Document:

Blueprint

 

SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT (this
“Agreement”), dated as of
November 20, 2017, is between CANTABIO PHARMACEUTICALS INC., a company
incorporated under the laws of the State of Delaware, with
headquarters located at 1250 Oakmead Pkwy, Sunnyvale, California,
94085 (the “Company”), and each of
the investors listed on the Schedule of Buyers attached hereto
(individually, a “Buyer” and collectively
the “Buyers”).

 

WITNESSETH

 

WHEREAS, the Company and each Buyer
desire to enter into this transaction for the Company to sell and
the Buyers to purchase the Convertible Debentures (as defined
below) pursuant to an exemption from registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D
(“Regulation
D”) as promulgated by the U.S. Securities and Exchange
Commission (the “SEC”) under the
Securities Act of 1933, as amended (the “Securities
Act”);

 

WHEREAS, the parties desire that, upon
the terms and subject to the conditions contained herein, the
Company shall issue and sell to the Buyer(s), as provided herein,
and the Buyer(s) shall purchase up to $300,000 of secured
convertible debentures in the form attached hereto as
“Exhibit
A” (the “Convertible Debentures”),
which shall be convertible into shares of the Company’s
common stock, par value $0.001 (the “Common Stock”) (as
converted, the “Conversion Shares”), of
which $150,000 shall be purchased upon the signing this agreement
(the “First
Closing”), and $150,000 shall be purchased within five
days of the date that that the conditions precedent to the second
closing, including the receipt by the Company of $100,000 of net
proceeds from a financing transaction, have been satisfied (the
“Second
Closing) (individually referred to as a “Closing” collectively
referred to as the “Closings”), for a total
purchase price of up to $300,000 (the “Purchase Price”) in the
respective amounts set forth opposite each Buyer(s) name on
Schedule I (the “Subscription
Amount”);

 

WHEREAS, contemporaneously with the execution and
delivery of this Agreement, the Buyer, the Company, and each
subsidiary of the Company are executing and delivering a Security
Agreement (all such security agreements shall be referred to as the
“Security
Agreement”) pursuant to which the Company and its
wholly owned subsidiaries agree to provide the Buyer a security
interest in Pledged Property (as this term is defined in the
Security Agreement);
and

 

WHEREAS, the Convertible Debentures and
the Conversion Shares are collectively referred to herein as the
“Securities.”

 

AGREEMENT

 

 

NOW, THEREFORE, in consideration of the
premises and the mutual covenants contained herein and for other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and each Buyer hereby
agree as follows:

 

1.

PURCHASE
AND SALE OF CONVERTIBLE DEBENTURES.

 

(a) Purchase of Convertible
Debentures. Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 6 and 7 below, the Company shall
issue and sell to each Buyer, and each Buyer severally, but not
jointly, agrees to purchase from the Company at each Closing
Convertible Debentures in amounts corresponding with the
Subscription Amount set forth opposite each Buyer’s name on
Schedule of Buyers attached as Schedule I hereto.

 

(b)               Closing
Dates. Each Closing of the purchase of Convertible
Debentures by the Buyers shall occur at the offices Yorkville
Advisors Global, LP, 1012 Springfield Avenue, Mountainside, NJ
07092. The date and time of each Closing shall be as follows: (i)
the First Closing shall be 10:00 a.m., New York time, on the first
(1st) Business Day on which the conditions to the First Closing set
forth in Sections 6 and 7 below are satisfied or waived (or such
other date as is mutually agreed to by the Company and each Buyer)
(the “First Closing
Date”), and (ii) the Second Closing shall be 10:00
a.m., New York time, on the fifth Business Day after the date on
the Company has provided notice to the Buyers of the satisfaction
of all the conditions to the Closing set forth in Sections 7 (or
such other date as is mutually agreed to by the Company and each
Buyer) (the “Second
Closing Date” and collectively referred to as the
“Closing
Dates”). As used herein “Business Day” means any
day other than a Saturday, Sunday or other day on which commercial
banks in New York, New York are authorized or required by law to
remain closed.

 

(c)               Form
of Payment. Deliveries. Subject to the satisfaction of the
terms and conditions of this Agreement, on each Closing Date, (i)
the Buyers shall deliver to the Company such aggregate proceeds for
the Convertible Debentures to be issued and sold to such Buyer at
such Closing, minus the fees to be paid directly from the proceeds
of such Closing as set forth herein, and (ii) the Company
shall deliver to each Buyer, Convertible Debentures which such
Buyer is purchasing at such Closing in amounts indicated opposite
such Buyer’s name on Schedule I, duly executed on behalf of
the Company.

 

2. 

BUYER’S
REPRESENTATIONS AND WARRANTIES.

 

Each
Buyer, severally and not jointly, represents and warrants to the
Company with respect to only itself that, as of the date hereof and
as of each Closing Date:

 

(a) Investment Purpose. The Buyer
is acquiring the Securities for its own account for investment only
and not with a view towards, or for resale in connection with, the
public sale or distribution thereof, except pursuant to sales
registered or exempted under the Securities Act; provided, however,
that by making the representations herein, such Buyer reserves the
right to dispose of the Securities at any time in accordance with
or pursuant to an effective registration statement covering such
Securities or an available exemption under the Securities Act. Such
Buyer does not presently have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the
Securities.

 

(b)               Accredited
Investor Status. The Buyer is an “Accredited
Investor” as that term is defined in Rule 501(a)(3) of
Regulation D.

 

(c)               Reliance
on Exemptions. The Buyer understands that the Securities are
being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and
state securities laws and that the Company is relying in part upon
the truth and accuracy of, and such Buyer’s compliance with,
the representations, warranties, agreements, acknowledgments and
understandings of such Buyer set forth herein in order to determine
the availability of such exemptions and the eligibility of such
Buyer to acquire the Securities.

 

(d)               Information.
The Buyer and its advisors (and his or, its counsel), if any, have
been furnished with all materials relating to the business,
finances and operations of the Company and information he deemed
material to making an informed investment decision regarding his
purchase of the Securities, which have been requested by such
Buyer. The Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company and its management.
Neither such inquiries nor any other due diligence investigations
conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer’s
right to rely on the Company’s representations and warranties
contained in Section 3 below. The Buyer understands that its
investment in the Securities involves a high degree of risk. The
Buyer has sought such accounting, legal and tax advice, as it has
considered necessary to make an informed investment decision with
respect to its acquisition of the Securities.

 

(e)               Transfer
or Resale. The Buyer understands that: (i) the Securities
have not been registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, (B) such
Buyer shall have delivered to the Company an opinion of counsel, in
a generally acceptable form, to the effect that such Securities to
be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration
requirements, or (C) such Buyer provides the Company with
reasonable assurances (in the form of seller and broker
representation letters) that such Securities can be sold, assigned
or transferred pursuant to Rule 144 promulgated under the
Securities Act, as amended (or a successor rule thereto)
(collectively, “Rule
144”), in each case following the applicable holding
period set forth therein; and (ii) any sale of the Securities made
in reliance on Rule 144 may be made only in accordance with the
terms of Rule 144 and further, if Rule 144 is not applicable, any
resale of the Securities under circumstances in which the
seller (or the person through whom the sale is made) may be
deemed to be an underwriter (as that term is defined in the
Securities Act) may require compliance with some other exemption
under the Securities Act or the rules and regulations of the SEC
thereunder.

 

(f)               Legends.
The Buyer agrees to the imprinting, so long as its required by this
Section 2(f), of a restrictive legend on the Securities in
substantially the following form:

 

THE
SECURITIES REPRESENTED BY THIS CERTIFICATE [AND THOSE SECURITIES
INTO WHICH THEY ARE CONVERTIBLE] HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES [AND THOSE SECURITIES INTO WHICH THEY ARE
CONVERTIBLE] HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND
NOT WITH A VIEW TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN
OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS.

 

Certificates
evidencing the Conversion Shares shall not contain any legend
(including the legend set forth above), (i) while a registration
statement covering the resale of such security is effective under
the Securities Act, (ii) following any sale of such Conversion
Shares pursuant to Rule 144, (iii) if such Conversion Shares are
eligible for sale under Rule 144, or (iv) if such legend is not
required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by
the staff of the SEC). The Buyer agrees that the removal of
restrictive legend from certificates representing Securities as set
forth in this Section 3(f) is predicated upon the Company’s
reliance that the buyer 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.

 

(g) Organization. Authority. Such
Buyer is an entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization
with the requisite power and authority to enter into and to
consummate the transactions contemplated by the Transaction
Documents (as defined below) to which it is a party and otherwise
to carry out its obligations hereunder and thereunder.

 

(h)               Authorization,
Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of such Buyer and
shall constitute the legal, valid and binding obligations of such
Buyer enforceable against such Buyer in accordance with its terms,
except as such enforceability may be limited by general principles
of equity or to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors'
rights and remedies.

 

(i)               No
Conflicts. The execution, delivery and performance by such
Buyer of this Agreement and the consummation by such Buyer of the
transactions contemplated hereby will not (i) result in a violation
of the organizational documents of such Buyer, (ii) conflict with,
or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which such Buyer is a
party or (iii) result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities
laws) applicable to such Buyer, except, in the case of clauses (ii)
and (iii) above, for such conflicts, defaults, rights or violations
which could not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the ability of such
Buyer to perform its obligations hereunder.

 

(j)               Certain
Trading Activities. The Buyer has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to
any understanding with the Buyer, engaged in any transactions in
the securities of the Company (including, without limitation, any
Short Sales (as defined below) involving the Company's securities)
during the period commencing as of the time that the Buyer first
contacted the Company or the Company's agents regarding the
specific investment in the Company contemplated by this Agreement
and ending immediately prior to the execution of this Agreement by
such Buyer. The Buyer hereby agrees that it shall not directly or
indirectly, engage in any Short Sales involving the Company’s
securities during the period commencing on the date hereof and
ending when no Convertible Debentures remain outstanding. "Short
Sales" means all "short sales" as defined in Rule 200 promulgated
under Regulation SHO under the 1934 Act (as defined below). The
Buyer is aware that Short Sales and other hedging activities may be
subject to applicable federal and state securities laws, rules and
regulations and the Buyer acknowledges that the responsibility of
compliance with any such federal or state securities laws, rules
and regulations is solely the responsibility of the
Buyer.

 

 

3. 

REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.

 

 

Except
as set forth under the corresponding section of the Disclosure
Schedules which Disclosure Schedules shall be deemed a part hereof
and to qualify any representation or warranty otherwise made herein
to the extent of such disclosure, the Company hereby makes the
representations and warranties set forth below to the
Buyer:

 

 

(a) Organization and Qualification.
The Company and each of its Subsidiaries are entities duly formed,
validly existing and in good standing under the laws of the
jurisdiction in which they are formed, and have the requisite power
and authority to own their properties and to carry on their
business as now being conducted and as presently proposed to be
conducted. The Company and each of its Subsidiaries is duly
qualified as a foreign entity to do business and is in good
standing in every jurisdiction in which its ownership of property
or the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to
be so qualified or be in good standing would not reasonably be
expected to have a Material Adverse Effect (as defined below). As
used in this Agreement, “Material Adverse Effect”
means any material adverse effect on (i) the business, properties,
assets, liabilities, operations (including results thereof),
condition (financial or otherwise) or prospects of the Company and
its Subsidiary, taken as a whole, (ii) the transactions
contemplated hereby or in any of the other Transaction Documents or
any other agreements or instruments to be entered into by the
Company in connection herewith or therewith or (iii) the authority
or ability of the Company to perform any of its obligations under
any of the Transaction Documents (as defined below).
“Subsidiaries” means any
Person in which the Company, directly or indirectly, owns a
majority of the outstanding capital stock having voting power or
holds a majority of the equity or similar interest of such Person,
and each of the foregoing, is individually referred to herein as a
“Subsidiary”.

 

 

 

(b)           Authorization.
Enforcement. Validity. The Company has the requisite power
and authority to enter into and perform its obligations under this
Agreement and the other Transaction Documents and to issue the
Securities in accordance with the terms hereof and thereof. The
execution and delivery of this Agreement and the other Transaction
Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Convertible Debentures, the
reservation for issuance and issuance of the Conversion Shares
issuable upon conversion of the Convertible Debentures, have been
duly authorized by the Company's board of directors and no further
filing, consent or authorization is required by the Company, its
board of directors or its stockholders or other governmental body.
This Agreement has been, and the other Transaction Documents to
which the Company is a party will be prior to the Closing, duly
executed and delivered by the Company, and each constitutes the
legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with its respective terms, except
as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting
generally, the enforcement of applicable creditors' rights and
remedies and except as rights to indemnification and to
contribution may be limited by federal or state securities law.
“Transaction
Documents” means, collectively, this Agreement, the
Convertible Debentures, and each of the other agreements and
instruments entered into by the Company or delivered by the Company
in connection with the transactions contemplated hereby and
thereby, as may be amended from time to time.

 

 

 

(c)           Issuance
of Securities. The issuance of the Convertible Debentures
are duly authorized and, upon issuance and payment in accordance
with the terms of the Transaction Documents, the Convertible
Debentures shall be validly issued, fully paid and
non­assessable and free from all preemptive or similar rights,
mortgages, defects, claims, liens, pledges, charges, taxes, rights
of first refusal, encumbrances, security interests and other
encumbrances (collectively “Liens”) with respect to
the issuance thereof. As of the Closing, the Company shall have
reserved from its duly authorized capital stock not less than (i)
300% of the maximum number of shares of Common Stock issuable upon
conversion of all Convertible Debentures (assuming for purposes
hereof that (x) such Convertible Debentures are convertible at the
Conversion Price (as defined therein) as of the date of
determination, (y) any such conversion shall not take into account
any limitations on the conversion of the Convertible Debentures set
forth therein). Upon issuance or conversion in accordance with the
Convertible Debentures, the Conversion Shares, when issued, will be
validly issued, fully paid and nonassessable and free from all
preemptive or similar rights or Liens with respect to the issue
thereof, with the holders being entitled to all rights accorded to
a holder of Common Stock.

 

 

(d)               No
Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Convertible
Debentures, the Conversion Shares, and the reservation for issuance
of the Conversion Shares) will not (i) result in a violation of the
Articles of Incorporation (as defined below), Bylaws (as defined
below), certificate of formation, memorandum of association,
articles of association, bylaws or other organizational documents
of the Company or any of its Subsidiaries, or any capital stock or
other securities of the Company or any of its Subsidiaries, (ii)
conflict with, or constitute a default under, or give to others any
rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company or any
of its Subsidiaries is a party, or (iii) result in a violation of
any law, rule, regulation, order, judgment or decree (including,
without limitation, U.S. federal and state securities laws and
regulations, the securities laws of the jurisdictions of the
Company's incorporation or in which it or its subsidiaries operate
and the rules and regulations of the OTC QB (the
“Principal
Market”) and including all applicable laws, rules and
regulations of the State of Delaware) applicable to the Company or
any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected, except in
the case of (ii) and (iii) for any conflict, default, right or
violation that would not reasonably be expected to result in a
Material Adverse Effect.

 

 

(e)           Consents.
The Company is not required to obtain any material consent from,
authorization or order of, or make any filing or registration with
(other than any filings as may be required by any state securities
agencies and any filings as may be required by the Principal
Market), any Governmental Entity (as defined below) or any
regulatory or self­regulatory agency or any other Person in
order for it to execute, deliver or perform any of its obligations
under or contemplated by the Transaction Documents, in each case,
in accordance with the terms hereof or thereof. All consents,
authorizations, orders, filings and registrations which the Company
or any Subsidiary is required to obtain pursuant to the preceding
sentence have been or will be obtained or effected on or prior to
each Closing Date, and neither the Company nor any of its
Subsidiaries are aware of any facts or circumstances which might
prevent the Company or any of its Subsidiaries from obtaining or
effecting any of the registration, application or filings
contemplated by the Transaction Documents. The Company is not in
violation of the requirements of the Principal Market and has no
knowledge of any facts or circumstances which could reasonably lead
to delisting or suspension of the Common Stock in the foreseeable
future. The Company has notified the Principal Market of the
issuance of all of the Securities hereunder, which does not require
obtaining the approval of the stockholders of the Company or any
other Person or Governmental Entity, and the Principal Market has
completed its review of the related Listing of Additional Share
form. “Governmental
Entity” means any nation, state, county, city, town,
village, district, or other political jurisdiction of any nature,
federal, state, local, municipal, foreign, or other government,
governmental or quasi­governmental authority of any nature
(including any governmental agency, branch, department, official,
or entity and any court or other tribunal), multi­national
organization or body. or body exercising, or entitled to exercise,
any administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature or
instrumentality of any of the foregoing, including any entity or
enterprise owned or controlled by a government or a public
international organization or any of the foregoing.

 

 

(f)           Acknowledgment
Regarding Buyer's Purchase of Securities. The Company
acknowledges and agrees that each Buyer is acting solely in the
capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby and
thereby and that no Buyer is (i) an officer or director of the
Company or any of its Subsidiaries, (ii) to its knowledge, an
"affiliate" (as defined in Rule 144 promulgated under the 1933 Act
(or a successor rule thereto) (collectively, “Rule 144”)) of the
Company or any of its Subsidiaries or (iii) to its knowledge, a
“beneficial owner” of more than 10% of the shares of
Common Stock (as defined for purposes of Rule 13d­3 of the
1934 Act). The Company further acknowledges that no Buyer is acting
as a financial advisor or fiduciary of the Company or any of its
Subsidiaries (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated hereby and
thereby, and any advice given by a Buyer or any of its
representatives or agents in connection with the Transaction
Documents and the transactions contemplated hereby and thereby is
merely incidental to such Buyer's purchase of the Securities. The
Company further represents to each Buyer that the Company's
decision to enter into the Transaction Documents to which it is a
party has been based solely on the independent evaluation by the
Company and its representatives.

 

 

(g)           No
Integrated Offering. None of the Company, its Subsidiaries
or any of their affiliates, nor any Person acting on 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
require approval of stockholders of the Company under any
applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of any exchange or
automated quotation system on which any of the securities of the
Company are listed or designated for quotation. None of the
Company, its Subsidiaries, their affiliates nor any Person acting
on their behalf will take any action or steps that would cause the
offering of any of the Securities to be integrated with other
offerings of securities of the Company.

 

 

(h)           Dilutive
Effect. The Company understands and acknowledges that the
number of Conversion Shares will increase in certain circumstances.
The Company further acknowledges its obligation to issue the
Conversion Shares upon conversion of the Convertible Debentures in
accordance with this Agreement and the Convertible Debentures is,
absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other
stockholders of the Company.

 

 

(i)           Application
of Takeover Protections. Rights Agreement. The Company and
its board of directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition,
interested stockholder, business combination, poison pill
(including, without limitation, any distribution under a rights
agreement), stockholder rights plan or other similar
anti­takeover provision under the Articles of Incorporation,
Bylaws or other organizational documents or the laws of the
jurisdiction of its incorporation or otherwise which is or could
become applicable to any Buyer as a result of the transactions
contemplated by this Agreement, including, without limitation, the
Company's issuance of the Securities and any Buyer's ownership of
the Securities.

 

 

(j)            SEC
Documents. Financial Statements. Except for its quarterly
report on Form 10-Q filed on March 18, 2016, during the two (2)
years prior to the date hereof, the Company has timely filed all
reports, schedules, forms, proxy statements, statements and other
documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Securities Exchange Act of 1934, as
amended (the “1934
Act”) (all of the foregoing filed prior to the date
hereof and all exhibits and appendices included therein and
financial statements, notes and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as
the “SEC
Documents”). The Company has delivered or has made
available to the Buyers or their respective representatives true,
correct and complete copies of each of the SEC Documents not
available on the EDGAR system. As of their respective dates, the
SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the
SEC promulgated thereunder applicable to the SEC Documents, and
none of the SEC Documents, at the time they were filed with the
SEC, 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. As of
their respective dates, the financial statements of the Company
included in the SEC Documents complied in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto as in effect as of the
time of filing. Such financial statements have been prepared in
accordance with generally accepted accounting principles
(“GAAP”), consistently
applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to
the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the
results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal
year­end audit adjustments which will not be material, either
individually or in the aggregate). The reserves, if any,
established by the Company or the lack of reserves, if applicable,
are reasonable based upon facts and circumstances known by the
Company on the date hereof and there are no loss contingencies that
are required to be accrued by the Statement of Financial Accounting
Standard No. 5 of the Financial Accounting Standards Board which
are not provided for by the Company in its financial statements or
otherwise. No other information provided by or on behalf of the
Company to any of the Buyers which is not included in the SEC
Documents (including, without limitation, information in the
disclosure schedules to this Agreement) contains any untrue
statement of a material fact or omits to state any material fact
necessary in order to make the statements therein not misleading,
in the light of the circumstance under which they are or were made.
The Company is not currently contemplating to amend or restate any
of the financial statements (including, without limitation, any
notes or any letter of the independent accountants of the Company
with respect thereto) included in the SEC Documents (the
“Financial
Statements”), nor is the Company currently aware of
facts or circumstances which would require the Company to amend or
restate any of the Financial Statements, in each case, in order for
any of the Financials Statements to be in compliance with GAAP and
the rules and regulations of the SEC. The Company has not been
informed by its independent accountants that they recommend that
the Company amend or restate any of the Financial Statements or
that there is any need for the Company to amend or restate any of
the Financial Statements.

 

 

(k)           Absence
of Certain Changes. Other than the breach by the Purchaser
of the Private Placement Subscription Agreement, dated October 21,
2015 and attached as exhibit 10.5 to the Company’s Annual
Report on Form 10-K filed July 14, 2016, since the date of the
Company's most recent audited financial statements contained in a
Form 10-K, there has been no material adverse change and no
material adverse development in the business, assets, liabilities,
properties, operations (including results thereof), condition
(financial or otherwise) or prospects of the Company or any of its
Subsidiaries. Since the date of the Company's most recent audited
financial statements contained in a Form 10-K, neither the Company
nor any of its Subsidiaries has (i) declared or paid any dividends,
(ii) sold any material assets, individually or in the aggregate,
outside of the ordinary course of business or (iii) made any
material capital expenditures, individually or in the aggregate,
outside of the ordinary course of business. Neither the Company nor
any of its Subsidiaries has taken any steps to seek protection
pursuant to any law or statute relating to bankruptcy, insolvency,
reorganization, receivership, liquidation or winding up, nor does
the Company or any Subsidiary have any knowledge or reason to
believe that any of their respective creditors intend to initiate
involuntary bankruptcy proceedings or any actual knowledge of any
fact which would reasonably lead a creditor to do so.

 

 

(l)           No
Undisclosed Events, Liabilities, Developments or
Circumstances. No event, liability, development or
circumstance has occurred or exists, or is reasonably expected to
exist or occur specific to the Company, any of its Subsidiaries or
any of their respective businesses, properties, liabilities,
prospects, operations (including results thereof) or condition
(financial or otherwise), that has not been publicly disclosed and
would reasonably be expected to have a Material Adverse Effect. For
the avoidance of doubt, this section shall not relate to any event,
liability, development or circumstance that affects others
companies in the shipping industry.

 

 

(m)           Conduct
of Business. Regulatory Permits. Neither the Company nor any
of its Subsidiaries is in violation of any term under its Articles
of Incorporation, any certificate of designation, preferences or
rights of any other outstanding series of preferred stock of the
Company or any of its Subsidiaries or Bylaws or their
organizational charter, certificate of formation, memorandum of
association, articles of association, Articles of Incorporation or
certificate of incorporation or bylaws, respectively. Neither the
Company nor any of its Subsidiaries is in violation of any
judgment, decree or order or any statute, ordinance, rule or
regulation applicable to the Company or any of its Subsidiaries,
and neither the Company nor any of its Subsidiaries will conduct
its business in violation of any of the foregoing, except in all
cases for violations which would not reasonably be expected to have
a Material Adverse Effect. Without limiting the generality of the
foregoing, the Company is not in violation of any of the rules,
regulations or requirements of the Principal Market and has no
knowledge of any facts or circumstances that could reasonably lead
to delisting or suspension of the Common Stock by the Principal
Market in the foreseeable future. During the one year prior to the
date hereof, (i) the Common Stock has been listed or designated for
quotation on the Principal Market, (ii) trading in the Common Stock
has not been suspended by the SEC or the Principal Market and (iii)
the Company has received no communication, written or oral, from
the SEC or the Principal Market regarding the suspension or
delisting of the Common Stock from the Principal Market, which has
not been publicly disclosed. The Company and each of its
Subsidiaries possess all certificates, authorizations and permits
issued by the appropriate regulatory authorities necessary to
conduct their respective businesses, except where the failure to
possess such certificates, authorizations or permits would not
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect, and neither the Company nor any of its
Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization
or permit. There is no agreement, commitment, judgment, injunction,
order or decree binding upon the Company or any of its Subsidiaries
or to which the Company or any of its Subsidiaries is a party which
has or would reasonably be expected to have the effect of
prohibiting or materially impairing any business practice of the
Company or any of its Subsidiaries, any acquisition of property by
the Company or any of its Subsidiaries or the conduct of business
by the Company or any of its Subsidiaries as currently conducted
other than such effects, individually or in the aggregate, which
have not had and would not reasonably be expected to have a
Material Adverse Effect on the Company or any of its
Subsidiaries.

 

 

(n)           Foreign
Corrupt Practices. Neither the Company nor any of its
Subsidiaries nor any director, officer, agent, employee, nor any
other person acting for or on behalf of the Company or any of its
Subsidiaries (individually and collectively, a “Company Affiliate”) have
violated the U.S. Foreign Corrupt Practices Act (the
“FCPA) or any
other applicable anti­bribery or anti­ corruption laws,
nor has any Company Affiliate offered, paid, promised to pay, or
authorized the payment of any money, or offered, given, promised to
give, or authorized the giving of anything of value, to any
officer, employee or any other person acting in an official
capacity for any Governmental Entity to any political party or
official thereof or to any candidate for political office
(individually and collectively, a “Government Official”) or
to any person under circumstances where such Company Affiliate knew
or was aware of a high probability that all or a portion of such
money or thing of value would be offered, given or promised,
directly or indirectly, to any Government Official, for the
purpose, in violation of applicable law, of: (i) (A) influencing
any act or decision of such Government Official in his/her official
capacity, (B) inducing such Government Official to do or omit to do
any act in violation of his/her lawful duty, (C) securing any
improper advantage, or (D) inducing such Government Official to
influence or affect any act or decision of any Governmental Entity,
or (ii) assisting the Company or its Subsidiaries in obtaining or
retaining business for or with, or directing business to, the
Company or its Subsidiaries.

 

 

 

(o)           Equity
Capitalization.

 

 

(i)             Definitions:

 

 

 

(A)             “Common
Stock” means (x) the Company's shares of common stock,
par value $0.001 per share, and (y) any capital stock into which
such common stock shall have been changed or any share capital
resulting from a reclassification of such common
stock.

 

 

 

 

Authorized
and Outstanding Capital Stock. As of the date hereof, the
authorized capital stock of the Company consists of (A) 250,000,000
shares of Common Stock, of which, 28,993,430 are issued and
outstanding and (B) 0 shares of preferred stock.

 

 

 

(ii)             Valid
Issuance. Available Shares. All of such outstanding shares
are duly authorized and have been validly issued and are fully paid
and nonassessable.

 

 

 

(iii)             Existing
Securities. Obligations. Except as disclosed in the SEC
Documents: (A) none of the Company's or any Subsidiary's shares,
interests or capital stock is subject to preemptive rights or any
other similar rights or Liens suffered or permitted by the Company
or any Subsidiary. (B) there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any shares,
interests or capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or
may become bound to issue additional shares, interests or capital
stock of the Company or any of its Subsidiaries or options,
warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any shares,
interests or capital stock of the Company or any of its
Subsidiaries. (C) there are no agreements or arrangements under
which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act
(except pursuant to this Agreement). (D) there are no outstanding
securities or instruments of the Company or any of its Subsidiaries
which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to
redeem a security of the Company or any of its Subsidiaries. (E)
there are no securities or instruments containing
anti­dilution or similar provisions that will be triggered by
the issuance of the Securities. and (G) neither the Company nor any
Subsidiary has any stock appreciation rights or "phantom stock"
plans or agreements or any similar plan or agreement.

 

 

 

(iv)             Organizational
Documents. The Company has furnished to the Buyers or filed
on EDGAR true, correct and complete copies of the Company's
Articles of Incorporation, as amended and as in effect on the date
hereof (the “Articles of
Incorporation”), and the Company's bylaws, as amended
and as in effect on the date hereof (the “Bylaws”), and the terms
of all Convertible Securities and the material rights of the
holders thereof in respect thereto.

 

 

 

(p)           Litigation.
Except as disclosed in the SEC Documents, there is no action, suit,
arbitration, proceeding, inquiry or investigation before or by the
Principal Market, any court, public board, other Governmental
Entity, self­regulatory organization or body pending or, to
the knowledge of the Company, threatened against or affecting the
Company or any of its Subsidiaries, the Common Stock or any of the
Company's or its Subsidiaries' officers or directors, whether of a
civil or criminal nature or otherwise, in their capacities as such,
which would reasonably be expected to result in a Material Adverse
Effect. After reasonable inquiry of its employees, the Company is
not aware of any event which might result in or form the basis for
any such action, suit, arbitration, investigation, inquiry or other
proceeding. Without limitation of the foregoing, there has not
been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the SEC involving the Company,
any of its Subsidiaries or any current or former director or
officer of the Company or any of its Subsidiaries. Neither the
Company nor any of its Subsidiaries is the subject of any order,
writ, judgment, injunction, decree, determination or award of any
Governmental Entity that would reasonably be expected to result in
a Material Adverse Effect.

 

 

(q)           Insurance.
The Company and each of its Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and
its Subsidiaries are engaged. In accordance with the
previous sentence, the Company currently maintains no insurance
policies. Neither the Company nor any
such Subsidiary has been refused any insurance coverage sought or
applied for, and neither the Company nor any such Subsidiary has
any reason to believe that it will be unable 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 at a cost that would not have a Material
Adverse Effect.

 

 

(r)           Manipulation
of Price. Neither the Company nor any of its Subsidiaries
has, and, to the knowledge of the Company, no Person acting on
their behalf has, directly or indirectly, (i) taken any action
designed to cause or to result in the stabilization or manipulation
of the price of any security of the Company or any of its
Subsidiaries 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 or any of
its Subsidiaries.

 

 

(s)           Registration
Eligibility. The Company is eligible to register the resale
of the Conversion Shares by the Buyers using Form S­1
promulgated under the 1933 Act.

 

 

(t)           Shell
Company Status. The Company is not, and since December 17,
2015 has not been, an issuer identified in Rule
144(i)(1)(i).

 

 

(u)           Money
Laundering. The Company and its Subsidiaries are in
compliance with, and have not previously violated, the USA Patriot
Act of 2001 and all other applicable U.S. and non­U.S.
anti­money laundering laws and regulations, including, but not
limited to, the laws, regulations and Executive Orders and
sanctions programs (“Sanctions Programs”)
administered by the U.S. Office of Foreign Assets Control
(“OFAC”), including,
without limitation, (i) Executive Order 13224 of September 23, 2001
entitled, "Blocking Property and Prohibiting Transactions With
Persons Who Commit, Threaten to Commit, or Support Terrorism" (66
Fed. Reg. 49079 (2001)). and any regulations contained in 31 CFR,
Subtitle B, Chapter V.

 

 

(v)           Disclosure.
The Company confirms that neither it nor any other Person acting on
its behalf has provided any of the Buyers or their agents or
counsel with any information that constitutes or could reasonably
be expected to constitute material, non­ public information
concerning the Company or any of its Subsidiaries, other than the
existence of the transactions contemplated by this Agreement and
the other Transaction Documents. The Company understands and
confirms that each of the Buyers will rely on the foregoing
representations in effecting transactions in securities of the
Company. All disclosure provided to the Buyers regarding the
Company and its Subsidiaries, their businesses and the transactions
contemplated hereby, including the schedules to this Agreement,
furnished by or on behalf of the Company or any of its
Subsidiaries, taken as a whole, 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 the light of the circumstances under which they were
made, not misleading. All of the written information furnished
after the date hereof by or on behalf of the Company or any of its
Subsidiaries to each Buyer pursuant to or in connection with this
Agreement and the other Transaction Documents, taken as a whole,
will be true and correct in all material respects as of the date on
which such information is so provided and will not contain any
untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or information
exists with respect to the Company or any of its Subsidiaries or
its or their business, properties, liabilities, prospects,
operations (including results thereof) or conditions (financial or
otherwise), which, under applicable law, rule or regulation,
requires public disclosure at or before the date hereof or
announcement by the Company but which has not been so publicly
disclosed. All financial projections and forecasts that have been
prepared by or on behalf of the Company or any of its Subsidiaries
and made available to the Buyers have been prepared in good faith
based upon reasonable assumptions and represented, at the time each
such financial projection or forecast was delivered to each Buyer,
the Company's best estimate of future financial performance (it
being recognized that such financial projections or forecasts are
not to be viewed as facts and that the actual results during the
period or periods covered by any such financial projections or
forecasts may differ from the projected or forecasted results). The
Company acknowledges and agrees that no Buyer makes or has made any
representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in
Section 2.

 

 

 

(w)           No
General Solicitation. Neither the Company, nor any of its
affiliates, nor any Person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Securities Act) in
connection with the offer or sale of the Securities.

 

 

(x)           Private
Placement. Assuming the accuracy of the Buyers’
representations and warranties set forth in Section 2, no
registration under the Securities Act is required for the offer and
sale of the Securities by the Company to the Buyers as contemplated
hereby. The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the Primary
Market.

 

 

4. 

COVENANTS.

 

 

(a) Reporting Status. Until the
date on which the Buyers shall have sold all of the Underlying
Securities, as defined below, (the “Reporting Period”), the
Company shall timely file all reports required to be filed with the
SEC pursuant to the 1934 Act, and the Company shall not terminate
its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would
no longer require or otherwise permit such
termination.

 

(b) Use of Proceeds. The Company
will use the proceeds from the sale of the Securities hereunder
(and the additional $100,000 of proceeds required as a condition
precedent to the Second Closing) in strict compliance Exhibit B (“Use of Proceeds”) hereto.
Neither the Company nor any Subsidiary will, directly or
indirectly, use any portion of the proceeds of the transactions
contemplated herein, or lend, contribute, facilitate or
otherwise make available such proceeds to any Person (i) to make
any payment towards any indebtedness or other obligations of the
Company or any Subsidiary, except to the extent set forth in the
Use of Proceeds; (ii) to pay any obligations of any nature or kind
due or owing to any officers, directors, employees, or shareholders
of the Company or any Subsidiary, other than reduced salaries and
expense reimbursements as set forth in the Use of Proceeds of the
Company or any Subsidiary and the reimbursement of any outstanding
expenses paid for out of pocket by staff on behalf of the Company;
(iii) to fund, either directly or indirectly, any activities or
business of or with any Person that is identified on the list of
Specially Designated Nationals and Blocker Persons maintained by
OFAC, or in any country or territory, that, at the time of such
funding, is, or whose government is, the subject of Sanctions
Programs, or (iv) in any other manner that will result in a
violation of Sanctions Programs. The Company and each Subsidiary
covenant and agree to only use any portion of the proceeds of the
purchase and sale of the Convertible Debentures for the purposes
set forth in the Use of Proceeds.

 

(c) Listing. The Company shall
promptly secure the listing or designation for quotation (as the
case may be) of all of the Underlying Securities (as defined below)
upon each national securities exchange and automated quotation
system, if any, upon which the Common Stock is then listed or
designated for quotation (as the case may be) (subject to official
notice of issuance) and shall maintain such listing or designation
for quotation (as the case may be) of all Underlying Securities
from time to time issuable under the terms of the Transaction
Documents on such national securities exchange or automated
quotation system. The Company shall maintain the Common
Stock’s listing or authorization for quotation (as the case
may be) on the Principal Market, The New York Stock Exchange, the
NYSE MKT, the Nasdaq Global Market, the Nasdaq Global Select
Market, or the OTCQX (each, an “Eligible Market”).
Neither the Company nor any of its Subsidiaries shall take any
action which could be reasonably expected to result in the
delisting or suspension of the Common Stock on an Eligible Market.
The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 4(i).
“Underlying
Securities” means the (i) the Conversion Shares, and
(ii) any common stock of the Company issued or issuable with
respect to the Conversion Shares, including, without limitation,
(1) as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise and (2)
shares of capital stock of the Company into which the shares of
Common Stock are converted or exchanged without regard to any
limitations on conversion of the Convertible
Debentures.

 

(d) Fees. The Company shall pay to
YA Global II SPV, LLC, an affiliate of the lead Buyer (the
“Subsidiary
Fund”) a monitoring fee in the amount of 7% of the
Purchase Price of each Closing (collectively, the
“Monitoring
Fees”) as compensation for the monitoring and managing
of the purchase and investments made by the Buyers
described.

 

(e) Pledge of Securities.
Notwithstanding anything to the contrary contained in this
Agreement, the Company acknowledges and agrees that the Securities
may be pledged by an Investor in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by
the Securities. The pledge of Securities shall not be deemed to be
a transfer, sale or assignment of the Securities hereunder, and no
Investor effecting a pledge of Securities shall be required to
provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other
Transaction Document. The Company hereby agrees to execute and
deliver such documentation as a pledgee of the Securities may
reasonably request in connection with a pledge of the Securities to
such pledgee by a Buyer.

 

(f) Disclosure of Transactions and Other
Material Information. The Company shall, on or before 9:30
a.m., New York time, on the first (1st) Business Day after the date
of this Agreement, issue a press release (the “Press Release”)
reasonably acceptable to the Buyers disclosing all the material
terms of the transactions contemplated by the Transaction
Documents. On or before 9:30 a.m., New York time, on the first
(1st) Business Day after the date of this Agreement, the Company
shall file a Report of Foreign Issuer on Form 8­K describing
all the material terms of the transactions contemplated by the
Transaction Documents in the form required by the 1934 Act and
attaching all the material Transaction Documents (including,
without limitation, this Agreement (and all schedules to this
Agreement) and the form of Statement of Designations) (including
all attachments, the “8-K Filing”). From and
after the filing of the 8­K Filing, the Company shall have
disclosed all material, non­public information (if any)
provided to any of the Buyers 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 filing of the 8­K Filing, the Company acknowledges
and agrees that any and all confidentiality or similar obligations
with respect to the transactions contemplated by the Transaction
Documents under any agreement, whether written or oral, between the
Company, any of its Subsidiaries or any of their respective
officers, directors, affiliates, employees or agents, on the one
hand, and any of the Buyers or any of their affiliates, on the
other hand, shall terminate. The Company shall not, and the Company
shall cause each of its Subsidiaries and each of its and their
respective officers, directors, employees and agents not to,
provide any Buyer with any material, non­public information
regarding the Company or any of its Subsidiaries from and after the
date hereof without the express prior written consent of such Buyer
(which may be granted or withheld in such Buyer's sole
discretion).

 

(g) Reservation of Shares. So long
as any of the Convertible Debentures remain outstanding, the
Company shall take all action necessary to at all times have
authorized, and reserved for the purpose of issuance, no less than
300% of the maximum number of shares of Common Stock issuable upon
conversion of all the Convertible Debentures then outstanding
(assuming for purposes hereof that (x) the Convertible Debentures
are convertible at the Conversion Price then in effect, and (y) any
such conversion shall not take into account any limitations on the
conversion of the Convertible Debentures) (the “Required Reserve
Amount”). provided that at no time shall the number of
shares of Common Stock reserved pursuant to this Section 4(g) be
reduced other than proportionally in connection with any conversion
and/or redemption, or reverse stock split. If at any time the
number of shares of Common Stock authorized and reserved for
issuance is not sufficient to meet the Required Reserved Amount,
the Company will promptly take all corporate action necessary to
authorize and reserve a sufficient number of shares, including,
without limitation, calling a special meeting of stockholders to
authorize additional shares to meet the Company's obligations
pursuant to the Transaction Documents, in the case of an
insufficient number of authorized shares, and obtain stockholder
approval of an increase in such authorized number of shares, and
voting the management shares of the Company in favor of an increase
in the authorized shares of the Company to ensure that the number
of authorized shares is sufficient to meet the Required Reserved
Amount.

 

(h) Conduct of Business. The
business of the Company and its Subsidiaries shall not be conducted
in violation of any law, ordinance or regulation of any
Governmental Entity, except where such violations would not
reasonably be expected to result, either individually or in the
aggregate, in a Material Adverse Effect.

 

 

 

5. 

REGISTER.
TRANSFER AGENT INSTRUCTIONS. LEGEND.

 

 

(a) Register. The Company shall
maintain at its principal executive offices or with the Transfer
Agent (or at such other office or agency of the Company as it may
designate by notice to each holder of Securities), a register for
the Convertible Debentures in which the Company shall record the
name and address of the Person in whose name the Convertible
Debentures have been issued (including the name and address of each
transferee), the amount of Convertible Debentures held by such
Person, and the number of Conversion Shares issuable upon
conversion of the Convertible Debentures held by such Person. The
Company shall keep the register open and available at all times
during business hours for inspection of any Buyer or its legal
representatives.

 

(b) Transfer Restrictions. The
Securities may only be disposed of in compliance with state and
federal securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration
statement or Rule 144, to the Company or to an Affiliate of a Buyer
or in connection with a pledge as contemplated herein, 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 shall have the rights and obligations of a
Buyer under this Agreement.

 

(c) Demand Registration Rights.
Upon thirty days’ prior written notice from the Buyers to the
Company, the Company shall prepare and file with the SEC a
registration statement on Form S-1 (or, if the Company is then
eligible, on Form S-3) covering the resale by the Buyers of up
60,000,000 Conversion Shares, or in the event that the SEC requires
the Company to reduce the number of Conversion Shares, such lesser
number of Conversion Shares equal to the maximum number of
Conversion Shares permitted in order to allow the Company to rely
on Rule 415 with respect to a registration statement. The Company
shall use its best efforts to have the registration statement
declared effective by the SEC as soon as practicable, but in no
event later than ninety days after the date of request by the
Buyers. The Company shall furnish a draft of the registration
statement to the Buyers for their review and comment at least
twenty-four (24) hours prior to the filing thereof.

 

(d) Piggy-Back Registrations. If at
any time there is not an effective registration statement covering
all of the Conversion Shares and the Company shall determine to
prepare and file with the SEC a registration statement relating to
an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than on Form
S-4 or Form S-8 (each as promulgated under the Securities Act) or
their then equivalents relating to equity securities to be issued
solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with the stock option
or other employee benefit plans, then the Company shall send to
each Buyer a written notice of such determination and, if within
fifteen (15) days after the date of such notice, any such Buyer
shall so request in writing, the Company shall include in such
registration statement all or any part of such Conversion Shares
such Buyer requests to be registered not to exceed 60,000,000
shares.

 

(e) The Company’s
registration obligations set forth in this Sections 5(c) and 5(d)
shall continue until the Conversion Shares have been sold or until
the Conversion Shares may, in the opinion of the Company’s
counsel (which shall be reasonably acceptable to the Buyers), be
sold in the next 60 days without any restrictions pursuant to an
exemption from registration under the Securities Act (including
Rule 144 promulgated thereunder).

 

 

6.

CONDITIONS
TO THE COMPANY’S OBLIGATION TO SELL.

 

 

 

The
obligation of the Company hereunder to issue and sell the
Convertible Debentures to each Buyer at each Closing is subject to
the satisfaction, at or before each Closing Date, of each of the
following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time
in its sole discretion by providing each Buyer with prior written
notice thereof:

 

 

(a) Such Buyer shall
have executed each of the Transaction Documents to which it is a
party and delivered the same to the Company.

 

(b) Such Buyer and each
other Buyer shall have delivered to the Company the Purchase Price
(less, in the case of any Buyer, the amounts withheld pursuant to
Section 4(d)) for the Convertible Debentures being purchased by
such Buyer at the Closing by wire transfer of immediately available
funds in accordance with the Closing Statement.

 

(c) The representations
and warranties of such Buyer shall be true and correct in all
material respects as of the date when made and as of each Closing
Date as though originally made at that time (except for
representations and warranties that speak as of a specific date,
which shall be true and correct as of such specific date), and such
Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by such
Buyer at or prior to such Closing Date.

 

 

7.

CONDITIONS
TO EACH BUYER'S OBLIGATION TO PURCHASE.

 

 

 

The
obligation of each Buyer hereunder to purchase its Convertible
Debentures at each Closing is subject to the satisfaction, at or
before each Closing Date, of each of the following conditions,
provided that these conditions are for each Buyer's sole benefit
and may be waived by such Buyer at any time in its sole discretion
by providing the Company with prior written notice
thereof:

(a) The
Company shall have duly executed and delivered to such Buyer each
of the Transaction Documents to which it is a party and the Company
shall have duly executed and delivered to such Buyer such aggregate
amount of Convertible Debentures as is set forth opposite such
Buyer's name in column (b) of the Schedule of Buyers for each
Closing.

 

(b) The
Company shall have delivered to each Buyer a copy of signed
resolutions of the Board of Directors authorizing the consummation
of the transaction in a form reasonably satisfactory to the
Buyers;

 

(c) Such
Buyer shall have received the opinion of Ortoli Rosenstadt LLP, the
Company's counsel, dated as of the First Closing Date.

 

(d) The
Company shall have delivered to such Buyer a certificate evidencing
the incorporation and good standing of the Company issued by the
Registrar for the State of the Delaware as of a date within ten
(10) days of the Closing Date.

 

(e) Each
and every representation and warranty of the Company shall be true
and correct in all material respects (other than representations
and warranties qualified by materiality, which shall be true and
correct in all respects) as of the date when made and as of each
Closing Date as though originally made at that time (except for
representations and warranties that speak as of a specific date,
which shall be true and correct as of such specific date) and the
Company shall have performed, satisfied and complied in all
respects with the covenants, agreements and conditions required to
be performed, satisfied or complied with by the Company at or prior
to each Closing Date, as set forth in section 3 and 4.

 

(f) The
Common Stock (A) shall be designated for quotation or listed (as
applicable) on the Principal Market and (B) shall not have been
suspended, as of each Closing Date, by the SEC or the Principal
Market from trading on the Principal Market nor shall suspension by
the SEC or the Principal Market have been threatened, as of each
Closing Date, either (I) in writing by the SEC or the Principal
Market or (II) by falling below the minimum maintenance
requirements of the Principal Market.

 

(g) The
Company shall have obtained all governmental, regulatory or third
party consents and approvals, if any, necessary for the sale of the
Securities, including without limitation, those required by the
Principal Market, if any.

 

(h) No
statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or
endorsed by any court or Governmental Entity of competent
jurisdiction that prohibits the consummation of any of the
transactions contemplated by the Transaction
Documents.

 

(i) Since
the date of execution of this Agreement, no event or series of
events shall have occurred that has resulted in or would reasonably
be expected to result in a Material Adverse Effect.

 

(j) The
Company shall have obtained approval of the Principal Market to
list or designate for quotation (as the case may be) the Conversion
Shares, if applicable.

 

(k) Such
Buyer shall have received a letter, duly executed by an officer of
the Company, setting forth the wire amounts of each Buyer and the
wire transfer instructions of the Company (the “Closing
Statement”).

 

(l) From
the date hereof to the applicable Closing Date, (i) trading in the
Common Stock shall not have been suspended by the SEC or the
Principal Market (except for any suspension of trading of limited
duration agreed to by the Company, which suspension shall be
terminated prior to the Closing), (ii) the closing price of the
Common Stock on each such day shall have been above the Floor Price
(as defined in the Convertible Debentures), and (iii) at any time
prior to the Closing Date, trading in securities generally as
reported by Bloomberg L.P. shall not have been suspended or
limited, or minimum prices shall not have been established on
securities whose trades are reported by such service, or on the
Principal 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
each Buyer, makes it impracticable or inadvisable to purchase the
Securities at the Closing.

 

(m) The
Company and its Subsidiaries shall have delivered to such Buyer
such other documents, instruments or certificates relating to the
transactions contemplated by this Agreement as such Buyer or its
counsel may reasonably request.

 

(n) Solely
with respect to the Second Closing, the Company shall have received
net proceeds of at least $100,000 from financing transactions after
November 1, 2017 on terms and conditions reasonably satisfactory to
the Buyers, in their sole discretion. The Company shall provide
bank statements to prove the receipt of proceeds of such financing
transactions.

 

 

8.

TERMINATION.

 

In the
event that the First Closing shall not have occurred with respect
to a Buyer within five (5) days of the date hereof, then such Buyer
shall have the right to terminate its obligations under this
Agreement with respect to itself at any time on or after the close
of business on such date without liability of such Buyer to any
other party. provided, however, (i) the right to terminate this
Agreement under this Section 8 shall not be available to such Buyer
if the failure of the transactions contemplated by this Agreement
to have been consummated by such date is the result of such Buyer's
breach of this Agreement and (ii) the abandonment of the sale and
purchase of the Convertible Debentures shall be applicable only to
such Buyer providing such written notice, provided further that no
such termination shall affect any obligation of the Company under
this Agreement to reimburse such Buyer for the expenses described
herein. Nothing contained in this Section 8 shall be deemed to
release any party from any liability for any breach by such party
of the terms and provisions of this Agreement or the other
Transaction Documents or to impair the right of any party to compel
specific performance by any other party of its obligations under
this Agreement or the other Transaction Documents.

 

 

9.

MISCELLANEOUS.

 

 

(a) Governing Law. Jurisdiction. Jury
Trial. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed
by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that
would cause the application of the laws of any jurisdictions other
than the State of New York. The Company hereby irrevocably submits
to the exclusive jurisdiction of the state and federal courts
sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or
under any of the other Transaction Documents or with any
transaction contemplated hereby or thereby, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in
an inconvenient forum or that the venue of such suit, action or
proceeding is improper. 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 to
such party at the address for such notices to it under this
Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. Nothing contained herein
shall be deemed or operate to preclude any Buyer from bringing suit
or taking other legal action against the Company in any other
jurisdiction to collect on the Company's obligations to such Buyer
or to enforce a judgment or other court ruling in favor of such
Buyer. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER
OR UNDER ANY OTHER TRANSACTION DOCUMENT OR IN CONNECTION WITH OR
ARISING OUT OF THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR
ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY.

 

(b) Counterparts. This Agreement
may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and
delivered to the other party. In the event that any signature is
delivered by facsimile transmission or by an e­mail which
contains a portable document format (.pdf) file of an executed
signature page, such signature page 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
signature page were an original thereof.

 

(c) Headings. Gender. The headings
of this Agreement are for convenience of reference and shall not
form part of, or affect the interpretation of, this Agreement.
Unless the context clearly indicates otherwise, each pronoun herein
shall be deemed to include the masculine, feminine, neuter,
singular and plural forms thereof. The terms "including,"
"includes," "include" and words of like import shall be construed
broadly as if followed by the words "without limitation." The terms
"herein," "hereunder," "hereof" and words of like import refer to
this entire Agreement instead of just the provision in which they
are found.

 

(d) Entire Agreement, Amendments.
This Agreement supersedes all other prior oral or written
agreements between the Buyer, the Company, their affiliates and
persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced
herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor
any Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in
writing signed by the party to be charged with
enforcement.

 

(e) Notices. Any notices, consents,
waivers or other communications required or permitted to be given
under the terms of this Agreement must be in writing by letter and
email and will be deemed to have been delivered: upon the later of
(A) either (i) receipt, when delivered personally or (ii) one (1)
Business Day after deposit with an overnight courier service with
next day delivery specified, in each case, properly addressed to
the party to receive the same and (B) receipt, when sent by
electronic mail. The addresses and e­mail addresses for such
communications shall be:

 

 

 

	

If to
the Company, to:

	

Cantabio
Pharmaceuticals Inc.

	
 

	

1250
Oakmead Pkwy

Sunnyvale,
CA 94085

Telephone: 844-200-2826Attention: Tom
SawyerE-Mail:  corporate@cantabio.com

 

	

With
Copy to:

	

Ortoli
Rosenstadt LLP

501
Madison Avenue, 14th Floor

New
York, NY 10022

Telephone: 212-588-0022Attention: 
William RosenstadtE-Mail: 
wsr@ortolirosenstadt.com

 

	
 

	
 

	

If to a
Buyer, to its address, e­mail address and facsimile number set
forth on the Schedule of Buyers, with copies to such Buyer's
representatives as set forth on the Schedule of
Buyers,

	
 

	
 

	
 

	
 

	

With
copy to:

	

David
Gonzalez, Esq.

c/o
Yorkville Advisors Global, LP

1012
Springfield Avenue

Mountainside,
NJ 07092

Email:
legal@yorkvilleadvisors.com

	
 

	
 

or to
such other address, e­mail address and/or facsimile number
and/or to the attention of such other Person as the recipient party
has specified by written notice given to each other party five (5)
days prior to the effectiveness of such change. Written
confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine or
e­mail containing the time, date, recipient facsimile number
and, with respect to each facsimile transmission, an image of the
first page of such transmission or (C) provided by an overnight
courier service shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from an overnight courier service
in accordance with clause (i), (ii) or (iii) above,
respectively.

 

(f) Successors and Assigns. This
Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns, including any
purchasers of any of the Convertible Debentures (but excluding any
purchasers of Underlying Securities, unless pursuant to a written
assignment by such Buyer). The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior
written consent of the Buyers. In connection with any transfer of
any or all of its Securities, a Buyer may assign all, or a portion,
of its rights and obligations hereunder in connection with such
Securities without the consent of the Company, in which event such
assignee shall be deemed to be a Buyer hereunder with respect to
such transferred Securities.

 

(g) Indemnification.

 

(i) In consideration of
each Buyer's execution and delivery of the Transaction Documents
and acquiring the Securities thereunder and in addition to all of
the Company's other obligations under the Transaction Documents,
the Company shall defend, protect, indemnify and hold harmless each
Buyer and each holder of any Securities and all of their
stockholders, partners, members, officers, directors, employees and
direct or indirect investors and any of the foregoing Persons'
agents or other representatives (including, without limitation,
those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "Indemnitees") from and against any and
all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee
is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements
(the "Indemnified
Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (i) any misrepresentation or breach
of any representation or warranty made by the Company in any of the
Transaction Documents, (ii) any breach of any covenant, agreement
or obligation of the Company or any Subsidiary contained in any of
the Transaction Documents or (iii) any cause of action, suit,
proceeding or claim brought or made against such Indemnitee by a
third party (including for these purposes a derivative action
brought on behalf of the Company or any Subsidiary) or which
otherwise involves such Indemnitee that arises out of or results
from (A) the execution, delivery, performance or enforcement of any
of the Transaction Documents, (B) any transaction financed or to be
financed in whole or in part, directly or indirectly, with the
proceeds of the issuance of the Securities, or (C) any disclosure
properly made by such Buyer pursuant to Section 4(f), or (D) the
status of such Buyer or holder of the Securities either as an
investor in the Company pursuant to the transactions contemplated
by the Transaction Documents or as a party to this Agreement
(including, without limitation, as a party in interest or otherwise
in any action or proceeding for injunctive or other equitable
relief). To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make
the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable
law.

 

(ii) Promptly
after receipt by an Indemnitee under this Section 9(g) of notice of
the commencement of any action or proceeding (including any
governmental action or proceeding) involving an Indemnified
Liability, such Indemnitee shall, if a claim in respect thereof is
to be made against the Company under this Section 9(g), deliver to
the Company a written notice of the commencement thereof, and the
Company shall have the right to participate in, and, to the extent
the Company so desires, to assume control of the defense thereof
with counsel mutually reasonably satisfactory to the Company and
the Indemnitee. provided, however, that an Indemnitee shall have
the right to retain its own counsel with the fees and expenses of
such counsel to be paid by the Company if: (A) the Company has
agreed in writing to pay such fees and expenses. (B) the Company
shall have failed promptly to assume the defense of such
Indemnified Liability and to employ counsel reasonably satisfactory
to such Indemnitee in any such Indemnified Liability. or (C) the
named parties to any such Indemnified Liability (including any
impleaded parties) include both such Indemnitee and the Company,
and such Indemnitee shall have been advised by counsel that a
conflict of interest is likely to exist if the same counsel were to
represent such Indemnitee and the Company (in which case, if such
Indemnitee notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company, then the Company
shall not have the right to assume the defense thereof and such
counsel shall be at the expense of the Company), provided further,
that in the case of clause (C) above the Company shall not be
responsible for the reasonable fees and expenses of more than one
(1) separate legal counsel for the Indemnitees. The Indemnitee
shall reasonably cooperate with the Company in connection with any
negotiation or defense of any such action or Indemnified Liability
by the Company and shall furnish to the Company all information
reasonably available to the Indemnitee which relates to such action
or Indemnified Liability. The Company shall keep the Indemnitee
reasonably apprised at all times as to the status of the defense or
any settlement negotiations with respect thereto. The Company shall
not be liable for any settlement of any action, claim or proceeding
effected without its prior written consent, provided, however, that
the Company shall not unreasonably withhold, delay or condition its
consent. The Company shall not, without the prior written consent
of the Indemnitee, consent to entry of any judgment or enter into
any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff
to such Indemnitee of a release from all liability in respect to
such Indemnified Liability or litigation, and such settlement shall
not include any admission as to fault on the part of the
Indemnitee. Following indemnification as provided for hereunder,
the Company shall be subrogated to all rights of the Indemnitee
with respect to all third parties, firms or corporations relating
to the matter for which indemnification has been made. The failure
to deliver written notice to the Company within a reasonable time
of the commencement of any such action shall not relieve the
Company of any liability to the Indemnitee under this Section 9(g),
except to the extent that the Company is materially and adversely
prejudiced in its ability to defend such action.

 

(iii) The
indemnification required by this Section 9(g) shall be made by
periodic payments of the amount thereof during the course of the
investigation or defense, within ten (10) days after bills
supporting the Indemnified Liabilities are received by the
Company.

 

(iv) The
indemnity agreement contained herein shall be in addition to (A)
any cause of action or similar right of the Indemnitee against the
Company or others, and (B) any liabilities the Company may be
subject to pursuant to the law.

 

(h) No Strict Construction. The
language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any
party.

 

 

[REMAINDER
PAGE INTENTIONALLY LEFT BLANK]

 

 

 

 

IN WITNESS WHEREOF, each Buyer and the Company have
caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written
above.

 

 

	
 

	

COMPANY:

 

	
 

	

CANTABIO PHARMACEUTICALS INC.

	
 

	
 

	
 

	

By:                                                                 

	
 

	

Name:

	
 

	

Title:

	
 

	
 

 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

 

 

 

 

 

 

 

 

IN WITNESS WHEREOF, each Buyer and the Company have
caused their respective signature page to this Securities Purchase
Agreement to be duly executed as of the date first written
above.

 

 

	
 

	

BUYER:

 

 

	
 

	

YA II PN, LTD.

	
 

	
 

	
 

	

By:            Yorkville
Advisors Global, LP

	
 

	

Its:            Investment
Manager

	
 

	
 

	
 

	

      By:                       Yorkville
Advisors Global II, LLC

	
 

	

      Its:                       General
Partner

	
 

	
 

	
 

	

       By:
__________________________

	
 

	

       Name:

	
 

	

       Title:

 

 

 

 

EXHIBIT A

 

FORM OF CONVERTIBLE DEBENTURES

 

 

EXHIBIT B

 

USE OF PROCEEDS

 

	

$'000

 

	

Mo1

 

	

Mo2

 

	

Mo3

 

	

Mo4

 

	

Mo5

 

	

Total

 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	

Public Company Costs

 

	

29

 

	

13

 

	

15

 

	

3

 

	

3

 

	

63

 

	

G&A

 

	

35

 

	

17

 

	

15

 

	

17

 

	

16

 

	

100

 

	

Total G&A and Public Co Costs

 

	

64

 

	

30

 

	

30

 

	

20

 

	

19

 

	

163

 

	

R&D Staff and Infrastructure

 

	

24

 

	

23

 

	

21

 

	

23

 

	

17

 

	

109

 

	

DJ-1

 

	

3

 

	

17

 

	

40

 

	

40

 

	

-

 

	

100

 

	

Tau

 

	

27

 

	

-

 

	

-

 

	

-

 

	

-

 

	

27

 

	

Total R&D

 

	

55

 

	

40

 

	

61

 

	

63

 

	

17

 

	

237

 

	

Total

 

	

119

 

	

70

 

	

92

 

	

83

 

	

36

 

	

400

 

 

Breakdown
of Public Company costs:

 

	

OTC Market Costs

 

	

-

 

	

10.0

 

	

-

 

	

-

 

	

-

 

	

10.0

 

	

Legal Costs

 

	

8.0

 

	

3.0

 

	

3.0

 

	

3.0

 

	

3.0

 

	

20.0

 

	

‘Yorkville monitoring fee’ Costs

 

	

21.0

 

	

-

 

	

-

 

	

-

 

	

-

 

	

-

 

	

Audit Costs

 

	

-

 

	

-

 

	

12.4

 

	

-

 

	

-

 

	

12.4

 

	

Public Company Costs

 

	

29.0

 

	

13.0

 

	

15.4

 

	

3.0

 

	

3.0

 

	

42.4

 

 

 

 

 

 

SCHEDULE OF BUYERSBlueprint

 

SECURITY AGREEMENT

 

(in
favor of YA II PN, Ltd.)

 

THIS SECURITY AGREEMENT (the
“Agreement”) is entered
into as of November 20, 2017 by and among (i) Cantabio
Pharmaceuticals Inc., a Delaware corporation (the
“Issuer”), and (ii) any
subsidiary and affiliate of the Issuer listed on Schedule 1 attached hereto
either now or joined in the future (the “Subsidiaries”; and
jointly, severally, and collectively with the Issuer, the
“Grantors”) in favor of YA
II PN, Ltd., a Cayman Islands company (the “Secured
Party”).

 

WHEREAS, in connection with the
Securities Purchase Agreement dated January 25, 2017 among the
Secured Party and the Issuer (as amended, supplemented and restated
from time to time, the “January Purchase
Agreement”), the Issuer has issued to the Secured
Party convertible debentures in the aggregate principal amount of
$600,000 (collectively, as each may be amended, supplemented and
restated from time to time, the “January Convertible
Debentures”);

 

WHEREAS, in connection with the
Securities Purchase Agreement dated November 20, 2017 among the
Secured Party and the Issuer (as amended, supplemented and restated
from time to time, the “November Purchase
Agreement”), the Issuer has agreed, upon the terms and
subject to the conditions of the Purchase Agreement, to issue to
the Secured Party additional convertible debentures in the
principal amount of up to $300,000 as set forth in the November
Purchase Agreement (collectively, as each may be amended,
supplemented and restated from time to time, the
“November
Convertible Debentures,” and collectively with the
January Convertible Debentures, the “Convertible
Debetnures”);

 

NOW, THEREFORE, in consideration of the
promises and the mutual covenants herein contained, and for other
good and valuable consideration, the adequacy and receipt of which
are hereby acknowledged, the parties hereto hereby agree as
follows:

 

ARTICLE 1.

 

DEFINITIONS AND INTERPRETATIONS

 

1.1 Recitals.

 

The
above recitals are true and correct and are incorporated herein, in
their entirety, by this reference.

 

1.2 Interpretations.

 

Nothing
herein expressed or implied is intended or shall be construed to
confer upon any person other than the Secured Party any right,
remedy or claim under or by reason hereof.

 

1.3 Definitions.

 

(a) To the extent used
in this Agreement and not defined herein, terms defined in the UCC
shall have the meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined) ascribed
to such terms in the UCC. To the extent the definition of any
category or type of Collateral is expanded by any amendment,
modification or revision to the UCC, such expanded definition will
apply automatically as of the date of such amendment, modification
or revision.

 

(b) As used in this
Agreement, the following terms shall have the meanings indicated
below (such meanings to be equally applicable to both the singular
and plural forms of such terms):

 

“Collateral” has the
meaning set forth in Section 2.1.

 

“Event of Default” shall
mean a Grantor materially breaching any provision of, or defaulting
in any of its material obligations under (i) the Convertible
Debentures; (ii) the January Purchase Agreement or the November
Purchase Agreement; (iii) the Loan Instruments; and (iv) any
Transaction Document or any other agreement or document related to
any of the foregoing, in any case, following the expiration of any
applicable cure period.

 

“GAAP” shall mean
generally accepted accounting principles in the United States of
America.

 

 

“Intellectual Property”
shall mean all present and future trade secrets, know-how and other
proprietary information; trademarks, trademark applications,
internet domain names, service marks, trade dress, trade names,
business names, designs, logos, slogans (and all translations,
adaptations, derivations and combinations of the foregoing) indicia
and other source and/or business identifiers, and all registrations
or applications for registrations which have heretofore been or may
hereafter be issued thereon throughout the world; copyrights and
copyright applications; (including copyrights for computer
programs) and all tangible and intangible property embodying the
copyrights, unpatented inventions (whether or not patentable);
patents and patent applications; industrial design applications and
registered industrial designs; license agreements related to any of
the foregoing and income therefrom; books, records, writings,
computer tapes or disks, flow diagrams, specification sheets,
computer software, source codes, object codes, executable code,
data, databases and other physical manifestations, embodiments or
incorporations of any of the foregoing; all other intellectual
property; and all common law and other rights throughout the world
in and to all of the foregoing. Schedule 4 attached hereto sets
forth all Intellectual Property of the Grantors (as such Schedule may be amended, modified or
supplemented from time to time).

 

“Lien” has the meaning set
forth in Section 4.2.

 

“Loan Instruments” has the
meaning set forth in Section 6.1.

 

“Material Adverse Effect”
shall mean any material and adverse affect as determined by the
Secured Party in its reasonable discretion upon (a) the
Grantors’ assets, business, operations, properties or
condition, financial or otherwise, taken as a whole; (b) the
Grantors’ ability to make payment as and when due of all or
any part of the Obligations; or (c) the Collateral.

 

“Obligations” shall mean
and include any and all debts, liabilities, obligations, covenants
and duties owing by any Grantor to the Secured Party, now existing
or hereafter arising of every nature, type, and description,
whether liquidated, unliquidated, primary, secondary, secured,
unsecured, direct, indirect, absolute, or contingent, and whether
or not evidenced by a note, guaranty or other instrument, and any
amendments, extensions, renewals or increases thereof, including,
without limitation, all those under (i) the Transaction Documents;
(ii) any agreement or document related to the Transaction
Documents; (iii) the Global Guaranty Agrement of even date
herewith, or (iv) any other or related documents, and including any
interest accruing thereon after insolvency, reorganization or like
proceeding relating to the Grantors, whether or not a claim for
post-petition interest is allowed in such proceeding, and all costs
and expenses of the Secured Party incurred in the enforcement,
collection or otherwise in connection with any of the foregoing,
including, but not limited to, reasonable attorneys’ fees and
expenses and all obligations of the Grantors to the Secured Party
to perform acts or refrain from taking any action.

 

“Other Loan Documents”
shall mean any credit agreement or other facility, warrant,
mortgage, other debenture agreements or instruments, by and among
the Secured Party and the Grantors, under which there may be
issued, or by which there may be secured or evidenced any
indebtedness for borrowed money, including, without limitation, the
Convertible Debentures.

 

“Permitted Indebtedness”
shall mean: (i) indebtedness evidenced by the Convertible
Debentures; (ii) indebtedness described on Schedule 7.3 attached hereto;
(iii) indebtedness incurred solely for the purpose of financing the
acquisition or lease of any equipment by the Grantors, including
capital lease obligations with no recourse other than to such
equipment; (iv) indebtedness (A) the repayment of which has been
subordinated to the payment of the Obligations on terms and
conditions acceptable to the Secured Party, including with regard
to interest payments and repayment of principal, (B) which does not
mature or otherwise require or permit redemption or repayment prior
to or on the 91st day after the maturity date of any Convertible
Debenture then outstanding; and (C) which is not secured by any
assets of the Grantors; (v) indebtedness solely between a Grantor
and/or one of its domestic subsidiaries, on the one hand, and a
Grantor and/or one of its domestic subsidiaries, on the other which
indebtedness is not secured by any assets of such Grantor or any of
its subsidiaries, provided
that (x) in each case a majority of the equity of any such
domestic subsidiary is directly or indirectly owned by a Grantor,
such domestic subsidiary is controlled by a Grantor and such
domestic subsidiary has executed a security agreement in the form
of this Agreement and (y) any such loan shall be evidenced by an
intercompany note that is pledged by such Grantor or its
subsidiary, as applicable, as collateral pursuant to a Collateral
Assignment Agreement in form and substance satisfactory to Secured
Party in its sole discretion; (vi) reimbursement obligations in
respect of letters of credit issued for the account of a Grantor or
any of its subsidiaries for the purpose of securing performance
obligations of such Grantor or its subsidiaries incurred in the
ordinary course of business so long as the aggregate face amount of
all such letters of credit does not exceed $200,000 at any one
time; (vii) renewals, extensions and refinancing of any
indebtedness described in clause (i) or (iii) of this subsection;
and (viii) indebtedness associated with acquiring new intellectual
property assets and licenses, so long as the proceeds are going to
the party(ies) from which the Grantor is acquiring the assets,
licenses, and other properties.

 

“Permitted Liens” shall
mean (1) the security interest created by this Agreement, (2) any
prior security interest granted to the Secured Party, (3) existing
Liens disclosed by each Grantor on Schedule 4.2; (4) inchoate
Liens for taxes, assessments or governmental charges or levies not
yet due, as to which the grace period, if any, related thereto has
not yet expired, or being contested in good faith and by
appropriate proceedings for which adequate reserves have been
established in accordance with GAAP; (5) Liens of carriers,
materialmen, warehousemen, mechanics and landlords and other
similar Liens which secure amounts which are not yet overdue by
more than 60 days or which are being contested in good faith by
appropriate proceedings for which adequate reserves have been
established in accordance with GAAP; (6) licenses, sublicenses,
leases or subleases granted to other persons not materially
interfering with the conduct of the business of the Grantors; (7)
Liens securing capitalized lease obligations and purchase money
indebtedness incurred solely for the purpose of financing an
acquisition or lease; (8) easements, rights-of-way, restrictions,
encroachments, municipal zoning ordinances and other similar
charges or encumbrances, and minor title deficiencies, in each case
not securing debt and not materially interfering with the conduct
of the business of the Grantors and not materially detracting from
the value of the property subject thereto; (9) Liens arising out of
the existence of judgments or awards which judgments or awards do
not constitute an Event of Default; (10) Liens incurred in the
ordinary course of business in connection with workers compensation
claims, unemployment insurance, pension liabilities and social
security benefits and Liens securing the performance of bids,
tenders, leases and contracts in the ordinary course of business,
statutory obligations, surety bonds, performance bonds and other
obligations of a like nature (other than appeal bonds) incurred in
the ordinary course of business (exclusive of obligations in
respect of the payment for borrowed money); (11) Liens in favor of
a banking institution arising by operation of law encumbering
deposits (including the right of set-off) and contractual set-off
rights held by such banking institution and which are within the
general parameters customary in the banking industry and only
burdening deposit accounts or other funds maintained with a
creditor depository institution; (12) usual and customary set-off
rights in leases and other contracts; and (13) escrows in
connection with acquisitions and dispositions.

 

“Real Estate” means all
leases and all land, together with the buildings, structures,
parking areas, and other improvements thereon, now or hereafter
owned by any Grantor, including all easements, rights-of-way, and
similar rights relating thereto and all leases, tenancies, and
occupancies thereof. Schedule 5 attached hereto sets
forth all Real Estate of the Grantors (as such Schedule may be amended, modified or
supplemented from time to time).

 

“Transaction Documents”
shall mean (i) the Convertible Debentures, (ii) the January
Purchase Agreement, (iii) the November Purchase Agreement, (iv) the
Mortgages, (v) the Loan Instruments, (vi) the Other Loan Documents,
and (vii) any other or related documents.

 

“UCC” or
“Uniform Commercial
Code” means the Uniform
Commercial Code as in effect from time to time in the State of New
York; provided,
however,
that if a term is defined in Article 9 of the Uniform Commercial
Code differently than in another Article thereof, the term shall
have the meaning set forth in Article 9 of the UCC;
provided further
that, if by reason of mandatory
provisions of law, perfection, or the effect of perfection or
non-perfection, of a security interest in any Collateral or the
availability of any remedy hereunder is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than New York,
“Uniform Commercial Code” means the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the
provisions hereof relating to such perfection or effect of
perfection or non-perfection or availability of such remedy, as the
case may be.

 

ARTICLE 2.

 

SECURITY INTEREST

 

2.1 Grant
of Security Interest.

 

(a) As security for the
payment or performance in full of the Obligations, each Grantor
hereby pledges to the Secured Party, its successors and assigns,
and hereby grants to the Secured Party, its successors and assigns,
a security interest in and to all assets and personal property of
each Grantor, wherever located and whether now or hereinafter
existing and whether now owned or hereafter acquired, of every kind
and description, tangible or intangible, including without
limitation, all Real Estate, Goods, Inventory, Equipment, Fixtures,
Instruments, Documents, Accounts, Contracts and Contract Rights,
Chattel Paper, Deposit Accounts, Money, Letters of Credit and
Letter-of-Credit Rights, Commercial Tort Claims, Securities and all
other Investment Property, General Intangibles, Farm Products, all
books and records and information relating to any of the foregoing,
all Supporting Obligations, and any and all Proceeds and products
of any and all of the foregoing, and as more particularly described
on Exhibit A
attached hereto (collectively, the “Collateral”).

 

(b) Simultaneously with
the execution and delivery of this Agreement, each Grantor shall
make, execute, acknowledge, file, record and deliver to the Secured
Party such documents, instruments, and agreements, including,
without limitation, financing statements, mortgages, certificates,
affidavits and forms as may, in the Secured Party’s
reasonable judgment, be necessary to effectuate, complete or
perfect, or to continue and preserve, the security interest of the
Secured Party in the Collateral.

 

2.2 No
Assumption of Liability.

 

The
security interest in the Collateral is granted as security only and
shall not subject the Secured Party to, or in any way alter or
modify any obligation or liability of any Grantor with respect to
or arising out of the Collateral.

 

ARTICLE 3.

 

ATTORNEY-IN-FACT; PERFORMANCE

 

3.1 Secured
Party Appointed Attorney-In-Fact.

 

Except
as set forth in Section 3.1(a) below, upon the occurrence and
during the continuance of an Event of Default, each Grantor hereby
appoints the Secured Party as its attorney-in-fact, with full
authority in the place and stead of such Grantor and in the name of
each Grantor or otherwise, from time to time in the Secured
Party’s discretion to take any action and to execute any
instrument which the Secured Party may reasonably deem necessary to
accomplish the purposes of this Agreement or for the purpose of
perfecting, confirming, continuing, enforcing or protecting the
security interest in the Collateral, including, without limitation,
to (a) file one or more financing statements, continuing
statements, filings with the United States Patent and Trademark
Office or United States Copyright Office (or any successor office)
or other documents; (b) receive and collect all instruments made
payable to a Grantor representing any payments in respect of the
Collateral or any part thereof and to give full discharge for the
same; and (c) demand, collect, receipt for, settle, compromise,
adjust, sue for, foreclose, or realize on the Collateral as and
when the Secured Party may determine. To facilitate collection, the
Secured Party may notify account debtors and obligors on any
Collateral to make payments directly to the Secured Party. The
foregoing power of attorney is a power coupled with an interest and
shall be irrevocable until all Obligations are paid and performed
in full. The Grantors agree that the powers conferred on the
Secured Party hereunder are solely to protect the Secured
Party’s interests in the Collateral and shall not impose any
duty upon the Secured Party to exercise any such
powers.

 

3.2 Secured Party May
Perform.

 

If a
Grantor fails to perform any agreement contained herein, the
Secured Party, at its option, may itself perform, or cause
performance of, such agreement, and the expenses of the Secured
Party incurred in connection therewith shall be included in the
Obligations secured hereby and payable by the Grantors under
Section 8.4.

 

ARTICLE 4.

 

REPRESENTATIONS AND WARRANTIES

 

4.1 Authorization:
Enforceability.

 

Each of
the parties hereto represents and warrants that it has taken all
action necessary to authorize the execution, delivery and
performance of this Agreement and the transactions contemplated
hereby; and upon execution and delivery, this Agreement shall
constitute a valid and binding obligation of the respective party,
subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors’ rights or by
the principles governing the availability of equitable
remedies.

 

4.2 Ownership of Collateral; Priority of
Security Interest.

 

Each
Grantor represents and warrants that it is the legal and beneficial
owner of the Collateral free and clear of any lien, security
interest, option or other charge or encumbrance (each, a
“Lien”)
except for the Permitted Liens. Except for the Permitted Liens, (i)
the security interest granted to the Secured Party hereunder shall
be a first priority security interest subject to no other Liens,
and (ii) no financing statement covering any of the Collateral or
any proceeds thereof is on file in any public office.

 

4.3 Location of
Collateral.

 

The
Collateral is or will be kept at the address(es) of each Grantor
set forth on Schedule
4.3 attached hereto. Unless otherwise provided herein, the
Grantors will not remove any Collateral from such locations without
the prior written consent of the Secured Party.

 

4.4 Location, State of Incorporation and
Name of Grantors.

 

Each
Grantor’s principal place of business; state of
incorporation, organization or formation; organization id; and
exact legal name is set forth on Schedule 4.4 attached
hereto.

 

ARTICLE 5.

 

DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL

 

5.1 Method
of Realizing Upon the Collateral: Other
Remedies.

 

If any
Event of Default shall have occurred and be
continuing:

 

(a) The Secured Party
may exercise in respect of the Collateral, in addition to any other
rights and remedies provided for herein or otherwise available to
it, all of the rights and remedies of a secured party upon default
under the UCC (whether or not the UCC applies to the affected
Collateral), and also may (i) take absolute control of the
Collateral, including, without limitation, transfer into the
Secured Party's name or into the name of its nominee or nominees
(to the extent the Secured Party has not theretofore done so) and
thereafter receive, for the benefit of the Secured Party, all
payments made thereon, give all consents, waivers and ratifications
in respect thereof and otherwise act with respect thereto as though
it were the outright owner thereof, (ii) require each Grantor to
assemble all or part of the Collateral as directed by the Secured
Party and make it available to the Secured Party at a place or
places to be designated by the Secured Party that is reasonably
convenient to both parties, and the Secured Party may enter into
and occupy any premises owned or leased by a Grantor where the
Collateral or any part thereof is located or assembled for a
reasonable period in order to effectuate the Secured Party’s
rights and remedies hereunder or under law, without obligation to
such Grantor in respect of such occupation, and (iii) without
notice except as specified below and without any obligation to
prepare or process the Collateral for sale, (A) sell the Collateral
or any part thereof in one or more parcels at public or private
sale, at any of the Secured Party’s offices or elsewhere, for
cash, on credit or for future delivery, and at such price or prices
and upon such other terms as the Secured Party may deem
commercially reasonable and/or (B) lease, license or dispose of the
Collateral or any part thereof upon such terms as the Secured Party
may deem commercially reasonable. Each Grantor agrees that, to the
extent notice of sale or any other disposition of the Collateral
shall be required by law, at least ten (10) days’ notice to
such Grantor of the time and place of any public sale or the time
after which any private sale or other disposition of the Collateral
is to be made shall constitute reasonable notification. The Secured
Party shall not be obligated to make any sale or other disposition
of any Collateral regardless of notice of sale having been given.
The Secured Party may adjourn any public or private sale from time
to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and
place to which it was so adjourned. Each Grantor hereby waives any
claims against the Secured Party arising by reason of the fact that
the price at which the Collateral may have been sold at a private
sale was less than the price which might have been obtained at a
public sale or was less than the aggregate amount of the
Obligations, even if the Secured Party accepts the first offer
received and does not offer such Collateral to more than one
offeree, and waives all rights that such Grantor may have to
require that all or any part of such Collateral be marshaled upon
any sale (public or private) thereof. Each Grantor hereby
acknowledges that (x) any such sale of the Collateral by the
Secured Party may be made without warranty, (y) the Secured Party
may specifically disclaim any warranties of title, possession,
quiet enjoyment or the like, and (z) such actions set forth in
clauses (x) and (y) above shall not adversely affect the commercial
reasonableness of any such sale of Collateral.

 

(b) Any cash held by
the Secured Party as Collateral and all cash proceeds received by
the Secured Party in respect of any sale of or collection from, or
other realization upon, all or any part of the Collateral shall be
applied (after payment of any amounts payable to the Secured Party
pursuant to Section 8.3 hereof) by the Secured Party against, all
or any part of the Obligations in such order as the Secured Party
shall elect, consistent with the provisions of the Convertible
Debentures. Any surplus of such cash or cash proceeds held by the
Secured Party and remaining after the indefeasible payment in full
in cash of all of the Obligations shall be paid over to whomsoever
shall be lawfully entitled to receive the same or as a court of
competent jurisdiction shall direct.

 

(c) In the event that
the proceeds of any such sale, collection or realization are
insufficient to pay all amounts to which the Secured Party is
legally entitled, the Grantors shall be liable for the deficiency,
together with interest thereon at the rate specified in the
Convertible Debentures for interest on overdue principal thereof or
such other rate as shall be fixed by applicable law, together with
the costs of collection and the reasonable fees, costs, expenses
and other client charges of any attorneys employed by the Secured
Party to collect such deficiency.

 

(d) Each Grantor hereby
acknowledges that if the Secured Party complies with any applicable
state, provincial, or federal law requirements in connection with a
disposition of the Collateral, such compliance will not adversely
affect the commercial reasonableness of any sale or other
disposition of the Collateral.

 

(e) The Secured Party
shall not be required to marshal any present or future collateral
security (including, but not limited to, this Agreement and the
Collateral) for, or other assurances of payment of, the Obligations
or any of them or to resort to such collateral security or other
assurances of payment in any particular order, and all of the
Secured Party’s rights hereunder and in respect of such
collateral security and other assurances of payment shall be
cumulative and in addition to all other rights, however existing or
arising. To the extent permitted by applicable law, each Grantor
hereby agrees that it will not invoke any law relating to the
marshaling of collateral which might cause delay in or impede the
enforcement of the Secured Party’s rights under this
Agreement or under any other instrument creating or evidencing any
of the Obligations or under which any of the Obligations is
outstanding or by which any of the Obligations is secured or
payment thereof is otherwise assured, and, to the extent permitted
by applicable law, each Grantor hereby irrevocably waives the
benefits of all such laws.

 

5.2 Duties Regarding
Collateral.

 

The
Secured Party shall have no duty as to the collection or protection
of the Collateral or any income thereon or as to the preservation
of any rights pertaining thereto, beyond the safe custody and
reasonable care of any of the Collateral actually in the Secured
Party’s possession.

 

ARTICLE 6.

 

AFFIRMATIVE COVENANTS

 

So long
as any of the Obligations shall remain outstanding, unless the
Secured Party shall otherwise consent in writing:

 

6.1 Existence, Properties,
Etc.

 

Each
Grantor shall do, or cause to be done, all things, or proceed with
due diligence with any actions or courses of action, that may be
reasonably necessary (i) to maintain such Grantor’s due
organization, valid existence and good standing under the laws of
its state of incorporation, and (ii) to preserve and keep in full
force and effect all qualifications, licenses and registrations in
those jurisdictions in which the failure to do so could have a
Material Adverse Effect; and (b) a Grantor shall not do, or cause
to be done, any act impairing the Grantor’s corporate power
or authority (i) to carry on such Grantor’s business as now
conducted, and (ii) to execute or deliver this Agreement or any
other agreement or document delivered in connection herewith,
including, without limitation any mortgages, pledges, or other
collateral documents, and any UCC-1 Financing Statement required by
the Secured Party (which documents, instruments, and agreements
shall be collectively referred to as the “Loan Instruments”) to
which it is or will be a party, or perform any of its obligations
hereunder or thereunder.

 

6.2 Financial Statements and
Reports.

 

Each
Grantor shall furnish to the Secured Party within a reasonable time
such financial data as the Secured Party may reasonably
request.

 

6.3 Maintenance of Books and Records:
Inspection.

 

Each
Grantor shall maintain its books, accounts and records in
accordance with GAAP, and permit the Secured Party, its officers
and employees and any professionals designated by the Secured Party
in writing, at any time during normal business hours and upon
reasonable notice to visit and inspect any of its properties
(including, but not limited to, the collateral security described
in the Transaction Documents and/or the Loan Instruments),
corporate books and financial records, and to discuss its accounts,
affairs and finances with any employee, officer or director thereof
(it being agreed that, unless an Event of Default shall have
occurred and be continuing, there shall be no more than two (2)
such visits and inspections in any fiscal year).

 

6.4 Maintenance and
Insurance.

 

(a) Each Grantor shall
maintain or cause to be maintained, at its own expense, all of its
material assets and properties in good working order and condition,
ordinary wear and tear excepted, making all necessary repairs
thereto and renewals and replacements thereof.

 

(b) The Grantors shall
maintain or cause to be maintained, at their own expense, insurance
in form, substance and amounts (including deductibles), which the
Grantors deem reasonably necessary to the Grantors’ business,
(i) adequate to insure all assets and properties of the Grantors of
a character usually insured by persons engaged in the same or
similar business against loss or damage resulting from fire or
other risks included in an extended coverage policy; (ii) against
public liability and other tort claims that may be incurred by the
Grantors; (iii) as may be required by the Transaction Documents
and/or applicable law and (iv) as may be reasonably requested by
Secured Party, all with financially sound and reputable
insurers.

 

6.5 Contracts and Other
Collateral.

 

Each
Grantor shall perform all of its obligations under or with respect
to each instrument, receivable, contract and other intangible
included in the Collateral to which such Grantor is now or
hereafter will be party on a timely basis and in the manner therein
required, including, without limitation, this Agreement, except to
the extent the failure to so perform such obligations would not
reasonably be expected to have a Material Adverse
Effect.

 

6.6 Defense of Collateral,
Etc.

 

Each
Grantor shall defend and enforce (a) its right, title and interest
in and to any part of the Collateral; and (b) if not included
within the Collateral, those assets and properties whose loss would
reasonably be expected to have a Material Adverse Effect, each
against all manner of claims and demands on a timely basis to the
full extent permitted by applicable law (other than any such claims
and demands by holders of Permitted Liens).

 

6.7 Taxes and
Assessments.

 

Each
Grantor shall (a) file all material tax returns and appropriate
schedules thereto that are required to be filed under applicable
law, prior to the date of delinquency (taking into account any
extensions of the original due date), (b) pay and discharge all
material taxes, assessments and governmental charges or levies
imposed upon a Grantor, upon its income and profits or upon any
properties belonging to it, prior to the date on which penalties
attach thereto, and (c) pay all material taxes, assessments and
governmental charges or levies that, if unpaid, might become a lien
or charge upon any of its properties; provided,
however, that the
Grantors in good faith may contest any such tax, assessment,
governmental charge or levy described in the foregoing clauses (b)
and (c) so long as appropriate reserves are maintained with respect
thereto if and to the extent required by GAAP.

 

6.8 Compliance with Law and Other
Agreements.

 

Each
Grantor shall maintain its business operations and property owned
or used in connection therewith in compliance with (a) all
applicable federal, state and local laws, regulations and
ordinances governing such business operations and the use and
ownership of such property, and (b) all agreements, licenses,
franchises, indentures and mortgages to which a Grantor is a party
or by which such Grantor or any of its properties is bound, except
where the failure to so comply would not reasonably be expected to
have a Material Adverse Effect.

 

6.9 Notice of Default.

 

The
Grantors will immediately notify the Secured Party of any event
causing a substantial loss or diminution in the value of all or any
material part of the Collateral and the amount or an estimate of
the amount of such loss or diminution. The Grantors shall promptly
notify the Secured Party of any condition or event which
constitutes, or would constitute with the passage of time or giving
of notice or both, an Event of Default, and promptly inform the
Secured Party of any events or changes in the financial condition
of any Grantor occurring since the date of the last financial
statement of such Grantor delivered to the Secured Party, which
individually or cumulatively when viewed in light of prior
financial statements, which might reasonably be expected to have a
Material Adverse Effect on the business operations or financial
condition of the Grantors.

 

6.10 Future
Subsidiaries.

 

Schedule 6.10 attached hereto
lists all currently existing subsidiaries of the Grantors. If any
Grantor shall hereafter create or acquire any subsidiary,
simultaneously with the creation or acquisition of such subsidiary,
such Grantor shall cause such subsidiary to become a party to this
Agreement as an additional "Grantor" hereunder, and to duly execute
and deliver a guaranty of the Obligations in favor of the Secured
Party in form and substance reasonably acceptable to the Secured
Party, and to duly execute and/or deliver such other documents, in
form and substance reasonably acceptable to the Secured Party, as
the Secured Party shall reasonably request with respect thereto,
including, without limitation, a mortgage to the extent such
subsidiary owns any Real Estate.

 

6.11 Changes to
Identity.

 

Each
Grantor will (a) give the Secured Party at least 30 days' prior
written notice of any change in such Grantor's name, identity or
organizational structure, (b) maintain its jurisdiction of
incorporation, organization or formation as set forth on
Schedule 4.4
attached hereto, (c) immediately notify the Secured Party upon
obtaining an organizational identification number, if on the date
hereof such Grantor did not have such identification
number.

 

6.12 Perfection
of Security Interests.

 

(a) Financing Statements. The
Grantors hereby irrevocably authorize the Secured Party, at the
sole cost and expense of the Grantors, at any time and from time to
time to file in any filing office in any jurisdiction any initial
financing statements and amendments thereto that (a) indicate the
Collateral (i) as all assets of the Grantors or words of similar
effect, regardless of whether any particular asset comprised in the
Collateral falls within the scope of Article 9 of the UCC of such
jurisdiction, or (ii) as being of an equal or lesser scope or with
greater detail, and (b) contain any other information required by
Part 5 of Article 9 of the UCC for the sufficiency or filing office
acceptance of any financing statement or amendment, including (i)
whether such Grantor is an organization, the type of organization
and any organization identification number issued to such Grantor,
and (ii) in the case of a financing statement filed as a fixture
filing, a sufficient description of real property to which the
Collateral relates. The Grantors agree to furnish any such
information to the Secured Party promptly upon request. The
Grantors also ratify their authorization for the Secured Party to
have filed in any jurisdiction any initial financing statements or
amendments thereto if filed prior to the date hereof. The Grantors
acknowledge that they are not authorized to file any financing
statement or amendment or termination statement with respect to any
financing statement without the prior written consent of the
Secured Party and agree that they will not do so without the prior
written consent of the Secured Party. The Grantors acknowledge and
agree that this Agreement constitutes an authenticated
record.

 

(b) Possession. The Grantors shall
have possession of the Collateral, except where expressly otherwise
provided in this Agreement or where the Secured Party chooses to
perfect its security interest by possession in addition to the
filing of a financing statement.

 

6.13 Notice
of Commercial Tort Claims. Attached as Schedule 6.13 is a list of all
Commercial Tort Claims of the Grantors (as such Schedule may be amended, modified or
supplemented from time to time). If any Grantor shall at any
time acquire a Commercial Tort Claim, such Grantor shall
immediately notify the Secured Party in a writing signed by such
Grantor which shall (a) provide brief details of said claim and (b)
grant to the Secured Party a security interest in said claim and in
the proceeds thereof, all upon the terms of this Agreement, in such
form and substance satisfactory to the Secured Party.

 

ARTICLE 7.

 

NEGATIVE COVENANTS

 

So long
as any of the Obligations shall remain outstanding, unless the
Secured Party shall otherwise consent in writing, each Grantor
covenants and agrees that it shall not:

 

7.1 Transfers; Liens and
Encumbrances.

 

(a) Sell, assign (by
operation of law or otherwise), lease, license, exchange or
otherwise transfer or dispose of any of the Collateral, except the
Grantors may (i) sell or dispose of Inventory or Real Estate or
assets related thereto in the ordinary course of business, and (ii)
sell or dispose of other assets the Grantors have determined, in
good faith, not to be useful in the conduct of its business, and
(iii) sell or dispose of accounts in the course of collection in
the ordinary course of business consistent with past
practice.

 

(b) Directly or
indirectly make, create, incur, assume or permit to exist any Lien
in, to or against any part of the Collateral, other than Permitted
Liens.

 

7.2 Restriction
on Redemption and Cash Dividends

 

Directly or
indirectly, redeem, repurchase or declare or pay any cash dividend
or distribution on its capital stock without the prior express
written consent of the Secured Party.

 

7.3 Incurrence of
Indebtedness.

 

Other
than with respect to the Secured Party, or any of their Affiliates,
directly or indirectly, incur or guarantee, assume or suffer to
exist any indebtedness, other than the indebtedness evidenced by
the Convertible Debentures and other Permitted
Indebtedness.

 

7.4 Places of
Business.

 

Change
its state of organization or its principal place of business
without the prior written consent of the Secured Party, as more
specifically set forth in Section 4.4
hereof.

 

ARTICLE 8.

 

MISCELLANEOUS

 

8.1 Notices.

 

All
notices or other communications required or permitted to be given
pursuant to this Agreement shall be in writing and shall be
considered as duly given as set out in the the January Purchase
Agreement or the November Purchase Agreement. Any party may change
its address by giving notice to the other party stating its new
address and e-mail address for communications. Commencing on the
tenth (10th) day
after the giving of such notice, such newly designated address
shall be such party’s address for the purpose of all notices
or other communications required or permitted to be given pursuant
to this Agreement. The address and e-mail address for
communications with respect to any Grantor whom is not a party to
the the January Purchase Agreement or the November Purchase
Agreement shall be the address and e-mail address set out on
Schedule
1.

 

8.2 Security Interest Absolute. All
rights of the Secured Party hereunder, the security interest in the
Collateral and all obligations of the Grantors hereunder shall be
absolute and unconditional irrespective of (a) any lack of validity
or enforceability of the Convertible Debentures, the Loan
Instruments, any agreement with respect to any of the Obligations
or any other agreement or instrument relating to any of the
foregoing, (b) any change in the time, manner or place of payment
of, or in any other term of, all or any of the Obligations, or any
other amendment or waiver of or any consent to any departure from
the Convertible Debentures, the Loan Instruments or any other
agreement or instrument, (c) any exchange, release or
non-perfection of any Lien on other collateral, or any release or
amendment or waiver of or consent under or departure from any
guarantee, securing or guaranteeing all or any of the Obligations,
or (d) the existence of any claim,
set-off or other right which any Grantor may have at any time
against any other Grantor or the Secured Party, whether in
connection herewith or any unrelated
transaction.

 

8.3 Severability.

 

If any
provision of this Agreement shall be held invalid or unenforceable,
such invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render invalid or
unenforceable any other severable provision of this Agreement, and
this Agreement shall be carried out as if any such invalid or
unenforceable provision were not contained herein.

 

8.4 Expenses.

 

In the
event of an Event of Default, the Grantors will pay to the Secured
Party the amount of any and all reasonable out-of-pocket expenses,
including the reasonable fees and expenses of its counsel, which
the Secured Party may incur in connection with: (i) the custody or
preservation of, or the sale, collection from, or other realization
upon, any of the Collateral; (ii) the exercise or enforcement of
any of the rights of the Secured Party hereunder or (iii) the
failure by a Grantor to perform or observe any of the provisions
hereof.

 

8.5 Waivers, Amendments,
Etc.

 

The
Secured Party’s delay or failure at any time or times
hereafter to require strict performance by a Grantor of any
undertakings, agreements or covenants shall not waive, affect, or
diminish any right of the Secured Party under this Agreement to
demand strict compliance and performance herewith. Any waiver by
the Secured Party of any Event of Default shall not waive or affect
any other Event of Default, whether such Event of Default is prior
or subsequent thereto and whether of the same or a different type.
None of the undertakings, agreements and covenants of a Grantor
contained in this Agreement, and no Event of Default, shall be
deemed to have been waived by the Secured Party, nor may this
Agreement be amended, changed or modified, unless such waiver,
amendment, change or modification is evidenced by an instrument in
writing specifying such waiver, amendment, change or modification
and signed by the Secured Party in the case of any such waiver, and
signed by the Secured Party and the Grantors in the case of any
such amendment, change or modification.

 

8.6 Continuing Security Interest.
This Agreement shall create a continuing security interest in the
Collateral and shall: (i) remain in full force and effect until the
satisfaction in full of the Obligations; (ii) be binding upon each
Grantor and its successors and assigns; and (iii) inure to the
benefit of the Secured Party and its successors and assigns. Upon
the indefeasible payment or satisfaction in full of the
Obligations, this Agreement and the security interest created
hereby shall terminate, and, in connection therewith, each Grantor
shall be entitled to the return, at its expense, of such of the
Collateral as shall not have been sold in accordance with this
Agreement or otherwise applied pursuant to the terms hereof and the
Secured Party shall deliver to the Grantors such documents as the
Grantors shall reasonably request to evidence such
termination.

 

8.7 Independent
Representation.

 

Each
party hereto acknowledges and agrees that it has received or has
had the opportunity to receive independent legal counsel of its own
choice and that it has been sufficiently apprised of its rights and
responsibilities with regard to the substance of this
Agreement.

 

8.8 Indemnification.                                            The
Grantors shall indemnify, defend, and hold the Secured Party, or
any agent, employee, officer, attorney, or representative of the
Secured Party, harmless of and from any claim arising in connection
with this Agreement brought or threatened against the Secured Party
or any such person so indemnified by: any Grantor, any other
obligor or endorser of the Obligations or any other person (as well
as from reasonable attorneys' fees and expenses in connection
therewith) on account of the Secured Party's relationship with the
Grantors, or any other obligor or endorser of the Obligations (each
of which may be defended, compromised, settled, or pursued by the
Secured Party with counsel of the Secured Party's selection, but at
the expense of the undersigned).

 

8.9 Applicable Law:
Jurisdiction.

 

This
Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York without regard to the principles
of conflict of laws. The parties further agree that any action
between them shall be heard in New York County, New York, and
expressly consent to the jurisdiction and venue in the state and
federal courts sitting in the City of New York for the adjudication
of any civil action asserted pursuant to this Paragraph,
provided,
however, that
nothing herein shall prevent the Secured Party from enforcing its
rights and remedies (including, without limitation, by filing a
civil action) with respect to the Collateral and/or the Grantors in
any other jurisdiction in which the Collateral and/or the Grantors
may be located.

 

8.10 Waiver
of Jury Trial.

 

AS A
FURTHER INDUCEMENT FOR THE SECURED PARTY TO MAKE FINANCIAL
ACCOMMODATIONS TO THE ISSUER OR ANY GRANTOR, EACH GRANTOR HEREBY
WAIVES, TO THE FULLEST PERMITTED BY APPLICABLE LAW, ANY RIGHT IT
MAY HAVE TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY
WAY TO THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO
THIS TRANSACTION.

 

8.11 Right
of Set Off.

 

The
Grantors hereby grant to the Secured Party, a lien, security
interest and right of setoff as security for all liabilities and
obligations to the Secured Party, whether now existing or hereafter
arising, upon and against all deposits, credits, collateral and
property, now or hereafter in the possession, custody, safekeeping
or control of the Secured Party or any of its affiliates, or any
entity under the control of the Secured Party, or in transit to any
of them. At any time, without demand or notice, the Secured Party
may set off the same or any part thereof and apply the same to any
liability or obligation of the Grantors even though unmatured and
regardless of the adequacy of any other collateral securing the
Obligations. ANY AND ALL RIGHTS TO REQUIRE THE SECURED PARTY TO
EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER
COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS
RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER
PROPERTY OF THE GRANTORS, ARE HEREBY KNOWINGLY, VOLUNTARILY AND
IRREVOCABLY WAIVED.

 

8.12 Liability
of Grantors. Notwithstanding any provision herein or in any
other Loan Instrument, the Grantors, and each of them, are and
shall be jointly and severally liable for any and all Obligations
(whether any such Obligation is specified as an obligation of the
Grantors or of any of them).

 

8.13 Counterparts;
Facsimile Signatures. This Agreement may be executed and
delivered by exchange of facsimile signatures of the Secured Party
and the Grantors, and those signatures need not be affixed to the
same copy. This Agreement may be executed in any number of
counterparts.

 

8.14 Entire
Agreement.

 

This
Agreement and the other documents or agreements delivered in
connection herewith contain the entire understanding among the
parties and supersede any prior agreement or understanding among
them with respect to the subject matter hereof.

 

[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

 

 

 

 

 

 

 

IN WITNESS WHEREOF, the parties hereto
have executed this Security Agreement as of the date first above
written.

 

GRANTORS:

 

CANTABIO
PHARMACEUTICALS INC.

 

By_______________________________

Name:

Title:

 

 

 

GARDEDAM
THERAPEUTICS INC.

 

By_______________________________

Name:

Title:

 

 

 

 

 

 

IN WITNESS WHEREOF, the parties hereto
have executed this Security Agreement as of the date first above
written.

 

	
 

	

SECURED PARTY:

 

YA II PN, LTD.

 

By:            Yorkville
Advisors Global, LP

Its:            Investment
Manager

 

      By:                       Yorkville
Advisors Global II, LLC

      Its:                       General
Partner

 

      By:                       _____________________________ 

      Name:

      Title:

 

 

 

 

 

 

	
 

	
 

 

 

 

 

EXHIBIT A

 

 

DEFINITION
OF COLLATERAL

 

 

For the
purpose of securing prompt and complete payment and performance by
the Grantors of all of the Obligations, each Grantor
unconditionally and irrevocably hereby grants to the Secured Party
a continuing security interest in and to, and lien upon, the
following “Collateral” of the
Grantors (all capitalized terms used herein and not defined in the
Agreement shall have the respective meanings ascribed thereto in
the UCC):

 

 

A.           All
Real Estate owned by any Grantor, wherever located and whether now
or hereinafter existing and whether now owned or hereafter
acquired.

 

 

B.           All
personal property of each Grantor, wherever located and whether now
or hereinafter existing and whether now owned or hereafter
acquired, of every kind and description, tangible or intangible,
including without limitation, all:

 

 

1.           Goods;

 

 

2.           Inventory,
including, without limitation, all goods, merchandise and other
personal property which are held for sale or lease, or are
furnished or to be furnished under any contract of service or are
raw materials, work-in-process, supplies or materials used or
consumed in any Grantor’s business, and all products thereof,
and all substitutions, replacements, additions or accessions
therefor and thereto; and any cash or non-cash Proceeds of all of
the foregoing;

 

 

3.           Equipment,
including, without limitation, all machinery, equipment, furniture,
parts, tools and dies, of every kind and description (including
automotive equipment and motor vehicles), now owned or hereafter
acquired by any Grantor, and used or acquired for use in the
business of any Grantor, together with all accessions thereto and
all substitutions and replacements thereof and parts therefor and
all cash or non-cash Proceeds of the foregoing;

 

 

4.           Fixtures,
including, without limitation, all goods which are so related to
particular real estate that an interest in them arises under real
estate law and all accessions thereto, replacements thereof and
substitutions therefor, including, but not limited to, plumbing,
heating and lighting apparatus, mantels, floor coverings,
furniture, furnishings, draperies, screens, storm windows and
doors, awnings, shrubbery, plants, boilers, tanks, machinery,
stoves, gas and electric ranges, wall cabinets, appliances,
furnaces, dynamos, motors, elevators and elevator machinery,
radiators, blinds and all laundry, refrigerating, gas, electric,
ventilating, air-refrigerating, air-conditioning, incinerating and
sprinkling and other fire prevention or extinguishing equipment of
whatsoever kind and nature and any replacements, accessions and
additions thereto, Proceeds thereof and substitutions
therefor;

 

 

5.           Instruments
(including promissory notes);

 

 

6.           Documents;

 

 

7.           Accounts,
including, without limitation, all Contract Rights and accounts
receivable, health-care-insurance receivables, and license fees;
any other obligations or indebtedness owed to any Grantor from
whatever source arising; all rights of any Grantor to receive any
payments in money or kind; all guarantees of Accounts and security
therefor; all cash or non-cash Proceeds of all of the foregoing;
all of the right, title and interest of any Grantor in and with
respect to the goods, services or other property which gave rise to
or which secure any of the accounts and insurance policies and
proceeds relating thereto, and all of the rights of any Grantor as
an unpaid seller of goods or services, including, without
limitation, the rights of stoppage in transit, replevin,
reclamation and resale and all of the foregoing, whether now
existing or hereafter created or acquired;

 

 

8.           Contracts
and Contract Rights, including, to the extent not included in the
definition of Accounts, all rights to payment or performance under
a contract not yet earned by performance and not evidenced by an
Instrument or Chattel Paper;

 

 

9.           Chattel
Paper (whether tangible or electronic);

 

 

10.           Deposit
Accounts (and in and to any deposits or other sums at any time
credited to each such Deposit Account);

 

 

11.           Money,
cash and cash equivalents;

 

 

12.           Letters
of Credit and Letter-of-Credit Rights (whether or not the Letter of
Credit is evidenced by a writing);

 

 

13.           Commercial
Tort Claims;

 

 

14.           Securities
Accounts, Security Entitlements, Securities, Financial Assets and
all other Investment Property, including, without limitation, all
ownership or membership interests in any subsidiaries or affiliates
(whether or not controlled by any Grantor);

 

 

15.           General
Intangibles, including, without limitation, all Payment Intangibles
and Intellectual Property, tax refunds and other claims of any
Grantor against any governmental authority, and all choses in
action, insurance proceeds, goodwill customer lists, formulae,
permits, research and literary rights, and franchises.

 

 

16.           Farm
Products;

 

 

17.           All
books and records and information (including all ledger sheets,
files, computer programs, tapes and related data processing
software) evidencing an interest in or relating to any of the
foregoing and/or to the operation of any Grantor’s business,
and all rights of access to such books and records, and
information, and all property in which such books and records, and
information are stored, recorded and maintained.

 

 

18.           To
the extent not already included above, all Supporting Obligations,
and any and all cash and non-cash Proceeds, products, accessions,
and/or replacements of any of the foregoing, including proceeds of
insurance covering any or all of the foregoing.

 

 

 

SCHEDULE 1

(Subsidiaries
and Affiliates)

 

 

Gardedam
Therapeutics, Inc, a Delaware corporation

1250
Oakmead Pkwy

Sunnyvale,
CA 94085

Attention:
Tom Sawyer

E-Mail:
corporate@cantabio.com

 

 

SCHEDULE 4

(Intellectual
Property)

 

 

	

Application No.

	

Title

	

Filing Date

	

Status

	
 

	
 

	
 

	
 

 

 

 

 

 

SCHEDULE 4.2

(Permitted
Liens)

 

 

 

 

 

 

SCHEDULE 4.3

(Addresses)

 

Cantabio
Pharmaceuticals Inc.

1250
Oakmead Pkwy

Sunnyvale,
CA 9408

 

 

Gardedam
Therapeutics, Inc, a Delaware corporation

1250
Oakmead Pkwy

Sunnyvale,
CA 9408

 

 

 

 

 

SCHEDULE 4.4

(Location,
State of Incorporation, Name)

 

Legal
Name:                                            

Cantabio
Pharmaceuticals Inc.

State of
Inc.                                            

Delaware

Organization
ID:                                            

99-0373067

 

Legal
Name:                                            

Gardedam
Therapeutics, Inc.

State of
Inc.                                            

Delaware

Organization
ID:                                            

27-3699049

 

 

 

 

SCHEDULE 5

(Real
Estate)

 

 

 

 

SCHEDULE 6.10

(Current
Subsidiaries)

 

 

Cantabio
Pharmaceuticals Inc. is a Delaware corporation.

 

The
following are Cantabio Pharmaceuticals Inc.’s wholly-owned
subsidiaries:

 

Cantabio
Pharmaceuticals Inc.

 

 

 

 

 

 

SCHEDULE 6.13

(Commercial
Tort Claims)

 

 

 

 

 

 

SCHEDULE 7.3

(Permitted
Indebtedness)

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00277-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00277-of-00352.parquet"}]]