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**Exhibit 10.1**

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**SECURITIES PURCHASE AGREEMENT**

 

This Securities PurchaseAgreement (this “Agreement”) is dated as of May 3, 2013, between CombiMatrix Corporation, a Delaware corporation(the “Company”), and each purchaser identified on the signature pages hereto (each, including its successorsand assigns, a “Purchaser” and collectively, the “Purchasers”).

 

WHEREAS, subject tothe terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the“Securities Act”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser,and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully describedin this Agreement.

 

NOW, THEREFORE, INCONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt andadequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:

 

ARTICLEI.

**DEFINITIONS**

 

1.1           Definitions.In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein havethe meanings given to such terms in the Certificate of Designation (as defined herein), and (b) the following terms have the meaningsset forth in this Section 1.1:

 

“AcquiringPerson” shall have the meaning ascribed to such term in Section 4.7.

 

“Action”shall have the meaning ascribed to such term in Section 3.1(j).

 

“Affiliate”means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under commoncontrol with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

 

“Boardof Directors”	means the board of directors of the Company.

 

“BusinessDay” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States orany day on which banking institutions in the State of New York are authorized or required by law or other governmental action toclose.

 

“Certificateof Designation” means the Certificate of Designation to be filed prior to the First Closing by the Company with the Secretaryof State of Delaware, in the form of Exhibit A attached hereto.

 

 

“Closing Date”means, respectively, the date of the First Closing or the date of the Second Closing, and means the Trading Day on which all ofthe Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i)the Purchasers’ obligations to pay the Subscription Amount as to the applicable Closing and (ii) the Company’s obligationsto deliver the Securities as to the applicable Closing, in each case, have been satisfied or waived.

 

“ClosingDates” means, collectively, the dates of the First Closing and the Second Closing.

 

“Closing(s)”means the closing(s) of the purchase and sale of the Securities pursuant to Section 2.1.

 

“ClosingStatement” means the Closing Statement in the form on Annex A attached hereto.

 

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

 

“CommonStock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into whichsuch securities may hereafter be reclassified or changed.

 

“CommonStock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof toacquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrumentthat is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, CommonStock.

 

“CompanyCounsel” means Dorsey & Whitney LLP, with offices located at 600 Anton Boulevard, Suite 2000, Costa Mesa, California92626.

 

“ConversionPrice” shall have the meaning ascribed to such term in the Certificate of Designation.

 

“ConversionShares” means, collectively, the shares of Common Stock issued and issuable upon conversion of the shares of Series CPreferred Stock in accordance with the terms of the Certificate of Designation.

 

“DisclosureSchedules” shall have the meaning ascribed to such term in Section 3.1.

 

“EGS”means Ellenoff Grossman & Schole LLP, with offices located at 150 East 42nd Street, New York, New York 10017.

 

 

“EffectiveDate” means the earliest of the date that (a) the Registration Statement covering the resale of the Conversion Sharesin question has been declared effective by the Commission, (b) all of the Registrable Securities (as defined in the RegistrationRights Agreement) have been sold pursuant to Rule 144 or may be sold pursuant to Rule 144 without the requirement for the Companyto be in compliance with the current public information required under Rule 144 and without volume or manner-of-sale restrictionsor (c) following the one year anniversary of the Closing Date provided that a holder of Registrable Securities is not an Affiliateof the Company under Rule 144, all of the Registrable Securities may be sold pursuant to an exemption from registration under Section4(1) of the Securities Act without volume or manner-of-sale restrictions and Company counsel has delivered to such holders a standingwritten opinion that resales may then be made by such holders of the Registrable Securities pursuant to such exemption which opinionshall be in form and substance reasonably acceptable to such holders.

 

“EvaluationDate” shall have the meaning ascribed to such term in Section 3.1(r).

 

“ExchangeAct” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“ExemptIssuance” means the issuance of (a) shares of Common Stock or options or other awards to employees, independent contractorsproviding service to the Company, officers or directors of the Company pursuant to any stock or option plan or agreement duly adoptedfor such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committeeof non-employee directors established for such purpose, (b) Securities issued and issuable pursuant to this Agreement and securitiesupon the exercise or exchange of or conversion of any Securities issued and issuable hereunder and/or other securities exercisableor exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided thatsuch securities have not been amended since the date of this Agreement to increase the number of such securities or to decreasethe exercise price, exchange price or conversion price of such securities, (c) securities issued pursuant to Section 3 of the Certificateof Designation, (d) securities issued to the Company by its Subsidiaries, and (e) securities issued pursuant to acquisitions, mergers,consolidations or strategic transactions (including licensing and partnering agreements) or purchase of all or substantially allof the securities or assets of another entity approved by a majority of the disinterested directors of the Company, provided thatany such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries,an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to theCompany additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company isissuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.

 

“FCPA”means the Foreign Corrupt Practices Act of 1977, as amended.

 

“FDA”shall have the meaning ascribed to such term in Section 3.1(kk).

 

“FDCA”shall have the meaning ascribed to such term in Section 3.1(kk).

 

 

“GAAP”shall have the meaning ascribed to such term in Section 3.1(h).

 

“Indebtedness”shall have the meaning ascribed to such term in Section 3.1(aa).

 

“IntellectualProperty Rights” shall have the meaning ascribed to such term in Section 3.1(o).

 

“InvestorRights Agreement” shall have the meaning ascribed to such term in Section 4.12(a).

 

“LegendRemoval Date” shall have the meaning ascribed to such term in Section 4.1(c).

 

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

 

“MaterialAdverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

 

“MaterialPermits” shall have the meaning ascribed to such term in Section 3.1(m).

 

“MaximumRate” shall have the meaning ascribed to such term in Section 5.17.

 

“ParticipationMaximum” shall have the meaning ascribed to such term in Section 4.12(a).

 

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

 

“PharmaceuticalProduct” shall have the meaning ascribed to such term in Section 3.1(kk).

 

“Pre-Notice”shall have the meaning ascribed to such term in Section 4.12(b).

 

“ProRata Portion” shall have the meaning ascribed to such term in Section 4.12(e).

 

“Proceeding”means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partialproceeding, such as a deposition), whether commenced or threatened.

 

“PublicInformation Failure” shall have the meaning ascribed to such term in Section 4.3(b).

 

 

“PublicInformation Failure Payments” shall have the meaning ascribed to such term in Section 4.3(b).

 

“PurchaserParty” shall have the meaning ascribed to such term in Section 4.10.

 

“RegistrationRights Agreement” means the Registration Rights Agreement, dated the date hereof, among the Company and the Purchasers,in the form of Exhibit B attached hereto.

 

“RegistrationStatement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement andcovering the resale of the Underlying Shares by each Purchaser as provided for in the Registration Rights Agreement.

 

“RequiredApprovals” shall have the meaning ascribed to such term in Section 3.1(e).

 

“RequiredMinimum” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuablein the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise in full of all outstandingWarrants or conversion in full of all outstanding shares of Series C Preferred Stock, ignoring any conversion or exercise limitsset forth therein, and assuming that any previously unconverted shares of Series C Preferred Stock are held until the third anniversaryof the Closing Date and all dividends are paid in shares of Common Stock until such third anniversary.

 

“Rule144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpretedfrom time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purposeand effect as such Rule.

 

“Rule424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpretedfrom time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purposeand effect as such Rule.

 

“SECReports” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Securities”means the Series C Preferred Stock, the Warrants and the Underlying Shares.

 

“SecuritiesAct” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

 

“SeriesC Preferred Stock” means the up to 2,400 shares of the Company’s 6% Series C Convertible Preferred Stock issuedhereunder having the rights, preferences and privileges set forth in the Certificate of Designation, in the form of ExhibitA hereto.

 

“ShareholderApproval” means such approval as may be required by the applicable rules and regulations of the Nasdaq Stock Market (orany successor entity) from the shareholders of the Company with respect to the transactions contemplated by the Transaction Documents,including the issuance of all of the Underlying Shares in excess of 19.99% of the issued and outstanding Common Stock on the FirstClosing Date.

 

“ShortSales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shallnot be deemed to include the location and/or reservation of borrowable shares of Common Stock).

 

“StatedValue” means $1,000 per share of Series C Preferred Stock.

 

“SubscriptionAmount” shall mean, as to each Purchaser, the aggregate amount to be paid for the Series C Preferred Stock purchasedhereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “SubscriptionAmount,” in United States dollars and in immediately available funds.

 

“SubsequentFinancing” shall have the meaning ascribed to such term in Section 4.12(a).

 

“SubsequentFinancing Notice” shall have the meaning ascribed to such term in Section 4.12(b).

 

“Subsidiary”means any subsidiary of the Company as set forth on Exhibit 21.1 to the Company’s Annual Report on Form 10-K for the yearended December 31, 2012, as amended, and shall, where applicable, also include any direct or indirect subsidiary of the Companyformed or acquired after the date hereof.

 

“TradingDay” means a day on which the principal Trading Market is open for trading.

 

“TradingMarket” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading onthe date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the NewYork Stock Exchange or the OTC Bulletin Board (or any successors to any of the foregoing).

 

“TransactionDocuments” means this Agreement, the Certificate of Designation, the Warrants, the Registration Rights Agreement, theVoting Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection withthe transactions contemplated hereunder.

 

 

“TransferAgent” means Computershare, the current transfer agent of the Company, with a mailing address of 520 Pike Street, Suite1220, Seattle, Washington 98101 and a facsimile number of (206) 674-3059, and any successor transfer agent of the Company.

 

“UnderlyingShares” means the shares of Common Stock issued and issuable upon conversion of the Series C Preferred Stock, upon exerciseof the Warrants, and issued and issuable in lieu of the cash payment of dividends on the Series C Preferred Stock in accordancewith the terms of the Certificate of Designation.

 

“VariableRate Transaction” shall have the meaning ascribed to such term in Section 4.13(b).

 

“VotingAgreement” means the written agreement, in the form of Exhibit E attached hereto, of all of the officers, directorsand stockholders holding more than 10% of the issued and outstanding shares of Common Stock on the date hereof to vote all CommonStock over which such Persons have voting control as of the record date for the meeting of stockholders of the Company in favorof Shareholder Approval, amounting to, in the aggregate, at least 4.95% of the issued and outstanding Common Stock.

 

“VWAP”means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listedor quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest precedingdate) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a TradingDay from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if the OTC Bulletin Board is not a TradingMarket, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC BulletinBoard, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the CommonStock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agencysucceeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) inall other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faithby the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the feesand expenses of which shall be paid by the Company.

 

“Warrants”means, collectively, the Common Stock purchase warrants delivered to the Purchasers at the Closing in accordance with Section 2.2(a)hereof, which Warrants shall be exercisable 6 months following their issuance and have a term of exercise expiring 5 1⁄2 yearsfrom the applicable Closing, in the form of Exhibit C attached hereto.

 

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

 

 

ARTICLE II.

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**PURCHASE AND SALE**

 

2.1           Closing.On the Closing Dates, upon the terms and subject to the conditions set forth herein, substantially concurrent with the executionand delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly,agree to purchase, up to an aggregate of 2,400 shares of Series C Preferred Stock with an aggregate Stated Value for each Purchaserequal to such Purchaser’s Subscription Amount as set forth on the signature page hereto executed by such Purchaser, andWarrants as determined pursuant to Section 2.2(a), it being understood that, and as more fully described below, each Purchasershall indicate on its signature page the aggregate Subscription Amount to be purchased hereunder by such Purchaser, and such Purchasershall purchase Series C Preferred Stock and Warrants for a Subscription Amount equal to 50% of its aggregate Subscription Amounton the First Closing Date and purchase Series C Preferred Stock and Warrants for a Subscription Amount equal to 50% of its aggregateSubscription Amount on the Second Closing Date, subject to the conditions set forth herein. Each Purchaser shall deliver to theCompany, via wire transfer, immediately available funds equal to its Subscription Amount as to the applicable Closing and theCompany shall deliver to each Purchaser its respective shares of Series C Preferred Stock and Warrants as determined pursuantto Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at theapplicable Closing. The Closings shall take place in two stages as set forth below (respectively, the “First Closing”and the “Second Closing” and the respective dates thereof, the “First Closing Date” andthe “Second Closing Date”).Upon satisfaction of the covenants and conditionsset forth in Sections 2.2 and 2.3, each Closing shall occur at the offices of EGS or such other location as the parties shallmutually agree.

 

(a)          FirstClosing. The First Closing shall be for up to 50% of the aggregate Subscription Amount subscribed for by all Purchasers hereunderand shall occur on, or as soon as reasonably practicable following, the date hereof.

 

(b)          SecondClosing. The Second Closing shall be for up to 50% of the aggregate Subscription Amount subscribed for by all Purchasers hereunderand shall occur within 5 Business Days following the date Shareholder Approval is received and effective.

 

2.2                   Deliveries.

 

(a)          On or prior to each Closing Date (except as specified below),the Company shall deliver or cause to be delivered to each Purchaser the following:

 

(i)          asto the First Closing, this Agreement duly executed by the Company;

 

(ii)         alegal opinion of Company Counsel;

 

(iii)        acertificate evidencing a number of shares of Series C Preferred Stock equal to such Purchaser’s Subscription Amount as tothe applicable Closing divided by the Stated Value, registered in the name of such Purchaser and evidence of the filing and acceptanceof the Certificate of Designation from the Secretary of State of Delaware;

 

 

(iv)        asto the First Closing, a Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stockequal to 125% of such Purchaser’s aggregate Subscription Amount as to the First Closing divided by the initial ConversionPrice, with an exercise price equal to $3.77;

 

(v)         asto the Second Closing, a Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stockequal to 125% of such Purchaser’s aggregate Subscription Amount as to the Second Closing divided by the initial ConversionPrice, with an exercise price equal 110% of the market value (as defined by Nasdaq rules) of one share of Common Stock on theSecond Closing Date, subject to adjustment therein;

 

(vi)        asto the First Closing, the Voting Agreements; and

 

(vii)       asto the First Closing, the Registration Rights Agreement duly executed by the Company.

 

(b)          Onor prior to each Closing Date (except as indicated), each Purchaser shall deliver or cause to be delivered to the Company, thefollowing:

 

(i)          asto the First Closing, this Agreement duly executed by such Purchaser;

 

(ii)         suchPurchaser’s Subscription Amount as to the applicable Closing, by wire transfer to the account specified in writing by theCompany; and

 

(iii)        asto the First Closing, the Registration Rights Agreement duly executed by such Purchaser.

 

2.3                   ClosingConditions.

 

(a)          Theobligations of the Company hereunder in connection with each Closing are subject to the following conditions being met:

 

(i)          theaccuracy in all material respects on the applicable Closing Date of the representations and warranties of the Purchasers containedherein (unless as of a specific date therein in which case they shall be accurate in all material respects as of such date);

 

(ii)         allobligations, covenants and agreements of each Purchaser required to be performed at or prior to the applicable Closing Date shallhave been performed in all material respects;

 

 

(iii)        thedelivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement; and

 

(iv)        asto the Second Closing, Shareholder Approval shall have been received and effective.

 

(b)          Therespective obligations of the Purchasers hereunder in connection with each Closing are subject to the following conditions beingmet:

 

(i)          theaccuracy in all material respects when made and on the applicable Closing Date of the representations and warranties of the Companycontained herein (unless as of a specific date therein in which case they shall be accurate in all material respects as of suchdate);

 

(ii)         allobligations, covenants and agreements of the Company required to be performed at or prior to the applicable Closing Date shallhave been performed in all material respects;

 

(iii)        thedelivery by the Company of the items set forth in Section 2.2(a) of this Agreement;

 

(iv)        asto the Second Closing only, Shareholder Approval shall have been received and effective and such receipt shall have occurred onor before the 60th day following the First Closing Date;

 

(v)         thereshall have been no Material Adverse Effect with respect to the Company since the date hereof;

 

(vi)        fromthe date hereof until the Second Closing Date, the Common Stock shall have been listed or quoted for trading on the Nasdaq CapitalMarket; and

 

(vii)       fromthe date hereof to the applicable Closing Date, trading in the Common Stock shall not have been suspended by the Commission orthe Nasdaq Capital Market and, at any time prior to the applicable Closing Date, trading in securities generally as reported byBloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whosetrades are reported by such service, or on the Nasdaq Capital Market, nor shall a banking moratorium have been declared eitherby the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilitiesor other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financialmarket which, in each case, in the reasonable judgment of such Purchaser, makes it impracticable or inadvisable to purchase theSecurities at the applicable Closing.

 

 

ARTICLEIII. 

**REPRESENTATIONS AND WARRANTIES**

 

3.1         Representationsand Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deliveredseparately to the Purchasers and shall qualify any representation or warranty made herein to the extent of the disclosure containedin the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warrantiesto each Purchaser:

 

(a)          Subsidiaries.All of the direct and indirect subsidiaries of the Company are set forth on Exhibit 21.1 to the Company’s Annual Reporton Form 10-K for the year ended December 31, 2012, as amended. The Company owns, directly or indirectly, all of the capital stockor other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capitalstock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribefor or purchase securities. If the Company has no subsidiaries, all other references to the Subsidiaries or any of them in theTransaction Documents shall be disregarded.

 

(b)          Organizationand Qualification.   The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validlyexisting and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite powerand authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Companynor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation,bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct businessand is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conductedor property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, asthe case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validityor enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business orfinancial condition of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’sability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii)or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking,limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

 

 

(c)          Authorization;Enforcement.   The Company has the requisite corporate power and authority to enter into and to consummate the transactionscontemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunderand thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and theconsummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on thepart of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholdersin connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other TransactionDocument to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered inaccordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable againstthe Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency,reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii)as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii)insofar as indemnification and contribution provisions may be limited by applicable law.

 

(d)          NoConflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents towhich it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated herebyand thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificateor articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default(or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien uponany of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, accelerationor cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencinga Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by whichany property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflictwith or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any courtor governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations),or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii)and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(e)          Filings,Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any noticeto, or make any filing or registration with, any court or other federal, state, local or other governmental authority or otherPerson in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i)the filings required pursuant to Section 4.6 of this Agreement, (ii) the filings with the Commission pursuant to the RegistrationRights Agreement, (iii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Securitiesand the listing of the Underlying Shares for trading thereon in the time and manner required thereby, (iv) the filing of FormD with the Commission and such filings as are required to be made under applicable state securities laws, (v) the filing of theCertificate of Designation with the Delaware Secretary of State and (vi) Shareholder Approval (collectively, the “RequiredApprovals”).

 

 

(f)          Issuanceof the Securities. The Securities are duly authorized and, when issued and paid for in accordance with the applicable TransactionDocuments, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company otherthan restrictions on transfer provided for in the Transaction Documents. The Underlying Shares, when issued in accordance withthe terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposedby the Company other than restrictions on transfer provided for in the Transaction Documents. The Company has reserved from itsduly authorized capital stock a number of shares of Common Stock for issuance of the Underlying Shares at least equal to the RequiredMinimum on the date hereof.

 

(g)          Capitalization.The capitalization of the Company is as set forth in the SEC Reports. The Company has not issued any capital stock since its mostrecently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock options underthe Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s employeestock purchase plans and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date ofthe most recently filed periodic report under the Exchange Act. No Person has any right of first refusal, preemptive right, rightof participation, or any similar right to participate in the transactions contemplated by the Transaction Documents which hasnot been waived in connection with the transactions contemplated hereby. Except as a result of the purchase and sale of the Securities,and except as set forth in Schedule 3.1(g) and for stock options and other equity grants to employees made under the Company’sexisting stock plans, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any characterwhatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving anyPerson any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangementsby which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents.The issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to anyPerson (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise,conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Companyare duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securitieslaws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe foror purchase securities. No further approval or authorization of any stockholder, the Board of Directors or others is requiredfor the issuance and sale of the Securities other than Required Approvals. There are no stockholders agreements, voting agreementsor other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledgeof the Company, between or among any of the Company’s stockholders except as contemplated by the Transaction Documents.

 

 

(h)          SECReports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents requiredto be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file suchmaterial) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectivelyreferred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time offiling and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SECReports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, andnone of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact requiredto be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which theywere made, not misleading. The Company has never been an issuer subject to Rule 144(i) under the Securities Act. The financialstatements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirementsand the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statementshave been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis duringthe periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notesthereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in allmaterial respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof andthe results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal,year-end audit adjustments.

 

(i)          MaterialChanges; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements includedwithin the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof: (i) therehas been no event, occurrence or development that has had or that could reasonably be expected to result in a Material AdverseEffect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accruedexpenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflectedin the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Companyhas not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or otherproperty to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stockand (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Companystock option plans. The Company does not have pending before the Commission any request for confidential treatment of information.Except for the issuance of the Securities contemplated by this Agreement or as set forth on Schedule 3.1(i), no materialevent, liability, fact, circumstance, occurrence or development has occurred or exists with respect to the Company or its Subsidiariesor their respective businesses, properties, operations, assets or financial condition, that would be required to be disclosedby the Company under applicable securities laws at the time this representation is made or deemed made that has not been publiclydisclosed at least 1 Trading Day prior to the date that this representation is made.

 

 

(j)          Litigation.Except as set forth in the SEC Reports, there is no action, suit, inquiry, notice of violation, proceeding or investigation pendingor, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective propertiesbefore or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, localor foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity orenforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, haveor reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor, to the knowledgeof the Company, any director or officer thereof, is or has been the subject of any Action involving a claim of violation of orliability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledgeof the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any currentor former director or officer of the Company. To the knowledge of the Company, the Commission has not issued any stop order orother order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the ExchangeAct or the Securities Act.

 

(k)          LaborRelations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees ofthe Company, which could reasonably be expected to result in a Material Adverse Effect. To the knowledge of the Company, noneof the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationshipwith the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargainingagreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. To the knowledgeof the Company, no executive officer of the Company or any Subsidiary, is, or is now expected to be, in violation of any materialterm of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement,or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of eachsuch executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoingmatters. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulationsrelating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failureto be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

 

(l)          Compliance.Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not beenwaived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor hasthe Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture,loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties isbound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of anycourt, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulationof any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmentalprotection, occupational health and safety, product quality and safety and employment and labor matters, except in each case ascould not have or reasonably be expected to result in a Material Adverse Effect.

 

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

 

(n)          Titleto Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by themand good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries,in each case free and clear of all Liens, except for (i) Liens that do not materially affect the value of such property and donot materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries, (ii)Liens reflected in the Company’s financial statements and (iii) Liens for the payment of federal, state or other taxes,for which appropriate reserves have been made therefor in accordance with GAAP and, the payment of which is neither delinquentnor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by themunder valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in material compliance.

 

(o)          IntellectualProperty. To its knowledge, the Company and the Subsidiaries have, or have rights to use, all patents, patent applications,trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectualproperty rights and similar rights as described in the SEC Reports as necessary or required for use in connection with their respectivebusinesses and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual PropertyRights”). None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that anyof, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned,within two (2) years from the date of this Agreement. Neither the Company nor any Subsidiary has received, since the date of thelatest audited financial statements included within the SEC Reports, a written notice of a claim that the Intellectual PropertyRights violate or infringe upon the rights of any Person, except as could not have or reasonably be expected to not have a MaterialAdverse Effect. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existinginfringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonablesecurity measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failureto do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

 

(p)          Insurance.The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risksand in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including,but not limited to, directors and officers insurance coverage at least equal to the aggregate Subscription Amount. Neither theCompany nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as andwhen such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business withouta significant increase in cost.

 

(q)          TransactionsWith Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company orany Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a partyto any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), includingany contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real orpersonal property to or from, providing for the borrowing of money from or lending of money to or otherwise requiring paymentsto or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director,or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each casein excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expensesincurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock optionplan of the Company.

 

(r)          Sarbanes-Oxley;Internal Accounting Controls. The Company and the Subsidiaries are in material compliance with any and all applicable requirementsof the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgatedby the Commission thereunder that are effective as of the date hereof and as of the applicable Closing Date. TheCompany and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that:(i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions arerecorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability,(iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) therecorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is takenwith respect to any differences. The Company and the Subsidiaries have established disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls andprocedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the ExchangeAct is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.The Company’s certifying officers have evaluated the effectiveness of the disclosure controls and procedures of the Companyand the Subsidiaries as of the end of the period covered by the most recently filed periodic report under the Exchange Act (suchdate, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the ExchangeAct the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on theirevaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the internal control over financialreporting (as such term is defined in the Exchange Act) of the Company and its Subsidiaries that have materially affected, oris reasonably likely to materially affect, the internal control over financial reporting of the Company and its Subsidiaries.

 

 

(s)          CertainFees. Except as set forth on Schedule 3.1(s), no brokerage or finder’s fees or commissions are or will be payableby the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment banker, bankor other Person with respect to the transactions contemplated by the Transaction Documents. The Purchasers shall have no obligationwith respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated inthis Section that may be due in connection with the transactions contemplated by the Transaction Documents.

 

(t)          PrivatePlacement. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registrationunder the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplatedhereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.

 

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

 

(v)         RegistrationRights. Other than each of the Purchasers and except as set forth on Schedule 3.1(v), no Person has any right to causethe Company to effect the registration under the Securities Act of any securities of the Company or any Subsidiary.

 

(w)        Listingand Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and theCompany has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registrationof the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplatingterminating such registration. Except as set forth in the SEC Reports, the Company has not, in the 12 months preceding the datehereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that theCompany is not in compliance with the listing or maintenance requirements of such Trading Market. Except as set forth in the SECReports, the Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in material compliancewith all such listing and maintenance requirements.

 

 

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

 

(y)          Disclosure.Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Companyconfirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counselwith any information that it believes constitutes or might constitute material, non-public information. The Company understandsand confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company.All of the disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company and its Subsidiaries, theirrespective businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is trueand correct in all material respects and does not contain any untrue statement of a material fact or omit to state any materialfact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to thetransactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.

 

(z)          NoIntegrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2,neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, madeany offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offeringof the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would requirethe registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of anyTrading Market on which any of the securities of the Company are listed or designated.

 

 

(aa)         Solvency.Based on the consolidated financial condition of the Company as of each Closing Date, after giving effect to the receipt by theCompany of the proceeds from the sale of the Securities hereunder: (i) the fair saleable value of the Company’s assets exceedsthe amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (includingknown contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital tocarry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particularcapital requirements of the business conducted by the Company, consolidated and projected capital requirements and capital availabilitythereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidateall of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or inrespect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its abilityto pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidationunder the bankruptcy or reorganization laws of any jurisdiction within one year from the applicable Closing Date. The SEC Reportsset forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for whichthe Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (x)any liabilities for borrowed money or amounts owed in excess of $500,000 (other than trade accounts payable incurred in the ordinarycourse of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whetheror not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guarantiesby endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business;and (z) the present value of any lease payments in excess of $500,000 due under leases required to be capitalized in accordancewith GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

 

(bb)         TaxStatus. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in aMaterial Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and localincome and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it issubject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determinedto be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for thepayment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. Thereare no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers ofthe Company or of any Subsidiary know of no basis for any such claim.

 

(cc)         NoGeneral Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securitiesby any form of general solicitation or general advertising. Assuming the accuracy of the Purchasers’ representations andwarranties set forth in Section 3.2, the Company has offered the Securities for sale only to the Purchasers and certain other“accredited investors” within the meaning of Rule 501 under the Securities Act.

 

 

(dd)         ForeignCorrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agentor other person acting on behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used any funds for unlawfulcontributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made anyunlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaignsfrom corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any personacting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect anyprovision of FCPA.

 

(ee)         Accountants.The Company’s accounting firm is set forth in the SEC Reports. To the knowledge and belief of the Company, such accountingfirm: (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall express its opinion with respectto the financial statements to be included in the Company’s Annual Report for the fiscal year ending December 31, 2013.

 

(ff)         Seniority.As of each Closing Date, no Indebtedness or other claim against the Company is senior to the Series C Preferred Stock in rightof payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness securedby purchase money security interests (which is senior only as to underlying assets covered thereby) and capital lease obligations(which is senior only as to the property covered thereby).

 

(gg)         NoDisagreements with Accountants and Lawyers. There are no disagreements of any kind presently existing, or reasonably anticipatedby the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company andthe Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s abilityto perform any of its obligations under any of the Transaction Documents.

 

(hh)         AcknowledgmentRegarding Purchasers’ Purchase of Securities. The Company acknowledges and agrees that each of the Purchasers is actingsolely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplatedthereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or inany similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice givenby any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactionscontemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further representsto each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has beenbased solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

 

 

(ii)         AcknowledgmentRegarding Purchaser’s Trading Activity. Anything in thisAgreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(f) and 4.15 hereof), it is understood andacknowledged by the Company that: (i) none of the Purchasers has been asked by the Company to agree, nor has any Purchaser agreed,to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities basedon securities issued by the Company or to hold the Securities for any specified term, (ii) past or future open market or othertransactions by any Purchaser, specifically including, without limitation, Short Sales or “derivative” transactions,before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’spublicly-traded securities and (iii) each Purchaser shall not be deemed to have any affiliation with or control over any arm’slength counter-party in any “derivative” transaction. The Company further understands and acknowledges that(y) one or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding,including, without limitation, during the periods that the value of the Underlying Shares deliverable with respect to Securitiesare being determined, and (z) such hedging activities (if any) could reduce the value of the existing stockholders’ equityinterests in the Company at and after the time that the hedging activities are being conducted.  The Company acknowledgesthat such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.

 

(jj)         RegulationM Compliance.  The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly,any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company tofacilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for solicitingpurchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchaseany other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’splacement agent in connection with the placement of the Securities.

 

 

(kk)        FDA.As to each product subject to the jurisdiction of the U.S. Food and Drug Administration (“FDA”) under the FederalFood, Drug and Cosmetic Act, as amended, and the regulations thereunder (“FDCA”) that is manufactured, packaged,labeled, tested, distributed, sold, and/or marketed by the Company or any of its Subsidiaries (each such product, a “PharmaceuticalProduct”), such Pharmaceutical Product is being manufactured, packaged, labeled, tested, distributed, sold and/or marketedby the Company in compliance with all applicable requirements under FDCA and similar laws, rules and regulations relating to registration,investigational use, premarket clearance, licensure, or application approval, good manufacturing practices, good laboratory practices,good clinical practices, product listing, quotas, labeling, advertising, record keeping and filing of reports, except where thefailure to be in compliance would not have a Material Adverse Effect. There is no pending, completed or, to the Company's knowledge,threatened, action (including any lawsuit, arbitration, or legal or administrative or regulatory proceeding, charge, complaint,or investigation) against the Company or any of its Subsidiaries, and none of the Company or any of its Subsidiaries has receivedany notice, warning letter or other communication from the FDA or any other governmental entity, which (i) contests the premarketclearance, licensure, registration, or approval of, the uses of, the distribution of, the manufacturing or packaging of, the testingof, the sale of, or the labeling and promotion of any Pharmaceutical Product, (ii) withdraws its approval of, requests the recall,suspension, or seizure of, or withdraws or orders the withdrawal of advertising or sales promotional materials relating to, anyPharmaceutical Product, (iii) imposes a clinical hold on any clinical investigation by the Company or any of its Subsidiaries,(iv) enjoins production at any facility of the Company or any of its Subsidiaries, (v) enters or proposes to enter into a consentdecree of permanent injunction with the Company or any of its Subsidiaries, or (vi) otherwise alleges any violation of any laws,rules or regulations by the Company or any of its Subsidiaries, and which, either individually or in the aggregate, would havea Material Adverse Effect. The properties, business and operations of the Company have been and are being conducted in all materialrespects in accordance with all applicable laws, rules and regulations of the FDA.  The Company has not been informed bythe FDA that the FDA will prohibit the marketing, sale, license or use in the United States of any product proposed to be developed,produced or marketed by the Company nor has the FDA expressed any concern as to approving or clearing for marketing any productbeing developed or proposed to be developed by the Company.

 

(ll)         FormS-3 Eligibility.        The Company is eligible to register the resale of thatnumber of Underlying Shares permitted by Commission rules and guidance for resale by the Purchaser on Form S-3 promulgated underthe Securities Act.

 

(mm)      StockOption Plans. Each stock option granted by the Company under the Company’s stock option plan was granted (i) in accordancewith the terms of the Company’s stock option plan and (ii) with an exercise price at least equal to the fair market valueof the Common Stock on the date such stock option would be considered granted under GAAP and applicable law. No stock option grantedunder the Company’s stock option plan has been backdated. The Company has not knowingly granted, and there is no and hasbeen no Company policy or practice to knowingly grant, stock options prior to, or otherwise knowingly coordinate the grant ofstock options with, the release or other public announcement of material information regarding the Company or its Subsidiariesor their financial results or prospects.

 

(nn)       Officeof Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer,agent, employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Officeof Foreign Assets Control of the U.S. Treasury Department (“OFAC”).

 

(oo)       U.S.Real Property Holding Corporation. The Company is not and has never been a U.S. real property holding corporation within themeaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon Purchaser’srequest.

 

 

(pp)       BankHolding Company Act. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding CompanyAct 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, directlyor indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent ormore of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neitherthe Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bankor any entity that is subject to the BHCA and to regulation by the Federal Reserve.

 

(qq)       MoneyLaundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance withapplicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970,as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “MoneyLaundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or bodyor any arbitrator involving the Company and any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledgeof the Company or any Subsidiary, threatened.

 

3.2           Representationsand Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants asof the date hereof and as of the applicable Closing Date to the Company as follows (unless as of a specific date therein):

 

(a)          Organization;Authority. Such Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standingunder the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liabilitycompany or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documentsand otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents andperformance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessarycorporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each TransactionDocument to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance withthe terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordancewith its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization,moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited bylaws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar asindemnification and contribution provisions may be limited by applicable law.

 

 

(b)          OwnAccount. Such Purchaser understands that the Securities are “restricted securities” and have not been registeredunder the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own accountand not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Actor any applicable state securities law, has no present intention of distributing any of such Securities in violation of the SecuritiesAct or any applicable state securities law and has no direct or indirect arrangement or understandings with any other personsto distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securitieslaw (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the RegistrationStatement or otherwise in compliance with applicable federal and state securities laws). Such Purchaser is acquiring the Securitieshereunder in the ordinary course of its business.

 

(c)          PurchaserStatus. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, and on each date onwhich it exercises any Warrants or converts any shares of Series C Preferred Stock or is paid any dividends on the Series C PreferredStock in shares of stock, it will be an “accredited investor” as defined in Rule 501(a) under the Securities Act.Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.

 

(d)          Experienceof Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication andexperience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investmentin the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic riskof an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

 

(e)          GeneralSolicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communicationregarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presentedat any seminar or any other general solicitation or general advertisement.

 

(f)          CertainTransactions and Confidentiality. Other than consummating the transactions contemplated hereunder, such Purchaser has notdirectly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, executedany purchases or sales, including Short Sales, of the securities of the Company during the period commencing as of the timethat such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Companysetting forth the material terms of the transactions contemplated hereunder and ending immediately prior to the execution hereof.Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfoliomanagers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of theinvestment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representationset forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investmentdecision to purchase the Securities covered by this Agreement. Other than to other Persons party to this Agreement, such Purchaserhas maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existenceand terms of this transaction). Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein shall constitutea representation or warranty, or preclude any actions, with respect to the identification of the availability of, or securingof, available shares to borrow in order to effect Short Sales or similar transactions in the future.

 

 

(g)          Non-USPersons. If such Purchaser is not a United States Person, it has satisfied itself as to the full observance of the laws ofits jurisdiction in connection with any invitation to purchase the Securities or any use of this Agreement or any TransactionDocument, including (i) the legal requirements within its jurisdiction for the purchase of the Securities, (ii) any foreign exchangerestrictions applicable to such purchase, (iii) any necessary permits or consents of any governmental authority or similar regulatingbody and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, saleor transfer of the Securities. Such Purchaser’s payment for, and continued beneficial ownership of the Securities, willnot violate any applicable securities or other Laws of the Purchaser’s jurisdiction.

 

The Companyacknowledges and agrees that the representations contained in Section 3.2 shall not modify, amend or affect such Purchaser’sright to rely on the Company’s representations and warranties contained in this Agreement or any representations and warrantiescontained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with thisAgreement or the consummation of the transaction contemplated hereby.

 

ARTICLEIV.

**OTHER AGREEMENTS OF THE PARTIES**

 

4.1         TransferRestrictions.

 

(a)          TheSecurities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securitiesother than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser that isan “accredited investor” or in connection with a pledge as contemplated in Section 4.1(b), the Company may requirethe transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable tothe Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transferdoes not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transfereeshall agree in writing to be bound by the terms of this Agreement and the other Transaction Documents and shall have the rightsand obligations of a Purchaser under this Agreement and the other Transaction Documents.

 

 

(b)          ThePurchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the followingform:

 

[NEITHER]THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE] [CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIESAND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIESACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO ANEFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECTTO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BYA LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONAFIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR”AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

The Companyacknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registeredbroker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accreditedinvestor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreementand the Registration Rights Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledgedor secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Companyand no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further,no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliversuch reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge ortransfer of the Securities, including, if the Securities are subject to registration pursuant to the Registration Rights Agreement,the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicableprovision of the Securities Act to appropriately amend the list of Selling Stockholders (as defined in the Registration RightsAgreement) thereunder.

 

 

(c)          Certificatesevidencing the Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) whilea registration statement (including the Registration Statement) covering the resale of such security is effective under the SecuritiesAct, (ii) following any sale of such Underlying Shares pursuant to Rule 144 and delivery by Purchaser of customary representationletters regarding Rule 144 compliance and a copy of Form 144 filed by Purchaser, (iii) if such Underlying Shares are eligible forsale under Rule 144 without the requirement for the Company to be in compliance with the current public information requirementsof Rule 144 as to such Underlying Shares and without volume or manner-of-sale restrictions thereunder, and Purchaser delivers acustomary representation letter or (iv) if such legend is not required under applicable requirements of the Securities Act (includingjudicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issuea legal opinion to the Transfer Agent promptly if required by the Transfer Agent to effect the removal of the legend hereunder.If all or any shares of Series C Preferred Stock are converted or any portion of a Warrant is exercised at a time when there isan effective registration statement to cover the resale of the Underlying Shares, or if such Underlying Shares may be sold underRule 144 without the requirement for the Company to be in compliance with the current public information requirements of Rule 144as to such Underlying Shares and without volume or manner-of-sale restrictions thereunder or if such legend is not otherwise requiredunder applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staffof the Commission) then such Underlying Shares shall be issued free of all legends after the Company has received a customary representationletter from Purchaser. The Company agrees that following the Effective Date or at such time as such legend is no longer requiredunder this Section 4.1(c), it will, no later than three Trading Days following the delivery by a Purchaser to the Company or theTransfer Agent of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend together with acustomary representation letter and, if applicable, a copy of the filed Form 144 (such third Trading Day, the “LegendRemoval Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is freefrom all restrictive and other legends. The Company may not make any notation on its records or give instructions to the TransferAgent that enlarge the restrictions on transfer set forth in this Section 4. Certificates for Underlying Shares subject to legendremoval hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’sprime broker with the Depository Trust Company System as directed by such Purchaser.

 

(d)          Inaddition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidateddamages and not as a penalty, for each $2,000 of Underlying Shares (based on the VWAP of the Common Stock on the date such Securitiesare submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 4.1(c), $10 per TradingDay for each Trading Day after the second Trading Day following the Legend Removal Date until such certificate is delivered withouta legend. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Company’s failure to delivercertificates representing any Securities as required by the Transaction Documents, and such Purchaser shall have the right to pursueall remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctiverelief.

 

 

(e)          EachPurchaser, severally and not jointly with the other Purchasers, agrees with the Company that such Purchaser will sell any Securitiespursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements,or an exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliancewith the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificatesrepresenting Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance upon this understanding.

 

4.2         Acknowledgmentof Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding sharesof Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that itsobligations under the Transaction Documents, including, without limitation, its obligation to issue the Underlying Shares pursuantto the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction,regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutiveeffect that such issuance may have on the ownership of the other stockholders of the Company.

 

4.3         Furnishingof Information; Public Information. 

 

(a)           If the Common Stock is not registered under Section 12(b) or 12(g) of the Exchange Act on the date hereof, the Company agreesto cause the Common Stock to be registered under Section 12(g) of the Exchange Act on or before the 60th calendar dayfollowing the date hereof. Until the time that no Purchaser owns Securities, the Company covenants to maintain the registrationof the Common Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect thereofand file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant tothe Exchange Act even if the Company is not then subject to the reporting requirements of the Exchange Act. 

 

(b)           At any time during the period commencing from the six (6) month anniversary of the date hereof and ending at such time thatall of the Securities may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and otherwisewithout restriction or limitation pursuant to Rule 144, if the Company shall fail for any reason to satisfy the current publicinformation requirement under Rule 144(c) and a Registration Statement covering the resale of the Underlying Shares relating tosuch Securities is not at such time effective (a “Public Information Failure”) then, in addition to such Purchaser’sother available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, byreason of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal to two percent (2.0%)of the aggregate Subscription Amount of such Purchaser’s Securities on the day of a Public Information Failure and on everythirtieth (30th) day (pro rated for periods totaling less than thirty days) thereafter until the earlier of (a) thedate such Public Information Failure is cured and (b) such time that such public information is no longer required  for thePurchasers to transfer the Underlying Shares pursuant to Rule 144.  The payments to which a Purchaser shall be entitled pursuantto this Section 4.3(b) are referred to herein as “Public Information Failure Payments.”  Public InformationFailure****Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Public InformationFailure****Payments are incurred and (ii) the third (3rd) Business Day after the event or failure giving rise tothe Public Information Failure****Payments is cured.  In the event the Company fails to make Public Information FailurePayments 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 Purchaser’s right to pursue actual damagesfor the Public Information Failure, and such Purchaser shall have the right to pursue all remedies available to it at law or inequity including, without limitation, a decree of specific performance and/or injunctive relief. Notwithstanding anything hereinto the contrary, in no event shall the aggregate amount of liquidated damages payable hereunder exceed 8% of a Purchaser’saggregate Subscription Amount.

 

 

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

 

4.5           Conversionand Exercise Procedures. Each of the form of Notice of Exercise included in the Warrants and the form of Notice of Conversionincluded in the Certificate of Designation set forth the totality of the procedures required of the Purchasers in order to exercisethe Warrants or convert the Series C Preferred Stock. Except as required in Section 4.1(c), no additional legal opinion, otherinformation or instructions shall be required of the Purchasers to exercise their Warrants or convert their Series C PreferredStock. The Company shall honor exercises of the Warrants and conversions of the Series C Preferred Stock and shall deliver UnderlyingShares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.

 

4.6           SecuritiesLaws Disclosure; Publicity. The Company shall (a) by 9:00 a.m. (New York City time) on the Trading Day immediately followingthe date hereof, issue a press release disclosing the material terms of the transactions contemplated hereby and (b) within 4Trading Days of the date hereof, file a Current Report on Form 8-K disclosing such terms, including the Transaction Documentsas exhibits thereto. From and after the issuance of such press release, the Company represents to the Purchaser that it shallhave publicly disclosed all material, non-public information delivered to any of the Purchasers by the Company or any of its Subsidiaries,or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the TransactionDocuments. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to thetransactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release nor otherwise makeany such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or withoutthe prior consent of the Purchaser holding a majority of the Securities, with respect to any press release of the Company, whichconsent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosingparty shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding theforegoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filingwith the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except: (a)as required by federal securities law in connection with (i) the Form 8-K described above, any proxy statement or any registrationstatement contemplated by the Registration Rights Agreement and (ii) the filing of final Transaction Documents with the Commissionand (b) to the extent such disclosure is required by law or Trading Market regulations or request, in which case the Company shallprovide the Purchasers with prior notice of such disclosure permitted under this clause (b).

 

 

4.7           ShareholderRights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that anyPurchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (includingany distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company,or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securitiesunder the Transaction Documents or under any other agreement between the Company and the Purchasers.

 

4.8           Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated bythe Transaction Documents, the Company covenants and agrees that neither it, nor any other Person acting on its behalf, will provideany Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information,unless prior thereto such Purchaser shall have entered into a written agreement with the Company regarding the confidentialityand use of such information. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenantin effecting transactions in securities of the Company.

 

4.9           Useof Proceeds. Except as set forth on Schedule 4.9 attached hereto, the Company shall use the net proceeds from the saleof the Securities hereunder for working capital purposes and shall not use such proceeds: (a) for the satisfaction of any portionof the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and priorpractices), (b) for the redemption of any Common Stock or Common Stock Equivalents, (c) for the settlement of any outstandinglitigation or (d) in violation of FCPA or OFAC regulations. 

 

 

4.10        Indemnificationof Purchasers. Subject to the provisions of this Section 4.10, the Company will indemnify and hold each Purchaser and itsdirectors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalentrole of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser(within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders,agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titlesnotwithstanding a lack of such title or any other title) of such controlling persons (each, a “Purchaser Party”)harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including alljudgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any suchPurchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenantsor agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted againstthe Purchaser Parties in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who isnot an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction Documents (unlesssuch action is based upon a breach of such Purchaser Party’s representations, warranties or covenants under the TransactionDocuments or any agreements or understandings such Purchaser Party may have with any such stockholder or any violations by suchPurchaser Party of state or federal securities laws or any conduct by such Purchaser Party which constitutes fraud, gross negligence,willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity maybe sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shallhave the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. AnyPurchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, butthe fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employmentthereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of timeto assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a materialconflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case theCompany shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company willnot be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’sprior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent thata loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties,covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents or attributable toPurchaser Party’s fraud, gross negligence, willful misconduct or malfeasance.The indemnificationrequired by this Section 4.10 shall be made by periodic payments of the amount thereof during the course of the investigationor defense, as and when bills are received or are incurred. The indemnity agreements contained herein shall be in addition toany cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company maybe subject to pursuant to law.

 

4.11        Reservationand Listing of Securities.

 

(a)          TheCompany shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documentsin such amount as may then be required to fulfill its obligations in full under the Transaction Documents.

 

 

(b)          If,on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than 130% of (i) theRequired Minimum on such date, minus (ii) the number of shares of Common Stock previously issued pursuant to the Transaction Documents,then the Board of Directors shall use commercially reasonable efforts to amend the Company’s certificate or articles of incorporationto increase the number of authorized but unissued shares of Common Stock to at least the Required Minimum at such time (minus thenumber of shares of Common Stock previously issued pursuant to the Transaction Documents), as soon as possible and in any eventnot later than the 75th day after such date; provided that the Company will not be required at any time to authorizea number of shares of Common Stock greater than the maximum remaining number of shares of Common Stock that could possibly be issuedafter such time pursuant to the Transaction Documents.

 

(c)          TheCompany shall, if applicable: (i) in the time and manner required by the principal Trading Market, prepare and file with such TradingMarket an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimumon the date of such application, (ii) take all commercially reasonable steps to cause such shares of Common Stock to be approvedfor listing or quotation on such Trading Market as soon as possible thereafter, (iii) provide to the Purchasers evidence of suchlisting application and (iv) maintain the listing or quotation of such Common Stock on any date at least equal to the RequiredMinimum on such date on such Trading Market or another Trading Market. In addition, for the purpose of obtaining Shareholder Approval,the Company shall prepare and file a proxy statement with the Commission within 20 days following the First Closing Date and shallhold a special meeting of shareholders (which may also be at the annual meeting of shareholders) at the earliest practical dateafter the date hereof, but in any event on or before the 60th day after the First Closing Date, with the recommendation of theCompany’s Board of Directors that such proposal be approved, and the Company shall solicit proxies from its shareholdersin connection therewith in the same manner as all other management proposals in such proxy statement and all management-appointedproxyholders shall vote their proxies in favor of such proposal. If the Company does not obtain Shareholder Approval at the firstmeeting, the Company shall call a meeting every four months thereafter to seek Shareholder Approval until the earlier of the dateShareholder Approval is obtained or the Series C Preferred Stock is no longer outstanding. Each Purchaser agrees not to vote anyUnderlying Shares held by it in favor of the Shareholder Approval.

 

4.12        Participationin Future Financing.

 

(a)          Subjectto the prior rights of first refusal set forth in (i) that certain Investors Rights Agreement dated as of April 1, 2011 (the “InvestorsRights Agreement”), (ii) that certain Securities Purchase Agreement, dated as of September 28, 2012, and (iii) that certainSecurities Purchase Agreement, dated as of March 19, 2013, from the date hereof until the date that is the 6 month anniversaryof the Second Closing Date, upon any issuance by the Company or any of its Subsidiaries of Common Stock, Common Stock Equivalentsfor cash consideration, Indebtedness or a combination of units thereof (a “Subsequent Financing”), each Purchasershall have the right to participate in up to an amount of the Subsequent Financing equal to 100% of the Subsequent Financing (themaximum aggregate amount of 100% of such Subsequent Financing among all Purchasers, “Participation Maximum”)on the same terms, conditions and price provided for in the Subsequent Financing.

 

 

(b)          Atleast five (5) Trading Days prior to the closing of the Subsequent Financing, the Company shall deliver to each Purchaser a writtennotice of its intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Purchaserif it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”).Upon the request of a Purchaser, and only upon a request by such Purchaser, for a Subsequent Financing Notice, the Company shallpromptly, but no later than one (1) Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser. TheSubsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount ofproceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing is proposedto be effected and shall include a term sheet or similar document relating thereto as an attachment.

 

(c)          AnyPurchaser desiring to participate in such Subsequent Financing must provide written notice to the Company by not later than 5:30p.m. (New York City time) on the fifth (5th) Trading Day after all of the Purchasers have received the Pre-Notice thatsuch Purchaser is willing to participate in the Subsequent Financing, the amount of such Purchaser’s participation, and representingand warranting that such Purchaser has such funds ready, willing, and available for investment on the terms set forth in the SubsequentFinancing Notice. If the Company receives no such notice from a Purchaser as of such fifth (5th) Trading Day, such Purchasershall be deemed to have notified the Company that it does not elect to participate.

 

(d)          Ifby 5:30 p.m. (New York City time) on the fifth (5th)Trading Day after all of the Purchasers have receivedthe Pre-Notice, notifications by the Purchasers of their willingness to participate in the Subsequent Financing (or to cause their“accredited investor” designees to participate) is, in the aggregate, less than the total amount of the SubsequentFinancing, then the Company may effect the remaining portion of such Subsequent Financing on the terms and with the Persons setforth in the Subsequent Financing Notice.

 

(e)          Ifby 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after all of the Purchasers have received the Pre-Notice,the Company receives responses to a Subsequent Financing Notice from Purchasers seeking to purchase more than the aggregate amountof the Participation Maximum, each such Purchaser shall have the right to purchase its Pro Rata Portion (as defined below) of thatamount of the Participation Maximum being purchased by the Purchasers. “Pro Rata Portion” means the ratio of(x) the Subscription Amount of Securities purchased on the Closing Dates by a Purchaser participating under this Section 4.12 and(y) the sum of the aggregate Subscription Amounts of Securities purchased on the Closing Dates by all Purchasers participatingunder this Section 4.12.

 

 

(f)         TheCompany must provide the Purchasers with a second Subsequent Financing Notice, and the Purchasers will again have the right ofparticipation set forth above in this Section 4.12, if the Subsequent Financing subject to the initial Subsequent Financing Noticeis not consummated for any reason on the terms set forth in such Subsequent Financing Notice within thirty (30) Trading Days afterthe date of the initial Subsequent Financing Notice.

 

(g)         TheCompany and each Purchaser agree that if any Purchaser elects to participate in the Subsequent Financing, the transaction documentsrelated to the Subsequent Financing shall not include any term or provision whereby such Purchaser shall be required to agree toany restrictions on trading as to any of the Securities purchased hereunder or be required to consent to any amendment to or terminationof, or grant any waiver, release or the like under or in connection with, this Agreement, without the prior written consent ofsuch Purchaser.

 

(h)         Notwithstandinganything to the contrary in this Section 4.12 and unless otherwise agreed to by such Purchaser, the Company shall either confirmin writing to such Purchaser that the transaction with respect to the Subsequent Financing has been abandoned or shall publiclydisclose its intention to issue the securities in the Subsequent Financing, in either case in such a manner such that such Purchaserwill not be in possession of any material, non-public information, by the tenth (10th) Business Day following delivery of the SubsequentFinancing Notice. If by such tenth (10th) Business Day, no public disclosure regarding a transaction with respect to the SubsequentFinancing has been made, and no notice regarding the abandonment of such transaction has been received by such Purchaser, suchtransaction shall be deemed to have been abandoned and such Purchaser shall not be deemed to be in possession of any material,non-public information with respect to the Company or any of its Subsidiaries. 

 

(i)          Notwithstandingthe foregoing, this Section 4.12 shall not apply in respect of (i) an Exempt Issuance, or (ii) an underwritten public offeringof Common Stock.         

 

4.13        SubsequentEquity Sales.

 

(a)          Fromthe date hereof until the later of (i) September 20, 2013 and (ii) the date that is 30 days following the date on which no SeriesC Preferred Stock remains outstanding, neither the Company nor any Subsidiary shall issue, enter into any agreement to issue orannounce the issuance or proposed issuance of any shares of Common Stock or Common Stock Equivalents.

 

(b)          Fromthe date hereof until such time as no Purchaser holds any of the Series C Preferred Stock or Warrants, the Company shall be prohibitedfrom effecting or entering into an agreement to effect any issuance by the Company or any of its Subsidiaries of Common Stock orCommon Stock Equivalents (or a combination of units thereof) involving a Variable Rate Transaction. “Variable Rate Transaction”means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeableor exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exerciseprice or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the sharesof Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise orexchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security orupon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the marketfor the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Companymay issue securities at a future determined price. Any Purchaser shall be entitled to obtain injunctive relief against the Companyto preclude any such issuance, which remedy shall be in addition to any right to collect damages.

 

 

(c)          UnlessShareholder Approval has been obtained and deemed effective, neither the Company nor any Subsidiary shall make any issuance whatsoeverof Common Stock or Common Stock Equivalents until no Preferred Stock or Warrants remain outstanding. In addition, until the dateon which less than 7.5% of the aggregate Warrants issued at the Closings remain outstanding, the Company shall not issue any CommonStock or Common Stock Equivalents at an effective price per share that is less than the then effective Exercise Price (as definedin the Warrants). Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance,which remedy shall be in addition to any right to collect damages.

 

(d)          Notwithstandingthe foregoing, this Section 4.13 shall not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction shallbe an Exempt Issuance.

 

4.14         EqualTreatment of Purchasers. No consideration (including any modification of any Transaction Document) shall be offered or paidto any Person to amend or consent to a waiver or modification of any provision of this Agreement unless the same considerationis also offered to all of the parties to this Agreement. For clarification purposes, this provision constitutes a separate rightgranted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treatthe Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respectto the purchase, disposition or voting of Securities or otherwise.

 

 

4.15         CertainTransactions and Confidentiality. Each Purchaser, severally and not jointly with the other Purchasers, covenants that neitherit, nor any Affiliate acting on its behalf or pursuant to any understanding with it will (i) execute any purchases or sales, includingShort Sales, of any of the Company’s securities during the period commencing with the execution of this Agreement and endingat such time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press releaseas described in Section 4.6 or (ii) execute any sales, including any Short Sales (but excluding the maintenance of any existingShort Sales), during the 3 Trading Days prior the Second Closing Date, other than (a) any sales of shares of Common Stock heldlong by the Purchaser prior to the 3rd Trading Day preceding the Second Closing Date and (b) any sales, including any Short Sales,made where a corresponding Notice of Conversion or Notice of Exercise is tendered to the Company within 3 Trading Days of suchsale and the shares received upon such conversion or exercise are used to close out such sale (a “Prohibited Short Sale”). Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplatedby this Agreement are publicly disclosed by the Company pursuant to the initial press release as described in Section 4.6, suchPurchaser will maintain the confidentiality of the existence and terms of this transaction and the information included in theTransaction Documents and the Disclosure Schedules. Notwithstanding the foregoing, and notwithstanding anything contained in thisAgreement to the contrary, other than a Prohibited Short Sale or other than pursuant to Section 4.8, the Company expressly acknowledgesand agrees that (i) no Purchaser makes any representation, warranty or covenant hereby that it will not engage in effecting transactionsin any securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announcedpursuant to the initial press release as described in Section 4.6, (ii) no Purchaser shall be restricted or prohibited from effectingany transactions in any securities of the Company in accordance with applicable securities laws from and after the time that thetransactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described inSection 4.6 and (iii) no Purchaser shall have any duty of confidentiality to the Company or its Subsidiaries after the issuanceof the initial press release as described in Section 4.6. Notwithstanding the foregoing, in the case of a Purchaser that is amulti-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assetsand the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing otherportions of such Purchaser’s assets, the covenant set forth above shall only apply with respect to the portion of assetsmanaged by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.

 

4.16         FormD; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the Securities as required under RegulationD and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shallreasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasersat the Closings under applicable securities or “Blue Sky” laws of the states of the United States, and shall provideevidence of such actions promptly upon request of any Purchaser.

 

4.17         CapitalChanges. Until the one year anniversary of the Effective Date, the Company shall not undertake a reverse or forward stocksplit or reclassification of the Common Stock without the prior written consent of the Purchasers holding a majority in interestof the shares of Series C Preferred Stock, unless required to maintain the listing of the Common Stock on the Nasdaq Stock Market.

 

4.18         MostFavored Nation Provision. From the date hereof until such time as no Purchaser holds any of the Series C Preferred Stock orWarrants, in the event that the Company issues or sells any Common Stock or Common Stock Equivalents, if a Purchaser then holdingSecurities reasonably believes that any of the material terms and conditions appurtenant to such issuance or sale are more favorableto such investors than are the terms and conditions granted to the Purchasers hereunder, upon notice to the Company by such Purchaserwithin five Trading Days after disclosure of such issuance or sale, the Company shall amend the terms of this transaction as tosuch Purchaser only so as to give such Purchaser the benefit of such more favorable terms or conditions. This Section 4.18 shallnot apply with respect to an Exempt Issuance. The Company shall provide each Purchaser with notice of any such issuance or salein the manner for disclosure of Subsequent Financings set forth in Section 4.12.

 

 

4.19         Amendmentsto Investor Rights Agreement. From the date hereof until the date that is the 12-month anniversary of the Effective Date, withoutprior written consent of the Purchasers holding at least 67% in interest of the Securities then outstanding, the Company shallnot (i) amend or alter the Investors Rights Agreement or (ii) except with respect to an Exempt Issuance or in accordance with theterms of the Investors Rights Agreement as in effect as of the date hereof, issue additional shares of Common Stock or Common StockEquivalents to the investors who are a party to the Investors Rights Agreement.

 

ARTICLEV.

**MISCELLANEOUS**

 

5.1           Termination. This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effectwhatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the FirstClosing has not been consummated on or before May 10, 2013; provided, however, that such termination will not affectthe right of any party to sue for any breach by any other party (or parties).

 

5.2           Feesand Expenses. At the First Closing, the Company has agreed to reimburse Alpha Capital (“Alpha”) the non-accountablesum of $30,000 for its legal fees and expenses and $20,000 for administrative and due diligence fees and expenses. The Companyshall deliver to each Purchaser, prior to the Closing, a completed and executed copy of the Closing Statement, attached heretoas Annex A. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees andexpenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incidentto the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agentfees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Companyand any conversion or exercise notice delivered by a Purchaser), stamp taxes and other taxes and duties levied in connection withthe delivery of any Securities to the Purchasers.

 

5.3           EntireAgreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding ofthe parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oralor written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

 

5.4           Notices.Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing andshall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is deliveredvia facsimile at the facsimile number set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York Citytime) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is deliveredvia facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or laterthan 5:30 p.m. (New York City time) on any Trading Day, (c) the third (3rd) Trading Day following the date of mailing,if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice isrequired to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.

 

 

5.5           Amendments;Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signedby the Company and the Purchasers holding at least 67% in interest of the Securities then outstanding. No waiver of any defaultwith respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the futureor a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delayor omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

 

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

 

5.7           Successorsand Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permittedassigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent ofeach Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person towhom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respectto the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”

 

5.8           NoThird-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successorsand permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except asotherwise set forth in Section 4.10.

 

5.9           GoverningLaw. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shallbe governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to theprinciples of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcementand defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against aparty hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall becommenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits tothe exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudicationof any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (includingwith respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assertin any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that suchsuit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personalservice of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registeredor certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it underthis Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothingcontained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If eitherparty shall commence an action, suit or proceeding to enforce any provisions of the Transaction Documents, then, in addition tothe obligations of the Company under Section 4.10, the prevailing party in such action, suit or proceeding shall be reimbursedby the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparationand prosecution of such action or proceeding.

 

 

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

 

5.11         Execution.This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the sameagreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it beingunderstood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmissionor by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation ofthe party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf”signature page were an original thereof.

 

5.12         Severability.If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid,illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remainin full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commerciallyreasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplatedby such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties thatthey would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may behereafter declared invalid, illegal, void or unenforceable.

 

5.13         Rescissionand Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of)any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a TransactionDocument and the Company does not timely perform its related obligations within the periods therein provided, then such Purchasermay rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demandor election in whole or in part without prejudice to its future actions and rights; provided, however, that in thecase of a rescission of a conversion of the Series C Preferred Stock or exercise of a Warrant, the applicable Purchaser shallbe required to return any shares of Common Stock subject to any such rescinded conversion or exercise notice concurrently withthe return to such Purchaser of the aggregate exercise price paid to the Company for such shares and the restoration of such Purchaser’sright to acquire such shares pursuant to such Purchaser’s Warrant (including, issuance of a replacement warrant certificateevidencing such restored right).

 

 

5.14         Replacementof Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Companyshall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation),or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactoryto the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstancesshall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacementSecurities.

 

5.15         Remedies.In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each ofthe Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree thatmonetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in theTransaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligationthe defense that a remedy at law would be adequate.

 

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

 

5.17         Usury.To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim,and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or atany time hereafter in force, in connection with any claim, action or proceeding that may be brought by any Purchaser in orderto enforce any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained in anyTransaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documentsfor payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “MaximumRate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both ofthem, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the TransactionDocuments exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable tothe Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof,the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents fromthe effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever,interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the TransactionDocuments, such excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refundedto the Company, the manner of handling such excess to be at such Purchaser’s election.

 

 

5.18         IndependentNature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are severaland not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performanceor non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in anyother Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute thePurchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasersare in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the TransactionDocuments. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, therights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaserto be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its own separatelegal counsel in its review and negotiation of the Transaction Documents. For reasons of administrative convenience only, eachPurchaser and its respective counsel have chosen to communicate with the Company through EGS. EGS does not represent any of thePurchasers other than Alpha. The Company has elected to provide all Purchasers with the same terms and Transaction Documents forthe convenience of the Company and not because it was required or requested to do so by any of the Purchasers.

 

5.19         LiquidatedDamages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the TransactionDocuments is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and otheramounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damagesor other amounts are due and payable shall have been canceled.

 

5.20         Saturdays,Sundays, Holidays, etc.         If the last or appointed day for the taking ofany action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be takenor such right may be exercised on the next succeeding Business Day.

 

5.21         Construction.The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the TransactionDocuments and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the draftingparty shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each andevery reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverseand forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur afterthe date of this Agreement.

 

 

5.22         **WAIVEROF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIESEACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLYAND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.**

** **

*(Signature Pages Follow)*

 

 

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

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

 

[PURCHASER SIGNATURE PAGES TO CBMX SECURITIESPURCHASE AGREEMENT]

 

IN WITNESS WHEREOF,the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories asof the date first indicated above.

 

Name of Purchaser: ____________________________________________________

 

*Signature of Authorized Signatory of Purchaser*: __________________________

 

Name of Authorized Signatory: ____________________________________

 

Title of Authorized Signatory: _____________________________________

 

Email Address of Authorized Signatory: ___________________________________________

 

Facsimile Number of Authorized Signatory: _________________________________________

 

Address for Notice to Purchaser:

 

Address for Delivery of Securities to Purchaser (if not sameas address for notice):

 

First Closing Subscription Amount: $____________

 

First Closing Shares of Series C Preferred Stock:____________

 

First Closing Warrant Shares:________________

 

Second Closing Subscription Amount: $____________

 

Second Closing Shares of Series C Preferred Stock:____________

 

Second Closing Warrant Shares:________________

 

EIN Number: _______________________

 

[SIGNATURE PAGES CONTINUE]

 

** **

**Annex A**

** **

**CLOSING STATEMENT**

 

Pursuant to the attached Securities PurchaseAgreement, dated as of the date hereto, the purchasers shall purchase up to $2,400,000 of Series C Preferred Stock and Warrantsfrom Combimatrix Corporation, a Delaware corporation (the “Company”). All funds will be wired into an accountmaintained by the Company. All funds will be disbursed in accordance with this Closing Statement.

 

**DisbursementDate:    **May ___, 2013

 

 

 

 

 

 

**EXHIBIT A**

 

**combimatrixcorporation**

** **

**CERTIFICATE OF DESIGNATION OF PREFERENCES,**

**RIGHTS AND LIMITATIONS**

**OF**

**SERIES C6% CONVERTIBLE PREFERRED STOCK**

** **

PURSUANTTO SECTION 151 OF THE 

DelawareGENERAL CORPORATION LAW

 

The undersigned, MarkMcDonough and Scott R. Burell, do hereby certify that:

 

1. They are the Presidentand Secretary, respectively, of CombiMatrix Corporation, a Delaware corporation (the “Corporation”).

 

2. The Corporationis authorized to issue 5,000,000 shares of preferred stock, ____ of which are issued as Series B 6% Convertible Preferred Stock.

 

3. The following resolutionswere duly adopted by the board of directors of the Corporation (the “Board of Directors”):

 

WHEREAS, the certificateof incorporation of the Corporation provides for a class of its authorized stock known as preferred stock, consisting of 5,000,000shares, $0.001 par value per share, issuable from time to time in one or more series;

 

WHEREAS, the Boardof Directors is authorized to fix the dividend rights, dividend rate, voting rights, conversion rights, rights and terms of redemptionand liquidation preferences of any wholly unissued series of preferred stock and the number of shares constituting any series andthe designation thereof, of any of them; and

 

WHEREAS, it is thedesire of the Board of Directors, pursuant to its authority as aforesaid, to fix the rights, preferences, restrictions and othermatters relating to a series of the preferred stock, which shall consist of up to 2,500 shares of the preferred stock which theCorporation has the authority to issue, as follows:

 

NOW, THEREFORE, BEIT RESOLVED, that the Board of Directors does hereby designate and provide for the creation and issuance of a series of preferredstock and does hereby fix and determine the rights, preferences, restrictions and other matters relating to such series of preferredstock as follows:

 

 

**TERMS OF SERIES C PREFERRED STOCK**

 

Section 1.          Definitions.For the purposes hereof, the following terms shall have the following meanings:

 

“Affiliate”means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under commoncontrol with a Person, as such terms are used in and construed under Rule 405 of the Securities Act.

 

“AlternateConsideration” shall have the meaning set forth in Section 7(e).

 

“BaseConversion Price” shall have the meaning set forth in Section 7(b).

 

“BeneficialOwnership Limitation” shall have the meaning set forth in Section 6(d).

 

“Boardof Directors”	means the board of directors of the Corporation.

 

“BusinessDay” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States orany day on which banking institutions in the State of New York are authorized or required by law or other governmental action toclose.

 

“Buy-In”shall have the meaning set forth in Section 6(c)(iv).

 

“Changeof Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereofby an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) ofeffective control (whether through legal or beneficial ownership of capital stock of the Corporation, by contract or otherwise)of in excess of 40% of the voting securities of the Corporation (other than by means of conversion or exercise of Series C PreferredStock and the Securities issued together with the Series C Preferred Stock), (b) the Corporation merges into or consolidates withany other Person, or any Person merges into or consolidates with the Corporation and, after giving effect to such transaction,the stockholders of the Corporation immediately prior to such transaction own less than 60% of the aggregate voting power of theCorporation or the successor entity of such transaction, (c) the Corporation sells or transfers all or substantially all of itsassets to another Person and the stockholders of the Corporation immediately prior to such transaction own less than 60% of theaggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a oneyear period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individualswho are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of theBoard of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Boardof Directors who are members on the Original Issue Date), or (e) the execution by the Corporation of an agreement to which theCorporation is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

 

 

“ClosingDate” means, respectively, the date of the First Closing or the date of the Second Closing, and means the Trading Dayon which all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditionsprecedent to (i) the Purchasers’ obligations to pay the Subscription Amount as to the applicable Closing and (ii) the Corporation’sobligations to deliver the Securities as to the applicable Closing, in each case, have been satisfied or waived.

 

“Closing Dates” means,collectively, the dates of the First Closing and the Second 	Closing.

 

“Closing(s)”means the closing(s) of the purchase and sale of the Securities 	pursuant to Section 2.1 of the Purchase Agreement.

Commission”means the United States Securities and Exchange Commission.

 

“CommonStock” means the Corporation’s common stock, par value $0.001 per share, and any other class of securities intowhich such securities may hereafter be reclassified or changed.

 

“CommonStock Equivalents” means any securities of the Corporation or the Subsidiaries which would entitle the holder thereofto acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or otherinstrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof toreceive, Common Stock.

 

“ConversionAmount” means the sum of the Stated Value at issue.

 

“ConversionDate” shall have the meaning set forth in Section 6(a).

 

“ConversionPrice” shall have the meaning set forth in Section 6(b).

 

“ConversionShares” means, collectively, the shares of Common Stock issued and issuable upon conversion of the shares of Series CPreferred Stock in accordance with the terms hereof.

 

“ConversionShares Registration Statement” means one or more registration statements that registers the resale of some or all ofthe Conversion Shares of the Holders, who shall be named as “selling stockholders” therein and meets the requirementsof the Registration Rights Agreement.

 

“DilutiveIssuance” shall have the meaning set forth in Section 7(b).

 

“DilutiveIssuance Notice” shall have the meaning set forth in Section 7(b).

 

 

“DividendConversion Rate” means 80% of the average of the VWAPs for the 5 consecutive TradingDays ending on the Trading Day that is immediately prior to the applicable Dividend Payment Date.

 

“DividendConversion Shares” shall have the meaning set forth in Section 3(a).

 

“DividendNotice Period” shall have the meaning set forth in Section 3(a).

 

“DividendPayment Date” shall have the meaning set forth in Section 3(a).

 

“DividendShare Amount” shall have the meaning set forth in Section 3(a).

 

“EffectiveDate” means each date that a Conversion Shares Registration Statement filed by the Corporation pursuant to the RegistrationRights Agreement is declared effective by the Commission.

 

“EquityConditions” means, during the period in question, (a) theCorporation shall have duly honored all conversions scheduled to occur or occurring by virtue of one or more Notices of Conversionof the applicable Holder on or prior to the dates so requested or required, if any, (b) the Corporation shall have paid all liquidateddamages and other amounts owing and then lawfully payable under this Certificate of Designation to the applicable Holder in respectof the Series C Preferred Stock, (c)(i) there is an effective Conversion Shares Registration Statement pursuant to whichthe Holders are permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issued and issuablepursuant to the then outstanding Series C Preferred Stock (including, all Conversion Shares, Warrant Shares and shares issuablein lieu of cash payments of dividends, and the Corporation believes, in good faith, that such effectiveness will continue uninterruptedfor the foreseeable future) permitted by the Commission to be resold thereunder or (ii) all of the Underlying Shares may be resoldpursuant to Rule 144 without volume or manner-of-sale restrictions or current public information requirements as determined bythe counsel to the Corporation, (d) the Common Stock is trading on a Trading Market (other than the OTC Bulletin Board) and allof the Underlying Shares are listed or quoted for trading on such Trading Market (and the Corporation believes, in good faith,that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficientnumber of authorized, but unissued and otherwise unreserved, shares of Common Stock for the issuance of all of the Underlying Shares,(f) Shareholder Approval has been obtained, (g) the issuance of the shares in question to the applicable Holder would not violatethe limitations set forth in Section 6(d) herein, (h) there has beenno public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated,(i) the applicable Holder is not in possession of any information provided by the Corporation that constitutes, or may constitute,material non-public information, and (j) for each Trading Day in a period of 20 consecutive Trading Days prior to the applicabledate in question, the daily dollar trading volume for the Common Stock on the principal Trading Market exceeds $75,000 per TradingDay.

 

 

“ExchangeAct” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“ExemptIssuance” means the issuance of (a) shares of Common Stock or options or other awards to employees, independent contractorsproviding service to the Corporation, officers or directors of the Corporation pursuant to any stock or option plan or agreementduly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the membersof a committee of non-employee directors established for such purpose, (b) Securities issued and issuable pursuant to the PurchaseAgreement and securities upon the exercise or exchange of or conversion of any Securities issued and issuable pursuant to the PurchaseAgreement and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstandingon the date of the Purchase Agreement, provided that such securities have not been amended since the date of the Purchase Agreementto increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities,(c) securities issued pursuant to Section 3 of the Certificate of Designation, (d) securities issued to the Corporation by itsSubsidiaries, and (e) securities issued pursuant to acquisitions, mergers, consolidations or strategic transactions (includinglicensing and partnering agreements) or purchase of all or substantially all of the securities or assets of another entity approvedby a majority of the disinterested directors of the Corporation, provided that any such issuance shall only be to a Person (orto the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset ina business synergistic with the business of the Corporation and shall provide to the Corporation additional benefits in additionto the investment of funds, but shall not include a transaction in which the Corporation is issuing securities primarily for thepurpose of raising capital or to an entity whose primary business is investing in securities.

 

“FundamentalTransaction” shall have the meaning set forth in Section 7(e).

 

“GAAP”means United States generally accepted accounting principles.

 

“Holder”means the Persons who hold the Series C Preferred Stock at any given time.

 

“JuniorSecurities” means the Common Stock and all other Common Stock Equivalents of the Corporation other than those securitieswhich are explicitly senior or paripassu to the Series C Preferred Stock in dividend rights or liquidation preference.

 

“Liquidation”shall have the meaning set forth in Section 5.

 

“NewYork Courts” shall have the meaning set forth in Section 11(d).

 

“Noticeof Conversion” shall have the meaning set forth in Section 6(a).

 

 

“OriginalIssue Date” means the date of the first issuance of any shares of the Series C Preferred Stock regardless of the numberof transfers of any particular shares of Series C Preferred Stock and regardless of the number of certificates which may be issuedto evidence such Series C Preferred Stock.

 

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

 

“PurchaseAgreement” means the Securities Purchase Agreement, dated as of May ___, 2013, among the Corporation and the originalHolders, as amended, modified or supplemented from time to time in accordance with its terms.

 

“RegistrationRights Agreement” means the Registration Rights Agreement, dated as of the date of the Purchase Agreement, among theCorporation and the original Holders, in the form of Exhibit B attached to the Purchase Agreement.

 

“Rule144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpretedfrom time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purposeand effect as such Rule.

 

“Rule424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpretedfrom time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purposeand effect as such Rule.

 

“Securities”means the Series C Preferred Stock, the Warrants and the Underlying Shares.

 

“SecuritiesAct” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“SeriesA Preferred Stock” means the Series A 6% Convertible Preferred Stock of the Corporation.

 

“SeriesB Preferred Stock” means the Series B 6% Convertible Preferred Stock of the Corporation

 

“SeriesC Preferred Stock” shall have the meaning set forth in Section 2.

 

“ShareDelivery Date” shall have the meaning set forth in Section 6(c).

 

“StatedValue” shall have the meaning set forth in Section 2, as the same may be increased pursuant to Section 3.

 

 

“ShareholderApproval” means such approval as may be required by the applicable rules and regulations of the Nasdaq Stock Market (orany successor entity) from the shareholders of the Corporation with respect to the transactions contemplated by the TransactionDocuments, including the issuance of all of the Underlying Shares in excess of 19.99% of the issued and outstanding Common Stockon the First Closing Date.

 

“SubscriptionAmount” shall mean, as to each Holder, the aggregate amount to be paid for the Series C Preferred Stock purchased pursuantto the Purchase Agreement as specified below such Holder’s name on the signature page of the Purchase Agreement and nextto the heading “Subscription Amount,” in United States dollars and in immediately available funds.

 

“Subsidiary”means any subsidiary of the Corporation as set forth on Exhibit 21.1 to the Corporation’s Annual Report on Form 10-K forthe year ended December 31, 2012, as amended, and shall, where applicable, also include any direct or indirect subsidiary of theCorporation formed or acquired after the date of the Purchase Agreement.

“SuccessorEntity” shall have the meaning set forth in Section 7(e).

 

“TradingDay” means a day on which the principal Trading Market is open for trading.

 

“TradingMarket” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading onthe date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the NewYork Stock Exchange or the OTC Bulletin Board (or any successors to any of the foregoing).

 

“TransactionDocuments” means this Certificate of Designation, the Purchase Agreement, the Warrants, the Registration Rights Agreement,the Voting Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connectionwith the transactions contemplated pursuant to the Purchase Agreement.

 

“TransferAgent” means Computershare, the current transfer agent of the Corporation with a mailing address of 520 Pike Street,Suite 1220, Seattle, Washington 98101 and a facsimile number of (206) 674-3059, and any successor transfer agent of the Corporation.

 

“UnderlyingShares” means the shares of Common Stock issued and issuable upon conversion of the Series C Preferred Stock, upon exerciseof the Warrants and issued and issuable in lieu of the cash payment of dividends on the Series C Preferred Stock in accordancewith the terms of this Certificate of Designation.

 

“VotingAgreement” means the written agreement, in the form of Exhibit E attached to the Purchase Agreement, of all ofthe officers, directors and stockholders holding more than 10% of the issued and outstanding shares of Common Stock on the datehereof to vote all Common Stock over which such Persons have voting control as of the record date for the meeting of stockholdersof the Corporation, amounting to, in the aggregate, at least 4.95% of the issued and outstanding Common Stock.

 

 

“VWAP”means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listedor quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest precedingdate) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a TradingDay from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the OTC Bulletin Board is not a Trading Market,the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board,(c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock arethen reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeedingto its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all othercases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by theHolders of a majority in interest of the Securities then outstanding and reasonably acceptable to the Corporation, the fees andexpenses of which shall be paid by the Corporation.

 

“Warrants”means, collectively, the Common Stock purchase warrants delivered to the Purchasers at the Closing in accordance with Section 2.2(a)of the Purchase Agreement, which Warrants shall be exercisable 6 months following their issuance and have a term of exercise expiring5 1⁄2 years from the applicable Closing, in the form of Exhibit C attached of the Purchase Agreement.

 

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

 

Section2.         Designation, Amount and Par Value. The series of preferred stock created hereunder shall be designated as itsSeries C 6% Convertible Preferred Stock (the “Series C Preferred Stock”) and the number of shares so designatedshall be 2,500 (which shall not be subject to increase without the written consent of the Holders of 67% of the Series C PreferredStock). Each share of Series C Preferred Stock shall have a par value of $0.001 per share and a stated value equal to $1,000, subjectto increase set forth in Section 3 below (the “Stated Value”).

 

 

Section3.          Dividends.

 

a)         Dividendsin Cash or in Kind. Holders shall be entitled to receive, and the Corporation shall pay, cumulative dividends at the rate pershare (as a percentage of the Stated Value per share) of 6% per annum, which rate shall increase by 1% on the date of each anniversaryof the First Closing Date up to a maximum rate of 10% per annum. Such dividends shall be****payable semi-annually on June 30and December 31, beginning on the first such date after the Original Issue Date and on each Conversion Date (with respect onlyto Series C Preferred Stock being converted) (each such date, a “Dividend Payment Date”) (if any Dividend PaymentDate is not a Trading Day, the applicable payment shall be due on the next succeeding Trading Day) in cash out of legally availablefunds, or at the Corporation’s option and only after Shareholder Approval has been obtained, in duly authorized, validlyissued, fully paid and non-assessable shares of Common Stock as set forth in this Section 3(a), or a combination thereof (the dollaramount to be paid in shares of Common Stock, the “Dividend Share Amount”). The form of dividend payments toeach Holder shall be determined in the following order of priority: (i) if funds are legally available for the payment of dividendsand the Equity Conditions have not been met during the 5 consecutive Trading Days immediately prior to the applicable DividendPayment Date or Conversion Date (the “Dividend Notice Period”), in cash only, (ii) if funds are legally availablefor the payment of dividends and the Equity Conditions have been met during the Dividend Notice Period, at the sole election ofthe Corporation, in any combination of cash or shares of Common Stock which shall be valued solely for such purpose at 80% of theaverage of the VWAPs for the 5 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable DividendPayment Date or Conversion Date, (iii) if funds are not legally available for the payment of dividends and the Equity Conditionshave been met during the Dividend Notice Period, in shares of Common Stock which shall be valued solely for such purpose at 80%of the average of the VWAPs for the 5 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicableDividend Payment Date or Conversion Date, (iv) if funds are not legally available for the payment of dividends and the Equity Conditionrelating to an effective Conversion Shares Registration Statement has been waived by such Holder, as to such Holder only, in unregisteredshares of Common Stock (but only if Shareholder Approval has been obtained) which shall be valued solely for such purpose at 80%of the average of the VWAPs for the 5 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicableDividend Payment Date or Conversion Date, and (v) if funds are not legally available for the payment of dividends and the EquityConditions have not been met during the Dividend Notice Period, then, at the election of such Holder, such dividends shall accrueto the next applicable Dividend Payment or Conversion Date or shall be accreted to, and increase, the outstanding Stated Value.In the event the Corporation notifies the Holders that it will pay dividends in whole or in part in shares of Common Stock basedon its good faith and reasonable belief that the Corporation it will be in compliance with the Equity Conditions during the DividendNotice Period, and the Corporation determines on or before the first day of the dividend notice period that it will not be in compliancewith the Equity Conditions, it shall so notify the Holders and each holder may elect to receive Common Stock or cash. The Holdersshall have the same rights and remedies with respect to the delivery of any such shares as if such shares were being issued pursuantto Section 6.

 

b)         Corporation’sAbility to Pay Dividends in Cash or Kind. On each Closing Date, the Corporation shall have notified the Holders whether ornot it may legally pay cash dividends as of each Closing Date. The Corporation shall promptly notify the Holders at any time theCorporation shall become able or unable, as the case may be, to legally pay cash dividends. If at any time the Corporation hasthe right to pay dividends in cash or shares of Common Stock, the Corporation must provide the Holders with at least 20 TradingDays’ notice of its election to pay a regularly scheduled dividend in shares of Common Stock (the Corporation may indicatein such notice that the election contained in such notice shall continue for later periods until revised by a subsequent notice).The aggregate number of shares of Common Stock otherwise issuable to a Holder on a Dividend Payment Date shall be reduced by thenumber of shares of Common Stock previously issued to such Holder in connection with such Dividend Payment Date.

 

 

c)         DividendCalculations. Dividends on the Series C Preferred Stock shall be calculated on the basis of a 360-day year, consisting of twelve30 calendar day periods, and shall accrue daily commencing on the Original Issue Date, and shall be deemed to accrue from suchdate whether or not earned or declared and whether or not there are profits, surplus or other funds of the Corporation legallyavailable for the payment of dividends. Payment of dividends in shares of Common Stock shall otherwise occur pursuant to Section6(c)(i) herein and, solely for purposes of the payment of dividends in shares, the Dividend Payment Date shall be deemed the ConversionDate. Dividends shall cease to accrue with respect to any Series C Preferred Stock converted, provided that the Corporation actuallydelivers the Conversion Shares within the time period required by Section 6(c)(i) herein, in which case dividends shall cease toaccrue with respect to such converted Series C Preferred Stock on the date the Corporation actually delivers the Conversion Shares.Except as otherwise provided herein, if at any time the Corporation pays dividends partially in cash and partially in shares, thensuch payment shall be distributed ratably among the Holders based upon the number of shares of Series C Preferred Stock held byeach Holder on such Dividend Payment Date.

 

d)         LateFees. If funds are legally available for the payment of cash dividends and the Corporation is required to or elects to paydividends in cash, then such cash dividends that are not paid within three Trading Days following a Dividend Payment Date shallcontinue to accrue and shall entail a late fee, which must be paid in cash, at the rate of 18% per annum or the lesser rate permittedby applicable law which shall accrue daily from the Dividend Payment Date through and including the date of actual payment in full.

 

e)         OtherSecurities. So long as any Series C Preferred Stock shall remain outstanding, neither the Corporation nor any Subsidiary thereofshall redeem, purchase or otherwise acquire directly or indirectly any Junior Securities. So long as any Series C Preferred Stockshall remain outstanding, neither the Corporation nor any Subsidiary thereof shall directly or indirectly pay or declare any dividendor make any distribution upon (other than a dividend or distribution described in Section 6 or dividends due and paid in the ordinarycourse on preferred stock of the Corporation at such times when the Corporation is in compliance with its payment and other obligationshereunder), nor shall any distribution be made in respect of, any Junior Securities as long as any dividends due on the SeriesC Preferred Stock remain unpaid, nor shall any monies be set aside for or applied to the purchase or redemption (through a sinkingfund or otherwise) of any Junior Securities or shares paripassu with the Series C Preferred Stock.

 

 

f)         SpecialReserves. The Corporation acknowledges and agrees that the capital of the Corporation (as such term is used in Section 154of the Delaware General Corporation Law) in respect of the Series C Preferred Stock and any future issuances of the Corporation’scapital stock shall be equal to the aggregate par value of such Series C Preferred Stock or capital stock, as the case may be,and that, on or after the date of the Purchase Agreement, it shall not increase the stated capital of the Corporation with respectto any shares of the Corporation’s capital stock issued and outstanding on such date. The Corporation also acknowledges andagrees that it shall not create any special reserves under Section 171 of the Delaware General Corporation Law without the priorwritten consent of each Holder.

 

Section 4.          VotingRights. Except as otherwise provided herein or as otherwise required by law, the Series C Preferred Stock shall have no votingrights. However, as long as any shares of Series C Preferred Stock are outstanding, the Corporation shall not, without the affirmativevote of the Holders of a majority of the then outstanding shares of the Series C Preferred Stock, (a) alter or change adverselythe powers, preferences or rights given to the Series C Preferred Stock or alter or amend this Certificate of Designation, (b)authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a Liquidation (as definedin Section 5) senior to, or otherwise paripassu with, the Series C Preferred Stock, (c) amend its certificate ofincorporation or other charter documents in any manner that adversely affects any rights of the Series C Preferred Stock, (d) increasethe number of authorized shares of Series C Preferred Stock, or (e) enter into any agreement with respect to any of the foregoing.

 

Section 5.          Liquidation.Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”),the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to theStated Value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereonunder this Certificate of Designation, for each share of Series C Preferred Stock after any distribution or payment to the holdersof the Series A Preferred Stock and the Series B Preferred Stock and before any distribution or payment shall be made to the holdersof any Junior Securities, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entireassets to be distributed to the Holders shall be ratably distributed among the Holders in accordance with the respective amountsthat would be payable on such shares if all amounts payable thereon were paid in full. A Fundamental Transaction or Change of ControlTransaction shall be deemed a Liquidation. The Corporation shall mail written notice of any such Liquidation, not less than 45days prior to the payment date stated therein, to each Holder.

 

 

Section 6.          Conversion.

 

a)         Conversionsat Option of Holder. After Shareholder Approval has been obtained, each share of Series C Preferred Stock shall be convertible,at any time and from time to time at the option of the Holder thereof, into that number of shares of Common Stock (subject to thelimitations set forth in Section 6(d)) determined by dividing the Stated Value of such share of Series C Preferred Stock by theConversion Price. Holders shall effect conversions by providing the Corporation with the form of conversion notice attached heretoas Annex A (a “Notice of Conversion”). Each Notice of Conversion shall specify the number of shares ofSeries C Preferred Stock to be converted, the number of shares of Series C Preferred Stock owned prior to the conversion at issue,the number of shares of Series C Preferred Stock owned subsequent to the conversion at issue and the date on which such conversionis to be effected, which date may not be prior to the date the applicable Holder delivers by facsimile such Notice of Conversionto the Corporation (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion,the Conversion Date shall be the date that such Notice of Conversion to the Corporation is deemed delivered hereunder. The calculationsand entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error. To effect conversionsof shares of Series C Preferred Stock, a Holder shall not be required to surrender the certificate(s) representing the shares ofSeries C Preferred Stock to the Corporation unless all of the shares of Series C Preferred Stock represented thereby are so converted,in which case such Holder shall deliver the certificate representing such shares of Series C Preferred Stock promptly followingthe Conversion Date at issue. Shares of Series C Preferred Stock converted into Common Stock or redeemed in accordance with theterms hereof shall be canceled and shall not be reissued.

 

b)         ConversionPrice. The conversion price for the Series C Preferred Stock shall equal $3.05, subject to adjustment herein (the “ConversionPrice”). In addition, on the Second Closing Date, the Conversion Price shall be reduced, and only reduced, to the lesserof (x) the then Conversion Price, as adjusted and taking into consideration any prior resets, or (y) 90% of the VWAP****onthe Second Closing Date (the “Reset Conversion Price”, which shall thereafter be the new Conversion Price, subjectto further adjustment hereunder).

 

c)         Mechanics of Conversion

 

i.            Deliveryof Certificate Upon Conversion. Not later than three (3) Trading Days after each Conversion Date (the “Share DeliveryDate”), the Corporation shall deliver, or cause to be delivered, to the converting Holder (A) a certificate or certificatesrepresenting the Conversion Shares which, on or after the earlier of (i) the 6 month anniversary of the date of issuance and deliveryof a customary representation letter by the Holder (provided, however, if prior to the 12-month anniversary of thedate of issuance, such representation letter includes a representation by the Holder that the Conversion Shares have been soldpursuant to Rule 144), or (ii) the Effective Date of a Conversion Shares Registration Statement covering the resale of such ConversionShares that continues to be effective, shall be free of restrictive legends and trading restrictions (other than those which maythen be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion ofthe Series C Preferred Stock (including, if the Corporation has given continuous notice pursuant to Section 3(b) for payment ofdividends in shares of Common Stock at least 5 Trading Days prior to the date on which the Notice of Conversion is delivered tothe Corporation, shares of Common Stock representing the payment of accrued dividends otherwise determined pursuant to Section3(a) but assuming that the Dividend Notice Period is the 5 Trading Days period immediately prior to the date on which the Noticeof Conversion is delivered to the Corporation and excluding for such issuance the condition that the Corporation deliver the DividendShare Amount as to such dividend payment), and (B) a bank check in the amount of accrued and unpaid dividends (if the Corporationhas elected or is required to pay accrued dividends in cash). On or after the earlier of (i) the 12 month (or 6 month if sold pursuantto Rule 144 prior to issuance) anniversary of the date of issuance and delivery of a customary representation letter by the Holderor (ii) the Effective Date of a Conversion Shares Registration Statement covering the resale of such Conversion Shares that continuesto be effective, the Corporation shall use its best efforts to deliver any certificate or certificates required to be deliveredby the Corporation under this Section 6 electronically through the Depository Trust Company or another established clearing corporationperforming similar functions.

 

 

ii.         Failureto Deliver Certificates. If, in the case of any Notice of Conversion, such certificate or certificates are not delivered toor as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice tothe Corporation at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in whichevent the Corporation shall promptly return to the Holder any original Series C Preferred Stock certificate delivered to the Corporationand the Holder shall promptly return to the Corporation the Common Stock certificates issued to such Holder pursuant to the rescindedConversion Notice.

 

iii.        ObligationAbsolute; Partial Liquidated Damages. The Corporation’s obligation to issue and deliver the Conversion Shares upon conversionof Series C Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inactionby a Holder to enforce the same, the recovery of any judgment against any Person or any action to enforce the same, or any setoff,counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person of anyobligation to the Corporation or any violation or alleged violation of law by such Holder or any other person, and irrespectiveof any other circumstance which might otherwise limit such obligation of the Corporation to such Holder in connection with theissuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Corporationof any such action that the Corporation may have against such Holder. In the event a Holder shall elect to convert any or all ofthe Stated Value of its Series C Preferred Stock, the Corporation may not refuse conversion based on any claim that such Holderor any one associated or affiliated with such Holder has been engaged in any violation of law, agreement or for any other reason,unless an injunction from a court, on notice to Holder, restraining and/or enjoining conversion of all or part of the Series CPreferred Stock of such Holder shall have been sought and obtained, and the Corporation posts a surety bond for the benefit ofsuch Holder in the amount of 150% of the Stated Value of Series C Preferred Stock which is subject to the injunction, which bondshall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shallbe payable to such Holder to the extent it obtains judgment. In the absence of such injunction, the Corporation shall issue ConversionShares and, if applicable, cash, upon a properly noticed conversion. If the Corporation fails to deliver to a Holder such certificateor certificates pursuant to Section 6(c)(i) on the second Trading Day after the Share Delivery Date applicable to such conversion,the Corporation shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $2,000 of Stated Valueof Series C Preferred Stock being converted, $10 per Trading Day for each Trading Day after the second Trading Day after the ShareDelivery Date until such certificates are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’sright to pursue actual damages for the Corporation’s failure to deliver Conversion Shares within the period specified hereinand such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation,a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit a Holder from seekingto enforce damages pursuant to any other Section hereof or under applicable law.

 

 

iv.         Compensationfor Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder,if the Corporation fails for any reason to deliver to a Holder the applicable certificate or certificates within two Trading Daysafter the Share Delivery Date pursuant to Section 6(c)(i), and if after such date such Holder is required by its brokerage firmto purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of CommonStock to deliver in satisfaction of a sale by such Holder of the Conversion Shares which such Holder was entitled to receive uponthe conversion relating to such Share Delivery Date (a “Buy-In”), then the Corporation shall (A) pay in cashto such Holder the amount, if any, by which (x) such Holder’s total purchase price (including any brokerage commissions)for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holderwas entitled to receive from the conversion at issue and that were sold multiplied by (2) the actual sale price at which the sellorder giving rise to such purchase obligation was executed and (B) at the option of such Holder, either reissue (if surrendered)the shares of Series C Preferred Stock equal to the number of shares of Series C Preferred Stock submitted for conversion (in whichcase, such conversion shall be deemed rescinded) or deliver to such Holder the number of shares of Common Stock that would havebeen issued if the Corporation had timely complied with its delivery requirements under Section 6(c)(i). For example, if a Holderpurchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversionof shares of Series C Preferred Stock with respect to which the actual sale price of the Conversion Shares giving rise to suchpurchase obligation was a total of $10,000, under clause (A) of the immediately preceding sentence, the Corporation shall be requiredto pay such Holder $1,000. The Holder shall provide the Corporation written notice indicating the amounts payable to such Holderin respect of the Buy-In and, upon request of the Corporation, evidence of the amount of such loss. Nothing herein shall limita Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation,a decree of specific performance and/or injunctive relief with respect to the Corporation’s failure to timely deliver sharesof Common Stock upon conversion of the shares of Series C Preferred Stock as required pursuant to the terms hereof.

 

 

 

v.           Reservationof Shares Issuable Upon Conversion. The Corporation covenants that it will at all times reserve and keep available out of itsauthorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Series C Preferred Stockand payment of dividends on the Series C Preferred Stock, each as herein provided, free from preemptive rights or any other actualcontingent purchase rights of Persons other than the Holder (and the other holders of the Series C Preferred Stock), not less thansuch aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement)be issuable (taking into account the adjustments and restrictions of Section 7) upon the conversion of the then outstanding sharesof Series C Preferred Stock and payment of dividends hereunder. The Corporation covenants that all shares of Common Stock thatshall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the ConversionShares Registration Statement is then effective under the Securities Act, shall be registered for public resale in accordance withsuch Conversion Shares Registration Statement (subject to such Holder’s compliance with its obligations under the RegistrationRights Agreement).

 

vi.         FractionalShares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Series C PreferredStock. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Corporationshall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multipliedby the Conversion Price or round up to the next whole share.

 

vii.         TransferTaxes and Expenses. The issuance of certificates for shares of the Common Stock on conversion of this Series C Preferred Stockshall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issueor delivery of such certificates, provided that the Corporation shall not be required to pay any tax that may be payable in respectof any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of theHolders of such shares of Series C Preferred Stock and the Corporation shall not be required to issue or deliver such certificatesunless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such taxor shall have established to the satisfaction of the Corporation that such tax has been paid. The Corporation shall pay all TransferAgent fees required for processing of any Notice of Conversion.

 

 

d)         BeneficialOwnership Limitation.**The Corporation shall not effect any conversion of the Series C Preferred Stock, anda Holder shall not have the right to convert any portion of the Series C Preferred Stock, to the extent that, aftergiving effect to the conversion set forth on the applicable Notice of Conversion, such Holder (together with suchHolder’s Affiliates, and any Persons acting as a group together with such Holder or any of such Holder’sAffiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes ofthe foregoing sentence, the number of shares of Common Stock beneficially owned by such Holder and its Affiliates shallinclude the number of shares of Common Stock issuable upon conversion of the Series C Preferred Stock with respect to whichsuch determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i)conversion of the remaining, unconverted Stated Value of Series C Preferred Stock beneficially owned by such Holder or any ofits Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of theCorporation subject to a limitation on conversion or exercise analogous to the limitation contained herein (including,without limitation, the Series C Preferred Stock or the Warrants) beneficially owned by such Holder or any of itsAffiliates.  Except as set forth in the preceding sentence, for purposes of this Section 6(d), beneficial ownershipshall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgatedthereunder. To the extent that the limitation contained in this Section 6(d) applies, the determination of whether the SeriesC Preferred Stock is convertible (in relation to other securities owned by such Holder together with any Affiliates) and ofhow many shares of Series C Preferred Stock are convertible shall be in the sole discretion of such Holder, and thesubmission of a Notice of Conversion shall be deemed to be such Holder’s determination of whether the shares of SeriesC Preferred Stock may be converted (in relation to other securities owned by such Holder together with any Affiliates) andhow many shares of the Series C Preferred Stock are convertible, in each case subject to the Beneficial Ownership Limitation.To ensure compliance with this restriction, each Holder will be deemed to represent to the Corporation each time it deliversa Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and theCorporation shall have no obligation to verify or confirm the accuracy of such determination. Inaddition, a determination as to any group status as contemplated above shall be determined in accordance with Section13(d) of the Exchange Actand the rules and regulations promulgated thereunder. Forpurposes of this Section 6(d), in determining the number of outstanding shares of Common Stock, a Holder may rely onthe number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Corporation’smost recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcementby the Corporation or (iii) a more recent written notice by the Corporation or the Transfer Agent setting forth the numberof shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Corporation shall withintwo Trading Days confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding.  Inany case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion orexercise of securities of the Corporation, including the Series C Preferred Stock, by such Holder or its Affiliates since thedate as of which such number of outstanding shares of Common Stock was reported. The “BeneficialOwnership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately aftergiving effect to the issuance of shares of Common Stock issuable upon conversion of Series C Preferred Stock held by theapplicable Holder. A Holder, upon not less than 61 days’ prior notice to the Corporation, may increase or decrease theBeneficial Ownership Limitation provisions of this Section 6(d) applicable to its Series C Preferred Stock provided that theBeneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediatelyafter giving effect to the issuance of shares of Common Stock upon conversion of this Series C Preferred Stock held by theHolder and the provisions of this Section 6(d) shall continue to apply. Any such increase or decrease will not be effectiveuntil the 61st day after such notice is delivered to the Corporation and shall only apply to such Holder and noother Holder. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strictconformity with the terms of this Section 6(d) to correct this paragraph (or any portion hereof) which may be defective orinconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessaryor desirable to properly give effect to such limitation.Thelimitations contained in this paragraph shall apply to a successor holder of Series C Preferred Stock.

 

 

Section 7.         CertainAdjustments.

 

a)         StockDividends and Stock Splits. If the Corporation, at any time while this Series C Preferred Stock is outstanding: (i) pays astock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock orany other Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporationupon conversion of, or payment of a dividend on, this Series C Preferred Stock), (ii) subdivides outstanding shares of Common Stockinto a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock intoa smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capitalstock of the Corporation, then in each case the Conversion Price shall be multiplied by a fraction of which the numerator shallbe the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before suchevent, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Anyadjustment made pursuant to this Section 7(a) shall become effective immediately after the record date for the determination ofstockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective datein the case of a subdivision, combination or re-classification.

 

 

b)         SubsequentEquity Sales. If, at any time while this Series C Preferred Stock is outstanding, the Corporation or any Subsidiary, as applicablesells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announcesany sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents at an effective priceper share less than the then in effect Conversion Price (such lower price, the “Base Conversion Price” and suchissuances, collectively, a “Dilutive Issuance”) (it being understood and agreed that if the holder of the CommonStock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions,floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issuedin connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less thanthe Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the DilutiveIssuance at such effective price), then simultaneously with the consummation of each Dilutive Issuance the Conversion Price shallbe reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalentsare issued. Notwithstanding the foregoing, no adjustment shall be made, paid or issued under this Section7(b) in respect of an Exempt Issuance. If the Corporation enters into a Variable Rate Transaction, despite the prohibitionset forth in the Purchase Agreement, the Corporation shall be deemed to have issued Common Stock or Common Stock Equivalents atthe lowest possible conversion price at which such securities may be converted or exercised. The Corporation shall notify the Holdersin writing, no later than the Trading Day following the issuance or deemed issuance of any Common Stock or Common Stock Equivalentssubject to this Section 7(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversionprice and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification,whether or not the Corporation provides a Dilutive Issuance Notice pursuant to this Section 7(b), upon the occurrence of any DilutiveIssuance, the Holders are entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after thedate of such Dilutive Issuance, regardless of whether a Holder accurately refers to the Base Conversion Price in the Notice ofConversion.

 

c)         SubsequentRights Offerings. In addition to any adjustments pursuant to the other subsections of this Section7, if at any time the Corporation grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securitiesor other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”),then the Holder of Series C Preferred Stock will be entitled to acquire, upon the terms applicable to such Purchase Rights, theaggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirableupon complete conversion of such Holder’s Series C Preferred Stock (without regard to any limitations on exercise hereof,including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for thegrant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of sharesof Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent thatthe Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial OwnershipLimitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownershipof such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shallbe held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding theBeneficial Ownership Limitation).

 

 

d)         ProRata Distributions. During such time as this Series C Preferred Stock is outstanding, if the Corporation declares or makesany dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by wayof return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, propertyor options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction)(a "Distribution"), at any time after the issuance of this Series C Preferred Stock, then, in each such case,the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated thereinif the Holder had held the number of shares of Common Stock acquirable upon complete Conversion of this Series C Preferred Stock(without regard to any limitations on Conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediatelybefore the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the recordholders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however,to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the BeneficialOwnership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficialownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shallbe held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holderexceeding the Beneficial Ownership Limitation).

 

 

e)         FundamentalTransaction. If, at any time while this Series C Preferred Stock is outstanding, (i) the Corporation, directly or indirectly,in one or more related transactions effects any merger or consolidation of the Corporation with or into another Person, (ii) theCorporation, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition ofall or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer,tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which holders of CommonStock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by theholders of 50% or more of the outstanding Common Stock, (iv) the Corporation, directly or indirectly, in one or more related transactionseffects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuantto which the Common Stock is effectively converted into or exchanged for other securities, cash or property (other than a reclassificationunder Section 7(a)), or (v) the Corporation, directly or indirectly, in one or more related transactions consummates a stock orshare purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-offor scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% ofthe outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons makingor party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or otherbusiness combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion of this SeriesC Preferred Stock, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon suchconversion immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard toany limitation in Section 6(d) on the conversion of this Series C Preferred Stock), the number of shares of Common Stock of thesuccessor or acquiring corporation or of the Corporation, if it is the surviving corporation, and any additional consideration(the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the numberof shares of Common Stock for which this Series C Preferred Stock is convertible immediately prior to such Fundamental Transaction(without regard to any limitation in Section 6(d) on the conversion of this Series C Preferred Stock). For purposes of any suchconversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Considerationbased on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction,and the Corporation shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting therelative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as tothe securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice asto the Alternate Consideration it receives upon any conversion of this Series C Preferred Stock following such Fundamental Transaction.To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such FundamentalTransaction shall file a new Certificate of Designation with the same terms and conditions and issue to the Holders new preferredstock consistent with the foregoing provisions and evidencing the Holders’ right to convert such preferred stock into AlternateConsideration. The Corporation shall cause any successor entity in a Fundamental Transaction in which the Corporation is not thesurvivor (the “Successor Entity”) to assume in writing all of the obligations of the Corporation under thisCertificate of Designation and the other Transaction Documents in accordance with the provisions of this Section 7(e) pursuantto written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonabledelay) prior to such Fundamental Transaction and shall, at the option of the holder of this Series C Preferred Stock, deliver tothe Holder in exchange for this Series C Preferred Stock a security of the Successor Entity evidenced by a written instrument substantiallysimilar in form and substance to this Series C Preferred Stock which is convertible for a corresponding number of shares of capitalstock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversionof this Series C Preferred Stock (without regard to any limitations on the conversion of this Series C Preferred Stock) prior tosuch Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capitalstock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and thevalue of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose ofprotecting the economic value of this Series C Preferred Stock immediately prior to the consummation of such Fundamental Transaction),and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction,the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction,the provisions of this Certificate of Designation and the other Transaction Documents referring to the “Corporation”shall refer instead to the Successor Entity), and may exercise every right and power of the Corporation and shall assume all ofthe obligations of the Corporation under this Certificate of Designation and the other Transaction Documents with the same effectas if such Successor Entity had been named as the Corporation herein.

 

 

f)         Calculations.All calculations under this Section 7 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.For purposes of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shallbe the sum of the number of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding.

 

g)        Noticeto the Holders.

 

i.            Adjustmentto Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Corporationshall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a briefstatement of the facts requiring such adjustment.

 

 

ii.         Noticeto Allow Conversion by Holder. If (A) the Corporation shall declare a dividend (or any other distribution in whatever form)on the Common Stock, (B) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock,(C) the Corporation shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchaseany shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Corporation shall be requiredin connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is a party, anysale or transfer of all or substantially all of the assets of the Corporation, or any compulsory share exchange whereby the CommonStock is converted into other securities, cash or property or (E) the Corporation shall authorize thevoluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, then, in each case, the Corporationshall cause to be filed at each office or agency maintained for the purpose of conversion of this Series C Preferred Stock, andshall cause to be delivered to each Holder at its last address as it shall appear upon the stock books of the Corporation, at leastten (10) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) thedate on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a recordis not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions,redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale,transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of theCommon Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverableupon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver suchnotice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specifiedin such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regardingthe Corporation or any of the Subsidiaries, the Corporation shall file such notice with the Commission pursuant to a Current Reporton Form 8-K within one Trading Day. The Holder shall remain entitled to convert the Conversion Amount of this Series C PreferredStock (or any part hereof) during the 10-day period commencing on the date of such notice through the effective date of the eventtriggering such notice except as may otherwise be expressly set forth herein.

 

	Section8.         [RESERVED]

 

	Section 9.        	[RESERVED]

 

	Section 10.       [RESERVED]

 

Section 11.        Miscellaneous.

 

a)         Notices.Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation,any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnightcourier service, addressed to the Corporation, at the address set forth above Attention: Chief Financial Officer, facsimile number(949) 753-1504, or such other facsimile number or address as the Corporation may specify for such purposes by notice to the Holdersdelivered in accordance with this Section 11. Any and all notices or other communications or deliveries to be provided by the Corporationhereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier serviceaddressed to each Holder at the facsimile number or address of such Holder appearing on the books of the Corporation, or if nosuch facsimile number or address appears on the books of the Corporation, at the principal place of business of such Holder, asset forth in the Purchase Agreement. Any notice or other communication or deliveries hereunder shall be deemed given and effectiveon the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile numberset forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission,if such notice or communication is delivered via facsimile at the facsimile number set forth in this Section on a day that is nota Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the third Trading Day following the date ofmailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom suchnotice is required to be given.

 

 

b)         AbsoluteObligation. Except as expressly provided herein, no provision of this Certificate of Designation shall alter or impair theobligation of the Corporation, which is absolute and unconditional, to pay liquidated damages, accrued dividends and accrued interest,as applicable, on the shares of Series C Preferred Stock at the time, place, and rate, and in the coin or currency, herein prescribed.

 

c)         Lostor Mutilated Series C Preferred Stock Certificate. If a Holder’s Series C Preferred Stock certificate shall be mutilated,lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation ofa mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for theshares of Series C Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theftor destruction of such certificate, and of the ownership hereof reasonably satisfactory to the Corporation.

 

d)         GoverningLaw. All questions concerning the construction, validity, enforcement and interpretation of this Certificate of Designationshall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard tothe principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcementand defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or itsrespective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courtssitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocablysubmits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewithor with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the TransactionDocuments), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is notpersonally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue forsuch proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any suchsuit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery)to such party at the address in effect for notices to it under this Certificate of Designation and agrees that such service shallconstitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in anyway any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, tothe fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relatingto this Certificate of Designation or the transactions contemplated hereby. If any party shall commence an action or proceedingto enforce any provisions of this Certificate of Designation, then the prevailing party in such action or proceeding shall be reimbursedby the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecutionof such action or proceeding.

 

 

e)         Waiver.No provision of this Certificate of Designation may be waived, modified, supplemented or amended except in a written instrumentsigned by the Company and approved by the Holders of a majority of the then outstanding shares of Series C Preferred Stock. Anywaiver by the Corporation or a Holder of a breach of any provision of this Certificate of Designation shall not operate as or beconstrued to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate of Designationor a waiver by any other Holders. The failure of the Corporation or a Holder to insist upon strict adherence to any term of thisCertificate of Designation on one or more occasions shall not be considered a waiver or deprive that party (or any other Holder)of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of Designation on anyother occasion. Any waiver by the Corporation or a Holder must be in writing.

 

f)         Severability.If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designationshall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicableto all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violatesthe applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximumrate of interest permitted under applicable law.

 

g)        NextBusiness Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such paymentshall be made on the next succeeding Business Day.

 

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

 

i)         Statusof Converted or Redeemed Series C Preferred Stock. Shares of Series C Preferred Stock may only be issued pursuant to the PurchaseAgreement. If any shares of Series C Preferred Stock shall be converted, redeemed or reacquired by the Corporation, such sharesshall resume the status of authorized but unissued shares of preferred stock and shall no longer be designated as Series C 6% ConvertiblePreferred Stock.

 

*********************

 

RESOLVED, FURTHER, that the Chairman, thepresident or any vice-president, and the secretary or any assistant secretary, of the Corporation be and they hereby are authorizedand directed to prepare and file this Certificate of Designation of Preferences, Rights and Limitations in accordance with theforegoing resolution and the provisions of Delaware law.

 

IN WITNESS WHEREOF,the undersigned have executed this Certificate this ___ day of May 2013.

 

 

 

**ANNEX A**

 

NOTICE OF CONVERSION

 

(Tobe Executed by the Registered Holder in order to Convert Shares of Series C Preferred Stock)

 

The undersigned hereby irrevocably electsto convert the number of shares of Series C 6% Convertible Preferred Stock indicated below into shares of common stock, par value$0.001 per share (the “Common Stock”), of CombiMatrix Corporation, a Delaware corporation (the “Corporation”),according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a Personother than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewithsuch certificates and opinions as may be required by the Corporation in accordance with the Purchase Agreement. No fee will becharged to the Holders for any conversion, except for any such transfer taxes.

 

The undersigned is an “accreditedinvestor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended. The undersigned representsand warrants to the Corporation that in giving effect to the conversion evidenced hereby, the undersigned will not own in excessof the number of shares of Common Stock permitted to be owned under Section 6(d) of the Certificate of Designation.

 

Conversion calculations:

 

  

 

 

 

 

EXHIBIT B

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration RightsAgreement (this “Agreement”) is made and entered into as of May 3, 2013, between CombiMatrix Corporation, aDelaware corporation (the “Company”), and each of the several purchasers signatory hereto (each such purchaser,a “Purchaser” and, collectively, the “Purchasers”).

 

This Agreement is madepursuant to the Securities Purchase Agreement, dated as of the date hereof, between the Company and each Purchaser (the “PurchaseAgreement”).

 

The Company and eachPurchaser hereby agrees as follows:

 

1.            Definitions.

 

**Capitalized termsused and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in thePurchase Agreement.** As used in this Agreement, the following terms shall have the following meanings:

 

“Advice”shall have the meaning set forth in Section 6(d).

 

“EffectivenessDate” means, with respect to each Registration Statement required to be filed hereunder, the 90th calendarday following the applicable Closing Date and with respect to any additional Registration Statements which may be required pursuantto Section 2(c) or Section 3(c), the 90th calendar day following the date on which the Company first knows an additionalRegistration Statement is required to be filed hereunder; provided, however, that in the event the Company is notifiedby the Commission that one or more of the above Registration Statements will not be reviewed or is no longer subject to furtherreview and comments, the Effectiveness Date as to such Registration Statement shall be the fifth Trading Day following the dateon which the Company is so notified if such date precedes the dates otherwise required above, provided, further, if such EffectivenessDate falls on a day that is not a Trading Day, then the Effectiveness Date shall be the next succeeding Trading Day.

 

“EffectivenessPeriod” shall have the meaning set forth in Section 2(a).

 

“Event”shall have the meaning set forth in Section 2(d).

 

“EventDate” shall have the meaning set forth in Section 2(d).

 

 

“FilingDate” means, with respect to each Registration Statement required to be filed hereunder, the 15th calendarday following the applicable Closing Date and, with respect to any additional Registration Statements which may be required pursuantto Section 2(c) or Section 3(c), the 30th calendar day following the earliest practical date on which the Company ispermitted by SEC Guidance to file such additional Registration Statement related to the Registrable Securities.

 

“Holder”or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities.

 

“IndemnifiedParty” shall have the meaning set forth in Section 5(c).

 

“IndemnifyingParty” shall have the meaning set forth in Section 5(c).

 

“InitialRegistration Statement” means the initial Registration Statement filed pursuant to this Agreement.

 

“Losses”shall have the meaning set forth in Section 5(a).

 

“Planof Distribution” shall have the meaning set forth in Section 2(a).

 

“Prospectus”means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any informationpreviously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgatedby the Commission pursuant to the Securities Act), as amended or supplemented by any prospectus supplement, with respect to theterms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendmentsand supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed tobe incorporated by reference in such Prospectus.

 

 

“RegistrableSecurities” means, as of any date of determination, (a) all shares of Common Stock then issued and issuable upon conversionin full of the then outstanding Series C Preferred Stock (assuming for such purposes that all of such shares of Series C PreferredStock are converted in full without regard to any conversion limitations therein), (b) all shares of Common Stock issuable as dividends(as defined in the Certificate of Designation) on the Series C Preferred Stock assuming all dividend payments are made in sharesof Common Stock and the Series C Preferred Stock is held for at least 3 years, (c) all Warrant Shares then issuable upon exerciseof the then outstanding Warrants (assuming on such date the Warrants are exercised in full without regard to any exercise limitationstherein), (d) any additional shares of Common Stock issuable in connection with any anti-dilution provisions in the Series C PreferredStock or the Warrants (in each case, without giving effect to any limitations on conversion set forth in the Certificate of Designationor limitations on exercise set forth in the Warrants) and (e) any securities issued or then issuable upon any stock split, dividendor other distribution, recapitalization or similar event with respect to the foregoing; provided,however, that anysuch Registrable Securities shall cease to be Registrable Securities (and the Company shall not be required to maintain the effectivenessof any, or file another, Registration Statement hereunder with respect thereto) for so long as (a) a Registration Statement withrespect to the sale of such Registrable Securities is declared effective by the Commission under the Securities Act and such RegistrableSecurities have been disposed of by the Holder in accordance with such effective Registration Statement, (b) such Registrable Securitieshave been previously sold in accordance with Rule 144, or (c) such securities become eligible for resale without volume or manner-of-salerestrictions and without current public information pursuant to Rule 144 as set forth in a written opinion letter to such effect,addressed, delivered and acceptable to the Transfer Agent and the affected Holders (assuming that such securities and any securitiesissuable upon exercise, conversion or exchange of which, or as a dividend upon which, such securities were issued or are issuable,were at no time held by any Affiliate of the Company, and all Warrants are exercised by “cashless exercise” as providedin Section 2(c) of each of the Warrants), as reasonably determined by the Company, upon the advice of counsel to the Company.

 

“RegistrationStatement” means any registration statement required to be filed hereunder pursuant to Section 2(a) and any additionalregistration statements contemplated by Section 2(c) or Section 3(c), including (in each case) the Prospectus, amendments and supplementsto any such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all materialincorporated by reference or deemed to be incorporated by reference in any such registration statement.

 

“Rule415” means Rule 415 promulgated by the Commission pursuant to the SecuritiesAct, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commissionhaving substantially the same purpose and effect as such Rule.

 

“Rule424” means Rule 424 promulgated by the Commission pursuant to the SecuritiesAct, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commissionhaving substantially the same purpose and effect as such Rule.

 

“SellingStockholder Questionnaire” shall have the meaning set forth in Section 3(a).

 

“SECGuidance” means (i) any publicly-available written or oral guidance of the Commission staff, or any comments, requirementsor requests of the Commission staff and (ii) the Securities Act.

 

 

2.           	Shelf Registration.

 

(a)          Onor prior to each Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resaleof all of the Registrable Securities that are not then registered on an effective Registration Statement for an offering to bemade on a continuous basis pursuant to Rule 415. Each Registration Statement filed hereunder shall be on Form S-3 (except if theCompany is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shallbe on another appropriate form in accordance herewith, subject to the provisions of Section 2(e)) and shall contain (unless otherwisedirected by at least 67% in interest of the Holders) substantially the “Plan of Distribution” attached heretoas Annex A. Subject to the terms of this Agreement, the Company shall use its best efforts to cause a Registration Statementfiled under this Agreement (including, without limitation, under Section 3(c)) to be declared effective under the Securities Actas promptly as possible after the filing thereof, but in any event no later than the applicable Effectiveness Date, and shall useits best efforts to keep such Registration Statement continuously effective under the Securities Act until all Registrable Securitiescovered by such Registration Statement (i) have been sold, thereunder or pursuant to Rule 144, or (ii) may be sold without volumeor manner-of-sale restrictions pursuant to Rule 144 and without the requirement for the Company to be in compliance with the currentpublic information requirement under Rule 144, as determined by the counsel to the Company pursuant to a written opinion letterto such effect, addressed and acceptable to the Transfer Agent and the affected Holders (the “Effectiveness Period”).The Company shall telephonically request effectiveness of a Registration Statement as of 5:00 p.m. Eastern Time on a Trading Day.The Company shall immediately notify the Holders via facsimile or by e-mail of the effectiveness of a Registration Statement nolater than one Trading Day after the Company telephonically confirms effectiveness with the Commission, which shall be the daterequested for effectiveness of such Registration Statement. The Company shall, by 9:30 a.m. Eastern Time on the second TradingDay after the effective date of such Registration Statement, file a final Prospectus with the Commission as required by Rule 424.Failure to so notify the Holder within one (1) Trading Day of such notification of effectiveness or failure to file a final Prospectusas foresaid shall be deemed an Event under Section 2(d).

 

(b)          Notwithstanding the registration obligations set forth in Section 2(a), if the Commission informs the Company that all of the RegistrableSecurities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single registrationstatement, the Company agrees to promptly inform each of the Holders thereof and use its commercially reasonable efforts to fileamendments to the Initial Registration Statement as required by the Commission, covering the maximum number of Registrable Securitiespermitted to be registered by the Commission, on Form S-3 to register for resale the Registrable Securities as a secondary offering,subject to the provisions of Section 2(e); provided, however, that prior to filing such amendment, the Company shallbe obligated to use diligent efforts to advocate with the Commission for the registration of all of the Registrable Securitiesin accordance with the SEC Guidance, including without limitation, Compliance and Disclosure Interpretation 612.09.

 

 

(c)          Notwithstandingany other provision of this Agreement and subject to the payment of liquidated damages pursuant to Section 2(d), if the Commissionor any SEC Guidance sets forth a limitation on the number of Registrable Securities permitted to be registered on a particularRegistration Statement as a secondary offering (and notwithstanding that the Company used diligent efforts to advocate with theCommission for the registration of all or a greater portion of Registrable Securities), unless otherwise directed in writing bya Holder as to its Registrable Securities, the number of Registrable Securities to be registered on such Registration Statementwill be reduced as follows: 

 

 

 

 

In theevent of a cutback hereunder, the Company shall give the Holder at least five (5) Trading Days prior written notice along withthe calculations as to such Holder’s allotment. In the event the Company amends the Initial Registration Statement in accordancewith the foregoing, the Company will use its commercially reasonable efforts to file with the Commission, as promptly as allowedby Commission or SEC Guidance provided to the Company or to registrants of securities in general, one or more registration statementson Form S-3 to register for resale those Registrable Securities that were not registered for resale on the Initial RegistrationStatement, as amended.

 

 

(d)          If:(i) the Initial Registration Statement is not filed on or prior to its Filing Date (if the Company files the Initial RegistrationStatement without affording the Holders the opportunity to review and comment on the same as required by Section 3(a) herein, theCompany shall be deemed to have not satisfied this clause (i)), or (ii) the Company fails to file with the Commission a requestfor acceleration of a Registration Statement in accordance with Rule 461 promulgated by the Commission pursuant to the SecuritiesAct, within five Trading Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commissionthat such Registration Statement will not be “reviewed” or will not be subject to further review, or (iii) prior tothe effective date of a Registration Statement, the Company fails to file a pre-effective amendment and otherwise respond in writingto comments made by the Commission in respect of such Registration Statement within ten (10) Trading Days after the receipt ofcomments by or notice from the Commission that such amendment is required in order for such Registration Statement to be declaredeffective, or (iv) a Registration Statement filed or required to be filed hereunder is not declared effective by the Commissionby its Effectiveness Date, or (v) after the effective date of a Registration Statement, such Registration Statement ceases forany reason to remain continuously effective as to all Registrable Securities included in such Registration Statement, or the Holdersare otherwise not permitted to utilize the Prospectus therein to resell such Registrable Securities, for more than twenty (20)consecutive Trading Days or more than an aggregate of thirty (30) Trading Days (which need not be consecutive Trading Days) duringany 12-month period (any such failure or breach being referred to as an “Event”, and for purposes of clauses(i) and (iv), the date on which such Event occurs, and for purpose of clause (ii) the date on which such five (5) Trading Day periodis exceeded, and for purpose of clause (iii) the date which such twenty (20) Trading Day period is exceeded, and for purpose ofclause (v) the date on which such twenty (20) or thirty (30) Trading Day period, as applicable, is exceeded being referred to as“Event Date”), then, in addition to any other rights the Holders may have hereunder or under applicable law,on each such Event Date the Company shall pay to each Holder an amount in cash, as partial liquidated damages and not as a penalty,equal to 1.0% of the aggregate Subscription Amount paid by such Holder pursuant to the Purchase Agreement, and on each monthlyanniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Eventis cured, the Company shall pay to each Holder an amount in cash, as partial liquidated damages and not as a penalty, equal to1.5% of the aggregate purchase price paid by such Holder pursuant to the Purchase Agreement. Notwithstanding anything herein tothe contrary, the parties agree that the maximum aggregate liquidated damages payable to a Holder under this Agreement shall be6% of the aggregate Subscription Amount paid by such Holder pursuant to the Purchase Agreement and that, during any periods thata Registration Statement is either effective as to the then resale of Registrable Securities or Registrable Securities may be thenresold pursuant to Rule 144 (and as to non-Affiliates of the Company, without volume or manner restrictions on resales), liquidateddamages shall not accrue hereunder with respect to such Registrable Securities. If the Company fails to pay any partial liquidateddamages pursuant to this Section in full within seven days after the date payable, the Company will pay interest thereon at a rateof 18% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Holder, accruing daily fromthe date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The partialliquidated damages pursuant to the terms hereof shall apply on a daily pro rata basis for any portion of a month prior to the cureof an Event.

 

 

(e)          Ifthe Company is not eligible to use Form S-3 for the registration of the resale of Registrable Securities hereunder, the Companyshall (i) register the resale of the Registrable Securities on another appropriate form and (ii) undertake to register the RegistrableSecurities on Form S-3 as soon as the Company becomes eligible to use such form, provided that the Company shall maintain the effectivenessof the Registration Statement then in effect until such time as a Registration Statement on Form S-3 covering the Registrable Securitieshas been declared effective by the Commission.

 

3.            	Registration Procedures.

 

In connection withthe Company’s registration obligations hereunder, the Company shall:

 

(a)          Notless than five (5) Trading Days prior to the filing of each Registration Statement and not less than one (1) Trading Day priorto the filing of any related Prospectus or any amendment or supplement thereto (but not including any document that would be incorporatedor deemed to be incorporated therein by reference), the Company shall (i) furnish to each Holder copies of all such documents proposedto be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the reviewof such Holders, and (ii) cause its officers and directors, counsel and independent registered public accountants to respond tosuch inquiries as shall be necessary, in the reasonable opinion of respective counsel to each Holder, to conduct a reasonable investigationwithin the meaning of the Securities Act. Notwithstanding the above, the Company shall not be obligated to provide the Holdersadvance copies of any universal shelf registration statement registering securities in addition to those required hereunder, orany Prospectus prepared thereto. The Company shall not file a Registration Statement or any such Prospectus or any amendments orsupplements thereto (other than documents incorporated or deemed to be incorporated therein by reference) to which the Holdersof a majority of the Registrable Securities shall reasonably object in good faith, provided that, the Company is notified of suchobjection in writing no later than three (3) Trading Days after the Holders have been so furnished copies of a Registration Statementor one (1) Trading Day after the Holders have been so furnished copies of any related Prospectus or amendments or supplements thereto.Each Holder agrees to furnish to the Company a completed questionnaire in the form attached to this Agreement as Annex B(a “Selling Stockholder Questionnaire”) on a date that is not less than five (5) Trading Days prior to the FilingDate or by the end of the second (2nd) Trading Day following the date on which such Holder receives draft materials in accordancewith this Section. The Company shall not be required to include the Registrable Securities of a Holder in a Registration Statementif after written notice to the Holder and commercially reasonable efforts to contact such Holder, such Holder fails to timely furnishto the Company a Selling Stockholder Questionnaire in accordance with this Section 3(a).

 

 

(b)          (i)Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and theProspectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicableRegistrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statementsin order to register for resale under the Securities Act all of the Registrable Securities, (ii) cause the related Prospectus tobe amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and, as so supplementedor amended, to be filed pursuant to Rule 424, (iii) respond as promptly as reasonably possible to any comments received from theCommission with respect to a Registration Statement or any amendment thereto and provide as promptly as reasonably possible tothe Holders true and complete copies of all correspondence from and to the Commission relating to a Registration Statement (providedthat, the Company shall excise any information contained therein which would constitute material non-public information regardingthe Company or any of its Subsidiaries), and (iv) comply in all material respects with the applicable provisions of the SecuritiesAct and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement duringthe applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holdersthereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented.

 

(c)          Ifduring the Effectiveness Period, the number of Registrable Securities at any time exceeds 100% of the number of shares of CommonStock then registered in a Registration Statement, then the Company shall file as soon as reasonably practicable, but in any caseprior to the applicable Filing Date, an additional Registration Statement covering the resale by the Holders of not less than thenumber of such Registrable Securities.

 

 

(d)          Notifythe Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (iii) through (vi) hereof, be accompaniedby an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible(and, in the case of (i)(A) below, not less than one (1) Trading Day prior to such filing) and (if requested by any such Person)confirm such notice in writing no later than one (1) Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplementor post-effective amendment to a Registration Statement is proposed to be filed, (B) when the Commission notifies the Company whetherthere will be a “review” of such Registration Statement and whenever the Commission comments in writing on such RegistrationStatement, and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective,(ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a RegistrationStatement or Prospectus or for additional information, (iii) of the issuance by the Commission or any other federal or state governmentalauthority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securitiesor the initiation of any Proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to thesuspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction,or the initiation or threatening of any Proceeding for such purpose, (v) of the occurrence of any event or passage of time thatmakes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in aRegistration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in anymaterial respect or that requires any revisions to a Registration Statement, Prospectus or other documents so that, in the caseof a Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material factor omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstancesunder which they were made, not misleading, and (vi) of the occurrence or existence of any pending corporate development with respectto the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the bestinterest of the Company to allow continued availability of a Registration Statement or Prospectus, provided, however,in no event shall any such notice contain any information which would constitute material, non-public information regarding theCompany or any of its Subsidiaries.

 

(e)          Useits best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order stopping or suspending the effectivenessof a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the RegistrableSecurities for sale in any jurisdiction, at the earliest practicable moment.

 

(f)          Furnishto each Holder, without charge, at least one conformed copy of each such Registration Statement and each amendment thereto, includingfinancial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference to the extentrequested by such Person, and all exhibits to the extent requested by such Person (including those previously furnished or incorporatedby reference) promptly after the filing of such documents with the Commission; provided, that any such item which is availableon the EDGAR system (or successor thereto) need not be furnished in physical form.

 

 

(g)          Subjectto the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement theretoby each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectusand any amendment or supplement thereto, except after the giving of any notice pursuant to Section 3(d).

 

(h)          The Company shall cooperate with any broker-dealer through which a Holder proposes to resell its Registrable Securities in effectinga filing with the FINRA Corporate Financing Department pursuant to FINRA Rule 5110, as requested by any such Holder, and the Companyshall pay the filing fee required by such filing within two (2) Business Days of request therefor.

 

(i)          Priorto any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperatewith the selling Holders in connection with the registration or qualification (or exemption from the Registration or qualification)of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions withinthe United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom)effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the dispositionin such jurisdictions of the Registrable Securities covered by each Registration Statement; provided, that, the Company shall notbe required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to anymaterial tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any suchjurisdiction.

 

(j)          Ifrequested by a Holder, cooperate with such Holder to facilitate the timely preparation and delivery of certificates representingRegistrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free,to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to bein such denominations and registered in such names as any such Holder may request.

 

 

(k)          Uponthe occurrence of any event contemplated by Section 3(d), as promptly as reasonably possible under the circumstances taking intoaccount the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the prematuredisclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statementor a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and fileany other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will containan untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make thestatements therein, in light of the circumstances under which they were made, not misleading.Ifthe Company notifies the Holders in accordance with clauses (iii) through (vi) of Section 3(d) above to suspend the use of anyProspectus until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus.The Company will use commercially reasonable efforts to ensure that the use of the Prospectus may be resumed as promptly as ispracticable. The Company shall be entitled to exercise its right under this Section 3(k) to suspend the availability of a RegistrationStatement and Prospectus, subject to the payment of partial liquidated damages otherwise required pursuant to Section 2(d), fora period not to exceed 60 calendar days (which need not be consecutive days) in any 12-month period.

 

(l)          Complywith all applicable rules and regulations of the Commission.

 

(m)          TheCompany shall use commercially reasonable efforts to maintain eligibility for use of Form S-3 (or any successor form thereto) forthe registration of the resale of Registrable Securities.

 

(n)          TheCompany may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stockbeneficially owned by such Holder and, if required by the Commission, the natural persons thereof that have voting and dispositivecontrol over the shares. During any periods that the Company is unable to meet its obligations hereunder with respect to the registrationof the Registrable Securities solely because any Holder fails to furnish such information within three Trading Days of the Company’srequest, any liquidated damages that are accruing at such time as to such Holder only shall be tolled and any Event that may otherwiseoccur solely because of such delay shall be suspended as to such Holder only, until such information is delivered to the Company.

 

4. 	RegistrationExpenses. All fees and expenses incident to the performance of or compliance with, this Agreement by the Company shall be borneby the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referredto in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation,fees and expenses of the Company’s counsel and independent registered public accountants) (A) with respect to filings madewith the Commission, (B) with respect to filings required to be made with any Trading Market on which the Common Stock is thenlisted for trading, (C) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company inwriting (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualificationsor exemptions of the Registrable Securities) and (D) if not previously paid by the Company in connection with an Issuer Filing,with respect to any filing that may be required to be made by any broker through which a Holder intends to make sales of RegistrableSecurities with FINRA pursuant to FINRA Rule 5110, so long as the broker is receiving no more than a customary brokerage commissionin connection with such sale, (ii) printing expenses (including, without limitation, expenses of printing certificates for RegistrableSecurities), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) SecuritiesAct liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained bythe Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shallbe responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated bythis Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accountingduties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securitieson any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissionsof any Holder or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders.

 

 

5.            	Indemnification.

 

(a)          Indemnificationby the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder,the officers, directors, members, partners, agents, brokers (including brokers who offer and sell Registrable Securities as principalas a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees (andany other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title orany other title) of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the SecuritiesAct or Section 20 of the Exchange Act) and the officers, directors, members, stockholders, partners, agents and employees (andany other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title orany other title) of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and alllosses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively,“Losses”), as incurred, arising out of or relating to (1) any untrue or alleged untrue statement of a materialfact contained in a Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement theretoor in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact requiredto be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement thereto, in lightof the circumstances under which they were made) not misleading or (2) any violation or alleged violation by the Company of theSecurities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performanceof its obligations under this Agreement, except to the extent, but only to the extent, that (i) such untrue statements or omissionsare based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein,or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of RegistrableSecurities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement, suchProspectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for thispurpose) or (ii) in the case of an occurrence of an event of the type specified in Section 3(d)(ii)-(vi), the use by such Holderof an outdated, defective or otherwise unavailable Prospectus after the Company has notified such Holder in writing that the Prospectusis outdated, defective or otherwise unavailable for use by such Holder and prior to the receipt by such Holder of the Advice contemplatedin Section 6(d), but only if and to the extent that following the receipt of the Advice the misstatement or omission giving riseto such Loss would have been corrected. The Company shall notify the Holders promptly of the institution, threat or assertion ofany Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware.Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such indemnified personand shall survive the transfer of any Registrable Securities by any of the Holders in accordance with Section 6(h).

 

 

(b)          Indemnificationby Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers,agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permittedby applicable law, from and against all Losses, as incurred, to the extent arising out of or based solely upon: (x) such Holder’sfailure to comply with any applicable prospectus delivery requirements of the Securities Act through no fault of the Company or(y) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or in anyamendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omissionof a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus orsupplement thereto, in light of the circumstances under which they were made) not misleading (i) to the extent, but only to theextent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Companyexpressly for inclusion in such Registration Statement or such Prospectus or (ii) to the extent, but only to the extent, that suchinformation relates to such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expresslyapproved in writing by such Holder expressly for use in a Registration Statement (it being understood that the Holder has approvedAnnex A hereto for this purpose), such Prospectus or in any amendment or supplement thereto or (iii) in the case of an occurrenceof an event of the type specified in Section 3(d)(ii)-(vi), to the extent, but only to the extent, related to the use by such Holderof an outdated, defective or otherwise unavailable Prospectus after the Company has notified such Holder in writing that the Prospectusis outdated, defective or otherwise unavailable for use by such Holder and prior to the receipt by such Holder of the Advice contemplatedin Section 6(d), but only if and to the extent that following the receipt of the Advice the misstatement or omission giving riseto such Loss would have been corrected. In no event shall the liability of any selling Holder under this Section 5(b) be greaterin amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities givingrise to such indemnification obligation.

 

 

(c)          Conductof Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder(an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought(the “Indemnifying Party”) in writing, and the Indemnifying Party shall have the right to assume the defensethereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expensesincurred in connection with defense thereof; provided, that, the failure of any Indemnified Party to give such notice shall notrelieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent thatit shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review)that such failure shall have materially and adversely prejudiced the Indemnifying Party.

 

An IndemnifiedParty shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but thefees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Partyhas agreed in writing to pay such fees and expenses, (2) the Indemnifying Party shall have failed promptly to assume the defenseof such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding, or (3) the namedparties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party,and counsel to the Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the samecounsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifiesthe Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the IndemnifyingParty shall not have the right to assume the defense thereof and the reasonable fees and expenses of no more than one separatecounsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of anysuch Proceeding effected without its written consent, which consent shall not be unreasonably withheld or delayed. No IndemnifyingParty shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respectof which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party fromall liability on claims that are the subject matter of such Proceeding.

 

 

Subject tothe terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expensesto the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent withthis Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the IndemnifyingParty; provided, that, the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees andexpenses applicable to such actions for which such Indemnified Party is finally determined by a court of competent jurisdiction(which determination is not subject to appeal or further review) not to be entitled to indemnification hereunder.

 

(d)          Contribution.If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party or insufficient to hold an IndemnifiedParty harmless for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable by such IndemnifiedParty, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connectionwith the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations.The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whetherany action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission ofa material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party,and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statementor omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitationsset forth in this Agreement, any reasonable attorneys’ or other reasonable fees or expenses incurred by such party in connectionwith any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification providedfor in this Section was available to such party in accordance with its terms.

 

The partieshereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rataallocation or by any other method of allocation that does not take into account the equitable considerations referred to in theimmediately preceding paragraph. Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contributepursuant to this Section 5(d), in the aggregate, any amount in excess of the amount by which the net proceeds actually receivedby such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that suchHolder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.

 

The indemnityand contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have tothe Indemnified Parties.

 

 

6.           	Miscellaneous.

 

(a)          Remedies.In the event of a breach by the Company or by a Holder of any of their respective obligations under this Agreement, each Holderor the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement,including recovery of damages, shall be entitled to specific performance of its rights under this Agreement. Each of the Companyand each Holder agrees that monetary damages would not provide adequate compensation for any losses incurred by reason of a breachby it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performancein respect of such breach, it shall not assert or shall waive the defense that a remedy at law would be adequate.

 

(b)          NoPiggyback on Registrations; Prohibition on Filing Other Registration Statements. Neither the Company nor any of its securityholders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in any Registration Statementsother than the Registrable Securities. Other than filings to keep all currently effective S-3 registration statements availablefor use by the Company, registration statements covering only other securities owned by the Purchasers, and registration statementscovering securities owned by HLM Venture Partners III, L.P. or its affiliates as set forth on Schedule 3.1(v) to the PurchaseAgreement, the Company shall not file any other registration statements until all Registrable Securities are registered pursuantto a Registration Statement that is declared effective by the Commission.

 

(c)          Compliance.Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicableto it (unless an exemption therefrom is available) in connection with sales of Registrable Securities pursuant to a RegistrationStatement.

 

(d)          DiscontinuedDisposition. By its acquisition of Registrable Securities, each Holder agrees that, upon receipt of a notice from the Companyof the occurrence of any event of the kind described in Section 3(d)(ii) through (vi), such Holder will forthwith discontinue dispositionof such Registrable Securities under a Registration Statement until it is advised in writing (the “Advice”)by the Company that the use of the applicable Prospectus (as it may have been supplemented or amended) may be resumed. The Companywill use commercially reasonable efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable.The Company agrees and acknowledges that any periods during which the Holder is required to discontinue the disposition of theRegistrable Securities hereunder shall be subject to the provisions of Section 2(d).

 

 

(e)          Piggy-BackRegistrations. If, at any time during the Effectiveness Period, there is not an effective Registration Statement covering allof the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statementrelating to an offering for its own account or the account of others under the Securities Act of any of its equity securities,other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equitysecurities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connectionwith the Company’s stock option or other employee benefit plans and other than registration statements covering only othersecurities owned by the Purchasers and registration statements covering securities owned by HLM Venture Partners III, L.P. or itsAffiliates as set forth on Schedule 3.1(v) to the Purchase Agreement, then the Company shall deliver to each Holder a writtennotice of such determination and, if within 15 days after the date of the delivery of such notice, any such Holder shall so requestin writing, the Company shall include in such registration statement all or any part of such Registrable Securities such Holderrequests to be registered, subject in the event of a firm commitment underwritten offering, to customary underwriter cutbacks appliedor a pro rata basis to all Holders of Registrable Securities and securities of other holders of registration rights; provided,however, that the Company shall not be required to register any Registrable Securities pursuant to this Section 6(e) thatare eligible for resale pursuant to Rule 144 (without volume restrictions or current public information requirements) promulgatedby the Commission pursuant to the Securities Act or that are the subject of a then effective Registration Statement.

 

(f)          Amendmentsand Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented,and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signedby the Company and the Holders of 67% or more of the then outstanding Registrable Securities (for purposes of clarification, thisincludes any Registrable Securities issuable upon exercise or conversion of any Security). If a Registration Statement does notregister all of the Registrable Securities pursuant to a waiver or amendment done in compliance with the previous sentence, thenthe number of Registrable Securities to be registered for each Holder shall be reduced pro rata among all Holders and each Holdershall have the right to designate which of its Registrable Securities shall be omitted from such Registration Statement. Notwithstandingthe foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to therights of a Holder or some Holders and that does not directly or indirectly affect the rights of other Holders may be given onlyby such Holder or Holders of all of the Registrable Securities to which such waiver or consent relates; provided, however,that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions ofthe first sentence of this Section 6(f). No consideration shall be offered or paid to any Person to amend or consent to a waiveror modification of any provision of this Agreement unless the same consideration also is offered to all of the parties to thisAgreement.

 

(g)         Notices.Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered asset forth in the Purchase Agreement.

 

 

(h)         Successorsand Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of eachof the parties and shall inure to the benefit of each Holder. The Company may not assign (except by merger) its rights or obligationshereunder without the prior written consent of the Holders of 67% or more of the then outstanding Registrable Securities. EachHolder may assign their respective rights hereunder in the manner and to the Persons as permitted under Section 5.7 of the PurchaseAgreement.

 

(i)          No Inconsistent Agreements. Neither the Company nor any of its Subsidiaries has entered, as ofthe date hereof, nor shall the Company or any of its Subsidiaries, on or after the date of this Agreement, enter into anyagreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in thisAgreement or otherwise conflicts with the provisions hereof. Except as set forth on Schedule 3.1(v) to the PurchaseAgreement, neither the Company nor any of its Subsidiaries has previously entered into any agreement granting anyregistration rights with respect to any of its securities to any Person that have not been satisfied in full.

 

(j)          Executionand Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be consideredone and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the otherparty, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered byfacsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid andbinding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as ifsuch facsimile or “.pdf” signature page were an original thereof.

 

(k)          GoverningLaw. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determinedin accordance with the provisions of the Purchase Agreement.

 

(l)          Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of anyother remedies provided by law.

 

(m)         Severability.If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal,void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in fullforce and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commerciallyreasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplatedby such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties thatthey would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may behereafter declared invalid, illegal, void or unenforceable.

 

(n)          Headings.The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to limitor affect any of the provisions hereof.

 

 

(o)          IndependentNature of Holders’ Obligations and Rights. The obligations of each Holder hereunder are several and not joint with theobligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligationsof any other Holder hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and noaction taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association,a joint venture or any other kind of group or entity, or create a presumption that the Holders are in any way acting in concertor as a group or entity with respect to such obligations or the transactions contemplated by this Agreement or any other matters,and the Company acknowledges that the Holders are not acting in concert or as a group, and the Company shall not asset any suchclaim, with respect to such obligations or transactions. Each Holder shall be entitled to protect and enforce its rights, includingwithout limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined asan additional party in any proceeding for such purpose. The use of a single agreement with respect to the obligations of the Companycontained was solely in the control of the Company, not the action or decision of any Holder, and was done solely for the convenienceof the Company and not because it was required or requested to do so by any Holder. It is expressly understood and agreed thateach provision contained in this Agreement is between the Company and a Holder, solely, and not between the Company and the Holderscollectively and not between and among Holders.

 

********************

 

***(Signature Pages Follow)***

 

 

IN WITNESS WHEREOF,the parties have executed this Registration Rights Agreement as of the date first written above.

 

  

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

 

 

[SIGNATUREPAGE OF HOLDERS TO CBMX RRA]

 

Name of Holder: __________________________

* *

*Signature of Authorized Signatory of Holder*: __________________________

 

Name of Authorized Signatory: _________________________

 

Title of Authorized Signatory: __________________________

 

[SIGNATURE PAGES CONTINUE]

 

** **

**Annex A**

 

Plan of Distribution

 

Each Selling Stockholder(the “Selling Stockholders”) of the securities and any of their pledgees, assignees and successors-in-interestmay, from time to time, sell any or all of their securities covered hereby on the Nasdaq Capital Market or any other stock exchange,market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiatedprices. A Selling Stockholder may use any one or more of the following methods when selling securities:

 

 

 

 

 

 

 

 

 

 

 

The Selling Stockholdersmay also sell securities under Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”),if available, rather than under this prospectus.

 

 

Broker-dealers engagedby the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissionsor discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser)in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transactionnot in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transactiona markup or markdown in compliance with FINRA IM-2440.

 

In connection withthe sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealersor other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positionsthey assume. The Selling Stockholders may also sell securities short and deliver these securities to close out their short positions,or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enterinto option or other transactions with broker-dealers or other financial institutions or create one or more derivative securitieswhich require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, whichsecurities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amendedto reflect such transaction).

 

The Selling Stockholdersand any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” withinthe meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealersor agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discountsunder the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreementor understanding, directly or indirectly, with any person to distribute the securities. In no event shall any broker-dealer receivefees, commissions and markups which, in the aggregate, would exceed eight percent (8%).

 

The Selling Stockholdersmay from time to time pledge or grant a security interest in some or all of the securities owned by them and, if they default inthe performance of their secured obligations, the pledgees or secured parties may offer and sell the securities from time to timeunder this prospectus after the Company has filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provisionof the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interestas Selling Stockholders under this prospectus.

 

The Selling Stockholdersalso may transfer the securities in other circumstances, in which case the transferees, pledgees or other successors in interestwill be the selling beneficial owners for purposes of this prospectus and may sell the securities from time to time under thisprospectus after the Company has filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of theSecurities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest asSelling Stockholders under this prospectus.

 

 

The Company is requiredto pay certain fees and expenses incurred by the Company incident to the registration of the securities. The Company has agreedto indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under theSecurities Act.

 

Because Selling Stockholdersmay be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectusdelivery requirements of the Securities Act including Rule 172 thereunder. In addition, any securities covered by this prospectuswhich qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus.The Selling Stockholders have advised us that there is no underwriter or coordinating broker acting in connection with the proposedsale of the resale securities by the Selling Stockholders.

 

We agreed to keep thisprospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling Stockholders withoutregistration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement forthe Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule ofsimilar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act orany other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers ifrequired under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not besold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualificationrequirement is available and is complied with.

 

Under applicable rulesand regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneouslyengage in market making activities with respect to the common stock for the applicable restricted period, as defined in RegulationM, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisionsof the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases andsales of securities of the common stock by the Selling Stockholders or any other person. We will make copies of this prospectusavailable to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaserat or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

 

** **

**Annex B**

 

combimatrixcorporation

 

Selling Stockholder Notice and Questionnaire

 

The undersigned beneficialowner of common stock (the “Registrable Securities”) of Combimatrix Corporation, a Delaware corporation (the“Company”), understands that the Company has filed or intends to file with the Securities and Exchange Commission(the “Commission”) a registration statement (the “Registration Statement”) for the registrationand resale under Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), of the RegistrableSecurities, in accordance with the terms of the Registration Rights Agreement (the “Registration Rights Agreement”)to which this document is annexed. A copy of the Registration Rights Agreement is available from the Company upon request at theaddress set forth below. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the RegistrationRights Agreement.

 

Certain legal consequencesarise from being named as a selling stockholder in the Registration Statement and the related prospectus. Accordingly, holdersand beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequencesof being named or not being named as a selling stockholder in the Registration Statement and the related prospectus.

 

NOTICE

 

The undersigned beneficialowner (the “Selling Stockholder”) of Registrable Securities hereby elects to include the Registrable Securitiesowned by it in the Registration Statement.

 

 

The undersigned hereby provides the followinginformation to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

** **

 

 

 

 

 

 

 

**2. Address for Notices to SellingStockholder:**

 

 

**3. Broker-Dealer Status:**

 

 

	Yes  ̈	                 No  ̈

 

 

	Yes  ̈	                 No ̈

 

 

 

 

	Yes  ̈	                 	No ̈

 

 

	Yes  ̈	                 No  ̈

 

** **

**4. Beneficial Ownership of Securitiesof the Company Owned by the Selling Stockholder.**

* *

*Except as set forth belowin this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securitiesissuable pursuant to the Purchase Agreement.*

 

 

 

 

 

 

** **

**5. Relationships with the Company:**

* *

*Except as set forth below,neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of theequity securities of the undersigned) has held any position or office or has had any other material relationship with the Company(or its predecessors or affiliates) during the past three years.*

 

Stateany exceptions here:

 

 

**6. Other Arrangements:**

* *

*Except as set forth below,the undersigned does not know of any arrangement made or to be made by any person, or of any transaction already effected to limitor restrict the sale of the Company’s securities during the period of the offering; to stabilize the market for the Company’ssecurities; or to withhold commissions or otherwise to hold each underwriter or dealer responsible for the distribution of hisparticipation in the offering.*

 

Stateany exceptions here:

 

 

*Describe any agreement, arrangementor understanding that you have entered into with an securities underwriter, broker or dealer relating to the sale or proposed saleof any securities of the Company held by you, or as to which you have the right to acquire.*

* *

*Except as set forth below,neither the undersigned nor any associate of the undersigned is a party to any contract with the Company or any of its subsidiaries,or in which the Company or any subsidiary has a beneficial interest, which is to be performed in whole or in party at or afterthe date of the Registration Statement, or which was made not more than two years prior thereto.*

 

Stateany exceptions here:

 

 

 

 

The undersigned agreesto promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to thedate hereof at any time while the Registration Statement remains effective.

 

By signing below, theundersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 6 and the inclusionof such information in the Registration Statement and the related prospectus, and any amendments or supplements thereto, and incommunications with the Commission and trading markets. The undersigned understands that such information will be relied upon bythe Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendmentsor supplements thereto.

 

IN WITNESS WHEREOFthe undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in personor by its duly authorized agent.

 

 

	   

**PLEASE FAX A COPY (OR EMAIL A .PDF COPY)OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:**

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