SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT (“Agreement”) is made and entered into on
March 22, 2019 (“Effective Date”), by and between Cemtrex, Inc., a Delaware
corporation (“Company”), and the investor whose name appears on the signature
page hereto (“Investor”).

 

Recitals

 

A. The parties desire that, upon the terms and subject to the conditions herein,
Investor will purchase $1 million in shares of Series B Redeemable Convertible
Preferred Stock of Company, which are convertible into Common Stock, and a
Warrant; and

 

B. The offer and sale of the Securities provided for herein are being made
pursuant to a current and effective shelf Registration Statement.

 

Agreement

 

In consideration of the foregoing, the receipt and adequacy of which are hereby
acknowledged, Company and Investor agree as follows:

 

I. Definitions. In addition to the terms defined elsewhere in this Agreement and
the Transaction Documents, capitalized terms that are not otherwise defined have
the meanings set forth in the Glossary of Defined Terms attached hereto as
Exhibit 1.

 

II. Purchase and Sale.

 

A. Purchase Amount. Subject to the terms and conditions herein and the
satisfaction of the conditions to Closing set forth below, for an aggregate
purchase price of $1,000,000.00 (“Purchase Amount”), Company hereby irrevocably
agrees to sell 2,100 Preferred Shares at $500.00 per share with a 5.0% original
issue discount (OID) and a Warrant, all in accordance with the terms,
provisions, and schedule set forth in this Agreement and in the Transaction
Documents.

 

B. Deliveries. The following documents will be fully executed and delivered at
the Closing:

 

1. This Agreement;

 

2. Certificate of Designations, in the form attached hereto as Exhibit 2;

 

3. Transfer Agent Instructions, in the form attached hereto as Exhibit 3;

 

4. Legal Opinion, in the form attached hereto as Exhibit 4;

 

5. Officer’s Certificate, in the form attached hereto as Exhibit 5;

 

6. Secretary’s Certificate, in the form attached hereto as Exhibit 6;

 

7. Warrant, in the form attached hereto as Exhibit 7;

 

8. Disclosure Schedule, attached hereto as Exhibit 8; and

 

9. Transfer agent book entry in the name of Investor for 20,000 shares of Common
Stock and 1,050 Preferred Shares.

 

   

 

 

C. Closing Conditions. The consummation of the transactions contemplated by this
Agreement (“Closing”) is subject to the satisfaction of each of the following
conditions:

 

1. All documents, instruments and other writings required to be delivered by
Company to Investor pursuant to any provision of this Agreement or in order to
implement and effect the transactions contemplated herein have been fully
executed and delivered, including without limitation those enumerated in Section
II.B above;

 

2. The Common Stock is listed for and currently trading on the same or higher
Trading Market and Company is in compliance with all requirements to maintain
listing on the Trading Market, Company has received no notice of any suspension
or delisting with respect to the trading of the shares of Common Stock on such
Trading Market, and Company is not aware of any current facts or circumstances
that, with the passage of time, would reasonably be expected to cause such
disqualification;

 

3. The representations and warranties of Company and Investor set forth in this
Agreement are true and correct in all material respects as if made on such date
(except for representations and warranties expressly made as of a specified
date, which will be true as of such date);

 

4. No material breach or default has occurred under any Transaction Document or
any other agreement between Company and Investor;

 

5. Company has the number of duly authorized shares of Common Stock reserved for
issuance as required pursuant to the terms of this Agreement;

 

6. There is not then in effect any law, rule or regulation prohibiting or
restricting the transactions contemplated in any Transaction Document, or
requiring any consent or approval which will not have been obtained, nor is
there any completed, ongoing, pending, threatened or, to Company’s knowledge,
contemplated proceeding or investigation which may have the effect of
prohibiting or adversely affecting any of the transactions contemplated by this
Agreement, including without limitation the sale, issuance, listing, trading or
resale of any Shares on the Trading Market; no statute, rule, regulation,
executive order, decree, ruling or injunction will have been enacted, entered,
promulgated or adopted by any court or governmental authority of competent
jurisdiction that prohibits the transactions contemplated by this Agreement, and
no actions, suits or proceedings will be completed, ongoing, pending, threatened
or, to Company’s knowledge, contemplated by any person other than Investor or
any Affiliate of Investor, that seek to enjoin or prohibit the transactions
contemplated by this Agreement;

 

7. Any rights of first refusal, preemptive rights, rights of participation, or
any similar right to participate in the transactions contemplated by this
Agreement, if any, have been waived in writing; and

 

8. The Registration Statement is current and effective.

 

D. Closing. Immediately when all conditions set forth in Section II.C have been
fully satisfied, Company will issue and sell to Investor and Investor will
purchase 1,050 Preferred Shares and the Warrant by payment to Company of
$500,000.00 in cash, by wire transfer of immediately available funds to an
account designated by Company.

 

E. Investor Option.  At any time until 10 Trading Days after Approval, Investor
may deliver written notice to Company of its election to purchase up to an
additional 1,050 Preferred Shares at $500.00 per share with a 5.0% OID for the
sum of $500,000.00.  Subject to the terms and conditions herein, immediately
when all conditions in Section II.C have been fully satisfied as of such date,
Investor will purchase and make payment for the specified number of additional
Preferred Shares by payment to Company in cash, by wire transfer of immediately
available funds to an account designated by Company, and Company will deliver to
Purchaser a certificate or Transfer Agent book entry for the number of purchased
Preferred Shares in the name of Investor. 

 

III. Representations and Warranties.

 

A. Representations Regarding Transaction. Except as set forth under the
corresponding section of the Disclosure Schedules, if any, Company hereby
represents and warrants to, and as applicable covenants with, Investor as of the
Closing:

 

1. Organization and Qualification. Company and each Subsidiary is an entity duly
incorporated or otherwise organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization, as
applicable, with the requisite power and authority to own and use its properties
and assets and to carry on its business as currently conducted. Neither Company
nor any Subsidiary is in violation or default of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational or charter documents, except as would not reasonably be expected
to result in a Material Adverse Effect. Each of Company and each Subsidiary is
duly qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
except where the failure to be so qualified or in good standing, as the case may
be, would not reasonably be expected to result in a Material Adverse Effect and
there is no completed, pending, threatened or, to the knowledge of Company,
contemplated proceeding in any such jurisdiction revoking, limiting or
curtailing or seeking to revoke, limit or curtail such power and authority or
qualification.

 

 2 

 

 

2. Authorization; Enforcement. Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Documents and otherwise to carry out its obligations
hereunder or thereunder. The execution and delivery of each of the Transaction
Documents by Company and the consummation by it of the transactions contemplated
hereby or thereby have been duly authorized by all necessary action on the part
of Company and no further consent or action is required by Company. Each of the
Transaction Documents has been, or upon delivery will be, duly executed by
Company and, when delivered in accordance with the terms hereof, will constitute
the valid and binding obligation of Company, enforceable against Company in
accordance with its terms, except (a) as limited by general equitable principles
and applicable bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting enforcement of creditors’ rights generally, (b)
as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (c) insofar as indemnification
and contribution provisions may be limited by applicable law.

 

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

 

4. Litigation. There is no action, suit, inquiry, notice of violation,
proceeding or investigation completed, ongoing, pending, threatened or, to the
knowledge of Company, contemplated against or affecting Company, any Subsidiary
or any of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal, state,
county, local or foreign) (collectively, an “Action”), which would reasonably be
expected to have a Material Adverse Effect or challenge the legality, validity
or enforceability of any of the Transaction Documents. The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by Company or any Subsidiary under the Exchange Act
or the Act.

 

5. Filings, Consents and Approvals. Neither Company nor any Subsidiary is
required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in connection with
the execution, delivery and performance by Company of the Transaction Documents,
other than required federal and state securities filings, and such filings and
approvals as are required to be made or obtained under the applicable Trading
Market rules in connection with the transactions contemplated hereby, each of
which has been, or if not yet required to be filed will be, timely filed.

 

6. Issuance of Shares. The Conversion Shares and Warrant Shares will be duly
authorized and, when issued upon the conversion of the Preferred Shares or the
exercise of the Warrant, respectively, in accordance with their respective
terms, will be duly and validly issued, fully paid and nonassessable, free and
clear of all Liens except those created by the Investor.

 

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7. Disclosure; Non-Public Information. Company will timely file a Prospectus
Supplement, and a current report on Form 8-K (“Current Report”) describing the
material terms and conditions of this Agreement, a copy of which has been
provided to Investor prior to the Effective Date. There is no adverse material
information regarding Company that has not been disclosed to Investor prior to
the Effective Date. All information that Company has provided to Investor that
constitutes or might constitute material, non-public information will be
included in the Current Report. Notwithstanding any other provision, except with
respect to information that will be, and only to the extent that it actually is,
timely publicly disclosed by Company pursuant to the foregoing sentence, neither
Company nor any other Person acting on its behalf has provided Investor or its
representatives, agents or attorneys with any information that constitutes or
might constitute material, non-public information, including without limitation
this Agreement and the Exhibits and Disclosure Schedules hereto. No information
contained in the Disclosure Schedules constitutes material non-public
information. Company understands and confirms that Investor will rely on the
foregoing representations and covenants in effecting transactions in securities
of Company.

 

8. No Integrated Offering. Neither Company, nor any of its Affiliates, nor any
Person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy any security,
under circumstances that would cause this offering to be integrated with prior
offerings by Company that cause a violation of the Act or any applicable
stockholder approval provisions, including, without limitation, under the rules
and regulations of the Trading Market.

 

9. Financial Condition. The Public Reports set forth as of the dates thereof all
outstanding secured and unsecured Indebtedness of Company or any Subsidiary, or
for which Company or any Subsidiary has commitments, and any material default
with respect to any Indebtedness. Company does not intend to incur debts beyond
its ability to pay such debts as they mature, taking into account the timing and
amounts of cash to be payable on or in respect of its debt, and represents that
it will not do so.

 

10. Section 5 Compliance. All information provided to Investor regarding
Company, its business and the transactions contemplated hereby, including
without limitation the Disclosure Schedules and the representations and
warranties in this Agreement, and the other statements made by Company in the
Transaction Documents, do not contain any material untrue statement or omit to
state a material fact necessary to make any of them, in light of the
circumstances in which it was made, not misleading. Company is not aware of any
facts or circumstances that would cause the transactions contemplated by the
Transaction Documents, when consummated, to violate Section 5 of the Act or
other federal or state securities laws or regulations.

 

11. Investment Company. Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Preferred Shares, will not be or be
an Affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended. Company will conduct its business in a manner
so that it will not become subject to the Investment Company Act.

 

12. Acknowledgments Regarding Investor. Company’s decision to enter into this
Agreement has been based solely on the independent evaluation by Company and its
representatives, and Company acknowledges and agrees that:

 

a. Investor is not, has never been, and as a result of the transactions
contemplated by the Transaction Documents will not become an officer, director,
insider or control person of Company, or to Company’s knowledge 10% or greater
shareholder or otherwise an affiliate of Company as defined under Rule 12b-2 of
the Exchange Act;

 

b. Investor and its representatives have not made and do not make any
representations, warranties or agreements with respect to the Securities, this
Agreement, or the transactions contemplated hereby other than those specifically
set forth in Section III.C below; Company has not relied upon, and expressly
disclaims reliance upon, any and all written or oral statements or
representations made by any persons prior to this Agreement;

 

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c. The conversion of Preferred Shares and resale of Conversion Shares will
result in dilution, which may be substantial; the number of Conversion Shares
will increase in certain circumstances; and Company’s obligation to issue and
deliver Conversion Shares in accordance with this Agreement and the Preferred
Shares are absolute and unconditional regardless of the dilutive effect that
such issuances may have; and

 

d. Investor is acting solely in the capacity of arm’s length purchaser with
respect to this Agreement and the transactions contemplated hereby; neither
Investor nor any of its Affiliates, agents or representatives has or is acting
as a legal, financial, investment, accounting, tax or other advisor to Company,
or fiduciary of Company, or in any similar capacity; neither Investor nor any of
its Affiliates, agents or representatives has provided any legal, financial,
investment, accounting, tax or other advice to Company; any statement made in
connection with this Agreement or the transactions contemplated hereby is not
advice or a recommendation, and is merely incidental to Investor’s purchase of
the Shares.

 

13. No Bad Actor Disqualification. Neither Company, any predecessor of Company,
any affiliate of Company, any director, executive officer, other officer of
Company participating in the offering, or any beneficial owner of 20% or more of
Company’s outstanding voting equity securities is subject to any bad actor
disqualification as provided in Rule 506(d) of Regulation D, and Company is not
aware of any current facts or circumstances that, with the passage of time,
would reasonably be expected to cause such disqualification.

 

14. Not a Shell. Company is not now, and has never been, a shell company as
defined in Rule 12b-2 of the Exchange Act.

 

15. Registration Statement. The Registration Statement is current and effective.

 

B. Representations Regarding Company. Except as set forth in any Public Reports
and attached exhibits, or under the corresponding section of the Disclosure
Schedules, if any, Company hereby represents and warrants to, and as applicable
covenants with, Investor as of the Closing:

 

1. Capitalization. The capitalization of Company as of the Effective Date is as
described in the Public Reports or Disclosure Schedules. No Person has any right
of first refusal, preemptive right, right of participation, or any similar right
to participate in the transactions contemplated by the Transaction Documents
which has not been waived or satisfied. Except as a result of the purchase and
sale of the Securities, there are no outstanding options, warrants, script
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which Company or any Subsidiary is or may become bound to issue
additional shares of Common Stock or securities convertible into or exercisable
for shares of Common Stock. The issuance and sale of the Shares will not
obligate Company to issue shares of Common Stock or other securities to any
Person, other than Investor, and will not result in a right of any holder of
Company securities to adjust the exercise, conversion, exchange, or reset price
under such securities. All of the outstanding shares of capital stock of Company
are validly issued, fully paid and nonassessable, have been issued in material
compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. No further approval or
authorization of any stockholder, the Board of Directors of Company or others is
required for the issuance and sale of the Shares. There are no existing or
contemplated subscription or investment agreements, stockholder agreements,
voting agreements or other similar agreements with respect to Company’s capital
stock to which Company is a party or, to the knowledge of Company, between or
among any of Company’s stockholders.

 

2. Subsidiaries. All of the direct and indirect subsidiaries of Company are set
forth in the Public Reports or the corresponding section of the Disclosure
Schedules. Company owns, directly or indirectly, all of the capital stock or
other equity interests of each Subsidiary, and all of such directly or
indirectly owned capital stock or other equity interests are owned free and
clear of any Liens. All the issued and outstanding shares of capital stock of
each Subsidiary are duly authorized, validly issued, fully paid, nonassessable
and free of preemptive and similar rights to subscribe for or purchase
securities.

 

 5 

 

 

3. Public Reports; Financial Statements. Company has filed all required Public
Reports for the one year preceding the Effective Date. As of their respective
dates or as subsequently amended, the Public Reports complied in all material
respects with the requirements of the Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, as applicable, and none of
the Public Reports, when filed and, as applicable, amended, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of Company included in the Public Reports, as amended, comply in all
material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with GAAP,
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of Company and its consolidated subsidiaries as of and for
the dates thereof and the results of operations and cash flows for the periods
then ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.

 

4. Material Changes. Since the end of the most recent year for which an Annual
Report on Form 10-K has been filed with the Commission, (a) there has been no
event, occurrence or development that has had, or that would reasonably be
expected to result in, a Material Adverse Effect, (b) Company has not incurred
any liabilities (contingent or otherwise) other than (i) trade payables and
accrued expenses incurred in the ordinary course of business consistent with
past practice, and (ii) liabilities not required to be reflected in Company’s
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (c) Company has not altered its method of accounting,
(d) Company has not declared or made any dividend or distribution of cash or
other property to its stockholders or purchased, redeemed or made any agreements
to purchase or redeem any shares of its capital stock, and (e) Company has not
issued any equity securities to any officer, director or Affiliate, except
pursuant to existing Company equity incentive plans. Company does not have
pending before the Commission any request for confidential treatment of
information.

 

5. Litigation. There is no Action completed, ongoing, pending, threatened or, to
the knowledge of Company, contemplated, that would reasonably be expected to
result in a Material Adverse Effect. Neither Company nor any Subsidiary, nor any
current director or officer thereof, nor to the knowledge of Company any former
director or officer of Company, and greater than 5% shareholder of Company, or
any director or officer thereof, is or has been the subject of any Action
involving a claim of violation of or liability under federal or state securities
laws or a claim of breach of fiduciary duty. There has not been, is not ongoing,
pending or threatened, and to the knowledge of Company is not contemplated, any
investigation by the Commission or any law enforcement agency involving Company
or any current director or officer of Company, or to the knowledge of Company
any former director or officer of Company, and greater than 5% shareholder of
Company, or any director or officer thereof.

 

6. No Bankruptcy. The Company has not filed and, to Company’s knowledge no other
Person has filed or commenced, any petition or application, or any judicial or
administrative proceeding commenced which has not been discharged, with respect
to Company or any Subsidiary or with respect to any of the properties or assets
of Company or any Subsidiary under any applicable law relating to bankruptcy,
insolvency, reorganization, fraudulent transfer, compromise, arrangement of
debt, creditors’ rights and no general assignment has been made by Company or
any Subsidiary for the benefit of creditors.

 

7. Labor Relations. No material labor dispute exists or, to the knowledge of
Company, is imminent with respect to any of the employees of Company, which
would reasonably be expected to result in a Material Adverse Effect.

 

8. Compliance. Neither Company nor any Subsidiary (a) is in material default
under or in material violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
Company or any Subsidiary under), nor has Company or any Subsidiary received
notice of a claim that it is in material default under or that it is in material
violation of, any indenture, loan or credit agreement or any other similar
agreement or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been waived),
(b) is in violation of any order of any court, arbitrator or governmental body,
or (c) is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws applicable to its business, except in each case as would not
reasonably be expected to have a Material Adverse Effect.

 

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

 

10. Title to Assets. Company and each Subsidiary have good and marketable title
in fee simple to all real property owned by them that is material to the
business of Company and each Subsidiary and good and marketable title in all
personal property owned by them that is material to the business of Company and
each Subsidiary, in each case free and clear of all Liens, except for Liens that
do not materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by Company
and each Subsidiary and Liens for the payment of federal, state or other taxes,
the payment of which is neither delinquent nor subject to penalties. Any real
property and facilities held under lease by Company and each Subsidiary are held
by them under leases which, to Company’s knowledge, are valid, subsisting and
enforceable leases and as to which Company and each Subsidiary are in
compliance, except where such noncompliance could not reasonably be expected to
have a Material Adverse Effect.

 

11. Patents and Trademarks. Company and each Subsidiary have, or have rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and other similar rights that
are necessary or material for use in connection with their respective businesses
as described in the Public Reports and which the failure to so have would have a
Material Adverse Effect (collectively, “Intellectual Property Rights”). Neither
Company nor any Subsidiary has received a written notice that the Intellectual
Property Rights used by Company or any Subsidiary violates or infringes upon the
rights of any Person. To the knowledge of Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights of Company or each Subsidiary.

 

12. Insurance. Company and each Subsidiary are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which Company and each Subsidiary
are engaged, including but not limited to directors and officers insurance
coverage at least equal to the Purchase Amount. To Company’s knowledge, such
insurance contracts and policies are in full force and complete in all material
respects. Neither Company nor any Subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business without an increase in cost that would
constitute a Material Adverse Effect.

 

13. [Left intentionally blank].

 

14. Sarbanes-Oxley; Internal Accounting Controls. Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002, which are
applicable to it as of the date of the Closing. Company presented in its most
recently filed periodic report under the Exchange Act the conclusions of the
certifying officers about the effectiveness of Company’s disclosure controls and
procedures based on their evaluations as of the evaluation date. Since the date
of the most recently filed Public Report, there have been no significant changes
in Company’s internal accounting controls or its disclosure controls and
procedures or, to Company’s knowledge, in other factors that could materially
affect Company’s internal accounting controls or its disclosure controls and
procedures.

 

15. [Left intentionally blank].

 

16. Registration Rights. No Person has any right to cause Company to effect the
registration under the Act of any securities of Company.

 

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17. Listing and Maintenance Requirements. The Common Stock is registered
pursuant to Section 12 of the Exchange Act, and 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
Company received any notification that the Commission is contemplating
terminating such registration. Company has not, in the 12 months preceding the
Effective Date, received notice from any Trading Market on which the Common
Stock is or has been listed or quoted to the effect that Company is not in
compliance with the listing or maintenance requirements of such Trading Market.
Company is, and has no reason to believe that it will not in the foreseeable
future continue to be, in compliance with all listing and maintenance
requirements of the Trading Market on which the Common Stock is currently
quoted.

 

18. Application of Takeover Protections. 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
Company’s Certificate of Incorporation (or similar charter documents) or the
laws of its state of incorporation that is or could become applicable to
Investor as a result of Investor and Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including without
limitation Company’s issuance of the Shares and Investor’s ownership of the
Shares.

 

19. Tax Status. Company and each of its Subsidiaries has made or filed all
federal, state and foreign income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that Company and each of its Subsidiaries has set aside on
its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes). Company has not executed a waiver with respect to the statute
of limitations relating to the assessment or collection of any foreign, federal,
statute or local tax. None of Company’s tax returns is presently being audited
by any taxing authority.

 

20. Foreign Corrupt Practices. Neither Company, nor to the knowledge of Company,
any agent or other person acting on behalf of Company, has (a) directly or
indirectly, used any corrupt funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (b) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (c) failed to disclose fully any
contribution made by Company, or made by any person acting on its behalf of
which Company is aware, which is in violation of law, or (d) violated in any
material respect any provision of the Foreign Corrupt Practices Act of 1977, as
amended.

 

21. Accountants. Company’s accountants are set forth in the Public Reports and
such accountants are an independent registered public accounting firm.

 

22. No Disagreements with Accountants or Lawyers. There are no material
disagreements presently existing, or reasonably anticipated by Company to arise,
between Company and the accountants or lawyers formerly or presently employed by
Company.

 

23. Powers of Attorney. There are no outstanding powers of attorney executed on
behalf of Company or any Subsidiary.

 

24. Computer and Technology Security. Company has taken reasonable steps to
safeguard the information technology systems utilized in the operation of the
business of Company, including the implementation of procedures designed to
minimize the risk that such information technology systems have any disabling
codes or instructions, timer, copy protection device, clock, counter or other
limiting design or routing and any back door, virus, malicious code or other
software routines or hardware components that in each case permit unauthorized
access or the unauthorized disablement or unauthorized erasure of data or other
software by a third party, and, to Company’s knowledge, to date there have been
no successful unauthorized intrusions or breaches of the security of its
information technology systems.

 

 8 

 

 

25. Data Privacy. Company has: (a) complied with, and is presently in compliance
in all material respects with, all applicable laws in connection with data
privacy, information security, data security and/or personal information; (b)
complied in all material respects with, and is presently in material compliance
with, its policies and procedures applicable to data privacy, information
security, data security, and personal information; (c) not experienced any
material incident in which personal information or other sensitive data was or
may have been stolen or improperly accessed; and Company is not aware of any
facts suggesting the likelihood of the foregoing, including without limitation,
any breach of security or receipt of any notices or complaints from any Person
regarding personal information or other data.

 

C. Representations and Warranties of Investor. Investor hereby represents and
warrants to Company as of the Closing as follows:

 

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

 

2. Investor Status. At the time Investor was offered the Shares, it was, and at
the Effective Date it is: (a) an accredited investor as defined in Rule 501(a)
under the Act; and (b) not a registered broker-dealer, member of FINRA, or an
affiliate thereof.

 

3. Experience of Investor. Investor, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment. Investor is able to bear the economic risk of an
investment in the Securities and, at the present time, is able to afford a
complete loss of such investment.

 

4. Ownership. Investor is acquiring the Preferred Shares and Warrant as
principal for its own account.

 

5. No Short Sales. Neither Investor nor any Affiliate holds any short position
in, nor has engaged in any Short Sales of the Common Stock, or engaged in any
hedging transactions with regard to the Shares prior to the Effective Date.

 

IV. Securities and Other Provisions.

 

A. Investor Due Diligence. Investor will have the right and opportunity to
conduct customary due diligence with respect to any Registration Statement or
Prospectus in which the name of Investor or any Affiliate of Investor appears.

 

B. Furnishing of Information. As long as Investor owns any Securities, Company
will timely file all reports required to be filed by Company after the Effective
Date pursuant to the Exchange Act. As long as Investor owns any Securities,
Company will prepare and make publicly available such information as is required
for Investor to sell its Conversion Shares under Rule 144. Company further
covenants that, as long as Investor owns any Securities, Company will take such
further action as Investor may reasonably request, all to the extent required
from time to time to enable Investor to sell its Conversion Shares without
registration under the Act within the limitation of the exemptions provided by
Rule 144.

 

C. Integration. Company will not sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security, as defined in Section 2 of
the Act, that would be integrated with the offer or sale of the Securities to
Investor for purposes of the rules and regulations of any Trading Market such
that it would require stockholder approval prior to the closing of such other
transaction unless stockholder approval is obtained before the closing of such
subsequent transaction.

 

 9 

 

 

D. Disclosure and Publicity. Company will provide to Investor, for review and
approval prior to filing or issuing, that portion of any current, periodic or
public report, registration statement, press release, public statement or
communication relating to or referencing Investor, any Transaction Documents or
the transactions contemplated thereby, any such approval not to be unreasonably
withheld.

 

E. Shareholders Rights Plan. No claim will be made or enforced by Company or, to
the knowledge of Company, any other Person that Investor is an “Acquiring
Person” under any shareholders rights plan or similar plan or arrangement in
effect or hereafter adopted by Company, or that Investor could be deemed to
trigger the provisions of any such plan or arrangement, in either such case, by
virtue of receiving Shares under the Transaction Documents or under any other
agreement between Company and Investor. Company will conduct its business in a
manner so that it will not become subject to the Investment Company Act of 1940,
as amended.

 

F. No Non-Public Information. Company covenants and agrees that neither it nor
any other Person acting on its behalf will, provide Investor or its agents or
counsel with any information that Company believes or reasonably should believe
will constitute material non-public information after Closing. On and after
Closing, neither Investor nor any Affiliate of Investor will have any duty of
trust or confidence that is owed directly, indirectly, or derivatively, to
Company or the stockholders of Company, or to any other Person who is the source
of material non-public information regarding Company. Company understands and
confirms that Investor will be relying on the foregoing in effecting
transactions in securities of Company, including without limitation sales of the
Shares.

 

G. Indemnification of Investor.

 

1. Obligation to Indemnify. Subject to the provisions of this Section IV.G,
Company will indemnify and hold Investor, its Affiliates, managers and advisors,
and each of their officers, directors, shareholders, partners, employees,
representatives, agents and attorneys, and any person who controls Investor
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
(collectively, “Investor Parties” and each a “Investor Party”), harmless from
any and all losses, liabilities, obligations, claims, contingencies, damages,
reasonable costs and expenses, including all judgments, amounts paid in
settlements, court costs and reasonable attorneys’ fees and costs of
investigation (collectively, “Losses”) 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 Company in this
Agreement or in the other Transaction Documents, (b) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, Prospectus, Prospectus Supplement, or any information incorporated by
reference therein, or arising out of or based upon any omission or alleged
omission 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, or (c) any action by a creditor or stockholder of Company who is not
an Affiliate of an Investor Party, challenging the transactions contemplated by
the Transaction Documents; provided, however, that Company will not be obligated
to indemnify any Investor Party for any Losses finally adjudicated to be caused
solely by (i) a false statement of material fact contained within written
information provided by such Investor Party expressly for the purpose of
including it in the applicable Registration Statement, Prospectus, Prospectus
Supplement, or (ii) such Investor Party’s unexcused material breach of an
express provision of this Agreement or another Transaction Document willful
misconduct or violation of applicable law.

 

2. Procedure for Indemnification. If any action will be brought against an
Investor Party in respect of which indemnity may be sought pursuant to this
Agreement, such Investor Party will promptly notify Company in writing, and
Company will have the right to assume the defense thereof with counsel of its
own choosing. Investor Parties will have the right to employ separate counsel in
any such action and participate in the defense thereof, but the reasonable fees
and expenses of such counsel will be at the expense of Investor Parties except
to the extent that (a) the employment thereof has been specifically authorized
by Company in writing, (b) Company has failed after a reasonable period of time
to assume such defense and to employ counsel or (c) in such action there is, in
the reasonable opinion of such separate counsel, a material conflict with
respect to the dispute in question on any material issue between the position of
Company and the position of Investor Parties such that it would be inappropriate
for one counsel to represent Company and Investor Parties. Company will not be
liable to Investor Parties under this Agreement (i) for any settlement by an
Investor Party effected without Company’s prior written consent, which will not
be unreasonably withheld or delayed; or (ii) to the extent, but only to the
extent that a loss, claim, damage or liability is either attributable to
Investor’s breach of any of the representations, warranties, covenants or
agreements made by Investor in this Agreement or in the other Transaction
Documents. In no event will Company be liable for the reasonable fees and
expenses for more than one separate firm of attorneys (plus local counsel as
applicable) to represent all Investor Parties.

 

 10 

 

 

3. Other than the liability of Investor to Company for uncured material breach
of the express provisions of this Agreement, no Investor Party will have any
liability to Company or any Person asserting claims on behalf of or in right of
Company as a result of acquiring the Securities under this Agreement.

 

H. Reservation of Shares. Company has reserved from its duly authorized Common
Stock for issuance pursuant to the Transaction Documents authorized shares of
Common Stock in the amount required by the Transaction Documents and will at all
times maintain a reserve equal to 5 times the number of shares sufficient to
immediately issue all Conversion Shares potentially issuable at such time, free
from preemptive rights (the “Reserved Amount”). The Reserved Amount will, if
necessary, be increased from time to time in accordance with Company’s
obligations hereunder. In addition, if Company shall issue any securities or
make any change to its capital structure which would change the number of shares
of Common Stock into which the Preferred Shares shall be convertible at the then
current Conversion Price, Company will at the same time make proper provision so
that thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Preferred Shares. Company (i) acknowledges that it has irrevocably
instructed its transfer agent to issue certificates for the Common Stock
issuable upon conversion of the Preferred Shares, and agrees that its issuance
of the Preferred Shares will constitute full authority to its officers and
agents who are charged with the duty of executing stock certificates to execute
and issue the necessary certificates for shares of Common Stock in accordance
with the terms and conditions of the Preferred Shares.

 

I. Activity Restrictions. For so long as Investor or any of its Affiliates holds
any Shares, neither Investor nor any Affiliate will: (1) vote any shares of
Common Stock owned or controlled by it, sign or solicit any proxies, attend or
be present at a shareholder meeting for purposes of determining a quorum, or
seek to advise or influence any Person with respect to any voting securities of
Company, except in accordance with the recommendation of Company’s board of
directors; (2) engage or participate in any actions, plans or proposals which
relate to or would result in (a) acquiring additional securities of Company,
alone or together with any other Person, which would result in beneficially
owning or controlling more than 9.99% of the total outstanding Common Stock or
other voting securities of Company, (b) an extraordinary corporate transaction,
such as a merger, reorganization or liquidation, involving Company or any of its
Subsidiaries, (c) a sale or transfer of a material amount of assets of Company
or any of its Subsidiaries, (d) any change in the present board of directors or
management of Company, including any plans or proposals to change the number or
term of directors or to fill any existing vacancies on the board, (e) any
material change in the present capitalization or dividend policy of Company, (f)
any other material change in Company’s business or corporate structure,
including but not limited to, if Company is a registered closed-end investment
company, any plans or proposals to make any changes in its investment policy for
which a vote is required by Section 13 of the Investment Company Act of 1940,
(g) changes in Company’s charter, bylaws or instruments corresponding thereto or
other actions which may impede the acquisition of control of Company by any
Person, (h) a class of securities of Company being delisted from a national
securities exchange or to cease to be authorized to be quoted in an inter-dealer
quotation system of a registered national securities association, (i) a class of
equity securities of Company becoming eligible for termination of registration
pursuant to Section 12(g)(4) of the Act, or (j) any action, intention, plan or
arrangement similar to any of those enumerated above; or (3) request Company or
its directors, officers, employees, agents or representatives to amend or waive
any provision of this section.

 

J. No Shorting. For so long as Investor holds any Securities, neither Investor
nor any of its Affiliates will engage in or effect, directly or indirectly, any
Short Sale of Common Stock. For the avoidance of doubt, selling against delivery
of Conversion Shares after delivery of a Conversion Notice is not a Short Sale.
There will be no restriction or limitation of any kind on Investor’s right or
ability to sell or transfer any or all of the Conversion Shares at any time, in
its sole and absolute discretion. Investor may not sell, transfer or assign the
Preferred Shares or any of its rights under this Agreement.

 

 11 

 

 

K. Stock Splits. If Company at any time on or after the Effective Date
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
or combines (by combination, reverse stock split or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater or lesser
number of shares, the share numbers, prices and other amounts set forth in this
Agreement, as in effect immediately prior to such subdivision or combination,
will be proportionately reduced or increased, as applicable, effective at the
close of business on the date the subdivision or combination becomes effective.

 

L. Subsequent Financings.

 

1. As long as Investor holds Series B Preferred Stock, Company will not enter
into any agreement that in any way restricts its ability to enter into any
agreement, amendment or waiver with Investor, including without limitation any
agreement to offer, sell or issue to Investor Common Stock in conversion to
Series B Preferred Stock.

 

2. Until Approval has been obtained, Company will not agree or enter into any
equity or convertible financing pursuant to which shares of Common Stock or
Common Stock equivalents may effectively be issued at a variable price or where
the price or number of shares are subject to any type of variability or reset
feature. Provided, however, that Company may enter into any transaction: (a)
with Investor, (b) for unregistered, non-convertible debt, (c) for restricted
stock with no registration rights, (d) for Common Stock at a fixed price above
the Market Price, (e) reasonably equivalent value given as consideration for a
strategic acquisition, or (f) that includes an immediate, unconditional offer to
Investor to purchase the Preferred Shares by wire transfer of immediately
available funds in the amount of 150% of the then outstanding Liquidation Value.

 

M. Principal Market.

 

1. Company will promptly submit any necessary notification and supporting
documentation required for the listing of all possible Conversion Shares with
Nasdaq and will use its commercially reasonable best efforts to obtain approval
to list the Conversion Shares as soon as practicable.

 

2. Company may not issue a number of Conversion Shares in excess of 19.99% of
its total outstanding common shares immediately prior to the Effective Date
without obtaining shareholder approval or a waiver of applicable Nasdaq rules.

 

3. Company will file an information or proxy statement and use its commercially
reasonable best efforts to obtain stockholder approval of this Agreement and the
issuance of all Conversion Shares in accordance with the requirements of Nasdaq
rules (“Approval”) as soon as practicable after the Effective Date. Company, its
board of directors, and each of its directors will vote all proxies given to
them in favor of Approval.

 

N. Default.

 

1. Events of Default. Company shall, be in default under this Agreement upon the
happening of any of the following events or conditions (each, an “Event of
Default”): (a) a failure to pay any amount due under the Preferred Shares, this
Agreement or any Transaction Document within 5 business days of the date the
same is due; (b) the failure by Company to perform any of its other obligations
under the Preferred Shares, this Agreement or any Transaction Document within 10
business days of notice from Investor of the same; (c) falsity, inaccuracy or
material breach by Company of any written warranty, representation or statement
made or furnished to Investor by or on behalf of Company; or (d) the occurrence
of any 3 or more Trigger Events under the Preferred Shares.

 

2. Remedies. Upon the occurrence of any Event of Default and at any time
thereafter, Investor, after 5 days’ notice, may declare all Obligations hereby
immediately due and payable and shall have, in addition to any remedies provided
herein, all remedies under any applicable law or in equity.

 

 12 

 

 

O. Preservation of Rights. No delay or omission on Investor’s part to exercise
any right or power arising hereunder will impair any such right or power or be
considered a waiver of any such right or power, nor will Investor’s action or
inaction impair any such right or power. Investor ‘s rights and remedies
hereunder are cumulative and not exclusive of any other rights or remedies which
Investor may have under other agreements, at law or in equity.

 

V. Conversion of Preferred Shares.

 

A. Conversion.

 

1. Mechanics of Conversion.

 

a. All or any portion of the shares of Series B Preferred Stock may be converted
into shares of Common Stock, at any time or times after the Issuance Date, in
the sole and absolute discretion of Investor or, subject to the terms and
conditions hereof, Company; (i) if at the option of Investor, by delivery of one
or more written notices to Company (via email) and its transfer agent (each, a
“Investor Conversion Notice”), of the Investor’s election to convert any or all
of Investor’s shares of Series B Preferred Stock or (ii) if at the option of
Company, if the Equity Conditions are met, delivery of written notice to
Investor (each, a “Company Conversion Notice” and, with the Investor Conversion
Notice, each a “Conversion Notice”), of Company’s election to convert all of any
portion of Investor’s shares of Series B Preferred Stock.

 

b. Each Delivery Notice (as defined below) will set forth the number of
Preferred Shares being converted, the Liquidation Value and the minimum number
of Conversion Shares and the amount of Accruals and Conversion Premium due as of
the time the Delivery Notice is given (the “Notice Time”), and the calculation
thereof.

 

c. As soon as practicable, and in any event within 1 Trading Day after the
Notice Date, time being of the essence, Company will do all of the following:
(i) transmit the Delivery Notice by facsimile or electronic mail to Company’s
transfer agent (the “Transfer Agent”), copying Investor, with instructions to
immediately comply with the Delivery Notice and deliver the number of Conversion
Shares stated in the Delivery Notice forthwith; (ii) either (A) if Company is
approved through The Depository Trust Company (“DTC”), authorize and instruct
the credit by the Transfer Agent of the number of Conversion Shares set forth in
the Delivery Notice, to Investor’s or its designee’s balance account with the
DTC Fast Automated Securities Transfer (FAST) Program, through its
Deposit/Withdrawal at Custodian (DWAC) system, or (B) only if Company is not
approved through DTC, issue and surrender to a common carrier for overnight
delivery to the address as specified in the Delivery Notice a certificate
bearing no restrictive legend, registered in the name of Investor or its
designee, for the number of Conversion Shares set forth in the Delivery Notice;
and (iii) if it contends that the Delivery Notice is in any way incorrect, so
notify Investor and provide a thorough written explanation and its own
calculation, or the Delivery Notice and the calculations therein will
conclusively be deemed correct for all purposes. The Company will at all times
diligently take or cause to be taken all actions necessary to cause the
Conversion Shares to be issued forthwith. If the Conversion Shares are not
registered for resale, Investor will provide a legal opinion that they are
exempt from registration. Under no circumstances will Company issue a share
certificate bearing a restrictive legend.

 

d. If during or at the end of the Measuring Period the Investor is entitled to
receive additional Conversion Shares with regard to an Initial Notice, Investor
may at any time deliver one or more additional written notices to Company or its
transfer agent (each, an “Additional Notice” and with the Initial Notice, each a
“Delivery Notice”) setting forth the additional number of Conversion Shares to
be delivered, and the calculation thereof.

 

e. If Company for any reason does not issue or cause to be issued to the
Investor within 2 Trading Days (T+2) after the date of a Delivery Notice, the
number of Conversion Shares stated in the Delivery Notice, then, in addition to
all other remedies available to the Investor, as liquidated damages and not as a
penalty, Company will pay in cash to the Investor on each day after such 2nd
Trading Day that the issuance of such Conversion Shares is not timely effected
an amount equal to 2% of the product of (i) the aggregate number of Conversion
Shares not issued to the Investor on a timely basis and to which the Investor is
entitled and (ii) the highest Closing Price of the Common Stock between the date
on which Company should have issued such shares to the Investor and the actual
date of receipt of Conversion Shares by Investor. It is intended that the
foregoing will serve to reasonably compensate Investor for any delay in delivery
of Conversion Shares, and not as punishment for any breach by Company. The
Company acknowledges that the actual damages likely to result from delay in
delivery are difficult to estimate and would be difficult for Investor to prove.

 

 13 

 

 

f. Notwithstanding any other provision of any Transaction Document: all of the
requirements of this Section V.A are each independent covenants; Company’s
obligations to issue and deliver Conversion Shares upon any Delivery Notice are
absolute, unconditional and irrevocable; any breach or alleged breach of any
representation or agreement, or any violation or alleged violation of any law or
regulation, by any party or any other person will not excuse full and timely
performance of any of Company’s obligations under these sections; and under no
circumstances may Company seek or obtain any temporary, interim or preliminary
injunctive or equitable relief to prevent or interfere with any issuance of
Conversion Shares to Investor.

 

g. Company acknowledges and agrees that monetary damages would be difficult to
quantify and prove, and that Investor would not have an adequate remedy at law
for any failure to fully perform under this Section V. If for any reason
whatsoever Investor does not timely receive the number of Conversion Shares
stated in any Delivery Notice, Investor will be entitled to a compulsory remedy
of immediate specific performance, temporary, interim and, preliminary and final
injunctive relief requiring Company and its transfer agent, attorneys, officers
and directors to immediately issue and deliver the number of Conversion Shares
stated by Investor, which requirement will not be stayed for any reason, without
the necessity of posting any bond, and which Company may not seek to stay or
appeal.

 

h. No fractional shares of Common Stock are to be issued upon conversion of this
Certificate of Designations, but rather Company will round up to the nearest
full share. Investor will not be required to deliver any original certificate
reflecting the Series B Preferred Stock in order to effect a conversion
hereunder. Company will pay any and all taxes which may be payable by Company,
with respect to the issuance and delivery of any Conversion Shares.

 

2. Investor Conversion. In the event of a conversion of any number of shares of
Series B Preferred Stock pursuant to an Investor Conversion Notice, Company will
(a) satisfy the payment of Accruals and Conversion Premium as provided in
Section I.C.2 of the Certificate of Designations, and (b) issue to the Investor
of the shares of Series B Preferred Stock a number of Conversion Shares equal to
the Face Value divided by the applicable Conversion Price with respect to the
number of shares of Series B Preferred Stock converted; all in accordance with
the procedures set forth in this Section V.

 

3. Company Conversion. The Company will have the right to send Investor a
Company Conversion Notice at any time in its sole and absolute discretion, if
the Equity Conditions are met as of the time such Company Conversion Notice is
given. Upon any conversion of any number of shares of Series B Preferred Stock
pursuant to a Company Conversion Notice, Company will on the date of such notice
(a) satisfy the payment of Accruals and Conversion Premium as provided in
Section I.C.2 of the Certificate of Designations, and (b) issue to the Holder of
the shares of Series B Preferred Stock a number of Conversion Shares equal to
the Face Value divided by the applicable Conversion Price with respect to the
number of shares of Series B Preferred Stock converted; all in accordance with
the procedures set forth in this Section V.

 

4. Approval. Notwithstanding any other provision, if Company is unable to
deliver any Conversion Shares because it has not obtained Approval as provided
in Section IV.M, Company will immediately pay the Liquidation Value, Accruals
and Conversion Premium set forth in the Delivery Notice to Investor in cash by
wire transfer of immediately available funds.

 

 14 

 

 

B. Trigger Events.

 

1. Any occurrence of any one or more of the following, at any time and for any
reason whatsoever, will constitute a “Trigger Event”:

 

a. Holder does not timely receive the number of Conversion Shares stated in any
Conversion Notice, time being of the essence; or Holder does not timely receive
the number of Warrant Shares stated in any Exercise Notice, time being of the
essence

 

b. The issuance of restricted shares if Holder provides a legal opinion that
shares may be issued without restrictive legend, or the issuance of a
certificate if Holder requests electronic delivery via DTC;

 

c. Any violation of or failure to timely perform any covenant or provision of
this Certificate of Designations, the Securities Purchase Agreement, or any
Transaction Document, related to payment of cash, registration, authorization,
reservation, issuance or delivery of Conversion Shares or Warrant Shares, time
being of the essence;

 

d. Any violation of or failure to perform any covenant or provision of this
Certificate of Designations, the Securities Purchase Agreement, the Warrant, or
any Transaction Document, which in the case of a default that is curable, is not
related to payment of cash, registration, reservation or delivery of Conversion
Shares, and has not occurred before, is not cured within 5 Trading Days of
written notice thereof;

 

e. Any representation or warranty made in the Securities Purchase Agreement or
any Transaction Document is untrue or incorrect in any respect as of the date
when made or deemed made;

 

f. The occurrence of any default or event of default under any material
agreement, lease, document or instrument to which Company or any subsidiary is
obligated, including without limitation of an aggregate of at least $250,000 of
indebtedness, not disclosed in the Disclosure Schedules;

 

g. While any Registration Statement is required to be maintained effective
pursuant to any Transaction Document, the effectiveness of the Registration
Statement lapses for any reason, including, due to no fault of Company, without
limitation, the issuance of a stop order, or the Registration Statement, or the
prospectus contained therein, is unavailable to Holder sale of all Conversion
Shares and all Warrant Shares for any 5 or more Trading Days, which may be
non-consecutive;

 

h. The suspension from trading or the failure of the Common Stock to be trading
or listed on the Trading Market, or failure to meet the requirements for
continued listing on the Trading Market;

 

i. The Company’s notice, written or oral, to Holder, including without
limitation, by way of public announcement or through any of its attorneys,
agents, or representatives, of its intention not to comply, as required, with a
Conversion Notice at any time, including without limitation any objection or
instruction to its transfer agent not to comply with any notice from Holder;

 

j. Bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings for the relief of debtors shall be instituted by or against Company
or any subsidiary and, if instituted against Company or any subsidiary by a
third party, an order for relief is entered or the proceedings are not dismissed
within 30 days of their initiation;

 

k. The appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, or other similar official of Company or any subsidiary or of
any substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the execution of a composition of debts, or the
occurrence of any other similar federal, state or foreign proceeding, or the
admission by it in writing of its inability to pay its debts generally as they
become due, the taking of corporate action by Company or any Subsidiary in
furtherance of any such action or the taking of any action by any person to
commence a foreclosure sale or any other similar action under any applicable
law;

 

l. A judgment or judgments for the payment of money aggregating in excess of
$250,000 are rendered against Company or any of its subsidiaries and are not
stayed or satisfied within 30 days of entry;

 

 15 

 

 

m. The Company does not for any reason timely comply with any applicable
reporting requirement of the Securities Exchange Act of 1934, as amended, and
the regulations promulgated thereunder, including without limitation timely
filing when first due all public reports and filings;

 

n. Any regulatory, administrative or enforcement proceeding is initiated against
Company or any subsidiary (except to the extent an adverse determination would
not have a material adverse effect on Company’s business, properties, assets,
financial condition or results of operations or prevent the performance by
Company of any material obligation under the Transaction Documents);

 

o. Any material provision of this Certificate of Designations is at any time for
any reason, other than pursuant to the express terms thereof, cease to be valid
and binding on or enforceable against the parties thereto, or the validity or
enforceability thereof shall be contested by any party thereto, or a proceeding
shall be commenced by Company or any subsidiary or any governmental authority
having jurisdiction over any of them, seeking to establish the invalidity or
unenforceability thereof, or Company or any subsidiary denies that it has any
liability or obligation purported to be created under this Certificate of
Designations; or

 

p. The failure of one or more Equity Conditions other than (v).

 

2. It is intended that all adjustments made following a Trigger Event will serve
to reasonably compensate Holder for the change in circumstances, potential
consequences and increased risk in light of the occurrence of a Trigger Event,
and not as a penalty or punishment for any breach by Company. The Company
acknowledges that the actual damages likely to result from a Trigger Event are
difficult to estimate and would be difficult for Holder to prove.

 

VI. General Provisions.

 

A. Notice. Unless a different time of day or method of delivery is specifically
provided in the Transaction Documents, any and all notices or other
communications or deliveries required or permitted to be provided hereunder will
be in writing and will be deemed given and effective on the earliest of: (a) the
date of transmission, if such notice or communication is delivered via facsimile
or electronic mail prior to 5:00 p.m. New York time on a Trading Day and an
electronic confirmation of delivery is received by the sender, (b) the next
Trading Day after the date of transmission, if such notice or communication is
delivered later than 5:00 p.m. New York time or on a day that is not a Trading
Day, (c) the next Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The addresses for such
notices and communications are such other address as may be designated in
writing, in the same manner, by such Person.

 

B. Amendments; Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed, in the case of an amendment, by Company
and Investor or, in the case of a waiver, by the party against whom enforcement
of any such waiver is sought. No waiver of any default with respect to any
provision, condition or requirement of this Agreement will be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor will any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.

 

C. No Third-Party Beneficiaries. Except as otherwise set forth in Section IV.G,
this Agreement and the Transaction Documents will inure solely to the benefit of
the parties hereto, and is not for the benefit of, nor may any provision hereof
be enforced by, any other Person. Other than the Investor Parties described in
Section IV.G, a Person who is not a party to this Agreement shall not have any
rights to enforce any term of this Agreement or any Transaction Document.

 

D. Fees and Expenses. Company has paid a flat rate documentation fee of $5,000
to Investor in connection with drafting this Agreement and the other Transaction
Documents. Except as otherwise provided in this Agreement, each party will pay
the fees and expenses of its own advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of the Transaction
Documents. Company acknowledges and agrees that Investor’s counsel solely
represents Investor, and does not represent Company or its interests in
connection with the Transaction Documents or the transactions contemplated
thereby. Company will pay all stamp and other taxes and duties, if any, levied
in connection with the sale or issuance of the Shares to Investor.

 

 16 

 

 

E. Severability. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement will not in any way be affected or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, will incorporate such substitute provision in this Agreement.

 

F. Replacement of Certificates. If any certificate or instrument evidencing any
Shares is mutilated, lost, stolen or destroyed, Company will issue or cause to
be issued in exchange and substitution for and upon cancellation thereof, or in
lieu of and substitution therefor, a new certificate or instrument, but only
upon receipt of evidence reasonably satisfactory to Company of such loss, theft
or destruction and customary and reasonable indemnity, if requested. The
applicants for a new certificate or instrument under such circumstances will
also pay any reasonable third-party costs associated with the issuance of such
replacement certificates.

 

G. Governing Law. All matters between the parties, including without limitation
questions concerning the construction, validity, enforcement and interpretation
of the Transaction Documents will be governed by and construed and enforced in
accordance with the laws of the U.S. Virgin Islands, without regard to the
principles of conflicts of law that would require or permit the application of
the laws of any other jurisdiction, except for corporation law matters
applicable to Company which will be governed by the corporate law of its
jurisdiction of formation. The parties hereby waive all rights to a trial by
jury. In any action, arbitration or proceeding, including appeal, arising out of
or relating to any of the Transaction Documents or otherwise involving the
parties, the prevailing party will be awarded its reasonable attorneys’ fees and
other costs and expenses reasonably incurred in connection with the
investigation, preparation, prosecution or defense of such action or proceeding.

 

H. Arbitration. Any dispute, controversy, claim or action of any kind arising
out of, relating to, or in connection with this Agreement, or in any way
involving Company and Investor or their respective Affiliates, including any
issues of arbitrability, will be resolved solely by final and binding
arbitration in English before a retired judge at JAMS, or its successor, in the
Territory of the Virgin Islands, pursuant to the most expedited and Streamlined
Arbitration Rules and Procedures available. Any interim or final award may be
entered and enforced by any court of competent jurisdiction. The final award
will include the prevailing party’s reasonable arbitration, expert witness and
attorney fees, costs and expenses. Notwithstanding the foregoing, Investor may
in its sole discretion bring an action in the State of Delaware or New York in
aid of arbitration or for temporary, preliminary or provisional relief pending
completion of arbitration.

 

I. Remedies.

 

1. In addition to being entitled to exercise all rights provided herein or
granted by law, including recovery of damages, each of Investor and Company will
be entitled to specific performance under the Transaction Documents, and
equitable and injunctive relief to prevent any actual or threatened breach under
the Transaction Documents, to the full extent permitted under applicable laws.

 

2. Without limitation of the foregoing, Company acknowledges that the rights and
benefits of Investor pursuant to Section V.A are unique and that no adequate
remedy exists at law if Company breaches or fails timely perform any of its
obligations thereunder, that it would be difficult to determine the amount of
damages resulting therefrom, that it would cause irreparable injury to Investor,
and that any potential harm to Company would be adequately and fully compensable
with monetary damages; accordingly, Investor will be entitled to a compulsory
remedy of immediate specific performance, temporary, interim, preliminary and
final injunctive relief to enforce the provisions thereof, including without
limitation requiring Company and its transfer agent, attorneys, officers and
directors to immediately take all actions necessary to issue and deliver the
number of Conversion Shares stated by Investor, and prohibiting any Common Stock
from being issued or transferred until after all Conversion Shares have been
received by Investor in electronic form and fully cleared for trading, which
requirements will not be stayed for any reason, without the necessity of posting
any bond. Company hereby absolutely, unconditionally and irrevocably waives all
objections and rights to oppose any motion, application or request by Investor
to issue any number of Conversion Shares, and all rights to stay or appeal any
resulting order, and any appeal filed by Company or on its behalf will be
immediately and automatically dismissed. Company further acknowledges that it
has an adequate remedy at law with respect to Section V.A in a claim for money
damages; accordingly, Company may not restrain or enjoin its transfer agent,
Investor or any brokers from receiving or reselling any Conversion Shares, and
any action for temporary, preliminary or final injunctive relief filed by
Company or on its behalf will be immediately and automatically dismissed.

 

 17 

 

 

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

 

K. Headings. The titles and headings in this Agreement and the Transaction
Documents are for convenience only, do not constitute a part of this Agreement
and will not be deemed to limit or affect any of the provisions hereof

 

L. Time of the Essence. Time is of the essence with respect to all provisions of
this Agreement, the Preferred Shares, and all Transaction Documents.

 

M. Survival. The representations and warranties contained herein will survive
the Closing and the delivery of the Shares until all Preferred Shares issued to
Investor have been converted or redeemed. Neither party will be under any
obligation to update or supplement any of its representations or warranties
following the Closing due to a change that occurred after the Closing.

 

N. Construction. The parties agree that each of them and/or 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 will not be employed
in the interpretation of the Transaction Documents or any amendments hereto. The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction will
be applied against any party. All currency references in any Transaction
Document are to U.S. dollars.

 

O. Further Assurances. Each party will take all further actions and execute all
further documents as may be reasonably necessary to implement the provisions and
carry out the intent of this Agreement fully and effectively.

 

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

 

Q. Entire Agreement. This Agreement, including the Exhibits hereto, which are
hereby incorporated herein by reference, contains the entire agreement and
understanding of the parties, and supersedes all prior and contemporaneous
agreements, term sheets, letters, discussions, communications and
understandings, both oral and written, which the parties acknowledge have been
merged into this Agreement. No party, representative, advisor, attorney or agent
has relied upon any collateral contract, agreement, assurance, promise,
understanding, statement or representation not expressly set forth herein. The
parties hereby absolutely, unconditionally and irrevocably waive all rights and
remedies, at law and in equity, directly or indirectly arising out of or
relating to, or which may arise as a result of, any Person’s reliance on any
such statement or assurance.

 

 18 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized signatories on the Effective Date.

 

Company:       CEMTREX, INC.       By:              Name:     Title:    

 

Investor:           Investor Name         By:         Name:     Title:    

 

 19 

 

 

Exhibit 1

 

Glossary of Defined Terms

 

“$” means the currency of the United States of America, in which all dollar
amounts in the Transaction Documents will be expressed.

 

“Accrual Rate” means an initial rate equal to 7.5% per annum, retroactively
increasing by 10% per annum upon each occurrence of any Trigger Event (e.g., to
17.5% upon the first Trigger Event), subject to adjustment as provided in the
Certificate of Designations.

 

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

 

“Action” has the meaning set forth in Section III.A.4.

 

“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 under the Act.

 

“Agreement” means this Securities Purchase Agreement.

 

“Certificate of Designations” means the Certificate of Designations of
Preferences, Powers, Rights and Limitations of Series B Preferred Stock, as
filed with and accepted by the Secretary of State of Company’s state of
incorporation, in the form attached hereto as Exhibit 2.

 

“Closing” has the meaning set forth in Section II.D.

 

“Collateral” means all assets of Company, including without limitation all
personal property wherever located, both now owned and hereafter acquired,
including, but not limited to, all equipment, fixtures, inventory, goods,
documents, general intangibles, accounts, deposit accounts (unless a security
interest would render a nontaxable account taxable), receivables, contract
rights (including, but not limited to, all of Company’s rights in franchise
agreements, license agreements and market development agreements), chattel
paper, patents, trademarks and copyrights (and the good will associated with and
registrations and licensing of them), instruments, letter of credit rights and
investment property, capital stock, partnership, membership and equity
interests, of any kind or nature, and all additions and accessions to, all spare
and repair parts, special tools, equipment and replacements for, software used
in, all returned or repossessed goods the sale of which gave rise to, and all
accessions, additions, amendments, modifications, replacements, and
substitutions to, of or for the foregoing, and all proceeds, supporting
obligations and products of the foregoing, except as set forth in the Disclosure
Schedules. All terms which are used in this definition which are defined in the
UCC shall have the same meanings herein as such terms are defined in the UCC,
unless this Agreement shall otherwise specifically provide.

 

“Commission” means the U.S. Securities and Exchange Commission.

 

“Common Stock” means the Common Stock of Company and any replacement or
substitute thereof, or any share capital into which such Common Stock will have
been changed or any share capital resulting from a reclassification of such
Common Stock.

 

“Company” has the meaning set forth in the first paragraph of the Agreement.

 

“Conversion Price” means, if there has never been a Trigger Event, a price per
share of Common Stock equal to 100% of the Market Price less $0.03 per share,
subject to adjustment as otherwise provided in the Transaction Documents. Upon
the occurrence of each Trigger Event the percentage in the preceding sentence
will decrease by 10% (e.g. to 90% upon the first Trigger Event).

 

 Exhibit 1-1 

 

 

“Conversion Shares” includes all shares of Common Stock potentially issuable in
relation to the Preferred Shares, including Common Stock that must be issued
upon conversion of the Preferred Shares, and Common Stock that must or may be
issued in payment of any Accruals.

 

“Deemed Liquidation Event” will mean: (a) a merger or consolidation in which
Company is a constituent party or a subsidiary of Company is a constituent party
and Company issues shares of its capital stock pursuant to such merger or
consolidation, except any such merger or consolidation involving Company or a
subsidiary in which the shares of capital stock of Company outstanding
immediately prior to such merger or consolidation continue to represent, or are
converted into or exchanged for shares of capital stock that represent,
immediately following such merger or consolidation, at least a majority, by
voting power, of the capital stock of the surviving or resulting corporation or
if the surviving or resulting corporation is a wholly owned subsidiary of
another corporation immediately following such merger or consolidation, the
parent corporation of such surviving or resulting corporation; (b) Company
issues securities that are senior to the Preferred Shares in any respect, (c)
Holder does not receive the number of Conversion Shares stated in a Conversion
Notice with 5 Trading Days of the Notice Time; (d) trading of the Common Stock
is halted or suspended by the Trading Market or any U.S. governmental agency for
5 or more consecutive trading days; or (e) the sale, lease, transfer, exclusive
license or other disposition, in a single transaction or series of related
transactions, by Company or any subsidiary of Company of all or substantially
all the assets of Company and its subsidiaries taken as a whole, or the sale or
disposition (whether by merger or otherwise) of one or more subsidiaries of
Company if substantially all of the assets of Company and its subsidiaries taken
as a whole are held by such subsidiary or subsidiaries.

 

“Disclosure Schedules” means the disclosure schedules of Company attached hereto
as Exhibit 9. The Disclosure Schedules contain no material non-public
information.

 

“DTC” means The Depository Trust Company, or any successor performing
substantially the same function for Company.

 

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

 

“Effective Date” has the meaning set forth in the first paragraph of the
Agreement.

 

“Equity Conditions” means on each day during the Measuring Period, (i) the
Common Stock is not under chill or freeze from DTC, (ii) the Common Stock is
designated for trading on a OTCQB or higher stock market and shall not have been
suspended from trading on such market, and delisting or suspension by the
Trading Market has not been threatened or pending, either in writing by such
market or because Company has fallen below the then effective minimum listing
maintenance requirements of such market; (iii) Company has delivered Conversion
Shares upon all conversions or redemptions of this Certificate of Designations
in accordance with their terms to the Holder on a timely basis; (iv) Company
will have no knowledge of any fact that would cause both of the following (A) a
registration statement not to be effective and available for the resale of all
Conversion Shares, and (B) Section 3(a)(9) under the Securities Act of 1933, as
amended, not to be available for the issuance of all Conversion Shares, or
Securities Act Rule 144 not to be available for the resale of all the Conversion
Shares without restriction; (v) there has been a minimum of 5 times the amount
of Face Value of the shares of Series B Preferred Stock then being converted by
Company in aggregate trading volume in the prior 20 Trading Days; (vi) all
shares of Common Stock to which Holder is entitled have been timely received
into Holder’s designated account in electronic form fully cleared for trading;
(vii) Company otherwise shall have been in compliance with and shall not have
breached any provision, covenant, representation or warranty of any Transaction
Document; and (viii) not more than 3 Trigger Events shall have occurred.

 

“GAAP” means U.S. generally accepted accounting principles applied on a
consistent basis during the periods involved.

 

 Exhibit 1-2 

 

 

“Indebtedness” means (a) any liabilities for borrowed money or amounts owed in
excess of $250,000, other than trade accounts payable incurred in the ordinary
course of business, (b) all guaranties, endorsements and other contingent
obligations in respect of Indebtedness of others, whether or not the same are or
should be reflected in 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 $250,000 due under leases required to
be capitalized in accordance with GAAP.

 

“Intellectual Property Rights” has the meaning set forth in Section III.B.11.

 

“Investor” has the meaning set forth in the first paragraph of the Agreement.

 

“Legal Opinion” means an opinion from Company’s legal counsel, in the form
attached as Exhibit 4.

 

“Liens” means a lien, charge, security interest or encumbrance in excess of
$250,000, or a right of first refusal, preemptive right or other restriction.

 

“Material Adverse Effect” includes any material adverse effect on (a) the
legality, validity or enforceability of any Transaction Document, (b) the
results of operations, assets, business, or financial condition of Company and
the Subsidiaries, taken as a whole, which is not disclosed in the Public Reports
prior to the Effective Date, (c) Company’s ability to perform in any material
respect on a timely basis its obligations under any Transaction Document, or (d)
the sale, issuance, registration, listing, resale and trading on the Trading
Market of the Conversion Shares.

 

“Material Permits” has the meaning set forth in Section III.B.9.

 

“Obligations” include the full and punctual observance and performance of all
present and future duties, covenants, and responsibilities due to Investor by
Company under this Agreement, the Preferred Shares and the other Transaction
Documents, including without limitation all present and future obligations and
liabilities of Company for the payment of money (extending to all principal
amounts, interest, late charges, fees, and all other charges and sums, as well
as all costs and expenses payable by Company).

 

“Officer’s Certificate” means a certificate executed by an authorized officer of
Company, in the form attached as Exhibit 5.

 

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

 

“Preferred Shares” means the shares of Series B Redeemable Convertible Preferred
Stock of Company to be issued to Investor pursuant to the Transaction Documents
or any other agreement with Investor.

 

“Prospectus” means the final prospectus filed for the Registration Statement.

 

“Prospectus Supplement” means the supplement to the Prospectus complying with
Rule 424(b) of the Securities Act that is timely filed with the Commission and
delivered by Company to Investor.

 

“Public Reports” means the reports filed with the Commission by Company pursuant
to the Exchange Act (see Exhibit 9).

 

“Purchase Amount” has the meaning set forth in Section II.A.1.

 

“Receivables” include all accounts receivable and all rights to the payment of a
monetary obligation, whether or not earned by performance, and whether evidenced
by an account, chattel paper, instrument, general intangible, or otherwise.

 

 Exhibit 1-3 

 

 

“Registration Statement” means a valid, current and effective shelf Registration
Statement on Form S-3, File No. 333-218501, registering all Securities for sale,
including the prospectus therein, amendments and supplements to such
Registration Statement or prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration statement, and any
information contained or incorporated by reference in a prospectus filed with
the Commission in connection with the Registration Statement, to the extent such
information is deemed under the Act to be part of any registration statement.

 

“Secretary’s Certificate” means a certificate, in the form attached as Exhibit
6, signed by the secretary of Company.

 

“Shares” include the Conversion Shares and the Warrant Shares.

 

“Securities” include the Preferred Shares, the Warrant, the Conversion Shares
and the Warrant Shares.

 

“Short Sale” means a “short sale” as defined in Rule 200 of Regulation SHO of
the Exchange Act.

 

“Subsidiary” means any Person owned or controlled by Company, or in which
Company, directly or indirectly, owns a majority of the capital stock or similar
interests that would be disclosable pursuant to Regulation S-K, Item 601(b)
(21). Notwithstanding anything to the contrary contained in this Agreement or
any of the other Transaction Documents, the term “Subsidiary” shall not include
Vicon Industries, Inc., a New York corporation, and Telidyne Inc., a Delaware
corporation.

 

“Trading Day” means any day on which the Common Stock is traded on the Trading
Market; provided that it will not include any day on which the Common Stock is
(a) scheduled to trade for less than 5 hours, or (b) suspended from trading.

 

“Trading Market” has the meaning set forth in the Certificate of Designations.

 

“Transaction Documents” means this Agreement, the other agreements, certificates
and documents referenced herein or the form of which is attached hereto, and the
exhibits, schedules and appendices hereto and thereto.

 

“Transfer Agent” means the transfer agent for Company.

 

“Transfer Agent Instructions” means a letter agreement executed by Company, its
current transfer agent, and any successor transfer agent for the Common Stock,
in the form attached as Exhibit 3.

 

“UCC” means the Uniform Commercial Code as adopted and applied in any applicable
jurisdiction, including without limitation Company’s jurisdiction of formation.

 

“Warrant” means the Common Stock Purchase Warrant issued by Company, in the form
attached hereto as Exhibit 7.

 

 Exhibit 1-4