Exhibit 10.2

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of March 1,
2018, between Sonoma Pharmaceuticals, Inc., a Delaware corporation (the
“Company”), and the purchaser identified on the signature page hereto (including
its successors and assigns, the “Purchaser”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the “Securities Act”), the Company desires to issue and sell
to Purchaser, and Purchaser desires to purchase from the Company, securities of
the Company as more fully described in this Agreement.

 

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

 

ARTICLE I.
DEFINITIONS

 

1.1              Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings set forth in this Section 1.1:

 

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

 

“Acquiring Person” shall have the meaning ascribed to such term in Section 4.2.

 

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

 

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

 

“Applicable Laws” shall have the meaning ascribed to such term in Section
3.1(oo).

 

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

 

“Board of Directors” means the board of directors of the Company.

 

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

 

“Closing” means the closing of the purchase and sale of the Shares pursuant to
Section 2.1.

 

“Closing Date” means the Trading Day on which all of the Transaction Documents
have been executed and delivered by the applicable parties thereto, and all
conditions precedent to (i) Purchaser’s obligations to pay the Subscription
Amount and (ii) the Company’s obligations to deliver the Securities, in each
case, have been satisfied or waived, but in no event later than the third
Trading Day following the date hereof.

 

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

 

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

 

“Company Counsel” means Trombly Business Law, P.C., with offices located at 1314
Main Street, Suite 102, Louisville, CO 80027.

 

“Effective Date” shall have the meaning ascribed to such term in Section 3.1(h).

 

 

 

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“Environmental Laws” shall have the meaning ascribed to such term in Section
3.1(r).

 

“Evaluation Date” shall have the meaning ascribed to such term in Section
3.1(v).

 

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

 

“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended.

 

“FDA” shall mean the U.S. Food and Drug Administration.

 

“Forward Looking Statement” shall have the meaning ascribed to such term in
Section 3.1(ii).

 

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

 

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

 

“Intellectual Property Rights” shall have the meaning ascribed to such term in
Section 3.1(s).

 

“Liens” means a lien, charge, pledge, security interest, encumbrance, right of
first refusal, preemptive right, or other restriction.

 

“Material Adverse Effect” shall have the meaning assigned to such term in
Section 3.1(b).

 

“Material Permits” shall have the meaning ascribed to such term in Section
3.1(p).

 

“Money Laundering Laws” shall have the meaning ascribed to such term in Section
3.1(gg).

 

“Off Balance Sheet Transaction” shall have the meaning ascribed to such term in
Section 3.1(hh).

 

“Per Share Purchase Price” equals $3.50, subject to adjustment for reverse and
forward stock splits, stock dividends, stock combinations, and other similar
transactions of the Common Stock that occur after the date of this Agreement.

 

“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.

 

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

 

“Prospectus” means the base prospectus, including all documents incorporated or
deemed incorporated therein by reference to the extent such information has not
been superseded or modified in accordance with Rule 412 under the Securities Act
(as qualified by Rule 430B(g) of the Securities Act), included in the
Registration Statement, as it may be supplemented by the Prospectus Supplement,
in the form in which such base prospectus and/or Prospectus Supplement have most
recently been filed by the Company with the Commission pursuant to Rule 424(b)
under the Securities Act.

 

“Prospectus Supplement” means the supplement to the base prospectus included in
the Registration Statement complying with Rule 424(b) of the Securities Act that
is filed with the Commission and delivered by the Company to the Purchaser at
the Closing.

 

“Registration Statement” means the effective registration statement on Form S-3
with Commission file No. 333-221477, including a base prospectus, which
registers the sale of certain securities, including the Shares, and which
incorporates by reference documents that the Company has filed or will file in
accordance with the provisions of the Exchange Act, and any post-effective
amendment thereto, including all documents filed as part thereof or incorporated
by reference therein, and including any information contained in a Prospectus
subsequently filed with the Commission pursuant to Rule 424(b) under the
Securities Act or deemed to be a part of such registration statement pursuant to
Rule 430B of the Securities Act.

 

 

 

 

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

 

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

 

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

 

“Sanctions” shall have the meaning ascribed to such term in Section
3.1(kk)(i)(a).

 

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(i).

 

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

 

“Shares” means the shares of Common Stock issued or issuable to Purchaser
pursuant to this Agreement.

 

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act (but shall not be deemed to include the location and/or
reservation of borrowable shares of Common Stock). 

 

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

 

“Subsidiary” means any operating subsidiary of the Company as specified in
Section 3.1(a).

 

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

 

“Trading Market” means the Nasdaq Capital Market (or any successors).

 

“Transaction Documents” means this Agreement and any other documents or
agreements executed in connection with the transactions contemplated hereunder.

 

“Transfer Agent” means Computershare, Inc., the current transfer agent of the
Company, with a mailing address of 520 Pike Street, Suite 1305, Seattle, WA
98101, and any successor transfer agent of the Company.

 

ARTICLE II.
PURCHASE AND SALE

 

2.1           Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, substantially concurrent with the execution and
delivery of this Agreement by the parties hereto, the Company agrees to sell,
and the Purchaser agrees to purchase, up to an aggregate of 571,428 Shares.
Purchaser shall deliver to the Company, via wire transfer, immediately available
funds equal to $1,939,998, being the aggregate number of Shares purchased
multiplied by the Per Share Purchase Price, net of $60,000 of costs and expenses
of the Company reimbursable to the Purchaser pursuant to Section 5.2 of this
Agreement; and the Company shall (i) irrevocably instruct the Transfer Agent to
deliver via The Depository Trust Company Deposit or Withdrawal at Custodian
system (“DWAC”) the number of Shares equal to Purchaser’s Subscription Amount
divided by the Per Share Purchase Price, registered in the name of Purchaser,
within two (2) Business Days after the Closing, and (ii) deliver to Purchaser
the Prospectus and Prospectus Supplement (which may be delivered in accordance
with Rule 172 under the Securities Act). Upon satisfaction of the covenants and
conditions set forth in Section 2.2, the Closing shall occur at the offices of
Company Counsel or such other location as the parties shall mutually agree.

 

2.2           Closing Conditions.

 

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

 

 

 

 

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

 

(ii)               all obligations, covenants, and agreements of Purchaser
required to be performed at or prior to the Closing Date shall have been
performed.

 

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

 

(i)                 the accuracy in all material respects when made and on the
Closing Date of the representations and warranties of the Company contained
herein (unless as of a specific date therein);

 

(ii)               all obligations, covenants, and agreements of the Company
required to be performed at or prior to the Closing Date shall have been
performed;

 

(iii)             there shall have been no Material Adverse Effect with respect
to the Company since the date hereof;

 

(iv)             from the date hereof to the Closing Date, trading in the Common
Stock shall not have been suspended by the Commission or the Company’s principal
Trading Market, and, at any time prior to the Closing Date, trading in
securities generally as reported by Bloomberg L.P. shall not have been suspended
or limited, or minimum prices shall not have been established on securities
whose trades are reported by such service, or on the Trading Market, nor shall a
banking moratorium have been declared either by the United States or New York
State authorities nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international calamity of such
magnitude in its effect on, or any material adverse change in, any financial
market which, in each case, in the reasonable judgment of the Purchaser, makes
it impracticable or inadvisable to purchase the Shares at the Closing;

 

(v)               there shall have been furnished to Purchaser the opinion of
Trombly Business Law, PC, counsel for the Company, dated as of the Closing Date
and addressed to Purchaser in form and substance acceptable to Purchaser; and

 

(vi)             the Shares to be delivered hereunder have been approved for
listing on the Trading Market, subject to official notice of issuance.

 

ARTICLE III.
REPRESENTATIONS AND WARRANTIES

 

3.1              Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchaser:

 

(a)                Subsidiaries. All of the active subsidiaries of the Company
are set forth in the Company’s most recent annual report on Form 10-K filed with
the Commission on June 28, 2017. The Company owns, directly or indirectly, all
of the capital stock or other equity interests of each Subsidiary free and clear
of any Liens, and all of the issued and outstanding shares of capital stock of
each Subsidiary are validly issued and are fully paid, non-assessable and free
of preemptive and similar rights to subscribe for or purchase securities.

 

(b)               Organization and Qualification. The Company is an entity duly
incorporated or otherwise organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization, with the
requisite power and authority to own and use its properties and assets and to
carry on its business as currently conducted. The Company is not in violation
nor default of any of the provisions of its certificate of incorporation, bylaws
or other organizational or charter documents. The Company is duly qualified to
conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not
have or reasonably be expected to result in: (i) a material adverse effect on
the legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company, taken as a
whole, or (iii) a material adverse effect on the Company’s ability to perform in
any material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no
Proceeding has been instituted in any such jurisdiction revoking, limiting or
curtailing or seeking to revoke, limit or curtail such power and authority or
qualification.

 

 

 

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(c)                Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by this Agreement and each of the other Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The execution
and delivery of this Agreement and each of the other Transaction Documents by
the Company and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by all necessary action on the part of the
Company and no further action is required by the Company, the Board of Directors
or the Company’s stockholders in connection herewith or therewith other than in
connection with the Required Approvals, except that an issuance of over 20% of
the Company’s equity will require shareholder approval pursuant to NASDAQ rules,
subject to available exemptions. This Agreement and each other Transaction
Document to which it is a party has been (or upon delivery will have been) duly
executed by the Company and, when delivered in accordance with the terms hereof
and thereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies, and (iii) insofar as indemnification and contribution provisions may
be limited by applicable law.

 

(d)               Capitalization. The issued and outstanding shares of capital
stock of the Company have been validly issued, are fully paid and
non-assessable, and other than as disclosed in the Registration Statement or the
Prospectus, are not subject to any preemptive rights, rights of first refusal,
or similar rights. The Company has an authorized, issued and outstanding
capitalization as set forth in the Registration Statement and the Prospectus as
of the dates referred to therein (other than (i) the grant of additional
options, restricted stock or other equity awards under the Company’s existing
stock option plans, (ii) changes in the number of outstanding Common Stock of
the Company due to the issuance of shares upon the exercise, or conversion of
securities exercisable for, or convertible into, Common Stock outstanding on the
date hereof and, in addition, shares issued to service providers as compensation
pursuant to certain agreements with those service providers, (iii) as a result
of the issuance of the Shares, or (iv) any repurchases of capital stock of the
Company) and such authorized capital stock conforms to the description thereof
set forth in the Registration Statement and the Prospectus. The description of
the Common Stock in the Registration Statement and the Prospectus is complete
and accurate in all material respects.

 

(e)                S-3 Eligibility. (i) At the time of filing the Registration
Statement and (ii) at the time of the most recent amendment thereto for the
purposes of complying with Section 10(a)(3) of the Securities Act (whether such
amendment was by post-effective amendment, incorporated report filed pursuant to
Section 13 or 15(d) of the Exchange Act or form of prospectus), the Company met
the then applicable requirements for use of Form S-3 under the Securities Act,
including compliance with General Instruction I.B.6 of Form S-3. The Company is
not a shell company (as defined in Rule 405) and has not been a shell company
for at least 12 calendar months previously and if it has been a shell company at
any time previously, has filed current Form 10 information (as defined in
Instruction I.B.6 of Form S-3) with the Commission at least 12 calendar months
previously reflecting its status as an entity that is not a shell company.

 

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

 

 

 

 

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(g)               Filings, Consents and Approvals. The Company is not required
to obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents,
other than: (i) the filings required pursuant to Section 4.3 of this Agreement,
(ii) the filing with the Commission of the Prospectus Supplement, (iii)
application(s) to the Trading Market for the listing of the Shares for trading
thereon in the time and manner required thereby and (iv) such filings as are
required to be made under applicable state securities laws (collectively, the
“Required Approvals”).

 

(h)               Issuance of the Shares; Registration. The Shares are duly
authorized and, when issued and paid for in accordance with the applicable
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable and free and clear of all Liens. The Company and the transactions
contemplated by this Agreement meet the requirements for and comply with the
conditions for the use of Form S-3 under the Securities Act. The Company has
prepared and filed the Registration Statement in conformity with the
requirements of the Securities Act, which became effective on November 27, 2017
(the “Effective Date”), including the Prospectus, and such amendments and
supplements thereto as may have been required to the date of this Agreement. The
Registration Statement is effective under the Securities Act and to the
Company’s knowledge, no stop order preventing or suspending the effectiveness of
the Registration Statement or suspending or preventing the use of the Prospectus
has been issued by the Commission and no proceedings for that purpose have been
instituted or, to the knowledge of the Company, are threatened by the
Commission. The Company, if required by the rules and regulations of the
Commission, proposes to file the Prospectus with the Commission pursuant to Rule
424(b). At the time the Registration Statement and any amendments thereto became
effective, at the date of this Agreement and at the Closing Date, the
Registration Statement and any amendments thereto conformed and will conform in
all material respects to the requirements of the Securities Act and did not and
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and the Prospectus and any amendments or supplements thereto, at the
time the Prospectus or any amendment or supplement thereto was issued and at the
Closing Date, conformed and will conform in all material respects to the
requirements of the Securities Act and did not and will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein and necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. Any statutes,
regulations, contracts or other documents that are required to be described in
the Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement have been so described or filed. Copies of the
Registration Statement, the Prospectus, and any such amendments or supplements
and all documents incorporated by reference therein that were filed with the
Commission on or prior to the date of this Agreement have been delivered, or are
available through EDGAR, to the Purchaser and its counsel. The Company has not
distributed and, prior to the later to occur of the Closing Date and completion
of the distribution of the Shares, will not distribute any offering material in
connection with the offering or sale of the Shares other than the Registration
Statement and the Prospectus. The Common Stock is currently listed on the
Trading Market. Except as previously disclosed in the Company’s filings with the
Commission, the Company has not, in the 12 months preceding the date hereof,
received notice from the Trading Market to the effect that the Company is not in
compliance with the listing or maintenance requirements of the Trading Market.
The Company has no reason to believe that it will not in the foreseeable future
continue to be in compliance with all such listing and maintenance requirements.

 

(i)                 SEC Reports; Financial Statements. The Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by the Company under the Securities Act and the Exchange Act, including pursuant
to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof
(or such shorter period as the Company was required by law or regulation to file
such material) (the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, together with the Prospectus and
the Prospectus Supplement, being collectively referred to herein as the “SEC
Reports”) on a timely basis or has received a valid extension of such time of
filing and has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange
Act, as applicable, and none of the SEC Reports, when filed, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
Company has never been an issuer subject to Rule 144(i) under the Securities
Act. The consolidated financial statements of the Company, together with the
related notes and schedules, included in the SEC Reports 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, together with the related notes and schedules, have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved (“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 the 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. There are no financial statements
(historical or pro forma) that are required to be included or incorporated by
reference in the Registration Statement, or the Prospectus that are not included
or incorporated by reference as required; the Company and the Subsidiaries do
not have any material liabilities or obligations, direct or contingent
(including any off balance sheet obligations), not described in the Registration
Statement, and the Prospectus which are required to be described in the
Registration Statement or Prospectus.

 

 

 

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(j)                 Material Changes; Undisclosed Events, Liabilities or
Developments. Since the date of the latest audited financial statements included
within the SEC Reports, except as specifically disclosed in a subsequent SEC
Report filed prior to the date hereof, (i) there has been no event, occurrence
or development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and
(B) liabilities not required to be reflected in the Company’s financial
statements pursuant to GAAP or disclosed in filings made with the Commission,
(iii) the Company has not altered its method of accounting, (iv) the Company has
not declared or made any dividend or distribution of cash or other property to
its stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock and (v) the Company has not issued any
equity securities to any officer, director or Affiliate, except pursuant to
existing Company stock option plans. Except for the issuance of the Shares
contemplated by this Agreement, no event, liability, fact, circumstance,
occurrence or development has occurred or exists or is reasonably expected to
occur or exist with respect to the Company or its Subsidiaries or their
respective businesses, prospects, properties, operations, assets or financial
condition that would be required to be disclosed by the Company under applicable
securities laws at the time this representation is made or deemed made that has
not been publicly disclosed at least one Trading Day prior to the date that this
representation is made.

 

(k)               Independent Public Accountant. Marcum LLP (the “Accountant”),
whose report on the consolidated financial statements of the Company is filed
with the Commission as part of the Company’s most recent Annual Report on Form
10-K filed with the Commission and incorporated into the Registration Statement,
are and, during the periods covered by their report, were independent public
accountants within the meaning of the Securities Act and the Public Company
Accounting Oversight Board (United States). To the Company’s knowledge, with due
inquiry, the Accountant is not in violation of the auditor independence
requirements of the Sarbanes-Oxley Act of 2002 with respect to the Company.

 

(l)                 Enforceability of Agreements. All agreements between the
Company and third parties expressly referenced in the Prospectus, other than
such agreements that have expired by their terms or whose termination is
disclosed in documents filed by the Company on EDGAR, are legal, valid and
binding obligations of the Company enforceable in accordance with their
respective terms, except to the extent that (i) enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors’ rights generally and by general equitable principles; (ii) the
indemnification provisions of certain agreements may be limited by federal or
state securities laws or public policy considerations in respect thereof; and
(iii) except for any unenforceability that, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect.

 

(m)             Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, or any of its properties
before or by any court, arbitrator, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign) (collectively,
an “Action”) which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Shares or (ii) could,
if there were an unfavorable decision, have or reasonably be expected to result
in a Material Adverse Effect. Neither the Company, nor 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, and to the knowledge of the Company, there
is not pending or contemplated, any investigation by the Commission involving
the Company or any current or former director or officer of the Company. To the
Company’s knowledge, the Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the Company
under the Exchange Act or the Securities Act.

 

(n)               Labor Relations. No labor dispute exists or, to the knowledge
of the Company, is imminent with respect to any of the employees of the Company,
which could reasonably be expected to result in a Material Adverse Effect. None
of the Company’s employees is a member of a union that relates to such
employee’s relationship with the Company, and the Company is not a party to a
collective bargaining agreement, and the Company believes that its relationships
with its employees is good. To the knowledge of the Company, no executive
officer of the Company, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement or non-competition agreement, or any other
contract or agreement or any restrictive covenant in favor of any third party,
and the continued employment of each such executive officer does not subject the
Company to any liability with respect to any of the foregoing matters. The
Company is in compliance with all U.S. federal, state, local and foreign laws
and regulations relating to employment and employment practices, terms and
conditions of employment and wages and hours, except where the failure to be in
compliance could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.

 

 

 

 

 7 

 

 

(o)               Compliance. The Company: (i) is not in default under or in
violation of (and no event has occurred that has not been waived that, with
notice or lapse of time or both, would result in a default by the Company), nor
has the Company received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been waived),
(ii) is in violation of any judgment, decree or order of any court, arbitrator
or other governmental authority or (iii) is not or has not been in violation of
any statute, rule, ordinance or regulation of any governmental authority,
including without limitation all foreign, federal, state and local laws relating
to taxes, environmental protection, occupational health and safety, product
quality and safety and employment and labor matters, except in each case as
could not have or reasonably be expected to result in a Material Adverse Effect.

 

(p)               Regulatory Permits. The Company and each of its Subsidiaries
possesses all licenses, authorizations, consents, orders, approvals,
certificates, and other authorizations and permits issued by and have made all
declarations and filings with, the appropriate federal, state, local or foreign
regulatory authorities necessary to conduct their respective businesses as
described in the SEC Reports, except where the failure to possess such permits
could not reasonably be expected to result in a Material Adverse Effect
(“Material Permits”), and the Company has not received any notice of proceedings
relating to the revocation or modification of any Material Permit.

 

(q)               Title to Assets. The Company has good and marketable title in
fee simple to all real property owned by it and good and marketable title in all
personal property owned by it that is material to the business of the Company,
in each case free and clear of all Liens, except for Liens as do not materially
affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company. Any real property
and facilities held under lease by the Company is held by it under valid,
subsisting and enforceable leases with which the Company is in compliance.

 

(r)                 Environmental Laws. The Company and the Subsidiaries (i) are
in compliance with any and all applicable federal, state, local and foreign
laws, rules, regulations, decisions and orders relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants (collectively, “Environmental Laws”); (ii)
have received and are in compliance with all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses as described in the Registration Statement and the
Prospectus; and (iii) have not received notice of any actual or potential
liability for the investigation or remediation of any disposal or release of
hazardous or toxic substances or wastes, pollutants or contaminants, except, in
the case of any of clauses (i), (ii) or (iii) above, for any such failure to
comply or failure to receive required permits, licenses, other approvals or
liability as would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.

 

(s)                Intellectual Property. The Company has, or has rights to use,
all patents, patent applications, trademarks, trademark applications, service
marks, trade names, trade secrets, inventions, copyrights, licenses and other
intellectual property rights and similar rights necessary or required for use in
connection with their respective businesses as described in the SEC Reports and
which the failure to so have could have a Material Adverse Effect (collectively,
the “Intellectual Property Rights”). The Company has not received a notice
(written or otherwise) that any of, the Intellectual Property Rights has
expired, terminated or been abandoned, or is expected to expire or terminate or
be abandoned, within two (2) years from the date of this Agreement, or which
Intellectual Property Rights could not have or reasonably be expected to not
have a Material Adverse Effect. The Company has not received, since the date of
the latest audited financial statements included within the SEC Reports, a
written notice of a claim or otherwise has any knowledge that the Intellectual
Property Rights violate or infringe upon the rights of any Person, except as
could not have or reasonably be expected to not have a Material Adverse Effect.
To the knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of
the Intellectual Property Rights. The Company has taken reasonable security
measures to protect the secrecy, confidentiality and value of all of their
intellectual properties, except where failure to do so could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

 

 

 

 8 

 

 

(t)                 Insurance. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which the Company is engaged,
including, but not limited to, directors and officers insurance coverage at
least equal to the aggregate Subscription Amount. The Company has no reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business without a significant increase in
cost.

 

(u)               Transactions With Affiliates and Employees. None of the
officers or directors of the Company and, to the knowledge of the Company, none
of the employees of the Company is presently a party to any transaction with the
Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, providing for the borrowing of money from or lending of
money to or otherwise requiring payments to or from any officer, director or
such employee or, to the knowledge of the Company, any entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee, stockholder, member or partner, in each case in
excess of $120,000 per fiscal year other than for (i) payment of salary or
consulting fees for services rendered, (ii) reimbursement for expenses incurred
on behalf of the Company, and (iii) other employee benefits, including stock
option plan and option agreements under any stock option plan of the Company.

 

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

 

(w)              Certain Fees. Except as set forth in the Prospectus Supplement,
no brokerage or finder’s fees or commissions are or will be payable by the
Company to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by the Transaction Documents.

 

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

 

(y)               Registration Rights. No Person has any right to cause the
Company to effect the registration under the Securities Act of any securities of
the Company or any Subsidiary.

 

(z)                Listing and Maintenance Requirements. The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is likely to
have the effect of, terminating the registration of the Common Stock under the
Exchange Act nor has the Company received any notification that the Commission
is contemplating terminating such registration. The Company has not, in the 12
months preceding the date hereof, received notice from the Trading Market to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such listing and maintenance requirements.

 

 

 

 

 9 

 

 

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

 

(bb)           Disclosure. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company confirms that neither it nor any other Person acting on its behalf has
provided Purchaser or its agents or counsel with any information that it
believes constitutes or might constitute material, non-public information which
is not otherwise disclosed in the Prospectus Supplement. The Company understands
and confirms that Purchaser will rely on the foregoing representation in
effecting transactions in securities of the Company. All of the disclosure
furnished by or on behalf of the Company to Purchaser regarding the Company and
its Subsidiaries, their respective businesses and the transactions contemplated
hereby, is true and correct and does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The press releases disseminated by the Company during the
twelve months preceding the date of this Agreement taken as a whole do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made and when made,
not misleading. The Company acknowledges and agrees that Purchaser does not make
or has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
Section 3.2 hereof.

 

(cc)            No Integrated Offering. Assuming the accuracy of Purchaser’s
representations and warranties set forth in Section 3.2, neither the Company,
nor any of its Affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Shares to be integrated with prior offerings by the Company for
purposes of any applicable shareholder approval provisions of the Trading Market
on which any of the securities of the Company are listed or designated.

 

(dd)            Solvency. Based on the consolidated financial condition of the
Company as of the Closing Date, after giving effect to the receipt by the
Company of the proceeds from the sale of the Shares hereunder, (i) the fair
saleable value of the Company’s assets exceeds the amount that will be required
to be paid on or in respect of the Company’s existing debts and other
liabilities (including known contingent liabilities) as they mature, (ii) the
Company’s assets do not constitute unreasonably small capital to carry on its
business for the current fiscal year as now conducted and as proposed to be
conducted including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, consolidated and
projected capital requirements and capital availability thereof, and (iii) the
current cash flow of the Company, together with the proceeds the Company would
receive, were it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its liabilities when such amounts are required to be paid. The
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). The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization or
liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the Closing Date. The Company’s outstanding secured and
unsecured Indebtedness of the Company, or for which the Company has commitments
as of December 31, 2017 are set forth in its SEC Reports. For the purposes of
this Agreement, “Indebtedness” means (a) any liabilities for borrowed money or
amounts owed in excess of $100,000 (other than trade accounts payable incurred
in the ordinary course of business), (b) all guaranties, endorsements and other
contingent obligations in respect of indebtedness of others, whether or not the
same are or should be reflected in the Company’s consolidated balance sheet (or
the notes thereto), except guaranties by endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business; and (c) the present value of any lease payments in excess of $100,000
due under leases required to be capitalized in accordance with GAAP. The Company
is not in default with respect to any Indebtedness.

 

(ee)             Tax Status. Except for matters that would not, individually or
in the aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company (i) has made or filed all United States federal, state and
local income and all foreign income and franchise tax returns, reports and
declarations required by any jurisdiction to which it is subject, (ii) has paid
all taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations,
and (iii) has set aside on its books provision reasonably adequate for the
payment of all material taxes for periods subsequent to the periods to which
such returns, reports or declarations apply, except where the failure to file
such report could not have or reasonably be expected to result in a Material
Adverse Effect. There are no unpaid taxes in any material amount claimed to be
due by the taxing authority of any jurisdiction, and the officers of the Company
know of no basis for any such claim.

 

 

 

 

 10 

 

 

(ff)              Foreign Corrupt Practices. Neither the Company nor any
Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent or
other person acting on behalf of the Company or any Subsidiary, has (i) directly
or indirectly, used any funds for unlawful contributions, gifts, entertainment,
or other unlawful expenses related to foreign or domestic political activity,
(ii) 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, (iii) failed to disclose fully any contribution made by the
Company or any Subsidiary (or made by any person acting on its behalf of which
the Company is aware) which is in violation of law, or (iv) violated in any
material respect any provision of FCPA.

 

(gg)            Operations. The operations of the Company and the Subsidiaries
are and have been conducted at all times in compliance with applicable financial
record keeping and reporting requirements of the Currency and Foreign
Transactions Reporting Act of 1970, as amended, the money laundering statutes of
all jurisdictions to which the Company or the Subsidiaries are subject, the
rules and regulations thereunder and any related or similar rules, regulations
or guidelines, issued, administered or enforced by any governmental agency
(collectively, the “Money Laundering Laws”), except as would not reasonably be
expected to result in a Material Adverse Effect; and no action, suit or
proceeding by or before any court or governmental agency, authority or body or
any arbitrator involving the Company or any Subsidiary with respect to the Money
Laundering Laws is pending or, to the knowledge of the Company, threatened.

 

(hh)           Off-Balance Sheet Arrangements. There are no transactions,
arrangements and other relationships between and/or among the Company, and/or,
to the knowledge of the Company, any of its affiliates and any unconsolidated
entity, including, but not limited to, any structured finance, special purpose
or limited purpose entity (each, an “Off Balance Sheet Transaction”) that could
reasonably be expected to affect materially the Company’s liquidity or the
availability of or requirements for its capital resources, including those Off
Balance Sheet Transactions described in the Commission’s Statement about
Management’s Discussion and Analysis of Financial Conditions and Results of
Operations (Release Nos. 33-8056; 34-45321; FR-61), required to be described in
the Registration Statement or the Prospectus which have not been described as
required.

 

(ii)               Forward-Looking Statements. No forward-looking statement
(within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act) (a “Forward-Looking Statement”) contained in the Registration
Statement and the Prospectus has been made or reaffirmed without a reasonable
basis or has been disclosed other than in good faith. The Forward-Looking
Statements incorporated by reference in the Registration Statement and the
Prospectus from the Company’s Annual Report on Form 10-K for the fiscal year
most recently ended (i) except for any Forward-Looking Statement included in any
financial statements and notes thereto, are, to the Company’s knowledge, within
the coverage of the safe harbor for forward looking statements set forth in
Section 27A of the Securities Act, Rule 175(b) under the Securities Act or Rule
3b-6 under the Exchange Act, as applicable, (ii) were made by the Company with a
reasonable basis and in good faith and reflect the Company’s good faith
commercially reasonable best estimate of the matters described therein as of the
respective dates on which such statements were made, and (iii) have been
prepared in accordance with Item 10 of Regulation S-K under the Securities Act.

 

(jj)               OFAC.

 

(i)The Company represents that, neither the Company nor any Subsidiary
(collectively, the “Entity”) or any director, officer, employee, agent,
affiliate or representative of the Entity, is a government, individual, or
entity (in this paragraph (ss), “Person”) that is, or is owned or controlled by
a Person that is:

 

(a)the subject of any sanctions administered or enforced by the U.S. Department
of Treasury’s Office of Foreign Assets Control (“OFAC”), the United Nations
Security Council (“UNSC”), the European Union (“EU”), Her Majesty’s Treasury
(“HMT”), or other relevant sanctions authority (collectively, “Sanctions”), nor

 

(b)located, organized or resident in a country or territory that is the subject
of Sanctions.

 

 

 

 

 11 

 

 

(ii)The Entity represents and covenants that it will not, directly or
indirectly, knowingly use the proceeds of the offering, or lend, contribute or
otherwise make available such proceeds to any subsidiary, joint venture partner
or other Person:

 

(a)to fund or facilitate any activities or business of or with any Person or in
any country or territory that, at the time of such funding or facilitation, is
the subject of Sanctions; or

 

(b)in any other manner that will result in a violation of Sanctions by any
Person (including any Person participating in the offering, whether as
underwriter, advisor, investor or otherwise).

 

(iii)The Entity represents and covenants that, except as detailed in the
Prospectus, for the past 5 years, it has not knowingly engaged in, is not now
knowingly engaged in, and will not engage in, any dealings or transactions with
any Person, or in any country or territory, that at the time of the dealing or
transaction is or was the subject of Sanctions.

 

(kk)             Acknowledgment Regarding Purchaser’s Purchase of Shares. The
Company acknowledges and agrees that Purchaser is acting solely in the capacity
of an arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated thereby. The Company further acknowledges that
Purchaser is not acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to the Transaction Documents and the
transactions contemplated thereby and any advice given by Purchaser or any of
its representatives or agents in connection with the Transaction Documents and
the transactions contemplated thereby is merely incidental to the Purchaser’s
purchase of the Shares. The Company further represents to Purchaser that the
Company’s decision to enter into this Agreement and the other Transaction
Documents has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.

 

(ll)               Acknowledgement Regarding Purchaser’s Trading Activity.
Except as set forth in this Agreement or elsewhere herein to the contrary
notwithstanding (except for Section 3.2(e) hereof), it is understood and
acknowledged by the Company that: (i) Purchaser has not been asked by the
Company to agree, nor has Purchaser agreed, to desist from purchasing or
selling, long and/or short, securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the Shares for
any specified term; (ii) past or future open market or other transactions by
Purchaser, specifically including, without limitation, Short Sales or
“derivative” transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the Company’s
publicly-traded securities; (iii) Purchaser, and counter-parties in “derivative”
transactions to which Purchaser is a party, directly or indirectly, presently
may have a “short” position in the Common Stock, and (iv) Purchaser shall not be
deemed to have any affiliation with or control over any arm’s length
counter-party in any “derivative” transaction. The Company further understands
and acknowledges that (y) Purchaser may engage in hedging activities at various
times during the period that the Shares are outstanding, and (z) such hedging
activities (if any) could reduce the value of the existing stockholders’ equity
interests in the Company at and after the time that the hedging activities are
being conducted.  The Company acknowledges that such aforementioned hedging
activities do not constitute a breach of any of the Transaction Documents.

 

(mm)          Regulation M Compliance.  The Company , nor any Subsidiary, nor,
to the Company’s knowledge, any of their respective directors, officers or
controlling persons has, (i) taken, directly or indirectly, any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale, or resale of any of the Shares,
(ii) sold, bid for, purchased, or, paid any compensation for soliciting
purchases of, any of the Shares, or (iii) paid or agreed to pay to any Person
any compensation for soliciting another to purchase any other securities of the
Company, other than, in the case of clauses (ii) and (iii), compensation paid to
the Company’s placement agent in connection with the placement of the Shares.

 

 

 

 

 12 

 

 

(nn)           Compliance with Applicable Laws. Except as previously disclosed
in the Company’s filings with the Commission, the Company and the Subsidiaries:
(A) are and at all times have been in material compliance with all statutes,
rules and regulations applicable to the ownership, testing, development,
manufacture, packaging, processing, use, distribution, marketing, labeling,
promotion, sale, offer for sale, storage, import, export or disposal of any
product under development, manufactured or distributed by the Company or the
Subsidiaries (“Applicable Laws”), (B) have not received any Form 483 from the
FDA, notice of adverse finding, warning letter, or other written correspondence
or notice from the FDA, the European Medicines Agency (the “EMA”), or any other
federal, state, local or foreign governmental or regulatory authority alleging
or asserting material noncompliance with any Applicable Laws or any licenses,
certificates, approvals, clearances, authorizations, permits and supplements or
amendments thereto required by any such Applicable Laws (“Authorizations”),
which would, individually or in the aggregate, result in a Material Adverse
Effect; (C) possess all material Authorizations and such Authorizations are
valid and in full force and effect and neither the Company nor the Subsidiaries
is in material violation of any term of any such Authorizations; (D) have not
received written notice of any claim, action, suit, proceeding, hearing,
enforcement, investigation, arbitration or other action from the FDA, the EMA,
or any other federal, state, local or foreign governmental or regulatory
authority or third party alleging that any Company product, operation or
activity is in material violation of any Applicable Laws or Authorizations and
has no knowledge that the FDA, the EMA, or any other federal, state, local or
foreign governmental or regulatory authority or third party is considering any
such claim, litigation, arbitration, action, suit, investigation or proceeding
against the Company; (E) have not received notice that the FDA, EMA, or any
other federal, state, local or foreign governmental or regulatory authority has
taken, is taking or intends to take action to limit, suspend, modify or revoke
any material Authorizations and has no knowledge that the FDA, EMA, or any other
federal, state, local or foreign governmental or regulatory authority is
considering such action, which would, individually or in the aggregate, result
in a Material Adverse Effect; and (F) have filed, obtained, maintained or
submitted all reports, documents, forms, notices, applications, records, claims,
submissions and supplements or amendments as required by any Applicable Laws or
Authorizations except where the failure to file such reports, documents, forms,
notices, applications, records, claims, submissions and supplements or
amendments would not result in a Material Adverse Effect, and that all such
reports, documents, forms, notices, applications, records, claims, submissions
and supplements or amendments were materially complete and correct on the date
filed (or were corrected or supplemented by a subsequent submission), except
where the failure to file materially complete and correct reports, documents,
forms, notice, applications, records, supplements or amendments would not result
in a Material Adverse Effect.

 

(oo)           Clinical Studies. All preclinical studies and clinical trials
conducted by the Company or on behalf of the Company were, and, if still pending
are, to the Company’s knowledge, being conducted in all material respects in
compliance with all Applicable Laws; the descriptions of the results of any
preclinical studies and clinical trials contained in the Registration Statement
and the Prospectus are accurate in all material respects, and, except as set
forth in the Registration Statement and the Prospectus, the Company has no
knowledge of any other clinical trials or preclinical studies, the results of
which reasonably call into question the clinical trial or preclinical study
results described or referred to in the Registration Statement and the
Prospectus when viewed in the context in which such results are described; and
the Company has not received any written notices or correspondence from the FDA,
the EMA, or any other domestic or foreign governmental agency requiring the
termination or suspension of any preclinical studies or clinical trials
conducted by or on behalf of the Company that are described in the Registration
Statement and the Prospectus or the results of which are referred to in the
Registration Statement and the Prospectus. For purposes of clarity, the Company
is not engaged in any preclinical or clinical trials. The Company has conducted
physician-led studies for research purposes, however, the Company believes, most
or all such studies are not sufficiently material to disclose in its SEC
Reports. To the extent the Company believes its research and development is
material, it undertakes to disclose such research and development in its SEC
Reports consistent with Applicable Laws.

 

(pp)           Compliance Program. The Company has established and administers a
compliance program applicable to the Company, to assist the Company and the
directors, officers and employees of the Company in complying with applicable
regulatory guidelines (including, without limitation, those administered by the
FDA, the EMA, and any other foreign, federal, state or local governmental or
regulatory authority performing functions similar to those performed by the FDA
or EMA); except where such noncompliance would not reasonably be expected to
have a Material Adverse Effect.

 

3.2                                            Representations and Warranties of
the Purchaser. Purchaser hereby represents and warrants as of the date hereof
and as of the Closing Date to the Company as follows (unless as of a specific
date therein):

 

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

 

 

 

 13 

 

 

(b)               Understandings or Arrangements. Purchaser is acquiring the
Shares as principal for its own account and has no direct or indirect
arrangement or understandings with any other persons to distribute or regarding
the distribution of such Shares (this representation and warranty not limiting
Purchaser’s right to sell the Shares pursuant to the Registration Statement or
otherwise in compliance with applicable federal and state securities laws).
Purchaser is acquiring the Shares hereunder in the ordinary course of its
business.

 

(c)                Purchaser Status. At the time Purchaser was offered the
Shares, it was, and as of the date hereof it is either: (i) an “accredited
investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) under
the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule
144A(a) under the Securities Act. Purchaser is not required to be registered as
a broker-dealer under Section 15 of the Exchange Act.

 

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

 

(e)               Certain Transactions and Confidentiality. Other than
consummating the transactions contemplated hereunder, Purchaser has not, nor has
any Person acting on behalf of or pursuant to any understanding with Purchaser,
directly or indirectly executed any purchases or sales, including Short
Sales, of the securities of the Company during the period commencing as of the
time that Purchaser first received a term sheet (written or oral) from the
Company or any other Person representing the Company setting forth the material
terms of the transactions contemplated hereunder and ending immediately prior to
the execution hereof. Purchaser has maintained the confidentiality of all
disclosures made to it in connection with this transaction (including the
existence and terms of this transaction). Notwithstanding the foregoing, for
avoidance of doubt, nothing contained herein shall constitute a representation
or warranty, or preclude any actions, with respect to the identification of the
availability of, or securing of, available shares to borrow in order to effect
Short Sales or similar transactions in the future.

 

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

 

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES

 

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

 

4.2                 Shareholder Rights Plan. No claim will be made or enforced
by the Company or, with the consent of the Company, any other Person, that
Purchaser is an “Acquiring Person” under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement),
or similar anti-takeover plan or arrangement in effect or hereafter adopted by
the Company, or that Purchaser could be deemed to trigger the provisions of any
such plan or arrangement, by virtue of receiving Shares under the Transaction
Documents or under any other agreement between the Company and the Purchasers.

 

4.3                 Listing of Common Stock. The Company hereby agrees to use
best efforts to maintain the listing or quotation of the Common Stock on the
Trading Market on which it is currently listed, and concurrently with the
Closing, the Company shall apply to list or quote all of the Shares on such
Trading Market and promptly secure the listing of all of the Shares on such
Trading Market. The Company further agrees, if the Company applies to have the
Common Stock traded on any other Trading Market, it will then include in such
application all of the Shares, and will take such other action as is necessary
to cause all of the Shares to be listed or quoted on such other Trading Market
as promptly as possible. The Company will then take all action reasonably
necessary to continue the listing and trading of its Common Stock on a Trading
Market and will comply in all respects with the Company’s reporting, filing and
other obligations under the bylaws or rules of the Trading Market.

 

 

 

 

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4.4                 Certain Transactions and Confidentiality. Purchaser
covenants that neither it nor any Affiliate acting on its behalf or pursuant to
any understanding with it will execute any purchases or sales, including Short
Sales of any of the Company’s securities during the period commencing with the
execution of this Agreement and ending at such time that the transactions
contemplated by this Agreement are first publicly announced. Purchaser covenants
that until such time as the transactions contemplated by this Agreement are
publicly disclosed by the Company, Purchaser will maintain the confidentiality
of the existence and terms of this transaction.  Notwithstanding the foregoing,
and notwithstanding anything contained in this Agreement to the contrary, the
Company expressly acknowledges and agrees that (i) Purchaser does not make any
representation, warranty or covenant hereby that it will not engage in effecting
transactions in any securities of the Company after the time that the
transactions contemplated by this Agreement are first publicly announced, (ii)
Purchaser shall not be restricted or prohibited from effecting any transactions
in any securities of the Company in accordance with applicable securities laws
from and after the time that the transactions contemplated by this Agreement are
first publicly announced and (iii) Purchaser shall not have any duty of
confidentiality to the Company or its Subsidiaries after the first public
announcement. 

 

ARTICLE V.
MISCELLANEOUS

 

5.1                 Termination.  This Agreement may be terminated by each party
by written notice to the other party if the Closing has not been consummated on
or before March 31, 2018; provided, however, that no such termination will
affect the right of any party to sue for any breach by any other party.

 

5.2                 Fees and Expenses. The Company shall pay its own fees and
expenses, and the fees and expenses of its advisers, counsel, accountants, and
other experts, if any. The Company agrees to pay Purchaser’s fees and expenses,
actually incurred, including legal fees, advisory fees and accountant fees, up
to a maximum amount of $60,000, incident to the negotiation, preparation,
execution, delivery and performance of this Agreement. The Company shall pay all
Transfer Agent fees (including, without limitation, any fees required for
same-day processing of any instruction letter delivered by the Company), stamp
taxes, and other taxes and duties levied in connection with the delivery of any
Shares to Purchaser.

 

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

 

5.4                  Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of: (a) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto at or prior to
5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth on the signature pages attached
hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City
time) on any Trading Day, (c) the second (2nd)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 address for such notices and communications shall be as set forth on the
signature pages attached hereto.

 

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

 

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

 

5.7                  Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of Purchaser (other than by merger).

 

5.8                  No Third-Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective successors and
permitted assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person.

 

 

 

 

 15 

 

 

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

 

5.10                Survival. The representations and warranties contained
herein shall survive the Closing and the delivery of the Shares for one year
from the Closing Date.

 

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

 

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

 

5.13                 Rescission and Withdrawal Right. Notwithstanding anything
to the contrary contained in (and without limiting any similar provisions of)
any of the other Transaction Documents, whenever Purchaser exercises a right,
election, demand or option under a Transaction Document and the Company does not
timely perform its related obligations within the periods therein provided, then
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.

 

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

 

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

 

5.16                 Construction. The parties agree that each of them and/or
their respective counsel have reviewed and had an opportunity to revise the
Transaction Documents and, therefore, the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of the Transaction Documents or any
amendments thereto. In addition, each and every reference to share prices and
shares of Common Stock in any Transaction Document shall be subject to
adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur after
the date of this Agreement.

 

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

 

 

 

(Signature Pages Follow)

 

 

 16 

 

 

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

 

 

SONOMA PHARMACEUTICALS, inc.

Address for Notice:        

By: /s/ Jim Schutz                                              

Name: Jim Schutz

Title: Chief Executive Officer

 

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

 

Amy Trombly, Esq.

Trombly Business Law, P.C.

1314 Main Street, Suite 102

Louisville, CO 80027

Fax: (617) 243-0066

Sonoma Pharmaceuticals, Inc.

1129 N. McDowell Blvd.

Petaluma, California 94954

Fax: (707) 283-0551

 

 

 

 

 

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

 

 

 

 

 

 

 

 

 

 

 

 

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[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the undersigned has caused this Securities Purchase
Agreement to be duly executed by its authorized signatory as of the date first
indicated above.

 

   

MONTREUX EQUITY PARTNERS V, L.P.

 

By: Montreux Equity Management V, LLC, its General Partner

 

By: /s/ Daniel K. Turner III                                           

 

Name: Daniel K. Turner III

Title: Managing Member

 

 

Address for Notice:

 

Attn: Daniel K. Turner III

One Ferry Building, Suite 255

San Francisco, CA 94111

dan@mepvc.com

Fax: (650) 234-1250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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