SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT (the “Agreement”) is made as of the 31st day
of December 2013, by and between BeesFree, Inc., a Nevada corporation (the
“Company”), BeesFree USA, Inc., a Delaware corporation (“BeesFree USA”), and the
investors listed on the Schedule of Investors attached hereto (each an
“Investor” and collectively, the “Investors”).

 

W I T N E S S E T H:

 

WHEREAS, the Company desires to offer and sell to the Investors (the
“Offering”), and the Investors desire to purchase from the Company, (a) 15%
senior secured convertible promissory notes in the aggregate principal amount of
up to a maximum of $2,000,000 (the “Notes”), in the form attached as Exhibit A
hereto, and (b) a warrant (the “Warrant”), in the form attached as Exhibit B
hereto, to purchase up to 6,000,000 shares of the Company’s common stock, $0.001
par value per share (the “Common Stock”), with an exercise price equal to $1.00
per share; and

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do hereby
agree as follows:

 

1 Purchase and Sale of Notes and Warrants.

 

1.1 Issuance and Sale of Notes and Warrants. Subject to the terms and conditions
of this Agreement, the Investors severally and not jointly agree to purchase at
the Closing (as hereafter defined), and the Company agrees to issue and sell to
the Investors at the Closing, the amount of Notes and the Warrants (sometimes
collectively referred to herein as the “Securities”) set forth opposite each
Investor’s name on the Omnibus Signature Page hereto, for an aggregate purchase
price of up to a maximum of Two Million ($2,000,000) Dollars (the “Offering
Amount”).

 

1.2 Payment.  Each Investor is enclosing with its delivery of its Omnibus
Signature Page hereto a check payable to, or will promptly make a wire transfer
payment to, BeesFree, Inc. in the full amount of the purchase price of the Notes
and Warrants being subscribed for (the “Purchase Price”).  Wire instructions are
as follows:

 

Bank Name: Bank of America, N.A.

Acct. Name: BeesFree, Inc.

ABA Number: 026009593

A/C Number: 483043536352

FBO: Investor Name

Social Security Number

Address

 

All funds tendered by Investors will be held in a segregated, non-interest
bearing account in the Company’s name at Bank of America, N.A. It is
contemplated that the funds will be released at such time (or promptly
thereafter) as all conditions to Closing as set forth in this Agreement have
been satisfied (or otherwise waived) and a Closing is consummated. In the event
a Closing does not occur, the Company will refund all subscription funds,
without interest accrued thereon or deduction therefrom, and will return the
documents previously delivered to each Investor, and such documents will be
terminated and of no force or effect.   Each Investor understands and
acknowledges that there is no minimum amount of funds that needs to be raised to
effectuate a Closing hereunder.

 

 

 

 

1.3 Closing.

 

(a) First Closing. Subject to the terms and conditions set forth in this
Agreement, the Company shall issue and sell to each Investor, and each Investor
shall, severally and not jointly, purchase from the Company at the first
closing, such principal amount of Notes as set forth on the signature pages
attached hereto (and applicable number of Warrants), which will be reflected
opposite such Investor’s name on the Schedule of Investors attached hereto (the
“First Closing”). The date of the First Closing is hereinafter referred to as
the “First Closing Date.”

 

(b) Subsequent Closing(s). The Company agrees to issue and sell to each Investor
listed on the Subsequent Closing Schedule of Investors, and each Investor
agrees, severally and not jointly, to purchase from the Company on such
Subsequent Closing Date such principal amount of Notes as set forth on the
signature pages attached hereto (and applicable number of Warrants), which will
be reflected opposite such Investor’s name on Schedule of Investors attached
hereto (a “Subsequent Closing”). There may be more than one Subsequent Closing.
The date of any Subsequent Closing is hereinafter referred to as a “Subsequent
Closing Date”). Notwithstanding the foregoing, the maximum principal amount of
Notes to be sold at the First Closing and all Subsequent Closings shall be
$2,000,000 and the date upon which the final Note(s) are sold hereunder shall be
referred to as the “Final Closing Date”.

 

The First Closing and any applicable Subsequent Closings are each referred to in
this Agreement as a “Closing.” The First Closing Date, any Subsequent Closing
Dates and the Final Closing Date are sometimes referred to herein as a “Closing
Date.”

 

(c) Closing Location. All Closings shall occur on or prior to January 31, 2014,
which date may be extended by the Company in its sole discretion, at the offices
of the Company, 2101 Vista Parkway, Suite 122, West Palm Beach, Florida 334111
or remotely via the exchange of documents and signatures.

 

(d) At the Closing, the Company shall deliver the Notes and the Warrants to the
Investors against payment of the Purchase Price to the Company as described
above, along with delivery by the Investors of an Accredited Investor
Certification and Investor Profile to the Company provided to Investors
separately.

 

(e) The Closing is expressly conditioned upon the Company, BeesFree USA and the
Investors having entered into the Security Agreement in the form attached hereto
as Exhibit C.

 

1.4 Additional Definitions. For purposes of this Agreement, certain capitalized
terms are defined under Appendix A.

 

2

 

 

2 Representations and Warranties of the Company. The Company hereby represents
and warrants to the Investors, except as set forth on any Schedule attached
hereto, the following:

 

2.1 Due Incorporation. The Company and each Subsidiary is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with all requisite corporate power to own its
properties and to carry on its business as presently conducted. The Company is
duly qualified as a foreign corporation to do business and is in good standing
in each jurisdiction where the nature of the business conducted or property
owned by it makes such qualification necessary, other than those jurisdictions
in which the failure to so qualify would not have a Material Adverse Effect (as
defined herein). For purposes of this Agreement, a “Material Adverse Effect”
shall mean a material adverse effect on the financial condition, results of
operations, prospects, properties or business of the Company and its
Subsidiaries taken as a whole. As of the Closing Date, all of the Company’s
Subsidiaries and the Company’s other ownership interests therein are set forth
on Schedule 2.1. The Company represents that it owns all of the equity of the
Subsidiaries and rights to receive equity of the Subsidiaries set forth on
Schedule 2.1, free and clear of all liens, encumbrances and claims, except as
set forth on Schedule 2.1. No person or entity other than the Company has the
right to receive any equity interest in the Subsidiaries. Other than as set
forth on Schedule 2.1, the Company further represents that neither the Company
nor the Subsidiaries have been known by any other names for the five (5) years
preceding the date of this Agreement.

 

2.2 Outstanding Stock. All issued and outstanding shares of capital stock and
equity interests in the Company have been duly authorized and validly issued and
are fully paid and non-assessable.

 

2.3 Authority; Enforceability. This Agreement, the Notes, Warrants, Security
Agreement and any other agreements delivered or required to be delivered
together with or pursuant to this Agreement or in connection herewith
(collectively, the “Transaction Documents”) have been duly authorized, executed
and delivered by the Company and/or the Subsidiaries, as the case may be, and
are valid and binding agreements of the Company and/or the Subsidiaries, as the
case may be, enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors’ rights generally and
to general principles of equity. The Company and/or the Subsidiaries, as the
case may be, have full corporate power and authority necessary to enter into and
deliver the Transaction Documents and to perform their obligations thereunder.

 

2.4 Capitalization and Additional Issuances. The authorized and outstanding
capital stock of the Company and the Subsidiaries on a fully diluted basis and
all outstanding rights to acquire or receive, directly or indirectly, any equity
of the Company and/or the Subsidiaries as of the date of this Agreement and the
Closing Date (not including the Securities) are set forth on Schedule 2.4.
Except as set forth on Schedule 2.4, there are no options, warrants or rights to
subscribe to securities, rights, understandings or obligations convertible into
or exchangeable for or granting any right to subscribe for any shares of capital
stock or other equity interest of the Company or any of the Subsidiaries. Except
as set forth on Schedule 2.4, there are no outstanding agreements or preemptive
or similar rights affecting the Company’s Common Stock or equity.

 

3

 

 

2.5 Consents. No consent, approval, authorization or order of any court,
governmental agency or body or arbitrator having jurisdiction over the Company,
the Subsidiaries or any of their Affiliates, any Principal Market or the
Company’s stockholders is required for the execution by the Company of the
Transaction Documents and compliance and performance by the Company and the
Subsidiaries of their respective obligations under the Transaction Documents,
including, without limitation, the issuance and sale of the Securities, other
than (i) the filings required pursuant to this Agreement, and (ii) the filing of
Form D with the Commission and such filings as are required to be made under
applicable state securities laws. The Transaction Documents and the Company’s
performance of its obligations thereunder have been unanimously approved by the
Company’s board of directors in accordance with the Company’s articles of
incorporation and applicable law. Any such qualifications and filings will, in
the case of qualifications, be effective upon Closing, and will, in the case of
filings, be made within the time prescribed by law.

 

2.6 No Violation or Conflict. Conditioned upon the representations and
warranties of Investors in Section 3 hereof being materially true and correct,
neither the issuance nor the sale of the Securities nor the performance of the
Company’s obligations under this Agreement and the other Transaction Documents
by the Company, will:

 

(a) violate, conflict with, result in a breach of, or constitute a default (or
an event which with the giving of notice or the lapse of time or both would be
reasonably likely to constitute a default) under (A) the articles of
incorporation or bylaws of the Company, (B) to the Company’s knowledge, any
decree, judgment, order, law, treaty, rule, regulation or determination
applicable to the Company of any court, governmental agency or body, or
arbitrator having jurisdiction over the Company or over the properties or assets
of the Company or any of its Affiliates, (C) the terms of any bond, debenture,
note or any other evidence of indebtedness, or any agreement, stock option or
other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company or any of its Affiliates is a party, by which
the Company or any of its Affiliates is bound, or to which any of the properties
of the Company or any of its Affiliates is subject or (D) the terms of any
“lock-up” or similar provision of any underwriting or similar agreement to which
the Company, or any of its Affiliates is a party, except the violation,
conflict, breach or default of which would not have a Material Adverse Effect;
or

 

(b) result in the creation or imposition of any lien, charge or encumbrance upon
the Securities or any of the assets of the Company or any of its Affiliates,
except in favor of each Investor as described herein; or

 

(c) except as set forth in Schedule 2.6 hereto, result in the activation of any
rights of first refusal, participation rights, preemptive rights, anti-dilution
rights or a reset or repricing of any debt, equity or security instrument of any
creditor or equity holder of the Company, or the holder of the right to receive
any debt, equity or security instrument of the Company, nor result in the
acceleration of the due date of any obligation of the Company; or

 

(d) except as set forth in Schedule 2.6 hereto, result in the triggering of any
piggy-back or other registration rights of any person or entity holding
securities of the Company or having the right to receive securities of the
Company.

 

4

 

 

2.7 The Securities. The Securities upon issuance:

 

(a) are, or will be, free and clear of any security interests, liens, claims or
other encumbrances, subject only to restrictions upon transfer under the
Securities Act and any applicable state securities laws;

 

(b) have been, or will be, duly and validly authorized and on the dates of
issuance of the Notes and Warrants, the Conversion Shares upon conversion of the
Notes, and the Warrant Shares upon exercise of the Warrants, and such Notes will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except: (i) as limited by general
equitable principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors’ rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law, and the Warrants, Conversion Shares and Warrant
Shares will be duly and validly issued, fully paid and non-assessable;

 

(c) will not have been issued or sold in violation of any preemptive or other
similar rights of the holders of any securities of the Company or rights to
acquire securities or debt of the Company;

 

(d) will not subject the holders thereof to personal liability by reason of
being such holders; and

 

(e) conditioned upon the representations and warranties of the Investors as set
forth in Section 3 hereof being materially true and correct, will not result in
a violation of Section 5 under the Securities Act.

 

2.8 Litigation. There is no pending or, to the best knowledge of the Company,
threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its Affiliates that would adversely affect the execution by the
Company or the complete and timely performance by the Company of its obligations
under the Transaction Documents. Except as disclosed in the Reports, there is no
pending or, to the best knowledge of the Company, basis for or threatened
action, suit, proceeding or investigation before any court, governmental agency
or body, or arbitrator having jurisdiction over the Company, or any of its
Affiliates which litigation if adversely determined would have a Material
Adverse Effect.

 

2.9 No Market Manipulation. The Company and its Affiliates have not taken, and
will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Securities
or affect the price at which the Securities may be issued or resold.

 

5

 

 

2.10 Information Concerning Company. As of the date of this Agreement and the
Closing Date, the Reports and Other Written Information contain and will contain
all material information relating to the Company and its operations and
financial condition as of their respective dates which information is required
to be disclosed therein. Since December 31, 2012, and except as disclosed in the
Reports or modified in the Reports and Other Written Information or in the
Schedules hereto, there has been no Material Adverse Effect relating to the
Company’s business, financial condition or affairs. The Reports and Other
Written Information including the financial statements included therein do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, taken
as a whole, not misleading in light of the circumstances and when made.

 

2.11 Defaults. The Company is not in material violation of its articles of
incorporation or bylaws. The Company is (i) not in default under or in violation
of any other material agreement or instrument to which it is a party or by which
it or any of its properties are bound or affected, which default or violation
would have a Material Adverse Effect, (ii) not in default with respect to any
order of any court, arbitrator or governmental body or subject to or party to
any order of any court or governmental authority arising out of any action, suit
or proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters which default would
have a Material Adverse Effect, or (iii) not in violation of any statute, rule
or regulation of any governmental authority which violation would have a
Material Adverse Effect.

 

2.12 No Integrated Offering. Neither the Company, nor any of its Affiliates, nor
any person acting on its or their behalf, has directly or indirectly made any
offers or sales of any security of the Company nor solicited any offers to buy
any security of the Company under circumstances that would cause the offer of
the Securities pursuant to this Agreement to be integrated with prior offerings
by the Company for purposes of the Securities Act or any applicable stockholder
approval provisions, including, without limitation, under the rules and
regulations of the OTC Market. No prior offering will impair the exemptions
relied upon in this Offering or the Company’s ability to timely comply with its
obligations hereunder. Neither the Company nor any of its Affiliates will take
any action or suffer any inaction or conduct any offering other than the
transactions contemplated hereby that may be integrated with the offer or
issuance of the Securities or that would impair the exemptions relied upon in
this Offering or the Company’s ability to timely comply with its obligations
hereunder.

 

2.13 No General Solicitation. Neither the Company, nor any of its Affiliates,
nor to its knowledge, any person acting on its or their behalf, has engaged in
any form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Securities.

 

2.14 No Undisclosed Liabilities. The Company has no liabilities or obligations
which are material, individually or in the aggregate, other than those incurred
in the ordinary course of the Company’s business since December 31, 2012, and
which, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect, except as disclosed in the Reports or in Schedule 2.14.

 

2.15 No Undisclosed Events or Circumstances. Since December 31, 2012, except as
disclosed in the Reports, no event or circumstance has occurred or exists with
respect to the Company or its businesses, properties, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in the Reports.

 

6

 

 

2.16 Dilution. The Company’s executive officers and directors understand the
nature of the Securities being sold hereby and recognize that the issuance of
the Securities will have a potential dilutive effect on the equity holdings of
other holders of the Company’s equity or rights to receive equity of the
Company. The board of directors of the Company has concluded, in its good faith
business judgment, that the issuance of the Securities is in the best interests
of the Company. The Company specifically acknowledges that its obligation to
issue the Conversion Shares upon conversion of the Notes and the Warrant Shares
upon exercise of the Warrants is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership interests of
other stockholders of the Company or parties entitled to receive equity of the
Company.

 

2.17 No Disagreements with Accountants and Lawyers. There are no material
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the Company and the accountants and lawyers previously
and presently employed by the Company, including, but not limited to, disputes
or conflicts over payment owed to such accountants and lawyers, nor have there
been any such disagreements during the two years prior to the Closing Date,

 

2.18 Investment Company. Neither the Company nor any Affiliate of the Company is
an “investment company” within the meaning of the Investment Company Act of
1940, as amended.

 

2.19 Certain Fees. Other than as set forth on Schedule 2.19 hereto, the Company
represents that to the best of its knowledge, there are no parties entitled to
receive fees, commissions, finder’s fees, due diligence fees or similar payments
in connection with the Offering. The Investors shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf of other
persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by the Transaction Documents.

 

2.20 Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the
Company, any Subsidiary, any agent or other person acting on behalf of the
Company or any Subsidiary, has (i) directly or indirectly, used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses related
to foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to
disclose fully any contribution made by the Company (or made by any person
acting on its behalf of which the Company is aware) which is in violation of
law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.

 

2.21 Reporting Company/Shell Company. The Company is a publicly-held company
subject to reporting obligations pursuant to Section 13 of the Exchange Act and
has a class of Common Stock registered pursuant to Section 12(g) of the Exchange
Act. Pursuant to the provisions of the Exchange Act, the Company has timely
filed all reports and other materials required to be filed thereunder with the
Commission during the preceding twelve months. As of the Closing Date, the
Company is not a “shell company” but is a “former shell company” as those terms
are employed in Rule 144 under the Securities Act.

 

7

 

 

2.22 Listing. The Company’s Common Stock is quoted on the over-the-counter
market maintained by the OTC Markets Group, Inc. (the “OTC Market”) under the
symbol “BEES”. The Company has not received any pending oral or written notice
that its Common Stock is not eligible nor will become ineligible for quotation
on the OTC Market nor that its Common Stock does not meet all requirements for
the continuation of such quotation.

 

2.23 DTC Status. The Company’s transfer agent is a participant in, and the
Common Stock shall be eligible for transfer pursuant to, the Depository Trust
Company Automated Securities Transfer Program. The name, address, telephone
number, fax number, contact person and email address of the Company transfer
agent is set forth on Schedule 2.23 hereto.

 

2.24 Company Predecessor and Subsidiaries. The Company makes each of the
representations contained in Sections 2.1, 2.2, 2.3, 2.5, 2.6, 2.8, 2.10, 2.11,
2.14, 2.15, 2.17, 2.18 and 2.20 of this Agreement, as same relate or could be
applicable to each Subsidiary. All representations made by or relating to the
Company of a historical or prospective nature and all undertakings described in
Section 9 shall relate, apply and refer to the Company and the Subsidiaries and
their predecessors and successors.

 

2.25 Correctness of Representations. The Company represents that the foregoing
representations and warranties are true and correct as of the date hereof in all
material respects, and, unless the Company otherwise notifies the Investors
prior to the Closing Date, shall be true and correct in all material respects as
of the Closing Date; provided that if such representation or warranty is made as
of a different date, such representation or warranty shall be true as of such
date.

 

2.26 Survival. The foregoing representations and warranties shall survive the
Closing Date for a period of one year.

 

3 Representations and Warranties of the Investors. Each of the Investors,
severally and not jointly, hereby represents and warrants that:

 

3.1 Authorization. Investor (i) if a natural person, represents that Investor
has reached the age of 21 and has full power and authority to execute and
deliver this Agreement and all other Transaction Documents and to carry out the
provisions hereof and thereof; (ii) if a corporation, partnership, or limited
liability company or partnership, or association, joint stock company, trust,
unincorporated organization or other entity, represents that such entity was not
formed for the specific purpose of acquiring the Securities, such entity is duly
organized, validly existing and in good standing under the laws of the state of
its organization, the consummation of the transactions contemplated hereby is
authorized by, and will not result in a violation of state law or its charter or
other organizational documents, such entity has full power and authority to
execute and deliver this Agreement and all other Transaction Documents and to
carry out the provisions hereof and thereof and to purchase and hold the
Securities the execution and delivery of this Agreement has been duly authorized
by all necessary action, this Agreement has been duly executed and delivered on
behalf of such entity and is a legal, valid and binding obligation of such
entity; or (iii) if executing this Agreement in a representative or fiduciary
capacity, represents that it has full power and authority to execute and deliver
this Agreement in such capacity and on behalf of the subscribing individual,
ward, partnership, trust, estate, corporation, or limited liability company or
partnership, or other entity for whom Investor is executing this Agreement, and
such individual, partnership, ward, trust, estate, corporation, or limited
liability company or partnership, or other entity has full right and power to
perform pursuant to this Agreement and make an investment in the Company, and
represents that this Agreement constitutes a legal, valid and binding obligation
of such entity. The execution and delivery of this Agreement will not violate or
be in conflict with any order, judgment, injunction, agreement or controlling
document to which Investor is a party or by which it is bound.

 

8

 

 

3.2 Purchase Entirely for Own Account. The Securities to be purchased by the
Investor will be acquired for investment for the Investor’s own account and not
with a view to the resale or distribution of any part thereof, and such Investor
has no present intention of selling, granting any participation in, or otherwise
distributing the same. Such Investor does not have any contract, undertaking,
agreement, or arrangement with any person to sell, transfer, or grant
participation to any person with respect to any of the Securities.

 

3.3 Disclosure of Information. The Investor acknowledges that it has received
all the information that it has requested relating to the Company and the
purchase of the Securities. Such Investor acknowledges that it has been
furnished with, either by the Company or through the EDGAR Website of the
Commission, copies of the Company’s filings made with the Commission through the
tenth (10th) business day preceding the Closing Date (hereinafter collectively
referred to as the “Reports”). Such Investor is not deemed to have any knowledge
of any information not included in the Reports or the Transaction Documents,
unless such information is delivered in the manner described in the next
sentence. In addition, such Investor may have received in writing from the
Company such other information concerning its operations, financial condition
and other matters as such Investor has requested in writing, identified thereon
as OTHER WRITTEN INFORMATION (such other information is collectively, the “Other
Written Information”), and considered all factors such Investor deems material
in deciding on the advisability of investing in the Securities. In addition to
the foregoing, such Investor acknowledges that it has been afforded: (i) the
opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and its financial
condition, results of operations, business, properties, management and prospects
sufficient to enable it to evaluate its investment; and (iii) the opportunity to
obtain such additional information that the Company possesses or can acquire
without unreasonable effort or expense that is necessary to make an informed
investment decision with respect to the investment. Neither such inquiries nor
any other investigation conducted by or on behalf of such Investor or its
representatives or counsel shall modify, amend or affect such Investor’s right
to rely on the truth, accuracy and completeness of the Reports, Other Written
Information and the Company’s representations and warranties contained in the
Transaction Documents.

 

3.4 Information on Investor. Such Investor is, and will be at the time of the
conversion of the Notes and exercise of the Warrants, an “accredited investor,”
as such term is defined in Rule 501 of Regulation D promulgated by the
Commission under the Securities Act and as set forth on the Accredited Investor
Certification, is experienced in investments and business matters, has made
investments of a speculative nature and has purchased securities of United
States publicly-owned companies in the development stage in private placements
in the past and, with its representatives, if any, has such knowledge and
experience in financial, tax and other business matters as to enable such
Investor to utilize the information made available by the Company to evaluate
the merits and risks of, and to make an informed investment decision with
respect to, the proposed purchase, which such Investor hereby agrees represents
a speculative investment. Such Investor has the authority and is duly and
legally qualified to purchase and own the Securities. Such Investor is and
acknowledges that it is able to fend for itself, able to bear the risk of such
investment for an indefinite period and to afford a complete loss thereof.

 

9

 

 

3.5 Restricted Securities. Such Investor understands that the Securities have
not been registered under the Securities Act, are characterized as “Restricted
Securities” under federal securities laws inasmuch as they are being acquired
from the Company in a transaction not involving a public offering, and such
Investor shall not sell, offer to sell, assign, pledge, hypothecate or otherwise
transfer any of the Securities unless pursuant to an effective registration
statement under the Securities Act, or unless an exemption from registration is
available. Notwithstanding anything to the contrary contained in this Agreement,
such Investor may transfer (without restriction and without the need for an
opinion of counsel) the Securities to its Affiliates, provided that each such
Affiliate is an “accredited investor,” as such term is defined under Regulation
D, and such Affiliate agrees in writing to be bound by the terms and conditions
of this Agreement. For the purposes of this Agreement, an “Affiliate” of any
person or entity means any other person or entity directly or indirectly
controlling, controlled by or under direct or indirect common control with such
person or entity. Without limiting the foregoing, each Subsidiary is an
Affiliate of the Company. For purposes of this definition, “control” means the
power to direct the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise. Other than consummating the transactions contemplated hereunder, such
Investor has not, nor has any person acting on behalf of or pursuant to any
understanding with such Investor, directly or indirectly executed any purchases
or sales, including short sales, of the securities of the Company during the
period commencing from the time that such Investor first received a term sheet
(written or oral) from the Company or any other person representing the Company
setting forth the material terms of the transactions contemplated hereunder.
Other than to other persons party to this Agreement, such Investor has
maintained the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction).
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the
Securities Act.

 

3.6 High Risk and Speculative Investment. Investor recognizes that the purchase
of the Securities involves a high degree of risk including, but not limited to,
the risk factors set forth on Schedule 3.6 and in the Reports and the following:
(a) the Company may require funds in addition to the proceeds of the Offering;
(b) an investment in the Company is highly speculative, and only investors who
can afford the loss of their entire investment should consider investing in the
Company and the Securities; (c) the Investor may not be able to liquidate its
investment; (d) transferability of the Securities is extremely limited; (e) the
Company may issue additional securities in the future which have rights and
preferences that are senior to those of the Securities, Conversion Shares and
Warrant Shares; and (f) that the Common Stock may not successfully become
actively traded. Investor has reviewed the Risk Factors which are set forth in
Schedule 3.6 hereto.

 

10

 

 

3.7 Use of Proceeds. Investor acknowledges and understands that the proceeds
from the sale of the Securities are expected to be used by the Company for its
general working capital needs.

 

3.8 General Solicitation. The offer to sell the Securities was directly
communicated to such Investor by the Company. Investor is not purchasing the
Securities as a result of any advertisement, article, notice, or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented in any seminar
or any other general solicitation or general advertisement.

 

3.9 Fees. Except as set forth on Schedule 2.19, no brokerage or finder’s fees or
commissions are or will be payable by the Company or  any Subsidiary to any
broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other person with respect to the transactions contemplated by
the Transaction Documents.  The Investors shall have no obligation with respect
to any fees or with respect to any claims made by or on behalf of other persons
for fees of a type contemplated in this Section that may be due in connection
with the transactions contemplated by the Transaction Documents.

 

3.10 Legends. It is understood that the certificates evidencing the Securities
(and the Conversion Shares and Warrant Shares, respectively) will bear the
following legend:

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AS SET FORTH IN THIS CERTIFICATE. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF
COUNSEL, REASONABLY ACCEPTABLE TO COUNSEL FOR THE COMPANY, TO THE EFFECT THAT
THE PROPOSED SALE, TRANSFER, OR DISPOSITION MAY BE EFFECTUATED WITHOUT
REGISTRATION UNDER THE ACT.”

 

3.11 For ERISA plans only. The fiduciary of the ERISA plan (the “Plan”)
represents that such fiduciary has been informed of and understands the
Company’s investment objectives, policies and strategies, and that the decision
to invest “plan assets” (as such term is defined in ERISA) in the Company is
consistent with the provisions of ERISA that require diversification of plan
assets and impose other fiduciary responsibilities. Investor fiduciary or Plan
(a) is responsible for the decision to invest in the Company; (b) is independent
of the Company or any of its affiliates; (c) is qualified to make such
investment decision; and (d) in making such decision, Investor fiduciary or Plan
has not relied primarily on any advice or recommendation of the Company or any
of its affiliates

 

3.12 Investor should check the Office of Foreign Assets Control (“OFAC”) website
at http://www.treas.gov/ofac before making the following representations.
Investor represents that the amounts invested by it in the Company in the
Offering were not and are not directly or indirectly derived from activities
that contravene federal, state or international laws and regulations, including
anti-money laundering laws and regulations. Federal regulations and Executive
Orders administered by OFAC prohibit, among other things, the engagement in
transactions with, and the provision of services to, certain foreign countries,
territories, entities and individuals. The lists of OFAC prohibited countries,
territories, persons and entities can be found on the OFAC website at
http://www.treas.gov/ofac. In addition, the programs administered by OFAC (the
“OFAC Programs”) prohibit dealing with individuals[1] or entities in certain
countries regardless of whether such individuals or entities appear on the OFAC
lists;

 

11

 

 

3.13 To the best of Investor’s knowledge, none of: (1) Investor; (2) any person
controlling or controlled by Investor; (3) if Investor is a privately-held
entity, any person having a beneficial interest in Investor; or (4) any person
for whom Investor is acting as agent or nominee in connection with this
investment is a country, territory, individual or entity named on an OFAC list,
or a person or entity prohibited under the OFAC Programs. Please be advised that
the Company may not accept any amounts from a prospective investor if such
prospective investor cannot make the representation set forth in the preceding
paragraph. Investor agrees to promptly notify the Company should Investor become
aware of any change in the information set forth in these representations.
Investor understands and acknowledges that, by law, the Company may be obligated
to “freeze the account” of Investor, either by prohibiting additional
subscriptions from Investor, declining any redemption requests and/or
segregating the assets in the account in compliance with governmental
regulations, and the Company may also be required to report such action and to
disclose Investor’s identity to OFAC. Investor further acknowledges that the
Company may, by written notice to Investor, suspend the redemption rights, if
any, of Investor if the Company reasonably deems it necessary to do so to comply
with anti-money laundering regulations applicable to the Company or any of the
Company’s other service providers. These individuals include specially
designated nationals, specially designated narcotics traffickers and other
parties subject to OFAC sanctions and embargo programs.

 

3.14 To the best of Investor’s knowledge, none of: (1) Investor; (2) any person
controlling or controlled by Investor; (3) if Investor is a privately-held
entity, any person having a beneficial interest in Investor; or (4) any person
for whom Investor is acting as agent or nominee in connection with this
investment is a senior foreign political figure,[2] or any immediate family[3]
member or close associate[4] of a senior foreign political figure, as such terms
are defined in the footnotes below.

 

 

 

 

[1] These individuals include specially designated nationals, specially
designated narcotics traffickers and other parties subject to OFAC sanctions and
embargo programs.

 

[2] A “senior foreign political figure” is defined as a senior official in the
executive, legislative, administrative, military or judicial branches of a
foreign government (whether elected or not), a senior official of a major
foreign political party, or a senior executive of a foreign government-owned
corporation. In addition, a “senior foreign political figure” includes any
corporation, business or other entity that has been formed by, or for the
benefit of, a senior foreign political figure.

 

[3] “Immediate family” of a senior foreign political figure typically includes
the figure’s parents, siblings, spouse, children and in-laws.

 

[4] A “close associate” of a senior foreign political figure is a person who is
widely and publicly known to maintain an unusually close relationship with the
senior foreign political figure, and includes a person who is in a position to
conduct substantial domestic and international financial transactions on behalf
of the senior foreign political figure.

 

12

 

 

3.15 If Investor is affiliated with a non-U.S. banking institution (a “Foreign
Bank”), or if Investor receives deposits from, makes payments on behalf of, or
handles other financial transactions related to a Foreign Bank, Investor
represents and warrants to the Company that: (1) the Foreign Bank has a fixed
address, other than solely an electronic address, in a country in which the
Foreign Bank is authorized to conduct banking activities; (2) the Foreign Bank
maintains operating records related to its banking activities; (3) the Foreign
Bank is subject to inspection by the banking authority that licensed the Foreign
Bank to conduct banking activities; and (4) the Foreign Bank does not provide
banking services to any other Foreign Bank that does not have a physical
presence in any country and that is not a regulated affiliate.

 

3.16 Correctness of Representations. Investor represents that the foregoing
representations and warranties are true and correct as of the date hereof and,
unless Investor otherwise notifies the Company in writing prior to the Closing
Date, shall be true and correct as of the Closing Date.

 

3.17 Survival. The foregoing representations and warranties shall survive the
Closing Date.

 

4 Conditions of the Investors’ Obligations at Closing. The obligations of the
Investors under subsection 1.2 of this Agreement are subject to the fulfillment
on or before each Closing of each of the following conditions:

 

4.1 Representations and Warranties. The representations and warranties of the
Company contained in Section 2 hereof shall be true on and as of the Closing
with the same effect as though such representations and warranties had been made
on and as of the date of such Closing.

 

4.2 Performance. The Company shall have performed and complied with all
agreements, obligations, and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.

 

4.3 Suspension of Offering. No order suspending or enjoining the Offering or
sale of the Notes and Warrants has been issued, and no proceedings for that
purpose or a similar purpose have been initiated or are pending, or, to the best
of the Company’s knowledge, are contemplated or threatened.

 

4.4 No Material Adverse Effect. There shall have been no Material Adverse Effect
with respect to the Company since the date hereof within ten (10) business days
of a Closing hereunder.

 

4.5 Memorandum of Understanding. The Company shall have entered into the certain
Memorandum of Understanding of even date herewith with one or more of the
Investors.

 

4.6 Delivery of Notes and Warrants. The Company shall have delivered the Notes
and the Warrants to the Investors, as specified in Section 1.

 

13

 

 

5 Conditions of the Company’s Obligations at Closing. The obligations of the
Company to the Investors under this Agreement are subject to the fulfillment on
or before each Closing of each of the following conditions by the Investors:

 

5.1 Representations and Warranties. The representations and warranties of the
Investors contained in Section 3 shall be true on and as of such Closing with
the same effect as though such representations and warranties had been made on
and as of such Closing.

 

5.2 Payment of Purchase Price. The Investors shall have delivered the purchase
price specified in Section 1.2.

 

6 Indemnification. The Investors, severally and not jointly, agree to indemnify
and hold harmless the Company and its officers, directors, employees, agents,
control persons and affiliates from and against all losses, liabilities, claims,
damages, costs, fees and expenses whatsoever (including, but not limited to, any
and all expenses incurred in investigating, preparing or defending against any
litigation commenced or threatened) based upon or arising out of any actual or
alleged false acknowledgment, representation or warranty, or misrepresentation
or omission to state a material fact, or breach by the Investor of any covenant
or agreement made by the Investor herein or in any other document delivered in
connection with this Agreement.

 

The Company agrees to indemnify and hold harmless the Investors and any of
Investors’ general partners, employees, officers, directors, members, agents and
other representatives from and against all losses, liabilities, claims, damages,
costs, fees and expenses whatsoever (including, but not limited to, any and all
expenses incurred in investigating, preparing or defending against any
litigation commenced or threatened) based upon or arising out of any actual or
alleged false acknowledgment, representation or warranty, or misrepresentation
or omission to state a material fact, or breach by the Company of any covenant
or agreement made by the Company herein or in any other document delivered in
connection with this Agreement.

 

7 Registration Rights.

 

7.1 Company hereby grants the following registration rights to holders of the
Securities:

 

(a) On one occasion, commencing thirty (30) days after the Final Closing Date,
but not later than two years after the Final Closing Date, upon a written
request therefor from any Investor or Investors of more than 50% of the
Conversion Shares issued and issuable upon conversion of the outstanding Notes
and outstanding Warrant Shares issued and issuable upon exercise of the
outstanding Warrants, the Company shall prepare and not later than sixty (60)
days after such request (“Filing Date”) file, subject to Section 7.1(d) hereof,
with the Commission a registration statement under the Securities Act
registering the Registrable Securities (as defined below) which are the subject
of such request, subject to applicable Commission rules and regulations, for
unrestricted public resale by the holder thereof. For purposes of Sections
7.1(a) and 7.1(b) hereof, the definition of Registrable Securities shall not
include Securities (A) which are registered for resale in an effective
registration statement, (B) which are included for registration in a pending
registration statement, (C) which have been issued without further transfer
restrictions after a sale or transfer pursuant to Rule 144 under the Securities
Act or (D) which may be resold under Rule 144 without volume limitations. Upon
the receipt of such written request, the Company shall promptly give written
notice to all other Investors (as of the date of delivery of such written
notice) of the Registrable Securities that such registration statement is to be
filed and shall include in such registration statement Registrable Securities
for which it has received written requests within ten (10) days after the
Company gives such written notice. Such other requesting Investors shall be
deemed to have exercised their demand registration right under this Section
7.1(a). “Registrable Securities” shall mean all of the Conversion Shares and the
Warrant Shares issuable upon complete conversion of the Notes and exercise of
the Warrants issued in the Offering.

 

14

 

 

(b) If the Company at any time proposes to register any of its securities under
the Securities Act for sale to the public, whether for its own account or for
the account of other security holders or both, except with respect to
registration statements on Forms S-4, S-8 or another form not available for
registering the Registrable Securities for sale to the public, provided the
Registrable Securities are not otherwise registered for resale by the Investors
pursuant to an effective registration statement, each such time it will give at
least ten (10) days’ prior written notice to the Investors (as of the date of
delivery of such written notice) of its intention so to do. Upon the written
request of any Investor that is received by the Company within ten (10) days
after the giving of any such notice by the Company to register any of the
Registrable Securities held by such Investor not previously registered, the
Company will cause such Registrable Securities as to which registration shall
have been so requested to be included with the securities to be covered by the
registration statement proposed to be filed by the Company, all to the extent
required to permit the sale or other disposition of the Registrable Securities
so registered by such Investor (each, a “Seller” and together, the “Sellers”).
In the event that any registration pursuant to this Section 7.1(b) shall be, in
whole or in part, an underwritten public offering of common stock of the
Company, the number of shares of Registrable Securities to be included in such
an underwriting may be reduced on a pro rata basis among the Investors so
requesting registration by the managing underwriter if and to the extent that
the Company and the underwriter shall reasonably be of the opinion that such
inclusion would adversely affect the marketing of the securities to be sold by
the Company therein; provided, however, that the Company shall notify the Seller
in writing of any such reduction. Unless the Investor notifies the Company in
writing that it elects to deem the registration statement filed or to be filed
pursuant to this Section 7.1(b) as a registration statement filed or to be filed
pursuant to Section 7.1(a), the Company may withdraw or delay or suffer a delay
of any registration statement referred to in this Section 7.1(b) without thereby
incurring any liability to the Sellers.

 

(c) If, at the time any written request for registration is received by the
Company pursuant to Section 7.1(a) hereof, the Company has determined to proceed
with the actual preparation and filing of a registration statement under the
Securities Act in connection with the proposed offer and sale for cash of any of
its securities for the Company’s own account and the Company actually does file
such other registration statement, such written request shall be deemed to have
been given pursuant to Section 7.1(b) rather than Section 7.1(a), and the rights
of the holders of Registrable Securities covered by such written request shall
be governed by Section 7.1(b).

 

15

 

 

(d) Notwithstanding any other provision of this Section 7.1, if due to any SEC
Guidance (as defined herein) (a) the Commission does not declare the
Registration Statement effective on or before the period set forth in Section
7.4 hereof, or (b) if the Commission allows the Registration Statement to be
declared effective at any time before or after such date, subject to the
withdrawal of certain Registrable Securities from the Registration Statement,
and the reason for (a) or (b) is the Commission’s determination that (x) the
offering of any of the Registrable Securities constitutes a primary offering of
securities by the Company, (y) Rule 415 of the Securities Act may not be relied
upon for the registration of the resale of any or all of the Registrable
Securities, and/or (z) a holder of any Registrable Securities must be named as
an underwriter (and the Company has made a commercially reasonable effort to
advocate with the SEC for the registration of all or a greater number of
Registrable Securities), the Investors understand and agree that in the case of
(b) the Company may reduce, on a pro rata basis, subject to the senior
registration right of other holders (the “Other Holders”), the total number of
Registrable Securities to be registered on behalf of each such Investor, and, in
the case of (a) or (b), that an Investor shall not be entitled to any liquidated
damages under Section 7.4 hereof with respect to the Registrable Securities not
registered for the reason set forth in (a), or so reduced on a pro rata basis as
set forth in (b). In any such pro rata reduction, the number of Registrable
Securities to be registered on such Registration Statement will first be reduced
by the Registrable Securities represented by the Warrant Shares (applied, in the
case that some Warrant Shares may be registered, to the Investors on a pro rata
basis based on the total number of unregistered Warrant Shares held by such
Investors on a fully diluted basis), and second by Registrable Securities
represented by Conversion Shares (applied, in the case that some Conversion
Shares may be registered, to the Investors on a pro rata basis based on the
total number of unregistered Conversion Shares held by such Investors). The
Investors acknowledge and agree the provisions of this paragraph may apply to
more than one Registration Statement. The Company shall file a new registration
statement as soon as reasonably practicable covering the resale by the Investors
and Other Holders of not less than the number of such Registrable Securities
that are not registered in the registration statement. For the purpose of this
Section 7.1, Investors understand and acknowledge that the holders of the
Company’s warrants issued with the Company’s Series A Cumulative Convertible
Preferred Stock and holders of the Company’s Series B Cumulative Convertible
Preferred Stock and warrants issued with the Company’s Series B Cumulative
Convertible Preferred Stock shall be considered to have registration rights
senior to the Investors and all shares of common stock underlying such warrants
and shares of Series B Cumulative Convertible Preferred Stock shall be
considered Registrable Securities hereunder. “SEC Guidance” means (i) any
publicly-available written guidance, or rule of general applicability of the SEC
staff, or (ii) oral or written comments, requirements or requests of the SEC
staff to the Company in connection with the review of a registration statement,
including, but not limited to, such guidance as may effect a reduction in the
number of Registrable Securities that may be registered by the Company.

 

7.2 Registration Procedures. If and whenever the Company is required by the
provisions of Section 7.1 to effect the registration of any Registrable
Securities under the Securities Act, the Company will, as expeditiously as
possible:

 

(a) subject to the timelines provided in this Agreement, (i) prepare and file
with the Commission a registration statement required by Section 7.1 with
respect to such Registrable Securities and use its commercially reasonable
efforts to cause such registration statement to become and remain effective for
the period of the distribution contemplated thereby (determined as herein
provided), (ii) promptly provide to the holders of the Registrable Securities
copies of all filings and Commission letters of comment and notify the Sellers
(by telecopier and by e-mail addresses provided by the Investors) on or before
the second (2nd) business days thereafter that the Company receives notice that
(A) the Commission has no comments or no further comments on the registration
statement, and (B) the registration statement has been declared effective
(failure to timely provide notice as required by this Section 7.2(a) shall be a
material breach of the Company’s obligation and an Event of Default as defined
in the Notes and a Non-Registration Event as defined in Section 7.4 of this
Agreement);

 

16

 

 

(b) prepare and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective until such registration
statement has been effective for a period of one (1) year, and comply with the
provisions of the Securities Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance with
the Sellers’ intended method of disposition set forth in such registration
statement for such period;

 

(c) furnish to the Sellers, at the Company’s expense, such number of copies of
the registration statement and the prospectus included therein (including each
preliminary prospectus) as such persons reasonably may request in order to
facilitate the public sale or their disposition of the securities covered by
such registration statement, or make them electronically available;

 

(d) use its commercially reasonable efforts to register or qualify the
Registrable Securities covered by such registration statement under the
securities or “blue sky” laws of New York and such jurisdictions as the Sellers
shall reasonably request in writing, provided, however, that the Company shall
not for any such purpose be required to qualify generally to transact business
as a foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;

 

(e) as applicable, list or make available for quotation the Registrable
Securities covered by such registration statement with any securities exchange
or quotation system on which the Common Stock of the Company is then listed or
quoted;

 

(f) notify the Sellers within two (2) business days of the happening of any
event of which the Company has knowledge as a result of which the prospectus
contained in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing, or which becomes subject to a
Commission, state or other governmental order suspending the effectiveness of
the registration statement covering any of the Registrable Securities; and

 

(g) provide to the Sellers copies of the registration statement and amendments
thereto at least two (2) days prior to the filing thereof with the Commission. A
Seller’s failure to comment on any registration statement or other document
provided to an Investor or its counsel shall be construed to constitute approval
thereof nor the accuracy thereof.

 

17

 

 

7.3. Provision of Documents. In connection with each registration described in
this Section 7, each Seller will furnish to the Company in writing such
information and representation letters with respect to itself and the proposed
distribution by it as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.

 

7.4. Non-Registration Events. The Company agrees that the Sellers will suffer
damages if any registration statement required under Section 7.1(a) or 7.1(b) is
not filed within sixty (60) days after written request and declared effective by
the Commission within one hundred eighty (180) days after such request, and
maintained in the manner and within the time periods contemplated by Section 7,
and it would not be feasible to ascertain the extent of such damages with
precision. Accordingly, if (A) if the registration statement described in
Section 7.1(a) or 7.1(b) is not filed within sixty (60) days after such written
request, or is not declared effective within one hundred eighty (180) days after
such written request, or (B) any registration statement described in Sections
7.1(a) or 7.1(b) is filed and declared effective but shall thereafter cease to
be effective without being succeeded within thirty (30) business days by an
effective replacement or amended registration statement or for a period of time
which shall exceed sixty (60) days in the aggregate per year (defined as every
rolling period of 365 consecutive days commencing on the actual effective date
of such registration statement) (each such event referred to in clauses A and B
of this Section 7.4 is referred to herein as a “Non-Registration Event”), then
the Company shall pay to the holder of Registrable Securities, as “Liquidated
Damages”, an amount equal to one percent (1%) for each thirty (30) days (or such
lesser pro-rata amount for any period of less than thirty (30) days) of the (i)
purchase price of the outstanding Notes and (ii) purchase price of the
Conversion Shares and Warrant Shares issued upon conversion of Notes and
exercise of Warrants held by Investors which are subject to such
Non-Registration Event; provided, however, that the Company shall not be
required to pay any Liquidated Damages to any Investor pursuant to this Section
7.4 in excess of four percent (4%) of a Investor’s aggregate Purchase Price
hereunder. The Company must pay the Liquidated Damages in cash. The Liquidated
Damages must be paid within ten (10) business days after the end of each thirty
(30) day period or shorter part thereof for which Liquidated Damages are
payable. In the event a registration statement but is withdrawn prior to being
declared effective by the Commission, then such Registration Statement will be
deemed to have not been filed and Liquidated Damages will be calculated
accordingly. Liquidated Damages shall not be payable pursuant to this Section
7.4 in connection with Registrable Securities for such times as such Registrable
Securities may be sold by the holder thereof without volume limitations or other
restrictions pursuant to Section 144(b)(1)(i) of the Securities Act. The Company
may require, from time to time, information from a holder of the Securities that
is necessary to complete the registration statement in accordance with the
requirements of the Securities Act.  In the event of the failure by such holder
to comply with the Company’s request within fifteen (15) business days from the
date of such request, the Company shall be permitted to exclude such holder from
a registration statement without being subject to the payment of any amount of
Liquidated Damages to such holder. At such time that such holder complies with
the Company’s request, the Company shall use its reasonable best efforts to
include such holder in the registration statement.

 

18

 

 

7.5. Expenses. All expenses incurred by the Company in complying with Section 7,
including, without limitation, all registration and filing fees, printing
expenses (if required), fees and disbursements of Company counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or “blue sky” laws, fees of FINRA, and fees of transfer agents and
registrars are herein called “Registration Expenses.” All underwriting
discounts, selling commissions and transfer applicable to the sale of
Registrable Securities are herein called “Selling Expenses.” The Company will
pay all Registration Expenses in connection with any registration statement
described in Section 7. Selling Expenses in connection with each such
registration statement shall be borne by the Seller and may be apportioned among
the Sellers in proportion to the number of shares included on behalf of the
Seller relative to the aggregate number of shares included under such
registration statement for all Sellers, or as all Sellers thereunder may agree.

 

7.6. Indemnification and Contribution.

 

(a) In the event of a registration of any Registrable Securities under the
Securities Act pursuant to Section 7, the Company will, to the extent permitted
by law, indemnify and hold harmless the Seller and each of the officers,
directors, agents, Affiliates, members, managers, control persons, and principal
shareholders of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities to which such Seller or person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement of any material fact contained in any registration
statement under which such Registrable Securities was registered under the
Securities Act pursuant to Section 7, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, 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
therein not misleading in light of the circumstances when made, and will,
subject to the provisions of Section 7.6(c), reimburse such Seller for any
reasonable legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company shall not be liable to the Seller to
the extent that any such damages arise out of or are based upon an untrue
statement or omission made in any preliminary prospectus if (i) the Seller
failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller in
writing specifically for use in such registration statement or prospectus.

 

19

 

 

(b) In the event of a registration of any of the Registrable Securities under
the Securities Act pursuant to Section 7, each Seller, severally but not
jointly, will, to the extent permitted by law, indemnify and hold harmless the
Company, and each person, if any, who controls the Company within the meaning of
the Securities Act, each officer of the Company who signs the registration
statement, each director of the Company, each underwriter and each person who
controls any underwriter within the meaning of the Securities Act, against all
losses, claims, damages or liabilities, joint or several, to which the Company
or such officer, director, underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the registration statement under which such Registrable Securities were
registered under the Securities Act pursuant to Section 7, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, 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 therein not misleading, and will reimburse the Company and each
such officer, director, underwriter and controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the net proceeds actually received by the Seller from the sale of Registrable
Securities pursuant to such registration statement.

 

(c) Promptly after receipt by an indemnified party hereunder of notice of the
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party hereunder, notify the
indemnifying party in writing thereof, but the omission to so notify the
indemnifying party shall not relieve the indemnifying party from any liability
which it may have to such indemnified party other than under this Section
7.6(c), and shall only relieve it from any liability which it may have to such
indemnified party under this Section 7.6(c), except and only if and to the
extent the indemnifying party is materially prejudiced by such omission. In case
any such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in and, to the extent it shall wish, to
assume and undertake the defense thereof with counsel satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election to so assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under this Section 7.6(c) for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to indemnified party
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified parties,
as a group, shall have the right to select one separate counsel, reasonably
satisfactory to the indemnified and indemnifying party, and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
reasonable expenses and fees of such separate counsel and other expenses related
to such participation to be reimbursed by the indemnifying party as incurred.

 

20

 

 

(d) In order to provide for just and equitable contribution in the event of
joint liability under the Securities Act in any case in which either (i) a
Seller, or any controlling person of a Seller, makes a claim for indemnification
pursuant to this Section 7.6 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 7.6 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
not provided under this Section 7.6, then, and in each such case, the Company
and the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities sold by it pursuant
to such registration statement; and (z) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation; and provided, further, however, that the
liability of the Seller hereunder shall be limited to the net proceeds actually
received by the Seller from the sale of Registrable Securities pursuant to such
registration statement.

 

7.7. Unlegended Shares and 144 Sales.

 

(a) Delivery of Unlegended Shares. Within five business (5) days (such fifth
(5th) business day being the “Unlegended Shares Delivery Date”) after the day on
which the Company has received (i) a notice that Conversion Shares, Warrant
Shares or any other Common Stock held by Investor has been sold pursuant to a
registration statement or Rule 144 under the Securities Act, (ii) a
representation that the prospectus delivery requirements, or the requirements of
Rule 144, as applicable and if required, have been satisfied, (iii) the original
share certificates representing the shares of Common Stock that have been sold,
and (iv) in the case of sales under Rule 144, customary representation letters
of Investor and, if required, Investor’s broker regarding compliance with the
requirements of Rule 144, the Company, at its expense, (y) shall deliver, and
shall cause legal counsel selected by the Company to deliver to its transfer
agent (with copies to Investor) an appropriate instruction directing the
delivery of shares of Common Stock without any legends including the legend set
forth in Section 3.10 above (the “Unlegended Shares”); and (z) cause the
transmission of the certificates representing the Unlegended Shares, together
with a legended certificate representing the balance of the submitted Common
Stock certificate, if any, to Investor at the address specified in the notice of
sale, via express courier, by electronic transfer or otherwise on or before the
Unlegended Shares Delivery Date.

 

(b) DWAC. In lieu of delivering physical certificates representing the
Unlegended Shares, upon request of the Investors, so long as the certificates
therefor do not bear a legend, the Common Stock is eligible for electronic
transfer through the Depository Trust Company, and the Investor is not obligated
to return such certificate for the placement of a legend thereon, the Company
shall cause its transfer agent to electronically transmit the Unlegended Shares
by crediting the account of Investor’s prime broker with the Depository Trust
Company through its Deposit Withdrawal Agent Commission system. Such delivery
must be made on or before the Unlegended Shares Delivery Date.

 

21

 

  

(c) Late Delivery of Unlegended Shares. The Company understands that a delay in
the delivery of the Unlegended Shares pursuant to this Section 7.7 hereof later
than the Unlegended Shares Delivery Date could result in economic loss to an
Investor. As compensation to a Investor for such loss, the Company agrees to pay
late payment fees (as liquidated damages and not as a penalty) to Investor for
late delivery of Unlegended Shares in the amount of $100 per business day after
the Unlegended Shares Delivery Date for each $10,000 of purchase price of the
Unlegended Shares, subject to the delivery default; provided that such delay is
not the direct or indirect result of Investor’s actions or omissions. If during
any three hundred sixty (360) day period, the Company fails to deliver
Unlegended Shares as required by this Section 7.7 for an aggregate of thirty
(30) days, then each Investor or assignee holding Securities subject to such
default may, at its option, require the Company to redeem all or any portion of
the Unlegended Shares subject to such default at a price per share equal to the
greater of (i) 120% of the Purchase Price paid by Investor for the Unlegended
Shares that were not timely delivered, or (ii) a fraction in which the numerator
is the highest closing price of the Common Stock during the aforedescribed
thirty day period and the denominator of which is the lowest conversion price or
exercise price, as the case may be, during such thirty (30) day period,
multiplied by the price paid by Investor for such Common Stock (“Unlegended
Redemption Amount”). The Company shall promptly pay any payments incurred under
this Section in immediately available funds upon demand.

 

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

 

22

 

 

(e) 144 Default. At any time commencing twelve (12) months after the Closing
Date, in the event Investor is not permitted to sell any of the Conversion
Shares or Warrant Shares without any restrictive legend, or if such sales are
permitted but subject to volume limitations or further restrictions on resale as
a result of the unavailability to Investor of Rule 144(b)(1)(i) under the
Securities Act or any successor rule (a “144 Default”), for any reason,
including, but not limited to, failure by the Company to file quarterly, annual
or any other filings required to be made by the Company by the required filing
dates (provided that any filing made within the time for a valid extension shall
be deemed to have been timely filed), or the Company’s failure to make
information publicly available which would allow Investor’s reliance on Rule 144
in connection with sales of Conversion Shares or Warrant Shares, except due to a
change in current applicable securities laws or because Investor is an Affiliate
(as defined under Rule 144) of the Company, then the Company shall pay such
Investor as liquidated damages and not as a penalty for each thirty (30) days
(or such lesser pro-rata amount for any period less than thirty (30) days) an
amount equal to one percent (1.0%) of the purchase price of the Conversion
Shares and Warrant Shares (which could be issued on a cashless basis pursuant to
Section 2 of the Warrant) which is subject to such 144 Default; provided,
however, that the Company shall not be required to pay any liquidated damages to
any Investor pursuant to this Section 7.7(e) in excess of 4% of such Investor’s
aggregate Purchase Price hereunder. Liquidated damages shall not be payable
pursuant to this Section 7.7(e) in connection with Conversion Shares or Warrant
Shares for such times as such shares may be sold by the holder thereof without
any legend or volume or other restrictions pursuant to Section 144(b)(1)(i) of
the Securities Act or pursuant to an effective registration statement.

 

8 Miscellaneous.

 

8.1 Appointment of Collateral Agent. In the event an Event of Default (as
described in the Notes) shall have occurred and be continuing, prior to taking
any actions to declare the Notes due and payable or to attempt to foreclose on
any collateral securing the Notes, Investors holding a majority of the
outstanding indebtedness evidenced by the Notes (the “Requisite Holders”) will
authorize and appoint an agent (which may be an Investor or third party) to act
as collateral agent on behalf of all of the Investors, and in such capacity to
exercise for the benefit of all of the Investors all rights, powers and remedies
provided to them, under or pursuant to the Security Agreement, including,
without limitation, those available upon an Event of Default, subject always to
the terms, conditions, limitations and restrictions provided in the Security
Agreement. The Investors have carefully reviewed the Security Agreement and
understand the information contained therein.

 

8.2 Survival of Warranties. All of the representations and warranties made
herein shall survive the execution and delivery of this Agreement for a period
of one year. The Investors are entitled to rely, and the parties hereby
acknowledge that the Investors have so relied, upon the truth, accuracy and
completeness of each of the representations and warranties of the Company
contained herein, irrespective of any independent investigation made by
Investors. The Company is entitled to rely, and the parties hereby acknowledge
that the Company has so relied, upon the truth, accuracy and completeness of
each of the representations and warranties of the Investors contained herein,
irrespective of any independent investigation made by the Company.

 

8.3 Successors and Assigns. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties (including transferees of
any Notes sold hereunder or any Common Stock issued upon conversion thereof).
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.

 

23

 

 

8.4 Governing Law. This Agreement shall be governed by and construed under the
laws of the State of New York as applied to agreements among New York residents
entered into and to be performed entirely within New York. The parties hereto
(1) agree that any legal suit, action or proceeding arising out of or relating
to this Agreement shall be instituted exclusively in New York State Supreme
Court, County of New York, or in the United States District Court for the
Southern District of New York, (2) waives any objection which the Company may
have now or hereafter to the venue of any such suit, action or proceeding, and
(3) irrevocably consents to the jurisdiction of the New York State Supreme
Court, County of New York, and the United States District Court for the Southern
District of New York in any such suit, action or proceeding. The Company further
agrees to accept and acknowledge service of any and all process which may be
served in any such suit, action or proceeding in the New York State Supreme
Court, County of New York, or in the United States District Court for the
Southern District of New York and agrees that service of process upon the
Company mailed by certified mail to the Company's address shall be deemed in
every respect effective service of process upon the Company, in any such suit,
action or proceeding. THE PARTIES HERETO AGREE TO WAIVE THEIR RESPECTIVE RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF
THIS AGREEMENT OR ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY.

 

8.5 Counterparts. This Agreement may be executed 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. This Agreement may also be executed via
facsimile or by e-mail delivery of a “.pdf” format data file, either of which
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) this Agreement with the same force and effect
as if such facsimile or “.pdf” signature page were an original thereof.

 

8.6 Titles and Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.

 

8.7 Notices. Unless otherwise provided, any notice, authorization, request or
demand required or permitted to be given under this Agreement shall be given in
writing and shall be deemed effectively given upon personal delivery to the
party to be notified or three (3) days following deposit with the United States
Post Office, by registered or certified mail, postage prepaid, or two days after
it is sent by an overnight delivery service, or when sent by facsimile with
machine confirmation of delivery addressed as follows:

 

If to Company, to:

 

BeesFree, Inc.

2101 Vista Parkway, Suite 122

West Palm Beach, FL 33411

Attention: Chief Executive Officer

Fax: (561) 939-4861

 

24

 

 

With a copy to:

 

Littman Krooks LLP

2655 Third Avenue, 20th Floor

New York, NY 10017

Attention: Steven D. Uslaner, Esq.

Fax: (212) 490-2990

 

If to the Investors to:

 

The addresses sent forth on the signature pages attached.

 

Any party may change its address for such communications by giving notice
thereof to the other parties in conformity with this Section.

 

8.8 Transaction Expenses; Enforcement of Transaction Documents. The Company and
each Investor shall pay their respective costs and expenses incurred with
respect to the negotiation, execution, delivery and performance of this
Agreement. If any action at law or in equity is necessary to enforce or
interpret the terms of the Transaction Documents, 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.

 

8.9 Amendments and Waivers. This Agreement may be amended or terminated and the
observance of any term of this Agreement may be waived with respect to all
parties to this Agreement (either generally or in a particular instance and
either retroactively or prospectively), with the written consent of the Company
and the Note Requisite Holders (as defined below). Notwithstanding the
foregoing, this Agreement may not be amended or terminated and the observance of
any term hereunder may not be waived with respect to any Investor without the
written consent of such Investor unless such amendment, termination or waiver
applies to all Investors in the same fashion. The Company shall give prompt
written notice of any amendment or termination hereof or waiver hereunder to any
party hereto that did not consent in writing to such amendment, termination or
waiver. Any amendment, termination or waiver effected in accordance with this
Section 8.9 shall be binding on all parties hereto, even if they do not execute
such consent. No waivers of or exceptions to any term, condition or provision of
this Agreement, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of any securities purchased under this
Agreement at the time outstanding (including securities into which such
securities are convertible), each future holder of all such securities, and the
Company. For purposes hereof, “Note Requisite Holder(s)” shall mean holders of
Notes representing at least 66% of the aggregate amount of principal then
outstanding under such Notes.

 

8.10 Severability. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of this Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.

 

25

 

 

8.11 Entire Agreement. This Agreement and the documents referred to herein
constitute the entire agreement among the parties and no party shall be liable
or bound to any other party in any manner by any warranties, representations, or
covenants except as specifically set forth herein or therein.

 

8.12 Independent Nature of Investors. The obligations of each Investor under
this Agreement or other transaction document are several and not joint with the
obligations of any other Investor, and no Investor shall be responsible in any
way for the performance of the obligations of any other Investor under this
Agreement or any other transaction document. Each Investor shall be responsible
only for its own representations, warranties, agreements and covenants
hereunder. The decision of each Investor to purchase Notes and Warrants pursuant
to this Agreement has been made by such Investor independently of any other
Investor and independently of any information, materials, statements or opinions
as to the business, affairs, operations, assets, properties, liabilities,
results of operations, condition (financial or otherwise) or prospects of the
Company which may have been made or given by any other Investor or by any agent
or employee of any other Investor, and no Investor or any of its agents or
employees shall have any liability to any other Investor (or any other person)
relating to or arising from any such information, materials, statements or
opinions. Nothing contained herein or in any other transaction document, and no
action taken by any Investor pursuant hereto or thereto, shall be deemed to
constitute the Investors as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Investors are in any
way acting in concert or as a group with respect to such obligations or the
transactions contemplated by this Agreement. Except as otherwise provided in
this Agreement or any other transaction document, each Investor shall be
entitled to independently protect and enforce its rights arising out of this
Agreement or out of the other transaction documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. Each Investor represents and warrants that it has
been represented by its own separate legal counsel in connection with the
transactions contemplated hereby and acknowledges and understands that Littman
Krooks, LLP has served as counsel to the Company only, and the Investors cannot
rely upon Littman Krooks, LLP in any manner with regard to their decision to
participate in the transactions contemplated hereby.

 

26

 

 

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

 

BEESFREE, INC.                               By: /S/ JOSEPH FASCIGLIONE      
Name: Joseph Fasciglione       Title: Interim Chief Executive Officer    

 

 

BEESFREE USA, INC.                       By: /S/ JOSEPH FASCIGLIONE     Name:
Joseph Fasciglione     Title: President  

 

Investors:

 

[TO SIGN AND COMPLETE SIGNATURE PAGE ANNEXED HERETO]

 

 

27

 

 

OMNIBUS SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT AND SECURITY AGREEMENT

 

 

By execution and delivery of this signature page, you are agreeing to become an
Investor, as defined in that certain Securities Purchase Agreement (the
“Purchase Agreement”) by and among BeesFree, Inc., a Nevada corporation (the
“Company”), BeesFree USA, Inc. (“BeesFree USA”) and the Investors (as defined in
the Purchase Agreement), dated as of ______ [5]__, 201__, and acknowledges
having read the representations in the Purchase Agreement section entitled
“Representations and Warranties of the Investors,” and hereby represents that
the statements contained therein are complete and accurate with respect to the
undersigned as an Investor. The undersigned further hereby agrees that execution
by the undersigned of this Omnibus Signature Page to Securities Purchase
Agreement and Security Agreement shall constitute an agreement to be bound by
the terms and conditions of each of the Purchase Agreement and the Security
Agreement, with the same effect as if such separate, but related agreement, was
separately signed.

 

 

 

 

INVESTOR:

 

Print Name: ________________________

 

Signature:__________________________

 

Print Name: ________________________

 

Signature:__________________________

 

Title (if entity)_______________________

 

__________________________________

Street Address

 

__________________________________

Street Address – 2nd line

 

__________________________________

City, State, Zip

 

PRINCIPAL AMOUNT OF NOTES

PURCHASED: $___________________

 

Number of Warrants: ________________

 

Date: __________________

 

Contact Person: ______________________

 

Telephone No. _____________________

 

E-mail Address: ____________________

 

Soc Sec # or Fed ID #________________

 

 

 

 

[5] To be completed to reflect date of initial closing. Investors should not
complete this.

 

28

 

 

 

SCHEDULE OF INVESTORS

 

Name Principal Amount of Note Number of Warrants                                
                     TOTAL    

 

 

 

 

APPENDIX A

 

Additional Definitions

 

For purposes of this Agreement, the following additional capitalized terms shall
have the respective definitions set forth below:

 

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

 

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

 

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

 

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

 

“Conversion Shares” means the shares of Common Stock issuable upon conversion of
all principal and accrued but unpaid interest under the Notes.

 

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

 

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

 

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

 

“Material Adverse Effect” means a material adverse effect on the financial
condition, results of operations, prospects, properties or business of the
Company and its Subsidiaries taken as a whole.

 

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

 

“Principal Market” means whichever of the following is at the time the principal
trading exchange or market for the Common Stock; NYSE Amex Equities, Nasdaq
Capital Market, Nasdaq Global Market, Nasdaq Global Select Market, OTC Market,
Bulletin Board, or New York Stock Exchange.

 

 

 

 

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

 

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 2.1
and shall, where applicable, also include any direct or indirect subsidiary of
the Company formed or acquired after the date hereof.

 

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

 

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

 

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

 

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

 

 

 

2

 

 

SCHEDULE 3.6

 

RISK FACTORS

 

An investment in the Securities is speculative and illiquid and involves a high
degree of risk, including the risk of a loss of your entire investment. You
should carefully consider the risks and uncertainties described below, the risks
set forth in our filings with the SEC and the other information contained in the
Securities Purchase Agreement of which this Schedule is a part, before
purchasing any Securities. The risks set forth below are not the only ones
facing our Company. Additional risks and uncertainties may exist that could also
adversely affect our business, operations and prospects. Based on the foregoing,
our business, financial condition, prospects and/or operations could suffer. In
such event, the value of the securities you are purchasing could decline, and
you could lose all or a substantial portion of the money that you invest. No
inference should be drawn as to the magnitude of any particular risk from its
position in the list of risk factors.  As used in these Risk Factors, “we” and
“our” refers to the Company and its subsidiaries.

 

RISKS RELATED TO OUR BUSINESS

 

We have a very limited operating history; we have not yet generated revenue and
incurred losses since inception; and we expect to continue to incur losses for
the near term.

 

We have a very limited operating history. Since our inception in August 2011, we
have incurred net losses and as of September 30, 2013, we had an accumulated
deficit of $3,969,453. Our prospects must be considered in light of the
uncertainties, risks, expenses, and difficulties frequently encountered by
companies in their early stages of operations. We anticipate that our
accumulated deficit has grown since September 30, 2013.

 

We continue to experience a severe, continuing cash shortage and without
sufficient additional financing we may not be able to execute our and may be
required to cease operations, and this demonstrates uncertainty as to our
ability to continue as a going concern.

 

As of September 30, 2013, our cash and cash equivalents amounted to $83,609. We
have generated no revenues in 2013, and we have been dependent upon proceeds
from various fundraising activities to fund our operations. If we do not raise
sufficient capital to fund our operations until we can generate sufficient
internal cash flow, we may be required to discontinue or further substantially
modify our business. We cannot be certain that additional financing will be
available to us on favorable terms when required, if at all. The failure to
raise needed funds could have a material adverse effect on our business,
financial condition, operating results and prospects.  These factors raise
substantial doubt about our ability to continue as a going concern. The report
of the independent registered public accounting firm relating to the audit of
our consolidated financial statements for the year ended December 31, 2012
contains an explanatory paragraph expressing uncertainty regarding our ability
to continue as a going concern because of our operating losses and our need for
additional capital. Such explanatory paragraph could make it more difficult for
us to raise additional capital and may materially and adversely affect the terms
of any future financing that we may obtain.  There can be no assurances that the
audit report related to our financial statements for the year ended December 31,
2013 will not also express substantial doubt about our ability to continue as a
going concern.

 

 

 

 

We have limited operating history and as such an investor cannot assess our
profitability or performance based on past results.

 

We are a development stage company, with limited operations that commenced upon
our incorporation in August 2011. Our primary assets consist of our rights to
the patent-pending proprietary chemical compound (BeesVita PlusTM) and dispenser
(the BeespenserTM). We have yet to commence active operations to sell any
products associated with the proprietary bee healthcare technologies that we
intend to market. We have no prior operating history from which to evaluate our
likelihood of success in operating our business, generating any revenues or
achieving profitability. Accordingly, it is possible that the Securities and
Exchange Commission, FINRA, a national exchange or other regulatory authority
may take the position that we are a “shell” company. This determination would
restrict our ability to remove restrictive legends from our securities pursuant
to Rule 144.

 

Our operations to date have consisted primarily of acquiring the patent-pending
technology rights to our proprietary chemical compound and dispenser, securing
office space, hiring sales personnel, continuing research and development,
hiring laboratory personnel, constructing an industrial model of the BeesFree
Dispenser, commencing the regulatory clearance process in Argentina and Europe,
finding manufacturers in the US, Argentina and Europe, and commencing trials in
the US with large, commercial beekeepers. We will require significant additional
capital to achieve our business objectives, and the inability to obtain such
financing on acceptable terms or at all could lead to closure of our business.

 

Our revenue and income potential is uncertain. Any evaluation of our business
and prospects must be considered in light of these factors and the risks and
uncertainties often encountered by companies in the development stage.

 

We are a development stage company that has a limited operating history,
therefore, it is possible that the Securities and Exchange Commission, FINRA, a
national exchange, or other regulatory authority may take the position that we
are a “shell” company which would limit the ability of our shares to be sold
under Rule 144.

 

We are a development stage company, with limited operations that commenced upon
our incorporation in August 2011. Our primary assets consist of our rights to
the patent-pending proprietary chemical compound (BeesVita PlusTM) and dispenser
(the BeespenserTM), and we have limited operating history. We have yet to
commence active operations to sell any products associated with the proprietary
bee healthcare technologies that we intend to market. We have no prior operating
history from which to evaluate our likelihood of success in operating our
business, generating any revenues or achieving profitability. Accordingly, it is
possible that the Securities and Exchange Commission, FINRA, a national exchange
or other regulatory authority may take the position that we are a “shell”
company. This determination would restrict our ability to remove restrictive
legends from our securities pursuant to Rule 144.

 

 

 

 

We are developing and attempting to commercialize new and unproven technologies.

 

We work with and intend to develop new technologies for the beekeeping
healthcare industry that have not yet been proven for commercial application.
While we believe that each of the component agents and compounds that comprise
our patent-pending proprietary mix of compounds have proven effective in
promoting greater health in the bee population when being administered
individually, we are not certain that our patent-pending proprietary mix will be
effective in combating the effects of CCD or even in improving the health of the
bee population, especially given that scientists have not come to a consensus as
to the causes of CCD. In addition, while we have designed the BeespenserTM using
scientifically-proven theories concerning shapes and colors that attract bees,
we cannot be sure that the BeespenserTM will be efficacious in delivering our
patent-pending proprietary mix of compounds to the bee population it is intended
to serve. Even if the mix of compounds and the BeespenserTM prove effective,
there is no guarantee that these technologies will be appropriate for commercial
application without additional capital investment and a significant amount of
work, if at all. It is therefore possible that products developed by us may not
achieve widespread market acceptance. We cannot be certain that any such
products will be able to be commercialized and sold successfully, or at all.

 

We may need additional financing to fund our activities in the future.

 

Assuming we raise the full $2 million in gross proceeds in this Offering, we
anticipate we will not require additional funding for at least 12 months. While
we anticipate that we will generate revenues in 2014 and may generate sufficient
cash flow to be self sufficient, as noted above, we have limited operating
history and an unproven technology. We may consume our available capital if
revenues are delayed or if we are not efficient in developing our products or if
regulatory requirements change. We might seek equity or debt financings in the
future to fund our operations. However, in such event, there is no assurance
that we will be successful in raising the additional capital we need to fund our
business plan on terms that are acceptable to us, or at all. If we do not
succeed in raising additional funds on acceptable terms, we could be forced to
discontinue product development, forego sales and marketing efforts, sacrifice
attractive business opportunities, cease operations entirely and sell or
otherwise transfer all or substantially all of our remaining assets.

 

Our ability to compete successfully and achieve future revenue will depend on
our ability to protect our proprietary technology.

 

It is possible that the technology for our proprietary mix of chemical compounds
(BeesVita PlusTM) and our dispenser (the BeespenserTM) may not provide any
competitive advantage to us or will be successfully challenged, invalidated or
circumvented in the future. In addition, potential competitors may have
substantial resources and could make significant investments in competing
technologies, may seek to apply for and obtain patents that will prevent, limit
or interfere with our ability to make, use or sell our products either in the
U.S. or in international markets.

 

 

 

 

The degree of future protection for our proprietary rights is uncertain, and we
cannot ensure that:

 

·we were the first to make the inventions covered by our patent-pending
technology;

·we were the first to seek a patent application for these inventions;

·others will not independently develop similar, or alternative technologies, or
duplicate any of our technologies;

·our pending patent will be valid or enforceable;

·any potential patents issued to us will provide a basis for commercially viable
products, will provide us with any competitive advantages or will not be
challenged by third parties;

·we will develop additional proprietary technologies or products that are
patentable; or

·the patents of others will not have an adverse effect on our business.

 

In addition to our proprietary mix of chemical compounds, we rely on trade
secrets and proprietary know-how, which we seek to protect in part through
confidentiality and proprietary information agreements and limit access to and
distribution of our proprietary information. Such measures may not provide
adequate protection for our trade secrets or other proprietary information. In
addition, our trade secrets or proprietary technology may become known or be
independently developed by competitors. Our failure to protect our proprietary
technology could have a material adverse effect on our business, financial
condition and results of operations.

 

Any future litigation over intellectual property rights would likely involve
significant expense on our part and distract our management.

 

Our ability to compete successfully and achieve future revenue will depend in
part on our ability to operate without infringing on the rights of others and
our ability to enforce our own intellectual property rights. Litigation or
claims could result in substantial costs and diversion of resources and could
have a material adverse effect on our business, financial condition, and results
of operations. Although there are no pending lawsuits against us regarding our
technology or notices that we are infringing on the intellectual property rights
of others, litigation or infringement claims may arise in the future.

 

We are currently dependent on only a few products.

 

Our sole source of revenues for the foreseeable future is expected to come from
sales of the BeespenserTM and bottles of our proprietary mix of chemical
compounds (BeesVita PlusTM). Our operations may be adversely affected by
economic, regulatory or similar problems or events that may apply only to us,
only to the beekeeping industry or only within a particular market area in which
our products are sold. The adverse effect of any such problems or events could
be more easily absorbed in a more diversified business or one that operates in a
variety of different industries.

 

 

 

 

We may be unable to keep pace with the technological changes in the beekeeping
industry or with the changes facing bee populations worldwide and, as a result,
our technologies may become obsolete.

 

Although the beekeeping industry is currently a limited field, with few
competitors, potential competitors, including chemical manufacturers, could have
significantly greater resources than us and could employ such resources to
compete with our technology and products. Research and discoveries by others may
result in insights or breakthroughs, especially with respect to treatment of
CCD, which may render our technologies obsolete even before they generate any
revenue. These factors could have a material adverse effect on our business.

 

We have limited manufacturing experience and will depend on third-party
suppliers and manufacturers, and if they are unable to deliver, our business may
suffer.

 

To be successful, our products will need to be manufactured in sufficient
quantities, in compliance with regulatory requirements and at an acceptable
cost. We have limited manufacturing experience. We expect to purchase all of our
components and supplies from third-party suppliers and to outsource the
manufacturing to contract manufacturers. Although we do not anticipate any
difficulties in partnering with suppliers and manufacturers, due to the
generally wide availability of our component parts and the simplicity of the
design of our products, we may still experience significant difficulty in
locating suppliers and manufacturers qualified to manufacture our products or
components thereof. Further, manufacturers generally have the right to
manufacture similar products that may compete with our products, and to
terminate their agreements without significant penalty under certain conditions.
In addition, disclosure of our proprietary technology to a third-party for
manufacturing purposes increases the risk of theft or loss of trade secrets.
There can be no assurance that we will be successful in locating manufacturers
or suppliers on terms and conditions or with reputations and experience
acceptable to us or that our trade secrets will not be stolen.

 

Additionally, unanticipated increases in the prices of our component parts could
increase production costs and adversely affect our profitability. While we do
not anticipate significant difficulty fulfilling our supply purchase
requirements, we cannot provide any assurances that we will not experience such
difficulties in the future

 

We intend to rely on third parties whose operations are outside our control.

 

We intend to rely on arrangements with third-party shippers and carriers such as
independent shipping companies for timely delivery of our products to our
customers. As a result, we may be subject to carrier disruptions and increased
costs due to factors that are beyond our control, including labor strikes,
inclement weather, natural disasters and rapidly increasing fuel costs. If the
services of any of these third parties become unsatisfactory, we may experience
delays in meeting our customers’ product demands and we may not be able to find
a suitable replacement on a timely basis or on commercially reasonable terms.
Any failure to deliver products to our customers in a timely and accurate manner
may damage our reputation and could cause us to lose customers.

 

 

 

 

The departure of key personnel could disrupt our business.

 

We depend on the continued efforts of our chief executive officer and our chief
scientist. We cannot be certain that any individual will continue in such
capacity for any particular period of time. The loss of key personnel, or the
inability to hire and retain qualified employees, could negatively impact our
ability to manage our business.

 

Our revenue may be adversely affected by fluctuations in currency exchange
rates.

 

Initially, we anticipate that a significant portion of our revenues and expenses
will occur in Argentina and Europe. However, we report our financial condition
and results of operations in U.S. dollars. As a result, fluctuations between the
U.S. dollar, the Euro and the Argentine peso will impact the amount of our
revenues. For example, if either the Euro or the Argentine peso appreciates
relative to the U.S. dollar, the fluctuation will result in a positive impact on
the revenues that we report. However, if either the Euro or the Argentine peso
depreciates relative to the U.S. dollar, there will be a negative impact on the
revenues we report due to such fluctuation. It is possible that the impact of
currency fluctuations will result in a decrease in reported sales even though we
have experienced an increase in sales when reported in the Argentine peso.
Conversely, the impact of currency fluctuations may result in an increase in
reported sales despite declining sales when reported in the Argentine peso. The
exchange rate from the U.S. dollar to the Euro and the Argentine peso has
fluctuated substantially and may continue to do so in the future. Though we may
choose to hedge our exposure to foreign currency exchange rate changes in the
future, there is no guarantee such hedging, if undertaken, will be successful.

If we are not successful in protecting our intellectual property rights, our
ability to compete or maintain market share may be harmed.

 

In order to protect our proprietary technology, we are dependent on the
appropriate authorities granting our patents. However, despite our efforts to
protect our intellectual property, we cannot assure you that:

 

·any future patents will not be challenged, invalidated or circumvented;

·our pending patent applications or future applications will be approved;

·others will not independently develop similar products or processes to our, or
design around our, patents; or

·Any of the measures described above will provide meaningful protection.

 

It may be possible for a third-party, including our licensees, to misappropriate
our copyrighted material or trademarks. It is possible that existing or future
patents may be challenged, invalidated or circumvented and effective patent,
copyright, trademark and trade secret protection may be unavailable or limited
in foreign countries. It may be possible for a third-party to copy or otherwise
obtain and use our products or technology without authorization, develop similar
technology independently or design around our pending patents. As a result,
despite our efforts and expenses, we may be unable to prevent others from
infringing upon or misappropriating our intellectual property, which could harm
our business.

 

 

 

 

Risks Relating to Our Organization and Our Common Stock

 

Because we became public by means of a “reverse merger,” we may not be able to
attract the attention of major brokerage firms.

 

There may be risks associated with us becoming public through a “reverse merger”
with a shell company. Although the shell company did not have recent or past
operations or assets and we performed a due diligence review of the shell
company, there can be no assurance that we will not be exposed to undisclosed
liabilities resulting from the prior operations of the shell company. Securities
analysts of major brokerage firms and securities institutions may also not
provide coverage of us because there were no broker-dealers who sold our stock
in a public offering that would be incentivized to follow or recommend the
purchase of our common stock. The absence of such research coverage could limit
investor interest in our common stock, resulting in decreased liquidity. No
assurance can be given that established brokerage firms will, in the future,
want to cover our securities or conduct any secondary offerings or other
financings on our behalf.

 

Our certificate of incorporation allows for our board to create new series of
preferred stock without further approval by holders of our Common Stock, which
could adversely affect the rights of the holders of our Common Stock.

Our board of directors has the authority to fix and determine the relative
rights and preferences of preferred stock. Our board of directors also has the
authority to issue preferred stock without further approval by holders of our
Common Stock. As a result, our board of directors could authorize the issuance
of a series of preferred stock that would grant to holders the preferred right
to our assets upon liquidation, the right to receive dividend payments before
dividends are distributed to the holders of Common Stock and the right to the
redemption of the shares, together with a premium, prior to the redemption of
our Common Stock. In addition, our board of directors could authorize the
issuance of a series of preferred stock that has greater voting power than our
common stock or that is convertible into our common stock, which could decrease
the relative voting power of our Common Stock or result in dilution to our
existing stockholders.

 

The Securities are being offered on “reasonable efforts, no minimum” basis. 

 

The Securities are being offered on a “reasonable efforts, no minimum” basis. 
In this type of offering where there is no minimum amount necessary to
consummate the offering, there is no assurance that the Offering Amount of
$2,000,000 will be sold.  Accordingly, persons purchasing the Securities do so
without any assurance that sufficient funds can be raised to satisfy our working
capital needs and to otherwise allow the Company to effectuate its business
plan.  The failure to raise the Offering Amount will also increase the need of
the Company to obtain additional financing, which may or may not be available at
such time on terms satisfactory to us, if at all. 

 

 

 

 

The Company may not have available working capital to satisfy interest payments
on the Notes or repay the Notes on maturity.

 

In the event we do not raise sufficient funds hereunder or begin generating
revenues soon we may be unable to repay the Notes when due. If the Company fails
to timely meet its financial obligations as they come due, its operating
results, balances sheet and future ability to raise capital could be seriously
harmed. Furthermore, Company security holders, including Investors in this
Offering, may suffer a loss of all or a substantial portion of their investment
in the Company.

 

The Securities, Conversion Shares and Warrant Shares will not be registered and
cannot be sold for at least six months after the Securities are issued.

 

The ability to resell such securities will depend upon the availability of an
exemption to the requirements of Section 5 of the Securities Act. The most
commonly utilized exemption is Rule 144. Under Rule 144, the securities issuable
upon conversion of the Notes and exercise of the Warrants may become eligible
for resale six (6) months after the Closing in which the applicable security is
issued, so long as the Company fulfills its current reporting requirements under
the Exchange Act. After a year, the current information requirement no longer
applies for purchasers who are not Affiliates of the Company. Any purchasers
which are Affiliates of the Company will be subject to certain other
requirements such as volume limitations, manner of share and filing
requirements.

 

Our sale of a significant number of shares of our Common Stock, convertible
securities or warrants or the issuance or exercise of stock options could
depress the market price of our stock.

 

The market price of our Common Stock could decline as a result of sales of
substantial amounts of our common stock in the public market or the perception
that substantial sales could occur because of our sale of Common Stock,
convertible securities or warrants, or the issuance or exercise of stock
options. These sales also might make it difficult for us to sell equity
securities in the future at a time when, and at a price which, we deem
appropriate. As of September 30, 2013, we had stock options to purchase 812,500
shares of our Common Stock outstanding, of which options to purchase 737,500
shares were exercisable. In addition, we have issued and outstanding shares of
Series A Preferred Stock, Series B Preferred Stock, convertible notes and
warrants convertible or exercisable (after taking into affect anti-dilution
adjustment triggered by this Offering) into an aggregate 14,457,225 shares of
our Common Stock, a significant number of which contain full ratchet and
antidilution protection provisions. Exercise of any current or future
outstanding stock options or warrants could harm the market price of our Common
Stock.

 

We may be unable to list our Common Stock, which currently trades on the QTC
markets, on the NASDAQ or any other securities exchange, in which case an
investor may find it difficult to dispose of shares or obtain accurate
quotations as to the market value of our Common Stock.

 

Although we may apply to list our common stock on NASDAQ or the NYSE Amex
Equities in the future when and if we have stabilized our liquidity concerns, we
may not be able to meet the initial listing standards, including the minimum per
share price and minimum capitalization requirements, of either of those or any
other stock exchange, and we may not be able to maintain a listing of our Common
Stock on either of those or any other stock exchange. If we are unable to list
our common stock on NASDAQ, the NYSE Amex Equities or another stock exchange, or
to maintain that listing, we expect that our Common Stock will continue to trade
on the QTC markets, or possibly another over-the-counter quotation system or on
the "pink sheets," where an investor may find it difficult to dispose of shares
or obtain accurate quotations as to the market value of our Common Stock.  

 

 

 

 

Our Common Stock is considered a “penny stock” and may be difficult to sell.

 

Our Common Stock is considered to be a “penny stock” since it meets one or more
of the definitions in Rule 3a51-1 under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). These include but are not limited to the
following: (i) the stock trades at a price less than $5.00 per share; (ii) it is
not traded on a “recognized” national exchange; (iii) it is not quoted on the
NASDAQ Stock Market, or even if so, has a price less than $5.00 per share; or
(iv) is issued by a company with net tangible assets less than $2.0 million, if
in business more than a continuous three years, or with average revenues of less
than $6.0 million for the past three years. The principal result or effect of
being designated a “penny stock” is that securities broker-dealers cannot
recommend the stock but must trade in it on an unsolicited basis.  Section 15(g)
of the Exchange Act and Rule 15g-2 promulgated thereunder by the SEC require
broker-dealers dealing in penny stocks to provide potential investors with a
document disclosing the risks of penny stocks and to obtain a manually signed
and dated written receipt of the document before effecting any transaction in a
penny stock for the investor’s account.

 

Potential investors in our offering are urged to obtain and read such disclosure
carefully before purchasing any Securities. Moreover, Rule 15g-9 may be somewhat
of an impediment to your sale of the shares of Common Stock underlying the
Securities you may purchase, as it requires broker-dealers in penny stocks to
approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the
broker-dealer to (i) obtain from the investor information concerning his or her
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor’s financial
situation, investment experience and investment objectives.  Compliance with
these requirements may make it more difficult for holders of our common stock to
resell their shares to third parties or to otherwise dispose of them in the
market or otherwise.

 

We may not be able to attract the attention of brokerage firms, which could have
a material adverse impact on the market value of our Common Stock.

 

Security analysts of brokerage firms have not provided, and may not provide in
the future, coverage of our common stock since there is limited incentive to
brokerage firms to produce research reports and recommend the purchase of our
Common Stock. To date, we have not been able to attract the attention of
brokerage firms and securities analysts. The absence of such attention limits
the likelihood that an active market will develop for our common stock. It also
will likely make it more difficult to attract new investors at times when we
require additional capital.

 

 

 

 

The trading price of our Common Stock is volatile, which could cause the value
of an investment in the Company’s securities to decline.

 

The market price of shares of our Common Stock has been volatile. The price of
our Common Stock may continue to fluctuate in response to a number of factors,
such as:

 

·our cash resources and our ability to obtain additional funding;

·announcements by us or a competitor of business developments;

·our entry into or termination of strategic business relationships;

·changes in government regulations; and

·changes in our revenue or expense levels

 

The occurrence of any of these events may cause the price of our Common Stock to
fall. In addition, the stock market in general has experienced volatility that
often has been unrelated to the operating performance or financial condition of
individual companies. Any broad market or industry fluctuations may adversely
affect the trading price of our Common Stock, regardless of operating
performance or prospects.

 

An investment in the Securities is speculative and there can be no assurance of
any return on any such investment.

 

An investment in the Securities is speculative and there is no assurance that
investors will obtain any return on their investment. Investors will be subject
to substantial risks involved in an investment in the Company, including the
risk of losing their entire investment.

 

We have broad discretion on how we use any proceeds we receive from this
Offering.

 

Our management has broad discretion on how to use and spend any proceeds we
receive from this Offering and may use the proceeds in ways that differ from the
proposed uses discussed in this Agreement. Our stockholders may not agree with
our decision on how to use such proceeds. If we fail to spend the proceeds
effectively, our business and financial condition could be harmed and we may
need to seek additional financing sooner than expected.

 

The Securities may be purchased by parties that are related to our Company.

 

Our officers, directors, employees and related parties (including current
shareholders and related parties of shareholders) may purchase Securities in
this Offering and such amounts will be included in determining whether the
Offering Amount has been sold. Because there may be substantial purchases by
affiliates of the Company, no potential investor should place any reliance on
the sale of any amount of the Securities as an indication of the merits of the
Offering. Each investor must make his own investment decision as to the merits
of the Offering.

 

 

 

 

The Note conversion price and the Warrant exercise price were determined by the
Company and may not be indicative of the Company’s actual value or the value of
the Common Stock underlying the Notes or Warrants.

 

The purchase price of the Securities, the conversion price of the Notes and the
exercise price of the Warrants were determined by the Company and took into
account, among other things, previous prices of our Common Stock, our business
and growth plans, and other factors that we deemed relevant. The purchase price
of the Securities, the conversion price of the Notes and the Warrant exercise
price are not necessarily related to the asset value, net worth or any other
established criteria of value of the Company.

 

Investors in this Offering will experience immediate and substantial dilution.

 

The investors in this Offering will experience an immediate and substantial
dilution of their investment. Therefore, the investors in this Offering will
bear a substantial portion of the risk of loss, while control of our Company
will remain in the hands of our Company’s officers, directors and founders.

 

The Securities, Conversion Shares and Warrant Shares will be subject to
restrictions on transfer.

 

The Securities and the securities issuable upon conversion and exercise thereof
have not been registered under the Securities Act, or under the securities laws
of any state, but are being offered and sold in reliance upon exemptions from
registration thereunder, including the exemptions from federal registration
contained in Rule 506 of Regulation D promulgated thereunder and applicable
state laws. As a consequence of the restrictions on subsequent transfer imposed
by these exemptions, the Securities may not subsequently be sold, assigned,
conveyed, pledged, hypothecated or otherwise transferred by the holder thereof,
whether or not for consideration, except upon registration of such securities or
the issuance to us of such evidence as may be satisfactory to counsel for us to
the effect that any such transfer will not be in violation of the Securities
Act, and applicable state securities laws. Investors of the Securities must be
prepared to bear the economic risks of investment for an indefinite period of
time since the Securities cannot be sold unless they are subsequently registered
or an exemption from registration is available, such as afforded pursuant to
Rule 144 of the Securities Act.

 

The Offering has not been reviewed or approved by regulatory agencies.

 

The sale of the Notes and Warrants offered hereby has not been approved or
disapproved by the Commission or any state regulatory agencies, and no
regulatory body has passed upon or endorsed the accuracy, adequacy, or
completeness of the information in this Agreement. Accordingly, prospective
investors must rely on their own examination of the Agreement, including,
without limitation, the merits of, and risks involved in, acquiring the Notes
and Warrants.

 

 

 

 

RISKS RELATED TO THE COMPANY’S PRIOR FINANCING ARRANGEMENTS

 

The purchase price protection features of the Company’s securities issued in
prior private placements could require the Company to issue a substantially
greater number of shares of Common Stock, which will cause dilution to the
Company’s stockholders.

 

In December 2011 the Company completed a private offering of an aggregate of
2,200,000 shares of the Company’s Series A Preferred Stock and warrants (“Series
A Warrants”) to purchase up to 2,200,000 shares of Common Stock (the “2011
Private Placement”). The Series A Preferred Stock is currently convertible into
shares of Common Stock at an initial conversion price of $1.00 per share, or
2,200,000 shares of Common Stock in the aggregate). The warrants are also
currently exercisable at $1.50 per share. If we issue shares of Common Stock or
securities convertible into or exchangeable or exercisable for Common Stock, for
a consideration at a price per share, or having a conversion, exchange or
exercise price per share less than the conversion price of the Series A
Preferred Stock or the exercise price of the Series A Warrants in effect prior
to such sale or issuance, then immediately prior to such sale or issuance the
conversion price of the Series A Preferred Stock and the exercise price of the
Series A Warrants shall be reduced to such other lower price. Based on the
foregoing adjustment provision, upon consummation of this Offering, investors in
the 2011 Private Placement will be entitled to a significant number of
additional shares of Common Stock underlying their Series A Warrants and
reduction of the exercise price of their outstanding Series A Warrants.

 

On October 10, 2012 the Company completed a private offering of an aggregate of
3,099 shares of the Company’s Series B Preferred Stock and warrants (“Series B
Warrants”) to purchase up to 309,900 shares of Common Stock (the “2012 Private
Placement”). The Series B Preferred Stock is currently convertible into shares
of Common Stock at an initial conversion price of $1.50 per share, or 361,550
shares of Common Stock in the aggregate). The warrants are also currently
exercisable at $1.50 per share. If we issue shares of Common Stock or securities
convertible into or exchangeable or exercisable for Common Stock, for a
consideration at a price per share, or having a conversion, exchange or exercise
price per share less than the conversion price of the Series B Preferred Stock
or the exercise price of the Series B Warrants in effect prior to such sale or
issuance, then immediately prior to such sale or issuance the conversion price
of the Series B Preferred Stock and the exercise price of the Series B Warrants
shall be reduced to such other lower price. Based on the foregoing adjustment
provision, upon consummation of this Offering, investors in the 2012 Private
Placement will be entitled to a significant number of additional shares of
Series B Preferred Stock and reduction of the conversion price of the Series B
Preferred Stock and the exercise price of their outstanding Series B Warrants.