Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT (“Agreement”) is made as of the 26th day of
November, 2014 by and among Aethlon Medical, Inc., a Nevada corporation (the
“Company”), and the Investors set forth on the signature pages affixed hereto
(each an “Investor” and collectively the “Investors”).

 

Recitals

 

A.          The Company and the Investors are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D (“Regulation D”), as promulgated by the U.S.
Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933,
as amended; and

 

B.          The Investors wish to purchase from the Company, and the Company
wishes to sell and issue to the Investors, upon the terms and conditions stated
in this Agreement, (i) an aggregate of 11,000,000 shares of the Company’s Common
Stock, par value $0.001 per share (together with any securities into which such
shares may be reclassified, whether by merger, charter amendment or otherwise,
the “Common Stock”), at purchase price of $0.30 per share, and (ii) warrants to
purchase an aggregate of 13,200,000 shares of Common Stock (subject to
adjustment) at an exercise price of $0.30 per share (subject to adjustment) in
the form attached hereto as Exhibit A (the “Warrants”); and

 

C.          Contemporaneous with the sale of the Common Stock and Warrants, the
parties hereto will execute and deliver a Registration Rights Agreement, in the
form attached hereto as Exhibit B (the “Registration Rights Agreement”),
pursuant to which the Company will agree to provide certain registration rights
to the Investors with respect to the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.

 

In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

 

1.     Definitions. In addition to those terms defined above and elsewhere in
this Agreement, for the purposes of this Agreement, the following terms shall
have the meanings set forth below:

 

“Affiliate” means, with respect to any Person, any other Person which directly
or indirectly through one or more intermediaries Controls, is controlled by, or
is under common Control with, such Person.

 

“Agent” means Roth Capital Partners, LLC.

 

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“Agent Related Persons” means any of the Agent’s directors, executive officers,
general partners, managing members or other officers participating in the
offering of the Securities.

 

“Business Day” means a day, other than a Saturday or Sunday, on which banks in
New York City are open for the general transaction of business.

 

“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, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.

 

“Company’s Knowledge” means the actual knowledge of the executive officers (as
defined in Rule 405 under the 1933 Act) of the Company, after due inquiry.

 

“Confidential Information” means trade secrets, confidential information and
know-how (including but not limited to ideas, formulae, compositions, processes,
procedures and techniques, research and development information, computer
program code, performance specifications, support documentation, drawings,
specifications, designs, business and marketing plans, and customer and supplier
lists and related information).

 

“Control” (including the terms “controlling”, “controlled by” or “under common
control with”) means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.

 

“Effective Date” means the date on which the initial Registration Statement is
declared effective by the SEC.

 

“Insider” means each director, executive officer, other officer of the Company
participating in the offering, any beneficial owner of 20% or more of the
Company’s outstanding voting equity securities, calculated on the basis of
voting power, and any promoter connected with the Company in any capacity on the
date hereof.

 

“Intellectual Property” means all of the following items as disclosed in the SEC
Filing: (i) patents, patent applications, patent disclosures and inventions
(whether or not patentable and whether or not reduced to practice); (ii)
trademarks, service marks, trade dress, trade names, corporate names, logos,
slogans and Internet domain names, together with all goodwill associated with
each of the foregoing; (iii) copyrights and copyrightable works; (iv)
registrations, applications and renewals for any of the foregoing; and (v)
proprietary computer software (including but not limited to data, data bases and
documentation).

 

“Material Adverse Effect” means a material adverse effect on (i) the assets,
liabilities, results of operations, condition (financial or otherwise),
business, or prospects of the Company and its Subsidiaries taken as a whole, or
(ii) the ability of the Company to perform its obligations under the Transaction
Documents.

 

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“Material Contract” means any contract, instrument or other agreement to which
the Company or any Subsidiary is a party or by which it is bound which is
material to the business of the Company and its Subsidiaries, taken as a whole,
including those that have been filed or were required to be filed as an exhibit
to the SEC Filings pursuant to Item 601(b)(4) or Item 601(b)(10) of Regulation
S-K.

 

“Person” means an individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company, joint venture,
sole proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.

 

“Purchase Price” means Three Million Three Hundred Thousand Dollars
($3,300,000).

 

“Registration Statement” has the meaning set forth in the Registration Rights
Agreement.

 

“Required Investors” means (i) prior to Closing the Investors who, together with
their Affiliates, have agreed to purchase a majority of the Securities to be
sold hereunder and (ii) from and after the Closing the Investors beneficially
owning (calculated in accordance with Rule 13d-3 under the 1934 Act without
giving effect to any limitation on exercise of the Warrants set forth therein) a
majority of the Shares and the Warrant Shares.

 

“SEC Filings” has the meaning set forth in Section 4.6.

 

“Securities” means the Shares, the Warrants and the Warrant Shares.

 

“Shares” means the shares of Common Stock being purchased by the Investors
hereunder.

 

“Subsidiary” of any Person means another Person, an amount of the voting
securities, other voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity interests of which) is owned directly or indirectly by such first Person.

 

“Transaction Documents” means this Agreement, the Warrants and the Registration
Rights Agreement.

 

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

 

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

 

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

 

2.     Purchase and Sale of the Shares and Warrants. Subject to the terms and
conditions of this Agreement, on the Closing Date, each of the Investors shall
severally, and not jointly, purchase, and the Company shall sell and issue to
the Investors, the Shares and Warrants in the respective amounts set forth
opposite the Investors’ names on the signature pages attached hereto in exchange
for the Purchase Price as specified in Section 3 below.

 

3.     Closing. Upon confirmation that the other conditions to closing specified
herein have been satisfied or duly waived by the Investors, (i) the Company
shall deliver to each Investor a certificate or certificates, registered in such
name or names of Investors as such Investor may designate, representing the
Shares and Warrants purchased by such Investor, and (ii) such Investor shall
cause a wire transfer in same day funds to be sent to the account of the Company
as instructed in writing by the Company, in an amount representing such
Investor’s pro rata portion of the Purchase Price as set forth on the signature
pages to this Agreement. The closing of the purchase and sale of the Shares and
Warrants (the “Closing”) shall take place at the offices of Lowenstein Sandler
LLP, 1251 Avenue of the Americas, 18th Floor, New York, New York 10020, or at
such other location and on such other date as the Company and the Investors
shall mutually agree. The date on which the Closing occurs is hereinafter
referred to as the “Closing Date.”

 

4.     Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investors that, except as set forth in the
schedules delivered herewith (collectively, the “Disclosure Schedules”):

 

4. 1          Organization, Good Standing and Qualification. Each of the Company
and its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to carry on its business as now
conducted and to own or lease its properties. Each of the Company and its
Subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property makes such qualification or leasing necessary
unless the failure to so qualify has not had and could not reasonably be
expected to have a Material Adverse Effect. The Company’s Subsidiaries are
listed on Schedule 4.1 hereto.

 

4.2          Authorization. The Company has full power and authority and has
taken all requisite action on the part of the Company, its officers, directors
and stockholders necessary for (i) the authorization, execution and delivery of
the Transaction Documents, (ii) the authorization of the performance of all
obligations of the Company hereunder or thereunder, and (iii) the authorization,
issuance (or reservation for issuance) and delivery of the Securities The
Transaction Documents constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability, relating to or affecting creditors’
rights generally and to general equitable principles.

 

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4.3          Capitalization. Schedule 4.3 sets forth as of the date hereof (a)
the authorized capital stock of the Company; (b) the number of shares of capital
stock issued and outstanding; (c) the number of shares of capital stock issuable
pursuant to the Company’s stock plans; and (d) the number of shares of capital
stock issuable and reserved for issuance pursuant to securities (other than the
Shares and the Warrants) exercisable for, or convertible into or exchangeable
for any shares of capital stock of the Company. All of the issued and
outstanding shares of the Company’s capital stock have been duly authorized and
validly issued and are fully paid, nonassessable and free of pre-emptive rights
and were issued in compliance with applicable state and federal securities law
and any rights of third parties except where failure to comply would not have a
Material Adverse Effect. Except as described on Schedule 4.3, all of the issued
and outstanding shares of capital stock of each Subsidiary have been duly
authorized and validly issued and are fully paid, nonassessable and free of
pre-emptive rights, were issued in compliance with applicable state and federal
securities law (except where failure to comply would not have a Material Adverse
Effect) and any rights of third parties and are owned by the Company,
beneficially and of record, subject to no lien, encumbrance or other adverse
claim. Except as described on Schedule 4.3, no Person is entitled to pre-emptive
or similar statutory or contractual rights with respect to any securities of the
Company. Except as described on Schedule 4.3, there are no outstanding warrants,
options, convertible securities or other rights, agreements or arrangements of
any character under which the Company or any of its Subsidiaries is or may be
obligated to issue any equity securities of any kind and except as contemplated
by this Agreement, neither the Company nor any of its Subsidiaries is currently
in negotiations for the issuance of any equity securities of any kind. Except as
described on Schedule 4.3 and except for the Registration Rights Agreement,
there are no voting agreements, buy-sell agreements, option or right of first
purchase agreements or other agreements of any kind among the Company and any of
the securityholders of the Company relating to the securities of the Company
held by them. Except as described on Schedule 4.3 and except as provided in the
Registration Rights Agreement, no Person has the right to require the Company to
register any securities of the Company under the 1933 Act, whether on a demand
basis or in connection with the registration of securities of the Company for
its own account or for the account of any other Person.

 

Except as described on Schedule 4.3, the issuance and sale of the Securities
hereunder will not obligate the Company to issue shares of Common Stock or other
securities to any other Person (other than the Investors) and will not result in
the adjustment of the exercise, conversion, exchange or reset price of any
outstanding security.

 

Except as described on Schedule 4.3, the Company does not have outstanding
stockholder purchase rights or “poison pill” or any similar arrangement in
effect giving any Person the right to purchase any equity interest in the
Company upon the occurrence of certain events.

 

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4.4     Valid Issuance. The Shares have been duly and validly authorized and,
when issued and paid for pursuant to this Agreement, will be validly issued,
fully paid and nonassessable, and shall be free and clear of all encumbrances
and restrictions (other than those created by the Investors), except for
restrictions on transfer set forth in the Transaction Documents or imposed by
applicable securities laws. The Warrants have been duly and validly authorized.
Upon the due exercise of the Warrants including the payment of the exercise
price or other exercise consideration thereunder, the Warrant Shares will be
validly issued, fully paid and non-assessable free and clear of all encumbrances
and restrictions, except for restrictions on transfer set forth in the
Transaction Documents or imposed by applicable securities laws and except for
those created by the Investors. The Company has reserved at least 11,000,000
shares of Common Stock for issuance upon the exercise of the Warrants.

 

4.5     Consents. The execution, delivery and performance by the Company of the
Transaction Documents and the offer, issuance and sale of the Securities require
no consent of, action by or in respect of, or filing with, any Person,
governmental body, agency, or official other than filings that have been made
pursuant to applicable state securities laws and post-sale filings pursuant to
applicable state and federal securities laws which the Company undertakes to
file within the applicable time periods. Subject to the accuracy of the
representations and warranties of each Investor set forth in Section 5 hereof,
the Company has taken all action necessary to exempt from the registration
requirements of the Securities Act (i) the issuance and sale of the Securities,
and (ii) the issuance of the Warrant Shares upon due exercise of the Warrants.

 

4.6     Delivery of SEC Filings; Business. The Company has made available to the
Investors through the EDGAR system, true and complete copies of the Company’s
most recent Annual Report on Form 10-K for the fiscal year ended March 31, 2014
(the “10-K”), and all other reports filed by the Company pursuant to the 1934
Act since the filing of the 10-K and prior to the date hereof (collectively, the
“SEC Filings”). To the Company’s Knowledge, the SEC Filings are the only filings
required of the Company pursuant to the 1934 Act for such period. The Company
and its Subsidiaries are engaged in all material respects only in the business
described in the SEC Filings and the SEC Filings contain a complete and accurate
description in all material respects of the business of the Company and its
Subsidiaries, taken as a whole.

 

4.7     Use of Proceeds. The net proceeds of the sale of the Shares and the
Warrants hereunder shall be used by the Company for working capital and general
corporate purposes.

 

4.8     No Material Adverse Change. Since March 31, 2014, except as described on
Schedule 4.8, there has not been:

 

(i)          any change in the consolidated assets, liabilities, financial
condition or operating results of the Company from that reflected in the
financial statements included in the Company’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2014, except for changes in the ordinary course
of business which have not had and could not reasonably be expected to have a
Material Adverse Effect, individually or in the aggregate;

 

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(ii)         any declaration or payment of any dividend, or any authorization or
payment of any distribution, on any of the capital stock of the Company, or any
redemption or repurchase of any securities of the Company;

 

(iii)        any material damage, destruction or loss, whether or not covered by
insurance to any assets or properties of the Company or its Subsidiaries;

 

(iv)        any waiver, not in the ordinary course of business, by the Company
or any Subsidiary of a material right or of a material debt owed to it;

 

(v)          any satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by the Company or a Subsidiary, except in the ordinary
course of business and which is not material to the assets, properties,
financial condition, operating results or business of the Company and its
Subsidiaries taken as a whole (as such business is presently conducted and as it
is proposed to be conducted);

 

(vi)         any change or amendment to the Company's Articles of Incorporation
or Bylaws, or material change to any material contract or arrangement by which
the Company or any Subsidiary is bound or to which any of their respective
assets or properties is subject;

 

(vii)        any material labor difficulties or labor union organizing
activities with respect to employees of the Company or any Subsidiary;

 

(viii)       any material transaction entered into by the Company or a
Subsidiary other than in the ordinary course of business;

 

(ix)          the loss of the services of any key employee, or material change
in the composition or duties of the senior management of the Company or any
Subsidiary;

 

(x)          the loss or threatened loss of any customer which has had or could
reasonably be expected to have a Material Adverse Effect; or

 

(xi)         any other event or condition of any character that has had or could
reasonably be expected to have a Material Adverse Effect.

 

4.9          SEC Filings.

 

(a)          At the time of filing thereof, the SEC Filings complied as to form
in all material respects with the requirements of the 1934 Act and did not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading.

 

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(b)          Each registration statement and any amendment thereto filed by the
Company since January 1, 2011 pursuant to the 1933 Act and the rules and
regulations thereunder, as of the date such statement or amendment became
effective, complied as to form in all material respects with the 1933 Act and
did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein not misleading; and each prospectus filed pursuant to
Rule 424(b) under the 1933 Act, as of its issue date and as of the closing of
any sale of securities pursuant thereto did not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.

 

(c)          To the Company’s Knowledge, the Company is eligible to use Form S-3
to register the Registrable Securities (as such term is defined in the
Registration Rights Agreement) for sale or other disposition by the Investors as
contemplated by the Registration Rights Agreement].

 

4.10          No Conflict, Breach, Violation or Default. The execution, delivery
and performance of the Transaction Documents by the Company and the issuance and
sale of the Securities will not (i) conflict with or result in a breach or
violation of (a) any of the terms and provisions of, or constitute a default
under the Company’s Articles of Incorporation or the Company’s Bylaws, both as
in effect on the date hereof (true and complete copies of which have been made
available to the Investors through the EDGAR system), or (b) any statute, rule,
regulation or order of any governmental agency or body or any court, domestic or
foreign, having jurisdiction over the Company, any Subsidiary or any of their
respective assets or properties, or (ii) 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 lien, encumbrance or other adverse claim
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 Contract.

 

4.11          Tax Matters. The Company and each Subsidiary has timely prepared
and filed all tax returns required to have been filed by the Company or such
Subsidiary with all appropriate governmental agencies and timely paid all taxes
shown thereon or otherwise owed by it. The charges, accruals and reserves on the
books of the Company in respect of taxes for all fiscal periods are adequate in
all material respects, and there are no material unpaid assessments against the
Company or any Subsidiary nor, to the Company’s Knowledge, any basis for the
assessment of any additional taxes, penalties or interest for any fiscal period
or audits by any federal, state or local taxing authority except for any
assessment which is not material to the Company and its Subsidiaries, taken as a
whole. All taxes and other assessments and levies that the Company or any
Subsidiary is required to withhold or to collect for payment have been duly
withheld and collected and paid to the proper governmental entity or third party
when due. There are no tax liens or claims pending or, to the Company’s
Knowledge, threatened against the Company or any Subsidiary or any of their
respective assets or property. Except as described on Schedule 4.11, there are
no outstanding tax sharing agreements or other such arrangements between the
Company and any Subsidiary or other corporation or entity.

 

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4.12          Title to Properties. Except as described on Schedule 4.12, the
Company and each Subsidiary has good and marketable title to all real properties
and all other properties and assets owned by it, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or currently planned to be made thereof
by them; and except as described on Schedule 4.12, the Company and each
Subsidiary holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.

 

4.13          Certificates, Authorities and Permits. The Company and each
Subsidiary possess adequate certificates, authorities or permits issued by
appropriate governmental agencies or bodies necessary to conduct the business
now operated by it, and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the Company or
such Subsidiary, could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate.

 

4.14          Labor Matters.

 

(a)          Except as set forth on Schedule 4.14, the Company is not a party to
or bound by any collective bargaining agreements or other agreements with labor
organizations. The Company has not violated in any material respect any laws,
regulations, orders or contract terms, affecting the collective bargaining
rights of employees, labor organizations or any laws, regulations or orders
affecting employment discrimination, equal opportunity employment, or employees’
health, safety, welfare, wages and hours.

 

(b)          (i) There are no labor disputes existing, or to the Company's
Knowledge, threatened, involving strikes, slow-downs, work stoppages, job
actions, disputes, lockouts or any other disruptions of or by the Company's
employees, (ii) there are no unfair labor practices or petitions for election
pending or, to the Company's Knowledge, threatened before the National Labor
Relations Board or any other federal, state or local labor commission relating
to the Company's employees, (iii) no demand for recognition or certification
heretofore made by any labor organization or group of employees is pending with
respect to the Company and (iv) to the Company's Knowledge, the Company enjoys
good labor and employee relations with its employees and labor organizations.

 

(c)          The Company is, and at all times has been, in compliance in all
material respects with all applicable laws respecting employment (including laws
relating to classification of employees and independent contractors) and
employment practices, terms and conditions of employment, wages and hours, and
immigration and naturalization. There are no claims pending against the Company
before the Equal Employment Opportunity Commission or any other administrative
body or in any court asserting any violation of Title VII of the Civil Rights
Act of 1964, the Age Discrimination Act of 1967, 42 U.S.C. §§ 1981 or 1983 or
any other federal, state or local Law, statute or ordinance barring
discrimination in employment.

 

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(d)          Except as described on Schedule 4.14, the Company is not a party
to, or bound by, any employment or other contract or agreement that contains any
severance, termination pay or change of control liability or obligation,
including, without limitation, any “excess parachute payment,” as defined in
Section 280G(b) of the Internal Revenue Code.

 

(e)          Except as described on Schedule 4.14, each of the Company's
employees is a Person who is either a United States citizen or a permanent
resident entitled to work in the United States. To the Company's Knowledge, the
Company has no liability for the improper classification by the Company of such
employees as independent contractors or leased employees prior to the Closing.

 

4.15          Intellectual Property.

 

(a)          All Intellectual Property of the Company and its Subsidiaries is
currently in compliance with all legal requirements (including timely filings,
proofs and payments of fees) and is valid and enforceable, except where the
failure to so comply would not cause a Material Adverse Effect. No Intellectual
Property of the Company or its Subsidiaries which is necessary for the conduct
of Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted has been or is now involved
in any cancellation, dispute or litigation, and, to the Company’s Knowledge, no
such action is threatened. No patent of the Company or its Subsidiaries has been
or is now involved in any interference, reissue, re-examination or opposition
proceeding.

 

(b)          All of the licenses and sublicenses and consent, royalty or other
agreements concerning Intellectual Property which are necessary for the conduct
of the Company’s and each of its Subsidiaries’ respective businesses as
currently conducted or as currently proposed to be conducted to which the
Company or any Subsidiary is a party or by which any of their assets are bound
(other than  generally commercially available, non-custom, off-the-shelf
software application programs having a retail acquisition price of less than
$10,000 per license) (collectively, “License Agreements”) are valid and binding
obligations of the Company or its Subsidiaries that are parties thereto and, to
the Company’s Knowledge, the other parties thereto, enforceable in accordance
with their terms, except to the extent that enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the enforcement of creditors’ rights generally, and
there exists no event or condition which will result in a material violation or
breach of or constitute (with or without due notice or lapse of time or both) a
default by the Company or any of its Subsidiaries under any such License
Agreement.

 

(c)          The Company and its Subsidiaries own or have the valid right to use
all of the Intellectual Property that is necessary for the conduct of the
Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted and for the ownership,
maintenance and operation of the Company’s and its Subsidiaries’ properties and
assets, free and clear of all liens, encumbrances, adverse claims or obligations
to license all such owned Intellectual Property and Confidential Information,
other than licenses entered into in the ordinary course of the Company’s and its
Subsidiaries’ businesses. The Company and its Subsidiaries have a valid and
enforceable right to use all third party Intellectual Property and Confidential
Information used or held for use in the respective businesses of the Company and
its Subsidiaries.

 

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(d)          To the Company’s Knowledge, the conduct of the Company’s and its
Subsidiaries’ businesses as currently conducted does not infringe or otherwise
impair or conflict with (collectively, “Infringe”) any Intellectual Property
rights of any third party or any confidentiality obligation owed to a third
party, and, to the Company’s Knowledge, the Intellectual Property and
Confidential Information of the Company and its Subsidiaries which are necessary
for the conduct of Company’s and each of its Subsidiaries’ respective businesses
as currently conducted or as currently proposed to be conducted are not being
Infringed by any third party. There is no litigation or order pending or
outstanding or, to the Company’s Knowledge, threatened or imminent, that seeks
to limit or challenge or that concerns the ownership, use, validity or
enforceability of any Intellectual Property or Confidential Information of the
Company and its Subsidiaries and the Company’s and its Subsidiaries’ use of any
Intellectual Property or Confidential Information owned by a third party, and,
to the Company’s Knowledge, there is no valid basis for the same.

 

(e)          The consummation of the transactions contemplated hereby and by the
other Transaction Documents will not result in the alteration, loss, impairment
of or restriction on the Company’s or any of its Subsidiaries’ ownership or
right to use any of the Intellectual Property or Confidential Information which
is necessary for the conduct of Company’s and each of its Subsidiaries’
respective businesses as currently conducted or as currently proposed to be
conducted.

 

(f)          The Company and its Subsidiaries have taken reasonable steps to
protect the Company’s and its Subsidiaries’ rights in their Intellectual
Property and Confidential Information. Each employee and consultant who has had
access to Confidential Information of the Company which is necessary for the
conduct of Company’s and each of its Subsidiaries’ respective businesses as
currently conducted or as currently proposed to be conducted has executed an
agreement to maintain the confidentiality of such Confidential Information and
has executed appropriate agreements that are substantially consistent with the
Company’s standard forms thereof. Except under confidentiality obligations,
there has been no material disclosure of any of the Company’s or its
Subsidiaries’ Confidential Information to any third party.

 

4.16          Environmental Matters. Neither the Company nor any Subsidiary is
in violation of any statute, rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to the
use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, “Environmental Laws”), owns or operates any real
property contaminated with any substance that is subject to any Environmental
Laws, is liable for any off-site disposal or contamination pursuant to any
Environmental Laws, or is subject to any claim relating to any Environmental
Laws, which violation, contamination, liability or claim has had or could
reasonably be expected to have a Material Adverse Effect, individually or in the
aggregate; and there is no pending or, to the Company’s Knowledge, threatened
investigation that might lead to such a claim.

 

11

 

 

4.17          Litigation. Except as described on Schedule 4.17, there are no
pending actions, suits or proceedings against or affecting the Company, its
Subsidiaries or any of its or their properties; and to the Company’s Knowledge,
no such actions, suits or proceedings are threatened or contemplated. Neither
the Company nor any Subsidiary, nor any director or officer thereof, is or since
January 1, 2009 has been the subject of any action involving a claim of
violation of or liability under federal or state securities laws or a claim of
breach of fiduciary duty. There has not been, and to the Company’s Knowledge,
there is not pending or contemplated, any investigation by the SEC involving the
Company or any current or former director or officer of the Company. The SEC has
not issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the 1933 Act
or the 1934 Act.

 

4.18          Financial Statements. The financial statements included in each
SEC Filing comply in all material respects with applicable accounting
requirements and the rules and regulations of the SEC with respect thereto as in
effect at the time of filing (or to the extent corrected by a subsequent
restatement) and present fairly, in all material respects, the consolidated
financial position of the Company as of the dates shown and its consolidated
results of operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with United States generally
accepted accounting principles applied on a consistent basis (“GAAP”) (except as
may be disclosed therein or in the notes thereto, and, in the case of quarterly
financial statements, as permitted by Form 10-Q under the 1934 Act). Except as
set forth in the financial statements of the Company included in the SEC Filings
filed prior to the date hereof or as described on Schedule 4.18, neither the
Company nor any of its Subsidiaries has incurred any liabilities, contingent or
otherwise, except those incurred in the ordinary course of business, consistent
(as to amount and nature) with past practices since the date of such financial
statements, none of which, individually or in the aggregate, have had or could
reasonably be expected to have a Material Adverse Effect.

 

4.19          Insurance Coverage. The Company and each Subsidiary maintains in
full force and effect insurance coverage that is customary for comparably
situated companies for the business being conducted and properties owned or
leased by the Company and each Subsidiary, and the Company reasonably believes
such insurance coverage to be adequate against all liabilities, claims and risks
against which it is customary for comparably situated companies to insure.

 

4.20          Compliance with Listing Requirements. The Common Stock is
registered pursuant to Section 12(g) of the 1934 Act and is quoted on OTCQB
maintained by OTC Markets Group Inc. (the “OTCBB”), and the Company has taken no
action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the 1934 Act or removal from quotation of
the Common Stock from the OTCBB, nor has the Company received any notification
that the SEC, the OTCBB or the Financial Industry Regulatory Authority, Inc. is
contemplating terminating such registration or quotation.

 

4.21          Brokers and Finders. Except for the Agent, no Person will have, as
a result of the transactions contemplated by the Transaction Documents, any
valid right, interest or claim against or upon the Company, any Subsidiary or an
Investor for any commission, fee or other compensation pursuant to any
agreement, arrangement or understanding entered into by or on behalf of the
Company. The Company shall pay all fees and expenses of the Agent.

 

12

 

 

4.22          No Directed Selling Efforts or General Solicitation. Neither the
Company nor any Person acting on its behalf has conducted any general
solicitation or general advertising (as those terms are used in Regulation D) in
connection with the offer or sale of any of the Securities.

 

4.23          No Integrated Offering. Neither the Company nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any Company security or solicited any
offers to buy any security, under circumstances that would adversely affect
reliance by the Company on Section 4(a)(2) for the exemption from registration
for the transactions contemplated hereby or would require registration of the
Securities under the 1933 Act.

 

4.24          Rule 506 Compliance. To the Company's Knowledge, neither the
Company nor any Insider is subject to any of the “Bad Actor” disqualifications
described in Rule 506(d)(1)(i) to (viii) under the 1933 Act (a “Disqualification
Event”), except for a Disqualification Event covered by Rule 506(d)(2)(i) or
(d)(3) of the 1933 Act. The Company is not disqualified from relying on Rule 506
of Regulation D under the 1933 Act (“Rule 506”) for any of the reasons stated in
Rule 506(d) in connection with the issuance and sale of the Securities to the
Investors pursuant to this Agreement. The Company has exercised reasonable care,
including without limitation, conducting a factual inquiry that is appropriate
in light of the circumstances, into whether any such disqualification under Rule
506(d) exists. The Company has furnished to each Investor, a reasonable time
prior to the date hereof, a description in writing of any matters relating to
the Company and the Insiders that would have triggered disqualification under
Rule 506(d) but which occurred before September 23, 2013, in each case, in
compliance with the disclosure requirements of Rule 506(e). The Company has
exercised reasonable care, including without limitation, conducting a factual
inquiry that is appropriate in light of the circumstances, into whether any such
disqualification under Rule 506(d) would have existed and whether any disclosure
is required to be made to Investor under Rule 506(e). Any outstanding securities
of the Company (of any kind or nature) that were issued in reliance on Rule 506
at any time on or after September 23, 2013 have been issued in compliance with
Rule 506(d) and (e).

 

4.25          Private Placement. Assuming the accuracy of the representations
and warranties of the Investors set forth in Section 5, and in reliance thereon
the offer and sale of the Securities to the Investors as contemplated hereby is
exempt from the registration requirements of the 1933 Act.

 

4.26          Shell Company Status. The Company is not, and has never been, an
issuer identified in Rule 144(i)(1).

 

4.27          Questionable Payments. Neither the Company nor any of its
Subsidiaries nor, to the Company’s Knowledge, any of their respective current or
former stockholders, directors, officers, employees, agents or other Persons
acting on behalf of the Company or any Subsidiary, has on behalf of the Company
or any Subsidiary or in connection with their respective businesses: (a) used
any corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (b) made any direct or
indirect unlawful payments to any governmental officials or employees from
corporate funds; (c) established or maintained any unlawful or unrecorded fund
of corporate monies or other assets; (d) made any false or fictitious entries on
the books and records of the Company or any Subsidiary; or (e) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment of
any nature.

 

13

 

 

4.28          Transactions with Affiliates. Except as described on Schedule
4.28, none of the officers or directors of the Company and, to the Company’s
Knowledge, none of the employees of the Company is presently a party to any
transaction with the Company or any Subsidiary (other than as holders of stock
options and/or warrants, and for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the Company’s Knowledge, any entity in which
any officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.

 

4.29          Internal Controls. The Company is in material compliance with the
provisions of the Sarbanes-Oxley Act of 2002 currently applicable to the
Company. The Company has established disclosure controls and procedures (as
defined in 1934 Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed
such disclosure controls and procedures to ensure that material information
relating to the Company, including the Subsidiaries, is made known to the
Company’s certifying officers by others within those entities. The Company has
established internal control over financial reporting (as defined in 1934 Act
Rules 13a-15(f) and 15d-15(f)) to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with GAAP. The Company's certifying officers
have evaluated the effectiveness of the Company's disclosure controls and
procedures as of the end of the period covered by the Company’s most recently
filed periodic report under the 1934 Act (such date, the “Disclosure Controls
Evaluation Date”). The Company presented in its most recently filed periodic
report under the 1934 Act the conclusions of the certifying officers about the
effectiveness of such disclosure controls and procedures based on their
evaluations as of the Disclosure Controls Evaluation Date. The Company's
certifying officers have evaluated the effectiveness of the Company's internal
control over financial reporting as of the end of the Company’s most recent
fiscal year (such date, the “Internal Control Evaluation Date”). The Company
presented in its most recently filed annual report under the 1934 Act the
conclusions of the certifying officers about the effectiveness of such internal
control over financial reporting based on their evaluations as of the Internal
Control Evaluation Date. Since the Disclosure Controls Evaluation Date, there
have been no significant changes in the Company's internal control over
financial reporting or, to the Company's Knowledge, in other factors that could
significantly affect the Company's internal control over financial reporting.
The Company maintains and will continue to maintain a standard system of
accounting established and administered in accordance with GAAP and the
applicable requirements of the 1934 Act.

 

14

 

 

4.30          Disclosures. Neither the Company nor any Person acting on its
behalf has provided the Investors or their agents or counsel with any
information that constitutes or might constitute material, non-public
information, other than the terms of the transactions contemplated hereby. The
written materials delivered to the Investors in connection with the transactions
contemplated by the Transaction Documents do not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.

 

4.31          Investment Company. The Company is not required to be registered
as, and is not an Affiliate of, and immediately following the Closing will not
be required to register as, an “investment company” within the meaning of the
Investment Company Act of 1940, as amended.

 

4.32          FDA. The Company and each of its Subsidiaries have operated and
currently are in compliance with all applicable rules and regulations of the FDA
or any other federal, state, local or foreign governmental body exercising
comparable authority, except where the failure to so operate or be in compliance
would not have a Material Adverse Effect. All preclinical and clinical studies
conducted by or, to the Company’s Knowledge, on behalf of the Company to support
approval for commercialization of the Company’s products have been conducted by
the Company, or to the Company’s Knowledge by third parties, in compliance with
all applicable federal, state or foreign laws, rules, orders and regulations,
except for such failure or failures to be in compliance which could not
reasonably be expected to have, singly or in the aggregate, a Material Adverse
Effect. The descriptions of the tests and preclinical and clinical studies, and
results thereof, conducted by or, to the Company’s Knowledge, on behalf of the
Company contained in the SEC Filings are accurate and complete in all material
respects; and the Company has not received any oral or written notice or
correspondence from the FDA or any foreign, state or local governmental body
exercising comparable authority requiring the termination, suspension, or
clinical hold of any tests or preclinical or clinical studies, or such written
notice or correspondence from any Institutional Review Board or comparable
authority requiring the termination or suspension of a clinical study, conducted
by or on behalf of the Company, which termination, suspension, or clinical hold
would reasonably be expected to have a Material Adverse Effect.

 

5.     Representations and Warranties of the Investors. Each Investor hereby
severally, and not jointly, represents and warrants to the Company that:

 

5.1          Organization and Existence. Such Investor is a validly existing
corporation, limited partnership or limited liability company and has all
requisite corporate, partnership or limited liability company power and
authority to invest in the Securities pursuant to this Agreement.

 

5.2          Authorization. The execution, delivery and performance by such
Investor of the Transaction Documents to which such Investor is a party have
been duly authorized and each will constitute the valid and legally binding
obligation of such Investor, enforceable against such Investor in accordance
with their respective terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors’ rights generally.

 

15

 

 

5.3          Purchase Entirely for Own Account. The Securities to be received by
such Investor hereunder will be acquired for such Investor’s own account, not as
nominee or agent, and not with a view to the resale or distribution of any part
thereof in violation of the 1933 Act, and such Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same in
violation of the 1933 Act without prejudice, however, to such Investor’s right
at all times to sell or otherwise dispose of all or any part of such Securities
in compliance with applicable federal and state securities laws. Nothing
contained herein shall be deemed a representation or warranty by such Investor
to hold the Securities for any period of time. Such Investor is not a
broker-dealer registered with the SEC under the 1934 Act or an entity engaged in
a business that would require it to be so registered.

 

5.4          Investment Experience. Such Investor acknowledges that it can bear
the economic risk and complete loss of its investment in the Securities and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment contemplated
hereby.

 

5.5          Disclosure of Information. Such Investor has had an opportunity to
receive all information related to the Company requested by it and to ask
questions of and receive answers from the Company regarding the Company, its
business and the terms and conditions of the offering of the Securities. Such
Investor acknowledges receipt of copies of the SEC Filings. Neither such
inquiries nor any other due diligence investigation conducted by such Investor
shall modify, limit or otherwise affect such Investor’s right to rely on the
Company’s representations and warranties contained in this Agreement.

 

5.6          Restricted Securities. Such Investor understands that the
Securities are characterized as “restricted securities” under the U.S. federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the 1933 Act only in certain limited circumstances.

 

5.7          Legends. It is understood that, except as provided below,
certificates evidencing the Securities may bear the following or any similar
legend:

 

(a)          “The securities represented hereby have 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, and, accordingly, may not be transferred unless (i) such
securities have been registered for sale pursuant to the Securities Act of 1933,
as amended, (ii) such securities may be sold pursuant to Rule 144, or (iii) the
Company has received an opinion of counsel reasonably satisfactory to it that
such transfer may lawfully be made without registration under the Securities Act
of 1933, as amended.”

 

16

 

 

(b)          If required by the authorities of any state in connection with the
issuance of sale of the Securities, the legend required by such state authority.

 

5.8          Investor Status. At the time such Investor was offered the
Securities, it was, and at the date hereof it is, an “accredited investor” as
defined in Rule 501(a) under the 1933 Act. Such Investor is not a registered
broker dealer registered under Section 15(a) of the Exchange Act, or a member of
the Financial Industry Regulatory Authority, Inc. (“FINRA”) or an entity engaged
in the business of being a broker dealer. Except as otherwise disclosed in
writing to the Company on or prior to the date of this Agreement, such Investor
is not affiliated with any broker dealer registered under Section 15(a) of the
1934 Act, or a member of FINRA or an entity engaged in the business of being a
broker dealer. Such Investor maintains its principal executive office at the
location specified on its signature page hereto. The Investor acknowledges that
it will be required to represent that it is an “accredited investor” as defined
in Rule 501(a) under the 1933 Act upon the exercise of the Warrant (other than
pursuant to a “cashless exercise” and prior to the issuance of the Warrant
Shares to the Investor.

 

5.9          No General Solicitation. To its knowledge, such Investor did not
learn of the investment in the Securities as a result of any general
solicitation or general advertising.

 

5.10         Brokers and Finders. No Person will have, as a result of the
transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of such Investor.

 

5.11         Prohibited Transactions. Since the earlier of (a) such time as such
Investor was first contacted by the Company or any other Person acting on behalf
of the Company regarding the transactions contemplated hereby or (b) thirty (30)
days prior to the date hereof, neither such Investor nor any Affiliate of such
Investor which (x) had knowledge of the transactions contemplated hereby, (y)
has or shares discretion relating to such Investor’s investments or trading or
information concerning such Investor’s investments, including in respect of the
Securities, or (z) is subject to such Investor’s review or input concerning such
Affiliate’s investments or trading (collectively, “Trading Affiliates”) has,
directly or indirectly, effected or agreed to effect any short sale, whether or
not against the box, established any “put equivalent position” (as defined in
Rule 16a-1(h) under the 1934 Act) with respect to the Common Stock, granted any
other right (including, without limitation, any put or call option) with respect
to the Common Stock or with respect to any security that includes, relates to or
derived any significant part of its value from the Common Stock or otherwise
sought to hedge its position in the Securities (each, a “Prohibited
Transaction”).

 

5.12         The Agent. Such Investor understands that the Agent has acted
solely as the agent of the Company in the placement of the Securities, and that
the Agent makes no representation or warranty with regard to the merits of this
transaction or as to the accuracy of any information such Investor may have
received in connection therewith. Such Investor acknowledges that it has not
relied on any information or advice furnished by or on behalf of the Agent.

 

17

 

 

6.     Conditions to Closing.

 

6.1          Conditions to the Investors’ Obligations. The obligation of each
Investor to purchase the Shares and the Warrants at the Closing is subject to
the fulfillment to such Investor’s satisfaction, on or prior to the Closing
Date, of the following conditions, any of which may be waived by such Investor
(as to itself only):

 

(a)          The representations and warranties made by the Company in Section 4
hereof qualified as to materiality shall be true and correct at all times prior
to and on the Closing Date, except to the extent any such representation or
warranty expressly speaks as of an earlier date, in which case such
representation or warranty shall be true and correct as of such earlier date,
and, the representations and warranties made by the Company in Section 4 hereof
not qualified as to materiality shall be true and correct in all material
respects at all times prior to and on the Closing Date, except to the extent any
such representation or warranty expressly speaks as of an earlier date, in which
case such representation or warranty shall be true and correct in all material
respects as of such earlier date. The Company shall have performed in all
material respects all obligations and covenants herein required to be performed
by it on or prior to the Closing Date.

 

(b)          The Company shall have obtained any and all consents, permits,
approvals, registrations and waivers necessary or appropriate for consummation
of the purchase and sale of the Securities and the consummation of the other
transactions contemplated by the Transaction Documents, all of which shall be in
full force and effect.

 

(c)          The Company shall have executed and delivered the Registration
Rights Agreement.

 

(d)          The Company shall have received gross proceeds from the sale of the
Shares and Warrants as contemplated hereby of at least Three Million Three
Hundred Thousand Dollars ($3,300,000).

 

(e)          No judgment, writ, order, injunction, award or decree of or by any
court, or judge, justice or magistrate, including any bankruptcy court or judge,
or any order of or by any governmental authority, shall have been issued, and no
action or proceeding shall have been instituted by any governmental authority,
enjoining or preventing the consummation of the transactions contemplated hereby
or in the other Transaction Documents.

 

(f)          The Company shall have delivered a Certificate, executed on behalf
of the Company by its Chief Executive Officer or its Chief Financial Officer,
dated as of the Closing Date, certifying to the fulfillment of the conditions
specified in subsections (a), (b), (e) and (i) of this Section 6.1.

 

(g)          The Company shall have delivered a Certificate, executed on behalf
of the Company by its Secretary, dated as of the Closing Date, certifying the
resolutions adopted by the Board of Directors of the Company approving the
transactions contemplated by this Agreement and the other Transaction Documents
and the issuance of the Securities, certifying the current versions of the
Articles of Incorporation and Bylaws of the Company and certifying as to the
signatures and authority of persons signing the Transaction Documents and
related documents on behalf of the Company.

 

18

 

 

(h)          The Investors shall have received an opinion from Raines Feldman
LLP, the Company's counsel, dated as of the Closing Date, in form and substance
reasonably acceptable to the Investors and addressing such legal matters as the
Investors may reasonably request.

 

(i)          No stop order or suspension of trading shall have been imposed by
OTCBB, the SEC or any other governmental or regulatory body with respect to
public trading in the Common Stock.

 

6.2          Conditions to Obligations of the Company. The Company's obligation
to sell and issue the Shares and the Warrants at the Closing is subject to the
fulfillment to the satisfaction of the Company on or prior to the Closing Date
of the following conditions, any of which may be waived by the Company:

 

(a)          The representations and warranties made by the Investors in Section
5 hereof, other than the representations and warranties contained in Sections
5.3, 5.4, 5.5, 5.6, 5.7, 5.8 and 5.9 (the “Investment Representations”), shall
be true and correct in all material respects when made, and shall be true and
correct in all material respects on the Closing Date with the same force and
effect as if they had been made on and as of said date. The Investment
Representations shall be true and correct in all respects when made, and shall
be true and correct in all respects on the Closing Date with the same force and
effect as if they had been made on and as of said date. The Investors shall have
performed in all material respects all obligations and covenants herein required
to be performed by them on or prior to the Closing Date.

 

(b)          The Investors shall have executed and delivered the Registration
Rights Agreement.

 

(c)          The Investors shall have delivered the Purchase Price to the
Company.

 

6.3          Termination of Obligations to Effect Closing; Effects.

 

(a)          The obligations of the Company, on the one hand, and the Investors,
on the other hand, to effect the Closing shall terminate as follows:

 

(i)          Upon the mutual written consent of the Company and the Investors;

 

19

 

 

(ii)         By the Company if any of the conditions set forth in Section 6.2
shall have become incapable of fulfillment, and shall not have been waived by
the Company;

 

(iii)        By an Investor (with respect to itself only) if any of the
conditions set forth in Section 6.1 shall have become incapable of fulfillment,
and shall not have been waived by the Investor; or

 

(iv)         By either the Company or any Investor (with respect to itself only)
if the Closing has not occurred on or prior to December 5, 2014;

 

provided, however, that, except in the case of clause (i) above, the party
seeking to terminate its obligation to effect the Closing shall not then be in
breach of any of its representations, warranties, covenants or agreements
contained in this Agreement or the other Transaction Documents if such breach
has resulted in the circumstances giving rise to such party’s seeking to
terminate its obligation to effect the Closing.

 

(b)          In the event of termination by the Company or any Investor of its
obligations to effect the Closing pursuant to this Section 6.3, written notice
thereof shall forthwith be given to the other Investors by the Company and the
other Investors shall have the right to terminate their obligations to effect
the Closing upon written notice to the Company and the other Investors. Nothing
in this Section 6.3 shall be deemed to release any party from any liability for
any breach by such party of the terms and provisions of this Agreement or the
other Transaction Documents or to impair the right of any party to compel
specific performance by any other party of its obligations under this Agreement
or the other Transaction Documents.

 

7.     Covenants and Agreements of the Company.

 

7.1          Reservation of Common Stock. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of providing for the exercise of the Warrants, such
number of shares of Common Stock as shall from time to time equal the number of
shares sufficient to permit the exercise of the Warrants issued pursuant to this
Agreement in accordance with their respective terms.

 

7.2          Reports. The Company will furnish to the Investors and/or their
assignees such information relating to the Company and its Subsidiaries as from
time to time may reasonably be requested by the Investors and/or their
assignees; provided, however, that the Company shall not disclose material
nonpublic information to the Investors, or to advisors to or representatives of
the Investors, unless prior to disclosure of such information the Company
identifies such information as being material nonpublic information and provides
the Investors, such advisors and representatives with the opportunity to accept
or refuse to accept such material nonpublic information for review and any
Investor wishing to obtain such information enters into an appropriate
confidentiality agreement with the Company with respect thereto.

 

20

 

 

7.3          No Conflicting Agreements. The Company will not take any action,
enter into any agreement or make any commitment that would conflict or interfere
in any material respect with the Company’s obligations to the Investors under
the Transaction Documents.

 

7.4          Insurance. The Company shall not materially reduce the insurance
coverages described in Section 4.19.

 

7.5          Compliance with Laws. The Company will comply in all material
respects with all applicable laws, rules, regulations, orders and decrees of all
governmental authorities.

 

7.6          Listing of Underlying Shares and Related Matters. Promptly
following the date hereof, the Company shall take all necessary action to cause
the Shares and the Warrant Shares to be included for quotation on the OTCBB no
later than the Closing Date. Further, if the Company applies to have its Common
Stock or other securities traded on any other stock exchange or market, it shall
include in such application the Shares and the Warrant Shares and will take such
other action as is necessary to cause such Common Stock to be so listed. The
Company will use commercially reasonable efforts to continue the public listing
and trading of its Common Stock and, in accordance, therewith, will use
commercially reasonable efforts to comply in all respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of such market
or exchange as the Common Stock is then listed or quoted, as applicable.

 

7.7          Termination of Covenants. The provisions of Sections 7.2 through
7.5 shall terminate and be of no further force and effect on the date on which
the Company’s obligations under the Registration Rights Agreement to register or
maintain the effectiveness of any registration covering the Registrable
Securities (as such term is defined in the Registration Rights Agreement) shall
terminate.

 

7.8          Removal of Legends. In connection with any sale or disposition of
the Securities by an Investor pursuant to Rule 144 or pursuant to any other
exemption under the 1933 Act such that the purchaser acquires freely tradable
shares and upon compliance by the Investor with the requirements of this
Agreement, the Company shall or, in the case of Common Stock, shall cause the
transfer agent for the Common Stock (the “Transfer Agent”) to issue replacement
certificates without restrictive legends. In addition, upon the earlier of (i)
the effectiveness of the registration for resale pursuant to the Registration
Rights Agreement or (ii) the Shares becoming freely tradable by a non-affiliate
pursuant to Rule 144, the Company shall (A) deliver to the Transfer Agent
irrevocable instructions that the Transfer Agent shall reissue a certificate
without legends upon receipt by such Transfer Agent of the legended certificates
for such shares, together with, solely with respect to a request to remove
restrictive legends pursuant to Rule 144, customary representations by the
Investor that the requisite holding period under Rule 144 with respect to the
shares of Common Stock represented thereby has been met and that the Investor is
not, and has not been, an Affiliate of the Company within a the ninety day
period preceding the proposed legend removal date, and (B) cause its counsel to
deliver to the Transfer Agent an opinion with respect to the Shares, and the
shares of Common Stock issued or issuable pursuant to the Warrants, held by the
requesting Investor to the effect that the removal of such legends on such
Shares and shares of Common Stock in such circumstances may be effected under
the 1933 Act. The Investor agrees to deliver the representations under clause
(ii) of the foregoing sentence in form and substance reasonably requested by
counsel to the Company. In addition, upon the reasonable request of the Company,
the Investor will represent that it has, or will comply with, the prospectus
delivery requirements (including any exemptions therefrom) for the sale of the
Shares and shares of Common Stock issuable pursuant to the Warrants under the
Registration Statement, if applicable. From and after the earlier of such dates,
upon an Investor’s written request, the Company shall promptly cause
certificates evidencing the Investor’s Securities to be replaced with
certificates which do not bear such restrictive legends, and Warrant Shares
subsequently issued upon due exercise of the Warrants shall not bear such
restrictive legends provided the provisions of either clause (i) or clause (ii)
above, as applicable, are satisfied with respect to such Warrant Shares. When
the Company is required to cause an unlegended certificate to replace a
previously issued legended certificate, if: (1) the unlegended certificate is
not delivered to an Investor within three (3) Trading Days (as defined in the
Registration Rights Agreement) of submission by that Investor of a legended
certificate and supporting documentation to the Transfer Agent as provided above
and (2) prior to the time such unlegended certificate is received by the
Investor, the Investor, or any third party on behalf of such Investor or for the
Investor’s account, purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Investor of
shares represented by such certificate (a “Buy-In”), then the Company shall pay
in cash to the Investor (for costs incurred either directly by such Investor or
on behalf of a third party) the amount by which the total purchase price paid
for Common Stock as a result of the Buy-In (including brokerage commissions, if
any) exceeds the proceeds received by such Investor as a result of the sale to
which such Buy-In relates. The Investor shall provide the Company written notice
indicating the amounts payable to the Investor in respect of the Buy-In.

 

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7.9          Subsequent Equity Sales; Registration Statements.

 

(a)          From the date hereof until the later of (i) ninety (90) days after
the Closing Date and (ii) thirty (30) days after the first Effective Date (as
defined in the Registration Rights Agreement) whereby all Registrable Securities
are registered for resale pursuant to an effective registration statement,
without the consent of the Required Investors, neither the Company nor any
Subsidiary shall issue shares of Common Stock or Common Stock Equivalents.
Notwithstanding the foregoing, the provisions of this Section 7.9(a) shall not
apply to (i) the Warrant Shares, (ii) the issuance of Common Stock or Common
Stock Equivalents upon the conversion or exercise of any securities of the
Company or a Subsidiary outstanding on the date hereof, provided that the terms
of such security are not amended after the date hereof to decrease the
conversion, exchange or exercise price, change of the term of any such security
or increase the Common Stock or Common Stock Equivalents receivable upon the
exercise, conversion or exchange thereof or (iii) the issuance of any Common
Stock or Common Stock Equivalents pursuant to any Company equity incentive plan
approved by the Company’s board of directors and in place as of the date hereof,
as the same may be amended from time to time (collectedly, the “Excluded
Securities”). In addition, nothing in this section 7.9(a) shall prohibit the
Company from filing a “shelf registration” for the purpose of future issuances
of securities, provided sales of securities under such registration statement do
not commence in the time frame set forth in the first sentence of this
paragraph.

 

(b)          From the date hereof until such time as no Investor holds any
unexercised Warrants (or portion thereof), the Company shall be prohibited from
effecting or entering into an agreement to effect any “Variable Rate
Transaction”. The term “Variable Rate Transaction” shall mean a transaction in
which the Company issues or sells (i) any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the right to
receive additional shares of Common Stock 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 debt or equity 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 debt or equity security or upon
the occurrence of specified or contingent events directly or indirectly related
to the business of the Company or the market for the Common Stock or (ii) enters
into any agreement, including, but not limited to, an equity line of credit,
whereby the Company may sell securities at a future determined price. For the
avoidance of doubt, the issuance of a security which is subject to anti-dilution
protections where the conversion, exercise or exchange price is subject to
adjustment as a result of stock splits, reverse stock splits and other similar
recapitalization or reclassification events, shall not be deemed to be a
“Variable Rate Transaction.”

 

(c)          The Company shall not, and shall use its commercially reasonable
efforts to ensure that no Affiliate of the Company shall, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the 1933 Act) that will be integrated with the offer or
sale of the Securities in a manner that would require the registration under the
1933 Act of the sale of the Securities to the Investors, or that will 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 stockholder
approval prior to the closing of such other transaction unless stockholder
approval is obtained before the closing of such subsequent transaction.

 

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(d)          The Company shall not, from the date hereof until ninety (90) days
after the first Effective Date upon which all Registrable Securities are
registered for resale pursuant to an effective registration statement, prepare
and file with the SEC a registration statement relating to an offering for its
own account or the account of others under the 1933 Act of any of its equity
securities, other than any registration statement or post-effective amendment to
a registration statement (or supplement thereto) relating to the Company’s
employee benefit plans registered on Form S-8 or, in connection with an
acquisition, on Form S-4. Notwithstanding the foregoing, nothing shall prohibit
the Company from filing a “shelf registration” for the purpose of future
issuances of securities, provided sales under such registration statement do not
commence in the time frame set forth in the first sentence of paragraph 7.9(a).

 

7.10         Equal Treatment of Investors. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Investor by the Company and negotiated separately by each Investor, and is
intended for the Company to treat the Investors as a class and shall not in any
way be construed as the Investors acting in concert or as a group with respect
to the purchase, disposition or voting of Securities or otherwise.

 

7.11         Reporting Status. Until the date that no Warrants remain
outstanding (the “Reporting Period”), the Company shall timely file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rule and regulations thereunder would no
longer require or otherwise permit such termination.

 

7.12         Financial Information. The Company agrees to send the following to
each Investor during the Reporting Period (i) unless the following are filed
with the SEC through EDGAR and are available to the public through the EDGAR
system, within one (1) Business Day after the filing thereof with the SEC, a
copy of its Annual Reports on Form 10-K, any Quarterly Reports on Form 10-Q, any
Current Reports on Form 8-K (or any analogous reports under the 1934 Act) and
any registration statements (other than on Form S-8) or amendments filed
pursuant to the 1933 Act, (ii) unless the following are filed with the SEC
through EDGAR and are available to the public through the EDGAR system or posted
to the Company’s website, on the same day as the release thereof, facsimile or
e-mailed 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 shareholders of the Company generally,
contemporaneously with the making available or giving thereof to the
shareholders.

 

23

 

 

7.13         Public Information. At any time during the period commencing from
the six (6) month anniversary of the Closing Date and ending at such time that
all of the Securities, if a registration statement is not available for the
resale of all of the Securities, may be sold without restriction or limitation
pursuant to Rule 144 and without the requirement to be in compliance with Rule
144(c)(1), if the Company shall (i) fail for any reason to satisfy the
requirements of Rule 144(c)(1), including, without limitation, the failure to
satisfy the current public information requirement under Rule 144(c) or (ii) if
the Company has ever been an issuer described in Rule 144(i)(1)(i) or becomes
such an issuer in the future, and the Company shall fail to satisfy any
condition set forth in Rule 144(i)(2) (a "Public Information Failure") then, as
partial relief for the damages to any Investors that still holds Securities by
reason of any such delay in or reduction of its ability to sell the Securities
(which remedy shall not be exclusive of any other remedies available at law or
in equity), the Company shall pay to each such holder an amount in cash equal to
two percent (2.0%) of the aggregate Purchase Price on the day of a Public
Information Failure and on every thirtieth day (pro-rated for periods totaling
less than thirty days) thereafter until the earlier of (i) the date such Public
Information Failure is cured and (ii) such time that such public information is
no longer required pursuant to Rule 144. The payments to which an Investor shall
be entitled pursuant to this Section 4(o) are referred to herein as "Public
Information Failure Payments." Public Information Failure Payments shall be paid
on the earlier of (I) the last day of the calendar month during which such
Public Information Failure Payments are incurred and (II) the third Business Day
after the event or failure giving rise to the Public Information Failure
Payments is cured. In the event the Company fails to make Public Information
Failure Payments in a timely manner, such Public Information Failure Payments
shall bear interest at the rate of 1.5% per month (prorated for partial months)
until paid in full.

 

7.14         Right of Participation.

 

(a)          For the purposes of this Section 7.14, the following definitions
shall apply.

 

(i)          "Convertible Securities" means any stock or securities (other than
Options) convertible into or exercisable or exchangeable for shares of Common
Stock.

 

(ii)         "Options" means any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.

 

(iii)        "Common Stock Equivalents" means, collectively, Options and
Convertible Securities.

 

(iv)        “Subsequent Placement” means any offer, sale, grant or any option to
purchase or other disposition of any of its or its Subsidiaries' debt, equity or
equity equivalent securities, including without limitation any debt, preferred
stock or other instrument or security that is, at any time during its life and
under any circumstances, convertible into or exchangeable or exercisable for
Common Stock or Common Stock Equivalents.

 

(b)          From the Closing Date until the two year anniversary of the Closing
Date, the Company will not, directly or indirectly, effect any Subsequent
Placement unless the Company shall have first complied with this Section
7.14(b).

 

(i)          The Company shall deliver to each Investor an irrevocable written
notice (the "Offer Notice") of any proposed or intended issuance or sale or
exchange (the "Offer") of the securities being offered (the "Offered
Securities") in a Subsequent Placement, which Offer Notice shall (w) identify
and describe the Offered Securities, (x) describe the price and other terms upon
which they are to be issued, sold or exchanged, and the number or amount of the
Offered Securities to be issued, sold or exchanged, (y) identify the persons or
entities (if known) to which or with which the Offered Securities are to be
offered, issued, sold or exchanged and (z) offer to issue and sell to or
exchange with such Investors at least thirty percent (30%) of the Offered
Securities, allocated among such Investors (a) based on such Investor's pro rata
portion of the number of shares of Common Stock purchased hereunder (the "Basic
Amount"), and (b) with respect to each Investor that elects to purchase its
Basic Amount, any additional portion of the Offered Securities attributable to
the Basic Amounts of other Investors as such Investor shall indicate it will
purchase or acquire should the other Investors subscribe for less than their
Basic Amounts (the "Undersubscription Amount"), which process shall be repeated
until the Investors shall have an opportunity to subscribe for any remaining
Undersubscription Amount.

 

24

 

 

(ii)         To accept an Offer, in whole or in part, such Investor must deliver
a written notice to the Company prior to the end of the third (3rd) Business Day
after such Investor's receipt of the Offer Notice (the "Offer Period"), setting
forth the portion of such Investor's Basic Amount that such Investor elects to
purchase and, if such Investor shall elect to purchase all of its Basic Amount,
the Undersubscription Amount, if any, that such Investor elects to purchase (in
either case, the "Notice of Acceptance"). If the Basic Amounts subscribed for by
all Investors are less than the total of all of the Basic Amounts, then each
Investor who has set forth an Undersubscription Amount in its Notice of
Acceptance shall be entitled to purchase, in addition to the Basic Amounts
subscribed for, the Undersubscription Amount it has subscribed for; provided,
however, that if the Undersubscription Amounts subscribed for exceed the
difference between the total of all the Basic Amounts and the Basic Amounts
subscribed for (the "Available Undersubscription Amount"), each Investor who has
subscribed for any Undersubscription Amount shall be entitled to purchase only
that portion of the Available Undersubscription Amount as the Basic Amount of
such Investor bears to the total Basic Amounts of all Investors that have
subscribed for Undersubscription Amounts, subject to rounding by the Company to
the extent its deems reasonably necessary. Notwithstanding anything to the
contrary contained herein, if the Company desires to modify or amend the terms
and conditions of the Offer prior to the expiration of the Offer Period, the
Company may deliver to the Investors a new Offer Notice and the Offer Period
shall expire on the third (3rd) Business Day after such Investor's receipt of
such new Offer Notice.

 

(iii)          The Company shall have twenty (20) Business Days from the
expiration of the Offer Period above to offer, issue, sell or exchange all or
any part of such Offered Securities as to which a Notice of Acceptance has not
been given by the Investors (the "Refused Securities") pursuant to a definitive
agreement (the "Subsequent Placement Agreement") but only to the offerees
described in the Offer Notice (if so described therein) and only upon terms and
conditions (including, without limitation, unit prices and interest rates) that
are not more favorable to the acquiring Person or Persons or less favorable to
the Company than those set forth in the Offer Notice and (ii) to publicly
announce (a) the execution of such Subsequent Placement Agreement, and (b)
either (x) the consummation of the transactions contemplated by such Subsequent
Placement Agreement or (y) the termination of such Subsequent Placement
Agreement, which shall be filed with the SEC on a Current Report on Form 8-K
with such Subsequent Placement Agreement and any documents contemplated therein
filed as exhibits thereto.

 

(iv)          In the event the Company shall propose to sell less than all the
Refused Securities (any such sale to be in the manner and on the terms specified
in Section 7.14(b)(iii) above), then each Investor may, at its sole option and
in its sole discretion, reduce the number or amount of the Offered Securities
specified in its Notice of Acceptance to an amount that shall be not less than
the number or amount of the Offered Securities that such Investor elected to
purchase pursuant to Section 7.14(b)(ii) above multiplied by a fraction, (i) the
numerator of which shall be the number or amount of Offered Securities the
Company actually proposes to issue, sell or exchange (including Offered
Securities to be issued or sold to Investors pursuant to Section 7.14(b)(iii)
above prior to such reduction) and (ii) the denominator of which shall be the
original amount of the Offered Securities. In the event that any Investor so
elects to reduce the number or amount of Offered Securities specified in its
Notice of Acceptance, the Company may not issue, sell or exchange more than the
reduced number or amount of the Offered Securities unless and until such
securities have again been offered to the Investors in accordance with Section
7.14(b)(i) above.

 

25

 

 

(v)          Upon the closing of the issuance, sale or exchange of all or less
than all of the Refused Securities, the Investors shall acquire from the
Company, and the Company shall issue to the Investors, the number or amount of
Offered Securities specified in the Notices of Acceptance, as reduced pursuant
to Section 7.14(b)(iv) above if the Investors have so elected, upon the terms
and conditions specified in the Offer. The purchase by the Investors of any
Offered Securities is subject in all cases to the preparation, execution and
delivery by the Company and the Investors of a purchase agreement relating to
such Offered Securities reasonably satisfactory in form and substance to the
Investors and their respective counsel.

 

(vi)         Any Offered Securities not acquired by the Investors or other
persons in accordance with Section 7.14(b)(iii) above may not be issued, sold or
exchanged until they are again offered to the Investors under the procedures
specified in this Agreement.

 

(vii)        The Company and the Investors agree that if any Investor elects to
participate in the Offer, (x) neither the Subsequent Placement Agreement with
respect to such Offer nor any other transaction documents related thereto
(collectively, the "Subsequent Placement Documents") shall include any term or
provisions whereby any Investor shall be required to agree to any restrictions
in trading as to any securities of the Company owned by such Investor prior to
such Subsequent Placement, and (y) any registration rights set forth in such
Subsequent Placement Documents shall be similar in all material respects to the
registration rights contained in the Registration Rights Agreement.

 

(viii)       Notwithstanding anything to the contrary in this Section 7.14 and
unless otherwise agreed to by the Investors, the Company shall either confirm in
writing to the Investors that the transaction with respect to the Subsequent
Placement has been abandoned or shall publicly disclose its intention to issue
the Offered Securities, in either case in such a manner such that the Investors
will not be in possession of material non-public information, by the tenth
(10th) Business Day following delivery of the Offer Notice. If by the tenth
(10th) Business Day following delivery of the Offer Notice no public disclosure
regarding a transaction with respect to the Offered Securities has been made,
and no notice regarding the abandonment of such transaction has been received by
the Investors, such transaction shall be deemed to have been abandoned and the
Investors shall not be deemed to be in possession of any material, non-public
information with respect to the Company. Should the Company decide to pursue
such transaction with respect to the Offered Securities, the Company shall
provide each Investor with another Offer Notice and each Investor will again
have the right of participation set forth in this Section 7.14. The Company
shall not be permitted to deliver more than one such Offer Notice to the
Investors in any 60 day period.

 

The restrictions contained in this Section 7.14(b) shall not apply in connection
with the issuance of any Excluded Securities.

 

26

 

 

7.15          Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, in the
form of Exhibit C attached hereto (the "Irrevocable Transfer Agent
Instructions") to issue certificates or credit shares to the applicable balance
accounts at DTC, registered in the name of each Investor or its respective
nominee(s), for the Warrant Shares issued at the Closing or pursuant to the
terms of the Warrants in such amounts as specified from time to time by each
Investor to the Company upon exercise of the Warrants. The Company warrants that
no instruction other than the Irrevocable Transfer Agent Instructions referred
to in this Section 5(b), and stop transfer instructions to give effect to
Section 5.7 hereof, will be given by the Company to its transfer agent, and that
the Securities shall otherwise be freely transferable on the books and records
of the Company as and to the extent provided in this Agreement and the other
Transaction Documents, and to the extent permitted by law. If an Investor
effects a sale, assignment or transfer of the Securities in accordance with
Section 5.7, the Company shall permit the transfer and shall promptly instruct
its transfer agent to issue one or more certificates or credit shares to the
applicable balance accounts at DTC in such name and in such denominations as
specified by such Investor to effect such sale, transfer or assignment. In the
event that such sale, assignment or transfer involves the Warrant Shares sold,
assigned or transferred pursuant to an effective registration statement or
pursuant to Rule 144, the transfer agent shall issue such Securities to the
Investor, assignee or transferee, as the case may be, without any restrictive
legend. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to an Investor. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 7.15 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 7.15, that an
Investor shall be entitled, in addition to all other available remedies, to an
order and/or injunction restraining any breach and requiring immediate issuance
and transfer, without the necessity of showing economic loss and without any
bond or other security being required.

 

8.     Survival and Indemnification.

 

8.1          Survival. The representations, warranties, covenants and agreements
contained in this Agreement shall survive the Closing of the transactions
contemplated by this Agreement.

 

8.2          Indemnification.

 

The Company agrees to indemnify and hold harmless each Investor and its
Affiliates and their respective directors, officers, trustees, members,
managers, employees and agents, and their respective successors and assigns
(each, an “Indemnitee” and collectively, the “Indemnitees”), from and against
any and all actions, causes of action, suits, claims, losses, costs, penalties,
fees, liabilities and damages, and expenses (including without limitation
reasonable attorney fees and disbursements and other expenses incurred in
connection with investigating, preparing or defending any action, claim or
proceeding, pending or threatened and the costs of enforcement thereof) to which
such Person may become subject as a result of (a) any breach of representation,
warranty, covenant or agreement made by or to be performed on the part of the
Company under the Transaction Documents or (b) any cause of action, suit or
claim brought or made against any Indemnitee by a third party (including for
these purposes a derivative action brought on behalf of the Company) and arising
out of or resulting from (i) the execution, delivery, performance or enforcement
of the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (ii) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Securities, (iii) any disclosure made by such Investor pursuant to
Section 7.13, or (iv) the status of such Investor or holder of the Securities as
an investor in the Company pursuant to the transactions contemplated by the
Transaction Documents, and will reimburse any such Person for all such amounts
as they are incurred by such Person.

 

27

 

 

8.3          Conduct of Indemnification Proceedings. Any person entitled to
indemnification hereunder shall (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided that any person entitled to
indemnification hereunder shall have the right to employ separate counsel and to
participate in the defense of such claim, but the fees and expenses of such
counsel shall be at the expense of such person unless (a) the indemnifying party
has agreed to pay such fees or expenses, or (b) the indemnifying party shall
have failed to assume the defense of such claim and employ counsel reasonably
satisfactory to such person or (c) in the reasonable judgment of any such
person, based upon written advice of its counsel, a conflict of interest exists
between such person and the indemnifying party with respect to such claims (in
which case, if the person notifies the indemnifying party in writing that such
person elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the defense of
such claim on behalf of such person); and provided, further, that the failure of
any indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations hereunder, except to the extent that such
failure to give notice shall materially adversely affect the indemnifying party
in the defense of any such claim or litigation. It is understood that the
indemnifying party shall not, in connection with any proceeding in the same
jurisdiction, be liable for fees or expenses of more than one separate firm of
attorneys at any time for all such indemnified parties. No indemnifying party
will, except with the consent of the indemnified party, consent to entry of any
judgment or enter into any settlement that 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 of such claim or litigation.

 

9.     Miscellaneous.

 

9.1          Successors and Assigns. This Agreement may not be assigned by a
party hereto without the prior written consent of the Company or the Investors,
as applicable, provided, however, that an Investor may assign its rights and
delegate its duties hereunder in whole or in part to an Affiliate or to a third
party acquiring some or all of its Securities in a transaction complying with
applicable securities laws without the prior written consent of the Company or
the other Investors. The provisions of this Agreement shall inure to the benefit
of and be binding upon the respective permitted successors and assigns of the
parties. Without limiting the generality of the foregoing, in the event that the
Company is a party to a merger, consolidation, share exchange or similar
business combination transaction in which the Common Stock is converted into the
equity securities of another Person, from and after the effective time of such
transaction, such Person shall, by virtue of such transaction, be deemed to have
assumed the obligations of the Company hereunder, the term “Company” shall be
deemed to refer to such Person and the term “Shares” shall be deemed to refer to
the securities received by the Investors in connection with such transaction.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.

 

9.2          Counterparts; Faxes. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement may also
be executed via facsimile, which shall be deemed an original.

 

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

 

28

 

  

9.4          Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given as hereinafter described (i) if given by personal delivery,
then such notice shall be deemed given upon such delivery, (ii) if given by
facsimile or electronic mail, then such notice shall be deemed given upon
receipt of confirmation of complete transmittal, (iii) if given by mail, then
such notice shall be deemed given upon the earlier of (A) receipt of such notice
by the recipient or (B) three days after such notice is deposited in first class
mail, postage prepaid, and (iv) if given by an internationally recognized
overnight air courier, then such notice shall be deemed given one Business Day
after delivery to such carrier. All notices shall be addressed to the party to
be notified at the address as follows, or at such other address as such party
may designate by ten days’ advance written notice to the other party:

 

If to the Company:

 

Aethlon Medical, Inc.

9635 Granite Ridge Drive, Suite 100

San Diego, CA 92123

Attention: James Frakes, CFO

Fax: 858-272-2738

E-mail: jfrakes@aethlonmedical.com

 

With a copy to:

 

Raines Feldman LLP

9720 Wishire Boulevard, 5th Floor

Los Angeles, CA 90212

Attention: Jennifer Post

Fax: (310) 499-5922

E-mail: jpost@raineslaw.com

 

If to the Investors:

 

to the addresses set forth on the signature pages hereto.

 

With a copy to:

 

Schulte Roth & Zabel, LLP

919 Third Avenue

New York, NY 10022

Attention: Eleazer N. Klein, Esq.

Fax: (212) 593-5955

E-mail: eleazer.klein@srz.com

 

29

 

 

9.5          Expenses. The parties hereto shall pay their own costs and expenses
in connection herewith, except that the Company shall pay the reasonable fees
and expenses of (i) Lowenstein Sandler LLP not to exceed $35,000 and (ii)
Schulte Roth & Zabel LLP not to exceed $10,000, regardless of whether the
transactions contemplated hereby are consummated; it being understood that
Lowenstein Sandler LLP has only rendered legal advice to the Agent and not to
the Company or any Investor in connection with the transactions contemplated
hereby, and that each of the Company and each Investor has relied for such
matters on the advice of its own respective counsel. Such expenses shall be paid
upon demand. The Company shall reimburse the Investors upon demand for all
reasonable out-of-pocket expenses incurred by the Investors, including without
limitation reimbursement of attorneys’ fees and disbursements, in connection
with any amendment, modification or waiver of this Agreement or the other
Transaction Documents. In the event that legal proceedings are commenced by any
party to this Agreement against another party to this Agreement in connection
with this Agreement or the other Transaction Documents, the party or parties
which do not prevail in such proceedings shall severally, but not jointly, pay
their pro rata share of the reasonable attorneys’ fees and other reasonable
out-of-pocket costs and expenses incurred by the prevailing party in such
proceedings.

 

9.6          Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Investors. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Securities purchased under this Agreement at the time outstanding,
each future holder of all such Securities, and the Company.

 

9.7          Disclosure of Transactions and Other Material Information. On or
before 5:30 p.m., New York City time, on the date that this Agreement has been
executed, the Company shall issue a press release reasonably acceptable to the
Investors and, on or prior to 8:00 a.m., New York City time, on November 28,
2014, file a Current Report on Form 8-K describing the terms of the transactions
contemplated by the Transaction Documents in the form required by the 1934 Act
and attaching the material Transaction Documents (including, without limitation,
this Agreement (and all schedules and exhibits to this Agreement), the Form of
Warrant and the Registration Rights Agreement, as exhibits to such filing
(including all attachments), the "8-K Filing"). From and after the public
release of the Press Release, no Investor shall be in possession of any
material, nonpublic information received from the Company, any of its
Subsidiaries or any of their respective officers, directors, affiliates,
employees or agents, that is not disclosed in the Press Release. In addition,
effective upon the public release of the Press Release, the Company acknowledges
and agrees that any and all confidentiality or similar obligations under any
agreement, 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 Investors or any of their affiliates, on the
other hand, shall terminate. The Company shall not, and shall cause each of its
Subsidiaries and its and each of their respective officers, directors,
affiliates, employees and agents, not to, provide any Investor with any
material, nonpublic information regarding the Company or any of its Subsidiaries
from and after the date hereof without the express prior written consent of such
Investor. If an Investor has, or believes it has, received any such material,
nonpublic information regarding the Company or any of its Subsidiaries from the
Company, any of its Subsidiaries or any of their respective officers, directors,
affiliates, employees or agents, it may provide the Company with written notice
thereof. The Company shall, within two (2) Trading Days of receipt of such
notice, make public disclosure of such material, nonpublic information. In the
event of a breach of the foregoing covenant by the Company, any of its
Subsidiaries, or any of its or their respective officers, directors, affiliates,
employees and agents, in addition to any other remedy provided herein or in the
Transaction Documents, an Investor shall have the right to make a public
disclosure, in the form of a press release, public advertisement or otherwise,
of such material, nonpublic information without the prior approval by the
Company, its Subsidiaries, or any of its or their respective officers,
directors, affiliates, employees or agents. No Investor shall have any liability
to the Company, its Subsidiaries, or any of its or their respective officers,
directors, affiliates, employees, shareholders or agents for any such
disclosure. To the extent that the Company delivers any material, non-public
information to an Investor without such Investor's consent, the Company hereby
covenants and agrees that such Investor shall not have any duty of
confidentiality to the Company, any of its Subsidiaries or any of their
respective officers, directors, employees, affiliates or agents 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 Investor
shall issue any press releases or any other public statements with respect to
the transactions contemplated hereby; provided, however, that the Company shall
be entitled, without the prior approval of any Investor, to make any press
release or other public disclosure with respect to such transactions (i) in
substantial conformity with the 8-K Filing and contemporaneously therewith and
(ii) as is required by applicable law and regulations (provided that in the case
of clause (i) each Investor shall be consulted by the Company in connection with
any such press release or other public disclosure prior to its release). Except
for the Registration Statement required to be filed pursuant to the Registration
Rights Agreement, without the prior written consent of any applicable Investor,
neither the Company nor any of its Subsidiaries or affiliates shall disclose the
name of such Investor in any filing, announcement, release or otherwise.

 

30

 

 

9.8          Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof but shall be interpreted as if it were written so as
to be enforceable to the maximum extent permitted by applicable law, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law which
renders any provision hereof prohibited or unenforceable in any respect.

 

9.9          Entire Agreement. This Agreement, including the Exhibits and the
Disclosure Schedules, and the other Transaction Documents constitute the entire
agreement among the parties hereof with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof and
thereof.

 

9.10          Further Assurances. The parties shall execute and deliver all such
further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.

 

9.11          Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of New York without regard to the choice of law principles
thereof. Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of the courts of the State of New York located in New York County
and the United States District Court for the Southern District of New York for
the purpose of any suit, action, proceeding or judgment relating to or arising
out of this Agreement and the transactions contemplated hereby. Service of
process in connection with any such suit, action or proceeding may be served on
each party hereto anywhere in the world by the same methods as are specified for
the giving of notices under this Agreement. Each of the parties hereto
irrevocably consents to the jurisdiction of any such court in any such suit,
action or proceeding and to the laying of venue in such court. Each party hereto
irrevocably waives any objection to the laying of venue of any such suit, action
or proceeding brought in such courts and irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A
TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS
THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

 

9.12          Independent Nature of Investors' Obligations and Rights. The
obligations of each Investor under any Transaction Document are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document. The decision of each Investor to
purchase Securities pursuant to the Transaction Documents has been made by such
Investor independently of any other Investor. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction
Documents. Each Investor shall be entitled to independently protect and enforce
its rights, including, without limitation, the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of closing
a transaction with multiple Investors and not because it was required or
requested to do so by any Investor.

 

[signature page follows]

 

31

 

 

IN WITNESS WHEREOF, the parties have executed this Agreement or caused their
duly authorized officers to execute this Agreement as of the date first above
written.

 

The Company:

AETHLON MEDICAL, INC.

 

 

 

By: /s/ James A. Joyce

Name: James A. Joyce

Title: Chairman, CEO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32

 

 

________________________________

                 (Name of Investor)

 

 

 

By:_________________________

Name:

Title:

 

Aggregate Purchase Price: $

Number of Shares:

Number of Warrants:

 

 

Address for Notice:

 

 

 

 

 

 

 

 

 

 

33

 

 

Exhibit C

TRANSFER AGENT INSTRUCTIONS

Aethlon Medical, Inc.

December __, 2014

Computershare

250 Royall Street

Canton, Massachusetts 02021

 

Telephone: 303.262.0678

Attention: Adam Burnham

 

Ladies and Gentlemen:

Reference is made to that certain Securities Purchase Agreement, dated as of
November 26, 2014 (the "Agreement"), by and among Aethlon Medical, Inc., a
Nevada corporation (the "Company"), and the investors named on the signature
pages thereto (collectively, the "Holders"), pursuant to which the Company is
issuing to the Holders shares (the "Common Shares") of the common stock of the
Company, par value $0.001 per share (the "Common Stock"), and warrants (the
"Warrants"), which are exercisable to purchase shares of Common Stock.

This letter shall serve as our irrevocable authorization and direction to you
(provided that you are the transfer agent of the Company at such time) to issue
or re-issue, as the case may be, (i) on the Closing Date of the transactions
contemplated by the Agreement the Common Shares to each of the Holders as set
forth on Exhibit I attached hereto, (ii) shares of Common Stock and (iii) shares
of Common Stock issuable upon exercise of the Warrants (the "Warrant Shares") to
or upon the order of a Holder from time to time upon delivery to you of a
properly completed and duly executed Exercise Notice, in the form attached
hereto as Exhibit II, which has been acknowledged by the Company as indicated by
the signature of a duly authorized officer of the Company thereon.

You acknowledge and agree that so long as you have previously received (a)
written confirmation from the Company's legal counsel that either (i) a
registration statement covering resales of the Common Shares and the Warrant
Shares has been declared effective by the Securities and Exchange Commission
(the "SEC") under the Securities Act of 1933, as amended (the "1933 Act") and
such registration statement is not subject to a stop-order or other order that
suspends the effectiveness of the registration statement (and you have not been
so advised by counsel), or (ii) sales of the Common Shares and the Warrant
Shares may be made in conformity with Rule 144 under the 1933 Act ("Rule 144"),
and (b) if applicable, a copy of such registration statement, then within three
(3) business days of your receipt of a notice of transfer or an Exercise Notice,
you shall issue the certificates representing the Common Shares, and the Warrant
Shares, as applicable, registered in the names of such transferees, and such
certificates shall not bear any legend restricting transfer of the Common Shares
and the Warrant Shares thereby and should not be subject to any stop-transfer
restriction; provided, however, that if such Common Shares and Warrant Shares
are not registered for resale under the 1933 Act or able to be sold under Rule
144, then the certificates for such Common Shares and/or Warrant Shares shall
bear the following legend:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

A form of written notification from the Company's outside legal counsel that a
registration statement covering resales of the Common Shares and the Warrant
Shares has been declared effective by the SEC under the 1933 Act is attached
hereto as Exhibit III.

34

 

Please execute this letter in the space indicated to acknowledge your agreement
to act in accordance with these instructions. Should you have any questions
concerning this matter, please contact me at ____________.

Very truly yours,

Aethlon Medical, Inc.

 

By: ___________________________

        Name:
        Title:

THE FOREGOING INSTRUCTIONS ARE

ACKNOWLEDGED AND AGREED TO

this ___ day of November, 2014

Computershare

 

By: ___________________________
        Name: _____________________
        Title: ______________________

Enclosures

cc:Empery Asset Master, LTD Empery Tax Efficient, LP Empery Tax Efficient II, LP
    Eleazer Klein, Esq.

35

 

EXHIBIT I

 

Empery Asset Master, LTD

Common Shares to be issued: 3,507,907

 

Empery Tax Efficient, LP

Common Shares to be issued: 904,218

 

Empery Tax Efficient II, LP

Common Shares to be issued: 6,587,875

 

 

 

 

 

36

 

EXHIBIT II

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

 

AETHLON MEDICAL, INC.

The undersigned holder hereby exercises the right to purchase _________________
of the shares of Common Stock ("Warrant Shares") of Aethlon Medical, Inc., a
Nevada corporation (the "Company"), evidenced by the attached Warrant to
Purchase Common Stock (the "Warrant"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.

 

1. Form of Exercise Price. The Holder intends that payment of the Exercise Price
shall be made as:

 

____________ a "Cash Exercise" with respect to _________________ Warrant Shares;
and/or

 

____________ a "Cashless Exercise" with respect to _______________ Warrant
Shares.

 

2. Payment of Exercise Price. In the event that the holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be issued pursuant
hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.

 

3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.

 

_______ Electronic Delivery DTC Participant: ___________________________   DTC
Number: _____________________________   Account Name:
____________________________   Account Number: __________________________    
_______ Physical Delivery Address: _________________________________  
                 _________________________________  
                 _________________________________

Date: _______________ __, ______

 

 

_____________________________

Name of Registered Holder

 

 

By: __________________________

        Name:

        Title:

 

37

 

 

ACKNOWLEDGMENT

 

 

The Company hereby acknowledges this Exercise Notice and hereby directs
Computershare to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated December [__], 2014 from
the Company and acknowledged and agreed to by Computershare.

 

Aethlon Medical, Inc.

 

 

 

By: __________________________

        Name:

        Title:

 

 

 

 

 

 

 

 

 

 

 

 

 

38

 

 

EXHIBIT III

FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT

Computershare

250 Royall Street

Canton, Massachusetts 02021

 

Attention: Adam Burnham

Re: Aethlon Medical, Inc.

Ladies and Gentlemen:

[We are][I am] counsel to Aethlon Medical, Inc., a Nevada corporation (the
"Company"), and have represented the Company in connection with that certain
Securities Purchase Agreement, dated as of November ___, 2014 (the "Securities
Purchase Agreement"), entered into by and among the Company and the buyers named
therein (collectively, the "Holders") pursuant to which the Company issued to
the Holders shares of the Company's common stock, par value $0.001 per share
(the "Common Stock") (the shares of Common Stock issuable pursuant to the terms
of the Securities Purchase Agreement, collectively, the "Common Shares") and
warrants exercisable for shares of Common Stock (the "Warrants"). Pursuant to
the Securities Purchase Agreement, the Company also has entered into a
Registration Rights Agreement with the Holders (the "Registration Rights
Agreement") pursuant to which the Company agreed, among other things, to
register the resale of the Registrable Securities (as defined in the
Registration Rights Agreement), including the Common Shares issuable pursuant to
the Securities Purchase Agreement and the shares of Common Stock issuable upon
exercise of the Warrants under the Securities Act of 1933, as amended (the "1933
Act"). The description of the Registrable Securities are set forth on Schedule A
hereto [Selling Shareholder Table]. In connection with the Company's obligations
under the Registration Rights Agreement, on ____________ ___, 2014, the Company
filed a Registration Statement on Form S-3 (File No. 333-_____________) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities which names each of the Holders as
a selling shareholder thereunder.

In connection with the foregoing, [we][I] advise you that a member of the SEC's
staff has advised [us][me] by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS]. [We][I] have no knowledge,
subsequent to such telephonic conversation with the SEC's staff, that any stop
order suspending its effectiveness has been issued or that any proceedings for
that purpose are pending before, or threatened by, the SEC. Based on the
foregoing, the Registrable Securities set forth on Schedule A hereto are
available for resale under the 1933 Act pursuant to the Registration Statement.

This letter, unless and until subsequently revoked or modified orally by
Jennifer A. Post or Gia C. Twine, or in writing from any member of this firm
(which writing may include email correspondence), shall serve as our standing
instruction to you that the Registrable Securities set forth on Schedule A
hereto are freely transferable by the Holders pursuant to the Registration
Statement. You need not require further letters from us to effect any future
legend-free issuance or reissuance of Registrable Securities to the Holders as
contemplated by the Company's Irrevocable Transfer Agent Instructions dated
December [●], 2014.

Very truly yours,

[ISSUER'S COUNSEL]

By:_____________________

 

CC: Empery Asset Master, LTD       Empery Tax Efficient, LP       Empery Tax
Efficient II, LP

 

 

39