EXHIBIT 10.1

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of October 2,
2017, between Andalay Solar, Inc., a Delaware corporation (the “Company”), and
the investor parties hereto (including their successors and permitted assigns,
each, a “Purchaser”, and collectively, the “Purchaser” or “Purchasers”, unless
the context otherwise requires).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section

4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and
Rule 506 promulgated thereunder, the Company desires to issue and sell to the
Purchaser, and the Purchaser, severally and not jointly, desires to purchase
from the Company, securities of the Company as more fully described in this
Agreement (the “Offering”).

 

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 the Purchaser agree
as follows:

 

ARTICLE I.

DEFINITIONS

 

1.1 Definitions. In addition to the terms defined elsewhere in this Agreement:
(a) capitalized terms that are not otherwise defined herein have the meanings
given to such terms in the Note (as defined herein), and (b) the following terms
have the meanings set forth in this Section 1.1:

 

“Acquiring Person” shall have the meaning ascribed to such term in Section 4.7.

 

“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.

 

“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 required by law or other governmental
action to close.

 

“Buy-In” shall have the meaning ascribed to such term in Section 4.1(h).

 

“Closing” means the closing of each purchase and sale of the Notes and Warrants
pursuant to Section 2.1.

 

“Closing Date” means the date of each Closing, and is the Business 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 Purchaser’
obligation to pay the Subscription Amount at such Closing, and (ii) the
Company’s obligations to deliver the Securities to be issued and sold at such
Closing.

 

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

 

  1

   

 

“Common Stock” means the common stock of the Company, par value $0.0001 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.

 

“Conversion Price” shall have the meaning ascribed to such term in the Note.

 

“DGCL” means the Delaware General Corporation Law.

 

“Disclosure Schedules” means the Disclosure Schedules of the Company delivered
concurrently herewith.

 

“Effective Date” means the earliest of the date that (a) the Registration
Statement has been declared effective by the Commission, or (b) (i) all of the
Underlying Shares have been sold pursuant to Rule 144, or (ii) may be sold by
the holders thereof pursuant to Rule 144 without the requirement for the Company
to be in compliance with the current public information required under Rule 144
and without volume or manner-of-sale restrictions,.

 

“E&K” shall mean Eilenberg & Krause LLP, with offices located at 11 East 44th
Street, New York, New York 10017, Fax: 212-986-2399.

 

“Equity Line of Credit” shall have the meaning ascribed to such term in Section
4.13.

 

“Event of Default” shall have the meaning ascribed thereto in the Note.

 

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

 

“Exempt Issuance” means the issuance of (a) shares of Common Stock and options
to officers, directors, or employees of the Company, prior to and after the
Closing Date up to the amounts and on the terms (and underlying the securities)
set forth on Schedule 3.1(g), (b) securities upon the exercise or exchange of or
conversion of any Securities issued hereunder (subject to adjustment for forward
and reverse stock splits and the like that occur after the date hereof) and/or
other securities exercisable or exchangeable for or convertible into shares of
Common Stock issued and outstanding on the date of this Agreement, provided that
such securities and any term thereof have not been amended since the date of
this Agreement to increase the number of such securities or to decrease the
issue price, exercise price, exchange price or conversion price of such
securities and which securities and the principal terms thereof are set forth on
Schedule 3.1(g), and described in the SEC Reports filed not later than ten (10)
days before the Closing Date, (c) securities issued pursuant to acquisitions or
strategic transactions approved by a majority of the disinterested directors of
the Company, provided that any such issuance shall only be to a Person (or to
the equityholders of a Person) which is, itself or through its subsidiaries, an
operating company or an owner of an asset in a business synergistic with the
business of the Company and shall be intended to provide to the Company
substantial additional benefits in addition to the investment of funds, but
shall not include a transaction in which the Company is issuing securities
primarily for the purpose of raising capital or to an entity whose primary
business is investing in securities, (d) securities issuable pursuant to, and in
accordance with the terms and conditions set forth in the Stock Option Plans as
are consistent with past practices and approved by a majority of the
disinterested directors of the Company, not in excess of the amounts as set
forth on Schedule 3.1(g), (e) securities issued or issuable pursuant to this
Agreement and the Notes or the Warrants.

 

  2

   

 

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

 

“Form 8-K” shall have the meaning ascribed to such term in Section 4.6.

 

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

 

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

 

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

 

“Legal Opinion” shall have the meaning ascribed to such term in Section
2.2(a)(ii).

 

“Legend Removal Date” shall have the meaning ascribed to such term in Section
4.1(c).

 

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

 

“Listing Default” shall have the meaning ascribed to such term in Section
4.11(c).

 

“Majority in Interest” shall have the meaning ascribed to such term in Section
5.5.

 

“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(m).

 

“Maximum Rate” shall have the meaning ascribed to such term in Section 5.17.

 

“Money Laundering Laws” shall have the meaning ascribed to such term in Section
3.1(gg).

 

“Notes” means, collectively, the senior secured convertible note issuable
pursuant to this

Agreement, in the form of Exhibit A hereto.

 

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

 

“Permitted Indebtedness” means (a) any liabilities for borrowed money or amounts
owed not in excess of $100,000 in the aggregate (other than trade accounts
payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of indebtedness of
others, whether or not the same are or should be reflected in the Company’s
consolidated balance sheet (or the notes thereto) not affecting more than
$100,000 in the aggregate, except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business; and (c) the present value of any lease payments not in
excess of $100,000 due under leases required to be capitalized in accordance
with GAAP.

 

“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.

 

  3

   

 

“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.

 

“Public Information Failure” shall have the meaning ascribed to such term in
Section 4.3(b).

 

“Public Information Failure Payments” shall have the meaning ascribed to such
term in Section 4.3(e).

 

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.10.

 

“Registration Statement” means an effective registration statement covering the
resale of all of the Underlying Shares by the Purchaser and for which all State
blue sky filings reasonably requested by the Purchaser have been made.

 

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

 

“Required Minimum” means, as of any date, the maximum aggregate number of shares
of Common Stock then issued or potentially issuable in the future pursuant to
the Transaction Documents, including any Underlying Shares issuable upon
exercise in full of the Warrants or conversion in full of the Notes, ignoring
any conversion or exercise limits set forth therein, and assuming that any
previously unconverted Note will be held until the third anniversary of the
issue date of the Note.

 

“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.

 

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

 

“Securities” means the Notes, Warrants and the Underlying Shares.

 

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

 

“Security Agreement” means the Security Agreement to be entered into in
connection with and as a condition to the initial Closing hereunder, in form and
substance satisfactory to the Purchasers.

 

“Short Sales” means “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, for each Closing, the aggregate amount to be paid
for the Notes and (at the initial Closing) Warrants purchased at such Closing,
as specified for each Purchaser on such Purchaser’s signature page to this
Agreement, in United States dollars and in immediately available funds.

 

“Subsidiary” means with respect to any entity at any date, any direct or
indirect corporation, limited or general partnership, limited liability company,
trust, estate, association, joint venture or other business entity of which (A)
more than 30% of (i) the outstanding capital stock having (in the absence of
contingencies) ordinary voting power to elect a majority of the board of
directors or other managing body of such entity, (ii) in the case of a
partnership or limited liability company, the interest in the capital or profits
of such partnership or limited liability company or (iii) in the case of a
trust, estate, association, joint venture or other entity, the beneficial
interest in such trust, estate, association or other entity business is, at the
time of determination, owned or controlled directly or indirectly through one or
more intermediaries, by such entity, or (B) is under the actual control of the
Company.

 

  4

   

 

“Termination Date” shall have the meaning ascribed to such term in Section 2.1.

 

“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
MKT, the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ Global
Select Market, the New York Stock Exchange, the OTC Bulletin Board, the OTCQB,
or the OTCQX (or any successors to any of the foregoing).

 

“Transaction Documents” means this Agreement, the Notes, the Warrants, the
Security 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 American Stock Transfer & Trust Company LLC maintaining
an address at 6201 15th Avenue, Brooklyn, New York 11219, and any successor
transfer agent of the Company.

 

“Underlying Shares” means the shares of Common Stock issued and issuable upon
conversion of the Notes and upon exercise of the Warrants and issued and
issuable in lieu of the cash payment of interest on the Notes in accordance with
the terms of the Notes and any other shares of Common Stock issued or issuable
to a Purchaser in connection with or pursuant to the Securities or Transaction
Documents.

 

“Unlegended Shares” shall have the meaning ascribed to such term in Section
4.1(d).

 

“Variable Priced Equity Linked Instruments” shall have the meaning ascribed to
such term in Section 4.13.

 

“Variable Rate Transaction” shall have the meaning ascribed to such term in
Section 4.13.

 

“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 any of the NASDAQ markets or exchanges 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 on the OTCQX, OTCQB or OTC Pink
Marketplace maintained by the OTC Markets Group, Inc. (or a similar organization
or agency succeeding to its functions of reporting prices), the volume weighted
average price of the Common Stock on the first such facility (or a similar
organization or agency succeeding to its functions of reporting prices), 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 Purchaser
of a Majority in Interest then outstanding and reasonably acceptable to the
Company, the fees and expenses of which shall be paid by the Company.

 

  5

   

 

“Warrants” means the Common Stock purchase warrants to purchase up to an
aggregate of 1,350,000 Warrant Shares at an exercise price equal to $1.00 per
share, to be delivered to the Purchasers at the initial Closing in accordance
with Section 2.2(a) hereof, in the form of Exhibit B attached hereto (the number
of Warrant Shares and exercise price are subject to adjustment as provided in
Section 5.23.

 

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the
Warrants.

 

ARTICLE II.

PURCHASE AND SALE

 

2.1 Closings. The Offering may be consummated in multiple closings (each, a
“Closing”) for an aggregate Subscription Amount in all Closings not to exceed
$440,000. Upon the terms and subject to the conditions set forth herein, the
Company agrees to sell, and the Purchasers (including any additional Purchasers
who subsequently become party hereto as contemplated below), severally and not
jointly, agree to purchase Notes and (at the initial Closing) Warrants in the
amounts and for the Subscription Amount set forth on their respective signature
pages hereto. At each Closing, the Company shall deliver to each participating
Purchaser its respective Note and (if applicable) Warrants against payment of
the Subscription Amount therefor, and the Company and the participating
Purchasers shall deliver the other items set forth in Section 2.2 deliverable at
the Closing. Upon and subject to satisfaction of the covenants and conditions
set forth in Sections 2.2 and 2.3, Closings shall occur at the offices of
Eilenberg & Krause LLP, 11 East 44th Street, 19th Floor, New York, New York
10017, or such other location as the parties shall mutually agree. Additional
investors who are not party to this Agreement at the time of the initial Closing
may participate in subsequent Closings. Upon execution and delivery of signature
pages by such investors in connection with any such Closings, such investors
will be deemed “Purchasers” hereunder.

 

2.2 Deliveries.

 

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

 

(i) this Agreement duly executed by the Company (unless delivered at a prior
Closing);

 

(ii) a Note with a principal amount equal to 130% of the Purchaser’s
Subscription Amount, registered in the name of the applicable Purchaser;

 

(iii) at the initial Closing only, a Warrrant registered in the name of such
Purchaser to purchase up to a number of shares of Common Stock indicated on such
Purchaser’s signature page hereto (it being understood that the aggregate of all
such Warrants being to purchase up to 1,350,000 shares and that the Warrants are
not being issued to the Purchasers pro rata based on their respective
Subscription Amounts);

 

(iv) the Security Agreement duly executed by the Company and each Subsidiary
(unless delivered at a prior Closing);

 

  6

   

 

(v) the Guaranty (if required under the Security Agreement) duly executed by the
guarantor; and

 

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

 

(i) this Agreement duly executed by the Purchaser;

 

(ii) the Purchaser’s Subscription Amount by wire transfer or as otherwise
permitted to the Company; and

 

(iii) the Security Agreement duly executed by the Purchasers and the Collateral
Agent (unless delivered at a prior Closing).

 

2.3 Closing Conditions.

 

(a) The obligations of the Company hereunder to effect any Closing are subject
to the following conditions being met:

 

(i) the accuracy in all material respects (determined without regard to any
materiality, Material Adverse Effect or other similar qualifiers therein) on the
applicable Closing Date of the representations and warranties of the Purchaser
contained herein (unless as of a specific date therein in which case they shall
be accurate as of such date);

 

(ii) all obligations, covenants and agreements of Purchaser required to be
performed at or prior to the applicable Closing Date shall have been performed;

 

(iii) the delivery by Purchaser of the items set forth in Section 2.2(b) of this
Agreement; and

 

(b) The respective obligations of a Purchaser hereunder to effect any Closing,
unless waived by the Purchaser, are subject to the following conditions being
met:

 

(i) the accuracy in all material respects (determined without regard to any
materiality, Material Adverse Effect or other similar qualifiers therein) on the
applicable 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);

 

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

 

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

 

(iv) there shall have been no Material Adverse Effect with respect to the
Company since the date hereof; and

 

(v) from the date hereof to the applicable Closing Date, trading in the Common
Stock shall not have been suspended by the Commission, 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 the Purchaser, makes it impracticable or inadvisable to purchase the
Securities at the Closing.

 

  7

   

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1 Representations and Warranties of the Company. Except as set forth in the
SEC Reports or the Disclosure Schedules, which Disclosure Schedules shall be
deemed a part hereof and shall qualify any representation made herein only 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 the Purchaser:

 

(a) Subsidiaries. All of the direct and indirect subsidiaries of the Company and
the Company’s ownership interests therein are set forth on Schedule 3.1(a). The
subsidiaries Akeena Corp and Andalay, Inc. are both operationally inactive.
Andalay, Inc., has title to Company patents. 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 relevant to any
component of this Agreement as of a relevant time, then such reference shall not
be applicable at such time.

 

(b) Organization and Qualification. The Company and each of the Subsidiaries is
an entity duly incorporated or otherwise organized and validly existing 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 nor default of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Andalay, Inc., a California corporation is
in good standing. 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, 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.

 

(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 this Agreement and each of 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. 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.

 

  8

   

 

(d) No Conflicts. The execution, delivery and performance by the Company of this
Agreement and the other Transaction Documents, the issuance and sale of the
Securities and the consummation by it of the transactions contemplated hereby
and thereby to which it is a party 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,
adjustment, exchange, reset, exercise or cancellation (with or without notice,
lapse of time or both) of, any agreement, credit facility, debt, equity or other
instrument (evidencing Company or Subsidiary equity, 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) 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), or by which any
property or asset of the Company or a Subsidiary is bound or affected; except in
the case of each of clause (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, and
(ii) 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”).

 

(f) Issuance of the Securities. The Securities are 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 imposed by the Company. The Company has reserved from its duly
authorized capital stock a number of shares of Common Stock for issuance of the
Underlying Shares at least equal to the Required Minimum on the date hereof.

 

(g) Capitalization. The capitalization of the Company is as set forth in
Schedule 3.1(g). The Company has not issued any capital stock since its most
recently filed periodic report under the Exchange Act other than (x) pursuant to
the exercise of employee stock options under the Stock Option Plan, (y) the
issuance of shares of Common Stock to employees pursuant to the Stock Option
Plan and (z) pursuant to the conversion and/or exercise of Common Stock
Equivalents by Alpha Capital Anstalt, Southridge, and Tarpon Partners, or any of
their partners or affiliates. No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by the Transaction Documents. Except as disclosed
on Schedule 3.1(g), there are no outstanding options, employee or incentive
stock option plans, 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. Except as set forth on Schedule 3.1(g), 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 Purchaser) 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. All
of the outstanding shares of capital stock of the Company are duly authorized,
validly issued, fully paid and nonassessable, have been issued in material
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.

 

  9

   

 

(h) SEC Reports; Financial Statements. The Company is currently completing its
Annual Report on Form 10-K for the years ended December 31, 2015 and December
31, 2016, as well as its Quarterly Report on Form 10-Q for the quarters ending
March 31, 2016, and thereafter. 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, if any, including pursuant to Section
13(a) or 15(d) thereof, preceding the date hereof through September 30, 2015
(the foregoing materials including the exhibits thereto and documents
incorporated by reference therein, being collectively referred to herein as the
“SEC Reports”) on a timely basis or has received a valid extension of such time
of filing and has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange
Act, 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. The
Company has received a letter from the SEC in late July 2017 advising it of the
requirement to timely complete its filings with the SEC. In response, Company
and counsel contacted the SEC, identifying its new auditors, and outlining a
schedule in which it would complete the filings. Once current, the Company
intends to resume being in timely compliance with all its reporting requirements
under the Securities Act and Exchange Act.

 

(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 or on Schedule 3.1(i): (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 material
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 the existing Stock Option Plan as set forth on Schedule 3.1(i). 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 and the anticipated related transactions with the Company’s
newly formed subsidiary reflected in the Term Sheet (as defined in Section
4.17), 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 two Trading Days prior to the
date that this representation is made.

 

  10

   

 

(j) Litigation. Except as set forth in the SEC Reports or as disclosed elsewhere
in this Agreement, 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. Except as set
forth in the SEC Reports, 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. Except as set forth in the SEC Reports, 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) Labor Relations. No labor dispute exists or, to the knowledge of the
Company, is imminent with respect to any of the employees of the Company, which
could reasonably be expected to result in a Material Adverse Effect. None of the
Company’s or its Subsidiaries’ employees is a member of a union that relates to
such employee’s relationship with the Company or such Subsidiary, and neither
the Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that their relationships
with their employees are good. To the knowledge of the Company, no executive
officer of the Company or any Subsidiary, is, or is now expected to be, in
violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement or non-competition agreement, or
any other contract or agreement or any restrictive covenant in favor of any
third party, and the continued employment of each such executive officer does
not subject the Company or any of its Subsidiaries to any liability with respect
to any of the foregoing matters. The Company and its Subsidiaries are in
compliance with all U.S. federal, state, local and foreign laws and regulations
relating to employment and employment practices, terms and conditions of
employment and wages and hours, except where the failure to be in compliance
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Notwithstanding the above, the Company reached
agreements with two former employees, Roger Peng and Cathy Le, for installment
payments for back wages, after each had contacted the California labor board.
The total amount owed to Pang was $8,099.95, of which $5,000 has been paid to
date. The total amount owed to Le was $15,000, of which $5,000 has been paid to
date.

 

(l) Compliance. To the Company’s knowledge, neither the Company nor any
Subsidiary, except as disclosed on Schedule 3.1(l): (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 and except as otherwise disclosed in this
Agreement.

 

  11

   

 

(m) 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.

 

(n) Title to Assets. Except as disclosed on Schedule 3.1(n), the Company and the
Subsidiaries have good and marketable title in fee simple to all real property
(if any) owned by them and good and marketable title in all personal property
(including domain names) 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 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.

 

(o) Intellectual Property. All of the Company’s and Subsidiary’s Intellectual
Property Rights are described in the SEC Reports (and Schedule 3.1(o) ).

 

(i) The term “Intellectual Property Rights” means:

 

1. the name of the Company and each Subsidiary, all fictional business names,
trading names, registered and unregistered trademarks, service marks, and
applications of the Company and each Subsidiary (collectively, “Marks’’);

 

2. all patents and patent applications of the Company and each Subsidiary
(collectively, “Patents’’);

 

3. all copyrights in both published works and unpublished works of the Company
and each Subsidiary (collectively, “Copyrights”);

 

4. all rights in mask works of the Company and each Subsidiary (collectively,
“Rights in Mask Works’’); and

 

  12

   

 

5. all know-how, trade secrets, confidential information, customer lists,
software, technical information, data, process technology, plans, drawings, and
blue prints (collectively, “Trade Secrets’’); owned, used, or licensed by the
Company and each Subsidiary as licensee or licensor.

 

(ii) Agreements. Except as set forth in the SEC Reports, there are no
outstanding and, to Company’s knowledge, no threatened disputes or disagreements
with respect to any agreements relating to any Intellectual Property Rights to
which the Company is a party or by which the Company is bound.

 

(iii) Know-How Necessary for the Business. Except as set forth in the SEC
Reports, to the Company’s knowledge, the Intellectual Property Rights are all
those necessary for the operation of the Company’s businesses as it is currently
conducted or as represented, in writing, to the Purchaser to be conducted. To
the Company’s knowledge, the Company is the owner of all right, title, and
interest in and to each of the Intellectual Property Rights, free and clear of
all Liens, and adverse claims, and has the right to use all of the Intellectual
Property Rights. To the Company’s knowledge, no employee of the Company has
entered into any contract that restricts or limits in any way the scope or type
of work in which the employee may be engaged or requires the employee to
transfer, assign, or disclose information concerning his work to anyone other
than of the Company.

 

(iv) Patents. The Company owns several Patents and has no patents pending. (v)
Trademarks. To the Company’s knowledge, the Company is the owner of all right,
title, and interest in and to each of the Marks, free and clear of all Liens and
other adverse claims. All Marks that have been registered with the United States
Patent and Trademark Office are currently in compliance with all formal legal
requirements (including the timely post-registration filing of affidavits of use
and incontestability and renewal applications), are valid and enforceable, and
are not subject to any maintenance fees or taxes or actions falling due within
ninety days after the Closing Date. No Mark has been or is now involved in any
opposition, invalidation, or cancellation and, to the Company’s knowledge, no
such action is threatened with respect to any of the Marks. To the Company’s
knowledge: (1) there is no potentially interfering trademark or trademark
application of any third party, and (2) no Mark is infringed or has been
challenged or threatened in any way. To the Company’s knowledge, none of the
Marks used by the Company infringes or is alleged to infringe any trade name,
trademark, or service mark of any third party.

 

(vi) Copyrights. The Company owns no Copyrights.

 

(vii) Trade Secrets. With respect to each Trade Secret, the documentation
relating to such Trade Secret is current, accurate, and sufficient in detail and
content to identify and explain it and to allow its full and proper use without
reliance on the knowledge or memory of any individual. The Company has taken all
reasonable precautions to protect the secrecy, confidentiality, and value of its
Trade Secrets. To the Company’s knowledge, the Company has good title and an
absolute (but not necessarily exclusive) right to use the Trade Secrets. The
Trade Secrets are not part of the public knowledge or literature, and, to the
Company’s knowledge, have not been used, divulged, or appropriated either for
the benefit of any Person (other the Company) or to the detriment of the
Company. No Trade Secret is subject to any adverse claim or has been challenged
or threatened in any way.

 

  13

   

 

(p) Intentionally omitted

 

(q) 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 $50,000 other than for: (i) payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of the
Company or any Subsidiary, and (iii) other employee benefits, including stock
option agreements under any stock option plan of the Company except as disclosed
in the SEC Reports.

 

(r) Sarbanes-Oxley; Internal Accounting Controls. Except as set forth on
Schedule 3.1(r), the Company and the Subsidiaries are in material compliance
with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that
are effective as of the date hereof and applicable to the Company, and any and
all applicable rules and regulations promulgated by the Commission thereunder
that are effective as of the date hereof and as of each Closing Date. Except as
set forth on Schedule 3.1(r), the Company and the Subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurance that:
(i) transactions are executed in accordance with management’s general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.

 

(s) Certain Fees. No brokerage, finder’s fees, commissions or due diligence fees
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. The Purchaser shall have no obligation with respect to any such fees
or with respect to any claims made by or on behalf of other Persons for fees of
a type contemplated in this Section 3.1(s) that may be due in connection with
the transactions contemplated by the Transaction Documents.

 

(t) Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Securities, will not be or be an
Affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended. The Company shall conduct its business in a
manner so that it will not become an “investment company” subject to
registration under the Investment Company Act of 1940, as amended.

 

  14

   

 

(u) Registration Rights. No Person has any right to cause the Company or any
Subsidiary to effect the registration under the Securities Act of any securities
of the Company or any Subsidiary, except for the Purchaser.

 

(v) Reporting Company/Shell Company. As of each Closing Date, the Company is not
a “shell company” (as defined in Rule 405 of the Securities Act) and shall not
have been a “shell company” for the prior 12 months.

 

(w) Application of Takeover Protections. The Company and the Board of Directors
will have taken as of the Closing Date all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company’s certificate of incorporation (or
similar charter documents) and the laws of the State of Delaware that are or
could become applicable to the Purchaser as a result of the Purchaser and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Company’s
issuance of the Securities and the Purchaser’ ownership of the Securities.

 

(x) Disclosure. Except with respect to the material terms and conditions of the
transactions contemplated by the Transaction Documents, the Company confirms
that neither it nor any other Person acting on its behalf has provided any of
the Purchaser or their agents or counsel with any information that it believes
constitutes or might constitute material, non-public information. The Company
understands and confirms that the Purchaser will rely on the foregoing
representation in effecting transactions in securities of the Company. All of
the disclosure furnished by or on behalf of the Company to the Purchaser
regarding the Company and its Subsidiaries, their respective businesses and the
transactions contemplated hereby, including the Disclosure Schedules to this
Agreement, when taken together as a whole, is true and correct and does 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 press releases
disseminated by the Company during the twelve months preceding the date of this
Agreement taken as a whole do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made and when made, not misleading. 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.

 

(y) No Integrated Offering. Assuming the accuracy of the Purchaser’
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 the
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. Neither the Company nor any Subsidiary is in
default with respect to any Indebtedness.

 

(z) Intentionally omitted.

 

(aa) Tax Status. Except as set forth in Exhibit 3.1 (aa), 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. Except as set forth in Exhibit 3.1 (aa), 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.

 

  15

   

 

(bb) Foreign Corrupt Practices. Neither the Company nor any Subsidiary, nor 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.

 

(cc) Accountants and Lawyers. The Company’s accounting firm is set forth on
Schedule 3.1(cc) of the Disclosure Schedules. To the knowledge and belief of the
Company, such accounting firm: (i) is a registered public accounting firm as
required by the Exchange Act and (ii) shall express its opinion with respect to
the financial statements to be included in the Company’s Annual Report for the
fiscal year ending December 31, 2015. 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, except as set forth in Schedule 3.1 (cc), 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.

 

(dd) Acknowledgment Regarding Purchaser’ Purchase of Securities. The Company
acknowledges and agrees that each of the Purchaser is acting solely in the
capacity of an arm’s length purchaser with respect to the Transaction Documents
and the transactions contemplated thereby. The Company further acknowledges that
no Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to the Transaction Documents and the
transactions contemplated thereby and any advice given by any Purchaser or any
of their respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated thereby is merely incidental to the
Purchaser’ purchase of the Securities. The Company further represents to the
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.

 

(ee) Acknowledgment Regarding Purchaser’s Trading Activity. Anything in this
Agreement or elsewhere herein to the contrary notwithstanding (except for
Section 4.16 hereof), it is understood and acknowledged by the Company that: (i)
the Purchaser has not been asked by the Company to agree, nor has any Purchaser
agreed, to desist from purchasing or selling, long and/or short, securities of
the Company, or “derivative” securities based on securities issued by the
Company or to hold the Securities for any specified term, (ii) past or future
open market or other transactions by any Purchaser, specifically including,
without limitation, Short Sales or “derivative” transactions, before or after
the closing of this or future private placement transactions, may negatively
impact the market price of the Company’s publicly-traded securities, (iii) any
Purchaser, and counter-parties in “derivative” transactions to which any the
Purchaser is a party, directly or indirectly, may presently have a “short”
position in the Common Stock and (iv) the Purchaser shall not be deemed to have
any affiliation with or control over any arm’s length counter- party in any
“derivative” transaction. The Company further understands and acknowledges that
(y) one or more Purchaser may engage in hedging activities at various times
during the period that the Securities are outstanding, including, without
limitation, during the periods that the value of the Underlying Shares
deliverable with respect to Securities are being determined, and (z) such
hedging activities (if any) could reduce the value of the existing stockholders’
equity interests in the Company at and after the time that the hedging
activities are being conducted. The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of the
Transaction Documents.

 

  16

   

 

(ff) Regulation M Compliance. The Company has not, and to its knowledge no one
acting on its 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.

 

(gg) 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.

 

(hh) Stock Option Plan. Each stock option granted by the Company under the Stock
Option Plan was granted (i) in accordance with the terms of such Stock Option
Plan and (ii) with an exercise price at least equal to the fair market value of
the Common Stock on the date such stock option would be considered granted under
GAAP and applicable law. No stock option granted under the Stock Option Plan has
been backdated. The Company has not knowingly granted, and there is no and has
been no Company policy or practice to knowingly grant, stock options prior to,
or otherwise knowingly coordinate the grant of stock options with, the release
or other public announcement of material information regarding the Company or
its Subsidiaries or their financial results or prospects.

 

(ii) 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 is currently subject to any U.S. sanctions administered
by the Office of Foreign Assets Control of the U.S. Treasury Department
(“OFAC”).

 

(jj) Private Placement. Assuming the accuracy of the Purchaser’ 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
Purchaser as contemplated hereby. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Trading Market.

 

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

 

  17

   

 

(ll) Indebtedness and Seniority. As of the date hereof, all Indebtedness and
Liens of the Company and the principal terms thereof are set forth on Schedule
3.1(ll). Except as set forth on Schedule 3.1(ll), as of the Closing Date, no
Indebtedness or other equity of the Company is or will be senior to the Note in
right of payment, whether with respect to interest or upon liquidation or
dissolution, or otherwise, other than indebtedness secured by purchase money
security interests (which is senior only as to underlying assets covered
thereby) and capital lease obligations (which is senior only as to the property
covered thereby).

 

(mm) Intentionally Omitted.

 

(nn) No Disqualification Events. With respect to the Securities to be offered
and sold hereunder in reliance on Rule 506 under the Securities Act, none of the
Company, any of its predecessors, any affiliated issuer, any director, executive
officer, other officer of the Company participating in the offering hereunder,
any beneficial owner of 20% or more of the Company’s outstanding voting equity
securities, calculated on the basis of voting power, nor any promoter (as that
term is defined in Rule 405 under the Securities Act) connected with the Company
in any capacity at the time of sale (each, an “Issuer Covered Person” and,
together, “Issuer Covered Persons”) is subject to any of the “Bad Actor”
disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities
Act (a “Disqualification Event”), except for a Disqualification Event covered by
Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine
whether any Issuer Covered Person is subject to a Disqualification Event. The
Company has complied, to the extent applicable, with its disclosure obligations
under Rule 506(e), and has furnished to the Purchaser a copy of any disclosures
provided thereunder.

 

(oo) Manufacturing Regulatory Matters. The Company and its Subsidiaries have
complied in all material respects with all statutes and regulations related to
the research, manufacture and sale of its products to the extent applicable to
the Company’s and its Subsidiaries’ activities. Items manufactured or under
investigation by the Company and its Subsidiaries comply with all applicable
manufacturing practices regulations and other requirements established by
government regulators in the jurisdictions in which the Company or its
Subsidiaries manufacture their products. Except as disclosed in the SEC Reports,
the Company is not and its Subsidiaries are not the subject of any investigation
by any competent authority with respect to the development, testing,
manufacturing and distribution of their products, nor has any investigation,
prosecution, or other enforcement action been threatened by any regulatory
agency. Except as disclosed in the SEC Reports, neither the Company nor any of
its Subsidiaries has received from any regulatory agency any letter or other
document asserting that the Company or any Subsidiary has violated any statute
or regulation enforced by that agency with respect to the development, testing,
manufacturing and distribution of their products. To the Company’s knowledge,
research conducted by or for the Company and its Subsidiaries has complied in
all material respects with all applicable legal requirements.

 

(pp) Other Covered Persons. The Company is not aware of any person that has been
or will be paid (directly or indirectly) remuneration for solicitation of
Purchaser in connection with the sale of any Regulation D Securities.

 

(qq) No Outstanding Variable Priced Equity Linked Instruments. Except as set
forth on Exhibit 3.1(qq), as of each Closing Date, the Company will not have
outstanding nor issuable any Variable Priced Equity Linked Instruments, nor any
debt or equity with anti-dilution, ratchet or reset rights.

 

(rr) Survival. The foregoing representations and warranties shall survive the
Closings.

 

  18

   

 

3.2 Representations and Warranties of the Purchaser. The Purchaser, for itself
and for no other Purchaser, hereby represents and warrants as of the date hereof
and as of each Closing Date to the Company as follows (unless as of a specific
date therein):

 

(a) Organization; Authority. The 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 the
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 the Purchaser. Each
Transaction Document to which it is a party has been duly executed by the
Purchaser, and when delivered by the Purchaser in accordance with the terms
hereof, will constitute the valid and legally binding obligation of the
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) Understandings or Arrangements. The 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 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
the Purchaser’s right to sell the Securities pursuant to any registration
statement or otherwise in compliance with applicable federal and state
securities laws). The Purchaser is acquiring the Securities hereunder in the
ordinary course of its business.

 

(c) Purchaser Status. At the time the Purchaser was offered the Securities, it
was, and as of the date hereof it is, and on each date on which it converts any
Note or exercises and Warrants it will be either: (i) an “accredited investor”
as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the
Securities Act or (ii) a “qualified institutional buyer” as defined in Rule
144A(a) under the Securities Act. The Purchaser is not required to be registered
as a broker-dealer under Section 15 of the Exchange Act. The Purchaser has the
authority and is duly and legally qualified to purchase and own the Securities.
The Purchaser is able to bear the risk of such investment for an indefinite
period and to afford a complete loss thereof.

 

(d) Experience of The Purchaser. The 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. The 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.

 

  19

   

 

(e) Information on Company. The Purchaser has been furnished with or has had
access to the EDGAR Website of the Commission to the Company’s filings made with
the Commission through the tenth business day preceding the Closing Date in
which the Purchaser purchases Securities hereunder. Purchaser are not deemed to
have any knowledge of any information not included in the Reports unless such
information is delivered in the manner described in the next sentence. In
addition, the Purchaser may have received in writing from the Company such other
information concerning its operations, financial condition and other matters as
the Purchaser has requested, identified thereon as OTHER WRITTEN INFORMATION
(such other information is collectively, the “Other Written Information”), and
considered all factors the Purchaser deems material in deciding on the
advisability of investing in the Securities. The Purchaser was afforded (i) the
opportunity to ask such questions as the Purchaser deemed necessary of, and to
receive answers from, representatives of the Company concerning the merits and
risks of acquiring the Securities; (ii) the right of access to information about
the Company and its financial condition, results of operations, business,
properties, management and prospects sufficient to enable the Purchaser to
evaluate the Securities; and (iii) the opportunity to obtain such additional
information that the Company possesses or can acquire without unreasonable
effort or expense that is necessary to make an informed investment decision with
respect to acquiring the Securities.

 

(f) Compliance with Securities Act; Reliance on Exemptions. The Purchaser
understands and agrees that the Securities have not been registered under the
1933 Act or any applicable state securities laws, by reason of their issuance in
a transaction that does not require registration under the 1933 Act, and that
such Securities must be held indefinitely unless a subsequent disposition is
registered under the 1933 Act or any applicable state securities laws or is
exempt from such registration. The Purchaser understands and agrees that the
Securities are being offered and sold to the Purchaser in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and regulations and that the Company is relying in part upon the
truth and accuracy of, and the Purchaser’s compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Purchaser set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Purchaser to acquire the Securities.

 

(g) Communication of Offer. The Purchaser is not purchasing the Securities as a
result of any “general solicitation” or “general advertising,” as such terms are
defined in Regulation D, which includes, but is not limited to, any
advertisement, article, notice or other communication regarding the Securities
published in any newspaper, magazine or similar media or on the internet or
broadcast over television, radio or the internet or presented at any seminar or
any other general solicitation or general advertisement.

 

(h) No Governmental Review. The Purchaser understands that no United States
federal or state agency or any other governmental or state agency has passed on
or made recommendations or endorsement of the Securities or the suitability of
the investment in the Securities nor have such authorities passed upon or
endorsed the merits of the Offering.

 

(i) No Conflicts. The execution, delivery and performance of this Agreement and
performance under the other Transaction Documents and the consummation by the
Purchaser of the transactions contemplated hereby and thereby or relating hereto
or thereto do not and will not (i) result in a violation of the Purchaser’s
charter documents, bylaws or other organizational documents, if applicable, (ii)
conflict with nor constitute a default (or an event which with notice or lapse
of time or both would become a default) under any agreement to which the
Purchaser is a party, nor (iii) result in a violation of any law, rule, or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to the Purchaser or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
material adverse effect on the Purchaser). The Purchaser is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or perform under
the other Transaction Documents nor to purchase the Securities in accordance
with the terms hereof, provided that for purposes of the representation made in
this sentence, the Purchaser is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.

 

  20

   

 

(j) Survival. The foregoing representations and warranties shall survive the
Closings.

 

The Company acknowledges and agrees that the representations contained in
Section 3.2 shall not modify, amend or affect the Purchaser’s right to rely on
the Company’s representations and warranties contained in this Agreement or any
representations and warranties contained in any other Transaction Document or
any other document or instrument executed and/or delivered in connection with
this Agreement or the consummation of the transaction contemplated hereby.

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1 Transfer Restrictions.

 

(a) Disposition of Securities. 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 4.1(b), the Company may
require the transferor thereof to provide to the Company, at the Company’s
expense, 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 and the other Transaction
Documents.

 

(b) Legend. The Purchaser agree to the imprinting, so long as is required by
this Section 4.1, of a legend on any of the Securities in the following form:

 

[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS
[EXERCISABLE] [CONVERTIBLE]] 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 [AND THE SECURITIES ISSUABLE UPON
[EXERCISE] [CONVERSION] OF 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.

 

  21

   

 

(c) Pledge. The Company acknowledges and agrees that a Purchaser may from time
to time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities to a
financial institution that is an “accredited investor” as defined in Rule 501(a)
under the Securities Act and who agrees to be bound by the provisions of this
Agreement and, if required under the terms of such arrangement, the Purchaser
may transfer pledge or secure Securities to the pledgees or secured parties.
Such a pledge or transfer would not be subject to approval of the Company and no
legal opinion of legal counsel of the pledgee, secured party or pledgor shall be
required in connection therewith. Further, no notice shall be required of such
pledge. At the appropriate Purchaser’s expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer of the
Securities.

 

(d) Legend Removal. Certificates evidencing the Underlying Shares shall not
contain any legend (“Unlegended Shares”) (including the legend set forth in
Section 4.1(b) 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 Underlying Shares pursuant
to Rule 144, (iii) if such Underlying Shares 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 Underlying Shares
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). The
Company shall cause its counsel to issue a legal opinion to the Transfer Agent
promptly after the Effective Date if required by the Transfer Agent to effect
the removal of the legend hereunder provided that all requirements under Rule
144 have been met; provided that, if requested by Purchaser, the Company shall
allow the counsel for the Purchaser to render such opinion. If all or any of the
Notes are converted or Warrants exercised at a time when there is an effective
registration statement to cover the resale of the Underlying Shares, or if such
Underlying Shares may be sold under Rule 144 or if such legend is not otherwise
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission) then
such Underlying Shares shall be issued free of all legends. The Company agrees
that following such time as such legend is no longer required under this Section
4.1(c), it will, no later than five Trading Days following the delivery by a
Purchaser to the Company or the Transfer Agent of a certificate representing
Underlying Shares, as applicable, issued with a restrictive legend (such fifth
Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to the
Purchaser a certificate representing such shares that is free from all
restrictive and other legends (however, the Corporation shall use reasonable
best efforts to deliver such shares within three (3) Trading Days). 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 4.
Certificates for Underlying Shares 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 Depository Trust Company System as
directed by the Purchaser.

 

(e) Legend Removal Default. In addition to the Purchaser’s other available
remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated
damages and not as a penalty, for each $1,000 of Underlying Shares (based on the
highest of the actual purchase price or VWAP of the Common Stock on the date
such Securities are submitted to the Transfer Agent or an imputed value of $0.30
per Underlying Share) delivered for removal of the restrictive legend and
subject to Section 4.1(c), $10 per Trading Day for each Trading Day after the
Legend Removal Date (increasing to $20 per Trading Day after the fifth Trading
Day) until such certificate is delivered without a legend. Nothing herein shall
limit the 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 the 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.

 

  22

   

 

(f) DWAC. In lieu of delivering physical certificates representing the
Unlegended Shares, upon request of a Purchaser, so long as the certificates
therefor do not bear a legend and the Purchaser is not obligated to return such
certificate for the placement of a legend thereon, the Company shall cause its
transfer agent to electronically transmit the Unlegended Shares by crediting the
account of Purchaser’s prime broker with the Depository Trust Company through
its Deposit Withdrawal At Custodian system, provided that the Company’s Common
Stock is DTC eligible and the Company’s transfer agent participates in the
Deposit Withdrawal at Custodian system. Such delivery must be made on or before
the Legend Removal Date.

 

(g) Injunction. In the event a Purchaser shall request delivery of Unlegended
Shares as described in this Section 4.1 and the Company is required to deliver
such Unlegended Shares, the Company may not refuse to deliver Unlegended Shares
based on any claim that the Purchaser or anyone associated or affiliated with
the Purchaser has not complied with Purchaser’s obligations under the
Transaction Documents, or for any other reason, unless, an injunction or
temporary restraining order from a court, on notice, restraining and or
enjoining delivery of such Unlegended Shares shall have been sought and obtained
by the Company and the Company has posted a surety bond for the benefit of the
Purchaser in the amount of the greatest of (i) 120% of the amount of the
aggregate purchase price of the Underlying Shares to be subject to the
injunction or temporary restraining order, (ii) the VWAP of the Common Stock on
the trading day before the issue date of the injunction multiplied by the number
of Unlegended Shares to be subject to the injunction, or (iii) an imputed value
of $0.30 per Underlying Share which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to the Purchaser to the extent Purchaser obtains judgment in
Purchaser’s favor.

 

(h) Buy-In. In addition to any other rights available to Purchaser, if the
Company fails to deliver to a Purchaser Unlegended Shares as required pursuant
to this Agreement and after the Legend Removal Date the Purchaser, or a broker
on the Purchaser’s behalf, purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Purchaser of the shares of Common Stock which the Purchaser was entitled to
receive in unlegended form from the Company (a “Buy-In”), then the Company shall
promptly pay in cash to the Purchaser (in addition to any remedies available to
or elected by the Purchaser) the amount, if any, by which (A) the Purchaser’s
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (B) the greater of (i) the aggregate purchase
price of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares, or (ii) an imputed value of $0.30 per Underlying Share
together with interest thereon at a rate of 15% per annum accruing until such
amount and any accrued interest thereon is paid in full (which amount shall be
paid as liquidated damages and not as a penalty). For example, if a Purchaser
purchases shares of Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to $10,000 of purchase price of Shares delivered to
the Company for reissuance as Unlegended Shares, the Company shall be required
to pay the Purchaser $1,000, plus interest, if any. The Purchaser shall provide
the Company written notice indicating the amounts payable to the Purchaser in
respect of the Buy-In.

 

(i) Plan of Distribution. The Purchaser, severally and not jointly with the
other Purchaser, agrees with the Company that the 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 4.1 is predicated upon the
Company’s reliance upon this understanding.

 

  23

   

 

4.2 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 Underlying Shares
pursuant to the Transaction Documents, are 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.

 

4.3 Furnishing of Information; Public Information.

 

(a) Purchaser acknowledges that as of the effective date of this agreement,
Company has not filed timely with the Securities and Exchange Commission, and is
working to become a timely filer. After that occurs, and until the earliest of
the time that Purchaser owns no Securities, the Company covenants to file all
periodic reports with the Commission pursuant to Section 15(d) of the Exchange
Act and under Section 12(b) or 12(g) of the 1934 Act, and to file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to
the Exchange Act and file such reports even if the Company is not then subject
to the reporting requirements of the Exchange Act.

 

(b) At any time commencing on the Closing Date and ending at such time that all
of the Securities may be sold without the requirement for the Company to be in
compliance with Rule 144(c)(1) and otherwise without restriction or limitation
pursuant to Rule 144, if the Company shall fail for any reason to satisfy the
current public information requirement under Rule 144(c) (a “Public Information
Failure”) then, in addition to the Purchaser’s other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated damages and not
as a penalty, by reason of any such delay in or reduction of its ability to sell
the Securities, an amount in cash equal to two percent (2.0%) of the aggregate
principal amount of Notes and accrued interest thereon and aggregate exercise
price of Warrant Shares held by the Purchaser on the day of a Public Information
Failure and on every thirtieth (30th) day (pro-rated for periods totaling less
than thirty days) thereafter until the earlier of (a) the date such Public
Information Failure is cured and (b) such time that such public information is
no longer required for the Purchaser to transfer the Underlying Shares pursuant
to Rule 144. The payments to which a Purchaser shall be entitled pursuant to
this Section 4.3(b) are referred to herein as “Public Information Failure
Payments.” Public Information Failure Payments shall be paid on the earlier of
(i) the last day of the calendar month during which such Public Information
Failure Payments are incurred and (ii) the third (3rd) Business Day after the
event or failure giving rise to the Public Information Failure Payments is
cured. In the event the Company fails to make Public Information Failure
Payments in a timely manner, such Public Information Failure Payments shall bear
interest at the rate of 1.5% per month (prorated for partial months) until paid
in full. Nothing herein shall limit the Purchaser’s right to pursue actual
damages for the Public Information Failure, and the 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.
Notwithstanding anything to the contrary contained herein, the provisions of
this paragraph shall not apply until the Company has filed its annual report
10-K for 2015 and its quarterly 10-Q for the quarter ending March 31, 2016.

 

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 or to effectuate such other transaction unless
shareholder approval is obtained before the earlier of the closing of such
subsequent transaction or effectuation of such other transaction.

 

  24

   

 

4.5 Conversion and Exercise Procedures. Each of the form Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the
Notes set forth the totality of the procedures required of the Purchaser in
order to exercise the Warrants or convert the Notes. No additional legal
opinion, other information or instructions shall be required of the Purchaser to
exercise their Warrants or convert their Notes. The Company shall honor
exercises of the Warrants and conversions of the Notes and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.

 

4.6 Securities Laws Disclosure; Publicity. The Company shall, by 9:30 a.m. (New
York City time) on the second Trading Day following each Closing Date, file a
Current Report on Form 8-K including the Transaction Documents as exhibits
thereto with the Commission (“Form 8-K”). A copy of the Form 8- K is annexed
hereto as Exhibit C. Such Exhibit C will be identical to the Form 8-K which will
be filed with the Commission except for the omission of signatures thereto by
the Company and auditors providing the financial statements. From and after the
filing of the Form 8-K, the Company represents to the Purchaser that it shall
have publicly disclosed all material, non-public information delivered to any of
the Purchaser by the Company or any of its Subsidiaries, or any of their
respective officers, directors, employees or agents in connection with the
transactions contemplated by the Transaction Documents. The Company and the
Purchaser shall consult with each other in issuing any press releases with
respect to the transactions contemplated hereby, and neither the Company nor any
Purchaser shall issue any press release nor otherwise make any such public
statement without the prior consent of the Company, with respect to any press
release of any Purchaser, or without the prior consent of the Purchaser, with
respect to any press release of the Company, which consent shall not
unreasonably be withheld or delayed, except if such disclosure is required by
law, in which case the disclosing party shall promptly provide the other party
with prior notice of such public statement or communication. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market unless the name of the Purchaser is already
included in the body of the Transaction Documents, without the prior written
consent of the Purchaser, except: (a) as required by federal securities law in
connection with the filing of final Transaction Documents with the Commission
and (b) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Purchaser with prior
notice of such disclosure permitted under this clause (b).

 

4.7 Shareholder Rights Plan. No claim will be made or enforced by the Company
or, with the consent of the Company, any other Person, that any Purchaser is an
“Acquiring Person” under any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or similar
anti-takeover plan or arrangement in effect or hereafter adopted by the Company,
or that any Purchaser could be deemed to trigger the provisions of any such plan
or arrangement, by virtue of receiving Securities under the Transaction
Documents or under any other agreement between the Company and the Purchaser.

 

4.8 Non-Public Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents and the
related transactions of which the Purchaser is aware, the Company covenants and
agrees that neither it, nor any other Person acting on its behalf, will provide
any Purchaser or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto the
Purchaser shall have entered into a written agreement with the Company regarding
the confidentiality and use of such information. The Company understands and
confirms that the Purchaser shall be relying on the foregoing covenant in
effecting transactions in securities of the Company.

 

  25

   

 

4.9 Use of Proceeds. The Company shall use the net proceeds from the sale of the
Offering hereunder substantially for the purposes set forth on Schedule 4.9
hereto and shall not use such proceeds for any other purpose.

 

4.10 Indemnification of Purchaser. Subject to the provisions of this Section
4.10, the Company will indemnify and hold the 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 the 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 the 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 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 the Purchaser Party, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of the Purchaser Party’s
representations, warranties or covenants under the Transaction Documents or any
agreements or understandings the Purchaser Party may have with any such
stockholder or any violations by such Purchaser Party of state or federal
securities laws or any conduct by the Purchaser Party 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, the 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 the 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 the
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 its material representations,
warranties or covenants under the Transaction Documents. The indemnification
required by this Section 4.10 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.

 

4.11 Reservation and Listing of Securities.

 

(a) The Company shall maintain a reserve from its duly authorized shares of
Common Stock for issuance pursuant to the Transaction Documents in such amount
as may then be required to fulfill its obligations in full under the Transaction
Documents, but not less than the Required Minimum.

 

  26

   

 

(b) If, on any date, the number of authorized but unissued (and otherwise
unreserved) shares of Common Stock is less than the Required Minimum on such
date, then the Board of Directors shall amend the Company’s certificate or
articles of incorporation to increase the number of authorized but unissued
shares of Common Stock to at least the Required Minimum at such time, as soon as
possible and in any event not later than the 60th day after such date.

 

(c) From and after the date the Company is current in its SEC filings, the
Company shall prior to each Closing, if applicable: (i) in the time and manner
required by the principal Trading Market, prepare and file with such Trading
Market an additional shares listing application covering a number of shares of
Common Stock at least equal to the Required Minimum on the date of such
application, (ii) take all steps necessary to cause such shares of Common Stock
to be approved for listing or quotation on such Trading Market as soon as
possible thereafter, (iii) provide to the Purchaser evidence of such listing or
quotation and (iv) maintain the listing or quotation of such Common Stock on any
date at least equal to the Required Minimum on such date on such Trading Market
or another Trading Market. The Company will take all action necessary to
continue the listing or quotation and trading of its Common Stock on a Trading
Market until the later of (i) at least five years after the last Closing Date,
and (ii) for so long as the Notes or Warrants are outstanding, and will comply
in all respects with the Company’s reporting, filing and other obligations under
the bylaws or rules of the Trading Market at least until five years after the
last Closing Date and for so long as the Note is outstanding. In the event the
aforedescribed listing is not continuously maintained for five years after the
Closing Date and for so long as the Notes or Warrants are outstanding (a
“Listing Default”), then in addition to any other rights the Purchaser may have
hereunder or under applicable law, on the first day of a Listing Default and on
each monthly anniversary of each such Listing Default date (if the applicable
Listing Default shall not have been cured by such date) until the applicable
Listing Default is cured, the Company shall pay to the Purchaser an amount in
cash, as partial liquidated damages and not as a penalty, equal to 2% of the
aggregate outstanding Note principal and accrued interest, conversion price of
Conversion Shares and exercise price paid for Warrant Shares and payable on
exercise of Warrants held by the Purchaser on the day of a Listing Default and
on every thirtieth day (pro-rated for periods less than thirty days) thereafter
until the date such Listing Default is cured. If the Company fails to pay any
liquidated damages pursuant to this Section in a timely manner, the Company will
pay interest thereon at a rate of 1.5% per month (pro-rated for partial months)
to the Purchaser.

 

4.12 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 Purchaser at a
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.

 

  27

   

 

4.13 Subsequent Equity Sales. From the date hereof until such time as the Notes
are no longer outstanding, the Company will not, without the consent of a
Majority in Interest, enter into any Equity Line of Credit or similar agreement,
issue or agree to issue floating or Variable Priced Equity Linked Instruments
nor any of the foregoing or equity with price reset rights (subject to
adjustment for stock splits, distributions, dividends, recapitalizations and the
like) (collectively, a “Variable Rate Transaction”). For purposes hereof,
“Equity Line of Credit” shall include any transaction involving a written
agreement between the Company and an investor or underwriter whereby the Company
has the right to “put” its securities to the investor or underwriter over an
agreed period of time and at an agreed price or price formula, and “Variable
Priced Equity Linked Instruments” shall include: (A) any debt or equity
securities which are convertible into, exercisable or exchangeable for, or carry
the right to receive additional shares of Common Stock or Common Stock
Equivalents or any of the foregoing at a price that can be reduced either (1) at
any conversion, exercise or exchange rate or other price that is based upon
and/or varies with the trading prices of or quotations for Common Stock at any
time after the initial issuance of such debt or equity security, or (2) with a
fixed conversion, exercise or exchange price that is subject to being reset at
some future date at any time after the initial issuance of such debt or equity
security due to a change in the market price of the Company’s Common Stock since
date of initial issuance, or upon the issuance of any debt, equity or Common
Stock Equivalent, and (B) any amortizing convertible security which amortizes
prior to its maturity date, where the Company is required or has the option to
(or any investor in such transaction has the option to require the Company to)
make such amortization payments in shares of Common Stock which are valued at a
price that is based upon and/or varies with the trading prices of or quotations
for Common Stock at any time after the initial issuance of such debt or equity
security (whether or not such payments in stock are subject to certain equity
conditions). For purposes of determining the total consideration for a
convertible instrument (including a right to purchase equity of the Company)
issued, subject to an original issue or similar discount or which principal
amount is directly or indirectly increased after issuance, the consideration
will be deemed to be the actual net cash amount received by the Company in
consideration of the original issuance of such convertible instrument. For so
long as the Note is outstanding, the Company will not, without the consent of a
Majority in Interest, issue any Common Stock or Common Stock Equivalents to
officers, directors, and employees of the Company unless such issuance is an
Exempt Issuance pursuant to items (a) or (d) of the definition of Exempt
Issuance or in the amounts and on the terms set forth on Schedule 4.13. For so
long as the Notes are outstanding, the Company will not amend the terms of any
securities or Common Stock Equivalents or of any agreement outstanding or in
effect as of the date of this Agreement pursuant to which same were or may be
acquired, nor issue any Common Stock or Common Stock Equivalents, without the
consent of a Majority in Interest, if such issuance or the result of such
amendment would be at an effective price per share of Common Stock less than the
higher of the Conversion Price in effect at the time of such issuance or
amendment. Notwithstanding anything otherwise contained in this paragraph,
Purchaser authorizes Company to enter into equity lines with Southridge.

 

4.14 Equal Treatment of Purchaser. 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 this Agreement
unless the same consideration is also offered on a ratable basis to all of the
parties to this Agreement. For clarification purposes, this provision
constitutes a separate right granted to the Purchaser by the Company and
negotiated separately by the Purchaser, and is intended for the Company to treat
the Purchaser as a class and shall not in any way be construed as the Purchaser
acting in concert or as a group with respect to the purchase, disposition or
voting of Securities or otherwise.

 

4.15 Capital Changes. Until the one year anniversary of the last Closing Date,
the Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without 10 days prior written notice to the
Purchaser.

 

  28

   

 

4.16 Certain Transactions and Confidentiality. The Purchaser, severally and not
jointly with the other Purchaser, covenants that neither it, nor any Affiliate
acting on the Purchaser’s behalf or pursuant to any understanding with the
Purchaser will execute any purchases or sales, including Short Sales, of any of
the Company’s securities during the period commencing with the execution of this
Agreement and ending at such time that the transactions contemplated by this
Agreement are first publicly announced pursuant to a press release or Form 8-K
as described in Section 4.6. The Purchaser, severally and not jointly with the
other Purchaser, covenants that until such time as the transactions contemplated
by this Agreement are publicly disclosed by the Company pursuant to a press
release or Form 8-K as described in Section 4.6, the Purchaser will maintain the
confidentiality of the existence and terms of this transaction and the
information included in the Transaction Documents and the Disclosure Schedules.
Notwithstanding the foregoing, and notwithstanding anything contained in this
Agreement to the contrary, the Company expressly acknowledges and agrees that
(i) no Purchaser makes any representation, warranty or covenant hereby that it
will not engage in effecting transactions in any securities of the Company after
the time that the transactions contemplated by this Agreement are first publicly
announced pursuant to a press release or Form 8-K as described in Section 4.6,
(ii) no Purchaser shall be restricted or prohibited from effecting any
transactions in any securities of the Company in accordance with applicable
securities laws from and after the time that the transactions contemplated by
this Agreement are first publicly announced pursuant to a press release or Form
8-K, and (iii) no Purchaser shall have any duty of confidentiality to the
Company or its Subsidiaries with respect to Purchasers’ purchase and sale of
securities pursuant to this Agreement after the filing of the Form 8-K.
Notwithstanding the foregoing, in the case of a Purchaser that is a multi-
managed investment vehicle whereby separate portfolio managers manage separate
portions of the Purchaser’s assets and the portfolio managers have no direct
knowledge of the investment decisions made by the portfolio managers managing
other portions of the Purchaser’s assets, the covenant 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.

 

4.17 Purchasers’ Right to Exchange Notes. The Purchasers shall have the right,
exercisable at any time at their discretion, to exchange the Notes issued
hereunder for the notes and any other securities which may be issued by R2
Squared Technologies, Inc. (“R2”) to the Company or its subsidiary pursuant to
the bridge financing of R2 as contemplated by the confidential term sheet dated
August 30, 2017 between the Company and R2 (the “Term Sheet”) and in connection
therewith to succeed to all of the rights of the Company under any and all
agreements entered into in connection with such bridge financing; provided, that
the Purchaser’s rights under this subsection shall terminate upon acquisition by
the Company of R2 the (“R2 Acquisition”) and consummation of the other
transactions contemplated by the Term Sheet, in each case to the satisfaction of
Purchasers. Any such exchange shall be made on a dollar for dollar basis based
on the principal amount of Notes exchanged.

 

4.18 Registration Rights Agreement. On or prior to the R2 Acquisition, the
Company shall enter into a registration rights agreement with and for the
benefit of the Purchasers pursuant to which the Purchasers shall have demand and
piggyback registration rights with respect to the Securities, such agreement to
be on terms satisfactory to the Purchasers in their sole and absolute
discretion.

 

4.19 Maintenance of Property/Insurance. The Company shall keep all of its
property, which is necessary or useful to the conduct of its business, in good
working order and condition, ordinary wear and tear excepted and insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary for the businesses of the
Company and Subsidiary. From and after the Initial Trading Day and for so long
as any Securities are held by a Purchaser, the Company will maintain directors
and officers insurance coverage at least equal to the aggregate Subscription
Amount.

 

4.20 Preservation of Corporate Existence. The Company and each Subsidiary shall
preserve and maintain its corporate existence, rights, privileges and franchises
in the jurisdiction of its incorporation, and qualify and remain qualified, as a
foreign corporation in each jurisdiction in which such qualification is
necessary in view of its business or operations and where the failure to qualify
or remain qualified might reasonably have a Material Adverse Effect upon the
financial condition, business or operations of the Company taken as a whole.

 

4.21 DTC Program. At all times that Notes or Warrants are outstanding, the
Company shall employ as the transfer agent for its Common Stock and Underlying
Shares a participant in the Depository Trust Company Automated Securities
Transfer Program and cause the Common Stock and Underlying Shares to be
transferable pursuant to such program.

 

  29

   

 

4.22 Reimbursement. If any Purchaser becomes involved in any capacity in any
Proceeding by or against any Person who is a stockholder of the Company (except
as a result of sales, pledges, margin sales and similar transactions by the
Purchaser to or with any current stockholder), solely as a result of the
Purchaser’s acquisition of the Securities under this Agreement, the Company will
reimburse the Purchaser for its reasonable legal and other expenses (including
the cost of any investigation preparation and travel in connection therewith)
incurred in connection therewith, as such expenses are incurred. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchaser who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchaser and any such Affiliate, and shall be binding upon and inure
to the benefit of any successors, assigns, heirs and personal representatives of
the Company, the Purchaser and any such Affiliate and any such Person. The
Company also agrees that neither the Purchaser nor any such Affiliates,
partners, directors, agents, employees or controlling persons shall have any
liability to the Company or any Person asserting claims on behalf of or in right
of the Company solely as a result of acquiring the Securities under this
Agreement.

 

4.23 Most Favored Nation Provision. From the date hereof and for so long as any
Notes are outstanding and held by a Purchaser, in the event that the Company
issues or sells any Common Stock or Common Stock Equivalent other than an Exempt
Issuance, if a Purchaser then holding outstanding Notes reasonably believes that
any of the terms and conditions appurtenant to such securities or issuance or
sale are more favorable to the Purchaser than are the terms and conditions
granted to the Purchasers hereunder, each such Purchaser shall have the right,
upon notice to the Company within twenty (20) days’ after disclosure to
Purchaser of the terms and conditions of such other transaction and securities,
to elect to incorporate any or all of the terms or conditions of such other
transaction and securities into the terms and conditions of the transactions
contemplated by this Agreement and the Notes (or to replace any or all of these
terms and conditions and Notes with any of such other terms and conditions and
securities). Upon receipt by the Company of any such notice, the changes will be
automatically effective, and the Company shall promptly take such action as is
necessary or appropriate to effect any amendments or exchanges required thereby.
The purpose of this provision is to enable Purchasers to realize only the
benefit of more favorable terms offered to others. By way of example, if the new
transaction includes a note with a more favorable conversion rate but a longer
maturity date than that provided for in the Notes, holders of Notes will have
the right to substitute the conversion rate offered in the transaction for the
conversion rate of the Notes but will have no obligation to elect the longer
maturity date. The Company shall provide each Purchaser with at least ten (10)
days’ prior written notice of any such issuance or sale, such notice to contain
all material terms thereof and to include any term sheet relating thereto. The
Company shall not effect any exercise of the rights granted in this Section 4.23
of this Agreement, and a Purchaser shall not have the right to exercise any
portion of such rights granted in this Section 4.23 to the extent that after
giving effect to such exercise, the Purchaser (together with the Purchaser’s
Affiliates, and any other Persons acting as a group together with the Purchaser
or any of the Purchaser’s Affiliates), would beneficially own in excess of the
“Beneficial Ownership Limitation” as defined in and applied in the manner set
forth in the Note held by such Purchaser.

 

4.24 Indebtedness. For so long as any Securities is outstanding, the Company
will not incur any Indebtedness other than Permitted Indebtedness, without the
consent of the Majority in Interest.

 

4.25 Notice of Disqualification Events. The Company will notify the Purchaser in
writing, prior to each Closing Date of (i) any Disqualification Event relating
to any Issuer Covered Person and (ii) any event that would, with the passage of
time, become a Disqualification Event relating to any Issuer Covered Person not
otherwise disclosed herein or in the SEC Reports.

 

4.25. Good Standing. The Company and each of its subsidiaries will be in good
standing in their state of incorporation within thirty days of the Effective
Date.

 

  30

   

 

ARTICLE V.

MISCELLANEOUS

 

5.1 Termination. This Agreement may be terminated by any Purchaser, as to the
Purchaser’s obligations hereunder only and without any effect whatsoever on the
obligations between the Company and the other Purchaser, by written notice to
the other parties, if the initial Closing has not been consummated on or before
October ___, 2017; provided, however, that such termination will not affect the
right of any party to sue for any breach by any other party (or parties).

 

5.2 Fees and Expenses. At the Closings, the Company has agreed to pay E&K for
legal fees in connection with the Closings in the amount of $______ for the
initial Closing and $2,500 for each Closing thereafter, and to reimburse E&K for
expenses incurred. Except as expressly set forth in the Transaction Documents,
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 reimburse Purchaser or its counsel for all
expenses incurred in connection with UCC, lien, judgment, tax and similar
searches conducted in connection with the Offering. The Company shall pay all
Transfer Agent fees (including, without limitation, any fees required for
same-day processing of any instruction letter delivered by the Company and any
conversion or exercise notice delivered by a Purchaser), stamp taxes and other
taxes and duties levied in connection with the delivery of any Securities to the
Purchaser.

 

5.3 Entire Agreement. The Transaction Documents, together with the exhibits and
schedules 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.

 

5.4 Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be: (i) if to the Company, to: Andalay Solar, Inc., by fax
415-532,1612 ; and to Gracin & Marlow, LLP, Company counsel, by fax to
212-208-4657, and by mail to 405 Lexington Avenue, 26th Floor, Chrysler
Building, New York NY 10174, and (ii) if to the Purchaser, to: the addresses and
fax numbers indicated on the signature pages hereto, with an additional copy by
fax only to (which shall not constitute notice): Eilenberg & Krause LLP, 11 East
44th Street, New York, NY 10017, fax: (212) 986-2399.

 

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 Purchaser holding at least a majority in
interest of the Securities then outstanding (the “Majority in Interest”), or, in
the case of a waiver, by the party against whom enforcement of any such waived
provision is sought. Whenever the term “consent of the Purchaser” or a similar
term is employed herein, it shall mean the consent of a Majority in Interest. 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.

 

  31

   

 

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.

 

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 the Purchaser (other than by merger).
Following a Closing, any Purchaser may assign any or all of its rights under
this Agreement to any Person to whom the 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 “Purchaser.”

 

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 4.10.

 

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 action, suit 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, then, in addition to the obligations of the Company
under Section 4.10, 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 Closings and the delivery of the Securities.

 

5.11 Execution. 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 e-mail delivery of a “.pdf” format data file, 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 or “.pdf” signature page were an original thereof.

 

  32

   

 

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 the
Purchaser may, at any time prior to the Company’s performance of such
obligations, 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 a Note, the
applicable Purchaser shall be required to return any shares of Common Stock
subject to any such rescinded conversion.

 

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 Purchaser
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.

 

5.16 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

 

  33

   

 

5.17 Usury. To the extent it may lawfully do so, the Company hereby agrees not
to insist upon or plead or in any manner whatsoever claim, and will resist any
and all efforts to be compelled to take the benefit or advantage of, usury laws
wherever enacted, now or at any time hereafter in force, in connection with any
claim, action or proceeding that may be brought by any Purchaser in order to
enforce any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly
agreed and provided that the total liability of the Company under the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the “Maximum Rate”),
and, without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents
from the Closing Date thereof forward, unless such application is precluded by
applicable law. If under any circumstances whatsoever, interest in excess of the
Maximum Rate is paid by the Company to any Purchaser with respect to
indebtedness evidenced by the Transaction Documents, such excess shall be
applied by the Purchaser to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling such excess
to be at the Purchaser’s election.

 

5.18 Left intentionally blank.

 

5.19 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.

 

5.20 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.

 

5.21 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.

 

5.22 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.

 

5.23 Equitable Adjustment. Trading volume amounts, price/volume amounts, the
Warrant exercise price and the number of Warrant Shares and similar figures in
the Transaction Documents shall be equitably adjusted (but without duplication)
to offset the effect of stock splits, similar events and as otherwise described
in this Agreement and the Notes. Notwithstanding the foregoing, no adjustment
shall be made to the $1.00 Warrant exercise price or the number of Warrant
Shares underlying the Warrants to reflect a reverse split of the Common Stock
contemplated to occur in connection with or following the R2

Acquisition at a rate which results in, and the foregoing prices and amounts
assume, no more than 14.8 million shares of Common Stock outstanding after the
R2 Acquisition (after giving effect to shares issued or issuable in connection
with the R2 Acquisition). If such reverse split occurs at a rate which results
in more than such number of shares outstanding, the $1.00 Warrant exercise price
shall be reduced by a percentage equal to the percentage of excess outstanding
shares, and the number of Warrant Shares shall be proportionately increased such
that the aggregate exercise price remains unchanged. In the event such split
does not occur within sixty days following the R2 Acquisition (or such later
date as shall be approved by holders of a majority of the principal amount of
then outstanding Notes and Warrants), such prices shall be proportionately
readjusted and the Warrants and Notes shall be revised accordingly.

 

(Signature Pages Follow)

 

  34

   

 

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.

 

 

ANDALAY SOLAR, INC.

 

Address for Notice:

 

 

 

/s/ Ed Bernstein

 

By:

 

Andalay Solar, Inc.

336 Bon Air Center #352

Greenbrae CA 94904

Name:

Ed Bernstein

 

 

Title:

CEO

 

 

 

With a copy to (which shall not constitute notice):

 

Gracin & Marlow, LLP

405 Lexington Avenue 26th Floor

The Chrysler Building

New York New York 10174

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

  35

   

 

[PURCHASER SIGNATURE PAGE TO ANDALAY SOLAR, INC.

SECURITIES PURCHASE AGREEMENT]

 

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

 

Name of Purchaser: ________________________________________________________

 

Signature of Authorized Signatory of Purchaser:
_________________________________

 

Name of Authorized Signatory: _______________________________________________

 

Title of Authorized Signatory: ________________________________________________

 

Email Address of Authorized Signatory: ________________________________________

 

Facsimile Number of Authorized Signatory: _____________________________________

 

State of Residence of Purchaser: _____________________________________________

 

Address for Notice to Purchaser:

 

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

 

 

 

Subscription Amount: US$____________________

 

Note Principal Amount: US$___________________

 

Warrants: __________________________________

 

EIN Number, if applicable, will be provided under separate cover:
_________________________________

 

Date: ___________________________

 

  36

   

 

EXHIBITS AND SCHEDULES

 

Exhibit A

Form of Note

Exhibit B

Form of Warrants

Exhibit C

Form of Form 8-K

Schedule 3.1(a)

Schedule 3.1(g)

Schedule 3.1(i)

Schedule 3.1(l)

Schedule 3.1(n)

Schedule 3.1 (o)

Schedule 3.1(r)

Schedule 3.1 (aa)

Schedule 3.1(cc)

Schedule 3.1(ll)

Schedule 3.1(qq)

Schedule 4.9

Schedule 4.13

  37

   

 

DISCLOSURE SCHEDULES

 

These Schedules are the “Disclosure Schedules” referred to in that certain
Securities Purchase Agreement (the “Agreement”) dated as of October 2, 2017
between Andalay Solar, Inc., a Delaware corporation (the “Company”), and
“Purchasers”. Capitalized terms that are not otherwise defined in these
Schedules have the meaning given to such terms in the Agreement or the Notes.

 

 

 

 

 

  38

   

 

Schedule 3.1(a)

 

List of Subsidiaries

 

Subsidiary

 

Percentage

Owned by

Andalay

Solar, Inc.

 

 

State of

Incorporation

 

Akeena Corp.

 

 

100 %

 

Delaware

 

Andalay, Inc.

 

 

100 %

 

California

 

R2 Acquisition

 

 

100 %

 

Delaware

 

 

  39

   

 

Schedule 3.1(g)

 

Capitalization Table

 

Common Stock Authorized

10,000,000,000

 

Common Stock Issued and Outstanding

 

Ownership

 

Edward Bernstein

 

 

118,208

 

Ron Kenedi

 

 

132,838

 

Mark Kalow

 

 

123,216

 

Other

 

 

1,577,425,618

 

Total

 

 

1,577,799,880

 

 

Common Stock Warrants

 

Ownership

 

 

Convertible into

Common

 

Alpha Capital

 

 

18,750,000

 

 

 

18,750,000

 

Other

 

 

0

 

 

 

0

 

Total

 

 

18,750,000

 

 

 

18,750,000

 

 

Preferred Stock

 

Ownership

 

 

Voting rights

(not convertible)

 

Edward Bernstein

 

 

140,625

 

 

 

703,125,000

 

Ron Kenedi

 

 

28,125

 

 

 

140,625,000

 

Mark Kalow

 

 

56,250

 

 

 

281,250,000

 

Total

 

 

224,000

 

 

 

1,120,000,000

 

 

Common Stock and Equivalent Shares Outstanding

 

 

1,596,549,880

 

 

 

 

 

 

Common Stock Available for Issuance [These shall not be deemed an “Exempt
Issuance”] (1)

 

 

8,403,450,120

 

 

 

(1) Does not include shares to be issued upon conversion of Convertible Notes
held by Alpha and others identified in Schedule 3.1(ll).

 

 

 

 

(2) The Company does not have any Stock Option or Restricted Stock outstanding.

 

  40

   

 

Schedule 3.1(i) - Material Changes; Undisclosed Events, Liabilities or
Developments

 

None, other than the compensation and grants described in the Term Sheet
executed between R2 Technologies and Company on September 6, 2017:

 

Ed Bernstein shall receive $50,000 in consideration of the severance pay owed
under his current his employment agreement upon closing, in the form of a
$50,000 cash payment, plus a one-year balloon note for $50,000. Mark Kalow shall
be offered $20,000 for the management and disposition of the Andalay IP assets.
Ronald Kenedi shall be offered $10,000 for the management and disposition of the
Andalay IP assets. In addition, each will be granted $25,000 in common stock on
the same terms as above, Bernstein, Kalow and Kenedi shall receive a 15% payout
for value created above the Secured lender’s value on the existing asset sale.
The balance of all funds from the asset sale will pay down existing debt.

 

  41

   

 

Schedule 3.1(l) – Compliance

 

Certain convertible notes with Alpha Capital Anstalt and its affiliates as well
as notes to Tarpon, Southridge, and Corinthian referenced in Schedule 3.1(ll)
are due, but Company has received no notices of default.

 

 

 

  42

   

 

Schedule 3.l(n)- Title to Assets

 

No exceptions, other than the security interest held by Alpha Capital Anstalt or
its affiliates.

 

 

 

  43

   

 

Schedule 3.1(o) – Patents and Trademarks

 

Andalay Solar Patents

 

We have seven U.S. patents (Patent No. 7,406,800, Patent No. 7,832,157, Patent
No. 7,866,098, Patent No. 7,987,641, Patent No. 8,505,248, Patent 8,813,460 and
Patent No. 8,938,919) that cover key aspects of our Andalay solar panel
technology, as well as U.S. Trademark No. 3481373 for registration of the mark
“Andalay Solar.” In addition to these U.S. patents, we have eight foreign
patents. Currently, we have nine other pending U.S. and foreign patent
applications that cover the Andalay technology working their way through the
USPTO and foreign patent offices.

 

The following table provides a summary of our patents:

 

Country of issuance

 

Patent Number

 

 

Date of Expiration

 

United States

 

 

8,813,460

 

 

September 20, 2027

 

United States

 

 

7,406,800

 

 

May 18, 2024

 

United States

 

 

7,832,157

 

 

May 18, 2024

 

United States

 

 

7,866,098

 

 

May 18, 2024

 

United States

 

 

7,987,641

 

 

May 18, 2024

 

United States

 

 

8,505,248

 

 

March 13, 2028

 

United States

 

 

8,938,919

 

 

September 21, 2027

 

Mexico

 

 

274,182

 

 

May 18, 2024

 

China

 

 

200580015652.1

 

 

May 18, 2024

 

Canada

 

 

2,566,296

 

 

May 18, 2024

 

Japan

 

 

4790718

 

 

May 18, 2024

 

EPO (Validated in France, Germany and the United Kingdom)

 

 

2118935

 

 

September 21, 2027

 

Japan

 

 

5175354

 

 

September 21, 2027

 

Australia

 

 

2005248343

 

 

May 18, 2024

 

South Korea

 

10-1497298

 

 

 

 

 

Trademarks

 

We have registered with the United States Patent and Trademark Office the
trademark “Instant Connect” (Reg. No. 4,290,244 and 4,290,245) for the
designation of our patented “plug and play” solar panel.

 

We have also registered the trademarks “Double Your Power” and “Andalay Solar”
with the USPTO for two goods classes: providing computer software for
photovoltaic systems for evaluating electric consumption, determining system
sizing, estimating electrical output, estimating customer costs, and estimating
financial life cycle savings, for use by consumers and businesses; and,
installation of renewable energy systems, namely photovoltaic systems composed
of solar panels, inverters, racks and electrical controls. Additionally, we have
applications currently pending with the United States Patent and Trademark
Office to expand the goods classes for “Double Your Power” and “Andalay Solar.”

 

  44

   

 

Schedule 3.1 (aa)- Tax Status

 

An installment agreement was made with the IRS in October 2016 to repay $25,000
in back payroll taxes and penalties, with installments of $2,000 per month, of
which $14,000 has been paid and $11,000 remains as of September 15, 2017.

 

 

 

  45

   

 

Schedule 3.1(cc) Accounting and Legal Firms

 

Accounting:

 

RBSM LLP

805 Third Ave.

New York NY 10022

Attn: Manny Tzagarakis, Partner

(212) 838-2643

 

Amounts for current and anticipated completion of audit work being negotiated.

 

Legal:

 

Gracin & Marlow

Chrysler Building

405 Lexington Avenue, 26th Floor

New York, New York 10174

Attn: Leslie Marlow

(516) 496-2223

 

Amount owed as of August 31, 2017:

 

$33,296.75

 

  46

   

 

Schedule 3.1 (ll) Indebtedness and Seniority

 

No notes or liens, other than:

 

Secured convertible notes with Alpha Capital Anstalt and its affiliates totaling
$632,999.17, which convert into common stock at a 25 percent discount.

 

Convertible notes with Southridge Partners and Tarpon Bay Partners and their
related entities or assignees totaling $427,500, of which $335,000 converts into
common stock at a 25 percent discount, with the remainder converting at a 20 to
50 percent discount.

 

Convertible note with Corinthian Partners for $7,500, which converts at a 20
percent discount.

 

Accounts Payable - SEE FOLLOWING PAGE

 

TARPON BAY PARTNERS SCHEDULE

 

The following debts will be converted per the 3(a)10 agreement with Tarpon Bay
Partners, of which $90,094.64 had been paid as of July 31, 2017.

 

[west_ex101img4.jpg]

  47

   

 

 

[west_ex101img5.jpg]

 

  48

   

 

Schedule 3.1 (qq) Outstanding Variable Priced Equity Linked Instruments

 

Only in convertible notes held by Alpha Capital Anstalt and its affiliates
Schedule 4.9 Use of Proceeds

 

 

 

 

  49

   

 

Except as otherwise agreed in writing by the Purchasers, all proceeds of the
Offering will be invested in R2 pursuant to a securities purchase agreement on
terms reasonably acceptable to the Purchasers; provided that $40,000 of the
initial Closing proceeds shall be used by the Company for (i) legal and
accounting required to bring the Company current in its SEC filings and (ii)
funding $4,000 of the remaining $11,000 in installment payments owing to the IRS
disclosed on Schedule 3.1(aa).

 

 

 

 

  50

   

 

Schedule 4.13- Equity per section 4.13

 

None

 

 

 

51