Exhibit 10.1

PREFERRED STOCK PURCHASE AGREEMENT

This Preferred Stock Purchase Agreement (“Agreement”) is entered into and
effective as of December 3, 2009 (“Effective Date”), by and among ImmunoCellular
Therapeutics, Ltd., a Delaware corporation (“Company”), and Socius Capital
Group, LLC, a Delaware limited liability company, dba Socius Life Sciences
Capital Group, LLC (including its designees, successors and assigns,
“Investor”).

RECITALS

A. The parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue to Investor, and Investor shall
purchase from the Company, from time to time as provided herein, up to
$10,000,000.00 of shares of Series A Preferred Stock; and

B. The offer and sale of the Securities provided for herein are being made
without registration under the Act (as defined below), in reliance upon the
provisions of Section 4(2) of the Act, Regulation D promulgated under the Act,
and such other exemptions from the registration requirements of the Act as may
be available with respect to any or all of the purchases of Securities to be
made hereunder.

AGREEMENT

In consideration of the premises, the mutual provisions of this Agreement, and
other good and valuable consideration the receipt and adequacy of which are
hereby acknowledged, Company and Investor agree as follows:

ARTICLE 1

DEFINITIONS

In addition to the terms defined elsewhere in this Agreement: (a) capitalized
terms that are not otherwise defined herein have the meanings given to such
terms in the Certificate of Designations, and (b) the following terms have the
meanings indicated in this ARTICLE 1:

“Act” means the Securities Act of 1933, as amended.

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with a
Person, as such terms are used in and construed under Rule 144 under the Act.
With respect to Investor, without limitation, any Person owning, owned by, or
under common ownership with Investor, and any investment fund or managed account
that is managed on a discretionary basis by the same investment manager as
Investor will be deemed to be an Affiliate.

“Agreement” means this Preferred Stock Purchase Agreement.

“Bloomberg” means Bloomberg Financial Markets.

“Change in Control” has the meaning set forth within the definition of
Fundamental Transaction, below.

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“Certificate of Designations” means the certificate to be filed with the
Secretary of State of the State of Delaware, in the form attached hereto as
Exhibit B.

“Closing” means any one of (i) the Commitment Closing and (ii) each Tranche
Closing.

“Closing Bid Price” and “Closing Sale Price” means, for any security as of any
date, the last closing bid price and last closing trade price, respectively, for
such security on the Trading Market, as reported by Bloomberg, or, if the
Trading Market begins to operate on an extended hours basis and does not
designate the closing bid price or the closing trade price, as the case may be,
then the last bid price or last trade price, respectively, of such security
prior to 4:00 p.m., Eastern time, as reported by Bloomberg, or, if the Trading
Market is not the principal securities exchange or trading market for such
security, the last closing bid price or last trade price, respectively, of such
security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price or last trade price, respectively, of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price or last
trade price, respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any market makers
for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly
the National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing
Sale Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the
case may be, of such security on such date shall be the fair market value as
mutually determined by the Company and Investor. If the Company and Investor are
unable to agree upon the fair market value of such security, then such dispute
shall be resolved pursuant to Section 6.7. All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during the applicable calculation period.

“Commitment Closing” has the meaning set forth in Section 2.2(a).

“Commitment Fee” means a non-refundable fee of $500,000.00, payable by Company
to Investor as follows: (i) $250,000.00 on the first Tranche Notice Date, and
(ii) $250,000.00 on the Tranche Closing Date at which the aggregate Tranche
Purchase Price for all Tranche Shares purchased to date (including Tranche
Shares to be purchased on such Tranche Closing Date) equals at least
$5,000,000.00. Each installment of the Commitment Fee shall be payable at the
Company’s election either (a) in cash or by wire transfer of immediately
available funds to an account designated by Investor, or (b) by issuance and
delivery of shares of Common Stock registered for resale and freely tradable,
and valued based upon the lower of (1) 90% of the VWAP for the Common Stock on
the 5 Trading Days immediately preceding the Effective Date, or (2) 90% of the
VWAP for the Common Stock on the 5 Trading Days immediately preceding the share
delivery date. If not earlier paid, the $250,000.00 portion of the Commitment
Fee described in clause (i) above shall be due and payable on the six-month
anniversary of the effective date of the Registration Statement whether or not
any Tranche Closings have then occurred. The $250,000 portion of the Commitment
Fee described in clause (ii) above will not be payable unless and until the
condition described in clause (ii) has been satisfied.

“Commitment Fee Shares” means shares of the Company’s Common Stock issued by the
Company to Investor in accordance with Section 2.1.

 

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“Common Shares” means the Warrant Shares and any shares of Common Stock issued
as the Commitment Fee.

“Common Stock” means the common stock, par value $0.0001 per share, of the
Company, and any replacement or substitute thereof, or any share capital into
which such Common Stock shall have been changed or any share capital resulting
from a reclassification of such Common Stock.

“Company Termination” has the meaning set forth in Section 3.2.

“Delisting Event” means any time during the term of this Agreement, that the
Common Stock is not listed for and regularly trading on a Trading Market, or is
suspended or delisted with respect to the trading of the shares of Common Stock
on a Trading Market.

“Disclosure Schedules” means the disclosure schedules of the Company delivered
concurrently herewith, attached hereto, and incorporated herein by reference.
The Disclosure Schedules shall contain no material non-public information.

“DTC” means The Depository Trust Company, or any successor performing
substantially the same function for Company.

“DWAC Shares” means, following the earlier of effectiveness of the Registration
Statement or the six-month anniversary of issuance, all Common Shares or other
shares of Common Stock issued or issuable to Investor or any Affiliate,
successor or assign of Investor pursuant to any of the Transaction Documents,
including without limitation any Warrant Shares, all of which shall be
(a) issued in electronic form, (b) freely tradable and without restriction on
resale, and (c) timely credited by Company to the specified Deposit/Withdrawal
at Custodian (DWAC) account with DTC under its Fast Automated Securities
Transfer (FAST) Program or any similar program hereafter adopted by DTC
performing substantially the same function, in accordance with irrevocable
instructions issued to and countersigned by the Transfer Agent, in the form
attached hereto as Exhibit C or in such other form agreed upon by the parties.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Fundamental Transaction” means and shall be deemed to have occurred at such
time upon any of the following events:

(i) a consolidation, merger or other business combination or event or
transaction following which the holders of Common Stock immediately preceding
such consolidation, merger, combination or event either (a) no longer hold a
majority of the shares of Common Stock or (b) no longer have the ability to
elect a majority of the board of directors of the Company (a “Change in
Control”);

(ii) the sale or transfer of all or substantially all of the Company’s assets,
other than in the ordinary course of business; or

(iii) a purchase, tender or exchange offer made to the holders of the
outstanding shares of Common Stock that is accepted by more than 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the Person or Persons making or party to, or associated or affiliated
with the Persons making or party to such purchase, tender or exchange offer).

 

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“GAAP” means United States generally accepted accounting principles applied on a
consistent basis during the periods involved.

“Indebtedness” means (a) any liabilities for borrowed money or amounts owed in
excess of $100,000 (other than trade accounts payable incurred in the ordinary
course of business), (b) all guaranties, endorsements and other contingent
obligations in respect of Indebtedness of others, whether or not the same are or
should be reflected in the Company’s balance sheet (or the notes thereto),
except guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; and
(c) the present value of any lease payments in excess of $100,000 due under
leases required to be capitalized in accordance with GAAP.

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

“Material Adverse Effect” means any material adverse effect on (i) the legality,
validity or enforceability of any Transaction Document, (ii) the results of
operations, assets, business, prospects or financial condition of the Company
and the Subsidiaries, taken as a whole, or (iii) a the Company’s ability to
perform in any material respect on a timely basis its obligations under any
Transaction Document; provided, however, that none of the following,
individually or in the aggregate, shall be taken into account in determining
whether a Material Adverse Effect has occurred: (a) changes in conditions in the
U.S. or global capital, credit or financial markets generally, including changes
in the availability of capital or currency exchange rates; (b) changes generally
affecting the biotechnology or pharmaceutical industries; (c) any deterioration
in the results of operations, assets, business or financial condition of the
Company substantially resulting from (1) circumstances, conditions or risks
(including, without limitation, the section entitled “Risk Factors” contained in
the Company’s Form 10-K for its fiscal year ended December 31, 2008) existing as
of the Effective Date that are set forth in any of the SEC Reports or (2) any of
the matters set forth in the Disclosure Schedule (as the same may be updated
pursuant to Section 2.3(c)(ii)); (d) any effect of the announcement of this
Agreement or the consummation of the transactions contemplated by this Agreement
on the Company’s relationships, contractual or otherwise, with customers,
suppliers, vendors, bank lenders, strategic venture partners or employees; and
(e) any decrease in the market price of the Common Stock (but excluding herefrom
any condition, occurrence, state of facts or event underlying such decrease to
the extent that such condition, occurrence, state of facts or event otherwise
would constitute a Material Adverse Effect).

“Material Agreement” means any material loan agreement, financing agreement,
equity investment agreement or securities instrument to which Company is a
party, any agreement or instrument to which Company and Investor or any
Affiliate of Investor is a party, and any other material agreement listed, or
required to be listed, on any of Company’s reports filed or required to be filed
with the SEC, including without limitation Forms 10-K, 10-Q or 8-K.

 

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“Maximum Placement” means $10,000,000.00.

“Maximum Tranche Amount” means, subject to any other applicable limitations set
forth in this Agreement, the Maximum Placement less the amount of any previously
noticed and funded Tranches.

“Officer’s Closing Certificate” means a certificate in customary form reasonably
acceptable to Investor, executed by an authorized officer of the Company.

“Opinion” means an opinion from Company’s independent legal counsel, in the form
attached as Exhibit D or in such other form agreed upon by the parties, to be
delivered in connection with the Commitment Closing and any Tranche Closing.

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

“Preferred Shares” means shares of Series A Preferred Stock of the Company
provided for in the Certificate of Designations, to be issued to Investor
pursuant to this Agreement.

“Prospectus” includes each prospectus and prospectus supplement (within the
meaning of the Act) related to the sale or offering of any Common Shares,
including without limitation any prospectus or prospectus supplement contained
within the Registration Statement.

“Registration Statement” means a valid, current and effective registration
statement registering for resale the Common Shares, and except where the context
otherwise requires, means such registration statement, as amended, including
(i) all documents filed as a part thereof or incorporated by reference therein,
and (ii) any information contained or incorporated by reference in a prospectus
filed with the SEC in connection with such registration statement, to the extent
such information is deemed under the Act to be part of such registration
statement.

“Regulation D” means Regulation D promulgated under the Act.

“Required Approval” means any approval of the Trading Market or the Company’s
stockholders required to be obtained by Company prior to issuing the Securities
pursuant to any applicable rules of the Trading Market.

“Required Tranche Documents” has the meaning set forth in Section 2.3(e).

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

“Rule 144 Eligible” means eligible for immediate resale under Rule 144 without
limitation on the amount of securities sold under Rule 144(e) and without
requiring discharge by payment in full of any promissory notes given to the
Company prior to the sale of the securities under Rule 144(d)(2)(iii).

 

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

“SEC Reports” includes all reports required to be filed by the Company under the
Act and/or the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof, for the two years preceding the Effective Date (or such shorter period
as the Company was required by law to file such material).

“Securities” includes the Warrant, the Common Shares and the Preferred Shares
issuable pursuant to this Agreement.

“Subsidiary” means any Person the Company owns or controls, or in which the
Company, directly or indirectly, owns a majority of the capital stock or similar
interest that would be disclosable pursuant to Regulation S-K, Item 601(b)(21).

“Termination” has the meaning set forth in Section 3.1.

“Termination Date” means the earlier of (i) the date that is the two-year
anniversary of the Effective Date, or (ii) the Tranche Closing Date on which the
sum of the aggregate Tranche Purchase Price for all Tranche Shares equals the
Maximum Placement.

“Termination Notice” has the meaning as set forth in Section 3.2.

“Trading Day” means any day on which the Common Stock is traded on the Trading
Market; provided that it shall not include any day on which the Common Stock is
(a) scheduled to trade for less than 5 hours, or (b) suspended from trading.

“Trading Market” means the OTC Bulletin Board, the NASDAQ Capital Market, the
NASDAQ Global Market, the NASDAQ Global Select Market, the NYSE Amex, or the New
York Stock Exchange, whichever is at the time the principal trading exchange or
market for the Common Stock, but does not include the Pink Sheets inter-dealer
electronic quotation and trading system.

“Tranche” has the meaning set forth in Section 2.3.

“Tranche Amount” means the amount of any individual purchase of Preferred Shares
under this Agreement, as specified by the Company, and shall not exceed the
Maximum Tranche Amount.

“Tranche Closing” has the meaning set forth in Section 2.3(f).

“Tranche Closing Date” has the meaning set forth in Section 2.3(f).

“Tranche Notice” has the meaning set forth in Section 2.3(b).

“Tranche Notice Date” has the meaning set forth in Section 2.3(b).

“Tranche Purchase Price” has the meaning set forth in Section 2.3(b), and shall
be specified in writing by the Company.

 

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“Tranche Share Price” means $10,000.00 per Preferred Share. The Company may not
issue fractional Preferred Shares.

“Tranche Shares” means the Preferred Shares that are purchased by Investor
pursuant to a Tranche. For the Maximum Placement, the Company shall issue 1,000
Preferred Shares to Investor.

“Transaction Documents” means this Agreement, the other agreements and documents
referenced herein, and the exhibits and schedules hereto and thereto.

“Transfer Agent” means Computershare Trust Company, N.A., or any successor
transfer agent for the Common Stock.

“Use of Proceeds Certificate” means a certificate, in substantially the form
attached as Exhibit E, signed by an officer of the Company, setting forth how
the Tranche Purchase Price will be applied by the Company.

“VWAP” means, for any date, the volume-weighted average price, calculated by
dividing the aggregate value of Common Stock traded on the Trading Market (price
multiplied by number of shares traded) by the total volume (number of shares) of
Common Stock traded on the Trading Market for such date, or the nearest
preceding Trading Day.

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

“Warrant” means the Warrant issuable under this Agreement, in the form attached
hereto as Exhibit A, to purchase shares of Common Stock with an aggregate
exercise price equal to up to $13,500,000.00.

ARTICLE 2

PURCHASE AND SALE

2.1 Agreement to Purchase. Subject to the terms and conditions herein and the
satisfaction of the conditions to closing set forth in this ARTICLE 2:

(a) Investor hereby agrees to purchase such amounts of Preferred Shares as the
Company may, in its sole and absolute discretion, from time to time elect to
issue and sell to Investor according to one or more Tranches pursuant to
Section 2.3 below; and

(b) The Company agrees to pay the Commitment Fee and to issue the Preferred
Shares, the Common Shares, and the Warrant to Investor as provided herein.

(c) The Company agrees to pay $250,000.00 of the aggregate Commitment Fee of
$500,000.00 on the first Tranche Notice Date. This portion of the Commitment Fee
shall be paid to Investor at the Company’s election either (i) in cash or by
wire transfer of immediately available funds to an account designated by
Investor or (ii) by issuance and delivery to Investor of the Commitment Fee
Shares, with such shares to be issued and delivered in accordance with the
provisions of Sections 2.1(e) and 2.1(f).

 

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(d) The Company agrees to pay the second $250,000.00 of the Commitment Fee on
the Tranche Closing Date at which the aggregate Tranche Purchase Price for all
purchased Tranche Shares to date (including Tranche Shares to be purchased on
such Tranche Closing Date) equals at least $5,000,000.00. The second $250,000.00
of the Commitment Fee shall be paid to Investor at the Company’s election either
(i) in cash or by wire transfer of immediately available funds to an account
designated by Investor or (ii) by issuance and delivery to Investor of the
Commitment Fee Shares, with such shares to be issued and delivered in accordance
with the provisions of Sections 2.1(e) and 2.1(f). The Company shall have no
obligation to pay the second $250,000.00 portion of the Commitment Fee unless
and until the aggregate Tranche Purchase Price for all purchased Tranche Shares
to date equals at least $5,000,000.00.

(e) On the Effective Date, the Company shall issue to Investor, by delivery into
escrow as described herein, and as an estimate of the maximum number of
Commitment Fee Shares to which Investor may become entitled under this
Agreement, 1,200,000 Commitment Fee Shares (which are subject to cancellation as
described in this Section 2.1(e)). The Commitment Fee Shares issued on the
Effective Date shall be evidenced by two stock certificates, with each
certificate representing fifty percent (50%) of the 1,200,000 total Commitment
Fee Shares (with the shares covered by each such certificate subject to
adjustment on the date that the Commitment Fee Shares are actually delivered to
Investor). The stock certificates evidencing the Commitment Fee Shares shall be
held in escrow by the Company and shall bear a legend referring to restrictions
on transfer imposed by the Act, such legend to be substantially in the form of
the legend set forth in Section 5.1(b). If the Company elects pursuant to
Section 2.1(c) or Section 2.1(d) to pay the first or second $250,000.00
installment of the Commitment Fee in cash or by wire transfer of immediately
available funds, the applicable portion of the Commitment Fee Shares shall be
cancelled effective as of the Company’s delivery of such funds, and Investor
shall thereafter have no right to any of the cancelled Commitment Fee Shares.
Furthermore, if this Agreement is terminated by Investor pursuant to Section 3.1
or by the Company pursuant to Section 3.2, in either case prior to the date that
Investor is entitled to receive the second $250,000.00 installment of the
Commitment Fee, then that portion of the Commitment Fee Shares that were not
earned prior to the termination date shall be cancelled effective as of the
termination of this Agreement and Investor shall thereafter have no right to any
of the cancelled Commitment Fee Shares.

(f) Investor shall be entitled to receive the Commitment Fee Shares and the
certificates evidencing the Commitment Fee Shares if, but only if, the Company
elects to pay the applicable portion of the Commitment Fee in Commitment Fee
Shares rather than in cash or by wire transfer of immediately available funds.
If Investor becomes entitled to receive any of the Commitment Fee Shares
pursuant to the preceding sentence, the Company shall deliver to Investor, at
such Tranche Notice Date or Tranche Closing Date, as applicable, the certificate
evidencing the applicable portion of the Commitment Fee Shares (or, if the
number of shares required to be issued as Commitment Fee Shares pursuant to the
definition of “Commitment Fee” set forth in Article I is not then equal to the
number set forth on the certificate, a replacement certificate for the correct
number of Commitment Fee Shares shall be delivered to Investor and the original
certificate held in escrow shall be cancelled). The legend described in
Section 2.1(e) on such certificate shall be removed, and the Commitment Fee
Shares shall be delivered as DWAC Shares, on the date that Investor is entitled
to receive the Commitment Fee

 

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Shares out of the escrow. Prior to the date that Investor is entitled to receive
the Commitment Fee Shares pursuant to the preceding provisions of this
Section 2.1(f), Investor shall not be entitled to sell, pledge, assign or
otherwise transfer any of the Commitment Fee Shares. A total of 1,200,000 shares
of Common Stock shall be included in the Registration Statement for use by the
Company in satisfaction of the Commitment Fee. Any such shares that are
registered for resale but are not used in payment of the Commitment Fee shall be
cancelled by the Company.

(g) The Company shall hold the Commitment Fee Shares in escrow pursuant to this
Section 2.1, and shall deliver the Commitment Fee Shares to Investor, if
required hereby, strictly in compliance herewith. Pending delivery to Investor
or release to the Company for cancellation, as applicable, one or more
certificates evidencing the Commitment Fee Shares, titled in the name of
Investor or its designee as instructed by Investor, shall be held in the escrow,
with copies of such certificates delivered to Investor on the Effective Date.
The Company may not sell or otherwise transfer the Commitment Fee Shares to any
third party. In the event of any dispute related to the Commitment Fee Shares,
the Company shall keep the disputed Commitment Fee Shares in the escrow until
resolution of the dispute by written agreement of the parties or by a court of
competent jurisdiction in accordance with Section 6.7.

2.2 Investment Commitment

(a) Investment Commitment. The closing of this Agreement (the “Commitment
Closing”) shall be deemed to occur when this Agreement has been duly executed by
both Investor and the Company, and the other Conditions to the Commitment
Closing set forth in Section 2.2(b) have been met.

(b) Conditions to Investment Commitment. As a condition precedent to the
Commitment Closing, all of the following (the “Conditions to Commitment
Closing”) shall have been satisfied prior to or concurrently with the Company’s
execution and delivery of this Agreement:

(i) the following documents shall have been delivered to Investor: (A) this
Agreement, executed by the Company; (B) a Secretary’s Certificate as to (x) the
resolutions of the Company’s board of directors authorizing this Agreement and
the Transaction Documents, and the transactions contemplated hereby and thereby,
(y) a copy of the Company’s current Certificate or Articles of Incorporation,
and (z) a copy of the Company’s current Bylaws; (C) the Certificate of
Designations executed by the Company and accepted by the Secretary of State of
Delaware; (D) the Opinion; and (E) a copy of (1) the Company’s press release (if
any) announcing the transactions contemplated by this Agreement; and (F) a copy
of the Company’s Current Report on Form 8-K, as filed with the SEC, describing
the transaction contemplated by, and attaching a complete copy of, the
Transaction Documents;

(ii) other than for losses incurred in the ordinary course of business, there
has not been any Material Adverse Effect on the Company since the date of the
last SEC Report filed by the Company, including but not limited to incurring
material liabilities;

(iii) the representations and warranties of the Company in this Agreement shall
be true and correct in all material respects and the Company shall have
delivered an Officer’s Closing Certificate to such effect to Investor, signed by
an officer of the Company;

 

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(iv) the Warrant to purchase shares of Common Stock with an aggregate exercise
price equal to up to $13,500,000.00 shall have been delivered to Investor;

(v) the Commitment Fee Shares shall have been delivered to Investor in escrow
pursuant to Section 2.1(e)-(g); and

(vi) any Required Approval has been obtained.

(c) Investor’s Obligation to Purchase. Subject to the prior satisfaction of all
conditions set forth in this Agreement, following Investor’s receipt of a
validly delivered Tranche Notice, Investor shall be required to purchase from
the Company a number of Tranche Shares equal to the permitted Tranche Share
Amount, in the manner described below.

2.3 Tranches to Investor

(a) Procedure to Elect a Tranche. Subject to the Maximum Tranche Amount, the
Maximum Placement and the other conditions and limitations set forth in this
Agreement, at any time beginning on the effective date of the Registration
Statement, the Company may, in its sole and absolute discretion, elect to
exercise one or more individual purchases of Preferred Shares under this
Agreement (each a “Tranche”) according to the following procedure.

(b) Delivery of Tranche Notice. The Company shall deliver an irrevocable written
notice (the “Tranche Notice”), in the form attached hereto as Exhibit F, to
Investor stating that the Company shall exercise a Tranche and stating the
number of Preferred Shares which the Company will sell to Investor at the
Tranche Share Price, and the aggregate purchase price for such Tranche (the
“Tranche Purchase Price”). A Tranche Notice delivered by the Company to Investor
by 4:30 p.m. Eastern time on any Trading Day shall be deemed delivered on the
same day. A Tranche Notice delivered by the Company to Investor after 4:30 p.m.
Eastern time on any Trading Day, or at any time on a non-Trading Day, shall be
deemed delivered on the next Trading Day. The date that the Tranche Notice is
deemed delivered is the “Tranche Notice Date”. Each Tranche Notice shall be
delivered via facsimile or electronic mail, with confirming copy by overnight
carrier, in each case to the address set forth in Section 6.2. Except for the
first Tranche Closing, the Company may not give a Tranche Notice unless the
Tranche Closing for the prior Tranche has occurred or has been cancelled by the
Company pursuant to Section 2.3(g).

(c) Warrant. Any portion of the Warrant that becomes exercisable in connection
with the delivery of a Tranche Notice and exercised by Investor in accordance
with Section 1.1 of the Warrant shall be deemed exercised (i) on the applicable
Tranche Notice Date, if the Company receives the Exercise Delivery Documents
from Investor by 6:30 p.m. Eastern time on the Tranche Notice Date, or (ii) on
the next Trading Day, if the Company receives the Exercise Delivery Documents
from Investor after 6:30 p.m. Eastern Time on the applicable Tranche Notice Date
or on any subsequent date.

 

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(d) Conditions Precedent to Right to Deliver a Tranche Notice. The right of the
Company to deliver a Tranche Notice is subject to the satisfaction (or written
waiver by Investor in its sole discretion), on the date of delivery of such
Tranche Notice, of each of the following conditions:

(i) the Common Stock (including without limitation any shares of Common Stock
that may be issued to the Investor in payment of the Commitment Fee) shall be
listed for and currently trading on the Trading Market, and to the Company’s
knowledge there is no notice of any suspension or delisting with respect the
trading of the shares of Common Stock on such Trading Market;

(ii) the representations and warranties of the Company set forth in this
Agreement shall be true and correct in all material respects as if made on such
date (except for representations and warranties that are expressly made as of a
particular date in which case, such representations and warranties shall be true
and correct as of such particular date), and no material default shall have
occurred under this Agreement, or any other agreement with Investor or any
Affiliate of Investor, or any other Material Agreement, and the Company shall
deliver an Officer’s Closing Certificate to such effect to Investor, signed by
an officer of the Company;

(iii) other than losses incurred in the ordinary course of business, there has
been no Material Adverse Effect on the Company since the Commitment Closing;

(iv) the Company is not, and will not be as a result of the applicable Tranche,
in material default of this Agreement or any other agreement with Investor or
any Affiliate of Investor or any other Material Agreement;

(v) there is not then in effect any law, rule or regulation prohibiting or
restricting the transactions contemplated in this Agreement or any other
Transaction Document, or requiring any consent or approval which shall not have
been obtained, nor is there any pending or threatened proceeding or
investigation which may have the effect of prohibiting or adversely affecting
any of the transactions contemplated by this Agreement; no statute, rule,
regulation, executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or adopted by any court or governmental authority
of competent jurisdiction that prohibits the transactions contemplated by this
Agreement, and no actions, suits or proceedings shall be in progress, pending
or, to the Company’s knowledge threatened, by any person (other than Investor or
any Affiliate of Investor), that seek to enjoin or prohibit the transactions
contemplated by this Agreement;

(vi) all Common Shares shall have been timely delivered at the times provided
for by this Agreement, including all Warrant Shares issuable pursuant to any
Exercise Notice delivered to Company prior to the Tranche Notice Date;

(vii) all previously-issued and issuable Common Shares are DWAC Shares, are DTC
eligible, and can be immediately converted into electronic form without
restriction on resale;

(viii) Company is in compliance with all requirements to maintain its
then-current listing on the Trading Market;

 

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(ix) Company has a current, valid and effective Registration Statement
permitting the lawful resale of all previously-issued and issuable Common Shares
(including without limitation all Warrant Shares issuable upon exercise of the
Warrant delivered in connection with such Tranche and all Commitment Fee
Shares);

(x) Company has a sufficient number of duly authorized shares of Common Stock
reserved for issuance in such amount as may be required to fulfill its
obligations pursuant to the Transaction Documents and any outstanding agreements
with Investor and any Affiliate of Investor, including without limitation all
Warrant Shares issuable upon exercise of the Warrant issued in connection with
such Tranche;

(xi) the aggregate number of Warrant Shares issuable upon exercise of the
Warrant issued on the Tranche Notice Date, when aggregated with all other shares
of Common Stock deemed beneficially owned by Investor and its Affiliates whether
acquired in connection with the transactions contemplated by the Transaction
Documents or otherwise, would not result in Investor owning more than 9.99% of
all Common Stock outstanding on the Tranche Notice Date, as determined in
accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder; and

(xii) Investor shall have received the Commitment Fee, except with respect to
those Tranche Notices covering Tranche Purchase Prices aggregating up to
$5,000,000.00, Investor shall have received only 50% of the Commitment Fee, and
Investor shall have received the balance of the Commitment Fee on the Tranche
Closing Date upon which the aggregate Tranche Purchase Price for all purchased
Tranche Shares to date (including shares to be issued on such Tranche Closing
Date) equals at least $5,000,000.00.

(e) Documents to be Delivered at Tranche Closing. The Closing of any Tranche and
Investor’s obligations hereunder shall additionally be conditioned upon the
delivery to Investor of each of the following (the “Required Tranche Documents”)
on or before the applicable Tranche Closing Date:

(i) a number of Preferred Shares equal to the Tranche Purchase Price divided by
the Tranche Share Price shall have been delivered to Investor or an account
specified by Investor for the Tranche Shares;

(ii) the following executed documents: Opinion and Officer’s Certificate;

(iii) a Use of Proceeds Certificate, signed by an officer of the Company, and
setting forth how the Tranche Purchase Price will be applied by the Company;

(iv) all Warrant Shares shall have been timely delivered in accordance with any
Exercise Notice delivered to Company prior to the Tranche Closing Date;

(v) all documents, instruments and other writings required to be delivered by
the Company to Investor on or before the Tranche Closing Date pursuant to any
provision of this Agreement or in order to implement and effect the transactions
contemplated herein;

 

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(vi) payment of a $5,000.00 non-refundable administrative fee to Investor’s
counsel, by offset against the Tranche Amount, or wire transfer of immediately
available funds; and

(vii) with respect to the Tranche Closing at which the remaining 50% of the
Commitment Fee is payable, payment of that amount by the Company, which may be
offset by Investor against the proceeds due to the Company from the Tranche
Purchase Price if the Company has elected to make this payment in cash.

(f) Mechanics of Tranche Closing.

(i) Each of the Company and Investor shall deliver all documents, instruments
and writings required to be delivered by either of them pursuant to
Section 2.3(e) of this Agreement at or prior to each Tranche Closing. Subject to
such delivery and the satisfaction of the conditions set forth in Section 2.3(d)
as of the Tranche Closing Date, the closing of the purchase by Investor of
Preferred Shares shall occur by 5:00 p.m. Eastern time, on the date which is 10
Trading Days following (and not counting) the Tranche Notice Date (each a
“Tranche Closing Date”) at the offices of Investor.

(ii) If any portion of the Warrant is exercised by Investor on or after the
Tranche Notice Date and prior to or on the Tranche Closing Date (which exercise
shall be effected by Investor sending the Exercise Delivery Documents to the
Company in accordance with Section 1.1 of the Warrant), the Company shall send
Investor an electronic copy of its share issuance instructions to the Transfer
Agent and shall cause the requisite number of Warrant Shares to be credited to
Investor’s account with DTC as DWAC Shares no later than 5:30 p.m. Eastern time
on the Trading Day after the date the Company receives the Exercise Delivery
Documents from Investor. If DWAC shares are not credited pursuant to this
Section 2.3(f)(ii) by 12:00 p.m. on the Trading Day after the date the Company
receives the Exercise Delivery Documents (and including the circumstance where
the Warrant Shares are credited as DWAC Shares by 5:30 p.m. Eastern Time on such
Trading Day), then the Tranche Closing Date shall be extended by one Trading Day
for each Trading Day that credit of DWAC Shares is not made by 12:00 p.m.

(iii) On or before each Tranche Closing Date, Investor shall deliver to the
Company, in cash or immediately available funds, the Tranche Purchase Price to
be paid for such Tranche Shares.

(iv) The closing (each a “Tranche Closing”) for each Tranche shall occur on the
date that both (i) the Company has delivered to Investor all Required Tranche
Documents, and (ii) Investor has delivered to the Company the Tranche Purchase
Price.

(g) Limitation on Obligations to Purchase and Sell. Notwithstanding any other
provision, in the event the Closing Bid Price or Closing Sale Price of the
Common Stock during any one or more of the 9 Trading Days following the Tranche
Notice Date falls below 75.0% of the Closing Bid Price on the Tranche Notice
Date, except as otherwise agreed in writing between the Company and Investor:
(i) the Company may, at its option, and without penalty, terminate the Tranche
Notice and decline to sell any Tranche Shares on the Tranche

 

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Closing Date; and (ii) the Investor may, at its option, decline to purchase any
Tranche Shares on the Tranche Closing Date, and the unexercised portion (if any)
of the Warrant that relates to the terminated Tranche Notice shall thereafter no
longer be exercisable under any circumstances.

2.4 Maximum Placement. Investor shall not be obligated to purchase any
additional Tranche Shares once the aggregate Tranche Purchase Price paid by
Investor equals the Maximum Placement.

2.5 Share Sufficiency. On or before the date on which the Warrant becomes
exercisable, the Company shall have a sufficient number of duly authorized
shares of Common Stock for issuance in such amount as may be required to fulfill
its obligations pursuant to the Transaction Documents and any outstanding
agreements with Investor and any Affiliate of Investor.

ARTICLE 3

TERMINATION

3.1 Termination. The Investor may elect to terminate this Agreement and the
Company’s right to initiate subsequent Tranches to Investor under this Agreement
(each, a “Termination”) upon the occurrence of any of the following:

(a) if, at any time, either the Company or any director or executive officer of
the Company has engaged in a transaction or conduct related to the Company that
has resulted in (i) a SEC enforcement action, including without limitation such
director or executive officer being sanctioned by the SEC, or (ii) a civil
judgment or criminal conviction for fraud or misrepresentation, or for any other
offense that, if prosecuted criminally, would constitute a felony under
applicable law;

(b) on any date after a Delisting Event that lasts for an aggregate of 20
Trading Days during any calendar year;

(c) if at any time the Company has filed for and/or is subject to any
bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings for relief under any bankruptcy law or any law for the relief of
debtors instituted by or against the Company or any Subsidiary of the Company;

(d) the Company is in material breach or default of any Material Agreement,
which breach or default could have a Material Adverse Effect;

(e) the Company is in material breach or default of this Agreement, any
Transaction Document, or any agreement with Investor or any Affiliate of
Investor and such breach or default is not cured within 10 Trading Days after
written notice of such breach or default;

(f) upon the occurrence of a Fundamental Transaction;

(g) so long as any Preferred Shares are outstanding, the Company effects or
publicly announces its intention to create a security senior to the Series A
Preferred Stock or substantially altering the capital structure of the Company
in a manner that materially adversely affects the rights or preferences of the
Series A Preferred Stock; and

 

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(h) on the Termination Date.

3.2 Company Termination. The Company may at any time in its sole discretion
terminate (a “Company Termination”) this Agreement and its right to initiate
future Tranches by providing 30 days advanced written notice (“Termination
Notice”) to Investor.

3.3 Effect of Termination. Except as otherwise provided herein, the termination
of this Agreement will have no effect on any Common Shares, Preferred Shares,
Warrant or DWAC Shares previously issued, delivered or credited, or on any
then-existing rights of any holder thereof. Notwithstanding any other provision
of this Agreement, the Commitment Fee (to the extent it has become due under the
terms of this Agreement as the result of the purchase of Tranche Shares by
Investor) is payable despite any termination of this Agreement and all fees paid
to Investor or its counsel are non-refundable.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

4.1 Representations and Warranties of the Company. Except as set forth under the
corresponding section of the Disclosure Schedules, which shall be deemed a part
hereof and which shall not contain any material non-public information, the
Company hereby represents and warrants to, and as applicable covenants with,
Investor as of each Closing:

(a) Subsidiaries. All of the direct and indirect subsidiaries of the Company are
set forth on Section 4.1(a) to the Disclosure Schedule. The Company owns,
directly or indirectly, all of the capital stock or other equity interests of
each Subsidiary, and all of such directly or indirectly owned capital stock or
other equity interests are owned free and clear of any Liens. All the issued and
outstanding shares of capital stock of each Subsidiary are duly authorized,
validly issued, fully paid, non-assessable and free of preemptive and similar
rights to subscribe for or purchase securities.

(b) Organization and Qualification. Each of the Company and each Subsidiary is
an entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, as applicable, with the requisite power and authority to own and
use its properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in violation or default of
any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. Each of the
Company and each Subsidiary is duly qualified to conduct business and is in good
standing as a foreign corporation or other entity in each jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to result
in a Material Adverse Effect and no proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.

 

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(c) Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
each of the Transaction Documents and otherwise to carry out its obligations
hereunder or thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby or thereby have been duly authorized by all necessary action
on the part of the Company and no further consent or action is required by the
Company other than the filing of the Certificate of Designations. Each of the
Transaction Documents has been, or upon delivery will be, duly executed by the
Company and, when delivered in accordance with the terms hereof, will constitute
the valid and binding obligation of the Company, enforceable against the Company
in accordance with its terms, except (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.
Neither the Company nor any Subsidiary is in violation of any of the provisions
of its respective certificate or articles of incorporation, by-laws or other
organizational or charter documents.

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

(e) Filings, Consents and Approvals. Neither the Company nor any Subsidiary is
required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents, other than the filing of the Certificate of Designations and required
federal and state securities filings and such filings and approvals as are
required to be made or obtained under the applicable Trading Market rules in
connection with the transactions contemplated hereby, each of which has been, or
(if not yet required to be filed) shall be, timely filed.

 

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(f) Issuance of the Securities. The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents,
will be duly and validly issued, fully paid and nonassessable, free and clear of
all Liens. The Company has reserved from its duly authorized capital stock a
number of shares of Common Stock and Preferred Stock for issuance of the
Securities at least equal to the number of Securities which could be issued
pursuant to the terms of the Transaction Documents, based on the then current
anticipated exercise prices of the Warrant.

(g) Capitalization. The capitalization of the Company is as described in the
Company’s most recently filed periodic SEC Report. The Company has not issued
any capital stock since such filing, other than as set forth in Section 4.1(g)
of the Disclosure Schedule. No Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents. Except as a result of
the purchase and sale of the Securities or as set forth in the SEC Reports,
there are no outstanding options, warrants, script rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock or
securities convertible into or exercisable for shares of Common Stock. The
issuance and sale of the Securities will not obligate the Company to issue
shares of Common Stock or other securities to any Person (other than Investor)
and will not result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange, or reset price under such securities. All of the
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities. No further approval or authorization of any stockholder,
the Board of Directors of the Company or others is required for the issuance and
sale of the Securities. Except as set forth in the SEC Reports, there are no
stockholders agreements, voting agreements or other similar agreements with
respect to the Company’s capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company’s
stockholders.

(h) SEC Reports; Financial Statements. The Company has filed all required SEC
Reports for the two years preceding the Effective Date (or such shorter period
as the Company was required by law to file such SEC Reports) on a timely basis
or has received a valid extension of such time of filing and has filed any such
SEC Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects with the
requirements of the Act and the Exchange Act and the rules and regulations of
the SEC promulgated thereunder, as applicable, and none of the SEC Reports, when
filed, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Reports comply in all material respects with applicable accounting requirements
and the rules

 

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and regulations of the SEC with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with GAAP,
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.

(i) Material Changes. Since the date of the latest audited financial statements
included within the SEC Reports, except as specifically disclosed in the SEC
Reports, (i) there has been no event, occurrence or development that has had, or
that would reasonably be expected to result in, a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the ordinary
course of business consistent with past practice, and (B) liabilities not
required to be reflected in the Company’s financial statements pursuant to GAAP
or required to be disclosed in filings made with the SEC, (iii) the Company has
not altered its method of accounting, (iv) the Company has not declared or made
any dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Company equity
incentive plans as disclosed in the SEC Reports. The Company does not have
pending before the SEC any request for confidential treatment of information.

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

(k) Labor Relations. No material labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company,
which could reasonably be expected to result in a Material Adverse Effect.

(l) Compliance. Neither the Company nor any Subsidiary (i) is in default under
or in violation of (and, to the Company’s knowledge, no event has occurred that
has not been waived that, with notice or lapse of time or both, would result in
a default by the Company

 

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or any Subsidiary under), nor has the Company or any Subsidiary received notice
of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other similar agreement or instrument
to which it is a party or by which it or any of its properties is bound (whether
or not such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental authority,
including without limitation all foreign, federal, state and local laws
applicable to its business except in each case under clauses (i), (ii) or
(iii) as would not have a Material Adverse Effect.

(m) Regulatory Permits. The Company and each Subsidiary possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect (“Material
Permits”), and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material Permit.

(n) Title to Assets. The Company and each Subsidiary have good and marketable
title in fee simple to all real property owned by them that is material to the
business of the Company and each Subsidiary and good and marketable title in all
personal property owned by them that is material to the business of the Company
and each Subsidiary, in each case free and clear of all Liens, except for Liens
that do not materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by the
Company and each Subsidiary and Liens for the payment of federal, state or other
taxes, the payment of which is neither delinquent nor subject to penalties. Any
real property and facilities held under lease by the Company and each Subsidiary
are held by them under valid, subsisting and enforceable leases of which the
Company and each Subsidiary are in compliance.

(o) Patents and Trademarks. The Company and each Subsidiary have, or have rights
to use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and other similar rights that
are necessary or material for use in connection with their respective businesses
as described in the SEC Reports and which the failure to so have would have a
Material Adverse Effect (collectively, the “Intellectual Property Rights”).
Neither the Company nor any Subsidiary has received a written notice that the
Intellectual Property Rights used by the Company or any Subsidiary violates or
infringes upon the rights of any Person. To the knowledge of the Company, all
such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights of the
Company or each Subsidiary.

(p) Insurance. The Company and each Subsidiary are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Company and
each Subsidiary are engaged, including but not limited to directors and officers
insurance coverage at least equal to the Maximum Placement. To the best of
Company’s knowledge, such insurance contracts and policies are accurate and
complete. Neither the Company nor any Subsidiary has any reason to believe that
it will not be able 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 without a significant increase in cost.

 

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

(r) Sarbanes-Oxley; Internal Accounting Controls. The Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002, which are
applicable to it as of the date of the Commitment Closing. The Company and each
Subsidiary maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has established “disclosure controls and
procedures” (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
Company and designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its Subsidiaries, is
made known to the certifying officers by others within those entities,
particularly during the period in which the Company’s most recently filed
periodic report under the Exchange Act, as the case may be, is being prepared.
The Company’s certifying officers have evaluated the effectiveness of the
Company’s disclosure controls and procedures as of the date prior to the filing
date of the most recently filed periodic report under the Exchange Act (such
date, the “Evaluation Date”). The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the Company’s disclosure controls and
procedures based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no significant changes in the Company’s
internal accounting controls or its disclosure controls and procedures or, to
the Company’s knowledge, in other factors that could materially affect the
Company’s internal accounting controls or its disclosure controls and
procedures.

(s) Certain Fees. Except for the payment of the Commitment Fee, no brokerage or
finder’s fees or commissions are or will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by
this Agreement. Investor shall have no obligation with respect to any fees or
with respect to any claims made by or on behalf of other

 

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Persons for fees of a type contemplated in this Section 4.1(s) that may be due
in connection with the transactions contemplated by this Agreement or the other
Transaction Documents as a result of any agreements made or purported to be made
by the Company.

(t) Private Placement. Assuming the accuracy of Investor representations and
warranties set forth in Section 4.2, no registration under the Act is required
for the offer and sale of the Securities by the Company to Investor as
contemplated hereby. The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of any Trading Market.

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

(v) Registration Rights. No Person (other than Investor pursuant to the
Transaction Documents) has any right to cause the Company to effect the
registration under the Act of any securities of the Company.

(w) Listing and Maintenance Requirements. The Common Stock is not registered
pursuant to Section 12 of the Exchange Act. The Company has taken no action
designed to, or which to its knowledge is likely to have the effect of,
terminating the registration of the Common Stock nor has the Company received
any notification that the SEC is contemplating terminating such registration.
The Company has not, in the 12 months preceding the Effective Date, received
notice from any Trading Market on which the Common Stock is or has been listed
or quoted to the effect that the Company is not in compliance with the listing
or maintenance requirements of such Trading Market. The Company is, and has no
reason to believe that it will not in the foreseeable future continue to be, in
compliance with all such listing and maintenance requirements.

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

(y) Disclosure. Except with respect to the information that will be, and to the
extent that it actually is timely publicly disclosed by the Company pursuant to
Section 2.2(b)(i)E, and notwithstanding any other provision in this Agreement or
the other Transaction Documents, neither the Company nor any other Person acting
on its behalf has provided Investor or its agents or counsel with any
information that constitutes or might constitute material, non-public
information, including without limitation this Agreement and the Exhibits,
Appendices and Schedules hereto, unless prior thereto Investor shall have
executed a written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that

 

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neither Investor nor any Affiliate of Investor shall have any duty of trust or
confidence that is owed directly, indirectly, or derivatively to the Company or
the shareholders of the Company or to any other Person who is the source of
material non-public information regarding the Company. No information contained
in the Disclosure Schedules constitutes material non-public information. There
is no adverse material information regarding the Company as of the Effective
Date that has not been publicly disclosed prior to the Effective Date. The
Company understands and confirms that Investor will rely on the foregoing
representations and covenants in effecting transactions in securities of the
Company. All disclosure provided to Investor regarding the Company, its business
and the transactions contemplated hereby, including the Disclosure Schedules to
this Agreement, furnished by or on behalf of the Company with respect to the
representations and warranties made herein are true and correct in all material
respects and do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.

(z) No Integrated Offering. Neither the Company, nor any of its Affiliates, nor
any Person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy any security,
under circumstances that would cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the Act or which
could violate any applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of the Trading Market.

(aa) Financial Condition. Based on the financial condition of the Company as of
the date of the Commitment Closing: (i) the fair saleable market value of the
Company’s assets exceeds the amount that will be required to be paid on or in
respect of the Company’s existing debts and other liabilities (including known
contingent liabilities) as they mature; (ii) the Company’s assets do not
constitute unreasonably small capital to carry on its business for the current
fiscal year as now conducted and as proposed to be conducted including its
capital needs taking into account the particular capital requirements of the
business conducted by the Company, and projected capital requirements and
capital availability thereof; and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to liquidate all
of its assets, after taking into account all anticipated uses of the cash, would
be sufficient to pay all amounts on or in respect of its debt when such amounts
are required to be paid. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt). The Company has no
knowledge of any facts or circumstances, which lead it to believe that it will
file for reorganization or liquidation under the bankruptcy or reorganization
laws of any jurisdiction within one year from the date of the Commitment
Closing. The SEC Reports set forth as of the dates thereof all outstanding
secured and unsecured Indebtedness of the Company or any Subsidiary, or for
which the Company or any Subsidiary has commitments. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.

(bb) Tax Status. The Company and each of its Subsidiaries has made or filed all
federal, state and foreign income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments

 

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and charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. The Company has not executed a
waiver with respect to the statute of limitations relating to the assessment or
collection of any foreign, federal, statue or local tax. None of the Company’s
tax returns is presently being audited by any taxing authority.

(cc) No General Solicitation or Advertising. Neither the Company nor, to the
knowledge of the Company, any of its directors or officers (i) has conducted or
will conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to the sale of the Securities,
or (ii) made any offers or sales of any security or solicited any offers to buy
any security under any circumstances that would require registration of the
Securities under the Act or made any “directed selling efforts” as defined in
Rule 902 of Regulation S.

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

(ee) Acknowledgment Regarding Investor’s Purchase of Securities. The Company
acknowledges and agrees that Investor is acting solely in the capacity of arm’s
length purchaser with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that Investor is not
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any statement made by Investor or any of its representatives or
agents in connection with this Agreement and the transactions contemplated
hereby is not advice or a recommendation and is merely incidental to Investor’s
purchase of the Securities. The Company further represents to Investor that the
Company’s decision to enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.

(ff) Accountants. The Company’s accountants are set forth in the SEC Reports and
such accountants are an independent registered public accounting firm as
required by the Act.

(gg) No Disagreements with Accountants and Lawyers. There are no disagreements
of any kind presently existing, or reasonably anticipated by the Company to
arise, between the accountants and lawyers formerly or presently employed by the
Company, and the Company is current with respect to any fees owed to its
accountants and lawyers, except as in the normal course of business.

 

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(hh) Registration Statements and Prospectuses.

(i) The offer and sale of the Common Shares as contemplated hereby complies with
the requirements of Rule 415 under the Act.

(ii) The Company has not, directly or indirectly, used or referred to any “free
writing prospectus” (as defined in Rule 405 under the Act) except in compliance
with Rules 164 and 433 under the Act.

(ii) Section 5 Compliance. No representation or warranty or other statement made
by Company in the Transaction Documents contains any untrue statement or omits
to state a material fact necessary to make any of them, in light of the
circumstances in which it was made, not misleading. The Company is not aware of
any facts or circumstances that would cause the transactions contemplated by the
Transaction Documents, when consummated, to violate Section 5 of the Act or
other federal or state securities laws or regulations.

4.2 Representations and Warranties of Investor. Investor hereby represents and
warrants as of the Effective Date as follows:

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

(b) Investor Status. At the time Investor was offered the Securities, it was,
and at the Effective Date it is an “accredited investor” as defined in Rule
501(a) under the Act.

(c) Experience of Investor. Investor, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment. Investor is able to bear the economic risk of an
investment in the Securities and, at the present time, is able to afford a
complete loss of such investment.

 

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

The Company acknowledges and agrees that Investor does not make or has not made
any representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 4.2.

ARTICLE 5

OTHER AGREEMENTS OF THE PARTIES

5.1 Transfer Restrictions

(a) The Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other than
(i) pursuant to an effective Registration Statement or Rule 144, (ii) to the
Company, (iii) to an Affiliate of Investor, or (iv) in connection with a pledge
as contemplated in Section 5.1(b), the Company may require the transferor
thereof to provide to the Company an opinion of Luce Forward Hamilton & Scripps
LLP (“Luce Forward”), or other counsel selected by the transferor and reasonably
acceptable to the Company, to the effect that such transfer does not require
registration of such transferred Securities under the Act.

(b) Investor agrees to the imprinting, so long as is required by this
Section 5.1, of the following legend, or substantially similar legend, on any
certificate evidencing Securities other than DWAC Shares:

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.

 

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The Company agrees to cause such legend to be removed immediately upon
effectiveness of a Registration Statement, subject to receipt of customary
undertakings regarding Investor’s compliance in connection with any sale of the
Securities with (i) the manner of sale provisions set forth in the Prospectus
and (ii) the prospectus delivery requirements of the Act, or when any Common
Shares are eligible for sale under Rule 144. Company further acknowledges and
agrees that Investor may from time to time pledge pursuant to a bona fide margin
agreement with a registered broker-dealer or grant a security interest in some
or all of the Securities to a financial institution that is an “accredited
investor” as defined in Rule 501(a) under the Act and who agrees to be bound by
the provisions of this Agreement and, if required under the terms of such
arrangement, Investor may transfer pledged or secured Securities to the pledgees
or secured parties. Such a pledge or transfer would not be subject to approval
of the Company and no legal opinion of legal counsel of the pledgee, secured
party or pledgor shall be required in connection therewith. Further, no notice
shall be required of such pledge. At Investor’s reasonable expense, the Company
will execute and deliver such documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer of the
Securities.

5.2 Furnishing of Information. As long as Investor owns Securities, the Company
covenants to timely file (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be filed by the
Company after the Effective Date pursuant to the Exchange Act. Upon the request
of Investor, the Company shall deliver to Investor a written certification of a
duly authorized officer as to whether it has complied with the preceding
sentence. As long as Investor owns Securities, if the Company is not required to
file reports pursuant to such laws, it will prepare and furnish to Investor and
make publicly available in accordance with Rule 144(c) such information as is
required for Investor to sell the Securities under Rule 144. The Company further
covenants that it will take such further action as any holder of Securities may
reasonably request, all to the extent required from time to time to enable such
Person to sell such Securities without registration under the Act within the
limitation of the exemptions provided by Rule 144.

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

5.4 Securities Laws Disclosure; Publicity. The Company shall timely file a
Current Report on Form 8-K, and in the Company’s discretion file a press
release, in each case reasonably acceptable to Investor, disclosing the material
terms of the transactions contemplated hereby. The Company and Investor shall
consult with each other in issuing any press releases with respect to the
transactions contemplated hereby, and neither the Company nor Investor shall
issue any such press release or otherwise make any such public statement without
the prior consent of the Company, with respect to any such press release of
Investor, or without the prior consent of Investor, with respect to any such
press release of the Company, which consent shall not unreasonably be withheld
or delayed, except if such disclosure is required by law or Trading Market
regulations, in which case the disclosing party shall promptly provide the other
party with prior notice of such public statement or communication.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of Investor, or include the name of Investor in any

 

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filing with the SEC or any regulatory agency or Trading Market, without the
prior written consent of Investor, except (i) as contained in the Current Report
on Form 8-K and press release described above, (ii) as required by federal
securities law in connection with any registration statement under which the
Common Shares are registered, or (iii) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
Investor with prior notice of such disclosure, or (iv) to the extent such
disclosure is required in any Form 8-K, Form 10-Q or Form 10-K report filed by
the Company.

5.5 Shareholders Rights Plan. No claim will be made or enforced by the Company
or, to the knowledge of the Company, any other Person that Investor is an
“Acquiring Person” under any shareholders rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that Investor
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and Investor. The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act of 1940, as amended.

 

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5.6 Non-Public Information. The Company covenants and agrees that neither it nor
any other Person acting on its behalf will provide Investor or its agents or
counsel with any information that the Company believes or reasonably should
believe constitutes material non-public information, unless prior thereto
Investor shall have executed a written agreement regarding the confidentiality
and use of such information. On and after the Effective Date, neither Investor
nor any Affiliate Investor shall have any duty of trust or confidence that is
owed directly, indirectly, or derivatively, to the Company or the shareholders
of the Company, or to any other Person who is the source of material non-public
information regarding the Company. The Company understands and confirms that
Investor shall be relying on the foregoing in effecting transactions in
securities of the Company.

5.7 Reimbursement. If Investor becomes involved in any capacity in any
proceeding by or against any Person who is a stockholder of the Company (except
as a result of sales, pledges, margin sales and similar transactions by Investor
to or with any current stockholder), solely as a result of Investor’s
acquisition of the Securities under this Agreement, the Company will reimburse
Investor for its reasonable legal and other expenses (including the cost of any
investigation preparation and travel in connection therewith) incurred in
connection therewith, as such expenses are incurred, or will assume the defense
of Investor in such matter. The reimbursement obligations of the Company under
this Section 5.7 shall be in addition to any liability which the Company may
otherwise have, shall extend upon the same terms and conditions to any
Affiliates of Investor who are actually named in such action, proceeding or
investigation, and partners, directors, agents, employees and controlling
persons (if any), as the case may be, of Investor and any such Affiliate, and
shall be binding upon and inure to the benefit of any successors, assigns, heirs
and personal representatives of the Company, Investor and any such Affiliate and
any such Person. The Company also agrees that neither Investor nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement, except in the case of a breach of this Agreement or any of the
Transaction Documents by Investor or its Affiliates, partners, directors,
agents, employees or controlling persons.

5.8 Indemnification

(a) Company Indemnification Obligation. Subject to the provisions of this
Section 5.8, the Company will indemnify and hold Investor and any Warrant
holder, their Affiliates and attorneys, and each of their directors, officers,
shareholders, partners, employees, agents, and any person who controls Investor
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
(collectively, the “Investor Parties” and each an “Investor Party”), harmless
from any and all losses, liabilities, obligations, claims, contingencies,
damages, costs and expenses, including all judgments, amounts paid in
settlements, court costs and reasonable attorneys’ fees and costs of
investigation (collectively, “Losses”) that any Investor Party may suffer or
incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in the other Transaction Documents, (b) any action instituted
against any Investor Party, or any of them or their respective Affiliates, by
any stockholder of the Company who is not an Affiliate of an Investor Party,
with respect to any of the transactions contemplated by the Transaction
Documents (unless such action is based upon a breach of Investor’s
representations, warranties

 

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or covenants under the Transaction Documents or any agreements or understandings
Investor may have with any such stockholder or any violations by Investor of
state or federal securities laws or any conduct by Investor which constitutes
fraud, gross negligence, willful misconduct or malfeasance), (c) any untrue
statement or alleged untrue statement of a material fact contained in a
Registration Statement (or in a Registration Statement as amended by any
post-effective amendment thereof by the Company) or arising out of or based upon
any omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and/or
(d) any untrue statement or alleged untrue statement of a material fact included
in any Prospectus ( or any amendments or supplements to any Prospectus), in any
free writing prospectus, in any “issuer information” (as defined in Rule 433
under the Act) of the Company, or in any Prospectus together with any
combination of one or more of the free writing prospectuses, if any, or arising
out of or based upon any omission or alleged omission to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

(b) Indemnification Procedures. If any action shall be brought against an
Investor Party in respect of which indemnity may be sought pursuant to this
Agreement, such Investor Party shall promptly notify the Company in writing, and
the Company shall have the right to assume the defense thereof with counsel of
its own choosing. The Investor Parties shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the Investor Parties
except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel or
(iii) in such action there is, in the reasonable opinion of such separate
counsel, a material conflict with respect to the dispute in question on any
material issue between the position of the Company and the position of the
Investor Parties such that it would be inappropriate for one counsel to
represent the Company and the Investor Parties. The Company will not be liable
to the Investor Parties under this Agreement for any settlement by an Investor
Party effected without the Company’s prior written consent, which shall not be
unreasonably withheld or delayed.

5.9 Reservation of Securities. The Company shall maintain a reserve from its
duly authorized shares of Common Stock for issuance pursuant to the Transaction
Documents in such amount as may be required to fulfill its obligations in full
under the Transaction Documents.

5.10 Prospectus Availability and Changes. The Company will make available to
Investor upon request, and thereafter from time to time will furnish Investor,
as many copies of any Prospectus (or of the Prospectus as amended or
supplemented if the Company shall have made any amendments or supplements
thereto after the effective date of the applicable Registration Statement) as
Investor may request for the purposes contemplated by the Act; and in case
Investor is required to deliver a prospectus after the nine-month period
referred to in Section 10(a)(3) of the Act in connection with the sale of the
Common Shares, or after the time a post-effective amendment to the applicable
Registration Statement is required pursuant to Item 512(a) of Regulation S-K
under the Act, the Company will prepare, at its expense, promptly upon request
such amendment or amendments to the Registration Statement and the Prospectus as
may be necessary to permit compliance with the requirements of Section 10(a)(3)
of the Act or Item 512(a) of Regulation S-K under the Act, as the case may be.
Investor agrees that, upon written notice from the Company that such amendment
or supplement is pending and prior to its receipt of such amendment or
supplement to the Prospectus, Investor shall not sell any Common Shares under
the Registration Statement.

 

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The Company will advise Investor promptly of the happening of any event within
the time during which a Prospectus is required to be delivered under the Act
which could require the making of any change in the Prospectus then being used
so that the Prospectus would not include an untrue statement of material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they are made, not misleading, and
to advise Investor promptly if, during such period, it shall become necessary to
amend or supplement any Prospectus to cause such Prospectus to comply with the
requirements of the Act, and in each case, during such time, to prepare and
furnish, at the Company’s expense, to Investor promptly such amendments or
supplements to such Prospectus as may be necessary to reflect any such change or
to effect such compliance. Investor agrees that, upon written notice from the
Company that such amendment or supplement is pending and prior to its receipt of
such amendment or supplement to the Prospectus, Investor shall not sell any
Common Shares under the Registration Statement.

5.11 Required Approval. No transactions contemplated under this Agreement or the
Transaction Documents shall be consummated for an amount that would require
approval by any Trading Market or Company stockholders under any approval
provisions, rules or regulations of any Trading Market applicable to the
Company, unless and until such approval is obtained. Company shall use best
efforts to obtain any required approval as soon as possible.

5.12 Activity Restrictions. For so long as Investor or any of its Affiliates
holds any Preferred Shares, Warrant or Warrant Shares, neither Investor nor any
Affiliate will: (i) vote any shares of Common Stock owned or controlled by it,
solicit any proxies, or seek to advise or influence any Person with respect to
any voting securities of the Company; (ii) engage or participate in any actions,
plans or proposals which relate to or would result in (a) acquiring additional
securities of the Company, alone or together with any other Person, which would
result in beneficially owning or controlling more than 9.99% of the total
outstanding Common Stock or other voting securities of the Company, (b) an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving Company or any of its subsidiaries, (c) a sale or
transfer of a material amount of assets of the Company or any of its
subsidiaries, (d) any change in the present board of directors or management of
the Company, including any plans or proposals to change the number or term of
directors or to fill any existing vacancies on the board, (e) any material
change in the present capitalization or dividend policy of the Company, (f) any
other material change in the Company’s business or corporate structure,
including but not limited to, if the Company is a registered closed-end
investment company, any plans or proposals to make any changes in its investment
policy for which a vote is required by Section 13 of the Investment Company Act
of 1940, (g) changes in the Company’s charter, bylaws or instruments
corresponding thereto or other actions which may impede the acquisition of
control of the Company by any Person, (h) causing a class of securities of the
Company to be delisted from a national securities exchange or to cease to be
authorized to be quoted in an inter-dealer quotation system of a registered
national securities association, (i) a class of equity securities of the Company
becoming eligible for termination of registration pursuant to Section 12(g)(4)
of the Act, or (j) any action, intention, plan or arrangement similar to any of
those enumerated above; or (iii) request the Company or its directors, officers,
employees, agents or representatives to amend or waive any provision of this
Section 5.12.

 

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5.13 Registration Statements and Prospectuses.

(a) Company will use its best efforts to file within 30 calendar days after the
Effective Date (or as soon as possible thereafter), to cause to become effective
as soon as possible thereafter, and to remain effective until all Common Shares
have been sold or are Rule 144 Eligible, a Registration Statement for the resale
of all Common Shares issued or issuable hereunder (including without limitation
all Warrant Shares underlying the Warrant and any Common Shares that may be
issued to the Investor in payment of the Commitment Fee). Each Registration
Statement shall comply when it becomes effective, and, as amended or
supplemented, at the time of any Tranche Notice Date, Tranche Closing Date, or
issuance of any Common Shares, and at all times during which a prospectus is
required by the Act to be delivered in connection with any sale of Common
Shares, will comply, in all material respects, with the requirements of the Act.

(b) Each Registration Statement, as of its respective effective time, will not,
as applicable, contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading.

(c) Each Prospectus will comply, as of its date and the date it will be filed
with the SEC, and, at the time of any Tranche Notice Date, Tranche Closing Date,
or issuance of any Common Shares, and at all times during which a prospectus is
required by the Act to be delivered in connection with any sale of Common
Shares, will comply, in all material respects, with the requirements of the Act.

(d) At no time during the period that begins on the date a Prospectus is filed
with the SEC and ends at the time a Prospectus is no longer required by the Act
to be delivered in connection with any sale of Common Shares will any such
Prospectus, as then amended or supplemented, include an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.

(e) Each Registration Statement will meet, and the offering and sale of the
Common Shares as contemplated hereby will comply with, the requirements of Rule
415 under the Act.

(f) The Company will not, directly or indirectly, use or refer to any “free
writing prospectus” (as defined in Rule 405 under the Act) except in compliance
with Rules 164 and 433 under the Act.

 

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5.14 Investor Due Diligence. Investor shall have the right and opportunity at
its own expense to conduct due diligence with respect to any Registration
Statement or Prospectus in which the name of Investor or any Affiliate of
Investor appears.

ARTICLE 6

MISCELLANEOUS

6.1 Fees and Expenses. Except for the $20,000.00 non-refundable document
preparation fee previously paid by the Company to counsel for Investor (which
shall cover initial drafts of the Transaction Documents and one week of legal
services), the receipt of which is hereby acknowledged, and the $5,000.00
non-refundable administrative fee payable to counsel for Investor at each
Tranche Closing, or as may be otherwise provided in this Agreement, each party
shall pay the fees and expenses of its own advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such party incident to
the negotiation, preparation, execution, delivery and performance of the
Transaction Documents. The Company acknowledges and agrees that Luce Forward
solely represents Investor, and does not represent the Company or its interests
in connection with the Transaction Documents or the transactions contemplated
thereby. The Company shall pay all stamp and other taxes and duties levied in
connection with the sale of the Securities, if any, and, except as otherwise
specifically provided herein, Investor shall pay all commissions, discounts,
legal fees and other expenses that Investor incurs in connection with the sale
of the Securities.

6.2 Notices. Unless a different time of day or method of delivery is set forth
in the Transaction Documents, any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of: (a) the date of
transmission, if such notice or communication is delivered via facsimile or
electronic mail prior to 5:30 p.m. Eastern time on a Trading Day and an
electronic confirmation of delivery is received by the sender, (b) the next
Trading Day after the date of transmission, if such notice or communication is
delivered later than 5:30 p.m. Eastern time or on a day that is not a Trading
Day, (c) three Trading Days following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The addresses for such
notices and communications are those set forth following the signature page
hereof, or such other address as may be designated in writing hereafter, in the
same manner, by such Person.

6.3 Amendments; Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed, in the case of an amendment, by the
Company and Investor or, in the case of a waiver, by the party against whom
enforcement of any such waiver is sought. No waiver of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.

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

 

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6.5 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of Investor, which consent shall not be
unreasonably withheld or delayed. Investor may assign any or all of its rights
under this Agreement (a) to any Affiliate, or (b) to any Person to whom Investor
assigns or transfers any Securities.

6.6 No Third-Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 5.8.

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

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

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

 

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6.10 Severability. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be affected or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

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

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

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

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

6.15 Time of the Essence. Time is of the essence with respect to all provisions
of this Agreement that specify a time for performance.

 

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6.16 Construction. The parties agree that each of them and/or their respective
counsel has reviewed and had an opportunity to revise the Transaction Documents
and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto. 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.

6.17 Entire Agreement. This Agreement, together with the Exhibits, Appendices
and Schedules hereto, contains the entire agreement and understanding of the
parties, and supersedes all prior and contemporaneous agreements, term sheets,
letters, discussions, communications and understandings, both oral and written,
which the parties acknowledge have been merged into this Agreement. No party,
representative, attorney or agent has relied upon any collateral contract,
agreement, assurance, promise, understanding or representation not expressly set
forth hereinabove. The parties hereby expressly waive all rights and remedies,
at law and in equity, directly or indirectly arising out of or relating to, or
which may arise as a result of, any Person’s reliance on any such assurance.

 

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

 

IMMUNOCELLULAR THERAPEUTICS, LTD.

By:  

/s/ Manish Singh.

Name:   Manish Singh, Ph.D. Title:   President and Chief Executive Officer
SOCIUS LIFE SCIENCES CAPITAL GROUP, LLC By:  

/s/ Terry Peizer

Name:   Terry Peizer Title:   Managing Director

 

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Addresses for Notice

 

To Company:

 

ImmunoCellular Therapeutics, Ltd.

21900 Burbank Boulevard, 3rd Floor

Woodland Hills, California 91367

Attn: Manish Singh, Ph.D.

Fax No.: (818) 992-2901

Email: manish.singh@imuc.com

 

with a copy to:

 

TroyGould PC

1801 Century Park East, Suite 1600

Los Angeles, California 90067-2367

Attn: Sanford J. Hillsberg, Esq.

Fax No.: (310) 201-4746

Email: SHillsberg@troygould.com

   

To Investor:

 

Socius Life Sciences Capital Group, LLC

11150 Santa Monica Boulevard, Suite 1500

Los Angeles, California 90025

Fax No.: (310) 444-5300

Email: info@sociuscg.com

 

with a copy to:

 

Luce Forward Hamilton & Scripps LLP

601 South Figueroa Street, Suite 3900

Los Angeles, California 90017

Attention: John C. Kirkland, Esq.

Fax No.: (213) 452-8035

Email: jkirkland@luce.com

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Exhibit A

Form of Warrant

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NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

IMMUNOCELLULAR THERAPEUTICS, LTD.

WARRANT TO PURCHASE COMMON STOCK

 

Warrant No.: 2009-1

  Issuance Date: December 3, 2009

Number of Warrant Shares: 27,000,000

Initial Exercise Price: $[        ] per share

ImmunoCellular Therapeutics, Ltd., a Delaware corporation (“Company”), hereby
certifies that, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, [                    ], the holder hereof or
its designees or assigns (“Holder”), is entitled, subject to the terms set forth
below, to purchase from the Company, at the Exercise Price (as defined below)
then in effect, upon surrender of this Warrant to Purchase Common Stock
(including any Warrant to Purchase Common Stock issued in exchange, transfer or
replacement hereof, the “Warrant”), at any time or times after issuance and
until 11:59 p.m. Eastern time on the fifth anniversary of the Tranche Notice
Date applicable to that Warrant Tranche (as defined below), subject to
acceleration pursuant to Section 3.3 hereof, that number of duly authorized,
validly issued, fully paid and non-assessable shares of Common Stock set forth
above and as adjusted herein (the “Warrant Shares”). This Warrant may only be
exercised from time to time for an Aggregate Exercise Price (as defined below)
equal to 135% of the cumulative amount of Tranche Purchase Prices under Tranche
Notices delivered prior to the date of exercise. Except as otherwise defined
herein, capitalized terms in this Warrant shall have the meanings set forth in
ARTICLE 13 hereof.

 

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This Warrant shall consist of tranches (the “Warrant Tranches”), with a separate
tranche being created upon each delivery of a Tranche Notice. Each Warrant
Tranche will cover the exercise for a five-year period commencing on the Tranche
Notice Date for the applicable Tranche Notice of a number of shares of Common
Stock that will have an Aggregate Exercise Price (as defined below) equal to
135% of the Tranche Purchase Price for that Tranche Notice. This Warrant shall
include a schedule (the “Warrant Tranche Schedule”) that sets forth the issuance
date, number of Warrant Shares and Exercise Price for each Warrant Tranche. No
portion of this Warrant shall vest or be exercisable except under the Warrant
Tranches.

ARTICLE 1

EXERCISE OF WARRANT.

1.1 Mechanics of Exercise.

1.1.1 Subject to the terms and conditions hereof, this Warrant may be exercised
by the Holder on any day on or after the Issuance Date, in whole or in part, by
(i) delivery of a written notice to the Company, in the form attached hereto as
Appendix 1 (the “Exercise Notice”), of the Holder’s election to exercise this
Warrant, and (ii) payment to the Company of an amount equal to the applicable
Exercise Price multiplied by the number of Warrant Shares as to which this
Warrant is being exercised (the “Aggregate Exercise Price”), with such payment
made, at Investor’s option, (x) in cash or by wire transfer of immediately
available funds, (y) by the issuance and delivery of a recourse promissory note
substantially in the form attached hereto as Appendix 2 (each, a “Recourse
Note”), or (z) if applicable, by cashless exercise pursuant to Section 1.3.

1.1.2 The Holder shall not be required to deliver the original Warrant in order
to effect an exercise hereunder. Execution and delivery of the Exercise Notice
with respect to less than all of the Warrant Shares shall have the same effect
as cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Warrant Shares.

1.1.3 On the Trading Day on which the Company has received each of the Exercise
Notice and the Aggregate Exercise Price (the “Exercise Delivery Documents”) from
the Holder by 6:30 p.m. Eastern time, or on the next Trading Day if the Exercise
Delivery Documents are received after 6:30 p.m. Eastern time or on a non-Trading
Day (in each case, the “Exercise Delivery Date”), the Company shall transmit by
facsimile an acknowledgment of confirmation of receipt of the Exercise Delivery
Documents to the Holder and an electronic copy of its share issuance
instructions to the Holder and to the Company’s transfer agent (the “Transfer
Agent”), with such electronic transmissions to comply with the notice provisions
contained in Section 6.2 of the Purchase Agreement, and shall instruct and
authorize the Transfer Agent to credit such aggregate number of freely-tradable
Warrant Shares to which the Holder is entitled pursuant to such exercise to the
Holder’s or its designee’s balance account with The Depository Trust Company
(DTC) through the Fast Automated Securities Transfer (FAST) Program through its
Deposit Withdrawal Agent Commission (DWAC) system, with such credit to occur no
later than 5:30 p.m. Eastern Time on the Trading Day following the Exercise

 

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Delivery Date, time being of the essence. If the Warrant Shares are not timely
credited as DWAC Shares by 12:00 p.m. Eastern Time on the Trading Day following
the Exercise Delivery Date (and including the circumstance where the Warrant
Shares are credited as DWAC Shares by 5:30 p.m. Eastern Time on such Trading
Day), then the Tranche Closing Date applicable to the Exercise Notice shall be
extended by one Trading Day for each Trading Day that credit of DWAC Shares is
not made by 12:00 p.m.

1.1.4 Upon delivery of the Exercise Delivery Documents, the Holder shall be
deemed for all corporate purposes to have become the holder of record of the
Warrant Shares with respect to which this Warrant has been exercised,
irrespective of the date such Warrant Shares are credited to the Holder’s DTC
account. Any Warrant delivered in connection with a Tranche Notice and exercised
by Holder shall be deemed exercised (i) on the Tranche Notice Date, if exercised
by 6:30 p.m. Eastern time on the Tranche Notice Date, or (ii) on the next
Trading Day, to the extent exercised by Investor after 6:30 p.m. Eastern Time on
the Tranche Notice Date or on any other date, in each case with Holder deemed to
be a holder of record as of such date.

1.1.5 If this Warrant is submitted in connection with any exercise pursuant to
this Section 1.1 and the number of Warrant Shares represented by this Warrant
submitted for exercise is greater than the number of Warrant Shares being
acquired upon an exercise, then the Company shall as soon as practicable and in
no event later than one Trading Day after any exercise, and at its own expense
and its option, either (i) issue a new Warrant (in accordance with Section 6.4)
representing the right to purchase the number of Warrant Shares purchasable
immediately prior to such exercise under this Warrant, less the number of
Warrant Shares with respect to which this Warrant is exercised or (ii) make a
suitable notation in the Warrant Tranche Schedule reflecting the revised number
of Warrant Shares for which this Warrant is exercisable. No fractional shares of
Common Stock are to be issued upon the exercise of this Warrant, but rather the
number of shares of Common Stock to be issued shall be rounded up to the nearest
whole number. The Company shall pay any and all taxes which may be payable with
respect to the issuance and delivery of Warrant Shares upon exercise of this
Warrant.

1.2 Adjustments to Exercise Price and Number of Shares. In addition to other
adjustments specified herein, the Exercise Price of this Warrant and the number
of shares of Common Stock issuable upon exercise of this Warrant shall be
adjusted as follows:

1.2.1 Exercise Price. The “Exercise Price” per share of Common Stock underlying
this Warrant, subject to further adjustment as provided herein, shall be as
follows: (i) until the first Tranche Notice Date, the amount per Warrant Share
set forth on the face of this Warrant, which is equal to Closing Bid Price for
the Common Stock on the Trading Day prior to the Effective Date, and (ii) with
respect to the portion of this Warrant that becomes exercisable on any Tranche
Notice Date (including the first Tranche Notice Date), an amount per Warrant
Share equal to the Closing Bid Price of a share of Common Stock on such Tranche
Notice Date.

 

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1.2.2 Number of Shares. The number of Warrant Shares underlying each Warrant
Tranche, subject to further adjustment as provided herein, shall be equal to the
Tranche Purchase Price set forth in the Tranche Notice relating to that Warrant
Tranche multiplied by 135%, with the resulting sum divided by the Closing Bid
Price of a share of Common Stock on the Tranche Notice Date. For example, if the
Tranche Purchase Price is $1,000,000 and the Closing Bid Price is $0.50, then
the number of Warrant Shares underlying that Warrant Tranche shall be $1,000,000
x 135% = $1,350,000 divided by $0.50 – 2,700,000 shares of Common Stock. On each
Tranche Notice Date, the number of Warrant Shares underlying the related Warrant
Tranche shall vest and become exercisable, and the aggregate number of Warrant
Shares underlying this Warrant that are currently exercisable shall
automatically adjust up or down to account for the change in the number of
Warrant Shares covered by the new Warrant Tranche and for any Warrant Shares
issued upon any prior or simultaneous exercise of this Warrant. The total number
of Warrant Shares that may be issued upon all exercises of this Warrant shall
not exceed an aggregate of 27,000,000 shares (subject to adjustment as provided
in ARTICLE 2).

1.3 Cashless Exercise. Notwithstanding anything contained herein to the
contrary, if at any time there is not a current, valid and effective
registration statement covering the Warrant Shares that are the subject of the
Exercise Notice (the “Unavailable Warrant Shares”), the Holder may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the “Net Number” of shares of Common Stock determined according to the
following formula (a “Cashless Exercise”):

 

Net Number =   (B-C) x A     B  

For purposes of the foregoing formula:

A = the total number of shares with respect to which this Warrant is then being
exercised.

B = the average of the Closing Sale Prices of the shares of Common Stock (as
reported by Bloomberg) for the five (5) consecutive Trading Days ending on the
date immediately preceding the date of the Exercise Notice.

C = the Exercise Price then in effect for the applicable Warrant Shares at the
time of such exercise.

1.4 Company’s Failure to Timely Deliver Securities. If the Company shall fail
for any reason or for no reason to credit to the Holder’s balance account with
DTC, by 5:30 p.m. Eastern time on the Trading Day following the Exercise
Delivery Date, the number of shares of Common Stock to which the Holder is
entitled upon the Holder’s exercise of this Warrant, then, in addition to all
other remedies available to the Holder, the Company shall pay in cash to the
Holder on each day after such Trading Day that the issuance of such shares of
Common Stock is not timely effected an amount equal to 1.5% of the product of
(A) the sum of the number of shares of Common Stock not issued to the Holder on
a timely basis and to which the Holder is

 

4

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entitled and (B) the Closing Sale Price of the shares of Common Stock on the
Trading Day immediately preceding the last possible date which the Company could
have issued such shares of Common Stock to the Holder without violating
Section 1.1. In addition to the foregoing, if after the Company’s receipt of the
facsimile copy of an Exercise Notice the Company shall fail to timely credit the
Holder’s balance account with DTC for the number of shares of Common Stock to
which the Holder is entitled upon the Holder’s exercise hereunder, and the
Holder purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by the Holder of shares of Common
Stock issuable upon such exercise that the Holder anticipated receiving from the
Company, then the Company shall, within one Trading Day after the Holder’s
request and in the Holder’s discretion, either (i) pay cash to the Holder in an
amount equal to the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the “Buy-In
Price”), at which point the Company’s obligation to credit such Holder’s balance
account with DTC for the number of Warrant Shares to which the Holder is
entitled upon the Holder’s exercise hereunder and to issue such Warrant Shares
shall terminate, or (ii) promptly honor its obligation to credit such Holder’s
balance account with DTC for the number of Warrant Shares to which the Holder is
entitled upon the Holder’s exercise hereunder and pay cash to the Holder in an
amount equal to the excess (if any) of the Buy-In Price over the product of
(A) such number of shares of Common Stock sold by Holder in satisfaction of its
obligations, times (B) the Closing Bid Price on the date of exercise.

1.5 Exercise Limitation. Notwithstanding any other provision, at no time may the
Holder (a) exercise this Warrant such that the number of Warrant Shares to be
received pursuant to such exercise exceeds the lesser of 27,000,000 shares or
135.0% of the aggregate of all Tranche Purchase Prices under and in connection
with all Tranche Notices delivered pursuant to the Purchase Agreement prior to
the date of exercise; or (b) exercise this Warrant such that the number of
Warrant Shares to be received pursuant to such exercise, aggregated with all
other shares of Common Stock then owned by the Holder beneficially or deemed
beneficially owned by the Holder, would result in the Holder owning more than
4.99% of all of such Common Stock as would be outstanding on the date of
exercise, as determined in accordance with Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder. In addition, as of any date,
the aggregate number of shares of Common Stock into which this Warrant is
exercisable within 61 days, together with all other shares of Common Stock then
beneficially owned (as such term is defined in Rule 13(d) under the Exchange
Act) by Holder and its affiliates, shall not exceed 9.99% of the total
outstanding shares of Common Stock as of such date.

1.6 Activity Restrictions. For so long as Holder or any of its affiliates holds
this Warrant or any Warrant Shares, neither Holder nor any affiliate will:
(i) vote any shares of Common Stock owned or controlled by it, solicit any
proxies, or seek to advise or influence any Person with respect to any voting
securities of the Company; (ii) engage or participate in any actions, plans or
proposals which relate to or would result in (a) acquiring additional securities
of the Company, alone or together with any other Person, which would result in
beneficially owning or controlling more than 9.99% of the total outstanding
Common Stock or other voting securities of the Company, (b) an extraordinary
corporate transaction, such as a merger,

 

5

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reorganization or liquidation, involving Company or any of its subsidiaries,
(c) a sale or transfer of a material amount of assets of the Company or any of
its subsidiaries, (d) any change in the present board of directors or management
of the Company, including any plans or proposals to change the number or term of
directors or to fill any existing vacancies on the board, (e) any material
change in the present capitalization or dividend policy of the Company, (f) any
other material change in the Company’s business or corporate structure,
including but not limited to, if the Company is a registered closed-end
investment company, any plans or proposals to make any changes in its investment
policy for which a vote is required by Section 13 of the Investment Company Act
of 1940, (g) changes in the Company’s charter, bylaws or instruments
corresponding thereto or other actions which may impede the acquisition of
control of the Company by any Person, (h) causing a class of securities of the
Company to be delisted from a national securities exchange or to cease to be
authorized to be quoted in an inter-dealer quotation system of a registered
national securities association, (i) a class of equity securities of the Company
becoming eligible for termination of registration pursuant to Section 12(g)(4)
of the Act, or (j) any action, intention, plan or arrangement similar to any of
those enumerated above; or (iii) request the Company or its directors, officers,
employees, agents or representatives to amend or waive any provision of this
Section 1.6.

1.7 Disputes. In the case of a dispute as to the determination of the Exercise
Price or the arithmetic calculation of the Warrant Shares, the Company shall
promptly issue to the Holder the number of Warrant Shares that are not disputed
and resolve such dispute in accordance with Section 12.

1.8 Insufficient Authorized Shares. If at any time while any of the Warrant
remains outstanding the Company does not have a sufficient number of authorized
and unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon exercise of the Warrant at least a number of shares of Common
Stock equal to 110% of the number of shares of Common Stock as shall from time
to time be necessary to effect the exercise of Warrant to the extent it is then
exercisable (the “Required Reserve Amount”) (an “Authorized Share Failure”),
then the Company shall immediately take all action necessary to increase the
Company’s authorized shares of Common Stock to an amount sufficient to allow the
Company to reserve the Required Reserve Amount for the Warrant to the extent it
is then exercisable. Without limiting the generality of the foregoing sentence,
as soon as practicable after the date of the occurrence of an Authorized Share
Failure, but in no event later than 90 days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its stockholders
for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its best efforts to solicit its
stockholders’ approval of such increase in authorized shares of Common Stock and
to cause its board of directors to recommend to the stockholders that they
approve such proposal.

 

6

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ARTICLE 2

ADJUSTMENT UPON SUBDIVISION OR COMBINATION OF COMMON STOCK

If the Company at any time on or after the Issuance Date subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision will be
proportionately reduced and the number of Warrant Shares will be proportionately
increased. If the Company at any time on or after the Issuance Date combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination will be proportionately
increased and the number of Warrant Shares will be proportionately decreased.
Any adjustment under this ARTICLE 2 shall become effective at the close of
business on the date the subdivision or combination becomes effective.

ARTICLE 3

PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS

3.1 Purchase Rights. In addition to any adjustments pursuant to ARTICLE 2 above,
if at any time the Company grants, issues or sells any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
pro rata to the record holders of any class of shares of Common Stock (the
“Purchase Rights”), then the Holder will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which the
Holder could have acquired if the Holder had held the number of shares of Common
Stock acquirable upon complete exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.

3.2 Fundamental Transactions. The Company shall not enter into or be party to a
Fundamental Transaction unless the Successor Entity assumes in writing all of
the obligations of the Company under this Warrant in accordance with the
provisions of this Section 3.2 pursuant to written agreements in form and
substance satisfactory to the Required Holders and approved by the Required
Holders prior to such Fundamental Transaction, including agreements to deliver
to each holder of this Warrant in exchange for such Warrant a security of the
Successor Entity evidenced by a written instrument substantially similar in form
and substance to this Warrant, including, without limitation, an adjusted
exercise price equal to the value for the shares of Common Stock reflected by
the terms of such Fundamental Transaction, and exercisable for a corresponding
number of shares of capital stock equivalent to the shares of Common Stock
acquirable and receivable upon exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) prior to such Fundamental
Transaction, and satisfactory to the Required Holders. Upon the occurrence of
any Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Warrant referring to the “Company” shall
refer instead to the Successor Entity), and may exercise every right and power
of the Company and

 

7

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shall assume all of the obligations of the Company under this Warrant with the
same effect as if such Successor Entity had been named as the Company herein.
Upon consummation of the Fundamental Transaction, the Successor Entity shall
deliver to the Holder confirmation that there shall be issued upon exercise of
this Warrant at any time after the consummation of the Fundamental Transaction,
in lieu of the shares of the Common Stock (or other securities, cash, assets or
other property) purchasable upon the exercise of this Warrant prior to such
Fundamental Transaction, such shares of stock, securities, cash, assets or any
other property whatsoever (including warrants or other purchase or subscription
rights) which the Holder would have been entitled to receive upon the happening
of such Fundamental Transaction had this Warrant been converted immediately
prior to such Fundamental Transaction, as adjusted in accordance with the
provisions of this Warrant. In addition to and not in substitution for any other
rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a “Corporate Event”), the Company shall make appropriate provision to
insure that the Holder will thereafter have the right to receive upon an
exercise of this Warrant at any time after the consummation of the Fundamental
Transaction, in lieu of the shares of the Common Stock (or other securities,
cash, assets or other property) purchasable upon the exercise of this Warrant
prior to such Fundamental Transaction, such shares of stock, securities, cash,
assets or any other property whatsoever (including warrants or other purchase or
subscription rights) which the Holder would have been entitled to receive upon
the happening of such Fundamental Transaction had this Warrant been exercised
immediately prior to such Fundamental Transaction; provided, however, that in
the event the Fundamental Transaction involves the issuance of cash or freely
tradable securities by an issuer listed on the New York Stock Exchange or the
Nasdaq Stock Market, then the ability to exercise this Warrant shall expire on
the consummation of that Fundamental Transaction. Provision made pursuant to the
preceding sentence shall be in a form and substance reasonably satisfactory to
the Required Holders. The provisions of this Section 3.2 shall apply similarly
and equally to successive Fundamental Transactions and Corporate Events and
shall be applied without regard to any limitations on the exercise of this
Warrant.

3.3 Notwithstanding Section 3.2, in the event of a Fundamental Transaction other
than one in which the Successor Entity is a Public Successor Entity that assumes
this Warrant such that this Warrant shall be exercisable for the publicly traded
common stock of such Public Successor Entity, at the request of the Holder
delivered before the 90th day after the effective date of such Fundamental
Transaction, the Company (or the Successor Entity) shall purchase this Warrant
from the Holder by paying to the Holder, within five (5) Trading Days after such
request (or, if later, on the effective date of the Fundamental Transaction),
cash in an amount equal to the value of the remaining unexercised portion of
this Warrant on the date of such consummation, which value shall be determined
by use of the Black Scholes Option Pricing Model using a volatility equal to the
100 day average historical price volatility prior to the date of the public
announcement of such Fundamental Transaction.

 

8

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ARTICLE 4

NONCIRCUMVENTION

The Company hereby covenants and agrees that the Company will not, by amendment
of its Certificate or Articles of Incorporation, Bylaws or through any
reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all the
provisions of this Warrant and take all action as may be required to protect the
rights of the Holder. Without limiting the generality of the foregoing, the
Company (i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as any of this Warrant is outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the exercise of this
Warrant to the extent then exercisable, 110% of the number of shares of Common
Stock as shall from time to time be necessary to effect the exercise of this
Warrant to the extent then exercisable (without regard to any limitations on
exercise).

ARTICLE 5

WARRANT HOLDER NOT DEEMED A STOCKHOLDER

Except as otherwise specifically provided herein, the Holder, solely in such
Person’s capacity as a holder of this Warrant, shall not be entitled to vote or
receive dividends or be deemed the holder of share capital of the Company for
any purpose, nor shall anything contained in this Warrant be construed to confer
upon the Holder, solely in such Person’s capacity as the Holder of this Warrant,
any of the rights of a stockholder of the Company or any right to vote, give or
withhold consent to any corporate action (whether any reorganization, issue of
stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription
rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares
which such Person is then entitled to receive upon the due exercise of this
Warrant. In addition, nothing contained in this Warrant shall be construed as
imposing any liabilities on the Holder to purchase any securities (upon exercise
of this Warrant or otherwise) or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this ARTICLE 5, the Company shall provide the Holder with copies
of the same notices and other information given to the stockholders of the
Company generally, contemporaneously with the giving thereof to the
stockholders.

 

9

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ARTICLE 6

REISSUANCE OF WARRANT

6.1 Transfer of Warrant. If this Warrant is to be transferred, the Holder shall
surrender this Warrant to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder a new Warrant (in accordance with
Section 6.4), registered as the Holder may request, representing the right to
purchase the number of Warrant Shares being transferred by the Holder and, if
less then the total number of Warrant Shares then underlying this Warrant is
being transferred, a new Warrant (in accordance with Section 6.4), to the Holder
representing the right to purchase the number of Warrant Shares not being
transferred.

6.2 Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant, and, in the case of loss, theft or destruction, of
any indemnification undertaking by the Holder to the Company in customary form
and, in the case of mutilation, upon surrender and cancellation of this Warrant,
the Company shall execute and deliver to the Holder a new Warrant (in accordance
with Section 6.4), representing the right to purchase the Warrant Shares then
underlying this Warrant.

6.3 Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a new
Warrant or Warrants (in accordance with Section 6.4), representing in the
aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated by the Holder at the time
of such surrender; provided, however, that no Warrant for fractional shares of
Common Stock shall be given.

6.4 Issuance of New Warrants. Whenever the Company is required to issue a new
Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of
like tenor with this Warrant, (ii) shall represent, as indicated on the face of
such new Warrant, the right to purchase the Warrant Shares then underlying this
Warrant (or in the case of a new Warrant being issued pursuant to Section 6.1 or
Section 6.3, the Warrant Shares designated by the Holder which, when added to
the number of shares of Common Stock underlying the other new Warrants issued in
connection with such issuance, does not exceed the number of Warrant Shares then
underlying this Warrant), (iii) shall have an issuance date, as indicated on the
face of such new Warrant which is the same as the Issuance Date, and (iv) shall
have the same rights and conditions as this Warrant.

ARTICLE 7

NOTICES

Whenever notice is required to be given under this Warrant, unless otherwise
provided herein, such notice shall be given in accordance with Section 6.2 of
the Purchase Agreement. The Company shall provide the Holder with prompt written
notice of all actions taken pursuant to this Warrant, including in reasonable
detail a description of such action and the reason therefore. Without limiting
the generality of the foregoing, the Company will give written notice to the
Holder (i) immediately upon any adjustment of the Exercise Price, setting forth
in reasonable detail, and certifying, the calculation of such adjustment and
(ii) at least fifteen days prior to the date on which the Company closes its
books or takes a record (A) with respect to any

 

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dividend or distribution upon the shares of Common Stock, (B) with respect to
any grants, issuances or sales of any Options, Convertible Securities or rights
to purchase stock, warrants, securities or other property to holders of shares
of Common Stock as such or (C) for determining rights to vote with respect to
any Fundamental Transaction, dissolution or liquidation, provided in each case
that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder.

ARTICLE 8

AMENDMENT AND WAIVER

Except as otherwise provided herein, the provisions of this Warrant may be
amended and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company has
obtained the written consent of the Required Holders; provided that except as
set forth in this Warrant no such action may increase the exercise price of any
Warrant or decrease the number of shares or class of stock obtainable upon
exercise of any Warrant without the written consent of the Holder. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of this Warrant.

ARTICLE 9

GOVERNING LAW

This Warrant shall be governed by and construed and enforced in accordance with,
and all questions concerning the construction, validity, interpretation and
performance of this Warrant 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.

ARTICLE 10

CONSTRUCTION; HEADINGS

This Warrant shall be deemed to be jointly drafted by the Company and the Holder
and shall not be construed against any person as the drafter hereof. The
headings of this Warrant are for convenience of reference and shall not form
part of, or affect the interpretation of, this Warrant.

ARTICLE 11

DISPUTE RESOLUTION

In the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within 2
Trading Days of receipt of the Exercise Notice giving rise to such dispute, as
the case may be, to the Holder. If the Holder and the Company are unable to
agree upon such determination or calculation of the Exercise Price or the
Warrant Shares within three Trading Days of such disputed determination or
arithmetic calculation being

 

11

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submitted to the Holder, then the Company shall, within 2 Trading Days submit
via facsimile (a) the disputed determination of the Exercise Price or arithmetic
calculation to an independent, reputable investment bank or independent
registered public accounting firm selected by Holder subject to Company’s
approval, which may not be unreasonably withheld or delayed, or (b) the disputed
arithmetic calculation of the Warrant Shares to the Company’s independent
registered public accounting firm. The Company shall cause at its expense the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than 3 Trading Days from the time it receives the disputed
determinations or calculations. Such investment bank’s or accountant’s
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.

ARTICLE 12

REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF

The remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant, at law or in equity (including a
decree of specific performance and/or other injunctive relief), and nothing
herein shall limit the right of the Holder right to pursue actual damages for
any failure by the Company to comply with the terms of this Warrant. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the holder of this Warrant shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.

ARTICLE 13

DEFINITIONS

For purposes of this Warrant, in addition to the terms defined elsewhere herein,
the following terms shall have the following meanings:

13.1 “Bloomberg” means Bloomberg Financial Markets.

13.2 “Closing Bid Price” and “Closing Sale Price” means, for any security as of
any date, the last closing bid price and last closing trade price, respectively,
for such security on the Trading Market, as reported by Bloomberg, or, if the
Trading Market begins to operate on an extended hours basis and does not
designate the closing bid price or the closing trade price, as the case may be,
then the last bid price or last trade price, respectively, of such security
prior to 4:00 p.m., Eastern time, as reported by Bloomberg, or, if the Trading
Market is not the principal securities exchange or trading market for such
security, the last closing bid price or last trade price, respectively, of such
security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price or last trade price, respectively, of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price or last
trade price, respectively, is reported for such security by Bloomberg, the

 

12

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average of the bid prices, or the ask prices, respectively, of any market makers
for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly
the National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing
Sale Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the
case may be, of such security on such date shall be the fair market value as
mutually determined by the Company and Holder. If the Company and Holder are
unable to agree upon the fair market value of such security, then such dispute
shall be resolved pursuant to ARTICLE 11. All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during the applicable calculation period.

13.3 “Common Stock” means (i) the Company’s shares of Common Stock, par value
$0.001 per share, and (ii) any share capital into which such Common Stock shall
have been changed or any share capital resulting from a reclassification of such
Common Stock.

13.4 “Common Stock Deemed Outstanding” means, at any given time, the number of
shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Section 3.1 hereof
regardless of whether the Options or Convertible Securities are actually
exercisable at such time, but excluding any shares of Common Stock owned or held
by or for the account of the Company or issuable upon exercise of this Warrant.

13.5 “Convertible Securities” means any stock or securities (other than Options)
directly or indirectly convertible into or exercisable or exchangeable for
shares of Common Stock.

13.6 “DWAC Shares” means all Warrant Shares issued or issuable to Holder or any
Affiliate, successor or assign of Holder pursuant to this Warrant, all of which
shall be (a) issued in electronic form, (b) freely tradable and without
restriction on resale, and (c) timely credited by Company to the specified
Deposit/Withdrawal at Custodian (DWAC) account with DTC under its Fast Automated
Securities Transfer (FAST) Program or any similar program hereafter adopted by
DTC performing substantially the same function, in accordance with instructions
issued to and countersigned by the Transfer Agent of the Company.

13.7 “Eligible Market” means the Trading Market, The New York Stock Exchange,
Inc., The NASDAQ Global Select Market, The NASDAQ Global Market, The NASDAQ
Capital Market, the NYSE Amex or the OTC Bulletin Board, but does not include
the Pink Sheets.

13.8 “Fundamental Transaction” has the meaning set forth in the Purchase
Agreement.

13.9 “Maximum Placement” has the meaning set forth in the Purchase Agreement.

 

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13.10 “Options” means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.

13.11 “Parent Entity” of a Person means an entity that, directly or indirectly,
controls the applicable Person and whose common stock or equivalent equity
security is quoted or listed on an Eligible Market, or, if there is more than
one such Person or Parent Entity, the Person or Parent Entity with the largest
public market capitalization as of the date of consummation of the Fundamental
Transaction.

13.12 “Person” means an individual, a limited liability company, a partnership,
a joint venture, a corporation, a trust, an unincorporated organization, any
other entity and a government or any department or agency thereof.

13.13 “Public Successor Entity” means a Successor Entity that is a publicly
traded corporation whose stock is quoted or listed for trading on an Eligible
Market.

13.14 “Purchase Agreement” means the Preferred Stock Purchase Agreement dated
December 3, 2009, by and among the Company and the investor referred to therein.

13.15 “Required Holders” means the Holders of this Warrant representing at least
a majority of shares of Common Stock underlying this Warrant then outstanding.

13.16 “Successor Entity” means the Person (or, if so elected by the Required
Holders, the Parent Entity) formed by, resulting from or surviving any
Fundamental Transaction or the Person (or, if so elected by the Required
Holders, the Parent Entity) with which such Fundamental Transaction shall have
been entered into.

13.17 “Trading Day” means any day on which the Common Stock is traded on an
Eligible Market; provided that it shall not include any day on which the Common
Stock (a) is suspended from trading, or (b) is scheduled to trade on such
exchange or market for less than 5 hours.

13.18 “Trading Market” means the OTC Bulletin Board, the NASDAQ Capital Market,
the NASDAQ Global Market, the NASDAQ Global Select Market, the NYSE Amex, or the
New York Stock Exchange, whichever is at the time the principal trading exchange
or market for the Common Stock, but does not include the Pink Sheets
inter-dealer electronic quotation and trading system.

13.19 “Tranche Closing Date” has the meaning set forth in the Purchase
Agreement.

13.20 “Tranche Notice” has the meaning set forth in the Purchase Agreement.

13.21 “Tranche Notice Date” has the meaning set forth in the Purchase Agreement.

13.22 “Tranche Purchase Price” has the meaning set forth in the Purchase
Agreement.

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock
to be duly executed as of the Issuance Date set out above.

 

IMMUNOCELLULAR THERAPEUTICS, LTD. By:  

 

Name:  

 

Title:  

 

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APPENDIX 1

EXERCISE NOTICE

IMMUNOCELLULAR THERAPEUTICS, LTD.

The undersigned hereby exercises the right to purchase                     
shares of Common Stock (“Warrant Shares”) of ImmunoCellular Therapeutics, Ltd.,
a Delaware corporation (“Company”), evidenced by the attached Warrant to
Purchase Common Stock (“Warrant”). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.
The Holder intends that payment of the Exercise Price shall be made as:

 

             Cash Exercise with respect to                      Warrant Shares  
           Cashless Exercise with respect to                      Warrant Shares
             Recourse Note Exercise with respect to                      Warrant
Shares Please issue                A certificate or certificates representing
said shares of Common Stock in the name specified below              Said shares
in electronic form to the Deposit/Withdrawal at Custodian (DWAC) account with
Depository Trust Company (DTC) specified below.

 

 

By:  

 

Name:  

 

Title:  

 

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ACKNOWLEDGMENT

The Company hereby acknowledges the foregoing Exercise Notice and hereby directs
[                    ] to issue the above indicated number of shares of Common
Stock as specified above, in accordance with the Transfer Agent Instructions
dated December 3, 2009 from the Company, and acknowledged and agreed to by the
transfer agent.

 

IMMUNOCELLULAR THERAPEUTICS, LTD. By:   Name:   Title:  

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APPENDIX 2

FORM OF NOTE

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SECURED PROMISSORY NOTE

 

$[        ]   Date: [            ], 20[    ]

FOR VALUE RECEIVED, [                    ] (“Borrower”) promises to pay to the
order of ImmunoCellular Therapeutics, Ltd. (“Lender”), at
[                    ], or at such other place as Lender may from time to time
designate in writing, the principal sum of $[        ], with interest, as
follows:

1. Interest. The principal balance outstanding from time to time under this
Secured Promissory Note (this “Note”), shall bear interest from and after the
date hereof at the rate of 2.0% per year. Interest shall be calculated on a
simple interest basis and the number of days elapsed during the period for which
interest is being calculated. Payments of interest will be due on each annual
anniversary of the date of this Note; provided that Borrower will not be in
default hereunder for failure to make any annual interest payment when due
(other than on the Maturity Date) and the amount of interest not paid when due
shall be added to the principal balance of this Note and such amount will
thereafter accrue interest at the rate set forth above.

2. Payments. If not sooner paid, the entire unpaid principal balance, interest
thereon and any other charges due and payable under this Note shall be due and
payable on the fourth anniversary of the date of this Note (“Maturity Date”);
provided, however, that no payments on this Note will be due or payable so long
as either (a) Lender is in default under any preferred stock purchase agreement
for Series A Preferred Stock with Borrower or any Warrant issued pursuant
thereto, any loan agreement or other material agreement entered into with
Borrower, or (b) there are any shares of Series A Preferred Stock of Lender
issued or outstanding (each, a “Non-Payment Event”). Upon the termination or
cure of any Non-Payment Event, Borrower’s obligation to pay amounts outstanding
on this Note will immediately be reinstated. Borrower shall have the right to
prepay all or any part of the principal balance of this Note at any time without
penalty or premium. In the event that Lender redeems all or a portion of any
shares of Series A Preferred Stock then held by Borrower, the proceeds of any
such redemption will be applied by Borrower to pay down the accrued interest and
outstanding principal of this Note and Lender will be permitted to offset the
full amount of such proceeds against amounts outstanding under this Note. All
payments on this Note shall be first applied to interest, then to reduce the
outstanding principal balance hereof.

3. Full Recourse Note. THIS IS A FULL RECOURSE PROMISSORY NOTE. Accordingly,
notwithstanding that Borrower’s obligations under this Note are secured by the
Collateral, in the event of a material default hereunder, Lender shall have full
recourse to all the other assets of Borrower. Moreover, Lender shall not be
required to proceed against or exhaust any Collateral, or to pursue any
Collateral in any particular order, before Lender pursues any other remedies
against Borrower or against any of Borrower’s assets.

4. Security

a. Pledge. As security for the due and prompt payment and performance of all
payment obligations under this Note and any modifications, replacements and
extensions hereof (collectively, “Secured Obligations”), Borrower hereby pledges
and grants a security

 

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interest to Lender in all of Borrower’s right, title, and interest in and to all
of the following, now owned or hereafter acquired or arising (together the
“Collateral”):

i. Publicly listed shares of common stock, preferred stock, bonds, notes and/or
debentures that are freely tradeable (collectively, “Pledged Securities”) with a
fair market value on the date hereof at least equal to the principal amount of
this Note, based upon the trading price of such securities on the OTC Bulletin
Board, NASDAQ Capital Market, NASDAQ Global Market, NASDAQ Global Select Market,
NYSE Amex, or New York Stock Exchange;

ii. all rights of Borrower with respect to or arising out of the Pledged
Securities, including voting rights, and all equity and debt securities and
other property distributed or distributable with respect thereto as a result of
merger, consolidation, dissolution, reorganization, recapitalization, stock
split, stock dividend, reclassification, exchange, redemption, or other change
in capital structure; and

iii. all proceeds, replacements, substitutions, accessions and increases in any
of the Collateral.

b. Replacement Securities. So long as any Secured Obligations remain
outstanding, in the event that Borrower sells or disposes of any Pledged
Securities, Borrower shall promptly provide replacement securities of equal or
greater value than the Pledged Securities.

c. Rights With Respect to Distributions. So long as no default shall have
occurred and be continuing under this Note, Borrower shall be entitled to
receive any and all dividends and distributions made with respect to the Pledged
Securities and any other Collateral. However, upon the occurrence and during the
continuance of any default, Lender shall have the sole right (unless otherwise
agreed by Lender) to receive and retain dividends and distributions and apply
them to the outstanding balance of this Note or hold them as Collateral, at
Lender’s election.

d. Voting Rights. So long as no default shall have occurred and be continuing
under this Note, Borrower shall be entitled to exercise all voting rights
pertaining to the Pledged Securities and any other Collateral. However, upon the
occurrence and during the continuance of any default, all rights of Borrower to
exercise the voting rights that Borrower would otherwise be entitled to exercise
with respect to the Collateral shall cease and (unless otherwise agreed by
Lender) all such rights shall thereupon become vested in Lender, which shall
thereupon have the sole right to exercise such rights.

e. Financing Statement; Further Assurances. Borrower agrees, concurrently with
executing this Note, that Lender may file a UCC-1 financing statement relating
to the Collateral in favor of Lender, and any similar financing statements in
any jurisdiction in which Lender reasonably determines such filing to be
necessary. Borrower further agrees that at any time and from time to time
Borrower shall promptly execute and deliver all further instruments and
documents that Lender may request in order to perfect and protect the security
interest granted hereby, or to enable Lender to exercise and enforce its rights
and remedies with respect

 

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to any Collateral following an event of default. In addition, following an event
of default, Borrower shall deliver the Collateral, including original
certificates or other instruments representing the Pledged Securities, to Lender
to hold as secured party, and Borrower shall, if requested by Lender, execute a
securities account control agreement.

f. Powers of Lender. Borrower hereby appoints Lender as Borrower’s true and
lawful attorney-in-fact to perform any and all of the following acts, which
power is coupled with an interest, is irrevocable until the Secured Obligations
are paid and performed in full, and may be exercised from time to time by Lender
in its discretion: To take any action and to execute any instrument which Lender
may deem reasonably necessary or desirable to accomplish the purposes of this
Section 4(f) and, more broadly, this Note including, without limitation: (i) to
exercise voting and consent rights with respect to Collateral in accordance with
this Note, (ii) during the continuance of any default hereunder, to receive,
endorse and collect all instruments or other forms of payment made payable to
Borrower representing any dividend, interest payment or other distribution in
respect of the Collateral or any part thereof and to give full discharge for the
same, when and to the extent permitted by this Note, (iii) to perform or cause
the performance of any obligation of Borrower hereunder in Borrower’s name or
otherwise, (iv) during the continuance of any default hereunder, to liquidate
any Collateral pledged to Lender hereunder and to apply proceeds thereof to the
payment of the Secured Obligations or to place such proceeds into a cash
collateral account or to transfer the Collateral into the name of Lender, all at
Lender’s sole discretion, (v) to enter into any extension, reorganization or
other agreement relating to or affecting the Collateral, and, in connection
therewith, to deposit or surrender control of the Collateral, (vi) to accept
other property in exchange for the Collateral, (vii) to make any compromise or
settlement Lender deems desirable or proper, and (viii) to execute on Borrower’s
behalf and in Borrower’s name any documents required in order to give Lender a
continuing first lien upon the Collateral or any part thereof.

5. Additional Terms

a. No Waiver. The acceptance by Lender of payment of a portion of any
installment when due or an entire installment but after it is due shall neither
cure nor excuse the default caused by the failure of Borrower timely to pay the
whole of such installment and shall not constitute a waiver of Lender’s right to
require full payment when due of any future or succeeding installments.

b. Default. Any one or more of the following shall constitute a “default” under
this Note: (i) a default in the payment when due of any amount hereunder,
(ii) Borrower’s refusal to perform any material term, provision or covenant
under this Note, (iii) the commencement of any liquidation, receivership,
bankruptcy, assignment for the benefit of creditors or other debtor-relief
proceeding by or against Borrower, (iv) the transfer by Borrower of any Pledged
Securities without being replaced by Pledged Securities in accordance with
Section 4(b), and (iv) the levying of any attachment, execution or other process
against Borrower, the Collateral or any material portion thereof.

 

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c. Default Rights

i. Upon the occurrence of any payment default Lender may, at its election,
declare the entire balance of principal and interest under this Note immediately
due and payable. A delay by Lender in exercising any right of acceleration after
a default shall not constitute a waiver of the default or the right of
acceleration or any other right or remedy for such default. The failure by
Lender to exercise any right of acceleration as a result of a default shall not
constitute a waiver of the right of acceleration or any other right or remedy
with respect to any other default, whenever occurring.

ii. Further, upon the occurrence of any material non-monetary default, following
15 days notice from Lender to Borrower specifying the default and demanded
manner of cure for any non-monetary default, Lender shall thereupon and
thereafter have any and all of the rights and remedies to which a secured party
is entitled after a default under the applicable Uniform Commercial Code, as
then in effect. In addition to Lender’s other rights and remedies, Borrower
agrees that, upon the occurrence of default, Lender may in its sole discretion
do or cause to be done any one or more of the following:

(a) Proceed to realize upon the Collateral or any portion thereof as provided by
law, and without liability for any diminution in price which may have occurred,
sell the Collateral or any part thereof, in such manner, whether at any public
or private sale, and whether in one lot as an entirety, or in separate portions,
and for such price and other terms and conditions as is commercially reasonable
given the nature of the Collateral.

(b) If notice to Borrower is required, give written notice to Borrower at least
ten days before the date of sale of the Collateral or any portion thereof.

(c) Transfer all or any part of the Collateral into Lender’s name or in the name
of its nominee or nominees.

(d) Vote all or any part of the Collateral (whether or not transferred into the
name of Lender ) and give all consents, waivers and ratifications in respect of
the Collateral and otherwise act with respect thereto, as though Lender were the
outright owner thereof.

iii. Borrower acknowledges that all or part of foreclosure of the Collateral may
be restricted by state or federal securities laws, Lender may be unable to
effect a public sale of all or part of the Collateral, that a public sale is or
may be impractical and inappropriate and that, in the event of such
restrictions, Lender thus may be compelled to resort to one or more private
sales to a restricted group of purchasers who will be obliged to agree, among
other things, to acquire the Collateral for their own account, for investment
and not with a view to its distribution or resale. Borrower agrees that if
reasonably necessary Lender may resort to one or more sales to a single
purchaser or a restricted or limited group of purchasers. Lender shall not be
obligated to make any sale or other disposition, unless the terms thereof shall
be satisfactory to it.

 

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iv. If, in the opinion of Lender based upon written advice of counsel, any
consent, approval or authorization of any federal, state or other governmental
agency or authority should be necessary to effectuate any sale or other
disposition of any Collateral, Borrower shall execute all such applications and
other instruments as may reasonably be required in connection with securing any
such consent, approval or authorization, and will otherwise use its commercially
reasonable best efforts to secure the same.

v. The rights, privileges, powers and remedies of Lender shall be cumulative,
and no single or partial exercise of any of them shall preclude the further or
other exercise of any of them. Any waiver, permit, consent or approval of any
kind by Lender of any default hereunder, or any such waiver of any provisions or
conditions hereof, must be in writing and shall be effective only to the extent
set forth in writing. Any proceeds of any disposition of the Collateral, or any
part thereof, may be applied by Lender to the payment of expenses incurred by
Lender in connection with the foregoing, and the balance of such proceeds shall
be applied by Lender toward the payment of the Secured Obligations.

d. No Oral Waivers or Modifications. No provision of this Note may be waived or
modified orally, but only in a writing signed by Lender and Borrower.

e. Attorney Fees. The prevailing party in any action by Lender to collect any
amounts due under this Note shall be entitled to recover its reasonable
attorneys fees and costs.

f. Governing Law. This Note has been executed and delivered in, and is to be
construed, enforced, and governed according to the internal laws of, the State
of New York without regard to its principles of conflict of laws that would
require or permit the application of the laws of any other jurisdiction.

g. Severability. Whenever possible, each provision of this Note shall be
interpreted in such manner as to be effective and valid under applicable law.
However, if any provision of this Note shall be held to be prohibited by or
invalid under applicable law, it shall be ineffective only to the extent of such
prohibition or invalidity without invalidating the remainder of that provision
or the other provisions of this Note.

h. Entire Agreement. This Note contains the entire understanding of the parties
with respect to the subject matter hereof and supersedes all prior agreements
and understandings, oral or written, with respect to such matters.

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

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Exhibit B

Certificate of Designations

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IMMUNOCELLULAR THERAPEUTICS, LTD.

CERTIFICATE OF DESIGNATIONS OF PREFERENCES,

RIGHTS AND LIMITATIONS

OF

SERIES A PREFERRED STOCK

The undersigned, Dr. Manish Singh and Dr. John Yu, hereby certify that:

1. They are the President and Secretary, respectively, of ImmunoCellular
Therapeutics, Ltd., a Delaware corporation (the “Corporation”).

2. The Corporation is authorized to issue 1,000,000 shares of preferred stock,
of which no shares are issued or outstanding.

3. The following resolutions were duly adopted by the Board of Directors:

WHEREAS, the Certificate of Incorporation of the Corporation provides for a
class of its authorized stock known as preferred stock, comprised of 1,000,000
shares, $0.0001 par value per share (the Preferred Stock”), issuable from time
to time in one or more series;

WHEREAS, the Board of Directors of the Corporation is authorized to fix the
dividend rights, dividend rate, voting rights, conversion rights, rights and
terms of redemption and liquidation preferences of any wholly unissued series of
Preferred Stock and the number of shares constituting any series and the
designation thereof, of any of them; and

WHEREAS, it is the desire of the Board of Directors of the Corporation, pursuant
to its authority as aforesaid, to fix the rights, preferences, restrictions and
other matters relating to a series of Preferred Stock, which shall consist of up
to 2,000 shares of the Preferred Stock which the Corporation has the authority
to issue, as follows:

NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide
for the issuance of a series of Preferred Stock for cash or exchange of other
securities, rights or property and does hereby fix and determine the rights,
preferences, restrictions and other matters relating to such series of Preferred
Stock as follows:

TERMS OF PREFERRED STOCK

1. Designation, Amount and Par Value. The series of Preferred Stock shall be
designated as the Corporation’s Series A Preferred Stock (the “Series A
Preferred Stock”) and the number of shares so designated shall be 2,000, which
shall not be subject to increase without any consent of the holders of the
Series A Preferred Stock (each a “Holder” and collectively, the “Holders”) that
may be required by applicable law. Each share of Series A Preferred Stock shall
have a par value of $0.0001 per share.

 

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2. Ranking and Voting.

a. The Series A Preferred Stock shall, with respect to dividend rights and
rights upon liquidation, winding-up or dissolution, rank:

(i) senior to the Corporation’s common stock, par value $0.0001 per share
(“Common Stock”), and any other class or series of Preferred Stock of the
Corporation (except as set forth below) (collectively, together with any
warrants, rights, calls or options exercisable for or convertible into such
Preferred Stock, the “Junior Securities”); and

(ii) junior to all existing and future indebtedness of the Corporation.

b. Except as required by applicable law or as set forth herein, the holders of
shares of Series A Preferred Stock will have no right to vote on any matters,
questions or proceedings of this Corporation including, without limitation, the
election of directors.

3. Dividends and Other Distributions. Commencing on the date of the issuance of
any such shares of Series A Preferred Stock (each respectively an “Issuance
Date”), Holders of Series A Preferred Stock shall be entitled to receive
dividends on each outstanding share of Series A Preferred Stock (“Dividends”),
which shall accrue in shares of Series A Preferred Stock at a rate equal to
10.0% per annum from the Issuance Date. Accrued Dividends shall be payable upon
redemption of the Series A Preferred Stock in accordance with Section 6.

a. Any calculation of the amount of such Dividends payable pursuant to the
provisions of this Section 3 shall be made based on a 365-day year and on the
number of days actually elapsed during the applicable period, compounded
annually.

b. So long as any shares of Series A Preferred Stock are outstanding, no
dividends or other distributions will be paid, declared or set apart with
respect to any Junior Securities. The Common Stock shall not be redeemed while
the Series A Preferred Stock is outstanding; provided, however, that the
foregoing shall not limit the Corporation’s ability to enter into open market
repurchases of its securities, to exercise any repurchase rights the Corporation
is entitled to under any of its existing stock options or employment agreements,
or to take similar actions.

4. Protective Provision. So long as any shares of Series A Preferred Stock are
outstanding, the Corporation shall not, without the affirmative approval of the
Holders of a majority of the shares of the Series A Preferred Stock then
outstanding (voting as a class), (a) alter or change adversely the powers,
preferences or rights given to the Series A Preferred Stock or alter or amend
this Certificate of Designations, (b) authorize or create any class of stock
ranking as to distribution of assets upon a liquidation senior to or otherwise
pari passu with the Series A Preferred Stock, (c) amend its certificate or
articles of incorporation or other charter documents in breach of any of the
provisions hereof, (d) increase the authorized number of shares of Series A
Preferred Stock, (e) liquidate, dissolve or wind-up the business and affairs of
the Corporation, or effect any Deemed Liquidation Event (as defined below), or
(f) enter into any agreement with respect to the foregoing.

 

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a. A “Deemed Liquidation Event” shall mean: (i) a merger or consolidation in
which the Corporation is a constituent party or a subsidiary of the Corporation
is a constituent party and the Corporation issues shares of its capital stock
pursuant to such merger or consolidation, except any such merger or
consolidation involving the Corporation or a subsidiary in which the shares of
capital stock of the Corporation outstanding immediately prior to such merger or
consolidation continue to represent, or are converted into or exchanged for
shares of capital stock that represent, immediately following such merger or
consolidation, at least a majority, by voting power, of the capital stock of the
surviving or resulting corporation or if the surviving or resulting corporation
is a wholly owned subsidiary of another corporation immediately following such
merger or consolidation, the parent corporation of such surviving or resulting
corporation; or (ii) the sale, lease, transfer, exclusive license (other than an
exclusive license to a pharmaceutical or biotech company entered into in the
ordinary course of business) or other disposition, in a single transaction or
series of related transactions, by the Corporation or any subsidiary of the
Corporation of all or substantially all the assets of the Corporation and its
subsidiaries taken as a whole, or the sale or disposition (whether by merger or
otherwise) of one or more subsidiaries of the Corporation if substantially all
of the assets of the Corporation and its subsidiaries taken as a whole are held
by such subsidiary or subsidiaries, except where such sale, lease, transfer,
exclusive license or other disposition is to a wholly owned subsidiary of the
Corporation.

b. The Corporation shall not have the power to effect a Deemed Liquidation Event
referred to in Section 4(a) unless the agreement or plan of merger or
consolidation for such transaction provides that the consideration payable to
the stockholders of the Corporation shall be allocated among the holders of
capital stock of the Corporation in accordance with Section 5.

5. Liquidation.

a. Upon any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, after payment or provision for payment of debts and
other liabilities of the Corporation, before any distribution or payment shall
be made to the holders of any Junior Securities by reason of their ownership
thereof, the Holders of Series A Preferred Stock shall first be entitled to be
paid out of the assets of the Corporation available for distribution to its
stockholders an amount with respect to each outstanding share of Series A
Preferred Stock equal to $10,000.00 (the “Original Series A Issue Price”), plus
any accrued but unpaid Dividends thereon (collectively, the “Series A
Liquidation Value”). If, upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the amounts payable with respect
to the shares of Series A Preferred Stock are not paid in full, the holders of
shares of Series A Preferred Stock shall share equally and ratably in any
distribution of assets of the Corporation in proportion to the liquidation
preference and an amount equal to all accumulated and unpaid Dividends, if any,
to which each such holder is entitled.

b. After payment has been made to the Holders of the Series A Preferred Stock of
the full amount of the Series A Liquidation Value, any remaining assets of the
Corporation shall be distributed among the holders of the Corporation’s Junior
Securities in accordance with the Corporation’s Certificates of Designation and
Certificate of Incorporation.

 

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c. If, upon any liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation shall be insufficient to make payment in full to all
Holders, then such assets shall be distributed among the Holders at the time
outstanding, ratably in proportion to the full amounts to which they would
otherwise be respectively entitled.

6. Redemption.

a. Corporation’s Redemption Option. Upon or after the fourth anniversary of the
initial Issuance Date, the Corporation shall have the right, at the
Corporation’s option, to redeem all or a portion of the shares of Series A
Preferred Stock, at a price per share (the “Corporation Redemption Price”) equal
to 100% of the Series A Liquidation Value.

b. Early Redemption. Prior to redemption pursuant to Section 6(a) hereof, the
Corporation shall have the right, at the Corporation’s option, to redeem all or
a portion of the shares of Series A Preferred Stock, at a price per share equal
to: (i) 127% of the Series A Liquidation Value if redeemed on or after the first
anniversary but prior to the second anniversary of the initial Issuance Date,
(ii) 118% of the Series A Liquidation Value if redeemed on or after the second
anniversary but prior to the third anniversary of the initial Issuance Date, and
(iii) 109% of the Series A Liquidation Value if redeemed on or after the third
anniversary but prior to the fourth anniversary of the initial Issuance Date.

c. Mandatory Redemption. If the Corporation determines to liquidate, dissolve or
wind-up its business and affairs, or effect any Deemed Liquidation Event, the
Corporation shall redeem the Series B Preferred Stock at the prices set forth in
Section 6(b) including the premium for early redemption set forth therein.

d. Mechanics of Redemption. If the Corporation elects to redeem any of the
Holders’ Series A Preferred Stock then outstanding, it shall do so by delivering
written notice thereof via facsimile and overnight courier (“Notice of
Redemption at Option of Corporation”) to each Holder, which Notice of Redemption
at Option of Corporation shall indicate (A) the number of shares of Series A
Preferred Stock that the Corporation is electing to redeem and (B) the
Corporation Redemption Price (plus the premium for early redemption pursuant to
Section 6(b) if applicable).

e. Payment of Redemption Price. Upon receipt by any Holder of a Notice of
Redemption at Option of Corporation, such Holder shall promptly submit to the
Corporation such Holder’s Series A Preferred Stock certificates. Upon receipt of
such Holder’s Series A Preferred Stock certificates, the Corporation shall pay
the Corporation Redemption Price (plus the premium for early redemption pursuant
to Section 6(b) if applicable), to such Holder, at the Corporation’s option
either (i) in cash, or (ii) by offset against any outstanding note payable from
Holder to the Corporation that was issued by Holder in connection with the
exercise of warrants by such Holder.

7. Transferability. The Series A Preferred Stock may only be sold, transferred,
assigned, pledged or otherwise disposed of (“Transfer”) in accordance with state
and federal securities laws. The Corporation shall keep at its principal office,
or at the offices of its transfer agent, a register of the Series A Preferred
Stock. Upon the surrender of any certificate

 

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representing Series A Preferred Stock at such place, the Corporation, at the
request of the record Holder of such certificate, shall execute and deliver (at
the Corporation’s expense) a new certificate or certificates in exchange
therefor representing in the aggregate the number of shares represented by the
surrendered certificate. Each such new certificate shall be registered in such
name and shall represent such number of shares as is requested by the Holder of
the surrendered certificate and shall be substantially identical in form to the
surrendered certificate.

8. Miscellaneous.

a. Notices. Any and all notices to the Corporation shall be addressed to the
Corporation’s President or Chief Executive Officer at the Corporation’s
principal place of business on file with the Secretary of State of the State of
Delaware. Any and all notices or other communications or deliveries to be
provided by the Corporation to any Holder hereunder shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile telephone number or
address of such Holder appearing on the books of the Corporation, or if no such
facsimile telephone number or address appears, at the principal place of
business of the Holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section 8 prior to 5:30 p.m.
Eastern time, (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this section later than 5:30 p.m. but prior to 11:59 p.m. Eastern
time on such date, (iii) the second business day following the date of mailing,
if sent by nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given.

b. Lost or Mutilated Preferred Stock Certificate. Upon receipt of evidence
reasonably satisfactory to the Corporation (an affidavit of the registered
Holder shall be satisfactory) of the ownership and the loss, theft, destruction
or mutilation of any certificate evidencing shares of Series A Preferred Stock,
and in the case of any such loss, theft or destruction upon receipt of indemnity
reasonably satisfactory to the Corporation (provided that if the Holder is a
financial institution or other institutional investor its own agreement shall be
satisfactory) or in the case of any such mutilation upon surrender of such
certificate, the Corporation shall, at its expense, execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of such class represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.

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

RESOLVED, FURTHER, that the chairman, chief executive officer, president or any
vice-president, and the secretary or any assistant secretary, of the Corporation
be and they hereby are authorized and directed to prepare and file a Designation
of Preferences, Rights and Limitations of Series A Preferred Stock in accordance
with the foregoing resolution and the provisions of Delaware law.

 

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IN WITNESS WHEREOF, the undersigned have executed this Certificate this 3rd day
of December 2009.

 

By:  

 

    By:  

 

Name:  

 

    Name:  

 

Title:  

 

    Title:  

 

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Exhibit C

Transfer Agent Instructions

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

December 3, 2009

Computershare Trust Company, N.A.

250 Royall Street

Canton, Massachusetts 02021

Re: ImmunoCellular Therapeutics, Ltd.

Ladies and Gentlemen:

In accordance with the Preferred Stock Purchase Agreement (“Purchase
Agreement”), dated December 3, 2009, by and between ImmunoCellular Therapeutics,
Ltd., a Delaware corporation (“Company”), and Socius Life Sciences Capital
Group, LLC, a Delaware limited liability company (“Buyer”), pursuant to which
Company may issue and deliver shares (the “Fee Shares”) of the Company’s common
stock, par value $0.0001 per share (“Common Stock”), and a warrant (“Warrant”)
to purchase additional shares (“Warrant Shares”) of Common Stock (the Fee Shares
and Warrant Shares, collectively, “Common Shares”), this shall serve as our
irrevocable authorization and direction to you (provided that you are the
transfer agent of the Company at such time) to issue the Fee Shares and, in the
event the holder of the Warrant elects or has elected to exercise all or any
portion of the Warrant, from time to time, upon delivery to you from the Company
or its counsel of a notice of exercise of the Warrant, the Warrant Shares.
Capitalized terms used herein without definition shall have the respective
meanings ascribed to them in the Purchase Agreement.

Specifically, this shall constitute an irrevocable instruction to you to process
any notice of exercise of the Warrant sent to you by the Company or its counsel
in accordance with the terms of these instructions as soon as practicable. Upon
your receipt of a copy of the executed notice of exercise of the Warrant from
the Company or its counsel, you shall use your best efforts to, within one
(1) Trading Day following the date of receipt of the notice of exercise,
(A) issue and surrender to a common carrier for overnight delivery to the
address as specified in the notice of exercise a certificate, registered in the
name of the Buyer or its designee, for the number of shares of Common Stock to
which the Buyer is entitled upon exercise of the Warrant as set forth in the
notice of exercise, or (B) provided you are participating in The Depository
Trust Company (DTC) Fast Automated Securities Transfer (FAST) Program, upon the
request of the Buyer, credit such aggregate number of shares of Common Stock to
which the Buyer is entitled to the Buyer’s or its designee’s balance account
with DTC through its Deposit Withdrawal At Custodian (DWAC) system provided the
Buyer causes its bank or broker to initiate the DWAC transaction.

The Company hereby confirms that, provided a registration statement covering the
resale of the Warrant Shares has been declared effective by the SEC under the
Act and remains effective, the Common Shares should not be subject to any
stop-transfer restrictions and shall otherwise be freely transferable on the
books and records of the Company. If the Common Shares are certificated, the
certificates shall not bear any legend restricting transfer of the shares
represented thereby.

 

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The Company hereby confirms and you acknowledge that, in the event counsel to
the Company does not issue any opinion of counsel required to issue any Common
Shares free of legend, the Company authorizes you to accept an opinion of
counsel from Luce Forward Hamilton & Scripps LLP.

The Company hereby confirms that no instructions other than as contemplated
herein will be given to you by the Company or its counsel (or any other party)
with respect to the Common Shares. The Company hereby agrees that it shall not
replace you as the Company’s transfer agent, until such time as the Company
provides written notice to you and Buyer that a suitable replacement has agreed
to serve as transfer agent and to be bound by the terms and conditions of this
letter agreement regarding Irrevocable Transfer Agent Instructions (this
“Agreement”).

The Company and you hereby acknowledge and confirm that complying with the terms
of this Agreement does not and shall not prohibit you from satisfying any and
all fiduciary responsibilities and duties you may owe to the Company.

The Company and you acknowledge that the Buyer is relying on the representations
and covenants made by the Company and you hereunder and that such
representations and covenants are a material inducement to the Buyer to enter
into the Purchase Agreement. The Company and you further acknowledge that
without such representations and covenants made hereunder, the Buyer would not
enter into the Purchase Agreement and purchase Securities pursuant thereto.

Each party hereto specifically acknowledges and agrees that a breach or
threatened breach of any provision hereof will cause irreparable damage and that
damages at law would be an inadequate remedy if this Agreement were not
specifically enforced. Therefore, in the event of a breach or threatened breach
by a party hereto, including, without limitation, the attempted termination of
the agency relationship created by this instrument, in addition to all other
rights or remedies, an injunction restraining such breach and granting specific
performance of the provisions of this Agreement should issue without any
requirement to show any actual damage or to post any bond or other security.

You may at any time resign as transfer agent hereunder by giving thirty
(30) days prior written notice of resignation to the Company and the Buyer.
Prior to the effective date of the resignation as specified in such notice, the
Company will issue to you instructions authorizing delivery of Common Shares to
a substitute transfer agent selected by, and in the sole discretion of, the
Company. If no successor transfer agent is named by the Company, you may apply
to a court of competent jurisdiction in the State of Delaware for appointment of
a successor transfer agent and for an order to deposit Common Shares with the
clerk of any such court.

 

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IN WITNESS WHEREOF, the parties have caused this letter agreement regarding
Irrevocable Transfer Agent Instructions to be duly executed and delivered as of
the date first written above.

 

IMMUNOCELLULAR THERAPEUTICS, LTD. By:  

 

Name:  

 

Title:  

 

THE FOREGOING INSTRUCTIONS ARE ACKNOWLEDGED AND AGREED TO:

 

COMPUTERSHARE TRUST COMPANY, N.A. By:  

 

Name:  

 

Title:  

 

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Exhibit D

Opinion

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

December 3, 2009

Socius Life Sciences Capital Group, LLC

11150 Santa Monica Boulevard, Suite 1500

Los Angeles, CA 90025

 

Re: ImmunoCellular Therapeutics, Ltd.

Ladies and Gentlemen:

We have acted as counsel to ImmunoCellular Therapeutics, Ltd., a Delaware
corporation (“the Company”), in connection with the sale and issuance of up to
1000 shares of Series A Preferred Stock, par value $0.0001 per share (“Preferred
Shares”), along with shares (“Fee Shares”) of the Company’s common stock, par
value $0.0001 per share (“Common Stock”), and warrant (“Warrant”) to purchase
additional shares of Common Stock, to Socius Capital Group, LLC, dba Socius Life
Sciences Capital Group, LLC, a Delaware limited liability company (“Investor”),
pursuant to the terms of the Preferred Stock Purchase Agreement, dated as of
December 3, 2009 (“Agreement”), by and between Company and Investor. Capitalized
terms used in this opinion, that are not otherwise defined in this opinion,
shall have the respective meanings assigned to them in the Agreement. This
opinion is being delivered to you pursuant to the Agreement.

We are of the opinion that, as of the date hereof:

1. Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware.

2. The Securities are duly authorized, the Preferred Shares, Fee Shares and
Warrant are, and when issued in accordance with the terms and conditions of the
Agreement the Warrant Shares will be, validly issued, fully paid and
non-assessable. The issuance of the Securities will not be subject to any
statutory or contractual preemptive rights of any stockholder of the Company.

3. Company has the corporate power and authority to (a) execute, deliver and
perform all of its obligations under the Agreement and the Transaction
Documents, and (b) issue, sell and deliver each of the Securities.

4. The execution, delivery and performance of the Agreement and the Transaction
Documents have been duly authorized by all necessary corporate action on the
part of Company, and have been duly executed and delivered by Company.

 

1

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5. The execution and delivery of the Transaction Documents by Company does not,
and Company’s performance of its obligations thereunder will not (a) violate the
certificate or articles of incorporation or the by-laws of Company, as in effect
on the date hereof, (b) violate in any material respect any federal or state
law, rule or regulation, or judgment, order or decree of any state or federal
court or governmental or administrative authority, in each case that, to our
knowledge, is applicable to Company or its properties or assets and which could
have a material adverse effect on Company’s business, properties, assets,
financial condition or results of operations or prevent the performance by
Company of any material obligation under the Agreement, or (c) require the
authorization, consent, approval of or other action of, notice to or filing or
qualification with, any state or federal governmental authority, except as have
been, or will be, made or obtained.

 

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Exhibit E

Use of Proceeds Certificate

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IMMUNOCELLULAR THERAPEUTICS, LTD.

USE OF PROCEEDS CERTIFICATE

The undersigned, [                    ] and [                    ], hereby
certify that:

1. They are the [                    ] and [                    ], respectively,
of ImmunoCellular Therapeutics, Ltd., a Delaware corporation (the “Company”).

2. This Use of Proceeds Certificate (this “Certificate”) is being delivered to
Socius Capital Group, LLC doing business as Socius Life Sciences Capital Group,
LLC (“Investor”), by the Company, to fulfill the requirement under
Section 2.3(d)(iii) of the Preferred Stock Purchase Agreement, dated as of
December 3 , 2009, between Investor and the Company (the “Purchase Agreement”).
Terms used and not defined in this Certificate have the meanings set forth in
the Purchase Agreement.

3. On or prior to the date hereof, the Company has delivered to Investor a
Tranche Notice for the purchase by Investor of Tranche Shares upon payment by
the Company to Investor of the Tranche Purchase Price.

The undersigned do hereby certify that the Tranche Purchase Price will be used
for the following purpose or purposes:

[                            ].

IN WITNESS WHEREOF, the undersigned have executed this Certificate this [    ]
day of             , 2009.

 

 

   

 

By:  

 

    By:  

 

Name:  

 

    Name:  

 

Title:  

 

    Title:  

 

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Exhibit F

Tranche Notice

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Dated: [            ], 20[    ]

Socius Life Sciences Capital Group, LLC

11150 Santa Monica Boulevard, Suite 1500

Los Angeles, CA 90025

 

  Re: Tranche Notice

Ladies & Gentlemen:

Pursuant to the December 3, 2009 Preferred Stock Purchase Agreement
(“Agreement”) between ImmunoCellular Therapeutics, Ltd., a Delaware corporation
(“Company”), and Socius Life Sciences Capital Group, LLC (“Investor”), Company
hereby elects to exercise a Tranche. Capitalized terms not otherwise defined
herein shall have the meanings defined in the Agreement.

At the Tranche Closing, Company will sell to Investor [                    ]
Preferred Shares at $10,000.00 per share for a Tranche Amount of $[        ].

On behalf of Company, the undersigned hereby certifies to Investor as follows:

1. The undersigned is a duly authorized officer of Company;

2. The above Tranche Amount does not exceed the Maximum Tranche Amount; and

3. All of the conditions precedent to the right of the Company to deliver a
Tranche Notice set forth in Section 2.3(d) of the Agreement have been satisfied.

IN WITNESS WHEREOF, the Company has executed and delivered this Tranche Notice
as of the date first written above.

 

IMMUNOCELLULAR THERAPEUTICS, LTD. By:  

 

Name:  

 

Title: