RIGHTSCORP, INC.

 

UNIT SUBSCRIPTION AGREEMENT

COMMON STOCK AND WARRANTS

 

 

 

 

TABLE OF CONTENTS

 

      Page         1. Purchase and Sale of Units 4   1.1. Sale and Issuance of
Securities 4   1.2. Closing 5   1.3. Investors’ Conditions to Closing 5   1.4.
Company’s Conditions to Closing 6         2. Representations and Warranties of
the Company 6   2.1. Corporate Organization; Authority; Due Authorization 6  
2.2. Capitalization 7   2.3. Validity of Securities 8   2.4. Underlying
Securities 8   2.5. Private Offering 8   2.6. Brokers and Finders 8   2.7. No
Conflict; Required Filings and Consents 8   2.8. Compliance 9   2.9. SEC
Documents; Financial Statements 9   2.10. Litigation 11   2.11. Absence of
Certain Changes 11   2.12. Intellectual Property 11   2.13. No Adverse Actions
12   2.14. Registration Rights 12   2.15. Corporate Documents 12   2.16.
Disclosure 12   2.17. Use of Proceeds 12         3. Representations and
Warranties of the Investors 12   3.1. Authorization 12   3.2. Brokers and
Finders 13   3.3. No Governmental Review 13   3.4. No Conflict; Required Filings
and Consents 13         4. Securities Laws 13   4.1. Securities Laws
Representations and Covenants of Investors 13   4.2. Legends 15   4.3. Escrow
Covenants 16         5. Additional Covenants of the Company 17   5.1. Reports,
Information, Securities 17   5.2. Expenses; Indemnification 17   5.3.
Integration with Subsequent Transactions 19   5.4. Form D and Blue Sky 19   5.5.
Listing on Securities Exchanges; Registration; Issuance of Certain Securities 19

 

i

 

 

6. Right of Participation 20         7. Registration of the Shares; Compliance
with the Securities Act 21   7.1. Registration Procedures and Expenses 21   7.2.
Transfer of Registrable Shares After Registration 24   7.3. Indemnification 24  
7.4. Termination of Conditions and Obligations 28   7.5. Information Available
28   7.6. Assignment of Registration Rights 29   7.7. Restriction on Issuance 29
        8. Miscellaneous 29   8.1. Entire Agreement; Successors and Assigns 29  
8.2. Survival of Representations and Warranties 30   8.3. Governing Law;
Jurisdiction 30   8.4. Counterparts 30   8.5. Headings 30   8.6. Notices 30  
8.7. Rights of Transferees 31   8.8. Severability 31   8.9. Fees and Expenses 31
  8.10. Amendments and Waivers 32   8.11. Company Disclosure Letter 32   8.12.
Construction 32

 

ii

 

 

UNIT SUBSCRIPTION AGREEMENT dated as of September XX, 2014 (this “Agreement”),
among Rightscorp, Inc., a Nevada corporation (the “Company”), and the persons
who execute this agreement as investors (each an “Investor” and collectively the
“Investors”).

 

Background: The Company desires to sell to the Investors, and the Investors
desire to purchase, a minimum of eight hundred (800) Units (as defined below)
and a maximum of one thousand two hundred (1,200) Units, with the maximum number
of Units offered consisting in the aggregate of twelve million (12,000,000)
shares of common stock, $.001 par value per share, of the Company (the “Shares”)
and warrants in substantially the form attached hereto as Exhibit 1, exercisable
over a five (5) year period to purchase up to a maximum of eighteen million
(18,000,000) Shares at $0.25 per share (the “Warrants”). The proceeds of the
sale of Units will be used to pay up to $210,000 of indebtedness and for the
development and continuance of the business of the Company and each of its
Subsidiaries.

 

In consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties agree as follows:

 

Certain Definitions:

 

“Action” has the meaning set forth in Section 2.10.

 

“Affiliate” means, as to any Person, any other Person that, directly or
indirectly through one or more intermediaries, controls or is controlled by or
is under common control with such Person. As used in this definition, “control”
(including, with its correlative meanings, “controlled by” and “under common
control with”) shall mean possession, directly or indirectly, of power to direct
or cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise).

 

“AIGH” means AIGH Investment Partners, L.P., a Delaware limited partnership.

 

“Articles of Incorporation” has the meaning set forth in Section 2.2(a).

 

“Audited Financial Statements” has the meaning set forth in Section 2.9(d).

 

“Blue Sky Laws” means any state securities or “blue sky” laws.

 

“Business Day” means any day other than Saturday, Sunday or any other day on
which commercial banks in The City of New York are authorized or required by law
to remain closed.

 

“Closing Date” has the meaning set forth in Section 1.2.

 

“Closing” has the meaning set forth in Section 1.2.

 

 

 

 

“Common Stock” means the Company’s Common Stock, $.001 par value per share,
authorized as of the date hereof, and any stock of any class or classes (however
designated) hereafter authorized upon reclassification thereof, which, if the
Board of Directors declares a dividend or distribution, has the right to
participate in the distribution of earnings and assets of the Company after the
payment of dividends or other distributions on any shares of capital stock of
the Company entitled to a preference and in the voting for the election of
directors of the Company.

 

“Company” has the meaning set forth at the head of this Agreement and any
corporation or other entity which shall succeed to or assume, directly or
indirectly, the obligations of the Company hereunder. The term “corporation”
shall include an association, joint stock company, business trust, limited
liability company or other similar organization.

 

“Company Disclosure Letter” means the disclosure letter dated the date of this
Agreement delivered to the Investors prior to the execution of this Agreement,
which letter is incorporated in this Agreement.

 

“Company IP” has the meaning set forth in Section 2.12(a).

 

“Convertible Security” means any (i) option to purchase or right to subscribe
for Common Stock, (ii) security by its terms convertible into or exchangeable
for Common Stock or (iii) option to purchase or right to subscribe for such
convertible or exchangeable securities.

 

“Contemplated Transactions” has the meaning set forth in Section 2.1(b).

 

“Escrow Agent” means Hahn & Hessen LLP in its capacity as Escrow Agent under the
Escrow Agreement.

 

“Escrow Agreement” means the agreement, dated the date hereof, in substantially
the form attached hereto as Exhibit 3, among the Company, the Investor
Representative and the Escrow Agent.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Exempt Issuance” means (i) all shares of Common Stock issued or issuable to
employees, directors or consultants pursuant to any equity compensation plan
that is in effect on the date of this Agreement, (ii) all shares of Common Stock
issued or issuable to employees or directors pursuant to any equity compensation
plan approved by the Company’s Board of Directors of the Company after the date
of this Agreement, (iii) all shares of Common Stock issued or issuable to
employees, directors or consultants as bona fide compensation for business
services rendered, not compensation for fundraising activities, (iv) all shares
of Common Stock issued or issuable to bona fide leasing companies, strategic
partners, or major lenders or other financing or credit transaction which is not
an equity capital raising event for the Company, (v) all shares of Common Stock
issued or issuable as the purchase price in a bona fide acquisition or merger
(including reasonable fees paid in connection therewith), (vi) all Warrant
Shares and shares or other securities issued upon conversion or exercise of
other Convertible Securities outstanding on the date of the last Closing
hereunder, or (vii) all shares of Common Stock issued or issuable pursuant to
the Financing.

 

2

 

 

Fair Value” has the meaning set forth in Section 1.5.

 

“Financing” has the meaning set forth in the Merger Agreement.

 

“Governmental Body” shall mean any: (i) nation, state, commonwealth, province,
territory, county, municipality, district or other jurisdiction of any nature in
the United States; (ii) federal, state, local, municipal, foreign or other
government; or (iii) governmental or quasi-governmental authority of any nature
(including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or entity and any court or
other tribunal) in the United States.

 

“Indemnified Party” has the meaning set forth in Section 5.2(b).

 

“Indemnifying Party” has the meaning set forth in Section 5.2(c).

 

“Investor” shall mean each Investor who purchases Units hereunder.

 

“Investor Representative” has the meaning set forth in Section 4.3.

 

“Investor Majority” shall mean (a) until Closing, Investors who have subscribed
for a majority of the Units then subscribed for and (b), thereafter, Investors
(or their assignees in private transactions) who have purchased more than fifty
percent (50%) of the Units.

 

“Knowledge” shall mean, with respect to a particular fact or other matter, the
knowledge, after reasonable investigation, of the Chief Executive Officer or
Chief Financial Officer of the Company.

 

“Legal Requirement” has the meaning set forth in Section 2.8.

 

“Losses” has the meaning set forth in Section 5.2(b).

 

“Material Adverse Effect” has the meaning set forth in Section 2.1(a).

 

“Material Agreement” has the meaning set forth in Section 2.7.

 

“Merger Agreement” means the Agreement and Plan of Merger, dated October 25,
2013, among the Company, Rightscorp Merger Acquisition Sub, Inc. and Rightscorp,
Inc. (a Delaware corporation).

 

“Notice” has the meaning set forth in Section 6.6.

 

“Other Securities” has the meaning set forth in the Warrants.

 

3

 

 

“Person” means any individual, sole proprietorship, partnership, corporation,
limited liability company, business trust, unincorporated association, joint
stock corporation, trust, joint venture or other entity, any university or
similar institution, or any government or any agency or instrumentality or
political subdivision thereof.

 

“Purchased Shares” has the meaning set forth in Section 1.1(a).

 

“Purchased Warrants” has the meaning set forth in Section 1.1(a).

 

“Rule 144” means Rule 144 promulgated under the Securities Act or any successor
or substitute rule, law or provision.

 

“SEC” means the Securities and Exchange Commission.

 

“SEC Documents” has the meaning set forth in Section 2.9(a).

 

“Securities” has the meaning set forth in Section 1.1(a).

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Shares” has the meaning set forth in the Background.

 

“Subsidiary” means any significant subsidiary (as defined under Rule 1.02(w) of
Regulation S-X promulgated by the SEC) of the Company.

 

“Transaction Documents” means this Agreement and the Warrants.

 

“Underlying Securities” means the shares of Common Stock or Other Securities
issued or from time to time issuable upon exercise of the Warrants.

 

“Unit” means a unit consisting of (i) ten thousand (10,000) Shares and (ii)
fifteen thousand (15,000) Warrants.

 

“Warrant” has the meaning set forth in Background.

 

1. Purchase and Sale of Units.

 

1.1. Sale and Issuance of Securities.

 

(a) The Company shall sell to the Investors and the Investors shall purchase
from the Company, a minimum of 800 units and up to a maximum of 1,200 Units, at
a price per Unit equal to $2,500.00, for a purchase price aggregating to a
minimum of $2,000,000 (the “Minimum Proceeds”) and a maximum of $3,000,000.00.
The Shares sold as part of the Units are referred to as the “Purchased Shares”
and the Warrants sold as part of the Units are referred to as the “Purchased
Warrants,” and collectively with the Purchased Shares, the “Securities.”

 

4

 

 

(b) The number of Units to be purchased by each Investor from the Company is set
forth on the signature page hereto, subject to acceptance, in whole or in part,
by the Company.

 

1.2. Closing. The closing (the “Closing”) of the purchase and sale of the
Securities hereunder shall take place on September __, 2014 or such other date
thereafter, but no later than September 23, 2014, as is determined by the
Company with the consent of the Investor Majority (the “Closing Date”). The
Closing shall take place at the offices of Hahn & Hessen LLP, the Investors’
counsel, in New York, New York, or at such other location as is mutually
acceptable to the Investor Majority and the Company, subject to fulfillment of
the conditions to the Closing set forth in the Agreement. At the Closing:

 

(a) each Investor purchasing Securities at the Closing shall deliver to the
Escrow Agent or its designees prior to the Closing by wire transfer or such
other method of payment as the Company shall approve, an amount equal to the
purchase price of the Securities purchased by such Investor hereunder, as set
forth opposite such Investor’s name on the signature pages hereof;

 

(b) the Company shall authorize its transfer agent to arrange delivery to each
Investor of one or more stock certificates registered in the name of the
Investor, or in such nominee name(s) as designated by the Investor in writing,
representing the number of Purchased Shares as set forth opposite such
Investor’s name on the signature page hereof; and

 

(c) the Company shall issue and deliver to each Investor purchasing Securities
at the Closing the Warrants, registered in the name of such Investor, pursuant
to which such Investor shall have the right to acquire the number of Underlying
Securities as set forth opposite such Investor’s name on the signature page
hereof on the terms set forth therein.

 

1.3. Investors’ Conditions to Closing. The obligation of the Investors to
complete the purchase of the Securities at the applicable Closing is subject to
the Company delivering Securities as set forth in Section 1.2 and to fulfillment
of the following conditions:

 

(a) the Company shall deliver to the Investors an opinion of counsel, dated the
Closing Date and reasonably satisfactory to counsel for the Investors, with
respect to the matters set forth on Exhibit 2;

 

(b) the representation and warranties of the Company set forth in this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing
Date (except to the extent such representations and warranties speak as of an
earlier date, in which case such representations and warranties shall be true
and correct in all material respects as of such earlier date), and the Company
shall have performed in all material respects all covenants and other
obligations required to be performed by it under this Agreement at or prior to
the Closing Date, and the Investors shall have received a certificate signed on
behalf of the Company by an authorized officer of the Company to such effect;

 

5

 

 

(c) the Company shall deliver to Investors a certified copy of its Articles of
Incorporation and by-laws and a Certificate of Good Standing from the Secretary
of State of the State of Nevada;

 

(d) the Company shall pay the Investors’ expenses to the extent set forth in
Section 8.9 hereof;

 

(e) Hartford Equity Inc., the current directors, officers, and 5% beneficial
owners of the Company shall have delivered lock-up letters, in customary form,
effective from the Closing Date until 60 days after the effective date of the
Initial Registration Statement;

 

(f) the Company shall deliver to the Investors evidence of the termination of
the Securities Purchase Agreement among the Company and Seaside 88, LP, dated as
of March 7, 2014, in form and substance reasonably satisfactory to counsel for
the Investors;

 

(g) the Company shall have received no less than the Minimum Proceeds; and

 

(h) the Company shall have executed and delivered all other documents reasonably
requested by counsel for the Investors.

 

1.4. Company’s Conditions to Closing. The obligation of the Company to complete
the sale of the Units at the Closing is subject to fulfillment of the following
conditions:

 

(a) the representation and warranties of the Investors set forth in this
Agreement shall be true and correct as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date (except to the
extent such representations and warranties speak as of an earlier date), in
which case such representations and warranties shall be true and correct in all
material respects as of such earlier date), and

 

(b) such Investors shall have performed in all material respects all covenants
and other obligations required to be performed by them under this Agreement, if
any, at or prior to the Closing Date.

 

2. Representations and Warranties of the Company. The Company hereby represents
and warrants to each of the Investors as follows:

 

2.1. Corporate Organization; Authority; Due Authorization.

 

(a) The Company (i) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, (ii) has
the corporate power and authority to own or lease its properties as and in the
places where its business is now conducted and to carry on its business as now
conducted, and (iii) is duly qualified as a foreign corporation authorized to do
business in every jurisdiction where the failure to so qualify, individually or
in the aggregate, would have a material adverse effect on the operations,
assets, liabilities, financial condition or business of the Company and its
Subsidiaries taken as a whole (a “Material Adverse Effect”). Set forth in
Section 2.1(a) of the Company Disclosure Letter is a complete and correct list
of all Subsidiaries. Each Subsidiary is duly incorporated, validly existing and
in good standing under the laws of its jurisdiction of incorporation and is
qualified to do business as a foreign corporation in each jurisdiction in which
qualification is required, except where failure to so qualify would not have,
individually or in the aggregate, a Material Adverse Effect.

 

6

 

 

(b) The Company (i) has the requisite corporate power and authority to execute,
deliver and perform this Agreement and the other Transaction Documents to which
it is a party and to incur the obligations herein and therein and (ii) has been
authorized by all necessary corporate action to execute, deliver and perform
this Agreement and the other Transaction Documents to which it is a party and to
consummate the transactions contemplated hereby and thereby (the “Contemplated
Transactions”). This Agreement is and each of the other Transaction Documents
will be on the Closing Date a valid and binding obligation of the Company
enforceable in accordance with its terms except as limited by applicable
bankruptcy, reorganization, insolvency, moratorium or similar laws affecting the
enforcement of creditors’ rights and the availability of equitable remedies
(regardless of whether such enforceability is considered in a proceeding at law
or equity).

 

2.2. Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of (a) two hundred and fifty million (250,000,000) shares of
Common Stock, $.001 par value, of which seventy five million seven hundred
eighty one thousand thirty one (75,781,031) shares of Common Stock are
outstanding and (b) ten million (10,000,000) shares of preferred stock, $.001
per value, of which none are outstanding. All outstanding shares of capital
stock of the Company were issued in compliance with all applicable federal and
state securities laws, and the issuance of such shares was duly authorized by
all necessary corporate action on the part of the Company. Except as
contemplated by this Agreement or as set forth in Section 2.2 of the Company
Disclosure Letter, there are (A) no outstanding subscriptions, warrants,
options, conversion privileges or other rights or agreements obligating the
Company to purchase or otherwise acquire or issue any shares of capital stock of
the Company (or shares reserved for such purpose), (B) no preemptive rights
contained in the Company’s Articles of Incorporation, as amended (the “Articles
of Incorporation”), the By-laws of the Company or contracts to which the Company
is a party or other rights of first refusal with respect to the issuance of
additional shares of capital stock of the Company, including without limitation
the Securities and the Underlying Securities, and (C) no commitments or
understandings (oral or written) of the Company to issue any shares, warrants,
options or other rights to acquire any equity securities of the Company. No
Persons have any anti-dilution rights of any kind, whether triggered by the
Contemplated Transactions or otherwise. To the Company’s Knowledge, except as
set forth in Section 2.2 of the Company Disclosure Letter, none of the shares of
Common Stock are subject to any stockholders’ agreement, voting trust agreement
or similar arrangement or understanding. Except as set forth in Section 2.2 of
the Company Disclosure Letter, the Company has no outstanding bonds, debentures,
notes or other obligations the holders of which have the right to vote (or which
are convertible into or exercisable for securities having the right to vote)
with the stockholders of the Company on any matter.

 

7

 

 

2.3. Validity of Securities. The issuance of the Securities has been duly
authorized by all necessary corporate action on the part of the Company and,
when issued to, delivered to, and paid for by the Investors in accordance with
this Agreement, the Purchased Shares will be validly issued, fully paid and
non-assessable.

 

2.4. Underlying Securities. (a) The issuance of the Underlying Securities upon
exercise of the Purchased Warrants has been duly authorized, (b) the Underlying
Securities prior to such exercise will have been duly reserved for issuance upon
such exercise and (c) when so issued, the Underlying Securities will be validly
issued, fully paid and non-assessable.

 

2.5. Private Offering. Neither the Company nor anyone authorized to act on its
behalf has within the last twelve (12) months issued, sold or offered any
security of the Company (including, without limitation, any Common Stock or
warrants of similar tenor to the Purchased Warrants) to any Person under
circumstances that would cause the issuance and sale of the Securities, as
contemplated by this Agreement, to the Company’s Knowledge to be subject to the
registration requirements of Section 5 of the Securities Act. The Company agrees
that neither the Company nor anyone authorized to act on its behalf will offer
the Securities or any part thereof or any similar securities for issuance or
sale to, or solicit any offer to acquire any of the same from, anyone so as to
make the issuance and sale of the Securities subject to the registration
requirements of Section 5 of the Securities Act.

 

2.6. Brokers and Finders. Except as set forth in Section 2.6 of the Company
Disclosure Letter, the Company has not retained any broker, investment banker or
finder in connection with the Contemplated Transactions and will not owe any
fees to any broker, investment banker or finder under a tail or similar covenant
from an earlier engagement or financing.

 

2.7. No Conflict; Required Filings and Consents.

 

(a) The execution, delivery and performance of this Agreement and the other
Transaction Documents by the Company do not, and the consummation by the Company
of the Contemplated Transactions will not, (i) conflict with or violate the
Articles of Incorporation or the By-laws of the Company or its Subsidiaries,
(ii) conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to the Company or its Subsidiaries or by which any property or
asset of the Company or its Subsidiaries is bound or affected, or (iii) result
in any breach of or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, result in the loss of a material
benefit under, or give to others any right of purchase or sale, or any right of
termination, amendment, acceleration, increased payments or cancellation of, or
result in the creation of a lien or other encumbrance on any property or asset
of the Company or of any of its Subsidiaries pursuant to, any material note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which the Company or of any of its Subsidiaries or
any property or asset of the Company or of any of its Subsidiaries is bound or
affected (the “Material Agreements”); except, in the case of clauses (ii) and
(iii) above, for any such conflicts, violations, breaches, defaults or other
occurrences that would not prevent or delay consummation of any of the
Contemplated Transactions in any material respect or otherwise prevent the
Company from performing its obligations under this Agreement or any of the other
Transaction Documents in any material respect, and would not, individually or in
the aggregate, have a Material Adverse Effect.

 

8

 

 

(b) The execution and delivery of this Agreement and the other Transaction
Documents by the Company do not, and the performance of this Agreement and the
other Transaction Documents and the consummation by the Company of the
Contemplated Transactions will not, require, on the part or in respect of the
Company, any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Body (as hereinafter defined) except for the
filing of a Form D with the SEC and applicable requirements, if any, of the
Exchange Act or Blue Sky Laws, and any approval required by applicable rules of
the markets in which the Company’s securities are traded.

 

2.8. Compliance. Except as set forth in the SEC Documents or in Section 2.8 of
the Company Disclosure Letter, neither the Company nor any Subsidiary is in
conflict with, or in default or violation of (i) any law, rule, regulation,
order, judgment or decree applicable to the Company or such Subsidiary or by
which any property or asset of the Company or such Subsidiary is bound or
affected (“Legal Requirement”), or (ii) any Material Agreement, in each case
except for any such conflicts, defaults or violations that would not,
individually or in the aggregate, have a Material Adverse Effect. Neither the
Company nor any Subsidiary has received any written notice or other
communication from any Governmental Body regarding any actual or possible
violation of, or failure to comply with, any Legal Requirement, except any such
violations or failures that would not, individually or in the aggregate, have a
Material Adverse Effect.

 

2.9. SEC Documents; Financial Statements.

 

(a) The information contained in the following documents, did not, as of the
date of the applicable document, include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances in which they
were made, not misleading, as of their respective filing dates or, if amended,
as so amended (the following documents, collectively, the “SEC Documents”),
provided that the representation in this sentence shall not apply to any
misstatement or omission in any SEC Document filed prior to the date of this
Agreement which was superseded by a subsequent SEC Document filed prior to the
date of this Agreement:

 

(i) the Company’s Annual Report on Form 10-K for the year ended December 31,
2013;

 

9

 

 

(ii) the Company’s Quarterly Reports on Form 10-Q for the quarters ended June 30
and March 31, 2014; and

 

(iii) the Company’s filings on Form 8-K, dated August 22, August 18, August 7,
May 16, May 7, and March 28, 2014.

 

(b) As of the date of this Agreement, the Company Disclosure Letter, when read
together with the SEC Documents and the information, qualifications and
exceptions contained in this Agreement, does not include any untrue statement of
a material fact or omit to state a material fact in light of the circumstances
in which such written disclosures were made. Each press release issued by the
Company during the twelve (12) months preceding the date of this Agreement did
not at the time of release contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
information exists (other than the consummation of the transactions contemplated
hereby) with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.

 

(c) The Company has filed all forms, reports and documents required to be filed
by it with the SEC for the 12 months preceding the date of this Agreement,
including without limitation the SEC Documents. As of their respective dates,
the SEC Documents filed prior to the date hereof complied as to form in all
material respects with the applicable requirements of the Securities Act, the
Exchange Act, and the rules and regulations thereunder.

 

(d) The Company’s Annual Report on Form 10-K for the year ended December 31,
2013, includes audited consolidated balance sheets as of December 31, 2013 and
2012, consolidated statements of operations and consolidated statements of cash
flows for the one year periods then ended (the “Audited Financial Statements”),
and the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2014, includes unaudited consolidated balance sheets, consolidated statements of
operations and consolidated statements of cash flows for the six (6) month
periods ended June 30, 2013 and June 30, 2104 (the “Unaudited Financial
Statements,” and collectively with the Audited Financial Statements, the
“Financial Statements”).

 

(e) The Financial Statements (including the related notes and schedules thereto)
fairly present in all material respects the consolidated financial position, the
results of operations, retained earnings or cash flows, as the case may be, of
the Company for the periods set forth therein (subject, in the case of the
Unaudited Financial Statements, to normal year-end audit adjustments that would
not be material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods involved,
except as may be noted therein.

 

10

 

 

2.10. Litigation. Except as set forth in the SEC Documents or in Section 2.10 of
the Company Disclosure Letter, there are no claims, actions, suits,
investigations, inquiries or proceedings (each, an “Action”) pending against the
Company or any of its Subsidiaries or, to the Knowledge of the Company,
threatened against the Company or any of its Subsidiaries, at law or in equity,
or before or by any court, tribunal, arbitrator, mediator or any federal or
state commission, board, bureau, agency or instrumentality, that, individually
or in the aggregate, would reasonably be expected to have a Material Adverse
Effect. Except as set forth in the SEC Documents or in Section 2.10 of the
Company Disclosure Letter, neither the Company nor any of its Subsidiaries is a
party to or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality that,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.

 

2.11. Absence of Certain Changes. Except as specifically contemplated by this
Agreement or as set forth in Section 2.11 of the Company Disclosure Letter or in
the SEC Documents, since June 30, 2014, there has not been (a) any material
adverse change in the business, prospects or financial condition of the Company;
(b) any dividends or other distribution of assets to stockholders of the
Company; (c) any acquisition (by merger, consolidation, acquisition of stock or
assets or otherwise) of any Person by the Company; or (d) any transactions,
other than in the ordinary course of business, consistent in all material
respects with past practices, with any of its officers, directors or principal
stockholders or any of their respective Affiliates.

 

2.12. Intellectual Property.

 

(a) To the Knowledge of the Company, it owns, or has the right to use, sell or
license all intellectual property reasonably required for the conduct of its
business as presently conducted (collectively, the “Company IP”) except for any
failure to own or have the right to use, sell or license the Company IP that
would not have a Material Adverse Effect.

 

(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
breach of any instrument or agreement governing any Company IP, will not cause
the forfeiture or termination or give rise to a right of forfeiture or
termination of any Company IP or impair the right of the Company and its
Subsidiaries to use, sell or license any Company IP, except for the occurrence
of any such breach, forfeiture, termination or impairment that would not,
individually or in the aggregate, result in a Material Adverse Effect.

 

(c) (i) None of the manufacture, marketing, license, sale and use of any product
currently licensed or sold by the Company or any of its Subsidiaries violates
any license or agreement between the Company or any of its Subsidiaries and any
third party or, to the Knowledge of the Company, infringes any intellectual
property right of any other party; and (ii) there is no pending or, to the
Knowledge of the Company, threatened claim or litigation contesting the
validity, ownership or right to use, sell, license or dispose of any Company IP;
except, with respect to clauses (i) and (ii), for any violations, infringements,
claims or litigations that would not, individually or in the aggregate, have a
Material Adverse Effect.

 

11

 

 

2.13. No Adverse Actions. Except as set forth in the SEC Documents or in Section
2.13 of the Company Disclosure Letter, there is no existing, pending or, to the
Knowledge of the Company, threatened termination, cancellation, limitation,
modification or change in the business relationship of the Company or any of its
Subsidiaries, with any supplier, customer or other Person except such as would
not reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.

 

2.14. Registration Rights. Except as set forth below or in Section 2.14 of the
Company Disclosure Letter, the Company is not under any obligation to register
under the Securities Act any of its currently outstanding securities or any
securities issuable upon exercise or conversion of its currently outstanding
securities nor is the Company obligated to register or qualify any such
securities under any Blue Sky Laws.

 

2.15. Corporate Documents. The Company’s Articles of Incorporation and By-laws,
each as amended to date, which are certified as of the Closing Date are true,
correct and complete and contain all amendments thereto.

 

2.16. Disclosure. On or before 9:00 a.m., New York City Time, on the fourth
Business Day after the Closing, the Company shall file with the SEC a Current
Report on Form 8-K describing the material terms of the Contemplated
Transactions, and attaching as exhibits to such Form 8-K copies of this
Agreement and the other Transaction Documents, as required by the SEC. Except
for information that may be provided to the Investors pursuant to this
Agreement, the Company shall not, and shall use commercially reasonable efforts
to cause each of its officers, directors, employees and agents not to, provide
any Investor with any material nonpublic information regarding the Company from
and after the filing of such Form 8-K without the express written consent of
such Investor.

 

2.17. Use of Proceeds. The net proceeds received by the Company from the sale of
the Units shall be used by the Company to pay up to $210,000 in indebtedness,
for working capital and for general corporate purposes.

 

3. Representations and Warranties of the Investors. Each Investor represents and
warrants to the Company as follows:

 

3.1. Authorization. If an entity, such Investor (i) is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, and (ii) has the power and authority to own and hold the Units.
Such Investor (i) has full power and authority to execute, deliver and perform
this Agreement and the other Transaction Documents to which it is a party and to
incur the obligations herein and therein and (ii), if applicable, has been
authorized by all necessary corporate or equivalent action to execute, deliver
and perform this Agreement and the other Transaction Documents and to consummate
the Contemplated Transactions. This Agreement is and each of the other
Transaction Documents will be upon the execution and delivery by such Investor,
a valid and binding obligation of such Investor enforceable in accordance with
its terms, except as limited by applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting the enforcement of creditors’
rights and the availability of equitable remedies (regardless of whether such
enforceability is considered in a proceeding at law or equity).

 

12

 

 

3.2. Brokers and Finders. Such Investor has either not retained an investment
banker, broker or finder, or has provided the name and information concerning
such entity to the Company on or prior to the Closing Date.

 

3.3. No Governmental Review. Such Investor understands that no United States
Federal or state agency or any other Governmental Body has passed on or made any
recommendation or endorsement of the Securities or the fairness or suitability
of the investment in the Securities nor has any agency or other Governmental
Body passed upon or endorsed the merits of the offering of the Securities.

 

3.4. No Conflict; Required Filings and Consents.

 

(a) The execution, delivery and performance of this Agreement and the other
Transaction Documents by each Investor do not, and the consummation by such
Investor of the Contemplated Transactions will not, (i), if such Investor is an
entity, conflict with or violate the Articles of Incorporation or the By-laws
(or equivalent or comparable documents) of such Investor, (ii) conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to such
Investor or by which any property or asset of such Investor is bound or
affected, or (iii) result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, result
in the loss of a material benefit under, or give to others any right of purchase
or sale, or any right of termination, amendment, acceleration, increased
payments or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of such Investor pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which such Investor is a party or
by which such Investor or any property or asset of such Investor is bound or
affected; except, for any such conflicts, violations, breaches, defaults or
other occurrences that would not prevent or delay consummation of any of the
Contemplated Transactions in any material respect or otherwise prevent such
Investor from performing its obligations under this Agreement or any of the
other Transaction Documents in any material respect.

 

(b) The execution and delivery of this Agreement and the other Transaction
Documents by each Investor do not, and the performance of this Agreement and the
other Transaction Documents and the consummation by such Investor of the
Contemplated Transactions will not, require, on the part or in respect of such
Investor, any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Body.

 

4. Securities Laws.

 

4.1. Securities Laws Representations and Covenants of Investors.

 

13

 

 

(a) Each Investor represents and warrants to the Company that: this Agreement is
made by the Company with such Investor in reliance upon such Investor’s
representation to the Company, which by such Investor’s execution of this
Agreement such Investor hereby confirms, that the Securities to be received by
such Investor will be acquired for investment for such Investor’s own account,
not as a nominee or agent, and not with a view to the resale or distribution of
any part thereof such that such Investors would constitute an “underwriter”
under the Securities Act; provided that this representation and warranty shall
not limit (i) the Investor’s right to sell the Underlying Securities in
compliance with an exemption from registration under the Securities Act and in
compliance with all applicable federal securities laws and Blue Sky Laws or (ii)
the Investor’s rights to indemnification under this Agreement.

 

(b) Each Investor understands and acknowledges that (i) the offering of the
Securities pursuant to this Agreement will not be registered under the
Securities Act or qualified under any Blue Sky Laws on the grounds that the
offering and sale of the Securities are exempt from registration and
qualification, respectively, under the Securities Act and the Blue Sky Laws,
(ii) nothing in this Agreement or any of the other Transaction Documents or in
any other materials presented by or on behalf of the Company to such Investor in
connection with the purchase of Securities constitutes legal, tax or investment
advice, (iii) such Investor has consulted such legal, tax and investment
advisors as it, in its sole discretion, has deemed necessary or appropriate in
connection with its purchase of Securities and (iv) if the Securities have not
been registered under the Securities Act and 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.

 

(c) Each Investor covenants that, unless the Purchased Shares, the Purchased
Warrants, the Underlying Securities or any other shares of capital stock of the
Company received in respect of the foregoing have been registered, such Investor
will not dispose of such securities unless and until such Investor shall have
notified the Company of the proposed disposition and shall have furnished the
Company with an opinion of counsel reasonably satisfactory in form and substance
to the Company to the effect that (i) such disposition will not require
registration under the Securities Act and (ii) appropriate action necessary for
compliance with the Securities Act, all applicable Blue Sky Laws and any other
applicable state, local or foreign law has been taken; provided, however, that
if an Investor provides such an opinion reasonably satisfactory in form and
substance to the Company, the Company will bear the reasonable expense thereof.

 

(d) Each Investor represents to the Company that: (i) such Investor is able to
fend for itself in the Contemplated Transactions; (ii) such Investor has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of such Investor’s prospective investment in the
Securities and has so evaluated the merits and risks of such investment; (iii)
such Investor has the ability to bear the economic risks of such Investor’s
prospective investment and can afford the complete loss of such investment; (iv)
such Investor has been furnished with and has reviewed the SEC Documents and the
Company Disclosure Letter; (v) such Investor has been furnished with and has had
access to such information as is in the SEC Documents and in the Company
Disclosure Letter, together with the opportunity to obtain such additional
information as it requested to verify the accuracy of the information contained
therein or otherwise supplied to such Investor so that such Investor can make an
informed investment decision with respect to an investment in the Securities;
(vi) such Investor has had access to officers of the Company and an opportunity
to ask questions of and receive answers from such officers and has had all
questions that have been asked by such Investor satisfactorily answered by the
Company; and (vii) such Investor is not subscribing to purchase the Securities
as a result of or subsequent to any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over television or radio, or presented at any seminar or meeting, or any
solicitation of a subscription by a Person not previously known to such Investor
in connection with investments in securities generally.

 

14

 

 

(e) Each Investor represents to the Company that: such Investor: (i) was
qualified at the time such Investor was offered the securities, (ii) qualifies
on the date hereof, and (iii) will qualify on the Closing Date, as an
“accredited investor” as such term is defined under Rule 501 promulgated under
the Securities Act. Any Investor that is a corporation, a partnership, a limited
liability company, a trust or other business entity further represents to the
Company that it has not been organized for the purpose of purchasing the
Securities.

 

(f) By acceptance hereof, each Investor acknowledges that the Purchased Shares,
the Purchased Warrants, the Underlying Securities and any shares of capital
stock of the Company received in respect of the foregoing held by it may not be
sold by such Investor without registration under the Securities Act or an
exemption therefrom, and therefore such Investor may be required to hold such
securities for an indeterminate period.

 

(g) In connection with any transfer of Securities made by each Investor in
compliance with the provisions of this Agreement, such Investor will cause each
proposed transferee of such Securities to agree and take hold such Securities
subject to the provisions of this Agreement.

 

(h) The representations, warranties and covenants of each Investor in this
Agreement are made severally and not jointly.

 

4.2. Legends. All certificates for the Purchased Shares, Purchased Warrants and
the Underlying Securities, and each certificate representing any shares of
capital stock of the Company or Other Securities received in respect of the
foregoing, whether by reason of a stock split or share reclassification thereof,
a stock dividend thereon or otherwise, and each certificate for any such
securities issued to subsequent transferees of any such certificate (unless
otherwise permitted herein) shall bear the following legend:

 

“THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“THE
SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS.”

 

15

 

 

4.3. Escrow Covenants.

 

(a) Each Investor shall deposit an amount equal to the purchase price for Units
purchased by such Investor (the “Purchase Price Amount”) in escrow (the
“Escrow”) with the Escrow Agent, to be held in a non-interest bearing account.
Each Investor hereby designates AIGH as its representative (in such capacity,
the “Investor Representative”) to authorize release of the Purchase Price Amount
upon Closing pursuant to the Escrow Agreement and to take other appropriate
action on behalf of the Investors as set forth in the Escrow Agreement. The
powers conferred on the Escrow Agent or Investor Representative hereunder are
solely to protect the Investor’s interest in the Purchase Price Amount and shall
not impose any duty upon the Escrow Agent or Investor Representative to exercise
any such powers. Except as set forth in the Escrow Agreement, the Escrow Agent
shall have no duty as to the Purchase Price Amount, as to ascertaining or taking
action with respect to the Purchase Price Amount, whether or not the Escrow
Agent has or is deemed to have knowledge of such matters. The Escrow Agent shall
be deemed to have exercised reasonable care in the custody and preservation of
the Purchase Price Amount in its possession if the Purchase Price Amount is
accorded treatment substantially equal to that which it accords its own
property. Except for authorizing the release of the Purchase Price Amount held
by the Escrow Agent upon satisfaction of the conditions to Closing, the Investor
Representative shall have no duty as to the Purchase Price Amount as to
ascertaining or taking action with respect to the Purchase Price Amount other
than determining whether to release the Purchase Price Amount, and shall apply
the same standard of care as it would use in determining whether to release any
Purchase Price Amount to the Escrow Agent in its capacity as an Investor.
Interest, if any, earned on the Purchase Price Amount while held by the Escrow
Agent shall be paid (i) to the Investor in the event the Purchase Price Amount
is returned to the Investor or (ii) to a charity designated by the Investor
Representative in the event the Purchase Price Amount is paid to the Company.

 

(b) As set forth in the Escrow Agreement, the Investors, jointly and severally,
agree to indemnify the Investor Representative and the Escrow Agent from and
against any and all reasonable claims, losses, and liabilities (including,
without limitation, reasonable attorney fees) growing out of or resulting from
the Escrow, except claims, losses, or liabilities resulting from the gross
negligence or willful misconduct of the Escrow Agent or Investor Representative.
The Company agrees to indemnify the Escrow Agent and Investor Representative
from and against any and all reasonable claims, losses, and liabilities
(including, without limitation, reasonable attorney fees) arising from claims
made by the Company or its Affiliates, except claims, losses, or liabilities
resulting from the gross negligence or willful misconduct of the Escrow Agent or
Investor Representative.

 

16

 

 

(c) The Company will, subject to Section 8.9 hereof, upon demand pay the amount
of any and all reasonable expenses, including, without limitation, the
reasonable fees and expenses of counsel (including Hahn & Hessen LLP) and of any
experts and agents, which the Escrow Agent or Investor Representative may incur
in connection with (i) the preparation and administration of the Escrow; (ii)
the custody, preservation, collection from, or other realization upon, any of
the Subscription Amounts; or (iii) the exercise or enforcement of any of the
rights of the Escrow Agent or Investor Representative hereunder.

 

(d) The participation of Hahn & Hessen LLP as Escrow Agent is being undertaken
as an accommodation to the parties hereto, and shall in no way hinder or limit
the present or future ability of Hahn & Hessen LLP to act as counsel to any
party or any of their affiliates with respect to any matter including, but not
limited to, disputes between or among any of the Company, the Investor
Representative and the Investors with regard to the Escrow or otherwise. Without
limitation on the foregoing, the parties (i) recognize that Hahn & Hessen LLP
represents AIGH in this and other matters and may continue to do so, (ii)
recognizes that Hahn & Hessen LLP represents all the Investors in the
transactions contemplated by the Agreements, and (iii) waive any conflicts that
may arise from such representation.

 

5. Additional Covenants of the Company.

 

5.1. Reports, Information, Securities.

 

(a) The Company shall cooperate with each Investor in supplying such information
as may be reasonably requested by such Investor to complete and file any
information reporting forms presently or hereafter required by the SEC as a
condition to the availability of the safe harbor pursuant to Rule 144 for the
sale of any of the Purchased Shares, the Purchased Warrants, the Underlying
Securities and shares of capital stock of the Company received in respect of the
foregoing.

 

(b) The Company shall keep reserved for issuance a sufficient number of
authorized but unissued shares of Common Stock (or Other Securities into which
the Purchased Warrants are then exercisable) so that the Purchased Warrants may
be converted or exercised to purchase Common Stock (or such Other Securities) at
any time.

 

5.2. Expenses; Indemnification.

 

(a) The Company agrees to pay on the Closing Date and save the Investors
harmless against liability for (i) the payment of any stamp or similar taxes
(including interest and penalties, if any) that may be determined to be payable
in respect of the execution and delivery of this Agreement, and the issue and
sale of any Securities and the Underlying Securities, (ii) the expense of
preparing and issuing the certificates for the Securities and the Underlying
Securities, and (iii) the cost of delivering the Securities and the Underlying
Securities of each Investor to such Investor’s address, insured in accordance
with customary practice. Each Investor shall be responsible for its
out-of-pocket expenses arising in connection with the Contemplated Transactions,
except that the Company shall pay fees and disbursements of counsel to the
Investors as set forth in Section 6.9.

 

17

 

 

(b) The Company hereby agrees and acknowledges that the Investors have been
induced to enter into this Agreement and to purchase the Securities hereunder,
in part, based upon the representations, warranties, agreements and covenants of
the Company contained herein. The Company hereby agrees to pay, indemnify and
hold harmless the Investors and any director, officer, partner, member, employee
or other affiliate of any Investor (each, an “Indemnified Party”) against all
claims, losses and damages resulting from any and all legal or administrative
proceedings, including without limitation, reasonable attorneys’ fees and
expenses incurred in connection therewith (but in no event for more than one law
firm, selected by the Investor Majority, for all the Investors) (collectively,
“Losses”), resulting from a breach by the Company of any representation or
warranty of the Company contained herein or the failure of the Company to
perform any agreement or covenant made herein;

 

(c) As soon as reasonably practicable after receipt by any Indemnified Party of
notice of any Losses in respect of which the Company (the “Indemnifying Party”)
may be required to provide indemnification thereof under this Section 5.2, the
Indemnified Party shall give written notice thereof to the Indemnifying Party.
The Indemnified Party may, at its option, claim indemnity under this Section 5.2
as soon as a claim has been threatened by a third party, regardless of whether
any actual Losses have been suffered, so long as counsel for such Indemnified
Party shall in good faith determine that such claim is not frivolous and that
the Indemnifying Party may be required to provide indemnification therefor as a
result thereof and shall give notice of such determination to the Indemnifying
Party. The Indemnified Party shall permit the Indemnifying Party at the
Indemnifying Party’s option and expense, to assume the defense of any such claim
by counsel mutually and reasonably satisfactory to the Indemnifying Party and a
majority in interest of the Indemnified Parties and to settle or otherwise
dispose of the same; provided, however, that each Indemnified Party may at all
times participate in such defense at such Indemnified Party’s expense; and
provided further, however, that the Indemnifying Party shall not, in defense of
any such claim, except with the prior written consent of the Indemnified Party,
consent to the entry of any judgment or settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff in question
to such Indemnified Party of a release of all liabilities in respect of such
claim. If the Indemnifying Party does not promptly assume the defense of such
claim or if any such counsel is unable to represent one or more of the
Indemnified Parties due to a conflict of interest, then an Indemnified Party may
assume, to the extent separable, the defense of such portion of the claim as to
which the conflict arose (and, if not separable, the entire claim) and be
entitled to indemnification and prompt reimbursement from the Indemnifying Party
for such Indemnified Party’s reasonable costs and expenses incurred in
connection therewith, including without limitation, reasonable attorneys’ fees
and expenses (not to exceed the cost of more than one law firm for all
Investors). Such fees and expenses shall be reimbursed to the Indemnified
Parties as soon as practicable after submission of invoices to the Indemnifying
Party.

 

18

 

 

5.3. Integration with Subsequent Transactions. The Company shall not directly or
indirectly, sell, offer for sale or solicit offers to buy or otherwise negotiate
with respect of any security (as defined in section 2 of the Securities Act) of
the same or similar class as the Units that would (i) be integrated with the
offer or sale of the Units in a manner that would require the registration under
the Securities Act of the sale of the Units to the Investor; (ii) cause the
offer and sale of the Units to fail to be entitled to the exemption from
registration afforded by Section 4(a)(2) of the Securities Act; or (iii) be
integrated with the offer or sale of the Units for purposes of the rules or
regulations of any national securities exchange on which the Company’s Common
Stock are listed or designated such that it would require shareholder approval
prior to the closing of such other transaction unless shareholder approval is
obtained prior to the closing of such subsequent transactions. As used in this
Agreement, the terms “offer” and “sale” shall have the meanings specified in
Section 2(3) of the Securities Act.

 

5.4. Form D and Blue Sky. The Company agrees to file a Form D with respect to
the Units as required under Regulation D promulgated under the Securities Act
and to promptly provide a copy thereof to the Investor who requests a copy after
such filing by reference to the web site www.sec.gov maintained by the SEC. The
Company, on or before the Closing Date, shall take such action as the Company
shall reasonably determine is necessary in order to obtain an exemption for or
to qualify the Units for sale to the Investors at Closing pursuant to this
Agreement under the applicable securities or “blue sky” laws of the states of
the United States (or to obtain an exemption from such qualification), and if
requested by an Investor, shall provide evidence of any such action so taken.
The Company shall make such filings and reports relating to the offer and sale
of the Units as required under applicable Blue Sky laws following or on the
Closing Date. No Investor shall incur any costs or expenses relating to Form D
or such filings under applicable Blue Sky laws.

 

5.5. Listing on Securities Exchanges; Registration; Issuance of Certain
Securities.

 

(a) In furtherance and not in limitation of any other provision of this
Agreement, during any period of time in which the Company’s Common Stock is
listed on any national securities exchange, the Company will, at its expense,
exercise its best efforts to simultaneously list on such exchange, upon official
notice of issuance upon the exercise of the Warrants, and maintain such listing,
all Shares and Underlying Securities; and the Company will exercise its best
efforts to (i) list on the national securities exchange, (ii) so register and
(iii) maintain such listing of, any Other Securities if and at the time that any
securities of like class or similar type shall be listed on the national
securities exchange by the Company.

 

19

 

 

(b) Until the second anniversary of the Closing Date, the Company shall not
issue any (X) Convertible Securities or similar securities that contain a
provision that provides for any change or determination of the applicable
conversion price, conversion rate, or exercise price (or a similar provision
which might have a similar effect) based on the Fair Market Value (as defined in
the Warrant) or any other determination of the market price or value of the
Company’s securities or any other market based or contingent standard, such as
so-called “toxic” or “death spiral” convertible securities; provided, however,
that this prohibition shall not include Convertible Securities or similar
securities the conversion or exercise price or conversion rate of which is fixed
on the date of issuance or subject to adjustment based upon the issuance by the
Company of additional securities, including without limitation, standard
anti-dilution adjustment provisions which are not based on calculations of the
Fair Market Value or other variable valuations; and provided, further, that in
no event shall this provision be deemed to prohibit the Contemplated
Transactions, or (Y) any preferred stock, debt instruments or similar securities
or investment instruments providing for (i) preferences or other payments
substantially in excess of the original investment by purchasers thereof or (ii)
dividends, interest or similar payments other than dividends, interest or
similar payments computed on an annual basis and not in excess, directly or
indirectly, of the lesser of a rate equal to (A) twice the interest rate on 10
year US Treasury Notes and (B) 20%.

 

6. Right of Participation.

 

(a) From the date hereof until the date that is eighteen (18) months after the
Closing Date, upon any issuance by the Company of Common Stock or Convertible
Securities (a “Subsequent Financing”), each Investor shall have the right to
participate in up to an amount of the Subsequent Financing such that such
Investor’s beneficial ownership of the Company (ignoring for such purpose any
beneficial ownership caps) on a fully diluted basis immediately following such
Subsequent Financing would not be less than its beneficial ownership of the
Company (ignoring for such purposes any beneficial ownership caps) solely based
on such Investor’s investment in this offering (the “Participation Maximum”) on
the same terms, conditions and price provided for in the Subsequent Financing.

 

(b) At least five (5) Business Days prior to the closing of the Subsequent
Financing, the Company shall deliver to each Investor a written notice of its
intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice
shall ask such Investor if it wants to review the details of such financing
(such additional notice, a “Subsequent Financing Notice”). Upon the request of
an Investor, and only upon a request by such Investor, for a Subsequent
Financing Notice, the Company shall promptly, but no later than two (2) Business
Days after such request, deliver a Subsequent Financing Notice to such Investor.
The Subsequent Financing Notice shall describe in reasonable detail the proposed
terms of such Subsequent Financing, the amount of proceeds intended to be raised
thereunder and shall include a term sheet or similar document relating thereto
as an attachment.

 

(c) Any Investor desiring to participate in such Subsequent Financing must
provide written notice to the Company by not later than 5:30 p.m. (New York City
time) on the second (2nd) Business Day after all of the Investors have received
the Subsequent Financing Notice that such Investor desires to participate in the
Subsequent Financing, the amount of such Investor’s participation, and
representing and warranting that such Investor has such funds ready, willing,
and available for investment on the terms set forth in the Subsequent Financing
Notice. If the Company receives no such notice from an Investor as of such
second (2nd) Business Day, such Investor shall be deemed to have notified the
Company that it does not elect to participate.

 

20

 

 

(d) If by 5:30 p.m. (New York City time) on the second (2nd) Business Day after
all of the Investors have received the Subsequent Financing Notice,
notifications by the Investors of their desire to participate in the Subsequent
Financing (or to cause their designees to participate) is, in the aggregate,
less than the total amount of the Subsequent Financing, then the Company may
effect the remaining portion of such Subsequent Financing on the terms and with
the Persons set forth in the Subsequent Financing Notice.

 

(e) The Company must provide the Investors with a second Subsequent Financing
Notice, and the Investors will again have the right of participation set forth
above in this Section, if the Subsequent Financing subject to the initial
Subsequent Financing Notice is not consummated for any reason on the terms set
forth in such Subsequent Financing Notice within sixty (60) Business Days after
the date of the initial Subsequent Financing Notice.

 

(f) Notwithstanding the foregoing, this Section 6 shall not apply in respect of
an Exempt Issuance or to a registered primary public offering. The right of
first refusal set forth in this Section (i) shall be assignable in any private
sale of Securities, (ii) shall be assignable by an Investor to any Affiliate of
the Investor, (iii) upon the death of any individual Investor, shall pass to the
beneficiaries under the deceased Investor’s last will and testament or to the
distributees of the deceased Investor’s estate, and (iv) shall be assignable by
a trust, partnership or limited liability company to its beneficiaries, partners
or members, as applicable, provided, however, that each such assignee shall on
the date of the assignment be an “accredited investor” within the meaning of
Regulation D of the Securities Act.

 

7. Registration of the Shares; Compliance with the Securities Act.

 

7.1. Registration Procedures and Expenses. The Company shall:

 

(a) subject to receipt of necessary information in writing from the Investors,
as soon as reasonably practicable, but in no event later than forty-five (45)
calendar days following the Closing Date (the “Filing Date”), prepare and file
with the Securities & Exchange Commission (the “Commission”) a Registration
Statement on Form S-1 relating to the sale of the Shares and Underlying
Securities (the “Registrable Shares”) by each Investor from time to time on the
OTC QB or the facilities of any national securities exchange on which the Common
Stock is then traded or in privately negotiated transactions (each a
“Registration Statement”, with the initial Registration Statement referred to as
the “First Registration Statement”) and will use its best efforts to maintain
the quotation of such Shares on the OTC QB or the facilities of any national
securities exchange on which the Common Stock is then traded. The Registration
Statement shall not include securities owned by persons other than Investors and
their respective assigns. The First Registration Statement shall contain (except
if otherwise directed by the Required Investors) a broad “Plan of Distribution”
in customary form (the “Plan of Distribution”). The amount of Registrable Shares
required to be included in the Registration Statement as described in Section
7.1(a) (“Initial Registrable Securities”) shall be limited to not less than 100%
of the maximum amount (“Rule 415 Amount”) of Common Stock which may be included
in a single Registration Statement without exceeding registration limitations
imposed by the Commission pursuant to Rule 415 of the Securities Act;

 

21

 

 

(b) in the event that less than all of the Initial Registrable Securities are
included in the First Registration Statement as a result of the limitation
described in Section 7.1(a), file additional Registration Statements each
registering the Rule 415 Amount (each such Registration Statement a “Subsequent
Registration Statement”), seriatim, until all of the Initial Registrable
Securities have been registered. The filing date and effective date of each such
additional Registration Statement shall be, respectively, twenty-one (21) and
sixty (60) days after the first day such Subsequent Registration Statement may
be filed without objection by the Commission based on Rule 415 of the 1933 Act.
Initial Registrable Securities and the Registrable Shares to be included in
additional Registration Statements shall be allocated and registered pro rata
among the Investors based upon their initial investments in Units;

 

(c) use its commercially reasonable efforts, subject to receipt of necessary
information from the Investors, to cause the Commission to declare the First
Registration Statement effective within sixty (60) calendar days after the
Closing Date (the “Required Effective Date”). However, so long as the Company
filed the First Registration Statement by the Filing Date, if the First
Registration Statement receives Commission review, then the Required Effective
Date will be the ninetieth (90th) calendar day after the Filing Date. The
Company’s commercially reasonable efforts will include, but not be limited to,
promptly responding to all comments received from the staff of the Commission.
If at any time the Company receives notification from the Commission that the
First Registration Statement will receive no action or review from the
Commission, then the Company will, subject to its rights under this Agreement,
use its commercially reasonable efforts to cause the First Registration
Statement to become effective within two (2) Business Days after such Commission
notification. The Company shall not file any registration statements with the
Commission relating to securities that are not Registrable Shares until ninety
(90) days after the actual effective date of the First Registration Statement;
provided nothing herein shall prohibit the filing of amendments or supplements
to already filed registration statements;

 

(d) use its commercially reasonable efforts to promptly prepare and file with
the Commission such amendments and supplements to the Registration Statement and
the prospectus used in connection therewith as may be necessary to keep the
Registration Statement effective until the earliest of (i) two years after the
Closing Date, (ii) the date on which the Investors may sell all of the
Registrable Shares then owned by the Investors, without registration, pursuant
to Rule 144 promulgated under the Securities Act without any restriction as to
the number of securities as of a particular date that can then be immediately
sold and the adequate current public information requirement of Rule 144(c)(1)
no longer applies to the sale of Shares, or (iii) such time as all Registrable
Shares owned by all Investors have been sold pursuant to a Registration
Statement or Rule 144 promulgated under the Securities Act. Thereafter, the
Company shall be entitled to withdraw the Registration Statement and the
Investors shall have no further right to offer or sell any of the Registrable
Shares pursuant to the Registration Statement;

 

22

 

 

(e) use commercially reasonably efforts to furnish (i) to each Investor with
respect to the Registrable Shares registered under the Registration Statement by
fax or email (in each case with answerback confirmed) or other prompt means one
copy of the prospectus promptly after effectiveness of the Registration
Statement and in any case before the next opening of the principal market for
the Shares and (ii) to each Investor with respect to the Registrable Shares
registered under the Registration Statement (and to each underwriter, if any, of
such Registrable Shares) such number of copies of prospectuses and such other
documents as such Investor may reasonably request within a reasonable time, in
order to facilitate the public sale or other disposition of all or any of the
Registrable Shares by such Investor;

 

(f) file documents required of the Company for normal Blue Sky clearance in
states specified in writing by each Investor and reasonably acceptable to the
Company; provided, however, that the Company shall not be required to (i)
qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 7.1; (ii) file a general consent to
service of process in any such jurisdiction; (iii) subject itself to taxation in
any such jurisdiction; (iv) provide any undertakings that cause material expense
or burden to the Company; or (v) make any change to its organizational
documents, which in each case the Board of Directors of the Company determines
to be contrary to the best interests of the Company and its stockholders;

 

(g) bear all expenses in connection with the procedures in paragraphs (a)
through (f) of this Section 7.1 and the registration of the Registrable Shares
pursuant to the Registration Statement, other than fees and expenses, if any, of
counsel or other advisers to each Investor or underwriting discounts, brokerage
fees and commissions incurred by such Investor, if any; and

 

(h) promptly notify each Investor of the effectiveness of a Registration
Statement, and any post-effective amendments thereto, as well as of the receipt
by the Company of any stop orders of the Commission with respect to a
Registration Statement and the lifting of any such order or of any pending
proceeding under Section 8A of the Securities Act in connection with the
offering of the Registrable Shares.

 

Notwithstanding the foregoing, it shall be a condition precedent to the
obligations of the Company to take any action pursuant to paragraphs (a) through
(f) of this Section 7.1, that such Investor shall furnish to the Company such
information regarding itself, the Registrable Shares to be sold by such
Investor, and the intended method of disposition of such Registrable Shares as
shall be required to effect the registration of the Registrable Shares, all of
which information shall be furnished to the Company in writing specifically for
use in the Registration Statement.

 

23

 

 

The Company understands that each Investor disclaims being an underwriter, but
such Investor being deemed an underwriter shall not relieve the Company of any
obligations it has hereunder, provided, however, that if the Company receives
notification from the Commission that such Investor is deemed an underwriter,
then the period in which the Company is obligated to submit an acceleration
request to the Commission shall be extended to the earlier of (i) the sixtieth
(60th) day after such Commission notification, or (ii) ninety (90) days after
the initial filing of the Registration Statement with the Commission. Company
shall not be obligated to retain an underwriter with respect to the offer and
sale of Registrable Shares pursuant to the Registration Statement. Neither the
Company nor any Subsidiary or affiliate thereof shall identify any Investor as
an underwriter in any public disclosure or filing with the Commission and any
Investor being deemed an underwriter by the Commission shall not relieve the
Company of any obligations it has under this Agreement; provided, however, that
the foregoing shall not prohibit the Company from including the disclosure found
in the Plan of Distribution (as identified below).

 

7.2. Transfer of Registrable Shares After Registration. While the Registration
Statement is effective and available for resale, each Investor agrees that it
will not effect any disposition of the Registrable Shares that would constitute
a sale within the meaning of the Securities Act, except as contemplated in the
Registration Statement referred to in Section 7.1 hereof in the section titled
“Plan of Distribution” or pursuant to an applicable exemption from registration,
the availability of which is confirmed in writing by counsel to such Investor
(the form, substance and scope of which opinion shall be reasonably acceptable
to the Company) and delivered to the Company, and that it will promptly notify
the Company of any changes in the information set forth in the Registration
Statement regarding such Investor or its plan of distribution.

 

7.3. Indemnification.

 

For purpose of this Section 7, the term “Investor/Affiliate” shall mean any
Affiliate of an Investor (including without limitation all stockholders,
partners, members, officers, directors, employees and direct or indirect
investors of such Investor and any of the foregoing Person’s agents or other
representatives); and

 

For purpose of this Section 7.3, the term “Registration Statement” shall include
any final prospectus, exhibit, supplement or amendment included in or relating
to, and any document incorporated by reference in, the Registration Statement
referred to in Section 7.1 hereof.

 

24

 

 

(a) The Company agrees to indemnify and hold harmless each Investor and each
Investor/Affiliate against any losses, claims, damages, liabilities or expenses,
joint or several, to which such Investor or Investor/Affiliate may become
subject, under the Securities Act, the Exchange Act, or any other federal or
state statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof as contemplated below) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, including the prospectus,
financial statements and schedules, and all other documents filed as a part
thereof, as amended at the time of effectiveness of the Registration Statement,
including any information deemed to be a part thereof as of the time of
effectiveness pursuant to paragraph (b) of Rule 430A, or pursuant to Rule 434,
of the Rules and Regulations, or the prospectus, in the form first filed with
the Commission pursuant to Rule 424(b) of the Rules and Regulations, or filed as
part of the Registration Statement at the time of effectiveness if no Rule
424(b) filing is required (the “Prospectus”), or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state in any of them a material fact required to be stated therein or necessary
to make the statements in the Registration Statement or any amendment or
supplement thereto not misleading or in the Prospectus or any amendment or
supplement thereto not misleading in the light of the circumstances under which
they were made, or arise out of or are based in whole or in part on any material
breach of the representations and warranties of the Company contained in this
Agreement (except that where representations and warranties are qualified by
materiality, any breach), or any material breach by the Company of its
obligations hereunder, and will reimburse such Investor or Investor/Affiliate
for any legal and other expenses as such expenses are reasonably incurred by
such Investor or Investor/Affiliate in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage, liability,
expense or action; provided, however, that the Company will not be liable in any
such case to the extent, but only to the extent, that any such loss, claim,
damage, liability or expense arises out of or is based upon (i) an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, the Prospectus or any amendment or supplement
thereto in reliance upon and in conformity with written information furnished to
the Company by or on behalf of such Investor expressly for use therein, or (ii)
the failure of such Investor to comply with the covenants and agreements
contained in Section 7.2 hereof respecting the sale of the Shares, or (iii) the
inaccuracy of any representations made by such Investor herein or (iv) any
statement or omission in any Prospectus that is corrected in any subsequent
Prospectus that was delivered to such Investor prior to the pertinent sale or
sales by such Investor.

 

(b) Each Investor will severally, but not jointly, indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement and each Person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, against any losses, claims, damages, liabilities or expenses to which the
Company, each of its directors, each of its officers who signed the Registration
Statement or controlling Person may become subject, under the Securities Act,
the Exchange Act, or any other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Investor) insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof as contemplated below) arise out of or are based upon (i) any failure to
comply with the covenants and agreements contained in Section 7.2 hereof
respecting the sale of the Shares or (ii) any material breach of any
representation made by such Investor herein or (iii) any untrue or alleged
untrue statement of any material fact contained in the Registration Statement,
the Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements in the
Registration Statement or any amendment or supplement thereto not misleading or
in the Prospectus or any amendment or supplement thereto not misleading in the
light of the circumstances under which they were made, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, the Prospectus, or any amendment or supplement thereto, in reliance
upon and in conformity with written information furnished to the Company by such
Investor expressly for use therein, and such Investor will reimburse the
Company, each of its directors, each of its officers who signed the Registration
Statement or controlling Person for any legal and other expense reasonably
incurred by the Company, each of its directors, each of its officers who signed
the Registration Statement or controlling Person in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action; provided, however, that the obligations of
such Investor under this Section 7.3 shall not exceed the net proceeds to such
Investor from the sale of Registrable Shares pursuant to such Registration
Statement.

 

25

 

 

(c) Promptly after receipt by an indemnified party under this Section 7.3 of
notice of the threat or commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against an indemnifying party under
this Section 7.3, promptly notify the indemnifying party in writing thereof; but
the omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party for contribution or
otherwise under the indemnity agreement contained in this Section 7.3 (except to
the extent that such omission materially and adversely affects the indemnifying
Person’s ability to defend such action). Subject to provisions hereinafter
stated, in case any such action is brought against any indemnified party and
such indemnified party seeks or intends to seek indemnity from an indemnifying
party, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with all other indemnifying parties similarly
notified, to assume the defense thereof with counsel reasonably satisfactory to
such indemnified party; provided, however, if the defendants in any such action
include both the indemnified party and the indemnifying party, and the
indemnifying party and the indemnified party, based upon the advice of such
indemnified party’s counsel, shall have reasonably concluded that there may be a
conflict of interest between the positions of the indemnifying party and the
indemnified party in conducting the defense of any such action or that there may
be legal defenses available to it or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of its election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 7.3 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the proviso to the preceding
sentence (it being understood, however, that the indemnifying party shall not be
liable for the expenses of more than one separate counsel, approved by such
indemnifying party in the case of Section 7.3(a), representing the indemnified
parties who are parties to such action) or (ii) the indemnifying party shall not
have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of action, in each of which cases the reasonable fees and expenses
of counsel shall be at the expense of the indemnifying party. In no event shall
any indemnifying Person be liable in respect of any amounts paid in settlement
of any action unless the indemnifying Person shall have approved the terms of
such settlement; provided that such consent shall not be unreasonably withheld.
No indemnifying Person shall, without the prior written consent of the
indemnified Person, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified Person is or could have been a
party and indemnification could have been sought hereunder by such indemnified
Person, unless such settlement includes an unconditional release of such
indemnified Person from all liability on claims that are the subject matter of
such proceeding.

 

26

 

 

(d) If the indemnification provided for in this Section 7.3 is required by its
terms but is for any reason held to be unavailable to or otherwise insufficient
to hold harmless an indemnified party under Section 7.3(a), (b) or (c) in
respect to any losses, claims, damages, liabilities or expenses referred to
herein, then each applicable indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of any losses, claims,
damages, liabilities or expenses referred to herein (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and such
Investor or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but the relative fault of the
Company and such Investor in connection with the statements or omissions or
inaccuracies in the representations and warranties in the Registration Statement
that resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and each Investor on the other shall be deemed to
be in the same proportion as the amount paid by such Investor to the Company
pursuant to this Agreement for the Registrable Shares purchased by such Investor
that were sold pursuant to the Registration Statement bears to the difference
(the “Difference”) between the amount such Investor paid (directly or
indirectly) for the Shares that were sold pursuant to the Registration Statement
and the amount received by such Investor from such sale. The relative fault of
the Company on the one hand and each Investor on the other shall be determined
by reference to, among other things, whether the untrue or alleged statement of
a material fact or the omission or alleged omission to state a material fact or
the inaccurate or the alleged inaccurate representation or warranty relates to
information supplied by the Company or by such Investor and the parties’
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid or payable by a party
as a result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in
Section 7.3(c), any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim. The
provisions set forth in paragraph (c) of this Section 7.3 with respect to the
notice of the threat or commencement of any threat or action shall apply if a
claim for contribution is to be made under this paragraph (d); provided,
however, that no additional notice shall be required with respect to any threat
or action for which notice has been given under paragraph (c) for purposes of
indemnification. The Company and each Investor agree that it would not be just
and equitable if contribution pursuant to this Section 7.3 were determined
solely by pro rata allocation (even if such Investor were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in this paragraph.
Notwithstanding the provisions of this Section 7.3, no Investor shall be
required to contribute any amount in excess of the amount by which the
Difference exceeds the amount of any damages which such Investor has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation. Each Investor’s obligation to contribute pursuant to this
Section 7.3 is several and not joint.

 

27

 

 

(e) Each Investor hereby acknowledges that it is a sophisticated business Person
who was represented by counsel during the negotiations regarding the provisions
hereof including, without limitation, the provisions of this Section 7.3, and is
fully informed regarding said provisions. Each of the Company and each Investor
is advised that federal or state public policy as interpreted by the courts in
certain jurisdictions may be contrary to certain of the provisions of this
Section 7.3, and each of the Company and such Investor hereby expressly waives
and relinquishes any right or ability to assert such public policy as a defense
to a claim under this Section 7.3 and further agrees not to attempt to assert
any such defense.

 

7.4. Termination of Conditions and Obligations. The conditions precedent imposed
by Section 5 or this Section 7 upon the transferability of the Shares shall
cease and terminate as to any particular number of the Shares upon the earliest
to occur of (i) the sale of the Registrable Shares pursuant to the Registration
Statement, (ii) the sale of the Registrable Shares pursuant to Rule 144
promulgated under the Securities Act without any restriction as to the number of
securities as of a particular date that can then be immediately sold and the
adequate current public information requirement of Rule 144(c)(1) no longer
applies to the sale of Registrable Shares, or (iii) the passage of one year from
the effective date of the Registration Statement covering such Registrable
Shares, provided that the holder of such Registrable Shares is not at such time,
and was not for ninety (90) days immediately prior thereto, an affiliate of the
Company (as such term is defined in Rule 144), or at such time as an opinion of
counsel satisfactory in form and substance to the Company shall have been
rendered to the effect that such conditions are not necessary in order to comply
with the Securities Act.

 

7.5. Information Available. As long as any Investor owns the Registrable Shares
and the Company is subject to the filing requirements of the Exchange Act, the
Company covenants to timely file (or obtain extensions in respect thereof
pursuant to Rule 12b-25 promulgated under the Exchange Act and file within the
applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to the Exchange Act, and the Company shall not
terminate its status as an issuer required to file reports under the Exchange
Act even if the Exchange Act or the rules and regulations promulgated thereunder
would otherwise permit such termination. So long as the Registration Statement
is effective covering the resale of Registrable Shares owned by such Investor,
the Company will furnish to such Investor upon such Investor’s request:

 

28

 

 

(a) as soon as practicable after availability (but in the case of the Company’s
Annual Report to Stockholders, concurrently with delivery to its shareholders
generally), by reference to the web site www.sec.gov maintained by the SEC, one
copy of (i) its Annual Report to Stockholders (which Annual Report shall contain
financial statements audited in accordance with U.S. generally accepted
accounting principles by a firm of certified public accountants that is
registered with the PCAOB), (ii) if not included in substance in the Annual
Report to Stockholders, upon the request of such Investor, its Annual Report on
Form 10-K, (iii) upon the request of an Investor, its Quarterly Reports on Form
10-Q, (iv) upon the request of an Investor, its Current Reports on Form 8-K, and
(v) a full copy of the particular Registration Statement covering the Shares
(the foregoing, in each case, excluding exhibits);

 

(b) upon the reasonable request of an Investor, a reasonable number of copies of
the prospectuses and supplements thereto to supply to any other Person requiring
such prospectuses and supplements.

 

7.6. Assignment of Registration Rights. The rights of each Investor hereunder,
including the right to have the Company register the Shares pursuant to this
Agreement, will be automatically assigned by such Investor to transferees or
assignees of the Registrable Shares, but only if (a) such Investor agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company prior to such assignment, (b) the
Company is, prior to such transfer or assignment, furnished with written notice
of the name and address of such transferee or assignee and the Registrable
Shares with respect to which such registration rights are being transferred or
assigned, (c) after such transfer or assignment, the further disposition of such
Registrable Shares by the transferee or assignee is restricted under the
Securities Act and applicable state securities laws, (d) at or before the time
the Company received the written notice contemplated by clause (b) of this
sentence, the transferee or assignee agrees in writing with the Company to be
bound by all of the provisions contained herein, (e) the transferee is an
“accredited investor” as that term is defined in Rule 501 of Regulation D, and
(f) the transfer of Registrable Shares is made in accordance with the provisions
of Section 7.2 hereof.

 

7.7. Restriction on Issuance. The Company shall not issue or sell (or agree to
issue or sell) any Common Stock or Convertible Securities (other than in an
Exempt Issuance) during the period commencing on the Closing Date and ending at
5:00 p.m. (New York time) on the sixtieth (60th) day after the effective date of
the First Registration Statement.

 

8. Miscellaneous.

 

8.1. Entire Agreement; Successors and Assigns. This Agreement and the other
Transaction Documents constitute the entire contract between the parties
relative to the subject matter hereof and thereof, and no party shall be liable
or bound to the other in any manner by any warranties or representations
(express or implied) or agreements or covenants except as specifically set forth
herein or therein. This Agreement and the other Transaction Documents supersede
any previous agreement among the parties with respect to the subject matter
hereof and thereof. The terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the respective executors, administrators,
heirs, successors and assigns of the parties. Nothing in this Agreement,
expressed or implied, is intended to confer upon any party, other than the
parties hereto, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.

 

29

 

 

8.2. Survival of Representations and Warranties. Notwithstanding any right of
the Investors fully to investigate the affairs of the Company and
notwithstanding any knowledge of facts determined or determinable by any
Investor pursuant to such right of investigation, each Investor has the right to
rely fully upon the representations, warranties, covenants and agreements of the
Company contained in this Agreement or in any documents delivered pursuant to
this Agreement. All such representations and warranties of the Company contained
in this Agreement shall survive the execution and delivery of this Agreement and
the Closing hereunder and shall continue in full force and effect until the
earlier of (a) the date that is one year after the last Closing and (b) the sale
of all of the Shares pursuant to Rule 144 under the Securities Act or an
effective registration statement under the Securities Act covering the Purchased
Shares and Underlying Securities. All representations and warranties of the
Investors contained in this Agreement shall survive the execution and delivery
of this Agreement and the applicable Closing hereunder. The covenants of the
Investors (to the extent set forth in Section 4.1(c)) and the Company set forth
in this Agreement shall survive the applicable Closing.

 

8.3. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
principles of conflicts of law. Each party hereby irrevocably consents and
submits to the jurisdiction of any New York State or United States Federal Court
sitting in the State of New York, County of New York, over any action or
proceeding arising out of or relating to this Agreement and irrevocably consents
to the service of any and all process in any such action or proceeding in the
manner for the giving of Notices at its address specified in Section 8.6. Each
party further waives any objection to venue in the State of New York, County of
New York and any objection to an action or proceeding in such state and county
on the basis of forum non conveniens. Each party also waives any right to trial
by jury.

 

8.4. Counterparts. This Agreement may be executed (including by facsimile
transmission) with counterpart signature pages or in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.

 

8.5. Headings. The headings of the sections of this Agreement are for
convenience and shall not by themselves determine the interpretation of this
Agreement.

 

8.6. Notices. Any notice or other communication required or permitted to be
given hereunder (each a “Notice”) shall be given in writing and shall be made by
personal delivery or sent by courier or certified or registered first-class mail
(postage prepaid), addressed to a party at its address shown below or at such
other address as such party may designate by three days’ advance Notice to the
other parties.

 

30

 

 

Any Notice to any of the Investors shall be sent to the addresses for such
Investor set forth on the signature pages hereof, with a copy to:

 

Hahn & Hessen LLP

488 Madison Avenue

New York, New York 10022

Attention: James Kardon, Esq.

Email: jkardon@hahnhessen.com

 

Any Notice to the Company shall be sent to:

 

Rightscorp, Inc.

3100 Donald Douglas Loop North

Santa Monica, California 90405

Attention: Christopher Sabec

Email: cjsabec@rightscorp.com

 

with a copy to:

 

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32nd Floor

New York, New York 10006

Attention: Gregory Sichenzia

Email: gsichenzia@srff.com

 

Each Notice shall be deemed given and effective upon receipt (or refusal of
receipt).

 

8.7. Rights of Transferees. Subject to Section 7.6, any and all rights and
obligations of each of the Investors herein incident to the ownership of
Securities or the Underlying Securities shall pass successively to all
subsequent transferees of such securities until extinguished pursuant to the
terms hereof; provided, however, that no Investor may transfer or assign its
rights under this Agreement (other than to an Affiliate) between the date of
this Agreement and the Closing Date.

 

8.8. Severability. Whenever possible, each provision of this Agreement shall be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be deemed prohibited or invalid
under such applicable law, such provision shall be ineffective to the extent of
such prohibition or invalidity, and such prohibition or invalidity shall not
invalidate the remainder of such provision or any other provision of this
Agreement.

 

31

 

 

8.9. Fees and Expenses.

 

(a) Subject to Section 8.9(c), irrespective of whether the Closing is effected,
the Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement.

 

(b) The Company and each Investor shall be responsible for all costs and
expenses incurred by the Company and such Investor, respectively, in connection
with the negotiation, execution, delivery and performance of this Agreement,
except that the Company shall pay at the Closing the legal fees and expenses of
Hahn & Hessen LLP issued through the Closing, as counsel to the Investors and
Escrow Agent up to $25,000. The Company shall also be obliged to pay additional
legal fees and expenses of Hahn & Hessen LLP incurred after the Closing relating
to the Company’s performance under the Escrow Agreement, the Warrants and
Section 7, provided, however, that any legal fees and expenses payable by the
Company to Hahn & Hessen LLP pursuant to Section 7.1 hereof shall be limited to
$2,500.

 

(c) If any action at law or in equity is necessary to enforce or interpret any
of the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorney’s fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.

 

8.10. Amendments and Waivers. Unless a particular provision or section of this
Agreement requires otherwise explicitly in a particular instance, any provision
of this Agreement may be amended and the observance of any provision of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the Investor Majority. Any amendment or waiver effected in accordance with
this Section 8.10 shall be binding upon each Investor, each holder of any
Securities at the time outstanding (including without limitation securities into
which any such Securities are convertible or exercisable), each future holder
thereof, and the Company.

 

8.11. Company Disclosure Letter. Information disclosed in any section of the
Company Disclosure Letter shall be deemed to be disclosed with respect to the
corresponding numbered section of this Agreement, as well as to such other
sections of this Agreement to which such disclosure shall reasonably pertain in
light of the form and substance of the disclosure made.

 

8.12. Construction. Words (including capitalized terms defined herein) in the
singular shall be held to include the plural and vice versa as the context
requires. The words “herein,” “hereinafter,” “hereunder” and words of similar
import used in this Agreement shall, unless otherwise stated, refer to this
Agreement as a whole and not to any particular provision of this Agreement. The
words “or” and “any” are not exclusive. All references to “$” in this Agreement
and the other agreements contemplated hereby shall refer to United States
dollars (unless otherwise specified expressly). Any reference to any gender
includes the other genders.

 

[Signature Page Follows]

 

32

 

 

IF the INVESTOR is an INDIVIDUAL, please complete the following:

 

IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the date
first above written.

 

Amount of Subscription: _____________________________________
$___________________ Print Name     Number of Units to be Purchased: _______
_____________________________________   Signature of Investor      
_____________________________________   Social Security Number      
_____________________________________   Address and Fax Number      
_____________________________________   E-mail Address       State of Domicile:
____________________

 

Accepted and Agreed to as of the date first above written:

 

RIGHTSCORP, INC.

 

By:     Name:     Title:     Date:    

 

Signature Page to Unit Subscription Agreement - 4696900

 

 

 

 

IF the UNITS will be held as JOINT TENANTS, as TENANTS IN COMMON, or as
COMMUNITY PROPERTY, please complete the following:

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first above written.

 

Amount of Subscription: _____________________________________
$___________________ Print Name of Purchaser     Number of Units to be
Purchased: _______ _____________________________________   Signature of a
Purchaser       _____________________________________   Social Security Number  
    _____________________________________   Print Name of Spouse or Other
Purchaser       _____________________________________   Signature of Spouse or
Other Purchaser       _____________________________________   Social Security
Number       _____________________________________   Address and Fax Number    
  _____________________________________   E-mail Address       State of
Domicile: ____________________

 

Accepted and Agreed to as of the date first above written:

 

RIGHTSCORP, INC.

 

By:     Name:     Title:     Date:    

 

Signature Page to Unit Subscription Agreement - 4696900

 

 

 

 

IF the INVESTOR is a PARTNERSHIP, CORPORATION, LIMITED LIABILITY COMPANY, TRUST
or OTHER ENTITY, please complete the following:

 

IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the date
first above written.

 

Amount of Subscription: _____________________________________
$___________________ Print Full Legal Name of Partnership,
Company, Limited Liability Company,
Trust or Other Entity     Number of Units to be Purchased: _______        
By:__________________________________ (Authorized Signatory)   Name:   Title:  
    _____________________________________   Address and Fax Number      
_____________________________________   Taxpayer Identification Number      
Date and State of Incorporation or   Organization: ________________________    
  Date on which Taxable Year Ends: _______      
_____________________________________   E-mail Address

 

Accepted and Agreed to as of the date first above written:

 

RIGHTSCORP, INC.

 

By:     Name:     Title:     Date:    

 

Signature Page to Unit Subscription Agreement - 4696900

 

 

 

 

EXHIBITS TO THE UNIT SUBSCRIPTION AGREEMENT

 

Company Disclosure Letter

 

Exhibit 1: Form of Warrant     Exhibit 2: Form of Legal Opinion     Exhibit 3:
Form of Escrow Agreement

 

Exhibits

 

 

Exhibit 1

 

Form of Warrant

 

Exhibits 1 - 1

 

 

Exhibit 2

 

Form of Legal Opinion

 

Exhibits 2 - 1

 

  

Exhibit 3

 

Form of Escrow Agreement

 

Exhibits 3 - 1