EXHIBIT 10.1

 

Intellinetics, inc.

 

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made and entered into
as of March 2, 2020, by and between Intellinetics, Inc., a Nevada corporation
(the “Company”), and the investors set forth on the signature pages affixed
hereto (each, an “Investor” and, collectively, the “Investors”).

 

RECITALS

 

The Company is offering (the “Offering”) pursuant to Section 4(a)(2) of the
Securities Act of 1933, as amended, and Rule 506(b) promulgated thereunder, an
aggregate of (i) up to 43,750,000 shares (“Shares”) of the Company’s common
stock, par value $0.001 per share (“the “Common Stock”), at the price of $0.08
per Share and (ii) up to 2,000 units (“Units”), with each Unit consisting of
$1,000 in principal amount of 12% subordinated promissory notes, in the form
attached hereto as Exhibit B (“Notes”) and 2,000 shares of Common Stock (“Unit
Shares”). The Shares, Units, Notes, and Unit Shares are referred to herein as
the “Securities.”

 

The Investors, severally and not jointly, desire to purchase, the Company is
willing to sell to each Investor, upon the terms and conditions stated in this
Agreement and in a Private Placement Memorandum circulated to each Investor, the
Securities designated on the signature page hereof and as more fully described
in this Agreement.

 

AGREEMENT

 

In consideration of the mutual terms, conditions and other agreements set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, the parties hereto hereby agree to the sale and purchase of the
Securities as set forth herein.

 

1. Definitions.

 

For purposes of this Agreement, the terms set forth below shall have the
corresponding meanings provided below.

 

“Affiliate” shall mean, with respect to any specified Person (as defined below),
(i) if such Person is an individual, the spouse, heirs, executors, or legal
representatives of such individual, or any trusts for the benefit of such
individual or such individual’s spouse and/or lineal descendants, or (ii)
otherwise, another Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Person specified. As used in this definition, “control” shall mean the
possession, directly or indirectly, of the sole and unilateral power to cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities or by contract or other written instrument.

 

“Blue Sky Application” as defined in Section 5.5(a) hereof.

 

“Business Day” shall mean any day on which banks located in New York City are
not required or authorized by law to remain closed.

 

“Closing” and “Closing Date” as defined in Section 2.2 (c) hereof.

 

 

 

 

“Common Stock” as defined in the recitals above.

 

“Company” as defined in the preamble above.

 

“Company Financial Statements” as defined in Section 4.5(a) hereof.

 

“Company’s Knowledge” means the actual knowledge of any executive officer (as
defined in Rule 405 under the Securities Act) or director of the Company, or the
knowledge of any fact or matter which any person would reasonably be expected to
become aware of in the course of performing the duties and responsibilities as
an executive officer or director of the Company.

 

“Escrow Agreement” means that certain agreement, dated February 4, 2020, by and
among the Company, the Placement Agent, and Delaware Trust Company.

 

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

 

“First Closing” and “First Closing Date” as defined in Section 2.2(a) hereof.

 

“Investor” and “Investors” as defined in the preamble above.

 

“Liens” means any mortgage, lien, title claim, assignment, encumbrance, security
interest, adverse claim, contract of sale, restriction on use or transfer or
other defect of title of any kind.

 

“Material Adverse Effect” means a material adverse effect on (i) the assets,
liabilities, results of operations, condition (financial or otherwise),
business, or prospects of the Company and its Subsidiaries taken as a whole,
(ii) the transactions contemplated hereby or in any of the Transaction Documents
or (iii) the ability of the Company to perform its obligations under the
Transaction Documents (as defined below).

 

“Notes” as defined in the recitals above.

 

“Offering” as defined in the recitals above.

 

“PA Warrant Shares” shall mean any shares issuable upon exercise of warrants
issued to the Placement Agent as compensation in connection with the
transactions contemplated hereby.

 

“Person” shall mean an individual, entity, corporation, partnership,
association, limited liability company, limited liability partnership,
joint-stock company, trust or unincorporated organization.

 

“Piggyback Registration” as defined in Section 5.1 hereof.

 

“Placement Agency Agreement” means that certain agreement, dated January 24,
2020, by and between the Placement Agent and the Company.

 

“Placement Agent” means Taglich Brothers, Inc.

 

“Principal Amount” as defined in Section 2.3.

 

“Private Placement Memorandum” means the Company’s Private Placement Memorandum
dated January 24, 2020, and any amendments or supplements thereto.

 

“Purchase Price” shall mean (i) for Shares, $0.08 per Share, and (ii) for Units,
$1,000 per Unit.

 

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“Registrable Securities” shall mean the (i) Shares, (ii) the Unit Shares, and
(iii) PA Warrant Shares; provided, that a security shall cease to be a
Registrable Security upon (A) sale pursuant to a Registration Statement or Rule
144 under the Securities Act, or (B) such security becoming eligible for sale
without any restriction pursuant to Rule 144 (including, without limitation,
volume restrictions) and without the need for current public information
required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable).

 

“Registration Rights Agreement” means that certain registration rights
agreement, dated March 2, 2020, by and among the Company and the Investors.

 

“Registration Statement” shall mean any registration statement of the Company
filed under the Securities Act that covers the resale of any of the Registrable
Securities pursuant to the provisions of this Agreement, amendments and
supplements to such Registration Statement, including post-effective amendments,
all exhibits and all material incorporated by reference in such Registration
Statement.

 

“Regulation D” as defined in Section 3.7 hereof.

 

“Regulation S” as defined in Section 6.1(i)(E) hereof.

 

“Rule 144” as defined in Section 6.1(i)(C) hereof.

 

“SEC” means the U.S. Securities and Exchange Commission.

 

“SEC Documents” as defined in Section 4.5 hereof.

 

“Securities” as defined in the recitals above.

 

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

 

“Shares” as defined in the recitals above.

 

“Subsequent Closing” and “Subsequent Closing Date” as defined in Section 2.2(b)
hereof.

 

“Subsidiaries” shall mean any corporation or other entity or organization,
whether incorporated or unincorporated, in which the Company owns, directly or
indirectly, any equity or other ownership interest or otherwise controls through
contract or otherwise.

 

“Transaction Documents” shall mean this Agreement, the Private Placement
Memorandum, the Registration Rights Agreement, the Placement Agency Agreement,
the Notes, and the Escrow Agreement.

 

“Transfer” shall mean any sale, transfer, assignment, conveyance, charge,
pledge, mortgage, encumbrance, hypothecation, security interest or other
disposition, or to make or effect any of the above.

 

“Underwriter” shall mean any entity engaged by the Company to serve as an
underwriter in connection with a registration or offering of securities referred
to in Section 5.

 

“Unit” as defined in the recitals above.

 

“Unit Share” as defined in the recitals above.

 

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2. Sale and Purchase of Securities.

 

2.1. Purchase of Shares and/or Units by Investors. Subject to the terms and
conditions of this Agreement, on the Closing Date (as hereinafter defined) each
of the Investors shall severally, and not jointly, purchase, and the Company
shall sell and issue to the Investors, the Securities, in the respective amounts
set forth on the signature pages attached hereto in exchange for the Purchase
Price. Each Investor may purchase Shares or Units, or both, subject to
acceptance by the Company at its sole discretion.

 

2.2 Closings.

 

(a) First Closing. Subject to the terms and conditions set forth in this
Agreement, the Company shall issue and sell to each Investor, and each Investor
shall, severally and not jointly, purchase from the Company on the First Closing
Date, such number of Securities set forth on the signature pages attached
hereto, which will be reflected opposite such Investor’s name on Exhibit A-1
(the “First Closing”). The date of the First Closing is hereinafter referred to
as the “First Closing Date.”

 

(b) Subsequent Closing(s). The Company agrees to issue and sell to each Investor
listed on the Subsequent Closing Schedule of Investors, and each Investor
agrees, severally and not jointly, to purchase from the Company on such
Subsequent Closing Date such number of Securities set forth on the signature
pages attached hereto, which will be reflected opposite such Investor’s name on
Exhibit A-2 (a “Subsequent Closing”). There may be more than one Subsequent
Closing; provided, however, that the final Subsequent Closing shall take place
within the time periods set forth in the Private Placement Memorandum. The date
of any Subsequent Closing is hereinafter referred to as a “Subsequent Closing
Date.” Notwithstanding the foregoing, the maximum number of Securities to be
sold at the First Closing and all Subsequent Closings in the aggregate shall not
exceed (i) 43,750,000 Shares (in exchange for $3,500,000 in Purchase Price) and
(ii) 2,000 Units (in exchange for $2,000,000 in Purchase Price).

 

(c) Closing. The First Closing and any applicable Subsequent Closings are each
referred to in this Agreement as a “Closing.” The First Closing Date and any
Subsequent Closing Dates are sometimes referred to herein as a “Closing Date.”
All Closings shall occur within the time periods set forth in the Private
Placement Memorandum remotely via the exchange of documents and signatures.

 

2.3. Closing Deliveries. At each Closing, the Company shall deliver to the
Investors, against delivery by the Investor of the Purchase Price (as provided
below), as applicable (i) duly issued certificates representing the Shares and
Unit Shares and (ii) Notes, dated as of the applicable Closing Date, payable to
the respective Investor in the principal amount set forth opposite such
Investor’s name on Exhibit A-1 or Exhibit A-2, as the case may be (the
“Principal Amount”). At each Closing, each Investor shall deliver or cause to be
delivered to the Company the Purchase Price set forth in its counterpart
signature page annexed hereto by (i) surrendering the Bridge Notes, or (ii)
paying United States dollars via bank, certified or personal check which has
cleared prior to the applicable Closing Date or in immediately available funds,
by wire transfer to the following escrow account:

 

US Bank

5065 Wooster Road

Cincinnati, OH 45226

Acct Name: Delaware Trust Company

ABA#: 042000013

A/C#: 130125268891

OBI: FFC: Intellinetics, Inc. Escrow; 79-XXXX

Ref: Investor Name

 

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3. Representations, Warranties and Acknowledgments of the Investors.

 

Each Investor, severally and not jointly, represents and warrants to the Company
solely as to such Investor that:

 

3.1 Authorization. The execution, delivery and performance by such Investor of
the Transaction Documents to which such Investor is a party have been duly
authorized and will each constitute the valid and legally binding obligation of
such Investor, enforceable against such Investor in accordance with their
respective terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability, relating
to or affecting creditors’ rights generally.

 

3.2 Purchase Entirely for Own Account. The Securities to be received by such
Investor hereunder will be acquired for such Investor’s own account, not as
nominee or agent, and not with a view to the resale or distribution of any part
thereof in violation of the Securities Act, and such Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same in violation of the Securities Act, without prejudice, however, to such
Investor’s right at all times to sell or otherwise dispose of all or any part of
such Securities in compliance with applicable federal and state securities laws.
Nothing contained herein shall be deemed a representation or warranty by such
Investor to hold the Securities for any period of time. Such Investor is not a
broker-dealer registered with the SEC under the Exchange Act or an entity
engaged in a business that would require it to be so registered.

 

3.3. Investment Experience. Such Investor acknowledges that the purchase of the
Securities is a highly speculative investment and that it can bear the economic
risk and complete loss of its investment in the Securities and has such
knowledge and experience in financial or business matters such that it is
capable of evaluating the merits and risks of the investment contemplated
hereby.

 

3.4 Disclosure of Information. Such Investor has had an opportunity to receive
all information related to the Company and the Securities requested by it and to
ask questions of and receive answers from the Company regarding the Company, its
business and the terms and conditions of the offering of the Securities. Neither
such inquiries nor any other due diligence investigation conducted by such
Investor shall modify, amend or affect such Investor’s right to rely on the
Company’s representations and warranties contained in this Agreement and the
Private Placement Memorandum. Such Investor acknowledges that it has received
and reviewed the Private Placement Memorandum describing the offering of the
Securities (including copies of the Company’s relevant SEC Filings annexed to
the Private Placement Memorandum.

 

3.5 Restricted Securities. Such Investor understands that the Securities, and
the components thereof, are characterized as “restricted securities” under the
U.S. federal securities laws since they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act only in certain limited circumstances.

 

3.6 Legends. It is understood that, except as provided below, certificates
evidencing the Shares and Unit Shares may bear the following or any similar
legend:

 

(a) “The securities represented hereby may not be transferred unless (i) such
securities have been registered for sale pursuant to the Securities Act of 1933,
as amended, (ii) such securities may be sold pursuant to an available exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act, or (iii) the Company has received an opinion of counsel
reasonably satisfactory to it that such transfer may lawfully be made without
registration under the Securities Act of 1933 or qualification under applicable
state securities laws.”

 

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(b) If required by the authorities of any state in connection with the issuance
of sale of the Shares, the legend required by such state authority.

 

3.7 Accredited Investor. Such Investor is an accredited investor as defined in
Rule 501(a) of Regulation D, as amended, under the Securities Act (“Regulation
D”).

 

3.8 No General Solicitation. Such Investor did not learn of the investment in
the Securities as a result of any public advertising or general solicitation.

 

3.9 Brokers and Finders. No Investor will have, as a result of the transactions
contemplated by the Transaction Documents, any valid right, interest or claim
against or upon the Company, any Subsidiary or any other Investor, for any
commission, fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of such Investor.

 

4. Representations and Warranties of the Company.

 

The Company represents, warrants and covenants to the Investors that:

 

4.1. Organization; Execution, Delivery and Performance.

 

(a) The Company and each of its Subsidiaries, if any, is a corporation or other
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction in which it is incorporated or organized, with full power and
authority (corporate and other) to own, lease, use and operate its properties
and to carry on its business as and where now owned, leased, used, operated and
conducted. The Company is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which its ownership or use of
property or the nature of the business conducted by it makes such qualification
necessary except where the failure to be so qualified or in good standing would
not have a Material Adverse Effect.

 

(b) (i) The Company has all requisite corporate power and authority to enter
into and perform the Transaction Documents and to consummate the transactions
contemplated hereby and thereby and to issue the Securities, in accordance with
the terms hereof and thereof, (ii) the execution and delivery of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including without limitation, the issuance of
the Securities) have been duly authorized by the Company’s Board of Directors
and no further consent or authorization of the Company, its Board of Directors,
or its stockholders, is required, (iii) each of the Transaction Documents has
been duly executed and delivered by the Company by its authorized
representative, and such authorized representative is a true and official
representative with authority to sign each such document and the other documents
or certificates executed in connection herewith and bind the Company
accordingly, and (iv) each of the Transaction Documents constitutes, and upon
execution and delivery thereof by the Company will constitute, a legal, valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except to the extent limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors’ rights and general principles of
equity that restrict the availability of equitable or legal remedies.

 

4.2. Securities Duly Authorized. The Shares and Unit Shares to be issued to each
such Investor pursuant to this Agreement, when issued and delivered in
accordance with the terms of this Agreement, will be duly and validly issued and
will be fully paid and nonassessable and free from all taxes or Liens with
respect to the issue thereof and shall not be subject to preemptive rights or
other similar rights of stockholders of the Company. The issuance of the Notes
is duly authorized and upon issuance in accordance with the terms of this
Agreement, will be duly and validly issued and will be free from all taxes or
Liens with respect to the issue thereof. Subject to the accuracy of the
representations and warranties of the Investors to this Agreement, the offer and
issuance by the Company of the Securities is exempt from registration under the
Securities Act.

 

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4.3 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 will not: (i) conflict with or result in a
violation of any provision of the Certificate of Incorporation or By-laws or
(ii) violate or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which with notice or lapse of time or both
could become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company or any of its Subsidiaries is
a party, except for possible violations, conflicts or defaults as would not,
individually or in the aggregate, have a Material Adverse Effect, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and regulations of
any self-regulatory organizations to which the Company or its securities are
subject) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or
affected. Except for the failure of the Company to hold a shareholder meeting in
2012, as required by its By-laws, neither the Company nor any of its
Subsidiaries is in violation of its Certificate of Incorporation, By-laws or
other organizational documents. Neither the Company nor any of its Subsidiaries
is in default (and no event has occurred which with notice or lapse of time or
both could put the Company or any of its Subsidiaries in default) under, and
neither the Company nor any of its Subsidiaries has taken any action or failed
to take any action that would 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 by
which any property or assets of the Company or any of its Subsidiaries is bound
or affected, or for possible defaults as would not, individually or in the
aggregate, have a Material Adverse Effect. The businesses of the Company and its
Subsidiaries are not being conducted in violation of any law, rule ordinance or
regulation of any governmental entity, except for possible violations which
would not, individually or in the aggregate, have a Material Adverse Effect.
Except for the filing with the SEC of one or more Registration Statements in
accordance with the requirements of the Registration Rights Agreement or as
required under the Securities Act, the Exchange Act, the rules and regulations
of the OTCQB and any applicable state securities laws, the Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency, regulatory agency, self
regulatory organization or stock market or any third party in order for it to
execute, deliver or perform any of its obligations under this Agreement or to
issue and sell the Securities in accordance with the terms hereof. All consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof.

 

4.4. Capitalization.

 

(a) As of January 24, 2020, and prior to the consummation of the Reverse Split
(as described and defined in the paragraph below), the authorized capital stock
of the Company consists of (i) 75,000,000 shares of Common Stock, of which
19,346,307 shares are issued and outstanding, 6,726,625 shares are reserved for
issuance pursuant to existing warrants to purchase Common Stock; 3,366,506 are
reserved for issuance pursuant to the 2015 Intellinetics, Inc. Equity Incentive
Plan, and 28,355,653 shares are reserved for issuance in accordance with
outstanding convertible notes. Except as described above or in the Private
Placement Memorandum, (i) there are no outstanding options, warrants, scrip,
rights to subscribe for, puts, calls, rights of first refusal, agreements,
understandings, claims or other commitments or rights of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for any shares of capital stock of the Company or any of its Subsidiaries, or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries, (ii) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
its or their securities under the Securities Act (except for the registration
rights provisions contained herein) and (iii) there are no anti-dilution or
price adjustment provisions contained in any security issued by the Company (or
in any agreement providing rights to security holders) that will be triggered by
the issuance of the Shares or Unit Shares. All of such outstanding shares of
capital stock are, or upon issuance will be, duly authorized, validly issued,
fully paid and nonassessable. No shares of capital stock of the Company are
subject to preemptive rights or any other similar rights of the stockholders of
the Company or any Lien imposed through the actions or failure to act of the
Company.

 

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(b) Immediately prior to the Closing, and as a condition precedent to the
Closing as set forth in Section 8.3, the Company anticipates, but in no way
guarantees, an action by the requisite shareholders of the Company to approve
(i) a 1-for-50 reverse stock split of the Company’s Common Stock (the “Reverse
Split”) and (ii) an amendment to the Company’s Articles of Incorporation to
effectuate the Reverse Split and set the authorized capital stock of the Company
to 25,000,000 shares of Common Stock. Thus, immediately prior to the Closing,
assuming a Closing Date of February 28, 2020, the Company anticipates that the
authorized capital stock of the Company will consist of (i) 25,000,000 shares of
Common Stock, of which 386,926 shares will be issued and outstanding, 134,532
shares will be reserved for issuance pursuant to existing warrants to purchase
Common Stock; 67,330 will be reserved for issuance pursuant to the 2015
Intellinetics, Inc. Equity Incentive Plan, and 571,026 shares will be reserved
for issuance in accordance with outstanding convertible notes. In the Offering
contemplated by this Agreement, up to 955,000 shares of Common Stock may be
issued and up to an additional 95,500 shares of Common Stock may be issued if
all the Placement Agent Warrants are exercised. The aggregate total number of
Common Stock that could be issued in this Offering (not including Common Stock
that may be issued in connection with an exchange offer to the holders of
outstanding convertible notes, as further described below is 1,050,500 (the
“Maximum Number of Shares Offered”).

 

(c) As a condition precedent to the Closing and immediately prior to the
Closing, the Company will seek to effect a conversion of the outstanding
principal and accrued interest of existing convertible notes issued by the
Company into Common stock at a price of $0.08 per share on a post-Reverse Split
basis (the “Note Conversion”). Thus, assuming completion of the Note Conversion
(which is not guaranteed), and assuming an approximate closing date of February
28, 2020, after giving effect to a fully-subscribed Offering, the Company
anticipates that the authorized capital stock of the Company will consist of (i)
25,000,000 shares of Common Stock, of which 2,816,012 shares will be issued and
outstanding, 230,032 shares will be reserved for issuance pursuant to existing
warrants to purchase Common Stock; and 67,330 will be reserved for issuance
pursuant to the 2015 Intellinetics, Inc. Equity Incentive Plan.

 

4.5. SEC Information.

 

(a) Since the filing of the “Form 10 information” referenced in Section 4.19 of
this Agreement, the Company has timely filed all reports, schedules, forms,
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 and all
other documents filed with the SEC prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein, being hereinafter referred to herein as the
“SEC Documents”). The SEC Documents have been made available to the Investors
via the SEC’s EDGAR system. As of their respective dates, 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 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 (“Company Financial Statements”) complied
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto. The Company
Financial Statements have been prepared in accordance with United States
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 not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated Subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in the Company Financial
Statements, the Company has no liabilities, contingent or otherwise, other than:
(i) liabilities incurred in the ordinary course of business subsequent to
September 30, 2019 (the fiscal period end of the Company’s most recently-filed
periodic report), and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements, which,
individually or in the aggregate, are not material to the financial condition or
operating results of the Company.

 

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(b) The shares of Common Stock are currently available for quotation on the
OTCQB. Except as set forth in the SEC Documents, the Company has not received
notice (written or oral) from the OTC Markets or the Financial Industry
Regulatory Authority to the effect that the Company is not in compliance with
the continued listing and maintenance requirements of such market. The Company
is in material compliance with all such listing and maintenance requirements.

 

4.6 Permits; Compliance. The Company and each of its Subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the “Company Permits”), and there is
no action pending or, to the knowledge of the Company, threatened regarding
suspension or cancellation of any of the Company Permits. Neither the Company
nor any of its Subsidiaries is in conflict with, or in default or violation of,
any of the Company Permits, except for any such conflicts, defaults or
violations which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect. Since September 30, 2019, neither
the Company nor any of its Subsidiaries has received any notification with
respect to possible conflicts, defaults or violations of applicable laws, except
for notices relating to possible conflicts, defaults or violations, which
conflicts, defaults or violations would not have a Material Adverse Effect.

 

4.7 Litigation. Except as set forth in the SEC Documents, there is no action,
suit, claim, proceeding, inquiry or investigation before or by any court, public
board, government agency, self-regulatory organization or body pending or, to
the knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries, or their respective
businesses, properties or assets or their officers or directors in their
capacity as such, that would have a Material Adverse Effect. The Company is
unaware of any facts or circumstances which might give rise to any of the
foregoing. There has not been, and to the Company’s Knowledge, 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 executive officer of
the Company or any of its Subsidiaries.

 

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4.8 No Material Changes.

 

(a) Since September 30, 2019, except as set forth in the SEC Documents, there
has not been:

 

(i) Any material adverse change in the financial condition, operations or
business of the Company from that shown on the Company Financial Statements, or
any material transaction or commitment effected or entered into by the Company
outside of the ordinary course of business;

 

(ii) Any effect, change or circumstance which has had, or could reasonably be
expected to have, a Material Adverse Effect; or

 

(iii) Any incurrence of any material liability outside of the ordinary course of
business.

 

4.9 No General Solicitation. Neither the Company nor any person participating on
the Company’s behalf in the transactions contemplated hereby has conducted any
“general solicitation,” as such term is defined in Regulation D promulgated
under the Securities Act, with respect to any of the Securities being offered
hereby.

 

4.10 No Integrated Offering. Except with respect to the Note Conversion as set
forth in Section 4.4(c), above, neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf, has directly or indirectly made
any offers or sales in any security or solicited any offers to buy any security
under circumstances that would require registration under the Securities Act of
the issuance of the Securities to the Investors. Except with respect to the Note
Conversion as set forth in Section 4.4(c), above, the issuance of the Securities
to the Investors will not be integrated with any other issuance of the Company’s
securities (past, current or future) for purposes of any stockholder approval
provisions applicable to the Company or its securities.

 

4.11 No Brokers. Except as set forth in Section 9.1, the Company has taken no
action which would give rise to any claim by any person for brokerage
commissions, transaction fees or similar payments relating to this Agreement or
the transactions contemplated hereby.

 

4.12 Internal Controls. The Company is in material compliance with the
provisions of the Sarbanes-Oxley Act of 2002 currently applicable to the
Company. The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient 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. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and designed
such disclosure controls and procedures to ensure that material information
relating to the Company, including the Subsidiaries, is made known to the
certifying officers by others within those entities, particularly during the
period in which the Company’s most recently filed period report under the
Exchange Act, as the case may be, is being prepared. The Company’s certifying
officers have evaluated the effectiveness of the Company’s controls and
procedures as of the end of the period covered by the most recently filed
periodic report under the Exchange Act (such date, the “Evaluation Date”). The
Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company’s internal controls (as such term is defined in Item 308
of Regulation S-K) or, to the Company’s Knowledge, in other factors that could
significantly affect the Company’s internal controls. The Company maintains and
will continue to maintain a standard system of accounting established and
administered in accordance with GAAP and the applicable requirements of the
Exchange Act.

 

10

 

 

4.13 Form D; Blue Sky Laws. The Company agrees to file a Form D with respect to
the Securities as required under Regulation D within fifteen (15) days after the
first subscription is received by the Escrow Agent and to provide a copy thereof
to the Placement Agent promptly after such filing. The Company and the Placement
Agent shall work together and take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Investors at
the applicable 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).

 

4.14 Disclosure. The Company confirms that neither it nor any other Person
acting on its behalf has provided any of the Investors or their agents or
counsel with any information that constitutes or could reasonably be expected to
constitute material, non-public information concerning the Company or any of its
Subsidiaries, other than the existence of the transactions contemplated by this
Agreement and the other Transaction Documents. The Company understands and
confirms that each of the Investors will rely on the foregoing representations
in effecting transactions in securities of the Company. All disclosure provided
to the Investors 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 in all material respects 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. Each press release issued by the
Company or any of its Subsidiaries during the twelve (12) months preceding the
date of this Agreement did not at the time of release contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are 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,
results of operations or financial conditions, 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 Investor makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.

 

4.15 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 therefor (“Intellectual Property Rights”)
necessary to conduct their respective businesses as now conducted and as
presently proposed to be conducted. 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 two (2) 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.
Except as set forth in the SEC Documents, there is no claim, action or
proceeding being made or brought, or to the Company’s Knowledge, 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 might 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, except where failure to take
such measures would not, either individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.

 

11

 

 

4.16 Tax Status. Except for occurrences that would not, either individually or
in the aggregate, reasonably be expected to result in a Material Adverse Effect,
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.

 

4.17 Acknowledgement Regarding Investors’ 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 Investors have been asked by the Company or any of
its Subsidiaries to agree, nor has any Investor 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 Shares for any specified
term; (ii) any Investor, and counterparties in “derivative” transactions to
which any such Investor is a party, directly or indirectly, presently may have a
“short” position in the Common Stock which was established prior to such
Investor’s knowledge of the transactions contemplated by the Transaction
Documents; and (iii) each Investor 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,
one or more Investors may engage in hedging and/or trading activities at various
times during the period that the Securities are outstanding, 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 or any other Transaction Document or any of the
documents executed in connection herewith or therewith.

 

4.18 Manipulation of Price. Neither the Company nor any of its Subsidiaries has,
and, to the Company’s Knowledge, 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 (other than the Placement Agent), 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 (other than the
Placement Agent).

 

4.19 Shell Company Status. The Company was previously a “shell issuer”, as
defined in Rule 144(i)(1), promulgated under the Securities Act. The Company
confirms that: (i) effective February 10, 2012, it ceased to be a “shell
issuer”; (ii) it has not been a “shell issuer” between February 10, 2012 and the
date of this Agreement; (iii) it is subject to the reporting requirements of
Section 13 of the Exchange Act; (iv) it has filed all reports and other
materials required to be filed by Section 13 of the Exchange Act during the 12
month period prior to the date of this Agreement, and (v) more than one year
ago, it filed current “Form 10 information”, as defined in Rule 144(i)(3), with
the SEC, which reflects that it is not a “shell issuer”.

 

12

 

 

5. Registration Rights.

 

5.1. Mandatory Registration. The Company shall prepare and, as soon as
practicable, but in no event later than 45 days after the First Closing Date,
file with the SEC a Registration Statement on Form S-3 covering the resale of
all of the Registrable Securities, provided that if Form S-3 is unavailable for
such a registration, the Company shall register the resale of the Registrable
Securities on another appropriate form reasonably acceptable to the Investors
and (ii) undertake to register the resale of the Registrable Securities on Form
S-3 as soon as such form is available, provided that the Company shall maintain
the effectiveness of all Registration Statements then in effect and the
availability for use of each prospectus contained therein until such time as a
Registration Statement on Form S-3 covering the resale of all the Registrable
Securities has been declared effective by the SEC and the prospectus contained
therein is available for use. The Company shall use commercially reasonable
efforts to have such initial Registration Statement, and each other Registration
Statement required to be filed pursuant to the terms of this Agreement, declared
effective by the SEC as soon as practicable, but in no event later than 135 days
after the First Closing Date (or 90 days after such date when the Company is
then obligated to file another Registration Statement).

 

5.2. PiggyBack Registration. Whenever the Company proposes to register any of
its securities under the Securities Act, whether for its own account or for the
account of another stockholder (except for the registration of securities (A) to
be offered pursuant to an employee benefit plan on Form S-8 or (B) pursuant to a
registration made on Form S-4, or any successor forms then in effect) at any
time and the registration form to be used may be used for the registration of
the Registrable Securities (a “Piggyback Registration”), it will so notify in
writing all holders of Registrable Securities no later than the earlier to occur
of (i) the tenth (10th) day following the Company’s receipt of notice of
exercise of other demand registration rights, or (ii) thirty (30) days prior to
the anticipated filing date. Subject to the provisions of this Agreement, the
Company will include in the Piggyback Registration all Registrable Securities,
on a pro rata basis based upon the total number of Registrable Securities with
respect to which the Company has received written requests for inclusion within
ten (10) business days after the applicable holder’s receipt of the Company’s
notice.

 

5.3. Expenses. All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company,
whether or not any Registrable Securities are sold pursuant to the Registration
Statement. The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (A) with respect to filings required to be
made with the trading market on which the Common Stock is then listed for
trading, and (B) in compliance with applicable state securities or Blue Sky
laws, (ii) processing expenses of the Placement Agent, including, but not
limited to, printing expenses, messenger, telephone and delivery expenses and
customary marketing expenses, (iii) fees and disbursements of counsel and
independent public accountants for the Company, (iv) fees and disbursements of
one counsel to the Placement Agent, and (v) filing fees and counsel fees of the
Placement Agent if a determination is made that a FINRA Rule 5110 filing is
required to be made with respect to the Registration Statement.

 

13

 

 

5.4. Offering. In the event the staff of the SEC (the “Staff”) or the SEC seeks
to characterize any offering pursuant to a Registration Statement filed pursuant
to this Agreement as constituting an offering of securities by, or on behalf of,
the Company, or in any other manner, such that the Staff or the SEC do not
permit such Registration Statement to become effective and used for resales in a
manner that does not constitute such an offering and that permits the continuous
resale at the market by the Investors participating therein (or as otherwise may
be acceptable to each Investor) without being named therein as an “underwriter,”
then the Company shall reduce the number of shares to be included in such
Registration Statement until such time as the Staff and the SEC shall so permit
such Registration Statement to become effective as aforesaid. In making such
reduction, the Company shall (X) reduce, and if necessary, eliminate, in order,
(i) any Registrable Securities that are not Shares, Unit Shares, or PA Warrant
Shares then (ii) any Registrable Securities that are not Shares or Unit Shares,
then (Y) if necessary, reduce the number of shares to be included by all
Investors on a pro rata basis (based upon the number of Registrable Securities
otherwise required to be included for each Investor) unless the inclusion of
shares by a particular Investor or a particular set of Investors are resulting
in the Staff or the SEC’s “by or on behalf of the Company” offering position, in
which event the shares held by such Investor or set of Investors shall be the
only shares subject to reduction (and if by a set of Investors on a pro rata
basis by such Investors or on such other basis as would result in the exclusion
of the least number of shares by all such Investors). In addition, in the event
that the Staff or the SEC requires any Investor seeking to sell securities under
a Registration Statement filed pursuant to this Agreement to be specifically
identified as an “underwriter” in order to permit such Registration Statement to
become effective, and such Investor does not consent to being so named as an
underwriter in such Registration Statement, then, in each such case, the Company
shall reduce the total number of Registrable Securities to be registered on
behalf of such Investor, until such time as the Staff or the SEC does not
require such identification or until such Investor accepts such identification
and the manner thereof. Notwithstanding anything else to the foregoing, any
reduction pursuant to this paragraph will first reduce all securities that are
not Registrable Securities,. In the event of any reduction in Registrable
Securities pursuant to this paragraph, an affected Investor shall have the right
to require, upon delivery of a written request to the Company signed by such
Investor, the Company to file a registration statement within thirty (30) days
of such request (subject to any restrictions imposed by Rule 415 promulgated by
the SEC under the Securities Act or required by the Staff or the SEC) for resale
by such Investor in a manner acceptable to such Investor, and the Company shall
following such request cause to be and keep effective such registration
statement in the same manner as otherwise contemplated in this Agreement for
registration statements hereunder, in each case until such time as: (i) all
Registrable Securities held by such Investor have been registered and sold
pursuant to an effective Registration Statement in a manner acceptable to such
Investor or (ii) all Registrable Securities may be resold by such Investor
without restriction (including, without limitation, volume limitations) pursuant
to Rule 144 (taking account of any Staff position with respect to “affiliate”
status) and without the need for current public information required by Rule
144(c)(1) (or Rule 144(i)(2), if applicable) or (iii) such Investor agrees to be
named as an underwriter in any such Registration Statement in a manner
acceptable to such Investor as to all Registrable Securities held by such
Investor and that have not theretofore been included in a Registration Statement
under this Agreement (it being understood that the special demand right under
this sentence may be exercised by an Investor multiple times and with respect to
limited amounts of Registrable Securities in order to permit the resale thereof
by such Investor as contemplated above).

 

5.5. Indemnification.

 

(a) Indemnification by the Company. The Company will indemnify and hold harmless
each Investor and its officers, directors, members, shareholders, partners,
representatives, employees and agents, successors and assigns, and each other
person, if any, who controls such Investor within the meaning of the Securities
Act, against any losses, obligations, claims, damages, liabilities,
contingencies, judgments, fines, penalties, charges, costs (including, without
limitation, court costs, reasonable attorneys’ fees and costs of defense and
investigation), amounts paid in settlement or expenses, joint or several,
(collectively, “Claims”) incurred in investigating, preparing or defending any
action, claim, suit, inquiry, proceeding, investigation or appeal taken from the
foregoing by or before any court or governmental, administrative or other
regulatory agency, body or the SEC, whether pending or threatened, whether or
not an indemnified party is or may be a party thereto, to which any of them may
become subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon: (i)
any untrue statement or alleged untrue statement of any material fact contained
in any Registration Statement, any preliminary prospectus or final prospectus
contained therein, or the Private Placement Memorandum, or any amendment or
supplement thereof; (ii) any blue sky application or other document executed by
the Company specifically for that purpose or based upon written information
furnished by the Company filed in any state or other jurisdiction in order to
qualify any or all of the Registrable Securities under the securities laws
thereof (any such application, document or information herein called a “Blue Sky
Application”); (iii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; (iv) any violation by the Company or its agents of any
rule or regulation promulgated under the Securities Act applicable to the
Company or its agents and relating to action or inaction required of the Company
in connection with such registration; or (v) any failure to register or qualify
the Registrable Securities included in any such Registration Statement in any
state where the Company or its agents has affirmatively undertaken or agreed in
writing that the Company will undertake such registration or qualification on an
Investor’s behalf and will reimburse such Investor, and each such officer,
director or member and each such controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim or action; provided, however, that the Company will not
be liable in any such case if and to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by such Investor or any such controlling person in
writing specifically for use in such Registration Statement or Prospectus.

 

14

 

 

(b) Indemnification by the Investors. Each Investor agrees, severally but not
jointly, to indemnify and hold harmless, to the fullest extent permitted by law,
the Company, its directors, officers, employees, stockholders, partner,
representatives and each person who controls the Company (within the meaning of
the Securities Act) against any Claims resulting from any untrue statement of a
material fact or any omission of a material fact required to be stated in the
Registration Statement or Prospectus or preliminary prospectus or amendment or
supplement thereto or necessary to make the statements therein not misleading,
to the extent, but only to the extent that such untrue statement or omission is
contained in any information furnished in writing by such Investor to the
Company specifically for inclusion in such Registration Statement or Prospectus
or amendment or supplement thereto. In no event shall the liability of an
Investor be greater in amount than the dollar amount of the proceeds (net of all
expense paid by such Investor in connection with any claim relating to this
Section 5.3 and the amount of any damages such Investor has otherwise been
required to pay by reason of such untrue statement or omission) received by such
Investor upon the sale of the Registrable Securities included in the
Registration Statement giving rise to such indemnification obligation.

 

(c) Conduct of Indemnification Proceedings. Any person entitled to
indemnification hereunder shall (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided that any person entitled to
indemnification hereunder shall have the right to employ separate counsel and to
participate in the defense of such claim, but the fees and expenses of such
counsel shall be at the expense of such person unless (a) the indemnifying party
has agreed to pay such fees or expenses, or (b) the indemnifying party shall
have failed to assume the defense of such claim or employ counsel reasonably
satisfactory to such person or (c) in the reasonable judgment of any such
person, based upon written advice of its counsel, a conflict of interest exists
between such person and the indemnifying party with respect to such claims (in
which case, if the person notifies the indemnifying party in writing that such
person elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the defense of
such claim on behalf of such person); and provided, further, that the failure of
any indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations hereunder, except to the extent that such
failure to give notice shall materially adversely affect the indemnifying party
in the defense of any such claim or litigation. It is understood that the
indemnifying party shall not, in connection with any proceeding in the same
jurisdiction, be liable for fees or expenses of more than one separate firm of
attorneys at any time for all such indemnified parties. No indemnifying party
will, except with the consent of the indemnified party, which consent shall not
be unreasonably withheld or delayed, consent to entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect of such claim or litigation.

 

15

 

 

(d) Contribution. If for any reason the indemnification provided for in the
preceding paragraphs (a) and (b) is unavailable to an indemnified party or
insufficient to hold it harmless, other than as expressly specified therein,
then the indemnifying party shall contribute to the amount paid or payable by
the indemnified party as a result of such Claim in such proportion as is
appropriate to reflect the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable considerations. No
person guilty of fraudulent misrepresentation within the meaning of Section
11(f) of the Securities Act shall be entitled to contribution from any person
not guilty of such fraudulent misrepresentation. In no event shall the
contribution obligation of a holder of Registrable Securities be greater in
amount than the dollar amount of the proceeds (net of all expenses paid by such
holder in connection with any claim relating to this Section 5.3 and the amount
of any damages such holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission) received by
it upon the sale of the Registrable Securities giving rise to such contribution
obligation.

 

5.6. Cooperation by Investor. Each Investor shall furnish to the Company or the
Underwriter, as applicable, such information regarding the Investor and the
distribution proposed by it as the Company may reasonably request in connection
with any registration or offering referred to in this Section 5. Each Investor
shall cooperate as reasonably requested by the Company in connection with the
preparation of the registration statement with respect to such registration, and
for so long as the Company is obligated to file and keep effective such
registration statement, shall provide to the Company, in writing, for use in the
registration statement, all such information regarding the Investor and its plan
of distribution of the Securities included in such registration as may be
reasonably necessary to enable the Company to prepare such registration
statement, to maintain the currency and effectiveness thereof and otherwise to
comply with all applicable requirements of law in connection therewith.

 

6. Transfer Restrictions.

 

6.1. Transfer or Resale. Each Investor understands that:

 

(i) Except as provided in the Registration Rights Agreement, the sale or resale
of all or any portion of the Securities has not been and is not being registered
under the Securities Act or any applicable state securities laws, and all or any
portion of the Securities may not be transferred unless:

 

(A) the Securities are sold pursuant to an effective registration statement
under the Securities Act;

 

(B) the Investor shall have delivered to the Company, at the cost of the
Company, a customary opinion of counsel that shall be in form, substance and
scope reasonably acceptable to the Company, to the effect that the Securities to
be sold or transferred may be sold or transferred pursuant to an exemption from
such registration;

 

(C) the Securities are sold or transferred to an “affiliate” (as defined in Rule
144 promulgated under the Securities Act (or a successor rule) (“Rule 144”)) of
the Investor who agrees to sell or otherwise transfer the Securities only in
accordance with this Section 6.1 and who is an Accredited Investor;

 

(D) the Securities are sold pursuant to Rule 144; or

 

16

 

 

(E) the Securities are sold pursuant to Regulation S under the Securities Act
(or a successor rule) (“Regulation S”);

 

and, in each case, the Investor shall have delivered to the Company, at the cost
of the Company, a customary opinion of counsel, in form, substance and scope
reasonably acceptable to the Company. Notwithstanding the foregoing or anything
else contained herein to the contrary, the Securities may be pledged as
collateral in connection with a bona fide margin account or other lending
arrangement.

 

6.2 Transfer Agent Instructions. If an Investor provides the Company with a
customary opinion of counsel, that shall be in form, substance and scope
reasonably acceptable to the Company, to the effect that a public sale or
transfer of such Securities may be made without registration under the
Securities Act and such sale or transfer is effected, the Company shall permit
the transfer and promptly instruct its transfer agent to issue one or more
certificates, free from restrictive legend, in such name and in such
denominations as specified by such Investor. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Investors, by vitiating the intent and purpose of the transactions contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 6.2 may be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the provisions
of this Section, that the Investors shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate transfer, without the necessity of showing economic loss and without
any bond or other security being required.

 

6.3 Public Information. At any time during the period commencing from the six
(6) month anniversary of the Closing Date and ending on the two (2) year
anniversary of the Closing Date, if the Company shall fail for any reason to
satisfy the current public information requirement under Rule 144(c) (a “Public
Information Failure”) then, in addition to such Investor’s other available
remedies, the Company shall pay to each Investor, in cash, as partial liquidated
damages and not as a penalty, by reason of any such delay in or reduction of its
ability to sell the Shares and/or Unit Shares, an amount in cash equal to one
percent (1.0%) of the aggregate Purchase Price of such Investor’s Shares and/or
Unit Shares on the day of a Public Information Failure and on every thirtieth
(30th) day (pro-rated for periods totaling less than thirty days) thereafter
until the earlier of (a) the date such Public Information Failure is cured and
(b) such time that such public information is no longer required for the
Investors to transfer the Shares and/or Unit Shares pursuant to Rule 144. The
payments to which an Investor shall be entitled pursuant to this Section 6.3 are
referred to herein as “Public Information Failure Payments.” Public Information
Failure Payments shall be paid on the earlier of (i) the last day of the
calendar month during which such Public Information Failure Payments are
incurred and (ii) the third (3rd) Business Day after the event or failure giving
rise to the Public Information Failure Payments is cured. In the event the
Company fails to make Public Information Failure Payments in a timely manner,
such Public Information Failure Payments shall bear interest at the rate of 1.5%
per month (prorated for partial months) until paid in full. Nothing herein shall
limit such Investor’s right to pursue actual damages for the Public Information
Failure, and such Investor shall have the right to pursue all remedies available
to it at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief.

 

7. Conditions to Closing of the Investors.

 

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

 

17

 

 

7.1 Representations, Warranties and Covenants. The representations and
warranties of the Company shall be true and correct in all material respects as
of the date when made and as of the Closing Date as though originally made at
that time (except for representations and warranties that speak as of a specific
date, which shall be true and correct in all material respects as of such date)
and the Company shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required to be performed,
satisfied or complied with by the Company at or prior to the Closing Date. Such
Investor shall have received a certificate, executed by the Chief Executive
Officer of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such Investor in
the form reasonably acceptable to such Investor.

 

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

 

7.3 Delivery by Company. The Company shall have duly executed and delivered to
such Investor (A) each of the other Transaction Documents, (B) an instruction
letter to the Company’s transfer agent regarding the issuance of the Shares or
Unit Shares in the number as is set forth on the signature page hereby being
purchased by such Investor at the Closing pursuant to this Agreement, and (C)
the Notes in the Principal Amount set forth on the signature page hereby being
purchased by such Investor at the Closing pursuant to this Agreement.

 

7.4 Legal Opinion. Such Investor shall have received the opinion of the
Company’s counsel, dated as of the Closing Date, in the form reasonably
acceptable to such Investor.

 

7.5 No Material Adverse Effect. Since the date of first execution of this
Agreement, no event or series of events shall have occurred that reasonably
would have or result in a Material Adverse Effect.

 

7.6 No Prohibition. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction that prohibits
the consummation of any of the transactions contemplated by the Transaction
Documents.

 

7.7 Other Documents. The Company shall have delivered to such Investor such
other documents, instruments or certificates relating to the transactions
contemplated by this Agreement as such Investor or its counsel may reasonably
request.

 

8. Conditions to Closing of the Company.

 

The obligations of the Company to effect the transactions contemplated by this
Agreement with each Investor are subject to the fulfillment at or prior to each
Closing Date of the conditions listed below.

 

8.1. Representations and Warranties. The representations and warranties made by
such Investor in Section 3 shall be true and correct in all material respects at
the time of Closing as if made on and as of such date.

 

8.2. Corporate Proceedings. All corporate and other proceedings required to be
undertaken by such Investor in connection with the transactions contemplated
hereby shall have occurred and all documents and instruments incident to such
proceedings shall be reasonably satisfactory in substance and form to the
Company.

 

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8.3. Action to Amend Articles. The Company shall have effectuated the Reverse
Split by Amending its Articles of Incorporation with the State of Nevada to
reflect the Reverse Split and to change the number of authorized shares of
Common Stock to 25,000,000 shares.

 

8.4. Simultaneous Closing of Acquisition. The Company shall have received all
requisite approvals internally and from the owners of Graphic Sciences, Inc.
(“GSI”) to effectuate the closing of an acquisition of GSI by the Company, with
such acquisition closing to be simultaneous with, or immediately following, the
First Closing of the Offering.

 

8.5 Simultaneous Completion of Note Conversion. The Company shall have received
all requisite approvals to amend all of its outstanding convertible notes in
order to permit the Company to convert the outstanding balance and accrued and
unpaid interest of such convertible notes into shares of Common Stock at the
current Offering price of $0.08 per share on a post-Reverse Split basis. Such
conversion shall be effected either simultaneously with or immediately prior to
the First Closing of the Offering.

 

9. Miscellaneous.

 

9.1. Compensation of Placement Agent. The Investor acknowledges that it is aware
that the Placement Agent will receive from the Company, in consideration for its
services as financial advisor and placement agent in respect of the transactions
contemplated hereby, (a) a commission success fee equal to 8% of the Purchase
Price of the Securities sold at each Closing, payable in cash, (b) an expense
allowance, which shall include reasonable reimbursement of expenses incurred in
connection with the transactions contemplated hereby (c) reimbursement for all
filing fees the Placement Agent is required to pay the Financial Industry
Regulatory Authority (“FINRA”) and reasonable fees and expenses of legal counsel
to Placement Agent in connection with such filings with FINRA; and (d) five-year
warrants to purchase such number of shares of the Company’s Common Stock equal
to ten percent (10%) of the number of Shares and Unit Shares sold in the
Offering, at an exercise price equal to $0.08 per share.

 

9.2. Notices. All notices, requests, demands and other communications provided
in connection with this Agreement shall be in writing and shall be deemed to
have been duly given at the time when hand delivered, delivered by express
courier, or sent by facsimile (with receipt confirmed by the sender’s
transmitting device) in accordance with the contact information provided below
or such other contact information as the parties may have duly provided by
notice.

 

The Company:

 

Intellinetics, Inc.   With a copy to: Kegler, Brown, Hill & Ritter Co., L.P.A.
2190 Dividend Drive     65 E. State St., Ste 1800 Columbus, Ohio 43228-3806    
Columbus, Ohio 43215 Telephone: (614) 388-8909     Telephone: (614) 462-5400
Attention: Mr. James F. DeSocio,     Facsimile: (614) 464-2634   President and
Chief Executive Officer     Attention: Erin C. Herbst

 

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The Investors:

 

As per the contact information provided on the signature pages hereof.

 

Taglich Brothers, Inc.:

 

Taglich Brothers, Inc. 275 Madison Avenue, Suite 1618 New York, NY 10016
Telephone: (212) 661-6886 Facsimile: (212) 661-6824 Attention: Robert C.
Schroeder   Vice President, Investment Banking

 

9.3 Survival of Representations and Warranties. Each party hereto covenants and
agrees that the representations and warranties of such party contained in this
Agreement shall survive the Closing. Each Investor shall be responsible only for
its own representations, warranties, agreements and covenants hereunder.

 

9.4 Indemnification.

 

(a) The Company agrees to indemnify and hold harmless each Investor and its
Affiliates and their respective directors, officers, employees and agents from
and against any and all losses, claims, damages, liabilities and expenses
(including without limitation reasonable attorney fees and disbursements and
other expenses incurred in connection with investigating, preparing or defending
any action, claim or proceeding, pending or threatened and the costs of
enforcement thereof) (collectively, “Losses”) to which such Person may become
subject as a result of any breach of representation, warranty, covenant or
agreement made by or to be performed on the part of the Company under the
Transaction Documents, and will reimburse any such Person for all such amounts
as they are incurred by such Person.

 

(b) Promptly after receipt by any Investor (the “Indemnified Person”) of notice
of any demand, claim or circumstances which would or might give rise to a claim
or the commencement of any action, proceeding or investigation in respect of
which indemnity may be sought pursuant to Section 9.4, such Indemnified Person
shall promptly notify the Company in writing and the Company shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
such Indemnified Person, and shall assume the payment of all fees and expenses;
provided, however, that the failure of any Indemnified Person so to notify the
Company shall not relieve the Company of its obligations hereunder except to the
extent that the Company is materially prejudiced by such failure to notify. In
any such proceeding, any Indemnified Person shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such Indemnified Person unless: (i) the Company and the Indemnified Person
shall have mutually agreed to the retention of such counsel; or (ii) in the
reasonable judgment of counsel to such Indemnified Person representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The Company shall not be liable for any
settlement of any proceeding effected without its written consent, which consent
shall not be unreasonably withheld, but if settled with such consent, or if
there be a final judgment for the plaintiff, the Company shall indemnify and
hold harmless such Indemnified Person from and against any loss or liability (to
the extent stated above) by reason of such settlement or judgment. Without the
prior written consent of the Indemnified Person, which consent shall not be
unreasonably withheld, the Company shall not effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Person is
or could have been a party and indemnity could have been sought hereunder by
such Indemnified Party, unless such settlement includes an unconditional release
of such Indemnified Person from all liability arising out of such proceeding.

 

20

 

 

9.5. Entire Agreement. This Agreement contains the entire agreement between the
parties hereto in respect of the subject matter contained herein and supersedes
all prior agreements and understandings of the parties, oral and written, with
respect to the subject matter contained herein.

 

9.6 Third Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective permitted successors and assigns, and,
except for the Placement Agent and other registered broker-dealers, if any, who
are specifically agreed to be and acknowledged by each party as third party
beneficiaries hereof, is not for the benefit of, nor may any provision hereof be
enforced by, any other person.

 

9.7. Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and assigns. Neither the Company
nor any Investor shall assign this Agreement or any rights or obligations
hereunder without the prior written consent of the other. Notwithstanding the
foregoing, but subject to the provisions of Section 6.1 hereof, any Investor
may, without the consent of the Company, assign its rights hereunder to any
person that purchases Securities in a private transaction from an Investor or to
any of its “affiliates,” as that term is defined under the 1934 Act.

 

9.8. Public Disclosures. The Company shall on or before 5:30 p.m., New York
time, on the fourth (4th) Business Day after the date of this Agreement, (x)
issue a press release (the “Press Release”) reasonably acceptable to the
Investors disclosing all the material terms of the transactions contemplated by
the Transaction Documents and (y) file a Current Report on Form 8-K describing
all the material terms of the transactions contemplated by the Transaction
Documents in the form required by the 1934 Act and attaching all the material
Transaction Documents aside from the Confidential Private Placement Memorandum
(including, without limitation, this Agreement and all schedules to this
Agreement) (including all attachments, the “8-K Filing”). From and after the
issuance of the Press Release and 8-K Filing, the Company shall have disclosed
all material, non-public information (if any) delivered to any of the Investors
by the Company in connection with the transactions contemplated by the
Transaction Documents. Neither the Company nor any Investor shall issue any
press releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, the Company shall be entitled, without
the prior approval of any Investor, to make a press release or other public
disclosure with respect to such transactions as is required by applicable law
and regulations. Without the prior written consent of the applicable Investor
(which may be granted or withheld in such Investor’s sole discretion), the
Company shall not disclose the name of such Investor in any filing (other than
in the 8-K Filing, any Registration Statement registering the Shares or Unit
Shares and any other filing as is required by applicable law and regulations),
announcement, release or otherwise.

 

9.9. Binding Effect; Benefits. This Agreement and all the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns; nothing in this Agreement,
expressed or implied, is intended to confer on any persons other than the
parties hereto or their respective successors and permitted assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement.

 

9.10. Amendment; Waivers. All modifications, amendments or waivers to this
Agreement shall require the written consent of all of the following: (a) the
Company, (b) a majority-in-interest of the Investors in Shares (based on the
number of Shares purchased hereunder), and (c) a majority-in-interest of the
Investors in Units (based on the number of Units purchased hereunder).

 

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9.11. Applicable Law; Disputes. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to the conflict of law provisions thereof, and the parties hereto
irrevocably submit to the exclusive jurisdiction of the United States District
Court for the Southern District of New York, or, if jurisdiction in such court
is lacking, the Supreme Court of the State of New York, New York County, in
respect of any dispute or matter arising out of or connected with this Agreement

 

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

 

9.13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same instrument. This Agreement may
also be executed via facsimile or by e-mail delivery of a “pdf” format data
file, which shall be deemed an original.

 

9.14 Independent Nature of Investors. The obligations of each Investor under
this Agreement or other transaction document are several and not joint with the
obligations of any other Investor, and no Investor shall be responsible in any
way for the performance of the obligations of any other Investor under this
Agreement or any other transaction document. Each Investor shall be responsible
only for its own representations, warranties, agreements and covenants
hereunder. The decision of each Investor to purchase Securities pursuant to this
Agreement has been made by such Investor independently of any other Investor and
independently of any information, materials, statements or opinions as to the
business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company which
may have been made or given by any other Investor or by any agent or employee of
any other Investor, and no Investor or any of its agents or employees shall have
any liability to any other Investor (or any other person) relating to or arising
from any such information, materials, statements or opinions. Nothing contained
herein or in any other transaction document, and no action taken by any Investor
pursuant hereto or thereto, shall be deemed to constitute the Investors as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Investors are in any way acting in concert or as a
group with respect to such obligations or the transactions contemplated by this
Agreement. Except as otherwise provided in this Agreement or any other
transaction document, each Investor shall be entitled to independently protect
and enforce its rights arising out of this Agreement or out of the other
transaction documents, and it shall not be necessary for any other Investor to
be joined as an additional party in any proceeding for such purpose. Each
Investor has been represented by its own separate legal counsel in connection
with the transactions contemplated hereby and acknowledge and understand that
Kegler, Brown, Hill & Ritter Co., L.P.A. has served as counsel to the Company
only.

 

9.15 Omnibus Signature Page. This Agreement is intended to be read and construed
in conjunction with the Transaction Documents pertaining to the issuance by the
Company of the Securities to the Investors. Accordingly, it is hereby agreed
that the execution by the Investor and the Company of this Agreement, in the
place set forth herein, shall constitute an agreement to be bound by the terms
and conditions of both this Agreement and the Registration Rights Agreement with
the same effect as if both this Agreement and the Registration Rights Agreement
were separately signed.

 

[SIGNATURE PAGES IMMEDIATELY FOLLOW]

 

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IN WITNESS WHEREOF, the undersigned Investors and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first above
written.

 

  INTELLINETICS, INC.       By:       James F. DeSocio     President and Chief
Executive Officer         INVESTORS:       The Investors executing the Signature
Page in the form attached hereto as Annex A and delivering the same to the
Company or its agents shall be deemed to have executed this Agreement and the
Registration Rights Agreement and agreed to the terms hereof and thereof.

 

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Annex A

Securities Purchase Agreement

Investor Counterpart Signature Page

 

The undersigned, desiring to: (i) enter into this Securities Purchase Agreement
dated as of _________ __, 201__ (the “Agreement”), with the undersigned,
Intellinetics, Inc., a Nevada corporation (the “Company”), in or substantially
in the form furnished to the undersigned and (ii) purchase the Shares and/or
Units as set forth below, hereby agrees to purchase such Shares and/or Units
from the Company as of the Closing and further agrees to join the Agreement as a
party thereto, with all the rights and privileges appertaining thereto, and to
be bound in all respects by the terms and conditions thereof. The undersigned
specifically acknowledges having read the representations in the Agreement
section entitled “Representations, Warranties and Acknowledgments of the
Investors,” and hereby represents that the statements contained therein are
complete and accurate with respect to the undersigned as an Investor.

 

The Investor hereby elects to purchase:   Name of Investor: (to be completed by
Investor)         If an entity: ____________ Shares   Print Name of Entity:    
                 at a purchase price of $0.08 per Share   By:     Total Share
Purchase Price of $__________   Name:     Title:       ____________ Units   If
an individual:     Print Name:_______________________________________
               at a purchase price of $1,000 per Unit        
Signature:________________________________________ Total Unit Purchase Price of
$__________         If joint individuals:     Print
Name:_______________________________________ Total Purchase Price
____________________         Signature:________________________________________
          All Investors:          
Address:_________________________________________                     Telephone
No.: _________________________________           Facsimile
No.:__________________________________           Email
Address:__________________________________

 

24

 

 

Exhibit A-1

 

Schedule of Investors

 

Investor   Shares  

Note Principal

Amount

  Unit Shares  

Purchase

Price

                                                                               
                                                                               
                                                              TOTAL            
     

 

25

 

 

Exhibit B

 

Form of Subordinated Promissory Note