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  Exhibit 4.1

 

EXHIBIT
A

 

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

 

Original
Issue Date: _________, 2018

Original
Conversion Price (subject to adjustment herein): $2.00

 

$_______

 

 

10% SENIOR CONVERTIBLE DEBENTURE

DUE __________, 2019

 

THIS
10% SENIOR CONVERTIBLE DEBENTURE is one of a series of duly
authorized and validly issued 10% Senior Convertible Debentures of
GT Biopharma, Inc., a Delaware corporation, (the
“Company”),
having its principal place of business at 100 South Ashley Dr., Ste
600, Tampa, FL 33602, designated as its 10% Senior Convertible
Debenture due ______t 31, 2019 (this debenture, the
“Debenture” and,
collectively with the other debentures of such series, the
“Debentures”).

 

FOR
VALUE RECEIVED, the Company promises to pay to ___________; or its
registered assigns (the “Holder”), or shall have
paid pursuant to the terms hereunder, the principal sum of
$_________ on _________, 2019 (the “Maturity Date”) or such
earlier date as this Debenture is required or permitted to be
repaid as provided hereunder, and to pay interest to the Holder on
the aggregate unconverted and then outstanding principal amount of
this Debenture in accordance with the provisions hereof. This
Debenture is subject to the following additional
provisions:

 

Section
1.     

Definitions. For the purposes hereof, in
addition to the terms defined elsewhere in this Debenture, (a)
capitalized terms not otherwise defined herein shall have the
meanings set forth in the Purchase Agreement and (b) the following
terms shall have the following meanings:

 

 

1

 

 

“Alternate Consideration”
shall have the meaning set forth in Section 5(e).

 

“Bankruptcy Event” means
any of the following events: (a) the Company or any Significant
Subsidiary (as such term is defined in Rule 1-02(w) of Regulation
S-X) thereof commences a case or other proceeding under any
bankruptcy, reorganization, arrangement, adjustment of debt, relief
of debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction relating to the Company or any Significant
Subsidiary thereof, (b) there is commenced against the Company or
any Significant Subsidiary thereof any such case or proceeding that
is not dismissed within 60 days after commencement, (c) the Company
or any Significant Subsidiary thereof is adjudicated insolvent or
bankrupt or any order of relief or other order approving any such
case or proceeding is entered, (d) the Company or any Significant
Subsidiary thereof suffers any appointment of any custodian or the
like for it or any substantial part of its property that is not
discharged or stayed within 60 calendar days after such
appointment, (e) the Company or any Significant Subsidiary thereof
makes a general assignment for the benefit of creditors, (f) the
Company or any Significant Subsidiary thereof calls a meeting of
its creditors with a view to arranging a composition, adjustment or
restructuring of its debts or (g) the Company or any Significant
Subsidiary thereof, by any act or failure to act, expressly
indicates its consent to, approval of or acquiescence in any of the
foregoing or takes any corporate or other action for the purpose of
effecting any of the foregoing.

 

“Beneficial Ownership
Limitation” shall have the meaning set forth in
Section 4(d).

 

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

 

“Buy-In” shall have the
meaning set forth in Section 4(c)(v).

 

“Change of Control
Transaction” means the occurrence after the date
hereof of any of (a) an acquisition after the date hereof by an
individual or legal entity or “group” (as described in
Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective
control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 33%
of the voting securities of the Company (other than by means of
conversion or exercise of the Debentures and the Securities issued
together with the Debentures), (b) the Company merges into or
consolidates with any other Person, or any Person merges into or
consolidates with the Company and, after giving effect to such
transaction, the stockholders of the Company immediately prior to
such transaction own less than 66% of the aggregate voting power of
the Company or the successor entity of such transaction, (c) the
Company sells or transfers all or substantially all of its assets
to another Person and the stockholders of the Company immediately
prior to such transaction own less than 66% of the aggregate voting
power of the acquiring entity immediately after the transaction,
(d) a replacement at one time or within a three year period of more
than one-half of the members of the Board of Directors which is not
approved by a majority of those individuals who are members of the
Board of Directors on the Original Issue Date (or by those
individuals who are serving as members of the Board of Directors on
any date whose nomination to the Board of Directors was approved by
a majority of the members of the Board of Directors who are members
on the date hereof), or (e) the execution by the Company of an
agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth in clauses (a) through
(d) above.

 

 

2

 

 

“Conversion” shall have
the meaning ascribed to such term in Section 4.

 

“Conversion Date” shall
have the meaning set forth in Section 4(a).

 

“Conversion Price” shall
have the meaning set forth in Section 4(b).

 

“Conversion Schedule”
means the Conversion Schedule in the form of Schedule 1 attached
hereto.

 

“Conversion Shares” means,
collectively, the shares of Common Stock issuable upon conversion
of this Debenture in accordance with the terms hereof.

 

“Debenture Register” shall
have the meaning set forth in Section 2.

 

“Dilutive Issuance” shall
have the meaning set forth in Section 5(b).

 

“Dilutive Issuance Notice”
shall have the meaning set forth in Section 5(b).

 

“Event of
Default” shall have the
meaning set forth in Section 8(a).

 

“Fundamental Transaction”
shall have the meaning set forth in Section 5(e).

 

“Interest Payment Date”
shall have the meaning set forth in Section 2(a).

 

“Late Fees” shall have the
meaning set forth in Section 2.

 

“Majority in Interest,” at
any given time, means the Holders then holding a majority of the
then-outstanding principal under all the Debentures issued pursuant
to the Purchase Agreement.

 

“Mandatory Default Amount”
means the sum of (a) the greater of (i) the outstanding principal
amount of this Debenture, plus all accrued and unpaid interest
hereon, divided by the Conversion Price on the date the Mandatory
Default Amount is either (A) demanded (if demand or notice is
required to create an Event of Default) or otherwise due or (B)
paid in full, whichever has a lower Conversion Price, multiplied by
the VWAP on the date the Mandatory Default Amount is either (x)
demanded or otherwise due or (y) paid in full, whichever has a
higher VWAP, or (ii) 130% of the outstanding principal amount of
this Debenture, plus 100% of accrued and unpaid interest hereon,
and (b) all other amounts, costs, expenses and liquidated damages
due in respect of this Debenture.

 

“New York Courts” shall
have the meaning set forth in Section 9(d).

 

“Notice of Conversion”
shall have the meaning set forth in Section 4(a).

 

 

3

 

 

“Original Issue Date”
means the date of the first issuance of the Debentures, regardless
of any transfers of any Debenture and regardless of the number of
instruments which may be issued to evidence such
Debentures.

 

“Permitted Indebtedness”
means (a) the indebtedness evidenced by the Debentures, (b) the
Indebtedness existing on the Original Issue Date and set forth on
Schedule 3.1(aa)
attached to the Purchase Agreement, and (c) lease obligations and
purchase money indebtedness of up to $100,000, in the aggregate,
incurred in connection with the acquisition of capital assets and
lease obligations with respect to newly acquired or leased
assets.

 

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

 

“Prospectus” means the
Registration Statement, as supplemented by the Prospectus
Supplement specifically relating to the Conversion
Shares.

 

“Prospectus Supplement”
means the supplement to the Prospectus specifically relating to the
Conversion Shares and complying with Rule 424(b) of the Securities
Act that is to be filed with the Commission in connection with this
Agreement.

 

“Purchase Agreement” means
the Securities Purchase Agreement, dated as of August 1, 2018,
among the Company and the original Holders, as amended, modified or
supplemented from time to time in accordance with its
terms.

 

“Registration Statement”
means the effective shelf registration statement on Form S-3,
which has $125,000,000 of unallocated securities, including Common
Stock, registered thereunder (File No. 333-223349).

 

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

 

 

4

 

 

“Share Delivery Date”
shall have the meaning set forth in Section 4(c)(ii).

 

“Successor Entity” shall
have the meaning set forth in Section 5(e).

 

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

 

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

 

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

 

Section
2.    

Interest.

 

a) Payment of Interest in Cash or
Kind. The Company shall pay interest to the Holder on the
aggregate unconverted and then outstanding principal amount of this
Debenture at the rate of 10% per annum, payable on each Conversion
Date (as to that principal amount then being converted), and on the
Maturity Date (each such date, an “Interest Payment Date”)
(if any Interest Payment Date is not a Business Day, then the
applicable payment shall be due on the next succeeding Business
Day), in cash or, at the Holder’s option, in duly authorized,
validly issued, fully paid and non-assessable shares of Common
Stock.

 

 

5

 

 

b) Interest Calculations. Interest
shall be calculated on the basis of a 360-day year, consisting of
twelve 30 calendar day periods, and shall accrue daily commencing
on the Original Issue Date until payment in full of the outstanding
principal, together with all accrued and unpaid interest,
liquidated damages and other amounts which may become due
hereunder, has been made. Payment of interest in shares of Common
Stock shall otherwise occur pursuant to Section 4(c)(ii) herein
and, solely for purposes of the payment of interest in shares, the
Interest Payment Date shall be deemed the Conversion Date. Interest
shall cease to accrue with respect to any principal amount
converted, provided that, the Company actually delivers the
Conversion Shares within the time period required by Section
4(c)(ii) herein. Interest hereunder will be paid to the Person in
whose name this Debenture is registered on the records of the
Company regarding registration and transfers of this Debenture (the
“Debenture
Register”).

 

c) Late
Fee. All overdue accrued and unpaid interest to be paid
hereunder shall entail a late fee at an interest rate equal to the
lesser of 12% per annum or the maximum rate permitted by applicable
law (the “Late
Fees”) which shall accrue daily from the date such
interest is due hereunder through and including the date of actual
payment in full. Notwithstanding anything to the contrary contained
herein, if, on any Interest Payment Date the Company has elected to
pay accrued interest in the form of Common Stock but the Company is
not permitted to pay accrued interest in Common Stock because it
fails to satisfy the conditions for payment in Common Stock set
forth in Section 2(a) herein, then, at
the option of the Holder, the
Company, in lieu of delivering either shares
of Common Stock pursuant to this Section 2 or paying the regularly scheduled interest payment
in cash, shall deliver, within three (3) Trading Days of each
applicable Interest Payment Date, an amount in cash equal to the
product of (x) the number of shares of Common Stock otherwise
deliverable to the Holder in connection with the payment of
interest due on such Interest Payment Date multiplied by (y) the
highest VWAP during the period commencing on the Interest Payment
Date and ending on the Trading Day prior to the date such payment
is actually made. If any Interest Conversion Shares are issued to
the Holder in connection with an Interest Payment Date and are not
applied against an Interest Share Amount, then the Holder shall
promptly return such excess shares to the
Company.

 

d) Prepayment. Except as otherwise
set forth in this Debenture, the Company may not prepay any portion
of the principal amount of this Debenture without the prior written
consent of the Holder.

 

Section
3.          
Registration of Transfers and Exchanges.

 

a) Different Denominations. This
Debenture is exchangeable for an equal aggregate principal amount
of Debentures of different authorized denominations, as requested
by the Holder surrendering the same. No service charge will be
payable for such registration of transfer or exchange.

 

 

 

6

 

 

b) Investor Representations. This
Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase
Agreement and may be transferred or exchanged only in compliance
with the Purchase Agreement and applicable federal and state
securities laws and regulations.

 

c) Reliance on Debenture Register.
Prior to due presentment for transfer to the Company of this
Debenture, the Company and any agent of the Company may treat the
Person in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving
payment as herein provided and for all other purposes, whether or
not this Debenture is overdue, and neither the Company nor any such
agent shall be affected by notice to the contrary.

 

Section
4.          
Conversion.

 

a) Voluntary Conversion. At any
time after the issue date of this Debenture until this Debenture is
no longer outstanding, this Debenture shall be convertible, in
whole or in part, into shares of Common Stock at the option of the
Holder, at any time and from time to time (subject to the
conversion limitations set forth in Section 4(d) hereof). The
Holder shall effect conversions by delivering to the Company a
Notice of Conversion, the form of which is attached hereto as
Annex A (each, a
“Notice of
Conversion”), specifying therein the principal amount
of this Debenture and the accrued but unpaid interest thereon to be
converted and the date on which such conversion shall be effected
(such date, the “Conversion Date”). If no
Conversion Date is specified in a Notice of Conversion, the
Conversion Date shall be the date that such Notice of Conversion is
deemed delivered hereunder. No ink-original Notice of Conversion
shall be required, nor shall any medallion guarantee (or other type
of guarantee or notarization) of any Notice of Conversion form be
required. To effect
conversions hereunder, the Holder shall not be required to
physically surrender this Debenture to the Company unless the
entire principal amount of this Debenture, plus all accrued and
unpaid interest thereon, has been so converted. Conversions
hereunder shall have the effect of lowering the outstanding
principal amount of this Debenture in an amount equal to the
applicable conversion. The Holder and the Company shall maintain
records showing the principal amount(s) converted and the date of
such conversion(s). The Company may deliver an objection to any
Notice of Conversion within one (1) Business Day of delivery of
such Notice of Conversion. In the event of any dispute or
discrepancy, the records of the Holder shall be controlling and
determinative in the absence of manifest error. The Holder, and any assignee by acceptance of
this Debenture, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion of a portion of
this Debenture, the unpaid and unconverted principal amount of this
Debenture may be less than the amount stated on the face
hereof.

 

b) Conversion Price. The
conversion price (the “Conversion Price”) shall
be $2.00, subject to adjustment as set forth in Section
5.

 

 

7

 

 

c)

Mechanics of
Conversion.

 

i. Conversion Shares Issuable Upon
Conversion of Principal Amount. The number of Conversion
Shares issuable upon a conversion hereunder shall be determined by
the quotient obtained by dividing (x) the outstanding principal
amount of this Debenture to be converted by (y) the Conversion
Price.

 

ii. Delivery of Certificate Upon
Conversion. Not later than two (2) Trading Days after each
Conversion Date (the “Share Delivery Date”),
the Company shall deliver, or cause to be delivered, to the Holder
(A) a certificate or certificates representing the Conversion
Shares which (i) while a registration statement covering the resale
of such Conversion Shares is effective under the Securities Act or
(ii) on or after the six-month anniversary of the Original Issue
Date, shall be free of restrictive legends and trading restrictions
representing the number of Conversion Shares being acquired upon
the conversion of this Debenture (including, at the option of the
Holder, shares of Common Stock representing the payment of accrued
interest at the then effective Conversion Price) and (B) a bank
check in the amount of accrued and unpaid interest (if the
Purchaser has elected to receive accrued interest in cash). On or
after the six-month anniversary of the Original Issue Date, the
Company shall deliver any certificate or certificates required to
be delivered by the Company under this Section 4(c) electronically
through the Depository Trust Company or another established
clearing corporation performing similar functions.

 

iii. Failure
to Deliver Certificates. If, in the case of any Notice of
Conversion, such certificate or certificates are not delivered to
or as directed by the applicable Holder by the Share Delivery Date,
the Holder shall be entitled to elect by written notice to the
Company at any time on or before its receipt of such certificate or
certificates, to rescind such Conversion, in which event the
Company shall promptly return to the Holder any original Debenture
delivered to the Company and the Holder shall promptly return to
the Company the Common Stock certificates issued to such Holder
pursuant to the rescinded Conversion Notice.

 

 

8

 

 

iv. Obligation Absolute; Partial
Liquidated Damages. The Company’s obligations to issue
and deliver the Conversion Shares upon conversion of this Debenture
in accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the
same, any waiver or consent with respect to any provision hereof,
the recovery of any judgment against any Person or any action to
enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the
Holder or any other Person of any obligation to the Company or any
violation or alleged violation of law by the Holder or any other
Person, and irrespective of any other circumstance which might
otherwise limit such obligation of the Company to the Holder in
connection with the issuance of such Conversion Shares;
provided,
however, that such
delivery shall not operate as a waiver by the Company of any such
action the Company may have against the Holder. In the event the
Holder of this Debenture shall elect to convert any or all of the
outstanding principal amount hereof, the Company may not refuse
conversion based on any claim that the Holder or anyone associated
or affiliated with the Holder has been engaged in any violation of
law, agreement or for any other reason, unless an injunction from a
court, on notice to Holder, restraining and or enjoining conversion
of all or part of this Debenture shall have been sought and
obtained, and the Company posts a surety bond for the benefit of
the Holder in the amount of 150% of the outstanding principal
amount of this Debenture, which is subject to the injunction, which
bond shall remain in effect until the completion of
arbitration/litigation of the underlying dispute and the proceeds
of which shall be payable to the Holder to the extent it obtains
judgment. In the absence of such injunction, the Company shall
issue Conversion Shares or, if applicable, cash, upon a properly
noticed conversion. If the Company fails for any reason to deliver
to the Holder such certificate or certificates pursuant to Section
4(c)(ii) by the Share Delivery Date, the Company shall pay to the
Holder, in cash, as liquidated damages and not as a penalty, for
each $1,000 of principal amount being converted, $10 per Trading
Day for each Trading Day after such Share Delivery Date until such
certificates are delivered or Holder rescinds such conversion.
Nothing herein shall limit a Holder’s right to pursue actual
damages or declare an Event of Default pursuant to Section 8 hereof
for the Company’s failure to deliver Conversion Shares within
the period specified herein and the Holder shall have the right to
pursue all remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance
and/or injunctive relief. The exercise of any such rights shall not
prohibit the Holder from seeking to enforce damages pursuant to any
other Section hereof or under applicable law.

 

 

 

9

 

 

v. Compensation for Buy-In on Failure to
Timely Deliver Certificates Upon Conversion. In addition to
any other rights available to the Holder, if the Company fails for
any reason to deliver to the Holder such certificate or
certificates by the Share Delivery Date pursuant to Section
4(c)(ii), and if after such Share Delivery Date the Holder is
required by its brokerage firm to purchase (in an open market
transaction or otherwise), or the Holder’s brokerage firm
otherwise purchases, shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Conversion Shares which
the Holder was entitled to receive upon the conversion relating to
such Share Delivery Date (a “Buy-In”), then the
Company shall (A) pay in cash to the Holder (in addition to any
other remedies available to or elected by the Holder) the amount,
if any, by which (x) the Holder’s total purchase price
(including any brokerage commissions) for the Common Stock so
purchased exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that the Holder was entitled to receive from
the conversion at issue multiplied by (2) the actual sale price at
which the sell order giving rise to such purchase obligation was
executed (including any brokerage commissions) and (B) at the
option of the Holder, either reissue (if surrendered) this
Debenture in a principal amount equal to the principal amount of
the attempted conversion (in which case such conversion shall be
deemed rescinded) or deliver to the Holder the number of shares of
Common Stock that would have been issued if the Company had timely
complied with its delivery requirements under Section 4(c)(ii). For
example, if the Holder purchases Common Stock having a total
purchase price of $13,000 to cover a Buy-In with respect to an
attempted conversion of this Debenture with respect to which the
actual sale price of the Conversion Shares (including any brokerage
commissions) giving rise to such purchase obligation was a total of
$10,000 under clause (A) of the immediately preceding sentence, the
Company shall be required to pay the Holder $1,000. The Holder
shall provide the Company written notice indicating the amounts
payable to the Holder in respect of the Buy-In and, upon request of
the Company, evidence of the amount of such loss. Nothing herein
shall limit a Holder’s right to pursue any other remedies
available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive
relief with respect to the Company’s failure to timely
deliver certificates representing shares of Common Stock upon
conversion of this Debenture as required pursuant to the terms
hereof.

 

vi. Reservation of Shares Issuable Upon
Conversion. The Company covenants that it will reserve and
keep available out of its authorized and unissued shares of Common
Stock for the sole purpose of issuance upon conversion of this
Debenture and payment of interest on this Debenture, each as herein
provided, free from preemptive rights or any other actual
contingent purchase rights of Persons other than the Holder (and
the other holders of the Debentures), not less than 150% of the
aggregate number of shares of the Common Stock as shall (subject to
the terms and conditions set forth in the Purchase Agreement) be
issuable (taking into account the adjustments and restrictions of
Section 5) upon the conversion of the then outstanding principal
amount of this Debenture and payment of interest hereunder. The
Company covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly authorized, validly issued,
fully paid and nonassessable.

 

 

 

10

 

 

vii. Fractional
Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the conversion of this
Debenture. As to any fraction of a share which the Holder would
otherwise be entitled to purchase upon such conversion, the Company
shall at its election, either pay a cash adjustment in respect of
such final fraction in an amount equal to such fraction multiplied
by the Conversion Price or round up to the next whole
share.

 

viii. Transfer
Taxes and Expenses. The issuance of certificates for shares
of the Common Stock on conversion of this Debenture shall be made
without charge to the Holder hereof for any documentary stamp or
similar taxes that may be payable in respect of the issue or
delivery of such certificates, provided that, the Company shall not
be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the Holder
of this Debenture so converted and the Company shall not be
required to issue or deliver such certificates unless or until the
Person or Persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to
the satisfaction of the Company that such tax has been paid. The
Company shall pay all Transfer Agent fees required for same-day
processing of any Notice of Conversion and all fees to the
Depository Trust Company (or another established clearing
corporation performing similar functions) required for same-day
electronic delivery of the Conversion Shares.

 

 

 

11

 

 

d) Holder’s Conversion
Limitations. The Company shall not effect any conversion of
this Debenture, and a Holder shall not have the right to convert
any portion of this Debenture, to the extent that after giving
effect to the conversion set forth on the applicable Notice of
Conversion, the Holder (together with the Holder’s
Affiliates, and any Persons acting as a group together with the
Holder or any of the Holder’s Affiliates) would beneficially
own in excess of the Beneficial Ownership Limitation (as defined
below).  For purposes of the foregoing sentence, the number of
shares of Common Stock beneficially owned by the Holder and its
Affiliates shall include the number of shares of Common Stock
issuable upon conversion of this Debenture with respect to which
such determination is being made, but shall exclude the number of
shares of Common Stock which are issuable upon (i) conversion of
the remaining, unconverted principal amount of this Debenture
beneficially owned by the Holder or any of its Affiliates and (ii)
exercise or conversion of the unexercised or unconverted portion of
any other securities of the Company subject to a limitation on
conversion or exercise analogous to the limitation contained herein
(including, without limitation, any other Debentures) beneficially
owned by the Holder or any of its Affiliates.  Except as set
forth in the preceding sentence, for purposes of this Section 4(d),
beneficial ownership shall be calculated in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. To the extent that the limitation contained in this
Section 4(d) applies, the determination of whether this Debenture
is convertible (in relation to other securities owned by the Holder
together with any Affiliates) and of which principal amount of this
Debenture is convertible shall be in the sole discretion of the
Holder, and the submission of a Notice of Conversion shall be
deemed to be the Holder’s determination of whether this
Debenture may be converted (in relation to other securities owned
by the Holder together with any Affiliates) and which principal
amount of this Debenture is convertible, in each case subject to
the Beneficial Ownership Limitation. To ensure compliance with this
restriction, the Holder will be deemed to represent to the Company
each time it delivers a Notice of Conversion that such Notice of
Conversion has not violated the restrictions set forth in this
paragraph and the Company shall have no obligation to verify or
confirm the accuracy of such determination. In addition, a determination as to any group
status as contemplated above shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. For purposes of this Section 4(d), in
determining the number of outstanding shares of Common Stock, the
Holder may rely on the number of outstanding shares of Common Stock
as stated in the most recent of the following: (i) the
Company’s most recent periodic or annual report filed with
the Commission, as the case may be, (ii) a more recent public
announcement by the Company, or (iii) a more recent written notice
by the Company or the Company’s transfer agent setting forth
the number of shares of Common Stock outstanding.  Upon the
written or oral request of a Holder, the Company shall within two
Trading Days confirm orally and in writing to the Holder the number
of shares of Common Stock then outstanding.  In any case, the
number of outstanding shares of Common Stock shall be determined
after giving effect to the conversion or exercise of securities of
the Company, including this Debenture, by the Holder or its
Affiliates since the date as of which such number of outstanding
shares of Common Stock was reported. The “Beneficial Ownership
Limitation” shall be 9.99% of the number of shares of
the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock issuable upon conversion of this
Debenture held by the Holder. The Beneficial Ownership Limitation
provisions of this paragraph shall be construed and implemented in
a manner otherwise than in strict conformity with the terms of this
Section 4(d) to correct this paragraph (or any portion hereof)
which may be defective or inconsistent with the intended Beneficial
Ownership Limitation contained herein or to make changes or
supplements necessary or desirable to properly give effect to such
limitation. The limitations contained
in this paragraph shall apply to a successor holder of this
Debenture.

 

 

12

 

 

Section
5.          
Certain Adjustments.

 

a) Stock Dividends and Stock
Splits. If the Company, at any time while this Debenture is
outstanding: (i) pays a stock dividend or otherwise makes a
distribution or distributions payable in shares of Common Stock on
shares of Common Stock or any Common Stock Equivalents (which, for
avoidance of doubt, shall not include any shares of Common Stock
issued by the Company upon conversion of, or payment of interest
on, the Debentures), (ii) subdivides outstanding shares of Common
Stock into a larger number of shares, (iii) combines (including by
way of a reverse stock split) outstanding shares of Common Stock
into a smaller number of shares or (iv) issues, in the event of a
reclassification of shares of the Common Stock, any shares of
capital stock of the Company, then the Set Price shall be
multiplied by a fraction of which the numerator shall be the number
of shares of Common Stock (excluding any treasury shares of the
Company) outstanding immediately before such event, and of which
the denominator shall be the number of shares of Common Stock
outstanding immediately after such event. Any adjustment made
pursuant to this Section shall become effective immediately after
the record date for the determination of stockholders entitled to
receive such dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision,
combination or re-classification.

 

b) Subsequent Equity Sales. If, at
any time while this Debenture is outstanding, the Company or any
Subsidiary, as applicable, sells or grants any option to purchase
or sells or grants any right to reprice, or otherwise disposes of
or issues (or announces any sale, grant or any option to purchase
or other disposition), any Common Stock or Common Stock Equivalents
entitling any Person to acquire shares of Common Stock at an
effective price per share that is lower than the then Set Price
(such lower price, the “Base Conversion Price”
and such issuances, collectively, a “Dilutive Issuance”) (if
the holder of the Common Stock or Common Stock Equivalents so
issued shall at any time, whether by operation of purchase price
adjustments, reset provisions, floating conversion, exercise or
exchange prices or otherwise, or due to warrants, options or rights
per share which are issued in connection with such issuance, be
entitled to receive shares of Common Stock at an effective price
per share that is lower than the Set Price, such issuance shall be
deemed to have occurred for less than the Set Price on such date of
the Dilutive Issuance), then the Set Price shall be reduced to
equal the Base Conversion Price. Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued.
Notwithstanding the foregoing, no
adjustment will be made under this Section 5(b) in respect of an
Exempt Issuance. If the Company enters into a Variable Rate
Transaction despite the prohibition set forth in the Purchase
Agreement, the Company shall be deemed to have issued Common Stock
or Common Stock Equivalents at the lowest possible conversion price
at which such securities may be converted or exercised. The Company
shall notify the Holder in writing, no later than the Trading Day
following the issuance of any Common Stock or Common Stock
Equivalents subject to this Section 5(b), indicating therein the
applicable issuance price, or applicable reset price, exchange
price, conversion price and other pricing terms (such notice, the
“Dilutive Issuance
Notice”). For purposes of clarification, whether or
not the Company provides a Dilutive Issuance Notice pursuant to
this Section 5(b), upon the occurrence of any Dilutive Issuance,
the Holder is entitled to receive a number of Conversion Shares
based upon the Base Conversion Price on or after the date of such
Dilutive Issuance, regardless of whether the Holder accurately
refers to the Base Conversion Price in the Notice of
Conversion.

 

 

 

13

 

 

c) Subsequent Rights Offerings.
In addition to any adjustments
pursuant to Section 5(a) above, if at any time the Company grants,
issues or sells any Common Stock Equivalents or rights to purchase
stock, warrants, securities or other property pro rata to the
record holders of any class of shares of Common Stock (the
“Purchase
Rights”), then the Holder
will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which the Holder
could have acquired if the Holder had held the number of shares of
Common Stock acquirable upon complete conversion of this Debenture
(without regard to any limitations on exercise hereof, including
without limitation, the Beneficial Ownership Limitation)
immediately before the date on which a record is taken for 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 shares
of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights (provided, however, to the extent that the
Holder’s right to participate in any such Purchase Right
would result in the Holder exceeding the Beneficial Ownership
Limitation, then the Holder shall not be entitled to participate in
such Purchase Right to such extent (or beneficial ownership of such
shares of Common Stock as a result of such Purchase Right to such
extent) and such Purchase Right to such extent shall be held in
abeyance for the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Beneficial
Ownership Limitation).

 

d) Pro Rata Distributions. During
such time as this Debenture is outstanding, if the Company shall
declare or make any dividend or other distribution of its assets
(or rights to acquire its assets) to holders of shares of Common
Stock, by way of return of capital or otherwise (including, without
limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or
other similar transaction) (a “Distribution”), at any
time after the issuance of this Debenture, then, in each such case,
the Holder shall be entitled to participate in such Distribution to
the same extent that the Holder would have participated therein if
the Holder had held the number of shares of Common Stock acquirable
upon complete exercise of this Debenture (without regard to any
limitations on exercise hereof, including without limitation, the
Beneficial Ownership Limitation) immediately before the date of
which a record is taken for such Distribution, or, if no such
record is taken, the date as of which the record holders of shares
of Common Stock are to be determined for the participation in such
Distribution (provided, however, to the extent that the
Holder’s right to participate in any such Distribution would
result in the Holder exceeding the Beneficial Ownership Limitation,
then the Holder shall not be entitled to participate in such
Distribution to such extent (or in the beneficial ownership of any
shares of Common Stock as a result of such Distribution to such
extent) and the portion of such Distribution shall be held in
abeyance for the benefit of the Holder until such time, if ever, as
its right thereto would not result in the Holder exceeding the
Beneficial Ownership Limitation).

 

 

 

14

 

 

e) Fundamental Transaction. If, at
any time while this Debenture is outstanding, (i) the Company,
directly or indirectly, in one or more related transactions effects
any merger or consolidation of the Company with or into another
Person, (ii) the Company, directly or indirectly, effects any sale,
lease, license, assignment, transfer, conveyance or other
disposition of all or substantially all of its assets in one or a
series of related transactions, (iii) any, direct or indirect,
purchase offer, tender offer or exchange offer (whether by the
Company or another Person) is completed pursuant to which holders
of Common Stock are permitted to sell, tender or exchange their
shares for other securities, cash or property and has been accepted
by the holders of 50% or more of the outstanding Common Stock, (iv)
the Company, directly or indirectly, in one or more related
transactions effects any reclassification, reorganization or
recapitalization of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property,
(v) the Company, directly or indirectly, in one or more related
transactions consummates a stock or share purchase agreement or
other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires
a majority of the outstanding shares of Common Stock (not including
any shares of Common Stock held by the other Person or other
Persons making or party to, or associated or affiliated with the
other Persons making or party to, such stock or share purchase
agreement or other business combination) (each a
“Fundamental
Transaction”), then, upon any subsequent conversion of
this Debenture, the Holder shall have the right to receive, for
each Conversion Share that would have been issuable upon such
conversion immediately prior to the occurrence of such Fundamental
Transaction (without regard to any limitation in Section 4(d) on
the conversion of this Debenture), the number of shares of Common
Stock of the successor or acquiring corporation or of the Company,
if it is the surviving corporation, and any additional
consideration (the “Alternate Consideration”)
receivable as a result of such Fundamental Transaction by a holder
of the number of shares of Common Stock for which this Debenture is
convertible immediately prior to such Fundamental Transaction
(without regard to any limitation in Section 4(d) on the conversion
of this Debenture). For purposes of any such conversion, the
determination of the Conversion Price shall be appropriately
adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one (1)
share of Common Stock in such Fundamental Transaction, and the
Company shall apportion the Conversion Price among the Alternate
Consideration in a reasonable manner reflecting the relative value
of any different components of the Alternate Consideration. If
holders of Common Stock are given any choice as to the securities,
cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any conversion of this Debenture
following such Fundamental Transaction. The Company shall cause any
successor entity in a Fundamental Transaction in which the Company
is not the survivor (the “Successor Entity”) to
assume in writing all of the obligations of the Company under this
Debenture and the other Transaction Documents (as defined in the
Purchase Agreement) in accordance with the provisions of this
Section 5(e) pursuant to written agreements in form and substance
reasonably satisfactory to the Majority in Interest (which approval
shall not be unreasonably withheld, delayed or conditioned) prior
to such Fundamental Transaction and shall, at the option of the
holder of this Debenture, deliver to the Holder in exchange for
this Debenture a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to
this Debenture which is convertible for a corresponding number of
shares of capital stock of such Successor Entity (or its parent
entity) equivalent to the shares of Common Stock acquirable and
receivable upon conversion of this Debenture (without regard to any
limitations on the conversion of this Debenture) prior to such
Fundamental Transaction, and with a conversion price which applies
the conversion price hereunder to such shares of capital stock (but
taking into account the relative value of the shares of Common
Stock pursuant to such Fundamental Transaction and the value of
such shares of capital stock, such number of shares of capital
stock and such conversion price being for the purpose of protecting
the economic value of this Debenture immediately prior to the
consummation of such Fundamental Transaction), and which is
reasonably satisfactory in form and substance to the Holder. Upon
the occurrence of any such Fundamental Transaction, the Successor
Entity shall succeed to, and be substituted for (so that from and
after the date of such Fundamental Transaction, the provisions of
this Debenture and the other Transaction Documents referring to the
“Company” shall refer instead to the Successor Entity),
and may exercise every right and power of the Company and shall
assume all of the obligations of the Company under this Debenture
and other Transaction Documents with the same effect as if such
Successor Entity had been named as the Company herein.

 

 

 

15

 

 

f) Calculations. All calculations
under this Section 5 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of
this Section 5, the number of shares of Common Stock deemed to be
issued and outstanding as of a given date shall be the sum of the
number of shares of Common Stock (excluding any treasury shares of
the Company) issued and outstanding.

 

g) Notice to the
Holder.

 

i. Adjustment to Set Price.
Whenever the Set Price is adjusted pursuant to any provision of
this Section 5, the Company shall promptly deliver to each Holder a
notice setting forth the Set Price after such adjustment and
setting forth a brief statement of the facts requiring such
adjustment.

 

ii. Notice to Allow Conversion by
Holder. If (A) the Company shall declare a dividend (or any
other distribution in whatever form) on the Common Stock, (B) the
Company shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock, (C) the Company shall authorize the
granting to all holders of the Common Stock of rights or warrants
to subscribe for or purchase any shares of capital stock of any
class or of any rights, (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification
of the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially
all of the assets of the Company, or any compulsory share exchange
whereby the Common Stock is converted into other securities, cash
or property or (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company, then, in each case, the
Company shall cause to be filed at each office or agency maintained
for the purpose of conversion of this Debenture, and shall cause to
be delivered to the Holder at
its last address as it shall appear upon the Debenture Register, at
least twenty (20) calendar days prior to the applicable record or
effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a
record is not to be taken, the date as of which the holders of the
Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined
or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become
effective or close, and the date as of which it is expected that
holders of the Common Stock of record shall be entitled to exchange
their shares of the Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation,
merger, sale, transfer or share exchange, provided that the failure
to deliver such notice or any defect therein or in the delivery
thereof shall not affect the validity of the corporate action
required to be specified in such notice. To the extent that any
notice provided hereunder constitutes, or contains, material,
non-public information regarding the Company or any of the
Subsidiaries, the Company shall simultaneously file such notice
with the Commission pursuant to a Current Report on Form 8-K. The
Holder shall remain entitled to convert this Debenture during the
20-day period commencing on the date of such notice through the
effective date of the event triggering such notice except as may
otherwise be expressly set forth herein.

 

 

 

16

 

 

Section
6.           
Registration Rights. Within
15 days after the consummation of the transactions contemplated by
this Agreement, or as soon as practicable thereafter, the Company
shall file with the SEC the Prospectus Supplement in order to
register the Conversion Shares. All fees and expenses of such
registration (including the fees and expenses of one counsel to the
holders of Registrable Securities but excluding underwriting
discounts and commissions) shall be borne by the
Company.

 

Section
7.           
Negative Covenants. As long
as any portion of this Debenture remains outstanding, unless the
Majority in Interest shall have otherwise given prior written
consent, the Company shall not, and shall not permit any of the
Subsidiaries to, directly or indirectly:

 

a) other
than Permitted Indebtedness, enter into, create, incur, assume,
guarantee or suffer to exist any indebtedness for borrowed money of
any kind, including, but not limited to, a guarantee, on or with
respect to any of its property or assets now owned or hereafter
acquired or any interest therein or any income or profits
therefrom;

 

b) other
than Permitted Liens, enter into, create, incur, assume or suffer
to exist any Liens of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest
therein or any income or profits therefrom;

 

c) amend
its charter documents, including, without limitation, its
certificate of incorporation and bylaws, in any manner that
materially and adversely affects any rights of the Holder
(provided, however, the consent of the Holders shall not be
required in connection with the first clause of the first sentence
of Section 4(c)(vi) above);

 

d) repay, repurchase
or offer to repay, repurchase or otherwise acquire more than a
de minimis number of shares
of its Common Stock or Common Stock Equivalents other than as to
(i) the Conversion Shares as permitted or required under the
Transaction Documents and (ii) repurchases of Common Stock or
Common Stock Equivalents of departing officers and directors of the
Company, provided that such repurchases shall not exceed an
aggregate of $5,000 for all officers and directors during the term
of this Debenture;

 

e) repay,
repurchase or offer to repay, repurchase or otherwise acquire any
Indebtedness, other than the Debentures if on a pro-rata basis,
other than regularly scheduled principal and interest payments as
such terms are in effect as of the Original Issue Date, provided
that such payments shall not be permitted if, at such time, or
after giving effect to such payment, any Event of Default exist or
occur;

 

f) pay
cash dividends or distributions on any equity securities of the
Company;

 

g) enter into any
transaction with any Affiliate of the Company which would be
required to be disclosed in any public filing with the Commission,
unless such transaction is made on an arm’s-length basis and
expressly approved by a majority of the disinterested directors of
the Company (even if less than a quorum otherwise required for
board approval); or

 

 

17

 

 

h) enter
into any agreement with respect to any of the foregoing.

 

Section
8.          
Events of Default.

 

a) “Event of Default” means,
wherever used herein, any of the following events (whatever the
reason for such event and whether such event shall be voluntary or
involuntary or effected by operation of law or pursuant to any
judgment, decree or order of any court, or any order, rule or
regulation of any administrative or governmental
body):

 

i. any
default in the payment of (A) the principal amount of any Debenture
or (B) interest, liquidated damages and other amounts owing to a
Holder on any Debenture, as and when the same shall become due and
payable (whether on a Conversion Date or the Maturity Date or by
acceleration or otherwise) which default, solely in the case of an
interest payment or other default under clause (B) above, is not
cured within 3 Trading Days;

 

ii. the
Company shall fail to observe or perform any other covenant or
agreement contained in the Debentures (other than a breach by the
Company of its obligations to deliver shares of Common Stock to the
Holder upon conversion, which breach is addressed in clause (xi)
below) which failure is not cured, if possible to cure, within the
earlier to occur of
(A) 5 Trading Days after notice of
such failure sent by the Holder or by any other
Holder to the Company and (B)
10 Trading Days after the Company has become or should have become
aware of such failure;

 

iii. a
default or event of default (subject to any grace or cure period
provided in the applicable agreement, document or instrument) shall
occur under (A) any of the Transaction Documents or (B) any other
material agreement, lease, document or instrument to which the
Company or any Subsidiary is obligated (and not covered by clause
(vi) or (x) below);

 

iv. any representation or warranty made in this Debenture, any
other Transaction Documents, any written statement pursuant hereto
or thereto or any other report, financial statement or certificate
made or delivered to the Holder or any other Holder shall be untrue
or incorrect in any material respect as of the date when made or
deemed made;

 

v. the Company or any
Significant Subsidiary (as such term is defined in Rule 1-02(w) of
Regulation S-X) shall be subject to a Bankruptcy
Event;

 

vi. the Company or any
Subsidiary shall default on any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement,
factoring agreement or other instrument under which there may be
issued, or by which there may be secured or evidenced, any
indebtedness for borrowed money or money due under any long term
leasing or factoring arrangement that (a) involves an obligation
greater than $5,000, whether such indebtedness now exists or shall
hereafter be created, and (b) results in such indebtedness becoming
or being declared due and payable prior to the date on which it
would otherwise become due and payable;

 

 

 

18

 

 

vii. the
Common Stock shall not be eligible for listing or quotation for
trading on a Trading Market and shall not be eligible to resume
listing or quotation for trading thereon within five Trading
Days;

 

viii. the
Company shall be a party to any Change of Control Transaction or
Fundamental Transaction or shall agree to sell or dispose of all or
in excess of 33% of its assets in one transaction or a series of
related transactions (whether or not such sale would constitute a
Change of Control Transaction);

 

ix. from and after the
date of this Debenture, the Company fails to have authorized and
reserved 150% of the Underlying Shares issuable upon conversion of
the Debentures;

 

x. the Company shall
fail for any reason to deliver certificates to a Holder prior to
the fifth Trading Day after a Conversion Date pursuant to Section
4(c) or the Company shall provide at any time notice to the Holder,
including by way of public announcement, of the Company’s
intention to not honor requests for conversions of any Debentures
in accordance with the terms hereof;

 

xi. Reserved

 

xii. the
electronic transfer by the Company of shares of Common Stock
through the Depository Trust Company or another established
clearing corporation is no longer available or is subject to a
“chill”; or

 

xiii. any
monetary judgment, writ or similar final process shall be entered
or filed against the Company, any subsidiary or any of their
respective property or other assets for more than $1,000, and such
judgment, writ or similar final process shall remain unvacated,
unbonded or unstayed for a period of 45 calendar days.

 

b) Remedies Upon Event of Default.
If any Event of Default occurs, the outstanding principal amount of
this Debenture, plus accrued but unpaid interest, liquidated
damages and other amounts owing in respect thereof through the date
of acceleration, shall become, at the Holder’s election,
immediately due and payable in cash at the Mandatory Default
Amount. Commencing 5 days after the occurrence of any Event of
Default that results in the eventual acceleration of this
Debenture, the interest rate on this Debenture shall accrue at an
interest rate equal to the lesser of 12% per annum or the maximum
rate permitted under applicable law. Upon the payment in full of
the Mandatory Default Amount, the Holder shall promptly surrender
this Debenture to or as directed by the Company. In connection with
such acceleration described herein, the Holder need not provide,
and the Company hereby waives, any presentment, demand, protest or
other notice of any kind, and the Holder may immediately and
without expiration of any grace period enforce any and all of its
rights and remedies hereunder and all other remedies available to
it under applicable law. Such acceleration may be rescinded and
annulled by Holder at any time prior to payment hereunder and the
Holder shall have all rights as a holder of the Debenture until
such time, if any, as the Holder receives full payment pursuant to
this Section 8(b). No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent
thereon.

 

 

 

19

 

 

Section
9.          
Miscellaneous.

 

a) Notices. Any and all notices or
other communications or deliveries to be provided by the Holder
hereunder, including, without limitation, any Notice of Conversion,
shall be in writing and delivered personally, by facsimile, or sent
by a nationally recognized overnight courier service, addressed to
the Company, at the address set forth above, or such other
facsimile number or address as the Company may specify for such
purposes by notice to the Holder delivered in accordance with this
Section 9(a). Any and all notices or other communications or
deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile, or sent by a
nationally recognized overnight courier service addressed to each
Holder at the facsimile number or address of the Holder appearing
on the books of the Company, or if no such facsimile number or
address appears on the books of the Company, at the principal place
of business of such Holder, as set forth in the Purchase Agreement.
Any notice or other communication or deliveries hereunder shall be
deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth on the signature pages
attached hereto prior to 5:30 p.m. (New York City time) on any
date, (ii) the next Trading Day after the date of transmission, if
such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto
on a day that is not a Trading Day or later than 5:30 p.m. (New
York City time) on any Trading Day, (iii) the second Trading Day
following the date of mailing, if sent by U.S. nationally
recognized overnight courier service or (iv) upon actual receipt by
the party to whom such notice is required to be given.

 

b) Absolute Obligation. Except as
expressly provided herein, no provision of this Debenture shall
alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, liquidated damages and
accrued interest, as applicable, on this Debenture at the time,
place, and rate, and in the coin or currency, herein prescribed.
This Debenture is a direct debt obligation of the Company. This
Debenture ranks pari passu
with all other Debentures now or hereafter issued under the terms
set forth herein.

 

c) Lost or Mutilated Debenture. If
this Debenture shall be mutilated, lost, stolen or destroyed, the
Company shall execute and deliver, in exchange and substitution for
and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed Debenture, a new
Debenture for the principal amount of this Debenture so mutilated,
lost, stolen or destroyed, but only upon receipt of evidence of
such loss, theft or destruction of such Debenture, and of the
ownership hereof, reasonably satisfactory to the
Company.

 

 

 

20

 

 

d) Governing Law. All questions
concerning the construction, validity, enforcement and
interpretation of this Debenture shall be governed by and construed
and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflict of laws
thereof. Each party agrees that all legal proceedings concerning
the interpretation, enforcement and defense of the transactions
contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective Affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in
the state and federal courts sitting in the City of New York,
Borough of Manhattan (the “New York Courts”). Each
party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the
jurisdiction of such New York Courts, or such New York Courts are
improper or inconvenient venue for such proceeding. Each party
hereby irrevocably waives personal service of process and consents
to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Debenture 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 applicable law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Debenture or the transactions
contemplated hereby. If any party shall commence an action or
proceeding to enforce any provisions of this Debenture, then the
prevailing party in such action or proceeding shall be reimbursed
by the other party for its attorneys’ fees and other costs
and expenses incurred in the investigation, preparation and
prosecution of such action or proceeding.

 

e) Waiver. Any waiver by the
Company or the Holder of a breach of any provision of this
Debenture shall not operate as or be construed to be a waiver of
any other breach of such provision or of any breach of any other
provision of this Debenture. The failure of the Company or the
Holder to insist upon strict adherence to any term of this
Debenture on one or more occasions shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Debenture on any
other occasion. Any waiver by the Company or the Holder must be in
writing.

 

f) Severability. If any provision
of this Debenture is invalid, illegal or unenforceable, the balance
of this Debenture shall remain in effect, and if any provision is
inapplicable to any Person or circumstance, it shall nevertheless
remain applicable to all other Persons and circumstances. If it
shall be found that any interest or other amount deemed interest
due hereunder violates the applicable law governing usury, the
applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum rate of interest permitted under
applicable law. The Company covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, plead,
or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law or other law which would
prohibit or forgive the Company from paying all or any portion of
the principal of or interest on this Debenture as contemplated
herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this
Debenture, and the Company (to the extent it may lawfully do so)
hereby expressly waives all benefits or advantage of any such law,
and covenants that it will not, by resort to any such law, hinder,
delay or impede the execution of any power herein granted to the
Holder, but will suffer and permit the execution of every such as
though no such law has been enacted.

 

 

 

21

 

 

g) Remedies, Characterizations, Other
Obligations, Breaches and Injunctive Relief.  The
remedies provided in this Debenture shall be cumulative and in
addition to all other remedies available under this Debenture and
any of the other Transaction Documents at law or in equity
(including a decree of specific performance and/or other injunctive
relief), and nothing herein shall limit the Holder’s right to
pursue actual and consequential damages for any failure by the
Company to comply with the terms of this Debenture.  The
Company covenants to the Holder that there shall be no
characterization concerning this instrument other than as expressly
provided herein. Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the Holder and
shall not, except as expressly provided herein, be subject to any
other obligation of the Company (or the performance thereof). The
Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company
therefore agrees that, in the event of any such breach or
threatened breach, the Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any such
breach or any such threatened breach, without the necessity of
showing economic loss and without any bond or other security being
required. The Company shall provide all information and
documentation to the Holder that is requested by the Holder to
enable the Holder to confirm the Company’s compliance with
the terms and conditions of this Debenture.

 

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

 

 

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

 

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

 

 

 

(Signature Pages Follow)

 

 

22

 

 

IN
WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above
indicated.

 

 

	

GT BIOPHARMA, INC.

	

 

 

 

By: 
___________________________

Name:
Steven Weldon

Title:  CFO

 

	
 

	
 

 

 

 

 

 

[Signature Page to GT BioPharma, Inc. Debenture
Agreement]

 

23

 

 

ANNEX
A

 

NOTICE
OF CONVERSION

 

 

The
undersigned hereby elects to convert principal under the 10% Senior
Convertible Debenture due ________, 2019 of GT Biopharma, Inc., a
Delaware corporation (the “Company”), into shares of
common stock (the “Common Stock”), of the
Company according to the conditions hereof, as of the date written
below. If shares of Common Stock are to be issued in the name of a
person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the
holder for any conversion, except for such transfer taxes, if
any.

 

By the
delivery of this Notice of Conversion the undersigned represents
and warrants to the Company that its ownership of the Common Stock
does not exceed the amounts specified under Section 4 of this
Debenture, as determined in accordance with Section 13(d) of the
Exchange Act.

 

The
undersigned agrees to comply with the prospectus delivery
requirements under the applicable securities laws in connection
with any transfer of the aforesaid shares of Common
Stock.

 

Conversion
calculations:

Date to
Effect Conversion:

 

Principal Amount of
Debenture to be Converted:

 

Payment
of Interest in Common Stock __ yes __ no

If yes,
$_____ of Interest Accrued on Account of Conversion at
Issue.

 

Number
of shares of Common Stock to be issued:

 

 

Signature:

 

Name:

 

Address
for Delivery of Common Stock Certificates:

 

Or

 

DWAC
Instructions:

 

Account
No:

Broker
No: 

 

 

24

 

 

Schedule
1

 

CONVERSION
SCHEDULE

 

The 10%
Senior Convertible Debenture due on __________, 2019 in the
original principal amount of $________ are issued by GT Biopharma,
Inc., a Delaware corporation. This Conversion Schedule reflects
conversions made under Section 4 of the above referenced
Debenture.

 

Dated:

 

	

 

Date of
Conversion

(or for
first entry, Original Issue Date)

	

 

Amount
of Conversion

	

 

Aggregate
Principal Amount Remaining Subsequent to Conversion

(or
original Principal Amount)

	

 

Company
Attest

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

 

 

 

 

 

 

 

 

 

 

 

25Blueprint

  Exhibit 10.1

 

SECURITIES
PURCHASE AGREEMENT

 

This
Securities Purchase Agreement (this “Agreement”) is dated as
of September 7, 2018, between GT Biopharma, Inc., a Delaware
corporation (the “Company”), and the
purchasers identified on the signature pages hereto (including its
successors and assigns, a “Purchaser” and
collectively, the “Purchasers”).

 

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

 

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

 

 

ARTICLE I.

DEFINITIONS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

1

 

 

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

 

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

 

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

 

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

 

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

 

“Conversion Shares” shall
have the meaning ascribed to such term in the
Debentures.

 

“Debentures” means the 10%
Convertible Debentures due, subject to the terms therein, 12 months
from their date of issuance, issued by the Company to the
Purchasers hereunder, in the form of Exhibit A attached
hereto.

 

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

 

 “Effective
Date” means the date that (a) all of the Underlying
Shares have been sold pursuant to Rule 144 or may be sold pursuant
to Rule 144 without the requirement for the Company to be in
compliance with the current public information required under Rule
144 and without volume or manner-of-sale restrictions or (b)
following the one year anniversary of the Closing Date provided
that a holder of Underlying Shares is not an Affiliate of the
Company, all of the Underlying Shares may be sold pursuant to an
exemption from registration under Section 4(1) of the Securities
Act without volume or manner-of-sale restrictions and Company
counsel has delivered to such holders a standing written
unqualified opinion that resales may then be made by such holders
of the Underlying Shares pursuant to such exemption which opinion
shall be in form and substance reasonably acceptable to such
holders.

 

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

 

 

2

 

 

“Exempt Issuance” means
the issuance of (a) shares of Common Stock or options to employees,
officers or directors of the Company pursuant to any stock or
option plan duly adopted for such purpose, by a majority of the
non-employee members of the Board of Directors or a majority of the
members of a committee of non-employee directors established for
such purpose, (b) securities upon the exercise or exchange of or
conversion of any Securities issued hereunder and/or other
securities exercisable or exchangeable for or convertible into
shares of Common Stock issued and outstanding on the date of this
Agreement, provided that such securities have not been amended
since the date of this Agreement to increase the number of such
securities or to decrease the exercise price, exchange price or
conversion price of such securities, (c) Common Stock or Common
Stock Equivalents issued to banks, equipment lessors, financial
institutions, or to real property lessors, pursuant to a debt
financing, equipment leasing or real property leasing transaction,
or to suppliers or third party service providers in connection with
the provision of goods or services in the ordinary course of the
Company’s business pursuant to transactions approved by the
Board of Directors, provided, that an such issuance shall have a
market value at the time of issuance of less than $10,000 (based on
the shares of Common Stock so issued and/or shares of Common Stock
underlying any Common Stock Equivalents that are issued), and (d)
securities issued pursuant to acquisitions or strategic
transactions approved by a majority of the disinterested directors
of the Company, provided any such issuance shall only be to a
Person which is, itself or through its subsidiaries, an operating
company in a business synergistic with the business of the Company
and in which the Company receives benefits in addition to the
investment of funds, but shall not include a transaction in which
the Company is issuing securities primarily for the purpose of
raising capital or to an entity whose primary business is investing
in securities.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Majority in Interest,” at
any given time, means the Purchasers then holding a majority of the
then-outstanding principal under all the Debentures issued pursuant
to this Agreement.

 

 

 

3

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Required Minimum” means,
as of any date, the maximum aggregate number of shares of Common
Stock equal to the sum of (i) the then issued or potentially
issuable in the future pursuant to the Transaction Documents,
including any Underlying Shares issuable upon conversion in full of
all Debentures (including Underlying Shares issuable as payment of
interest on the Debentures), ignoring any conversion or exercise
limits set forth therein, and assuming that the Conversion Price is
at all times on and after the date of determination 75% of the then
Conversion Price on the Trading Day immediately prior to the date
of determination and (ii) the then issued or potentially issuable
in the future upon the exercise or conversion of any other
securities exercisable or exchangeable for or convertible into
shares of Common Stock issued and outstanding on the date of this
Agreement and held by the Purchasers.

 

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

 

 

 

4

 

 

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

 

“Securities” means the
Debentures and the Underlying Shares.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

5

 

 

“Underlying Shares” means
the shares of Common Stock issued and issuable upon conversion or
redemption of the Debentures and issued and issuable in lieu of the
cash payment of interest on the Debentures in accordance with the
terms of the Debentures.

 

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

 

 

ARTICLE II.

PURCHASE AND SALE

 

2.1 Closing. On the Closing Date,
upon the terms and subject to the conditions set forth herein,
immediately following the execution and delivery of this Agreement
by the parties hereto, the Company agrees to sell, and each
Purchaser agrees to purchase, severally and not jointly, an
aggregate of up to $5,000,000 in principal amount of the Debentures
of the Company, via (a) wire transfer or a certified check in
immediately available funds to the Company or (b) cancellation
of existing indebtedness equal to such Purchaser’s
Subscription Amount as set forth on the signature page hereto
executed by such Purchaser. On the Closing Date, the Company shall
deliver to each Purchaser its respective Debenture, as determined
pursuant to Section 2.2(a), and the Company and each Purchaser
shall deliver the other items set forth in Section 2.2 deliverable
at the Closing. Upon satisfaction of the covenants and conditions
set forth in Sections 2.2 and 2.3, the Closing shall occur at the
offices of the Company or such other location as the parties shall
mutually agree.

 

2.2 Deliveries.

 

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

 

(i)

this Agreement duly
executed by the Company; and

 

(ii) a
Debenture with a principal amount equal to such Purchaser’s
Subscription Amount, registered in the name of such
Purchaser.

 

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

 

(i)

this Agreement duly
executed by such Purchaser; and

 

(ii) to
the Company, such Purchaser’s Subscription Amount by wire
transfer to the account specified in writing by the
Company.

 

2.3 Closing
Conditions.

 

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

 

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

 

 

 

6

 

 

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

 

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

 

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

 

(i) the accuracy in all
material respects when made and on the Closing Date of the
representations and warranties of the Company contained herein
(unless as of a specific date therein);

 

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

 

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

 

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

 

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

 

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

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

 

 

 

7

 

 

(a) Subsidiaries. All of the direct
and indirect subsidiaries of the Company are set forth on
Schedule 3.1(a).
The Company owns, directly or indirectly, all of the capital stock
or other equity interests of each Subsidiary free and clear of any
Liens, and all of the issued and outstanding shares of capital
stock of each Subsidiary are validly issued and are fully paid,
non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities. If the Company has no
subsidiaries, all other references to the Subsidiaries or any of
them in the Transaction Documents shall be
disregarded.

 

(b) Organization and Qualification.
The Company is an entity duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its
incorporation, with the requisite power and authority to own and
use its properties and assets and to carry on its business as
currently conducted. Neither the Company nor any Subsidiary is in
violation nor default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other
organizational or charter documents. Except as set forth on
Schedule 3.1(b),
each of the Company and the Subsidiaries is duly qualified to
conduct business and is in good standing as a foreign corporation
or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be
expected to result in: (i) a material adverse effect on the
legality, validity or enforceability of any Transaction Document,
(ii) a material adverse effect on the results of operations,
assets, business, prospects or condition (financial or otherwise)
of the Company and the Subsidiaries, taken as a whole, or (iii) a
material adverse effect on the Company’s ability to perform
in any material respect on a timely basis its obligations under any
Transaction Document (any of (i), (ii) or (iii), a
“Material Adverse
Effect”) and no Proceeding has been instituted in any
such jurisdiction revoking, limiting or curtailing or seeking to
revoke, limit or curtail such power and authority or
qualification.

 

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

 

 

 

8

 

 

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

 

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

 

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

 

 

 

9

 

 

(g) Capitalization. The
capitalization of the Company is as set forth on Schedule 3.1(g), which
Schedule 3.1(g)
shall also include the number of shares of Common Stock owned
beneficially, and of record, by Affiliates of the Company as of the
date hereof. The Company has not issued any capital stock since its
most recently filed periodic report under the Exchange Act, other
than pursuant to the exercise of employee stock options under the
Company’s stock option plans, the issuance of shares of
Common Stock to employees pursuant to the Company’s employee
stock purchase plans and pursuant to the conversion and/or exercise
of Common Stock Equivalents outstanding as of the date of the most
recently filed periodic report under the Exchange Act. Except as
set forth on Schedule
3.1(g), no Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate
in the transactions contemplated by the Transaction Documents.
Except as set forth on Schedule 3.1(g) or as a result
of the purchase and sale of the Securities, there are no
outstanding options, warrants, scrip rights to subscribe to, calls
or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable
or exchangeable for, or giving any Person any right to subscribe
for or acquire any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or
any Subsidiary is or may become bound to issue additional shares of
Common Stock or Common Stock Equivalents. Except as set forth in
Schedule 3.1(g),
the issuance and sale of the Securities will not obligate the
Company to issue shares of Common Stock or other securities to any
Person (other than the Purchasers) and will not result in a right
of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under any of such securities.
All of the outstanding shares of capital stock of the Company are
duly authorized, validly issued, fully paid and nonassessable, have
been issued in compliance with all federal and state securities
laws, and none of such outstanding shares was issued in violation
of any preemptive rights or similar rights to subscribe for or
purchase securities. No further approval or authorization of any
stockholder, the Board of Directors or others is required for the
issuance and sale of the Securities. There are no stockholders
agreements, voting agreements or other similar agreements with
respect to the Company’s capital stock to which the Company
is a party or, to the knowledge of the Company, between or among
any of the Company’s stockholders.

 

(h) SEC Reports; Financial
Statements. Except as set forth on Schedule 3.1(h), the Company
has filed all reports, schedules, forms, statements and other
documents required to be filed by the Company under the Securities
Act and the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, for the three years preceding the date hereof (or
such shorter period as the Company was required by law or
regulation to file such material) (the foregoing materials,
including the exhibits thereto and documents incorporated by
reference therein, being collectively referred to herein as the
“SEC
Reports”) on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports
prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act,
as applicable, and none of the SEC Reports, when filed, contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The Company has never
been an issuer subject to Rule 144(i) under the Securities Act. The
financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing. Such financial
statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent
basis during the periods involved (“GAAP”), except as may be
otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not
contain all footnotes required by GAAP, and fairly present in all
material respects the financial position of the Company and its
consolidated Subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.

 

 

 

10

 

 

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

 

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

 

 

 

11

 

 

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

 

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

 

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

 

 

 

12

 

 

(n) Title to Assets. The Company
and the Subsidiaries have good and marketable title in fee simple
to all real property owned by them and good and marketable title in
all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and
clear of all Liens, except for (i) Liens as do not materially
affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the
Company and the Subsidiaries and (ii) Liens for the payment of
federal, state or other taxes, for which appropriate reserves have
been made therefor in accordance with GAAP and, the payment of
which is neither delinquent nor subject to penalties. Any real
property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and
enforceable leases with which the Company and the Subsidiaries are
in compliance.

 

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

 

(p) Insurance. The Company and the
Subsidiaries currently do not have any insurance coverage related
its businesses, and do have directors and officers insurance
coverage.

 

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

 

 

 

13

 

 

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

 

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

 

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

 

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

 

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

 

 

 

14

 

 

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

 

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

 

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

 

 

 

15

 

 

(z) No Integrated Offering.
Assuming the accuracy of the Purchasers’ representations and
warranties set forth in Section 3.2, neither the Company, nor any
of its Affiliates, nor any Person acting on its or their behalf
has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to
be integrated with prior offerings by the Company for purposes of
(i) the Securities Act which would require the registration of any
such securities under the Securities Act, or (ii) any applicable
shareholder approval provisions of any Trading Market on which any
of the securities of the Company are listed or
designated.

 

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

 

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

 

(cc) No
General Solicitation. Neither the Company nor any person
acting on behalf of the Company has offered or sold any of the
Securities by any form of general solicitation or general
advertising. The Company has offered the Securities for sale only
to the Purchasers and certain other “accredited
investors” within the meaning of Rule 501 under the
Securities Act.

 

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

 

 

 

16

 

 

(ee) Accountants.
The Company’s accounting firm is set forth on Schedule 3.1(ee) of the
Disclosure Schedules. To the knowledge and belief of the Company,
such accounting firm: (i) is a registered public accounting firm as
required by the Exchange Act and (ii) shall express its opinion
with respect to the financial statements to be included in the
Company’s Annual Report for the fiscal year ending December
31, 2017.

 

(ff) Seniority.
As of the Closing Date, except as set forth on Schedule 3.1(ff), no
Indebtedness or other claim against the Company is senior to the
Debentures in right of payment, whether with respect to interest or
upon liquidation or dissolution, or otherwise, other than
indebtedness secured by purchase money security interests (which is
senior only as to underlying assets covered thereby) and capital
lease obligations (which is senior only as to the property covered
thereby).

 

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

 

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

 

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

 

 

 

17

 

 

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

 

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

 

 

 

18

 

 

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

 

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

 

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

 

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

 

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

 

(qq) No
Disqualification Events. With respect to the Securities to
be offered and sold hereunder in reliance on Rule 506 under the
Securities Act, none of the Company, any of its predecessors, any
affiliated issuer, any director, executive officer, other officer
of the Company participating in the offering hereunder, any
beneficial owner of 20% or more of the Company’s outstanding
voting equity securities, calculated on the basis of voting power,
nor any promoter (as that term is defined in Rule 405 under the
Securities Act) connected with the Company in any capacity at the
time of sale (each, an “Issuer Covered Person” and,
together, “Issuer Covered Persons”) is subject to any
of the “Bad Actor” disqualifications described in Rule
506(d)(1)(i) to (viii) under the Securities Act (a
“Disqualification Event”), except for a
Disqualification Event covered by Rule 506(d)(2) or (d)(3). The
Company has exercised reasonable care to determine whether any
Issuer Covered Person is subject to a Disqualification Event. The
Company has complied, to the extent applicable, with its disclosure
obligations under Rule 506(e), and has furnished to the Purchasers
a copy of any disclosures provided thereunder.

 

 

 

19

 

 

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

 

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

 

 

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

 

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

 

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

 

 

 

20

 

 

(c) Purchaser Status. At the time
such Purchaser was offered the Securities, it was, and as of the
date hereof it is, and on each date on which it converts any
Debentures it will be either: (i) an “accredited
investor” as defined in Rule 501(a)(1), (a)(2), (a)(3),
(a)(7) or (a)(8) under the Securities Act or (ii) a
“qualified institutional buyer” as defined in Rule
144A(a) under the Securities Act.

 

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

 

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

 

(f) Certain Transactions and
Confidentiality. Other than consummating the transactions
contemplated hereunder, such Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to
any understanding with such Purchaser, executed any purchases or
sales, including Short Sales, of the securities of the Company
during the period commencing as of the time that such Purchaser
first received a term sheet (written or oral) from the Company or
any other Person representing the Company setting forth the
material terms of the transactions contemplated hereunder and
ending immediately prior to the execution hereof. Notwithstanding
the foregoing, in the case of a Purchaser that is a multi-managed
investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser’s assets and the
portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of
such Purchaser’s assets, the representation set forth above
shall only apply with respect to the portion of assets managed by
the portfolio manager that made the investment decision to purchase
the Securities covered by this Agreement. Other than to other
Persons party to this Agreement, such Purchaser has maintained the
confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this
transaction). Notwithstanding the foregoing, for avoidance of
doubt, nothing contained herein shall constitute a representation
or warranty, or preclude any actions, with respect to the
identification of the availability of, or securing of, available
shares to borrow in order to effect Short Sales or similar
transactions in the future.

 

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

 

 

21

 

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1 Transfer
Restrictions.

 

(a) The Securities may
only be disposed of in compliance with state and federal securities
laws. In connection with any transfer of Securities other than
pursuant to an effective registration statement or Rule 144, to the
Company or to an Affiliate of a Purchaser or in connection with a
pledge as contemplated in Section 4.1(b), the Company may require
the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor and reasonably acceptable to the
Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred
Securities under the Securities Act. At such time as the Securities
are qualified to be transferred in compliance with Rule 144, upon
request the Company will provide an opinion of counsel to the
Holder of such qualification that may be relied upon by the Holder,
the transfer agent and any broker transferring the Securities in a
broker’s transaction. As a condition of transfer, any
transferee, other than a transferee in a broker’s
transaction, shall agree in writing to be bound by the terms of
this Agreement and shall have the rights and obligations of a
Purchaser under this Agreement.

 

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

 

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

 

 

 

22

 

 

The
Company acknowledges and agrees that a Purchaser may from time to
time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or
all of the Securities to a financial institution that is an
“accredited investor” as defined in Rule 501(a) under
the Securities Act and who agrees to be bound by the provisions of
this Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured
Securities to the pledgees or secured parties. Such a pledge or
transfer would not be subject to approval of the Company and no
legal opinion of legal counsel of the pledgee, secured party or
pledgor shall be required in connection therewith. Further, no
notice shall be required of such pledge. At the appropriate
Purchaser’s expense, the Company will execute and deliver
such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or
transfer of the Securities.

 

(c) Certificates
evidencing the Underlying Shares shall not contain any legend
(including the legend set forth in Section 4.1(b) hereof): (i)
while a registration statement covering the resale of such security
is effective under the Securities Act, (ii) following any sale of
such Underlying Shares pursuant to Rule 144, (iii) if such
Underlying Shares are eligible for sale under Rule 144 or (iv) if
such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The Company
shall cause its counsel to issue a legal opinion to the Transfer
Agent promptly if required by the Transfer Agent to effect the
removal of the legend hereunder. If all or any portion of a
Debenture is converted at a time when there is an effective
registration statement to cover the resale of the Underlying
Shares, or if such Underlying Shares may be sold under Rule 144 or
if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the
Commission) then such Underlying Shares shall be issued free of all
legends. The Company agrees that following such time as such legend
is no longer required under this Section 4.1(c) as described in
clauses (i), (ii), (iii) or (iv) above, it will, no later than
three Trading Days following the delivery by a Purchaser to the
Company or the Transfer Agent of a certificate representing
Underlying Shares, as applicable, issued with a restrictive legend
(such third Trading Day, the “Legend Removal Date”),
deliver or cause to be delivered to such Purchaser a certificate
representing such shares that is free from all restrictive and
other legends. The Company may not make any notation on its records
or give instructions to the Transfer Agent that enlarge the
restrictions on transfer set forth in this Section 4. Certificates
for Underlying Shares subject to legend removal hereunder shall be
transmitted by the Transfer Agent to the Purchaser by crediting the
account of the Purchaser’s prime broker with the Depository
Trust Company System as directed by such Purchaser.

 

(d) In addition to such
Purchaser’s other available remedies, the Company shall pay
to a Purchaser, in cash, as partial liquidated damages and not as a
penalty, for each $1,000 of Underlying Shares delivered for removal
of the restrictive legend and subject to Section 4.1(c), $10 per
Trading Day for each Trading Day after the Legend Removal Date
until the Company has requested that such certificate be delivered
without a legend. Nothing herein shall limit such Purchaser’s
right to pursue actual damages for the Company’s failure to
deliver or cause to be delivered certificates representing any
Securities as required by the Transaction Documents, and such
Purchaser shall have the right to pursue all remedies available to
it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.

 

 

 

23

 

 

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

 

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

 

4.3 Furnishing of Information; Public
Information.

 

(a) If the Common Stock
is not registered under Section 12(b) or 12(g) of the Exchange Act
on the date hereof, the Company agrees to cause the Common Stock to
be registered under Section 12(g) of the Exchange Act on or before
the 60th calendar day following the date hereof. Until the earliest
of the time that no Purchaser owns Securities, the Company
covenants to maintain the registration of the Common Stock under
Section 12(b) or 12(g) of the Exchange Act. During such time as the
Company is subject to the reporting requirements of the Securities
Exchange Act, the Company will timely file all required reports
under the Exchange Act in order to enable the Investors to utilize
Rule 144 in connection with transfers of Investor Stock.
Additionally, if the Company is not subject to the reporting
requirements of the Securities Exchange Act, the Company will
timely make public all information necessary in order to enable the
Investors to utilize Rule 144 in connection with transfers of
Investor Stock. In addition, the Company will at all times make
available to Investors the information contemplated by Rule 144A
under the Securities Act.

 

 

 

24

 

 

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

 

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

 

4.5 Conversion Procedures. The form
of Notice of Conversion included in the Debentures sets forth the totality of the
procedures required of the Purchasers in order to convert the
Debentures. Without limiting the preceding sentences, no
ink-original Notice of Conversion shall be required, nor shall any
medallion guarantee (or other type of guarantee or notarization) of
any Notice of Conversion form be required in order to convert the
Debenture. No additional legal opinion, other information or
instructions shall be required of the Purchasers to convert their
Debentures. The Company shall honor conversions of the Debentures
and shall deliver Underlying Shares in accordance with the terms,
conditions and time periods set forth in the Transaction
Documents.

 

 

25

 

 

4.6 Securities Laws Disclosure;
Publicity. The Company shall file a Current Report on Form
8-K, including the Transaction Documents as exhibits thereto, with
the Commission within the time required by the Exchange Act. From
and after the filing of such Current Report, the Company represents
to the Purchasers that it shall have publicly disclosed all
material, non-public information delivered to any of the Purchasers
by the Company or any of its Subsidiaries, or any of their
respective officers, directors, employees or agents in connection
with the transactions contemplated by the Transaction Documents.
The Company and each Purchaser shall consult with each other in
issuing any press releases with respect to the transactions
contemplated hereby, and neither the Company nor any Purchaser
shall issue any press release nor otherwise make any such public
statement without the prior consent of the Company, with respect to
any press release of any Purchaser, or without the prior consent of
each Purchaser, with respect to any press release of the Company,
which consent shall not unreasonably be withheld or delayed, except
if such disclosure is required by law, in which case the disclosing
party shall promptly provide the other party with prior notice of
such public statement or communication. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any
Purchaser, or include the name of any Purchaser in any filing with
the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except: (a) as
required by federal securities law in connection with (i) any
registration statement and (ii) the filing of final Transaction
Documents with the Commission, as determined by the Company in its
sole discretion, and (b) to the extent such disclosure is required
by law or Trading Market regulations, as determined by the Company
in its sole discretion, in which case the Company shall provide the
Purchasers with prior notice of such disclosure permitted under
this clause (b).

 

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

 

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

 

4.9 Use of Proceeds. The Company
shall use the net proceeds from the sale of the Securities
hereunder as set forth on the defined use of proceeds schedule (the
“Defined Use of
Proceeds”) and shall not use such proceeds: (a) for
the satisfaction of any portion of the Company’s debt (other
than as set forth in the Defined Use of Proceeds), (b) for the
redemption of any Common Stock or Common Stock Equivalents, (c) for
the settlement of any outstanding litigation (other than as set
forth in the Defined Use of Proceeds), or (d) in violation of FCPA
or OFAC regulations. The Defined Use of Proceeds is attached as
Schedule
4.9.

 

 

 

26

 

 

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

 

 

 

27

 

 

4.11 Reservation
and Listing of Securities.

 

(a) As of the date of
this Agreement (the “Share Reservation Date”),
the Company shall establish (and shall thereafter maintain) a
reserve of shares of Common Stock from its duly authorized shares
of Common Stock for issuance pursuant to (i) the Transaction
Documents in an amount equal to 150% of the Required Minimum and
(ii) any other securities exercisable or exchangeable for or
convertible into shares of Common Stock issued and outstanding on
the date of this Agreement and held by the Purchasers.

 

(b) If, on any date
after the Share Reservation Date, the number of authorized but
unissued (and otherwise unreserved) shares of Common Stock is less
than 150% of the Required Minimum on such date, then the Board of
Directors shall use commercially reasonable efforts to amend the
Company’s certificate or articles of incorporation to
increase the number of authorized but unissued shares of Common
Stock to at least 150% of the Required Minimum at such time, as
soon as possible and in any event not later than the 75th day after
such date.

 

(c) The Company shall,
if applicable: (i) in the time and manner required by the principal
Trading Market, prepare and file with such Trading Market an
additional shares listing application covering a number of shares
of Common Stock at least equal to the Required Minimum on the date
of such application, (ii) take all steps necessary to cause such
shares of Common Stock to be approved for listing or quotation on
such Trading Market as soon as possible thereafter, (iii) provide
to the Purchasers evidence of such listing or quotation and (iv)
maintain the listing or quotation of such Common Stock on any date
at least equal to the Required Minimum on such date on such Trading
Market or another Trading Market. The Company agrees to maintain
the eligibility of the Common Stock for electronic transfer through
the Depository Trust Company or another established clearing
corporation, including, without limitation, by timely payment of
fees to the Depository Trust Company or such other established
clearing corporation in connection with such electronic
transfer.

 

4.12 (Intentionally
omitted.)

 

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

 

 

 

28

 

 

4.14 Equal
Treatment of Purchasers. The
Company hereby represents and warrants as of the date hereof and
covenants and agrees from and after the date hereof that none of
the terms offered to any other Persons with respect to any similar
transactions as the transactions contemplated hereunder is or will
be more favorable to such other Person than those of the Purchaser
under this Agreement. No consideration (including any
modification of any Transaction Document) shall be offered or paid
to any Person to amend or consent to a waiver or modification of
any provision of this Agreement unless the same consideration is
also offered to all of the parties to this Agreement. Further, the
Company shall not make any payment of principal or interest on the
Debentures in amounts which are disproportionate to the respective
principal amounts outstanding on the Debentures at any applicable
time. For clarification purposes, this provision constitutes a
separate right granted to each Purchaser by the Company and
negotiated separately by each Purchaser, and is intended for the
Company to treat the Purchasers as a class and shall not in any way
be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or
otherwise.

 

4.15 Certain
Transactions and Confidentiality. Each Purchaser, severally
and not jointly with the other Purchasers, covenants that neither
it, nor any Affiliate acting on its behalf or pursuant to any
understanding with it will execute any purchases or sales,
including Short Sales, of any of the Company’s securities
during the period commencing with the execution of this Agreement
and ending at such time that the transactions contemplated by this
Agreement are first publicly announced pursuant to the Current
Report on Form 8-K filed pursuant to Section 4.6.  Each
Purchaser, severally and not jointly with the other Purchasers,
covenants that until such time as the transactions contemplated by
this Agreement are publicly disclosed by the Company as described
in Section 4.6, such Purchaser will maintain the confidentiality of
the existence and terms of this transaction and the information
included in the Transaction Documents and the Disclosure
Schedules.

 

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

 

4.17 Certain
Subsidiaries. Each of Subsidiaries listed in Schedule 3.1(a) of the
Disclosure Schedule is dormant and does not own any assets that are
material to the value or operation of the Company (each, a
“Dormant
Subsidiary”).

 

4.18           Rights
of Other Parties. The Company shall give timely notice to
any person having a right to participate in this transaction and
shall allow any such party to participate in an amount so that the
Purchaser’s purchase price pursuant to this Agreement shall
equals its pro rata portion of any such right.

 

 

29

 

 

ARTICLE V.

MISCELLANEOUS

 

5.1 Consent to Outstanding Note Conversion
and Termination. Each Purchaser, to the extent that such
Purchaser, as set forth on Annex A to this Agreement, is a
holder of any promissory note of the Company being converted and/or
canceled in consideration of the issuance under this Agreement of
Debentures to such Purchaser (each, a “Converting Note”), hereby
agrees that the entire amount owed to such Purchaser under each
such Converting Note is being tendered to the Company in exchange
for the applicable Debentures set forth on Annex A to this Agreement, and
effective upon the Company’s and such Purchaser’s
execution and delivery of this Agreement, without any further
action required by the Company or such Purchaser, each such
Converting Note and all obligations set forth therein shall be
immediately deemed repaid in full and terminated in their entirety,
including, without limitation, any security interest effected or
contemplated by such Converting Note.

 

5.2 Termination.  This
Agreement may be terminated by any Purchaser, as to such
Purchaser’s obligations hereunder only and without any effect
whatsoever on the obligations between the Company and the other
Purchasers, by written notice to the other parties, if the Closing
has not been consummated on or before August 5, 2018; provided, however, that such termination
will not affect the right of any party to sue for any breach by any
other party (or parties).

 

5.3 Fees and Expenses. At the
Closing, the Company has agreed to reimburse the Purchaser for all
of its legal fees and expenses. Accordingly, in lieu of the
foregoing payments, the aggregate amount that the Purchaser is to
pay for the Securities at the Closing shall be reduced in lieu
thereof. The Company shall deliver to each Purchaser, prior to the
Closing, a completed and executed copy of the Closing Statement,
attached hereto as Annex
A. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts,
if any, and all other expenses incurred by such party incident to
the negotiation, preparation, execution, delivery and performance
of this Agreement. The Company shall pay all Transfer Agent fees
(including, without limitation, any fees required for same-day
processing of any instruction letter delivered by the Company and
any conversion or exercise notice delivered by a Purchaser), stamp
taxes and other taxes and duties levied in connection with the
delivery of any Securities to the Purchasers.

 

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

 

 

 

30

 

 

5.5 Notices. Any and all notices or
other communications or deliveries required or permitted to be
provided hereunder shall be in writing and shall be deemed given
and effective on the earliest of: (a) the date of transmission, if
such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto
at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b)
the next Trading Day after the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto on a day that is
not a Trading Day or later than 5:30 p.m. (New York City time) on
any Trading Day, (c) the second (2nd) Trading Day
following the date of mailing, if sent by U.S. nationally
recognized overnight courier service or (d) upon actual receipt by
the party to whom such notice is required to be given. The address
for such notices and communications shall be as set forth on the
signature pages attached hereto.

 

5.6 Amendments; Waivers. No
provision of this Agreement may be waived, modified, supplemented
or amended except in a written instrument signed, in the case of an
amendment, by the Company and the Purchasers or, in the case of a
waiver, by the party against whom enforcement of any such waived
provision is sought. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any
subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of
any such right.

 

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

 

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

 

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

 

 

 

31

 

 

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

 

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

 

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

 

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

 

 

 

32

 

 

5.14 Rescission
and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions
of) any of the other Transaction Documents, whenever any Purchaser
exercises a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related
obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time
to time upon written notice to the Company, any relevant notice,
demand or election in whole or in part without prejudice to its
future actions and rights; provided, however, that in the case of a
rescission of a conversion of a Debenture, the applicable Purchaser
shall be required to return any shares of Common Stock subject to
any such rescinded conversion concurrently with the return to the
restoration of such Purchaser’s right to acquire such shares
pursuant to such Purchaser’s Debenture (including issuance of
a replacement Debenture evidencing such restored
right).

 

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

 

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

 

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

 

 

 

33

 

 

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

 

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

 

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

 

 

 

34

 

 

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

 

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

 

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

 

 

 

(Signature Pages Follow)

 

 

 

35

 

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

 

	

GT BIOPHARMA, INC.

 

 

	

Address
for Notice:

100
South Ashley Dr., Ste 600

Tampa,
FL 33602

	

 

 

 

By:__________________________________________

 

     Name:
Steven Weldon

     Title:
CFO

 

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

	
 

	
 

	
 

 

[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE
PAGE FOR PURCHASER FOLLOWS]

 

 

 

36

 

 

[PURCHASER
SIGNATURE PAGES TO GT BIOPHARMA SECURITIES PURCHASE
AGREEMENT]

 

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

 

Name of
Purchaser: _____________________

Signature of Authorized Signatory of
Purchaser: __________________________________

Name of
Authorized Signatory:
____________________________________________________

Title
of Authorized Signatory:
_____________________________________________________

Email
Address of Authorized Signatory:
_____________________________________________

Facsimile Number of
Authorized Signatory:
__________________________________________

Address
for Notice to Purchaser:

 

 

 

 

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

 

 

 

 

 

Subscription
Amount: $______________

 

EIN
Number: _______________________

 

 

 

[SIGNATURE
PAGES CONTINUE]

 

 

37

 

Annex A

 

CLOSING STATEMENT

 

Pursuant
to the attached Securities Purchase Agreement, dated as of the date
hereof, the purchasers shall purchase $5,000,000 of Debentures from
GT Biopharma, Inc., a Delaware corporation (the “Company”). All funds will
be wired into an account maintained by the Company. All funds will
be disbursed in accordance with this Closing
Statement.

 

Disbursement Date: 

September [ ],
2018

 

 

	

I. PURCHASE PRICE

 

	
 

 

	

Investor
1

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	

Gross Proceeds to Be Received

	
 

 

	
 

	
 

	

II.                                                                                      DISBURSEMENTS

 

	
 

 

	

 Legal
Fees

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

 

 

38

 

 

	
 

	
 

	

Total Amount Disbursed:

	

$

	
 

	
 

	
 

	
 

 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	

WIRE INSTRUCTIONS:

 

 

	
 

	

     Routing
Number - 026009593

     Account
Number - 898092150646

     Account
Name - GT Biopharma, Inc.

     Address
- 100 South Ashley Dr., Suite 600

                                Tampa,
FL 33602

 

	
 

 

 

 

 

 

 

39

 

 

GT BIOPHARMA, INC.

 

SECURITIES PURCHASE AGREEMENT DISCLOSURE SCHEDULES

 

These Disclosure Schedules (these “Schedules”)
are furnished pursuant to the Securities Purchase Agreement dated
as of September 7, 2018 (the “Purchase
Agreement”), by and among
GT Biopharma, Inc., a Delaware corporation (the
“Company”),
and the Purchasers listed on the signature page of the Purchase
Agreement. Capitalized terms used herein shall have the meanings
set forth in the Purchase Agreement.

 

These Schedules are part of the Purchase Agreement and are subject
to the terms and provisions thereof. These Schedules are for the
information of the Purchasers and only for purposes relating to the
Purchase Agreement.
Nothing in the Schedules shall be
construed as an admission of any liability or obligation of the
Company to any third party, or an admission to any third party
against the Company’s interests. Unless otherwise stated
below, all statements made herein are made as of the date of
execution of the Purchase Agreement.

 

The representations and warranties made by the Company in the
Purchase Agreement are qualified by, and subject to the exceptions
noted in, the information set forth in these Schedules. The
inclusion or disclosure of any item or information in the Schedules
shall not be construed as an admission, or to imply, that such item
or information is material to the Company or the Purchasers, or to
create measures of materiality for the purposes of the Purchase
Agreement.

 

The section headings in the Schedules are for convenience of
reference only.

 

 

 

40

 

 

 

Schedule 3.1(a)

 

The
Company’s subsidiaries are as follows:

 

Oxis
Biotech, Inc.

Georgetown
Translational Pharmaceuticals, Inc.

 

Schedule 3.1(b)

 

None.

 

Schedule 3.1(g)

 

Capitalization:

 

Common Stock: $0.001 par value; 750,000,000 shares
authorized; 50,177,977 shares issued and outstanding as of
September 7, 2018.

 

Preferred
Stock: $0.001 par value, 15,000,000 shares authorized.

Outstanding as of September 7, 2018:

Series
C: 96,230 shares

Series
J: 1,163,548 shares

 

Stock
Options: Options to purchase 1,246 shares of Common Stock were
outstanding as of September 7, 2018.

 

Warrants: Warrants to purchase 1,667,400 shares of
Common Stock were issued and outstanding as of September 7, 2018.

 

Convertible Notes: 3,880,255 shares of Common
Stock may be issued upon on conversion of notes (the
“Existing
Notes”) and related
interest (based on conversion price of $2.00).

 

On January 22, 2018, the Company entered into a
securities purchase agreement with accredited investors (the
“January
2018 Agreement”) pursuant
to which the Company granted the purchasers a right of first
refusal to participate in up to 30% of any future financing
undertaken by the Company until at least the date that the notes
purchased under the January 2018 Agreement are no longer
outstanding. All convertible promissory notes (the
“January
2018 Notes”) and warrants
(the “January
2018 Warrants”) purchased
under the January 2018 Agreement are subject to anti-dilution
protection. Effective upon the closing of the transactions
contemplated by the Purchase Agreement, the conversion price of the
January 2018 Notes and the exercise price of the January 2018
Warrants will be $2.00 per share. On July 27, 2018, the Company
received a conversion notice of a portion of an investor’s
January 2018 Notes, with a calculated automatically adjusted
conversion price of $1.2215. The Company intends to pay off
approximately $4.4 million in original principal of the
January 2018 Notes with the proceeds of the transactions
contemplated by the Purchase Agreement.

 

 

 

41

 

 

The
Company’s officers, directors and controlling stockholders
beneficially own the following shares of Common Stock (based on
most current information filed with the SEC as of September 7,
2018):

 

	

Name and Address of Beneficial Owner

	

Number of Shares of Common Stock Beneficially Owned

	
 

	

Percent of Shares of Outstanding Common Stock

	

 

Security Ownership of Management:

	
 

	
 

	
 

	

Mark
Silverman

	

8,172,079

	
 

	

16.31%

	

Kathleen
Clarence-Smith

	

8,505,633

	
 

	

16.97%

	

Anthony
J. Cataldo

	

5,143,036

	
 

	

10.26%

	

Steven
Weldon

	

2,528,898

	
 

	

5.12%

	

Raymond
Urbanski

	

1,528,898

	
 

	

3.02%

	
 

	
 

	
 

	
 

	

Executive
officers and directors as a group — 5 persons

	

25,878,544

	
 

	

51.68%

	
 

	
 

	
 

	
 

 

Schedule 3.1(h)

 

None.

 

Schedule 3.1(i)

 

 

None.

 

Schedule 3.1(j)

 

On June 23, 2016, the
Company was served with a complaint filed in the Circuit Court of
the 13th Judicial
Circuit in and for Hillsborough County, FL, Case No. 16-CA-004791.
Suit was brought against the Company by Lippert/Heilshorn and
Associates, Inc., alleging they are owed compensation for
consulting services provided to the Company. They are seeking
payment of $73,898. The Company has engaged legal counsel to answer
the complaint. 

 

On
February 15, 2017, MultiCell Immunotherapeutics, or MultiCell,
filed an arbitration proceeding against the Company with the
American Health Lawyers Association, Claim #3821.  MultiCell
is seeking $207,783 plus interest and costs of arbitration pursuant
to alleged contract rights against the Company under a research
agreement between MultiCell and the Company.  Following a
hearing held September 1, 2017, the arbitrator awarded
MultiCell the payment amount of $207,783 plus interest in the
amount of $34,699. The Company has engaged legal counsel to advise
it in connection with this matter. 

 

 

42

 

 

Schedule 3.1(k)

 

None.

 

Schedule 3.1(l)

 

None.

 

Schedule 3.1(q)

 

None.

 

Schedule 3.1(v)

 

None.

 

Schedule 3.1(aa)

 

Convertible
Notes
Payable                           
$8,455,142

 

Schedule 3.1(bb)

 

None.

 

Schedule 3.1(ee)

 

The
Company’s accounting firm is Seligson & Giannattasio,
LLP.

 

Schedule 3.1(ff)

 

None.

 

Schedule 4.9

 

Use of
Proceeds

 

General
and
Administrative                            
$10,000,000

 

 

 

 

43

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