SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of April 17,
2015 between Saleen Automotive, Inc., a Nevada corporation (the “Company”), each
purchaser identified on the signature pages hereto (each, including its
successors and assigns, a “Purchaser” and collectively the “Purchasers”), and
GreenTech Automotive, Inc., which will serve as the representative of the
Purchasers, and is referred to herein from time to time as the “Purchaser
Representative”.

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(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 each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, securities of the Company as more fully
described in this Agreement.

 

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

 

ARTICLE I. DEFINITIONS

 

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

 

“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 California are authorized or required by law or
other governmental action to close.

 

“Closing” shall have the meaning ascribed to such term in Section 2.1(a).
“Closing Date” shall have the meaning ascribed to such term in Section 2.1(a).
“Commission” means the Securities and Exchange Commission.

 

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

 

“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, rights,
options, warrants or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.

 

“Company Counsel” means _________________.

 

 

 

 

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

 

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

 

“Discussion Time” shall have the meaning ascribed to such term in Section
3.2(f).

 

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

 

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

 

“IP Security Agreement” means the Intellectual Property Security Agreement,
dated the date hereof, by the Company in favor of the Purchasers, in the form of
Exhibit C attached hereto, securing the obligations of the Company under the
Notes and other Transaction Documents.

 

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

 

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

 

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

 

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

 

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“Notes” means the 10.0% First Lien Secured Convertible Notes due, subject to the
terms therein, niney (90) days from their date of issuance, issued by the
Company to the Purchasers hereunder, in the form of Exhibit A attached hereto.

 

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

 

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

 

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

 

“Purchaser Representative” shall have the meaning ascribed to such term in
Section 2.1(c)(i).

 

“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 or conversion in full of all Notes (including Underlying Shares
issuable as payment of interest), ignoring any conversion or exercise limits set
forth therein, and assuming that the Conversion Price is at all times on and
after the date of determination 75% of the then Conversion Price on the Trading
Day immediately prior to the date of determination.

 

“Regulation 13D-G” means Regulation 13D-G promulgated by the Commission pursuant
to the Exchange Act, as such Regulation and the Rules thereunder may be amended
from time to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Regulation.

 

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

 

“Saleen Entities” shall have the meaning ascribed to such term in the recitals
hereto.

 

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“Saleen Entities Financial Statements” shall have the meaning ascribed to such
term in Section 3.1(h).

 

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

 

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

 

“Securities” means the Notes 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, dated the date hereof, by the
Company in favor of the Purchasers, in the form of Exhibit B attached hereto,
securing the obligations of the Company under the Notes and other Transaction
Documents.

 

“Security Documents” means any and all means any and all security agreements,
pledge agreements, hypothecation agreements, collateral assignments, mortgages,
deeds of trust, control agreements and similar such agreements, executed and
delivered by the Company, any of its Subsidiaries and/or any third party in
favor of the Purchasers pursuant to the Transaction Documents which secures the
Company’s obligations under the Transaction Documents and/or any of the
Securities, and other documents executed, delivered and/or filed by the Company,
any of its Subsidiaries, any third party and/or the Purchasers as permitted or
required under any of the foregoing, including without limitation the Security
Agreement and the IP Security Agreement.

 

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

 

“Subscription Amount” means, as to each Purchaser, the aggregate amount to be
paid for Notes purchased hereunder as specified below such Purchaser’s name on
the signature page of this Agreement and next to the heading “Subscription
Amount,” in United States dollars and in immediately available funds. The
initial principal amount of each Purchaser’s Note shall be equal to such
Purchaser’s Subscription Amount.

 

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

 

“Subsidiary Guarantee” means the Subsidiary Guarantee, in the form attached
hereto as Exhibit E, executed by each Subsidiary in favor of the Purchasers,
guaranteeing the Company’s obligations under the Notes.

 

“Supplemental Agreement” means the Supplemental Agreement between the Company,
Steve Saleen and GreenTech Automotive, Inc. dated of even date herewith.

 

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

 

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“Trading Market” means the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the American
Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq
Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

 

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

 

“Transfer Agent” means Action Stock Transfer, the current transfer agent of the
Company with a mailing address of 2469 E. Fort Union Blvd., Suite 214, Salt Lake
City, UT 84121, and a facsimile number of (801) 274-1099, and any successor
transfer agent of the Company.

 

“Underlying Shares” means the shares of Common Stock issued and issuable upon
conversion or redemption of the Notes and issued and issuable in lieu of the
cash payment of interest on the Notes in accordance with the terms of the Notes.

 

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

 

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ARTICLE II. PURCHASE AND SALE

 

2.1Closing.

 

The purchase and sale of the Notes (the “Closing”) shall take place on March _,
2015, at 10:00 a.m., Pacific Time (“Closing Date”), at the offices of Company or
at such other location or time or on such other date mutually agreed upon by the
Company and all of the Purchasers, subject to the conditions precedent for the
Closing as set forth in Section 2.3, and to each party’s obligations hereunder
having been satisfied or waived. At the Closing, upon the terms and subject to
the conditions set forth herein, the Company agrees to sell, and the Purchasers,
severally and not jointly, agree to purchase, in the aggregate, $500,000 in
principal amount of the Notes. On or prior to the Closing, each Purchaser
participating in the Closing shall deliver to the Company, via wire transfer or
a certified check, immediately available funds equal to its Subscription Amount
and the Company shall deliver to each Purchaser its respective Note, as
determined pursuant to Section 2.2(a), and the Company and each Purchaser shall
deliver the other items set forth in Section 2.2 deliverable at the Closing.

 

(a)Purchaser Representative.

 

(i) By virtue of the execution of this Agreement by each Purchaser, each of the
Purchasers shall be deemed to have agreed to appoint GreenTech Automotive, Inc.
as its agent and attorney-in-fact, as the purchaser representative (the
“Purchaser Representative”) for and on behalf of the Purchasers to give and
receive notices and communications, to agree to, negotiate, enter into
settlements and compromises of, and comply with orders of courts with respect to
any indemnification claims, to assert, negotiate, enter into settlements and
compromises of, and comply with orders of courts with respect to, any other
claim by the Company against any Purchaser or by any such Purchaser against the
Company, in each case relating to this Agreement or the transactions
contemplated hereby, and to take all other actions that are either (A) necessary
or appropriate in the judgment of the Purchaser Representative for the
accomplishment of the foregoing or (B) specifically mandated by the terms of
this Agreement. Such agency may be changed by the Purchasers from time to time
upon not less than thirty (30) days prior written notice to the Company;
provided, however, that the Purchaser Representative may not be removed unless
Purchasers holding at least two-thirds (2/3) of the outstanding principal amount
of the Notes agree to such removal and to the identity of the substituted agent.
A vacancy in the position of Purchaser Representative, whether due to the
resignation, removal or dissolution of the Purchaser Representative or for any
other reason, may be filled by the recipients of a majority in interest of the
outstanding principal amount of the Notes. No bond shall be required of the
Purchaser Representative, and the Purchaser Representative shall not receive any
compensation for its services. Notices or communications to or from the
Purchaser Representative shall constitute notice to or from the Purchasers.

 

(ii) The Purchaser Representative shall not be liable for any act done or
omitted hereunder as Purchaser Representative while acting (A) in good faith or
(B) with the consent of the holders of a majority in interest of the outstanding
principal amount of the Notes.. A decision, act, consent or instruction of the
Purchaser Representative, including, but not limited to, an amendment, extension
or waiver of this Agreement, shall constitute a decision of the Purchasers and
shall be final, binding and conclusive upon the Purchasers; and the Company may
rely upon any such decision, act, consent or instruction of the Purchaser
Representative as being the decision, act, consent or instruction of the
Purchasers.

 

  2.2Deliveries.

 

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

 

(i) this Agreement, duly executed by the Company;

 

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

 

(iii) the Security Documents, including, without limitation, the Security
Agreement and the IP Security Agreement, duly executed by the Company and each
Subsidiary;

 

(iv) the Subsidiary Guarantee, duly executed by each Subsidiary of the Company;
and

 

(v) the Supplemental Agreement, duly executed by the Company.

 

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

 

(i) this Agreement, duly executed by such Purchaser;

 

(ii) such Purchaser’s Subscription Amount by wire transfer to the account as
specified in writing by the;

 

(iii) the Security Documents to which each Purchaser is a party and required by
law to be signed by such Party in order to be binding;

 

(iv) the Supplemental Agreement, duly executed by such Purchaser.

 

  2.3Closing Conditions.

 

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

 

(i) the accuracy in all material respects on the Closing Date of the
representations and warranties of the Purchasers contained herein;

 

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

 

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(iii) at the Closing, the delivery by each Purchaser of the items set forth in
Section 2.2(b) of this Agreement.

 

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

 

(i) the accuracy in all material respects when made and on the Closing Date of
the representations and warranties of the Company contained herein;

 

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

 

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

 

ARTICLE III. REPRESENTATIONS AND WARRANTIES

 

3.1 Representations and Warranties of the Company. The Company hereby makes the
following representations and warranties to each Purchaser. However, it is
understood and agreed that,.

 

(a) Subsidiaries. All of the direct and indirect subsidiaries of the Company are
accurately disclosed in the Company’s filings with the Securities Exchange
Commission (the “SEC”). The Company owns, directly or indirectly, all of the
capital stock or other equity interests of each Subsidiary free and clear of any
Liens (other than Liens in respect of the Second Lien Obligations, as defined in
the Intercreditor Agreement of even date herewith), 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.

 

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

 

(c) Authorization; Enforcement. The Company and the Subsidiaries have the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and otherwise to
carry out their obligations hereunder and thereunder. The execution and delivery
of each of the Transaction Documents by the Company and the Subsidiaries 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 the
Subsidiaries and no further action is required by the Company, the Subsidiaries,
their board of directors or their stockholders in connection therewith other
than in connection with the Required Approvals. Each Transaction Document has
been (or upon delivery will have been) duly executed by the Company and the
Subsidiaries, as applicable, and, when delivered in accordance with the terms
hereof and thereof, will constitute the valid and binding obligation of the
Company and the Subsidiaries enforceable against the Company and the
Subsidiaries 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.

 

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(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the Subsidiaries and the consummation by the
Company and the Subsidiaries of the other transactions contemplated hereby and
thereby do not and will not: (i) conflict with or violate any provision of the
Company’s or any Subsidiary’s articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, result in the creation of any Lien upon any of the properties or
assets of the Company or any Subsidiary, or give to others any rights of
termination, amendment, acceleration or cancellation (with or without notice,
lapse of time or both) of, any agreement, loan or credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected (other
than Liens in favor of the Purchasers), or (iii) subject to the Required
Approvals, 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 clauses (ii) and (iii), such as could not have or reasonably
be expected to result in a Material Adverse Effect.

 

(e) Filings, Consents and Approvals. Neither the Company nor any Subsidiary is
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 and the Subsidiaries of
the Transaction Documents, other than (i) filings required pursuant to Section
4.6, (ii) the notice and/or application(s) to each applicable Trading Market for
the issuance and sale of the Securities and the listing of the Underlying Shares
for trading thereon in the time and manner required thereby, (iii) the filing of
Form D with the Commission and such filings as are required to be made under
applicable state securities laws, and (iv) filings required under the terms of
the Security Documents (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 other than restrictions on transfer provided
for in the Transaction Documents. The Underlying Shares, when issued in
accordance with the terms of the Transaction Documents, will be validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by the Company
other than restrictions on transfer provided for in the Transaction Documents.
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.

 

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(g) Capitalization. The Company has furnished to the Purchases the shareholder
list from its transfer agent and DTC nominee accounts, which comprises the
capitalization of the Company as of the most recent date set forth therein,
which includes the number of shares of Common Stock owned beneficially, and of
record, by Affiliates of the Company as of the date hereof. The Company has not
issued any capital stock since its most recently filed periodic report under the
Exchange Act. 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 set forth in the Company’s
SEC Reports and a result of the purchase and sale of the Securities, there are
no outstanding options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable or exchangeable for, or giving any
Person any right to subscribe for or acquire, any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company or
any Subsidiary is or may become bound to issue additional shares of Common Stock
or Common Stock Equivalents. The issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other securities to any
Person (other than the Purchasers) and will not result in a right of any holder
of Company securities to adjust the exercise, conversion, exchange or reset
price under any of such securities. All of the outstanding shares of capital
stock of the Company are validly issued, fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, and none of
such outstanding shares was issued in violation of any preemptive rights or
similar rights to subscribe for or purchase securities. No further approval or
authorization of any stockholder, the Board of Directors or others is required
for the issuance and sale of the Securities. There are no stockholders
agreements, voting agreements or other similar agreements with respect to the
Company’s capital stock to which the Company is a party or, to the knowledge of
the Company, between or among any of the Company’s stockholders.

 

(h) SEC Reports; Financial Statements.

 

(i) The Company has filed all reports, schedules, forms, statements and other
documents required to be filed by the Company under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two
years preceding the date hereof (or such shorter period as the Company was
required by law or regulation to file such material) (the foregoing materials,
including the exhibits thereto and documents incorporated by reference therein,
being collectively referred to herein as the “SEC Reports”) 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.

 

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(ii) On Schedule 3.1(h) are set forth the following financial statements of the
Saleen Entities (collectively the “Saleen Entities Financial Statements”):
audited consolidated balance sheets and statements of income, changes in
stockholders’ equity, and cash flow as of and for the fiscal years ended March
31, 2013 and 2012. The Saleen Entities Financial Statements have been prepared
in accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, present fairly the financial condition of the Saleen Entities
as of such dates and the results of operations of the Saleen Entities for such
periods, are correct and complete, and are consistent with the books and records
of the Saleen Entities. Since March 31, 2013, the Saleen Entities have not
effected any change in any method of accounting or accounting practice, except
for any such change required because of a concurrent change in GAAP.

 

(i) Material Changes. Since the date of the latest audited financial statements
included within the SEC Reports and/or the Saleen Entities Financial Statements,
except as specifically disclosed in a subsequent SEC Report filed prior to the
date hereof or disclosed 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 and the Subsidiaries have
not incurred any liabilities (contingent or otherwise) other than (A) that have
been incurred since the date of the most recent balance sheet included in the
SEC Reports or the Saleen Entities Financial Statements in the ordinary course
of business and are not (singly or in the aggregate) material to the Company’s
business, and (B) not due and payable or to be performed or satisfied after the
date hereof under the Company and the Subsidiaries’ material contracts in
accordance with their terms, in each case which are not (singly or in the
aggregate) material to the Company’s business, (iii) the Company and the
Subsidiaries have not altered their 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. The Company does not
have pending before the Commission any request for confidential treatment of
information. Except for the issuance of the Securities contemplated by this
Agreement or as set forth on Schedule 3.1(i), no event, liability or development
has occurred or exists with respect to the Company or its Subsidiaries or their
respective business, properties, operations 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 on or prior to the date that this representation is made.

 

(j) Litigation. There is no suit, action, claim, arbitration, proceeding or
investigation pending or, to the knowledge of the Company, threatened against,
relating to or involving the Company, any Subsidiary, or real or personal
property of the Company or any Subsidiary, before any Governmental Entity (as
such term is defined in the Merger Agreement) or other third party. To the
knowledge of the Company, there is no basis for any such suit, action,
proceeding or investigation. 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.

 

12

 

 

(k) Labor; Benefits. Schedule 3.1(k) contains a true and complete list of each
benefit plan currently sponsored, maintained or contributed to by the Company
and the Subsidiaries. The Company’s records accurately reflect the service
histories of the Company and the Subsidiaries’ employees, contractors and
consultants, including their hours of service, and all such data is maintained
in a usable form. Neither the Company nor any Subsidiary is a party to any
employment, contractor or consultant agreement which could result in the payment
to any current, former or future director, employee, contractor or consultant of
the Company or the Subsidiaries of any money or other property or rights or
accelerate or provide any other rights or benefits to any such director,
employee, contractor or consultant as a result of the transactions contemplated
by the Merger or this Agreement, whether or not (i) such payment, acceleration
or provision would constitute a “parachute payment” (within the meaning of
Section 280G of the Code), or (ii) some other subsequent action or event would
be required to cause such payment, acceleration or provision to be triggered.

 

(l) Compliance. To the knowledge of the Company, the Company and the
Subsidiaries are in compliance in all material respects with all applicable laws
(including, without limitation, applicable laws relating to zoning,
environmental matters and the safety and health of employees), ordinances,
regulations and orders of all Governmental Entities. Neither the Company nor any
of the Subsidiaries has been charged with and, to the knowledge of the Company,
is not now under investigation with respect to, a violation of any applicable
law, regulation, ordinance, order or other requirement of a Governmental Entity.
Neither the Company nor any of its Subsidiaries is a party to or bound by any
order, judgment, decree or injunction of any Governmental Entity.

 

(m) Title to Assets. The Company and the Subsidiaries have good, clear and
marketable title to all the tangible properties and tangible assets reflected in
their latest balance sheet as being owned by them or acquired after the date
thereof which are, individually or in the aggregate, material to the Company’s
business (except properties sold or otherwise disposed of since the date thereof
in the ordinary course of business), free and clear of all Liens. All equipment
and other items of tangible personal property and assets of the Company and the
Subsidiaries (i) are in good operating condition and in a state of good
maintenance and repair, ordinary wear and tear excepted, and (ii) are usable in
the regular and ordinary course of the Company’s business. The Company and the
Subsidiaries do not own any real property. The Company has provided to the
Purchasers true and complete copies of all real property leases to which the
Company and the Subsidiaries are a party. The Company and/or the Subsidiaries,
as applicable, have a valid leasehold interest in such leased real property, and
such leases are in full force and effect. The improvements and fixtures on such
real property leased by the Company and/or the Subsidiaries are in good
operating condition and in a state of good maintenance and repair, ordinary wear
and tear excepted.

 

13

 

 

(n) Intellectual Property.

 

(i) Saleen and/or the Saleen Entities own or have the right to use pursuant to
an enforceable contract all Intellectual Property necessary or desirable to
operate the Saleen businesses as currently conducted and as currently proposed
to be conducted (the “Saleen Parties Intellectual Property”). Other than the
Saleen Parties Intellectual Property, the Company has no Intellectual Property.
The Saleen Parties have taken all necessary and desirable action to maintain and
protect each item of Saleen Parties Intellectual Property.

 

(ii) The Company has delivered to the Purchasers correct and complete copies of
all written documentation evidencing ownership and prosecution (if applicable)
of each item of any Saleen Parties Intellectual Property. With respect to each
such item of Saleen Parties Intellectual Property:

 

(A) The Saleen Parties possess all right, title, and interest in and to the
item, free and clear of any Lien;

 

(B) the item is not subject to any order, judgment, decree or injunction of any
Governmental Entity;

 

(C) no action or proceeding is pending or, to the Company’s best knowledge,
threatened (and, to the Company’s best knowledge, there is no basis therefor)
which challenges the enforceability, use, or ownership of the item; and

 

(D) neither the Company nor any Subsidiary has ever agreed to indemnify any
Person for or against any interference, infringement, misappropriation, or other
conflict with respect to the item.

 

(iii) The Saleen Parties Intellectual Property does not interfere with, infringe
upon, misappropriate, or otherwise violate or come into conflict with any other
Person’s Intellectual Property, and neither the Company nor any Subsidiary has
received any notice alleging any such interference, infringement,
misappropriation, violation, or conflict (including any claim that the Company
or any Subsidiary must license or refrain from using any other Person’s
Intellectual Property). No third Person has any Intellectual Property that
interferes or would be likely to interfere with the Company’s use of any Saleen
Parties Intellectual Property. The Saleen Parties Intellectual Property will not
interfere with, infringe upon, misappropriate, or otherwise come into conflict
with, any Intellectual Property rights of any other Person as a result of the
continued operation by the Company or the Subsidiaries of their businesses as
currently conducted and as currently proposed to be conducted. No other Person
has interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Saleen Parties Intellectual Property.

 

(iv) The Company has furnished to the Purchasers correct and complete copies of
all contracts with respect to which the Company or any Subsidiary has granted to
a third party rights under or with respect to any Saleen Parties Intellectual
Property (together with any exceptions). With respect to the Contracts (1)
related to each item of Saleen Parties Intellectual Property, the statements in
clauses (A) through (G) below are true and correct, and (2) in Schedule 3.1(n),
the statements in clauses (A) through (D) below are true and correct:

 

14

 

 

(A) the contract is enforceable against each of the parties thereto in
accordance with its terms;

 

(B) The Saleen Entities are not (and no counter-party is) in breach of such
contract, and no event has occurred that with notice or lapse of time would
constitute a breach thereunder;

 

(C) no party to the contract has repudiated any provision thereof;

 

(D) with respect to each sublicense contract, the representations and warranties
set forth in (A) – (D) are true and correct with respect to the underlying
license contract;

 

(E) the underlying item of Saleen Parties Intellectual Property is not subject
to any outstanding order, judgment, decree or injunction of any Governmental
Entity;

 

(F) no action or proceeding is pending or threatened (and there is no basis
therefor) that challenges the enforceability of the underlying item of
Intellectual Property; and

 

(G) neither the Company nor any Subsidiary has granted any sublicense or similar
contract with respect to the contract.

 

(v) All former and current employees, contractors and consultants of the Saleen
Entities have executed written contracts with the Saleen Entities that assign to
the Saleen Entities all rights to any inventions, improvements, discoveries or
information relating to the Saleen Entities’ business. No employee, contractor
or consultant of the Saleen Entities has entered into any contract that
restricts or limits in any way the scope or type of work in which the employee,
contractor or consultant may be engaged or requires the employee, contractor or
consultant to transfer, assign, or disclose information concerning his or her
work to any Person other than Saleen Entities.

 

(vi) To the Company’s knowledge, there are no new products, inventions,
procedures, or methods of manufacturing or processing that any competitors or
other Person have developed which reasonably could be expected to supersede or
make obsolete any, or any planned, product or process of the Saleen Entities.

 

(o) Insurance. The Company and the Subsidiaries maintain insurance policies with
coverage from carriers and in amounts reasonably adequate for the business
conducted by such Persons.

 

15

 

 

(p) Transactions with Affiliates and Employees. The Company and the Subsidiaries
are not a party to any contract, lease, license, commitment or arrangement,
written or oral, which, were the Saleen Entities “registrants” under the
Exchange Act, would be required to be disclosed pursuant to Item 404(a) or (c)
of Regulation S-K as promulgated by the SEC, and there are no loans outstanding
to or from any Person specified in Item 404(a) of Regulation S-K from or to the
Company or the Subsidiaries.

 

(q) Sarbanes-Oxley; Internal Accounting Controls. The Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are
applicable to it as of the Closing Date. 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. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission’s rules and forms. The Company’s
certifying officers have evaluated the effectiveness of the Company’s disclosure
controls and procedures as of the end of the period covered by the Company’s
most recently filed periodic report under the Exchange Act (such date, the
“Evaluation Date”). The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying officers about
the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no changes in the Company’s internal control over financial reporting (as
such term is defined in the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.

 

(r) Certain Fees. No brokerage or finder’s fees or commissions are or will be
payable by the Company 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 Purchasers shall
have no obligation with respect to any fees or with respect to any claims made
by or on behalf of other Persons for fees of a type contemplated in this Section
that may be due in connection with the transactions contemplated by the
Transaction Documents.

 

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

 

16

 

 

(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 subject to the Investment Company Act of 1940,
as amended.

 

(u) Registration Rights. Except as provided in those certain Registration Rights
Agreements disclosed in the SEC Reports, no Person has any right to cause the
Company to effect the registration under the Securities Act of any securities of
the Company.

 

(v) Listing and Maintenance Requirements. The Common Stock is registered
pursuant to Section 12(b) of the Exchange Act, and the Company has taken no
action designed to, or which to its knowledge is likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act nor has
the Company received any notification that the Commission is contemplating
terminating such registration. Except as set forth in the SEC Reports, the
Company has not, in the twelve (12) months preceding the date hereof, received
notice from any Trading Market on which the Common Stock is or has been listed
or quoted to the effect that the Company is not in compliance with the listing
or maintenance requirements of such Trading Market. Except as set forth in the
SEC Reports, the Company is, and has no reason to believe that it will not in
the foreseeable future continue to be, in compliance with all such listing and
maintenance requirements.

 

(w) Application of Takeover Protections. The Company and the Board of Directors
have taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under the Company’s articles of incorporation or the laws of its state of
incorporation that is or could become applicable to the Purchasers as a result
of the Purchasers 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 Purchasers’
ownership of the Securities.

 

(x) Disclosure. None of the Transaction Documents, nor any Schedule or Exhibit
thereto, nor any other statements, documents or certificates made or delivered
in connection herewith or therewith contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
contained herein and therein not misleading in light of the circumstances under
which such statements were made.

 

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

 

17

 

 

(z) Solvency. Based on the consolidated financial condition of the Company as of
the Closing Date after giving effect to the receipt by the Company of the
proceeds from the sale of the Securities hereunder, (i) the fair saleable value
of the Company’s assets exceeds the amount that will be required to be paid on
or in respect of the Company’s existing debts and other liabilities (including
known contingent liabilities) as they mature, (ii) the Company’s assets do not
constitute unreasonably small capital to carry on its business as now conducted
and as proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the Company,
and projected capital requirements and capital availability thereof, and (iii)
the current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking into account
all anticipated uses of the cash, would be sufficient to pay all amounts on or
in respect of its liabilities when such amounts are required to be paid. The
Company does not intend to incur debts beyond its ability to pay such debts as
they mature (taking into account the timing and amounts of cash to be payable on
or in respect of its debt). The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization or
liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the Closing Date. The SEC Reports disclose all outstanding
secured and unsecured Indebtedness of the Company or any Subsidiary, or for
which the Company or any Subsidiary has commitments. For the purposes of this
Agreement, “Indebtedness” means (a) any liabilities for borrowed money or
amounts owed in excess of $50,000 (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 balance sheet (or the notes
thereto), 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 in excess of $50,000 due under
leases required to be capitalized in accordance with GAAP. Neither the Company
nor any Subsidiary is in default with respect to any Indebtedness.

 

(aa) Tax Status. Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency which
has been asserted or threatened against the Company or any Subsidiary.

 

(bb) 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 Purchasers and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act.

 

(cc) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, 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 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 the Foreign Corrupt Practices Act of 1977,
as amended.

 

18

 

 

(dd) Accountants. The Company’s accounting firm is Weinberg & Company. 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 year ending March 31, 2013.

 

(ee) Seniority. As of the Closing Date, no Indebtedness or other claim against
the Company is senior to the Notes 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).

 

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

 

(gg) Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company
acknowledges and agrees that each of the Purchasers is acting solely in the
capacity of an arm’s length purchaser with respect to the Transaction Documents
and the transactions contemplated thereby. 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
Purchasers’ purchase of the Securities. The Company further represents to each
Purchaser that the Company’s decision to enter into this Agreement and the other
Transaction Documents has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.

 

19

 

 

(hh) Acknowledgment Regarding Purchasers’ Trading Activity. Notwithstanding
anything in this Agreement or elsewhere herein to the contrary (except for
Section 3.2(f)), it is understood and acknowledged by the Company that (i) none
of the Purchasers has been asked to agree by the Company, 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 such
Purchaser is a party, directly or indirectly, may presently have a “short”
position in the Common Stock, and (iv) each 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
(a) one or more Purchasers 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 (b) 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.

 

(ii) 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 of the Company or (iii) paid or
agreed to pay to any Person any compensation for soliciting another to purchase
any other securities of the Company, other than, in the case of clauses (ii) and
(iii), compensation paid to the Company’s placement agent in connection with the
placement of the Securities.

 

(jj) Significant Shareholders. Except for Steve Saleen and except as disclosed
in the SEC Reports, no Person has any direct or indirect beneficial ownership
(as determined in accordance with Regulation 13D-G) of shares of Common Stock
which exceeds in the aggregate (together with other Persons which would
constitute a “group” under Regulation 13D-G) five percent (5%) of the total
number of outstanding shares of Common Stock as of the date hereof and the
Closing Date, including, without limitation, as a result of any Person’s
beneficial interest in a trust. For purposes of the calculations under this
paragraph, any limitations on beneficial ownership contained in any instrument
directly or indirectly convertible, exchangeable or exercisable into or for
Common Stock shall be ignored and any such instruments shall be deemed to be
currently convertible, exchangeable or exercisable in full.

 

20

 

 

3.2 Representations and Warranties of the Purchasers. Each Purchaser, for itself
and for no other Purchaser, hereby represents and warrants as of the date hereof
and as of the Closing Date to the Company as follows:

 

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

 

(b) Own Account. Such Purchaser understands that the Securities are “restricted
securities” and have not been registered under the Securities Act or any
applicable state securities law and is acquiring 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
(this representation and warranty not limiting such Purchaser’s right to sell
the Securities pursuant to any registration statement filed under the Securities
Act or otherwise in compliance with applicable federal and state securities
laws) in violation of the Securities Act or any applicable state securities law.
Such Purchaser is acquiring the Securities hereunder in the ordinary course of
its business.

 

(c) Purchaser Status. At the time such Purchaser was offered the Securities, it
was, and at the date hereof it is, and on each date on which it or its permitted
assignee converts any Notes it or such permitted assignee, as the case may be,
will be an “accredited investor” as defined in Rule 501 under the Securities
Act. Such Purchaser is not required to be registered as a broker-dealer under
Section 15 of the Exchange Act.

 

(d) Experience of Such Purchaser. Such Purchaser, either alone or together with
its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment. Such Purchaser 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.

 

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

 

21

 

 

(f) Short Sales and Confidentiality Prior To The Date Hereof. Other than
consummating the transactions contemplated hereunder, such Purchaser has not
directly or indirectly, nor has any Person acting on behalf of or pursuant to
any understanding with such Purchaser, executed any purchases or sales,
including Short Sales, of the securities of the Company during the period
commencing from the time that such Purchaser first received a term sheet
(written or oral) from the Company or any other Person representing the Company
setting forth the material terms of the transactions contemplated hereunder
until the date hereof (“Discussion Time”). Notwithstanding the foregoing, in the
case of a Purchaser that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Purchaser’s assets and the
portfolio managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser’s assets, the
representation set forth above shall only apply with respect to the portion of
assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement. Other than to other Persons
party to this Agreement, such Purchaser has maintained the confidentiality of
all disclosures made to it in connection with this transaction (including the
existence and terms of this transaction).

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1Transfer Restrictions.

 

(a) The Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other than
pursuant to an effective registration statement or Rule 144, to the Company or
to an Affiliate of a Purchaser or in connection with a pledge as contemplated in
Section 4.1(b), the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in writing to
be bound by the terms of this Agreement and shall have the rights of a Purchaser
under this Agreement.

 

(b) The Purchasers 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
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. THIS SECURITY [AND THE SECURITIES ISSUABLE
UPON CONVERSION OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

22

 

 

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 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, such Purchaser may
transfer pledged or secured 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, including, if the Securities are subject to a registration statement
filed under the Securities Act, the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) under the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list of
selling stockholders thereunder.

 

(c) Certificates evidencing the Underlying Shares shall not contain any legend
(including the legend set forth in Section 4.1(b) hereof), except for any legend
reasonably referring to any applicable transfer restrictions under state
securities laws: (i) while a registration statement covering the resale of such
security is effective under the Securities Act, or (ii) if such Underlying
Shares are eligible for resale under Rule 144 and the holder thereof is not an
Affiliate of the Company, or (iii) if such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). If
required by the Transfer Agent to effect the removal of the legend hereunder,
the Company shall cause its counsel to issue a legal opinion to the Transfer
Agent promptly after the date which is six (6) months following the Closing Date
(if the Company has been subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act for the then preceding ninety (90) days and has filed
all reports required to be filed thereunder during the then preceding twelve
(12) months (or such shorter period that the Company was required to file such
reports) and the holder thereof is not an Affiliate of the Company). If all or
any portion of a Note is converted or exercised (as applicable) 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, except for any legend reasonably referring to any applicable
transfer restrictions under state securities laws. The Company agrees that at
such time as such legend is no longer required under this Section 4.1(c), it
will, no later than three 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 third Trading Day,
the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a
certificate representing such shares that is free from all restrictive and other
legends. 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. 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 such Purchaser.

 

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(d) In addition to such Purchaser’s other available remedies, the Company shall
be subject to the liquidated damage provisions and other remedies for failing
timely to provide proper certificates to a Purchaser which are set forth in such
Purchaser’s Note. Nothing herein shall limit such Purchaser’s right to pursue
actual damages for the Company’s failure to deliver certificates representing
any Securities as required by the Transaction Documents, and such Purchaser
shall have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.

 

(e) Each Purchaser, severally and not jointly with the other Purchasers, agrees
that such Purchaser will sell any Securities pursuant to either Rule 144 or 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 filed under the
Securities Act, 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.

 

(f) The Company represents and warrants that, except as may otherwise be set
forth in the Disclosure Schedules, none of the Purchasers is currently nor has
been, nor upon consummation of the Closing will become, an affiliate of the
Company for purposes of Rule 144. With respect to each Purchaser, the Company
covenants and agrees to take the position at all times in the future that such
Purchaser is not an affiliate of the Company for purposes of Rule 144 solely as
result of such Purchaser’s ownership of the Securities, except that this
covenant shall not apply if such Purchaser beneficially owns (as determined in
accordance with Regulation 13D-G of the Exchange Act) in excess of ten percent
(10%) of the outstanding shares of Common Stock.

 

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.

 

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4.3 Furnishing of Information. Until the time that no Purchaser owns Securities,
the Company covenants to timely 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 even if the
Company is not then subject to the reporting requirements of the Exchange Act.
As long as any Purchaser owns Securities, if the Company is not required to file
reports pursuant to the Exchange Act, it will prepare and furnish to the
Purchasers and make publicly available in accordance with Rule 144(c) such
information as would be required if the Purchasers were able to sell the
Securities under Rule 144. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the requirements of the exemption
provided by Rule 144 if such exemption becomes available. So long as any
Securities are outstanding, the Company shall cause itself to be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act and timely
file all reports required to be filed thereunder.     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 to the
Purchasers in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers or that would be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market.     4.5 Conversion Procedures. The form of
Notice of Conversion included in the Notes set forth the totality of the
procedures required of the Purchasers in order to convert the Notes. No
additional legal opinion or other information or instructions shall be required
of the Purchasers to convert their Notes. The Company shall honor 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 8:30 a.m. (New York
City time) on the Trading Day following the date hereof, issue a Current Report
on Form 8-K disclosing the material terms of the transactions contemplated
hereby and attaching the Transaction Documents as exhibits thereto. The Company
and each Purchaser shall consult with each other in issuing any other press
releases with respect to the transactions contemplated hereby, and neither the
Company nor any Purchaser shall issue any such press release or 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 each
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, without the prior written
consent of such Purchaser, except (a) as required by federal securities law in
connection with (i) any registration statement filed under the Securities Act
covering the resale of the Securities, and (ii) the filing of final Transaction
Documents (including signature pages thereto) 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 Purchasers with prior notice of such
disclosure permitted under this clause (b).

 

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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 Purchasers.  
  4.8 Non-Public Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company covenants and agrees that neither it nor any other Person acting on its
behalf will provide any Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Purchaser shall have executed a written agreement regarding
the confidentiality and use of such information. The Company understands and
confirms that each Purchaser shall be relying on the foregoing covenant in
effecting transactions in securities of the Company.     4.9 Use of Proceeds.
Except as set forth on Schedule 4.9 attached hereto or as provide in Section 5.2
hereof, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and shall not use such proceeds for (a)
the satisfaction of any portion of the Company’s debt (other than payment of
trade payables in the ordinary course of the Company’s business and prior
practices), (b) the redemption of any Common Stock or Common Stock Equivalents
or (c) the settlement of any outstanding litigation.     4.10 Indemnification of
Purchasers. Subject to the provisions of this Section 4.10, the Company will
indemnify and hold each Purchaser and its directors, officers, shareholders,
members, partners, employees and agents (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title), each Person who controls such Purchaser
(within the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, shareholders, agents, members,
partners or employees (and any other Persons with a functionally equivalent role
of a Person holding such titles notwithstanding a lack of such title or any
other title) of such controlling person (each, a “Purchaser Party”) harmless
from any and all losses, liabilities, obligations, claims, contingencies,
damages, costs and expenses, including all judgments, amounts paid in
settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result of
or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against a Purchaser in any
capacity, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser’s representations, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing reasonably
acceptable to the Purchaser Party. Any Purchaser Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of such
separate counsel, a material conflict on any material issue between the position
of the Company and the position of such Purchaser Party, in which case the
Company shall be responsible for the reasonable fees and expenses of no more
than one such separate counsel. The Company will not be liable to any Purchaser
Party under this Agreement (i) for any settlement by a Purchaser Party effected
without the Company’s prior written consent, which shall not be unreasonably
withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to any Purchaser Party’s breach of
any of the representations, warranties, covenants or agreements made by such
Purchaser Party in this Agreement or in the other Transaction Documents.

 

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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 be required to fulfill its obligations in full under the Transaction
Documents.

 

(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 use commercially reasonable efforts to
amend the Company’s 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
seventy-fifth (75th) day after such date.

 

(c) If applicable, the Company shall (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 on such Trading Market as soon as possible thereafter,
(iii) provide to the Purchasers evidence of such listing, and (iv) maintain the
listing 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.

 

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4.12 Corporate Structure. For a period of twelve (12) months following the
Closing, the Company and its Subsidiaries shall maintain and conduct its
business at a physical office or offices, hire and retain key employees and
other personnel, and otherwise operate its business in a reasonable and
customary manner similar to other public reporting companies engaged in similar
businesses.

 

4.13 Bank Account Signatures. So long as any Notes remain outstanding, any check
written against or other withdrawal from the Company or any of its Subsidiaries’
bank account(s) in an amount greater than $5,000.00 shall require the signature
of two executive officers.

 

4.14 Equal Treatment of Purchasers. No consideration shall be offered or paid to
any Person to amend or consent to a waiver or modification of any provision of
any of the Transaction Documents unless the same consideration is also offered
to all of the parties to the Transaction Documents. Further, the Company shall
not make any payment of principal or interest on the Notes in amounts which are
disproportionate to the respective principal amounts outstanding on the Notes at
any applicable time. For clarification purposes, this provision constitutes a
separate right granted to each Purchaser by the Company and negotiated
separately by each Purchaser, and is intended for the Company to treat the
Purchasers as a class and shall not in any way be construed as the Purchasers
acting in concert or as a group with respect to the purchase, disposition or
voting of Securities or otherwise.

 

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

 

4.16 Security. The Company’s and any Subsidiaries’ obligations under the Notes
and other Transaction Documents shall be secured by all the assets of the
Company and its Subsidiaries. As of the Closing, the Purchasers participating
therein shall be granted a security interest in all the assets of the Company,
including, without limitation, all of its Intellectual Property Rights and its
ownership of any and all Subsidiaries, and in the assets of any such
Subsidiaries, to be memorialized in the Security Documents. The Company shall
execute such other agreements, documents and financing statements reasonably
requested by Purchasers, which will be filed at the Company’s expense with the
applicable jurisdictions and authorities. The Company shall also execute all
such documents reasonably necessary in the opinion of the Purchasers to
memorialize and further protect the security interests described herein. The
Purchasers may appoint a collateral agent to represent them collectively in
connection with the security interests being granted to the Purchasers.

 

4.17 Additional Guarantors. The Company shall cause each of its Subsidiaries,
including those formed or acquired on or after the date hereof, to execute and
deliver to the Purchasers a Subsidiary Guarantee and a Security Agreement in
conformity with those executed and delivered at the Closing.

 

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ARTICLE V. MISCELLANEOUS

 

5.1 Termination. This Agreement may be terminated by any Purchaser, as to such
Purchaser’s obligations hereunder only and without any effect whatsoever on the
obligations between the Company and the other Purchasers, by written notice to
the other parties, if the Closing has not been consummated on or before April
30, 2015; provided, however, that such termination will not affect the right of
any party to sue for any breach by the other party (or parties).

 

5.2 Fees and Expenses. The Company shall pay all fees and expenses incurred by
the Purchasers in connection with the preparation, negotiation and execution and
delivery of the Transaction documents and the consummation of the transactions
contemplated hereby and thereby. The Company shall pay all transfer agent fees,
stamp taxes and other taxes and duties levied in connection with the delivery of
any Securities to the Purchasers. The amounts set forth in this paragraph as
payable by the Company shall be so payable regardless of whether the Closing
occurs.

 

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

 

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

 

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

 

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

 

5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.10.

 

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
California, 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, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
County of Los Angeles. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the County of Los
Angeles for the adjudication of any dispute hereunder or in connection herewith
or with any transaction contemplated hereby or discussed herein (including with
respect to the enforcement of any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such
court, that such suit, action or proceeding is improper or is an inconvenient
venue for such proceeding. Each party hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any other manner permitted by law. If either party shall commence an action
or proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action 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.

 

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5.10 Survival. The representations and warranties shall survive the Closing and
the delivery of the Securities for the applicable statute of limitations.

 

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 the other party, it being understood that both 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” or other document image
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” or other document image
format data file signature page were an original thereof.

 

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, until
the earlier of sixty (60) days after such failure by the Company or the Company
performs such obligations, such Purchaser may rescind or withdraw, in its sole
discretion from time to time upon written notice to the Company, any relevant
notice, demand or election in whole or in part without prejudice to its future
actions and rights; provided, however, in the case of a rescission of a
conversion of a Note, the Purchaser shall be required to return any shares of
Common Stock delivered in connection with any such rescinded conversion or
exercise notice.

 

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.

 

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

 

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 effective date 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 such 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 such Purchaser’s election.

 

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

 

32

 

 

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 has 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 hereto.

 

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.

 

(Signature Pages Follow)

 

 

 

 

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

 

SALEEN AUTOMOTIVE, INC.

 

By:     Name:     Title:    

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGES FOR PURCHASERS
FOLLOWS]

 

 

 

 

PURCHASER:

 

GREENTECH AUTOMOTIVE, INC.

 

By:     Gary Y. Tang     Executive Vice President – Finance  

 

1600 Tysons Boulevard, Suite 1150

McLean Virginia 22102