Exhibit 10.9

 

EXECUTION VERSION

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of December
26, 2018, between Stellar Acquisition III Inc., a Republic of Marshall Islands
corporation (“Stellar,” and including the successor entity to Stellar following
the Conversion (as hereinafter defined) of Stellar into a Delaware corporation
in accordance with the applicable provisions of The Republic of the Marshall
Islands Associations Law, as amended, and the applicable provisions of the
Delaware General Corporation Law and in connection with the Merger (as
hereinafter defined), the “Company”), and the purchasers identified on the
signature pages hereto (including each successors and assigns, the “Purchaser”
or in the aggregate, the “Purchasers”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the
“Securities Act”), and/or Rule 506 promulgated thereunder, the Company desires
to issue and sell to the Purchasers, and the Purchasers, desire to purchase from
the Company, Securities of the Company as more fully described in this
Agreement.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:

 

ARTICLE I.
DEFINITIONS

 

1.1. Definitions. In addition to the terms defined elsewhere in this Agreement:
(a) capitalized terms that are not otherwise defined herein have the meanings
given to such terms in the Transaction Documents (as defined herein), and (b)
the following terms have the meanings set forth in this Section 1.1:

 

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

 

“BHCA” shall have the meaning ascribed to such term in Section 3.1(gg). “Board
of Directors” means the board of directors of the Company.

 

“Business Day” means any day other than a Saturday, Sunday or a legal holiday on
which commercial banking institutions in New York, New York are authorized to
close for business.

 

“Certificate of Designations” means the Certificate of Designation to be filed
prior to the Closing by the Company with the Secretary of State of the State of
Delaware immediately following the Conversion, in the form of Exhibit A attached
hereto.

 

“Closing Date” means the Trading Day(s) on which all of the Transaction
Documents have been executed and delivered by the applicable parties thereto in
connection with a Closing, and all conditions precedent to (i) the Purchaser’s
obligations to pay the Subscription Amount as to the Closing and (ii) the
Company’s obligations to deliver the Securities as to the Closing, in each case,
have been satisfied or waived.

 

“Closing” means closing of the purchase and sale of the Securities pursuant to
Section 2.2.

 

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

 

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

 

 

 

 

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

 

“Consent” means any consent, approval, waiver, authorization or Permit of, or
written notice to or declaration or filing with any Governmental Authority or
any other Person.

 

“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.

 

“Control” of a Person means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract, or otherwise.
“Controlled”, “Controlling” and “under common Control with” have correlative
meanings. Without limiting the foregoing a Person (the “Controlled Person”)
shall be deemed Controlled by (a) any other Person (the “10% Owner”) (i) owning
beneficially, as meant in Rule 13d-3 under the Exchange Act, securities
entitling such Person to cast ten percent (10%) or more of the votes for
election of directors or equivalent governing authority of the Controlled Person
or (ii) entitled to be allocated or receive ten percent (10%) or more of the
profits, losses, or distributions of the Controlled Person; (b) an officer,
director, general partner, partner (other than a limited partner), manager, or
member (other than a member having no management authority that is not a 10%
Owner) of the Controlled Person; or (c) a spouse, parent, lineal descendant,
sibling, aunt, uncle, niece, nephew, mother-in-law, father-in-law,
sister-in-law, or brother-in-law of an Affiliate of the Controlled Person or a
trust for the benefit of an Affiliate of the Controlled Person or of which an
Affiliate of the Controlled Person is a trustee.

 

“Conversion” means the statutory conversion of Stellar from a Republic of
Marshall Islands corporation into a Delaware Corporation immediately prior to
the Closing and the closing of the Merger.

 

“Conversion Price” shall have the meaning ascribed to such term in the
Certificate of Designations for the Preferred Stock.

 

“Conversion Shares” shall have the meaning ascribed to such term in the
Certificate of Designations.

 

“Environmental Laws” means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants, contaminants, or toxic
or hazardous substances or wastes (collectively, “Hazardous Materials”) into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.

 

“Escrow Agent” means Continental Stock Transfer & Trust Company, with a mailing
address of 1 State Street, 30th Floor, New York, NY 10004 and a phone number of
(212) 509-4000.

 

“Escrow Agreement” means the escrow agreement entered into prior to the date
hereof, by and among the Company and the Escrow Agent pursuant to which the
Purchasers shall deposit Subscription Amounts with the Escrow Agent to be
applied to the transactions contemplated hereunder.

 

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

 

“Federal Reserve” shall have the meaning ascribed to such term in Section
3.1(gg).

 

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“Financial Statements” shall have the meaning ascribed to such term in Section
3.1(l).

 

“Form 8-K Filing” shall have the meaning ascribed to such term in Section 4.18.

 

“GAAP” means United States generally accepted accounting principles.

 

“Governmental Authority” means any federal, state, local, foreign or other
governmental, quasi-governmental or administrative body, instrumentality,
department or agency, court, tribunal, administrative hearing body, arbitration
panel, commission, or other similar dispute-resolving panel or body.

 

“IPO Prospectus” means the final prospectus of the Company, dated as of August
18, 2016 and filed with the Commission (File No. 333-224227) on August 19, 2016.

 

“Indebtedness” shall have the meaning ascribed to such term in Section 3.1(t).

 

“Insolvent” means, (I) with respect to the Company and its Subsidiaries, on a
consolidated basis, (i) the present fair saleable value of the Company’s and its
Subsidiaries’ assets is less than the amount required to pay the Company’s and
its Subsidiaries’ total Indebtedness (as defined below), (ii) the Company and
its Subsidiaries are unable to pay their debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become absolute and
matured or (iii) the Company and its Subsidiaries intend to incur or believe
that they will incur debts that would be beyond their ability to pay as such
debts mature; and (II) with respect to the Company and each Subsidiary,
individually, (i) the present fair saleable value of the Company’s or such
Subsidiary’s (as the case may be) assets is less than the amount required to pay
its respective total Indebtedness, (ii) the Company or such Subsidiary (as the
case may be) is unable to pay its respective debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured or (iii) the Company or such Subsidiary (as the case may
be) intends to incur or believes that it will incur debts that would be beyond
its respective ability to pay as such debts mature.

 

“Intellectual Property Rights” means trademarks, trade names, service marks,
service mark registrations, service names, original works of authorship,
patents, patent rights, copyrights, original works, inventions, licenses,
approvals, governmental authorizations, trade secrets and other intellectual
property rights and all applications and registrations therefor.

 

“Law” means any federal, state, local, municipal, foreign or other law, statute,
legislation, principle of common law, ordinance, code, edict, decree,
proclamation, treaty, convention, rule, regulation, directive, requirement,
writ, injunction, settlement, Order or Consent that is or has been issued,
enacted, adopted, passed, approved, promulgated, made, implemented or otherwise
put into effect by or under the authority of any Governmental Authority.

 

“Legend Removal Date” shall have the meaning ascribed to such term in Section
4.1(c).

 

“Liens” means any mortgage, pledge, security interest, attachment, right of
first refusal, option, proxy, voting trust, encumbrance, lien or charge of any
kind (including any conditional sale or other title retention agreement or lease
in the nature thereof), restriction (whether on voting, sale, transfer,
disposition or otherwise), any subordination arrangement in favor of another
Person, or any filing or agreement to file a financing statement as debtor under
the Uniform Commercial Code or any similar Law, but shall exclude licenses of
intellectual property.

 

“Material Adverse Effect” shall have the meaning assigned to such term in
Section 2.4.

 

“Maximum Rate” shall have the meaning ascribed to such term in Section 5.17.

 

“Merger” means the proposed merger of a wholly owned subsidiary of the Company
with and into Phunware, pursuant to the Merger Agreement.

 

“Merger Agreement” means the agreement and plan of merger dated as of February
27, 2018, as amended, among the Company, Phunware and certain other parties.

 

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“Net Short Position” shall have the meaning ascribed to such term in Section
4.8.

 

“Order” means any order, decree, ruling, judgment, injunction, writ,
determination, binding decision, verdict, judicial award or other action that is
or has been made, entered, rendered, or otherwise put into effect by or under
the authority of any Governmental Authority.

 

“Permit” means all federal, state, local or foreign or other third-party
permits, grants, easements, consents, approvals, authorizations, exemptions,
licenses, franchises, concessions, ratifications, permissions, clearances,
confirmations, endorsements, waivers, certifications, designations, ratings,
registrations, qualifications or orders of any Governmental Authority or any
other Person.

 

“Person” means an individual, corporation, partnership (including a general
partnership, limited partnership or limited liability partnership), limited
liability company, association, trust or other entity or organization, including
a government, domestic or foreign, or political subdivision thereof, or an
agency or instrumentality thereof.

 

“Phunware” means Phunware Inc., a Delaware corporation.

 

“Preferred Stock” means the 6,000 shares of the Company’s Series A Convertible
Preferred Stock issued hereunder having the rights, preferences and privileges
set forth in the Certificate of Designation, in the form of Exhibit A hereto.

 

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

 

“Registration Rights Agreement” means the Registration Rights Agreement, in the
form of Exhibit B attached hereto.

 

“Reporting Period” shall have the meaning ascribed to such term in Section 4.13.

 

“Representatives” means, with respect to any party, its Affiliates and the
respective officers, directors, managers, employees, consultants, advisors,
agents and other legal representatives of such party and its Affiliates.

 

“Required Approvals” shall have the meaning ascribed to such term in Section
3.1(d).

 

“Required Minimum” means, as of any date, the maximum aggregate number of shares
of Common Stock then issued or potentially issuable in the future pursuant to
the Transaction Documents, including any Conversion Shares, issuable upon
conversion in full of the Preferred Stock (including Conversion Shares issuable
as payment of dividend on the Preferred Stock), ignoring any conversion limits
set forth therein, and assuming that the Conversion Price for the Preferred
Stock is at all times on and after the date of determination 50% of the then
Conversion Price on the Trading Day immediately prior to the date of
determination.

 

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

 

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended or interpreted from time to time, or
any similar rule or regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.

 

“SEC Reports” means all reports, schedules, forms, statements and other
documents required to be filed by the Company under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof.

 

“Securities” means the Preferred Stock and the Conversion Shares.

 

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

 

“Shareholder Approval” means such approval as may be required by the applicable
rules and regulations of the Nasdaq Stock Market (or any successor entity) from
the shareholders of the Company with respect to the transactions contemplated by
the Transaction Documents, including the issuance of all of the Securities in
excess of 19.99% of the issued and outstanding Common Stock on the Closing Date.

 

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act.

 

“Sponsor” means (i) Astra Maritime Corp. and Dominium Investments Inc., each of
which is a Republic of the Marshall Islands corporation and a holding company
with no operations, and each of which is an affiliate of Mr. Prokopios (Akis)
Tsirigakis, who is the Company’s Chairman of the Board as well as its co-Chief
Executive Officer and President and (ii) Magellan Investments Corp. and Firmus
Investments Inc., each a Republic of the Marshall Islands corporation and a
holding company with no operations, and each an affiliate of Mr. George
Syllantavos, who is the Company’s co-Chief Executive Officer, Chief Financial
Officer, Secretary and also serves as one of its directors.

 

“Sponsor Shares” means 250,000 shares of Common Stock to be issued at Closing by
the Sponsors to the Purchasers pursuant to the terms of this Agreement.

 

“Sponsor Transfer Agreement” means the agreement between the Sponsors and the
Purchasers pursuant to which the Sponsors will transfer upon Closing the Sponsor
Shares.

 

“Sponsor Warrants” means warrants to purchase 250,000 of Common Stock to be
issued at Closing by the Sponsors to the Purchasers pursuant to the terms of
this Agreement.

 

“Stated Value” means $1,000 per share of Preferred Stock.

 

“Subscription Amount” means, as to the Purchaser, the aggregate amount to be
paid for the Preferred Stock purchased hereunder as specified below the
Purchaser’s name on the signature page of this Agreement and next to the heading
“Subscription Amount,” in United States dollars and in immediately available
funds.

 

“Subsidiary” means all of the direct and indirect subsidiaries of the Company
are set forth in the SEC Reports, including those acquired after the Merger. If
the Company has no subsidiaries, all other references to the Subsidiaries or any
of them in the Transaction Documents shall be disregarded.

 

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

 

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

 

“Transaction Documents” means this Agreement, the Certificate of Designations,
the shares of Preferred Stock, the Escrow Agreement, the Registration Rights
Agreement and all exhibits and schedules thereto and hereto and any other
documents or agreements executed in connection with the transactions
contemplated hereunder.

 

“Transfer Agent” means Continental Stock Transfer & Trust Company, the current
transfer agent of the Company, with a mailing address of 1 State Street, 30th
Floor, New York, NY 10004 and a phone number of (212) 509-4000, and any
successor transfer agent of the Company.

 

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ARTICLE II.

PURCHASE AND SALE

 

2.1 Purchase; Escrow. On the Closing Date, upon the terms and subject to the
conditions set forth herein, substantially concurrent with the execution and
delivery of this Agreement by the parties hereto, the Purchasers will purchase,
severally and not jointly, an aggregate of up to Six Million Dollars
($6,000,000) of securities comprised of an aggregate of Six Thousand (6,000)
shares of Preferred Stock at a purchase price of $1,000 per share of Preferred
Stock, with an aggregate Stated Value for each Purchaser equal to such
Purchaser’s Preferred Stock Subscription Amount as set forth on the signature
page hereto executed by such Purchaser. The purchase will be completed in a
single tranche as provided herein. The Preferred Stock and the shares of Common
Stock issuable upon conversion are collectively referred to as (the
“Securities”). Each Purchaser shall deliver to the Escrow Agent, via wire
transfer, immediately available funds equal to the Purchaser’s Preferred Stock
Subscription Amount for the Preferred Stock as set forth on the signature page
hereto executed by the Purchaser.

 

2.2 Closing. Subject to the satisfaction of the covenants and conditions, on the
Closing Date, each Purchaser shall deliver instructions to the Escrow Agent to
release the Purchaser’s Preferred Stock Subscription Amount for the Preferred
Stock, and the Company shall deliver to each Purchaser the number of shares of
Preferred Stock the Purchaser has subscribed for as set forth on the signature
pages hereto executed by such Purchaser, and the Company and each Purchaser
shall deliver the other items set forth in Section 2.3 deliverable at the
Closing. Upon satisfaction of the covenants and conditions set forth in Sections
2.3 and 2.4 for Closing, such Closing shall occur at the offices of Ellenoff
Grossman & Schole, LLP or such other location as the parties shall mutually
agree, and may by agreement be undertaken remotely by electronic exchange of
Closing documentation.

 

2.3 Deliveries.

 

a) On or prior to the Closing Date (except as noted), the Company shall deliver
or cause to be delivered to each Purchaser the following:

 

i. this Agreement duly executed by the Company;

 

ii. the Registration Rights Agreement duly executed by the Company;

 

iii. the Sponsor Transfer Agreement, duly executed by the Sponsor and the
Sponsor Shares and Sponsor Warrants, duly endorsed for transfer;

 

iv. a certificate evidencing a number of shares of Preferred Stock equal to such
Purchaser’s Preferred Stock Subscription Amount divided by the Stated Value,
registered in the name of such Purchaser;

 

v. an opinion of counsel to the Company in form and substance satisfactory to
the Purchasers;

 

vi. an officer’s certificate in form and substance satisfactory to the
Purchasers; and

 

vii. a secretary’s certificate in form and substance satisfactory to the
Purchasers, including “as filed” copies of the Certificate of Incorporation,
Certificate of Designation, Certificate of Conversion and the Certificate of
Merger.

 

b) On or prior to the Closing Date, the Purchaser shall deliver or cause to be
delivered to the Company or the Escrow Agent, as applicable, the following:

 

i. this Agreement duly executed by the Purchaser;

 

ii. to the Escrow Agent, the Purchaser’s Subscription Amount by wire transfer to
the account specified in the Escrow Agreement;

 

iii. the Sponsor Transfer Agreement, as agreed and acknowledged by the
Purchaser; and

 

iv. the Registration Rights Agreement duly executed by the Purchasers.

 

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2.4 Closing Conditions.

 

a) The obligations of the Company hereunder in connection with the Closing are
subject to the following conditions being met:

 

i. the accuracy in all material respects as at Closing Date of the
representations and warranties of the Purchaser contained herein (unless as of a
specific date therein in which case they shall be accurate as of such date);

 

ii. the consummation of the Conversion and filing of the Certificate of
Designations shall have occurred;

 

iii. the Certificate of Merger shall have been filed with the Secretary of State
of the State of Delaware in accordance with the Merger Agreement with an
effective time of no later than one hour after the Closing; and

 

iv. the delivery by the Purchaser of the items set forth in Section 2.3(b) of
this Agreement.

 

b) The respective obligations of each Purchaser hereunder in connection with the
Closing are subject to the following conditions being met:

 

i. the accuracy in all material respects as at Closing Date of the
representations and warranties of the Company contained herein (unless as of a
specific date therein in which case they shall be accurate as of such date);

 

ii. there is no “Material Adverse Effect” (as such term is defined in the Merger
Agreement) with respect to the Company or Phunware since the date of this
Agreement which is continuing and uncured;

 

iii. the consummation of the Conversion and filing of the Certificate of
Designations shall have occurred and the requisite vote of the shareholders of
the Company and Phunware for approval of the Merger shall have been obtained;

 

iv. the Certificate of Merger shall have been filed with the Secretary of State
of the State of Delaware in accordance with the Merger Agreement with an
effective time of no later than one hour after the Closing;

 

v. the execution and delivery by the Sponsors of the Sponsor Transfer Agreement;

and

 

vi. the delivery by the Company of the items set forth in Section 2.3(a) of this
Agreement.

 

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ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1 Representations and Warranties of the Company. Except as set forth in the
SEC Reports, the Company hereby makes the following representations and
warranties to the Purchaser as of the Closing Date:

 

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

 

b) Authorization; Enforcement; Validity. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by this Agreement and each of the other Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The execution
and delivery of this Agreement and each of the other Transaction Documents by
the Company and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by all necessary action on the part of the
Company (including the issuance of the Preferred Shares and the reservation of
the shares of the Common Stock) and no further action is required by the
Company, the Board of Directors or the Company’s stockholders in connection
herewith or therewith other than in connection with the Required Approvals. This
Agreement and each other Transaction Document to which it is a party has been
(or upon delivery will have been) duly executed by the Company and, when
delivered in accordance with the terms hereof and thereof, will constitute the
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except: (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights
generally; (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies; and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.
The Sponsor Transfer Agreement has been (or upon delivery will have been) duly
executed by the Sponsor and, when delivered in accordance with the terms hereof
and thereof, will constitute the valid and binding obligation of the Sponsor
enforceable against the Sponsor in accordance with its terms, except: (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally; (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies; and (iii) insofar as indemnification and contribution provisions may
be limited by applicable law. Prior to the Closing, each of the Certificate of
Incorporation, Conversion Certificate and Certificate of Designation shall have
been filed with the Secretary of State of the State of Delaware and is in full
force and effect, enforceable against the Company in accordance with its terms
and has not have been amended.

 

c) No Conflicts. The execution, delivery and performance by the Company of this
Agreement and the other Transaction Documents to which it is a party, the
issuance and sale of the Securities and the consummation by it of the
transactions contemplated hereby and thereby do not and will not: (i) conflict
with or violate any provision of the Company’s or any Subsidiary’s certificate
or articles of incorporation, bylaws or other organizational or charter
documents; (ii) to the knowledge of the Company, conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, result in the creation of any material Lien upon any of the
properties or assets of the Company or any Subsidiary, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any material agreement, credit facility, debt
or other instrument (evidencing a Company or Subsidiary debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected; or (iii) subject to the Required Approvals, to the knowledge of the
Company, conflict with or result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
Governmental Authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations), or by which any
property or asset of the Company or a Subsidiary is bound or affected; except in
the case of each of clauses (ii) and (iii), such as could not have or reasonably
be expected to result in a Material Adverse Effect. To the Company’s knowledge,
the execution, delivery and performance by the Sponsor of the Sponsor Transfer
Agreement, the issuance and sale of the Sponsor Shares and Sponsor Warrants and
the consummation by the Sponsor of the transactions contemplated hereby and
thereby do not and will not: (i) conflict with or violate any provision of the
Sponsor’s certificate or articles of incorporation, bylaws or other
organizational or charter documents; (ii) conflict with, or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under any material agreement to which the Sponsor is a party or by which any
property or asset of the Sponsor is bound or affected; or (iii) subject to the
Required Approvals, conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or Governmental Authority to which the Sponsor is subject (including
federal and state securities laws and regulations), or by which any property or
asset of the Sponsor is bound or affected; except in the case of each of clauses
(ii) and (iii), such as could not have or reasonably be expected to result in a
material adverse effect to Sponsor.

 

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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) the notice and/or application(s) to each applicable Trading Market for
the issuance and sale of the Securities and the listing of the Conversion Shares
for trading thereon in the time and manner required thereby; (ii) the filing of
Form D with the Commission and such filings as are required to be made under
applicable state securities laws and (iii), if required pursuant to Section
4.7(d), Shareholder Approval (collectively, the “Required Approvals”). All
consents, authorizations, orders, filings and registrations which the Company is
required to obtain at or prior to the Closing have been obtained or effected on
or prior to the Closing Date, and neither the Company nor any of its
Subsidiaries are aware of any facts or circumstances which might prevent the
Company from obtaining or effecting any of the registration, application or
filings contemplated by the Transaction Documents. Except as disclosed in the
SEC Reports, the Company is not in violation of the requirements of the Trading
Market and has no knowledge of any facts or circumstances which could reasonably
lead to delisting or suspension of the Common Stock in the foreseeable future.

 

e) Acknowledgment Regarding Purchaser’s Purchase of Securities. The Company
acknowledges and agrees that each Purchaser is acting solely in the capacity of
an arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Purchaser is (i) an
officer or director of the Company or any of its Subsidiaries, (ii) an Affiliate
of the Company or any of its Subsidiaries or (iii) to its knowledge, a
“beneficial owner” of more than 10% of the shares of Common Stock (as defined
for purposes of Rule 13d-3 of the Exchange Act. The Company further acknowledges
that no Purchaser is acting as a financial advisor or fiduciary of the Company
or any of its Subsidiaries (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated hereby and thereby, and
any advice given by a Purchaser or any of its representatives or agents in
connection with the Transaction Documents and the transactions contemplated
hereby and thereby is merely incidental to such Purchaser’s purchase of the
Securities. The Company further represents to each Purchaser that the Company’s
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.

 

f) No Integrated Offering. None of the Company, its Subsidiaries or any of their
Affiliates, nor any Person acting on 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 the Preferred Stock or
the Conversion Shares 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. None of the Company, its
Subsidiaries, their Affiliates nor any Person acting on their behalf will take
any action or steps that would cause the offering of any of the Securities to be
integrated with other offerings of securities of the Company.

 

g) Dilutive Effect. The Company understands and acknowledges that the number of
Conversion Shares will increase in certain circumstances. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Preferred Stock in accordance with this Agreement and the Certificate of
Designations is absolute and unconditional, regardless of the dilutive effect
that such issuance may have on the ownership interests of other stockholders of
the Company.

 

9

 

 

h) Issuance of the Securities. The Securities are duly authorized and their
issuance has been authorized, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued, fully paid
and nonassessable, free and clear of all Liens imposed by the Company other than
restrictions on transfer provided for in the Transaction Documents. The
Conversion Shares, when issued in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and nonassessable, free and clear
of all Liens imposed by the Company other than restrictions on transfer provided
for in the Transaction Documents. The Company has reserved from its duly
authorized capital stock a number of shares of Common Stock for issuance of the
Conversion Shares at least equal to 100% of the Required Minimum on the date
hereof. The Sponsor Shares, when delivered at Closing, will be validly issued,
fully paid and nonassessable, free and clear of all Liens other than
restrictions on transfer provided for in the Transaction Documents. The shares
of Common Stock issuable upon exercise of the Sponsor Warrants, when issued in
accordance with the terms of the Sponsor Warrants, will be validly issued, fully
paid and nonassessable, free and clear of all Liens other than restrictions on
transfer provided for in the Transaction Documents.

 

i) Certain Fees. Except as set forth on Schedule 3.1(i), no brokerage or
finder’s fees or commissions are or will be payable by the Company or any of its
Subsidiaries 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.

 

j) Private Placement. Assuming the accuracy of each Purchaser’s representations
and warranties set forth in Section 3.2, no registration under the Securities
Act is required for the offer and sale of the Securities by the Company to the
Purchaser as contemplated hereby. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Trading Market.

 

k) SEC Reports; Financial Statements. During the two (2) years prior to the date
hereof, or for as long as the Company has had reporting obligations with the
Commission under the Exchange Act, the Company has filed all SEC Reports with
the Commission pursuant to the reporting requirements of the Securities Act and
the Exchange Act on a timely basis or has received a valid extension of such
time of filing and has filed any such SEC Reports prior to the expiration of any
such extension. True, correct and complete copies of each of the SEC Reports are
available on the EDGAR system. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the Commission promulgated thereunder applicable to
the SEC Reports, and none of the SEC Reports, at the time they were filed with
the Commission, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. As of their respective dates, the financial
statements of the Company included in the SEC Reports complied in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission with respect thereto as in effect as of the time
of filing. Such financial statements have been prepared in accordance with GAAP,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments which will not be material, either individually or in the
aggregate). No other information provided by or on behalf of the Company to any
of the Purchasers which is not included in the SEC Reports contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein not misleading, in the light of the
circumstance under which they are or were made. The Company is not currently
contemplating to amend or restate any of the financial statements (including,
without limitation, any notes or any letter of the independent accountants of
the Company with respect thereto) included in the SEC Reports (the “Financial
Statements”), nor is the Company currently aware of facts or circumstances which
would require the Company to amend or restate any of the Financial Statements,
in each case, in order for any of the Financials Statements to be in compliance
with GAAP and the rules and regulations of the Commission. The Company has not
been informed by its independent accountants that they recommend that the
Company amend or restate any of the Financial Statements or that there is any
need for the Company to amend or restate any of the Financial Statements.

 

10

 

 

l) Absence of Certain Changes. Since the date of the Company’s most recent
audited financial statements contained in a Form 10-K, except as disclosed in
the SEC Reports filed subsequent to such Form 10-K, there has been no material
adverse change and no material adverse development in the business, assets,
liabilities, properties, operations (including results thereof), condition
(financial or otherwise) or prospects of the Company or any of its Subsidiaries.
Since the date of the Company’s most recent audited financial statements
contained in a Form 10-K, neither the Company nor any of its Subsidiaries has
(i) declared or paid any dividends, (ii) sold any assets, individually or in the
aggregate, outside of the ordinary course of business or (iii) made any material
capital expenditures, individually or in the aggregate, outside of the ordinary
course of business. Neither the Company nor any of its Subsidiaries has taken
any steps to seek protection pursuant to any law or statute relating to
bankruptcy, insolvency, reorganization, receivership, liquidation or winding up,
nor does the Company or any Subsidiary have any knowledge or reason to believe
that any of their respective creditors intend to initiate involuntary bankruptcy
proceedings or any actual knowledge of any fact which would reasonably lead a
creditor to do so. The Company and its Subsidiaries, individually and on a
consolidated basis, are not as of the date hereof, and after giving effect to
the transactions contemplated hereby to occur at the Closing will not be,
Insolvent (as defined below). For purposes of this Section 3(l), Neither the
Company nor any of its Subsidiaries has engaged in any business or in any
transaction, and is not about to engage in any business or in any transaction,
for which the Company’s or such Subsidiary’s remaining assets constitute
unreasonably small capital.

 

m) No Undisclosed Events, Liabilities, Developments or Circumstances. No event,
liability, development or circumstance has occurred or exists, or is reasonably
expected to exist or occur with respect to the Company, any of its Subsidiaries
or any of their respective businesses, properties, liabilities, prospects,
operations (including results thereof) or condition (financial or otherwise)
that (i) would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form S-1 filed with the
Commission relating to an issuance and sale by the Company of its Common Stock
and which has not been publicly announced, (ii) could have a material adverse
effect on any Purchaser’s investment hereunder or (iii) could have a Material
Adverse Effect.

 

n) Conduct of Business; Regulatory Permits. Neither the Company nor any of its
Subsidiaries is in violation of any term of or in default under its Certificate
of Incorporation, any certificate of designation, preferences or rights of any
other outstanding series of preferred stock of the Company or any of its
Subsidiaries or Bylaws or their organizational charter, certificate of formation
or certificate of incorporation or bylaws, respectively. Neither the Company nor
any of its Subsidiaries is in violation of any judgment, decree or order or any
statute, ordinance, rule or regulation applicable to the Company or any of its
Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
its business in violation of any of the foregoing, except in all cases for
possible violations which could not, individually or in the aggregate, have a
Material Adverse Effect. Without limiting the generality of the foregoing, the
Company is not in violation of any of the rules, regulations or requirements of
the Trading Market and has no knowledge of any facts or circumstances that could
reasonably lead to delisting or suspension of the Common Stock by the Trading
Market in the foreseeable future. Since January 1, 2018, (i) the Common Stock
has been listed or designated for quotation on the Trading Market, (ii) trading
in the Common Stock has not been suspended by the Commission or the Trading
Market and (iii) the Company has received no communication, written or oral,
from the Commission or the Trading Market regarding the suspension or delisting
of the Common Stock from the Trading Market. The Company and each of its
Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such certificates,
authorizations or permits would not have, individually or in the aggregate, a
Material Adverse Effect, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.

 

11

 

 

o) Foreign Corrupt Practices. Neither the Company nor any of its Subsidiaries
nor, to the knowledge of the Company or any Subsidiary, any director, officer,
agent, employee or other Person acting on behalf of the Company or any of its
Subsidiaries has, in the course of its actions for, or on behalf of, the Company
or any of its Subsidiaries (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of, in any material respect, any provision of the
U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any
unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.

 

p) Sarbanes-Oxley Act. The Company and each Subsidiary is in compliance with all
applicable requirements of the Sarbanes-Oxley Act of 2002, 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.

 

q) Transactions with Affiliates. None of the officers or directors of the
Company or any of its Subsidiaries and, to the knowledge of the Company, none of
the employees or affiliates of the Company or any of its Subsidiaries is
presently a party to any transaction with the Company or any of its Subsidiaries
(other than for ordinary course services as employees, officers or 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, or otherwise requiring payments to or from any such
officer, director or employee, affiliate or, to the knowledge of the Company or
any of its Subsidiaries, any corporation, partnership, trust or other Person in
which any such officer, director, employee or affiliate has a substantial
interest or is an employee, officer, director, affiliate, trustee or partner, in
each case 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.

 

r) Equity Capitalization. As of the date hereof, the authorized capital stock of
the Company consists of (i) 200,000,000 shares of Common Stock, of which,
3,961,287 are issued and outstanding and, except as disclosed in the SEC
Reports, no shares are reserved for issuance pursuant to securities (other than
the Conversion Shares) exercisable or exchangeable for, or convertible into,
shares of Common Stock and (ii) 15,000,000 shares of preferred stock, of which
none are issued and outstanding. All of such outstanding shares are duly
authorized and have been, or upon issuance will be, validly issued and are fully
paid and non-assessable. 1,938,523 shares of the Company’s issued and
outstanding Common Stock on the date hereof are owned by Persons who are
Affiliates (calculated based on the assumption that only officers, directors and
holders of at least 10% of the Company’s issued and outstanding Common Stock are
Affiliates without conceding that any such Persons are Affiliates for purposes
of federal securities laws) of the Company or any of its Subsidiaries. To the
best of the Company’s knowledge, no Person owns 10% or more of the Company’s
issued and outstanding shares of Common Stock without conceding that such
identified Person is a 10% stockholder for purposes of federal securities laws).
(i) None of the Company’s or any Subsidiary’s capital stock is subject to
preemptive rights or any other similar rights or any Liens suffered or permitted
by the Company or any Subsidiary; (ii) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or exercisable
or exchangeable for, any capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional capital stock of the Company or any of its Subsidiaries or options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or exercisable
or exchangeable for, any capital stock of the Company or any of its
Subsidiaries; (iii) there are no outstanding debt securities, notes, credit
agreements, credit facilities or other agreements, documents or instruments
evidencing material Indebtedness of the Company or any of its Subsidiaries or by
which the Company or any of its Subsidiaries is or may become bound; (iv) there
are no financing statements securing obligations in any amounts filed in
connection with the Company or any of its Subsidiaries; (v) there are no
agreements or arrangements under which the Company or any of its Subsidiaries is
obligated to register the sale of any of their securities under the Securities
Act (except pursuant to this Agreement); (vi) there are no outstanding
securities or instruments of the Company or any of its Subsidiaries which
contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (viii) neither the Company nor any Subsidiary has any stock
appreciation rights or “phantom stock” plans or agreements or any similar plan
or agreement; and (ix) neither the Company nor any of its Subsidiaries have any
liabilities or obligations required to be disclosed in the SEC Reports which are
not so disclosed in the SEC Reports, other than those incurred in the ordinary
course of the Company’s or its Subsidiaries’ respective businesses and which,
individually or in the aggregate, do not or could not have a Material Adverse
Effect. The Company has furnished to the Purchasers true, correct and complete
copies of the Company’s Certificate of Incorporation, as amended and as in
effect on the date hereof, and the Company’s bylaws, as amended and as in effect
on the date hereof.

 

12

 

 

s) Indebtedness and Other Contracts. Neither the Company nor any of its
Subsidiaries (i) have 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 (other than
trade accounts payable incurred in the ordinary course of business), (B) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services (including, without limitation, “capital leases” in
accordance with GAAP) (other than trade payables entered into in the ordinary
course of business consistent with past practice), (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 GAAP, 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 Lien 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.

 

t) Litigation. 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, whether of a civil or criminal nature or otherwise, in their
capacities as such, which would have a Material Adverse Effect. 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 Commission or any Governmental Entity involving the
Company, any of its Subsidiaries or any current or former director or officer of
the Company or any of its Subsidiaries. The Commission 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.

 

u) 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. No executive officer (as defined in Rule 501(f)
promulgated under the Securities Act) or other key employee of the Company or
any of its Subsidiaries has notified the Company or any such Subsidiary that
such officer intends to leave the Company or any such Subsidiary or otherwise
terminate such officer’s employment with the Company or any such Subsidiary. 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 where failure to be in compliance would not, either individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect.

 

13

 

 

v) Title. The Company and its Subsidiaries have good and marketable title in fee
simple to all real property and have good and marketable title to all personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case, free and clear of all Liens except for Permitted
Liens (as defined in the Certificate of Designations) and such other 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
any of its Subsidiaries. Any real property and facilities held under lease by
the Company or any of its Subsidiaries are held by them under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company or any of its Subsidiaries.

 

w) Intellectual Property Rights. The Company and its Subsidiaries own or possess
adequate rights or licenses to use all Intellectual Property Rights necessary to
conduct their respective businesses as now conducted and as presently proposed
to be conducted. None of the Company’s or its Subsidiaries’ Intellectual
Property Rights have expired, terminated or been abandoned, or are expected to
expire, terminate or be abandoned, within three years from the date of this
Agreement. The Company has no knowledge of any infringement by the Company or
any of its Subsidiaries of Intellectual Property Rights of others. There is no
claim, action or proceeding being made or brought, or to the knowledge of the
Company or any of its Subsidiaries, being threatened, against the Company or any
of its Subsidiaries regarding their Intellectual Property Rights. Neither the
Company nor any of its Subsidiaries is aware of any facts or circumstances which
might give rise to any of the foregoing infringements or claims, actions or
proceedings.

 

x) Environmental Laws. The Company and its Subsidiaries (i) are in compliance
with any and all Environmental Laws (as defined below), (ii) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or approval
where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so
comply could be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect.

 

y) Subsidiary Rights. The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.

 

z) Tax Status. The Company and each of its Subsidiaries (i) has 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 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.

 

14

 

 

aa) Internal Accounting and Disclosure Controls. The Company and each of its
Subsidiaries maintains internal control over financial reporting (as such term
is defined in Rule 13a-15(f) under the Exchange Act) that is designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
GAAP, including 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 and liability accountability, (iii) access to assets
or incurrence of liabilities is permitted only in accordance with management’s
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference. The Company maintains disclosure controls and procedures (as such
term is defined in Rule 13a-15(e) under the Exchange Act) that are designed to
provide reasonable assurance that information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the rules and forms of the Commission, including, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the Company’s management,
including its principal executive officer or officers and its principal
financial officer or officers, as appropriate, to allow timely decisions
regarding required disclosure. Neither the Company nor any of its Subsidiaries
has received any notice or correspondence from any accountant or other Person
relating to any potential material weakness or significant deficiency in any
part of the internal controls over financial reporting of the Company or any of
its Subsidiaries.

 

bb) Off Balance Sheet Arrangements. There is no transaction, arrangement, or
other relationship between the Company or any of its Subsidiaries and an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its Exchange Act filings and is not so disclosed or
that otherwise could be reasonably likely to have a Material Adverse Effect.

 

cc) Manipulation of Price. Neither the Company nor any of its Subsidiaries has,
and, to the knowledge of the Company, no Person acting on their behalf has,
directly or indirectly, (i) taken any action designed to cause or to result in
the stabilization or manipulation of the price of any security of the Company or
any of its Subsidiaries 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 or any of its Subsidiaries.

 

dd) Registration Eligibility. The Company is eligible to register the issuance
and sale of the Securities using Form S-3 promulgated under the Securities Act.

 

ee) Transfer Taxes. On the Closing Date, all stock transfer or other taxes
(other than income or similar taxes) which are required to be paid in connection
with the issuance and sale of the Securities to be sold to each Purchaser
hereunder will be, or will have been, fully paid or provided for by the Company,
and all laws imposing such taxes will be or will have been complied with.

 

ff) Bank Holding Company Act. Neither the Company nor any of its Subsidiaries is
subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to
regulation by the Board of Governors of the Federal Reserve System (the “Federal
Reserve”). Neither the Company nor any of its Subsidiaries or affiliates owns or
controls, directly or indirectly, five percent (5%) or more of the outstanding
shares of any class of voting securities or twenty-five percent (25%) or more of
the total equity of a bank or any equity that is subject to the BHCA and to
regulation by the Federal Reserve. Neither the Company nor any of its
Subsidiaries or affiliates exercises a controlling influence over the management
or policies of a bank or any entity that is subject to the BHCA and to
regulation by the Federal Reserve.

 

gg) Public Utility Holding Act. None of the Company nor any of its Subsidiaries
is a “holding company,” or an “affiliate” of a “holding company,” as such terms
are defined in the Public Utility Holding Act of 2005.

 

hh) No Additional Agreements. The Company does not have any agreement or
understanding with any Purchaser with respect to the transactions contemplated
by the Transaction Documents other than as specified in the Transaction
Documents.

 

ii) Illegal or Unauthorized Payments; Political Contributions. Neither the
Company nor any of its Subsidiaries nor, to the Company’s knowledge, any of the
officers, directors, employees, agents or other representatives of the Company
or any of its Subsidiaries or any other business entity or enterprise with which
the Company or any Subsidiary is or has been affiliated or associated, has,
directly or indirectly, made or authorized any payment, contribution or gift of
money, property, or services, whether or not in contravention of applicable law,
(a) as a kickback or bribe to any Person or (b) to any political organization,
or the holder of or any aspirant to any elective or appointive public office
except for personal political contributions not involving the direct or indirect
use of funds of the Company or any of its Subsidiaries.

 

15

 

 

jj) Money Laundering. The Company and its Subsidiaries are in compliance with,
and have not previously violated, the USA Patriot Act of 2001 and all other
applicable U.S. and non-U.S. anti-money laundering laws and regulations,
including, without limitation, the laws, regulations and Executive Orders and
sanctions programs administered by the U.S. Office of Foreign Assets Control,
including, without limitation, (i) Executive Order 13224 of September 23, 2001
entitled, “Blocking Property and Prohibiting Transactions With Persons Who
Commit, Threaten to Commit, or Support Terrorism” (66 Fed. Reg. 49079 (2001));
and (ii) any regulations contained in 31 CFR, Subtitle B, Chapter V.

 

kk) Registration Rights. No holder of securities of the Company has rights to
the registration of any securities of the Company because of the issuance of the
Securities hereunder or otherwise that could expose the Company to material
liability or any Purchaser to any liability or that could impair the Company’s
ability to consummate the issuance and sale of the Securities in the manner, and
at the times, contemplated hereby, which rights have not been waived by the
holder thereof as of the date hereof.

 

ll) Stock Option Plans. Each equity award granted by the Company was granted (i)
in accordance with the terms of the applicable equity incentive plan or stock
option plan of the Company and (ii) each option was granted 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 the Company’s stock option plan has been backdated.
The Company has not knowingly granted, and there is no and has been no policy or
practice of the Company 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.

 

mm) Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Securities, 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 an “investment company” subject to
registration under the Investment Company Act of 1940, as amended.

 

nn) Management. During the past five year period, no current or former officer
or director or, to the knowledge of the Company, no current ten percent (10%) or
greater stockholder of the Company or any of its Subsidiaries has been the
subject of:

 

(i)a petition under bankruptcy laws or any other insolvency or moratorium law or
the appointment by a court of a receiver, fiscal agent or similar officer for
such Person, or any partnership in which such person was a general partner at or
within two years before the filing of such petition or such appointment, or any
corporation or business association of which such person was an executive
officer at or within two years before the time of the filing of such petition or
such appointment;

 

(ii)a conviction in a criminal proceeding or a named subject of a pending
criminal proceeding (excluding traffic violations that do not relate to driving
while intoxicated or driving under the influence);

 

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(iii)any order, judgment or decree, not subsequently reversed, suspended or
vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining any such person from, or otherwise limiting, the following activities:

 

(A) acting as a futures commission merchant, introducing broker, commodity
trading advisor, commodity pool operator, floor broker, leverage transaction
merchant, any other person regulated by the United States Commodity Futures
Trading Commission or an associated person of any of the foregoing, or as an
investment adviser, underwriter, broker or dealer in securities, or as an
affiliated person, director or employee of any investment company, bank, savings
and loan association or insurance company, or engaging in or continuing any
conduct or practice in connection with such activity;

 

(B) engaging in any type of business practice; or

 

(C) engaging in any activity in connection with the purchase or sale of any
security or commodity or in connection with any violation of securities laws or
commodities laws;

 

(iv)any order, judgment or decree, not subsequently reversed, suspended or
vacated, of any authority barring, suspending or otherwise limiting for more
than sixty (60) days the right of any such person to engage in any activity
described in the preceding sub paragraph, or to be associated with persons
engaged in any such activity;

 

(v)a finding by a court of competent jurisdiction in a civil action or by the
Commission or other authority to have violated any securities law, regulation or
decree and the judgment in such civil action or finding by the Commission or any
other authority has not been subsequently reversed, suspended or vacated; or

 

(vi)a finding by a court of competent jurisdiction in a civil action or by the
Commodity Futures Trading Commission to have violated any federal commodities
law, and the judgment in such civil action or finding has not been subsequently
reversed, suspended or vacated.

 

3.2 Representations and Warranties of the Purchaser. Each Purchaser, for itself
and for no other Purchaser, hereby represents and warrants as of the date hereof
and as of the Closing Date to the Company as follows (unless as of a specific
date therein in which case they shall be accurate as of such date):

 

a) Organization; Authority. The Purchaser is either an individual or an entity
duly incorporated or formed, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or formation with full right,
corporate, partnership, limited liability company or similar power and authority
to enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations hereunder and thereunder.
The execution and delivery of the Transaction Documents and performance by the
Purchaser of the transactions contemplated by the Transaction Documents have
been duly authorized by all necessary corporate, partnership, limited liability
company or similar action, as applicable, on the part of the Purchaser. Each
Transaction Document to which it is a party has been duly executed by the
Purchaser, and when delivered by the Purchaser in accordance with the terms
hereof, will constitute the valid and legally binding obligation of the
Purchaser, enforceable against it in accordance with its terms, except: (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally; (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies; and (iii) insofar as indemnification and contribution provisions may
be limited by applicable law.

 

b) Own Account. The Purchaser understands that the Securities are “restricted
securities” and have not been registered under the Securities Act or any
applicable state securities law and is acquiring the Securities as principal for
its own account and not with a view to or for distributing or reselling such
Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of distributing any of
such Securities in violation of the Securities Act or any applicable state
securities law and has no direct or indirect arrangement or understandings with
any other persons to distribute or regarding the distribution of such Securities
in violation of the Securities Act or any applicable state securities law (this
representation and warranty not limiting the Purchaser’s right to sell the
Securities in compliance with applicable federal and state securities laws). The
Purchaser is acquiring the Securities hereunder in the ordinary course of its
business.

 

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c) Purchaser Status. At the time the Purchaser was offered the Securities, it
was, and as of the date hereof it is, and on each date on which it converts the
Preferred Stock it will be an “accredited investor” as defined in Rule
501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act.

 

d) Experience of the Purchaser. The Purchaser, 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 prospective investment in the Securities, and has so evaluated the merits
and risks of such investment. The Purchaser 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.

 

e) General Solicitation. The Purchaser is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.

 

f) Certain Transactions and Confidentiality. Other than consummating the
transactions contemplated hereunder, the Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with the Purchaser, executed any purchases or sales, including
Short Sales, of the securities of the Company during the period commencing as of
the time that the Purchaser first received a term sheet (written or oral) from
the Company or any other Person representing the Company setting forth the
material terms of the transactions contemplated hereunder and ending immediately
prior to the execution hereof. Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of the Purchaser’s assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of the Purchaser’s assets, the
representation set forth above shall only apply with respect to the portion of
assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement. Other than to other Persons
party to this Agreement, the Purchaser has maintained the confidentiality of all
disclosures made to it in connection with this transaction (including the
existence and terms of this transaction).

 

g) Special Purpose Acquisition Companies. The Purchaser acknowledges and agrees
that the Company, as of prior to the Merger, is a special purpose acquisition
company.

 

The Company acknowledges and agrees that the representations contained in
Section 3.2 shall not modify, amend or affect the Purchaser’s right to rely on
the Company’s representations and warranties contained in this Agreement or any
representations and warranties contained in any other Transaction Document or
any other document or instrument executed and/or delivered in connection with
this Agreement or the consummation of the transaction contemplated hereby.

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1 Transfer Restrictions.

 

a) The Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other than
pursuant to an effective registration statement or Rule 144, to the Company or
to an Affiliate of a Purchaser or in connection with a pledge as contemplated in
Section 4.1(b), the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, at the Company’s sole expense in the form and
substance of which opinion shall be reasonably satisfactory to the Company, to
the effect that such transfer does not require registration of such transferred
Securities under the Securities Act. As a condition of transfer, any such
transferee shall agree in writing to be bound by the terms of this Agreement and
shall have the rights and obligations of a Purchaser under this Agreement.

 

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b) The Purchaser agrees to the imprinting, so long as is required by this
Section 4.1, of a legend on any of the Securities in the following form:

 

[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS
[CONVERTIBLE] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON
[CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL
INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE
SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

The Company acknowledges and agrees that the Purchaser may from time to time
pledge pursuant to a bona fide margin agreement with a registered broker-dealer
or grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and, if required under the terms of such arrangement, the Purchaser may transfer
pledged or secured Securities to the pledgees or secured parties. Such a pledge
or transfer would not be subject to approval of the Company and no legal opinion
of legal counsel of the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such pledge. At
the Company’s expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities may reasonably request
in connection with a pledge or transfer of the Securities.

 

c) Certificates evidencing the Conversion Shares shall not contain any legend
(including the legend set forth in Section 4.1(b) hereof): (i) while a
registration statement covering the resale of such security is effective under
the Securities Act; (ii) following any sale of such Conversion Shares pursuant
to Rule 144; (iii) if such Conversion Shares are eligible for sale under Rule
144 (provided that the Purchaser and such Purchaser’s broker acknowledge in
writing that the shares remain “restricted securities” until such time as they
are sold pursuant to an effective registration statement or pursuant to Rule
144); or (iv) if such legend is not required under applicable requirements of
the Securities Act (including judicial interpretations and pronouncements issued
by the staff of the Commission). The Company shall upon request of a Purchaser
and at the Company’s sole expense cause its counsel (or at the Purchaser’s
option, counsel selected by the Purchaser) to issue a legal opinion to the
Transfer Agent promptly after any of the events described in (i)-(iv) in the
preceding sentence if required by the Transfer Agent to effect the removal of
the legend hereunder (with a copy to the applicable Purchaser and its broker).
If all or any portion of any Preferred Stock is converted at a time when there
is an effective registration statement to cover the resale of the Conversion
Shares or if such Conversion Shares may be sold under Rule 144 (provided that
the Purchaser and such Purchaser’s broker acknowledge in writing that the shares
remain “restricted securities” until such time as they are sold pursuant to an
effective registration statement or pursuant to Rule 144) or if such legend is
not otherwise required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission) then such Conversion Shares shall be issued free of all legends.
The Company agrees that following such time as such legend is no longer required
under this Section 4.1(c), it will, no later than two (2) Trading Days following
the delivery by a Purchaser to the Company or the Transfer Agent of a
certificate representing Conversion Shares issued with a restrictive legend
(such third (3rd) Trading Day, the “Legend Removal Date”), instruct the Transfer
Agent to deliver or cause to be delivered to the Purchaser a certificate
representing such shares that is free from all restrictive and other legends.
The Company may not make any notation on its records or give instructions to the
Transfer Agent that enlarge the restrictions on transfer set forth in this
Section 4. Certificates for the Conversion Shares subject to legend removal
hereunder shall be transmitted by the Transfer Agent to the Purchaser by
crediting the account of the Purchaser’s prime broker with the Depository Trust
Company System as directed by the Purchaser.

 

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

 

4.3 Exchange Act Registration. The Company covenants to use commercially
reasonable efforts (i) to maintain the registration of the Common Stock under
Section 12(b) or 12(g) of the Exchange Act and (ii) 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.

 

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

 

4.5 Conversion and Exercise Procedures. The form of Notice of Conversion
included in the Certificate of Designations sets forth the totality of the
procedures required of the Purchaser in order to convert such Preferred Stock.
Without limiting the preceding sentences, no ink-original Notice of Conversion
shall be required, nor shall any medallion guarantee (or other type of guarantee
or notarization) of any Notice of Conversion form be required in order to
convert the Preferred Stock. No additional legal opinion or other information
shall be required of the Purchaser to convert such Preferred Stock. The Company
shall honor conversions of any Preferred Stock, and shall deliver Conversion
Shares in accordance with the terms, conditions and time periods set forth in
the Transaction Documents.

 

4.6 Material 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 of its subsidiaries,
nor any other Person acting on its behalf, will provide the Purchaser or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such information is
disclosed to the public, or the Purchaser shall have entered into a written
agreement with the Company regarding the confidentiality and use of such
information. The Company understands and confirms that the Purchaser shall be
relying on the foregoing covenant in effecting transactions in securities of the
Company.

 

4.7 Reservation and Listing of Securities.

 

a) 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.

 

b) If, on any date, the number of authorized but unissued (and otherwise
unreserved) shares of Common Stock is less than 100% of the Required Minimum on
such date, then the Board of Directors shall use commercially reasonable efforts
to amend the Company’s Articles of Incorporation (or successor organizational
documents) to increase the number of authorized but unissued shares of Common
Stock to at least 100% of the Required Minimum at such time, as soon as
reasonably possible and in any event not later than the 150th day after such
date.

 

20

 

 

c) The Company shall use commercially reasonably efforts to, 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 or
notification 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 reasonably
necessary to cause such shares of Common Stock to be approved for listing on
such Trading Market as soon as possible thereafter; (iii) provide to the
Purchaser evidence of such listing; and (iv) maintain the listing 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.

 

d) If at any time the Purchaser determines in its reasonable discretion that
Shareholder Approval. is necessary in order to satisfy the requirements of the
Trading Market, upon receipt of such written request, the Company shall use its
reasonable best efforts to promptly obtain such Shareholder Approval and
approval of the Trading Market of the issuance of all shares of Common Stock
underlying the Securities without any limitation imposed by the Trading Market.
If the Company does not obtain Shareholder Approval at the first meeting, the
Company shall call a meeting every six months thereafter to seek Shareholder
Approval until the earlier of the date Shareholder Approval is obtained or the
Preferred Stock is no longer outstanding.

 

4.8 Certain Transactions and Confidentiality. Each Purchaser covenants and
agrees that neither it, nor any Affiliate acting on its behalf or pursuant to
any understanding with it will execute any Short Sales of the Common Stock or
(ii) hedging transaction which establishes a Net Short Position with respect to
the Company’s Common Stock during the period commencing with the execution of
this Agreement and ending on the date that 100% of the Preferred Stock owned by
such Purchaser has been redeemed in accordance with the terms of the Certificate
of Designations; provided that this provision shall not prohibit any sales made
where a corresponding Notice of Conversion is tendered to the Company and the
shares received upon such conversion are used to close out such sale. For
purposes hereof, a “Net Short Position” by a Purchaser means a position whereby
such Purchaser has executed one or more sales of Common Stock that is marked as
a short sale (but not including any sale marked “short exempt”) and that is
executed at a time when such Purchaser does not have an equivalent offsetting
long position in the Common Stock (or is deemed to have a long position
hereunder or otherwise in accordance with Regulation SHO under the Exchange
Act); provided, further that no “short sale” shall be deemed to exist as a
result of any failure by the Company (or its agents) to deliver shares upon
conversion of the Preferred Stock, to such Purchaser converting such Preferred
Stock. For purposes of determining whether a Purchaser has an equivalent
offsetting long position in the Common Stock, such Purchaser shall be deemed to
hold “long” all Common Stock that is either (i) then owned by such Purchaser, if
any, or (ii) then issuable to such Purchaser as shares issuable upon conversion
of the Preferred Stock then held by such Purchaser, if any, (without regard to
any limitations on conversion or exercise set forth in the Preferred Stock).
Notwithstanding the foregoing, nothing contained herein shall (without
implication that the contrary would otherwise be true) prohibit such Purchaser
from selling “long” (as defined under Rule 200 promulgated under Regulation SHO
under the Exchange Act) the Securities or any other Common Stock then owned by
such Purchaser. For the avoidance of doubt, this Section 4.8 is applicable to
each Purchaser individually, and not collectively. For example, if Purchaser A
still holds Securities but Purchaser B does not, only Purchaser A remains
subject to this Section 4.8, but Purchaser B does not.

 

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

 

4.10 Registration Rights. The Company hereby grants the registration rights to
the Purchasers as set forth in the Registration Rights Agreement.

 

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4.11 Indemnification. (i) The Company and its successors and assigns shall
indemnify and hold harmless each Purchaser, each holder of the Securities, the
officers, directors, members, partners, agents and employees (and any other
individuals or entities with a functionally equivalent role of a person holding
such titles, notwithstanding a lack of such title or any other title) of each of
them, each individual or entity who controls each Purchaser or any such holder
of the Securities (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) and the officers, directors, members,
stockholders, partners, agents and employees (and any other individuals or
entities with a functionally equivalent role of a person holding such titles,
notwithstanding a lack of such title or any other title) of each such
controlling individual or entity (each, an “Indemnified Party”), to the fullest
extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, reasonable
attorneys’ fees) and expenses (collectively, “Indemnified Liabilities”), as
incurred, 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 Indemnified Party 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 Indemnified Party 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, (C) any disclosure properly made by such Purchaser pursuant to
Section 4(18), or (D) the status of such Purchaser 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); provided, however, that the indemnity contained in clause
(iii) above shall not apply to any Indemnified Liabilities which directly and
primarily result from the fraud, gross negligence or willful misconduct of an
Indemnified Party. 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.

 

(ii) Promptly after receipt by an Indemnified Party under this Section 4.11 of
notice of the commencement of any action or proceeding (including any
governmental action or proceeding) involving an Indemnified Liability, such
Indemnified Party shall, if a claim in respect thereof is to be made against the
Company under this Section 4.11, deliver to the Company a written notice of the
commencement thereof, and the Company shall have the right to participate in,
and, to the extent the Company so desires, to assume control of the defense
thereof with counsel mutually satisfactory to the Company and the Indemnified
Party; provided, however, that an Indemnified Party shall have the right to
retain its own counsel with the fees and expenses of such counsel to be paid by
the Company if: (i) the Company has agreed in writing to pay such fees and
expenses; (ii) the Company shall have failed after a reasonable period of time
to assume the defense of such Indemnified Liability and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Indemnified
Liability; or (iii) the named parties to any such Indemnified Liability
(including any impleaded parties) include both such Indemnified Party and the
Company, and such Indemnified Party shall have been advised by counsel, in its
reasonable opinion, that a material conflict of interest on any material issue
is likely to exist if the same counsel were to represent such Indemnified Party
and the Company (in which case, if such Indemnified Party notifies the Company
in writing that it elects to employ separate counsel at the expense of the
Company, then the Company shall not have the right to assume the defense thereof
and such counsel shall be at the expense of the Company); provided further, that
in the case of clauses (i), (ii) and (iii) above the Company shall not be
responsible for the reasonable fees and expenses of more than one (1) separate
legal counsel for such Indemnified Party. The Indemnified Party shall reasonably
cooperate with the Company in connection with any negotiation or defense of any
such action or Indemnified Liability by the Company and shall furnish to the
Company all information reasonably available to the Indemnified Party which
relates to such action or Indemnified Liability. The Company shall keep the
Indemnified Party reasonably apprised at all times as to the status of the
defense or any settlement negotiations with respect thereto. The Company shall
not be liable for any settlement of any action, claim or proceeding effected
without its prior written consent, provided, however, that the Company shall not
unreasonably withhold, delay or condition its consent. The Company shall not,
without the prior written consent of the Indemnified Party, consent to entry of
any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
Indemnified Liability or litigation, and such settlement shall not include any
admission as to fault on the part of the Indemnified Party. Following
indemnification as provided for hereunder, the Company shall be subrogated to
all rights of the Indemnified Party with respect to all third parties, firms or
corporations relating to the matter for which indemnification has been made. The
failure to deliver written notice to the Company within a reasonable time of the
commencement of any such action shall not relieve the Company of any liability
to the Indemnified Party under this Section 4.11, except to the extent that the
Company is materially and adversely prejudiced in its ability to defend such
action.

 

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(iii) The indemnification required by this Section 4.11 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Liabilities are
incurred.

 

(iv) The indemnity agreement contained herein shall be in addition to (A) any
cause of action or similar right of the Indemnified Party against the Company or
others, and (B) any liabilities the Company may be subject to pursuant to the
law.

 

4.12 Trust Account Waiver. Each Purchaser understands that, as described in the
IPO Prospectus, the Company has established a trust account (the “Trust
Account”) containing the proceeds of its initial public offering (the “IPO”) and
the overallotment shares acquired by its underwriters and from certain private
placements occurring simultaneously with the IPO (including interest accrued
from time to time thereon) for the benefit of the Company’s public stockholders
and underwriters (the “Public Stockholders”), and that, except as otherwise
described in the IPO Prospectus, the Company may disburse monies from the Trust
Account only: (a) to the Public Stockholders in the event they elect to redeem
their Common Stock in connection with the consummation of the Company’s initial
business combination (as such term is used in the IPO Prospectus) (“Business
Combination”) or in connection with an extension of the deadline to consummate a
Business Combination, (b) to the Public Stockholders if the Company fails to
consummate its Business Combination by December 26, 2018 (as amended from the
original deadline set forth in the IPO Prospectus and the Company’s
organizational documents), (c) with respect to any interest earned on the
amounts held in the Trust Account, as necessary to pay income or other tax
obligations and to meet working capital requirements, and (d) to the Company
after or concurrently with the consummation of its Business Combination. For and
in consideration of the Company entering into this Agreement and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, such Purchaser hereby agrees on behalf of itself and its
Affiliates that, notwithstanding anything to the contrary in this Agreement,
neither such Purchaser nor its Affiliates do now or shall at any time hereafter
have any right, title, interest or claim of any kind in or to any monies in the
Trust Account or distributions therefrom, or make any claim against the Trust
Account (including any distributions therefrom), regardless of whether such
claim arises as a result of, in connection with or relating in any way to, this
agreement or any proposed or actual business relationship between the Company or
its Representatives, on the one hand, and such Purchaser or its Representatives,
on the other hand, or any other matter, and regardless of whether such claim
arises based on contract, tort, equity or any other theory of legal liability
(“Released Claims”). Such Purchaser on behalf of itself and its Affiliates
hereby irrevocably waives any Released Claims that such Purchaser or its
Affiliates may have against the Trust Account (including any distributions
therefrom) now or in the future as a result of, or arising out of, any
negotiations, contracts or agreements with the Company or its Representatives
and will not seek recourse against the Trust Account (including any
distributions therefrom) for any reason whatsoever. Such Purchaser agrees and
acknowledges that such irrevocable waiver is material to this Agreement and
specifically relied upon by the Company and its Affiliates to induce the Company
to enter in this Agreement, and such Purchaser further intends and understands
such waiver to be valid, binding and enforceable against such Purchaser and each
of its Affiliates under applicable law. Notwithstanding the foregoing, this
Section 4.12 shall not affect any rights of a Purchaser or its Affiliates as a
Public Stockholder to receive distributions from the Trust Account in its
capacity as a Public Stockholder. Notwithstanding anything to the contrary
contained in this Agreement, this Section 4.12 shall survive termination or
expiration of this Agreement for any reason.

 

4.13 Company Escrow. The Company covenants and agrees to open an escrow account
with a bank or institution that is reasonably acceptable to the Purchasers
within three (3) Business Days after the date hereof. The Company further
covenants and agrees that immediately after opening such escrow account, the
Company shall deposit $5,500,000 of the proceeds of this offering into the
escrow account and shall instruct the escrow agent in an escrow agreement to
require the signature of both the Company and Dominion Capital LLC to release
funds from such escrow account. Prior to executing an escrow agreement for the
escrow account, the Company shall permit a representative of Dominion Capital
LLC to review and comment on the escrow agreement.

 

4.14 Reporting Status. Until the date on which no Securities are outstanding
(the “Reporting Period”), the Company shall timely file (or obtain an extension
in respect thereof and file within such extension period) all reports required
to be filed with the Commission pursuant to the Exchange Act, and the Company
shall not terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would no longer require such reports or would otherwise permit such termination.

 

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4.15 Use of Proceeds. The Company will use the proceeds from the sale of the
Securities for general corporate purposes, but not, directly or indirectly, for
(i) the satisfaction of any Indebtedness of the Company or any of its
Subsidiaries (other than payment of trade payables in the ordinary course of
business), (ii) the redemption or repurchase of any securities of the Company or
any of its Subsidiaries (other than the Securities), (iii) the settlement of any
outstanding litigation.

 

4.16 Financial Information. The Company agrees to send the following to each
Purchaser during the Reporting Period, unless filed with the Commission through
EDGAR and are available to the public through the EDGAR system, (i) within two
(2) Business Days after the filing thereof with the Commission, a copy of its
Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, any interim
reports or any consolidated balance sheets, income statements, stockholders’
equity statements and/or cash flow statements for any period other than annual,
any Current Reports on Form 8-K and any registration statements (other than on
Form S-8) or amendments filed pursuant to the Securities Act, (ii) on the same
day as the release thereof, facsimile copies of all press releases issued by the
Company or any of its Subsidiaries and (iii) copies of any notices and other
information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders.

 

4.17 Passive Foreign Investment Company. The Company shall conduct its business
in such a manner as will ensure that the Company will not be deemed to
constitute a passive foreign investment company within the meaning of Section
1297 of the U.S. Internal Revenue Code of 1986, as amended.

 

4.18 Disclosure of Transactions and Other Material Information. The Company
shall, within the time required under the Exchange Act, file a Current Report on
Form 8-K describing all the material terms of the transactions contemplated by
the Transaction Documents in the form required by the Exchange Act and attaching
all the material Transaction Documents (including, without limitation, this
Agreement (including all attachments, the “Form 8-K Filing”). From and after the
filing of the Form 8-K Filing, the Company shall have disclosed all material,
non-public information (if any) delivered to any of the Purchasers by the
Company or any of its Subsidiaries, or any of their respective officers,
directors, employees or agents in connection with the transactions contemplated
by the Transaction Documents. In addition, effective upon the filing of the Form
8-K Filing, the Company acknowledges and agrees that any and all confidentiality
or similar obligations under any agreement with respect to the transactions
contemplated under the Transaction Documents, whether written or oral, between
the Company, any of its Subsidiaries or any of their respective officers,
directors, affiliates, employees or agents, on the one hand, and any of the
Purchasers or any of their affiliates, on the other hand, shall terminate. In
the event of a breach of any of the foregoing covenants by the Company, any of
its Subsidiaries, or any of its or their respective officers, directors,
employees and agents (as determined in the reasonable good faith judgment of
such Purchaser), in addition to any other remedy provided herein or in the
Transaction Documents, such Purchaser shall have the right to make a public
disclosure, in the form of a press release, public advertisement or otherwise,
of such material, non-public information, as applicable, without the prior
approval by the Company, any of its Subsidiaries, or any of its or their
respective officers, directors, employees or agents; provided the Purchaser
shall have first provided written notice to the Company that it believes it has
received information that constitutes material, non-public information, the
Company shall have at least 48 hours to publicly disclose such material,
non-public information prior to any such disclosure by the Purchaser or
demonstrate to the Purchaser in writing why such information does not constitute
material, non-public information, and (assuming the Purchaser and Purchaser’s
counsel disagree with the Company’s determination) the Company shall have failed
to publicly disclose such material, non-public information within such time
period. No Purchaser shall have any liability to the Company, any of its
Subsidiaries, or any of its or their respective officers, directors, employees,
stockholders or agents, for any such disclosure. To the extent that the Company
delivers any material, non-public information to a Purchaser without such
Purchaser’s consent, the Company hereby covenants and agrees that such Purchaser
shall not have any duty of confidentiality with respect to, or a duty not to
trade on the basis of, such material, non-public information. Subject to the
foregoing, neither the Company, its Subsidiaries nor any Purchaser shall issue
any press releases or any other public statements with respect to the
transactions contemplated hereby; provided, however, the Company shall be
entitled, without the prior approval of any Purchaser, to make any press release
or other public disclosure with respect to such transactions (i) in substantial
conformity with the Form 8-K Filing and contemporaneously therewith and (ii) as
is required by applicable law and regulations (provided that in the case of
clause (i) each Purchaser shall be consulted by the Company in connection with
any such press release or other public disclosure prior to its release).
Notwithstanding anything contained in this Agreement to the contrary and without
implication that the contrary would otherwise be true, the Company expressly
acknowledges and agrees that no Purchaser has had, and no Purchaser shall have
(unless expressly agreed to by a particular Purchaser after the date hereof in a
written definitive and binding agreement executed by the Company and such
particular Purchaser (it being understood and agreed that no Purchaser may bind
any other Purchaser with respect thereto)), any duty of confidentiality with
respect to, or a duty not to trade on the basis of, any material, non-public
information regarding the Company or any of its Subsidiaries.

 

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4.19 Issuance of Additional Securities. For so long as any Securities remain
outstanding, the Company shall not, other than Exempt Issuances (as defined in
the Certificate of Designation), (i) issue Common Stock at a price per share
less than $11.50 per share (subject to adjustment for subdivision or
consolidation of shares) or (ii) issue any convertible securities which are
convertible into or exercisable or exchangeable for Common Stock at a price per
share less than $11.50 (subject to adjustment for subdivision or consolidation
of shares) per share, in each case, without the prior written consent of the
Purchasers, unless the outstanding Preferred Stock is correspondingly redeemed
in connection therewith. Notwithstanding the forgoing, the Company may issue
Common Stock at a price per share less than $11.50 per share (subject to
adjustment for subdivision or consolidation of shares) or (ii) issue any
convertible securities which are convertible into or exercisable or exchangeable
for Common Stock at a price per share less than $11.50 per share (subject to
adjustment for subdivision or consolidation of shares), in each case, in
connection with any acquisition, collaboration, or other strategic transactions,
without the prior written consent of the Purchasers so long as the Purchasers
are afforded the opportunity to convert 110% of their outstanding Preferred
Shares into the same terms as such acquisition, collaboration, or other
strategic transaction, or the outstanding Preferred Stock is correspondingly
redeemed.

 

4.20 Intentionally omitted.

 

4.21 Reservation of Shares. So long as any of the Preferred Stock remain
outstanding, the Company shall take all action necessary to at all times have
authorized, and reserved for the purpose of issuance, shares of Common Stock in
an amount no less than the Required Minimum. If at any time the number of shares
of Common Stock authorized and reserved for issuance is not sufficient to meet
the Required Minimum, the Company will promptly take all corporate action
necessary to authorize and reserve a sufficient number of shares, including,
without limitation, calling a special meeting of stockholders to authorize
additional shares to meet the Company’s obligations pursuant to the Transaction
Documents, in the case of an insufficient number of authorized shares, obtaining
stockholder approval of an increase in such authorized number of shares, and
voting the management shares of the Company in favor of an increase in the
authorized shares of the Company to ensure that the number of authorized shares
is sufficient to meet the Required Minimum.

 

4.22 Conduct of Business. The business of the Company and its Subsidiaries shall
not be conducted in violation of any law, ordinance or regulation of any
Governmental Entity, except where such violations would not reasonably be
expected to result, either individually or in the aggregate, in a Material
Adverse Effect.

 

4.23. Review of Surplus; Fair Value. Each calendar month for the first two years
after the date of this Agreement and then on a quarterly basis thereafter (a)
the Company’s Board of Directors, with the assistance of legal and/or financial
advisors as deemed necessary, will in good faith carefully consider whether
under Delaware corporate law the Company had a “surplus” or if no “surplus” net
profits for the then-current or the preceding fiscal year, and (b) if the Board
of Directors determines that the Company did not have a “surplus,” the Company
will retain a third-party valuation firm approved by the holder of a majority of
the then outstanding shares of Preferred Stock to value the Company’s assets at
current fair value (even if the “book value” reflected on the Company’s balance
sheet is different) in order to enable the Company to comply with applicable
Delaware regarding the payment of dividends or making a redemption or other
payment under the terms of the Preferred Stock.

 

4.24. Equal Treatment of Purchasers. No consideration (including any
modification of any Transaction Document) shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of the
Transaction Documents unless the same consideration is also offered to all of
the parties to such Transaction Documents. Further, the Company shall not make
any payment in respect of the Preferred Stock, whether as a dividend, redemption
or other distribution, in amounts which are disproportionate to the respective
amounts payable under the Preferred Stock outstanding at any applicable time.
For clarification purposes, this provision constitutes a separate right granted
to each Purchaser by the Company and negotiated separately by each Purchaser,
and is intended for the Company to treat the Purchasers as a class and shall not
in any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or otherwise.

 

25

 

 

4.25. Acknowledgment Regarding Purchaser’s Trading Activity. Anything in this
Agreement or elsewhere herein to the contrary notwithstanding (except for
Sections 3.2(f) and 4.8 hereof), it is understood and acknowledged by the
Company that: (i) none of the Purchasers has been asked by the Company to agree,
nor has any Purchaser agreed, to desist from purchasing or selling, long and/or
short, securities of the Company, or “derivative” securities based on securities
issued by the Company or to hold the Securities for any specified term, (ii)
past or future open market or other transactions by any Purchaser, specifically
including, without limitation, Short Sales or “derivative” transactions, before
or after the closing of this or future private placement transactions, may
negatively impact the market price of the Company’s publicly-traded securities,
(iii) any Purchaser, and counter-parties in “derivative” transactions to which
any such Purchaser is a party, directly or indirectly, may presently have a
“short” position in the Common Stock and (iv) each Purchaser shall not be deemed
to have any affiliation with or control over any arm’s length counter-party in
any “derivative” transaction. The Company further understands and acknowledges
that (y) one or more Purchasers may engage in hedging activities 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.

 

4.26. Sponsor Warrants. The Company acknowledges and agrees that each Purchaser
is a “Permitted Transferee” as defined in Section 2.5 of that certain warrant
agreement (the “Warrant Agreement”) dated as of August 18, 2016, by and between
the Company and Continental Stock Transfer & Trust Company, as warrant agent,
which governs the Sponsor Warrants and, as such, in accordance with Section 6.4
of the Warrant Agreement, the Sponsor Warrants, if assigned pursuant to the
Sponsor Transfer Agreement, to each Purchaser will not be subject to redemption
pursuant to the provisions of Section 6.1 of the Warrant Agreement.

 

ARTICLE V.

MISCELLANEOUS

 

5.1 Termination. This Agreement shall automatically terminate and be void and of
no further force or effect, and all rights and obligations of the parties
hereunder shall terminate without any liability to either party hereto, upon the
earlier to occur of: (i) such date that the Merger Agreement is terminated in
accordance with its terms, (ii) upon the mutual written agreement of each of the
parties hereto to terminate this Agreement or (c) December 26, 2018; provided
that nothing herein will relieve any party from liability for any willful breach
hereof prior to the time of termination, and each party will be entitled to any
remedies at law or in equity to recover losses, liabilities or damages arising
from such breach. The Company shall promptly notify the undersigned of the
termination of the Merger Agreement promptly after the termination of such
agreement. Notwithstanding the foregoing, Section 4.11 shall survive any
termination of this Agreement for any reason.

 

5.2 Fees and Expenses. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its own
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all transfer
agent fees (including, without limitation, any fees required for same-day
processing of any instruction letter delivered by the Company and any Notice of
Conversion delivered by the Purchaser) in connection with the delivery of the
Conversion Shares to the Purchaser.

 

5.3 Entire Agreement. The Transaction Documents, together with the exhibits and
schedules thereto, contain the entire understanding of the parties with respect
to the subject matter hereof and thereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

 

5.4 Notices. Any and all notices or other communications or deliveries required
or permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest of: (i) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto at or prior to 12:00 p.m. (New York
City time) on a Trading Day; (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 12:00 p.m. (New York City time) on any
Trading Day; (iii) the second (2nd) Trading Day following the date of mailing,
if sent by U.S. nationally recognized overnight courier service; or (iv) upon
actual receipt by the party to whom such notice is required to be given. The
address for such notices and communications shall be as set forth on the
signature pages attached hereto.

 

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5.5 Amendments; Waivers. No provision of this Agreement may be waived, modified,
supplemented or amended except in a written instrument signed, in the case of an
amendment, by the Company and Purchasers subscribing for (if prior to Closing)
or holding (if after Closing) more than fifty percent (50%) in interest of the
Preferred Stock then outstanding or, in the case of a waiver, by the party
against whom enforcement of any such waived provision is sought, provided that
if any amendment, modification or waiver disproportionately and adversely
impacts a Purchaser (or group of Purchasers), the consent of such
disproportionately impacted Purchaser (or group of Purchasers) shall also be
required. No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such
right. Any proposed amendment or waiver that disproportionately, materially and
adversely affects the rights and obligations of any Purchaser relative to the
comparable rights and obligations of the other Purchasers shall require the
prior written consent of such adversely affected Purchaser. Any amendment
effected in accordance with accordance with this Section 5.5 shall be binding
upon each Purchaser and holder of Securities and the Company.

 

5.6 Headings. The headings herein are for convenience only, do not constitute a
part of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof.

 

5.7 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchaser (other than by merger). The
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom the Purchaser assigns or transfers any Securities, provided that such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of the Transaction Documents that apply to the
“Purchaser”.

 

5.8 Third-Party Beneficiaries. Phunware is an intended third party beneficiary
of this Agreement, and each party hereby acknowledges and agrees that Phunware
has the right prior to the Closing to cause the Company to enforce its
respective rights and perform its respective obligations under this Agreement.
Other than Phunware, this Agreement is intended for the benefit of the parties
hereto and their respective successors and permitted assigns and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.

 

5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, partners, members,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the City
of New York, Borough of Manhattan for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper or is an inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any other manner permitted by law. If
either party shall commence an action, suit or proceeding to enforce any
provisions of the Transaction Documents, then the prevailing party in such
action, suit or proceeding shall be reimbursed by the other party for its
reasonable attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.

 

27

 

 

5.10 Survival. The representations and warranties contained herein shall survive
the Closing and the delivery of the Securities.

 

5.11 Execution. This Agreement may be executed in two or more counterparts, all
of which when taken together shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to each other party, it being understood that the parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or “.pdf” signature page were an original thereof.

 

5.12 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.

 

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

 

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

 

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

 

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

 

28

 

 

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

 

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

 

5.19 Construction. The parties agree that each of them and/or their respective
counsel have reviewed and had an opportunity to revise the Transaction Documents
and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments thereto. In
addition, each and every reference to share prices and shares of Common Stock in
any Transaction Document shall be subject to adjustment for reverse and forward
stock splits, stock dividends, stock combinations and other similar transactions
of the Common Stock that occur after the date of this Agreement. In this
Agreement, unless the context otherwise requires: (i) any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural and
vice versa; (ii) “including” (and with correlative meaning “include”) means
including without limiting the generality of any description preceding or
succeeding such term and shall be deemed in each case to be followed by the
words “without limitation”; (iii) the words “herein,” “hereto,” and “hereby” and
other words of similar import shall be deemed in each case to refer to this
Agreement as a whole and not to any particular section or other subdivision of
this Agreement; and (iv) the term “Dollars” or “$” means U.S. dollars.

 

5.20 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.

 

[Signature Pages Follow]

 

29

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

 

STELLAR ACQUISITION III INC.   Address for Notice: 90 Kifisias Avenue,     15125
Marousi, Greece By:  /s/ George Syllantavos     Name: George Syllantavos   Fax:
+30 210 876 4877 Title: co-CEO         Email: gs@stellaracquisition.com With a
copy to (which shall not constitute notice):    

 

 

 

 

 

 

 

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

30

 

 

[PURCHASER SIGNATURE PAGES TO STELLAR SECURITIES PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

 

Name of Purchaser:  Dominion Capital LLC

 

Signature of Authorized Signatory of Purchaser:  _____________________

 

Name of Authorized Signatory:  Mikhail Gurevich

 

Title of Authorized Signatory:  Managing Member

 

Email Address of Authorized Signatory:   mikhail@domcapllc.com

 

Facsimile Number of Authorized Signatory: __________________

 

Address for Notice to Purchaser:

 

256 West 38th Street, 15th Floor, New York, NY 10018

 

Address for Delivery of Securities to Purchaser (if not same as address for
notice):

 

Subscription Amount:  $ 6,000,000.00

Shares of Preferred Stock:  6,000

EIN Number:  45-2571126

 

 

 

 

[SIGNATURE PAGES CONTINUE]

 

31

 

 

SCHEDULE 3.1(I)

 

Cash fees paid by the Company in this offering are as follows:

 

1.8% to Alliance Global Partners – $250,000 plus $75,000 for expenses ($325,000
total) paid at Closing

2.Stillpoint Capital – $200,000 ($100k at Closing and $100k deferred to be paid
the Company following the Merger)

 

32

 

 

EXHIBIT A

 

CERTIFICATE OF DESIGNATION OF 8% SERIES A CONVERTIBLE PREFERRED STOCK

 

(Attached)

 

33

 

 

  State of Delaware
Secretary of State
Division of Corporations
Delivered 08:40 PM 12/26/2018
FILED 08:40 PM 12/26/2018
SR 20188367542 - File Number 7211647

 

PHUNWARE INC.

 

CERTIFICATE OF DESIGNATION OF PREFERENCES,
RIGHTS AND LIMITATIONS
OF
SERIES A 8% CONVERTIBLE PREFERRED STOCK

 

PURSUANT TO THE DELAWARE GENERAL CORPORATION LAW

 

The undersigned, Prokopios (Akis) Tsirigakis and George Syllantavos do hereby
certify that:

 

1. They are the President and Secretary, respectively, of Phunware Inc., a
Delaware corporation (the “Corporation”).

 

2. The Corporation is authorized to issue 100,000,000 shares of preferred stock,
none of which have been issued.

 

3. The following resolutions were duly adopted by the board of directors of the
Corporation (the “Board of Directors”):

 

WHEREAS, articles of incorporation of the Corporation provides for a class of
its authorized stock known as preferred stock, consisting of 100,000,000 shares,
$0.0001 par value per share, issuable from time to time in one or more series;

 

WHEREAS, the Board of Directors is authorized to fix the dividend rights,
dividend rate, voting rights, conversion rights, rights and terms of redemption
and liquidation preferences of any wholly unissued series of preferred stock and
the number of shares constituting any series and the designation thereof, of any
of them; and

 

WHEREAS, it is the desire of the Board of Directors, pursuant to its authority
as aforesaid, to fix the rights, preferences, restrictions and other matters
relating to a series of the preferred stock, which shall consist of, except as
otherwise set forth in the Purchase Agreement, up to 6,000 shares of the
preferred stock which the Corporation has the authority to issue, as follows:

 

NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide
for the issuance of a series of preferred stock for cash or exchange of other
securities, rights or property and does hereby fix and determine the rights,
preferences, restrictions and other matters relating to such series of preferred
stock as follows:

 

TERMS OF PREFERRED STOCK

 

Section 1. Definitions. For the purposes hereof, the following terms shall have
the following meanings:

 

“Additional Triggering Event” Each of the following events shall constitute an
“Additional Triggering Event” and each of the events in clauses (ix), (x) and
(xi) shall constitute a “Bankruptcy Triggering Event”:

 

(i) following an effective Registration Statement, if any of the Securities are
not freely tradable without restriction by any of the Holders due to a breach by
the Corporation which remains uncured for a period of five (5) consecutive
Trading Days;

 

(ii) the suspension from trading or failure of the Common Stock to be trading or
listed (as applicable) on a National Securities Exchange registered with the
Securities and Exchange Commission under Section 6 of the Exchange Act for a
period of five (5) consecutive Trading Days;

 

 

 

 

(iii) the Corporation’s written notice to any holder of the Preferred Stock,
including without limitation, by way of public announcement or through any of
its agents, at any time, of its intention not to comply, as required, with a
request for conversion of any Preferred Stock into shares of Common Stock that
is requested in accordance with the provisions of this Certificate of
Designations, other than pursuant to clauses (vii) and (viii) of Section 5(c)
hereof;

 

(iv) at any time following the tenth (10th) consecutive day that a Holder’s
Authorized Share Allocation (as defined in Section 5 below) is less than 150% of
the number of shares of Common Stock that such Holder would be entitled to
receive upon a conversion in full of the Preferred Stock held by such Holder
(without regard to any limitations on conversion set forth in this Certificate
of Designations;

 

(v) the Corporation’s failure to pay to any Holder any amount when and as due
under this Certificate of Designations (including, without limitation, the
Corporation’s failure to pay any redemption payments or amounts hereunder);

 

(vi) the Corporation, on three or more occasions, either (A) fails to cure a
Conversion Failure by delivery of the required number of shares of Common Stock
within five (5) Trading Days after the applicable Conversion Date or (B) fails
to remove any restrictive legend on any certificate for any shares of Common
Stock issued to such Holder upon conversion of any Preferred Stock acquired by
such Holder as and when required with respect to such securities in accordance
with applicable federal securities laws, and any such failure remains uncured
for at least five (5) Trading Days;

 

(vii) the occurrence of any default under, redemption of or acceleration prior
to maturity of at least an aggregate of $500,000 of Indebtedness of the
Corporation or any of its Subsidiaries;

 

(viii) bankruptcy, insolvency, reorganization or liquidation proceedings or
other proceedings for the relief of debtors shall be instituted by or against
the Corporation or any Subsidiary thereof and, if instituted against the
Corporation or any Subsidiary thereof by a third party, shall not be dismissed
within thirty (30) days of their initiation;

 

(ix) the commencement by the Corporation or any Subsidiary thereof of a
voluntary case or proceeding under any applicable federal, state or foreign
bankruptcy, insolvency, reorganization or other similar law or of any other case
or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to
the entry of a decree, order, judgment or other similar document in respect of
the Corporation or any Subsidiary thereof in an involuntary case or proceeding
under any applicable federal, state or foreign bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against it, or the filing by it of a petition or
answer or consent seeking reorganization or relief under any applicable federal,
state or foreign law, or the consent by it to the filing of such petition or to
the appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Corporation or
any Subsidiary thereof or of any substantial part of its property, or the making
by it of an assignment for the benefit of creditors, or the execution of a
composition of debts, or the occurrence of any other similar federal, state or
foreign proceeding, or the admission by it in writing of its inability to pay
its debts generally as they become due, the taking of corporate action by the
Corporation or any Subsidiary thereof in furtherance of any such action or the
taking of any action by any Person to commence a Uniform Commercial Code
foreclosure sale or any other similar action under federal, state or foreign
law;

 

(x) the entry by a court of (A) a decree, order, judgment or other similar
document in respect of the Corporation or any Subsidiary thereof of a voluntary
or involuntary case or proceeding under any applicable federal, state or foreign
bankruptcy, insolvency, reorganization or other similar law or (B) a decree,
order, judgment or other similar document adjudging the Corporation or any
Subsidiary thereof as bankrupt or insolvent, or approving as properly filed a
petition seeking liquidation, reorganization, arrangement, adjustment or
composition of or in respect of the Corporation or any Subsidiary thereof under
any applicable federal, state or foreign law or (C) a decree, order, judgment or
other similar document appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Corporation or any
Subsidiary thereof or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and the continuance of any such
decree, order, judgment or other similar document or any such other decree,
order, judgment or other similar document unstayed and in effect for a period of
thirty (30) consecutive days;

 

2

 

 

(xi) a final judgment or judgments for the payment of money aggregating in
excess of $500,000 are rendered against the Corporation and/or any of its
Subsidiaries and which judgments are not, within thirty (30) days after the
entry thereof, bonded, discharged, settled or stayed pending appeal, or are not
discharged within thirty (30) days after the expiration of such stay; provided,
however, any judgment which is covered by insurance or an indemnity from a
credit worthy party shall not be included in calculating the $500,000 amount set
forth above so long as the Corporation provides each Holder a written statement
from such insurer or indemnity provider (which written statement shall be
reasonably satisfactory to each Holder) to the effect that such judgment is
covered by insurance or an indemnity and the Corporation or such Subsidiary (as
the case may be) will receive the proceeds of such insurance or indemnity within
thirty (30) days of the issuance of such judgment;

 

(xii) the Corporation and/or any Subsidiary thereof, individually or in the
aggregate fails to pay, when due, or within any applicable grace period, any
payment with respect to any Indebtedness in excess of $500,000 due to any third
party (other than, with respect to unsecured Indebtedness only, payments
contested by the Corporation and/or such Subsidiary (as the case may be) in good
faith by proper proceedings and with respect to which adequate reserves have
been set aside for the payment thereof in accordance with GAAP) or is otherwise
in breach or violation of any agreement for monies owed or owing in an amount in
excess of $500,000, for which breach or violation causes the other party thereto
to declare a default or otherwise accelerate amounts due thereunder;

 

(xiii) other than as specifically set forth in another clause of this
definition, the Corporation or any Subsidiary thereof breaches any
representation or warranty in any material respect (other than representations
or warranties subject to material adverse effect or materiality, which may not
be breached in any respect) or any covenant or other term or condition of any
Transaction Document, except, in the case of a breach of a covenant or other
term or condition that is curable, only if such breach remains uncured for a
period of five (5) consecutive Trading Days, unless such breach does not have a
Material Adverse Effect (as defined below);

 

(xiv) a false or inaccurate certification (including a false or inaccurate
deemed certification) by the Corporation that either (A) the Equity Conditions
are satisfied, (B) there has been no failure to satisfy the Equity Conditions,
or (C) as to whether any Additional Triggering Event has occurred, and such
Holder suffers economic damage thereby;

 

(xv) any breach or failure in any respect by the Corporation or any Subsidiary
thereof to comply with any covenant contained in this Certificate of
Designations, unless such breach does not have a Material Adverse Effect;

 

(xvi) if any Conversion Shares are issued, the Company fails to (1) file a
Preliminary Information Statement on Schedule 14C with the Commission within
three (3) Business Days of such date of issuance of the Conversion Shares, (2)
to file a Definitive Information Statement on Schedule 14C with the Commission
on the eleventh day after the requisite ten day waiting period and immediately
mail the Definitive Information Statement on Schedule 14C to the Company
shareholders (assuming no comments from the Commission have been received with
respect to such filing prior to such eleventh day) or within five (5) Business
Days of the receipt of any comments, fails to file a response to such comments
or (3) to obtain all necessary approvals (including approval of Nasdaq Capital
Market) of the issue and sale of all Conversion Shares, without any Exchange Cap
limitation and or otherwise, consistent with the rules and regulations of the
principal Trading Market within six months of the issuance date of the
Conversion Shares; or

 

3

 

 

(xvii) any Material Adverse Effect occurs.

 

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

 

“Applicable Price” shall have the meaning set forth in Section 6(e).

 

“Asset Transfer” shall have the meaning set forth in Section 8(c).

 

“Authorized Share Allocation” shall have the meaning set forth in Section
5(c)(iv).

 

“Authorized Failure Shares” shall have the meaning set forth in Section
5(c)(iv).

 

“Authorized Share Failure” shall have the meaning set forth in Section 5(c)(iv).

 

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

 

“Buy-In Price” shall have the meaning set forth in Section 5(c)(iv).

 

“Closing Bid Price” and “Closing Sale Price” means, for any security as of any
date, the last closing bid price and last closing trade price, respectively, for
such security on the Trading Market, as reported by Bloomberg, or, if the
Trading Market begins to operate on an extended hours basis and does not
designate the closing bid price or the closing trade price (as the case may be)
then the last bid price or last trade price, respectively, of such security
prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the
Trading Market is not the principal securities exchange or trading market for
such security, the last closing bid price or last trade price, respectively, of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price or last trade price, respectively, of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price or last
trade price, respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any market makers
for such security as reported in the “pink sheets” by OTC Markets Group Inc.
(formerly Pink Sheets LLC). If the Closing Bid Price or the Closing Sale Price
cannot be calculated for a security on a particular date on any of the foregoing
bases, the Closing Bid Price or the Closing Sale Price (as the case may be) of
such security on such date shall be the fair market value as mutually determined
by the Corporation and the Holders of a majority of the then outstanding shares
of Preferred Stock. If the Corporation and the Holders of a majority of the then
outstanding shares of Preferred Stock are unable to agree upon the fair market
value of such security, then such dispute shall be resolved in accordance with
the procedures in Section 10(k). All such determinations shall be appropriately
adjusted for any stock splits, stock dividends, stock combinations,
recapitalizations or other similar transactions during such period.

 

“Closing Date” means the Trading Day on which all of the Transaction Documents
have been executed and delivered by the applicable parties thereto and all
conditions precedent to (i) each Holder’s obligations to pay the Subscription
Amount and (ii) the Corporation’s obligations to deliver the Securities have
been satisfied or waived.

 

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

 

4

 

 

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

 

“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.

 

“Conversion Amount” means the sum of the Stated Value at issue and all accrued
and unpaid dividends and Make Whole amounts.

 

“Conversion Date” shall have the meaning set forth in Section 5(a). “Conversion
Failure” shall have the meaning set forth in Section 5(c)(ii). “Conversion
Price” shall have the meaning set forth in Section 5(b).

 

“Conversion Shares” means, collectively, the shares of Common Stock issuable
upon conversion of the shares of Preferred Stock in accordance with the terms
hereof.

 

“Conversion Shares Registration Statement” means a registration statement that
registers the resale of all of the Conversion Shares by the Holders, which shall
be named as “selling stockholders” therein, and meets the requirements of the
Purchase Agreement.

 

“Dilutive Issuance” shall have the meaning set forth in Section 6(e).

 

“Dispute Submission Deadline” shall have the meaning set forth in Section 9(k).

 

“Distributions” shall have the meaning set forth in Section 9.

 

“Effective Date” means the date that the Conversion Shares Registration
Statement filed by the Corporation pursuant to the Purchase Agreement is first
declared effective by the Commission.

 

5

 

 

“Equity Conditions” means, during the period in question, (a) the Corporation
shall have duly honored in a timely manner all conversions scheduled to occur or
occurring by virtue of one or more Notices of Conversion of the applicable
Holder on or prior to the dates so requested or required, if any, (b)(i) there
is an effective Conversion Shares Registration Statement pursuant to which the
Holders are permitted to utilize the prospectus thereunder to resell all of the
Conversion Shares or (ii) all of the Conversion Shares (and shares issuable in
lieu of cash payments of dividends) may be resold pursuant to Rule 144 without
volume or manner-of-sale restrictions or current public information requirements
as determined by the counsel to the Corporation as set forth in a written
opinion letter to such effect, addressed and acceptable to the Transfer Agent
and the affected Holders, (c) on each of the thirty (30) days prior to the
applicable date of determination the Common Stock is trading on a Trading Market
and all of the shares issuable pursuant to the Transaction Documents are duly
authorized listed or quoted for trading on such Trading Market, and shall not
have been suspended from trading on such Trading Market (other than suspensions
of not more than two (2) days and occurring prior to the applicable date of
determination due to business announcements by the Corporation) nor shall
delisting or suspension by such Trading Market have been threatened (with a
reasonable prospect of delisting occurring after giving effect to all applicable
notice, appeal, compliance and hearing periods) or reasonably likely to occur or
pending as evidenced by (A) a writing by such Trading Market or (B) the
Corporation falling below the minimum listing maintenance requirements of the
Trading Market on which the Common Stock is then listed or designated for
quotation (as applicable); (d) any shares of Common Stock to be issued in
connection with the event requiring determination (or issuable upon conversion
of the Conversion Amount being redeemed in the event requiring this
determination (without regards to any limitations on conversion set forth
herein)) may be issued in full without violating the rules or regulations of the
Trading Market on which the Common Stock is then listed or designated for
quotation (as applicable) (e) on each day during the period in question, no
public announcement of a pending, proposed or intended Fundamental Transaction
shall have occurred which has not been abandoned, terminated or consummated; (e)
the applicable Holder is not in possession of any information provided by the
Corporation, any of its Subsidiaries, or any of their officers, directors,
employees, agents or Affiliates, that constitutes, or may constitute, material
non-public information. (f) on each day during the period beginning thirty (30)
calendar days prior to the applicable date of determination and ending on and
including the applicable date of determination, the Corporation otherwise shall
have been in compliance with each, and shall not have breached any
representation or warranty in any material respect (other than representations
or warranties subject to material adverse effect or materiality, which may not
be breached in any respect) or any covenant or other term or condition of any
Transaction Document, including, without limitation, the Corporation shall not
have failed to timely make any payment pursuant to any Transaction Document; (g)
on the applicable date of determination (A) no Authorized Share Failure shall
exist or be continuing and the Required Reserve Amount is available under the
Certificate of Incorporation of the Corporation and reserved by the Corporation
to be issued pursuant to the Preferred Shares and (B) all shares of Common Stock
to be issued in connection with the event requiring this determination (or
issuable upon conversion of the Conversion Amount being redeemed in the event
requiring this determination (without regards to any limitations on conversion
set forth herein)) may be issued in full without resulting in an Authorized
Share Failure; (h) on each day during the thirty (30) day period prior to the
applicable date of determination, there shall not have occurred and there shall
not exist an Additional Triggering Event or an event that with the passage of
time or giving of notice would constitute a Triggering Event; and (i) the daily
dollar volume of the Common Stock during each of the previous ten (10) Trading
Days must be greater than $150,000 per day; and (xii) the VWAP of the Common
Stock during each of the previous ten (10) Trading Days must be greater than
$2.00.

 

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

 

“Exchange Cap” shall have the meaning set forth in Section 5(c)(viii).

 

“Exchange Cap Allocation” shall have the meaning set forth in Section
5(c)(viii).

 

“Exchange Cap Shares” shall have the meaning set forth in Section 5(c)(viii).

 

“Excluded Financing” means any debt financing pursuant to the factoring
agreement with CSNK Working Capital Finance Corp. (d/b/a Bay View Funding) or
any other current or future factoring agreement, working capital line of credit,
forward purchase agreement or similar arrangement.

 

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to
purchase shares of Common Stock issued pursuant to any stock or option plan duly
adopted for such purpose, by the Corporation’s board of directors and a majority
of the non-employee members of the board of directors or a majority of the
members of a committee of non-employee directors established for such purpose,
(b) shares of Common Stock issuable upon the exercise or exchange of or
conversion of any notes, the warrants and/or any other securities issued and
outstanding on the initial issuance date of the Preferred Stock, provided that
such securities have not been amended since their original issue, (c) securities
issued in lieu of cash pursuant to merger, consolidation, acquisition or
strategic transactions approved by a majority of the disinterested directors of
the Corporation, provided that any such issuance shall only be to a person which
is, itself or through its Subsidiaries, an operating company in a business
synergistic with the business of the Corporation and in which the Corporation
receives benefits in addition to any investment of funds, but shall not include
a transaction in which the Corporation is issuing securities primarily for the
purpose of raising capital or to an entity whose primary business is investing
in securities and/or being issued to affiliates, employees and/or related
persons of the Corporation and/or any of its affiliates, (d) securities issued
pursuant to any equipment loan or leasing arrangement, real property leasing
arrangement or debt financing having such terms and on such terms and conditions
and from a bank or similar financial institution, all as approved by a majority
of the disinterested directors of the Corporation, (e) securities to an entity
as a component of any business relationship with such entity primarily for the
purpose of a joint venture or licensing activity or another arrangement
involving a corporate partner primarily for purposes other than raising capital,
and (I) issuance of securities pursuant to a stock dividend or stock split.

 

6

 

 

“Floor Price” means $2.00 (or such lower price as mutually determined by the
Corporation and the Holders of a majority of the then outstanding shares of
Preferred Stock, subject to the prior consent of the Trading Market).

 

“Fundamental Transaction” shall have the meaning set forth in Section 6(b).

 

“GAAP” means United States generally accepted accounting principles. “Holder”
shall have the meaning given such term in Section 2.

 

“Indebtedness” of any Person means, without duplication (a) all indebtedness for
borrowed money (other than trade accounts payable incurred in the ordinary
course of business), (b) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (including, without limitation,
“capital leases” in accordance with GAAP) (other than trade payables entered
into in the ordinary course of business consistent with past practice), (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 GAAP, 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 Lien 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.

 

“Initial Mandatory Redemption” shall have the meaning set forth in Section 7(a).

 

“Initial Mandatory Redemption Amount” means the sum of (a) 104% of the aggregate
Stated Value of Three Thousand (3,000) shares of Preferred Stock, and (b) all
other amounts due in respect of the Preferred Stock.

 

“Initial Mandatory Redemption Date” shall have the meaning set forth in Section
7(a).

 

“Intellectual Property Rights” means trademarks, trade names, service marks,
service mark registrations, service names, original works of authorship,
patents, patent rights, copyrights, original works, inventions, licenses,
approvals, governmental authorizations, trade secrets and other intellectual
property rights and all applications and registrations therefor.

 

“Junior Securities” means the Common Stock and all other Common Stock
Equivalents of the Corporation other than those securities which are explicitly
senior or pari passu to the Preferred Stock in dividend rights, distribution,
redemption or Liquidation preference.

 

“Lien” means any mortgage, pledge, security interest, attachment, right of first
refusal, option, proxy, voting trust, encumbrance, lien or charge of any kind
(including any conditional sale or other title retention agreement or lease in
the nature thereof), restriction (whether on voting, sale, transfer, disposition
or otherwise), any subordination arrangement in favor of another Person, or any
filing or agreement to file a financing statement as debtor under the Uniform
Commercial Code or any similar Law, but shall exclude licenses of intellectual
property.

 

7

 

 

“Liquidation” shall have the meaning set forth in Section 4.

 

“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 Corporation or any
Subsidiary thereof, either individually or taken as a whole, (ii) the
transactions contemplated hereunder or (iii) the authority or ability of the
Corporation to perform any of its obligations hereunder.

 

“Maximum Percentage” shall have the meaning set forth in Section 5(c)(vii).

 

“New York Courts” shall have the meaning set forth in Section 10(d).

 

“New Issuance Price” shall have the meaning set forth in Section 6(e).

 

“Notice of Conversion” shall have the meaning set forth in Section 5(a).

 

“Original Issue Date” means the date of the first issuance of any shares of the
Preferred Stock regardless of the number of transfers of any particular shares
of Preferred Stock and regardless of the number of certificates which may be
issued to evidence such Preferred Stock.

 

“Permitted Liens” means (i) any Lien for taxes not yet due or delinquent or
being contested in good faith by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP, (ii) any statutory Lien
arising in the ordinary course of business by operation of law with respect to a
liability that is not yet due or delinquent, (iii) any Lien created by operation
of law, such as materialmen’s liens, mechanics’ liens and other similar liens,
arising in the ordinary course of business with respect to a liability that is
not yet due or delinquent or that are being contested in good faith by
appropriate proceedings, (iv) Liens (A) upon or in any equipment acquired or
held by the Corporation or any of its Subsidiaries to secure the purchase price
of such equipment or Indebtedness incurred solely for the purpose of financing
the acquisition or lease of such equipment, or (B) existing on such equipment at
the time of its acquisition, provided that the Lien is confined solely to the
property so acquired and improvements thereon, and the proceeds of such
equipment, in either case, with respect to Indebtedness in an aggregate amount
not to exceed $1.0 million without written consent of the Holders of a majority
of the outstanding shares of Preferred Stock, (v) Liens incurred in connection
with the extension, renewal or refinancing of the Indebtedness secured by Liens
of the type described in clause (iv) above, provided that any extension, renewal
or replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the Indebtedness being extended, renewed or
refinanced does not increase, (vi) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payments of custom duties in
connection with the importation of goods, (vii) Liens arising from judgments,
decrees or attachments in circumstances not constituting an Additional
Triggering Event and (viii) Liens with respect to the Excluded Financing.

 

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

 

“Preferred Stock” shall have the meaning set forth in Section 2.

 

“Purchase Agreement” means the Securities Purchase Agreement, dated December 26,
2018, by and among the Corporation and the original Holders, as amended,
modified or supplemented from time to time in accordance with its terms.

 

“Registration Statement” means a registration statement meeting the requirements
set forth in the Purchase Agreement and covering the resale of the Conversion
Shares by each Holder as provided for in the Purchase Agreement.

 

8

 

 

“Required Dispute Documentation” shall have the meaning set forth in Section
9(k).

 

“Required Reserve Amount” shall have the meaning set forth in Section 5(c)(iv).

 

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

 

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended or interpreted from time to time, or
any similar rule or regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.

 

“Second Mandatory Redemption” shall have the meaning set forth in Section 7(a).

 

“Second Mandatory Redemption Amount” means the sum of (a) 104% of the aggregate
Stated Value of Two Thousand Five Hundred (2,500) shares of Preferred Stock, and
(b) all other amounts due in respect of the Preferred Stock.

 

“Second Mandatory Redemption Date” shall have the meaning set forth in Section
7(a).

 

“Securities” means the Preferred Stock and the Underlying Shares.

 

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

 

“Share Delivery Date” shall have the meaning set forth in Section 5(c).

 

“Stated Value” shall have the meaning set forth in Section 2, as the same may be
increased pursuant to the terms of this Certificate of Designation.

 

“Subscription Amount” shall mean, as to each Holder, the aggregate amount to be
paid for the Preferred Stock purchased pursuant to the Purchase Agreement as
specified below such Holder’s name on the signature page of the Purchase
Agreement and next to the heading “Subscription Amount,” in United States
dollars and in immediately available funds.

 

“Subsidiary” means any Subsidiary of the Corporation as set forth on Schedule
3.1(a) of the Purchase Agreement and shall, where applicable, also include any
direct or indirect Subsidiary of the Corporation formed or acquired after the
date of the Purchase Agreement.

 

“Successor Entity” shall have the meaning set forth in Section 6(e).

 

“Third Mandatory Redemption” shall have the meaning set forth in Section 7(a).

 

“Third Mandatory Redemption Amount” means the sum of (a) 104% of the aggregate
Stated Value of Five Hundred (500) shares of Preferred Stock, and (b) all other
amounts due in respect of the Preferred Stock.

 

“Third Mandatory Redemption Date” shall have the meaning set forth in Section
7(a).

 

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

 

“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
American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global
Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to
any of the foregoing).

 

9

 

 

“Transaction Documents“ means this Certificate of Designation, the Purchase
Agreement, the Transfer Agent Instruction Letter, all exhibits and schedules
thereto and hereto and any other documents or agreements executed in connection
with the transactions contemplated pursuant to the Purchase Agreement.

 

“Transfer Agent” means Continental Stock Transfer & Trust Company, the current
transfer agent of the Corporation, with a mailing address of 1 State Street,
30th Floor, New York, NY 10004 and a phone number of (212) 509-4000, and any
successor transfer agent of the Corporation.

 

“Triggering Event Notice” shall have the meaning set forth in Section 8(b).

 

“Triggering Event Redemption Right Period” shall have the meaning set forth in
Section 8(b).

 

“Triggering Event Right Commencement Day” shall have the meaning set forth in
Section 8(b).

 

“Triggering Event Right Expiration Day” shall have the meaning set forth in
Section 8(b).

 

“Triggered Mandatory Redemption” shall have the meaning set forth in Section
8(b).

 

“Triggered Mandatory Redemption Amount” means the sum of (a) 110% of the
aggregate Stated Value of the Preferred Stock, and (b) all other amounts due in
respect of the Preferred Stock.

 

“Triggered Mandatory Redemption Date” shall have the meaning set forth in
Section 8(b).

 

“Underlying Shares” means the shares of Common Stock issued and issuable upon
conversion or redemption of the Preferred Stock and issued and issuable in lieu
of the cash payment of dividends on the Preferred Stock in accordance with the
terms of this Certificate of Designation.

 

“Variable Rate Transaction” means a transaction, other than an Excluded
Financing, in which the Corporation or any Subsidiary (i) issues or sells any
Common Stock Equivalent (other than options) either (A) at a conversion,
exercise or exchange rate or other price that is based upon and/or varies with
the trading prices of, or quotations for, the shares of Common Stock at any time
after the initial issuance of such convertible securities, or (B) with a
conversion, exercise or exchange price that is subject to being reset at some
future date after the initial issuance of such convertible securities or upon
the occurrence of specified or contingent events directly or indirectly related
to the business of the Corporation or the market for the Common Stock, other
than pursuant to a customary “weighted average” anti-dilution provision or (ii)
enters into any agreement (including, without limitation, an “equity line of
credit” or an “at-the-market offering”) whereby the Corporation or any
Subsidiary may sell securities at a future determined price (other than standard
and customary “preemptive” or “participation” rights.

 

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

 

10

 

 

Section 2. Designation, Amount and Par Value/Ranking. The series of preferred
stock shall be designated as its Series A 8% Convertible Preferred Stock (the
“Preferred Stock”) and the number of shares so designated shall be up to Six
Thousand (6,000) (which shall not be subject to increase without the written
consent of all of the holders of the Preferred Stock (each, a “Holder” and
collectively, the “Holders”)). Each share of Preferred Stock shall have a par
value of $0.0001 per share and a stated value equal to $1,000, subject to
increase set forth in Section 3 below (the “Stated Value”). All shares of
capital stock of the Corporation shall be junior in rank to all Preferred Stock
with respect to the preferences as to dividends, distributions, consummation of
redemption and payments upon Liquidation (such junior stock is referred to
herein collectively as “Junior Securities”). The rights of all such shares of
capital stock of the Corporation shall be subject to the rights, powers,
preferences and privileges of the Preferred Stock. In the event of the merger or
consolidation of the Corporation with or into another corporation, the Preferred
Stock shall maintain their relative rights, powers, designations, privileges and
preferences provided for herein and no such merger or consolidation shall result
inconsistent therewith.

 

Section 3. Voting Rights. Except as otherwise provided herein or as otherwise
required by law, the Preferred Stock shall have no voting rights. However, as
long as any shares of Preferred Stock are outstanding, the Corporation shall
not, without the affirmative vote of the Holders of a majority of the then
outstanding shares of the Preferred Stock, (a) alter or change adversely the
powers, preferences or rights given to the Preferred Stock or alter or amend
this Certificate of Designation, (b) authorize or create any class of stock
ranking as to dividends, redemption or distribution of assets upon a Liquidation
(as defined in Section 4) senior to, or otherwise pari passu with, the Preferred
Stock or authorize or issue any Junior Securities having a maturity date (or any
other date requiring redemption or repayment of such shares of stock) that is
prior to the one year anniversary of the Original Issue Date, (c) amend or
repeal any provision of its certificate of incorporation of bylaws or other
charter documents in any manner that adversely affects, alters or changes any
rights, privileges or powers of the Holders, (d) increase the number of
authorized shares of Preferred Stock or issue any Preferred Stock other than
pursuant to this Certificate of Designations, (e) declare or make any dividends
other than dividend payments on the Preferred Stock or other distributions
payable solely in Common Stock or (f) enter into any agreement with respect to
any of the foregoing.

 

Section 4. Liquidation. Upon any liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary and whether in a single
transaction or series of transactions (a “Liquidation”), the Holders shall be
entitled to receive out of the assets, whether capital or surplus, of the
Corporation an amount equal to the greater of (i) Stated Value, plus any other
fees then due and owing thereon under this Certificate of Designation or (ii)
the amount the Holder would receive if such Holder converted such Preferred
Stock into Common Stock immediately prior to the date of Liquidation, including
accrued and unpaid dividends, for each share of Preferred Stock before any
distribution or payment shall be made to the holders of any Junior Securities,
and if the assets of the Corporation shall be insufficient to pay in full such
amounts, then the entire assets to be distributed to the Holders shall be
ratably distributed among the Holders in accordance with the respective amounts
that would be payable on such shares if all amounts payable thereon were paid in
full. The Corporation shall mail written notice of any such Liquidation to each
Holder at least twenty (20) days prior to such Liquidation. To the extent
necessary, the Corporation shall cause such actions to be taken by each of its
Subsidiaries so as to enable, to the maximum extent permitted by law, the
proceeds of a Liquidation to be distributed to the Holders in accordance with
this Section 4. All the preferential amounts to be paid to the Holders under
this Section 4 shall be paid or set apart for payment before the payment or
setting apart for payment of any amount for, or the distribution of any
Liquidation funds of the Corporation to the holders of shares of Junior
Securities in connection with a Liquidation as to which this Section 4 applies.

 

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Section 5. Conversion.

 

(a) Conversions at Option of Holder. Each share of Preferred Stock shall be
convertible, at any time and from time to time from and after the Original Issue
Date at the option of the Holder thereof, into that number of shares of Common
Stock determined by dividing the Stated Value plus accrued and unpaid dividends
and late charges of such share of Preferred Stock by the Conversion Price.
Holders shall effect conversions by providing the Corporation with the form of
conversion notice attached hereto as Annex A (a “Notice of Conversion”). Each
Notice of Conversion shall specify the number of shares of Preferred Stock to be
converted, the number of shares of Preferred Stock owned prior to the conversion
at issue, the number of shares of Preferred Stock owned subsequent to the
conversion at issue and the date on which such conversion is to be effected,
which date may not be prior to the date the applicable Holder delivers by
facsimile such Notice of Conversion to the Corporation (such date, the
“Conversion Date”). If no Conversion Date is specified in a Notice of
Conversion, the Conversion Date shall be the date that such Notice of Conversion
to the Corporation is deemed delivered hereunder. No ink-original Notice of
Conversion shall be required, nor shall any medallion guarantee (or other type
of guarantee or notarization) of any Notice of Conversion form be required. The
calculations and entries set forth in the Notice of Conversion shall control in
the absence of manifest or mathematical error. To effect conversions of shares
of Preferred Stock, a Holder shall not be required to surrender the
certificate(s) representing the shares of Preferred Stock to the Corporation
unless all of the shares of Preferred Stock represented thereby are so
converted, in which case such Holder shall deliver the certificate representing
such shares of Preferred Stock promptly following the Conversion Date at issue.
Conversions of less than the total amount of shares of Preferred Stock
represented by a certificate held by the Holder will have the effect of lowering
the outstanding number of shares of Preferred Stock held by the Holder by an
amount equal to the number so converted, as if the original stock certificate(s)
were cancelled and one or more new stock certificates evidencing the new number
of shares of Preferred Stock were issued; provided, however, that in such cases
the Holder may request that the Corporation deliver to the holder a certificate
representing such non-converted shares of Preferred Stock; provided, further,
that the failure of the Corporation to deliver such new certificate shall not
affect the rights of the holder to submit a further Notice of Conversion with
respect to such Preferred Stock and, in any such case, the Holder shall be
deemed to have submitted the original of such new certificate at the time that
it submits such further Notice of Conversion. In the case of a dispute between
the Corporation and a holder as to the calculation of the Conversion Price, the
total number of shares of Preferred Stock outstanding or the number of shares of
Common Stock issuable upon a conversion, the Corporation shall issue to such
holder the number of shares of Common Stock that are not disputed within the
time periods specified below and shall submit the disputed calculations to a
certified public accounting firm of national reputation within two (2) Trading
Days following the Corporation’s receipt of such holder’s Notice of Conversion.
The Corporation shall cause such accountant to calculate the Conversion Price,
the total number of shares of Preferred Stock outstanding or the number of
shares of Common Stock issuable upon conversion as provided herein and to notify
the Corporation and such holder of the results in writing no later than two (2)
Trading Days following the day on which such accountant received the disputed
calculations. Such accountant’s calculation shall be deemed conclusive absent
manifest error. The fees of any such accountant shall be borne by the party
whose calculations were most at variance with those of such accountant. Shares
of Preferred Stock converted into Common Stock or redeemed in accordance with
the terms hereof shall be canceled and shall not be reissued.

 

(b) Conversion Price. The conversion price for the Preferred Stock shall equal
$11.50, subject to adjustment herein (the “Conversion Price”).

 

(c) Mechanics of Conversion.

 

(i) Delivery of Conversion Shares Upon Conversion. Not later than the earlier of
(i) two (2) Trading Days and (ii) the number of Trading Days comprising the
Standard Settlement Period (as defined below) after each Conversion Date (the
“Share Delivery Date”), the Corporation shall deliver, or cause to be delivered,
to the converting Holder (A) the number of Conversion Shares being acquired upon
the conversion of the Preferred Stock; which, on or after the earlier of (i) the
six month anniversary of the Original Issue Date or (ii) the Effective Date,
shall be free of restrictive legends and trading restrictions (other than those
which may then be required by the Purchase Agreement, including the requirement
that the Holder and such Holder’s broker acknowledge in writing that the shares
remain “restricted securities” until such time as they are sold pursuant to an
effective registration statement or pursuant to Rule 144)), and (B) a bank check
in the amount of accrued and unpaid dividends, including any and Make Whole
Amount and late charges (if the Corporation has elected or is required to pay
accrued dividends in cash). On or after the earlier of (i) the six month
anniversary of the Original Issue Date or (ii) the Effective Date, the
Corporation shall deliver the Conversion Shares required to be delivered by the
Corporation under this Section 5 electronically through the Depository Trust
Company or another established clearing corporation performing similar functions
(provided that the Holder and such Holder’s broker acknowledge in writing that
the shares remain “restricted securities” until such time as they are sold
pursuant to an effective registration statement or pursuant to Rule 144). As
used herein, “Standard Settlement Period” means the standard settlement period,
expressed in a number of Trading Days, on the Corporation’s primary Trading
Market with respect to the Common Stock as in effect on the date of delivery of
the Notice of Conversion.

 

12

 

 

(ii) Failure to Deliver Conversion Shares. If, in the case of any Notice of
Conversion, such Conversion Shares are not delivered to or as directed by the
applicable Holder by the Share Delivery Date (a “Conversion Failure”), the
Holder shall be entitled to elect by written notice to the Corporation at any
time on or before its receipt of such Conversion Shares, to rescind such
Conversion, in which event the Corporation shall promptly return to the Holder
any original Preferred Stock certificate delivered to the Corporation and the
Holder shall promptly return to the Corporation the Conversion Shares issued to
such Holder pursuant to the rescinded Notice of Conversion provided that the
voiding of a Conversion Notice shall not affect the Corporation’s obligations to
make any payments which have accrued prior to the date of such notice pursuant
to the terms of this Certificate of Designations or otherwise, In addition to
all other remedies available to the Holder, the Holder, upon written notice to
the Corporation, the Corporation shall pay in cash to the Holder on each day
after the Share Delivery Date that the issuance of such shares of Common Stock
is not timely effected an amount equal to 1% of the product of (A) the aggregate
number of shares of Common Stock not issued to the Holder on a timely basis and
to which the Holder is entitled and (B) the Closing Sale Price of the Common
Stock on the Trading Day immediately preceding the last possible date on which
the Corporation could have issued such shares of Common Stock to the Holder). In
addition to the foregoing, if the Corporation shall fail, for any reason or for
no reason, to issue to a Holder on or prior to the Share Delivery Date, a
certificate to the Holder and register such shares of Common Stock on the
Corporation’s share register or credit the Holder’s or its designee’s balance
account with DTC for the number of shares of Common Stock to which the Holder is
entitled upon the Holder’s conversion hereunder (as the case may be), and if on
or after such Share Delivery Date such Holder (or any other Person in respect,
or on behalf, of the Holder) purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Holder of all or any portion of the number of shares of Common Stock, or a sale
of a number of shares of Common Stock equal to all or any portion of the number
of shares of Common Stock, issuable upon such conversion that such Holder so
anticipated receiving from the Corporation, then, in addition to all other
remedies available to the Holder, the Corporation shall, within two (2) Business
Days after receipt of the Holder’s request and in the Holder’s discretion,
either: (I) pay cash to the Holder in an amount equal to the Holder’s total
purchase price (including brokerage commissions and other out-of-pocket
expenses, if any) for the shares of Common Stock so purchased (including,
without limitation, by any other Person in respect, or on behalf, of the Holder)
(the “Buy-In Price”), at which point the Corporation’s obligation to so issue
and deliver such certificate or credit the Holder’s balance account with DTC for
the number of shares of Common Stock to which the Holder is entitled upon the
Holder’s conversion hereunder (as the case may be) (and to issue such shares of
Common Stock) shall terminate, or (II) promptly honor its obligation to so issue
and deliver to the Holder a certificate or certificates representing such shares
of Common Stock or credit the Holder’s balance account with DTC for the number
of shares of Common Stock to which the Holder is entitled upon conversion and
pay cash to such Holder in an amount equal to the excess (if any) of the Buy-In
Price over the product of (x) such number of shares of Common Stock multiplied
by (y) the lowest Closing Sale Price of the Common Stock on any Trading Day
during the period commencing on the date of the applicable Conversion Notice and
ending on the date of such issuance and payment under this clause (ii).

 

13

 

 

(iii) Obligation Absolute. The Corporation’s obligation to issue and deliver the
Conversion Shares upon conversion of Preferred Stock in accordance with the
terms hereof are absolute and unconditional, irrespective of any action or
inaction by a Holder to enforce the same, any waiver or consent with respect to
any provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by such Holder or any other
Person of any obligation to the Corporation or any violation or alleged
violation of law by such Holder or any other person, and irrespective of any
other circumstance which might otherwise limit such obligation of the
Corporation to such Holder in connection with the issuance of such Conversion
Shares; provided, however, that such delivery shall not operate as a waiver by
the Corporation of any such action that the Corporation may have against such
Holder. In the event a Holder shall elect to convert any or all of the Stated
Value of its Preferred Stock, the Corporation may not refuse conversion based on
any claim that such Holder or any one associated or affiliated with such Holder
has been engaged in any violation of law, agreement or for any other reason,
unless an injunction from a court, on notice to Holder, restraining and/or
enjoining conversion of all or part of the Preferred Stock of such holder shall
have been sought and obtained, and the Corporation posts a surety bond for the
benefit of such Holder in the amount of 150% of the Stated Value of Preferred
Stock which is subject to the injunction, which bond shall remain in effect
until the completion of arbitration/litigation of the underlying dispute and the
proceeds of which shall be payable to such Holder to the extent it obtains
judgment. In the absence of such injunction, the Corporation shall issue
Conversion Shares and, if applicable, cash, upon a properly noticed conversion.
Nothing herein shall limit a Holder’s right to pursue actual damages for the
Corporation’s failure to deliver Conversion Shares within the period specified
herein and such Holder shall have the right to pursue all remedies available to
it hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief. The exercise of any such rights
shall not prohibit a Holder from seeking to enforce damages pursuant to any
other Section hereof or under applicable law.

 

(iv) Reservation of Shares Issuable Upon Conversion. The Corporation covenants
that it will at all times reserve and keep available out of its authorized and
unissued shares of Common Stock for the sole purpose of issuance upon conversion
of the Preferred Stock and payment of dividends on the Preferred Stock, each as
herein provided, free from preemptive rights or any other actual contingent
purchase rights of Persons other than the Holder (and the other holders of the
Preferred Stock), not less than 150% of such aggregate number of shares of the
Common Stock (the “Required Reserve Amount”) as shall (subject to the terms and
conditions set forth in the Purchase Agreement) be issuable (taking into account
the adjustments and restrictions of Section 6) upon the conversion of the then
outstanding shares of Preferred Stock and payment of dividends hereunder. The
Corporation covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly authorized, validly issued, fully paid and
nonassessable and, if the Conversion Shares Registration Statement is then
effective under the Securities Act, shall be registered for public resale in
accordance with such Conversion Shares Registration Statement (subject to such
Holder’s compliance with its obligations under the Registration Rights
Agreement). The Required Reserve Amount (including, without limitation, each
increase in the number of shares so reserved) shall be allocated pro rata among
the Holders based on the number of the shares of Preferred Stock held by each
Holder on the Initial Issuance Date or increase in the number of reserved
shares, as the case may be (the “Authorized Share Allocation”). If at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of Preferred
Stock (“Authorized Shares Failure”), the Corporation shall take such corporate
action as may be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to the Certificate of
incorporation, which actions shall include no later than seventy-five (75) days
after the occurrence of such a failure, the Corporation holding a meeting of its
stockholders for the approval of an increase in the number of authorized shares
of Common Stock, In connection with such meeting, the Corporation shall provide
each stockholder with a proxy statement and shall use its reasonable best
efforts to solicit its stockholders’ approval of such increase in authorized
shares of Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal. In the event that the Corporation
is prohibited from issuing shares of Common Stock to a Holder upon any
conversion due to the failure by the Corporation to have sufficient shares of
Common Stock available out of the authorized but unissued shares of Common Stock
(such unavailable number of shares of Common Stock, the “Authorized Failure
Shares”), in lieu of delivering such Authorized Failure Shares to such Holder,
the Corporation shall pay cash in exchange for the redemption of such portion of
the Conversion Amount convertible into such Authorized Failure Shares at a price
equal to the sum of (i) the product of (x) such number of Authorized Failure
Shares and (y) the greatest Closing Sale Price of the Common Stock on any
Trading Day during the period commencing on the date such Holder delivers the
applicable Conversion Notice with respect to such Authorized Failure Shares to
the Corporation and ending on the date of such issuance and payment under this
clause (iv); and (ii) to the extent such Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by such Holder of Authorized Failure Shares, any brokerage commissions, if
any, of such Holder incurred in connection therewith.

 

14

 

 

(v) Fractional Shares. No fractional shares or scrip representing fractional
shares shall be issued upon the conversion of the Preferred Stock. As to any
fraction of a share which the Holder would otherwise be entitled to purchase
upon such conversion, the Corporation shall round up to the next whole share.

 

(vi) Transfer Taxes and Expenses. The issuance of Conversion Shares on
conversion of this Preferred Stock shall be made without charge to any Holder
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such Conversion Shares, provided that the Corporation shall
not be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such Conversion Shares upon
conversion in a name other than that of the Holders of such shares of Preferred
Stock and the Corporation shall not be required to issue or deliver such
Conversion Shares unless or until the Person or Persons requesting the issuance
thereof shall have paid to the Corporation the amount of such tax or shall have
established to the satisfaction of the Corporation that such tax has been paid.
The Corporation shall pay all Transfer Agent fees required for same-day
processing of any Notice of Conversion and all fees to the Depository Trust
Company (or another established clearing corporation performing similar
functions) required for same-day electronic delivery of the Conversion Shares.

 

(vii) Beneficial Ownership. Notwithstanding anything to the contrary contained
in this Certificate of Designations, the Preferred Stock held by a Holder shall
not be convertible by such Holder, and the Corporation shall not effect any
conversion of any Preferred Stock held by such Holder, to the extent (but only
to the extent) that such Holder or any of its affiliates would beneficially own
in excess of 4.99% (the “Maximum Percentage”) of the Common Stock. To the extent
the above limitation applies, the determination of whether the Preferred Stock
held by such Holder shall be convertible (vis-n-vis other convertible,
exercisable or exchangeable securities owned by such Holder or any of its
affiliates) and of which such securities shall be convertible, exercisable or
exchangeable (as among all such securities owned by such Holder and its
affiliates) shall, subject to such Maximum Percentage limitation, be determined
on the basis of the first submission to the Corporation for conversion, exercise
or exchange (as the case may be). No prior inability of a Holder to convert
Preferred Stock, or of the Corporation to issue shares of Common Stock to such
Holder, pursuant to this clause (vii) shall have any effect on the applicability
of the provisions of this clause (vii) with respect to any subsequent
determination of convertibility or issuance (as the case may be). For purposes
of this clause (vii), beneficial ownership and all determinations and
calculations (including, without limitation, with respect to calculations of
percentage ownership) shall be determined in accordance with Section 13(d) of
the 1934 Act and the rules and regulations promulgated thereunder. The
provisions of this clause (vii) shall be implemented in a manner otherwise than
in strict conformity with the terms of this clause (vii) to correct this clause
(vii) (or any portion hereof) which may be defective or inconsistent with the
intended Maximum Percentage beneficial ownership limitation herein contained or
to make changes or supplements necessary or desirable to properly give effect to
such Maximum Percentage limitation, The limitations contained in this clause
(vii) shall apply to a successor holder of Preferred Stock. The holders of
Common Stock shall be third party beneficiaries of this clause (vii) and the
Corporation may not waive this clause (vii) without the consent of holders of a
majority of its Common Stock. For any reason at any time, upon the written or
oral request of a Holder, the Corporation shall within one (1) Business Day
confirm orally and in writing to such Holder the number of shares of Common
Stock then outstanding, including by virtue of any prior conversion or exercise
of convertible or exercisable securities into Common Stock, including, without
limitation, pursuant to this Certificate of Designations. By written notice to
the Corporation, any Holder may increase or decrease the Maximum Percentage to
any other percentage not in excess of 9.99% specified in such notice; provided
that (i) any such increase will not be effective until the 61st day after such
notice is delivered to the Corporation, and (ii) any such increase or decrease
will apply only to such Holder sending such notice.

 

15

 

 

(viii) Principal Market Regulation. The Corporation shall not issue any shares
of Common Stack upon conversion of any Preferred Stock or otherwise pursuant to
the terms of this Certificate of Designations if the issuance of such shares of
Common Stock would exceed the aggregate number of shares of Common Stock which
the Corporation may issue upon conversion of the Preferred Stock or otherwise
pursuant to the terms of this Certificate of Designations without breaching the
Corporation’s obligations under the rules or regulations of the Trading Market
(the number of shares which may be issued without violating such rules and
regulations, the “Exchange Cap”), except that such limitation shall not apply in
the event that the Corporation (A) obtains the approval of its stockholders as
required by the applicable rules of the Principal Market for issuances of shares
of Common Stock in excess of such amount, (B) obtains a written opinion from
outside counsel to the Corporation that such approval is not required, which
opinion shall be reasonably satisfactory to the holders of a majority of the
outstanding shares of Preferred Stock or (C) issues the Preferred Stock through
an effective registration statement in connection with a public offering in
accordance with the rules and regulations of the Trading Market. Until such
approval or such written opinion is obtained, or unless such effective
registration statement is available, no Holder shall be issued in the aggregate,
upon conversion of any Preferred Stock or otherwise pursuant to the terms of
this Certificate of Designations, shares of Common Stock in an amount greater
than the product of (i) the Exchange Cap as of the Initial Issuance Date
multiplied by (ii) the quotient of (1) the aggregate original Stated Value of
the Preferred Stock issued to such Holder divided by (2) the aggregate original
Stated Value of the Preferred Stock issued to all Holders (with respect to each
Holder, the “Exchange Cap Allocation”). In the event that any Holder shall sell
or otherwise transfer any of such Holder’s shares of Preferred Stock, the
transferee shall be allocated a pro rata portion of such Holder’s Exchange Cap
Allocation with respect to such portion of such Preferred Stock so transferred,
and the restrictions of the prior sentence shall apply to such transferee with
respect to the portion of the Exchange Cap Allocation so allocated to such
transferee. Upon conversion in full of a Holder’s Preferred Stock, the
difference (if any) between such Holder’s Exchange Cap Allocation and the number
of shares of Common Stock actually issued to such Holder upon such Holder’s
conversion in full of such Preferred Stock shall be allocated to the respective
Exchange Cap Allocations of the remaining Holders of Preferred Stock on a pro
rata basis in proportion to the shares of Common Stock underlying the Preferred
Stock then held by each such Holder of Preferred Stock. In the event that the
Corporation is prohibited from issuing any shares of Common Stock pursuant to
this Section 5(c)(viii) (the “Exchange Cap Shares”) to a Holder, the Corporation
shall pay cash to such Holder in exchange for the redemption of such number of
shares of Preferred Stock held by the Holder that are not convertible into such
Exchange Cap Shares at a price equal to the sum of (i) the product of (x) such
number of Exchange Cap Shares and (y) the Closing Sale Price on the Trading Day
immediately preceding the date such Holder delivers the applicable Conversion
Notice with respect to such Exchange Cap Shares to the Corporation and (ii) to
the extent such Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by such Holder of
Exchange Cap Shares, brokerage commissions, if any, of such Holder incurred in
connection therewith.

 

Section 6. Certain Adjustments.

 

(a) Stock Dividends and Stock Splits. If the Corporation, at any time while this
Preferred Stock is outstanding: (i) pays a stock dividend or otherwise makes a
distribution or distributions payable in shares of Common Stock on shares of
Common Stock or any other Common Stock Equivalents (which, for avoidance of
doubt, shall not include any shares of Common Stock issued by the Corporation
upon conversion of, or payment of a dividend on, this Preferred Stock), (ii)
subdivides outstanding shares of Common Stock into a larger number of shares,
(iii) combines (including by way of a reverse stock split) outstanding shares of
Common Stock into a smaller number of shares, or (iv) issues, in the event of a
reclassification of shares of the Common Stock, any shares of capital stock of
the Corporation, then the Conversion Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock (excluding any
treasury shares of the Corporation) outstanding immediately before such event,
and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event. Any adjustment made pursuant to this
Section 6(a) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.

 

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(b) Fundamental Transaction. If, at any time while this Preferred Stock is
outstanding, (i) the Corporation, directly or indirectly, in one or more related
transactions effects any merger or consolidation of the Corporation with or into
another Person, (ii) the Corporation, directly or indirectly, effects any sale,
lease, license, assignment, transfer, conveyance or other disposition of all or
substantially all of its assets in one or a series of related transactions,
(iii) any, direct or indirect, purchase offer, tender offer or exchange offer
(whether by the Corporation or another Person) is completed pursuant to which
holders of Common Stock are permitted to sell, tender or exchange their shares
for other securities, cash or property and has been accepted by the holders of
50% or more of the outstanding Common Stock, (iv) the Corporation, directly or
indirectly, in one or more related transactions effects any reclassification,
reorganization or recapitalization of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property, or (v) the Corporation,
directly or indirectly, in one or more related transactions consummates a stock
or share purchase agreement or other business combination (including, without
limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires 50% or more
of the outstanding shares of Common Stock (not including any shares of Common
Stock held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
or share purchase agreement or other business combination) (each a “Fundamental
Transaction”), then, upon any subsequent conversion of this Preferred Stock, the
Holder shall have the right to receive, for each Conversion Share that would
have been issuable upon such conversion immediately prior to the occurrence of
such Fundamental Transaction, the number of shares of Common Stock of the
successor or acquiring corporation or of the Corporation, if it is the surviving
corporation. The Corporation shall cause any successor entity in a Fundamental
Transaction in which the Corporation is not the survivor (the “Successor
Entity”) to assume in writing all of the obligations of the Corporation under
this Certificate of Designation and the other Transaction Documents (as defined
in the Purchase Agreement) in accordance with the provisions of this Section
6(d) pursuant to written agreements in form and substance reasonably
satisfactory to the Holder and approved by the Holder (without unreasonable
delay) prior to such Fundamental Transaction and shall, at the option of the
holder of this Preferred Stock, deliver to the Holder in exchange for this
Preferred Stock a security of the Successor Entity evidenced by a written
instrument substantially similar in form and substance to this Preferred Stock
which is convertible for a corresponding number of shares of capital stock of
such Successor Entity (or its parent entity) equivalent to the shares of Common
Stock acquirable and receivable upon conversion of this Preferred Stock (without
regard to any limitations on the conversion of this Preferred Stock) prior to
such Fundamental Transaction, and with a conversion price which applies the
conversion price hereunder to such shares of capital stock (but taking into
account the relative value of the shares of Common Stock pursuant to such
Fundamental Transaction and the value of such shares of capital stock, such
number of shares of capital stock and such conversion price being for the
purpose of protecting the economic value of this Preferred Stock immediately
prior to the consummation of such Fundamental Transaction), and which is
reasonably satisfactory in form and substance to the Holder. Upon the occurrence
of any such Fundamental Transaction, the Successor Entity shall succeed to, and
be substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Certificate of Designation and the other
Transaction Documents referring to the “Corporation” shall refer instead to the
Successor Entity), and may exercise every right and power of the Corporation and
shall assume all of the obligations of the Corporation under this Certificate of
Designation and the other Transaction Documents with the same effect as if such
Successor Entity had been named as the Corporation herein.

 

(c) Calculations. All calculations under this Section 6 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. For purposes
of this Section 6, the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding any treasury shares of the Corporation) issued and
outstanding.

 

17

 

 

(d) Notice to the Holders. Whenever the Conversion Price is adjusted pursuant to
any provision of this Section 6, the Corporation shall promptly deliver to each
Holder by facsimile or email a notice setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment.

 

(e) Issuance of Securities Below the Conversion Price. In addition to and not in
limitation of any other provisions of this paragraph 6, if and whenever on or
after the Original Issue Date of the Preferred Stock, the Corporation issues or
sells, or in accordance with this subparagraph 6(e) is deemed to have issued or
sold, any securities (including the issuance or sale of shares of Common Stock
or Common Stock Equivalents owned or held by or for the account of the
Corporation, but excluding any Exempt Issuance, issued or sold or deemed to have
been issued or sold) for a consideration per share (the “New Issuance Price”)
less than a price equal to the Conversion Price in effect immediately prior to
such issue or sale or deemed issuance or sale (such Conversion Price then in
effect is referred to as the “Applicable Price”) (the foregoing a “Dilutive
Issuance”), then immediately after such Dilutive Issuance, the Conversion Price
then in effect shall be automatically reduced to an amount equal to the New
Issuance Price. For purposes of determining the adjusted Conversion Price under
this subparagraph 7(e), the following shall be applicable:

 

(i) Issuance of Options (other than Exempt Issuances). If the Corporation in any
manner grants or sells any options (other than Exempt Issuances) and the lowest
price per share for which one share of Common Stock is issuable upon the
exercise of any such option or upon conversion, exercise or exchange of any
convertible securities issuable upon exercise of any such option is less than
the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Corporation at the time of
the granting or sale of such option for such price per share. For purposes of
this subparagraph 7(e)(i), the “lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such options or upon
conversion, exercise or exchange of any convertible securities issuable upon
exercise of any such option” shall be equal to (1) the lower of (x) the sum of
the lowest amounts of consideration (if any) received or receivable by the
Corporation with respect to any one share of Common Stock upon the granting or
sale of such option, upon exercise of such option and upon conversion, exercise
or exchange of any convertible security issuable upon exercise of such option
and (y) the lowest exercise price set forth in such option for which one share
of Common Stock is issuable upon the exercise of any such options or upon
conversion, exercise or exchange of any convertible securities issuable upon
exercise of any such option minus (2) the sum of all amounts paid or payable to
the holder of such option (or any other person) upon the granting or sale of
such option, upon exercise of such option and upon conversion, exercise or
exchange of any convertible security issuable upon exercise of such option plus
the value of any other consideration received or receivable by, or benefit
conferred on, the holder of such option (or any other person). Except as
contemplated below, no further adjustment of the Conversion Price shall be made
upon the actual issuance of such shares of Common Stock or of such convertible
securities upon the exercise of such options or upon the actual issuance of such
shares of Common Stock upon conversion, exercise or exchange of such convertible
securities.

 

(ii) Issuance of Common Stock Equivalents (other than Exempt Issuances). If the
Corporation in any manner issues or sells any Common Stock Equivalents (other
than Exempt Issuances) and the lowest price per share for which one share of
Common Stock is issuable upon the conversion, exercise or exchange thereof is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Corporation at the
time of the issuance or sale of such convertible securities for such price per
share. For the purposes of this subparagraph 7(e)(ii), the “lowest price per
share for which one share of Common Stock is issuable upon the conversion,
exercise or exchange thereof’ shall be equal to (1) the lower of (x) the sum of
the lowest amounts of consideration (if any) received or receivable by the
Corporation with respect to one share of Common Stock upon the issuance or sale
of the convertible security and upon conversion, exercise or exchange of such
convertible security and (y) the lowest conversion price set forth in such
convertible security for which one share of Common Stock is issuable upon
conversion, exercise or exchange thereof minus (2) the sum of all amounts paid
or payable to the holder of such convertible security (or any other person) upon
the issuance or sale of such convertible security plus the value of any other
consideration received or receivable by, or benefit conferred on, the holder of
such convertible security (or any other person). Except as contemplated below,
no further adjustment of the Conversion Price shall be made upon the actual
issuance of such shares of Common Stock upon conversion, exercise or exchange of
such convertible securities, and if any such issue or sale of such convertible
securities is made upon exercise of any options for which adjustment has been or
is to be made pursuant to other provisions of this subparagraph 7(e)(ii), except
as contemplated below, no further adjustment of the Conversion Price shall be
made by reason of such issue or sale.

 

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(iii) Change in Option Price or Rate of Conversion (other than Exempt
Issuances). If the purchase or exercise price provided for in any options (other
than Exempt Issuances), the additional consideration, if any, payable upon the
issue, conversion, exercise or exchange of any convertible securities, or the
rate at which any convertible securities are convertible into or exercisable or
exchangeable for shares of Common Stock increases or decreases at any time, the
Conversion Price in effect at the time of such increase or decrease shall be
adjusted to the Conversion Price which would have been in effect at such time
had such options or convertible securities provided for such increased or
decreased purchase price, additional consideration or increased or decreased
conversion rate, as the case may be, at the time initially granted, issued or
sold. For purposes of this subparagraph 7(e)(iii, if the terms of any option or
convertible security that was outstanding as of the Original issue Date are
increased or decreased in the manner described in the immediately preceding
sentence, then such option or convertible security and the shares of common
stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or decrease. No
adjustment pursuant to this subparagraph 7(e)(iii) shall be made if such
adjustment would result in an increase of the Conversion Price then in effect.

 

(iv) Calculation of Consideration Received for issuances other than Exempt
Issuances. In case any option and/or convertible security, other than Exempt
Issuances, is issued in connection with the issue or sale of other securities of
the Corporation together comprising one integrated transaction in which no
specific consideration is allocated to such options by the parties thereto, (x)
the options will be deemed to have been issued for the option value of such
options and (y) the other securities issued or sold in such integrated
transaction shall be deemed to have been issued or sold for the difference of
(I) the aggregate consideration received by the Corporation less any
consideration paid or payable by the Corporation pursuant to the terms of such
other securities of the Corporation, less (II) the option value. If any shares
of Common Stock, options or convertible securities are issued or sold or deemed
to have been issued or sold for cash, the consideration received therefor will
be deemed to be the net amount received by the Corporation therefor. If any
shares of Common Stock, options or convertible securities are issued or sold for
a consideration other than cash, the amount of such consideration other than
cash received by the Corporation will be the fair value of such consideration,
except where such consideration consists of publicly traded securities, in which
case the amount of consideration received by the Corporation for such securities
will be the last reported Closing Sale Price or Closing Bid Price (as the case
may be) of such security on the date of receipt. If any shares of Common Stock,
options or convertible securities are issued to the owners of the non-surviving
entity in connection with any merger in which the Corporation is the surviving
entity, the amount of consideration therefor will be deemed to be the fair value
of such portion of the net assets and business of the non-surviving entity as is
attributable to such shares of Common Stock, options or convertible securities,
as the case may be. The fair value of any consideration other than cash or
publicly traded securities will be determined by the Board of Directors of the
Corporation in good faith. For the purposes hereof, the “option value” shall be
equal to the sum of the lowest amounts of consideration (if any) received or
receivable by the Corporation with respect to any one share of Common Stock upon
the granting or sale of the option, upon exercise of the option and upon
conversion, exercise or exchange of any convertible security issuable upon
exercise of such option less any consideration paid or payable by the
Corporation with respect to such one share of Common Stock upon the granting or
sale of such option, upon exercise of such option and upon conversion exercise
or exchange of any convertible security issuable upon exercise of such option.

 

19

 

 

Section 7. Mandatory Redemption.

 

(a) Mandatory Redemptions.

 

i. On the thirty (30) day anniversary of the Original Issue Date (the “Initial
Mandatory Redemption Date”), the Corporation shall redeem a number of shares of
Preferred Stock equal to $3,000,000 of Stated Value on a pro rata basis among
all of the Holders, for an amount in cash equal to the Initial Mandatory
Redemption Amount (such redemption, the “Initial Mandatory Redemption”). On the
sixty (60) day anniversary of the Original Issue Date (the “Second Mandatory
Redemption Date”), the Corporation shall redeem a number of shares of Preferred
Stock equal to $2,500,000 of Stated Value on a pro rata basis among all of the
Holders, for an amount in cash equal to the Second Mandatory Redemption Amount
(such redemption, the “Second Mandatory Redemption”). On the Ninety (90) day
anniversary of the Original Issue Date (the “Third Mandatory Redemption Date”),
the Corporation shall redeem a number of shares of Preferred Stock equal to
$500,000 of Stated Value on a pro rata basis among all of the Holders, for an
amount in cash equal to the Third Mandatory Redemption Amount (such redemption,
the “Third Mandatory Redemption”). If funds are not legally available for the
payment of Initial Mandatory Redemption, the Second Mandatory Redemption or the
Third Mandatory Redemption, then such Mandatory Redemption Amount owed on such
date shall be accreted to, and increase, the outstanding Stated Value. The
Initial Mandatory Redemption Amount is payable in full on the Initial Mandatory
Redemption Date, the Second Mandatory Redemption is payable in full on the
Second Mandatory Redemption Date and the Third Mandatory Redemption is payable
in full on the Third Mandatory Redemption Date. Without limitation and in
addition to any other provisions in this Certificate of Designation with respect
to the Holders’ conversion rights, the Corporation covenants and agrees that it
will honor all Notices of Conversion with respect to the Mandatory Redemption
Amount tendered up until the Initial, Second and Third Mandatory Redemption
Amounts are paid in full.

 

20

 

 

(b) Additional Triggering Events. Upon the occurrence of an Additional
Triggering Event with respect to the Preferred Stock, the Corporation shall
within one (1) Business Day deliver written notice thereof via facsimile or
electronic mail and overnight courier (with next day delivery specified) (a
“Triggering Event Notice”) to each Holder. At any time after the earlier of a
Holder’s receipt of a Triggering Event Notice and such Holder becoming aware of
an Additional Triggering Event (such earlier date, the “Triggering Event Right
Commencement Date”) and ending (such ending date, the “Triggering Event Right
Expiration Date”, and each such period, a “Triggering Event Redemption Right
Period”) on the twentieth (20th) Trading Day after the later of (x) the date
such Additional Triggering Event is cured and (y) such Holder’s receipt of a
Triggering Event Notice that includes (I) a reasonable description of the
applicable Additional Triggering Event, (II) a certification as to whether, in
the opinion of the Corporation, such Additional Triggering Event is capable of
being cured and, if applicable, a reasonable description of any existing plans
of the Corporation to cure such Additional Triggering Event and (III) a
certification as to the date the Additional Triggering Event occurred and, if
cured on or prior to the date of such Additional Triggering Event Notice, the
applicable Triggering Event Right Expiration Date, such Holder may require the
Corporation to redeem (regardless of whether such Additional Triggering Event
has been cured on or prior to the Triggering Event Right Expiration Date) all or
any of the Preferred Shares by delivering written notice thereof (the
“Triggering Event Redemption Notice”) to the Corporation, which Triggering Event
Redemption Notice shall indicate the number of the shares of Preferred Stock
such Holder is electing to redeem. Each of the shares of Preferred Stock subject
to redemption by the Corporation pursuant to this Section 8(b) shall be redeemed
by the Corporation at a price equal to the greater of (i) the product of (A) the
Conversion Amount to be redeemed multiplied by (B) 110% and (ii) the product of
(X) the Conversion Rate with respect to the Conversion Amount in effect at such
time as such Holder delivers a Triggering Event Redemption Notice multiplied by
(Y) the product of (1) 110% by (2) the greatest Closing Sale Price of the Common
Stock on any Trading Day during the period commencing on the date immediately
preceding such Triggering Event and ending on the date the Corporation makes the
entire payment required to be made under this Section 8(b) (the “Triggering
Event Redemption Price”) Redemptions required by this Section 8(b) shall be made
in accordance with the provisions of Section 8(c). To the extent redemptions
required by this Section 8(b) are deemed or determined by a court of competent
jurisdiction to be prepayments of the Preferred Stock by the Corporation, such
redemptions shall be deemed to be voluntary prepayments. Notwithstanding
anything to the contrary in this Section 8(b), but subject to clauses (vii) and
(viii) of Section 6(c) until the Triggering Event Redemption Price (together
with any late charges thereon) is paid in full, the Conversion Amount submitted
for redemption under this Section 8(b) (together with any Late Charges thereon)
may be converted, in whole or in part, by such Holder into Common Stock pursuant
to the terms of this Certificate of Designations. In the event of the
Corporation’s redemption of any of the Preferred Stock under this Section 8(b),
a Holder’s damages would be uncertain and difficult to estimate because of the
parties’ inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for such Holder.
Accordingly, any redemption premium due under this Section 8(b) is intended by
the parties to be, and shall be deemed, a reasonable estimate of such Holder’s
actual loss of its investment opportunity and not as a penalty. Any redemption
upon an Additional Triggering Event shall not constitute an election of remedies
by the applicable Holder or any other Holder, and all other rights and remedies
of each Holder shall be preserved. Notwithstanding anything to the contrary
herein, and notwithstanding any conversion that is then required or in process,
upon any Bankruptcy Triggering Event, the Corporation shall immediately redeem,
in cash, each of the shares of Preferred Stock then outstanding at a redemption
price equal to the applicable Triggering Event Redemption Price (calculated as
if such Holder shall have delivered the Triggering Event Redemption Notice
immediately prior to the occurrence of such Bankruptcy Triggering Event),
without the requirement for any notice or demand or other action by any Holder
or any other person or entity, provided that a Holder may, in its sole
discretion, waive such right to receive payment upon a Bankruptcy Triggering
Event, in whole or in part, and any such waiver shall not affect any other
rights of such Holder or any other Holder hereunder, including any other rights
in respect of such Bankruptcy Triggering Event, any right to conversion, and any
right to payment of such Triggering Event Redemption Price or any other
Redemption Price, as applicable.

 

(c) If a Holder has submitted an Additional Triggering Event Redemption Notice
in accordance with Section 7(c), the Corporation shall deliver the applicable
Triggering Event Redemption Price to such Holder in cash within five (5)
Business Days after the Corporation’s receipt of such Holder’s Triggering Event
Redemption Notice. In the event that the Corporation does not pay the applicable
Redemption Price to a Holder within the time period required for any reason
(except if such payment is prohibited pursuant to the DGCL), at any time
thereafter and until the Corporation pays such unpaid Redemption Price in full,
such Holder shall have the option, in lieu of redemption, to require the
Corporation to promptly return to such Holder all or any of the shares of
Preferred Stock that were submitted for redemption and for which the applicable
Redemption Price (together with any late charges thereon) has not been paid.
Upon the Corporation’s receipt of such notice, (x) the applicable Redemption
Notice shall be null and void with respect to such Preferred Stock, (y) the
Corporation shall immediately return the applicable Preferred Stock certificate,
or issue a new Preferred Stock Certificate, to such Holder, and in each case the
declared and unpaid dividend amount of such Preferred Stock shall be increased
by an amount equal to the difference between (1) the applicable Redemption Price
(as the case may be, and as adjusted pursuant to this Section 7(c), if
applicable) minus (2) the Stated Value portion of the Conversion Amount
submitted for redemption and (z) the Conversion Price of such Preferred Shares
shall be automatically adjusted with respect to each conversion effected
thereafter by such Holder to the lowest of (A) the Conversion Price as in effect
on the date on which the applicable Redemption Notice is voided, (B) the greater
of (x) the Floor Price and (y) 75% of the lowest Closing Bid Price of the Common
Stock during the period beginning on and including the date on which the
applicable Redemption Notice is delivered to the Corporation and ending on and
including the date on which the applicable Redemption Notice is voided and (C)
the greater of (x) the Floor Price and (y) 75% of the quotient of (I) the sum of
the five (5) lowest VWAPs of the Common Stock during the twenty (20) consecutive
Trading Day period ending and including the Trading Day immediately preceding
the applicable Conversion Date divided by (II) five (5)(it being understood and
agreed that all such determinations shall be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction
during such period). A Holder’s delivery of a notice voiding a Redemption Notice
and exercise of its rights following such notice shall not affect the
Corporation’s obligations to make any payments of Late Charges which have
accrued prior to the date of such notice with respect to the Preferred Shares
subject to such notice.

 

21

 

 

(d) Notwithstanding anything to the contrary in Section 7(b, the Corporation
shall have no obligation to comply with such Section 7(c) at any time that (x)
the Corporation does not have surplus under section 154 of the DGCL or funds
legally available to redeem all outstanding Preferred Stock, (y) the
Corporation’s capital is impaired under Section 160 of the DGCL or (z) the
redemption of any Preferred Stock would result in an impairment of the
Corporation’s capital under Section 160 of the DGCL; provided, however that in
the event that the Corporation does not comply with the provisions of Section 7
(c) by virtue of the restrictions in this Section 8(g), the Corporation will
comply with the provisions of Section 7 (c) promptly after such restrictions are
no longer applicable.

 

Section 8. Covenants.

 

(a) Amendments to Charter Documents. As long as any shares of Preferred Stock
are outstanding, unless (i) the holders of at least 51% in Stated Value of the
then outstanding shares of Preferred Stock shall have otherwise given prior
written consent, or (ii) in connection with a transaction whereby all
outstanding shares of Preferred Stock are redeemed for cash and all of the notes
of the Corporation issued on the Original Issue Date are repaid in full in cash,
the Corporation shall not, and shall not permit any of the Subsidiaries to,
directly or indirectly amend its charter documents, including, without
limitation, its certificate of incorporation, bylaws and this Certificate of
Designations, in any manner that materially and adversely affects any rights of
the Holder or enter into any agreement with respect to any of the foregoing.

 

(b) Existence of Liens. The Corporation shall not, and the Corporation shall
cause each of its Subsidiaries to not, directly or indirectly, allow or suffer
to exist any mortgage, lien, pledge, charge, security interest or other
encumbrance upon or in any property or assets (including accounts and contract
rights) owned by the Corporation or any of its Subsidiaries (collectively,
“Liens”) other than Permitted Liens.

 

(b) Restricted Payments. The Corporation shall not, and the Corporation shall
cause each of its Subsidiaries to not, directly or indirectly, redeem, defease,
repurchase, repay or make any payments in respect of, by the payment of cash or
cash equivalents (in whole or in part, whether by way of open market purchases,
tender offers, private transactions or otherwise), all or any portion of any
Indebtedness (other than any amounts payable pursuant to this Certificate of
Designations) whether by way of payment in respect of principal of (or premium,
if any) or interest on, such Indebtedness if at the time such payment is due or
is otherwise made or, after giving effect to such payment, (i) an event
constituting an Additional Triggering Event has occurred and is continuing or
(ii) an event that with the passage of time and without being cured would
constitute an Additional Triggering Event has occurred and is continuing. In
addition, the Corporation shall not use any of the proceeds from the sale of the
Preferred Stock in excess of 5500,000 without the consent of the Holders of a
majority of the then outstanding Preferred Stock. The Corporation shall
immediately segregate the proceeds from the sale of the Preferred Stock into
their own separate bank account and the Corporation shall, within twenty (20)
days of the date hereof have the Holders of a majority of the then outstanding
Preferred Stock added as an authorized signatory to the bank account in which
such proceeds are held, such account to require the signature of such Holders
prior to withdrawal of any funds in such account.

 

(c) Restriction on Transfer of Assets. The Corporation shall not, and the
Corporation shall cause each of its Subsidiaries to not, directly or indirectly,
sell, lease, license, assign, transfer, spin-off, split-off, close, convey or
otherwise dispose of any assets or rights of the Corporation or any Subsidiary
owned or hereafter acquired whether in a single transaction or a series of
related transactions to any Person(s) (including, without limitation, to any
foreign Subsidiary) (each, an “Asset Transfer”), other than (i) sales, leases,
licenses, assignments, transfers, conveyances and other dispositions of such
assets or rights by the Corporation and its Subsidiaries in the ordinary course
of business consistent with its past practice and (ii) sales of inventory and
product in the ordinary course of business.

 

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(d) Change in Nature of Business. The Corporation shall not, and the Corporation
shall cause each of its Subsidiaries to not, directly or indirectly, engage in
any material line of business substantially different from those lines of
business conducted by or publicly contemplated to be conducted by the
Corporation and each of its Subsidiaries on the Original Issue Date or any
business substantially related or incidental thereto. The Corporation shall not,
and the Corporation shall cause each of its Subsidiaries to not, directly or
indirectly, modify its or their corporate structure or purpose.

 

(e) Preservation of Existence, Etc. The Corporation shall maintain and preserve,
and cause each of its Subsidiaries to maintain and preserve, its existence,
rights and privileges, and become or remain, and cause each of its Subsidiaries
to become or remain, duly qualified and in good standing in each jurisdiction in
which the character of the properties owned or leased by it or in which the
transaction of its business makes such qualification necessary.

 

(f) Maintenance of Properties, Etc. The Corporation shall maintain and preserve,
and cause each of its Subsidiaries to maintain and preserve, all of its
properties which are necessary or useful in the proper conduct of its business
in good working order and condition, ordinary wear and tear excepted, and
comply, and cause each of its Subsidiaries to comply, at all times with the
provisions of all teases to which it is a party as lessee or under which it
occupies property, so as to prevent any loss or forfeiture thereof or
thereunder.

 

(g) Maintenance of Intellectual Property. The Corporation will, and will cause
each of its Subsidiaries to, take all action necessary or advisable to maintain
all of the Intellectual Property Rights of the Corporation and/or any of its
Subsidiaries that are necessary or material to the conduct of its business in
full force and effect.

 

(h) Maintenance of Insurance. The Corporation shall maintain, and cause each of
its Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations (including, without limitation, comprehensive general
liability, hazard, rent and business interruption insurance) with respect to its
properties (including all real properties leased or owned by it) and business,
in such amounts and covering such risks as is required by any governmental
authority having jurisdiction with respect thereto or as is carried generally in
accordance with sound business practice by companies in similar businesses
similarly situated,

 

(i) Transactions with Affiliates. The Corporation shall not, nor shall it permit
any of its Subsidiaries to, enter into, renew, extend or be a party to, any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease, transfer or exchange of property or assets of any
kind or the rendering of services of any kind) with any affiliate, except in the
ordinary course of business in a manner and to an extent consistent with past
practice and necessary or desirable for the prudent operation of its business,
for fair consideration and on terms no less favorable to it or its Subsidiaries
than would be obtainable in a comparable arm’s length transaction with a Person
that is not an affiliate thereof.

 

(j) Variable Rate Transactions. So long as any Preferred Stock remain
outstanding, the Corporation shall not, nor shall it permit any of its
Subsidiaries to, effect or enter into an agreement to effect any offering of
securities involving a Variable Rate Transaction without the prior written
consent of the Holders, which consent may be withheld, delayed or conditioned in
the Holders’ sole discretion

 

Section 9. Distribution of Assets. If the Corporation shall declare or make any
dividend or other distributions of its assets (or rights to acquire its assets)
to any or all holders of shares of Common Stock, by way of return of capital or
otherwise (including without limitation, any distribution of cash, stock or
other securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (the “Distributions”), then each Holder, as a holder of
Preferred Stock, will be entitled to such Distributions as if such Holder had
held the number of shares of Common Stock acquirable upon complete conversion of
the Preferred Stock (without taking into account any limitations or restrictions
on the convertibility of the Preferred Stock) immediately prior to the date on
which a record is taken for such Distribution or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
such Distributions (provided, however, that to the extent that such Holder’s
right to participate in any such Distribution would result in such Holder
exceeding the Maximum Percentage, then such Holder shall not be entitled to
participate in such Distribution to such extent (and shall not be entitled to
beneficial ownership of such shares of Common Stock as a result of such
Distribution (and beneficial ownership) to such extent) and the portion of such
Distribution shall be held in abeyance for such Holder until such time or times
as its right thereto would not result in such Holder exceeding the Maximum
Percentage, at which time or times, if any, such Holder shall be granted such
rights (and any rights under this Section 9 on such initial rights or on any
subsequent such rights to be held similarly in abeyance) to the same extent as
if there had been no such limitation).

 

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Section 10. Miscellaneous.

 

(a) Notices. Any and all notices or other communications or deliveries to be
provided by the Holders hereunder including, without limitation, any Notice of
Conversion, shall be in writing and delivered personally, by facsimile or e-mail
attachment, or sent by a nationally recognized overnight courier service,
addressed to the Corporation, at the address set forth above Attention:
Secretary, facsimile number +30 (210) 876-4877, e-mail address
gs@stellaracquisition.com, or such other facsimile number, e-mail address or
address as the Corporation may specify for such purposes by notice to the
Holders delivered in accordance with this Section 10. Any and all notices or
other communications or deliveries to be provided by the Corporation hereunder
shall be in writing and delivered personally, by facsimile or e-mail attachment,
or sent by a nationally recognized overnight courier service addressed to each
Holder at the facsimile number, email address or address of such Holder
appearing on the books of the Corporation, or if no such facsimile number,
e-mail address or address appears on the books of the Corporation, at the
principal place of business of such Holder, as set forth in the Purchase
Agreement. Any notice or other communication or deliveries hereunder shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
or e-mail attachment at the e-mail address set forth in this Section prior to
5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile number or e-mail attachment at the e-mail address set forth in
this Section on a day that is not a Trading Day or later than 5:30 p.m. (New
York City time) on any Trading Day, (iii) the second Trading Day following the
date of mailing, if sent by U.S. nationally recognized overnight courier
service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.

 

(b) Absolute Obligation. Except as expressly provided herein, no provision of
this Certificate of Designation shall alter or impair the obligation of the
Corporation, which is absolute and unconditional, to pay liquidated damages,
accrued dividends and accrued interest, as applicable, on the shares of
Preferred Stock at the time, place, and rate, and in the coin or currency,
herein prescribed.

 

(c) Lost or Mutilated Preferred Stock Certificate. If a Holder’s Preferred Stock
certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall
execute and deliver, in exchange and substitution for and upon cancellation of a
mutilated certificate, or in lieu of or in substitution for a lost, stolen or
destroyed certificate, a new certificate for the shares of Preferred Stock so
mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such
loss, theft or destruction of such certificate, and of the ownership hereof
reasonably satisfactory to the Corporation.

 

(d) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Certificate of Designation shall be
governed by and construed and enforced in accordance with the internal laws of
the State of Delaware, without regard to the principles of conflict of laws
thereof. All legal proceedings concerning the interpretation, enforcement and
defense of the transactions contemplated by any of the Transaction Documents
(whether brought against a party hereto or its respective Affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in the state and
federal courts sitting in the City of New York, Borough of Manhattan (the “New
York Courts”). The Corporation and each Holder hereby irrevocably submits to the
exclusive jurisdiction of the New York Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of any of
the Transaction Documents), and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such New York Courts, or such New York Courts are
improper or inconvenient venue for such proceeding. The Corporation and each
Holder hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Certificate of Designation and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any other
manner permitted by applicable law. The Corporation and each Holder hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Certificate of Designation or the transactions contemplated hereby. If the
Corporation or any Holder shall commence an action or proceeding to enforce any
provisions of this Certificate of Designation, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its attorneys’
fees and other costs and expenses incurred in the investigation, preparation and
prosecution of such action or proceeding.

 

24

 

 

(e) Waiver. Any waiver by the Corporation or a Holder of a breach of any
provision of this Certificate of Designation shall not operate as or be
construed to be a waiver of any other breach of such provision or of any breach
of any other provision of this Certificate of Designation or a waiver by any
other Holders. The failure of the Corporation or a Holder to insist upon strict
adherence to any term of this Certificate of Designation on one or more
occasions shall not be considered a waiver or deprive that party (or any other
Holder) of the right thereafter to insist upon strict adherence to that term or
any other term of this Certificate of Designation on any other occasion. Any
waiver by the Corporation or a Holder must be in writing. Notwithstanding the
foregoing, nothing contained in this Section 10(e) shall permit any waiver of
any provision of Section 5(c)(vii).

 

(f) Severability. If any provision of this Certificate of Designation is
invalid, illegal or unenforceable, the balance of this Certificate of
Designation shall remain in effect, and if any provision is inapplicable to any
Person or circumstance, it shall nevertheless remain applicable to all other
Persons and circumstances. If it shall be found that any interest or other
amount deemed interest due hereunder violates the applicable law governing
usury, the applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum rate of interest permitted under applicable law.

 

(g) Next Business Day. Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day.

 

(h) Headings. The headings contained herein are for convenience only, do not
constitute a part of this Certificate of Designation and shall not be deemed to
limit or affect any of the provisions hereof.

 

(i) Status of Converted or Redeemed Preferred Stock. Shares of Preferred Stock
may only be issued pursuant to the Purchase Agreement. If any shares of
Preferred Stock shall be converted, redeemed or reacquired by the Corporation,
such shares shall resume the status of authorized but unissued shares of
preferred stock and shall no longer be designated as Series A 8% Convertible
Preferred Stock.

 

(j) Transfer of Preferred Stock. A Holder may transfer some or all of its
Preferred Stock without the consent of the Corporation

 

(k) Dispute Resolution.

 

(i) In the case of a dispute relating to a Closing Bid Price, a Closing Sale
Price, a Conversion Price, a VWAP or a fair market value or the arithmetic
calculation of a Conversion Rate, or the applicable Redemption Price (as the
case may be) (including, without limitation, a dispute relating to the
determination of any of the foregoing), the Corporation or the applicable Holder
(as the case may be) shall submit the dispute to the other party via facsimile
or electronic mail (A) if by the Corporation, within two (2) Business Days after
the occurrence of the circumstances giving rise to such dispute or (B) if by
such Holder at any time after such Holder learned of the circumstances giving
rise to such dispute. If such Holder and the Corporation are unable to promptly
resolve such dispute relating to such Closing Bid Price, such Closing Sale
Price, such Conversion Price, such VWAP or such fair market value, or the
arithmetic calculation of such Conversion Rate or such applicable Redemption
Price (as the case may be), at any time after the second (2nd) Business Day
following such initial notice by Corporation or such Holder (as the case may be)
of such dispute to the Corporation or such Holder (as the case may be), then
such Holder may, at its sole option, select an independent, reputable investment
bank to resolve such dispute.

 

25

 

 

(ii) Such Holder and the Corporation shall each deliver to such investment bank
(A) a copy of the initial dispute submission so delivered in accordance with the
first sentence of this Section 9(k) and (B) written documentation supporting its
position with respect to such dispute, in each case, no later than 5:00 p.m.
(New York time) by the fifth (5th) Business Day immediately following the date
on which such Holder selected such investment bank (the “Dispute Submission
Deadline”) (the documents referred to in the immediately preceding clauses (A)
and (B) are collectively referred to herein as the “Required Dispute
Documentation”) (it being understood and agreed that if either such Holder or
the Corporation fails to so deliver all of the Required Dispute Documentation by
the Dispute Submission Deadline, then the party who fails to so submit all of
the Required Dispute Documentation shall no longer be entitled to (and hereby
waives its right to) deliver or submit any written documentation or other
support to such investment bank with respect to such dispute and such investment
bank shall resolve such dispute based solely on the Required Dispute
Documentation that was delivered to such investment bank prior to the Dispute
Submission Deadline). Unless otherwise agreed to in writing by both the
Corporation and such Holder or otherwise requested by such investment bank,
neither the Corporation nor such Holder shall be entitled to deliver or submit
any written documentation or other support to such investment bank in connection
with such dispute (other than the Required Dispute Documentation).

 

(iii) The Corporation and such Holder shall cause such investment bank to
determine the resolution of such dispute and notify the Corporation and such
Holder of such resolution no later than ten (10) Business Days immediately
following the Dispute Submission Deadline. The fees and expenses of such
investment bank shall be borne solely by the Corporation, and such investment
bank’s resolution of such dispute shall be final and binding upon all parties
absent manifest error.

 

*********************

 

26

 

 

RESOLVED, FURTHER, that the Chairman, the president or any vice-president, and
the secretary or any assistant secretary, of the Corporation be and they hereby
are authorized and directed to prepare and file this Certificate of Designation
of Preferences, Rights and Limitations in accordance with the foregoing
resolution and the provisions of Delaware law.

 

IN WITNESS WHEREOF, the undersigned have executed this Certificate this 26th day
of December 2018.

 

/s/ Prokopios (Akis) Tsirigakis   /s/ George Syllantavos Name: Prokopios (Akis)
Tsirigakis   Name: George Syllantavos Title: President   Title: Secretary

 

 

 

 

ANNEX A

 

NOTICE OF CONVERSION

 

(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT
SHARES OF PREFERRED STOCK)

 

The undersigned hereby elects to convert the number of shares of Series A 8%
Convertible Preferred Stock indicated below into shares of common stock, par
value $0.0001 per share (the “Common Stock”), of Phunware Inc., a Delaware
corporation (the “Corporation”), according to the conditions hereof, as of the
date written below. If shares of Common Stock are to be issued in the name of a
Person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates and
opinions as may be required by the Corporation in accordance with the Purchase
Agreement. No fee will be charged to the Holders for any conversion, except for
any such transfer taxes.

 

Conversion calculations:

 

Date to Effect Conversion:
                                                                                                                              

 

Number of shares of Preferred Stock owned prior to Conversion:
                                                            

 

Number of shares of Preferred Stock to be Converted:
                                                                              

 

Stated Value of shares of Preferred Stock to be Converted:
                                                                      

 

Number of shares of Common Stock to be Issued:
                                                                                     

 

Applicable Conversion Price:
                                                                                                                         

 

Number of shares of Preferred Stock subsequent to Conversion:
                                                          

 

Address for
Delivery:                                                                               

or

 

DWAC Instructions:

Broker no:                    
Account no:               

 

  [HOLDER]         By:       Name:     Title:

 

 

 

 

EXHIBIT B

 

REGISTRATION RIGHTS AGREEMENT

 

(Attached)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXECUTION VERSION

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (this “Agreement”) is made and entered into
as of December 26, 2018, between Phunware Inc., a Delaware corporation
(“Phunware,” as the successor entity to Stellar Acquisition III Inc., a Republic
of Marshall Islands corporation (“Stellar”), following the Conversion (as
hereinafter defined) of Stellar into a Delaware corporation (Phunware Inc.) in
accordance with the applicable provisions of The Republic of the Marshall
Islands Associations Law, as amended, and the applicable provisions of the
Delaware General Corporation Law and in connection with the Merger (as
hereinafter defined), the “Company”), and each of the several purchasers
signatory hereto (each such purchaser, a “Purchaser” and, collectively, the
“Purchasers”).

 

This Agreement is made pursuant to the Securities Purchase Agreement, dated as
of the date hereof, between the Company and each Purchaser (the “Purchase
Agreement”).

 

The Company and each Purchaser hereby agrees as follows:

 

1. Definitions.

 

Capitalized terms used and not otherwise defined herein that are defined in the
Purchase Agreement shall have the meanings given such terms in the Purchase
Agreement. As used in this Agreement, the following terms shall have the
following meanings:

 

“Advice” shall have the meaning set forth in Section 6(d).

 

“Certificate of Designation” means the Certificate of Designation for the
Preferred Stock to be filed by the Company with the Secretary of State of the
State of Delaware immediately following the Conversion.

 

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

 

“Conversion” means the statutory conversion of Stellar from a Republic of
Marshall Islands corporation into Phunware, a Delaware Corporation, immediately
prior to the closing of the offering in which the Registrable Securities were
issued and the closing of the Merger.

 

“Conversion Shares” means, collectively, the shares of Common Stock issuable
upon conversion of the shares of Preferred Stock.

 

 

 

 

“Effectiveness Date” means, with respect to the Initial Registration Statement
required to be filed hereunder, the 90th calendar day following the date on
which any Conversion Shares are issued to a Purchaser (or, in the event of a
“full review” by the Commission, the 120th calendar day following the date on
which any Conversion Shares are issued to a Purchaser) and with respect to any
additional Registration Statements which may be required pursuant to Section
2(c) or Section 3(c), the 90th calendar day following the date on which an
additional Registration Statement is required to be filed hereunder (or, in the
event of a “full review” by the Commission, the 120th calendar day following the
date such additional Registration Statement is required to be filed hereunder);
provided, however, that in the event the Company is notified by the Commission
that one or more of the above Registration Statements will not be reviewed or is
no longer subject to further review and comments, the Effectiveness Date as to
such Registration Statement shall be the fifth Trading Day following the date on
which the Company is so notified if such date precedes the dates otherwise
required above, provided, further, if such Effectiveness Date falls on a day
that is not a Trading Day, then the Effectiveness Date shall be the next
succeeding Trading Day.

 

“Effectiveness Period” shall have the meaning set forth in Section 2(a).

 

“Event” shall have the meaning set forth in Section 2(d).

 

“Event Date” shall have the meaning set forth in Section 2(d).

 

“Filing Date” means, with respect to the Initial Registration Statement required
hereunder, the 45th calendar day following the date on which any Conversion
Shares are issued to a Purchaser and, with respect to any additional
Registration Statements which may be required pursuant to Section 2(c) or
Section 3(c), the earliest practical date following the date on which any
Conversion Shares are issued to a Purchaser on which the Company is permitted by
SEC Guidance to file such additional Registration Statement related to the
Registrable Securities.

 

“Holder” or “Holders” means the holder or holders, as the case may be, from time
to time of Registrable Securities, including the Purchasers.

 

“Indemnified Party” shall have the meaning set forth in Section 5(c).

 

“Indemnifying Party” shall have the meaning set forth in Section 5(c).

 

“Initial Registration Statement” means the initial Registration Statement filed
pursuant to this Agreement.

 

“Losses” shall have the meaning set forth in Section 5(a).

 

“Merger” means the proposed merger of a wholly owned subsidiary of the Company
with and into Phunware, pursuant to the Merger Agreement.

 

“Merger Agreement” means the agreement and plan of merger dated as of February
27, 2018, as amended, among the Company, Phunware and certain other parties.

 

2

 

 

“Offering” the securities offering pursuant to which the Registrable Securities
were offered and sold to the Purchasers in a private placement transaction
pursuant to the terms of the Purchase Agreement.

 

“Phunware” means Phunware Inc., a Delaware corporation.

 

“Plan of Distribution” shall have the meaning set forth in Section 2(a).

 

“Preferred Stock” means the shares of the Company’s 8% Series A Convertible
Preferred Stock, initially issued on the date hereof to the Purchasers.

 

“Prospectus” means the prospectus included in a Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated by the Commission pursuant to
the Securities Act), as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the Registrable
Securities covered by a Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.

 

“Registrable Securities” means, as of any date of determination, (a) all
Conversion Shares; (b) all shares of Common Stock then issued and issuable upon
conversion in full of the Preferred Stock (assuming on such date the Preferred
Stock is converted in full without regard to any conversion limitations
therein), (c) any shares of Common Stock issued and issuable in connection with
Preferred Stock issued as dividends; (d) all shares of Common Stock issued and
issuable upon redemption of the Preferred Stock; assuming all permissible
redemption payments are made in shares of Common Stock and the Preferred Stock
are held for the maximum amount of time set forth in the Certificate of
Designation, (e) all Sponsor Shares; (f) all Warrant Shares then issued and
issuable upon exercise of the Sponsor Warrants (assuming on such date the
Sponsor Warrants are exercised in full without regard to any exercise
limitations therein), (g) any additional shares of Common Stock issued and
issuable in connection with any anti-dilution provisions in the Preferred Stock
(without giving effect to any limitations on conversion set forth in the
Preferred Stock) and (h) any securities issued or then issuable upon any stock
split, dividend or other distribution, recapitalization or similar event with
respect to the foregoing; provided, however, that any such Registrable
Securities shall cease to be Registrable Securities (and the Company shall not
be required to maintain the effectiveness of any, or file another, Registration
Statement hereunder with respect thereto) for so long as (i) a Registration
Statement with respect to the sale of such Registrable Securities is declared
effective by the Commission under the Securities Act and such Registrable
Securities have been disposed of by the Holder in accordance with such effective
Registration Statement, (ii) such Registrable Securities have been previously
sold in accordance with Rule 144, or (iii) such securities become eligible for
resale without volume or manner-of-sale restrictions and without current public
information requirements pursuant to Rule 144 as set forth in a written opinion
letter to such effect, addressed, delivered and acceptable to the Transfer Agent
and the affected Holders (assuming that such securities and any securities
issuable upon exercise, conversion or exchange of which, or as a dividend upon
which, such securities were issued or are issuable, were at no time held by any
Affiliate of the Company, and all Sponsor Warrants are exercised by “cashless
exercise” as provided in each of the Sponsor Warrants), as reasonably determined
by the Company, upon the advice of counsel to the Company.

 

3

 

 

“Registration Statement” means any registration statement required to be filed
hereunder pursuant to Section 2(a) and any additional registration statements
contemplated by Section 2(c) or Section 3(c), including (in each case) the
Prospectus, amendments and supplements to any such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference or deemed to be incorporated by
reference in any such registration statement.

 

“Rule 415” means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended or interpreted from time to time, or
any similar rule or regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.

 

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended or interpreted from time to time, or
any similar rule or regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.

 

“Selling Stockholder Notice and Questionnaire” shall have the meaning set forth
in Section 3(a).

 

“SEC Guidance” means (i) any publicly-available written or oral guidance of the
Commission staff, or any comments, requirements or requests of the Commission
staff and (ii) the Securities Act.

 

“Warrant Shares” means shares of Common Stock issuable upon exercise of the
Sponsor Warrants issued to the Purchasers.

 

4

 

 

2. Shelf Registration.

 

(a) On or prior to each Filing Date, the Company shall prepare and file with the
Commission a Registration Statement covering the resale of all of the
Registrable Securities that are not then registered on an effective Registration
Statement for an offering to be made on a continuous basis pursuant to Rule 415.
Each Registration Statement filed hereunder shall be on Form S-3 (except if the
Company is not then eligible to register for resale the Registrable Securities
on Form S-3, in which case such registration shall be on another appropriate
form in accordance herewith, subject to the provisions of Section 2(e)) and
shall contain (unless otherwise directed by at least 85% in interest of the
Holders) substantially the “Plan of Distribution” attached hereto as Annex A and
substantially the “Selling Stockholders” section attached hereto as Annex B;
provided, however, that no Holder shall be required to be named as an
“underwriter” without such Holder’s express prior written consent. Subject to
the terms of this Agreement, the Company shall use its best efforts to cause a
Registration Statement filed under this Agreement (including, without
limitation, under Section 3(c)) to be declared effective under the Securities
Act as promptly as possible after the filing thereof, but in any event no later
than the applicable Effectiveness Date, and shall use its best efforts to keep
such Registration Statement continuously effective under the Securities Act
until the date that all Registrable Securities covered by such Registration
Statement (i) have been sold, thereunder or pursuant to Rule 144, or (ii) may be
sold without volume or manner-of-sale restrictions pursuant to Rule 144 and
without the requirement for the Company to be in compliance with the current
public information requirement under Rule 144, as determined by the counsel to
the Company pursuant to a written opinion letter to such effect, addressed and
acceptable to the Transfer Agent and the affected Holders (the “Effectiveness
Period”). The Company shall telephonically request effectiveness of a
Registration Statement as of 5:00 p.m. (New York City time) on a Trading Day.
The Company shall immediately notify the Holders via facsimile or by e-mail of
the effectiveness of a Registration Statement on the same Trading Day that the
Company telephonically confirms effectiveness with the Commission, which shall
be the date requested for effectiveness of such Registration Statement. The
Company shall, by 9:30 a.m. (New York City time) on the Trading Day after the
effective date of such Registration Statement, file a final Prospectus with the
Commission as required by Rule 424. Failure to so notify the Holder within one
(1) Trading Day of such notification of effectiveness or failure to file a final
Prospectus as foresaid shall be deemed an Event under Section 2(d).

  

(b) Notwithstanding the registration obligations set forth in Section 2(a), if
the Commission informs the Company that all of the Registrable Securities
cannot, as a result of the application of Rule 415, be registered for resale as
a secondary offering on a single registration statement, the Company agrees to
promptly inform each of the Holders thereof and use its commercially reasonable
efforts to file amendments to the Initial Registration Statement as required by
the Commission, covering the maximum number of Registrable Securities permitted
to be registered by the Commission, on Form S-3 or such other form available to
register for resale the Registrable Securities as a secondary offering, subject
to the provisions of Section 2(e); with respect to filing on Form S-3 or other
appropriate form, and subject to the provisions of Section 2(d) with respect to
the payment of liquidated damages; provided, however, that prior to filing such
amendment, the Company shall be obligated to use diligent efforts to advocate
with the Commission for the registration of all of the Registrable Securities in
accordance with the SEC Guidance, including without limitation, Compliance and
Disclosure Interpretation 612.09.

 

5

 

 

(c) Notwithstanding any other provision of this Agreement and subject to the
payment of liquidated damages pursuant to Section 2(d), if the Commission or any
SEC Guidance sets forth a limitation on the number of Registrable Securities
permitted to be registered on a particular Registration Statement as a secondary
offering (and notwithstanding that the Company used diligent efforts to advocate
with the Commission for the registration of all or a greater portion of
Registrable Securities), unless otherwise directed in writing by a Holder as to
its Registrable Securities, the number of Registrable Securities to be
registered on such Registration Statement will be reduced as follows:

 

a.First, the Company shall reduce or eliminate any securities to be included
other than Registrable Securities;

 

b.Second, the Company shall reduce Registrable Securities represented by Warrant
Shares (applied, in the case that some Warrant Shares may be registered, to the
Holders on a pro rata basis based on the total number of unregistered Warrant
Shares held by such Holders); and

 

c.Third, the Company shall reduce Registrable Securities represented by
Conversion Shares (applied, in the case that some Conversion Shares may be
registered, to the Holders on a pro rata basis based on the total number of
unregistered Conversion Shares held by such Holders).

 

In the event of a cutback hereunder, the Company shall give the Holder at least
five (5) Trading Days prior written notice along with the calculations as to
such Holder’s allotment. In the event the Company amends the Initial
Registration Statement in accordance with the foregoing, the Company will use
its best efforts to file with the Commission, as promptly as allowed by
Commission or SEC Guidance provided to the Company or to registrants of
securities in general, one or more registration statements on Form S-3 or such
other form available to register for resale those Registrable Securities that
were not registered for resale on the Initial Registration Statement, as
amended.

 

6

 

 

(d) If: (i) the Initial Registration Statement is not filed on or prior to its
Filing Date (if the Company files the Initial Registration Statement without
affording the Holders the opportunity to review and comment on the same as
required by Section 3(a) herein, the Company shall be deemed to have not
satisfied this clause (i)), or (ii) the Company fails to file with the
Commission a request for acceleration of a Registration Statement in accordance
with Rule 461 promulgated by the Commission pursuant to the Securities Act,
within five Trading Days of the date that the Company is notified (orally or in
writing, whichever is earlier) by the Commission that such Registration
Statement will not be “reviewed” or will not be subject to further review, or
(iii) prior to the effective date of a Registration Statement, the Company fails
to file a pre-effective amendment and otherwise respond in writing to comments
made by the Commission in respect of such Registration Statement within ten (10)
calendar days after the receipt of comments by or notice from the Commission
that such amendment is required in order for such Registration Statement to be
declared effective, or (iv) a Registration Statement registering for resale all
of the Registrable Securities is not declared effective by the Commission by the
Effectiveness Date of the Initial Registration Statement, or (v) after the
effective date of a Registration Statement, such Registration Statement ceases
for any reason to remain continuously effective as to all Registrable Securities
included in such Registration Statement, or the Holders are otherwise not
permitted to utilize the Prospectus therein to resell such Registrable
Securities, for more than ten (10) consecutive calendar days or more than an
aggregate of fifteen (15) calendar days (which need not be consecutive calendar
days) during any 12-month period (any such failure or breach being referred to
as an “Event”, and for purposes of clauses (i) and (iv), the date on which such
Event occurs, and for purpose of clause (ii) the date on which such five (5)
Trading Day period is exceeded, and for purpose of clause (iii) the date which
such ten (10) calendar day period is exceeded, and for purpose of clause (v) the
date on which such ten (10) or fifteen (15) calendar day period, as applicable,
is exceeded being referred to as “Event Date”), then, in addition to any other
rights the Holders may have hereunder or under applicable law, on each such
Event Date and on each monthly anniversary of each such Event Date (if the
applicable Event shall not have been cured by such date) until the applicable
Event is cured, the Company shall pay to each Holder an amount in cash, as
partial liquidated damages and not as a penalty, equal to the product of 2.0%
multiplied by the aggregate Subscription Amount paid by such Holder pursuant to
the Purchase Agreement. If the Company fails to pay any partial liquidated
damages pursuant to this Section in full within seven days after the date
payable, the Company will pay interest thereon at a rate of 18% per annum (or
such lesser maximum amount that is permitted to be paid by applicable law) to
the Holder, accruing daily from the date such partial liquidated damages are due
until such amounts, plus all such interest thereon, are paid in full. The
partial liquidated damages pursuant to the terms hereof shall apply on a daily
pro rata basis for any portion of a month prior to the cure of an Event.

 

(e) If Form S-3 is not available for the registration of the resale of
Registrable Securities hereunder, the Company shall (i) register the resale of
the Registrable Securities on another appropriate form and (ii) undertake to
register the Registrable Securities on Form S-3 as soon as such form is
available, provided that the Company shall maintain the effectiveness of the
Registration Statement then in effect until such time as a Registration
Statement on Form S-3 covering the Registrable Securities has been declared
effective by the Commission.

 

(f) Notwithstanding anything to the contrary contained herein, in no event shall
the Company be permitted to name any Holder or affiliate of a Holder as any
Underwriter without the prior written consent of such Holder.

 

3. Registration Procedures.

 

In connection with the Company’s registration obligations hereunder, the Company
shall:

 

(a) Not less than five (5) Trading Days prior to the filing of each Registration
Statement and not less than one (1) Trading Day prior to the filing of any
related Prospectus or any amendment or supplement thereto (including any
document that would be incorporated or deemed to be incorporated therein by
reference), the Company shall (i) furnish to each Holder copies of all such
documents proposed to be filed, which documents (other than those incorporated
or deemed to be incorporated by reference) will be subject to the review of such
Holders, and (ii) cause its officers and directors, counsel and independent
registered public accountants to respond to such inquiries as shall be
necessary, in the reasonable opinion of respective counsel to each Holder, to
conduct a reasonable investigation within the meaning of the Securities Act. The
Company shall not file a Registration Statement or any such Prospectus or any
amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities shall reasonably object in good faith, provided that, the
Company is notified of such objection in writing no later than five (5) Trading
Days after the Holders have been so furnished copies of a Registration Statement
or one (1) Trading Day after the Holders have been so furnished copies of any
related Prospectus or amendments or supplements thereto. Each Holder agrees to
furnish to the Company a completed questionnaire in the form attached to this
Agreement as Annex C (a “Selling Stockholder Notice and Questionnaire”) on a
date that is not less than two (2) Trading Days prior to the Filing Date or by
the end of the fourth (4th) Trading Day following the date on which such Holder
receives draft materials in accordance with this Section.

 

7

 

 

(b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to a Registration Statement and the Prospectus used
in connection therewith as may be necessary to keep a Registration Statement
continuously effective as to the applicable Registrable Securities for the
Effectiveness Period and prepare and file with the Commission such additional
Registration Statements in order to register for resale under the Securities Act
all of the Registrable Securities, (ii) cause the related Prospectus to be
amended or supplemented by any required Prospectus supplement (subject to the
terms of this Agreement), and, as so supplemented or amended, to be filed
pursuant to Rule 424, (iii) respond as promptly as reasonably possible to any
comments received from the Commission with respect to a Registration Statement
or any amendment thereto and provide as promptly as reasonably possible to the
Holders true and complete copies of all correspondence from and to the
Commission relating to a Registration Statement (provided that, the Company
shall excise any information contained therein which would constitute material
non-public information regarding the Company or any of its Subsidiaries), and
(iv) comply in all material respects with the applicable provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by a Registration Statement during the applicable
period in accordance (subject to the terms of this Agreement) with the intended
methods of disposition by the Holders thereof set forth in such Registration
Statement as so amended or in such Prospectus as so supplemented.

 

(c) If during the Effectiveness Period, the number of Registrable Securities at
any time exceeds 100% of the number of shares of Common Stock then registered in
a Registration Statement, then the Company shall file as soon as reasonably
practicable, but in any case prior to the applicable Filing Date, an additional
Registration Statement covering the resale by the Holders of not less than the
number of such Registrable Securities.

 

8

 

 

(d) Notify the Holders of Registrable Securities to be sold (which notice shall,
pursuant to clauses (iii) through (vi) hereof, be accompanied by an instruction
to suspend the use of the Prospectus until the requisite changes have been made)
as promptly as reasonably possible (and, in the case of (i)(A) below, not less
than one (1) Trading Day prior to such filing) and (if requested by any such
Person) confirm such notice in writing no later than one (1) Trading Day
following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to a Registration Statement is proposed to be filed,
(B) when the Commission notifies the Company whether there will be a “review” of
such Registration Statement and whenever the Commission comments in writing on
such Registration Statement, and (C) with respect to a Registration Statement or
any post-effective amendment, when the same has become effective, (ii) of any
request by the Commission or any other federal or state governmental authority
for amendments or supplements to a Registration Statement or Prospectus or for
additional information, (iii) of the issuance by the Commission or any other
federal or state governmental authority of any stop order suspending the
effectiveness of a Registration Statement covering any or all of the Registrable
Securities or the initiation of any Proceedings for that purpose, (iv) of the
receipt by the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose, (v) of the occurrence of any event or passage of
time that makes the financial statements included in a Registration Statement
ineligible for inclusion therein or any statement made in a Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to a Registration Statement, Prospectus or other
documents so that, in the case of a Registration Statement or the Prospectus, as
the case may be, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and (vi) of the occurrence or existence of any pending
corporate development with respect to the Company that the Company believes may
be material and that, in the determination of the Company, makes it not in the
best interest of the Company to allow continued availability of a Registration
Statement or Prospectus; provided, however, that in no event shall any such
notice contain any information which would constitute material, non-public
information regarding the Company or any of its Subsidiaries.

 

(e) Use its best efforts to avoid the issuance of, or, if issued, obtain the
withdrawal of (i) any order stopping or suspending the effectiveness of a
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.

 

(f) Furnish to each Holder, without charge, at least one conformed copy of each
such Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference to the extent requested by such Person, and
all exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission; provided, that any such item which is available
on the EDGAR system (or successor thereto) need not be furnished in physical
form.

 

9

 

 

(g) Subject to the terms of this Agreement, the Company hereby consents to the
use of such Prospectus and each amendment or supplement thereto by each of the
selling Holders in connection with the offering and sale of the Registrable
Securities covered by such Prospectus and any amendment or supplement thereto,
except after the giving of any notice pursuant to Section 3(d).

 

(h) Prior to any resale of Registrable Securities by a Holder, use its
commercially reasonable efforts to register or qualify or cooperate with the
selling Holders in connection with the registration or qualification (or
exemption from the Registration or qualification) of such Registrable Securities
for the resale by the Holder under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder reasonably requests in
writing, to keep each registration or qualification (or exemption therefrom)
effective during the Effectiveness Period and to do any and all other acts or
things reasonably necessary to enable the disposition in such jurisdictions of
the Registrable Securities covered by each Registration Statement, provided that
the Company shall not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified, subject the Company to any
material tax in any such jurisdiction where it is not then so subject or file a
general consent to service of process in any such jurisdiction.

 

(i) If requested by a Holder, cooperate with such Holder to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be delivered to a transferee pursuant to a Registration Statement,
which certificates shall be free, to the extent permitted by the Purchase
Agreement, of all restrictive legends, and to enable such Registrable Securities
to be in such denominations and registered in such names as any such Holder may
request.

 

(j) Upon the occurrence of any event contemplated by Section 3(d), as promptly
as reasonably possible under the circumstances taking into account the Company’s
good faith assessment of any adverse consequences to the Company and its
stockholders of the premature disclosure of such event, prepare a supplement or
amendment, including a post-effective amendment, to a Registration Statement or
a supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither a Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. If the Company notifies the Holders in accordance with clauses
(iii) through (vi) of Section 3(d) above to suspend the use of any Prospectus
until the requisite changes to such Prospectus have been made, then the Holders
shall suspend use of such Prospectus. The Company will use its best efforts to
ensure that the use of the Prospectus may be resumed as promptly as is
practicable. The Company shall be entitled to exercise its right under this
Section 3(j) to suspend the availability of a Registration Statement and
Prospectus, subject to the payment of partial liquidated damages otherwise
required pursuant to Section 2(d), for a period not to exceed 60 calendar days
(which need not be consecutive days) in any 12-month period.

 

10

 

 

(k) Otherwise use commercially reasonable efforts to comply with all applicable
rules and regulations of the Commission under the Securities Act and the
Exchange Act, including, without limitation, Rule 172 under the Securities Act,
file any final Prospectus, including any supplement or amendment thereof, with
the Commission pursuant to Rule 424 under the Securities Act, promptly inform
the Holders in writing if, at any time during the Effectiveness Period, the
Company does not satisfy the conditions specified in Rule 172 and, as a result
thereof, the Holders are required to deliver a Prospectus in connection with any
disposition of Registrable Securities and take such other actions as may be
reasonably necessary to facilitate the registration of the Registrable
Securities hereunder.

 

(l) The Company shall use its best efforts to maintain eligibility for use of
Form S-3 (or any successor form thereto) for the registration of the resale of
Registrable Securities.

 

(m) The Company may require each selling Holder to furnish to the Company a
certified statement as to the number of shares of Common Stock beneficially
owned by such Holder and, if required by the Commission, the natural persons
thereof that have voting and dispositive control over the shares. During any
periods that the Company is unable to meet its obligations hereunder with
respect to the registration of the Registrable Securities solely because any
Holder fails to furnish such information within three Trading Days of the
Company’s request, any liquidated damages that are accruing at such time as to
such Holder only shall be tolled and any Event that may otherwise occur solely
because of such delay shall be suspended as to such Holder only, until such
information is delivered to the Company.

 

4. Registration Expenses. All fees and expenses incident to the performance of
or compliance with, this Agreement by the Company shall be borne by the Company
whether or not any Registrable Securities are sold pursuant to a Registration
Statement. The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses of the Company’s counsel and independent
registered public accountants) (A) with respect to filings made with the
Commission, (B) with respect to filings required to be made with any Trading
Market on which the Common Stock is then listed for trading, and (C) in
compliance with applicable state securities or Blue Sky laws reasonably agreed
to by the Company in writing (including, without limitation, fees and
disbursements of counsel for the Company in connection with Blue Sky
qualifications or exemptions of the Registrable Securities), (ii) printing
expenses (including, without limitation, expenses of printing certificates for
Registrable Securities), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company, (v) Securities Act liability
insurance, if the Company so desires such insurance, (vi) reasonable fees and
expenses of one counsel to the Holders (up to $10,000); and (vii) fees and
expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement. In addition,
the Company shall be responsible for all of its internal expenses incurred in
connection with the consummation of the transactions contemplated by this
Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit and the fees and expenses incurred in connection with the
listing of the Registrable Securities on any securities exchange as required
hereunder. In no event shall the Company be responsible for any broker or
similar commissions of any Holder or, except to the extent provided for in the
Transaction Documents, any legal fees or other costs of the Holders.

 

11

 

 

5.Indemnification.

 

(a) Indemnification by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, members, partners, agents, brokers (including brokers who
offer and sell Registrable Securities as principal as a result of a pledge or
any failure to perform under a margin call of Common Stock), investment advisors
and employees (and any other Persons with a functionally equivalent role of a
Person holding such titles, notwithstanding a lack of such title or any other
title) of each of them, each Person who controls any such Holder (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and the officers, directors, members, stockholders, partners, agents and
employees (and any other Persons with a functionally equivalent role of a Person
holding such titles, notwithstanding a lack of such title or any other title) of
each such controlling Person, to the fullest extent permitted by applicable law,
from and against any and all losses, claims, damages, liabilities, costs
(including, without limitation, reasonable attorneys’ fees) and expenses
(collectively, “Losses”), as incurred, arising out of or relating to (1) any
untrue or alleged untrue statement of a material fact contained in a
Registration Statement, any Prospectus or any form of prospectus or in any
amendment or supplement thereto or in any preliminary prospectus, or arising out
of or relating to any omission or alleged omission of a material fact required
to be stated therein or necessary to make the statements therein (in the case of
any Prospectus or supplement thereto, in light of the circumstances under which
they were made) not misleading or (2) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act or any state securities law, or
any rule or regulation thereunder, in connection with the performance of its
obligations under this Agreement, except to the extent, but only to the extent,
that (i) such untrue statements or omissions are based solely upon information
regarding such Holder furnished in writing to the Company by such Holder
expressly for use therein, or to the extent that such information relates to
such Holder or such Holder’s proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in a Registration Statement, such Prospectus or in any
amendment or supplement thereto (it being understood that the Holder has
approved Annex A hereto for this purpose) or (ii) in the case of an occurrence
of an event of the type specified in Section 3(d)(iii)-(vi), the use by such
Holder of an outdated, defective or otherwise unavailable Prospectus after the
Company has notified such Holder in writing that the Prospectus is outdated,
defective or otherwise unavailable for use by such Holder and prior to the
receipt by such Holder of the Advice contemplated in Section 6(d). The Company
shall notify the Holders promptly of the institution, threat or assertion of any
Proceeding arising from or in connection with the transactions contemplated by
this Agreement of which the Company is aware. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
such indemnified person and shall survive the transfer of any Registrable
Securities by any of the Holders in accordance with Section 6(h).

 

12

 

 

(b) Indemnification by Holders. Each Holder shall, severally and not jointly,
indemnify and hold harmless the Company, its directors, officers, agents and
employees, each Person who controls the Company (within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act), and the directors,
officers, agents or employees of such controlling Persons, to the fullest extent
permitted by applicable law, from and against all Losses, as incurred, to the
extent arising out of or based solely upon: any untrue or alleged untrue
statement of a material fact contained in any Registration Statement, any
Prospectus, or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or supplement thereto, in
light of the circumstances under which they were made) not misleading (i) to the
extent, but only to the extent, that such untrue statement or omission is
contained in any information so furnished in writing by such Holder to the
Company expressly for inclusion in such Registration Statement or such
Prospectus or (ii) to the extent, but only to the extent, that such information
relates to such Holder’s information provided in the Selling Stockholder Notice
and Questionnaire or the proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in a Registration Statement (it being understood that the
Holder has approved Annex A hereto for this purpose), such Prospectus or in any
amendment or supplement thereto. In no event shall the liability of a selling
Holder be greater in amount than the dollar amount of the proceeds (net of all
expenses paid by such Holder in connection with any claim relating to this
Section 5 and the amount of any damages such Holder has otherwise been required
to pay by reason of such untrue statement or omission) received by such Holder
upon the sale of the Registrable Securities included in the Registration
Statement giving rise to such indemnification obligation.

 

(c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought
or asserted against any Person entitled to indemnity hereunder (an “Indemnified
Party”), such Indemnified Party shall promptly notify the Person from whom
indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying
Party shall have the right to assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof,
provided that the failure of any Indemnified Party to give such notice shall not
relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have materially and
adversely prejudiced the Indemnifying Party.

 

13

 

 

An Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (1) the Indemnifying Party has agreed in writing to pay such fees and
expenses, (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding, or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified Party
and the Indemnifying Party, and counsel to the Indemnified Party shall
reasonably believe that a material conflict of interest is likely to exist if
the same counsel were to represent such Indemnified Party and the Indemnifying
Party (in which case, if such Indemnified Party notifies the Indemnifying Party
in writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
the defense thereof and the reasonable fees and expenses of no more than one
separate counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld or delayed. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding.

 

Subject to the terms of this Agreement, all reasonable fees and expenses of the
Indemnified Party (including reasonable fees and expenses to the extent incurred
in connection with investigating or preparing to defend such Proceeding in a
manner not inconsistent with this Section) shall be paid to the Indemnified
Party, as incurred, within ten Trading Days of written notice thereof to the
Indemnifying Party, provided that the Indemnified Party shall promptly reimburse
the Indemnifying Party for that portion of such fees and expenses applicable to
such actions for which such Indemnified Party is finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) not to be entitled to indemnification hereunder.

 

(d) Contribution. If the indemnification under Section 5(a) or 5(b) is
unavailable to an Indemnified Party or insufficient to hold an Indemnified Party
harmless for any Losses, then each Indemnifying Party shall contribute to the
amount paid or payable by such Indemnified Party, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in this Agreement, any reasonable attorneys’ or
other fees or expenses incurred by such party in connection with any Proceeding
to the extent such party would have been indemnified for such fees or expenses
if the indemnification provided for in this Section was available to such party
in accordance with its terms.

 

14

 

 

The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph. In no event
shall the contribution obligation of a Holder of Registrable Securities be
greater in amount than the dollar amount of the proceeds (net of all expenses
paid by such Holder in connection with any claim relating to this Section 5 and
the amount of any damages such Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission) received by it upon the sale of the Registrable Securities giving rise
to such contribution obligation.

 

The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.

 

6. Miscellaneous.

 

(a) Remedies. In the event of a breach by the Company or by a Holder of any of
their respective obligations under this Agreement, each Holder or the Company,
as the case may be, in addition to being entitled to exercise all rights granted
by law and under this Agreement, including recovery of damages, shall be
entitled to specific performance of its rights under this Agreement. Each of the
Company and each Holder agrees that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall not assert
or shall waive the defense that a remedy at law would be adequate.

 

(b) No Piggyback on Registrations; Prohibition on Filing Other Registration
Statements. Neither the Company nor any of its security holders (other than the
Holders in such capacity pursuant hereto) may include securities of the Company
in any Registration Statements other than the Registrable Securities. The
Company shall not file any other registration statements until all Registrable
Securities are registered pursuant to a Registration Statement that is declared
effective by the Commission, provided that this Section 6(b) shall not prohibit
the Company from filing amendments to registration statements filed prior to the
date of this Agreement.

 

(c) [RESERVED]

 

(d) Discontinued Disposition. By its acquisition of Registrable Securities, each
Holder agrees that, upon receipt of a notice from the Company of the occurrence
of any event of the kind described in Section 3(d)(iii) through (vi), such
Holder will forthwith discontinue disposition of such Registrable Securities
under a Registration Statement until it is advised in writing (the “Advice”) by
the Company that the use of the applicable Prospectus (as it may have been
supplemented or amended) may be resumed. The Company will use its best efforts
to ensure that the use of the Prospectus may be resumed as promptly as is
practicable. The Company agrees and acknowledges that any periods during which
the Holder is required to discontinue the disposition of the Registrable
Securities hereunder shall be subject to the provisions of Section 2(d).

 

15

 

 

(e) Piggy-Back Registrations. If, at any time during the Effectiveness Period,
there is not an effective Registration Statement covering all of the Registrable
Securities, and in particular the Warrant Shares, and the Company shall
determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than on Form S-4 or Form
S-8 (each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with the Company’s stock option or other employee benefit plans, then
the Company shall deliver to each Holder a written notice of such determination
and, if within fifteen days after the date of the delivery of such notice, any
such Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
Holder requests to be registered; provided, however, that the Company shall not
be required to register any Registrable Securities pursuant to this Section 6(e)
that are eligible for resale pursuant to Rule 144 (without volume restrictions
or current public information requirements) promulgated by the Commission
pursuant to the Securities Act or that are the subject of a then effective
Registration Statement that is available for resales or other dispositions by
such Holder.

 

(f) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the same shall be in writing and signed by the Company and the Holders of
50.1% or more of the then outstanding Registrable Securities (for purposes of
clarification, this includes any Registrable Securities issuable upon exercise
or conversion of any Security), provided that, if any amendment, modification or
waiver disproportionately and adversely impacts a Holder (or group of Holders),
the consent of such disproportionately impacted Holder (or group of Holders)
shall be required. If a Registration Statement does not register all of the
Registrable Securities pursuant to a waiver or amendment done in compliance with
the previous sentence, then the number of Registrable Securities to be
registered for each Holder shall be reduced pro rata among all Holders and each
Holder shall have the right to designate which of its Registrable Securities
shall be omitted from such Registration Statement. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of a Holder or some Holders
and that does not directly or indirectly affect the rights of other Holders may
be given only by such Holder or Holders of all of the Registrable Securities to
which such waiver or consent relates; provided, however, that the provisions of
this sentence may not be amended, modified, or supplemented except in accordance
with the provisions of the first sentence of this Section 6(f). No consideration
shall be offered or paid to any Person to amend or consent to a waiver or
modification of any provision of this Agreement unless the same consideration
also is offered to all of the parties to this Agreement.

 

(g) Notices. Any and all notices or other communications or deliveries required
or permitted to be provided hereunder shall be delivered as set forth in the
Purchase Agreement.

 

(h) Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the successors and permitted assigns of each of the parties and
shall inure to the benefit of each Holder. The Company may not assign (except by
merger) its rights or obligations hereunder without the prior written consent of
all of the Holders of the then outstanding Registrable Securities. Each Holder
may assign their respective rights hereunder in the manner and to the Persons as
permitted under Section 5.8 of the Purchase Agreement.

 

16

 

 

(i) No Inconsistent Agreements. Neither the Company nor any of its Subsidiaries
has entered, as of the date hereof, nor shall the Company or any of its
Subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities, that would have the effect of impairing the
rights granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Except as set forth on Schedule 6(i), neither the Company nor
any of its Subsidiaries has previously entered into any agreement granting any
registration rights with respect to any of its securities to any Person that
have not been satisfied in full.

 

(j) Execution and Counterparts. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a “.pdf” format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or “.pdf” signature page were an original
thereof.

 

(k) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be determined in
accordance with the provisions of the Purchase Agreement.

 

(l) Cumulative Remedies. The remedies provided herein are cumulative and not
exclusive of any other remedies provided by law.

 

(m) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.

 

(n) Headings. The headings in this Agreement are for convenience only, do not
constitute a part of the Agreement and shall not be deemed to limit or affect
any of the provisions hereof.

 

17

 

 

(o) Independent Nature of Holders’ Obligations and Rights. The obligations of
each Holder hereunder are several and not joint with the obligations of any
other Holder hereunder, and no Holder shall be responsible in any way for the
performance of the obligations of any other Holder hereunder. Nothing contained
herein or in any other agreement or document delivered at any closing, and no
action taken by any Holder pursuant hereto or thereto, shall be deemed to
constitute the Holders as a partnership, an association, a joint venture or any
other kind of group or entity, or create a presumption that the Holders are in
any way acting in concert or as a group or entity with respect to such
obligations or the transactions contemplated by this Agreement or any other
matters, and the Company acknowledges that the Holders are not acting in concert
or as a group, and the Company shall not assert any such claim, with respect to
such obligations or transactions. Each Holder shall be entitled to protect and
enforce its rights, including without limitation the rights arising out of this
Agreement, and it shall not be necessary for any other Holder to be joined as an
additional party in any proceeding for such purpose. The use of a single
agreement with respect to the obligations of the Company contained was solely in
the control of the Company, not the action or decision of any Holder, and was
done solely for the convenience of the Company and not because it was required
or requested to do so by any Holder. It is expressly understood and agreed that
each provision contained in this Agreement is between the Company and a Holder,
solely, and not between the Company and the Holders collectively and not between
and among Holders.

 

********************

 

(Signature Pages Follow)

 

18

 

 

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

 

  PHUNWARE INC.         By:       Name:     Title:

 

 

 

 

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

 

 

 

 

SIGNATURE PAGE OF HOLDERS TO RRA

 

Name of
Holder:                                                                                              

 

Signature of Authorized Signatory of Holder:
                                                                                              

 

Name of Authorized Signatory:
                                                                                              

 

Title of Authorized Signatory:
                                                                                              

 

 

 

[SIGNATURE PAGES CONTINUE]

 

 

 

 

Annex A

 

Plan of Distribution

 

Each Selling Stockholder (the “Selling Stockholders”) of the securities and any
of their pledgees, assignees and successors-in-interest may, from time to time,
sell any or all of their securities covered hereby on the principal Trading
Market or any other stock exchange, market or trading facility on which the
securities are traded or in private transactions. These sales may be at fixed or
negotiated prices. A Selling Stockholder may use any one or more of the
following methods when selling securities:

 

●ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;

 

●block trades in which the broker-dealer will attempt to sell the securities as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;

 

●purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;

 

●an exchange distribution in accordance with the rules of the applicable
exchange;

 

●privately negotiated transactions;

 

●settlement of short sales;

 

●in transactions through broker-dealers that agree with the Selling Stockholders
to sell a specified number of such securities at a stipulated price per
security;

 

●through the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;

 

●a combination of any such methods of sale; or

 

●any other method permitted pursuant to applicable law.

 

The Selling Stockholders may also sell securities under Rule 144 or any other
exemption from registration under the Securities Act of 1933, as amended (the
“Securities Act”), if available, rather than under this prospectus.

 

Broker-dealers engaged by the Selling Stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as
agent for the purchaser of securities, from the purchaser) in amounts to be
negotiated, but, except as set forth in a supplement to this Prospectus, in the
case of an agency transaction not in excess of a customary brokerage commission
in compliance with FINRA Rule 2440; and in the case of a principal transaction a
markup or markdown in compliance with FINRA IM-2440.

 

 

 

 

In connection with the sale of the securities or interests therein, the Selling
Stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the
securities in the course of hedging the positions they assume. The Selling
Stockholders may also sell securities short and deliver these securities to
close out their short positions, or loan or pledge the securities to
broker-dealers that in turn may sell these securities. The Selling Stockholders
may also enter into option or other transactions with broker-dealers or other
financial institutions or create one or more derivative securities which require
the delivery to such broker-dealer or other financial institution of securities
offered by this prospectus, which securities such broker-dealer or other
financial institution may resell pursuant to this prospectus (as supplemented or
amended to reflect such transaction).

 

The Selling Stockholders and any broker-dealers or agents that are involved in
selling the securities may be deemed to be “underwriters” within the meaning of
the Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
securities purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each Selling Stockholder has informed the
Company that it does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the securities.

 

The Company is required to pay certain fees and expenses incurred by the Company
incident to the registration of the securities. The Company has agreed to
indemnify the Selling Stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.

 

We agreed to keep this prospectus effective until the earlier of (i) the date on
which the securities may be resold by the Selling Stockholders without
registration and without regard to any volume or manner-of-sale limitations by
reason of Rule 144, without the requirement for the Company to be in compliance
with the current public information under Rule 144 under the Securities Act or
any other rule of similar effect or (ii) all of the securities have been sold
pursuant to this prospectus or Rule 144 under the Securities Act or any other
rule of similar effect. The resale securities will be sold only through
registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states, the resale securities covered
hereby may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.

 

Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the resale securities may not simultaneously
engage in market making activities with respect to the common stock for the
applicable restricted period, as defined in Regulation M, prior to the
commencement of the distribution. In addition, the Selling Stockholders will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including Regulation M, which may limit the timing of
purchases and sales of the common stock by the Selling Stockholders or any other
person. We will make copies of this prospectus available to the Selling
Stockholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale (including by
compliance with Rule 172 under the Securities Act).

 

 

 

 

Annex B

 

SELLING STOCKOLDERS

 

The common stock being offered by the selling stockholders are those previously
issued to the selling stockholders, and those issuable to the selling
stockholders, upon exercise of the warrants. For additional information
regarding the issuances of those shares of common stock and warrants, see
“Private Placement of Common Shares and Warrants” above. We are registering the
shares of common stock in order to permit the selling stockholders to offer the
shares for resale from time to time. Except for the ownership of the shares of
common stock and the warrants, the selling stockholders have not had any
material relationship with us within the past three years.

 

The table below lists the selling stockholders and other information regarding
the beneficial ownership of the shares of common stock by each of the selling
stockholders. The second column lists the number of shares of common stock
beneficially owned by each selling stockholder, based on its ownership of the
shares of common stock and warrants, as of                      , 2018, assuming
exercise of the warrants held by the selling stockholders on that date, without
regard to any limitations on exercises.

 

The third column lists the shares of common stock being offered by this
prospectus by the selling stockholders.

 

In accordance with the terms of a registration rights agreement with the selling
stockholders, this prospectus generally covers the resale of the sum of (i) the
number of shares of common stock issued to the selling stockholders in the
                                     and (ii) the maximum number of shares of
common stock issuable upon exercise of the related warrants, determined as if
the outstanding warrants were exercised in full as of the trading day
immediately preceding the date this registration statement was initially filed
with the SEC, each as of the trading day immediately preceding the applicable
date of determination and all subject to adjustment as provided in the
registration right agreement, without regard to any limitations on the exercise
of the warrants. The fourth column assumes the sale of all of the shares offered
by the selling stockholders pursuant to this prospectus.

 

Under the terms of the warrants, a selling stockholder may not exercise the
warrants to the extent such exercise would cause such selling stockholder,
together with its affiliates and attribution parties, to beneficially own a
number of shares of common stock which would exceed 4.99% of our then
outstanding common stock following such exercise, excluding for purposes of such
determination shares of common stock issuable upon exercise of the warrants
which have not been exercised. The number of shares in the second column does
not reflect this limitation. The selling stockholders may sell all, some or none
of their shares in this offering. See “Plan of Distribution.”

 

Name of Selling Stockholder  Number of shares of
Common Stock Owned
Prior to Offering  Maximum Number of
shares of Common Stock
to be Sold Pursuant to this
Prospectus  Number of shares of
Common Stock Owned
After Offering                                 

 

 

 

 

Annex C

 

Phunware Inc.

 

Selling Stockholder Notice and Questionnaire

 

The undersigned beneficial owner of common stock (the “Registrable Securities”)
of Phunware Inc., a Delaware corporation (the “Company”), understands that the
Company has filed or intends to file with the Securities and Exchange Commission
(the “Commission”) a registration statement (the “Registration Statement”) for
the registration and resale under Rule 415 of the Securities Act of 1933, as
amended (the “Securities Act”), of the Registrable Securities, in accordance
with the terms of the Registration Rights Agreement (the “Registration Rights
Agreement”) to which this document is annexed. A copy of the Registration Rights
Agreement is available from the Company upon request at the address set forth
below. All capitalized terms not otherwise defined herein shall have the
meanings ascribed thereto in the Registration Rights Agreement.

 

Certain legal consequences arise from being named as a selling stockholder in
the Registration Statement and the related prospectus. Accordingly, holders and
beneficial owners of Registrable Securities are advised to consult their own
securities law counsel regarding the consequences of being named or not being
named as a selling stockholder in the Registration Statement and the related
prospectus.

 

NOTICE

 

The undersigned beneficial owner (the “Selling Stockholder”) of Registrable
Securities hereby elects to include the Registrable Securities owned by it in
the Registration Statement.

 

 

 

 

The undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1.Name.

 

(a)Full Legal Name of Selling Stockholder        

 

(b)Full Legal Name of Registered Holder (if not the same as (a) above) through
which Registrable Securities are held:        

 

(c)Full Legal Name of Natural Control Person (which means a natural person who
directly or indirectly alone or with others has power to vote or dispose of the
securities covered by this Questionnaire):        

 

2.Address for Notices to Selling Stockholder:              Telephone:     Fax:
    Contact  Person:   

 

3.Broker-Dealer Status:

 

(a)Are you a broker-dealer?      Yes  ☐   No  ☐

 

(b)If “yes” to Section 3(a), did you receive your Registrable Securities as
compensation for investment banking services to the Company?      Yes  ☐   No  ☐

 

 

 

 

 Note:If “no” to Section 3(b), the Commission’s staff has indicated that you
should be identified as an underwriter in the Registration Statement.    
 Yes  ☐   No  ☐

  

(c)Are you an affiliate of a broker-dealer?      Yes  ☐   No  ☐

 

(d)If you are an affiliate of a broker-dealer, do you certify that you purchased
the Registrable Securities in the ordinary course of business, and at the time
of the purchase of the Registrable Securities to be resold, you had no
agreements or understandings, directly or indirectly, with any person to
distribute the Registrable Securities?      Yes  ☐   No  ☐

 

Note:If “no” to Section 3(d), the Commission’s staff has indicated that you
should be identified as an underwriter in the Registration Statement.

 

4.Beneficial Ownership of Securities of the Company Owned by the Selling
Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial
or registered owner of any securities of the Company other than the securities
issuable pursuant to the Purchase Agreement.

 

(a)Type and Amount of other securities beneficially owned by the Selling
Stockholder:            

 

 

 

 

5.Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates,
officers, directors or principal equity holders (owners of 5% of more of the
equity securities of the undersigned) has held any position or office or has had
any other material relationship with the Company (or its predecessors or
affiliates) during the past three years.

 

State any exceptions here:         

 

The undersigned agrees to promptly notify the Company of any material
inaccuracies or changes in the information provided herein that may occur
subsequent to the date hereof at any time while the Registration Statement
remains effective; provided, that the undersigned shall not be required to
notify the Company of any changes to the number of securities held or owned by
the undersigned or its affiliates.

 

By signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items 1 through 5 and the inclusion of such
information in the Registration Statement and the related prospectus and any
amendments or supplements thereto. The undersigned understands that such
information will be relied upon by the Company in connection with the
preparation or amendment of the Registration Statement and the related
prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this
Notice and Questionnaire to be executed and delivered either in person or by its
duly authorized agent.

 

Date:     Beneficial Owner:          

 

      By:                       Name:           Title:  

 

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE
AND QUESTIONNAIRE TO: