SECURITIES PURCHASE AGREEMENT

Loreto Resources Corporation

 Series A Convertible Preferred Stock

 

This Securities Purchase Agreement (this “Agreement”) is dated as of March 8,
2013, by and between Loreto Resources Corporation, a Nevada corporation (the
“Company”), and each purchaser identified on the separate Omnibus Signature
Pages hereto (each, including its successors and assigns, a “Purchaser” and
collectively, the “Purchasers”).

 

Recitals:

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Rule 506 under Section 4(2), or Regulation S, under the Securities
Act, the Company desires to issue and sell to the Purchasers, and the
Purchasers, severally and not jointly, desire to purchase from the Company, an
aggregate of One Thousand and Three Hundred (1,300) shares of the Company’s
Series A Preferred Stock, for the Aggregate Purchase Price (the “Offering”), as
more fully described in this Agreement.

 

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

 

ARTICLE I.
DEFINITIONS

 

1.1           Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings set forth in this Section 1.1:

 

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

 

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 405 under the
Securities Act.

 

“Aggregate Purchase Price” means One Hundred Thirty Thousand and 00/100 Dollars
($130,000).

 

“Board of Directors” means the board of directors of the Company.

 

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

 

“Certificate of Designations” means the Company’s Certificate of Designations,
Preferences and Rights of Series a Convertible Preferred Stock, in substantially
the form of Exhibit D attached hereto.

 

 

 

 

“Closing” means the closing of the purchase and sale of the Series A Preferred
Stock pursuant to Section 2.1.

 

“Closing Date” means the Trading Day on which all of the Transaction Documents
have been executed and delivered by the applicable parties thereto, and all
conditions precedent to (i) the Purchasers’ obligations to pay the Subscription
Amount, and (ii) the Company’s obligations to deliver Series A Preferred Stock,
in each case, have been satisfied or waived, but in no event later than the
third Trading Day following the date hereof.

 

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

 

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

 

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

 

“Company Counsel” means Gottbetter & Partners, LLP (“G&P”), with offices located
at 488 Madison Avenue, 12th Floor, New York, NY 10022.

 

“Conversion Shares” means the shares of Common Stock to be issued upon
conversion of the Series A Preferred Stock pursuant to the terms of the
Certificate of Designations.

 

“Disclosure Schedules” shall have the meaning ascribed to such term in Section
3.1.

 

“DTC” means The Depository Trust Company.

 

“Escrow Agent” means G&P, in its capacity as escrow agent under the Escrow
Agreement.

 

“Escrow Agreement” means the Escrow Agreement by and among the Company, the
Escrow Agent and each Purchaser, in substantially the form of Exhibit E attached
hereto, pursuant to which the Purchasers shall deposit Subscription Amounts with
the Escrow Agent to be applied to the transactions contemplated hereunder.

 

“Escrow Fee” means $500 per Purchaser, as further set forth in the Escrow
Agreement.

 

“Evaluation Date” shall have the meaning ascribed to such term in Section
3.1(p).

 

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

 

“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended.

 

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Intellectual Property Rights” shall have the meaning ascribed to such term in
Section 3.1(n).

 

“Liens” means a lien, charge pledge, security interest, encumbrance, right of
first refusal, preemptive right or other restriction.

 

“Material Adverse Effect” shall have the meaning assigned to such term in
Section 3.1(b).

 

“Material Permits” shall have the meaning ascribed to such term in Section
3.1(l).

 

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

 

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

 

“Purchase Price” means $100 per share.

 

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.6.

 

“Required Approvals” shall have the meaning ascribed to such term in Section
3.1(e).

 

“Required Delivery Date” shall have the meaning ascribed to such term in Section
4.3(c).

 

“Reverse Stock Split” means a 1-for-100 reverse split of the Company’s Common
Stock.

 

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

 

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended or interpreted from time to time, or
any similar rule or regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.

 

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“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Securities” means the shares of Series A Preferred Stock and the Conversion
Shares.

 

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

 

“Series A Preferred Stock” means the Company’s Series A Convertible Preferred
Stock, par value $0.001 per share, subject to the terms and conditions set forth
in the Certificate of Designations.

 

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act (but shall not be deemed to include the location and/or
reservation of borrowable shares of Common Stock). 

 

“Subscription Amount” means, as to each Purchaser, the aggregate Purchase Price
to be paid for Series A Preferred Stock purchased hereunder as specified below
such Purchaser’s name on the Omnibus Signature Page of this Agreement and above
the heading “Subscription Amount,” in United States dollars and in immediately
available funds.

 

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a)
and shall, where applicable, also include any direct or indirect subsidiary of
the Company formed or acquired after the date hereof.

 

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

 

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

 

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

 

“Transfer Agent” means Continental Stock Transfer & Trust, the current transfer
for the Company’s Common Stock, with a mailing address of 17 Battery Place, 8th
Floor, New York, NY 10004, and a facsimile number of (212) 616-7616 and any
successor transfer agent of the Company.

 

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“VWAP” means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time)), (b)  if the OTC Bulletin Board is not a Trading Market, the volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then
listed or quoted for trading on the OTC Bulletin Board and if prices for the
Common Stock are then reported in the “Pink Sheets” published by Pink OTC
Markets, Inc. (or a similar organization or agency succeeding to its functions
of reporting prices), the most recent bid price per share of the Common Stock so
reported, or (d) in all other cases, the fair market value of a share of Common
Stock as determined by an independent appraiser selected in good faith by the
Purchasers of a majority of the shares of Series A Preferred Stock then
outstanding and reasonably acceptable to the Company, the reasonable fees and
expenses of which shall be paid by the Company.

 

ARTICLE II.
PURCHASE AND SALE

 

2.1           Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, the Company agrees to sell, and each Purchaser
agrees to purchase, severally and not jointly, such number of shares of Series A
Preferred Stock as specified below such Purchaser’s name on such Purchaser’s
Omnibus Signature Page above the heading “Number of Shares”. Concurrently with
each Purchaser’s execution of this Agreement, the Purchaser shall deliver to the
Escrow Agent, via wire transfer or a certified check, immediately available
funds equal to such Purchaser’s Subscription Amount as set forth on the Omnibus
Signature Page hereto executed by such Purchaser, and the Company shall deliver
to each Purchaser certificate(s) representing its respective shares of Series A
Preferred Stock being purchased by such Purchaser at such Closing, as set forth
on the Omnibus Signature Page hereto executed by such Purchaser, and the Company
and each Purchaser shall deliver the other items set forth in Section 2.2
deliverable at the Closing. Upon satisfaction of the covenants and conditions
set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of G&P
or such other location as the parties shall mutually agree.

 

2.2           Deliveries.

 

(a)          On or prior to the Closing Date, the Company shall deliver, or
cause to be delivered to each Purchaser, the following:

 

(i)          this Agreement duly executed by the Company;

 

(ii)         a certificate representing such Purchaser’s shares of Series A
Preferred Stock;

 

(iii)        a certificate evidencing the formation and good standing of the
Company and each of its Subsidiaries in each such entity’s jurisdiction of
formation issued by the Secretary of State (or comparable office) of such
jurisdiction of incorporation or formation as of a date within thirty (30) days
of the Closing Date;

 

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(iv)        a certified copy of the certificate or articles of incorporation or
formation of the Company and each Subsidiary as certified by the Secretary of
State (or comparable office) of such Person’s jurisdiction of incorporation or
formation within thirty (30) days of the Closing Date;

 

(v)         certificates, in form acceptable to the Purchasers, executed by the
Secretary or other officer of the Company and each Subsidiary and dated as of
the Closing Date, as to (i) in the case of the Company, resolutions of its board
of directors authorizing the execution and delivery of this Agreement and the
other Transaction Documents by the Company and the consummation by the Company
of the transactions contemplated hereby and thereby, in a form reasonably
acceptable to the Purchasers, (ii) its articles or certificate of incorporation
or formation, and (iii) its by-laws, operating agreement or other fundamental
documents, each as in effect on the Closing Date;

 

(vi)        a letter from the Transfer Agent certifying the number of shares of
Common Stock outstanding on the Closing Date;

 

(vii)       such other documents relating to the transactions contemplated by
this Agreement as such Purchaser, or its counsel, may reasonably request.

 

(b)          On or prior to the Closing Date, each Purchaser shall deliver or
cause to be delivered to the Company, the following:

 

(i)          the Omnibus Signature Page to this Agreement and the Escrow
Agreement, duly executed by such Purchaser;

 

(ii)         the Accredited Investor Certification attached hereto as Exhibit A;

 

(iii)        the Investor Profile attached hereto as Exhibit B;

 

(iv)        the Anti-Money Laundering Form attached hereto as Exhibit C;

 

(v)         to the Escrow Agent, such Purchaser’s Subscription Amount by wire
transfer to the account specified in the Escrow Agreement or by certified or
bank check, in United States Dollars, in immediately available funds; and

 

(vi)        such other documents relating to the transactions contemplated by
this Agreement as the Company or its counsel may reasonably request.

 

2.3           Closing Conditions.

 

(a)          The obligations of the Company hereunder in connection with the
Closing are subject to the following conditions being met:

 

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(i)          funds have been deposited in escrow as described in Section
2.2(b)(v) equal to at least the Aggregate Purchase Price, and corresponding
documentation with respect to such amounts has been delivered by the Purchasers
as described in Section 2.2(b), and all such funds have cleared and are
available;

 

(ii)         the Purchasers shall have paid to G&P (A) an aggregate of $37,000
for its professional legal fees in connection with the transactions contemplated
hereby, and (B) an Escrow Fee of $500 per Purchaser as further set forth in the
Escrow Agreement;

 

(iii)        the accuracy in all material respects when made and on the Closing
Date of the representations and warranties of the Purchasers contained herein
(unless as of a specific date therein in which case they shall be accurate as of
such date);

 

(iv)        all obligations, covenants and agreements of each Purchaser required
to be performed on or prior to the Closing Date shall have been performed; and

 

(v)         the delivery by each Purchaser of the items set forth in Section
2.2(b) of this Agreement.

 

(b)          The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions being met:

 

(i)          the Company shall have filed the Certificate of Designations with
the Secretary of State of the State of Delaware;

 

(ii)         the accuracy in all material respects when made and on the Closing
Date of the representations and warranties of the Company contained herein
(unless as of a specific date therein in which case they shall be accurate as of
such date);

 

(iii)        all obligations, covenants and agreements of the Company required
to be performed on or prior to the Closing Date shall have been performed;

 

(iv)        the delivery by the Company of the items set forth in Section 2.2(a)
of this Agreement;

 

(v)         there shall have been no Material Adverse Effect (as defined in
Section 3.1(b) below) with respect to the Company since the date hereof; and

 

(vi)        from the date hereof to the Closing Date, trading in the Common
Stock shall not have been suspended by the Commission or the Company’s principal
Trading Market, and, at any time prior to the Closing Date, trading in
securities generally as reported by Bloomberg L.P. shall not have been suspended
or limited, or minimum prices shall not have been established on securities
whose trades are reported by such service, or on any Trading Market, nor shall a
banking moratorium have been declared either by the United States or New York
State authorities nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international calamity of such
magnitude in its effect on, or any material adverse change in, any financial
market which, in each case, in the reasonable judgment of such Purchaser, makes
it impracticable or inadvisable to purchase the Securities at the Closing.

 

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ARTICLE III.
REPRESENTATIONS AND WARRANTIES

 

3.1           Representations and Warranties of the Company. Except as set forth
in the schedules referred to in this Section 3.1 (the “Disclosure Schedules”),
which Disclosure Schedules shall be deemed a part hereof and shall qualify any
representation or otherwise made herein to the extent of the disclosure
contained in the corresponding section of the Disclosure Schedules, the Company
hereby makes the following representations and warranties to each Purchaser as
of the date hereof and as of the Closing Date (unless as of a specific date
therein in which case as of such date):

 

(a)          Subsidiaries. All of the direct and indirect subsidiaries of the
Company are set forth on Schedule 3.1(a). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all of the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe for
or purchase securities. If the Company has no subsidiaries, all other references
to the Subsidiaries or any of them in the Transaction Documents shall be
disregarded.

 

(b)          Organization and Qualification. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, with the requisite power and authority to own and
use its properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in violation or default of
any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to result
in: (i) a material adverse effect on the legality, validity or enforceability of
any Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial or otherwise) of
the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse
effect on the Company’s ability to perform in any material respect on a timely
basis its obligations under any Transaction Document (any of (i), (ii) or (iii),
a “Material Adverse Effect”) and no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.

 

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(c)          Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by this Agreement and each of the other Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The execution
and delivery of each of this Agreement and the other Transaction Documents by
the Company and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by all necessary action on the part of the
Company and no further action is required by the Company, the Board of Directors
or the Company’s stockholders in connection herewith or therewith other than in
connection with the Required Approvals (as defined in Section 3.1(e) below).
This Agreement and each other Transaction Document to which it is a party has
been (or upon delivery will have been) duly executed by the Company and, when
delivered in accordance with the terms hereof and thereof, will constitute the
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except: (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.

 

(d)          No Conflicts. The execution, delivery and performance by the
Company of this Agreement and the other Transaction Documents to which it is a
party, the issuance and sale of the Securities and the consummation by it of the
transactions contemplated hereby and thereby do not and will not: (i) conflict
with or violate any provision of the Company’s or any Subsidiary’s certificate
or articles of incorporation, bylaws or other organizational or charter
documents, (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, result in the
creation of any Lien upon any of the properties or assets of the Company or any
Subsidiary, or give to others any rights of termination, amendment, acceleration
or cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a Company or
Subsidiary debt or otherwise) or other understanding to which the Company or any
Subsidiary is a party or by which any property or asset of the Company or any
Subsidiary is bound or affected, or (iii) subject to the Required Approvals (as
defined in Section 3.1(e) below), conflict with or result in a violation of any
law, rule, regulation, order, judgment, injunction, decree or other restriction
of any court or governmental authority to which the Company or a Subsidiary is
subject (including federal and state securities laws and regulations and the
rules and regulations of any Trading Market), or by which any property or asset
of the Company or a Subsidiary is bound or affected; except in the case of each
of clauses (ii) and (iii), such as could not have or reasonably be expected to
result in a Material Adverse Effect.

 

(e)          Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents,
other than: (i) the filings required pursuant to Section 4.6 of this Agreement,
(ii) the notice and/or application(s), if any, to each applicable Trading Market
for the issuance and sale of the Securities and the listing or qualification of
the Conversion Shares for trading or quotation thereon in the time and manner
required thereby and (iii) the filing of Form D with the Commission and such
filings as are required to be made under applicable state securities laws
(collectively, the “Required Approvals”).

 

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(f)          Issuance of the Securities. The shares of Series A Preferred Stock
have been duly authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued, fully paid
and nonassessable, free and clear of all Liens other than as may have been
imposed by the Purchaser and other than restrictions on transfer provided for in
the Transaction Documents. Upon any conversion of Series A Preferred Stock, the
Conversion Shares will have been duly authorized and, when issued in accordance
with the terms of the Transaction Documents, will be validly issued, fully paid
and nonassessable, free and clear of all Liens other than as may have been
imposed by the Purchaser and other than restrictions on transfer provided for in
the Transaction Documents.

 

(g)          Capitalization. The authorized and outstanding capitalization of
the Company is as set forth on Schedule 3.1(g), which Schedule 3.1(g) shall also
include the number of shares of Common Stock owned beneficially, and of record,
by Affiliates of the Company as of the date hereof. Other than as indicated in
Schedule 3.1(g), no Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as a result of the purchase
and sale of the Securities and as set forth in Schedule 3.1(g), there are no
outstanding options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable or exchangeable for, or giving any
Person any right to subscribe for or acquire any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company or
any Subsidiary is or may become bound to issue additional shares of Common Stock
or Common Stock Equivalents. The issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other securities to any
Person (other than the Purchasers) and will not result in a right of any holder
of Company securities to adjust the exercise, conversion, exchange or reset
price under any of such securities. Other than as indicated in Schedule 3.1(g),
there are no outstanding securities or instruments of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries. Other than as indicated in Schedule 3.1(g),
neither the Company nor any Subsidiary has any stock appreciation rights or
“phantom stock” plans or agreements or any similar plan or agreement. All of the
outstanding shares of capital stock of the Company are duly authorized, validly
issued, fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, and none of such outstanding shares was
issued in violation of any preemptive rights or similar rights to subscribe for
or purchase securities. No further approval or authorization of any stockholder,
the Board of Directors or others is required for the issuance and sale of the
Securities. There are no stockholders agreements, voting agreements or other
similar agreements with respect to the Company’s capital stock to which the
Company is a party or, to the knowledge of the Company, between or among any of
the Company’s stockholders.

 

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(h)          SEC Reports; Financial Statements. The Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by the Company under the Securities Act and the Exchange Act, including pursuant
to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof
(or such shorter period as the Company was required by law or regulation to file
such material) (the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively referred to
herein as the “SEC Reports”) and, other than a report that is required solely
pursuant to Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, 4.02(a) or 5.02(e) of Form
8-K, has filed such SEC Reports on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act, as applicable, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis during the periods involved (“GAAP”), except as may be otherwise specified
in such financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and its
consolidated Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments.

 

(i)          Material Changes; Undisclosed Events, Liabilities or Developments.
Since the date of the latest audited financial statements included within the
SEC Reports, except as specifically disclosed in a subsequent SEC Report filed
prior to the date hereof: (i) there has been no event, occurrence or development
that has had or that could reasonably be expected to result in a Material
Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and (B) liabilities
not required to be reflected in the Company’s financial statements pursuant to
GAAP or disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Company equity
compensation plans. The Company does not have pending before the Commission any
request for confidential treatment of information. Except for the issuance of
the Securities contemplated by this Agreement or as set forth on Schedule
3.1(i), no event, liability, fact, circumstance, occurrence or development has
occurred or exists, or is reasonably expected to occur or exist, with respect to
the Company or its Subsidiaries or their respective businesses, properties,
operations, assets or financial condition, that would be required to be
disclosed by the Company under applicable securities laws at the time this
representation is made or deemed made that has not been publicly disclosed at
least one (1) Trading Day prior to the date that this representation is made.

 

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(j)          Litigation. There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”) which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or
the Securities or (ii) could, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any Subsidiary, nor any director or officer thereof, is or has been
the subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty. There
has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company or any
current or former director or officer of the Company. The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act.

 

(k)          Compliance. Neither the Company nor any Subsidiary: (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any judgment, decree, or order of any court, arbitrator or other
governmental authority or (iii) is or has been in violation of any statute,
rule, ordinance or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws relating to taxes,
environmental protection, occupational health and safety, product quality and
safety and employment and labor matters, except in each case as could not have
or reasonably be expected to result in a Material Adverse Effect.

 

(l)          Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not reasonably be expected to result in a Material
Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary
has received any notice of proceedings relating to the revocation or
modification of any Material Permit.

 

12

 

 

(m)          Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for (i) Liens as do not materially affect the value of such
property and do not materially interfere with the use made and proposed to be
made of such property by the Company and the Subsidiaries and (ii) Liens for the
payment of federal, state or other taxes, for which appropriate reserves have
been made therefor in accordance with GAAP and the payment of which is neither
delinquent nor subject to penalties. Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases with which the Company and the Subsidiaries
are in compliance.

 

(n)          Intellectual Property. The Company and the Subsidiaries have, or
have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights and similar rights as described
in the SEC Reports as necessary or required for use in connection with their
respective businesses and which the failure to so have could have a Material
Adverse Effect (collectively, the “Intellectual Property Rights”). None of, and
neither the Company nor any Subsidiary has received a notice (written or
otherwise) that any of, the Intellectual Property Rights has expired, terminated
or been abandoned, or is expected to expire or terminate or be abandoned, within
two (2) years from the date of this Agreement. Neither the Company nor any
Subsidiary has received, since the date of the latest audited financial
statements included within the SEC Reports, a written notice of a claim or
otherwise has any knowledge that the Intellectual Property Rights violate or
infringe upon the rights of any Person, except as could not have or reasonably
be expected to not have a Material Adverse Effect. To the knowledge of the
Company, all such Intellectual Property Rights are enforceable and there is no
existing infringement by another Person of any of the Intellectual Property
Rights. The Company and its Subsidiaries have taken reasonable security measures
to protect the secrecy, confidentiality and value of all of their intellectual
properties, except where failure to do so could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.

 

(o)          Transactions with Affiliates and Employees. Except as set forth in
the SEC Reports, none of the officers or directors of the Company or any
Subsidiary and, to the knowledge of the Company, none of the employees of the
Company or any Subsidiary is presently a party to any transaction with the
Company or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, providing for the borrowing of money from or lending of
money to or otherwise requiring payments to or from any officer, director or
such employee or, to the knowledge of the Company, any entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee, stockholder, member or partner, in each case in
excess of $25,000 other than for: (i) payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of the
Company and (iii) other employee benefits, including equity compensation
agreements under any equity compensation plan of the Company.

 

13

 

 

(p)          Certain Fees. No brokerage or finder’s fees or commissions are or
will be payable by the Company or any Subsidiary to any broker, financial
advisor or consultant, finder, placement agent, investment banker, bank or other
Person with respect to the transactions contemplated by the Transaction
Documents.

 

(q)          Private Placement. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, no registration under
the Securities Act is required for the offer and sale of the Securities by the
Company to the Purchasers as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of the
Trading Market.

 

(r)          Registration Rights. Other than as disclosed on Schedule 3.1(r), no
Person has any right to cause the Company to effect the registration under the
Securities Act of any securities of the Company or any Subsidiary.

 

(s)          Listing and Maintenance Requirements. Other than as indicated in
Schedule 3.1(s), the Company has not, in the twelve (12) months preceding the
date hereof, received notice from any Trading Market on which the Common Stock
is or has been listed or quoted to the effect that the Company is not in
compliance with the listing or maintenance requirements of such Trading Market.
The Company is, and has no reason to believe that it will not in the foreseeable
future continue to be, in compliance with all such listing and maintenance
requirements.

 

(t)          Disclosure. All of the materials furnished by or on behalf of the
Company to the Purchasers regarding the Company and its Subsidiaries, their
respective businesses and the transactions contemplated hereby are true and
correct and do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading. The
Company acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.2 hereof.

 

(u)          No Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, neither the Company,
nor any of its Affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of (i) the Securities Act which would require the registration of
any such securities under the Securities Act, or (ii) any applicable shareholder
approval provisions of any Trading Market on which any of the securities of the
Company are listed or designated.

 

14

 

 

(v)         Off Balance Sheet Arrangements. There is no transaction,
arrangement, or other relationship between the Company or any of its
Subsidiaries and an unconsolidated or other off balance sheet entity that is
required to be disclosed by the Company in its SEC Reports and is not so
disclosed or that otherwise could be reasonably likely to have a Material
Adverse Effect.

 

(w)          Tax Status. Except for matters that would not, individually or in
the aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and its Subsidiaries each (i) has made or filed all United
States federal, state and local income and all foreign income and franchise tax
returns, reports and declarations required by any jurisdiction to which it is
subject, (ii) has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns,
reports and declarations and (iii) has set aside on its books provision
reasonably adequate for the payment of all material taxes for periods subsequent
to the periods to which such returns, reports or declarations apply. There are
no unpaid taxes in any material amount claimed to be due by the taxing authority
of any jurisdiction, and the officers of the Company or of any Subsidiary know
of no basis for any such claim.

 

(x)          No General Solicitation. Neither the Company nor any Subsidiary nor
any person acting on behalf of the Company has, directly or indirectly, offered
or sold any of the Securities by any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act). The
Company has offered the Securities for sale only to the Purchasers and certain
other “accredited investors” within the meaning of Rule 501 under the Securities
Act.         

 

(y)          Foreign Corrupt Practices. Neither the Company nor any Subsidiary,
to the knowledge of the Company or any Subsidiary, any agent or other person
acting on behalf of the Company or any Subsidiary, has: (i) directly or
indirectly, used any funds for unlawful contributions, gifts, entertainment or
other unlawful expenses related to foreign or domestic political activity, (ii)
made any unlawful payment to foreign or domestic government officials or
employees or to any foreign or domestic political parties or campaigns from
corporate funds, (iii) failed to disclose fully any contribution made by the
Company or any Subsidiary (or made by any person acting on its behalf of which
the Company is aware) which is in violation of law or (iv) violated in any
material respect any provision of FCPA.

 

(z)          No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the Company and the accountants and lawyers formerly
or presently employed by the Company and the Company is current with respect to
any fees owed to its accountants and lawyers which could affect the Company’s
ability to perform any of its obligations under any of the Transaction
Documents.

 

15

 

 

(aa)          Acknowledgment Regarding Purchasers’ Purchase of Securities. The
Company acknowledges and agrees that each of the Purchasers is acting solely in
the capacity of an arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated thereby and that no Purchaser is (i)
an officer or director of the Company or any of its Subsidiaries, (ii) an
“affiliate” (as defined in Rule 144) of the Company or any of its Subsidiaries,
or (iii) to the Company’s knowledge, a “beneficial owner” of more than 10% of
the shares of Common Stock (as defined for purposes of Rule 13d-3 under the
Exchange Act. The Company further represents to each Purchaser that the
Company’s decision to enter into this Agreement and the other Transaction
Documents has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.

 

(bb)         Regulation M Compliance.  Neither the Company nor any of its
Subsidiaries has, and to the Company’s knowledge no one acting on their behalf
has, (i) taken, directly or indirectly, any action designed to cause or to
result in the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any of the Securities, (ii) sold,
bid for, purchased, or paid any compensation for soliciting purchases of, any of
the Securities, or (iii) paid or agreed to pay to any Person any compensation
for soliciting another to purchase any other securities of the Company, other
than, in the case of clauses (ii) and (iii), compensation paid to the Company’s
placement agent in connection with the placement of the Securities.

 

(cc)         Office of Foreign Assets Control. Neither the Company nor any
Subsidiary nor, to the Company's knowledge, any director, officer, agent,
employee or Affiliate of the Company or any Subsidiary is currently subject to
any U.S. sanctions administered by the Office of Foreign Assets Control of the
U.S. Treasury Department (“OFAC”).

 

(dd)         Money Laundering. The operations of the Company and its
Subsidiaries are and have been conducted at all times in compliance with
applicable financial record-keeping and reporting requirements of the Currency
and Foreign Transactions Reporting Act of 1970, as amended, applicable money
laundering statutes and applicable rules and regulations thereunder
(collectively, the “Money Laundering Laws”), and no action, suit or proceeding
by or before any court or governmental agency, authority or body or any
arbitrator involving the Company or any Subsidiary with respect to the Money
Laundering Laws is pending or, to the knowledge of the Company or any
Subsidiary, threatened.

 

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

 

3.2           Representations and Warranties of the Purchasers. Each Purchaser,
for itself and for no other Purchaser, hereby represents and warrants to the
Company as follows as of the date hereof and as of the Closing Date (unless as
of a specific date therein in which case they shall be accurate as of such
date):

 

16

 

 

(a)          Organization; Authority. Such Purchaser is either an individual or
an entity duly incorporated or formed, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or formation with full
right, corporate, partnership, limited liability company or similar power and
authority to enter into and to consummate the transactions contemplated by the
Transaction Documents and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of the Transaction Documents and
performance by such Purchaser of the transactions contemplated by the
Transaction Documents have been duly authorized by all necessary corporate,
partnership, limited liability company, or similar action, as applicable, on the
part of such Purchaser. Each Transaction Document to which it is a party has
been duly executed by such Purchaser, and when delivered by such Purchaser in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, except: (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.

 

(b)          Own Account. Such Purchaser understands that the Securities are
“restricted securities” and have not been registered under the Securities Act or
any applicable state securities law and is acquiring, or upon conversion or
exercise will acquire, the Securities as principal for its own account and not
with a view to or for distributing or reselling such Securities or any part
thereof in violation of the Securities Act or any applicable state securities
law, has no present intention of distributing any of such Securities in
violation of the Securities Act or any applicable state securities law and has
no direct or indirect arrangement or understandings with any other persons to
distribute or regarding the distribution of such Securities in violation of the
Securities Act or any applicable state securities law (this representation and
warranty not limiting such Purchaser’s right to sell the Securities pursuant to
the Registration Statement or otherwise in compliance with applicable federal
and state securities laws). Such Purchaser is acquiring the Securities hereunder
in the ordinary course of its business.

 

(c)          Purchaser Status. The information contained in the Accredited
Investor Certification, attached hereto as Exhibit A, and Investor Profile,
attached hereto as Exhibit B, delivered by the Purchaser in connection with this
Agreement is complete and accurate in all respects. At the time such Purchaser
was offered the Securities, it was, and as of the date hereof it is, and on each
date on which it converts any Series A Preferred Stock, it will be either: (i)
an “accredited investor” as defined in Rule 501(a) of Regulation D under the
Securities Act on the basis indicated therein, or (ii) a “qualified
institutional buyer” as defined in Rule 144A(a) under the Securities Act, or
(iii) not a U.S. Person as defined in Regulation S under the Securities Act and
a resident of the jurisdiction set forth in Exhibit A hereto. The Purchaser is
not required to be a registered broker-dealer under Section 15 of the Exchange
Act.

 

17

 

 

(d)          Experience of Such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment. Such Purchaser has received
all information regarding the Company and its operations and financial
conditions as it has requested. Such Purchaser is able to bear the economic risk
of an investment in the Securities and, at the present time, is able to afford a
complete loss of such investment. Such Purchaser understands that an active
public market for the Company’s Common Stock may not exist or continue to exist.
Such Purchaser, its advisers, if any, and designated representatives, if any,
have received all information about that the Company they have requested and
have reviewed such information and have had an opportunity to discuss the
Company’s business, management and financial affairs and the risks involved with
an investment in the Company with its management and have received responses to
their queries to their satisfaction. Such Purchaser understands that such
discussions, as well as any written information provided by the Company, were
intended to describe the aspects of the Company’s business and prospects which
the Company believes to be material, but were not necessarily a thorough or
exhaustive description, and except as expressly set forth in this Agreement, the
Company makes no representation or warranty with respect to the completeness of
such information and makes no representation or warranty of any kind with
respect to any information provided by any entity other than the Company. Some
of such information may include projections as to the future performance of the
Company, which projections may not be realized, may be based on assumptions
which may not be correct and may be subject to numerous factors beyond the
Company’s control. Additionally, such Purchaser understands and represents that
such Purchaser is purchasing the Securities notwithstanding the fact that the
Company may disclose in the future certain material information the Subscriber
has not received, including its financial results for its current fiscal
quarter.

 

(e)          General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement.

 

(f)          Certain Transactions and Confidentiality. Other than consummating
the transactions contemplated hereunder, such Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, executed any purchases or sales, including
Short Sales, of the securities of the Company during the period commencing as of
the time that such Purchaser first received a term sheet (written or oral) from
the Company or any other Person representing the Company setting forth the
material terms of the transactions contemplated hereunder and ending immediately
prior to the execution hereof. Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser’s assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of such Purchaser’s assets, the
representation set forth above shall only apply with respect to the portion of
assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement. Other than to other Persons
party to this Agreement, such Purchaser has maintained the confidentiality of
all disclosures made to it in connection with this transaction (including the
existence and terms of this transaction). Notwithstanding the foregoing, for
avoidance of doubt, nothing contained herein shall constitute a representation
or warranty, or preclude any actions, with respect to the identification of the
availability of, or securing of, available shares to borrow in order to effect
Short Sales or similar transactions in the future.

 

18

 

 

(g)          Anti-Terrorism. Such Purchaser represents that neither it nor, to
its knowledge, any person or entity controlling, controlled by or under common
control with it, nor any person having a beneficial interest in it, nor any
person on whose behalf such Purchaser is acting: (i) is a person listed in the
Annex to Executive Order No. 13224 (2001) issued by the President of the United
States (Executive Order Blocking Property and Prohibiting Transactions with
Persons Who Commit, Threaten to Commit, or Support Terrorism); (ii) is named on
the List of Specially Designated Nationals and Blocked Persons maintained by
OFAC; (iii) is a non-U.S. shell bank or is providing banking services indirectly
to a non-U.S. shell bank; (iv) is a senior non-U.S. political figure or an
immediate family member or close associate of such figure; or (v) is otherwise
prohibited from investing in the Company pursuant to applicable U.S. anti-money
laundering, anti-terrorist and asset control laws, regulations, rules or orders
(categories (i) through (v), each a “Prohibited Subscriber”). If such Purchaser
is a financial institution that is subject to the USA Patriot Act, such
Purchaser represents that it has met all of its obligations under the USA
Patriot Act.

 

(h)          Speculative Nature of Investment. Such Purchaser or its duly
authorized representative realizes that because of the inherently speculative
nature of businesses of the kind conducted and contemplated by the Company, the
Company’s financial results may be expected to fluctuate from month to month and
from period to period and will, generally, involve a high degree of financial
and market risk that could result in substantial or, at times, even total losses
for investors in securities of the Company.

 

(i)          Complete Information. All of the information that such Purchaser
has heretofore furnished or which is set forth herein is correct and complete as
of the date of this Agreement, and, if there should be any material change in
such information prior to the admission of the undersigned to the Company, such
Purchaser will immediately furnish revised or corrected information to the
Company.

 

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES

 

4.1           Register. The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to each holder of Securities), a register for the Series A Preferred
Stock in which the Company shall record the name and address of the Person in
whose name the Series A Preferred Stock have been issued (including the name and
address of each transferee), the number of shares of Series A Preferred Stock
held by such Person, and the number of Conversion Shares issuable upon
conversion of the Series A Preferred Stock held by such Person. The Company
shall keep the register open and available at all times during business hours
for inspection of any Purchaser or its legal representatives.

 

19

 

 

4.2           Transfer Agent Instructions. If a Purchaser effects a sale,
assignment or transfer of the Securities in accordance with Section 4.3, the
Company shall, subject to the terms and conditions hereof, permit the transfer
and shall promptly instruct its Transfer Agent to issue one or more certificates
or credit shares to the applicable balance accounts at DTC in such name and in
such denominations as specified by such Purchaser to effect such sale, transfer
or assignment. In the event that such sale, assignment or transfer involves
Conversion Shares sold, assigned or transferred pursuant to an effective
registration statement or in compliance with Rule 144, the Transfer Agent shall
issue such shares to such Purchaser, assignee or transferee (as the case may be)
without any restrictive legend in accordance with Section 4.3(c) below. The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to a Purchaser. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section, that a Purchaser shall be entitled,
in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.

 

4.3           Transfer Restrictions.

 

(a)          The Securities may only be disposed of in compliance with state and
federal securities laws. In connection with any transfer of Securities other
than pursuant to an effective registration statement or Rule 144, to the Company
or to an Affiliate of a Purchaser or in connection with a pledge as contemplated
in Section 4.3(b), the Company may require the transferor thereof to provide to
the Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in writing to
be bound by the terms of this Agreement and shall have the rights and
obligations of a Purchaser under this Agreement.

 

(b)          The Purchasers agree to the imprinting, so long as is required by
this Section, of a legend on any of the Securities substantially in the
following form:

 

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A
FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a)
UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

20

 

   

(c)          Certificates evidencing the Securities shall not contain any legend
(including the legend set forth in Section 4.3(a) hereof), (i) while a
registration statement (including the Registration Statement) covering the
resale of such Security is effective under the Securities Act, (ii) following
any sale of such Securities pursuant to Rule 144, (iii) if such Securities are
eligible for sale under Rule 144, without the requirement for the Company to be
in compliance with the current public information required under Rule 144 as to
such Securities and without volume or manner-of-sale restrictions, or (iv) if
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission). If all or any of a Purchaser’s shares of Series A Preferred
Stock is converted at a time when there is an effective registration statement
to cover the resale of the Conversion Shares, or if the Conversion Shares may be
sold under Rule 144 and the Company is then in compliance with the current
public information required under Rule 144, or if the Conversion Shares may be
sold under Rule 144 without the requirement for the Company to be in compliance
with the current public information required under Rule 144 as to such
Conversion Shares, then such Conversion Shares shall be issued free of all
legends. The Company agrees that at such time as such legend is no longer
required under this Section 4.3(c), it will no later than three (3) Trading Days
following the delivery by a Purchaser to the Company or the transfer agent (with
notice to the Company) of a legended certificate representing such Securities
(endorsed or with stock powers attached, signatures guaranteed, and otherwise in
form necessary to affect the reissuance and/or transfer, if applicable),
together with any other deliveries from such Purchaser as may be required above
in this Section, as directed by such Purchaser, either: (A) provided that the
Transfer Agent is participating in the DTC Fast Automated Securities Transfer
Program and such Securities are Conversion Shares, credit the aggregate number
of shares of Common Stock to which such Purchaser shall be entitled to such
Purchaser’s or its designee’s balance account with DTC through its
Deposit/Withdrawal at Custodian system or (B) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program or if such
Securities are not Conversion Shares, issue and deliver (via reputable overnight
courier) to such Purchaser, a certificate representing such Securities that is
free from all restrictive and other legends, registered in the name of such
Purchaser or its designee (the date by which such credit is so required to be
made to the balance account of such Purchaser’s or such Purchaser’s nominee with
DTC or such certificate is required to be delivered to such Purchaser pursuant
to the foregoing is referred to herein as the “Required Delivery Date”). The
Company may not make any notation on its records or give instructions to the
Transfer Agent that enlarge the restrictions on transfer set forth in this
Section unless the holder is an Affiliate of the Company. Certificates for
Securities subject to legend removal hereunder shall be transmitted by the
Transfer Agent to the Purchaser by crediting the account of the Purchaser’s
prime broker with the DTC System as directed by such Purchaser.

 

21

 

 

(d)          If the Company fails to (i) issue and deliver (or cause to be
delivered) to a Purchaser by the Required Delivery Date a certificate
representing the Securities so delivered to the Company by such Purchaser that
is free from all restrictive and other legends or (ii) credit the balance
account of such Purchaser’s or such Purchaser’s nominee with DTC for such number
of Conversion Shares so delivered to the Company, then, in addition to all other
remedies available to such Purchaser, the Company shall pay in cash to such
Purchaser on each day after the Required Delivery Date that the issuance or
credit of such shares is not timely effected an amount equal to two percent 2%
of the Purchaser’s original Subscription Amount. Nothing herein shall limit such
Purchaser’s right to pursue actual damages for the Company’s failure to deliver
certificates representing any Securities as required by the Transaction
Documents, and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief. In addition to the foregoing, if
the Company fails to so properly deliver such unlegended certificates or so
properly credit the balance account of such Purchaser’s or such Purchaser’s
nominee with DTC by the Required Delivery Date, and if on or after the Required
Delivery Date such Purchaser purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by such
Purchaser of shares of Common Stock that such Purchaser anticipated receiving
from the Company without any restrictive legend, then, in addition to all other
remedies available to such Purchaser, the Company shall, within three (3)
Trading Days after such Purchaser’s request and in such Purchaser’s sole
discretion, either (i) pay cash to such Purchaser in an amount equal to such
Purchaser’s total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased (the “Buy-In Price”), at which point the
Company’s obligation to deliver such certificate or credit such Purchaser’s
balance account shall terminate and such shares shall be cancelled, or (ii)
promptly honor its obligation to deliver to such Purchaser a certificate or
certificates or credit such Purchaser’s DTC account representing such number of
shares of Common Stock that would have been issued if the Company timely
complied with its obligations hereunder and pay cash to such Purchaser in an
amount equal to the excess (if any) of the Buy-In Price over the product of (A)
such number of Conversion Shares (as the case may be) that the Company was
required to deliver to such Purchaser by the Required Delivery Date times (B)
the VWAP of the Common Stock on the Trading Day immediately preceding the
Required Delivery Date.

 

(e)          Each Purchaser, severally and not jointly with the other
Purchasers, agrees with the Company that such Purchaser will sell any Securities
pursuant to either the registration requirements of the Securities Act,
including any applicable prospectus delivery requirements, or an exemption
therefrom, and that if Securities are sold pursuant to a Registration Statement,
they will be sold in compliance with the plan of distribution set forth therein,
and acknowledges that the removal of the restrictive legend from certificates
representing Securities as set forth in this Section is predicated upon the
Company’s reliance upon this understanding.

 

22

 

 

(f)          The Company is a “shell company” as defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). Pursuant to
Rule 144(i), securities issued by a current or former shell company (that is,
the Securities) that otherwise meet the holding period and other requirements of
Rule 144 nevertheless cannot be sold in reliance on Rule 144 until one year
after the Company (a) is no longer a shell company; and (b) has filed current
“Form 10 information“ (as defined in Rule 144(i)) with the SEC reflecting that
it is no longer a shell company, and provided that at the time of a proposed
sale pursuant to Rule 144, the Company is subject to the reporting requirements
of section 13 or 15(d) of the Exchange Act and has filed all reports and other
materials required to be filed by section 13 or 15(d) of the Exchange Act, as
applicable, during the preceding 12 months (or for such shorter period that the
issuer was required to file such reports and materials), other than Form 8-K
reports. As a result, the restrictive legends on certificates for the Securities
cannot be removed except in connection with an actual sale meeting the foregoing
requirements or pursuant to an effective registration statement.

 

4.4           Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities or that would be integrated with
the offer or sale of the Securities for purposes of the rules and regulations of
any Trading Market such that it would require shareholder approval prior to the
closing of such other transaction unless shareholder approval is obtained before
the closing of such subsequent transaction.

 

4.5           Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities hereunder to pay its outstanding obligations to advisors,
service providers and vendors and to pay any outstanding tax liabilities. The
Company shall not use such proceeds: (a) for the redemption of any Common Stock
or Common Stock Equivalents or (b) in violation of FCPA or OFAC regulations.

 

4.6           Indemnification. Subject to the provisions of this Section, the
Company will indemnify and hold each Purchaser and its directors, officers,
shareholders, members, partners, employees and agents (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
“Purchaser Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against the
Purchaser Parties in any capacity, or any of them or their respective
Affiliates, by any stockholder of the Company who is not an Affiliate of such
Purchaser Parties, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of such
Purchaser Party’s representations, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser Parties may have
with any such stockholder or any violations by such Purchaser Parties of state
or federal securities laws or any conduct by such Purchaser Parties which
constitutes fraud, gross negligence, willful misconduct or malfeasance). If any
action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing reasonably
acceptable to the Purchaser Party. Any Purchaser Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of counsel,
a material conflict on any material issue between the position of the Company
and the position of such Purchaser Party, in which case the Company shall be
responsible for the reasonable fees and expenses of no more than one such
separate counsel. The Company will not be liable to any Purchaser Party under
this Agreement (y) for any settlement by a Purchaser Party effected without the
Company’s prior written consent, which shall not be unreasonably withheld or
delayed; or (z) to the extent, but only to the extent that a loss, claim, damage
or liability is attributable to any Purchaser Party’s breach of any of the
representations, warranties, covenants or agreements made by such Purchaser
Party in this Agreement or in the other Transaction Documents. The
indemnification required by this Section shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as and
when bills are received or are incurred. The indemnity agreements contained
herein shall be in addition to any cause of action or similar right of any
Purchaser Party against the Company or others and any liabilities the Company
may be subject to pursuant to law.

 

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4.7           Reservation of Common Stock. From and after the effectiveness of
the Reverse Stock Split, the Company shall reserve and keep available at all
times, free of preemptive rights, a number of shares of Common Stock equal to
100% of the maximum number of Conversion Shares issuable pursuant to any
conversion of the Series A Preferred Stock (without taking into account any
limitations on the conversion of the Series A Preferred Stock set forth in the
Certificate of Designations).

 

4.8           Listing of Common Stock. The Company hereby agrees to use best
efforts to maintain the listing or quotation of the Common Stock on the Trading
Market on which it is currently listed or quoted, and concurrently with the
Closing, the Company shall apply, if required, to list or quote all of the
Conversion Shares on such Trading Market and promptly secure the listing or
quotation of all of the Conversion Shares on such Trading Market. The Company
further agrees, if the Company applies to have the Common Stock traded on any
other Trading Market, it will then include in such application all of the
Conversion Shares, and will take such other action as is necessary to cause all
of the Conversion Shares to be listed or quoted on such other Trading Market as
promptly as possible. The Company will then take all action reasonably necessary
to continue the listing or quotation and trading of its Common Stock on a
Trading Market and will comply in all respects with the Company’s reporting,
filing and other obligations under the bylaws or rules of the Trading Market.

 

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

 

24

 

 

4.10         Equal Treatment of Purchasers. No consideration (including any
modification of any Transaction Document) shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration is also offered to all of
the parties to the Transaction Documents. For clarification purposes, this
provision constitutes a separate right granted to each Purchaser by the Company
and negotiated separately by each Purchaser, and is intended for the Company to
treat the Purchasers as a class and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.

 

4.11         Form D; Blue Sky Filings. The Company agrees to timely file a Form
D with respect to the Securities as required under Regulation D and to provide a
copy thereof, promptly upon request of any Purchaser. The Company shall take
such action as the Company shall reasonably determine is necessary in order to
obtain an exemption for, or to qualify the Securities for, sale to the
Purchasers at the Closing under applicable securities or “Blue Sky” laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of any Purchaser.

 

4.12         Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including, without limitation, its obligation to issue the Conversion
Shares pursuant to the Transaction Documents, are (except as otherwise provided
herein) unconditional and absolute and not subject to any right of set off,
counterclaim, delay or reduction, regardless of the effect of any such dilution
or any claim the Company may have against any Purchaser and regardless of the
dilutive effect that such issuance may have on the ownership of the other
stockholders of the Company.

 

4.13         Authorized Stock; Stock Split. The Company will effect the Reverse
Stock Split within sixty (60) days after the Closing Date. The Company will give
notice thereof to FINRA under Commission Rule 10b-17 and FINRA Rule 6490 and
provide FINRA all necessary documents and information within fifteen (15) days
after the Closing Date.

 

ARTICLE V.
MISCELLANEOUS

 

5.1           Termination.  The outstanding obligations of the Company, on the
one hand, and the Purchasers, on the other hand, to effect the Closing shall
terminate as follows:

 

(a)          upon the mutual written consent of the Company and the Purchasers;

 

(b)          by the Company if any of the conditions set forth in Section 2.3(a)
shall have become incapable of fulfillment, and shall not have been waived by
the Company; or

 

(c)          by a Purchaser (with respect to itself only) if any of the
conditions set forth in Section 2.3(b) or (c) shall have become incapable of
fulfillment, and shall not have been waived by the Investor.

 

25

 

 

provided, however, that, except in the case of clause (a) above, the party
seeking to terminate its obligation to effect the Closing shall not then be in
breach of any of its representations, warranties, covenants or agreements
contained in this Agreement or the other Transaction Documents if such breach
has resulted in the circumstances giving rise to such party’s seeking to
terminate its obligation to effect the Closing.

 

5.2           Fees and Expenses. Except as expressly set forth in the
Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied
in connection with the delivery of any Securities to the Purchasers.
Notwithstanding the foregoing, the Purchasers shall pay to G&P (a) an aggregate
of $37,000 for its professional legal fees in connection with the transactions
contemplated hereby, and (b) an Escrow Fee of $500 per Purchaser as further set
forth in the Escrow Agreement, as provided in Section 2.3(a)(ii) above.

 

5.3           Entire Agreement. The Transaction Documents, together with the
exhibits and Listing s thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and thereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits and
schedules. In the event of any conflict between the terms of this Agreement and
the Certificate of Designations, the Certificate of Designations shall govern.

 

5.4           Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of: (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New
York City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by
U.S. nationally recognized overnight courier service or (d) upon actual receipt
by the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.

 

5.5           Amendments; Waivers. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and the Purchasers holding at least 67% of
the aggregate number of shares of Series A Preferred Stock issued hereunder, in
the case of a waiver, by the party against whom enforcement of any such waived
provision is sought. No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver of any
other provision, condition or requirement hereof, nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair the
exercise of any such right.

 

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

 

26

 

 

5.7           Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser (other than by merger). Any
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom such Purchaser assigns or transfers any Securities, provided that such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of the Transaction Documents that apply to the
“Purchasers.”

 

5.8           No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.6.

 

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

 

5.10         Survival. The representations and warranties contained herein shall
survive the Closing and the delivery of the Securities.

 

5.11         Execution; Omnibus Signature Page. (a) This Agreement may be
executed in two or more counterparts, all of which when taken together shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to each other party,
it being understood that the parties need not sign the same counterpart. In the
event that any signature is delivered by facsimile transmission or by electronic
delivery of a data file containing an electronic facsimile of a signature, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile were an original thereof.

 

27

 

 

(b)    This Agreement is intended to be read and construed in conjunction with
the additional Transaction Documents. Accordingly, pursuant to the terms and
conditions of this Agreement and the Escrow Agreement, it is hereby agreed that
the execution by the Purchaser of this Agreement, in the place set forth on the
Omnibus Signature Page below, shall constitute agreement to be bound by the
terms and conditions hereof and the terms and conditions of the Escrow
Agreement, with the same effect as if each of such separate but related
agreement were separately signed by such Purchaser.

 

5.12         Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.

 

5.13         Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) any of
the other Transaction Documents, whenever any Purchaser exercises a right,
election, demand or option under a Transaction Document and the Company does not
timely perform its related obligations within the periods therein provided, then
such Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights; provided,
however, that in the case of a rescission of a conversion of Series A Preferred
Stock, the applicable Purchaser shall be required to return any shares of Common
Stock subject to any such rescinded conversion notice concurrently therewith.

 

5.14         Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof (in the case of mutilation), or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction. The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement Securities.

 

5.15         Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agree to waive and
not to assert in any action for specific performance of any such obligation the
defense that a remedy at law would be adequate.

 

28

 

 

5.16         Independent Nature of Purchasers’ Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance or non-performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any other Transaction Document, and no action taken by any Purchaser
pursuant hereof or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to independently protect
and enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose. Each Purchaser has been represented by its own
separate legal counsel in its review and negotiation of the Transaction
Documents. For reasons of administrative convenience only, each Purchaser and
its respective counsel have chosen to communicate with the Company through G&P.
G&P does not represent any of the Purchasers and only represents the Company.
The Company has elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not because it was
required or requested to do so by any of the Purchasers.

 

5.17         Liquidated Damages. The Company’s obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.

 

5.18         Saturdays, Sundays, Holidays, etc.  If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such right
may be exercised on the next succeeding Business Day.

 

5.19         Construction. The parties agree that each of them and/or their
respective counsel have reviewed and had an opportunity to revise the
Transaction Documents and, therefore, the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of the Transaction Documents or any
amendments thereto. In addition, each and every reference to share prices and
shares of Common Stock in any Transaction Document shall be subject to
adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur after
the date of this Agreement.

 

5.20         WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY
JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH
KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW,
HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER
TRIAL BY JURY.

 

(Signature Pages Follow)

 

29

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

 

LORETO RESOURCES CORPORATION   Address for Notice:       By: /s/ Luis F. Saenz  
Fax: Name: Luis F. Saenz     Title: President           With a copy to (which
shall not constitute notice):    

   

Gottbetter & Partners, LLP

488 Madison Avenue, 12th Floor

New York, NY 10022

Telephone Number: (212) 400-6900

Facsimile Number: (212) 400-6901

Attention: Adam S. Gottbetter, Esq.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
OMNIBUS SIGNATURE PAGE FOR PURCHASER FOLLOWS.]

 

[Signature Page for Securities Purchase Agreement]

 

30

 

 

LORETO RESOURCES corporation

OMNIBUS SIGNATURE PAGE TO

SECURITIES PURCHASE AGREEMENT

AND ESCROW AGREEMENT

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement and the Escrow Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.

 

SUBSCRIBER (individual)     SUBSCRIBER (entity)               Commonwealth
Investments, LLC Signature     Name of Entity               /s/ Jimmy Wang Print
Name     Signature of Authorized Person               Print Name:   Jimmy Wang
Signature (if Joint Tenants or Tenants in Common)               Title: Manager  
      Address of Principal Residence:     Address of Executive Offices:        
                        Social Security Number(s):     IRS Tax Identification
Number:                 Telephone Number:     Telephone Number:                
Facsimile Number:     Facsimile Number:                 E-mail Address:    
E-mail Address:        

    

Address for Delivery of Securities to Purchaser (if not same as address above):

 

                 

 

 

1,300   X $  100     = $    130,000.00                Number of Shares        
Subscription Amount

 

[SIGNATURE PAGES CONTINUE]

 

31

 

 

EXHIBIT A

 

LORETO RESOURCES CORPORATION

ACCREDITED INVESTOR CERTIFICATION

 

       

For Individual Investors Only

(all Individual Investors must INITIAL where appropriate):

Initial   ________   I have a net worth (including homes, furnishings and
automobiles, but excluding for these purposes the value of my primary residence)
in excess of $1 million either individually or through aggregating my individual
holdings and those in which I have a joint, community property or other similar
shared ownership interest with my spouse. Initial   ________   I have had an
annual gross income for the past two years of at least $200,000 (or $300,000
jointly with my spouse) and expect my income (or joint income, as appropriate)
to reach the same level in the current year. Initial   ________   I am a
director or executive officer of Loreto Resources Corporation              

For Non-Individual Investors

(all Non-Individual Investors must INITIAL where appropriate):

Initial   ________   The investor certifies that it is a partnership,
corporation, limited liability company or business trust that is 100% owned by
persons who meet at least one of the criteria for Individual Investors set forth
above. Initial   ________   The investor certifies that it is a partnership,
corporation, limited liability company or business trust that has total assets
of at least $5 million and was not formed for the purpose of investing in the
Company. Initial   ________   The investor certifies that it is an employee
benefit plan whose investment decision is made by a plan fiduciary (as defined
in ERISA §3(21)) that is a bank, savings and loan association, insurance company
or registered investment adviser. Initial   ________   The investor certifies
that it is an employee benefit plan whose total assets exceed $5,000,000 as of
the date of this Agreement. Initial   ________   The undersigned certifies that
it is a self-directed employee benefit plan whose investment decisions are made
solely by persons who meet either of the criteria for Individual Investors.
Initial   ________   The investor certifies that it is a U.S. bank, U.S. savings
and loan association or other similar U.S. institution acting in its individual
or fiduciary capacity. Initial   ________   The undersigned certifies that it is
a broker-dealer registered pursuant to §15 of the Securities Exchange Act of
1934. Initial   ________   The investor certifies that it is an organization
described in §501(c)(3) of the Internal Revenue Code with total assets exceeding
$5,000,000 and not formed for the specific purpose of investing in the Company.
Initial   ________   The investor certifies that it is a trust with total assets
of at least $5,000,000, not formed for the specific purpose of investing in the
Company, and whose purchase is directed by a person with such knowledge and
experience in financial and business matters that he is capable of evaluating
the merits and risks of the prospective investment. Initial   ________   The
investor certifies that it is a plan established and maintained by a state or
its political subdivisions, or any agency or instrumentality thereof, for the
benefit of its employees, and which has total assets in excess of $5,000,000.
Initial   ________   The investor certifies that it is an insurance company as
defined in §2(13) of the Securities Act of 1933, as amended, or a registered
investment company.

 

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For Non-U.S. Person Investors

(all Investors who are not a U.S. Person must INITIAL this section):

 

Initial    ________   The investor is not a “U.S. Person” as defined in
Regulation S; and specifically the investor is not:

 

  A. a natural person resident in the United States of America, including its
territories and possessions (“United States”);

 

  B. a partnership or corporation organized or incorporated under the laws of
the United States;

 

  C. an estate of which any executor or administrator is a U.S. Person;

 

  D. a trust of which any trustee is a U.S. Person;

 

  E. an agency or branch of a foreign entity located in the United States;

 

  F. a non-discretionary account or similar account (other than an estate or
trust) held by a dealer or other fiduciary for the benefit or account of a U.S.
Person;

 

  G. a discretionary account or similar account (other than an estate or trust)
held by a dealer or other fiduciary organized, incorporated, or (if an
individual) resident in the United States; or

 

  H. a partnership or corporation: (i) organized or incorporated under the laws
of any foreign jurisdiction; and (ii) formed by a U.S. Person principally for
the purpose of investing in securities not registered under the Securities Act,
unless it is organized or incorporated, and owned, by accredited investors (as
defined in Rule 501(a) under the Securities Act) who are not natural persons,
estates or trusts.

 

And, in addition:

 

  I. the investor was not offered the securities in the United States;

 

  J. at the time the buy-order for the securities was originated, the investor
was outside the United States; and

 

  K. the investor is purchasing the securities for its own account and not on
behalf of any U.S. Person (as defined in Regulation S) and a sale of the
securities has not been pre-arranged with a purchaser in the United States.

 

33

 

 

 

EXHIBIT B

LORETO RESOURCES CORPORATION

Investor Profile
(Must be completed by Investor)

 

Section A - Personal Investor Information   

 

Investor Name(s):  

 

Individual executing Profile or Trustee:  

 

Social Security Numbers / Federal I.D. Number:  

 

Date of Birth:     Marital Status:    

Joint Party Date of Birth:     Investment Experience (Years):    

Annual Income:     Liquid Net Worth:    

 

Net Worth*:      

 

Tax Bracket: _____ 15% or below _____ 25% - 27.5% _____ Over 27.5%

 

Home Street Address:  

 

Home City, State & Zip Code:  

  

Home Phone:  _______________ Home Fax: __________________ Home
Email: ___________________________________

 

Employer:  

 

Employer Street Address:  

 

Employer City, State & Zip Code:  

 

Bus. Phone:  ______________________   Bus. Fax:  __________________   Bus.
Email: _________________  

 

Type of Business:  

 

Outside Broker/Dealer:  

 

Section B – Certificate Delivery Instructions

 

____  Please deliver certificate to the Employer Address listed in Section A.
____  Please deliver certificate to the Home Address listed in Section A. ____ 
Please deliver certificate to the following address:  

 

Section C – Form of Payment – Check or Wire Transfer

 

____  Check payable to Gottbetter & Partners, LLP, as Escrow Agent for Loreto
Resources Corporation ____  Wire funds from my outside account according to
Section 1(a) of the Securities Purchase Agreement. ____  The funds for this
investment are rolled over, tax deferred from __________ within the allowed 60
day window.

 

Please check if you are a FINRA member or affiliate of a FINRA member firm: ____

 

      Investor Signature   Date

 

*         For purposes of calculating your net worth in this form, (a) your
primary residence shall not be included as an asset; (b) indebtedness secured by
your primary residence, up to the estimated fair market value of your primary
residence at the time of your purchase of the securities, shall not be included
as a liability (except that if the amount of such indebtedness outstanding at
the time of your purchase of the securities exceeds the amount outstanding 60
days before such time, other than as a result of the acquisition of your primary
residence, the amount of such excess shall be included as a liability); and (c)
indebtedness that is secured by your primary residence in excess of the
estimated fair market value of your primary residence at the time of your
purchase of the securities shall be included as a liability

 

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EXHIBIT C

 

ANTI-MONEY LAUNDERING INFORMATION FORM

The following is required in accordance with the AML provision of the USA
PATRIOT ACT.

(Please fill out and return with requested documentation.)

 

INVESTOR NAME:           LEGAL ADDRESS:                 SSN# or TAX ID#     OF
INVESTOR:    

 

FOR INVESTORS WHO ARE INDIVIDUALS:

 

YEARLY INCOME: __________________________________________________
AGE: ________________________________________________________

 

NET WORTH:  _______________________________________________________________ *

 

*For purposes of calculating your net worth in this form, (a) your primary
residence shall not be included as an asset; (b) indebtedness secured by your
primary residence, up to the estimated fair market value of your primary
residence at the time of your purchase of the securities, shall not be included
as a liability (except that if the amount of such indebtedness outstanding at
the time of your purchase of the securities exceeds the amount outstanding 60
days before such time, other than as a result of the acquisition of your primary
residence, the amount of such excess shall be included as a liability); and (c)
indebtedness that is secured by your primary residence in excess of the
estimated fair market value of your primary residence at the time of your
purchase of the securities shall be included as a liability.

 

OCCUPATION:  

 

ADDRESS OF EMPLOYER:          

 

INVESTMENT OBJECTIVE(S):  

 

IDENTIFICATION & DOCUMENTATION AND SOURCE OF FUNDS:

 

1.Please submit a copy of non-expired identification for the authorized
signatory(ies) on the investment documents, showing name, date of birth, address
and signature. The address shown on the identification document MUST match the
Investor’s address shown on the Investor Signature Page.

 

Current Driver’s License or Valid Passport or Identity Card     (Circle one or
more)    

 

2.If the Investor is a corporation, limited liability company, trust or other
type of entity, please submit the following requisite documents: (i) Articles of
Incorporation, By-Laws, Certificate of Formation, Operating Agreement, Trust or
other similar documents for the type of entity; and (ii) Corporate Resolution or
power of attorney or other similar document granting authority to signatory(ies)
and designating that they are permitted to make the proposed investment.

 

3.Please advise where the funds were derived from to make the proposed
investment:

 

Investments Savings Proceeds of Sale Other ____________     (Circle one or more)
 

 

Signature:    

 

Print Name:    

 

Title (if applicable):    

 

Date:  

 

35

 

 

ANTI MONEY LAUNDERING REQUIREMENTS

 

The USA PATRIOT Act

 

The USA PATRIOT Act is designed to detect, deter, and punish terrorists in the
United States and abroad. The Act imposes new anti-money laundering requirements
on brokerage firms and financial institutions. Since April 24, 2002 all
brokerage firms have been required to have new, comprehensive anti-money
laundering programs.

 

To help you understand these efforts, we want to provide you with some
information about money laundering and our steps to implement the USA PATRIOT
Act.

 

What is money laundering?

 

Money laundering is the process of disguising illegally obtained money so that
the funds appear to come from legitimate sources or activities. Money laundering
occurs in connection with a wide variety of crimes, including illegal arms
sales, drug trafficking, robbery, fraud, racketeering, and terrorism.

 

How big is the problem and why is it important?

 

The use of the U.S. financial system by criminals to facilitate terrorism or
other crimes could well taint our financial markets. According to the U.S. State
Department, one recent estimate puts the amount of worldwide money laundering
activity at $1 trillion a year.

 

What are we required to do to eliminate money laundering?

 

Under rules required by the USA PATRIOT Act, our anti-money laundering program
must designate a special compliance officer, set up employee training, conduct
independent audits, and establish policies and procedures to detect and report
suspicious transaction and ensure compliance with such laws. As part of our
required program, we may ask you to provide various identification documents or
other information. Until you provide the information or documents we need, we
may not be able to effect any transactions for you.

 

36

 

 

EXHIBIT D

 

CERTIFICATE OF DESIGNATIONS

 

37

 

 

EXHIBIT E

 

ESCROW AGREEMENT

 

38