Exhibit 10.1

 

EXECUTION VERSION

 

SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of October 27,
2020, is between MEDALIST DIVERSIFIED REIT, INC., a company incorporated under
the laws of Maryland, with principal executive offices located at Three James
Center, 1051 E. Cary Street, Suite 601, Richmond, VA 23219 (the “Company”), and
each of the investors listed on the Schedule of Buyers attached hereto
(individually, a “Buyer” and collectively the “Buyers”).

 

WITNESSETH

 

WHEREAS, the Company and each Buyer desire to enter into this transaction for
the Company to sell and the Buyers to purchase the Convertible Debentures (as
defined below) pursuant to an exemption from registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D (“Regulation D”) as promulgated by
the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act
of 1933, as amended (the “Securities Act”);

 

WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to the Buyer(s), as provided
herein, and the Buyer(s) shall purchase up to $5,000,000 of convertible
debentures in the form attached hereto as “Exhibit A” (the “Convertible
Debentures”), which shall be convertible into the Company’s Common Stock, $0.01
par value per share (“Common Stock” and the Common Stock issued upon conversion
of the Convertible Debentures, the “Conversion Shares”), of which $1,500,000
shall be purchased upon the signing this Agreement (the “First Closing”),
$2,000,000 shall be purchased upon the filing of a Registration Statement with
the U.S. Securities and Exchange Commission registering the resale of the
Conversion Shares by the Buyers and satisfaction of other conditions (the
“Second Closing”), and $1,500,000 shall be purchased on or about the date the
Registration Statement has first been declared effective by the SEC (the “Third
Closing”) (individually referred to as a “Closing” collectively referred to as
the “Closings”), in the respective amounts set forth opposite each Buyer(s) name
on Schedule I (the “Subscription Amount”) for a purchase price equal to 95% of
the Subscription Amount (the “Purchase Price”);

 

WHEREAS, contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
(the “Registration Rights Agreement”) pursuant to which the Company has agreed
to provide certain registration rights under the Securities Act and the
rules and regulations promulgated there under, and applicable state securities
laws;

 

WHEREAS, contemporaneously with the execution and delivery of this Agreement,
the Company is delivering Irrevocable Transfer Agent Instructions (the
“Irrevocable Transfer Agent Instructions”) to its transfer agent; and

 

WHEREAS, the Convertible Debentures and the Conversion Shares are collectively
referred to herein as the “Securities.”

 

 

 

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each Buyer hereby
agree as follows:

 

1.PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.

 

(a)            Purchase of Convertible Debentures. Subject to the satisfaction
(or waiver) of the conditions set forth in Sections 6 and 7 below, the Company
shall issue and sell to each Buyer, and each Buyer severally, but not jointly,
agrees to purchase from the Company at each Closing Convertible Debentures with
principal amount corresponding with the Subscription Amount set forth opposite
each Buyer’s name on Schedule of Buyers attached as Schedule I hereto.

 

(b)            Closing Dates. Each Closing of the purchase of Convertible
Debentures by the Buyers shall occur at the offices Yorkville Advisors Global,
LP, 1012 Springfield Avenue, Mountainside, NJ 07092. The date and time of each
Closing shall be as follows: (i) the First Closing shall be 10:00 a.m., New York
time, on the first Business Day on which the conditions to the Closing set forth
in Sections 6 and 7 below are satisfied or waived (or such other date as is
mutually agreed to by the Company and each Buyer) (the “First Closing Date”),
(ii) the Second Closing shall be 10:00 a.m., New York time, by the third
Business Day after the date on which the Registration Statement is filed by the
Company with the SEC, provided the conditions to the Closing set forth in
Sections 6 and 7 below are satisfied or waived (or such other date as is
mutually agreed to by the Company and each Buyer) (the “Second Closing Date”),
and (iii) the Third Closing shall be 10:00 a.m., New York time, by the third
Business Day after the Registration Statement is first declared effective by the
SEC, provided the conditions to the Closing set forth in Sections 6 and 7 below
are satisfied or waived (or such other date as is mutually agreed to by the
Company and each Buyer) (the “Third Closing Date” and collectively referred to
as the “Closing Dates”). As used herein “Business Day” means any day other than
a Saturday, Sunday or other day on which commercial banks in New York, New York
are authorized or required by law to remain closed.

 

(c)            Form of Payment; Deliveries. Subject to the satisfaction of the
terms and conditions of this Agreement, on each Closing Date, (i) the Buyers
shall deliver to the Company such aggregate proceeds for the Convertible
Debentures to be issued and sold to such Buyer at such Closing, minus the fees
to be paid directly from the proceeds of such Closing as set forth herein, and
(ii) the Company shall deliver to each Buyer, Convertible Debentures which such
Buyer is purchasing at such Closing with a principal amount corresponding with
the Subscription Amount set forth opposite each Buyer’s name on Schedule of
Buyers attached as Schedule I hereto, duly executed on behalf of the Company.

 

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(d)            Maximum Shares. Notwithstanding anything in this Agreement to the
contrary, the Company shall not issue any Common Shares pursuant to the
transactions contemplated hereby or any other Transaction Documents (including
the Conversion Shares) if the issuance of such shares of Common Stock would
exceed the aggregate number of shares of Common Stock that the Company may issue
in this transaction in compliance with the Company’s obligations under the
rules or regulations of Nasdaq Stock Market LLC (the “Nasdaq”) (the number of
shares which may be issued without violating such rules and regulations is
949,119 (which is 19.99% of 4,747,968 outstanding shares of Common Stock) and
shall be referred to as the “Exchange Cap”), except that such limitation shall
not apply in the event that the Company (A) obtains the approval of its
stockholders as required by the applicable rules of the Nasdaq for issuances of
shares in excess of such amount or (B) obtains a written opinion from counsel to
the Company that it may follow its home country practice, and therefore, such
approval is not required, which opinion shall be reasonably satisfactory to the
Buyers. The Exchange Cap shall be appropriately adjusted for any stock dividend,
stock split, reverse stock split or similar transaction.

 

2.BUYER’S REPRESENTATIONS AND WARRANTIES.

 

Each Buyer, severally and not jointly, represents and warrants to the Company
with respect to only itself that, as of the date hereof and as of each Closing
Date:

 

(a)            Investment Purpose. The Buyer is acquiring the Securities for its
own account for investment only and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the Securities Act; provided, however, that
by making the representations herein, such Buyer reserves the right to dispose
of the Securities at any time in accordance with or pursuant to an effective
registration statement covering such Securities or an available exemption under
the Securities Act. Such Buyer does not presently have any agreement or
understanding, directly or indirectly, with any Person to distribute any of the
Securities.

 

(b)            Accredited Investor Status. The Buyer is an “Accredited Investor”
as that term is defined in Rule 501(a)(3) of Regulation D.

 

(c)            Reliance on Exemptions. The Buyer understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.

 

(d)            Information. The Buyer and its advisors (and his or, its
counsel), if any, have been furnished with all materials relating to the
business, finances and operations of the Company and information he deemed
material to making an informed investment decision regarding his purchase of the
Securities, which have been requested by such Buyer. The Buyer and its advisors,
if any, have been afforded the opportunity to ask questions of the Company and
its management. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer’s right to rely on the
Company’s representations and warranties contained in Section 3 below. The Buyer
understands that its investment in the Securities involves a high degree of
risk. The Buyer has sought such accounting, legal and tax advice, as it has
considered necessary to make an informed investment decision with respect to its
acquisition of the Securities.

 

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(e)            Transfer or Resale. The Buyer understands that: (i) the
Securities have not been registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (A) subsequently registered thereunder, (B) such Buyer shall have
delivered to the Company an opinion of counsel, in a generally acceptable form,
to the effect that such Securities to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration
requirements, or (C) such Buyer provides the Company with reasonable assurances
(in the form of seller and broker representation letters) that such Securities
can be sold, assigned or transferred pursuant to Rule 144 promulgated under the
Securities Act, as amended (or a successor rule thereto) (collectively,
“Rule 144”), in each case following the applicable holding period set forth
therein; and (ii) any sale of the Securities made in reliance on Rule 144 may be
made only in accordance with the terms of Rule 144 and further, if Rule 144 is
not applicable, any resale of the Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the SEC thereunder.

 

(f)            Legends. The Buyer agrees to the imprinting, so long as its
required by this Section 2(f), of a restrictive legend on the Securities in
substantially the following form:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE [AND THOSE SECURITIES INTO WHICH
THEY ARE CONVERTIBLE] HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES [AND THOSE
SECURITIES INTO WHICH THEY ARE CONVERTIBLE] HAVE BEEN ACQUIRED SOLELY FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL DELIVERED TO THE
COMPANY, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR APPLICABLE STATE SECURITIES LAWS

 

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Certificates evidencing the Conversion Shares shall not contain any legend
(including the legend set forth above), (i) while a registration statement
covering the resale of such security is effective under the Securities Act,
(ii) following any sale of such Conversion Shares pursuant to Rule 144, (iii) if
such Conversion Shares are eligible for sale under Rule 144, 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 SEC). The Buyer agrees that the removal of restrictive legend from
certificates representing Securities as set forth in this Section 3(f) is
predicated upon the Company’s reliance that the Buyer 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.

 

(g)            Organization; Authority. Such Buyer is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents (as
defined below) to which it is a party and otherwise to carry out its obligations
hereunder and thereunder.

 

(h)            Authorization, Enforcement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of such Buyer and shall
constitute the legal, valid and binding obligations of such Buyer enforceable
against such Buyer in accordance with its terms, except as such enforceability
may be limited by general principles of equity or to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other similar laws
relating to, or affecting generally, the enforcement of applicable creditors'
rights and remedies.

 

(i)            No Conflicts. The execution, delivery and performance by such
Buyer of this Agreement and the consummation by such Buyer of the transactions
contemplated hereby will not (i) result in a violation of the organizational
documents of such Buyer, (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which such Buyer is a
party or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws) applicable to
such Buyer, except, in the case of clauses (ii) and (iii) above, for such
conflicts, defaults, rights or violations which could not, individually or in
the aggregate, reasonably be expected to have a material adverse effect on the
ability of such Buyer to perform its obligations hereunder.

 

(j)            Certain Trading Activities. The Buyer has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with the Buyer, engaged in any transactions in the securities of
the Company (including, without limitation, any Short Sales (as defined below)
involving the Company's securities) during the period commencing as of the time
that the Buyer first contacted the Company or the Company's agents regarding the
specific investment in the Company contemplated by this Agreement and ending
immediately prior to the execution of this Agreement by such Buyer. The Buyer
hereby agrees that it shall not directly or indirectly, engage in any Short
Sales involving the Company’s securities during the period commencing on the
date hereof and ending when no Convertible Debentures remain outstanding. "Short
Sales" means all "short sales" as defined in Rule 200 promulgated under
Regulation SHO under the 1934 Act (as defined below). The Buyer is aware that
Short Sales and other hedging activities may be subject to applicable federal
and state securities laws, rules and regulations and the Buyer acknowledges that
the responsibility of compliance with any such federal or state securities laws,
rules and regulations is solely the responsibility of the Buyer.

 

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(k)            Trading Information. Upon the Company’s request, the Buyer agrees
to provide the Company with trading reports setting forth the number and average
sales prices of Conversion Shares sold the Buyer during the prior trading week.

 

(l)            OFAC. Buyer represents that neither he, she, or it is either a
subsidiary, affiliate, owner, shareholder, partner, member, indemnitor,
guarantor, or related person or entity that is: (a) a Sanctioned Person (as
defined below); (b) has more than 15% of its assets in Sanctioned Countries (as
defined below); or (c) derives more than 15% of its operating income from
investments in, or transactions with Sanctioned Persons or Sanctioned Countries.
For purposes of the foregoing, a “Sanctioned Person” shall mean (a) a person
named on the list of “specially designated nationals” or “blocked persons”
maintained by the U.S. Office of Foreign Assets Control (“OFAC”) at
https://www.treasury.gov/resource-center/sanctions/sdn-list/pages/default.aspx,
or as otherwise published from time to time, or (b)(1) an agency of the
government of a Sanctioned Country, (2) an organization controlled by a
Sanctioned Country, or (3) a person resident in a Sanctioned Country, to the
extent subject to a sanctions program administered by OFAC. A “Sanctioned
Country” shall mean a country subject to a sanctions program identified on the
list maintained by OFAC and available at
https://www.treasury.gov/resource-center/sanctions/programs/pages/programs.aspx,
or as otherwise published from time to time.

 

3.REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

Except as set forth under the corresponding section of the Disclosure Schedules
which Disclosure Schedules shall be deemed a part hereof and to qualify any
representation or warranty otherwise made herein to the extent of such
disclosure, the Company hereby makes the representations and warranties set
forth below to each Buyer:

 

(a)            Organization and Qualification. The Company and each of its
Subsidiaries are entities duly formed, validly existing and in good standing
under the laws of the jurisdiction in which they are formed, and have the
requisite power and authority to own their properties and to carry on their
business as now being conducted and as presently proposed to be conducted. The
Company and each of its Subsidiaries is duly qualified as a foreign entity to do
business and is in good standing in every jurisdiction in which its ownership of
property or the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not reasonably be expected to have a Material Adverse Effect
(as defined below). As used in this Agreement, “Material Adverse Effect” means
any material adverse effect on (i) the business, properties, assets,
liabilities, operations (including results thereof), condition (financial or
otherwise) or prospects of the Company and its Subsidiaries, taken as a whole,
(ii) the transactions contemplated hereby or in any of the other Transaction
Documents or any other agreements or instruments to be entered into by the
Company in connection herewith or therewith or (iii) the authority or ability of
the Company to perform any of its obligations under any of the Transaction
Documents (as defined below). “Subsidiaries” means any Person in which the
Company, directly or indirectly, owns a majority of the outstanding capital
stock having voting power or holds a majority of the equity or similar interest
of such Person, and each of the foregoing, is individually referred to herein as
a “Subsidiary”.

 

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(b)            Authorization; Enforcement; Validity. The Company has the
requisite power and authority to enter into and perform its obligations under
this Agreement and the other Transaction Documents and to issue the Securities
in accordance with the terms hereof and thereof. The execution and delivery of
this Agreement and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Convertible Debentures, the
reservation for issuance and issuance of the Conversion Shares issuable upon
conversion of the Convertible Debentures), have been duly authorized by the
Company's board of directors and no further filing, consent or authorization is
required by the Company, its board of directors or other governmental body. This
Agreement has been, and the other Transaction Documents to which the Company is
a party will be prior to the Closing, duly executed and delivered by the
Company, and each constitutes the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with its respective
terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the enforcement
of applicable creditors' rights and remedies and except as rights to
indemnification and to contribution may be limited by federal or state
securities law. Notwithstanding any of the foregoing, the Company does not have
authority to issue an amount of Conversion Shares above the Exchange Cap until
the Company obtains the approval of its stockholders as required by the
applicable rules of the Nasdaq for issuances of shares in excess of such amount.
“Transaction Documents” means, collectively, this Agreement, the Registration
Rights Agreement, the Convertible Debentures, the Irrevocable Transfer Agent
Instructions, and each of the other agreements and instruments entered into by
the Company or delivered by the Company in connection with the transactions
contemplated hereby and thereby, as may be amended from time to time.

 

(c)            Issuance of Securities. The issuance of the Securities are duly
authorized and, upon issuance and payment in accordance with the terms of the
Transaction Documents the Securities shall be validly issued, fully paid and
non-assessable and free from all preemptive or similar rights, mortgages,
defects, claims, liens, pledges, charges, taxes, rights of first refusal,
encumbrances, security interests and other encumbrances (collectively “Liens”)
with respect to the issuance thereof. Upon issuance or conversion in accordance
with the Convertible Debentures, the Conversion Shares, when issued, will be
validly issued, fully paid and nonassessable and free from all preemptive or
similar rights or Liens with respect to the issue thereof, with the holders
being entitled to all rights accorded to a holder of Common Stock.

 

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(d)            No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Convertible Debentures, the Conversion Shares, and the
reservation for issuance of the Conversion Shares) will not (i) result in a
violation of the Bylawas (as defined below), Charter (as defined below),
certificate of formation, memorandum of association, articles of association,
bylaws or other organizational documents of the Company or any of its
Subsidiaries, or any capital stock or other securities of the Company or any of
its Subsidiaries, (ii) conflict with, or constitute a default under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including, without limitation, U.S.
federal and state securities laws and regulations, the securities laws of the
jurisdictions of the Company's incorporation or in which it or its subsidiaries
operate and the rules and regulations of the Nasdaq Capital Market (the
“Principal Market”) applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries is bound
or affected, except in the case of (ii) and (iii) for any conflict, default,
right or violation that would not reasonably be expected to result in a Material
Adverse Effect.

 

(e)            Consents. The Company is not required to obtain any material
consent from, authorization or order of, or make any filing or registration with
(other than any filings as may be required by any federal or state securities
agencies and any filings as may be required by the Principal Market), any
Governmental Entity (as defined below) or any regulatory or self-regulatory
agency or any other Person in order for it to execute, deliver or perform any of
its obligations under or contemplated by the Transaction Documents, in each
case, in accordance with the terms hereof or thereof. All consents,
authorizations, orders, filings and registrations which the Company or any
Subsidiary is required to obtain pursuant to the preceding sentence have been or
will be obtained or effected on or prior to each Closing Date, and neither the
Company nor any of its Subsidiaries are aware of any facts or circumstances
which might prevent the Company or any of its Subsidiaries from obtaining or
effecting any of the registration, application or filings contemplated by the
Transaction Documents. The Company is not in violation of the requirements of
the Principal Market and has no knowledge of any facts or circumstances which
could reasonably lead to delisting or suspension of the Common Stock in the
foreseeable future. “Governmental Entity” means any nation, state, county, city,
town, village, district, or other political jurisdiction of any nature, federal,
state, local, municipal, foreign, or other government, governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal),
multi-national organization or body; or body exercising, or entitled to
exercise, any administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature or instrumentality of any
of the foregoing, including any entity or enterprise owned or controlled by a
government or a public international organization or any of the foregoing.

 

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(f)            Acknowledgment Regarding Buyer's Purchase of Securities. The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of an arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company or any of its Subsidiaries, (ii) to its knowledge, an
"affiliate" (as defined in Rule 144 promulgated under the 1933 Act (or a
successor rule thereto) (collectively, “Rule 144”)) of the Company or any of its
Subsidiaries or (iii) to its knowledge, a “beneficial owner” of more than 10% of
the shares of Common Stock (as defined for purposes of Rule 13d-3 of the 1934
Act). The Company further acknowledges that no Buyer (nor any affiliate of any
Buyer) is acting as a financial advisor or fiduciary of the Company or any of
its Subsidiaries (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Buyer's purchase of the Securities. The Company
further represents to each Buyer that the Company's decision to enter into the
Transaction Documents to which it is a party has been based solely on the
independent evaluation by the Company and its representatives.

 

(g)            No Integrated Offering. None of the Company, its Subsidiaries or
any of their affiliates, nor any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Securities to require approval of stockholders of the Company under any
applicable stockholder approval provisions, including, without limitation, under
the rules and regulations of any exchange or automated quotation system on which
any of the securities of the Company are listed or designated for quotation.
None of the Company, its Subsidiaries, their affiliates nor any Person acting on
their behalf will take any action or steps that would cause the offering of any
of the Securities to be integrated with other offerings of securities of the
Company.

 

(h)            Dilutive Effect. The Company understands and acknowledges that
the number of Conversion Shares will increase in certain circumstances. The
Company further acknowledges its obligation to issue the Conversion Shares upon
conversion of the Convertible Debentures in accordance with this Agreement and
the Convertible Debentures is, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.

 

(i)            Application of Takeover Protections; Rights Agreement. Except for
Section 6.1 of the Charter, the Company and its board of directors have taken
all necessary action, if any, in order to render inapplicable any control share
acquisition, interested stockholder, business combination, poison pill
(including, without limitation, any distribution under a rights agreement),
stockholder rights plan or other similar anti-takeover provision under the
Bylaws, Charter or other organizational documents or the laws of the
jurisdiction of its incorporation or otherwise which is or could become
applicable to any Buyer as a result of the transactions contemplated by this
Agreement, including, without limitation, the Company's issuance of the
Securities and any Buyer's ownership of the Securities.

 

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(j)            SEC Documents; Financial Statements. During the two (2) years
prior to the date hereof, the Company has timely filed all reports, schedules,
forms, proxy statements, statements and other documents required to be filed by
it with the SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the “1934 Act”) (all of the foregoing filed
prior to the date hereof and all exhibits and appendices included therein and
financial statements, notes and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the “SEC Documents”). As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto as in effect as of the time of filing. Such financial statements have
been prepared in accordance with generally accepted accounting principles
(“GAAP”), consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments which will not be material, either individually or in the
aggregate). The reserves, if any, established by the Company or the lack of
reserves, if applicable, are reasonable based upon facts and circumstances known
by the Company on the date hereof and there are no loss contingencies that are
required to be accrued by the Statement of Financial Accounting Standard No. 5
of the Financial Accounting Standards Board which are not provided for by the
Company in its financial statements or otherwise. No other information provided
by or on behalf of the Company to any of the Buyers which is not included in the
SEC Documents (including, without limitation, information in the disclosure
schedules to this Agreement) contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
therein not misleading, in the light of the circumstance under which they are or
were made. The Company is not currently contemplating to amend or restate any of
the financial statements (including, without limitation, any notes or any letter
of the independent accountants of the Company with respect thereto) included in
the SEC Documents (the “Financial Statements”), nor is the Company currently
aware of facts or circumstances which would require the Company to amend or
restate any of the Financial Statements, in each case, in order for any of the
Financials Statements to be in compliance with GAAP and the rules and
regulations of the SEC. The Company has not been informed by its independent
accountants that they recommend that the Company amend or restate any of the
Financial Statements or that there is any need for the Company to amend or
restate any of the Financial Statements.

 

10

 

 

(k)            Absence of Certain Changes. Except as disclosed in the SEC
Documents, since the date of the Company's most recent audited financial
statements contained in a Form 10-K, there has been no Material Adverse Effect,
nor any event or occurrence specifically affecting the Company or its
Subsidiaries that would be reasonably expected to result in a Material Adverse
Effect. . Except as disclosed in the SEC Documents, since the date of the
Company's most recent audited financial statements contained in a Form 10-K,
neither the Company nor any of its Subsidiaries has (i) declared or paid any
dividends, (ii) sold any material assets, individually or in the aggregate,
outside of the ordinary course of business or (iii) made any material capital
expenditures, individually or in the aggregate, outside of the ordinary course
of business. Neither the Company nor any of its Subsidiaries has taken any steps
to seek protection pursuant to any law or statute relating to bankruptcy,
insolvency, reorganization, receivership, liquidation or winding up, nor does
the Company or any Subsidiary have any knowledge or reason to believe that any
of their respective creditors intend to initiate involuntary bankruptcy
proceedings or any actual knowledge of any fact which would reasonably lead a
creditor to do so.

 

(l)            No Undisclosed Events, Liabilities, Developments or
Circumstances. No event, liability, development or circumstance has occurred or
exists, or is reasonably expected to exist or occur specific to the Company, any
of its Subsidiaries or any of their respective businesses, properties,
liabilities, prospects, operations (including results thereof) or condition
(financial or otherwise), that has not been publicly disclosed and would
reasonably be expected to have a Material Adverse Effect.

 

(m)            Conduct of Business; Regulatory Permits. Neither the Company nor
any of its Subsidiaries is in violation of any term under its Bylaws, any
certificate of designation, preferences or rights of any other outstanding
series of preferred stock of the Company or any of its Subsidiaries or Charter
or their organizational charter, certificate of formation, memorandum of
association, articles of association, Bylaws or certificate of incorporation or
bylaws, respectively. Neither the Company nor any of its Subsidiaries is in
violation of any judgment, decree or order or any statute, ordinance, rule or
regulation applicable to the Company or any of its Subsidiaries, and neither the
Company nor any of its Subsidiaries will conduct its business in violation of
any of the foregoing, except in all cases for violations which would not
reasonably be expected to have a Material Adverse Effect. Without limiting the
generality of the foregoing, the Company is not in violation of any of the
rules, regulations or requirements of the Principal Market and has no knowledge
of any facts or circumstances that could reasonably lead to delisting or
suspension of the Common Stock by the Principal Market in the foreseeable
future. During the one year prior to the date hereof, (i) the Common Stock has
been listed or designated for quotation on the Principal Market, (ii) trading in
the Common Stock has not been suspended by the SEC or the Principal Market and
(iii) the Company has received no communication, written or oral, from the SEC
or the Principal Market regarding the suspension or delisting of the Common
Stock from the Principal Market, which has not been publicly disclosed. The
Company and each of its Subsidiaries possess all certificates, authorizations
and permits issued by the appropriate regulatory authorities necessary to
conduct their respective businesses, except where the failure to possess such
certificates, authorizations or permits would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect, and neither
the Company nor any of its Subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such certificate,
authorization or permit. There is no agreement, commitment, judgment,
injunction, order or decree binding upon the Company or any of its Subsidiaries
or to which the Company or any of its Subsidiaries is a party which has or would
reasonably be expected to have the effect of prohibiting or materially impairing
any business practice of the Company or any of its Subsidiaries, any acquisition
of property by the Company or any of its Subsidiaries or the conduct of business
by the Company or any of its Subsidiaries as currently conducted other than such
effects, individually or in the aggregate, which have not had and would not
reasonably be expected to have a Material Adverse Effect on the Company or any
of its Subsidiaries.

 

11

 

 

(n)            Foreign Corrupt Practices. Neither the Company nor any of its
Subsidiaries nor any director, officer, agent, employee, nor any other person
acting for or on behalf of the Company or any of its Subsidiaries (individually
and collectively, a “Company Affiliate”) have violated the U.S. Foreign Corrupt
Practices Act (the “FCPA) or any other applicable anti-bribery or
anti-corruption laws, nor has any Company Affiliate offered, paid, promised to
pay, or authorized the payment of any money, or offered, given, promised to
give, or authorized the giving of anything of value, to any officer, employee or
any other person acting in an official capacity for any Governmental Entity to
any political party or official thereof or to any candidate for political office
(individually and collectively, a “Government Official”) or to any person under
circumstances where such Company Affiliate knew or was aware of a high
probability that all or a portion of such money or thing of value would be
offered, given or promised, directly or indirectly, to any Government Official,
for the purpose, in violation of applicable law, of: (i) (A) influencing any act
or decision of such Government Official in his/her official capacity,
(B) inducing such Government Official to do or omit to do any act in violation
of his/her lawful duty, (C) securing any improper advantage, or (D) inducing
such Government Official to influence or affect any act or decision of any
Governmental Entity, or (ii) assisting the Company or its Subsidiaries in
obtaining or retaining business for or with, or directing business to, the
Company or its Subsidiaries.

 

(o)            Equity Capitalization.

 

(i)            Authorized and Outstanding Capital Stock. As of the date hereof,
the Company has authority to issue 1,000,000,000 shares consisting of
(A) 750,000,000 shares of Common Stock, of which 4,747,968 are issued and
outstanding, and (B)  250,000,000 shares of preferred stock, $0.01 par value per
share, of which 200,000 are issued and outstanding.

 

(ii)            Valid Issuance; Available Shares. All of such outstanding shares
are duly authorized and have been validly issued and are fully paid and
nonassessable.

 

12

 

 

(iii)            Existing Securities; Obligations. Except as disclosed in the
SEC Documents: (A) none of the Company's or any Subsidiary's shares, interests
or capital stock is subject to preemptive rights or any other similar rights or
Liens suffered or permitted by the Company or any Subsidiary; (B) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any shares, interests or
capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares, interests or
capital stock of the Company or any of its Subsidiaries or options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any shares, interests or capital stock of the Company or any
of its Subsidiaries; (C) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except pursuant to this Agreement);
(D) there are no outstanding securities or instruments of the Company or any of
its Subsidiaries which contain any redemption or similar provisions, and there
are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries; (E) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities; and (G) neither the Company nor any
Subsidiary has any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement.

 

(iv)            Organizational Documents. The Company has furnished to the
Buyers or filed on EDGAR true, correct and complete copies of the Company's
Bylaws as in effect on the date hereof (the “Bylaws”), and the Company's
Articles of Incorporation, as supplemented and as in effect on the date hereof
(the “Charter”), and the terms of all convertible securities and the material
rights of the holders thereof in respect thereto.

 

(p)            Litigation. Except as disclosed in the SEC Documents, there is no
action, suit, arbitration, proceeding, inquiry or investigation before or by the
Principal Market, any court, public board, other Governmental Entity,
self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries,
or any of the Company's or its Subsidiaries' officers or directors, whether of a
civil or criminal nature or otherwise, in their capacities as such, which would
reasonably be expected to result in a Material Adverse Effect. After reasonable
inquiry of its employees, the Company is not aware of any event which might
result in or form the basis for any such action, suit, arbitration,
investigation, inquiry or other proceeding. Without limitation of the foregoing,
there has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the SEC involving the Company, any of its
Subsidiaries or any current or former director or officer of the Company or any
of its Subsidiaries. Neither the Company nor any of its Subsidiaries is the
subject of any order, writ, judgment, injunction, decree, determination or award
of any Governmental Entity that would reasonably be expected to result in a
Material Adverse Effect.

 

13

 

 

(q)            Insurance. The Company and each of its Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. In accordance with the previous sentence, the Company currently
maintains no insurance policies. Neither the Company nor any such Subsidiary has
been refused any insurance coverage sought or applied for, and neither the
Company nor any such Subsidiary has any reason to believe that it will be unable
to renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not have a Material Adverse Effect.

 

 

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

 

(s)            Shell Company Status. The Company is not, band has never been, an
issuer identified in, or subject to, Rule 144(i).

 

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

 

14

 

 

(u)            Disclosure. The Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Buyers or their agents or
counsel with any information that constitutes or could reasonably be expected to
constitute material, non-public information concerning the Company or any of its
Subsidiaries, other than the existence of the transactions contemplated by this
Agreement and the other Transaction Documents. The Company understands and
confirms that each of the Buyers will rely on the foregoing representations in
effecting transactions in securities of the Company. All disclosures provided to
the Buyers regarding the Company and its Subsidiaries, their businesses and the
transactions contemplated hereby, including the schedules to this Agreement,
furnished by or on behalf of the Company or any of its Subsidiaries, taken as a
whole, are true and correct as of the date on which such information was so
provided and does not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
All of the written information furnished after the date hereof by or on behalf
of the Company or any of its Subsidiaries to each Buyer pursuant to or in
connection with this Agreement and the other Transaction Documents, taken as a
whole, will be true and correct in all material respects as of the date on which
such information is so provided and will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. No event or circumstance has occurred or information
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, liabilities, prospects, operations (including results
thereof) or conditions (financial or otherwise), which, under applicable law,
rule or regulation, requires public disclosure at or before the date hereof or
announcement by the Company but which has not been so publicly disclosed. All
financial projections and forecasts that have been prepared by or on behalf of
the Company or any of its Subsidiaries and made available to the Buyers have
been prepared in good faith based upon reasonable assumptions and represented,
at the time each such financial projection or forecast was delivered to each
Buyer, the Company's best estimate of future financial performance (it being
recognized that such financial projections or forecasts are not to be viewed as
facts and that the actual results during the period or periods covered by any
such financial projections or forecasts may differ from the projected or
forecasted results). The Company acknowledges and agrees that no Buyer makes or
has made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 2.

 

(v)            No General Solicitation. Neither the Company, nor any of its
affiliates, nor any Person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Securities.

 

(w)            Private Placement. Assuming the accuracy of the Buyers’
representations and warranties set forth in Section 2, no registration under the
Securities Act is required for the offer and sale of the Securities by the
Company to the Buyers as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of the
Primary Market.

 

4.COVENANTS.

 

(a)            Reporting Status. For the period beginning on the date hereof,
and ending 6 months after the date on which all the Convertible Debentures are
no longer outstanding (the “Reporting Period”), the Company shall use its best
efforts to file on a timely basis all reports required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934 Act or the
rules and regulations thereunder would no longer require or otherwise permit
such termination.

 

(b)            Use of Proceeds. Neither the Company nor any Subsidiary will,
directly or indirectly, use the proceeds of the transactions contemplated herein
to repay any loans to any executives or employees of the Company. Neither the
Company nor any Subsidiary will, directly or indirectly, use the proceeds of the
transactions contemplated herein, or lend, contribute, facilitate or otherwise
make available such proceeds to any Person (i) to fund, either directly or
indirectly, any activities or business of or with any Person that is identified
on the list of Specially Designated Nationals and Blocker Persons maintained by
OFAC, or in any country or territory, that, at the time of such funding, is, or
whose government is, the subject of Sanctions Programs, or (ii) in any other
manner that will result in a violation of Sanctions Programs.

 

15

 

 

(c)            Listing. To the extent applicable, the Company shall promptly
secure the listing or designation for quotation (as the case may be) of all of
the Underlying Securities (as defined below) upon each national securities
exchange and automated quotation system, if any, upon which the Common Stock is
then listed or designated for quotation (as the case may be, each an “Eligible
Market”), subject to official notice of issuance, and shall use reasonable
efforts to maintain such listing or designation for quotation (as the case may
be) of all Underlying Securities from time to time issuable under the terms of
the Transaction Documents on such Eligible Market for the Reporting Period.
Neither the Company nor any of its Subsidiaries shall take any action which
could be reasonably expected to result in the delisting or suspension of the
Common Stock on an Eligible Market during the Reporting Period. The Company
shall pay all fees and expenses in connection with satisfying its obligations
under this Section 4(c). “Underlying Securities” means the (i) the Conversion
Shares, and (ii) any shares of Common Stock of the Company issued or issuable
with respect to the Conversion Shares, including, without limitation, (1) as a
result of any stock split, stock dividend, recapitalization, exchange or similar
event or otherwise and (2) shares of capital stock of the Company into which the
shares Common Stock are converted or exchanged without regard to any limitations
on conversion of the Convertible Debentures.

 

(d)            Fees. The Company shall issue to YA II PN, Ltd. as the lead Buyer
(the “YA II PN”), 50,000 shares of Common Stock (the “Commitment Shares”) as
commitment fee. The Commitment Shares shall be issuable to YA II PN at the First
Closing. The Company shall pay to YA Global II SPV, LLC, an affiliate of the
lead Buyer (the “Subsidiary Fund”) a one-time structuring and due diligence fee
in the amount of $15,000, of which $5,000 was previously received. The unpaid
balance of time structuring and due diligence fee shall be deducted from the
gross proceeds of the First Closing and paid to the Subsidiary Fund. The Company
authorizes YA II PN to deduct any fees due hereunder from the gross process of
the purchase of any Convertible Debentures.

 

(e)            Pledge of Securities. Notwithstanding anything to the contrary
contained in this Agreement, the Company acknowledges and agrees that, subject
to compliance with applicable federal and state securities laws, the Securities
may be pledged by a Buyer in connection with a bona fide margin agreement or
other loan or financing arrangement that is secured by the Securities. The
Company hereby agrees to execute and deliver such documentation as a pledgee of
the Securities may reasonably request in connection with a pledge of the
Securities to such pledgee by a Buyer.

 

16

 

 

(f)            Disclosure of Transactions and Other Material Information. On or
before 9:30 a.m., New York time, on the first Business Day after the date of
this Agreement, the Company shall file a Current Report on Form 8-K describing
all the material terms of the transactions contemplated by the Transaction
Documents in the form required by the 1934 Act and attaching all the material
Transaction Documents (including, without limitation, this Agreement (and all
schedules to this Agreement) (including all attachments, the “Current Report”).
From and after the filing of the Current Report, the Company shall have
disclosed all material, non-public information (if any) provided to any of the
Buyers 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. In addition, effective upon the
filing of the Current Report, the Company acknowledges and agrees that any and
all confidentiality or similar obligations with respect to the transactions
contemplated by the Transaction Documents under any agreement, whether written
or oral, between the Company, any of its Subsidiaries or any of their respective
officers, directors, affiliates, employees or agents, on the one hand, and any
of the Buyers or any of their affiliates, on the other hand, shall terminate,
provided however, the confidentiality agreement contained in the Mutual
Nondisclosure and Confidentiality Agreement entered into by and between the
Company and Yorkville Advisors Global, LP on October 19, 2020 shall expire
automatically upon the earlier of (i) the effectiveness of the Registration
Statement, or (ii) April 15, 2021. The Company shall not, and the Company shall
cause each of its Subsidiaries and each of its and their respective officers,
directors, employees and agents not to, provide any Buyer with any material,
non-public information regarding the Company or any of its Subsidiaries from and
after the date hereof without first obtaining the express prior written consent
of such Buyer (which may be granted or withheld in such Buyer's sole
discretion).

 

(g)            Reservation of Shares. So long as any of the Convertible
Debentures remain outstanding, the Company shall take all action necessary to at
all times have authorized, and reserved for the purpose of issuance, no less
than the maximum number of shares of Common Stock issuable upon conversion of
all Convertible Debentures then outstanding (assuming for purposes hereof that
(x) the Convertible Debentures are convertible at the Conversion Price then in
effect, and (y) any such conversion shall not take into account any limitations
on the conversion set forth in Section 5(c) of the Convertible Debentures) (the
“Required Reserve Amount”); provided that at no time shall the number of shares
of Common Stock reserved pursuant to this Section 4(g) be reduced other than
proportionally in connection with any conversion and/or redemption, or reverse
stock split. If at any time the number of shares of Common Stock authorized and
reserved for issuance is not sufficient to meet the Required Reserved Amount,
the Company will promptly take all corporate action necessary to authorize and
reserve a sufficient number of shares, including, without limitation, calling a
special meeting of stockholders to authorize additional shares to meet the
Company's obligations pursuant to the Transaction Documents, in the case of an
insufficient number of authorized shares, recommending that stockholders vote in
favor of an increase in such authorized number of shares sufficient to meet the
Required Reserved Amount.

 

(h)            Conduct of Business. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any Governmental Entity, except where such violations would not
reasonably be expected to result, either individually or in the aggregate, in a
Material Adverse Effect.

 

17

 

 

(i)            From the date hereof until all the Convertible Debentures have
been repaid, unless the holders of at least 75% in principal amount of the then
outstanding Convertible Debentures shall have given prior written consent, the
Company shall not, and shall not permit any of its subsidiaries (whether or not
a subsidiary on the date hereof) to, directly or indirectly (i) other than
Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer
to exist any indebtedness for borrowed money of any kind, including, but not
limited to, a guarantee, on or with respect to any of its property or assets now
owned or hereafter acquired or any interest therein or any income or profits
therefrom, (ii) other than Permitted Liens, enter into, create, incur, assume or
suffer to exist any lien, security interest, option or other charge or
encumbrance (each, a “Lien”) of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein or
any income or profits therefrom, (iii) amend its charter documents, including,
without limitation, its certificate of incorporation and bylaws, in any manner
that materially and adversely affects any rights of the holders of the
Convertible Debentures, or (iv) enter into, or drawdown on any variable rate
equity financing facility (including in particular the issuance of any shares of
Common Stock at a variable price or any securities for which the conversion
price or exercise price is variable, such as equity lines) (“Variable Rate
Instrument”).

 

“Permitted Indebtedness” shall mean: (i) indebtedness evidenced by the
Convertible Debentures; (ii) indebtedness described on a Disclosure Schedule
attached hereto; (iii) indebtedness incurred solely for the purpose of financing
the acquisition or lease of any equipment, including capital lease obligations
with no recourse other than to such equipment; (iv) indebtedness (A) the
repayment of which has been subordinated to the payment of the Convertible
Debentures on terms and conditions acceptable to the Buyers, including with
regard to interest payments and repayment of principal, (B) which does not
mature or otherwise require or permit redemption or repayment prior to or on the
91st day after the maturity date of any Convertible Debentures then outstanding;
and (C) which is not secured by any assets of the Company or its subsidiaries;
(v) indebtedness associated with acquiring new intellectual property assets and
licenses, so long as the proceeds are going to the party(ies) from which the
Company is acquiring the assets, licenses, and other properties; (vi) any
indebtedness (other than the indebtedness set out in (i) – (v) above) incurred
after the date hereof, provided that such indebtedness does not exceed $20,000
at any given time; (vii) any indebtedness incurred in connection with the
acquisition of real estate; (viii) any indebtedness incurred in connection with
the refinance of any existing debt associated with any real estate owned by the
Company; (ix) any indebtedness incurred in connection with the drawdown of an
unsecured line of credit; and (x) any security issued in the form of debt that
is convertible into or exercisable or exchangeable for shares of Common Stock,
other than a Variable Rate Instrument.

 

18

 

 

“Permitted Liens” shall mean (1) any security interest granted to the Buyers to
secure the obligations under the Convertible Debentures, (2) any prior security
interest granted to the Buyers, (3) existing Liens disclosed by the Company on a
Disclosure Schedule attached hereto; (4) inchoate Liens for taxes, assessments
or governmental charges or levies not yet due, as to which the grace period, if
any, related thereto has not yet expired, or being contested in good faith and
by appropriate proceedings for which adequate reserves have been established in
accordance with GAAP; (5) Liens of carriers, materialmen, warehousemen,
mechanics and landlords and other similar Liens which secure amounts which are
not yet overdue by more than 60 days or which are being contested in good faith
by appropriate proceedings for which adequate reserves have been established in
accordance with GAAP; (6) licenses, sublicenses, leases or subleases granted to
other persons not materially interfering with the conduct of the business of the
Company; (7) Liens securing capitalized lease obligations and purchase money
indebtedness incurred solely for the purpose of financing an acquisition or
lease; (8) easements, rights-of-way, restrictions, encroachments, municipal
zoning ordinances and other similar charges or encumbrances, and minor title
deficiencies, in each case not securing debt and not materially interfering with
the conduct of the business of the Company and not materially detracting from
the value of the property subject thereto; (9) Liens arising out of the
existence of judgments or awards which judgments or awards do not constitute an
Event of Default; (10) Liens incurred in the ordinary course of business in
connection with workers compensation claims, unemployment insurance, pension
liabilities and social security benefits and Liens securing the performance of
bids, tenders, leases and contracts in the ordinary course of business,
statutory obligations, surety bonds, performance bonds and other obligations of
a like nature (other than appeal bonds) incurred in the ordinary course of
business (exclusive of obligations in respect of the payment for borrowed
money); (11) Liens in favor of a banking institution arising by operation of law
encumbering deposits (including the right of set-off) and contractual set-off
rights held by such banking institution and which are within the general
parameters customary in the banking industry and only burdening deposit accounts
or other funds maintained with a creditor depository institution; (12) usual and
customary set-off rights in leases and other contracts; (13) escrows in
connection with acquisitions and dispositions; (14) royalties and other rights
to revenue derived from the sale of the Company’s products that are granted in
the ordinary course of business; and (15) any security interest granted to a
lender to secure indebtedness incurred in connection with the acquisition of
real estate.

 

5.REGISTER; TRANSFER AGENT INSTRUCTIONS; LEGEND.

 

(a)            Register. The Company shall maintain at its principal executive
offices or with the Transfer Agent (or at such other office or agency of the
Company as it may designate by notice to each holder of Securities), a register
for the Convertible Debentures in which the Company shall record the name and
address of the Person in whose name the Convertible Debentures have been issued
(including the name and address of each transferee), the amount of Convertible
Debentures held by such Person, and the number of Conversion Shares issuable
upon conversion of the Convertible Debentures held by such Person. The Company
shall keep the register open and available at all times during business hours
for inspection of any Buyer or its legal representatives.

 

(b)            Transfer Restrictions. 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 Buyer or in
connection with a pledge as contemplated herein, 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 Buyer under this Agreement.

 

19

 

 

6.CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

 

The obligation of the Company hereunder to issue and sell the Convertible
Debentures to each Buyer at each Closing is subject to the satisfaction, at or
before each Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion by providing each Buyer with prior
written notice thereof:

 

(a)            Such Buyer shall have executed each of the Transaction Documents
to which it is a party and delivered the same to the Company.

 

(b)            Such Buyer and each other Buyer shall have delivered to the
Company the Purchase Price (less, in the case of any Buyer, the amounts withheld
pursuant to Section 4(d)) for the Convertible Debentures being purchased by such
Buyer at the Closing by wire transfer of immediately available funds in
accordance with the Closing Statement.

 

(c)            The representations and warranties of such Buyer shall be true
and correct in all material respects as of the date when made and as of each
Closing Date as though originally made at that time (except for representations
and warranties that speak as of a specific date, which shall be true and correct
as of such specific date), and such Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by such
Buyer at or prior to such Closing Date.

 

7.CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.

 

The obligation of each Buyer hereunder to purchase its Convertible Debentures at
each Closing is subject to the satisfaction, at or before each Closing Date, of
each of the following conditions, provided that these conditions are for each
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion by providing the Company with prior written notice thereof:

 

(a)            The Company shall have duly executed and delivered to such Buyer
each of the Transaction Documents to which it is a party and the Company shall
have duly executed and delivered to such Buyer a Convertible Debenture with a
principal amount corresponding to the Subscription Amount set forth opposite
such Buyer’s name on Schedule of Buyers attached as Schedule I for the Closing.

 

(b)            Such Buyer shall have received the opinion of counsel to the
Company, dated as of the First Closing Date, in the form reasonably acceptable
to such Buyer.

 

(c)            The Company shall have delivered to each Buyer copies of its and
each Subsidiaries certified copies of its charter, as well as any shareholder or
operating agreements by or among the shareholders or members of any of the
Company’s Subsidiaries.

 

20

 

 

 

(d)            The Company shall have delivered to such Buyer a certificate
evidencing the incorporation and good standing of the Company as of a date
within ten (10) days of the Closing Date.

 

(e)            Each and every representation and warranty of the Company shall
be true and correct in all material respects (other than representations and
warranties qualified by materiality, which shall be true and correct in all
respects) as of the date when made and as of each Closing Date as though
originally made at that time (except for representations and warranties that
speak as of a specific date, which shall be true and correct as of such specific
date) and the Company shall have performed, satisfied and complied in all
respects with the covenants, agreements and conditions required to be performed,
satisfied or complied with by the Company at or prior to each Closing Date, as
set forth in section 3 and 4.

 

(f)            The Common Stock (A) shall be designated for quotation or listed
(as applicable) on the Principal Market and (B) shall not have been suspended,
as of each Closing Date, by the SEC or the Principal Market from trading on the
Principal Market nor, to the knowledge of the Company, shall suspension by the
SEC or the Principal Market have been threatened, as of each Closing Date,
either (I) in writing by the SEC or the Principal Market or (II) by falling
below the minimum maintenance requirements of the Principal Market.

 

(g)            The Company shall have obtained all governmental, regulatory or
third-party consents and approvals, if any, necessary for the sale of the
Securities, including without limitation, those required by the Principal
Market, if any.

 

(h)            No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or Governmental Entity of competent jurisdiction that prohibits the
consummation of any of the transactions contemplated by the Transaction
Documents.

 

(i)            Since the date of execution of this Agreement, no event or series
of events shall have occurred that has resulted in or would reasonably be
expected to result in a Material Adverse Effect.

 

(j)            The Company shall have obtained approval of the Principal Market
to list or designate for quotation (as the case may be) the Conversion Shares,
if applicable.

 

(k)            Such Buyer shall have received a letter, duly executed by an
officer of the Company, setting forth the wire amounts of each Buyer and the
wire transfer instructions of the Company (the “Closing Statement”).

 

(l)            From the date hereof to the applicable Closing Date, (i) trading
in the shares of Common Stock shall not have been suspended by the SEC or the
Principal Market (except for any suspension of trading of limited duration
agreed to by the Company, which suspension shall be terminated prior to the
Closing), (ii) the closing price of the Common Stock during each of the five
(5) consecutive Trading Days immediately prior to the applicable Closing Date
shall be at least 120% of the Floor Price (as defined in the Convertible
Debentures), and (iii) at any time prior to the applicable Closing Date, trading
in securities generally as reported by Bloomberg L.P. shall not have been
suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by such service, or on the Principal
Market, nor shall a banking moratorium have been declared either by the United
States or New York State authorities nor shall there have occurred any material
outbreak or escalation of hostilities or other national or international
calamity of such magnitude in its effect on, or any material adverse change in,
any financial market which, in each case, in the reasonable judgment of each
Buyer, makes it impracticable or inadvisable to purchase the Securities at the
Closing.

 

21

 

 

(m)            The Company and its Subsidiaries shall have delivered to such
Buyer such other documents, instruments or certificates relating to the
transactions contemplated by this Agreement as such Buyer or its counsel may
reasonably request.

 

(n)            Solely with respect to the Second Closing, the Company shall have
filed the Registration Statement with the SEC in accordance with the rules and
regulations for the filing thereof.

 

(o)            Solely with respect to the Second Closing and the Third Closing,
the Company shall have obtained the approval of its stockholders as required by
the applicable rules of the Nasdaq for issuances of the maximum number of
Conversion Shares issuable upon conversion of the Convertible Debentures in
excess of the Exchange Cap.

 

(p)            Solely with respect to the Third Closing, the Registration
Statement shall be effective.

 

8.TERMINATION.

 

In the event that the First Closing shall not have occurred with respect to a
Buyer within five (5) days of the date hereof, then such Buyer shall have the
right to terminate its obligations under this Agreement with respect to itself
at any time on or after the close of business on such date without liability of
such Buyer to any other party; provided, however, (i) the right to terminate
this Agreement under this Section 8 shall not be available to such Buyer if the
failure of the transactions contemplated by this Agreement to have been
consummated by such date is the result of such Buyer's breach of this Agreement
and (ii) the abandonment of the sale and purchase of the Convertible Debentures
shall be applicable only to such Buyer providing such written notice, provided
further that no such termination shall affect any obligation of the Company
under this Agreement to reimburse such Buyer for the expenses described herein.
Nothing contained in this Section 8 shall be deemed to release any party from
any liability for any breach by such party of the terms and provisions of this
Agreement or the other Transaction Documents or to impair the right of any party
to compel specific performance by any other party of its obligations under this
Agreement or the other Transaction Documents.

 

22

 

 

9.MISCELLANEOUS.

 

(a)            Governing Law; Jurisdiction; Jury Trial. All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of New York. 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 under any of
the other Transaction Documents or with any transaction contemplated hereby or
thereby, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
Nothing contained herein shall be deemed or operate to preclude any Buyer from
bringing suit or taking other legal action against the Company in any other
jurisdiction to collect on the Company's obligations to such Buyer or to enforce
a judgment or other court ruling in favor of such Buyer. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR UNDER ANY OTHER
TRANSACTION DOCUMENT OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT, ANY
OTHER TRANSACTION DOCUMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY.

 

(b)            Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event that any signature is
delivered by facsimile transmission or by an e-mail which contains a portable
document format (.pdf) file of an executed signature page, such signature
page shall create a valid and binding obligation of the party executing (or on
whose behalf such signature is executed) with the same force and effect as if
such signature page were an original thereof.

 

(c)            Headings; Gender. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. Unless the context clearly indicates
otherwise, each pronoun herein shall be deemed to include the masculine,
feminine, neuter, singular and plural forms thereof. The terms "including,"
"includes," "include" and words of like import shall be construed broadly as if
followed by the words "without limitation." The terms "herein," "hereunder,"
"hereof" and words of like import refer to this entire Agreement instead of just
the provision in which they are found.

 

(d)            Entire Agreement, Amendments. This Agreement supersedes all other
prior oral or written agreements between the Buyer, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the party to be charged with enforcement.

 

23

 

 

(e)            Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing by letter and email and will be deemed to have been delivered: upon the
later of (A) either (i) receipt, when delivered personally or (ii) one
(1) Business Day after deposit with an overnight courier service with next day
delivery specified, in each case, properly addressed to the party to receive the
same and (B) receipt, when sent by electronic mail. The addresses and e-mail
addresses for such communications shall be:

 

If to the Company, to: MEDALIST DIVERSIFIED REIT INC.  

Three James Center

1051 E. Cary Street, Suite 601

Richmond, VA 23219

Telephone:  804-344-4435
Attention:  Thomas E. Messier
E-Mail:  tmessier@medalistprop.com

 

With Copy to:

Kaplan Voekler Cunningham & Frank PLC

1401 E. Cary Street

Richmond, VA 23219

Attention: Thomas Voekler

Telephone: 804-823-4001

Email: tvoekler@kv-legal.com

    If to a Buyer, to its address and e-mail address set forth on the Schedule
of Buyers, with copies to such Buyer's representatives as set forth on the
Schedule of Buyers,         With copy to:

David Fine, Esq.

c/o Yorkville Advisors Global, LP

1012 Springfield Avenue

Mountainside, NJ 07092

Email: legal@yorkvilleadvisors.com

   

 

or to such other address, e-mail address and/or to the attention of such other
Person as the recipient party has specified by written notice given to each
other party five (5) days prior to the effectiveness of such change. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) electronically generated by the sender's
e-mail service provider containing the time, date, recipient e-mail address or
(C) provided by an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (i), (ii) or (iii) above, respectively

 

24

 

 

(f)            Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of any of the Convertible Debentures (but excluding any
purchasers of Underlying Securities, unless pursuant to a written assignment by
such Buyer). The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Buyers. In
connection with any transfer of any or all of its Securities, a Buyer may assign
all, or a portion, of its rights and obligations hereunder in connection with
such Securities without the consent of the Company, in which event such assignee
shall be deemed to be a Buyer hereunder with respect to such transferred
Securities.

 

(g)            Indemnification.

 

(i)            In consideration of each Buyer's execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to
all of the Company's other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless each Buyer and all of
their stockholders, partners, members, officers, directors, employees and any of
the foregoing Persons' agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the “Indemnitees”) from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or
arising out of, or relating to (i) any misrepresentation or breach of any
representation or warranty made by the Company in any of the Transaction
Documents, (ii) any breach of any covenant, agreement or obligation of the
Company or any Subsidiary contained in any of the Transaction Documents or
(iii) any cause of action, suit, proceeding or claim brought or made against
such Indemnitee by a third party (including for these purposes a derivative
action brought on behalf of the Company or any Subsidiary) or which otherwise
involves such Indemnitee that arises out of or results from (A) the execution,
delivery, performance or enforcement of any of the Transaction Documents,
(B) any transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, or (C) any
disclosure properly made by such Buyer pursuant to Section 4(f), or (D) the
status of such Buyer or holder of the Securities either as an investor in the
Company pursuant to the transactions contemplated by the Transaction Documents
or as a party to this Agreement (including, without limitation, as a party in
interest or otherwise in any action or proceeding for injunctive or other
equitable relief). To the extent that the foregoing undertaking by the Company
may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.

 

25

 

 

(ii)            Promptly after receipt by an Indemnitee under this
Section 9(g) of notice of the commencement of any action or proceeding
(including any governmental action or proceeding) involving an Indemnified
Liability, such Indemnitee shall, if a claim in respect thereof is to be made
against the Company under this Section 9(g), deliver to the Company a written
notice of the commencement thereof, and the Company shall have the right to
participate in, and, to the extent the Company so desires, to assume control of
the defense thereof with counsel mutually reasonably satisfactory to the Company
and the Indemnitee; provided, however, that an Indemnitee shall have the right
to retain its own counsel with the fees and expenses of such counsel to be paid
by the Company if: (A) the Company has agreed in writing to pay such fees and
expenses; (B) the Company shall have failed promptly to assume the defense of
such Indemnified Liability and to employ counsel reasonably satisfactory to such
Indemnitee in any such Indemnified Liability; or (C) the named parties to any
such Indemnified Liability (including any impleaded parties) include both such
Indemnitee and the Company, and such Indemnitee shall have been advised by
counsel that a conflict of interest is likely to exist if the same counsel were
to represent such Indemnitee and the Company (in which case, if such Indemnitee
notifies the Company in writing that it elects to employ separate counsel at the
expense of the Company, then the Company shall not have the right to assume the
defense thereof and such counsel shall be at the expense of the Company),
provided further, that in the case of clause (C) above the Company shall not be
responsible for the reasonable fees and expenses of more than one (1) separate
legal counsel for the Indemnitees. The Indemnitee shall reasonably cooperate
with the Company in connection with any negotiation or defense of any such
action or Indemnified Liability by the Company and shall furnish to the Company
all information reasonably available to the Indemnitee which relates to such
action or Indemnified Liability. The Company shall keep the Indemnitee
reasonably apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. The Company shall not be liable
for any settlement of any action, claim or proceeding effected without its prior
written consent, provided, however, that the Company shall not unreasonably
withhold, delay or condition its consent. The Company shall not, without the
prior written consent of the Indemnitee, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnitee of a release from all liability in respect to such Indemnified
Liability or litigation, and such settlement shall not include any admission as
to fault on the part of the Indemnitee. Following indemnification as provided
for hereunder, the Company shall be subrogated to all rights of the Indemnitee
with respect to all third parties, firms or corporations relating to the matter
for which indemnification has been made. The failure to deliver written notice
to the Company within a reasonable time of the commencement of any such action
shall not relieve the Company of any liability to the Indemnitee under this
Section 9(g), except to the extent that the Company is materially and adversely
prejudiced in its ability to defend such action.

 

(iii)            The indemnification required by this Section 9(g) shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, within ten (10) days after bills supporting the
Indemnified Liabilities are received by the Company.

 

(iv)            The indemnity agreement contained herein shall be in addition to
(A) any cause of action or similar right of the Indemnitee against the Company
or others, and (B) any liabilities the Company may be subject to pursuant to the
law.

 

(h)            No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.

 

26

 

 

[REMAINDER PAGE INTENTIONALLY LEFT BLANK]

 

27

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

  COMPANY:         MEDALIST DIVERSIFIED REIT INC.       By: /s/ Thomas E.
Messier   Name:     Thomas E. Messier   Title:      Chairman and Chief Executive
Officer

 

28

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

  BUYER:           YA II PN, LTD.       By:    Yorkville Advisors Global, LP  
Its:    Investment Manager         By:  Yorkville Advisors Global II, LLC    
Its:   General Partner         By: /s/ David Gonzalez     Name:         David
Gonzalez     Title:           Member

 

29

 

 

LIST OF EXHIBITS:

 

30

 

 

EXHIBIT A

 

FORM OF CONVERTIBLE DEBENTURES

 

31

 

 

SCHEDULE OF BUYERS

 

 

EXECUTION VERSION

 

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