Exhibit 10.2

 

FORM OF SUBSCRIPTION AGREEMENT

 

This SUBSCRIPTION AGREEMENT (this “Agreement”) made as of the last date set
forth on the signature page hereof by and between Diffusion Pharmaceuticals
Inc., a Delaware corporation (the “Company”) and the undersigned investor in the
Offering (as defined below) (the “Subscriber”).

 

W I T N E S S E T H:

 

WHEREAS, the Company is conducting a private offering (the “Offering”)
consisting of up to an aggregate of 7,500,000 shares of the Company’s Series A
convertible preferred stock, par value $0.001 per share (the “Preferred Stock”),
at a purchase price equal to $[●] per share (the “Purchase Price”), each share
of Preferred Stock being convertible into a share of the Company’s common stock,
par value $0.001 per share (the “Common Stock”) at a conversion price equal to
the Purchase Price, subject to adjustment;

 

WHEREAS, in connection with a purchase of shares of Preferred Stock, each
investor in the Offering will receive a five-year warrant (the “Warrant”, and
collectively with the Preferred Stock, the “Securities”) to purchase one (1)
share of Common Stock of the Company for each share of Preferred Stock purchased
by such investor in the Offering at an exercise price equal to $[Purchase Price
x 110%] per share, subject to adjustment thereunder;

 

WHEREAS, the Company has engaged Maxim Merchant Capital, a division of Maxim
Group LLC (Member FINRA/SIPC) to act as the sole placement agent for the
Offering (the “Placement Agent”);

 

WHEREAS, the aggregate gross proceeds from the Offering shall be up to a maximum
offering amount of $15,000,000 (the “Maximum Offering Amount”), which may be
increased to $25,000,000 at the discretion of the Placement Agent and the
Company without prior notice to the investors in the Offering;

 

WHEREAS, the Offering is being made through the Placement Agent on a
“commercially reasonable best efforts” basis to a limited number of “accredited
investors” (as that term is defined by Rule 501(a) of Regulation D (“Regulation
D”) promulgated under the Securities Act of 1933, as amended (the “Securities
Act”), by the Securities and Exchange Commission (the “SEC”)) to attain the
Maximum Offering Amount;

 

WHEREAS, the Subscriber desires to purchase such number of shares of Preferred
Stock (together with the associated Warrants) as set forth on the signature page
hereof;

 

WHEREAS the Subscriber’s subscription for Securities will be made in accordance
with and subject to the terms and conditions of this Agreement and the Company’s
Confidential Private Placement Memorandum dated January 27, 2017, together with
all amendments thereof and supplements and exhibits thereto, including the
documents incorporated by reference therein, and as any of the foregoing may be
amended from time to time (the “Memorandum”); and

 

 
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WHEREAS, the Company and the Subscriber are executing and delivering this
Agreement, and performing the transactions contemplated hereby including the
sale and purchase of the Securities, in reliance upon the exemption from the
registration requirements of the Securities Act afforded by Section 4(a)(2) of
the Securities Act and Rule 506 of Regulation D promulgated thereunder.

 

NOW, THEREFORE, in consideration of the premises and the mutual representations
and covenants hereinafter set forth, the parties hereto do hereby agree as
follows:

 

I.

SUBSCRIPTION FOR SHARES AND REPRESENTATIONS BY SUBSCRIBER

 

1.1     Subject to the terms and conditions hereinafter set forth (including
Section 1.19 hereof) and as set forth in the Memorandum, the Subscriber hereby
subscribes for and agrees to purchase from the Company, and the Company agrees
to sell to the Subscriber, such number of shares of Preferred Stock as is set
forth on the signature page hereof (and a corresponding number of Warrants). The
aggregate Purchase Price is payable by wire transfer, to be held in escrow until
the applicable Closing (as defined below), to Collegiate Peaks Bank, in its
capacity as the escrow agent for the Offering (the “Escrow Agent”), as follows:

 

  Bank:  Collegiate Peaks Bank   ABA Number: 102105997   Account #:  0410035043
 

Account Name:

Corporate Stock Transfer as Escrow Manager for Diffusion Pharmaceuticals Inc.

 

For the avoidance of doubt, any fractional shares to be issued based upon the
aggregate Purchase Price will be rounded up to the nearest whole share.

 

1.2     The Subscriber understands, acknowledges and agrees that, except as
otherwise set forth in Section 3.2 or otherwise required by law, once
irrevocable, (i) the Subscriber is not entitled to cancel, terminate or revoke
his, her or its subscription pursuant to this Agreement or any other obligations
of the Subscriber hereunder and (ii) this Agreement and the Subscriber’s
obligations hereunder shall survive the death or disability of the Subscriber
and shall be binding upon and inure to the benefit of each of the parties and
their respective heirs, executors, administrators, successors, legal
representatives and permitted assigns. If the Subscriber is more than one
person, the obligations of the Subscriber hereunder shall be joint and several
and the agreements, representations, warranties and acknowledgments of the
Subscriber in this Agreement shall be deemed to be made by and be binding upon
each such person and his, her, its or their heirs, executors, administrators,
successors, legal representatives and permitted assigns

 

1.3     The Subscriber recognizes that the purchase of the Securities involves a
high degree of risk including, but not limited to, the following: (a) the
Company requires substantial funds in addition to the proceeds of the Offering
in order to fund its operations and the development of its product candidates;
(b) an investment in the Company is highly speculative, and only investors who
can afford the loss of their entire investment should consider investing in the
Company and the Securities; (c) the Subscriber may not be able to liquidate the
Subscriber’s investment in the Securities; (d) transferability of the Securities
including, if and when issued, the shares of Common Stock issuable upon
conversion of the Preferred Stock (the “Conversion Shares”) and/or exercise of
the Warrants (the “Warrant Shares” and collectively with the Conversion Shares,
the “Underlying Shares”) may be extremely limited or restricted by applicable
law; (e) in the event of a future disposition of the Securities (or any
securities issuable upon conversion and/or exercise of the Securities), the
Subscriber could sustain the loss of the Subscriber’s entire investment; (f) the
Company has not paid any dividends since its inception, does not anticipate
paying any dividends in the near future and any future dividends will be subject
to the discretion of and approval by the Company’s board of directors; and (g)
each of the other risks set forth in or incorporated by reference into the “Risk
Factors” section of the Memorandum, which are incorporated herein by reference.

 

 
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1.4     At the time such Subscriber was offered the Securities, the Subscriber
was, and as of the date hereof is, and on the date on which it exercises any
Warrants or converts any shares of Preferred Stock, it will be, an “accredited
investor” as defined in Rule 501(a) promulgated under the Securities Act. The
Subscriber hereby represents and warrants to the Company that the Subscriber’s
responses to the investor questionnaire substantially in the form attached as
Exhibit A to this Agreement (the “Purchaser Questionnaire”) are true, correct
and complete in all respects.

 

1.5     The Subscriber hereby acknowledges, represents and warrants that (a) the
Subscriber has adequate means of providing for the Subscriber’s current
financial needs and contingencies; (b) the Subscriber has knowledge and
experience in business and financial matters, prior investment experience
(including investment in securities that are non-listed, unregistered and/or not
traded on a national securities exchange), or employed the services of a
“purchaser representative” (as defined in Rule 501 of Regulation D), attorney
and/or accountant to read and review all of the documents furnished or made
available by the Company to the Subscriber, to evaluate the merits and risks of
an investment in the Securities on the Subscriber’s behalf; (c) the Subscriber
is able to bear the economic risk that the Subscriber assumes by investing in
the Securities; and (d) the Subscriber can afford a complete loss of the
Subscriber’s investment in the Securities.

 

1.6     The Subscriber hereby (i) acknowledges receipt and careful review of
this Agreement, the Memorandum, the certificate of designations substantially in
the form attached hereto as Exhibit B to be filed with the Secretary of State of
the State of Delaware for the Preferred Stock, the form of Warrant attached
hereto as Exhibit C and all other exhibits, annexes and appendices thereto
(collectively, the “Offering Materials”), and has had access to the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2015
(collectively with the exhibits thereto and as amended, the “Form 10-K”), each
of the Company’s Quarterly Reports on Form 10-Q for the quarterly periods ended
September 30, 2016, June 30, 2016 and March 31, 2016 (collectively with the
exhibits thereto and as amended, the “Form 10-Qs”) and the other periodic,
current and other reports filed or furnished by the Company pursuant to the
Securities Act and the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), including pursuant to Sections 13(a) or 15(d) thereof, as
publicly filed and available on the website of the SEC (such materials,
collectively, the “SEC Reports”) and (ii) hereby represents that the Subscriber
has been furnished by the Company with all information regarding the Company,
the terms and conditions of the Offering and any additional information that the
Subscriber has requested or desired to know, and has been afforded the
opportunity to ask questions of and receive answers from duly authorized
officers or other representatives of the Company concerning the Company and the
terms and conditions of the Offering; provided, however, that no investigation
performed by or on behalf of the Subscriber shall limit or otherwise affect its
right to rely on the representations and warranties of the Company expressly
contained herein.

 

 
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1.7     (a)     In making the decision to invest in the Securities, the
Subscriber has relied solely upon the information provided by the Company in
this Agreement and the Memorandum. To the extent necessary, the Subscriber has
retained, at its own expense, and relied upon appropriate professional advice
regarding the investment, tax and legal merits and consequences of this
Agreement and the purchase of the Securities hereunder. The Subscriber disclaims
reliance on any statements made or information provided by any person or entity
in the course of Subscriber’s consideration of an investment in the Securities
other than this Agreement and the Memorandum and the results of Subscriber’s own
independent investigation.

 

(b)     The Subscriber represents that (i) the Subscriber was contacted
regarding the sale of the Securities by the Company or the Placement Agent (or
another person whom the Subscriber believed to be an authorized agent or
representative thereof with whom the Subscriber had a prior substantial
pre-existing relationship), (ii) the Subscriber did not learn of the Offering by
means of any form of general solicitation or general advertising, (iii) the
Subscriber did not receive or review any advertisement, article, notice or other
communication published in a newspaper or magazine or similar media or broadcast
over television or radio, whether closed circuit, or generally available, with
respect to the Offering and (iv) the Subscriber did not attend any seminar
meeting or industry investor conference whose attendees were invited by any
general solicitation or general advertising with respect to the Offering.

 

1.8     The Subscriber hereby acknowledges that the Offering has not been
reviewed by the SEC or any state regulatory authority and that the Offering is
intended to be exempt from the registration requirements of Section 5 of the
Securities Act pursuant to the exemption therefrom provided by Section 4(a)(2)
of the Securities Act and Rule 506 of Regulation D promulgated thereunder. The
Subscriber understands that the Securities (including any Underlying Shares
issuable upon the conversion and/or exercise of the Securities) have not been
and will not be registered under the Securities Act or under any state
securities or “blue sky” laws and agrees not to sell, pledge, assign or
otherwise transfer or dispose of the Securities and any Underlying Shares unless
and until they are registered under the Securities Act and under any applicable
state securities or “blue sky” laws or pursuant to an available exemption
therefrom. The Subscriber hereby represents that the Subscriber is purchasing
the Securities for the Subscriber’s own account for investment purposes and not
with a view toward the resale or distribution to others; provided, however, that
nothing contained herein shall constitute an agreement by the Subscriber to hold
the Securities for any particular length of time and the Company acknowledges
that the Subscriber shall at all times retain the right to dispose of the
Securities as it may determine in its sole discretion, subject to any
restrictions imposed by applicable law. The Subscriber, if an entity, further
represents that it was not formed for the purpose of purchasing the Securities.

 

 
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1.9     The Subscriber consents to the placement of a legend on any certificate
or other document evidencing the Securities and, if and when issued, the
Underlying Shares, that such securities have not been registered under the
Securities Act or any state securities or “blue sky” laws and setting forth or
referring to the restrictions on transferability and sale thereof contained in
this Agreement. The Subscriber is aware that the Company will make a notation in
its appropriate records with respect to the restrictions on the transferability
of such Securities. The legend to be placed on each certificate shall be in form
substantially similar to the following:

 

“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) OR ANY STATE SECURITIES OR
“BLUE SKY LAWS,” AND MAY BE OFFERED, SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR
HYPOTHECATED ONLY PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.”

 

1.10     The Subscriber hereby represents that the address of the Subscriber set
forth on the signature page hereto is the Subscriber’s principal residence if
the Subscriber is an individual or its principal business address if the
Subscriber is an entity.

 

1.11     The Subscriber represents that the Subscriber has full power and
authority (corporate, statutory and otherwise) or capacity, as applicable, to
execute and deliver this Agreement and to purchase the Securities. This
Agreement constitutes the legal, valid and binding obligation of the Subscriber,
enforceable against the Subscriber in accordance with its terms.

 

1.12     If the Subscriber is a corporation, partnership, limited liability
company, trust, employee benefit plan, individual retirement account, Keogh
Plan, or other tax-exempt entity, it is authorized and qualified to invest in
the Company and the person signing this Agreement on behalf of such entity has
been duly authorized by such entity to do so.

 

1.13     The Subscriber acknowledges that if the Subscriber is a Registered
Representative of a Financial Industry Regulatory Authority (“FINRA”) member
firm, the Subscriber must give such firm the notice required by the FINRA’s
Rules of Fair Practice, receipt of which must be acknowledged by such firm in
the Subscriber’s Purchaser Questionnaire.

 

1.14     To effectuate the terms and provisions of this Agreement, the
Subscriber hereby appoint the Placement Agent as its attorney-in-fact (and the
Placement Agent hereby accepts such appointment) for the purpose of carrying out
the provisions of the Escrow Agreement by and between the Company, the Placement
Agent and the Escrow Agent (the “Escrow Agreement”) including, without
limitation, taking any action on behalf of, or at the instruction of, the
Subscriber and executing any release notices required under the Escrow Agreement
and taking any action and executing any instrument that the Placement Agent may
deem necessary or advisable (and lawful) to accomplish the purposes hereof or
thereof. All acts done under the foregoing authorization are hereby ratified and
approved and neither the Placement Agent nor any designee nor agent thereof
shall be liable for any acts of commission or omission, for any error of
judgment, for any mistake of fact or law except for acts of gross negligence or
willful misconduct. This power of attorney, being coupled with an interest, is
irrevocable while the Escrow Agreement remains in effect.

 

 
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1.15     The Subscriber agrees not to issue any public statement with respect to
the Offering, Subscriber’s investment or proposed investment in the Company or
the terms of this Agreement or any other agreement or covenant between them and
the Company without the Company’s prior written consent, except such disclosures
as may be required under applicable law.

 

1.16     The Subscriber understands, acknowledges and agrees with the Company
that this subscription may be rejected, in whole or in part, by the Company, in
the sole and absolute discretion of the Company, at any time before the
applicable Closing (as defined below) notwithstanding prior receipt by the
Subscriber of notice of acceptance by the Company of the Subscriber’s
subscription.

 

1.17     The Subscriber acknowledges and agrees that (i) the information
contained in the Offering Materials or otherwise made available to the
Subscriber by the Company in connection with the Offering is confidential and
non-public and (ii) all such information shall be kept in confidence by the
Subscriber and neither used by the Subscriber for the Subscriber’s personal
benefit (other than in connection with this Agreement) nor disclosed to any
third party for any reason, notwithstanding that a Subscriber’s subscription may
not be accepted by the Company; provided, however, that (a) the Subscriber may
disclose such information to its affiliates and advisors who may have a need for
such information in connection with providing advice to the Subscriber with
respect to its investment in the Company so long as such affiliates and advisors
have an obligation of confidentiality to the Subscriber no less restrictive than
the restrictions contained in this Section 1.18, and (b) this obligation shall
not apply to any such information that (i) is part of the public knowledge or
literature and readily accessible at the date hereof, (ii) becomes part of the
public knowledge or literature and readily accessible by publication (except as
a result of a breach of this provision) after the date hereof or (iii) is
received from a third party that is not under any obligation of confidentiality
with respect to such information.

 

1.18     Subscriber understands that the Securities are being offered and sold
to it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying
in part upon the truth and accuracy of, and such Subscriber’s compliance with,
the representations, warranties, agreements, acknowledgements and understandings
of such Subscriber set forth herein in order to determine the availability of
such exemptions and the eligibility of such Subscriber to acquire the
Securities. The Subscriber agrees to supply the Company, within five (5) days
after the Subscriber receives the request therefor from the Company, with such
additional information concerning the Subscriber as the Company deems necessary
or advisable for purposes of making such determination.

 

 
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1.19     The Subscriber understands that Rule 144 promulgated under the
Securities Act (“Rule 144”) requires, among other conditions, a minimum holding
period of six-months prior to the resale of securities acquired in a non-public
offering without having to satisfy the registration requirements under the
Securities Act. The Subscriber understands and hereby acknowledges that the
Company is under no obligation to register the Securities under the Securities
Act or any state securities or “blue sky” laws or to assist the Subscriber in
obtaining an exemption from any such registration requirements.

 

1.20     The Subscriber agrees to hold the Company and its directors, officers,
employees, controlling persons and agents (including the Company’s legal counsel
and the Placement Agent and its managers, members, officers, directors,
employees, counsel, controlling persons and agents) and their respective heirs,
representatives, successors and assigns harmless from and to indemnify them
against all liabilities, costs and expenses incurred by them as a result of (i)
any misrepresentation made by the Subscriber contained in this Agreement
(including Article VII) or breach of any warranty by the Subscriber contained in
this Agreement or in any exhibits attached hereto; (ii) any untrue statement of
a material fact made by the Subscriber contained herein; or (iii) after any
applicable notice and/or cure periods, any breach or default in performance by
the Subscriber of any covenant or undertaking to be performed by the Subscriber
hereunder, or pursuant to any other Offering Materials entered into by the
Company and Subscriber relating hereto. Notwithstanding the foregoing, in no
event shall the liability of the Subscriber hereunder be greater than the
aggregate Purchase Price paid for the Securities by the Subscriber as set forth
on the signature page hereto.

 

1.21     If the Subscriber is an entity, upon request of the Company, the
Subscriber will provide true, complete and current copies of all relevant
documents creating the Subscriber, authorizing its investment in the Company
and/or evidencing the due authority of the signatory to this Agreement.

 

II.     REPRESENTATIONS BY AND COVENANTS OF THE COMPANY

 

The Company hereby represents and warrants to the Subscriber, as of the date of
this Agreement (other than representations and warranties that relate to a
specific date, which are given as of such date) and except as set forth in the
Memorandum or in the SEC Reports, as follows:

 

2.1     Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to own and
use its properties and assets as currently owned and conduct its business as
currently conducted. Each of the Company’s wholly-owned subsidiaries (the
“Subsidiaries”) is an entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation with the
requisite power and authority to own and use its properties and assets and to
conduct its business as currently conducted. Neither the Company, nor any of its
Subsidiaries is in violation of any of the provisions of their respective
articles of incorporation, by-laws or equivalent organizational or charter
documents, including, but not limited to the Company’s Certificate of
Incorporation, as amended (the “COI”), or the Company’s Bylaws, as amended (the
“Bylaws,” and collectively with the COI, the “Charter Documents”). Each of the
Company and its Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation in each jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, would not have a material adverse effect on (i) the legal and
valid issuance of the Securities, (ii) the enforceability of this Agreement
against the Company or the Company’s ability to perform, its obligations
hereunder, or (iii) the results of operations, assets, business and financial
condition of the Company and its Subsidiaries, taken as a whole (any of (i),
(ii) or (iii), a “Material Adverse Effect”).

 

 
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2.2     Capitalization and Voting Rights. As of January 27, 2017, the Company
was authorized to issue 1,000,000,000 shares of Common Stock, of which,
10,345,637 shares were issued and outstanding, and 30,000,000 shares of
preferred stock were authorized. As of the date hereof, (i) there are no
outstanding securities of the Company or any of its Subsidiaries which contain
any preemptive, redemption or similar provisions, (ii) no holder of securities
of the Company or any Subsidiary is entitled to preemptive or similar rights
arising out of any agreement or understanding with the Company or any Subsidiary
by virtue of the Offering, (iii) there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (iv) neither the Company nor any Subsidiary has any outstanding
stock appreciation rights, “phantom stock” plans or any similar plan or
agreement; and (v) there are no outstanding options, warrants, agreements,
convertible securities, preemptive rights or other rights to subscribe for or to
purchase or acquire, any shares of capital stock of the Company or any
Subsidiary or contracts, commitments, understandings, or arrangements by which
the Company or any Subsidiary is or may become bound to issue any shares of
capital stock of the Company or any Subsidiary, or securities or rights
convertible or exchangeable into shares of capital stock of the Company or any
Subsidiary. Other than restrictions imposed by applicable law, there are no
restrictions upon the voting or transfer of any of the shares of capital stock
of the Company pursuant to the Charter Documents or any material agreement or
other instrument to which the Company is a party or by which the Company is
bound. All of the issued and outstanding shares of capital stock of the Company
are validly issued, fully paid and nonassessable and the shares of capital stock
of the Subsidiaries are owned by the Company, free and clear of any mortgages,
pledges, liens, claims, charges, encumbrances or other restrictions
(collectively, “Encumbrances”). All of the Company’s outstanding capital stock
has been issued in accordance with the applicable provisions of the Securities
Act and any other applicable securities laws. The issuance and sale of the
Securities, as contemplated hereby, will not obligate the Company to issue
shares of Common Stock or other securities to any other person (other than other
investors in the Offering) and will not result in the adjustment of the
exercise, conversion, exchange or reset price of any outstanding Company
security. The Company does not have outstanding stockholder purchase rights or
“poison pill” or (any arrangement granting substantially similar rights) in
effect giving any person the right to purchase any equity interest in the
Company upon the occurrence of the transactions contemplated hereby.

 

2.3     Authorization; Enforceability. The Company has all corporate right,
power and authority to enter into, execute and deliver this Agreement and each
other agreement, document, instrument and certificate to be executed by the
Company in connection with the consummation of the transactions contemplated
hereby, and to perform fully its obligations hereunder and thereunder. All
corporate action on the part of the Company, its directors and stockholders
necessary for the (a) authorization execution, delivery and performance of this
Agreement by the Company; and (b) authorization, sale, issuance and delivery of
the Securities and, if and when issued, the Underlying Shares, has been taken.
This Agreement has been duly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies, and to limitations of public policy. The Securities are duly
authorized and, when issued and paid for in accordance with the terms of this
Agreement, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Encumbrances other than restrictions on transfer provided for
in the Offering Materials. The Underlying Shares, when issued in accordance with
the terms of the applicable Offering Materials, will be validly issued, fully
paid and nonassessable, free and clear of all Encumbrances imposed by the
Company other than restrictions on transfer provided for in the Offering
Materials. The Company has reserved a sufficient number of shares of Common
Stock for issuance upon the conversion of the Preferred Stock and the exercise
of the Warrants.

 

 
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2.4     No Conflict; Governmental Consents.

 

(a)     The execution and delivery by the Company of this Agreement, the
issuance and sale of the Securities (including, if and when issued, the
Underlying Shares) and the consummation of the other transactions contemplated
hereby do not and will not (i) result in the violation of any law, statute,
rule, regulation, order, writ, injunction, judgment or decree of any court or
governmental authority to or by which the Company is bound including without
limitation all foreign, federal, state and local laws applicable to the Company,
except in each case as would not have a Material Adverse Effect, (ii) conflict
with or violate any provision of the Charter Documents, and (iii) conflict with,
or result in a material breach or violation of, any of the terms or provisions
of, or constitute (with or without due notice or lapse of time or both) a
default or give to others any rights of termination, amendment, acceleration or
cancellation (with or without due notice, lapse of time or both) under any
Material Contract (as defined below) to which the Company or any Subsidiary is a
party or by which any of them is bound, nor result in the creation or imposition
of any Encumbrances upon any of the properties or assets of the Company or any
Subsidiary.

 

(b)     No approval by the holders of Common Stock, or other equity securities
of the Company, is required to be obtained by the Company in connection with the
authorization, execution, delivery and performance of this Agreement or in
connection with the authorization, issue and sale of the Securities and, upon
issuance, the Underlying Shares, except as has been previously obtained.

 

(c)     No consent, approval, authorization or other order of any governmental
authority or any other person is required to be obtained by the Company in
connection with the authorization, execution, delivery and performance of this
Agreement or in connection with the authorization, issue and sale of the
Securities and, upon issuance, the Underlying Shares, except such post-sale
filings as may be required to be made with the SEC, FINRA, NASDAQ and with any
state or foreign blue sky or securities regulatory authority, all of which shall
be made when required.

 

 
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2.5     SEC Reports; Financial Statements. The Company has filed all SEC Reports
required to be filed by it under the Securities Act and the Exchange Act since
January 8, 2016 (the “Reference Date”) (or such shorter period as the Company
was required by law to file such reports) (the “2016 SEC Reports”) on a timely
basis, or timely filed a valid extension of such time of filing and has filed
the 2016 SEC Reports prior to the expiration of any such extension. As of their
respective dates, the 2016 SEC Reports complied in all material respects with
the requirements of the Securities Act and the Exchange Act and the rules and
regulations of the SEC promulgated thereunder, and none of the 2016 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 light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the
2016 SEC Reports (the “2016 Financial Statements”) comply in all material
respects with applicable accounting requirements and the rules and regulations
of the SEC with respect thereto as in effect at the time of filing. The 2016
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved,
except as may be otherwise specified in such financial statements or the
footnotes thereto, 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.

 

2.6     Regulatory Permits; Licenses. The Company and the Subsidiaries possess
all certificates, authorizations, licenses 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 and the Memorandum
(“Material Permits”), except where the failure to possess such Material Permits
would not have a Material Adverse Effect, and neither the Company nor any
Subsidiary has received any notice of any action, arbitration, claim, hearing,
litigation or suit (whether civil, criminal, administrative, judicial or
investigative, whether formal or informal, whether public or private) commenced,
brought, conducted or heard by or before any federal, state, local or foreign
government or any court of competent jurisdiction, administrative or regulatory
body, agency, bureau, or commission in any domestic or foreign jurisdiction, any
appropriate division of any of the foregoing or any arbitrator, or other legal
action (each, a “Proceeding”) relating to the revocation or modification of any
Material Permit.

 

2.7     Litigation. There are no pending or, to the Company’s knowledge,
threatened Proceedings against the Company or any Subsidiary which would have a
Material Adverse Effect. Neither the Company nor any Subsidiary is a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality which would materially
adversely affect the business, property, financial condition or operations of
the Company and its Subsidiaries taken as a whole. There is no Proceeding by the
Company or any Subsidiary currently pending in any court or before any
arbitrator or that the Company or any Subsidiary intends to initiate. None of
the Company, any Subsidiary or any director or officer thereof is, or since the
date of the filing of the Form 10-K 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 is no pending or, to the
Company’s knowledge, contemplated investigation by the SEC involving the Company
or any current director or officer of the Company.

 

 
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2.8     Investment Company. The Company is not an “investment company” within
the meaning of such term under the Investment Company Act of 1940, as amended,
and the rules and regulations of the SEC promulgated thereunder.

 

2.9     Brokers. Except for the Placement Agent, neither the Company nor any of
the Company's officers, directors or employees has employed or engaged any
broker or finder in connection with the transactions contemplated by this
Agreement and no fee or other compensation is or will be due and owing on behalf
of the Company to any broker, finder, underwriter, placement agent or similar
person in connection with the transactions contemplated by this Agreement.

 

2.10     Intellectual Property; Employees.

 

(a)     The Company owns or possesses all material legal rights to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes necessary for its
business as presently conducted (collectively, the “Intellectual Property
Rights”). There are no material outstanding options, licenses or agreements of
any kind relating to the Company’s Intellectual Property Rights, nor is the
Company bound by or a party to any material options, licenses or agreements of
any kind with respect to the Intellectual Property Rights of any other person or
entity other than such licenses or agreements arising from the purchase of “off
the shelf” or standard products. Since the Reference Date, the Company has not
received any written communications alleging that the Company has violated or,
by conducting its business as presently conducted, would violate any
Intellectual Property Rights of any other person or entity. The Company and its
Subsidiaries have taken reasonable measures to protect the secrecy,
confidentiality and value of all of their Intellectual Property Rights, except
where failure to do so would not, individually or in the aggregate, have a
Material Adverse Effect

 

(b)     The Company is not aware of any obligation on the part of any Company
Employee under any contract (including licenses, covenants or commitments of any
nature), other agreement or judgment, decree or order of any court or
administrative agency, that would materially adversely interfere with such
employee’s duties to the Company or that would conflict with the Company’s
business as presently conducted.

 

(c)     To the Company’s knowledge, (i) no employee of the Company, or any
consultant with whom the Company has contracted, is in violation of any term of
any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company and (ii) the continued employment by the Company of
its employees, and the performance of the Company’s contracts with its
independent contractors, will not result in any such violation. Since the
Reference Date, the Company has not received any written notice alleging that
any such violation has occurred. No employee of the Company has been granted the
right to continued employment by the Company or to any compensation following
termination of employment with the Company except as would not have a Material
Adverse Effect. To the Company’s knowledge, no officer or key employee intends
to terminate his, her or their employment with the Company, nor does the Company
have a present intention to terminate any such employee.

 

 
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2.11     Title to Properties and Assets; Liens, Etc. The Company has good and
marketable title to its properties and assets and good title to its leasehold
estates.

 

2.12     Obligations to Related Parties. There are no obligations of the Company
to officers, directors, stockholders, or employees of the Company other than (a)
for payment of salary or other compensation for services rendered, (b)
reimbursement for reasonable expenses incurred on behalf of the Company and (c)
for other standard employee benefits made generally available to all employees
(including stock option agreements under the Company’s equity plans). None of
the officers or directors of the Company and, to the Company’s knowledge, none
of the employees of the Company, is presently a party to any transaction with
the Company or any Subsidiary (other than as holders Company securities and for
services as employees, officers and directors) required to be disclosed under
applicable SEC rules and regulations.

 

2.13     Material Changes. Since the Reference Date, (i) there has been no
event, occurrence or development that has had a Material Adverse Effect, (ii)
the Company has not incurred any material liabilities (contingent or otherwise)
other than (A) trade payables, accrued expenses and other liabilities 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 generally accepted accounting principles or required to be disclosed
in filings made with the SEC, (iii) the Company has not altered its method of
accounting or the identity of its auditors, (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
compensation plans. The Company does not have pending before the SEC any request
for confidential treatment of information.

 

2.14     Compliance. The Company is in material compliance with all applicable
requirements of the Sarbanes-Oxley Act of 2002, as amended, and the rules and
regulations promulgated thereunder.

 

2.15     No General Solicitation. Assuming the accuracy of the Placement Agent’s
representations in the placement agency agreement to be entered into by the
Company and the Placement Agent, none of the Company, its Subsidiaries, any of
its or their affiliates, or any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D) in connection with the Offering.

 

2.16     Private Placement; No Integrated Offering. Assuming the accuracy of the
Subscriber’s representations and warranties set forth in this Agreement, no
registration under the Securities Act is required for the offer or sale of the
Securities by the Company as contemplated hereby. Assuming the accuracy of the
Placement Agent’s representations in the placement agency agreement to be
entered into by the Company and the Placement Agent, none of the Company, its
Subsidiaries, any of its or their affiliates, or any person acting on its or
their behalf has, directly or indirectly, made any offers or sales of any
security, solicited any offers to buy any security or taken any other action,
which, under the circumstances would require such registration or cause this
Offering to be integrated with prior offerings by the Company for purposes of
the Securities Act or the listing rules of the NASDAQ Capital Market.

 

 
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2.17     Application of Takeover Protections. The Company has 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 Charter
Documents or the laws of the State of Delaware that otherwise would be
applicable as a result of the Subscriber and the Company fulfilling their
obligations or exercising their rights under this Agreement, including, without
limitation, the Company's issuance of the Securities and the Subscriber'
ownership of the Securities.

 

2.18     Taxes. Since the Reference Date (i) the Company and each of its
Subsidiaries has filed all U.S. federal, state, local and foreign tax returns
which are required to be filed by each of them and all such returns are true and
correct in all material respects, except for such failures to file which would
not have a Material Adverse Effect, (ii) the Company and each of its
Subsidiaries has paid all taxes required to be paid pursuant to such returns or
pursuant to any assessments received by any of them, and have withheld any
amounts which any of them are obligated to withhold from amounts owing to any
employee, creditor or third party and (iii) the Company and each of its
Subsidiaries has properly accrued all taxes required to be accrued and/or paid
pursuant to applicable law, except where the failure to accrue would not have a
Material Adverse Effect. To the knowledge of the Company, the tax returns of the
Company and its Subsidiaries are not currently being audited by any state, local
or federal authorities. Neither the Company nor any of its Subsidiaries has
waived any statute of limitations with respect to taxes or agreed to any
extension of time with respect to any tax assessment or deficiency.

 

2.19     Registration Rights. Other than the Placement Agent, no person has any
right to cause the Company to effect the registration under the Securities Act
of any securities of the Company.

 

2.20     Listing and Maintenance Requirements. The Common Stock is registered
pursuant to Section 12(b) of the Exchange Act, and the Company has taken no
action designed to, or which to its knowledge is likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act nor has
the Company received any notification that the SEC is contemplating terminating
such registration. Except for in connection with the listing of the Common Stock
being moved from the OTCQX to the NASDAQ Capital Market effective November 9,
2016, the Company has not, since the Reference Date, received notice from any
trading market on which the Common Stock is or has been listed or quoted to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such trading market. The Company is in material compliance with
the continued listing requirements of the NASDAQ Capital Market.

 

2.21     Material Contracts. The SEC Reports contain all material contracts,
agreements, commitments, arrangements, leases, policies or other instruments to
which either the Company or any of its Subsidiaries is a party or by which any
of them is bound, which are required to be filed pursuant to the Securities Act
or the Exchange Act (the “Material Contracts”). The Material Contracts are valid
and in full force and effect, enforceable against the Company and any of the
Subsidiaries party thereto and, to the Company’s knowledge, against the other
parties thereto. Neither the Company nor any Subsidiary is in violation of, or
default under (and there does not exist any event or condition which, after
notice or lapse of time or both, would constitute such a default under), any
Material Contract. To the Company’s knowledge, none of the other parties to any
Material Contract are in violation of or default under any Material Contract in
any material respect. Neither the Company nor any Subsidiary has received any
notice of cancellation or any written communication threatening cancellation of
any Material Contract which is currently in effect by any other party thereto.

 

 
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2.22     Contributions. Neither the Company nor any Subsidiary has directly or
indirectly, (i) made any unlawful contribution to any candidate for public
office, or failed to disclose fully where required by law any contribution in
violation of law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.

 

2.23     Disclosure. Except with respect to the material terms and conditions of
the transactions contemplated by the Offering Materials, the Company confirms
that neither it nor any other person acting on its behalf has provided the
Subscriber or its agents or counsel with any information that it believes
constitutes or might constitute material, non-public information. The Company
understands and confirms that the Subscriber will rely on the foregoing
representation in effecting transactions in securities of the Company.

 

2.24     Office of Foreign Assets Control. Neither the Company nor any
Subsidiary nor, to the Company's knowledge, any director, officer, employee or
affiliate of the Company or any Subsidiary, is currently subject to any U.S.
sanctions administered by the Office of Foreign Assets Control of the U.S.
Treasury Department (“OFAC”).

 

2.25     No Disqualification Events.  With respect to the Securities to be
offered and sold hereunder in reliance on Rule 506 under the Securities Act,
none of the Company, any of its predecessors, any affiliated issuer, any
director, executive officer, other officer of the Company participating in the
offering hereunder, any beneficial owner of 20% or more of the Company’s
outstanding voting equity securities, calculated on the basis of voting power,
nor any promoter (as that term is defined in Rule 405 under the Securities Act)
connected with the Company in any capacity at the time of sale (each, an “Issuer
Covered Person” and, together, “Issuer Covered Persons”) is subject to any of
the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under
the Securities Act (a “Disqualification Event”), except for a Disqualification
Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable
care to determine whether any Issuer Covered Person is subject to a
Disqualification Event. The Company has complied, to the extent applicable, with
its disclosure obligations under Rule 506(e), and has furnished to the
Purchasers a copy of any disclosures provided thereunder.

 

2.26     Other Covered Persons. Other than the Placement Agent, the Company is
not aware of any person (other than any Issuer Covered Person) that has been or
will be paid (directly or indirectly) remuneration for solicitation of
purchasers in connection with the sale of any Securities.

 

 
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III.     TERMS OF SUBSCRIPTION

 

3.1     The Securities will be offered for sale until the earliest of (i) the
date upon which subscriptions for the Maximum Offering Amount offered hereunder
have been accepted by the Company, (ii) the date the Offering is terminated by
the Company and (iii) July 31, 2017, subject to the right of the Company and the
Placement Agent to extend the Offering for an additional thirty (30) day period
without prior notice to the investors in the Offering (the “Termination Date”).
The Placement Agent is acting in such capacity with respect to the Offering on a
“commercially reasonable best efforts” basis for the Maximum Offering Amount.

 

3.2     The Company may, in its discretion at any time prior to the Termination
Date, hold an initial closing (“Initial Closing”) and, at any time and from time
to time after the Initial Closing, may hold subsequent closings (each such
closing, including the Initial Closing, a “Closing,” and the final such Closing,
the “Final Closing”), in each case, with respect to any Securities for which
subscriptions have been accepted prior to such date. In the event that (i) the
Initial Closing does not occur prior to the Termination Date or (ii) this
Agreement or the aggregate Purchase Price owed with respect to the Securities
purchased by the Subscriber pursuant hereto is received after the Final Closing,
all amounts paid by the Subscriber shall be returned to the Subscriber, without
interest or deduction. The Subscriber may revoke its subscription and obtain a
return of the subscription amount paid to the Escrow Account at any time before
the date of the Initial Closing by providing written notice to the Placement
Agent, the Company and the Escrow Agent as provided in Section 6.1 below. Upon
receipt of a revocation notice from the Subscriber prior to the date of the
Initial Closing, all amounts paid by the Subscriber shall be returned to the
Subscriber, without interest or deduction. The Subscriber may not revoke this
subscription or obtain a return of the subscription amount paid to the Escrow
Agent on or after the date of the Initial Closing. Any subscription received
after the Initial Closing but prior to the Termination Date shall be
irrevocable.

 

3.3     The minimum purchase that may be made by any prospective investor shall
be $50,000. Subscriptions for investment below the minimum investment may be
accepted at the discretion of the Placement Agent and the Company. The Company
and the Placement Agent reserve the right to reject any subscription made
hereby, in whole or in part, in their sole discretion.

 

3.4     The Placement Agent and the Company may increase the Maximum Offering
Amount to $25,000,000 without prior notice to the Subscriber.

 

3.5     Prior to the applicable Closing for the Securities purchased pursuant
hereto, funds representing the aggregate Purchase Price for such Securities
shall be deposited in the Escrow Account.

 

3.6     Certificates representing the Preferred Stock and the Warrants purchased
by the Subscriber pursuant to this Agreement will be prepared for delivery to
the Subscriber as soon as practicable following the applicable Closing (but in
no event later than five (5) business days after the applicable Closing). The
Subscriber hereby authorizes and directs the Company to deliver certificates
representing the Securities purchased by the Subscriber pursuant to this
Agreement directly to the Subscriber’s address indicated on the signature page
hereto.

 

 
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3.7     The Company’s agreement with each investor in the Offering, including
the Subscriber, is a separate agreement and the sale of the Securities to each
investor in the Offering, including the Subscriber, is a separate sale.

 

IV.     CONDITIONS TO OBLIGATIONS OF THE SUBSCRIBER

 

4.1     The Subscriber’s obligation to purchase the Securities at the Closing at
which such purchase is to be consummated is subject to the fulfillment on or
prior to such Closing of the following conditions, which conditions may be
waived at the option of the Subscriber to the extent permitted by law:

 

(a)     Representations and Warranties; Covenants. The representations and
warranties made by the Company in Section 2 shall be true and correct (without
giving effect to any “Material Adverse Effect,” “material,” “materially” or
similar materiality qualifications therein, other than Section 2.13(i)) in all
material respects as of the date hereof and as of the Closing Date, except for
those representations and warranties which expressly relate to an earlier date,
in which case such representations and warranties shall have been true and
correct in all material respects as of such earlier date (without giving effect
to any “Material Adverse Effect”, “material”, “materially” or other similar
materiality qualification therein). All covenants, agreements and conditions
contained in this Agreement to be performed by the Company on or prior to the
date of such Closing shall have been performed or complied with in all material
respects.

 

(b)     No Legal Order Pending. There shall not then be in effect any legal or
other order enjoining or restraining the transactions contemplated by this
Agreement.

 

(c)     No Law Prohibiting or Restricting Such Sale. There shall not be in
effect any law, rule or regulation prohibiting or restricting such sale or
requiring any consent or approval of any person, which shall not have been
obtained, to issue the Securities (except as otherwise provided in this
Agreement).

 

(d)     No Suspensions of Trading in Common Stock; Listing. Trading in the
Common Stock shall not have been suspended by the SEC or any trading market
(except for any suspensions of trading of not more than one trading day solely
to permit dissemination of material information regarding the Company) at any
time since the date of execution of this Agreement, and the Common Stock shall
have been at all times since such date listed or quoted for trading on the
Company’s principal trading market.

 

(e)     Legal Opinion. The Company’s corporate counsel shall have delivered a
legal opinion addressed to Placement Agent in a form reasonably acceptable to
the Placement Agent.

 

(f)     Notice of Disqualification Events. The Company will notify the
Purchasers and the Placement Agent in writing, prior to the Closing Date, of (i)
any Disqualification Event relating to any Issuer Covered Person and (ii) any
event that would, with the passage of time, reasonably be expected to become a
Disqualification Event relating to any Issuer Covered Person, in each case of
which it is aware.

 

 
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V.

COVENANTS OF THE COMPANY

 

5.1     Listing of Securities. The Company agrees, (i) if the Company applies to
have the Common Stock traded on any other trading market, it will include in
such application the Underlying Shares, and will take such other action as is
necessary or desirable to cause the Underlying Shares to be listed on such other
trading market as promptly as possible, (ii) it will comply in all material
respects with the Company’s reporting, filing and other obligations under the
Charter Documents or rules of the principal trading market of the Common Stock
and (iii) for so long as the Board of Directors determines that it remains
advisable and in the Company’s best interest, the Company will take all
commercially reasonable action necessary to continue the listing and trading of
its Common Stock on a trading market.

 

5.2     Reservation of Shares. The Company shall at all times while the
Preferred Stock and the Warrants are outstanding maintain a reserve from its
duly authorized shares of Common Stock of a number of shares of Common Stock
sufficient to allow for the issuance of the Underlying Shares.

 

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

 

5.4     Furnishing of Information. The Company covenants to 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. As long as Subscriber owns Securities, if the
Company is not required to file reports pursuant to the Exchange Act, it will
prepare and furnish to Subscriber and make publicly available in accordance with
Rule 144(c) such information as is required for the Subscribers to be able to
sell the Securities under Rule 144 within the requirements provided thereby. The
Company further covenants that it will take such further action as any holder of
Securities may reasonably request, to the extent required from time to time, to
enable such person to sell such Securities without registration under the
Securities Act within the requirements of the exemption provided by Rule 144.

 

5.5     Securities Laws; Publicity. The Company shall (a) by 9:30 a.m. (New York
City time) on the Trading Day immediately following the date hereof, issue a
press release disclosing the material terms of the transactions contemplated
hereby and (b) file a Current Report on Form 8-K, including the Offering
Materials as exhibits thereto (to the extent any information contained therein
is material, non-public information), with the SEC within the time required by
the Exchange Act. From and after the issuance of such press release, the Company
represents to the Subscriber (other than any Subscriber who has a representative
on the Company’s board of directors or who is an employee of the Company) that
it shall have publicly disclosed all material, non-public information delivered
to any Subscriber by the Company or any of its Subsidiaries or any of its or
their respective officers, directors, employees or agents in connection with the
transactions contemplated by the Offering Materials. In addition, effective upon
the issuance of such press release, the Company acknowledges and agrees that any
and all confidentiality or similar obligations under any agreement, whether
written or oral, between the Company, any of its Subsidiaries or any of their
respective officers, directors, agents, employees or Affiliates on the one hand,
and the Subscriber or any of its Affiliates on the other hand, shall terminate.
The Company and the Placement Agent shall consult with each other in issuing any
other press releases with respect to the transactions contemplated hereby.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of any Subscriber, or include the name of any Subscriber in any filing with the
SEC or any regulatory agency or trading market, without the prior written
consent of such Subscriber, except: (a) as required by federal securities law in
connection with the filing of any Offering Materials (including signature pages
thereto) with the SEC and (b) to the extent such disclosure is otherwise
required by law, in which case the Company shall, if permitted by applicable
law, provide the Subscriber with prior notice of such disclosure permitted under
this clause (b).

 

 
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5.6     Form D; Blue Sky Filings. The Company agrees to timely file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof promptly upon request of the Subscriber. The Company shall take
such action as the Company shall reasonably determine is necessary in order to
obtain an exemption for, or to qualify the Securities for, sale to the
Subscriber at the Closing under applicable securities or “blue sky” laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of any Subscriber.

 

5.7     Equal Treatment of Subscribers. No consideration (including any
modification of any Offering Materials) shall be offered or paid to any person
to amend or consent to a waiver or modification of any provision of any of the
Offering Materials unless the same consideration is also offered to all of the
investors in the Offering, including the Subscriber.

 

5.8      Non-Public Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Offering Materials, the
Company covenants and agrees that neither it, nor any other person acting on its
behalf, will provide Subscriber or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto Subscriber shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands and
confirms that Subscriber shall be relying on the foregoing covenant in effecting
transactions in securities of the Company.

 

 
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5.9     Indemnification of Purchasers. Subject to the provisions of this Section
5.9, the Company will indemnify and hold each Subscriber and its directors,
officers, shareholders, members, partners, employees and agents (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
“Subscriber Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable and documented
attorneys’ fees and costs of investigation that any such Subscriber Party may
suffer or incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in the other Offering Materials or (b) any action instituted
against the Subscriber Parties in any capacity, or any of them or their
respective Affiliates, by any stockholder of the Company who is not an Affiliate
of such Subscriber Party, with respect to any of the transactions contemplated
by the Offering Materials (unless such action is based upon a breach of such
Subscriber Party’s representations, warranties or covenants under the Offering
Materials or any agreements or understandings such Subscriber Party may have
with any such stockholder or any violations by such Subscriber Party of state or
federal securities laws or any conduct by such Subscriber Party which
constitutes fraud, gross negligence, willful misconduct or malfeasance). If any
action shall be brought against any Subscriber Party in respect of which
indemnity may be sought pursuant to this Agreement, such Subscriber Party shall
promptly, and in no event later than ten (10) days after such Subscriber’s
receipt of notice of such action, notify the Company in writing, and the Company
shall have the right to participate in or assume the defense thereof with
counsel of its own choosing reasonably acceptable to the Subscriber Party. Any
Subscriber Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Subscriber Party except to the extent
that (i) the employment thereof has been specifically authorized by the Company
in writing, (ii) the Company has failed after a reasonable period of time to
assume such defense and to employ counsel or (iii) in such action there is, in
the reasonable opinion of counsel, a material conflict on any material issue
between the position of the Company and the position of such Subscriber Party,
in which case the Company shall be responsible for the reasonable and documented
fees and expenses of no more than one such separate counsel. The Company will
not be liable to any Subscriber Party under this Agreement (y) for any
settlement by a Subscriber Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or (z) to the
extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Subscriber Party’s breach of any of the representations,
warranties, covenants or agreements made by such Subscriber Party in this
Agreement or in the other Offering Materials. The indemnification required by
this Section 5.8 with respect to expenses shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as and
when bills are received or are incurred. The indemnity agreements contained
herein shall be in addition to any cause of action or similar right of any
Subscriber Party against the Company or others and any liabilities the Company
may be subject to pursuant to law.

 

5.10     Use of Proceeds. The Company shall use the net proceeds from the
Offering for the purposes set forth in the Offering Materials.

 

 
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VI.

MISCELLANEOUS

 

6.1     Any notice or other communication given hereunder shall be deemed
sufficient if in writing and sent by registered or certified mail, return
receipt requested, delivered by hand against written receipt therefor, or sent
in portable document format (“pdf”) via electronic mail, addressed as follows:

 

if to the Company, to it at:

 

Diffusion Pharmaceuticals Inc.

2020 Avon Court, Suite 4

Charlottesville, Virginia 22902

Attn: David Kalergis, Chief Executive Officer

Email: dkalergis@diffusionpharma.com

 

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

 

Dechert LLP

1095 Avenue of the Americas

New York, New York 10036

Attn: David Rosenthal, Esq.

Email: david.rosenthal@dechert.com

 

if to the Subscriber, to the Subscriber’s address indicated on the signature
page of this Agreement.

 

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

 

Attn:

Email: 

 

if to the Escrow Agent, to it at:

 

Corporate Stock Transfer

3200 Cherry Creek Drive, South

Suite 430

Denver, CO 80209

Attn: Carylyn Ball, President

Email: cbell@corporatestock.com

 

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

 

Collegiate Peaks Bank

885 S. Colorado Blvd

Denver, CO 80246

Attn: Hope Spencer

Email: hope.spencer@collegiatepeaksbank.com

 

 
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6.2     Notices shall be deemed to have been given or delivered (i) on the third
(3rd) business day following the date of postmark in the case of delivery by
registered or certified mail, (ii) on the date of delivery in the case of
delivery by hand or (iii) on the date of delivery if delivered by electronic
mail; provided that if such e-mail is received after 4:00 p.m. Eastern Time on a
business day or at any time on a non-business day, such notice shall be deemed
delivered on the following business day. Except as otherwise provided herein,
this Agreement shall not be changed, modified or amended except by a writing
signed by the Company and the Subscriber, and this Agreement may not be
discharged except by performance in accordance with its terms or by a writing
signed by the Company and the Subscriber. 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.

 

6.3      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 each Subscriber (other than in connection with a change of control or
by operation of law). Any Subscriber may assign any or all of its rights under
this Agreement to any Person to whom such Subscriber assigns or transfers any
Securities, provided that such transferee agrees in writing to be bound, with
respect to the transferred Securities, by the provisions of the Offering
Materials that apply to the “Subscribers.”

 

6.4      The Offering Materials, together with the exhibits hereto and thereto,
contain the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or
written, with respect to such matters. The Placement Agent shall be deemed a
third party beneficiary of the representations and warranties and covenants made
by the Company and the Subscriber in this Agreement.

 

6.5      Upon the execution and delivery of this Agreement by the Subscriber and
the Company, this Agreement shall become a binding obligation of the Subscriber
with respect to the purchase of Securities as provided herein; provided,
however, that, for the avoidance of doubt, the Company hereby reserves the right
to (i) enter into subscription agreements with other prospective investors in
the Offering and (ii) reject any subscription, in whole or in part, including,
as applicable, that of the Subscriber, provided the Company returns to such
prospective investor any funds paid by such prospective investor(s), with
respect to such rejected subscription or portion thereof, without interest or
deduction.

 

6.6      Any action, arbitration, claim, hearing, litigation or suit (whether
civil, criminal, administrative, judicial or investigative, whether formal or
informal, whether public or private) commenced, brought, conducted or heard by
or before any federal, state, local or foreign government or any court of
competent jurisdiction, administrative or regulatory body, agency, bureau, or
commission in any domestic or foreign jurisdiction, any appropriate division of
any of the foregoing or any arbitrator, or other legal action (each, a
“Proceeding”) relating to this Agreement or the transactions contemplated hereby
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 Proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Offering Materials (whether brought against a party
hereto or its affiliates, directors, officers, shareholders, employees or
agents) shall be commenced exclusively in the state and federal courts sitting
in the Southern District of New York. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the
Southern District of New York for the adjudication of any Proceeding related to
this Agreement, the other Offering Materials or the transactions contemplated
hereby or thereby, and hereby irrevocably waives, and agrees not to assert in
any Proceeding that it is not personally subject to the jurisdiction of any such
court, that Proceeding is improper or is an inconvenient venue for such
Proceeding.

 

 
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6.7      In order to discourage frivolous Proceedings the parties agree that
unless a claimant in any Proceeding arising out of this Agreement succeeds in
establishing a claim and recovering a judgment against another party (regardless
of whether such claimant succeeds against one of the other parties to the
Proceeding), then the non-claimant party shall be entitled to recover from such
claimant all of such other party’s reasonable legal costs and expenses relating
to such Proceeding and/or incurred in preparation therefor.

 

6.8      If any provision of this Agreement, or the application of such
provision to any person or circumstance, shall be held invalid by a court of
competent jurisdiction, the remainder of this Agreement, or the application of
such provision to persons or circumstances other than those to which it is held
invalid by such court, shall not be affected thereby.

 

6.9                 Subject to applicable statute of limitations, the
representations and warranties contained herein shall survive the Closing and
the delivery of the Securities

 

6.10      The Company and the Subscriber agree to execute and deliver all such
further documents, agreements and instruments and take such other and further
action as may be necessary or appropriate to carry out the purposes and intent
of this Agreement.

 

6.11     This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts together shall
constitute one and the same instrument. Delivery of executed signature pages
hereof by facsimile transmission or pdf shall constitute effective and binding
execution and delivery of this Agreement.

 

6.12     Nothing in this Agreement shall create or be deemed to create any
rights or remedies in any person or entity that is not a party to this
Agreement.

 

6.13      The Company and the Subscriber agree that in the event of any breach
or threatened breach by the other party of any covenant, obligation or other
provision set forth in this Agreement, the non-breaching or non-threatening
party, as applicable, shall be entitled (in addition to any other remedy that
may be available to it) to seek (a) a decree or order of specific performance or
mandamus to enforce the observance and performance of such covenant, obligation
or other provision, and (b) an injunction restraining such breach or threatened
breach.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 
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SHARES OF PREFERRED STOCK BEING SUBSCRIBED FOR: ____________________

 

PURCHASE PRICE (PER SHARE): $________

 

AGGREGATE PURCHASE PRICE: ____________________

 

 

 

 

 

 

 

Signature

 

 

Signature (if purchasing jointly)

 

 

 

 

 

 

          Name Typed or Printed     Name Typed or Printed                      
Title (if Subscriber is an Entity)      Title (if Subscriber is an Entity)      
                Address      Address                       City, State and Zip
Code       City, State and Zip Code                       Telephone-Business   
  Telephone-Business                       Telephone-Residence     
Telephone-Residence                       Facsimile     Facsimile              
                  Tax ID # or Social Security #       Tax ID # or Social
Security #                                           E-Mail Address     E-Mail
Address  

 

 

Name in which Securities should be
issued:                                                                                                                       
              

 

 

Dated: _________________, 2017

 

This Subscription Agreement is agreed to and accepted as of ________________,
2017.

 

DIFFUSION PHARMACEUTICALS INC.                    

 

 

 

By:____________________________________ 

Name:                               

Title:                              

 

 

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