Document:

Exhibit 10.1

 

GTX, INC.

 

Common Stock
 ($0.001 par value per share)

 

AT-THE-MARKET EQUITY OFFERING SALES AGREEMENT

 

February 9, 2018

 

STIFEL, NICOLAUS & COMPANY, INCORPORATED

One South Street, 15th Floor

Baltimore, Maryland 21202

 

Ladies and Gentlemen:

 

GTx, Inc., a Delaware corporation (the “Company”), proposes, subject to the terms and conditions stated herein, to issue and sell from time to time to or through Stifel, Nicolaus & Company, Incorporated (“Stifel Nicolaus”), as sales agent and/or principal (“Agent”), shares (the “Shares”) of the Company’s common stock, $0.001 par value per share (the “Common Stock”), having an aggregate offering price of up to $50,000,000.00 on the terms set forth in Section 2 of this At-The-Market Equity Offering Sales Agreement (the “Agreement”).  The Company agrees that whenever it determines to sell Shares directly to the Agent as principal, it will enter into a separate agreement (each, a “Terms Agreement”) in substantially the form of Annex I hereto, relating to such sale in accordance with Section 3 of this Agreement.

 

The Company has prepared and filed with the Securities and Exchange Commission (the “Commission”) a registration statement on Form S-3 (File No. 333-222268), and such amendments to such registration statement as may have been required to the date of this Agreement, under the Securities Act of 1933, as amended (the “1933 Act”) and the rules and regulations of the Commission under the 1933 Act (the “1933 Act Regulations”).  Such registration statement, at any given time, including the amendments thereto to such time, the exhibits and schedules thereto at such time, the documents incorporated or deemed to be incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act at such time and the documents and information otherwise deemed to be a part thereof or included therein by Rule 430B under the 1933 Act (the “Rule 430B Information”) or otherwise pursuant to the 1933 Act Regulations at such time, is herein called the “Registration Statement.” Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein called the “Rule 462(b) Registration Statement” and, after such filing, the term “Registration Statement” shall include the Rule 462(b) Registration Statement.  The Registration Statement at the time it originally became effective is herein called the “Initial Registration Statement”.  The prospectus in the form in which it appeared in the Initial Registration Statement is herein called the “Base Prospectus.”  Promptly after execution and delivery of this Agreement, the Company will prepare and file with the Commission a final prospectus supplement to the Base Prospectus relating to the Shares and the offering thereof in accordance with the provisions of Rule 430B (“Rule 430B”) and Rule 424(b) (“Rule 424(b)”) of the 1933 Act Regulations.  Such final supplemental form of prospectus (including the Base Prospectus as so supplemented), in the form filed with the Commission pursuant to Rule 424(b) under the 1933 Act is herein called the “Prospectus.” Any reference herein to the Base Prospectus, or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act as of the date of such prospectus.

 

For the purposes of this Agreement:

 

“Applicable Time” means, with respect to any Shares, the time of sale of such Shares pursuant to this Agreement.

 

“Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as defined in Rule 433 of the 1933 Act Regulations (“Rule 433”), including without limitation any “free writing prospectus” (as defined in Rule 405 of the 1933 Act Regulations (“Rule 405”)) relating to the Shares that is (i) required to be filed with the Commission by the Company, (ii) a “road show that is a written communication” within the meaning of Rule

 

 

433(d)(8)(i), whether or not required to be filed with the Commission, or (iii) exempt from filing with the Commission pursuant to Rule 433(d)(5)(i) because it contains a description of the Shares or of the offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g).

 

“Issuer General Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors (other than a “bona fide electronic road show,” as defined in Rule 433).

 

“Issuer Limited Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is not an Issuer General Use Free Writing Prospectus.

 

“Statutory Prospectus” means the Base Prospectus, as amended and supplemented immediately prior to the Applicable Time, including any document incorporated by reference therein and any prospectus supplement deemed to be a part thereof, including the final prospectus supplement dated the date hereof.  For purposes of this definition, Rule 430B Information contained in a form of prospectus that is deemed retroactively to be a part of the Registration Statement shall be considered to be included in the Statutory Prospectus as of the actual time that form of prospectus is filed with the Commission pursuant to Rule 424(b) under the Securities Act.

 

All references in this Agreement to financial statements and schedules and other information which is “described”, “contained,” “included” or “stated” (or other references of like import) in the Registration Statement, the Base Prospectus, or the Prospectus shall be deemed to mean and include all such financial statements and schedules and other information incorporated or deemed incorporated by reference in the Registration Statement, the Base Prospectus, or the Prospectus, as the case may be, prior to the execution and delivery of this Agreement; and all references in this Agreement to amendments or supplements to the Registration Statement, the Base Prospectus, or the Prospectus shall be deemed to mean and include the filing of any document under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (collectively, the “1934 Act”), incorporated or deemed to be incorporated by reference in the Registration Statement, the Base Prospectus, or the Prospectus, as the case may be, at or after the execution and delivery of this Agreement.

 

Section 1.  Representations and Warranties.  The Company represents and warrants to the Agent that, except as described in the Registration Statement, the General Disclosure Package and the Prospectus, as of the date of this Agreement, any applicable Registration Statement Amendment Date (as defined in Section 3 below), and each Applicable Time, unless such representation, warranty or agreement specifies a different time:

 

(i)                                                 Registration Statement and Prospectuses.  The Company meets the requirements for use of Form S-3 under the 1933 Act without reliance on General Instruction I.B.6 of Form S-3.  Each of the Registration Statement and any amendment thereto has become effective under the 1933 Act.  No stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto has been issued under the 1933 Act, no order preventing or suspending the use of the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to the Company’s knowledge, contemplated.  The Company has complied with each request (if any) from the Commission for additional information.

 

Each of the Registration Statement and any post-effective amendment thereto, at the time it became effective, complied in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations.   The Prospectus and any amendment or supplement thereto, at the time each was filed with the Commission, complied in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations.

 

The documents incorporated or deemed to be incorporated by reference in the Registration Statement and the Prospectus, when they became effective or at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission under the 1934 Act (the “1934 Act Regulations”).

 

(ii)                                              Accurate Disclosure.  Neither the Registration Statement nor any amendment thereto, contained, contains or will contain an untrue statement of a material fact or omitted, omits or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.  As of the

 

2

 

Applicable Time, none of (A) the General Disclosure Package and (B) any individual Issuer Limited Use Free Writing Prospectus, when considered together with the General Disclosure Package, included, includes or will include an untrue statement of a material fact or omitted, omits or will 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.  Neither the Prospectus nor any amendment or supplement thereto (including any prospectus wrapper), as of its issue date, at the time of any filing with the Commission pursuant to Rule 424(b) and at each Applicable Time, included, includes or will include an untrue statement of a material fact or omitted, omits or will 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 documents incorporated or deemed to be incorporated by reference in the Registration Statement, the General Disclosure Package and the Prospectus, at the time the Registration Statement became effective or when such documents incorporated by reference were filed with the Commission, as the case may be, when read together with the other information in the Registration Statement, the General Disclosure Package or the Prospectus, as the case may be, did not and will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.

 

The representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement (or any amendment thereto), the General Disclosure Package or the Prospectus (or any amendment or supplement thereto) made in reliance upon and in conformity with written information furnished to the Company by the Agent expressly for use therein.

 

(iii)                                           Issuer Free Writing Prospectuses.  No Issuer Free Writing Prospectus conflicts or will conflict with the information contained in the Registration Statement, any Statutory Prospectus or the Prospectus, including any document incorporated by reference therein, and any preliminary or other prospectus deemed to be a part thereof that has not been superseded or modified.

 

(iv)                                          Company Not Ineligible Issuer.  At the time of filing the Registration Statement and any post-effective amendment thereto, at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the 1933 Act Regulations) of the Shares and at the date hereof, the Company was not and is not an “ineligible issuer,” as defined in Rule 405, without taking account of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Company be considered an ineligible issuer.

 

(v)                                             Independent Accountants.  The accountants who certified the financial statements and supporting schedules included in the Registration Statement are independent public accountants as required by the 1933 Act, the 1933 Act Regulations, the 1934 Act, the 1934 Act Regulations and the Public Accounting Oversight Board.

 

(vi)                                          Financial Statements; Non-GAAP Financial Measures.  The financial statements included or incorporated by reference in the Registration Statement, the General Disclosure Package and the Prospectus, together with the related schedules and notes, present fairly, in all material respects, the financial position of the Company and its consolidated subsidiaries at the dates indicated and the statement of operations, stockholders’ equity and cash flows of the Company and its consolidated subsidiaries for the periods specified; said financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods involved except as may be set forth in the notes included or incorporated by reference and except that unaudited financial statements may not contain footnotes required by GAAP.  The supporting schedules, if any, present fairly, in all material respects, in accordance with GAAP the information required to be stated therein.  The selected financial data and the summary financial information included in the Prospectus present fairly, in all material respects, the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included or incorporated by reference in the Registration Statement.  Except as included therein, no historical or pro forma financial statements or supporting schedules are required to be included or incorporated by reference in the Registration Statement, the General Disclosure Package or the Prospectus under the 1933 Act or the 1933 Act Regulations.  Any disclosures contained in the Registration Statement, the General Disclosure Package or the Prospectus, or incorporated by reference therein, that constitute “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission) comply with Regulation G of the 1934 Act and Item 10 of Regulation S-K of the

 

3

 

1933 Act, to the extent applicable.  The interactive data in eXtensible Business Reporting Language incorporated by reference in the Registration Statement, the General Disclosure Package and the Prospectus fairly presents the information called for in all material respects and has been prepared in accordance with the Commission’s rules and guidelines applicable thereto.

 

(vii)                                       No Material Adverse Change in Business.  Except as otherwise stated therein, since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package or the Prospectus, (A) there has been no material adverse change in the condition, financial or otherwise, or in the business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business (a “Material Adverse Effect”), (B) there have been no transactions entered into by the Company or any of its subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company and its subsidiaries considered as one enterprise, and (C) there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock.

 

(viii)                                    Good Standing of the Company.  The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under this Agreement; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect.

 

(ix)                                          Subsidiaries.  As of the date of this Agreement, the Company does not own or control, directly or indirectly, any corporation, association or other entity.

 

(x)                                             Capitalization.  The authorized, issued and outstanding shares of capital stock of the Company are as set forth in the Registration Statement, the General Disclosure Package and the Prospectus (except for subsequent issuances, if any, pursuant to this Agreement, pursuant to reservations, agreements or employee benefit plans referred to in the Registration Statement, the General Disclosure Package and the Prospectus or pursuant to the exercise of warrants, convertible securities or options referred to in the Registration Statement, the General Disclosure Package and the Prospectus).  The outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable.  None of the outstanding shares of capital stock of the Company were issued in violation of the preemptive or other similar rights of any securityholder of the Company.  There are no options, warrants, agreements, contracts or other rights in existence to purchase or acquire from the Company any shares of the capital stock of the Company.

 

(xi)                                          Authorization of Agreement.  This Agreement has been duly authorized, executed and delivered by the Company.  All corporate actions (including those of stockholders) necessary for the Company to consummate the transactions contemplated in this Agreement have been obtained and are in effect.  The approval of the Company’s stockholders is not required under the rules and regulations of any trading market for the Company to issue and deliver the Shares as contemplated in this Agreement.

 

(xii)                                       Authorization and Description of Shares.  The Shares to be sold by the Company pursuant to this Agreement have been duly authorized for issuance and sale pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration, will be validly issued and fully paid and non-assessable; and the issuance of the Shares is not subject to the preemptive or other similar rights of any securityholder of the Company.  The Common Stock conforms in all material respects to all statements relating thereto contained in the Prospectus and such description conforms in all material respects to the rights set forth in the instruments defining the same.  No holder of Shares will be subject to personal liability solely by reason of being such a holder.

 

(xiii)                                    Registration Rights.  Except as have been waived or complied with, there are no persons with registration rights or other similar rights to have any securities registered for sale pursuant to the Registration Statement or otherwise registered for sale or sold by the Company under the 1933 Act pursuant to this Agreement.

 

4

 

(xiv)                                   Absence of Violations, Defaults and Conflicts.  Neither the Company nor any of its subsidiaries is (A) in violation of its charter, by-laws or similar organizational document, (B) in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound or to which any of the properties or assets of the Company or any subsidiary is subject (collectively, “Agreements and Instruments”), except for such violations or defaults that would not, singly or in the aggregate, result in a Material Adverse Effect, or (C) in violation of any law, statute, rule, regulation, judgment, order, writ or decree of any arbitrator, court, governmental body, regulatory body, administrative agency or other authority, body or agency having jurisdiction over the Company or any of its subsidiaries or any of their respective properties, assets or operations (each, a “Governmental Entity”), except for such violations that would not, singly or in the aggregate, result in a Material Adverse Effect.  The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein and in the Registration Statement (including the issuance and sale of the Shares and the use of the proceeds from the sale of the Shares as described in the Prospectus under the caption “Use of Proceeds”) and compliance by the Company with its obligations hereunder have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any properties or assets of the Company or any subsidiary pursuant to, the Agreements and Instruments (except for such conflicts, breaches, defaults or Repayment Events or liens, charges or encumbrances that would not, singly or in the aggregate, result in a Material Adverse Effect), nor will such action result in any violation of (i) the provisions of the charter, by-laws or similar organizational document of the Company or any of its subsidiaries or (ii) any law, statute, rule, regulation, judgment, order, writ or decree of any Governmental Entity, except for such violations described in (ii) that would not, singly or in the aggregate, result in a Material Adverse Effect.  As used herein, a “Repayment Event” means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder’s behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any of its subsidiaries.

 

(xv)                                      Absence of Labor Dispute.  No labor dispute with the employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company, is imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its or any subsidiary’s principal suppliers, manufacturers, customers or contractors, which, in either case, would result in a Material Adverse Effect.

 

(xvi)                                   Absence of Proceedings.  There is no action, suit, proceeding, inquiry or investigation before or brought by any Governmental Entity now pending or, to the knowledge of the Company, threatened, against or affecting the Company or any of its subsidiaries, which could reasonably be expected to result in a Material Adverse Effect, or which could reasonably be expected to materially and adversely affect their respective properties or assets or the consummation of the transactions contemplated in this Agreement or the performance by the Company of its obligations hereunder; and the aggregate of all pending legal or governmental proceedings to which the Company or any such subsidiary is a party or of which any of their respective properties or assets is the subject which are not described in the Registration Statement, the General Disclosure Package and the Prospectus, including ordinary routine litigation incidental to the business, could not result in a Material Adverse Effect.

 

(xvii)                                Accuracy of Exhibits.  There are no contracts or documents which are required to be described in the Registration Statement or the Prospectus or the documents incorporated by reference therein or to be filed as exhibits to the Registration Statement which have not been so described and filed as required.

 

(xviii)                             Absence of Further Requirements.  Except where the absence thereof would not result in a Material Adverse Effect, no filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any Governmental Entity is necessary or required for the performance by the Company of its obligations hereunder, in connection with the offering, issuance or sale of the Shares hereunder or the consummation of the transactions contemplated by this Agreement, except such as have been already obtained or as may be required under the 1933 Act, the 1933 Act Regulations, the rules of the Nasdaq Stock Market LLC, state securities laws or the rules of Financial Industry Regulatory Authority, Inc. (“FINRA”).  Neither the Company nor, to the Company’s knowledge, the Company’s officers, directors or any of its affiliates (within the meaning of

 

5

 

FINRA Conduct Rule 5121(f)(1)), directly or indirectly controls, is controlled by, or is under common control with, or is an associated person (within the meaning of Article I, Section 1(gg) of the By-laws of FINRA) of, any member firm of FINRA.  The Company satisfies the eligibility requirements in existence immediately prior to October 21, 1992 for the use of a registration statement on Form S-3 for the offering of the Shares.  To enable the Agent to rely on Rule 5110(b)(7)(C)(i) of FINRA, the Company represents that, (i) as of a date within 60 days of the date of this Agreement, the Company had (A) a non-affiliate, public common equity float of at least $150 million or (B) a non-affiliate, public common equity float of at least $100 million and annual trading volume of at least three million shares and (ii) as of the date of this Agreement, has been subject to the 1934 Act reporting requirements for a period of at least 36 months.

 

(xix)                                   NASDAQ Listing.  The Common Stock of the Company is registered pursuant to Section 12(b) of the 1934 Act and is listed on the NASDAQ Capital Market under the ticker symbol “GTXI.” The Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the 1934 Act or delisting the Common Stock from the NASDAQ Capital Market nor has the Company received any notice that it is currently not in compliance with the listing or maintenance requirements of the NASDAQ Capital Market.  The Company believes that it is, and it will in the foreseeable future continue to be, in material compliance with all such listing and maintenance requirements.  A registration statement relating to the Common Stock on Form 8-A or other applicable form under the 1934 Act has become effective.

 

(xx)                                      Possession of Licenses and Permits.  The Company and its subsidiaries possess such permits, licenses, approvals, consents and other authorizations (collectively, “Governmental Licenses”) issued by the appropriate Governmental Entities necessary to conduct the business now operated by them, including without limitation the United States Food and Drug Administration (“FDA”) or any other federal, state or foreign agencies or bodies engaged in the regulation of pharmaceuticals, animal or human clinical studies or biohazardous substances, except where the failure so to possess would not, singly or in the aggregate, result in a Material Adverse Effect.  The Company and its subsidiaries are in compliance with the terms and conditions of all Governmental Licenses, except where the failure so to comply would not, singly or in the aggregate, result in a Material Adverse Effect.  All of the Governmental Licenses are valid and in full force and effect, except when the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not, singly or in the aggregate, result in a Material Adverse Effect.  Neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would reasonably be expected to result in a Material Adverse Effect.

 

(xxi)                                   FDA Regulations.  The Company has operated and currently is in compliance with the United States Federal Food, Drug, and Cosmetic Act, as amended, and all applicable rules and regulations of the FDA and other federal, state, local and foreign governmental bodies exercising comparable authority, except where the failure to so operate or be in compliance would not reasonably be expected to have a Material Adverse Effect.  The clinical studies conducted by or, to the Company’s knowledge, on behalf of the Company that are described in the Registration Statement and the Prospectus were, and, if still pending, are being, conducted in all material respects in accordance with the protocols submitted to the FDA and all applicable laws and regulations; preclinical studies conducted by or, to the Company’s knowledge, on behalf of the Company that are described in the Registration Statement and the Prospectus were, and, if still pending, are being, conducted in all material respects in accordance with experimental protocols, procedures and controls; the descriptions of the tests and preclinical and clinical studies, and results thereof, conducted by or, to the Company’s knowledge, on behalf of the Company contained in the Registration Statement and the Prospectus are accurate and complete in all material respects; and the Company is not aware of any other trials or studies, the results of which reasonably call into question the results described or referred to in the Registration Statement and the Prospectus; and the Company has not received any written notice or correspondence from the FDA or any foreign, state or local governmental body exercising comparable authority requiring the termination, suspension, or clinical hold of any preclinical or clinical studies, or such written notice or correspondence from any Institutional Review Board or comparable authority requiring the termination or suspension of a clinical study, conducted by or on behalf of the Company, which termination, suspension, or clinical hold would reasonably be expected to have a Material Adverse Effect.  None of the Company, its subsidiaries, or their respective business operations, except as would not reasonably be expected to result in a Material Adverse Effect, is in violation of the Health Insurance Portability and Accountability Act of

 

6

 

1996 (Pub. L. No. 104-191) and the Health Information Technology for Economic and Clinical Health Act of 2009, and the regulations promulgated thereunder and comparable state privacy and security laws.  The Company has not received written notice of any claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action from any governmental authority alleging that any product candidate, operation or activity is in material violation of any permit or Food, Drug and Cosmetic Act provision and has no knowledge that any such governmental authority is considering any such claim, litigation, arbitration, action, suit, investigation or proceeding; and the Company has not received notice, either verbally or in writing, that any governmental authority has taken, is taking or intends to take action to limit, suspend, modify or revoke any material permits and has no knowledge that any such governmental authority is considering such action.

 

(xxii)                                Title to Property.  Except where the failure thereof would not result in a Material Adverse Effect, to the Company’s knowledge, the Company and its subsidiaries have good and marketable title to all real property owned by them and good title to all other properties owned by them, in each case, free and clear of all mortgages, pledges, liens, security interests, claims, restrictions or encumbrances of any kind except such as 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 General Disclosure Package or the Prospectus, are in full force and effect, and neither the Company nor any such subsidiary has 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.

 

(xxiii)                             Possession of Intellectual Property.  The Company and its subsidiaries own or possess, or can acquire on reasonable terms, adequate patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names or other intellectual property (collectively, “Intellectual Property”) necessary to carry on the business now operated by them except as such failure to own, possess, or acquire such rights would not be reasonably expected to have a Material Adverse Effect, and neither the Company nor any of its subsidiaries has received any notice or is otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances which would render any Intellectual Property invalid or inadequate to protect the interest of the Company or any of its subsidiaries therein, and which infringement or conflict (if the subject of any unfavorable decision, ruling or finding) or invalidity or inadequacy, singly or in the aggregate, would result in a Material Adverse Effect.  To the Company’s knowledge, no employee of the Company is in or has ever been in violation of any term of any employment contract, patent disclosure agreement, invention assignment agreement, non-competition agreement, non-solicitation agreement, nondisclosure agreement or any restrictive covenant to or with a former employer where the basis of such violation relates to such employee’s employment with the Company or actions undertaken by the employee while employed with the Company.

 

(xxiv)                            Environmental Laws.  Except as would not, singly or in the aggregate, result in a Material Adverse Effect, (A) neither the Company nor any of its subsidiaries is in violation of any federal, state, local or foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent, decree or judgment, relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products, asbestos-containing materials or mold (collectively, “Hazardous Materials”) or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, “Environmental Laws”), (B) the Company and its subsidiaries have all permits, authorizations and approvals required under any applicable Environmental Laws and are each in compliance with their requirements, (C) there are no pending or, to the Company’s knowledge, threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigation or proceedings relating to any Environmental Law against the Company

 

7

 

or any of its subsidiaries and (D) there are no events or circumstances of which the Company is aware that would reasonably be expected to form the basis of an order for clean-up or remediation, or an action, suit or proceeding by any private party or Governmental Entity, against or affecting the Company or any of its subsidiaries relating to Hazardous Materials or any Environmental Laws.

 

(xxv)                               Occupational Safety Laws.  The Company (i) is in compliance, in all material respects, with any and all applicable foreign, federal, state and local laws, rules, regulations, treaties, statutes and codes promulgated by any and all governmental authorities (including pursuant to the Occupational Health and Safety Act) relating to the protection of human health and safety in the workplace (“Occupational Laws”); (ii) has received all material Permits required of it under applicable Occupational Laws to conduct its business as currently conducted; and (iii) is in compliance, in all material respects, with all terms and conditions of such Permit.  No action, proceeding, revocation proceeding, writ, injunction or claim is pending or, to the Company’s knowledge, threatened against the Company relating to Occupational Laws that would reasonably be expected to have a Material Adverse Effect.

 

(xxvi)                            Accounting Controls and Disclosure Controls.  The Company and each of its subsidiaries maintain effective internal control over financial reporting (as defined under Rule 13a-15 and 15d-15 under the 1934 Act Regulations) and a system of internal accounting controls sufficient to provide reasonable assurances that (A) transactions are executed in accordance with management’s general or specific authorization; (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (C) access to assets is permitted only in accordance with management’s general or specific authorization; (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences; and (E) the interactive data in eXtensible Business Reporting Language incorporated by reference in the Registration Statement, the General Disclosure Package and the Prospectus fairly presents the information called for in all material respects and is prepared in accordance with the Commission’s rules and guidelines applicable thereto.  Since the end of the Company’s most recent audited fiscal year, the Company’s not aware of any (1) material weakness in the Company’s internal control over financial reporting (whether or not remediated) and (2) change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.  The Company and each of its subsidiaries maintain an effective system of disclosure controls and procedures (as defined in Rule 13a-15 and Rule 15d-15 under the 1934 Act Regulations) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the 1934 Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and is accumulated and communicated to the Company’s management, including its principal executive officer or officers and principal financial officer or officers, as appropriate, to allow timely decisions regarding disclosure.  Neither the Company’s board of directors nor the audit committee has been informed, nor is any director of the Company or the Company aware, of (i) during the past 36 months, any “significant deficiencies” or “material weaknesses” (each as defined by the Public Company Accounting Oversight Board) in the design or operation of the Company’s internal controls that could adversely affect the Company’s ability to record, process, summarize and report financial data, required to be disclosed by the Company in reports filed with the Commission that were not so disclosed; or (ii) any fraud, whether or not material, that involves management or other employees of the Company who have a significant role in the Company’s internal controls.

 

(xxvii)                         Compliance with the Sarbanes-Oxley Act.  There is and has been no failure on the part of the Company or any of the Company’s directors or officers, in their capacities as such, to comply in all material respects with any provision of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith, including Section 402 related to loans and Sections 302 and 906 related to certifications.  No relationship, direct or indirect, exists between or among the Company, on the one hand, and the directors or officers or, to the knowledge of the Company, stockholders, customers or suppliers of the Company, on the other hand, which is required to be described in the Registration Statement, the General Disclosure Package and the Prospectus and which is not so described.

 

(xxviii)                      Payment of Taxes.  All United States federal income tax returns of the Company and its subsidiaries required by law to be filed have been filed and all taxes shown by such returns or otherwise assessed,

 

8

 

which are due and payable, have been paid, except assessments against which appeals have been or will be promptly taken and as to which adequate reserves have been provided and except where the failure to do so would not reasonably be expected to have a Material Adverse Effect.  The United States federal income tax returns of the Company for the past three tax years have been settled and no assessment in connection therewith has been made against the Company.  The Company and its subsidiaries have filed all other tax returns that are required to have been filed by them pursuant to applicable foreign, state, local or other law except insofar as the failure to file such returns would not result in a Material Adverse Effect, and has paid all taxes due pursuant to such returns or pursuant to any assessment received by the Company and its subsidiaries, except for such taxes, if any, as are being contested in good faith and as to which adequate reserves have been established by the Company and except where the failure to do so would not reasonably be expected to have a Material Adverse Effect.  The charges, accruals and reserves on the books of the Company in respect of any income and corporation tax liability for any years not finally determined are adequate to meet any assessments or re-assessments for additional income tax for any years not finally determined, except to the extent of any inadequacy that would not result in a Material Adverse Effect.

 

(xxix)                            ERISA.  Each employee benefit plan, within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), that is maintained, administered or contributed to by the Company or any of its affiliates for employees or former employees of the Company has been maintained in material compliance with its terms and the requirements of any applicable statutes, orders, rules and regulations, including but not limited to, ERISA and the Internal Revenue Code of 1986, as amended (the “Code”).  No prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any such plan excluding transactions effected pursuant to a statutory or administrative exemption, including, without limitation, pursuant to Section 408 of ERISA and the regulatory guidance thereunder; and for each such plan that is subject to the funding rules of Section 412 of the Code or Section 302 of ERISA, no “accumulated funding deficiency” as defined in Section 412 of the Code has been incurred, whether or not waived, and the fair market value of the assets of each such plan (excluding for these purposes accrued but unpaid contributions) exceeds the present value of all benefits accrued under such plan determined using reasonable actuarial assumptions.

 

(xxx)                               Insurance.  The Company and its subsidiaries carry or are entitled to the benefits of insurance, with financially sound and reputable insurers, in such amounts and covering such risks as is generally maintained by companies of established repute engaged in the same or similar business, and all such insurance is in full force and effect.  The Company has no reason to believe that it or any of its subsidiaries will not be able (A) to renew its existing insurance coverage as and when such policies expire or (B) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not result in a Material Adverse Effect.

 

(xxxi)                            Investment Company Act.  The Company is not required, and upon the issuance and sale of the Shares as herein contemplated and the application of the net proceeds therefrom as described in the Registration Statement, the General Disclosure Package and the Prospectus will not be required, to register as an “investment company” within the meaning of the Investment Company Act of 1940, as amended (the “1940 Act”).

 

(xxxii)                         Absence of Manipulation.  Neither the Company nor any affiliate of the Company has taken, nor will the Company or any affiliate take, directly or indirectly, any action which is designed, or would be expected, to cause or result in, or which constitutes, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares or to result in a violation of Regulation M under the 1934 Act.  The Company has not effected any sales of Common Stock which are required to be disclosed in response to Item 701 of Regulation S-K under the 1933 Act which have not been so disclosed in the Registration Statement.

 

(xxxiii)                      Rated Debt.  The Company has no debt securities or preferred stock that is rated by any “nationally recognized statistical rating agency” (as that term is defined by the Commission for purposes of Section 3(a)(62) of the 1934 Act).

 

(xxxiv)                     Foreign Corrupt Practices Act.  None of the Company, any of its subsidiaries or, to the knowledge of the Company, any director, officer, agent, employee, affiliate or other person acting on behalf of the Company or any of its subsidiaries is aware of or has taken any action, directly or indirectly, that would result in a

 

9

 

violation by such persons of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder (the “FCPA”), including, without limitation, making use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to pay or authorization of the payment of any money, or other property, gift, promise to give, or authorization of the giving of anything of value to any “foreign official” (as such term is defined in the FCPA) or any foreign political party or official thereof or any candidate for foreign political office, in contravention of the FCPA and the Company and, to the knowledge of the Company, its affiliates have conducted their businesses in compliance with the FCPA and have instituted and maintain policies and procedures designed to ensure, and which are reasonably expected to continue to ensure, continued compliance therewith.  To the knowledge of the Company, no person associated or affiliated with or acting on behalf of the Company, including without limitation any director, officer, agent or employee of the Company has, directly or indirectly, while acting on behalf of the Company (i) used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; or (ii) made any unlawful payment to domestic government officials or employees or to domestic political parties or campaigns from corporate funds.

 

(xxxv)                        Money Laundering Laws.  The operations of the Company and its subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all applicable jurisdictions, the applicable rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any Governmental Entity (collectively, the “Money Laundering Laws”); and no action, suit or proceeding by or before any Governmental Entity involving the Company or any of its subsidiaries with respect to the Money Laundering Laws is pending or, to the knowledge of the Company, threatened.

 

(xxxvi)                     OFAC.  None of the Company, any of its subsidiaries or, to the knowledge of the Company, any director, officer, agent, employee or affiliate of the Company or any of its subsidiaries is an individual or entity (“Person”) currently the subject or target of any sanctions administered or enforced by the United States Government, including, without limitation, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), the United Nations Security Council (“UNSC”), the European Union, Her Majesty’s Treasury (“HMT”), or other relevant sanctions authority (collectively, “Sanctions”), nor is the Company located, organized or resident in a country or territory that is the subject of Sanctions; and the Company will not directly or indirectly use the proceeds of the sale of the Shares, or lend, contribute or otherwise make available such proceeds to any subsidiaries, joint venture partners or other Person, to fund any activities of or business with any Person, or in any country or territory, that, at the time of such funding, is the subject of Sanctions or in any other manner that will result in a violation by any Person (including any Person participating in the transaction, whether as underwriter, advisor, investor or otherwise) of Sanctions.

 

(xxxvii)                  Lending Relationship. The Company (i) does not have any material lending or other relationship with any bank or lending affiliate of the Agent and (ii) does not intend to use any of the proceeds from the sale of the Shares to repay any outstanding debt owed to any affiliate of the Agent.

 

(xxxviii)               Statistical and Market-Related Data.  Any statistical and market-related data included in the Registration Statement, the General Disclosure Package or the Prospectus are based on or derived from sources that the Company believes, after reasonable inquiry, to be reliable and accurate and, to the extent required, the Company has obtained the written consent to the use of such data from such sources.

 

(xxxix)                     Company Stock Plans.  With respect to the stock options (the “Stock Options”) granted pursuant to the stock-based compensation plans of the Company and its subsidiaries (the “Company Stock Plans”) that are currently outstanding and not exercised, (i) each Stock Option intended to qualify as an “incentive stock option” under Section 422 of the Code so qualifies, (ii) each grant of a Stock Option was duly authorized no later than the date on which the grant of such Stock Option was by its terms to be effective (the “Grant Date”) by all necessary corporate action, including, as applicable, approval by the board of directors of the Company (or a duly constituted and authorized committee thereof) and any required stockholder approval by the necessary number of votes or written consents, and the award agreement governing such grant (if any) was duly executed and delivered by each party thereto, (iii) each such grant was made in accordance with the terms of the Company Stock Plans, the

 

10

 

1934 Act and all other applicable laws and regulatory rules or requirements, including the rules of the Nasdaq Stock Market LLC and any other exchange on which Company securities are traded, and (iv) each such grant was properly accounted for in accordance with GAAP in the financial statements (including the related notes) of the Company and disclosed in the Company’s filings with the Commission in accordance with the 1934 Act and all other applicable laws.  The Company has not knowingly granted, and there is no and has been no policy or practice of the Company of granting, Stock Options prior to, or otherwise coordinating the grant of Stock Options with, the release or other public announcement of material information regarding the Company or its subsidiaries or their results of operations or prospects.

 

(xl)                                          Cuba.  The Company does not do business with the government of Cuba or with any person located in Cuba within the meaning of Section 517.075, Florida Statutes.

 

(xli)                                       Anti-Takeover.  The Company and its 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 charter documents or the laws of its state of incorporation that is or could reasonably be expected to become applicable to the Agent as a result of the Agent and the Company fulfilling their respective obligations or exercising their respective rights under this Agreement, including, without limitation, the Company’s issuance of the Shares.

 

(xlii)                                    Actively Traded Security.  The Common Stock is an “actively-traded security” exempted from the requirements of Rule 101 of Regulation M under the Exchange Act by subsection (c)(1) of such rule.

 

(xliii)                                 No Commissions.  Neither the Company nor any of its subsidiaries is a party to any contract, agreement or understanding with any person (other than as contemplated by this Agreement or any Terms Agreement) that would give rise to a valid claim against the Company or any of its subsidiaries or the Agent for a brokerage commission, finder’s fee or like payment in connection with the offering and sale of the Shares.

 

(xliv)                                Deemed Representation.  Any certificate signed by any officer of the Company delivered to the Agent or to counsel for the Agent pursuant to or in connection with this Agreement shall be deemed a representation and warranty by the Company to the Agent as to the matters covered thereby as of the date or dates indicated in such certificate.

 

Section 2.  Sale and Delivery of Shares.

 

(a)                                 Subject to the terms and conditions set forth herein, the Company agrees to issue and sell exclusively through the Agent acting as sales agent or directly to the Agent acting as principal from time to time, and the Agent agrees to use its commercially reasonable efforts to sell as sales agent for the Company, the Shares.  Sales of the Shares, if any, through the Agent acting as sales agent or directly to the Agent acting as principal will be made by means of ordinary brokers’ transactions on the Nasdaq, in negotiated transactions or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices.  Anything to the contrary notwithstanding in this Agreement, without the Company’s prior written consent, the Agent may not place any shares by any method other than transactions that are deemed to be “at-the-market offerings” as defined in Rule 415 under the 1933 Act, including sales made directly on the NASDAQ Capital Market, or sales made to or through a market maker other than on an exchange or through an electronic communications network.  The Agent shall effect any sales of shares in accordance with applicable state and federal rules and regulations and the rules of Nasdaq and otherwise in accordance with the instructions to sell shares delivered pursuant to Section 2(b).  Nothing contained herein restricts, nor may be deemed to restrict, the Company from undertaking another offering of its securities pursuant to a separate registrations under the 1933 Act (or any exemption from such registration), or another offering under the Registration Statement, provided the Company complies with Section 3(p).

 

(b)                                 Subject to instructions to sell shares delivered pursuant to this Section 2(b) or the applicable Terms Agreement, the Shares are to be sold on a daily basis or otherwise as shall be agreed to by the Company and the Agent on that trading day (other than a day on which the NASDAQ Capital Market is scheduled to close prior to its regular weekday closing time, each, a “Trading Day”) that the Company has satisfied its

 

11

 

obligations under Section 6 of this Agreement and that the Company has instructed the Agent to make such sales.  For the avoidance of doubt, the foregoing limitation shall not apply to sales solely to employees or security holders of the Company or its subsidiaries, or to a trustee or other person acquiring such securities for the accounts of such persons in which Stifel Nicolaus is acting for the Company in a capacity other than as Agent under this Agreement.  On any Trading Day, the Company may instruct the Agent by telephone (confirmed promptly by telecopy or email, which confirmation will be promptly acknowledged by the Agent) as to the maximum aggregate dollar value or number of Shares to be sold by the Agent on such day (in any event not in excess of the number available for issuance under the Prospectus and the currently effective Registration Statement) and the minimum price per Share at which such Shares may be sold.  Subject to the terms and conditions hereof, the Agent shall use its commercially reasonable efforts to sell as sales agent all of the Shares so designated by the Company and in the manner and on the terms so designated by the Company.  The Company and the Agent each acknowledge and agree that (A) there can be no assurance that the Agent will be successful in selling the Shares, (B) the Agent will incur no liability or obligation to the Company or any other person or entity if they do not sell Shares for any reason other than a failure by the Agent to use its commercially reasonable efforts consistent with its normal trading and sales practices and applicable law and regulations to sell such Shares as required by this Agreement, and (C) the Agent shall be under no obligation to purchase Shares on a principal basis except as otherwise specifically agreed by each of the Agent and the Company pursuant to a Terms Agreement.  In the event of a conflict between the terms of this Agreement and the terms of a Terms Agreement, the terms of such Terms Agreement will control.

 

(c)                                  Notwithstanding the foregoing, the Company shall not authorize the issuance and sale of, and the Agent as sales agent shall not be obligated to use its commercially reasonable efforts to sell, any Shares (i) at a price lower than the minimum price therefor authorized from time to time, or (ii) in a number in excess of the number or maximum aggregate dollar value of Shares authorized from time to time to be issued and sold under this Agreement, in each case, by the Company’s board of directors, or a duly authorized committee thereof, and notified to the Agent in writing.  In addition, the Company may, upon notice to the Agent, suspend the offering of the Shares or the Agent may, upon notice to the Company, suspend the offering of the Shares with respect to which the Agent is acting as sales agent for any reason and at any time; provided, however, that such suspension or termination shall not affect or impair the parties’ respective obligations with respect to the Shares sold hereunder prior to the giving of such notice.  Any notice given pursuant to the preceding sentence may be given by telephone (confirmed promptly by telecopy or email, which confirmation will be promptly acknowledged).

 

(d)                                 The gross sales price of any Shares sold pursuant to this Agreement by the Agent acting as sales agent of the Company shall be the market price prevailing at the time of sale for shares of the Company’s Common Stock sold by the Agent on the NASDAQ Capital Market or otherwise, at prices relating to prevailing market prices or at negotiated prices.  The compensation payable to the Agent for sales of Shares with respect to which the Agent acts as sales agent shall be up to 3.0% of the gross sales price of the Shares sold pursuant to this Agreement.  The Company may sell Shares to the Agent, acting as principal, at a price agreed upon with the Agent at the relevant Applicable Time and pursuant to a separate Terms Agreement.  The remaining proceeds, after further deduction for any transaction fees imposed by any governmental, regulatory or self-regulatory organization in respect of such sales, shall constitute the net proceeds to the Company for such Shares (the “Net Proceeds”).  The Agent shall notify the Company as promptly as practicable if any deduction referenced in the preceding sentence will be required.  Notwithstanding the foregoing, in the event the Company engages the Agent as sales agent for a sale of Shares that would constitute a “distribution” within the meaning of Rule 100 of Regulation M under the Exchange Act, the Company and the Agent will use reasonable commercial efforts to agree to compensation that is customary for the Agent with respect to such transactions.

 

(e)                                  If acting as a sales agent hereunder, the Agent shall provide written confirmation to the Company following the close of trading on the NASDAQ Capital Market, each day in which Shares are sold under this Agreement setting forth the number of Shares sold on such day, the aggregate gross sales proceeds of the Shares, the Net Proceeds to the Company and the compensation payable by the Company to such Agent with respect to such sales.

 

(f)                                   Under no circumstances shall the aggregate offering price or number, as the case may be, of Shares sold pursuant to this Agreement and any Terms Agreement exceed the aggregate offering price or number, as the case may be, of Shares of Common Stock (i) set forth in the preamble paragraph of this Agreement, (ii) available for issuance under the Prospectus and the then currently effective Registration Statement, (iii) authorized

 

12

 

from time to time to be issued and sold under this Agreement or any Terms Agreement by the Company’s board of directors, or a duly authorized committee thereof, and notified to the Agent in writing or (iv) authorized but unissued pursuant to the Company’s certificate of incorporation.  In addition, under no circumstances shall any Shares with respect to which the Agent acts as sales agent be sold at a price lower than the minimum price therefor authorized from time to time by the Company’s board of directors, or a duly authorized committee thereof, and notified to the Agent in writing.

 

(g)                                  Settlement for sales of Shares pursuant to this Section 2 will occur on the second business day that is also a Trading Day following the trade date on which such sales are made, unless another date shall be agreed to by the Company and the Agent (each such day, a “Settlement Date”).  On each Settlement Date, the Shares sold through the Agent for settlement on such date shall be delivered by the Company to the Agent against payment of the Net Proceeds from the sale of such Shares.  Settlement for all Shares shall be effected by book-entry delivery of Shares to the Agent’s account at The Depository Trust Company against payments by the Agent of the Net Proceeds from the sale of such Shares in same day funds delivered to an account designated by the Company.  If the Company shall default on its obligation to deliver Shares on any Settlement Date, the Company shall (i) indemnify and hold the Agent harmless against any loss, claim or damage arising from or as a result of such default by the Company and (ii) pay the Agent any commission to which it would otherwise be entitled absent such default.

 

(h)                                 Notwithstanding any other provision of this Agreement, the Company and the Agent agree that no sales of Shares shall take place, and the Company shall not request the sale of any Shares that would be sold, and the Agent shall not be obligated to sell, during any period in which the Company’s insider trading policy, as it exists on the date of the Agreement, would prohibit the purchases or sales of the Company’s Common Stock by its officers or directors, or during any other period in which the Company is, or could be deemed to be, in possession of material non-public information.

 

(i)                                     Any obligation of the Agent to use its commercially reasonable efforts to sell the Shares on behalf of the Company as sales agent shall be subject to the continuing accuracy of the representations and warranties of the Company herein, to the performance by the Company of its obligations hereunder and to the continuing satisfaction of the additional conditions specified in Section 6 of this Agreement.

 

(j)                                    If either party has reason to believe that the exemptive provisions set forth in Rule 101(c)(1) of Regulation M under the Exchange Act are not satisfied with respect to the Shares, it shall promptly notify the other party and the Agent may, in its sole discretion, suspend sales of the Shares under this Agreement and any Terms Agreement until such date as it determines is reasonably necessary to ensure compliance with Regulation M and any other applicable legal or regulatory requirements.

 

Section 3.  Covenants.   The Company agrees with the Agent:

 

(a)                                 During any period when the delivery of a prospectus is required in connection with the offering or sale of Shares (whether physically or through compliance with Rule 153 or 172, or in lieu thereof, a notice referred to in Rule 173(a) under the 1933 Act), (i) to make no further amendment or any supplement to the Registration Statement or the Prospectus (other than an amendment or supplement relating to an offering of the Company’s securities which is unrelated to the offering of Shares hereunder) prior to any Settlement Date which shall be disapproved by the Agent promptly after reasonable notice thereof and to advise the Agent, promptly after it receives notice thereof, of the time when any amendment to the Registration Statement has been filed or becomes effective or any amendment or supplement to the Prospectus (other than an amendment or supplement relating to an offering of the Company’s securities which is unrelated to the offering of Shares hereunder) has been filed and to furnish the Agent with copies thereof, (ii) to file promptly all other material required to be filed by the Company with the Commission pursuant to Rule 433(d) under the 1933 Act, (iii) to file promptly all reports and any definitive proxy or information statements required to be filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act, (iv) to advise the Agent, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of the Prospectus or other prospectus in respect of the Shares, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the form of the Registration Statement or the Prospectus or for additional information, and (v) in the event of the issuance of any such stop order or of any such order preventing or

 

13

 

suspending the use of the Prospectus in respect of the Shares or suspending any such qualification, to promptly use its commercially reasonable efforts to obtain the withdrawal of such order; and in the event of any such issuance of a notice of objection, promptly to take such reasonable steps as may be necessary to permit offers and sales of the Shares by the Agent, which may include, without limitation, amending the Registration Statement or filing a new registration statement, at the Company’s expense (references herein to the Registration Statement shall include any such amendment or new registration statement).  Notwithstanding the foregoing, the Company shall not be obligated to furnish copies of any report or statement filed with the Commission to the extent it is available on the Commission’s Electronic Data Gathering, Analysis, and Retrieval System (“EDGAR”).

 

(b)                                 Promptly from time to time to take such action as the Agent may reasonably request to qualify the Shares for offering and sale under the securities laws of such jurisdictions as the Agent may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the sale of the Shares, provided that in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction; and to promptly advise the Agent of the receipt by the Company of any notification with respect to the suspension of the qualification of the Shares for offer or sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose.

 

(c)                                  During any period when the delivery of a prospectus is required (whether physically or through compliance with Rules 153 or 172, or in lieu thereof, a notice referred to in Rule 173(a) under the 1933 Act) in connection with the offering or sale of Shares, the Company will make available to the Agent, as soon as practicable after the execution of this Agreement, and thereafter from time to time furnish to the Agent, copies of the most recent Prospectus in such quantities and at such locations as the Agent may reasonably request for the purposes contemplated by the 1933 Act.  During any period when the delivery of a prospectus is required (whether physically or through compliance with Rules 153 or 172, or in lieu thereof, a notice referred to in Rule 173(a) under the 1933 Act) in connection with the offering or sale of Shares, and if at such time any event shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary during such same period to amend or supplement the Prospectus or to file under the 1934 Act any document incorporated by reference in the Prospectus in order to comply with the 1933 Act or the 1934 Act, to notify the Agent and to file such document and to prepare and furnish without charge to the Agent as many written and electronic copies as the Agent may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance. Notwithstanding the foregoing, the Company shall not be obligated to furnish copies of any report or statement filed with the Commission to the extent it is available on the Commission’s Electronic Data Gathering, Analysis, and Retrieval System (“EDGAR”).

 

(d)                                 To make generally available to its securityholders as soon as practicable, but in any event not later than sixteen months after the effective date of the Registration Statement (as defined in Rule 158(c) under the 1933 Act), an earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the 1933 Act and the rules and regulations of the Commission thereunder (including, at the option of the Company, Rule 158).

 

(e)                                  [Reserved].

 

(f)                                   To use the Net Proceeds received by it from the sale of the Shares pursuant to this Agreement and any Terms Agreement in the manner specified in the General Disclosure Package.

 

(g)                                  In connection with the offering and sale of the Shares, the Company will file with the NASDAQ Capital Market all documents and notices, and make all certifications, required by the NASDAQ Capital Market of companies that have securities that are listed or quoted on the NASDAQ Capital Market and will maintain such listings or quotations.

 

(h)                                 To not take, directly or indirectly, and to use commercially reasonable efforts to cause its affiliates to refrain from taking, any action designed to cause or result in, or that has constituted or might reasonably be

 

14

 

expected to constitute, under the 1934 Act or otherwise, the stabilization or manipulation of the price of any securities of the Company to facilitate the sale or resale of the Shares.

 

(i)                                     At each Applicable Time, each Settlement Date, each Registration Statement Amendment Date (as defined below), each Company Periodic Report Date (as defined below) and each date on which Shares are delivered to the Agent pursuant to a Terms Agreement, the Company shall be deemed to have affirmed each representation, warranty, covenant and other agreement contained in this Agreement or any Terms Agreement.  In each Annual Report on Form 10-K or Quarterly Report on Form 10-Q filed by the Company in respect of any quarter in which sales of Shares were made by or through the Agent under this Agreement or any Terms Agreement (each date on which any such document is filed, and any date on which an amendment to any such document is filed, a “Company Periodic Report Date”), the Company shall set forth with regard to such quarter the number of Shares sold through the Agent under this Agreement or any Terms Agreement and the Net Proceeds received by the Company with respect to sales of Shares pursuant to this Agreement or any Terms Agreement.

 

(j)                                    Upon commencement of the offering of Shares under this Agreement and each time the Shares are delivered to the Agent as principal on a Settlement Date and promptly after each (i) date the Registration Statement or the Prospectus shall be amended or supplemented (other than (1) by an amendment or supplement providing solely for the determination of the terms of the Shares, (2) in connection with the filing of a prospectus supplement that contains solely the information set forth in Section 3(i), (3) in connection with the filing of any current reports on Form 8-K (other than any current reports on Form 8-K which contain financial statements, supporting schedules or other financial data, including any current report on Form 8-K under Item 2.02 of such form that is considered “filed” under the 1934 Act) or (4) by a prospectus supplement relating to the offering of other securities (including, without limitation, other shares of Common Stock)) (each such date, a “Registration Statement Amendment Date”) and (ii) Company Periodic Report Date, the Company will furnish or cause to be furnished forthwith to the Agent a certificate dated the date of effectiveness of such amendment or the date of filing with the Commission of such supplement or other document, as the case may be, in a form reasonably satisfactory to the Agent to the effect that the statements contained in the certificate referred to in Section 6(e) of this Agreement which were last furnished to the Agent are true and correct at the time of such amendment, supplement or filing, as the case may be, as though made at and as of such time (except that such statements shall be deemed to relate to the Registration Statement, the General Disclosure Package and the Prospectus as amended and supplemented to such time) or, in lieu of such certificate, a certificate of the same tenor as the certificate referred to in said Section 6(e), but modified as necessary to relate to the Registration Statement and the Prospectus as amended and supplemented, or to the document incorporated by reference into the Prospectus, to the time of delivery of such certificate.  As used in this paragraph, to the extent there shall be an Applicable Time on or following the date referred to in clause (i) or (ii) above, promptly shall be deemed to be on or prior to the next succeeding Applicable Time.  Notwithstanding the foregoing, the Company shall not be required to deliver any such certificate at any time there is no instruction to sell shares delivered pursuant to Section 2(b) then in effect; provided however, that such a certificate shall then be required to be delivered to the Agent prior to any further sales of Shares under this Agreement covering the period which would most recently have been required but for this sentence.

 

(k)                                 Upon commencement of the offering of Shares under this Agreement and promptly after each (i) Registration Statement Amendment Date and (ii) Company Periodic Report Date, the Company will furnish or cause to be furnished to the Agent the written opinion and written negative assurance statement of Cooley LLP, counsel to the Company, or other counsel reasonably satisfactory to the Agent, dated the date of effectiveness of such amendment or the date of filing with the Commission of such supplement or other document, as the case may be, in a form and substance reasonably satisfactory to the Agent and its counsel, of the same tenor as the opinions and letters referred to in Section 6(c) of this Agreement, but modified as necessary to relate to the Registration Statement, the General Disclosure Package and the Prospectus as amended and supplemented, or to the document incorporated by reference into the Prospectus, to the time of delivery of such opinion and letter or, in lieu of such opinion and letter, counsel last furnishing such letter to the Agent shall furnish such Agent with a letter substantially to the effect that the Agent may rely on such last opinion and letter to the same extent as though each were dated the date of such letter authorizing reliance (except that statements in such last letter shall be deemed to relate to the Registration Statement and the Prospectus as amended and supplemented to the time of delivery of such letter authorizing reliance).  As used in this paragraph, to the extent there shall be an Applicable Time on or following the date referred to in clause (i) or (ii) above, promptly shall be deemed to be on or prior to the next succeeding Applicable Time.  Notwithstanding the foregoing, (y) the Company shall not be required to furnish or cause to be

 

15

 

furnished any such opinion or statement at any time there are no instructions to sell shares delivered pursuant to Section 2(b) or a Terms Agreement then in effect; provided, however, that such an opinion or letter shall then be required to be furnished to the Agent prior to any further sales of Shares under this Agreement covering the period which would most recently have been required but for this sentence, and (z) following the Agent being furnished with the first opinion(s) pursuant this Section 3(k), subsequent opinions or letters furnished pursuant to this Section 3(k) shall only consist of customary written negative assurance statements.

 

(l)                                     Promptly after each (i) Registration Statement Amendment Date and (ii) Company Periodic Report Date, the Company will cause Ernst & Young LLP, or other independent accountants reasonably satisfactory to the Agent, to furnish to the Agent a letter, dated the date of effectiveness of such amendment or the date of filing of such supplement or other document with the Commission, as the case may be, in form reasonably satisfactory to the Agent and its counsel, of the same tenor as the letter referred to in Section 6(d) hereof, but modified as necessary to relate to the Registration Statement, the General Disclosure Package and the Prospectus, as amended and supplemented, or to the document incorporated by reference into the Prospectus, to the date of such letter.  As used in this paragraph, to the extent there shall be an Applicable Time on or following the date referred to in clause (i) or (ii) above, promptly shall be deemed to be on or prior to the next succeeding Applicable Time.  Notwithstanding the foregoing, (A) upon commencement of the offering of Shares under this Agreement, (B) after a Company Periodic Report Date that relates to the filing of a Quarterly Report on Form 10-Q, and (C) after each Registration Statement Amendment Date (other than as the result of filing an Annual Report on Form 10-K), the Agent hereby agrees to receive a certificate of the Principal Financial Officer of the Company, in a form and substance reasonably satisfactory to the Agent and its counsel, in lieu of a letter from Ernst & Young LLP.  Further, notwithstanding the foregoing, the Company shall not be required to furnish or cause to be furnished any such letter or certificate at any time there are no instructions to sell shares delivered pursuant to Section 2(b) or a Terms Agreement then in effect; provided, however, that such a letter or certificate, as the case may be, shall then be required to be furnished to the Agent prior to any further sales of Shares under this Agreement covering the period which would most recently have been required but for this sentence.

 

(m)                             The Company consents to the Agent trading in the Company’s Common Stock for the Agent’s own account and for the account of its clients at the same time as sales of Shares occur pursuant to this Agreement or any Terms Agreement, provided that, at all times, the Agent is in compliance with Regulation M under the 1934 Act with respect to the Common Stock and provided that in no event shall the Agent trade the Common Stock for its or its affiliates’ proprietary accounts.

 

(n)                                 [Reserved].

 

(o)                                 The Company will cooperate timely with any reasonable due diligence review conducted by the Agent or its counsel from time to time in connection with the transactions contemplated hereby or in any Terms Agreement, including, without limitation, and upon reasonable notice providing information and making available documents and appropriate corporate officers, during regular business hours and at the Company’s principal offices, as the Agent may reasonably request.

 

(p)                                 During each period commencing on the date on which the Company has given an instruction pursuant to Section 2(b) and ending on the close of business of the Settlement Date of the last Shares sold pursuant to such instruction, the Company will not, without giving the Agent at least three business days’ prior written notice of a proposed sale or other transaction (which notice shall not be required to specify the nature of such proposed transaction), (A) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, lend or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or securities convertible into or exchangeable or exercisable for or repayable with Common Stock, or file any registration statement under the 1933 Act with respect to any of the foregoing (other than a shelf registration statement under Rule 415 under the 1933 Act, a registration statement on Form S-8 or post-effective amendment to the Registration Statement) or (B) enter into any swap or other agreement or any transaction that transfers in whole or in part, directly or indirectly, any of the economic consequence of ownership of the Common Stock, or any securities convertible into or exchangeable or exercisable for or repayable with Common Stock, whether any such swap or transaction described in clause (A) or (B) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise.  The foregoing sentence shall not apply to (w) the Shares to be offered and sold through the Agent pursuant to this Agreement or

 

16

 

any Terms Agreement, (x) equity incentive awards approved by the board of directors of the Company or the compensation committee thereof or the issuance of Common Stock upon exercise thereof, (y) Shares or securities convertible into or exchangeable for Shares as consideration for mergers, acquisitions, other business combinations, joint ventures or strategic alliances occurring after the date of this Agreement which are not used for capital raising purposes and (z) Shares issuable upon exercise or conversion of outstanding warrants, options or other derivative securities.

 

(q)                                 If immediately prior to the third anniversary (the “Renewal Deadline”) of the initial effective date of the Registration Statement, any of the Shares remain unsold, the Company will, prior to the Renewal Deadline file, if it has not already done so and is eligible to do so, an “automatic shelf registration statement” (as defined in Rule 405 under the 1933 Act) relating to the Shares, in a form reasonably satisfactory to the Agent.  If the Company is not eligible to file an automatic shelf registration statement, the Company will, prior to the Renewal Deadline, if it has not already done so, file a new shelf registration statement relating to the Shares, in a form reasonably satisfactory to the Agent, and will use its commercially reasonable efforts to cause such registration statement to be declared effective within 60 days after the Renewal Deadline.  The Company will use commercially reasonable efforts to take all other action necessary or appropriate to permit the issuance and sale of the Shares to continue as contemplated in the expired registration statement relating to the Shares.  References herein to the Registration Statement shall include such new automatic shelf registration statement or such new shelf registration statement, as the case may be.

 

Section 4.  Free Writing Prospectus.

 

(a)                                 (i)                                     The Company represents and agrees that without the prior consent of the Agent (which consent may not be unreasonably withheld, delayed or conditioned), it has not made and will not make any offer relating to the Shares that would constitute a “free writing prospectus” as defined in Rule 405 under the 1933 Act; and

 

(ii)                                  the Agent represents and agrees that, without the prior consent of the Company (which consent may not be unreasonably withheld, delayed or conditioned), it has not made and will not make any offer relating to the Shares that would constitute a free writing prospectus required to be filed with the Commission.

 

(b)                                 The Company has complied and will comply with the requirements of Rule 433 under the 1933 Act applicable to any Issuer Free Writing Prospectus (including any free writing prospectus identified in Section 4(a) hereof), including timely filing with the Commission or retention where required and legending.

 

Section 5.  Payment and Reimbursement of Expenses.

 

(a)                                 The Company covenants and agrees with the Agent that the Company will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Company’s counsel and accountants in connection with the registration of the Shares under the 1933 Act and all other expenses in connection with the preparation, printing and filing of the Registration Statement, the Base Prospectus, Prospectus Supplement, any Issuer Free Writing Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Agent; (ii) the cost of printing or producing this Agreement or any Terms Agreement, any Blue Sky and Legal Investment Memoranda, closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Shares; (iii) all expenses in connection with the qualification of the Shares for offering and sale under state securities laws as provided in Section 3(b) hereof, including the reasonable fees and disbursements of counsel for the Agent in connection with such qualification and in connection with the Blue Sky and Legal Investment Surveys; (iv) any filing fees incident to, and the reasonable fees and disbursements of counsel for the Agent in connection with, any required review by the Financial Industry Regulatory Authority, Inc. (“FINRA”) of the terms of the sale of the Shares; (v) all fees and expenses in connection with listing or quoting the Shares on the NASDAQ Capital Market; (vi) the cost of preparing the Shares; (vii) the costs and charges of any transfer agent or registrar or any dividend distribution agent; (viii) the reasonable fees and disbursements of counsel to the Agent in an aggregate amount not to exceed $25,000 (which amount shall include all fees and disbursements of such counsel described in clauses (iii) and (iv) above); and (ix) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise

 

17

 

specifically provided for in this Section.  It is understood, however, that, except as provided in this Section, and Section 7 hereof, the Agent will pay all of its own costs and expenses, including the fees of its counsel, transfer taxes on resale of any of the Shares by it, and any advertising expenses connected with any offers it may make.

 

(b)                                 The parties agree that if counsel to the Company is required, by the terms hereof, to provide more than two written opinions and/or written negative assurance statements pursuant to Section 3(k) hereof or pursuant to Section 6(c) hereof in any calendar year, then the amount of the reasonable legal fees incurred by the Company in connection with such opinion or statement shall be deducted from the compensation amount next due Agent hereunder; provided that the maximum amount to be so deducted shall be $5,000 per such additional opinion or statement.

 

Section 6.  Conditions of Agent’s Obligation.  The obligations of the Agent hereunder shall be subject, in its discretion, to the condition that all representations and warranties and other statements of the Company herein or in certificates of any officer of the Company delivered pursuant to the provisions hereof are true and correct as of the time of the execution of this Agreement, the date of any executed Terms Agreement and as of each Registration Statement Amendment Date, Company Periodic Report Date, Applicable Time and Settlement Date, to the condition that the Company shall have performed all of its obligations hereunder theretofore to be performed, and the following additional conditions:

 

(a)                                 The Prospectus Supplement shall have been filed with the Commission pursuant to Rule 424(b) under the 1933 Act on or prior to the date hereof and in accordance with Section 3(a) hereof, any other material required to be filed by the Company pursuant to Rule 433(d) under the 1933 Act shall have been filed with the Commission within the applicable time periods prescribed for such filings by Rule 433; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission and no notice of objection of the Commission to the use of the form of the Registration Statement or any post-effective amendment thereto pursuant to Rule 401(g)(2) under the 1933 Act shall have been received; no stop order suspending or preventing the use of the Prospectus or any Issuer Free Writing Prospectus shall have been initiated or threatened by the Commission; and all requests for additional information on the part of the Commission shall have been complied with to the reasonable satisfaction of the Agent.

 

(b)                                 On every date specified in Section 3(k) hereof and on such other dates as reasonably requested by Agent, Goodwin Procter LLP, counsel for the Agent, shall have furnished to the Agent such written opinion or opinions, dated as of such date, with respect to such matters as the Agent may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters.

 

(c)                                  On every date specified in Section 3(k) hereof, Cooley LLP, counsel for the Company, shall have furnished to the Agent a written opinion or opinions, and a written negative assurance statement, each dated as of such date, in form and substance reasonably satisfactory to the Agent (it being understood and agreed that, other than the first such opinion furnished to the Agent, such opinions and statements shall consist of a customary written negative assurance statement only).  Upon commencement of the offering of Shares under this Agreement and promptly after each Company Periodic Report Date that relates to the filing of an Annual Report on Form 10-K, Pearl Cohen Zedek Latzer Baratz LLP, intellectual property counsel for the Company, shall have furnished to the Agent a written opinion or opinions, dated as of such date, in form and substance reasonably satisfactory to the Agent (it being understood and agreed that, other than the first such opinion furnished to the Agent, such opinions shall consist of a customary written negative assurance statement only).

 

(d)                                 At the dates specified in Section 3(l) hereof, the independent accountants of the Company who have certified the financial statements of the Company and its subsidiaries included or incorporated by reference in the Registration Statement, the General Disclosure Package and the Prospectus shall have furnished to the Agent a letter dated as of the date of delivery thereof and addressed to the Agent in form and substance reasonably satisfactory to the Agent and its counsel, containing statements and information of the type ordinarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements of the Company and its subsidiaries included or incorporated by reference in the Registration Statement, the General Disclosure Package and the Prospectus.  Notwithstanding the foregoing, (A) upon commencement of the offering of Shares under this

 

18

 

Agreement, (B) after a Company Periodic Report Date that relates to the filing of a Quarterly Report on Form 10-Q, and (C) after each Registration Statement Amendment Date (other than as the result of filing an Annual Report on Form 10-K), the Agent hereby agrees to receive a certificate of the Principal Financial Officer of the Company, in a form and substance reasonably satisfactory to the Agent and its counsel, in lieu of a letter from the independent accountants of the Company.

 

(e)                                  Prior to commencement of the offering of Shares under this Agreement, the Agent shall have received a certificate, signed on behalf of the Company by its corporate Secretary, in form and substance satisfactory to the Agent and its counsel.

 

(e)                                  (i) Upon commencement of the offering of Shares under this Agreement and on such other dates as reasonably requested by Agent, the Company will furnish or cause to be furnished promptly to the Agent a certificate of an officer in a form satisfactory to the Agent stating the minimum price for the sale of such Shares pursuant to this Agreement and the maximum number of Shares that may be issued and sold pursuant to this Agreement or, alternatively, maximum gross proceeds from such sales, as authorized from time to time by the Company’s board of directors or a duly authorized committee thereof or, in connection with any amendment, revision or modification of such minimum price or maximum Share number or amount, a new certificate with respect thereto and (ii) on each date specified in Section 3(j) and on such other dates as reasonably requested by Agent, the Agent shall have received a certificate of two executive officers of the Company, one of whom shall be the Chief Financial Officer, Chief Accounting Officer, Treasurer, Principal Financial Officer or Executive Vice President in the area of capital markets and investments, dated as of the date thereof, to the effect that (A) there has been no Material Adverse Effect since the date as of which information is given in the General Disclosure Package and the Prospectus as then amended or supplemented, (B) the representations and warranties in Section 1 hereof are true and correct as of such date and (C) the Company has complied with all of the agreements entered into in connection with the transaction contemplated herein and satisfied all conditions on its part to be performed or satisfied.

 

(f)                                   Since the date of the latest audited financial statements then included or incorporated by reference in the General Disclosure Package and the Prospectus, no Material Adverse Effect shall have occurred.

 

(g)                                  The Company shall have complied with the provisions of Section 3(c) hereof with respect to the timely furnishing of prospectuses.

 

(h)                                 On such dates as reasonably requested by the Agent, the Company shall have conducted due diligence sessions, in form and substance reasonably satisfactory to the Agent.

 

(i)                                     All filings with the Commission required by Rule 424 under the 1933 Act to have been filed by each Applicable Time or related Settlement Date shall have been made within the applicable time period prescribed for such filing by Rule 424 (without reliance on Rule 424(b)(8)).

 

(j)                                    The Shares shall have received approval for listing or quotation on the NASDAQ Capital Market prior to the first Settlement Date.

 

(k)                                 Prior to any Settlement Date, the Company shall have furnished to the Agent such further information, documents or certificates as the Agent may reasonably request.

 

Section 7.  Indemnification.

 

(a)                                 The Company will indemnify and hold harmless the Agent against any losses, claims, damages or liabilities, joint or several, to which the Agent may become subject, under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, the Base Prospectus, the Prospectus Supplement or the Prospectus or any amendment or supplement thereto, any Issuer Free Writing Prospectus or any “issuer information” filed or required to be filed pursuant to Rule 433(d) under the 1933 Act, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Agent for any legal or

 

19

 

other expenses reasonably incurred by the Agent in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, the Base Prospectus, the Prospectus Supplement or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, in reliance upon and in strict conformity with written information furnished to the Company by the Agent expressly for use therein.

 

(b)                                 The Agent will indemnify and hold harmless the Company against any losses, claims, damages or liabilities to which the Company may become subject, under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, the Base Prospectus, the Prospectus Supplement or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, the Base Prospectus, the Prospectus Supplement or the Prospectus, or any such amendment or supplement thereto, or any Issuer Free Writing Prospectus, in reliance upon and in strict conformity with written information furnished to the Company by the Agent expressly for use therein; and will reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim as such expenses are incurred.

 

(c)                                  Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection except and then only to the extent such indemnifying party is materially prejudiced thereby.  In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 7 for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation.  No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party.

 

(d)                                 If the indemnification provided for in this Section 7 is unavailable to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Agent on the other from the offering of the Shares to which such loss, claim, damage or liability (or action in respect thereof) relates.  If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Agent on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations.  The relative benefits received by the Company on the one hand and the Agent on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received

 

20

 

by the Company bear to the total commissions received by the Agent.  The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Agent on the other and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.  The Company and the Agent agree that it would not be just and equitable if contribution pursuant to this subsection (d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (d).  The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim.  Notwithstanding the provisions of this subsection (d), the Agent shall not be required to contribute any amount in excess of the amount by which the total compensation received by the Agent with respect to sales of the Shares sold by it to the public exceeds the amount of any damages which the Agent has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.  No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

 

(e)                                  The obligations of the Company under this Section 7 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to the directors, officers, employees, attorneys and agents of the Agent and to each person, if any, who controls the Agent within the meaning of the 1933 Act and each broker dealer affiliate of the Agent; and the obligations of the Agent under this Section 7 shall be in addition to any liability which the Agent may otherwise have and shall extend, upon the same terms and conditions, to each director, officer, employee, attorney and agent of the Company and to each person, if any, who controls the Company within the meaning of the 1933 Act.

 

Section 8.  Representations, Warranties and Agreements to Survive Delivery.  The respective indemnities, agreements, representations, warranties and other statements of the Company and the Agent, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of the Agent or any controlling person of the Agent, or the Company, or any officer or director or controlling person of the Company, and shall survive delivery of and payment for the Shares.

 

Section 9.  No Advisory or Fiduciary Relationship.  The Company acknowledges and agrees that (i) the Agent is acting solely in the capacity of an arm’s length contractual counterparty to the Company with respect to the offering of Shares contemplated hereby (including in connection with determining the terms of such offering) and (ii) the Agent has not assumed an advisory or fiduciary responsibility in favor of the Company with respect to the offering contemplated hereby or the process leading thereto (irrespective of whether the Agent has advised or is currently advising the Company on other matters) or any other obligation to the Company except the obligations expressly set forth in this Agreement and (iii) the Company has consulted its own legal and financial advisors to the extent it deemed appropriate.  The Company agrees that it will not claim that the Agent has rendered advisory services of any nature or respect, or owe a fiduciary or similar duty to the Company, in connection with such transaction or the process leading thereto.

 

Section 10.  Termination.

 

(a)                                 The Company shall have the right, by giving written notice as hereinafter specified, to terminate this Agreement in its sole discretion at any time.  Any such termination shall be without liability of any party to any other party, except that (i) with respect to any pending sale through the Agent for the Company, the obligations of the Company, including in respect of compensation of the Agent, shall remain in full force and effect notwithstanding such termination; and (ii) the provisions of Section 1, Section 5(b), Section 7,  Section 8, Section 14 and Section 15 of this Agreement shall remain in full force and effect notwithstanding such termination.

 

(b)                                 The Agent shall have the right, by giving written notice as hereinafter specified, to terminate this Agreement in its sole discretion at any time.  Any such termination shall be without liability of any party to any other party except that (i) with respect to any pending sale through the Agent for the Company, the obligations of the Agent shall remain in full force and effect through completion of the sale notwithstanding such termination; and (ii)

 

21

 

the provisions of Section 1, Section 5(b), Section 7, Section 8, Section 14 and Section 15 of this Agreement shall remain in full force and effect notwithstanding such termination.

 

(c)                                  Unless earlier terminated pursuant to this Section 10, this Agreement shall automatically terminate upon the issuance and sale of all of the Shares by the Agent on the terms and subject to the conditions set forth herein except any termination pursuant to this clause (c) shall in all cases be deemed to provide that Section 1, Section 5(b), Section 7, Section 8, Section 14 and Section 15 of this Agreement shall remain in full force and effect.

 

(d)                                 This Agreement shall remain in full force and effect until and unless terminated pursuant to Section 10(a), (b) or (c) above or otherwise by mutual agreement of the parties; provided that any such termination by mutual agreement or pursuant to this clause (c) shall in all cases be deemed to provide that Section 1, Section 5(b), Section 7, Section 8, Section 14 and Section 15 of this Agreement shall remain in full force and effect.

 

(e)                                  Any termination of this Agreement shall be effective on the date specified in such notice of termination; provided that such termination shall not be effective until the close of business on the date of receipt of such notice by the Agent or the Company, as the case may be.  If such termination shall occur prior to the Settlement Date for any sale of Shares, such sale shall settle in accordance with the provisions of Section 2(g) hereof.

 

(f)                                   In the case of any purchase by the Agent pursuant to a Terms Agreement, the Agent may terminate this Agreement, at any time at or prior to the Settlement Date of such purchase (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the General Disclosure Package or the Prospectus, any Material Adverse Effect, or (ii) if there has occurred any material adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Agent, impracticable or inadvisable to market the Shares or to enforce contracts for the sale of Shares, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission or the NASDAQ Capital Market, or if trading generally on the NYSE American or the New York Stock Exchange or the NASDAQ Stock Market has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, FINRA or any other governmental authority, or (iv) a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States, or (v) if a banking moratorium has been declared by either Federal or New York authorities.

 

Section 11.  Notices.  All statements, requests, notices and agreements hereunder shall be in writing, and if to Stifel Nicolaus shall be delivered or sent by mail, telex or facsimile transmission to:

 

Stifel, Nicolaus & Company, Incorporated
 One South Street, 15th Floor
 Baltimore, Maryland 21202
 Attention: Syndicate Department

 

and if to the Company to:

 

GTx, Inc.
 175 Toyota Plaza

7th Floor

Memphis, Tennessee 38103

Attention: Chief Executive Officer

CC: VP, Chief Legal Officer

 

With a copy to:

 

Cooley LLP

ATTN: Chadwick Mills

 

22

 

101 California Street, 5th Floor

San Francisco, CA  94111-5800

 

Any such statements, requests, notices or agreements shall take effect upon receipt thereof.

 

Section 12.  Parties.  This Agreement shall be binding upon, and inure solely to the benefit of, the Agent and the Company and, to the extent provided in Sections 7 and 8 hereof, the officers, directors, employees, attorneys and agents of the Company and the Agent and each person who controls the Company or the Agent, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement.  No purchaser of Shares through the Agent shall be deemed a successor or assign by reason merely of such purchase.

 

Section 13.  Time of the Essence.  Time shall be of the essence of this Agreement.  As used herein, the term “business day” shall mean any day when the Commission’s office in Washington, D.C. is open for business.

 

Section 14.  Waiver of Jury Trial.  The Company and the Agent hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to jury trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

 

Section 15.  Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS PRINCIPLES OF CONFLICTS OF LAW.

 

Section 16.  Counterparts.  This Agreement and any Terms Agreement may be executed by any one or more of the parties hereto and thereto in any number of counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument.  This Agreement and any Terms Agreement may be delivered by any party by facsimile or other electronic transmission.

 

Section 17.  Severability.  The invalidity or unenforceability of any Section, paragraph or provision of this Agreement shall not affect the validity or enforceability of any other Section, paragraph or provision hereof.  If any Section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable.

 

23

 

If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Agent and the Company in accordance with its terms.

 

 

	
 
    	
Very truly yours,
    
	
 
    	
 
    
	
 
    	
GTx, Inc.
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ Jason T. Shackelford
    
	
 
    	
Name:
    	
Jason T. Shackelford
    
	
 
    	
Title:
    	
Vice President, Finance and Accounting,   and Principal Financial and Accounting Officer
    

 

 

	
Accepted as of the date hereof:
    	
 
    
	
 
    	
 
    
	
STIFEL, NICOLAUS &   COMPANY, INCORPORATED
    	
 
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
/s/ Peter N. Reikes
    	
 
    
	
 
    	
Name: Peter N. Reikes
    	
 
    
	
 
    	
Title: Vice Chairman
    	
 
    

 

24

 

Annex I

 

GTX, INC.

 

Common Stock
 ($0.001 par value per share)

 

TERMS AGREEMENT

 

STIFEL, NICOLAUS & COMPANY, INCORPORATED

One South Street, 15th Floor

Baltimore, MD 21202

Attn: Syndicate Department

 

Ladies and Gentlemen:

 

GTx, Inc., a Delaware corporation (the “Company”), proposes, subject to the terms and conditions stated herein and in the At-the-Market Equity Offering Sales Agreement, dated February 9, 2018 (the “Sales Agreement”), between the Company and Stifel, Nicolaus & Company, Incorporated (the “Agent”), to issue and sell to the Agent the securities specified in the Schedule hereto (the “Purchased Securities”)[, and solely for the purpose of covering over-allotments, to grant to the Agent the option to purchase the additional securities specified in the Schedule hereto (the “Additional Securities”)]*.

 

[The Agent shall have the right to purchase from the Company all or a portion of the Additional Securities as may be necessary to cover over-allotments made in connection with the offering of the Purchased Securities, at the same purchase price per share to be paid by the Agent to the Company for the Purchased Securities.  This option may be exercised by the Agent at any time (but not more than once) on or before the thirtieth day following the date hereof, by written notice to the Company. Such notice shall set forth the aggregate number of shares of Additional Securities as to which the option is being exercised, and the date and time when the Additional Securities are to be delivered (such date and time being herein referred to as the “Option Closing Date”); provided, however, that the Option Closing Date shall not be earlier than the Time of Delivery (as set forth in the Schedule hereto) nor earlier than the second business day after the date on which the option shall have been exercised nor later than the fifth business day after the date on which the option shall have been exercised. Payment of the purchase price for the Additional Securities shall be made at the Option Closing Date in the same manner and at the same office as the payment for the Purchased Securities.]*

 

Each of the provisions of the Sales Agreement not specifically related to the solicitation by the Agent, as agent of the Company, of offers to purchase securities is incorporated herein by reference in its entirety, and shall be deemed to be part of this Terms Agreement to the same extent as if such provisions had been set forth in full herein. Each of the representations and warranties set forth therein shall be deemed to have been made at and as of the date of this Terms Agreement [and] [,] the Applicable Time [and any Option Closing Date]*, except that each representation and warranty in Section 1 of the Sales Agreement which makes reference to the Prospectus (as therein defined) shall be deemed to be a representation and warranty as of the date of the Sales Agreement in relation to the Prospectus, and also a representation and warranty as of the date of this Terms Agreement [and] [,] the Settlement Date [and any Option Closing Date]* in relation to the Prospectus as amended and supplemented to relate to the Purchased Securities.

 

An amendment to the Registration Statement (as defined in the Sales Agreement), or a supplement to the Prospectus, as the case may be, relating to the Purchased Securities [and the Additional Securities]*, in the form

 

25

 

heretofore delivered to the Agent is now proposed to be filed with the Securities and Exchange Commission.

 

Subject to the terms and conditions set forth herein and in the Sales Agreement which are incorporated herein by reference, the Company agrees to issue and sell to the Agent and the latter agrees to purchase from the Company the number of shares of the Purchased Securities at the time and place and at the purchase price set forth in the Schedule hereto.

 

If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Agent and the Company in accordance with its terms.

 

 

	
 
    	
Very truly yours,
    
	
 
    	
 
    
	
 
    	
GTx, Inc.
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    
	
 
    	
Title:
    

 

 

	
Accepted as of the date   hereof:
    	
 
    
	
 
    	
 
    
	
STIFEL,   NICOLAUS & COMPANY, INCORPORATED
    	
 
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    
	
Name:
    	
 
    
	
Title:
    	
 
    

 

*                                         Include only if the Agent has an over-allotment option.

 

26Exhibit
4.1

 

NEITHER
THE ISSUANCE
AND SALE OF
THE SECURITIES
REPRESENTED
BY THIS NOTE NOR THE SECURITIES
INTO WHICH THESE
SECURITIES
ARE CONVERTIBLE
HAVE BEEN
REGISTERED
UNDER THE SECURITIES
ACT OF 1933, AS AMENDED,
OR APPLICABLE
STATE
SECURITIES
LAWS. THE
SECURITIES
MAY NOT BE OFFERED
FOR SALE,
SOLD, TRANSFERRED
OR ASSIGNED
(I) IN THE ABSENCE
OF (A) AN EFFECTIVE
REGISTRATION
STATEMENT
FOR THE SECURITIES
UNDER THE SECURITIES
ACT OF 1933, AS AMENDED,
OR (B) AN OPINION
OF COUNSEL
(WHICH COUNSEL SHALL
BE SELECTED
BY THE HOLDER),
IN A GENERALLY
ACCEPTABLE
FORM, THAT
REGISTRATION
IS NOT REQUIRED UNDER
SAID ACT OR (II) UNLESS
SOLD PURSUANT
TO RULE 144 OR RULE
144A UNDER SAID ACT.
NOTWITHSTANDING
THE FOREGOING,
THE SECURITIES
MAY BE PLEDGED
IN CONNECTION WITH
A BONA FIDE
MARGIN
ACCOUNT OR OTHER LOAN
OR FINANCING
ARRANGEMENT
SECURED BY
THE SECURITIES.

 

Principal
Amount:
$52,000

Date:
February 5, 2018

 

FORM
OF CONVERTIBLE
PROMISSORY
NOTE

 

PositiveID
Corp., (hereinafter
called the “Company”),
hereby promises
to pay to the order
of Apollo Management Group, LLC., or its registered
assigns (the
“Holder”)
the sum of up to $52,000 on the Maturity Date (November 5, 2018), together
with any interest
as set forth
herein, and to pay
interest
on the unpaid principal
balance
hereof
at the rate
of Twelve percent
(12%) (the
“Interest Rate”)
per annum from
the date hereof
(the “Issue Date”)
until the same becomes
due and payable,
whether at
maturity or upon acceleration
or by prepayment
or otherwise. This Note is being issued
with a $2,000 original issuance discount (“OID”) to offset transaction costs.

 

This
Note may not be prepaid
in whole or in part except
as otherwise explicitly
set forth
herein. Interest
shall commence
accruing
on the date that the Note is fully
paid and shall
be computed on the basis
of a 365-day year
and the actual
number of days elapsed,
notwithstanding the first year’s interest is guaranteed. All payments
due hereunder
(to the extent
not converted
into common stock)
shall be made in lawful
money of the United States
of America. Following any Event of Default,
interest shall accrue at the lesser of Twenty Percent (24%) per annum or the maximum interest permitted by Law.

 

    	 	1	 

     

    

 

All
payments
shall be made
at such address
as the Holder shall
hereafter
give to the Company by
written
notice made
in accordance
with the provisions of this Note. Whenever
any amount expressed
to be due by the terms of this Note is
due on any day which
is not a business day, the
same shall instead
be due on the next
succeeding
day which
is a business day and,
in the case of any interest
payment
date which
is not the date on which
this Note is paid in full, the extension
of the due date thereof
shall not be taken
into account for
purposes
of determining the
amount of interest due on such
date. As used
in this Note, the term
“business day”
shall mean
any day
other than
a Saturday,
Sunday or a day on which
commercial
banks in the city
of New York,
New York
are authorized
or required
by law or executive
order to remain
closed. Each
capitalized
term used herein,
and not otherwise defined,
shall have
the meaning ascribed
thereto in the supporting documents of same date (attached hereto).

 

This
Note is free from all
taxes,
liens, claims
and encumbrances
with respect
to the issue thereof and
shall not be subject
to preemptive
rights
or other similar rights
of shareholders
of the Company and
will not impose personal liability
upon the holder thereof.

 

The
following terms
shall apply
to this Note:

 

ARTICLE
I. CONVERSION
RIGHTS

 

1.1
Conversion Right.
The Holder shall have
the right and at
any time from the execution of this Note
to convert all
or any part
of the outstanding and
unpaid principal
amount of this Note into fully
paid and non- assessable
shares
of Common Stock,
as such Common
Stock exists
on the Issue Date, or any
shares of
capital
stock or other securities
of the Company into which such
Common Stock
shall hereafter
be changed
or reclassified
at the conversion
price (the “Conversion
Price”)
determined
as provided
herein (a “Conversion”);
provided, however,
that in no event
shall the Holder be entitled
to convert
any portion
of this Note in excess
of that portion of this Note upon
conversion
of which the sum of (1)
the number of shares
of Common Stock
beneficially
owned by
the Holder and its affiliates
(other than
shares of Common
Stock which
may be deemed
beneficially
owned through
the ownership of the unconverted
portion of the Notes
or the unexercised
or unconverted
portion of any
other security
of the Company subject to a limitation
on conversion
or exercise
analogous
to the limitations contained
herein) and (2)
the number of
shares of
Common Stock
issuable upon the conversion
of the portion of this Note with respect
to which the determination
of this proviso is being made,
would result in beneficial
ownership by
the Holder and its affiliates
of more than 4.99%
of the outstanding shares of Common
Stock. For
purposes
of the proviso to the immediately
preceding
sentence,
beneficial
ownership shall
be determined
in accordance
with Section 13(d)
of the Securities
Exchange
Act of 1934, as amended
(the “Exchange
Act”),
and Regulations
13D-G thereunder.
The number of shares
of Common Stock
to be issued upon each conversion
of this Note shall be determined
by dividing the Conversion
Amount (as defined
below) by the applicable
Conversion Price
then in effect on the date
specified
in the notice of conversion,
(the “Notice
of Conversion”),
delivered to the Company
by the Holder in accordance
with the Sections below;
provided that
the Notice of Conversion
is submitted by facsimile
or e-mail (or
by other means
resulting in, or reasonably
expected
to result in, notice)
to the Company before
6:00 p.m., New York, New
York time on such conversion
date (the “Conversion
Date”). Notwithstanding the foregoing,
the term “4.99%” above shall be replaced with “9.99%” following any Event of Default if the Holder, in
its sole discretion and in writing, elects to demand the replacement. If the term “4.99%” is replaced with “9.99%”
pursuant to the preceding sentence, such increase to “9.99%” shall remain at 9.99% until decreased by the Holder in
writing.

 

    	 	2	 

     

    

 

The
number of shares
of Common Stock
to be issued upon each conversion
of this Note shall be determined
by dividing the Conversion
Amount (as defined
below) by the applicable
Conversion Price
then in effect on the date
specified
in the notice of conversion,
(the “Notice
of Conversion”),
delivered to the Company by
the Holder in accordance
with the Sections below.

 

The
term “Conversion
Amount” means, with respect
to any conversion
of this Note, the sum of (1)
the principal
amount of this Note to be converted
in such conversion
plus (2) at the Company’s
option, accrued
and unpaid interest,
if any, on such
principal
amount at the interest
rates provided
in this Note to the Conversion
Date,
plus (3) at the Company’s
option, Default Interest,
if any, on the amounts
referred
to in the immediately
preceding
clauses
(1) and/or
(2) plus (4) at
the Holder’s option,
any amounts
owed to the Holder.

 

1.2
Conversion Price.

 

(a)
Calculation
of Conversion
Price.
Holder, at its discretion, shall have the right to convert this Note in its entirety or in part(s) into common stock of the Company
valued at a thirty-seven and a half percent (37.5%) discount off of the lowest price for the Company’s common stock during
the fifteen (15) trading days immediately preceding a conversion date, as reported by Quotestream Media.

 

If
at any time after the execution of this Note, the Company experiences a “DTC Chill,” the Conversion Price Discount
shall be increased by five percent (5%). If at any time following the execution of this Note, the Company becomes ineligible to
participate in the DTC’s “DWAC” system, the Conversion Price Discount will be increased by five percent (5%).
Following any Event of Default, the Conversion Price discount shall be increased to forty-five percent (45%).

 

1.3
Authorized
Shares. The Company
covenants
that during
the period the conversion
right
exists the Company
will reserve
from its authorized
and unissued Common
Stock a sufficient
number of shares, free
from preemptive
rights, to provide
for the issuance
of Common Stock
upon the full conversion
of this Note. The Company
is required
at all times
to have authorized
and reserved
three times the number
of shares that
is actually issuable
upon full conversion
of the Note (based
on the Conversion Price
of the Notes in effect
from time to time)(the
“Reserved
Amount”). The Reserved
Amount shall be increased
from time to time in accordance
with the Company’s obligations.

 

The
Company represents
that upon issuance,
such shares
will be duly and validly
issued, fully
paid and non-assessable.
In addition, if the Company
shall issue any
securities
or make any
change
to its capital structure
which would change
the number of
shares of Common Stock
into which the Notes shall
be convertible at
the then current
Conversion Price,
the Company shall at
the same time make proper
provision so that
thereafter there
shall be a sufficient
number of shares
of Common Stock
authorized
and reserved,
free from
preemptive rights,
for conversion
of the outstanding Notes.

 

    	 	3	 

     

    

 

The
Company (i) acknowledges
that it will irrevocably
instruct
its transfer
agent to issue
certificates
for the Common
Stock issuable
upon conversion of this Note,
and (ii) agrees
that its issuance
of this Note shall constitute
full authority
to its officers
and agents
who are charged
with the duty of executing
stock certificates
to execute
and issue the necessary
certificates
for shares
of Common Stock
in accordance
with the terms and conditions
of this Note.

 

If,
at any
time the Company does not maintain
the Reserved
Amount it will be considered an
Event of Default
as defined in this Note.

 

1.4
Method of Conversion.

 

(a)
Mechanics
of Conversion.
This Note may be converted
by the Holder
in whole or in part at
any time from
time to time after
the Issue Date,
by (A)
submitting to the Company a Notice of
Conversion (by
facsimile,
e-mail or other
reasonable
means of communication
dispatched
on the Conversion
Date prior
to 6:00 p.m., New York, New
York time).

 

(b)
Surrender
of Note Upon Conversion.
Notwithstanding anything
to the contrary
set forth
herein,
upon conversion of this
Note in accordance
with the terms hereof,
the Holder shall not be required
to physically
surrender this Note to the
Company unless the entire
unpaid principal
amount of this Note is so converted.
The Holder and the Company
shall maintain
records
showing the principal
amount so converted
and the dates
of such conversions
or shall use such other
method, reasonably
satisfactory
to the Holder and the Company,
so as not to require
physical
surrender
of this Note upon each
such conversion.
In the event of any
dispute or discrepancy,
such records
of the Holder shall, prima facie,
be controlling and
determinative
in the absence
of manifest error.
The Holder and any
assignee,
by acceptance
of this Note, acknowledge
and agree
that, by reason
of the provisions of this paragraph,
following conversion
of a portion of this Note,
the unpaid and
unconverted
principal
amount of this Note represented
by this Note may be
less than the amount
stated on the face
hereof.

 

(c) Payment of Taxes.
The Company shall not be required
to pay any
tax which may be
payable
in respect of any
transfer
involved in the issue and delivery of
shares of Common Stock
or other securities
or property
on conversion of this Note
in a name other than that
of the Holder (or
in street name), and
the Company shall not be required
to issue or deliver any
such shares or
other securities
or property
unless and
until the person or persons (other
than the Holder
or the custodian in whose street
name such shares are
to be held for the Holder’s account) requesting
the issuance
thereof shall
have paid to the Company the amount
of any such
tax or shall have established
to the satisfaction of the Company that
such tax has
been paid.

 

(d)
Delivery
of Common Stock
Upon Conversion. Upon receipt
by the Company from
the Holder of a facsimile transmission
or e-mail (or
other reasonable
means of communication)
of a Notice of Conversion
meeting the requirements
for conversion
as provided
in this Section, the Company
shall issue and deliver
or cause to be issued
and delivered
to or upon the order of the Holder
certificates
for the Common Stock
issuable upon such conversion
within three (3) business
days after
such receipt
(the “Deadline”)
(and, solely
in the case of conversion
of the entire
unpaid principal
amount hereof,
surrender
of this Note) in accordance
with the terms hereof.

 

    	 	4	 

     

    

 

Within
Five (5) business days of having received common stock pursuant to a Notice of Conversion and prior to having traded any shares
from that specific conversion, Holder may elect to rescind the Notice of Conversion and return the shares, at Holder’s expense,
to the Company’s Transfer Agent. In the event of such rescission, the principal amount outstanding under this Note shall
be adjusted to include the Conversion Amount which was deducted from the Note as part of the rescinded Notice of Conversion.

 

(e)
Obligation of Company
to Deliver Common
Stock. Upon receipt
by the Company
of a Notice of Conversion,
the Holder shall be deemed
to be the holder of record
of the Common Stock
issuable upon such
conversion,
the outstanding principal
amount and the amount
of accrued
and unpaid interest
on this Note shall be reduced
to reflect
such conversion,
and, unless the Company
defaults on its obligations
under this Article
I, all rights
with respect
to the portion of this Note being
so converted
shall forthwith
terminate except
the right to receive
the Common Stock
or other securities,
cash or other assets,
as herein provided,
on such conversion.
If the Holder shall have
given
a Notice of Conversion
as provided
herein, the Company’s
obligation to issue and
deliver the certificates
for Common
Stock shall
be absolute and unconditional,
irrespective of
the absence
of any action by the
Holder to enforce
the same, any
waiver or consent
with respect to any
provision thereof,
the recovery
of any judgment
against any
person or
any action
to enforce
the same,
any failure
or delay in the enforcement
of any other
obligation of the Company
to the holder of record,
or any setoff,
counterclaim,
recoupment, limitation
or termination,
or any breach
or alleged
breach
by the Holder of any
obligation to the Company,
and irrespective
of any other
circumstance
which might
otherwise limit such
obligation of the Company
to the Holder in connection
with such conversion.
The Conversion
Date specified
in the Notice of Conversion
shall be the Conversion
Date so long as the Notice
of Conversion
is received by the
Company before
6:00 p.m., New York, New
York time, on such
date.

 

(f)
Delivery
of Common Stock
by Electronic
Transfer.
In lieu of delivering
physical
certificates
representing
the Common Stock
issuable upon conversion,
provided the Company
is participating
in the Depository Trust
Company
(“DTC”)
Fast Automated
Securities
Transfer
(“FAST”)
program,
upon request
of the Holder and its compliance
with the provisions contained
in Section
1.1 and in this Section
1.4, the Company shall use its best
efforts to cause
its transfer agent
to electronically
transmit
the Common Stock
issuable upon conversion
to the Holder by crediting
the account
of Holder’s Broker
with DTC through its Deposit
Withdrawal
Agent Commission (“DWAC”)
system.

 

(g)
Failure to Deliver
Common Stock
Prior to Deadline.
Without in any
way limiting the Holder’s
right
to pursue other remedies,
including actual
damages
and/or equitable
relief, the parties
agree that
if delivery
of the Common Stock
issuable upon conversion
of this Note is not delivered
by the Deadline the Company
shall pay to the Holder
$2,000 per day
in cash, for
each day
beyond the Deadline
that the Company fails
to deliver such
Common Stock.
Such cash
amount shall be paid
to Holder by the fifth
day of the month following
the month in which it has accrued
or, at the
option of the Holder (by
written notice
to the Company by the first
day of the month following
the month in which it has accrued),
shall be added
to the principal
amount of this Note,
in which event
interest shall
accrue thereon
in accordance
with the terms of this Note and such
additional
principal
amount shall be convertible
into Common Stock
in accordance
with the terms of this Note. The Company
agrees
that the right
to convert
is a valuable
right to the Holder.
The damages
resulting from a failure,
attempt to frustrate,
interference
with such conversion
right are
difficult
if not impossible to qualify.

 

    	 	5	 

     

    

 

Accordingly
the parties
acknowledge
that the liquidated
damages
provision contained
in this Section are
justified.
Any delay or failure of performance by the Company hereunder shall be excused if and to the extent caused by Force Majeure. For
purposes of this agreement, Force Majeure shall mean a cause or event that is not reasonably foreseeable and not caused by the
Company, including acts of God, fires, floods, explosions, riots wars, hurricanes, etc.

 

1.5
Concerning
the Shares. The shares
of Common Stock
issuable upon conversion
of this Note may not be sold or transferred
unless (i) such
shares are
sold pursuant
to an effective
registration
statement
under the Act or (ii)
the Company or its transfer
agent shall
have been
furnished
with an opinion of counsel
(which opinion shall
be in form, substance
and scope customary
for opinions of counsel
in comparable
transactions)
to the effect
that the shares to be sold or transferred
may be sold or transferred
pursuant to an
exemption
from such registration
or (iii) such shares
are sold or transferred
pursuant to Rule
144 under the Act
(or a successor rule)
(“Rule 144”)
or (iv) such shares
are transferred
to an “affiliate”
(as defined
in Rule 144) of the Company who agrees
to sell or otherwise
transfer
the shares
only in accordance
with this Section 1.5 and
who is an Accredited
Investor. Except
as otherwise provided
herein (and subject to the removal
provisions set forth
below),
until such time as
the shares
of Common Stock
issuable upon conversion
of this Note have been
registered
under the Act or
otherwise may
be sold pursuant to Rule
144 without any restriction
as to the number of securities
as of a particular
date that can
then be immediately
sold, each certificate
for shares of
Common Stock
issuable upon conversion
of this Note that has
not been so included
in an effective
registration
statement
or that has not been
sold pursuant to an
effective
registration
statement
or an exemption
that permits removal
of the legend,
shall bear
a legend
substantially
in the following form,
as appropriate:

 

“NEITHER
THE ISSUANCE
AND SALE
OF THE
SECURITIES
REPRESENTED
BY THIS
CERTIFICATE
NOR THE
SECURITIES
INTO WHICH
THESE
SECURITIES
ARE EXERCISABLE
HAVE BEEN
REGISTERED UNDER
THE SECURITIES
ACT OF 1933,
AS AMENDED,
OR APPLICABLE
STATE SECURITIES
LAWS. THE
SECURITIES
MAY NOT
BE OFFERED
FOR SALE, SOLD,
TRANSFERRED
OR ASSIGNED
(I) IN
THE ABSENCE
OF (A)
AN EFFECTIVE
REGISTRATION
STATEMENT FOR
THE SECURITIES
UNDER THE
SECURITIES
ACT OF 1933, AS
AMENDED, OR
(B) AN
OPINION
OF COUNSEL
(WHICH
COUNSEL
SHALL BE
SELECTED
BY THE HOLDER),
IN A GENERALLY ACCEPTABLE
FORM, THAT
REGISTRATION
IS NOT REQUIRED
UNDER SAID
ACT OR (II)
UNLESS SOLD
PURSUANT
TO RULE 144 OR
RULE 144A UNDER SAID
ACT. NOTWITHSTANDING
THE FOREGOING,
THE SECURITIES
MAY BE PLEDGED
IN CONNECTION
WITH A BONA
FIDE MARGIN
ACCOUNT
OR OTHER
LOAN
OR FINANCING
ARRANGEMENT
SECURED BY THE
SECURITIES.”

 

    	 	6	 

     

    

 

The
legend
set forth
above shall
be removed
and the Company shall
issue to the Holder a new certificate
therefore
free
of any transfer
legend
if (i) the Company
or its transfer
agent shall
have received
an opinion of counsel,
in form, substance
and scope customary
for opinions of counsel
in comparable
transactions,
to the effect
that a public sale
or transfer
of such Common
Stock may
be made without registration
under the Act, which
opinion shall be accepted
by the Company
so that the sale or transfer
is effected
or (ii) in the case
of the Common Stock
issuable upon conversion
of this Note, such
security
is registered
for sale by
the Holder under
an effective
registration
statement
filed under
the Act or otherwise
may be sold pursuant
to Rule 144 without any
restriction
as to the number of securities
as of a particular
date that can
then be immediately
sold. In the event
that the Company
does not accept
the opinion of counsel provided
by the Buyer
with respect
to the transfer
of Securities
pursuant to an
exemption
from registration,
such as Rule
144 or Regulation
S, at the
Deadline,
it will be considered
an Event of
Default pursuant
to this note.

 

1.6
Effect of Certain
Events.

 

(a)
Effect of Merger,
Consolidation, Etc.
At the option of the Holder,
the sale, conveyance
or disposition of all or substantially
all of the assets
of the Company, the effectuation
by the Company of a transaction
or series
of related
transactions
in which more than
50% of the voting power
of the Company is disposed
of, or the consolidation,
merger
or other business combination
of the Company with or into any
other Person
(as defined
below) or Persons
when the Company
is not the survivor shall
either: (i)
be deemed to be an
Event of Default
(as defined
in Article III)
pursuant
to which the Company shall
be required to pay
to the Holder upon the consummation
of and as a condition
to such transaction
an amount equal
to the Default Amount (as defined
in Article III)
or (ii) be treated
pursuant to Section
1.6(b) hereof.
“Person”
shall mean any
individual, corporation,
limited liability
company,
partnership,
association,
trust or other entity
or organization.

 

(b)
Adjustment Due to Merger,
Consolidation, Etc.
If, at
any time when
this Note is issued and outstanding
and prior
to conversion of all
of the Notes, there shall
be any merger,
consolidation, exchange
of shares, recapitalization,
reorganization,
or other similar event,
as a result of which
shares
of Common Stock
of the Company shall
be changed
into the same or a different
number of shares
of another
class or classes
of stock or securities
of the Company or another
entity, or in case of any
sale or conveyance
of all or substantially
all of the assets
of the Company other
than in connection
with a plan of complete
liquidation of the Company, then
the Holder of this Note shall
thereafter
have the right
to receive
upon conversion
of this Note, upon the basis
and upon the terms and
conditions specified
herein and
in lieu of the shares
of Common Stock
immediately
theretofore
issuable upon conversion,
such stock, securities
or assets which
the Holder would have
been entitled
to receive
in such transaction
had this Note been converted
in full immediately
prior to such transaction
(without regard
to any limitations
on conversion set
forth herein),
and in any
such case appropriate
provisions shall be made
with respect
to the rights
and interests
of the Holder of this Note to the end
that the provisions hereof
(including,
without limitation, provisions for
adjustment of the Conversion
Price
and of the number
of shares
issuable upon conversion
of the Note) shall thereafter
be applicable,
as nearly
as may be
practicable
in relation to any
securities
or assets thereafter
deliverable upon the
conversion
hereof.
The Company shall
not affect
any transaction
described
in this Section 1.6(b)
unless (a)
it first gives,
to the extent
practicable,
thirty (30) days prior
written notice
(but in any event
at least fifteen
(15) days prior
written notice)
of the record
date of the special
meeting of shareholders
to approve,
or if there is no such
record
date, the consummation
of, such merger,
consolidation, exchange
of shares,
recapitalization,
reorganization
or other similar event
or sale of assets
(during which
time the Holder shall be entitled
to convert this Note)
and (b) the resulting
successor
or acquiring entity
(if not the Company) assumes
by written
instrument the obligations
of this Section 1.6(b).
The above provisions
shall similarly apply
to successive
consolidations,
mergers,
sales, transfers
or share exchanges.

 

    	 	7	 

     

    

 

(c)
Adjustment Due to Distribution.
If the Company shall
declare or make
any distribution
of its assets (or
rights to acquire
its assets) to holders
of Common Stock
as a dividend, stock
repurchase,
by way of return
of capital or otherwise
(including
any dividend
or distribution to the Company’s
shareholders
in cash or shares
(or rights
to acquire shares)
of capital stock
of a subsidiary
(i.e., a spin-off))
(a “Distribution”),
then the Holder
of this Note shall be entitled,
upon any conversion
of this Note after the date
of record
for determining
shareholders entitled
to such Distribution,
to receive
the amount of such
assets
which would have
been payable
to the Holder with respect
to the shares of Common Stock
issuable upon such conversion
had such Holder
been the holder of such
shares of Common Stock
on the record
date for the determination
of shareholders
entitled to such
Distribution.

 

(d)
Adjustment Due to Dilutive Issuance.
If, at any time when any Notes are issued and outstanding, the Borrower issues or sells, or in accordance with this Section 1.6(d)
hereof is deemed to have issued or sold, any shares of Common Stock in connection with a financing transaction based on a variable
price formula (the “Alternative Variable Price Formula”) that is more favorable to the investor in such financing
transaction than the formula for calculating the Conversion Price in effect on the date of such issuance (or deemed issuance)
of such shares of Common Stock (a “Dilutive Issuance”), then immediately upon the Dilutive Issuance, the formula for
the Conversion Price will be adjusted to match the Alternative Variable Price Formula. If it is unclear whether the Alternative
Variable Price Formula is better or worse, then Holder, in its sole discretion, may elect at the time of such issuance whether
to switch to the Alternative Variable Price Formula or not.

 

(e)
Purchase
Rights.
If, at
any time when
any Notes
are issued and
outstanding, the Company
issues any
convertible securities
or rights to purchase
stock, warrants,
securities
or other property
(the “Purchase
Rights”)
pro rata to the record
holders of any
class of Common
Stock, then
the Holder of this Note will be entitled
to acquire, upon the terms
applicable to such
Purchase
Rights, the aggregate
Purchase
Rights which
such Holder could
have acquired
if such Holder had
held the number of shares
of Common Stock
acquirable upon complete
conversion of this Note (without
regard
to any limitations
on conversion contained
herein) 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,
issue or sale of such Purchase
Rights.

 

    	 	8	 

     

    

 

(f)
Notice of Adjustments. Upon the
occurrence
of each adjustment
or readjustment of the Conversion
Price
as a result
of the events described
in this Section 1.6, the Company,
at its expense,
shall promptly
compute such
adjustment or readjustment
and prepare
and furnish
to the Holder of a certificate
setting forth
such adjustment
or readjustment and
showing in detail the facts
upon which such
adjustment
or readjustment
is based. The Company
shall, upon the written
request at
any time of the Holder,
furnish to such
Holder a like certificate
setting forth
(i) such
adjustment
or readjustment, (ii)
the Conversion Price
at the time in effect
and (iii) the number
of shares of Common Stock
and the amount, if any,
of other securities
or property
which at the time would be received
upon conversion
of the Note.

 

1.7
Not Used.

 

1.8
Status as
Shareholder.
Upon submission of a Notice of Conversion
by a Holder, (i)
the shares covered
thereby
(other than
the shares, if any,
which cannot
be issued because their
issuance would
exceed
such Holder’s
allocated
portion of the Reserved
Amount or Maximum Share
Amount) shall be deemed
converted
into shares of Common Stock
and (ii) the Holder’s
rights as a Holder
of such converted
portion of this Note shall
cease and terminate,
excepting
only the right to receive
certificates
for such shares
of Common Stock
and to any
remedies
provided herein
or otherwise available
at law or in equity
to such Holder because
of a failure by
the Company to comply with the terms
of this Note. Notwithstanding the
foregoing,
if a Holder has not received
certificates
for all shares
of Common Stock
prior to the tenth (10th)
business day after
the expiration
of the Deadline with respect
to a conversion
of any portion
of this Note for any
reason, then
(unless the
Holder otherwise elects
to retain
its status as a holder
of Common Stock
by so notifying
the Company) the Holder shall
regain
the rights of a Holder of this Note
with respect to such
unconverted
portions of this Note and
the Company shall, as soon as
practicable,
return such
unconverted
Note to the Holder or,
if the Note has
not been surrendered,
adjust its records
to reflect
that such
portion of this Note has not been
converted.
In all cases,
the Holder shall retain
all of its rights and
remedies
(including, without limitation,
(i) the right to receive
Conversion Default
Payments
pursuant to Section
1.3 to the extent
required thereby
for such Conversion
Default and any
subsequent Conversion
Default
and (ii) the right
to have the Conversion
Price
with respect to subsequent
conversions determined
in accordance
with Section 1.3) for
the Company’s failure
to convert
this Note.

 

1.9
Prepayment.
Company may prepay this Note, in accordance with the following schedule: If within 90 calendar days from the execution of this
Note, 120% of all outstanding principal and interest due on each outstanding Note in one payment; After 90 calendar days from
the execution of the note and within 180 days from execution, 130% of all outstanding principal and interest due on each outstanding
Note in one payment. After 180 days from the date of execution the Note shall only be prepaid upon written approval from the Holder.

 

ARTICLE
II. CERTAIN
COVENANTS

 

2.1
Distributions on Capital
Stock. So
long as the Company shall
have any
obligation under
this Note, the Company
shall not without the Holder’s
written consent
(a) pay,
declare
or set apart
for such payment,
any dividend
or other distribution
(whether
in cash, property
or other securities)
on shares of
capital
stock other than
dividends on shares of
Common Stock
solely in the form
of additional shares
of Common Stock
or (b) directly
or indirectly
or through any
subsidiary make
any other
payment
or distribution in respect
of its capital stock
except
for distributions pursuant
to any shareholders’
rights
plan which is approved
by a majority
of the Company’s disinterested
directors.

 

    	 	9	 

     

    

 

2.2
Restriction
on Stock Repurchases.
So long as the Company
shall have any
obligation under
this Note, the Company
shall not without the Holder’s
written consent
redeem,
repurchase
or otherwise acquire
(whether
for cash
or in exchange
for property
or other securities
or otherwise)
in any one
transaction or series
of related
transactions
any shares
of capital
stock of the Company or
any warrants,
rights or options to purchase
or acquire
any such
shares.

 

2.3
Borrowings.
So long as the Company
shall have any
obligation
under this Note, the Company
shall not, without providing
the Holder with the right of first
refusal, create,
incur, assume
guarantee,
endorse,
contingently
agree
to purchase
or otherwise become
liable upon the obligation
of any person,
firm, partnership,
joint venture
or corporation,
except
by the endorsement
of negotiable
instruments for
deposit or collection,
or suffer to exist
any liability
for borrowed
money, except
(a) borrowings
in existence
or committed on the date
hereof and
of which the Issuer has
informed
Holder in writing
prior to the date
hereof,
(b) indebtedness
to trade creditors
or financial
institutions incurred in the ordinary
course of business
or (c) borrowings,
the proceeds
of which shall be used
to repay this Note.
Holder shall have 3 business days from receipt of the terms of any potential borrowings to confirm if they want to provide such
financing on similar terms.

 

2.4
Sale of Assets.
So long as
the Company shall
have any
obligation under
this Note, the Company shall
not, without the Holder’s written
consent,
sell, lease or otherwise
dispose of any significant
portion of its assets
outside the ordinary course
of business. Any consent
to the disposition of any
assets may be
conditioned on a specified
use of the proceeds
of disposition.

 

2.5
Advances and Loans.
So long as the Company
shall have
any obligation
under this Note, the Company
shall not, without the Holder’s
written consent,
lend money, give
credit or make
advances
to any person,
firm, joint venture
or corporation,
including, without limitation,
officers, directors,
employees,
subsidiaries and
affiliates
of the Company, except
loans, credits or advances
(a) in existence
or committed on the date
hereof and which
the Company has
informed
Holder in writing prior
to the date hereof,
(b) made in the ordinary
course of business
or (c)
not in excess
of $50,000.

 

ARTICLE
III. EVENTS OF DEFAULT

 

If
any of the following
events of default
(each,
an “Event
of Default”)
shall occur:

 

3.1
Failure to Pay
Principal
or Interest.
The Company fails to pay
the principal
hereof or interest
thereon when
due on this Note, whether
at maturity,
upon acceleration
or otherwise.

 

    	 	10	 

     

    

 

3.2
Conversion and
the Shares. The Company
fails to issue shares
of Common Stock
to the Holder (or announces
or threatens in writing
that it will not honor its obligation
to do so) upon exercise
by the Holder of the conversion
rights
of the Holder in accordance
with the terms of this Note,
fails to transfer
or cause its transfer
agent to transfer
(issue) (electronically
or in certificated
form)
any certificate
for shares
of Common Stock
issued to the Holder upon conversion
of or otherwise pursuant
to this Note as and when
required
by this Note, the Company directs
its transfer agent
not to transfer or delays,
impairs, and/or
hinders its transfer
agent
in transferring
(or issuing)
(electronically
or in certificated
form) any
certificate
for shares of Common
Stock to be issued
to the Holder upon conversion
of or otherwise pursuant
to this Note as and when
required by this Note,
or fails to remove
(or directs
its transfer agent
not to remove or impairs,
delays, and/or
hinders its transfer
agent
from removing)
any restrictive
legend (or
to withdraw any
stop transfer
instructions
in respect
thereof)
on any certificate
for any shares
of Common Stock
issued to the Holder upon conversion
of or otherwise pursuant
to this Note as and when
required
by this Note (or makes
any written
announcement,
statement
or threat that it does
not intend to honor the obligations
described
in this paragraph)
and any such
failure shall
continue uncured
(or any written
announcement,
statement
or threat
not to honor its obligations shall
not be rescinded
in writing) for
three (3) business
days after
the Holder shall have
delivered
a Notice of Conversion.
It is an obligation
of the Company to remain
current
in its obligations to its transfer
agent. It shall
be an event
of default
of this Note, if a conversion
of this Note is delayed,
hindered or frustrated
due to a balance
owed by the Company to its transfer
agent. If at
the option of the Holder, the Holder
advances
any funds to the Company’s
transfer
agent in order
to process
a conversion,
such advanced
funds shall be paid
by the Company
to the Holder within forty
eight
(48) hours of a demand
from the Holder.

 

3.3
Breach
of Covenants.
The Company breaches
any covenant
or other term
or condition contained
in this Note and any
collateral
documents.

 

3.4
Breach
of Representations
and Warranties.
Any representation
or warranty
of the Company made herein
or in any agreement,
statement
or certificate
given
in writing pursuant
hereto or in connection
herewith,
shall be false
or misleading in any
material
respect
when made and
the breach
of which has (or
with the passage
of time will have) a material
adverse
effect
on the rights
of the Holder with respect
to this Note.

 

3.5
Receiver
or Trustee.
The Company or any
subsidiary
of the Company shall make
an assignment
for the benefit
of creditors,
or apply for
or consent
to the appointment of a receiver
or trustee
for it or for
a substantial part
of its property
or business, or such
a receiver
or trustee shall
otherwise be appointed.

 

3.6
Judgments.
Any money judgment,
writ or similar
process shall
be entered
or filed against
the Company or any
subsidiary of the Company
or any of its property
or other assets
for more than
$50,000, and shall
remain unvacated,
unbonded or unstayed
for a period
of twenty (20)
days unless
otherwise consented
to by the Holder,
which consent
will not be unreasonably
withheld.

 

3.7
Bankruptcy.
Bankruptcy,
insolvency,
reorganization
or liquidation proceedings
or other proceedings,
voluntary or
involuntary,
for relief
under any
bankruptcy
law or any
law for the relief
of debtors shall
be instituted by or against
the Company or any
subsidiary of the
Company.

 

    	 	11	 

     

    

 

3.8
Delisting of Common Stock.
The Company shall
fail to maintain,
in good standing, the listing of the Common Stock
on the OTCQB or an equivalent
replacement
exchange,
the Nasdaq
National Market,
the Nasdaq
SmallCap
Market
or the New York Stock
Exchange.

 

3.9
Failure to Comply
with the Exchange
Act. The Company
shall fail to comply,
in a timely manner, with the reporting
requirements
of the Exchange
Act; and/or the Company
shall cease
to be subject to the reporting
requirements
of the Exchange
Act.

 

3.10
Liquidation. Any
dissolution, liquidation, or winding
up of Company or any
substantial portion
of its business.

 

3.11
Cessation
of Operations.
Any cessation
of operations
by Company or Company
admits it is otherwise
generally
unable to pay
its debts as such
debts become due,
provided, however,
that any
disclosure of the Company’s
ability to continue
as a “going
concern”
shall not be an admission
that the Company cannot
pay its debts as
they become
due.

 

3.12
Maintenance
of Assets. The failure
by Company to maintain
any material
intellectual
property
rights,
personal,
real property
or other assets
which are
necessary
to conduct its business
(whether
now or in the future).

 

3.13
Financial
Statement
Restatement.
The restatement
of any financial
statements
filed by
the Company with the SEC for
any date
or period from
two years
prior to the Issue
Date of this Note and until this Note
is no longer outstanding,
if the result of such restatement
would, by comparison
to the original financial
statement,
have constituted
a material
adverse
effect
on the rights of the Holder
with respect
to this Note or supporting documents.

 

3.14
Reverse
Splits. The Company effectuates
a reverse
split of its Common Stock
without at least twenty
(20) days
prior written
notice to the Holder.

 

3.15
Replacement
of Transfer
Agent. In the event
that the Company
proposes to replace
its transfer
agent,
the Company fails to provide,
prior to the effective
date of such
replacement,
a fully executed
Irrevocable
Transfer
Agent Instructions
in a form as
initially delivered
with this Note (including
but not limited to the provision to
irrevocably
reserve
shares of Common
Stock in the
Reserved
Amount) signed by
the successor transfer
agent
to Company and the Company.

 

3.16
Cross-Default.
Notwithstanding anything
to the contrary
contained
in this Note or the other related
or companion documents,
a breach or default
by the Company of any
covenant
or other term
or condition contained
in any of the Other
Agreements,
after the passage
of all applicable
notice and cure
or grace periods,
shall, at the option of the Holder,
be considered
a default under
this Note and the Other
Agreements,
in which event
the Holder shall be entitled
(but in no event
required)
to apply all
rights and remedies
of the Holder under
the terms of this Note and the
Other Agreements
by reason
of a default under
said Other Agreement
or hereunder.

 

“Other Agreements”
means, collectively,
all agreements
and instruments
between, among
or by: (1)
the Company, and, or for
the benefit of,
(2) the Holder
and any
affiliate of the Holder,
including, without limitation,
promissory notes;
provided,
however,
the term “Other
Agreements”
shall not include the related
or companion documents
to this Note. Each of the loan
transactions
will be cross-defaulted
with each other loan
transaction and
with all other existing
and future
debt of Company.

 

    	 	12	 

     

    

 

Upon
the occurrence
and during
the continuation of any
Event of Default
specified
in Section 3.1 (solely
with respect
to failure to pay
the principal
hereof or interest
thereon when due at
the Maturity
Date),
the Note shall become immediately
due and payable
and the Company shall
pay to the Holder,
in full satisfaction
of its obligations
hereunder,
an amount equal
to the Default Sum (as
defined
herein). UPON
THE OCCURRENCE
AND DURING THE CONTINUATION
OF ANY EVENT OF DEFAULT
SPECIFIED
IN SECTION
3.2, THE NOTE SHALL BECOME
IMMEDIATELY
DUE AND PAYABLE
AND THE COMPANY SHALL
PAY TO THE
HOLDER, IN FULL
SATISFACTION
OF ITS OBLIGATIONS
HEREUNDER, AN AMOUNT
EQUAL TO: (Y) THE
DEFAULT
SUM (AS DEFINED
HEREIN);
MULTIPLIED
BY (Z) 125% (2).
Upon the occurrence
and during
the continuation
of any
Event of Default
specified
in Sections 3.1 (solely
with respect
to failure
to pay the principal
hereof or interest
thereon
when due on this Note
upon a Trading Market
Prepayment
Event pursuant
to Section 1.7 or
upon acceleration),
3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, and/or
3.15 exercisable
through the delivery
of written notice
to the Company by such
Holders (the “Default
Notice”),
and upon the occurrence
of an Event of Default
specified
the remaining
sections of Articles
III (other
than failure
to pay the principal
hereof
or interest thereon at
the Maturity
Date specified
in Section 3,1 hereof),
the Note shall become immediately
due and payable
and the Company shall
pay to the Holder, in full
satisfaction of its
obligations hereunder,
an amount equal
to the greater
of (i) 125% times the sum
of (w) the then outstanding
principal
amount of this Note plus (x)
accrued and
unpaid interest on the unpaid
principal
amount of this Note to the date of payment
(the “Mandatory
Prepayment
Date”)
plus (y) Default
Interest,
if any,
on the amounts referred
to in clauses
(w) and/or (x)
plus (z) any
amounts owed to the Holder
pursuant to Sections
1.3 and 1.4(g)
hereof
(the then outstanding
principal
amount of this Note to the date of
payment
plus the amounts referred
to in clauses
(x),
(y) and
(z) shall
collectively
be known as the “Default
Sum”) or (ii)
the “parity
value”
of the Default
Sum to be prepaid,
where parity
value means
(a) the highest
number of shares
of Common Stock
issuable upon conversion
of or otherwise pursuant
to such Default
Sum in accordance
with Article
I, treating
the Trading
Day immediately
preceding
the Mandatory
Prepayment
Date as the “Conversion
Date” for
purposes of determining
the lowest applicable
Conversion
Price,
unless the Default
Event arises
as a result of a breach
in respect
of a specific Conversion
Date in which
case such
Conversion
Date shall be the Conversion
Date), multiplied
by (b) the highest
Closing Price
for the Common Stock
during the period
beginning
on the date of first
occurrence
of the Event of Default
and ending one day
prior to the Mandatory
Prepayment
Date (the “Default
Amount”) and all
other amounts payable
hereunder
shall immediately
become due and
payable,
all without demand,
presentment
or notice, all of which
hereby
are expressly
waived,
together
with all costs, including,
without limitation, legal
fees
and expenses,
of collection, and
the Holder shall be entitled
to exercise
all other rights
and remedies
available
at law or in equity.

 

    	 	13	 

     

    

 

If
the Company fails to pay
the Default
Amount within five (5) business
days of
written notice
that such amount
is due and payable,
then the Holder
shall have
the right
at any
time, so long as the Company
remains
in default (and so long and
to the extent
that there are
sufficient
authorized
shares),
to require
the Company, upon written
notice, to immediately
issue, in lieu of the Default
Amount, the number of shares
of Common Stock
of the Company equal
to the Default Amount divided by
the Conversion
Price
then in effect.

 

ARTICLE
IV. MISCELLANEOUS

 

4.1
Failure or Indulgence
Not Waiver.
No failure
or delay
on the part of the Holder
in the exercise
of any power,
right
or privilege
hereunder
shall operate
as a waiver
thereof, nor shall
any single
or partial exercise
of any such power,
right
or privilege preclude
other or further
exercise
thereof or of any other
right, power
or privileges.
All rights and
remedies
existing hereunder
are cumulative
to, and not exclusive
of, any
rights
or remedies
otherwise available.

 

4.2
Notices. All notices, demands,
requests, consents,
approvals,
and other communications
required
or permitted hereunder
shall be in writing and,
unless otherwise specified
herein,
shall be (i) personally
served,
(ii) deposited
in the mail, registered
or certified,
return receipt
requested,
postage prepaid,
(iii) delivered
by reputable
air courier
service
with charges
prepaid,
or (iv) transmitted
by hand delivery,
telegram,
or facsimile,
addressed
as set
forth below or
to such other
address
as such party
shall have
specified
most recently
by written
notice. Any notice
or other communication
required
or permitted
to be given hereunder
shall be deemed
effective
(a) upon
hand delivery
or delivery
by facsimile,
with accurate
confirmation
generated
by the transmitting
facsimile machine,
at the address
or number designated
below (if
delivered on a business
day during
normal business
hours where
such notice is to be received),
or the first
business day following
such delivery
(if delivered
other than
on a business day during
normal business
hours where such
notice is to be received)
or (b) on the second business
day following the date of mailing
by express
courier
service,
fully prepaid,
addressed
to such address,
or upon actual
receipt of such
mailing,
whichever
shall first
occur.
The addresses
for such communications
shall be:

 

If
to the Company, to:

 

PositiveID
Corporation

1690
S. Congress Ave.,

Suite
201

Delray
Beach, FL 33445

 

    	 	14	 

     

    

 

If
to the Holder:

 

Apollo
Management Group, LLC. 

7050
Aloma Ave

Winter
Park, FL 30792

 

4.3
Amendments. This Note and
any provision
hereof
may only be amended
by an instrument
in writing signed
by the Company and
the Holder. The
term “Note”
and all reference
thereto,
as used throughout
this instrument, shall
mean this instrument
as originally
executed,
or if later amended
or supplemented,
then as so amended
or supplemented.

 

4.4
Assignability.This
Note shall be binding upon the Company
and its successors
and assigns,
and shall inure
to be the benefit of the Holder
and its successors
and assigns.
Notwithstanding anything
in this Note to the contrary,
this Note may be pledged as
collateral
in connection with a bona fide
margin
account or other
lending arrangement.

 

4.5
Cost of Collection.
If default
is made in the payment
of this Note, the
Company shall
pay the Holder
hereof
costs of collection,
including reasonable
attorneys’
fees.

 

4.6
Governing Law.
This Note shall be governed
by and construed
in accordance
with the laws of the State
of Nevada without regard
to principles
of conflicts
of laws. Any action
brought
by either
party against
the other concerning
the transactions
contemplated
by this Note shall be brought
only in the state or federal
courts located
in the County, City and State of New York. The parties
to this Note hereby
irrevocably
waive any
objection to jurisdiction
and venue
of any action
instituted hereunder
and shall not assert
any defense
based
on lack of jurisdiction
or venue or based
upon forum non conveniens.
The Company and Holder
waive trial
by jury. The
prevailing
party shall
be entitled to recover
from the other party
its reasonable
attorney’s
fees
and costs. In the event
that any
provision of this Note or any
other agreement
delivered
in connection herewith
is invalid or unenforceable
under any
applicable
statute or rule of law,
then such provision
shall be deemed
inoperative
to the extent
that it may conflict
therewith and shall
be deemed modified
to conform
with such statute or rule
of law. Any such
provision which may
prove invalid or unenforceable
under any
law shall not affect
the validity
or enforceability
of any other
provision of any
agreement.
Each party
hereby
irrevocably
waives personal
service
of process and
consents
to process being
served in any
suit, action or proceeding
in connection
with this Agreement
or any other
Transaction
Document 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.

 

    	 	15	 

     

    

 

4.7
Certain
Amounts. Whenever
pursuant
to this Note the Company is required
to pay an amount
in excess
of the outstanding principal
amount (or the portion
thereof required
to be paid at that
time) plus accrued
and unpaid
interest
plus Default Interest
on such interest, the Company
and the Holder agree
that the actual
damages
to the Holder from the
receipt of cash
payment on this Note may be
difficult to determine
and the amount to be so paid
by the Company represents
stipulated damages
and not a penalty
and is intended
to compensate
the Holder in part
for loss
of the opportunity to convert
this Note and to earn a return
from the sale
of shares of Common Stock
acquired upon conversion
of this Note at a price
in excess
of the price paid
for such shares
pursuant to this Note.
The Company and the Holder
hereby agree
that such amount
of stipulated
damages
is not plainly disproportionate
to the possible loss to the Holder from
the receipt
of a cash payment
without the opportunity to convert
this Note into shares of Common Stock.

 

4.8
Not Used.

 

4.9
Notice of Corporate
Events. Except
as otherwise provided
below, the Holder of this Note
shall have
no rights as
a Holder of Common
Stock unless
and only to the extent
that it converts
this Note into Common Stock.
The Company shall
provide the Holder
with prior notification
of any meeting
of the Company’s shareholders
(and copies
of proxy materials
and other information
sent to shareholders).
In the event
of any taking
by the Company of a record
of its shareholders
for the purpose of determining
shareholders
who are entitled
to receive payment
of any dividend
or other distribution, any
right
to subscribe for,
purchase or
otherwise acquire
(including
by way of
merger,
consolidation,
reclassification
or recapitalization)
any share
of any class
or any other
securities
or property,
or to receive any
other right,
or for the purpose of determining
shareholders
who are entitled
to vote in connection
with any proposed
sale,
lease or
conveyance
of all or substantially
all of the assets
of the Company or any
proposed liquidation,
dissolution or winding up of the Company, the Company
shall mail a notice
to the Holder, at least
twenty (20)
days prior to the record
date specified
therein (or
thirty (30)
days prior to the consummation
of the transaction
or event, whichever
is earlier),
of the date on which
any such
record is to be taken
for the purpose of
such dividend,
distribution, right
or other event,
and a brief
statement
regarding
the amount and character
of such dividend, distribution,
right or other
event to the extent
known at such time.
The Company shall make
a public announcement
of any
event requiring
notification
to the Holder hereunder
substantially
simultaneously
with the notification to the Holder
in accordance
with the terms of this Section
4.9.

 

4.10
Remedies.
The Company acknowledges
that a breach
by it of its obligations
hereunder
will cause irreparable
harm
to the Holder, by vitiating
the intent and purpose
of the transaction
contemplated
hereby.
Accordingly,
the Company acknowledges
that the remedy
at law for
a breach of its obligations
under this Note will be inadequate
and agrees,
in the event of
a breach
or threatened
breach by
the Company of the provisions
of this Note, that the
Holder shall be entitled,
in addition to all other
available
remedies
at law or in equity,
and in addition to the penalties
assessable
herein,
to an injunction or injunctions
restraining,
preventing
or curing
any breach
of this Note and to enforce
specifically
the terms and
provisions thereof,
without the necessity of
showing economic loss and
without any bond or other
security
being required.

 

    	 	16	 

     

    

 

IN
WITNESS
WHEREOF,
Company has
caused
this Note to be signed
in its name by
its duly authorized
officer:

 

	 	PositiveID
    Corp.
	 	 	 
	 	By:	 
	 	 	 
	 	Print:	 
	 	 	 
	 	Title/Date:	 

 

    	 	17

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00279-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00279-of-00352.parquet"}]]