EXHIBIT 10.1

 

SUBSCRIPTION AGREEMENT

 

This Subscription Agreement (this “Agreement”) is being delivered to the
purchaser identified on the signature page to this Agreement (the “Subscriber”)
in connection with its investment in the securities of Majesco Entertainment
Company, a Delaware corporation (the “Company”). The Company is conducting a
private placement (the “Offering”) of Six Million Dollars ($6,000,000) of units
(the “Units”) at a purchase price of $0.68 per Unit (the “Purchase Price”) with
each Unit consisting of (i) one share (the “Shares”) of the Company’s Series A
Convertible Preferred Stock, par value $0.001 per share, which is convertible
into shares of the Company’s common stock $0.001 par value per share (the
“Common Stock”), with such rights and designations as set forth in the form of
Certificate of Designations, Preferences and Rights of the 0% Series A
Convertible Preferred Stock, attached hereto as Exhibit A, (the “Series A
Certificate of Designation”) and (ii) a five year warrant, in the form attached
hereto as Exhibit B (the “Warrant”) to purchase one (1) share of Common Stock
(the “Warrant Shares”) at an exercise price of $0.68 per share. For purposes of
this Agreement, the term “Securities” shall refer to the Shares, the Common
Stock into which the Shares are convertible, the Warrants and the Warrant
Shares.

 

IMPORTANT INVESTOR NOTICES

 

NO OFFERING LITERATURE OR ADVERTISEMENT IN ANY FORM MAY BE RELIED UPON IN THE
OFFERING OF THESE SECURITIES EXCEPT FOR THIS SUBSCRIPTION AGREEMENT AND ANY
SUPPLEMENTS HERETO, AND NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY
REPRESENTATIONS EXCEPT THOSE CONTAINED HEREIN.

 

UNTIL SUCH TIME AS A FORM 8-K IS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION DISCLOSING THE TRANSACTIONS CONTEMPLATED HEREBY, THIS AGREEMENT IS
CONFIDENTIAL AND THE CONTENTS HEREOF MAY NOT BE REPRODUCED, DISTRIBUTED OR
DIVULGED BY OR TO ANY PERSONS OTHER THAN THE RECIPIENT OR ITS REPRESENTATIVE,
ACCOUNTANT OR LEGAL COUNSEL, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY.
EACH PERSON WHO ACCEPTS DELIVERY OF THIS AGREEMENT, ACKNOWLEDGES AND AGREES TO
THE FOREGOING RESTRICTIONS.

 

THIS AGREEMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION OF AN OFFER TO ANY
PERSON OR IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION IS UNLAWFUL OR
NOT AUTHORIZED. EACH PERSON WHO ACCEPTS DELIVERY OF THIS AGREEMENT AGREES TO
RETURN IT AND ALL RELATED DOCUMENTS IF SUCH PERSON DOES NOT PURCHASE ANY OF THE
SECURITIES DESCRIBED HEREIN.

 

NO REPRESENTATIONS, WARRANTIES OR ASSURANCES OF ANY KIND ARE MADE OR SHOULD BE
INFERRED WITH RESPECT TO THE ECONOMIC RETURN, IF ANY, THAT MAY ACCRUE TO AN
INVESTOR IN THE COMPANY.

 

THE COMPANY RESERVES THE RIGHT, IN ITS SOLE DISCRETION, TO REJECT ANY
SUBSCRIPTION IN WHOLE OR IN PART FOR ANY REASON OR FOR NO REASON PRIOR TO ITS
COUNTER-EXECUTION OF ANY SUBSCRIPTION AGREEMENT DELIVERED TO IT BY ANY POTENTIAL
SUBSCRIBER. THE COMPANY IS NOT OBLIGATED TO NOTIFY RECIPIENTS OF THIS AGREEMENT
WHETHER ALL OF THE SECURITIES OFFERED HEREBY HAVE BEEN SOLD.

 

FOR RESIDENTS OF ALL STATES

 

THIS OFFERING IS BEING MADE SOLELY TO “ACCREDITED INVESTORS,” AS SUCH TERM IS
DEFINED IN RULE 501 OF REGULATION D UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”). THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE AND WILL BE OFFERED AND SOLD
IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION AFFORDED BY SECTION 4(a)(2)
THEREUNDER AND REGULATION D (RULE 506) OF THE SECURITIES ACT AND CORRESPONDING
PROVISIONS OF STATE SECURITIES LAWS.

 

 

 

 

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
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 OR (B) AN
OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM
REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.

 

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING
AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY
OR ADEQUACY OF THIS AGREEMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

 

PROSPECTIVE INVESTORS SHOULD NOT CONSTRUE THE CONTENTS OF THIS AGREEMENT AS
INVESTMENT, LEGAL, BUSINESS, OR TAX ADVICE. EACH INVESTOR SHOULD CONTACT HIS,
HER OR ITS OWN ADVISORS REGARDING THE APPROPRIATENESS OF THIS INVESTMENT AND THE
TAX CONSEQUENCES THEREOF, WHICH MAY DIFFER DEPENDING ON AN INVESTOR’S PARTICULAR
FINANCIAL SITUATION. IN NO EVENT SHOULD THIS AGREEMENT BE DEEMED OR CONSIDERED
TO BE TAX ADVICE PROVIDED BY THE COMPANY.

 

FOR FLORIDA RESIDENTS ONLY

 

THE SECURITIES REFERRED TO HEREIN WILL BE SOLD TO, AND ACQUIRED BY, THE HOLDER
IN A TRANSACTION EXEMPT UNDER § 517.061 OF THE FLORIDA SECURITIES ACT. THE
SECURITIES HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE STATE OF FLORIDA. IN
ADDITION, ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE OF VOIDING THE PURCHASE
WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY SUCH
SUBSCRIBER TO THE COMPANY, AN AGENT OF THE COMPANY, OR AN ESCROW AGENT OR WITHIN
THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH
SUBSCRIBER, WHICHEVER OCCURS LATER.

 

1.           SUBSCRIPTION AND PURCHASE PRICE

 

(a)          Subscription. Subject to the conditions set forth in Section 2
hereof, the Subscriber hereby subscribes for and agrees to purchase the number
of Units indicated on page 24 hereof on the terms and conditions described
herein.

 

(b)          Purchase of Units. The Subscriber understands and acknowledges that
the purchase price to be remitted to the Company in exchange for the Units shall
be set at $0.68 per Unit, for an aggregate purchase price as set forth on page
24 hereof (the “Aggregate Purchase Price”), which shall be equivalent to $0.68
per Share, exclusive of the value of the Warrants. The Subscriber’s delivery of
this Agreement to the Company shall be accompanied by payment for the Units
subscribed for hereunder, payable in United States Dollars, by wire transfer of
immediately available funds delivered to Signature Bank, as escrow agent (the
“Escrow Agent”) pursuant to the terms of the escrow agreement(the “Escrow
Agreement”) in accordance with the wire instructions set forth on Exhibit C
attached hereto. Additionally, the Company shall deposit certificates evidencing
the Shares and Warrants so subscribed for with the Company’s corporate
secretary, as escrow agent for the Securities (the “Securities Escrow Agent”).
The Subscriber understands and agrees that, subject to Section 2 and applicable
laws, by executing this Agreement, it is entering into a binding agreement.
Notwithstanding anything to the contrary herein, the Securities shall be held by
the Securities Escrow Agent and the Aggregate Purchase Price shall be held by
the Escrow Agent in accordance with Section 5(k) herein and the terms of the
Escrow Agreement. The Company and the Subscriber acknowledge that the Offering,
the issuance of the Securities and the Listing of Additional Shares Application
covering the listing of the Common Stock underlying the Shares and the Warrant
Shares shall be subject to certain required approvals by The NASDAQ Capital
Market (“NASDAQ”), including approval of the Offering, the issuance of the
Securities and any potential change of control resulting from the consummation
of the Offering (if required), by the Company’s stockholders, if required (such
approval, “NASDAQ Approval”). The Company agrees that it will inform the
Subscriber of any requirements of NASDAQ for NASDAQ Approval of the Offering and
the Subscriber shall, within twenty-four hours of such notification have the
right to request a return of such Subscriber’s subscription.

 

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2.           Acceptance, Offering Term and Closing Procedures

 

(a)          Offering of Securities. The Company hereby agrees to sell, and
subject to full, faithful and punctual performance and discharge by the Company
of all of its duties, obligations and responsibilities as set forth in this
Agreement, the Escrow Agreement, the Series A Certificate of Designation, the
Warrant and any other agreement entered into between the Subscriber and the
Company relating to this subscription (collectively, the "Transaction
Documents"), the Subscriber hereby agrees to purchase the Units pursuant to the
terms and conditions set forth in this Agreement. For the avoidance of doubt,
upon the occurrence of the failure by the Company to fully, faithfully and
punctually perform and discharge any of its duties, obligations and
responsibilities as set forth in any of the Transaction Documents, which shall
have been performed or otherwise discharged prior to the Closing (as defined
below), the Subscriber may, on or prior to the Closing, at its sole and absolute
discretion, elect not to purchase the Units and, to the extent the Subscriber
has delivered all or any part of the Aggregate Purchase Price to the Company or
an escrow account at the direction of the Company, receive the full and
immediate refund of the Aggregate Purchase Price. In the event the Closing does
not take place because of (i) the election not to purchase the Units by the
Subscriber or (ii) the failure to effectuate the Closing on or prior to December
31, 2014 (unless extended by agreement of the parties hereto) for any reason or
no reason, this Agreement and any other Transaction Documents shall thereafter
be terminated and have no force or effect, and the parties shall take all steps,
including the execution of instructions to the Company, to ensure that the
Aggregate Purchase Price shall promptly be returned or caused to be returned to
the Subscriber without interest thereon or deduction therefrom.

 

(b)          Closing. The closing of the purchase and sale of the Units
hereunder (the “Closing”) shall take place at such time and place as determined
by the parties hereto. The Closing shall take place on a Business Day promptly
following the satisfaction of the conditions set forth in Section 7 below, as
determined by the Company (the “Closing Date”). “Business Day” shall mean from
the hours of 9:00 a.m. (Eastern Time) through 5:00 p.m. (Eastern Time) of a day
other than a Saturday, Sunday or other day on which commercial banks in New
York, New York are authorized or required to be closed. The Shares and the
Warrants purchased by the Subscriber will be delivered by the Company promptly
following the Closing Date of the Offering.

 

(c)          Extraordinary Events Regarding Common Stock. In the event that
prior to the Closing the Company shall (a) issue additional shares of Common
Stock as a dividend or other distribution on outstanding Common Stock,
(b) subdivide its outstanding shares of Common Stock, or (c) combine its
outstanding shares of the Common Stock into a smaller number of shares of Common
Stock, then, in each such event, the Purchase Price shall, simultaneously with
the happening of such event, be adjusted by multiplying the then Purchase Price
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such event and the denominator of which
shall be the number of shares of Common Stock outstanding immediately after such
event, and the product so obtained shall thereafter be the Purchase Price then
in effect. The Purchase Price, as so adjusted, shall be readjusted in the same
manner upon the happening of any successive event or events described herein.
The number of Units that the Subscriber shall thereafter be entitled to receive
(including number of shares of Common Stock or Warrant Shares the Subscriber may
thereafter be entitled to receive upon conversion of the Shares or exercise of
the Warrants, as the case may be) shall be adjusted to a number determined by
multiplying the number of shares of Common Stock that would otherwise (but for
the provisions of this Section) be issuable on such conversion or exercise by a
fraction of which (a) the numerator is the Purchase Price that would otherwise
(but for the provisions of this Section) be in effect, and (b) the denominator
is the Purchase Price then in effect.

 

(d)          Certificate as to Adjustments. In each case of any adjustment or
readjustment in (i) the Shares (ii) the number of Warrant Shares issuable upon
the exercise of the Warrants, (iii) the exercise price of the Warrants and/or
(iv) the conversion price or conversion ratio of the Shares, the Company, at its
expense, will promptly cause its Chief Financial Officer or other appropriate
designee to compute such adjustment or readjustment in accordance with the terms
hereof and of the Series A Certificate of Designation or the Warrant, as
applicable, and prepare a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company will forthwith mail a copy of each such
certificate to the Subscriber. To the extent any such certificate contains
material non-public information, the Company shall, no later than the first
Business Day after the date of delivery of such certificate to the Subscriber,
include such material non-public information in a Current Report on Form 8-K
filed with the United States Securities and Exchange Commission (the “SEC”).
From and after the filing of such Form 8-K, the Company shall have disclosed all
material non-public information (if any) delivered to the Subscriber by the
Company or any of its Subsidiaries, or any of their respective officers,
directors, employees or agents in connection with the transactions described in
such certificate.

 

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3.           THE SUBSCRIBER’s Representations, Warranties AND cOVENANTS

 

Each Subscriber, severally and not jointly, hereby acknowledges, agrees with and
represents, warrants and covenants to the Company, as follows:

 

(a)            The Subscriber has full power and authority to enter into this
Agreement, the execution and delivery of which has been duly authorized, if
applicable, and this Agreement constitutes a valid and legally binding
obligation of the Subscriber, except as may be limited by bankruptcy,
reorganization, insolvency, moratorium and similar laws of general application
relating to or affecting the enforcement of rights of creditors, and except as
enforceability of the obligations hereunder are subject to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or law).

 

(b)            The Subscriber acknowledges its understanding that the Offering
and sale of the Securities is intended to be exempt from registration under the
Securities Act of 1933, as amended (the “Securities Act”), by virtue of Section
4(a)(2) of the Securities Act and the provisions of Regulation D promulgated
thereunder (“Regulation D”). In furtherance thereof, the Subscriber represents
and warrants to the Company and its affiliates as follows:

 

(i)          The Subscriber realizes that the basis for the exemption from
registration may not be available if, notwithstanding the Subscriber’s
representations contained herein, the Subscriber is merely acquiring the
Securities for a fixed or determinable period in the future, or for a market
rise, or for sale if the market does not rise. The Subscriber does not have any
such intention.

 

(ii)         The Subscriber realizes that the basis for exemption would not be
available if the Offering is part of a plan or scheme to evade registration
provisions of the Securities Act or any applicable state or federal securities
laws, except sales pursuant to a registration statement or sales that are
exempted under the Securities Act.

 

(iii)        The Subscriber is acquiring the Securities solely for the
Subscriber’s own beneficial account, for investment purposes, and not with a
view towards, or resale in connection with, any distribution of the Securities.

 

(iv)        The Subscriber has the financial ability to bear the economic risk
of the Subscriber’s investment, has adequate means for providing for its current
needs and contingencies, and has no need for liquidity with respect to an
investment in the Company.

 

(v)         The Subscriber and the Subscriber’s attorney, accountant, purchaser
representative and/or tax advisor, if any (collectively, the “Advisors”) has
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of a prospective investment in the
Securities. If other than an individual, the Subscriber also represents it has
not been organized solely for the purpose of acquiring the Securities.

 

(vi)        The Subscriber (together with its Advisors, if any) has received all
documents requested by the Subscriber, if any, and has carefully reviewed them
and understands the information contained therein, prior to the execution of
this Agreement.

 

(c)            The Subscriber is not relying on the Company or any of its
employees, agents, sub-agents or advisors with respect to the legal, tax,
economic and related considerations involved in this investment. The Subscriber
has relied on the advice of, or has consulted with, only its Advisors. Each
Advisor, if any, has disclosed to the Subscriber in writing (a copy of which is
annexed to this Agreement) the specific details of any and all past, present or
future relationships, actual or contemplated, between the Advisor and the
Company or any affiliate or sub-agent thereof.

 

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(d)            The Subscriber has carefully considered the potential risks
relating to the Company and a purchase of the Securities, and fully understands
that the Securities are a speculative investment that involves a high degree of
risk of loss of the Subscriber’s entire investment. Among other things, the
Subscriber has carefully considered each of the risks described under the
heading “Risk Factors” in the Company’s SEC Filings (as defined below) and any
additional disclosures in the nature of Risk Factors described herein.

 

(e)            The Subscriber will not sell or otherwise transfer any Securities
without registration under the Securities Act or an exemption therefrom, and
fully understands and agrees that the Subscriber must bear the economic risk of
its purchase because, among other reasons, the Securities have not been
registered under the Securities Act or under the securities laws of any state
and, therefore, cannot be resold, pledged, assigned or otherwise disposed of
unless they are subsequently registered under the Securities Act and under the
applicable securities laws of such states, or an exemption from such
registration is available. In particular, the Subscriber is aware that the
Securities are “restricted securities,” as such term is defined in Rule 144
promulgated under the Securities Act (“Rule 144”), and they may not be sold
pursuant to Rule 144 unless all of the conditions of Rule 144 are met. The
Subscriber also understands that the Company is under no obligation to register
the Securities on behalf of the Subscriber or to assist the Subscriber in
complying with any exemption from registration under the Securities Act or
applicable state securities laws. The Subscriber understands that any sales or
transfers of the Securities are further restricted by state securities laws and
the provisions of this Agreement.

 

(f)            No oral or written representations or warranties have been made,
or information furnished, to the Subscriber or its Advisors, if any, by the
Company or any of its officers, employees, agents, sub-agents, affiliates,
advisors or subsidiaries in connection with the Offering, other than any
representations of the Company contained herein, and in subscribing for the
Units the Subscriber is not relying upon any representations other than those
contained herein.

 

(g)            The Subscriber’s overall commitment to investments that are not
readily marketable is not disproportionate to the Subscriber’s net worth, and an
investment in the Securities will not cause such overall commitment to become
excessive.

 

(h)            The Subscriber understands and agrees that the certificates for
the Securities shall bear substantially the following legend:

 

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

 

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(i)            Certificates evidencing Securities shall not be required to
contain the legend set forth in Section 3(h) above or any other legend (i) while
a registration statement covering the resale of such Securities is effective
under the Securities Act, (ii) following any sale of such Securities pursuant to
Rule 144 (assuming the transferor is not an affiliate of the Company), (iii) if
such Securities are eligible to be sold, assigned or transferred under Rule 144
(provided that the Subscriber provides the Company with reasonable assurances
that such Securities are eligible for sale, assignment or transfer under Rule
144 which shall not include an opinion of the Subscriber’s counsel), (iv) in
connection with a sale, assignment or other transfer (other than under Rule
144), provided that the Subscriber provides the Company with an opinion of
counsel to the Subscriber, in a generally acceptable form, to the effect that
such sale, assignment or transfer of the Securities may be made without
registration under the applicable requirements of the Securities Act or (v) if
such legend is not required under applicable requirements of the Securities Act
(including, without limitation, controlling judicial interpretations and
pronouncements issued by the SEC). If a legend is not required pursuant to the
foregoing, the Company shall no later than three (3) business days following the
delivery by the Subscriber to the Company or the transfer agent (with notice to
the Company) of a legended certificate representing such Securities (endorsed or
with stock powers attached, signatures guaranteed, and otherwise in form
necessary to affect the reissuance and/or transfer, if applicable), together
with any other deliveries from the Subscriber as may be required above in this
Section 3(i), as directed by the Subscriber, either: (A) provided that the
Company’s transfer agent is participating in the DTC Fast Automated Securities
Transfer Program and such Securities are shares of Common Stock issuable upon
conversion of the Shares, credit the aggregate number of shares of Common Stock
to which the Subscriber shall be entitled to the Subscriber’s or its designee’s
balance account with DTC through its Deposit/Withdrawal at Custodian system or
(B) if the Company’s transfer agent is not participating in the DTC Fast
Automated Securities Transfer Program, issue and deliver (via reputable
overnight courier) to the Subscriber, a certificate representing such Securities
that is free from all restrictive and other legends, registered in the name of
the Subscriber or its designee. The Company shall be responsible for any
transfer agent fees, fees of legal counsel to the Company or DTC fees with
respect to any issuance of Securities or the removal of any legends with respect
to any Securities in accordance herewith.

 

(j)            Neither the SEC nor any state securities commission has approved
the Securities or passed upon or endorsed the merits of the Offering. There is
no government or other insurance covering any of the Securities.

 

(k)           The Subscriber and its Advisors, if any, have had a reasonable
opportunity to ask questions of and receive answers from a person or persons
acting on behalf of the Company concerning the Offering and the business,
financial condition, results of operations and prospects of the Company, and all
such questions have been answered to the full satisfaction of the Subscriber and
its Advisors, if any.

 

(l)            (i)          In making the decision to invest in the Securities
the Subscriber has relied solely upon the information provided by the Company in
the Transaction Documents. To the extent necessary, the Subscriber has retained,
at its own expense, and relied upon appropriate professional advice regarding
the investment, tax and legal merits and consequences of this Agreement and the
purchase of the Securities hereunder. The Subscriber disclaims reliance on any
statements made or information provided by any person or entity in the course of
Subscriber’s consideration of an investment in the Securities other than the
Transaction Documents.

 

(ii)         The Subscriber represents and warrants that: (i) the Subscriber was
contacted regarding the sale of the Securities by the Company (or an authorized
agent or representative thereof) with whom the Subscriber had a prior
substantial pre-existing relationship and (ii) no Securities were offered or
sold to it by means of any form of general solicitation or general advertising,
and in connection therewith, the Subscriber did not (A) receive or review any
advertisement, article, notice or other communication published in a newspaper
or magazine or similar media or broadcast over television or radio, whether
closed circuit, or generally available; or (B) attend any seminar meeting or
industry investor conference whose attendees were invited by any general
solicitation or general advertising; or (C) observe any website or filing of the
Company with the SEC in which any offering of securities by the Company was
described and as a result learned of any offering of securities by the Company.

 

(m)          The Subscriber has taken no action that would give rise to any
claim by any person for brokerage commissions, finders’ fees or the like
relating to this Agreement or the transactions contemplated hereby.

 

(n)           The Subscriber is not relying on the Company or any of its
employees, agents, or advisors with respect to the legal, tax, economic and
related considerations of an investment in the Securities, and the Subscriber
has relied on the advice of, or has consulted with, only its own Advisors.

 

(o)           The Subscriber acknowledges that any estimates or forward-looking
statements or projections furnished by the Company to the Subscriber were
prepared by the management of the Company in good faith, but that the attainment
of any such projections, estimates or forward-looking statements cannot be
guaranteed by the Company or its management and should not be relied upon.

 

(p)           No oral or written representations have been made, or oral or
written information furnished, to the Subscriber or its Advisors, if any, in
connection with the Offering that are in any way inconsistent with the
information contained herein.

 

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

 

(r)           The Subscriber is an “Accredited Investor” as defined in Rule
501(a) under the Securities Act. In general, an “Accredited Investor” is deemed
to be an institution with assets in excess of $5,000,000 or individuals with a
net worth in excess of $1,000,000 (excluding such person’s residence) or annual
income exceeding $200,000 or $300,000 jointly with his or her spouse.

 

(s)           The Subscriber, either alone or together with its representatives,
has such knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks of the Offering,
and has so evaluated the merits and risks of such investment. The Subscriber has
not authorized any person or entity to act as its Purchaser Representative (as
that term is defined in Regulation D of the General Rules and Regulations under
the Securities Act) in connection with the Offering. The Subscriber is able to
bear the economic risk of an investment in the Securities and, at the present
time, is able to afford a complete loss of such investment.

 

(t)           The Subscriber has reviewed, or had the opportunity to review, all
of the SEC Filings (as defined below) and all “Risk Factors” and “Forward
Looking Statements” disclaimers contained therein. In addition, the Subscriber
has reviewed and acknowledges it has such knowledge, sophistication and
experience in securities matters.

 

(u)           The foregoing representations and warranties shall survive the
Closing.

 

4.          THE COMPANY’S Representations, Warranties and Covenants

 

The Company hereby acknowledges, agrees with and represents, warrants and
covenants to each Subscriber as of the date hereof and as of the Closing Date,
except as set forth in the disclosure schedule attached hereto (the “Company
Disclosure Schedule”, which Company Disclosure Schedules shall be deemed a part
hereof and shall qualify any representation made herein only to the extent of
the disclosure contained in the corresponding section of the Disclosure
Schedules, as follows:

 

(a) Organization and Qualification. The Company is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation. The Company is duly qualified to do business, and is in good
standing in the states required due to (a) the ownership or lease of real or
personal property for use in the operation of the Company's business or (b) the
nature of the business conducted by the Company, except where the failure to so
qualify would not, individually or in the aggregate, have a Material Adverse
Effect. The Company has all requisite power, right and authority to own, operate
and lease its properties and assets, to carry on its business as now conducted,
to execute, deliver and perform its obligations under this Agreement and the
other Transaction Documents to which it is a party, and to carry out the
transactions contemplated hereby and thereby, subject to the Required Approvals.
All actions on the part of the Company and its officers and directors necessary
for the authorization, execution, delivery and performance of this Agreement and
the other Transaction Documents, the consummation of the transactions
contemplated hereby and thereby, and the performance of all of the Company's
obligations under this Agreement and the other Transaction Documents have been
taken or will be taken prior to the Closing. This Agreement has been, and the
other Transaction Documents to which the Company is a party on the Closing will
be, duly executed and delivered by the Company, and this Agreement is, and each
of the other Transaction Documents to which it is a party on the Closing will
be, a legal, valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except as may be limited by
bankruptcy, reorganization, insolvency, moratorium and similar laws of general
application relating to or affecting the enforcement of rights of creditors, and
except as enforceability of the obligations hereunder are subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or law).

 

- 7 -

 

 

(b)          Issuance of Securities. The Shares and Warrants to be issued to the
Subscriber pursuant to this Agreement and the applicable Transaction Documents,
when issued and delivered in accordance with the terms of this Agreement, will
be duly and validly issued and will be fully paid and non-assessable and the
Warrant Shares and the Common Stock issuable upon conversion of the Shares, when
issued and delivered in accordance with Warrant and the Series A Certificate of
Designation, as applicable, and assuming proper payment (with respect to the
Warrant Shares) and exercise in accordance with the provisions of such
documents, will be duly and validly issued and will be fully paid and
non-assessable.

 

(c)           Authorization; Enforcement. Except as set forth in Schedule 4(c),
the execution, delivery and performance of this Agreement and the other
Transaction Documents by the Company, and the consummation of the transactions
contemplated hereby and thereby, will not (a) constitute a violation (with or
without the giving of notice or lapse of time, or both) of any provision of any
law or any judgment, decree, order, regulation or rule of any court, agency or
other governmental authority applicable to the Company, (b) except as set forth
in Section 4(d) below, require any consent, approval or authorization of, or
declaration, filing or registration with, any person, (c) result in a default
(with or without the giving of notice or lapse of time, or both) under,
acceleration or termination of, or the creation in any party of the right to
accelerate, terminate, modify or cancel, any agreement, lease, note or other
restriction, encumbrance, obligation or liability to which the Company is a
party or by which it is bound or to which any assets of the Company are subject,
(d) result in the creation of any lien or encumbrance upon the assets of the
Company, or upon any shares of Common Stock, preferred stock or other securities
of the Company, (e) conflict with or result in a breach of or constitute a
default under any provision of the certificate of incorporation or bylaws of the
Company, or (f) invalidate or adversely affect any permit, license,
authorization or status used in the conduct of the business of the Company.

 

(d)           Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents,
other than: (i) NASDAQ Approval, and (ii) the filing of Form D with the
Commission and such filings as are required to be made under applicable state
securities laws (collectively, the “Required Approvals”).

 

(e)           SEC Filings. The Company is subject to, and in full compliance
with, the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). The Company has made
available to each Subscriber through the EDGAR system true and complete copies
of the Company’s filings for the prior two full fiscal years plus any interim
period (collectively, the “SEC Filings”), and all such SEC Filings are
incorporated herein by reference. The SEC Filings, when they were filed with the
SEC (or, if any amendment with respect to any such document was filed, when such
amendment was filed), complied in all material respects with the applicable
requirements of the Exchange Act and the rules and regulations thereunder and
did not, as of such date, contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. All reports and statements required to be filed by
the Company under the Exchange Act have been filed, together with all exhibits
required to be filed therewith. The Company and each of its direct and indirect
subsidiaries, if any (collectively, the “Subsidiaries”), are engaged in all
material respects only in the business described in the SEC Filings, and the SEC
Filings contain a complete and accurate description in all material respects of
the business of the Company and the Subsidiaries.

 

(f)            No Financial Advisor. The Company acknowledges and agrees that
each Subscriber is acting solely in the capacity of an arm’s length purchaser
with respect to the Securities and the transactions contemplated hereby. The
Company further acknowledges that Subscriber is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement and the transactions contemplated hereby and any advice given by
any Subscriber or any of its representatives or agents in connection with this
Agreement and the transactions contemplated hereby is merely incidental to such
Subscriber’s purchase of the Securities. The Company further represents to each
Subscriber that the Company’s decision to enter into this Agreement has been
based solely on the independent evaluation of the transactions contemplated
hereby by the Company and its representatives.

 

- 8 -

 

 

(g)          Indemnification. The Company will indemnify and hold harmless each
Subscriber and, where applicable, its directors, officers, employees, agents,
advisors and shareholders (each, an “Indemnitee”, from and against any and all
loss, liability, claim, damage and expense whatsoever (including, but not
limited to, any and all fees, costs and expenses whatsoever reasonably incurred
in investigating, preparing or defending against any claim, lawsuit,
administrative proceeding or investigation whether commenced or threatened) (the
“Indemnified Liabilities”), incurred by any 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 Company or any Subsidiary in any of the
Transaction Documents, (ii) any breach of any covenant, agreement or obligation
of the Company or any Subsidiary contained in any of the Transaction Documents
or (iii) any cause of action, suit, proceeding or claim brought or made against
such Indemnitee by a third party (including for these purposes a derivative
action brought on behalf of the Company or any Subsidiary) or which otherwise
involves such Indemnitee that arises out of or results from (A) the execution,
delivery, performance or enforcement of any of the Transaction Documents, (B)
any transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, or (C) the
status of such Subscriber or holder of the Securities either as an investor in
the Company pursuant to the transactions contemplated by the Transaction
Documents or as a party to this Agreement (including, without limitation, as a
party in interest or otherwise in any action or proceeding for injunctive or
other equitable relief). To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.

 

(h)           Capitalization and Additional Issuances.         The
capitalization of the Company is as set forth in Schedule 4 (h). Except as set
forth in Schedule 4 (h), the Company has not issued any capital stock since its
most recently filed periodic report under the Exchange Act. No Person has any
right of first refusal, preemptive right, right of participation, or any similar
right to participate in the transactions contemplated by the Transaction
Documents. Except as disclosed on Schedule 4 (h), there are no outstanding
options, warrants, scrip rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exercisable or exchangeable for, or giving any Person any
right to subscribe for or acquire any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock or
Common Stock equivalents. Except as set forth on Schedule 4 (h), the issuance
and sale of the Securities will not obligate the Company to issue shares of
Common Stock or other securities to any Person (other than the Subscribers) and
will not result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under any of such securities. All
of the outstanding shares of capital stock of the Company are duly authorized,
validly issued, fully paid and nonassessable, have been issued in material
compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. Except for NASDAQ Approval, no
further approval or authorization of any stockholder, the Board of Directors or
others is required for the issuance and sale of the Securities. Other than the
Voting Agreements (as defined below), there are no stockholders agreements,
voting agreements or other similar agreements with respect to the Company’s
capital stock to which the Company is a party or, to the knowledge of the
Company, between or among any of the Company’s stockholders .

 

(i)            Private Placements. Assuming the accuracy of each Subscriber’s
representations and warranties set forth in Section 3, no registration under the
Securities Act is required for the offer and sale of the Securities by the
Company to the Subscribers as contemplated hereby.

 

(j)            Investment Company. The Company is not, and is not an affiliate
of, and immediately after receipt of payment for the Units will not be or be an
affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended. The Company shall conduct its business in a
manner so that it will not become subject to the Investment Company Act.

 

(k)           Reporting Company/Shell Company Status. The Company is a
publicly-held company subject to reporting obligations pursuant to Sections
12(g) and 13 of the Exchange Act. Pursuant to the provisions of the Exchange
Act, the Company has timely filed all reports and other materials required to be
filed by the Company thereunder with the SEC during the preceding twelve months.
The Company, as of the Closing Date, is not a “shell company”, as that term is
employed in Rule 144 under the Securities Act. Except as set forth on Schedule
4(k), the Company is in full compliance with the continued listing standards of
The NASDAQ Capital Market, and has no reason to believe that it will not in the
foreseeable future continue to be in compliance with all such listing and
maintenance requirements.

 

- 9 -

 

 

(l)            Litigation. Except as set forth on Schedule 4 (l), there is no
action, suit, proceeding, inquiry or investigation before or by the Trading
Market, any court, public board, other Governmental Entity, self-regulatory
organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries, the Common Stock or
any of the Company’s or its Subsidiaries’ officers or directors which is outside
of the ordinary course of business or individually or in the aggregate material
to the Company or any of its Subsidiaries.  No director, officer or employee of
the Company or any of its Subsidiaries has willfully violated 18 U.S.C. §1519 or
engaged in spoliation in reasonable anticipation of litigation.  Without
limitation of the foregoing, there has not been, and to the knowledge of the
Company, there is not pending or contemplated, any investigation by the SEC
involving the Company, any of its Subsidiaries or any current or former director
or officer of the Company or any of its Subsidiaries.  The SEC has not issued
any stop order or other order suspending the effectiveness of any registration
statement filed by the Company under the Securities Act or the Exchange Act.
“Governmental Entity” means any nation, state, county, city, town, village,
district, or other political jurisdiction of any nature, federal, state, local,
municipal, foreign, or other government, governmental or quasi-governmental
authority of any nature (including any governmental agency, branch, department,
official, or entity and any court or other tribunal), multi-national
organization or body; or body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory, or taxing
authority or power of any nature or instrumentality of any of the foregoing,
including any entity or enterprise owned or controlled by a government or a
public international organization or any of the foregoing. “Trading Market”
means any of the following markets or exchanges on which the Common Stock is
listed or quoted for trading on the date in question: the NYSE MKT, The NASDAQ
Capital Market, The NASDAQ Global Market, The NASDAQ Global Select Market, the
New York Stock Exchange, OTCQB, OTCQX or the OTC Bulletin Board (or any
successors to any of the foregoing).

 

(m)          Employee Relations. Neither the Company nor any of its Subsidiaries
is a party to any collective bargaining agreement or employs any member of a
union.  The Company believes that its and its Subsidiaries’ relations with their
respective employees are good.  The Company and its Subsidiaries are in
compliance with all federal, state, local and foreign laws and regulations
respecting labor, employment and employment practices and benefits, terms and
conditions of employment and wages and hours, except as disclosed in Schedule
4(m) or where failure to be in compliance would not, either individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect.
“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 or any
Subsidiary, individually or taken as a whole, (ii) the transactions contemplated
hereby or in any of the other Transaction Documents or (iii) the authority or
ability of the Company or any of its Subsidiaries to perform any of their
respective obligations under any of the Transaction Documents. 

 

(n)           Tax Status. The Company and each of its Subsidiaries (i) has
timely made or filed all foreign, federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject, (ii) has timely paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and (iii) has set aside on its books provision reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply.  There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company and its Subsidiaries know of no basis for any
such claim.  The Company is not operated in such a manner as to qualify as a
passive foreign investment company, as defined in Section 1297 of the U.S.
Internal Revenue Code of 1986, as amended.

 

(o)           Indebtedness and Other Contracts. Except as set forth on Schedule
4(o) annexed hereto, neither the Company nor any of its Subsidiaries, (i) has
any outstanding Indebtedness (as defined below), (ii) is a party to any
contract, agreement or instrument, the violation of which, or default under
which, by the other party(ies) to such contract, agreement or instrument could
reasonably be expected to result in a Material Adverse Effect, (iii) is in
violation of any term of, or in default under, any contract, agreement or
instrument relating to any Indebtedness, except where such violations and
defaults would not result, individually or in the aggregate, in a Material
Adverse Effect, or (iv) is a party to any contract, agreement or instrument
relating to any Indebtedness, the performance of which, in the judgment of the
Company’s officers, has or is expected to have a Material Adverse Effect.  For
purposes of this Agreement:  (x) “Indebtedness” of any Person means, without
duplication (A) all indebtedness for borrowed money, (B) all obligations issued,
undertaken or assumed as the deferred purchase price of property or services
(including, without limitation, “capital leases” in accordance with generally
accepted accounting principles) (other than trade payables entered into in the
ordinary course of business), (C) all reimbursement or payment obligations with
respect to letters of credit, surety bonds and other similar instruments, (D)
all obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all indebtedness referred to in clauses (A)
through (F) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
claim, lien, tax, right of first refusal, pledge, charge, security interest or
other encumbrance upon or in any property or assets (including accounts and
contract rights) owned by any Person, even though the Person which owns such
assets or property has not assumed or become liable for the payment of such
indebtedness, and (H) all Contingent Obligations in respect of indebtedness or
obligations of others of the kinds referred to in clauses (A) through (G) above;
(y) “Contingent Obligation” means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto; and (z)
“Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization, any other
entity and any Governmental Entity or any department or agency thereof.

 

- 10 -

 

  

(p)          No Undisclosed Events, Liabilities, Developments or Circumstances.
Since the date of the latest audited financial statements included within the
SEC Filings, except as specifically disclosed in a subsequent SEC Filing: (i)
there has been no event, occurrence or development that has had or that could
reasonably be expected to result in a Material Adverse Effect, (ii) the Company
has not incurred any material liabilities (contingent or otherwise) other than
(A) trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required to be
reflected in the Company’s financial statements pursuant to GAAP or disclosed in
filings made with the Commission, (iii) the Company has not altered its method
of accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) except as set forth on Schedule 4(h), the Company has not issued
any equity securities to any officer, director or Affiliate. The Company does
not have pending before the SEC any request for confidential treatment of
information. Except for the issuance of the Securities contemplated by this
Agreement or as set forth on Schedule 4 (p), no event, liability, fact,
circumstance, occurrence or development has occurred or exists or is reasonably
expected to occur or exist with respect to the Company or its Subsidiaries or
their respective businesses, properties, operations, assets or financial
condition, that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made or deemed
made that has not been publicly disclosed at least two Trading Days prior to the
date that this representation is made.

 

(q)          No Additional Agreements. Neither the Company nor any of its
Subsidiaries has any agreement or understanding with any Subscriber with respect
to the transactions contemplated by the Transaction Documents other than
pursuant to documents substantially identical to the Transaction Documents.

 

(r)          No Disqualification Events. To the Company’s knowledge, none of the
Company, any of its predecessors, any affiliated issuer, any director, executive
officer, other officer of the Company participating in the offering contemplated
hereby, any beneficial owner of 20% or more of the Company's outstanding voting
equity securities, calculated on the basis of voting power, nor any promoter (as
that term is defined in Rule 405 under the Securities Act) connected with the
Company in any capacity at the time of sale (each, an “Issuer Covered Person”)
is subject to any of the "Bad Actor" disqualifications described in Rule
506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”),
except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The
Company has exercised reasonable care to determine whether any Issuer Covered
Person is subject to a Disqualification Event.

 

(s)          General Solicitation. None of the Company, any of its affiliates
(as defined in Rule 501(b) under the Securities Act) or any person acting on
behalf of the Company or such affiliate will solicit any offer to buy or offer
or sell the Securities by means of any form of general solicitation or general
advertising within the meaning of Regulation D, including: (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar medium or broadcast over television or radio; and
(ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.

 

(t)          Compliance. To the Company’s knowledge, neither the Company nor any
Subsidiary: (i) is in default under or in violation of (and no event has
occurred that has not been waived that, with notice or lapse of time or both,
would result in a default by the Company or any Subsidiary under), nor has the
Company or any Subsidiary received notice of a claim that it is in default under
or that it is in violation of, any indenture, loan or credit agreement or any
other agreement or instrument to which it is a party or by which it or any of
its properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any judgment, decree or order of any court,
arbitrator or other governmental authority or (iii) is or has been in violation
of any statute, rule, ordinance or regulation of any governmental authority,
including without limitation all foreign, federal, state and local laws relating
to taxes, environmental protection, occupational health and safety, product
quality and safety and employment and labor matters, except in each case as
could not have or reasonably be expected to result in a Material Adverse Effect.

 

- 11 -

 

  

(u)          Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Filings, except where the failure
to possess such permits could not reasonably be expected to result in a Material
Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary
has received any notice of proceedings relating to the revocation or
modification of any Material Permit.

 

(v)         Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property (if any) owned by them and
good and marketable title in all personal property owned by them that is
material to the business of the Company and the Subsidiaries, in each case free
and clear of all liens, except for (i) liens as do not materially affect the
value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries and
(ii) liens for the payment of federal, state or other taxes, for which
appropriate reserves have been made in accordance with GAAP and, the payment of
which is neither delinquent nor subject to penalties. Any real property and
facilities held under lease by the Company and the Subsidiaries are held by them
under valid, subsisting and enforceable leases with which the Company and the
Subsidiaries are in compliance.

 

(w)          Intellectual Property.

 

1.            The term “Intellectual Property Rights” includes:

 

(a)           the name of the Company and each Subsidiary, all fictional
business names, trading names, registered and unregistered trademarks, service
marks, and applications of the Company and each Subsidiary (collectively,
“Marks'');

 

(b)           all patents, patent applications, and inventions and discoveries
that may be patentable of the Company and each Subsidiary (collectively,
“Patents'');

 

(c)           all copyrights in both published works and published works of the
Company and each Subsidiary (collectively, “Copyrights”);

 

(d)           all rights in mask works of the Company and each Subsidiary
(collectively, “Rights in Mask Works''); and

 

(e)           all know-how, trade secrets, confidential information, customer
lists, software, technical information, data, process technology, plans,
drawings, and blue prints (collectively, “Trade Secrets''); owned, used, or
licensed by the Company and each Subsidiary as licensee or licensor.

 

2.            Know-How Necessary for the Business. The Intellectual Property
Rights are all those necessary for the operation of the Company’s businesses as
it is currently conducted or as represented, in writing, to the Subscriber to be
conducted. The Company is the owner of all right, title, and interest in and to
each of the Intellectual Property Rights, free and clear of all liens, security
interests, charges, encumbrances, equities, and other adverse claims, and has
the right to use all of the Intellectual Property Rights. To the Company’s
knowledge, no employee of the Company has entered into any contract that
restricts or limits in any way the scope or type of work in which the employee
may be engaged or requires the employee to transfer, assign, or disclose
information concerning his work to anyone other than of the Company.

 

3.          Patents. The Company is the owner of all right, title and interest
in and to each of the Patents, free and clear of all liens and other adverse
claims, purchase price payments, or license agreements now or hereafter
existing).

 

- 12 -

 

 

4.          Trademarks. The Company is the owner of all right, title, and
interest in and to each of the Marks, free and clear of all liens and other
adverse claims. All Marks that have been registered with the United States
Patent and Trademark Office are currently in compliance with all formal legal
requirements (including the timely post-registration filing of affidavits of use
and incontestability and renewal applications), are valid and enforceable, and
are not subject to any maintenance fees or taxes or actions falling due within
ninety days after the Closing Date.

 

5.          Copyrights. The Company is the owner of all right, title, and
interest in and to each of the Copyrights, free and clear of all liens and other
adverse claims. All the Copyrights have been registered and are currently in
compliance with formal requirements, are valid and enforceable, and are not
subject to any maintenance fees or taxes or actions falling due within ninety
days after the date of the Closing

 

6.          Trade Secrets. With respect to each Trade Secret, the documentation
relating to such Trade Secret is current, accurate, and sufficient in detail and
content to identify and explain it and to allow its full and proper use without
reliance on the knowledge or memory of any individual. The Company has taken all
reasonable precautions to protect the secrecy, confidentiality, and value of its
Trade Secrets. The Company has good title and an absolute (but not necessarily
exclusive) right to use the Trade Secrets. The Trade Secrets are not part of the
public knowledge or literature, and, to the Company’s knowledge, have not been
used, divulged, or appropriated either for the benefit of any Person (other the
Company) or to the detriment of the Company. No Trade Secret is subject to any
adverse claim or has been challenged or threatened in any way.

(x)           Stock Option Plans. Since commencement of trading of the Company’s
Common Stock on The NASDAQ Capital Market, each stock option granted by the
Company under the stock option plan was granted (i) in accordance with the terms
of such stock option plan and (ii) with an exercise price at least equal to the
fair market value of the Common Stock on the date such stock option would be
considered granted under GAAP and applicable law. No stock option granted under
any stock option plan has been backdated. The Company has not knowingly granted,
and there is no and has been no Company policy or practice to knowingly grant,
stock options prior to, or otherwise knowingly coordinate the grant of stock
options with, the release or other public announcement of material information
regarding the Company or its Subsidiaries or their financial results or
prospects.

 

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

 

(z)          Listing and Maintenance Requirements.  The Common Stock is quoted
on the NASDAQ Capital Market under the symbol COOL. Except as set forth on
Schedule 4(z), the Company has not, in the twenty-four (24) months preceding the
date hereof, received notice from any Trading Market on which the Common Stock
is or has been listed or quoted to the effect that the Company is not in
compliance with the listing or maintenance requirements of such Trading Market.

 

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

 

(bb)         Money Laundering. The operations of the Company and its
Subsidiaries are and have been conducted at all times in compliance in all
material respects with applicable financial record-keeping and reporting
requirements of the Currency and Foreign Transactions Reporting Act of 1970, as
amended, applicable money laundering statutes and applicable rules and
regulations thereunder (collectively, the “Money Laundering Laws”), and no
action, suit or proceeding by or before any court or governmental agency,
authority or body or any arbitrator involving the Company or any Subsidiary with
respect to the Money Laundering Laws is pending or, to the knowledge of the
Company or any Subsidiary, threatened

 

- 13 -

 

 

(cc)         Acknowledgment Regarding Subscriber’s Trading Activity. Anything in
this Agreement or elsewhere herein to the contrary notwithstanding, it is
understood and acknowledged by the Company that: (i) none of the Subscribers has
been asked by the Company to agree, nor has any Subscriber agreed, to desist
from purchasing or selling, long and/or short, securities of the Company, or
“derivative” securities based on securities issued by the Company or to hold the
Securities for any specified term, (ii) past or future open market or other
transactions by any Subscriber, specifically including, without limitation,
Short Sales or “derivative” transactions, before or after the closing of this or
future private placement transactions, may negatively impact the market price of
the Company’s publicly-traded securities, (iii) any Subscriber, and
counter-parties in “derivative” transactions to which any such Subscriber is a
party, directly or indirectly, may presently have a “short” position in the
Common Stock and (iv) each Subscriber shall not be deemed to have any
affiliation with or control over any arm’s length counter-party in any
“derivative” transaction. The Company further understands and acknowledges that
(y) one or more Subscribers may engage in hedging activities at various times
during the period that the Securities are outstanding, including, without
limitation, during the periods that the value of the Underlying Shares
deliverable with respect to Securities are being determined, and (z) such
hedging activities (if any) could reduce the value of the existing stockholders'
equity interests in the Company at and after the time that the hedging
activities are being conducted.  The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of the
Transaction Documents. There are no disagreements of any kind presently
existing, or reasonably anticipated by the Company to arise, between the Company
and the accountants and lawyers formerly or presently employed by the Company
and the Company is current with respect to any fees owed to its accountants and
lawyers which could affect the Company’s ability to perform any of its
obligations under any of the Transaction Documents.

(dd)         Acknowledgment Regarding Subscribers’ Purchase of Securities. The
Company acknowledges and agrees that each of the Subscribers is acting solely in
the capacity of an arm’s length Subscriber with respect to the Transaction
Documents and the transactions contemplated thereby. The Company further
acknowledges that no Subscriber is acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given by any
Subscriber or any of their respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated thereby is
merely incidental to the Subscribers’ purchase of the Securities. The Company
further represents to each Subscriber that the Company’s decision to enter into
this Agreement and the other Transaction Documents has been based solely on the
independent evaluation of the transactions contemplated hereby by the Company
and its representatives.

 

(ee)         No Integrated Offering. Assuming the accuracy of the Subscribers’
representations and warranties set forth in Section 3, neither the Company, nor
any of its Affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of: (i) the Securities Act which would require the registration of
any such securities under the Securities Act, or (ii) any applicable shareholder
approval provisions of any Trading Market on which any of the securities of the
Company are listed or designated.

 

(ff)          Application of Takeover Protections. The Company and the Board of
Directors will have taken as of the Closing Date all necessary action, if any,
in order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s certificate of
incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Subscribers as a result
of the Subscribers and the Company fulfilling their obligations or exercising
their rights under the Transaction Documents, including without limitation as a
result of the Company’s issuance of the Securities and the Subscribers’
ownership of the Securities.

 

(gg)         Registration Rights. No Person other than the Subscribers herein
has any right to cause the Company or any Subsidiary to effect the registration
under the Securities Act of any securities of the Company or any Subsidiary.

 

(hh)         Certain Fees. Except as disclosed on Schedule 4(hh), no brokerage,
finder’s fees, commissions or due diligence fees are or will be payable by the
Company or any Subsidiary to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with respect to
the transactions contemplated by the Transaction Documents. The Subscribers
shall have no obligation with respect to any such fees or with respect to any
claims made by or on behalf of other Persons for fees of a type contemplated in
this Section 4(hh) that may be due in connection with the transactions
contemplated by the Transaction Documents.

 

- 14 -

 

 

(ii)           Sarbanes-Oxley; Internal Accounting Controls. The Company and the
Subsidiaries are in material compliance with any and all applicable requirements
of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and
any and all applicable rules and regulations promulgated by the Commission
thereunder that are effective as of the date hereof and as of the Closing Date.
Except as set forth on Schedule 4(ii), the Company and the Subsidiaries maintain
a system of internal accounting controls sufficient to provide reasonable
assurance that: (i) transactions are executed in accordance with management’s
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. Except as disclosed in the SEC Filings, the Company and the
Subsidiaries have established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries
and designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission’s rules and forms. The Company’s
certifying officers have evaluated the effectiveness of the disclosure controls
and procedures of the Company and the Subsidiaries as of the end of the period
covered by the most recently filed periodic report under the Exchange Act (such
date, the “Evaluation Date”). The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date. Since the Evaluation Date, there
have been no changes in the internal control over financial reporting (as such
term is defined in the Exchange Act) of the Company and its Subsidiaries that
have materially affected, or is reasonably likely to materially affect, the
internal control over financial reporting of the Company and its Subsidiaries.

 

(jj)           Transactions With Affiliates and Employees. Except as set forth
on Schedule 4(jj), none of the officers or directors of the Company or any
Subsidiary and, to the knowledge of the Company, none of the employees of the
Company or any Subsidiary is presently a party to any transaction with the
Company or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, providing for the borrowing of money from or lending of
money to or otherwise requiring payments to or from any officer, director or
such employee or, to the knowledge of the Company, any entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee, stockholder, member or partner, in each case in
excess of $50,000 other than for: (i) payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of the
Company and (iii) other employee benefits, including stock option agreements
under any stock option plan of the Company except as disclosed on Schedule
4(jj).

 

(kk)         Insurance. The Company and the Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Company and
the Subsidiaries are engaged, including, but not limited to, directors and
officers insurance coverage at least equal to the aggregate Subscription Amount.
Neither the Company nor any Subsidiary has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business without a significant increase in cost.

 

(ll)           Survival. The foregoing representations and warranties shall
survive the Closing.

 

5.            OTHER AGREEMENTS OF THE PARTIES

 

(a)           Furnishing of Information. As long as any Subscriber owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Subscriber owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Subscribers and make publicly available in accordance with Rule
144(c) under the Securities Act such information as is required for the
Subscribers to sell the Securities under Rule 144. The Company further covenants
that it will take such further action as any holder of Securities may reasonably
request, at the sole cost and expense of the Company including transfer agent
and legal opinion fees and expenses, all to the extent required from time to
time to enable such person to sell such Securities without registration under
the Securities Act within the limitation of the exemptions proved by Rule 144
under the Securities Act.

 

(b)           Shareholder Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other person that any
Subscriber is an “Acquiring Person” under any shareholder rights plan or similar
plan or arrangement in effect or hereafter adopted by the Company, or that any
Subscriber could be deemed to trigger the provisions of any such plan or
arrangement, by virtue of receiving Securities under the Transaction Documents
or under any other agreement between the Company and the Subscribers.

 

- 15 -

 

 

(c)           Securities Laws Disclosure; Publicity. The Company shall by 8:30
a.m. (New York City time) (a) on the first Business Day after this Agreement has
been executed, issue a press release disclosing the material terms of the
transactions contemplated hereby and (b) within four (4) Business Days after
this Agreement has been executed, file a Current Report on Form 8-K with the
SEC, including the Transaction Documents as exhibits thereto. From and after the
issuance of such press release and the filing of the Current Report on Form 8-K,
the Company shall have publicly disclosed all material, non-public information
delivered to any of the Subscribers by the Company or any of its Subsidiaries,
or any of their respective officers, directors, employees or agents. The Company
and each Subscriber shall consult with each other in issuing any press releases
with respect to the transactions contemplated hereby, and no Subscriber shall
issue any such press release or otherwise make any such public statement without
the prior consent of the Company, which consent shall not unreasonably be
withheld. Notwithstanding the foregoing, the Company shall not publicly disclose
the name of any Subscriber, or include the name of any Subscriber in any filing
with the SEC or any regulatory agency, without the prior written consent of such
Subscriber, except to the extent such disclosure is required by law in which
case the Company shall provide the Subscribers with prior notice of such
disclosure. The Company understands that any such disclosure shall cause
irreparable harm and each Subscriber shall be entitled to injunctive relief and
liquidated damages in connection therewith.

 

(d)           Integration. The Company shall not, and shall use its best efforts
to ensure that no affiliate of the Company shall, after the date hereof, sell,
offer for sale or solicit offers to buy or otherwise negotiate in respect of any
security that would be integrated with the offer or sale of the Units in a
manner that would require the registration under the Securities Act of the sale
of the Units to the Subscribers.

 

(e)           Reservation of Securities.

 

(i)            The Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance pursuant to the Transaction Documents in
such amount as may then be required to fulfill its obligations in full under the
Transaction Documents, but not less than 125% of the maximum number of shares of
Common Stock issuable pursuant to the Transaction Documents (the “Required
Minimum”).

 

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

 

(iii)                      The Company shall, if applicable: (i) in the time and
manner required by the principal Trading Market, prepare and file with such
Trading Market an additional shares listing application covering a number of
shares of Common Stock at least equal to the Required Minimum on the date of
such application, (ii) take all steps necessary to cause such shares of Common
Stock to be approved for listing or quotation on such Trading Market as soon as
possible thereafter, (iii) provide to the Subscribers evidence of such listing
or quotation and (iv) maintain the listing or quotation of such Common Stock on
any date at least equal to the Required Minimum on such date on such Trading
Market or another Trading Market. The Company will then take all commercially
reasonable action necessary to continue the listing or quotation and trading of
its Common Stock on a Trading Market for as long as any Subscriber holds
Securities, and will comply in all material respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of the Trading
Market at least until five years after the Closing Date. In the event the
aforedescribed listing is not continuously maintained for five years after the
Closing Date (a “Listing Default”), then in addition to any other rights the
Subscribers may have hereunder or under applicable law, on the first day of a
Listing Default and on each monthly anniversary of each such Listing Default
date (if the applicable Listing Default shall not have been cured by such date)
until the applicable Listing Default is cured, the Company shall pay to each
Subscriber an amount in cash, as partial liquidated damages and not as a
penalty, equal to 1% of the aggregate Subscription Amount and purchase price of
Warrant Shares held by such Subscriber on the day of a Listing Default and on
every thirtieth day (pro-rated for periods less than thirty days) thereafter
until the date such Listing Default is cured. If the Company fails to pay any
liquidated damages pursuant to this Section in a timely manner, the Company will
pay interest thereon at a rate of 1.5% per month (pro-rated for partial months)
to the Subscriber, up to a maximum of sixteen (16%) percent for such interest
and liquidated damages amounts, collectively.

 

- 16 -

 

 

 

(f)          Use of Proceeds. The Company anticipates using the gross proceeds
from the Offering for general working capital purposes or for such other
purposes as may be approved in writing by the Lead Investor.

 

(g)           Non-Public Information. Except with respect to the material terms
and conditions of the transactions contemplated by the Transaction Documents,
the Company covenants and agrees that neither it, nor any other Person acting on
its behalf will provide any Subscriber or its agents or counsel with any
information that the Company believes constitutes or could constitute material
non-public information, and each Subscriber agrees, and shall direct its agents
and counsel not to, request any material non-public information from the Company
or any Person acting on its behalf, unless prior thereto such Subscriber shall
have executed a written agreement with the Company regarding the willingness to
accept receipt of such material non-public information and acknowledges the
confidentiality and use of such information and the Company’s covenant to file a
further SEC filing or report and the period in which such information shall
remain confidential or be required to not be disclosed. The Company understands
and confirms that each Subscriber shall be relying on the foregoing covenant in
effecting transactions in securities of the Company. In addition, effective upon
the filing of the 8-K Filing, the Company acknowledges and agrees that any and
all confidentiality or similar obligations under any agreement, whether written
or oral, between the Company and any of its Subsidiaries or any of their
respective officers, directors, affiliates, employees or agents, on the one
hand, and the Subscriber or any of its affiliates on the other hand, shall
terminate.

 

(j)          Right of Participation. The Company acknowledges and agrees that
the right set forth in this Section 5(j) is a right granted by the Company,
separately, to each Subscriber.

 

(i)                      At least five (5) trading days prior to any proposed or
intended sale by the Company of its Common Stock or other securities or equity
linked debt obligations (each, a “Subsequent Placement”), the Company shall
deliver to each Subscriber a written notice of its proposal or intention to
effect a Subsequent Placement (each such notice, a “Pre-Notice”), which
Pre-Notice shall not contain any information (including, without limitation,
material, non-public information) other than: (A) a statement that the Company
proposes or intends to effect a Subsequent Placement, (B) a statement that the
statement in clause (A) above does not constitute material, non-public
information and (C) a statement informing such Subscriber that it is entitled to
receive an Offer Notice (as defined below) with respect to such Subsequent
Placement upon its written request. Upon the written request of a Subscriber
within five (5) business days after the Company’s delivery to such Subscriber of
such Pre-Notice, and only upon a written request by such Subscriber, the Company
shall promptly, but no later than one (1) business day after such request,
deliver to such Subscriber an irrevocable written notice (the “Offer Notice”) of
any proposed or intended issuance or sale or exchange (the “Offer”) of the
securities being offered (the “Offered Securities”) in a Subsequent Placement,
which Offer Notice shall (I) identify and describe the Offered Securities, (II)
describe the price and other terms upon which they are to be issued, sold or
exchanged, and the number or amount of the Offered Securities to be issued, sold
or exchanged, (III) identify the persons (if known) to which or with which the
Offered Securities are to be offered, issued, sold or exchanged and (IV) offer
to issue and sell to or exchange with such Subscriber in accordance with the
terms of the Offer such Subscriber’s pro rata portion of 100% of the Offered
Securities, provided that the number of Offered Securities which such Subscriber
shall have the right to subscribe for under this Section 5(j) shall be (x) based
on such Subscriber’s pro rata portion of the aggregate original amount of the
Units purchased hereunder by all Subscribers (the “Basic Amount”), and (y) with
respect to each Subscriber that elects to purchase its Basic Amount, any
additional portion of the Offered Securities attributable to the Basic Amounts
of other Subscribers as such Subscribers shall indicate it will purchase or
acquire should the other Subscribers subscribe for less than their Basic Amounts
(the “Undersubscription Amount”).

 

(ii)                      To accept an Offer, in whole or in part, such
Subscriber must deliver a written notice to the Company prior to the end of the
fifth (5th) Business Day after such Subscriber’s receipt of the Offer Notice
(the “Offer Period”), setting forth the portion of such Subscriber’s Basic
Amount that such Subscriber elects to purchase and, if such Subscriber shall
elect to purchase all of its Basic Amount, the Undersubscription Amount, if any,
that such Subscriber elects to purchase (in either case, the “Notice of
Acceptance”). If the Basic Amounts subscribed for by all Subscribers are less
than the total of all of the Basic Amounts, then such Subscriber who has set
forth an Undersubscription Amount in its Notice of Acceptance shall be entitled
to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; provided, however, if the
Undersubscription Amounts subscribed for exceed the difference between the total
of all the Basic Amounts and the Basic Amounts subscribed for (the “Available
Undersubscription Amount”), such Subscriber who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of the
Available Undersubscription Amount as the Basic Amount of such Subscriber bears
to the total Basic Amounts of all Subscribers that have subscribed for
Undersubscription Amounts, subject to rounding by the Company to the extent it
deems reasonably necessary. Notwithstanding the foregoing, if the Company
desires to modify or amend the terms and conditions of the Offer prior to the
expiration of the Offer Period, the Company may deliver to each Subscriber a new
Offer Notice and the Offer Period shall expire on the fifth(5th) Business Day
after such Subscriber’s receipt of such new Offer Notice.

 

- 17 -

 

 

 

(iii)                      The Company shall have five (5) Business Days from
the expiration of the Offer Period above (A) to offer, issue, sell or exchange
all or any part of such Offered Securities as to which a Notice of Acceptance
has not been given by a Subscriber (the “Refused Securities”) pursuant to a
definitive agreement(s) (the “Subsequent Placement Agreement”), but only to the
offerees described in the Offer Notice (if so described therein) and only upon
terms and conditions (including, without limitation, unit prices and interest
rates) that are not more favorable to the acquiring person or persons or less
favorable to the Company than those set forth in the Offer Notice and (B) to
publicly announce (I) the execution of such Subsequent Placement Agreement, and
(II) either (x) the consummation of the transactions contemplated by such
Subsequent Placement Agreement or (y) the termination of such Subsequent
Placement Agreement, which shall be filed with the SEC on a Current Report on
Form 8-K with such Subsequent Placement Agreement and any documents contemplated
therein filed as exhibits thereto.

 

(iv)                     In the event the Company shall propose to sell less
than all the Refused Securities (any such sale to be in the manner and on the
terms specified in Section 5(j)(iii) above), then such Subscriber may, at its
sole option and in its sole discretion, reduce the number or amount of the
Offered Securities specified in its Notice of Acceptance to an amount that shall
be not less than the number or amount of the Offered Securities that such
Subscriber elected to purchase pursuant to Section 5(j)(ii)1(a)(ii) above
multiplied by a fraction, (A) the numerator of which shall be the number or
amount of Offered Securities the Company actually proposes to issue, sell or
exchange (including Offered Securities to be issued or sold to Subscribers
pursuant to this Section 5(j) prior to such reduction) and (B) the denominator
of which shall be the original amount of the Offered Securities. In the event
that any Subscriber so elects to reduce the number or amount of Offered
Securities specified in its Notice of Acceptance, the Company may not issue,
sell or exchange more than the reduced number or amount of the Offered
Securities unless and until such securities have again been offered to the
Subscribers in accordance with Section 5(j)(i) above.

 

(v)                      Upon the closing of the issuance, sale or exchange of
all or less than all of the Refused Securities, such Subscriber shall acquire
from the Company, and the Company shall issue to such Subscriber, the number or
amount of Offered Securities specified in its Notice of Acceptance. The purchase
by such Subscriber of any Offered Securities is subject in all cases to the
preparation, execution and delivery by the Company and such Subscriber of a
separate purchase agreement relating to such Offered Securities reasonably
satisfactory in form and substance to such Subscriber and its counsel.

 

(vi)                    Any Offered Securities not acquired by a Subscriber or
other persons in accordance with this Section  5(j) may not be issued, sold or
exchanged until they are again offered to such Subscriber under the procedures
specified in this Agreement.

 

(vii)                     The Company and each Subscriber agree that if any
Subscriber elects to participate in the Offer, neither the Subsequent Placement
Agreement with respect to such Offer nor any other transaction documents related
thereto (collectively, the “Subsequent Placement Documents”) shall include any
term or provision whereby such Subscriber shall be required to agree to any
restrictions on trading as to any securities of the Company or be required to
consent to any amendment to or termination of, or grant any waiver, release or
the like under or in connection with, any agreement previously entered into with
the Company or any instrument received from the Company.

 

(viii)                    Notwithstanding anything to the contrary in this
Section 5(j) and unless otherwise agreed to by such Subscriber, the Company
shall either confirm in writing to such Subscriber that the transaction with
respect to the Subsequent Placement has been abandoned or shall publicly
disclose its intention to issue the Offered Securities, in either case, in such
a manner such that such Subscriber will not be in possession of any material,
non-public information, by the fifth (5th) business day following delivery of
the Offer Notice. If by such fifth (5th) business day, no public disclosure
regarding a transaction with respect to the Offered Securities has been made,
and no notice regarding the abandonment of such transaction has been received by
such Subscriber, such transaction shall be deemed to have been abandoned and
such Subscriber shall not be in possession of any material, non-public
information with respect to the Company or any of its subsidiaries. Should the
Company decide to pursue such transaction with respect to the Offered
Securities, the Company shall provide such Subscriber with another Offer Notice
in accordance with, and subject to, the terms of this Section 5(j) and such
Subscriber will again have the right of participation set forth in this Section
5(j) The Company shall not be permitted to deliver more than one such Offer
Notice to such Subscriber in any sixty (60) day period, except as expressly
contemplated by the last sentence of Section 5(j)(ii).

 

- 18 -

 

 

 

 

The Right of Participation set forth in this Section 5(j) shall terminate on the
twenty four month anniversary of the Closing Date.

 

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

 

(l)            DTC Program. At all times that any Subscriber holds Securities,
the Company shall use its best efforts to employ as the transfer agent for the
Common Stock and Warrant Shares a participant in the Depository Trust Company
Automated Securities Transfer Program (FAST) and cause the Common Stock to be
transferable pursuant to such program.

 

(j)            Equity Incentive Plan. Within thirty (30) days of the Closing
Date, the Company’s Board of Directors will approve the Equity Incentive Plan
(the “Plan”), substantially in the form attached hereto as Exhibit E, and the
reservation of 2.25 million shares of Common Stock thereunder. The Company will
use its reasonable best efforts to cause its stockholders to ratify the adoption
of the Plan within one (1) year of the Closing Date and shall submit such Plan
for shareholder approval as a proposal with the next proxy filed by the Company
for approval of the Securities.

 

(k)            Investor Relations. For so long as any Subscriber holds
Securities, the Company shall engage an investor relations firm and public
relations firm, acceptable to the investor set forth on Exhibit F (the “Lead
Investor”).

 

(l)            Board Rights. Within three (3) days from the Closing Date, the
Board of Directors shall appoint two (2) designees of the Lead Investor to the
Board of Directors and present such appointment to the Company’s stockholders
for ratification at the Company’s next special or annual meeting of its
stockholders.

 

(j)            Limitations on Issuances and Financings. For as long as any
Subscriber holds Securities, the Company shall  not issue any Common Stock or
securities convertible into or exercisable for shares of Common Stock (or modify
any of the foregoing which may be outstanding) to any person or entity or incur
any financing debt, other than with regard to Excluded Securities (as defined in
the Series A Certificate of Designation), without the express written consent of
the Lead Investor.

 

(k)            Escrow Release. The Aggregate Purchase Price shall be held by the
Escrow Agent and shall be released as follows:

 

(i)           On the Closing Date: One Million Dollars ($1,000,000) shall be
released by the Escrow Agent and One Million Dollars ($1,000,000) of Units shall
be released by the Securities Escrow Agent on a pro rata basis based on the
Subscriber’s subscription amount, in accordance with the written instructions of
the Company and the Lead Investor provided that the Lead Investor and the
Company certify that all conditions and obligations of the Company for such
release set forth in Section 7 herein have been satisfied (the “Initial Escrow
Release”).

 

(ii)            Subsequent to the Closing Date, in one or multiple tranches
(each, a “Subsequent Escrow Release”), all or part of Five Million Dollars
($5,000,000) of cash shall be released by the Escrow Agent and Five Million
Dollars ($5,000,000) of Units shall be released by the Securities Escrow Agent
on a pro rata basis based on the Subscriber’s subscription amount, in accordance
with the written instructions of the Company and the Lead Investor provided that
the Lead Investor and the Company certify that the below conditions and
obligations of the Company for such release set forth below have been satisfied
(the “Release Conditions”):

 

- 19 -

 

 

(A)The NASDAQ Approval has been obtained and; and

 

(B)either

 

a.The Lead Investor has approved the Subsequent Escrow Release in writing; or

 

b.Requisite Approval of the Subscribers has been obtained; or

 

c.The Company has executed definitive binding documents for a Qualified
Transaction and the Qualified Transaction shall close contemporaneously with the
Subsequent Escrow Release following approval of the Company’s stockholders as
required by NASDAQ, which Qualified Transaction requires the filing by the
Company of a Current Report on Form 8-K with the inclusion of audited financial
statements of the target. For purposes hereof, a “Qualified Transaction” shall
mean one or more acquisitions by the Company of any business, assets, stock,
licenses, interests or properties (including, without limitation, intellectual
property rights) approved by the stockholders of the Company or any acquisition
involving assets, shares of capital stock, any purchase, merger, consolidation,
recapitalization, or reorganization or involving any licensing, royalties,
sharing arrangement or otherwise, which value of such Qualified Transaction is
in excess of $25,000,000 for the Company’s interest therein.  For purposes
hereof, the value of a Qualified Transaction shall take into account all cash,
stock, present value of all royalties, settlement amounts, future payments,
license fees received or owed, and all other consideration associated with such
acquisition of any kind whatsoever; or

 

d.The following conditions are present: (i) nine (9) months has elapsed from the
Closing Date; (ii) the Subsequent Escrow Release has not been consummated
pursuant to Sections (a)-(c) above; (iii) the Subsequent Escrow Release does not
release in excess of One Million Dollars ($1,000,000) and (iv) the two (2)
directors appointed on the Closing Date have approved the One Million Dollar
($1,000,000) Subsequent Escrow Release in Writing

 

(iii)           If prior to the twelve (12) month anniversary of the Closing
Date, unless extended by the Lead Investor or by Requisite Approval, none of the
Release Conditions have been satisfied, Escrow Agent shall return Five Million
Dollars ($5,000,000) to the Subscribers, without interest or deduction, and the
Securities Escrow Agent shall return the Units held to the Company for
cancellation. Notwithstanding anything herein to the contrary until cancelled,
the Units (Series A Preferred Stock and Warrants) shall be issued and
outstanding securities of the Company for all purposes.

 

(l)           The Company shall use its reasonable best efforts to obtain all
approvals required by The NASDAQ Market as soon as possible but in no event
later than four (4) months from the Closing Date.

 

6.REGISTRATION RIGHTS.

 

(a)           The Company shall file a “resale” registration statement with the
SEC covering the shares of Common Stock issuable upon conversion of the Series A
Preferred Stock and the Warrant Shares, so that such shares of Common Stock will
be registered under the Securities Act. The Company will maintain the
effectiveness of the “resale” registration statement from the effective date of
the registration statement until all Registrable Securities (as defined in the
Registration Rights Agreement) covered by such registration statement have been
sold, or may be sold without the requirement to be in compliance with Rule
144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144.
The Company will use its reasonable best efforts to have such “resale”
registration statement filed by the Filing Date (as defined in the Registration
Rights Agreement) and declared effective by the SEC as soon as possible and, in
any event, by the Effectiveness Date (as defined in the Registration Rights
Agreement), unless extended by Subscribers in the Offering holding 60% of the
Units issued in the Offering which shall include the approval of the Lead
Investor (“Requisite Approval”).

 

The Company is obligated to pay to the Subscribers a fee of 1% per month of the
investors’ investment, payable in cash, up to a maximum of twelve (12%) percent,
on the Filing Date and the Effectiveness Date if the registration obligations
set forth herein have not been met, and pro- rata for each month, or partial
month, in excess of the Filing Date and/or the Effectiveness Date that the
registration statement has not been declared effective; provided, however, that
the Company shall not be obligated to pay any such liquidated damages if the
Company is unable to fulfill its registration obligations as a result of rules,
regulations, positions or releases issued or actions taken by the SEC pursuant
to its authority with respect to “Rule 415”, provided the Company registers at
such time the maximum number of shares of Common Stock permissible upon
consultation with the staff of the SEC.

 

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The description of registration rights is qualified in its entirety by reference
to Registration Rights Agreement annexed hereto as Exhibit D.

 

7.CONDITIONS TO ACCEPTANCE OF SUBSCRIPTION

 

(a)           The Closing of the sale of the Shares is conditioned upon
satisfaction of the following conditions precedent on or before the Closing
Date:

 

(i)            As of the Closing, no legal action, suit or proceeding shall be
pending against the Company that seeks to restrain or prohibit the transactions
contemplated by this Agreement.

 

(ii)            The representations and warranties of the Company and the
Subscribers contained in this Agreement shall have been true and correct in all
material respects on the date of this Agreement (except whether such
representations are qualified by material or material adverse effect, which
shall be true and correct in all respects) and shall be true and correct as of
the Closing as if made on the Closing Date and the Company shall have performed,
satisfied and complied in all respects with the covenants, agreements and
conditions required to be performed, satisfied or complied with by the Company
in connection with the consummation of the transactions contemplated by the
Transaction Documents at or prior to the Closing Date and the Company shall
deliver a certificate, executed by its Chief Executive Officer, dated as of the
Closing Date, certifying that the foregoing is true.

 

(iii)           The Company shall deliver to the Subscribers, a certificate from
the Company, signed by its Secretary or Assistant Secretary, including
incumbency specimen signatures of any signatory of any Transaction Document of
the Company and certifying that the attached copies of the Company’s Certificate
of Incorporation, as amended and Bylaws, as amended, and resolutions of the
Board of Directors of the Company approving this the Offering, are all true,
complete and correct and remain in full force and effect.

 

(iv)          On the Closing Date, the Company shall only possess such residual
business assets of the reduced workforce activities of the historical operations
of the Company and its interest in Majesco Europe Limited. The Company shall
deliver to the Subscribers on the Closing Date, evidence of a minimum of
$750,000 in positive working capital, inclusive of cash and marketable
securities, giving effect to all claims and liabilities, but excluding any
liability associated with outstanding litigation as disclosed in the SEC
Filings, including any change of control or severance requirements on a pro
forma basis.

 

(v)            The Company shall deliver to the Subscribers a file stamped copy
of the filed Series A Certificate of Designation, filed with the Secretary of
State of the State of Delaware, which shall not have been amended, waived,
modified or revoked by the Company.

 

(vi)           The Company shall deliver to the Subscribers an opinion of its
legal counsel substantially in the form attached hereto as Exhibit G.

 

(vii)          The Company shall deliver voting agreements (the “Voting
Agreements”), in the form attached hereto as Exhibit H, executed by all
officers, directors holders of at least 5% of the Company’s issued and
outstanding Common Stock.

 

8.MISCELLANEOUS PROVISIONS

 

(a)            All parties hereto have been represented by counsel, and no
inference shall be drawn in favor of or against any party by virtue of the fact
that such party’s counsel was or was not the principal draftsman of this
Agreement.

 

(b)            Each of the parties hereto shall be responsible to pay the costs
and expenses of its own legal counsel in connection with the preparation and
review of this Agreement and related documentation.

 

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(c)            Neither this Agreement, nor any provisions hereof, shall be
waived, modified, discharged or terminated except by an instrument in writing
signed by the party against whom any waiver, modification, discharge or
termination is sought.

 

(d)           The representations, warranties and agreement of each Subscriber
and the Company made in this Agreement shall survive the Closing Date.

 

(e)            Any party may send any notice, request, demand, claim or other
communication hereunder to the Subscriber at the address set forth on the
signature page of this Agreement or to the Company at its primary office
(including personal delivery, expedited courier, messenger service, fax,
ordinary mail or electronic mail), but no such notice, request, demand, claim or
other communication will be deemed to have been duly given unless and until it
actually is received by the intended recipient. Any party may change the address
to which notices, requests, demands, claims and other communications hereunder
are to be delivered by giving the other parties written notice in the manner
herein set forth.

 

(f)            Except as otherwise provided herein, this Agreement shall be
binding upon, and inure to the benefit of, the parties to this Agreement and
their heirs, executors, administrators, successors, legal representatives and
assigns. If any Subscriber is more than one person or entity, the obligation of
any Subscriber shall be joint and several and the agreements, representations,
warranties and acknowledgments contained herein shall be deemed to be made by,
and be binding upon, each such person or entity and its heirs, executors,
administrators, successors, legal representatives and assigns. This Agreement
and the other Transaction Documents sets forth the entire agreement and
understanding between the parties as to the Offering contemplated hereby and
merges and supersedes all prior discussions, agreements and understandings of
any and every nature among them.

 

(g)            The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Subscriber,
including, without limitation, by way of a Fundamental Transaction (as defined
in the Series A Certificate of Designations) (unless the Company is in
compliance with the applicable provisions governing such Fundamental Transaction
set forth in the Series A Certificate of Designations). The Subscriber may
assign some or all of its rights hereunder in connection with any transfer of
any of its Securities without the consent of the Company, in which event such
assignee shall be deemed to be the Subscriber hereunder with respect to such
assigned rights.

 

(h)            The Company hereby represents and warrants as of the date hereof
and as of the Closing Date that none of the terms offered to any Person with
respect to any offer, sale or subscription of Securities (each a "Subscription
Document"), is or will be more favorable to such Person than those of the
Subscriber and this Agreement shall be, unless waived by the Subscriber, without
any further action by the Subscriber or the Company, deemed amended and modified
in an economically and legally equivalent manner such that the Subscriber shall
receive the benefit of the more favorable terms contained in such Subscription
Document. Notwithstanding the foregoing, the Company agrees, at its expense, to
take such other actions (such as entering into amendments to the Transaction
Documents) as the Subscriber may reasonably request to further effectuate the
foregoing.

 

(i)            The obligations of each Subscriber under any Transaction Document
are several and not joint with the obligations of any other Subscriber, and no
Subscriber shall be responsible in any way for the performance or
non-performance of the obligations of any other Subscriber under any Transaction
Document. Nothing contained herein or in any other Transaction Document, and no
action taken by any Subscriber pursuant hereto or thereto, shall be deemed to
constitute the Subscribers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Subscribers are in
any way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. Each Subscriber shall be
entitled to independently protect and enforce its rights, including, without
limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Subscriber to
be joined as an additional party in any proceeding for such purpose. Each
Subscriber has been represented by its own separate legal counsel in its review
and negotiation of the Transaction Documents. The Company has elected to provide
all Subscribers with the same terms and Transaction Documents for the
convenience of the Company and not because it was required or requested to do so
by any of the Subscribers. It is expressly understood and agreed that each
provision contained in this Agreement and in each other Transaction Document is
between the Company and a Subscriber, solely, and not between the Company and
the Subscribers collectively and not between and among the Subscribers. The
Company acknowledges that any actions of Subscribers now, and in the future, in
which (A) any review or approval is sought by the Company, including, without
limitation, review, approval or acceptance of any reportable event required to
be reported in any SEC filing or report by the Company; or (B) any amendment,
waiver, right of first refusal, participation right, acquisition or financing,
including any acquisition or financing is proposed, introduced, offered or
arranged by any one or more Subscribers or their affiliates or sought by the
Company, shall not be claimed by the Company or any person seeking to assert
such a claim on behalf of the Company, to constitute the forming of any “Group”
as such term is defined under Section 13(d) or Section 16 of the Exchange Act,
nor shall any activity permit the Company or any third party holder of
securities of the Company to assert any claim that any beneficial ownership
limitations or conversion limitations of the Series A Certificate of Designation
or Warrants have been exceeded and such Subscriber, alone or in conjunction with
others, constitutes a “Group” for purposes of the Exchange Act as a result
thereof.

 

- 22 -

 

 

(j)            Except as otherwise provided herein, this Agreement shall not be
changed, modified or amended except in writing signed by both (a) the Company
and (b) Subscribers in the Offering holding 60% of the Units issued in the
Offering then held by the original Subscribers. The Company shall be prohibited
from offering any additional consideration to any Subscriber in this Offering
(or such original Subscriber’s transferee) for the purposes of inducing such
person to change, modify, waive or amend any term of this Agreement or any other
Transaction Document without making the same offer on a pro-rata basis to all
other Subscribers (and those transferees) in this Offering allocable to the
securities acquired by such transferee(s).

 

(k)            This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to conflicts of
law principles.

 

(l)            The Company and each Subscriber hereby agree that any dispute
that may arise between them arising out of or in connection with this Agreement
shall be adjudicated before a court located in the City of New York, Borough of
Manhattan, and they hereby submit to the exclusive jurisdiction of the federal
and state courts of the State of New York located in the City of New York,
Borough of Manhattan with respect to any action or legal proceeding commenced by
any party, and irrevocably waive any objection they now or hereafter may have
respecting the venue of any such action or proceeding brought in such a court or
respecting the fact that such court is an inconvenient forum, relating to or
arising out of this Agreement or any acts or omissions relating to the sale of
the securities hereunder, and consent to the service of process in any such
action or legal proceeding by means of registered or certified mail, return
receipt requested, postage prepaid, in care of the address set forth herein or
such other address as either party shall furnish in writing to the other.

 

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

 

(n)            This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

 

[Signature Pages Follow]

 

- 23 -

 

 

ALL SUBSCRIBERS MUST COMPLETE THIS PAGE

 

IN WITNESS WHEREOF, the Subscriber has executed this Agreement on the ____ day
of _____, 2014.

 

   x  $0.68  for per Unit      =   Units subscribed for         Aggregate
Purchase Price

 

Manner in which Title is to be held (Please Check One):

 

1. ¨ Individual 7. ¨

Trust/Estate/Pension or Profit sharing Plan

Date Opened:______________

2. ¨ Joint Tenants with Right of Survivorship 8. ¨

As a Custodian for

________________________________

Under the Uniform Gift to Minors Act of the State of

________________________________

3. ¨ Community Property 9. ¨ Married with Separate Property 4. ¨ Tenants in
Common 10. ¨ Keogh 5. ¨ Corporation/Partnership/ Limited Liability Company 11. ¨
Tenants by the Entirety 6. ¨ IRA      

 

ALTERNATIVE DISTRIBUTION INFORMATION

 

To direct distribution to a party other than the registered owner, complete the
information below. YOU MUST COMPLETE THIS SECTION IF THIS IS AN IRA INVESTMENT.

 

Name of Firm (Bank, Brokerage, Custodian):

 

Account Name:

 

Account Number:

 

Representative Name:

 

Representative Phone Number:

 

Address:

 

City, State, Zip:

 

- 24 -

 

 

IF MORE THAN ONE SUBSCRIBER, EACH SUBSCRIBER MUST SIGN.
INDIVIDUAL SUBSCRIBERS MUST COMPLETE THIS PAGE 25.
SUBSCRIBERS WHICH ARE ENTITIES MUST COMPLETE PAGE 26.

 

EXECUTION BY NATURAL PERSONS

 

        Exact Name in Which Title is to be Held  

 

      Name (Please Print)   Name of Additional Purchaser             Residence:
Number and Street   Address of Additional Purchaser             City, State and
Zip Code   City, State and Zip Code             Social Security Number   Social
Security Number             Telephone Number   Telephone Number             Fax
Number (if available)   Fax Number (if available)             E-Mail (if
available)   E-Mail (if available)             (Signature)   (Signature of
Additional Purchaser)

 

ACCEPTED this ___ day of _________ 2014, on behalf of the Company.

 

  By:       Name:    

Title: 

 

[SIGNATURE PAGE FOR SUBSCRIPTION AGREEMENT]

 

- 25 -

 

 

EXECUTION BY SUBSCRIBER WHICH IS AN ENTITY

(Corporation, Partnership, LLC, Trust, Etc.)

 

        Name of Entity (Please Print)  

 

Date of Incorporation or Organization:           State of Principal Office:    
      Federal Taxpayer Identification Number:                 Office Address    
            City, State and Zip Code                 Telephone Number          
      Fax Number (if available)                 E-Mail (if available)    

  

    By:         Name:       Title:

 

[seal]           Attest:         (If Entity is a Corporation)                  
  Address

 

ACCEPTED this ____ day of __________ 2014, on behalf of the Company.

 

    By:         Name:       Title:

 

[SIGNATURE PAGE FOR SUBSCRIPTION AGREEMENT]

 

- 26 -

 

 

INVESTOR QUESTIONNAIRE

 

Instructions: Check all boxes below which correctly describe you.

 

¨You are (i) a bank, as defined in Section 3(a)(2) of the Securities Act of
1933, as amended (the “Securities Act”), (ii) a savings and loan association or
other institution, as defined in Section 3(a)(5)(A) of the Securities Act,
whether acting in an individual or fiduciary capacity, (iii) a broker or dealer
registered pursuant to Section 15 of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), (iv) an insurance company as defined in Section
2(13) of the Securities Act, (v) an investment company registered under the
Investment Company Act of 1940, as amended (the “Investment Company Act”), (vi)
a business development company as defined in Section 2(a)(48) of the Investment
Company Act, (vii) a Small Business Investment Company licensed by the U.S.
Small Business Administration under Section 301 (c) or (d) of the Small Business
Investment Act of 1958, as amended, (viii) a plan established and maintained by
a state, its political subdivisions, or an agency or instrumentality of a state
or its political subdivisions, for the benefit of its employees and you have
total assets in excess of $5,000,000, or (ix) an employee benefit plan within
the meaning of the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”) and (1) the decision that you shall subscribe for and purchase shares
of common stock or preferred stock, is made by a plan fiduciary, as defined in
Section 3(21) of ERISA, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or (2) you have total
assets in excess of $5,000,000 and the decision that you shall subscribe for and
purchase the Units is made solely by persons or entities that are accredited
investors, as defined in Rule 501 of Regulation D promulgated under the
Securities Act (“Regulation D”) or (3) you are a self-directed plan and the
decision that you shall subscribe for and purchase the Securities is made solely
by persons or entities that are accredited investors.

 

¨You are a private business development company as defined in Section 202(a)(22)
of the Investment Advisers Act of 1940, as amended.

 

¨You are an organization described in Section 501(c)(3) of the Internal Revenue
Code of 1986, as amended (the “Code”), a corporation, Massachusetts or similar
business trust or a partnership, in each case not formed for the specific
purpose of making an investment in the Securities and its underlying securities
in excess of $5,000,000.

 

¨You are a director or executive officer of the Company.

 

¨You are a natural person whose individual net worth, or joint net worth with
your spouse, exceeds $1,000,000 (excluding residence) at the time of your
subscription for and purchase of the Securities.

 

¨You are a natural person who had an individual income in excess of $200,000 in
each of the two most recent years or joint income with your spouse in excess of
$300,000 in each of the two most recent years, and who has a reasonable
expectation of reaching the same income level in the current year.

 

¨You are a trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the Securities and whose subscription for and
purchase of the Securities is directed by a sophisticated person as described in
Rule 506(b)(2)(ii) of Regulation D.

 

¨You are an entity in which all of the equity owners are persons or entities
described in one of the preceding paragraphs.

 

- 27 -

 

 

Check all boxes below which correctly describe you.

 

With respect to this investment in the Securities, your:

 

Investment Objectives:  ¨ Aggressive Growth ¨ Speculation           Risk
Tolerance: ¨ Low Risk ¨ Moderate Risk  ¨ High Risk

 

Are you associated with a FINRA Member Firm?   ¨ Yes   ¨ No

 

Your initials (purchaser and co-purchaser, if applicable) are required for each
item below:

 

¨ ¨ I/We understand that this investment is not guaranteed.       ¨ ¨ I/We are
aware that this investment is not liquid.       ¨ ¨ I/We are sophisticated in
financial and business affairs and are able to evaluate the risks and merits of
an investment in this offering.       ¨ ¨ I/We confirm that this investment is
considered “high risk.” (This type of investment is considered high risk due to
the inherent risks including lack of liquidity and lack of diversification. 
Success or failure of private placements such as this is dependent on the
corporate issuer of these securities and is outside the control of the
investors. While potential loss is limited to the amount invested, such loss is
possible.)

 

The Subscriber hereby represents and warrants that all of its answers to this
Investor Questionnaire are true as of the date of its execution of the
Subscription Agreement pursuant to which it purchased the Securities.

 

      Name of Purchaser [please print]   Name of Co-Purchaser [please print]    
        Signature of Purchaser (Entities please provide signature of Purchaser’s
duly authorized signatory.)   Signature of Co-Purchaser             Name of
Signatory (Entities only)                 Title of Signatory (Entities only)    

 

[SIGNATURE PAGE FOR INVESTOR QUESTIONNAIRE]

 

- 28 -