Exhibit 10.21

 

SUBSCRIPTION AGREEMENT

 

This Subscription Agreement (this “Agreement”) is being delivered to the
purchaser identified on the signature page to this Agreement (the “Subscriber”)
in connection with its investment in the securities of Sevion Therapeutics,
Inc., a Delaware corporation (the “Company”). The Company is conducting a
private placement (the “Offering”) of a minimum of One Million Five Hundred
Thousand Dollars ($1,500,000) (the “Minimum Offering Amount”) and a maximum of
up to Ten Million Dollars ($10,000,000) (the “Maximum Offering Amount”) of units
(the “Units”) at a purchase price of $0.75 per Unit (the “Purchase Price”) with
each Unit consisting of (i) one share (the “Shares”) of the Company’s common
stock, par value $0.01 per share (the “Common Stock”) (or, at the election of
any Subscriber who, as a result of the ownership of the Common Stock would hold
in excess of 4.99% of the Company’s issued and outstanding Common Stock, shares
of Series C Convertible Preferred Stock (the “Preferred Shares”), par value
$0.01 per share, which are convertible into shares of Common Stock (the
“Conversion Shares”), with such rights and designations as set forth in the form
of Certificate of Designation of Preferences, Rights and Limitations of Series C
Convertible Preferred Stock, attached hereto as Exhibit A, (the “Series C
Certificate of Designation”) and (ii) a thirty (30) month warrant, in the form
attached hereto as Exhibit B (the “Warrant”) to purchase one half of one share
of Common Stock (the “Warrant Shares”) at an exercise price of $1.50 per share.
For purposes of this Agreement, the term “Securities” shall refer to the Shares,
the Preferred Shares, the Conversion Shares, the Warrants and the Warrant
Shares. The Company intends to engage one or more placement agents (the
‘Placement Agents”) with respect to the Offering who will each be paid such fees
as set forth in their respective agreements with the Company. Notwithstanding
anything to the contrary herein, the Company shall have the right to increase
the Maximum Offering Amount by an additional One Million Dollars ($1,000,000)
with the consent of the Placement Agents but without notice to the Subscribers.
The minimum investment that will be accepted by any individual Subscriber shall
be $25,000, subject to waiver by the Company and the applicable Placement Agent.

 

IMPORTANT INVESTOR NOTICES

 

NO OFFERING LITERATURE OR ADVERTISEMENT IN ANY FORM MAY BE RELIED UPON IN THE
OFFERING OF THESE SECURITIES EXCEPT FOR THIS SUBSCRIPTION AGREEMENT AND ANY
SUPPLEMENTS HERETO, AND NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY
REPRESENTATIONS EXCEPT THOSE CONTAINED HEREIN.

 

THIS AGREEMENT IS CONFIDENTIAL AND THE CONTENTS HEREOF MAY NOT BE REPRODUCED,
DISTRIBUTED OR DIVULGED BY OR TO ANY PERSONS OTHER THAN THE RECIPIENT OR ITS
REPRESENTATIVE, ACCOUNTANT OR LEGAL COUNSEL, WITHOUT THE PRIOR WRITTEN CONSENT
OF THE COMPANY. EACH PERSON WHO ACCEPTS DELIVERY OF THIS AGREEMENT, ACKNOWLEDGES
AND AGREES TO THE FOREGOING RESTRICTIONS.

 

THIS AGREEMENT DOES NOT PURPORT TO BE ALL-INCLUSIVE OR TO CONTAIN ALL OF THE
INFORMATION THAT YOU MAY DESIRE IN EVALUATING THE COMPANY, OR AN INVESTMENT IN
THE OFFERING. THIS AGREEMENT DOES NOT CONTAIN ALL OF THE INFORMATION THAT WOULD
NORMALLY APPEAR IN A PROSPECTUS FOR AN OFFERING REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”). YOU MUST CONDUCT AND RELY ON
YOUR OWN EVALUATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE
MERITS AND RISKS INVOLVED, IN DECIDING WHETHER TO INVEST IN THE OFFERING.

 

THIS AGREEMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION OF AN OFFER TO ANY
PERSON OR IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION IS UNLAWFUL OR
NOT AUTHORIZED. EACH PERSON WHO ACCEPTS DELIVERY OF THIS AGREEMENT AGREES TO
RETURN IT AND ALL RELATED DOCUMENTS IF SUCH PERSON DOES NOT PURCHASE ANY OF THE
SECURITIES DESCRIBED HEREIN.

 

NEITHER THE DELIVERY OF THIS AGREEMENT AT ANY TIME NOR ANY SALE OF SECURITIES
HEREUNDER SHALL IMPLY THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE. THE COMPANY WILL EXTEND TO EACH PROSPECTIVE
SUBSCRIBER (AND TO ITS REPRESENTATIVE, ACCOUNTANT OR LEGAL COUNSEL, IF ANY) THE
OPPORTUNITY, PRIOR TO ITS PURCHASE OF UNITS, TO ASK QUESTIONS OF AND RECEIVE
ANSWERS FROM THE COMPANY CONCERNING THE OFFERING AND TO OBTAIN ADDITIONAL
INFORMATION, TO THE EXTENT THE COMPANY POSSESSES THE SAME OR CAN ACQUIRE IT
WITHOUT UNREASONABLE EFFORT OR EXPENSE, IN ORDER TO VERIFY THE ACCURACY OF THE
INFORMATION SET FORTH HEREIN. ALL SUCH ADDITIONAL INFORMATION SHALL ONLY BE
PROVIDED IN WRITING AND IDENTIFIED AS SUCH BY THE COMPANY THROUGH ITS DULY
AUTHORIZED OFFICERS AND/OR DIRECTORS ALONE; NO ORAL INFORMATION OR INFORMATION
PROVIDED BY ANY BROKER OR THIRD PARTY MAY BE RELIED UPON.

 

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NO REPRESENTATIONS, WARRANTIES OR ASSURANCES OF ANY KIND ARE MADE OR SHOULD BE
INFERRED WITH RESPECT TO THE ECONOMIC RETURN, IF ANY, THAT MAY ACCRUE TO AN
INVESTOR IN THE COMPANY.

 

THIS AGREEMENT CONTAINS FORWARD-LOOKING STATEMENTS REGARDING THE COMPANY’S
PERFORMANCE, STRATEGY, PLANS, OBJECTIVES, EXPECTATIONS, BELIEFS AND INTENTIONS.
THE OUTCOME OF THE EVENTS DESCRIBED IN THESE FORWARD-LOOKING STATEMENTS IS
SUBJECT TO SUBSTANTIAL RISKS, AND ACTUAL RESULTS COULD DIFFER MATERIALLY. THE
SECTIONS ENTITLED “EXECUTIVE SUMMARY,” “RISK FACTORS,” AND “DESCRIPTION OF
BUSINESS,” IN ANY SECURITIES AND EXCHANGE COMMISSION (“SEC”) FILING OR REPORT,
AS WELL AS THIS AGREEMENT GENERALLY, CONTAIN DISCUSSIONS OF SOME OF THE FACTORS
THAT COULD CONTRIBUTE TO THESE DIFFERENCES.

 

FOR RESIDENTS OF ALL STATES

 

THIS OFFERING IS BEING MADE SOLELY TO “ACCREDITED INVESTORS,” AS SUCH TERM IS
DEFINED IN RULE 501 OF REGULATION D UNDER THE SECURITIES ACT. THE SECURITIES
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY
STATE AND WILL BE OFFERED AND SOLD IN RELIANCE UPON THE EXEMPTION FROM
REGISTRATION AFFORDED BY SECTION 4(a)(2) THEREUNDER AND REGULATION D (RULE 506)
OF THE SECURITIES ACT AND CORRESPONDING PROVISIONS OF STATE SECURITIES LAWS.

 

THE SECURITIES OFFERED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT AND APPLICABLE STATE LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. SUBSCRIBERS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

 

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC,
ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY
OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING
OR THE ACCURACY OR ADEQUACY OF THIS AGREEMENT. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.

 

PROSPECTIVE SUBSCRIBERS SHOULD NOT CONSTRUE THE CONTENTS OF THIS AGREEMENT AS
INVESTMENT, LEGAL, BUSINESS, OR TAX ADVICE. EACH SUBSCRIBER SHOULD CONTACT HIS,
HER OR ITS OWN ADVISORS REGARDING THE APPROPRIATENESS OF THIS INVESTMENT AND THE
TAX CONSEQUENCES THEREOF, WHICH MAY DIFFER DEPENDING ON A SUBSCRIBER’S
PARTICULAR FINANCIAL SITUATION. IN NO EVENT SHOULD THIS AGREEMENT BE DEEMED OR
CONSIDERED TO BE TAX ADVICE PROVIDED BY THE COMPANY.

 

FOR FLORIDA RESIDENTS ONLY

 

THE SECURITIES REFERRED TO HEREIN WILL BE SOLD TO, AND ACQUIRED BY, THE HOLDER
IN A TRANSACTION EXEMPT UNDER § 517.061 OF THE FLORIDA SECURITIES ACT. THE
SECURITIES HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE STATE OF FLORIDA. IN
ADDITION, ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE OF VOIDING THE PURCHASE
WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY SUCH
SUBSCRIBER TO THE COMPANY, AN AGENT OF THE COMPANY, OR AN ESCROW AGENT OR WITHIN
THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH
SUBSCRIBER, WHICHEVER OCCURS LATER.

 

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1.SUBSCRIPTION AND PURCHASE PRICE

 

(a)         Subscription. Subject to the conditions set forth in Section 2
hereof, the Subscriber hereby subscribes for and agrees to purchase the number
of Units indicated on page 29 hereof on the terms and conditions described
herein.

 

(b)         Purchase of Units. The Subscriber understands and acknowledges that
the purchase price to be remitted to the Company in exchange for the Units shall
be set at $0.75 per Unit, for an aggregate purchase price as set forth on page
29 hereof (the “Aggregate Purchase Price”), which shall be equivalent to $0.75
per Share, exclusive of the value of the Warrants. The Subscriber’s delivery of
this Agreement to the Company shall be accompanied by payment for the Units
subscribed for hereunder, payable in United States Dollars, by wire transfer of
immediately available funds delivered to Signature Bank N.A., as escrow agent
(the “Escrow Agent”) pursuant to the wiring instructions set forth on Exhibit C
attached hereto (the “Escrow Agreement”). The Subscriber understands and agrees
that, subject to Section 2 and applicable laws, by executing this Agreement, it
is entering into a binding agreement.

 

2.ACCEPTANCE, OFFERING TERM AND CLOSING PROCEDURES

 

(a)         Acceptance. Subject to full, faithful and punctual performance and
discharge by the Company of all of its duties, obligations and responsibilities
as set forth in this Agreement, the Escrow Agreement, the Series C Certificate
of Designation, the Warrant , the Registration Rights Agreement (as defined
below) and any other agreement entered into between the Subscriber and the
Company relating to this subscription (collectively, the "Transaction
Documents") to be performed or discharged on or prior to the Closing in which
such Subscriber participates, the Subscriber shall be legally bound to purchase
the Units pursuant to the terms and conditions set forth in this Agreement. For
the avoidance of doubt, upon the occurrence of the failure by the Company to
fully, faithfully and punctually perform and discharge any of its duties,
obligations and responsibilities as set forth in any of the Transaction
Documents, which shall have been performed or otherwise discharged prior to the
Closing (as defined below), the Subscriber may, on or prior to the Closing, at
its sole and absolute discretion, elect not to purchase the Units and provide
instructions to the Company to receive the full and immediate refund of the
Aggregate Purchase Price. In the event the Closing does not take place because
of (i) the election not to purchase the Units by the Subscriber or (ii) the
failure to effectuate the Initial Closing (as defined below) on or prior to
April 24, 2015 (unless extended in the discretion of the Board of Directors) for
any reason or no reason, this Agreement and any other Transaction Documents
shall thereafter be terminated and have no force or effect, and the parties
shall take all steps, including the execution of instructions to the Company, to
ensure that the Aggregate Purchase Price shall promptly be returned or caused to
be returned to the Subscriber without interest thereon or deduction therefrom.

 

(b)         Closing. The closing of the purchase and sale of the Units hereunder
(the “Closing”) shall take place at such time and place as determined by the
Company and may take place in one of more closings. Closings shall take place on
a Business Day promptly following the satisfaction of the conditions set forth
in Section 6 below, as determined by the Company (the “Closing Date”). “Business
Day” shall mean from the hours of 9:00 a.m. (Eastern Time) through 5:00 p.m.
(Eastern Time) of a day other than a Saturday, Sunday or other day on which
commercial banks in New York, New York are authorized or required to be closed.
The Units purchased by the Subscriber will be delivered by the Company promptly
following the Final Closing Date (as defined herein) of the Offering. The
initial closing shall be referred to as the ‘Initial Closing” and may be held
upon receipt and acceptance of subscriptions equal to at least the Minimum
Offering Amount prior to May 29, 2015. The date of the Initial Closing is
sometimes referred to as the “Initial Closing Date.” Subsequent closings (each a
“Subsequent Closing”) will be held until the earlier to occur of: (i) the date
on which the Maximum Offering Amount has been subscribed for and accepted by the
Company, and (ii) June 15, 2015. The Offering may be extended up to June 30,
2015 (the “Final Closing” and such date of the Final Closing, the “Final Closing
Date”), without additional notice to Subscribers. Officers, directors and
affiliates of the Company and the Placement Agents, if any, may purchase Units
in the Offering.

 

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(c)         Following Acceptance or Rejection. The Subscriber acknowledges and
agrees that this Agreement and any other documents delivered in connection
herewith will be held by the Company. Prior to the Company’s execution, in the
event that this Agreement is not accepted by the Company for whatever reason,
which the Company expressly reserves the right to do, this Agreement, the
Aggregate Purchase Price received (without interest thereon) and any other
documents delivered in connection herewith will be returned to the Subscriber at
the address of the Subscriber as set forth in this Agreement. If this Agreement
is accepted by the Company, the Company is entitled to treat the Aggregate
Purchase Price received as an interest free loan to the Company until such time
as the Subscription is accepted.

 

(d)         Favored Nations Provision. In connection with the Subscriber’s
purchase of Units hereunder, for a period beginning on the Closing Date and
ending on the date that is the earlier of (i) eighteen (18) months from the
Final Closing Date and (ii) the date the Company’s Common Stock is listed for
trading on a national securities exchange (which, for purposes hereof shall mean
The New York Stock Exchange, the NYSE MKT, the NASDAQ Global Select Market, the
NASDAQ Global Market or the NASDAQ Capital Market), other than in connection
with (i) the issuance of shares of Common Stock or options to purchase Common
Stock issued to directors, officers, employees or consultants of the Company
pursuant to any Approved Stock Plan, provided that the exercise price of any
such options is not lowered after issuance by subsequent amendment thereof, none
of such options are amended subsequent to issuance to increase the number of
shares issuable thereunder and none of the terms or conditions of any such
options are subsequent to issuance otherwise materially changed in any manner
that adversely affects any of the Subscribers; (ii) the issuance of shares of
Common Stock issued upon the conversion or exercise of Convertible Securities or
contractual agreements (other than options to purchase Common Stock or other
equity incentive awards issued pursuant to an Approved Stock Plan that are
covered by clause (i) above) issued prior to the date hereof, provided that the
conversion price of any such Convertible Securities (other than options to
purchase Common Stock issued pursuant to an Approved Stock Plan that are covered
by clause (i) above) is not lowered by subsequent amendment, none of such
Convertible Securities (other than standard options to purchase Common Stock
issued pursuant to an Approved Stock Plan that are covered by clause (i) above)
are subsequently amended to increase the number of shares issuable thereunder
and none of the terms or conditions of any such Convertible Securities (other
than options to purchase Common Stock issued pursuant to an Approved Stock Plan
that are covered by clause (i) above) are otherwise materially changed in any
manner that adversely affects any of the Subscribers; and (iii) the shares of
Common Stock issuable upon conversion of the Preferred Shares or the Warrants
(collectively, the foregoing (i) through (iii) are “Excepted Issuances”), if at
any time the Company shall issue any Common Stock or securities convertible into
or exercisable for shares of Common Stock (or modify any of the foregoing which
may be outstanding) to any person or entity at a price per share or conversion
or exercise price per share which shall be less than $0.75 per share, being the
per share price of the Shares hereunder (disregarding any value attributable to
the Warrants) or as in effect at such time, without consent of the Lead
Investors (as defined herein) (the “Lower Price Issuance”) and other than with
regard to Excepted Issuances, then the Company shall issue the Subscriber such
number of additional Units to reflect such lower price for the Units such that
the Subscriber shall hold such number of Units, in total, had Subscriber paid a
per Unit price equal to the Lower Price Issuance (with any fractional Shares
rounded up to the nearest whole number). Common Stock issued or issuable by the
Company for no consideration or for consideration that cannot be determined at
the time of issue will be deemed issuable or to have been issued for $0.01 per
share of Common Stock. Notwithstanding the foregoing, any Subscriber who elected
to receive Units consisting of Preferred Shares and Warrants shall have the
right to receive such additional Warrants as proscribed herein but not
additional Preferred Shares and all “Favored Nations” rights of the Preferred
Shares shall be governed by the Series C Certificate of Designation.
Notwithstanding anything herein or in any other agreement to the contrary, the
Company shall only be required to make a single adjustment with respect to any
individual Lower Price Issuance, regardless of the existence of multiple basis
therefore. For purposes of this Section 2(d), “Approved Stock Plan” shall mean
any employee benefit plan which has been approved by the board of directors of
the Company on or prior to the date hereof pursuant to which shares of Common
Stock and standard options to purchase Common Stock may be issued to any
employee, officer or director for services provided to the Company in their
capacity as such (including, without limitation, any adjustments to the number
of shares reserved for issuance thereunder as a result of the operation of any
evergreen provisions), “Convertible Securities” shall mean any stock or other
security (other than Options) that is at any time and under any circumstances,
directly or indirectly, convertible into, exercisable or exchangeable for, or
which otherwise entitles the holder thereof to acquire, any shares of Common
Stock, and “Options” shall mean any rights, warrants or options to subscribe for
or purchase shares of Common Stock or Convertible Securities.

 

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(e)         Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, (b) subdivide its outstanding shares
of Common Stock, or (c) combine its outstanding shares of the Common Stock into
a smaller number of shares of Common Stock, then, in each such event, the
Purchase Price shall, simultaneously with the happening of such event, be
adjusted by multiplying the then Purchase Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such event, and the product so
obtained shall thereafter be the Purchase Price then in effect. The Purchase
Price, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described herein. The number of Units that the
Subscriber shall thereafter be entitled to receive (including number of shares
of Conversion Shares or Warrant Shares the Subscriber may thereafter be entitled
to receive upon conversion of the Preferred Shares or exercise of the Warrants,
as the case may be) shall be adjusted to a number determined by multiplying the
number of shares of Common Stock that would otherwise (but for the provisions of
this Section) be issuable on such conversion or exercise by a fraction of which
(a) the numerator is the Purchase Price that would otherwise (but for the
provisions of this Section) be in effect, and (b) the denominator is the
Purchase Price then in effect.

 

(f)         Certificate as to Adjustments. In each case of any adjustment or
readjustment in (i) the Shares, (ii) the Preferred Shares, (iii) the number of
Conversion Shares issuable upon conversion of the Preferred Shares (iii) the
number of Warrant Shares issuable upon the exercise of the Warrants, (iv) the
exercise price of the Warrants and/or

 

(v)         the conversion price of the Preferred Shares, the Company, at its
expense, will promptly cause its Chief Financial Officer or other appropriate
designee to compute such adjustment or readjustment in accordance with the terms
hereof and of the Series C Certificate of Designation or the Warrant, as
applicable, and prepare a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company will forthwith mail a copy of each such
certificate to the Subscriber.

 

3.THE SUBSCRIBER’S REPRESENTATIONS, WARRANTIES AND COVENANTS

 

Each Subscriber, severally and not jointly, hereby acknowledges, agrees with and
represents, warrants and covenants to the Company, as follows:

 

(a)         The Subscriber has full power and authority to enter into this
Agreement, the execution and delivery of which has been duly authorized, if
applicable, and this Agreement constitutes a valid and legally binding
obligation of the Subscriber, except as may be limited by bankruptcy,
reorganization, insolvency, moratorium and similar laws of general application
relating to or affecting the enforcement of rights of creditors, and except as
enforceability of the obligations hereunder are subject to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or law).

 

(b)         The Subscriber acknowledges its understanding that the Offering and
sale of the Securities is intended to be exempt from registration under the
Securities Act, by virtue of Section 4(a)(2) of the Securities Act and the
provisions of Regulation D promulgated thereunder (“Regulation D”). In
furtherance thereof, the Subscriber represents and warrants to the Company and
its affiliates as follows:

 

(i)         The Subscriber realizes that the basis for the exemption from
registration may not be available if, notwithstanding the Subscriber’s
representations contained herein, the Subscriber is merely acquiring the
Securities for a fixed or determinable period in the future, or for a market
rise, or for sale if the market does not rise. The Subscriber does not have any
such intention.

 

(ii)         The Subscriber realizes that the basis for exemption would not be
available if the Offering is part of a plan or scheme to evade registration
provisions of the Securities Act or any applicable state or federal securities
laws, except sales pursuant to a registration statement or sales that are
exempted under the Securities Act.

 

(iii)         The Subscriber is acquiring the Securities solely for the
Subscriber’s own beneficial account, for investment purposes, and not with a
view towards, or resale in connection with, any distribution of the Securities.

 

(iv)         The Subscriber has the financial ability to bear the economic risk
of the Subscriber’s investment, has adequate means for providing for its current
needs and contingencies, and has no need for liquidity with respect to an
investment in the Company.

 

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(v)         The Subscriber and the Subscriber’s attorney, accountant, purchaser
representative and/or tax advisor, if any (collectively, the “Advisors”) has
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of a prospective investment in the
Securities. If other than an individual, the Subscriber also represents it has
not been organized solely for the purpose of acquiring the Securities.

 

(vi)         The Subscriber (together with its Advisors, if any) has received
all documents requested by the Subscriber, if any, and has carefully reviewed
them and understands the information contained therein, prior to the execution
of this Agreement.

 

(c)         The Subscriber is not relying on the Company or any of its
employees, agents, sub-agents or advisors with respect to the legal, tax,
economic and related considerations involved in this investment. The Subscriber
has relied on the advice of, or has consulted with, only its Advisors. Each
Advisor, if any, has disclosed to the Subscriber in writing (a copy of which is
annexed to this Agreement) the specific details of any and all past, present or
future relationships, actual or contemplated, between the Advisor and the
Company or any affiliate or sub-agent thereof.

 

(d)         The Subscriber has carefully considered the potential risks relating
to the Company and a purchase of the Securities, and fully understands that the
Securities are a speculative investment that involves a high degree of risk of
loss of the Subscriber’s entire investment. Among other things, the Subscriber
has carefully considered each of the risks described under the heading “Risk
Factors” in the Company’s SEC Documents (as defined below) and any additional
disclosures in the nature of Risk Factors described herein.

 

(e)         The Subscriber will not sell or otherwise transfer any Securities
without registration under the Securities Act or an exemption therefrom, and
fully understands and agrees that the Subscriber must bear the economic risk of
its purchase because, among other reasons, the Securities have not been
registered under the Securities Act or under the securities laws of any state
and, therefore, cannot be resold, pledged, assigned or otherwise disposed of
unless they are subsequently registered under the Securities Act and under the
applicable securities laws of such states, or an exemption from such
registration is available. In particular, the Subscriber is aware that the
Securities are “restricted securities,” as such term is defined in Rule 144
promulgated under the Securities Act (“Rule 144”), and they may not be sold
pursuant to Rule 144 unless all of the conditions of Rule 144 are met. The
Subscriber also understands that the Company is under no obligation to register
the Securities on behalf of the Subscriber or to assist the Subscriber in
complying with any exemption from registration under the Securities Act or
applicable state securities laws. The Subscriber understands that any sales or
transfers of the Securities are further restricted by state securities laws and
the provisions of this Agreement.

 

(f)         No oral or written representations or warranties have been made, or
information furnished, to the Subscriber or its Advisors, if any, by the Company
or any of its officers, employees, agents, sub-agents, affiliates, advisors or
subsidiaries in connection with the Offering, other than any representations of
the Company contained herein, and in subscribing for the Units the Subscriber is
not relying upon any representations other than those contained herein.

 

(g)         The Subscriber’s overall commitment to investments that are not
readily marketable is not disproportionate to the Subscriber’s net worth, and an
investment in the Securities will not cause such overall commitment to become
excessive.

 

(h)         The Subscriber understands and agrees that the certificates for the
Securities shall bear substantially the following legend:

 

“[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE 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. 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 TO
THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR
ELIGIBLE TO BE 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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(i)         Certificates evidencing Securities shall not be required to contain
the legend set forth in Section 3(h) above or any other legend (i) while a
registration statement covering the resale of such Securities is effective under
the Securities Act, (ii) following any sale of such Securities pursuant to Rule
144 (assuming the transferor is not an affiliate of the Company), (iii) if such
Securities are eligible to be sold, assigned or transferred under Rule 144 and
the Subscriber is not an affiliate of the Company (provided that the Subscriber
provides the Company with reasonable assurances that such Securities are
eligible for sale, assignment or transfer under Rule 144 which shall not include
an opinion of the Subscriber’s counsel), (iv) in connection with a sale,
assignment or other transfer (other than under Rule 144), provided that the
Subscriber provides the Company with an opinion of counsel (at the expense of
the Company), in a form generally acceptable to the Company, to the effect that
such sale, assignment or transfer of the Securities may be made without
registration under the applicable requirements of the Securities Act or (v) if
such legend is not required under applicable requirements of the Securities Act
(including, without limitation, controlling judicial interpretations and
pronouncements issued by the SEC). If a legend is not required pursuant to the
foregoing, the Company shall no later than three (3) business days following the
delivery by the Subscriber to the Company or the transfer agent (with notice to
the Company) of a legended certificate representing such Securities (endorsed or
with stock powers attached, signatures guaranteed, and otherwise in form
necessary to affect the reissuance and/or transfer, if applicable), together
with any other deliveries from the Subscriber as may be required above in this
Section 3(i), as directed by the Subscriber, either: (A) provided that the
Company’s transfer agent is participating in the DTC Fast Automated Securities
Transfer Program and such Securities are shares of Shares, Conversion Shares or
Warrant Shares, credit the aggregate number of shares of Common Stock to which
the Subscriber shall be entitled to the Subscriber’s or its designee’s balance
account with DTC through its Deposit/Withdrawal at Custodian system or (B) if
the Company’s transfer agent is not participating in the DTC Fast Automated
Securities Transfer Program, issue and deliver (via reputable overnight courier)
to the Subscriber, a certificate representing such Securities that is free from
all restrictive and other legends, registered in the name of the Subscriber or
its designee. The Company shall be responsible for any transfer agent fees or
DTC fees with respect to any issuance of Securities or the removal of any
legends with respect to any Securities in accordance herewith.

 

(j)         Neither the SEC nor any state securities commission has approved the
Securities or passed upon or endorsed the merits of the Offering. There is no
government or other insurance covering any of the Securities.

 

(k)         The Subscriber and its Advisors, if any, have had a reasonable
opportunity to ask questions of and receive answers from a person or persons
acting on behalf of the Company concerning the Offering and the business,
financial condition, results of operations and prospects of the Company, and all
such questions have been answered to the full satisfaction of the Subscriber and
its Advisors, if any.

 

(l)         (i)         In making the decision to invest in the Securities the
Subscriber has relied solely upon the information provided by the Company in the
Transaction Documents. To the extent necessary, the Subscriber has retained, at
its own expense, and relied upon appropriate professional advice regarding the
investment, tax and legal merits and consequences of this Agreement and the
purchase of the Securities hereunder. The Subscriber disclaims reliance on any
statements made or information provided by any person or entity in the course of
Subscriber’s consideration of an investment in the Securities other than the
Transaction Documents.

 

(ii)         The Subscriber represents and warrants that: (i) the Subscriber was
contacted regarding the sale of the Securities by the Company (or an authorized
agent or representative thereof) with whom the Subscriber had a prior
substantial pre-existing relationship and (ii) no Securities were offered or
sold to it by means of any form of general solicitation or general advertising,
and in connection therewith, the Subscriber did not (A) receive or review any
advertisement, article, notice or other communication published in a newspaper
or magazine or similar media or broadcast over television or radio, whether
closed circuit, or generally available; or (B) attend any seminar meeting or
industry investor conference whose attendees were invited by any general
solicitation or general advertising; or (C) observe any website or filing of the
Company with the SEC in which any offering of securities by the Company was
described and as a result learned of any offering of securities by the Company.

 

7

 

 

(m)         The Subscriber has taken no action that would give rise to any claim
by any person for brokerage commissions, finders’ fees or the like relating to
this Agreement or the transactions contemplated hereby.

 

(n)         The Subscriber is not relying on the Company or any of its
employees, agents, or advisors with respect to the legal, tax, economic and
related considerations of an investment in the Securities, and the Subscriber
has relied on the advice of, or has consulted with, only its own Advisors.

 

(o)         The Subscriber acknowledges that any estimates or forward-looking
statements or projections furnished by the Company to the Subscriber were
prepared by the management of the Company in good faith, but that the attainment
of any such projections, estimates or forward-looking statements cannot be
guaranteed by the Company or its management and should not be relied upon.

 

(p)         No oral or written representations have been made, or oral or
written information furnished, to the Subscriber or its Advisors, if any, in
connection with the Offering that are in any way inconsistent with the
information contained herein.

 

(q)         (For ERISA plans only) The fiduciary of the ERISA plan (the “Plan”)
represents that such fiduciary has been informed of and understands the
Company’s investment objectives, policies and strategies, and that the decision
to invest “plan assets” (as such term is defined in ERISA) in the Company is
consistent with the provisions of ERISA that require diversification of plan
assets and impose other fiduciary responsibilities. The Subscriber or Plan
fiduciary (i) is responsible for the decision to invest in the Company; (ii) is
independent of the Company and any of its affiliates; (iii) is qualified to make
such investment decision; and (iv) in making such decision, the Subscriber or
Plan fiduciary has not relied primarily on any advice or recommendation of the
Company or any of its affiliates.

 

(r)         This Agreement is not enforceable by the Subscriber unless it has
been accepted by the Company, and the Subscriber acknowledges and agrees that
the Company reserves the right to reject any subscription for any reason.

 

(s)         The Subscriber is an “Accredited Investor” as defined in Rule 501(a)
under the Securities Act. In general, an “Accredited Investor” is deemed to be
an institution with assets in excess of $5,000,000 or individuals with a net
worth in excess of $1,000,000 (excluding such person’s residence) or annual
income exceeding $200,000 or $300,000 jointly with his or her spouse.

 

(t)         The Subscriber, either alone or together with its representatives,
has such knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks of the Offering,
and has so evaluated the merits and risks of such investment. The Subscriber has
not authorized any person or entity to act as its Purchaser Representative (as
that term is defined in Regulation D of the General Rules and Regulations under
the Securities Act) in connection with the Offering. The Subscriber is able to
bear the economic risk of an investment in the Securities and, at the present
time, is able to afford a complete loss of such investment.

 

4.THE COMPANY’S REPRESENTATIONS, WARRANTIES AND COVENANTS

 

The Company hereby acknowledges, agrees with and represents, warrants and
covenants to each Subscriber, as follows:

 

8

 

 

(a)         Organization and Qualification

 

Other than as set forth on Schedule 4(a), each of the Company and each of its
Subsidiaries 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 each of its
Subsidiaries is duly qualified as a foreign entity to do business and is in good
standing in every jurisdiction in which its ownership of property or the nature
of the business conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good standing would not
have a Material Adverse Effect. As used in this Agreement, “Material Adverse
Effect” means any material adverse effect on (i) the business, properties,
assets, liabilities, operations (including results thereof), condition
(financial or otherwise) or prospects of the Company or any Subsidiary, either
individually or taken as a whole, (ii) the transactions contemplated hereby or
in any of the other Transaction Documents or (iii) the authority or ability of
the Company or any of its Subsidiaries to perform any of their respective
obligations under any of the Transaction Documents. Other than as set forth on
Exhibit 21.1 to the Company’s Annual Report on Form 10-K for the fiscal year
ended June 30, 2014, the Company has no Subsidiaries. “Subsidiaries” means any
Person in which the Company, directly or indirectly, (I) owns any of the
outstanding capital stock or holds any equity or similar interest of such Person
or (II) controls or operates all or any part of the business, operations or
administration of such Person, and each of the foregoing, is individually
referred to herein as a “Subsidiary.”

 

(b)         Authorization; Enforcement; Validity

 

The Company has the requisite power and authority to enter into and perform its
obligations under this Agreement and the other Transaction Documents and to
issue the Securities in accordance with the terms hereof and thereof. Each
Subsidiary has the requisite power and authority to enter into and perform its
obligations under the Transaction Documents to which it is a party. The
execution and delivery of this Agreement and the other Transaction Documents by
the Company, and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance of
the Shares, the Preferred Shares, the Warrants and the reservation for issuance
and issuance of the Conversion Shares and Warrant Shares issuable upon
conversion and exercise of the Preferred Shares and Warrants, respectively) have
been duly authorized by the Company’s board of directors, and (other than (i)
the filing with the SEC of a Form D under Regulation D of the Securities Act
(ii) the 8-K Filing (as defined below), (iii) the filings required pursuant to
the Registration Rights Agreement (as defined below), (iv) any action necessary
in order to qualify the Securities, and any other filings as may be required by
any state securities agencies or “Blue Sky” laws of the states of the United
States, and (v) if applicable, the listing of the Shares, the Conversion Shares
and the Warrant Shares on the Principal Market (as defined below)) no further
filing, consent or authorization is required by the Company, its Subsidiaries,
their respective boards of directors or their stockholders or other governing
body. This Agreement has been, and the other Transaction Documents will be,
prior to the Closing, duly executed and delivered by the Company, and each
constitutes the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with its respective terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of applicable creditors’
rights and remedies and except as rights to indemnification and to contribution
may be limited by federal or state securities law.

 

(c)         Issuance of Securities

 

The issuance of the Securities is duly authorized and, upon issuance in
accordance with the terms of the Transaction Documents, will be validly issued,
fully paid and non-assessable and free from all preemptive or similar rights,
taxes, liens, charges and other encumbrances with respect to the issue thereof.
As of the Final Closing, the Company shall have reserved from its duly
authorized capital stock not less than 200% of the maximum number of shares of
Common Stock initially issuable pursuant to the Transaction Documents (assuming
for purposes hereof that the Preferred Shares are convertible at the initial
Conversion Price (as defined in the Certificate of Designations) and the
Warrants are exercisable at the initial Exercise Price (as defined in the
Warrants and without taking into account any limitations on the conversion of
such Preferred Shares set forth in the Certificate of Designations or the
Warrants). The issuance of the Securities are duly authorized, and upon issuance
in accordance with the applicable Transaction Documents, will be validly issued,
fully paid and non-assessable and, except as disclosed on Schedule 4(c), free
from all preemptive or similar rights, taxes, liens, charges and other
encumbrances with respect to the issue thereof, with the holders being entitled
to all rights accorded to a holder of Common Stock. Subject to the accuracy of
the representations and warranties of the Subscribers in this Agreement, the
offer and issuance by the Company of the Securities is exempt from registration
under the Securities Act.

 

9

 

 

(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 Shares,
the Preferred Shares, the Warrants, the Conversion Shares and the Warrant Shares
and the reservation for issuance of the Conversion Shares and Warrant Shares)
will not (i) result in a violation of the Charter (as defined below) (including,
without limitation, any certificate of designation contained therein), the
Series C Certificate of Designation or other organizational documents of the
Company or any of its Subsidiaries, any capital stock of the Company or any of
its Subsidiaries or Bylaws (as defined below) or the bylaws any of its
Subsidiaries, (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 the Company or any of its
Subsidiaries is a party or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including, without limitation, foreign,
federal and state securities laws and regulations and the rules and regulations
of the Over-the-Counter Bulletin Board (the “Principal Market”) and including
all applicable federal and provincial laws, rules 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 other than, in the case
of clause (ii) above, such conflicts, defaults or rights that could not
reasonably be expected to have a Material Adverse Effect.

 

(e)         Consents

 

Neither the Company nor any Subsidiary is required to obtain any consent from
authorization or order of, or make any filing or registration with (other than
filings required under the Registration Rights Agreement and the filing with the
SEC of a Form D and any other filings as may be required by any state securities
agencies) any court, governmental agency or any regulatory or self-regulatory
agency or any other Person in order for it to execute, deliver or perform any of
its respective obligations under, or contemplated by, the Transaction Documents,
in each case, in accordance with the terms hereof or thereof. All consents,
authorizations, orders, filings and registrations which the Company is required
to obtain at or prior to the Closing have been obtained or effected on or prior
to each Closing Date, and neither the Company nor any of its Subsidiaries are
aware of any facts or circumstances which might prevent the Company from
obtaining or effecting any of the registration, application or filings
contemplated by the Transaction Documents. The Company is not in violation of
the requirements of the Principal Market and has no knowledge of any facts or
circumstances which could reasonably lead to delisting or suspension of the
Common Stock in the foreseeable future.

 

(f)         Acknowledgment Regarding Subscriber’s Purchase of Securities

 

The Company acknowledges and agrees that each Subscriber 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, other than as
disclosed on Schedule 4(f), no Subscriber is (i) an officer or director of the
Company or any of its Subsidiaries, (ii) to its knowledge, is an “affiliate” (as
defined in Rule 144 promulgated under the Securities Act (or a successor rule
thereto) (collectively, “Rule 144”)) of the Company or any of its Subsidiaries
or (iii) to its knowledge, a “beneficial owner” of more than 10% of the shares
of Common Stock (as defined for purposes of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)). The Company further
acknowledges that no Subscriber 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 Subscriber or any of its representatives or
agents in connection with the Transaction Documents and the transactions
contemplated hereby and thereby is merely incidental to such Subscriber’s
purchase of the Securities. The Company further represents to each Subscriber
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.

 

10

 

 

(g)         No General Solicitation; Placement Agent’s Fees

 

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. The Company shall be responsible for the
payment of any placement agent’s fees, financial advisory fees, or brokers’
commissions (other than for Persons engaged by any Subscriber or its investment
advisor) relating to or arising out of the transactions contemplated hereby.
Other than the Placement Agents set forth on Schedule 4(g) or other than as set
forth on Schedule 4(g), neither the Company nor any of its Subsidiaries has
engaged any placement agent or other agent in connection with the offer or sale
of the Securities.

 

(h)         No Integrated Offering

 

None of the Company, its Subsidiaries or any of their affiliates, nor any Person
acting on their behalf has, directly or indirectly, made any offers or sales of
any security or solicited any offers to buy any security, under circumstances
that would require registration of the issuance of any of the Securities under
the Securities Act, whether through integration with prior offerings or
otherwise, or cause this offering of the Securities to require approval of
stockholders of the Company under any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
any exchange or automated quotation system on which any of the securities of the
Company are listed or designated for quotation. None of the Company, its
Subsidiaries, their affiliates nor any Person acting on their behalf will take
any action or steps that would require registration of the issuance of any of
the Securities under the Securities Act or cause the offering of any of the
Securities to be integrated with other offerings of securities of the Company.

 

(i)         Dilutive Effect

 

The Company understands and acknowledges that the number of Shares, Conversion
Shares and Warrant Shares will increase in certain circumstances. The Company
further acknowledges that its obligation to issue the Securities in accordance
with this Agreement, the Conversion Shares upon conversion of the Preferred
Shares in accordance with the Certificate of Designations and the Warrant Shares
in accordance with the terms of the Warrant, is absolute and unconditional,
regardless of 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, interested
stockholder, business combination, poison pill (including, without limitation,
any distribution under a rights agreement), stockholder rights plan or other
similar anti-takeover provision under the Charter, Bylaws or other
organizational documents or the laws of the jurisdiction of its incorporation or
otherwise which is or could become applicable to any Subscriber as a result of
the transactions contemplated by this Agreement, including, without limitation,
the Company’s issuance of the Securities and any Subscriber’s ownership of the
Securities. The Company and its board of directors have taken all necessary
action, if any, in order to render inapplicable any stockholder rights plan or
similar arrangement relating to accumulations of beneficial ownership of shares
of Common Stock or a change in control of the Company or any of its
Subsidiaries.

 

(k)         SEC Documents; Financial Statements

 

Except as described on Schedule 4(k), during the two (2) years prior to the date
hereof, the Company has timely filed all reports, schedules, forms, proxy
statements, statements and other documents required to be filed by it with the
SEC pursuant to the reporting requirements of the Exchange Act (all of the
foregoing filed prior to the date hereof and all exhibits and appendices
included therein and financial statements, notes and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
“SEC Documents”), taking into account all permissible extensions. Except as
disclosed on Schedule 4(k), true, correct and complete copies of each of the SEC
Documents are available on the EDGAR system. As of their respective dates,
except as described on Schedule 4(k), the SEC Documents complied in all material
respects with the requirements of the Exchange Act and the rules and regulations
of the SEC promulgated thereunder applicable to the SEC Documents, and none of
the SEC Documents, at the time they were filed with the SEC, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto as in effect as of the time of filing. Such financial statements have
been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments which will not be material, either individually or in the
aggregate). No other information provided by or on behalf of the Company by its
authorized agents to any of the Subscribers which is not included in the SEC
Documents contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements therein not misleading,
in the light of the circumstance under which they are or were made.

 

11

 

 

(l)         Absence of Certain Changes

 

Since the date of the Company’s most recent audited financial statements
contained in its most recent Annual Report on Form 10-K and (the “2014 10-K”)
except as disclosed in a subsequently filed SEC Document, there has been no
material adverse change and no material adverse development in the business,
assets, liabilities, properties, operations (including results thereof),
condition (financial or otherwise) or prospects of the Company or any of its
Subsidiaries. Since the date of the Company’s most recent audited financial
statements contained in the 2014 10-K, neither the Company nor any of its
Subsidiaries has (i) declared or paid any cash dividends, (ii) sold any assets,
individually or in the aggregate, outside of the ordinary course of business or
(iii) made any material capital expenditures, individually or in the aggregate,
outside of the ordinary course of business. Neither the Company nor any of its
Subsidiaries has taken any steps to seek protection pursuant to any law or
statute relating to bankruptcy, insolvency, reorganization, receivership,
liquidation or winding up, nor does the Company or any Subsidiary have any
knowledge or reason to believe that any of their respective creditors intend to
initiate involuntary bankruptcy proceedings or any actual knowledge of any fact
which would reasonably lead a creditor to do so. The Company and its
Subsidiaries, individually and on a consolidated basis, after giving effect to
the transactions contemplated hereby to occur at the Closing, will not be
Insolvent (as defined below), subject to the qualifications and assumptions set
forth in the going concern disclosure in the SEC Documents. For purposes of this
Section, “Insolvent” means, as of the date of Closing (I) with respect to the
Company and its Subsidiaries, on a consolidated basis, (i) the present fair
saleable value of the Company’s and its Subsidiaries’ assets is less than the
amount required to pay the Company’s and its Subsidiaries’ total Indebtedness
(as defined below), (ii) the Company and its Subsidiaries are unable to pay
their debts and liabilities, subordinated, contingent or otherwise, as such
debts and liabilities become absolute and matured or (iii) the Company and its
Subsidiaries intend to incur or believe that they will incur debts that would be
beyond their ability to pay as such debts mature; and (II) with respect to the
Company and each Subsidiary, individually, (i) the present fair saleable value
of the Company’s or such Subsidiary’s (as the case may be) assets is less than
the amount required to pay its respective total Indebtedness, (ii) the Company
or such Subsidiary (as the case may be) is unable to pay its respective debts
and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured or (iii) the Company or such Subsidiary
(as the case may be) intends to incur or believes that it will incur debts that
would be beyond its respective ability to pay as such debts mature. Neither the
Company nor any of its Subsidiaries has engaged in any business or in any
transaction, and is not about to engage in any business or in any transaction,
for which the Company’s or such Subsidiary’s remaining assets constitute
unreasonably small capital.

 

(m)         No Undisclosed Events, Liabilities, Developments or Circumstances

 

Other than the transactions contemplated hereby or as disclosed in the SEC
Documents, no event, liability, development or circumstance has occurred or
exists, or is reasonably expected to occur or exist, with respect to the
Company, any of its Subsidiaries or any of their respective businesses,
properties, liabilities, prospects, operations (including results thereof) or
condition (financial or otherwise) that (i) would be required to be disclosed by
the Company under applicable securities laws on a registration statement on Form
S-1 filed with the SEC relating to an issuance and sale by the Company of its
Common Stock and which has not been publicly announced, (ii) would reasonably be
expected have a material adverse effect on any Subscriber’s investment hereunder
or (iii) could have a Material Adverse Effect.

 

12

 

 

(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 Charter, any certificate of designation, preferences or
rights of any other outstanding series of preferred stock of the Company or any
of its Subsidiaries or Bylaws or their organizational charter, certificate of
formation or certificate of incorporation or bylaws, respectively. Neither the
Company nor any of its Subsidiaries is in violation of any judgment, decree or
order or any statute, ordinance, rule or regulation applicable to the Company or
any of its Subsidiaries, and neither the Company nor any of its Subsidiaries
will conduct its business in violation of any of the foregoing, except in all
cases for possible violations which could not, individually or in the aggregate,
have a Material Adverse Effect. Without limiting the generality of the
foregoing, the Company is not in violation of any of the rules, regulations or
requirements of the Principal Market and has no knowledge of any facts or
circumstances that could reasonably lead to delisting or suspension of the
Common Stock by the Principal Market in the foreseeable future. Since December
31, 2012, (i) the Common Stock has been listed or designated for quotation on
the Principal Market, (ii) trading in the Common Stock has not been suspended by
the SEC or the Principal Market and (iii) the Company has received no
communication, written or oral, from the SEC or the Principal Market regarding
the suspension or delisting of the Common Stock from the Principal Market. The
Company and each of its Subsidiaries possess all certificates, authorizations
and permits issued by the appropriate regulatory authorities necessary to
conduct their respective businesses, except where the failure to possess such
certificates, authorizations or permits would not have, individually or in the
aggregate, a Material Adverse Effect, 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.

 

(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.

 

(p)         Sarbanes-Oxley Act

 

The Company and each Subsidiary is in compliance with all applicable
requirements of the Sarbanes-Oxley Act of 2002 and all applicable rules and
regulations promulgated by the SEC thereunder.

 

(q)         Transactions With Affiliates

 

Except as disclosed in the SEC Documents, none of the officers, directors,
employees or affiliates of the Company or any of its Subsidiaries is presently a
party to any material transaction with the Company or any of its Subsidiaries
(other than for ordinary course services as employees, officers or directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any such
officer, director, employee or affiliate or, to the knowledge of the Company or
any of its Subsidiaries, any corporation, partnership, trust or other Person in
which any such officer, director, employee or affiliate has a substantial
interest or is an employee, officer, director, trustee or partner.

 

13

 

 

(r)         Equity Capitalization

 

As of April 20, 2015, the authorized capital stock of the Company consists of
(i) Five Hundred Million (500,000,000) shares of Common Stock, of which,
14,005,861 are issued and outstanding and 6,104,847 shares are reserved for
issuance pursuant to outstanding Common Stock Equivalents (as defined below)
(other than the Preferred Shares and Warrants), all of which are disclosed in
the SEC Documents, (ii) Five Million (5,000,000) shares of preferred stock
authorized, of which, 12,000 are designated as Series A Preferred Stock and of
which 380 are issued and outstanding, 2,000 are designated as Series B Preferred
Stock none of which are issued and outstanding and (iv) no shares of Common
Stock are held in treasury. All of such outstanding shares are duly authorized
and have been, or upon issuance will be, validly issued and are fully paid and
non-assessable. 2,765,855 shares of the Company’s issued and outstanding Common
Stock on the date hereof are owned by Persons who are “affiliates” (as defined
in Rule 405 of the Securities Act and calculated based on the assumption that
only officers, directors and holders of at least 10% of the Company’s issued and
outstanding Common Stock are “affiliates” without conceding that any such
Persons are “affiliates” for purposes of federal securities laws) of the Company
or any of its Subsidiaries. To the Company’s knowledge, except as disclosed in
the SEC Documents, no Person owns 10% or more of the Company’s issued and
outstanding shares of Common Stock (calculated based on the assumption that all
Common Stock Equivalents, whether or not presently exercisable or convertible,
have been fully exercised or converted (as the case may be) taking account of
any limitations on exercise or conversion (including “blockers”) contained
therein without conceding that such identified Person is a 10% stockholder for
purposes of federal securities laws). Except as disclosed in the Schedule 4(r),
(i) none of the Company’s or any Subsidiary’s capital stock is subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company or any Subsidiary; (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, 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; (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
amounts filed in connection with the Company or any of its Subsidiaries; (v)
except as contemplated by the Registration Rights Agreement, 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 Securities
Act; (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) and except as otherwise
contemplated by this Agreement, there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities; (viii) neither the Company nor any Subsidiary has
any stock appreciation rights or “phantom stock” plans or agreements or any
similar plan or agreement; and (ix) neither the Company nor any of its
Subsidiaries have any liabilities or obligations required to be disclosed in the
SEC Documents which are not so disclosed in the SEC Documents, other than those
incurred in the ordinary course of the Company’s or its Subsidiaries’ respective
businesses and which, individually or in the aggregate, do not or could not
reasonably be expected to have a Material Adverse Effect. The Company has
furnished to the Subscribers true, correct and complete copies of the Company’s
Certificate of Incorporation, as amended and as in effect on the date hereof
(the “Charter”), and the Company’s bylaws, as amended and as in effect on the
date hereof (the “Bylaws”), and the terms of all Common Stock Equivalents and
the material rights of the holders thereof in respect thereto.

 

14

 

 

(s)         Indebtedness and Other Contracts

 

Neither the Company nor any of its Subsidiaries (i) except as disclosed on
Schedule 4(s), 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 reasonably be expected to 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. Other than as set forth on Schedule 4(s), the Company
has no Indebtedness owed to any Subscriber. (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 generally accepted accounting principles) (other than trade
payables entered into in the ordinary course of business), (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
connection with generally accepted accounting principles, 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, claim, lien, tax, right of first
refusal, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) 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; (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; and (z) “Person” means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity and a government or any department
or agency thereof.

 

(t)         Absence of Litigation

 

Except as disclosed on Schedule 4(t), there is no action, suit, proceeding,
inquiry or investigation before or by the Principal Market, any court, public
board, government agency, self-regulatory organization or body pending or, to
the knowledge of the Company, threatened against or affecting the Company or any
of its Subsidiaries, the Common Stock or any of the Company’s or its
Subsidiaries’ officers or directors which is outside of the ordinary course of
business or individually or in the aggregate material to the Company or any of
its Subsidiaries. There has not been, and to the knowledge of the Company, there
is not pending or contemplated, any investigation by the SEC involving the
Company, any of its Subsidiaries or any current or former director or officer of
the Company or any of its Subsidiaries. The SEC has not issued any stop order or
other order suspending the effectiveness of any registration statement filed by
the Company under the Securities Act or the Exchange Act.

 

(u)         Insurance

 

The Company and each of its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its Subsidiaries are engaged. Neither the Company nor
any such Subsidiary has been refused any insurance coverage sought or applied
for, and neither the Company nor any such Subsidiary has any reason to believe
that it will be unable to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a Material
Adverse Effect.

 

(v)         Employee Relations

 

Neither the Company nor any of its Subsidiaries is a party to any collective
bargaining agreement or employs any member of a union. The Company believes that
its and its Subsidiaries’ relations with their respective employees are good.
Except as set forth on Schedule 4(v), no executive officer (as defined in Rule
501(f) promulgated under the Securities Act) or other key employee of the
Company or any of its Subsidiaries has notified the Company or any such
Subsidiary that such officer intends to leave the Company or any such Subsidiary
or otherwise terminate such officer’s employment with the Company or any such
Subsidiary. No executive officer or other key employee of the Company or any of
its Subsidiaries is, or is now expected to be, in violation of any material term
of any employment contract, confidentiality, disclosure or proprietary
information agreement, non-competition agreement, or any other contract or
agreement or any restrictive covenant, and the continued employment of each such
executive officer or other key employee (as the case may be) does not subject
the Company or any of its Subsidiaries to any liability with respect to any of
the foregoing matters. The Company and its Subsidiaries are in compliance with
all federal, state, local and foreign laws and regulations respecting labor,
employment and employment practices and benefits, terms and conditions of
employment and wages and hours, except where failure to be in compliance would
not, either individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.

 

15

 

 

(w)         Title

 

Except as disclosed in the SEC Documents, the Company and its Subsidiaries own
no real property, and have 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, encumbrances and
defects except such as do not materially affect the value of such property and
do not interfere with the use made of such property by the Company and any of
its Subsidiaries. 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 of such property and buildings by the Company or any of its
Subsidiaries.

 

(x)         Intellectual Property Rights

 

The Company and its Subsidiaries own or possess adequate rights or licenses to
use all trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, original works, inventions,
licenses, approvals, governmental authorizations, trade secrets and other
intellectual property rights and all applications and registrations therefore
(“Intellectual Property Rights”) necessary to conduct their respective
businesses as now conducted, except where the failure to do so could be
reasonably expected to have, individually or in the aggregate have a Material
Adverse Effect. All Intellectual Property Rights of the Company and its
Subsidiaries are set forth on Schedule 4(x). Except as disclosed on Schedule
4(x), none of the Company’s or its Subsidiaries’ Intellectual Property Rights
have expired, terminated or been abandoned, or are expected to expire, terminate
or be abandoned, within three years from the date of this Agreement. The Company
has no knowledge of any infringement by the Company or any of its Subsidiaries
of Intellectual Property Rights of others. There is no claim, action or
proceeding being made or brought, or to the knowledge of the Company or any of
its Subsidiaries, being threatened, against the Company or any of its
Subsidiaries regarding their Intellectual Property Rights. The Company is not
aware of any facts or circumstances which are likely to give rise to any of the
foregoing infringements or claims, actions or proceedings. The Company and each
of its Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their Intellectual Property Rights.

 

(y)         Environmental Laws

 

The Company and its Subsidiaries (i) are in compliance with all Environmental
Laws (as defined below), (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.
“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.

 

(z)         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.

 

16

 

 

(aa)         Tax Status

 

Except as set forth on Schedule 4(aa), The Company and each of its Subsidiaries
(i) has timely made or filed all foreign, federal and state income and all other
tax returns, reports and declarations required by any jurisdiction to which it
is subject, (ii) has timely paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and (iii) has set aside on its books provision reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company and its Subsidiaries know of no basis for any
such claim. The Company is not operated in such a manner as to qualify as a
passive foreign investment company, as defined in Section 1297 of the U.S.
Internal Revenue Code of 1986, as amended (the “Code”).

 

(bb)         Internal Accounting and Disclosure Controls

 

Except as disclosed in the SEC Documents, the Company and each of its
Subsidiaries maintains internal control over financial reporting (as such term
is defined in Rule 13a-15(f) under the Exchange Act) that is effective to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles, including that (i) transactions
are executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management’s
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference. Except as disclosed in the SEC Documents, the Company maintains
disclosure controls and procedures (as such term is defined in Rule 13a-15(e)
under the Exchange Act) that are effective in ensuring that information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the Company’s management,
including its principal executive officer or officers and its principal
financial officer or officers, as appropriate, to allow timely decisions
regarding required disclosure. Except as described in the SEC Documents, neither
the Company nor any of its Subsidiaries has received any notice or
correspondence from any accountant or other Person relating to any potential
material weakness or significant deficiency in any part of the internal controls
over financial reporting of the Company or any of its Subsidiaries.

 

(cc)         Off Balance Sheet Arrangements

 

There is no transaction, arrangement, or other relationship between the Company
or any of its Subsidiaries and an unconsolidated or other off balance sheet
entity that is required to be disclosed by the Company in its Exchange Act
filings and is not so disclosed or that otherwise could be reasonably likely to
have a Material Adverse Effect.

 

(dd)         Investment Company Status

 

The Company is not, and upon consummation of the sale of the Securities will not
be, an “investment company,” an affiliate of 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.

 

17

 

 

(ee)         Acknowledgement Regarding Subscribers’ Trading Activity

 

It is understood and acknowledged by the Company that (i) following the public
disclosure of the transactions contemplated by the Transaction Documents in
accordance with the terms thereof, none of the Subscribers have been asked by
the Company or any of its Subsidiaries to agree, nor has any Subscriber agreed
with the Company or any of its Subsidiaries, to desist from effecting any
transactions in or with respect to (including, without limitation, purchasing or
selling, long and/or short) any securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold any of the
Securities for any specified term other than in accordance with Federal and
state securities laws; (ii) any Subscriber, and counterparties in “derivative”
transactions to which any such Subscriber is a party, directly or indirectly,
presently may have a “short” position in the Common Stock which was established
prior to such Subscriber’s knowledge of the transactions contemplated by the
Transaction Documents; and (iii) each Subscriber shall not be deemed to have any
affiliation with or control over any arm’s length counterparty in any
“derivative” transaction. The Company further understands and acknowledges that
following the public disclosure of the transactions contemplated by the
Transaction Documents pursuant to Section 5(c) below one or more Subscribers may
engage in hedging and/or trading activities at various times during the period
that the Securities are outstanding, including, without limitation, during the
periods that the value and/or number of the Conversion Shares and/or Warrant
Shares deliverable with respect to the Securities are being determined and 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 this Agreement, the Series C Certificate of Designation, the Warrant
or any other Transaction Document or any of the documents executed in connection
herewith or therewith.

 

(ff)         Manipulation of Price

 

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

 

(gg)         U.S. Real Property Holding Corporation

 

Neither the Company nor any of its Subsidiaries is, or has ever been, and so
long as any of the Securities are held by any of the Subscribers, shall become a
U.S. real property holding corporation within the meaning of Section 897 of the
Code, and the Company and each Subsidiary shall so certify upon any Subscriber’s
request.

 

(hh)         Registration Eligibility.

 

The Company is eligible to register the Securities for resale by the Subscribers
using Form S-1 promulgated under the Securities Act.

 

(ii)         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 issuance,
sale and transfer of the Securities to be sold to each Subscriber 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.

 

(jj)         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 equity 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.

 

18

 

 

(kk)       Public Utility Holding Act.

 

None of the Company nor any of its Subsidiaries is a “holding company,” or an
“affiliate” of a “holding company,” as such terms are defined in the Public
Utility Holding Act of 2005.

 

(ll)         Federal Power Act.

 

None of the Company nor any of its Subsidiaries is subject to regulation as a
“public utility” under the Federal Power Act, as amended.

 

(mm)      No Additional Agreements.

 

The Company does not have any agreement or understanding with any Subscriber
with respect to the transactions contemplated by the Transaction Documents other
than as specified in the Transaction Documents.

 

(nn)       No Disqualification Events.

 

None of the Company, any of its predecessors, any affiliated issuer, any
director, executive officer, other officer of the Company participating in the
offering contemplated hereby, 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
Securities Act) connected with the Company in any capacity at the time of sale
(each, an “Issuer Covered Person”) is subject to any of the “Bad Actor”
disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities
Act (a “Disqualification Event”), except for a Disqualification Event covered by
Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine
whether any Issuer Covered Person is subject to a Disqualification Event.

 

(oo)       Illegal or Unauthorized Payments; Political Contributions.

 

Neither the Company nor 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, (a) as a kickback or bribe to any Person or (b)
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.

 

(pp)       Money Laundering.

 

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

 

(qq)       Shell Company Status.

 

The Company is not and has not been for a period of at least 1 year prior to the
Initial Closing Date an issuer identified in Rule 144(i)(1) of the Securities
Act. The Company is, and has been for a period of at least 90 days, subject to
the reporting requirements of Section 13 or Section 15(d) of the Exchange Act.

 

19

 

 

(rr)         Disclosure.

 

The Company confirms that neither it nor any other Person acting on its behalf
has provided any of the Subscribers or their agents or counsel with any
information that constitutes or could reasonably be expected to constitute
material, non-public information regarding the Company or any of its
Subsidiaries, other than the existence of the transactions contemplated by this
Agreement and the other Transaction Documents. The Company understands and
confirms that each of the Subscribers will rely on the foregoing representations
in effecting transactions in securities of the Company. All disclosure provided
to the Subscribers regarding the Company and its Subsidiaries, their businesses
and the transactions contemplated hereby, including the schedules to this
Agreement, furnished by or on behalf of the Company or any of its Subsidiaries
is true and correct and does not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or information exists with
respect to the Company or any of its Subsidiaries or its or their business,
properties, liabilities, prospects, operations (including results thereof) or
conditions (financial or otherwise), which, under applicable law, rule or
regulation, requires public disclosure at or before the date hereof or
announcement by the Company but which has not been so publicly disclosed. The
Company acknowledges and agrees that no Subscriber makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.

 

5.OTHER AGREEMENTS OF THE PARTIES

 

(a)           Furnishing of Information. As long as any Subscriber owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Subscriber owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Subscribers and make publicly available in accordance with Rule
144(c) under the Securities Act such information as is required for the
Subscribers to sell the Securities under Rule 144. The Company further covenants
that it will take such further action as any holder of Securities may reasonably
request, at the sole cost and expense of the Company including transfer agent
and legal opinion fees and expenses, all to the extent required from time to
time to enable such person to sell such Securities without registration under
the Securities Act within the limitation of the exemptions proved by Rule 144
under the Securities Act.

 

(b)          Shareholder Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other person that any
Subscriber is an “Acquiring Person” under any shareholder rights plan or similar
plan or arrangement in effect or hereafter adopted by the Company, or that any
Subscriber could be deemed to trigger the provisions of any such plan or
arrangement, by virtue of receiving Securities under the Transaction Documents
or under any other agreement between the Company and the Subscribers.

 

(c)           Securities Laws Disclosure; Publicity. The Company shall by 8:30
a.m. (New York City time) (a) on the first Business Day after this Agreement has
been executed, issue a press release disclosing the material terms of the
transactions contemplated hereby and (b) within four (4) Business Days after
this Agreement has been executed, file a Current Report on Form 8-K with the SEC
(the “8-K Filing”), including the Transaction Documents as exhibits thereto.
From and after the issuance of such press release and the 8-K Filing, the
Company shall have publicly disclosed all material, non-public information
delivered to any of the Subscribers by the Company or any of its Subsidiaries,
or any of their respective officers, directors, employees or agents. The Company
and each Subscriber shall consult with each other in issuing any press releases
with respect to the transactions contemplated hereby, and no Subscriber shall
issue any such press release or otherwise make any such public statement without
the prior consent of the Company, which consent shall not unreasonably be
withheld. Notwithstanding the foregoing, the Company shall not publicly disclose
the name of any Subscriber, or include the name of any Subscriber in any filing
with the SEC or any regulatory agency, without the prior written consent of such
Subscriber, except to the extent such disclosure is required by law or in
connection with the Registration Rights Agreement, in which case the Company
shall provide the Subscribers with prior notice of such disclosure. The Company
understands that any such disclosure shall cause irreparable harm and each
Subscriber shall be entitled to injunctive relief and liquidated damages in
connection therewith.

 

(d)           Integration. The Company shall not, and shall use its best efforts
to ensure that no affiliate of the Company shall, after the date hereof, sell,
offer for sale or solicit offers to buy or otherwise negotiate in respect of any
security that would be integrated with the offer or sale of the Units in a
manner that would require the registration under the Securities Act of the sale
of the Units to the Subscribers.

 

20

 

 

(e)         Reservation of Securities.

 

(i)         The Company shall maintain a reserve from its duly authorized shares
of Common Stock for issuance pursuant to the Transaction Documents in such
amount as may then be required to fulfill its obligations in full under the
Transaction Documents, but not less than 200% of the maximum number of shares of
Common Stock issuable pursuant to the Transaction Documents (the “Required
Minimum”).

 

(ii)         If, on any date, the number of authorized but unissued (and
otherwise unreserved) shares of Common Stock is less than the Required Minimum
on such date, then the Board of Directors shall approve the amendment of the
Company’s Charter to increase the number of authorized but unissued shares of
Common Stock to at least the Required Minimum and submit such amendment to the
Company’s stockholders for approval, as soon as possible and in any event not
later than the 60th day after such date.

 

(iii)         The Company shall, if applicable: (i) in the time and manner
required by the Principal Market, prepare and file with such Principal Market an
additional shares listing application covering a number of shares of Common
Stock at least equal to the Required Minimum on the date of such application,
(ii) take all steps necessary to cause such shares of Common Stock to be
approved for listing or quotation on such Principal Market as soon as possible
thereafter, (iii) provide to the Subscribers evidence of such listing or
quotation and (iv) maintain the listing or quotation of such Common Stock on any
date at least equal to the Required Minimum on such date on such Principal
Market or another Principal Market. The Company will then take all commercially
reasonable action necessary to continue the listing or quotation and trading of
its Common Stock on a Principal Market for as long as any Subscriber holds
Securities, and will comply in all material respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of the
Principal Market at least until five years after the Closing Date. In the event
the aforedescribed listing is not continuously maintained for five years after
the Closing Date (a “Listing Default”), then in addition to any other rights the
Subscribers may have hereunder or under applicable law, on the first day of a
Listing Default and on each monthly anniversary of each such Listing Default
date (if the applicable Listing Default shall not have been cured by such date)
until the applicable Listing Default is cured, the Company shall pay to each
Subscriber an amount in cash, as partial liquidated damages and not as a
penalty, equal to 1% of (x) aggregate Subscription Amount of Shares or
Conversion Shares calculated on an “as converted” basis, as the case may be held
by such Subscriber on the date of a Listing Default and (y) the aggregate
purchase price of Warrant Shares held by such Subscriber on the day of a Listing
Default and on every thirtieth day (pro-rated for periods less than thirty days)
thereafter with respect to Shares (or “as converted” Conversion Shares”) and
Warrant Shares held as of each such date until the date such Listing Default is
cured or Subscriber no longer holds any Shares, Preferred Shares, Conversion
Shares or Warrant Shares.

 

(f)          Use of Proceeds. The Company anticipates using the gross proceeds
from the Offering as set forth on Exhibit D.

 

(g)         Non-Public Information. Except with respect to the material terms
and conditions of the transactions contemplated by the Transaction Documents,
the Company covenants and agrees that neither it, nor any other Person acting on
its behalf will provide any Subscriber or its agents or counsel with any
information that the Company believes constitutes or could constitute material
non-public information, and each Subscriber agrees, and shall direct its agents
and counsel not to, request any material non-public information from the Company
or any Person acting on its behalf, unless prior thereto such Subscriber shall
have executed a written agreement with the Company regarding the willingness to
accept receipt of such material non-public information and acknowledges the
confidentiality and use of such information and the Company’s covenant to file a
further SEC filing or report and the period in which such information shall
remain confidential or be required to not be disclosed. The Company understands
and confirms that each Subscriber shall be relying on the foregoing covenant in
effecting transactions in securities of the Company. 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 and any of its Subsidiaries or any of their
respective officers, directors, affiliates, employees or agents, on the one
hand, and the Subscriber or any of its affiliates on the other hand, shall
terminate.

 

(h)         Intentionally Omitted.

 

 21

 

 

(i)          Capital Changes. Until the one year anniversary of the Final
Closing Date, the Company shall not undertake a reverse or forward stock split
or reclassification of the Common Stock without 10 days prior written notice to
the Subscribers, unless such reverse split is made in conjunction with the
listing of the Common Stock on a national securities exchange or maintaining
compliance with such listing.

 

(j)          DTC Program. From the Closing Date until such time as no Subscriber
holds any of the Securities (such date, the “Release Date”), the Company shall
use its best efforts to employ as the transfer agent for the Shares, the
Conversion Shares and Warrant Shares a participant in the Depository Trust
Company Automated Securities Transfer Program (FAST) and cause the Common Stock
to be transferable pursuant to such program.

 

(k)         Subsequent Equity Sales. For the period beginning on the Closing
Date and ending on twenty-four (24) month anniversary of the Final Closing Date,
the Company will not, without the consent of Subscribers holding a majority of
the then issued and outstanding Shares and Preferred Shares on the date of such
consent (including the Lead Investors):(A) enter into any Equity Line of Credit
or similar agreement, nor issue nor agree to issue any common stock, Common
Stock Equivalents, floating or Variable Priced Equity Linked Instruments nor any
of the foregoing or equity with price reset rights (subject to adjustment for
stock splits, distributions, dividends, recapitalizations and the like)
(collectively, the “Variable Rate Transaction”). For purposes hereof, “Equity
Line of Credit” shall include any transaction involving a written agreement
between the Company and an investor or underwriter whereby the Company has the
right to “put” its securities to the investor or underwriter over an agreed
period of time and at an agreed price or price formula, and “Variable Priced
Equity Linked Instruments” shall include: (A) any debt or equity securities
which are convertible into, exercisable or exchangeable for, or carry the right
to receive additional shares of Common Stock either (1) at any conversion,
exercise or exchange rate or other price that is based upon and/or varies with
the trading prices of or quotations for Common Stock at any time after the
initial issuance of such debt or equity security, or (2) with a fixed
conversion, exercise or exchange price that is subject to being reset at some
future date at any time after the initial issuance of such debt or equity
security due to a change in the market price of the Company’s Common Stock since
date of initial issuance, and (B) any amortizing convertible security which
amortizes prior to its maturity date, where the Company is required or has the
option to (or any investor in such transaction has the option to require the
Company to) make such amortization payments in shares of Common Stock which are
valued at a price that is based upon and/or varies with the trading prices of or
quotations for Common Stock at any time after the initial issuance of such debt
or equity security (whether or not such payments in stock are subject to certain
equity conditions) and (C) issue any equity or equity-linked convertible
securities with an exercise or conversion price lower than $0.75 per share. For
purposes of determining the total consideration for a convertible instrument
(including a right to purchase equity of the Company) issued, subject to an
original issue or similar discount or which principal amount is directly or
indirectly increased after issuance, the consideration will be deemed to be the
actual cash amount received by the Company in consideration of the original
issuance of such convertible instrument. “Common Stock Equivalents” means any
securities of the Company or the Subsidiaries which would entitle the holder
thereof to acquire at any time Common Stock, including, without limitation, any
debt, preferred stock, right, option, warrant or other instrument that is at any
time convertible into or exercisable or exchangeable for, or otherwise entitles
the holder thereof to receive, Common Stock.

 

(l)          Investor Relations. From the date hereof through the Release Date,
the Company shall engage an investor relations firm and public relations firm,
reasonably acceptable to the Lead Investors.

 

(m)         Intentionally Omitted.

 

(n)         Form D and Blue Sky

 

The Company shall file a Form D with respect to the Securities as required under
Regulation D and to provide a copy thereof to each Subscriber promptly after
such filing. The availability of the filed Form D on EDGAR shall satisfy the
foregoing delivery requirement. The Company shall, on or before the Closing
Date, take such action as the Company shall reasonably determine is necessary in
order to obtain an exemption for, or to, qualify the Securities for sale to the
Subscribers at the Closing pursuant to this Agreement under applicable
securities or “Blue Sky” laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to the Subscribers on or prior to the Closing Date. Without
limiting any other obligation of the Company under this Agreement, the Company
shall timely make all filings and reports relating to the offer and sale of the
Securities required under all applicable securities laws (including, without
limitation, all applicable federal securities laws and all applicable “Blue Sky”
laws), and the Company shall comply with all applicable federal, foreign, state
and local laws, statutes, rules, regulations and the like relating to the
offering and sale of the Securities to the Subscribers.

 

 22

 

 

(o)         Intentionally Omitted.

 

(p)         Restriction on Redemption and Cash Dividends. From the date hereof
through the Release Date, the Company shall not, directly or indirectly, redeem,
or declare or pay any cash dividend or distribution on, any securities of the
Company without the prior express written consent of the Subscribers.

 

(q)         Corporate Existence. From the date hereof through the Release Date,
the Company shall not be party to any Fundamental Transaction (as defined in the
Series C Certificate of Designation) unless the Company is in compliance with
the applicable provisions governing Fundamental Transactions set forth in the
Series C Certificate of Designation.

 

(r)          Conversion Procedures. Each of the form of Notice of Conversion
included in the Series C Certificate of Designation set forth the totality of
the procedures required of the Subscribers in order to convert the Preferred
Shares. No legal opinion, other information or instructions shall be required of
the Subscribers to convert their Preferred Shares (other than customary 144
representation letters if such Preferred Shares are to be sold in reliance upon
the exemption provided by to Rule 144). The Company shall honor conversions of
the Preferred Shares and shall deliver the Conversion Shares in accordance with
the terms, conditions and time periods set forth in the Series C Certificate of
Designation.

 

(s)         Closing Documents. On or prior to fourteen (14) calendar days after
each Closing Date, the Company agrees to deliver, or cause to be delivered, to
each Subscriber and Sichenzia Ross Friedman Ference LLP executed copies of the
Transaction Documents, Securities and other document required to be delivered to
any party pursuant to this Agreement.

 

(t)          Indemnification. The Company will indemnify and hold harmless each
Subscriber and, where applicable, its directors, officers, employees, agents,
advisors and shareholders (each, an “Indemnitee”), from and against any and all
actual loss, liability, claim, damage and expense (including, but not limited
to, any and all fees, costs and expenses whatsoever reasonably incurred in
investigating, preparing or defending against any claim, lawsuit, administrative
proceeding or investigation whether commenced or threatened) (the “Indemnified
Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or
relating to (i) any misrepresentation or breach of any representation or
warranty made by the Company or any Subsidiary in any of the Transaction
Documents, (ii) any breach of any covenant, agreement or obligation of the
Company or any Subsidiary contained in any of the Transaction Documents or,
(iii) any cause of action, suit, proceeding or claim brought or made against
such Indemnitee by a third party (including for these purposes a derivative
action brought on behalf of the Company or any Subsidiary) or which otherwise
involves such Indemnitee that arises out of or results from (A) the execution,
delivery, performance or enforcement of any of the Transaction Documents, (B)
any transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, or (C) the
status of such Subscriber or holder of the Securities either as an investor in
the Company pursuant to the transactions contemplated by the Transaction
Documents or as a party to this Agreement (including, without limitation, as a
party in interest or otherwise in any action or proceeding for injunctive or
other equitable relief). To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.

 

(u)         Fees. The Company shall reimburse Sichenzia Ross Friedman Ference
LLP, as counsel to a Placement Agent, in a non-accountable amount equal to
$60,000, which amount shall be paid by the Escrow Agent in connection with the
Initial Closing. The Company shall be responsible for the payment of any
placement agent’s fees, financial advisory fees, transfer agent fees, the costs
associated with any legal opinions required to be rendered to the Company’s
transfer agent in connection with the lifting of any legends on the Securities,
DTC fees or broker’s commissions (other than for Persons engaged by any
Subscriber) relating to or arising out of the transactions contemplated hereby.
The Company (subject to the foregoing qualification) shall pay, and hold each
Subscriber harmless against, any liability, loss or expense (including, without
limitation, reasonable attorneys’ fees and out-of-pocket expenses) arising in
connection with any claim relating to any such payment.

 

 23

 

 

(v)         Standstill. The Subscriber hereby agrees that in the case of a
public offering of the Company’s securities pursuant to an effective
registration statement under the Securities Act or other offering of the
Company’s securities (whether registered or unregistered) in which the Company
engages a placement agent (the “Subsequent Offering”), at the request of the
underwriter or placement agent engaged by the Company in connection therewith,
the Subscriber will agree to not, without the prior written consent of the
Company, offer, pledge, sell, contract to sell, grant any option for the sale
of, or otherwise dispose of, directly or indirectly, any Securities purchased by
the Subscriber in the Offering, for a period of up to 60 days from the effective
date of the registration statement relating to the Subsequent Offering (if such
offering is a public offering) or the closing of such Subsequent Offering (if
such offering is a registered or private placement placed by a placement agent)
and that the Subscriber will enter into an agreement with the Company or
managing underwriter or placement agent engaged by the Company in connection
with such Subsequent Offering to that effect.

 

6.CONDITIONS TO ACCEPTANCE OF SUBSCRIPTION

 

(a) The Closing of the sale of the Units is conditioned upon satisfaction of the
following conditions precedent on or before the Closing Date:

 

(i)          As of the Closing, no legal action, suit or proceeding shall be
pending against the Company that seeks to restrain or prohibit the transactions
contemplated by this Agreement.

 

(ii)         The representations and warranties of the Company and the
Subscribers contained in this Agreement shall have been true and correct in all
material respects on the date of this Agreement (except whether such
representations are qualified by material or material adverse effect, which
shall be true and correct in all respects) and shall be true and correct as of
the Closing as if made on the Closing Date and the Company shall have performed,
satisfied and complied in all respects with the covenants, agreements and
conditions required to be performed, satisfied or complied with by the Company
in connection with the consummation of the transactions contemplated by the
Transaction Documents at or prior to the Closing Date and the Company shall
deliver a certificate, executed by its Chief Executive Officer, dated as of the
Closing Date, certifying that the foregoing is true.

 

(iii)         The Company shall deliver to the Subscribers, a certificate from
the Company, signed by its Secretary or Assistant Secretary, including
incumbency specimen signatures of any signatory of any Transaction Document of
the Company and certifying that the attached copies of the Company’s Certificate
of Incorporation, as amended and Bylaws, as amended, and resolutions of the
Board of Directors of the Company approving this the Offering, are all true,
complete and correct and remain in full force and effect.

 

(iv)         The Company shall deliver to the Subscribers an opinion of its
legal counsel substantially in the form attached hereto as Exhibit E.

 

(v)         The Company shall deliver to the Subscribers a file stamped copy of
the filed Series C Certificate of Designation, filed with the Secretary of State
of the State of Delaware, which shall not have been amended, waived, modified or
revoked by the Company.

 

7.          REGISTRATION RIGHTS. The Company shall file a “resale” registration
statement with the SEC covering 200% of the number of Warrant Shares underlying
the Warrants purchased by the Subscriber, so that such shares of Common Stock
will be registered under the Securities Act. The Company will maintain the
effectiveness of the “resale” registration statement from the effective date of
the registration statement until all Registrable Securities (as defined in the
Registration Rights Agreement) covered by such registration statement have been
sold, or may be sold without the requirement to be in compliance with Rule
144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144.
The Company will use its reasonable best efforts to have such “resale”
registration statement filed by the Filing Date (as defined in the Registration
Rights Agreement) and declared effective by the SEC as soon as possible and, in
any event, by the Effectiveness Date (as defined in the Registration Rights
Agreement), unless extended by Subscribers holding at least 60% of the
Registrable Securities outstanding on such date.

 

 24

 

 

The Company is obligated to pay to the Subscribers a fee of 1% per month of the
investors’ investment, payable in cash, up to a maximum of six (6%) percent, on
the Filing Date and the Effectiveness Date if the registration obligations set
forth herein have not been met, and pro- rata for each month, or partial month,
in excess of the Filing Date and/or the Effectiveness Date that the registration
statement has not been declared effective; provided, however, that the Company
shall not be obligated to pay any such liquidated damages if the Company is
unable to fulfill its registration obligations as a result of rules,
regulations, positions or releases issued or actions taken by the SEC pursuant
to its authority with respect to “Rule 415”, provided the Company registers at
such time the maximum number of shares of Common Stock permissible upon
consultation with the staff of the SEC.

 

The description of registration rights is qualified in its entirety by reference
to Registration Rights Agreement annexed hereto as Exhibit F (the “Registration
Rights Agreement”).

 

8.SUBSCRIBER LOCKUP

 

(a)         Restriction on Sales. During the period beginning on the Closing
Date (such date, the “Initial Lockup Date”) and ending twelve (12) months after
the Final Closing Date of the Offering (the “Lockup Period”), the Subscriber
will not, directly or indirectly, (i) offer, sell, offer to sell, contract to
sell, hedge, pledge, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
sell (or announce any offer, sale, offer of sale, contract of sale, hedge,
pledge, sale of any option or contract to purchase, purchase of any option or
contract of sale, grant of any option, right or warrant to purchase or other
sale or disposition), or otherwise transfer or dispose of (or enter into any
transaction or device that is designed to, or could be expected to, result in
the disposition by any person at any time in the future), any of the Securities,
beneficially owned, within the meaning of Rule 13d-3 under the Exchange Act by
the Subscriber on the date hereof or (ii) enter into any swap or other agreement
or any transaction that transfers, in whole or in part, directly or indirectly,
the economic consequence of ownership of any of the Securities, whether any such
swap or transaction described in clause (i) or (ii) above is to be settled by
delivery of any of the Securities (each of the foregoing, a “Prohibited Sale”).
This lockup shall apply only to the Securities purchased by the Subscriber in
the Offering (including the Shares, the Preferred Shares, the Warrants, the
Conversion Shares and Warrant Shares) and not to any other security of the
Company otherwise beneficially owned.

 

(b)         Leak Out Provision. Notwithstanding the restrictions above, on or
after the six (6) month anniversary of the Initial Lockup Date, the Subscriber
may sell up to fifty (50%) percent of each of the Securities comprising the
Units subscribed (including Conversion Shares and Warrant Shares).

 

(c)         Permitted Transfers. Notwithstanding the foregoing, the Subscriber
(and any transferee of the Subscriber) may transfer any Securities: (i) as a
bona fide gift or gifts, provided that prior to such transfer the donee or
donees thereof agree in writing to be bound by the restrictions set forth
herein, (ii) to any trust, partnership, corporation or other entity formed for
the direct or indirect benefit of the Subscriber or the immediate family of the
Subscriber, provided that prior to such transfer a duly authorized officer,
representative or trustee of such transferee agrees in writing to be bound by
the restrictions set forth herein, and provided further that any such transfer
shall not involve a disposition for value, (iii) to non-profit organizations
qualified as charitable organizations under Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended, or (iv) if such transfer occurs by operation
of law, such as rules of descent and distribution, statutes governing the
effects of a merger or a qualified domestic order, provided that prior to such
transfer the transferee executes an agreement stating that the transferee is
receiving and holding Securities subject to the provisions of this lockup. For
purposes hereof, “immediate family” shall mean any relationship by blood,
marriage or adoption, not more remote than first cousin. In addition, the
foregoing shall not prohibit privately negotiated transactions, provided the
transferees agree, in writing, to be bound to the terms of this lockup for the
balance of the Lockup Period.

 

 25

 

 

(d)         Miscellaneous. This lockup (and the agreements reflected herein) may
be terminated by the mutual agreement of Company and the lead investors set
forth on Exhibit G hereto (the “Lead Investors”), and if not sooner terminated,
will terminate upon the expiration date of the Lockup Period. The Subscriber
hereby agrees to the Company affixing the following restrictive “lock-up” legend
on the Securities which shall be governed by the terms of this lockup:

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFER PURSUANT TO A LOCK UP AGREEMENT CONTAINED IN THE SUBSCRIPTION AGREEMENT
BY AND BETWEEN THE COMPANY AND THE HOLDER , A COPY OF WHICH MAY BE INSPECTED AT
THE COMPANY’S PRINCIPAL OFFICE.”

 

9.MISCELLANEOUS PROVISIONS

 

(a)         All parties hereto have been represented by counsel, and no
inference shall be drawn in favor of or against any party by virtue of the fact
that such party’s counsel was or was not the principal draftsman of this
Agreement.

 

(b)         Each of the parties hereto shall be responsible to pay the costs and
expenses of its own legal counsel in connection with the preparation and review
of this Agreement and related documentation.

 

(c)         Neither this Agreement, nor any provisions hereof, shall be waived,
modified, discharged or terminated except by an instrument in writing signed by
the party against whom any waiver, modification, discharge or termination is
sought.

 

(d)         The representations, warranties and agreement of each Subscriber and
the Company made in this Agreement shall survive the execution and delivery of
this Agreement and the delivery of the Securities.

 

(e)         Any party may send any notice, request, demand, claim or other
communication hereunder to the Subscriber at the address set forth on the
signature page of this Agreement or to the Company at its primary office
(including personal delivery, expedited courier, messenger service, fax,
ordinary mail or electronic mail), but no such notice, request, demand, claim or
other communication will be deemed to have been duly given unless and until it
actually is received by the intended recipient. Any party may change the address
to which notices, requests, demands, claims and other communications hereunder
are to be delivered by giving the other parties written notice in the manner
herein set forth.

 

(f)         Except as otherwise provided herein, this Agreement shall be binding
upon, and inure to the benefit of, the parties to this Agreement and their
heirs, executors, administrators, successors, legal representatives and assigns.
If any Subscriber is more than one person or entity, the obligation of any
Subscriber shall be joint and several and the agreements, representations,
warranties and acknowledgments contained herein shall be deemed to be made by,
and be binding upon, each such person or entity and its heirs, executors,
administrators, successors, legal representatives and assigns. This Agreement
sets forth the entire agreement and understanding between the parties as to the
subject matter hereof and merges and supersedes all prior discussions,
agreements and understandings of any and every nature among them.

 

(g)         This Agreement is not transferable or assignable by the Company.

 

(h)         The Company hereby represents and warrants as of the date hereof and
as of any Closing Date that none of the terms offered to any Person with respect
to any offer, sale or subscription of Securities (each a "Subscription
Document"), is or will be more favorable to such Person than those of the
Subscriber and this Agreement shall be, without any further action by the
Subscriber or the Company, deemed amended and modified in an economically and
legally equivalent manner such that the Subscriber shall receive the benefit of
the more favorable terms contained in such Subscription Document.
Notwithstanding the foregoing, the Company agrees, at its expense, to take such
other actions (such as entering into amendments to the Transaction Documents) as
the Subscriber may reasonably request to further effectuate the foregoing.

 

 26

 

 

(i)         Except as otherwise provided herein, this Agreement shall not be
changed, modified or amended and no right hereunder shall be waived, except in
writing signed by both (a) the Company and (b) Subscribers holding at least 60%
of the Units sold in the Offering outstanding on the date of determination
(including the Lead Investors). The Company shall be prohibited from offering
any additional consideration to any Subscriber in this Offering (or such
original Subscriber’s transferee) for the purposes of inducing such person to
change, modify, waive or amend any term of this Agreement or any other
Transaction Document without making the same offer on a pro-rata basis to all
other Subscribers (and those transferees) in this Offering allocable to the
securities acquired by such transferee(s).

 

(j)         This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to conflicts of law
principles.

 

(k)         The Company and each Subscriber hereby agree that any dispute that
may arise between them arising out of or in connection with this Agreement shall
be adjudicated before a court located in the City of New York, Borough of
Manhattan, and they hereby submit to the exclusive jurisdiction of the federal
and state courts of the State of New York located in the City of New York,
Borough of Manhattan with respect to any action or legal proceeding commenced by
any party, and irrevocably waive any objection they now or hereafter may have
respecting the venue of any such action or proceeding brought in such a court or
respecting the fact that such court is an inconvenient forum, relating to or
arising out of this Agreement or any acts or omissions relating to the sale of
the securities hereunder, and consent to the service of process in any such
action or legal proceeding by means of registered or certified mail, return
receipt requested, postage prepaid, in care of the address set forth herein or
such other address as either party shall furnish in writing to the other.

 

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

 

(m)         This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

 

[Signature Pages Follow]

 

 27

 

 

Address

ANTI-MONEY LAUNDERING REQUIREMENTS

 

The USA PATRIOT Act   What is money laundering?  

How big is the problem and why is it important?

          The USA PATRIOT Act is designed to detect, deter, and punish
terrorists in the United States and abroad. The Act imposes new anti-money
laundering requirements on brokerage firms and financial institutions. Since
April 24, 2002 all brokerage firms have been required to have new, comprehensive
anti-money laundering programs. To help you understand these efforts, we want to
provide you with some information about money laundering and our steps to
implement the USA PATRIOT Act.   Money laundering is the process of disguising
illegally obtained money so that the funds appear to come from legitimate
sources or activities. Money laundering occurs in connection with a wide variety
of crimes, including illegal arms sales, drug trafficking, robbery, fraud,
racketeering, and terrorism.   The use of the U.S. financial system by criminals
to facilitate terrorism or other crimes could well taint our financial markets.
According to the U.S. State Department, one recent estimate puts the amount of
worldwide money laundering activity at $1 trillion a year.

 

What are we required to do to eliminate money laundering?

 

Under new rules required by the USA PATRIOT Act, our anti-money laundering
program must designate a special compliance officer, set up employee training,
conduct independent audits, and establish policies and procedures to detect and
report suspicious transaction and ensure compliance with the new laws.  

As part of our required program, we may ask you to provide various
identification documents or other information. Until you provide the information
or documents we need, we may not be able to effect any transactions for you.

 

28

 

 

SEVION THERAPEUTICS, INC.

SIGNATURE PAGE TO

SUBSCRIPTION AGREEMENT

 

Purchaser hereby elects to purchase a total of $________________,
representing                           ______Unit(s), with each Unit multiplied
by $0.75 (Purchase Price) equal to the aggregate purchase price (NOTE: to be
completed by the Purchaser).

 

Date (NOTE: To be completed by the Purchaser): ________________, 2015

 

Election to purchaser Units consisting of Series C Preferred Stock: ______
(check here)

 

 

 

If the Purchaser is an INDIVIDUAL, and if purchased as JOINT TENANTS, as TENANTS
IN COMMON, or as COMMUNITY PROPERTY:

 

            Print Name(s)   Social Security Number(s)               Print
Name(s)   Social Security Number(s)               Signature of Purchaser  
Signature of Co-Purchaser (if applicable):               Address:              
        Date                    

 

 

If the Purchaser is a PARTNERSHIP, CORPORATION, LIMITED LIABILITY COMPANY or
TRUST:

 

              Federal Taxpayer     Name of Partnership,   Identification Number
   

Corporation, Limited

Liability Company or Trust

                  By:           Name:   State of Organization     Title:        
          Address:                       Date                        

AGREED AND ACCEPTED:

 

SEVION THERAPEUTICS, INC.

 

By:       Name:   Date Title: