Document:

exhibit_4-1

  EXHIBIT 4.1

 

TORCHLIGHT ENERGY RESOURCES, INC.

 

Warrant To Purchase Common Stock

 

Warrant
No.: ____________

Number
of Shares of Common Stock: ____________

Date of
Issuance: June __, 2020 (“Issuance Date”)

 

Torchlight Energy
Resources, Inc., a company organized under the laws of Nevada (the
“Company”),
hereby certifies that, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged,
[HOLDER], the registered holder
hereof or its permitted assigns (the “Holder”), is entitled, subject to
the terms set forth below, to purchase from the Company, at the
Exercise Price (as defined below) then in effect, at any time or
times on or after June __, 2020 (the “Initial Exercisability Date”), but
not after 11:59 p.m., New York time, on the Expiration Date, (as
defined below), ______________
(_____________) fully paid non-assessable shares of
Common Stock (as defined below), subject to adjustment as provided
herein (the “Warrant
Shares”). Except as otherwise defined herein,
capitalized terms in this Warrant to Purchase Common Stock
(including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, this “Warrant”), shall have the meanings
set forth in Section 17. This Warrant is being issued pursuant to
(i) that certain Securities Purchase Agreement (the “Purchase
Agreement”), dated June __, 2020, between the Company and the
Holder and (ii) a prospectus supplement to the base prospectus that
forms a part of the Company’s registration statement on Form
S-3 (File number 333-220181) (the “Registration
Statement”).

 

1.
EXERCISE OF
WARRANT.

 

 

 

 

(a)
Mechanics of
Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in
Section 1(f)), this Warrant may be exercised by the Holder at any
time or times on or after the Initial Exercisability Date, in whole
or in part, by delivery (whether via facsimile, electronic mail or
otherwise) of a written notice, in the form attached hereto as
Exhibit A (the
“Exercise
Notice”), of the Holder’s election to exercise
this Warrant. Within one (1) Trading Day following the delivery of
the Exercise Notice, the Holder shall make payment to the Company
of an amount equal to the Exercise Price in effect on the date of
such exercise multiplied by the number of Warrant Shares as to
which this Warrant is being exercised (the “Aggregate Exercise Price”) in cash
by wire transfer of immediately available funds or, if the
provisions of Section 1(d) are applicable, by notifying the Company
that this Warrant is being exercised pursuant to a Cashless
Exercise (as defined in Section 1(d)). The Holder shall not be
required to deliver the original Warrant in order to effect an
exercise hereunder, nor shall any ink-original signature or
medallion guarantee (or other type of guarantee or notarization)
with respect to any Exercise Notice be required. Execution and
delivery of the Exercise Notice with respect to less than all of
the Warrant Shares shall have the same effect as cancellation of
the original Warrant and issuance of a new Warrant evidencing the
right to purchase the remaining number of Warrant Shares and the
Holder shall not be required to physically surrender this Warrant
to the Company until the Holder has purchased all of the Warrant
Shares available hereunder and the Warrant has been exercised in
full, in which case, the Holder shall surrender this Warrant to the
Company for cancellation within three (3) Trading Days of the date
on which the final Exercise Notice is delivered to the Company. On
or before the first (1st) Trading Day
following the date on which the Holder has delivered the applicable
Exercise Notice, the Company shall transmit by facsimile or
electronic mail an acknowledgment of confirmation of receipt of the
Exercise Notice, in the form attached to the Exercise Notice, to
the Holder and the Company’s transfer agent (the
“Transfer
Agent”). So long as the Holder delivers the Aggregate
Exercise Price (or notice of a Cashless Exercise) on or prior to
the first (1st) Trading Day
following the date on which the Exercise Notice has been delivered
to the Company, then on or prior to the earlier of (i) the second
(2nd)
Trading Day and (ii) the number of Trading Days comprising the
Standard Settlement Period, in each case following the date on
which the Exercise Notice has been delivered to the Company, or, if
the Holder does not deliver the Aggregate Exercise Price (or notice
of a Cashless Exercise) on or prior to the first (1st) Trading Day
following the date on which the Exercise Notice has been delivered
to the Company, then on or prior to the first (1st) Trading Day
following the date on which the Aggregate Exercise Price (or notice
of a Cashless Exercise) is delivered (such earlier date, the
“Share Delivery
Date”), the Company shall (X) provided that the
Transfer Agent is participating in The Depository Trust Company
(“DTC”) Fast
Automated Securities Transfer Program, credit such aggregate number
of Warrant Shares to which the Holder is entitled pursuant to such
exercise to the Holder’s or its designee’s balance
account with DTC through its Deposit / Withdrawal At Custodian
system, or (Y) if the Transfer Agent is not participating in the
DTC Fast Automated Securities Transfer Program, issue and dispatch
by overnight courier to the address as specified in the Exercise
Notice, a certificate, registered in the name of the Holder or its
designee, for the number of Warrant Shares to which the Holder is
entitled pursuant to such exercise. If the Company fails for any
reason to deliver to such registered holder or Participant, as the
case may be, the Warrant Shares subject to an exercise notice by
the Share Delivery Date, the Company shall pay to the registered
holder, in cash, as liquidated damages and not as a penalty, for
each $1,000 of Warrant Shares subject to such exercise (based on
the Weighted Average Price of the Common Stock on the date of the
applicable exercise notice), $10 per Trading Day (increasing to $20
per Trading Day on the fifth Trading Day after such liquidated
damages begin to accrue) for each Trading Day after such Share
Delivery Date until such Warrant Shares are delivered or the
registered holder rescinds such exercise. The Company shall be
responsible for all fees and expenses of the Transfer Agent and all
fees and expenses with respect to the issuance of Warrant Shares
via DTC, if any, including without limitation for same day
processing. Upon delivery of the Exercise Notice, the Holder shall
be deemed for all corporate purposes to have become the holder of
record and beneficial owner of the Warrant Shares with respect to
which this Warrant has been exercised, irrespective of the date
such Warrant Shares are credited to the Holder’s DTC account
or the date of delivery of the certificates evidencing such Warrant
Shares, as the case may be. If this Warrant is physically delivered
to the Company in connection with any exercise pursuant to this
Section 1(a) and the number of Warrant Shares represented by this
Warrant submitted for exercise is greater than the number of
Warrant Shares being acquired upon an exercise, then the Company
shall as soon as practicable and in no event later than three (3)
Trading Days after any exercise and at its own expense, issue and
deliver to the Holder (or its designee) a new Warrant (in
accordance with Section 7(d)) representing the right to purchase
the number of Warrant Shares issuable immediately prior to such
exercise under this Warrant, less the number of Warrant Shares with
respect to which this Warrant is exercised. No fractional Warrant
Shares are to be issued upon the exercise of this Warrant, but
rather the Company shall, at its election, either pay a cash
adjustment in respect of such final fraction in an amount equal to
such fraction multiplied by the Exercise Price or round up to the
next whole share. The Company shall pay any and all transfer,
stamp, issuance and similar taxes, costs and expenses (including,
without limitation, fees and expenses of the Transfer Agent) which
may be payable with respect to the issuance and delivery of Warrant
Shares upon exercise of this Warrant. The Company’s
obligations to issue and deliver Warrant Shares in accordance with
the terms and subject to the conditions hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder
to enforce the same, any waiver or consent with respect to any
provision hereof, the recovery of any judgment against any Person
or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination; provided, however, that the Company shall
not be required to deliver Warrant Shares with respect to an
exercise prior to the Holder’s delivery of the Aggregate
Exercise Price (or notice of a Cashless Exercise) with respect to
such exercise.

 

(b)
Exercise Price. For
purposes of this Warrant, “Exercise Price” means
$[__] per share, subject to
adjustment as provided herein.

 

 

2

 

 

(c)
Company’s Failure to
Timely Deliver Securities. If either (I) the Company shall
fail for any reason or for no reason on or prior to the applicable
Share Delivery Date, (x) if the Transfer Agent is not participating
in the DTC Fast Automated Securities Transfer Program, to issue to
the Holder a certificate for the number of shares of Common Stock
to which the Holder is entitled and register such Common Stock on
the Company’s share register or (y) if the Transfer Agent is
participating in the DTC Fast Automated Securities Transfer
Program, to credit the Holder’s balance account with DTC, for
such number of shares of Common Stock to which the Holder is
entitled upon the Holder’s exercise of this Warrant or (II) a
registration statement (which may be the Registration Statement)
covering the issuance or resale of the Warrant Shares that are the
subject of the Exercise Notice (the “Exercise Notice Warrant Shares”)
is not available for the issuance or resale, as applicable, of such
Exercise Notice Warrant Shares and (x) the Company fails to
promptly, but in no event later than one (1) Business Day after
such registration statement becomes unavailable, to so notify the
Holder and (y) the Company is unable to deliver the Exercise Notice
Warrant Shares electronically without any restrictive legend by
crediting such aggregate number of Exercise Notice Warrant Shares
to the Holder’s or its designee’s balance account with
DTC through its Deposit / Withdrawal At Custodian system (the event
described in the immediately foregoing clause (II) is hereinafter
referred to as a “Notice
Failure” and, together with the event described in
clause (I) above, an “Exercise Failure”), then, in
addition to all other remedies available to the Holder, if on or
prior to the applicable Share Delivery Date either (I) if the
Transfer Agent is not participating in the DTC Fast Automated
Securities Transfer Program, the Company shall fail to issue and
deliver a certificate to the Holder and register such shares of
Common Stock on the Company’s share register or, if the
Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program, credit the Holder’s balance
account with DTC for the number of shares of Common Stock to which
the Holder is entitled upon the Holder’s exercise hereunder
or pursuant to the Company’s obligation pursuant to clause
(ii) below or (II) a Notice Failure occurs, and if on or after such
Trading Day the Holder purchases (in an open market transaction or
otherwise) Common Stock to deliver in satisfaction of a sale by the
Holder of shares of Common Stock issuable upon such exercise that
the Holder anticipated receiving from the Company (a
“Buy-In”), then
the Company shall, within three (3) Trading Days after the
Holder’s request and in the Holder’s discretion, either
(i) pay cash to the Holder in an amount equal to the Holder’s
total purchase price (including brokerage commissions and other
out-of-pocket expenses, if any) for the shares of Common Stock so
purchased (the “Buy-In
Price”), at which point the Company’s obligation
to deliver such certificate (and to issue such shares of Common
Stock) or credit such Holder’s balance account with DTC for
such shares of Common Stock shall terminate, or (ii) promptly honor
its obligation to deliver to the Holder a certificate or
certificates representing such shares of Common Stock or credit
such Holder’s balance account with DTC, as applicable, and
pay cash to the Holder in an amount equal to the excess (if any) of
the Buy-In Price over the product of (A) such number of shares of
Common Stock, times (B) any trading price of the Common Stock
selected by the Holder in writing as in effect at any time during
the period beginning on the applicable Exercise Date and ending on
the applicable Share Delivery Date. Nothing shall limit the
Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity, including, without limitation, a
decree of specific performance and/or injunctive relief with
respect to the Company’s failure to timely deliver
certificates representing Warrant Shares (or to electronically
deliver such Warrant Shares) upon the exercise of this Warrant as
required pursuant to the terms hereof. While this Warrant is
outstanding, the Company shall cause its transfer agent to
participate in the DTC Fast Automated Securities Transfer Program.
In addition to the foregoing rights, (i) if the Company fails to
deliver the applicable number of Warrant Shares upon an exercise
pursuant to Section 1 by the applicable Share Delivery Date, then
the Holder shall have the right to rescind such exercise in whole
or in part and retain and/or have the Company return, as the case
may be, any portion of this Warrant that has not been exercised
pursuant to such Exercise Notice; provided that the rescission of
an exercise shall not affect the Company’s obligation to make
any payments that have accrued prior to the date of such notice
pursuant to this Section 1(c) or otherwise, and (ii) if a
registration statement (which may be the Registration Statement)
covering the issuance or resale of the Warrant Shares that are
subject to an Exercise Notice is not available for the issuance or
resale, as applicable, of such Exercise Notice Warrant Shares and
the Holder has submitted an Exercise Notice prior to receiving
notice of the non-availability of such registration statement and
the Company has not already delivered the Warrant Shares underlying
such Exercise Notice electronically without any restrictive legend
by crediting such aggregate number of Warrant Shares to which the
Holder is entitled pursuant to such exercise to the Holder’s
or its designee’s balance account with DTC through its
Deposit / Withdrawal At Custodian system, the Holder shall have the
option, by delivery of notice to the Company, to (x) rescind such
Exercise Notice in whole or in part and retain or have returned, as
the case may be, any portion of this Warrant that has not been
exercised pursuant to such Exercise Notice; provided that the
rescission of an Exercise Notice shall not affect the
Company’s obligation to make any payments that have accrued
prior to the date of such notice pursuant to this Section 1(c) or
otherwise, and/or (y) switch some or all of such Exercise Notice
from a cash exercise to a Cashless Exercise.

 

(d)
Cashless Exercise.
Notwithstanding anything contained herein to the contrary, a
Cashless Exercise (as defined below) may occur (i) in whole or in
part for a number of whole Warrant Shares during the period
commencing on the Issuance Date and ending on the Expiration Date,
during which time,  if the
Weighted Average Price of the Common Stock on the Trading Date
immediately prior to the Exercise Date fails to exceed the Exercise
Price (subject to adjustment for any stock splits, stock dividends,
stock combinations, recapitalizations and similar events) in which
event, in lieu of the formula below, the aggregate number of
Warrant Shares issuable in such cashless exercise pursuant to any
given Exercise Notice electing to effect a Cashless Exercise shall
equal the product of (x) the aggregate number of Warrant
Shares for which the Warrant is exercised as if such exercise were
by means of a cash exercise rather than a Cashless Exercise and (y)
one (1); and (ii) if a registration statement (which may be the
Registration Statement) covering the issuance or resale of the
Exercise Notice Warrant Shares is not available for the issuance or
resale, as applicable, of such Exercise Notice Warrant Shares, the
Holder may, in its sole discretion, exercise this Warrant in whole
or in part and, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise in
payment of the Aggregate Exercise Price, elect instead to receive
upon such exercise the “Net Number” of shares of Common
Stock determined according to the following formula (a
“Cashless
Exercise”):

 

Net
Number = (A x B) - (A x
C)

B

 

For
purposes of the foregoing formula:

 

 

3

 

 

 

	
 

	

A=

	

the
total number of shares with respect to which this Warrant is then
being exercised.

	
 

	
 

	
 

	
 

	

B=

	

as
applicable: (i) the Closing Sale Price of the Common Stock on the
Trading Day immediately preceding the date of the applicable
Exercise Notice if such Exercise Notice is (1) both executed and
delivered pursuant to Section 1(a) hereof on a day that is not a
Trading Day or (2) both executed and delivered pursuant to Section
1(a) hereof on a Trading Day prior to the opening of “regular
trading hours” (as defined in Rule 600(b)(64) of Regulation
NMS promulgated under the federal securities laws) on such Trading
Day, (ii) at the option of the Holder, either (y) the Weighted
Average Price on the Trading Day immediately preceding the date of
the applicable Notice of Exercise or (z) the Bid Price of the
Common Stock as of the time of the Holder’s execution of the
applicable Exercise Notice if such Exercise Notice is executed
during “regular trading hours” on a Trading Day and is
delivered within two (2) hours thereafter (including until two (2)
hours after the close of “regular trading hours” on a
Trading Day) pursuant to Section 1(a) hereof or (iii) the Closing
Sale Price of the Common Stock on the date of the applicable
Exercise Notice if the date of such Exercise Notice is a Trading
Day and such Exercise Notice is both executed and delivered
pursuant to Section 1(a) hereof after the close of “regular
trading hours” on such Trading Day.

	
 

	
 

	
 

	
 

	

C=

	

the
Exercise Price then in effect for the applicable Warrant Shares at
the time of such exercise.

 

If
Warrant Shares are issued in such a cashless exercise, the Company
acknowledges and agrees that in accordance with Section 3(a)(9) of
the Securities Act of 1933, as amended, the Warrant Shares shall
take on the registered characteristics of the Warrant being
exercised, and the holding period of the Warrant being exercised
may be tacked on to the holding period of the Warrant Shares. The
Company agrees not to take any position contrary to this Section
1(d).

 

(e)
Disputes. In the
case of a dispute as to the determination of the Exercise Price or
the arithmetic calculation of the Warrant Shares, the Company shall
promptly issue to the Holder the number of Warrant Shares that are
not disputed and resolve such dispute in accordance with Section
11.

 

 

 

4

 

 

(f)
Beneficial
Ownership. Notwithstanding anything to the contrary
contained herein, the Company shall not effect the exercise of any
portion of this Warrant, and the Holder shall not have the right to
exercise any portion of this Warrant, pursuant to the terms and
conditions of this Warrant and any such exercise shall be null and
void and treated as if never made, to the extent that after giving
effect to such exercise, the Holder together with the other
Attribution Parties collectively would beneficially own in excess
of 9.99% (the “Maximum
Percentage”) of the number of shares of Common Stock
outstanding immediately after giving effect to such exercise. For
purposes of the foregoing sentence, the aggregate number of shares
of Common Stock beneficially owned by the Holder and the other
Attribution Parties shall include the number of shares of Common
Stock held by the Holder and all other Attribution Parties plus the
number of shares of Common Stock issuable upon exercise of this
Warrant with respect to which the determination of such sentence is
being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (A) exercise of the remaining,
unexercised portion of this Warrant beneficially owned by the
Holder or any of the other Attribution Parties and (B) exercise or
conversion of the unexercised or unconverted portion of any other
securities of the Company (including, without limitation, any
convertible notes or convertible preferred stock or warrants of the
Company) beneficially owned by the Holder or any other Attribution
Party subject to a limitation on conversion or exercise analogous
to the limitation contained in this Section 1(f). For purposes of
this Section 1(f), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended (the “1934
Act”). For purposes of this Warrant, in determining
the number of outstanding shares of Common Stock the Holder may
acquire upon the exercise of this Warrant without exceeding the
Maximum Percentage, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the
Company’s most recent Annual Report on Form 10-K, Quarterly
Report on Form 10-Q and Current Reports on Form 8-K or other public
filing with the Securities and Exchange Commission (the
“SEC”), as the
case may be, (y) a more recent public announcement by the Company
or (z) any other written notice by the Company or the Transfer
Agent setting forth the number of shares of Common Stock
outstanding (the “Reported
Outstanding Share Number”). If the Company receives an
Exercise Notice from the Holder at a time when the actual number of
outstanding shares of Common Stock is less than the Reported
Outstanding Share Number, the Company shall (i) notify the Holder
in writing of the number of shares of Common Stock then outstanding
and, to the extent that such Exercise Notice would otherwise cause
the Holder’s beneficial ownership, as determined pursuant to
this Section 1(f), to exceed the Maximum Percentage, the Holder
must notify the Company of a reduced number of Warrant Shares to be
purchased pursuant to such Exercise Notice (the number of shares by
which such purchase is reduced, the “Reduction Shares”) and (ii) as
soon as reasonably practicable, the Company shall return to the
Holder any exercise price paid by the Holder for the Reduction
Shares. For any reason at any time, upon the written or oral
request of the Holder, the Company shall within one (1) Business
Day confirm orally and in writing or by electronic mail to the
Holder the number of shares of Common Stock then outstanding. In
any case, the number of outstanding shares of Common Stock shall be
determined after giving effect to the conversion or exercise of
securities of the Company, including this Warrant, by the Holder
and any other Attribution Party since the date as of which the
Reported Outstanding Share Number was reported. In the event that
the issuance of Common Stock to the Holder upon exercise of this
Warrant results in the Holder and the other Attribution Parties
being deemed to beneficially own, in the aggregate, more than the
Maximum Percentage of the number of outstanding shares of Common
Stock (as determined under Section 13(d) of the 1934 Act), the
number of shares so issued by which the Holder’s and the
other Attribution Parties’ aggregate beneficial ownership
exceeds the Maximum Percentage (the “Excess Shares”) shall be deemed
null and void and shall be cancelled ab initio, and the Holder
shall not have the power to vote or to transfer the Excess Shares.
As soon as reasonably practicable after the issuance of the Excess
Shares has been deemed null and void, the Company shall return to
the Holder the exercise price paid by the Holder for the Excess
Shares. Upon delivery of a written notice to the Company, the
Holder may from time to time increase or decrease the Maximum
Percentage to any other percentage not in excess of 9.99% or such
higher percentage as specified in such notice; provided that (i)
any such increase in the Maximum Percentage will not be effective
until the sixty-first (61st) day after such
notice is delivered to the Company and (ii) any such increase or
decrease will apply only to the Holder and the other Attribution
Parties. For purposes of clarity, the shares of Common Stock
issuable pursuant to the terms of this Warrant in excess of the
Maximum Percentage shall not be deemed to be beneficially owned by
the Holder for any purpose including for purposes of Section 13(d)
or Rule 16a-1(a)(1) of the 1934 Act. No prior inability to exercise
this Warrant pursuant to this paragraph shall have any effect on
the applicability of the provisions of this paragraph with respect
to any subsequent determination of exercisability. The provisions
of this paragraph shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this Section
1(f) to the extent necessary to correct this paragraph or any
portion of this paragraph which may be defective or inconsistent
with the intended beneficial ownership limitation contained in this
Section 1(f) or to make changes or supplements necessary or
desirable to properly give effect to such limitation. The
limitation contained in this paragraph may not be waived and shall
apply to a successor holder of this Warrant.

 

(g)
Required Reserve
Amount. So long as this Warrant remains outstanding, the
Company shall at all times keep reserved for issuance under this
Warrant a number of shares of Common Stock at least equal to 100%
of the maximum number of shares of Common Stock as shall be
necessary to satisfy the Company’s obligation to issue shares
of Common Stock under this Warrant then outstanding (without regard
to any limitations on exercise) (the “Required Reserve Amount”);
provided that at no
time shall the number of shares of Common Stock reserved pursuant
to this Section 1(g) be reduced other than in connection with any
exercise of this Warrant or such other event covered by Section
2(c) below.

 

(h)
Insufficient Authorized
Shares. If at any time while this Warrant remains
outstanding the Company does not have a sufficient number of
authorized and unreserved shares of Common Stock to satisfy its
obligation to reserve for issuance the Required Reserve Amount (an
“Authorized Share
Failure”), then the Company shall promptly take all
action reasonably necessary to increase the Company’s
authorized shares of Common Stock to an amount sufficient to allow
the Company to reserve the Required Reserve Amount for this Warrant
then outstanding. Without limiting the generality of the foregoing
sentence, as soon as practicable after the date of the occurrence
of an Authorized Share Failure, but in no event later than ninety
(90) days after the occurrence of such Authorized Share Failure,
the Company shall hold a meeting of its stockholders for the
approval of an increase in the number of authorized shares of
Common Stock. In connection with such meeting, the Company shall
provide each stockholder with a proxy statement and shall use its
reasonable best efforts to solicit its stockholders’ approval
of such increase in authorized shares of Common Stock and to cause
its board of directors to recommend to the stockholders that they
approve such proposal. Notwithstanding the foregoing, if any such
time of an Authorized Share Failure, the Company is able to obtain
the written consent of a majority of the shares of its issued and
outstanding shares of Common Stock to approve the increase in the
number of authorized shares of Common Stock, the Company may
satisfy this obligation by obtaining such consent and submitting
for filing with the SEC an Information Statement on Schedule
14C.

 

 

5

 

 

2.
ADJUSTMENT OF EXERCISE
PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price and
the number of Warrant Shares shall be adjusted from time to time as
follows:

 

(a)
Stock Dividends and
Splits. If the Company, at any time while this Warrant is
outstanding: (i) pays a stock dividend or otherwise makes a
distribution or distributions on shares of its Common Stock or any
other equity or equity equivalent securities payable in shares of
Common Stock (which, for avoidance of doubt, shall not include any
shares of Common Stock issued by the Company upon exercise of this
Warrant), (ii) subdivides outstanding shares of Common Stock into a
larger number of shares, (iii) combines (including by way of
reverse stock split) outstanding shares of Common Stock into a
smaller number of shares or (iv) issues by reclassification of
shares of Common Stock any shares of capital stock of the Company,
then in each case the Exercise Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding
immediately before such event and of which the denominator shall be
the number of shares of Common Stock outstanding immediately after
such event, and the number of shares issuable upon exercise of this
Warrant shall be proportionately adjusted such that the aggregate
Exercise Price of this Warrant shall remain unchanged. Any
adjustment made pursuant to this Section 3(a) shall become
effective immediately after the record date for the determination
of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in
the case of a subdivision, combination or
reclassification.

 

(b)
Voluntary Adjustment By
Company. The Company may at any time during the term of this
Warrant reduce the then current Exercise Price to any amount and
for any period of time deemed appropriate by the board of directors
of the Company.

 

(c)
Adjustment Upon
Subdivision or Combination of Common Stock. If the Company
at any time on or after the Issuance Date subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to
such subdivision will be proportionately reduced and the number of
Warrant Shares will be proportionately increased. If the Company at
any time on or after the Issuance Date combines (by combination,
reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares,
the Exercise Price in effect immediately prior to such combination
will be proportionately increased and the number of Warrant Shares
will be proportionately decreased. Any adjustment under this
Section 2(c) shall become effective at the close of business on the
date the subdivision or combination becomes effective.

 

(d)
Other Events. If
any event occurs of the type contemplated by the provisions of this
Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features),
then the Company’s board of directors will make an
appropriate adjustment in the Exercise Price and the number of
Warrant Shares, as mutually determined by the Company’s board
of directors and the Holder, so as to protect the rights of the
Holder; provided
that no such adjustment pursuant to this Section 2(d) will increase
the Exercise Price or decrease the number of Warrant Shares as
otherwise determined pursuant to this Section 2.

 

3.
RIGHTS UPON DISTRIBUTION
OF ASSETS. In addition to any adjustments pursuant to
Section 2 above, if, on or after the Issuance Date and on or prior
to the Expiration Date, the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire
its assets) to holders of shares of Common Stock, by way of return
of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property, options,
evidence of indebtedness or any other assets by way of a dividend,
spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a “Distribution”), at any time after
the issuance of this Warrant, then, in each such case, the Holder
shall be entitled to participate in such Distribution to the same
extent that the Holder would have participated therein if the
Holder had held the number of shares of Common Stock acquirable
upon complete exercise of this Warrant (without regard to any
limitations or restrictions on exercise of this Warrant, including
without limitation, the Maximum Percentage) immediately before the
date on which a record is taken for such Distribution, or, if no
such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the participation
in such Distribution (provided, however, that to the extent
that the Holder’s right to participate in any such
Distribution would result in the Holder and the other Attribution
Parties exceeding the Maximum Percentage, then the Holder shall not
be entitled to participate in such Distribution to such extent (and
shall not be entitled to beneficial ownership of such shares of
Common Stock as a result of such Distribution (and beneficial
ownership) to such extent) and the portion of such Distribution
shall be held in abeyance for the benefit of the Holder until such
time or times as its right thereto would not result in the Holder
and the other Attribution Parties exceeding the Maximum Percentage,
at which time or times the Holder shall be granted such
Distribution (and any Distributions declared or made on such
initial Distribution or on any subsequent Distribution held
similarly in abeyance) to the same extent as if there had been no
such limitation).

 

 

6

 

 

4.
PURCHASE RIGHTS;
FUNDAMENTAL TRANSACTIONS.

 

(a)
Purchase Rights. In
addition to any adjustments pursuant to Section 2 above, if at any
time on or after the Issuance Date and on or prior to the
Expiration Date the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any
class of Common Stock (the “Purchase Rights”), then the Holder
will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which the Holder
could have acquired if the Holder had held the number of shares of
Common Stock acquirable upon complete exercise of this Warrant
(without regard to any limitations or restrictions on exercise of
this Warrant, including without limitation, the Maximum Percentage)
immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common
Stock are to be determined for the grant, issuance or sale of such
Purchase Rights (provided, however, that to the extent
that the Holder’s right to participate in any such Purchase
Right would result in the Holder and the other Attribution Parties
exceeding the Maximum Percentage, then the Holder shall not be
entitled to participate in such Purchase Right to such extent (and
shall not be entitled to beneficial ownership of such Common Stock
as a result of such Purchase Right (and beneficial ownership) to
such extent) and such Purchase Right to such extent shall be held
in abeyance for the benefit of the Holder until such time or times
as its right thereto would not result in the Holder and the other
Attribution Parties exceeding the Maximum Percentage, at which time
or times the Holder shall be granted such right (and any Purchase
Right granted, issued or sold on such initial Purchase Right or on
any subsequent Purchase Right to be held similarly in abeyance) to
the same extent as if there had been no such
limitation).

 

(b)
Fundamental
Transaction. The Company shall not enter into or be party to
a Fundamental Transaction unless the Successor Entity assumes in
writing all of the obligations of the Company under this Warrant in
accordance with the provisions of this Section 4(b), including
agreements to deliver to the Holder in exchange for this Warrant a
security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant,
including, without limitation, which is exercisable for a
corresponding number of shares of capital stock equivalent to the
shares of Common Stock acquirable and receivable upon exercise of
this Warrant (without regard to any limitations on the exercise of
this Warrant) prior to such Fundamental Transaction, and with an
exercise price which applies the exercise price hereunder to such
shares of capital stock (but taking into account the relative value
of the shares of Common Stock pursuant to such Fundamental
Transaction and the value of such shares of capital stock, such
adjustments to the number of shares of capital stock and such
exercise price being for the purpose of protecting the economic
value of this Warrant immediately prior to the consummation of such
Fundamental Transaction). Upon the consummation of each Fundamental
Transaction, the Successor Entity shall succeed to, and be
substituted for the Company (so that from and after the date of the
applicable Fundamental Transaction, the provisions of this Warrant
and the other Transaction Documents referring to the
“Company” shall refer instead to the Successor Entity),
and may exercise every right and power of the Company and shall
assume all of the obligations of the Company under this Warrant
with the same effect as if such Successor Entity had been named as
the Company herein. Upon consummation of each Fundamental
Transaction, the Successor Entity shall deliver to the Holder
confirmation that there shall be issued upon exercise of this
Warrant at any time after the consummation of the applicable
Fundamental Transaction, in lieu of the shares of Common Stock (or
other securities, cash, assets or other property (except such items
still issuable under Sections 3 and 4(a) above, which shall
continue to be receivable thereafter)) issuable upon the exercise
of this Warrant prior to the applicable Fundamental Transaction,
such shares of common stock (or its equivalent) of the Successor
Entity (including its Parent Entity) which the Holder would have
been entitled to receive upon the happening of the applicable
Fundamental Transaction had this Warrant been exercised immediately
prior to the applicable Fundamental Transaction (without regard to
any limitations on the exercise of this Warrant), as adjusted in
accordance with the provisions of this Warrant. Notwithstanding the
foregoing, and without limiting Section 1(f) hereof, the Holder may
elect, at its sole option, by delivery of written notice to the
Company to waive this Section 4(b) to permit the Fundamental
Transaction without the assumption of this Warrant. In addition to
and not in substitution for any other rights hereunder, prior to
the consummation of each Fundamental Transaction pursuant to which
holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for
shares of Common Stock (a “Corporate Event”), the Company
shall make appropriate provision to insure that the Holder will
thereafter have the right to receive upon an exercise of this
Warrant at any time after the consummation of the applicable
Fundamental Transaction but prior to the Expiration Date, in lieu
of the shares of the Common Stock (or other securities, cash,
assets or other property (except such items still issuable under
Sections 3 and 4(a) above, which shall continue to be receivable
thereafter)) issuable upon the exercise of the Warrant prior to
such Fundamental Transaction, such shares of stock, securities,
cash, assets or any other property whatsoever (including warrants
or other purchase or subscription rights) (collectively, the
“Corporate Event Consideration”) which the Holder would
have been entitled to receive upon the happening of the applicable
Fundamental Transaction had this Warrant been exercised immediately
prior to the applicable Fundamental Transaction (without regard to
any limitations on the exercise of this Warrant). The provision
made pursuant to the preceding sentence shall be in a form and
substance reasonably satisfactory to the Holder.

 

 

7

 

 

5.
NONCIRCUMVENTION.
The Company hereby covenants and agrees that the Company will not,
by amendment of its articles of incorporation, as amended, or
amended and restated bylaws, or through any reorganization,
transfer of assets, consolidation, merger, scheme of arrangement,
dissolution, issuance or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any
of the terms of this Warrant, and will at all times in good faith
carry out all of the provisions of this Warrant and take all action
as may be required to protect the rights of the Holder. Without
limiting the generality of the foregoing, the Company (i) shall not
increase the par value of any shares of Common Stock receivable
upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant, and (iii) shall, so long as this Warrant
is outstanding, take all action necessary to reserve and keep
available out of its authorized and unissued shares of Common
Stock, solely for the purpose of effecting the exercise of this
Warrant, the number of shares of Common Stock as shall from time to
time be necessary to effect the exercise of this Warrant (without
regard to any limitations on exercise).

 

6.
WARRANT HOLDER NOT DEEMED
A STOCKHOLDER. Except as otherwise specifically provided
herein, the Holder, solely in such Person’s capacity as a
holder of this Warrant, shall not be entitled to vote or receive
dividends or be deemed the holder of capital stock of the Company
for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the Holder, solely in such Person’s
capacity as the Holder of this Warrant, any of the rights of a
stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue
of stock, reclassification of stock, consolidation, merger,
conveyance or otherwise), receive notice of meetings, receive
dividends or subscription rights, or otherwise, prior to the
issuance to the Holder of the Warrant Shares which such Person is
then entitled to receive upon the due exercise of this Warrant. In
addition, nothing contained in this Warrant shall be construed as
imposing any liabilities on the Holder to purchase any securities
(upon exercise of this Warrant or otherwise) or as a stockholder of
the Company, whether such liabilities are asserted by the Company
or by creditors of the Company. Notwithstanding this Section 6, the
Company shall provide the Holder with copies of the same notices
and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the
stockholders.

 

7.
REISSUANCE OF
WARRANTS.

 

(a)
Transfer of
Warrant. If this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company, whereupon the Company
will forthwith issue and deliver upon the order of the Holder a new
Warrant (in accordance with Section 7(d)), registered as the Holder
may request, representing the right to purchase the number of
Warrant Shares being transferred by the Holder and, if less than
the total number of Warrant Shares then underlying this Warrant is
being transferred, a new Warrant (in accordance with Section 7(d))
to the Holder representing the right to purchase the number of
Warrant Shares not being transferred.

 

(b)
Lost, Stolen or Mutilated
Warrant. Upon receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to
the Company in customary form (but without the obligation to post a
bond) and, in the case of mutilation, upon surrender and
cancellation of this Warrant, the Company shall execute and deliver
to the Holder a new Warrant (in accordance with Section 7(d))
representing the right to purchase the Warrant Shares then
underlying this Warrant.

 

 

8

 

 

(c)
Exchangeable for Multiple
Warrants. This Warrant is exchangeable, upon the surrender
hereof by the Holder at the principal office of the Company, for a
new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of
Warrant Shares then underlying this Warrant, and each such new
Warrant will represent the right to purchase such portion of such
Warrant Shares as is designated by the Holder at the time of such
surrender.

 

(d)
Issuance of New
Warrants. If this Warrant is not held in global form through
DTC (or any successor depository), whenever the Company is required
to issue a new Warrant pursuant to the terms of this Warrant, such
new Warrant (i) shall be of like tenor with this Warrant, (ii)
shall represent, as indicated on the face of such new Warrant, the
right to purchase the Warrant Shares then underlying this Warrant
(or in the case of a new Warrant being issued pursuant to Section
7(a) or Section 7(c), the Warrant Shares designated by the Holder
which, when added to the number of shares of Common Stock
underlying the other new Warrants issued in connection with such
issuance, does not exceed the number of Warrant Shares then
underlying this Warrant), (iii) shall have an issuance date, as
indicated on the face of such new Warrant which is the same as the
Issuance Date, and (iv) shall have the same rights and conditions
as this Warrant.

 

8.
NOTICES. Whenever
notice is required to be given under this Warrant, including,
without limitation, an Exercise Notice, unless otherwise provided
herein, such notice shall be given in writing, (i) if delivered (a)
from within the domestic United States, by first-class registered
or certified airmail, or nationally recognized overnight express
courier, postage prepaid, electronic mail or (b) from outside the
United States, by International Federal Express, electronic mail,
and (ii) will be deemed given (A) if delivered by first-class
registered or certified mail domestic, three (3) Business Days
after so mailed, (B) if delivered by nationally recognized
overnight carrier, one (1) Business Day after so mailed, (C) if
delivered by International Federal Express, two (2) Business Days
after so mailed and (D) at the time of transmission, if delivered
by electronic mail to each of the email addresses specified in this
Section 8 prior to 5:00 p.m. (New York time) on a Trading Day and
(E) the next Trading Day after the date of transmission, if
delivered by electronic mail to each of the email addresses
specified in this Section 8 on a day that is not a Trading Day or
later than 5:00 p.m. (New York time) on any Trading Day, and will
be delivered and addressed as follows:

 

(i) if
to the Company, to:

 

Torchlight
Energy Resources, Inc.

5700
West Plano Parkway, Suite 3600

Plano,
Texas 75093

Attn: John Brda, Chief Executive
Officer

Email:
john@torchlightenergy.com

 

With a
copy (for informational purposes only) to:

 

Axelrod
& Smith

5300
Memorial Drive, Suite 1000

Houston, Texas
77007

Attention: Robert
D. Axelrod, Esq.

Email:
rdaxel@asklawhou.com

 

(ii) if
to the Holder, at such address or other contact information
delivered by the Holder to Company or as is on the books and
records of the Company.

 

The
Company shall provide the Holder with prompt written notice of all
actions taken pursuant to this Warrant, including in reasonable
detail a description of such action and the reason therefor.
Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon any
adjustment of the Exercise Price, setting forth in reasonable
detail, and certifying, the calculation of such adjustment and (ii)
at least fifteen (15) days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend
or distribution upon the shares of Common Stock, (B) with respect
to any grants, issuances or sales of any Options, Convertible
Securities or rights to purchase stock, warrants, securities or
other property to holders of shares of Common Stock or (C) for
determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation; provided in each case that such
information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder. It is
expressly understood and agreed that the time of exercise specified
by the Holder in each Exercise Notice shall be definitive and may
not be disputed or challenged by the Company.

 

 

9

 

 

9.
AMENDMENT AND
WAIVER. Except as otherwise provided herein, the provisions
of this Warrant may be amended or waived and the Company may take
any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained
the written consent of the Holder.

 

10.
GOVERNING LAW;
JURISDICTION; JURY TRIAL. This Warrant shall be governed by
and construed and enforced in accordance with, and all questions
concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws
of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of
New York or any other jurisdictions) that would cause the
application of the laws of any jurisdictions other than the State
of New York. The Company hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in
The City of New York, Borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of
such suit, action or proceeding is improper. The Company hereby
irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by
mailing a copy thereof to the Company at the address set forth in
Section 8(i) above or such other address as the Company
subsequently delivers to the Holder 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.
Nothing contained herein shall be deemed or operate to preclude the
Holder from bringing suit or taking other legal action against the
Company in any other jurisdiction to collect on the Company’s
obligations to the Holder, to realize on any collateral or any
other security for such obligations, or to enforce a judgment or
other court ruling in favor of the Holder. If either party shall
commence an action, suit or proceeding to enforce any provisions of
this Warrant, the prevailing party in such action, suit or
proceeding shall be reimbursed by the other party for their
reasonable attorneys’ fees and other costs and expenses
incurred with the investigation, preparation and prosecution of
such action or proceeding. THE
COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES
NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR
ANY TRANSACTION CONTEMPLATED HEREBY.

 

11.
DISPUTE RESOLUTION.
In the case of a dispute as to the determination of the Exercise
Price or the arithmetic calculation of the Warrant Shares, the
Company shall submit the disputed determinations or arithmetic
calculations via facsimile or electronic mail within two (2)
Business Days of receipt of the Exercise Notice or other event
giving rise to such dispute, as the case may be, to the Holder. If
the Holder and the Company are unable to agree upon such
determination or calculation of the Exercise Price or the Warrant
Shares within three (3) Business Days of such disputed
determination or arithmetic calculation being submitted to the
Holder, then the Company shall, within two (2) Business Days submit
via facsimile or electronic mail (a) the disputed determination of
the Exercise Price to an independent, reputable investment bank
selected by the Company and approved by the Holder or (b) the
disputed arithmetic calculation of the Warrant Shares to the
Company’s independent, outside accountant. The Company shall
cause at its expense the investment bank or the accountant, as the
case may be, to perform the determinations or calculations and
notify the Company and the Holder of the results no later than ten
(10) Business Days from the time it receives the disputed
determinations or calculations. Such investment bank’s or
accountant’s determination or calculation, as the case may
be, shall be binding upon all parties absent demonstrable
error.

 

12.
REMEDIES, OTHER
OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies
provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and any other
Transaction Documents, at law or in equity (including a decree of
specific performance and/or other injunctive relief), and nothing
herein shall limit the right of the Holder to pursue actual damages
for any failure by the Company to comply with the terms of this
Warrant. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder and
that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach or
threatened breach, the holder of this Warrant shall be entitled, in
addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required.
Notwithstanding the foregoing or anything else herein to the
contrary, other than as expressly provided in Section 1(a), Section
1(c) or Section 2(d) hereof, if the Company is for any reason
unable to issue and deliver Warrant Shares upon exercise of this
Warrant as required pursuant to the terms hereof, the Company shall
have no obligation to pay to the holder any cash or other
consideration or otherwise “net cash settle” this
Warrant; provided that the foregoing shall not limit or supersede
the applicability of Section 4(b) hereof.

 

 

10

 

 

13.
TRANSFER. This
Warrant and the Warrant Shares may be offered for sale, sold,
transferred, pledged or assigned without the consent of the
Company.

 

14.
SEVERABILITY;
CONSTRUCTION; HEADINGS. If any provision of this Warrant is
prohibited by law or otherwise determined to be invalid or
unenforceable by a court of competent jurisdiction, the provision
that would otherwise be prohibited, invalid or unenforceable shall
be deemed amended to apply to the broadest extent that it would be
valid and enforceable, and the invalidity or unenforceability of
such provision shall not affect the validity of the remaining
provisions of this Warrant so long as this Warrant as so modified
continues to express, without material change, the original
intentions of the parties as to the subject matter hereof and the
prohibited nature, invalidity or unenforceability of the
provision(s) in question does not substantially impair the
respective expectations or reciprocal obligations of the parties or
the practical realization of the benefits that would otherwise be
conferred upon the parties. The parties will endeavor in good faith
negotiations to replace the prohibited, invalid or unenforceable
provision(s) with a valid provision(s), the effect of which comes
as close as possible to that of the prohibited, invalid or
unenforceable provision(s). This Warrant shall be deemed to be
jointly drafted by the Company and the Holder and shall not be
construed against any Person as the drafter hereof. The headings of
this Warrant are for convenience of reference and shall not form
part of, or affect the interpretation of, this
Warrant.

 

15.
DISCLOSURE. Upon
receipt or delivery by the Company of any notice in accordance with
the terms of this Warrant, unless the Company has in good faith
determined that the matters relating to such notice do not
constitute material, nonpublic information relating to the Company
or its subsidiaries, the Company shall contemporaneously with any
such receipt or delivery publicly disclose such material, nonpublic
information on a Current Report on Form 8-K or otherwise. In the
event that the Company believes that a notice contains material,
nonpublic information relating to the Company or its subsidiaries,
the Company so shall indicate to such Holder contemporaneously with
delivery of such notice, and in the absence of any such indication,
the Holder shall be allowed to presume that all matters relating to
such notice do not constitute material, nonpublic information
relating to the Company or its subsidiaries.

 

16.
[RESERVED].

 

17.
CERTAIN
DEFINITIONS. For purposes of this Warrant, the following
terms shall have the following meanings:

 

(a)
“Affiliate”
means, with respect to any Person, any other Person that directly
or indirectly controls, is controlled by, or is under common
control with, such Person, it being understood for purposes of this
definition that “control” of a Person means the power
directly or indirectly either to vote 10% or more of the stock
having ordinary voting power for the election of directors of such
Person or direct or cause the direction of the management and
policies of such Person whether by contract or
otherwise.

 

(b)
“Attribution
Parties” means, collectively, the following Persons
and entities: (i) any investment vehicle, including, any funds,
feeder funds or managed accounts, currently, or from time to time
after the Issuance Date, directly or indirectly managed or advised
by the Holder’s investment manager or any of its Affiliates
or principals, (ii) any direct or indirect Affiliates of the Holder
or any of the foregoing, (iii) any Person acting or who could be
deemed to be acting as a Group together with the Holder or any of
the foregoing and (iv) any other Persons whose beneficial ownership
of the Company’s Common Stock would or could be aggregated
with the Holder’s and the other Attribution Parties for
purposes of Section 13(d) of the 1934 Act. For clarity, the purpose
of the foregoing is to subject collectively the Holder and all
other Attribution Parties to the Maximum Percentage.

 

 

11

 

 

(c)
“Bid Price”
means, for any security as of the particular time of determination,
the bid price for such security on the Principal Market as reported
by Bloomberg as of such time of determination, or, if the Principal
Market is not the principal securities exchange or trading market
for such security, the bid price of such security on the principal
securities exchange or trading market where such security is listed
or traded as reported by Bloomberg as of such time of
determination, or if the foregoing does not apply, the bid price of
such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg as of
such time of determination, or, if no bid price is reported for
such security by Bloomberg as of such time of determination, the
average of the bid prices of any market makers for such security as
reported in the “pink sheets” by OTC Markets Group Inc.
(formerly Pink Sheets LLC) as of such time of determination. If the
Bid Price cannot be calculated for a security as of the particular
time of determination on any of the foregoing bases, the Bid Price
of such security as of such time of determination shall be the fair
market value as mutually determined by the Company and the Holder.
If the Company and the Holder are unable to agree upon the fair
market value of such security, then such dispute shall be resolved
in accordance with the procedures in Section 11. All such
determinations shall be appropriately adjusted for any stock
dividend, stock split, stock combination or other similar
transaction during such period.

 

(d)
“Bloomberg”
means Bloomberg Financial Markets.

 

(e)
“Business Day”
means any day other than Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized or required
by law to remain closed.

 

(f)
“Closing Bid
Price” and “Closing Sale Price” means, for any
security as of any date, the last closing bid price and last
closing trade price, respectively, for such security on the
Principal Market, as reported by Bloomberg, or, if the Principal
Market begins to operate on an extended hours basis and does not
designate the closing bid price or the closing trade price, as the
case may be, then the last bid price or the last trade price,
respectively, of such security prior to 4:00:00 p.m., New York
time, as reported by Bloomberg, or, if the Principal Market is not
the principal securities exchange or trading market for such
security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange
or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the last
closing bid price or last trade price, respectively, of such
security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg, or, if no closing
bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask
prices, respectively, of any market makers for such security as
reported in the OTC Link or “pink sheets” by OTC
Markets Group Inc. (formerly Pink OTC Markets Inc.). If the Closing
Bid Price or the Closing Sale Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the
Closing Bid Price or the Closing Sale Price, as the case may be, of
such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company
and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to
Section 11. All such determinations to be appropriately adjusted
for any stock dividend, stock split, stock combination,
reclassification or other similar transaction during the applicable
calculation period.

 

(g)
“Common Stock”
means (i) the Company’s Common Stock, par value $0.001 per
share, and (ii) any capital stock into which such Common Stock
shall have been changed or any capital stock resulting from a
reclassification of such Common Stock.

 

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

 

(i)
“Eligible
Market” means The Nasdaq Capital Market, the NYSE
American LLC, The Nasdaq Global Select Market, The Nasdaq Global
Market or The New York Stock Exchange, Inc.

 

(j)
“Expiration
Date” means the date twelve (12) months after the
Initial Exercisability Date or, if such date falls on a day other
than a Business Day or on which trading does not take place on the
Principal Market (a “Holiday”), the next day that is
not a Holiday.

 

 

12

 

 

(k)
“Fundamental
Transaction” means (A) that the Company shall,
directly or indirectly, including through subsidiaries, Affiliates
or otherwise, in one or more related transactions, (i) consolidate
or merge with or into (whether or not the Company is the surviving
corporation) another Subject Entity, or (ii) sell, assign,
transfer, convey or otherwise dispose of all or substantially all
of the properties or assets of the Company or any of its
“significant subsidiaries” (as defined in Rule 1-02 of
Regulation S-X) to one or more Subject Entities, or (iii) make, or
allow one or more Subject Entities to make, or allow the Company to
be subject to or have its shares of Common Stock be subject to or
party to one or more Subject Entities making, a purchase, tender or
exchange offer that is accepted by the holders of at least either
(x) 50% of the outstanding shares of Common Stock, (y) 50% of the
outstanding shares of Common Stock calculated as if any shares of
Common Stock held by all Subject Entities making or party to, or
Affiliated with any Subject Entities making or party to, such
purchase, tender or exchange offer were not outstanding; or (z)
such number of shares of Common Stock such that all Subject
Entities making or party to, or Affiliated with any Subject Entity
making or party to, such purchase, tender or exchange offer, become
collectively the beneficial owners (as defined in Rule 13d-3 under
the 1934 Act) of at least 50% of the outstanding shares of Common
Stock, or (iv) consummate a stock purchase agreement or other
business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of
arrangement) with one or more Subject Entities whereby all such
Subject Entities, individually or in the aggregate, acquire, either
(x) at least 50% of the outstanding shares of Common Stock, (y) at
least 50% of the outstanding shares of Common Stock calculated as
if any shares of Common Stock held by all the Subject Entities
making or party to, or Affiliated with any Subject Entity making or
party to, such stock purchase agreement or other business
combination were not outstanding; or (z) such number of shares of
Common Stock such that the Subject Entities become collectively the
beneficial owners (as defined in Rule 13d-3 under the 1934 Act) of
at least 50% of the outstanding shares of Common Stock, or (v)
reorganize, recapitalize or reclassify its shares of Common Stock,
(B) that the Company shall, directly or indirectly, including
through subsidiaries, Affiliates or otherwise, in one or more
related transactions, allow any Subject Entity individually or the
Subject Entities in the aggregate to be or become the
“beneficial owner” (as defined in Rule 13d-3 under the
1934 Act), directly or indirectly, whether through acquisition,
purchase, assignment, conveyance, tender, tender offer, exchange,
reduction in outstanding shares of Common Stock, merger,
consolidation, business combination, reorganization,
recapitalization, spin-off, scheme of arrangement, reorganization,
recapitalization or reclassification or otherwise in any manner
whatsoever, of either (x) at least 50% of the aggregate ordinary
voting power represented by issued and outstanding shares of Common
Stock, (y) at least 50% of the aggregate ordinary voting power
represented by issued and outstanding shares of Common Stock not
held by all such Subject Entities as of the Issuance Date
calculated as if any shares of Common Stock held by all such
Subject Entities were not outstanding, or (z) a percentage of the
aggregate ordinary voting power represented by issued and
outstanding shares of Common Stock or other equity securities of
the Company sufficient to allow such Subject Entities to effect a
statutory short form merger or other transaction requiring other
stockholders of the Company to surrender their Common Stock without
approval of the stockholders of the Company or (C) directly or
indirectly, including through subsidiaries, Affiliates or
otherwise, in one or more related transactions, the issuance of or
the entering into any other instrument or transaction structured in
a manner to circumvent, or that circumvents, the intent of this
definition in which case this definition shall be construed and
implemented in a manner otherwise than in strict conformity with
the terms of this definition to the extent necessary to correct
this definition or any portion of this definition which may be
defective or inconsistent with the intended treatment of such
instrument or transaction.

 

(l)
“Group” means a
“group” as that term is used in Section 13(d) of the
1934 Act and as defined in Rule 13d-5 thereunder.

 

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

 

(n)
“Parent Entity”
of a Person means an entity that, directly or indirectly, controls
the applicable Person, including such entity whose common stock or
equivalent equity security is quoted or listed on an Eligible
Market (or, if so elected by the Holder, any other market, exchange
or quotation system), or, if there is more than one such Person or
such entity, the Person or such entity designated by the Holder or
in the absence of such designation, such Person or entity with the
largest public market capitalization as of the date of consummation
of the Fundamental Transaction.

 

(o)
“Person” means
an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization,
any other entity and a government or any department or agency
thereof.

 

(p)
“Principal
Market” means the principal securities exchange or
securities market on which the shares of Common Stock are then
traded.

  

 

13

 

 

(q)
“Standard Settlement
Period” means the standard settlement period,
expressed in a number of Trading Days, for the Company’s
primary trading market or quotation system with respect to the
Common Stock that is in effect on the date of receipt of an
applicable Exercise Notice.

 

(r)
“Subject Entity”
means any Person, Persons or Group or any Affiliate or associate of
any such Person, Persons or Group.

 

(s)
“Successor
Entity” means one or more Person or Persons (or, if so
elected by the Holder, the Company or Parent Entity) formed by,
resulting from or surviving any Fundamental Transaction or one or
more Person or Persons (or, if so elected by the Holder, the
Company or the Parent Entity) with which such Fundamental
Transaction shall have been entered into.

 

(t)
“Trading Day”
means any day on which the Common Stock is traded on the Principal
Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities
exchange or securities market on which the Common Stock is then
traded.

 

(u)
“Transaction
Documents” means any agreement entered into by and
between the Company and the Holder, as applicable.

  

(v)
“Weighted Average
Price” means, for any security as of any date, the
dollar volume-weighted average price for such security on the
Principal Market during the period beginning at 9:30:01 a.m., New
York time (or such other time as the Principal Market publicly
announces is the official open of trading), and ending at 4:00:00
p.m., New York time (or such other time as the Principal Market
publicly announces is the official close of trading), as reported
by Bloomberg through its “Volume at Price” function or,
if the foregoing does not apply, the dollar volume-weighted average
price of such security in the over-the-counter market on the
electronic bulletin board for such security during the period
beginning at 9:30:01 a.m., New York time (or such other time as
such market publicly announces is the official open of trading),
and ending at 4:00:00 p.m., New York time (or such other time as
such market publicly announces is the official close of trading),
as reported by Bloomberg, or, if no dollar volume-weighted average
price is reported for such security by Bloomberg for such hours,
the average of the highest Closing Bid Price and the lowest closing
ask price of any of the market makers for such security as reported
in the OTC Link or “pink sheets” by OTC Markets Group
Inc. (formerly Pink OTC Markets Inc.). If the Weighted Average
Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Weighted Average Price of such
security on such date shall be the fair market value as mutually
determined by the Company and the Holder. If the Company and the
Holder are unable to agree upon the fair market value of such
security, then such dispute shall be resolved pursuant to Section
11 with the term “Weighted Average Price” being
substituted for the term “Exercise Price.” All such
determinations shall be appropriately adjusted for any stock
dividend, stock split, stock combination, reclassification or other
similar transaction during the applicable calculation
period.

 

 

 

 

 

[Signature Page Follows]

 

 

 

 

 

 

 

 

14

 

 

IN WITNESS WHEREOF, the Company has
caused this Warrant to Purchase Common Stock to be duly executed as
of the Issuance Date set out above.

 

	
 

	

TORCHLIGHT ENERGY RESOURCES, INC.

	
 

	

   

	
 

	

By:

	

                   

	
 

	

Name:

	
 

	
 

	

Title:

	
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

EXHIBIT A

 

EXERCISE NOTICE

 

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE
THIS

WARRANT TO PURCHASE COMMON STOCK

 

TORCHLIGHT ENERGY RESOURCES, INC.

 

The
undersigned holder hereby exercises the right to purchase
_________________ shares of Common Stock (“Warrant Shares”) of Torchlight
Energy Resources, Inc., a company organized under the laws of
Nevada (the “Company”), evidenced by the
attached Warrant to Purchase Common Stock (the “Warrant”). Capitalized terms used
herein and not otherwise defined shall have the respective meanings
set forth in the Warrant.

 

1. Form
of Exercise Price. The Holder intends that payment of the Exercise
Price shall be made as:

 

____________ a
“Cash
Exercise” with respect to _________________ Warrant
Shares; and/or

 

____________ a
“Cashless
Exercise” with respect to _______________ Warrant
Shares.

 

2.
Payment of Exercise Price. In the event that the holder has elected
a Cash Exercise with respect to some or all of the Warrant Shares
to be issued pursuant hereto, the holder shall pay the Aggregate
Exercise Price in the sum of $___________________ to the Company in
accordance with the terms of the Warrant.

 

3.
Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the
Warrant.

 

Date:
_______________ __, ______

 

 

_________________________________________________________________________

    Name
of Registered Holder

 

 

By:
________________________________________

Name:

Title: 

 

 

 

 

 

 

 

 

 

ACKNOWLEDGMENT

 

The
Company hereby acknowledges this Exercise Notice and hereby directs
the Transfer Agent to issue the above indicated number of shares of
Common Stock on or prior to the applicable Share Delivery
Date.

 

	
 

	

TORCHLIGHT ENERGY RESOURCES, INC.

	
 

	

   

	
 

	

By:

	

                    

	
 

	

Name:

	
 

	
 

	

Title:

	
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2exhibit_10-1

  EXHIBIT 10.1

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this
“Agreement”)
is dated as of June 12, 2020, between Torchlight Energy Resources,
Inc., a Nevada corporation (the “Company”),
and the purchaser identified on the signature pages (the
“Purchaser”).

 

WHEREAS, subject to the
terms and conditions set forth in this Agreement and pursuant to an
effective registration statement under the Securities Act of 1933,
as amended (the “Securities
Act”) as to the
Shares (as described below), the Warrants (as described below) and
the Warrant Shares (as described below), the Company desires to
issue and sell to the Purchaser, and the Purchaser desires to
purchase from the Company, securities of the Company as more fully
described in this Agreement. 

 

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 the Purchaser agree as follows:

 

ARTICLE I.

DEFINITIONS

 

1.1           Definitions.
In addition to the terms defined elsewhere in this Agreement, for
all purposes of this Agreement, the following terms have the
meanings set forth in this Section 1.1:

 

“Acquiring
Person” shall have the
meaning ascribed to such term in
Section 4.4.

 

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

 

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

 

“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 authorized or required by law or other
governmental action to close.

 

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

 

“Closing
Date” means the Trading
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 Purchaser’s obligations to pay the
Subscription Amount and (ii) the Company’s obligations
to deliver the Securities, in each case, have been satisfied or
waived, but in no event later than the second (2nd)
Trading Day following the date hereof.

 

“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.

 

“Company
Counsel” means Axelrod
& Smith, with offices located at 5300 Memorial Drive, Houston,
Texas 77007.

 

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

 

“Evaluation
Date” shall have the
meaning ascribed to such term in
Section 3.1(t).

 

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

 

“Exempt
Issuance” means the
issuance of (a) the issuance of Securities hereunder or any
issuance of shares of Common Stock upon exercise of the Warrants
issued hereunder; provided that such securities have not been
amended since the date of this Agreement to increase the number of
such securities or to decrease the exercise price, exchange price
or conversion price of such securities (other than in connection
with stock splits or combinations) or to extend the term of such
securities; (b) shares of Common Stock or options to
employees, officers or directors of the Company pursuant to the
Company’s Stock Option Plan or pursuant to the compensation
agreements previously authorized by the Board of Directors;
(c) securities upon the exercise or exchange of or conversion
of 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 have not been amended
since the date of this Agreement to increase the number of such
securities or to decrease the exercise price, exchange price or
conversion price of such securities (other than in connection with
stock splits or combinations) or to extend the term of such
securities, and (d) securities issued pursuant to acquisitions
or strategic transactions and the payment of contractor invoices in
the ordinary course of business approved by a majority of the
disinterested directors of the Company, provided that such
securities are issued as “restricted securities” (as
defined in Rule 144) and carry no registration rights that
require or permit the filing of any registration statement in
connection therewith during the prohibition period in
Section 4.10(a) herein, and provided that any such
issuance shall only be to a Person (or to the equityholders of a
Person) which is, itself or through its subsidiaries, an operating
company or an owner of an asset in a business synergistic with the
business of the Company and shall provide to the Company 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.

  

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

 

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

 

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

 

 

2

 

 

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

 

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

 

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

 

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

 

“Per Share Purchase
Price” equals
$0.38.

 

“Person”
means an individual or corporation, 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.

 

“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.

 

“Prospectus”
means the final prospectus filed for the Registration
Statement.

  

“Prospectus
Supplement” means the
supplement to the Prospectus complying with
Rule 424(b) of the Securities Act that is filed with the
Commission and delivered by the Company to the Purchaser at the
Closing.

 

“Purchaser
Party” shall have the
meaning ascribed to such term in
Section 4.8.

 

“Registration
Statement” means the
effective registration statement on Form S-3 (File
No. 333-220181) filed with Commission and which registers the
sale of the Shares.

 

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

 

“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.

 

“Rule 424”
means Rule 424 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 Shares, the Warrants and the Warrant
Shares.

 

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

 

 

3

 

 

“Shares”
means the shares of Common Stock issued or issuable to the
Purchaser pursuant to this Agreement.

 

“Short
Sales” means all
“short sales” as defined in Rule 200 of Regulation
SHO under the Exchange Act (but shall not be deemed to include
locating and/or borrowing shares of Common
Stock).

 

“Subscription
Amount” means, as to the
Purchaser, the aggregate amount to be paid for Shares and Warrants
purchased hereunder as specified below the 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.

 

“Subsidiary”
means any subsidiary of the Company as set forth
on Schedule
3.1(a), and shall, where
applicable, also include any direct or indirect subsidiary of the
Company formed or acquired after the date
hereof.

 

“SW” means Sullivan & Worcester LLP, with
offices located at 1633 Broadway, New York, New York
10019.

 

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

 

“Trading
Market” means 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 (or any
successors to any of the foregoing).

 

“Transaction
Documents” means this
Agreement and all exhibits and schedules hereto, the Warrants and
any other documents or agreements executed in connection with the
transactions contemplated hereunder.

 

“Transfer
Agent” means American
Stock Transfer & Trust Company, the current transfer agent of
the Company, with a mailing address of 6201 15th
Avenue, Brooklyn, New York 11219 and
any successor transfer agent of the Company.

 

“Variable Rate
Transaction” shall have
the meaning ascribed to such term in
Section 4.10(b).

 

“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 OTCQB or OTCQX is not a Trading Market, the volume weighted
average price of the Common Stock for such date (or the nearest
preceding date) on OTCQB or OTCQX as applicable, (c) if the Common
Stock is not then listed or quoted for trading on OTCQB or OTCQX
and if prices for the Common Stock are then reported on the Pink
Open Market (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share
of the Common Stock so reported, 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 the holders of a
majority in interest of the Warrants then outstanding and
reasonably acceptable to the Company, the fees and expenses of
which shall be paid by the Company.

 

 

4

 

 

“Warrants”
means the Common Stock purchase warrants delivered to the Purchaser
at the Closing in accordance with Section 2.2(a) hereof, which
Warrants shall be exercisable immediately and have a term of
exercise equal to twelve (12) months from the Closing Date, in the
form of Exhibit A
attached hereto.

 

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

 

 

ARTICLE II.

PURCHASE AND SALE

 

2.1            Closing.
On the Closing Date, upon the terms and subject to the conditions
set forth herein, substantially concurrent with the execution and
delivery of this Agreement by the parties hereto, the Company
agrees to sell, and the Purchaser agrees to purchase an aggregate
of 7,894,737 Shares and Warrants to purchase up to 3,157,895
Warrant Shares. The Purchaser’s Subscription Amount as set
forth on the signature page hereto executed by the Purchaser
shall be made available for “Delivery Versus Payment”
(“DVP”) settlement with the Company or its
designee. The Company shall deliver to the Purchaser its Shares and
Warrants, and the Company and the Purchaser shall deliver the other
items set forth in Section 2.2 deliverable at the Closing.
Upon satisfaction of the covenants and conditions set forth in
Sections 2.2 and 2.3, the Closing shall occur at the offices of SW
or such other location as the parties shall mutually agree or
virtually in accordance with the provisions of this Agreement.
Settlement of the Shares shall occur via DVP (i.e., on the Closing
Date, the Company shall issue the Shares registered in the
Purchaser’s name and address and released by the Transfer
Agent directly to the account(s) identified by Purchaser; upon
receipt of such Shares payment therefor shall be made by the
Purchaser by wire transfer to the Company). Notwithstanding
anything to the contrary hereunder, to the extent that a Purchaser
determines, in its sole discretion, that the Purchaser (together
with the Purchaser's Affiliates, and any Person acting as a group
together with the Purchaser or any of the Purchaser’s
Affiliates) would beneficially own in excess of 9.99% of the number
of shares of Common Stock outstanding immediately prior to giving
effect to the issuance of the Common Stock on the Closing Date
(“Beneficial Ownership
Maximum”), the Purchaser
may elect to receive only the Beneficial Ownership Maximum at the
Closing with the balance of any Shares purchased hereunder, if any,
held in abeyance for the Purchaser and issued immediately following
the Closing provided in no event shall the Purchaser's beneficial
ownership ever exceed the Beneficial Ownership Maximum. The
determination pursuant to the provisions of the previous sentence
of whether the Purchaser’s beneficial ownership exceeds the
Beneficial Ownership Maximum shall be in the sole discretion of the
Purchaser and the Company shall have no obligation to verify or
confirm the accuracy of such determination.

 

 

 

 

 

 

5

 

  

              

2.2           Deliveries.

 

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

 

(i)            this
Agreement duly executed by the Company;

 

(ii)           a
legal opinion of Company Counsel, in a form reasonably satisfactory
to the Purchaser;

 

(iii)          Lock-Up
Agreements in the form attached hereto as Exhibit A
executed and delivered by each of the
Company’s officers, directors and stockholders holding five
percent (5%) or more of the Company’s issued and outstanding
shares of Common Stock (each a “5%
Stockholder” and
collectively, the “5%
Stockholders”), by no
later than the date of this Agreement;

 

(iv)          [RESERVED]

 

(v)           the
Company shall have provided the Purchaser with the Company’s
wire instructions, on Company letterhead and executed by the Chief
Executive Officer or Chief Financial Officer;

 

(vi)           a
copy of the irrevocable instructions to the Transfer Agent
instructing the Transfer Agent to deliver on an expedited basis via
The Depository Trust Company Deposit or Withdrawal at Custodian
system (“DWAC”)
Shares equal to the Purchaser’s Subscription Amount divided
by the Per Share Purchase Price, registered in the name of the
Purchaser;

 

(vii)        a
Warrant registered in the name of the Purchaser to purchase up to a
3,157,895 shares of Common Stock with an exercise price equal to
$0.55 per share, subject to adjustment therein; and

 

(viii)           the
Prospectus and Prospectus Supplement (which may be delivered in
accordance with Rule 172 under the Securities
Act).

 

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

 

(i)            this
Agreement duly executed by the Purchaser; and

 

(ii)           the
Purchaser’s Subscription Amount, which shall be made
available for “Delivery Versus Payment” settlement with
the Company or its designee.

 

2.3            Closing
Conditions.

 

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

 

 

6

 

 

(i)            the
accuracy in all material respects (or, to the extent
representations or warranties are qualified by materiality or
Material Adverse Effect, in all respects) on the Closing Date of
the representations and warranties of the Purchaser 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 the Purchaser required to
be performed at or prior to the Closing Date shall have been
performed; and

 

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

 

(b)            The
obligations of the Purchaser hereunder in connection with the
Closing are subject to the following conditions being
met:

 

(i)            the
accuracy in all material respects (or, to the extent
representations or warranties are qualified by materiality or
Material Adverse Effect, in all respects) when made and on the
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
obligations, covenants and agreements of the Company required to be
performed at or prior to the Closing Date shall have been
performed;

 

(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, trading in the Common Stock
shall not have been suspended by the Commission or the
Company’s principal Trading Market, 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 the 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 Disclosure Schedules, which Disclosure
Schedules shall be deemed a part hereof and shall qualify any
representation or otherwise made herein to the extent of the
disclosure contained in the corresponding section of the Disclosure
Schedules, the Company hereby makes the following representations
and warranties to the Purchaser:

 

 

7

 

 

(a)            Subsidiaries.
All of the direct and indirect subsidiaries of the Company are set
forth on Schedule
3.1(a). The Company owns,
directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary 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 preemptive and similar rights to subscribe for or
purchase securities.

 

(b)            Organization
and Qualification. The Company
and each of the Subsidiaries 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 the Subsidiaries is duly
qualified to conduct business and is in good standing as a foreign
corporation 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, could not have
or 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, prospects or condition
(financial or otherwise) of the Company and the Subsidiaries, 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.

 

 

8

 

 

(d)            No
Conflicts. The execution,
delivery and performance by the Company of this Agreement and the
other Transaction Documents to which it is a party, the issuance
and sale of the Securities and the consummation by it of the
transactions contemplated hereby and thereby do not and will not
(i) conflict with or violate any provision of the
Company’s or any Subsidiary’s certificate or articles
of incorporation, bylaws or other organizational or charter
documents, or (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, anti-dilution or
similar adjustments, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility,
Indebtedness or other instrument (evidencing a Company or
Subsidiary Indebtedness 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 is
subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a
Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not have or reasonably
be expected to result in a Material Adverse
Effect.

 

(e)            Filings,
Consents and Approvals. The
Company is not required to obtain any consent, waiver,
authorization or order of, give any 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 4.4 of this Agreement, (ii) the
filing with the Commission of the Prospectus Supplement,
(iii) application(s) to each applicable Trading Market
for the listing of the Shares and Warrant Shares for trading
thereon in the time and manner required thereby and (iv) such
filings as are required to be made under applicable state
securities laws (collectively, the “Required
Approvals”).

 

(f)             Issuance
of the Securities; Registration. 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.
The Company has reserved from its duly authorized capital stock the
maximum number of shares of Common Stock, including Warrant Shares,
issuable pursuant to this Agreement. The Warrant Shares,
when issued in accordance with the terms of the Warrants, will be
validly issued, fully paid and nonassessable, free and clear of all
Liens imposed by the Company.  The Company has reserved from
its duly authorized capital stock the maximum number of shares of
Common Stock issuable pursuant to this Agreement and the
Warrants. The Company has
prepared and filed the Registration Statement in conformity with
the requirements of the Securities Act, which became effective
on  September 28, 2017 (the “Effective
Date”), including the
Prospectus, and such amendments and supplements thereto as may have
been required to the date of this Agreement. The Registration
Statement is effective under the Securities Act and no stop order
preventing or suspending the effectiveness of the Registration
Statement or suspending or preventing the use of the Prospectus has
been issued by the Commission and no proceedings for that purpose
have been instituted or, to the knowledge of the Company, are
threatened by the Commission. The Company, if required by the
rules and regulations of the Commission, shall file the
Prospectus with the Commission pursuant to Rule 424(b). At the
time the Registration Statement and any amendments thereto became
effective, at the date of this Agreement and at the Closing Date,
the Registration Statement and any amendments thereto conformed and
will conform in all material respects to the requirements of the
Securities Act and did not and will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading; and the Prospectus and any amendments or
supplements thereto, at the time the Prospectus or any amendment or
supplement thereto was issued and at the Closing Date, conformed
and will conform in all material respects to the requirements of
the Securities Act and did not and will not contain an untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
Company was at the time of the filing of the Registration Statement
eligible to use Form S-3. The Company is eligible to use
Form S-3 under the Securities Act and it meets the transaction
requirements with respect to the aggregate market value of
securities being sold pursuant to this offering and during the
twelve (12) months prior to this offering, as set forth in General
Instruction I.B.6 of Form S-3. All corporate action required
to be taken for the authorization, issuance and sale of the
Securities has been duly and validly taken. The Securities conform
in all material respects to all statements with respect thereto
contained in the Registration Statement, the Prospectus and the
Prospectus Supplement.

  

 

9

 

 

(g)            Capitalization.
The capitalization of the Company as of the date hereof is as set
forth on Schedule
3.1(g), which
Schedule
3.1(g) shall also include
the number of shares of Common Stock owned beneficially, and of
record, by Affiliates of the Company as of the date hereof. 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. None of the
Securities will be subject to the preemptive rights of any holders
of any security of the Company or similar contractual rights
granted by the Company. Except as disclosed in the Registration
Statement, the Prospectus and the Prospectus Supplement, there are
no outstanding options, 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 the capital stock of
any Subsidiary, 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 or capital stock of any Subsidiary. The issuance
and sale of the Securities will not obligate the Company or any
Subsidiary to issue shares of Common Stock or other securities to
any Person (other than the Purchaser). Except as disclosed
on Schedule
3.1(g), there are no
outstanding securities or instruments of the Company or any
Subsidiary with any provision that adjusts the exercise,
conversion, exchange or reset price of such security or instrument
upon an issuance of securities by the Company or any Subsidiary.
There are no outstanding securities or instruments of the Company
or any Subsidiary that contain any redemption or similar
provisions, and there are no contracts, commitments, understandings
or arrangements by which the Company or any Subsidiary is or may
become bound to redeem a security of the Company or such
Subsidiary. The Company does not have any stock appreciation rights
or “phantom stock” plans or agreements or any similar
plan or agreement. All of the outstanding shares of capital stock
of the Company are duly authorized, validly issued, fully paid and
nonassessable, have been issued in 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. No further approval or
authorization of any stockholder, the Board of Directors or others
is required for the issuance and sale of the Securities. 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.

  

 

10

 

 

(h)            SEC
Reports; Financial Statements.
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 two 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, together with the Registration
Statement, Prospectus and the Prospectus Supplement, 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 is not within the last 12 months 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. The selected
financial data set forth under the caption “Selected
Financial Data” in the SEC Reports fairly present, on the
basis stated in such SEC Reports, the information included therein.
The agreements and documents described in the Registration
Statement and the SEC Reports conform in all material aspects to
the descriptions thereof contained therein and there are no
agreements or other documents required by the Securities Act and
the rules and regulations thereunder to be described in the
Registration Statement, the Prospectus or the SEC Reports or to be
filed with the Commission as exhibits to the Registration
Statement, that have not been so described or filed. Each agreement
or other instrument (however characterized or described) to which
the Company is a party or by which it is or may be bound or
affected and (i) that is referred to in the Registration Statement
or the SEC Reports, or (ii) is material to the Company’s
business, has been duly authorized and validly executed by the
Company, is in full force and effect in all material respects and
is enforceable against the Company and, to the Company’s
knowledge, the other parties thereto, in accordance with its terms,
except (x) as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting
creditors’ rights generally, (y) as enforceability of any
indemnification or contribution provision may be limited under the
federal and state securities laws, and (z) that the remedy of
specific performance and injunctive and other forms of equitable
relief may be subject to the equitable defenses and to the
discretion of the court before which any proceeding therefore may
be brought. None of such agreements or instruments has been
assigned by the Company, and neither the Company nor, to the best
of the Company’s knowledge, any other party is in default
thereunder and, to the best of the Company’s knowledge, no
event has occurred that, with the lapse of time or the giving of
notice, or both, would constitute a default thereunder. To the best
of the Company’s knowledge, performance by the Company of the
material provisions of such agreements or instruments will not
result in a violation of any existing applicable law, rule,
regulation, judgment, order or decree of any governmental agency or
court, domestic or foreign, having jurisdiction over the Company or
any of its assets or businesses, including, without limitation,
those relating to environmental laws and regulations.

 

(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), (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 and
employee stock purchase plans, the issuance of Common Stock
Equivalents as disclosed in the SEC Reports. 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,
prospects, 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 1
Trading Day prior to the date that this representation is
made. Unless otherwise disclosed in an SEC Report filed
prior to the date hereof, the Company has not: (i) issued any
securities or incurred any liability or obligation, direct or
contingent, for borrowed money; or (ii) declared or paid any
dividend or made any other distribution on or in respect to its
capital stock.

 

 

11

 

 

(j)            Litigation.
Except as set forth on 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”).
None of the Actions set forth on Schedule
3.1(j), (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 threatened,
any investigation by the Commission involving the Company or any
current or former director or officer of the Company required to be
disclosed in any SEC Reports. There are no Actions required
to be disclosed in the SEC Reports that have not been disclosed.
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.

 

(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. 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.
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.

 

 

12

 

 

(m)           Environmental
Laws. The Company and its
Subsidiaries (i) are in compliance with all federal, state,
local and foreign laws relating to pollution or protection of human
health or the environment (including ambient air, surface water,
groundwater, land surface or subsurface strata), including laws
relating to emissions, discharges, releases or threatened releases
of chemicals, pollutants, contaminants, or toxic or hazardous
substances or wastes (collectively, “Hazardous
Materials”) into the
environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials, as well as all authorizations,
codes, decrees, demands, or demand letters, injunctions, judgments,
licenses, notices or notice letters, orders, permits, plans or
regulations, issued, entered, promulgated or approved thereunder
(“Environmental
Laws”); (ii) have
received all permits licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective
businesses; and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where in each
clause (i), (ii) and (iii), the failure to so comply could be
reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect.

 

(n)           Real
Property. Except as set forth
in the Registration Statement, the Prospectus and the Prospectus
Supplement, the Company and each of its Subsidiaries have good and
marketable title in fee simple to, or have valid rights to lease or
otherwise use, all items of real or personal property which are
material to the business of the Company and its Subsidiaries taken
as a whole, in each case free and clear of all Liens that do not,
singly or in the aggregate, materially affect the value of such
property and do not interfere with the use made and proposed to be
made of such property by the Company or any of its Subsidiaries;
and all of the leases and subleases material to the business of the
Company and its Subsidiaries, considered as one enterprise, and
under which the Company or any of its subsidiaries holds properties
described in the Registration Statement, the Prospectus and the
Prospectus Supplement, are in full force and effect, and neither
the Company nor any Subsidiary has received any notice of any
material claim of any sort that has been asserted by anyone adverse
to the rights of the Company or any Subsidiary under any of the
leases or subleases mentioned above, or affecting or questioning
the rights of the Company or such Subsidiary to the continued
possession of the leased or subleased premises under any such lease
or sublease.

 

(o)            Regulatory
Permits. The Company and the
Subsidiaries possess all certificates, licenses,
authorizations approvals, clearances, consents, registration
and permits issued by the appropriate
federal, state, local or foreign regulatory authorities
applicable to the Company (“Applicable Laws”)
necessary to conduct their respective
businesses as described in the SEC Reports, except where the
failure to possess such permits could not reasonably be expected to
result in a Material Adverse Effect (each, an
“Authorization”),
and neither the Company nor any Subsidiary has received any notice
of proceedings relating to the revocation or modification of
any Authorization or the noncompliance with any ordinance,
law, rule or regulation applicable to the Company. The disclosures
in the Registration Statement concerning the effects of federal,
state, local and all foreign regulation on the Company’s
business as currently contemplated are correct in all material
respects. The Company is and has been in material compliance with
any term of any such Authorizations, except for any violations
which would not reasonably be expected to have a Material Adverse
Effect. The Company has not received notice of any claim, action,
suit, proceeding, hearing, enforcement, investigation, arbitration
or other action from any governmental authority or body or third
party alleging that any product, operation or activity is in
violation of any Applicable Laws or Authorizations or has any
knowledge that any such entity or third party is considering any
such claim, litigation, arbitration, action, suit, investigation or
proceeding, nor, to the Company’s knowledge, has there been
any material noncompliance with or violation of any Applicable Laws
by the Company that could reasonably be expected to require the
issuance of any such communication or result in an investigation,
corrective action, or enforcement action by any governmental body
or entity.

 

 

13

 

 

(p)            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.

  

(q)            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 necessary or
required for use in connection with their respective businesses as
described in the SEC Reports and which the failure to so have could
have a Material Adverse Effect (collectively, the
“Intellectual Property
Rights”). 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 except where such action would not
reasonably be expected to have a Material Adverse Effect.
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 or any of the Company’s products or planned
products as described in the SEC Reports 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.

 

(r)            Insurance.
The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses
in which the Company and the Subsidiaries are engaged, including,
but not limited to, directors and officers insurance coverage at
least equal to the aggregate Subscription Amount. Neither the
Company nor any Subsidiary has any reason to believe that it will
not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business without a
significant increase in cost.

 

 

14

 

 

(s)            Transactions
With Affiliates and Employees.
Except as set forth on Schedule 3.1(s)
or in the SEC Reports,
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
$120,000 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.

  

(t)            Sarbanes-Oxley;
Internal Accounting Controls.
The Company and the Subsidiaries are 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 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. The Company and the Subsidiaries have established
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) for the Company and the
Subsidiaries and designed such disclosure controls and procedures
to ensure that information required to be disclosed by the Company
in the reports it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time
periods specified in the Commission’s rules and forms.
The Company’s certifying officers have evaluated the
effectiveness of the disclosure controls and procedures of the
Company and the Subsidiaries as of the end of the period covered by
the most recently filed periodic report under the Exchange Act
(such date, the “Evaluation
Date”). The Company
presented in its most recently filed periodic report under the
Exchange Act the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on
their evaluations as of the Evaluation Date. Since the Evaluation
Date, there have been no changes in the internal control over
financial reporting (as such term is defined in the Exchange Act)
of the Company and its Subsidiaries that have materially affected,
or is reasonably likely to materially affect, the internal control
over financial reporting of the Company and its
Subsidiaries.

 

(u)            Certain
Fees. Other than as set forth
in the Prospectus Supplement relating to the offer and sale of the
Securities, no brokerage or finder’s fees or commissions are
or will be payable by the Company or any Subsidiary 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
Purchaser 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.

 

 

15

 

 

(v)            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.

   

(w)            Registration
Rights. Except as described in
the Registration Statement, the Prospectus or the SEC Reports, no
Person has any right to cause the Company or any Subsidiary to
effect the registration under the Securities Act of any securities
of the Company or any Subsidiary.

 

(x)            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. Except as set forth in the
Registration Statement, Prospectus Supplement or the SEC Reports,
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. Except as set
forth in the Registration Statement, Prospectus Supplement or the
SEC Reports, 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.

 

(y)            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
Purchaser as a result of the Purchaser 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
Purchaser’s ownership of the Securities.

 

(z)            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 the Purchaser or its agents or counsel with any
information that it believes constitutes or might constitute
material, non-public information which is not otherwise disclosed
in the Prospectus Supplement. The Company understands and confirms
that the Purchaser 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
Purchaser 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 in all material respects and does not contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not
misleading. The press releases disseminated by the Company during
the twelve months preceding the date of this Agreement taken as a
whole do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made and when 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.

  

 

16

 

 

(aa)            No
Integrated Offering. Assuming
the accuracy of the Purchaser’s 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
any applicable shareholder approval provisions of any Trading
Market on which any of the securities of the Company are listed or
designated.

 

(bb)         Solvency.
Based on the consolidated financial condition of the Company as of
the Closing Date, 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(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 $50,000 (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 $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 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. The term
“taxes” mean all federal, state, local, foreign, and
other net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, lease, service,
service use, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property, windfall profits, customs,
duties or other taxes, fees, assessments, or charges of any kind
whatsoever, together with any interest and any penalties, additions
to tax, or additional amounts with respect thereto. The term
“returns” means all returns, declarations, reports,
statements, and other documents required to be filed in respect to
taxes.

 

 

17

 

 

(dd)          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. The Company has taken reasonable steps to ensure that
its accounting controls and procedures are sufficient to cause the
Company to comply in all material respects with the
FCPA.

 

(ee)        Accountants.
The Company’s registered independent accounting firm is
Briggs & Veselka Co. To the knowledge and belief of the
Company, such accounting firm is a registered public accounting
firm as required by the Exchange Act.

 

(ff)         Acknowledgment
Regarding Purchaser’s Purchase of
Securities. The Company
acknowledges and agrees that the Purchaser 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 the Purchaser is nor 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 the
Purchaser or any of its respective representatives or agents in
connection with the Transaction Documents and the transactions
contemplated thereby is merely incidental to the Purchaser’s
purchase of the Securities. The Company further represents to the
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.

  

(gg)          [Reserved]

 

(hh)         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.

 

(ii)            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.

 

 

18

 

 

(jj)           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”).

 

(kk)         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.

 

(ll)           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.

  

(mm)       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 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.

 

(nn)         
[Reserved]

 

(oo)        
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.

 

(pp)         
No
Disqualification Events. If all
of the Securities are not, for any reason, registered pursuant to
the Registration Statement, the Prospectus and the Prospectus
Supplement, none of the Company, any of its predecessors, any
affiliated issuer, any director, executive officer, other officer
of the Company participating in the offering hereunder, any
beneficial owner of 20% or more of the Company’s outstanding
voting equity securities, calculated on the basis of voting power,
nor any promoter (as that term is defined in Rule 405 under the
Securities Act) connected with the Company in any capacity at the
time of sale (each, an “Issuer Covered
Person”) is subject to
any of the “Bad Actor” disqualifications described in
Rule 506(d)(1)(i) to (viii) under the Securities Act (a
“Disqualification
Event”), except for a
Disqualification Event covered by Rule 506(d)(2) or (d)(3). The
Company has exercised reasonable care to determine whether any
Issuer Covered Person is subject to a Disqualification Event. The
Company has complied, to the extent applicable, with its disclosure
obligations under Rule 506(e), and has furnished to the Purchaser a
copy of any disclosures provided thereunder.

 

 

 

19

 

 

(qq)     
Other
Covered Persons. If all of the
Securities are not, for any reason, registered pursuant to the
Registration Statement, the Prospectus and the Prospectus
Supplement, 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 Securities.

 

(rr)       
Notice of
Disqualification Events. If all
of the Securities are not, for any reason, registered pursuant to
the Registration Statement, the Prospectus and the Prospectus
Supplement, the Company will notify the Purchaser 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, reasonably be expected to become a
Disqualification Event relating to any Issuer Covered Person, in
each case of which it is aware.

 

3.2            Representations
and Warranties of the Purchaser. The 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, in which case they
shall be accurate as of such date):

 

(a)            Organization;
Authority. The 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 the
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 the Purchaser. Each Transaction Document
to which it is a party has been duly executed by the Purchaser, and
when delivered by the Purchaser in accordance with the terms
hereof, will constitute the valid and legally binding obligation of
the 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.

 

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

 

 

20

 

 

(c)            Purchaser
Status. At the time the
Purchaser was offered the Securities, it was, and as of the date
hereof it is, and on each date on which it exercises any Warrants,
it will be an "accredited investor" as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7) or (a)(8) under the Securities
Act.

  

(d)            Experience
of the Purchaser. The
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. The 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)            Access
to Information. The Purchaser
acknowledges that it has had the opportunity to review the
Transaction Documents (including all exhibits and schedules
thereto) and the SEC Reports and has been afforded, (i) the
opportunity to ask such questions as it has deemed necessary of,
and to receive answers from, representatives of the Company
concerning the terms and conditions of the offering of the
Securities and the merits and risks of investing in the Securities;
(ii) access to information about the Company and its financial
condition, results of operations, business, properties, management
and prospects sufficient to enable it to evaluate its investment;
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 the
investment. 

 

(f)            Certain
Transactions and Confidentiality. Other than consummating the transactions
contemplated hereunder, the Purchaser has not, nor has any Person
acting on behalf of or pursuant to any understanding with the
Purchaser, directly or indirectly executed any purchases or sales,
including Short Sales, of the securities of the Company during
the period commencing as of the time that the Purchaser first
received a term sheet (written or oral) from the Company or any
other Person representing the Company setting forth the material
pricing terms of the transactions contemplated hereunder and ending
immediately prior to the execution hereof. Notwithstanding the
foregoing, in the case of a Purchaser that is a multi-managed
investment vehicle whereby separate portfolio managers manage
separate portions of the Purchaser’s assets and the portfolio
managers have no direct knowledge of the investment decisions made
by the portfolio managers managing other portions of the
Purchaser’s assets, the representation set forth above shall
only apply with respect to the portion of assets managed by the
portfolio manager that made the investment decision to purchase the
Securities covered by this Agreement. Other than to other Persons
party to this Agreement or to the Purchaser’s
representatives, including, without limitation, its officers,
directors, partners, legal and other advisors, employees, agents
and Affiliates, the Purchaser has maintained the confidentiality of
all disclosures made to it in connection with this transaction
(including the existence and terms of this transaction).
Notwithstanding the foregoing, for the avoidance of doubt, nothing
contained herein shall constitute a representation or warranty, or
preclude any actions, with respect to locating or borrowing shares
in order to effect Short Sales or similar transactions in the
future.

 

(g)      
General
Solicitation. The Purchaser is
not purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities
published in any newspaper, magazine or similar media or broadcast
over television or radio or presented at any seminar or, to the
knowledge of the Purchaser, any other general solicitation or
general advertisement.

 

 

 

21

 

 

The Company acknowledges and agrees that the representations
contained in this Section 3.2 shall not modify, amend or
affect the 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 transactions contemplated hereby. Notwithstanding the
foregoing, for the avoidance of doubt, nothing contained herein
shall constitute a representation or warranty, or preclude any
actions, with respect to locating or borrowing shares in order to
effect Short Sales or similar transactions in the
future.

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1          
Legends. The
Shares, Warrants and Warrant Shares shall be issued pursuant to the
Registration Statement, the Prospectus and the Prospectus
Supplement and free of legends.

 

4.2          Furnishing
of Information.

 

(a)       
Until the earliest of the time that (i) no Purchaser owns
Securities or (ii) the Warrants have expired, the Company covenants
to timely file (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be
filed by the Company after the date hereof pursuant to the Exchange
Act even if the Company is not then subject to the reporting
requirements of the Exchange Act.

 

(b)      In the event
that all of the Securities subject to this Agreement are not
covered by the Registration Statement, at any time during the
period commencing from the six (6) month anniversary of the date
hereof and ending at such time that all of the Warrant Shares
(assuming cashless exercise) may be sold 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 (i) shall fail for any reason to satisfy the current
public information requirement under Rule 144(c) or (ii) has ever
been an issuer described in Rule 144(i)(1)(i) or becomes an issuer
in the future, and the Company shall fail to satisfy any condition
set forth in Rule 144(i)(2) (a “Public Information
Failure”) then, in
addition to the 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
reduction of its ability to sell the Warrant Shares, an amount in
cash equal to two percent (2.0%) of the aggregate Exercise Price of
the Purchaser’s Warrants 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 Purchaser to
transfer the Warrant Shares pursuant to Rule 144.  The
payments to which a Purchaser shall be entitled pursuant to this
Section 4.2(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 the Purchaser’s right to pursue actual
damages for the Public Information Failure, and the 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.

 

 

22

 

 

4.3          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 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
unless shareholder approval is obtained before the closing of such
subsequent transaction.

 

4.4            Securities
Laws Disclosure; Publicity. The
Company shall (a) by 9:00 a.m. (New York City time) on
the date following the date hereof issue a press release disclosing
the material terms of the transactions contemplated hereby, and
(b) 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. From and after the
issuance of such press release, 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. In addition, effective
upon the issuance of such press release, the Company acknowledges
and agrees that any and all confidentiality or similar obligations
under any agreement, whether written or oral, between the Company,
any of its Subsidiaries or any of their respective officers,
directors, agents, employees or Affiliates on the one hand, the
Purchaser or any of its Affiliates on the other hand, shall
terminate. The Company and the Purchaser shall consult with each
other in issuing any other press releases with respect to the
transactions contemplated hereby, and neither the Company nor the
Purchaser shall issue any such press release nor otherwise make any
such public statement without the prior consent of the Company,
with respect to any press release of the Purchaser, or without the
prior consent of the 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 the Purchaser, or include the name of the
Purchaser in any filing with the Commission or any regulatory
agency or Trading Market, without the prior written consent of the
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 or FINRA regulations, in which case the
Company shall provide the Purchaser with prior notice of such
disclosure permitted under this clause (b).

  

4.5            Shareholder
Rights Plan. No claim will be
made or enforced by the Company or, with the consent of the
Company, any other Person, that the 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 the 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 Purchaser.

  

4.6            Non-Public
Information. Except with
respect to the material terms and conditions of the transactions
contemplated by the Transaction Documents, which shall be disclosed
pursuant to Section 4.4, the Company covenants and agrees that
neither it, nor any other Person acting on its behalf will provide
the Purchaser or its agents or counsel with any information that
constitutes, or the Company reasonably believes constitutes,
material non-public information, unless prior thereto the Purchaser
shall have consented to the receipt of such information and agreed
with the Company to keep such information confidential. The Company
understands and confirms that the Purchaser shall be relying on the
foregoing covenant in effecting transactions in securities of the
Company. To the extent that the Company delivers any material,
non-public information to a Purchaser without the Purchaser’s
consent, the Company hereby covenants and agrees that the Purchaser
shall not have any duty of confidentiality to the Company, any of
its Subsidiaries, or any of their respective officers, directors,
agents, employees or Affiliates, or a duty to the Company, any of
its Subsidiaries or any of their respective officers, directors,
agents, employees or Affiliates not to trade on the basis of, such
material, non-public information, provided that the Purchaser shall
remain subject to applicable law. To the extent that any notice
provided pursuant to any Transaction Document constitutes, or
contains, material, non-public information regarding the Company or
any Subsidiaries, the Company shall simultaneously file such notice
with the Commission pursuant to a Current Report on Form 8-K.
The Company understands and confirms that the Purchaser shall be
relying on the foregoing covenant in effecting transactions in
securities of the Company.

 

 

23

 

 

4.7            Use
of Proceeds. Except as set
forth in the Prospectus Supplement and on Schedule
4.7 attached hereto, the
Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and general business
purposes and shall not use such proceeds: (a) for the
satisfaction of any portion of the Company’s Indebtedness
(other than interest payments and payments of trade payables in the
ordinary course of the Company’s business and 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.

  

4.8            Indemnification
of Purchaser. Subject to the
provisions of this Section 4.8, the Company will indemnify and
hold the 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 the 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 the 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
solely based upon a material 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 is finally judicially determined to
constitute fraud, gross negligence or willful misconduct) or (c) in
connection with any registration statement of the Company providing
for the resale by the Purchaser of the Warrant Shares issued and
issuable upon exercise of the Warrants, the Company will indemnify
the Purchaser Party, to the fullest extent permitted by applicable
law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, reasonable
attorneys’ fees) and expenses, as incurred, arising out of or
relating to (i) any untrue or alleged untrue statement of a
material fact contained in such registration statement, any
prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out
of or relating to any omission or alleged omission of a material
fact required to be stated therein or necessary to make the
statements therein (in the case of any prospectus or supplement
thereto, in the light of the circumstances under which they were
made) not misleading, except to the extent, but only to the extent,
that such untrue statements or omissions are based solely upon
information regarding such Purchaser Party furnished in writing to
the Company by such Purchaser Party expressly for use therein, or
(ii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act or any state securities law, or
any rule or regulation thereunder in connection therewith. 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 any of the
representations, warranties, covenants or agreements made by such
Purchaser Party in this Agreement or in the other Transaction
Documents. The indemnification required by this Section 4.8
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.

  

 

24

 

 

4.9            Reservation
of Common Stock. As of the date
hereof, the Company has reserved and the Company shall continue to
reserve and keep available at all times, free of preemptive rights,
a sufficient number of shares of Common Stock for the purpose of
enabling the Company to issue Shares pursuant to this Agreement and
Warrant Shares pursuant to any exercise of the
Warrants.

 

4.10           Listing
of Common Stock. The Company
hereby agrees to use best efforts to maintain the listing or
quotation of the Common Stock on the Trading Market on which it is
currently listed, and concurrently with the Closing, the Company
shall have applied to list or quote all of the Shares on such
Trading Market and promptly secure the listing of all of the Shares
on such Trading Market. The Company further agrees, if the Company
applies to have the Common Stock traded on any other Trading
Market, it will then include in such application all of the Shares,
and will take such other action as is necessary to cause all of the
Shares to be listed or quoted on such other Trading Market as
promptly as possible. The Company will then take all action
reasonably necessary to continue the listing and trading of its
Common Stock on a Trading Market and will comply in all respects
with the Company’s reporting, filing and other obligations
under the bylaws or rules of the Trading Market. The Company
agrees to maintain the eligibility of the Common Stock for
electronic transfer through the Depository Trust Company or another
established clearing corporation, including, without limitation, by
timely payment of fees to the Depository Trust Company or such
other established clearing corporation in connection with such
electronic transfer.

 

4.11            Subsequent
Equity Sales.

 

(a)         From
the date hereof until ninety (90) days after the Closing Date,
other than with the Purchaser, neither the Company nor any
Subsidiary shall issue, enter into any agreement to issue or
announce the issuance or proposed issuance of any shares of Common
Stock or Common Stock Equivalents.

 

(b)       From
the date hereof until ninety (90) days after the Closing Date, none
of the officers, directors or 5% Stockholders shall sell or enter
into any agreement to sell any shares of Common Stock or Common
Stock Equivalents.

 

 

 

 

25

 

 

(c)           From
the date hereof until ninety (90) days after the Closing Date, the
Company shall be prohibited from effecting or entering into an
agreement to effect any issuance by the Company or any of its
Subsidiaries of Common Stock or Common Stock Equivalents (or a
combination of units thereof) involving a Variable Rate
Transaction. “Variable Rate
Transaction” means a
transaction in which the Company (i) issues or sells any debt
or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares
of Common Stock either (A) at a conversion price, exercise
price or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of
Common Stock at any time after the initial issuance of such debt or
equity securities, or (B) with a conversion, exercise or
exchange price that is subject to being reset at some future date
after the initial issuance of such debt or equity security or upon
the occurrence of specified or contingent events directly or
indirectly related to the business of the Company or the market for
the Common Stock or (ii) enters into, or effects a transaction
under, any agreement, including, but not limited to, an equity line
of credit, whereby the Company may issue securities at a future
determined price. The Purchaser shall be entitled to obtain
injunctive relief against the Company to preclude any such
issuance, which remedy shall be in addition to any right to collect
damages. Notwithstanding the prohibitions in Section 4.11(a)
or this Section 4.11(c), the Company shall be permitted to: (i)
file a prospectus supplement at any time after five (5) Trading
Days from the Closing Date to register an at-the-market offering
facility (the “ATM
Facility”) with Roth Capital Partners LLC, which shall
not be deemed a Variable Rate Transaction hereunder, (ii) between
the 31st
day and the 60th day (inclusive)
after the Closing Date draw up to $25,000 per day under $0.55 per
share and an unlimited dollar amount over $0.55 per share, and
(iii) and beginning on the 61st day after the
Closing Date use the ATM Facility without restriction. During the
first thirty (30) days, inclusive, after the Closing Date, the
Company shall be prohibited from using the ATM
Facility.

 

(d)        Notwithstanding
the foregoing, this Section 4.11 shall not apply in respect of
an Exempt Issuance, except that no Variable Rate Transaction shall
be an Exempt Issuance.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26

 

 

4.12          Participation
in Future Financings.  

 

(a)           For
a period of one year from the date of this Agreement, if the
Purchaser holds any Shares or Warrants, upon any issuance by the
Company or any of its Subsidiaries of Common Stock or Common Stock
Equivalents for cash consideration, Indebtedness or a combination
of units thereof (a "Subsequent
Financing"), the Purchaser
shall have the right to participate in up to an amount of the
Subsequent Financing equal to $750,000 of the Subsequent Financing
(the "Participation
Maximum") on the same terms,
conditions and price provided for in the Subsequent
Financing. 

 

(b)           Between
the time period of 4:00 pm (New York City time) and 6:00 pm (New
York City time) on the Trading Day immediately prior to the Trading
Day of the expected announcement of the Subsequent Financing (or,
if the Trading Day of the expected announcement of the Subsequent
Financing is the first Trading Day following a holiday or a weekend
(including a holiday weekend), between the time period of 4:00 pm
(New York City time) on the Trading Day immediately prior to such
holiday or weekend and 2:00 pm (New York City time) on the day
immediately prior to the Trading Day of the expected announcement
of the Subsequent Financing), the Company shall deliver to the
Purchaser a written notice of the Company's intention to effect a
Subsequent Financing (a "Subsequent Financing
Notice"), which 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
and transaction documents relating thereto as an
attachment.

 

(c)           If
the Purchaser desires to participate in such Subsequent Financing,
it must provide written notice to the Company by 6:30 am (New York
City time) on the Trading Day following the date on which the
Subsequent Financing Notice is delivered to the Purchaser (the
"Notice Termination
Time") that the Purchaser is
willing to participate in the Subsequent Financing, the amount of
the Purchaser's participation, and representing and warranting that
the 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 the Purchaser
as of such Notice Termination Time, the Purchaser shall be deemed
to have notified the Company that it does not elect to participate
in such Subsequent Financing. 

 

(d)           If,
by the Notice Termination Time, notification by the Purchaser of
its willingness to participate in the Subsequent Financing (or to
cause its designees to participate) is, in the aggregate, less than
the total amount of the Subsequent Financing, then the Company may
effect the remaining portion of such Subsequent Financing on the
terms and with the Persons set forth in the Subsequent Financing
Notice.

 

(e)           [RESERVED]

 

(f)           The
Company must provide the Purchaser with a second Subsequent
Financing Notice, and the Purchaser will again have the right of
participation set forth above in this Section 4.12, if the
definitive agreement related to the initial Subsequent Financing
Notice is not entered into for any reason on the terms set forth in
such Subsequent Financing Notice within two (2) Trading Days after
the date of delivery of the initial Subsequent Financing
Notice.

 

 

 

27

 

 

(g)           The
Company and the Purchaser agree that, if the Purchaser elects to
participate in the Subsequent Financing, the transaction documents
related to the Subsequent Financing shall not include any term or
provision that, directly or indirectly, will, or is intended to,
exclude the Purchaser from participating in a Subsequent Financing,
including, but not limited to, provisions whereby the Purchaser
shall be required to agree to any restrictions on trading as to any
of the 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 the Purchaser. In addition, the Company
and the Purchaser agree that, in connection with a Subsequent
Financing, the transaction documents related to the Subsequent
Financing shall include a requirement for the Company to issue a
widely disseminated press release by 9:30 am (New York City time)
on the Trading Day of execution of the transaction documents in
such Subsequent Financing (or, if the date of execution is not a
Trading Day, on the immediately following Trading Day) that
discloses the material terms of the transactions contemplated by
the transaction documents in such Subsequent
Financing.

 

 (h)           Notwithstanding
anything to the contrary in this Section 4.12 and unless otherwise
agreed to by the Purchaser, the Company shall either confirm in
writing to the 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 the Purchaser will not be
in possession of any material, non-public information, by 9:30 am
(New York City time) on the second (2nd) Trading Day following date
of delivery of the Subsequent Financing Notice. If by 9:30 am (New
York City time) on such second (2nd) 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 the Purchaser, such
transaction shall be deemed to have been abandoned and the
Purchaser shall not be deemed to be in possession of any material,
non-public information with respect to the Company or any of its
Subsidiaries.

 

(i)           Notwithstanding
the foregoing, this Section 4.12 shall not apply in respect of an
Exempt Issuance or an ATM Facility transaction.

 

4.13       Certain
Transactions and Confidentiality. The Purchaser covenants that neither it nor any
Affiliate acting on its behalf or pursuant to any understanding
with it will execute any purchases or sales, including Short Sales
of any of the Company’s securities during the period
commencing with the execution of this Agreement and ending at such
time that the transactions contemplated by this Agreement are first
publicly announced pursuant to the initial press release as
described in Section 4.4.  The Purchaser, covenants
that until such time as the transactions contemplated by this
Agreement are publicly disclosed by the Company pursuant to the
initial press release as described in Section 4.4, the
Purchaser will maintain the confidentiality of the existence and
terms of this transaction and the information included in the
Disclosure Schedules.  Notwithstanding the foregoing, and
notwithstanding anything contained in this Agreement to the
contrary, the Company expressly acknowledges and agrees that
(i) no Purchaser makes any representation, warranty or
covenant hereby that it will not engage in effecting transactions
in any securities of the Company after the time that the
transactions contemplated by this Agreement are first publicly
announced pursuant to the initial press release as described in
Section 4.4, (ii) no Purchaser shall be restricted or
prohibited from effecting any transactions in any securities of the
Company in accordance with applicable securities laws from and
after the time that the transactions contemplated by this Agreement
are first publicly announced pursuant to the initial press release
as described in Section 4.4 and (iii) no Purchaser shall
have any duty of confidentiality or duty not to trade in the
securities of the Company to the Company or its Subsidiaries after
the issuance of the initial press release as described in
Section 4.4.  Notwithstanding the foregoing, in the
case of a Purchaser that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of the
Purchaser’s assets and the portfolio managers have no direct
knowledge of the investment decisions made by the portfolio
managers managing other portions of the Purchaser’s assets,
the covenant set forth above shall only apply with respect to the
portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this
Agreement.

 

 

28

 

 

4.14          Exercise
Procedures.  The form of
Notice of Exercise included in the Warrants set forth the totality
of the procedures required of the Purchaser in order to exercise
the Warrants.  No additional legal opinion, other information
or instructions shall be required of the Purchaser to exercise its
Warrants.  Without limiting the preceding sentences, no
ink-original Notice of Exercise shall be required, nor shall any
medallion guarantee (or other type of guarantee or notarization) of
any Notice of Exercise form be required in order to exercise the
Warrants.  The Company shall honor exercises of the Warrants
and shall deliver Warrant Shares in accordance with the terms,
conditions and time periods set forth in the Transaction
Documents.

 

ARTICLE V.

MISCELLANEOUS

 

5.1            Termination. 
This Agreement may be terminated by the Purchaser, as to the
Purchaser’s obligations hereunder, by written notice to the
other parties, if the Closing has not been consummated on or before
the fifth (5th)
Trading Day following the date hereof due to no fault of
Purchaser; provided, however,
that no such termination will affect the right of any party to sue
for any breach by any other party.

  

5.2            [RESERVED]

 

5.3            Entire
Agreement. The Transaction
Documents, together with the exhibits and schedules thereto, the
Prospectus and the Prospectus Supplement, 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.
Any and all notices or other communications or deliveries required
or permitted to be provided hereunder shall be in writing and shall
be deemed given and effective on the earliest of: (a) the time
of transmission, if such notice or communication is delivered via
facsimile at the facsimile number or email attachment at the email
address as set forth on the signature pages attached hereto at
or prior to 5:30 p.m. (New York City time) on a Trading Day,
(b) the next Trading Day after the time of transmission, if
such notice or communication is delivered via facsimile at the
facsimile number or email attachment at the email address as set
forth on the signature pages attached hereto on a day that is
not a Trading Day or later than 5:30 p.m. (New York City time)
on any Trading Day, (c) the second (2nd)
Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service or (d) upon
actual receipt by the party to whom such notice is required to be
given. The address for such notices and communications shall be as
set forth on the signature pages attached hereto. To the
extent that any notice provided pursuant to any Transaction
Document constitutes, or contains, material, non-public information
regarding the Company or any Subsidiaries, the Company shall
simultaneously file such notice with the Commission pursuant to a
Current Report on Form 8-K.

 

 

29

 

 

5.5            Amendments;
Waivers. 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
Company and the Purchaser or, in the case of a waiver, by the party
against whom enforcement of any such waived provision is sought,.
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. Any
amendment effected in accordance with this Section 5.5 shall
be binding upon the Purchaser and holder of Securities and the
Company.

  

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 the Purchaser (other than by merger). The
Purchaser may assign any or all of its rights under this Agreement
to any Person to whom the 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
“Purchaser.”

 

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 4.7 and
this Section 5.8.

 

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 or Proceeding, any claim that it
is not personally subject to the jurisdiction of any such court,
that such 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 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 any 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 4.7, the
prevailing party in such Action or Proceeding shall be reimbursed
by the non-prevailing party for its reasonable attorneys’
fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such Action or
Proceeding.

  

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

 

 

30

 

 

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 the 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 the Purchaser may rescind or withdraw, in
its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights;
provided,
however,
that in the case of a rescission of an exercise of a Warrant, the
Purchaser shall be required to return any shares of Common Stock
subject to any such rescinded exercise notice concurrently with the
return to the Purchaser of the aggregate exercise price paid to the
Company for such shares and the restoration of the
Purchaser’s right to acquire such shares pursuant to the
Purchaser’s Warrant (including, issuance of a replacement
warrant certificate evidencing such restored
right).

 

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, the
Purchaser 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 the Purchaser pursuant
to any Transaction Document or the 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.

 

 

31

 

 

5.17            [RESERVED]

 

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, then
such action may be taken or such right may be exercised on the next
succeeding Business Day.

 

5.21            Construction.
The parties agree that each of them and/or their respective counsel
have reviewed and had an opportunity to revise the 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.

 

(Signature Pages Follow)

 

 

 

 

 

 

 

 

 

 

32

 

 

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.

 

 

	

TORCHLIGHT ENERGY RESOURCES, INC.

	

 

	

Address for Notice:

	

 

	

 

	

 

	
 

	
By:  

	

	

 

	
 

	

 

	
Name 

	

 

	
 

	

 

	

Title 

	

 

	
 

	

 

	

 

	

 

	
 

	

With
a copy to (which shall not constitute notice): 

	

 

	
 

 

 

 

 

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

 

 

 

 

 

 

33

 

[PURCHASER
SIGNATURE PAGES TO TORCHLIGHT ENERGY RESOURCES, 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:
__________________________________________

 

Address for Notice to Purchaser:

 

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

 

DWAC for Shares:

 

Subscription Amount: $_________________

 

Shares: _________________

 

EIN Number: ____________________

 

☐ Notwithstanding anything contained in this Agreement to the
contrary, by checking this box (i) the obligations of the
above-signed to purchase the securities set forth in this Agreement
to be purchased from the Company by the above-signed, and the
obligations of the Company to sell such securities to the
above-signed, shall be unconditional and all conditions to Closing
shall be disregarded, (ii) the Closing shall occur no later
than the second (2nd)
Trading Day following the date of this Agreement and (iii) any
condition to Closing contemplated by this Agreement (but prior to
being disregarded by clause (i) above) that required delivery
by the Company or the above-signed of any agreement, instrument,
certificate or the like or purchase price (as applicable) shall no
longer be a condition and shall instead be an unconditional
obligation of the Company or the above-signed (as applicable) to
deliver such agreement, instrument, certificate or the like or
purchase price (as applicable) to such other party on the Closing
Date.

 

 

                                            

 

34

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