Document:

Blueprint

 

Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

This
Securities Purchase Agreement (this “Agreement”) is dated as
of April 11, 2017, between AzurRx BioPharma, Inc., a Delaware
corporation (the “Company”), and the
purchaser identified on the signature page hereto (the
“Purchaser”).

 

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/or Rule 506 promulgated thereunder, the
Company desires to issue and sell to the Purchaser, and the
Purchaser desires to purchase from the Company, securities of the
Company as more fully described in this Agreement.

 

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

 

 

ARTICLE I.

DEFINITIONS

 

1.1           Definitions.
In addition to the terms defined elsewhere in this Agreement: (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:

 

“ABS” means AzurRx BioPharma SAS (formerly ProteaBio Europe SAS), a company
incorporated in October 2008 under the laws of France and a wholly
owned subsidiary of the Company.

 

“Acquiring Person” has 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 Illinois 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(a).

 

“Closing Date” means the
Trading Day on which all of the Transaction Documents have been
executed and delivered by the applicable parties thereto pursuant
to Section 2.2(a), (b) and (c), and all conditions precedent to (i)
the Purchaser’s obligations to pay the Purchase Price as to
the Closing and (ii) the Company’s obligations to deliver the
Securities as to the Closing have been satisfied or
waived.

 

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

 

 

 

 

 

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

 

“Common Stock” means the
common stock of the Company, par value $0.0001 per share, and any
other class of securities into which such securities may hereafter
be reclassified or changed.

 

“Common Stock Equivalents”
has the meaning ascribed to such term in Section 4.13.

 

“Company Counsel” means
the Disclosure Law Group, a Professional Corporation.

 

“Conversion Price” has the
meaning ascribed to such term in the Debenture.

 

“Conversion Shares” has
the meaning ascribed to such term in the Debenture.

 

“Debenture” means the 12%
Senior Secured Original Issue Discount Convertible Debenture issued
by the Company to the Purchaser hereunder in the form of
Exhibit A attached
hereto, having a maturity date of November 11, 2017 (the
“Maturity
Date”), which shall be (a) automatically accelerated
to the fifth (5th) Business Day following the receipt by the
Company or ABS of the Tax Credit (the “Acceleration Date”) and
(b) extended, at the election of the Company, for a period of eight
(8) months from the Maturity Date (i.e., July 11, 2018) (i)(A) so
long as the Tax Credit has been received in full, and (B) the
Company is not in default under the terms of any of the Transaction
Documents after receipt of notice from the Purchaser of the same
(subject to any cure periods) and (C) subject to and in accordance
with the terms herein and in the Debenture.

 

 “Effective
Date” means the earliest of the date that (a) the
initial Registration Statement has been declared effective by the
Commission, (b) 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, (c) following the one year
anniversary of the Closing Date provided that a holder of the
Underlying Shares is not an Affiliate of the Company or (d) 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.

 

“Evaluation Date” has the
meaning ascribed to such term in Section 3.1(s).

 

“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 for services rendered to the Company or the
Subsidiaries, (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 (other than in connection with
stock splits or combinations) or to extend the term of such
securities, and (c) securities issued pursuant to acquisitions or
strategic transactions approved by a majority of the disinterested
directors of the Company, provided that any such issuance shall
only be to a Person (or to the equityholders of a Person) which is,
itself or through its subsidiaries, an operating company or an
owner of an asset in a business synergistic with the business of
the Company and shall provide to the Company additional benefits in
addition to the investment of funds, but shall not include a
transaction in which the Company is issuing securities primarily
for the purpose of raising capital or to an entity whose primary
business is investing in securities.

 

‘Extension” has the
meaning ascribed to such term in Section 2.1(b).

 

“Extension Notice” has the
meaning ascribed to such term in Section 2.1(b).

 

“Extension Notice Date”
has the meaning ascribed to such term in Section
2.1(b).

 

“Extension Right” has the
meaning ascribed to such term in Section 2.1(b).

 

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

 

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

 

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

 

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

 

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

 

“Intellectual Property
Rights” has the meaning ascribed to such term in
Section 3.1(p).

 

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

 

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

 

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

 

“Material Permits” has the
meaning ascribed to such term in Section 3.1(n).

 

“Maximum Rate” has the
meaning ascribed to such term in Section 5.15.

 

 “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.

 

“Pharmaceutical Product”
has the meaning ascribed to such term in Section
3.1(kk).

 

 “Purchase
Price” has the meaning ascribed to such term in
Section 2.1(a).

 

 “Principal
Amount” means, as to the Purchaser, the amount set
forth below the Purchaser’s signature block on the signature
pages hereto next to the heading “Principal Amount,” in
United States Dollars, which shall equal the Purchase
Price.

 

 

3

 

 

 

 “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” has the meaning ascribed to such term in
Section 4.3(b).

 

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

 

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

 

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

 

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

 

“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 then issued or potentially issuable in the future pursuant to
the Transaction Documents, including any Underlying Shares issuable
upon exercise in full of all Warrants or conversion in full of the
Debenture (including Underlying Shares issuable as payment of
interest on the Debenture), 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 seventy-five
percent (75%) of the then Conversion Price on the Trading Day
immediately prior to the date of determination.

 

“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.

 

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

 

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

 

“Securities” means the
Debenture, the Warrants and the Underlying Shares.

 

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

 

“Security Agreement” means
a security agreement executed by the Company and/or ABS pledging to
Purchaser ABS’s bank account into which the Tax Credit shall
be received in a form acceptable to Purchaser in its sole and
absolute discretion.

 

 

4

 

 

 

“Series A Warrants” means
the five (5) year Common Stock purchase warrants delivered to the
Purchaser at Closing in accordance with Section 2.2(a) hereof,
which Series A Warrants shall be exercisable immediately upon
issuance in the form of Exhibit C attached
hereto.

 

“Series B Warrants” means
the five (5) year Common Stock purchase warrants which shall be
delivered to the Purchaser in the event that the Company exercises
its Extension Right to extend the Maturity Date in accordance with
Section 2.1(b) hereof and in accordance with the other terms herein
and in the Debentures, which Series B Warrants shall be exercisable
immediately upon issuance in the form of Exhibit D attached
hereto.

 

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

 

 “Subsidiary”
means ABS and shall, where applicable, also include any direct or
indirect subsidiary of the Company formed or acquired after the
date hereof.

 

“Subsidiary Guarantee”
means a guarantee executed by ABS in favor of the Purchaser in a
form acceptable to Purchaser in its sole and absolute
discretion.

 

“Tax Credit” means the
2016 French research and development tax credits which the Company
or ABS is expected to receive within nine (9) months following
December 31, 2016.

 

“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, OTCQB or OTCQX
(or any successors to any of the foregoing).

 

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

 

“Transfer Agent” means
Transhare
Corporation, 4626 South Broadway, Englewood, Colorado 80113,
telephone: (303) 662-1112, and any successor transfer agent
of the Company.

 

“Underlying Shares” means
the Warrant Shares and shares of Common Stock issued and issuable
pursuant to the terms of the Debenture, including without
limitation, shares of Common Stock issued and issuable in lieu of
the cash payment of interest on the Debenture in accordance with
the terms of the Debenture, in each case without respect to any
limitation or restriction on conversions of the Debenture or the
exercise of the Warrants.

 

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

 

 

5

 

 

 “VWAP” means, for any
date, the price determined by the first of the following clauses
that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the
Trading Market on which the Common Stock is then listed or quoted
as reported by Bloomberg L.P. (based on a Trading Day from 9:30
a.m. (New York City time) to 4:02 p.m. (New York City time)),
(b)  if OTCQB or OTCQX is not a Trading Market, the volume
weighted average price of the Common Stock for such date (or the
nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the
Common Stock is not then listed or quoted for trading on OTCQB or
OTCQX and if prices for the Common Stock are then reported in the
“Pink Sheets” published by OTC Markets Group, 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 Purchaser of a
majority in interest of the Debenture and Warrants then outstanding
and reasonably acceptable to the Company, the fees and expenses of
which shall be paid by the Company.

 

“Warrants” means,
collectively, the Series A Warrants and the Series B
Warrants.

 

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

 

 

ARTICLE II.

PURCHASE AND SALE

 

2.1           Closing
and Extension.

 

(a)            Closing.
On the Closing Date, upon the terms and subject to the conditions
set forth herein, substantially concurrent with the execution and
delivery of this Agreement by the parties hereto, the Company
agrees to sell, and the Purchaser, agrees to purchase, a Debenture
in the principal aggregate amount of $1,000,000 and the Series A
Warrants as set forth herein (collectively, the “Purchase Price”). At
Closing, the Purchaser shall deliver to the Company, via wire
transfer of immediately available funds, the Purchase Price, and
the Company shall deliver to the Purchaser the Debenture and the
Series A Warrants, and the Company and the Purchaser shall deliver
the other items which are deliverable at Closing as set forth in
Section 2.2. Upon satisfaction of the covenants and conditions set
forth in Sections 2.2 and 2.3, the Closing shall occur at the
offices of counsel to the Purchaser, K&L Gates LLP, 200 South
Biscayne Boulevard, Suite 3900, Miami, Florida 33131, or such other
location as the parties shall mutually agree.

 

(b)            Extension
of Maturity Date. At any time prior to the Maturity Date,
the Company shall have the right to extend the Maturity Date to
July 11, 2018 (the “Extension Right”), so
long as (i) the Company or ABS has received the full amount of the
Tax Credit, (ii) the Purchaser receives written notice (the
“Extension
Notice”) from the Company, on or prior to the
Acceleration Date (the “Extension Notice Date”),
of its intent to extend in accordance with the terms herein
(including, without limitation, Section 5.3), together with the
deliverables set forth in Section 2.2(b) herein, and (iii) on the
Notice Date, the Company shall not be in default under any terms of
the Transaction Documents after notice of default by the Purchaser
of the same (the “Extension”).

 

2.2           Deliveries.

 

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

 

(i)           this
Agreement duly executed by the Company;

 

(ii)           a
Debenture with a principal amount equal to the Purchase Price,
registered in the name of the Purchaser;

 

 

6

 

 

 

(iii)        
the Series A Warrant registered in the name of the Purchaser to
purchase up to a number of shares of Common Stock equal to $636,000
divided by $3.9133, subject to adjustment as set forth in the
Series A Warrant, with an exercise price equal to $4.3046, subject
to adjustment therein (such Series A Warrant may be delivered
within three (3) Trading Days of the Closing Date);
and

 

(iv)        
the Registration Rights Agreement, duly executed by the
Company.

 

(b)           Upon
the exercise of the Extension Right in accordance with the terms
herein, on the Extension Notice Date (except as noted), the Company
shall deliver or cause to be delivered to the Purchaser the
following:

 

(i)           the
Series B Warrant registered in the name of such Purchaser effective
as of the Extension Notice Date to purchase up to a number of
shares of Common Stock equal to $636,000 divided by $3.9133,
subject to adjustment as set forth in the Series B Warrant, with an
exercise price equal to 110% of the 10 consecutive day average
closing price of the Common Stock immediately prior to the
Extension Notice Date, subject to adjustment therein (such Series B
Warrant may be delivered within three Trading Days of the Extension
Notice Date); and

 

(ii)       
(A) an officer’s certificate certifying the accuracy in all
material respects of the representations and warranties of the
Company contained herein and the compliance in all material
respects with the covenants of the Company contained herein and (B)
a bring-down of the Disclosure Schedules.

 

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

 

(i)           this
Agreement duly executed by the Purchaser;

 

(ii)         
the Purchase Price by wire transfer; and

 

(iii)        
the Registration Rights Agreement duly executed by the
Purchaser.

 

2.3           Closing
and Extension 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 (or, to the extent
representations or warranties are qualified by materiality or
Material Adverse Effect, in all respects) the Closing Date of the
representations and warranties of the Purchaser contained herein
(unless as of a specific date therein in which case they shall be
accurate as of such date);

 

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

 

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

 

 

7

 

 

 

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

 

(i)           the
accuracy in all material respects (or, to the extent
representations or warranties are qualified by materiality or
Material Adverse Effect, in all respects) when made and on the
applicable Closing Date and Extension Notice 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 applicable Closing Date and
Extension Notice Date shall have been performed;

 

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

 

(iv)       
with respect to the Extension the delivery by the Company of the
items set forth in Section 2.2(b) of this Agreement;

 

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

 

(vi)        
from the date hereof to the applicable Closing and Extension Notice
Date (if applicable), 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 applicable Closing and
Extension Notice Date (if applicable), 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 Closing and the Extension
Notice Date (if applicable).

 

2.4           
Post-Closing
Covenants. The Company hereby covenants that it shall
deliver or cause to be delivered to the Purchaser (a) a legal
opinion of Company Counsel, substantially in the form of
Exhibit E attached
hereto, within two (2) Business Days of the Closing Date, (b) the
Security Agreement executed by the Company and/or ABS within
forty-five (45) days of the Closing Date, and (c) the Subsidiary
Guarantee executed by ABS within forty-five (45) days of the
Closing Date, which Subsidiary Guarantee shall comply in all
material respects with French law.

 

 

8

 

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1           Representations
and Warranties of the Company. Except as set forth in the Disclosure
Schedules attached hereto, which Disclosure Schedules shall be
deemed a part hereof and shall qualify any representation or
otherwise made herein to the extent of the disclosure contained in
the corresponding section of the Disclosure Schedules, the Company
hereby makes the following representations and warranties to the
Purchaser as of the date hereof and as of the Closing and Extension
Notice Date (if applicable):

 

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

 

(c)           Authorization;
Enforcement.

 

(i)           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 corporate 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.

 

 

9

 

 

 

(ii)           With
respect to the Subsidiary Guarantee, each of the Subsidiaries has
the requisite corporate or other power and authority to enter into
and to consummate the transactions contemplated by such agreement
and otherwise to carry out its obligations thereunder. The
execution and delivery of the Subsidiary Guarantee and the
consummation by the Company of the transactions contemplated
thereby have been duly authorized by all necessary corporate action
on the part of the Company, and no further action is required by
the respective Subsidiary, its managers, its members, its directors
or its stockholders, as the case may be, in connection therewith.
The Subsidiary Guarantee has been (or upon delivery will have been)
duly executed by the respective Subsidiaries and, when delivered in
accordance with the terms thereof, will constitute the valid and
binding obligation of the respective Subsidiary enforceable against
such Subsidiary in accordance with its terms, except: (A) as
limited by general equitable principals and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights
generally, (B) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies
and (C) insofar as indemnification and contribution provisions may
be limited by applicable law.

 

(d)           No
Conflicts. The execution, delivery and performance by the
Company of this Agreement and the other Transaction Documents to
which it is a party, the issuance and sale of the Securities and
the consummation by it of the transactions contemplated hereby and
thereby do not and will not, subject to the Required Approvals: (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) conflict
with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, result in the
creation of any Lien (except as contemplated pursuant to the
Transaction Documents) 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 consents,
waivers, authorizations, orders, notices or filings required
pursuant to Section 4.6 of this Agreement or listed on Schedule
3.1(e), (ii) the filings with the Commission pursuant to the
Registration Rights Agreement, (iii) 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
and Warrant Shares for trading thereon in the time and manner
required thereby and (iv) 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”).

 

 

10

 

 

 

(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. The Company has reserved from its duly
authorized capital stock a number of shares of Common Stock for
issuance of the Underlying Shares at least equal to the Required
Minimum on the date hereof.

 

(g)           Capitalization.
The capitalization of the Company is as set forth on Schedule 3.1(g), which
Schedule 3.1(g)
also includes the number of shares of Common Stock owned
beneficially, and of record, by Affiliates of the Company as of the
date hereof. Except as set forth in Schedule 3.1(g), 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. 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 in Schedule 3.1(g) and 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 the capital stock of
any Subsidiary, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock or Common
Stock Equivalents or capital stock of any Subsidiary. The issuance
and sale of the Securities will not obligate the Company or any
Subsidiary to issue shares of Common Stock or other securities to
any Person (other than the Purchaser) 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.
There are no outstanding securities or instruments of the Company
or any Subsidiary that contain any redemption or similar
provisions, and there are no contracts, commitments, understandings
or arrangements by which the Company or any Subsidiary is or may
become bound to redeem a security of the Company or such
Subsidiary. The Company does not have any stock appreciation rights
or “phantom stock” plans or any similar plan or
agreement. All of the outstanding shares of capital stock of the
Company are duly authorized, validly issued, fully paid and
nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was
issued in violation of any preemptive rights or similar rights to
subscribe for or purchase securities. 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 (other than if pursuant to
Voting Agreement).

 

 

11

 

 

 

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

 

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

 

(j)         
Litigation. Except
as set forth on Schedule
3.1(j), there is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge
of the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign)
(collectively, an “Action”) 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, to the
knowledge of the Company, any director or officer thereof, is or
has been the subject of any Action involving a claim of violation
of or liability under federal or state securities laws or a claim
of breach of fiduciary duty. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or any
current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending
the effectiveness of any registration statement filed by the
Company or any Subsidiary under the Exchange Act or the Securities
Act.

 

 

12

 

 

 

(k)           Labor
Relations. No labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of
the Company, which could reasonably be expected to result in a
Material Adverse Effect. None of the Company’s or its
Subsidiaries’ employees is a member of a union that relates
to such employee’s relationship with the Company or such
Subsidiary, and neither the Company nor any of its Subsidiaries is
a party to a collective bargaining agreement, and the Company and
its Subsidiaries believe that their relationships with their
employees are good. To the knowledge of the Company, no executive
officer of the Company or any Subsidiary, is, or is now expected to
be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or
any restrictive covenant in favor of any third party, and the
continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability
with respect to any of the foregoing matters. 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)        
Environmental Laws.
The Company and its Subsidiaries (i) are in compliance with all
federal, state, local and foreign laws relating to pollution or
protection of human health or the environment (including ambient
air, surface water, groundwater, land surface or subsurface
strata), including laws relating to emissions, discharges, releases
or threatened releases of chemicals, pollutants, contaminants, or
toxic or hazardous substances or wastes (collectively,
“Hazardous
Materials”) into the environment, or otherwise
relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous
Materials, as well as all authorizations, codes, decrees, demands,
or demand letters, injunctions, judgments, licenses, notices or
notice letters, orders, permits, plans or regulations, issued,
entered, promulgated or approved thereunder (“Environmental Laws”);
(ii) have received all permits licenses or other approvals required
of them under applicable Environmental Laws to conduct their
respective businesses; and (iii) are in compliance with all terms
and conditions of any such permit, license or approval where in
each clause (i), (ii) and (iii), the failure to so comply or to
have received could be reasonably expected to have, individually or
in the aggregate, a Material Adverse Effect.

 

 

13

 

 

 

(n)           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 as described in the SEC
Reports, except where the failure to possess such certificates,
authorizations and 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.

 

(o)           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 and (iii) Liens set forth in Schedule 3.1(o). 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, except for any failure to be in compliance that
could not reasonably be expected to have a Material Adverse
Effect.

 

(p)        
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, has
been accused or otherwise has any knowledge that the Intellectual
Property Rights violate or infringe (and will not 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.    The Company has no knowledge of
any facts that would preclude it from having valid license rights
or clear title to the Intellectual Property Rights.  The
Company has no knowledge that it lacks or will be unable to obtain
any rights or licenses to use all Intellectual Property Rights that
are necessary to conduct its business.

 

 

14

 

 

 

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

 

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

 

(s)        
Sarbanes-Oxley; Internal
Accounting Controls. The Company and the Subsidiaries are in
compliance with any and all applicable requirements of the
Sarbanes-Oxley Act of 2002 that are effective as of the date hereof
and as of the Extension Notice Date (if applicable), 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
Extension Notice Date (if applicable). Except as set forth on
Schedule 3.1(s),
the Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to
provide reasonable assurance that: (i) transactions are executed in
accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP
and to maintain asset accountability, (iii) access to assets is
permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any
differences. Except as set forth on Schedule 3.1(s), the Company and the Subsidiaries have established
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries
and designed such disclosure controls and procedures to ensure that
information required to be disclosed by the Company in the reports
it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the
Commission’s rules and forms. The Company’s certifying
officers have evaluated the effectiveness of the disclosure
controls and procedures of the Company and the Subsidiaries as of
the end of the period covered by the most recently filed periodic
report under the Exchange Act (such date, the
“Evaluation
Date”). The Company
presented in its most recently filed periodic report under the
Exchange Act the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on
their evaluations as of the Evaluation Date. Since the Evaluation
Date, there have been no changes in the internal control over
financial reporting (as such term is defined in the Exchange Act)
that have materially affected, or is reasonably likely to
materially affect, the internal control over financial reporting of
the Company and its Subsidiaries.

 

 

15

 

 

 

(t)     
     Certain Fees. Except as set
forth on Schedule
3.1(t), 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
Purchaser shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other Persons for
fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by the Transaction
Documents.

 

(u)     
   Private
Placement. Assuming the accuracy of the Purchaser’s
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 Purchaser as
contemplated hereby. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the
Trading Market.

 

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

 

(w)        
Registration
Rights. Other than the Purchaser and except as set forth on
Schedule 3.1(w), 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.

 

(x)        
Listing and Maintenance
Requirements. The Common Stock is registered pursuant to
Section 12(b) or 12(g) of the Exchange Act, and the Company has
taken no action designed to, or which to its knowledge is likely to
have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such
registration. Except as set forth on Schedule 3.1(x), (i) the
Company has not, in the twelve (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 and (ii) the Company is, and
has no reason to believe that it will not in the foreseeable future
continue to be, in compliance with all such listing and maintenance
requirements. The Common Stock is currently eligible for electronic
transfer through the Depository Trust Company or another
established clearing corporation and the Company is current in
payment of the fees to the Depository Trust Company (or such other
established clearing corporation) in connection with such
electronic transfer.

 

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

 

 

16

 

 

 

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

 

(aa)           No
Integrated Offering. Assuming the accuracy of the
Purchaser’s representations and warranties set forth in
Section 3.2, neither the Company, nor any of its Affiliates, nor
any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would
cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of (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.

 

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

 

 

17

 

 

 

(cc)           Tax
Status. Except as set forth on Schedule 3.1(cc) and for
matters that would not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect, the
Company and its Subsidiaries each (i) has made or filed all United
States federal, state and local income and all foreign income and
franchise tax returns, reports and declarations required by any
jurisdiction to which it is subject, (ii) has paid all taxes and
other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and
declarations and (iii) has set aside on its books provision
reasonably adequate for the payment of all material taxes for
periods subsequent to the periods to which such returns, reports or
declarations apply. Except as set forth on Schedule 3.1(cc), 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.

 

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

 

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

 

(ff)        
Accountants. The
Company’s accounting firm is set forth on Schedule 3.1(ff) of the
Disclosure Schedules. To the knowledge and belief of the Company,
such accounting firm: (i) is a registered public accounting firm as
required by the Exchange Act and (ii) shall express its opinion
with respect to the financial statements to be included in the
Company’s Annual Report for the fiscal year ending December
31, 2016.

 

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

 

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

 

 

18

 

 

 

(ii)        
Acknowledgment Regarding
Purchaser’s Purchase of Securities. The Company
acknowledges and agrees that the Purchaser is acting solely in the
capacity of an arm’s length purchaser with respect to the
Transaction Documents and the transactions contemplated thereby.
The Company further acknowledges that 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 Purchaser’s
purchase of the Securities. The Company further represents to the
Purchaser that the Company’s decision to enter into this
Agreement and the other Transaction Documents has been based solely
on the independent evaluation of the transactions contemplated
hereby by the Company and its representatives.

 

(jj)           Regulation
M Compliance.  Except as set forth on Schedule 3.1(jj), 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 any 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.  To the Company’s 
knowledge, there are no legal or governmental proceedings relating
to the FDC act, the Public Health Services Act or any regulations
of the FDA pending or threatened to which the Company is a party,
nor is it aware of any material violations of such acts or
regulations by the Company.

 

 

19

 

 

(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 to the Company’s knowledge 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 to the Company’s knowledge 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 to the
Company’s knowledge 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 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.

 

 

20

 

 

(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
Purchaser a copy of any disclosures provided
thereunder.

 

(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
purchaser in connection with the sale of any Regulation D
Securities.

 

(ss)           Notice
of Disqualification Events. The Company will notify the
Purchaser in writing, prior to Closing and the Extension Notice
Date (if applicable) 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 Purchaser. The Purchaser hereby
represents and warrants as of the date hereof and as of the
applicable Closing and Extension Notice Date (if applicable) 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.

 

 

21

 

 

 

(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 pursuant to the
Registration Statement or otherwise in compliance with applicable
federal and state securities laws). Such Purchaser is acquiring the
Securities hereunder in the ordinary course of its
business.

 

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

 

(d)        
Experience of 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, to such
Purchaser’s knowledge, 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.

 

The
Company acknowledges and agrees that the representations contained
in this 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.

 

 

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. As a condition of
transfer, any such transferee shall agree in writing to be bound by
the terms of this Agreement and the Registration Rights Agreement
and shall have the rights and obligations of a Purchaser under this
Agreement and the Registration Rights Agreement.

 

 

22

 

 

 

(b)           The
Purchaser agrees 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. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE]
[CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER
LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED
INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT
OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

(c)           
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 (including the 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 without the Company to be in
compliance with the current public information requirements 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 if required by the Transfer Agent to
effect the removal of the legend hereunder. If all or any portion
of a Debenture is converted or Warrant is exercised 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 without the requirement for the Company to be in
compliance with the current public information required under Rule
144 as to such Underlying Shares and without volume or
manner-of-sale restrictions or 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 the
Effective Date or at such time as such legend is no longer required
under this Section 4.1(c), it will, no later than the earlier of
(i) three (3) Trading Days and (ii) the number of Trading Days
comprising the Standard Settlement Period (as defined below)
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. As used herein, “Standard Settlement
Period” means the standard settlement period,
expressed in a number of Trading Days, on the Company’s
primary Trading Market with respect to the Common Stock as in
effect on the date of delivery of a certificate representing
Underlying Shares, as applicable, issued with a restrictive
legend.

 

 

23

 

 

(d)           In
addition to such Purchaser’s other available remedies, the
Company shall pay to a Purchaser, in cash, (i) as partial
liquidated damages and not as a penalty, for each $1,000 of
Underlying Shares (based on the VWAP of the Common Stock on the
date such Securities are submitted to the Transfer Agent) delivered
for removal of the restrictive legend and subject to Section
4.1(c), $10 per Trading Day (increasing to $20 per Trading Day five
(5) Trading Days after such damages have begun to accrue) for each
Trading Day after the Legend Removal Date until such certificate is
delivered without a legend and (ii) if the Company fails to (i)
issue and deliver (or cause to be delivered) to a Purchaser by the
Legend Removal Date a certificate representing the Securities so
delivered to the Company by such Purchaser that is free from all
restrictive and other legends and (ii) if after the Legend Removal
Date such Purchaser purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a
sale by such Purchaser of all or any portion of the number of
shares of Common Stock, or a sale of a number of shares of Common
Stock equal to all or any portion of the number of shares of Common
Stock that such Purchaser anticipated receiving from the Company
without any restrictive legend, then, an amount equal to the excess
of such Purchaser’s total purchase price (including brokerage
commissions and other out-of-pocket expenses, if any) for the
shares of Common Stock so purchased (including brokerage
commissions and other out-of-pocket expenses, if any) (the
“Buy-In
Price”) over the product of (A) such number of
Underlying Shares that the Company was required to deliver to such
Purchaser by the Legend Removal Date multiplied by (B) the lowest
closing sale price of the Common Stock on any Trading Day during
the period commencing on the date of the delivery by such Purchaser
to the Company of the applicable Underlying Shares (as the case may
be) and ending on the date of such delivery and payment under this
clause (ii).

 

(e)           The
Purchaser 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)            
Until 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 and to timely file (or
obtain extensions in respect thereof and file within the applicable
grace period) all reports required to be filed by the Company after
the date hereof pursuant to the Exchange Act even if the Company is
not then subject to the reporting requirements of the Exchange
Act.

 

 

24

 

 

 

(b)           At
any time during the period commencing from the six (6) month
anniversary of the date hereof and ending at such time that all of
the 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 (i)
shall fail for any reason to satisfy the current public information
requirement under Rule 144(c) or (ii) has ever been an issuer
described in Rule 144 (i)(1)(i) or becomes an issuer in the future,
and the Company shall fail to satisfy any condition set forth in
Rule 144(i)(2) (a “Public Information
Failure”) then, in addition to the Purchaser’s
other available remedies, the Company shall pay to the 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 Purchase Price on the day of a Public Information Failure
and on every thirtieth (30th) day (pro rated for
periods totaling less than thirty days) thereafter until the
earlier of (a) the date such Public Information Failure is cured
and (b) such time that such public information is no longer
required  for the Purchaser to transfer the Underlying Shares
pursuant to Rule 144.  The payments to which the 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 the Purchaser’s right to
pursue actual damages for the Public Information Failure, and the
Purchaser shall have the right to pursue all remedies available to
it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.

 

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
and Exercise Procedures. Each of the form of Notice of
Exercise included in the Warrants and the form of Notice of
Conversion included in the Debenture set forth the totality of the
procedures required of the Purchaser in order to exercise the
Warrants or convert the Debentures. Without limiting the preceding
sentences, no ink-original Notice of Exercise or Notice of
Conversion shall be required, nor shall any medallion guarantee (or
other type of guarantee or notarization) of any Notice of Exercise
or Notice of Conversion form be required in order to exercise the
Warrants or convert the Debenture. No additional legal opinion,
other information or instructions shall be required of the
Purchaser to exercise the Warrants or convert the Debenture. The
Company shall honor exercises of the Warrants and conversions of
the Debenture 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, by 9:30 a.m.
(New York City time) on the Trading Day immediately following the
date hereof, (a) issue a press release disclosing the material
terms of the transactions contemplated hereby and (b) file a
Current Report on Form 8-K, including the Transaction Documents as
exhibits thereto, with the Commission. From and after the issuance
of such press release, the Company represents to the Purchaser that
it shall have publicly disclosed all material, non-public
information delivered to the Purchaser by the Company or any of its
Subsidiaries, or any of their respective officers, directors,
employees or agents in connection with the transactions
contemplated by the Transaction Documents. In addition, effective
upon the issuance of such press release, the Company acknowledges
and agrees that any and all confidentiality or similar obligations
under any agreement, whether written or oral, between the Company,
any of its Subsidiaries or any of their respective officers,
directors, agents, employees or Affiliates on the one hand, and the
Purchaser or Affiliates on the other hand, shall terminate. The
Company and the Purchaser shall consult with each other in issuing
any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor the Purchaser
shall issue any such press release nor otherwise make any such
public statement without the prior consent of the Company, with
respect to any press release of the Purchaser with respect to any
press release of the Company, which consent shall not unreasonably
be withheld or delayed, except if such disclosure is required by
law, in which case the disclosing party shall promptly provide the
other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of the Purchaser, or include the name of
the Purchaser in any filing with the Commission or any regulatory
agency or Trading Market, without the prior written consent of the
Purchaser, except: (a) as required by federal securities law in
connection with (i) any registration statement contemplated by the
Registration Rights Agreement and (ii) the filing of final
Transaction Documents with the Commission and (b) to the extent
such disclosure is required by law or Trading Market regulations,
in which case the Company shall provide the Purchaser with prior
notice of such disclosure permitted under this clause
(b).

 

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
the Purchaser is an “Acquiring Person” under
any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or similar
anti-takeover plan or arrangement in effect or hereafter adopted by
the Company, or that the Purchaser could be deemed to trigger the
provisions of any such plan or arrangement, by virtue of receiving
Securities under the Transaction Documents or under any other
agreement between the Company and the Purchaser.

 

4.8        
Non-Public
Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction
Documents, which shall be disclosed pursuant to Section 4.6, the
Company covenants and agrees that neither it, nor any other Person
acting on its behalf will provide the Purchaser or its agents or
counsel with any information that constitutes, or the Company
reasonably believes constitutes, material non-public information,
unless prior thereto the Purchaser shall have consented to the
receipt of such information and agreed with the Company to keep
such information confidential. The Company understands and confirms
that the Purchaser shall be relying on the foregoing covenant in
effecting transactions in securities of the Company. To the extent
that the Company delivers any material, non-public information to
the Purchaser without the Purchaser’s consent, the Company
hereby covenants and agrees that such purchaser shall not have any
duty of confidentiality to Company, any of its Subsidiaries, or any
of their respective officers, directors, agents, employees or
Affiliates, or a duty to the Company, and of its Subsidiaries or
any of their respective officers, directors, agents, employees or
Affiliates not to trade on the basis of, such material, non-public
information, provided that the Purchaser shall remain subject to
applicable law. To the extent that any notice provided pursuant to
any Transaction Document constitutes, or contains, material,
non-public information regarding the Company or any Subsidiaries,
the Company shall simultaneously file such notice with the
Commission pursuant to a Current Report on Form 8-K. The Company
understands and confirms that the Purchaser shall be relying on the
foregoing covenant in effecting transactions in securities of the
Company.

 

 

26

 

 

 

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

 

4.10       
Indemnification of
Purchaser. Subject to the provisions of this Section 4.10,
the Company will indemnify and hold the Purchaser and its
directors, officers, shareholders, members, partners, employees and
agents (and any other Persons with a functionally equivalent role
of a Person holding such titles notwithstanding a lack of such
title or any other title), each Person who controls the Purchaser
(within the meaning of Section 15 of the Securities Act and Section
20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with
a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title) of such
controlling persons (each, a “Purchaser Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable
attorneys’ fees and costs of investigation that any such
Purchaser Party may suffer or incur as a result of or relating to
(a) any breach of any of the representations, warranties, covenants
or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against the
Purchaser Party in any capacity, or any of them or their respective
Affiliates, by any stockholder of the Company, 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)          
The Company shall maintain a reserve of the Required Minimum from
its duly authorized shares of Common Stock for issuance pursuant to
the Transaction Documents in such amount as may then be required to
fulfill its obligations in full under the Transaction
Documents.

 

(b)           If,
on any date, the number of authorized but unissued (and otherwise
unreserved) shares of Common Stock is less than 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 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 Purchaser 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           Actions
Inconsistent with the Transaction Documents. The Company
hereby covenants that it will not, either directly or indirectly
through any Affiliate or Subsidiary including, without limitation,
ABS take any actions which are inconsistent with the terms of the
Transaction Documents.

 

 

28

 

 

4.13           Subsequent
Equity Sales.

 

From
the date hereof until the second anniversary of the date hereof,
except for the transactions contemplated hereunder, the Company
shall be prohibited from effecting or entering into an agreement to
effect any issuance by the Company or any of its Subsidiaries of
Common Stock or Common Stock Equivalents (or a combination of units
thereof) involving a Variable Rate Transaction other than in
connection with an Exempt Issuance. The Investor shall be entitled
to seek injunctive relief against the Company to preclude any such
issuance, which remedy shall be in addition to any right to collect
damages, without the necessity of showing economic loss and without
any bond or other security being required. “Common Stock Equivalents”
means any securities of the Company that entitle the holder thereof
to acquire at any time Common Stock, including, without limitation,
any debt, preferred stock, rights, options, warrants 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. “Variable Rate
Transaction” means a transaction in which the Company
(i) issues or sells any equity or debt securities that are
convertible into, exchangeable or exercisable for, or include the
right to receive additional shares of Common Stock or Common Stock
Equivalents either (A) at a conversion price, exercise price,
exchange rate or other price that is based upon and/or varies with
the trading prices of or quotations for the Common Stock at any
time after the initial issuance of such equity or debt securities
(including, without limitation, pursuant to any “cashless
exercise” provision), 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 equity or debt 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 (including, without limitation, any “full
ratchet” or “weighted average” anti-dilution
provisions, but not including any standard anti-dilution protection
for any reorganization, recapitalization, non-cash dividend, stock
split or other similar transaction), (ii) issues or sells any
equity or debt securities, including without limitation, Common
Stock or Common Stock Equivalents, either (A) at a 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
(other than standard anti-dilution protection for any
reorganization, recapitalization, non-cash dividend, stock split or
other similar transaction), or (B) that is subject to or contains
any put, call, redemption, buy-back, price-reset or other similar
provision or mechanism (excluding, without limitation, a
“Black-Scholes” put or call right) that provides for
the issuance of additional equity securities of the Company or the
payment of cash by the Company, or (iii) enters into any agreement,
including, but not limited to, an “equity line of
credit” or other continuous offering or similar offering of
Common Stock or Common Stock Equivalents, whereby the Company may
sell Common Stock or Common Stock Equivalents at a future
determined price. “Exempt Issuance” means
the issuance of (a) Common Stock or Common Stock Equivalents to
employees, officers, directors or vendors of the Company pursuant
to any stock or option plan duly adopted for such purpose, by the
Board of Directors or a majority of the members of a committee of
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 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) securities issued
pursuant to acquisitions, divestitures, licenses, partnerships,
collaborations or strategic transactions approved by the Board of
Directors or a majority of the members of a committee of directors
established for such purpose, which acquisitions, divestitures,
licenses, partnerships, collaborations or strategic transactions
can have a Variable Rate Transaction component, provided that any
such issuance shall only be to a Person (or to the equity holders
of a Person) which is, itself or through its subsidiaries, an
operating company or an asset in a business synergistic with the
business of the Company and shall provide to the Company additional
benefits in addition to the investment of funds, but shall not
include a transaction in which the Company is issuing securities
primarily for the purpose of raising capital or to an entity whose
primary business is investing in securities, or (d) Common Stock
issued and sold pursuant to an “at-the-market offering”
of Common Stock through a registered broker-dealer.

 

4.14           No
Short Selling. The Purchaser represents and warrants to the
Company that at no time prior to the date of this Agreement has any
of the Purchaser, its agents, representatives or affiliates engaged
in or effected, in any manner whatsoever, directly or indirectly,
any (i) "short sale" (as such term is defined in Rule 200 of
Regulation SHO of the Exchange Act) of the Common Stock or (ii)
hedging transaction, which establishes a net short position with
respect to the Common Stock. The Purchaser agrees that beginning on
the date of this Agreement and ending on the date of termination of
this Agreement, the Purchaser and its agents, representatives and
affiliates shall not in any manner whatsoever enter into or effect,
directly or indirectly, any (i) “short sale” (as such
term is defined in Rule 200 of Regulation SHO of the Exchange Act)
of the Common Stock or (ii) hedging transaction, which establishes
a net short position with respect to the Common Stock.

 

4.15           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 the
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 Purchaser 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 the Purchaser.

 

 

29

 

 

ARTICLE V.

MISCELLANEOUS

 

5.1           Fees
and Expenses. The Company has agreed to reimburse the
Purchaser up to the sum of $15,000 for its legal fees and expenses,
which shall include French counsel advice in connection with the
Security Agreement and Subsidiary Guarantee. The Company shall
deliver to the Purchaser 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
Purchaser.

 

5.2      
  Entire
Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of
the parties with respect to the subject matter hereof and thereof
and supersede all prior agreements and understandings, oral or
written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and
schedules.

 

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

 

5.4           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.

 

5.5       
Successors and
Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the
Purchaser (other than by merger). The Purchaser may assign any or
all of its rights under this Agreement to any Person to whom 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 Purchaser.

 

5.6        
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.

 

 

30

 

 

5.7           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 Delaware, 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
Chicago, State of Illinois. Each party hereby irrevocably submits
to the exclusive jurisdiction of the state and federal courts
sitting in the City of Chicago, County of Cook, State of Illinois
for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees
not to assert in any Action or Proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such
Action or Proceeding is improper or is an inconvenient venue for
such Proceeding. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such
Action or Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to
such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve
process in any other manner permitted by law. If any party hereto
shall commence an Action or Proceeding to enforce any provisions of
the Transaction Documents, then, in addition to the obligations of
the Company under Section 4.10, the prevailing party in such Action
or Proceeding shall be reimbursed by the non-prevailing party for
its reasonable attorneys’ fees and other costs and expenses
incurred with the investigation, preparation and prosecution of
such Action or Proceeding.

 

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

 

5.9           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.

 

5.10       
Severability. If
any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or
invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It
is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or
unenforceable.

 

5.11      
Rescission and Withdrawal
Right. Notwithstanding anything to the contrary contained in
(and without limiting any similar provisions of) any of the other
Transaction Documents, whenever the Purchaser exercises a right,
election, demand or option under a Transaction Document and the
Company does not timely perform its related obligations within the
periods therein provided, then the Purchaser may rescind or
withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and
rights; provided,
however, that in
the case of a rescission of a conversion of a Debenture or exercise
of a Warrant, the Purchaser shall be required to return any shares
of Common Stock subject to any such rescinded conversion or
exercise notice concurrently with the return to the Purchaser of
the aggregate exercise price paid to the Company for such shares
and the restoration of such Purchaser’s right to acquire such
shares pursuant to such Purchaser’s Warrant (including,
issuance of a replacement warrant certificate evidencing such
restored right).

 

 

31

 

 

 

5.12        
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.

 

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

 

5.14           Payment
Set Aside. To the extent that the Company makes a payment or
payments to the 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.

 

5.15           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 Action or Proceeding
that may be brought by the 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 the Purchaser with respect to
indebtedness evidenced by the Transaction Documents, such excess
shall be applied by the 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.

 

 

32

 

 

 

5.16      
Liquidated Damages.
The Company’s obligations to pay any partial liquidated
damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until
all unpaid partial liquidated damages and other amounts have been
paid notwithstanding the fact that the instrument or security
pursuant to which such partial liquidated damages or other amounts
are due and payable shall have been canceled.

 

5.17           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.

 

5.18         
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.

 

5.19        
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)

 

 

 

33

 

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.

 

	

AZURRX BIOPHARMA, INC.

 

	

Address for
Notice:

	

By:__________________________________________

     Name:
Johann M. Spoor

     Title:
Chief Executive Officer

 

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

 

 

	

Fax:

 

Email:
tspoor@azurrx.com

 

Daniel W. Rumsey,
Esq.

Disclosure Law
Group, a Professional Corporation

Fax:
619-330-2101

Email:
drumsey@disclosurelawgroup.com

	
 

	
 

 

[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE
PAGE FOR PURCHASER FOLLOWS]

 

 

 

34

 

[PURCHASER
SIGNATURE PAGE TO 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):

 

 

 

 

 

Purchase Price:
$1,120,000

 

Series
A Warrant Shares: _________________

 

Series
B Warrant Shares: _________________

 

 

 

35

 

 

EXHIBIT
A

 

[FORM
OF DEBENTURE]

 

EXHIBIT
B

 

[FORM
OF REGISTRATION RIGHTS AGREEMENT]

 

EXHIBIT
C

 

[FORM
OF SERIES A WARRANT]

 

EXHIBIT
D

 

[FORM
OF SERIES B WARRANT]

 

EXHIBIT
E

 

[FORM
OF LEGAL OPINION]

 

 

 

 

 

 

 36Blueprint

 

Exhibit 10.2

 

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. 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: April 11, 2017

Original
Conversion Price (subject to adjustment herein):
$3.9133

 

$1,120,000

 

 

12% SENIOR SECURED ORIGINAL ISSUE DISCOUNT CONVERTIBLE
DEBENTURE

 

DUE NOVEMBER 11, 2017

 

THIS 12% SENIOR
SECURED ORIGINAL ISSUE DISCOUNT CONVERTIBLE DEBENTURE is a duly
authorized and validly issued Senior Secured Original Issue
Discount Convertible Debenture (this “Debenture”) of AzurRx
BioPharma, Inc., a Delaware corporation, (the “Company”), having its
principal place of business at 760 Parkside Avenue, Downstate
Biotechnology Incubator, Suite 217 Brooklyn, NY 11226 pursuant to
that certain Securities Purchase Agreement, dated April 11, 2017,
by and between the Company and Lincoln Park Capital Fund, LLC as
amended, modified or supplemented from time to time in accordance
with its terms (the “Purchase
Agreement”).

 

FOR
VALUE RECEIVED, the Company promises to pay to Lincoln Park Capital
Fund, LLC or its registered assigns (the “Holder”), or shall have
paid pursuant to the terms hereunder, the principal sum of
$1,120,000.00 on November 11, 2017 (the “Maturity Date”), which
date shall be accelerated and extended in accordance with Section 6
herein or such earlier date as this Debenture is required or
permitted to be repaid as provided hereunder or such later date as
this Debenture may be extended as provided hereunder. 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:

 

“Alternate Consideration”
has the meaning set forth in Section 5(d).

 

 

1

 

 

“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, (g) the Company or any Significant
Subsidiary thereof admits in writing that it is generally unable to
pay its debts as they become due, (h) 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” has the meaning set forth in Section
4(d).

 

“Buy-In” has 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 45%
of the voting securities of the Company (other than by means of
conversion or exercise of the Debenture and the Securities issued
together with the Debenture), (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 60% 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 60% 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.

 

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

 

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

 

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

 

 

2

 

 

 

“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” means
the records of the Company regarding registration and transfers of
this Debenture.

 

“Effectiveness Period” has
the meaning set forth in the Registration Rights
Agreement.

 

“Equity Conditions” means,
during the period in question, (a) the
Company shall have duly honored all conversions and amortizations
scheduled to occur or occurring by virtue of one or more Notices of
Conversion of the Holder, if any, (b) the Company shall have paid
all liquidated damages and other amounts owing to the Holder in
respect of this Debenture, (c) one of the following applies
to this Debenture: (i) there is an effective Registration Statement
pursuant to which the Holder is permitted to utilize the prospectus
thereunder to resell all of the shares of Common Stock issuable
pursuant to the Transaction Documents (and the Company believes, in
good faith, that such effectiveness will continue uninterrupted for
the foreseeable future), (ii) all of the Conversion Shares issuable
pursuant to the Transaction Documents (and shares issuable in lieu
of cash payments of interest) may be resold pursuant to Rule 144
without volume or manner-of-sale restrictions or current public
information requirements as determined by the counsel to the
Company as set forth in a written opinion letter to such effect,
addressed and acceptable to the Transfer Agent and the Holder, or
(iii) the Conversion Shares take on the registered characteristics
of the Preferred Stock and are free trading and issued without a
Securities Act legend; (d) the Common Stock is trading on a Trading
Market and all of the shares issuable pursuant to the Transaction
Documents are listed or quoted for trading on such Trading Market
(and the Company believes, in good faith, that trading of the
Common Stock on a Trading Market will continue uninterrupted for
the foreseeable future), (e) there is a sufficient number of
authorized but unissued and otherwise unreserved shares of Common
Stock for the issuance of all of the shares then issuable pursuant
to the Transaction Documents, (f) there is no existing Event of
Default and no existing event which, with the passage of time or
the giving of notice, would constitute an Event of Default, (g) the
issuance of the shares in question would not violate the
limitations set forth in Section 4(d) and Section 4(e) herein,
(h) there has been no public
announcement of a pending or proposed Fundamental Transaction or
Change of Control Transaction that has not been consummated, and
(i) the applicable Holder is not in possession of any information
provided by the Company, any of its Subsidiaries, or any of
their officers, directors, employees, agents or Affiliates,
that constitutes, or may constitute,
material non-public information.

 

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

 

“Fundamental Transaction”
has the meaning set forth in Section 5(d).

 

3

 

 

“Mandatory Default Amount”
means the sum of (a) the greater of (i) the outstanding principal
amount of this Debenture, 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) 118% 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.

 

“Illinois Courts” has the
meaning set forth in Section 9(d).

 

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

 

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

 

“Permitted Indebtedness”
means (a) the indebtedness evidenced by the Debenture, (b) the
indebtedness existing on the Original Issue Date and set forth on
Schedule 3.1(bb)
attached to the Purchase Agreement, and (c) indebtedness that (i)
is expressly subordinate to the Debenture pursuant to any
subordination agreement with the Purchaser that is acceptable to
the Purchaser in its sole and absolute discretion, and (ii) matures
at a date later than the 91st day following the
Maturity Date.

 

“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), (b) and
(d)/(e) 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, (e) Liens
in connection with equipment leases in effect on the Original Issue
Date and (f) Liens in favor of the Florida Department of Revenue in
effect on the Original Issue Date.

 

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

 

“Successor Entity” has the
meaning set forth in Section 5(d).

 

 

4

 

 

“VWAP” means, for any
date, the price determined by the first of the following clauses
that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the
Trading Market on which the Common Stock is then listed or quoted
as reported by Bloomberg L.P. (based on a Trading Day from 9:30
a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)
if OTCQB or OTCQX is not a Trading Market, the volume weighted
average price of the Common Stock for such date (or the nearest
preceding date) on OTCQB or OTCQX as applicable, (c) if the Common
Stock is not then listed or quoted for trading on OTCQB or OTCQX
and if prices for the Common Stock are then reported in the
“Pink Sheets” published by 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 Purchasers of a
majority in interest of the Debenture then outstanding and
reasonably acceptable to the Company, the fees and expenses of
which shall be paid by the Company.

 

Section
2.           
OID;
Prepayment.

   

a)        
Original Issue
Discount. This Debenture is issued as an original issue
discount debenture and there are no regularly scheduled interest
payments on this Debenture, except as set forth in Section
7(b).

 

b)        
Prepayment.
Debenture may be prepaid by the Company at 105% of the outstanding
principal and interest at any time subject to the Holder’s
right to convert.

 

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.

 

b)        
Investment Representations
and Warranties. This Debenture has been issued subject to
certain representations and warranties 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.

 

5

 

 

 

Section
4.                  
Conversion.

 

a)           Voluntary
Conversion. At any time after the Original Issue Date 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)
and Section 4(e) 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 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 has been so converted in
which case the Holder shall surrender this Debenture as promptly as
is reasonably practicable after such conversion without delaying
the Company’s obligation to deliver the shares on the Share
Delivery Date. 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, acknowledges and agrees 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 shall initially be equal to the
lesser of (i) $3.9133 (the “Original Conversion
Price”), or (ii) the ten (10) consecutive day average
closing price after April 11, 2017 (i.e., the date of expiration of
the October 11, 2016 Lock-Up Agreements), subject to adjustment
herein (the “Conversion Price”). For
purposes of clarification, whether or not the Company provides a
notice of adjustment of the Conversion Price pursuant to Section
5(g), the Holder shall receive a number of Conversion Shares and
retain the principal amount based upon the Conversion Price as it
may be adjusted pursuant to Section 5, regardless of whether the
Holder accurately refers to such price or principal amount of this
Debenture converted in any Notice of Conversion.

 

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.

 

6

 

 

ii.           Delivery
of Conversion Shares Upon Conversion. Not later than the
earlier of (i) three (3) Trading Days and (ii) the number of
Trading Days comprising the Standard Settlement Period (as defined
below) after each Conversion Date (the “Share Delivery Date”),
the Company shall deliver, or cause to be delivered, to the Holder
(A) the Conversion Shares which, on or after the earlier of (i) the
six month anniversary of the Original Issue Date or (ii) the
Effective Date, shall be free of restrictive legends and trading
restrictions (other than those which may then be required by the
Purchase Agreement) representing the number of Conversion Shares
being acquired upon the conversion of this Debenture. On or after
the earlier of (i) the six month anniversary of the Original Issue
Date or (ii) the Effective Date, the Company shall deliver any
Conversion Shares 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. As used herein, “Standard Settlement
Period” means the standard settlement period,
expressed in a number of Trading Days, on the Company’s
primary Trading Market with respect to the Common Stock as in
effect on the date of delivery of the Notice of
Conversion.

 

iii.           Failure
to Deliver Conversion Shares. If, in the case of any Notice
of Conversion, such Conversion Shares 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 Conversion Shares, 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
Conversion Shares issued to such Holder pursuant to the rescinded
Notice of Conversion.

 

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 Conversion Shares 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
(increasing to $20 per Trading Day on the fifth (5th) Trading Day after
such liquidated damages begin to accrue) for each Trading Day after
such Share Delivery Date until such Conversion Shares 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.

 

 

7

 

 

v.           Compensation
for Buy-In on Failure to Timely Deliver Conversion Shares 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 Conversion Shares 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 $11,000 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 Conversion Shares 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 at all times 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, 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 such 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. 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 and, if
the Registration Statement is then effective under the Securities
Act, shall be registered for public resale in accordance with such
Registration Statement (subject to such Holder’s compliance
with its obligations under the Registration Rights
Agreement).

 

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 Conversion Shares 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 Conversion Shares,
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 Conversion Shares 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
Conversion Shares 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.

 

 

8

 

 

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 other Persons acting as a group together with
the Holder or any of the Holder’s Affiliates (such Persons,
“Attribution
Parties”)) 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 and Attribution Parties 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 or
Attribution Parties 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 or the Warrants) beneficially owned by the
Holder or any of its Affiliates or
Attribution Parties. 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 Attribution
Parties) 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 or
Attribution Parties) 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 4.99% 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 Holder, upon
notice to the Company, may increase or decrease the Beneficial
Ownership Limitation provisions of this Section 4(d), provided that
the Beneficial Ownership Limitation in no event exceeds 9.99% of
the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock upon
conversion of this Debenture held by the Holder and the Beneficial
Ownership Limitation provisions of this Section 4(d) shall continue
to apply. Any increase in the Beneficial Ownership Limitation will
not be effective until the 61st day after such
notice is delivered to the Company. 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.

 

e)           Forced
Conversion. The Company may, at
the Maturity Date (as accelerated to the Acceleration Date, or as
extended to July 11, 2018 in accordance with the terms herein and
in the Purchase Agreement), require that the Holder convert any and
all outstanding principal and interest at the Conversion Price
provided (i) the Equity Conditions have been met, (ii) that the
prior 60 day VWAP exceeds 150% of the Conversion Price, (iii) the
median daily volume for the preceding 30 days exceeds 50,000 shares
per day, (iv) the Conversion Shares may be sold pursuant to Rule
144 and (v) the Company is not then in breach of under any
Transaction Document

 

 

9

 

 

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
Conversion 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,
and the number of shares issuable upon conversion of this Debenture
shall be proportionally adjusted such that the aggregate Conversion
Price of this Debenture shall remain unchanged. 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
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).

 

c)           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 conversion of this Debenture (without regard to any
limitations on conversion 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).

 

 

10

 

 

d)           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, or (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 more than 50% 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) and
Section 4(e) 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) and Section 4(e)
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 Holder and approved by the Holder
(without unreasonable delay) 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 the other
Transaction Documents with the same effect as if such Successor
Entity had been named as the Company herein.

 

e)           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.

 

f)      
     Notice
to the Holder.

 

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

 

11

 

 

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.

 

Section
6.       Acceleration and Extension of Maturity
Date. The Maturity Date shall be (i) automatically
accelerated to the Acceleration Date, and (ii) extended, at the
election of the Company, to July 11, 2018, so long as (A) the Tax
Credit has been received in full, (B) the Company is not in default
under the terms of any of the Transaction Documents after receipt
of notice from the Purchaser of the same (subject to any cure
periods), and (C) subject to and in accordance with the terms
herein and in the Debenture.

 

Section
7.          
Negative Covenants.
So long as any principal amount of the Debenture is then
outstanding, unless the Holder 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
adversely affects any rights of the Holder;

 

12

 

 

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
Debenture, the Conversion Shares or Warrant 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 $50,000 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 Debenture if on a pro-rata basis and
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 exists or
occur as a result thereof;

 

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

 

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) 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 a default under clause (B) above, is not
cured in 5 Trading Days;

 

ii.           the
Company shall breach, or fail to observe or perform, any covenant
or agreement (including, without limitation, negative covenants and
Section 2.4 of the Purchase Agreement) contained in the Debenture
(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 (viii) below) or in any Transaction
Document, which breach or failure is not cured, but only if a cure
period is expressly provided for such breach or failure) 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.           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;

 

13

 

 

 

iv.           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;

 

v.           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 $100,000, 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, which
default is not cured within five (5) Trading Days;

 

vi.           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 (5) Trading
Days;

 

vii.           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);

 

viii.           the
Company shall fail for any reason to deliver Conversion Shares to a
Holder prior to the fifth (5th) 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 the Debenture in accordance with the terms hereof;

 

ix.         
any Person shall breach any agreement delivered to the initial
Holder pursuant to Section 2.2 of the Purchase
Agreement;

 

x.           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” and such default is not cured within five (5)
Trading Days;

 

xi.           any
monetary judgment, writ or similar non-appealable final process
shall be entered or filed against the Company, any subsidiary or
any of their respective property or other assets for more than
$50,000, and such judgment, writ or similar final process shall
remain unvacated, unbonded or unstayed for a period of 45 calendar
days;

 

xii.           a
false or inaccurate certification (including a false or inaccurate
deemed certification) by the Company that the Equity Conditions are
satisfied or that there has been no Equity Conditions Failure or as
to whether any Event of Default has occurred;

 

xiii.           any
event that impairs or delays the payment of the Tax Credit to the
Company or ABS; or

 

 

14

 

 

 

xiv.           any
event which causes the Company’s current Chief Executive
Officer to no longer be involved with the day to day operations of
the Company.

 

b)           Remedies
Upon Event of Default. If any Event of Default occurs, the
outstanding principal amount of this Debenture, 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 five (5) days after the occurrence of any Event
of Default that results in the eventual acceleration of this
Debenture, the (i) interest rate on this Debenture shall accrue at
an interest rate equal to the lesser of 18% per annum or the
maximum rate permitted under applicable law and (ii) the Conversion
Price shall thereafter be the lesser of (i) the Conversion Price
and (ii) the closing price of the Common Stock on the Trading Day
immediately preceding the Event of Default. 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.

 

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, by email attachment, or sent by a
nationally recognized overnight courier service, addressed to the
Company, at the address set forth above, or such other facsimile
number, email address, 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, by email
attachment, or sent by a nationally recognized overnight courier
service addressed to each Holder at the facsimile number, email
address or address of the Holder appearing on the books of the
Company, or if no such facsimile number or email attachment 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 or email attachment to the email
address set forth on the signature pages attached hereto prior to
5:30 p.m. (New York City time) on any Trading Day, (ii) the next
Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number or
email attachment to the email address 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.

 

15

 

 

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.

 

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 Delaware, 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 Illinois, County of Cook (the “Illinois Courts”). Each
party hereto hereby irrevocably submits to the exclusive
jurisdiction of the Illinois 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 Illinois Courts, or such Illinois 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.

 

 

16

 

 

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 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.

 

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.

 

j)       
Secured Obligation.
The obligations of the Company under this Debenture are secured by
the collateral set forth in the Security Agreement and guaranteed
by ABS pursuant to the Subsidiary Guarantee.

Section
10. Disclosure.
Upon receipt or delivery by the Company of any notice in accordance
with the terms of this Debenture, unless the Company has in good
faith determined that the matters relating to such notice do not
constitute material, nonpublic information relating to the Company
or its Subsidiaries, the Company shall within two (2) Business Days
after such receipt or delivery publicly disclose such material,
nonpublic information on a Current Report on Form 8-K or otherwise.
In the event that the Company believes that a notice contains
material, non-public information relating to the Company or its
Subsidiaries, the Company so shall indicate to the Holder
contemporaneously with delivery of such notice, and in the absence
of any such indication, the Holder shall be allowed to presume that
all matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its
Subsidiaries.

 

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

 

 

 

(Signature Pages Follow)

 

 

17

 

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.

 

 

	
 

	

AzurRx
BioPharma, Inc.

 

 

	
 

	

By:__________________________________________

     Name:
Johann M. Spoor

     Title:
Chief Executive Officer

 

Email
and Facsimile No. for delivery of Notices:
tspoor@azurrx.com

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