Exhibit 10.3

 

EXECUTION VERSION

 

SECURITIES PURCHASE AGREEMENT

 

dated as of September 30, 2015

 

by and among

 

DELAFIELD INVESTMENTS LIMITED (LENDER)

 

and

 

AMARANTUS BIOSCIENCE HOLDINGS, INC. (BORROWER)

 

 

 

 

SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT (the “Agreement”) is made as of September 30,
2015, by and among AMARANTUS BIOSCIENCE HOLDINGS, INC., a Nevada corporation
(and together with all of its current and future, direct and/or indirect, wholly
owned and/or partially owned Subsidiaries, collectively, the “Borrower” or the
“Company”), DELAFIELD INVESTMENTS LIMITED (“Delafield” or the “Lender”).

 

RECITALS

 

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

 

B.          The Lender wishes to purchase, and the Company wishes to sell, upon
the terms and conditions stated in this Agreement, the (i) Notes (in the form
amended hereto Exhibit A); and (ii) Warrants (in the form amended hereto Exhibit
B), all in the amounts and for the price set forth on Schedule 1 hereto.

 

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

 

ARTICLE 1

DEFINITIONS

 

1.1         Defined Terms. In addition to terms defined elsewhere in this
Agreement or in any Supplement, Amendment or Exhibit hereto, when used herein,
the following terms shall have the following meanings:

 

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

 

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

 

(c)         “2015 Shareholder Meeting Conditions” means that in connection with
the Company’s 2015 Annual Meeting of Stockholders held on September 2, 2015 (the
“2015 Meeting”), Lender is satisfied in its sole discretion that (i) the 2015
Meeting occurred and was in compliance with all applicable laws, rules and
regulations including, but not limited to, those relating to a quorum (ii) the
proposals that the Company’s shareholders were being asked to approve,
including, but not limited to the amendment to the Borrower’s Articles of
Incorporation increasing the Borrower’s authorized shares of Common Stock from
13,333,334 to 35,000,000 shares, (the “Amendment”), which proposals were set
forth in the Borrower’s Proxy Statement contained in its Definitive Schedule 14A
filed with the Commission on or about July 21, 2015, were approved and (iii) the
Amendment was filed with the Secretary of State of the State of Nevada and is
currently in effect.

 

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(d)         “Additional Notes” means the 12% Senior Secured Convertible
Promissory Notes of the Borrower, the terms and conditions of which are
substantially identical to those of the Notes purchased by Dominion Capital, LLC
(“Dominion”) from the Borrower pursuant to the Dominion Exchange Agreement.

 

(e)         “Alternative Conversion Price” means 60% of the lowest of traded
price of a share of Common Stock in the thirty (30) consecutive Trading Days
prior to the Conversion Date and/or any other determination date.

 

(f)         “Affiliate” means any Person which, directly or indirectly, owns or
controls, on an aggregate basis, a ten (10%) percent or greater interest in any
other Person, or which is controlled by or is under common control with any
other Person.

 

(g)         “Business Day” means any day other than a Saturday or Sunday or any
other day on which the Federal Reserve Bank of New York is not open for
business.

 

(h)         “Closing” means the time of issuance and sale by the Borrower of the
Note and Warrant to the Lender.

 

(i)         “Closing Date” means the date the Note and Warrants are purchased by
the Lender from the Borrower.

 

(j)         “Collateral Date” has the meaning set forth in the Security
Agreement.

 

(k)         “Contingent Obligation” means as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.

 

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

 

(m)         “Common Stock Equivalents” means any capital stock or other security
of the Borrower that is at any time and under any circumstances directly or
indirectly convertible into, exercisable or exchangeable for, and/or which
otherwise entitles the holder thereof to acquire, any capital stock or other
security of the Borrower (including, without limitation, Common Stock).

 

(n)          “Conversion Date” has the meaning set forth in the Notes

 

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(o)         “Conversion Shares” means all shares of Common Stock issuable upon
conversion of any portion of the Notes and/or as any other payment due under the
Notes including, but not limited to interest and/or otherwise, but solely to the
expert and subject to the Conditions set forth in the Notes, including, but not
limited to, shares of Common Stock, Common Stock Equivalents and shares of
Common Stock and/or other securities of the Borrower issuable upon exercise,
exchange and/or conversion of such Common Stock Equivalents.

 

(p)         “Documents” means collectively, this Agreement, the Notes, the
Warrants, the Registration Rights Agreement (in the form annexed hereto as
Exhibit C), the Transfer Agent Irrevocable Instruction Letter (in the form
annexed hereto as Exhibit D), the Security Agreement (in the form amended into
as Exhibit E), the Intercreditor and Subordination Agreement (in the form
annexed hereto as Exhibit F) the Leak-Out Agreement (in the form annexed hereto
as Exhibit G) the Lock-Up Agreement (in the form annexed hereto as Exhibit H), a
UCC-1 Financing Statement of the Lender and Dominion on all of the assets of the
Borrower (the “Lenders UCC-1”) to be filed with the Secretary of State of Nevada
on or about the Closing Date, and all financing statements (or comparable
documents now or hereafter filed in accordance with the UCC or other comparable
or similar laws, rules or regulations) in favor of the Lender and Dominion as
secured parties perfecting all Liens the Lender and Dominion have on the
Collateral, (which security interests and Liens of the Lender and Dominion shall
be pari passu with each other and which shall be senior to all Indebtedness of
the Borrower, except for a $1,000,000 12% Senior Secured Note due July 6, 2016
sold by the Borrower (the “July 2015 $1,000,000 Senior Note”), an amendment to
the UCC-1 Financing Statement dated____, 2015 of Dominion (the “Dominion
UCC-1”), to add Delafield so that with respect thereto Dominion and Delafield
are pari passu as to the security interest in the collateral set forth in
Dominion’s UCC-1 (the “Amended UCC-1”, and together with the Lenders UCC-1,
collectively, (the “Lenders UCC Filings”), which Lenders UCC Filings are
attached hereto as Exhibit I, the Perfection Certificate dated the date hereof
from Borrower to the Lender (in the form annexed hereto as Exhibit J), the
Patent and Trademark Security Agreement (annexed hereto as Exhibit K) all of the
issued and outstanding capital stock of each Subsidiary of the Borrower (the
“Pledged Securities”), which Pledged Securities are being pledged, by the
Borrower to the the Lender and Dominion or their Agent to secure the Borrower’s
obligations to the Lender and Dominion under the Notes and all documents
necessary to transfer the Pledged Securities to the Lender and Dominion as
provided in the Security Agreement (collectively with the Pledged Securities,
the “Pledge Documents”), which Pledge Documents are annexed hereto as Exhibit N,
the Letter Agreement dated September 30, 2015 by and among the Lender, Dominion,
and the Company relating to, among other items set forth therein, increasing the
authorized shares of Common Stock to 150,000,000 (the “Letter Agreement”) and
such other documents, instruments, certificates, supplements, amendments,
exhibits and schedules required and/or attached pursuant to this Agreement
and/or any of the above documents, and/or any other document and/or instrument
related to the above agreements, documents and/or instruments, and the
transactions hereunder and/or thereunder and/or any other agreement, documents
or instruments required or contemplated hereunder or thereunder, whether now
existing or at any time hereafter arising.

 

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(q)         “Dollar(s)” and “$” means lawful money of the United States (which
Pledged Securities and agreement documents are annexed hereto as Exhibit L), the
Patent and Trademark Security Agreement and annexed hereto as Exhibit K.

 

(r)         “Dominion Exchange Agreement” has the meaning set forth in the
definition of the “Notes” in this Section 1.

 

(s)         “Environmental Laws” means any and all laws, rules, orders,
regulations, statutes, ordinances, guidelines, codes, decrees, or other legally
enforceable requirements (including, without limitation, common law) of any
international authority, foreign government, the United States, or any state,
local, municipal or other governmental authority, regulating, relating to or
imposing liability or standards of conduct concerning protection of the
environment or of human health, or employee health and safety, as has been, is
now, or may at any time hereafter be, in effect.

 

(t)         “Equity Interests” means shares of capital stock, partnership
interests, membership interests in a limited liability company, beneficial
interests in a trust or other equity ownership interests in a Person, and any
warrants, options or other rights entitling the holder thereof to purchase or
acquire any such Equity Interest.

 

(u)         “Event of Default” shall have the meaning set forth in the Notes.

 

(v)         “GAAP” means generally accepted accounting principles in the United
States of America as in effect from time to time.

 

(w)        “Indebtedness” means, with respect to any Person at any date, without
duplication, (a) all indebtedness of such Person for borrowed money, (b) all
obligations of such Person for the deferred purchase price of property or
services, (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the
seller or the Lender and Dominion under such agreement in the event of default
are limited to repossession or sale of such property), (e) all capital lease
obligations of such Person, (f) all obligations of such Person, contingent or
otherwise, as an account party or applicant under acceptance, letter of credit,
surety bond or similar facilities, (g) all obligations of such Person,
contingent or otherwise, to purchase, redeem, retire or otherwise acquire for
value any capital stock of such Person, (h) all obligations for any earn-out
consideration, (i) the liquidation value of preferred capital stock of such
Person, (j) all guarantee obligations of such Person in respect of obligations
of the kind referred to in clauses (a) through (i) above, (k) all obligations of
the kind referred to in clauses (a) through (i) above secured by (or for which
the holder of such obligation has an existing right, contingent or otherwise, to
be secured by) any lien on property (including, without limitation, accounts and
contract rights) owned by such Person, whether or not such Person has assumed or
become liable for the payment of such obligation and all obligations of such
Person in respect of hedge agreements; and (l) all Contingent Obligations in
respect to indebtedness or obligations of any Person of the kind referred to in
clauses (a)-(k) above. The Indebtedness of any Person shall include, without
duplication, the Indebtedness of any other entity (including any partnership in
which such Person is a general partner) to the extent such Person is liable
therefor as a result of such Person’s ownership interest in or other
relationship with such entity, except to the extent the terms of such
Indebtedness expressly provide that such Person is not liable therefor.

 

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(x)         “July 2015 $1,000,000 Note” has the meaning set forth in the
definition of “Documents” in this Section 1.

 

(y)         “Liens” or “liens” means a lien, mortgage, charge pledge, security
interest, encumbrance, right of first refusal, preemptive right or other
restriction, or other clouds on title.

 

(z)         “Intercreditor and Subordination Agreement” means the Intercreditor
and Subordination Agreement dated the date hereof by and among the Borrower, the
Lender and Dominion and certain other persons named therein, the form of which
is annexed hereto as Exhibit F.

 

(aa)       “Leak-Out Agreement” shall have the meaning set forth in the
definitions of “Documents” in this Section 1, the form of which is annexed
hereto as Exhibit G.

 

(bb)       “Lender UCC Filings” shall have the meaning set forth in the
definition of “Documents” set forth in this Section 1, copies of which all
Lenders UCC Documents are annexed hereto as Exhibit I.

 

(cc)       “Lock-Up Agreement” has the meaning set forth in the definition of
“Documents” set forth in this Section H.

 

(dd)       “Liabilities” means all direct or indirect liabilities, Indebtedness
and obligations of any kind of Borrower to the Lender, howsoever created,
arising or evidenced, whether now existing or hereafter arising (including those
acquired by assignment), absolute or contingent, due or to become due, primary
or secondary, joint or several, whether existing or arising through discount,
overdraft, purchase, direct loan, participation, operation of law, or otherwise,
including, but not limited to, pursuant to the Notes, this Agreement and/or any
of the other Documents, all accrued but unpaid interest on the Notes the
principal, any letter of credit, any standby letter of credit, and/or outside
attorneys’ and paralegals’ fees or charges relating to the preparation of the
Documents and the enforcement of Lender’s rights, remedies and powers under this
Agreement, the Notes and/or the other Documents.

 

(ee)       “Loan Maturity Date” means the earlier of the date (i) three hundred
sixty (360) days from the Closing Date, (ii) of the consummation of a Major
Transaction, (iii) of an Event of Default and/or the date any the principal
under the Notes is accelerated and/or becomes due and payable for any reason
other than an Event of Default

 

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(ff)         “Major Transaction” means any of the following (i) the Borrower,
directly or indirectly, in one or more related transactions effects any merger
or consolidation of the Borrower with or into another Person, (ii) the Borrower,
directly or indirectly, effects any sale, lease, license, assignment, transfer,
conveyance or other disposition of all or substantially all of its assets in one
or a series of related transactions, (iii) any, direct or indirect, purchase
offer, tender offer or exchange offer (whether by the Borrower or another
Person) is completed pursuant to which holders of Common Stock are permitted to
sell, tender or exchange their shares for other securities, cash or property and
has been accepted by the holders of 30% or more of the outstanding Common Stock,
(iv) the Borrower, directly or indirectly, in one or more related transactions
effects any reclassification, reorganization or recapitalization of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property,
(v) the Borrower, directly or indirectly, in one or more related transactions
consummates a stock or share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme or arrangement) with another Person whereby such other Person acquires
more than 30% of the outstanding shares of Common Stock (not including any
shares of Common Stock held by the other Person or other Persons making or party
to, or associated or affiliated with the other Persons making or party to, such
stock or share purchase agreement or other business combination), (vi) the
majority of directors of the Borrower as of the date hereof are no longer the
majority number of directors; and/or (vii) a Qualified Offering.

 

(gg)       “Material Adverse Effect” means a material adverse effect on (a) the
business, assets, property, operations, or condition (financial or otherwise) of
Borrower, (b) the validity or enforceability of this Agreement or any of the
other Documents or (c) the rights or remedies of the Lender hereunder or
thereunder.

 

(hh)       “Notes” means all of the 12% Senior Secured Convertible Promissory
Notes due September 23, 2016 of the Borrower owned by the Lender, which, subject
to the terms and conditions set forth in this Agreement, shall purchase from the
Borrower pursuant to this Agreement, the form of Note is annexed hereto as
Exhibit A. The term “Notes” also means the Additional Notes issued to Dominion
pursuant to an Exchange Agreement as of September 24, 2015 by and between
Dominion and the Borrower (the “Dominion Exchange Agreement”), and any and all
Note(s) issued in exchange, transfer or replacement of the Notes and/or the
Additional Notes.

 

(ii)         “Patent of Trademark Security Agreement” means the Patent and
Trademark Security Agreement date on or about the date hereof, by and among, the
the Lender and Dominion, the Borrowers and the Borrower’s Subsidiaries and all
documents filed to perfect the Lender’s security interest in the Patents and
Trademark, both terms as defined in such agreement, which is annexed into as
Exhibit K.

 

(jj)         “Pay-Off Letter” means the Pay-Off Letter between the Company and
Discover, in the form annexed hereto as Exhibit M.

 

(kk)       “OFAC” means the United States Department of the Treasury’s Office of
Foreign Assets Control.

 

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(ll)         “OFAC Regulations” means the regulations promulgated by OFAC, as
amended from time to time.

 

(mm)     “Permitted Governmental Indebtedness” means Indebtedness provided by
the Export and Import Bank of the United States of America or other similar
governmental entity for the purpose of supporting product sales by the Borrower.

 

(nn)      “Permitted Indebtedness” means (i) Indebtedness of the Borrower
evidenced by the Notes, this Agreement and/or any other Document in favor of the
Lender including all Liabilities, (ii) Indebtedness of the Borrower set forth in
Borrower’s most recent SEC Report, provided none of such Indebtedness, has not
been increased, extended and/or otherwise changed since the original issuance
date of Indebtedness), (iii) Indebtedness secured by Permitted Liens described
in clauses “(iv)” of the definition of Permitted Liens, and (iv) Permitted
Governmental Indebtedness.

 

(oo)      “Permitted Liens” means (i) any Lien for taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP, (ii) any
statutory Lien arising in the ordinary course of business by operation of law
with respect to a liability that is not yet due or delinquent, (iii) any Lien
created by operation of law, such as materialmen’s liens, mechanics’ liens and
other similar liens, arising in the ordinary course of business with respect to
a liability that is not yet due or delinquent or that are being contested in
good faith by appropriate proceedings, (iv) Liens (a) upon or in any equipment
acquired or held by the Borrower to secure the purchase price of such equipment
or indebtedness incurred solely for the purpose of financing the acquisition or
lease of such equipment, and (b) existing on such equipment at the time of its
acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment, (v) any
Liens for Permitted Indebtedness perfecting security interests in the Permitted
Indebtedness set forth in Section (i) of (ii) of definition of Permitted
Indebtedness and (vi) the UCC Financing Statement dated July__, 2015 filed with
the Secretary of State of Nevada perfecting the $1,000,000 of Indebtedness
represented by the July 2015 $1,000,000 Note provided such Lien was in existence
since on or about the original date such July 2015 $1,000,000 Note was purchased
from the Borrower and since such date such Liens and security interests related
hereto has not been amended, supplemented and/or otherwise modified.

 

(pp)      “Person” means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, entity, party or government (whether national, federal, state,
county, city, municipal or otherwise including, without limitation, any
instrumentality, division, agency, body or department thereof).

 

(qq)      “Pledged Securities” has the meaning set forth in the definition of
“Documents”

 

(rr)        “Principal Market” means the market or exchange on which the Common
Stock is listed or quoted for trading on the date in question

 

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(ss)       “Purchase Price” means the price to be paid by Lender to purchase
such Lender’s Note.

 

(tt)         The “Required Reserve Amount” has the meaning set forth in Section
4.1(s).

 

(uu)       “Qualified Offering” means (i) a firm commitment public offering of
shares of the Common Stock (and any other securities of the Company that may be
sold along with shares of Common Stock in any such firm commitment public
offering), (ii) the gross proceeds resulting from such firm commitment public
offering are equal to or exceed, in the aggregate, $9,000,000, and (iii) (x) the
shares of Common Stock, including, but not limited to, the Underlying Shares,
are approved for listing and/or quotation on one of the exchanges or markets set
forth below, and (y) on the next Trading Day following the date the Commission
declares the registration statement registering under the Securities Act the
sale of the shares of Common Stock (and any other securities being issued or
sold in such Qualified Offering, if any), being sold to investors in such firm
commitment public offering effective (the “Qualified Offering Conversion Date”),
the shares of Common Stock and commence trading on the New York Stock Exchange,
NYSE MKT, the Nasdaq Global market, the Nasdaq Global Select Members or the
Nasdaq Capital Market.

 

(vv)       “RD SPA” has the meaning set forth in the definition of Simultaneous
Transactions in this Section 1.

 

(ww)     “Registration Rights Agreement” means that certain registration rights
agreement, date the date hereof, by and between the Borrower and the Lender
pursuant to which the Borrower shall register the Underlying Shares for resale
under the Securities Act, the form of which is annexed hereto as Exhibit C.

 

(xx)        “SEC” or “Commission” means the United States Securities and
Exchange Commission.

 

(yy)       “SEC Reports” has the meaning set forth in Section 3.1(aa) hereof.

 

(zz)        “Securities” means the Notes and the Warrants purchased pursuant to
this Agreement and all Underlying Shares and any securities of the Borrower
issued in replacement, substitution and/or in connection with any exchange,
conversion and/or any other transaction pursuant to which all or any of such
securities of the Borrower to the Lender.

 

(aaa)     “Security Agreement” means the Security Agreement dated on or about
the date hereof by and among the Borrower, the Subsidiaries of the Borrower, and
the Lender and Dominion as hereinafter amended and/or supplemented altogether
with all exhibits, schedules and annexes to such Security Agreement, pursuant to
which all Liabilities and Indebtedness of the Borrower to the Lender under the
Documents including, but not limited to, the Notes and Additional Notes are
secured by the Collateral which security interest in the Collateral shall be
perfected by the Lenders UCC-1, filed with the Secretary of State of the State
of Nevada, to the extent perfectable by the filing of a UCC 1 Financing
Statement and such other documents and instruments related thereto, which
Security Agreement is annexed hereto as Exhibit E.

 

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(bbb)     “Simultaneous Transactions” means each of the following:

 

(i)         Pursuant to a Securities Purchase Agreement dated as of September
30, 2015 by and between Delafield and the Borrower (the “RD SPA”), among other
items, Delafield shall have purchased from the Borrower in a registered direct
offering by the Borrower (i) $3,055,556 Stated Value of the Borrower’s shares of
Series H 12% Convertible Preferred Stock (the “H Shares”) with each H Share
having a stated value (the “Stated Value”) of $1,000 and having such other terms
and conditions set forth in the Certificate of Designation for the H Shares (the
“H Certificate”), and (ii) common stock purchase warrants to purchase shares of
Common Stock of the Borrower (the “RD Warrants”);

 

(ii)        Pursuant to the Dominion Exchange, Dominion exchanged securities of
the Borrower previously purchased by Dominion from the Borrower solely for
Additional Notes;

 

(iii)       Pursuant to a Repurchase Agreement dated as September 23, 2015, by
and between the Borrower and Discover Growth Fund, a Cayman Island company
(“Discover”), the Borrower has repurchased, or has funds and executed documents
in escrow, to purchase, shares of Series G Preferred Stock of the Company (the
“G Shares”), and shares of Common Stock owned by Discover (collectively, the
“Discover Securities”), which such Discover Securities represents all of the
Securities of the Company owned by Discover and the Discover Releasing Parties
(as defined in the Repurchase Agreement), for $4,750,000, and all shares of
Common Stock reserved for issuance upon conversion of the G Shares become
authorized but unissued shares of Common Stock, and the Borrower entered into
such other documents and agreements with Discover so requested by the Lender and
Dominion, all of which such documents shall be in form and substance
satisfactory to the Lender in its sole discretion.

 

(ccc)     “Solvent” means, with respect to any Person, as of any date of
determination, (i) the amount of the “present fair saleable value” of the assets
of such Person will, as of such date, exceed the amount of all “liabilities of
such Person, contingent or otherwise”, as of such date, as such quoted terms are
determined in accordance with applicable federal and state laws governing
determinations of the insolvency of debtors, (ii) the present fair saleable
value of the assets of such Person will, as of such date, be greater than the
amount that will be required to pay the liability of such Person on its debts as
such debts become absolute and matured, (iii) such Person will not have, as of
such date, an unreasonably small amount of capital with which to conduct its
business, and (iv) such Person will be able to pay its debts as they mature. For
purposes of this definition, (i) “debt” means liability on a “claim”, and (ii)
“claim” means any (a) right to payment, whether or not such a right is reduced
to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured or (b) right to an
equitable remedy for breach of performance if such breach gives rise to a right
to payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured
or unsecured.

 

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(ddd)    “Subsidiary” means, with respect to any Person, a corporation,
partnership, limited liability company or other entity of which shares of stock
or other ownership interests having ordinary voting power (other than stock or
such other ownership interests having such power only by reason of the happening
of a contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the time owned,
or the management of which is otherwise controlled, directly or indirectly
through one or more intermediaries, or both, by such Person all of the
Borrower’s Subsidiaries are set forth on Schedule 3.1(a) hereto.

 

(eee)     “Trading Day” means any day on which the Common Stock is traded on the
Trading Market, provided that “Trading Day” shall not include any day on which
the Common Stock is scheduled to trade on the Trading Market for less than 4.5
hours or any day that the Common Stock is suspended from trading during the
final hour of trading on the Trading Market (or if the Trading Market does not
designate in advance the closing time of trading on the Trading Market, then
during the hour ending at 4:00:00 p.m., New York City time) unless such day is
otherwise designated as a Trading Day in writing by the Lender.

 

(fff)       “Trading Market” means any of the following markets or exchanges on
which the Common Stock (or any other common stock of any other Person that
references the Trading Market for its common stock) is listed or quoted for
trading on the date in question: the OTC Bulletin Board, The NASDAQ Global
Market, The NASDAQ Global Select Market, The NASDAQ Capital Market, the New York
Stock Exchange, NYSE Arca, the NYSE MKT, or the OTCQX Marketplace, the OTCQB
Marketplace, the OTCPink Marketplace or any other tier operated by OTC Markets
Group Inc. (or any successor to any of the foregoing).

 

(ggg)    “Transfer Agent” means VStock Transfer, LLC, the current transfer agent
of the Company, with a mailing address of 18 Lafayette Place, Woodmere, New York
11598 and a facsimile number of (646) 536-3179, and any successor transfer agent
of the Borrower.

 

(hhh)    “Transfer Agent Irrevocable Instruction Letter” means the letter from
the Company to the Transfer Agent which instructs the Transfer Agent to issue
shares of Common Stock upon conversion of the Note, in the form of Exhibit D
attached hereto.

 

(iii)        “UCC” means the Uniform Commercial Code of as in effect from time
to time in the State of New York; provided, however, that in the event that, by
reason of mandatory provisions of law, any or all of the attachment, perfection,
priority, or remedies with respect to the Lender’s Liens on any Collateral is
governed by the Uniform Commercial Code as enacted and in effect in a
jurisdiction other than the State of New York, the term “UCC” shall mean the
Uniform Commercial code as enacted and in effect in such other jurisdiction
solely for purposes of the provisions thereof relating to such attachment,
perfection, priority, or remedies.

 

10

 

 

(jjj)         “Underlying Shares” means all Warrant Shares and Conversion
Shares.

 

(kkk)     “Variable Rate Transaction” shall have the meaning set forth in
Section 4.02(n) of this Agreement.

 

(lll)        “Warrant(s)” means the five (5) year Common Stock Purchase Warrants
of the Borrower, the form of which is annexed hereto as Exhibit B.

 

(mmm)   “Warrant Shares” means all shares of Common Stock issuable upon exercise
of the Warrants and/or any other securities issuable upon exercise of the
Warrants.

 

1.2         Other Definitional Provisions.

 

(a)         Use of Defined Terms. Unless otherwise specified therein, all terms
defined in this Agreement shall have the defined meanings when used in the other
Documents or any certificate or other document made or delivered pursuant hereto
or thereto.

 

(b)         Accounting Terms. As used herein and in the other Documents, and any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms relating to Borrower not defined in 1.1 and accounting terms
partly defined in 1.1, to the extent not defined, shall have the respective
meanings given to them under GAAP (provided that all terms of an accounting or
financial nature used herein shall be construed, and all computations of amounts
referred to herein shall be made without giving effect to (i) any election under
Accounting Standards Codification 825-10-25 (previously referred to as Statement
of Financial Accounting Standards 159) (or any other Accounting Standards
Codification or Financial Accounting Standard having a similar result or effect)
to value any Indebtedness or other liabilities of Borrower at “fair value”, as
defined therein, and (ii) any treatment of Indebtedness in respect of
convertible debt instruments under Accounting Standards Codification 470-20 (or
any other Accounting Standards Codification or Financial Accounting Standard
having a similar result or effect) to value any such Indebtedness in a reduced
or bifurcated manner as described therein, and such Indebtedness shall at all
times be valued at the full stated principal amount thereof).

 

(c)         Construction. The words “hereof”, “herein” and “hereunder” and words
of similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
Schedule and Exhibit references are to this Agreement unless otherwise
specified. The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.

 

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(d)         UCC Terms. Terms used in this Agreement which are defined in the UCC
shall, unless the context indicates otherwise or are otherwise defined in this
Agreement, have the meanings provided for by the UCC.

 

ARTICLE 2

LOAN AND PURCHASE OF NOTES AND WARRANTS

 

2.1         Closing. The Closing shall occur at 10:00 am (EST) on the Closing
Date at the offices of Gusrae Kaplan Nusbaum PLLC, 120 Wall Street, 25th Floor,
New York, New York 10005, on the first (1st) Trading Day on which the conditions
to Closing set forth in Section 5 hereof are satisfied or waived in writing as
provided elsewhere herein, or on such other date and time as agreed to by the
Borrower and Lender.

 

2.2         Conditions to Purchase of Notes and Warrants. Subject to the terms
and conditions of this Agreement, the Lender will at the Closing, on the Closing
Date, purchase from the Borrower the Notes and Warrants in the amounts and for
the Purchase Price as set forth on Schedule 1, provided that (i) no Event of
Default (or event that with the passage of time or the giving of notice, or
both, would become an Event of Default), shall have occurred or would result
therefrom; and (ii) the conditions in Section 5.01 have been satisfied.

 

2.3         Purchase Price and Payment of the Purchase Price for the Notes and
Warrants. The Purchase Price for the Notes and Warrants to be purchased by the
Lender shall be as set forth on Schedule 1 and shall be paid at the Closing,
(less all of the Lender’s Expenses (as defined below)), by the Lender by wire
transfer of immediately available funds to the Borrower in accordance with the
Borrower’s written wiring instructions, against delivery of the Notes and
Warrants. The Purchase Price for each Note purchased shall be ten (10%) less
than the aggregate principal amount of each such Note purchased, which 10%
discount shall constitute original issue discount.

 

2.4         Lender’s Cost and Expenses. On the Closing Date, all direct and
indirect costs and expenses of the Lender related to the negotiation, due
diligence, preparation, closing, and all other items regarding or related to
this Agreement and the other Documents and all of the transactions contemplated
herein and/or therein including, but not limited to, the Simultaneous
Transactions, including, but not limited to the legal fees and expenses of the
Lender’s legal counsel (collectively, the “Lender’s Expenses”), shall be due and
payable from the Borrower to the Lender; and the Lender shall subtract from
their respective Purchase Price to be paid to the Borrower for the purchase of
the Notes and Warrants, all of such Lender’s Expenses. Although the Lender’s
Expenses are the sole responsibility and obligation of the Borrower, but are
being subtracted by the Lender from their respective Purchase Prices actually
paid to the Borrower, such Lender’s Expenses shall constitute part of such
Purchase Prices and shall not directly and/or indirectly reduce and or result in
any set-off the aggregate principal amount of the Note or result in a set-off
and/or reduction of any other funds owed by the Borrower to the Lender.

 

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ARTICLE 3

REPRESENTATIONS AND WARRANTIES; OTHER ITEMS

 

3.1         Representation and Warranties. Borrower (which for purposes of this
Section 3 means the Borrower and all of its Subsidiaries), represents and
warrants to the Lender that on the Closing Date:

 

(a)         Subsidiaries. All of the direct and indirect subsidiaries of the
Borrower are set forth on Schedule 3.1(a). The Borrower owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all of the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe for
or purchase securities.

 

(b)         Organization, Etc. Borrower is duly organized, validly existing and
in good standing under the laws of the state of their respective organization
and are duly qualified and in good standing or has applied for qualification as
a foreign corporation authorized to do business in each jurisdiction where,
because of the nature of its activities or properties, such qualification is
required except where the failure to be so qualified would not reasonably be
expected to have a Material Adverse Effect.

 

(c)         Authorization: No Conflict. The execution, delivery and performance
of the Documents and the transactions contemplated thereby by the Borrower,
including, but not limited to, the sale and issuance of the Note and the Warrant
for the Purchase Price, the reservation for issuance of the shares of Common
Stock required to be reserved pursuant to the terms of the Notes, and Warrants
and of the sale and issuance the Conversion Shares into which the Notes are
convertible into and the Warrant Shares issuable upon exercise of the Warrant
(i) are within Borrower’s corporate powers, (ii) have been duly authorized by
all necessary action by or on behalf of Borrower (and/or its shareholders to the
extent required by law), (iii) the Borrower has received all necessary and/or
required governmental, regulatory and other approvals and consents (if any shall
be required), (iv) do not and shall not contravene or conflict with any
provision of, or require any consents under (1) any law, rule, regulation or
ordinance, (2) Borrower’s organizational documents; and/or (3) any agreement
binding upon Borrower or any of Borrower’s properties except as would not
reasonably be expected to have a Material Adverse Effect, and (v) do not result
in, or require, the creation or imposition of any Lien and/or encumbrance on any
of Borrower’s properties or revenues pursuant to any law, rule, regulation or
ordinance or otherwise.

 

(d)         Validity and Binding Nature. The Documents to which Borrower is a
party are the legal, valid and binding obligations of Borrower, enforceable
against Borrower in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization and
other similar laws of general application affecting the rights and remedies of
creditors and by general equitable principles (whether enforcement is sought by
proceedings in equity or at law).

 

(e)         Title to Assets. Borrower has good and marketable title to all
assets owned by Borrower.

 

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(f)         No Violations of Laws. Borrower is not in violation of any law,
ordinance, rule, regulation, judgment, decree or order of any federal, state or
local governmental body or court and/or regulatory or self-regulatory body.

 

(g)         Burdensome Obligations. Borrower is not a party to any indenture,
agreement, lease, contract, deed or other instrument, or subject to any
partnership restrictions or has any knowledge of anything which could have a
Material Adverse Effect.

 

(h)         Taxes. All federal, and material state and local tax returns
required to be filed by Borrower have been filed with the appropriate
governmental agencies and all taxes due and payable by Borrower have been timely
paid.

 

(i)         Employee Benefit Plans. The term “Plan” means an “employee pension
benefit plan” (as defined in Section 3 of Employee Retirement Income Security
Act of 1974, as amended from time to time (“ERISA”)) which is or has been
established or maintained, or to which contributions are or have been made, by
Borrower or by any member of the Controlled Group. Each plan and/or employee
benefit plan, if any, (as defined in Section 3(3) of ERISA) maintained by
Borrower complies in all material respects with all applicable requirements of
law and regulations and all payments and contributions required to be made with
respect to such plans have been timely made.

 

(j)         Federal Laws and Regulations. Borrower is not (i) an “investment
Borrower” or a Borrower “controlled”, whether directly or indirectly, by an
“investment company”, within the meaning of the Investment Company Act of 1940,
as amended; or (ii) engaged principally, or as one of its important activities,
in the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System).

 

(k)         Fiscal Year. The fiscal year of Borrower ends on December 31 of each
year.

 

(l)         Subsidiaries; Etc. All Subsidiaries of the Borrower and the
locations thereof on the Closing Date are set forth in the SEC Reports. The SEC
Reports set forth as of the Closing Date, Borrower’s jurisdiction of
organization and the location of Borrower’s executive offices and other places
of business.

 

(m)       Officers and Ownership. As of the date hereof, the Persons set forth
in the SEC Reports holds the respective office or offices, position or positions
(including director positions if a director), in Borrower and (ii) own the
percentage of each and every class of issued and outstanding capital stock,
other ownership interests and/or securities of Borrower and the voting power
over said capital stock, other ownership interests and/or securities of
Borrower.

 

14

 

 

(n)         Rule 506(d) Bad Actor Disqualification Representations and
Covenants.

 

(i)         No Disqualification Events. Neither the Borrower, nor any of its
predecessors, affiliates, any manager, executive officer, other officer of the
Borrower participating in the offering, any beneficial owner (as that term is
defined in Rule 13d-3 under the Exchange Act) of 20% or more of the Borrower’s
outstanding voting equity securities, calculated on the basis of voting power,
nor any promoter (as that term is defined in Rule 405 under the Securities Act)
connected with the Borrower in any capacity as of the date of this Agreement and
on the Closing Date (each, a “Borrower Covered Person” and, together, “Borrower
Covered Persons”) is subject to any of the “Bad Actor” disqualifications
described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a
“Disqualification Event”), except for a Disqualification Event covered by Rule
506(d)(2) or (d)(3). The Borrower has exercised reasonable care to determine (i)
the identity of each person that is a Borrower Covered Person; and (ii) whether
any Borrower Covered Person is subject to a Disqualification Event. The Borrower
will comply with its disclosure obligations under Rule 506(e).

 

(ii)         Other Covered Persons. The Borrower is not aware of any person
(other than any Borrower Covered Person) that has been or will be paid (directly
or indirectly) remuneration in connection with the Loan and the Note and/or the
Warrants that is subject to a Disqualification Event (each an “Other Covered
Person”).

 

(iii)       Reasonable Notification Procedures. With respect to each Borrower
Covered Person, the Borrower has established procedures reasonably designed to
ensure that the Borrower receives notice from each such Borrower Covered Person
of (i) any Disqualification Event relating to that Borrower Covered Person, and
(ii) any event that would, with the passage of time, become a Disqualification
Event relating to that Borrower Covered Person; in each case occurring up to and
including the Closing Date.

 

(iv)       Notice of Disqualification Events. The Borrower will notify the
Lender immediately in writing upon becoming aware of (i) any Disqualification
Event relating to any Borrower Covered Person and (ii) any event that would,
with the passage of time, become a Disqualification Event relating to any
Borrower Covered Person and/or Other Covered Person.

 

(o)         Accuracy of Information, etc. No statement or information contained
in this Agreement, the SEC Reports, any other Document or any other document,
certificate or statement furnished to the Lender by or on behalf of Borrower in
writing for use in connection with the transactions contemplated by this
Agreement and/or the other Documents, contained as of the date such statement,
information, document or certificate was made or furnished, as the case may be,
any untrue statement of a material fact or omitted to state a material fact
necessary to make the statements contained herein or therein, taken as a whole,
not materially misleading. There is no fact known to Borrower that could have a
Material Adverse Effect that has not been expressly disclosed herein, in the
other Documents, or in any other documents, certificates and statements
furnished to the Lender for use in connection with the transactions contemplated
hereby and by the other Documents.

 

15

 

 

(p)         Solvency. Borrower is as of the date hereof Solvent; and shall be
Solvent immediately prior to, and immediately following the Closing, after
giving effect to the incurrence of all Indebtedness and all other obligations
being incurred by the Borrower pursuant hereto and the other Documents
including, but not limited to, all Liabilities and pursuant to the other
Documents and the use of the Purchase Prices as provided elsewhere herein.

 

(q)         Affiliate Transactions. Other than as disclosed in the SEC Reports,
Borrower has not purchased, acquired or leased any property from, or sold,
transferred or leased any property to, or entered into any other transaction
with (i) any Affiliate, (ii) any officer, director, manager, shareholder or
member of Borrower or any Affiliate of any thereof, or (iii) any member of the
immediate family of any of the foregoing, except on terms comparable to the
terms which would prevail in an arms-length transaction between unaffiliated
third parties and have been disclosed to the Lender in writing.

 

(r)         Intellectual Property. The Borrower has, or has rights to use, all
patents, patent applications, trademarks, trademark applications, service marks,
trade names, trade secrets, inventions, copyrights, licenses and other
intellectual property rights and similar rights as described in the SEC Reports
as necessary or required for use in connection with its business and which the
failure to so have could have a Material Adverse Effect (collectively, the
“Intellectual Property Rights”). None of, and the Borrower has not received a
notice (written or otherwise) that any of, the Intellectual Property Rights has
expired, terminated or been abandoned, or is expected to expire or terminate or
be abandoned. The Borrower has not received, since the date of the latest
audited financial statements included within the SEC Reports, a written notice
of a claim or otherwise has any knowledge that the Intellectual Property Rights
violate or infringe upon the rights of any Person, except as could not have or
reasonably be expected to not have a Material Adverse Effect. To the knowledge
of the Borrower, all such Intellectual Property Rights are enforceable and there
is no existing infringement by another Person of any of the Intellectual
Property Rights. The Borrower has taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their intellectual properties,
except where failure to do so could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. All Intellectual
Property Rights of the Borrower are set forth in the SEC Reports.

 

(s)         Variable Rate Securities. The Borrower has not directly and/or
indirectly entered into, nor has any agreement, intention and/or obligation to
enter into any Variable Rate Transaction.

 

(t)         USA Patriot Act. Borrower is in compliance, in all material
respects, with (a) the Trading with the Enemy Act, as amended, and each of the
foreign assets control regulations of the United States Treasury Department (31
C.F.R., Subtitle B, Chapter V, as amended) and any other enabling legislation or
executive order relating thereto, and (b) the USA Patriot Act (Title III of Pub.
L. 107-56, signed into law October 26, 2001) (the “Act”). No part of the
proceeds of the Loan will be used, directly or indirectly, for any payments to
any governmental official or employee, political party, official of a political
party, candidate for political office, or anyone else acting in an official
capacity, in order to obtain, retain or direct business or obtain any improper
advantage, in violation of the United States Foreign Corrupt Practices Act of
1977, as amended.

 

16

 

 

(u)         Foreign Asset Control Laws. Borrower is not a Person named on a list
published by OFAC or a Person with whom dealings are prohibited under any OFAC
Regulations.

 

(v)         Indebtedness; Liens, Etc. Except for Permitted Indebtedness and
Permitted Liens, the Borrower has no Indebtedness nor any Liens.

 

(w)         Authorization; Enforcement. All corporate action on the part of the
Borrower, its officers, directors and stockholders necessary for the
authorization, execution and delivery of the Documents and the performance of
all obligations of the Borrower under the Documents, and have been taken on or
prior to the date hereof. Each of the Documents has been duly executed by the
Borrower and, when delivered in accordance with the terms hereof and thereof,
will constitute the valid and binding obligation of the Borrower enforceable
against the Borrower 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.

 

(x)         Valid Issuance of the Notes, Warrants and Underlying Shares, Etc.
Each of the Notes and Warrants has been duly authorized and, when issued and
paid for in accordance with this Agreement, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens and all restrictions
on transfer other than those expressly imposed by the federal securities laws
and vest in the Lender full and sole title and power to the Notes and the
Warrants purchased hereby by the Lender, free and clear of all Liens, and
restrictions on transfer other than those imposed by the federal securities
laws. All Conversion Shares when issued pursuant to conversion of the Note; and
all Warrant Shares when issued pursuant to any exercise of the Warrants, will be
duly and validly issued, fully paid and nonassessable, will be free and clear of
all Liens and all restrictions on transfer other than those expressly imposed by
the federal securities laws and vest in the holder full and sole title and power
to such securities. The Borrower has reserved from its duly authorized unissued
Common Stock, the Required Reserve Amount, which Required Reserve Amount shall
be continuously determined by the Borrower to ensure that the Required Reserve
Amount is in reserve with the Transfer Agent at all times. The Warrants, the
Notes, Warrant Shares and all Conversion Shares shall sometimes be collectively
referred to as the “Securities.”

 

(y)         Offering. The offer and sale of the Notes and Warrants as
contemplated by this Agreement, the Notes and the Warrants, are exempt from the
registration requirements of the Securities Act, and the qualification or
registration requirements of state securities laws or other applicable blue sky
laws. Neither the Borrower nor any authorized agent acting on its behalf will
take any action hereafter that would cause the loss of such exemptions.

 

17

 

 

(z)         Capitalization and Voting Rights. The authorized capital stock of
the Borrower and all securities of the Borrower issued and outstanding are set
forth in the SEC Reports as of the dates reflected therein. All of the
outstanding shares of Common Stock and other securities of the Borrower have
been duly authorized and validly issued, and are fully paid and nonassessable.
Except as set forth in the SEC Reports, there are no agreements or arrangements
under which the Borrower is obligated to register the sale of any of the
Borrower’s securities under the Securities Act. Except as set forth in the SEC
Reports, no shares of Common Stock and/or other securities of the Borrower are
entitled to preemptive rights and there are no outstanding debt securities and
no contracts, commitments, understandings, or arrangements by which the Borrower
is or may become bound to issue additional shares of the capital stock and/or
other securities of the Borrower or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, any shares of capital
stock of the Borrower other than those issued or granted in the ordinary course
of business pursuant to the Borrower’s equity incentive and/or compensatory
plans or arrangements. Except for customary transfer restrictions contained in
agreements entered into by the Borrower to sell restricted securities and/or as
set forth in the SEC Reports, the Borrower is not a party to, and it has no
knowledge of, any agreement restricting the voting or transfer of any shares of
the capital stock and/or other securities of the Borrower. Except as set forth
in the SEC Reports, the offer and sale of all capital stock, convertible or
exchangeable securities, rights, warrants, options and/or any other securities
of the Borrower when any such securities of the Borrower were issued complied
with all applicable federal and state securities laws, and no current and/or
prior holder of any securities of the Borrower has any right of rescission or
damages or any “put” or similar right with respect thereto that would have a
Material Adverse Effect. Except as set forth in the SEC Reports, there are no
securities or instruments of the Borrower containing anti-dilution or similar
provisions that will be triggered by the issuance and/or sale of the Securities
and/or the consummation of the transactions described herein or in any of the
other Documents.

 

(aa)      SEC Reports. The Borrower is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act and the Borrower is current in its
filing obligations under the Exchange Act, including, without limitation, as to
its filings of Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K (collectively, the “SEC Reports”). The SEC Reports,
at the time filed with the SEC, did not contain any untrue statement of a
material fact or omit to state any fact necessary to make any statement therein
not misleading. All financial statements included in the SEC Reports (the
“Financial Statements”) have been prepared in accordance GAAP applied on a
consistent basis throughout the periods indicated and with each other, except
that unaudited Financial Statements may not contain all footnotes required by
generally accepted accounting principles. The Financial Statements fairly
present, in all material respects, the financial condition and operating results
of the Borrower as of the dates, and for the periods, indicated therein, subject
in the case of unaudited Financial Statements to normal year-end audit
adjustments.

 

(cc)      Sarbanes-Oxley Act. The Borrower is in compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date hereof.

 

18

 

 

(ee)       Arbitration, Absence of Litigation. Except as disclosed in the SEC
Reports, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending or, to the knowledge of the Borrower, threatened against or
affecting the Borrower, the Common Stock or any of the Borrower’s officers or
directors or 5% or greater shareholders in their capacities as such.

 

(gg)       Material Changes; Undisclosed Events, Liabilities or Developments.
Except as provided in Schedule 3.1(gg), since the date of the latest audited
Financial Statements included in the SEC Reports, except as specifically
disclosed in a subsequent Public Report filed with the SEC prior to the date
hereof: (i) there has been no event, occurrence or development that has had or
that could reasonably be expected to result in a Material Adverse Effect, (ii)
the Borrower has not incurred any liabilities (contingent or otherwise) other
than (A) trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required to be
reflected in the Borrower’s Financial Statements pursuant to GAAP or disclosed
in Public Reports pursuant to SEC rules and/or regulations, (iii) the Borrower
has not altered its method of accounting, (iv) the Borrower 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 Borrower has not issued any equity securities
to any officer, director or affiliate, except pursuant to existing Borrower
stock option plans. The Borrower 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, no event, liability, fact,
circumstance, occurrence or development has occurred or exists or is reasonably
expected to occur or exist with respect to the Borrower or its business,
properties, operations, assets or financial condition, that would be required to
be disclosed by the Borrower under applicable securities laws at the time this
representation is made or deemed made that has not been publicly disclosed at
least one Trading Day prior to the date that this representation is made.

 

(hh)       Disclosure. Except with respect to the material terms and conditions
of the transactions contemplated by the Documents, the Borrower confirms that
neither it nor any other Person acting on its behalf has provided the Lender or
its agents or counsel with any information that constitutes material, non-public
information. The Borrower understands and confirms that the Lender will rely on
the Documents, the information included therein including, but not limited to,
the foregoing representation and the SEC Reports in purchasing the Notes and
Warrants. All of the disclosure furnished by or on behalf of the Borrower to the
Lender in the Documents and/or in the SEC Reports regarding, among other matters
relating to the Borrower, its business and the transactions contemplated in the
Documents, are true and correct in all material respects as of the date made and
do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. The Borrower
acknowledges and agrees that the Lender does not make nor has it made any
representations or warranties with respect to the transactions contemplated in
the Documents other than those specifically set forth in Section 7 hereof.

 

19

 

 

(ii)         No Integrated Offering. Assuming the accuracy of the
representations and warranties set forth in Section 7, neither the Borrower, nor
any of its affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause the
issuance and/or sale of the Securities to be integrated with prior offerings of
securities by the Borrower for purposes of (i) the Securities Act which would
require the registration of any such Securities and/or securities of the
Borrower under the Securities Act, or (ii) any shareholder approval provisions
of any Trading Market on which any of the securities of the Borrower are listed,
eligible for quotation and/or designated.

 

(jj)         Bankruptcy Status; Indebtedness. The Borrower has no current
intention or expectation to file for reorganization or liquidation under the
bankruptcy or reorganization laws of any jurisdiction within one year from the
applicable representation date. All outstanding secured and unsecured
Indebtedness (as defined below) of the Borrower, or for which the Borrower has
commitments, is set forth in the SEC Reports.

 

(kk)       Regulation M Compliance. The Borrower 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 Borrower to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay
to any Person any compensation for soliciting another to purchase any other
securities of the Borrower.

 

(ll)         No Consents, Etc. No direct or indirect consent, approval,
authorization or similar item is required to be obtained by the Borrower to
enter into this Agreement, the Note, the Warrant and/or the other Documents to
which it is a party and to perform or undertake any of the transactions
contemplated pursuant to this Agreement, the Note, the Warrant and/or any of the
other Documents to which it is a party.

 

(mm)     Listing of Securities. All Underlying Shares and Warrant Shares have
been approved for listing or quotation on the Trading Market, subject only to
notice of issuance.

 

(nn)      Dilutive Effect. The Borrower understands and acknowledges that the
number of Conversion Shares issuable pursuant to terms of the Notes and the
number of Warrant Shares issuable upon exercise of the Warrants will increase in
certain circumstances. The Borrower further acknowledges that its obligation to
issue Conversion Shares pursuant to the terms of the Notes in accordance with
this Agreement and the Notes and its obligation to issue the Warrant Shares upon
exercise of the Warrants in accordance with this Agreement and the Warrants is,
in each case, absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders of the
Borrower.

 

20

 

 

(oo)       Application of Takeover Protections; Rights Agreement.  The Borrower
and its board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Borrower’s Certificate of Incorporation or the
laws of the jurisdiction of its formation which is or could become applicable to
the Lender as a result of the transactions contemplated by this Agreement and/or
the other Documents, including, without limitation, the Borrower’s issuance of
the Securities and Lender’s ownership of the Securities. The Borrower has not
adopted a stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control of
the Borrower.

 

(pp)       Manipulation of Price. The Borrower 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, or that could reasonably be expected to cause or
result, in the stabilization or manipulation of the price of any security of the
Borrower to facilitate the sale or resale of any of the Securities, (ii) sold,
bid for, purchased, or paid any compensation for soliciting purchases of, any of
the Securities, or (iii) paid or agreed to pay to any person any compensation
for soliciting another to purchase any other securities of the Borrower.

 

(qq)      DTC Eligible. The Common Stock is DTC eligible and DTC has not placed
a “freeze” or a “chill” on the Common Stock and the Borrower has no reason to
believe that DTC has any intention to make the Common Stock not DTC eligible, or
place a “freeze” or “chill” on the Common Stock.

 

(rr)        No Delisting from Trading Market. The Common Stock is eligible for
quotation on the Principal Market and the Borrower has no reason to believe that
the Principal Market has any intention of delisting the Common Stock from the
Principal Market.

 

(ss)       No General Solicitation.  Neither the Borrower, nor any of its
affiliates, nor any Person acting on its behalf, has engaged in any form of
general solicitation or general advertising (within the meaning of Regulation D)
in connection with the offer or sale of the Securities.  The Borrower has not
engaged any placement agent or other agent in connection with the sale of the
Securities.

 

(tt)         Acknowledgment Regarding Lender’s Purchase of Notes and Warrants.
 The Borrower acknowledges and agrees that the Lender is acting solely in the
capacity of an arm’s length purchaser with respect to the other Documents and
the transactions contemplated hereby and thereby and that the Lender is not
(i) an officer or director of the Borrower, (ii) an Affiliate of the Borrower or
(iii) to the knowledge of the Borrower, a “beneficial owner” of more than 10% of
the shares of Common Stock (as defined for purposes of Rule 13d-3 of the
Exchange Act.  The Borrower further acknowledges that the Lender is not acting
as a financial advisor or fiduciary of the Borrower (or in any similar capacity)
with respect to the Documents and the transactions contemplated hereby and
thereby, and any advice given by the Lender or any of its representatives or
agents in connection with the Documents and the transactions contemplated hereby
and thereby is merely incidental to the Lender’s purchase of the Securities. 
The Borrower further represents to the Lender that the Borrower’s decision to
enter into the Documents has been based solely on the independent evaluation by
the Borrower and its representatives.

 

21

 

 

(uu)       Off Balance Sheet Arrangements.  There is no transaction,
arrangement, or other relationship between the Borrower and an unconsolidated or
other off balance sheet entity that is required to be disclosed by the Borrower
in its Exchange Act filings and is not so disclosed or that otherwise would be
reasonably likely to have a Material Adverse Effect.

 

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

 

(ww)     Internal Accounting and Disclosure Controls.  The Borrower maintains 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 generally
accepted accounting principles and to maintain asset and liability
accountability, (iii) access to assets or incurrence of liabilities is permitted
only in accordance with management’s general or specific authorization and
(iv) the recorded accountability for assets and liabilities is compared with the
existing assets and liabilities at reasonable intervals and appropriate action
is taken with respect to any difference.  The Borrower maintains disclosure
controls and procedures (as such term is defined in Rule 13a-15 under the
Exchange Act) that are effective in ensuring that information required to be
disclosed by the Borrower in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Borrower in the reports that it files or submits under
the Exchange Act is accumulated and communicated to the Borrower’s management,
including its principal executive officer or officers and its principal
financial officer or officers, as appropriate, to allow timely decisions
regarding required disclosure.  Except as disclosed in the SEC Reports, during
the twelve months prior to the date hereof the Borrower has not received any
notice or correspondence from any accountant relating to any material weakness
in any part of the system of internal accounting controls of the Borrower

 

ARTICLE 4

COVENANTS

 

4.1         Affirmative Covenants. Commencing on the Closing Date and until all
the Liabilities are paid in full and this Agreement, Borrower covenants and
agrees that:

 

(a)         Financial Statements and Certificates. While any amounts are owed to
the Lender from the Borrower (including, but not limited to, any Liability),
Borrower will furnish the following to the Lender, all in form and scope
acceptable to the Lender, unless such information is included in the Borrower’s
most recent SEC Reports:

 

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(i)         within 105 days after the close of each fiscal year of Borrower, a
copy of the annual report of Borrower consisting of a balance sheet, statement
of operating results and retained earnings, statement of cash flows and notes to
financial statements, profit and loss statement and statement of changes in
financial position of Borrower, prepared in conformity with GAAP, duly prepared
by certified public accountants of recognized standing selected by Borrower and
reasonably approved by the Lender;

 

(ii)        within 45 days after the end of each fiscal quarter, (a) a copy of
an unaudited financial statement of Borrower prepared in the same manner as the
report referred to in paragraph (i) above, signed by the chief financial officer
of Borrower and consisting of a balance sheet as at the close of such fiscal
quarter and statements of earnings, cash flow, income and source and application
of funds for such fiscal quarter and for the period from the beginning of such
fiscal year to the close of such fiscal quarter, and (b) a duly completed
compliance certificate, dated the date of such financial statements and
certified as true and correct by the chief executive officer or chief financial
officer of Borrower, stating that Borrower has not become aware of any Event of
Default that has occurred and is continuing or, if there is any such Event of
Default describing it and the steps, if any, being taken to cure it;

 

(iii)       a duly completed compliance certificate, dated the date of such
financial statements and certified as true and correct by the chief executive
officer and chief financial officer of Borrower, stating that Borrower has not
become aware of any Event of Default that has occurred and is continuing or, if
there is any such Event of Default describing it and the steps, if any, being
taken to cure it;

 

(iv)       copies of any and all reports, examinations, notices, warnings and
citations issued by any governmental or quasi-governmental (whether federal,
state or local), unit, agency, body or entity with respect to Borrower that
could have a Material Adverse Effect; and

 

(v)       such other information as the Lender from time to time reasonably
requests.

 

(b)         Books, Records and Inspections. Borrower shall (i) maintain complete
and accurate books and records; (ii) permit access by the Lender and its agents
and/or representatives to such books and records as they relate to this
Agreement, the Securities, and/or the other Documents; and (iii) permit such
persons, upon two (2) days prior written notice, to inspect the properties,
whether real or personal, and operations of Borrower.

 

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(c)         Insurance. Borrower shall maintain such insurance as may be required
by law and such other insurance to the extent and against such hazards and
liabilities as is customarily maintained by companies similarly situated. All
property insurance policies shall, within 30 days following the Closing Date,
contain Lender loss payable clauses in form and substance reasonably
satisfactory to the Lender, naming the Lender as a Lender loss payee, mortgagee
and/or additional insured, as its interest may appear, and providing that such
policies and Lender loss payable clauses may not be canceled, amended or
terminated unless at least thirty (30) days (or ten (10) days in the case of
non-payment of premiums) prior written notice thereof has been given to the
Lender. All insurance proceeds received by the Lender may be retained by the
Lender, in its sole discretion, for application to the payment of the
Liabilities as the Lender may determine.

 

(d)         Taxes and Liabilities. Borrower shall pay when due all material
taxes, assessments and other liabilities except as contested in good faith and
by appropriate proceedings and for which adequate reserves in conformity with
GAAP have been established.

 

(e)         Maintenance of Business; Borrower Names. Borrower shall (i) keep all
property and systems useful and necessary in its business in good working order
and condition, (ii) preserve its existence, rights and privileges in the
jurisdiction of its organization or formation, as set forth on the SEC Reports
an become or remain, and cause each of its Subsidiaries to become or remain,
duly qualified and in good standing in each jurisdiction in which the character
of the properties owned or leased by it or in which the transaction of its
business makes such qualification necessary (iii) not operate in any business
other than a business substantially the same as the business as in effect on the
date of this Agreement; provided, however, that it may change its jurisdiction
of organization or formation establishment upon thirty (30) days prior written
notice to the Lender. Borrower shall give Lender thirty (30) days’ prior written
notice before Borrower changes its name or does business under any other name.

 

(f)         Employee Benefit Plans, Etc. Borrower shall (i) maintain each plan
and/or each employee benefit plan as to which it may have any liability in
substantial compliance with all applicable requirements of law and regulations;
(ii) make all payments and contributions required to be made pursuant to such
Plans and/or plans in a timely manner; and (iii) neither establish any new Plan
and/or employee benefit plan, agree or contribute to any Plan and/or
multi-employer plan nor amend any existing Plan and/or employee pension benefit
plan in a manner which would increase its obligation to contribute to such Plan
and/or plan.

 

(g)         Good Title. Borrower shall at all times maintain good and marketable
title to all of its assets necessary for the operation of its business.

 

(h)         Maintenance of Intellectual Property Rights. The Borrower will take
all reasonable action necessary or advisable to maintain all of the Intellectual
Property Rights of the Borrower that are necessary or material to the conduct of
its business in full force and effect.

 

(i)         Locations. Borrower shall give the Lender thirty (30) days prior
written notice of a change in (i) its jurisdiction of organization or the
location of its Chief Executive Office or sole place of business or principal
residence or (ii) its name.

 

24

 

 

(j)         Securities Law Disclosure; Publicity. (1) No later than 9:30 AM New
York Time on the first Trading Day after the closing of the transactions
contemplated hereby, the Borrower shall issue a Current Report on Form 8-K (the
“Current Report”) disclosing the material terms of the transactions contemplated
hereby, and including the Documents required to be included in such Current
Report as exhibits thereto, within the time required by the Exchange Act. From
and after the issuance of the Current Report, the Borrower represents to the
Lender that the Borrower shall have publicly disclosed all material, non-public
information delivered to the Lender, if any, as of such time by the Borrower, or
any of its respective officers, directors, employees or agents in connection
with the transactions contemplated by the Documents. The Borrower shall afford
the Lender and its counsel with a reasonable opportunity to review and comment
upon, shall consult with the Lender and its counsel on the form and substance
of, and shall give due consideration to all such comments from the Lender and
its counsel on, any press release, SEC filing or any other public disclosure
made by or on behalf of the Borrower relating to the Lender, the Documents
and/or the transactions contemplated by any Document, prior to the issuance,
filing or public disclosure thereof, and the Borrower shall not issue, file or
publicly disclose any such information to which the Lender shall reasonably
object, unless required by law. For the avoidance of doubt, the Borrower shall
not be required to submit for review any such disclosure contained in periodic
reports filed with the SEC under the Exchange Act if it shall have previously
provided the same disclosure for review in connection with a previous filing.

 

(2)         The Borrower confirms that neither it nor any other person acting on
its behalf shall provide the Lender or their agents or counsel with any
information that constitutes or might constitute material, non-public
information, unless a simultaneous public announcement thereof is made by the
Borrower in the manner contemplated by Regulation FD. In the event of a breach
of the foregoing covenant by the Borrower or any person acting on its behalf (as
determined in the reasonable good faith judgment of the Lender), in addition to
any other remedy provided herein or in the other Transaction Documents, if the
Lender is holding any securities of the Borrower at the time of the disclosure
of material, non-public information, the Lender shall have the right to make a
public disclosure, in the form of a press release, public advertisement or
otherwise, of such material, non-public information without the prior approval
by the Borrower; provided such Lender shall have first provided notice to the
Borrower that it believes it has received information that constitutes material,
non-public information, the Borrower shall have 48 hours publicly to disclose
such material, non-public information prior to any such disclosure by the
Investor or demonstrate to the Lender in writing why such information does not
constitute material, non-public information, and (assuming the Lender and
Lender’s counsel disagree with the Borrower’s determination) the Borrower shall
have failed to publicly disclose such material, non-public information within
such time period. The Lender shall not have any liability to the Borrower, any
of its Subsidiaries, or any of their respective directors, officers, employees,
stockholders or agents, for any such disclosure. The Borrower understands and
confirms that the Lender shall be relying on the foregoing covenants and
obligations in effecting transactions in securities of the Borrower.

 

25

 

 

(k)         Notices. Borrower shall, after receipt of knowledge thereof, give
prompt written notice to the Lender of:

 

(i)         the occurrence of any Event of Default or any event which with the
passage of time or the giving of notice or both would become an Event of
Default;

 

(ii)         any litigation, investigation or proceeding which may exist at any
time between Borrower and any governmental authority, that in either case, if
not cured or if adversely determined, as the case may be, could have a Material
Adverse Effect;

 

(iii)         any litigation or proceeding affecting Borrower (1) in which the
amount involved is $50,000 or more, (2) in which injunctive and/or other
equitable relief is sought and/or (3) which relates to the Lender, any Document
and/or any of the transactions contemplated by any Document;

 

(iv)         any Lien (other than security interests created hereby or Permitted
Liens) and/or any Indebtedness other than Indebtedness related to the Documents
or Permitted Indebtedness; and

 

(v)         Any matter, development and/or event that has resulted or could
reasonably be expected to result in a Material Adverse Effect, including any
such matter arising from: any breach or non-performance of, or any default,
terms of default or event of default under the Documents, and/or any other
material agreements that the Borrower is a party to and/or any of its property
is bound by;

 

Each notice pursuant to this Section 4.1(k) shall be accompanied by a statement
of Borrower setting forth details of the occurrence referred to therein and
stating what action Borrower proposes to take with respect thereto.

 

(l)         Environmental Laws. Borrower shall (i) comply in all material
respects with, and endeavor to ensure compliance in all material respects by all
tenants and subtenants, if any, with, all applicable Environmental Laws, and
obtain and comply in all material respects with and maintain, and endeavor to
ensure that all tenants and subtenants obtain and comply in all material
respects with and maintain, any and all licenses, approvals, notifications,
registrations or permits required by applicable Environmental Laws, and (ii)
conduct and complete all investigations, studies, sampling and testing, and all
remedial, removal and other actions required under Environmental Laws and
promptly comply in all material respects with all lawful orders and directives
of all governmental authorities regarding Environmental Laws.

 

(m)        Further Assurances. Borrower shall, from time to time execute and
deliver, or cause to be executed and delivered, such additional instruments,
certificates or documents, and take such actions, as the Lender may reasonably
request for the purposes of implementing or effectuating the provisions of this
Agreement and the other Documents. Upon the exercise by the Lender of any power,
right, privilege or remedy pursuant to this Agreement or the other Documents
which requires any consent, approval, recording, qualification or authorization
of any governmental authority, Borrower will execute and deliver, or will cause
the execution and delivery of, all applications, certifications, instruments and
other documents and papers that the Lender may be required to obtain from
Borrower for such governmental consent, approval, recording, qualification or
authorization.

 

26

 

 

(n)         Reservation of Shares.  So long as any Securities or other warrants
owned by the Lender (and/or a transferee thereof), are owned beneficially and/or
of record by the Lender or any transferee thereof, the Borrower covenants and
agrees that it will at all times reserve and keep available out of its
authorized and unissued shares of Common Stock a number of shares of Common
Stock at least equal to (the “Required Reserve Amount”) (i) 300%, multiplied by
(ii) the Required Minimum (as defined below) for the sole purpose of issuance
upon conversion of the Notes, payment of interest on the Notes, and exercise of
the Warrants and other warrants owned beneficially and/or of record by the
Lender (and/or any transferee thereof), free from preemptive rights or any other
actual contingent purchase rights of Persons other than the Lender (and any
other holders of any Notes, Warrants and/or warrants transferred from a Lender),
The Borrower covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly authorized, validly issued, fully paid and
nonassessable, and, at such times as a registration statement covering such
shares is then effective under the Securities Act, will be registered for public
resale in accordance with such registration statement.  For purposes of this
Agreement, the “Required Minimum” shall mean the sum of (I) the quotient
obtained by dividing the sum of (A) (i) all outstanding Indebtedness represented
by the Notes, (ii) all interest thereon (whether accrued or not), (iii) the
Stated Value of all H Shares then held by the Lender plus all dividends and
other amounts due thereon and (iv) and/or other amounts owed under the Documents
and/or the RD SPA, including Liabilities to the Lender from the Borrower
(including but not limited to Late Fees, and liquidated damages),  by (B) the
lower of (i) the Conversion Price (as defined in the Notes) on the date of
Closing, and (b) in the event that the average closing bid price or closing sale
price, as the case may be, immediately prior to Trading Day that any
determination of the Required Reserve Amount is calculated, the average closing
bid price or sale price (as the case may be) for a share of Common Stock for the
5 consecutive Trading Days immediately prior to the determination date is below
the Conversion Price, the Alternative Conversion Price, plus (II) the quotient
of (A) the sum of all shares of Common Stock issuable upon exercise of all
Warrants and RD Warrants owed by the Lender or any transferee thereof, divided
by (B) the lower of (i) the Exercise Price (as defined in the Warrants) of the
Warrants and the RD Warrant’s Exercise Price (as defined in the RD Warrants) on
the Closing Date, and (ii) if the Exercise Price of either the Warrants or the
RD Warrants is below the average closing bid price or closing sale price, as the
case may be, for a Share of Common Stock on the Trading Market for the 5
consecutive Trading Days prior to the particular date of the determination, the
Alternative Conversion Price. The Borrower shall be required to calculate the
Required Minimum on the first Trading Day of each month that any Securities
and/or warrants are outstanding and provide such calculation to the Lender and
the Transfer Agent promptly.  For purposes of calculating the Required Minimum,
Borrower shall assume that all principal of all Notes will remain outstanding
for eighteen (18) months and all accrued but unpaid interest hereon accrues at
the rate of 18% per annum, is paid on the date 18 months from the Closing Date,
and all Warrants (and RD Warrants) will remain unexercised for 5 years.

 

27

 

 

4.2         Negative Covenants. Until all the Liabilities are paid in full,
Borrower covenants and agrees that:

 

(a)         Restricted Payments. Except to the Lender, the Borrower shall not
directly or indirectly, redeem, defease, repurchase, repay or make any payments
in respect of, by the payment of cash or cash equivalents (in whole or in part,
whether by way of open market purchases, tender offers, private transactions or
otherwise), all or any portion of any Indebtedness, whether by way of payment in
respect of principal of (or premium, if any) or interest on, such Indebtedness,
except for Permitted Indebtedness; provided, however, that notwithstanding
anything to the contrary provided herein or elsewhere, in no event shall the
Borrower directly and/or indirectly make any payment to any officer, director,
or 5% or greater beneficial holder of the Borrower’s voting stock or Common
Stock or an affiliate of the Borrower and/or any affiliate of any such person
representing the direct and/or indirect repayment of Indebtedness, premiums
and/or interest on Indebtedness, unpaid salaries, consulting fees, expenses,
accrued but unpaid interest and/or otherwise, except as set forth in Schedule
4.2(a).

 

(b)         Restricted Issuances. Except to the Lender, the Borrower shall not,
directly or indirectly, (i) issue any securities and/or Indebtedness (other than
as contemplated by this Agreement and/or the Documents) or (ii) issue any other
securities that would cause a breach or default, an event of default and/or an
Event of Default under any Note and/or any other Document.

 

(c)         Restriction on Redemption and Dividends. Except to the Lender, the
Borrower shall not, directly or indirectly, redeem, repurchase or declare or pay
any dividend or distribution on any of its capital stock whether in cash, stock
rights and/or property, except in connection with a Qualified Public Offering or
as set forth in the SEC Reports.

 

(d)         Restriction on Transfer of Assets. The Borrower shall not, directly
or indirectly, sell, lease, license, assign, transfer, spin-off, split-off,
close, convey or otherwise dispose of any assets or rights of the Borrower owned
or hereafter acquired whether in a single transaction or a series of related
transactions, other than sales, leases, licenses, assignments, transfers,
conveyances and other dispositions of such assets or rights by the Borrower in
the ordinary course of business; provided, however, that in the event that the
Borrower wishes to effect a transaction under this Section 4.2(d) it shall,
prior to undertaking such effort, provide the Lender with a high-level
understanding of the objectives and ideal terms of such anticipation
transaction. No fewer than four (4) trading days prior to the execution of each
of a binding term sheet and definitive documentation, the Borrower shall deliver
to the Lender a written notice of any material terms and/or changes since the
prior notice given to the Borrower and shall include a term sheet or similar
document relating thereto as an attachment. Thereafter, upon receipt of draft
execution copies of such definitive documentation, the transaction shall be
subject to the Lender’s consent, which consent will not be unreasonably
withheld. The Borrower shall file a Current Report on Form 8-K no later than
9:30am New York time on the next Trading Day following the execution of any such
documentation.

 

28

 

 

(e)         Change in Nature of Business. The Borrower shall not, directly or
indirectly, engage in any business substantially different from the business
conducted by the Borrower on the Closing Date or any business substantially
related or incidental thereto. The Borrower shall not, directly or indirectly,
modify its or their corporate structure for any purpose.

 

(f)         Indebtedness. Borrower shall not incur or permit to exist any
Indebtedness, except for Permitted Indebtedness.

 

(g)         Liens. Borrower shall not create or permit to exist any Liens or
security interest with respect to any assets whether now owned or hereafter
acquired and owned, except for Permitted Liens.

 

(h)         Guaranties, Loans or Advances. Borrower shall not become or be a
guarantor or surety of, or otherwise become or be responsible in any manner with
respect to any undertaking of any other Person, or make or permit to exist any
loans or advances to or investments in any other Person, except for the
endorsement, in the ordinary course of collection, of instruments payable to it
or to its order.

 

(i)         Violation of Law. Borrower shall not violate any law, statute,
ordinance, rule, regulation, judgment, decree, order, writ or injunction of any
federal, state or local authority, court, agency, bureau, board, commission,
department or governmental body if such violation could have a Material Adverse
Effect.

 

(j)         Unconditional Purchase Obligations. Borrower shall not enter into or
be a party to any contract for the purchase of materials, supplies or other
property or services if such contract requires that payment be made by it
regardless of whether or not delivery is ever made of such materials, supplies
or other property or services.

 

(k)         Use of Proceeds. Borrower shall not permit any proceeds of the Loan
to be used either directly or indirectly, for the purpose, whether immediate,
incidental or ultimate, of “purchasing or carrying any margin stock” within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System,
as amended from time to time.

 

(l)         Hedge Agreements. Borrower shall not enter into any hedge agreement
other than hedge agreements entered into in the ordinary course of business, and
not for speculative purposes, to protect against changes in interest rates or
foreign exchange rates.

 

(m)         ERISA. Borrower shall not create or become obligated under any Plan.

 

29

 

 

(n)         No Variable Rate Transactions, Etc. For as long as any Notes and/or
Warrants remain outstanding, the Borrower shall not directly or indirectly
(i)(I) consummate any exchange of any Indebtedness and/or securities of the
Borrower for any other securities and/or Indebtedness of the Borrower, (II)
cooperate with any person to effect any exchange of securities and/or
Indebtedness of the Borrower in connection with a proposed sale of such
securities from an existing holder of such securities to a third party), and/or
(III) reduce and/or otherwise change the exercise price, conversion price and/or
exchange price of any Common Stock Equivalent of the Borrower and/or amend any
non-convertible Indebtedness of the Borrower to make it convertible into
securities of the Borrower, (ii) issue or sell any of its securities either (I)
at a conversion, exercise or exchange rate or price that is based upon and/or
varies with the trading prices of, or quotations for, the shares of Common
Stock, and/or (II) with a conversion, exercise or exchange rate and/or price
that is subject to being reset on one or more occasions either (x) at some
future date after the initial issuance of such securities or (y) upon the
occurrence of specified or contingent events directly or indirectly related to
the business of the Borrower or the market for the Common Stock, and/or (iii)
enter into any agreement (including, without limitation, an “equity line of
credit” or an “at-the-market offering”) whereby the Borrower may sell securities
at a future determined price. Any transaction contemplated in this Section
4.2(n), shall be referred to as a “Variable Rate Transaction.” The Lender shall
be entitled to obtain injunctive relief against the Borrower to preclude any
Variable Rate Transaction (without the need for the posting of any bond or
similar item, which the Borrower hereby expressly and irrevocably waives the
requirement for), which remedy shall be in addition to any right of the Lender
to collect damages.

 

(o)         Transactions with Affiliates. The Borrower shall not directly and/or
indirectly enter into, renew, extend or be a party to, any transaction or series
of related transactions (including, without limitation, lending funds to an
Affiliate and/or borrowing funds from any Affiliate, the purchase, sale, lease,
transfer or exchange of property, securities or assets of any kind or the
rendering of services of any kind) with any officer, director, Affiliate and/or
any Affiliate of such person.

 

(p)         Subsidiaries. The Borrower will not, and will not permit any
Subsidiary to, create or acquire any additional Subsidiary. The Borrower shall
not, and shall not permit any Subsidiary to, sell, assign or otherwise dispose
of any Equity Interests in any Subsidiary to any Person. Neither the Borrower
nor any Subsidiary shall have any foreign Subsidiaries.

 

(q)         In partial consideration for the Lender purchasing the Notes, the
Borrower expressly and irrevocably agrees for itself and each of its
Subsidiaries that neither it nor any of its Subsidiaries will directly and/or
indirectly at any time (i) waive any default and/or breach by the Seller (as
defined in the Repurchase Agreement dated on or about September 30, 2015 by and
between the Company and the Seller (the “Repurchase Agreement)) and/or any of
its Affiliates of any provision of the Repurchase Agreement, (ii) immediately
inform the Lender in writing of any such breach and/or default by the Seller
and/or its Affiliates of the Repurchase Agreement, and/or (iii) waive and/or
otherwise permit any action of the Seller and/or its Affiliates prohibited by
the Repurchase Agreement.

 

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ARTICLE 5

CLOSING CONDITIONS

 

5.1         Closing Conditions of the Lender. The Lender’s obligation to enter
into the Documents and purchase the Note and Warrant is subject to the
fulfillment of each and every one of the following conditions prior to or
contemporaneously with the Lender entering into the Documents and purchasing the
Note and Warrant (unless waived by Lender in writing in their sole and absolute
discretion):

 

(a)         Delivery of Documents. The Lender shall have received from the
Borrower each of the following (together with all Exhibits, Schedules, annexes
to each of the following), in form and substance reasonably satisfactory to the
Lender and its counsel, and where applicable, duly executed and recorded (to the
extent required):

 

(i)         certificates of the Chief Executive Officer and Secretary of
Borrower and certifying as to (a) copies of the Certificate of Incorporation and
by-laws of the Borrower, as restated or amended as of the date of this
Agreement; (b) all actions taken and consents made by the Borrower and its Board
of Directors and shareholders, as applicable to authorize the transactions
provided for or contemplated under this Agreement and the other Documents and
the execution, delivery and performance of the Documents; (c) the names of the
directors and officers of the Borrower authorized to sign the Documents,
together with a sample of the true signature of each such Person and (d) that
all representatives and warranties of the Borrower made herein and/or in any of
the other Documents are true and correct in all respects;

 

(ii)         this Agreement;

 

(iii)       the Notes;

 

(iv)       the Warrants;

 

(v)        the Registration Right Agreement;

 

(vi)       the Security Agreement;

 

(vii)      the Intercreditor and Subordination Agreement;

 

(viii)     the Patent and Trademark Agreement

 

(ix)        the Leak-Out Agreement;

 

(x)        the Lock-Up Agreement:

 

(xi)       certificates of good standing for Borrower and each Subsidiary in the
jurisdiction of each of such Persons incorporation or formation, in the
principal places in which Borrower conducts business and in places in which each
such Person owns real estate;

 

31

 

 

(xii)       the fully executed Transfer Agent Instruction Letter;

 

(xiii)      the Discount Pay-Off Letter;

 

(xiv)      the Perfection Certificate

 

(xv)       All Lender UCC Documents with proof of filing thereof;

 

(xvi)      a legal opinion of the Borrower’s corporate and securities counsel
customarily given in connection with transactions of the nature set forth in
this Agreement and the other Documents and in form and substance reasonably
satisfactory to the Lender;

 

(xvii)     Such other documents, certificates, opinions, instruments and/or
other items reasonable requested by the Lender and/or its legal counsel.

 

(b)          Approvals. The receipt by the Lender of all governmental and third
party approvals necessary in connection with the continuing operations of
Borrower, the execution and performance of the Documents and the transactions
contemplated thereby, all of which consents/approvals shall be in full force and
effect.

 

(c)          Additional Conditions. The fulfillment of each and every one of the
following conditions prior to or contemporaneously with the making of the Loan.

 

(i)          Representations and Warranties. Each of the representations and
warranties made by Borrower in or pursuant to the Documents and all Schedules
and/or Exhibits to this Agreement and/or any of the other Documents shall be
true and correct in all material respects on and as of the Closing Date as if
made (or given) on and as of such date (except where such representation and
warranty speaks of a specific date in which case such representation and
warranty shall be true and correct as of such date).

 

(ii)         No Events of Default. No breach, event of default, Event of Default
or any event which with the passage of time or the giving of notice or both
would become a breach event of default and/or an Event of Default shall have
occurred or would result from the sale of the Note to the Lenders of the
performance of any other transaction set forth or contemplated by any of the
Documents.

 

(iii)        Fees, Etc. The Lender’s Expenses shall have been received by the
Lender’s counsel.

 

(iv)        Compliance with Laws. The Borrower shall have complied with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances in connection with the execution, delivery and performance of this
Agreement and the other Documents to which it is a party and the consummation of
the transactions contemplated hereby and thereby, including, without limitation,
the Borrower shall have obtained all permits and qualifications required by any
applicable state securities or “Blue Sky” laws for the offer and sale of the
Securities by the Borrower to the Lender).

 

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(v)         No Injunction. No statute, regulation, order, decree, writ, ruling
or injunction shall have been enacted, entered, promulgated, threatened in
writing or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of or which would materially
modify or delay the execution and performance of the Documents and/or any of the
transactions contemplated by the Documents.

 

(vi)        No Proceedings or Litigation. No action, suit or proceeding before
any arbitrator or any court or governmental authority shall have been commenced
or threatened in writing, and no inquiry or investigation by any governmental
authority shall have been commenced or threatened in writing, against the
Borrower, or any of the officers, directors or affiliates of the Borrower,
seeking to restrain, prevent or change the Documents and/or any of the
transactions contemplated by the Documents, or seeking material damages in
connection with such Documents and/or transactions.

 

(vii)       Listing of Securities. All of the Conversion Shares and Warrant
Shares shall have been approved for listing or quotation on the Trading Market
as of the Closing Date, in each case, and as required, without regard to any
limitations on exercise of the Warrants and/or conversion of the Note including,
but not limited to, Beneficial Ownership Limitations.

 

(viii)      No Material Adverse Effect. No condition, occurrence, state of facts
or event constituting a Material Adverse Effect shall have occurred and be
continuing.

 

(ix)         Current Public Information. All reports, schedules, registrations,
forms, statements, information and other documents required to have been filed
by the Borrower with the SEC since January 1, 2013, pursuant to the reporting
requirements of the Exchange Act, including all material required to have been
filed pursuant to Section 13(a) or 15(d) of the Exchange Act, shall have been
filed with the SEC under the Exchange Act.

 

(x)          No Suspension of Trading in or Notice of Delisting of Common Stock.
Trading in the Common Stock shall not have been suspended and/or halted by the
SEC, the Principal Trading Market or FINRA. The Borrower shall not have received
any final and non-appealable notice that the listing or quotation of the Common
Stock on the Principal Trading Market shall be terminated on a date certain
(unless, prior to such date certain, the Common Stock is listed or quoted on any
other Principal Trading Market), trading in securities generally as reported on
the Principal Trading Market shall not have been suspended or limited, nor shall
a banking moratorium have been declared either by the U.S. or New York State
authorities, there shall not have been imposed any suspension of electronic
trading or settlement services by the Depository Trust Company (“DTC”) with
respect to the Common Stock that is continuing, the Borrower shall not have
received any notice from DTC to the effect that a suspension of electronic
trading or settlement services by DTC with respect to the Common Stock is being
imposed or is contemplated (unless, prior to such suspension, DTC shall have
notified the Borrower in writing that DTC has determined not to impose any such
suspension), nor shall there have occurred any material outbreak or escalation
of hostilities or other national or international calamity or crisis that has
had or would reasonably be expected to have a material adverse change in any
U.S. financial, credit or securities market that is continuing.

 

 33 

 

 

(xi)        Simultaneous Transactions. All of the Simultaneous Transactions
shall have occurred (or have been waived); and

 

(xii)       2015 Shareholder Meeting Conditions. The 2015 Shareholder Meeting
Conditions have been satisfied in the sole discretion of the Lender.

 

(xiii)      Completion of Due Diligence. Lender shall have completed its legal,
business and financial due diligence of the Borrower to their full satisfaction
and are fully satisfied with the results thereof.

 

(xiv)      Lock-Ups. Each of the Persons set forth on Schedule 5.1 (c) (xiv)
have signed a Lock-Up Agreement and provided executed copies to the Lender.

 

(xv)       Leak-Out Agreements. The Lender has entered into Leak-Up Agreements

 

(xvi)      Lender UCC Documents. All Lender UCC Documents shall be in form and
substantially satisfactory to the Lender and shall have been filed with the
Secretary of State.

 

5.2         Closing Conditions of Borrower. The obligation of the Borrower to
sell and issue the Note and the Warrant to the Lender at the Closing is subject
to the fulfillment, to the Borrower’s reasonable satisfaction, prior to or
contemporary at the Closing, of each of the following conditions (unless waived
by the Borrower):

 

(a)          Representations and Warranties. Each of the representations and
warranties made by Borrower in or pursuant to the Documents and all Schedules
and/or Exhibits to this Agreement and/or any of the other Documents shall be
true and correct in all material respects on and as of the Closing Date as if
made (or given) on and as of such date (except where such representation and
warranty speaks of a specific date in which case such representation and
warranty shall be true and correct as of such date).

 

(b)          No Injunction. No statute, regulation, order, decree, writ, ruling
or injunction shall have been enacted, entered, promulgated, threatened in
writing or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of or which would materially
modify or delay any of the transactions contemplated by the Documents.

 

 34 

 

 

(c)          Receipt of the Purchase Price. The Borrower shall receive at or
substantially simultaneously with the Closing, the Purchase Price of the Lender
set forth on Schedule 1 hereto (less all of the Lender’s Expenses).

 

ARTICLE 6
MISCELLANEOUS

 

6.1           No Waiver; Modifications In Writing. No failure or delay on the
part of the Lender in exercising any right, power or remedy pursuant to the
Documents shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof, or the exercise of any other right, power or remedy. No
amendment, modification, supplement, termination or waiver of any provision of
the Documents, nor any consent by the Lender to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and signed by
the Lender. Any waiver of any provision of the Documents and any consent by the
Lender to any departure by Borrower from the terms of any provision of the
Documents shall be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on Borrower in any case shall
entitle Borrower to any other or further notice or demand in similar or other
circumstances.

 

6.2           Set-Off. The Lender shall have the right to set-off, appropriate
and apply toward payment of any of the Liabilities, in such order of application
as the Lender may from time to time and at any time elect, any cash, credit,
deposits, accounts, securities and any other property of Borrower which is in
transit to or in the possession, custody or control of Lender, or any agent,
bailee, or Affiliate of the Lender. Borrower hereby grants to Lender a security
interest in all such property.

 

6.3           Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed telex, facsimile or e-mail if
sent during normal business hours of the recipient; if not, then on the next
Trading Day, (c) five (5) days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one (1) day after
deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt:

 

If to Borrower:

 

Amarantus Bioscience Holdings, Inc.

655 Montgomery Street, Suite 900

San Francisco, CA 94111

Attn: Gerald Commissiong

Fax: (408) 852-4427

Telephone: (_) ___-____

Email:  ____________

 

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With copies to

(which shall not constitute notice):

 

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32nd Floor

New York, NY 10006

Attn: Jeffrey Fessler, Esq.

Fax: (212) 930-9725

 

If to Delafield:

 

Delafield Investments Limited

c/o Magna Group

5 Hanover Square

New York, NY 10004

Attention: Marc Manuel

Telephone Number: (347) 491-4240

Fax: (646) 737-9948

Email: research@mag.na

 

With copies to

(which shall not constitute notice):

 

Gusrae Kaplan Nusbaum PLLC

120 Wall Street

New York, New York 10005

Attention:  Lawrence G. Nusbaum, Esq.

Phone:  (212) 269-1400

Fax No.:  (212) 809-5449

Email: LNusbaum@gusraekaplan.com

 

Any party hereto may from time to time change its address for notices by giving
written notice of such changed address to the other party hereto.

 

6.4         Costs, Expenses and Taxes. Notwithstanding anything to the contrary
provided herein or elsewhere, Borrower agrees to pay (A) on the Closing Date all
of the Lender’s Expenses; and (B) following the Closing Date, all fees and
expenses incurred by the Lender (including, but not limited to, outside counsel
to the Lender) in connection with the administration and enforcement of the
Documents and/or and the Loan. In addition, Borrower shall pay any and all
stamp, transfer and other similar taxes payable or determined to be payable in
connection with the execution and delivery of the Documents agrees to hold the
Lender harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes. If any suit or
proceeding arising from any of the foregoing is brought against the Lender,
Borrower, to the extent and in the manner directed by Lender, will resist and
defend such suit or proceeding or cause the same to be resisted and defended by
counsel approved by Lender. If Borrower shall fail to do any act or thing which
each has covenanted and/or agreed to do under this Agreement and/or any other
Document or any representation or warranty on the part of Borrower contained in
this Agreement and/or any other Document shall be breached, the Lender may, in
its sole and absolute discretion, do the same or cause it to be done or remedy
any such breach, and may expend its funds for such purpose; and any and all
amounts so expended by the Lender shall be repayable to the Lender by Borrower
immediately upon the Lender’s demand therefor, with interest at a rate equal to
eighteen (18%) percent during the period from and including the date funds are
so expended by the Lender to the date of repayment in full, and any such amounts
due and owing to the Lender shall be deemed to be part of the Liabilities
secured hereunder and under the other Documents. The obligations of Borrower
under this 6.4 shall survive the termination of this Agreement and the discharge
of the other obligations of Borrower under the Documents.

 

 36 

 

 

6.5           Indemnity, Etc. In addition to the payment of expenses pursuant to
6.4, whether or not all and/or any of the transactions contemplated hereby shall
be consummated, Borrower agrees to indemnify, pay and hold the Lender, and the
Lender’s assignees and affiliates and their respective officers, directors,
employees, agents, consultants, auditors, and attorneys of any of them
(collectively called the “Indemnities”) harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature whatsoever
(including the reasonable fees and disbursements of counsel for such Indemnitees
in connection with any investigative, administrative or judicial proceeding
commenced or threatened, whether or not such Indemnitee shall be designated a
party thereto) that may be imposed on, incurred by, or asserted against that
Indemnitee, in any manner relating to or arising out of the SEC Reports, this
Agreement and/or the other Documents, the consummation of the transactions
contemplated by this Agreement and the other Documents, the statements contained
in any term sheet delivered by the Lender, the Lender’s agreement to make the
Loan, the use or intended use of the proceeds of the Loan or the exercise of any
right or remedy hereunder or under the other Documents (the “Indemnified
Liabilities”); provided that Borrower shall have no obligation to an Indemnitee
hereunder with respect to Indemnified Liabilities directly resulting from the
gross negligence or willful misconduct of that Indemnitee, as determined by a
court of competent jurisdiction by a final and nonappealable judgment. In no
event shall the Lender and/or any of their respective employees, agents,
partners, affiliates, members, equity and/or debt holders, managers, officers,
directors and/or other related or similar type of Person, have any liability to
the Borrower and/or any of its officers, directors, employees, agent, attorneys,
affiliates, consultants, equity and/or debt holders except for any actions or
lack of actions of such persons that are found by a court of competent
jurisdiction after the time for all appeals has passed to have resulted directly
from Lender’s intentional misconduct or gross negligence.

 

6.6           Counterparts; Signatures. This Agreement may be executed in any
number of counterparts, each of which counterparts, once they are executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same agreement. This Agreement
and the Documents may be executed by any party to this Agreement or any of the
Documents by original signature, facsimile and/or electronic signature.

 

6.7           Binding Effects; Assignment. This Agreement shall be binding upon,
and inure to the benefit of, the Lender, Borrower and their respective
successors, assigns, representatives and heirs. Borrower shall not assign any of
its rights nor delegate any of its obligations under Documents without the prior
written consent of the Lender. The Lender may delegate any of its obligations
under the Documents without the prior written consent of Borrower, the Lender
may assign any of its rights, hereunder, and/or in any of the other Documents,
subject only to compliance with the federal securities laws.

 

 37 

 

 

6.8           Headings. Captions contained in this Agreement are inserted only
as a matter of convenience and in no way define, limit or extend the scope or
intent of this Agreement or any provision of this Agreement and shall not affect
the construction of this Agreement.

 

6.9           Entire Agreement. This Agreement, together with the other
Documents, contains the entire agreement between the parties hereto with respect
to the transactions contemplated herein and therein and supersedes all prior
representations, agreements, covenants and understandings, whether oral or
written, related to the subject matter of this Agreement and the other
Documents. The Lender makes no covenants to Borrower, including, but not limited
to, any commitments to provide any additional financing to Borrower.

 

6.10         GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
EXCLUSIVELY IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO ANY CONFLICT OF LAWS.

 

6.11         Severability Of Provisions. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.

 

6.12         Conflict. In the event of any conflict between this Agreement and
any of the other Documents, the terms and provisions of the Documents so chosen
by the Lender shall govern and control.

 

6.13         Customer Identification - USA Patriot Act Notice; OFAC and Bank
Secrecy Act. Lender hereby notifies Borrower that pursuant to the requirements
of the Act and such Lender’s policies and practices, Lender is required to
obtain, verify and record certain information and documentation that identifies
Borrower, which information includes the name and addresses of Borrower and such
other information that will allow the Lender to identify Borrower in accordance
with the Act. In addition, Borrower shall (a) ensure that no person who owns a
controlling interest in or otherwise controls Borrower is or shall be listed on
the Specially Designated Nationals and Blocked Person List or other similar
lists maintained by OFAC, the Department of the Treasury or included in any
Executive Orders, (b) not use or permit the use of the proceeds of the Loan to
violate any of the foreign asset control regulations of OFAC or any enabling
statute or Executive Order relating thereto, and (c) comply, and cause any of
its Subsidiaries to comply, with all applicable Bank Secrecy Act (“BSA”) laws
and regulations, as amended.

 

 38 

 

 

6.14         JURISDICTION; WAIVER. BORROWER ACKNOWLEDGES THAT THIS AGREEMENT IS
BEING SIGNED BY THE LENDER IN PARTIAL CONSIDERATION OF THE LENDER’S RIGHT TO
ENFORCE IN THE JURISDICTION STATED BELOW THE TERMS AND PROVISION OF THIS
AGREEMENT AND THE DOCUMENTS. BORROWER IRREVOCABLY CONSENTS TO THE EXCLUSIVE AND
SOLE JURISDICTION IN NEW YORK, NEW YORK AND VENUE IN ANY FEDERAL OR STATE COURT
IN NEW YORK, NEW YORK FOR SUCH PURPOSES AND WAIVES ANY AND ALL RIGHTS TO CONTEST
SAID JURISDICTION AND VENUE AND ANY OBJECTION THAT NEW YORK, NEW YORK IS NOT
CONVENIENT. BORROWER WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST THE LENDER
IN ANY JURISDICTION EXCEPT NEW YORK, NEW YORK. THE LENDER AND BORROWER HEREBY
EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY
WITH RESPECT TO ANY MATTER WHATSOEVER RELATING TO, ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THE LOAN, THE DOCUMENTS AND/OR THE TRANSACTIONS WHICH ARE THE
SUBJECT OF THE DOCUMENTS.

 

6.15         SERVICE OF PROCESS. BORROWER AGREES THAT SERVICE OF PROCESS IN ANY
ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY CERTIFIED MAIL
(OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, RETURN RECEIPT
REQUESTED, TO BORROWER AT THE ADDRESS SET FORTH IN SECTION 6.3 OR AT SUCH OTHER
ADDRESS OF WHICH THE LENDER SHALL HAVE BEEN NOTIFIED PURSUANT THERETO. BORROWER
AGREES THAT SUCH SERVICE, TO THE FULLEST EXTENT PERMITTED BY LAW (i) SHALL BE
DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON BORROWER IN ANY SUIT,
ACTION OR PROCEEDING, AND (ii) SHALL BE TAKEN AND HELD TO BE VALID PERSONAL
SERVICE UPON AND PERSONAL DELIVERY TO BORROWER. SOLELY TO THE EXTENT PROVIDED BY
APPLICABLE LAW, SHOULD BORROWER, AFTER BEING SERVED, FAIL TO APPEAR OR ANSWER TO
ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS
PRESCRIBED BY LAW AFTER THE DELIVERY OR MAILING THEREOF, BORROWER SHALL BE
DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED BY THE COURT
AGAINST BORROWER AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS
OR PAPERS. NOTHING HEREIN SHALL AFFECT THE LENDER’S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW.

 

6.16         Survival. The representations, and warranties of Borrower herein
and/or in the other Documents shall survive the execution and delivery hereof
and the Closing Date; the obligations, Liabilities, agreements and covenants of
the Borrower set forth herein and/or in the other Documents shall survive the
execution and delivery hereof and the Closing Date, as shall all rights and
remedies of the Lender set forth in this Agreement and/or in any of the other
Documents.

 

6.17         No Integration. Neither the Borrower, nor any of its affiliates,
nor any person acting on behalf of the Borrower or such affiliate, will sell,
offer for sale, or solicit offers to buy or otherwise negotiate with respect to
any security (as defined in the Securities Act) which will be integrated with
the sale and/or issuance of any of the Securities in a manner which would
require the registration of the Securities under the Securities Act, or require
stockholder approval, under the rules and regulations of the Trading Market for
the Common Stock. The Borrower will take all action that is appropriate or
necessary to assure that its offerings of other securities will not be
integrated for purposes of the Securities Act or the rules and regulations of
the Trading Market, with the issuance of Securities contemplated herein.

 

 39 

 

 

6.18         No Frustration. From and after the date hereof and so long as the
Note is outstanding, the Borrower, nor any of its respective officers,
employees, directors, agents or other representatives, will, without the prior
written consent of the Lender (which consent may be withheld, delayed or
conditioned in the Lender’s sole discretion), effect, enter into, announce or
recommend to its stockholders any agreement, plan, arrangement or transaction
(or issue, amend or waive any security) that would or would reasonably be
expected to restrict, delay, conflict with or impair the ability or right of the
Borrower to timely perform its obligations under the Documents.

 

6.19         Finders’ Fees. Each party represents that it neither is nor will be
obligated for any finders’ fee or commission in connection with this
transaction, except as set forth herein. The Borrower shall indemnify and hold
harmless the Lender from any liability for any commission or compensation in the
nature of a finders’ fee (and the costs and expenses of defending against such
liability or asserted liability) for which the Borrower or any of its officers,
employees or representatives is responsible.

 

6.20         Rule 144 Availability; Public Information. At all times from the
date hereof through and including the date none of the Securities are
outstanding (the “Required Period”) Borrower shall ensure the Lender can sell
the Underlying Shares pursuant to and in accordance with Rule 144 under the
Securities Act. If, (i) at any time during the Required Period, the Borrower
shall fail for any reason to satisfy the current public information requirement
under Rule 144(c) under the Securities Act (a “Public Information Failure”), or
(ii) the Borrower shall fail to take such action as is reasonably requested by
the Lender to enable the Lender to sell the any of the Securities pursuant to
Rule 144 under the Securities Act (including, without limitation, delivering all
such legal opinions, consents, certificates, resolutions and instructions to the
Borrower’s transfer agent as may be reasonably requested from time to time by
the Lender and otherwise fully cooperate with Lender and Lender’s broker to
effect such sale of the Securities pursuant to Rule 144 under the Securities
Act) (a “Process Failure”) then, in either case, in addition to the Lender’s
other available remedies, the Borrower shall pay to the Lender, as liquidated
damages and not as a penalty, by reason of any such delay in or reduction of its
ability to sell any Underlying Shares, an amount in cash equal to five (5.0%)
percent of the aggregate principal amount of the Notes held by a Lender on the
day of a Public Information Failure or Process Failure, as applicable, and on
every thirtieth (30th) day (pro rated for periods totaling less than thirty
days) thereafter until (a) in the case of a Process Failure, the date such
Process Failure is cured, or (b) in the case of a Public Information Failure,
the earlier of (1) the date such Public Information Failure is cured and (b)
such time that such public information is no longer required for the Lender to
transfer the Securities pursuant to Rule 144 under the Securities Act. The
payments to which the Lender shall be entitled pursuant to this Section 6.20 are
referred to herein as “Rule 144 Failure Payments”. Rule 144 Failure Payments
shall be paid on the earlier of (i) the last day of the calendar month during
which such Rule 144 Failure Payments are incurred and (ii) the third (3rd)
Trading Day after the event or failure giving rise to the Rule 144 Failure
Payments is cured.

 

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ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF THE LENDER

 

7.1           Authorization. The Lender has full power and authority to enter
into this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby and has taken all action necessary to authorize
the execution and delivery of this Agreement, the performance of its obligations
hereunder and thereunder and the consummation of the transactions contemplated
hereby and thereby.

 

7.2           Accredited Investor Status; Investment Experience. The Lender is
an “accredited investor” as that term is defined in Rule 501(a) of Regulation D.

 

7.3           Reliance on Exemptions. The Lender understands that the Note is
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Borrower is relying in part upon the truth and accuracy of, and the
Lender’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Lender set forth herein in order to
determine the availability of such exemptions and the eligibility of the Lender
to acquire the Note.

 

7.4           Information. The Lender has been furnished with all materials
relating to the business, finances and operations of the Borrower and materials
relating to the offer and sale of the Note and Warrant which have been requested
by the Lender. The Lender has been afforded the opportunity to ask questions of
the Borrower. Neither such inquiries nor any other due diligence investigations
conducted by the Lender shall modify, amend or affect the Lender’s right to rely
on the Borrower’s representations and warranties contained herein. The Lender
understands that its investment in the Note and Warrant involves a high degree
of risk. The Lender have sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to
their acquisition of their respective Note and Warrant. The Lender is relying
solely on their own accounting, legal and tax advisors, and not on any
statements of the Borrower or any of its agents or representatives, for such
accounting, legal and tax advice with respect to its acquisition of the Note and
Warrant.

 

7.5           No Governmental Review. The Lender understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Note and Warrant
or the fairness or suitability of the investment in the Note and Warrant nor
have such authorities passed upon or endorsed the merits of the offering of the
Note and Warrant.

 

7.6           Validity; Enforcement; No Conflicts. This Agreement and each
Document to which the Lender are a party have been duly and validly authorized,
executed and delivered on behalf of the Lenders and shall constitute the legal,
valid and binding obligations of the Lender enforceable against the Lender in
accordance with their respective terms, except as such enforceability may be
limited by general principles of equity or to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.

 

 41 

 

 

7.7           Organization and Standing. The Lender is duly organized, validly
existing and in good standing under the laws of the State of where it was
formed.

 

7.8           Brokers or Finders. The Lender represents and warrants, to the
best of their knowledge, that no finder, broker, agent, financial advisor or
other intermediary, nor any purchaser representative or any broker-dealer acting
as a broker, are entitled to any compensation in connection with the
transactions contemplated by this Agreement or the transactions contemplated
hereby.

 

7.9           Ability to Perform. There are no actions, suits, proceedings or
investigations pending against Lender or Lender’s assets before any court or
governmental agency (nor is there any threat thereof) which would impair in any
way Lender’s ability to enter into and fully perform their respective
commitments and obligations under this Agreement or the transactions
contemplated hereby.

 

7.10         Short Positions.  The Lender covenants and agrees that, so long as
the Lender owns any Securities of the Borrower, such Borrower, shall not
maintain a net short position in the Common Stock (as determined under
Regulation SHO under the Exchange Act (“Regulation SHO”) taking into account all
positions of the Lender whether or not the Lender otherwise would constitute an
independent trading unit under Regulation SHO).

 

7.11         Transfer or Resale.  Lender understands that except as provided in
the Registration Rights Agreement:  (i) the Securities have not been and are not
being registered under the Securities Act or any state securities laws, and may
not be offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) the Lender shall have delivered to the Borrower an
opinion of counsel, in a form reasonably acceptable to the Borrower, to the
effect that such Securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration, or
(C) the Lender provides the Borrower with reasonable assurance that such
Securities can be sold, assigned or transferred pursuant to Rule 144 or
Rule 144A promulgated under the Securities Act, as amended, (or a successor
rule thereto) (collectively, “Rule 144”); (ii) any sale of the Securities made
in reliance on Rule 144 may be made only in accordance with the terms of
Rule 144 and further, if Rule 144 is not applicable, any resale of the
Securities under circumstances in which the seller (or the Person) through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the Securities Act) may require compliance with some other exemption under the
Securities Act or the rules and regulations of the SEC thereunder; and
(iii) except as otherwise provided in the Documents, neither the Borrower nor
any other Person is under any obligation to register the Securities under the
Securities Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder.  Notwithstanding the foregoing, the
Securities may be pledged in connection with a bona fide margin account or other
loan or financing arrangement secured by the Securities and such pledge of
Securities shall not be deemed to be a transfer, sale or assignment of the
Securities hereunder, and the Lender in effecting a pledge of Securities shall
not be required to provide the Borrower with any notice thereof or otherwise
make any delivery to the Borrower pursuant to this Agreement or any other
Document, including, without limitation, this Section 7.11.

 

 42 

 

 

7.12         Legends.  Lender understands that the certificates or other
instruments representing the Notes and the Warrants and, until such time as the
resale of the Conversion Shares and the Warrant Shares have been registered
under the Securities Act, the stock certificates representing the Conversion
Shares and the Warrant Shares, except as set forth below, shall bear any legend
as required by the “blue sky” laws of any state and a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):

 

 [NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [ CONVERTIBLE ] [
EXERCISABLE ] HAVE BEEN] [THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
(B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE
144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

The legend set forth above shall be removed and the Borrower shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped or issue to such holder by electronic delivery at the applicable balance
account at DTC, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the Securities Act, (ii) in
connection with a sale, assignment or other transfer, such holder provides the
Borrower with an opinion of counsel, in a form reasonably acceptable to the
Borrower, to the effect that such sale, assignment or transfer of the Securities
may be made without registration under the applicable requirements of the
Securities Act, or (iii) the Securities can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A.  The Borrower shall be responsible for the
fees of its transfer agent and all DTC fees associated with such issuance.

 

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]

 

 43 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first above written.

 

LENDER: DELAFIELD INVESTMENTS LIMITED       By:         Name:   Title:    
BORROWER: AMARANTUS BIOSCIENCE HOLDINGS, INC.       By:         Name:   Title:

 

SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT

 

 

 

 

EXHIBIT A

 

Form of Note

 

 

 

 

EXHIBIT B

 

Form of Warrant

 

 

 

 

EXHIBIT C

 

Form of Registration Rights Agreement

 

 

 

 

EXHIBIT D

 

Form of Transfer Agent Irrevocable Instruction Letter

 

 

 

 

EXHIBIT E

 

Security Agreement

 

 

 

 

EXHIBIT F

 

Form of Intercreditor and Subordination Agreement

 

 

 

 

EXHIBIT G

 

Form of Leak-Out Agreement

 

 

 

 

EXHIBIT H

 

Form of Lock-Up Agreement

 

 

 

 

EXHIBIT I

 

Lenders UCC Filings

 

 

 

 

EXHIBIT J

 

PERFECTION CERTIFICATE

 

 

 

 

EXHIBIT K

 

Patent and Trademark Security Agreement

 

 

 

 

EXHIBIT L

 

Copies of Pledged Securities and Agreement Documents

 

 

 

 

EXHIBIT M

 

Pay-Off Letter

 

 

 

 

EXHIBIT M

 

Pledge Documents

 

 

 

 

Schedule 1

 

Purchase Price; Securities Purchased

 

Name of
Lender  Purchase Price
for Notes
Being Purchased   Aggregate
Principal Amount
of Notes being
Purchased   Number of Warrant Shares issuable
upon exercise of Warrant Purchased  1. Delafield Investments Limited 
$2,750,000   $3,055,556      

 

*The difference between the Purchase Price and the aggregate principal amount of
the Note represents an original issue discount of 10%.

 

 

 

 

Schedule 3.1 (a)

 

Subsidiaries of the Company

 

 

 

 

Schedule 5.1 (c) (xiv)

 

List of Persons and Securities Owned Who Are Required to enter into Lock-Up
Agreement