Document:

Blueprint

 

Exhibit 10.1

 

 

 

SECURITIES PURCHASE AGREEMENT

 

This
Securities Purchase Agreement (this “Agreement”) is dated as
of February 4, 2019, between GT Biopharma, Inc., a Delaware
corporation and includes any successor Company thereto (the
“Company”), and each
purchaser identified on the signature pages hereto (each, including
its successors and permitted assigns, a “Purchaser” and
collectively, the “Purchasers”).

 

WHEREAS, subject to
the terms and conditions set forth in this Agreement and pursuant
to Section 4(a)(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 in not
more than two closings from the Company, securities of the Company
as more fully described in this Agreement (the “Offering”).

 

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

 

 

ARTICLE I.

DEFINITIONS

 

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

 

“Accredited Investor”
shall have the meaning ascribed to such term in Section
3.2(c).

 

“Acquiring Person” 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 common
control with a Person, as such terms are used in and construed
under Rule 405 under the Securities Act.

 

“Applicable Law” shall
mean any law, rule or regulation of any governmental authority or
jurisdiction applicable to any party to this Agreement, as the case
may be.

 

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

 

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

 

“Buy-In” shall have the
meaning ascribed to such term in Section 4.1(h).

 

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

 

 

 

 

“Closing Date”
means, with respect to any Closing,
the date of such Closing.

 

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

 

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

 

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

 

“Conversion Price” shall
have the meaning ascribed to such term in the Notes.

 

“Debentures” means those
certain 10% Senior Convertible Debentures of the Company issued on
August 2, 2018, September 7, 2018 and September 24,
2018.

 

“DGCL” means the Delaware
General Corporation Law.

 

“Disclosure Schedules”
means the Disclosure Schedules of the Company delivered
concurrently herewith.

 

“Disqualification Event”
shall have the meaning ascribed to such term in Section
3.1(oo).

 

 “Effective
Date” means the earliest of the date that (a) a
Registration Statement has been declared effective by the
Commission with respect to all of the Underlying Shares (as defined
herein) and has been continuously effective for not less than sixty
(60) Business Days, or (b) (i) all of the Underlying Shares have
been sold pursuant to Rule 144, or (ii) may be sold by the holders
thereof (other than Affiliates of the Company) pursuant to Rule 144
without the requirement for the Company to be in compliance with
the current public information required under Rule 144 and without
volume or manner-of-sale restrictions, and (c) Company counsel has
delivered to the Transfer Agent and Purchasers a standing written
unqualified opinion that resales may then be made by such holders
of the Underlying Shares (other than Affiliates of the Company)
pursuant to an effective Registration Statement or the exemption
described in (b)(ii) above, which opinion shall be in form and
substance reasonably acceptable to such Purchasers.

 

“End Date” means the first
date that (i) less than 10% of the aggregate amount of Note
principal is outstanding, and (ii) no Event of Default (as defined
in the Note) nor an event which with the passage of time or the
giving of notice could become an Event of Default is
pending.

 

“Equity Line of Credit”
shall have the meaning ascribed to such term in Section
4.13.

 

 “Event
of Default” shall have the meaning ascribed to such
term in the Note.

 

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

 

 

2

 

 

“Exempt Issuance” means
the issuance of (a) shares of Common Stock or options to employees,
officers or directors of the Company pursuant to any stock or
option plan duly adopted for such purpose, by a majority of the
non-employee members of the Board of Directors or a majority of the
members of a committee of non-employee directors established for
such purpose and only as disclosed on Schedule 3.1(g), (b) securities
exercisable or exchangeable for or convertible into shares of
Common Stock issued and outstanding on the date of this Agreement,
provided that such securities and any term thereof have not been
amended since the date of this Agreement to increase the number of
such securities or to decrease the issue price, exercise price,
exchange price or conversion price of such securities and which
securities and the principal terms thereof are set forth on
Schedule 3.1(g),
and described in the SEC Reports, (c) securities issued pursuant to
acquisitions or strategic transactions approved by a majority of
the disinterested directors of the Company, provided that any such
issuance shall only be to a Person (or to the equity holders 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 be intended to provide to the
Company substantial additional benefits in addition to the
investment of funds, but shall not include a transaction in which
the Company is issuing securities primarily for the purpose of
raising capital or to an entity whose primary business is investing
in securities, (
d) as set forth on Schedule 3.1(g), and (e)
securities issued or issuable to the Purchasers and their assigns
pursuant to this Agreement, the Notes and other Transaction
Documents including without limitation, Section 4.16 and Section
4.22 herein, or upon exercise, conversion or exchange of any such
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(jj).

 

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

 

“G&M” shall mean
Grushko & Mittman, P.C., with offices located at 515 Rockaway
Avenue, Valley Stream, New York 11581, Fax:
212-697-3575.

 

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

 

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

 

“Investor Questionnaire”
means the form of Accredited Investor Questionnaire annexed hereto
as Exhibit
B.

 

“Issuer Covered Person”
means the Company, any of its predecessors, any affiliated issuer,
any director, executive officer, other officer of the Company
participating in the Offering, any beneficial owner of 20% or more
of the Company’s outstanding voting equity securities,
calculated on the basis of voting power, and any promoter (as that
term is defined in Rule 405 under the Securities Act) connected
with the Company in any capacity at the time of sale.

 

 “Legend
Removal Date” shall have the meaning ascribed to such
term in Section 4.1(d).

 

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

 

“Listing Default” shall
have the meaning ascribed to such term in Section
4.11(b).

 

“Majority in Interest”
shall have the meaning ascribed to such term in Section
5.5.

 

 

3

 

 

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

 

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

 

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

 

“Money Laundering
Laws” shall have the
meaning ascribed to such term in Section 3.1(qq).

 

“Notes” means the senior
secured convertible notes issuable pursuant to this Agreement, in
the form of Exhibit
A hereto.

 

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

 

“Participation Maximum”
shall have the meaning ascribed to such term in Section
4.16(a).

 

“Permitted Indebtedness”
means (a) the Indebtedness evidenced by the Notes and the
Debentures all as set forth on Schedule 3.1(aa), (b) any
liabilities for borrowed money or amounts owed not in excess of
$10,000 in the aggregate (other than trade accounts payable
incurred in the ordinary course of business), (c) all guaranties,
endorsements and other contingent obligations in respect of
indebtedness of others, whether or not the same are or should be
reflected in the Company’s consolidated balance sheet (or the
notes thereto) not affecting more than $10,000 in the aggregate,
except guaranties by endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary
course of business; (d) the present value of any lease payments not
in excess of $100,000 due under leases required to be capitalized
in accordance with GAAP; and (e) any liabilities for borrowed money
that are junior to the Notes pursuant to an intercreditor agreement
acceptable to Purchasers, and the holders of which are not granted
any security interest.

 

“Permitted Lien” means the
individual and collective reference to the following: (a) Liens for
taxes, assessments and other governmental charges or levies not yet
due or Liens for taxes, assessments and other governmental charges
or levies being contested in good faith and by appropriate
proceedings for which adequate reserves (in the good faith judgment
of the management of the Company) have been established in
accordance with GAAP, (b) Liens imposed by law which were incurred
in the ordinary course of the Company’s business, such as
carriers’, warehousemen’s and mechanics’ Liens,
statutory landlords’ Liens, and other similar Liens arising
in the ordinary course of the Company’s business, and which
(x) do not individually or in the aggregate materially detract from
the value of such property or assets or materially impair the use
thereof in the operation of the business of the Company and its
consolidated Subsidiaries or (y) are being contested in good faith
by appropriate proceedings, which proceedings have the effect of
preventing for the foreseeable future the forfeiture or sale of the
property or asset subject to such Liens, and (c) Liens in
connection with Permitted Indebtedness under clauses (a), (b) and
(c) thereunder.

 

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

 

“Pre-Notice” shall have
the meaning ascribed to such term in Section 4.16(b).

 

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

 

 

4

 

 

“Pro-Rata Portion” shall
have the meaning ascribed to such term in Section
4.16(e).

 

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

 

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

 

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

 

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

 

“Registration Statement”
means a registration statement declared effective by the Commission
allowing the public resale of not less than all of the Underlying
Shares by the Purchaser, at the time such registration statement is
effective and the prospectus contained therein is
current.

 

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

 

“Required Minimum” means,
as of any date, 150% of the maximum aggregate number of shares of
Common Stock then issued or potentially issuable in the future
pursuant to the Transaction Documents, including any Underlying
Shares issuable upon conversion in full of all Notes, ignoring any
conversion or exercise limits set forth therein.

 

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

 

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

 

“Securities” means the
Notes and the Underlying Shares.

 

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

 

“Security Agreement” means
the Security Agreement to be entered into in connection with the
sale of the Securities, a copy of which is annexed hereto as
Exhibit
C.

 

“Short Sales” means
“short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act and all types of direct and indirect stock
pledges, forward sale contracts, options, puts, calls, swaps and
similar arrangements (including on a total return basis) whether
such transactions are made through U.S. or non-U.S. broker dealers
or foreign regulated brokers. 

 

“Stock Option Plans” means
the Stock Option Plan of the Company in effect as the date of this
Agreement, the principal terms of which have been disclosed in the
SEC Reports.

 

“Subscription Amount”
means, as to each Purchaser, the
aggregate amount to be paid for
the Notes purchased hereunder at the Closing as specified below
such Purchaser’s name on the signature page of this Agreement
and next to the heading “Subscription Amount,” in
United States dollars and in immediately available
funds.

 

 

5

 

 

“Subsequent Financing”
shall have the meaning ascribed to such term in Section
4.16(a).

 

“Subsequent Financing
Notice” shall have the meaning ascribed to such term
in Section 4.16(b).

 

“Subsidiary” means
with respect to any entity at any
date, any direct or indirect Person, limited or general
partnership, limited liability company, trust, estate, association,
joint venture or other business entity of which (A) more than
50% of (i) the outstanding capital stock having (in the
absence of contingencies) ordinary voting power to elect a majority
of the board of directors or other managing body of such entity,
(ii) in the case of a partnership or limited liability
company, the interest in the capital or profits of such partnership
or limited liability company or (iii) in the case of a trust,
estate, association, joint venture or other entity, the beneficial
interest in such trust, estate, association or other entity
business is, at the time of determination, owned or controlled
directly or indirectly through one or more intermediaries, by such
entity, or (B) is under the actual control of the
Company.

 

 “Termination
Date” means February 15, 2019.

 

“Trading Day” means a day
on which the principal Trading Market is open for trading for three
or more hours, or if there is no applicable Trading Market, Trading
Day shall mean Business Day.

 

“Trading Market” means the
first listed of any of the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in
question: the NYSE American, the Nasdaq Capital Market, the Nasdaq
Global Market, the Nasdaq Global Select Market, the New York Stock
Exchange, the OTC Bulletin Board, the OTCQB, or the OTCQX (or any
successors to any of the foregoing).

 

“Transaction Documents”
means this Agreement, the Security Agreement, the Notes, the
Registration Rights Agreement, all exhibits and schedules thereto
and hereto and any other documents or agreements executed by any
party hereto in connection with the transactions contemplated
hereunder.

 

“Transfer Agent” means
Computershare, the current transfer agent of the Company, with a
mailing address of 350 Indiana Street, Suite 800 Golden, Colorado
80401, and a facsimile number of (303) 262-0610, and any successor
transfer agent of the Company.

 

“Underlying Shares” means
the shares of Common Stock issued and issuable upon conversion of
the Notes and issued and issuable in lieu of the cash payment of
interest on the Notes in accordance with the terms of the Notes and
any other shares of Common Stock issued or issuable to a Purchaser
in connection with or pursuant to the Securities or Transaction
Documents.

 

“Unlegended Shares” shall
have the meaning ascribed to such term in Section
4.1(d).

 

“Variable Priced Equity Linked
Instruments” shall have the meaning ascribed to such
term in Section 4.13.

 

“Variable Rate
Transaction” shall have
the meaning ascribed to such term in Section
4.13.

 

  “VWAP”
means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted
average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is
then listed or quoted as reported by Bloomberg L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New
York City time)), (b)  if the Common Stock is not then listed
or quoted for trading on a Trading Market but is then reported on
the OTC Pink Marketplace maintained by the OTC Markets Group, Inc.
(or a similar organization or agency succeeding to its functions of
reporting prices), the volume weighted average price of the Common
Stock on the first such facility (or a similar organization or
agency succeeding to its functions of reporting prices), or
(d) in all other cases, the fair market value of a share of
Common Stock as determined by an independent appraiser selected in
good faith by a Majority in Interest and reasonably acceptable to
the Company, the fees and expenses of which shall be paid by the
Company.

 

 

6

 

 

ARTICLE II.

PURCHASE AND SALE

 

2.1 Purchase and Sale of
Notes.

 

(a) Subject to the
terms and conditions of this Agreement, each Purchaser agrees to
purchase and the Company agrees to sell and issue to each Purchaser
at the Closing (as defined below) the principal amount of Notes of
the Company as is set forth opposite such Purchaser’s name on
such Purchaser’s signature page hereto. The Notes issued to
the Purchasers pursuant to this Agreement (including any notes
issued at the Initial Closing and any Additional Notes, as defined
below) shall be referred to in this Agreement as the
“Notes.” Each Note shall
be in the form attached hereto as Exhibit A hereto.

 

(b) The initial
purchase and sale of the Notes shall take place remotely via the
electronic exchange of documents and signatures on the Business Day
on which all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all conditions
precedent to (i) the Purchasers’ obligation to pay the
Subscription Amount at such Closing, and (ii) the Company’s
obligations to deliver the Securities to be issued and sold at such
Closing, in each case, have been satisfied or waived, but in no
event later than the tenth Business Day following the date hereof
(such initial closing is referred to herein as the
“Initial
Closing”).

 

(c) After the Initial
Closing, the Company may sell, in one or more closings and on the
terms and conditions contained in this Agreement, Notes in the
aggregate principal amount of up to $5,000,000 (collectively, the
“Additional
Notes”), to one or more purchasers (the
“Additional
Purchasers”) reasonably acceptable to the Company,
provided that (A) such subsequent sale is consummated prior to
February 15, 2019 (the “Termination Date”), or
such date as the Company and a Majority in Interest may mutually
agree upon; and (B) each Additional Purchaser shall become a party
to the Transaction Documents by executing and delivering a
counterpart signature page to each of the Transaction Documents.
Signature pages shall be added to this Agreement to reflect the
amount of Additional Notes purchased at each such closing (an
“Additional
Closing” and together with the Initial Closing, each,
a “Closing”) and the parties
purchasing such Additional Notes.

 

(d)           At
each Closing, the payment by a Purchaser of such Purchaser’s
Subscription Amount may be made (i) via wire transfer or a
certified check in immediately available funds to the Company or
(ii) by surrender for cancellation of Debentures held by such
Purchaser in the amount of outstanding principal and interest
specified on a letter of transmittal enclosed therewith;
provided,
however, that the
portion of any Purchaser’s total Subscription Amount that may
be paid by cancellation of Debentures shall not exceed
90.91%.

 

NO
MINIMUM AMOUNT OF NOTES MUST BE SOLD IN ORDER FOR THE COMPANY TO
ACCEPT ANY SUBSCRIPTIONS, AND ALL NET PROCEEDS OF THE OFFERING WILL
BE IMMEDIATELY AVAILABLE FOR COMPANY PURPOSES UPON
CLOSING.

 

2.2 Deliveries.

 

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

 

(i) this Agreement duly
executed by the Company;

 

 

7

 

 

(ii) a
Note with a principal amount as set forth on the signature page
hereto equal to each Purchaser’s Subscription Amount,
registered in the name of such Purchaser;

 

(iii) the
Security Agreement duly executed by the Company;

 

(iv) the
Registration Rights Agreement duly executed by the
Company;

(v) a certificate
executed on behalf of the Company by its Principal Executive
Officer or Chief Executive Officer (each as defined in the Exchange
Act) of the Company, dated as of the Closing Date, in which such
officer shall certify that the conditions set forth in Section 2.3(b) have been
fulfilled; and

(a) 

(vi) a
certificate executed on behalf of the Company by its
Secretary’s certificate containing (i) copies of the text of
the resolutions by which the corporate action on the part of the
Company necessary to approve this Agreement and the other
Transaction Documents and the transactions and actions contemplated
hereby and thereby, which shall be accompanied by a certificate of
the corporate secretary or assistant corporate secretary of Company
dated as of the Closing Date certifying to the Purchasers that such
resolutions were duly adopted and have not been amended or
rescinded, (ii) an incumbency certificate dated as of the Closing
Date executed on behalf of Company by its corporate secretary or
one of its assistant corporate secretaries certifying the office of
each officer of Company executing this Agreement, or any other
agreement, certificate or other instrument executed pursuant
hereto, and (iii) copies of (A) the Company’s Certificate of
Incorporation and bylaws in effect on the Closing Date, and (B) the
certificate evidencing the good standing of Company as of a day
within five (5) Business Days prior to the Closing
Date.

(b) 

(b) On or prior to the
Closing Date, each Purchaser shall deliver or cause to be delivered
to the Company the following:

 

(i) this Agreement duly
executed by such Purchaser;

 

(ii) such
Purchaser’s Subscription Amount;

 

(iii) Accredited
Investor Questionnaire duly executed by each
Purchaser;

 

(iv) the
Security Agreement duly executed by each Purchaser and the
Collateral Agent; and

 

(v)     
the Registration Rights Agreement duly executed by each
Purchaser.

 

 

8

 

 

2.3 Closing
Conditions.

 

(a) The obligations of
the Company hereunder to effect the Closing are subject to the
following conditions being met:

 

(i) the accuracy in all
material respects (determined without
regard to any materiality, Material Adverse Effect or other similar
qualifiers therein) on the date of this Agreement and the
Closing Date of the representations and warranties of the
Purchasers contained herein (unless as of a specific date therein
in which case they shall be accurate as of such date);

 

(ii) all
obligations, covenants and agreements of each Purchaser under this
Agreement required to be performed at or prior to the Closing Date
shall have been performed in all material respects;
and

 

(iii) the
delivery by each Purchaser of the items set forth in Section 2.2(b)
of this Agreement.

 

(b) The respective
obligations of a Purchaser hereunder to effect the Closing, unless
waived by such Purchaser, are subject to the following conditions
being met:

 

(i) the accuracy in all
material respects (determined without
regard to any materiality, Material Adverse Effect or other similar
qualifiers therein) on the date of this Agreement and
Closing Date of the representations and warranties of the Company
contained herein (unless as of a specific date therein in which
case they shall be accurate as of such date);

 

(ii) all
Required Approvals, obligations, covenants and agreements of the
Company under the Transaction Documents required to be performed or
obtained at or prior to the Closing Date shall have been performed
or obtained;

 

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

 

(iv) there
shall have been no Material Adverse Effect with respect to the
Company since the date hereof; and

 

(v) from the date
hereof to the Closing Date, and, at any time prior to the Closing
Date, trading in securities generally as reported by Bloomberg L.P.
shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported
by such service, or on any Trading Market, nor shall a banking
moratorium have been declared either by the United States or New
York State authorities nor shall there have occurred any material
outbreak or escalation of hostilities or other national or
international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each
case, in the reasonable judgment of such Purchaser, makes it
impracticable or inadvisable to purchase the Securities at the
Closing. 

 

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1 Representations and
Warranties of the Company. Except as set forth in the SEC Reports or
the Disclosure Schedules, which Disclosure Schedules shall be
deemed a part hereof and shall qualify any representation made
herein only to the extent of the disclosure contained in the
corresponding or cross-referenced section of the Disclosure
Schedules, the Company hereby makes the following representations
and warranties to each Purchaser:

 

 

9

 

 

(a) Subsidiaries. All of the direct
and indirect Subsidiaries of the Company and the Company’s
ownership interests therein are set forth on Schedule 3.1(a). The Company
owns, directly or indirectly, the capital stock or other equity
interests of each Subsidiary set forth on Schedule 3.1(a), free and clear
of any Liens, and all of the issued and outstanding shares of
capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of pre-emptive and similar rights to
subscribe for or purchase securities.

 

(b) Organization and Qualification.
The Company and each Subsidiary is an entity duly incorporated or
otherwise organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization,
with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in violation
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 each Subsidiary is duly
qualified to conduct business and is in good standing as a foreign
Person or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, would not
reasonably be expected to result in: (i) a material adverse effect
on the legality, validity or enforceability of any Transaction
Document, (ii) a material adverse effect on the results of
operations, assets, business, or condition (financial or otherwise)
of the Company and each Subsidiary, taken as a whole, or (iii) a
material adverse effect on the Company’s ability 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 transactions contemplated by this
Agreement and each of the other Transaction Documents and otherwise
to carry out its obligations hereunder and thereunder. The
execution and delivery of this Agreement and each of the other
Transaction Documents by the Company and the consummation by it of
the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of the Company and
no further action is required by the Company, the Board of
Directors or the Company’s stockholders in connection
herewith or therewith other than in connection with the Required
Approvals. This Agreement and each other Transaction Document to
which it is a party has been (or upon delivery will have been) duly
executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in
accordance with its terms, except: (i) as limited by general
equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and
(iii) insofar as indemnification and contribution provisions may be
limited by Applicable Law.

 

(d) No Conflicts. The execution,
delivery and performance by the Company and all Persons other than
the Purchasers and Collateral Agent (as defined in the Security
Agreement) of this Agreement and the other Transaction Documents,
the issuance and sale of the Securities and the consummation by it
of the transactions contemplated hereby and thereby to which it is
a party do not and will not: (i) conflict with or violate any
provision of the Company’s or any Subsidiary’s or such
other Person’s certificate or 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 upon any of the properties or assets of the
Company or any Subsidiary, or give to others any rights of
termination, amendment, acceleration, adjustment, exchange, reset,
exercise or cancellation (with or without notice, lapse of time or
both) of, any agreement, credit facility, debt, equity or other
instrument (evidencing Company or Subsidiary equity, debt or
otherwise) or other understanding to which the Company or any
Subsidiary is a party or by which any property or asset of the
Company or any Subsidiary is bound or affected, or (iii) subject to
the Required Approvals, conflict with or result in a violation of
any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which
the Company or a Subsidiary or such other Person 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 clause (iii), such
as could not have or reasonably be expected to result in a Material
Adverse Effect.

 

 

10

 

 

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

 

(f) Issuance of the Securities. The
Securities are duly authorized and, when issued and paid for in
accordance with the applicable Transaction Documents, will be duly
and validly issued, fully paid and nonassessable, free and clear of
all Liens imposed by the Company other than restrictions on
transfer provided for in the Transaction Documents. The Underlying
Shares, when issued in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and nonassessable,
free and clear of all Liens imposed by the Company other than
restrictions on transfer provided for in the Transaction
Documents.

 

(g) Capitalization. Except as set
forth on Schedule 3.1(g), the
Company has not issued any capital stock since its most recently
filed annual report on Form 10-K. Except as set forth on
Schedule 3.1(g), no
Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents. Except as
disclosed on Schedule
3.1(g), there are no outstanding options, employee or
incentive stock option plans, warrants, scrip rights to subscribe
to, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or
exercisable or exchangeable for, or giving any Person any right to
subscribe for or acquire any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or
any Subsidiary is or may become bound to issue additional shares of
Common Stock or Common Stock Equivalents. Except as set forth on
Schedule 3.1(g),
the issuance and sale of the Securities will not obligate the
Company to issue shares of Common Stock or other securities to any
Person (other than 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 Company are
duly authorized, validly issued, fully paid and nonassessable, have
been issued in material compliance with all federal and state
securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe
for or purchase securities. Except as contemplated by Section
3.1(e), no further approval or authorization of any stockholder,
the Board of Directors or other Person is required for the issuance
and sale of the Securities and the Company’s compliance with
the terms of the Transaction Documents. There are no stockholders
agreements, voting agreements or other similar agreements with
respect to the Company’s capital stock to which the Company
is a party or, to the knowledge of the Company, between or among
any of the Company’s stockholders. Except as disclosed on
Schedule 3.1(g),
the Company is not a party to any Variable Rate Transaction and as
of Closing, there will not be outstanding any Equity Line of Credit
nor Variable Priced Equity Linked Instruments as of the
Closing.

 

 

11

 

 

(h) SEC Reports; Financial
Statements. Except as set forth on Schedule 3.1(h), the Company
has filed all reports, schedules, forms, statements and other
documents required to 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 three years preceding the date hereof (or
such shorter period as the Company was required by law or
regulation to file such material) (the foregoing materials,
including the exhibits thereto and documents incorporated by
reference therein, being collectively referred to herein as the
“SEC
Reports”) on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports
prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act,
as applicable, and none of the SEC Reports, when filed, contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The Company has never
been an issuer subject to Rule 144(i) under the Securities Act. The
financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing. Such financial
statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent
basis during the periods involved (“GAAP”), except as may be
otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not
contain all footnotes required by GAAP, and fairly present in all
material respects the financial position of the Company and its
consolidated Subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.

 

(i) Material Changes; Undisclosed Events,
Liabilities or Developments. Since the date of the latest
audited financial statements included within the SEC Reports,
except as set forth on Schedule 3.1(i) or as
specifically disclosed in a subsequent SEC Report filed prior to
the date hereof: (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to
result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A)
trade payables and accrued expenses incurred in the ordinary course
of business consistent with past practice and (B) liabilities not
required to be reflected in the Company’s financial
statements pursuant to GAAP or disclosed in filings made with the
Commission, (iii) the Company has not altered its method of
accounting, (iv) the Company has not declared or made any dividend
or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem
any shares of its capital stock and (v) the Company has not issued
any equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock 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 event,
liability, fact, circumstance, occurrence or development has
occurred or exists or is reasonably expected to occur or exist with
respect to the Company or its Subsidiaries or their respective
businesses, properties, operations, assets or financial condition,
that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made
or deemed made that has not been publicly disclosed at least one
(1) Trading Day prior to the date that this representation is
made.

 

(j) Litigation. Except as set forth
in Schedule 3.1(j),
there is no action, suit, inquiry, notice of violation, proceeding
or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any
of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an
“Action”) which (i)
adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the
Securities or (ii) could, if there were an unfavorable decision,
have or reasonably be expected to result in a Material Adverse
Effect. Neither the Company nor any Subsidiary, nor any director or
officer thereof, is or has been the subject of any Action involving
a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty. There has
not been, and to the knowledge of the Company, there is not pending
or contemplated, any investigation by the Commission involving the
Company or any current or former director or officer of the
Company. The Commission has not issued any stop order or other
order suspending the effectiveness of any registration statement
filed by the Company or any Subsidiary under the Exchange Act or
the Securities Act.

 

 

12

 

 

(k) Labor Relations. No labor
dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company, which could
reasonably be expected to result in a Material Adverse Effect. None
of the Company’s or its Subsidiaries’ employees is a
member of a union that relates to such employee’s
relationship with the Company or such Subsidiary, and neither the
Company nor any of its Subsidiaries is a party to a collective
bargaining agreement, and the Company and its Subsidiaries believe
that their relationships with their employees are good. To the
knowledge of the Company, no executive officer of the Company or
any Subsidiary, is, or is now expected to be, in violation of any
material term 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 each such executive officer does not subject the Company or any
of its Subsidiaries to any liability with respect to any of the
foregoing matters. Except as set forth on Schedule 3.1(k), the Company
and its Subsidiaries are in compliance with all U.S. federal,
state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of
employment and wages and hours, except where the failure to be in
compliance could not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect.

 

(l) Compliance.
Except as set forth on Schedule 3.1(l), neither the
Company nor any Subsidiary: (i) is in default under or in violation
of (and no event has occurred that has not been waived that, with
notice or lapse of time or both, would result in a default by the
Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under
or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or
not such default or violation has been waived), (ii) is in
violation of any judgment, decree or order of any court, arbitrator
or other governmental authority or (iii) is or has been in
violation of any statute, rule, ordinance or regulation of any
governmental authority, including without limitation all foreign,
federal, state and local laws relating to taxes, environmental
protection, occupational health and safety, product quality and
safety and employment and labor matters, except in each case as
could not have or reasonably be expected to result in a Material
Adverse Effect.

 

(m) Regulatory Permits. 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, except where the failure to possess such permits could
not reasonably be expected to result in a Material Adverse Effect
(“Material
Permits”), and neither the Company nor any Subsidiary
has received any notice of proceedings relating to the revocation
or modification of any Material Permit.

 

(n) Title to Assets. The Company
and the Subsidiaries have good and marketable title in fee simple
to all real property owned by them and 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 as do not materially
affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the
Company and the Subsidiaries and (ii) 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 delinquent nor subject to penalties. Any real
property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and
enforceable leases with which the Company and the Subsidiaries are
in compliance.

 

 

13

 

 

(o) Intellectual Property. 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 intellectual property rights and similar rights
as described in the SEC Reports as necessary or required for use in
connection with their respective businesses and which the failure
to so have could have a Material Adverse Effect (collectively, the
“Intellectual
Property Rights”). None of, and neither the Company
nor any Subsidiary has received a notice (written or otherwise)
that any of, 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 the latest audited financial statements included
within the SEC Reports, a written notice of a claim or otherwise
has any knowledge that the Intellectual Property Rights violate or
infringe upon the rights of any Person, except as could not have or
reasonably be expected to not have a Material Adverse Effect. To
the knowledge of the Company, all such Intellectual Property Rights
are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights. The Company and
its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their intellectual
properties, except where failure to do so could not, individually
or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

 

(p) Insurance. The Company and each
Subsidiary maintain insurance coverage for Product/Human Clinical
Trial Liability, Professional Liability, General Liability,
Property and Directors and Officers.

 

(q) Transactions With Affiliates and
Employees. Except as set forth in the SEC Reports and on
Schedule 3.1(q),
none of the officers or directors of the Company or any Subsidiary
and, to the knowledge of the Company, none of the employees of the
Company or any Subsidiary is presently a party to any transaction
with the Company or any Subsidiary (other than for services as
employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal
property to or from providing for the borrowing of money from or
lending of money to, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director,
trustee, stockholder, member or partner, in each case in excess of
$60,000 other than for: (i) payment of salary or consulting fees
for services rendered, (ii) reimbursement for expenses incurred on
behalf of the Company and (iii) other employee benefits, including
stock option agreements under any stock option plan of the
Company.

 

(r) Sarbanes-Oxley; Internal Accounting
Controls. The Company and the Subsidiaries are not in
compliance with any and all applicable requirements of the
Sarbanes-Oxley Act of 2002 that are effective as of the date
hereof, and any and all applicable rules and regulations
promulgated by the Commission thereunder that are effective as of
the date hereof and as of the Closing Date. The Company and the
Subsidiaries currently do not maintain a system of internal
accounting controls sufficient to provide reasonable assurance
that: (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain asset
accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific
authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any
differences.

 

(s) Certain Fees. No brokerage or
finder’s fees or commissions are or will be payable by the
Company or any Subsidiaries to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by the
Transaction Documents. The Purchasers shall have no obligation with
respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this
Section that may be due in connection with the transactions
contemplated by the Transaction Documents.

 

 

14

 

 

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

 

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

 

(v) Registration Rights. No Person
has any right to cause the Company to effect the registration under
the Securities Act of any securities of the Company or any
Subsidiaries other than piggyback registration rights for the
shares set forth on Schedule 3.1(v).

 

(w) Listing and Maintenance
Requirements. The Common Stock is registered pursuant to
Section 12(b) or 12(g) of the Exchange Act, and the Company has
taken no action designed to, or which to its knowledge is likely to
have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such
registration. The Company has not, in the 12 months preceding the
date hereof, received notice from any Trading Market on which the
Common Stock is or has been listed or quoted to the effect that the
Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no
reason to believe that it will not in the foreseeable future
continue to be, in compliance with all such listing and maintenance
requirements. The Common Stock is currently eligible for electronic
transfer through the Depository Trust Company or another
established clearing corporation and the Company is current in
payment of the fees to the Depository Trust Company (or such other
established clearing corporation) in connection with such
electronic transfer.

 

(x) Application of Takeover
Protections. The Company and the Board of Directors have
taken all necessary action, if any, in order to render inapplicable
any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other
similar anti-takeover provision under the Company’s
certificate of incorporation (or similar charter documents) or the
laws of its state of incorporation that is or could become
applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights
under the Transaction Documents, including without limitation as 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 Company confirms
that neither it nor any other Person acting on its behalf has
provided any of the Purchasers or their agents or counsel with any
information that it believes constitutes or might constitute
material, non-public information. The Company understands and
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, their respective businesses and the transactions
contemplated hereby, including the Disclosure Schedules to this
Agreement, is true and correct and does not contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in 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 the transactions
contemplated hereby other than those specifically set forth in
Section 3.2 hereof.

 

 

15

 

 

(z) No Integrated 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, made any offers or sales of any
security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to
be integrated with prior offerings by the Company for purposes of
(i) the Securities Act which would require the registration of any
such securities under the Securities Act, or (ii) any applicable
shareholder approval provisions of any Trading Market on which any
of the securities of the Company are listed or
designated.

 

(aa) Indebtedness.
Schedule 3.1(aa)
sets forth as of the date hereof all outstanding secured and
unsecured Indebtedness of the Company or any Subsidiary, or for
which the 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
$10,000 (other than trade accounts payable incurred in the ordinary
course of business), (y) all guaranties, endorsements and other
contingent obligations in respect of indebtedness of others,
whether or not the same are or should be reflected in the
Company’s consolidated balance sheet (or the notes thereto),
except guaranties by endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary
course of business; and (z) the present value of any lease payments
in excess of $10,000 due under leases required to be capitalized in
accordance with GAAP.

 

(bb) Solvency.
Based on the consolidated financial condition of the Company and
Subsidiaries as of the Closing Date, and the Company’s good
faith estimate of the fair market value of its assets, after giving
effect to the receipt by the Company of the proceeds from the sale
of the Securities hereunder: (i) the fair saleable value of the
Company’s assets exceeds the amount that will be required to
be paid on or in respect of the Company’s existing debts and
other liabilities (including known contingent liabilities) as they
mature, (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business as now
conducted and as proposed to be conducted including its capital
needs taking into account the particular capital requirements of
the business conducted by the Company, consolidated and projected
capital requirements and capital availability thereof, and (iii)
the current cash flow of the Company, together with the proceeds
the Company would receive, were it to liquidate all of its assets,
after taking into account all anticipated uses of the cash, would
be sufficient to pay all amounts on or in respect of its
liabilities when such amounts are required to be paid. The Company
does not intend to incur debts beyond its ability to pay such debts
as they mature (taking into account the timing and amounts of cash
to be payable on or in respect of its debt). The Company has no
knowledge of any facts or circumstances which lead it to believe
that it will file for reorganization or liquidation under the
bankruptcy or reorganization laws of any jurisdiction within one
year from the Closing Date. Schedule 3.1(bb) sets forth as
of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary, or for which the
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
$50,000 in the aggregate (including trade accounts payable and
other liabilities incurred in the ordinary course of business), (y)
all guaranties, endorsements and other contingent obligations in
respect of indebtedness of others, whether or not the same are or
should be reflected in the Company’s consolidated balance
sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (z) the
present value of any lease payments in excess of $50,000 due under
leases required to be capitalized in accordance with GAAP. Neither
the Company nor any Subsidiary is in default with respect to any
Indebtedness.

 

(cc) Tax
Status. Except as set forth on Schedule 3.1(cc) and for
matters that would not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect, the
Company and its Subsidiaries each (i) has made or filed all United
States federal, state and local income and all foreign income and
franchise tax returns, reports and declarations required by any
jurisdiction to which it is subject, (ii) has paid all taxes and
other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and
declarations and (iii) has set aside on its books provision
reasonably adequate for the payment of all material taxes for
periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company or of any Subsidiary
know of no basis for any such claim.

 

 

16

 

 

(dd) No
General Solicitation. Neither the Company nor any person
acting on behalf of the Company has offered or sold any of the
Securities by any form of general solicitation or general
advertising. 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.

 

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

 

(ff) Accountants.
The Company’s accounting firm is set forth on Schedule 3.1(ff) of the
Disclosure Schedules. To the knowledge and belief of the Company,
such accounting firm: (i) is a registered public accounting firm as
required by the Exchange Act and (ii) shall express its opinion
with respect to the financial statements to be included in the
Company’s Annual Report for the fiscal year ending December
31, 2018.

 

(gg) Seniority.
As of the Closing Date, except as set forth on Schedule 3.1(gg), no
Indebtedness or other claim against the Company is senior to the
Debentures in right of payment, whether with respect to interest or
upon liquidation or dissolution, or otherwise, other than
indebtedness secured by 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).

 

(hh) No
Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the Company and the
accountants and lawyers formerly or presently employed by the
Company.

 

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

 

(jj) Acknowledgment
Regarding Purchaser’s Trading Activity. Anything in this Agreement or elsewhere
herein to the contrary notwithstanding (except for Sections 3.2(f)
and 4.15 hereof), it is understood and acknowledged 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 based on securities issued by
the Company or to hold the Securities for any specified term, (ii)
past or future open market or other transactions 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’s publicly-traded
securities, (iii) any Purchaser, and counter-parties in
“derivative” transactions to which any such Purchaser
is a party, directly or indirectly, may presently have a
“short” position in the Common Stock and (iv) each
Purchaser shall not be deemed to have any affiliation with or
control over any arm’s length counter-party in any
“derivative” transaction. The Company further
understands and acknowledges that (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 Securities are being determined, and
(z) such hedging activities (if any) could reduce the value of the
existing stockholders' equity interests in the Company at and after
the time that the hedging activities are being conducted.  The
Company acknowledges that such aforementioned hedging activities do
not constitute a breach of any of the Transaction
Documents.

 

 

17

 

 

(kk) Regulation
M 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 to facilitate the sale or resale of any of the Securities,
(ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or
agreed to pay to any Person any compensation for soliciting another
to purchase any other securities of the Company, other than, in the
case of clauses (ii) and (iii), compensation paid to the
Company’s placement agent in connection with the placement of
the Securities.

 

(ll) FDA.
As to each product subject to the jurisdiction of the U.S. Food and
Drug Administration (“FDA”) under the Federal
Food, 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 “Pharmaceutical Product”),
such Pharmaceutical Product is being manufactured, packaged,
labeled, tested, distributed, sold and/or marketed by 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 the
failure 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 received any notice, warning letter or other communication from
the FDA or any other governmental entity, which (i) contests the
premarket clearance, licensure, registration, or approval of, the
uses of, the distribution of, the manufacturing or packaging of,
the testing of, 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, any Pharmaceutical 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 consent decree 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 have a Material Adverse Effect. The properties, business and
operations of the Company have been and are being conducted in all
material respects in accordance with all applicable laws, rules and
regulations of the FDA.  The Company has not been informed by
the 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 product being
developed or proposed to be developed by the Company.

 

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

 

(nn) Office
of 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 Office
of Foreign Assets Control of the U.S. Treasury Department
(“OFAC”).

 

 

18

 

 

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

 

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

 

(qq) Money
Laundering. The operations of the Company and its
Subsidiaries are and have been conducted at all times in compliance
with applicable 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 “Money Laundering Laws”),
and no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving
the Company or any Subsidiary with respect to the Money Laundering
Laws is pending or, to the knowledge of the Company or any
Subsidiary, threatened.

 

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

 

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

 

(tt) Survival.
The foregoing representations and warranties shall survive the
Closing.

 

3.2 Representations and Warranties of the
Purchasers. Each Purchaser, for itself and for no other
Purchaser, hereby represents and warrants as of the date hereof and
as of the 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 standing under the laws of the
jurisdiction of its incorporation or formation with full right,
corporate, partnership, limited liability company or similar power
and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry
out its obligations hereunder and thereunder. The execution and
delivery of the Transaction Documents and performance by such
Purchaser of the transactions contemplated by the Transaction
Documents have been duly authorized by all necessary corporate,
partnership, limited liability company or similar action, as
applicable, on the part of such Purchaser. Each Transaction
Document to which it is a party has been duly executed by such
Purchaser, and when delivered by such Purchaser in accordance with
the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance
with its terms, except: (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited
by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by
Applicable Law.

 

 

19

 

 

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

 

(c) Purchaser Status. At the time
such Purchaser was offered the Securities, it was, and as of the
date hereof it is, and on each date on which it converts any Notes
it will be either: (i) an accredited investor (“Accredited Investor”) as
defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under
the Securities Act or (ii) a “qualified institutional
buyer” as defined in Rule 144A(a) under the Securities Act.
Such Purchaser is not required to be registered as a broker-dealer
under Section 15 of the Exchange Act. Such Purchaser has the
authority and is duly and legally qualified to purchase and own the
Securities. Such Purchaser is able to bear the risk of such
investment for an indefinite period and to afford a complete loss
thereof. Such Purchaser has provided the information in the
Accredited Investor Questionnaire attached hereto as Exhibit B (the
“Investor
Questionnaire”). The information set forth on the
signature pages hereto and the Investor Questionnaire regarding
such Purchaser is true and complete in all respects. Except as
disclosed in the Investor Questionnaire, such Purchaser has had no
position, office or other material relationship within the past
three years with the Company or Persons (as defined below) known to
such Purchaser to be affiliates of the Company, and is not a member
of the Financial Industry Regulatory Authority or an
“associated person” (as such term is defined under the
FINRA Membership and Registration Rules Section 1011).

 

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

 

(e) Information on Company. Such
Purchaser has been furnished with or has had access to the SEC
Reports and Disclosure Schedules. Purchasers are not deemed to have
any knowledge of any information not included in the SEC Reports
and Disclosure Schedules unless such information is delivered in
the manner described in the next sentence.  In addition,
such Purchaser may have received in writing from the Company such
other information concerning its operations, financial condition
and other matters as such Purchaser has requested, identified
thereon as OTHER WRITTEN INFORMATION (such other information is
collectively, the “Other
Written Information”), and considered all factors such
Purchaser deems material in deciding on the advisability of
investing in the Securities.  Such Purchaser was afforded (i)
the opportunity to ask such questions as such Purchaser deemed
necessary of, and to receive answers from, representatives of the
Company concerning the merits and risks of acquiring the
Securities; (ii) the right of access to information about the
Company and its financial condition, results of operations,
business, properties, management and prospects sufficient to enable
such Purchaser to evaluate the Securities; and (iii) the
opportunity to obtain such additional information that the Company
possesses or can acquire without unreasonable effort or expense
that is necessary to make an informed investment decision with
respect to acquiring the Securities.

 

 

20

 

 

(f) Compliance with Securities Act;
Reliance on Exemptions. Such Purchaser understands and
agrees that the Securities have not been registered under the
Securities Act or any applicable state securities laws, by reason
of their issuance in a transaction that does not require
registration under the Securities Act, and that such Securities
must be held indefinitely unless a subsequent disposition is
registered under the Securities Act or any applicable state
securities laws or is exempt from such registration. Such Purchaser
understands and agrees that the Securities are being offered and
sold to such Purchaser in reliance on specific exemptions from the
registration requirements of United States federal and state
securities laws and regulations and that the Company is relying in
part upon the truth and accuracy of, and such Purchaser’s
compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth
herein in order to determine the availability of such exemptions
and the eligibility of such Purchaser to acquire the
Securities.

 

(g) Communication of Offer. Such
Purchaser is not purchasing the Securities as a result of any
“general solicitation” or “general
advertising,” as such terms are defined in Regulation D,
which includes, but is not limited to, any advertisement, article,
notice or other communication regarding the Securities published in
any newspaper, magazine or similar media or on the internet or
broadcast over television, radio or the internet or presented at
any seminar or any other general solicitation or general
advertisement.

 

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

 

(i) No Conflicts. The execution,
delivery and performance of this Agreement and performance under
the other Transaction Documents and the consummation by such
Purchaser of the transactions contemplated hereby and thereby or
relating hereto or thereto do not and will not (i) result in a
violation of such Purchaser’s charter documents, bylaws or
other organizational documents, if applicable, (ii) conflict with
nor constitute a default (or an event which with notice or lapse of
time or both would become a default) under any agreement to which
such Purchaser is a party, nor (iii) result in a violation of any
law, rule, or regulation, or any order, judgment or decree of any
court or governmental agency applicable to such Purchaser or its
properties (except for such conflicts, defaults and violations as
would not, individually or in the aggregate, have a material
adverse effect on such Purchaser). Such Purchaser is not required
to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations
under this Agreement or perform under the other Transaction
Documents nor to purchase the Securities in accordance with the
terms hereof, provided that for purposes of the representation made
in this sentence, such Purchaser is assuming and relying upon the
accuracy of the relevant representations and agreements of the
Company herein.

 

(j)           Certain
Transactions and Confidentiality. Other than consummating
the transactions contemplated hereunder, such Purchaser has not
directly or indirectly, nor has any Person acting on behalf of or
pursuant to any understanding with such Purchaser, executed any
purchases or sales, including Short Sales, of the securities of the
Company during the period commencing as of the time that such
Purchaser first received a written term sheet from the Company or
any other Person representing the Company setting forth the
material terms of the transactions contemplated hereby and ending
immediately prior to the execution hereof.

 

(k)           Survival.
The foregoing representations and warranties shall survive the
Closing.

 

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

 

 

21

 

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1           (a)           Transfer
Restrictions. The Securities may only be disposed of in
compliance with state and federal securities laws. In connection
with any transfer of Securities other than pursuant to an effective
registration statement or Rule 144, to the Company or to an
Affiliate of a Purchaser or in connection with a pledge as
contemplated in Section 4.1(c), the Company may require the
transferor thereof to provide to the Company, at the
Company’s expense, an opinion of counsel selected by the
transferor and reasonably acceptable to the Company, the form and
substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require
registration of such transferred Securities under the Securities
Act. As a condition of such transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and
shall have the rights and obligations of a Purchaser under this
Agreement and the other Transaction Documents.

 

(b)           Legend.
The Purchasers agree to the imprinting, so long as is required by
this Section 4.1, of a legend on any of the Securities in the
following form:

 

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

 

(c)           Pledge.
The Company acknowledges and agrees that a Purchaser may from time
to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or
all of the Securities to a financial institution that is an
Accredited Investor and who agrees to be bound by the provisions of
this Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledge or secure
Securities to the pledgees or secured parties. Such a pledge or
transfer would not be subject to approval of the Company and no
legal opinion of legal counsel of the pledgee, secured party or
pledgor shall be required in connection therewith. Further, no
notice shall be required of such pledge. At the appropriate
Purchaser’s expense, the Company will execute and deliver
such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or
transfer of the Securities, including, if the Securities are
subject to registration pursuant to Section 4.26 hereof, the
preparation and filing of any required prospectus supplement under
Rule 424(b)(3) under the Securities Act or other applicable
provision of the Securities Act to appropriately amend the list of
selling stockholders thereunder.

 

 

22

 

 

(d)           Legend
Removal. Certificates evidencing the Underlying Shares shall
not contain any legend (“Unlegended
Shares”) (including the legend set forth in Section
4.1(b) hereof): (i) while a registration statement covering the
resale of such security is effective under the Securities Act, (ii)
following any sale of such Underlying Shares pursuant to Rule 144,
(iii) if such Underlying Shares are eligible for sale under Rule
144 (in the case of a non-Affiliate of the Company), without the
requirement for the Company to be in compliance with the current
public information required under Rule 144 as to such Underlying
Shares and without volume or manner-of-sale restrictions or (iv) if
such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The Company
shall cause its counsel, at the expense of the Company, to issue a
legal opinion to the Transfer Agent promptly after the Effective
Date if required by the Transfer Agent to effect the removal of the
legend hereunder. If all or any Notes are converted at a time when
there is an effective registration statement to cover the resale of
the Underlying Shares, or if such Underlying Shares may be sold
under Rule 144 or if such legend is not otherwise required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the
Commission) then such Underlying Shares shall be issued free of all
legends. The Company agrees that following such time as such legend
is no longer required under this Section 4.1(c), it will, no later
than two (2) Trading Days following the delivery by a Purchaser to
the Company or the Transfer Agent of a certificate representing
Underlying Shares, as applicable, issued with a restrictive legend
(such second (2nd) Trading Day, the
“Legend Removal
Date”), deliver or cause to be delivered to such
Purchaser a certificate representing such shares that is free from
all restrictive and other legends. The Company may not make any
notation on its records or give instructions to the Transfer Agent
that enlarge the restrictions on transfer set forth in this Section
4. Certificates for Underlying Shares subject to legend removal
hereunder shall be transmitted by the Transfer Agent to the
Purchaser by crediting the account of the Purchaser’s prime
broker with the Depository Trust Company System as directed by such
Purchaser.

 

(e)           Legend
Removal Default. In addition to such Purchaser’s other
available remedies, provided the conditions for legend removal set
forth in Section 4.1(d) exist, the Company shall pay to a
Purchaser, in cash, as partial liquidated damages and not as a
penalty, for each $1,000 of Underlying Shares (based on the higher
of the actual purchase price or VWAP of the Common Stock on the
date such Securities are submitted to the Transfer Agent) delivered
for removal of the restrictive legend and subject to Section
4.1(d), $10 per Trading Day for each Trading Day after the Legend
Removal Date (increasing to $20 per Trading Day after the fifth
Trading Day) until such certificate is delivered without a legend.
Nothing herein shall limit such Purchaser’s right to pursue
actual damages for the Company’s failure to deliver
certificates representing any Securities as required by the
Transaction Documents, and such Purchaser shall have the right to
pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or
injunctive relief.

 

(f)           DWAC.
In lieu of delivering physical certificates representing the
Unlegended Shares, upon request of a Purchaser, so long as the
certificates therefor do not bear a legend and the Purchaser is not
obligated to return such certificate for the placement of a legend
thereon, the Company shall cause its transfer agent to
electronically transmit the Unlegended Shares by crediting the
account of Purchaser’s prime broker with the Depository Trust
Company through its Deposit Withdrawal At Custodian system,
provided that the Company’s Common Stock is DTC eligible and
the Company’s transfer agent participates in the Deposit
Withdrawal at Custodian system. Such delivery must be made on or
before the Legend Removal Date.

 

(g)           Injunction.
In the event a Purchaser shall request delivery of Unlegended
Shares as described in this Section 4.1 and the Company is required
to deliver such Unlegended Shares, the Company may not refuse to
deliver Unlegended Shares based on any claim that such Purchaser or
anyone associated or affiliated with such Purchaser has not
complied with Purchaser’s obligations under the Transaction
Documents, or for any other reason, unless, an injunction or
temporary restraining order from a court, on notice, restraining
and or enjoining delivery of such Unlegended Shares shall have been
sought and obtained by the Company and the Company has posted a
surety bond for the benefit of such Purchaser in the amount of the
greater of (i) 120% of the amount of the aggregate purchase price
of the Underlying Shares to be subject to the injunction or
temporary restraining order, or (ii) the VWAP of the Common Stock
on the Trading Day before the issue date of the injunction
multiplied by the number of Unlegended Shares to be subject to the
injunction, which bond shall remain in effect until the completion
of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Purchaser to the extent Purchaser obtains
judgment in Purchaser’s favor.

 

 

23

 

 

(h)           Buy-In.
In addition to any other rights available to Purchaser, if the
Company fails to deliver to a Purchaser Unlegended Shares as
required pursuant to this Agreement and after the Legend Removal
Date the Purchaser, or a broker on the Purchaser’s behalf,
purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by such Purchaser
of the shares of Common Stock which the Purchaser was entitled to
receive in unlegended form from the Company (a
“Buy-In”),
then the Company shall promptly pay in cash to the Purchaser (in
addition to any remedies available to or elected by the Purchaser)
the amount, if any, by which (A) the Purchaser’s total
purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (B) the aggregate
purchase price of the shares of Common Stock delivered to the
Company for reissuance as Unlegended Shares together with interest
thereon at a rate of 15% per annum accruing until such amount and
any accrued interest thereon is paid in full (which amount shall be
paid as liquidated damages and not as a penalty). For example, if a
Purchaser purchases shares of Common Stock having a total purchase
price of $11,000 to cover a Buy-In with respect to $10,000 of
purchase price of Underlying Shares delivered to the Company for
reissuance as Unlegended Shares, the Company shall be required to
pay the Purchaser $1,000, plus interest, if any. The Purchaser
shall provide the Company written notice indicating the amounts
payable to the Purchaser in respect of the
Buy-In.

 

4.2           Acknowledgment
of Dilution. The Company acknowledges that the issuance of
the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain
market conditions. The Company further acknowledges that its
obligations under the Transaction Documents, including, without
limitation, its obligation to issue the Underlying Shares pursuant
to 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 dilutive effect that such issuance may have on the ownership of
the other stockholders of the Company.

 

4.3 Furnishing of Information; Public
Information.

 

(a)           Until
no Purchaser owns Securities, the Company covenants to file all
periodic reports with the Commission pursuant to the Exchange Act
and maintain the registration of the Common Stock under Section
12(b) or 12(g) of the Exchange Act after such time as the Company
initially becomes subject to such requirements and to timely file
(or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act and
timely file all reports that would be required to be filed by an
issuer subject to Section 12(b) or 12(g) of the Exchange Act even
if the Company is not then subject to the reporting requirements of
the Exchange Act.

 

(b)           At
any time commencing on the Closing Date, and ending at such time
that all of the Securities may be sold by non-Affiliates of the
Company without the requirement for the Company to be in compliance
with Rule 144(c)(1) and otherwise without restriction or limitation
pursuant to Rule 144, if the Company shall fail for any reason to
satisfy the current public information requirement under Rule
144(c) (a “Public Information Failure”) then, in
addition to such Purchaser’s other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated
damages and not as a penalty, by reason of any such delay in or
impairment of its ability to sell the Securities, an amount in cash
equal to 2.0% of the aggregate principal amount of Notes
outstanding and accrued interest thereon, and aggregate Conversion
Price of Underlying Shares (with respect to the Notes) held by such
Purchaser on the day of a Public Information Failure and on every
thirtieth (30th) day (pro-rated for periods totaling less than
thirty days) thereafter until the earlier of (a) the date such
Public Information Failure is cured and (b) such time that such
public information is no longer required for the Purchasers to
transfer the Underlying Shares pursuant to Rule 144. The payments
to which a Purchaser shall be entitled pursuant to this Section
4.3(b) are referred to herein as “Public Information Failure
Payments.” Public Information Failure Payments shall
be paid on the earlier of (i) the last day of the calendar month
during which such Public Information Failure Payments are incurred
and (ii) the third (3rd) Business Day after the event or failure
giving rise to the Public Information Failure Payments is cured. In
the event the Company fails to make Public Information Failure
Payments in a timely manner, such Public Information Failure
Payments shall bear interest at the rate of 1.5% per month
(prorated for partial months) until paid in full. Nothing herein
shall limit such Purchaser’s right to pursue actual damages
for the Public Information Failure, and such Purchaser shall have
the right to pursue all remedies available to it at law or in
equity including, without limitation, a decree of specific
performance and/or injunctive relief.

 

 

24

 

 

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 defined in
Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities
or that would be integrated with the offer or sale of the
Securities for purposes of the rules and regulations of any Trading
Market such that it would require shareholder approval prior to the
closing of such other transaction or to effectuate such other
transaction unless shareholder approval is obtained before the
earlier of the closing of such subsequent transaction or
effectuation of such other transaction.

 

4.5           Conversion
Procedures. The form of Notice of Conversion included in the
Notes set forth the totality of the procedures required of the
Purchasers in order to convert the Notes. No additional legal
opinion, other information or instructions shall be required of the
Purchasers to convert their Notes. The Company shall honor
conversions of the Notes and shall deliver Underlying Shares in
accordance with the terms, conditions and time periods set forth in
the Transaction Documents.

 

4.6           Securities
Laws Disclosure; Publicity. The Company shall, by 9:30 a.m.
(New York City time) on the first Trading Day following each
Closing Date, file a Current Report on Form 8-K including the
Transaction Documents as exhibits thereto with the Commission
within the time required by the Exchange Act (“Form 8-K”). A form of the
Form 8-K is annexed hereto as Exhibit D. Such Exhibit D will be identical to
the Form 8-K which will be filed with the Commission except for the
omission of signatures thereto by the Company and auditors
providing the financial statements. From and after the filing of
the Form 8-K, the Company represents to the Purchaser that it shall
have publicly disclosed all material, non-public information
delivered to the Purchaser by the Company or any of its
Subsidiaries, or any of their respective officers, directors,
employees or agents in connection with the transactions
contemplated by the Transaction Documents. The Company and
Purchaser shall consult with each other in issuing any press
releases with respect to the transactions contemplated hereby, and
neither the Company nor Purchaser shall issue any press release nor
otherwise make any such public statement without the prior consent
of the Company, with respect to any press release of Purchaser, or
without the prior consent of Purchaser, with respect to any press
release of the Company, which consent shall not unreasonably be
withheld or delayed, except if such disclosure is required by law,
in which case the disclosing party shall promptly provide the other
party with prior notice of such public statement or communication.
Notwithstanding the foregoing, the Company shall not publicly
disclose the name of Purchaser, or include the name of Purchaser in
any filing with the Commission or any regulatory agency or Trading
Market unless the name of Purchaser is already included in the body
of the Transaction Documents, without the prior written consent of
Purchaser, except: (a) as required by federal securities law in
connection with the filing of final Transaction Documents with the
Commission and (b) to the extent such disclosure is required by law
or Trading Market regulations, in which case the Company shall
provide the Purchaser with prior notice of such disclosure
permitted under this clause (b). The Company may file a Form 10-Q
in lieu of the Form 8-K provided such filing contains the content
required to be included in the Form 8-K and the Form 10-Q is filed
not later than the Trading Day after the Closing Date.

 

4.7           Shareholder
Rights Plan. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that
any Purchaser is an “Acquiring Person” under any
control share acquisition, business combination, poison pill
(including any 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
Securities under the Transaction Documents or under any other
agreement between the Company and the Purchasers.

 

 

25

 

 

4.8           Non-Public
Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction
Documents and as required hereunder, the Company covenants and
agrees that neither it, nor any other Person acting on its behalf,
will provide any 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 confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on
the foregoing covenant in effecting transactions in securities of
the Company.

 

4.9           Use
of Proceeds. The Company shall use the net proceeds from the
sale of the Securities hereunder substantially for the purposes set
forth on Schedule
4.9 hereto and shall not use such proceeds: (a) for the
satisfaction of any portion of the Company’s debt except as
disclosed on Schedule
4.9 (other than payment of trade payables in the ordinary
course of the Company’s business and consistent with prior
practices), (b) for the redemption of any Common Stock or Common
Stock Equivalents, (c) for the settlement of any outstanding
litigation or (d) in violation of FCPA or OFAC
regulations.

 

4.10           Indemnification
of Purchasers. Subject to the provisions of this Section
4.10, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and
agents (and any other Persons with a functionally equivalent role
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 titles
notwithstanding 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 all
judgments, amounts paid in settlements, court costs and reasonable
attorneys’ fees and costs of investigation that any such
Purchaser Party may suffer or incur as a result of or relating to
(a) any breach of any of the representations, warranties, covenants
or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against
Purchaser Parties in any capacity, or any of them or their
respective Affiliates, by any stockholder of the Company who is not
an Affiliate of such Purchaser Party, with respect to any of the
transactions contemplated by the Transaction Documents (unless such
action is based upon a breach of such Purchaser Party’s
representations, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser Party
may have with any such stockholder or any violations by such
Purchaser 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 may be
sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have
the right to assume the defense thereof with counsel of its own
choosing reasonably acceptable to the Purchaser Party. Any
Purchaser Party shall have the right to employ separate counsel in
any such action and participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such
Purchaser Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing,
(ii) the Company has failed after a reasonable period of time to
assume such defense and to employ counsel or (iii) in such action
there is, in the reasonable opinion of counsel, a material conflict
on any material issue between the position of the Company and the
position of such Purchaser Party, in which case the Company shall
be responsible for the reasonable fees and expenses of no more than
one such separate counsel. The Company will not be liable to any
Purchaser Party under this Agreement (y) for any settlement by a
Purchaser Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or
(z) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Purchaser Party’s
breach of its material representations, warranties or covenants
under the Transaction Documents. The indemnification required by
this Section 4.10 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and
when bills are received or are incurred. The indemnity agreements
contained herein shall be in addition to any cause of action or
similar right of any Purchaser Party against the Company or others
and any liabilities the Company may be subject to pursuant to
law.

 

 

26

 

 

4.11           Reservation
and Listing of Securities.

 

(a) As of the date hereof, the Company, ignoring any
conversion or exercise limitations, has reserved for each Purchaser
and the Company shall continue to reserve and keep available at all
times, the “Required Minimum”, free of pre-emptive
rights. If, on any date, the number of authorized but
unissued (and otherwise unreserved) shares of Common Stock is less
than the Required Minimum on such date (an “Authorized Share
Failure”), then the Board of Directors shall use
commercially reasonable efforts to amend the Company’s
articles of incorporation to increase the number of authorized but
unissued shares of Common Stock to at least the Required Minimum
plus such other amount as may be required for the Company’s
other purposes, and reserve the Required Minimum on behalf of the
Purchaser, as soon as possible and in any event not later than the
60th day
after such date. Notwithstanding the foregoing, the occurrence of
an Authorized Share Failure is an Event of Default.

 

(b) The Company shall,
if applicable: (i) in the time and manner required by the principal
Trading Market, prepare and file with such Trading Market an
additional shares listing application covering a number of shares
of Common Stock at least equal to the Required Minimum on the date
of such application, (ii) take all steps necessary to cause such
shares of Common Stock to be approved for listing or quotation on
such Trading Market as soon as possible thereafter, (iii) provide
to the Purchasers evidence of such listing or quotation and (iv)
maintain the listing or quotation of such Common Stock on any date
at least equal to the Required Minimum on such date on such Trading
Market or another Trading Market. The
Company will then take all action necessary to continue the listing
or quotation and trading of its Common Stock on a Trading Market
until the later of (i) at least six (6) years after the Closing
Date, and (ii) for so long as the Notes are outstanding, and will
comply in all respects with the Company’s reporting, filing
and other obligations under the bylaws or rules of the Trading
Market. In the event the aforedescribed listing is not
continuously maintained for six (6) years after the Closing Date
and for so long as Notes are outstanding (a “Listing Default”), then
in addition to any other rights the Purchasers may have hereunder
or under applicable law, on the first day of a Listing Default and
on each monthly anniversary of each such Listing Default date (if
the applicable Listing Default shall not have been cured by such
date) until the applicable Listing Default is cured, the Company
shall pay to each Purchaser an amount in cash, as partial
liquidated damages and not as a penalty, equal to 2% of the
aggregate Subscription Amount of Notes, and Conversion Price of the
Conversion Shares held by such Purchaser on the day of a Listing
Default and on every thirtieth day (pro-rated for periods less than
thirty days) thereafter until the date such Listing Default is
cured. If the Company fails to pay any liquidated damages pursuant
to this Section in a timely manner, the Company will pay interest
thereon at a rate of 1.5% per month (pro-rated for partial months)
to the Purchaser.

 

4.12           Form
D; Blue Sky Filings. The Company agrees to timely file a
Form D with respect to the Securities as required under Regulation
D and to provide a copy thereof, promptly upon request of any
Purchaser. The Company shall take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption
for, or to qualify the Securities for, sale to the Purchasers at a
Closing under Applicable Law, including “Blue Sky” laws
of the states of the United States, and shall provide evidence of
such actions promptly upon request of any Purchaser.

 

 

27

 

 

4.13           Subsequent
Equity Sales. From the date hereof until the End Date, the
Company and each Subsidiary will not, without the consent of a
Majority in Interest, enter into any Equity Line of Credit or
similar agreement, issue or agree to issue floating or Variable
Priced Equity Linked Instruments nor issue or agree to issue any of
the foregoing or equity with price reset rights (subject to
adjustment for stock splits, distributions, dividends,
recapitalizations and the like) (collectively, a
“Variable Rate
Transaction”). For purposes hereof,
“Equity Line of
Credit” shall include any transaction involving a
written agreement between the Company and an investor or
underwriter whereby the Company has the right to “put”
its securities to the investor or underwriter over an agreed period
of time and at an agreed price or price formula, and
“Variable Priced
Equity Linked Instruments” shall include: (A) any debt
or equity securities which are convertible into, exercisable or
exchangeable for, or carry the right to receive additional shares
of Common Stock or Common Stock Equivalents or any of the foregoing
at a price that can be reduced either (1) at any conversion,
exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for Common Stock at
any time after the initial issuance of such debt or equity
security, or (2) with a fixed conversion, exercise or exchange
price that is subject to being reset at some future date at any
time after the initial issuance of such debt or equity security due
to a change in the market price of the Company’s Common Stock
since date of initial issuance, or upon the issuance of any debt,
equity or Common Stock Equivalent, and (B) any amortizing
convertible security which amortizes prior to its maturity date,
where the Company is required or has the option to (or any investor
in such transaction has the option to require the Company to) make
such amortization payments in shares of Common Stock which are
valued at a price that is based upon and/or varies with the trading
prices of or quotations for Common Stock at any time after the
initial issuance of such debt or equity security (whether or not
such payments in stock are subject to certain equity conditions).
 For purposes of determining the total consideration for a
convertible instrument (including a right to purchase equity of the
Company) issued, subject to an original issue or similar discount
or which principal amount is directly or indirectly increased after
issuance, the consideration will be deemed to be the actual net
cash amount received by the Company in consideration of the
original issuance of such convertible instrument. Until the End
Date, the Company will not, without the consent of a Majority in
Interest, issue any Common Stock or Common Stock Equivalents nor
issue or amend the terms of any securities or Common Stock
Equivalents or of any agreement outstanding or in effect as of the
date of this Agreement pursuant to which same were or may be
acquired without the consent of a Majority in Interest, if the
result of such issuance or amendment would be at an effective price
per share of Common Stock less than the Conversion Price in effect
at the time of such issuance or amendment; all subject to
adjustment as described in Section 5.23 hereof. The restrictions
and limitations in this Section 4.13 are in addition to and shall
apply whether or not a Purchaser exercises its rights pursuant to
Section 4.16 and Section 4.22.

 

4.14           Equal
Treatment of Purchasers. No consideration (including any
modification of any Transaction Document) shall be offered or paid
to any Person to amend or consent to a waiver or modification of
any provision of any of this Agreement unless the same
consideration is also offered on a ratable basis to all of the
parties to this Agreement. For clarification purposes, this
provision constitutes a separate right granted to each Purchaser by
the Company and negotiated separately by each Purchaser, and is
intended for the Company to treat the Purchasers as a class and
shall not in any way be construed as the Purchasers acting in
concert or as a group with respect to the purchase, disposition or
voting of Securities or otherwise.

 

4.15           Capital
Changes. Until the one (1) year anniversary of the Closing
Date, the Company shall not undertake a reverse or forward stock
split or reclassification of the Common Stock without five (5) days
prior written notice to the Purchasers. In no event will the
Company increase the par value of the Common Stock to an amount
greater than the Conversion Price, then in effect.

 

 

28

 

 

4.16           Participation
in Future Financing.

 

(a) Until the End Date,
upon any proposed issuance by the Company or any of its
Subsidiaries of Common Stock, Common Stock Equivalents,
Indebtedness or a combination thereof, other than (i) a rights
offering to all holders of Common Stock which does not include
extending such rights offering to holders of Notes, or (ii) an
Exempt Issuance (each a “Subsequent Financing”),
the Purchasers shall have the right to participate in up to an
amount of the Subsequent Financing equal to 100% of the Subsequent
Financing (the “Participation Maximum”)
pro rata to each other in proportion to their Subscription Amounts
on the same terms, conditions and price provided for in the
Subsequent Financing, unless the Subsequent Financing is an
underwritten public offering, in which case the Company shall
notify each Purchaser of such public offering when it is lawful for
the Company to do so, but no Purchaser shall be entitled to
purchase any particular amount of such public offering without the
approval of the lead underwriter of such underwritten public
offering.

 

(b) At least ten (10)
Trading Days prior to the closing of the Subsequent Financing, the
Company shall deliver to each Purchaser a written notice of its
intention to effect a Subsequent Financing (“Pre-Notice”), which
Pre-Notice shall ask such Purchaser if 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 shall promptly, but no later than one
(1) Trading Day after such request, deliver a Subsequent Financing
Notice to such Purchaser. The requesting Purchaser shall be deemed
to have acknowledged that the Subsequent Financing Notice may
contain material non-public information. The Subsequent Financing
Notice shall describe in reasonable detail the proposed terms of
such Subsequent Financing, the amount of proceeds intended to be
raised thereunder and the Person or Persons through or with whom
such Subsequent Financing is proposed to be effected and shall
include a term sheet or similar document relating thereto as an
attachment.

 

(c) Any Purchaser
desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York
City time) on the tenth (10th) Trading Day after
all of the Purchasers have received the Pre-Notice that the
Purchaser is willing to participate in the Subsequent Financing,
the amount of such Purchaser’s participation, and
representing and warranting that such Purchaser has such funds
ready, willing, and available for investment on the terms set forth
in the Subsequent Financing Notice. If the Company receives no such
notice from a Purchaser as of such tenth (10th Trading Day, such
Purchaser shall be deemed to have notified the Company that it does
not elect to participate.

 

(d) If by 5:30 p.m.
(New York City time) on the fifteenth (15th ) Trading Day after
all of the Purchasers have received the Pre-Notice, notifications
by the Purchasers of their willingness to participate in the
Subsequent Financing (or to cause their designees to participate)
is, in the aggregate, less than the total amount of the
Participation Maximum of the Subsequent Financing, then the Company
may affect the remaining portion of such Subsequent Financing on
the terms and with the Persons set forth in the Subsequent
Financing Notice and the Purchasers shall simultaneously affect
their portion of such Subsequent Financing as set forth in their
notifications to the Company consistent with the terms set forth in
the Subsequent Financing Notice.

 

(e) If by 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 amount of the
Participation Maximum, each such Purchaser shall have the right to
purchase its Pro Rata Portion (as defined below) of the
Participation Maximum.  “Pro Rata Portion” means
the ratio of (x) the principal amount of Notes purchased hereunder
by a Purchaser participating under this Section 4.16 and (y) the
sum of the aggregate principal amounts of Notes purchased hereunder
by all Purchasers participating under this Section
4.16.

 

 

29

 

 

(f) The Company must
provide the Purchasers with a second Subsequent Financing Notice,
and the Purchasers will again have the right of participation set
forth above in this Section 4.16, if the Subsequent Financing
subject to the initial Subsequent Financing Notice is not
consummated for any reason on the terms set forth in such
Subsequent Financing Notice within sixty (60) Trading Days after
the date of the initial Subsequent Financing Notice.

 

(g) The Company and
each Purchaser agree that if any Purchaser elects to participate in
the Subsequent Financing, the transaction documents related to the
Subsequent Financing shall not include any term or provision
whereby such Purchaser shall be required to agree to any
restrictions on trading as to any of the Securities purchased
hereunder (for avoidance of doubt, the securities purchased in the
Subsequent Financing shall not be considered securities purchased
hereunder) or be required to consent to any amendment to or
termination of, or grant any waiver, release or the like under or
in connection with, this Agreement, without the prior written
consent of such Purchaser.

 

(h) Notwithstanding
anything to the contrary in this Section 4.16 and unless otherwise
agreed to by such Purchaser, the Company shall either confirm in
writing to such Purchaser that the transaction with respect to the
Subsequent Financing has been abandoned or shall publicly disclose
its intention to issue the securities in the Subsequent Financing,
in either case in such a manner such that such Purchaser will not
be in possession of any material, non-public information, by the
seventeenth (17th) Trading Day
following delivery of the Subsequent Financing Notice. If by such
seventeenth (17th) Trading Day, no
public disclosure regarding a transaction with respect to the
Subsequent Financing has been made, and no notice regarding the
abandonment of such transaction has been received by such
Purchaser, such transaction 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.

 

4.17           Purchaser’s
Exercise Limitations. The Company shall not effect exercise
of the rights granted in Sections 4.16 and 4.22 of this Agreement,
and a Purchaser shall not have the right to exercise any portion of
such rights granted in Sections 4.16 and 4.22 only to the extent
that after giving effect to such exercise, the Purchaser, would
beneficially own in excess of the Beneficial Ownership Limitation
(as defined in the Note), applied in the manner set forth in the
Note. In such event the right by Purchaser to benefit from such
rights or receive shares in excess of the Beneficial Ownership
Limitation shall be held in abeyance until such times as such
excess shares shall not exceed the Beneficial Ownership Limitation,
provided the Purchaser complies with the Purchaser’s other
obligations in connection with the exercise by Purchaser of its
rights pursuant to Sections 4.16 and 4.22, and with respect to
Section 4.16, provided that the Company receives the purchase price
for any purchased securities in compliance with the terms of such
Subsequent Financing.

 

4.18           Maintenance
of Property/Insurance. The Company shall and shall cause
each Subsidiary to keep all of its property, which is necessary or
useful to the conduct of its business, in good working order and
condition, ordinary wear and tear excepted and insured by insurers
of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary for the
businesses of the Company and Subsidiary.

 

4.19           Preservation
of Corporate Existence. The Company shall preserve and
maintain its corporate existence, rights, privileges and franchises
in the jurisdiction of its incorporation, and qualify and remain
qualified, as a foreign entity in each jurisdiction in which such
qualification is necessary in view of its business or operations
and where the failure to qualify or remain qualified might
reasonably have a Material Adverse Effect upon the financial
condition, business or operations of the Company taken as a
whole.

 

 

30

 

 

4.20           
DTC
Program. At all times that
Notes are outstanding after the listing required by Section 4.11(b)
is completed, the Company shall employ as the transfer agent for
its Common Stock and Underlying Shares a participant in the
Depository Trust Company Automated Securities Transfer Program and
cause the Common Stock and Underlying Shares to be transferable
pursuant to such program.

 

4.21           
Reimbursement. If
any Purchaser becomes involved in any capacity in any Proceeding by
or against any Person who is a stockholder of the Company (except
as a result of sales, pledges, margin sales and similar
transactions by such Purchaser to or with any current stockholder),
solely as a result of such Purchaser’s acquisition of the
Securities under this Agreement, the Company will reimburse such
Purchaser for its reasonable legal and other expenses (including
the cost of any investigation preparation and travel in connection
therewith) incurred in connection therewith, as such expenses are
incurred. The reimbursement obligations of the Company under this
paragraph shall be in addition to any liability which the Company
may otherwise have, shall extend upon the same terms and conditions
to any Affiliates of the Purchasers who are actually named in such
action, proceeding or investigation, and partners, directors,
agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding
upon and inure to the benefit of any successors, assigns, heirs and
personal representatives of the Company, the Purchasers and any
such Affiliate and any such Person. The Company also agrees that
neither the Purchasers nor any such Affiliates, partners,
directors, agents, employees or controlling persons shall have any
liability to the Company or any Person asserting claims on behalf
of or in right of the Company solely as a result of acquiring the
Securities under this Agreement.

 

4.22           
Most Favored Nation
Provision. From the date hereof and for so long as a
Purchaser holds any Securities, in the event that the Company
issues or sells any Common Stock or Common Stock Equivalents, if a
Purchaser then holding outstanding Securities reasonably believes
that any of the terms and conditions appurtenant to such issuance
or sale are more favorable to such investors than are the terms and
conditions granted to the Purchasers hereunder, upon notice to the
Company by such Purchaser within five (5) Trading Days after
disclosure of such issuance or sale, the Company shall amend the
terms of this transaction as to such Purchaser only so as to give
such Purchaser the benefit of such more favorable terms or
conditions. This Section 4.22 shall not apply with respect to an
Exempt Issuance. The Company shall provide each Purchaser with
notice of any such issuance or sale not later than ten (10) Trading
Days before such issuance or sale.

 

4.23           
Indebtedness. For
so long as any Note is outstanding, the Company will not incur any
Indebtedness other than Permitted Indebtedness, without the consent
of the Majority in Interest.

 

4.24           
Notice of Disqualification
Events. The Company will notify the Purchasers in writing,
prior to the Closing Date of (i) any Disqualification Event
relating to any Issuer Covered Person and (ii) any event that
would, with the passage of time, become a Disqualification Event
relating to any Issuer Covered Person not otherwise disclosed
herein or in the SEC Reports.

 

4.25           
Duration of
Undertakings. Unless otherwise stated in this Article IV,
all of the Company’s undertakings, obligations and
responsibilities set forth in Article IV of this Agreement shall
remain in effect for so long as any Securities remain
outstanding.

 

4.26           
Registration
Rights. On or before the 14th calendar day
following the Initial Closing, the Company shall file a
registration statement on Form S-3 (or other appropriate form if
the Company is not then S-3 eligible) (the “Resale S-3”) providing
for the resale by the Purchasers of the Underlying Shares
determinable as of the date such registration statement is first
filed (or such lesser number of Underlying Shares as permitted by
the SEC) pursuant to the terms of the Registration Rights
Agreement.

 

 

31

 

 

ARTICLE V.

MISCELLANEOUS

 

5.1           Termination. 
This Agreement may be terminated by any Purchaser, as to such
Purchaser’s obligations hereunder only and without any effect
whatsoever on the obligations between the Company and the other
Purchasers, by written notice to the other parties, if the final
Closing has not been consummated on or before February 15, 2019;
provided,
however, that such
termination will not affect the right of any party to sue for any
breach by any other party (or parties).

 

5.2           Fees
and Expenses. At the Closing, the Company has agreed to pay
G&M for the legal fees in connection with G&M’s
representation of Alpha Capital Anstalt (and no other Purchasers
except in connection with the Escrow Agreement) in the amount of
$27,500. Except as expressly set forth in the Transaction Documents
and on Schedule
3.1(s), each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all
other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement.
The Company shall reimburse Purchasers for all expenses incurred in
connection with UCC, lien, judgment, tax and similar searches
conducted in connection with the Offering. The Company shall pay
all Transfer Agent fees (including, without limitation, any fees
required for same-day processing of any instruction letter
delivered by the Company and any conversion or exercise notice
delivered by a Purchaser), stamp taxes and other taxes and duties
levied in connection with the delivery of any Securities to the
Purchasers. All of the Purchasers acknowledge that they have been
advised to seek the advice of their own attorneys.

 

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

 

5.4           Notices.
All notices, demands, requests,
consents, approvals, and other communications required or permitted
hereunder shall be in writing and, unless otherwise specified
herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or
facsimile, addressed as set forth below or to such other address as
such party shall have specified most recently by written notice.
Any notice or other communication required or permitted to be given
hereunder shall be deemed effective (a) upon hand delivery or
delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated
below (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day
during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first
occur. The addresses for such communications shall be: (i) if to
the Company, to: GT Biopharma, Inc., 310 N. Westlake Blvd, Suite
206, Westlake Village, CA 91362, Attn: Chief Executive Officer,
with a copy to (which shall not constitute notice): Gary R. Henrie,
Esq., P.O. Box 107, Nauvoo, IL 62354, email:
grhlaw@hotmail.com, and (ii) if to the Purchasers, to: the
addresses and fax numbers indicated on the signature pages hereto,
with an additional copy by fax only to (which shall not constitute
notice): Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley
Stream, New York 11581, fax: (212) 697-3575.

 

 

32

 

 

5.5           Amendments;
Waivers. No provision of this Agreement or any other
Transaction Document may be waived, modified, supplemented or
amended except in a written instrument signed, in the case of an
amendment, by the Company and the Purchasers holding at least a
majority in interest of the affected Securities then outstanding
(the “Majority in
Interest”), or, in the case of a waiver, by the party
against whom enforcement of any such waived provision is sought.
Whenever the term “consent of the Purchasers” or a
similar term is employed herein or any other Transaction Document,
it shall mean the consent of a Majority in Interest. No waiver of
any default with respect to any provision, condition or requirement
of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any
other provision, condition or requirement hereof, nor shall any
delay or omission of 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 affect
any of the provisions hereof.

 

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

 

5.8           No
Third-Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective successors
and permitted assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person, except as
otherwise set forth in Section 4.10.

 

5.9           Governing
Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall
be governed by and construed and enforced in accordance with the
internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. Each party agrees that all
legal proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement and any
other Transaction Documents (whether brought against a party hereto
or its respective affiliates, directors, officers, shareholders,
partners, members, employees or agents) shall be commenced
exclusively in the state and federal courts sitting in the City of
New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of
New York, Borough of Manhattan for the adjudication of any dispute
hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any action, suit or
proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or
proceeding is improper or is an inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service
of process and consents to process being served in any such suit,
action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to
such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve
process in any other manner permitted by law. If either party shall
commence an action or proceeding to enforce any provisions of the
Transaction Documents, then, in addition to the obligations of the
Company under Section 4.10, the prevailing party in such action,
suit or proceeding shall be reimbursed by the other party for its
reasonable attorneys’ fees and other costs and expenses
incurred with the investigation, preparation and prosecution of
such action or proceeding.

 

 

33

 

 

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 same
agreement and shall become effective when counterparts have been
signed by each party and delivered to each other party, it being
understood that the parties need not sign the same counterpart. In
the event that any signature is delivered by facsimile transmission
or by e-mail delivery of a “.pdf” format data file,
such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed)
with the same force and effect as if such facsimile 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
remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their
commercially reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It
is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or
unenforceable.

 

5.13           Rescission
and 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 Transaction
Document and the Company does not timely perform its related
obligations within the periods therein provided, then such
Purchaser may, at any time prior to the Company’s performance
of such obligations, rescind or withdraw, in its sole discretion
from time to time upon written notice to the Company, any relevant
notice, demand or election in whole or in part without prejudice to
its future actions and rights; provided, however, that in the case of a
rescission of a conversion of a Note, the applicable Purchaser
shall be required to return any shares of Common Stock subject to
any such rescinded conversion.

 

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

 

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

 

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

 

 

34

 

 

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 at any time
hereafter in force, in connection with any claim, action or
proceeding that may be brought by any Purchaser in order to enforce
any right or remedy under any Transaction Document. Notwithstanding
any provision to the contrary contained in any Transaction
Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for
payments in the nature of interest shall not exceed the maximum
lawful rate authorized under Applicable Law (the
“Maximum
Rate”), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of
them, when aggregated with any other sums in the nature of interest
that the Company may be obligated to pay under the Transaction
Documents exceed such Maximum Rate. It is agreed that if the
maximum contract rate of interest allowed by law and applicable to
the 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 from the
Closing 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 Transaction
Documents, such excess shall be applied by such Purchaser to the
unpaid principal balance of any such indebtedness or be refunded to
the Company, the manner of handling such excess to be at such
Purchaser’s election.

 

5.18           Independent
Nature of Purchasers’ Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are
several and not joint with the obligations of any other Purchaser,
and no Purchaser shall be responsible in any way for the
performance or non-performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein
or in any other Transaction Document, and no action taken by any
Purchaser pursuant hereto or thereto, shall be deemed to constitute
the Purchasers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with
respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to
independently protect and enforce its rights, including, without
limitation, the rights arising out of this Agreement or out of the
other Transaction Documents, and it shall not be necessary for any
other Purchaser to be joined as an additional party in any
proceeding for such purpose. Each Purchaser has been represented by
its own separate legal counsel in its review and negotiation of the
Transaction Documents. For reasons of administrative convenience
only, each Purchaser and its respective counsel have chosen to
communicate with the Company through G&M. The Company has
elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not
because it was required or requested to do so by any of the
Purchasers. It is expressly understood and agreed that each
provision contained in this Agreement and in each other Transaction
Document is between the Company and a Purchaser, solely, and not
between the Company and the Purchasers collectively and not between
and among the Purchasers.

 

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

 

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

 

 

35

 

 

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

 

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

 

5.23           Equitable
Adjustment. Trading volume amounts, price/volume amounts,
the amount of shares of Common Stock identified in this Agreement,
Conversion Price, Underlying Shares and similar figures in the
Transaction Documents shall be equitably adjusted (but without
duplication) to offset the effect of stock splits, similar events
and as otherwise described in this Agreement and Note.

 

(Signature Pages Follow)

 

 

 

 

 

 

 

36

 

 

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

 

	

GT BIOPHARMA, INC.

 

 

	

Address for Notice:

 

310 N. Westlake Blvd, Suite 206

Westlake Village, CA 91362

	

By:__________________________________________

    Name:
Raymond W. Urbanski

    Title: Chief Executive Officer

 

	
 

 

 

 

 

 

 

[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

 

SIGNATURE
PAGE FOR PURCHASER FOLLOWS]

 

 

 

 

[PURCHASER
SIGNATURE PAGE TO GT BIOPHARMA, INC.

SECURITIES
PURCHASE AGREEMENT]

 

IN
WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective
authorized signatories as of 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:
__________________________________________

 

State
of Residence of Purchaser: ___________________________________________________

 

Address
for Notice to Purchaser:

 

 

 

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

 

 

 

 

 

Cash
Subscription Amount: US$___________

 

Total
Note principal amount: ___________________

 

EIN
Number, if applicable, will be provided under separate
cover

 

Date:
___________________________

 

 

 

[SIGNATURE
PAGES CONTINUE]Blueprint

 

Exhibit 10.2

 

SECURITY AGREEMENT

 

This SECURITY AGREEMENT, dated as of February 4,
2019 (this “Agreement”),
is among GT Biopharma, Inc., a Delaware corporation
(the “Company”),
certain Subsidiaries of the Company which shall become a party to
this Agreement by execution and delivery of the form annexed hereto
as Annex A and the Subsidiary Guaranty annexed thereto (each such
Subsidiary, a “Guarantor”
and together with the Company, the “Debtors”)
Alpha Capital Anstalt, as collateral agent (the
“Collateral
Agent”) for the holders
of the Company’s 10% senior Convertible Debentures issued on
August 2, 2018, September 7, 2018 and September 24, 2018 as
disclosed on Schedule 1
annexed hereto in the original
principal amount of $9,058,962 and the Secured Convertible Notes
issued at or about February 4, 2019 in the original aggregate
principal amount of $1,352,224, and such other of the
Company’s Secured Convertible Notes which may be issued in
the future pursuant to a Securities Purchase Agreement among the
Company and the purchasers party thereto first executed on February
4, 2019 (collectively, the “Notes”)
(collectively, the “Secured
Parties”).

 

W I T N E S S E T H:

 

WHEREAS,
pursuant to the Securities Purchase Agreement (as defined in the
Notes), the Secured Parties have severally agreed to extend loans
to the Company evidenced and to be evidenced by the
Notes;

 

WHEREAS, pursuant to a certain Subsidiary Guaranty
(“Guaranty”)
to be dated as of the date of the Additional Debtor Joinder, forms
of which are annexed hereto as Annex A, each Guarantor agrees to
guarantee and act as surety for payment of such Notes, and other
obligations of the Company;

 

WHEREAS,
in order to induce the Secured Parties to extend the loans
evidenced by the Notes, the Company has agreed to execute and
deliver to the Collateral Agent this Agreement and to grant
Collateral Agent, for the ratable benefit of the Secured Parties, a
security interest in certain property of the Company to secure the
prompt payment, performance and discharge in full of all of the
Company’s obligations under the Notes and Transaction
Documents.

 

NOW,
THEREFORE, in consideration of the agreements herein contained and
for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:

 

1. Certain
Definitions. As used in this
Agreement, the following terms shall have the meanings set forth in
this Section 1. Terms used but not otherwise defined in this
Agreement that are defined in Article 8 or 9 of the UCC (such as
“account,” “chattel paper,”
“commercial tort claim,” “deposit account,”
“document,” “equipment,”
“fixtures,” “general intangibles,”
“goods,” “instruments,”
“inventory,” “investment property,”
“letter-of-credit rights,” “proceeds” and
“supporting obligations”) shall have the respective
meanings given such terms in Article 8 or 9 of the UCC, as
applicable. Upper case terms shall have the meanings attributed to
them in the Securities Purchase Agreement.

 

(a) “Collateral”
means the collateral in which the Collateral Agent is granted a
security interest by this Agreement and which shall include the
following personal property of the Company, whether presently owned
or existing or hereafter acquired or coming into existence,
wherever situated, and all additions and accessions thereto and all
substitutions and replacements thereof, and all proceeds, products
and accounts thereof, including, without limitation, all proceeds
from the disposition, sale or transfer of the Collateral and of
insurance covering the same and of any tort claims in connection
therewith, and all dividends, interest, cash, notes, securities,
equity interest or other property at any time and from time to time
acquired, receivable or otherwise distributed in respect of, or in
exchange for, any or all of the Pledged Securities (as defined
below):

 

 

1

 

 

(i) All
goods, including, without limitation, (A) all machinery, equipment,
computers, motor vehicles, trucks, tanks, boats, ships, appliances,
furniture, special and general tools, fixtures, test and quality
control devices and other equipment of every kind and nature and
wherever situated, together with all documents of title and
documents representing the same, all additions and accessions
thereto, replacements therefor, all parts therefor, and all
substitutes for any of the foregoing and all other items used and
useful in connection with any Debtor’s businesses and all
improvements thereto; and (B) all inventory;

 

(ii) All
contract rights and other general intangibles, including, without
limitation, Intellectual Property, all partnership interests,
membership interests, stock or other securities, rights under any
of the Organizational Documents (as defined herein), agreements
related to the Pledged Securities (as defined herein), licenses,
distribution and other agreements, computer software (whether
“off-the-shelf,” licensed from any third party or
developed by any Debtor), computer software development rights,
leases, franchises, customer lists, quality control procedures,
grants and rights, goodwill, trademarks, service marks, trade
styles, trade names, patents, patent applications, copyrights,
income tax refunds;

 

(iii)  All
accounts, together with all instruments, all documents of title
representing any of the foregoing, all rights in any merchandising,
goods, raw materials, timber cut or to be cut, oil, gas,
hydrocarbons, and minerals extracted or to be extracted, equipment,
motor vehicles and trucks which any of the same may represent, and
all right, title, security and guaranties with respect to each
account, including any right of stoppage in transit;

 

(iv) All
documents, letter-of-credit rights, instruments and chattel
paper;

 

(v) All
commercial tort claims;

 

(vi) All
deposit accounts and all cash (whether or not deposited in such
deposit accounts);

 

(vii) All
investment property;

 

(viii) All
supporting obligations;

 

(ix) All
files, records, books of account, business papers, and computer
programs; and

 

(x) the
products and proceeds of all of the foregoing Collateral set forth
in clauses (i)-(ix) above.

 

 

2

 

 

Without limiting the generality of the foregoing,
the “Collateral”
shall include all investment property and general intangibles
respecting ownership and/or other equity interests in Guarantor,
including, without limitation, the shares of capital stock and the
other equity interests, including member interests in limited
liability companies listed on Schedule H
hereto, if any, (as the same may be
modified from time to time pursuant to the terms hereof), and any
other shares of capital stock and/or other equity interests of any
other direct or indirect Subsidiary of any Debtor obtained in the
future, and, in each case, all certificates representing such
shares and/or equity interests and, in each case, all rights,
options, warrants, stock, other securities and/or equity interests
that may hereafter be received, receivable or distributed in
respect of, or exchanged for, any of the foregoing and all rights
arising under or in connection with the Pledged Securities,
including, but not limited to, all dividends, interest and cash;
provided that Company’s equity interests in Oxis Isle of Man
Limited shall not be included in the Collateral;
provided
that “Collateral”
hereunder shall not include: (1) any lease, license, contract,
property rights or agreement to which any Debtor is a party (or to
any of its rights or interests thereunder) if the grant of such
security interest would constitute or result in the abandonment,
invalidation or unenforceability of any right, title or interest of
any Debtor therein provided
that the Collateral shall include, and
the security interest granted by each Debtor shall attach to,
immediately at such time as the contractual or legal prohibition
shall no longer be applicable and to the extent severable, any
portion of such lease, license, contract, property rights or
agreement not subject to the prohibitions specified previously in
this sentence, (2) any intent-to-use United States trademark
application for which an amendment to allege use or statement of
use has not been filed under 15 U.S.C. § 1051(c) or (d),
respectively, or, if filed, has not been deemed in conformance with
15 U.S.C. § 1051 (a) or (c), in each case, only to the extent
the grant of security interest in such intent-to-use trademark is
in violation of 15 U.S.C. § 1060 and only unless and until a
“Statement of Use” or “Amendment to Allege
Use” is filed, has been deemed in conformance with 15 U.S.C.
§ 1051 (a) and (c) or examined and accepted, respectively, by
the United States Patent and Trademark Office, (3) motor vehicles subject to certificates of
title, provided that perfection of security interests in such motor
vehicles shall be limited to the filing of UCC financing
statements), (4) commercial tort claims seeking damages not
exceeding $100,000 in the aggregate for all such commercial tort
claims excluded pursuant to this clause (4), (5) assets in respect
of which pledges and security interests are prohibited by
applicable U.S. law, rule or regulation or agreements with any U.S.
governmental authority, (6) Excluded Accounts, (7) letter-of-credit
rights (other than to the extent a lien on such assets or such
rights can be perfected by filing a UCC-1) not exceeding $100,000
in the aggregate for all such commercial tort claims excluded
pursuant to this clause (7) and (8) such assets as to which the
Collateral Agent and the applicable Debtor shall agree that the
costs of obtaining or perfecting a security interest therein are
excessive in relation to the benefit to the Secured Parties of the
security to be afforded thereby (each of the foregoing, the
“Excluded
Collateral”).

 

Notwithstanding the foregoing, nothing herein
shall be deemed to constitute an assignment of any asset which, in
the event of an assignment, becomes void by operation of applicable
law or the assignment of which is otherwise prohibited by
applicable law (in each case to the extent that such applicable law
is not overridden by Sections 9-406, 9-407 and/or 9-408 of the UCC
or other similar applicable law); provided,
however,
that to the extent permitted by applicable law, this Agreement
shall create a valid security interest in such asset and, to the
extent permitted by applicable law, this Agreement shall create a
valid security interest in the proceeds of such
asset.

 

(b) “Excluded
Accounts” means accounts
specifically and exclusively used for payroll, payroll taxes and
other employee wage and benefit payments to or for the benefit of
any Debtor’s employees.

 

 

3

 

 

(c) “Intellectual
Property” means the
collective reference to all rights, priorities and privileges
relating to intellectual property, whether arising under United
States, multinational or foreign laws or otherwise, including,
without limitation, (i) all copyrights arising under the laws of
the United States, any other country or any political subdivision
thereof, whether registered or unregistered and whether published
or unpublished, all registrations and recordings thereof, and all
applications in connection therewith, including, without
limitation, all registrations, recordings and applications in the
United States Copyright Office, (ii) all patents of the United
States, any other country or any political subdivision thereof, all
reissues and extensions thereof, and all applications for letters
patent of the United States or any other country and all divisions,
continuations and continuations-in-part thereof, (iii) all
trademarks, trade names, corporate names, company names, business
names, fictitious business names, trade dress, service marks,
logos, domain names and other source or business identifiers, and
all goodwill associated therewith, now existing or hereafter
adopted or acquired, all registrations and recordings thereof, and
all applications in connection therewith, whether in the United
States Patent and Trademark Office or in any similar office or
agency of the United States, any State thereof or any other country
or any political subdivision thereof, or otherwise, and all common
law rights related thereto, (iv) all trade secrets arising under
the laws of the United States, any other country or any political
subdivision thereof, (v) all rights to obtain any reissues,
renewals or extensions of the foregoing, (vi) all licenses for any
of the foregoing, (vii) any items included in the definition of
Intellectual Property Rights as defined in the Securities Purchase
Agreement and not set forth above, and (viii) all causes of action
for infringement of the foregoing.

 

(d) “Majority
in Interest” means, at
any time of determination, the holders of more than fifty percent
(50%) (based on then-outstanding principal amounts and accrued
interest of Notes at the time of such determination) of the
Notes.

 

(e) “Necessary
Endorsement” means
undated stock powers endorsed in blank and other proper instruments
of assignment duly executed and such other instruments or documents
as the Collateral Agent (as that term is defined below) may
reasonably request.

 

(f) “Obligations”
means all of the liabilities and obligations (primary, secondary,
direct, contingent, sole, joint or several) due or to become due,
or that are now or may be hereafter contracted or acquired, or
owing to, of any Debtor to the Secured Parties, including, without
limitation, all obligations under this Agreement, the Notes, the
Guaranty and obligations under any other Transaction Document,
instrument, agreement or other document executed and/or delivered
in connection herewith or therewith in each case, whether now or
hereafter existing, voluntary or involuntary, direct or indirect,
absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time
decreased or extinguished and later increased, created or incurred,
and all or any portion of such obligations or liabilities that are
paid, to the extent all or any part of such payment is avoided or
recovered directly or indirectly from any of the Secured Parties as
a preference, fraudulent transfer or otherwise as such obligations
may be amended, supplemented, converted, extended or modified from
time to time. Without limiting the generality of the foregoing, the
term “Obligations” shall include, without limitation:
(i) principal of, and interest on the Notes and the loans extended
pursuant thereto; (ii) any and all other fees, indemnities, costs,
obligations and liabilities of the Debtors from time to time under
or in connection with this Agreement, the Notes and any other
Transaction Documents, instruments, agreements or other documents
executed and/or delivered in connection herewith or therewith; and
(iii) all amounts (including but not limited to post-petition
interest) in respect of the foregoing that would be payable but for
the fact that the obligations to pay such amounts are unenforceable
or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving any
Debtor.

 

(g) “Organizational
Documents” means with
respect to any Debtor, the documents by which such Debtor was
organized (such as a certificate of incorporation, certificate of
limited partnership or articles of organization, and including,
without limitation, any certificates of designation for preferred
stock or other forms of preferred equity) and which relate to the
internal governance of such Debtor (such as bylaws, a partnership
agreement or an operating, limited liability or members
agreement).

 

 

4

 

 

(h) “Pledged
Securities” shall have
the meaning ascribed to such term in Section
4(i).

 

(i) “UCC”
means the Uniform Commercial Code of the State of Delaware and or
any other applicable law of any state or states which has
jurisdiction with respect to all, or any portion of, the Collateral
or this Agreement, from time to time. It is the intent of the
parties that defined terms in the UCC should be construed in their
broadest sense so that the term “Collateral” will be
construed in its broadest sense. Accordingly, if there are, from
time to time, changes to defined terms in the UCC that broaden the
definitions, they are incorporated herein and if existing
definitions in the UCC are broader than the amended definitions,
the existing ones shall be controlling.

 

2. Grant
of Security Interest in Collateral. As an inducement for the Secured Parties to
extend the loans as evidenced by the Notes and to secure the
complete and timely payment, performance and discharge in full, as
the case may be, of all of the Obligations, each Debtor hereby
unconditionally and irrevocably pledges, grants and hypothecates to
the Secured Parties a security interest in and to, a lien upon and
a right of set-off against all of their respective right, title and
interest of whatsoever kind and nature in and to, the Collateral (a
“Security
Interest” and,
collectively, the “Security
Interests”).

 

3. Delivery
of Certain Collateral. At any
time at the reasonable request of the Collateral Agent, each Debtor
shall deliver or cause to be delivered to the Collateral Agent, any
and all certificates and other instruments or documents
representing any of the Collateral, in each case, together with all
Necessary Endorsements.

 

4. Representations,
Warranties, Covenants and Agreements of the
Debtors. Except as set forth
under the corresponding section of the disclosure schedules
delivered to the Secured Parties and Collateral Agent concurrently
herewith (the “Disclosure
Schedules”), which
Disclosure Schedules shall be deemed a part hereof. As of the date
hereof, each Debtor represents and warrants to the Secured Parties
as follows and, until the repayment in full of the Obligations,
covenants and agrees with, the Secured Parties as
follows:

 

(a) Each
Debtor has the requisite corporate, partnership, limited liability
company or other power and authority to enter into this Agreement
and otherwise to carry out its obligations hereunder. The
execution, delivery and performance by each Debtor of this
Agreement and the filings contemplated herein have been duly
authorized by all necessary action on the part of such Debtor and
no further action is required by such Debtor. This Agreement, when
executed and delivered, will constitute the legal, valid and
binding obligation of each Debtor, enforceable against each Debtor
in accordance with its terms except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization and
similar laws of general application relating to or affecting the
rights and remedies of creditors and by general principles of
equity.

 

(b) The
Debtors have no place of business or offices where their respective
books of account and records are kept (other than temporarily at
the offices of its attorneys or accountants) or places where
Collateral is stored or located, except as set forth on
Schedule
A attached hereto. Except as
specifically set forth on Schedule
A, each Debtor is the record
owner of the real property where such Collateral is located, and
there exist no mortgages or other liens on any such real property
or on the Collateral except for Permitted Liens (as defined in the
Securities Purchase Agreement), all of which are identified
on Schedule B
hereto. Except as disclosed on
Schedule
A and except for Collateral to
be held by the Collateral Agent, none of such Collateral is in the
possession of any consignee, bailee, warehouseman, agent or
processor.

 

 

5

 

 

(c) Except
for Permitted Liens and except as set forth on Schedule B
attached hereto, the Debtors are the
sole owners of the Collateral (except for non-exclusive licenses
granted by any Debtor in the ordinary course of business), free and
clear of any liens, security interests, encumbrances, rights or
claims, and are fully authorized to grant the Security Interests.
Except for Permitted Liens and other items which are all as set
forth on Schedule B
attached hereto, there is not on file
in any governmental or regulatory authority, agency or recording
office an effective financing statement, security agreement,
license or transfer or any notice of any of the foregoing (other
than those that will be filed in favor of the Secured Parties
pursuant to this Agreement) covering or affecting any of the
Collateral.

 

(d) No
written claim has been received that any Collateral or any
Debtor’s use of any Collateral violates the rights of any
third party. There has been no adverse decision to any
Debtor’s claim of ownership rights in or exclusive rights to
use the Collateral in any jurisdiction or to any Debtor’s
right to keep and maintain such Collateral in full force and
effect, and there is no proceeding involving said rights pending
or, to the best knowledge of any Debtor, threatened before any
court, judicial body, administrative or regulatory agency,
arbitrator or other governmental authority.

 

(e) Each
Debtor shall at all times maintain its books of account and records
relating to the Collateral at its principal place of business and
its Collateral at the locations set forth on Schedule A
attached hereto and may not relocate
such books of account and records or tangible Collateral except in
the ordinary course of sales unless it delivers to the Secured
Parties at least 15 days prior to such relocation (i) written
notice of such relocation and the new location thereof (which must
be within the United States) and (ii) evidence that appropriate
financing statements under the UCC and other necessary documents
have been filed and recorded and other steps have been taken to
perfect the Security Interests to create in favor of the Secured
Parties a valid, perfected and continuing perfected first priority
lien in the Collateral, except as otherwise permitted
hereby.

 

(f) This
Agreement creates in favor of the Secured Parties a valid security
interest in the Collateral, subject only to Permitted Liens
securing the payment and performance of the Obligations. Upon
making the filings described in the immediately following
paragraph, all security interests created hereunder in any
Collateral that may be perfected by filing Uniform Commercial Code
financing statements shall have been duly perfected. Except for the
filing of the Uniform Commercial Code financing statements referred
to in the immediately following paragraph, the recordation of the
Intellectual Property Security Agreement (as defined below) with
respect to copyrights and copyright applications in the United
States Copyright Office referred to in paragraph (m), the execution
and delivery of deposit account control agreements satisfying the
requirements of Section 9-104(a)(2) of the UCC with respect to each
deposit account of the Debtors, and the delivery of the
certificates and other instruments provided in Section 3, no action
is necessary to create, perfect or protect the security interests
created hereunder. Without limiting the generality of the
foregoing, except for the filing of said financing statements, the
recordation of said Intellectual Property Security Agreement, and
the execution and delivery of said deposit account control
agreements, no consent of any third parties and no authorization,
approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required for (i) the
execution, delivery and performance of this Agreement, (ii) the
creation or perfection of the Security Interests created hereunder
in the Collateral or (iii) the enforcement of the rights of the
Collateral Agent and the Secured Parties hereunder.

 

(g) Each
Debtor hereby authorizes the Collateral Agent to file one or more
financing statements under the UCC, with respect to the Security
Interests, with the proper filing and recording agencies in any
jurisdiction deemed proper by it and authorizes Collateral Agent to
take any other action in Collateral Agent’s absolute
discretion to effectuate, memorialize and protect Secured
Parties’ interest and rights under this
Agreement.

 

 

6

 

 

(h) The
execution, delivery and performance of this Agreement by the
Debtors does not (i) violate any of the provisions of any
Organizational Documents of any Debtor or, to the knowledge of any
Debtor, any judgment, decree, order or award of any court,
governmental body or arbitrator or any applicable law, rule or
regulation applicable to any Debtor or (ii) to the knowledge of
each Debtor, conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other
instrument (evidencing any Debtor’s debt or otherwise) or
other understanding to which such Debtor is a party or by which any
property or asset of any Debtor is bound or affected. If any, all
required consents (including, without limitation, from stockholders
or creditors of any Debtor) necessary for any Debtor to enter into
and perform its obligations hereunder have been
obtained.

 

(i) The
capital stock, other equity interests listed on Schedule H
hereto (the “Pledged
Securities”) represent
all of the capital stock of the Subsidiaries, if any, and represent
all capital stock and other equity interests owned, directly or
indirectly, by the Company (other than the Oxis Isle of Man
Limited). All of the Pledged Securities, if applicable, are validly
issued, fully paid and nonassessable, and the Company is the legal
and beneficial owner of the Pledged Securities, free and clear of
any lien, security interest or other encumbrance except for the
security interests created by this Agreement and other Permitted
Liens.

 

(j) The
ownership and other equity interests in partnerships and limited
liability companies (if any) included in the Collateral (the
“Pledged
Interests”) by their
express terms do not provide that they are securities governed by
Article 8 of the UCC and are not held in a securities account or by
any financial intermediary.

 

(k) Except
for Permitted Liens, each Debtor shall at all times maintain the
liens and Security Interests provided for hereunder as valid and
perfected first priority liens and security interests in the
Collateral in favor of the Secured Parties until this Agreement and
the Security Interest hereunder shall be terminated pursuant to
Section 14 hereof. Each Debtor hereby agrees to defend the same
against the claims of any and all persons and entities. Each Debtor
shall safeguard and protect all Collateral for the account of the
Secured Parties. Upon request of the Collateral Agent, each Debtor
will sign and deliver to the Collateral Agent on behalf of the
Secured Parties at any time or from time to time one or more
financing statements pursuant to the UCC in form reasonably
satisfactory to the Collateral Agent and will pay the cost of
filing the same in all public offices wherever filing is, or is
deemed by the Collateral Agent to be, necessary or desirable to
effect the rights and obligations provided for herein. Without
limiting the generality of the foregoing, each Debtor shall pay all
fees, taxes and other amounts necessary to maintain the Collateral
and the Security Interest hereunder, and each Debtor shall obtain
and furnish to the Collateral Agent from time to time, upon demand,
such releases and/or subordinations of claims and liens (other than
Permitted Liens) that may be required to maintain the priority of
the Security Interest hereunder.

 

(l) Other
than with respect to Permitted Liens, no Debtor will transfer,
pledge, hypothecate, encumber, license, sell or otherwise dispose
of any of the Collateral (except for non-exclusive licenses granted
by a Debtor in its ordinary course of business, sales of inventory
by a Debtor in its ordinary course of business and disposition of
obsolete equipment) without the prior written consent of the
Collateral Agent. The foregoing notwithstanding, Debtor may replace
noncash components of the Collateral with a cash or Cash Equivalent
deposit made at an institution subject to a cash account control
agreement acceptable to the Secured Parties, provided the amount of
cash deposited subject to such agreement is not less than the
highest amount of the Obligations that may be outstanding pursuant
to the Transaction Documents. Cash Equivalent shall mean U.S.
government Treasury bills, bank certificates of deposit, bankers'
acceptances, corporate commercial paper and other money market
instruments.

 

 

7

 

 

(m) Each
Debtor shall keep and preserve its equipment, inventory and other
tangible Collateral in good condition, repair and order and shall
not operate or locate any such Collateral (or cause to be operated
or located) in any area excluded from insurance
coverage.

 

(n) Each
Debtor shall maintain with financially sound and reputable
insurers, insurance with respect to the Collateral, including
Collateral hereafter acquired, against loss or damage of the kinds
and in the amounts customarily insured against by entities of
established reputation having similar properties similarly situated
and in such amounts as are customarily carried under similar
circumstances by other such entities and otherwise as is prudent
for entities engaged in similar businesses but in any event
sufficient to cover the full replacement cost thereof. Each Debtor
shall cause each insurance policy issued in connection herewith to
provide, and the insurer issuing such policy to certify to the
Collateral Agent, that (a) the Collateral Agent will be named as
lender loss payee and additional insured under each such insurance
policy; and (b) if such insurance is proposed to be cancelled or
materially changed for any reason whatsoever, such insurer or the
Company will promptly notify the Collateral Agent. In addition, the
Collateral Agent will have the right (but no obligation) at its
election to remedy any default in the payment of premiums within
thirty (30) days of notice from the Company or the insurer of any
such default. If no Event of Default (as defined in the Notes)
exists and if the proceeds arising out of any claim or series of
related claims do not exceed $50,000, loss payments in each
instance will be applied by the applicable Debtor to the repair
and/or replacement of property with respect to which the loss was
incurred to the extent reasonably feasible, and any loss payments
or the balance thereof remaining, to the extent not so applied,
shall be payable to the applicable Debtor; provided
, however
, that payments received by any Debtor
after an Event of Default occurs and is continuing or in excess of
$50,000 for any occurrence or series of related occurrences shall
be paid to the Collateral Agent on behalf of the Secured Parties
and, if received by such Debtor, shall be held in trust for the
Secured Parties and immediately paid over to the Collateral Agent
unless otherwise directed in writing by the Collateral Agent.
Copies of such policies or the related certificates, in each case,
naming the Collateral Agent as lender loss payee and additional
insured shall be delivered to the Collateral Agent at least
annually and at the time any new policy of insurance is
issued.

 

(o) Each
Debtor shall, within ten (10) days of obtaining knowledge thereof,
advise Collateral Agent promptly, in sufficient detail, of any
material adverse change in the Collateral, and of the occurrence of
any event which would have a material adverse effect on the value
of the Collateral or on the Secured Parties’ security
interest.

 

(p) Each
Debtor shall promptly execute and deliver to the Collateral Agent
such further deeds, mortgages, assignments, security agreements,
financing statements or other instruments, documents, certificates
and assurances and take such further action as the Collateral Agent
may from time to time request and may in its sole discretion deem
necessary to perfect, protect or enforce the Secured Parties’
security interest in the Collateral including, without limitation,
one or more deposit account control agreements, and if applicable,
the execution and delivery of a separate security agreement with
respect to each Debtor’s Intellectual Property
(“Intellectual Property
Security Agreement”) in
which the Secured Parties have been granted a security interest
hereunder, all substantially in forms reasonably acceptable to the
Collateral Agent, which Intellectual Property Security Agreement,
and other such documents and agreements other than as stated
therein, shall be subject to all of the terms and conditions
hereof.

 

(q) Each
Debtor shall permit the Collateral Agent and its representatives
and agents to inspect the Collateral during normal business hours
and upon reasonable prior notice, and to make copies of records
pertaining to the Collateral as may be reasonably requested by the
Collateral Agent from time to time; provided
that so long as no Event of Default
shall have occurred and be continuing, such inspections shall be
limited to no more than one (1) time per fiscal
year.

 

 

8

 

 

(r) Each
Debtor shall take commercially reasonable steps necessary to
diligently pursue and seek to preserve, enforce and collect any
rights, claims, causes of action and accounts receivable in respect
of the Collateral.

 

(s) Each
Debtor shall promptly notify the Secured Parties in sufficient
detail upon becoming aware of any attachment, garnishment,
execution or other legal process levied against any Collateral and
of any other information received by such Debtor that may
materially affect the value of the Collateral, the Security
Interest or the rights and remedies of the Secured Parties
hereunder.

 

(t) All
information heretofore, herein or hereafter supplied to the Secured
Parties by or on behalf of any Debtor with respect to the
Collateral is accurate and complete in all material respects as of
the date furnished and in light of the circumstances under which
such statements were made.

 

(u) Each
Debtor shall at all times preserve and keep in full force and
effect its existence and good standing and any rights and
franchises material to its business.

 

(v) No
Debtor will change its name, type of organization, jurisdiction of
organization, organizational identification number (if it has one),
legal or corporate structure, or add any new fictitious name unless
it provides at least 15 days prior written notice to the Collateral
Agent of such change and, at the time of such written notification,
such Debtor provides any financing statements or fixture filings
necessary to perfect and continue the perfection of the Security
Interests granted and evidenced by this Agreement.

 

(w) Except
in the ordinary course of business, no Debtor may consign any of
its inventory or sell any of its inventory on bill and hold, sale
or return, sale on approval, or other conditional terms of sale
without the consent of the Collateral Agent which shall not be
unreasonably withheld.

 

(x) No
Debtor may relocate its chief executive office to a new location
without providing 30 days prior written notification thereof to the
Secured Parties and provided that at the time of such written
notification, such Debtor provides any financing statements
necessary to perfect and continue the perfection of the Security
Interests granted and evidenced by this Agreement.

 

(y) Each
Debtor was organized and remains organized solely under the laws of
the state set forth next to such Debtor’s name in
Schedule
D attached hereto, which
Schedule
D sets forth each
Debtor’s organizational identification number or, if any
Debtor does not have one, states that one does not
exist.

 

(z) 

 

(i) The
actual name of each Debtor is the name set forth in
Schedule
D attached
hereto;

 

(ii) no
Debtor has any trade names except as set forth on
Schedule
E attached
hereto;

 

(iii) no
Debtor has used any name other than that stated in the preamble
hereto or as set forth on Schedule E
for the preceding five years;
and

 

(iv) no
entity has merged into any Debtor or been acquired by any Debtor
within the past five years except as set forth on
Schedule
E.

 

(aa) At
any time that any Collateral consists of instruments, certificated
securities or other items that require or permit possession by a
secured party to perfect the security interest created hereby, the
applicable Debtor shall deliver such Collateral to the Collateral
Agent.

 

 

9

 

 

(bb) During
the continuance of an Event of Default, each Debtor, in its
capacity as issuer, hereby agrees to comply with any and all orders
and instructions of Collateral Agent regarding the Pledged
Securities consistent with the terms of this Agreement without the
further consent of any Debtor as contemplated by Section 8-106 (or
any successor section) of the UCC. Further, each Debtor agrees,
solely with respect to the Pledged Securities, that it shall not
enter into a similar agreement (or one that would confer
“control” within the meaning of Article 8 of the UCC)
with any other person or entity.

 

(cc) each
Debtor shall cause all tangible chattel paper constituting
Collateral to be delivered to the Collateral Agent or, if such
delivery is not possible, then to cause such tangible chattel paper
to contain a legend noting that it is subject to the security
interest created by this Agreement. To the extent that any
Collateral consists of electronic chattel paper, the applicable
Debtor shall cause the underlying chattel paper to be
“marked” within the meaning of Section 9-105 of the UCC
(or successor section thereto).

 

(dd) If
there is any investment property or deposit account included as
Collateral that can be perfected by “control” through
an account control agreement, the applicable Debtor shall at the
request of the Collateral Agent cause such an account control
agreement, in form and substance in each case reasonably
satisfactory to the Collateral Agent, to be entered into and
delivered to the Collateral Agent for the benefit of the Secured
Parties.

 

(ee) To
the extent that any Collateral consists of letter-of-credit rights,
the applicable Debtor shall cause the issuer of each underlying
letter of credit to consent to an assignment of the proceeds
thereof to the Secured Parties.

 

(ff) To
the extent that any Collateral is in the possession of any third
party, the applicable Debtor shall join with the Collateral Agent
in notifying such third party of the Secured Parties’
security interest in such Collateral and shall use commercially
reasonable efforts to obtain an acknowledgement and agreement from
such third party with respect to the Collateral, in form and
substance reasonably satisfactory to the Collateral
Agent.

 

(gg) If
any Debtor shall at any time hold or acquire a commercial tort
claim, such Debtor shall promptly notify the Secured Parties in a
writing signed by such Debtor of the particulars thereof and grant
to the Secured Parties in such writing a security interest therein
and in the proceeds thereof, all upon the terms of this Agreement,
with such writing to be in form and substance satisfactory to the
Collateral Agent.

 

(hh) Each
Debtor shall promptly provide written notice to the Collateral
Agent of any and all accounts which arise out of contracts with any
governmental authority and, to the extent necessary to perfect or
continue the perfected status of the Security Interests in such
accounts and proceeds thereof, shall execute and deliver to the
Collateral Agent an assignment of claims for such accounts and
cooperate with the Collateral Agent in taking any other steps
required, in its judgment, under the Federal Assignment of Claims
Act or any similar federal, state or local statute or rule to
perfect or continue the perfected status of the Security Interests
in such accounts and proceeds thereof.

 

(ii) The
Company shall cause each subsidiary of the Company (other than Oxis
Isle of Man Limited) to promptly become a party hereto (an
“Additional
Debtor”), by executing
and delivering an Additional Debtor Joinder substantially in the
form of Annex A
attached hereto and comply with the
provisions hereof applicable to the Debtors. Concurrent therewith,
the Additional Debtor shall deliver replacement schedules for, or
supplements to all other Disclosure Schedules to (or referred to
in) this Agreement, as applicable, which replacement schedules
shall supersede, or supplements shall modify, the Schedules then in
effect. The Additional Debtor shall also deliver such opinions of
counsel, authorizing resolutions, good standing certificates,
incumbency certificates, organizational documents, financing
statements and other information and documentation as the
Collateral Agent may reasonably request. Upon delivery of the
foregoing to the Collateral Agent, the Additional Debtor shall be
and become a party to this Agreement with the same rights and
obligations as the Debtors, for all purposes hereof as fully and to
the same extent as if it were an original signatory hereto and
shall be deemed to have made the representations, warranties and
covenants set forth herein as of the date of execution and delivery
of such Additional Debtor Joinder (other than representations and
warranties that specifically refer to an earlier date), and all
references herein to the “Debtors” shall be deemed to
include each Additional Debtor.

 

 

10

 

 

(jj) Each
Debtor shall vote the Pledged Securities to comply with the
covenants and agreements set forth herein and in the
Notes.

 

(kk) Each
Debtor shall register the pledge of the applicable Pledged
Securities on the books of such Debtor. Each Debtor shall notify
each issuer of Pledged Securities to register the pledge of the
applicable Pledged Securities in the name of the Collateral Agent
on the books of such issuer. Further, except with respect to
certificated securities delivered to the Collateral Agent, the
applicable Debtor shall deliver to Collateral Agent an
acknowledgement of pledge (which, where appropriate, shall comply
with the requirements of the relevant UCC with respect to
perfection by registration) signed by the issuer of the applicable
Pledged Securities, which acknowledgement shall confirm that: (a)
it has registered the pledge on its books and records; and (b) at
any time directed by Collateral Agent during the continuation of an
Event of Default, such issuer will transfer the record ownership of
such Pledged Securities into the name of any designee of the
Collateral Agent, will take such steps as may be necessary to
effect the transfer, and will comply with all other instructions of
the Collateral Agent regarding such Pledged Securities without the
further consent of the applicable Debtor.

 

(ll) In
the event that, upon an occurrence of an Event of Default,
Collateral Agent shall sell all or any of the Pledged Securities to
another party or parties (herein called the
“Transferee”)
or shall purchase or retain all or any of the Pledged Securities,
each Debtor shall, to the extent applicable: (i) deliver to
Collateral Agent or the Transferee, as the case may be, the
articles of incorporation, bylaws, minute books, stock certificate
books, corporate seals, deeds, leases, indentures, agreements,
evidences of indebtedness, books of account, financial records and
all other Organizational Documents and records of the Debtors and
their direct and indirect subsidiaries; (ii) use its commercially
reasonable efforts to obtain resignations of the persons then
serving as officers and directors of the Debtors and their direct
and indirect subsidiaries, if so requested; and (iii) use its
commercially reasonable efforts to obtain any approvals that are
required by any governmental or regulatory body in order to permit
the sale of the Pledged Securities to the Transferee or the
purchase or retention of the Pledged Securities by Collateral Agent
and allow the Transferee or Collateral Agent to continue the
business of the Debtors and their direct and indirect
subsidiaries.

 

(mm) Without
limiting the generality of the other obligations of the Debtors
hereunder, each Debtor shall (i) cause to be registered at the
United States Copyright Office all of its material copyrights, (ii)
cause the security interest contemplated hereby with respect to all
Intellectual Property registered at the United States Copyright
Office or United States Patent and Trademark Office to be duly
recorded at the applicable office, and (iii) give the Collateral
Agent notice whenever it acquires (whether absolutely or by
license) or creates any additional material Intellectual
Property.

 

(nn) Each
Debtor will from time to time, at the joint and several expense of
the Debtors, promptly execute and deliver all such further
instruments and documents, and take all such further action as may
be reasonably necessary or desirable, or as the Collateral Agent
may reasonably request, in order to perfect and protect any
security interest granted or purported to be granted hereby or to
enable the Collateral Agent to exercise and enforce Collateral
Agent’s rights and remedies hereunder and with respect to any
Collateral or to otherwise carry out the purposes of this
Agreement.

 

(oo) Schedule
F attached hereto lists all of
the patents, patent applications, trademarks, trademark
applications, registered copyrights, and domain names owned by the
any of the Debtors as of the date hereof. Schedule F
lists all material licenses in favor
of Debtor for the use of any patents, trademarks, copyrights and
domain names as of the date hereof. All material patents and
trademarks of the Debtors have been duly recorded at the United
States Patent and Trademark Office and all material copyrights of
the Debtors have been duly recorded at the United States Copyright
Office.

 

 

11

 

 

(pp) Except
as set forth on Schedule G
attached hereto, none of the account
debtors or other persons or entities obligated on any of the
Collateral is a governmental authority covered by the Federal
Assignment of Claims Act or any similar federal, state or local
statute or rule in respect of such Collateral.

 

5. Effect
of Pledge on Certain Rights. If any of the Collateral subject to this Agreement
consists of nonvoting equity or ownership interests (regardless of
class, designation, preference or rights) that may be converted
into voting equity or ownership interests upon the occurrence of
certain events (including, without limitation, upon the transfer of
all or any of the other stock or assets of the issuer), it is
agreed that the pledge of such equity or ownership interests
pursuant to this Agreement or the enforcement of any of Collateral
Agent’s rights hereunder shall not be deemed to be the type
of event which would trigger such conversion rights notwithstanding
any provisions in the Organizational Documents or agreements to
which any Debtor is subject or to which any Debtor is
party.

 

6. Defaults.
The following events shall be “Events of
Default”:

 

(a) The
occurrence of an Event of Default (as defined in the Notes) under
the Notes;

 

(b) Any
representation or warranty of any Debtor in this Agreement shall
prove to have been incorrect in any material respect when
made;

 

(c) The
failure by any Debtor to observe or perform any of its obligations
hereunder for five (5) calendar days after delivery to such Debtor
of written notice of such failure by or on behalf of a Secured
Party or ten (10) calendar days after Debtor otherwise becomes
aware of such non-observance or non-performance; or

 

(d) If
any material provision of this Agreement shall at any time for any
reason be declared to be null and void, or the validity or
enforceability thereof shall be contested by any Debtor, or a
proceeding shall be commenced by any Debtor, or by any governmental
authority having jurisdiction over any Debtor, seeking to establish
the invalidity or unenforceability thereof, or any Debtor shall
deny that any Debtor has any liability or obligation purported to
be created under this Agreement.

 

7. Duty
to Hold In Trust.

 

(a) During
the continuance of an Event of Default, each Debtor shall, upon
receipt of any revenue, income, dividend, interest or other sums
subject to the Security Interests, whether payable pursuant to the
Notes or otherwise, or of any check, draft, note, trade acceptance
or other instrument evidencing an obligation to pay any such sum,
hold the same in trust for the Secured Parties and shall forthwith
endorse and transfer any such sums or instruments, or both, to the
Collateral Agent for distribution to the Secured Parties, pro-rata
in proportion to their respective then-currently outstanding
principal amount of Notes for application to the satisfaction of
the Obligations (and if any Note is not outstanding, pro-rata in
proportion to the initial purchases of the remaining
Notes).

 

(b) If
any Debtor shall become entitled to receive or shall receive any
securities or other property (including, without limitation, shares
of Pledged Securities or instruments representing Pledged
Securities acquired after the date hereof, or any options,
warrants, rights or other similar property or certificates
representing a dividend, or any distribution in connection with any
recapitalization, reclassification or increase or reduction of
capital, or issued in connection with any reorganization of such
Debtor or any of its direct or indirect subsidiaries) in respect of
the Pledged Securities (whether as an addition to, in substitution
of, or in exchange for, such Pledged Securities or otherwise), such
Debtor agrees to (i) hold the same in trust on behalf of and for
the benefit of the Secured Parties; and (ii) to deliver any and all
certificates or instruments evidencing the same to Collateral Agent
on or before the close of business on the fifth Business Day
following the receipt thereof by such Debtor, in the exact form
received together with the Necessary Endorsements, to be held by
Collateral Agent subject to the terms of this Agreement as
Collateral.

 

 

12

 

 

8. Rights
and Remedies Upon Default.

 

(a) After
the occurrence and during the continuance of any Event of Default,
the Collateral Agent shall have the right to exercise all of the
remedies conferred hereunder and under the Notes, and the
Collateral Agent shall have all the rights and remedies of a
secured party under the UCC. Without limitation, the Collateral
Agent, for the benefit of the Secured Parties, shall have the
following rights and powers:

 

(i) The
Collateral Agent shall have the right to take possession of the
Collateral and, for that purpose, enter, with the aid and
assistance of any person, any premises where the Collateral, or any
part thereof, is or may be placed and remove the same, so long as
the same can be accomplished without breach of the peace and
otherwise in compliance with applicable law, and each Debtor shall
assemble the Collateral and make it available to the Collateral
Agent at places which the Collateral Agent shall reasonably select,
whether at such Debtor’s premises or elsewhere, and make
available to the Collateral Agent, without rent, all of such
Debtor’s respective premises and facilities for the purpose
of the Collateral Agent taking possession of, removing or putting
the Collateral in saleable or disposable form.

 

(ii) Upon
notice to the Debtors by Collateral Agent, all rights of each
Debtor to exercise the voting and other consensual rights which it
would otherwise be entitled to exercise and all rights of each
Debtor to receive the dividends and interest which it would
otherwise be authorized to receive and retain, shall cease. Upon
such notice, Collateral Agent shall have the right to receive, for
the benefit of the Secured Parties, any interest, cash dividends or
other payments on the Collateral and, at the option of Collateral
Agent, to exercise in such Collateral Agent’s discretion all
voting rights pertaining thereto. Without limiting the generality
of the foregoing, Collateral Agent shall have the right (but not
the obligation) to exercise all rights with respect to the
Collateral as if it were the sole and absolute owner thereof,
including, without limitation, to vote and/or to exchange, at its
sole discretion, any or all of the Collateral in connection with a
merger, reorganization, consolidation, recapitalization or other
readjustment concerning or involving the Collateral or any Debtor
or any of its direct or indirect subsidiaries.

 

(iii) The
Collateral Agent shall have the right to seek an Order from a court
appointing a Trustee to operate the business of each Debtor using
the Collateral and shall have the right to assign, sell, lease or
otherwise dispose of and deliver all or any part of the Collateral,
at public or private sale or otherwise, either with or without
special conditions or stipulations, for cash or on credit or for
future delivery, in such parcel or parcels and at such time or
times and at such place or places, and upon such terms and
conditions as are commercially reasonable. Upon each such sale,
lease, assignment or other transfer or disposition of Collateral,
the Collateral Agent, for the benefit of the Secured Parties, may,
unless prohibited by applicable law which cannot be waived,
purchase all or any part of the Collateral being sold, free from
and discharged of all trusts, claims, right of redemption and
equities of any Debtor, which are hereby waived and
released.

 

(iv) The
Collateral Agent shall have the right (but not the obligation) to
notify any account debtors and any obligors under instruments or
accounts to make payments directly to the Collateral Agent, on
behalf of the Secured Parties, and to enforce the Debtors’
rights against such account debtors and obligors.

 

(v) The
Collateral Agent, for the benefit of the Secured Parties, may (but
is not obligated to) direct any financial intermediary or any other
person or entity holding any investment property to transfer the
same to the Collateral Agent, on behalf of the Secured Parties, or
its designee.

 

 

13

 

 

(vi) The
Collateral Agent may (but is not obligated to) transfer any or all
Intellectual Property registered in the name of any Debtor at the
United States Patent and Trademark Office and/or Copyright Office
into the name of the Collateral Agent or any purchaser of any
Collateral.

 

(b) The
Collateral Agent shall comply with any applicable law in connection
with a disposition of Collateral and such compliance will not be
considered adversely to affect the commercial reasonableness of any
sale of the Collateral. The Collateral Agent may sell the
Collateral without giving any warranties and may specifically
disclaim such warranties. If the Collateral Agent sells any of the
Collateral on credit, the Debtors will only be credited with
payments actually made by the purchaser. In addition, each Debtor
waives any and all rights that it may have to a judicial hearing in
advance of the enforcement of any of the Collateral Agent’s
rights and remedies hereunder, including, without limitation, its
right following an Event of Default to take immediate possession of
the Collateral and to exercise its rights and remedies with respect
thereto.

 

(c) If
any notice to Debtor of the sale or other disposition of Collateral
is required by then applicable law, five (5) business days prior
written notice (which Debtor agree is reasonable notice within the
meaning of Section 9.612(a) of the Uniform Commercial Code) shall
be given to Debtor of the time and place of any sale of Collateral.
The rights granted in this Section are in addition to any and all
rights available to Collateral Agent under the Uniform Commercial
Code.

 

(d) For
the purpose of enabling the Collateral Agent to further exercise
rights and remedies under this Section 8 or elsewhere provided by
agreement or applicable law, each Debtor hereby grants to the
Collateral Agent, for the benefit of the Collateral Agent and the
Secured Parties, an irrevocable, nonexclusive license (exercisable
without payment of royalty or other compensation to such Debtor) to
use, license or sublicense during the continuance of an Event of
Default, any Intellectual Property now owned or hereafter acquired
by such Debtor, and wherever the same may be located, and including
in such license access to all media in which any of the licensed
items may be recorded or stored and to all computer software and
programs used for the compilation or printout thereof.

 

9. Applications
of Proceeds. The proceeds of
any such sale, lease or other disposition of the Collateral
hereunder or from payments made on account of any insurance policy
insuring any portion of the Collateral shall be applied first, to
the expenses of retaking, holding, storing, processing and
preparing for sale, selling, and the like (including, without
limitation, any taxes, fees and other costs incurred in connection
therewith) of the Collateral, if any, to the reasonable
attorneys’ fees and expenses incurred by the Collateral Agent
in enforcing the Secured Parties’ rights hereunder and in
connection with collecting, storing and disposing of the
Collateral, and then to satisfaction of the Obligations pro rata
among the Secured Parties (based on then-outstanding principal
amounts of Notes at the time of any such determination), and then
to the payment of any other amounts required by applicable law,
after which the Secured Parties shall pay to the applicable Debtor
any surplus proceeds. If, upon the sale, license or other
disposition of the Collateral, the proceeds thereof are
insufficient to pay all amounts to which the Secured Parties are
legally entitled, the Debtors will be liable for the deficiency,
together with interest thereon, at the rate of 18% per annum or the
lesser amount permitted by applicable law (the “Default
Rate”), and the reasonable fees of any attorneys employed by
the Secured Parties to collect such deficiency. To the extent
permitted by applicable law, each Debtor waives all claims, damages
and demands against the Secured Parties arising out of the
repossession, removal, retention or sale of the Collateral, unless
due solely to the gross negligence or willful misconduct of the
Secured Parties as determined by a final judgment (not subject to
further appeal) of a court of competent
jurisdiction.

 

 

14

 

 

10. Securities
Law Provision. Each Debtor
recognizes that Collateral Agent may be limited in its ability to
effect a sale to the public of all or part of the Pledged
Securities by reason of certain prohibitions in the Securities Act
of 1933, as amended, or other federal or state securities laws
(collectively, the “Securities
Laws”), and may
reasonably be obliged to resort to one or more sales to a
restricted group of purchasers who may be required to agree to
acquire the Pledged Securities for their own account, for
investment and not with a view to the distribution or resale
thereof. Each Debtor agrees that sales so made may be at prices and
on terms less favorable than if the Pledged Securities were sold to
the public, and that Collateral Agent has no obligation to delay
the sale of any Pledged Securities for the period of time necessary
to register the Pledged Securities for sale to the public under the
Securities Laws. Each Debtor shall cooperate with Collateral Agent
in its attempt to satisfy any requirements under the Securities
Laws (including, without limitation, registration thereunder if
requested by Collateral Agent) applicable to the sale of the
Pledged Securities by Collateral Agent.

 

11. Costs
and Expenses. Each Debtor
agrees to pay all reasonable out-of-pocket fees, costs and expenses
incurred in connection with any filing required hereunder,
including without limitation, any financing statements pursuant to
the UCC, continuation statements, partial releases and/or
termination statements related thereto or any expenses of any
searches reasonably required by the Collateral Agent. The Debtors
shall also pay all other claims and charges which in the reasonable
opinion of the Collateral Agent is reasonably likely to prejudice,
imperil or otherwise affect the Collateral or the Security
Interests therein. The Debtors will also, upon demand, pay to the
Collateral Agent the amount of any and all reasonable expenses,
including the reasonable fees and expenses of its counsel and of
any experts and agents, which the Collateral Agent, for the benefit
of the Secured Parties, may incur in connection with (i) the
enforcement of this Agreement, (ii) the custody or preservation of,
or the sale of, collection from, or other realization upon, any of
the Collateral, or (iii) the exercise or enforcement of any of the
rights of the Secured Parties under the Notes. Until so paid, any
fees payable hereunder shall be added to the principal amount of
the Notes and shall bear interest at the Default
Rate.

 

12. Responsibility
for Collateral. The Debtors
assume all liabilities and responsibility in connection with all
Collateral, and the Obligations shall in no way be affected or
diminished by reason of the loss, destruction, damage or theft of
any of the Collateral or its unavailability for any reason. Without
limiting the generality of the foregoing, (a) neither the
Collateral Agent nor any Secured Party (i) has any duty (either
before or after an Event of Default) to collect any amounts in
respect of the Collateral or to preserve any rights relating to the
Collateral, or (ii) has any obligation to clean-up or otherwise
prepare the Collateral for sale, and (b) each Debtor shall remain
obligated and liable under each contract or agreement included in
the Collateral to be observed or performed by such Debtor
thereunder. Neither the Collateral Agent nor any Secured Party
shall have any obligation or liability under any such contract or
agreement by reason of or arising out of this Agreement or the
receipt by the Collateral Agent or any Secured Party of any payment
relating to any of the Collateral, nor shall the Collateral Agent
or any Secured Party be obligated in any manner to perform any of
the obligations of any Debtor under or pursuant to any such
contract or agreement, to make inquiry as to the nature or
sufficiency of any payment received by the Collateral Agent or any
Secured Party in respect of the Collateral or as to the sufficiency
of any performance by any party under any such contract or
agreement, to present or file any claim, to take any action to
enforce any performance or to collect the payment of any amounts
which may have been assigned to the Collateral Agent or to which
the Collateral Agent or any Secured Party may be entitled at any
time or times.

 

 

15

 

 

13. Security
Interests Absolute. All rights
of the Secured Parties and all obligations of the Debtors
hereunder, shall be absolute and unconditional, irrespective of:
(a) any lack of validity or enforceability of this Agreement, the
Notes or any agreement entered into in connection with the
foregoing, or any portion hereof or thereof; (b) any change in the
time, manner or place of payment or performance of, or in any other
term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Notes or any
other agreement entered into in connection with the foregoing; (c)
any exchange, release or non-perfection of any of the Collateral,
or any release or amendment or waiver of or consent to departure
from any other collateral for, or any guarantee, or any other
security, for all or any of the Obligations; (d) any action by the
Secured Parties to obtain, adjust, settle and cancel in its sole
discretion any insurance claims or matters made or arising in
connection with the Collateral; or (e) any other circumstance which
might otherwise constitute any legal or equitable defense available
to a Debtor, or a discharge of all or any part of the Security
Interests granted hereby. Until the Obligations shall have been
paid and performed in full, the rights of the Secured Parties shall
continue even if the Obligations are barred for any reason,
including, without limitation, the running of the statute of
limitations or bankruptcy. Each Debtor expressly waives
presentment, protest, notice of protest, demand, notice of
nonpayment and demand for performance. In the event that at any
time any transfer of any Collateral or any payment received by the
Secured Parties hereunder shall be deemed by final order of a court
of competent jurisdiction to have been a voidable preference or
fraudulent conveyance under the bankruptcy or insolvency laws of
the United States, or shall be deemed to be otherwise due to any
party other than the Secured Parties, then, in any such event, each
Debtor’s obligations hereunder shall survive cancellation of
this Agreement, and shall not be discharged or satisfied by any
prior payment thereof and/or cancellation of this Agreement, but
shall remain a valid and binding obligation enforceable in
accordance with the terms and provisions hereof. Each Debtor waives
all right to require the Secured Parties to proceed against any
other person or entity or to apply any Collateral which the Secured
Parties may hold at any time, or to marshal assets, or to pursue
any other remedy. Each Debtor waives any defense arising by reason
of the application of the statute of limitations to any Obligations
secured hereby.

 

14. Term
of Agreement. This Agreement
and the Security Interest shall terminate on the date on which all
payments under the Notes have been indefeasibly paid in full and
all other Obligations have been paid or discharged; provided,
however, that all indemnities of the Debtors contained in this
Agreement (including, without limitation, Annex B hereto) shall
survive and remain operative and in full force and effect
regardless of the termination of this
Agreement.

 

15. Power
of Attorney; Further Assurances.

 

(a) Each
Debtor authorizes the Collateral Agent, and does hereby make,
constitute and appoint the Collateral Agent and its officers,
agents, successors or permitted assigns with full power of
substitution, as such Debtor’s true and lawful
attorney-in-fact, with power, in the name of the Collateral Agent
or such Debtor, after the occurrence and during the continuance of
an Event of Default, (i) to endorse any note, checks, drafts, money
orders or other instruments of payment (including, without
limitation, payments payable under or in respect of any policy of
insurance) in respect of the Collateral that may come into
possession of the Collateral Agent; (ii) to sign and endorse any
financing statement pursuant to the UCC or any invoice, freight or
express bill, bill of lading, storage or warehouse receipts, drafts
against debtors, assignments, verifications and notices in
connection with accounts, and other documents relating to the
Collateral; (iii) to pay or discharge taxes, liens, security
interests or other encumbrances at any time levied or placed on or
threatened against the Collateral; (iv) to demand, collect, receipt
for, compromise, settle and sue for monies due in respect of the
Collateral; (v) to transfer any Intellectual Property or provide
licenses respecting any Intellectual Property; and (vi) generally,
at the option of the Collateral Agent, and at the expense of the
Debtors, at any time, or from time to time, to execute and deliver
any and all documents and instruments and to do all acts and things
which the Collateral Agent deems necessary to protect, preserve and
realize upon the Collateral and the Security Interests granted
therein in order to effect the intent of this Agreement and the
Notes all as fully and effectually as the Debtors might or could
do; and each Debtor hereby ratifies all that said attorney shall
lawfully do or cause to be done by virtue hereof. This power of
attorney is coupled with an interest and shall be irrevocable for
the term of this Agreement and thereafter as long as any of the
Obligations shall be outstanding. The designation set forth herein
shall be deemed to amend and supersede any inconsistent provision
in the Organizational Documents or other documents or agreements to
which any Debtor is subject or to which any Debtor is a party.
Without limiting the generality of the foregoing, after the
occurrence and during the continuance of an Event of Default, each
Secured Party is specifically authorized to execute and file any
applications for or instruments of transfer and assignment of any
patents, trademarks, copyrights or other Intellectual Property with
the United States Patent and Trademark Office and the United States
Copyright Office.

 

 

16

 

 

(b) On
a continuing basis, each Debtor will make, execute, acknowledge,
deliver, file and record, as the case may be, with the proper
filing and recording agencies in any jurisdiction, including,
without limitation, the jurisdictions indicated on
Schedule
C attached hereto, all such
instruments, and take all such action as may reasonably be deemed
necessary or advisable, or as reasonably requested by the
Collateral Agent, to perfect the Security Interest granted
hereunder and otherwise to carry out the intent and purposes of
this Agreement, or for assuring and confirming to the Collateral
Agent the grant or perfection of a perfected security interest in
all the Collateral under the UCC.

 

(c) Each
Debtor hereby irrevocably appoints the Collateral Agent as such
Debtor’s attorney-in-fact, with full authority in the place
and instead of such Debtor and in the name of such Debtor, from
time to time in the Collateral Agent’s discretion, to take
any action permitted under this Agreement and to execute any
instrument which the Collateral Agent may reasonably deem necessary
or advisable to accomplish the purposes of this Agreement,
including the filing, in its sole discretion, of one or more
financing or continuation statements and amendments thereto,
relative to any of the Collateral without the signature of such
Debtor where permitted by law, which financing statements may (but
need not) describe the Collateral as “all assets” or
“all personal property” or words of like import, and
ratifies all such actions taken by the Collateral Agent. This power
of attorney is coupled with an interest and shall be irrevocable
for the term of this Agreement and thereafter as long as any of the
Obligations shall be outstanding.

 

16. Notices.
All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (a) personally
served, (b) deposited in the mail, registered or certified, return
receipt requested, postage prepaid, (c) delivered by a reputable
overnight courier service with charges prepaid, or (d) transmitted
by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication
required or permitted to be given hereunder shall be deemed
effective (i) upon hand delivery or delivery by facsimile, with
accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on
a Business Day during normal business hours), or the first Business
Day following such delivery (if delivered other than on a Business
Day during normal business hours), (ii) on the first Business Day
following the date deposited with an overnight courier service with
charges prepaid, or (iii) on the fifth Business Day following the
date of mailing pursuant to subpart (b) above, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such communications shall
be:

 

	
To
Debtor, to:

	
GT
Biopharma, Inc.

	
 

	
310
N. Westlake Blvd, Suite 206

	
 

	
Westlake
Village, CA 91362

	
 

	
 

	
With
a copy only to

	
 

	
(which shall not constitute
notice):

	
Gary
R. Henrie, Esq.

	
 

	
P.O.
Box 107

	
 

	
Nauvoo,
IL 62354

	
 

	
Email:
grhlaw@hotmail.com

	
 

	
  

	
 To the Collateral
Agent:

	
Alpha
Capital Anstalt

	
 

	
c/o
Grushko & Mittman, P.C.

	
 

	
515
Rockaway Avenue

	
 

	
Valley
Stream, NY 11581

	
 

	
Fax:
(212) 697-3575

 

 

17

 

   

17. Other
Security. To the extent that
the Obligations are now or hereafter secured by property other than
the Collateral or by the guarantee, endorsement or property of any
other person, firm, corporation or other entity, then the
Collateral Agent shall have the right, in its sole discretion, to
pursue, relinquish, subordinate, modify or take any other action
with respect thereto, without in any way modifying or affecting any
of the Secured Parties’ rights and remedies
hereunder.

 

18. Appointment
of Collateral Agent. The
Secured Parties hereby appoint Alpha Capital Anstalt to act as
their agent (“Collateral
Agent”) for purposes of
exercising any and all rights and remedies of the Secured Parties
hereunder. Such appointment shall continue until revoked in writing
by a Majority in Interest, at which time a Majority in Interest
shall appoint a new Collateral Agent. The Collateral Agent shall
have the rights, responsibilities and immunities set forth
in Annex B
hereto.

 

19. Miscellaneous.

 

(a) No
course of dealing between the Debtors and the Collateral Agent, nor
any failure to exercise, nor any delay in exercising, on the part
of the Collateral Agent, any right, power or privilege hereunder or
under the Notes shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege
hereunder or thereunder preclude any other or further exercise
thereof or the exercise of any other right, power or
privilege.

 

(b) All
of the rights and remedies of the Collateral Agent with respect to
the Collateral, whether established hereby or by the Notes or by
any other agreements, instruments or documents or by law shall be
cumulative and may be exercised singly or
concurrently.

 

(c) This
Agreement, together with the exhibits and schedules hereto, contain
the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters,
which the parties acknowledge have been merged into this Agreement
and the exhibits and schedules hereto. No provision of this
Agreement may be waived, modified, supplemented or amended except
in a written instrument signed, in the case of an amendment, by the
Debtors and Collateral Agent or, in the case of a waiver, by the
party against whom enforcement of any such waived provision is
sought.

 

(d) 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 full
force and effect and shall in no way be affected, impaired or
invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It
is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or
unenforceable.

 

(e) No
waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of any party to exercise any right
hereunder in any manner impair the exercise of any such
right.

 

 

18

 

 

(f) This
Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns. The Debtors may
not assign this Agreement or any rights or obligations hereunder
without the prior written consent of a Majority in Interest (other
than by merger). Any Secured Party may assign any or all of its
rights under this Agreement to any Person to whom such Secured
Party assigns or transfers any Obligations, provided such
transferee agrees in writing to be bound, with respect to the
transferred Obligations, by the provisions of this Agreement that
apply to the “Secured Parties.”

 

(g) Each
party shall take such further action and execute and deliver such
further documents as may be necessary or appropriate in order to
carry out the provisions and purposes of this
Agreement.

 

(h) Except
as otherwise stated herein, all questions concerning the
construction, validity, enforcement and interpretation of this
Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without
regard to the principles of conflicts of law thereof. Each Debtor
agrees that all proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this
Agreement and the Notes (whether brought against a party hereto or
its respective affiliates, directors, officers, shareholders,
partners, members, employees or agents) shall be commenced
exclusively in the state and federal courts sitting in the City of
New York, Borough of Manhattan. Each Debtor hereby irrevocably
submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan for
the adjudication of any dispute hereunder or in connection herewith
or with any transaction contemplated hereby or discussed herein,
and hereby irrevocably waives, and agrees not to assert in any
proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such proceeding is improper.
Each party hereto hereby irrevocably waives personal service of
process and consents to process being served in any such proceeding
by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be
deemed to limit in any way any right to serve process in any manner
permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Agreement or the transactions
contemplated hereby. If any
party shall commence a proceeding to enforce any provisions of this
Agreement, then the prevailing party in such proceeding shall be
reimbursed by the other party for its reasonable attorney’s
fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such proceeding.

 

(i) This
Agreement may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original and, all
of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by
facsimile or other electronic transmission, such signature shall
create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same
force and effect as if such signature were the original
thereof.

 

(j) All
Debtors shall jointly and severally be liable for the obligations
of each Debtor to the Secured Parties hereunder.

 

(k) Debtor
shall indemnify, reimburse and hold harmless the Collateral Agent
and the Secured Parties and their respective partners, members,
shareholders, officers, directors, employees and agents (and any
other persons with other titles that have similar functions)
(collectively, “Indemnitees”)
from and against any and all losses, claims, liabilities, damages,
penalties, suits, costs and expenses, of any kind or nature,
(including fees relating to the cost of investigating and defending
any of the foregoing) imposed on, incurred by or asserted against
such Indemnitee in any way related to or arising from or alleged to
arise from this Agreement or the Collateral, except any such
losses, claims, liabilities, damages, penalties, suits, costs and
expenses which result from the gross negligence or willful
misconduct of the Indemnitee as determined by a final,
nonappealable decision of a court of competent jurisdiction. This
indemnification provision is in addition to, and not in limitation
of, any other indemnification provision in the Notes, the
Securities Purchase Agreement (as such term is defined in the
Notes) or any other agreement, instrument or other document
executed or delivered in connection herewith or
therewith.

 

 

19

 

 

(l) Nothing
in this Agreement shall be construed to subject Collateral Agent or
any Secured Party to liability as a partner in any Debtor or any if
its direct or indirect subsidiaries that is a partnership or as a
member in any Debtor or any of its direct or indirect subsidiaries
that is a limited liability company, nor shall Collateral Agent or
any Secured Party be deemed to have assumed any obligations under
any partnership agreement or limited liability company agreement,
as applicable, of any such Debtor or any if its direct or indirect
subsidiaries or otherwise, unless and until any such Secured Party
exercises its right to be substituted for such Debtor as a partner
or member, as applicable, pursuant hereto.

 

(m) To
the extent that the grant of the security interest in the
Collateral and the enforcement of the terms hereof require the
consent, approval or action of any partner or member, as
applicable, of any Debtor or any direct or indirect subsidiary of
any Debtor or compliance with any provisions of any of the
Organizational Documents, the Debtors hereby grant such consent and
approval and waive any such noncompliance with the terms of said
documents.

 

 

 

20

 

 

IN
WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed on the day and year first above
written.

 

 

	

GT BIOPHARMA, INC.

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
By:

	
 

	
 

	
 

	

Name: Raymond W. Urbanski

	
 

	
 

	

Title: Chief Executive Officer

	
 

	
 

	
 

	
 

	
 

	
 

	
 

 

 

COLLATERAL AGENT

 

ALPHA CAPITAL ANSTALT

 

 

____________________________________________

 

 

 

 

 

 

21

 

 

OMNIBUS SECURED PARTY SIGNATURE PAGE TO

 

GT BIOPHARMA, INC.

 

SECURITY AGREEMENT

 

The
undersigned, in its capacity as a Secured Party, hereby executes
and delivers the Security Agreement to which this signature page is
attached and agrees to be bound by the Security Agreement on the
date set forth on the first page of the Security Agreement. This
counterpart signature page, together with all counterparts of the
Security Agreement and signature pages of the other parties named
therein, shall constitute one and the same instrument in accordance
with the terms of the Security Agreement.

 

 

___________________________________________ 

[Print
Name of Investor]

 

___________________________________________

[Signature]

 

Name:
_____________________________________

 

Title:
______________________________________

 

Address

______________________________________ 

______________________________________ 

______________________________________ 

 

Email:
_______________________________________

 

Taxpayer
ID# (if applicable): ______________________

 

 

22

 

 

ANNEX A to SECURITY AGREEMENT

 

FORM OF ADDITIONAL DEBTOR JOINDER

 

Security Agreement dated as of February ___, 2019 made
by

GT Biopharma, Inc.

and certain of its Subsidiaries party thereto from time to time, as
Debtors

to and in favor of

the Secured Parties identified therein (the
“Security
Agreement”)

 

Reference is made to the Security Agreement as defined above;
capitalized terms used herein and not otherwise defined herein
shall have the meanings given to such terms in, or by reference in,
the Security Agreement.

 

The undersigned hereby agrees that upon delivery of this Additional
Debtor Joinder to the Secured Parties referred to above, the
undersigned shall (a) be an Additional Debtor under the Security
Agreement, (b) have all the rights and obligations of the Debtors
under the Security Agreement as fully and to the same extent as if
the undersigned was an original signatory thereto and (c) be deemed
to have made the representations and warranties set forth therein
as of the date of execution and delivery of this Additional Debtor
Joinder (except to the extent such representation or warranty
specifically refers to an earlier date). WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, THE UNDERSIGNED SPECIFICALLY GRANTS TO
THE SECURED PARTIES A SECURITY INTEREST IN THE COLLATERAL AS MORE
FULLY SET FORTH IN THE SECURITY AGREEMENT AND ACKNOWLEDGES AND
AGREES TO THE WAIVER OF JURY TRIAL PROVISIONS SET FORTH
THEREIN.

 

Attached hereto are supplemental and/or replacement Schedules to
the Security Agreement, as applicable.

 

Attached
hereto is an original Subsidiary Guaranty executed by the
undersigned and delivered herewith.

 

An executed copy of this Additional Debtor Joinder shall be
delivered to the Secured Parties, and the Secured Parties may rely
on the matters set forth herein on or after the date hereof. This
Additional Debtor Joinder shall not be modified, amended or
terminated without the prior written consent of the Secured
Parties.

 

IN
WITNESS WHEREOF, the undersigned has caused this Joinder to be
executed in the name and on behalf of the undersigned.

 

	

[___]

	
 

	

By:

	
 

	

Name: Raymond W. Urbanski

	

Title: Chief Executive Officer

	
 

	

Address: 310
N. Westlake Blvd, Suite 206, Westlake Village, CA
91362

 

Dated:   

 

 

23

 

 

SUBSIDIARY GUARANTY

 

1.            

Identification.

 

This
Guaranty (the “Guaranty”), dated as of
_____________, 2019 is entered into by [___],
a [___]
corporation (“Guarantor”), for the
benefit of the Collateral Agent identified below and the parties
identified on Schedule
A hereto (each a “Lender” and collectively,
the “Lenders”).

 

2.            

Recitals.

 

2.1           Guarantor
is a direct or indirect subsidiary of GT Biopharma, Inc., a
Delaware corporation (“Parent”). The Lenders
have made and/or are making loans to Parent (the
“Loans”).
Guarantor will obtain substantial benefit from the proceeds of the
Loans.

 

2.2           

The Loans are and
will be evidenced by certain 10% senior Convertible Debentures
issued by Parent on August 2, 2018, September 7, 2018 and September
24, 2018 as set forth on Schedule 1 to the Security Agreement and
certain Secured Convertible Notes (collectively, the 10% senior
Convertible Debentures and the senior Convertible Notes are
referred to as “Note” or the
“Notes”) issued by Parent
on, about or after the date of this Guaranty pursuant to those
certain Securities Purchase Agreements dated August 2, 2018,
September 7, 2018 and September 24, 2018 and at or about the date
hereof, respectively (“Securities Purchase
Agreements”). The Notes issued on the Closing Date are
further described on Schedule A hereto and were and
or will be executed by Parent as “Borrower” for the
benefit of each Lender as the “Holder”
thereof.

 

2.3           In
consideration of the Loans made and to be made by Lenders to Parent
and for other good and valuable consideration, and as security for
the performance by Parent of its obligations under the Notes and as
security for the repayment of the Loans and all other sums due from
Debtor to Lenders arising under the Notes (collectively, the
“Obligations”), Guarantor,
for good and valuable consideration, receipt of which is
acknowledged, has agreed to enter into this Guaranty.

 

2.4           The
Lenders have appointed Alpha Capital Anstalt as Collateral Agent
pursuant to that certain Security Agreement dated at or about the
date of this Agreement (“Security Agreement”),
among the Lenders and Collateral Agent.

 

2.5           Upper
case terms employed but not defined herein shall have the meanings
ascribed to them in the Transaction Documents (as defined in the
Securities Purchase Agreement).

 

3.            

Guaranty.

 

3.1           Guaranty.
Guarantor hereby unconditionally and irrevocably guarantees,
jointly and severally with any other guarantor of the Obligations,
the punctual payment, performance and observance when due, whether
at stated maturity, by acceleration or otherwise, of all of the
Obligations now or hereafter existing, whether for principal,
interest (including, without limitation, all interest that accrues
after the commencement of any insolvency, bankruptcy or
reorganization of Parent, whether or not constituting an allowed
claim in such proceeding), fees, commissions, expense
reimbursements, liquidated damages, indemnifications or otherwise
arising under the Notes, Security Agreement, or any other
Transaction Document (as defined in the Securities Purchase
Agreement) (such obligations, to the extent not paid by Parent
being the “Guaranteed Obligations”
and included in the definition of Obligations), and agrees to pay
any and all reasonable costs, fees and expenses (including
reasonable counsel fees and expenses) incurred by Collateral Agent
and the Lenders in enforcing any rights under the Guaranty set
forth herein. Without limiting the generality of the foregoing,
Guarantor’s liability shall extend to all amounts that
constitute part of the Guaranteed Obligations and would be owed by
Parent to Collateral Agent and the Lenders, but for the fact that
they are unenforceable or not allowable due to the existence of an
insolvency, bankruptcy or reorganization involving
Parent.

 

 

24

 

 

3.2           Guaranty
Absolute. Guarantor guarantees that the Guaranteed
Obligations will be paid strictly in accordance with the terms of
the Notes, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms
or the rights of Collateral Agent or the Lenders with respect
thereto. The obligations of Guarantor under this Guaranty are
independent of the Guaranteed Obligations, and a separate action or
actions may be brought and prosecuted against Guarantor to enforce
such obligations, irrespective of whether any action is brought
against Parent or any other guarantor or whether Parent or any
other guarantor is joined in any such action or actions. The
liability of Guarantor under this Guaranty constitutes a primary
obligation, and not a contract of surety, and to the extent
permitted by law, shall be irrevocable, absolute and unconditional
irrespective of, and Guarantor hereby irrevocably waives any
defenses it may now or hereafter have in any way relating to, any
or all of the following:

 

(a)           

any lack of
validity of the Notes or any agreement or instrument relating
thereto;

 

(b)           

any change in the
time, manner or place of payment of, or in any other term of, all
or any of the Guaranteed Obligations, or any other amendment or
waiver of or any consent to departure from the Notes, including,
without limitation, any increase in the Guaranteed Obligations
resulting from the extension of additional credit to Parent or
otherwise;

 

 

(c)           

any taking,
exchange, release, subordination or non-perfection of any
Collateral, or any taking, release or amendment or waiver of or
consent to departure from any other guaranty, for all or any of the
Guaranteed Obligations;

 

 

(d)           

any change,
restructuring or termination of the corporate, limited liability
company or partnership structure or existence of Parent;
or

 

(e)           any
other circumstance (including, without limitation, any statute of
limitations) or any existence of or reliance on any representation
by Collateral Agent or the Lenders that might otherwise constitute
a defense available to, or a discharge of, Parent or any other
guarantor or surety.

 

This
Guaranty shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the Guaranteed
Obligations is rescinded or must otherwise be returned by
Collateral Agent, the Lenders or any other entity upon the
insolvency, bankruptcy or reorganization of the Parent or otherwise
(and whether as a result of any demand, settlement, litigation or
otherwise), all as though such payment had not been
made.

 

3.3           Waiver.
Guarantor hereby waives promptness, diligence, notice of acceptance
and any other notice with respect to any of the Guaranteed
Obligations and this Guaranty and any requirement that Collateral
Agent or the Lenders exhaust any right or take any action against
any Borrower or any other person or entity or any Collateral.
Guarantor acknowledges that it will receive direct and indirect
benefits from the financing arrangements contemplated herein and
that the waiver set forth in this Section 3.3 is knowingly
made in contemplation of such benefits. Guarantor hereby waives any
right to revoke this Guaranty, and acknowledges that this Guaranty
is continuing in nature and applies to all Guaranteed Obligations,
whether existing now or in the future.

 

3.4
Continuing Guaranty;
Assignments. This Guaranty is a continuing guaranty and
shall (a) remain in full force and effect until the later of the
indefeasible cash or other payment in full of the Guaranteed
Obligations, (b) be binding upon Guarantor, its successors and
assigns, and (c) inure to the benefit of and be enforceable by the
Lenders and their successors, pledgees, transferees and assigns.
Without limiting the generality of the foregoing clause (c),
any Lender may pledge, assign or otherwise transfer all or any
portion of its rights and obligations under this Guaranty
(including, without limitation, all or any portion of its Notes
owing to it) to any other Person, and such other Person shall
thereupon become vested with all the benefits in respect thereof
granted such Collateral Agent or Lender herein or
otherwise.

 

 

 

25

 

   

3.5 Subrogation. Guarantor will not
exercise any rights that it may now or hereafter acquire against
the Collateral Agent or any Lender or other guarantor (if any) that
arise from the existence, payment, performance or enforcement of
such Guarantor’s obligations under this Guaranty, including,
without limitation, any right of subrogation, reimbursement,
exoneration, contribution or indemnification, whether or not such
claim, remedy or right arises in equity or under contract, statute
or common law, including, without limitation, the right to take or
receive from the Collateral Agent or any Lender or other guarantor
(if any), directly or indirectly, in cash or other property or by
set-off or in any other manner, payment or security solely on
account of such claim, remedy or right, unless and until all of the
Guaranteed Obligations and all other amounts payable under this
Guaranty shall have been indefeasibly paid in full.

 

3.6
Maximum
Obligations. Notwithstanding any provision herein contained
to the contrary, Guarantor’s liability with respect to the
Obligations shall be limited to an amount not to exceed, as of any
date of determination, the amount that could be claimed by Lenders
from Guarantor without rendering such claim voidable or avoidable
under Section 548 of the Bankruptcy Code or under any applicable
state Uniform Fraudulent Transfer Act, Uniform Fraudulent
Conveyance Act or similar statute or common law.

 

4.            

Miscellaneous.

 

4.1           Expenses.
Guarantor shall pay to the Lenders, on demand, the amount of any
and all reasonable expenses, including, without limitation,
reasonable attorneys’ fees, reasonable legal expenses and
reasonable brokers’ fees, which the Lenders may incur in
connection with exercise or enforcement of any the rights, remedies
or powers of the Lenders hereunder or with respect to any or all of
the Obligations.

 

4.2           Waivers,
Amendment and Remedies. No course of dealing by the Lenders
and no failure by the Lenders to exercise, or delay by the Lender
in exercising, any right, remedy or power hereunder shall operate
as a waiver thereof, and no single or partial exercise thereof
shall preclude any other or further exercise thereof or the
exercise of any other right, remedy or power of the Lenders. No
amendment, modification or waiver of any provision of this Guaranty
and no consent to any departure by Guarantor therefrom, shall, in
any event, be effective unless contained in a writing signed by the
Guarantor and the Majority in Interest (as such term is defined in
the Security Agreement) or Lenders against whom such amendment,
modification or waiver is sought, and then such waiver or consent
shall be effective only in the specific instance and for the
specific purpose for which given. The rights, remedies and powers
of the Lenders, not only hereunder, but also under any other
Transaction Documents and under applicable law are cumulative, and
may be exercised by the Lenders from time to time in such order as
the Lenders may elect.

 

4.3           Notices.
All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (a) personally
served, (b) deposited in the mail, registered or certified, return
receipt requested, postage prepaid, (c) delivered by a reputable
overnight courier service with charges prepaid, or (d) transmitted
by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication
required or permitted to be given hereunder shall be deemed
effective (i) upon hand delivery or delivery by facsimile, with
accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below if delivered on
a Business Day during normal business hours, or the first Business
Day following such delivery (if delivered other than on a Business
Day during normal business hours), (ii) on the first Business Day
following the date deposited with an overnight courier service with
charges prepaid, or (iii) on the fifth Business Day following the
date of mailing pursuant to subpart (b) above, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such communications shall
be:

 

 

26

 

 

 

	
To
Guarantor, to:

	
c/o
GT Biopharma, Inc.

	
 

	
310
N. Westlake Blvd, Suite 206

	
 

	
Westlake
Village, CA 91362

	
 

	
 

	
With
a copy only to

	
 

	
(which shall not constitute
notice):

	
Gary
R. Henrie, Esq.

	
 

	
P.O.
Box 107

	
 

	
Nauvoo,
IL 62354

	
 

	
Email:
grhlaw@hotmail.com

	
 

	
  

	
To
the Collateral Agent:

	
Alpha
Capital Anstalt

	
 

	
c/o
Grushko & Mittman, P.C.

	
 

	
515
Rockaway Avenue

	
 

	
Valley
Stream, NY 11581

	
 

	
Fax:
(212) 697-3575

	
 

	
 

	
To
Lenders: 

	

To
the addresses and telecopier numbers set forth on Schedule
A

   

Any
party may change its address by written notice in accordance with
this paragraph.

 

4.4           Term;
Binding Effect. This Guaranty shall (a) remain in full force
and effect until payment and satisfaction in full of all of the
Guaranteed Obligations; (b) be binding upon Guarantor and its
successors and permitted assigns; and (c) inure to the benefit of
the Lenders and their respective successors and assigns. All the
rights and benefits granted by Guarantor to the Collateral Agent
and Lenders hereunder and other agreements and documents delivered
in connection therewith are deemed granted to both the Collateral
Agent and Lenders. Upon the payment in full of the Guaranteed
Obligations, (i) this Guaranty shall terminate and (ii) the Lenders
will, upon Guarantor’s request and at Guarantor’s
expense, execute and deliver to Guarantor such documents as
Guarantor shall reasonably request to evidence such termination,
all without any representation, warranty or recourse
whatsoever.

 

4.5           Captions.
The captions of Paragraphs, Articles and Sections in this Guaranty
have been included for convenience of reference only, and shall not
define or limit the provisions hereof and have no legal or other
significance whatsoever.

 

4.6           Governing
Law; Venue; Severability. This Guaranty shall be governed by
and construed in accordance with the laws of the State of New York
without regard to principles of conflicts or choice of law. Any
legal action or proceeding against Guarantor with respect to this
Guaranty may be brought in the courts of the State of New York or
of the United States for the Southern District of New York, and, by
execution and delivery of this Guaranty, Guarantor hereby
irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of the aforesaid
courts. Guarantor hereby irrevocably waives any objection which it
may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection
with this Guaranty brought in the aforesaid courts and hereby
further irrevocably waives and agrees not to plead or claim in any
such court that any such action or proceeding brought in any such
court has been brought in an inconvenient forum. If any provision
of this Guaranty, or the application thereof to any person or
circumstance, is held invalid, such invalidity shall not affect any
other provisions which can be given effect without the invalid
provision or application, and to this end the provisions hereof
shall be severable and the remaining, valid provisions shall remain
of full force and effect. This
Guaranty shall be deemed an unconditional obligation of Guarantor
for the payment of money and, without limitation to any other
remedies of Lenders, may be enforced against Guarantor by summary
proceeding pursuant to New York Civil Procedure Law and Rules
Section 3213 or any similar rule or statute in the jurisdiction
where enforcement is sought. For purposes of such rule or statute,
any other document or agreement to which Lenders and Guarantor are
parties or which Guarantor delivered to Lenders, which may be
convenient or necessary to determine Lenders’ rights
hereunder or Guarantor’s obligations to Lenders are deemed a
part of this Guaranty, whether or not such other document or
agreement was delivered together herewith or was executed apart
from this Guaranty. Each party
hereto hereby irrevocably waives personal service of process and
consents to process being served in any such proceeding by mailing
a copy thereof via registered or certified mail or overnight
delivery (with evidence of delivery) to such party at the address
in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any
other manner permitted by law. Guarantor irrevocably appoints
Parent its true and lawful agent for service of process upon whom
all processes of law and notices may be served and given in the
manner described above; and such service and notice shall be deemed
valid personal service and notice upon Guarantor with the same
force and validity as if served upon Guarantor.

 

 

27

 

 

4.7           Satisfaction
of Obligations. For all purposes of this Guaranty, the
payment in full of the Obligations shall be conclusively deemed to
have occurred when the Obligations have been paid pursuant to the
terms of the Notes and the Securities Purchase
Agreements.

 

4.8           Counterparts/Execution.
This Agreement may be executed in any number of counterparts and by
the different signatories hereto on separate counterparts, each of
which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile signature and delivered by
electronic transmission.

 

[THE
BALANCE OF THIS PAGE HAS BEEN INTENTIONALLY LEFT
BLANK]

 

28

 

 

IN WITNESS WHEREOF, the undersigned have
executed and delivered this Guaranty, as of the date first written
above.

 

“GUARANTOR”

 

[___]

 

 

By:            

_____________________________________

            

Raymond
W. Urbanski

Its:
Chief Executive Officer

 

 

  

 

 

 

 

 

 

 

 

This Guaranty Agreement may be signed by facsimile signature
and

delivered by confirmed facsimile transmission.

 

 

29

 

ANNEX B to SECURITY AGREEMENT

 

THE COLLATERAL AGENT

 

1. Appointment. The Secured Parties (all capitalized terms used
herein and not otherwise defined shall have the respective meanings
provided in the Security Agreement to which this Annex B is
attached (the “Agreement”),
by their acceptance of the benefits of the Agreement, hereby
designate Alpha Capital Anstalt (“Collateral
Agent”) as the Collateral
Agent to act as specified herein and in the Agreement. Each Secured
Party shall be deemed irrevocably to authorize the Collateral Agent
to take such action on its behalf under the provisions of the
Agreement and any other Transaction Document (as such term is
defined in the Notes) and to exercise such powers and to perform
such duties hereunder and thereunder as are specifically delegated
to or required of the Collateral Agent by the terms hereof and
thereof and such other powers as are reasonably incidental thereto.
The Collateral Agent may perform any of its duties hereunder by or
through its agents or employees.

 

2. Nature of
Duties. The Collateral Agent shall have no duties or
responsibilities except those expressly set forth in the Agreement.
Neither the Collateral Agent nor any of its partners, members,
shareholders, officers, directors, employees or agents shall be
liable for any action taken or omitted by it as such under the
Agreement or hereunder or in connection herewith or therewith, be
responsible for the consequence of any oversight or error of
judgment or answerable for any loss, unless caused solely by its or
their gross negligence or willful misconduct as determined by a
final judgment (not subject to further appeal) of a court of
competent jurisdiction. The duties of the Collateral Agent shall be
mechanical and administrative in nature; the Collateral Agent shall
not have by reason of the Agreement or any other Transaction
Document a fiduciary relationship in respect of any Debtor or any
Secured Party; and nothing in the Agreement or any other
Transaction Document, expressed or implied, is intended to or shall
be so construed as to impose upon the Collateral Agent any
obligations in respect of the Agreement or any other Transaction
Document except as expressly set forth herein and
therein.

 

3. Lack of
Reliance on the Collateral Agent. Independently and without reliance upon the
Collateral Agent, each Secured Party, to the extent it deems
appropriate, has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of
the Company and its subsidiaries in connection with such Secured
Party’s investment in the Debtors, the creation and
continuance of the Obligations, the transactions contemplated by
the Transaction Documents, and the taking or not taking of any
action in connection therewith, and (ii) its own appraisal of the
creditworthiness of the Company and its subsidiaries, and of the
value of the Collateral from time to time, and the Collateral Agent
shall have no duty or responsibility, either initially or on a
continuing basis, to provide any Secured Party with any credit,
market or other information with respect thereto, whether coming
into its possession before any Obligations are incurred or at any
time or times thereafter. The Collateral Agent shall not be
responsible to the Debtors or any Secured Party for any recitals,
statements, information, representations or warranties herein or in
any document, certificate or other writing delivered in connection
herewith, or for the execution, effectiveness, genuineness,
validity, enforceability, perfection, collectibility, priority or
sufficiency of the Agreement or any other Transaction Document, or
for the financial condition of the Debtors or the value of any of
the Collateral, or be required to make any inquiry concerning
either the performance or observance of any of the terms,
provisions or conditions of the Agreement or any other Transaction
Document, or the financial condition of the Debtors, or the value
of any of the Collateral, or the existence or possible existence of
any default or Event of Default under the Agreement, the Notes or
any of the other Transaction Documents.

 

 

30

 

 

4. Certain
Rights of the Collateral Agent.
The Collateral Agent shall have the right to take any action with
respect to the Collateral, on behalf of all of the Secured Parties.
To the extent practical, the Collateral Agent shall request
instructions from the Secured Parties with respect to any material
act or action (including failure to act) in connection with the
Agreement or any other Transaction Document, and shall be entitled
to act or refrain from acting in accordance with the instructions
of Secured Parties holding a majority in principal amount of Notes
(based on then-outstanding principal amounts of Notes at the time
of any such determination); if such instructions are not provided
despite the Collateral Agent’s request therefor, the
Collateral Agent shall be entitled to refrain from such act or
taking such action, and if such action is taken, shall be entitled
to appropriate indemnification from the Secured Parties in respect
of actions to be taken by the Collateral Agent; and the Collateral
Agent shall not incur liability to any person or entity by reason
of so refraining. Without limiting the foregoing, (a) no Secured
Party shall have any right of action whatsoever against the
Collateral Agent as a result of the Collateral Agent acting or
refraining from acting hereunder in accordance with the terms of
the Agreement or any other Transaction Document, and the Debtors
shall have no right to question or challenge the authority of, or
the instructions given to, the Collateral Agent pursuant to the
foregoing and (b) the Collateral Agent shall not be required to
take any action which the Collateral Agent believes (i) could
reasonably be expected to expose it to personal liability or (ii)
is contrary to this Agreement, the Transaction Documents or
applicable law.

 

5. Reliance. The Collateral Agent shall be entitled to rely,
and shall be fully protected in relying, upon any writing,
resolution, notice, statement, certificate, telex, teletype or
telecopier message, cablegram, radiogram, order or other document
or telephone message signed, sent or made by the proper person or
entity, and, with respect to all legal matters pertaining to the
Agreement and the other Transaction Documents and its duties
thereunder, upon advice of counsel selected by it and upon all
other matters pertaining to this Agreement and the other
Transaction Documents and its duties thereunder, upon advice of
other experts selected by it. Anything to the contrary
notwithstanding, the Collateral Agent shall have no obligation
whatsoever to any Secured Party to assure that the Collateral
exists or is owned by the Debtors or is cared for, protected or
insured or that the liens granted pursuant to the Agreement have
been properly or sufficiently or lawfully created, perfected, or
enforced or are entitled to any particular
priority.

 

6. Indemnification.
To the extent that the Collateral
Agent is not reimbursed and indemnified by the Debtors, the Secured
Parties will jointly and severally reimburse and indemnify the
Collateral Agent, in proportion to their initially purchased
respective principal amounts of Notes, from and against any and all
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted
against the Collateral Agent in performing its duties hereunder or
under the Agreement or any other Transaction Document, or in any
way relating to or arising out of the Agreement or any other
Transaction Document except for those determined by a final
judgment (not subject to further appeal) of a court of competent
jurisdiction to have resulted solely from the Collateral
Agent’s own gross negligence or willful misconduct. Prior to
taking any action hereunder as Collateral Agent, the Collateral
Agent may require each Secured Party to deposit with it sufficient
sums as it determines in good faith is necessary to protect the
Collateral Agent for costs and expenses associated with taking such
action.

 

7. Resignation by the Collateral
Agent. 

 

(a)
The Collateral Agent may resign from the performance of all its
functions and duties under the Agreement and the other Transaction
Documents at any time by giving 5 days’ prior written notice
(as provided in the Agreement) to the Debtors and the Secured
Parties. Such resignation shall take effect upon the appointment of
a successor Collateral Agent pursuant to clauses (b) and (c)
below.

 

 

31

 

 

(b)
Upon any such notice of resignation, the Secured Parties, acting by
a Majority in Interest, shall appoint a successor Collateral
Agent hereunder.

 

(c)
If a successor Collateral Agent shall not have been so appointed
within said 5-day period, the Collateral Agent shall then appoint a
successor Collateral Agent who shall serve as Collateral Agent
until such time, if any, as the Secured Parties appoint a successor
Collateral Agent as provided above. If a successor Collateral Agent
has not been appointed within such 5-day period, the Collateral
Agent may petition any court of competent jurisdiction or may
interplead the Debtors and the Secured Parties in a proceeding for
the appointment of a successor Collateral Agent, and all fees,
including, but not limited to, extraordinary fees associated with
the filing of interpleader and expenses associated therewith, shall
be payable by the Debtors on demand.

 

8. Rights
with respect to Collateral. Each Secured Party agrees with all other Secured
Parties and the Collateral Agent (i) that it shall not, and shall
not attempt to, exercise any rights with respect to its security
interest in the Collateral, whether pursuant to any other agreement
or otherwise (other than pursuant to this Agreement), or take or
institute any action against the Collateral Agent or any of the
other Secured Parties in respect of the Collateral or its rights
hereunder (other than any such action arising from the breach of
this Agreement) and (ii) that such Secured Party has no other
rights with respect to the Collateral other than as set forth in
this Agreement and the other Transaction Documents. Upon the
acceptance of any appointment as Collateral Agent hereunder by a
successor Collateral Agent, such successor Collateral Agent shall
thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Collateral Agent and the
retiring Collateral Agent shall be discharged from its duties and
obligations under the Agreement.  After any retiring
Collateral Agent’s resignation or removal hereunder as
Collateral Agent, the provisions of the Agreement including this
Annex B shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Collateral
Agent.

 

 

32

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