Exhibit 10.1

 

Execution Version

 

 

 

 

 

 

 

 

COMMON STOCK PURCHASE AGREEMENT

 

Dated as of November 18, 2020

 

by and between

 

ADIAL PHARMACEUTICALS, INC.

 

and

 

KEYSTONE CAPITAL PARTNERS, LLC

 

 

 

 

Table of Contents

 

    Page       Article I DEFINITIONS 1     Article II PURCHASE AND SALE OF
COMMON STOCK 1 Section 2.1. Purchase and Sale of Stock 1 Section 2.2. Closing
Date; Settlement Dates 2 Section 2.3. Initial Public Announcements and Required
Filings 2       Article III PURCHASE TERMS 3 Section 3.1. Fixed Purchases 3
Section 3.2. Settlement 4 Section 3.3. Compliance with Rules of Trading Market.
4 Section 3.4. Beneficial Ownership Limitation 5       Article IV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR 5 Section 4.1.
Organization and Standing of the Investor 5 Section 4.2. Authorization and Power
6 Section 4.3. No Conflicts 6 Section 4.4. Investment Purpose 6 Section 4.5.
Accredited Investor Status 7 Section 4.6. No Disqualification Events 7 Section
4.7. Reliance on Exemptions 7 Section 4.8. Information 7 Section 4.9. No
Governmental Review 8 Section 4.10. No General Solicitation 8 Section 4.11. Not
an Affiliate 8 Section 4.12. No Prior Short Sales 8 Section 4.13. Statutory
Underwriter Status 8 Section 4.14. Resales of Securities 9 Section 4.15.
Residency 9       Article V REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
COMPANY 9 Section 5.1. Organization, Good Standing and Power 9 Section 5.2.
Authorization, Enforcement 9 Section 5.3. Capitalization 10 Section 5.4.
Issuance of Securities 10 Section 5.5. No Conflicts 10 Section 5.6. Commission
Documents, Financial Statements; Disclosure Controls and Procedures; Internal
Controls Over Financial Reporting; Accountants 11 Section 5.7. Subsidiaries 13
Section 5.8. No Material Adverse Effect or Material Adverse Change 14 Section
5.9. No Undisclosed Liabilities 14 Section 5.10. No Undisclosed Events or
Circumstances 14 Section 5.11. Indebtedness; Solvency 14

 

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Section 5.12. Title To Assets 15 Section 5.13. Actions Pending 15 Section 5.14.
Compliance With Law; Compliance with Continued Listing Standards 15 Section
5.15. Certain Fees 16 Section 5.16. Disclosure 16 Section 5.17. Operation of
Business 16 Section 5.18. Environmental Compliance 18 Section 5.19. Material
Agreements 18 Section 5.20. Transactions With Affiliates 19 Section 5.21.
Employees; Labor Laws 19 Section 5.22. Use of Proceeds 19 Section 5.23.
Investment Company Act Status 19 Section 5.24. ERISA 19 Section 5.25. Taxes 20
Section 5.26. Insurance 20 Section 5.27. Exemption from Registration 20 Section
5.28. No General Solicitation or Advertising 20 Section 5.29. No Integrated
Offering 20 Section 5.30. Dilutive Effect 21 Section 5.31. Manipulation of Price
21 Section 5.32. Securities Act 21 Section 5.33. Listing and Maintenance
Requirements; DTC Eligibility 21 Section 5.34. Application of Takeover
Protections 22 Section 5.35. No Unlawful Payments 22 Section 5.36. Money
Laundering Laws 22 Section 5.37. OFAC 23 Section 5.38. U.S. Real Property
Holding Corporation 23 Section 5.39. Bank Holding Company Act 23 Section 5.40.
Information Technology; Compliance With Data Privacy Laws 23 Section 5.41. No
Disqualification Events 24 Section 5.42. Accuracy of Certain Summaries and
Statements 24 Section 5.43. Acknowledgement Regarding Investor’s Acquisition of
Securities 24       Article VI ADDITIONAL COVENANTS 25 Section 6.1. Securities
Compliance 25 Section 6.2. Reservation of Common Stock 25 Section 6.3.
Registration and Listing 25 Section 6.4. Compliance with Laws. 26 Section 6.5.
Keeping of Records and Books of Account; Due Diligence. 26 Section 6.6. No
Frustration; No Variable Rate Transactions. 27 Section 6.7. Corporate Existence
27 Section 6.8. Fundamental Transaction 27 Section 6.9. Selling Restrictions. 28
Section 6.10. Effective Registration Statement 28 Section 6.11. Blue Sky 28
Section 6.12. Non-Public Information 29 Section 6.13. Broker/Dealer 29

 

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Section 6.14. Disclosure Schedule. 29 Section 6.15. Delivery of Bring Down
Opinions and Compliance Certificates Upon Occurrence of Certain Events 30      
Article VII CONDITIONS TO CLOSING AND CONDITIONS TO THE SALE AND PURCHASE OF THE
SHARES 31 Section 7.1. Conditions Precedent to Closing 31 Section 7.2.
Conditions Precedent to Commencement 32 Section 7.3. Conditions Precedent to
Fixed Purchases after Commencement Date 35       Article VIII TERMINATION 38
Section 8.1. Automatic Termination 38 Section 8.2. Other Termination 39 Section
8.3. Effect of Termination 40       Article IX INDEMNIFICATION 40 Section 9.1.
Indemnification of Investor 40 Section 9.2. Indemnification Procedures 41      
Article X MISCELLANEOUS 42 Section 10.1. Certain Fees and Expenses; Commitment
Shares; Commencement Irrevocable Transfer Agent Instructions. 42 Section 10.2.
Specific Enforcement, Consent to Jurisdiction, Waiver of Jury Trial. 44 Section
10.3. Entire Agreement 45 Section 10.4. Notices 45 Section 10.5. Waivers 46
Section 10.6. Amendments 47 Section 10.7. Headings 47 Section 10.8. Construction
47 Section 10.9. Binding Effect 47 Section 10.10. No Third Party Beneficiaries
47 Section 10.11. Governing Law 47 Section 10.12. Survival 48 Section 10.13.
Counterparts 48 Section 10.14. Publicity 48 Section 10.15. Severability 48
Section 10.16. Further Assurances 48

 

Annex I. Definitions

 

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COMMON STOCK PURCHASE AGREEMENT

 

This COMMON STOCK PURCHASE AGREEMENT is made and entered into as of November 18,
2020 (this “Agreement”), by and between Keystone Capital Partners, LLC, a
Delaware limited liability company (the “Investor”), and Adial Pharmaceuticals,
Inc., a Delaware corporation (the “Company”).

 

RECiTALS

 

WHEREAS, the parties desire that, upon the terms and subject to the conditions
and limitations set forth herein, the Company may issue and sell to the
Investor, from time to time as provided herein, and the Investor shall purchase
from the Company, up to the lesser of (i) $15,000,000 worth of newly issued
shares of the Company’s common stock, par value $0.001 per share (“Common
Stock”), and (ii) the Exchange Cap (to the extent applicable under Section 3.3);

 

WHEREAS, such sales of Common Stock by the Company to the Investor will be made
in reliance upon the provisions of Section 4(a)(2) of the Securities Act
(“Section 4(a)(2)”) and Rule 506(b) of Regulation D promulgated by the
Commission under the Securities Act (“Regulation D”), and upon such other
exemption from the registration requirements of the Securities Act as may be
available with respect to any or all of the sales of Common Stock to the
Investor to be made hereunder;

 

WHEREAS, the parties hereto are concurrently entering into a Registration Rights
Agreement in the form attached as Exhibit A hereto (the “Registration Rights
Agreement”), pursuant to which the Company shall register the resale of the
Registrable Securities (as defined in the Registration Rights Agreement), upon
the terms and subject to the conditions set forth therein; and

 

WHEREAS, in consideration for the Investor’s execution and delivery of this
Agreement, the Company is concurrently causing its transfer agent to issue to
the Investor the Commitment Shares pursuant to and in accordance with Section
10.1(ii);

 

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree
as follows:

 

Article I
DEFINITIONS

 

Capitalized terms used in this Agreement shall have the meanings ascribed to
such terms in Annex I hereto, and hereby made a part hereof, or as otherwise set
forth in this Agreement.

 

Article II
PURCHASE AND SALE OF COMMON STOCK

 

Section 2.1.  Purchase and Sale of Stock. Upon the terms and subject to the
conditions of this Agreement, during the Investment Period, the Company, in its
sole discretion, shall have the right, but not the obligation (other than as set
forth in Section 3.1), to issue and sell to the Investor, and the Investor shall
purchase from the Company, up to the lesser of (i) $15,000,000 (the “Total
Commitment”) in aggregate gross purchase price of duly authorized, validly
issued, fully paid and non-assessable shares of Common Stock and (ii) the
Exchange Cap, to the extent applicable under Section 3.3 (such lesser amount of
shares of Common Stock, the “Aggregate Limit”), by the delivery to the Investor
of Fixed Purchase Notices as provided in Article III.

 

 

 

 

Section 2.2.  Closing Date; Settlement Dates. This Agreement shall become
effective and binding (the “Closing”) upon (a) the delivery of irrevocable
instructions to issue the Commitment Shares to the Investor or its designees as
provided in Sections 7.1 and 10.1(ii), (b) the delivery of counterpart signature
pages of this Agreement and the Registration Rights Agreement executed by each
of the parties hereto and thereto, and (c) the delivery of all other documents,
instruments and writings required to be delivered at the Closing, in each case
as provided in Section 7.1, to the offices of Dorsey & Whitney LLP, 51 West 52nd
Street, New York, NY 10019-6119, at 1:00 p.m., New York City time, on the
Closing Date. In consideration of and in express reliance upon the
representations, warranties and covenants contained in, and upon the terms and
subject to the conditions of, this Agreement, during the Investment Period the
Company shall issue and sell to the Investor, and the Investor shall purchase
from the Company, the Shares in respect of each Fixed Purchase. The payment for,
against simultaneous delivery of, Shares in respect of each Fixed Purchase shall
occur in accordance with Section 3.2, provided that all of the conditions
precedent in Article VII shall have been fulfilled at the applicable times set
forth in Article VII.

 

Section 2.3.  Initial Public Announcements and Required Filings. The Company
shall, within the time period required under the Exchange Act, file with the
Commission a Current Report on Form 8-K describing the material terms of the
transactions contemplated by the Transaction Documents, including, without
limitation, the issuance of the Commitment Shares to the Investor, and attaching
as exhibits thereto copies of each of this Agreement, the Registration Rights
Agreement and, if applicable, any press release issued by the Company disclosing
the execution of this Agreement by the Company (including all exhibits thereto,
the “Current Report”). The Company shall provide the Investor a reasonable
opportunity to comment on a draft of the Current Report prior to filing the
Current Report with the Commission and shall give due consideration to all such
comments. From and after the filing of the Current Report with the Commission,
the Company shall have publicly disclosed all material, nonpublic information
delivered to the Investor (or the Investor’s representatives or agents) by the
Company, or any of its officers, directors, employees, agents or representatives
(if any) in connection with the transactions contemplated by the Transaction
Documents. The Investor covenants that until such time as the transactions
contemplated by this Agreement are publicly disclosed by the Company as
described in this Section 2.3, the Investor shall maintain the confidentiality
of all disclosures made to it in connection with the transactions contemplated
by the Transaction Documents (including the existence and terms of the
transactions), except that the Investor may disclose the terms of such
transactions to its financial, accounting, legal and other advisors (provided
that the Investor directs such Persons to maintain the confidentiality of such
information). Not later than 15 calendar days following the Closing Date, the
Company shall file a Form D with respect to the issuance and sale of the
Securities in accordance with Regulation D and shall provide a copy thereof to
the Investor promptly after such filing. The Company shall use its commercially
reasonable efforts to prepare and, as soon as practicable, but in no event later
than the applicable Filing Deadline, file with the Commission the Initial
Registration Statement and any New Registration Statement covering only the
resale by the Investor of the Registrable Securities in accordance with the
Securities Act and the Registration Rights Agreement. At or before 5:30 p.m.
(New York City time) on the second (2nd) Trading Day immediately following the
Effective Date of the Initial Registration Statement and any New Registration
Statement (or any post-effective amendment thereto), the Company shall file with
the Commission in accordance with Rule 424(b) under the Securities Act the final
Prospectus to be used in connection with sales pursuant to such Registration
Statement (or post-effective amendment thereto).

 

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Article III
PURCHASE TERMS

 

Subject to the satisfaction of the conditions set forth in Article VII, the
parties agree as follows:

 

Section 3.1.  Fixed Purchases. Upon the initial satisfaction of all of the
conditions set forth in set forth in Section 7.2 (the “Commencement” and the
date of initial satisfaction of all of such conditions, the “Commencement Date”)
and from time to time thereafter, subject to the satisfaction of all of the
conditions set forth in Section 7.3, the Company shall have the right, but not
the obligation (other than as set forth below), to direct the Investor, by its
delivery to the Investor of a Fixed Purchase Notice, to purchase a Fixed
Purchase Share Amount, at the applicable Fixed Purchase Price therefor on the
applicable Fixed Purchase Date in accordance with this Agreement (each such
purchase a “Fixed Purchase”); provided, however, that the Investor’s committed
obligation under any single Fixed Purchase shall not exceed $500,000 (such
maximum amount, the “Fixed Purchase Maximum Amount”). The Investor is obligated
to accept each Fixed Purchase Notice prepared and delivered by the Company in
accordance with the terms of and subject to the satisfaction of the conditions
contained in this Agreement. If the Company delivers any Fixed Purchase Notice
directing the Investor to purchase a Fixed Purchase Share Amount for an
aggregate Fixed Purchase Price in excess of the Fixed Purchase Maximum Amount
(calculated as of the applicable Fixed Purchase Date), such Fixed Purchase
Notice shall be void ab initio to the extent of such excess amount; provided,
however, that the Investor shall remain obligated to purchase such portion of
such Fixed Purchase Shares Amount such that the aggregate Fixed Purchase Price
would equal (or most closely approximate without exceeding) the Fixed Purchase
Maximum Amount. The Company may deliver a Fixed Purchase Notice to the Investor
on a Trading Day, so long as (i) the applicable Fixed Purchase Price of the
Common Stock on such Trading Day is not less than the Fixed Purchase Threshold
Price, (ii) at least two (2) Trading Days has elapsed since the most recent
prior Fixed Purchase Notice was delivered to the Investor, and (iii) all Shares
subject to all prior Fixed Purchases theretofore required to have been received
by the Investor as DWAC Shares under this Agreement have been delivered to the
Investor as DWAC Shares in accordance with this Agreement. Notwithstanding the
foregoing, the Company shall not deliver any Fixed Purchase Notices to the
Investor during the PEA Period.

 

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Section 3.2.  Settlement. The payment for, against simultaneous delivery of,
Shares in respect of each Fixed Purchase shall be settled on the Trading Day
immediately following the applicable Fixed Purchase Date for such Fixed
Purchase. For each Fixed Purchase, the Investor shall pay to the Company an
amount in cash equal to the product of (i) the total number of Shares purchased
by the Investor in such Fixed Purchase and (ii) the applicable Fixed Purchase
Price for such Shares, as full payment for such Shares, via wire transfer of
immediately available funds on the same Trading Day that the Investor receives
such Shares as DWAC Shares in accordance with this Agreement, if all of such
Shares are so received by the Investor before 1:00 p.m., New York City time, or,
if such Shares are received by the Investor after 1:00 p.m., New York City time,
then payment therefor shall be made on the Trading Day immediately following the
Trading Day on which the Investor has received all of such Shares as DWAC
Shares. If the Company or the Transfer Agent shall fail for any reason, other
than a failure of the Investor or its Broker-Dealer to set up a DWAC and
required instructions, to electronically transfer any Shares as DWAC Shares in
respect of a Fixed Purchase within two (2) Trading Days following the receipt by
the Company of the applicable purchase price therefor in compliance with this
Section 3.2, and if on or after such Trading Day the Investor purchases (in an
open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Investor of such Shares that the Investor
anticipated receiving from the Company in respect of such Fixed Purchase, then
the Company shall, within two (2) Trading Days after the Investor’s request,
either (1) pay cash to the Investor in an amount equal to the Investor’s total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased (the “Cover Price”), at which point the Company’s
obligation to deliver such Shares as DWAC Shares shall terminate, or (ii)
promptly honor its obligation to deliver to the Investor such Shares as DWAC
Shares and pay cash to the Investor in an amount equal to the excess (if any) of
the Cover Price over the total purchase price paid by the Investor pursuant to
this Agreement for all of the Shares to be purchased by the Investor in
connection with such Fixed Purchase. The Company shall not issue any fraction of
a share of Common Stock upon any Fixed Purchase. If the issuance would result in
the issuance of a fraction of a share of Common Stock, the Company shall round
such fraction of a share of Common Stock up or down to the nearest whole share.
All payments made under this Agreement shall be made in lawful money of the
United States of America or wire transfer of immediately available funds to such
account as the Company may from time to time designate by written notice in
accordance with the provisions of this Agreement. Whenever any amount expressed
to be due by the terms of this Agreement is due on any day that is not a Trading
Day, the same shall instead be due on the next succeeding day that is a Trading
Day.

 

Section 3.3.  Compliance with Rules of Trading Market.

 

(a)  Exchange Cap. Subject to Section 3.3(b), the Company shall not issue or
sell any shares of Common Stock pursuant to this Agreement, and the Investor
shall not purchase or acquire any shares of Common Stock pursuant to this
Agreement, to the extent that after giving effect thereto, the aggregate number
of shares of Common Stock that would be issued pursuant to this Agreement and
the transactions contemplated hereby would exceed 2,842,198 (representing 19.99%
of the shares of Common Stock issued and outstanding immediately prior to the
execution of this Agreement), which number of shares shall be reduced, on a
share-for-share basis, by the number of shares of Common Stock issued or
issuable pursuant to any transaction or series of transactions that may be
aggregated with the transactions contemplated by this Agreement under applicable
rules of the Trading Market (such maximum number of shares, the “Exchange Cap”),
unless the Company’s stockholders have approved the issuance of Common Stock
pursuant to this Agreement in excess of the Exchange Cap in accordance with the
applicable rules of the Trading Market. For the avoidance of doubt, the Company
may, but shall be under no obligation to, request its stockholders to approve
the issuance of Common Stock pursuant to this Agreement; provided, that if such
stockholder approval is not obtained, the Exchange Cap shall be applicable for
all purposes of this Agreement and the transactions contemplated hereby at all
times during the term of this Agreement (except as set forth in Section 3.3(b)).

 

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(b)  At-Market Transaction. Notwithstanding Section 3.3(a) above, the Exchange
Cap shall not be applicable for any purposes of this Agreement and the
transactions contemplated hereby, solely to the extent that (and only for so
long as) the Average Price shall equal or exceed the Base Price (it being hereby
acknowledged and agreed that the Exchange Cap shall be applicable for all
purposes of this Agreement and the transactions contemplated hereby at all other
times during the term of this Agreement, unless the stockholder approval
referred to in Section 3.3(a) is obtained). The parties acknowledge and agree
that the Minimum Price used to determine the Base Price hereunder represents the
lower of (i) the official closing price of the Common Stock on the Trading
Market (as reflected on Nasdaq.com) on the trading day immediately preceding the
date of this Agreement and (ii) the average official closing price of the Common
Stock on the Trading Market (as reflected on Nasdaq.com) for the five (5)
consecutive trading days ending on the Trading Day immediately preceding the
date of this Agreement.

 

(c)  General. The Company shall not issue or sell any shares of Common Stock
pursuant to this Agreement if such issuance or sale would reasonably be expected
to result in (A) a violation of the Securities Act or (B) a breach of the rules
of the Trading Market. The provisions of this Section 3.3 shall be implemented
in a manner otherwise than in strict conformity with the terms of this Section
3.3 only if necessary to ensure compliance with the Securities Act and the
applicable rules of the Trading Market.

 

Section 3.4.  Beneficial Ownership Limitation. Notwithstanding anything to the
contrary contained in this Agreement, the Company shall not issue or sell, and
the Investor shall not purchase or acquire, any shares of Common Stock under
this Agreement which, when aggregated with all other shares of Common Stock then
beneficially owned by the Investor and its affiliates (as calculated pursuant to
Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder), would
result in the beneficial ownership by the Investor of more than 4.99 % of the
outstanding shares of Common Stock (the “Beneficial Ownership Limitation”). Upon
the written or oral request of the Investor, the Company shall promptly (but not
later than the next business day on which the Transfer Agent is open for
business) confirm orally or in writing to the Investor the number of shares of
Common Stock then outstanding. The Investor and the Company shall each cooperate
in good faith in the determinations required under this Section 3.4 and the
application of this Section 3.4. The Investor’s written certification to the
Company of the applicability of the Beneficial Ownership Limitation, and the
resulting effect thereof hereunder at any time, shall be conclusive with respect
to the applicability thereof and such result absent manifest error. The
provisions of this Section 3.4 shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this Section 3.4 to the
extent necessary to properly give effect to the limitations contained in this
Section 3.4.

 

Article IV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR

 

The Investor hereby makes the following representations, warranties and
covenants to the Company:

 

Section 4.1.  Organization and Standing of the Investor. The Investor is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Delaware.

 

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Section 4.2.  Authorization and Power. The Investor has the requisite limited
liability company power and authority to enter into and perform its obligations
under this Agreement and the Registration Rights Agreement and to purchase or
acquire the Securities in accordance with the terms hereof. The execution,
delivery and performance by the Investor of this Agreement and the Registration
Rights Agreement and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary limited liability
company action, and no further consent or authorization of the Investor, its
Board of Directors or its members is required. Each of this Agreement and the
Registration Rights Agreement has been duly executed and delivered by the
Investor and constitutes a valid and binding obligation of the Investor
enforceable against it in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership, or
similar laws relating to, or affecting generally the enforcement of, creditor’s
rights and remedies or by other equitable principles of general application
(including any limitation of equitable remedies).

 

Section 4.3.  No Conflicts. The execution, delivery and performance by the
Investor of this Agreement and the Registration Rights Agreement and the
consummation by the Investor of the transactions contemplated hereby and thereby
do not and shall not (i) result in a violation of such Investor’s certificate of
formation, limited liability company agreement or other applicable
organizational instruments, (ii) conflict with, constitute a default (or an
event which, with notice or lapse of time or both, would become a default)
under, or give rise to any rights of termination, amendment, acceleration or
cancellation of, any material agreement, mortgage, deed of trust, indenture,
note, bond, license, lease agreement, instrument or obligation to which the
Investor is a party or is bound, (iii) create or impose any lien, charge or
encumbrance on any property of the Investor under any agreement or any
commitment to which the Investor is party or under which the Investor is bound
or under which any of its properties or assets are bound, or (iv) result in a
violation of any federal, state, local or foreign statute, rule, or regulation,
or any order, judgment or decree of any court or governmental agency applicable
to the Investor or by which any of its properties or assets are bound or
affected, except, in the case of clauses (ii), (iii) and (iv), for such
conflicts, defaults, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, prohibit or otherwise
interfere with, in any material respect, the ability of the Investor to enter
into and perform its obligations under this Agreement and the Registration
Rights Agreement. The Investor is not required under any applicable federal,
state, local or foreign law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement and the Registration Rights Agreement or to
purchase or acquire the Securities in accordance with the terms hereof;
provided, however, that for purposes of the representation made in this
sentence, the Investor is assuming and relying upon the accuracy of the relevant
representations and warranties and the compliance with the relevant covenants
and agreements of the Company in the Transaction Documents to which it is a
party.

 

Section 4.4.  Investment Purpose. The Investor is acquiring the Securities for
its own account, for investment purposes and not with a view towards, or for
resale in connection with, the public sale or distribution thereof, except
pursuant to sales registered under or exempt from the registration requirements
of the Securities Act; provided, however, that by making the representations
herein, the Investor does not agree, or make any representation or warranty, to
hold any of the Securities for any minimum or other specific term and reserves
the right to dispose of the Securities at any time in accordance with, or
pursuant to, a registration statement filed pursuant to the Registration Rights
Agreement or an applicable exemption under the Securities Act. The Investor does
not presently have any agreement or understanding, directly or indirectly, with
any Person to sell or distribute any of the Securities.

 

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Section 4.5.  Accredited Investor Status. The Investor is an “accredited
investor” as that term is defined in Rule 501(a) of Regulation D.

 

Section 4.6.  No Disqualification Events. None of the Investor, any of its
predecessors, any affiliated issuer, any director, executive officer, other
officer of the Investor participating in the offering contemplated hereby, any
beneficial owner of 20% or more of the Investor’s outstanding voting equity
securities, calculated on the basis of voting power (each, an “Investor Covered
Person”) is subject to any of the “Bad Actor” disqualifications described in
Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification
Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3)
under the Securities Act. The Investor has exercised reasonable care to
determine whether any Investor Covered Person is subject to a Disqualification
Event.

 

Section 4.7.  Reliance on Exemptions. The Investor understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of U.S. federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and the
Investor’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Investor set forth herein in order to
determine the availability of such exemptions and the eligibility of the
Investor to acquire the Securities. The Investor understands that (i) the
Securities may not be offered for sale, sold, assigned or transferred unless (A)
registered pursuant to the Securities Act or (B) an exemption exists permitting
such Securities to be sold, assigned or transferred without such registration;
and (ii) any sale of the Securities made in reliance on Rule 144 may be made
only in accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the  Securities under circumstances in which the
seller (or the Person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the Commission thereunder.

 

Section 4.8.  Information. All materials relating to the business, financial
condition, management and operations of the Company and materials relating to
the offer and sale of the Securities which have been requested by the Investor
have been furnished or otherwise made available to the Investor or its advisors,
including, without limitation, the Commission Documents. The Investor
understands that its investment in the Securities involves a high degree of
risk. The Investor is able to bear the economic risk of an investment in the
Securities and has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of a proposed
investment in the Securities. The Investor and its advisors have been afforded
the opportunity to ask questions of and receive answers from representatives of
the Company concerning the financial condition and business of the Company and
other matters relating to an investment in the Securities. Neither such
inquiries nor any other due diligence investigations conducted by the Investor
or its advisors, if any, or its representatives shall modify, amend or affect
the Investor’s right to rely on the Company’s representations and warranties
contained in this Agreement or in any other Transaction Document to which the
Company is a party or the Investor’s right to rely on any other document or
instrument executed and/or delivered in connection with this Agreement or the
consummation of the transaction contemplated hereby (including, without
limitation, the opinions of the Company’s counsel delivered pursuant to Sections
7.1(iv) and 7.2(xvi)). The Investor has sought such accounting, legal and tax
advice as it has considered necessary to make an informed investment decision
with respect to its acquisition of the Securities. The Investor understands that
it (and not the Company) shall be responsible for its own tax liabilities that
may arise as a result of this investment or the transactions contemplated by
this Agreement.

 

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Section 4.9.  No Governmental Review. The Investor understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

 

Section 4.10.  No General Solicitation. The Investor is not purchasing or
acquiring the Securities as a result of any form of general solicitation or
general advertising (within the meaning of Regulation D) in connection with the
offer or sale of the Securities.

 

Section 4.11.  Not an Affiliate. The Investor is not an officer, director or an
Affiliate of the Company. As of the date of this Agreement, the Investor does
not beneficially own any shares of Common Stock or securities exercisable for or
convertible into shares of Common Stock, and during the Restricted Period,
Investor will not acquire beneficial ownership of any shares of the Company’s
capital stock (including shares of Common Stock or securities exercisable for or
convertible into shares of Common Stock) other than pursuant to this Agreement;
provided, however, that nothing in this Agreement shall prohibit or be deemed to
prohibit the Investor from purchasing, in an open market transaction or
otherwise, shares of Common Stock necessary to make delivery by the Investor in
satisfaction of a sale by the Investor of Shares that the Investor anticipated
receiving from the Company in connection with the settlement of a Fixed Purchase
if the Company or its transfer agent shall have failed for any reason to
electronically transfer all of the Shares subject to such Fixed Purchase to the
Investor on the applicable Settlement Date by crediting the Investor’s or its
designated Broker-Dealer’s account at DTC through its DWAC delivery system in
compliance with Section 3.2 of this Agreement.

 

Section 4.12.  No Prior Short Sales. At no time prior to the date of this
Agreement has any of the Investor, its agents, representatives or Affiliates
engaged in or effected, in any manner whatsoever, directly or indirectly, any
(i) “short sale” (as such term is defined in Rule 200 of Regulation SHO of the
Exchange Act) of the Common Stock or (ii) hedging transaction, which establishes
a net short position with respect to the Common Stock.

 

Section 4.13.  Statutory Underwriter Status. The Investor acknowledges that it
will be disclosed as an “underwriter” and a “selling stockholder” in each
Registration Statement and in any Prospectus contained therein to the extent
required by applicable law and to the extent the Prospectus is related to the
resale of Registrable Securities.

 

8

 

 

Section 4.14.  Resales of Securities. The Investor represents, warrants and
covenants that it will resell such Securities only pursuant to the Registration
Statement in which the resale of such Securities is registered under the
Securities Act, in a manner described under the caption “Plan of Distribution”
in such Registration Statement, and in a manner in compliance with all
applicable U.S. federal and state securities laws, rules and regulations,
including, without limitation, any applicable prospectus delivery requirements
of the Securities Act.

 

Section 4.15.  Residency. The Investor is a resident of the State of New York.

 

Article V
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY

 

Except as set forth in the disclosure schedule delivered by the Company to the
Investor (which is hereby incorporated by reference in, and constitutes an
integral part of, this Agreement) (the “Disclosure Schedule”), the Company
hereby makes the following representations, warranties and covenants to the
Investor:

 

Section 5.1.  Organization, Good Standing and Power. The Company has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of the State of Delaware, has the corporate power and authority to own its
property and to conduct its business as described in the Commission Documents
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a Material Adverse Effect.

 

Section 5.2.  Authorization, Enforcement. The Company has the requisite
corporate power and authority to enter into and perform its obligations under
each of the Transaction Documents to which it is a party and to issue the
Securities in accordance with the terms hereof and thereof. Except for approvals
of the Company’s Board of Directors or a committee thereof as may be required in
connection with any issuance and sale of Shares to the Investor hereunder (which
approvals shall be obtained prior to the delivery of any Fixed Purchase Notice),
the execution, delivery and performance by the Company of each of the
Transaction Documents to which it is a party and the consummation by it of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action, and no further consent or
authorization of the Company, its Board of Directors or its stockholders is
required. Each of the Transaction Documents to which the Company is a party has
been duly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor’s rights and remedies or by other
equitable principles of general application (including any limitation of
equitable remedies).

 

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Section 5.3.  Capitalization. The authorized capital stock of the Company and
the shares thereof issued and outstanding were as set forth in the Commission
Documents as of the dates reflected therein. All of the outstanding shares of
Common Stock have been duly authorized and validly issued, and are fully paid
and non-assessable. Except as set forth in the Commission Documents, this
Agreement and the Registration Rights Agreement, there are no agreements or
arrangements under which the Company is obligated to register the sale of any
securities under the Securities Act. Except as set forth in the Commission
Documents, no shares of Common Stock are entitled to preemptive rights and there
are no outstanding debt securities and no contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of the capital stock of the Company or options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for, any shares of capital stock of the Company other than those issued or
granted in the ordinary course of business pursuant to the Company’s equity
incentive and/or compensatory plans or arrangements. Except as set forth in the
Stockholders’ Agreement filed as an exhibit to the Commission Documents, and for
customary transfer restrictions contained in agreements entered into by the
Company to sell restricted securities or as set forth in the Commission
Documents, the Company is not a party to, and it has no Knowledge of, any
agreement restricting the voting or transfer of any shares of the capital stock
of the Company. Except as set forth in the Commission Documents, there are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by this Agreement or any of the other Transaction Documents or
the consummation of the transactions described herein or therein. The Company
has filed with the Commission true and correct copies of the Company’s
Certificate of Incorporation as in effect on the Closing Date (the “Charter”),
and the Company’s Bylaws as in effect on the Closing Date (the “Bylaws”).

 

Section 5.4.  Issuance of Securities. The Commitment Shares have been, and the
Shares to be issued under this Agreement have been, or with respect to Shares to
be purchased by the Investor pursuant to a particular Fixed Purchase Notice,
will be, prior to the delivery to the Investor hereunder of such Fixed Purchase
Notice, duly authorized by all necessary corporate action on the part of the
Company. The Commitment Shares, when issued to the Investor in accordance with
this Agreement, and the Shares, when issued and sold against payment therefor in
accordance with this Agreement, shall be validly issued and outstanding, fully
paid and non-assessable and free from all liens, charges, taxes, security
interests, encumbrances, rights of first refusal, preemptive or similar rights
and other encumbrances with respect to the issue thereof, and the Investor shall
be entitled to all rights accorded to a holder of Common Stock. 15,000,000
shares of Common Stock have been duly authorized and reserved by the Company for
issuance upon purchase under this Agreement as Shares.

 

Section 5.5.  No Conflicts. The execution, delivery and performance by the
Company of each of the Transaction Documents to which it is a party and the
consummation by the Company of the transactions contemplated hereby and thereby
do not and shall not (i) result in a violation of any provision of the Company’s
Charter or Bylaws, (ii) conflict with or result in a breach or violation of any
of the terms or provisions of, or constitute a default (or an event which, with
notice or lapse of time or both, would become a default) under, or give rise to
any rights of termination, amendment, acceleration or cancellation of, any
material agreement, mortgage, deed of trust, indenture, note, bond, license,
lease agreement, instrument or obligation to which the Company is a party or is
bound, (iii) create or impose a lien, charge or encumbrance on any property or
assets of the Company under any agreement or any commitment to which the Company
is a party or by which the Company is bound or to which any of their respective
properties or assets is subject, or (iv) result in a violation of any federal,
state, local or foreign statute, rule, regulation, order, judgment or decree
applicable to the Company or by which any property or asset of the Company are
bound or affected (including federal and state securities laws and regulations
and the rules and regulations of the Trading Market or applicable Eligible
Market), except, in the case of clauses (ii), (iii) and (iv), for such
conflicts, defaults, terminations, amendments, acceleration, cancellations,
liens, charges, encumbrances and violations as would not, individually or in the
aggregate, have a Material Adverse Effect. Except as specifically contemplated
by this Agreement or the Registration Rights Agreement and as required under the
Securities Act and any applicable state securities laws, the Company is not
required under any federal, state, local or foreign law, rule or regulation to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency (including, without
limitation, the Trading Market) in order for it to execute, deliver or perform
any of its obligations under the Transaction Documents to which it is a party,
or to issue the Securities to the Investor in accordance with the terms hereof
and thereof (other than such consents, authorizations, orders, filings or
registrations as have been obtained or made prior to the Closing Date);
provided, however, that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the
representations and warranties of the Investor in this Agreement and the
compliance by it with its covenants and agreements contained in this Agreement
and the Registration Rights Agreement.

 

10

 

 

Section 5.6.  Commission Documents, Financial Statements; Disclosure Controls
and Procedures; Internal Controls Over Financial Reporting; Accountants.

 

(a)  The Company has timely filed (giving effect to permissible extensions in
accordance with Rule 12b-25 under the Exchange Act) all Commission Documents for
the twelve months preceding the date of this Agreement. The Company has
delivered or made available to the Investor via EDGAR or otherwise true and
complete copies of the Commission Documents filed with or furnished to the
Commission prior to the Closing Date (including, without limitation, the 2019
Form 10-K). As of its filing date, each Commission Document filed with or
furnished to the Commission prior to the Closing Date (including, without
limitation, the 2019 Form 10-K) complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as applicable, and other
federal, state and local laws, rules and regulations applicable to it, and, as
of its filing date (or, if amended or superseded by a filing prior to the
Closing Date, on the date of such amended or superseded filing). Each
Registration Statement, on the date it is filed with the Commission, on the date
it is declared effective by the Commission, on each Fixed Purchase Date shall
comply in all material respects with the requirements of the Securities Act
(including, without limitation, Rule 415 under the Securities Act) and shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, except that this representation and warranty shall not
apply to statements in or omissions from such Registration Statement made in
reliance upon and in conformity with information relating to the Investor
furnished to the Company in writing by or on behalf of the Investor expressly
for use therein. The Prospectus and each Prospectus Supplement required to be
filed pursuant to this Agreement or the Registration Rights Agreement after the
Closing Date, when taken together, on its date, on each Fixed Purchase Exercise
Date and on each Settlement Date, shall comply in all material respects with the
requirements of the Securities Act (including, without limitation, Rule 424(b)
under the Securities Act) and shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that this representation and
warranty shall not apply to statements in or omissions from the Prospectus or
any Prospectus Supplement made in reliance upon and in conformity with
information relating to the Investor furnished to the Company in writing by or
on behalf of the Investor expressly for use therein. Each Commission Document
(other than the Initial Registration Statement or any New Registration
Statement, or the Prospectus included therein or any Prospectus Supplement
thereto) to be filed with or furnished to the Commission after the Closing Date
and incorporated by reference in the Initial Registration Statement or any New
Registration Statement, or the Prospectus included therein or any Prospectus
Supplement thereto required to be filed pursuant to this Agreement or the
Registration Rights Agreement (including, without limitation, the Current
Report), when such document is filed with or furnished to the Commission and, if
applicable, when such document becomes effective, as the case may be, shall
comply in all material respects with the requirements of the Securities Act or
the Exchange Act, as applicable, and other federal, state and local laws, rules
and regulations applicable to it. The Company has delivered or made available to
the Investor via EDGAR or otherwise true and complete copies of all comment
letters and substantive correspondence received by the Company from the
Commission relating to the Commission Documents filed with or furnished to the
Commission as of the Closing Date, together with all written responses of the
Company thereto in the form such responses were filed via EDGAR. There are no
outstanding or unresolved comments or undertakings in such comment letters
received by the Company from the Commission. The Commission has not issued any
stop order or other order suspending the effectiveness of any registration
statement filed by the Company under the Securities Act or the Exchange Act.

 

11

 

 

(b)  The financial statements of the Company included or incorporated by
reference in the Commission Documents, together with the related notes and
schedules, comply in all material respects with the requirements of the
Securities Act and the Exchange Act and fairly present the financial condition
of the Company as of the dates indicated and the results of operations and
changes in cash flows for the periods therein specified in conformity with
generally accepted accounting principles in the United States (“GAAP”)
consistently applied throughout the periods involved; all non-GAAP financial
information included or incorporated by reference in the Commission Documents
complies with the requirements of Regulation G and Item 10 of Regulation S-K
under the Securities Act, to the extent applicable; and, except as disclosed in
the Commission Documents, there are no material off-balance sheet arrangements
(as defined in Regulation S-K under the Act, Item 303(a)(4)(ii)) or any other
relationships with unconsolidated entities or other persons, that may have a
material current or, to the Company’s Knowledge, material future effect on the
Company’s financial condition, results of operations, liquidity, capital
expenditures, capital resources or significant components of revenue or
expenses. No other financial statements or schedules are required to be included
in the Commission Documents.

 

(c)  Except as indicated in the Commission documents, the Company maintains a
system of internal accounting controls over financial reporting sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management’s general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization; (iv) the interactive data in eXtensible Business Reporting
Language included or incorporated by reference in the Commission Documents
fairly presents the information called for in all material respects and has been
prepared in accordance with the Commission’s rules and guidelines applicable
thereto; and (v) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. Except as described in the Commission Documents,
since the end of the Company’s most recent audited fiscal year, (i) the Company
has no reason to believe that there has been any material weakness in the
Company’s internal control over financial reporting (whether or not remediated)
and (ii) there has been no change in the Company’s internal control over
financial reporting that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial reporting.

 

12

 

 

(d)  Except as described in the Commission Documents, the Company maintains a
system of “disclosure controls and procedures” (as defined in Rule 13a-15(e) of
the Exchange Act) that complies with the requirements of the Exchange Act and
that has been designed to ensure that information required to be disclosed by
the Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the Commission’s rules and forms, including controls and procedures designed
to ensure that such information is accumulated and communicated to the Company’s
management as appropriate to allow timely decisions regarding required
disclosure and such disclosure controls and procedures are effective in all
material respects to perform the functions for which they were established. The
Company has carried out evaluations of the effectiveness of its disclosure
controls and procedures as required by Rule 13a-15 of the Exchange Act.

 

(e)  To the Company’s Knowledge, Friedman LLP, which has expressed its opinion
with respect to the consolidated financial statements and schedule as of
December 31, 2019 and 2018, and for each of the two years in the period ended
December 31, 2019, to be filed as a part of the Initial Registration Statement
and incorporated by reference in the Initial Registration Statement and the
Prospectus included therein, is (x) an independent public accounting firm within
the meaning of the Act and the Rules and Regulations, (y) a registered public
accounting firm (as defined in Section 2(a)(12) of the Sarbanes-Oxley Act of
2002 (the “Sarbanes-Oxley Act”)) and (z) not in violation of the auditor
independence requirements of the Sarbanes-Oxley Act.

 

(f)   The section entitled “Critical Accounting Policies” to be included or
incorporated by reference in the Initial Registration Statement and any New
Registration Statement (and any post-effective amendment thereto) shall
accurately describe in all material respects (i) the accounting policies that
the Company believes are the most important in the portrayal of the Company’s
financial condition and results of operations and that require management’s most
difficult, subjective or complex judgments (“Critical Accounting Policies”);
(ii) the judgments and uncertainties affecting the application of Critical
Accounting Policies; and (iii) the likelihood that materially different amounts
would be reported under different conditions or using different assumptions, and
an explanation thereof.

 

(g)  There is no failure on the part of the Company or, to the Knowledge of the
Company, any of the Company’s directors or officers, in their capacities as
such, to comply in all material respects with any provision of the
Sarbanes-Oxley Act and the rules and regulations promulgated in connection
therewith that are applicable to the Company or its directors or officers in
their capacities as directors or officers of the Company.

 

Section 5.7.  Subsidiaries. As of the date of this Agreement, the Company does
not have any subsidiaries.

 

13

 

 

Section 5.8.  No Material Adverse Effect or Material Adverse Change. Except as
otherwise disclosed in any Commission Documents, since the end of the Company’s
most recent audited fiscal year: (i) the Company has not experienced or suffered
any Material Adverse Effect, and there exists no current state of facts,
condition or event which would have a Material Adverse Effect; (ii) there has
not occurred any material adverse change, or any development that would
reasonably be expected to result in a prospective material adverse change, in
the condition, financial or otherwise, or in the earnings, business or
operations of the Company from that set forth in the Commission Documents,
including, without limitation, to the Company’s Knowledge, as a result of the
recent outbreak of COVID-19, or as a result of any measures intended to contain
the outbreak of COVID-19 imposed by any federal, state, local or foreign
government or government agency in any country or region in which the Company,
or any of its agents, consultants, advisors or vendors, has assets or properties
or conducts business, including, without limitation, any limitations,
curtailments, suspensions or closures of businesses, business offices or
establishments, schools, properties and other public areas due to quarantines,
curfews, travel restrictions, workplace controls, “stay-at-home” orders, social
distancing requirements or guidelines or other public gathering restrictions or
limitations; (iii) neither the Company nor any of its Subsidiaries has incurred
any material liability or obligation, direct or contingent, nor entered into any
material transaction; (iv) the Company has not purchased any of its outstanding
capital stock, nor declared, paid or otherwise made any dividend or distribution
of any kind on its capital stock other than ordinary and customary dividends;
and (v) there has not been any material change in the capital stock, short-term
debt or long-term debt of the Company.

 

Section 5.9.  No Undisclosed Liabilities. The Company does not have any
liabilities, obligations, claims or losses (whether liquidated or unliquidated,
secured or unsecured, absolute, accrued, contingent or otherwise) that would be
required to be disclosed on a balance sheet of the Company (including the notes
thereto) in conformity with GAAP and are not disclosed in the Commission
Documents, other than those incurred in the ordinary course of the Company’s
businesses since December 31, 2019 and which, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect.

 

Section 5.10.  No Undisclosed Events or Circumstances. No event or circumstance
has occurred or information exists with respect to the Company or its business,
properties, liabilities, operations (including results thereof) or conditions
(financial or otherwise), which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company at or before the
Closing but which has not been so publicly announced or disclosed, except for
events or circumstances which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.

 

Section 5.11.  Indebtedness; Solvency. The Company’s Quarterly Report on Form
10-Q for its fiscal quarter ended September 30, 2020 sets forth, as of September
30, 2020, all outstanding secured and unsecured Indebtedness of the Company, or
for which the Company has commitments through such date. For the purposes of
this Agreement, “Indebtedness” shall mean (a) any liabilities for borrowed money
or amounts owed in excess of $100,000 (other than trade accounts payable
incurred in the ordinary course of business), (b) all guaranties, endorsements,
indemnities and other contingent obligations in respect of Indebtedness of
others in excess of $100,000, whether or not the same are or should be reflected
in the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $100,000 due under leases required to be
capitalized in accordance with GAAP. There is no existing or continuing default
or event of default in respect of any Indebtedness of the Company . The Company
has not taken any steps, and does not currently expect to take any steps, to
seek protection pursuant to Title 11 of the United States Code or any similar
federal or state bankruptcy law or law for the relief of debtors, nor does the
Company have any Knowledge that its creditors intend to initiate involuntary
bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings for relief under Title 11 of the United States Code or any other
federal or state bankruptcy law or any law for the relief of debtors. The
Company is financially solvent and is generally able to pay its debts as they
become due.

 

14

 

 

Section 5.12.  Title To Assets. The Company has good and marketable title in fee
simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company, in each
case free and clear of all liens, encumbrances and defects except such as are
described in the Commission Documents or such as do not materially affect the
value of such property and do not interfere with the use made and proposed to be
made of such property by the Company; and any real property and buildings held
under lease by the Company are held by it under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
in any material respect with the use made and proposed to be made of such
property and buildings by the Company, in each case except as described in the
Commission Documents.

 

Section 5.13.  Actions Pending. There are no legal or governmental proceedings
pending or, to the Knowledge of the Company, threatened to which the Company are
a party or to which any of the properties of the Company is subject (i) other
than proceedings accurately described in all material respects in the Commission
Documents and proceedings that, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect, or on the power or
ability of the Company to perform its obligations under this Agreement and the
Registration Rights Agreement or to consummate the transactions contemplated by
the Transaction Documents or (ii) that are required to be described in the
Commission Documents and are not so described; and there are no statutes,
regulations, contracts or other documents that are required to be described in
the Commission Documents or to be filed as exhibits to the Commission Documents
that are not described or filed as required.

 

Section 5.14.  Compliance With Law; Compliance with Continued Listing Standards.
The business of the Company has been and is presently being conducted in
compliance with all applicable federal, state, local and foreign governmental
laws, rules, regulations and ordinances, except as set forth in the Commission
Documents and except for such non-compliance which, individually or in the
aggregate, would not have a Material Adverse Effect. The Company is not in
violation of any judgment, decree or order or any statute, ordinance, rule or
regulation applicable to the Company, and the Company will not conduct its
business in violation of any of the foregoing, except in all cases for any such
violations which could not, individually or in the aggregate, have a Material
Adverse Effect. The Company has not received any notice of any continuing
failure to maintain requirements for continued listing or quotation of its
Common Stock on an applicable Trading Market or in violation of any of the
rules, regulations or requirements of any applicable Trading Market, other than
as disclosed to the Investor (including any intended changes with respect to
another applicable Trading Market in connection with any failure to maintain
such requirements).

 

15

 

 

Section 5.15.  Certain Fees. No brokerage or finder’s fees or commissions are or
will be payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with respect to
the transactions contemplated by the Transaction Documents. The Investor shall
have no obligation with respect to any fees or with respect to any claims made
by or on behalf of other Persons for fees of a type contemplated in this Section
5.15 incurred by the Company that may be due or payable in connection with the
transactions contemplated by the Transaction Documents.

 

Section 5.16.  Disclosure. The Company confirms that, from and after the date
hereof, neither it nor any other Person acting on its behalf will provide the
Investor or any of its agents, advisors or counsel with any new information that
constitutes or could reasonably be expected to constitute material, nonpublic
information concerning the Company, other than the existence of the transactions
contemplated by the Transaction Documents. The Company understands and confirms
that the Investor will rely on the foregoing representations in effecting
resales of Securities under the Registration Statement. All new disclosure
provided to Investor regarding the Company, their businesses and the
transactions contemplated by the Transaction Documents (including, without
limitation, the representations and warranties of the Company contained in the
Transaction Documents to which it is a party (as modified by the Disclosure
Schedule)) furnished in writing by or on behalf of the Company for purposes of
or in connection with the Transaction Documents (other than forward-looking
information and projections and information of a general economic nature and
general information about the Company’s industry), taken together, is true and
correct in all material respects on the date on which such information is dated
or certified, and does not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading at such time. Each press release issued by the Company during the 12
months preceding the Closing Date did not at the time of release (or, if amended
or superseded by a later dated press release issued by the Company prior to the
Closing Date or by a later dated Commission Document filed with or furnished to
the Commission by the Company prior to the Closing Date, at the time of issuance
of such later dated press release or filing or furnishing of such Commission
Document, as applicable) contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
are made, not misleading.

 

Section 5.17.  Operation of Business.

 

(a)  The Company possesses such permits, licenses, approvals, consents and other
authorizations (including licenses, accreditation and other similar
documentation or approvals of any local health departments) issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies as
are necessary to conduct the business now operated by it (collectively,
“Governmental Licenses”), except where the failure to possess such Governmental
Licenses, individually or in the aggregate, would not have a Material Adverse
Effect. All of the Governmental Licenses are valid and in full force and effect,
except where the invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect, individually or in the
aggregate, would not have a Material Adverse Effect or except as otherwise
disclosed in the Commission Documents. This Section 5.17(a) does not relate to
environmental matters, such items being the subject of Section 5.18.

 

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(b)  As to each product subject to the jurisdiction of the U.S. Food and Drug
Administration (“FDA”) under the Federal Food, Drug and Cosmetic Act, as
amended, and the regulations thereunder (“FDCA”) that is manufactured, packaged,
labeled, tested, distributed, sold, and/or marketed by the Company (each such
product, a “Pharmaceutical Product”), such Pharmaceutical Product is being
manufactured, packaged, labeled, tested, distributed, sold and/or marketed by
the Company in compliance with all applicable requirements under FDCA and
similar laws, rules and regulations relating to registration, investigational
use, premarket clearance, licensure, or application approval, good manufacturing
practices, good laboratory practices, good clinical practices, product listing,
quotas, labeling, advertising, record keeping and filing of reports, except
where the failure to be in compliance would not have a Material Adverse Effect.
There is no pending, completed or, to the Company’s knowledge, threatened,
action (including any lawsuit, arbitration, or legal or administrative or
regulatory proceeding, charge, complaint, or investigation) against the Company
, and the Company has not received any notice, warning letter or other
communication from the FDA or any other governmental entity, which (i) contests
the premarket clearance, licensure, registration, or approval of, the uses of,
the distribution of, the manufacturing or packaging of, the testing of, the sale
of, or the labeling and promotion of any Pharmaceutical Product, (ii) withdraws
its approval of, requests the recall, suspension, or seizure of, or withdraws or
orders the withdrawal of advertising or sales promotional materials relating to,
any Pharmaceutical Product, (iii) imposes a clinical hold on any clinical
investigation by the Company, (iv) enjoins production at any facility of the
Company, (v) enters or proposes to enter into a consent decree of permanent
injunction with the Company, or (vi) otherwise alleges any violation of any
laws, rules or regulations by the Company, and which, either individually or in
the aggregate, would have a Material Adverse Effect. The properties, business
and operations of the Company have been and are being conducted in all material
respects in accordance with all applicable laws, rules and regulations of the
FDA.  The Company has not been informed by the FDA that the FDA will prohibit
the marketing, sale, license or use in the United States of any product proposed
to be developed, produced or marketed by the Company nor has the FDA expressed
any concern as to approving or clearing for marketing any product being
developed or proposed to be developed by the Company.

 

(c)  The Company or one or more of its Subsidiaries owns or possesses adequate
patents, patent rights, licenses, inventions, copyrights, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks,
trade names, trade dress, logos, copyrights and other intellectual property,
including, without limitation, all of the intellectual property described in the
Commission Documents as being owned or licensed by the Company (collectively,
“Intellectual Property”), necessary to carry on the business now operated by it.
Except as set forth in the Commission Documents, there are no actions, suits or
judicial proceedings pending, or to the Company’s Knowledge threatened, relating
to patents or proprietary information to which the Company is a party or of
which any property of the Company is subject, and the Company has not received
any notice or is otherwise aware of any infringement of or conflict with
asserted rights of others with respect to any Intellectual Property or of any
facts or circumstances which could render any Intellectual Property invalid or
inadequate to protect the interest of the Company therein, and which
infringement or conflict (if the subject of any unfavorable decision, ruling or
finding) or invalidity or inadequacy, individually or in the aggregate, would
have a Material Adverse Effect.

 

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Section 5.18.  Environmental Compliance. The Company (i) is in compliance with
any and all applicable federal, state and local laws and regulations relating to
the protection of human health and safety (to the extent such health and safety
relates to exposure to hazardous or toxic substances or wastes, pollutants or
contaminants), the environment or hazardous or toxic substances or wastes,
pollutants or contaminants (“Environmental Laws”), (ii) has received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses as they are currently
being conducted and (iii) is in compliance with all terms and conditions of any
such permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such permits,
licenses or approvals would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. There are no proceedings that are
pending, or to the Company’s Knowledge, threatened, against the Company under
Environmental Laws in which a governmental authority is also a party, other than
such proceedings regarding which it is reasonably believed no monetary sanctions
of $100,000 or more will be imposed. There are no costs or liabilities
associated with Environmental Laws with respect to the operations or properties
of the Company (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, or any related
constraints on operating activities and any potential liabilities to third
parties) that would, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.

 

Section 5.19.  Material Agreements. Except as set forth in the Commission
Documents, neither the Company nor any Subsidiary of the Company is a party to
any written or oral contract, instrument, agreement commitment, obligation, plan
or arrangement, a copy of which would be required to be filed with the
Commission as an exhibit to an annual report on Form 10-K (collectively,
“Material Agreements”). Each of the Material Agreements described in the
Commission Documents conform in all material respects to the descriptions
thereof contained or incorporated by reference therein. Except as set forth in
the Commission Documents, the Company has performed in all material respects all
the obligations then required to be performed by them under the Material
Agreements, have received no notice of default or an event of default by the
Company thereunder and are not aware of any basis for the assertion thereof, and
neither the Company nor, to the Knowledge of the Company, any other contracting
party thereto are in default under any Material Agreement now in effect, the
result of which would have a Material Adverse Effect. Except as set forth in the
Commission Documents, each of the Material Agreements is in full force and
effect, and constitutes a legal, valid and binding obligation enforceable in
accordance with its terms against the Company and/ and, to the Knowledge of the
Company, each other contracting party thereto, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditor’s rights and remedies or by
other equitable principles of general application.

 

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Section 5.20.  Transactions With Affiliates. Except as set forth in the
Commission Documents, there are no loans, leases, agreements, contracts, royalty
agreements, management contracts, service arrangements or other continuing
transactions exceeding $120,000 between (a) the Company or any Subsidiary, on
the one hand, and (b) any person or entity who would be covered by Item 404(a)
of Regulation S-K, on the other hand. Except as disclosed in the Commission
Documents, there are no outstanding amounts payable to or receivable from, or
advances by the Company to, and neither the Company n is otherwise a creditor of
or debtor to, any beneficial owner of more than 5% of the outstanding shares of
Common Stock, or any director, employee or affiliate of the Company, other than
(i) reimbursement for reasonable expenses incurred on behalf of the Company or
(ii) as part of the normal and customary terms of such person’s employment or
service as a director with the Company.

 

Section 5.21.  Employees; Labor Laws. No material labor dispute with the
employees of the Company exists, except as described in the Commission
Documents, or, to the Knowledge of the Company, is imminent; and the Company is
not aware of any existing, threatened or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or contractors that
would reasonably be expected to have a Material Adverse Effect. Neither the
Company nor any Subsidiary is in violation of or has received notice of any
violation with respect to any federal or state law relating to discrimination in
the hiring, promotion or pay of employees, nor any applicable federal or state
wage and hour laws, nor any state law precluding the denial of credit due to the
neighborhood in which a property is situated, the violation of any of which
could reasonably be expected to have a Material Adverse Effect.

 

Section 5.22.  Use of Proceeds. The proceeds from the sale of the Shares by the
Company to Investor shall be used by the Company and its Subsidiaries in the
manner as will be set forth in the Prospectus included in any Registration
Statement (and any post-effective amendment thereto) and any Prospectus
Supplement thereto filed pursuant to the Registration Rights Agreement.

 

Section 5.23.  Investment Company Act Status. The Company is not, and as a
result of the consummation of the transactions contemplated by the Transaction
Documents and the application of the proceeds from the sale of the Shares as
will be set forth in the Prospectus included in any Registration Statement (and
any post-effective amendment thereto) and any Prospectus Supplement thereto
filed pursuant to the Registration Rights Agreement the Company will not be an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended.

 

Section 5.24.  ERISA. No liability to the Pension Benefit Guaranty Corporation
has been incurred with respect to any Plan by the Company which has had or would
have a Material Adverse Effect. No “prohibited transaction” (as defined in
Section 406 of ERISA or Section 4975 of the Code) or “accumulated funding
deficiency” (as defined in Section 302 of ERISA) or any of the events set forth
in Section 4043(b) of ERISA has occurred with respect to any Plan which has had
or would have a Material Adverse Effect, and the execution and delivery of this
Agreement and the issuance and sale of the Securities hereunder shall not result
in any of the foregoing events. Each Plan is in compliance in all material
respects with applicable law, including ERISA and the Code; the Company has not
incurred and does not expect to incur liability under Title IV of ERISA with
respect to the termination of, or withdrawal from, any Plan; and each Plan for
which the Company would have any liability that is intended to be qualified
under Section 401(a) of the Code is so qualified in all material respects and
nothing has occurred, whether by action or failure to act, which would cause the
loss of such qualifications. As used in this Section 5.24, the term “Plan” shall
mean an “employee pension benefit plan” (as defined in Section 3 of ERISA) which
is or has been established or maintained, or to which contributions are or have
been made, by the Company or any Subsidiary or by any trade or business, whether
or not incorporated, which, together with the Company or any Subsidiary, is
under common control, as described in Section 414(b) or (c) of the Code.

 

19

 

 

Section 5.25.  Taxes. The Company has filed all federal, state, local and
foreign tax returns required to be filed through the date of this Agreement or
have requested extensions thereof (except where the failure to file would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect) and have paid all taxes required to be paid thereon (except for
cases in which the failure to file or pay would not reasonably be expected to
have a Material Adverse Effect, or, except as currently being contested in good
faith and for which reserves required by GAAP have been created in the financial
statements of the Company), and no tax deficiency has been determined adversely
to the Company which have had a Material Adverse Effect, nor does the Company
have any notice or Knowledge of any tax deficiency which could reasonably be
expected to be determined adversely to the Company and which would reasonably be
expected to have a Material Adverse Effect.

 

Section 5.26.  Insurance. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which it is engaged; neither the
Company have been refused any insurance coverage sought or applied for; and
neither the Company n have any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not have a Material Adverse Effect, except as
described in the Commission Documents.

 

Section 5.27.  Exemption from Registration. Subject to, and in reliance on, the
representations, warranties and covenants made herein by the Investor, the offer
and sale of the Securities in accordance with the terms and conditions of this
Agreement is exempt from the registration requirements of the Securities Act
pursuant to Section 4(a)(2) and Rule 506(b) of Regulation D; provided, however,
that at the request of and with the express agreements of the Investor
(including, without limitation, the representations, warranties and covenants of
Investor set forth in Section 4.9 through 4.13), the Securities to be issued
from and after Commencement to or for the benefit of the Investor pursuant to
this Agreement shall be issued to the Investor or its designee only as DWAC
Shares and will not bear legends noting restrictions as to resale of such
securities under federal or state securities laws, nor will any such securities
be subject to stop transfer instructions.

 

Section 5.28.  No General Solicitation or Advertising. Neither the Company, nor
any of its Affiliates, nor any Person acting on its or their behalf, has engaged
in any form of general solicitation or general advertising (within the meaning
of Regulation D) in connection with the offer or sale of the Securities.

 

Section 5.29.  No Integrated Offering. None of the Company or any of its
Affiliates, nor any Person acting on their behalf has, directly or indirectly,
made any offers or sales of any security or solicited any offers to buy any
security, under circumstances that would require registration of the issuance of
any of the Securities under the Securities Act, whether through integration with
prior offerings or otherwise, or cause this offering of the Securities to
require approval of stockholders of the Company under any applicable stockholder
approval provisions, including, without limitation, under the rules and
regulations of the Trading Market. None of the Company, its Subsidiaries, their
Affiliates nor any Person acting on their behalf will take any action or steps
referred to in the preceding sentence that would require registration of the
issuance of any of the Securities under the Securities Act or cause the offering
of any of the Securities to be integrated with other offerings.

 

20

 

 

Section 5.30.  Dilutive Effect. The Company is aware and acknowledges that
issuance of the Securities could cause dilution to existing stockholders and
could significantly increase the outstanding number of shares of Common Stock.
The Company further acknowledges that its obligation to issue the Commitment
Shares and to issue the Shares pursuant to the terms of a Fixed Purchase in
accordance with this Agreement is, in each case, absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company.

 

Section 5.31.  Manipulation of Price. Neither the Company nor any of its
officers, directors or Affiliates has, and, to the Knowledge of the Company, no
Person acting on their behalf has, (i) taken, directly or indirectly, any action
designed or intended to cause or to result in the stabilization or manipulation
of the price of any security of the Company, or which caused or resulted in, or
which would in the future reasonably be expected to cause or result in, the
stabilization or manipulation of the price of any security of the Company, in
each case to facilitate the sale or resale of any of the Securities, (ii) sold,
bid for, purchased, or paid any compensation for soliciting purchases of, any of
the Securities, or (iii) paid or agreed to pay to any Person any compensation
for soliciting another to purchase any other securities of the Company. Neither
the Company nor any of its officers, directors or Affiliates will during the
term of this Agreement, and, to the Knowledge of the Company, no Person acting
on their behalf will during the term of this Agreement, take any of the actions
referred to in the immediately preceding sentence.

 

Section 5.32.  Securities Act. Except as set forth in the Disclosure Schedule,
the Company has complied and shall comply with all applicable federal and state
securities laws in connection with the offer, issuance and sale of the
Securities hereunder, including, without limitation, the applicable requirements
of the Securities Act. Each Registration Statement, upon filing with the
Commission and at the time it is declared effective by the Commission, shall
satisfy all of the requirements of the Securities Act to register the resale of
the Registrable Securities included therein by the Investor in accordance with
the Registration Rights Agreement on a delayed or continuous basis under Rule
415 under the Securities Act at then-prevailing market prices, and not fixed
prices. The Company is not, and has not previously been at any time, an issuer
identified in, or subject to, Rule 144(i).

 

Section 5.33.  Listing and Maintenance Requirements; DTC Eligibility. As of the
date of this Agreement and the Closing Date, the Common Stock is registered
pursuant to Section 12(b) of the Exchange Act, and the Company has taken no
action designed to, or which to its Knowledge is likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act, nor has
the Company received any notification that the Commission is contemplating
terminating such registration. As of the date of this Agreement and the Closing
Date, the Company has not received notice from the Trading Market or any
Eligible Market on which the Common Stock is or has been listed or quoted to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market or Eligible Market, as applicable. As of the
Closing Date, the Company is in compliance with all such listing and maintenance
requirements. The Common Stock is eligible for participation in the DTC book
entry system and has shares on deposit at DTC for transferred electronically to
third parties via DTC through its Deposit/Withdrawal at Custodian (“DWAC”)
delivery system. The Company has not received notice from DTC to the effect that
a suspension of, or restriction on, accepting additional deposits of the Common
Stock, electronic trading or book-entry services by DTC with respect to the
Common Stock is being imposed or is contemplated.

 

21

 

 

Section 5.34.  Application of Takeover Protections. The Company and its Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company’s Charter or the laws of its state of
incorporation that is or could become applicable to the Investor as a result of
the Investor and the Company fulfilling their respective obligations or
exercising their respective rights under the Transaction Documents (as
applicable), including, without limitation, as a result of the Company’s
issuance of the Securities and the Investor’s ownership of the Securities.

 

Section 5.35.  No Unlawful Payments. Neither the Company nor any director or
officer, nor, to the Knowledge of the Company, any employee, agent,
representative or Affiliate of the Company, has taken within the past five years
any action in furtherance of an offer, payment, promise to pay, or authorization
or approval of the payment or giving of money, property, gifts or anything else
of value, directly or indirectly, to any “government official” (including any
officer or employee of a government or government-owned or controlled entity or
of a public international organization, or any person acting in an official
capacity for or on behalf of any of the foregoing, or any political party or
party official or candidate for political office) to influence official action
or secure an improper advantage (to the extent acting on behalf of or providing
services to the Company); and the Company has conducted their businesses within
the past five years in compliance with the U.S. Foreign Corrupt Practices Act of
1977, as amended (the “FCPA”), any applicable law or regulation implementing the
OECD Convention on Combating Bribery of Foreign Public Officials in
International Business Transactions, signed December 17, 1997, the U.K. Bribery
Act 2010 and other applicable anti-corruption, anti-money laundering and
anti-bribery laws, and have instituted and maintain policies and procedures
designed to promote and achieve compliance with such laws and with the
representation and warranty contained herein.

 

Section 5.36.  Money Laundering Laws. To the Company’s Knowledge, the operations
of the Company are and have been conducted at all times within the past five
years in material compliance with all applicable financial recordkeeping and
reporting requirements, including those of the Currency and Foreign Transactions
Reporting Act of 1970, as amended, and the applicable anti-money laundering
statutes, including but not limited to, applicable federal, state,
international, foreign or other laws, regulations or government guidance
regarding anti-money laundering, including, without limitation, Title 18 US.
Code section 1956 and 1957, the Patriot Act, the Bank Secrecy Act, and
international anti-money laundering principles or procedures by an
intergovernmental group or organization, such as the Financial Action Task Force
on Money Laundering, of which the United States is a member and with which
designation the United States representative to the group or organization
continues to concur, all as amended, and any Executive order, directive, or
regulation pursuant to the authority of any of the foregoing, or any orders or
licenses issued thereunder, of jurisdictions where the Company conducts
business, the rules and regulations thereunder and any related or similar rules,
regulations or guidelines, issued, administered or enforced by any governmental
agency (collectively, the “Money Laundering Laws”), and no action, suit or
proceeding by or before any court or governmental agency, authority or body or
any arbitrator involving the Company with respect to the Money Laundering Laws
is pending or, to the best knowledge of the Company, threatened.

 

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Section 5.37.  OFAC. Neither the Company, nor any director, officer, or employee
thereof, nor, to the Company’s Knowledge, any agent, affiliate or representative
of the Company, is a Person that is, or is owned or controlled by a Person that
is (i) the subject of any sanctions administered or enforced by the U.S.
Department of Treasury’s Office of Foreign Assets Control, the United Nations
Security Council, the European Union, Her Majesty’s Treasury, or other relevant
sanctions authority (collectively, “Sanctions”), nor (ii) located, organized or
resident in a country or territory that is the subject of Sanctions (including,
without limitation, Crimea, Cuba, Iran, North Korea, Sudan and Syria). Neither
the Company n will, directly or indirectly, use the proceeds from the sale of
Shares under this Agreement, or lend, contribute or otherwise make available
such proceeds to any Subsidiary, joint venture partner or other Person (a) to
fund or facilitate any activities or business of or with any Person or in any
country or territory that, at the time of such funding or facilitation, is the
subject of Sanctions, or (b) in any other manner that will result in a violation
of Sanctions by any Person (including any Person participating in the offering,
whether as underwriter, advisor, investor or otherwise). For the past five
years, neither the Company have knowingly engaged in, or are now knowingly
engaged in, any dealings or transactions with any Person, or in any country or
territory, that at the time of the dealing or transaction is or was the subject
of Sanctions.

 

Section 5.38.  U.S. Real Property Holding Corporation. The Company is not, nor
has ever been, and so long as any of the Securities are held by the Investor,
shall become a U.S. real property holding corporation within the meaning of
Section 897 of the Code.

 

Section 5.39.  Bank Holding Company Act. Neither the Company nor any of its
Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the
“BHCA”) and to regulation by the Board of Governors of the Federal Reserve
System (the “Federal Reserve”). Neither the Company nor any of its Affiliates
owns or controls, directly or indirectly, five percent (5%) or more of the
outstanding shares of any class of voting securities or twenty-five percent or
more of the total equity of a bank or any entity that is subject to the BHCA and
to regulation by the Federal Reserve. Neither the Company nor any of its
Affiliates exercises a controlling influence over the management or policies of
a bank or any entity that is subject to the BHCA and to regulation by the
Federal Reserve.

 

Section 5.40.  Information Technology; Compliance With Data Privacy Laws. Except
as would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect, the Company’s information technology equipment,
computers, systems, networks, hardware, software, websites, and databases
(collectively, “IT Systems”) are adequate for, and operate and perform as
reasonably required to operate the business of the Company as currently
conducted, free and clear of all material bugs, errors, defects, Trojan horses,
time bombs, malware and other malicious code. Except as would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect,
the Company has implemented and maintained commercially reasonable physical,
technical and administrative controls, policies, procedures, and safeguards
designed to protect their material confidential information and the integrity,
continuous operation, and security of all IT Systems and Personal Data used in
connection with their businesses. “Personal Data” means any information about an
individual person that would enable the Company, either alone or in combination
with other information, to identify a natural person. Within the past five
years, the Company has not experienced a material information security incident
except for those that have been remedied without causing a Material Adverse
Effect or a legal obligation to notify any other Person. The Company is in
material compliance with all applicable state and federal data privacy and
security laws of jurisdictions where the Company conducts business.

 

23

 

 

Section 5.41.  No Disqualification Events. None of the Company, any of its
predecessors, any affiliated issuer, any director, executive officer, other
officer of the Company participating in the offering contemplated hereby, any
beneficial owner of 20% or more of the Company's outstanding voting equity
securities, calculated on the basis of voting power, nor any promoter (as that
term is defined in Rule 405 under the Securities Act) connected with the Company
in any capacity at the time of sale (each, an “Issuer Covered Person”) is
subject to any Disqualification Event, except for a Disqualification Event
covered by Rule 506(d)(2) or (d)(3) under the Securities Act. The Company has
exercised reasonable care to determine whether any Issuer Covered Person is
subject to a Disqualification Event.

 

Section 5.42.  Accuracy of Certain Summaries and Statements. The statements to
be set forth or incorporated by reference, as applicable, in each Registration
Statement (and each post-effective amendment thereto) and the Prospectus
included therein under the captions “Description of Capital Stock,” and in the
2019 Form 10-K under the caption “Certain Relationships and Related
Transactions, and Director Independence”, insofar as they purport to summarize
the provisions of the laws and documents referred to therein, are accurate
summaries in all material respects.

 

Section 5.43.  Acknowledgement Regarding Investor’s Acquisition of Securities.
The Company acknowledges and agrees that the Investor is acting solely in the
capacity of an arm’s-length purchaser with respect to this Agreement and the
transactions contemplated by the Transaction Documents. The Company further
acknowledges that the Investor is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated by the Transaction Documents, and any advice given
by the Investor or any of its representatives or agents in connection therewith
is merely incidental to the Investor’s acquisition of the Securities. The
Company further represents to the Investor that the Company’s decision to enter
into the Transaction Documents to which it is a party has been based solely on
the independent evaluation of the transactions contemplated thereby by the
Company and its representatives. The Company acknowledges and agrees that the
Investor has not made and does not make any representations or warranties with
respect to the transactions contemplated by the Transaction Documents other than
those specifically set forth in Article IV.

 

24

 

 

Article VI
ADDITIONAL COVENANTS

 

The Company covenants with the Investor, and the Investor covenants with the
Company, as follows, which covenants of one party are for the benefit of the
other party, during the Investment Period (and with respect to the Company, for
the period following the termination of this Agreement specified in Section 8.3
pursuant to and in accordance with Section 8.3):

 

Section 6.1.  Securities Compliance. The Company shall notify the Commission and
the Trading Market, if and as applicable, in accordance with their respective
rules and regulations, of the transactions contemplated by the Transaction
Documents, and shall take all necessary action, undertake all proceedings and
obtain all registrations, permits, consents and approvals for the legal and
valid issuance of the Securities to the Investor in accordance with the terms of
the Transaction Documents, as applicable.

 

Section 6.2.  Reservation of Common Stock. The Company has available and the
Company shall reserve and keep available at all times, free of preemptive and
other similar rights of stockholders, the requisite aggregate number of
authorized but unissued shares of Common Stock to enable the Company to timely
effect (i) the issuance and delivery of all Commitment Shares to be issued and
delivered to the Investor under Section 10.1(ii) hereof within the time period
specified in Section 10.1(ii) hereof, and (ii) the issuance, sale and delivery
of all Shares to be issued, sold and delivered in respect of each Fixed Purchase
effected under this Agreement, in the case of this clause (ii), at least prior
to the delivery by the Company to the Investor of the applicable Fixed Purchase
Notice in connection with such Fixed Purchase. Without limiting the generality
of the foregoing, (a) as of the date of this Agreement, the Company has
reserved, out of its authorized and unissued Common Stock, 175,000 shares of
Common Stock solely for the purpose of issuing all of the Commitment Shares
under this Agreement to be issued and delivered to the Investor under Section
10.1(ii) hereof within the time period specified in Section 10.1(ii) hereof, and
(b) as of the date of this Agreement the Company has reserved, and as of the
Commencement Date shall have continued to reserve, out of its authorized and
unissued Common Stock, 15,000,000 shares of Common Stock solely for the purpose
of effecting Fixed Purchases under this Agreement. The number of shares of
Common Stock so reserved for the purpose of effecting Fixed Purchases under this
Agreement may be increased from time to time by the Company from and after the
Commencement Date, and such number of reserved shares may be reduced from and
after the Commencement Date only by the number of Shares actually issued, sold
and delivered to the Investor pursuant to any Fixed Purchase effected from and
after the Commencement Date pursuant to this Agreement.

 

Section 6.3.  Registration and Listing. During the Investment Period, the
Company shall use its commercially reasonable efforts to cause the Common Stock
to continue to be registered as a class of securities under Sections 12(b) or
12(g) of the Exchange Act, and to comply with its reporting and filing
obligations under the Exchange Act, and shall not take any action or file any
document (whether or not permitted by the Securities Act or the Exchange Act) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under the Exchange Act or Securities Act, except as
permitted herein. The Company shall use its commercially reasonable efforts to
continue the listing and trading of its Common Stock and the listing of the
Securities purchased by the Investor hereunder on the Trading Market and to
comply with the Company’s reporting, filing and other obligations under the b
rules and regulations of the Trading Market. The Company shall not take any
action which could be reasonably expected to result in the delisting or
suspension of the Common Stock on the Trading Market. If the Company receives
any final and non-appealable notice that the listing or quotation of the Common
Stock on the Trading Market shall be terminated on a date certain, the Company
shall promptly (and in any case within 24 hours) notify the Investor of such
fact in writing and shall use its commercially reasonable efforts to cause the
Common Stock to be listed or quoted on another Eligible Market.

 

25

 

 

Section 6.4.  Compliance with Laws.

 

(i)   During the Investment Period, the Company (a) shall comply, and cause each
Subsidiary (if any) to comply, with all laws, rules, regulations and orders
applicable to the business and operations of the Company and its Subsidiaries,
except as would not have a Material Adverse Effect and (b) with applicable
provisions of the Securities Act and the Exchange Act, including Regulation M
thereunder, applicable state securities or “Blue Sky” laws, and applicable
listing rules of the Trading Market or Eligible Market, except as would not,
individually or in the aggregate, prohibit or otherwise interfere with the
ability of the Company to enter into and perform its obligations under this
Agreement in any material respect or for Investor to conduct resales of
Securities under the Registration Statement in any material respect. Without
limiting the foregoing, neither the Company, nor to the Knowledge of the
Company, any of their respective directors, officers, agents, employees or any
other Persons acting on their behalf shall, in connection with the operation of
the Company’s businesses, (1) use any corporate funds for unlawful
contributions, payments, gifts or entertainment or to make any unlawful
expenditures relating to political activity to government officials, candidates
or members of political parties or organizations, (2) pay, accept or receive any
unlawful contributions, payments, expenditures or gifts, or (3) violate or
operate in noncompliance with any export restrictions, anti-boycott regulations,
embargo regulations or other applicable domestic or foreign laws and
regulations, including, without limitation, the FCPA and the Money Laundering
Laws.

 

(ii)  The Investor shall comply with all laws, rules, regulations and orders
applicable to the performance by it of its obligations under this Agreement and
its investment in the Securities, except as would not, individually or in the
aggregate, prohibit or otherwise interfere with the ability of the Investor to
enter into and perform its obligations under this Agreement in any material
respect. Without limiting the foregoing, the Investor shall comply with all
applicable provisions of the Securities Act and the Exchange Act, including
Regulation M thereunder, and all applicable state securities or “Blue Sky” laws.

 

Section 6.5.  Keeping of Records and Books of Account; Due Diligence.

 

(i) During the Investment Period, (a) the Company shall keep and cause each
Subsidiary (if any) to keep adequate records and books of account, in which
complete entries shall be made in accordance with GAAP consistently applied,
reflecting all financial transactions of the Company and its Subsidiaries, and
in which, for each fiscal year, all proper reserves for depreciation, depletion,
obsolescence, amortization, taxes, bad debts and other purposes in connection
with its business shall be made; and (b) the Company shall maintain a system of
internal accounting controls that (x) pertain to the maintenance of records that
in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (y) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (z) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company’s assets that could have a
material effect on the Company’s financial statements (it being acknowledged and
agreed that the identification by the Company and/or its independent registered
public accounting firm of any “significant deficiencies” or “material
weaknesses” (each as defined by the Public Company Accounting Oversight Board)
in the Company’s internal controls over its financial reporting shall not, in
and of itself, constitute a breach of this Section 6.5(i)).

 

(ii)  Subject to the requirements of Section 6.12, from time to time from and
after the Closing Date, the Company shall make available for inspection and
review by the Investor during normal business hours and after reasonable notice,
customary documentation reasonably requested by the Investor and/or its
appointed counsel or advisors to conduct due diligence; provided, however, that
after the Closing Date, the Investor’s continued due diligence shall not be a
condition precedent to the Company’s right to deliver to the Investor any Fixed
Purchase Notice or the settlement thereof.

 

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Section 6.6. No Frustration; No Variable Rate Transactions.

 

(i) No Frustration. The Company shall not enter into, announce or recommend to
its stockholders any agreement, plan, arrangement or transaction in or of which
the terms thereof would restrict, materially delay, conflict with or impair the
ability or right of the Company to perform its obligations under the Transaction
Documents to which it is a party, including, without limitation, the obligation
of the Company to deliver (i) the Commitment Shares to the Investor not later
than 4:00 p.m. (New York time) on the Trading Day immediately following the
Closing Date, and (ii) the Shares to the Investor in respect of a Fixed Purchase
on the Trading Day immediately following the applicable Fixed Purchase Date. For
the avoidance of doubt, nothing in this Section 6.6(i) shall in any way limit
the Company’s right to terminate this Agreement in accordance with Section 8.2
(subject in all cases to Section 8.3).

 

(ii) No Variable Rate Transactions. The Company shall not effect or enter into
an agreement to effect any issuance by the Company of Common Stock or Common
Stock Equivalents (or a combination of units thereof) involving a Variable Rate
Transaction, other than in connection with an Exempt Issuance. The Investor
shall be entitled to seek injunctive relief against the Company to preclude any
such issuance, which remedy shall be in addition to any right to collect
damages, without the necessity of showing economic loss and without any bond or
other security being required.

 

Section 6.7. Corporate Existence. The Company shall take all steps necessary to
preserve and continue the corporate existence of the Company; provided, however,
that, except as provided in Section 6.8, nothing in this Agreement shall be
deemed to prohibit the Company from engaging in any Fundamental Transaction with
another Person. For the avoidance of doubt, nothing in this Section 6.7 shall in
any way limit the Company’s right to terminate this Agreement in accordance with
Section 8.2 (subject in all cases to Section 8.3).

 

Section 6.8. Fundamental Transaction. If a Fixed Purchase Notice has been
delivered to the Investor and the transactions contemplated therein have not yet
been fully settled in accordance with the terms and conditions of this
Agreement, the Company shall not effect any Fundamental Transaction until the
expiration of five (5) Trading Days following the date of full settlement
thereof and the issuance to the Investor of all of the Shares issuable pursuant
to the Fixed Purchase to which such Fixed Purchase Notice relates.

 

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Section 6.9. Selling Restrictions.

 

(i) Except as expressly set forth below, the Investor covenants that from and
after the Closing Date through and including the Trading Day next following the
expiration or termination of this Agreement (the “Restricted Period”), neither
the Investor nor any of its Affiliates nor any entity managed or controlled by
the Investor (collectively, the “Restricted Persons” and each of the foregoing
is referred to herein as a “Restricted Person”) shall, directly or indirectly,
(x) engage in any Short Sales involving the Company’s securities or (y) grant
any option to purchase, or acquire any right to dispose of or otherwise dispose
for value of, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for any shares of Common Stock, or enter into any
swap, hedge or other similar agreement that transfers, in whole or in part, the
economic risk of ownership of the Common Stock. Notwithstanding the foregoing,
it is expressly understood and agreed that nothing contained herein
shall (without implication that the contrary would otherwise be true) prohibit
any Restricted Person during the Restricted Period from: (1) selling “long” (as
defined under Rule 200 promulgated under Regulation SHO) the Securities; or (2)
selling a number of shares of Common Stock equal to the number of Shares that
such Restricted Person is or may be obligated to purchase under a pending Fixed
Purchase Notice but has not yet taken possession of so long as such Restricted
Person (or the Broker-Dealer, as applicable) delivers the Shares purchased
pursuant to such Fixed Purchase Notice to the purchaser thereof or the
applicable Broker-Dealer upon such Restricted Person’s receipt of such shares of
Common Stock from the Company pursuant to this Agreement.

 

(ii) In addition to the foregoing, in connection with any sale of Securities
(including any sale permitted by paragraph (i) above), the Investor shall comply
in all respects with all applicable laws, rules, regulations and orders,
including, without limitation, the requirements of the Securities Act and the
Exchange Act.

 

Section 6.10. Effective Registration Statement. During the Investment Period,
the Company shall use its commercially reasonable efforts to maintain the
continuous effectiveness of the Initial Registration Statement and each New
Registration Statement filed with the Commission under the Securities Act for
the applicable Registration Period pursuant to and in accordance with the
Registration Rights Agreement.

 

Section 6.11. Blue Sky. The Company shall take such action, if any, as is
necessary by the Company in order to obtain an exemption for or to qualify the
Securities for sale by the Company to the Investor pursuant to the Transaction
Documents, and at the request of the Investor, the subsequent resale of
Registrable Securities by the Investor, in each case, under applicable state
securities or “Blue Sky” laws and shall provide evidence of any such action so
taken to the Investor from time to time following the Closing Date; provided,
however, that the Company shall not be required in connection therewith or as a
condition thereto to (x) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 6.11, (y)
subject itself to general taxation in any such jurisdiction, or (z) file a
general consent to service of process in any such jurisdiction.

 

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Section 6.12.   Non-Public Information. From and after the date hereof, neither
the Company, nor any of its directors, officers, employees or agents shall
disclose any new material non-public information about the Company to the
Investor, unless a simultaneous public announcement thereof is made by the
Company in the manner contemplated by Regulation FD. In the event of a breach of
the foregoing covenant by the Company, or any of its directors, officers,
employees and agents (as determined in the reasonable good faith judgment of the
Investor), (i) the Investor shall promptly provide written notice of such breach
to the Company and (ii) after such notice has been provided to the Company and,
provided that the Company shall have failed to publicly disclose such material,
non-public information within 24 hours following demand therefor by the
Investor, in addition to any other remedy provided herein or in the other
Transaction Documents, the Investor shall have the right to make a public
disclosure, in the form of a press release, public advertisement or otherwise,
of such material, non-public information without the prior approval by the
Company, or any of its directors, officers, employees or agents. The Investor
shall not have any liability to the Company, or any of its directors, officers,
employees, stockholders or agents, for any such disclosure.

 

Section 6.13.   Broker/Dealer. The Investor shall use one or more broker-dealers
to effectuate all sales, if any, of the Shares that it may purchase or otherwise
acquire from the Company pursuant to the Transaction Documents, as applicable,
which (or whom) shall be unaffiliated with the Investor and not then currently
engaged or used by the Company, and a DTC participant (collectively, the
“Broker-Dealer”). The Investor shall, from time to time, provide the Company and
its transfer agent with all information regarding the Broker-Dealer reasonably
requested by the Company. The Investor shall be solely responsible for all fees
and commissions of the Broker-Dealer, which shall not exceed customary brokerage
fees and commissions and shall be responsible for designating only a DTC
participant eligible to receive DWAC Shares.

 

Section 6.14.   Disclosure Schedule.

 

(i) The Company may, from time to time, update the Disclosure Schedule as may be
required to satisfy the conditions set forth in Section 7.2(i) and Section
7.3(i) (to the extent such condition set forth in Section 7.3(i) relates to the
condition in Section 7.2(i) as of a specific Fixed Purchase Date). For purposes
of this Section 6.14, any disclosure made in a schedule to the Compliance
Certificate shall be deemed to be an update of the Disclosure Schedule.
Notwithstanding anything in this Agreement to the contrary, no update to the
Disclosure Schedule pursuant to this Section 6.14 shall cure any breach of a
representation or warranty of the Company contained in this Agreement and made
prior to the update and shall not affect any of the Investor’s rights or
remedies with respect thereto.

 

(ii) Notwithstanding anything to the contrary contained in the Disclosure
Schedule or in this Agreement, the information and disclosure contained in any
Schedule of the Disclosure Schedule shall be deemed to be disclosed and
incorporated by reference in any other Schedule of the Disclosure Schedule as
though fully set forth in such Schedule for which applicability of such
information and disclosure is readily apparent on its face. The fact that any
item of information is disclosed in the Disclosure Schedule shall not be
construed to mean that such information is required to be disclosed by this
Agreement. Except as expressly set forth in this Agreement, such information and
the thresholds (whether based on quantity, qualitative characterization, dollar
amounts or otherwise) set forth herein shall not be used as a basis for
interpreting the terms “material” or “Material Adverse Effect” or other similar
terms in this Agreement.

 

29

 

 

Section 6.15.   Delivery of Bring Down Opinions and Compliance Certificates Upon
Occurrence of Certain Events. Within three (3) Trading Days immediately
following (i) the end of each PEA Period, if the Company is required under the
Securities Act to file with the Commission (A) a post-effective amendment to the
Initial Registration Statement required to be filed by the Company with the
Commission pursuant to Section 2(a) of the Registration Rights Agreement, (B) a
New Registration Statement required to be filed by the Company with the
Commission pursuant to Section 2(c) of the Registration Rights Agreement, or (C)
a post-effective amendment to a New Registration Statement required to be filed
by the Company with the Commission pursuant to Section 2(c) of the Registration
Rights Agreement, in each case with respect to a fiscal year ending after the
Commencement Date, to register the resale of Securities by the Investor under
the Securities Act pursuant to this Agreement and the Registration Rights
Agreement, and (ii) the date the Company files with the Commission (A) a
Prospectus Supplement to the Prospectus contained in the Initial Registration
Statement or any New Registration Statement under the Securities Act, (B) an
annual report on Form 10-K under the Exchange Act with respect to a fiscal year
ending after the Commencement Date, (C) an amendment on Form 10-K/A to an annual
report on Form 10-K under the Exchange Act with respect to a fiscal year ending
after the Commencement Date, which contains amended material financial
information (or a restatement of material financial information) or an amendment
to other material information contained in a previously filed Form 10-K, and (D)
a Commission Document under the Exchange Act (other than those referred to in
clauses (ii)(A) and (ii)(B) of this Section 6.15), which contains amended
material financial information (or a restatement of material financial
information) or an amendment to other material information contained or
incorporated by reference in the Initial Registration Statement, any New
Registration Statement, or the Prospectus or any Prospectus Supplement contained
in the Initial Registration Statement or any New Registration Statement (it
being hereby acknowledged and agreed that the filing by the Company with the
Commission of a quarterly report on Form 10-Q that includes only updated
financial information as of the end of the Company’s most recent fiscal quarter
shall not, in and of itself, constitute an “amendment” or “restatement” for
purposes of clause (ii) of this Section 6.15), in each case of this clause (ii)
if the Company is not also then required under the Securities Act to file a
post-effective amendment to the Initial Registration Statement, any New
Registration Statement or a post-effective amendment to any New Registration
Statement, in each case with respect to a fiscal year ending after the
Commencement Date, to register the resale of Securities by the Investor under
the Securities Act pursuant to this Agreement and the Registration Rights
Agreement, and in any case of this clause (ii), not more than once per calendar
quarter, the Company shall (I) deliver to the Investor a Compliance Certificate,
dated such date, and (II) cause to be furnished to the Investor an opinion
“bring down” from outside counsel to the Company substantially in the form
mutually agreed to by the Company and the Investor prior to the date of this
Agreement, modified, as necessary, to relate to such Registration Statement or
post-effective amendment, or the Prospectus contained therein as then amended or
supplemented by such Prospectus Supplement, as applicable (each such opinion, a
“Bring Down Opinion”).

 

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Article VII
CONDITIONS TO CLOSING AND CONDITIONS TO THE SALE AND
PURCHASE OF THE SHARES

 

Section 7.1. Conditions Precedent to Closing. The Closing is subject to the
satisfaction of each of the conditions set forth in this Section 7.1 on the
Closing Date.

 

(i) Accuracy of the Investor’s Representations and Warranties. The
representations and warranties of the Investor contained in this Agreement (a)
that are not qualified by “materiality” shall be true and correct in all
material respects as of the Closing Date, except to the extent such
representations and warranties are as of another date, in which case, such
representations and warranties shall be true and correct in all material
respects as of such other date and (b) that are qualified by “materiality” shall
be true and correct as of the Closing Date, except to the extent such
representations and warranties are as of another date, in which case, such
representations and warranties shall be true and correct as of such other date.

 

(ii) Accuracy of the Company’s Representations and Warranties. The
representations and warranties of the Company contained in this Agreement (a)
that are not qualified by “materiality” or “Material Adverse Effect” shall be
true and correct in all material respects as of the Closing Date, except to the
extent such representations and warranties are as of another date, in which
case, such representations and warranties shall be true and correct in all
material respects as of such other date and (b) that are qualified by
“materiality” or “Material Adverse Effect” shall be true and correct as of the
Closing Date, except to the extent such representations and warranties are as of
another date, in which case, such representations and warranties shall be true
and correct as of such other date.

 

(iii) Issuance of Commitment Shares. On the Closing Date, the Company shall
deliver irrevocable instructions to its transfer agent to issue to the Investor,
not later than 4:00 p.m. (New York City time) on the Trading Day immediately
following the Closing Date, a certificate or book-entry statement representing
the Commitment Shares in the name of the Investor or its designee (in which case
such designee name shall have been provided to the Company prior to the Closing
Date), in consideration for the Investor’s execution and delivery of this
Agreement. Such certificate or book-entry statement shall be delivered to the
Investor by overnight courier at its address set forth in Section 10.4 hereof.
For the avoidance of doubt, all of the Commitment Shares shall be fully earned
as of the Closing Date regardless of whether any Fixed Purchases are made
hereunder or any subsequent termination of this Agreement.

 

(iv) Closing Deliverables. At the Closing, counterpart signature pages of this
Agreement and the Registration Rights Agreement executed by each of the parties
hereto shall be delivered as provided in Section 2.2. Simultaneously with the
execution and delivery of this Agreement and the Registration Rights Agreement,
the Investor’s counsel shall have received (a) the closing certificate from the
Company, dated the Closing Date, in the form of Exhibit B hereto, and (b) a copy
of the irrevocable instructions to the Company’s transfer agent regarding the
issuance to the Investor or its designee of the certificate(s) or book-entry
statement(s) representing the Commitment Shares pursuant to and in accordance
with Section 10.1(ii) hereof.

 

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Section 7.2. Conditions Precedent to Commencement. The right of the Company to
commence delivering Fixed Purchase Notices under this Agreement, and the
obligation of the Investor to accept Fixed Purchase Notices delivered to the
Investor by the Company under this Agreement, are subject to the initial
satisfaction, at Commencement, of each of the conditions set forth in this
Section 7.2.

 

(i) Accuracy of the Company’s Representations and Warranties. The
representations and warranties of the Company contained in this Agreement (a)
that are not qualified by “materiality” or “Material Adverse Effect” shall have
been true and correct in all material respects when made and shall be true and
correct in all material respects as of the Commencement Date with the same force
and effect as if made on such date, except to the extent such representations
and warranties are as of another date, in which case, such representations and
warranties shall be true and correct in all material respects as of such other
date and (b) that are qualified by “materiality” or “Material Adverse Effect”
shall have been true and correct when made and shall be true and correct as of
the Commencement Date with the same force and effect as if made on such date,
except to the extent such representations and warranties are as of another date,
in which case, such representations and warranties shall be true and correct as
of such other date.

 

(ii) Performance of the Company. The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by this Agreement and the Registration Rights Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Commencement. The Company shall deliver to the Investor on the Commencement Date
the compliance certificate substantially in the form attached hereto as Exhibit
C (the “Compliance Certificate”).

 

(iii) Initial Registration Statement Effective. The Initial Registration
Statement covering the resale by the Investor of the Registrable Securities
included therein required to be filed by the Company with the Commission
pursuant to Section 2(a) of the Registration Rights Agreement shall have been
declared effective under the Securities Act by the Commission, and the Investor
shall be permitted to utilize the Prospectus therein to resell (a) all of the
Commitment Shares and (b) all of the Shares included in such Prospectus.

 

(iv) No Material Notices. None of the following events shall have occurred and
be continuing: (a) receipt of any request by the Commission or any other federal
or state governmental authority for any additional information relating to the
Initial Registration Statement, the Prospectus contained therein or any
Prospectus Supplement thereto, or for any amendment of or supplement to the
Initial Registration Statement, the Prospectus contained therein or any
Prospectus Supplement thereto; (b) the issuance by the Commission or any other
federal or state governmental authority of any stop order suspending the
effectiveness of the Initial Registration Statement or prohibiting or suspending
the use of the Prospectus contained therein or any Prospectus Supplement
thereto, or of the suspension of qualification or exemption from qualification
of the Securities for offering or sale in any jurisdiction, or the initiation or
contemplated initiation of any proceeding for such purpose; or (c) the
occurrence of any event or the existence of any condition or state of facts,
which makes any statement of a material fact made in the Initial Registration
Statement, the Prospectus contained therein or any Prospectus Supplement thereto
untrue or which requires the making of any additions to or changes to the
statements then made in the Initial Registration Statement, the Prospectus
contained therein or any Prospectus Supplement thereto in order to state a
material fact required by the Securities Act to be stated therein or necessary
in order to make the statements then made therein (in the case of the Prospectus
or any Prospectus Supplement, in light of the circumstances under which they
were made) not misleading, or which requires an amendment to the Initial
Registration Statement or a supplement to the Prospectus contained therein or
any Prospectus Supplement thereto to comply with the Securities Act or any other
law. The Company shall have no Knowledge of any event that could reasonably be
expected to have the effect of causing the suspension of the effectiveness of
the Initial Registration Statement or the prohibition or suspension of the use
of the Prospectus contained therein or any Prospectus Supplement thereto in
connection with the resale of the Registrable Securities by the Investor.

 

32

 

 

(v) Other Commission Filings. The Current Report and the Form D shall have been
filed with the Commission as required pursuant to Section 2.3. The final
Prospectus included in the Initial Registration Statement shall have been filed
with the Commission prior to Commencement in accordance with Section 2.3 and the
Registration Rights Agreement. All reports, schedules, registrations, forms,
statements, information and other documents required to have been filed by the
Company with the Commission pursuant to the reporting requirements of the
Exchange Act, including all material required to have been filed pursuant to
Section 13(a) or 15(d) of the Exchange Act, prior to Commencement shall have
been filed with the Commission.

 

(vi) No Suspension of Trading in or Notice of Delisting of Common Stock. Trading
in the Common Stock shall not have been suspended by the Commission, the Trading
Market or the FINRA (except for any suspension of trading of limited duration
agreed to by the Company, which suspension shall be terminated prior to the
Commencement Date), the Company shall not have received any final and
non-appealable notice that the listing or quotation of the Common Stock on the
Trading Market shall be terminated on a date certain (unless, prior to such date
certain, the Common Stock is listed or quoted on any other Eligible Market), nor
shall there have been imposed any suspension of, or restriction on, accepting
additional deposits of the Common Stock, electronic trading or book-entry
services by DTC with respect to the Common Stock that is continuing, the Company
shall not have received any notice from DTC to the effect that a suspension of,
or restriction on, accepting additional deposits of the Common Stock, electronic
trading or book-entry services by DTC with respect to the Common Stock is being
imposed or is contemplated (unless, prior to such suspension or restriction, DTC
shall have notified the Company in writing that DTC has determined not to impose
any such suspension or restriction).

 

(vii) Compliance with Laws. The Company shall have complied with all applicable
federal, state and local governmental laws, rules, regulations and ordinances in
connection with the execution, delivery and performance of this Agreement and
the other Transaction Documents to which it is a party and the consummation of
the transactions contemplated hereby and thereby, including, without limitation,
the Company shall have obtained all permits and qualifications required by any
applicable state securities or “Blue Sky” laws for the offer and sale of the
Securities by the Company to the Investor and the subsequent resale of the
Registrable Securities by the Investor (or shall have the availability of
exemptions therefrom).

 

33

 

 

(viii) No Injunction. No statute, regulation, order, decree, writ, ruling or
injunction shall have been enacted, entered, promulgated, threatened or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of or which would materially modify or delay any of the
transactions contemplated by the Transaction Documents.

 

(ix) No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any court or governmental authority shall have been commenced, and
no inquiry or investigation by any governmental authority shall have been
commenced, against the Company or any Subsidiary, or any of the officers,
directors or affiliates of the Company or any Subsidiary, seeking to restrain,
prevent or change the transactions contemplated by the Transaction Documents, or
seeking material damages in connection with such transactions.

 

(x) Listing of Securities. A listing application covering the Securities that
have been and may be issued pursuant to this Agreement shall have been submitted
to the Trading Market as of the Commencement Date, and no objection to the
issuance shall have been received from the Trading Market.

 

(xi) No Material Adverse Effect. No condition, occurrence, state of facts or
event constituting a Material Adverse Effect shall have occurred and be
continuing.

 

(xii) No Bankruptcy Proceedings. No Person shall have commenced a proceeding
against the Company pursuant to or within the meaning of any Bankruptcy Law. The
Company shall not have, pursuant to or within the meaning of any Bankruptcy Law,
(a) commenced a voluntary case, (b) consented to the entry of an order for
relief against it in an involuntary case, (c) consented to the appointment of a
Custodian of the Company or for all or substantially all of its property, or (d)
made a general assignment for the benefit of its creditors. A court of competent
jurisdiction shall not have entered an order or decree under any Bankruptcy Law
that (I) is for relief against the Company in an involuntary case, (II) appoints
a Custodian of the Company or for all or substantially all of its property, or
(III) orders the liquidation of the Company or any of its Significant
Subsidiaries.

 

(xiii) Commitment Shares Issued as DWAC Shares. The Company shall have caused
the Company’s transfer agent to credit the Investor’s or its designee’s account
at DTC as DWAC Shares such number of shares of Common Stock equal to the number
of Commitment Shares issued to the Investor pursuant to Section 10.1(ii) hereof,
in accordance with Section 10.1(iv) hereof.

 

(xiv) Delivery of Commencement Irrevocable Transfer Agent Instructions and
Notice of Effectiveness. The Commencement Irrevocable Transfer Agent
Instructions shall have been executed by the Company and delivered to
acknowledged in writing by the Company’s transfer agent, and the Notice of
Effectiveness relating to the Initial Registration Statement shall have been
executed by the Company’s outside counsel and delivered to the Company’s
transfer agent, in each case directing the Company’s transfer agent to issue to
the Investor or its designated Broker-Dealer all of the Commitment Shares and
Shares included in the Initial Registration Statement as DWAC Shares in
accordance with this Agreement and the Registration Rights Agreement.

 

34

 

 

(xv) Reservation of Shares. As of the Commencement Date, the Company shall have
reserved out of its authorized and unissued Common Stock, 15,000,000 shares of
Common Stock solely for the purpose of effecting Fixed Purchases under this
Agreement.

 

(xvi) Opinions and Bring-Down Opinions of Company Counsel. On the Commencement
Date, the Investor shall have received the opinions and negative assurances from
outside counsel to the Company, dated the Commencement Date, in the forms
mutually agreed to by the Company and the Investor prior to the date of this
Agreement.

 

Section 7.3. Conditions Precedent to Fixed Purchases after Commencement Date.
The right of the Company to deliver Fixed Purchase Notices under this Agreement
after the Commencement Date, and the obligation of the Investor to accept Fixed
Purchase Notices under this Agreement after the Commencement Date, are subject
to the satisfaction of each of the conditions set forth in this Section 7.3 at
each Fixed Purchase Date after the Commencement Date.

 

(i) Satisfaction of Certain Prior Conditions. Each of the conditions set forth
in subsections (i), (ii), and (vii) through (xiv) set forth in Section 7.2 shall
be satisfied on each Fixed Purchase Date after the Commencement Date (with the
terms “Commencement” and “Commencement Date” in the conditions set forth in
subsections (i) and (ii) of Section 7.2 replaced with “applicable Fixed Purchase
Date”); provided, however, that the Company shall not be required to deliver the
Compliance Certificate after the Commencement Date, except as provided in
Section 6.15 and Section 7.3(v).

 

(ii) Initial Registration Statement Effective. The Initial Registration
Statement covering the resale by the Investor of the Registrable Securities
included therein filed by the Company with the Commission pursuant to Section
2(a) of the Registration Rights Agreement, and any post-effective amendment
thereto required to be filed by the Company with the Commission after the
Commencement Date and prior to the applicable Fixed Purchase Date pursuant to
the Registration Rights Agreement, in each case shall have been declared
effective under the Securities Act by the Commission and shall remain effective
for the applicable Registration Period (as defined in the Registration Rights
Agreement), and the Investor shall be permitted to utilize the Prospectus
therein, and any Prospectus Supplement thereto, to resell (a) all of the
Commitment Shares, (b) all of the Shares included in the Initial Registration
Statement, and any post-effective amendment thereto, that have been issued and
sold to the Investor hereunder pursuant to all Fixed Purchase Notices delivered
by the Company to the Investor prior to such applicable Fixed Purchase Date, and
(c) all of the Shares included in the Initial Registration Statement, and any
post-effective amendment thereto, that are issuable pursuant to the applicable
Fixed Purchase Notice delivered by the Company to the Investor with respect to a
Fixed Purchase to be effected hereunder on such applicable Fixed Purchase Date.

 

35

 

 

(iii) Any Required New Registration Statement Effective. Any New Registration
Statement covering the resale by the Investor of the Registrable Securities
included therein, and any post-effective amendment thereto, required to be filed
by the Company with the Commission pursuant to the Registration Rights Agreement
after the Commencement Date and prior to the applicable Fixed Purchase Date, in
each case shall have been declared effective under the Securities Act by the
Commission and shall remain effective for the applicable Registration Period,
and the Investor shall be permitted to utilize the Prospectus therein, and any
Prospectus Supplement thereto, to resell (a) all of the Commitment Shares (if
any) included in such New Registration Statement, and any post-effective
amendment thereto, (b) all of the Shares included in such New Registration
Statement, and any post-effective amendment thereto, that have been issued and
sold to the Investor hereunder pursuant to all Fixed Purchase Notices delivered
by the Company to the Investor prior to such applicable Fixed Purchase Date, and
(c) all of the Shares included in such new Registration Statement, and any
post-effective amendment thereto, that are issuable pursuant to the applicable
Fixed Purchase Notice delivered by the Company to the Investor with respect to a
Fixed Purchase to be effected hereunder on such applicable Fixed Purchase Date.

 

(iv) Delivery of Subsequent Irrevocable Transfer Agent Instructions and Notice
of Effectiveness. With respect to any post-effective amendment to the Initial
Registration Statement, any New Registration Statement or any post-effective
amendment to any New Registration Statement, in each case declared effective by
the Commission after the Commencement Date, the Company shall have delivered or
caused to be delivered to its transfer agent (a) irrevocable instructions in the
form substantially similar to the Commencement Irrevocable Transfer Agent
Instructions executed by the Company and acknowledged in writing by the
Company’s transfer agent and (b) the Notice of Effectiveness, in each case
modified as necessary to refer to such Registration Statement or post-effective
amendment and the Registrable Securities included therein, to issue the
Registrable Securities included therein as DWAC Shares in accordance with the
terms of this Agreement and the Registration Rights Agreement.

 

(v) No Material Notices. None of the following events shall have occurred and be
continuing: (a) receipt of any request by the Commission or any other federal or
state governmental authority for any additional information relating to the
Initial Registration Statement or any post-effective amendment thereto, any New
Registration Statement or any post-effective amendment thereto, or the
Prospectus contained in any of the foregoing or any Prospectus Supplement
thereto, or for any amendment of or supplement to the Initial Registration
Statement or any post-effective amendment thereto, any New Registration
Statement or any post-effective amendment thereto, or the Prospectus contained
in any of the foregoing or any Prospectus Supplement thereto; (b) the issuance
by the Commission or any other federal or state governmental authority of any
stop order suspending the effectiveness of the Initial Registration Statement or
any post-effective amendment thereto, any New Registration Statement or any
post-effective amendment thereto, or prohibiting or suspending the use of the
Prospectus contained in any of the foregoing or any Prospectus Supplement
thereto, or of the suspension of qualification or exemption from qualification
of the Securities for offering or sale in any jurisdiction, or the initiation or
contemplated initiation of any proceeding for such purpose; or (c) the
occurrence of any event or the existence of any condition or state of facts,
which makes any statement of a material fact made in the Initial Registration
Statement or any post-effective amendment thereto, any New Registration
Statement or any post-effective amendment thereto, or the Prospectus contained
in any of the foregoing or any Prospectus Supplement thereto untrue or which
requires the making of any additions to or changes to the statements then made
in the Initial Registration Statement or any post-effective amendment thereto,
any New Registration Statement or any post-effective amendment thereto, or the
Prospectus contained in any of the foregoing or any Prospectus Supplement
thereto in order to state a material fact required by the Securities Act to be
stated therein or necessary in order to make the statements then made therein
(in the case of the Prospectus or any Prospectus Supplement, in light of the
circumstances under which they were made) not misleading, or which requires an
amendment to the Initial Registration Statement or any post-effective amendment
thereto, any New Registration Statement or any post-effective amendment thereto,
or the Prospectus contained in any of the foregoing or any Prospectus Supplement
thereto to comply with the Securities Act or any other law (other than the
transactions contemplated by the applicable Fixed Purchase Notice delivered by
the Company to the Investor with respect to a Fixed Purchase to be effected
hereunder on such applicable Fixed Purchase Date, and the settlement thereof).
The Company shall have no Knowledge of any event that could reasonably be
expected to have the effect of causing the suspension of the effectiveness of
the Initial Registration Statement or any post-effective amendment thereto, any
New Registration Statement or any post-effective amendment thereto, or the
prohibition or suspension of the use of the Prospectus contained in any of the
foregoing or any Prospectus Supplement thereto in connection with the resale of
the Registrable Securities by the Investor.

 

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(vi) Other Commission Filings. The final Prospectus included in any
post-effective amendment to the Initial Registration Statement, and any
Prospectus Supplement thereto, required to be filed by the Company with the
Commission pursuant to Section 2.3 and the Registration Rights Agreement after
the Commencement Date and prior to the applicable Fixed Purchase Date shall have
been filed with the Commission in accordance with Section 2.3 and the
Registration Rights Agreement. The final Prospectus included in any New
Registration Statement and in any post-effective amendment thereto, and any
Prospectus Supplement thereto, required to be filed by the Company with the
Commission pursuant to Section 2.3 and the Registration Rights Agreement after
the Commencement Date and prior to the applicable Fixed Purchase Date shall have
been filed with the Commission in accordance with Section 2.3 and the
Registration Rights Agreement. All reports, schedules, registrations, forms,
statements, information and other documents required to have been filed by the
Company with the Commission pursuant to the reporting requirements of the
Exchange Act, including all material required to have been filed pursuant to
Section 13(a) or 15(d) of the Exchange Act, after the Commencement Date and
prior to the applicable Fixed Purchase Date, shall have been filed with the
Commission and, if any Registrable Securities are covered by a Registration
Statement on Form S-3, such filings shall have been made within the applicable
time period prescribed for such filing under the Exchange Act.

 

(vii) No Suspension of Trading in or Notice of Delisting of Common Stock.
Trading in the Common Stock shall not have been suspended by the Commission, the
Trading Market or the FINRA (except for any suspension of trading of limited
duration agreed to by the Company, which suspension shall be terminated prior to
the applicable Fixed Purchase Date), the Company shall not have received any
final and non-appealable notice that the listing or quotation of the Common
Stock on the Trading Market shall be terminated on a date certain (unless, prior
to such date certain, the Common Stock is listed or quoted on any other Eligible
Market), nor shall there have been imposed any suspension of, or restriction on,
accepting additional deposits of the Common Stock, electronic trading or
book-entry services by DTC with respect to the Common Stock that is continuing,
the Company shall not have received any notice from DTC to the effect that a
suspension of, or restriction on, accepting additional deposits of the Common
Stock, electronic trading or book-entry services by DTC with respect to the
Common Stock is being imposed or is contemplated (unless, prior to such
suspension or restriction, DTC shall have notified the Company in writing that
DTC has determined not to impose any such suspension or restriction).

 

37

 

 

(viii) Certain Limitations. The issuance and sale of the Shares issuable
pursuant to the applicable Fixed Purchase Notice shall not (a) exceed the Fixed
Purchase Maximum Amount, (b) cause the Aggregate Limit or the Beneficial
Ownership Limitation to be exceeded, or (c) cause the Exchange Cap (to the
extent applicable under Section 3.3) to be exceeded, unless in the case of this
clause (c), unless the Company’s stockholders have theretofore approved the
issuance of Common Stock under this Agreement in excess of the Exchange Cap in
accordance with the applicable rules of the Trading Market.

 

(ix) Shares Authorized and Delivered. All of the Shares issuable pursuant to the
applicable Fixed Purchase Notice shall have been duly authorized by all
necessary corporate action of the Company. The Company shall have delivered all
Shares relating to all prior Fixed Purchase Notices as DWAC Shares.

 

(x)   Opinions and Bring-Down Opinions of Company Counsel. The Investor shall
have received (a) all Bring Down Opinions from the Company’s outside counsel for
which the Company was obligated to instruct its outside counsel to deliver to
the Investor prior to the applicable Fixed Purchase Date and (b) all Compliance
Certificates from the Company that the Company was obligated to deliver to the
Investor prior to the applicable Fixed Purchase Date, in each case in accordance
with Section 6.15.

 

Article VIII
TERMINATION

 

Section 8.1. Automatic Termination. Unless earlier terminated as provided
hereunder, this Agreement shall terminate automatically on the earliest to occur
of (i) the first day of the month next following the 24-month anniversary of the
Effective Date of the Initial Registration Statement (it being hereby
acknowledged and agreed that such term may not be extended by the parties
hereto), (ii) the date on which the Investor shall have purchased the Total
Commitment worth of Shares pursuant to this Agreement, (iii) the date on which
the Common Stock shall have failed to be listed or quoted on the Trading Market
or any other Eligible Market, and (iv) the date on which, pursuant to or within
the meaning of any Bankruptcy Law, the Company commences a voluntary case or any
Person commences a proceeding against the Company, a Custodian is appointed for
the Company or for all or substantially all of its property, or the Company
makes a general assignment for the benefit of its creditors.

 

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Section 8.2. Other Termination. Subject to Section 8.3, the Company may
terminate this Agreement after the Commencement Date effective upon five (5)
Trading Days’ prior written notice to the Investor in accordance with Section
10.4; provided, however, that (i) the Company shall have issued all Commitment
Shares to the Investor and paid all fees and amounts to the Investor’s counsel
required to be paid pursuant to Section 10.1 of this Agreement prior to such
termination, and (ii) prior to issuing any press release, or making any public
statement or announcement, with respect to such termination, the Company shall
consult with the Investor and its counsel on the form and substance of such
press release or other disclosure. Subject to Section 8.3, this Agreement may be
terminated at any time by the mutual written consent of the parties, effective
as of the date of such mutual written consent unless otherwise provided in such
written consent. Subject to Section 8.3, the Investor shall have the right to
terminate this Agreement effective upon ten (10) Trading Days’ prior written
notice to the Company in accordance with Section 10.4, if: (a) any condition,
occurrence, state of facts or event constituting a Material Adverse Effect has
occurred and is continuing; (b) a Fundamental Transaction shall have occurred;
(c) the Initial Registration Statement and any New Registration Statement is not
filed by the applicable Filing Deadline therefor or declared effective by the
Commission by the applicable Effectiveness Deadline (as defined in the
Registration Rights Agreement) therefor, or the Company is otherwise in breach
or default in any material respect under any of the other provisions of the
Registration Rights Agreement, and, if such failure, breach or default is
capable of being cured, such failure, breach or default is not cured within 10
Trading Days after notice of such failure, breach or default is delivered to the
Company pursuant to Section 10.4; (d) while a Registration Statement, or any
post-effective amendment thereto, is required to be maintained effective
pursuant to the terms of the Registration Rights Agreement and the Investor
holds any Registrable Securities, the effectiveness of such Registration
Statement, or any post-effective amendment thereto, lapses for any reason
(including, without limitation, the issuance of a stop order by the Commission)
or such Registration Statement or any post-effective amendment thereto, the
Prospectus contained therein or any Prospectus Supplement thereto otherwise
becomes unavailable to the Investor for the resale of all of the Registrable
Securities included therein in accordance with the terms of the Registration
Rights Agreement, and such lapse or unavailability continues for a period of 20
consecutive Trading Days or for more than an aggregate of 60 Trading Days in any
365-day period, other than due to acts of the Investor; (e) trading in the
Common Stock on the Trading Market (or if the Common Stock is then listed on an
Eligible Market, trading in the Common Stock on such Eligible Market) shall have
been suspended and such suspension continues for a period of three (3)
consecutive Trading Days; or (f) the Company is in material breach or default of
this Agreement, and, if such breach or default is capable of being cured, such
breach or default is not cured within 10 Trading Days after notice of such
breach or default is delivered to the Company pursuant to Section 10.4. Unless
notification thereof is required elsewhere in this Agreement (in which case such
notification shall be provided in accordance with such other provision), the
Company shall promptly (but in no event later than 24 hours) notify the Investor
(and, if required under applicable law, including, without limitation,
Regulation FD promulgated by the Commission, or under the applicable rules and
regulations of the Trading Market, the Company shall publicly disclose such
information in accordance with Regulation FD and the applicable rules and
regulations of the Trading Market) upon becoming aware of any of the events set
forth in the immediately preceding sentence.

 

39

 

 

Section 8.3. Effect of Termination. In the event of termination by the Company
or the Investor (other than by mutual termination) pursuant to Section 8.2,
written notice thereof shall forthwith be given to the other party as provided
in Section 10.4 and the transactions contemplated by this Agreement shall be
terminated without further action by either party. If this Agreement is
terminated as provided in Section 8.1 or Section 8.2, this Agreement shall
become void and of no further force and effect, except that (i) the provisions
of Article V (Representations, Warranties and Covenants of the Company), Article
IX (Indemnification), Article X (Miscellaneous) and this Article VIII
(Termination) shall remain in full force and effect indefinitely notwithstanding
such termination, and, (ii) so long as the Investor owns any Securities, the
covenants and agreements of the Company contained in Article VI (Additional
Covenants) shall remain in full force and notwithstanding such termination for a
period of six (6) months following such termination. Notwithstanding anything in
this Agreement to the contrary, no termination of this Agreement by any party
shall (i) become effective prior to the first Trading Day immediately following
the settlement date related to any pending Fixed Purchase Notice that has not
been fully settled in accordance with the terms and conditions of this Agreement
(it being hereby acknowledged and agreed that no termination of this Agreement
shall limit, alter, modify, change or otherwise affect any of the Company’s or
the Investor’s rights or obligations under the Transaction Documents with
respect to any pending Fixed Purchase, and that the parties shall fully perform
their respective obligations with respect to any such pending Fixed Purchase
under the Transaction Documents, provided all of the conditions to the
settlement thereof set forth in Article VII are timely satisfied), (ii) limit,
alter, modify, change or otherwise affect the Company’s or the Investor’s rights
or obligations under the Registration Rights Agreement, all of which shall
survive any such termination, or (iii) affect any Commitment Shares previously
issued or delivered, or any rights of any holder thereof, it being hereby
acknowledged and agreed that all of the Commitment Shares shall be fully earned
as of the Closing Date, regardless of whether any Fixed Purchases are made or
settled hereunder or any subsequent termination of this Agreement. Nothing in
this Section 8.3 shall be deemed to release the Company or the Investor from any
liability for any breach or default under this Agreement or any of the other
Transaction Documents to which it is a party, or to impair the rights of the
Company and the Investor to compel specific performance by the other party of
its obligations under the Transaction Documents to which it is a party.

 

Article IX
INDEMNIFICATION

 

Section 9.1. Indemnification of Investor. In consideration of the Investor’s
execution and delivery of this Agreement and acquiring the Securities hereunder
and in addition to all of the Company’s other obligations under the Transaction
Documents to which it is a party, subject to the provisions of this Section 9.1,
the Company shall indemnify and hold harmless the Investor, each of its
directors, officers, shareholders, members, partners, employees,
representatives, agents and advisors (and any other Persons with a functionally
equivalent role of a Person holding such titles notwithstanding the lack of such
title or any other title), each Person, if any, who controls the Investor
(within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act), and the respective directors, officers, shareholders, members,
partners, employees, representatives, agents and advisors (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding the lack of such title or any other title) of such controlling
Persons (each, an “Investor Party”), from and against all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses (including all
judgments, amounts paid in settlement, court costs, reasonable attorneys’ fees
and costs of defense and investigation) (collectively, “Damages”) that any
Investor Party may suffer or incur as a result of or relating to (a) any breach
of any of the representations, warranties, covenants or agreements made by the
Company in this Agreement or in the other Transaction Documents to which it is a
party or (b) any action, suit, claim or proceeding (including for these purposes
a derivative action brought on behalf of the Company) instituted against such
Investor Party arising out of or resulting from the execution, delivery,
performance or enforcement of the Transaction Documents, other than claims for
indemnification within the scope of Section 6 of the Registration Rights
Agreement; provided, however, that (x) the foregoing indemnity shall not apply
to any Damages to the extent, but only to the extent, that such Damages resulted
directly and primarily from a breach of any of the Investor’s representations,
warranties, covenants or agreements contained in this Agreement or the
Registration Rights Agreement, and (y) the Company shall not be liable under
subsection (b) of this Section 9.1 to the extent, but only to the extent, that a
court of competent jurisdiction shall have determined by a final judgment (from
which no further appeals are available) that such Damages resulted directly and
primarily from any acts or failures to act, undertaken or omitted to be taken by
such Investor Party through its fraud, bad faith, gross negligence, or willful
or reckless misconduct.

 

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The Company shall reimburse any Investor Party promptly upon demand (with
accompanying presentation of documentary evidence) for all legal and other costs
and expenses reasonably incurred by such Investor Party in connection with (i)
any action, suit, claim or proceeding, whether at law or in equity, to enforce
compliance by the Company with any provision of the Transaction Documents or
(ii) any other any action, suit, claim or proceeding, whether at law or in
equity, with respect to which it is entitled to indemnification under this
Section 9.1; provided that the Investor shall promptly reimburse the Company for
all such legal and other costs and expenses to the extent a court of competent
jurisdiction determines that any Investor Party was not entitled to such
reimbursement.

 

An Investor Party’s right to indemnification or other remedies based upon the
representations, warranties, covenants and agreements of the Company set forth
in the Transaction Documents shall not in any way be affected by any
investigation or knowledge of such Investor Party. Such representations,
warranties, covenants and agreements shall not be affected or deemed waived by
reason of the fact that an Investor Party knew or should have known that any
representation or warranty might be inaccurate or that the Company failed to
comply with any agreement or covenant. Any investigation by such Investor Party
shall be for its own protection only and shall not affect or impair any right or
remedy hereunder.

 

To the extent that the foregoing undertakings by the Company set forth in this
Section 9.1 may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the Damages
which is permissible under applicable law.

 

Section 9.2. Indemnification Procedures. Promptly after an Investor Party
receives notice of a claim or the commencement of an action for which the
Investor Party intends to seek indemnification under Section 9.1, the Investor
Party will notify the Company in writing of the claim or commencement of the
action, suit or proceeding; provided, however, that failure to notify the
Company will not relieve the Company from liability under Section 9.1, except to
the extent it has been materially prejudiced by the failure to give notice. The
Company will be entitled to participate in the defense of any claim, action,
suit or proceeding as to which indemnification is being sought, and if the
Company acknowledges in writing the obligation to indemnify the Investor Party
against whom the claim or action is brought, the Company may (but will not be
required to) assume the defense against the claim, action, suit or proceeding
with counsel satisfactory to it. After the Company notifies the Investor Party
that the Company wishes to assume the defense of a claim, action, suit or
proceeding, the Company will not be liable for any further legal or other
expenses incurred by the Investor Party in connection with the defense against
the claim, action, suit or proceeding except that if, in the opinion of counsel
to the Investor Party, it would be inappropriate under the applicable rules of
professional responsibility for the same counsel to represent both the Company
and such Investor Party. In such event, the Company will pay the reasonable fees
and expenses of no more than one separate counsel for all such Investor Parties
promptly as such fees and expenses are incurred. Each Investor Party, as a
condition to receiving indemnification as provided in Section 9.1, will
cooperate in all reasonable respects with the Company in the defense of any
action or claim as to which indemnification is sought. The Company will not be
liable for any settlement of any action effected without its prior written
consent, which consent shall not be unreasonably withheld, delayed or
conditioned. The Company will not, without the prior written consent of the
Investor Party, effect any settlement of a pending or threatened action with
respect to which an Investor Party is, or is informed that it may be, made a
party and for which it would be entitled to indemnification, unless the
settlement includes an unconditional release of the Investor Party from all
liability and claims which are the subject matter of the pending or threatened
action.

 

The remedies provided for in this Article IX are not exclusive and shall not
limit any rights or remedies which may otherwise be available to any Investor
Party at law or in equity.

 

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Article X
MISCELLANEOUS

 

Section 10.1.   Certain Fees and Expenses; Commitment Shares; Commencement
Irrevocable Transfer Agent Instructions.

 

(i) Certain Fees and Expenses. Each party shall bear its own fees and expenses
related to the transactions contemplated by this Agreement; provided, however,
that the Company shall pay all U.S. federal, state and local stamp and other
similar transfer and other taxes and duties levied in connection with issuance
of the Securities pursuant hereto.

 

(ii) Commitment Shares. In consideration for the Investor’s execution and
delivery of this Agreement, concurrently with the execution and delivery of this
Agreement on the Closing Date, the Company shall deliver irrevocable
instructions to its transfer agent to issue to the Investor, not later than 4:00
p.m. (New York City time) on the Trading Day immediately following the Closing
Date, one or more certificate(s) or book-entry statement(s) representing the
Commitment Shares in the name of the Investor or its designee (in which case
such designee name shall have been provided to the Company prior to the Closing
Date). Such certificate or book-entry statement shall be delivered to the
Investor by overnight courier at its address set forth in Section 10.4. For the
avoidance of doubt, all of the Commitment Shares shall be fully earned as of the
Closing Date regardless of whether any Fixed Purchases are issued by the Company
or settled hereunder or any termination of this Agreement. Upon issuance, the
Commitment Shares shall constitute “restricted securities” as such term is
defined in Rule 144(a)(3) under the Securities Act and, subject to the
provisions of subsection (iv) of this Section 10.1, the certificate or
book-entry statement representing the Commitment Shares shall bear the
restrictive legend set forth below in subsection (iii) of this Section 10.1. The
Commitment Shares shall constitute Registrable Securities and shall be included
in the Initial Registration Statement and any post-effective amendment thereto,
and the Prospectus included therein and, if necessary to register the resale
thereof by the Investor under the Securities Act, in any New Registration
Statement and any post-effective amendment thereto, in each case in accordance
with this Agreement and the Registration Rights Agreement.

 

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(iii)    Legends. The certificate(s) or book-entry statement(s) representing the
Commitment Shares issued prior to the Effective Date of the Initial Registration
Statement, except as set forth below, shall bear a restrictive legend in
substantially the following form (and stop transfer instructions may be placed
against transfer of the Commitment Shares):

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS, UNLESS SOLD PURSUANT TO: (1) RULE 144 UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (2) AN OPINION OF COUNSEL, IN A CUSTOMARY
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS.

 

Notwithstanding the foregoing and for the avoidance of doubt, all Shares to be
issued in respect of any Fixed Purchase Notice delivered to the Investor
pursuant to this Agreement shall be issued to the Investor in accordance with
Section 3.2 by crediting the Investor’s or its designees’ account at DTC as DWAC
Shares, and the Company shall not take any action or give instructions to any
transfer agent of the Company otherwise.

 

(iv) Irrevocable Transfer Agent Instructions; Notice of Effectiveness. On the
earlier of (a) the Commencement Date and (b) such time that the Investor shall
request, provided all conditions of Rule 144 are met, the Company shall, no
later than one (1) Trading Day following the delivery by the Investor to the
Company or its transfer agent of one or more legended certificates or book-entry
statements representing the Commitment Shares issued to the Investor pursuant to
Section 10.1(ii) (which certificates or book-entry statements the Investor shall
promptly deliver on or prior to the first to occur of the events described in
clauses (a) and (b) of this sentence), cause the Company’s transfer agent to
credit the Investor’s or its designee’s account at DTC as DWAC Shares such
number of shares of Common Stock equal to the number of Commitment Shares issued
to the Investor pursuant to Section 10.1(ii). The Company shall take all actions
to carry out the intent and accomplish the purposes of the immediately preceding
sentence, including, without limitation, delivering all such legal opinions,
consents, certificates, resolutions and instructions to its transfer agent, and
any successor transfer agent of the Company, as may be requested from time to
time by the Investor or necessary or desirable to carry out the intent and
accomplish the purposes of the immediately preceding sentence. On the Effective
Date of the Initial Registration Statement and prior to Commencement, the
Company shall deliver or cause to be delivered to its transfer agent (and
thereafter, shall deliver or cause to be delivered to any subsequent transfer
agent of the Company), (i) irrevocable instructions executed by the Company and
acknowledged in writing by the Company’s transfer agent (the “Commencement
Irrevocable Transfer Agent Instructions”) and (ii) the notice of effectiveness
in the form attached as an exhibit to the Registration Rights Agreement (the
“Notice of Effectiveness”) relating to the Initial Registration Statement
executed by the Company’s outside counsel, in each case directing the Company’s
transfer agent to issue to the Investor or its designee all of the Commitment
Shares and the Shares included in the Initial Registration Statement as DWAC
Shares in accordance with this Agreement and the Registration Rights Agreement.
With respect to any post-effective amendment to the Initial Registration
Statement, any New Registration Statement or any post-effective amendment to any
New Registration Statement, in each case declared effective by the Commission
after the Commencement Date, the Company shall deliver or cause to be delivered
to its transfer agent (and thereafter, shall deliver or cause to be delivered to
any subsequent transfer agent of the Company) (i) irrevocable instructions in
the form substantially similar to the Commencement Irrevocable Transfer Agent
Instructions executed by the Company and acknowledged in writing by the
Company’s transfer agent and (ii) the Notice of Effectiveness, in each case
modified as necessary to refer to such Registration Statement or post-effective
amendment and the Registrable Securities included therein, to issue the
Registrable Securities included therein as DWAC Shares in accordance with the
terms of this Agreement and the Registration Rights Agreement. For the avoidance
of doubt, all Shares and Commitment Shares to be issued from and after
Commencement to or for the benefit of the Investor pursuant to this Agreement
shall be issued to the Investor or its designee only as DWAC Shares. The Company
represents and warrants to the Investor that, while this Agreement is effective,
no instruction other than those referred to in this Section 10.1(iv) will be
given by the Company to its transfer agent, or any successor transfer agent of
the Company, with respect to the Shares and the Commitment Shares from and after
Commencement, and the Shares and the Commitment Shares (as applicable) covered
by the Initial Registration Statement or any post-effective amendment thereof,
or any New Registration Statement or post-effective amendment thereof, as
applicable, shall otherwise be freely transferable on the books and records of
the Company and no stop transfer instructions shall be maintained against the
transfer thereof. The Company agrees that if the Company fails to fully comply
with the provisions of this Section 10.1(iv) within three (3) Trading Days after
the date on which the Investor has provided the deliverables referred to above
that the Investor is required to provide to the Company or its transfer agent,
the Company shall, at the Investor’s written instruction, purchase from the
Investor all shares of Common Stock purchased or acquired by the Investor
pursuant to this Agreement that contain the restrictive legend referred to in
Section 10.1(iii) hereof (or any similar restrictive legend) at the greater of
(i) the purchase price paid for such shares of Common Stock (as applicable) and
(ii) the Closing Sale Price of the Common Stock on the date of the Investor’s
written instruction.

 

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Section 10.2. Specific Enforcement, Consent to Jurisdiction, Waiver of Jury
Trial.

 

(i) The Company and the Investor acknowledge and agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that either party shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement by
the other party and to enforce specifically the terms and provisions hereof
(without the necessity of showing economic loss and without any bond or other
security being required), this being in addition to any other remedy to which
either party may be entitled by law or equity.

 

(ii) Each of the Company and the Investor (a) hereby irrevocably submits to the
jurisdiction of the U.S. District Court and other courts of the United States
sitting in the State of New York for the purposes of any suit, action or
proceeding arising out of or relating to this Agreement, and (b) hereby waives,
and agrees not to assert in any such suit, action or proceeding, any claim that
it is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Each of the Company and the Investor
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing in this Section 10.2
shall affect or limit any right to serve process in any other manner permitted
by law.

 

44

 

 

(iii) EACH OF THE COMPANY AND THE INVESTOR HEREBY WAIVES TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT
TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION
WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR DISPUTES RELATING
HERETO. EACH OF THE COMPANY AND THE INVESTOR (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.2.

 

Section 10.3. Entire Agreement. The Transaction Documents set forth the entire
agreement and understanding of the parties with respect to the subject matter
hereof and supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written, with respect to such
matters. There are no promises, undertakings, representations or warranties by
either party relative to subject matter hereof not expressly set forth in the
Transaction Documents. The Disclosure Schedule and all exhibits to this
Agreement are hereby incorporated by reference in, and made a part of, this
Agreement as if set forth in full herein.

 

Section 10.4. Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery or electronic mail delivery at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The address for such communications shall be:

 

45

 

 

If to the Company:

 

Adial Pharmaceuticals, Inc.

1180 Seminole Trail, Suite 495

Charlottesville, Virginia 22901
Telephone Number: (434) 422-9800

Email: wstilley@adialpharma.com

Attention: William B. Stilley

Chief Executive Officer

 

With a copy (which shall not constitute notice) to:

 

Gracin & Marlow, LLP

The Chrysler Building

405 Lexington Avenue, 26th Floor
Telephone Number: (212) 907-6457

Email: lmarlow@gracinmarlow.com
Attention: Leslie Marlow, Esq.

 

If to the Investor:

 

Keystone Capital Partners, LLC

139 Fulton Street, Suite 412

New York, NY 10038
Telephone Number: (646) 349-0916

Email: fz@keystone-cp.com

Attention: Fredric G. Zaino

 

With a copy (which shall not constitute notice) to:

 

Dorsey & Whitney LLP

51 West 52nd Street

New York, NY 10019

Telephone Number: (212) 415-9214

Email: marsico.anthony@dorsey.com

Attention: Anthony J. Marsico, Esq.

 

Either party hereto may from time to time change its address for notices by
giving at least five (5) days’ advance written notice of such changed address to
the other party hereto.

 

Section 10.5. Waivers. No provision of this Agreement may be waived by the
parties from and after the date that is one (1) Trading Day immediately
preceding the filing of the Initial Registration Statement with the Commission.
Subject to the immediately preceding sentence, no provision of this Agreement
may be waived other than in a written instrument signed by the party against
whom enforcement of such waiver is sought. No failure or delay in the exercise
of any power, right or privilege hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such power, right or privilege
preclude other or further exercises thereof or of any other right, power or
privilege.

 

46

 

 

Section 10.6. Amendments. No provision of this Agreement may be amended by the
parties from and after the date that is one (1) Trading Day immediately
preceding the filing of the Initial Registration Statement with the Commission.
Subject to the immediately preceding sentence, no provision of this Agreement
may be amended other than by a written instrument signed by both parties hereto.

 

Section 10.7.   Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof. Unless the context clearly indicates otherwise, each
pronoun herein shall be deemed to include the masculine, feminine, neuter,
singular and plural forms thereof. The terms “including,” “includes,” “include”
and words of like import shall be construed broadly as if followed by the words
“without limitation.” The terms “herein,” “hereunder,” “hereof” and words of
like import refer to this entire Agreement instead of just the provision in
which they are found.

 

Section 10.8. Construction. The parties agree that each of them and their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents. In addition, each and every
reference to share prices (including the Fixed Purchase Threshold Price) and
number of shares of Common Stock in any Transaction Document shall, in all
cases, be subject to adjustment for any stock splits, stock combinations, stock
dividends, recapitalizations, reorganizations and other similar transactions
that occur on or after the date of this Agreement. Any reference in this
Agreement to “Dollars” or “$” shall mean the lawful currency of the United
States of America. Any references to “Section” or “Article” in this Agreement
shall, unless otherwise expressly stated herein, refer to the applicable Section
or Article of this Agreement.

 

Section 10.9.   Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors. Neither
the Company nor the Investor may assign this Agreement or any of their
respective rights or obligations hereunder to any Person.

 

Section 10.10. No Third Party Beneficiaries. Except as expressly provided in
Article IX, this Agreement is intended only for the benefit of the parties
hereto and their respective successors, and is not for the benefit of, nor may
any provision hereof be enforced by, any other Person.

 

Section 10.11. Governing Law. This Agreement shall be governed by and construed
in accordance with the internal procedural and substantive laws of the State of
New York, without giving effect to the choice of law provisions of such state
that would cause the application of the laws of any other jurisdiction.

 

47

 

 

Section 10.12. Survival. The representations, warranties, covenants and
agreements of the Company and the Investor contained in this Agreement shall
survive the execution and delivery hereof until the termination of this
Agreement; provided, however, that (i) the provisions of Article V
(Representations, Warranties and Covenants of the Company), Article VIII
(Termination), Article IX (Indemnification) and this Article X (Miscellaneous)
shall remain in full force and effect indefinitely notwithstanding such
termination, and, (ii) so long as the Investor owns any Securities, the
covenants and agreements of the Company and the Investor contained in Article VI
(Additional Covenants), shall remain in full force and effect notwithstanding
such termination for a period of six months following such termination.

 

Section 10.13. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature or
signature delivered by e-mail in a “.pdf” format data file, including any
electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g.,
www.docusign.com, www.echosign.adobe.com, etc., shall be considered due
execution and shall be binding upon the signatory thereto with the same force
and effect as if the signature were an original signature.

 

Section 10.14. Publicity. The Company shall afford the Investor and its counsel
with a reasonable opportunity to review and comment upon, shall consult with the
Investor and its counsel on the form and substance of, and shall give due
consideration to all such comments from the Investor or its counsel on, any
press release, Commission filing or any other public disclosure made by or on
behalf of the Company relating to the Investor, its purchases hereunder or any
aspect of the Transaction Documents or the transactions contemplated thereby,
prior to the issuance, filing or public disclosure thereof. For the avoidance of
doubt, the Company shall not be required to submit for review any such
disclosure (i) contained in periodic reports filed with the Commission under the
Exchange Act if it shall have previously provided the same disclosure to the
Investor or its counsel for review in connection with a previous filing or (ii)
any Prospectus Supplement if it contains disclosure that does not reference the
Investor, its purchases hereunder or any aspect of the Transaction Documents or
the transactions contemplated thereby. The Company agrees and acknowledges that
its failure to comply with this provision in all material respects constitutes a
Material Adverse Effect for purposes of Section 7.2(xi).

 

Section 10.15. Severability. The provisions of this Agreement are severable and,
in the event that any court of competent jurisdiction shall determine that any
one or more of the provisions or part of the provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision or part of a provision of this Agreement, and this Agreement
shall be reformed and construed as if such invalid or illegal or unenforceable
provision, or part of such provision, had never been contained herein, so that
such provisions would be valid, legal and enforceable to the maximum extent
possible.

 

Section 10.16. Further Assurances. From and after the Closing Date, upon the
request of the Investor or the Company, each of the Company and the Investor
shall execute and deliver such instrument, documents and other writings as may
be reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.

 

[Signature Pages Follow]

 

48

 

 

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

 

  ADIAL PHARMACEUTICALS, INC.:       By: /s/ William B. Stilley   Name: William
B. Stilley   Title: Chief Executive Officer       KEYSTONE CAPITAL PARTNERS,
LLC:       By: /s/ Fredric G. Zaino   Name: Fredric G. Zaino

 

 

 

 

ANNEX I TO THE
COMMON STOCK PURCHASE AGREEMENT
DEFINITIONS

 

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with a
Person, as such terms are used in and construed under Rule 144. With respect to
the Investor, without limitation, any Person owning, owned by, or under common
ownership with the Investor, and any investment fund or managed account that is
managed on a discretionary basis by the same investment manager as the Investor
will be deemed to be an Affiliate.

 

“Aggregate Limit” shall have the meaning assigned to such term in Section 2.1.

 

“Agreement” shall have the meaning assigned to such term in the preamble of this
Agreement.

 

“Average Price” means a price per Share (rounded to the nearest tenth of a cent)
equal to the quotient obtained by dividing (i) the aggregate gross purchase
price paid by the Investor for all Shares purchased pursuant to this Agreement,
by (ii) the aggregate number of Shares issued pursuant to this Agreement.

 

“Bankruptcy Law” means Title 11, U.S. Code, or any similar U.S. federal or state
law for the relief of debtors.

 

“Base Price” means a price per Share equal to the sum of (i) the Minimum Price
and (ii) $0.1122 (subject to adjustment for any reorganization,
recapitalization, non-cash dividend, stock split, reverse stock split or other
similar transaction that occurs on or after the date of this Agreement).

 

“Beneficial Ownership Limitation” shall have the meaning assigned to such term
in Section 3.4.

 

“BHCA” shall have the meaning assigned to such term in Section 5.39.

 

“Bloomberg” means Bloomberg, L.P.

 

“Bring Down Opinion” shall have the meaning assigned to such term in Section
6.15.

 

“Broker-Dealer” shall have the meaning assigned to such term in Section 6.13.

 

“Bylaws” shall have the meaning assigned to such term in Section 5.3.

 

“Charter” shall have the meaning assigned to such term in Section 5.3.

 

“Closing” shall have the meaning assigned to such term in Section 2.2.

 

“Closing Date” means the date of this Agreement.

 

I-1

 

 

“Closing Sale Price” means, for the Common Stock as of any date, the last
closing trade price for the Common Stock on the Trading Market, as reported by
Bloomberg, or, if the Trading Market begins to operate on an extended hours
basis and does not designate the closing trade price for the Common Stock, then
the last trade price for the Common Stock prior to 4:00 p.m., New York City
time, as reported by Bloomberg, or, if the foregoing do not apply, the last
trade price for the Common Stock in the over-the-counter market on the
electronic bulletin board for the Common Stock as reported by Bloomberg, or, if
no last trade price is reported for the Common Stock by Bloomberg, the average
of the bid prices, or the ask prices, respectively, of any market makers for
such security as reported by OTC Markets Group Inc. All such determinations
shall be appropriately adjusted for any stock splits, stock dividends, stock
combinations, recapitalizations or other similar transactions during such
period.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Commencement” shall have the meaning assigned to such term in Section 3.1.

 

“Commencement Date” shall have the meaning assigned to such term in Section 3.1.

 

“Commencement Irrevocable Transfer Agent Instructions” shall have the meaning
assigned to such term in Section 10.1(iv).

 

“Commission” means the U.S. Securities and Exchange Commission or any successor
entity.

 

“Commission Documents” shall mean (1) all reports, schedules, registrations,
forms, statements, information and other documents filed with or furnished to
the Commission by the Company pursuant to the reporting requirements of the
Exchange Act, including all material filed with or furnished to the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, since
December 31, 2019, including, without limitation, the Annual Report on Form 10-K
filed by the Company for its fiscal year ended December 31, 2019 (the “2019 Form
10-K”), and which hereafter shall be filed with or furnished to the Commission
by the Company, including, without limitation, the Current Report, (2) each
Registration Statement, as the same may be amended from time to time, the
Prospectus contained therein and each Prospectus Supplement thereto and (3) all
information contained in such filings and all documents and disclosures that
have been and heretofore shall be incorporated by reference therein.

 

“Commitment Shares” means One Hundred Seventy-Five Thousand (175,000) shares of
duly authorized, validly issued, fully paid and non-assessable shares of Common
Stock which, concurrently with the execution and delivery of this Agreement on
the Closing Date, the Company has caused its transfer agent to issue and deliver
to the Investor not later than 4:00 p.m. (New York City time) on the Trading Day
immediately following the Closing Date.

 

“Common Stock” shall have the meaning assigned to such term in the recitals of
this Agreement.

 

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

 

I-2

 

 

“Company” shall have the meaning assigned to such term in the preamble of this
Agreement.

 

“Compliance Certificate” shall have the meaning assigned to such term in Section
7.2(ii).

 

“Current Report” shall have the meaning assigned to such term in Section 2.3.

 

“Cover Price” shall have the meaning assigned to such term in Section 3.2.

 

“Critical Accounting Policies” shall have the meaning assigned to such term in
Section 5.6(f).

 

“Custodian” shall mean any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.

 

“Damages” shall have the meaning assigned to such term in Section 9.1.

 

“Disclosure Schedule” shall have the meaning assigned to such term in the
preamble to Article V.

 

“Disqualification Event” shall have the meaning assigned to such term in Section
4.6.

 

“DTC” means The Depository Trust Company, a subsidiary of The Depository Trust &
Clearing Corporation, or any successor thereto.

 

“DWAC” shall have the meaning assigned to such term in Section 5.33.

 

“DWAC Shares” means shares of Common Stock issued pursuant to this Agreement
that are (i) issued in electronic form, (ii) freely tradable and transferable
and without restriction on resale and without stop transfer instructions
maintained against the transfer thereof and (iii) timely credited by the Company
to the Investor’s or its designated Broker-Dealer at which the account or
accounts to be credited with the Securities being purchased by Investor are
maintained specified DWAC account with DTC under its Fast Automated Securities
Transfer (FAST) Program, or any similar program hereafter adopted by DTC
performing substantially the same function.

 

“EDGAR” means the Commission’s Electronic Data Gathering, Analysis and Retrieval
System.

 

“Effective Date” means, with respect to the Initial Registration Statement filed
pursuant to Section 2(a) of the Registration Rights Agreement (or any
post-effective amendment thereto) or any New Registration Statement filed
pursuant to Section 2(c) of the Registration Rights Agreement (or any
post-effective amendment thereto), as applicable, the date on which the Initial
Registration Statement (or any post-effective amendment thereto) or any New
Registration Statement (or any post-effective amendment thereto) is declared
effective by the Commission.

 

I-3

 

 

“Effectiveness Deadline” shall have the meaning assigned to such term in the
Registration Rights Agreement.

 

“Eligible Market” means The Nasdaq Global Market, The Nasdaq Global Select
Market, the New York Stock Exchange, the NYSE American, the NYSE Arca, or the
OTCQX Best Market or OTCQB Venture Market operated by OTC Markets Group Inc. (or
any nationally recognized successor to any of the foregoing).

 

“Environmental Laws” shall have the meaning assigned to such term in Section
5.18 hereof.

 

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended.

 

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

 

“Exchange Cap” shall have the meaning assigned to such term in Section 3.3(a)(i)
hereof.

 

“Exempt Issuance” means the issuance of (a) Common Stock, options or other
equity incentive awards to employees, officers, directors or vendors of the
Company pursuant to any equity incentive plan duly adopted for such purpose, by
the Company’s Board of Directors or a majority of the members of a committee of
the Board of Directors established for such purpose, (b) (1) any Securities
issued to the Investor pursuant to this Agreement, (2) any securities issued
upon the exercise or exchange of or conversion of any shares of Common Stock or
Common Stock Equivalents held by the Investor at any time, or (3) any securities
issued upon the exercise or exchange of or conversion of any Common Stock
Equivalents issued and outstanding on the date of this Agreement, provided that
such securities referred to in this clause (3) have not been amended since the
date of this Agreement to increase the number of such securities or to decrease
the exercise price, exchange price or conversion price of such securities, (c)
securities issued pursuant to acquisitions, divestitures, licenses,
partnerships, collaborations or strategic transactions approved by the Company’s
Board of Directors or a majority of the members of a committee of directors
established for such purpose, which acquisitions, divestitures, licenses,
partnerships, collaborations or strategic transactions can have a Variable Rate
Transaction component, provided that any such issuance shall only be to a Person
(or to the equity holders of a Person) which is, itself or through its
subsidiaries, an operating company or an asset in a business synergistic with
the business of the Company and shall provide to the Company additional benefits
in addition to the investment of funds, but shall not include a transaction in
which the Company is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in securities, or
(d) Common Stock issued by the Company by any method deemed to be an “at the
market offering” as defined in Rule 415(a)(4) under the Securities Act,
exclusively through a registered broker-dealer, as the Company’s sales agent,
pursuant to one or more written agreements between the Company and such
registered broker-dealer.

 

“FCPA” shall have the meaning assigned to such term in Section 5.35.

 

“FDA” shall have the meaning assigned to such term in Section 5.17(b).

 

“FDCA” shall have the meaning assigned to such term in Section 5.17(b).

 

I-4

 

 

“Federal Reserve” shall have the meaning assigned to such term in Section 5.39.

 

“Filing Deadline” shall have the meaning assigned to such term in the
Registration Rights Agreement.

 

“FINRA” means the Financial Industry Regulatory Authority.

 

“Fixed Purchase” shall have the meaning assigned to such term in Section 3.1.

 

“Fixed Purchase Date” means, with respect to a Fixed Purchase made pursuant to
Section 3.1, the Trading Day on which the Investor receives, after 4:00 p.m.,
New York City time, but prior to 5:00 p.m., New York City time, on such Trading
Day, a valid Fixed Purchase Notice for such Fixed Purchase in accordance with
this Agreement.

 

“Fixed Purchase Maximum Amount” shall have the meaning assigned to such term in
Section 3.1.

 

“Fixed Purchase Notice” means, with respect to a Fixed Purchase pursuant to
Section 3.1, an irrevocable written notice delivered by the Company to the
Investor directing the Investor to purchase a Fixed Purchase Share Amount, at
the applicable Fixed Purchase Price therefor on the applicable Fixed Purchase
Date for such Fixed Purchase in accordance with this Agreement.

 

“Fixed Purchase Price” means, with respect to a Fixed Purchase made pursuant to
Section 3.1, the purchase price per Share to be purchased by the Investor in
such Fixed Purchase equal to ninety percent (90%) of (i) the arithmetic average
of the Closing Sale Prices for the Common Stock during the five (5) consecutive
Trading-Day period ending on the Fixed Purchase Date for such Fixed Purchase, if
the Common Stock is then listed on the Trading Market, or (ii) the arithmetic
average of the Closing Sale Prices for the Common Stock during the twenty (20)
consecutive Trading-Day period ending on the Fixed Purchase Date for such Fixed
Purchase, if the Common Stock is then listed on an Eligible Market (in each
case, to be appropriately adjusted for any reorganization, recapitalization,
non-cash dividend, stock split or other similar transaction that occurs on or
after the date of this Agreement).

 

“Fixed Purchase Share Amount” means, with respect to a Fixed Purchase made
pursuant to Section 3.1, the number of Shares to be purchased by the Investor in
such Fixed Purchase as specified by the Company in the applicable Fixed Purchase
Notice.

 

“Fixed Purchase Threshold Price” means, with respect to a Fixed Purchase made
pursuant to Section 3.1, $1.00, which shall be appropriately adjusted for any
reorganization, recapitalization, non-cash dividend, stock split or other
similar transaction and, effective upon the consummation of any such
reorganization, recapitalization, non-cash dividend, stock split or other
similar transaction, the “Fixed Purchase Threshold Price” shall mean the lower
of (i) the adjusted price and (ii) $1.25.

 

I-5

 

 

“Fundamental Transaction” means that (i) the Company shall, directly or
indirectly, in one or more related transactions, (1) consolidate or merge with
or into (whether or not the Company is the surviving corporation) another
Person, with the result that the holders of the Company’s capital stock
immediately prior to such consolidation or merger together beneficially own less
than 50% of the outstanding voting power of the surviving or resulting
corporation, or (2) sell, lease, license, assign, transfer, convey or otherwise
dispose of all or substantially all of the properties or assets of the Company
to another Person, or (3) take action to facilitate a purchase, tender or
exchange offer by another Person that is accepted by the holders of more than
50% of the outstanding shares of Common Stock (excluding any shares of Common
Stock held by the Person or Persons making or party to, or associated or
affiliated with the Persons making or party to, such purchase, tender or
exchange offer), or (4) consummate a stock or share purchase agreement or other
business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person whereby
such other Person acquires more than 50% of the outstanding shares of Common
Stock (not including any shares of Common Stock held by the other Person or
other Persons making or party to, or associated or affiliated with the other
Persons making or party to, such stock or share purchase agreement or other
business combination), or (5) reorganize, recapitalize or reclassify its Common
Stock (other than a reverse stock split), or (ii) any “person” or “group” (as
these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange
Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of 50% of the aggregate ordinary
voting power represented by issued and outstanding Common Stock.

 

“GAAP” shall have the meaning assigned to such term in Section 5.6(b).

 

“Governmental Licenses” shall have the meaning assigned to such term in Section
5.17(a).

 

“Indebtedness” shall have the meaning assigned to such term in Section 5.11.

 

“Initial Registration Statement” shall have the meaning assigned to such term in
the Registration Rights Agreement.

 

“Intellectual Property” shall have the meaning assigned to such term in Section
5.17(c).

 

“Investment Period” means the period commencing on the Effective Date of the
Initial Registration Statement and expiring on the date this Agreement is
terminated pursuant to Article VIII.

 

“Investor” shall have the meaning assigned to such term in the preamble of this
Agreement.

 

“Investor Covered Person” shall have the meaning assigned to such term in
Section 4.6.

 

“Investor Party” shall have the meaning assigned to such term in Section 9.1.

 

“Issuer Covered Person” shall have the meaning assigned to such term in Section
5.41.

 

“IT Systems” shall have the meaning assigned to such term in Section 5.40.

 

“Knowledge” means the actual knowledge of the Company’s Chief Executive Officer
and Chief Financial Officer, after reasonable inquiry of all officers, directors
and employees of the Company and its Subsidiaries under their direct supervision
who would reasonably be expected to have knowledge or information with respect
to the matter in question.

 

I-6

 

 

“Material Adverse Effect” means (i) any condition, occurrence, state of facts or
event having, or insofar as reasonably can be foreseen would likely have, any
material adverse effect on the legality, validity or enforceability of the
Transaction Documents or the transactions contemplated thereby, (ii) any
condition, occurrence, state of facts or event having, or insofar as reasonably
can be foreseen would likely have, any effect on the business, operations,
properties or financial condition of the Company that is material and adverse to
the Company and its Subsidiaries, taken as a whole, and/or (iii) any condition,
occurrence, state of facts or event that would, or insofar as reasonably can be
foreseen would likely, prohibit or otherwise materially interfere with or delay
the ability of the Company to perform any of its obligations under any of the
Transaction Documents to which it is a party; provided, however, that no facts,
circumstances, changes or effects exclusively and directly resulting from,
relating to or arising out of the following, individually or in the aggregate,
shall be taken into account in determining whether a Material Adverse Effect has
occurred or insofar as reasonably can be foreseen would likely occur:
(a) changes in conditions in the U.S. or global capital, credit or financial
markets generally, including changes in the availability of capital or currency
exchange rates, provided such changes shall not have affected the Company in a
materially disproportionate manner as compared to other similarly situated
companies; (b) changes generally affecting the industries in which the Company
and its Subsidiaries operate, provided such changes shall not have affected the
Company and its Subsidiaries, taken as a whole, in a materially disproportionate
manner as compared to other similarly situated companies; (c) any effect of the
announcement of, or the consummation of the transactions contemplated by, this
Agreement and the other Transaction Documents on the Company’s relationships,
contractual or otherwise, with customers, suppliers, vendors, bank lenders,
strategic venture partners or employees; (d) changes arising in connection with
earthquakes, hostilities, acts of war, sabotage or terrorism or military actions
or any escalation or material worsening of any such hostilities, acts of war,
sabotage or terrorism or military actions existing as of the date hereof; (e)
any action taken by the Investor, its affiliates or its or their successors and
assigns with respect to the transactions contemplated by this Agreement; and (f)
the effect of any changes in applicable laws or accounting rules, provided such
changes shall not have affected the Company in a materially disproportionate
manner as compared to other similarly situated companies.

 

“Material Agreements” shall have the meaning assigned to such term in Section
5.19.

 

“Minimum Price” means $1.71, representing the official closing price of the
Common Stock on the Trading Market (as reflected on Nasdaq.com) on the trading
day immediately preceding the date of this Agreement (subject to adjustment for
any reorganization, recapitalization, non-cash dividend, stock split, reverse
stock split or other similar transaction that occurs on or after the date of
this Agreement).

 

“Money Laundering Laws” shall have the meaning assigned to such term in Section
5.36.

 

“New Registration Statement” shall have the meaning assigned to such term in the
Registration Rights Agreement.

 

“Notice of Effectiveness” shall have the meaning assigned to such term in
Section 10.1(iii).

 

I-7

 

 

“PEA Period” means the period commencing at 9:30 a.m., New York City time, on
the fifth (5th) Trading Day immediately prior to the filing of any
post-effective amendment to the Initial Registration Statement or any New
Registration Statement, and ending at 9:30 a.m., New York City time, on the
Trading Day immediately following, the Effective Date of such post-effective
amendment.

 

“Person” means any person or entity, whether a natural person, trustee,
corporation, partnership, limited partnership, limited liability company, trust,
unincorporated organization, business association, firm, joint venture,
governmental agency or authority.

 

“Personal Data” shall have the meaning assigned to such term in Section 5.40.

 

“Pharmaceutical Product” shall have the meaning assigned to such term in Section
5.17(b).

 

“Plan” shall have the meaning assigned to such term in Section 5.24.

 

“Prospectus” means the prospectus in the form included in a Registration
Statement, as supplemented from time to time by any Prospectus Supplement,
including the documents incorporated by reference therein.

 

“Prospectus Supplement” means any prospectus supplement to the Prospectus filed
with the Commission from time to time pursuant to Rule 424(b) under the
Securities Act, including the documents incorporated by reference therein.

 

“Registrable Securities” shall have the meaning assigned to such term in the
Registration Rights Agreement.

 

“Registration Rights Agreement” shall have the meaning assigned to such term in
the recitals hereof.

 

“Registration Statement” shall have the meaning assigned to such term in the
Registration Rights Agreement.

 

“Regulation D” shall have the meaning assigned to such term in the recitals of
this Agreement.

 

“Restricted Period” shall have the meaning assigned to such term in Section
6.9(i).

 

“Restricted Person” shall have the meaning assigned to such term in Section
6.9(i).

 

“Restricted Persons” shall have the meaning assigned to such term in Section
6.9(i).

 

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

 

I-8

 

 

“Sale Price” means any trade price for a share of Common Stock on the Trading
Market, or if the Common Stock is then traded on an Eligible Market, on such
Eligible Market, as reported by Bloomberg.

 

“Sanctions” shall have the meaning assigned to such term in Section 5.37.

 

“Sarbanes-Oxley Act” shall have the meaning assigned to such term in Section
5.6(e).

 

“Section 4(a)(2)” shall have the meaning assigned to such term in the recitals
of this Agreement.

 

“Securities” means, collectively, the Shares and the Commitment Shares.

 

“Securities Act” shall mean the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.

 

“Shares” shall mean the shares of Common Stock that are and/or may be purchased
by the Investor under this Agreement pursuant to one or more Fixed Purchase
Notices, but not including the Commitment Shares.

 

“Short Sales” shall mean “short sales” as defined in Rule 200 promulgated under
Regulation SHO under the Exchange Act.

 

“Significant Subsidiary” means any Subsidiary of the Company that would
constitute a “significant subsidiary” of the Company within the meaning of Rule
1-02 of Regulation S-X of the Commission.

 

“Subsidiary” shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interest having ordinary voting
power for the election of directors or other persons performing similar
functions are at the time owned directly or indirectly by the Company and/or any
of its other Subsidiaries.

 

“Total Commitment” shall have the meaning assigned to such term in Section 2.1.

 

“Trading Day” shall mean a full trading day (beginning at 9:30:01 a.m., New York
City time, and ending at 4:00 p.m., New York City time) on the Trading Market
or, if the Common Stock is then listed on an Eligible Market, on such Eligible
Market.

 

“Trading Market” means The Nasdaq Capital Market (or any nationally recognized
successor thereto).

 

“Transaction Documents” means, collectively, this Agreement (as qualified by the
Disclosure Schedule) and the exhibits hereto, the Registration Rights Agreement
and each of the other agreements, documents, certificates and instruments
entered into or furnished by the parties hereto in connection with the
transactions contemplated hereby and thereby.

 

I-9

 

 

“Variable Rate Transaction” means a transaction in which the Company (i) issues
or sells any equity or debt securities that are convertible into, exchangeable
or exercisable for, or include the right to receive additional shares of Common
Stock or Common Stock Equivalents either (A) at a conversion price, exercise
price, exchange rate or other price that is based upon and/or varies with the
trading prices of or quotations for the Common Stock at any time after the
initial issuance of such equity or debt 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 equity or debt 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 (including,
without limitation, any “full ratchet” or “weighted average” anti-dilution
provisions, but not including any standard anti-dilution protection for any
reorganization, recapitalization, non-cash dividend, stock split or other
similar transaction), (ii) issues or sells any equity or debt securities,
including without limitation, Common Stock or Common Stock Equivalents, either
(A) at a 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 (other than standard
anti-dilution protection for any reorganization, recapitalization, non-cash
dividend, stock split or other similar transaction), or (B) that are subject to
or contain any put, call, redemption, buy-back, price-reset or other similar
provision or mechanism (including, without limitation, a “Black-Scholes” put or
call right, other than in connection with a “fundamental transaction”) that
provides for the issuance of additional equity securities of the Company or the
payment of cash by the Company, or (iii) enters into any agreement, including,
but not limited to, an “equity line of credit” or “at the market offering” or
other continuous offering or similar offering of Common Stock or Common Stock
Equivalents, whereby the Company may sell Common Stock or Common Stock
Equivalents at a future determined price.

 

I-10

 

 

EXHIBIT A TO THE
COMMON STOCK PURCHASE AGREEMENT
  

Reference is made to Exhibit 10.2 to the Company’s Current Report on Form 8-K
(File No. 001-38323) filed on November 19, 2020, which is incorporated by
reference herein.

 

A-1

 

 

EXHIBIT B TO THE
COMMON STOCK PURCHASE AGREEMENT
CERTiFICATE OF THE COMPANY

 

CLOSING CERTIFICATE

 

[●], 2020

 

The undersigned, the Chief Executive Officer of Adial Pharmaceuticals, Inc., a
Delaware corporation (the “Company”), delivers this certificate in connection
with the Common Stock Purchase Agreement, dated as of November 18, 2020 (the
“Agreement”), by and between the Company and Keystone Capital Partners, LLC, a
Delaware limited liability company (the “Investor”), and hereby certifies on the
date hereof that (capitalized terms used herein without definition have the
meanings assigned to them in the Agreement):

 

1.  Attached hereto as Exhibit A is a true, complete and correct copy of the
Certificate of Incorporation of the Company, as amended through the date hereof,
as filed with the Secretary of State of the State of Delaware. The Certificate
of Incorporation of the Company has not been further amended or restated, and no
document with respect to any amendment to the Certificate of Incorporation of
the Company has been filed in the office of the Secretary of State of the State
of Delaware since the date shown on the face of the state certification relating
to the Company’s Certificate of Incorporation, which is in full force and effect
on the date hereof, and no action has been taken by the Company in contemplation
of any such amendment or the dissolution, merger or consolidation of the
Company.

 

2.  Attached hereto as Exhibit B is a true and complete copy of the Bylaws of
the Company, as amended and restated through, and as in full force and effect
on, the date hereof, and no proposal for any amendment, repeal or other
modification to the Bylaws of the Company has been taken or is currently pending
before the Board of Directors or stockholders of the Company.

 

3.  The Board of Directors of the Company has approved the transactions
contemplated by the Transaction Documents; said approval has not been amended,
rescinded or modified and remains in full force and effect as of the date
hereof. Attached hereto as Exhibit C are true, correct and complete copies of
the resolutions duly adopted by the Board of Directors of the Company via
unanimous written consent on [●], 2020.

 

4.  Each person who, as an officer of the Company, or as attorney-in-fact of an
officer of the Company, signed the Transaction Documents to which the Company is
a party, was duly elected, qualified and acting as such officer or duly
appointed and acting as such attorney-in-fact, and the signature of each such
person appearing on any such document is his genuine signature.

 

IN WITNESS WHEREOF, I have signed my name as of the date first above written.

  

      Name: William B. Stilley   Title: Chief Executive Officer

 

B-1

 

 

EXHIBIT C TO THE
COMMON STOCK PURCHASE AGREEMENT
COMPLIANCE CERTIFICATE

 

The undersigned, the Chief Executive Officer of Adial Pharmaceuticals, Inc., a
Delaware corporation (the “Company”), delivers this certificate in connection
with the Common Stock Purchase Agreement, dated as of November 18, 2020 (the
“Agreement”), by and between the Company and Keystone Capital Partners, LLC, a
Delaware limited liability company (the “Investor”), and hereby certifies on the
date hereof that, to the best of his knowledge after reasonable investigation,
on behalf of the Company (capitalized terms used herein without definition have
the meanings assigned to them in the Agreement):

 

1.  The undersigned is the duly appointed Chief Executive Officer of the
Company.

 

2.  Except as set forth in the attached Disclosure Schedule, the representations
and warranties of the Company set forth in Article V of the Agreement (i) that
are not qualified by “materiality” or “Material Adverse Effect” are true and
correct in all material respects as of [the Commencement Date] [the date hereof]
with the same force and effect as if made on [the Commencement Date] [the date
hereof], except to the extent such representations and warranties are as of
another date, in which case, such representations and warranties are true and
correct in all material respects as of such other date and (ii) that are
qualified by “materiality” or “Material Adverse Effect” are true and correct as
of [the Commencement Date] [the date hereof] with the same force and effect as
if made on [the Commencement Date] [the date hereof], except to the extent such
representations and warranties are as of another date, in which case, such
representations and warranties are true and correct as of such other date.

 

3.  The Company has performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by the Agreement and the
Registration Rights Agreement to be performed, satisfied or complied with by the
Company [at or prior to Commencement][on or prior to the date hereof].

 

4.  The Shares issuable in respect of each Fixed Purchase Notice effected
pursuant to the Agreement shall be delivered to the Investor electronically as
DWAC Shares, and shall be freely tradable and transferable and without
restriction on resale and without any stop transfer instructions maintained
against such Shares. In accordance with Section 10.1(iv) of the Agreement, the
Commitment Shares have been delivered to the Investor electronically as DWAC
Shares, and the Commitment Shares are freely tradable and transferable and
without restriction on resale and without any stop transfer instructions
maintained against the Commitment Shares.

 

5.  As of [the Commencement Date][the date hereof], the Company does not possess
any material non-public information.

 

6.  As of [the Commencement Date][the date hereof], the Company has reserved out
of its authorized and unissued Common Stock, [●] shares of Common Stock solely
for the purpose of effecting Fixed Purchases under the Agreement.

 

7.  No stop order suspending the effectiveness of the Registration Statement or
the use of the Prospectus under the Securities Act has been issued and no
proceedings for such purpose or pursuant to Section 8A of the Securities Act are
pending before or, to the knowledge of the Company, threatened by the
Commission.

 

C-1

 

 

The undersigned has executed this Certificate this [●] day of [●], 20[●].

  

  By:     Name:     Title:  

 

C-2

 

 

DISCLOSURE SCHEDULE
RELATING TO THE COMMON STOCK
PURCHASE AGREEMENT, DATED AS OF NOVEMBER 18, 2020
BETWEEN ADIAL PHARMACEUTICALS, INC. AND Keystone Capital Partners, LLC

 

This disclosure schedule is made and given pursuant to Article V of the Common
Stock Purchase Agreement, dated as of November 18, 2020 (the “Agreement”), by
and between Adial Pharmaceuticals, Inc., a Delaware corporation (the “Company”),
and Keystone Capital Partners, LLC, a Delaware limited liability company. Unless
the context otherwise requires, all capitalized terms are used herein as defined
in the Agreement. The numbers below correspond to the section numbers of
representations and warranties in the Agreement most directly modified by the
below exceptions.

 

5.3  William Stilley, Joseph Truluck and Bankole Johnson are restricted from
transferring certain shares until April 1, 2021.

 

 

 

 

FORM OF OPINION OF OUTSIDE COUNSEL TO BE DELIVERED PURSUANT TO
SECTION 7.2(xvi)

 

[Company Counsel’s Letterhead]

 

Capitalized terms herein not otherwise defined herein will have the meaning
given to such terms in the Common Stock Purchase Agreement, dated as of November
18, 2020, by and between Adial Pharmaceuticals, Inc. and Keystone Capital
Partners, LLC (the “Purchase Agreement”).

 

1.The Company is validly existing and in good standing under the laws of the
State of Delaware, with full corporate power and authority to own its properties
and to conduct its business as such business is described in the Commission
Documents. The Company is duly qualified to do business as a foreign corporation
and is in good standing in the State of Virginia.

 

2.The Company has the requisite corporate power and authority to execute,
deliver and perform its obligations under the Purchase Agreement and the
Registration Rights Agreement. The execution and delivery by the Company of the
Purchase Agreement and the Registration Rights Agreement, and the consummation
by the Company of the transactions contemplated thereby (including, without
limitation, the issuance of the Securities) have been duly and validly
authorized by all necessary corporate action.

 

3.Each of the Purchase Agreement and the Registration Rights Agreement has been
duly executed and delivered by the Company and constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its respective terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors’ rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).

 

4.The execution, delivery and performance by the Company of the Purchase
Agreement and the Registration Rights Agreement and the consummation by the
Company of the transactions contemplated thereby (including, without limitation,
the issuance of the Securities) do not: (i) violate the Company’s certificate of
incorporation or bylaws (the “Governing Documents”); (ii) violate the General
Corporation Law of the State of Delaware, or any U.S. federal statute, rule or
regulation applicable to the Company; (iii) require any consents, approvals, or
authorizations to be obtained by the Company, or any registrations, declarations
or filings to be made by the Company, in each case, under the General
Corporation Law of the State of Delaware or any U.S. federal statute, rule or
regulation applicable to the Company that have not been obtained or made (other
than any filings required to be made by the Company after the Closing Date with
the Commission in order to enable the Company to perform its obligations under
the Purchase Agreement and the Registration Rights Agreement); (iv) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, mortgage,
deed of trust, indenture, note, bond, license, lease agreement, instrument or
obligation to which the Company is a party or is bound that has been filed as an
exhibit to the 2019 Form 10-K or any other Commission Document filed after the
2019 Form 10-K and prior to the date on which this opinion is given (an
“Existing SEC-Filed Material Agreement”); (v) create or impose a lien, charge or
encumbrance on any property of the Company under the terms of any Existing
SEC-Filed Material Agreement; or (vi) to our knowledge, result in a violation of
any U.S. federal order, judgment or decree applicable to the Company or by which
any property or asset of the Company is bound or affected.

 

 

 

 

5.Assuming the accuracy of the representations and warranties made by you in the
Purchase Agreement at all relevant times, both on and after the Closing Date,
and your compliance with the covenants made by you in the Purchase Agreement and
the Registration Rights Agreement, the offering, sale and issuance of the
Securities by the Company to you in accordance with the terms of the Purchase
Agreement is exempt from the registration requirements of the Securities Act.

 

6.When issued in accordance with the Purchase Agreement, the Commitment Shares
will be duly authorized and validly issued, fully paid and non-assessable, free
and clear of all liens, charges, taxes, security interests, encumbrances, rights
of first refusal, preemptive or similar rights and other encumbrances under the
Company’s Governing Documents, the General Corporation Law of the State of
Delaware or any Existing SEC-Filed Material Agreement. When issued and paid for
in accordance with the Purchase Agreement, the Shares will be duly authorized
and validly issued, fully paid and non-assessable, free and clear of all liens,
charges, taxes, security interests, encumbrances, rights of first refusal,
preemptive or similar rights and other encumbrances under the Company’s
Governing Documents, the General Corporation Law of the State of Delaware or any
Existing SEC-Filed Material Agreement.

 

7.The execution and delivery of the Purchase Agreement and the Registration
Rights Agreement by the Company do not, and the performance by the Company of
its obligations thereunder shall not, give rise to any rights of any other
person that exist and are in effect as of the date of the Closing, for the
registration under the Securities Act of any shares of Common Stock or other
securities of the Company which have not been waived.

 

8.The Company is not an “investment company” or any entity controlled by an
“investment company,” as such term is defined in the Investment Company Act of
1940, as amended.

 

9.Any required filing of the Prospectus pursuant to Rule 424(b) has been made in
the manner and within the time period required by such Rule.

 

10.The statements under the caption "Description of Capital Stock" included in
the Prospectus, insofar as such statements purport to summarize legal matters,
legal conclusions of certain provisions of the General Corporation Law of the
State of Delaware as currently in effect or of the Company’s certificate of
incorporation or bylaws as currently in effect, accurately describe such
provisions in all material respects, subject to the qualifications and
assumptions stated therein, except that we express no opinion in this paragraph
with respect to any statements regarding the number of outstanding shares of
Common Stock, to the effect that any shares of Common Stock have been or will be
duly authorized, validly issued, fully paid or non-assessable or regarding
preemptive or similar rights.

 

 

 

 

We advise you that we are not representing the Company in any pending litigation
in which it is a named defendant that challenges the validity or enforceability
of, or seeks to enjoin the performance of, the Purchase Agreement or the
Registration Rights Agreement.

 

In acting as special counsel to the Company in connection with the transactions
described in the first paragraph above, we have participated in conferences with
officers and other representatives of the Company, the independent public
accountants for the Company, your counsel and your representatives, at which
conferences certain contents of the Registration Statement and the Prospectus
and related matters were discussed. Although we are not passing upon or assuming
responsibility for the accuracy, completeness or fairness of the statements
included or incorporated by reference in or omitted from the Registration
Statement, the Prospectus or the Incorporated Documents and have made no
independent check or verification thereof (except as provided in paragraph 2
above), based upon our participation in such conferences, no facts have come to
our attention that have caused us to believe that, insofar as is relevant to the
offering of the Registrable Securities (as defined in the Registration Rights
Agreement):

 

(A)  the Registration Statement, at the time it was first declared effective,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading; or

 

(B)  the Prospectus, as of the date of the Prospectus or on the date hereof,
included or includes an untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading,

 

except in each case that we express no belief and make no statement with respect
to (i) the financial statements and schedules and other financial, accounting or
statistical data included or incorporated by reference in or omitted from the
Registration Statement, the Prospectus or the Incorporated Documents, including
any assessments of, or reports on, the effectiveness of internal control over
financial reporting, and (ii) representations and warranties and other
statements of fact included in the exhibits to the Registration Statement or to
the Incorporated Documents.

 

In rendering the statement set forth in clause (A) of the immediately preceding
paragraph, we have assumed that [●], 20[●] was the earlier of the date on which
the Prospectus was first used and the time of the first contract of sale of the
Registrable Securities within the meaning of Rule 430B(f)(1) of the Rules and
Regulations

 

Based solely on our review of the Commission’s EDGAR website, we advise you that
the Registration Statement became effective under the Securities Act on [●],
20[●]. In addition, based solely on our review of the information made available
by the Commission at http://www.sec.gov/litigation/stoporders.shtml, we confirm
that the Commission has not issued any stop order suspending the effectiveness
of the Registration Statement. To our knowledge, based solely on our
participation in the conferences mentioned above regarding the Registration
Statement and our review of the information made available by the SEC at
http://www.sec.gov/litigation/stoporders.shtml, no proceedings for that purpose
are pending or have been instituted or threatened by the Commission.

 

“Incorporated Documents,” when used with respect to the Registration Statement
or the Prospectus as of any date, means the documents incorporated or deemed to
be incorporated by reference in the Registration Statement, or the Prospectus,
as the case may be, as of such date pursuant to General Instruction VII to Form
S-1.

 

 

 

 

FORM OF “BRING DOWN OPINION” TO BE DELIVERED PURSUANT TO SECTION 6.15

 

[Company Counsel’s Letterhead]

 

Capitalized terms herein not otherwise defined herein will have the meaning
given to such terms in the Common Stock Purchase Agreement, dated as of November
18, 2020, by and between Adial Pharmaceuticals, Inc. and Keystone Capital
Partners, LLC (the “Purchase Agreement”).

 

1.No facts have come to our attention that cause us to believe that any of the
opinions expressed in our opinion letter to you dated [●], 20[●] are not true
and correct as of the date hereof.

 

In acting as special counsel to the Company in connection with the transactions
described in the first paragraph above, we have participated in conferences with
officers and other representatives of the Company, the independent public
accountants for the Company, your counsel and your representatives, at which
conferences certain contents of the Registration Statement and the Prospectus
and related matters were discussed. Although we are not passing upon or assuming
responsibility for the accuracy, completeness or fairness of the statements
included or incorporated by reference in or omitted from the Registration
Statement, the Prospectus or the Incorporated Documents and have made no
independent check or verification thereof (except as provided in paragraph 2
above), based upon our participation in such conferences, no facts have come to
our attention that have caused us to believe that, insofar as is relevant to the
offering of the Registrable Securities (as defined in the Registration Rights
Agreement):

 

(A)  the Registration Statement, at the time it was first declared effective,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading; or

 

(B)  the Prospectus, as of the date of the Prospectus or on the date hereof,
included or includes an untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading,

 

except in each case that we express no belief and make no statement with respect
to (i) the financial statements and schedules and other financial, accounting or
statistical data included or incorporated by reference in or omitted from the
Registration Statement, the Prospectus or the Incorporated Documents, including
any assessments of, or reports on, the effectiveness of internal control over
financial reporting, and (ii) representations and warranties and other
statements of fact included in the exhibits to the Registration Statement or to
the Incorporated Documents.

 

In rendering the statement set forth in clause (A) of the immediately preceding
paragraph, we have assumed that [●], 20[●] was the earlier of the date on which
the Prospectus was first used and the time of the first contract of sale of the
Registrable Securities within the meaning of Rule 430B(f)(1) of the Rules and
Regulations

 

Based solely on our review of the Commission’s EDGAR website, we advise you that
the Registration Statement became effective under the Securities Act on [●],
20[●]. In addition, based solely on our review of the information made available
by the Commission at http://www.sec.gov/litigation/stoporders.shtml, we confirm
that the Commission has not issued any stop order suspending the effectiveness
of the Registration Statement. To our knowledge, based solely on our
participation in the conferences mentioned above regarding the Registration
Statement and our review of the information made available by the SEC at
http://www.sec.gov/litigation/stoporders.shtml, no proceedings for that purpose
are pending or have been instituted or threatened by the Commission.

 

“Incorporated Documents,” when used with respect to the Registration Statement
or the Prospectus as of any date, means the documents incorporated or deemed to
be incorporated by reference in the Registration Statement, or the Prospectus,
as the case may be, as of such date pursuant to General Instruction VII to Form
S-1.