Execution Version

 

SUBSCRIPTION AGREEMENT

 

SUBSCRIPTION AGREEMENT (this “Agreement”), dated as of January 29, 2018, by and
between Coda Octopus Group, Inc., a Delaware corporation (the “Company”), and
the investors listed on the Schedule of Investors attached hereto (collectively,
the “Investors”).

 

A. The Company wishes to sell to the Investors, and the Investors wish to
purchase, on the terms and subject to the conditions set forth in this Agreement
up to 1,125,950 shares (the “Shares”) of the Company’s Common Stock, par value
$0.001 per share (the “Common Stock”), at a price of $4.40 per Share.

 

B. The sale of the Shares by the Company to the Investors will be effected in
reliance upon the exemption from securities registration afforded by the
provisions of Section 4(a)(2) of the Securities Act of 1933, as amended (the
“Securities Act”).

 

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

 

1. Purchase and Sale of Shares.

 

1.1. Closing of Purchase and Sale; Purchase Price. Upon the terms and subject to
the satisfaction or waiver of the conditions set forth herein, the Company
agrees to sell and each of the Investors agrees to purchase the number of Shares
set forth below such Investor’s name on the signature pages hereof. The date on
which the closing of the purchase and sale pursuant to the terms of this
Agreement occurs (the “Closing”) is hereinafter referred to as the “Closing
Date”. The Closing will be deemed to occur at the offices of Louis A. Brilleman,
Esq., 1140 Avenue of the Americas, 9th Floor, New York, New York 10036, when (A)
this Agreement and the other Transaction Documents (as defined below) have been
executed and delivered by the Company and, to the extent applicable, by
Investors, (B) each of the conditions to the Closing described in Section 5
hereof has been satisfied or waived as specified therein and (C) unless
otherwise specified on an Investor’s signature page, full payment of Investor’s
Purchase Price (as defined below) has been made by each Investor to the Company
by wire transfer of immediately available funds against physical delivery by the
Company of duly executed certificates representing the Shares being purchased by
each Investor.

 

1.2. Certain Definitions. When used herein, the following terms shall have the
respective meanings indicated:

 

“Affiliate” means, as to any Person (the “subject Person”), any other Person
that directly or indirectly through one or more intermediaries controls or is
controlled by, or is under direct or indirect common control with, the subject
Person. For the purposes of this definition, “control” when used with respect to
any Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities,
through representation on such Person’s board of directors or other management
committee or group, by contract or otherwise.

 

 

 

 

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

 

“Business” means the consolidated business, properties, assets, operations,
results of operations or financial condition of the Company.

 

“Business Day” means any day other than a Saturday, a Sunday or a day on which
the Nasdaq Capital Market is closed or on which banks in the City of New York
are required or authorized by law to be closed.

 

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

 

“Common Stock” has the meaning specified in the preamble to this Agreement.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Execution Date” means the date of this Agreement.

 

“Governmental Authority” means any nation or government, supranational agency,
any state, provincial or political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, including without limitation any stock exchange,
securities market or self-regulatory organization.

 

“Governmental Requirement” means any law, statute, code, ordinance, order, rule,
permit, authorization, regulation, judgment, decree, injunction, franchise,
license or other directive or requirement of any federal, state, county,
municipal, parish, provincial or other Governmental Authority or any department,
commission, board, court, agency or any other instrumentality of any of them.

 

“Lien” means, with respect to any Property, any mortgage, pledge, hypothecation,
assignment, deposit arrangement, security interest, tax lien, financing
statement, pledge, charge, or other lien, charge, easement, encumbrance,
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever on or with respect to such Property (including,
without limitation, any conditional sale or other title retention agreement
having substantially the same economic effect as any of the foregoing).

 

“Material Adverse Effect” means an effect that is material and adverse to (i)
the Business, (ii) the ability of the Company to perform its obligations under
this Agreement or the other Transaction Documents (as defined below) or (iii)
the rights and benefits to which each Investor is entitled under this Agreement
and the other Transaction Documents.

 

“Person” means any individual, corporation, trust, association, company,
partnership, joint venture, limited liability company, joint stock company,
Governmental Authority or other entity.

 

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“Property” means property and/or assets of all kinds, whether real, personal or
mixed, tangible or intangible (including, without limitation, all rights
relating thereto).

 

“Purchase Price” means the aggregate price paid for the Shares by an Investor.

 

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

 

“SEC Reports” shall have the meaning ascribed to such term in Section 3.7.

 

“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 locating and/or
borrowing shares of Common Stock).

 

“Subsidiary” means any of the Company’s subsidiaries.

 

“Transaction Documents” means, collectively, this Agreement and all other
agreements, documents and other instruments executed and delivered by or on
behalf of the Company or any of its officers at the Closing.

 

2. Representations and Warranties of Each Investor. Each Investor hereby
represents and warrants to the Company for itself and not for any of the other
Investors and agrees with the Company that, as of the Execution Date and as of
the Closing Date:

 

2.1. Organization; Authorization; Enforceability. Such Investor is either an
individual or an entity duly and validly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
as set forth below such Investor’s name on the signature page hereof with the
requisite power and authority to purchase the Shares to be purchased by it
hereunder and to execute and deliver this Agreement. This Agreement constitutes
and upon execution and delivery thereof, each other Transaction Document to
which such Investor is a party will constitute, such Investor’s valid and
legally binding obligation, enforceable in accordance with its terms, subject to
(i) applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other similar laws of general application relating to or affecting
the enforcement of creditors’ rights generally, (ii) general principles of
equity and (iii) limitations imposed by public policy on indemnification
obligations.

 

2.2. Accredited Investor. Such Investor (i) is an “accredited investor” as that
term is defined in Rule 501 of Regulation D promulgated by the Commission under
the Securities Act (“Regulation D”), as indicated on the Accredited Investor
Questionnaire attached as Exhibit A, and (ii) is acquiring the Shares in the
ordinary course of its business, solely for its own account, and not with a view
to the public resale or distribution of all or any part thereof, except pursuant
to sales that are registered under the Securities Act or are exempt from the
registration requirements of the Securities Act and does not have any agreement
or understanding with any person to distribute any of the Shares except in
compliance with the Securities Act.

 

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2.3. Information. Investor acknowledges that it has had the opportunity to
review the Transaction Documents (including all exhibits and schedules thereto)
and the SEC Reports and has been afforded, (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Shares and the merits and risks of investing in the Shares; (ii)
access to information about the Company and its financial condition, results of
operations, business, properties, management and prospects sufficient to enable
it to evaluate its investment; and (iii) the opportunity to obtain such
additional information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment.

 

2.4. 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 Shares, and has so evaluated the merits and
risks of such investment. Investor 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.

 

2.5. Certain Transactions and Confidentiality. Other than consummating the
transactions contemplated hereunder, such Investor has not, nor has any Person
acting on behalf of or pursuant to any understanding with such Investor,
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 such Investor 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. Other than to other Persons party to this Agreement or to
such Investor’s representatives, including, without limitation, its officers,
directors, partners, legal and other advisors, employees, agents and Affiliates,
such Investor has maintained the confidentiality of all disclosures made to it
in connection with this transaction (including the existence and terms of this
transaction).

 

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

 

2.7. General Solicitation. Such Investor is not purchasing the Shares as a
result of any advertisement, article, notice or other communication regarding
the Shares published in any newspaper, magazine or similar media or broadcast
over television or radio or presented at any seminar or, to the knowledge of
such Investor, any other general solicitation or general advertisement.

 

2.8. Limitations on Disposition. Such Investor acknowledges that, except as
provided herein, the Shares have not been and are not being registered under the
Securities Act and may not be transferred or resold without registration under
the Securities Act or unless pursuant to an exemption therefrom.

 

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2.9. Legend. Such Investor understands that the certificates, if any,
representing the Shares will bear at issuance a restrictive legend in
substantially the following form:

 

“The securities represented by this certificate have not been registered under
the Securities Act of 1933, as amended (the “Securities Act”), or the securities
laws of any state, and may not be offered, transferred, pledged, hypothecated,
sold or otherwise disposed of unless a registration statement under the
Securities Act and applicable state securities laws shall have become effective
with regard thereto, or an exemption from registration under the Securities Act
and applicable state securities laws is available in connection with such offer
or sale.”

 

2.10. Reliance on Exemptions. Such Investor understands that the Shares are
being offered and sold to it in reliance upon specific exemptions from the
registration requirements of U.S. federal and state securities laws and that the
Company is relying upon the truth and accuracy of the representations and
warranties of such Investor set forth in this Section 2 in order to determine
the availability of such exemptions and the eligibility of such Investor to
acquire the Shares.

 

2.11. Compliance with U.S. Law. Such Investor is not, nor is it acting as an
agent, representative, intermediary or nominee for, a person identified on the
list of blocked persons maintained by the Office of Foreign Assets Control, U.S.
Department of Treasury. In addition, the Investor has complied with all
applicable U.S. laws, regulations, directives, and executive orders relating to
anti-money laundering.

 

3. Representations and Warranties of the Company. The Company hereby represents
and warrants to the Investors that, except as expressly set forth on the
disclosure schedules to this Agreement, as of the Execution Date and as of the
Closing Date:

 

3.1. Organization, Good Standing and Qualification. The Company is an entity
duly organized, validly existing and in good standing under the laws of the
jurisdiction under which it is incorporated, and has all requisite corporate
power and authority to conduct its business as currently conducted and to
execute, deliver and perform all of its obligations under this Agreement and to
consummate the transactions contemplated hereby. The Company is qualified to do
business as a foreign corporation in each jurisdiction where failure to be so
qualified could, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.

 

3.2. Authorization; Consents. The Company has the requisite corporate power and
authority to enter into and perform its obligations under the Transaction
Documents, including, without limitation, its obligations to issue and sell the
Shares to the Investors in accordance with the terms hereof and thereof. All
corporate action on the part of the Company by its officers, directors and
stockholders necessary for the authorization, execution and delivery of, and the
performance by the Company of its obligations under, the Transaction Documents
has been taken, and no further consent or authorization of the Company, its
Board of Directors, stockholders, any Governmental Authority or organization
(other than such approval as may be required under the Securities Act and
applicable state securities laws in respect of the registration rights herein
set forth), or any other person or entity is required.

 

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3.3. Due Execution; Enforceability. This Agreement has been and, at or prior to
the Closing, each other Transaction Document to be delivered at the Closing will
be, duly executed and delivered by the Company. This Agreement constitutes and,
upon the execution and delivery thereof by the Company, each other Transaction
Document will constitute, the valid and legally binding obligation of the
Company, enforceable against it in accordance with its terms, subject to (i)
applicable bankruptcy, insolvency, fraudulent transfer, moratorium,
reorganization or other similar laws of general application relating to or
affecting the enforcement of creditors’ rights generally, (ii) general
principles of equity and (iii) limitations imposed by public policy on
indemnification obligations.

 

3.4. Capitalization. (a) The authorized capital stock of the Company consists of
150,000,000 shares of Common Stock, of which 9,136,121 shares are outstanding as
of the date of this Agreement, and 5,000,000 shares of preferred stock, par
value $0.001 per share, of which 1,000 shares have been designated as Preferred
Stock, Series C (the “Preferred Stock”), all of which are issued and outstanding
as of the date of this Agreement. All of the issued and outstanding shares of
capital stock of the Company have been duly authorized and validly issued, are
fully paid, non-assessable, and free of preemptive rights, with no personal
liability attaching to the ownership thereof.

 

(b) All of such shares were issued in compliance with all applicable laws and
contractual obligations binding on the Company. None were issued in violation of
any agreement, arrangement or commitment to which the Company is a party or is
subject to or in violation of any preemptive or similar (contractual or
statutory) rights of any Person.

 

(c) Except as set forth on Schedule 3.4(c), as of the date hereof, no bonds,
debentures, notes or other indebtedness that have the right to vote on any
matters on which stockholders of the Company may vote were issued or
outstanding, no trust preferred or subordinated debt securities of the Company
or any subsidiary of the Company are issued or outstanding and there are no
outstanding subscriptions, options, warrants, puts, calls, rights, exchangeable
or convertible securities or other commitments or agreements obligating the
Company to issue, transfer, sell, purchase, redeem or otherwise acquire any
Common Stock.

 

(d) There are no voting trusts, stockholder agreements, proxies or other
agreements in effect pursuant to which the Company or any of its subsidiaries
has a contractual or other obligation with respect to the voting or transfer of
the Common Stock or other equity interests of the Company.

 

3.5. Due Authorization; Valid Issuance. The Shares are duly authorized and, when
issued, sold and delivered in accordance with the terms hereof, (i) the Shares
will be duly and validly issued, and the Shares will be fully paid and
nonassessable; in each case, free and clear of any Liens imposed by or through
the Company, and (ii) assuming the accuracy of each Investor’s representations
in this Agreement, the Shares will be issued, sold and delivered in compliance
with all applicable Federal and state securities laws. Immediately following the
Closing and the closing of the Concurrent Transaction (as defined in Section
4.5), the Investors will own the respective percentages of the Company’s
outstanding Common Stock set forth next to such Investor’s name on the Schedule
of Investors attached hereto

 

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3.6. No Conflict with Other Instruments. The (i) execution, delivery and
performance of this Agreement and the other Transaction Documents, and (ii)
consummation of the transactions contemplated hereby and thereby will not result
in any violation of any provisions of the Company’s charter, Bylaws or any other
governing document or in a default under, or give to others any rights of
termination, amendment, acceleration or cancellation (with or without notice,
lapse of time or both) of, any provision of any instrument or contract to which
it is a party or by which it or any of its Property is bound, or in violation of
any provision of any Governmental Requirement applicable to the Company or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either a default under any such provision, instrument or contract or an
event which results in the creation of any Lien upon any assets of the Company.

 

3.7. 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, 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 (or
if amended or superseded by a filing before the date of this Agreement, then on
the date of such amending or superseding filing), 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 financial
statements of the Company included in the SEC Reports (including, in each case,
any related notes) were prepared from, and were in accordance, with, the books
and records of the Company and its Subsidiaries and when filed (or if amended or
superseded by a filing before the date of this Agreement, then on the date of
such amending or superseding filing) complied in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at such time. Such financial
statements 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. The Company has
not received written comments from the staff of the Commission regarding any of
the SEC Reports that remain unresolved, other than such comments the substance
of which have been disclosed in any SEC Report.

 

3.8. Form 10-K. The information to be included in the Company’s Annual Report on
Form 10-K for the fiscal year ended October 31, 2017 (the “Form 10-K”), to be
filed after the effectiveness of this Agreement, will not show any Adverse
Changes from the information included in the Company’s Quarterly Report on Form
10-Q for the fiscal quarter ended July 31, 2017. As used herein, the term
“Adverse Change” means a change that is material and adverse to (i) the Company,
its business or operations, excluding changes in the Company’s financial results
for the fiscal year ended October 31, 2017 as set forth in or as may be derived
from the financial statements and related footnotes included in the Form 10-K,
(ii) the ability of the Company to perform its obligations under this Agreement
or the other Transaction Documents, or (iii) the rights and benefits to which
each Investor is entitled under this Agreement and the other Transaction
Documents.

 

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3.9. Solicitation; Other Issuances of Shares. Neither the Company nor any of its
Subsidiaries or Affiliates, nor any person acting on its or their behalf, (i)
has engaged in any form of general solicitation or general advertising (within
the meaning of Regulation D) in connection with the offer or sale of the Shares,
or (ii) has, directly or indirectly, made any offers or sales of any security or
the right to purchase any security, or solicited any offers to buy any security
or any such right, under circumstances that would require registration of the
Shares under the Securities Act or that would cause this offering of the Shares
to be integrated with other offerings by the Company for purposes of the
Securities Act or any applicable shareholder approval provisions, including,
without limitation, under the rules and regulations of the Nasdaq Capital
Market.

 

3.10. Governmental Consents and Filings. Assuming the accuracy of the
representations made by each Investor in Section 2 of this Agreement, no
consent, approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any Governmental Authority is required
on the part of the Company in connection with the consummation of the
transactions contemplated by this Agreement, except for filings pursuant to
applicable state securities laws, which have been made or will be made in a
timely manner.

 

3.11. Transactions with Affiliates and Employees. Except as set forth herein and
in the SEC Reports, none of the officers or directors of the Company or any
Subsidiary and, to the knowledge of the Company, none of the employees of the
Company or any Subsidiary is presently a party to any transaction with the
Company or any Subsidiary (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 other than for (i) payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of the
Company and (iii) other employee benefits, including stock option agreements
under any stock option plan of the Company.

 

3.12. Litigation. Except as described in the SEC Reports, there is no, and
during the past two years there has been no, action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the 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 (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents, 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
Subsidiary, 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. The Commission has not issued any stop order
or other order suspending the effectiveness of any registration statement filed
by the Company or any Subsidiary under the Exchange Act or the Securities Act.

 

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3.13. Compliance. (a) Neither the Company nor any Subsidiary: (i) is 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 or any Subsidiary under), nor has the Company or any Subsidiary received
notice of a claim that it is in default under or that it is in violation of, any
agreement that has been filed as an exhibit to the Company’s SEC Reports or will
be filed as an exhibit to the Form 10-K (whether or not such default or
violation has been waived), except as could not have or reasonably be expected
to result in a Material Adverse Effect, (ii) is or has been in violation in any
material respect of any judgment, decree or order of any court, arbitrator or
other Governmental Authority or (iii) is or has been in violation in any
material respect 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.

 

(b) Neither the Company, nor, to the knowledge of the Company, any partner,
director, officer, manager, employee, independent contractor, consultant or
agent of the Company or any other Person acting on their behalf, has directly or
indirectly, during the last three (3) years: (i) offered or used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expense relating to any political campaign or activity, (ii) offered or made a
direct or indirect unlawful payment or unlawful conveyance of something of value
to any U.S. or non-U.S. government official, employee or political candidate or
established or maintained any unlawful or unrecorded funds, (iii) violated any
provision of the Foreign Corrupt Practices Act (the “FCPA”) or any statute or
regulation equivalent to the FCPA or concerning such unlawful payments or gifts
in any jurisdiction, including the U.K. Bribery Act 2010, (iv) offered or given
any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment or gift of money or anything of value to any U.S. or non-U.S.
government official or employee of any Governmental Authority, (v) offered or
made a direct or indirect payment to any U.S. or non-U.S. government official as
incentive for the official to complete some action or process expeditiously, to
the benefit of the party making the payment or (vi) received any unlawful
discounts or rebates in violation of any statute or regulation relating to
antitrust or competition. For the purpose of this section, a “non-U.S.
government official” means any employee or officer of a government of a non-U.S.
country, including any federal, regional or local department, agency, enterprise
owned or controlled by a non-U.S. government, any official of a non-U.S.
political party, any official or employee of a public international
organization, any person acting in an official capacity for, or on behalf of,
such entities, and any candidate for non-U.S. political office.

 

(c) The Company has maintained: (i) books and records that in all material
respects accurately and fairly reflect, in reasonable detail, its transactions
and dispositions of assets and (ii) a system of internal accounting controls
that provide reasonable assurance that transactions are executed in accordance
with general or specific authorization from the Company’s Board of Directors and
officers.

 

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3.14. Regulatory Permits. The Company and the Subsidiaries 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 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 neither the Company nor any Subsidiary
has received any notice of proceedings relating to the revocation or
modification of any Material Permit.

 

3.15. Intellectual Property. The Company and the Subsidiaries have, or have
rights to use, all material 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 (collectively, the “Intellectual Property Rights”). Except as
set forth in the SEC Reports, none of, and neither the Company nor any
Subsidiary has 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. Neither the Company nor any Subsidiary has 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 and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their Intellectual Property Rights.

 

3.16. Insurance. The Company and the Subsidiaries 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 the Company and
the Subsidiaries are engaged. Such policies have not been subject to any lapse
in coverage. Neither the Company nor any Subsidiary has received any written
notice of cancellation of, premium increase with respect to, or alteration of
coverage under, any such policies, and neither the 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 a significant increase in cost.

 

3.17. Listing and Maintenance Requirements. The Company’s 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 that 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. Other than as disclosed in the SEC Reports, the
Company has not, in the 12 months preceding the date hereof, received notice
from Nasdaq to the effect that the Company is not in compliance its listing or
maintenance requirements of.

 

10

 

 

3.18. Disclosure. All disclosure provided to the Investors regarding the
Company, its business and the transactions contemplated hereby furnished by or
on behalf of the Company with respect to the representations and warranties made
herein are true and correct in all material respects with respect to such
representations and warranties and do 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, and when taken as a whole, not misleading.

 

4. Covenants of the Company and the Investors.

 

4.1. The Company agrees with the Investors that the Company will:

 

  a. maintain its corporate existence in good standing;         b. maintain,
keep and preserve all of its Properties necessary in the proper conduct of its
businesses in good repair, working order and condition (ordinary wear and tear
excepted) and make all necessary repairs, renewals and replacements and
improvements thereto, except where the failure to do so would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect;  
      c. pay or discharge before becoming delinquent (a) all taxes, levies,
assessments and governmental charges imposed on it or its income or profits or
any of its Property and (b) all lawful claims for labor, material and supplies,
which, if unpaid, might become a Lien upon any of its Property, except where the
failure to do so would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect; provided, however, that the Company
shall not be required to pay or discharge any tax, levy, assessment or
governmental charge, or claim for labor, material or supplies, whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings being diligently pursued and for which appropriate reserves have
been established;         d. comply in all material respects with all
Governmental Requirements applicable to the operation of its business;        
e. comply with all agreements, documents and instruments binding on it or
affecting its Properties or business, except for instances of noncompliance that
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;         f. 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 in a manner that would require the registration under the Securities Act
of the sale of the Shares to the Investors or that would be integrated with the
offer or sale of the Shares for purposes of the rules and regulations of Nasdaq
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;

 

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  g. deliver to any Investor that owns at least 5% of the Company’s outstanding
Common Stock, from time to time, such additional information regarding the
Business as such Investor may reasonably request.         h. take such action as
the Company shall reasonably determine is necessary in order to obtain an
exemption for, or to qualify the Shares for, sale to the Investors at the
Closing and issuance to the Investors pursuant to this Agreement under
applicable securities or “Blue Sky” laws of the states of the United States;
provide evidence of any such action so taken to the Investors; make all filings
and reports relating to the offer and sale of the Shares required under
applicable securities or “Blue Sky” laws of the states of the United States
following the Closing Date; and         i. execute such documents and other
papers and take such other further actions as may be reasonably required to
carry out the provisions hereof and effectuate the transactions contemplated
hereby, and use its best efforts to fulfill or obtain the fulfillment of the
conditions to its obligation to effect the Closing.

 

4.2. The Company hereby agrees to use best efforts to list, effective upon
Closing, all of the Shares on the Nasdaq Capital Market. The Company further
agrees, if the Company applies to have the Common Stock traded on any other
exchange, it will 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 on
such other exchange as promptly as possible. The Company will take all action
reasonably necessary to continue the listing and trading of its Common Stock on
the Nasdaq Capital Market and will comply in all respects with the Company’s
reporting, filing and other obligations under all applicable Nasdaq rules.

 

4.3. The Investor agrees with the Company that Investor will not, without the
prior written consent of the Company offer, sell, contract to sell, pledge or
otherwise dispose of, (or enter into any transaction which is designed to, or
might reasonably be expected to, result in the disposition (whether by actual
disposition or effective economic disposition due to cash settlement or
otherwise) by the Investor or any Affiliate of the Investor or any person in
privity with the Investor or any Affiliate of the Investor), directly or
indirectly, or establish or increase a put equivalent position or liquidate or
decrease a call equivalent position within the meaning of Section 16 of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, or publicly announce an intention to effect any such transaction,
with respect to any shares of capital stock of the Company or any securities
convertible into or exercisable or exchangeable for such capital stock which
were acquired by the Investor hereunder, for a period beginning upon, and ending
120 days after the effective date of a registration statement in connection with
an initial public offering by the Company of its securities, other than shares
of Common Stock disposed of in transactions not requiring registration under the
Securities Act, including bona fide gift or gifts, provided that the donee or
donees thereof agrees in writing to be bound by the terms of this provision.

 

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4.4. Use of Proceeds. The proceeds from the sale of the Shares may be used by
the Company in its discretion, and may include the partial paydown of the HSBC
loan described in the SEC Reports.

 

4.5. Other Subscriptions. There may be one or more directors of the Company who
will participate in this offering and who will be executing Subscription
Agreements to purchase up to an aggregate of 50,000 shares of Common Stock that
are identical to this Agreement (the “Concurrent Transaction”), except that the
price per Share will be higher in accordance with Nasdaq rules; provided,
however, that such subscription agreements will not be executed until after the
filing of the Form 10-K.

 

5. Conditions to Closing.

 

5.1. Conditions to each Investor’s Obligations at the Closing. Each Investor’s
obligations to effect the Closing, including without limitation its obligation
to purchase Shares at the Closing, are conditioned upon the fulfillment (or
waiver by such Investor in its sole and absolute discretion) of each of the
following events as of the Closing Date, and the Company shall use commercially
reasonable efforts to cause each of such conditions to be satisfied:

 

  a. the representations and warranties of the Company set forth in this
Agreement and in the other Transaction Documents shall be true and correct as of
such date as if made on such date (except that to the extent that any such
representation or warranty relates to a particular date, such representation or
warranty shall be true and correct as of that particular date);         b. the
Company shall have complied with or performed all of the agreements, obligations
and conditions set forth in this Agreement that are required to be complied with
or performed by the Company on or before the Closing;         c. the Company
shall have delivered to each Investor duly executed certificates representing
the Shares being purchased by such Investor, unless the Shares are issued in
uncertificated form;         d. the Company shall have delivered to each
Investor a secretary’s certificate, dated as of the Closing Date, certifying as
to (A) the incorporation and active status of the Company in the State of
Delaware based upon a certificate issued by the Secretary of State of the State
of Delaware as of a date within ten (10) days of the Closing Date, (B) the
resolutions of the Board of Directors approving the transactions contemplated
hereby, (C) the Restated Certificate of Incorporation of the Company, as amended
to date, certified as of a date within ten (10) days of the Closing Date, and
(D) the By-Laws of the Company, each as in effect as of the Closing Date;      
  e. Counsel to the Company shall have delivered to the Investors a legal
opinion substantially in the form attached hereto as Exhibit B;         f. there
shall be no injunction, restraining order or decree of any nature of any court
or Government Authority of competent jurisdiction that is in effect that
restrains or prohibits the consummation of the transactions contemplated hereby
and by the other Transaction Documents;         g. the Company shall have
executed each Transaction Document to which it is a party and shall have
delivered the same to Investor; and         h. no Material Adverse Effect shall
have occurred.

 

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5.2. Conditions to Company’s Obligations at the Closing. The Company’s
obligations to effect the Closing with the Investors are conditioned upon the
fulfillment (or waiver by the Company in its sole and absolute discretion) of
each of the following events as of the Closing Date:

 

  a. the representations and warranties of each Investor set forth in this
Agreement and in the other Transaction Documents shall be true and correct as of
such date as if made on such date (except that to the extent that any such
representation or warranty relates to a particular date, such representation or
warranty shall be true and correct as of that date);         b. Each Investor
shall have complied with or performed all of the agreements, obligations and
conditions set forth in this Agreement that are required to be complied with or
performed by such Investor on or before the Closing;         c. there shall be
no injunction, restraining order or decree of any nature of any court or
Government Authority of competent jurisdiction that is in effect that restrains
or prohibits the consummation of the transactions contemplated hereby and by the
other Transaction Documents;         d. Each Investor shall have executed each
Transaction Document to which it is a party and shall have delivered the same to
the Company; and         e. Each Investor shall have tendered to the Company the
Purchase Price for the Shares being purchased by it at the Closing by wire
transfer of immediately available funds.

 

6. Registration.

 

6.1. Definitions. As used in this Section 6, the following terms shall have the
following meanings:

 

“Issuer Free Writing Prospectus” means any issuer free writing prospectus, as
defined in Rule 433 under the Securities Act, relating to the offer of
Registrable Securities.

 

“Prospectus” means (i) the prospectus included in the Registration Statement
(including a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective Registration Statement in reliance upon
Rule 430A, Rule 430B or Rule 430C promulgated under the Securities Act), as
amended or supplemented by any Prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus and
(ii) any Issuer Free Writing Prospectus.

 

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“Registrable Securities” means the Shares; provided, that, a security shall
cease to be a Registrable Security upon sale pursuant to a Registration
Statement or Rule 144.

 

“Registration Statement” means any registration statement of the Company filed
under the Securities Act that covers the resale of any of the Registrable
Securities pursuant to the provisions of this Agreement, amendments and
supplements to such Registration Statement, including post-effective amendments,
all exhibits and all material incorporated by reference in such Registration
Statement.

 

“Register,” “registered” and “registration” refer to a registration made by
preparing and filing a Registration Statement or similar document in compliance
with the Securities Act (as defined below), and the declaration or ordering of
effectiveness of such Registration Statement or document.

 

6.2 Registration. The Company shall use its best efforts to cause the
Registrable Securities to be registered pursuant to the Securities Act. In
connection therewith, as soon as practicable after the Closing Date and in any
event by May 30, 2018 (the “Filing Date”), the Company shall prepare and file
with the Commission a Registration Statement on Form S-3 covering the resale of
the Registrable Securities for an offering to be made on a continuous basis
pursuant to Rule 415. The initial Registration Statement to be filed under this
Section will be filed to include all of the Registrable Securities. Subject to
any Commission comments, such Registration Statement shall include the plan of
distribution attached hereto as Exhibit C (the “Plan of Distribution”);
provided, however, that no Investor shall be named as an “underwriter” in the
Registration Statement without such Investor’s prior written consent. Such
Registration Statement also shall cover, to the extent allowable under the
Securities Act and the rules promulgated thereunder (including Rule 416), such
indeterminate number of additional shares of Common Stock resulting from stock
splits, stock dividends or similar transactions with respect to the Registrable
Securities. The Company shall use its best efforts to cause such Registration
Statement to be declared effective under the Securities Act as soon as possible
(but in no event more than two (2) business days after the date that the
Commission advises the Company that it either has no comments on the
Registration Statement or that all comments with respect thereto have been
resolved), and shall use its reasonable best efforts to keep the resale
registration of the Registrable Securities continuously effective under the
Securities Act until the date that is the earliest of (i) such time as all of
the Registrable Securities covered by such Registration Statement have been
publicly sold by the Investors, or (ii) such time as the Investors whose
Registrable Securities are included in such registration notify the Company in
writing that they will not make any further sales thereunder, or (iii) the third
anniversary of the date the Registration Statement was declared effective (the
“Effectiveness Period”). By 5:00 p.m. (New York City time) on the Business Day
immediately following the date any Registration Statement required to be filed
hereunder is declared effective, the Company will file with the Commission in
accordance with Rule 424 under the Securities Act the final Prospectus to be
used in connection with sales pursuant to such Registration Statement (if such
filing is required under such Rule). The Registration Statement when declared
effective will comply as to form in all material respects with all applicable
requirements of the Securities Act and the Exchange Act and will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading
(and, in the case of the Prospectus, in the light of the circumstances under
which a statement is made).

 

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6.3 If all of the Registrable Securities to be included in the Registration
Statement filed pursuant to Section 6.2 cannot be so included because the
Commission informs the Company that all of the Registrable Securities cannot, as
a result of the application of Rule 415 or any other reason, be registered for
resale as a secondary offering on a single registration statement, the Company
agrees to promptly (i) inform each of the holders thereof, (ii) use its
reasonable best efforts to file amendments to the initial Registration Statement
as required by the Commission, and/or (iii) withdraw the initial Registration
Statement and file a new Registration Statement, in either case covering the
maximum number of Registrable Securities permitted to be registered by the
Commission; provided, however, that prior to filing such amendment or new
Registration Statement, the Company is obligated to use its reasonable best
efforts to advocate with the then prevailing Commission guidance.

 

6.4 Ineligibility for Form S-3. In the event that Form S-3 is not available for
the registration of the resale of Registrable Securities hereunder, the Company
shall (i) register the resale of the Registrable Securities on Form S-1 or
another appropriate form available to the Company for the registration of the
resale of Registrable Securities hereunder and (ii) undertake to register the
Registrable Securities on Form S-3 promptly after such form is available,
provided that the Company shall maintain the effectiveness of the Registration
Statement then in effect until such time as a Registration Statement on Form S-3
covering the Registrable Securities has been declared effective by the
Commission.

 

6.5 Expenses. The Company will pay all expenses associated with each
registration and the performance of or compliance by the Company with this
Section 6, including, without limitation, filing and printing fees, its counsel
and accounting fees and expenses, costs associated with clearing the Registrable
Securities for sale under applicable state securities laws, and listing fees,
but excluding Investors’ counsel fees, and discounts, commissions, fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals with respect to the Registrable Securities being sold.

 

6.6 Registration Procedures. In connection with the Company’s registration
obligations hereunder, the Company shall:

 

  a. Not less than three Business Days prior to the filing of a Registration
Statement or any related Prospectus or any amendment or supplement thereto,
furnish via email to counsel for the Investors copies of all disclosures
regarding Investors and the plan of distribution to be included in such
documents proposed to be filed, which disclosures will be subject to the
reasonable review of the Investors. The Company will reflect in each such
document when so filed with the Commission such comments regarding Investors and
the plan of distribution as Investors may reasonably and promptly propose no
later than two Business Days after Investors have been so furnished with copies
of such documents as aforesaid.

 

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  b. (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to each Registration Statement and the Prospectus
used in connection therewith as may be necessary to keep the Registration
Statement continuously effective, as to the applicable Registrable Securities
for the Effectiveness Period and prepare and file with the Commission such
additional Registration Statements in order to register for resale under the
Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424; (iii)
respond as promptly as reasonably possible, to any comments received from the
Commission with respect to the Registration Statement or any amendment thereto;
and (iv) comply in all material respects with the provisions of the Securities
Act and the Exchange Act with respect to the disposition of all Registrable
Securities covered by the Registration Statement during the applicable period in
accordance with the intended methods of disposition by Investors set forth in
the Registration Statement as so amended or in such Prospectus as so
supplemented.         c. Furnish, upon reasonable request, to each Investor,
copies of any and all correspondence with the Commission or any other
governmental agency or other regulatory or self-regulatory body or other body
having jurisdiction (including any domestic or foreign securities exchange)
relating to such offering of Registrable Securities.         d. Notify Investors
as promptly as reasonably possible of any of the following events: (i) the
Commission notifies the Company whether there will be a “review” of any
Registration Statement; or (ii) any Registration Statement or any post-effective
amendment is declared effective.         e. Advise Investors promptly after it
receives notice or obtains knowledge of the issuance or the threat of issuance
of any stop order by the Commission delaying or suspending the effectiveness of
the Registration Statement or of the initiation of any proceedings for that
purpose; and the Company shall promptly use all commercially reasonable efforts
to prevent he issuance of any stop order or to obtain its withdrawal at the
earliest possible moment if such stop order should be issued.         f.
Immediately notify each applicable Investor of (i) any request of the Commission
or any other Federal or state governmental authority for any amendment or
supplement to any Registration Statement or Prospectus or additional information
related thereto; (ii) the Company’s receipt of notice of any suspension of the
qualification or exemption from qualification of any Registrable Securities for
sale in any jurisdiction, or the initiation or threat of any Proceeding for such
purpose; or (iii) the occurrence of any event as a result of which the financial
statements included in or incorporated by reference into any Registration
Statement become ineligible for inclusion therein or any Registration Statement
or Prospectus or other document contains any untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading. Promptly following the provision of such notice,
the Company shall amend or supplement the Prospectus or Prospectus supplement or
take other appropriate action so that the Prospectus or Prospectus supplement
does not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing. In
addition, the Company shall notify Investors as promptly as reasonably possible
of the receipt by the Company of written comments from the Commission relating
to any Registration Statement.

 

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  g. (i) In the time and manner required by Nasdaq or any other market or
exchange on which the Registrable Securities are listed (the “Trading Market”),
prepare and file with such Trading Market an additional shares listing
application covering all of the Registrable Securities; (ii) take all steps
necessary to cause such Registrable Securities to be approved for listing on a
Trading Market as soon as possible thereafter; (iii) provide to Investors
evidence of such listing; and (iv) during the Effectiveness Period, maintain the
listing of such Registrable Securities on such Trading Market or another
Eligible Market.         h. Cooperate with Investors to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be delivered to a transferee pursuant to a Registration Statement, which
certificates will be free, to the extent permitted by this Agreement and under
law, of all restrictive legends, and to enable such certificates to be in such
denominations and registered in such names as Investors may reasonably request.
        i. Comply with all rules and regulations of the Commission applicable to
the registration of the Securities and make any necessary “Blue Sky” filings.  
      j. If the Investor could reasonably be deemed to be an “underwriter,” as
defined in Section 2(a)(11) of the Securities Act or a “controlling person”
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, in connection with the Registration Statement in respect of any
registration of Registrable Securities of such Investor pursuant to this
Agreement, and any amendment or supplement thereof (any such Registration
Statement or amendment or supplement, an “Investor Underwriter Registration
Statement”), then the Company will cooperate with such Investor in allowing such
Investor to conduct customary “underwriter’s due diligence” with respect to the
Company and satisfy its obligations in respect thereof. In addition, at any
Investor’s request, the Company will furnish to such Investor, on the date of
the effectiveness of any Investor Underwriter Registration Statement and
thereafter from time to time on such dates as such Investor may reasonably
request, (i) a comfort letter, dated such date, from the Company’s independent
certified public accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to such Investor, (ii) an opinion, dated as of such
date, of counsel representing the Company for purposes of such Investor
Underwriter Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, including a standard
“10b-5” negative assurance for such offering, addressed to such Investor and
(iii) a standard officer’s certificate from the Chief Executive Officer and
Chief Financial Officer of the Company addressed to such Investor. The Company
will also permit legal counsel to such Investor(s) to review and comment upon
any such Investor Underwriter Registration Statement at least five (5) Business
Days prior to its filing with the Commission and all amendments and supplements
to any such Investor Underwriter Registration Statement within a reasonable
number of days prior to their filing with the Commission and not file any
Investor Underwriter Registration Statement or amendment or supplement thereto
in a form to which such Investor’s legal counsel reasonably objects.         k.
The Company shall cause certificates evidencing the Registrable Securities not
to contain any restrictive legend: (i) upon the effectiveness of a Registration
Statement covering such Registrable Securities, or (ii) following a sale of such
Registrable Securities pursuant to Rule 144, or (iii) if such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the Commission).
Following such time as restrictive legends are not required to be placed on
certificates representing Shares, the Company will, no later than five (5)
Business Days following the delivery by any Investor to the Company or the
Company’s transfer agent of a certificate representing Registrable Securities
containing a restrictive legend, deliver or cause to be delivered to such
Investor a certificate representing such Registrable Securities that is free
from all restrictive and other legends. The Company shall, immediately following
the Registration Statement being declared effective, cause its counsel to issue
a legal opinion to the Company’s transfer agent with respect to the Registrable
Securities to effect the removal of the restrictive legend contemplated by this
Agreement. The Company may not make any notation on its records or give
instructions to any transfer agent for the Registrable Securities that enlarge
the restrictions on transfer set forth in this Agreement. Certificates for
Registrable Securities subject to legend removal hereunder shall be transmitted
by the Company’s transfer agent to the Investor by crediting the account of the
Investor’s prime broker with the Depository Trust Company system.         l. The
Company shall take all such reasonable actions as are necessary to effect the
registration or facilitate the disposition of the Registrable Securities in
accordance with the terms of this Agreement.

 

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6.7 Public Information. With a view to making available to the Investors the
benefits of Rule 144 and any other rule or regulation of the Commission that may
at any time permit the Investors to sell shares of Common Stock to the public
without registration, the Company covenants and agrees that (1) as long as the
Investors beneficially or legally own Shares, the Company will timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act and (2) as long as the Investors own Shares, but
only until all such Shares may be sold under Rule 144(b)(i) without regard to
meeting the requirements of Rule 144(c), if the Company is not required to file
reports pursuant to the Exchange Act, it will prepare and furnish to any
Investor and make publicly available in accordance with Rule 144(c) such
information as is required for such Investor to sell the Shares under Rule 144.
The Company will be deemed to have furnished such reports to the Investors if
the Company has filed such reports with the Commission using the Commission’s
Electronic Data Gathering, Analysis and Retrieval system and such reports are
publicly available. The Company further agrees that it will take such further
action as any holder of Shares may reasonably request, all to the extent
required from time to time to enable the Investors to sell such Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.

 

6.8 Investors Information. Each Investor shall furnish in writing to the Company
such information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it, as
shall be reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request.

 

6.9 Piggy-Back Registrations. If at any time during the Effectiveness Period the
Company determines to prepare and file with the Commission a registration
statement relating to an offering for its own account or the account of others
under the Securities Act of any of its equity securities, other than on Form S-4
or Form S-8 (each as promulgated under the Securities Act) or their then
equivalents relating to equity securities to be issued solely in connection with
any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, then the Company
will send to each Investor written notice of such determination and if, within
ten days after receipt of such notice, an Investor will so request in writing,
the Company will include in such registration statement all or any part of any
Registrable Securities that such Investor requests to be registered.
Notwithstanding the foregoing, in the event that, in connection with any
underwritten public offering, the managing underwriter(s) thereof impose a
limitation on the number of shares of Common Stock that may be included in the
Registration Statement because, in such underwriter(s)’ judgment, marketing or
other factors dictate such limitation is necessary to facilitate public
distribution, then the Company is obligated to include in such Registration
Statement only such limited portion of the Registrable Securities with respect
to which the Investors have requested inclusion hereunder as the underwriter
permits; provided, however, that the Company shall include Registrable
Securities of any other Investor only if all of the Registrable Securities that
Forest Manor NV requests to be registered are included. If an offering in
connection with which the Investors are entitled to registration under this
Section 6.9 is an underwritten offering, then the Investors will, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering and will enter
into an underwriting agreement in a form and substance reasonably satisfactory
to the Company and the underwriter or underwriters

 

19

 

 

7. Participation and Purchase Rights.

 

7.1. Participation Rights Procedures.

 

  a. Any offer, sale, grant, disposition or announcement of offer or sale by the
Company with respect to its Common Stock, or any stock, warrant or other
securities convertible into or exercisable or exchangeable for shares of Common
Stock, in a manner that is not required to be registered under the Securities
Act is hereinafter referred to as a “Subsequent Placement.”         b. From and
after the Closing Date and until 36 months after the Closing Date, the Company
will not, directly or indirectly, effect any Subsequent Placement unless the
Company will have first complied with this Section 7.         c. As a condition
prior to the delivery of the Offer Notice (as defined in the next paragraph), an
Investor shall agree to enter into a non-disclosure agreement with the Company
in form and substance reasonably acceptable to such Investor.         d. The
Company will deliver to each Investor an irrevocable written notice (the “Offer
Notice”) of any proposed or intended issuance or sale or exchange (the “Offer”)
of the securities being offered (the “Offered Securities”) in a Subsequent
Placement, which Offer Notice must (w) identify and describe the Offered
Securities, (x) describe the price and other terms upon which they are to be
issued, sold or exchanged, and the number or amount of the Offered Securities to
be issued, sold or exchanged, and (y) offer to issue and sell to each Investor a
pro rata portion of the Offered Securities equal to such Investor’s pro rata
ownership of the Company’s then issued and outstanding Common Stock (the
“Proportionate Share”). By way of example only, if an Investor owns 5% of the
issued and outstanding shares of Common Stock, such Investor will have the right
to purchase 5% of the Offered Securities.         e. To accept an Offer, in
whole or in part, each Investor must deliver a written notice to the Company
prior to the end of the fifth (5th) Business Day after Investor’s receipt of the
Offer Notice (the “Offer Period”), setting forth the portion of such Investor’s
Proportionate Share that such Investor elects to purchase (the “Notice of
Acceptance”).         f. The Company will have 90 Business Days from the
expiration of the Offer Period above (i) to offer, issue and sell all or any
part of such Offered Securities as to which a Notice of Acceptance has not been
given by the Investors (the “Refused Securities”), but only to the offerees or
class of offerees described in the Offer Notice (if so described therein) and
only upon terms and conditions (including, without limitation, unit prices) that
are no more favorable to offerees than those set forth in the Offer Notice and
(ii) to publicly announce (a) the execution of a definitive agreement relating
to such Subsequent Placement (the “Subsequent Placement Agreement”), and (b)
either (x) the consummation of the transactions contemplated by such Subsequent
Placement Agreement or (y) the termination of such Subsequent Placement
Agreement, which will be filed with the Commission on a Current Report on Form
8-K with such Subsequent Placement Agreement and any documents contemplated
therein filed as exhibits thereto to the extent required by the rules and
regulations of the Commission. The Company may, in its complete and absolute
discretion, abandon a Subsequent Placement at any time prior to the execution of
a Subsequent Placement Agreement.

 

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  g. Upon the closing of the issuance and sale of all or an amount of the
Offered Securities, Investors will acquire from the Company, and the Company
will issue to the Investors, the number or amount of Offered Securities
specified in the Notices of Acceptance upon the terms and conditions specified
in the Offer. The purchase by an Investor of any Offered Securities is subject
in all cases to the preparation, execution and delivery by the Company and such
Investor of a Subsequent Placement Agreement reasonably satisfactory in form and
substance to such Investor.         h. Any Offered Securities not acquired by
the Investors or other persons in accordance with this Section 7(e) or (f) above
may not be issued, sold or exchanged until they are again offered to the
Investors under the procedures specified in this Agreement.         i.
Notwithstanding anything herein to the contrary, the provisions of this Section
7 shall not apply to (i) issuances of securities to employees, directors,
officers or consultants under an equity incentive plan approved by the Board of
Directors (including issuances upon the conversion or exercise of any such
securities), (ii) subject to Section 7.2 below, the conversion of preferred
stock issued and outstanding on the date hereof, (iii) issuances in connection
with an acquisition of a business from an unaffiliated third party, (iv) any
Shares sold in this offering, or (v) issuances for any purpose up to an
aggregate purchase price of $100,000.

 

7.2. Preferred Stock Purchase Right. The Company agrees that from and after the
Closing Date and until 36 months after the Closing Date, upon conversion or
exchange of any Preferred Stock issued and outstanding on the date hereof into
Common Stock, the Investors shall have the right to purchase shares of Common
Stock in an amount equal to a Proportionate Share multiplied by the number of
shares of Common Stock so issued in such exchange or conversion (as adjusted for
stock splits or any similar transactions) from the Company at a price of $4.40
per share in accordance with the terms of this Agreement.

 

8. Miscellaneous.

 

8.1. Severability. In the event that any provision of this Agreement becomes or
is declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that in such case the parties shall negotiate in good faith
to replace such provision with a new provision which is not illegal,
unenforceable or void, as long as such new provision does not materially change
the economic benefits of this Agreement to the parties.

 

8.2. Successors and Assigns. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties. Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and permitted assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.

 

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8.3. No Reliance. Each party acknowledges that (i) it has such knowledge in
business and financial matters as to be fully capable of evaluating this
Agreement, the other Transaction Documents, and the transactions contemplated
hereby and thereby, (ii) it is not relying on any advice or representation or
warranty of any other party in connection with entering into this Agreement, the
other Transaction Documents, or such transactions (other than the
representations and warranties made in this Agreement or the other Transaction
Documents), (iii) it has not received from any party any assurance or guarantee
as to the merits (whether legal, regulatory, tax, financial or otherwise) of
entering into this Agreement or the other Transaction Documents or the
performance of its obligations hereunder and thereunder, and (iv) it has
consulted with its own legal, regulatory, tax, business, investment, financial
and accounting advisors to the extent that it has deemed necessary, and has
entered into this Agreement and the other Transaction Documents based on its own
independent judgment and on the advice of its advisors as it has deemed
necessary, and not on any view (whether written or oral) expressed by any party.

 

8.4. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed under the laws of the State of New York applicable to contracts made
and to be performed entirely within the State of New York. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting in the City of New York for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
and hereby irrevocably waives, and agrees not to assert in any such suit, action
or proceeding, any claim that it is not personally subject to the jurisdiction
of any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. 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 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 manner permitted
by law. 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.

 

8.5. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, and all of which together shall
constitute one and the same instrument. This Agreement may be executed and
delivered by facsimile or electronic (PDF) transmission.

 

8.6. Headings. The headings used in this Agreement are used for convenience only
and are not to be considered in construing or interpreting this Agreement.

 

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8.7. Notices. Any notice, demand or request required or permitted to be given by
the Company or Investors pursuant to the terms of this Agreement shall be in
writing and shall be deemed delivered (i) when delivered personally or by
verifiable facsimile transmission, unless such delivery is made on a day that is
not a Business Day, in which case such delivery will be deemed to be made on the
next succeeding Business Day, (ii) on the next Business Day after timely
delivery to an overnight courier and (iii) on the Business Day actually received
if deposited in the U.S. mail (certified or registered mail, return receipt
requested, postage prepaid), addressed as follows:

 

  If to the Company:   Coda Octopus Group, Inc.       7380 W. Sand Lake Road,
Suite 500       Orlando, Florida 32819       Attention: Chief Executive Officer

 

and if to the Investors, to such address for each Investor as shall appear on
the signature pages hereof executed by the Investors, or as shall be designated
by such Investor in writing to the Company in accordance with this Section 8.7.

 

8.8. Expenses. Other than as set forth herein, each of the Company and each
Investor shall pay all of its own costs and expenses that it incurs in
connection with the negotiation, execution, delivery and performance of this
Agreement or the other Transaction Documents.

 

8.9. Entire Agreement; Amendments. This Agreement and the other Transaction
Documents constitute the entire agreement between the parties with regard to the
subject matter hereof and thereof, superseding all prior agreements or
understandings, whether written or oral, between or among the parties. Except as
expressly provided herein, neither this Agreement nor any term hereof may be
amended except pursuant to a written instrument executed by the Company and the
holders of at least a majority of the Shares, and no provision hereof may be
waived other than by a written instrument signed by the party against whom
enforcement of any such waiver is sought. Any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first-above written.

 

  CODA OCTOPUS GROUP, INC.                 By:  

 

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CODA OCTOPUS GROUP, INC.

SUBSCRIPTION AGREEMENT

 

Counterpart Signature Page

 

FOR ENTITY INVESTORS:   FOR INDIVIDUAL INVESTORS:               Signature:
                       Name:                     By:                 Name:      
          Title: