Exhibit 10.1

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of January 19,
2018, between InfoSonics Corporation, a Maryland corporation (the “Company”),
and each purchaser identified on the signature pages hereto (each, including its
successors and permitted assigns, a “Purchaser” and collectively, the
“Purchasers”).

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 Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, securities of the Company as more fully
described in this Agreement (the “Offering”).

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

1.1Definitions.  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 Notes (as defined herein), and (b) the following
terms have the meanings set forth in this Section 1.1:

“Acquiring Person” shall have the meaning ascribed to such term in Section 4.19.

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

“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.  

“Agreement” shall have the meaning ascribed to such term in the Preamble.

“Articles of Incorporation” means the Company’s Articles of Incorporation, as
amended.

“August 2016 Securities” shall have the meaning ascribed to such term in Section
2.4.

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

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

“Bylaws” means the current bylaws of the Company.

“Closing” shall have the meaning ascribed to such term in Section 2.1.

“Closing Date” means the Business Day on which all of the Transaction Documents
have

 

 

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been executed and delivered by the applicable parties thereto, and all
conditions precedent to (i) the Purchasers’ obligations to pay the Subscription
Amount at Closing, and (ii) the Company’s obligations to deliver the Securities
to be issued and sold at Closing, in each case, have been satisfied or waived,
but in no event later than the tenth Business Day following the date hereof.

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

“Common Stock” means the common stock of the Company, par value $0.001per 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 or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, right,
option, warrant or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.

“Company” shall have the meaning ascribed to such term in the Preamble.

“Company Counsel” means Perkins Coie LLP.

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

“Disclosure Letter” means that certain letter delivered by the Company to the
Purchasers in connection with the execution and delivery of this
Agreement.  Except as otherwise noted herein or in the Disclosure Letter, the
Disclosure Letter and the information delivered by the Company to the Purchasers
therein shall be deemed to include all filings and reports made by the Company
with the Commission whether or not set forth in the Disclosure Letter.

“Disqualification Event” shall have the meaning ascribed to such term in Section
3.1(kk).

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

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

“Exempt Issuance” shall have the meaning ascribed to such term in Section 4.15.

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

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

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

“Investor Questionnaire” shall have the meaning ascribed to such term in Section
3.2(c).

“Issuer Covered Person” shall have the meaning ascribed to such term in Section
3.1(kk).

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

 

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

“Listing Default” shall have the meaning ascribed to such term in Section 4.16.

“Majority in Interest” shall have the meaning ascribed to such term in Section
5.5

“Material Adverse Effect” shall have the meaning assigned to such term in
Section 3.1(b).“Merger Agreement” means that certain Agreement and Plan of
Merger, dated as of July 25, 2017, by and between Cooltech Holding Corp., the
Company and InfoSonics Acquisition Sub., Inc.

“NASDAQ Approval” shall have the meaning ascribed to such term in Section 2.1.

“Notes” means the 0% convertible notes due thirty six (36) months after their
issue date, in the form of Exhibit A hereto.

“Offering” shall have the meaning ascribed to such term in the Preamble.

“Permitted Liens” shall have the meaning ascribed to such term in the Notes.

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

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

“Public Information Failure” shall have the meaning ascribed to such term in
Section 4.2(b).

“Purchaser” shall have the meaning ascribed to such term in the Preamble.

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.7.

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

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

“SEC Reports” shall mean 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 Sections 12(b), 12(g), 13(a) or 15(d)
thereof, for the three (3) months preceding the date hereof, including the
exhibits thereto and documents incorporated by reference therein.

 

“Securities” means the Notes, the Warrants and the Underlying Shares.

“Securities Act” shall have the meaning ascribed to such term in the Preamble.

 

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“Shareholder Approval” shall have the meaning ascribed to such term in Section
2.4.

“Shareholder Approval Deadline” shall have the meaning ascribed to such term in
Section 2.4.

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

“Special Meeting” shall have the meaning ascribed to such term in Section 2.4.

“Stock Plan” means the Stock Plan of the Company in effect as the date of this
Agreement, and as may be amended, supplemented, revised or replaced.

 

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

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

“Termination Date” shall have the meaning ascribed to such term in Section 2.1.

“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, the OTCQB or the OTCQX (or any
successors to any of the foregoing).

“Transaction Documents” means this Agreement, the Notes, the Warrants 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 Computershare, and any successor transfer agent of the
Company.

“Underlying Shares” means the shares of Common Stock issued and issuable upon
conversion of the Notes and upon exercise of the Warrants and any other shares
of Common Stock issued or issuable to a Purchaser in connection with or pursuant
to the Securities or Transaction Documents.

“VWAP” means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time)), (b) if the OTC Bulletin Board is not a Trading Market, the volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the

 

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OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for
trading on the OTC Bulletin Board and if prices for the Common Stock are then
reported on the OTCQX, OTCQB or OTC Pink Marketplace maintained by the OTC
Markets Group, Inc. (or a similar organization or agency succeeding to its
functions of reporting prices), the volume weighted average price of the Common
Stock on the first such facility (or a similar organization or agency succeeding
to its functions of reporting prices), or (d) in all other cases, the fair
market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Purchasers of a majority in interest of
the Securities then outstanding and reasonably acceptable to the Company, the
fees and expenses of which shall be paid by the Company.

“Warrants” means, collectively, the Common Stock purchase warrants delivered to
the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which
Warrants shall have a term of exercise equal to three (3) years, in the form of
Exhibit B attached hereto.

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

ARTICLE II.

PURCHASE AND SALE

2.1Closing.  On the Closing Date, upon the terms and subject to the conditions
set forth herein, substantially concurrent with the execution and delivery of
this Agreement by the parties hereto, the Company agrees to sell, and each of
the Purchasers, severally and not jointly, agree to purchase, an aggregate of up
to One Million Dollars ($1,000,000) of principal amount of Notes representing
such Purchaser’s Subscription Amount as set forth on the signature page hereto
executed by such Purchaser, and Warrants as determined pursuant to Section
2.2(a) (such purchase and sale being the “Closing”).  Each Purchaser shall
deliver to the Company such Purchaser’s Subscription Amount by wire transfer of
immediately available funds, and the Company shall deliver to each Purchaser,
such Purchaser’s respective Note and Warrants, as determined pursuant to Section
2.2(a), and the Company and each Purchaser, as applicable, shall deliver the
other items set forth in Section 2.2 deliverable at the Closing.  Upon
satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3,
the Closing shall occur at the offices of Company Counsel or such other location
as the parties shall mutually agree.  Notwithstanding anything herein to the
contrary, the Closing Date shall occur on or before January 19, 2018 (the
“Termination Date”).  If the Closing does not occur on or before the Termination
Date, the Company shall cause all subscription documents and funds to be
returned, without interest or deduction to each Purchaser.  Notwithstanding
anything to the contrary herein, the Notes shall not be convertible until such
time as the Company receives the required approvals by the NASDAQ Capital Market
for the issuance and listing of the shares of Common Stock issuable upon
conversion of the Notes, including the approval of its Listing of Additional
Shares Application related thereto (such approval, “NASDAQ Approval”), which
each Purchaser understands will require the approval of the Offering by the
Company’s shareholders.  

2.2Deliveries.

(a)On or prior to the Closing Date, the Company shall deliver or cause to be
delivered to the Purchasers the following:

 

(i)

this Agreement duly executed by the Company;

(ii)a Note with a principal amount equal to such Purchaser’s Subscription Amount
registered in the name of such Purchaser;

 

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(iii)a Warrant registered in the name of such Purchaser to purchase up to a
number of shares of Common Stock equal to 100% of such Purchaser’s Subscription
Amount divided by the Conversion Price, with an exercise price equal to $[____]1
per share, subject to adjustment as provided therein;

(iv)a legal opinion substantially in the form of Exhibit C, attached hereto;

(v)a certificate, executed on behalf of the Company by its Chief Financial
Officer, dated as of the Closing Date, certifying to the fulfillment of the
conditions specified in Section 2.3(b); and

(vi)a certificate, executed on behalf of the Company by its Secretary, dated as
of the Closing Date, certifying the resolutions adopted by the Board of
Directors of the Company approving the transactions contemplated by this
Agreement and the other Transaction Documents and the issuance of the
Securities, certifying the current versions of the Articles of Incorporation and
Bylaws of the Company and certifying as to the signatures and authority of
persons signing the Transaction Documents and related documents on behalf of the
Company.

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

 

(i)

this Agreement duly executed by such Purchaser; and

(ii)such Purchaser’s Subscription Amount by wire transfer pursuant to the wiring
instructions set forth on Exhibit D.

2.3Closing Conditions.

(a)The obligations of the Company hereunder to effect the Closing, unless waived
by a Majority in Interest, are subject to the following conditions being met:

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

(ii)all conditions, obligations, covenants and agreements of each Purchaser
under this Agreement 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 2.2(b) of
this Agreement.

(b)The respective independent obligations of each Purchaser hereunder to effect
the Closing, unless waived by such Purchaser, are subject to the following
conditions being met:

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

 

11 

110% of the consolidated closing bid price on date prior to execution of
agreement

 

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specific date therein in which case they shall be accurate as of such date);

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

(iii)the delivery by the Company of the items set forth in Section 2.2(a) of
this Agreement; and

(iv)there shall have been no Material Adverse Effect with respect to the Company
since the date hereof and on the Closing Date.

 

2.4Shareholder Approval.  The Company shall hold a special meeting of its
shareholders within sixty (60) days of the Extended Termination Date (as defined
in that certain Amendment No. 2 to Agreement and Plan of Merger dated as of
January 5, 2018, or at such other date that Broadridge Financial Solutions, Inc.
recommends for timely processing of materials for the special meeting, at which
the Company shall present to its shareholders a proposal for approval of the
Notes, the Warrants and the $1.75 million of Common Stock and warrants sold in
August 2016 (the “August 2016 Securities”) sold under the Securities Purchase
Agreement by the Company (the “Special Meeting”) and shall recommend that
shareholders vote “for” such proposals (such approval, “Shareholder Approval”).
In the event the issuances are not approved at the Special Meeting, the Company
shall hold an additional shareholder meeting, within one hundred twenty (120)
days of the Special Meeting, at which the Company shall present to shareholders
a proposal for approval of the issuances. Until such time as the issuances are
approved by shareholders of the Company, the Company shall continue to hold
shareholder meetings, each held within one hundred twenty (120) days of the
prior shareholder meeting. In the event that the issuances have not been
approved by shareholders of the Company within sixty (60) days of the date of
the Extended Termination Date as a result of gross negligence by the Company
(the “Shareholder Approval Deadline”), then, in addition to any other rights the
holders may have hereunder or under applicable law, the Company shall pay to the
holders on each one hundred twenty (120) day anniversary of the Shareholder
Approval Deadline (if Shareholder Approval has not been obtained) until such
shareholder approval has been obtained, as partial liquidated damages and not as
a penalty, equal to one percent (1.0%) of the aggregate value of Notes or August
2016 Securities investment amount (as defined in that certain Amendment No. 2 to
Agreement and Plan of Merger dated as of January 5, 2018) for each month past
the Shareholder Approval Deadline that the Shareholder Approval has not been
obtained (pro-rated for any partial month in which such Shareholder Approval has
not been obtained), provided, however, the Company shall not pay to the holder
more than twelve percent (12%) of such amounts pursuant to this Agreement.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES

 

3.1Representations and Warranties of the Company.  Except as set forth in the
Disclosure Letter, which Disclosure Letter shall be deemed a part hereof and
shall qualify any representation made herein to the extent of the disclosure
contained in the corresponding section of the Disclosure Letter, the Company
hereby makes the following representations and warranties to each Purchaser:

(a)Subsidiaries.  All of the direct and indirect subsidiaries of the Company and
the Company’s ownership interests therein are set forth in the Disclosure
Letter.  Except as set forth in the Disclosure Letter, the Company owns,
directly or indirectly, all of the capital stock or other equity interests of
each Subsidiary free and clear of any Liens, and all of the issued and

 

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outstanding shares of capital stock of each Subsidiary are validly issued and
are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.

(b)Organization and Qualification.  The Company and each of its material
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, with the requisite power and authority to own and
use its properties and assets and to carry on its business as currently
conducted, except where the failure to be in good standing would not,
individually or in the aggregate, have a Material Adverse Effect (as defined
below).  Neither the Company nor any Subsidiary is in violation nor default of
any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents.  Each of the
Company and its material Subsidiaries 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, would not, individually or in
the aggregate, have a material adverse effect on the business, properties,
financial condition and results of operations of the Company and the
Subsidiaries, taken as a whole (the occurrence of any such effect being herein
referred to as 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; 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 other
Transaction Document to which it is a party has been (or upon delivery will have
been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation of
the Company enforceable against the Company in accordance with its terms,
except: (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, liquidation moratorium and other laws of
general application affecting enforcement of creditors’ rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.

(d)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 to which it is a party do not and
will not: (i) conflict with or violate any provision of the Company’s or any
Subsidiary’s certificate or articles of incorporation, bylaws or other
organizational or charter documents, (ii) subject to Required Approvals,
conflict with, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, result in the creation of any Lien
upon any of the properties or assets of the Company or any Subsidiary, 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 or Subsidiary debt or
otherwise) or other understanding to which the Company or any Subsidiary is a
party or by which any property or asset of the Company or any

 

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Subsidiary 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 or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except such that would not have a
Material Adverse Effect.

(e)Filings, Consents and Approvals.  Except as disclosed in the Disclosure
Letter, and where the failure to obtain, give or make, as applicable, such
consent, waiver, authorization, order, notice, filing or registration would not
have a Material Adverse Effect, the Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than: (i) the filings required pursuant to Section 4.4 of this Agreement, (ii)
the notice and/or application(s) to each applicable Trading Market for the
issuance and sale of the Securities and the listing of the Underlying Shares for
trading thereon in the time and manner required thereby, all of which shall have
been effectuated prior to the Closing, (iii) the filing of a Form D with the
Commission; and (iv) Shareholder Approval (collectively, the “Required
Approvals”).

(f)Issuance of the Securities.  The Securities are restricted securities and
have been 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 other than restrictions on
transfer provided for under the Securities Act, the Exchange Act, in the
Transaction Documents and as provided herein.  

(g)Capitalization.  The capitalization of the Company is as set forth in the SEC
Reports. The Company has not issued any capital stock since its most recently
filed periodic report under the Exchange Act, other than pursuant to (i) the
exercise of employee stock options under the Stock Plans, the issuance of shares
of Common Stock or any equity awards (including the issuance of Common Stock
upon exercise or settlement of such equity awards) to employees pursuant to the
Stock Plans and 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 in the Disclosure Letter, 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 disclosed in the Disclosure Letter, there are no
outstanding options, warrants, 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 material
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 in the Disclosure Letter, 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. All of the outstanding shares of capital stock of the Company are
duly authorized, validly issued, fully paid and nonassessable, have been issued
in material 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.  Other than the approval
of Company stockholders as required by the rules of NASDAQ, no further approval
or authorization of any stockholder, the Board of Directors or others is
required for the

 

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issuance and sale of the Securities.  Except as disclosed in the Disclosure
Letter, 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.

(h)Form 8-K; Financial Statements.  The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by the
Company under the Securities Act and the Exchange Act, including pursuant to
Sections 12(b), 12(g), 13(a) or 15(d) thereof, for the two (2) years preceding
the date hereof.  The Form 8-K described in Section 4.4, upon its filing, will
comply in all material respects with the requirements of the Exchange Act, and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.  The latest audited financial statements of the Company
included in the SEC Reports, if any, 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 are subject to
normal, immaterial, year-end audit adjustments, 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.  

(i)Material Changes; Undisclosed Events, Liabilities or Developments.  Except as
disclosed in the Disclosure Letter, since the date of the latest audited
financial statements included within the SEC Reports, except as specifically
disclosed in a subsequent SEC Report filed not later than five (5) Trading Days
prior to the date hereof: (i) there has been no event, occurrence or development
that has had a Material Adverse Effect, (ii) the Company has not incurred any
material liabilities (contingent or otherwise) other than (A) trade payables,
and accrued expenses incurred in the ordinary course of business consistent with
past practice, (B) transaction expenses incurred in connection with the
Transaction Documents, and (C) liabilities not required to be reflected in the
Company’s financial statements pursuant to GAAP or disclosed in filings made
with the Commission, (iii) the Company has not altered its method of accounting,
(iv) the Company has not declared or made any dividend or distribution of cash
or other property to its stockholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock and (v) the
Company has not issued any equity securities to any officer, director or
Affiliate, except pursuant to existing Company stock option plans. The Company
does not have pending before the Commission any request for confidential
treatment of information. Except for the issuance of the Securities contemplated
by this Agreement, no event, liability, fact, circumstance, occurrence or
development has occurred or exists 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.

(j)Litigation.  Except in the ordinary course of the Company’s business or as
set forth in the Disclosure Letter, there is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or

 

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administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”) that would, if there were an unfavorable
decision, have or reasonably be expected to result in a Material Adverse Effect,
nor to the knowledge of the Company is there any reasonable basis for any such
Action that would, if there were an unfavorable decision, have a Material
Adverse Effect.  To the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company or, to
the knowledge of the Company, 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.  

(k)Compliance.  Neither the Company nor any Subsidiary: (i) to its knowledge is
in default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any 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 that would not
result in a Material Adverse Effect.

(l)Title to Assets.  The Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them and good and marketable
title in all personal property owned by them that is material to the business of
the Company and the Subsidiaries, in each case free and clear of all Liens,
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 the Subsidiaries; (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 and (iii) Liens set forth in the Disclosure
Letter.  Any real property and facilities held under lease by the Company and
the Subsidiaries are held by them under valid, subsisting and enforceable leases
with which the Company and the Subsidiaries are in compliance, except where the
non-compliance would not result in a Material Adverse Effect.

(m)Intellectual Property. For purposes of this Section 3.1(m), Company shall
mean Company and each Subsidiary, as applicable.

(i)The term “Intellectual Property Rights” includes the name of the Company, all
fictional business names, trading names, material registered trademarks, service
marks, and applications, owned, used, or licensed by the Company as licensee or
licensor.

(ii)Other than as disclosed in the Company’s filings with the Commission, the
Company has not received written notice, and, to the Company’s knowledge, there
is no threatened action, that any its Intellectual Property Rights has expired,
terminated or been abandoned within two (2) years from the date of this
Agreement.

 

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(iii)To the Company’s knowledge and except as otherwise set forth in the
Disclosure Letter, the Intellectual Property Rights are all those necessary for
the operation of the Company’s businesses as it is currently conducted. To the
Company’s knowledge and except as otherwise set forth in in the Disclosure
Letter and subject to Permitted Liens, the Company owns, or has the right to
use, all Intellectual Property Rights.

(n)Insurance.  The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Company and
the Subsidiaries are engaged, including, but not limited to, directors and
officers insurance coverage at least equal to the aggregate Subscription
Amount.  The Company believes that it and the Subsidiaries will be able to
acquire insurance coverage at reasonable cost as may be necessary to continue
its business.

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

(p)Money Laundering.  To the knowledge of the Company, the operations of the
Company and its Subsidiaries are and have been conducted at all times in
compliance with applicable financial record-keeping and reporting requirements
of the Currency and Foreign Transactions Reporting Act of 1970, as amended,
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 or any Subsidiary with respect to the Money
Laundering Laws is pending or, to the knowledge of the Company or any
Subsidiary, threatened, nor is there, to the knowledge of the Company or any
Subsidiary, any reasonable basis for any of the foregoing.

(q)Certain Fees.  Except as set forth in the Disclosure Letter, no brokerage,
finder’s fees or commissions fees are or will be payable by the Company or any
Subsidiary 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.  The Purchaser shall have no
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 3.1(p)
that may be due in connection with the transactions contemplated by the
Transaction Documents other than any fees or obligations incurred by the
Purchaser.  

(r)Private Placement. Assuming the accuracy of the Purchasers’ representations
and warranties set forth in Section 3.2, registration under the Securities Act
is not required for the

 

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offer and sale of the Securities by the Company to the Purchasers as
contemplated hereby. The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the Trading Market, subject to the
receipt of Shareholder Approval.

(s)Investment Company. The Company is not, and immediately after receipt of
payment for the Securities, will not be an “investment company” within the
meaning of the Investment Company Act of 1940, as amended.

(t)Registration Rights.  Except as set forth in the Disclosure Letter, no Person
has any right to cause the Company to effect the registration under the
Securities Act of any securities of the Company or any Subsidiary.

(u)Listing and Maintenance Requirements.  The Common Stock is listed on the
Nasdaq Capital Market under the symbol IFON.  Except as set forth in the
Disclosure Letter, the Company has not, in the twelve (12) months preceding the
date hereof, 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.

(v)Application of Takeover Protections.  The Company and the Board of Directors
will have taken as of the Closing Date 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
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.

(w)Disclosure.  All of the disclosure in the SEC Reports, is true and correct in
all material respects and does not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were 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.

(x)No Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, neither the Company,
nor, to the knowledge of the Company, any of its Affiliates, nor any Person
acting on its or, to the knowledge of the Company, 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 by the Company 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.

(y)Solvency.  Based on the consolidated financial condition of the Company as of
the Closing Date, after giving effect to the receipt by the Company of the
aggregate Subscription Amount from all the Purchasers: (i) the fair saleable
value of the  assets of the Company and its Subsidiaries taken as a whole
exceeds the amount that will be required to be paid on or in respect of the
existing debts and other liabilities (including known contingent liabilities) of
the Company

 

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and its Subsidiaries as they mature, (ii) the assets of the Company and its
Subsidiaries do not constitute unreasonably small capital to carry on its
business as now conducted and as proposed to be conducted including its capital
needs taking into account the particular capital requirements of the business
conducted by the Company and its Subsidiaries consolidated and projected capital
requirements and capital availability thereof, and (iii) the current cash flow
of the Company and its Subsidiaries together with the proceeds the Company would
receive, were they to liquidate all of their assets, after taking into account
all anticipated uses of the cash, would be sufficient to pay all amounts on or
in respect of their liabilities when such amounts are required to be paid.  The
Company does not intend to incur debts beyond its ability to pay such debts as
they mature (taking into account the timing and amounts of cash to be payable on
or in respect of its debt).  The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization or
liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the Closing Date. For the purposes of this Agreement,
“Indebtedness” means (x) any liabilities for borrowed money or amounts owed in
excess of $100,000 (other than trade accounts payable incurred in the ordinary
course of business), (y) 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
(z) the present value of any lease payments in excess of $100,000 due under
leases required to be capitalized in accordance with GAAP.  The Company is not
in default with respect to any Indebtedness.

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

(aa)No General Solicitation.  Neither the Company nor, to the knowledge of the
Company, 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 Purchasers.

(bb)Foreign Corrupt Practices.  To the knowledge of the Company, neither the
Company nor any Subsidiary, nor to the knowledge of the Company or any
Subsidiary, any agent or other person acting on behalf of the Company or any
Subsidiary, has: (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to
disclose fully any contribution made by the Company or any Subsidiary (or made
by any person acting on its behalf of which the Company is aware) which is  in
violation of law or (iv) violated in any material respect any provision of
Foreign Corrupt Practices Act of 1977, as amended

 

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(cc)Accountants.  The Company’s accounting firm is SingerLewak LLP.  To the
knowledge and belief of the Company, such accounting firm is registered with the
Public Company Accounting Oversight Board.

(dd)Acknowledgment Regarding Purchasers’ Purchase of Securities.  The Company
acknowledges and agrees that each of the Purchasers is acting independently,
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 no Purchaser is 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 any Purchaser or any of their respective representatives or agents in
connection with the Transaction Documents and the transactions contemplated
thereby is merely incidental to the Purchasers’ purchase of the Securities. The
Company further represents to each Purchaser that the Company’s decision to
enter into this Agreement and the other Transaction Documents has been based
solely on the independent evaluation of the transactions contemplated hereby by
the Company and its representatives.

(ee)Acknowledgment Regarding Purchaser’s Trading Activity.  Anything in this
Agreement or elsewhere herein to the contrary notwithstanding, it is understood
and acknowledged by the Company that: (i) none of the Purchasers has been asked
by the Company to agree, nor has any Purchaser agreed, to desist from purchasing
or selling, long and/or short, securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the Securities
for any specified term, (ii) past or future open market or other transactions by
any Purchaser, specifically including, without limitation, Short Sales or
“derivative” transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the Company’s
publicly-traded securities, (iii) any Purchaser, and counter-parties in
“derivative” transactions to which any such Purchaser is a party, directly or
indirectly, may presently have a “short” position in the Common Stock and (iv)
each Purchaser shall not be deemed to have any affiliation with or control over
any arm’s length counter-party in any “derivative” transaction.  The Company
further understands and acknowledges that (y) one or more Purchasers may engage
in hedging activities in accordance with all applicable laws at various times
during the period that the Securities are outstanding, including, without
limitation, during the periods that the value of any Underlying Shares
deliverable with respect to Securities are being determined, and (z) such
hedging activities (if any) could reduce the value of the existing stockholders'
equity interests in the Company at and after the time that the hedging
activities are being conducted.  The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of the
Transaction Documents

(ff)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.

(gg)Stock Option Plans.  Since commencement of trading of the Company’s Common
Stock on The NASDAQ Capital Market, each stock option granted by the Company
under the stock option plan was granted in accordance with the requirements of
NASDAQ. No

 

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claim has been made that any stock option granted under any stock option plan
has been backdated.  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 non-public information
regarding the Company or its subsidiaries .

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

(ii)Reporting Company/Shell Company.  The Company is a publicly-held company
subject to reporting obligations pursuant to Section 12(b) or 12(g) of the
Exchange Act.  Pursuant to the provisions of the Exchange Act, the Company has
timely filed all reports and other materials required to be filed by the Company
thereunder with the SEC during the preceding twelve (12) months.  The Company
has not been informed by NASDAQ or the Commission that as of the date hereof the
Company is a “shell company” or “former shell company” as those terms are
employed under Rule 144 under the Securities Act

(jj)Sarbanes-Oxley; Internal Accounting Controls.  To the knowledge of the
Company, the Company and the Subsidiaries are in material 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 and the Subsidiaries
maintain 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 and the Subsidiaries have established “disclosure
controls and procedures” (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and the Subsidiaries and designed such disclosure
controls and procedures to ensure that information required to be disclosed by
the Company in the reports it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the Commission’s rules and forms. The Company’s certifying officers have
evaluated the effectiveness of the disclosure controls and procedures of the
Company and the Subsidiaries as of the end of the period covered by the most
recently filed periodic report under the Exchange Act (such date, the
“Evaluation Date”). The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying officers about
the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no changes in the internal control over financial reporting (as such term
is defined in the Exchange Act) of the Company and its Subsidiaries that have
materially affected the internal control over financial reporting of the Company
and its Subsidiaries

(kk)No Disqualification Events.  With respect to the Securities to be offered
and sold hereunder in reliance on Rule 506 under the Securities Act, none of the
Company, any of its predecessors, any affiliated issuer, any director, executive
officer, other officer of the Company participating in the offering hereunder,
any beneficial owner of 20% or more of the Company’s outstanding voting equity
securities, calculated on the basis of voting power, nor any promoter (as

 

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that term is defined in Rule 405 under the Securities Act) connected with the
Company in any capacity at the time of sale (each, an “Issuer Covered Person”
and, together, “Issuer Covered Persons”) is subject to any of the “Bad Actor”
disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities
Act (a “Disqualification Event”), except for a Disqualification Event covered by
Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine
whether any Issuer Covered Person is subject to a Disqualification Event.  The
Company has complied, to the extent applicable, with its disclosure obligations
under Rule 506(e), and will furnish to the Purchasers a copy of any disclosures
provided thereunder.

3.2Representations and Warranties of the Purchasers.  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.  Such 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 and performance by such
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 such Purchaser.  Each
Transaction Document to which it is a party has been duly executed by such
Purchaser, and when delivered by such Purchaser in accordance with the terms
hereof, will constitute the valid and legally binding obligation of such
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. If such Purchaser is an entity, the address of its
principal place of business is as set forth on the signature page hereto, and if
such Purchaser is an individual, the address of its principal residence is as
set forth on the signature page hereto.

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

 

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(c)Purchaser Status.  At the time such Purchaser was offered the Securities, it
was, and as of the date hereof it is, and on each date on which it exercises any
Warrants or converts any Notes it will be either: (i) an “accredited investor”
as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the
Securities Act or (ii) a “qualified institutional buyer” as defined in Rule
144A(a) under the Securities Act.  Such Purchaser is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act. Such
Purchaser has the authority and is duly and legally qualified to purchase and
own the Securities. Such Purchaser is able to bear the risk of such investment
for an indefinite period and to afford a complete loss thereof. Such Purchaser
has provided the information in the Accredited Investor Questionnaire attached
hereto as Exhibit E (the “Investor Questionnaire”). The information set forth on
the signature pages hereto and the Investor Questionnaire regarding such
Purchaser is true and complete in all respects. Except as disclosed in the
Investor Questionnaire, such Purchaser has had no position, office or other
material relationship within the past three (3) years with the Company or
Persons (as defined below) known to such Purchaser to be affiliates of the
Company, and is not a member of the Financial Industry Regulatory Authority or
an “associated person” (as such term is defined under the FINRA Membership and
Registration Rules Section 1011).

(d)Experience of Such Purchaser.  Such 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.  Such 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)Information on Company. Such Purchaser has been furnished with or has had
access to the EDGAR Website of the Commission to the Company’s filings made with
the Commission during the period from the date that is two (2) years preceding
the date hereof through the tenth (10th) Business Day preceding the Closing Date
in which such Purchaser purchases Securities hereunder, including but not
limited to the Risk Factor section of the Company’s filings and reports made
with the Commission.  Purchasers are not deemed to have any knowledge of any
information not included in the SEC Reports unless such information is delivered
in the manner described in the next sentence.  In addition, such Purchaser may
have received in writing from the Company such other information concerning its
operations, financial condition and other matters as such Purchaser has
requested, and considered all factors such Purchaser deems material in deciding
on the advisability of investing in the Securities.  Such Purchaser was afforded
(i) the opportunity to ask such questions as such Purchaser deemed necessary of,
and to receive answers from, representatives of the Company concerning the
merits and risks of acquiring the Securities; (ii) the right of access to
information about the Company and its financial condition, results of
operations, business, properties, management and prospects sufficient to enable
such Purchaser to evaluate the Securities; and (iii) the opportunity to obtain
such additional information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to acquiring the Securities.

(f)Certain Transactions and Confidentiality. Such Purchaser understands and
agrees that the Securities have not been registered under the Securities Act or
any applicable state securities laws, by reason of their issuance in a
transaction that does not require registration under the Securities Act, and
that such Securities must be held indefinitely unless a subsequent disposition
is registered under the Securities Act or any applicable state securities laws
or is exempt from such registration. Such Purchaser understands and agrees that
the Securities are being offered and sold to such Purchaser in reliance on
specific exemptions from the registration

 

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requirements of United States federal and state securities laws and regulations
and that the Company is relying in part upon the truth and accuracy of, and such
Purchaser’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the availability of such exemptions and the eligibility of such
Purchaser to acquire the Securities.

(g)Communication of Offer. Such Purchaser is not purchasing the Securities as a
result of any “general solicitation” or “general advertising,” as such terms are
defined in Regulation D, which includes, but is not limited to, any
advertisement, article, notice or other communication regarding the Securities
published in any newspaper, magazine or similar media or on the internet or
broadcast over television, radio or the internet or presented at any seminar or
any other general solicitation or general advertisement.

(h)No Governmental Review. Such Purchaser understands that no United States
federal or state agency or any other governmental or state agency has passed on
or made recommendations or endorsement of the Securities or the suitability of
the investment in the Securities nor have such authorities passed upon or
endorsed the merits of the offering of the Securities.

(i)No Conflicts. The execution, delivery and performance of this Agreement and
performance under the other Transaction Documents and the consummation by such
Purchaser of the transactions contemplated hereby and thereby or relating hereto
or thereto do not and will not (i) result in a violation of such Purchaser’s
charter documents, bylaws or other organizational documents, if applicable, (ii)
conflict with nor constitute a default (or an event which with notice or lapse
of time or both would become a default) under any agreement to which such
Purchaser is a party, nor (iii) result in a violation of any law, rule or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to such Purchaser or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
material adverse effect on such Purchaser). Such Purchaser is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or perform under
the other Transaction Documents nor to purchase the Securities in accordance
with the terms hereof, provided that for purposes of the representation made in
this sentence, such Purchaser is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.

(j)NASDAQ Approval.  The Purchaser understands and acknowledges that the
conversion of the Notes and the issuance of the Warrant Shares upon exercise of
the Warrants are contingent upon the Company obtaining the NASDAQ Approval.  The
Purchaser further acknowledges that NASDAQ Approval is contingent upon the
Company’s satisfaction of certain qualifications and requirements imposed by the
NASDAQ Capital Market, which may include the approval of the issuance of the
Notes by the Company’s shareholders.

(k)Restricted Securities.  Such Purchaser understands and agrees that the
Securities have not been registered under the Securities Act or any applicable
state securities laws, by reason of their issuance in a transaction that does
not require registration under the Securities Act, and that such Securities must
be held indefinitely unless a subsequent disposition is registered under the
Securities Act or any applicable state securities laws or is exempt from such
registration. Such Purchaser understands and agrees that the Securities are
being offered and sold to such Purchaser in reliance on specific exemptions from
the registration requirements of United States federal and state securities laws
and regulations and that the Company is relying in part

 

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upon the truth and accuracy of, and such Purchaser’s compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
such Purchaser set forth herein in order to determine the availability of such
exemptions and the eligibility of such Purchaser to acquire the Securities.

(l)Certain Transactions and Confidentiality.  Other than consummating the
transactions contemplated hereunder, such Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, executed any purchases or sales, including
Short Sales, of the securities of the Company during the period commencing as of
the time that such Purchaser first received a written term sheet of the Offering
from 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 such Purchaser’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such 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,
such Purchaser has maintained the confidentiality of all disclosures made to it
in connection with this transaction (including the existence and terms of this
transaction).  Notwithstanding the foregoing, for avoidance of doubt, nothing
contained herein shall constitute a representation or warranty, or preclude any
actions, with respect to the identification of the availability of, or securing
of, available shares to borrow in order to effect Short Sales or similar
transactions after the Closing Date.

(m)Pre-Existing Relationships.  The Purchaser represents and warrants that: (i)
the Purchaser has a prior substantial pre-existing relationship with the
Company, the Purchaser is not investing in the Offering in connection with or as
a result of any registration statement filed with the Commission by the
Company and (ii) no Securities were offered or sold to it by means of any form
of general solicitation or general advertising, and in connection therewith, the
Purchaser did not (A) receive or review any advertisement, article, notice or
other communication published in a newspaper or magazine or similar media or
broadcast over television or radio, whether closed circuit, or generally
available; or (B) attend any seminar meeting or industry investor conference
whose attendees were invited by any general solicitation or general advertising;
or (C) observe any website or filing of the Company with the Commission in which
any offering of securities by the Company was described and as a result learned
of any offering of securities by the Company.

(n)Survival. The foregoing representations and warranties shall survive the
Closing Date.

The Company acknowledges and agrees that the representations contained in this
Section 3.2 shall not modify, amend or affect such 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 III.

OTHER AGREEMENTS OF THE PARTIES

4.1Transfer Restrictions.

 

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(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, 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 and the other Transaction
Documents.

(b)The Purchasers agree 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
[EXERCISABLE] [CONVERTIBLE]] HAS [NOT] 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
[EXERCISE] [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.

The Company acknowledges and agrees that a 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, such Purchaser may
transfer pledge or secure 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 such Purchaser’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
including, if the Securities are subject to registration, the preparation and
filing of any required prospectus supplement under Rule 424(b)(3) under the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of selling stockholders thereunder.

(c)Certificates evidencing the Underlying Shares shall not contain any legend
(including the legend set forth in Section 4.1(b) hereof): (i) while a
registration statement

 

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covering the resale of such security is effective under the Securities Act, (ii)
following any sale of such Underlying Shares pursuant to Rule 144, (iii) if such
Underlying Shares are eligible for sale under Rule 144, without the requirement
for the Company to be in compliance with the current public information required
under Rule 144 as to such Underlying Shares and without volume or manner-of-sale
restrictions or (iv) 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 cause
its counsel to issue a legal opinion to the Transfer Agent promptly if required
by the Transfer Agent to effect the removal of the legend hereunder. If all or
any Notes are converted or any portion of a Warrant is exercised at a time when
there is an effective registration statement to cover the resale of the
Underlying Shares, or if such Underlying 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 Underlying 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 two (2)
Trading Days following the delivery by a Purchaser to the Company or the
Transfer Agent of a certificate representing Underlying Shares, as applicable,
issued with a restrictive legend (such second Trading Day, the “Legend Removal
Date”), deliver or cause to be delivered to such Purchaser a certificate
representing such shares 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 4.1. In lieu of delivering physical certificates
representing the unlegended Underlying Shares, upon request of a Purchaser, so
long as the certificates therefor do not bear a legend and the Purchaser is not
obligated to return such certificate for the placement of a legend thereon, the
Company shall cause its transfer agent to electronically transmit the unlegended
Underlying Shares by crediting the account of Purchaser’s prime broker with the
Depository Trust Company through its Deposit Withdrawal At Custodian system,
provided that the Company’s Common Stock is DTC eligible and the Company’s
transfer agent participates in the Deposit Withdrawal at Custodian system. Such
delivery must be made on or before the Legend Removal Date.

(d)In addition to such Purchaser’s other available remedies, the Company shall
pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty,
for each $1,000 of Underlying Shares (based on the higher of the actual purchase
price or VWAP of the Common Stock on the date such Securities are submitted to
the Transfer Agent) delivered for removal of the restrictive legend and subject
to Section 4.1(c), $10 per Trading Day for each Trading Day after the Legend
Removal Date (increasing to $20 per Trading Day after the fifth Trading Day)
until such certificate is delivered without a legend.  Nothing herein shall
limit such 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 such 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.

(e)DWAC. In lieu of delivering physical certificates representing the unlegended
Shares, upon request of a Purchaser, so long as the certificates therefor do not
bear a legend and the Purchaser is not obligated to return such certificate for
the placement of a legend thereon, the Company shall cause its transfer agent to
electronically transmit the unlegended Shares by crediting the account of
Purchaser’s prime broker with the Depository Trust Company through its Deposit
Withdrawal At Custodian system, provided that the Company’s Common Stock is DTC
eligible and the Company’s transfer agent participates in the Deposit Withdrawal
at Custodian system. Such delivery must be made on or before the Legend Removal
Date

 

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(f)Injunction. In the event a Purchaser shall request delivery of unlegended
Underlying Shares as described in this Section 4.1 and the Company is required
to deliver such unlegended Underlying Shares, the Company may not refuse to
deliver unlegended Underlying Shares based on any claim that such Purchaser or
anyone associated or affiliated with such Purchaser has not complied with
Purchaser’s obligations under the Transaction Documents, or for any other
reason, unless, an injunction or temporary restraining order from a court, on
notice, restraining and or enjoining delivery of such unlegended Underlying
Shares shall have been sought and obtained by the Company and the Company has
posted a surety bond for the benefit of such Purchaser in the amount of the
greater of (i) 120% of the amount of the aggregate purchase price of the
Underlying Shares to be subject to the injunction or temporary restraining
order, or (ii) the VWAP of the Common Stock on the trading day before the issue
date of the injunction multiplied by the number of unlegended Underlying Shares
to be subject to the injunction, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Purchaser to the extent Purchaser obtains judgment in
Purchaser’s favor.

(g)Legend Removal.  Each Purchaser, severally and not jointly with the other
Purchasers, agrees with the Company that such Purchaser will sell any Securities
pursuant to either the registration requirements of the Securities Act,
including any applicable prospectus delivery requirements, or an exemption
therefrom, and that if Securities are sold pursuant to a registration statement,
they will be sold in compliance with the plan of distribution set forth therein,
and acknowledges that the removal of the restrictive legend from certificates
representing Securities as set forth in this Section 4.1 is predicated upon the
Company’s reliance upon this understanding.

4.2Furnishing of Information; Public Information.  

 

(a)      Until the earliest of the time that (i) no Purchaser owns any
Securities, or (ii) the Warrants have expired, 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 commencing on the Closing Date and ending at such time
that all of the Underlying Shares may be sold without restriction or 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 such
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 1.0% of the aggregate Subscription Amount of Purchasers then held by
such Purchaser on every thirtieth (30th) day (pro-rated for periods totaling
less than thirty 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 Purchasers to transfer the Underlying Shares
pursuant to Rule 144 (but not more than 6.0% in the aggregate).  The payments to
which a Purchaser shall be entitled pursuant to this Section 4.2(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
second (2nd) 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

 

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interest at the rate of 1% per month (prorated for partial months) until paid in
full. Nothing herein shall limit such Purchaser’s right to pursue actual damages
for the Public Information Failure, and such 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.  Notwithstanding anything herein to the contrary, Public Information
Failure Payments shall not accrue or be payable at any time that the applicable
accounting standards under GAAP would require derivative accounting treatment
for such liquidated damages.

 

4.3Integration.  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 by the Company 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.

 

4.4Securities Laws Disclosure; Publicity.  The Company shall, by 9:00 a.m. (New
York City time) on the first (1st) Trading Day immediately following the Closing
Date, issue a press release disclosing the material terms of the transactions
contemplated hereby, and shall file a Current Report on Form 8-K including the
Transaction Documents as exhibits thereto within the time period required by the
Exchange Act.  From and after the issuance of such press release and Form 8-K,
the Company represents to the Purchasers that it shall have publicly disclosed
all material, non-public information delivered to any of the Purchasers by the
Company or any of its Subsidiaries, or any of their respective officers,
directors, employees or agents in connection with the transactions contemplated
by the Transaction Documents existing as of the Closing Date, except for
confidential information in the Disclosure Letter. No Purchaser shall issue any
press release or otherwise make any public statement regarding this Agreement,
the Transaction Documents or the related transaction.  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 unless the name of such Purchaser is already
included in the body of the Transaction Documents, without the prior written
consent of such Purchaser, except: (a) as required by federal securities law in
connection with the filing of final Transaction Documents with the Commission
and (b) to the extent such disclosure is required by law or Trading Market
regulations).

 

4.5Conversion and Exercise Procedures.  Each of the form of Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the
Notes set forth the totality of the procedures required of the Purchasers in
order to exercise the Warrants or convert the Notes.  No additional legal
opinion, other information or instructions shall be required of the Purchasers
to exercise their Warrants or convert their Notes.  The Company shall honor
exercises of the Warrants and conversions of the Notes and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.

4.6Use of Proceeds.  The Company will use the net proceeds from the sale of the
Securities hereunder for general corporate purposes and working capital.

4.7Indemnification of Purchasers.  Subject to the provisions of this Section
4.7, the Company will indemnify and hold each Purchaser and its directors,
officers, shareholders, members, partners, employees and agents (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons

 

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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 (provided the defense of
such matter and settlement has been approved by the Company, which approval will
not be unreasonably withheld), court costs and reasonable attorneys’ fees of a
single counsel for representation of all of the Purchaser Parties collectively
and costs of investigation that any such 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 such
Purchaser Party, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of such
Purchaser Party’s representations, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser Party may have with
any such stockholder or any violations by such Purchaser Party of Securities
Laws or any conduct by such 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, such 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 such 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 thirty (30) Business Days of time
to assume such defense and to employ counsel or (iii) in such action there is,
in the reasonable opinion of such Purchaser Party’s counsel, a material conflict
on any material issue between the position of the Company and the position of
such Purchaser Party, in which case the Company shall be responsible for the
reasonable fees and expenses of no more than one such separate counsel for all
Purchaser Parties.  The Company will not be liable to any Purchaser Party under
this Agreement (y) for any settlement by a Purchaser Party effected without the
Company’s prior written consent, which shall not be unreasonably withheld,
conditioned or delayed; or (z) to the extent, but only to the extent that a
loss, claim, damage or liability is attributable to: (1) any Purchaser Party’s
breach of any of the representations, warranties, covenants or agreements made
by such Purchaser Party in this Agreement or in the other Transaction Documents,
or (2) any violations of such Purchaser Party of state or federal securities
laws or any conduct by such Purchaser Party which constitutes fraud, gross
negligence, willful misconduct or malfeasance.  The indemnification required by
this Section 4.7 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
are incurred. The indemnity agreements contained herein shall be in addition to
any cause of action or similar right of any Purchaser Party against the Company
or others and any liabilities the Company may be subject to pursuant to law.

4.8Non-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 any Purchaser or its agents with any information that the
Company believes constitutes material non-public information, unless prior
thereto such Purchaser shall have confirmed with the Company in writing
regarding the material non-public nature of such information.  The Company
understands and confirms that each Purchaser shall be relying on the foregoing
covenant in effecting transactions in securities of the Company.

4.9Reservation of Common Stock.  As of the date hereof, the Company has reserved
for each Purchaser and the Company shall continue to reserve and keep available
at all times, free of preemptive rights, a sufficient number of shares of Common
Stock for each Purchaser for the purpose of enabling the Company to issue the
Underlying Shares pursuant to the conversion of the Notes and upon

 

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exercise of the Warrants (such amount being the “Required Minimum”).  If, on any
date, the number of authorized but unissued (and otherwise unreserved) shares of
Common Stock is less than the Required Minimum on such date (an “Authorized
Share Failure”), then the Board of Directors shall use commercially reasonable
efforts to amend the Company’s certificate of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least the
Required Minimum at such time, as soon as possible and in any event not later
than the 60th day after such date.  Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the occurrence of
an Authorized Share Failure, but in no event later than sixty (60) days after
the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its stockholders for the approval of an increase in the number of
authorized shares of Common Stock.  In connection with such meeting, the Company
shall provide each stockholder with a proxy statement and shall use its
commercially reasonable efforts to solicit its stockholders' approval of such
increase in authorized shares of Common Stock and to cause its board of
directors to recommend to the stockholders that they approve such
proposal.  Notwithstanding the foregoing, if any such time of an Authorized
Share Failure, the Company is able to obtain the written consent of a majority
of the shares of its issued and outstanding Common Stock to approve the increase
in the number of authorized shares of Common Stock without soliciting its
stockholders, the Company may satisfy this obligation by obtaining such consent
and submitting for filing with the SEC an Information Statement on Schedule 14C.

4.10Equal Treatment of Purchasers.  No consideration (including any modification
of any Transaction Document) shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration is also offered to all of the Purchasers
that are parties to such Transaction Document. For clarification purposes, this
provision constitutes a separate right granted to each Purchaser by the Company
and negotiated separately by each Purchaser, and is intended for the Company to
treat the Purchasers as a class and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.  

4.11Acknowledgment of Dilution.  The Company acknowledges that the issuance of
the Underlying Shares 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 Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute,
but subject to the terms and conditions of the Transaction Documents, 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 any
Purchaser and regardless of the dilutive effect that such issuance may have on
the ownership of the other stockholders of the Company.

4.12DTC Program.  At all times that the Notes and the Warrants are outstanding,
the Company will employ as the transfer agent for the Underlying Shares a
participant in the Depository Trust Company Automated Securities Transfer
Program and cause the Underlying Shares to be transferable pursuant to such
program.

4.13Form D; Blue Sky Filings.  The Company agrees to timely file a Form D with
respect to the sale of the Securities by the Company under this Agreement as
required under Regulation D. The Company shall take such action as the Company
shall reasonably determine is necessary in order to obtain an exemption for, or
to qualify the Securities for, sale to the Purchasers at the Closing under
applicable securities or “Blue Sky” laws of the states of the United States, and
shall provide evidence of such actions promptly upon request of any Purchaser.

4.14Certain Transactions and Confidentiality. Each Purchaser, severally and not
jointly with

 

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the other Purchasers, covenants that neither it, nor any Affiliate acting on its
behalf or pursuant to any understanding with it will execute any purchases or
sales, including Short Sales, of any of the Company’s securities during the
period commencing with the execution of this Agreement and ending at such time
that the transactions contemplated by this Agreement are first publicly
disclosed or required to be disclosed, whichever occurs first, in the Form 8-K
described in Section 4.4.  Each Purchaser, severally and not jointly with the
other Purchasers, covenants that until such time as the transactions
contemplated by this Agreement are publicly disclosed or required to be publicly
disclosed, whichever occurs first, by the Company in such Form 8-K, such
Purchaser will maintain the confidentiality of the existence and terms of this
transaction and the information included in the Transaction Documents and the
Disclosure Letter.  Notwithstanding the foregoing, and notwithstanding anything
contained in this Agreement to the contrary, the Company expressly acknowledges
and agrees that (i) no Purchaser makes any representation, warranty or covenant
hereby that it will not engage in effecting transactions in any securities of
the Company after the time that the transactions contemplated by this Agreement
are required to be disclosed in the Form 8-K described in Section 4.4, (ii) no
Purchaser shall be restricted or prohibited from effecting any transactions in
any securities of the Company in accordance with applicable Securities Laws from
and after the time that the transactions contemplated by this Agreement are
first disclosed or required to be disclosed, whichever occurs first, in the Form
8-K described in Section 4.4, and (iii) no Purchaser shall have any duty of
confidentiality to the Company or its Subsidiaries after the filing of such Form
8-K or after the date such Form 8-K is required to have been filed, whichever
occurs first.  Notwithstanding the foregoing, in the case of a Purchaser that is
a multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser’s assets, the covenant 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.

 

4.15Purchaser Approval.  For so long as any Notes are outstanding, other than in
connection with (i) full or partial consideration in connection with the Merger
Agreement, (ii) the Company’s issuance of securities in connection with
strategic license agreements and other partnering arrangements so long as such
issuances are not primarily for the purpose of raising capital, (iii) the
Company’s issuance of Common Stock or the issuances or grants of options to
purchase Common Stock to employees, directors, and consultants that have been
approved by a majority of the independent members of the board of directors of
the Company, (iv) the Company’s issuance of securities upon the exercise or
exchange of or conversion of any securities exercisable or exchangeable for or
convertible into shares of Common Stock issued and outstanding on the date of
this Agreement on the terms in effect on the date hereof, (v) the Company’s
issuance of Common Stock or the issuances or grants of options to purchase
Common Stock to consultants and service providers, and (vi) any and all
securities required to be assumed by the Company by the terms thereof as a
result of any of the foregoing even if issued by a predecessor acquired in
connection with a business combination, merger or share exchange (collectively,
the foregoing (i) through (vi) are “Exempt Issuances”), the Company shall not
incur any indebtedness (other than trade payables incurred in the ordinary
course) or issue any Common Stock or securities convertible into or exercisable
for shares of Common Stock (or modify any of the foregoing which may be
outstanding) without approved by 67% of the Notes held as of the date of
approval other than Exempt Issuances.

 

4.16Listing of Securities.

Subject to the receipt of Shareholder Approval, 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

 

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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 will then take all action necessary to
continue the listing or quotation and trading of its Common Stock on a Trading
Market until the Company Obligation Termination Date, and will comply in all
respects with the Company’s reporting, filing and other obligations under the
bylaws or rules of the Trading Market at least until three years after the final
Closing Date and for so long as the Warrants are outstanding.  In the event the
aforedescribed listing is not continuously maintained for three years after the
final Closing Date (a “Listing Default”), then in addition to any other rights
the Purchasers may have hereunder or under applicable law, on the first day of a
Listing Default and on each monthly anniversary of each such Listing Default
date (if the applicable Listing Default shall not have been cured by such date)
until the applicable Listing Default is cured, the Company shall pay to each
Purchaser an amount in cash, as partial liquidated damages and not as a penalty,
equal to 1% of the aggregate Subscription Amount and purchase price of Warrant
Shares held by such Purchaser on the day of a Listing Default and on every
thirtieth day (pro-rated for periods less than thirty days) thereafter until the
date such Listing Default is cured.  

4.17Reimbursement.  If any Purchaser becomes involved in any capacity in any
Proceeding by or against any Person who is a stockholder of the Company (except
as a result of sales, pledges, margin sales and similar transactions by such
Purchaser to or with any current stockholder), solely as a result of such
Purchaser’s acquisition of the Securities under this Agreement, the Company will
reimburse such Purchaser for its reasonable legal and other expenses (including
the cost of any investigation preparation and travel in connection therewith)
incurred in connection therewith, as such expenses are incurred.  The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person.  The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement.

 

4.18Preservation of Corporate Existence.  The Company shall for each of itself
and each subsidiary preserve and maintain its corporate existence, rights,
privileges and franchises in the jurisdiction of its incorporation, and qualify
and remain qualified, as a foreign corporation in each jurisdiction in which
such qualification is necessary in view of its business or operations and where
the failure to qualify or remain qualified might reasonably have a Material
Adverse Effect upon the financial condition, business or operations of the
Company taken as a whole, subject to any proposal that receives approval of a
Majority in Interest or is required to be or has been approved by shareholders
of the Company.

 

4.19Shareholder Rights Plan.  No claim will be made or enforced by the Company
or, with the consent of the Company, any other Person, that any Purchaser is an
“Acquiring Person” under any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or similar
anti-takeover plan or arrangement in effect or hereafter adopted by the Company,
or that any 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 the Purchasers.

 

 

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ARTICLE V.

MISCELLANEOUS

5.1Termination.  This Agreement may be terminated by any Purchaser, as to such
Purchaser’s obligations hereunder only and without any effect whatsoever on the
obligations between the Company and the other Purchasers, by written notice
given at any time to the Company, prior to the occurrence of a Closing with
respect to such Purchaser’s Agreement.  In the event of any termination by a
Purchaser under this Section 5.1, the Company shall promptly (and in any event
within two (2) Business Days of such termination) refund all of such Purchaser’s
subscription amount.  No Closing hereunder may take place after January 19,
2018.

5.2Fees and Expenses.  Except as expressly set forth in the Transaction
Documents, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement.  The Company shall pay all Transfer Agent fees
(including, without limitation, any fees required for same-day processing of any
instruction letter delivered by the Company and any conversion or exercise
notice delivered by a Purchaser as well as all fees of the Company’s legal
counsel for the rendering of any legal opinions required by the Transfer Agent
in connection with the removal of any restrictive legends on the Securities),
stamp taxes and other taxes and duties levied in connection with the delivery of
any Securities to the Purchasers.

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

5.4Notices.  All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, facsimile or email, addressed as set
forth below or to such other address as such party shall have specified most
recently by written notice.  Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand
delivery, (b) the date of transmission, if such notice or communication is
delivered via facsimile or email at the facsimile number or email address as set
forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York
City time) on a Trading Day, or the first Business Day following such delivery
if delivered after such time or (c) on the second Business Day following the
date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.

5.5Amendments; 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 the Purchasers holding at least a majority in
interest of the affected Securities then outstanding (“Majority in Interest”),
or, in the case of a waiver, by the party against whom enforcement of any such
waived provision is sought.  No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of any party to exercise any right hereunder in any manner
impair the exercise of any such right.

 

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5.6Headings.  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.

5.7Successors 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 each Purchaser (other than by
merger).  Following the Closing, any 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 the “Purchasers.”

5.8No 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 4.7, Section 4.8 and this
Section 5.8.

5.9Governing 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 hereto and each individual
signing any Transaction Document on behalf of the Company, 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 Action or Proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such 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
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 or Proceeding to enforce any provisions of the Transaction
Documents, then, in addition to the obligations of the Company under Section
4.7, and the obligations of the Purchasers under Section 4.8, the prevailing
party in such Action or Proceeding shall be reimbursed by the other party for
its reasonable attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such Action or Proceeding.

5.10Survival.  The representations and warranties contained herein shall survive
the Closing and the delivery of the Securities.

5.11Execution.  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

 

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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.

5.12Severability. 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.

5.13Rescission and Withdrawal Right.  Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) any of the other
Transaction Documents, whenever any 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, at any time prior to the Company’s performance of such
obligations, 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 a Note or exercise
of a Warrant, the applicable 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 and the restoration of such Purchaser’s
right to acquire such shares pursuant to such Purchaser’s Warrant (including,
issuance of a replacement warrant certificate evidencing such restored right).

5.14Replacement 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.

5.15Remedies.  In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of 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.  

5.16Payment Set Aside. To the extent that the Company makes a payment or
payments to any 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.

 

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5.17Independent Nature of Purchasers’ Obligations and Rights.  The obligations
of each Purchaser under any Transaction Document are several and not joint with
the obligations of any other Purchaser, and no Purchaser shall be responsible in
any way for the performance or non-performance of the obligations of any other
Purchaser under any Transaction Document.  Nothing contained herein or in any
other Transaction Document, and no action taken by any Purchaser pursuant hereof
or thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents.  Each Purchaser shall be entitled to independently
protect and enforce its rights, including, without limitation, the rights
arising out of this Agreement or out of the other Transaction Documents, and it
shall not be necessary for any other Purchaser to be joined as an additional
party in any Proceeding for such purpose.  Each Purchaser has been represented
by its own separate legal counsel in its review and negotiation of the
Transaction Documents. The Company has elected to provide all Purchasers with
the same terms and Transaction Documents for the convenience of the Company and
not because it was required or requested to do so by any of the Purchasers.  It
is expressly understood and agreed that each provision contained in this
Agreement and in each other Transaction Document is between the Company and a
Purchaser, solely, and not between the Company and the Purchasers collectively
and not between and among the Purchasers.  No Purchaser shall act in concert, as
a group, or together with any other Purchaser with regard to any vote of the
stockholders of the Company.

5.18Legal Representation.  Each Purchaser acknowledges that it has been
represented by independent legal counsel in the preparation of the Agreement.

5.19Saturdays, 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.

5.20Construction. 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.  

5.21WAIVER 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.

5.22

Equitable Adjustment.  Trading volume amounts, price/volume amounts and similar
figures in the Transaction Documents shall be equitably adjusted (but without
duplication) to offset the effect of stock splits, similar events and as
otherwise described in this Agreement and Warrants.

 

(Signature Pages Follow)

 

 

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

 

INFOSONICS CORPORATION

 

 

Address for Notice:

4435 Eastgate Mall, Suite 320

San Diego, CA  92121

 

By:            /s/ Vernon A. LoForti

     Name: Vernon A. LoForti

     Title: Vice President, Chief Financial Officer and  

               Corporate Secretary

 

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

 

Perkins Coie LLP

1888 Century Park East, Suite 1700

Los Angeles, CA 90067

Attn: David Katz

Email: DKatz@perkinscoie.com

 

 

E-Mail: vern.loforti@infosonics.com

Fax: 858.373.1503

 

 

 

 

 

 

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

 

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IN WITNESS WHEREOF, the undersigned have caused this 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:

 

 

 

Address for Delivery of Securities to Purchaser (if not same as address for
notice):

 

 

 

 

Aggregate Closing Subscription Amount: US$________________

 

Closing Note principal amount: ___________________

 

Closing Warrants: ___________________

 

 

EIN Number, if applicable, will be provided under separate cover:
________________________

 

 

Date: ___________________________

 

 

 

[SIGNATURE PAGES CONTINUE]

 

 

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EXHIBIT A

 

 

FORM OF NOTE

 

 

 

 

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EXHIBIT B

 

 

FORM OF WARRANT

 

 

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EXHIBIT C

 

 

FORM OF LEGAL OPINION

 

 

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EXHIBIT D

 

 

WIRING INSTRUCTIONS

 

 

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EXHIBIT E

 

ACCREDITED INVESTOR QUESTIONNAIRE

IN CONNECTION WITH INVESTMENT IN NOTES AND WARRANTS

OF INFOSONICS CORPORATION,

A MARYLAND CORPORATION

PURSUANT TO SECURITIES PURCHASE AGREEMENT DATED JANUARY 19, 2018

 

TO :InfoSonics Corporation

 

INSTRUCTIONS

PLEASE ANSWER ALL QUESTIONS. If the appropriate answer is “None” or “Not
Applicable”, so state.  Please print or type your answers to all questions.
Attach additional sheets if necessary to complete your answers to any item.

Your answers will be kept strictly confidential at all times. However,
InfoSonics Corporation (the “Company”) may present this Questionnaire to such
parties as it deems appropriate in order to assure itself that the offer and
sale of securities of the Company will not result in a violation of the
registration provisions of the Securities Act of 1933, as amended, or a
violation of the securities laws of any state.

1.Please provide the following information:

Name:

Name of additional purchaser:
(Please complete information in Question 5)

Date of birth, or if other than an individual, year of organization or
incorporation:

 

 

2.Residence address, or if other than an individual, principal office address:

 

 

 

Telephone number:

Social Security Number:

Taxpayer Identification Number:

3.  Business address:

 

 

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Business telephone number:

4.  Send mail to:Residence ______Business _______

5.With respect to tenants in common, joint tenants and tenants by the entirety,
complete only if information differs from that above:

Residence address:

 

 

Telephone number:

Social Security Number:

Taxpayer Identification Number:

Business address:

 

 

Business telephone number:

Send Mail to: Residence _______Business _______

6.Please describe your present or most recent business or occupation and
indicate such information as the nature of your employment, how long you have
been employed there, the principal business of your employer, the principal
activities under your management or supervision and the scope (e.g. dollar
volume, industry rank, etc.) of such activities:

 

 

 

 

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7.Please state whether you (i) are associated with or affiliated with a member
of the Financial Industry Regulatory Association, Inc. (“FINRA”), (ii) are an
owner of stock or other securities of  FINRA member (other than stock or other
securities purchased on the open market), or (iii) have made a subordinated loan
to any FINRA member:

______________
YesNo

If you answered yes to any of (i) – (iii) above, please indicate the applicable
answer and briefly describe the facts below:

 

 

 

8A.Applicable to Individuals ONLY. Please answer the following questions
concerning your financial condition as an “accredited investor” (within the
meaning of Rule 501 of Regulation D).  If the purchaser is more than one
individual, each individual must initial an answer where the question indicates
a “yes” or “no” response and must answer any other question fully, indicating to
which individual such answer applies.  If the purchaser is purchasing jointly
with his or her spouse, one answer may be indicated for the couple as a whole:

8.1Does your net worth* (or joint net worth with your spouse) exceed $1,000,000?

______________
YesNo

8.2Did you have an individual income** in excess of $200,000 or joint income
together with your spouse in excess of $300,000 in each of the two most recent
years (2016 and 2017) and do you reasonably expect to reach the same income
level in the current year (2018)?

______________
YesNo

8.3Are you an executive officer of the Company?

______________
YesNo

* For purposes hereof, net worth shall be deemed to include ALL of your assets,
liquid or illiquid MINUS any liabilities.

** For purposes hereof, the term “income” is not limited to “adjusted gross
income” as that term is defined for federal income tax purposes, but rather
includes certain items of income which are deducted in computing “adjusted gross
income”. For investors who are salaried employees, the gross salary of such
investor, minus any significant expenses personally incurred by such investor in
connection with earning the salary, plus any income from any other source
including unearned income, is a fair measure of “income” for purposes hereof.
For investors who are self‑employed, “income” is generally construed to

 

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mean total revenues received during the calendar year minus significant expenses
incurred in connection with earning such revenues.

8.BApplicable to Corporations, Partnerships, Trusts, Limited Liability Companies
and other Entities ONLY:

The purchaser is an accredited investor because the purchaser falls within at
least one of the following categories (Check all appropriate lines):

 

___

(i) a bank as defined in Section 3(a)(2) of the Act or a savings and loan
association or other institution as defined in Section 3(a)(5)(A) of the Act
whether acting in its individual or fiduciary capacity;

 

___

(ii) a broker‑dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934, as amended;

 

___

(iii) an insurance company as defined in Section 2(13) of the Act;

 

___

(iv) an investment company registered under the Investment Company Act of 1940,
as amended (the “Investment Act”) or a business development company as defined
in Section 2(a)(48) of the Investment Act;

 

___

(v) a Small Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business Investment Act
of 1958, as amended;

 

___

(vi) a plan established and maintained by a state, its political subdivisions,
or any agency or instrumentality of a state or its political subdivisions, for
the benefit of its employees, where such plan has total assets in excess of
$5,000,000;

 

___

(vii) an employee benefit plan within the meaning of Title 1 of the Employee
Retirement Income Security Act of 1974, as amended (the “Employee Act”), where
the investment decision is made by a plan fiduciary, as defined in Section 3(21)
of the Employee Act, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or an employee benefit plan
that has total assets in excess of $5,000,000, or a self‑directed plan the
investment decisions of which are made solely by persons that are accredited
investors;

 

___

(viii) a private business development company, as defined in Section 202(a)(22)
of the Investment Advisers Act of 1940, as amended;

 

___

(ix) an organization described in Section 501(c)(3) of the Internal Revenue
Code, a corporation, a Massachusetts or similar business trust, or a
partnership, not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000;

 

___

(x) a trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the securities offered, whose purchase is directed
by a “sophisticated” person, as described in Rule 506(b)(2)(ii) promulgated
under the Act, who has such knowledge and experience in financial and business
matters

 

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that he or she is capable of evaluating the merits and risks of the prospective
investment;

 

___

(xi) an entity in which all of the equity investors are persons or entities
described above (“accredited investors”). ALL EQUITY OWNERS MUST COMPLETE
“EXHIBIT A” ATTACHED HERETO.

9.ADo you have sufficient knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks associated with
investing in the Company?

______________
YesNo

ANSWER QUESTION 9B ONLY IF THE ANSWER TO QUESTION 9A WAS “NO.”

9.BIf the answer to Question 9A was “NO,” do you have a financial or investment
adviser (a) that is acting in the capacity as a purchaser representative and (b)
who has sufficient knowledge and experience in financial and business matters so
as to be capable of evaluating the merits and risks associated with investing in
the Company?

______________
YesNo

If you have a financial or investment adviser(s), please identify each such
person and indicate his or her business address and telephone number in the
space below. (Each such person must complete, and you must review and
acknowledge, a separate Purchaser Representative Questionnaire which will be
supplied at your request).

 

 

10.You have the right, will be afforded an opportunity, and are encouraged to
investigate the Company and review relevant factors and documents pertaining to
the officers of the Company, and the Company and its business and to ask
questions of a qualified representative of the Company regarding this investment
and the properties, operations, and methods of doing business of the Company.

Have you or has your purchaser representative, if any, conducted any such
investigation, sought such documents or asked questions of a qualified
representative of the Company regarding this investment and the properties,
operations, and methods of doing business of the Company?

______________
YesNo

If so, briefly describe:

 

If so, have you completed your investigation and/or received satisfactory
answers to your questions?

______________
YesNo

 

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11.Do you understand the nature of an investment in the Company and the risks
associated with such an investment?

______________
YesNo

12.Do you understand that there is no guarantee of any financial return on this
investment and that you will be exposed to the risk of losing your entire
investment?

______________
YesNo

13.Do you understand that this investment is not liquid?

______________
YesNo

14.Do you have adequate means of providing for your current needs and personal
contingencies in view of the fact that this is not a liquid investment?

______________
YesNo

15.Are you aware of the Company’s business affairs and financial condition, and
have you acquired all such information about the Company as you deem necessary
and appropriate to enable you to reach an informed and knowledgeable decision to
acquire the Interests?

______________
YesNo

16.Do you have a “pre‑existing relationship” with the Company or any of the
officers of the Company?

______________
YesNo

(For purposes hereof, “pre‑existing relationship” means any relationship
consisting of personal or business contacts of a nature and duration such as
would enable a reasonably prudent investor to be aware of the character,
business acumen, and general business and financial circumstances of the person
with whom such relationship exists.)

If so, please name the individual or other person with whom you have a
pre‑existing relationship and describe the relationship:

______________________________________________________________________________

______________________________________________________________________________

 

--------------------------------------------------------------------------------

 

17.Exceptions to the representations and warranties made in Section 3.2 of the
Securities Purchase Agreement (if no exceptions, write “none” – if left blank,
the response will be deemed to be “none”):
___________________________________________________

_____________________________________________________________________________

Dated: _______________, 2018

If purchaser is one or more individuals (all individuals must sign):

(Type or print name of prospective purchaser)

Signature of prospective purchaser

Social Security Number

(Type or print name of additional purchaser)

Signature of spouse, joint tenant, tenant in common or other signature, if
required

Social Security Number

 

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Annex A

Definition of Accredited Investor

The securities will only be sold to investors who represent in writing in the
Securities Purchase Agreement that they are accredited investors, as defined in
Regulation D, Rule 501 under the Act which definition is set forth below:

1.A natural person whose net worth, or joint net worth with spouse, at the time
of purchase exceeds $1 million (excluding home); or

2.A natural person whose individual gross income exceeded $200,000 or whose
joint income with that person’s spouse exceeded $300,000 in each of the last two
years, and who reasonably expects to exceed such income level in the current
year; or

3.A trust with total assets in excess of $5 million, not formed for the specific
purpose of acquiring the securities offered, whose purchase is directed by a
sophisticated person described in Regulation D; or

4.A director or executive officer of the Company; or

5.The investor is an entity, all of the owners of which are accredited
investors; or

6.(a) bank as defined in Section 3(a)(2) of the Act, or any savings and loan
association or other institution as defined in Section 3(a)(5)(A) of the Act,
(b) any broker or dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934, (c) an insurance Company as defined in Section 2(13) of
the Act, (d) an investment Company registered under the Investment Company Act
of 1940 or a business development Company as defined in Section 2(a)(48) of such
Act, (e) a Small Business Investment Company licensed by the United States Small
Business Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958, (f) an employee benefit plan established and maintained
by a state, its political subdivisions, or any agency or instrumentality of a
state or its political subdivisions, if such plan has total assets in excess of
$5  million, (g) an employee benefit plan within the meaning of Title I of the
Employee Retirement Income Securities Act of 1974, and the employee benefit plan
has assets in excess of $5 million, or the investment decision is made by a plan
fiduciary, as defined in Section 3(21) of such act, that is either a bank,
savings and loan institution, insurance Company, or registered investment
advisor, or, if a self-directed plan, with an investment decisions made solely
by persons that are accredited investors, (h) a private business development
company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940,
or (i) an organization described in Section 501(c)(3) of the Internal Revenue
code, corporation, Massachusetts or similar business trust, or partnership, not
formed for the specific purpose of acquiring the securities offered, with assets
in excess of $5 million.

 

 

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EXHIBIT “A” TO ACCREDITED INVESTOR QUESTIONNAIRE

ACCREDITED CORPORATIONS, PARTNERSHIPS, LIMITED LIABILITY COMPANIES, TRUSTS OR
OTHER ENTITIES INITIALING QUESTION 8B(xi) MUST PROVIDE THE FOLLOWING
INFORMATION.

I hereby certify that set forth below is a complete list of all equity owners in
__________________ [NAME OF ENTITY], a
                                                [TYPE OF ENTITY] formed pursuant
to the laws of the State of                                     . I also certify
that EACH SUCH OWNER HAS INITIALED THE SPACE OPPOSITE HIS OR HER NAME and that
each such owner understands that by initialing that space he or she is
representing that he or she is an accredited individual investor satisfying the
test for accredited individual investors indicated under “Type of Accredited
Investor.”

 

__________________________________________

signature of authorized corporate officer, general partner or trustee

Name of Equity OwnerType of Accredited Investor2

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

 

 

 

 

 

 

 

 

22  

Indicate which Subparagraph of 8.1 ‑ 8.3 the equity owner satisfies.