EXHIBIT 10.1

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of June 25,
2019, by and among Jacksam Corporation, a Nevada corporation (the “Company”), L1
Capital Global Opportunities Master Fund (“L1 Capital”), Phyto II, LP (“Phyto”),
Merida Capital Partners III, LP (“Merida Capital”), James Kenny (“Kenny”),
William Sanger (“Sanger”), Wilson Allen (“Allen”), Paul D. Kaneb (“Kaneb”),
Jerald Lanzotti (“Lanzotti”), Mark Adams (“Adams”) and David Hall (“Hall” and
with L1 Capital, Phyto, Merida Capital, Kenny, Sanger, Allen, Kaneb, Lanzotti
and Adams, along with each of their respective successors and permitted assigns,
a “Purchaser,” or in the aggregate, the “Purchasers”).

 

WHEREAS, the Company desires to issue and sell to the Purchasers, and the
Purchasers desire to purchase from the Company, the Notes (as defined below) and
related Warrants (as defined below) as set forth herein;

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the
“Securities Act”), and/or Rule 506(b) promulgated thereunder, the Company will
sell and issue to the Purchasers the Notes and the Warrants (as defined below);

 

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

 

ARTICLE I.

DEFINITIONS

 

1.1 Definitions. In addition to the terms defined elsewhere in this Agreement:
(a) capitalized terms that are not otherwise defined herein have the meanings
given to such terms in the Transaction Documents (as defined herein), and (b)
the following terms have the meanings set forth in this Section 1.1:

 

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

 

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

 

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

 

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

 

“Business Day” means any day except any Saturday, any Sunday, or any day on
which the Federal Reserve Bank of New York is closed.

 

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“Closing Date” means the Trading Day(s) on which all of the Transaction
Documents have been executed and delivered by the applicable parties thereto in
connection with a Closing, and all conditions precedent to (i) the Purchaser’s
obligations to pay the Subscription Amount as to the Closing and (ii) the
Company’s obligations to deliver the Securities as to the Closing, in each case,
have been satisfied or waived, all of which shall occur concurrently with the
execution of this Agreement by the parties.

 

“Closing” means closing of the purchase and sale of the Securities pursuant to
Section 2.2.

 

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

 

“Common Stock” means the common stock of the Company, par value $0.001 per
share, and any other class of securities into which such securities may
hereafter be reclassified or changed.

 

“Common Stock Equivalents” means any securities of the Company 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.

 

“Conversion Price” shall have the meaning ascribed to such term in the Notes.

 

“Conversion Shares” shall have the meaning ascribed to such term in the Notes.

 

“Debt Restructuring Transaction” shall have the meaning ascribed to such term in
Section 4.17.

 

“Disclosure Schedules” shall have the meaning ascribed to such term in Section
3.1.

 

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

 

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

 

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

 

“Federal Reserve” shall have the meaning ascribed to such term in Section
3.1(ll).

 

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

 

“Indebtedness” means (a) any liabilities for borrowed money or amounts owed in
excess of $50,000 (other than trade accounts payable incurred in the ordinary
course of business), (b) all guaranties, endorsements and other contingent
obligations in respect of indebtedness of others, whether or not the same are or
should be reflected in the Company’s consolidated balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business; and
(c) the present value of any lease payments in excess of $50,000 due under
leases required to be capitalized in accordance with GAAP.

 

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

 

“Intellectual Property Security Agreement” means that certain Intellectual
Property Security Agreement required to be delivered pursuant to Section 2.3 of
this Agreement, in the form attached hereto as Exhibit A.

 

“Legend Removal Date” shall have the meaning ascribed to such term in Section
4.1(c).

 

“Liabilities” means all direct or indirect liabilities, Indebtedness and
obligations of any kind of Company to the Purchaser, howsoever created, arising
or evidenced, whether now existing or hereafter arising (including those
acquired by assignment), absolute or contingent, due or to become due, primary
or secondary, joint or several, whether existing or arising through discount,
overdraft, purchase, direct loan, participation, operation of law, or otherwise,
including, but not limited to, pursuant to the Note, this Agreement and/or any
of the other Transaction Documents, all accrued but unpaid interest on the Note,
any letter of credit, any standby letter of credit, and/or outside attorneys’
and paralegals’ fees or charges relating to the preparation of the Transaction
Documents and the enforcement of the Purchaser’s rights, remedies and powers
under this Agreement, the Note and/or the other Transaction Documents.

 

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

 

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

 

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

 

“Maximum Rate” shall have the meaning ascribed to such term in Section 5.18.

 

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

 

“Notes” means the Series A Note and the Series B Notes.

 

“Off-balance Sheet Arrangement” shall have the meaning ascribed to such term in
Section 3.1(pp).

 

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

 

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“Principal Amount” means, as to each Purchaser, the principal amount of the
Series A Note or Series B Note, as applicable, set forth opposite each
Purchaser’s name in column (2) on the Schedule of Purchasers attached hereto in
United States Dollars.

 

“Private Securities Offering” shall have the meaning ascribed to such term in
Section 4.17.

 

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

 

“Public Information Failure” shall have the meaning ascribed to such term in
Section 4.3(b).

 

“Public Information Failure Payments” shall have the meaning ascribed to such
term in Section 4.3(b).

 

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.9.

 

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

 

“Required Minimum” means, as of any date, the maximum aggregate number of
Conversion Shares issuable upon conversion in full of the Notes (including
Conversion Shares issuable as payment of interest on the Notes), ignoring any
conversion limits set forth therein, and assuming that the Conversion Price is
at all times on and after the date of determination 100% of the then Conversion
Price on the Trading Day immediately prior to the date of determination.

 

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

 

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

 

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

 

“Securities” means the (a) Notes and the Warrants to be issued to the Purchaser
pursuant to this Agreement, (b) the Conversion Shares issuable upon the
conversion of the Notes and (c) the Warrant Shares issuable upon the exercise of
the Warrants.

 

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

 

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“Security Agreement” means the Security Agreement dated as of the date hereof by
and among the Company and the Purchasers, as hereinafter amended and/or
supplemented altogether with all exhibits, schedules and annexes to such
Security Agreement, pursuant to which all Liabilities of the Company to the
Purchasers under the Transaction Documents are secured by the Collateral (as
defined in the Security Agreement), which security interest in the Collateral
shall be perfected by a UCC-1 Financing Statement filed with the Secretary of
State of the State of Nevada, to the extent such security interest maybe
perfected by the filing of a UCC-1 Financing Statement, or if applicable, a
UCC-3 Financing Statement Amendment and such other documents and instruments
related thereto, which Security Agreement is annexed hereto as Exhibit C.

 

“Series A Note” means the Company’s Series A Senior Secured Convertible
Promissory Note due March 25, 2020, issued by the Company to L1 Capital, in the
form of Exhibit D attached hereto.

 

“Series B Notes” means the Company’s Series B Senior Secured Convertible
Promissory Notes due March 25, 2020, issued by the Company to each of Phyto,
Merida Capital, Kenny, Sanger, Allen, Kaneb, Lanzotti, Adams and Hall, in the
form of Exhibit E attached hereto.

 

“Shell Company” means an entity that fits within the definition of “shell
company” under Section 12b-2 of the Exchange Act and Rule 144.

 

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act.

 

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

 

“Subsequent Securities Offering” shall have the meaning ascribed to such term in
Section 4.18.

 

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a)
and shall, where applicable, also include any direct or indirect subsidiary of
the Company formed or acquired after the date hereof.

 

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

 

“Trading Market” means any of the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the NYSE
American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global
Select Market; the New York Stock Exchange; OTC Markets or the OTC Bulletin
Board (or any successors to any of the foregoing).

 

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“Transaction Documents” means this Agreement, the Notes, the Warrants, the
Security Agreement, the Intellectual Property Security Agreement, the Transfer
Agent Instruction Letter and all exhibits and schedules thereto and hereto and
any other documents or agreements executed in connection with the transactions
contemplated hereunder.

 

“Transfer Agent” means Action Stock Transfer Corp., and any successor transfer
agent of the Company.

 

“Transfer Agent Instruction Letter” means the letter from the Company to the
Transfer Agent which instructs the Transfer Agent to issue the Conversion Shares
and Warrant Shares pursuant to the Transaction Documents, in the form of Exhibit
F attached hereto.

 

“Warrants” means the Common Stock Purchase Warrants, in the form attached as
Exhibit B hereto, issued to the Purchasers to purchase up to an aggregate of
2,150,000 shares of Common Stock, in such amounts as set forth opposite such
Purchaser’s name on the Schedule of Purchasers attached hereto.

 

“Warrant Shares” means the shares of Common Stock issued or issuable upon
exercise of each of the Warrants.

 

ARTICLE II.

PURCHASE AND SALE

 

2.1 Purchase. On the Closing Date, upon the terms and subject to the conditions
set forth herein, substantially concurrent with the execution and delivery of
this Agreement by the parties hereto, the Company shall sell and issue to each
Purchaser, and each Purchaser shall purchase, severally and not jointly, from
the Company (a) a Note with a Principal Amount equal to the amount set forth
opposite such Purchaser’s name in column (2) on the Schedule of Purchasers
attached hereto and (b) a Warrant to purchase such number of Warrant Shares as
set forth opposite such Purchaser’s name in column (4) on the Schedule of
Purchasers attached hereto.

 

2.2 Closing. On the Closing Date, upon the terms and subject to the conditions
set forth herein, concurrent with the execution and delivery of this Agreement
by the parties hereto, the Company agrees to sell, and each Purchaser agrees to
purchase, the Subscription Amount of Notes and Warrants as set forth on the
signature page hereto executed by such Purchaser. At the Closing, each Purchaser
shall deliver to the Company, via wire transfer to an account designated by the
Company, immediately available funds equal to such Purchaser’s Subscription
Amount as set forth on the signature page hereto executed by such Purchaser, and
the Company shall deliver to such Purchaser its Note and Warrant as set forth in
Section 2.3(a), and the Company and such Purchaser shall deliver the other items
set forth in Section 2.3 deliverable at the Closing. Upon satisfaction of the
covenants and conditions set forth in Sections 2.3 and 2.4 for Closing, such
Closing shall occur at the offices of Sullivan & Worcester LLP or such other
location as the parties hereto shall mutually agree, and may by agreement be
undertaken remotely by electronic exchange of Closing documentation.

 

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2.3 Deliveries.

 

 

(a)

On or prior to the Closing Date (except as noted), the Company shall deliver or
cause to be delivered to each Purchaser the following:

 

 

 

 

 

 

(i)this Agreement duly executed by the Company;

 

 

 

 

 

 

(ii)a Note with a Principal Amount equal to the amount set forth opposite such
Purchaser’s name in column (2) on the Schedule of Purchasers attached hereto,
registered in the name of the Purchaser;

 

 

 

 

 

 

(iii)a Warrant to purchase such number of Warrant Shares as is set forth across
from such Purchaser’s name in column (4) of the Schedule of Purchasers being
purchased by such Purchaser at the Closing pursuant to this Agreement;

 

 

 

 

 

 

(iv)the Security Agreement, duly executed by the Company;

 

 

 

 

 

 

(v)the Intellectual Property Security Agreement, duly executed by the Company;

 

 

 

 

 

 

(vi)the Transfer Agent Instruction Letter, duly executed by the Company and the
Transfer Agent;

 

 

 

 

 

 

(vii)the opinion of Paul Rachmuth, on behalf of the Company;

 

 

 

 

 

 

(viii)a certificate evidencing the formation and good standing of the Company in
the State of Nevada issued by the Secretary of State (or comparable office) of
the State of Nevada as of a date no later than ten (10) days prior to the
Closing Date;

 

 

 

 

 

 

(ix)a certificate evidencing the Company’s qualification as a foreign
corporation and in good standing issued by the Secretary of State (or comparable
office) of each jurisdiction, if any, in which the Company conducts business and
is required to so qualify, as of a date no later than ten (10) days prior to the
Closing Date; provided, however, that the Company shall deliver a certificate
evidencing qualification as a foreign corporation in California, after the
Closing, as provided in Section 4.19 hereafter;

 

 

 

 

 

 

(x)a certified copy of the Company’s certificate of incorporation, as certified
by the Secretary of State of Nevada no later than two (2) days prior to the
Closing Date;

 

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(xi)a certificate executed by the Secretary of the Company and dated as of the
Closing Date, as to (i) the resolutions, as adopted by the Board of Directors in
a form reasonably acceptable to the Purchasers, approving (A) the entering into
and performance of this Agreement and the other Transaction Documents and the
issuance, offering and sale of the Securities and (B) the performance of the
Company of its obligations under the Transaction Documents contemplated therein,
(ii) the Company’s certificate of incorporation and (iii) the Company’s bylaws,
each as in effect at the Closing; and

 

 

 

 

(xii)such other documents, instruments or certificates relating to the
transactions contemplated by this Agreement as the Purchasers or their counsel
may reasonably request.

 

 

(b)On or prior to the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company, as applicable, the following:

 

 

(i)this Agreement, duly executed by such Purchaser;

 

 

 

 

(ii)each Purchaser’s Subscription Amount by wire transfer to the account
specified in writing by the Company;

 

 

 

 

(iii)the Security Agreement, duly executed by such Purchaser; and

 

 

 

 

(iv)the Intellectual Property Security Agreement, duly executed by L1 as the
agent for all of the Purchasers.

 

2.4 Closing Conditions.

 

 

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

 

 

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

 

 

 

 

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

 

 

 

 

(iii)the delivery by each Purchaser of the items set forth in Section 2.3(b) of
this Agreement.

 

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

 

 

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

 

 

 

 

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

 

 

 

 

(iii)the delivery by the Company of the items set forth in Section 2.3(a) of
this Agreement;

 

 

 

 

(iv)there is no existing Event of Default (as defined in the Notes) and no
existing event which, with the passage of time or the giving of notice, would
constitute an Event of Default;

 

 

 

 

(v)there is no breach of an obligations, covenants and agreements under the
Transaction Documents and no existing event which, with the passage of time or
the giving of notice, would constitute a breach under the Transaction Documents;

 

 

 

 

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

 

 

 

 

(vii)from the date hereof to the Closing Date, trading in the Common Stock shall
not have been suspended by the Commission or the Company’s principal Trading
Market and, at any time prior to the Closing Date, trading in securities
generally as reported by Bloomberg L.P. shall not have been suspended or
limited, or minimum prices shall not have been established on securities whose
trades are reported by such service, or on any Trading Market, nor shall a
banking moratorium have been declared either by the United States or New York
State authorities nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international calamity of such
magnitude in its effect on, or any material adverse change in, any financial
market which, in each case, in the reasonable judgment of the Purchasers, and
without regard to any factors unique to the Purchasers, makes it impracticable
or inadvisable to purchase the Securities at the Closing;

 

 

 

 

(viii)the Company meets the current public information requirements under Rule
144 in respect of the Conversion Shares and any other shares of Common Stock
issuable under the Notes or the Warrants;

 

 

 

 

(ix)the Company has filed with the Commission any required reports under Section
13 or 15(d) of the Exchange Act such that are required for compliance with Rule
144(c)(1) (or Rule 144(i)(2), if applicable), including, without limitation, any
reports that the Commission requires the Company to amend and/or re-submit; and

 

 

 

 

(x)any other conditions contained herein or the other Transaction Documents,
including, without limitation those set forth in Section 2.3 herein.

 

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ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1 Representations and Warranties of the Company. Except as set forth in the
disclosure schedules attached hereto (the “Disclosure Schedules”), which
Disclosure Schedules shall be deemed a part hereof and shall qualify any
representation or otherwise made herein to the extent of the disclosure
contained in the corresponding section of the Disclosure Schedules, the Company
(which for purposes of this Section 3.1 means the Company and all of its
Subsidiaries) hereby makes the following representations and warranties to each
Purchaser as of the Closing Date:

 

(a) Subsidiaries. The Company does not have any Subsidiaries.

 

(b) Organization and Qualification. The Company is an entity duly incorporated
or otherwise organized and validly existing, and is in good standing, under the
laws of the State of Nevada, with the requisite power and authority to own and
use its properties and assets and to carry on its business as currently
conducted. The Company is not in violation or default of any of the provisions
of its certificate of incorporation, bylaws or other organizational or charter
documents. The Company is duly qualified to conduct business and is in good
standing as a foreign corporation or other entity in each jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to result
in: (i) a material adverse effect on the legality, validity or enforceability of
any Transaction Document; (ii) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial or otherwise) of
the Company, taken as a whole; or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a
“Material Adverse Effect”) and no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.

 

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

 

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(d) No Conflicts. The execution, delivery and performance by the Company of this
Agreement and the other Transaction Documents to which it is a party, the
issuance and sale of the Securities and the consummation by it of the
transactions contemplated hereby and thereby do not and will not, except as set
forth on Schedule 3.1(d): (i) conflict with or violate any provision of the
Company’s certificate of incorporation, bylaws or other organizational or
charter documents; (ii) conflict with, or constitute a default (or an event that
with notice or lapse of time or both would become a default) under, result in
the creation of any Lien (except Liens in favor of the Purchasers) upon any of
the properties or assets of the Company, or give to others any rights of
termination, amendment, acceleration or cancellation (with or without notice,
lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company debt or otherwise) or other understanding to
which the Company is a party or by which any property or asset of the Company is
bound or affected; or (iii) subject to the Required Approvals, conflict with or
result in a violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which the
Company is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company is bound or
affected; except in the case of each of clauses (ii) and (iii), such as could
not have or reasonably be expected to result in a Material Adverse Effect.

 

(e) Filings, Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than: (i) the filings required pursuant to Sections 4.3 and 4.12 of this
Agreement and (ii) the filing of Form D with the Commission and such filings as
are required to be made under applicable state securities laws (collectively,
the “Required Approvals”).

 

(f) Issuance of the Securities. The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents,
will be duly and validly issued, fully paid and nonassessable, free and clear of
all Liens imposed by the Company other than restrictions on transfer provided
for in the Transaction Documents. The Conversion Shares and the Warrant Shares,
when issued in accordance with the terms of the Transaction Documents, will be
validly issued, fully paid and nonassessable, free and clear of all Liens
imposed by the Company other than restrictions on transfer provided for in the
Transaction Documents. The Company has reserved from its duly authorized capital
stock a number of shares of Common Stock for issuance of the Conversion Shares
and the Warrant Shares as provided for in Section 4.10 hereafter.

 

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(g) Capitalization; Corporate Governance.

 

(i) The capitalization of the Company is as set forth on Schedule 3.1(g)(i),
which Schedule 3.1(g)(i) shall also include (A) the number of shares of Common
Stock owned beneficially, and of record, by Affiliates of the Company as of the
date hereof and (B) the number of authorized and reserved shares of capital
stock of the Company. The Company has not issued capital stock since its most
recently filed periodic report under the Exchange Act except as set forth on
Schedule 3.1(g)(i), except the issuance of shares of Common Stock to employees
pursuant to the Company’s employee stock purchase plans and except pursuant to
the conversion and/or exercise of Common Stock Equivalents outstanding as of the
date of the most recently filed periodic report under the Exchange Act except as
set forth on Schedule 3.1(g)(i). No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by the Transaction Documents except as set forth
on Schedule 3.1(g)(i). There are no outstanding options, warrants, scrip rights
to subscribe to, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or acquire any
shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock or Common Stock Equivalents except as
set forth on Schedule 3.1(g)(i). The issuance and sale of the Securities will
not obligate the Company to issue shares of Common Stock or other securities to
any Person (other than the Purchasers) and will not result in a right of any
holder of Company securities to adjust the exercise, conversion, exchange or
reset price under any of such securities except as set forth on Schedule
3.1(g)(i). All of the outstanding shares of capital stock of the Company are
duly authorized, validly issued, fully paid and nonassessable, have been issued
in compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. No further approval or
authorization of any stockholder, the Board of Directors or others is required
for the issuance and sale of the Securities. There are no stockholders’
agreements, voting agreements or other similar agreements with respect to the
Company’s capital stock to which the Company is a party or, to the knowledge of
the Company, between or among any of the Company’s stockholders.

 

(ii) The names and titles of each of the Company’s principal officers, directors
and beneficial holders of at least five percent (5%) of the outstanding shares
of each class of the Company’s capital stock on a fully diluted basis are as set
forth on Schedule 3.1(g)(ii), which Schedule 3.1(g)(ii) shall also include each
committee of directors as well as the names and titles of each director
currently serving on each such committee.

 

 12

  

 

(h) Indebtedness. Schedule 3.1(h) sets forth as of the date hereof all
outstanding secured and unsecured Indebtedness of the Company, or for which the
Company has commitments. Except as set forth on Schedule 3.1(h), neither the
Company nor any Subsidiary is in default with respect to any Indebtedness.

 

(i) SEC Reports; Financial Statements. Except as set forth on Schedule 3.1(i),
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by the Company under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two
(2) years preceding the date hereof (the foregoing materials, including the
exhibits thereto and documents incorporated by reference therein, being
collectively referred to herein as the “SEC Reports”). As of their respective
dates, the SEC Reports complied in all material respects with the requirements
of the Securities Act and the Exchange Act, as applicable, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. Except as set forth on Schedule 3.1(i),
the Company has never been an issuer subject to Rule 144(i) under the Securities
Act. The financial statements of the Company included in the SEC Reports comply
in all material respects with applicable accounting requirements and the rules
and regulations of the Commission with respect thereto as in effect at the time
of filing. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis during the periods involved (“GAAP”), except as may be otherwise specified
in such financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and its
consolidated Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments.

 

(j) Material Changes; Undisclosed Events, Liabilities or Developments. Since the
date of the latest audited financial statements included within the SEC Reports,
except as specifically disclosed in the Company’s Quarterly Report on Form 10-Q
filed on May 15, 2019, and except as set forth in Schedule 3.1(g), Schedule
3.1(m), and/or Schedule 3.1(j): (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in a
Material Adverse Effect; (ii) the Company has not incurred any liabilities or
obligations (contingent or otherwise) other than (A) trade payables and accrued
expenses incurred in the ordinary course of business consistent with past
practice and (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or disclosed in filings made with the
Commission; (iii) the Company has not altered its method of accounting; (iv) the
Company has not declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock; (v) the Company has not
sold, assigned or transferred any other tangible assets or Intellectual Property
Rights, or canceled any debts or claims, except in the ordinary course of
business, (vi) the Company has not suffered any substantial loss contingencies
or waived any rights of material value, whether or not in the ordinary course of
business, or suffered the loss of any material amount of prospective business,
(vii) the Company has not entered into any acquisition or financing
transactions, whether or not in the ordinary course of business, other than with
respect to the Transaction Documents and (v) the Company has not issued any
equity securities to any officer, director or Affiliate, no event, liability,
fact, circumstance, occurrence or development has occurred or exists or is
reasonably expected to occur or exist with respect to the Company or its
Subsidiaries or their respective businesses, properties, operations, assets or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made or deemed
made that has not been publicly disclosed at least one (1) Trading Day prior to
the date that this representation is made.

 

 13

  

 

(k) Litigation. There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its properties except as
set forth in Schedule 3.1(k), or against or affecting the Company’s current or
former officers or directors in their capacity as such, before or by any court,
arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect, and neither the Company nor any director or officer thereof, is
or has been the subject of any Action involving a claim of violation of or
liability under federal or state securities laws or a claim of breach of
fiduciary duty. There has not been, and to the knowledge of the Company, there
is not pending or contemplated, any investigation by the Commission involving
the Company or any current or former director or officer of the Company that is
likely to lead to action that can reasonably be expected to result in a Material
Adverse Effect. There has not been, and to the knowledge of the Company, there
is not pending or contemplated, any investigation by the Commission involving
the Company or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.

 

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

 

 14

  

 

(m) Compliance. The Company, except as set forth in Schedule 3.1(m): (i) is not
in default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company under), nor has the Company received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound (whether or not such default or
violation has been waived); (ii) is in violation of any judgment, decree or
order of any court, arbitrator or other governmental authority; or (iii) is or
has been in violation of any statute, rule, ordinance or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws relating to taxes, environmental protection, occupational health
and safety, product quality and safety and employment and labor matters, except
in each case as could not have or reasonably be expected to result in a Material
Adverse Effect.

 

(n) Regulatory Permits. The Company possesses all certificates, authorizations
and permits issued by the appropriate federal, state, local or foreign
regulatory authorities necessary to conduct its business as described in the SEC
Reports, except where the failure to possess such permits could not reasonably
be expected to result in a Material Adverse Effect (“Material Permits”), and the
Company has not received any notice of proceedings relating to the revocation or
modification of any Material Permit.

 

(o) Title to Assets. The Company has good and marketable title in fee simple to
all real property owned by it and good and marketable title in all personal
property owned by it that is material to the business of the Company, in each
case free and clear of all Liens, except as set forth in Schedule 3.1(o) and
except for (i) Liens as do not materially affect the value of such property and
do not materially interfere with the use made and proposed to be made of such
property by the Company and (ii) Liens for the payment of federal, state or
other taxes, for which appropriate reserves have been made therefor in
accordance with GAAP and the payment of which is neither delinquent nor subject
to penalties. Any real property and facilities held under lease by the Company
are held by it under valid, subsisting and enforceable leases with which the
Company is in compliance.

 

(p) Material Agreements. Except for the Transaction Documents (with respect to
clause (i) only) or as set forth on Schedule 3.1(p) hereto, or as would not be
reasonably likely to have a Material Adverse Effect, (i) the Company has
performed all obligations required to be performed by it to date under any
written or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, filed or required to be filed with the Commission (the “Material
Agreements”), (ii) the Company has not received any notice of default under any
Material Agreement and, (iii) to the best of the Company’s knowledge, the
Company is not in default under any Material Agreement now in effect.

 

 15

  

 

(q) Intellectual Property. The Company has, or has rights to use, all patents,
patent applications, trademarks, trademark applications, service marks, trade
names, trade secrets, inventions, copyrights, licenses and other intellectual
property rights and similar rights as necessary or required for use in
connection with its business as presently conducted and which the failure to so
have could have a Material Adverse Effect (collectively, the “Intellectual
Property Rights”). The Company has not received a notice (written or otherwise)
that any of the Intellectual Property Rights has expired, terminated or been
abandoned, or is expected to expire or terminate or be abandoned, within two (2)
years from the date of this Agreement. The Company has not received, since the
date of the latest audited financial statements included within the SEC Reports,
a written notice of a claim or otherwise has any knowledge that the Intellectual
Property Rights violate or infringe upon the rights of any Person, except as
could not have or could not reasonably be expected to have a Material Adverse
Effect. To the knowledge of the Company, all such Intellectual Property Rights
are enforceable and there is no existing infringement by another Person of any
of the Intellectual Property Rights except as disclosed in Schedule 3.1(q). The
Company has taken reasonable security measures to protect the secrecy,
confidentiality and value of all of its intellectual properties, except where
failure to do so could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

 

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

 

(s) Payments of Cash. Except as disclosed on Schedule 3.1(s), since September
14, 2018, neither the Company, its directors or officers, or any Affiliates or
agents of the Company, have withdrawn or paid cash to any vendor in an aggregate
amount that exceeds Five Thousand Dollars ($5,000) for any purpose.

 

 16

  

 

(t) Sarbanes-Oxley; Internal Accounting Controls. The Company is in compliance
with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that
are effective as of the date hereof, and any and all applicable rules and
regulations promulgated by the Commission thereunder that are effective as of
the date hereof and as of the Closing Date. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that:
(i) transactions are executed in accordance with management’s general or
specific authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability; (iii) access to assets is permitted only in accordance
with management’s general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such
disclosure controls and procedures to ensure that information required to be
disclosed by the Company in the reports it files or submits under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the Commission’s rules and forms. The Company’s certifying officers
have evaluated the effectiveness of the disclosure controls and procedures of
the Company as of the end of the period covered by the most recently filed
periodic report under the Exchange Act (such date, the “Evaluation Date”). The
Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no changes in the
internal control over financial reporting (as such term is defined in the
Exchange Act) that have materially affected, or is reasonably likely to
materially affect, the internal control over financial reporting of the Company.

 

(u) Certain Fees. Other than as set forth on Schedule 3.1(u), no brokerage or
finder’s fees or commissions are or will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by
the Transaction Documents. None of the Purchasers shall have any obligation with
respect to any fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by the Transaction Documents.

 

(v) Private Placement. Assuming the accuracy of each Purchasers’ representations
and warranties set forth in Section 3.2, no registration under the Securities
Act is required for the offer and sale of the Securities by the Company to the
Purchaser as contemplated hereby. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Trading Market.

 

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

 

 17

  

 

(x) Registration Rights. Other than as set forth on Schedule 3.1(x), no Person
has any right to cause the Company to effect the registration under the
Securities Act of any securities of the Company.

 

(y) Listing and Maintenance Requirements. The Common Stock is not registered
under the Exchange Act. Except as disclosed in the SEC Reports, the Company has
not, since September 14, 2018, received notice from any Trading Market on which
the Common Stock is or has been listed or quoted to the effect that the Company
is not in compliance with the listing or maintenance requirements of such
Trading Market. The Company is, and has no reason to believe that it will not in
the foreseeable future continue to be, in compliance with all such listing and
maintenance requirements.

 

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

 

(aa) Disclosure. Except with respect to the material terms and conditions of the
transactions contemplated by the Transaction Documents, the Company confirms
that neither it nor any other Person acting on its behalf has provided the
Purchasers or their agents or counsel with any information that it believes
constitutes or might constitute material, non-public information. The Company
understands and confirms that the Purchasers will rely on the foregoing
representation in effecting transactions in securities of the Company. All of
the disclosure furnished by or on behalf of the Company to the Purchasers
regarding the Company, its business and the transactions contemplated hereby,
including the Disclosure Schedules to this Agreement, is true and correct and
does not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. The press
releases disseminated by the Company during the twelve months preceding the date
of this Agreement taken as a whole do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made and when made, not misleading. The Company
acknowledges and agrees that no Purchaser makes or has made any representations
or warranties with respect to the transactions contemplated hereby other than
those specifically set forth in Section 3.2 hereof.

 

 18

  

 

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

 

(cc) No General Solicitation. Neither the Company nor any Person acting on
behalf of the Company has offered or sold any of the Securities by any form of
general solicitation or general advertising. The Company has offered the
Securities for sale only to the Purchaser and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act.

 

(dd) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the
Company, any agent or other Person acting on behalf of the Company, has: (i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity; (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds; (iii) failed to disclose fully any
contribution made by the Company (or made by any Person acting on its behalf of
which the Company is aware) which is in violation of law; or (iv) violated in
any material respect any provision of FCPA.

 

(ee) Accountants. The Company’s accounting firm is set forth on Schedule
3.1(ee). To the knowledge and belief of the Company, such accounting firm is a
registered public accounting firm as required by the Exchange Act.

 

(ff) No Disagreements with Accountants and Lawyers. There are no disagreements
of any kind presently existing, or reasonably anticipated by the Company to
arise, between the Company and the accountants and lawyers formerly or presently
employed by the Company and the Company is current with respect to any fees owed
to its accountants and lawyers which could affect the Company’s ability to
perform any of its obligations under any of the Transaction Documents.

 

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

 

 19

  

 

(hh) Regulation M Compliance. The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
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, other than, in the case of clauses (ii) and (iii),
compensation paid to the Company’s placement agent in connection with the
placement of the Securities.

 

(ii) Stock Option Plans. The Company has not knowingly granted, and there is no
and has been no Company policy or practice to knowingly grant, stock options
prior to, or otherwise knowingly coordinate the grant of stock options with, the
release or other public announcement of material information regarding the
Company or its financial results or prospects.

 

(jj) Office of Foreign Assets Control. The Company nor, to the Company’s
knowledge, any director, officer, agent, employee or affiliate of the Company,
is currently subject to any U.S. sanctions administered by the Office of Foreign
Assets Control of the U.S. Treasury Department.

 

(kk) U.S. Real Property Holding Corporation. The Company is not and has never
been a U.S. real property holding corporation within the meaning of Section 897
of the Internal Revenue Code of 1986, as amended, and the Company shall so
certify upon any Purchaser’s request.

 

(ll) Bank Holding Company Act. Neither the Company nor any of its Affiliates 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 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 entity that is subject to the BHCA and to regulation by
the Federal Reserve. Neither the Company nor any of its 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.

 

(mm) Promotional Stock Activities. Neither the Company, its officers, its
directors, nor any affiliates or agents of the Company have engaged in any stock
promotional activity that could give rise to a complaint, inquiry, or trading
suspension by the Commission alleging (i) a violation of the anti-fraud
provisions of the federal securities laws, (ii) violations of the anti-touting
provisions, (iii) improper “gun-jumping; or (iv) promotion without proper
disclosure of compensation.

 

 20

  

 

(nn) Tax Status. Except as set forth on Schedule 3.1(nn) and for matters that
would not, individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect, the Company (i) has made or filed all
United States federal, state and local income and all foreign income and
franchise tax returns, reports and declarations required by any jurisdiction to
which it is subject, (ii) has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to be due on such
returns, reports and declarations and (iii) has set aside on its books provision
reasonably adequate for the payment of all material taxes for periods subsequent
to the periods to which such returns, reports or declarations apply. There are
no unpaid taxes in any material amount claimed to be due by the taxing authority
of any jurisdiction, and the officers of the Company know of no basis for any
such claim.

 

(oo) Seniority. As of the Closing Date, other than as set forth on Schedule
3.1(oo), no indebtedness or other claim against the Company is senior to the
Notes in right of payment, whether with respect to interest or upon liquidation
or dissolution, or otherwise, other than indebtedness secured by purchase money
security interests (which is senior only as to underlying assets covered
thereby) and capital lease obligations (which is senior only as to the property
covered thereby).

 

(pp) No “Off-balance Sheet Arrangements”. Other than as set forth in Schedule
3.1(pp), neither the Company nor any of its Affiliates is involved in any
“Off-balance Sheet Arrangements”. For purposes hereof, an “Off-balance Sheet
Arrangement” means any transaction or contract to which an entity unconsolidated
with the Company or any of its Affiliates is a party and under which either the
Company or any such Affiliate has: (i) any obligation under a guarantee contract
pursuant to which the Company or any of its Affiliates could be required to make
payments to the guaranteed party, including any standby letter of credit, market
value guarantee, performance guarantee, indemnification agreement, keep-well or
other support agreement; (ii) any retained or contingent interest in assets
transferred to such unconsolidated entity that serves as credit, liquidity or
market risk support to the entity in respect of such assets; (iii) any variable
interest held in such unconsolidated entity where such entity provides
financing, liquidity, market risk or credit risk support to, or engages in
leasing, hedging or research and development services with the Company of any of
its Affiliates; and (iv) any liability or obligation of the same nature as those
described in clauses (i) through (iii) of this sentence even if of a different
name (whether absolute, accrued, contingent or otherwise) that would not be
required to be reflected in the Company or any of its Affiliates’ financial
statements.

 

(qq) Money Laundering. The operations of the Company are and have been conducted
at all times in compliance with applicable financial record-keeping and
reporting requirements of the Currency and Foreign Transactions Reporting Act of
1970, as amended, applicable money laundering statutes and applicable rules and
regulations thereunder (collectively, the “Money Laundering Laws”), and no
action, suit or proceeding by or before any court or governmental agency,
authority or body or any arbitrator involving the Company with respect to the
Money Laundering Laws is pending or, to the knowledge of the Company,
threatened.

 

 21

  

 

(rr) Rule 506(d) Bad Actor Disqualification Representations and Covenants.

 

(i) No Disqualification Events. Neither the Company, nor any of its
predecessors, Affiliates, any manager, executive officer, other officer of the
Company participating in the transactions contemplated under the Transaction
Documents, any beneficial owner (as that term is defined in Rule 13d-3 under the
Exchange Act 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 as of the date of this Agreement and on the Closing Date (each,
a “Company Covered Person” and, together, the “Company Covered Persons”) is
subject to any of the “Bad Actor” disqualifications described in Rule
506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”),
except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The
Company has exercised reasonable care to determine (A) the identity of each
person that is a Company Covered Person; and (B) whether any Company Covered
Person is subject to a Disqualification Event. The Company will comply with its
disclosure obligations under Rule 506(e).

 

(ii) Other Covered Persons. The Company is not aware of any person (other than
any Company Covered Person) who has been or will be paid (directly or
indirectly) remuneration in connection with the purchase and sale of the
Securities who is subject to a Disqualification Event (each, an “Other Covered
Person”).

 

(iii) Reasonable Notification Procedures. With respect to each Company Covered
Person, the Company has established procedures reasonably designed to ensure
that the Company receives notice from each such Company Covered Person of (A)
any Disqualification Event relating to that Company Covered Person, and (B) any
event that would, with the passage of time, become a Disqualification Event
relating to that Company Covered Person, in each case occurring up to and
including the Closing Date.

 

(iv) Notice of Disqualification Events. The Company will notify the Purchasers
immediately in writing upon becoming aware of (A) any Disqualification Event
relating to any Company Covered Person and (B) any event that would, with the
passage of time, become a Disqualification Event relating to any Company Covered
Person and/or Other Covered Person.

 

 22

  

 

(ss) Shell Company Status; Availability of Rule 144. Prior to September 14,
2018, the Company was an issuer identified as a Shell Company. As of September
17, 2018, the Company filed all “Form 10” information as prescribed by Rule
144(i)(2) of the Securities Act, and beginning September 17, 2019, as long as
the Company is current in its filing of SEC Reports, holders of the Company’s
shares of Common Stock will be eligible to rely on Rule 144 of the Securities
Act in connection with the transfer and sale of shares of Common Stock
thereunder.

 

(tt) Investor Relations. Other than as set forth in Schedule 3.1(tt), the
Company is not currently a party, nor does it intend to become a party, to any
agreement pursuant to which the Company will receive investor relations
services. All such agreements have been disclosed by the Company in its SEC
Reports.

 

(uu) [Reserved].

 

(vv) Full Disclosure. No representation or warranty by the Company in this
Agreement and no statement contained in the Disclosure Schedules to this
Agreement or any certificate or other document furnished or to be furnished to
the Purchasers pursuant to this Agreement contains any untrue statement of a
material fact, or omits to state a material fact necessary to make the
statements contained therein, in light of the circumstances in which they are
made, not misleading.

 

3.2 Representations and Warranties of the Purchaser. Each Purchaser, for itself
and for no other Purchaser, hereby represents and warrants as of the date hereof
and as of the Closing Date to the Company as follows (unless as of a specific
date therein in which case they shall be accurate as of such date):

 

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

 

 23

  

 

(b) Own Account. The Purchaser understands that the Securities are “restricted
securities” and have not been registered under the Securities Act or any
applicable state securities law and is acquiring the Securities as principal for
its own account and not with a view to or for distributing or reselling such
Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of distributing any of
such Securities in violation of the Securities Act or any applicable state
securities law and has no direct or indirect arrangement or understandings with
any other Persons to distribute or regarding the distribution of such Securities
in violation of the Securities Act or any applicable state securities law (this
representation and warranty not limiting the Purchaser’s right to sell the
Securities in compliance with applicable federal and state securities laws). The
Purchaser is acquiring the Securities hereunder in the ordinary course of its
business.

 

(c) Purchaser Status. At the time the Purchaser was offered the Securities, it
was, and as of the date hereof it is, and on each date on which it converts the
Notes or exercises the Warrants, it will be an “accredited investor” as defined
in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act.

 

(d) Experience of the Purchaser. The Purchaser, either alone or together with
its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment. The Purchaser 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.

 

(e) General Solicitation. The Purchaser is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.

 

(f) Certain Transactions and Confidentiality. Other than consummating the
transactions contemplated hereunder, the Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with the Purchaser, executed any purchases or sales, including
Short Sales, of the securities of the Company during the period commencing as of
the time that the Purchaser first received a term sheet (written or oral) from
the Company or any other Person representing the Company setting forth the
material terms of the transactions contemplated hereunder and ending immediately
prior to the execution hereof. Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of the Purchaser’s assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of the Purchaser’s assets, the
representation set forth above shall only apply with respect to the portion of
assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement. Other than to other Persons
party to this Agreement, the Purchaser has maintained the confidentiality of all
disclosures made to it in connection with this transaction (including the
existence and terms of this transaction).

 

 24

  

 

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

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1 Transfer Restrictions.

 

(a) The Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other than
pursuant to an effective registration statement or Rule 144, to the Company or
to an Affiliate of a Purchaser or in connection with a pledge as contemplated in
Section 4.1(b), the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, at the Company’s sole expense in the form and
substance of which opinion shall be reasonably satisfactory to the Company, to
the effect that such transfer does not require registration of such transferred
Securities under the Securities Act. As a condition of transfer, any such
transferee shall agree in writing to be bound by the terms of this Agreement and
shall have the rights and obligations of a Purchaser under this Agreement.

 

(b) The Purchaser agrees to the imprinting, so long as is required by this
Section 4.1, of a legend on any of the Securities in the following form:

 

[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS
[CONVERTIBLE]] HAS NOT [HAVE] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON
[CONVERSION] OF THIS SECURITY]] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL
INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE
SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

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The Company acknowledges and agrees that the Purchaser may from time to time
pledge, pursuant to a bona fide margin agreement with a registered
broker-dealer, or grant a security interest in some or all of the Securities to
a financial institution that is an “accredited investor” as defined in Rule
501(a) under the Securities Act and who agrees to be bound by the provisions of
this Agreement and, if required under the terms of such arrangement, the
Purchaser may transfer pledged or secured Securities to the pledgees or secured
parties. Such a pledge or transfer would not be subject to approval of the
Company and no legal opinion of legal counsel of the pledgee, secured party or
pledgor shall be required in connection therewith. Further, no notice shall be
required of such pledge. At the Company’s expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer of the
Securities.

 

(c) Certificates evidencing the Conversion Shares and the Warrant Shares shall
not contain any legend (including the legend set forth in Section 4.1(b)
hereof): (i) while a registration statement covering the resale of any such
securities is effective under the Securities Act; (ii) following any sale of
such Conversion Shares or Warrant Shares pursuant to Rule 144; if such legend is
not required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the staff of the
Commission). The Company shall upon request of a Purchaser and at the Company’s
sole expense cause its counsel (or at the Purchaser’s option, counsel selected
by the Purchaser) to issue a legal opinion reasonably satisfactory to the
Company to the Transfer Agent promptly after any of the events described in
(i)-(ii) in the preceding sentence if required by the Transfer Agent to effect
the removal of the legend hereunder (with a copy to the applicable Purchaser and
its broker). If all or any portion of any Note or Warrant is converted or
exercised, respectively, at a time when there is an effective registration
statement to cover the resale of the Conversion Shares or Warrant Shares, or if
such Conversion Shares or Warrant Shares may be sold under Rule 144 or if such
legend is not otherwise required under applicable requirements of the Securities
Act (including judicial interpretations and pronouncements issued by the staff
of the Commission) then such Conversion Shares or Warrant Shares shall be issued
free of all legends. The Company agrees that following such time as such legend
is no longer required under this Section 4.1(c), it will, no later than 9:00 AM
the next Trading Day following the delivery by a Purchaser to the Company or the
Transfer Agent of a certificate representing Conversion Shares or Warrant Shares
issued with a restrictive legend (such Trading Day, the “Legend Removal Date”),
instruct the Transfer Agent to deliver or cause to be delivered to the Purchaser
a certificate representing such shares of Common Stock that is free from all
restrictive and other legends. The Company may not make any notation on its
records or give instructions to the Transfer Agent that enlarge the restrictions
on transfer set forth in this Section 4. Certificates for Conversion Shares or
Warrant Shares that are subject to legend removal hereunder shall be transmitted
by the Transfer Agent to the Purchaser by crediting the account of the
Purchaser’s prime broker with the Depository Trust Company System as directed by
the Purchaser.

 

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(d) In addition to the Purchaser’s other available remedies, the Company shall
pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty,
$1,000 per Trading Day for each Trading Day after the Legend Removal Date until
such certificate is delivered without a legend. Nothing herein shall limit the
Purchaser’s right to pursue actual damages for the Company’s failure to deliver
certificates representing any Securities as required by the Transaction
Documents, and the Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.

 

4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance of
the Securities may result in dilution of the outstanding shares of Common Stock,
which dilution may be substantial under certain market conditions. The Company
further acknowledges that its obligations under the Transaction Documents,
including, without limitation, its obligation to issue the Conversion Shares or
the Warrant Shares pursuant to the Transaction Documents, are unconditional and
absolute and not subject to any right of set off, counterclaim, delay or
reduction, regardless of the effect of any such dilution or any claim the
Company may have against the Purchaser and regardless of the dilutive effect
that such issuance may have on the ownership of the other stockholders of the
Company.

 

4.3 Furnishing of Information; Public Information.

 

(a) Not later than ten (10) days after the Closing Date, the Company shall file
a Form 8-A and/or any other applicable documents as shall be required to
register the Common Stock under Section 12(g) of the Exchange Act and shall
effect such registration. In addition, for as long as the Notes and Warrants, or
portions thereof, are outstanding, the Company covenants to maintain the
registration of the Common Stock under Section 12(b) or 12(g) of the Exchange
Act and 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 even if the Company is not
then subject to the reporting requirements of the Exchange Act.

 

(b) At any time during the period commencing from the six (6)-month anniversary
of the date hereof and ending at such time that all of the Securities have been
sold or may be sold without the requirement for the Company to be in compliance
with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to
Rule 144, if the Company shall fail for any reason to satisfy the current public
information requirement under Rule 144(c) (a “Public Information Failure”) then,
in addition to the Purchaser’s other available remedies, the Company shall pay
to a Purchaser, in cash, as partial liquidated damages and not as a penalty, by
reason of any such delay in or reduction of its ability to sell the Securities,
an amount in cash equal to two percent (2.0%) of the aggregate Subscription
Amount of the Purchaser’s Securities on the day of a Public Information Failure
and on every thirtieth (30th) day (pro-rated for periods totaling less than
thirty (30) days) thereafter until the earlier of (a) the date such Public
Information Failure is cured and (b) such time that such public information is
no longer required for the Purchaser to transfer the Conversion Shares pursuant
to Rule 144. The payments to which a Purchaser shall be entitled pursuant to
this Section 4.3(b) are referred to herein as “Public Information Failure
Payments”. Public Information Failure Payments shall be paid on the earlier of
(i) the last day of the calendar month during which such Public Information
Failure Payments are incurred and (ii) the third (3rd) Business Day after the
event or failure giving rise to the Public Information Failure Payments is
cured. In the event the Company fails to make Public Information Failure
Payments in a timely manner, such Public Information Failure Payments shall bear
interest at the rate of 1.5% per month (prorated for partial months) until paid
in full. Nothing herein shall limit the Purchaser’s right to pursue actual
damages for the Public Information Failure, and the Purchaser shall have the
right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief.

 

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

 

4.5 Conversion and Exercise Procedures. The form of Notice of Conversion or
Notice of Exercise included in any Note or Warrant, respectively, sets forth the
totality of the procedures required of a Purchaser in order to convert such Note
or exercise of such Warrant. Without limiting the preceding sentences, no
ink-original Notice of Conversion or Notice of Exercise shall be required, nor
shall any medallion guarantee (or other type of guarantee or notarization) of
any Notice of Conversion form be required in order to convert the Notes or
exercise the Warrants, respectively. No additional legal opinion, Notice of
Conversion, Notice of Exercise or other information or instructions shall be
required of a Purchaser to convert such Note or exercise such Warrant. The
Company shall honor conversions of any Note or exercise of any Warrant, and
shall deliver Conversion Shares or Warrant Shares, respectively, in accordance
with the terms, conditions and time periods set forth in the Transaction
Documents.

 

4.6 Shareholder Rights Plan. No claim will be made or enforced by the Company
or, with the consent of the Company, any other Person, that a Purchaser is an
“acquiring person” or such similar term under any control share acquisition,
business combination, poison pill (including any distribution under a rights
agreement) or similar anti-takeover plan or arrangement in effect or hereafter
adopted by the Company, or that a Purchaser 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 such Purchaser.

 

4.7 Material Non-Public Information. Except with respect to the material terms
and conditions of the transactions contemplated by the Transaction Documents,
the Company covenants and agrees that neither it, nor any other Person acting on
its behalf, will provide the Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto such information is disclosed to the public,
or the Purchaser shall have entered into a written agreement with the Company
regarding the confidentiality and use of such information. The Company
understands and confirms that the Purchasers shall be relying on the foregoing
covenant in effecting transactions in securities of the Company.

 

4.8 Use of Proceeds. The Company shall use the net proceeds as set forth in
Schedule 4.8.

 

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4.9 Indemnification of Purchasers. Subject to the provisions of this Section
4.9, the Company will indemnify and hold each of the Purchasers and their
respective directors, officers, managers, shareholders, members, partners,
employees and agents (and any other Persons with a functionally equivalent role
of a Person holding such titles notwithstanding a lack of such title or any
other title), each Person who controls such Purchaser (within the meaning of
Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, managers, shareholders, agents, members, partners or
employees (and any other Persons with a functionally equivalent role of a Person
holding such titles notwithstanding a lack of such title or any other title) of
such controlling Persons (each, a “Purchaser Party”) harmless from any and all
losses, liabilities, obligations, claims, contingencies, damages, costs and
expenses, including all judgments, amounts paid in settlements, court costs and
reasonable attorneys’ fees and costs of investigation that any the Purchaser
Party may suffer or incur as a result of or relating to (a) any breach of any of
the representations, warranties, covenants or agreements made by the Company in
this Agreement or in the other Transaction Documents or (b) any action
instituted against the Purchaser Parties in any capacity, or any of them or
their respective Affiliates, by any stockholder of the Company who is not an
Affiliate of the Purchaser Party, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a
breach of the Purchaser Party’s representations, warranties or covenants under
the Transaction Documents or any agreements or understandings the Purchaser
Party may have with any such stockholder or any violations by such Purchaser
Party of state or federal securities laws or any conduct by the Purchaser Party
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, the Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing reasonably
acceptable to the Purchaser Party. Any Purchaser Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of counsel,
a material conflict on any material issue between the position of the Company
and the position of the Purchaser Party, in which case the Company shall be
responsible for the reasonable fees and expenses of no more than one such
separate counsel. The Company will not be liable to any Purchaser Party under
this Agreement (x) for any settlement by a Purchaser Party effected without the
Company’s prior written consent, which shall not be unreasonably withheld or
delayed; or (y) to the extent, but only to the extent that a loss, claim, damage
or liability is attributable to any Purchaser Party’s breach of any of the
representations, warranties, covenants or agreements made by the Purchaser Party
in this Agreement or in the other Transaction Documents. The indemnification
required by this Section 4.9 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or are incurred. The indemnification contained herein shall be in
addition to any cause of action or similar right of any Purchaser Party against
the Company or others and any liabilities the Company may be subject to pursuant
to law.

 

4.10 Reservation and Listing of Securities.

 

(a) The Company shall maintain a reserve from its duly authorized shares of
Common Stock for issuance pursuant to the Transaction Documents in amount equal
to 300% of the Required Minimum.

 

(b) If, on any date, the number of authorized but unissued (and otherwise
unreserved) shares of Common Stock is less than 300% of the Required Minimum on
such date, then the Board of Directors shall use commercially reasonable efforts
to amend the Company’s certificate or articles of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least 300% of the
Required Minimum at such time, as soon as possible and in any event not later
than the 75th day after such date; provided that the Company will not be
required at any time to authorize a number of shares of Common Stock greater
than the maximum remaining number of shares of Common Stock that could possibly
be issued after such time pursuant to the Transaction Documents.

 

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(c) The Company shall, if applicable: (i) in the time and manner required by the
principal Trading Market, prepare and file with such Trading 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 such Trading Market as soon as possible
thereafter; (iii) provide to the Purchasers 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 such Trading
Market or another Trading Market. The Company agrees to maintain the eligibility
of the Common Stock for electronic transfer through the Depository Trust Company
or another established clearing corporation, including, without limitation, by
timely payment of fees to the Depository Trust Company or such other established
clearing corporation in connection with such electronic transfer.

 

4.11 Securities Laws Disclosure; Publicity. The Company shall (a) as soon as
reasonably practicable following the execution hereof, issue a press release
disclosing the material terms of the transactions contemplated hereby, and (b)
by 9:00 a.m. (New York City time) on the Trading Day immediately following the
date hereof file a Current Report on Form 8-K, including the Transaction
Documents as exhibits thereto, with the Commission. From and after the issuance
of such press release, the Company represents to the Purchaser that it shall
have publicly disclosed all material, non-public information delivered to any of
the Purchaser by the Company, or any of its officers, directors, employees or
agents in connection with the transactions contemplated by the Transaction
Documents. The Company and the Purchasers shall consult with each other in
issuing any other public disclosure with respect to the transactions
contemplated hereby, and neither the Company nor the Purchasers shall issue any
such public disclosure nor otherwise make any such public statement without the
prior consent of the Company, with respect to any press release of the
Purchasers, or without the prior consent of the Purchasers, with respect to any
press release of the Company, which consent shall not unreasonably be withheld
or delayed, except if such disclosure is required by law or rules of the
principal Trading Market, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except: (a) as required by federal
securities law in connection with any registration statement contemplated by
this Agreement and (b) to the extent such disclosure is required by law or
Trading Market regulations, in which case the Company shall provide the
Purchasers with prior notice of such disclosure permitted under this clause (b).

 

4.12 Form D. The Company agrees to timely file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof,
promptly upon request of the Purchaser.

 

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4.13 Payment of Dividends. The Company agrees that, for as long as the Notes or
any other debt instrument payable to the Purchasers are outstanding, no
dividends on any of its shares of preferred stock shall be made unless, on the
payment date of such dividend, (i) all payments of interest and any amortization
payments under the Notes shall have been made, and (ii) there shall not have
occurred an uncured Event of Default.

 

4.14 Security Interests. The Company agrees that it shall not, for as long as
the Notes or any other debt instrument payable to the Purchasers are
outstanding, grant any security interests on any of its assets to any Person,
whether senior to, pari passu with or junior to the Purchasers’ security
interests granted to it by the Company, unless the Company shall have obtained
the Purchasers’ prior written consent thereto.

 

4.15 Certain Restrictions Relating to Officers and Directors. The Company agrees
that it shall not, for as long as the Notes or any other debt instrument payable
to the Purchasers are outstanding, issue any securities of the Company to any
officer or director of the Company, or provide any officer or director with any
voting rights other than voting rights applicable to Common Stock held by any
such officer or director, unless the Company shall have obtained the Purchasers’
prior written consent thereto.

 

4.16 Certain Restrictions Relating to Issuances of Variable Rate Instruments and
Securities with Anti-Dilution Protections. The Company agrees that it shall not,
for as long as the Notes or any other debt instrument payable to the Purchasers
are outstanding, issue (i) any variable rate debt instruments and/or (ii) any
warrants or other securities which contain any type of anti-dilution
protections, unless the Company, with respect to any such issuance, shall have
obtained the Purchasers’ prior written consent thereto.

 

4.17 Right of First Offer. The Company agrees that, for as long as the Notes or
any other debt instrument payable to the Purchasers are outstanding, if the
Company contemplates either (i) securing financing pursuant to an offer and sale
of any of its securities, whether debt, equity or any combination thereof, by
way of a private placement or other private offering of securities (a “Private
Securities Offering”) or (ii) entering into any transaction involving the
purchase, assignment or other restructuring of outstanding indebtedness of the
Company (a “Debt Restructuring Transaction”), prior to making any such Private
Securities Offering or Debt Restructuring Transaction available to any other
Person, the Company shall first offer the Purchasers the right, on a pro rata
basis, based on the respective original principal amounts of their Notes, to
provide the financing contemplated by the Company, pursuant to such Private
Securities Offering, or consummate a Debt Restructuring Transaction, as
applicable, upon terms provided by the Company to the Purchasers. In the event
that the Purchasers do not accept the terms of any such Private Securities
Offering or Debt Restructuring Transaction, within thirty (30) days after any
such Private Securities Offering or Debt Restructuring Transaction is offered by
the Company to the Purchasers, in writing, then the Company shall have the right
to offer such Private Securities Offering or Debt Restructuring Transaction to
other Persons on the same terms as those offered to the Purchasers. In the event
that such terms are materially different than those offered to the Purchasers,
then the Company shall first offer the Purchasers the right to accept such
Private Securities Offering or Debt Restructuring, upon such terms, within
thirty (30) days after receipt of written notice from the Company, which shall
include all of the terms of such Private Securities Offering or Debt
Restructuring Transaction. In the event that the Purchasers do not exercise any
right of first offer hereunder, in connection with a Private Securities
Offering, they shall have the right to participate in such Private Securities
Offering, pursuant to the provisions of Section 4.17 hereafter, to the extent
applicable.

 

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4.18 Right of Participation in Future Offerings of Securities. In the event that
the Company, within two (2) years after the Closing Date, shall initiate a
Private Securities Offering, or a public offering of any of its securities,
whether debt, equity or any combination thereof (each a “Subsequent Securities
Offering”), and, if a Private Securities Offering, the Purchasers have not
exercised their right of first offer, pursuant to the provisions of Section 4.17
hereof, then the Purchasers, on a pro rata basis, based on the respective
original principal amounts of their Notes, shall have the right to participate
in any such Subsequent Securities Offering, upon the same terms as all other
investors, up to an aggregate amount equal to 30% of the total amount of such
Subsequent Securities Offering. In the event that the Company proposes a
Subsequent Securities Offering it shall provide each of the Purchasers with
written notice of such Subsequent Securities Offering (which notice shall
include all material terms and conditions of such Subsequent Securities
Offering), on the earliest date that such Subsequent Securities Offering is made
to any other investor, and the Purchasers shall each have twenty (20) days from
receipt of such written notice to notify the Company, in writing, of its
election to participate in such Subsequent Securities Offering, including the
percentage of such Purchaser’s participation up to its pro rata amount. A
Purchaser shall forfeit its right to participation in a Subsequent Securities
Offering with respect to any percentage for which it has not notified the
Company of its election to participate, within such twenty (20) day period.

 

4.19 Delivery of Certificate Evidencing Qualification in California. Within ten
(10) days after the Closing Date, the Company shall deliver to Sullivan &
Worcester LLP a certificate evidencing the Company’s qualification as a foreign
corporation and in good standing in the State of California issued by the
Secretary of State of California.

 

ARTICLE V.

MISCELLANEOUS

 

5.1 [Reserved]

 

5.2 Fees and Expenses. The Company has agreed to bear all fees, disbursements,
and expenses in connection with the transactions contemplated herein, including,
without limitation, the Company’s legal and accounting fees and disbursements,
the costs incident to the preparation, printing and distribution of any
registration statement, filing fees, UCC fees, and costs associated with the
Intellectual Property Security Agreement. In addition, the Company will
reimburse the Purchasers for their reasonable out-of-pocket expenses, including
legal fees and disbursements of their counsel in connection with the purchase
and sale of the Securities contemplated hereby; provided that such reimbursement
obligation for legal fees shall not exceed $25,000. The Company shall pay all
Transfer Agent fees (including, without limitation, any fees required for
same-day processing of any instruction letter delivered by the Company and any
conversion or exercise notice delivered by a Purchaser), stamp taxes and other
taxes and duties levied in connection with the delivery of any Securities to the
Purchasers.

 

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

 

5.4 Notices. Any and all notices or other communications or deliveries to be
provided by the Purchasers hereunder, including, without limitation, any Notice
of Conversion or Notice of Exercise, shall be in writing and delivered
personally, by email or facsimile, or sent by a nationally recognized overnight
courier service, addressed to the Company at 30191 Avenida De Las Banderas,
Suite B, Rancho Santa Margarita, California 92688, or such other address,
facsimile number, or email address as the Company may specify for such purposes
by notice to the Purchasers delivered in accordance with this Section 5.4. Any
and all notices or other communications or deliveries to be provided by the
Company hereunder shall be in writing and delivered personally, by email or
facsimile, or sent by a nationally recognized overnight courier service
addressed to each Purchaser at the email address, facsimile number, or address
of the Purchaser appearing on the books of the Company, or if no such email
address, facsimile number, or address appears on the books of the Company, at
the principal place of business of such Purchaser. Any notice or other
communication or deliveries hereunder shall be deemed given and effective on the
earliest (i) the date of transmission, if such notice or communication is
delivered via facsimile or email at the facsimile number or email address set
forth on the signature pages attached hereto prior to 12:00 p.m. (New York City
time) on any date, (ii) the next Trading Day after the date of transmission, if
such notice or communication is delivered via facsimile or email at the
facsimile number or email address set forth on the signature pages attached
hereto on a day that is not a Trading Day or later than 12:00 p.m. (New York
City time) on any Trading Day, (iii) the second Trading Day following the date
of mailing, if sent by U.S. nationally recognized overnight courier service or
(iv) upon actual receipt by the party to whom such notice is required to be
given.

 

5.5 Amendments; Waivers. No provision of this Agreement may be waived, modified,
supplemented or amended except in a written instrument signed, in the case of an
amendment, by the Company and Purchasers holding, in the aggregate, at least
50.1% in interest of the Notes then outstanding or, in the case of a waiver, by
the party against whom enforcement of any such waived provision is sought,
provided that if any amendment, modification or waiver disproportionately and
adversely impacts a Purchaser (or group of Purchasers), the consent of such
disproportionately impacted Purchaser (or group of Purchasers) shall also be
required. No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such
right. Any proposed amendment or waiver that disproportionately, materially and
adversely affects the rights and obligations of any Purchaser relative to the
comparable rights and obligations of the other Purchasers shall require the
prior written consent of such adversely affected Purchaser. Any amendment
effected in accordance with accordance with this Section 5.5 shall be binding
upon each Purchaser and holder of Securities and the Company.

 

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5.6 Required Consent of Purchasers. Whenever the consent of the Purchasers is
required pursuant to any of the provisions of this Agreement such consent shall
require the consent of the Purchasers holding, in the aggregate, at least 50.1%
in interest of the Notes then outstanding.

 

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

 

5.8 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers (other than by merger). Each
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom such Purchaser assigns or transfers any Securities, provided that such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of the Transaction Documents that apply to such
“Purchaser.”

 

5.9 No Third-Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.9.

 

5.10 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, partners, members,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the City
of New York, Borough of Manhattan for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper or is an inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any other manner permitted by law. If
either party shall commence an action, suit or proceeding to enforce any
provisions of the Transaction Documents, then, in addition to the obligations of
the Company under Section 4.9, the prevailing party in such action, suit or
proceeding shall be reimbursed by the other party for its reasonable attorneys’
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.

 

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5.11 Survival. The representations and warranties contained herein shall survive
the Closing and the delivery of the Securities.

 

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

 

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

 

5.14 Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) any of the other
Transaction Documents, whenever a Purchaser exercises a right, election, demand
or option under a Transaction Document and the Company does not timely perform
its related obligations within the periods therein provided, then such Purchaser
may rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights; provided, however, that
in the case of a rescission of a conversion of any Note or exercise of any
Warrant, such Purchaser shall be required to return any shares of Common Stock
subject to any such rescinded conversion or exercise notice concurrently with
the return to such Purchaser of the aggregate exercise price paid to the Company
for such shares.

 

5.15 Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof (in the case of mutilation), or in lieu of and substitution therefor, a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction. The applicant
for a new certificate or instrument under such circumstances shall also pay any
reasonable third-party costs (including customary indemnity) associated with the
issuance of such replacement Securities.

 

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

 

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

 

5.18 Usury. To the extent it may lawfully do so, the Company hereby agrees not
to insist upon or plead or in any manner whatsoever claim, and will resist any
and all efforts to be compelled to take the benefit or advantage of, usury laws
wherever enacted, now or at any time hereafter in force, in connection with any
claim, action or proceeding that may be brought by a Purchaser in order to
enforce any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly
agreed and provided that the total liability of the Company under the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the “Maximum Rate”),
and, without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents
from the effective date thereof forward, unless such application is precluded by
applicable law. If under any circumstances whatsoever, interest in excess of the
Maximum Rate is paid by the Company to the Purchaser with respect to
indebtedness evidenced by the Transaction Documents, such excess shall be
applied by the Purchaser to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling such excess
to be at the Purchaser’s election.

 

5.19 Liquidated Damages. The Company’s obligations to pay any partial liquidated
damages or other amounts owing under the Transaction Documents is a continuing
obligation of the Company and shall not terminate until all unpaid partial
liquidated damages and other amounts have been paid notwithstanding the fact
that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.

 

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

 

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

 

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

 

[Signature Pages Follow]

 

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

 

JACKSAM CORPORATION

Address for Notice:

 

 

By:____________________________________

Name:

Title:

 

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

 

30191 Avenida De Las Banderas, Suite B Rancho Santa Margarita, California 92688

Attention: ____________________

E-Mail: _________________

 

[COMPANY SIGNATURE PAGE TO JACKSAM CORPORATION SECURITIES PURCHASE AGREEMENT]

 

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

 

Name of Purchaser: ______________

 

Signature of Authorized Signatory of Purchaser:

 

 

 

Name of Authorized Signatory:

 

 

 

Title of Authorized Signatory:

 

 

 

Email Address of Authorized Signatory:

 

 

 

Facsimile Number of Authorized Signatory:

 

 

Address for Notice to Purchaser:

 

Subscription Amount: $___________________

 

Warrants: ______________

 

EIN Number: _______________________

 

 

[PURCHASER SIGNATURE PAGE TO JACKSAM CORPORATION SECURITIES PURCHASE AGREEMENT]

 

 

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