Exhibit 10.1

 

SUBSCRIPTION AGREEMENT

 

This Subscription Agreement (this “Agreement”) is being delivered to Pontifax
(Cayman) III Limited Partnership, Pontifax (Israel) III Limited Partnership,
Pontifax (Israel) IV Limited Partnership, Pontifax (Cayman) IV Limited
Partnership and Pontifax (China) IV Limited Partnership (collectively,
“Pontifax”), Dr. Phillip Frost (“Frost”), and additional investors as specified
in Schedule A of this Agreement. Each of Pontifax, Frost, and the additional
investors shall be referred hereinafter as the “Subscriber” and collectively the
"Subscribers" in connection with their investment in the securities of Sevion
Therapeutics, Inc., a Delaware corporation (the “Company”). The Company is
conducting a private placement (the “Offering”) of up to Twelve Million Dollars
($12,000,000) of shares (the “Shares”) of the Company’s common stock, par value
$0.01 per share (the “Common Stock”) at a purchase price of $0.15 per share (the
“Purchase Price”). For purposes of this Agreement, the term “Securities” shall
refer to the Shares. This Agreement is entered into in parallel and pursuant to
the Share Purchase Agreement dated as of May 22, 2017 between the Subscribers
and Eloxx Pharmaceuticals Ltd. ("Eloxx" and "Eloxx SPA" respectively), as
subsequently amended.

 

IMPORTANT INVESTOR NOTICES

 

NO OFFERING LITERATURE OR ADVERTISEMENT IN ANY FORM MAY BE RELIED UPON IN THE
OFFERING OF THESE SECURITIES EXCEPT FOR THIS SUBSCRIPTION AGREEMENT AND ANY
SUPPLEMENTS HERETO, AND NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY
REPRESENTATIONS EXCEPT THOSE CONTAINED HEREIN.

 

THIS AGREEMENT IS CONFIDENTIAL AND THE CONTENTS HEREOF MAY NOT BE REPRODUCED,
DISTRIBUTED OR DIVULGED BY OR TO ANY PERSONS OTHER THAN THE RECIPIENT OR ITS
REPRESENTATIVE, ACCOUNTANT OR LEGAL COUNSEL, WITHOUT THE PRIOR WRITTEN CONSENT
OF THE COMPANY. EACH PERSON WHO ACCEPTS DELIVERY OF THIS AGREEMENT, ACKNOWLEDGES
AND AGREES TO THE FOREGOING RESTRICTIONS.

 

THIS AGREEMENT DOES NOT PURPORT TO BE ALL-INCLUSIVE OR TO CONTAIN ALL OF THE
INFORMATION THAT YOU MAY DESIRE IN EVALUATING THE COMPANY, OR AN INVESTMENT IN
THE OFFERING. THIS AGREEMENT DOES NOT CONTAIN ALL OF THE INFORMATION THAT WOULD
NORMALLY APPEAR IN A PROSPECTUS FOR AN OFFERING REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”). YOU MUST CONDUCT AND RELY ON
YOUR OWN EVALUATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE
MERITS AND RISKS INVOLVED, IN DECIDING WHETHER TO INVEST IN THE OFFERING.

 

THIS AGREEMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION OF AN OFFER TO ANY
PERSON OR IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION IS UNLAWFUL OR
NOT AUTHORIZED. EACH PERSON WHO ACCEPTS DELIVERY OF THIS AGREEMENT AGREES TO
RETURN IT AND ALL RELATED DOCUMENTS IF SUCH PERSON DOES NOT PURCHASE ANY OF THE
SECURITIES DESCRIBED HEREIN.

 

NEITHER THE DELIVERY OF THIS AGREEMENT AT ANY TIME NOR ANY SALE OF SECURITIES
HEREUNDER SHALL IMPLY THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE. THE COMPANY WILL EXTEND TO EACH PROSPECTIVE
SUBSCRIBER (AND TO ITS REPRESENTATIVE, ACCOUNTANT OR LEGAL COUNSEL, IF ANY) THE
OPPORTUNITY, PRIOR TO ITS PURCHASE OF SHARES, TO ASK QUESTIONS OF AND RECEIVE
ANSWERS FROM THE COMPANY CONCERNING THE OFFERING AND TO OBTAIN ADDITIONAL
INFORMATION, TO THE EXTENT THE COMPANY POSSESSES THE SAME OR CAN ACQUIRE IT
WITHOUT UNREASONABLE EFFORT OR EXPENSE, IN ORDER TO VERIFY THE ACCURACY OF THE
INFORMATION SET FORTH HEREIN. ALL SUCH ADDITIONAL INFORMATION SHALL ONLY BE
PROVIDED IN WRITING AND IDENTIFIED AS SUCH BY THE COMPANY THROUGH ITS DULY
AUTHORIZED OFFICERS AND/OR DIRECTORS ALONE; NO ORAL INFORMATION OR INFORMATION
PROVIDED BY ANY BROKER OR THIRD PARTY MAY BE RELIED UPON.

 

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NO REPRESENTATIONS, WARRANTIES OR ASSURANCES OF ANY KIND ARE MADE OR SHOULD BE
INFERRED WITH RESPECT TO THE ECONOMIC RETURN, IF ANY, THAT MAY ACCRUE TO AN
INVESTOR IN THE COMPANY.

 

THIS AGREEMENT CONTAINS FORWARD-LOOKING STATEMENTS REGARDING THE COMPANY’S
PERFORMANCE, STRATEGY, PLANS, OBJECTIVES, EXPECTATIONS, BELIEFS AND INTENTIONS.
THE OUTCOME OF THE EVENTS DESCRIBED IN THESE FORWARD-LOOKING STATEMENTS IS
SUBJECT TO SUBSTANTIAL RISKS, AND ACTUAL RESULTS COULD DIFFER MATERIALLY. THE
SECTIONS ENTITLED “EXECUTIVE SUMMARY,” “RISK FACTORS,” AND “DESCRIPTION OF
BUSINESS,” IN ANY SECURITIES AND EXCHANGE COMMISSION (“SEC”) FILING OR REPORT,
AS WELL AS THIS AGREEMENT GENERALLY, CONTAIN DISCUSSIONS OF SOME OF THE FACTORS
THAT COULD CONTRIBUTE TO THESE DIFFERENCES.

 

FOR RESIDENTS OF ALL STATES

 

THIS OFFERING IS BEING MADE SOLELY TO “ACCREDITED INVESTORS,” AS SUCH TERM IS
DEFINED IN RULE 501 OF REGULATION D UNDER THE SECURITIES ACT. THE SECURITIES
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY
STATE AND WILL BE OFFERED AND SOLD IN RELIANCE UPON THE EXEMPTION FROM
REGISTRATION AFFORDED BY SECTION 4(a)(2) THEREUNDER AND REGULATION D (RULE 506)
OF THE SECURITIES ACT AND CORRESPONDING PROVISIONS OF STATE SECURITIES LAWS.

 

THE SECURITIES OFFERED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT AND APPLICABLE STATE LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. SUBSCRIBERS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

 

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC,
ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY
OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING
OR THE ACCURACY OR ADEQUACY OF THIS AGREEMENT. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.

 

PROSPECTIVE SUBSCRIBERS SHOULD NOT CONSTRUE THE CONTENTS OF THIS AGREEMENT AS
INVESTMENT, LEGAL, BUSINESS, OR TAX ADVICE. EACH SUBSCRIBER SHOULD CONTACT HIS,
HER OR ITS OWN ADVISORS REGARDING THE APPROPRIATENESS OF THIS INVESTMENT AND THE
TAX CONSEQUENCES THEREOF, WHICH MAY DIFFER DEPENDING ON A SUBSCRIBER’S
PARTICULAR FINANCIAL SITUATION. IN NO EVENT SHOULD THIS AGREEMENT BE DEEMED OR
CONSIDERED TO BE TAX ADVICE PROVIDED BY THE COMPANY.

 

FOR FLORIDA RESIDENTS ONLY

 

THE SECURITIES REFERRED TO HEREIN WILL BE SOLD TO, AND ACQUIRED BY, THE HOLDER
IN A TRANSACTION EXEMPT UNDER § 517.061 OF THE FLORIDA SECURITIES ACT. THE
SECURITIES HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE STATE OF FLORIDA. IN
ADDITION, ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE OF VOIDING THE PURCHASE
WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY SUCH
SUBSCRIBER TO THE COMPANY, AN AGENT OF THE COMPANY, OR AN ESCROW AGENT OR WITHIN
THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH
SUBSCRIBER, WHICHEVER OCCURS LATER.

 

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1.       SUBSCRIPTION AND PURCHASE PRICE

 

(a)       Subscription. Subject to and upon Closing, each Subscriber shall
purchase the number of Shares indicated on Schedule A opposite its name on the
terms and conditions described herein and the Company shall issue to such
Subscriber such number of Shares as set forth opposite such Subscriber's name on
Schedule A. The aggregate amount invested hereunder shall be equal to up to US
$12,000,000 (the “Aggregate Purchase Price”) and Schedule A shall be amended
from time to time to the extent that any investor joins the Eloxx SPA upon the
deferred closing thereunder.

 

(b)       Purchase of Shares. Each Subscriber understands and acknowledges that
the purchase price to be remitted to the Company in exchange for the Shares
shall be set at $0.15 per Share, for an aggregate purchase price as set forth
opposite such Subscriber's name on Schedule A. Upon Closing, each Subscriber,
severally and not jointly, undertakes to pay its respective portion of the
Aggregate Purchase Price as set forth in Schedule A in United States Dollars, by
wire transfer of immediately available funds delivered to the Company pursuant
to the wiring instructions set forth on Exhibit A attached hereto. Each
Subscriber understands and agrees that, subject to applicable laws, by executing
this Agreement, it is entering into a binding agreement.

 

2.       Closing

 

(b)       Closing. The closing of the purchase and sale of the Shares hereunder
(the “Closing”) shall take place immediately prior to the closing of the
agreement by and among the Company, Sevion Sub Israel Ltd., a wholly-owned
Israeli subsidiary of the Company (the “Acquisition Sub”), and Eloxx, whereby
Acquisition Sub will merge with and into Eloxx, with Eloxx surviving as a
wholly-owned subsidiary of the Company (the "Merger" and “Merger Agreement”,
respectively), but in any event not later than December 31, 2017 promptly
following the satisfaction of the conditions set forth in Section 6 below, as
determined by the Company and the Majority Subscribers (as defined in Section
5(c)) (the “Closing Date”). The Shares purchased by the Subscriber will be
delivered by the Company promptly following the Closing Date of the Offering.

 

(d)       Extraordinary Events Regarding Common Stock. In the event that between
the date hereof and the Closing, the Company shall (a) issue additional shares
of Common Stock as a dividend or other distribution on outstanding Common Stock,
(b) subdivide its outstanding shares of Common Stock, or (c) combine its
outstanding shares of the Common Stock into a smaller number of shares of Common
Stock, then, in each such event, the Purchase Price shall, simultaneously with
the happening of such event, be adjusted by multiplying the then Purchase Price
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such event and the denominator of which
shall be the number of shares of Common Stock outstanding immediately after such
event, and the product so obtained shall thereafter be the Purchase Price then
in effect. The Purchase Price, as so adjusted, shall be readjusted in the same
manner upon the happening of any successive event or events described herein.
The number of Shares that the Subscriber shall thereafter be entitled to receive
shall be adjusted to a number determined by multiplying the number of shares of
Common Stock that would otherwise (but for the provisions of this Section) be
issuable by a fraction of which (a) the numerator is the Purchase Price that
would otherwise (but for the provisions of this Section) be in effect, and (b)
the denominator is the Purchase Price then in effect.

 

(e)       Certificate as to Adjustments. In each case of any adjustment or
readjustment in the Shares, the Company, at its expense, will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms hereof and prepare a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company will forthwith
mail a copy of each such certificate to the Subscriber.

 

3.       THE SUBSCRIBER’s Representations, Warranties AND cOVENANTS

 

Each Subscriber, severally and not jointly, hereby acknowledges, agrees with and
represents, warrants and covenants to the Company, as follows:

 

(a)       The Subscriber has full power and authority to enter into this
Agreement, the execution and delivery of which has been duly authorized, if
applicable, and this Agreement constitutes a valid and legally binding
obligation of the Subscriber, except as may be limited by bankruptcy,
reorganization, insolvency, moratorium and similar laws of general application
relating to or affecting the enforcement of rights of creditors, and except as
enforceability of the obligations hereunder are subject to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or law).

 

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(b)       The Subscriber acknowledges its understanding that the Offering and
sale of the Securities is intended to be exempt from registration under the
Securities Act, by virtue of Section 4(a)(2) of the Securities Act and the
provisions of Regulation D promulgated thereunder (“Regulation D”). In
furtherance thereof, the Subscriber represents and warrants to the Company and
its affiliates as follows:

 

(i)       The Subscriber realizes that the basis for the exemption from
registration may not be available if, notwithstanding the Subscriber’s
representations contained herein, the Subscriber is merely acquiring the
Securities for a fixed or determinable period in the future, or for a market
rise, or for sale if the market does not rise. The Subscriber does not have any
such intention.

 

(ii)       The Subscriber realizes that the basis for exemption would not be
available if the Offering is part of a plan or scheme to evade registration
provisions of the Securities Act or any applicable state or federal securities
laws, except sales pursuant to a registration statement or sales that are
exempted under the Securities Act.

 

(iii)       The Subscriber is acquiring the Securities solely for the
Subscriber’s own beneficial account, for investment purposes, and not with a
view towards, or resale in connection with, any distribution of the Securities.

 

(iv)       The Subscriber has the financial ability to bear the economic risk of
the Subscriber’s investment, has adequate means for providing for its current
needs and contingencies, and has no need for liquidity with respect to an
investment in the Company.

 

(v)       The Subscriber and the Subscriber’s attorney, accountant, purchaser
representative and/or tax advisor, if any (collectively, the “Advisors”) has
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of a prospective investment in the
Securities. If other than an individual, the Subscriber also represents it has
not been organized solely for the purpose of acquiring the Securities.

 

(c)       The Subscriber is not relying on the Company or any of its employees,
agents, sub-agents or advisors with respect to the legal, tax, economic and
related considerations involved in this investment. The Subscriber has relied on
the advice of, or has consulted with, only its Advisors. Each Advisor, if any,
has disclosed to the Subscriber in writing (a copy of which is annexed to this
Agreement) the specific details of any and all past, present or future
relationships, actual or contemplated, between the Advisor and the Company or
any affiliate or sub-agent thereof.

 

(d)       The Subscriber has carefully considered the potential risks relating
to the Company and a purchase of the Securities, and fully understands that the
Securities are a speculative investment that involves a high degree of risk of
loss of the Subscriber’s entire investment. Among other things, the Subscriber
has carefully considered each of the risks described under the heading “Risk
Factors” in the Company’s SEC Documents (as defined below) and any additional
disclosures in the nature of risk factors described herein.

 

(e)       The Subscriber will not sell or otherwise transfer any Securities
without registration under the Securities Act or an exemption therefrom, and
fully understands and agrees that the Subscriber must bear the economic risk of
its purchase because, among other reasons, the Securities have not been
registered under the Securities Act or under the securities laws of any state
and, therefore, cannot be resold, pledged, assigned or otherwise disposed of
unless they are subsequently registered under the Securities Act and under the
applicable securities laws of such states, or an exemption from such
registration is available. In particular, the Subscriber is aware that the
Securities are “restricted securities,” as such term is defined in Rule 144
promulgated under the Securities Act (“Rule 144”), and they may not be sold
pursuant to Rule 144 unless all of the conditions of Rule 144 are met. The
Subscriber also understands that the Company is under no obligation to register
the Securities on behalf of the Subscriber or to assist the Subscriber in
complying with any exemption from registration under the Securities Act or
applicable state securities laws. The Subscriber understands that any sales or
transfers of the Securities are further restricted by state securities laws and
the provisions of this Agreement.

 

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(f)       No oral or written representations or warranties have been made, or
information furnished, to the Subscriber or its Advisors, if any, by the Company
or any of its officers, employees, agents, sub-agents, affiliates, advisors or
subsidiaries in connection with the Offering, other than any representations of
the Company contained herein, and in subscribing for the Shares the Subscriber
is not relying upon any representations other than those contained herein.

 

(g)       The Subscriber’s overall commitment to investments that are not
readily marketable is not disproportionate to the Subscriber’s net worth, and an
investment in the Securities will not cause such overall commitment to become
excessive.

 

(h)       The Subscriber understands and agrees that the certificates for the
Securities shall bear substantially the following legend:

 

“THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
(B) AN OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM
REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.”

 

(i)       Certificates evidencing Securities shall not be required to contain
the legend set forth in Section 3(h) above or any other legend (i) while a
registration statement covering the resale of such Securities is effective under
the Securities Act, (ii) following any sale of such Securities pursuant to Rule
144 (assuming the transferor is not an affiliate of the Company), (iii) if such
Securities are eligible to be sold, assigned or transferred under Rule 144 and
the Subscriber is not an affiliate of the Company (provided that the Subscriber
provides the Company with reasonable assurances that such Securities are
eligible for sale, assignment or transfer under Rule 144 which shall not include
an opinion of the Subscriber’s counsel), (iv) in connection with a sale,
assignment or other transfer (other than under Rule 144), provided that the
Subscriber provides the Company with an opinion of counsel (at the expense of
the Company), in a form generally acceptable to the Company, to the effect that
such sale, assignment or transfer of the Securities may be made without
registration under the applicable requirements of the Securities Act or (v) if
such legend is not required under applicable requirements of the Securities Act
(including, without limitation, controlling judicial interpretations and
pronouncements issued by the SEC). If a legend is not required pursuant to the
foregoing, the Company shall no later than three (3) business days following the
delivery by the Subscriber to the Company or the transfer agent (with notice to
the Company) of a legended certificate representing such Securities (endorsed or
with stock powers attached, signatures guaranteed, and otherwise in form
necessary to affect the reissuance and/or transfer, if applicable), together
with any other deliveries from the Subscriber as may be required above in this
Section 3(i), as directed by the Subscriber, either: (A) provided that the
Company’s transfer agent is participating in the DTC Fast Automated Securities
Transfer Program, credit the aggregate number of shares of Common Stock to which
the Subscriber shall be entitled under this Agreement to the Subscriber’s or its
designee’s balance account with DTC through its Deposit/Withdrawal at Custodian
system or (B) if the Company’s transfer agent is not participating in the DTC
Fast Automated Securities Transfer Program, issue and deliver (via reputable
overnight courier) to the Subscriber, a certificate representing such Securities
that is free from all restrictive and other legends, registered in the name of
the Subscriber or its designee. The Company shall be responsible for any
transfer agent fees or DTC fees with respect to any issuance of Securities or
the removal of any legends with respect to any Securities in accordance
herewith.

 

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(j)       Neither the SEC nor any state securities commission has approved the
Securities or passed upon or endorsed the merits of the Offering. There is no
government or other insurance covering any of the Securities.

 

(k)       The Subscriber and its Advisors, if any, have had a reasonable
opportunity to ask questions of and receive answers from a person or persons
acting on behalf of the Company concerning the Offering and the business,
financial condition, results of operations and prospects of the Company, and all
such questions have been answered to the full satisfaction of the Subscriber and
its Advisors, if any.

 

(l)            (i) 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 any other agreement entered into between the Subscriber and
the Company, or between the Subscriber and Eloxx (collectively, the “Transaction
Documents”). 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 the
Transaction Documents.

 

(ii)       The Subscriber represents and warrants that no Securities were
offered or sold to it by means of any form of general solicitation or general
advertising, and in connection therewith, the Subscriber did not (A) 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; or (B) attend any seminar
meeting or industry investor conference whose attendees were invited by any
general solicitation or general advertising; or (C) observe any website or
filing of the Company with the SEC in which any offering of securities by the
Company was described and as a result learned of any offering of securities by
the Company.

 

(m)       The Subscriber has taken no action that would give rise to any claim
by any person for brokerage commissions, finder’s fees or the like relating to
this Agreement or the transactions contemplated hereby.

 

(n)       The Subscriber is not relying on the Company or any of its employees,
agents, or advisors with respect to the legal, tax, economic and related
considerations of an investment in the Securities, and the Subscriber has relied
on the advice of, or has consulted with, only its own Advisors.

 

(o)        The Subscriber acknowledges that any estimates or forward-looking
statements or projections furnished by the Company to the Subscriber were
prepared by the management of the Company in good faith, but that the attainment
of any such projections, estimates or forward-looking statements cannot be
guaranteed by the Company or its management and should not be relied upon.

 

(p)       No oral or written representations have been made, or oral or written
information furnished, to the Subscriber or its Advisors, if any, in connection
with the Offering that are in any way inconsistent with the information
contained herein.

 

(q)       (For ERISA plans only) The fiduciary of the ERISA plan (the “Plan”)
represents that such fiduciary has been informed of and understands the
Company’s investment objectives, policies and strategies, and that the decision
to invest “plan assets” (as such term is defined in ERISA) in the Company is
consistent with the provisions of ERISA that require diversification of plan
assets and impose other fiduciary responsibilities. The Subscriber or Plan
fiduciary (i) is responsible for the decision to invest in the Company; (ii) is
independent of the Company and any of its affiliates; (iii) is qualified to make
such investment decision; and (iv) in making such decision, the Subscriber or
Plan fiduciary has not relied primarily on any advice or recommendation of the
Company or any of its affiliates.

 

(s)       The Subscriber is an “Accredited Investor” as defined in Rule 501(a)
under the Securities Act. In general, an “Accredited Investor” is deemed to be
an institution with assets in excess of $5,000,000 or individuals with a net
worth in excess of $1,000,000 (excluding such person’s residence) or annual
income exceeding $200,000 or $300,000 jointly with his or her spouse.

 

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(t)       The Subscriber, 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 Offering, and has
so evaluated the merits and risks of such investment. The Subscriber has not
authorized any person or entity to act as its Purchaser Representative (as that
term is defined in Regulation D of the General Rules and Regulations under the
Securities Act) in connection with the Offering. The Subscriber is able to bear
the economic risk of an investment in the Securities and, at the present time,
is able to afford a complete loss of such investment.

 

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4.       THE COMPANY’S Representations, Warranties and Covenants

 

The Company hereby acknowledges, agrees with and represents, warrants and
covenants to each Subscriber, as follows:

 

(a)       Organization and Qualification

 

Other than as set forth in the Company’s SEC Documents (as defined below), each
of the Company and each of its Subsidiaries (as defined below) are entities duly
organized and validly existing and in good standing under the laws of the
jurisdiction in which they are formed, and have the requisite power and
authorization to own their properties and to carry on their business as now
being conducted. Each of the Company and each of its Subsidiaries is duly
qualified as a foreign entity to do business and is in good standing in every
jurisdiction in which its ownership of property or the nature of the business
conducted by it makes such qualification necessary, except to the extent that
the failure to be so qualified or be in good standing would not have a Material
Adverse Effect. As used in this Agreement, “Material Adverse Effect” means any
material adverse effect on (i) the business, properties, assets, liabilities,
operations (including results thereof), condition (financial or otherwise) or
prospects of the Company or any Subsidiary, either individually or taken as a
whole, (ii) the transactions contemplated hereby or in any of the other
Transaction Documents or (iii) the authority or ability of the Company or any of
its Subsidiaries to perform any of their respective obligations under any of the
Transaction Documents. Other than as set forth in the Company’s SEC Documents,
the Company has no Subsidiaries. “Subsidiaries” means any Person (as defined
below) in which the Company, directly or indirectly, (I) owns any of the
outstanding capital stock or holds any equity or similar interest of such Person
or (II) controls or operates all or any part of the business, operations or
administration of such Person, and each of the foregoing, is individually
referred to herein as a “Subsidiary”; and “Person” means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization, any other entity and a government or any
department or agency thereof.

 

(b)       Authorization; Enforcement; Validity

 

The Company has the requisite power and authority to enter into and perform its
obligations under this Agreement and the other Transaction Documents and to
issue the Securities in accordance with the terms hereof and thereof. Each
Subsidiary has the requisite power and authority to enter into and perform its
obligations under the Transaction Documents to which it is a party. The
execution and delivery of this Agreement and the other Transaction Documents by
the Company, and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance of
the Shares) have been duly authorized by the Board of Directors, and (other than
(i) the filing with the SEC of a Form D under Regulation D of the Securities Act
(ii) the 8-K Filing (as defined below), (iii) any action necessary in order to
qualify the Securities, and any other filings as may be required by any state
securities agencies and/or applicable blue sky laws, and (iv) if applicable, the
listing of the Shares on the Principal Market (as defined below)) no further
filing, consent or authorization is required by the Company, its Subsidiaries,
their respective boards of directors or their stockholders or other governing
body. This Agreement has been, and the other Transaction Documents will be,
prior to the Closing, duly executed and delivered by the Company, and each
constitutes the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with its respective terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of applicable creditors’
rights and remedies and except as rights to indemnification and to contribution
may be limited by federal or state securities law.

 

(c)       Issuance of Securities

 

The issuance of the Securities is duly authorized and, upon issuance in
accordance with the terms of the Transaction Documents, will be validly issued,
fully paid and non-assessable and free from all preemptive or similar rights,
taxes, liens, charges and other encumbrances with respect to the issue thereof.
As of the Closing, the Company shall have reserved from its duly authorized
capital stock not less than 100% of the number of shares of Common Stock
issuable pursuant to the Transaction Documents. The issuance of the Securities
are duly authorized, and upon issuance in accordance with the applicable
Transaction Documents, will be validly issued, fully paid and non-assessable
and, except as disclosed in the Company’s SEC Documents, free from all
preemptive or similar rights, taxes, liens, charges and other encumbrances with
respect to the issue thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock. Subject to the accuracy of the
representations and warranties of the Subscribers in this Agreement, the offer
and issuance by the Company of the Securities is exempt from registration under
the Securities Act.

 

8 

 

 

(d)       No Conflicts

 

The execution, delivery and performance of the Transaction Documents by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance of the Shares)
will not (i) result in a violation of the Company’s amended and restated
certificate of incorporation (the “Charter”) (including, without limitation, any
certificate of designation contained therein) or other organizational documents
of the Company or any of its Subsidiaries, any capital stock of the Company or
any of its Subsidiaries or the Company’s amended and restated bylaws (the
“Bylaws”) or the bylaws any of its Subsidiaries, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including, without limitation, foreign, federal and state securities laws and
regulations and the rules and regulations of the OTC Bulletin Board (the
“Principal Market”) and including all applicable federal and provincial laws,
rules and regulations) applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its Subsidiaries is
bound or affected other than, in the case of clause (ii) above, such conflicts,
defaults or rights that could not reasonably be expected to have a Material
Adverse Effect.

 

(e)       Consents

 

Neither the Company nor any Subsidiary is required to obtain any consent from
authorization or order of, or make any filing or registration with (other than
the filing with the SEC of a Form D and any other filings as may be required by
any state securities agencies) any court, governmental agency or any regulatory
or self-regulatory agency or any other Person in order for it to execute,
deliver or perform any of its respective obligations under, or contemplated by,
the Transaction Documents, in each case, in accordance with the terms hereof or
thereof. All consents, authorizations, orders, filings and registrations which
the Company is required to obtain at or prior to the Closing have been obtained
or effected on or prior to each Closing Date, and neither the Company nor any of
its Subsidiaries are aware of any facts or circumstances which might prevent the
Company from obtaining or effecting any of the registration, application or
filings contemplated by the Transaction Documents. The Company is not in
violation of the requirements of the Principal Market and has no knowledge of
any facts or circumstances which could reasonably lead to delisting or
suspension of the Common Stock in the foreseeable future.

 

(f)       Acknowledgment Regarding Subscriber’s Purchase of Securities

 

The Company acknowledges and agrees that each Subscriber is acting solely in the
capacity of an arm’s length purchaser with respect to the Transaction Documents
and the transactions contemplated hereby and thereby and that, other than as
disclosed in the Company’s SEC Documents, no Subscriber is (i) an officer or
director of the Company or any of its Subsidiaries, (ii) to its knowledge, is an
“affiliate” (as defined in Rule 144) of the Company or any of its Subsidiaries
or (iii) to its knowledge, a “beneficial owner” of more than 10% of the shares
of Common Stock (as defined for purposes of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)). The Company further
acknowledges that no Subscriber is acting as a financial advisor or fiduciary of
the Company or any of its Subsidiaries (or in any similar capacity) with respect
to the Transaction Documents and the transactions contemplated hereby and
thereby, and any advice given by a Subscriber or any of its representatives or
agents in connection with the Transaction Documents and the transactions
contemplated hereby and thereby is merely incidental to such Subscriber’s
purchase of the Securities. The Company further represents to each Subscriber
that the Company’s decision to enter into the Transaction Documents has been
based solely on the independent evaluation by the Company and its
representatives.

 

(g)       No General Solicitation; Placement Agent’s Fees

 

Neither the Company, nor any of its Subsidiaries or affiliates, nor any Person
acting on its or their behalf, has engaged in any form of general solicitation
or general advertising (within the meaning of Regulation D) in connection with
the offer or sale of the Securities. The Company shall be responsible for the
payment of any placement agent’s fees, financial advisory fees, or brokers’
commissions (other than for Persons engaged by any Subscriber or its investment
advisor) relating to or arising out of the transactions contemplated hereby.
Neither the Company nor any of its Subsidiaries has engaged any placement agent
or other agent in connection with the offer or sale of the Securities.

 

9 

 

 

(h)       No Integrated Offering

 

None of the Company, its Subsidiaries or any of their affiliates, nor any Person
acting on their behalf has, directly or indirectly, made any offers or sales of
any security or solicited any offers to buy any security, under circumstances
that would require registration of the issuance of any of the Securities under
the Securities Act, whether through integration with prior offerings or
otherwise, or cause this offering of the Securities to require approval of
stockholders of the Company under any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
any exchange or automated quotation system on which any of the securities of the
Company are listed or designated for quotation. None of the Company, its
Subsidiaries, their affiliates nor any Person acting on their behalf will take
any action or steps that would require registration of the issuance of any of
the Securities under the Securities Act or cause the offering of any of the
Securities to be integrated with other offerings of securities of the Company.

 

(i)       Dilutive Effect

 

The Company understands and acknowledges that the number of Shares will increase
in certain circumstances. The Company further acknowledges that its obligation
to issue the Securities in accordance with this Agreement is absolute and
unconditional, regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.

 

(j)       Application of Takeover Protections; Rights Agreement

 

The Company and its Board of Directors have taken all necessary action, if any,
in order to render inapplicable any control share acquisition, interested
stockholder, business combination, poison pill (including, without limitation,
any distribution under a rights agreement), stockholder rights plan or other
similar anti-takeover provision under the Charter, Bylaws or other
organizational documents or the laws of the jurisdiction of its incorporation or
otherwise which is or could become applicable to any Subscriber as a result of
the transactions contemplated by this Agreement, including, without limitation,
the Company’s issuance of the Securities and any Subscriber’s ownership of the
Securities. The Company and its Board of Directors have taken all necessary
action, if any, in order to render inapplicable any stockholder rights plan or
similar arrangement relating to accumulations of beneficial ownership of shares
of Common Stock or a change in control of the Company or any of its
Subsidiaries.

 

(k)       SEC Documents; Financial Statements

 

Except as described in the Company’s SEC Documents, during the two (2) years
prior to the date hereof, the Company has timely filed all reports, schedules,
forms, proxy statements, and other documents required to be filed by it with the
SEC pursuant to the reporting requirements of the Exchange Act (all of the
foregoing filed prior to the date hereof and all exhibits and appendices
included therein and financial statements, notes and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
“SEC Documents”), taking into account all permissible extensions. True, correct
and complete copies of each of the SEC Documents are available on the EDGAR
system. As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act and the rules and regulations
of the SEC promulgated thereunder applicable to the SEC Documents, and none of
the SEC Documents, at the time they were filed with the SEC, 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. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments which will not be material, either individually or in the
aggregate). No other information provided by or on behalf of the Company by its
authorized agents to any of the Subscribers which is not included in the SEC
Documents contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements therein not misleading,
in the light of the circumstance under which they are or were made.

 

10 

 

 

(l)       Absence of Certain Changes

 

Since the date of the Company’s most recent audited financial statements
contained in its most recent Annual Report on Form 10-K (the “2016 10-K”) and
except as disclosed in a subsequently filed SEC Document, there has been no
material adverse change and no material adverse development in the business,
assets, liabilities, properties, operations (including results thereof),
condition (financial or otherwise) or prospects of the Company or any of its
Subsidiaries. Since the date of the Company’s most recent audited financial
statements contained in the 2016 10-K, neither the Company nor any of its
Subsidiaries has (i) declared or paid any cash dividends, (ii) sold any assets,
individually or in the aggregate, outside of the ordinary course of business or
(iii) made any material capital expenditures, individually or in the aggregate,
outside of the ordinary course of business. Neither the Company nor any of its
Subsidiaries has taken any steps to seek protection pursuant to any law or
statute relating to bankruptcy, insolvency, reorganization, receivership,
liquidation or winding up, nor does the Company or any Subsidiary have any
knowledge or reason to believe that any of their respective creditors intend to
initiate involuntary bankruptcy proceedings or any actual knowledge of any fact
which would reasonably lead a creditor to do so. The Company and its
Subsidiaries, individually and on a consolidated basis, after giving effect to
the transactions contemplated hereby to occur at the Closing, will not be
Insolvent (as defined below), subject to the qualifications and assumptions set
forth in the going concern disclosure in the SEC Documents. For purposes of this
Section, “Insolvent” means, as of the Closing Date (I) with respect to the
Company and its Subsidiaries, on a consolidated basis, (i) the present fair
saleable value of the Company’s and its Subsidiaries’ assets is less than the
amount required to pay the Company’s and its Subsidiaries’ total Indebtedness
(as defined below), (ii) the Company and its Subsidiaries are unable to pay
their debts and liabilities, subordinated, contingent or otherwise, as such
debts and liabilities become absolute and matured or (iii) the Company and its
Subsidiaries intend to incur or believe that they will incur debts that would be
beyond their ability to pay as such debts mature; and (II) with respect to the
Company and each Subsidiary, individually, (i) the present fair saleable value
of the Company’s or such Subsidiary’s (as the case may be) assets is less than
the amount required to pay its respective total Indebtedness, (ii) the Company
or such Subsidiary (as the case may be) is unable to pay its respective debts
and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured or (iii) the Company or such Subsidiary
(as the case may be) intends to incur or believes that it will incur debts that
would be beyond its respective ability to pay as such debts mature. Neither the
Company nor any of its Subsidiaries has engaged in any business or in any
transaction, and is not about to engage in any business or in any transaction,
for which the Company’s or such Subsidiary’s remaining assets constitute
unreasonably small capital.

 

(m)       No Undisclosed Events, Liabilities, Developments or Circumstances

 

Other than the transactions contemplated hereby or as disclosed in the SEC
Documents, no event, liability, development or circumstance has occurred or
exists, or is reasonably expected to occur or exist, with respect to the
Company, any of its Subsidiaries or any of their respective businesses,
properties, liabilities, prospects, operations (including results thereof) or
condition (financial or otherwise) that (i) would be required to be disclosed by
the Company under applicable securities laws on a registration statement on Form
S-1 filed with the SEC relating to an issuance and sale by the Company of its
Common Stock and which has not been publicly announced, (ii) would reasonably be
expected to have a material adverse effect on any Subscriber’s investment
hereunder or (iii) could have a Material Adverse Effect.

 

(n)       Conduct of Business; Regulatory Permits

 

Neither the Company nor any of its Subsidiaries is in violation of any term of
or in default under the Charter, any certificate of designation, preferences or
rights of any other outstanding series of preferred stock of the Company or any
of its Subsidiaries, the Bylaws or any organizational document, certificate of
formation or certificate of incorporation or bylaws of any of the Subsidiaries.
Neither the Company nor any of its Subsidiaries is in violation of any judgment,
decree or order or any statute, ordinance, rule or regulation applicable to the
Company or any of its Subsidiaries, and neither the Company nor any of its
Subsidiaries will conduct its business in violation of any of the foregoing,
except in all cases for possible violations which could not, individually or in
the aggregate, have a Material Adverse Effect. Without limiting the generality
of the foregoing, the Company is not in violation of any of the rules,
regulations or requirements of the Principal Market and has no knowledge of any
facts or circumstances that could reasonably lead to delisting or suspension of
the Common Stock by the Principal Market in the foreseeable future. Since
December 31, 2012, (i) the Common Stock has been listed or designated for
quotation on the Principal Market, (ii) trading in the Common Stock has not been
suspended by the SEC or the Principal Market and (iii) the Company has received
no communication, written or oral, from the SEC or the Principal Market
regarding the suspension or delisting of the Common Stock from the Principal
Market. The Company and each of its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate regulatory authorities
necessary to conduct their respective businesses, except where the failure to
possess such certificates, authorizations or permits would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.

 

11 

 

 

(o)       Foreign Corrupt Practices

 

Neither the Company nor any of its Subsidiaries nor any director, officer,
agent, employee or other Person acting on behalf of the Company or any of its
Subsidiaries has, in the course of its actions for, or on behalf of, the Company
or any of its Subsidiaries (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.

 

(p)       Sarbanes-Oxley Act

 

The Company and each Subsidiary is in compliance with all applicable
requirements of the Sarbanes-Oxley Act of 2002 and all applicable rules and
regulations promulgated by the SEC thereunder.

 

(q)       Transactions With Affiliates

 

Except as disclosed in the SEC Documents, none of the officers, directors,
employees or affiliates of the Company or any of its Subsidiaries is presently a
party to any material transaction with the Company or any of its Subsidiaries
(other than for ordinary course services as employees, officers or 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, or otherwise requiring payments to or from any such
officer, director, employee or affiliate or, to the knowledge of the Company or
any of its Subsidiaries, any corporation, partnership, trust or other Person in
which any such officer, director, employee or affiliate has a substantial
interest or is an employee, officer, director, trustee or partner.

 

(r)       Equity Capitalization

 

As of [May 31, 2017], the authorized capital stock of the Company consists of
(i) Five Hundred Million (500,000,000) shares of Common Stock, of which,
[26,920,556] shares are issued and outstanding and [25,010,766] shares are
reserved for issuance pursuant to outstanding Common Stock Equivalents (as
defined below), all of which are disclosed in the SEC Documents, (ii) Five
Million (5,000,000) shares of preferred stock authorized, of which, [12,000 are
designated as Series A Preferred Stock and of which 270 are issued and
outstanding, 2,000 are designated as Series B Preferred Stock none of which are
issued and outstanding, 1,228,500 are designated as Series C Preferred Stock of
which 235,837 shares are issued and 225,004 are outstanding, and (iv) no shares
of Common Stock are held in treasury.] All of such outstanding shares are duly
authorized and have been, or upon issuance will be, validly issued and are fully
paid and non-assessable. [2,731,433] shares of the Company’s issued and
outstanding Common Stock on the date hereof are owned by Persons who are
“affiliates” (as defined in Rule 405 of the Securities Act and calculated based
on the assumption that only officers, directors and holders of at least 10% of
the Company’s issued and outstanding Common Stock are “affiliates” without
conceding that any such Persons are “affiliates” for purposes of federal
securities laws) of the Company or any of its Subsidiaries. To the Company’s
knowledge, except as disclosed in the SEC Documents, no Person owns 10% or more
of the Company’s issued and outstanding shares of Common Stock (calculated based
on the assumption that all Common Stock Equivalents, whether or not presently
exercisable or convertible, have been fully exercised or converted (as the case
may be) taking account of any limitations on exercise or conversion (including
“blockers”) contained therein without conceding that such identified Person is a
10% stockholder for purposes of federal securities laws). Except as disclosed in
the Company’s SEC Documents, (i) none of the Company’s or any Subsidiary’s
capital stock is subject to preemptive rights or any other similar rights or any
liens or encumbrances suffered or permitted by the Company or any Subsidiary;
(ii) there are no outstanding options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into, or exercisable or exchangeable for, any capital stock
of the Company or any of its Subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to issue additional capital stock of the Company or any
of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any capital stock of the
Company or any of its Subsidiaries; (iii) there are no outstanding debt
securities, notes, credit agreements, credit facilities or other agreements,
documents or instruments evidencing Indebtedness of the Company or any of its
Subsidiaries or by which the Company or any of its Subsidiaries is or may become
bound; (iv) there are no financing statements securing obligations in any
amounts filed in connection with the Company or any of its Subsidiaries; (v)
there are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of their securities under
the Securities Act; (vi) there are no outstanding securities or instruments of
the Company or any of its Subsidiaries which contain any redemption or similar
provisions, and 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; (vii) and
except as otherwise contemplated by this Agreement, there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities; (viii) neither the Company nor any
Subsidiary has any stock appreciation rights or “phantom stock” plans or
agreements or any similar plan or agreement; and (ix) neither the Company nor
any of its Subsidiaries have any liabilities or obligations required to be
disclosed in the SEC Documents which are not so disclosed in the SEC Documents,
other than those incurred in the ordinary course of the Company’s or its
Subsidiaries’ respective businesses and which, individually or in the aggregate,
do not or could not reasonably be expected to have a Material Adverse Effect.
The Company has furnished to the Subscribers true, correct and complete copies
of the Charter and the Bylaws, and the terms of all Common Stock Equivalents and
the material rights of the holders thereof in respect thereto. “Common Stock
Equivalents” means any securities of the Company or the Subsidiaries which would
entitle the holder thereof to acquire at any time Common Stock, including,
without limitation, any debt, preferred stock, right, option, warrant or other
instrument that is at any time convertible into or exercisable or exchangeable
for, or otherwise entitles the holder thereof to receive, Common Stock.

 

12 

 

 

(s)       Indebtedness and Other Contracts

 

Neither the Company nor any of its Subsidiaries (i) except as disclosed in the
Company’s SEC Documents, has any outstanding Indebtedness (as defined below),
(ii) is a party to any contract, agreement or instrument, the violation of
which, or default under which, by the other party(ies) to such contract,
agreement or instrument could reasonably be expected to result in a Material
Adverse Effect, (iii) is in violation of any term of, or in default under, any
contract, agreement or instrument relating to any Indebtedness (as defined
below), except where such violations and defaults would not reasonably be
expected to result, individually or in the aggregate, in a Material Adverse
Effect, or (iv) is a party to any contract, agreement or instrument relating to
any Indebtedness, the performance of which, in the judgment of the Company’s
officers, has or is expected to have a Material Adverse Effect. Other than as
set forth in the Company’s SEC Documents, the Company has no Indebtedness owed
to any Subscriber. “Indebtedness” of any Person means, without duplication (A)
all indebtedness for borrowed money, (B) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (including,
without limitation, “capital leases” in accordance with generally accepted
accounting principles) (other than trade payables entered into in the ordinary
course of business), (C) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all indebtedness referred to in clauses (A)
through (F) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
claim, lien, tax, right of first refusal, pledge, charge, security interest or
other encumbrance upon or in any property or assets (including accounts and
contract rights) owned by any Person, even though the Person which owns such
assets or property has not assumed or become liable for the payment of such
indebtedness, and (H) all Contingent Obligations (as defined below) in respect
of indebtedness or obligations of others of the kinds referred to in clauses (A)
through (G) above; and “Contingent Obligation” means, as to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to any indebtedness, lease, dividend or other obligation of another
Person if the primary purpose or intent of the Person incurring such liability,
or the primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such liability
will be protected (in whole or in part) against loss with respect thereto.

 

(t)       Absence of Litigation

 

Except as disclosed in the Company’s SEC Documents, there is no action, suit,
proceeding, inquiry or investigation before or by the Principal Market, any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company, threatened against or affecting the
Company or any of its Subsidiaries, the Common Stock or any of the Company’s or
its Subsidiaries’ officers or directors which is outside of the ordinary course
of business or individually or in the aggregate material to the Company or any
of its Subsidiaries. There has not been, and to the knowledge of the Company,
there is not pending or contemplated, any investigation by the SEC involving the
Company, any of its Subsidiaries or any current or former director or officer of
the Company or any of its Subsidiaries. The SEC has not issued any stop order or
other order suspending the effectiveness of any registration statement filed by
the Company under the Securities Act or the Exchange Act.

 

(u)       Insurance

 

The Company and each of its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its Subsidiaries are engaged. Neither the Company nor
any such Subsidiary has been refused any insurance coverage sought or applied
for, and neither the Company nor any such Subsidiary has any reason to believe
that it will be unable to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a Material
Adverse Effect.

 

(v)       Employee Relations

 

Neither the Company nor any of its Subsidiaries is a party to any collective
bargaining agreement or employs any member of a union. The Company believes that
its and its Subsidiaries’ relations with their respective employees are good.
Except as set forth in the Company’s SEC Documents, no executive officer (as
defined in Rule 501(f) promulgated under the Securities Act) or other key
employee of the Company or any of its Subsidiaries has notified the Company or
any such Subsidiary that such officer intends to leave the Company or any such
Subsidiary or otherwise terminate such officer’s employment with the Company or
any such Subsidiary. No executive officer or other key employee of the Company
or any of its Subsidiaries is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each such executive officer or other key employee (as the case may be) does
not subject the Company or any of its Subsidiaries to any liability with respect
to any of the foregoing matters. The Company and its Subsidiaries are in
compliance with all federal, state, local and foreign laws and regulations
respecting labor, employment and employment practices and benefits, terms and
conditions of employment and wages and hours, except where failure to be in
compliance would not, either individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.

 

13 

 

 

(w)       Title

 

Except as disclosed in the SEC Documents, the Company and its Subsidiaries own
no real property, and have good and marketable title to all personal property,
owned by them which is material to the business of the Company and its
Subsidiaries, in each case, free and clear of all liens, encumbrances and
defects except such as do not materially affect the value of such property and
do not interfere with the use made of such property by the Company and any of
its Subsidiaries. Any real property and facilities held under lease by the
Company or any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made of such property and buildings by the Company or any of its
Subsidiaries.

 

(x)       Intellectual Property Rights

 

The Company and its Subsidiaries own or possess adequate rights or licenses to
use all trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, original works, inventions,
licenses, approvals, governmental authorizations, trade secrets and other
intellectual property rights and all applications and registrations therefore
(“Intellectual Property Rights”) necessary to conduct their respective
businesses as now conducted, except where the failure to do so could be
reasonably expected to have, individually or in the aggregate have a Material
Adverse Effect. All Intellectual Property Rights of the Company and its
Subsidiaries are set forth in the Company’s SEC Documents. Except as disclosed
in the Company’s SEC Documents, none of the Company’s or its Subsidiaries’
Intellectual Property Rights have expired, terminated or been abandoned, or are
expected to expire, terminate or be abandoned, within three years from the date
of this Agreement. The Company has no knowledge of any infringement by the
Company or any of its Subsidiaries of Intellectual Property Rights of others.
There is no claim, action or proceeding being made or brought, or to the
knowledge of the Company or any of its Subsidiaries, being threatened, against
the Company or any of its Subsidiaries regarding their Intellectual Property
Rights. The Company is not aware of any facts or circumstances which are likely
to give rise to any of the foregoing infringements or claims, actions or
proceedings. The Company and each of its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their Intellectual Property Rights.

 

(y)       Environmental Laws

 

The Company and its Subsidiaries (i) are in compliance with all Environmental
Laws (as defined below), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and conditions
of any such permit, license or approval where, in each of the foregoing clauses,
the failure to so comply could be reasonably expected to have, individually or
in the aggregate, a Material Adverse Effect. “Environmental Laws” means all
federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous Materials”) into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.

 

(z)       Subsidiary Rights

 

The Company or one of its Subsidiaries has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its Subsidiaries as owned by the
Company or such Subsidiary.

 

14 

 

 

(aa)     Tax Status

 

Except as set forth in the Company’s SEC Documents, the Company and each of its
Subsidiaries (i) has timely made or filed all foreign, federal and state income
and all other tax returns, reports and declarations required by any jurisdiction
to which it is subject, (ii) has timely paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and (iii) has set aside on its books provisions reasonably adequate
for the payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company and its Subsidiaries know of no basis for any
such claim. The Company is not operated in such a manner as to qualify as a
passive foreign investment company, as defined in Section 1297 of the U.S.
Internal Revenue Code of 1986, as amended (the “Code”).

 

(bb)     Internal Accounting and Disclosure Controls

 

Except as disclosed in the SEC Documents, the Company and each of its
Subsidiaries maintains internal control over financial reporting (as such term
is defined in Rule 13a-15(f) under the Exchange Act) that is effective to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles, including that (i) transactions
are executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management’s
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference. Except as disclosed in the SEC Documents, the Company maintains
disclosure controls and procedures (as such term is defined in Rule 13a-15(e)
under the Exchange Act) that are effective in ensuring that information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the Company’s management,
including its principal executive officer or officers and its principal
financial officer or officers, as appropriate, to allow timely decisions
regarding required disclosure. Except as described in the SEC Documents, neither
the Company nor any of its Subsidiaries has received any notice or
correspondence from any accountant or other Person relating to any potential
material weakness or significant deficiency in any part of the internal controls
over financial reporting of the Company or any of its Subsidiaries.

 

(cc)     Off Balance Sheet Arrangements

 

There is no transaction, arrangement, or other relationship between the Company
or any of its Subsidiaries and an unconsolidated or other off balance sheet
entity that is required to be disclosed by the Company in its Exchange Act
filings and is not so disclosed or that otherwise could be reasonably likely to
have a Material Adverse Effect.

 

(dd)     Investment Company Status

 

The Company is not, and upon consummation of the sale of the Securities will not
be, an “investment company,” an affiliate of an “investment company,” a company
controlled by an “investment company” or an “affiliated person” of, or
“promoter” or “principal underwriter” for, an “investment company” as such terms
are defined in the Investment Company Act of 1940, as amended.

 

(ee)     Acknowledgement Regarding Subscribers’ Trading Activity

 

It is understood and acknowledged by the Company that (i) following the public
disclosure of the transactions contemplated by the Transaction Documents in
accordance with the terms thereof, none of the Subscribers have been asked by
the Company or any of its Subsidiaries to agree, nor has any Subscriber agreed
with the Company or any of its Subsidiaries, to desist from effecting any
transactions in or with respect to (including, without limitation, purchasing or
selling, long and/or short) any securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold any of the
Securities for any specified term other than in accordance with federal and
state securities laws; (ii) any Subscriber, and counterparties in “derivative”
transactions to which any such Subscriber is a party, directly or indirectly,
presently may have a “short” position in the Common Stock which was established
prior to such Subscriber’s knowledge of the transactions contemplated by the
Transaction Documents; and (iii) each Subscriber shall not be deemed to have any
affiliation with or control over any arm’s-length counterparty in any
“derivative” transaction. The Company further understands and acknowledges that
following the public disclosure of the transactions contemplated by the
Transaction Documents pursuant to Section 5(c) below one or more Subscribers may
engage in hedging and/or trading activities at various times during the period
that the Securities are outstanding. The Company acknowledges that such
aforementioned hedging and/or trading activities do not constitute a breach of
this Agreement or any other Transaction Document or any of the documents
executed in connection herewith or therewith.

 

15 

 

 

(ff)     Manipulation of Price

 

Neither the Company nor any of its Subsidiaries has, and, to the knowledge of
the Company, no Person acting on their behalf has, directly or indirectly, (i)
taken any action designed to cause or to result in the stabilization or
manipulation of the price of any security of the Company or any of its
Subsidiaries to facilitate the sale or resale of any of the Securities, (ii)
sold, bid for, purchased, or paid any compensation for soliciting purchases of,
any of the Securities, or (iii) paid or agreed to pay to any Person any
compensation for soliciting another to purchase any other securities of the
Company or any of its Subsidiaries.

 

(gg)   U.S. Real Property Holding Corporation

 

Neither the Company nor any of its Subsidiaries is, or has ever been, and so
long as any of the Securities are held by any of the Subscribers, shall become a
“U.S. real property holding corporation” within the meaning of Section 897 of
the Code, and the Company and each Subsidiary shall so certify upon any
Subscriber’s request.

 

(hh)   Registration Eligibility.

 

The Company is eligible to register the Securities for resale by the Subscribers
on a Registration Statement on Form S-1 under the Securities Act.

 

(ii)       Transfer Taxes.

 

On the Closing Date, all stock transfer or other taxes (other than income or
similar taxes) which are required to be paid in connection with the issuance,
sale and transfer of the Securities to be sold to each Subscriber hereunder will
be, or will have been, fully paid or provided for by the Company, and all laws
imposing such taxes will be or will have been complied with.

 

(jj)     Bank Holding Company Act.

 

Neither the Company nor any of its Subsidiaries is subject to the Bank Holding
Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of
Governors of the Federal Reserve System (the “Federal Reserve”). Neither the
Company nor any of its Subsidiaries or affiliates owns or controls, directly or
indirectly, five percent (5%) or more of the outstanding shares of any class of
voting securities or twenty-five percent (25%) or more of the total equity of a
bank or any equity that is subject to the BHCA and to regulation by the Federal
Reserve. Neither the Company nor any of its Subsidiaries or affiliates exercises
a controlling influence over the management or policies of a bank or any entity
that is subject to the BHCA and to regulation by the Federal Reserve.

 

(kk)    Public Utility Holding Act.

 

None of the Company nor any of its Subsidiaries is a “holding company,” or an
“affiliate” of a “holding company,” as such terms are defined in the Public
Utility Holding Act of 2005.

 

16 

 

 

(ll)     Federal Power Act.

 

None of the Company nor any of its Subsidiaries is subject to regulation as a
“public utility” under the Federal Power Act, as amended.

 

(mm)  No Additional Agreements.

 

The Company does not have any agreement or understanding with any Subscriber
with respect to the transactions contemplated by the Transaction Documents other
than as specified in the Transaction Documents.

 

(nn)   No Disqualification Events.

 

None of the Subscriber, the Company, any of its predecessors, any affiliated
issuer, any director, executive officer, other officer of the Company
participating in the offering contemplated hereby, any beneficial owner of 20%
or more of the Company's outstanding voting equity securities, calculated on the
basis of voting power, nor any promoter (as that term is defined in Rule 405
under the Securities Act) connected with the Company in any capacity at the time
of sale (each, an “Issuer Covered Person”) is subject to any of the “Bad Actor”
disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities
Act (a “Disqualification Event”). The Company has exercised reasonable care to
determine whether any Issuer Covered Person is subject to a Disqualification
Event.

 

(oo)   Illegal or Unauthorized Payments; Political Contributions.

 

Neither the Company nor any of its Subsidiaries nor, to the best of the
Company’s knowledge (after reasonable inquiry of its officers and directors),
any of the officers, directors, employees, agents or other representatives of
the Company or any of its Subsidiaries or any other business entity or
enterprise with which the Company or any Subsidiary is or has been affiliated or
associated, has, directly or indirectly, made or authorized any payment,
contribution or gift of money, property, or services, whether or not in
contravention of applicable law, (a) as a kickback or bribe to any Person or (b)
to any political organization, or the holder of or any aspirant to any elective
or appointive public office except for personal political contributions not
involving the direct or indirect use of funds of the Company or any of its
Subsidiaries.

 

(pp)   Money Laundering.

 

The Company and its Subsidiaries are in compliance with, and have not previously
violated, the USA Patriot Act of 2001 and all other applicable U.S. and non-U.S.
anti-money laundering laws and regulations, including, without limitation, the
laws, regulations and executive orders and sanctions programs administered by
the U.S. Office of Foreign Assets Control, including, without limitation, (i)
Executive Order 13224 of September 23, 2001 entitled, “Blocking Property and
Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support
Terrorism” (66 Fed. Reg. 49079 (2001)); and (ii) any regulations contained in 31
CFR, Subtitle B, Chapter V.

 

(qq)   Shell Company Status.

 

The Company is not and has not been for a period of one (1) year prior to the
Closing Date an issuer identified in Rule 144(i)(1) of the Securities Act. The
Company is, and has been for a period of at least ninety (90) days, subject to
the reporting requirements of Section 13 or Section 15(d) of the Exchange Act.

 

(rr)     Disclosure.

 

The Company confirms that neither it nor any other Person acting on its behalf
has provided any of the Subscribers or their agents or counsel with any
information that constitutes or could reasonably be expected to constitute
material, non-public information regarding the Company or any of its
Subsidiaries, other than the existence of the transactions contemplated by this
Agreement and the other Transaction Documents. The Company understands and
confirms that each of the Subscribers will rely on the foregoing representations
in effecting transactions in securities of the Company. All disclosure provided
to the Subscribers regarding the Company and its Subsidiaries, their businesses
and the transactions contemplated hereby, including the schedules to this
Agreement, furnished by or on behalf of the Company or any of its Subsidiaries
is true and correct and does not contain any untrue statement of material fact
or omit to state any material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or information exists with
respect to the Company or any of its Subsidiaries or its or their business,
properties, liabilities, prospects, operations (including results thereof) or
conditions (financial or otherwise), which, under applicable law, rule or
regulation, requires public disclosure at or before the date hereof or
announcement by the Company but which has not been so publicly disclosed. The
Company acknowledges and agrees that no Subscriber makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.

 

17 

 

 

5.       OTHER AGREEMENTS OF THE PARTIES

 

(a)       Furnishing of Information. As long as any Subscriber owns Securities,
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 any
Subscriber owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Subscribers and
make publicly available in accordance with Rule 144(c) under the Securities Act
such information as is required for the Subscribers to sell the Securities under
Rule 144. The Company further covenants that it will take such further action as
any holder of Securities may reasonably request, at the sole cost and expense of
the Company including transfer agent and legal opinion fees and expenses, all to
the extent required from time to time to enable such person to sell such
Securities without registration under the Securities Act within the limitation
of the exemptions proved by Rule 144 under the Securities Act.

 

(b)       Shareholder Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other person that any
Subscriber is an “Acquiring Person” under any shareholder rights plan or similar
plan or arrangement in effect or hereafter adopted by the Company, or that any
Subscriber could be deemed to trigger the provisions of any such plan or
arrangement, by virtue of receiving Securities under the Transaction Documents
or under any other agreement between the Company and the Subscribers.

 

(c)       Securities Laws Disclosure; Publicity. The Company shall by [8:30
a.m.] EST (a) on the first Business Day after this Agreement has been executed,
issue a press release disclosing the material terms of the transactions
contemplated hereby and (b) within four (4) Business Days after this Agreement
has been executed, file a Current Report on Form 8-K with the SEC (the “8-K
Filing”), including the Transaction Documents as exhibits thereto. From and
after the issuance of such press release and the 8-K Filing, the Company shall
have publicly disclosed all material, non-public information delivered to any of
the Subscribers by the Company or any of its Subsidiaries, or any of their
respective officers, directors, employees or agents. The Company and those
Subscribers investing the majority of the Aggregate Purchase Price ("Majority
Subscribers") shall consult with each other in issuing any press releases with
respect to the transactions contemplated hereby, and no Subscriber shall issue
any such press release or otherwise make any such public statement without the
prior consent of the Company, which consent shall not unreasonably be withheld.
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, without the prior written consent of such
Subscriber, except to the extent such disclosure is required by law, in which
case the Company shall provide the Subscribers with prior notice of such
disclosure. The Company understands that any such disclosure shall cause
irreparable harm and each Subscriber shall be entitled to injunctive relief and
liquidated damages in connection therewith.

 

(d)       Integration. The Company shall not, and shall use its best efforts to
ensure that no affiliate of the Company shall, after the date hereof, sell,
offer for sale or solicit offers to buy or otherwise negotiate in respect of any
security 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 Subscribers.

 

18 

 

 

(e)       Reservation of Securities.

 

(i)       The Company shall maintain a reserve from its duly authorized shares
of Common Stock for issuance pursuant to the Transaction Documents in such
amount as may then be required to fulfill its obligations in full under the
Transaction Documents, but not less than 100% of the number of shares of Common
Stock issuable pursuant to the Transaction Documents (the “Required Minimum”).

 

(ii)       If, on any date, the number of authorized but unissued (and otherwise
unreserved) shares of Common Stock is less than the Required Minimum on such
date, then the Board of Directors shall approve an amendment to the Charter to
increase the number of authorized but unissued shares of Common Stock to at
least the Required Minimum and submit such amendment to the Company’s
stockholders for approval, as soon as possible and in any event not later than
the sixtieth (60th) day after such date.

 

(iii)       The Company shall, if applicable: (i) in the time and manner
required by the Principal Market, prepare and file with the Principal Market an
additional shares listing application covering a number of shares of Common
Stock at least equal to the Required Minimum on the date of such application,
(ii) take all steps necessary to cause such shares of Common Stock to be
approved for listing or quotation on the Principal Market as soon as possible
thereafter, (iii) provide to the Subscribers evidence of such listing or
quotation and (iv) maintain the listing or quotation of such Common Stock on any
date at least equal to the Required Minimum on such date on the Principal
Market. The Company will then take all commercially reasonable action necessary
to continue the listing or quotation and trading of its Common Stock on the
Principal Market for as long as any Subscriber holds Securities, and will comply
in all material respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Principal Market at least until
five years after the Closing Date. In the event the afore described listing is
not continuously maintained for five years after the Closing Date (a “Listing
Default”), then in addition to any other rights the Subscribers may have
hereunder or under applicable law, on the first day of a Listing Default and on
each monthly anniversary of each such Listing Default date (if the applicable
Listing Default shall not have been cured by such date) until the applicable
Listing Default is cured, the Company shall pay to each Subscriber an amount in
cash, as partial liquidated damages and not as a penalty, equal to 1% of the
aggregate Subscription Amount of Shares held by such Subscriber on the date of a
Listing Default and on every thirtieth day (pro-rated for periods less than
thirty days) thereafter with respect to Shares held as of each such date until
the date such Listing Default is cured or Subscriber no longer holds any Shares.

 

(f)       Use of Proceeds. The Company anticipates using the gross proceeds from
the Offering and the funds raised under the Eloxx SPA pursuant to the budget
provided as part of the Eloxx SPA as may be amended from time to time.

 

(g)       DTC Program. From the Closing Date until such time as no Subscriber
holds any of the Securities (such date, the “Release Date”), the Company shall
use its best efforts to employ as the transfer agent for the Shares a
participant in the Depository Trust Company Automated Securities Transfer
Program (FAST) and cause the Common Stock to be transferable pursuant to such
program.

 

(h)       Form D and Blue Sky. The Company shall file a Form D with respect to
the Securities as required under Regulation D and provide a copy thereof to each
Subscriber promptly after such filing. The availability of the filed Form D on
EDGAR shall satisfy the foregoing delivery requirement. The Company shall, on or
before the Closing Date, 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 Subscribers at the Closing pursuant to this Agreement
under applicable securities or blue sky laws of the states of the United States
(or to obtain an exemption from such qualification), and shall provide evidence
of any such action so taken to the Subscribers on or prior to the Closing Date.
Without limiting any other obligation of the Company under this Agreement, the
Company shall timely make all filings and reports relating to the offer and sale
of the Securities required under all applicable securities laws (including,
without limitation, all applicable federal securities laws and all applicable
blue sky laws), and the Company shall comply with all applicable federal,
foreign, state and local laws, statutes, rules, regulations and the like
relating to the offering and sale of the Securities to the Subscribers.

 

19 

 

 

(i)       Closing Documents. On or prior to the Closing Date, the Company agrees
to deliver, or cause to be delivered, to each Subscriber executed copies of the
Transaction Documents, Securities and other documents required to be delivered
to any party pursuant to this Agreement.

 

(j)       Indemnification. The Company will indemnify and hold harmless each
Subscriber and, where applicable, its directors, officers, employees, agents,
advisors and shareholders (each, an “Indemnitee”), from and against any and all
actual loss, liability, claim, damage and expense (including, but not limited
to, any and all fees, costs and expenses reasonably incurred in investigating,
preparing or defending against any claim, lawsuit, administrative proceeding or
investigation whether commenced or threatened) (the “Indemnified Liabilities”),
incurred by any Indemnitee as a result of, or arising out of, or relating to (i)
any misrepresentation or breach of any representation or warranty made by the
Company or any Subsidiary in any of the Transaction Documents (other than those
entered into between the Subscriber and Eloxx), (ii) any breach of any covenant,
agreement or obligation of the Company or any Subsidiary contained in any of the
Transaction Documents (other than those between the subscriber and Eloxx) or,
(iii) any cause of action, suit, proceeding or claim brought or made against
such Indemnitee by a third party (including for these purposes a derivative
action brought on behalf of the Company or any Subsidiary) or which otherwise
involves such Indemnitee that arises out of or results from (A) the execution,
delivery, performance or enforcement of any of the Transaction Documents (other
than those entered into between the Subscriber and Eloxx), (B) any transaction
financed or to be financed in whole or in part, directly or indirectly, with the
proceeds of the issuance of the Securities, or (C) the status of such Subscriber
or holder of the Securities either as an investor in the Company pursuant to the
transactions contemplated by the Transaction Documents (other than those entered
into between the Subscriber and Eloxx) or as a party to this Agreement
(including, without limitation, as a party in interest or otherwise in any
action or proceeding for injunctive or other equitable relief). To the extent
that the foregoing undertaking by the Company may be unenforceable for any
reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.

 

(k)       Fees. Each party shall be responsible for its own fees and expenses;
provided, that the Company shall be responsible for the payment of any placement
agent’s fees, financial advisory fees, transfer agent fees, the costs associated
with any legal opinions required to be rendered to the Company’s transfer agent
in connection with the lifting of any legends on the Securities, DTC fees or
broker’s commissions (other than for Persons engaged by any Subscriber) relating
to or arising out of the transactions contemplated hereby. The Company (subject
to the foregoing qualification) shall pay, and hold each Subscriber harmless
against, any liability, loss or expense (including, without limitation,
reasonable attorneys’ fees and out-of-pocket expenses) arising in connection
with any claim relating to any such payment.

 

(l)       Registration Rights and Standstill. Each Subscriber shall have the
same registration rights as specified in Article 8 of the Merger Agreement as
such Subscriber would have if it were a party to the Merger Agreement together
with all current shareholders of Eloxx (including the Subscriber in connection
with its investment in Eloxx).

 

(m)       Lock-Up Agreements. Prior to the Closing Date, the Company shall have
received a lock-up agreement from each Subscriber in such form as mutually
agreed to by the parties.

 

(n)       Ordinary Course. From the date hereof and until the Closing the
Company shall conduct its business solely in the ordinary course of business,
and, among other things, shall not without the prior consent of Eloxx, make any
distribution of any kind to its shareholders or enter into any transaction with
any officer, director, employee or shareholder of the Company or any affiliate
or any person who the Company is aware is a family member of any such person or
entity, or enter into any transaction not in the ordinary course of business,
other than as contemplated under this Agreement.

 

(o)       Further Assurances. Each of the parties hereto shall perform such
further acts and execute such further documents as may reasonably be necessary
to carry out and give full effect to the provisions of this Agreement and the
intentions of the parties as reflected thereby.

 

20 

 

 

6.       CONDITIONS TO CLOSING

 

The Closing of the sale of the Shares is conditioned upon satisfaction of the
following conditions precedent on or before the Closing Date:

 

(i)       as of the Closing, no legal action, suit or proceeding shall be
pending against the Company that seeks to restrain or prohibit the transactions
contemplated by this Agreement;

 

(ii)       the representations and warranties of the Company and the Subscribers
contained in this Agreement shall have been true and correct in all material
respects on the date of this Agreement (except whether such representations are
qualified by material or material adverse effect, which shall be true and
correct in all respects) and shall be true and correct as of the Closing as if
made on the Closing Date and the Company shall have performed, satisfied and
complied in all respects with the covenants, agreements and conditions required
to be performed, satisfied or complied with by the Company in connection with
the consummation of the transactions contemplated by the Transaction Documents
at or prior to the Closing Date and the Company shall deliver a certificate,
executed by its Chief Executive Officer, dated as of the Closing Date,
certifying that the foregoing is true;

 

(iii)       the Company shall deliver to the Subscribers, a certificate from the
Company, signed by its Secretary or Assistant Secretary, including incumbency
specimen signatures of any signatory of any Transaction Document of the Company
and certifying that the attached copies of the Charter and the Bylaws, and
resolutions of the Board of Directors of the Company approving this Offering,
are all true, complete and correct and remain in full force and effect;

 

(iv)       The Company and Eloxx shall have provided the Subscribers with
evidence that the closing of the Merger will occur immediately after the Closing
hereunder.

 

(v)       Each Subscriber transferred to the Company its respective portion of
the Aggregate Purchase Price, and the Aggregate Purchase Price shall not be less
than US $10,000,000.

 

7.MISCELLANEOUS PROVISIONS

 

(a)       All parties hereto have been represented by counsel, and no inference
shall be drawn in favor of or against any party by virtue of the fact that such
party’s counsel was or was not the principal draftsman of this Agreement.

 

(b)       Each of the parties hereto shall be responsible to pay the costs and
expenses of its own legal counsel in connection with the preparation and review
of this Agreement and related documentation.

 

(c)       Neither this Agreement, nor any provisions hereof, shall be waived,
modified, discharged or terminated except by an instrument in writing signed by
the party against whom any waiver, modification, discharge or termination is
sought.

 

(d)       The representations, warranties and agreement of each Subscriber and
the Company made in this Agreement shall not survive the Closing, with the
exception of Sections 5(m) and 5(n), which shall survive the Closing.

 

(e)       Any party may send any notice, request, demand, claim or other
communication hereunder to the Subscriber at the address set forth on the
signature page of this Agreement or to the Company at its primary office
(including personal delivery, expedited courier, messenger service, fax,
ordinary mail or electronic mail), but no such notice, request, demand, claim or
other communication will be deemed to have been duly given unless and until it
actually is received by the intended recipient. Any party may change the address
to which notices, requests, demands, claims and other communications hereunder
are to be delivered by giving the other parties written notice in the manner
herein set forth.

 

21 

 

 

(f)       Except as otherwise provided herein, this Agreement shall be binding
upon, and inure to the benefit of, the parties to this Agreement and their
heirs, executors, administrators, successors, legal representatives and assigns.
If any Subscriber is more than one person or entity, the obligation of any
Subscriber shall be joint and several and the agreements, representations,
warranties and acknowledgments contained herein shall be deemed to be made by,
and be binding upon, each such person or entity and its heirs, executors,
administrators, successors, legal representatives and assigns. This Agreement
sets forth the entire agreement and understanding between the parties as to the
subject matter hereof and merges and supersedes all prior discussions,
agreements and understandings of any and every nature among them.

 

(g)       This Agreement is not transferable or assignable by the Company.

 

(h)       The Company hereby represents and warrants as of the date hereof and
as of the Closing Date that none of the terms offered to any Person with respect
to any offer, sale or subscription of Securities (each a "Subscription
Document"), is or will be more favorable to such Person than those of the
Subscriber and this Agreement shall be, without any further action by the
Subscriber or the Company, deemed amended and modified in an economically and
legally equivalent manner such that the Subscriber shall receive the benefit of
the more favorable terms contained in such Subscription Document.
Notwithstanding the foregoing, the Company agrees, at its expense, to take such
other actions (such as entering into amendments to the Transaction Documents
(other than those entered into between the Subscriber and Eloxx)) as the
Subscriber may reasonably request to further effectuate the foregoing.

 

(i)       Except as otherwise provided herein, this Agreement shall not be
changed, modified or amended and no right hereunder shall be waived, except in
writing signed by both (a) the Company and (b) the Majority Subscribers. Eloxx
shall be deemed a third party beneficiary of this Section 7(i) and this
Agreement cannot be amended, changed or waived without its consent.

 

(j)       This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without giving effect to conflicts of law
principles.

 

(k)       The Company and each Subscriber hereby agree that any dispute that may
arise between them arising out of or in connection with this Agreement shall be
adjudicated before a court located in San Diego, California, and they hereby
submit to the exclusive jurisdiction of the federal and state courts of the
State of California with respect to any action or legal proceeding commenced by
any party, and irrevocably waive any objection they now or hereafter may have
respecting the venue of any such action or proceeding brought in such a court or
respecting the fact that such court is an inconvenient forum, relating to or
arising out of this Agreement or any acts or omissions relating to the sale of
the securities hereunder, and consent to the service of process in any such
action or legal proceeding by means of registered or certified mail, return
receipt requested, postage prepaid, in care of the address set forth herein or
such other address as either party shall furnish in writing to the other.

 

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

 

(m)       This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

 

[Signature Pages Follow]

 

22 

 

 

To subscribe for Common Stock

 

SEVION THERAPEUTICS, INC.

 

1.Date and Fill in the number of shares at a purchase price of $0.15 per share
(the “Purchase Price”) (of the Company’s common stock, par value $0.01 per share
(the “Common Stock”) being subscribed for and Complete and Sign the Signature
Page included in this Subscription Agreement.

 

2.Initial the Accredited Investor Certification attached to this Subscription
Agreement.

 

3.Complete and Sign the Signature Page attached to this Subscription Agreement.

 

4.Complete and Return the attached Investor Questionnaire and, if applicable,
Wire Transfer Authorization attached to this Subscription Agreement.

 

5.Return all forms to your Account Executive and then send all signed original
documents with a check (if applicable) to:

 

6.Please make your subscription payment payable to the order of “Sevion
Therapeutics, Inc.”

 

For wiring funds, use the following instructions:

 

 

 

 

 

ANTI-MONEY LAUNDERING REQUIREMENTS

 

The USA PATRIOT Act 

  What is money laundering?   How big is the problem and why is it important?  
       

The USA PATRIOT Act is designed to detect, deter, and punish terrorists in the
United States and abroad. The Act imposes new anti-money laundering requirements
on brokerage firms and financial institutions. Since April 24, 2002 all
brokerage firms have been required to have new, comprehensive anti-money
laundering programs. To help you understand these efforts, we want to provide
you with some information about money laundering and our steps to implement the
USA PATRIOT Act.

 

Money laundering is the process of disguising illegally obtained money so that
the funds appear to come from legitimate sources or activities. Money laundering
occurs in connection with a wide variety of crimes, including illegal arms
sales, drug trafficking, robbery, fraud, racketeering, and terrorism.

 

The use of the U.S. financial system by criminals to facilitate terrorism or
other crimes could well taint our financial markets. According to the U.S. State
Department, one recent estimate puts the amount of worldwide money laundering
activity at $1 trillion a year.

 

 

What are we required to do to eliminate money laundering?  

Under new rules required by the USA PATRIOT Act, our anti-money laundering
program must designate a special compliance officer, set up employee training,
conduct independent audits, and establish policies and procedures to detect and
report suspicious transaction and ensure compliance with the new laws.

 

As part of our required program, we may ask you to provide various
identification documents or other information. Until you provide the information
or documents we need, we may not be able to effect any transactions for you.

 

 

 

 SEVION THERAPEUTICS, INC.

SIGNATURE PAGE TO

SUBSCRIPTION AGREEMENT

 

Purchaser hereby elects to purchase a total of $_________________, representing
________ ______shares, with each share multiplied by $0.15 (Purchase Price)
equal to the aggregate purchase price (NOTE: to be completed by the Purchaser).

 

Date (NOTE: To be completed by the Purchaser): __________________, 2017

 

 

If the Purchaser is an INDIVIDUAL, and if purchased as JOINT TENANTS, as TENANTS
IN COMMON, or as COMMUNITY PROPERTY:

 

      Print Name(s)   Social Security Number(s)             Print Name(s)  
Social Security Number(s)             Signature of Purchaser   Signature of
Co-Purchaser (if applicable):       Address:                Date      

 

 

If the Purchaser is a PARTNERSHIP, CORPORATION, LIMITED LIABILITY COMPANY or
TRUST:

 

              Federal Taxpayer Name of Partnership,   Identification Number
Corporation, Limited     Liability Company or Trust             By:        
Name:   State of Organization   Title:             Address:                  
Date        

 

AGREED AND ACCEPTED:

 

SEVION THERAPEUTICS, INC.

 

By:         Name:   Date:   Title: