SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated April 30, 2018 (the
“Execution Date”), is by and among OWC Pharmaceutical Research Corp., a Delaware
corporation with offices located at 2, Ben Gurion Street, 5257334 Ramat Gan,
Israel (the “Company”), and each of the investors listed on the Schedule of
Purchasers attached hereto (individually, a “Purchaser” and collectively, the
“Purchasers”).

 

RECITALS

 

A. The Company and each Purchaser is executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the “1933 Act”), and Regulation
S (“Regulation S”) and Rule 506(b) of Regulation D (“Regulation D”) as
promulgated by the United States Securities and Exchange Commission (the “SEC”)
under the 1933 Act.

 

B. The Company has authorized a new series of convertible preferred stock of the
Company designated as Series A Convertible Preferred Stock (the “Series A
Preferred Stock”), the terms of which are set forth in the certificate of
designation for such series of preferred stock (the “Certificate of
Designations”) in the form attached hereto as Exhibit A (together with any
convertible preferred stock issued in replacement thereof in accordance with the
terms thereof, the “Preferred Shares”), which Preferred Shares shall be
convertible into the Company’s common stock, par value $0.00001 per share (the
“Common Stock”), in accordance with the terms of the Certificate of
Designations.

 

C. Each Purchaser wishes to purchase, and the Company wishes to sell, upon the
terms and conditions stated in this Agreement, (i) that aggregate number of
Preferred Shares set forth opposite such Purchaser’s name in column (3) on the
Schedule of Purchasers (which aggregate number for all Purchasers shall be 500),
and (ii) Warrants, in substantially the form attached hereto as Exhibit B (the
“Warrants”), representing the right to acquire that number of shares of Common
Stock set forth opposite such Purchaser’s name in column (4) on the Schedule of
Purchasers (which shall be adjusted in accordance with the terms and conditions
set forth in the Certificate of Designations and the Warrants) (as exercised,
collectively, the “Warrant Shares”). The shares of Common Stock issuable
pursuant to the terms of the Preferred Shares are referred to herein as the
“Conversion Shares.

 

D. The Preferred Shares, the Warrants, the Conversion Shares and the Warrant
Shares are collectively referred to herein as the “Securities.”

 

E. Contemporaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement,
substantially in the form attached hereto as Exhibit C (the “Registration Rights
Agreement”), pursuant to which the Company has agreed to provide certain
registration rights with respect to the Registrable Securities (as defined in
the Registration Rights Agreement), under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.

 

 

 

 

NOW, THEREFORE, in consideration of the foregoing premises, and the promises and
covenants herein contained, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the Company and each Purchaser (severally
and not jointly), intending to be legally bound, hereby agree as follows:

 

AGREEMENT

 

1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.

 

(a) Purchase of Preferred Shares and Warrants. Subject to the satisfaction (or
waiver) of the conditions set forth in Sections 6 and 7 below, the Company
agrees to issue and sell to each Purchaser, and each Purchaser severally, but
not jointly, agrees to purchase from the Company on the Closing Date (as defined
below), (x) the number of Preferred Shares, as is set forth opposite such
Purchaser’s name in column (3) on the Schedule of Purchasers, and (y) Warrants
to acquire at least that number of Warrant Shares as is set forth opposite such
Purchaser’s name in column (4) on the Schedule of Purchasers in an aggregate
amount of US$5,000,000.00 for all Purchasers (the “Closing”).

 

(b) Closing. The closing (the “Closing”) of the purchase of the Preferred Shares
and the Warrants by the Purchasers shall occur at Company’s offices. The date
and time of the Closing (the “Closing Date”) shall be 10:00 a.m., New York time,
on the first (1st) Trading Day (as defined in the Certificate of Designations)
on which the conditions to the Closing set forth in Sections 6 and 7 below are
satisfied or waived (or such other date as is mutually agreed to by the Company
and each Purchaser).

 

(c) Purchase Price. The aggregate purchase price for the Preferred Shares and
the Warrants to be purchased by each Purchaser (the “Purchase Price”) shall be
the amount set forth opposite such Purchaser’s name in column (5) on the
Schedule of Purchasers. The purchase price per Preferred Share shall be the
Stated Value set forth in the Certificate of Designations.

 

(d) Form of Payment. On the Closing Date, (A) the Company shall deliver to each
Purchaser a Transfer Agent book entry evidencing issuance of the Preferred
Shares (allocated in such number of shares as the Purchaser shall request) and
related Warrants (allocated in such number of Warrant Shares as the Purchaser
shall request) which such Purchaser is purchasing hereunder, in each case duly
executed on behalf of the Company and registered in the name of such Purchaser
or its designee, and immediately thereafter (B) each Purchaser shall deliver to
Company the amount set forth opposite such Purchaser’s name in column (5) on the
Schedule of Purchasers, by wire transfer of immediately available funds in
accordance with Company’s written wire instructions.

 

2. PURCHASER’S REPRESENTATIONS AND WARRANTIES.

 

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

 

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

 

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(b) No Public Sale or Distribution. Such Purchaser (i) is acquiring the
Preferred Shares and the Warrants, (ii) upon conversion of the Preferred Shares,
will acquire the Conversion Shares and (iii) upon exercise of the Warrants ,
will acquire the Warrant Shares issuable upon exercise of the Warrants, in each
case, for its own account and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the 1933 Act; provided, however, that by
making the representations herein, such Purchaser does not agree to hold any of
the Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act. Such Purchaser is
acquiring the Securities hereunder in the ordinary course of its business. Such
Purchaser does not presently have any agreement or understanding, directly or
indirectly, with any Person (as defined below) to distribute any of the
Securities. For purposes of this Agreement, “Person” means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization and a government or any department or
agency thereof.

 

(c) Accredited Investor Status. Such Purchaser is an “accredited investor” as
that term is defined in Rule 501(a) of Regulation D. The information provided by
such Purchaser on the Purchaser questionnaire submitted to the Company is true
and complete.

 

(d) Non U.S. Person. Such Purchaser is not a “U.S. Person” as that term is
defined in Regulation S, and is not acquiring the Securities for the account or
beneficial ownership of any U.S. Person.

 

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

 

(f) Information. Such Purchaser and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities that have
been requested by such Purchaser in writing. Such Purchaser and its advisors, if
any, have been afforded the opportunity to ask questions of the Company. Neither
such inquiries nor any other due diligence investigations conducted by such
Purchaser or its advisors, if any, or its representatives shall modify, amend or
affect such Purchaser’s right to rely on the Company’s representations and
warranties contained herein. Such Purchaser understands that its investment in
the Securities involves a high degree of risk. Such Purchaser has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.

 

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

 

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(h) Transfer or Resale. Such Purchaser understands that, except as provided in
the Registration Rights Agreement: (i) the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Purchaser shall have delivered to the Company
(if requested by the Company) an opinion of counsel, in a form reasonably
acceptable to the Company, to the effect that such Securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration, or (C) such Purchaser provides the Company
with reasonable assurance that such Securities can be sold, assigned or
transferred pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act (or
a successor rule thereto) (collectively, “Rule 144”); (ii) any sale of the
Securities made in reliance on Rule 144 may be made only in accordance with the
terms of Rule 144, and further, if Rule 144 is not applicable, any resale of the
Securities under circumstances in which the seller (or the Person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the 1933 Act) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC promulgated thereunder; and (iii)
neither the Company nor any other Person is under any obligation to register the
Securities under the 1933 Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder. 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 and such pledge of
Securities shall not be deemed to be a transfer, sale or assignment of the
Securities hereunder, and no Purchaser effecting a pledge of Securities shall be
required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document (as defined in Section 3(b)), including, without limitation, this
Section 2(h).

 

(i) Legends.

 

(i) Such Purchaser understands that the certificates or other instruments
representing the Preferred Shares and the Warrants, until such time as the
resale of the Conversion Shares and the Warrant Shares have been registered
under the 1933 Act, the stock certificates representing the Conversion Shares
and the Warrant Shares, except as set forth below, shall bear a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of such stock certificates):

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE][EXERCISABLE]
HAVE BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN]
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS AND WERE SOLD PURSUANT TO THE PROVISIONS OF REGULATION S. 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, 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.

 

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At any time after the Execution Date, the legend set forth above shall be
removed and the Company shall issue a certificate without such legend to the
holder of the Securities upon which it is stamped or, if available, issue to
such holder by electronic delivery at the applicable balance account at The
Depository Trust Company (“DTC”), if (i) such Securities are registered for
resale under the 1933 Act, (ii) in connection with a sale, assignment or other
transfer (other than pursuant to Rule 144), such holder provides the Company
with an opinion of counsel, in a generally acceptable form, to the effect that
such sale, assignment or transfer of the Securities may be made without
registration under the applicable requirements of the 1933 Act, or (iii) the
Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule
144A . The Company shall be responsible for the fees of its transfer agent or
clearing agent, and all DTC fees associated with such issuance.

 

(j) Validity; Enforcement. This Agreement and the other Transaction Documents to
which such Purchaser is a party have been duly and validly authorized, executed
and delivered on behalf of such Purchaser and shall constitute the legal, valid
and binding obligations of such Purchaser enforceable against such Purchaser in
accordance with its terms, except as such enforceability may be limited by
general principles of equity or to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.

 

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

 

(l) No Bad Actor Disqualification Event. Such Purchaser represents, after
reasonable inquiry, that none of the “Bad Actor” disqualifying events described
in Rule 506(d)(l)(i) to (viii) under the Securities Act (a “Disqualification
Event”) is applicable to such Purchaser or any of its Rule 506(d) Related
Parties (if any), except a Disqualification Event as to which Rule
506(d)(2)(iii) applies. “Rule 506(d) Related Party” means a person or entity
that is a beneficial owner of such Purchaser’s securities for purposes of Rule
506(d).

 

(m) Relationships. Such Purchaser is not an Affiliate of any other Purchaser.

 

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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The Company represents and warrants to each of the Purchasers that, as of the
Execution Date and as of the Closing Date:

 

(a) Organization and Qualification. Each of the Company and its “Subsidiaries”
(which for purposes of this Agreement means any joint venture or any entity in
which the Company, directly or indirectly, owns capital stock or holds an
equivalent equity or similar interest representing a majority of such interests
outstanding) are entities duly organized and validly existing and in good
standing under the laws of the jurisdiction in which they are formed, and have
the requisite power and authorization to own their properties and to carry on
their business as now being conducted. Each of the Company and its Subsidiaries
is duly qualified as a foreign entity to do business and is in good standing in
every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not
reasonably be expected to have a Material Adverse Effect. As used in this
Agreement, “Material Adverse Effect” means any material adverse effect on the
business, properties, assets, operations, results of operations, condition
(financial or otherwise) or prospects of the Company and its Subsidiaries,
individually or taken as a whole, or on the transactions contemplated hereby or
in the other Transaction Documents or by the agreements and instruments to be
entered into in connection herewith or therewith, or on the authority or ability
of the Company to perform its obligations under the Transaction Documents. The
Company has no Subsidiaries, except as set forth in the SEC Reports.

 

(b) Authorization; Enforcement; Validity. The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Certificate of Designations, the Warrants, the Registration
Rights Agreement, the Lock-Up Agreements (as defined in Section 7(x)), the ITAI,
and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (collectively,
the “Transaction Documents”) and to issue the Securities in accordance with the
terms hereof and thereof. The execution and delivery of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Preferred Shares and Warrants and the reservation for issuance and the
issuance of the Conversion Shares issuable upon conversion of the Preferred
Shares and the reservation for issuance and issuance of Warrant Shares issuable
upon exercise of the Warrants have been duly authorized by the Company’s board
of directors and (other than the filing with the SEC of one or more Registration
Statements (as defined in the Registration Rights Agreement) in accordance with
the requirements of the Registration Rights Agreement and any other filings as
may be required by any state securities agencies and the other items set forth
in clause (e) below) no further filing, consent, or authorization is required by
the Company, its board of directors or its stockholders. This Agreement and the
other Transaction Documents of even date herewith have been duly executed and
delivered by the Company, and constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies. The Certificate of
Designations in the form attached hereto as Exhibit A (“Certificate of
Designations”) has been filed with the Secretary of State of the State of
Delaware and is in full force and effect, enforceable against the Company in
accordance with its terms and has not been amended.

 

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(c) Issuance of Securities. The issuance of the Preferred Shares and the
Warrants have been duly authorized and upon issuance in accordance with the
terms of the Transaction Documents shall be validly issued and free from all
taxes, liens and charges with respect to the issue thereof, and the Preferred
Shares shall be entitled to the rights and preferences set forth in the
Certificate of Designations. As of the Closing, the Company shall have reserved
from its duly authorized capital stock not less than the sum of 500% of the
maximum number of shares of Common Stock issuable (i) upon conversion of the
maximum number of Preferred Shares (assuming for purposes hereof, a Conversion
Price of $0.20 and without taking into account any limitations on the conversion
of the Preferred Shares set forth in the Certificate of Designations) and (ii)
upon exercise of the Warrants (assuming for purposes hereof, an Exercise Price
of $0.22 and without taking into account any limitations on the exercise of the
Warrants set forth in the Warrants), in each case, determined as if issued as of
the Trading Day immediately preceding the applicable date of determination. Upon
issuance or conversion in accordance with the Certificate of Designations or the
exercise of the Warrants and payment of the exercise price under the Warrants
(including by Cashless Exercise) thereunder, the Conversion Shares and the
Warrant Shares, respectively, will be validly issued, fully paid and
nonassessable and free from all preemptive or similar rights, taxes, liens and
charges with respect to the issue thereof, with the holders being entitled to
all rights accorded to a holder of Common Stock. Assuming the accuracy of each
of the representations and warranties set forth in Section 2 of this Agreement,
the offer and issuance by the Company of the Securities to the Purchasers is
exempt from registration under the 1933 Act.

 

(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance of
the Preferred Shares and the Warrants, and reservation for issuance and issuance
of the Conversion Shares and the Warrant Shares) will not (i) result in a
violation of any certificate of incorporation, any certificate of formation, any
certificate of designations or other constituent documents of the Company or any
of its Subsidiaries, any capital stock of the Company or any of its Subsidiaries
or the bylaws of the Company or any of its Subsidiaries or (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) in any respect under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including foreign, federal and state laws and regulations)
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected.

 

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(e) Consents. Neither the Company nor any of its Subsidiaries is required to
obtain any consent, authorization or order of, or make any filing or
registration with, any government, court, regulatory, self-regulatory,
administrative agency or commission or other governmental agency, authority or
instrumentality, domestic or foreign, of competent jurisdiction (a “Governmental
Authority”) or any other Person in order for it to execute, deliver or perform
any of its obligations under or contemplated by the Transaction Documents, in
each case in accordance with the terms hereof or thereof, except for (i) the
filing with the SEC of one or more registration statements in accordance with
the requirements of the Registration Rights Agreement, (ii) the filing of the
Certificate of Designations with the Secretary of State of the State of
Delaware, (iii) the filing of a Form D pursuant to Regulation D promulgated by
the SEC under the 1933 Act and (iv) the filings required by applicable state
“blue sky” securities laws, rules and regulations. The Company and its
Subsidiaries are unaware of any facts or circumstances that might prevent the
Company from obtaining or effecting any of the registration, application or
filings pursuant to the preceding sentence.

 

(f) Acknowledgment Regarding Purchaser’s Purchase of Securities. The Company
acknowledges and agrees that, each Purchaser is acting solely in the capacity of
an arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that, no Purchaser is (i) an
officer or director of the Company or any of its Subsidiaries, or (ii) based in
part on the representations of the Purchasers an “affiliate” (as defined in Rule
144) of the Company or any of its Subsidiaries. The Company further acknowledges
that no Purchaser is acting as a financial advisor or fiduciary of the Company
or any of its Subsidiaries (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated hereby and thereby, and
any advice given by a Purchaser or any of its representatives or agents in
connection with the Transaction Documents and the transactions contemplated
hereby and thereby are merely incidental to such Purchaser’s purchase of the
Securities. The Company further represents to each Purchaser that the Company’s
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.

 

(g) No General Solicitation; Placement Agent. Neither the Company, nor any of
its Subsidiaries or affiliates, nor any Person acting on its or their behalf,
has engaged in any form of general solicitation or general advertising (within
the meaning of Regulation D) in connection with the offer or sale of the
Securities. Company has complied and will comply with the offering restriction
requirements of Regulation S. Other than as set forth in Schedule 3(g) hereto,
neither the Company nor any of its Subsidiaries has engaged any placement agent
or other agent in connection with the sale of the Securities. The Company shall
be responsible for the payment of such party’s and any other placement agent’s
fees, financial advisory fees, or brokers’ commissions in the amount set forth
in Schedule 3(g) relating to or arising out of the transactions contemplated
hereby in connection with the sale of the Securities. The Company shall pay, and
hold each Purchaser harmless against, any liability, loss or expense (including,
without limitation, attorney’s fees and out-of-pocket expenses) arising in
connection with any such claim.

 

(h) No Integrated Offering. None of the Company, its Subsidiaries, any of their
affiliates, and any Person acting on their behalf has, directly or indirectly,
made any offers or sales of any security or solicited any offers to buy any
security, under circumstances that would require registration of any of the
Securities under the 1933 Act, whether through integration with prior offerings
or otherwise, or caused this offering of the Securities to require approval of
stockholders of the Company for purposes of any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
any exchange or automated quotation system on which any of the securities of the
Company are listed or designated, but excluding stockholder consents, if any,
required to authorize and issue the Securities or waive any anti-dilution
provisions in connection therewith. None of the Company, its Subsidiaries, their
affiliates and any Person acting on their behalf will take any action or steps
referred to in the preceding sentence that would require registration of any of
the Securities under the 1933 Act or cause the offering of the Securities to be
integrated with other offerings for purposes of any such applicable stockholder
approval provisions.

 

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(i) Dilutive Effect. The Company understands and acknowledges that the number of
Conversion Shares issuable upon conversion of the Preferred Shares will increase
in certain circumstances and that the number of Warrant Shares issuable upon
exercise of the Warrants will increase in certain circumstances. The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Preferred Shares in accordance with this Agreement and the
Certificate of Designations, and its obligation to issue the Warrant Shares upon
exercise of the Warrants in accordance with this Agreement and the Warrants, is,
in each case, not limited by the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.

 

(j) Application of Takeover Protections; Rights Agreement. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation, (as defined in
Section 3(q)) any certificates of designations or the laws of the jurisdiction
of its formation or incorporation which is or could become applicable to any
Purchaser as a result of the transactions contemplated by this Agreement,
including, without limitation, the Company’s issuance of the Securities and any
Purchaser’s ownership of the Securities. The Company and its board of directors
have taken all necessary actions, if any, in order to render inapplicable any
stockholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.

 

(k) Material Liabilities; Financial Statements. Except as set forth on Schedule
3(k), or in the SEC Reports (as defined below) or Financial Statements, the
Company has no liabilities or obligations, absolute or contingent (individually
or in the aggregate), except (i) liabilities and obligations incurred after
December 31, 2017 in the ordinary course of business that are not material and
(ii) obligations under contracts made in the ordinary course of business that
would not be required to be reflected in financial statements prepared in
accordance with generally accepted accounting principles as applied in the
United States, consistently applied for the periods covered thereby (“GAAP”).
The financial statements of the Company for the fiscal years ended December 31,
2016 and 2017, which have been filed with the SEC (the “Financial Statements”),
fairly present in all material respects the financial position of the Company
and its Subsidiaries, on a consolidated basis, at the respective dates thereof
and the results of its operations and cash flows for the periods indicated. The
Financial Statements do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, except as disclosed in the SEC Reports.

 

(l) Absence of Certain Changes. Since December 31, 2017, except as set forth on
Schedule 3(l) hereto, there has been no material adverse change and no material
adverse development in the business, assets, properties, operations, condition
(financial or otherwise), results of operations or prospects of the Company or
its Subsidiaries. Without limiting the generality of the foregoing, neither the
Company nor any of its Subsidiaries has:

 

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(i) declared, set aside or paid any dividend or other distribution with respect
to any shares of capital stock of the Company or any of its Subsidiaries or any
direct or indirect redemption, purchase or other acquisition of any such shares;

 

(ii) sold, assigned, pledged, encumbered, transferred or otherwise disposed of
any tangible asset of the Company or any of its Subsidiaries (other than sales
or the licensing of its products to customers in the ordinary course of business
consistent with past practice), or sold, assigned, pledged, encumbered,
transferred or otherwise disposed of any Intellectual Property (other than
licensing of products of the Company or its Subsidiaries in the ordinary course
of business and on a non-exclusive basis);

 

(iii) entered into any licensing or other agreement with regard to the
acquisition or disposition of any Intellectual Property (as hereinafter defined)
other than licenses in the ordinary course of business consistent with past
practice or any amendment or consent with respect to any licensing agreement
filed or required to be filed with respect to any Governmental Authority;

 

(iv) capital expenditures, individually or in the aggregate, in excess of
$50,000;

 

(v) any obligation or liability (whether absolute, accrued, contingent or
otherwise, and whether due or to become due) incurred by the Company or any of
its Subsidiaries, in excess of $50,000 individually, other than obligations
under customer contracts, current obligations and liabilities, in each case
incurred in the ordinary course of business and consistent with past practice;

 

(vi) any Lien on any property of the Company or any of its Subsidiaries except
for Permitted Liens (as defined in Section 3(v)(i) hereof) and Liens in
existence on the date of this Agreement that are described in the SEC Reports;

 

(vii) any payment, discharge, satisfaction or settlement of any suit, action,
claim, arbitration, proceeding or obligation of the Company or any of its
Subsidiaries, except in the ordinary course of business and consistent with past
practice;

 

(viii) any split, combination or reclassification of any equity securities;

 

(ix) any material loss, destruction or damage to any property of the Company or
any Subsidiary, whether or not insured;

 

(x) any acceleration or prepayment of any Indebtedness (as defined below) for
borrowed money or the refunding of any such Indebtedness;

 

(xi) any labor trouble involving the Company or any Subsidiary or any material
change in their personnel or the terms and conditions of employment;

 

10

 

 

(xii) any waiver of any valuable right, whether by contract or otherwise;

 

(xiii) except as disclosed in Schedule 3(1), any loan or extension of credit to
any officer or employee of the Company;

 

(xiv) any change in the independent public accountants of the Company or its
Subsidiaries or any material change in the accounting methods or accounting
practices followed by the Company or its Subsidiaries, as applicable, or any
material change in depreciation or amortization policies or rates;

 

(xv) any resignation or termination of any officer, key employee or group of
employees of the Company or any of its Subsidiaries;

 

(xvi) any change in any compensation arrangement or agreement with any employee,
officer, director or stockholder that would result in the aggregate compensation
to such Person in such year to exceed $100,000;

 

(xvii) any material increase in the compensation of employees of the Company or
its Subsidiaries (including any increase pursuant to any written bonus, pension,
profit sharing or other benefit or compensation plan, policy or arrangement or
commitment), or any increase in any such compensation or bonus payable to any
officer, stockholder, director, consultant or agent of the Company or any of its
Subsidiaries having an annual salary or remuneration in excess of $100,000;

 

(xviii) any revaluation of the Company’s or its Subsidiaries’ respective assets,
including, without limitation, writing down the value of capitalized inventory
or writing off notes or accounts receivable or any sale of assets other than in
the ordinary course of business;

 

(xix) any acquisition or disposition of any material assets (or any contract or
arrangement therefor), or any other material transaction by the Company or any
Subsidiary otherwise than for fair value in the ordinary course of business;

 

(xx) written-down the value of any asset of the Company or its Subsidiaries or
written-off as uncollectible of any accounts or notes receivable or any portion
thereof except in the ordinary course of business and in a magnitude consistent
with historical practice;

 

(xxi) cancelled any debts or claims or any material amendment, termination or
waiver of any rights of the Company or its Subsidiaries;

 

(xxii) received any regulatory letter, notice of adverse findings, notice of
violation, warning letter or any equivalent correspondences from any
Governmental Authority; or

 

(xxiii) any agreement, whether in writing or otherwise, to take any of the
actions specified in the foregoing items (i) through (xxii).

 

11

 

 

Neither the Company nor any of its Subsidiaries has taken any steps to seek
protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact that would reasonably
lead a creditor to do so. The Company and its Subsidiaries, individually and on
a consolidated basis, are not as of the Execution Date, and after giving effect
to the transactions contemplated hereby to occur at the Closing, will not be
Insolvent (as defined below). For purposes of this Section 3(l), “Insolvent”
means, with respect to any Person (i) the present fair saleable value of such
Person’s assets is less than the amount required to pay such Person’s total
Indebtedness, (ii) such Person is unable to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured, (iii) such Person intends to incur or believes that it
will incur debts that would be beyond its ability to pay as such debts mature or
(iv) such Person has unreasonably small capital with which to conduct the
business in which it is engaged as such business is now conducted and is
proposed to be conducted.

 

(m) No Undisclosed Events, Liabilities, Developments or Circumstances. Except as
set forth in Schedule 3(m) hereto, the Company and its Subsidiaries have no
liabilities or obligations of any nature (whether accrued, absolute, contingent,
unasserted or otherwise and whether due or to become due) other than those
liabilities or obligations that are disclosed in the Financial Statements or the
SEC Reports, or which do not exceed, individually in excess of $100,000 and in
the aggregate in excess of $1,000,000.

 

(n) Conduct of Business; Regulatory Permits. Neither the Company nor any of its
Subsidiaries is in violation of any term of or in default under its Certificate
of Incorporation, the Certificate of Designations, any other certificate of
designation, preferences or rights of any other outstanding series of preferred
stock of the Company or the Bylaws (as defined in Section 3(q)) or their
organizational charter or certificate of incorporation or bylaws, respectively.
Neither the Company nor any of its Subsidiaries is in violation of any judgment,
decree or order or any statute, ordinance, rule or regulation (each a “Legal
Requirement”) applicable to the Company or any of its Subsidiaries, and neither
the Company nor any of its Subsidiaries will conduct its business in violation
of any of the foregoing. Except as set forth in the SEC Reports, to the best of
Company’s knowledge, the Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate Governmental Authorities
necessary to conduct their respective businesses, and neither the Company nor
any such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit, and
there is no agreement, commitment, judgment, injunction, order or decree binding
upon the Company or any of its Subsidiaries or to which the Company or any of
its Subsidiaries is a party which has or could reasonably be expected to have
the effect of prohibiting or materially impairing any business practice of the
Company or any of its Subsidiaries, any acquisition of property by the Company
or any of its Subsidiaries or the conduct of business by the Company or any of
its Subsidiaries as currently conducted.

 

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

 

12

 

 

(p) Management. During the past five year period, no current officer or director
or, to the knowledge of the Chief Executive Officer and Chief Financial Officer
of the Company, without inquiry, former officer or director or former or current
holder of 5% or more of the Common Stock of the Company or any of its
Subsidiaries has been the subject of:

 

(i) a petition under bankruptcy laws or any other insolvency or moratorium law
or has a receiver, fiscal agent or similar officer been appointed by a court for
such Person, or any partnership in which such person was a general partner at or
within two years before the time of such filing, or any corporation or business
association of which such person was an executive officer at or within two years
before the time of such filing;

 

(ii) a conviction in a criminal proceeding or a named subject of a pending
criminal proceeding (excluding traffic violations that do not relate to driving
while intoxicated or driving under the influence);

 

(iii) any order, judgment or decree, not subsequently reversed, suspended or
vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining any such person from, or otherwise limiting, the following activities:

 

(1) Acting as a futures commission merchant, introducing broker, commodity
trading advisor, commodity pool operator, floor broker, leverage transaction
merchant, any other person regulated by the United States Commodity Futures
Trading Commission or an associated person of any of the foregoing, or as an
investment adviser, underwriter, broker or dealer in securities, or as an
affiliated person, director or employee of any investment company, bank, savings
and loan association or insurance company, or engaging in or continuing any
conduct or practice in connection with such activity;

 

(2) Engaging in any type of business practice; or

 

(3) Engaging in any activity in connection with the purchase or sale of any
security or commodity or in connection with any violation of securities laws or
commodities laws;

 

(iv) any order, judgment or decree, not subsequently reversed, suspended or
vacated, of any authority barring, suspending or otherwise limiting for more
than 30 days the right of any such person to engage in any activity described in
the preceding sub paragraph, or to be associated with persons engaged in any
such activity;

 

(v) a finding by a court of competent jurisdiction in a civil action or by the
SEC or other authority to have violated any securities law, regulation or decree
and the judgment in such civil action or finding by the SEC or any other
authority has not been subsequently reversed, suspended or vacated; or

 

(vi) a finding by a court of competent jurisdiction in a civil action or by the
Commodity Futures Trading Commission to have violated any federal commodities
law, and the judgment in such civil action or finding has not been subsequently
reversed, suspended or vacated.

 

13

 

 

(q) Transactions With Affiliates. Except as disclosed in the SEC Reports, no
current employee, director, officer or, to the knowledge of the Company, any
former employee, director or officer, any stockholder of the Company or its
Subsidiaries, affiliate of any thereof who occupied such role during the past 12
months, or any relative with a relationship no more remote than first cousin of
any of the foregoing, is presently, or has ever been in the last 12 months, (i)
a party to any material transaction with the Company or its Subsidiaries
(including any contract, agreement or other arrangement providing for the
furnishing of services by, or rental of real or personal property from, or
otherwise requiring payments to, any such director, officer or stockholder or
such associate or affiliate or relative) or (ii) the direct or indirect owner of
an interest in any corporation, firm, association or business organization which
is a material competitor, supplier or customer of the Company or its
Subsidiaries (except for a passive investment (direct or indirect) in less than
5% of the common stock of a company whose securities are publicly traded), nor
does any such Person receive income from any source other than the Company or
its Subsidiaries which relates to the business of the Company or its
Subsidiaries or should properly accrue to the Company or its Subsidiaries.
Except as set forth in the SEC Reports, no employee, officer, stockholder or
director of the Company or any of its Subsidiaries or member of his or her
immediate family is indebted to the Company or its Subsidiaries, as the case may
be, nor is the Company or any of its Subsidiaries indebted (or committed to make
loans or extend or guarantee credit) to any of them, other than (i) for payment
of salary for services rendered, (ii) reimbursement for reasonable expenses
incurred on behalf of the Company, and (iii) for other standard employee
benefits made generally available to all employees or executives (including
stock option agreements outstanding under any stock option plan approved by the
board of directors of the Company).

 

14

 

 

(r) Equity Capitalization. As of the Execution Date, the authorized capital
stock of the Company consists of (i) 500,000,000 shares of Common Stock,
$0.00001 par value per share, and as of the Execution Date, 147,758,908 are
issued and outstanding, 36,000,000 are reserved for issuance pursuant to the
Company’s stock option and purchase plans, (ii) 20,000,000 shares of preferred
stock, $0.00001 par value per share and, as of the Execution Date, 5,000 of
which are designated Series A Convertible Preferred Stock, none of which are
issued and outstanding, (iii) warrants exercisable for 8,350,870 shares of
Common Stock at prices set forth on Schedule 3(p)(A) and (iv) options
exercisable for 27,300,000 shares at prices set forth in Schedule 3(p)(A). All
of such outstanding shares have been, or upon issuance will be, validly issued
and are fully paid and nonassessable. The capitalization of the Company
immediately prior to the Closing Date is set forth on Schedule 3(p)(A) attached
hereto and the capitalization of the Company immediately following the Closing
Date is set forth on Schedule 3(p)(B) attached hereto. Except as disclosed in
Schedule 3(p)(C): (i) none of the Company’s capital stock is subject to
preemptive rights or any other similar rights or any Liens or encumbrances
suffered or permitted by the Company; (ii) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or exercisable
or exchangeable for, any capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional capital stock of the Company or any of its Subsidiaries or options,
warrants, scrips, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or exercisable
or exchangeable for, any capital stock of the Company or any of its
Subsidiaries; (iii) there are no outstanding debt securities, notes, credit
agreements, credit facilities or other agreements, documents or instruments
evidencing Indebtedness of the Company or any of its Subsidiaries or by which
the Company or any of its Subsidiaries is or may become bound; (iv) there are no
financing statements securing obligations in any material amounts, either singly
or in the aggregate, filed in connection with the Company or any of its
Subsidiaries; (v) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except pursuant to the Registration Rights
Agreement); (vi) there are no outstanding securities or instruments of the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries; (vii)
there are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Securities; (viii) the
Company has not issued any stock appreciation rights or “phantom stock” or any
similar rights; and (ix) the Company and its Subsidiaries have no liabilities or
obligations required to be disclosed in the Financial Statements in accordance
with GAAP but not so disclosed in the Financial Statements.. The Company has
furnished to the Purchasers true, correct and complete copies of the Company’s
Certificate of Incorporation, as amended and as in effect on the date hereof
(the “Certificate of Incorporation”), and the Company’s Bylaws, as amended and
as in effect on the date hereof (the “Bylaws”), and the terms of all securities
convertible into, or exercisable or exchangeable for, shares of Common Stock and
the material rights of the holders thereof in respect thereto (or, in the case
of securities issued under Incentive Plans (as defined below), a summary of the
number of such securities outstanding).

 

(s) Indebtedness and Other Contracts. Except for Permitted Liens, as disclosed
in the SEC Reports or on Schedule 3(v)(ii) hereto, neither the Company nor any
of its Subsidiaries (i) has any outstanding Indebtedness (as defined below),
(ii) is a party to any contract, agreement or instrument, the violation of
which, or default under which, by the other party(ies) to such contract,
agreement or instrument could reasonably be expected to result in a Material
Adverse Effect, (iii) is in violation of any term of or in default under any
contract, agreement or instrument relating to any Indebtedness, except where
such violations and defaults would not result, individually or in the aggregate,
in a Material Adverse Effect, or (iv) is a party to any contract, agreement or
instrument relating to any Indebtedness, the performance of which, in the
judgment of the Company’s officers, has or is expected to have a Material
Adverse Effect. The Financial Statements provide a description of the material
terms of any such outstanding Indebtedness. For purposes of this Agreement: (x)
“Indebtedness” of any Person means, without duplication (A) all indebtedness for
borrowed money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (including, without limitation,
“capital leases” in accordance with GAAP) (other than trade payables entered
into in the ordinary course of business consistent with past practice), (C) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (D) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses,
(E) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with respect
to any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in GAAP,
consistently applied for the periods covered thereby, is classified as a capital
lease, (G) all indebtedness referred to in clauses (A) through (F) above secured
by (or for which the holder of such indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, deed of trust, lien,
pledge, charge, security interest, easement, covenant, right of way,
restriction, equity or encumbrance of any nature whatsoever in or upon any
property or assets (including accounts and contract rights) with respect to any
asset (a “Lien”) owned by any Person, even though the Person which owns such
assets or property has not assumed or become liable for the payment of such
indebtedness, and (H) all Contingent Obligations in respect of indebtedness or
obligations of others of the kinds referred to in clauses (A) through (G) above;
and (y) “Contingent Obligation” means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.

 

15

 

 

(t) Absence of Litigation. Except as set forth in the SEC Reports or on Schedule
3(t) hereto, there is no action, suit, arbitration or other legal,
administrative or other governmental investigation, inquiry or proceeding
(whether federal, state, local or foreign) pending or, to the best of the
Company’s knowledge, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties, assets, capital stock or
businesses or any of the Company’s or any of its Subsidiaries’ officers or
directors. After reasonable inquiry of its employees, the Company is not aware
of any fact which might result in or form the basis for any such action, suit,
arbitration, investigation, inquiry or other proceeding. Neither the Company nor
any of its Subsidiaries is subject to any order, writ, judgment, injunction,
decree, determination or award of any Governmental Authority.

 

(u) Employee Matters; Benefit Plans. The employment of each officer and employee
of the Company is terminable at the will of the Company, except as disclosed in
the SEC Reports. The Company is not aware that any officer, key employee or
group of employees intends to terminate his, her or their employment with the
Company or its Subsidiaries, as the case may be, nor does the Company have a
present intention, or know of a present intention of its Subsidiaries, to
terminate the employment of any officer, key employee or group of employees. The
SEC Reports contain a true, correct and materially complete list of each stock
option, stock appreciation, stock purchase, performance share, bonus or other
incentive plan,

 

(v) Assets; Title.

 

(i) Each of the Company and its Subsidiaries has good and valid title to, or a
valid leasehold interest in, as applicable, all of its material properties and
assets, free and clear of all Liens except (i) any Lien for taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP, (ii) any
statutory Lien arising in the ordinary course of business by operation of law
with respect to a liability that is not yet due or delinquent, (iii) any Lien
created by operation of law, such as materialmen’s liens, mechanics’ liens and
other similar liens, arising in the ordinary course of business with respect to
a liability that is not yet due or delinquent or that are being contested in
good faith by appropriate proceedings, and (iv) such as are being disposed of in
the ordinary course of business (collectively, “Permitted Liens”) and those
Liens listed on Schedule 3(v)(i) hereto. All tangible personal property owned by
the Company and its Subsidiaries has been maintained in good operating condition
and repair, except (x) for ordinary wear and tear, and (y) where such failure
would not have a Material Adverse Effect. All material assets leased by the
Company or any of its Subsidiaries are in the condition required by the terms of
the lease applicable thereto during the term of such lease and upon the
expiration thereof. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all Liens. Any real
property and facilities held under lease by the Company or any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
Subsidiaries.

 

16

 

 

(w) Intellectual Property.

 

(i) Except as set forth in the SEC Reports, (i) the Company and its Subsidiaries
own all right, title and interest in and to, or have a valid and enforceable
license to use all the material Intellectual Property used by them in connection
with their respective businesses, which represents all intellectual property
rights necessary to the conduct of their business as now conducted, (ii) the
Company and its Subsidiaries are in compliance with all contractual obligations
relating to the protection of such of the Intellectual Property as they use
pursuant to license or other agreement, (iii) the conduct of the business of the
Company and its Subsidiaries as currently conducted or contemplated does not
conflict with or infringe any proprietary right or Intellectual Property of any
third party, including, without limitation, the transmission, reproduction, use,
display or modification of any content or material (including framing, and
linking website content) on a website, bulletin board or other like medium
hosted by or on behalf of the Company or any of its Subsidiaries, except for
such infringements and conflicts which could not reasonably be expected to have
a Material Adverse Effect, and (iv) there is no claim, suit, action or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any Subsidiary: (A) alleging any such conflict or infringement with
any third party’s proprietary rights; or (B) challenging the Company’s or any
Subsidiary’s ownership or use of, or the validity or enforceability of any
Intellectual Property.

 

(ii) No present or former employee, officer or director of the Company or any
Subsidiary, or agent or outside contractor of the Company or any Subsidiary,
holds any right, title or interest, directly or indirectly, in whole or in part,
in or to any Intellectual Property that is owned or licensed by the Company or
any Subsidiary.

 

(iii) To the Company’s knowledge: (i) none of the Listed Intellectual Property
has been used, disclosed or appropriated to the detriment of the Company or any
Subsidiary for the benefit of any Person other than the Company; and (ii) no
employee, independent contractor or agent of the Company or any Subsidiary has
misappropriated any trade secrets or other confidential information of any other
Person in the course of the performance of his or her duties as an employee,
independent contractor or agent of the Company or any Subsidiary.

 

17

 

 

(iv) Any programs, modifications, enhancements or other inventions,
improvements, discoveries, methods or works of authorship (“Works”) that were
created by employees of the Company or any Subsidiary were made in the regular
course of such employees’ employment or service relationships with the Company
or its Subsidiary using the Company’s or the Subsidiary’s facilities and
resources and, as such, constitute either works made for hire or all rights and
title to and in such Works have been fully assigned to the Company or a
Subsidiary. Each such employee who has created Works or any employee who in the
regular course of his employment may create Works and all consultants have
signed an assignment or similar agreement with the Company or the Subsidiary
confirming the Company’s or the Subsidiary’s ownership or, in the alternate,
transferring and assigning to the Company or the Subsidiary all right, title and
interest in and to such programs, modifications, enhancements or other
inventions including copyright and other intellectual property rights therein.

 

(v) For the purpose of this Section 3(u), “Intellectual Property” shall mean all
of the following: (A) trademarks and service marks, trade dress, product
configurations, trade names and other indications of origin, applications or
registrations in any jurisdiction pertaining to the foregoing and all goodwill
associated therewith; (B) inventions, discoveries, improvements, ideas,
know-how, formulas, methodology, processes, technology, software (including
password unprotected interpretive code or source code, object code, development
documentation, programming tools, drawings, specifications and data) and
applications and patents in any jurisdiction pertaining to the foregoing,
including re-issues, continuations, divisions, continuations-in-part, renewals
or extensions; (C) trade secrets, including confidential information and the
right in any jurisdiction to limit the use or disclosure thereof; (D) copyrights
in writings, designs software, mask works or other works, applications or
registrations in any jurisdiction for the foregoing and all moral rights related
thereto; (E) database rights; (F) Internet websites, domain names and
applications and registrations pertaining thereto and all intellectual property
used in connection with or contained in all versions of the Company’s websites;
(G) rights under all agreements relating to the foregoing; (H) books and records
pertaining to the foregoing; and (I) claims or causes of action arising out of
or related to past, present or future infringement or misappropriation of the
foregoing.

 

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

 

18

 

 

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

 

(z) Tax Status.

 

(i) Each of the Company and its Subsidiaries has filed or caused to be filed in
a timely manner (within any applicable extension periods) and in the appropriate
jurisdictions all material returns, reports, information statements and other
documentation (including any additional or supporting materials) filed or
maintained, or required to be filed or maintained, in connection with the
calculation, determination, assessment or collection of any and all federal,
state, local, foreign and other taxes, levies, fees, imposts, duties,
governmental fees and charges of whatever kind (including any interest,
penalties or additions to the tax imposed in connection therewith or with
respect thereto), including, without limitation, taxes imposed on, or measured
by, income, franchise, profits, gross income or gross receipts, and also ad
valorem, value added, sales, use, service, real or personal property, capital
stock, stock transfer, license, payroll, withholding, employment, social
security, workers’ compensation, unemployment compensation, utility, severance,
production, excise, stamp, occupation, premium, windfall profits, environmental,
transfer and gains taxes and customs duties (each a “Tax”) and shall include
amended returns required as a result of examination adjustments made by the IRS
or other Governmental Authority responsible for the imposition of any Tax
(collectively, the “Returns”) and such Returns are true, correct and complete in
all material respects.

 

(ii) Each of the Company and its Subsidiaries has paid all material Taxes and
other assessments due from and payable by the Company and its Subsidiaries on or
prior to the date hereof on a timely basis . The charges, accruals, and reserves
for Taxes with respect to the Company and its Subsidiaries are adequate to cover
Tax liabilities of the Company and its Subsidiaries accruing throughout the
Execution Date. Except as set forth in the SEC Reports, each of the Company and
its Subsidiaries has complied in all material respects with all applicable Legal
Requirements relating to the payment and withholding of Taxes (including
withholding and reporting requirements under Sections 1441 through 1464, 3401
through 3406, and 6041 and 6049 of the Code and similar provisions under any
other applicable Legal Requirements) and, within the time and in the manner
prescribed by law, has withheld from wages, fees and other payments and paid
over to the proper governmental or regulatory authorities all amounts required.
Neither the Company nor any of its Subsidiaries has received notice of
assessment or proposed assessment of any Taxes claimed to be owed by it or any
other Person on its behalf. No Returns filed by or on behalf of the Company or
any of its Subsidiaries with respect to Taxes are currently being audited or
examined. Neither the Company nor any of its Subsidiaries has received notice of
any such audit or examination. No issue has been raised by any taxing authority
with respect to the Company or any of its Subsidiaries in any audit or
examination which, by application of similar principles, could reasonably be
expected to result in a proposed material adjustment to the liability for Taxes
for any period not so examined.

 

(iii) No Liens have been filed and no claims are being asserted by or against
the Company or any of its Subsidiaries with respect to any Taxes (other than
Liens for Taxes not yet due and payable). Neither the Company nor any of its
Subsidiaries has elected pursuant to the Code to be treated as an S corporation
or any comparable provision of local, state or foreign law, or has made any
other elections pursuant to the Code (other than elections that relate solely to
entity classification, methods of accounting, depreciation, or amortization)
that would have a material effect on the business, properties, prospects, or
financial condition of the Company and its Subsidiaries, individually or in the
aggregate.

 

19

 

 

(iv) No claim has ever been made, or, to the knowledge of the Company, is
threatened or pending, by any Governmental Authority in a jurisdiction where the
Company or any of its Subsidiaries, respectively, does not file Returns that the
Company or any of its Subsidiaries is or may be subject to taxation by that
jurisdiction, and neither the Company nor any of its Subsidiaries has received
any notice or request for information from any such Governmental Authority.
Neither the Company nor any of its Subsidiaries has been a member of an
affiliated group (as defined in Section 1504(a) of the Code) or filed or been
included in a combined, consolidated or unitary income tax return other than the
affiliated group of which the Company is currently the common parent. Neither
the Company nor any of its Subsidiaries is required to include in income any
adjustment pursuant to Section 481(a) of the Code by reason of a voluntary
change in accounting methods initiated by the Company or any of its
Subsidiaries, and no Governmental Authority has proposed an adjustment or change
in accounting method. All transactions or methods of accounting that could give
rise to a substantial understatement of federal income tax as described in
Section 6662(d)(2)(B)(i) of the Code have been adequately disclosed on the
Company’s and its Subsidiaries’ federal income tax returns in accordance with
Section 6662(d)(2)(B) of the Code. Neither the Company nor any of its
Subsidiaries is a party to any Tax sharing or Tax indemnity agreement or any
other agreement of a similar nature that remains in effect. Neither the Company
nor any of its Subsidiaries has consented to any waiver of the statute of
limitations for the assessment of any Taxes or has requested any extension of
time for the payment of any Taxes. Neither the Company nor any of its
Subsidiaries is obligated to make, nor as a result of any event connected with
the transactions contemplated by this Agreement will become obligated to make,
any payment that would not be deductible under Section 280G of the Code. Neither
the Company nor any Subsidiary of the Company is a “passive foreign investment
company” within the meaning of Section 1296 of the Code (a “PFIC”), and the
Company does not anticipate that the Company or any additional foreign
Subsidiary will become a PFIC in the foreseeable future.

 

(aa) Internal Accounting and Disclosure Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls appropriate for
its size.

 

(bb) Off Balance Sheet Arrangements. There is no transaction, arrangement, or
other relationship between the Company and an unconsolidated or other off
balance sheet entity that is not disclosed by the Company in its Financial
Statements or the Interim Financial Statements or that otherwise would be
reasonably likely to have a Material Adverse Effect.

 

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

 

20

 

 

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

 

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

 

(ff) Books and Records. To the Company’s knowledge, the books of account,
ledgers, order books, records and documents of the Company and its Subsidiaries
accurately and completely reflect all information relating to the respective
businesses of the Company and its Subsidiaries, the nature, acquisition,
maintenance, location and collection of each of their respective assets, and the
nature of all transactions giving rise to material obligations or accounts
receivable of the Company or its Subsidiaries, as the case may be, except where
the failure to so reflect such information would not have a Material Adverse
Effect. To the Company’s knowledge, the minute books of the Company and its
Subsidiaries contain accurate records of all meetings and accurately reflect all
other actions taken by the stockholders, boards of directors and all committees
of the boards of directors, and other governing Persons of the Company and its
Subsidiaries, respectively.

 

(gg) Money Laundering. The Company and its Subsidiaries are in compliance with,
and have not previously violated, the USA PATRIOT ACT of 2001 (the “PATRIOT
Act”) and all other applicable U.S. and non-U.S. anti-money laundering laws and
regulations, including, but not limited to, the laws, regulations and Executive
Orders and sanctions programs administered by the U.S. Office of Foreign Assets
Control (“OFAC”), including, but not limited, to (i) Executive Order 13224 of
September 23, 2001 entitled, “Blocking Property and Prohibiting Transactions
With Persons Who Commit, Threaten to Commit, or Support Terrorism” (66 Fed. Reg.
49079 (2001)); and (ii) any regulations contained in 31 CFR, Subtitle B, Chapter
V (collectively, the “Anti-Money Laundering/OFAC Laws”).

 

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

 

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

 

21

 

 

(jj) Shell Company Status. The Company is not an issuer identified in Rule
144(i)(1) of the 1933 Act.

 

(kk) No Disqualification Events. With respect to Securities to be offered and
sold hereunder in reliance on Rule 506 under the 1933 Act (“Regulation D
Securities”), none of the Company, any of its predecessors, any affiliated
issuer, any director, executive officer, other officer of the Company
participating in the offering hereunder, any beneficial owner of 20% or more of
the Company’s outstanding voting equity securities, calculated on the basis of
voting power, nor any promoter (as that term is defined in Rule 405 under the
1933 Act) connected with the Company in any capacity at the time of sale (each,
an “Issuer Covered Person” and, together, “Issuer Covered Persons”) is subject
to any Disqualification Event, except for a Disqualification Event covered by
Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine
whether any Issuer Covered Person is subject to a Disqualification Event. The
Company has complied, to the extent applicable, with its disclosure obligations
under Rule 506(e), and has furnished to the Purchasers a copy of any disclosures
provided thereunder.

 

(ll) Other Covered Persons. The Company is not aware of any Person (other than
any Issuer Covered Person) that has been or will be paid (directly or
indirectly) remuneration for solicitation of Purchasers or potential purchasers
in connection with the sale of any Regulation D Securities.

 

(mm) Disclosure. The Company understands and confirms that each of the
Purchasers will rely on the foregoing representations in effecting transactions
in securities of the Company. No statement made by the Company in this
Agreement, any other Transaction Document or the Exhibits and Schedules attached
hereto or in any certificate or schedule furnished or to be furnished by or on
behalf of the Company to the Holders or any of their representatives in
connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading.

 

22

 

 

(nn) Life Sciences Representations and Warranties.

 

(i) The Company and its Subsidiaries are in material compliance with all
applicable laws, rules, regulations, and policies administered or enforced by
the FDA, the U.S. Drug Enforcement Administration, the U.S. Department of Health
and Human Services, the Centers for Medicare and Medicaid Services, the HHS
Office of Inspector General, and any other Governmental Authority, that
regulates the development of pharmaceutical or medical device products in any
jurisdiction, including, without limitation, relating to anti-kickback sales and
marketing practices, off-label promotion, government health care program price
reporting, good clinical practices, good manufacturing practices, good
laboratory practices, advertising and promotion, pre- and post-marketing adverse
drug experience and adverse drug reaction reporting, and all other pre- and
post-marketing reporting requirements, as applicable. The Company and its
Subsidiaries have operated and are in compliance in all material respects with
applicable statutes and implementing regulations administered or enforced by the
FDA or any other applicable Governmental Authority. The Company and its
Subsidiaries have not received notice of any pending or threatened claim, suit,
proceeding, hearing, enforcement, audit, investigation, arbitration or other
action from the FDA or any other applicable Governmental Authority alleging that
any operation or activity of the Company or any Subsidiary is, or has been, in
violation of any applicable law.

 

(ii) There is no action or proceeding by any Governmental Authority pending or,
to the knowledge of the Company, or any of its Subsidiaries, threatened seeking
the recall of any of the products. The Company has made available to the
Purchasers a complete and correct copy of all product data.

 

(iii) The Company and its Subsidiaries have no knowledge of any adverse events
or experience reports associated with the use of products required to be
reported to the FDA, or any other regulatory authority, that have not been
reported to the appropriate regulatory authority, in accordance with applicable
law.

 

(iv) There have been no Studies conducted or supervised by the Company or its
Subsidiaries that have been rejected or found to be insufficient by any
Governmental Authorities.

 

(v) The Company and its Subsidiaries are, and have been, in material compliance
with all laws requiring the maintenance or submission of reports or records
under requirements administered by the FDA or any other Governmental Authority.
Neither the Company, nor any of its respective employees, agents, or
Subsidiaries, have made any untrue or fraudulent statements of material facts to
the FDA or any other applicable Governmental Authorities, or in any records and
documentation prepared or maintained to comply with the applicable laws, or
failed to disclose a fact required to be disclosed to the FDA or any other
similar Governmental Authorities.

 

(vi) The Company and its Subsidiaries have not filed any drug master files
(“DMFs”) with the FDA or other Governmental Authorities.

 

(vii) Neither the Company, nor any of its officers, directors, affiliates, or
Subsidiaries, has been convicted of any crime or engaged in any conduct that
could result or resulted in debarment, exclusion or disqualification by the FDA
or any other Governmental Authority, and there are no proceedings pending or, to
the knowledge of the Company threatened that reasonably might be expected to
result in criminal or civil liability or debarment, exclusion or
disqualification by the FDA or any other Governmental Authority. There have been
no adverse actions by the FDA or any other Governmental Authorities, taken
against the Company or its Subsidiaries regarding any product designed,
developed or in development, manufactured, licensed, distributed or sold by the
Company and its Subsidiaries. The Company and its Subsidiaries have not received
written notice of, or been subject to, any enforcement action involving the FDA
or any other Governmental Authorities, including but not limited to, any
regulatory letter, notice of adverse findings, notice of violation, warning
letter, suspension, consent decree, notice of criminal investigation,
indictment, sentencing memorandum, plea agreement, court order or target or
no-target letter. None of the foregoing are pending or, to the knowledge of the
Company, threatened in writing against the Company or its Subsidiaries. Neither
the Company, nor any of its officers, directors, employees, affiliates, or
Subsidiaries, has committed any act, made any statement, or failed to make any
statement that would reasonably be expected to provide a basis for the FDA to
invoke its policy with respect to “Fraud, Untrue Statements of Material Facts,
Bribery, and Illegal Gratuities” or for any other Governmental Authority to
invoke any similar policy.

 

23

 

 

(viii) The Company is not party to any corporate integrity agreements,
monitoring agreements, consent decrees, settlement orders or similar agreements
with or imposed by any Governmental Authority.

 

(ix) True and complete copies of all information, data, protocols, study
reports, safety reports and/or other relevant documents and materials have been
made available to the Purchasers.

 

(oo) SEC Reports. As of their respective dates, all forms, reports and documents
filed by the Company with the SEC (the “SEC Reports”) (i) were, to the knowledge
of the Company, prepared in accordance and complied in all material respects
with the requirements of the Securities Act or the Securities Exchange Act of
1934 (the “1934 Act”), as the case may be, and the rules and regulations of the
SEC thereunder applicable to such SEC Reports and (ii) did not, to the knowledge
of the Company, at the time they were filed, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

 

4. COVENANTS.

 

(a) Best Efforts. Each party shall use commercially reasonable efforts timely to
satisfy each of the covenants below and the conditions to be satisfied by it as
provided in Sections 6 and 7 of this Agreement.

 

(b) Use of Proceeds. The Company shall not use any proceeds to lend money, give
credit, made advances or otherwise repay any amounts owing to any officers,
directors, employees, related parties or affiliates of the Company.

 

(c) Reporting Status. Until the date on which no Purchaser or any transferee or
assignee thereof to whom a Purchaser assigns its rights as a holder of
Securities under this Agreement and/or the Certificate of Designations (each a
“Holder”, and collectively, the “Holders”) shall hold any Warrants or Preferred
Shares (the “Reporting Period”), the Company shall timely file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would no
longer require or otherwise permit such termination.

 

24

 

 

(d) Financial Information. As long as any Preferred Stock or Warrants remain
outstanding, the Company agrees to send the following to each Holder during the
Reporting Period (i) unless the following are filed with the SEC through EDGAR
and are available to the public through the EDGAR system, within one (1) Trading
Day after the filing thereof with the SEC, a copy of its Annual Reports on Form
10-K and Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K (or any
analogous reports under the 1934 Act) and any registration statements (other
than on Form S-8) or amendments filed pursuant to the 1933 Act, and (ii) on the
same day as the release thereof, e-mailed copies of all press releases issued by
the Company or any of its Subsidiaries, and (iii) copies of any notices and
other information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders.

 

(e) Listing. The Company shall promptly secure the quotation of the Conversion
Shares and Warrant Shares upon the OTCQB (subject to official notice of
issuance) (such primary exchange or quotation system or any subsequent national
securities exchange or quotation system on which the Common Stock shall be
listed or quoted, the “Principal Market”) (the date such listing initially
occurs, the “Listing Date”). and shall secure and maintain, in accordance with
this Agreement, the listing or quotation of all additional Conversion Shares and
Warrant Shares from time to time issued under the terms of the Transaction
Documents. Throughout the Reporting Period the Company shall maintain the
listing or quotation of the Conversion Shares on the Principal Market, and
neither the Company nor any of its Subsidiaries shall take any action which
would be reasonably expected to result in the delisting or suspension of the
Common Stock on the Principal Market. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section 4(e).

 

(f) Fees. Except for $10,000 which was previously advanced by the Company, each
party shall be responsible for its own costs and expenses incurred in connection
with the due diligence and documentation of the transaction. The Company shall
be responsible for the payment of any placement agent’s fees, financial advisory
fees, or broker’s commissions relating to or arising out of the transactions
contemplated hereby but only to the extent that the Company has agreed in
writing with any such party to pay such fees. The Company shall pay, and hold
each Purchaser harmless against, any liability, loss or expense (including,
without limitation, reasonable attorney’s fees and out-of-pocket expenses)
arising in connection with any claim relating to any such payments that are the
responsibility of the Company hereunder. Except as otherwise set forth in the
Transaction Documents, each party to this Agreement shall bear its own expenses
in connection with the sale of the Securities to the Purchasers.

 

(g) Pledge of Securities. The Company acknowledges and agrees that the
Securities may be pledged by a Holder in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the
Securities. The bona fide pledge of Securities shall not be deemed to be a
transfer, sale or assignment of the Securities hereunder, and no Holder
effecting a bona fide pledge of Securities shall be required to provide the
Company with any notice thereof or otherwise make any delivery to the Company
pursuant to this Agreement or any other Transaction Document, including, without
limitation, Section 2(g) hereof; provided that a Holder and its pledgee shall be
required to comply with the provisions of Section 2(g) hereof in order to effect
a sale, transfer or assignment of Securities to such pledgee. The Company hereby
agrees to execute and deliver such documentation as a pledgee of the Securities
may reasonably request in connection with a pledge of the Securities to such
pledgee by a Holder.

 

25

 

 

(h) Disclosure of Transactions and Other Material Information. The Company may
issue a press release (the “Press Release”) reasonably acceptable to the
Purchasers disclosing the material terms of the transactions contemplated by the
Transaction Documents. On or before 9:30 a.m., New York time, on the fourth
(4th) Trading Day after the Execution Date, the Company shall file a Current
Report on Form 8-K describing all the material terms of the transactions
contemplated by the Transaction Documents in the form required by the 1934 Act
and attaching all the material Transaction Documents (including, without
limitation, a form of this Agreement (and all schedules to this Agreement) and
the forms of all exhibits to this Agreement) (including all attachments, the
“8-K Filing”). As of the filing of the 8-K Filing, the Company shall have
disclosed all material, non-public information (if any) provided to any of the
Purchasers by the Company or any of its Subsidiaries or any of their respective
officers, directors, employees or agents in connection with the transactions
contemplated by the Transaction Documents. In addition, effective upon the
filing of the 8-K Filing, the Company acknowledges and agrees that any and all
confidentiality or similar obligations under any agreement, whether written or
oral, between the Company, any of its Subsidiaries or any of their respective
officers, directors, affiliates, employees or agents, on the one hand, and any
of the Purchasers or any of their affiliates, on the other hand, shall
terminate. The Company shall not, and shall cause each of its Subsidiaries and
its and each of their respective officers, directors, employees and agents, not
to, provide any Purchaser with any material, nonpublic information regarding the
Company or any of its Subsidiaries from and after the Execution Date without the
express prior written consent of such Purchaser, and no such Purchaser shall
request any information that would cause the Company to be in violation of this
provision. The Company shall at all times comply with its obligations under
Regulation FD. To the extent that the Company delivers any material, non-public
information to a Purchaser without such Purchaser’s consent, the Company hereby
covenants and agrees that such Purchaser shall not have any duty of
confidentiality with respect to, or a duty not to trade on the basis of, such
material, non-public information. Subject to the foregoing, neither the Company,
its Subsidiaries nor any Purchaser shall issue any press releases or any other
public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of any Purchaser, to make any press release or other public disclosure
with respect to such transactions as is required by applicable law and
regulations, provided that each Purchaser shall be consulted by the Company in
connection with any such press release or other public disclosure prior to its
release. Without the prior written consent of any applicable Purchaser, neither
the Company nor any of its Subsidiaries or affiliates shall disclose the name of
such Purchaser in any filing, announcement, release or otherwise, except as the
Company has been advised by its counsel as may be required by law including the
Rules of the SEC or in response to written comments of the Staff of the SEC.
Notwithstanding the foregoing, in no event will the Company have an obligation
to disclose any information which a Purchaser receives from a member of the
Company’s board of directors that is an affiliate of such Purchaser.

 

(i) Additional Preferred Shares; Variable Securities. So long as any Purchaser
beneficially owns any Preferred Shares, the Company will not issue any Preferred
Shares other than to the Purchasers as contemplated hereby and the Company shall
not issue any other securities that would cause a breach or default under the
Certificate of Designations or the Warrants. From the Execution Date until the
Purchasers no longer beneficially own any Preferred Shares, the Company shall
not, in any manner, issue or sell any rights, warrants or options to subscribe
for or purchase Common Stock or directly or indirectly convertible into or
exchangeable or exercisable for Common Stock at a price which varies or may vary
with the market price of the Common Stock, including by way of one or more
reset(s) to any fixed price.

 

26

 

 

(j) Corporate Existence. So long as any Purchaser beneficially owns any
Securities, the Company shall (i) maintain its corporate existence and (ii) not
be party to any Fundamental Transaction unless the Company is in compliance with
the applicable provisions governing Fundamental Transactions set forth in the
Certificate of Designations and the Warrants.

 

(k) Reservation of Shares. On or prior to the Closing Date the Company shall
take all action necessary to at all times have authorized, and reserved for the
purpose of issuance, no less than 500% of the maximum number of shares of Common
Stock issuable (i) upon conversion of the maximum number of Preferred Shares
issued (assuming for purposes hereof, a Conversion Price of $0.20 and without
taking into account any limitations on the conversion of the Preferred Shares
set forth in the Certificate of Designations) and (ii) upon exercise of the
Warrants (assuming for purposes hereof, an Exercise Price of 0.20 and without
taking into account any limitations on the exercise of the Warrants set forth in
the Warrants), in each case, determined as if issued as of the Trading Day
immediately preceding the applicable date of determination (the “Required
Reserved Amount”). If at any time the number of shares of Common Stock
authorized and reserved for issuance is not sufficient to meet the Required
Reserved Amount, the Company will promptly take all corporate action necessary
to authorize and reserve a sufficient number of shares, including, without
limitation, calling a special meeting of stockholders to authorize additional
shares to meet the Company’s obligations under Section 3(c), in the case of an
insufficient number of authorized shares, obtain stockholder approval of an
increase in such authorized number of shares, and voting any treasury shares of
the Company in favor of an increase in the authorized shares of the Company to
ensure that the number of authorized shares is sufficient to meet the Required
Reserved Amount. In connection with any such vote, each Purchaser hereby agrees
that it shall, if requested by the Company, vote all shares of capital stock
held by such Purchaser in favor of any such increase in the authorized number of
shares. Following the filing of the amendment to the Certificate of
Incorporation authorizing a sufficient number of shares, in addition to any
corporate action taken to authorize such additional shares, for so long as the
number of shares of Common Stock authorized and reserved for issuance is not
sufficient to meet the Required Reserved Amount, the Company shall pay to any
Purchaser who submits to the Company a request for conversion of Preferred
Shares, which request cannot be fulfilled because of insufficient available
shares, an amount in cash equal to $500 per day for the initial ten (10) days
that such Required Reserved Amount is not met, then $1,000 per day in cash, for
each day thereafter until such Required Reserved Amount is satisfied. As of the
Execution Date, the Company has reserved for issuance 125,000,000 shares of
Common Stock in connection with the conversion of the Company’s Series A
Preferred Stock and 62,500,000 shares of Common Stock in connection with the
exercise of the Warrants.

 

(l) Conduct of Business. The business of the Company and its Subsidiaries shall
not be conducted in violation of any law, ordinance or regulation of any
governmental entity, except where such violations would not result, either
individually or in the aggregate, in a Material Adverse Effect. The Company and
its Subsidiaries shall at all times be in compliance with the Foreign Corrupt
Practices Act; the PATRIOT Act, and all other applicable U.S. and non-U.S.
anti-money laundering laws and regulations; and the laws, regulations and
Executive Orders and sanctions programs administered by the OFAC, including,
without limitation, the “Anti-Money Laundering/OFAC Laws”.

 

27

 

 

(m) Public Information. At any time during the period commencing on the
Execution Date and ending two years from the Execution Date, if (A) a
registration statement is not available for the resale of all of the Securities,
and all of the Securities may be sold without restriction or limitation pursuant
to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1),
if the Company shall (i) fail for any reason to satisfy the requirements of Rule
144(c)(1), including, without limitation, the failure to satisfy the current
public information requirement under Rule 144(c) or (ii) if the Company becomes
an issuer described in Rule 144(i)(1)(i) , and the Company shall fail to satisfy
any condition set forth in Rule 144(i)(2), and (B) any such failure continues
for more than two (2) Trading Days (a “Public Information Failure”) then, as
partial relief for the damages to any holder of Securities by reason of any such
delay in or reduction of its ability to sell the Securities (which remedy shall
not be exclusive of any other remedies available at law or in equity), the
Company shall pay to each such holder an amount in cash equal to two percent
(2%) of the aggregate Purchase Price of such holder’s Securities (less any
Common Stock previously sold) on the day of a Public Information Failure and on
every thirtieth day (pro-rated for periods totaling less than thirty (30) days)
thereafter until the earlier of (i) the date such Public Information Failure is
cured and (ii) such time that such public information is no longer required
pursuant to Rule 144. The payments to which a holder shall be entitled pursuant
to this Section 4(m) are referred to herein as “Public Information Failure
Payments.” Public Information Failure Payments shall be paid on the earlier of
(I) the last day of the calendar month during which such Public Information
Failure Payments are incurred and (II) the third Trading Day after the event or
failure giving rise to the Public Information Failure Payments is cured. In the
event the Company fails to make Public Information Failure Payments in a timely
manner, such Public Information Failure Payments shall bear interest at the rate
of 0.5% per month (prorated for partial months) until paid in full.

 

(n) Additional Issuances of Securities.

 

(i) For purposes of this Section 4, the following definitions shall apply.

 

(1) “Common Stock Equivalents” means, collectively, Options and Convertible
Securities.

 

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

 

28

 

 

(3) “Excluded Securities” means (i) shares of Common Stock, restricted stock
units or standard Options to purchase Common Stock issued to directors,
officers, consultants, other service providers or employees of the Company for
services rendered to the Company in their capacity as such pursuant to an
Incentive Plan, provided: (A) the exercise price of any such Options is not
lowered below the exercise price of the Warrants; (B) none of the terms or
conditions of any such Options are otherwise materially changed in any manner
that adversely affects any of the Holders; (B) each such issuance is approved by
a majority of disinterested members of the board of directors; and (C) issuances
by the Company relying on this provision (i) may not collectively exceed
5,000,000 shares of Common Stock, restricted stock units or standard Options to
purchase Common Stock in any calendar year; (ii) shares of Common Stock issued
upon the conversion or exercise of Convertible Securities or standard Options to
purchase Common Stock issued pursuant to an Incentive Plan that are covered by
clause (i) above or were issued prior to the Execution Date, provided that the
conversion price of any such Convertible Securities or standard Options to
purchase Common Stock issued pursuant to an Incentive Plan that are covered by
clause (i) above is not lowered (other than in accordance with the terms thereof
in effect as of the Execution Date) from the exercise or conversion price in
effect as of the Execution Date (whether pursuant to the terms of such
Convertible Securities or otherwise), none of such Convertible Securities or
standard Options to purchase Common Stock issued pursuant to an Incentive Plan
that are covered by clause (i) above are amended to increase the number of
shares issuable thereunder and none of the terms or conditions of any such
Convertible Securities or standard Options to purchase Common Stock issued
pursuant to an Incentive Plan that are covered by clause (i) above are otherwise
materially changed in any manner that adversely affects any of the Holders;
(iii) the shares of Common Stock issuable upon conversion of the Preferred
Shares or otherwise pursuant to the terms of the Certificate of Designations;
provided, that the terms of the Certificate of Designations are not amended,
modified or changed on or after the Execution Date (other than antidilution
adjustments pursuant to the terms thereof in effect as of the Execution Date),
(iv) the shares of Common Stock issuable upon exercise of the Warrants required
to be issued under this Agreement pursuant to which the Preferred Shares were
issued; provided, that the terms of the Warrants are not amended, modified or
changed on or after the Execution Date (other than antidilution adjustments
pursuant to the terms thereof in effect as of the Execution Date), (v)
securities issued pursuant to a merger, acquisition or similar transaction;
provided that (A) the primary purpose of such issuance is strategic and not to
raise capital, (B) the purchaser or acquirer of such securities in such issuance
solely consists of either (1) the actual participants in such transactions, (2)
the actual owners of such assets or securities acquired in such merger,
acquisition or similar transaction, (3) the shareholders, partners or members of
the foregoing Persons and (4) Persons whose primary business does not consist of
in investing in securities, (C) the number or amount (as the case may be) of
such shares of Common Stock issued to such Person by the Company shall not be
disproportionate to such Person’s actual ownership of such assets or securities
to be acquired by the Company (as applicable), and (D) such transaction is
approved by a majority of the disinterested members of the board of directors;
(vi) a collaboration, license, development, marketing or other strategic
agreement or partnership (“Strategic Agreement”), provided that (A) any such
issuance shall only be to a Person which is, itself or through its Subsidiaries,
an operating company in a business synergistic with the business of the Company
and in which the Company receives benefits in addition to the investment of
funds, (B) the primary purpose of such issuance is strategic and not to raise
capital, (C) the purchaser or acquirer of such securities in such issuance
solely consists of either (1) the actual participants in such Strategic
Agreement, (2) the actual owners of such strategic assets or securities to be
used by the Company pursuant to such Strategic Agreement, (3) the shareholders,
partners or members of the foregoing Persons and (4) Persons whose primary
business does not consist of in investing in securities, (D) the number or
amount (as the case may be) of such shares of Common Stock issued to such Person
by the Company shall not be disproportionate to such Person’s actual
participation in such Strategic Agreement or ownership of such strategic assets
or securities to be acquired by the Company pursuant to such Strategic Agreement
(as applicable), (E) each such issuance is approved by a majority of
disinterested members of the board of directors; and (F) issuances by the
Company relying on this provision (vi) may not collectively exceed 5,000,000
shares of Common Stock in any calendar year; (vii) securities issued to
conventional banks, commercial lessor or equipment lessors which are regularly
engaged in the making of commercial loans, provided that each such issuance is
approved by the board of directors; (viii) option to purchase 1,500,000 shares
of common stock at an exercise price of $0.05 per share to a single recipient;
or (ix) shares of Common Stock issued as a dividend pursuant to ownership of the
Preferred Shares.

 

29

 

 

(4) “Options” means any rights, warrants or options to subscribe for or purchase
Common Stock or Convertible Securities.

 

(5) “Subsequent Placement” means any direct or indirect offer, sale, grant of
any Option to purchase, or other disposition of (or announcement of any offer,
sale, grant or any Option to purchase or other disposition of) any of the
Company’s or its Subsidiaries’ equity, debt or equity equivalent securities,
including without limitation any debt (including non-convertible debt),
preferred stock or other instrument or security.

 

(ii) From the Closing Date until the date that is 24 months thereafter, the
Company will not, directly or indirectly, effect any Subsequent Placement unless
the Company shall have first complied with this Section 4(n)(ii).

 

(1) The Company shall deliver to each holder of Preferred Shares (each a
“Preferred Holder”, and collectively, the “Preferred Holders”) an irrevocable
written notice (the “Offer Notice”) of any proposed or intended issuance or sale
or exchange (the “Offer”) of the securities being offered (the “Offered
Securities”) in a Subsequent Placement, which Offer Notice shall (w) identify
and describe the Offered Securities, (x) describe the price and other terms upon
which they are to be issued, sold or exchanged, and the number or amount of the
Offered Securities to be issued, sold or exchanged, and (y) identify the Persons
or entities (if known) to which or with which the Offered Securities are to be
offered, issued, sold or exchanged and (z) offer to issue and sell to or
exchange with each Preferred Holder its pro rata portion (based on such
Purchaser’s pro rata portion of the aggregate stated value of Preferred Shares
issued on the Closing Date) of one hundred percent (100%) of the Offered
Securities (the “Basic Amount”). With respect to each Preferred Holder that
elects to purchase its Basic Amount, such Preferred Holder may also indicate it
will purchase or acquire any additional portion of the Offered Securities
attributable to the Basic Amounts of other Preferred Holders should the other
Preferred Holders subscribe for less than their Basic Amounts (the
“Undersubscription Amount”), which process shall be repeated once until the
Preferred Holders shall have an opportunity to subscribe for any remaining
Undersubscription Amount.

 

(2) To accept an Offer, in whole or in part, such Preferred Holder must deliver
a written notice to the Company prior to the end of the fifth (5th) Trading Day
after such Preferred Holder’s receipt of the Offer Notice (the “Offer Period”),
setting forth the portion of such Preferred Holder’s Basic Amount that such
Preferred Holder elects to purchase and, if such Preferred Holder shall elect to
purchase all of its Basic Amount, the Undersubscription Amount, if any, that
such Preferred Holder elects to purchase (in either case, the “Notice of
Acceptance”). If the Basic Amounts subscribed for by all Preferred Holders are
less than the total of all of the Basic Amounts, then each Preferred Holder who
has set forth an Undersubscription Amount in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; provided, however, that if the
Undersubscription Amounts subscribed for exceed the difference between the total
of all the Basic Amounts and the Basic Amounts subscribed for (the “Available
Undersubscription Amount”), each Preferred Holder who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of the
Available Undersubscription Amount as the Basic Amount of such Preferred Holder
bears to the total Basic Amounts of all Preferred Holders that have subscribed
for Undersubscription Amounts, subject to rounding by the Company to the extent
its deems reasonably necessary. Notwithstanding anything to the contrary
contained herein, if the Company desires to modify or amend the terms and
conditions of the Offer prior to the expiration of the Offer Period, the Company
shall deliver to the Preferred Holders a new Offer Notice and the Offer Period
shall expire on the fifth (5th) Trading Day after such Preferred Holder’s
receipt of such new Offer Notice.

 

30

 

 

(3) The Company shall have thirty (30) Trading Days from the expiration of the
Offer Period above to offer, issue, sell or exchange all or any part of such
Offered Securities as to which a Notice of Acceptance has not been given by the
Preferred Holders (the “Refused Securities”) pursuant to a definitive agreement
(the “Subsequent Placement Agreement”) but only to the offerees described in the
Offer Notice (if so described therein) and only upon terms and conditions
(including, without limitation, unit prices and interest rates) that are not
more favorable to the acquiring Person or Persons or less favorable to the
Company than those set forth in the Offer Notice and (ii) to publicly announce
(a) the execution of such Subsequent Placement Agreement, and (b) either (x) the
consummation of the transactions contemplated by such Subsequent Placement
Agreement or (y) the termination of such Subsequent Placement Agreement, which
shall be filed with the SEC on a Current Report on Form 8-K with such Subsequent
Placement Agreement and any documents contemplated therein filed as exhibits
thereto.

 

(4) In the event the Company shall propose to sell less than all the Refused
Securities (any such sale to be in the manner and on the terms specified in
Section 4(n)(ii)(3) above), then each Preferred Holder may, at its sole option
and in its sole discretion, reduce the number or amount of the Offered
Securities specified in its Notice of Acceptance to an amount that shall be not
less than the number or amount of the Offered Securities that such Preferred
Holder elected to purchase pursuant to Section 4(n)(ii)(2) above multiplied by a
fraction, (i) the numerator of which shall be the number or amount of Offered
Securities the Company actually proposes to issue, sell or exchange (including
Offered Securities to be issued or sold to Preferred Holders pursuant to Section
4(n)(ii)(3) above prior to such reduction) and (ii) the denominator of which
shall be the original amount of the Offered Securities. In the event that any
Preferred Holder so elects to reduce the number or amount of Offered Securities
specified in its Notice of Acceptance, the Company may not issue, sell or
exchange more than the reduced number or amount of the Offered Securities unless
and until such securities have again been offered to the Preferred Holders in
accordance with Section 4(n)(ii)(1) above.

 

(5) Upon the closing of the issuance, sale or exchange of all or less than all
of the Refused Securities, the Preferred Holders shall acquire from the Company,
and the Company shall issue to the Preferred Holders, the number or amount of
Offered Securities specified in the Notices of Acceptance, as reduced pursuant
to Section 4(n)(ii)(3) above if the Preferred Holders have so elected, upon the
terms and conditions specified in the Offer. The purchase by the Preferred
Holders of any Offered Securities is subject in all cases to the preparation,
execution and delivery by the Company and the Preferred Holders of a purchase
agreement relating to such Offered Securities reasonably satisfactory in form
and substance to the Preferred Holders and their respective counsel.

 

31

 

 

(6) Any Offered Securities not acquired by the Preferred Holders or other
persons in accordance with Section 4(n)(ii)(3) above may not be issued, sold or
exchanged until they are again offered to the Preferred Holders under the
procedures specified in this Agreement.

 

(7) The Company and the Preferred Holders agree that if any Preferred Holder
elects to participate in the Offer, neither the Subsequent Placement Agreement
with respect to such Offer nor any other transaction documents related thereto
(collectively, the “Subsequent Placement Documents”) shall include any term or
provisions whereby any Preferred Holder shall be required to agree to any
restrictions in trading as to any securities of the Company owned by such
Preferred Holder prior to such Subsequent Placement, other than restrictions on
transfer imposed under federal and state securities laws.

 

(8) Notwithstanding anything to the contrary in this Section 4(n) and unless
otherwise agreed to by the Preferred Holders, the Company shall either confirm
in writing to the Preferred Holders that the transaction with respect to the
Subsequent Placement has been abandoned or shall publicly disclose its intention
to issue the Offered Securities, in either case in such a manner such that the
Preferred Holders will not be in possession of material non-public information,
by the fifteenth (15th) Trading Day following delivery of the Offer Notice. If
by the fifteenth (15th) Trading Day following delivery of the Offer Notice no
public disclosure regarding a transaction with respect to the Offered Securities
has been made, and no notice regarding the abandonment of such transaction has
been received by the Preferred Holders, such transaction shall be deemed to have
been abandoned and the Preferred Holders shall not be deemed to be in possession
of any material, non-public information with respect to the Company. Should the
Company decide to pursue such transaction with respect to the Offered
Securities, the Company shall provide each Preferred Holder with another Offer
Notice and each Preferred Holder will again have the right of participation set
forth in this Section 4(n)(ii). From and after the Execution Date, the Company
shall not be permitted to deliver more than one such Offer Notice to the
Purchasers in any 60 day period.

 

(iii) In the event the Company executes a Subsequent Placement Agreement for an
equity or convertible debt financing of any type (including, but not limited to,
common stock issuances, preferred stock issuances, convertible debt offerings,
rights offerings or debt financing with warrant coverage, but not including
non-convertible debt financings) or otherwise enters into a financing
transaction with another individual or entity that contains terms and provisions
(including fees, dividend or interest provisions or rates, ranking, redemption,
conversion price, warrant coverage, expense reimbursement or otherwise) that are
more favorable individually or in the aggregate than the terms and provisions
contained in this Agreement or any of the other Transaction Documents, the
Company shall, within five (5) Trading Days of the execution of such Subsequent
Placement Agreement, execute amendments to the Transaction Documents with
Purchasers to provide for the same more favorable terms and provisions for the
Preferred Shares. For the avoidance of doubt, this Section 4(n)(iii) shall apply
regardless of whether any Preferred Holder participated in any Offer pursuant to
which a portion of the Offered Securities were purchased pursuant to a
Subsequent Placement Agreement, and the failure by any Preferred Holder to
purchase any securities pursuant to the terms of this Section 4(n), shall not
act as a waiver of the Preferred Holders rights to receive the benefits of this
Section 4(n)(iii). This Section 4(n)(iii) shall apply from the Execution Date
until the Purchasers no longer beneficially own any Securities.

 

32

 

 

(iv) The restrictions contained in subsection (ii) of this Section 4(n) shall
not apply in connection with the issuance of any Excluded Securities.

 

(o) Taxes. The Company will pay, and save and hold the Purchasers harmless from
any and all liabilities (including interest and penalties) with respect to, or
resulting from any delay or failure in paying, stamp and other taxes (other than
income taxes), if any, which may be payable or determined to be payable on the
execution and delivery or acquisition of the Preferred Shares, Warrants,
Conversion Shares or Warrant Shares.

 

(p) D&O Insurance. The Company shall obtain such director’s and officer’s
insurance (the “D&O Insurance”) in such form, with such carrier and in the
aggregate amount of $5 million or such lesser amount as shall be reasonably
acceptable to the holders of a majority of the Preferred Shares (the “Required
Holders”) within thirty (30) days of the Closing Date. Thereafter, for so long
as any Preferred Shares remain outstanding, the Company shall maintain the D&O
Insurance with such carriers as reasonably determined by the Company. In the
event the Company merges with another entity and is not the surviving
corporation, or transfers all or substantially all of its assets to any Person
or any other similar Fundamental Transaction occurs, the Company shall require,
prior to the consummation of such transaction, that such successor entity
deliver a written agreement, in form and substance reasonably satisfactory to
the Required Holders, assuming the Company’s obligations herein to maintain such
D&O insurance.

 

(q) Books and Records. The Company will keep proper books of record and account,
in which full and correct entries shall be made of all financial transactions
and the assets and business of the Company and its Subsidiaries in accordance
with GAAP.

 

(r) Lock-Up. Without consent of the Required Holders, the Company shall not
amend, waive or terminate any provision of any of the Lock-Up Agreements except
to extend the term of the lock-up period and shall enforce the provisions of
each Lock-Up Agreement in accordance with its terms. If any party to a Lock-Up
Agreement breaches any provision of a Lock-Up Agreement, the Company shall
promptly use its best efforts to seek specific performance of the terms of such
Lock-Up Agreement. If at any time prior to the twenty-first month anniversary of
the Execution Date, any Person is, or is contemplated to become, a stockholder
or security holder of the Company that is not a party to a Lock-Up Agreement
solely as a result of a sale or other transfer any securities held by a party
subject to the Lock-Up Agreement, the Company shall, and shall cause such Person
to, enter into a Lock-Up Agreement prior to issuing any shares of Common Stock
or Common Stock Equivalents to such Person and prior to allowing such Person to
become a stockholder or security holder of the Company. Provided, however,
nothing contained in this Section 4(r) shall prohibit the Company from
transferring shares of Common Stock of a stockholder as the result of the death
or disability of such stockholder as long as any stock certificates contain the
customary restricted securities legend. Furthermore, the Company shall not
accelerate the delivery of any shares of Common Stock underlying outstanding
restricted stock units.

 

33

 

 

(s) Notice of Disqualification Events. The Company will notify the Purchasers in
writing, prior to the Closing Date of (i) any Disqualification Event relating to
any Issuer Covered Person and (ii) any event that would, with the passage of
time, become a Disqualification Event relating to any Issuer Covered Person.

 

(t) Stock, Option and Equity Plans. From and after the Closing until the
twenty-first month anniversary of the Closing Date, neither the Company nor any
Subsidiary shall, without the prior written consent of the Required Holders, (i)
amend or modify any terms or conditions of any of the Company’s stock, Option or
other equity incentive plans in existence on the Execution Date (the “Incentive
Plans”), (ii) grant any stock, Options or equity based incentives to any
employees, members of management, directors or advisors of the Company or its
Subsidiaries, other than pursuant to the Incentive Plans, or (ii) create or
implement any stock, Option or other equity incentive plan, other than the
Incentive Plans. Notwithstanding any terms in this Agreement to the contrary,
until thirty (30) days after the earlier of (1) the date that is six (6) months
following the Closing, and (2) the date the Registration Statement is declared
effective, the Company shall not file and/or utilize any registration statements
on Form S-8 for the offering or distribution of securities without obtaining the
prior written consent of the Required Holders.

 

(u) New Debt. For a period of twenty-one months from the Execution Date, neither
the Company nor any Subsidiary shall enter into any agreement creating
Indebtedness for the Company or any Subsidiary, including but not limited to
entering into (i) any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument, under which there may be
issued, or by which there may be secured or evidenced, any indebtedness for
borrowed money or money due that involves, either individually or in aggregate
with other such agreements, obligations greater than $100,000, and (ii) any
equipment lease, agreement evidencing purchase money security interests, or
other similar transaction in the ordinary course of business that involves,
either individually or in aggregate with other such agreements, obligations
greater than $100,000, in either case without the prior written consent of the
Required Holders.

 

(v) Distributions. While the Preferred Stock remains outstanding, the Company
shall not make any distributions on equity, or any payments on debt other than
payments of dividends to the holders of Preferred Shares and scheduled payments
of principal and interest on debt in existence as of the Execution Date and as
set forth on Schedule 4(v) hereto or without the prior written consent of the
Required Holders.

 

(w) DTC Eligibility. For so long as any Preferred Stock or Warrants are
outstanding, the Company will employ as the transfer agent for the Common Stock
a participant in the Depository Trust Company Automated Securities Transfer
Program and cause the Common Stock to be transferable pursuant to such program.

 

34

 

 

(x) Acknowledgement Regarding Purchasers’ Trading Activity. It is understood and
acknowledged by the Company and each Purchaser that each Purchaser has been
asked by the Company or its Subsidiaries to agree, and such Purchaser has
agreed, to refrain from shorting shares of the Common Stock of the Company from
inception though any applicable holding period pertaining to the Common Stock
owned by such Purchaser. Notwithstanding the foregoing, each Purchaser may
engage in any “derivative” transaction or any hedging and or trading activities
(not expressly prohibited in the preceding sentence) at any time during the
period that the Securities are outstanding, including, without limitation,
during the periods that the value of the Conversion Shares and/or the Warrant
Shares are being determined. Each Purchaser shall not be deemed to have any
affiliation with or control over any arm’s length counter party in any
“derivative” transaction. The Company further understands and acknowledges that
such hedging and/or trading activities, if any, can reduce the value of the
existing stockholders’ equity interest in the Company both at and after the time
the hedging and/or trading activities are being conducted. The Company
acknowledges that such aforementioned hedging and/or trading activities do not
constitute a breach of any of the Transaction Documents.

 

(y) Regulation S Compliance. Each Purchaser agrees that, during the six (6)
months following the Closing, it shall not engage in any transaction involving
any Securities that would be prohibited or restricted by, or would otherwise
render unavailable any applicable safe harbor provided by Regulation S.

 

(z) Closing Documents. On or prior to thirty (30) calendar days after the
Closing Date, the Company agrees to deliver, or cause to be delivered, to each
Purchaser a complete closing set of the executed Transaction Documents,
Securities and any other documents required to be delivered to any party
pursuant to Section 7 hereof or otherwise.

 

(aa) Transfer Agent. Each Purchaser will concurrently copy the Company on any
conversion notice pertaining to Preferred Shares and any exercise notice
pertaining to Warrants that Purchaser sends to the Transfer Agent. Each
Purchaser will provide Company with not less than ten (10) days’ prior written
notice before sending any notice to increase the Reserve Shares to the Tranfer
Agent, and will also concurrently copy the Company on any such notice when sent.
Purchasers may not send any conversion notice, exercise notice, share reserve
notice or other notice to Transfer Agent except in conformance with their rights
and obligations under this Agreement, the Certificate of Designations and other
Transaction Documents.

 

(bb) Compliance. As soon as reasonably practicable after the Closing Date, the
Company will adopt a Code of Ethics that is materially compliant with the
requirements of either the NYSE American or the Nasdaq Capital Market. The
Company and its Subsidiaries will also adopt policies and procedures reasonably
designed to mitigate any risk that employees and contractors working for the
Company, and patients participating in studies for the Company or any
Subsidiary, do not engage in and are not subjected to sexual harassment or a
hostile environment, and that all applicable workplace and professional laws and
regulations are adhered to.

 

5. REGISTER.

 

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

 

35

 

 

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

 

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

 

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

 

(ii) Such Purchaser shall have delivered to Company the Purchase Price for the
Preferred Shares and Warrants being purchased by such Purchaser at the Closing
by wire transfer of immediately available funds pursuant to the wire
instructions provided by Company.

 

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

 

7. CONDITIONS TO EACH PURCHASER’S OBLIGATION TO PURCHASE.

 

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

 

(i) The Company shall have duly executed and delivered to such Purchaser each of
the Transaction Documents and issued via book entrythe Preferred Shares
(allocated in such numbers as such Purchaser shall request in writing at least
two (2) Trading Days prior to the Closing Date) being purchased by such
Purchaser at the Closing pursuant to this Agreement.

 

(ii) Such Purchaser shall have received the opinion of the Company’s outside
counsel, dated as of the Closing Date, in substantially the form of Exhibit E
attached hereto.

 

(iii) The Company shall have delivered to such Purchaser a certificate
evidencing the formation and good standing of the Company and each of its
Subsidiaries in each such entity’s jurisdiction of formation issued by the
Secretary of State (or equivalent) of such jurisdiction of formation as of a
date within five (5) days of the Closing Date.

 

36

 

 

(iv) The Company shall have delivered to such Purchaser a certificate evidencing
the Company’s or its Subsidiaries qualification as a foreign corporation and
good standing issued by the Secretary of State (or comparable office) in Israel
and any other foreign jurisdiction in which the Company or its Subsidiaries is
doing business and is required to so qualify, as of a date within five (5) days
of the Closing Date.

 

(v) The Company shall have delivered to such Purchaser a certified copy of the
Certificate of Incorporation as certified by the Secretary of State of the State
of Delaware within five (5) days of the Closing Date.

 

(vi) The Company shall have delivered to such Purchaser a certificate, executed
by the Secretary of the Company and dated as of the Closing Date, as to (i) the
resolutions consistent with Section 3(b) as adopted by the Company’s board of
directors in a form reasonably acceptable to such Purchaser, (ii) the
Certificate of Incorporation and (iii) the Bylaws, each as in effect at the
Closing, in the form attached hereto as Exhibit F.

 

(vii) The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date, which shall be true and correct as of such specified date) and the Company
shall have performed, satisfied and complied in all respects with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the Closing Date. Such
Purchaser shall have received a certificate, executed by the Chief Executive
Officer of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such Purchaser in
the form attached hereto as Exhibit G.

 

(viii) The Company shall have obtained all governmental, regulatory or third
party consents and approvals, if any, necessary for the sale of the Securities.

 

(ix) The Certificate of Designations in the form attached hereto as Exhibit A
shall have been filed with the Secretary of State of the State of Delaware and
shall be in full force and effect, enforceable against the Company in accordance
with its terms and shall not have been amended.

 

(x) The Company shall have delivered to each Purchaser a lock-up agreement in
the form attached hereto as Exhibit H executed and delivered by members of
management and each holder of equity, and/or securities convertible, exercisable
or exchangeable into equity of the Company representing five percent (5%) or
more of the total equity of the Company on an as converted basis), as set forth
on Schedule 7(x) attached hereto, which, in the case of senior management, shall
permit each member of senior management to be able to exercise and sell shares
underlying up to 25% of each individuals vested options as set forth on Schedule
7(x) attached hereto each year (collectively, the “Lock-Up Agreements”).

 

(xi) The Company shall have delivered to such Purchaser an Irrevocable Transfer
Agent Instructions Letter (the “ITAI”) providing the requisite reserve to such
Purchaser in the form attached as Exhibit D hereto.

 

37

 

 

(xii) The Company shall have delivered to such Purchaser such other documents
relating to the transactions contemplated by this Agreement as such Purchaser or
its counsel may reasonably request.

 

8. TERMINATION.

 

In the event that the Closing shall not have occurred with respect to a
Purchaser on or before five (5) Trading Days from the Execution Date due to the
Company’s or such Purchaser’s failure to satisfy the conditions set forth in
Sections 6 and 7 above that are in such party’s control or are such party’s
responsibility (and the non-responsible party’s failure to waive such
unsatisfied condition(s)), the non-responsible party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date by delivering a written notice to that effect to each
other party to this Agreement and without liability of any party to any other
party.

 

9. MISCELLANEOUS.

 

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

 

(b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party; provided that an e-mail signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not an e-mail
signature.

 

(c) Headings. The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.

 

38

 

 

(d) Severability. If any provision of this Agreement is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this
Agreement so long as this Agreement as so modified continues to express, without
material change, the original intentions of the parties as to the subject matter
hereof and the prohibited nature, invalidity or unenforceability of the
provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).

 

(e) Entire Agreement; Amendments. This Agreement and the other Transaction
Documents supersede all other prior oral or written agreements between the
Purchasers, the Company, their affiliates and Persons acting on their behalf
with respect to the matters discussed herein, and this Agreement, the other
Transaction Documents and the instruments referenced herein and therein contain
the entire understanding of the parties with respect to the matters covered
herein and therein and, except as specifically set forth herein or therein,
neither the Company nor any Purchaser makes any representation, warranty,
covenant or undertaking with respect to such matters. Provisions of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Required
Holders; provided that any such amendment or waiver that complies with the
foregoing but that disproportionately, materially and adversely affects the
rights and obligations of any Purchaser relative to the comparable rights and
obligations of the other Purchasers shall require the prior written consent of
such adversely affected Purchaser. Any amendment or waiver effected in
accordance with this Section 9(e) shall be binding upon each Purchaser and
holder of Securities and the Company. No such amendment shall be effective to
the extent that it applies to less than all of the Purchasers or holders of
Securities. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration (other than the reimbursement of legal
fees) also is offered to all of the parties to the Transaction Documents,
holders of Preferred Shares or holders of Warrants, as the case may be. The
Company has not, directly or indirectly, made any agreements with any Purchasers
relating to the terms or conditions of the transactions contemplated by the
Transaction Documents except as set forth in the Transaction Documents. Without
limiting the foregoing, the Company confirms that, except as set forth in this
Agreement, no Purchaser has made any commitment or promise or has any other
obligation to provide any financing to the Company or otherwise.

 

(f) Notices. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by e-mail (provided confirmation of
transmission is electronically generated and kept on file by the sending party);
or (iii) one (1) Trading Day after deposit with an overnight courier service, in
each case properly addressed to the party to receive the same. The addresses and
email addresses for such communications shall be as previously provided or to
such other address and/or email address and/or to the attention of such other
Person as the recipient party has specified by written notice given to each
other party five (5) days prior to the effectiveness of such change. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by
the sender’s email containing the time, date, recipient e-mail and an image of
the first page of such transmission or (C) provided by an overnight courier
service shall be rebuttable evidence of personal service, receipt by e-mail or
receipt from an overnight courier service in accordance with clause (i), (ii) or
(iii) above, respectively.

 

39

 

 

(g) Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns. Neither
party shall assign this Agreement or any rights or obligations hereunder,
including by way of a Fundamental Transaction (unless the Company is in
compliance with the applicable provisions governing Fundamental Transactions set
forth in the Certificate of Designations and the Warrants).

 

(h) No Third Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except that each Indemnitee shall have the right to enforce the
obligations of the Company with respect to Section 9(k).

 

(i) Survival. Unless this Agreement is terminated under Section 8, the
representations, warranties, agreements and covenants hereunder shall survive
the Closing and the delivery, conversion and/or exercise of the Securities, as
applicable. Each Purchaser shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.

 

(j) Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as any other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

 

(k) Indemnification.

 

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

 

40

 

 

(ii) Promptly after receipt by an Indemnitee under this Section 9(k) of notice
of the commencement of any action or proceeding (including any governmental
action or proceeding) involving an Indemnified Liability, such Indemnitee shall,
if a claim for indemnification in respect thereof is to be made against any
indemnifying party under this Section 9(k), deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnitee; provided, however, that an Indemnitee
shall have the right to retain its own counsel with the fees and expenses of not
more than one counsel for such Indemnitee to be paid by the indemnifying party,
if, in the reasonable opinion of counsel selected to defend the Indemnitee, the
representation by such counsel of the Indemnitee and the indemnifying party
would be inappropriate due to actual or potential differing interests between
such Indemnitee and any other party represented by such counsel in such
proceeding. Legal counsel referred to in the immediately preceding sentence
shall be selected by the Required Holders. The Indemnitee shall cooperate fully
with the indemnifying party in connection with any negotiation or defense of any
such action or Indemnified Liabilities by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the
Indemnitee that relates to such action or Indemnified Liabilities. The
indemnifying party shall keep the Indemnitee fully apprised at all times as to
the status of the defense or any settlement negotiations with respect thereto.
No indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its prior written consent, provided, however, that
the indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the prior written consent of the
Indemnitee, which consent shall not be unreasonably withheld conditioned or
delayed, consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnitee of a release from all liability in
respect to such Indemnified Liabilities or litigation. Following indemnification
as provided for hereunder, the indemnifying party shall be subrogated to all
rights of the Indemnitee with respect to all third parties, firms or
corporations relating to the matter for which indemnification has been made. No
Indemnitee shall enter into any settlement of any action or proceeding subject
to this Section 9(k) without the prior written consent of the indemnifying
party. The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnitee under this Section 9(k),
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action.

 

41

 

 

(iii) The indemnification required by this Section 9(k) shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Liabilities are
incurred.

 

(iv) The indemnity agreements contained herein shall be in addition to (x) any
cause of action or similar right of the Indemnitee against the indemnifying
party or others, and (y) any liabilities the indemnifying party may be subject
to pursuant to the law.

 

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

 

(m) Remedies. Each Purchaser and each holder of the Securities shall have all
rights and remedies set forth in the Transaction Documents and all rights and
remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any Person having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically to recover damages by reason of any
breach of any provision of this Agreement and to exercise all other rights
granted by law. Furthermore, each party recognizes that in the event that it
fails to perform, observe, or discharge any or all of its obligations under the
Transaction Documents, any remedy at law may prove to be inadequate relief to
the the other parties. The parties therefore agree that any party shall be
entitled to seek temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.

 

(n) Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever any Purchaser exercises a right, election, demand or option
under a Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Purchaser may rescind
or withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights.

 

(o) Payment Set Aside. To the extent that the Company makes a payment or
payments to the Purchasers hereunder or pursuant to any of the other Transaction
Documents or the Purchasers enforce or exercise their rights hereunder or
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, foreign, 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.

 

42

 

 

(p) Reproduction of Documents. This Agreement and all documents relating
thereto, including, without limitation, (a) consents, waivers and modifications
which may hereafter be executed, (b) documents received by the Purchasers on the
Closing Date (except for certificates evidencing the Preferred Shares
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to the Purchasers, may be reproduced by any
Purchaser by any photographic, photostatic, microfilm, micro-card, miniature
photographic or other similar process and any Purchaser may destroy any original
document so reproduced. All parties hereto agree and stipulate that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by a Purchaser in the
regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.

 

(q) Independent Nature of Purchasers’ Obligations and Rights. The obligations of
each Purchaser under any Transaction Document are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in any
way for the performance of the obligations of any other Purchaser under any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Purchaser pursuant hereto or thereto, shall
be deemed to constitute the Purchasers as, and the Company acknowledges that the
Purchasers do not so constitute, a partnership, an association, a joint venture
or any other kind of entity, or create a presumption that the Purchasers are in
any way acting in concert or as a group, and the Company shall not assert any
such claim with respect to such obligations or the transactions contemplated by
the Transaction Documents and the Company acknowledges that the Purchasers are
not acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
and each Purchaser confirms that it has independently participated in the
negotiation of the transaction contemplated hereby with the advice of its own
counsel and advisors. Each Purchaser shall be entitled to independently protect
and enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of any other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.

 

(r) Time of the Essence. Time is of the essence with respect to all provisions
of this Agreement and all other Transaction Documents.

 

** Signature Pages Follow **

 

43

 

 

IN WITNESS WHEREOF, each Purchaser and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the Execution Date.

 

  COMPANY:       OWC PHARMACEUTICAL RESEARCH CORP.       By: /s/ Mordechai
Bignitz   Name: Mordechai Bignitz   Title: Chief Executive Officer

 

 

 

 

IN WITNESS WHEREOF, each Purchaser and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the Execution Date.

 

  PURCHASER:                   By:                    Name:     Title:  

 

 

 

 

SCHEDULE OF PURCHASERS

 

(1)   (2)   (3)   (4)   (5)   (6)

Purchaser

 

Address and E-mail

 

Aggregate Number of Preferred Shares

 

Aggregate Number of Warrants

 

Purchase Price

 

Legal Representative’s
Address and E-mail

                                      $                                        
                                                                               
               

 

 

 

 

EXHIBITS

 

Exhibit A Form of Certificate of Designations Exhibit B Form of Warrant Exhibit
C Form of Registration Rights Agreement Exhibit D Form of Irrevocable Transfer
Agent Instructions Letter Exhibit E Form of Outside Company Counsel Opinion
Exhibit F Form of Secretary’s Certificate Exhibit G Form of Officer’s
Certificate Exhibit H Form of Lock-Up Agreement

 

 

 

 

SCHEDULES