EXHIBIT 10.1

 

 

 

 

 

 

 

 

 

 

SECURITIES PURCHASE AGREEMENT

BY AND AMONG

NXT-ID, INC.

AND

THE PURCHASERS PARTY HERETO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Schedules and Exhibits
TO
Securities PURCHASE AGREEMENT

 

Schedule 3.2 Subsidiaries Schedule 3.3.2 Capitalization Matters Schedule 3.4
Authorization; Binding Obligation Schedule 3.6 Absence of Liabilities Schedule
3.8 Changes Schedule 3.9 Title to Properties and Assets; Liens Schedule 3.10.1
Owned Intellectual Property and Licensed Intellectual Property            
Exhibit A Schedule of Purchasers Exhibit B Form of Warrant Exhibit C Funding
Instructions Exhibit D Form of Legal Opinio Exhibit E Form of Registration
Rights Agreement Exhibit F Form of Escrow Agreement

 

 

 

 

 

 

 

 

 

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NXT-ID, INC.

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (the “Agreement”) is entered into as of the
date set forth on the signature page hereto by and among Nxt-ID, Inc., a
Delaware corporation (the “Company”) and the purchasers identified on Exhibit A
on the date hereof (which purchasers are hereinafter collectively referred to as
the “Purchasers” and each individually as, a “Purchaser”).

BACKGROUND

A.          Unless otherwise defined in this Agreement, capitalized terms used
in this Agreement shall have the respective meanings ascribed to such terms in
Section 8.

B.          The Company is offering (the “Offering”) restricted common shares,
par value $0.0001 per share, of the Company (the “Shares”) and warrants (the
“Warrants”) (the Shares and the Warrants collectively referred to herein as the
“Securities”) to a limited number of persons who qualify as “accredited
investors” as defined in Rule 501 of Regulation D promulgated under the
Securities Act at a purchase price for the Shares and/or the Warrants as
described below, pursuant to the terms set forth in the Company’s Confidential
Private Placement Memorandum, dated December 26, 2013, as may be amended and/or
supplemented, from time to time (collectively, the “Memorandum”).

 

C.          The Securities are being offered on a “best efforts” basis with
respect to the minimum of $250,000 (the “Minimum Offering Amount”), which the
Minimum Offering Amount has already been met, and thereafter on a “best efforts”
basis up to the maximum of $1,000,000 (the “Maximum Offering Amount”). The
foregoing does not include the over-allotment option if the Offering is
oversubscribed. In such event, the Company reserves the option to increase the
raise up to fifty (50%) percent, resulting in a total raise of $1,500,000 (the
“Over-Allotment Option”), before expenses.

 

D.          The purchase price of the Shares shall be ninety (90%) percent of
the five (5) day average closing bid price prior to closing, with a maximum
Purchase Price of $3.25 (the “Purchase Price”). The Warrants shall have a five
(5) year life with a strike price equal to the Purchase Price (the “Exercise
Price”), which may be exercised cashless if the underlying shares are not
registered after nine (9) months from final Closing (“closing” is defined
below).

 

E.          The Company desires to issue and sell the Securities to each
Purchaser in one or more closings (each a “Closing” and collectively the
“Closings”) as set forth herein.

NOW, THEREFORE, in consideration of the representations, warranties, covenants
and agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties, intending
to be legally bound, hereby agree as follows:

1.             AGREEMENT TO SELL AND PURCHASE.

1.1          Authorization of Securities. The Board of Directors of the Company
has authorized (i) the sale of up to 500,000 Shares; (ii) the sale of up to one
million five hundred thousand (1,500,000) Warrants (on a pro-rated basis); and
(iii) the reservation of 1,000,000 restricted common shares to be issued upon
exercise of the Warrants (the “Warrant Shares”).

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1.2          Initial Sale and Purchase of Securities. Subject to the terms and
conditions hereof, and in reliance upon the representations, warranties and
covenants contained herein, at the Initial Closing, the Company shall issue and
sell to each Purchaser, and each Purchaser shall purchase from the Company, the
number of Securities set forth opposite such Purchaser’s name on Exhibit A under
the “Initial Securities” column. The purchase price for the Shares shall be
ninety (90%) percent of the five (5) day average closing bid price prior to
closing, with a maximum Purchase Price of $3.25, and the Warrants shall have a
five (5) year life with a strike price of $[x.xx] which may be exercised
cashless if the underlying shares are not registered after nine (9) months from
final Closing (subject to appropriate and proportionate adjustment for stock
dividends payable in shares of, forward or reverse stock splits and other
subdivisions and combinations of, and recapitalizations and like occurrences
with respect to, the Shares, the “Per Securities Purchase Price”). The minimum
purchase price by each Purchaser is $50,000, unless the Company and the
Placement Agent agree, in their mutual discretion, to allow a Purchaser to
purchase partial Securities.

1.3          Subsequent Sales and Purchases of Shares. Subject to the terms and
conditions hereof, and in reliance upon the representations, warranties and
covenants contained herein, at each Subsequent Closing, the Company shall issue
and sell to each Purchaser who is identified as a “Subsequent Closing Purchaser”
on Exhibit A, which shall be deemed amended at each such subsequent Closing to
add each such additional Purchaser (each, a “Subsequent Closing Purchaser”), and
each Subsequent Closing Purchaser shall purchase from the Company, the number of
Securities set forth opposite such Purchaser’s name on Exhibit A at the Per
Securities Purchase Price.

1.4          Issuance of Warrants. The Warrant shall be in form and substance
substantially the same as the form of Warrant in Exhibit B.

2.             CLOSINGS, DELIVERY AND PAYMENT.

2.1          Initial Closing. Subject to the conditions set forth in Section 5
herein, the initial closing of the sale and purchase of the Securities (the
“Initial Closing”), shall take place electronically on such date and at such
time as is agreed between the Company and the Placement Agent (such date the
“Initial Closing Date”), in no event later than December 30, 2013 (the
“Termination Date”). Subject to the foregoing, at the Initial Closing, the
Company may sell up to a maximum of 1,330,000 Shares and Warrants, excluding the
Over-Allotment Option. The Securities sold at the Initial Closing are sometimes
referred to herein as “Initial Securities.”

2.2          Subsequent Closings. Subject to the conditions set forth in Section
5, each Subsequent Closing shall take place electronically on such date and at
such time as is agreed between the Company and the Placement Agent (such date
the “Subsequent Closing Date”), in no event later than January 31, 2014 (the
“Final Termination Date”). The Securities sold at the Subsequent Closings are
sometimes referred to herein as “Subsequent Securities.”

2.3          Delivery; Payment. At each Closing, subject to the terms and
conditions hereof, the Purchasers will deliver the full amount of the Purchase
Price in cash by wire transfer of immediately available funds in accordance with
instructions attached hereto as Exhibit C, or as the Company shall otherwise
direct and the Company will deliver instructions to its transfer agent
authorizing the issuance of the Shares and/or Warrant included in the Securities
purchased by such Purchaser or Subsequent Closing Purchaser, as the case may be,
at such Closing and each registered in such Purchaser’s name to purchase such
number of Warrant Shares included in the Warrants purchased by such Purchaser or
Subsequent Closing Purchaser, as the case may be, at such Closing. Within five
(5) business days following any Closing the Company will deliver, unless
otherwise requested by any Purchaser, one (1) certificate registered in such
Purchaser’s name representing the Shares included in the Securities purchased by
such Purchaser at such Closing and the Warrants included in the Securities
purchased by such Purchaser at such Closing. The Company and the Placement
Agent, in their mutual discretion, may allow a Purchaser to purchase partial
Securities, in which case the Purchaser shall receive a certificate representing
the appropriate number of Shares included in such partial Securities and/or a
Warrant for the appropriate number of Warrant Shares.

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3.          REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The Company represents and warrants to each of the Purchasers that the
statements made in this Section 3, except as qualified in the disclosure
schedules referenced herein and attached hereto (the “Schedules”), are true and
correct on the date hereof, as of the Initial Closing and shall be true and
correct as of each Subsequent Closing, except as qualified by any updated
Schedules delivered at the Subsequent Closing in accordance with Section 5.1.1
herein, all of which qualifications in the Schedules attached hereto and updated
Schedules delivered at the Subsequent Closing shall be deemed to be
representations and warranties as if made hereunder. The Schedules shall be
arranged to correspond to the numbered paragraphs contained in this Section 3.
For the avoidance of doubt, information disclosed in one section of the Schedule
shall not be deemed disclosed in any other section of the Schedule unless there
is an explicit cross reference to such other section. For purposes of this
Section 3, “knowledge” shall mean the personal knowledge of any of the Company’s
officers or directors or what they would have known upon having made reasonable
inquiry.

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

3.2          Subsidiaries. Schedule 3.2 contains a true and complete list of
each of the Company’s Subsidiaries and their respective jurisdictions of
organization. Except as set forth on Schedule 3.2, no entity owns or controls
any ownership interest or profits interest in any other corporation, limited
liability company, limited partnership or other entity. The Company owns and
controls as to all matters 100% of the outstanding ownership and profits
interests in each Subsidiary listed on Schedule 3.2. Except as set forth on
Schedule 3.2, no entity is a participant in any joint venture, partnership or
similar arrangement.

3.3          Capitalization Matters.

 

3.3.1.          Immediately prior to the Initial Closing and any Subsequent
Closing, if and as applicable, the total authorized capital stock of the
Company, consists of: (a) 100,000,000 shares of common stock; and (b) 10,000,000
shares of preferred stock, of which none are issued and outstanding.

 

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3.3.2.          Immediately prior to the Initial Closing and any Subsequent
Closing, if and as applicable, the authorized, issued and outstanding capital
stock of the Company is, as set forth on Schedule 3.3.2 and all issued and
outstanding shares of capital stock of the Company (a) have been duly authorized
and validly issued, (b) are fully paid and nonassessable, and (c) were, in all
material respects, issued in compliance with all applicable state and federal
laws concerning the issuance of securities. Except as set forth on Schedule
3.3.2, (i) there are no outstanding securities of the Company which contain any
preemptive, redemption or similar provisions, nor is any holder of securities of
the Company entitled to preemptive or similar rights arising out of any
agreement or understanding with the Company by virtue of any of the Transaction
Documents, and there are no contracts, commitments, understandings or
arrangements by which the Company is or may become bound to redeem a Securities
of the Company (ii) the Company does not have any stock appreciation rights or
"phantom stock" plans or agreements or any similar plan or agreement; and (iii)
except as set forth on Schedule 3.3.2, there are no outstanding options,
warrants, agreements, convertible securities, preemptive rights or other rights
to subscribe for or to purchase or acquire, any shares of capital stock of the
Company or contracts, commitments, understandings, or arrangements by which the
Company is or may become bound to issue any shares of capital stock of the
Company, or securities or rights convertible or exchangeable into shares of
capital stock of the Company. Except as required by law, including any federal
securities rules and regulations, there are no restrictions upon the voting or
transfer of any of the shares of capital stock of the Company pursuant to its
Organizational Documents or other governing documents or any agreement or other
instruments to which the Company is a party or by which it is bound. The
issuance and sale of the Securities as contemplated hereby will not obligate the
Company to issue shares of common stock or other securities to any other person
(other than the Purchaser) and will not result in the adjustment of the
exercise, conversion, exchange or reset price of any outstanding Securities.
There are no proxies, stockholder agreements, or any other agreements between
the Company and any securityholder of the Company or, to the knowledge of the
Company, among any securityholders of the Company, including agreements relating
to the voting, transfer, redemption or repurchase of any securities of the
Company. The Company does not have any outstanding shareholder purchase rights
or “poison pill” or any similar arrangement in effect giving any person the
right to purchase any equity interest in the Company upon the occurrence of
certain events.

 

3.3.3.          The Shares and Warrants are duly authorized and, when issued and
paid for in accordance with the applicable Transaction Documents, will be duly
and validly issued, fully paid and nonassessable, free and clear of all
Encumbrances other than restrictions on transfer provided for in the Transaction
Documents. The Warrant Shares, when issued and paid for in accordance with the
terms of the Warrants, will be validly issued, fully paid and nonassessable,
free and clear of all Encumbrances imposed by the Company other than
restrictions on transfer provided for in the Transaction Documents. The Company
has reserved a sufficient number of shares for issuance of the Shares and
Warrant Shares, free and clear of all Encumbrances, except for restrictions on
transfer set forth in the Transaction Documents or imposed by applicable
securities laws.

3.4          Authorization; Binding Obligations. All actions by or on behalf of
the Company necessary for the authorization of this Agreement and the other
Transaction Documents, the performance of all obligations of the Company
hereunder and thereunder at each Closing and the authorization, sale, issuance
and delivery of the Securities pursuant hereto have been taken. This Agreement
(assuming due execution and delivery by the Purchasers) and the other
Transaction Documents (assuming due execution and delivery by all other parties
thereto), when executed and delivered, will be valid and binding obligations of
the Company and enforceable against it in each case in accordance with its
respective terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors’ rights, (b) general principles of equity that restrict
the availability of equitable remedies, and (c) to the extent that the
enforceability of the indemnification provisions of Section 6.16 may be limited
by applicable law. Except as set forth on Schedule 3.4, the execution, delivery
and performance of, and the consummation of the transactions contemplated by,
this Agreement and the other Transaction Documents, including without limitation
the sale, issuance and delivery of the Securities, have not resulted and will
not result in (x) any violation of, or default under, or conflict with, or
constitute, with or without the passage of time or the giving of notice or both,
any violation of, or default under, or give rise to any right of termination,
cancellation or acceleration under (i) any term or provision of (A) the
Organizational Documents of the Company, (B) any Contract, agreement,
instrument, arrangement or understanding of the Company, or (C) any Order to
which the Company is a party or by which any of them or any of their respective
properties or assets are bound or (ii) any Requirement of Law applicable to the
Company or any of their respective properties or assets or (y) the creation of
any Encumbrance upon any of the properties or assets of the Company.

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3.5          Early Stage Company Status; SEC Reports; Financial Statements. The
Company was incorporated on February 8, 2012. The Company has filed all reports
required to be filed by it under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), in accordance with Section 13 thereof, since it became a
publicly reporting company (the foregoing materials, including the exhibits
thereto and documents incorporated by reference therein being collectively
referred to herein as the “SEC Reports”) on a timely basis or has timely filed a
valid extension of such time of filing and has filed any such SEC Reports prior
to the expiration of any such extension. As of their respective dates, the SEC
Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the SEC
promulgated thereunder, and none of the SEC Reports, when filed, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Reports (the “Financial
Statements”) comply in all material respects with applicable accounting
requirements and the rules and regulations of the SEC with respect thereto as in
effect at the time of filing. Such financial statements have been prepared in
accordance with United States generally accepted accounting principles (“GAAP”)
applied on a consistent basis during the periods involved, except as may be
otherwise specified in such financial statements or the footnotes thereto, and
fairly present in all material respects the financial position of the Company as
of and for the dates thereof and the results of operations and cash flows for
the periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments. There is no transaction, arrangement, or
other relationship between the Company and an unconsolidated or other off
balance sheet entity that is not disclosed in its financial statements that
should be disclosed in accordance with GAAP and that would be reasonably likely
to have a Material Adverse Effect.

3.6          Absence of Liabilities. Except as set forth on Schedule 3.6, the
Company does not have any Liabilities that are not reflected or disclosed in the
audited financial statements of the Company for the year ended December 31, 2012
or the unaudited financial statements of the Company for the quarter ended
September 30, 2013. The Company is not a guarantor or indemnitor of any
Liability of any other Person. Except for operating leases for personal or real
property entered into in the ordinary course of business which do not require
payments of more than $50,000 in the aggregate during any fiscal year, the
Company has not issued any instruments, entered into any agreements, commitments
or arrangements or incurred any obligations that would have, or would reasonably
be expected to have, the effect of providing the Company with “off balance
sheet” financing.

3.7          Compliance with Laws. The Company is not in violation of, or in
default under, any Requirement of Law applicable to the Company, or any Order
issued or pending against the Company or by which the Company or any of the
Company’s properties are bound, except for such violations or defaults that have
not had, and could not reasonably be expected to have, a Material Adverse
Effect.

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3.8          Changes. Except as set forth on Schedule 3.8, since September 30,
2013 there has not been:

3.8.1.          any effect, event, condition or circumstance (including, without
limitation, the initiation of any litigation or other legal, regulatory or
investigative proceeding) against the Company that individually or in the
aggregate, with or without the passage of time, the giving of notice, or both,
has had or could reasonably be expected to have a Material Adverse Effect;

3.8.2.          any resignation or termination of any director, officer or key
employee of the Company, and the Company has not received notification of any
impending resignation from any such Person;

3.8.3.          any material change in the contingent obligations of the Company
by way of guaranty, endorsement, indemnity, warranty or otherwise;

3.8.4.          any material damage, destruction or loss adversely affecting the
assets, properties, business, financial condition or prospects of the Company,
whether or not covered by insurance;

3.8.5.          any development, event, change, condition or circumstance that
constitutes, whether with or without the passage o time or the giving of notice
or both, a default under the Company’s outstanding debt obligation; or

3.8.6.          any change in any compensation arrangement or agreement with any
employee, consultant, officer, director or stockholder of the Company that would
increase the cost of any such agreement or arrangement to the Company by more
than $10,000 in each instance;

3.8.7.          any labor organization activity of the employees of the Company;

3.8.8.          any declaration or payment of any dividend or other distribution
of the assets of the Company;

3.8.9.          any change in the accounting methods or practices followed by
the Company; or

3.8.10.        any Contract or commitment made by the Company to do any of the
foregoing.

3.9          Title to Properties and Assets; Liens, etc. Except as set forth on
Schedule 3.9, the Company has good and marketable title to the properties and
assets it owns, and the Company has a valid license in all properties and assets
licensed by it, including the properties and assets reflected as owned in the
most recent balance sheet included in the Financial Statements, and has a valid
leasehold interest in its leasehold estates. All facilities, machinery,
equipment, fixtures, vehicles and other properties owned, leased or used by the
Company are in good operating condition and repair, ordinary wear and tear
excepted and are fit and usable for the purposes for which they are being used.
Except as set forth on Schedule 3.9, the Company is in compliance with all terms
of each lease to which it is a party or is otherwise bound.

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3.10         Intellectual Property.

3.10.1.          All registrations and applications for registration of all
Owned Intellectual Property and all Licensed Intellectual Property
(collectively, the “Company Intellectual Property ”) and applications in process
for the Owned Intellectual Property and the Licensed Intellectual Property are
licensed any Intellectual Property to or from any Person. All of the
registrations and applications for registration of the Company Intellectual
Property are valid, subsisting and in full force and effect, and all actions and
payments necessary for the maintenance and continuation of such Company
Intellectual Property have been taken or paid. The Company owns or possesses
sufficient legal rights to use all of the Company Intellectual Property

3.10.2.          To the knowledge of the Company, the business as currently
conducted and as proposed to be conducted by the Company has not and will not
constitute any infringement of the Intellectual Property rights of any other
Person. To the knowledge of the Company, the development of Product candidates
and the use, manufacture or sale of the Company’s Products based on the Company
Intellectual Property does not, and will not, infringe the Intellectual Property
rights of any third Person. To the knowledge of the Company, no employee or
agents of the Company has misappropriated the Intellectual Property rights of
any Person.

3.10.3.          There are no outstanding options or other rights to acquire any
Company Intellectual Property. To the knowledge of the Company, each licensor of
the Licensed Intellectual Property is the sole and exclusive owner of such
Licensed Intellectual Property and has the sole and exclusive right and
authority to grant licenses to such Licensed Intellectual Property.

3.10.4.          The Company has not received any communications alleging or
suggesting that it has violated or, by conducting its business as currently
conducted or proposed to be conducted, would infringe or misappropriate any of
the Intellectual Property rights of any other Person.

3.10.5.          It is not necessary to the business of the Company, as
currently conducted or as proposed to be conducted, to utilize any inventions,
trade secrets or proprietary information of any of its employees, agents,
developers, consultants or contractors made prior to their employment by or
service to the Company, except for inventions, trade secrets or proprietary
information that have been assigned or licensed to the Company.

 

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3.10.6.          Since the date of the Company’s incorporation, there has not
been any sale, assignment or transfer of any Company Intellectual Property or
other intangible assets of the Company.

3.10.7.          No Company Intellectual Property is subject to any
interference, reissue, reexamination, opposition or cancellation proceeding or
any other Legal Proceeding or subject to or otherwise bound by any outstanding
Order or Contract (other than in the case of any Licensed Intellectual Property,
the Contract pursuant to which the Company licenses the rights to such Licensed
Intellectual Property) that restricts in any manner the use, transfer or
licensing thereof by the Company or may affect the validity, use or
enforceability of such Company Intellectual Property . The Company does not have
any knowledge of any fact or circumstance that would render any portion of the
Company Intellectual Property invalid or unenforceable.

 

3.10.8.          The Company has the right to: (a) bring actions for past,
present and future infringement, dilution, misappropriation or unauthorized use
of the Company Intellectual Property owned or licensed by the Company, injury to
goodwill associated with the use of the Company Intellectual Property, unfair
competition or trade practices violations of and other violation of the Company
Intellectual Property; and (b) with respect to the Company Intellectual Property
owned exclusively by the Company, receive all proceeds from the foregoing set
forth in subsection (a) hereof, including, without limitation, licenses,
royalties income, payments, claims, damages and proceeds of suit.

 

3.10.9.          The execution and delivery of this Agreement and the other
Transaction Documents and consummation of the transactions contemplated hereby
and thereby will not result in the breach of, or create on behalf of any third
party the right to terminate or modify, any license, sublicense, agreement or
permission: (a) relating to or affecting any Company Intellectual Property; or
(b) pursuant to which the Company is granted a license or otherwise authorized
to use any third party Intellectual Property.

 

3.10.10.         To the knowledge of the Company, no Person is infringing,
violating, misappropriating or making unauthorized use of any of the Company
Intellectual Property.

3.11          Compliance with Other Instruments. Except as set forth on Schedule
3.11, the Company is not in violation or default of any term of its
Organizational Documents or its Bylaws, respectively (in each case, as amended
to date), or of any provision of any Contract to which it is party or by which
it is bound or of any Order applicable to the Company, except for violations or
defaults of any Contract, which individually or in the aggregate has not had, or
would not reasonably be expected to have, a Material Adverse Effect.

3.12          Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened against the Company or any investigation of
the Company, nor is the Company aware of any fact that would make any of the
foregoing reasonably likely to arise. The Company is not a party or subject to
the provisions of any Order. There is no Legal Proceeding by the Company
currently pending or that the Company intends to initiate.

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3.13          Tax Returns and Payments.

3.13.1.          Except as set forth on Schedule 3.13.1, the Company has filed
all Tax Returns required to be filed by it, and the Company has timely paid all
Taxes owed (whether or not shown on any Tax Return). All such Tax Returns were
complete and correct, and such Tax Returns correctly reflected the facts
regarding the income, business, assets, operations, activities, status and other
matters of the Company and any other information required to be shown thereon.
The Company has withheld and paid all Taxes required to have been withheld and
paid in connection with amounts paid or owing to any Employee, creditor,
independent contractor, shareholder, member or other third party. The Company
has established adequate reserves for all Taxes accrued but not yet payable. The
Company has not been audited by nor have issues been raised or adjustments made
or proposed by any tax authority in connection with any such Taxes or Tax
Returns. No deficiency assessment with respect to or proposed adjustment of the
Company’s Taxes is pending or, to the knowledge of the Company, threatened.
There is no tax lien (other than for current Taxes not yet due and payable),
imposed by any taxing authority, outstanding against the assets, properties or
the business of the Company.

3.13.2.          The Company has not agreed to make any adjustment under Section
481(a) of the Internal Revenue Code of 1986, as amended (the “Code”) (or any
corresponding provision of state, local or foreign tax law) by reason of a
change in accounting method or otherwise, and the Company will not be required
to make any such adjustment as a result of the transactions contemplated by this
Agreement. The Company has not been nor is a party to any tax sharing or similar
agreement. The Company is not nor has ever been a party to any joint venture,
partnership, limited liability company, or other arrangement or Contract which
could be treated as a partnership for federal income tax purposes. The Company
is not nor has ever been a “United States real property holding corporation” as
that term is defined in Section 897 of the Code.

3.14          Employees.

3.14.1.          All of the employees of the Company (the “Employees”) are
identified, by the Company, on Schedule 3.14.1. Except as set forth on Schedule
3.14.1, (a) The Company has not, nor has ever had any, collective bargaining
agreements with any of its employees; (b) there is no labor union organizing
activity pending or, to the knowledge of the Company, threatened with respect to
the Company; (c) no employee has or is subject to any agreement or Contract to
which the Company is a party (including, without limitation, licenses, covenants
or commitments of any nature) regarding his or her employment or engagement; (d)
to the best of the Company’s knowledge, no employee is subject to any Order that
would interfere with his or her duties to the Company or that would conflict
with the Company’s businesses as currently conducted and as proposed to be
conducted; (e) no employee is in violation of any term of any employment
contract, proprietary information agreement or any other agreement relating to
the right of any such Person to be employed by, or to contract with, the
Company; (f) to the best of the Company’s knowledge, the continued employment by
the Company of its present employees, and the performance of their respective
duties to the Company, will not result in any violation of any term of any
employment contract, proprietary information agreement or any other agreement
relating to the right of any such individual to be employed by, or to contract
with, the Company, and the Company has not received any written notice alleging
that such violation has occurred; (g) no Employee or consultant has been granted
the right to continued employment by or service to the Company or to any
compensation following termination of employment with or service to the Company;
and (h) the Company does not have any present intention to terminate the
employment or engagement or service of any officer or any significant employee
or consultant.

9

 

3.14.2.          There are no outstanding or, to the knowledge of the Company,
threatened claims against the Company or any Affiliate (whether under federal or
state law, under any employment agreement, or otherwise) asserted by any present
or former employee or consultant of the Company. The Company is not in violation
of any law or Requirement of Law concerning immigration or the employment of
persons other than U.S. citizens.

3.15          Pension and Other Employee Benefit Plans.

3.15.1.          Schedule 3.15.1 sets forth all of the plans, funds, policies,
programs and arrangements sponsored or maintained by the Company on behalf of
any employee or former employee of the Company (or any dependent or beneficiary
of any such Employee or former employee) with respect to (a) deferred
compensation or retirement benefits; (b) severance or separation from service
benefits (other than those required by law); (c) incentive, performance, stock,
share appreciation or bonus awards; (d) health care benefits; (e) disability
income or wage continuation benefits; (f) supplemental unemployment benefits;
(g) life insurance, death or survivor’s benefits; (h) accrued sick pay or
vacation pay; or (i) any other material benefit offered under any arrangement
constituting an “employee benefit plan” within the meaning of Section 3(3) of
the Employee Retirement Income Securities Act of 1974, as amended (“ERISA”) and
not excepted by Section 4 of ERISA (the foregoing being collectively called
“Employee Benefit Plans”). Schedule 3.15.1 sets forth all such Employee Benefit
Plans subject to the provisions of Section 412 of the Code as well as any
“multi-employer plans” within the meaning of Section 3(37) of ERISA or Section
4001(a)(3) of ERISA. The transactions contemplated by this Agreement will not
result in any payment or series of payments by the Purchasers or the Company of
an “excess parachute payment” within the meaning of Section 280G of the Code or
any other severance, bonus or other payment on account of such transactions.
None of the Employee Benefit Plans is under investigation or audit by the United
States Department of Labor, the Internal Revenue Service or any other
Governmental or Regulatory Authority.

3.15.2.          The Company has complied with its obligations under all
applicable Requirements of Law including, without limitation, of ERISA and the
Code with respect to such Employee Benefit Plans and all other arrangements that
provide compensation or benefits to any Employee and the terms thereof, whether
or not such person is directly employed by the Company and there are no pending
or, to the knowledge of the Company, threatened actions or claims for benefits
by any Employee, other than routine claims for benefits in the ordinary course
of business. No Employee Benefit Plan provides any benefits to any former
employees.

3.15.3.          All Employee Benefit Plans that are intended to meet the
requirements of Section 401(a) of the Code have been determined by the Internal
Revenue Service to meet such requirements and have at all times operated in
compliance with such requirements.

3.15.4.          All employment Taxes, premiums for employee benefits provided
through insurance, contributions to Employee Benefit Plans, and all other
compensation and benefits to which employees are entitled, have been timely paid
or provided as applicable, and there is no liability for any such payments,
contributions or premiums.

 

10

 

 

3.16          Real Property. The Company does not have any interest in any real
estate, except that the Company leases the properties described on Schedule 3.16
(the “Leased Real Property”). The Leased Real Property is adequate for the
operations of the Company’s businesses as currently conducted and as
contemplated to be conducted. True and complete copies of the lease agreements
(the “Real Property Leases”) pertaining to the Leased Real Property have been
delivered or made available to the Purchasers. The Company has paid all amounts
due from it, and is not in default under any of the Real Property Leases and
there exists no condition or event, which, with the passage of time, giving of
notice or both, would reasonably be expected to give rise to a default under or
breach of the Real Property Leases.

 

3.17          Relationships with Collaborators and Suppliers.

3.17.1       Collaborators. Set forth on Schedule 3.17.1 is a list, by the
Company, of the material collaborators, research partners and other material
service providers of the Company. For the purposes of this Section “material
collaborators” means scientific research collaborators who work with the Company
and whose work is expected to impact the development of the Company Intellectual
Property and/or the Products, and includes, without limitation, any Person to
whom the Company has licensed any of the Company Intellectual Property
(collectively, the “Collaborators”). To the best of the Company’s knowledge, the
Company maintains good working relationships with all of the Collaborators. The
Company has delivered or made available to the Purchasers a list of the
Company’s Contracts with the Collaborators as set forth on Schedule 3.17.1.
Except as set forth on Schedule 3.17.1, none of such Collaborators has
terminated or indicated an intention or plan or, to the knowledge of the
Company, threatened to terminate its Contract with the Company, or to materially
reduce the purchases of products or services from the Company historically made
by such Collaborator.

3.17.2       Suppliers. Set forth on Schedule 3.17.2 is a list of the material
suppliers of the Company. For the purposes of this Section, “material suppliers”
means suppliers who provide an essential and material element necessary for the
research and development of the Company Intellectual Property or required for
the Products (collectively, the “Suppliers”). Except as set forth on Schedule
3.17.2, none of such Suppliers has terminated or indicated an intention or plan
or, to the knowledge of the Company, threatened to terminate its Contract with
the Company, or to materially reduce the supply of products or services to the
Company historically provided by such Supplier.

3.18          Budget. The Company’s budget most recently delivered by the
Company to the Purchasers (the “Budget”) was prepared in good faith by the
Company, and, based on the Company's experience and the assumptions used in
preparing such Budget, constitutes a reasonable estimate of the costs and
expenses expected to be incurred by the Company during the time period covered
thereby. Nothing has come to the attention of the Company’s management that
would cause such estimated expenses to no longer be reasonable estimates. The
assumptions used in the preparation of such estimated expenses were fair and
reasonable when made and continue to be fair and reasonable as of the date
hereof.

3.19          Permits; Regulatory.

3.19.1       No Regulatory Approval or Consent of, or any designation,
declaration or filing with, any Governmental or Regulatory Authority or any
other Person is required in connection with the valid execution, delivery and
performance of this Agreement and the other Transaction Documents (including,
without limitation, the issuance of the Securities), except such Regulatory
Approvals, Consents, designations, declarations or filings that have been duly
and validly obtained or filed, or with respect to any filings that must be made
after the Initial Closing or the Subsequent Closing as will be filed in a timely
manner. The Company has all franchises, Permits, licenses and any similar
authority necessary for the conduct of its business as now being conducted.

11

 

3.19.2       There are no feasibility, preclinical, clinical or other studies,
tests or trials being conducted by or on behalf of or sponsored by the Company
or in which the Company or any of its Products is participating. The
feasibility, preclinical, clinical and other studies, tests and trials conducted
by or on behalf of or sponsored by the Company or in which the Company or any of
the Company’s Products have participated were conducted in accordance with
standard medical and scientific research procedures, the protocols established
and approved therefor and all applicable Requirements of Law. The Company has no
knowledge of any other studies or tests the results of which are inconsistent
with or otherwise call into question the results of the above referenced studies
and tests.

3.20          Environmental and Safety Laws. The Company has not caused or
allowed, or contracted with any party for, the generation, use, transportation,
treatment, storage or disposal of any Hazardous Substances in connection with
the operation of its business or otherwise, except in compliance with all
applicable Environmental Laws. To the best of the Company’s knowledge, the
Company and the operation of its business are in compliance with all applicable
Environmental Laws. To the best of the Company’s knowledge, all of the Leased
Real Property and all other real property which the Company occupies (the
“Premises”) is in compliance with all applicable Environmental Laws and Orders
or directives of any Governmental or Regulatory Authority having jurisdiction
under such Environmental Laws, including, without limitation, any Environmental
Laws or Orders or directives with respect to any cleanup or remediation of any
release or threat of release of Hazardous Substances. The Company and the
operation of its business is and has been in compliance with all applicable
Environmental Laws. To the knowledge of the Company, there have occurred no and
there are no events, conditions, circumstances, activities, practices,
incidents, or actions that may give rise to any common law or statutory
liability, or otherwise form the basis of any Legal Proceeding, any Order, any
remedial or responsive action, or any investigation or study involving or
relating to the Company, based upon or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge, release or threatened release into the environment, of any
pollutants, contaminants, chemicals, or industrial, toxic or Hazardous
Substance. To the knowledge of the Company, (a) there is no asbestos contained
in or forming a part of any building, structure or improvement comprising a part
of any of the Leased Real Property, (b) there are no polychlorinated byphenyls
(PCBs) present, in use or stored on any of the Leased Real Property, and (c) no
radon gas or the presence of radioactive decay products of radon are present on,
or underground at any of the Leased Real Property at levels beyond the minimum
safe levels for such gas or products prescribed by applicable Environmental
Laws. The Company has obtained and is maintaining in full force and effect all
necessary Permits, licenses and approvals required by all Environmental Laws
applicable to the Premises and the business operations conducted thereon, and is
in compliance with all such Permits, licenses and approvals. The Company has not
caused or allowed a release, or a threat of release, of any Hazardous Substance
onto, at or near the Premises, and, to the knowledge of the Company, neither the
Premises nor any property at or near the Premises has ever been subject to a
release, or a threat of release, of any Hazardous Substance.

12

 

3.21          Offering Valid. Assuming the accuracy of the representations and
warranties of the Purchasers contained in the subscription agreements entered
into by each Purchaser in connection with this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the “Securities Act”), and will be
exempt from registration and qualification under applicable state securities
laws.

3.22          Full Disclosure. All information furnished, to be furnished or
caused to be furnished to the Purchasers with respect to the Company, any of the
Company’s businesses, assets, properties, financial position and performance and
Liabilities applicable for the purposes of or in connection with this Agreement
or any of the other Transaction Documents or any of the transactions
contemplated hereby or thereby is or, if furnished after the date of this
Agreement and before the applicable Closing Date, shall be true and complete in
all material respects and, does not, and if furnished after the date of this
Agreement and before such applicable Closing Date, shall not, contain any untrue
statement of material fact or fail to state any material fact necessary to make
such statement not misleading.

3.23          Minutes. A copy of all minutes of all meetings of directors and
stockholders and all actions by written consent without a meeting by the
directors and stockholders since February 2012, has been made available to the
Purchasers in a virtual data room and accurately reflect all actions taken by
the directors (and any committee of the directors) and stockholders with respect
to all transactions referred to in such minutes.

3.24          Insurance. Schedule 3.24 sets forth a list of all policies or
binders of fire, casualty, liability, product liability, worker’s compensation,
vehicular or other insurance held by the Company concerning its assets and/or
its businesses (specifying for each such insurance policy the insurer, the
policy number or covering note number with respect to binders, and each pending
claim thereunder of more than $5,000) have been made available to the Purchasers
in a virtual data room. Such policies and binders are valid and in full force
and effect. The Company is not in default with respect to any provision
contained in any such policy or binder or has failed to give any notice or
present any claim of which it has notice under any such policy or binder in a
timely fashion. The Company has not received or given a notice of cancellation
or non-renewal with respect to any such policy or binder. None of the
applications for such policies or binders contain any material inaccuracy, and
all premiums for such policies and binders have been paid when due. The Company
does not have knowledge of any state of facts or the occurrence of any event
that could reasonably be expected to form the basis for any claim against it not
fully covered by the policies referred to on Schedule 3.24. The Company has not
received written notice from any of their respective insurance carriers that any
insurance premiums will be materially increased after the applicable Closing
Date or that any insurance coverage listed on Schedule 3.24 will not be
available after such Closing Date on substantially the same terms as now in
effect.

3.25          Investment Company Act. The Company is not an “investment
company”, or a company “controlled” by an “investment company”, within the
meaning of the Investment Company Act of 1940, as amended.

3.26          Foreign Payments; Undisclosed Contract Terms.

3.26.1.       To the knowledge of the Company, the Company has not made any
offer, payment, promise to pay or authorization for the payment of money or an
offer, gift, promise to give, or authorization for the giving of anything of
value to any Person in violation of the Foreign Corrupt Practices Act of 1977,
as amended and the rules and regulations promulgated thereunder.

 

13

 

3.26.2.       To the knowledge of the Company, there are no understandings,
arrangements, agreements, provisions, conditions or terms relating to, and there
have been no payments made to any Person in connection with any agreement,
Contract, commitment, lease or other contractual undertaking of the Company
which are not expressly set forth in such contractual undertaking.

 

3.27          No Broker. Other than as disclosed on Schedule 3.27, the Company
has not employed any broker or finder, or incurred any liability for any
brokerage or finder’s fees in connection with the sale of the Securities, or the
Shares and Warrants underlying the Securities pursuant to this Agreement or the
other Transaction Documents.

3.28          No General Solicitation. Neither the Company nor any of its
Affiliates, nor any person acting on 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
or in any other offering of the Company within the last three years.

3.29          No Integrated Offering. Neither the Company nor any of its
affiliates, nor any person acting on their behalf has, directly or indirectly,
made any offers or sales of any Securities or solicited any offers to buy any
Securities, under circumstances that would require registration of any of the
Securities under the Securities Act or that is likely to cause this offering of
the Securities to be integrated with prior or contemporaneous offerings by the
Company for purposes of the Securities Act or any applicable shareholder
approval provisions. Neither the Company nor any of its affiliates, nor any
person acting on their behalf has taken any action or steps referred to in the
preceding sentence that would require registration of any of the Securities
under the Securities Act or cause the offering of the Securities to be
integrated with other offerings. Neither the Company nor any of its affiliates,
nor any person acting on their behalf has taken any action or steps referred to
in the preceding sentence that would require registration of any of the
Securities under the Securities Act.

3.30          Dilution. Except for the anti-dilution rights described on
Schedule 3.30, no holder of any common stock or Common Stock Equivalents of the
Company has any anti-dilution rights. 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 Company’s Board of Directors 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 Warrant Shares 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.

 

3.31          Maintenance Requirements. The common stock is registered pursuant
to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no
action designed to, or which to its knowledge is likely to have the effect of,
terminating the registration of the common stock under the Exchange Act nor has
the Company received any notification that the SEC is contemplating terminating
such registration.

3.32          OFAC. The Company, to the Company’s knowledge, any director,
officer, agent, employee, Affiliate or person acting on behalf of the Company,
is not currently subject to any U.S. sanctions administered by the Office of
Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and the Company
will not directly or indirectly use the proceeds of the sale of the Securities,
or lend, contribute or otherwise make available such proceeds to any joint
venture partner or other person or entity, towards any sales or operations in
Cuba, Iran, Syria, Sudan, Myanmar or any other country sanctioned by OFAC or for
the purpose of financing the activities of any person currently subject to any
U.S. sanctions.

14

 

3.33          Registration Rights. Except as required pursuant to the
Registration Rights Agreement, the Company is not under any obligation, nor has
granted any rights that have not been terminated, to register any of the
Company’s currently outstanding securities or any of its securities that may
hereafter be issued.

3.34          Material Non-Public Information. Except with respect to the
transactions contemplated hereby that will be publicly disclosed, the Company
has not provided any Purchaser with any information that the Company believes
constitutes material non-public information.

3.35          Application of Takeover Protections. The Company has taken all
necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Company's
Organization Documents or the laws of its state of incorporation that is or
could become applicable to the Purchaser as a result of the Purchaser and the
Company fulfilling their obligations or exercising their rights under this
Agreement, including, without limitation, the Company's issuance of the
Securities and the Purchaser’s ownership of the Securities.

3.36          Listing and Maintenance Requirements. The Common Stock is quoted
on the OTCQB under the symbol NXTD. The Company has not, in the twenty-four (24)
months preceding the date hereof, received notice from any Trading Market on
which the Common Stock is or has been listed or quoted to the effect that the
Company is not in compliance with the listing or maintenance requirements of
such Trading Market.

3.37          Disclosure. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company confirms that neither it nor any other Person acting on its behalf has
provided any of the Purchasers or their agents or counsel with any information
that it believes constitutes or might constitute material, non-public
information.   The Company understands and confirms that the Purchasers will
rely on the foregoing representation in effecting transactions in securities of
the Company.  All of the disclosure furnished by or on behalf of the Company to
the Purchasers regarding the Company and its Subsidiaries, their respective
businesses and the transactions contemplated hereby, including the Schedules to
this Agreement, taken as a whole is true and correct and does not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. For the avoidance of doubt,
information disclosed in one section of the Schedule shall not be deemed
disclosed in any other section of the Schedule unless there is an explicit cross
reference to such other section. The Company acknowledges and agrees that no
Purchaser makes or has made any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in
Section 3 hereof.

3.38          Office of Foreign Assets Control. Neither the Company nor any
Subsidiary  nor, to the Company's knowledge, any director, officer, agent,
employee or affiliate of the Company or any Subsidiary is currently subject to
any U.S. sanctions administered by the Office of Foreign Assets Control of the
U.S. Treasury Department (“OFAC”).

3.39          Accountants. The Company’s accounting firm is set forth on
Schedule 3.39 of the Disclosure Schedules. To the knowledge and belief of the
Company, such accounting firm is registered with the Public Company Accounting
Oversight Board, and shall express its opinion with respect to the financial
statements to be included in the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2013.

15

 

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

3.41          Acknowledgement Regarding Purchaser’s Trading Activity. Anything
in this Agreement or elsewhere herein to the contrary notwithstanding (except
for Sections 3.34 and 4.21 hereof), it is understood and acknowledged by the
Company that: (i) none of the Purchasers has been asked by the Company to agree,
nor has any Purchaser agreed, to desist from purchasing or selling, long and/or
short, securities of the Company, or “derivative” securities based on securities
issued by the Company or to hold the Securities for any specified term, (ii)
past or future open market or other transactions by any Purchaser, specifically
including, without limitation, Short Sales or “derivative” transactions, before
or after the closing of this or future private placement transactions, may
negatively impact the market price of the Company’s publicly-traded securities,
(iii) any Purchaser, and counter-parties in “derivative” transactions to which
any such Purchaser is a party, directly or indirectly, may presently have a
“short” position in the Common Stock and (iv) each Purchaser shall not be deemed
to have any affiliation with or control over any arm’s length counter-party in
any “derivative” transaction.  The Company further understands and acknowledges
that (y) one or more Purchasers may engage in hedging activities in accordance
with all applicable laws at various times during the period that the Securities
are outstanding, including, without limitation, during the periods that the
value of the Warrant Shares deliverable with respect to Securities are being
determined, and (z) such hedging activities (if any) could reduce the value of
the existing stockholders' equity interests in the Company at and after the time
that the hedging activities are being conducted.  The Company acknowledges that
such aforementioned hedging activities do not constitute a breach of any of the
Transaction Documents.

3.42          Regulation M Compliance. The Company has not, and to its knowledge
no one acting on its behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result in the stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay
to any Person any compensation for soliciting another to purchase any other
securities of the Company, other than, in the case of clauses (ii) and (iii),
compensation paid to the Company’s placement agent in connection with the
placement of the Securities.

3.43          Stock Option Plans. Except as set forth on Schedule 3.43, as of
the date hereof, no stock options have been granted, nor any commitments made to
grant stock options, under the Stock Option Plan, and neither the Company nor
any Subsidiary has ever had an option plan. The Company has not knowingly
granted, and there is no and has been no Company policy or practice to knowingly
grant, stock options prior to, or otherwise knowingly coordinate the grant of
stock options with, the release or other public announcement of material
information regarding the Company or its Subsidiaries or their financial results
or prospects.

3.44          Sarbanes-Oxley; Internal Accounting Controls. The Company and the
Subsidiaries are in material compliance with any and all applicable requirements
of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and
any and all applicable rules and regulations promulgated by the Commission
thereunder that are effective as of the date hereof and as of the Closing Date.
The Company’s certifying officers have evaluated the effectiveness of the
disclosure controls and procedures of the Company and the Subsidiaries as of the
end of the period covered by the most recently filed periodic report under the
Exchange Act (such date, the “Evaluation Date”). The Company presented in its
most recently filed periodic report under the Exchange Act the conclusions of
the certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no changes in the internal control over
financial reporting (as such term is defined in the Exchange Act) of the Company
and its Subsidiaries that have materially affected, or is reasonably likely to
materially affect, the internal control over financial reporting of the Company
and its Subsidiaries.

16

 

3.45          Solvency. Based on the consolidated financial condition of the
Company as of the Closing Date, and the Company’s good faith estimate of the
fair market value of its assets, after giving effect to the receipt by the
Company of the proceeds from the sale of the Securities hereunder: (i) the fair
saleable value of the Company’s assets exceeds the amount that will be required
to be paid on or in respect of the Company’s existing debts and other
liabilities (including known contingent liabilities) as they mature, (ii) the
Company’s assets do not constitute unreasonably small capital to carry on its
business as now conducted and as proposed to be conducted including its capital
needs taking into account the particular capital requirements of the business
conducted by the Company, consolidated and projected capital requirements and
capital availability thereof, and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to liquidate all
of its assets, after taking into account all anticipated uses of the cash, would
be sufficient to pay all amounts on or in respect of its liabilities when such
amounts are required to be paid. The Company does not intend to incur debts
beyond its ability to pay such debts as they mature (taking into account the
timing and amounts of cash to be payable on or in respect of its debt). The
Company has no knowledge of any facts or circumstances which lead it to believe
that it will file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the Closing Date.
Schedule 3.45 sets forth as of the date hereof all outstanding liens secured and
unsecured Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments which has not been disclosed in the
Reports. For the purposes of this Agreement, “Indebtedness” means (x) any
liabilities for borrowed money or amounts owed in excess of $50,000 other than
debt financing from a licensed United States bank regularly engaged in such
lending activity, and (y) all guaranties, endorsements and other contingent
obligations in respect of indebtedness of others, whether or not the same are or
should be reflected in the Company’s balance sheet (or the notes thereto),
except guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business, but in
all cases excluding trade accounts payable incurred by the Company and its
Subsidiaries in the ordinary course of business; and (z) the present value of
any lease payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is
in default with respect to any Indebtedness.

4.          REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.

Each of the Purchasers hereby severally, and not jointly, represents and
warrants to the Company that each such Purchaser’s representations and
warranties in the subscription agreement entered into in connection with this
Agreement are true and correct as of their respective Closing, and such
representations and warranties are deemed repeated as if contained herein.

5.          CONDITIONS TO THE CLOSING.

5.1          Conditions to Purchasers’ Obligations at the Closings. The
obligations of the Purchasers to consummate the transactions contemplated herein
to be consummated at the Initial Closing and of each Subsequent Closing, as the
case may be, are subject to the satisfaction, on or prior to the date of such
Closing, of the conditions set forth below and applicable thereto, which
satisfaction shall be determined, or may be waived in writing, by either the
Placement Agent or the Purchasers or Subsequent Closing Purchasers, as the case
may be, who have subscribed for at least a majority of the Securities to be
purchased at such Closing and which majority must include Alpha Capital Anstalt
for so long as Alpha Capital Anstalt holds $100,000 of Shares purchased in the
Offering, and which subscriptions are intended to be accepted by the Company:

17

 

5.1.1.          Representations and Warranties; Performance of Obligations. Each
of the representations and warranties of the Company contained herein shall be
true and correct on and as of the Initial Closing Date. As of the Initial
Closing, the Company shall have performed and complied with the covenants and
provisions of this Agreement required to be performed or complied with by it at
or prior to the Initial Closing Date. As to the Subsequent Closings, each of the
representations and warranties of the Company contained herein shall be true and
correct on and as of the Subsequent Closing Date, as qualified by any updated
Schedules delivered at least five (5) days in advance of the Subsequent Closing
to the Subsequent Closing Purchasers participating in the Subsequent Closing. As
to the Subsequent Closings, the Company shall have performed and complied with
the covenants and provisions of this Agreement and the other Transaction
Documents required to be performed or complied with by it at or prior to the
Subsequent Closing Date. At each Closing, the Purchasers participating in such
Closing shall have received certificates of the Company dated as of the date of
such Closing, signed by the president or chief executive officer of the Company,
certifying as to the fulfillment of the conditions set forth in this Section 5.1
and the truth and accuracy of the representations and warranties of the Company
contained herein (as qualified by the most recently delivered Schedules) as of
the Initial Closing Date and, as to each Subsequent Closing, the Subsequent
Closing Date.

5.1.2.          Issuance in Compliance with Laws. The sale and issuance of the
Securities shall be legally permitted by all laws and regulations to which any
of the Purchasers and the Company are subject.

5.1.3.          Filings, Consents, Permits, and Waivers. The Company and the
Purchasers shall have made all filings and obtained any and all Consents,
Permits, waivers, and Regulatory Approvals necessary for consummation of the
transactions contemplated by the Agreement and the other Transaction Documents,
including the waivers described on Schedule 5.1.3, except for such filings as
are not due to be made until after the applicable Closing.

5.1.4.          Reservation of Warrant Shares. The Warrant Shares shall have
been duly authorized and reserved for issuance by the Board of Directors.

5.1.5.          Registration Rights Agreement. Concurrently with the issuance of
the Securities occurring at the Initial Closing and at each Subsequent Closing,
the Registration Rights Agreement, substantially in the form attached hereto as
Exhibit E (the “Registration Rights Agreement”), shall have been executed and
delivered by the Company and each Purchaser.

5.1.6.          Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated at the Closings and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Purchaser and the Purchaser’s counsel,
and the Purchaser and the Purchaser’s counsel shall have received all such
counterpart originals or certified or other copies of such documents as they may
reasonably request.

5.1.7.          Proceedings and Litigation. No action, suit or proceeding shall
have been commenced by any Person against any party hereto seeking to restrain
or delay the purchase and sale of the Securities or the other transactions
contemplated by this Agreement or any of the other Transaction Documents.

18

 

5.1.8.          No Material Adverse Effect. Since the date hereof, there shall
not have occurred any effect, event, condition or circumstance (including,
without limitation, the initiation of any litigation or other legal, regulatory
or investigative proceeding) that individually or in the aggregate, with or
without the passage of time, the giving of notice, or both, that has had, or
could reasonably be expected to have, a Material Adverse Effect or which could
adversely affect the Company’s ability to perform its respective obligations
under this Agreement or any of the other Transaction Documents.

5.1.9.          Updated Disclosures. As to the Subsequent Closings, the Company
must have delivered to the Purchasers an updated set of schedules in accordance
with Section 5.1.1 and such updated schedules do not reveal any information or
the occurrence, since the Initial Closing Date, of any effect, event, condition
or circumstance, which individually, or in the aggregate, has had or could
reasonably be expected to have, a Material Adverse Effect and do not include any
state of facts that occur as a result of the breach by the Company of any of its
obligations under this Agreement or any of the other Transaction Documents.

5.1.10.         Payment of Purchase Price. As to each closing, each Purchaser
shall have delivered to the Company the total purchase price to be paid for such
Purchaser’s Securities, in the amount set forth opposite such Purchaser’s name
on Exhibit A.

5.1.11.         Delivery of Documents at the Initial Closing. The Company shall
have executed and delivered the following documents, on or prior to the Initial
Closing Date, and in the case of the Certificates, within five (5) business days
thereafter:

(a)             Certificates. Certificates representing the Shares to be
purchased and sold on the Initial Closing Date;

(b)            Warrants: An executed Warrant, in substantially the form of
Exhibit B, for the Warrants to be issued on the Initial Closing Date;

(c)             Secretary’s Certificate. A certificate of the Secretary of the
Company (i) attaching and certifying as to the Company’s Certificate of
Incorporation (the “Certificate”), (ii) attaching and certifying as to the
Bylaws of the Company in effect at the Initial Closing, (iii) attaching and
certifying as to copies of resolutions by the Board of Directors of the Company
authorizing and approving this Agreement and the other Transaction Documents and
the transactions contemplated hereby and thereby including without limitation,
the issuance and delivery of the Securities; and (iv) certifying as to the
incumbency of the officers of the Company executing this Agreement and the other
Transaction Documents;

(d)            A legal opinion of Company counsel, substantially in the form of
Exhibit D attached hereto; and

(e)             Irrevocable Letter surrendering to Company’s treasury, a number
of Shares equal to the Purchase Price as of Closing including stock powers for
such Surrendered Shares (“Surrendered Shares”) together with an irrevocable
transmittal letter to the transfer agent (“Irrevocable Letter”) for such
Surrendered Shares.

19

 

5.1.12.          Delivery of Documents at the Subsequent Closing. The Company
shall have executed and delivered the following documents, on or prior to the
Subsequent Closing, and in the case of the Certificates, within a reasonable
time thereafter:

(a)             Certificates. Certificates representing the Shares to be
purchased and sold on the Subsequent Closing Date;

(b)            Warrants: An executed Warrant, in substantially the form of
Exhibit B, for the Warrants to be issued on the Subsequent Closing Date;

(c)             Secretary’s Certificate. A Certificate of the Secretary of the
Company (i) certifying that the resolutions by the Board of Directors of the
Company authorizing and approving this Agreement and the other Transaction
Documents delivered at the Initial Closing have not been modified in any way or
rescinded and are otherwise in effect as of the Subsequent Closing, (ii)
certifying as to the incumbency of the officers of the Company executing any
documents contemplated by this Agreement to be executed and delivered by the
Company at the Subsequent Closing, and (iii) attaching and certifying as to (x)
the Certificate as in effect at the Subsequent Closing, and (y) the Bylaws of
the Company in effect at the Subsequent Closing;

(d)            A legal opinion of Company counsel, substantially in the form of
Exhibit D attached hereto; and

(e)             Irrevocable Letter and Surrendered Shares.

5.2          Conditions to Obligations of the Company at the Closings. The
obligation of the Company to consummate the transactions contemplated herein to
be consummated at the Initial Closing or the Subsequent Closing, as the case may
be, is subject to the satisfaction, on or prior to the date of such Closing of
the conditions set forth below and applicable thereto, any of which may be
waived in writing by the Company:

5.2.1.          Representations and Warranties; Performance of Obligations. Each
of the representations and warranties of the Purchasers contained herein shall
be true and correct on and as of the Initial Closing Date. As of the Initial
Closing Date, the Purchasers shall have performed and complied with the
covenants and provisions of this Agreement required to be performed or complied
with by them at or prior to the Initial Closing Date. As to the Subsequent
Closing, each of the representations and warranties of the Purchaser(s)
contained herein shall be true and correct on and as of the Subsequent Closing
Date. As to the Subsequent Closing, the Subsequent Closing Purchaser(s) shall
have performed and complied with the covenants and provisions of this Agreement
required to be performed and complied with by them at or prior to the Subsequent
Closing Date.

5.2.2.          Proceedings and Litigation. No action, suit or proceeding shall
have been commenced by any Governmental Authority against any party hereto
seeking to restrain or delay the purchase and sale of the Securities or the
other transactions contemplated by this Agreement.

5.2.3.          Qualifications. All Permits, if any, that are required in
connection with the lawful issuance and sale of the Securities pursuant to this
Agreement shall be obtained and effective as of the Initial Closing or
Subsequent Closing, as applicable.

20

 

6.          COVENANTS OF THE PARTIES.

6.1          Transfer Restrictions.

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

6.1.2.          The Purchaser agrees to the imprinting, so long as is required
by this Section 6.1, of a legend on any of the Securities, including the Warrant
Shares, substantially in the following form:

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

6.1.3.          Certificates evidencing the Shares and Warrant Shares shall be
eligible for issuance without or for removal of the restrictive legend set forth
in Section 6.1.2 hereof, (a) following any sale of Shares or Warrant Shares
pursuant to Rule 144, (b) if such Shares or Warrant Shares are eligible for sale
under Rule 144, without the requirement for the Company to be in compliance with
the current public information required under Rule 144 as to such Shares and
Warrant Shares and without volume or manner-of-sale restrictions, (c) following
any sale of such Shares or Warrant Shares, pursuant to the plan of distribution
in an effective registration statement (in compliance with any prospectus
delivery requirements), or (d) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission) (the “Removal Date”).  The
Company shall cause its counsel to issue a legal opinion to the Transfer Agent
promptly after the Removal Date if required by the Transfer Agent to effect the
issuance without or for removal of the legend hereunder as permitted by
applicable law then in effect. The Company agrees that following the Removal
Date, it will, no later than five (5) trading days following the request for
issuance without a legend with respect to not yet issued Shares or Warrant
Shares, or the delivery by a Purchaser to the Company or the Transfer Agent of a
certificate representing Shares or Warrant Shares with respect to already issued
Shares or Warrant Shares, as the case may be, issued with a restrictive legend,
together with any reasonable certifications requested by the Company, the
Company’s counsel or the Transfer Agent (such fifth (5th) trading day, the
“Legend Removal Date”), deliver or cause to be delivered to such Purchaser a
certificate representing such shares that is free from all restrictive and other
legends. The Company may not make any notation on its records or give
instructions to the Transfer Agent that enlarge the restrictions on transfer set
forth in this Section 6. Certificates for Shares and Warrant Shares subject to
legend removal hereunder shall be transmitted by the Transfer Agent to the
Purchaser by crediting the account of the Purchaser’s prime broker with the
Depository Trust Company System as directed by such Purchaser if the Transfer
Agent is then a participant in such system and the Company is eligible to use
such system and as directed by such Purchaser if either (i) there is an
effective registration statement permitting the resale of such Shares or Warrant
Shares by the Purchaser (and the Purchaser provides the Company or the Company’s
counsel with any requested certifications with respect to future sales of such
shares) or (ii) the shares are eligible for resale by the Purchaser under Rule
144, without the requirement for the Company to be in compliance with the
current public information required under Rule 144 as to such Shares and Warrant
Shares and without volume or manner-of-sale restrictions.

21

 

6.1.4.          In addition to such Purchaser’s other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated damages and not
as a penalty, for each $1,000 of Shares or Warrant Shares (based on the VWAP of
the Common Stock on the date such Securities are submitted to the Transfer
Agent) delivered for removal of the restrictive legend and subject to Section
6.1.3, $10 per Trading Day for each Trading Day after the Removal Date
(increasing to $20 per Trading Day after the tenth Trading Day) until such
certificate is delivered without a legend. Nothing herein shall limit such
Purchaser’s right to pursue actual damages for the Company’s failure to deliver
certificates representing any Securities as required by the Transaction
Documents, and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.

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

6.1.6.          In the event a Purchaser shall request delivery of unlegended
shares as described in this Section 6.1.6 and the Company is required to deliver
such unlegended shares, the Company may not refuse to deliver unlegended shares
based on any claim that such Purchaser or anyone associated or affiliated with
such Purchaser has not complied with Purchaser’s obligations under the
Transaction Documents, or for any other reason, unless, an injunction or
temporary restraining order from a court, on notice, restraining and or
enjoining delivery of such unlegended shares shall have been sought and obtained
by the Company and the Company has posted a surety bond for the benefit of such
Purchaser in the amount of the greater of (i) 15% of the amount of the aggregate
purchase price of the Shares and Warrant Shares which is subject to the
injunction or temporary restraining order, or (ii) the VWAP of the Common Stock
on the trading day before the issue date of the injunction multiplied by the
number of unlegended shares to be subject to the injunction, which bond shall
remain in effect until the completion of arbitration/’litigation of the dispute
and the proceeds of which shall be payable to such Purchaser to the extent
Purchaser obtains judgment in Purchaser’s favor.

22

 

6.1.7.          Buy-In. In addition to any other rights available to Purchaser,
if the Company fails to deliver to a Purchaser unlegended shares as required
pursuant to this Agreement and after the Removal Date the Purchaser, or a broker
on the Purchaser’s behalf, purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by such
Purchaser of the shares of Common Stock which the Purchaser was entitled to
receive in unlegended form from the Company (a “Buy-In”), then the Company shall
promptly pay in cash to the Purchaser (in addition to any remedies available to
or elected by the Purchaser) the amount, if any, by which (A) the Purchaser’s
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (B) the 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 example, if a Purchaser
purchases shares of Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to $10,000 of purchase price of Shares delivered to
the Company for reissuance as unlegended shares, the Company shall be required
to pay the Purchaser $1,000, plus interest, if any. The Purchaser shall provide
the Company written notice indicating the amounts payable to the Purchaser in
respect of the Buy-In.

6.1.8.          Each Purchaser, severally and not jointly with the other
Purchasers, agrees with the Company that such Purchaser will sell the Securities
pursuant to either the registration requirements of the Securities Act,
including any applicable prospectus delivery requirements, or an exemption
therefrom, and that if Securities are sold pursuant to a registration statement,
they will be sold in compliance with the plan of distribution set forth therein,
and acknowledges that the removal of the restrictive legend from certificates
representing Securities as set forth in this Section 6.1.8 is predicated upon
the Company’s reliance upon this understanding.

6.2          Reservation of Shares. The Company shall at all times while the
Warrants are outstanding maintain a reserve from its duly authorized shares of
common stock of a number of shares of common stock sufficient to allow for the
issuance of Warrant Shares (“Required Minimum”).

6.3          Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement securities. If a replacement
certificate or instrument evidencing any securities is requested due to a
mutilation thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance of a
replacement.

6.4          Securities Laws; Publicity. The Company shall by 8:30 a.m. (New
York City time) on the trading day immediately following a Closing hereunder, or
at the latest, prior to the second trading day immediately following a Closing
hereunder, file a Current Report on Form 8-K disclosing the material terms of
the transactions contemplated hereby and including the Transaction Documents as
exhibits thereto to the extent required by law. The Company shall not publicly
disclose the name of Purchaser, or include the name of any Purchaser in any
filing with the SEC or any regulatory agency or trading market, without the
prior written consent of Purchaser, except: (a) as required by federal
securities law in connection with the filing of final Transaction Documents
(including signature pages thereto) with the SEC and (b) to the extent such
disclosure is required by law, in which case the Company shall provide the
Purchaser with prior notice of such disclosure permitted under this clause (b).

23

 

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

6.6              Equal Treatment of Purchasers. No consideration (including any
modification of any Transaction Document) shall be offered or paid to any person
to amend or consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration is also offered to all of
the parties to the Transaction Documents.

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

6.8              Permitted Indebtedness. Until one year after the Effective
Date, the Company will not incur any Indebtedness.

6.9              Acknowledgment of Dilution. The Company and Purchasers
acknowledges that the issuance of the Securities may result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions. The Company further acknowledges that its obligations
under the Transaction Documents, including, without limitation, its obligation
to issue the Shares and Warrant Shares pursuant to the Transaction Documents,
are unconditional and absolute and not subject to any right of set off,
counterclaim, delay or reduction, regardless of the effect of any such dilution
or any claim the Company may have against any Purchaser and regardless of the
dilutive effect that such issuance may have on the ownership of the other
stockholders of the Company.

6.10          Furnishing of Information; Public Information.

 

(a)          Until no Purchaser owns any Securities, the Company covenants to
maintain the registration of the Common Stock under Section 12(b) or 12(g) of
the Exchange Act and to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act and file such reports
even if the Company is not then subject to the reporting requirements of the
Exchange Act.

 

24

 

 

(b)          At any time commencing on the Initial Closing Date and ending at
such time that all of the Securities may be sold without the requirement for the
Company to be in compliance with Rule 144(c)(1) and otherwise without
restriction or limitation pursuant to Rule 144, if the Company shall fail for
any reason to satisfy the current public information requirement under Rule
144(c) (a “Public Information Failure”) then, in addition to such Purchaser’s
other available remedies, the Company shall pay to a Purchaser, in cash, as
partial liquidated damages and not as a penalty, by reason of any such delay in
or reduction of its ability to sell the Securities, an amount in cash equal to
two percent (2.0%) of the aggregate Purchase Price held by such Purchaser on the
day of a Public Information Failure and on every thirtieth (30th) day (pro-rated
for periods totaling less than thirty days) thereafter until the earlier of (a)
the date such Public Information Failure is cured and (b) such time that such
public information is no longer required for the Purchasers to transfer the
Shares and Warrant Shares pursuant to Rule 144. The payments to which a
Purchaser shall be entitled pursuant to this Section 6.10 are referred to herein
as “Public Information Failure Payments.” Public Information Failure Payments
shall be paid on the earlier of (i) the last day of the calendar month during
which such Public Information Failure Payments are incurred and (ii) the third
(3rd) Business Day after the event or failure giving rise to the Public
Information Failure Payments is cured. In the event the Company fails to make
Public Information Failure Payments in a timely manner, such Public Information
Failure Payments shall bear interest at the rate of 1.5% per month (prorated for
partial months) until paid in full. Nothing herein shall limit such Purchaser’s
right to pursue actual damages for the Public Information Failure, and such
Purchaser shall have the right to pursue all remedies available to it at law or
in equity including, without limitation, a decree of specific performance and/or
injunctive relief.

 

6.11          Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities or that would be integrated with
the offer or sale of the Securities for purposes of the rules and regulations of
any Trading Market such that it would require shareholder approval prior to the
closing of such other transaction unless shareholder approval is obtained before
the closing of such subsequent transaction.

 

6.12          Exercise Procedures. The form of Notice of Exercise included in
the Warrants sets forth the totality of the procedures required of the
Purchasers in order to exercise the Warrants. No additional legal opinion, other
information or instructions shall be required of the Purchasers to exercise
their Warrants. The Company shall honor exercises of the Warrants and shall
deliver Warrant Shares in accordance with the terms, conditions and time periods
set forth in the Transaction Documents.

 

6.13          Purchase Price Reset.

 

6.13.1          From the date of this Agreement until the sooner of (i) the
Purchaser and his permitted assigns no longer holds any Securities, and (ii) two
years after the Effective Date (the “Protection Period”), in the event that the
Company issues or sells any shares of Common Stock or any Common Stock
Equivalent (calculated on an as converted, as exercised basis) pursuant to which
shares of Common Stock may be acquired at a price less than the Per Share
Purchase Price (a “Share Dilutive Issuance”) (adjusted as described in Section
7.26), then the Company shall promptly issue additional shares of Common Stock
to the Purchasers who held outstanding Shares on the date of such Share Dilutive
Issuance, for no additional consideration, in an amount sufficient that (a) the
aggregate Purchase Price paid at the Initial Closing and the Subsequent Closing,
if any, for such outstanding Shares held by Purchasers on the date of such Share
Dilutive Issuance (whether or not such Purchasers were the Purchasers at the
Initial Closing or the Subsequent Closing, if any), when divided by (x) the sum
of (i) the total number of outstanding Shares held by the Purchasers on the date
of such Share Dilutive Issuance, (ii) any other shares of Common Stock then or
theretofore issued in respect of such outstanding Shares (by stock split, stock
dividend or otherwise) that resulted in an adjustment to the Per Share Purchase
Price referred to above pursuant to Section 7.26, and (iii) all Additional
Shares issued with respect to such outstanding Shares held by the Purchasers on
the date of such Share Dilutive Issuance that were issued as a result of Share
Dilutive Issuances that occurred prior to such Share Dilutive Issuance, will
equal the price per share of Common Stock in such Share Dilutive Issuance, (each
such adjustment, a “Share Dilution Adjustment”, and such shares, the “Additional
Shares”). The Additional Shares to be issued in a Share Dilution Adjustment
shall be issued by the Company to the Purchasers who held outstanding Shares on
the date of the applicable Share Dilutive Issuance (in proportion to the number
of such Shares held by such Purchasers on the date of such Share Dilutive
Issuance). Such Share Dilution Adjustment shall be made successively whenever
such an issuance is made. Such Additional Shares must be delivered to the
applicable Purchasers not later than the date the Share Dilutive Issuance
occurs.

 

25

 

 

6.13.2          From the date of this Agreement until the end of the Protection
Period, in the event that the Company issues or sells any shares of Common Stock
or any Common Stock Equivalent (calculated on an as converted, as exercised
basis) pursuant to which shares of Common Stock may be acquired at a price less
than the exercise price per share of Common Stock that was paid during the
Protection Period by a Purchaser upon exercise of a Warrant (a “Warrant Dilutive
Issuance”) (adjusted as described in Section 7.26), then the Company shall
promptly issue additional shares of Common Stock to the Purchasers who on the
date of such Warrant Dilutive Issuance held the issued Warrant Shares that were
issued upon such exercise, for no additional consideration, in an amount
sufficient that (a) the aggregate exercise price paid for such issued Warrant
Shares held by the Purchasers on the date of such Warrant Dilutive Issuance
(whether or not such Purchasers were the Purchasers who exercised such Warrant),
when divided by (x) the sum of (i) the total number of such issued Warrant
Shares held by the Purchasers on the date of such Warrant Dilutive Issuance,
(ii) any other shares of Common Stock then or theretofore issued in respect of
such issued Warrant Shares (by stock split, stock dividend or otherwise) that
resulted in an adjustment to the exercise price referred to above pursuant to
Section 7.26, and (iii) all Additional Warrant Shares issued with respect to
such issued Warrant Shares held by the Purchasers on the date of such Warrant
Dilutive Issuance that were issued as a result of Warrant Dilutive Issuances
that occurred prior to such Warrant Dilutive Issuance, will equal the price per
share of Common Stock in such Warrant Dilutive Issuance, (each such adjustment,
a “Warrant Dilution Adjustment”, and such shares, the “Additional Warrant
Shares”). The Additional Warrant Shares to be issued in a Warrant Dilution
Adjustment shall be issued by the Company to the Purchasers who held the
applicable issued Warrant Shares on the date of the applicable Warrant Dilutive
Issuance (in proportion to the number of such issued Warrant Shares held by such
Purchasers on the date of such Warrant Dilutive Issuance). Such Warrant Dilution
Adjustment shall be made successively whenever such an issuance is made. Such
Additional Warrant Shares must be delivered to the applicable Purchasers not
later than the date the Warrant Dilutive Issuance occurs.

 

6.13.3          Notwithstanding the foregoing, this Section 6.13 shall not apply
in respect of an Exempt Issuance. No adjustment shall be made hereunder which
would require the Purchaser to surrender any shares to the Company. The holder
of outstanding Additional Shares and Additional Warrant Shares is granted the
same rights and benefits as a holder of outstanding Shares pursuant to the
Transaction Documents, except the rights and benefits of this Section 6.13 and
except that such rights and benefits shall not apply to a holder of outstanding
Additional Shares or Additional Warrant Shares after such outstanding Additional
Share or Additional Warrant Share has been irrevocably sold pursuant to an
effective registration statement under the Securities Act or pursuant to Rule
144 without further restrictions or conditions to transfer pursuant to Rule 144.

 

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6.14          Most Favored Nation Provision. From the date hereof until the
earlier of (i) such time as no Purchaser holds any outstanding Securities and
(ii) the end of the Protective Period, in the event that the Company issues or
sells any Common Stock such that the provisions of Section 6.13 are triggered,
if a Purchaser then holding outstanding Securities reasonably believes that any
of the terms and conditions appurtenant to such issuance or sale are more
favorable to such investors than are the terms and conditions granted to the
Purchasers hereunder, then upon notice to the Company by such Purchaser within
five Trading Days after disclosure of such issuance or sale, the Company shall
amend the terms of this transaction as to such Purchaser only so as to give such
Purchaser the benefit of such more favorable terms or conditions. This Section
6.14 shall not apply with respect to an Exempt Issuance. The Company shall
provide each Purchaser with notice of any such issuance or sale.

 

6.15          Use of Proceeds.  The Company will use the net proceeds to the
Company from the sale of the Shares and Warrants hereunder as set forth on
Schedule 6.15. The Company shall not use such proceeds: (a) for the satisfaction
of any portion of the Company’s debt (other than payment of trade payables in
the ordinary course of the Company’s business and prior practices), (b) for the
redemption of any Common Stock or Common Stock Equivalents, (c) for the
settlement of any outstanding litigation, (d) in violation of the law, including
FCPA or OFAC or (e) for the development of new products not substantially
related to the Company’s current products in production or development as of the
date hereof.

 

6.16          Indemnification of Purchasers. Subject to the provisions of this
Section 6.16, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
“Purchaser Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against Purchaser
Parties in any capacity, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser Party, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser’s Party’s
representations, warranties or covenants under the Transaction Documents or any
agreements or understandings such Purchaser Party may have with any such
stockholder or any violations by such Purchaser Party of state or federal
securities laws or any conduct by such Purchaser Party which constitutes fraud,
gross negligence, willful misconduct or malfeasance). If any action shall be
brought against any Purchaser Party in respect of which indemnity may be sought
pursuant to this Agreement, such Purchaser Party shall promptly notify the
Company in writing, and the Company shall have the right to assume the defense
thereof with counsel of its own choosing reasonably acceptable to the Purchaser
Party. Any Purchaser Party shall have the right to employ separate counsel in
any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Purchaser Party except
to the extent that (i) the employment thereof has been specifically authorized
by the Company in writing, (ii) the Company has failed after a reasonable period
of time to assume such defense and to employ counsel or (iii) in such action
there is, in the reasonable opinion of counsel, a material conflict on any
material issue between the position of the Company and the position of such
Purchaser Party, in which case the Company shall be responsible for the
reasonable fees and expenses of no more than one such separate counsel. The
Company will not be liable to any Purchaser Party under this Agreement (y) for
any settlement by a Purchaser Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or (z) to the
extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Purchaser Party’s breach of its representations, warranties
or covenants under the Transaction Documents or any agreements or understandings
such Purchaser Party may have with any such stockholder or any violations by
such Purchaser Party of state or federal securities laws or any conduct by such
Purchaser Party which constitutes fraud, gross negligence, willful misconduct or
malfeasance. The indemnification required by this Section 6.16 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or are incurred however, each
Purchaser Party who receives such interim payment agrees to reimburse the
Company for any such payment made by the Company to such Purchaser Party if it
is finally determined in such action or proceeding that such Purchaser Party is
not entitled to indemnification pursuant to this Section 6.16. The indemnity
agreements contained herein shall be in addition to any cause of action or
similar right of any Purchaser Party against the Company or others and any
liabilities the Company may be subject to pursuant to law.

 

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6.17          Reservation and Listing of Securities.

 

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

 

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

 

6.17.3          The Company hereby agrees to maintain the listing or quotation
of the Common Stock on the Trading Market on which it is currently listed, and
concurrently with each Closing, the Company shall apply to list or quote all of
the Shares and Warrant Shares at least equal to the Required Minimum on such
Trading Market and promptly secure the listing of all of the Shares and Warrant
Shares at least equal to the Required Minimum on such Trading Market. The
Company further agrees, if the Company applies to have the Common Stock traded
on any other Trading Market, it will then include in such application all of the
Shares and Warrant Shares at least equal to the Required Minimum, and will take
such other action as is necessary to cause all of the Shares and Warrant Shares
at least equal to the Required Minimum to be listed or quoted on such other
Trading Market as promptly as possible. The Company will then take all action
necessary to continue the listing or quotation and trading of its Common Stock
on a Trading Market until the later of (i) at least five years after the Closing
Date, and (ii) for so long as the Warrants are outstanding, and will comply in
all respects with the Company’s reporting, filing and other obligations under
the bylaws or rules of the Trading Market at least until five years after the
Closing Date and for so long as the Warrants are outstanding. In the event the
aforedescribed listing is not continuously maintained for five years after the
Closing Date (a “Listing Default”), then in addition to any other rights the
Purchasers may have hereunder or under applicable law, on the first day of a
Listing Default and on each monthly anniversary of each such Listing Default
date (if the applicable Listing Default shall not have been cured by such date)
until the applicable Listing Default is cured, the Company shall pay to each
Purchaser an amount in cash, as partial liquidated damages and not as a penalty,
equal to 2% of the aggregate Purchase Price and purchase price of Warrant Shares
held by such Purchaser on the day of a Listing Default and on every thirtieth
day (pro-rated for periods less than thirty days) thereafter until the date such
Listing Default is cured. If the Company fails to pay any liquidated damages
pursuant to this Section in a timely manner, the Company will pay interest
thereon at a rate of 1.5% per month (pro-rated for partial months) to the
Purchaser.

 

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6.18          Subsequent Equity Sales. Without prior written approval from
Holder, from the date hereof until such time as the Common Stock and Warrants
are no longer outstanding, the Company will not, without the consent of the
Purchasers, enter into any Equity Line of Credit or similar agreement, nor issue
nor agree to issue any common stock, floating or Variable Priced Equity Linked
Instruments nor any of the foregoing or equity with price reset rights (subject
to adjustment for stock splits, distributions, dividends, recapitalizations and
the like) (collectively, the “Variable Rate Transaction”).   For purposes
hereof, “Equity Line of Credit” shall include any transaction involving a
written agreement between the Company and an investor or underwriter whereby the
Company has the right to “put” its securities to the investor or underwriter
over an agreed period of time and at an agreed price or price formula, and
“Variable Priced Equity Linked Instruments” shall include: (A) any debt or
equity securities which are convertible into, exercisable or exchangeable for,
or carry the right to receive additional shares of Common Stock either (1) at
any conversion, exercise or exchange rate or other price that is based upon
and/or varies with the trading prices of or quotations for Common Stock at any
time after the initial issuance of such debt or equity security, or (2) with a
fixed conversion, exercise or exchange price that is subject to being reset at
some future date at any time after the initial issuance of such debt or equity
security due to a change in the market price of the Company’s Common Stock since
date of initial issuance, and (B) any amortizing convertible security which
amortizes prior to its maturity date, where the Company is required or has the
option to (or any investor in such transaction has the option to require the
Company to) make such amortization payments in shares of Common Stock which are
valued at a price that is based upon and/or varies with the trading prices of or
quotations for Common Stock at any time after the initial issuance of such debt
or equity security (whether or not such payments in stock are subject to certain
equity conditions).  For purposes of determining the total consideration for a
convertible instrument (including a right to purchase equity of the Company)
issued, subject to an original issue or similar discount or which principal
amount is directly or indirectly increased after issuance, the consideration
will be deemed to be the actual cash amount received by the Company in
consideration of the original issuance of such convertible instrument. Until
twenty-four (24) months after the Effective Date, the Company will not issue any
Common Stock or Common Stock Equivalents to those individuals listed on Schedule
6.23 nor will the Company issue any replacement shares of Surrendered Shares
except in the amounts and on the terms set forth on Schedule 6.18.

 

6.19          Capital Changes. Until the one year anniversary of the Closing
Date, the Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without 10 days prior written notice to the
Purchasers, unless such reverse split is made in conjunction with the listing of
the Common Stock on a national securities exchange.

 

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

 

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

 

6.22          Purchaser’s Exercise Limitations. The Company shall not effect any
exercise of the option granted to each Purchaser in Section 2.2 of this
Agreement, and a Purchaser shall not have the right to exercise any portion of
such option, pursuant to Section 2.2 or otherwise, to the extent that after
giving effect to such issuance after exercise as set forth on the applicable
Exercise Notice, the Purchaser (together with the Purchaser’s Affiliates, and
any other Persons acting as a group together with the Purchaser or any of the
Purchaser’s Affiliates), would beneficially own in excess of the Beneficial
Ownership Limitation (as defined below).  For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned by the
Purchaser and its Affiliates shall include the number of shares of Common Stock
issuable upon exercise of the option with respect to which such determination is
being made, but shall exclude the number of shares of Common Stock which would
be issuable upon (i) exercise of the remaining, nonexercised portion of the
option beneficially owned by the Purchaser or any of its Affiliates and (ii)
exercise or conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any other Common Stock
Equivalents) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Purchaser or any of its
Affiliates.  Except as set forth in the preceding sentence, for purposes of this
Section 6.22, beneficial ownership shall be calculated in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder, it being acknowledged by the Purchaser that the Company is not
representing to the Purchaser that such calculation is in compliance with
Section 13(d) of the Exchange Act and the Purchaser is solely responsible for
any schedules required to be filed in accordance therewith. To the extent that
the limitation contained in this Section 6.22 applies, the determination of
whether the option is exercisable (in relation to other securities owned by the
Purchaser together with any Affiliates) and of which portion of the option is
exercisable shall be in the sole discretion of the Purchaser, and the submission
of an Exercise Notice shall be deemed to be the Purchaser’s determination of
whether the option is exercisable (in relation to other securities owned by the
Purchaser together with any Affiliates) and of which portion of the option is
exercisable, in each case subject to the Beneficial Ownership Limitation. To
ensure compliance with this restriction, a Purchaser will be deemed to represent
to the Company when it delivers an Exercise Notice that such Exercise Notice has
not violated the restrictions set forth in this paragraph, and the Company shall
have no obligation to verify or confirm the accuracy of such determination. In
addition, a determination as to any group status as contemplated above shall be
determined in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder. For purposes of this Section 6.22, in
determining the number of outstanding shares of Common Stock, a Purchaser may
rely on the number of outstanding shares of Common Stock as reflected in (A) the
Company’s most recent periodic or annual report filed with the Commission, as
the case may be, (B) a more recent public announcement by the Company or (C) a
more recent written notice by the Company or the Transfer Agent setting forth
the number of shares of Common Stock outstanding.  Upon the written or oral
request of a Purchaser, the Company shall within two Trading Days confirm orally
and in writing to the Purchaser the number of shares of Common Stock then
outstanding.  In any case, the number of outstanding shares of Common Stock
shall be determined after giving effect to the conversion or exercise of
securities of the Company, including the Warrants, by the Purchaser or its
Affiliates since the date as of which such number of outstanding shares of
Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99%,
unless a Purchaser elects on its signature page hereto a different amount for
its own Beneficial Ownership Limitation (which shall also apply to and supercede
the corresponding Beneficial Ownership Limitation as same relates to the
Warrants issued to such electing Purchaser) of the number of shares of the
Common Stock outstanding immediately after giving effect to the issuance of
shares of Common Stock issuable upon exercise of the option. The Purchaser, upon
not less than 61 days’ prior notice to the Company, may increase or decrease the
Beneficial Ownership Limitation provisions of this Section 6.22, provided that
the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of
shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock upon exercise of the option held by the
Purchaser and the provisions of this Section 6.22 shall continue to apply. Any
such increase or decrease will not be effective until the 61st day after such
notice is delivered to the Company. The provisions of this paragraph shall be
construed and implemented in a manner otherwise than in strict conformity with
the terms of this Section 6.22 to correct this paragraph (or any portion hereof)
which may be defective or inconsistent with the intended Beneficial Ownership
Limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such limitation. The limitations contained
in this paragraph shall apply to a successor holder of the option right.

 

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6.23          Surrendered Shares. Management, as described on Schedule 6.23, has
agreed to surrender at Closing an aggregate of ___________ Shares of Common
Stock (pro-rata to what each of Management owns) as further described on
Schedule 6.23. Additionally, management has agreed to deliver to Company counsel
who will act as Escrow Agent pursuant to the terms of an Escrow Agreement in the
form annexed hereto as Exhibit F an aggregate of ____________ Shares and stock
powers to be held in escrow until the expiration of the Warrants, or sooner, if
no Warrants are outstanding. On the fifth (5th) business day of each calendar
year, the Escrow Agent will determine the number of Warrants exercised during
the prior calendar year and will surrender to the treasury an equivalent amount
of such management Shares with stock power (pro-rata to what each of management
owns).

 

6.24          Attorneys’ Fees and Expenses.  At the Initial Closing, the Company
has agreed to pay to Grushko & Mittman, P.C., a legal fee of $15,000 (of which
$5,000 has been paid). If any action at law or in equity (including arbitration)
is necessary to enforce or interpret the terms of this Agreement or any
Transaction Document, the prevailing party shall be entitled to reasonable
attorneys’ fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled as determined by such court, equity
or arbitration proceeding.

 

6.25          Participation in Future Financing.

 

(a)          For so long as any of the Securities are outstanding, upon any
proposed issuance by the Company or any of its Subsidiaries of indebtedness
convertible into Common Stock or preferred equity convertible into Common Stock,
other than (i) a rights offering to all holders of Common Stock (which may
include extending such rights offering to holders of Common Stock) or (ii) an
Exempt Issuance, (a “Subsequent Financing”), each Purchaser shall have the right
to participate in up to an amount of the Subsequent Financing equal to 100% of
the Subsequent Financing (the “Participation Maximum”) on the same terms,
conditions and price provided for in the Subsequent Financing, unless the
Subsequent Financing is an underwritten public offering, in which case the
Company shall offer each Purchaser the right to participate in such public
offering when it is lawful for the Company to do so, but no Purchaser shall be
entitled to purchase any particular amount of such public offering.

 

31

 

 

(b)          At least seven (7) Trading Days prior to the closing of the
Subsequent Financing, the Company shall deliver to each Purchaser a written
notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which
Pre-Notice shall ask such Purchaser if it wants to review the details of such
financing (such additional notice, a “Subsequent Financing Notice”). Upon the
request of a Purchaser, and only upon a request by such Purchaser, for a
Subsequent Financing Notice, the Company shall promptly, but no later than one
(1) Trading Day after such request, deliver a Subsequent Financing Notice to
such Purchaser. The requesting Purchaser shall be deemed to have acknowledged
that the Subsequent Financing Notice may contain material non-public
information. The Subsequent Financing Notice shall describe in reasonable detail
the proposed terms of such Subsequent Financing, the amount of proceeds intended
to be raised thereunder and the Person or Persons through or with whom such
Subsequent Financing is proposed to be effected and shall include a term sheet
or similar document relating thereto as an attachment.

 

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

 

(d)          If by 5:30 p.m. (New York City time) on the fifth (5th ) Trading
Day after all of the Purchasers have received the Pre-Notice, notifications by
the Purchasers of their willingness to participate in the Subsequent Financing
(or to cause their designees to participate) is, in the aggregate, less than the
total amount of the Subsequent Financing, then the Company may affect the
remaining portion of such Subsequent Financing on the terms and with the Persons
set forth in the Subsequent Financing Notice.

 

(e)          If by 5:30 p.m. (New York City time) on the fifth (5th) Trading Day
after all of the Purchasers have received the Pre-Notice, the Company receives
responses to a Subsequent Financing Notice from Purchasers seeking to purchase
more than the aggregate amount of the Participation Maximum, each such Purchaser
shall have the right to purchase its Pro Rata Portion (as defined below) of the
Participation Maximum.  “Pro Rata Portion” means the ratio of (x) the
Subscription Amount of shares of Common Stock and Warrants purchased hereunder
by a Purchaser participating under this Section 6.25 and (y) the sum of the
aggregate Subscription Amounts of Securities purchased hereunder by all
Purchasers participating under this Section 6.25.

 

(f)          The Company must provide the Purchasers with a second Subsequent
Financing Notice, and the Purchasers will again have the right of participation
set forth above in this Section 6.25, if the Subsequent Financing subject to the
initial Subsequent Financing Notice is not consummated for any reason on the
terms set forth in such Subsequent Financing Notice within thirty (30) Trading
Days after the date of the initial Subsequent Financing Notice.

 

(g)          The Company and each Purchaser agree that if any Purchaser elects
to participate in the Subsequent Financing, the transaction documents related to
the Subsequent Financing shall not include any term or provision whereby such
Purchaser shall be required to agree to any restrictions on trading as to any of
the Securities purchased hereunder (for avoidance of doubt, the securities
purchased in the Subsequent Financing shall not be considered securities
purchased hereunder) or be required to consent to any amendment to or
termination of, or grant any waiver, release or the like under or in connection
with, this Agreement, without the prior written consent of such Purchaser.

 

32

 

 

(h)          Notwithstanding anything to the contrary in this Section 6.25 and
unless otherwise agreed to by such Purchaser, the Company shall either confirm
in writing to such Purchaser that the transaction with respect to the Subsequent
Financing has been abandoned or shall publicly disclose its intention to issue
the securities in the Subsequent Financing, in either case in such a manner such
that such Purchaser will not be in possession of any material, non-public
information, by the tenth (10th) Business Day following delivery of the
Subsequent Financing Notice. If by such tenth (10th) Business Day, no public
disclosure regarding a transaction with respect to the Subsequent Financing has
been made, and no notice regarding the abandonment of such transaction has been
received by such Purchaser, such transaction shall be deemed to have been
abandoned and such Purchaser shall not be deemed to be in possession of any
material, non-public information with respect to the Company or any of its
Subsidiaries.

 

7.          MISCELLANEOUS.

7.1          Governing Law; Submission to Jurisdiction; Waiver of Trial by Jury.
This Agreement shall be governed in all respects by the laws of the State of New
York without regard to the conflict of laws principles of the State of New York
or any other jurisdiction. No suit, action or proceeding with respect to this
Agreement or any of the Transaction Documents may be brought in any court or
before any similar authority other than in a court of competent jurisdiction in
the State of New York and the parties hereby submit to the exclusive
jurisdiction of such courts for the purpose of such suit, proceeding or
judgment. Each of the parties hereto hereby irrevocably waives any right which
it may have had to bring such an action in any other court, domestic or foreign,
or before any similar domestic or foreign authority and agrees not to claim or
plead the same. Each of the parties hereto hereby irrevocably and
unconditionally waives trial by jury in any legal action or proceeding in
relation to this Agreement or any of the Transaction Documents and for any
counterclaim therein.

7.2          Survival of Representations and Warranties. The representations and
warranties made by the Company and the Purchasers herein at each Closing shall
survive such Closing. All statements contained in any certificate or other
instrument delivered by or on behalf of any party to this Agreement, pursuant to
or in connection with the transactions contemplated by this Agreement or any of
the other Transaction Documents shall be deemed to be representations and
warranties made by such party as of the date of such certificate or other
instrument.

7.3          Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided that no party may assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement without the
consent of each other party. Notwithstanding the foregoing (a) any Purchaser may
assign or transfer, in whole or, from time to time, in part, the right to
purchase all or any portion of the Securities to one or more of its Affiliates
(subject to Affiliate qualification as an Accredited Investor) and (b) any
Purchaser may assign or transfer any of its rights or obligations under this
Agreement, in whole or from time to time in part, to the Company or any other
Purchaser or any Affiliate of any other Purchaser. As a condition of any
transfer pursuant to this Section 7.3, the transferee must agree in writing for
the benefit of all parties to this Agreement (which writing shall be in form and
substance reasonably acceptable to all parties to this Agreement) to be bound by
the terms and conditions of this Agreement and all other Transaction Documents
with respect to any Shares being transferred hereunder.

7.4          Entire Agreement. This Agreement, the Exhibits and Schedules
hereto, the other Transaction Documents and each of the Exhibits delivered
pursuant thereto constitute the full and entire understanding and agreement
between the parties hereto with regard to the subject matter hereof and thereof
and no party hereto shall be liable or bound to any other party hereto in any
manner by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.

33

 

7.5          Severability. If any provision of the Agreement is held to be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.

7.6          Amendment and Waiver. Any provision of this Agreement may be
amended or waived if, but only if, such amendment or waiver is in writing and is
signed by the Company and the Purchasers (and, to the extent of any assignment
under Section 7.3 hereof, their respective permitted assigns and any permitted
assigns thereof) holding a majority of the voting power of the then outstanding
Shares and Warrant Shares purchased under this Agreement held by such holders,
with each outstanding Share having one vote and each outstanding Warrant Share
having one vote and which majority must include Alpha Capital Anstalt for so
long as Alpha Capital Anstalt holds $100,000 of Shares purchased in the
Offering.

7.7          Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party, upon any breach, default or noncompliance
by another party under this Agreement, the other Transaction Documents, shall
impair any such right, power or remedy, nor shall it be construed to be a waiver
of any such breach, default or noncompliance, or any acquiescence therein, or of
or in any similar breach, default or noncompliance thereafter occurring. Any
waiver or approval of any kind or character on any Purchaser’s part of any
breach, default or noncompliance under this Agreement, the other Transaction
Documents or any waiver on such party’s part of any provisions or conditions of
the Agreement, the other Transaction Documents, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, the other Transaction Documents, or
otherwise afforded to any party, shall be cumulative and not alternative.

7.8          Notices. All notices, requests, demands and other communications
given or made in accordance with the provisions of this Agreement shall be
addressed (i) if to a Purchaser, at such Purchaser’s address, fax number or
email address, as furnished to the Company on the signature page below or as
otherwise furnished to the Company by the Purchaser in writing, or (ii) if to
the Company, to the attention of the President at such address, fax number or
email address furnished to the Purchasers on the signature page below or as
otherwise furnished by the Company in writing, and shall be made or sent by a
personal delivery or overnight courier, by registered, certified or first class
mail, postage prepaid, or by facsimile or electronic mail with confirmation of
receipt, and shall be deemed to be given on the date of delivery when made by
personal delivery or overnight courier, 48 hours after being deposited in the
U.S. mail, or upon confirmation of receipt when sent by facsimile or electronic
mail. Any party may, by written notice to the other, alter its address, number
or respondent, and such notice shall be considered to have been given three (3)
days after the overnight delivery, airmailing, faxing or sending via e-mail
thereof.

7.9          Expenses. The Company shall pay all costs and expenses that it
incurs with respect to the preparation, negotiation, execution, delivery and
performance of this Agreement, including, without limitation, any costs and
expenses of its counsel. The Company shall pay the reasonable fees and expenses
of independent counsel for the Purchaser with respect to the negotiation and
execution of this Agreement and the other Transaction Documents in accordance
with the terms of the Company’s agreement with the Purchaser.

7.10         Titles and Subtitles. The titles of the sections and subsections of
the Agreement are for convenience of reference only and are not to be considered
in construing this Agreement.

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7.11         Counterparts; Execution by Facsimile Signature. This Agreement may
be executed in any number of counterparts (including execution by facsimile),
each of which shall be an original, but all of which together shall constitute
one instrument. This Agreement may be executed by facsimile signature(s) which
shall be binding on the party delivering same, to be followed by delivery of
originally executed signature pages.

7.12          Acknowledgment. Any investigation or other examination that may
have been made at any time by or on behalf of a party to whom representations
and warranties are made in this Agreement or in any other Transaction Documents
shall not limit, diminish, supersede, act as a waiver of, or in any other way
affect the representations, warranties and indemnities contained in this
Agreement and the other Transaction Documents, and the respective parties may
rely on the representations, warranties and indemnities made to them in this
Agreement and the other Transaction Documents irrespective of and
notwithstanding any information obtained by them in the course of any
investigation, examination or otherwise, whether before or after any Closing.

7.13          Publicity. Except as otherwise required by law or applicable stock
exchange rules, no announcement or other disclosure, public or otherwise,
concerning the transactions contemplated by this Agreement shall be made, either
directly or indirectly, by any party hereto which mentions another party (or
parties) hereto without the prior written consent of such other party (or
parties), which consent shall not be unreasonably withheld, delayed or
conditioned.

7.14          No Third Party Beneficiaries. Nothing in this Agreement, express
or implied, is intended to confer on any person other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations or
Liabilities under or by reason of this Agreement.

7.15          Pronouns. All pronouns contained herein, and any variations
thereof, shall be deemed to refer to the masculine, feminine or neutral,
singular or plural, as to the identity of the parties hereto may require.

7.16          Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) any of
the other Transaction Documents, whenever any Purchaser exercises a right,
election, demand or option under a Transaction Document and the Company does not
timely perform its related obligations within the periods therein provided, then
such Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights; provided,
however, that in the case of a rescission of an exercise of a Warrant, the
applicable Purchaser shall be required to return any shares of Common Stock
subject to any such rescinded exercise notice concurrently with the return to
such Purchaser of the aggregate exercise price paid to the Company for such
shares and the restoration of such Purchaser’s right to acquire such shares
pursuant to such Purchaser’s Warrant (including, issuance of a replacement
warrant certificate evidencing such restored right).

7.17          Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
surrender and cancellation thereof (in the case of mutilation), or in lieu of
and substitution therefor, a new certificate or instrument, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft,
destruction, or mutilation, and of the ownership of such Security.  The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity and
bonds) associated with the issuance of such replacement Securities.

35

 

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

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

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

7.21          Liquidated Damages. The Company’s obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts due thereunder have been paid
notwithstanding the fact that the instrument or security pursuant to which such
partial liquidated damages or other amounts are due and payable shall have been
canceled.

7.22          Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such right
may be exercised on the next succeeding Business Day.

7.23          Construction. The parties agree that each of them and/or their
respective counsel have reviewed and had an opportunity to revise the
Transaction Documents and, therefore, the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of the Transaction Documents or any
amendments thereto. In addition, each and every reference to share prices and
shares of Common Stock in any Transaction Document shall be subject to
adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur after
the date of this Agreement.

36

 

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

7.25          WAIVER OF JURY TRIAL.  IN ANY ACTION, SUIT, OR PROCEEDING IN ANY
JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH
KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW,
HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER
TRIAL BY JURY.

7.26          Equitable Adjustment. Trading volume amounts, price/volume amounts
and similar figures in the Transaction Documents shall be equitably adjusted
(but without duplication) to offset the effect of stock splits, similar events
and as otherwise described in this Agreement and Warrants.

8.          DEFINITIONS.

As used in this Agreement, the following terms shall have the meanings herein
specified:

8.1          “Affiliate” shall mean, with respect to any Person specified: (i)
any Person that directly or indirectly through one or more intermediaries
controls, is controlled by or under common control with the Person specified;
(ii) any director, officer, or Subsidiary of the Person specified; and (iii) the
spouse, parents, children, siblings, mothers-in-law, fathers-in law,
sons-in-law, daughters-in-law, brothers-in-law, and sisters-in-law of the Person
specified, whether arising by blood, marriage or adoption, and any Person who
resides in the specified Person’s home. For any director, officer, or Subsidiary
of the Person specified. For purposes of this definition and without limitation
to the previous sentence, (x) “control” (including, with correlative meanings,
the terms “controlled by” and “under common control with”) of a Person means the
power, direct or indirect, to direct or cause the direction of management and
policies of such Person, whether through ownership of voting securities, by
contract or otherwise, and (y) any Person beneficially owning, directly or
indirectly, more than ten percent (10%) or more of any class of voting
securities or similar interests of another Person shall be deemed to be an
Affiliate of that Person.

37

 

8.2          “Agreement” shall have the meaning set forth in the preamble to
this Agreement.

 

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

8.4          “Budget” shall have the meaning set forth in Section 3.18.

8.5          “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.

8.6          “Certificate” shall have the meaning set forth in Section 5.1.11.

8.7          “Closing” shall mean the Initial Closing or the Subsequent Closing,
as applicable.

8.8          “Closing Date” shall mean the Initial Closing Date or the
Subsequent Closing Date, as applicable.

8.9          “Code” shall have the meaning set forth in Section 3.13.2.

8.10          “Collaborators” shall have the meaning set forth in Section
3.17.1.

8.11          “Company” shall have the meaning set forth in the preamble to this
Agreement.

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

8.13          “Common Stock” means the common stock of the Company, par value
$0.0001 per share, and any other class of securities into which such securities
may hereafter be reclassified or changed.

8.14          “Common Stock Equivalents” means any securities of the Company or
the Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, right,
option, warrant or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.

8.15          “Company Counsel” means, Robinson Brog Leinwand Greene Genovese &
Gluck P.C., with offices at 875 Third Avenue, 9th Floor, New York, New York
10022, Attn: David E. Danovitch, facsimile: (212) 956-2164.

8.16          “Company Intellectual Property” shall mean shall mean all
Copyrights, Patents, Trademarks, technology, trade secrets, know-how,
inventions, methods, techniques and other intellectual property

8.17          “Consents” shall mean any consents, waivers, approvals,
authorizations, or certifications from any Person or under any Contract,
Organizational Document or Requirement of Law, as applicable.

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8.18          “Contracts” shall mean any indentures, indebtedness, contracts,
leases, agreements, instruments, licenses, undertakings and other commitments,
whether written or oral.

8.19          “Copyrights” shall mean all copyrights, copyrightable works, mask
works and databases, including, without limitation, any computer software
(object code and source code), Internet web-sites and the content thereof, and
any other works of authorship, whether statutory or common law, registered or
unregistered, and registrations for and pending applications to register the
same including all reissues, extensions and renewals thereto, and all moral
rights thereto under the laws of any jurisdiction.

 

8.20          “Effective Date” means the earliest of the date that (a) the
Initial Registration Statement, as defined in the Registration Rights Agreement,
has been declared effective by the Commission, or (b) all of the Shares and
Warrant Shares have been sold pursuant to Rule 144 or may be sold pursuant to
Rule 144 without the requirement for the Company to be in compliance with the
current public information requirement under Rule 144 and without volume or
manner-of-sale restrictions and Company counsel has delivered to the Transfer
Agent and such holders a standing written unqualified opinion that resales may
then be made by such holders of the Shares and Warrant Shares pursuant to such
exemption which opinion shall be in form and substance reasonably acceptable to
such holders.

8.21          “Employee” shall have the meaning set forth in Section 3.14.1.

8.22          “Employee Benefit Plans” shall have the meaning set forth in
Section 3.15.1.

8.23          “Encumbrances” shall mean any Securities interests, liens,
encumbrances, pledges, mortgages, conditional or installment sales Contracts,
title retention Contracts, transferability restrictions and other claims or
burdens of any nature whatsoever.

8.24          “Equity Line of Credit” shall have the meaning ascribed to such
term in Section 6.18.

8.25          “ERISA” shall have the meaning set forth in Section 3.15.1.

8.26          “Escrow Agreement” shall have the meaning set forth in Section
5.1.11.

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

8.28          “Exempt Issuance” means the issuance of (a) shares of Common Stock
and options to officers, employees, or directors of the Company prior to and
after the Closing Date pursuant to any (i) current stock or option plan
previously adopted or (ii) any future stock or option plan duly adopted for such
purpose, by a majority of the non-employee members of the Board of Directors or
a majority of the members of a committee of non-employee directors established
for such purpose in the amounts and on the terms set forth on Schedule 8.28, (b)
securities upon the exercise or exchange of or conversion of any Securities
issued hereunder, and/or other securities exercisable or exchangeable for or
convertible into shares of Common Stock issued and outstanding on the date of
this Agreement, provided that such securities and any term thereof have not been
amended since the date of this Agreement to increase the number of such
securities or to decrease the issue price, exercise price, exchange price or
conversion price of such securities and which securities and the principal terms
thereof are set forth on Schedule 3.3.2, and described in the SEC Reports filed
not later than ten (10) days before the Closing Date, (c) securities issued
pursuant to acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, provided that any such issuance shall
only be to a Person (or to the equityholders of a Person) which is, itself or
through its subsidiaries, an operating company or an owner of an asset in a
business synergistic with the business of the Company and shall be intended to
provide to the Company substantial additional benefits in addition to the
investment of funds, but shall not include a transaction in which the Company is
issuing securities primarily for the purpose of raising capital or to an entity
whose primary business is investing in securities, and (d) securities issued or
issuable pursuant to this Agreement, or the Warrants, including, without
limitation, Section 6.14, or upon exercise or conversion of any such securities.

39

 

8.29          “Exercise Notice” shall have the meaning set forth in Section
6.12.

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

8.31          “Final Termination Date” shall have the meaning set forth in
Section 2.2.

8.32          “Financial Statements” shall have the meaning set forth in Section
3.5.

8.33          “GAAP” shall have the meaning ascribed to such term in Section
3.5.

8.34          “G&M” shall mean Grushko & Mittman, P.C., with offices located at
515 Rockaway Avenue, Valley Stream, New York 11581, Fax: 212-697-3575.

8.35          “Governmental or Regulatory Authority” shall mean any court,
tribunal, arbitrator, authority, agency, commission, official or other
instrumentality of the government of the United States or of any foreign
country, any state or any political subdivision of any such government (whether
state, provincial, county, city, municipal or otherwise).

8.36          “Hazardous Substances” shall mean oil and petroleum products,
asbestos, polychlorinated biphenyls, urea formaldehyde and any other materials
classified as hazardous or toxic under any Environmental Laws.

8.37          “Indebtedness” shall have the meaning set forth in Section 3.45.

8.38          “Indemnified Losses” shall mean all losses, Liabilities,
obligations, claims, demands, damages, penalties, settlements, causes of action,
costs and expenses arising out of any third party claim or action against an
Indemnified Party, including, without limitation, the actual costs paid in
connection with an Indemnified Party’s investigation and evaluation of any claim
or right asserted against such Indemnified Party and all reasonable attorneys’,
experts’ and accountants’ fees, expenses and disbursements and court costs
including, without limitation, those incurred in connection with the Indemnified
Party’s enforcement of the indemnification provisions of Section Error!
Reference source not found. of this Agreement.

8.39          “Initial Closing” shall have the meaning set forth in Section 2.1.

8.40          “Initial Closing Date” shall have the meaning set forth in Section
2.1.

8.41          “Initial Securities” shall have the meaning set forth in Section
2.1.

8.42          “Leased Real Property” shall have the meaning set forth in Section
3.17.

8.43          “Legal Proceeding” shall mean any action, suit, arbitration, claim
or investigation by or before any Governmental or Regulatory Authority, any
arbitration or alternative dispute resolution panel, or any other legal,
administrative or other proceeding.

40

 

8.44          “Liabilities” shall mean all obligations and liabilities
including, without limitation, direct or indirect indebtedness, guaranties,
endorsements, claims, losses, damages, deficiencies, costs, expenses, or
responsibilities, in any of the foregoing cases, whether fixed or unfixed, known
or unknown, asserted or unasserted, choate or inchoate, liquidated or
unliquidated, or secured or unsecured.

8.45          “Licensed Intellectual Property” shall mean all Copyrights,
Patents, Trademarks, technology rights and licenses, trade secrets, know-how,
inventions, methods, techniques and other intellectual property the Company has
or has the right to use in connection with its business, as applicable, pursuant
to license, sublicense, agreement or permission.

8.46          “Material Adverse Effect” shall have the meaning set forth in
Section 3.1.

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

8.48          “Order” shall mean any judgment, order, writ, decree, stipulation,
injunction or other determination whatsoever of any Governmental or Regulatory
Authority, arbitrator or any other Person whose finding, ruling or holding is
legally binding or is enforceable as a matter of right (in any case, whether
preliminary or final and whether voluntarily imposed or consented to).

8.49          “Organizational Documents” shall mean, with respect to any Person,
such Person’s articles or certificate of incorporation, by-laws or other
governing or constitutive documents, if any.

8.50          “Owned Intellectual Property” shall mean all Copyrights, Patents,
Trademarks, technology, trade secrets, know-how, inventions, methods, techniques
and other intellectual property owned by the Company or any of its Subsidiaries.

8.51          “Participation in Future Financing” shall have the meaning
ascribed to such term in Section 6.25.

8.52          “Patents” shall mean patents and patent applications (including,
without limitation, provisional applications, utility applications and design
applications), including, without limitation, reissues, patents of addition,
continuations, continuations-in-part, substitutions, additions, divisionals,
renewals, registrations, confirmations, re-examinations, certificates of
inventorship, extensions and the like, any foreign or international equivalent
of any of the foregoing, and any domestic or foreign patents or patent
applications claiming priority to any of the above.

8.53          “Permits” shall mean all licenses, permits, certificates of
authority, authorizations, approvals, registrations, franchises, rights, Orders,
qualifications and similar rights or approvals granted or issued by any
Governmental or Regulatory Authority relating to the Business.

8.54          “Per Securities Purchase Price” shall have the meaning set forth
in Section 1.2.

8.55          “Person” shall mean any individual, corporation, partnership,
firm, joint venture, association, limited liability company, limited liability
partnership, joint-stock company, trust, unincorporated organization or
Governmental or Regulatory Authority.

8.56          “Placement Agent” shall mean Garden State Securities, Inc.

8.57          “Premises” shall have the meaning set forth in Section 3.20.

41

 

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

8.59          “Protection Period” shall have the meaning ascribed to such term
in Section 6.13.

8.60          “Public Information Failure” shall have the meaning ascribed to
such term in Section 6.10.

8.61          “Public Information Failure Payments” shall have the meaning
ascribed to such term in Section 6.10.

8.62          “Purchase Price” shall mean the “Total Purchase Price Amount” set
forth in Exhibit A for each respective Purchaser.

8.63          “Purchasers” and “Purchaser” shall have the meaning set forth in
the preamble to this Agreement.

8.64          “Real Property Leases” shall have the meaning set forth in Section
3.17.

8.65          "Registration Rights Agreement” shall have the meaning set forth
in Section 5.1.5.

8.66          “Regulatory Approvals” shall mean all Consents from all
Governmental or Regulatory Authorities.

8.67          “Removal Date” means the date that all of the issued Shares and
Warrant Shares have been sold pursuant to Rule 144 or may be sold pursuant to
Rule 144 without the requirement for the Company to be in compliance with the
current public information requirements under Rule 144 and without volume or
manner-of-sale restrictions.

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

8.69          “Requirement of Law” shall mean any provision of law, statute,
treaty, rule, regulation, ordinance or pronouncement having the effect of law,
and any Order.

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

8.71          “Schedules” shall have the meaning set forth in the preamble to
Section 3.

8.72          “SEC” shall mean Securities and Exchange Commission.

42

 

8.73          “SEC Reports” shall have the meaning ascribed to such term in
Section 3.5.

8.74          “Securities” shall have the meaning set forth in the preamble of
this Agreement.

8.75          “Securities Act” shall have the meaning set forth in Section 3.21.

8.76          “Securities Laws” means the securities laws of the United States
or any state thereof and the rules and regulations promulgated thereunder.

8.77          “Share Dilution Adjustment” shall have the meaning ascribed to
such term in Section 4.14.

8.78          “Share Dilutive Issuance” shall have the meaning ascribed to such
term in Section 4.14.

8.79          “Shares” means the shares of Common Stock issued or issuable to
each Purchaser pursuant to this Agreement, provided that any such share of
Common Stock shall not constitute a Share after such share has been irrevocably
sold pursuant to an effective registration statement under the Securities Act or
pursuant to Rule 144 without further restrictions or conditions to transfer
pursuant to Rule 144, and provided further that Additional Shares and Additional
Warrant Shares shall constitute Shares only as provided in Section 4.14.

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

8.81          “Stock Option Plan” means the Stock Option Plan of the Company in
effect as the date of this Agreement, the principal terms of which have been
disclosed in the SEC Reports.

8.82          “Subsequent Closing” shall mean the funding which occurs on the
Subsequent Closing Date.

8.83          “Subsequent Closing Date” shall have the meaning set forth in
Section 2.2.

8.84          “Subsequent Closing Purchaser” shall have the meaning set forth in
Section 1.3.

8.85          “Subsequent Securities” shall have the meaning set forth in
Section 2.2.

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

8.87          “Suppliers” shall have the meaning set forth in Section 3.17.2.

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8.88          “Surrendered Shares” shall have the meaning set forth in Section
5.1.11.

8.89          “Tax Returns” shall mean any declaration, return, report,
estimate, information return, schedule, statements or other document filed or
required to be filed in connection with the calculation, assessment or
collection of any Taxes or, when none is required to be filed with a taxing
authority, the statement or other document issued by, a taxing authority.

8.90          “Taxes” shall mean (i) any tax, charge, fee, levy or other
assessment including, without limitation, any net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, payroll,
employment, social Securities, unemployment, excise, estimated, stamp,
occupancy, occupation, property or other similar taxes, including any interest
or penalties thereon, and additions to tax or additional amounts imposed by any
federal, state, local or foreign Governmental or Regulatory Authority, domestic
or foreign or (ii) any Liability for the payment of any taxes, interest,
penalty, addition to tax or like additional amount resulting from the
application of Treasury Regulation §1.1502-6 or comparable Requirement of Law.

 

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

8.92          “Trademarks” shall mean trademarks, service marks, trade names,
corporate names, company names, business names, fictitious business names, trade
styles, uniform resource locators (URLs), domain names, trade dress, any other
names and locators associated with the Internet, other source of business
identifiers, whether registered or unregistered and whether or not currently in
use, and registrations, applications to register and all of the goodwill of the
business related to the foregoing.

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

8.94          “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 OTCQB or the OTCQX (or any successors to any of the foregoing).

8.95          “Transaction Documents” shall mean this Agreement, the Warrant,
the Registration Rights Agreement and all other documents, certificates and
instruments executed and delivered at any Closing.

8.96          “Transfer Agent” means VStock Transfer, LLC, with offices located
at 77 Spruce Street, Suite 201, Cedarhurst, New York 11516, and any successor
transfer agent of the Company.

8.97          “Variable Priced Equity Linked Instruments” shall have the meaning
ascribed to such term in Section 6.18.

8.98          “Variable Rate Transaction” shall have the meaning ascribed to
such term in Section 6.18.

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

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8.100      “Warrants” means, collectively, the Common Stock purchase warrants
delivered to the Purchasers at any Closing in the form of Exhibit B attached
hereto.

8.101      “Warrant Shares” means the shares of Common Stock issuable upon
exercise of the Warrants, provided that any share of Common Stock issued upon
exercise of the Warrants shall not constitute an issued Warrant Share for
purposes of this Agreement after such share has been irrevocably sold pursuant
to an effective registration statement under the Securities Act or pursuant to
Rule 144 without further restrictions or conditions to transfer pursuant to Rule
144.

 

[SIGNATURES ON FOLLOWING PAGES]

 

 

 

 

 

 

 

 

 

 

 

 

45

 

IN WITNESS WHEREOF, the parties hereto have executed this Securities Purchase
Agreement as of [____________], 2014.

COMPANY:

NXT-ID, INC.  

 

By: _____________________________
Name: Gino Pereira
Title: Chief Executive Officer

Address:    One Reservoir Corporate Centre

    4 Research Drive, Suite 402

    Shelton, CT 06484.
Tel:            (203) 242-3076
Fax:            _______________________
email:         gino@nxt-id.com

          PURCHASERS:   The Purchasers set forth on Exhibit A to the Agreement
have executed a Subscription Agreement with the Company which provides, among
other things, that by executing the Subscription Agreement each Purchaser is
deemed to have executed the SECURITIES PURCHASE AGREEMENT in all respects and is
bound to purchase the Securities set forth in such Subscription Agreement and
Exhibit A to the Agreement.          

 

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EXHIBIT A

SCHEDULE OF PURCHASERS

 

Initial Closing

 

Name of Purchaser Shares Warrants Warrant Shares Total Purchase
Price Amount         $

 

      TOTAL: $

Subsequent Closing

Name of Subsequent Closing Purchaser Shares Warrants Warrant Shares Total
Purchase
Price Amount         TOTAL: $

 

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT B

Form of Warrant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT C

FUNDING INSTRUCTIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT D

FORM OF LEGAL OPINION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT E

FORM OF REGISTRATION RIGHTS AGREEMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT F

FORM OF ESCROW AGREEMENT