Exhibit 10.1

 

MASTER EXCHANGE AGREEMENT

 

MASTER EXCHANGE AGREEMENT (this “Agreement”), dated as of July 17, 2015, by and
between Latitude 360, Inc., a Nevada corporation (the “Company”) and Crede CG
III, Ltd., an exempted company incorporated under the laws of Bermuda (the
“Creditor”).

 

WHEREAS:

 

A. The Company and the Creditor are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”) and
Rule 144(d)(3)(ii) of the Securities Act, as promulgated by the United States
Securities and Exchange Commission (the “SEC”) under the Securities Act.

 

B. As of the date hereof, the Creditor holds $1,988,396 in principal amount and
interest of promissory notes of the Company or its direct or indirect
subsidiaries (the “Existing Debt”, and the amount owing pursuant thereto, the
“Debt Amount”), which Existing Debt the Creditor purchased from creditors of the
Company listed on Schedule 1 (the “Original Creditors”) in such amounts on such
dates as listed on Schedule 1, pursuant to note purchase agreements as of such
dates entered into among the Creditor and the Original Creditors.

 

C. The Company and the Creditor desire to enter into this Agreement, pursuant to
which, among other things, the Creditor shall exchange, as set forth herein, in
whole or in part, the Existing Debt for shares of the Company’s common stock,
$0.001 par value per share (the “Common Stock”), and any additional principal
amount and interest of promissory notes of the Company as the parties may agree
upon from time to time, as provided hereunder in reliance on the exemption from
registration provided by Section 3(a)(9) of the Securities Act.

 

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the Company and the Creditor hereby agree as
follows:

 

1. EXCHANGES OF EXISTING DEBT.  At any time during the period (the “Exchange
Period”) commencing on the date hereof and ending on April 17, 2016 (the
“Outside Date”), the Company and the Creditor agree, subject to Section 1(e)
below, to exchange (each, an “Exchange”) all (reduced only as set forth in
Section 1(e) below) of the Existing Debt into validly issued, fully paid and
non-assessable shares of Common Stock (as defined below) (collectively, the
“Exchange Shares”), on the terms and conditions set forth in this Section
1.  Certain capitalized terms used herein are defined in Section 1(h).

 

(a) Exchange Right and Obligation. Subject to the provisions of Section 1(e),
(i) On such dates as listed on Schedule 1 and as the parties may otherwise agree
upon, during the Exchange Period, the Creditor shall be entitled to exchange any
portion of the outstanding and unpaid Existing Debt into validly issued, fully
paid and non-assessable shares of Common Stock and (ii) on the Outside Date, the
Creditor shall be obligated to exchange all (reduced only as set forth in
Section 1(e) below) of the then still outstanding and unpaid Existing Debt into
validly issued, fully paid and non-assessable shares of Common Stock, in each
case in accordance with Section 1(d), at the Exchange Rate (as defined below),
subject to adjustment as described in Section 1(c) below to reflect the
intention of the parties that the total number of Exchange Shares issued be
based upon an average trading price of the Common Stock for a specified period
of time subsequent to an Exchange.  The Company shall not issue any fraction of
a share of Common Stock upon any Exchange.  If the issuance would result in the
issuance of a fraction of a share of Common Stock, the Company shall round such
fraction of a share of Common Stock up to the nearest whole share. The Company
shall pay any and all transfer, stamp, issuance and similar taxes that may be
payable with respect to the issuance and delivery of Common Stock upon Exchange
of Existing Debt.

 

 
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(b) Exchange Rate. The number of shares of Common Stock issuable upon exchange
of any Existing Debt pursuant to Section 1(a) shall be determined by dividing
(x) the Exchange Amount (as defined below) with respect to such Existing Debt by
(y) the Exchange Price (the “Exchange Rate”), subject to adjustment as described
in Section 1(c) below.

 

(i) “Exchange Amount” means, with respect to such Existing Debt to be exchanged
hereunder, 200% of the aggregate of the Debt Amount of the Existing Debt to be
exchanged hereunder, the Interest Amount with respect thereto and any other
amounts owed by the Company to the Creditor thereunder (collectively, the “Debt
Exchange Amount”).

 

(ii) “Exchange Price” means, for any date of determination, the Closing Bid
Price (as defined below) on the Exchange Date (as defined below).  The Exchange
Price for the Initial Exchange shall be $0.505. All such determinations will be
appropriately adjusted for any stock split, stock dividend, stock combination or
other similar transaction during any such measuring period.

 

(iii) “Interest Amount” means, with respect to any portion of Existing Debt as
of any Exchange Date, the greater of (A) any accrued and unpaid interest with
respect to such Existing Debt outstanding as of such Exchange Date under the
terms of such Existing Debt; and (B) (I) the sum of any accrued and unpaid
interest outstanding with respect to the such Existing Debt as of the date the
Creditor acquired such Existing Debt and such aggregate amount of interest that
would have accrued under such Existing Debt during the period commencing on the
date the Creditor acquired the such Existing Debt through such Exchange Date (as
defined below), less (II) any interest paid to the Creditor in cash with respect
to such Existing Debt prior to such Exchange Date.

 

(c) Adjustment to Number of Exchange Shares.

 

(i)     Subject to the limitations set forth in Section 1(e) below, the total
number of shares of Common Stock to be issued to Creditor in connection with an
Exchange shall be adjusted on the 91st day following the Creditor's receipt of
such issued shares of Common Stock in accordance with Section 1(d) below (a
“Receipt”) or earlier at the discretion of the Creditor if the aggregate trading
volume of the Common Stock following such Receipt is equal to or greater than
$10,000,000 (the ninety (90) trading day period or shorter period following a
Receipt, the “True-Up Period,” and the 91st day or day following the shorter
period following a Receipt, the “True-Up Date”), as follows: (A) if the number
of “VWAP Shares” (as defined below) exceeds the number of Exchange Shares
initially issued pursuant to the applicable Exchange, then the Company will
issue and deliver to Creditor in the same manner as described in Section 1(d)
below additional shares of Common Stock equal to the difference between (I) the
total number of VWAP Shares and (II) the number of Exchange Shares initially
issued, and (B) if the number of VWAP Shares is less than the number of Exchange
Shares initially issued pursuant to an Exchange, then Creditor will return to
the Company for cancellation that number of shares of Common Stock equal to the
difference between (I) the number of Exchange Shares issued pursuant to the
Exchange and (II) the total number of VWAP Shares.

 

(ii)     The number of VWAP Shares used in Section 1(c)(i) shall be equal to the
Exchange Amount divided by 70% of the VWAP of the Common Stock over the True-Up
Period, provided, however, that in the event that the aggregate trading volume
of the Company’s Common Stock during the thirty days prior to an Exchange Date
is at or above $3,333,333, the adjustment pursuant to Section 1(c)(i) shall use
VWAP Shares equal to the Exchange Amount divided by 75% of the VWAP of the
Common Stock for the Exchange applicable to such Exchange Date.

 

(iii)      Subject to the limitations set forth in Section 1(e) below, at any
time during the True-Up Period, the Creditor may deliver a written notice to the
Company by facsimile or email requesting that a specified number of additional
shares of Common Stock be delivered (A) if at any time during the True-Up Period
the Closing Sale Price of the Common Stock is below 90% of the Closing Sale
Price at the Exchange Date at the beginning of the True-Up Period, to make up
the difference in the value of the Exchanged Share applicable to such Exchange
Date due to the difference between the Closing Sale Price on such Exchange Date
and the Closing Sale Price of the Common Stock on the date of such written
notice, or (B) to release shares of Common Stock held by the Company to the
Creditor that have been held by the Company as a result of any previous
application of the Maximum Percentage (as defined below) in accordance with
Section 1(e) below, provided that such notice and such issuance shall not take
effect if the Creditor’s beneficial ownership of the Company will exceed the
Maximum Percentage. The Creditor may in its sole discretion deliver one or more
such notices during the True-Up Period. Within one trading day following
delivery of each such notice, the Company shall deliver to Creditor, in
compliance with the procedure set forth in paragraph 1(d) below (including,
without limitation, issuance of the legal opinion to the transfer agent at the
Company's sole cost and expense), the number of additional shares of Common
Stock requested in the notice. Any additional shares of Common Stock issued or
issuable pursuant to this Section 1(c) will be considered Exchange Shares for
purposes of any calculation of the total number of shares to be issued by, or
returned to, the Company pursuant to Section 1(c)(i) above.

 

 
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(d) Mechanics of Exchange.

 

(i) Exchange. To exchange any Exchange Debt as listed on Schedule 1, which may
be amended from time to time upon mutual agreement of the parties with
additional Original Creditors and any additional amounts of Existing Debt that
the Creditor may purchase from such Original Creditors, into shares of Common
Stock on the date hereof and on such dates as the parties may otherwise agree
upon during the Exchange Period (each an “Exchange Date”), the Creditor shall
deliver (whether via facsimile or otherwise), for receipt on or prior to 11:59
p.m., New York time, on such date, a copy of an executed notice of exchange in
the form attached hereto as Exhibit I (the “Exchange Notice”) to the
Company.  On the Outside Date, the Creditor shall deliver (whether via facsimile
or otherwise), for receipt on or prior to 11:59 p.m., New York time, on such
date, the Exchange Notice to the Company for all (reduced only as set forth in
Section 1(e) below) of the then still outstanding and unpaid Existing Debt. On
or before the first (1st) Trading Day following the date of receipt of an
Exchange Notice, the Company shall transmit by facsimile or otherwise an
acknowledgment of confirmation, in the form attached hereto as Exhibit II, of
receipt of such Exchange Notice to the Creditor and the Company’s transfer agent
(the “Transfer Agent”). On or before the second (2nd) Trading Day following the
date of receipt of an Exchange Notice, the Company shall, (A) provided that the
Transfer Agent is participating in The Depository Trust Company’s (the “DTC”)
Fast Automated Securities Transfer (FAST) Program, credit such aggregate number
of shares of Common Stock to which the Creditor shall be entitled to the
Creditor’s balance account with DTC through its Deposit/Withdrawal at Custodian
system or (B) if the Transfer Agent is not participating in the DTC Fast
Automated Securities Transfer (FAST) Program, issue and send (via reputable
overnight courier) to the address as specified in the Exchange Notice, a
certificate, registered in the name of the Creditor, for the number of shares of
Common Stock to which the Creditor shall be entitled. The Person or Persons
entitled to receive the shares of Common Stock issuable upon an Exchange of the
Existing Debt shall be treated for all purposes as the record holder or holders
of such shares of Common Stock on the Exchange Date.  

   

(ii) Company’s Failure to Timely Exchange. If the Company shall fail, for any
reason or for no reason, to issue to the Creditor within three (3) Trading Days
after the Company’s receipt of an Exchange Notice (whether via facsimile or
otherwise) (the “Share Delivery Deadline”), a certificate for the number of
shares of Common Stock to which the Creditor is entitled and register such
shares of Common Stock on the Company’s share register or to credit the
Creditor’s balance account with DTC for such number of shares of Common Stock to
which the Creditor is entitled upon the Creditor’s exchange of any Existing Debt
(as the case may be) (an “Exchange Failure”), then, as the sole and exclusive
remedy available to the Creditor, (A) the Company shall pay in cash to the
Creditor on each day after such Share Delivery Deadline that the issuance of
such shares of Common Stock is not timely effected an amount equal to 2% of the
product of (I) the sum of the number of shares of Common Stock not issued to the
Creditor on a timely basis and to which the Creditor is entitled multiplied by
(II) the Closing Sale Price of the Common Stock on the Trading Day immediately
preceding the last possible date which the Company could have issued such shares
of Common Stock to the Creditor without violating Section 1(d)(i) and (B) the
Creditor, upon written notice to the Company, may void its Exchange Notice with
respect to, and retain or have returned (as the case may be) any portion of the
Existing Debt that has not been exchanged pursuant to such Exchange Notice,
provided that the voiding of an Exchange Notice shall not affect the Company’s
obligations to make any payments which have accrued prior to the date of such
notice pursuant to this Section 1(d)(ii) or otherwise. In addition to the
foregoing, if on or prior to the Share Delivery Deadline, the Company shall fail
to issue and deliver a certificate to the Creditor and register such shares of
Common Stock on the Company’s share register or credit the Creditor’s or its
designee’s balance account with DTC for the number of shares of Common Stock to
which the Creditor is entitled upon the Creditor’s Exchange hereunder (as the
case may be), and if on or after such Share Delivery Deadline the Creditor
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Creditor or its designee of all or any
portion of the number of shares of Common Stock, or a sale of a number of shares
of Common Stock equal to all or any portion of the number of shares of Common
Stock, issuable upon such Exchange that the Creditor or its designee so
anticipated receiving from the Company, then, in addition to all other remedies
available to the Creditor or its designee, the Company shall, within three (3)
Business Days after receipt of the Creditor’s or its designee’s written request,
pay cash to the Creditor or its designee, as applicable, in an amount equal to
the Creditor’s or its designee’s total purchase price (including brokerage
commissions and other out-of-pocket expenses, if any) for the shares of Common
Stock so purchased (including, without limitation, by any other Person in
respect, or on behalf, of the Creditor) (the “Buy-In Price”), at which point the
Company’s obligation to so issue and deliver such certificate or credit the
Creditor’s or its designee’s balance account with DTC for the number of shares
of Common Stock to which the Creditor is entitled upon the Creditor’s exchange
hereunder (as the case may be) (and to issue such shares of Common Stock) shall
terminate.

 

 
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(iii) Book-Entry.  Notwithstanding anything to the contrary set forth in this
Section 1, following Exchange of any portion of the Existing Debt in accordance
with the terms hereof, the Creditor shall not be required to physically
surrender any note, certificate or other instrument evidencing the Existing Debt
to the Company unless (A) the full Exchange Amount represented by the Existing
Debt is being exchanged (in which event the instrument evidencing such Existing
Debt shall be delivered to the Company following exchange thereof as
contemplated by Section 1(d)(i)) or (B) the Creditor has provided the Company
with prior written notice (which notice may be included in an Exchange Notice)
requesting reissuance of a note, certificate or other instrument with respect to
the Existing Debt and the Exchange Shares upon physical surrender of a
certificate with respect to the Existing Debt. The Creditor shall provide the
Company with written partial releases relating to all Exchanges of the Existing
Debt. The Creditor and the Company shall maintain records showing the amount of
the Existing Debt exchanged, paid or adjusted (as the case may be) and the dates
of such exchanges, payments or adjustments (as the case may be) or shall use
such other method, reasonably satisfactory to the Creditor and the Company, so
as not to require physical surrender of any certificate with respect to the
Existing Debt upon any Exchange until the Existing Debt being Exchanged has been
fully satisfied.

 

(iv)  Pro Rata Exchange; Disputes. In the event of a dispute as to the number of
shares of Common Stock issuable to the Creditor in connection with an Exchange
of the Existing Debt of an adjustment to the number of Exchange Shares to be
delivered following the True-Up Period, the Company shall issue to the Creditor
the number of shares of Common Stock not in dispute and resolve such dispute in
accordance with Section 1(f).

 

(v)     Postponement; Early Exchange. Notwithstanding anything to the contrary
contained herein, the Company may at its sole discretion provide written notice
to the Creditor within five days prior to any Exchange Date that the Company
elects not to proceed with the Exchange for such Exchange Date. In such event,
the contemplated Exchange shall be postponed for up to 30 days until the Company
provides 14 days’ written notice to the Creditor of the next Exchange Date (the
“Postponed Date”). The Company shall have the right to unilaterally postpone an
Exchange Date up to two times. In the event that the aggregate trading volume of
the Common Stock since the prior Exchange Date is or exceeds $10,000,000, the
Company shall have the option to require the Creditor to consummate the next
Exchange due within two Business Days after the Company provides written notice
to the Creditor of such earlier Exchange.

 

 
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(e) Limitations on Exchanges.  Notwithstanding anything to the contrary
contained in the notes, certificates or other instruments of the Existing Debt,
the Existing Debt shall not be exchangeable by the Creditor hereof, and the
Company shall not effect any exchange of the Existing Debt or otherwise issue
any shares of Common Stock pursuant hereto, to the extent (but only to the
extent) that after giving effect to such exchange or other share issuance
hereunder the Creditor (together with its Affiliates) would beneficially own in
excess of 4.99% (the “Maximum Percentage”) of the Common Stock.  To the extent
the above limitation applies, the determination of whether the Existing Debt
shall be exchangeable (vis-à-vis other convertible, exercisable or exchangeable
securities owned by the Creditor or any of its Affiliates) and of which such
securities shall be convertible, exercisable or exchangeable (as among all such
securities owned by the Creditor and its Affiliates) shall, subject to such
Maximum Percentage limitation, be determined on the basis of the first
submission to the Company for conversion, exercise or exchange (as the case may
be). Any shares of the Common Stock that are not issued to the Creditor for the
Creditor’s beneficial ownership of the Company to remain at or below the Maximum
Percentage shall be held by the Company until the Creditor provides a written
notice of demand for the issuance of such shares to the Creditor; provided,
however, that such notice and such issuance shall not take effect if the
Creditor’s beneficial ownership of the Company will exceed the Maximum
Percentage. No prior inability to exchange the Existing Debt, or to issue shares
of Common Stock, pursuant to this paragraph shall have any effect on the
applicability of the provisions of this paragraph with respect to any subsequent
determination of exchangeability. For purposes of this paragraph, beneficial
ownership and all determinations and calculations (including, without
limitation, with respect to calculations of percentage ownership) shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder (the
“Exchange Act”).  The provisions of this paragraph shall be implemented in a
manner otherwise than in strict conformity with the terms of this paragraph to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Maximum Percentage beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such Maximum Percentage limitation. For any
reason at any time until the Existing Debt has been exchanged, upon the written
or oral request of the Creditor, the Company shall within one (1) Business Day
confirm orally and in writing to the Creditor the number of shares of Common
Stock then outstanding, including by virtue of any prior conversion, exchange or
exercise of convertible or exercisable securities into Common Stock, including,
without limitation, pursuant to the Existing Debt or securities issued pursuant
to this Exchange Agreement. In addition, under no circumstances whatsoever may
the aggregate number shares of Common Stock issued to Creditor in connection
with the exchange of the Existing Debt at any time exceed 19.99% of the total
number of shares of Common Stock outstanding or of the voting power unless the
Company has obtained either (i) its stockholders’ approval of the issuance of
more than such number of shares of Common Stock pursuant to NASDAQ Marketplace
Rule 5635(d) or (ii) a waiver from The NASDAQ Stock Market of the Company’s
compliance with Rule 5635(d).

 

(f) DISPUTE RESOLUTION. In the case of a dispute as to the determination of any
Exchange Price, the Closing Bid Price, the Closing Sale Price or fair market
value (as the case may be) or any adjustment to the Exchange Shares, the Company
or the Creditor (as the case may be) shall submit the disputed determinations or
arithmetic calculations (as the case may be) via facsimile or e-mail (i) within
two (2) Business Days after receipt of the applicable notice giving rise to such
dispute to the Company or the Creditor (as the case may be) or (ii) if no notice
gave rise to such dispute, at any time after the Company or the Creditor learned
of the circumstances giving rise to such dispute. If the Creditor and the
Company are unable to agree upon such determination or calculation within two
(2) Business Days of such disputed determination or arithmetic calculation (as
the case may be) being submitted to the Company or the Creditor (as the case may
be), then the Company shall, within two (2) Business Days, submit via facsimile
or e-mail the disputed determination of any Exchange Price, the Closing Bid
Price, the Closing Sale Price or fair market value (as the case may be) or any
adjustment to the Exchange Shares to an independent, reputable investment bank
selected by the Company and reasonably approved by the Creditor. The Company and
the Creditor shall cause the investment bank to perform the determinations or
calculations (as the case may be) and notify the Company and the Creditor of the
results no later than ten (10) Business Days from the time it receives such
disputed determinations or calculations (as the case may be). Such investment
bank’s determinations or calculations (as the case may be) shall be binding upon
all parties absent demonstrable error. The party whose determinations or
calculations are furthest from such investment bank’s determination or
calculation shall pay the expenses arising from or related to use the use of
such investment bank for such disputed determinations or calculations.

 

 
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(g) INITIAL EXCHANGE.  As of the date hereof (the “Initial Exchange Date”), the
Creditor shall be deemed to have delivered an Exchange Notice to effect an
Exchange with respect to such aggregate initial Debt Exchange Amount and such
initial Exchange Price as set forth on the signature page of the Creditor.  If
the Company fails to deliver the Common Stock with respect to such initial
Exchange on or prior to the Share Delivery Deadline with respect thereto, the
Creditor shall have the option, by delivery of written notice to the Company, to
terminate this Agreement, with no liability to the Company or the Creditor.  

 

(h) CERTAIN DEFINITIONS.  For purposes of this Agreement, the following terms
shall have the following meanings:

 

(i) “Affiliate” means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with such specified
person. For the purposes of this definition, “control,” when used with respect
to any specified person, means the power to direct the management and policies
of such person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms “controlling” and
“controlled” have correlative meanings.

 

(ii) “Approved Stock Plan” means any employee benefit plan which has been
approved by the board of directors of the Company prior to or subsequent to the
date hereof pursuant to which shares of Common Stock and standard options to
purchase Common Stock may be issued to any employee, officer, consultant or
director for services provided to the Company in their capacity as such.

 

(iii) “Bloomberg” means Bloomberg, L.P.

 

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

 

(v) “Closing Bid Price” and “Closing Sale Price” means, for any security as of
any date, the last closing bid price and last closing trade price, respectively,
for such security on the Principal Market, as reported by Bloomberg, or, if the
Principal Market begins to operate on an extended hours basis and does not
designate the closing bid price or the closing trade price (as the case may be)
then the last bid price or last trade price, respectively, of such security
prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the
Principal Market is not the principal securities exchange or trading market for
such security, the last closing bid price or last trade price, respectively, of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price or last trade price, respectively, of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price or last
trade price, respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any market makers
for such security as reported in the “pink sheets” by OTC Markets Group Inc.
(formerly Pink Sheets LLC).

 

 
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(vi) “Convertible Securities” means any capital stock, warrants, notes, rights,
options or other security of the Company or any of its Subsidiaries that is at
any time and under any circumstances directly or indirectly convertible into,
exercisable or exchangeable for, or which otherwise entitles the holder thereof
to acquire, any capital stock or other security of the Company (including,
without limitation, Common Stock) or any of its Subsidiaries.

 

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

 

(viii) “Excluded Securities” means (A) shares of Common Stock or standard
options to purchase Common Stock to directors, officers, consultants or
employees of the Company in their capacity as such pursuant to an Approved Stock
Plan (as defined below), provided that (I) all such issuances (taking into
account the shares of Common Stock issuable upon exercise of such options) after
the date hereof pursuant to this clause (A) do not, in the aggregate, exceed
more than 20% of the Common Stock issued and outstanding immediately prior to
the date hereof and (II) the exercise price of any such options is not lowered,
none of such options are amended after the date hereof to increase the number of
shares issuable thereunder and none of the terms or conditions of any such
options are otherwise materially changed in any manner that adversely affects
the Creditor; (B) shares of Common Stock issued upon the conversion or exercise
of Convertible Securities (other than standard options to purchase Common Stock
issued pursuant to an Approved Stock Plan that are covered by clause (A) above)
issued prior to the date hereof, provided that the conversion price of any such
Convertible Securities (other than standard options to purchase Common Stock
issued pursuant to an Approved Stock Plan that are covered by clause (A) above)
is not after the date hereof lowered, none of such Convertible Securities (other
than standard options to purchase Common Stock issued pursuant to an Approved
Stock Plan that are covered by clause (A) above) are amended after the date
hereof to increase the number of shares issuable thereunder and none of the
terms or conditions of any such Convertible Securities (other than standard
options to purchase Common Stock issued pursuant to an Approved Stock Plan that
are covered by clause (A) above) are otherwise materially changed after the date
hereof in any manner that adversely affects the Creditor; (C) the Exchange
Shares; and (D) securities issued in a private or public offering in which
Dawson James Securities Inc. is the placement agent or underwriter, provided,
however, that any such issued securities shall not be entitled to any
registration rights except by mutual agreement in writing between the Creditor
and Dawson James Securities Inc., and shall not include any variable rate
securities.

 

(ix) “Person” means any individual, partnership, firm, corporation, limited
liability company, joint venture, corporation, association trust, unincorporated
organization, government or any department or agency thereof, or any other
entity, as well as any syndicate or group that would be deemed to be a person
under Section 13(d) of the Exchange Act.

 

(x) “SEC” means the United States Securities and Exchange Commission or the
successor thereto.

 

 
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(xi) “Subsequent Placement” means any, direct or indirect, issuance, offer,
sale, grant of any option or right to purchase, or otherwise disposition of (or
announcement of any issuance, offer, sale, grant of any option or right to
purchase or other disposition of) any equity security or any equity-linked or
related security (including, without limitation, any “equity security” (as that
term is defined under Rule 405 promulgated under the Securities Act), any
Convertible Securities, any debt, any preferred stock or any purchase rights) of
the Company or any of its Subsidiaries, in each case agreed or committed to by
the Company or its subsidiaries after to the date hereof. Any direct or indirect
issuance, offer, sale, grant of any option or right to purchase, or other
disposition of (or announcement of any issuance, offer, sale, grant of any
option or right to purchase or other disposition of) any equity security or any
equity-linked or related security (including, without limitation, any “equity
security” (as that term is defined under Rule 405 promulgated under the
Securities Act), any Convertible Securities, any debt, any preferred stock or
any purchase rights) of the Company or any of its Subsidiaries, in each case
agreed or committed to by the Company or its subsidiaries prior to the date
hereof shall not constitute Subsequent Placements.

 

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

 

(xiii) “VWAP” means, for any security as of any period, the dollar
volume-weighted average price for such security on the principal securities
exchange or securities market on which such security is then traded during the
period beginning on the first day of the period at 9:30:01 a.m., New York time,
and ending on the last day of the period at 4:00:00 p.m., New York time, as
reported by Bloomberg through its “Volume at Price” function or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning on the first day of the period at
9:30:01 a.m., New York time, and ending on the last day of the period at 4:00:00
p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted
average price is reported for such security by Bloomberg for such hours, the
average of the highest closing bid price and the lowest closing ask price of any
of the market makers for such security as reported in the “pink sheets” by OTC
Markets Group Inc. (formerly Pink Sheets LLC).  If the VWAP cannot be calculated
for such security on such date on any of the foregoing bases, the VWAP of such
security on such dates shall be the fair market value as mutually determined by
the Company and the Creditor. If the Company and the Creditor are unable to
agree upon the fair market value of such security, then such dispute shall be
resolved in accordance with the procedures in Section 1(e). All such
determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination, recapitalization or other similar transaction during
such period.

 

2.  REPRESENTATIONS AND WARRANTIES

 

(a) Company's Representations.  The Company hereby represents and warrants and
covenants to the Creditor, as of the date hereof and each other date in which
the Company issues Exchange Shares to the Creditor, as follows:

 

(i) Each of the Company and its subsidiaries are entities duly organized and
validly existing and in good standing under the laws of the jurisdiction in
which they are formed, and have the requisite power and authorization to own
their properties and to carry on their business as now being conducted and as
presently proposed to be conducted.  Each of the Company and each of its
subsidiaries is duly qualified as a foreign entity to do business and is in good
standing in every jurisdiction in which its ownership of property or the nature
of the business conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good standing would not
have a Material Adverse Effect.  As used in this Agreement, “Material Adverse
Effect” means any material adverse effect on (i) the business, properties,
assets, liabilities, operations (including results thereof), condition
(financial or otherwise) or prospects of the Company and its subsidiaries taken
as a whole, or (ii) the authority or ability of the Company to perform any of
its obligations under any of the Exchange Documents (as defined below). Other
than its subsidiaries, there is no Person in which the Company, directly or
indirectly, owns share capital or holds an equity or similar interest.

 

 
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(ii) The Company has the requisite power and authority to enter into and perform
its obligations under this Agreement and each of the other agreements entered
into by the parties hereto in connection with the transactions contemplated by
this Agreement (collectively, the “Exchange Documents”) and to issue the
Exchange Shares in accordance with the terms hereof and thereof.  The execution
and delivery of the Exchange Documents by the Company and the consummation by
the Company of the transactions contemplated hereby and thereby, including,
without limitation, the issuance of the Exchange Shares have been duly
authorized by the Company's Board of Directors and no further filing (other than
Form 8-K), consent, or authorization is required by the Company, its Board of
Directors or its stockholders.  This Agreement and the other Exchange Documents
have been duly executed and delivered by the Company, and constitute the legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of applicable creditors' rights and
remedies and except as rights to indemnification and to contribution may be
limited by federal or state securities laws.

 

(iii) The execution, delivery and performance of the Exchange Documents by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, each Exchange and the
reservation and issuance of the Exchange Shares) will not (A) result in a
violation of the Certificate of Incorporation (as defined below) or other
organizational documents of the Company or any of its subsidiaries, or Bylaws
(as defined below) of the Company or any of its subsidiaries, (B) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or (C)
result in a violation of any law, rule, regulation, order, judgment or decree
(including foreign, federal and state securities laws and regulations and the
rules and regulations of The NASDAQ Capital Market (the “Principal Market”)
applicable to the Company or any of its subsidiaries or by which any property or
asset of the Company or any of its subsidiaries is bound or affected except, in
the case of clause (B) or (C) above, to the extent such violations that could
not reasonably be expected to have a Material Adverse Effect.

 

(iv) Neither the Company nor any subsidiary is required to obtain any consent
from, authorization or order of, or make any filing (other than Form 8-K) or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its respective obligations under or contemplated by the
Exchange Documents, in each case, in accordance with the terms hereof or
thereof. All consents, authorizations, orders, filings (other than Form 8-K) and
registrations which the Company or any subsidiary is required to obtain pursuant
to the preceding sentence have been obtained or effected on or prior to the
applicable Exchange Date, and neither the Company nor any of its subsidiaries
are aware of any facts or circumstances which might prevent the Company or any
of its subsidiaries from obtaining or effecting any of the registration,
application or filings contemplated by the Exchange Documents.  The Company is
not in violation of the requirements of the Principal Market and has no
knowledge of any facts or circumstances which could reasonably lead to delisting
or suspension of the Common Stock in the foreseeable future.

 

 
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(v) On each date the Company issues Exchange Shares to the Creditor, all share
transfer or other taxes (other than income or similar taxes) which are required
to be paid in connection with the issuance of the Exchange Shares to be
exchanged with the Creditor hereunder on such date will be, or will have been,
fully paid or provided for by the Company, and all laws imposing such taxes will
be or will have been complied with.

 

(vi) The Company filed current Form 10 information more than 12 months prior to
the date hereof and has filed with the SEC all reports and other materials
required to be filed by Section 13 or 15(d) of the Securities Exchange Act, as
applicable (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements, notes and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
“SEC Documents”), including the period of 12 months prior to the date hereof. As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the Exchange Act and the rules and regulations of the
SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto as in effect as of the time of filing. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments which will not be material, either individually or in the
aggregate). No other information provided by or on behalf of the Company to the
Creditor which is not included in the SEC Documents contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein not misleading, in the light of the
circumstance under which they are or were made.

 

(vii) As of the date hereof, the authorized share capital of the Company
consists of (A) 500,000,000 shares of Common Stock, of which 131,768,567 shares
are issued and outstanding such number of shares are reserved for issuance
pursuant to securities (other than the Exchange Shares) exercisable or
exchangeable for, or convertible into, shares of Common Stock as listed on
Schedule 2(a)(vii) hereof, and (B) 20,000,000 authorized preferred shares,
including 15,000 preferred shares designated as Series A, of which no shares are
issued and outstanding.  All of such outstanding shares are duly authorized and
have been, or upon issuance will be, validly issued and are fully paid and
nonassessable.  Except as disclosed in SEC Documents and/or in Schedule
2(a)(vii) hereof: (A) none of the Company’s or any subsidiary’s share capital is
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company or any subsidiary; (B) there
are no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any share capital of the
Company or any of its subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its subsidiaries is or may become
bound to issue additional share capital of the Company or any of its
subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any share capital of the
Company or any of its subsidiaries; (C) except for the Existing Debt and all
other debt securities, notes, credit agreements, credit facilities or other
agreements, documents or instruments disclosed in the SEC Documents, there are
no outstanding debt securities, notes, credit agreements, credit facilities or
other agreements, documents or instruments evidencing Indebtedness of the
Company or any of its subsidiaries or by which the Company or any of its
subsidiaries is or may become bound; (D) other than with respect to the current
indebtedness of the Company or any of its subsidiaries, there are no financing
statements securing obligations in any amounts filed in connection with the
Company or any of its subsidiaries; (E) there are no agreements or arrangements
under which the Company or any of its subsidiaries is obligated to register the
sale of any of their securities under the Securities Act; (F) there are no
outstanding securities or instruments of the Company or any of its subsidiaries
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
subsidiaries is or may become bound to redeem a security of the Company or any
of its subsidiaries; (G) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Exchange Shares; (H) neither the Company nor any subsidiary has any stock
appreciation rights or “phantom stock” plans or agreements or any similar plan
or agreement; and (I) neither the Company nor any of its subsidiaries have any
liabilities or obligations required to be disclosed in the SEC Documents which
are not so disclosed in the SEC Documents, other than those incurred in the
ordinary course of the Company’s or its subsidiaries’ respective businesses and
which, individually or in the aggregate, do not or could not have a Material
Adverse Effect. The Company will furnish to the Creditor upon Creditor’s written
request true, correct and complete copies of the Company’s Certificate of
Incorporation, as amended and as in effect on the date hereof (the “Certificate
of Incorporation”), and the Company’s bylaws, as amended and as in effect on the
date hereof (the “Bylaws”), and the terms of all securities convertible into, or
exercisable or exchangeable for, shares of Common Stock and the material rights
of the holders thereof in respect thereto that have not been disclosed in the
SEC Documents.

 

 
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(viii) The Company confirms that neither it nor any other Person acting on its
behalf has provided the Creditor or its agents or counsel with any information
that constitutes or could reasonably be expected to constitute material,
non-public information concerning the Company or any of its subsidiaries, other
than the existence of the transactions contemplated by this Agreement and the
other Agreements. The Company understands and confirms that the Creditor will
rely on the foregoing representations in effecting transactions in securities of
the Company. All disclosure provided to the Creditor regarding the Company and
its subsidiaries, their businesses and the transactions contemplated hereby,
including the schedules to this Agreement, furnished by or on behalf of the
Company or any of its subsidiaries is true and correct in all material respects
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 the
light of the circumstances under which they were made, not misleading.

 

(ix) The issuance of the Exchange Shares are duly authorized and upon issuance
in accordance with the terms hereof shall be validly issued and outstanding,
fully paid and nonassessable, free and clear of all liens, encumbrances and
rights of refusal of any kind.  Upon issuance in accordance herewith and subject
to the representations and warranties and covenants of the Creditor set forth in
Section 2(b) have been and remain at such issuance true and correct, the
Exchange Shares will be exempt from the registration requirements of the
Securities Act under Section 3(a)(9) of the Securities Act and all of such
Exchange Shares, even though initially issuable subject to restrictions on
trading, will be caused by the Company to be freely transferable and freely
tradable by the Creditor without restriction pursuant to Rule 144, including,
without limitation Rule 144(d)(3)(ii), of the Securities Act by requesting the
Transfer Agent to remove restrictive legends from the Exchange Shares.  After
such restrictive legends removal, neither any Exchange Shares issuable hereunder
nor any certificates evidencing any of such Exchange Shares (if a certificate
therefor is requested in writing by the Creditor) shall bear any restrictive or
other legends or notations.  The Company shall not, and the Company shall cause
all other persons to not, issue any stop-transfer order, instruction or other
restriction with respect to any such Exchange Shares. The Company shall cause
its legal counsel to deliver an opinion to its Transfer Agent, if requested, to
the effect of the foregoing. The Creditor shall cooperate with the Company in
timely providing the Company and its counsel with customary non-affiliate seller
opinion reliance certificates for the issuance of such opinions.

 

 
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(x)  The Company represents that it has not paid, and shall not pay, any
commissions or other remuneration, directly or indirectly, to any third party
for the solicitation of any Exchange pursuant to this Agreement. Other than the
applicable Exchange of Existing Debt, the Company has not received and will not
receive any consideration from the Creditor for the Exchange Shares to be issued
in an Exchange.

 

(xi) To the Company’s knowledge, neither the Creditor nor the Original
Creditors, nor any of their respective Affiliates, (i) is or was an officer,
director, 10% shareholder, control person, or Affiliate of the Company within
the last 90 days or (ii) has or will, directly or indirectly, provide any
consideration to or invest in any manner in the Company in exchange or
consideration for, or otherwise in connection with, the sale or satisfaction of
the Existing Debt, other than pursuant to this Agreement.

 

(xii) The Company acknowledges and agrees that (A) the issuance of Exchange
Shares pursuant to this Agreement may have a dilutive effect, which may be
substantial, (B) neither the Company nor any of the Company’s Affiliates has or
will provide the Creditor with any material non-public information regarding the
Company or its securities, (C) the Creditor has no obligation of confidentiality
to the Company and may sell any of its Exchange Shares issued pursuant to this
Agreement at any time but subject to compliance with applicable laws and
regulations.

 

(xiii) The Company acknowledges and agrees that with respect to this Agreement
and the transactions contemplated hereby, (A) the Creditor is acting solely in
an arm’s length capacity, (B) the Creditor does not make and has not made any
representations or warranties, other than those specifically set forth in this
Agreement, (C) except as set forth in this Agreement, the Company’s obligations
hereunder are unconditional and absolute and not subject to any right of set
off, counterclaim, delay or reduction, regardless of any claim the Company may
have against the Creditor, (D) the Creditor has not and is not acting as a
legal, financial, accounting or tax advisor to the Company, or agent or
fiduciary of the Company, or in any similar capacity, and (E) any statement made
by the Creditor or any of the Creditor’s representatives, agents or attorneys is
not advice or a recommendation to the Company.

 

(xiv) The Company is not an issuer identified in, or subject to, Rule 144(i)
under the Securities Act.

 

(xv) The Company has not, in the 12 months preceding the date of this Agreement,
received notice from any national securities exchange or automated quotation
system on which the shares of Common Stock are listed or designated for
quotation to the effect that the Company is not in compliance with the listing
or maintenance requirements of such national securities exchange or automated
quotation system.  As of the date of this Agreement, to the Company’s actual
knowledge based solely on absence of, as of the date hereof, any notice from any
such securities exchange or automated quotation system that the Company is not
in compliance with the listing or maintenance requirements of such national
securities exchange or automated quotation system, the Company is in compliance
with all such listing and maintenance requirements.

 

 
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(xvi) The Company, through its Transfer Agent, currently participates in the DTC
Fast Automated Securities Transfer (FAST) Program of DTC’s Deposit/Withdrawal At
Custodian (DWAC) system, and the shares of Common Stock may be issued and
transferred electronically to third parties via the DTC Fast Automated
Securities Transfer (FAST) Program of DTC’s Deposit/Withdrawal At Custodian
(DWAC) system. The Company has not, in the 12 months preceding the date of this
Agreement, received any notice from DTC to the effect that a suspension of, or
restriction on, accepting additional deposits of the shares of Common Stock, or
electronic trading or settlement services with respect to the shares of Common
Stock are being imposed or are contemplated by DTC.

 

(xvii) The Company and its board of directors have taken all necessary action,
if any, in order to render inapplicable any control share acquisition,
interested stockholder, business combination, or other anti-takeover provision
under the certificate of incorporation, bylaws or other organizational documents
of the Company, as currently in effect, or the laws of the jurisdiction of its
incorporation or otherwise which is or could become applicable as a result of
the transactions contemplated by this Agreement, including, without limitation,
the Company’s issuance of Exchange Shares hereunder and the Creditor’s ownership
of such Exchange Shares, together with all other securities now or hereafter
owned or acquired by the Creditor.  The Company and its board of directors have
taken all necessary action, if any, in order to render inapplicable any
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Exchange Shares or a change in control of the Company or
any of its subsidiaries. [For as long as the Creditor beneficially owns any
Exchange Shares, the Company and its board of directors shall not take any
further action to effect any control share acquisition, interested stockholder,
business combination, or other anti-takeover provision, or to effect any
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Exchange Shares or a change in control of the Company or
any of its subsidiaries, without the Creditor’s written consent.]

 

(xviii) The Company shall take such action as the Creditor shall reasonably
determine is necessary in order to qualify the Exchange Shares issuable to the
Creditor hereunder under applicable securities or “blue sky” laws of the states
of the United States for the issuance to the Creditor hereunder and for resale
by the Creditor to the public (or to obtain an exemption from such
qualification).  Without limiting any other obligation of the Company hereunder,
the Company shall timely make all filings and reports relating to the offer and
issuance of such Exchange Shares required under all applicable securities laws
(including, without limitation, all applicable federal securities laws and all
applicable state securities or “blue sky” laws), and the Company shall comply
with all applicable federal, state, local and foreign laws, statutes, rules,
regulations and the like relating to the offering and issuance of such Exchange
Shares to the Creditor.

 

(xix) The Company shall promptly secure the listing or designation for quotation
(as the case may be) of all of the Exchange Shares to be issued to the Creditor
pursuant to this Agreement on each national securities exchange and automated
quotation system, if any, on which the shares of Common Stock are listed or
designated for quotation (as the case may be) and shall use its reasonable best
efforts to maintain such listing or designation for quotation (as the case may
be) of all such Exchange Shares on such national securities exchange or
automated quotation system for so long as the Creditor or any of its Affiliates
holds any Exchange Shares. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 2(a)(xix).

 

 
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(b) Creditor Representations. The Creditor hereby makes the following
representations, warranties and covenants, as of the date hereof and each other
date in which the Creditor exchanges all or any portion of the Existing Debt
into the Exchange Shares or transfers or disposes the Exchange Shares, to the
Company:

 

(i) The Creditor is an entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization with the
requisite power and authority to enter into and to consummate the transactions
contemplated hereby to which it is a party and otherwise to carry out its
obligations hereunder and thereunder.

 

(ii) The Creditor understands that the Exchange Shares are being offered and
sold to it in reliance on specific exemptions from the registration requirements
of United States federal and state securities laws and that the Company is
relying in part upon the truth and accuracy of, and the Creditor’s compliance
with, the representations, warranties, agreements, acknowledgments and
understandings of the Creditor set forth herein in order to determine the
availability of such exemptions and the eligibility of the Creditor to acquire
the Exchange Shares.

 

(iii) This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Creditor and constitute the legal, valid and binding
obligations of the Creditor enforceable against the Creditor in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors’ rights and remedies.

 

(iv) The execution, delivery and performance by the Creditor of this Agreement
and the consummation by the Creditor of the transactions contemplated hereby and
thereby will not (A) result in a violation of the organizational documents of
the Creditor or (B) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Creditor is a party, or (C)
result in a violation of any law, rule, regulation, order, judgment  or decree
(including federal and state securities laws) applicable to the Creditor, except
in the case of clauses (B) and (C) above, for such conflicts, defaults, rights
or violations which would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the ability of the Creditor to
perform its obligations hereunder.

 

(v) As of the date of this Agreement and during the 90 calendar days prior to
the date of this Agreement, neither the Creditor nor any Affiliate thereof is or
was an officer, director, or 10% or more shareholder of the Company.

 

(vi) For so long as the Creditor or any of its Affiliates holds any Exchange
Shares, neither the Creditor nor any of its Affiliates will: (A) vote any shares
of Common Stock owned or controlled by it, or solicit any proxies or seek to
advise or influence any person with respect to any voting securities of the
Company; or (B) engage or participate in any actions, plans or proposals that
relate to or would result in (I) the Creditor or any of its Affiliates acquiring
additional securities of the Company, alone or together with any other person,
which would result in the Creditor and its Affiliates collectively beneficially
owning, or being deemed to beneficially own, more than 9.99% of the shares of
Common Stock or other voting securities of the Company (as calculated pursuant
to Section 13(d) of the Exchange Act and the rules and regulations thereunder),
(II) an extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving the Company or any of its subsidiaries, (III) a sale or
transfer of a material amount of assets of the Company or any of its
subsidiaries, (IV) any change in the present board of directors or management of
the Company, including any plans or proposals to change the number or term of
directors or to fill any existing vacancies on the board, (V) any material
change in the present capitalization or dividend policy of the Company, (VI) any
other material change in the Company’s business or corporate structure, (VII)
changes in the Company’s charter, bylaws or instruments corresponding thereto or
other actions which may impede the acquisition of control of the Company by any
person, (VIII) causing a class of securities of the Company to be delisted from
a national securities exchange or to cease to be authorized to be quoted in an
inter-dealer quotation system of a registered national securities association,
(IX) causing a class of equity securities of the Company to become eligible for
termination of registration pursuant to Section 12(g)(4) of the Exchange Act or
(X) taking any action, intention, plan or arrangement similar to any of those
enumerated above.

 

 
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(vii)  Creditor represents that it has not paid, and shall not pay, any
commissions or other remuneration, directly or indirectly, to any third party
for the solicitation of any Exchange pursuant to this Agreement and no
additional consideration from the Creditor was received or will be received by
the Company for the Exchange Shares.

 

(viii) Creditor understands and acknowledges that the issuance and transfer to
it of the Exchange Shares has not been reviewed by the United States Securities
and Exchange Commission or any state securities regulatory authority because
such transaction is intended to be exempt from the registration requirements of
the Securities Act, and applicable state securities laws. Creditor understands
that the Company is relying upon the truth and accuracy of, and Creditor’s
compliance with, the representations, warranties, acknowledgments and
understandings of Creditor set forth herein in order to determine the
availability of such exemptions and the eligibility of Creditor to acquire the
Shares.

 

(ix) Creditor has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of Creditor’s
investment in the Company through Creditor’s acquisition of the Shares. Creditor
is able to bear the economic risk of its investment in the Company through
Creditor’s acquisition of the Shares for an indefinite period of time. At the
present time, Creditor can afford a complete loss of such investment and has no
need for liquidity in such investment.

 

(x) Creditor recognizes that its acquisition of the Shares involves a high
degree of risk in that: (A) an investment in the Company is highly speculative
and only Creditor who can afford the loss of their entire investment should
consider investing in the Company and securities of the Company; (B)
transferability of the Shares is limited; (C) the Company has experienced
recurring losses and it must raise substantial additional capital in order to
continue operating its business; (D) subsequent equity financings will dilute
the ownership and voting interests of Creditor and equity securities issued by
the Company to other persons or entities may have rights, preferences or
privileges senior to the rights of Creditor; (E) any debt financing that may be
obtained by the Company must be repaid regardless of whether the Company
generates revenues or cash flows from operations and may be secured by
substantially all of the Company’s assets; (F) there is absolutely no assurance
that any type of financing on terms acceptable to the Company will be available
to the Company or otherwise obtained by the Company; and (G) if the Company is
unable to obtain additional financing or is unable to obtain additional
financing on terms acceptable to it, then the Company may be unable to implement
its business plans or take advantage of business opportunities, which could have
a material adverse effect on the Company’s business prospects, financial
condition and results of operations and may ultimately require the Company to
suspend or cease operations.

 

(xi) Creditor acknowledges that it has prior investment experience and that it
recognizes and fully understands the highly speculative nature of Creditor’s
investment in the Company pursuant to its acquisition of the Shares. Creditor
acknowledges that it, either alone or together with its professional advisors,
has the capacity to protect its own interests in connection with this
transaction.

 

 
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(xii) Creditor acknowledges that it has carefully reviewed this Agreement and
the Company’s filings with the SEC, which are available on the Internet at
www.sec.gov, all of which documents and filings Creditor acknowledges have been
made available to it. Creditor has been given the opportunity to ask questions
of, and receive answers from, the Company concerning this Agreement, the
issuance to it of the Shares, and the Company’s business, operations, financial
condition and prospects, and Creditor has been given the opportunity to obtain
such additional information, to the extent the Company possesses such
information or can acquire it without unreasonable effort or expense, necessary
to verify the accuracy of same as Creditor reasonably desires in order to
evaluate its investment in the Company pursuant its acquisition of the Shares.
Creditor fully understands all of such documents and filings and has had the
opportunity to discuss any questions regarding any of such documents or filings
with its legal counsel and tax, investment and other advisors.

 

(xiii) Creditor acknowledges that the issuance to it of the Shares may involve
tax consequences to Creditor. Creditor acknowledges and understands that
Creditor must retain its own professional advisors to evaluate the tax and other
consequences of Creditor’s receipt of the Shares.

 

(xiv) Creditor understands and acknowledges that the Company is under no
obligation to register the resale of the Shares under the Securities Act or any
state securities laws.

 

(xv) Creditor understands that, subject to delivery to the Transfer Agent of
acceptable to the Transfer Agent legal opinion of counsel with respect to
removal of restrictive legends in compliance with Rule 144 in connection with
impending disposition of such Shares by the Creditor, and the removal of such
restrictive legends, the certificate(s) representing the Shares shall initially,
(upon exchange under Rule 3(a)(9) of the Securities Act) bear a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of the Shares):

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR (B)
AN OPINION OF COUNSEL, IN A REASONABLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS, OR (II) UNLESS SOLD
PURSUANT TO RULE 144 UNDER SAID ACT.

 

(xvi) The legend set forth above will be removed, and the Company will issue and
deliver the Shares without such legend to Creditor in the manner set forth in
Section 1(d) of this Agreement.

 

(xvii) Creditor represents and warrants that it was not induced to invest in the
Company (pursuant to the issuance to it of the Shares) by any form of general
solicitation or general advertising, including, but not limited to, the
following: (A) any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media (including via the
Internet) or broadcast over the news or radio; and (B) any seminar or meeting
whose attendees were invited by any general solicitation or advertising.

 

 
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 3.  RESTRICTION ON SUBSEQUENT PLACEMENTS

 

(a) At any time until ninety (90) days after the final Exchange Date upon which
all Existing Debt has been exchanged for Exchange Shares, neither the Company
nor any of its Subsidiaries shall, directly or indirectly, effect any Subsequent
Placement.

 

(b) The restrictions contained in this Section 3 shall not apply in connection
with the issuance of any Excluded Securities.  

 

4.  EXCLUSIVITY

 

During the period commencing on the date hereof and ending 180 calendar days
after the final True-Up Date and all Existing Debt has been exchanged for
Exchange Shares, the Company shall not, without the prior written consent of the
Creditor, (a) enter into, effect, alter, announce or recommend to its
shareholders any transaction whereby the Company directly or indirectly issues
equity or debt securities of the Company to a party in exchange for outstanding
equity or debt securities (other than ordinary exercise of Convertible
Securities), claims or property interests, or partly in such exchange and partly
for cash, in one or more transactions carried out pursuant to Section 3(a)(9) or
Section 3(a)(10) of the Securities Act (any such transaction, an “Exchange
Transaction”), or (b) otherwise cooperate in any way, assist or participate in,
facilitate or encourage any effort or attempt by any Person (other than the
Creditor) to seek an Exchange Transaction involving the Company or any of its
Subsidiaries.  The Company, its Affiliates and subsidiaries, and each of its and
their respective officers, employees, directors, agents or other representatives
shall immediately cease and cause to be terminated all existing discussions,
conversations, negotiations and other communications with any Persons (other
than the Creditor) with respect to any of the foregoing.  For clarity, except as
provided in Section 3, nothing herein shall preclude the Company from effecting
a private or public offering, that is not an Exchange Transaction, either
directly or through Dawson James Securities Inc. as the placement agent or
underwriter, nor shall any such offering require the consent or approval of the
Creditor, and the exercise or conversion of any securities issued in any such
offering shall not require the consent or approval of the Creditor, provided,
however, that any such issued securities shall not be entitled to any
registration rights except by mutual agreement between the Creditor and Dawson
James Securities Inc. in writing, and shall not include any variable rate
securities. 

 

5.  DISCLOSURE

 

(a) Prior to the earlier of (i) the opening time for trading stocks on public
securities exchanges located in New York City on the first trading day
immediately following the date of this Agreement and (ii) the initial Share
Delivery Deadline, time being of the essence, the Company shall file a Current
Report on Form 8-K with the SEC pursuant to Section 13 or Section 15(d) of the
Exchange Act disclosing all of the material terms of this Agreement, including,
without limitation, the issuance of shares of Common Stock to the Creditor
pursuant to this Agreement approving this Agreement, and disclosing all other
material, nonpublic information delivered to the Creditor (or the Creditor’s
representatives or agents) by the Company or any of its officers, directors,
employees, agents or representatives, if any, in connection with the Existing
Debt, any Exchange, the Original Creditors or the transactions contemplated by
this Agreement, and attaching a copy of this Agreement and this Agreement as
exhibits thereto (the “8-K Filing”).  From and after the 8-K Filing, neither the
Company nor any of its officers, directors, employees, agents or representatives
shall disclose any material non-public information about the Company to the
Creditor (or the Creditor’s representatives or agents), unless prior thereto the
Company shall have filed a Current Report on Form 8-K with the SEC pursuant to
Section 13 or Section 15(d) of the Exchange Act disclosing all such material
non-public information. 

 

 
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(b) Neither the Company, its subsidiaries nor the Creditor shall issue any press
releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, the Company shall be entitled, without
the prior approval of the Creditor, to issue any press release or make other
public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that the Creditor shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release).

 

(c) Without the prior written consent of the Creditor, the Company shall not
(and shall cause each of its subsidiaries and Affiliates to not) disclose the
name of the Creditor in any filing (other than the 8-K Filing), announcement,
release or otherwise.

 

6.  INDEMNIFICATION

 

(a) In consideration of the Creditor’s execution and delivery of the Exchange
Documents to which it is a party and acquiring the Securities thereunder and in
addition to all of the Company’s other obligations under the Exchange Documents,
the Company shall defend, protect and indemnify the Creditor and all of their
shareholders, partners, members, officers, directors, employees (collectively,
the “Creditor Indemnitees”) from and against any and all actions, causes of
action, suits, claims, losses, costs, penalties, fees, liabilities and damages,
and expenses in connection therewith (irrespective of whether any such Creditor
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys’ fees and disbursements (the
“Indemnified Liabilities”) incurred by any Creditor Indemnitee as a result of,
or arising out of, or relating to (a) any material misrepresentation or breach
of any representation or warranty made by the Company in any of the Exchange
Documents or (b) any material breach of any covenant, agreement or obligation of
the Company contained in any of the Exchange that has not been cured within 30
days of the breach.

 

(b) In consideration of the Company’s execution and delivery of the Exchange
Documents to which it is a party and agreeing to issue (subject to the terms
hereof) the Securities thereunder and in addition to all of the Creditor’s other
obligations under the Exchange Documents, the Creditor shall defend, protect and
indemnify the Company and all of their shareholders, partners, members,
officers, directors, employees and counsel (collectively, the “Company
Indemnitees”) from and against any and all Indemnified Liabilities incurred by
any Company Indemnitee as a result of, or arising out of, or relating to (i) any
misrepresentation or breach of any representation or warranty made by the
Creditor in any of the Exchange Documents, (ii) any material breach of any
covenant, agreement or obligation of the Creditor contained in any of the
Exchange that has not been cured within 30 days of the breach.

 

(c) Promptly after receipt by a Company Indemnitee or Creditor Indemnitee (as
applicable) under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving an
Indemnified Liability, such Company Indemnitee or Creditor Indemnity (as
applicable) shall:

 

(i) if an Indemnified Liability is to be made against the Company under this
Section 6, deliver to the Company a written notice of the commencement thereof,
and the Company shall have the right to participate in, and, to the extent the
Company so desires, to assume control of the defense thereof with counsel
mutually satisfactory to the Company and the Creditor Indemnitee; provided,
however, that a Creditor Indemnitee shall have the right to retain its own
counsel at the Company’s expense, if, in the reasonable opinion of counsel
retained by the Company, the representation by such counsel of the Indemnitee
and the Company would be inappropriate due to actual or potential differing
interests between such Creditor Indemnitee and any other party represented by
such counsel in such proceeding. In the case of such actual or potential
differing interest the Creditor Indemnitee’s counsel shall be selected by the
Creditor at its sole discretion, provided, however, that the Company shall have
the right to consent to Creditor Indemnitee’s counsel if the Company is
responsible for fees and expenses of the Creditor Indemnitee’s counsel, such
consent not to be unreasonably withheld, delayed or conditioned. The Creditor
Indemnitee shall cooperate fully with the Company in connection with any
negotiation or defense of any such Indemnified Liability by the Company and
shall furnish to the Company all information reasonably available to the
Creditor Indemnitee which relates to such Indemnified Liability.  The Company
shall keep the Creditor Indemnitee reasonably apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto.  The
Company shall not be liable for any settlement of any action, claim or
proceeding effected without its prior written consent, provided, however, that
the Company shall not unreasonably withhold, delay or condition its
consent.  The Company shall not, without the prior written consent of the
Creditor Indemnitee, consent to entry of any judgment or enter into any
settlement or other compromise which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Creditor Indemnitee of a
release from all liability in respect to such Indemnified Liability. Following
indemnification as provided for hereunder, the Company shall be subrogated to
all rights of the Creditor Indemnitee with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the Company within a reasonable time of
the commencement of any such action shall not relieve the Company of any
liability to the Indemnitee under this Section 6, except to the extent that the
Company is materially prejudiced in its ability to defend such action; and

 

 
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(ii) if an Indemnified Liability in respect thereof is to be made against the
Creditor under this Section 6, deliver to the Creditor a written notice of the
commencement thereof, and the Creditor shall have the right to participate in,
and, to the extent the Creditor so desires, to assume control of the defense
thereof with counsel mutually satisfactory to the Creditor and the Indemnitee;
provided, however, that a Company Indemnitee shall have the right to retain its
own counsel at its expense, if, in the reasonable opinion of counsel retained by
the Company, the representation by such counsel of the Company Indemnitee and
the Company would be inappropriate due to actual or potential differing
interests between such Company Indemnitee and any other party represented by
such counsel in such proceeding. In the case of such actual or potential
differing interest, the Company Indemnitee’s legal counsel shall be selected by
the Company. The Company Indemnitee shall cooperate fully with the Creditor in
connection with any negotiation or defense of any such Indemnified Liability by
the Creditor and shall furnish to the Creditor all information reasonably
available to the Company Indemnitee which relates to such Indemnified
Liability.  The Creditor shall keep the Company Indemnitee reasonably apprised
at all times as to the status of the defense or any settlement negotiations with
respect thereto.  The Creditor shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent,
provided, however, that the Creditor shall not unreasonably withhold, delay or
condition its consent.  The Creditor shall not, without the prior written
consent of the Company Indemnitee, consent to entry of any judgment or enter
into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Company Indemnitee of a release from all liability in respect to such
Indemnified Liability. Following indemnification as provided for hereunder, the
Creditor shall be subrogated to all rights of the Company Indemnitee with
respect to all third parties, firms or corporations relating to the matter for
which indemnification has been made. The failure to deliver written notice to
the Creditor within a reasonable time of the commencement of any such action
shall not relieve the Creditor of any liability to the Indemnitee under this
Section 6, except to the extent that the Creditor is prejudiced in its ability
to defend such action.

 

(d) The indemnification required by this Section 6 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 Indemnified Liabilities are incurred.
Notwithstanding any other provisions of this Agreement, the Company shall not be
obligated to indemnify any person or entity to the extent that the aggregate of
all Indemnified Liabilities subject to the indemnification by the Company
exceeds the Debt Amount.

 

(e) The indemnification required by this Section 6 shall be the sole and
exclusive remedy of the Company Indemnitees and the Creditor Indemnitees.

 

 
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7.  RESERVATION OF SHARES

 

(a) Reservation. So long as any of the Existing Debt remains outstanding and is
held by the Creditor, the Company shall take all action necessary to reserve and
keep available out of its authorized and unissued Common Stock, solely for the
purpose of effecting Exchanges of such Existing Debt, a number of authorized and
unissued shares of Common Stock, as of any date of determination, of at least
150% of the number of authorized and unissued shares of Common Stock as shall
from time to time be necessary to effect the exchange of all of the Existing
Debt then outstanding and held by the Creditor (without regard to any
limitations on exchanges) (the “Required Reserve Amount”).  

 

(b) Insufficient Authorized Shares. If, notwithstanding Section 7(a), and not in
limitation thereof, at any time while the Existing Debt remains outstanding the
Company does not have a sufficient number of authorized and unreserved shares of
Common Stock to satisfy its obligation to reserve for issuance upon exchange of
the Existing Debt held by the Creditor of at least a number of shares of Common
Stock equal to the Required Reserve Amount (an “Authorized Share Failure”), then
the Company shall immediately take all action necessary to increase the
Company’s authorized shares of Common Stock to an amount sufficient to allow the
Company to reserve the Required Reserve Amount for such Existing Debt. Without
limiting the generality of the foregoing sentence, as soon as practicable after
the date of the occurrence of an Authorized Share Failure, but in no event later
than sixty (60) days after the occurrence of such Authorized Share Failure, the
Company shall hold a meeting of its stockholder for the approval of an increase
in the number of authorized shares of Common Stock.  In connection with such
meeting, the Company shall provide each stockholder with a proxy statement and
shall use its best efforts to solicit its stockholders’ approval of such
increase in authorized shares of Common Stock and to cause its board of
directors to recommend to the stockholders that they approve such proposal.  At
any time after the Stockholder Meeting Deadline (as defined below), in the event
that the Company is prohibited from issuing shares of Common Stock upon any
exchange due to the failure by the Company to have sufficient shares of Common
Stock available out of the authorized but unissued shares of Common Stock (such
unavailable number of shares of Common Stock, the “Authorization Failure
Shares”), in lieu of delivering such Authorization Failure Shares to the
Creditor, the Company shall pay cash in exchange for the redemption of such
portion of the Debt Amount exchangeable into such Authorized Failure Shares at a
price equal to the sum of (i) the product of (x) such number of Authorization
Failure Shares and (y) the greatest Closing Sale Price of the Common Stock on
any Trading Day during the period commencing on the date the Creditor delivers
the applicable Exchange Notice with respect to such Authorization Failure Shares
to the Company and ending on the date of such issuance and payment under this
Section 7(b) and (ii) to the extent the Creditor purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the Creditor of Authorization Failure Shares, any brokerage commissions
and other out-of-pocket expenses, if any, of the Creditor incurred in connection
therewith.  Nothing contained in Section 7(a) or this Section 7(b) shall limit
any obligations of the Company under any other provision hereunder or in the
Existing Debt.

 

8.  MISCELLANEOUS.

 

(a) Holding Period.  For the purposes of Rule 144 of the Securities Act, the
Company acknowledges and agrees that the holding period of the Exchange Shares
may be tacked on the holding period of the Existing Debt, and the Company agrees
not to take a position contrary to this Section 8(a).  The Company shall be
responsible for the delivery of any legal opinion required by the transfer agent
in connection with the issuance of the Exchange Shares without any restricted
legend and the fees and expenses of counsel with respect to any such legal
opinion.

 

(b) Further Assurances; Additional Documents.  The parties shall take any
actions and execute any other documents that may be necessary or desirable to
the implementation and consummation of this Agreement upon the reasonable
request of the other party.

 

 
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(c) No Oral Modification.  This Agreement may only be amended in writing signed
by the Company and by the Creditor.  All waivers relating to any provision of
this Agreement must be in writing and signed by the waiving party.

 

(d) Expenses.  The Company shall reimburse Creditor or its designee(s) up to
[$25,000] for all legal fees, costs and expenses incurred by it or its
Affiliates in connection with the transactions contemplated by the Exchange
Documents, including in connection with post-Closing filings with the SEC, which
amount was previously advanced by the Company to Creditor. Except as otherwise
set forth in this Agreement, each party to this Agreement shall bear its own
expenses in connection with transactions contemplated hereby.  The Company shall
be responsible for the payment of any financial advisory fees, legal expenses of
counsel to the Company (including, without limitation, with respect to any legal
opinion issued in connection herewith or any Exchange), DTC fees, or transfer
agent fees relating to or arising out of the transactions contemplated hereby.  

 

(e) Governing Law; Jurisdiction; Jury Trial.  All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York.  Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper.  Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.   EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

(f) Headings; Gender. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement. Unless the context clearly indicates otherwise, each pronoun herein
shall be deemed to include the masculine, feminine, neuter, singular and plural
forms thereof. The terms “including,” “includes,” “include” and words of like
import shall be construed broadly as if followed by the words “without
limitation.” The terms “herein,” “hereunder,” “hereof” and words of like import
refer to this entire Agreement instead of just the provision in which they are
found.

 

(g) Remedies.  The Creditor and each Affiliate of the Creditor that holds any
Securities shall have all rights and remedies set forth in the Exchange
Documents and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which such
holders have under any law. Any Person having any rights under any provision of
this Agreement shall be entitled to enforce such rights specifically (without
posting a bond or other security), to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by
law.  Furthermore, the Company recognizes that in the event that it fails to
perform, observe, or discharge any or all of its obligations under any of the
Exchange Documents, any remedy at law may prove to be inadequate relief to the
Creditor.  The Company therefore agrees that the Creditor shall be entitled to
seek specific performance and/or temporary, preliminary and permanent injunctive
or other equitable relief from any court of competent jurisdiction in any such
case without the necessity of proving damages and without posting a bond or
other security.

 

 
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(h) Withdrawal Right. Notwithstanding anything to the contrary contained in (and
without limiting any similar provisions of) the Exchange Documents, whenever the
Creditor exercises a right, election, demand or option under an Exchange
Document and the Company does not timely perform its related obligations within
the periods therein provided, then the Creditor 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.

 

(i) Payment Set Aside. To the extent that the Company makes a payment or
payments to the Creditor hereunder or the Creditor enforces or exercises its
rights hereunder or 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, foreign, 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. Unless otherwise expressly
indicated, all dollar amounts referred to in this Agreement and the other
Exchange Documents are in United States Dollars (“US Dollars”), and all amounts
owing under this Agreement and all other Exchange Documents shall be paid in US
Dollars. All amounts denominated in other currencies shall be converted in the
US Dollar equivalent amount in accordance with the Dollar Exchange Rate on the
date of calculation. “Dollar Exchange Rate” means, in relation to any amount of
currency to be converted into US Dollars pursuant to this Agreement, the US
Dollar exchange rate as published in the Wall Street Journal on the relevant
date of calculation.

 

(j) Counterparts.  This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.

 

(k) Survival.  The representations, warranties, agreements and covenants in this
Agreement shall survive the execution and delivery hereof and the consummation
of the transactions contemplated hereby.

 

(l) Headings.  The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.

 

(m) Severability; Usury.  If any term or provision of this Agreement is
determined by a court of competent jurisdiction to be invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other terms
and provisions of this Agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party.  Upon determination that any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to attempt to agree on a modification of this Agreement
so as to effect the original intent of the parties as closely as possible to the
fullest extent permitted by law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the greatest extent possible.
Notwithstanding anything to the contrary contained in this Agreement or any
other Exchange Document (and without implication that the following is required
or applicable), it is the intention of the parties that in no event shall
amounts and value paid by the Company, or payable to or received by the
Creditor, under the Exchange Documents, including without limitation, any
amounts that would be characterized as “interest” under applicable law, exceed
amounts permitted under any such applicable law. Accordingly, if any obligation
to pay, payment made to the Creditor, or collection by the Creditor pursuant the
Exchange Documents is finally judicially determined to be contrary to any such
applicable law, such obligation to pay, payment or collection shall be deemed to
have been made by mutual mistake of the Creditor and the Company and such amount
shall be deemed to have been adjusted with retroactive effect to the maximum
amount or rate of interest, as the case may be, as would not be so prohibited by
the applicable law. Such adjustment shall be effected, to the extent necessary,
by reducing or refunding, at the option of the Creditor, the amount of interest
or any other amounts which would constitute unlawful amounts required to be paid
or actually paid to the Creditor under the Exchange Documents. For greater
certainty, to the extent that any interest, charges, fees, expenses or other
amounts required to be paid to or received by the Creditor under any of the
Exchange Documents or related thereto are held to be within the meaning of
“interest” or another applicable term to otherwise be violative of applicable
law, such amounts shall be pro-rated over the period of time to which they
relate.

 

 
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(n) No Third Party Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.

 

(o) Further Assurances.  Each party shall do and perform, or cause to be done
and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

 

(p) No Strict Construction.  The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

 

(q) Successors and Assigns.  This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns.

 

(r) Notices.  Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered:  (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one business day after deposit with an overnight
courier service, in each case properly addressed to the party to receive the
same.  The addresses and facsimile numbers for such communications shall be (A)
if to the Company, at the address set forth on its signature page attached
hereto or (B) if to the Creditor, at the address set forth on its signature page
attached hereto, or to such other address and/or facsimile number and/or to the
attention of such other Person as the recipient party has specified by written
notice given to each other party five (5) days prior to the effectiveness of
such change.  Written confirmation of receipt (x) given by the recipient of such
notice, consent, waiver or other communication, (y) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (z) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above,
respectively.

 

[Signature Page Follows] 

 

 
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IN WITNESS WHEREOF, the Creditor and the Company have caused their respective
signature page to this Exchange Agreement to be duly executed as of the date
first written above.

 

 

COMPANY:

 

 

 

 

 

Latitude 360, Inc.

 

 

 

 

 

 

By:

/s/ Gregory Garson

 

 

 

Name: Gregory Garson

 

 

 

Title: President

 

 

 

 

 

 

Address:

6022 San Jose Blvd.

Jacksonville, FL 32217

(972) 771-4205

 

 

 
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IN WITNESS WHEREOF, the Creditor and the Company have caused their respective
signature page to this Exchange Agreement to be duly executed as of the date
first written above.

 

 

 

CREDITOR:

 

 

 

 

 

CREDE CG III, LTD.

 

 

 

 

 

 

By:

/s/ Terren Peizer

 

 

 

Name: Terren Peizer

 

 

 

Title: Chairman 

 

 

 

Existing Debt:

$1,988,396

 

Debt Exchange Amount:

$3,976,792

 

Initial Exchange Price (with respect to initial Debt Exchange Amount):

$0.505

 

Number of Shares to be Issued in the Initial Exchange:

6,903,356 out of 7,874,836 issued as of the date hereof, with the remaining
971,480 shares to be issued in the future upon demand by the Creditor.

 

Address:

 

CREDE CG III, LTD.

11601 Wilshire Blvd.

Suite 950

Los Angeles, CA 90025

E-mail:

 

with a copy (for information purposes only) to:

 

McDermott Will & Emery LLP

340 Madison Avenue

New York, NY 10173

Attention: Robert H. Cohen, Esq.

Telephone: (212) 547-5885

Facsimile: (212) 547-5444

E-Mail: rcohen@mwe.com

 

 
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EXHIBIT I

 

 

 

LATITUDE 360, INC.

EXCHANGE NOTICE

 

Reference is made to (a) that certain Master Exchange Agreement, dated as of
July 17, 2015 (the “Exchange Agreement”), by and between the undersigned and
Latitude 360, Inc., a Delaware corporation (the “Company”) and (b) certain
Existing Debt (as defined in the Exchange Agreement) held by the undersigned as
of the date hereof.  In accordance with and pursuant to the Exchange Agreement,
the undersigned hereby elects to exchange the Debt Exchange Amount (as defined
in the Exchange Agreement) indicated below into shares of Common Stock, $0.001
par value per share (the “Common Stock”), of the Company, at the Exchange Rate
(as defined in the Exchange Agreement, as of the date specified
below).  Capitalized terms not defined herein shall have the meaning as set
forth in the Exchange Agreement.

 

Date of Exchange:                                       

 

Aggregate Debt Amount:                                     

 

Aggregate Debt Exchange Amount:                                    

 

Please confirm the following information:

 

Exchange Price for Debt Exchange Amount:                           

 

 

Aggregate number of shares of Common Stock to be issued to the undersigned in
the Exchange:                                      

(subject to 4.99% blocker, with any additional shares beyond the 4.99 Maximum
Percentage to be held  by the Company until written notice of demand by the
Creditor)

 

Please issue such shares of Common Stock in the Exchange to Creditor, or for its
benefit, as follows:

 

     Check here if requesting delivery as a certificate to the following name
and to the following address:

Issue to:

 

 

 

 

 

 

 

     Check here if requesting delivery by Deposit/Withdrawal at Custodian as
follows:

DTC Participant:

 

DTC Number:

 

Account Number:

 

 

 

Registered Holder:   CREDE CG III LIMITED 

 

 

_____________________

Name:

Title: 

 

 
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EXHIBIT II

 

By: ______________________

Name:

Title:

 

Tax ID:_____________________

Facsimile:___________________

 

 

 

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges this Exchange Notice and hereby
directs Signature Stock Transfer, Inc. to issue the above indicated number of
shares of Common Stock in accordance with the Transfer Agent Instructions
dated                            from the Company and acknowledged and agreed to
by ___________.

 

 

LATITUDE 360, INC.

 

 

 

 

 

 

By:

 

 

 

 

Name: 

 

 

 

Title: 

 

 

 

 

 

 

 

 

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