity
securities of the Company sufficient to allow such Subject Entities to effect a
statutory short form merger or other transaction requiring other stockholders of
the Company to surrender their shares of Common Stock without approval of the
stockholders of the Company or (C) directly or indirectly, including through
subsidiaries, Affiliates or otherwise, in one or more related transactions, the
issuance of or the entering into any other instrument or transaction structured
in a manner to circumvent, or that circumvents, the intent of this definition in
which case this definition shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this definition to the
extent necessary to correct this definition or any portion of this definition
which may be defective or inconsistent with the intended treatment of such
instrument or transaction.

 

38

 

 

(z) “GAAP” means United States generally accepted accounting principles,
consistently applied.

 

(aa) “Group” means a “group” as that term is used in Section 13(d) of the 1934
Act and as defined in Rule 13d-5 thereunder.

 

(bb) “Holder Pro Rata Amount” means a fraction (i) the numerator of which is the
original Principal amount of this Note on the Closing Date and (ii) the
denominator of which is the aggregate original principal amount of all Notes
issued to the initial purchasers pursuant to the Securities Purchase Agreement
on the Closing Date.

 

(cc) “Indebtedness” shall have the meaning ascribed to such term in the
Securities Purchase Agreement.

 

(dd) “Interest Date” means, with respect to any given calendar month, the last
Trading Day in such calendar month.

 

(ee) “Interest Rate” means 7.875% per annum, as may be adjusted from time to
time in accordance with Section 2.

 

(ff) “Lucid Call Right” means that certain call right in favor of Case Western
Reserve University pursuant to the shareholders agreement of Lucid Diagnostics,
as in effect as of the date hereof.

 

(gg) “Lucid Diagnostics” means Lucid Diagnostics Inc., a Delaware corporation.

 

(hh) “Maturity Date” shall mean August 5, 2022; provided, however, the Maturity
Date may be extended at the option of the Holder (i) in the event that, and for
so long as, an Event of Default shall have occurred and be continuing or any
event shall have occurred and be continuing that with the passage of time and
the failure to cure would result in an Event of Default or (ii) through the date
that is twenty (20) Business Days after the consummation of a Fundamental
Transaction in the event that a Fundamental Transaction is publicly announced or
a Change of Control Notice is delivered prior to the Maturity Date, provided
further that if a Holder elects to convert some or all of this Note pursuant to
Section 3 hereof, and the Conversion Amount would be limited pursuant to Section
3(d) hereunder, the Maturity Date shall automatically be extended until such
time as such provision shall not limit the conversion of this Note.

 

39

 

 

(ii) “New Significant Subsidiary” means any New Subsidiary that is a Significant
Subsidiary (as defined in the Securities Purchase Agreement).

 

(jj) “New Subsidiary” means, as of any date of determination, any Person in
which the Company after the Subscription Date, directly or indirectly, (i) owns
at least 25% of the outstanding capital stock or holds at least 25% of the
outstanding equity or similar interest of such Person or (ii) controls the
business, operations or administration of such Person, and all of the foregoing,
collectively, “New Subsidiaries”.

 

(kk) “Options” means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.

 

(ll) “Parent Entity” of a Person means an entity that, directly or indirectly,
controls the applicable Person and whose common stock or equivalent equity
security is quoted or listed on an Eligible Market, or, if there is more than
one such Person or Parent Entity, the Person or Parent Entity with the largest
public market capitalization as of the date of consummation of the Fundamental
Transaction.

 

(mm) “Permitted Indebtedness” means (i) Indebtedness evidenced by this Note and
the Other Notes, (ii) Indebtedness set forth on Schedule 3(s) to the Securities
Purchase Agreement, as in effect as of the Subscription Date (excluding any
Permitted Intercompany Indebtedness), (iii) Indebtedness secured by Permitted
Liens or unsecured but as described in clauses (iv) and (v) of the definition of
Permitted Liens, (iv) up to $500,000 of Indebtedness of Lucid Diagnostics, in
the aggregate, owed to any Governmental Entity (as defined in the Securities
Purchase Agreement) or bona fide educational institution (or such bona fide
investment entity of such educational institution), (v) Permitted Insurance
Indebtedness, and (vi) up to $12,000,000 of Permitted Intercompany Indebtedness.

 

(nn) “Permitted Insurance Indebtedness” means Indebtedness in respect of the
financing of insurance premiums in a manner consistent with past practice.

 

(oo) “Permitted Intercompany Indebtedness” means Indebtedness incurred by any
Subsidiary owed to the Company, which Indebtedness was incurred for working
capital purposes.

 

40

 

 

(pp) “Permitted Liens” means (i) any Lien 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, (ii) any statutory Lien
arising in the ordinary course of business by operation of law with respect to a
liability that is not yet due or delinquent, (iii) any Lien 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, (iv) Liens (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 Lien is confined solely to the
property so acquired and improvements thereon, and the proceeds of such
equipment, in either case, with respect to Indebtedness in an aggregate amount
not to exceed $100,000, (v) Liens incurred in connection with the extension,
renewal or refinancing of the Indebtedness secured by Liens of the type
described in clause (iv) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the Indebtedness being extended, renewed or
refinanced does not increase, (vi) Liens 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, (vii) Liens securing Indebtedness in
respect of the financing of insurance premiums in a manner consistent with past
practice, and (viii) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 4(a)(xi).

 

(qq) “Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization, any other
entity or a government or any department or agency thereof.

 

(rr) “Principal Market” means the Nasdaq Capital Market.

 

(ss) “Redemption Notices” means, collectively, the Event of Default Redemption
Notices, Company Optional Redemption Notices, Subsequent Placement Optional
Redemption Notices, Holder Optional Redemption Notices and the Change of Control
Redemption Notices, and each of the foregoing, individually, a “Redemption
Notice.”

 

(tt) “Redemption Premium” means 115%.

 

(uu) “Redemption Prices” means, collectively, Event of Default Redemption
Prices, Subsequent Placement Optional Redemption Prices, Holder Optional
Redemption Prices, Company Optional Redemption Prices and the Change of Control
Redemption Prices, and each of the foregoing, individually, a “Redemption
Price.”

 

(vv) “SEC” means the United States Securities and Exchange Commission or the
successor thereto.

 

(ww) “Securities Purchase Agreement” means that certain securities purchase
agreement, dated as of the Subscription Date, by and among the Company and the
initial holders of the Notes pursuant to which the Company issued the Notes, as
may be amended from time to time.

 

41

 

 

(xx) “Subscription Date” means August 5, 2020.

 

(yy) “Subject Entity” means any Person, Persons or Group or any Affiliate or
associate of any such Person, Persons or Group.

 

(zz) “Subsidiaries” means, as of any date of determination, collectively, all
Current Subsidiaries and all New Subsidiaries, and each of the foregoing,
individually, a “Subsidiary.”

 

(aaa) “Successor Entity” means the Person (or, if so elected by the Holder, the
Parent Entity) formed by, resulting from or surviving any Fundamental
Transaction or the Person (or, if so elected by the Holder, the Parent Entity)
with which such Fundamental Transaction shall have been entered into.

 

(bbb) “Trading Day” means, as applicable, (x) with respect to all price or
trading volume determinations relating to the Common Stock, any day on which the
Common Stock is traded on the Principal Market, or, if the Principal Market is
not the principal trading market for the Common Stock, then on the principal
securities exchange or securities market on which the Common Stock is then
traded, provided that “Trading Day” shall not include any day on which the
Common Stock is scheduled to trade on such exchange or market for less than 4.5
hours or any day that the Common Stock is suspended from trading during the
final hour of trading on such exchange or market (or if such exchange or market
does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York time) unless such
day is otherwise designated as a Trading Day in writing by the Holder or (y)
with respect to all determinations other than price determinations relating to
the Common Stock, any day on which The New York Stock Exchange (or any successor
thereto) is open for trading of securities.

 

(ccc) “VWAP” means, for any security as of any date, the dollar volume-weighted
average price for such security on the Principal Market (or, if the Principal
Market is not the principal trading market for such security, then on the
principal securities exchange or securities market on which such security is
then traded) during the period beginning at 9:30:01 a.m., New York time, and
ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its “HP”
function (set to weighted average) or, if the foregoing does not apply, the
dollar volume-weighted average price of such security in the over-the-counter
market on the electronic bulletin board for such security during the period
beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York
time, as reported by Bloomberg, or, if no dollar volume-weighted average price
is reported for such security by Bloomberg for such hours, the average of the
highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in the “pink sheets” by OTC Markets Group
Inc. (formerly Pink Sheets LLC). If the VWAP cannot be calculated for such
security on such date on any of the foregoing bases, the VWAP of such security
on such date shall be the fair market value as mutually determined by the
Company and the Holder. If the Company and the Holder are unable to agree upon
the fair market value of such security, then such dispute shall be resolved in
accordance with the procedures in Section 25. All such determinations shall be
appropriately adjusted for any stock dividend, stock split, stock combination,
recapitalization or other similar transaction during such period.

 

42

 

 

34.       DISCLOSURE. Upon delivery by the Company to the Holder (or receipt by
the Company from the Holder) of any notice in accordance with the terms of this
Note, unless the Company has in good faith determined that the matters relating
to such notice do not constitute material, non-public information relating to
the Company or any of its Subsidiaries, the Company shall within one (1)
Business Day of such receipt or prior to (or simultaneous with) such delivery,
as applicable, publicly disclose such material, non-public information on a
Current Report on Form 8-K or otherwise. In the event that the Company believes
that a notice contains material, non-public information relating to the Company
or any of its Subsidiaries, the Company so shall indicate to the Holder
explicitly in writing in such notice (or immediately upon receipt of notice from
the Holder, as applicable), and in the absence of any such written indication in
such notice (or notification from the Company immediately upon receipt of notice
from the Holder), the Holder shall be entitled to presume that information
contained in the notice does not constitute material, non-public information
relating to the Company or any of its Subsidiaries. Nothing contained in this
Section 34 shall limit any obligations of the Company, or any rights of the
Holder, under Section 4(i) of the Securities Purchase Agreement.

 

35.       ABSENCE OF TRADING AND DISCLOSURE RESTRICTIONS. The Company
acknowledges and agrees that the Holder is not a fiduciary or agent of the
Company and that the Holder shall have no obligation to (a) maintain the
confidentiality of any information provided by the Company or (b) refrain from
trading any securities while in possession of such information in the absence of
a written non-disclosure agreement signed by an officer of the Holder that
explicitly provides for such confidentiality and trading restrictions. In the
absence of such an executed, written non-disclosure agreement, the Company
acknowledges that the Holder may freely trade in any securities issued by the
Company, may possess and use any information provided by the Company in
connection with such trading activity, and may disclose any such information to
any third party.

 

[signature page follows]

 

43

 

 

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of
the Issuance Date set out above.

 

  PAVMED INC.       By:          Name:   Title:

 

Senior Convertible Note - Signature Page 

 

 

 

 

EXHIBIT I

 

PAVMED INC.

CONVERSION NOTICE

 

Reference is made to the Senior Convertible Note (the “Note”) issued to the
undersigned by PAVmed Inc., a Delaware corporation (the “Company”). In
accordance with and pursuant to the Note, the undersigned hereby elects to
convert the Conversion Amount (as defined in the Note) of the Note indicated
below into shares of Common Stock, $0.001 par value per share (the “Common
Stock”), of the Company, as of the date specified below. Capitalized terms not
defined herein shall have the meaning as set forth in the Note.

 

Date of Conversion:  

 

Aggregate Principal to be converted:  

 

Aggregate accrued and unpaid Interest and accrued and unpaid Late Charges with
respect to such portion of the Aggregate Principal and such Aggregate Interest
to be converted:  

 

AGGREGATE CONVERSION AMOUNT
TO BE CONVERTED:  

 

Please confirm the following information:

 

Conversion Price:  

 

Number of shares of Common Stock to be issued:  

 

[  ]       If this Conversion Notice is being delivered with respect to an
Alternate Conversion, check here if Holder is electing to use the following
Alternate Conversion Price:____________

 

Please issue the Common Stock into which the Note is being converted to Holder,
or for its benefit, as follows:

 

[  ]       Check here if requesting delivery as a certificate to the following
name and to the following address:

 

Issue to:          

 

     [  ]     Check here if requesting delivery by Deposit/Withdrawal at
Custodian as follows:

 

DTC Participant:   DTC Number:   Account Number:  

 

Date: _____________ __,

 

__________________________
Name of Registered Holder

 

By: _______________________
Name:
Title:

Tax ID:_____________________

 

Facsimile:___________________

 

E-mail Address:

 

 

 

 

Exhibit II

 

ACKNOWLEDGMENT

 

The Company hereby (a) acknowledges this Conversion Notice, (b) certifies that
the above indicated number of shares of Common Stock [are][are not] eligible to
be resold by the Holder either (i) pursuant to Rule 144 (subject to the Holder’s
execution and delivery to the Company of a customary 144 representation letter)
or (ii) an effective and available registration statement and (c) hereby directs
_________________ to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated _____________, 20__
from the Company and acknowledged and agreed to by ________________________.

 

 

  PAVMED INC.       By:                Name:   Title: